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General Cable (NYSE:BGC)

Q1 2010 Earnings Call

May 07, 2010 8:30 am ET

Executives

Gregory Kenny - Chief Executive Officer, President and Director

Michael Dickerson - Vice President of Finance and Investor Relations

Brian Robinson - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

Gary Farber - CL King & Associates

Matthew McCall - BB&T Capital Markets

Stuart Bush - RBC Capital Markets Corporation

Richard Wesolowski - Sidoti & Company, LLC

Michael Coleman - Sterne Agee & Leach Inc.

Brent Thielman - D.A. Davidson & Co.

Anthony Kure - KeyBanc Capital Markets Inc.

Jeffrey Beach - Stifel, Nicolaus & Co., Inc.

Shawn Harrison - Longbow Research LLC

Brett Levy - Jefferies & Company

Operator

Good morning. My name is Amanda, and I will be your conference facilitator. I would like to welcome everyone to General Cable Corporation's First Quarter 2010 Earnings Conference Call. [Operator Instructions] Thank you, General Cable, you may begin your conference.

Michael Dickerson

Thank you, Amanda. Good morning, everyone, and welcome to General Cable's First Quarter 2010 Earnings Conference Call. I'm Mike Dickerson, Vice President of Finance and Investor Relations at General Cable. Joining me this morning are Greg Kenny, our President and Chief Executive Officer; Brian Robinson, our Chief Financial Officer; and Bob Siverd, our General Counsel.

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 generalcable.com.

I want to call your attention to our Safe Harbor provision for forward-looking statements that can be found at the end of our press release. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our current Form 10-K report and other periodic filings on file with the SEC provide further detail about the risk factors related to our business.

During this call, we may refer to adjusted operating income and adjusted EBITDA, which is defined as earnings before interest, taxes, depreciation, amortization, plant rationalizations and other items. These non-GAAP company defined measures are being provided because management believes they're useful in analyzing the operating performance and cash flow before the impact of various charges. A reconciliation of adjusted operating income and EBITDA to GAAP net income is available on the Investor Relations section of our website at generalcable.com.

The format for today's call will first be some discussion by Greg Kenny about the current business environment. Secondly, Brian Robinson will provide some financial details about the first quarter. And finally, Greg will provide some comments on the company's second quarter 2010 outlook and business trends, followed by a question-and-answer period.

We would like to remind everyone that effective January 1, 2010, the company changed this method of valuing all of its inventories that historically used the last-in/first-out method to the average cost method. The company applied this change in accounting principle, retrospectively, to all prior periods discussed here today.

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

Gregory Kenny

Thank you, Mike, and good morning. I'm pleased that after two very difficult years, there are reasons to be encouraged. I'm also pleased with the diversity of our earnings sources in the first quarter, as Spain and the U.S. utility continue to operate around breakeven. Broadly, despite a few positive signs, I would characterize business conditions as moving roughly sideways at very low demand levels and historical turns.

Earnings for the first quarter were ahead of our expectations. The earnings over delivery comes from a variety of sources. First, the impact of our change in accounting from LIFO to average cost was somewhat better than the expected $0.25 for the quarter we communicate to you in a press release on March 18. Secondly, we benefited from a favorable tax adjustment, as well as the full impact of additional cost reductions taken in 2008 and 2009. Lastly, we saw a slightly positive trend in our North American MRO, OEM and networking businesses, as well as in many rest-of-the-world countries and regions. Our Silec operation, based in France, continues to outperform the rest of the European region.

With our recent change in accounting for inventory from LIFO to average cost, the company is required to report all prior periods on the same basis. A couple of weeks ago, we posted to our website the restated historical operating earnings figures in segment detail, as well as earnings per share details.

The results of our work show that, what we've been saying for some time. The first half of 2009 benefited from movements in metal prices under LIFO relative to the average cost method. The second half of 2009 was worse under LIFO, relative to the average cost method. In a relatively stable metals market, the two methods would yield approximately the same operating results. The movement in copper and aluminum prices has been nothing short of extraordinary, particularly in the second half of 2008 and the first half of 2009.

As you know, because of the price volatility of copper and aluminum, our primary raw materials, we intended to discuss our business in terms of absolute volume, metal adjusted revenues in a sequential terms. And we will continue to do so.

Brian will take you through the details of the financials in a bit. I thought I would spend some time talking about how I currently see our business environment, as well as discuss some of the recently acquired businesses and expansion projects.

Despite sovereign debt concerns in Europe and efforts to cool the Chinese economy, as we described in our earnings release, there are signs of economic improvement occurring in many parts of the world, which have begun to impact demand for our products. We are seeing stabilizing to slightly positive trends in United States, Brazil, Southeast Asia, South Africa and Central America.

In the United States, there are improvements for stability occurring in many sectors of the economy, with the notable exception, perhaps, of non-residential construction. Demand levels, however, remain at historically very low levels, and we expect recovery, particularly in the developed world, to be slow relative to prior recessions.

Volumes in Brazil are picking up nicely in the second quarter after a weaker-than-expected first quarter due to a relatively slow start, resulting from the rescheduling of shipments for some major transmission projects to later in the year. In addition to the massive transmission projects that are in the pipeline, of which we have already booked over 150 million of orders to be delivered over the next two to three years, that has recently been billions of dollars of investments approved in additional power distribution and power generation projects, including hydroelectric. Even in Central America, infrastructure projects that were put on hold during the economic crisis are beginning to restart.

One region that has continued to struggle is Europe, particularly Spain. Based on the equity market reaction, the recent S&P downgrade of Spain appears to have been expected and probably reflects the reality in the Spanish economy that we have been describing for some time. Given these ongoing economic challenges, the company is taking additional actions, focused on Spain to lower production costs further through permanent reductions in manufacturing personnel. We expect to incur approximately $9 million of related charges in the second quarter, which we've included in our earnings outlook.

During the first quarter, we announced the acquisition of a Wire and Cable business in South Africa, which has expanded our profile as an important supplier of power cables in Sub-Saharan, Africa. In addition to this transaction, outside of South Africa, we hold a leading position in Sub-Saharan Africa from our operations in the OPEC nation of Angola, as well as our cable operations in Zambia. We're the number two producer of copper rod in Sub-Saharan Africa. And we own a majority interest in the largest cable distributor in South Africa called, National Cables. The company has made Sub-Saharan Africa expansion a priority over the last year. And we are quickly becoming a large and important competitor in the region. Today, the company generates over $300 million of revenues annually in the Sub-Saharan region.

The company also recently announced the acquisition of Beru SAS, a subsidiary of BorgWarner France. Beru is a premiere manufacturer of ignition wire harnesses sold into the European automotive OEM market as well as the aftermarket. This acquisition is another important step in the globalization of our Ignition Wire Harness business and supports the strategy to participate in the global market for these products.

Our Wire Harness business now has operations in the United States, Mexico and France. From these locations, the company is participating in a significant portion of the global automotive market for ignition wire harnesses. In its first year of operations, we expect Peru to report an excess of $20 million in revenues.

In India and Peru, we are on plan with regard to our Greenfield facilities. Equipment is beginning to be installed, and in some cases, we are beginning to run test samples and early production runs. We expect to be fully operational in both facilities later this year.

Finally, in Mexico, we continue to expand the capabilities of the Tetla Facility. We have won significant positions with distributors, contractors and utilities. While the current conditions in Mexico are weak, we expect this nation, of well over 100 million people, to be an important driver for our business over the next few years. We are currently completing product approvals and expanding manufacturing, including our first North American high voltage line capable of manufacturing up to 220 kV cables to serve both the Mexican and U.S. markets.

Our Mexico startup has grown nicely and is capable of manufacturing a full range of electrical, as well as selected Communications Cable products.

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

Brian Robinson

Thank you, Greg. Volume, as measured by metal pounds sold before the impact of acquired businesses, was down 17.2% compared to the first quarter of 2009 and down 9.1% compared to the fourth quarter of 2009. Volumes in the first quarter were below our expectations. And ROW volume sold were less than expected, principally due to a slower-than-expected start to the year in Venezuela as the country code of new currency exchange regulations, currency devaluation and a national shortage of electricity. Because of the electricity shortage resulting from low water levels of the country's domain hydropower facility, the government intervened in an effort to reduce power consumption, which affected manufacturers throughout the country. The government intervention included the unexpected declaration of a week-long national holiday at the end of the quarter.

Brazil also experienced a slow start due to the rescheduling of shipments for some major transmission projects to later in the year. We expect Brazil's major electricity transmission program will accelerate throughout 2010 and 2011. Excluding the impact of these two items, volumes in ROW were up 3.5% sequentially in the first quarter of 2010, compared to the fourth quarter of 2009.

In North America, volumes, as measured by metal pounds sold, were down 6.5% sequentially in the first quarter compared to the fourth quarter of 2009, due principally to continued declines in spending for cables by the electric utility companies. Looking at the early cycle products, specifically those for MRO, OEM and networking applications, these products were up sequentially 8.4% in the first quarter of 2010 compared to the fourth quarter of 2009, and were up year-over-year as well. We began seeing this emerging trend in late 2009 and are pleased to see this trend continue. Though in general, we remain cautious relative to the strength of the recovery.

During the first quarter, copper averaged $3.28 per pound compared to $1.47 in the first quarter of 2009, an increase of 123% and up 8% from the fourth quarter of 2009 average of $3.03. To the extent the company is able to pass metal increases into the market in a reasonable timeframe, the increase in copper and aluminum will benefit earnings under the average cost method of accounting for inventory, as we will run lower cost metals through our income statement, while at the same time attempting to recover the higher current metal prices in the market.

Operating income in the first quarter was $57.3 million or 5.2% of revenues compared to a negative $22.9 million in the first quarter of 2009. The prior year operating loss was in large part a result of the significant and rapid decline of copper prices, which were down 54% in the first quarter of 2009 compared to the third quarter of 2008. As this occurred, the company recognized higher priced inventory in its cost of sales under the average cost method, while at the same time, market pricing for many of its products was falling.

In the current quarter, the company has benefited from cost reduction efforts made throughout 2009, the benefit of average cost inventory accounting in a period of rising metal prices and improving year-over-year volumes in stabilizing pricing in North American MRO, OEM and networking products and certain emerging markets.

Early in 2010, the Venezuelan government announced the devaluation of its currency and establishment of two-tier foreign exchange structure. The official exchange rate for non-essential goods was adjusted from VEB 2.15 to each U.S. dollar to 4.3. Our products are classified as non-essential. The company recorded a one-time pretax charge in the first quarter of 2010 of $29.8 million related primarily to the remeasurement of the local balance sheet on the day of the devaluation. This charge is included in the other income and expense line of the income statement.

The company has requested preferential foreign exchange treatment for copper purchases necessary to the supply products to help fix Venezuela's energy shortage challenges. The potential range of outcomes related to this request is included in our outlook.

Excluding the impact of the Venezuelan Bolivar devaluation, for which there is no tax benefit, the company's effective tax rate for the first quarter was 25.4%, which included about $0.06 per share of favorable adjustments related to required changes in certain tax accruals. We expect a normalized effective tax rate for the year to be approximately 30% to 33%.

Net debt was $506.9 million at the end of the first quarter of 2010, an increase of $84 million from the end of the fourth quarter of 2009. The increase in net debt is a result of the impact of the reduction in equivalent U.S. dollars related to the devaluation of the Venezuelan Bolivar, investments in inventory, capital expenditures and cash paid for acquisitions made during the quarter.

The company continues to maintain adequate liquidity to fund operations, which could include increased working capital requirements as a result of higher metal costs, internal growth and continuing product and geographic expansion opportunities. At the end of the first quarter, the company had well over $1 billion of excess liquidity around the globe.

During the first quarter, the company used approximately $18 million of cash flow from operating activities, principally related to $114 million increase in the inventory. This increase is attributable to increasing metal prices on inventory balances, the restocking of raw materials from the end of 2009 when manufacturing operations were idle, or running at minimal shifts and normal seasonal patterns as the company prepares for double-digit sequential volume growth in the second quarter of 2010.

Reported net interest expense in the first quarter of 2010 was $17.9 million, which includes $4.7 million of non-cash convertible debt interest expense. Net interest expense for the first quarter of 2010, before the non-cash convertible debt interest expense charge, was $13.2 million, an increase of $2.9 million compared to the fourth quarter of 2010 on a same basis. This increase is due principally to the higher coupon rate of interest on the recently issued $429 million, 4.5% convertible notes exchanged for $464 million of 1% convertible notes.

Capital spending in the first quarter was $19.7 million, while depreciation and amortization was $26.3 million. Our ongoing capital programs are more narrowly focused on developing regions of the world, coupled with an ongoing global focus on lean initiatives and continuous improvement in the areas of safety, quality, material usage and conversion costs.

For 2010, excluding the impact of any potential acquisitions or joint ventures, we are anticipating capital expenditures of approximately $80 million, about 75% of expected annual depreciation and amortization.

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

Gregory Kenny

Thanks, Brian. As I mentioned earlier, there are positive trends in some of our markets. An expected double-digit seasonal volume increase in the second quarter is welcome and encouraging. We have a long way to go, however. While some of our businesses seem to be beginning to move off the bottom, there remains a tremendous amount of excess capacity in the industry at current demand levels, and overall pricing has not materially improved.

Unfortunately, parts of our business do not show signs of the global recovery underway. For us, this is particularly true for North American utility products and in Spain, where we are taking additional measures to permanently reduce costs in a 20% unemployment environment. Social, political and natural events have particularly challenged our teams in Venezuela, Thailand, Chile and Mexico.

Normal seasonal patterns appear to be returning. Historically, we've experienced the highest revenues and earnings during the summer month periods, usually the second quarter, with sequential declines in revenues and earnings in the third quarter and again in the fourth quarter. Cash flows are a little different with the company using cash in the first part of the year to build inventory and working capital through the peak construction season, the cash then being released from the balance sheet more materially in the second half of the year.

We expect that the recovery will not be linear. There are certainly going to be fits and starts along the way. Prices will continue to change each day. And commodity input costs will likely remain very volatile.

On balance, I do feel we're near the bottom in terms of real pricing and demand. Remember as well that the bulk of our business activities are late cyclical. I'm encouraged because we have a leaner, more globally diversified business than we had coming out of the last cycle. With several more high end product lines, such as submarine communications and power cable, extra high voltage energy cable and high end audio and broadcast products.

I'm encouraged as well because we've taken out millions of dollars of costs over the last 18 months. And we're getting synergies across the entire company, leveraging best practices and learning. I'm becoming somewhat more bullish on higher long-term commodity prices, which creates support for global investments in oil and gas exploration and production and money activities for precious and industrial metals, and the results in more financially sound economies and developing these results in more financially sound economies in developing regions, they can then invest locally for their own infrastructure needs.

We decided a long time ago that we would embrace this difficult and cyclical wiring cable industry. I firmly believe that over the last 10 years, we've built a very strong and well-positioned company that will fully benefit from the next global expansion.

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

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Stuart Bush from RBC Capital.

Stuart Bush - RBC Capital Markets Corporation

I wanted to ask you a little bit about this new power cable capacity in Mexico. Will the production of this new cable be a new offering for you in North America? And can you talk about how that will position you for the pending projects you see in the pipeline in Mexico and North America? And what the competitive environment is for that type of product?

Gregory Kenny

Stuart, we have had a view that the U.S. and Canada will increasingly bury high voltage cables because of the congestion and the difficulty in siting overhead transmission. We have served that market, which is really 69 kV and above, from our French operations, Silec, which we acquired in late 2005. Prior to that, we weren't able to serve it at all, because we didn't have any capacity globally. Silec has been a participant for a long time here. What we've seen, Stuart, with the big CV [continuous vulcanization} as opposed to the tower of our shaft for the very high voltage products, like all our businesses is price competitive. And we felt that using this big CV, building it in Mexico, we would be able to use that production, again up to 220 kV. Anything above that will come from France or possibly Thailand. But we would serve the North American, as well as the regional markets from Mexico, again filling in that product family from 69 to 220, where we formally served it from France. But with the euro/dollar ratio historically, that's been difficult. And we think Mexico will be a low cost producer of that product. So we're encouraged. And it's, again, a major line that's just being completed as we speak.

Stuart Bush - RBC Capital Markets Corporation

And that will be higher margin product, right?

Gregory Kenny

Well, Stuart, again, it's always supply and demand. But yes, it's difficult product to make. And we have an installation team here in the United States, as well as we're actually providing utilities with the ongoing maintenance as they needed. As you know, they've been downsizing their labor forces at the and not all of them even have the ability to manage the higher voltage and extra high voltage ranges. So yes, it should be higher margin. And we're selling it as part of our service bundle as well. Again, we'll complement at the very highest end, above 220, which can take you all the way up to 500kV buried from either Thailand or France.

Stuart Bush - RBC Capital Markets Corporation

With this change in accounting, I would suspect that this gives you a lot more visibility into your forward quarter guidance. And am I right to assume that your Q2 guidance this quarter is perhaps, less, sort of, more visible less conservative than previous quarters where you were at the mercy of the slings of LIFO? And to that point, obviously, we've seen copper moved quickly here in the last week. I know your COGS are based on average cost of inventory built in Q1? So can you give us an idea what price of copper you're assuming in your guidance that will be passed through in price for Q2?

Gregory Kenny

We're currently at 3 11 today, and it's been quite volatile. So we do turn our inventory 4x or 5x, so can see what's in this -- in our current costs, what we've seen in the last days is copper's fallen $0.30 or $0.35 a pound. So there's a range of impacts on our business, including metals. But we are looking forward -- metals, we're looking at it roughly today as levels with the balance of the quarter. But you're right. We do have benefit of actually seeing what's in our inventory. But as we've always said, the market, we will try to hold price or raise price quickly. But if copper drops $0.15 today, there will be a market reaction. So we'll be putting through higher cost metals on average in a lower cost market. But we do have, at least, the sense of what's in the inventory. But the volatility, Stuart, is extreme right now over the last days and even looking at the last quarter, where April averaged 3 51, and it was 3 11 in February. It was the average comeback. So I've never quite seen volatility like this. And it will have an impact. But we modeled everything from that FX to different volume of price. And we've also taken into consideration the uncertainty in Thailand and Venezuela. So it's still challenging, but look at copper in the 3 10 to 3 15 level in our thinking going forward.

Stuart Bush - RBC Capital Markets Corporation

And just one last question to clarify on the FX side. For the most part, you produced and sel cell in the local currency of your market. So the main impact would be translation of operating income back to the parent, right?

Brian Robinson

Stuart, it's Brian. Yes and no. I think there is a significant... --

Gregory Kenny

And you have to remember that the metals are, in general, traded in dollars around the world. And so in many of the emerging market, the dollar is still very influential despite the local currency. But I think you're focused on -- the big thing as the translation impact. And with generally lower earnings right now in Europe, you're seeing less of that impact to us when we report our results. But on a day-to-day trading basis, it's really part of our mentality to manage the dollar relationship.

Operator

Your next question comes from Michael Coleman from Sterne Agee.

Michael Coleman - Sterne Agee & Leach Inc.

You mentioned that your volumes in the quarter were below your expectations, but you came in roughly $0.15 above the bid point of your guidance. Could you maybe provide some, a little more clarity or understanding around how much of it was perhaps from better-than-expected benefit from the accounting change? How much was it from the, maybe, I think you mentioned the tax adjustment? If you could just, maybe give a little bit more on where the upside in the quarter came from?

Brian Robinson

Michael, it's Brian here. I would say, really the underlying business in the quarter performed as, about as what we expected. We would say that we -- on the adjustment to average cost versus the original LIFO guidance, which we gave was probably slightly better than we had anticipated. And we have that tax benefit which was, we estimate, it was about $0.06. And it's one of the things that's hard to see, coming in and hard to forecast. And I think those are the two big paperweights from the perspective of the over delivery. I think the key point for us is the business which it was -- it's always hard a bit to big takeaways from the perspective of the over delivery. I think the key point for us is the businesses by regions fundamentally operated about as we expected.

Michael Coleman - Sterne Agee & Leach Inc.

On the last conference call, I think there was -- you mentioned a number of times, the pricing issue. How has that changed? Or what's that situation relative to, say, February?

Gregory Kenny

I believe -- we're competing in a hundred markets, and we have many, many product lines in each market. So we don't actually keep a pricing net added value grid in the sense that we're maybe talking about. But I think we're at cash cost in many markets of the least efficient producer. Generally, that we think that's causing stress for people who aren't on a tenure lean journey as we've been. It's not getting materially worse because I think we are close to the walk-away point for some of these folks, meaning they're indifferent to taking the business. And I think we have seen a bit of pricing improvement in the MRO, in the U.S., as well as the data com, or at least, stability. So I'm so seeing stabilization. But again, we have some markets, such as transmission cable in the U.S., where it's sadly being bid just over cash costs or variable cost. So it's -- eventually, the stuff gets corrected, either capacity comes out and higher cost competitors begin to lose interest. But we are seeing, I would see broadly stability at very low levels with any given day at any hour. We'll see something that surprises us and says how could they do that, why would they do that. But that's the nature of the business.

Michael Coleman - Sterne Agee & Leach Inc.

You mentioned in your press release that you're looking at low single-digit volume growth on a consolidated basis on a year-over-year. I think that implies roughly, low 20s sequentially. Your volumes kind of dropped more in the first quarter. And it looks like you're coming back pretty strong in the second quarter. What's your sense or feel for how much of that is seasonal versus cyclical coming off the bottom?

Gregory Kenny

I think it's a bit of both. Clearly, there's some seasonality that we are seeing. But I would say the rest of the world is starting to push up a bit, and I'm encouraged by that. There's some stability and push up in the U.S. Europe remains difficult. But I would say it's mostly seasonal, but it may have stopped getting worse.

Operator

Your next question comes from Shawn Harrison from Longbow Research.

Shawn Harrison - Longbow Research LLC

First question has to deal with just the change of profitability in Europe and Northern Africa quarter-to-quarter. I guess the same within North America as well. North American profitability improved substantially. European profitability looks like declined substantially using the adjusted numbers. If you could just speak of maybe what happened within the regions, whether it was volume declines or change in mix, better pricing? And then, as a quick follow-up, the $9 million cost reduction, are the charge within Spain? I guess what is the payback and when is the payback period?

Gregory Kenny

We've said in prior calls that Europe was getting worse. And I would say that we have seen, again from last call, we saw a push out of some of the undersea projects, which again, we feel these are coming in and we're encouraged on the undersea. But we didn't have enough work in part because these major projects require large capital commitments. And we saw again, as we referenced previously a push out of those projects. So our Undersea business was weak. Spain got worse. And again, at very low levels, Portugal also was pushed off. Our North Africa business was weak. France and some of the export markets from Europe hung in there. And we continue to accelerate early retirements and other things in Europe. I do think Europe may be finding bottom again, the headlines of each hour relative to Greece and the other countries cause a lot of issues. But thinking broadly, I think Spain is bottoming in terms of demand. And I think NSW, we were seeing some projects now come in. So I am slightly more encouraged about Europe's prospects. But we do have large agreement that we undertook with foreign trade unions in Spain that was comprehensive and expenses as it is in Europe. And that will be a one-year payback or a bit less. But we're talking about several hundred people in a permanent demanning of a shift. And again, all structural change in Europe is complex and takes lots of discussion.

Brian Robinson

I think, sequentially, to the other thing to think about Europe or that we should mention is, in the fourth quarter, we were really -- the running of our facilities, particularly in the Western world, it was very low. And in North America, even pronounced. As I think we've said before, we particularly the energy side, the utility side, we had very little -- ran very little production in the fourth quarter of 2009.

Shawn Harrison - Longbow Research LLC

And those furloughs and, kind of, time off that stopped here in, kind of, the April-May timeframe? Are you still handling that?

Gregory Kenny

Well, we've been -- just as context, we have taken out, for the last six quarters, we've lost a 20% demand or more over time. So we've taken out direct labor. We've taken all kinds of indirect expenses out where we could, and as well as every kind of controllable expense. And that's been going on for quarters. And as we said in earlier conference calls, we spent tens of millions of dollars doing it. In the second quarter, we actually did a, sort of, a single event in Spain, where we had to negotiate with these unions, file with the government. And it's a discrete and expensive event in one place. And again, the charge should be in the, primarily in the second quarter. And we should see the benefits starting as early as the third quarter as we no longer have those costs. And we think we can cover the productions through other means. But there's a couple hundred people in a well-defined program.

Shawn Harrison - Longbow Research LLC

In the North American market, though, I know there were -- just getting back to that, there were some furlough activity during the December quarter and into the early part of 2010. But it sounds like just from the commentary that, that has stopped.

Gregory Kenny

We're still running -- I mean, we were furloughing in a sense that we were not running facilities, extended the Christmas vacations. We had, I think, two facilities on a three-month suspension of production. And we are now -- we will bring those, at least, one of those facilities back and maybe both. We are broadly running again, I think discussed in the last conference call, we've got probably 1.5 billion to 2 billion of capacity available in our global network. So what we've got is really continued using lean to shrink these, the indirect and the salaried as well as the work cells but have kept our fire power. So we have got tremendous capability as the world comes back to serve those markets. And I'm real proud of our manufacturing teams who flexed down -- this is hard stuff, without giving up the future. We did take one small facility down sadly at Moose Jaw and that equipment, happily, is going to be working in the developing world very, very soon.

Shawn Harrison - Longbow Research LLC

If you could maybe discuss by region, how much of your volume or your sales do you think is more early cycle versus later cycle?

Gregory Kenny

I would say early cycle. It's hard to tell because half of our business goes through distribution. But broadly, in the U.S., we would describe our -- none of it's really early other than probably our Industrial Harness business and some of our MRO business, which is only measured in a couple of $100 million in the U.S. and probably a similar amount in Europe. And then you get to Datacom, which is earlier than some of the bigger -- it is infrastructure, but it seems to be an area where it spent quickly because of competitive advantage. And we do a couple, $100 million worldwide in Datacom. Everything else is broadly later cycle stuff. So maybe $500 million worldwide we get to look at. Again, in the developing world, we don't make quite as many of the specialized cables that are early cycle, that we're increasing our activities in there. And it's mostly later cycle though. It was -- again, as we've mentioned earlier, a lot of those markets in the developing world were much less impacted by the credit crisis. There were impacted, but they didn't quite have the bubbles that some of the other places did.

Operator

Your next question comes from Anthony Kure from KeyBanc.

Anthony Kure - KeyBanc Capital Markets Inc.

The one-time charge for the bolivar devaluation, was that entirely -- the $0.56, was that entirely the balance sheet right down? Or was there also an operating profit hit during the quarter?

Brian Robinson

The $0.56, Tony, is all the devaluation. There is an element in the P&L for the first quarter, which is transactional losses in the first quarter. I think when you look at the other expense line on the P&L of $36.5 million. So there's the $0.56, which is about $29 million, $28 million charge, I believe, on the balance sheet, change in about, you call it $6 million or $7 million of transactional currency in the first quarter.

Anthony Kure - KeyBanc Capital Markets Inc.

And then going forward, I mean, just given the fact that Venezuela had a slow start, is it fair to assume that, that impact increases into the second quarter? Or not into the second quarter because your guidance is pretty much in line? But moving forward to the second half, as Venezuela ramps, could this hit get bigger?

Brian Robinson

Let me just finish one part on the previous question, Tony. The thing to think about as well is we really think about Venezuela on a pretax basis. So the rules are complex there, and they change every day. I think as we move into -- the happy news for us is on a pre-tax basis, the contribution with Venezuela in the first quarter was really back to, sort of, what we saw -- what we think of as historical norms over time. And as we move forward into the second quarter, and this is what you saw us referenced partly in the Venezuela currency situation impacting how we're thinking about our guidance. So I think assuming -- as I've said, we've applied for preferential treatment to buy the metals. And should that happen on a pretax basis, the contribution from Venezuela will be better but still within historical norms.

Anthony Kure - KeyBanc Capital Markets Inc.

And then maybe just a little color on the communications product. In the press release, it says it was down 34% sequentially on a dollars basis, with improving trends though. I guess, is that -- why would it be down so much sequentially with improving trends? Just trying to bridge that thought process there.

Gregory Kenny

Don't forget we have two businesses within communications. We have networking and telephone cable, if you will, sort of utilities. Telephone cable has been generally running down in terms of unit demand from its 2001 peak, and we maybe getting funding maintenance levels or maybe getting close to the bottom. There's two manufacturers, primarily manufacturers remaining in that business, has been contributing to the company from a profit standpoint. But those volumes, it's heavy cable with lots of copper have been running down to perhaps a bottoming. The data communications is much wider in terms of the metal components, maybe 20% of the cost or 30%. And we have done a whole variety of new introductions of products and have really seen our market position increased very nicely, much in line with some of the comments that our channel partner, Anixter, and you can also read about that business looking at Belden or Comsco. So we feel very good about that business, which is also in part a global business. We do some of that in France and Portugal as well, but that one seems to be improving as we gain position. The telephone cable business is, historically the strongest season, is the second quarter because it's used outdoors, and that's the peak construction season.

Anthony Kure - KeyBanc Capital Markets Inc.

And just one final question, could you just remind us overall what your split is between transmission cables and distribution maybe historically? Where that trend has been, and what are the recent trends across those two specific cable products here into the first quarter and to the second quarter guidance?

Gregory Kenny

The transmission, just again for the listeners, is in the U.S. and parts of the rest of the world and Europe is their product that is high voltage in the transmission towers. There's also other transmission area that say 132kV or 69kV and above that's buried, which is a growing market. But broadly, within Europe, we're seeing tremendous amount of projects by the European Union for buried transmission cables for the 2011, '12 through, say, '14 period. And that's a big part of the European market and many markets in the world. In the U.S., I think to Stuart's question earlier, we're seeing the underground beginning to become more important because of that difficulty in siding the overhead. But it's primarily an overhead market, say, in the U.S. and Canada. The transmission business is strengthening heavily in Europe. Primarily, underground is strengthening in the Brazil area. In the U.S., I think we'll see the underground improve. The area is still not strong, and it's been off a lot. It's about 1/3 -- historically, about 1/3 of our dollar value, with distribution being 2/3 in the U.S. And probably that's not a bad ratio to think about the overall markets around the world. But it depends a lot on what's happening in those transmission projects or usually projects, and those projects can get pushed around. But right now, the U.S. transmission market is weak. But again, it's project driven. In aerial transmission market.

Operator

Your next question comes from Rich Wesolowski from Sidoti & Company.

Richard Wesolowski - Sidoti & Company, LLC

Could you discuss the share of your total business that's formulaically priced today versus where that ratio was, say, in 2008 and maybe suggest whether any change is cyclical or structural?

Gregory Kenny

Rich, we haven't looked with that trend from '08 to '10. My sense is that it's about the same, which is somewhere it depends. But formulaic it could be 40% to 50% of the business. We'd have a formula that could go all the way from simply a metals adjustment to transportation, steel and petrochemicals.

Richard Wesolowski - Sidoti & Company, LLC

So within that, the range hasn't changed? It's changed within the range?

Gregory Kenny

It could be down slightly because U.S. utility, which is probably 70% formulaic, is down very materially. Again, from the last call, we talked about the Utility business being at levels never seen since we've been tracking the data off 40% to 50% from the average in the last eight years. So I guess to the extent that U.S. is down and it's over weighted to formulaic, the company's probably down slightly but it's still probably 40% anyway.

Richard Wesolowski - Sidoti & Company, LLC

You mentioned your available capacity a couple of questions ago, and your volume by my math is down high teens from the peak, which is evidently enough to bring your utilization down to 60% or whatever it is now that's the rate that was quoted in prior quarters. But it begs the question whether there was ever a period, even when your business was very good in 2008, that you were running at a maximum utilization. And what percentage would you say a maximum sustainable rate of utilization is for General Cable?

Gregory Kenny

The numbers -- don't forget we had the big Phelps Dodge acquisition in late '07. The metals pound peak, depending on the market, was probably 2006, maybe 2007. And this is probably over generalizing, but we're down probably more than high in many markets, down more than that from the '06, '07 peak on an apples-to-apples basis. We have been close to demonstrating capacity a few years ago in the U.S. Utility business, say, in the '07, '08 timeframe, which we were running probably at our proven capacity. We always think we can get free entitlement capacity with faster change overs, et cetera. But again, as demonstrated, we were running very close to demonstrated and in some cases, for some product lines, have demonstrated in the U.S. utility couple of years ago. Spain was probably at that level as well. And Thailand was operating and has been operating in those kinds of ranges over time. And then you start getting into times of year and products. But we rarely are running seven days a week, which we can in some facilities continuously. But I would say in the '06, we had more facilities that went to no shutdown and maintenance schedules that will have continuous production. Now we are generally running at five days, and we may not be running all our equipment. We're highly cellularized. So we have a tendency to flex down the work cells around certain pieces of equipment, and we're running broadly five days continuously on the equipment we choose to run.

Richard Wesolowski - Sidoti & Company, LLC

And when you say you have $1.5 billion to $2 billion of capacity in the global network, you're speaking of dollars?

Gregory Kenny

Yes, if this isn't science, I'm trying to give you all scaling. A lot of it depends on what we're making and things we've done [ph]. It's dollars at today's metals price. I'm just trying to get an order of magnitude because if we can run a unit in today's pricing, you can absorb fix if you're running these things and you're getting a return on your capital employed and your networking capital. And then if you ever get actual pricing power, you're getting two levers going. So I think we've been careful stewards to react appropriately to this crisis in demand but not give away the future.

Operator

Your next question comes from Matt McCall from BB&T Capital Markets.

Matthew McCall - BB&T Capital Markets

So I'm just trying to clarify a few things, and it's really around the Q2 guidance and understanding what's in there. Brian, you talked about the preferential treatment that you applied for in Venezuela. It sounds like there's some improvement in Brazil that goes beyond seasonality. And one of the previous questions was around that, that implied sequential increase. By my calculation, it seems much stronger than normal seasonality. And then I think, Greg, you talked about that pricing and demand were near the bottom. I'm just trying to understand what's in that. I think the question was it was mostly seasonality, but it seems to me like there's got to be some other factors going on. If it's improvement, if it's shift, the delays in Brazil moving through. Can we just revisit that one more time and just clarify that for me?

Gregory Kenny

Well, Matt, I think you're right in the sense that we had major projects booked in Brazil, which are heavy metal pounds. And those schedules got, as they often do in major projects, got pushed out, and we think we'll begin to deliver in a stronger way in Brazil. I also talked, in the prior question, about some push out of the NSW projects, which we will see more activity there in the second quarter. I would say the first quarter was a little light in volume from our expectations, in part because these projects pushed out. What we're trying to do is factor in our guidance, again, the Venezuelan currency situation is evolving and I'll let Brian talk about that.

Brian Robinson

Matt, and maybe to go back to the discussion we were having before and just to be very clear, the one-time charge was just the devaluation. So this management of the situation in Venezuela, including the currency is, is very fluid. And so when you -- and fundamentally underground, our team is dealing with sort of three rates. You've got, at a parallel rate, say, close to seven to eight. You've got the new rate at 4.3 and you've got this essential rate. So from an internal perspective, it's obviously a little bit hard -- it's pretty wide range with potential outcomes. And I think maybe the other point around the sequential movement, as Greg mentioned, spoke specifically to Brazil, but you're seeing that nice improvement almost by unit around the world, so broad-based strength. And it's a little hard to parse how much is, to the nth degree, how much is seasonal versus something that's fundamentally changed.

Gregory Kenny

Venezuela was very slow on sales in the first quarter because the country was -- and they make a lot of heavy products, so these units move around. We think Venezuela -- again, sometimes we get news early and sometimes it could take a long time. But we think Venezuela will restart a bit in the second quarter because the country was almost in paralysis over, as we said, the Guri dam problem, not knowing how all the new exchange rates work. And we saw weak demand there and in Brazil, as I said, in NSW, and Spain continues to be weak. But I think we'll start to get those project businesses going a bit in the second quarter and then we have the seasonality.

Matthew McCall - BB&T Capital Markets

We've talked a lot of oil, let me hit the resin side. So crude oil, the prices are down. Is there an opportunity here to -- are seeing your cost on the resin side move lower? And is there any opportunity for margin front. We pick copper and metals a lot, but anything on the resin side?

Gregory Kenny

Well, the resin guys have been -- they think they're not paid correctly for the work they do. So they've been trying to force prices up. And as you know, we are actually, in a number of parts of the world, we actually do our own specialty compounds, which I think is helpful. But oil, unlike copper, has traded fairly tightly in the $80 to $85 region, and usually you don't see resin prices move materially when it's trading that type. You also have to look at gas and ethylene and other items. But we're always trying to leverage our global know-how and our purchasing footprint, and we're getting to see pricing from around the world on all of these things, and that's really the power of our business model. So it's always a wrestling and it's always -- again, the resin guys will bring all the specialty compounds and it's not as always as simple as what's your price because some of this material does do work differently than other materials. But I wouldn't include in your thinking resin moving one way or the other because again, oil is stable. These are changes. Those contracts can be annual with adjusters. They can be quarterly, but resin pricing doesn't change in our business everyday.

Matthew McCall - BB&T Capital Markets

And then a final one, you did a good job in the SG&A side. You talked about some of the cost savings going through. Is the $80 million level caused a little bit of variability? Is that a good base from which to build here? And how do we look at the variability of that line item?

Brian Robinson

Matt, I think you understand it very well, that's right. It's about -- I'd say $80 million is a good baseline, plus or minus $2 million. But obviously, the year-over-year decrease, we're very pleased with it and it's a testament to the actions we've taken on the last couple of years.

Gregory Kenny

Some of that, as you know, is fixed or somewhat fixed, and some of it varies by revenues because you can see some of the commissions show up in there. But we've got a great group of people and everyday, we're trying to figure out how to do -- make sure we don't do any non-value-added work and do more with less, so it's relentless.

Operator

Your next question comes from Brent Thielman from D.A. Davidson & Co.

Brent Thielman - D.A. Davidson & Co.

I guess Greg, obviously, you've taken some pretty difficult measures to reduce your cost bases in Spain and I guess, just beyond the recent announcements. And I appreciate your comments that you think things might be bottoming there in Spain. But just given the economic climate there, it seems like normalcy is a ways away. And I guess my question is what's your rationale at this point for maintaining the presence that you currently have there?

Gregory Kenny

Well, we thought about that a lot. Spain is -- it makes a lot of specialty cables, and we have a footprint that is really quite expensive, export footprint from Spain. And I'm doing this on top of my head, but probably 1/3 of their output is going other places. They are, in our system, leaders and probably world leaders in the formulation of cables from zero-halogen to highly flexible cables. So when you think about Spain, you have to think about it really in a Middle Eastern and European context for many of their products. We do have four facilities in Spain. They all have very specific types of work they do, and I'd rather flex them down as well as exercise our marketing and sales muscle regionally. But it's really part of our footprint, and there's a fair amount of trade that goes back and forth throughout the region. So we talked about that Spain which was a very good market for us, and what we're doing is de-manning. But we don't think it makes economic sense for the company nor our shareholders to take a facility down because we actually need them. We just need less of it particularly in the construction cables and some of the utility cables. But we are selling a lot outside in Spain, price in enormous roll. So we don't think -- I'd never say never, but we don't think an envelope should come down. We are exporting from Spain know-how throughout the system, and some of their best engineers and manufacturing people are helping elsewhere in the world, building new facilities or improving facilities. So their work can become different really as a carrier best practices and accelerate for our other businesses.

Operator

Your next question comes from Gary Farber from CL King.

Gary Farber - CL King & Associates

Can you just -- in regards to the pricing environment, would you say it's at a bottom? Or can you see any scenario where overall it gets worse from here?

Gregory Kenny

Again, in a hundred countries, it always and with lots of products, I think it could pass -- supposed it could get worse, I think the pain is quite high for people, and I think it's trying to find the bottom. But I would say that it is -- there is downside always that we have to think about, which is why we continue to have disclosure, continuous improvement because we need to be the low cost producer or otherwise we don't have any control of our destiny. But sure there's tremendous amount of capacity in the Middle East that's come on. Hungry manufacturers, they begin to eat working capital, so you got to have a balance sheet. And one of our stress, I mean, is if you look at the company over time, our trailing 12-month EBITDA was up $359 million on adjusted basis and our net debt is $506 million. So that's pretty good coverage. If you look the company back in 2002, we had EBITDA of $80 million and net debt of more than 2009, so our balance sheet is strong. If you don't have that kind of balance sheet, at some point, you just don't want to -- you either can't borrow the money or you don't want to put your capital work with no return. But we've seen and, again, I referenced it in my last call, tremendous price competition in somewhat markets. The Korean manufacturers have taken a -- it looks like it's a point of policy to grow their country out of the recession by trying to book everywhere they can in the world in high voltage and other things. So the competition is sharp. I don't know how much more downside there is. There's always some.

Gary Farber - CL King & Associates

And then just in the cost of goods sold line item, what percentage of that is sort of overhead and labor?

Gregory Kenny

It changes, but direct labor is 4%, kind of indirect might be 3% or 4%. Overhead, it might be 7% or 8%. Probably universal average is going to change by every, I forgot what we do, 20,000 SKUs. So everything could be a little different [ph].

Gary Farber - CL King & Associates

And what would you say the percentage change on the decline is this year versus last year?

Gregory Kenny

In our overhead?

Gary Farber - CL King & Associates

Yes, and in that cost of goods sold line item.

Brian Robinson

Within the cost of goods sold [ph] (1:17:20)...

Gregory Kenny

We've taken out direct labor. We continue at the plant level, because you're talking about cost of goods sold prior to SG&A. So other than taking one facility down, we have taken probably several hundred people out of the indirect and salaried level at the plants worldwide, which get into an overhead number you're talking about. And then we've taken probably well more than a thousand direct labor out, and part of the lean culture is can you have one direct person then four machines, not two, and can you change overtimes to be zero, not 10 minutes. But it's probably tens of millions, but I don't want to come out and break down what we've done last year because we really -- you can see it partially in the SG&A line but also, yes, there has been reduction to the plant level as well.

Gary Farber - CL King & Associates

And then just lastly, in the utility piece, how do you see that recovering? What kind of recovery do you see from that?

Gregory Kenny

I feel better about most markets outside of the U.S. They have been stronger, and the policy activity seem to be more on point. There's several bills still kicking around Congress. I don't know whether energy will go ahead or behind the immigration. These bills are now a year old. Utilities are not getting rate relief in the U.S. generally, and they are not getting the ability to put more capital in, in part because the grid has been unloaded. We are seeing the grid get back to stop being unloaded, and I think they'll continue to tackle that. But we have seen U.S. utilities continue to let manpower go and not undertake projects, which they did, which is not the behavior they had in the 2001 to 2003. So these levels are so low. They're sort of living on their networks. I think the U.S. is a slower recovery, and I know we have some people who serve the utilities, talking about improved second half 2010. I'd love to see it. When you talk about utility, you also get into wind and alternative energy, including solar where we have product offerings, which sort of have their own characteristics. But I think the U.S. is lackluster but probably starts to improve.

Gary Farber - CL King & Associates

And is this still a function of end market -- usage from consumers and businesses and things like that that's going to drive that?

Gregory Kenny

Sure, in housing and non-resin construction if, you don't have that, you don't need to hook them up to the grid. As the recession passes, utility commissions maybe being more sympathetic to doing needed capital spending and letting it show up in the tariff schedules. But a lot of utilities I think didn't even go to the commissions because the commissions are thinking about their consumers who have been under enormous amount of pain. So I think that yes, construction, an improving overall climate and putting usage of grid, maybe an energy bill somewhere along the line, were all contributors to probably a better future, but we're not planning on a massive snap back.

Operator

Your next question comes from Jeff Beach from Stifel, Nicolaus.

Jeffrey Beach - Stifel, Nicolaus & Co., Inc.

The rest of the world, can you talk about your residential and non-residential activity there and kind of bring us through from 2000, say early- to mid-'08 levels through where we are now in residential and non-residential markets in South America, Africa, Asia? And then, we've heard a lot about Electric Utility in South America. Can you talk about what's happening with Electric Utility in Asia and Africa as well?

Gregory Kenny

Jeff, I don't have -- as you know, we use EUROCONSTRUCT for the European region, and we use FW Dodge in other things we're looking at the U.S. In the rest of the world, we're selling in 40 or 50 countries. I don't have that data, and some of it's not very good. But we've talked about in the past that the construction boom really look quite different in those places, meaning there was much less of a boom other than Macau, and probably Central America was influenced by the U.S. So we didn't have the peakiness as we did in Spain, in the U.S., United Kingdom. But I don't have that data, so I can't reference on a comprehensive basis, the resi [residential] and non-resi [non-residential], which obviously is, I don't know, 30 or 40, 50 countries just in the Americas alone. But broadly, it seems to be -- it weakened like the rest of the world, but seems to have in a little bit stickier because it didn't have the bubble effect. And we talked in prior calls about Colombia, as an example, now even having a mortgage market and houses being built as cash was acquired one room at a time. So the characteristics are different. But yes, everything is down, Jeff, but it's been more resilient. We trade from power cable to the utilities out of our big Thai facility and servers for the Gulf all the way to the New Zealand, Australia region, and there's intense competition. We have a great cost position, and we're benefiting by the Silec technology, coupled with our Thai cost structure. And we are seeing that facility be well booked despite intense competition going forward. So there's demand out there, but there is a lot of new capacity, and that's been a very productive unit for us. But our exposure to China is limited as you know, and that has remained strong. But Asia has been quite good and it seems that we're seeing some recovery in the Latin American region. Sub-Saharan Africa, again, you get really into -- 70% of that demand is from the South African utility. And it seems to be okay, but it's down. But they, as you know, have lots of work that they need to do around reliability here. And there's, obviously, theft of cable, theft of power that they all have to deal with as well there, which is sort of a constant problem. But we're seeing demand better everywhere else in the world for power cables in the U.S. because it's easily the worst market, probably followed by Spain.

Jeffrey Beach - Stifel, Nicolaus & Co., Inc.

And just the other question I have is probably a lot of your idling in late 2009 of your Electric Utility, and North America was in an inventory situation. Can you talk about is the inventory situation in North America rightsized for you right now? And can you give us an idea if it is, when it reached the point where you thought it was rightsized?

Gregory Kenny

I feel good about our inventory profile. We're continuing to call through that, and we're looking at that continually. I always want to do more with less, and that gets back to what you know and how you know it and your ability to forecast demand jointly with your customers. But I don't -- we are running far from some capacity and utility. But I feel, with the actions taken last year, that we're in the zip code.

Operator

[Operator Instructions] Your next question comes from Brett Levy from Jefferies & Company.

Brett Levy - Jefferies & Company

You've said that you got well over $1 billion in global liquidity. I see the cash number of $426 million. Can you talk about what the other pockets are and where? And also talk about sort of what the plans are in terms of acquisitions or the leverage going forward. I mean, you got yourself very liquid right now. My sense is some of that can be applied to growth.

Gregory Kenny

We have a variety of credit lines around the world. We have very well utilization on the big U.S. one, which is $350 million to $400 million of availability. And then we've got them in a number of other places in the world throughout Europe, and we're an asset-intensive business. So it gives fair security as well as the cash flow. Brian, do you want to -- I'll comment on the strategy. I'll let Brian get more specific about the question around where are those big lines.

Brian Robinson

They're really spread around the world. I think that's why it really gives a big picture of the diversity of the business. Broadly, more than $250 million of available lines in all three regions is maybe the punchline. So that was the cash that you referenced, really gives us the, what we believe, firepower to execute on the strategy, which is maybe a good segue to Greg here in terms of where we're headed.

Gregory Kenny

Our broad view is to continue to take intellectual capacity and know-how. That's around the cable-making business including some of the more industrial and specialized designs and keep rotating that as well as capital to the developing world. Again, that doesn't say that if we see a great opportunity in the developed world, we wouldn't go do it because we probably can take cost out. And I think the developed world is trying to bottom right now. And as a contrarian, I'm not afraid of getting bigger I get a good return on capital for my shareholders in the developed world. And you saw us do a small acquisition in France that has some tremendous technology and know-how. We prefer to acquire generally than build. But where we haven't found a good target, we have done ahead and build and you can see that in Mexico, in Peru and India. We also have some other ideas around the world, and we'll disclose that when we're further along. We also are, in some countries, looking at joint ventures or investments either minority or majority, and we'll do those as well as outright acquisitions. I would say the bulk of -- at any one time, we're probably looking at 10 or 15 different opportunities. They can have gestations from never happening to years or sometimes quite quickly. A lot of it's born from understanding these companies and seeing a fit of cultures and comprehensive -- or just a complementary skill set. We don't feel any great need to go ahead and do something just because we can do it. And I think if you look at our 10-year records starting with BICC, where we haven't always got the timing right and some acquisitions have been better than others, we've generally been very careful about how we spend our shareholders' money. And I think you can see now, as I talked about earlier, how far we've come since 2002 in terms of the diversity of earning, byproducts and markets and they continue getting better for the company. So I like what we're doing, and I think our first priority is going ahead and continuing to build out in the developing world. And absent those kinds of opportunities, we would always look at other things that relates to the capital structure. But right now, we feel in good shape.

Brett Levy - Jefferies & Company

So it sounds like it get more and more of a build than a buy in the developing world?

Gregory Kenny

No, I would say -- I wasn't clear, probably. Yes, we are looking at probably 10 different buy opportunities, and that's probably always kind of -- some of them are early discussions. Some might be later. So buy is our first reference because we're trying to buy know-how and early mover position. Absent a buy opportunity on a basis that's attractive to our shareholders, we'll go ahead and build and in some cases, joint venture or be a minority or majority partner, but not take 100% position.

Brett Levy - Jefferies & Company

And then this is more of a housekeeping thing. You guys have detailed a lot of different cost-cutting initiatives. On an annualized basis since you started them, I don't know, mid-2008 or whenever, sort of you want to pick the starting point, what's the annual amount of cost you've taken out at current run rate and then at normalized run rate since you started these initiatives?

Gregory Kenny

We viewed our job was to flex down in the company as circumstances dictate. We called out Spain because it was so specific, and it had to be filed with authorities and involve four unions, that we thought it was wise to call it out. So we had not disclosed those numbers other than we ran tens of millions of cost to the P&L over the last six quarters. And some of it is related to direct labor, which eventually would have to come back unless we figure out how to do the work without it, and then indirect as well. We had only taken one facility down, and we would have the tendency to call those out. But that was a minimal kind of -- we're running that product in other facilities. But we really don't want to get into the game of letting that out. We will talk to you about facilities. We're very discreet actions. You can see a lot of it in the SG&A as well as from the mid-90s to the low 80s. But we have not been a company that says, "Well, now things are tough. Now we have to deal with it." We have, even in good times, have had tens of millions taken out of our cost structure through lean. But we have not called out that either because it's an expectation in the business, and we also expect competitors to be ferocious and to price aggressively. So you can get a sense that while I took out this much cost, then you have to talk about the demand and the price equation. So it's substantial, and I am very encouraged if we see this global economy re-light, our cost position is great, and we keep getting better, and there's a lot of power in this company from an earnings standpoint.

Brett Levy - Jefferies & Company

And then the last one, it's just sort of a refinement of what you guys have given for the second quarter specific guidance and then the back half of the year. I mean, it sounds like you're going to be down, I don't know, $15 million to $20 million from 1Q to 2Q. And then are you guiding that the back half of the year will be weaker still? So that basically first quarter by far would be the strongest quarter of the year?

Gregory Kenny

You may be reversing -- on an adjusted basis, we expect the second quarter to be more profitable than the first quarter. What we've said is we expect to see normal seasonal pattern -- who knows, but our view is that we'll see the second quarter be our strongest and then we would see less volume in the third and fourth quarter due to the seasonal impact. Again, we're not calling a major breakout in the wire and cable industry and a V-shaped recovery in the second half. So my objective is to make the third and fourth quarters as best as they can be, and I'd love to beat the second quarter. But that's not the pattern we would see a this point. We have not given guidance for the whole year, and we've talked in our earlier call about some of the general macroeconomics that we expected to see in 2010.

Amanda, I think we're running up against our time, so we pick one final call.

Operator

At this time, there actually are no further questions. I'll turn the call back over to you.

Gregory Kenny

Perfect. Well, thank you, everybody for joining us here this morning. That concludes our conference call. A replay of the call will be available on our website later today. Thank you all for your continued interest. Have a good day.

Operator

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

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Source: General Cable Q1 2010 Earnings Call Transcript
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