WESCO International, Inc. (WCC) Q1 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Anixter International's First Quarter Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Chris Kettmann for opening remarks. Please go ahead, sir.

Thank you. Good morning, and thank you, all for joining us to discuss Anixter's First Quarter 2010 Results. By now, everyone should have received a copy of the press release which was sent out earlier this morning. If anyone still needs a copy, you can either go to Anixter's website or call Chris Kettmann at (312) 553-6716 and I can resend the information. On the line today from Anixter's management team are Bob Eck, President and CEO; Dennis Letham, Chief Financial Officer; and Ted Dosch, Senior VP of Finance. After management completes their opening remarks, we will open the line for a Q&A session. Before we begin, I want to remind everyone that statements in this conference call, including words such as believe, expect, intend, anticipate, contemplate, estimate, plan, project, should, may, will or similar expressions are forward-looking statements. They are subject to a number of factors that could cause the Company's actual results to differ materially from what is indicated here. These factors include: General economic conditions, including the severity of current economic and financial market conditions, the level of customer demand, particularly for capital projects in the markets we serve, changes in supplier sales strategies or financial viability, political, economic or currency risks related to foreign operations, inventory obsolescence, copper price fluctuations, customer liability, risks associated with accounts receivable, the impact of regulation and regulatory investigated in legal proceedings and legal compliance risks, potential impairment of goodwill and risks associated with the integration of acquired companies. These uncertainties may cause our actual results to be materially different than those expressed in any forward-looking statements. We do not undertake to update any forward-looking statements. Please see the Company's SEC filings for more information. At this point, I'll turn the call over to Dennis.

Thank you, Chris. For those of you who been with us on prior calls, or who I've talked to from time to time, either on the phone or in conferences, you could probably tell by the sound of my voice I'm fighting through some sinus conditions this morning. So I'm going to limit my comments to a few general remarks and then I'll turn this over to Ted for a more detailed review of the results for the quarter. Let's start by reviewing some of the expectations we'd set out for this quarter during our last call. For those of you who were with us on the last few calls, you'll remember that we reported a series of quarters where our daily sales run rate was flat. We also said that it would take two or three quarters of solid GDP growth to generate the business needs or confidence within our customer base to drive renewed sales growth. In this context, we have stated that we felt it would be late in the first quarter or during the second quarter of 2010 before we began to see improved demand patterns developing. The daily sales of the first quarter started similarly to the past few quarters but as we got deeper into the quarter, there were noticeable improvements in the daily sales run rate for certain areas of our business. The positive trends then became more broad-based across the various end markets and geographies in which we operate. These improved trends have continued into the early weeks of the second quarter, leaving us pretty much where we expected to be at this stage in the recovery. As is always the case, our backlog equals approximately four weeks of sales and a high percentage of our orders continue to ship within 24 to 48 hours of receipt. So while the trends of the past few weeks have been positive, some uncertainty in the macroeconomic environment remains and there's no guarantee that these positive trends will continue. That said, assuming the economy continues to grow, our expectation would be for continued growth in our business as well. Before Ted discusses the drivers of our operating performance, let me start by saying that this quarter's performance was in line with our internal expectations that we had communicated during the past several calls. The most significant event affecting that earnings was the loss incurred on the early retirement of debt which Ted will discuss in more detail later. Excluding that, the first quarter was a very straightforward quarter from an operating perspective. We feel very good about the business given the positive start to our year from a sales, earnings and cash flow perspective. At this point, let me turn it over to Ted for a more detailed discussion of the first quarter results.

Thank you, Dennis. Consistent with our expectations, sales were up 5% sequentially but down almost 5% year-on-year on an organic basis. The sequential improvement is largely attributable to the fewer number of holidays in the first quarter when compared to the fourth quarter of 2009. The expected decline year-on-year was driven by three important factors. First, as mentioned in previous quarters, we believe that we needed to see six to nine months of GDP growth before our customer base would begin to see their respective businesses grow. Secondly, we exited a major lower margin customer contract in Q4 of last year. Lastly, our Electronic Wire & Cable business and our Aerospace business didn't hit their bottom until Q2 2009, making for a challenging year-over-year comparison in the current quarter. In the first quarter we reported flat year-on-year sales. After adjusting for $44.1 million of favorable foreign exchange effects, and an estimated $15.8 million of favorable copper prices, we saw an organic decline in sales of approximately 5%. Approximately half of that organic decline was due to our decision to exit the Alcatel-Lucent contract, which contributed $31.7 million of sales in last year's first quarter. In addition, it is important to note that the organic sales decline in each of our geographic segments and end markets continued to shrink from previous quarters. Looking at first quarter sales trends within each of our end markets, we experienced the following: On a worldwide basis, Enterprise Cabling and Security Solutions sales, exclusive of foreign exchange effects, declined organically by 4% as compared to the first quarter of last year. All of this organic decline can be attributed to our decision to exit the previously mentioned Alcatel-Lucent contract. Within this end market, Security sales grew an estimated 2% compared to first quarter of 2009, exclusive of foreign exchange effects. Geographically, our Enterprise Cabling and Security Solution sales were down 4% organically in North America, 6% in Europe and 2% in Emerging Markets as compared to the year ago quarter. As we analyzed where we are in the early stages of this economic recovery, it is important to note that on a sequential basis from the fourth quarter of 2009, to the first quarter of 2010, we saw Enterprise Cabling sales increase by 1% organically. The slight increase is primarily due to two factors: The increased number of billing days in Q1 versus Q4 was largely offset by the termination of the Alcatel-Lucent contract in Q4 of 2009. By geography, we saw sales on a sequential basis exclusive of foreign exchange effects increase by 5% in North America despite the exit of the Alcatel-Lucent contract, and in Europe, we saw an increase of 2%. In the Emerging Markets, we experienced the sequential quarter decrease of 15% in organic sales that reflects normal seasonal patterns within this end market. Worldwide Electrical Wire & Cable sales, exclusive of foreign currency and estimated copper price effects, experienced year-on-year organic sales declines of 8% globally, with North America and Europe showing declines of 8% and 7%, respectively. Keep in mind that our global Electrical Wire & Cable business delivered strong results in Q1 2009 due to the relatively longer life cycle of major projects in this end market. On a sequential basis, from the first quarter from the fourth quarter of 2009, to the first quarter of 2010, worldwide Electrical Wire & Cable sales increased by 12% organically, approximately double what you would expect from the increased billing days. All geographies showed very healthy sequential organic growth, with North America at 9%, Europe at 25% and Emerging Markets at 7%. Our worldwide OEM Supply business has been our hardest hit market over the last two years. With that in mind, it was encouraging to see sales in the first quarter for that end market, exclusive of foreign exchange effects, we're down just 1% on an organic basis as compared to the year-ago quarter. In North America, we saw an organic sales decline of 10% year-over-year while in Europe we saw an increase in organic sales of 9%. The North America results include a 13% decrease in Aerospace and Defense sales, where a recession cycle downward pressure on sales didn't begin to materialize until Q2 of 2009. Having experienced significant organic sales declines in the OEM Supply end market for over a year, the combination of depleted inventory levels of our customers products, with higher levels of capital spending in many industries, resulted in an opportunity for us to grow our sales with both existing customers as well as with new customers. Sequentially, worldwide OEM Supply sales were up 10% organically, well in excess of the impact of higher billing days in the first quarter. This business showed positive organic growth in each geography, delivering sequential increases of 2% in North America, 23% in Europe and 5% in the Emerging Markets. This is the second consecutive quarter that we have seen encouraging signs of the early stage recovery in this business. Although we view this as a positive sign, it is premature to determine whether the growth rate we have seen in recent weeks can continue on this type of trajectory. Bob will discuss current business trends and the implications for the future in greater detail in a few minutes. Turning next to gross margins, in the first quarter we reported gross margins of 22.8%. While the gross margin percentage reflects a year-on-year decline of 30 basis points, more importantly there has been a definitive stabilizing trend over the past four quarters. Looking at the trend over the last year, gross margins have been relatively constant. Specifically, gross margins after adjusting for any unusual items, was 22.8% in the most recent quarter, 22.7% in the fourth quarter, 22.6% in the third quarter and 22.7% in the second quarter. As we commented last quarter, we believe this trend is a positive indicator along with an improving daily sales run rate that we're beginning to see the start to an economic recovery. Looking next at operating expenses, we reported a year-on-year decrease of approximately 2% from $236.4 million in the year-ago quarter to $232.7 million in the most recent quarter. Eliminating the $8.3 million negative impact of foreign currency effects on this expense, reflects a spending reduction of $12 million or a 5% decrease. This shows the positive impact that last year's cost-reduction initiatives have had on our cost structure. As expected, operating expenses did increase sequentially primarily due to higher compensation-related costs and variable costs associated with the increase in sales. To summarize, from an operating income perspective, operating profits were $57 million in the first quarter as compared to the year-ago quarter of $56.9 million. We believe that stabilized gross margins, combined with the lower operating expense run rate that we have achieved over the last four quarters, positions us well for a recovering economy. As we move further down the income statement, interest expense of $15.6 million was up $1.1 million from the year-ago quarter. The increase in interest expense was driven by a higher average cost of debt on a lower debt level than the year-ago quarter. The 7.4% average cost of debt in the first quarter was down from the 7.8% level of the fourth quarter of 2009 due to the previously mentioned debt repurchase late in the first quarter. However, this level was still higher than the 5% average cost of debt in the year ago quarter due to the higher cost associated with the senior note offering in March of 2009, and lower average short-term borrowings which have lower interest rates. At the end of the current quarter, approximately 89% of our outstanding debt had fixed interest rates, either by the terms of the debt or through hedging contracts. We expect to see a more significant reduction in interest in Q2 as a result of the additional debt retirement actions taken in the first quarter of this year. The repurchase of the 10% Senior Notes resulted in our loss of $30.5 million. This was the primary driver of the $31.6 million of other expense in the current quarter compared to income of $600,000 in the year-ago quarter. During the most recent current quarter, an effective tax rate of 40% resulted in income tax expense of $3.9 million compared to an effective tax rate of 40.3%, resulting in $17.3 million of income tax in the year-ago quarter. At this early point in the year, it's very difficult to anticipate the impact that country level profitability will have on the full year effective tax rate. This will likely mean that the effective tax rate will remain volatile in the near term, making precise predictability of our rate difficult for the remainder of 2010. For the quarter, the company reported net income of $5.9 million or $0.16 per diluted share, compared to $25.7 million or $0.72 per diluted share reported in the year-ago period. After adjusting for the loss on the early retirement of debt, net income in the first quarter of 2010 would have been $24.8 million or $0.69 per share. The 2010 reduction and the higher cost of debt, combined with the current quarter's share repurchase, is projected to have a positive impact on diluted earnings per share by approximately $0.25 for the last three quarters of 2010. Included in this EPS improvement is a reduction in interest expense as a result of the above mentioned retirement of 10% notes of approximately $10.9 million for the last three quarters of 2010. As noted at the beginning of this call, we were pleased with another quarter of strong cash flow performance. We generated $74.7 million in cash from operations during the quarter as compared to $88 million in the year-ago quarter. This strong cash flow was achieved despite the working capital requirements associated with consecutive quarters sales growth experienced in this year's first quarter. Capital expenditures were $4.1 million in the quarter compared to $6.2 million in the year-ago quarter. We anticipate continued strong cash flow generation in 2010 through both earnings growth as well as strict working capital management, particularly until we begin to experience stronger revenue growth. The current quarter's cash flow, together with borrowings under our accounts receivable securitization facility, were used to reduce outstanding 10% Senior Notes by approximately $121.9 million. We also repurchased 1 million shares of stock for $41.2 million. This has resulted in a debt to equity ratio of 43.5% at the end of the current quarter, down from 44.8% at year-end 2009 and 49.1% at the end of the first quarter of 2009. Our position regarding strategic acquisitions remains the same as we discussed in prior quarters. As a more definitive pattern of economic recovery becomes visible, we would anticipate additional opportunities becoming available. In the absence of near-term opportunities, we may from time to time repurchase outstanding common shares or further reduce borrowings, including the 3.25% convertible notes. We have approximately $313.4 million in available, committed, unused credit lines, $75 million of outstanding borrowings under our $200 million accounts receivable facility, and invested cash balances of $30.7 million. We continue to regard our strong financial position and significant liquidity as important differentiators from many companies in today's still difficult market. These favorable financial characteristics provide Anixter with the flexibility to adjust quickly to new market realities, fund investments and crucial long-term growth initiatives, and allow us to capitalize quickly on the eventual market rebound. While we begin to see some positive trends in the most recent quarter, and signs of the economic cycle maybe turning, we will continue to manage this business prudently and with a focus on the Company's long-term goals and strategy. At this point, let me turn the call over to Bob to discuss strategic initiatives, current business trends and the near-term outlook.

Thanks, Dennis and Ted. Thanks, everyone for joining us today. We are pleased with how the first quarter of this year unfolded. While the year started similar to the daily pace we experienced through much of last year, sales and bookings improved throughout the quarter and into April. Our sales performance was largely in line with our expectations and we were pleased to see growth over the prior year in the month of March. In addition, we saw the benefit during the quarter of the expense reduction actions taken in late 2008 and 2009, and our management team continues to focus on managing costs as there are still some economic uncertainty. Finally, we continue to evaluate our balance sheet in light of the continuing strong cash flow. We reduced leverage further in the quarter, while at the same time, returning over $41 million to shareholders in the form of share buybacks. The Enterprise Cabling and Security Solutions end market has begun to show improving trends. Recently Gartner released an updated forecast of IT spending increasing their outlook to 5.3% growth over prior year. This reinforces recent project trends that we have seen globally in the enterprise market indicating some pent-up need for IT infrastructure enhancement and expansion. Project wins in both data center and other IT projects increased in the first quarter in North America and EMEA, while the Emerging Markets show the normal seasonal weakness in the first quarter. Our Federal Government teams continue to show strong growth in the U.S. and Canada, as government spending on data and security continues to expand. We continue to enhance our position as an industry technology leader through our Seminar Series on data center efficiency, security and sustainability. The Seminar Series provides insight on how best to design and build a data center to ensure the most effective, redundant and secure facility, while saving energy and maximizing leadership and environmental and energy design credit. Security sales continue to show reasonable results. Organically, sales were up 2% worldwide with EMEA up strongly at over 18% and the other segments relatively flat. Our recently launched ipAssured program and seminars are generating more interest in the challenges of designing the proper infrastructure to support newer, high resolution and multi-megapixel technology. The goal of the ipAssured program is to frame the security infrastructure decision around the technology migration the end user is planning. An adequate infrastructure for analog technology will be unable to support the IP-centric, higher bandwidth applications increasingly being deployed. Our commitment to supporting our customers with leading technology advice positions us well as IP convergence continues to gather strength in video surveillance and access control. Moving now to the Electrical and Electronic Wire & Cable end market, in the first quarter copper was moderately favorable, as pricing reflected higher cost copper compared to the first quarter of 2009. This reflects the higher cost of copper working its way through the supply chain from the manufacturers through distribution. As we have said in the past, in a soft demand market, it takes several months for selling prices to reflect the increase in the spot price of copper. The project environment continues to be slow from a billing and booking perspective, as we have expected at this point in the recovery. As we said last quarter we will need to see a continued recovery before a meaningful increase in sales will occur. On a positive note however, bidding activity and awards for projects has increased in the last couple of months which suggests that we will experience improving sales in the coming quarters. Our Wire & Cable team has continued to focus on key initiatives, including new business development, expanding our product offering and building our global account program with energy, mining and engineering procurement and construction companies. We had several project wins this past quarter including new business with Europe-based EPCs on projects to be delivered in Europe and Africa. In addition, we continue to develop opportunities in power generation and alternative energy. In the first quarter, we experienced improving sales in our OEM Wire & Cable program as industrial production continued to improve. Our program of specializing a portion of the Wire & Cable sales force to focus more specifically on the OEM market opportunity, is proving beneficial in the early stage of the recovery. While the industrial automation industry experienced declining volume this past year, we continued to invest in development of this market initiative. We believe that the technology migration from fieldbus communication to Industrial Ethernet creates an opportunity for us to leverage both our industrial and enterprise capabilities to serve customers in this area. We will look to strengthen our efforts in this market as distribution is highly fragmented in an evolving technology environment. In furthering our expansion of the Wire & Cable end market into the Caribbean and Latin America, we continue to hire strategically to enhance our ability to speed our growth in this area. We believe we are improving our position in this promising market. Turning to the OEM Supply end market, the aerospace customer vertical continue to experience challenges in comparison to the same period last year. As we discussed here over the first quarter last year, the aerospace harbor market grew in Q1 2009 versus 2008. The recession impacted that market beginning in Q2 last year, so the comparison was difficult in the first quarter of this year. Positive trends for this market were led by announcements by Boeing and Airbus that they are increasing production rates on some aircraft. This will help take some slack out of the supply chain as the year goes forward. The industrial fastener market was mixed in the first quarter. In EMEA we experienced growth, as Ted mentioned, compared to the same period last year. The growth came as production rates began to recover off extraordinarily depressed levels last year. In North America, industrial OEM Supply sales were down slightly versus the first quarter last year, as growth in new parts and programs were offset by a slowdown in heavy trucks and diesel engines, resulting from truck buyers in Q4 of 2009 buying ahead of the new 2010 diesel emission regulations as we discussed on last quarter's call. Across all three end markets, and the geographic reporting segments, we are maintaining inventory levels in line with a cautious but improving outlook. We do not want to build inventory too quickly ahead of demand. At the same time, we do not want to subject our customers to service failures due to inadequate stock. We monitor lead times and usage very actively to balance our service level and working capital goals. We also believe that we continue to have the opportunity for inventory improvement in the OEM Supply end market, particularly in the aerospace vertical. All end markets continue to be relentlessly striving to add new customers and we have been successful with this effort in all geographies. It is measured monthly along with our product and technology initiatives. We also continue our long-standing effort to follow our customers around the world. As the only distributor in the end markets in which we participate, that delivers a value-added technical support and supply chain service model into more than 50 countries in which we operate, we continue to find success with customers, providing global reach with a local touch and cross-selling across our end market specialties. As we look forward to the balance of 2010, we believe that the view we have expressed in the last two quarters continues to be good. Sales growth requires sustained positive GDP growth to drive capital spending on large projects and the capital-oriented end products of our OEM Supply customers. We are seeing the beginning of that trend in the sales and booking rates we enjoyed as the quarter progressed. However, we will continue to be cautious in our expense management. Modest gross margin improvement in the year should arise out of both margin improvement steps we are taking in our field sales organization, as well as an improving mix of sales, as the higher margin end markets and geographies recover. We expect to have good positive cash flow going forward and we'll continue to look at opportunities in our balance sheet as well as pursue acquisition opportunities. Hopefully, as the global economy recovers, we will begin to see a better pipeline of acquisition prospects than has been the case in the past year. We will now open the call for questions.

[Operator Instructions] First up, we'll hear from Hamzah Mazari. [Crédit Suisse] Hamzah Mazari - Crédit Suisse First Boston, Inc.: Question on your OEM Supply business, it appears to be rebounding nicely. Is it too early to make a call on Europe starting to get to more normalized levels of profitability that you had maybe a couple of years ago? And then how much of a benefit is restocking versus actual organic demand increases in that business? Is it possible to quantify that or is that too tough to tell right now?

Hamza, this is Bob. I'll try to answer both your questions and Dennis and Ted will jump in and tag team like we normally do here. I'm going to answer your second question first. We, I think, tried to address the restocking question as we were coming through the last couple of quarters. We generally don't have customers carrying lots of stock. When you look at our OEM Supply business in all geographies, we do a fair amount of direct line feed which means we're directly replenishing bins at the customer site. The customer owns little to no inventory and we're doing just in time bin replenishment. So there's not a meaningful restock sort of effect to look for there. We'll track -- and I think the number show we're sort of tracking improvement in industrial production. On that question of getting Europe to more normalized profitability, I think the right answer is, it will take sometime, we need to see more volume come back. If you think about -- you quoted a couple of year ago sort of time period, we've had significant volume loss in the business over that time period. So we need to get some recovery. We did take a lot of expense reduction actions as well which will benefit us, so we should get to reasonable profitability at a lower level of volume than a couple of years ago. But frankly, we need to see some of our initiatives pan out and we need to see economic recovery, which to me is probably the most important factor.

Yes, I think, on that point, Bob, over the course of the last call and some conferences we've been recently, we've talked about Europe. We've talked about our goal for 2010 to begin -- as a first step get Europe back in the black. The fact that we are marginally back in the black in the first quarter is a nice first step towards getting the trend moving in the correct direction. Hamzah Mazari - Crédit Suisse First Boston, Inc.: And then on your operating expenses, it seems like a lot of the employee costs have come back, which is what you're seeing with a lot of companies which is fair. How should we be thinking about that number sequentially going forward given your guidance or expectation for year-over-year growth in the back half of this year?

Hamzah, this is Dennis. One of the things that confuses the analysis a little bit when you get into sort of a line-by-line comparison is the impact of FX on translating the foreign operations. So if we look at the first quarter results and the fact that we ended up with a $1.270 billion in sales, and we ended up with 4.5% operating margins and you look back into 2009, there were quarters when we had similar revenue and similar operating margins, yet we know we have had expense reduction actions subsequent to that time period that would have led you to conclude -- what should have gotten more operating leverage here in Q1. But what's happening is we're getting some of that revenue growth from translation, but it also means that the expenses are translating in higher numbers. And to the extent that a lot of that translation impact is coming out of Europe, where there is negligible profitability at the moment, it means you're getting some gross up in the various lines of the income statement. And it's a little harder to sort out the productivity gains, just off of the base of the financial statements. Hamzah Mazari - Crédit Suisse First Boston, Inc.: You commented that your expectations, your results came in line with expectations you had internally. Is the month of April running ahead of your internal expectations, if you could just add some color there?

I guess the way that I'd characterize it, Hamzah, is it's running in line with what we had hoped to see. In other words, the improvement that we saw as the first quarter pulled to a close has continued in April, so good sales and good booking rates, consistent with the improvements we saw in March.

And consistent with our statements in the last couple of quarters, that we would expect to see the recovery starting to have an impact that would generate positive year-on-year comparisons by the time we got to the second quarter or middle of 2010.

Next up, we'll hear from Shawn Harrison of Longbow Research.

First, in looking at the Electrical business within Europe, maybe I missed this on the earlier comments, but sales has all essentially doubled quarter-over-quarter; if you could articulate just what happened there, given the highest level of sales I've seen in probably 12 to 24 quarters.

Shawn, I think there might be -- we were up, I think consecutive quarter basis, at about 15% on Wire & Cable, okay? The number that you have that's the higher number might be resulting from your taking number off of our current release and comparing it to a historical number that you had. We have done some reclassification on that sales breakdown on the back of the earnings release, where we've taken a chunk of business that we had been reporting as OEM; and we're now reporting it as Wire & Cable because of a determination we made that a series of locations acquired with the acquisition of Infast a number of years ago, serve us better as being part of the Wire & Cable business, where they can be used to drive a wire-and-cable-based OEM initiative, as opposed to being part of the fastener-based OEM supply business. So we can help you sort out the right comparisons maybe offline after the call, okay?

In terms of days of sales, what is the change quarter-to-quarter? What will you pick up or lose June quarter versus March quarter in terms of selling days?

Yes, the first quarter basically has no holidays in it, other than the fact it ended on Good Friday which impacted our European and Latin American businesses. We start Q2 with Easter Monday, which also impacts most of Europe and Latin America. We pick up Memorial Day, which we always have in Q2, and that really is it for holidays of consequence for the second quarter. So we would have basically one last day than we had in Q1.

So that's maybe 1.5% sequential sales headwind?

Right, each day based on 65 days in a full quarter would be 1.5%.

And then at the same time, in the Alcatel-Lucent unwind, it looks like it's essentially completed, correct?

That is correct.

I guess, going forward, the key question I have is in terms of your -- last quarter, you talked about price increases flowing through from your customers, and there is a delayed effect from you benefiting from those price increases. You could talk about what you're seeing in terms of how price increases are flowing through from customers to you, as well as to some of your peers and how that'll benefit you going forward.

Shawn, that comment, I think, was specifically around how copper flows through. And I think I made a comment earlier in my prepared comment about copper, and that we are beginning to see some pass-through. I think we've generally been saying it takes the impact of a rising or falling copper price in the current demand environment, something like roughly two quarters to work its way through the supply chain when you look at basically raw material at manufacturers, work-in-process and finished goods inventory at manufacturers and then inventory and distribution. So the only price increase stuff is really around the spot price of copper.

So the past three that your suppliers are doing right now, say, for the March quarter, that will begin to benefit you later in the June quarter and at the September quarter is the correct way to match that?

Yes, and I think actually where copper has kind of settled right now, there is not going to be a lot of new copper impact sequentially.

Even though the number of your suppliers did raise prices, you just put our price announcements in the quarter.

There have been some list price announcements in the quarter, products that are sold off of list prices. And those announcements tend to work their way fairly quickly. The list price announcements work their way fairly quickly, because everybody in the supply chain who is buying that product from that manufacturer takes up their selling price to reflect it. I think importantly, they're fairly small moves. And honestly, I would say they're positive in the sense that it's directionally better for us than price decreases, but they aren't going to create dramatic upward pressure on revenue.

Depreciation and amortization, what was it this quarter? And then if my math is right, total or net interest expense should be in the 13-ish million dollar range for the June quarter?

Yes, depreciation, John, for the quarter was $5.7 million, amortization, $2.9 million; so combined, about $8.6 million for the two of those.

And then on the interest expense side?

Interest expense was $15.6 million for the quarter. And we said that over the last three quarters, due to the debt reduction, there'd be a reduction in interest expense of about $10.9 million over those three quarters.

And you could roughly just divide that by three to get the third quarter number.

And that's off the first quarter amount, not the December quarter amount?

Correct.

Matt McCall of BB&T Capital Markets is up next. Matthew McCall - BB&T Capital Markets: Dennis, I think you talked about in one of the previous questions translation impact and how that kind of clouds the progress with the incremental margin. Can you give us a look of what the new cost structure does to incremental margin, what the flow through of each sales dollar does to gross profit and then to the operating line? I know mix is going to have a lot to do with that, but can you give us just some broad or high level detail?

Well, I think the first point there would be picking up on the comments Ted made earlier. When you look at from a spend standpoint, we've actually gotten about $12 million out year-on-year in the first quarter. Now that will go down as the year unfolds, because some of those actions were taking effect as 2009 played out. But at least as far as first quarter goes, you've got an annualized impact there of $40-plus million; which if you look at that based on the context of the announcements maybe when we did the restructuring charges very much in line with gross amount of spend that we said we would get out combined between the two restructuring charges. You're right that in terms of the takedown of incremental margins and the leverage you get will be dependent on the mix that you get. And I think to try to be any more specific about it, the general comments we've made in the past, that we'd expect to get somewhere around 40% to 50% of the incremental GP dollars brought down to the operating profit line, would imply a level of prediction about mix that we don't have at the moment. Matthew McCall - BB&T Capital Markets: And then Bobby [Robert Eck] talked about some of the initiatives in Latin America, and you talked about some investments there. Are the investments enough to note? And then what would be the expectations of the benefits of those investments over the next couple of years? You can maybe bunch all those investments together, but just specifically I was curious about Latin America.

I'll give you just some generalized comments. The investment side described really have to do with hiring people, a lot of which had been done in late 2009, some of which was done in early 2010. I would say their investments, particularly given the cost sort of per headcount in Latin America, are sort of built into the run rate. I wouldn't try to adjust the model based on what those headcount adds were. We believe we're beginning to see benefit already in our Wire & Cable sales in the emerging markets from those additions. We think we'll see more benefit as the year unfolds, and we will periodically adjust our inventory based on the success we're having with that market in Latin America. Matthew McCall - BB&T Capital Markets: And then housekeeping notes. What was the share count at the end of the quarter? And have we done any incremental buybacks, either debt or shares since the end of Q1?

No, everything that we have announced as being done in the first quarter, obviously was equivalent to total activity on that front. Since then, the actual share count outstanding for the quarter was $34.2 million. We ended the quarter at $33.9 million.

Next we'll go to David Manthey, Robert W. Baird. Kyle O'Meara - Robert W. Baird & Company, Inc.: This is actually Kyle O'Meara on for Dave. Assuming the improvement that you saw in late first quarter and April trends persist to the balance of the second quarter, would it be better to actually begin to see normal seasonal sequential trends in 2Q versus 1Q? I think we'd talked about it a little bit last quarter, which should be something in the mid-single digits.

I guess the answer is maybe. We're trying to be a little cautious. As we said, we saw really positive developments in March. We've seen that in April as well, which would indicate that you'd certainly see sequential growth if those trends continue. I'm being kind of cautious about putting a stake in the ground that we're back to the normal seasonal trends, because I think it's a little early to call that. Kyle O'Meara - Robert W. Baird & Company, Inc.: How should we think about working capital going forward, assuming we start getting back to normal growth in the back half of the year? And maybe in terms of incremental working capital for each dollar of revenue, do you have anything, some color around that at all?

Yes, I don't think we'll have any significant amount of working capital investment this year. As we've said for a couple of quarters, we've come into 2010 or expected to come into 2010 with a more OEM supply inventory than we optimally need, and that we would work that out during the course of 2010. This was the whole issue of how long manufacturing lead times were, which caused a lot of inventory to pile up there. I think that the combination of the reduction of those inventories, plus the fact as we stopped trying to draw down inventories, where on a more normal replenishment cycle puts a little more payables on the books at the same time. Those two things would argue that for the full year, there shouldn't be much incremental working capital invested in the business from where we started the year. Kyle O'Meara - Robert W. Baird & Company, Inc.: Is there much seasonality of the Lucent business that's rolling off? Or is that pretty consistent quarter-to-quarter?

You can assume in terms of comparison to last year. It was around $30 million to $32 million a quarter for the first three quarters, and around $15 million in the fourth quarter.

And we now will hear from Jeff Beach, Stifel, Nicolaus. Jeffrey Beach - Stifel, Nicolaus & Co., Inc.: You had a great improvement in your profitability in Europe, and it is much more than sales. Can you give just us a rough idea of the $6.5 million sequential improvement, just kind of a ballpark guess on how much was sales and cost reductions, and anything else involved there?

I think, first, the $6.5 million you must be referring to sequential, not year-over-year? Jeffrey Beach - Stifel, Nicolaus & Co., Inc.: Yes, I'm sorry. It is sequential, yes.

So let me first go back to year-over-year, where we saw a significant improvement in our OEM Supply business year-over-year. And as we've talked before, that is one of our higher margins businesses, and we also had a stronger Wire & Cable business still with us in Q1 of last year. So the higher margins last year Q1 compared to this year, combined with the significant cost reductions that we've -- the actions we took over the course of the last year is what contributed to that slight negative profitability last year Q1 to the stronger profitability in Q1 of this year. On a sequential basis, though, we also saw very strong growth in net OEM Industrial business. And as you remember, we talked in the past, Q4 is when we tend to experience more significant downtime by the customers of ours in that OEM Supply business with factory shutdowns and so forth around Q4. So we actually had a much stronger volume to leverage in that part of the business going from Q4 to Q1, and it's the business that contributed most to that growth. Similarly, Wire & Cable improved sequentially. And as we've said a number of times from a gross margin standpoint, if you stack up the three end markets from lowest to highest, it runs Enterprise to Wire & Cable to OEM Supply. So basically, we had some mix improvement, as well as the benefit of the expense reductions.

It's big volume increase in Europe quarter-to-quarter, were up from about $230 million to $253 million. So that's important, and there is not much currency impact sequentially in there either. That's really long and... Jeffrey Beach - Stifel, Nicolaus & Co., Inc.: Looking ahead into the second quarter, can you just, in Europe specifically here, talk about seasonality regarding the mix regarding Enterprise, Wire & Cable, OEM, pluses and minuses in maybe industries like you had mentioned, with the OEM Industrial being down hit in the fourth quarter by factory shutdowns? Could you just talk a little bit about the progression in Europe as much as you can?

The seasonal pattern in Europe basically has two things to look at. One would be in the OEM Supply business. The first half of the year should be the strongest part of the year. The second half in the third quarter, you're going to get customers join factory shutdowns for vacation, pooling changes, that sort of thing. Fourth quarter, you get the holiday shutdowns that impacted -- and then broadly speaking for Europe, you'd get the extended European vacations in the third quarter and the holiday impact in Q4. So generally speaking, in Europe, our first half of the year should be the stronger half of the year, setting aside whatever organic growth patterns you have across the year.

Our next question will come from Brent Rakers, Morgan Keegan. Brent Rakers - Morgan Keegan & Company, Inc.: First, on tax rate guidance, I know obviously that number kind of moves in and out by the quarter. But I guess, 38% to 39% kind of adjusted levels this quarter with Europe profitable. If we make the assumption that Europe stays modestly profitable for the course of 2010, would that enable you to give us maybe more of a starting point on the tax rate?

Well, I don't think you want to take that loss out of there, because the rate that we book to in total is the full year rate, everything inclusive. So we're just a hair under 40% as our estimated full year effective rate right now. That's what's reflected in total and the results for the first quarter. If Europe stays at roughly the level of profitability that it's at right now, probably it doesn't have much of an impact on the rate. Brent Rakers - Morgan Keegan & Company, Inc.: And Dennis, just to clarify, three months ago, I think you've got a lot more conclusive on a lower number from three months ago. Is that correct? And is that primarily the profitability in Europe?

Yes, it's the swing from the fact that Europe last year, including restructuring and that sort of thing, had losses in it. And now you're looking at, at least at the operating profit lines, sort of break even to marginally profitable which puts us in a much better position in Europe. Brent Rakers - Morgan Keegan & Company, Inc.: And then I guess just to harp more on the seasonality question, you've talked before about this Q1 to Q2 of a mid-single digits. And you want to play a little bit more of a wait-and-see approach there. Could you maybe just talk about some of the facts, because I know you just touched on Europe a little bit, first half to second half? But what factors would impact that normally seasonally stronger second quarter versus first then company-wide basis?

Brent, I think what we're trying to leave you with is that we think we're in a different environment than in sort of a stable, chugging-along economy, where the seasonal patterns are somewhat predictable in the different end markets. Because of that, we're not so much trying to talk about seasonality as we're trying to talk about the impact of economic recovery, which has derived improvement in our average daily sales and improvement in our booking rates in margin continuing through April. We are kind of saying that this isn't as much a seasonality story as it's an economic recovery issue. Brent Rakers - Morgan Keegan & Company, Inc.: When you just look at the organic growth numbers and compare and contrast North America to Europe, Europe is actually, I think stronger in one category or maybe the other two, it's very comparable year-over-year. If you could talk about what kind of factors between just the macro conditions in Europe versus the U.S., and maybe versus company initiatives and market share shifts in those different geographies?

I think the answer is, the further you fall, the more room you have to bounce back.

Europe certainly was down more. It was down the most than any of the regions we operated in over the last 12 to 18 months.

Our next question comes from Jeffrey Germanotta, William Blair. Jeffrey Germanotta - William Blair & Company L.L.C.: My question has to do with sales capacity and incremental margins. If we look back to 2008, you generated peak revenue of $6.1 billion, with peak operating margins in 2007 of 7.5%. Is there anything structural in the business today that, assuming the global economy grows 2.5% to 3%, it would prevent you from getting back to those levels in a few years? And as we grow, what kind of incremental expense for every dollar of sales, what kind of variable expense should flow through SG&A?

The peak part of the question, in terms of peak margin of 7.5%, I think we have said pretty consistently over the last couple of years that was achieved being in an environment, where you had strong demand; manufacturers on the Wire & Cable side were operating high levels of capacity utilization and to the extend the copper was up solidly north of $3 a pound. The stars were all kind of aligned to get profitability out of the commodity at that time. And we estimate that, that probably was giving us about 75 basis points of operating margin at that point in time. But in today's environment, until you get back to get the stars kind of aligned as I just described, we think would not be achievable. So the question is, how do we get from the 4.5% back towards the 6.75% type of range? And I think part of that question is -- the first part is really we need volume, right, because we're running at $1 billion below the volume levels that we were at in that time period. That will give us a lot of leverage. As we look at the cost structure, keep in mind that last year, we took out about 10% to 11% of our headcount. We suffered about a 16% organic sales decline overall, which leaves us, we believe, with a good bit of, call it, capacity in the organization to add volume with minimal headcount additions. So it will certainly be direct variable cost, but minimal headcount additions in the short run that will close a big chunk of that gap. But then the real question is, how long does it take us to get to the $6 billion in volume? If we were to go through a real strong recovery, we'd get back 18 to 24 months. We'd probably get pretty close to the profile we had before. If it's a more modest recovery, then it takes us three or four years to get back to that volume. Then there will be some inflation eating away at the expense structure that will kind of cap our ability to get back to those peak levels, which is why the strategic things that Bob's been talking about become so important. We need to get product line expansion, especially on our foreign businesses. We need to proliferate the presence of the Wire & Cable and OEM Supply business into more countries, and we need to get deeper geographic penetration in our foreign countries. All of those things will allow us to get better leveraging of the cost structure outside of North America that today, on an operating leverage basis, is being underutilized comparatively. Jeffrey Germanotta - William Blair & Company L.L.C.: As we look to the year ahead -- for every dollar of sales, are we going to be picking up $0.15 of incremental SG&A to generate that?

I guess I'd look at it this way. The kind of rule of thumb we would look at is, how much of the incremental GP can we bring down to the operating profit line? And we think broadly speaking, we could bring 40% to 50% to the incremental gross profit dollars in generating to the operating profit line. Is that going to be every quarter? No. But that's kind of the rule of thumb that we're operating on as we move through an extended recovery period.

And we'll now hear from Nat Kellogg, Hudson Securities.

Guys, historically, I think we've talked about Enterprise. And I think you guys just mentioned earlier in the call, Enterprise tends to be a little bit lower gross margin business, and also it tends to come back a little bit sooner. And it sounds like maybe that trend is likely going to unfold over the next couple of quarters, and so just sort of curious about how that affects gross margin. And do you guys think that, that maybe will slow the gross margin recovery as that starts to come back?

Yes, I think that's fair to say. We wouldn't expect necessarily to see a decline in gross margin, because we have different margin patterns in different parts of the world as well. So it depends on how things come back. It depends on how quick the OEM Supply business comes back, but we do tend to see the project activity in Enterprise come back first. So if anything, that'll probably limit the growth in gross margin percentage as we move through the next quarter or two.

And then can you guys just give a little bit more detail on the Wire & Cable side, where you guys are seeing that activity? I mean, I assume most of it's not around the construction side. Just curious to see, maybe from a customer end market standpoint, the sequential increase, where you guys see that coming from?

I think I highlighted some of it. Our initiative to specialize our sales force in Wire & Cable between industrial sort of project business and OEM customer business is where we see the benefit. It's that OEM piece, where we get a pretty quick benefit as industrial production rates increase. I think then when you look at the project side of the business, I did talk about some project wins that we had in the quarter that we'll bill later in the year. And the project part of the business, we're not so much focused on the non-res construction space as we're more driven by corporate CapEx. Because these are oil and gas refining, as well as exploration and production projects. There are mining projects. So as the broad sort of global economy recovers, energy recovers fairly quickly, mining recovers quickly and actually, power gen and alternative energy -- power gen comes back, alternative energy is running in kind of its own sort of cycle now. So those are the kinds of places where we see project opportunities or project wins and they are, in my mind, that dependent on what you'd see in sort of non-res construction statistics.

Could you guys talk a little about acquisition? I know you've talked a little bit about sort of what your plans are for use of capital. But does your thoughts on acquisition, what sellers' expectations are like and where maybe you guys think that there might be some opportunities or not...

Well, I think we'd look for opportunities across basically what you've seen us do in the past. We've looked at typically smaller transactions, not huge transactions. We've looked at them in OEM Supply, and we're in cable fairly recently. We look at geographic fill-outs, so I wouldn't say there is a target that you would point your finger at. The biggest issue we've had is that there has not been a good pipeline of acquisition opportunities which makes some sense, right? I mean, sellers typically don't want to sell at the bottom of a recession, because they'll get a depressed valuation. So what we're hoping to see is that with some sign of recovery, there will be a little more interest on the part of sellers and we'll find some opportunities. But I wouldn't try to throw a dart in a target and say, "This is the specific thing we're looking at."

And at this time, there are no further questions. I'll turn the conference back over to our speakers for any additional or closing remarks.

Thank you. Thanks for joining us today. As the global economy appears to be entering a recovery phase, we are optimistic that we will benefit from an improving environment for capital spending. Our global reach, strategic initiatives and value-added business model position us well to support our customers in the improving economic environment. Thanks.

And ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation and have a great day.