UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended March 31, 2010
or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period
from to
Commission
File Number: 000-52046
(Exact
name of registrant as specified in its charter)
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Delaware
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36-4151663
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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10201
North Loop East
Houston,
Texas
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77029
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(Address
of principal executive offices)
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(Zip
Code)
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(713)
609-2100
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days YES
x
NO
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES
¨
NO
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act
Large
Accelerated Filer
¨
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Accelerated
Filer
x
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Non-Accelerated
Filer
¨
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Smaller Reporting Company
¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) YES
¨
NO
x
At May 3,
2010 there were 17,733,737 outstanding shares of the registrant’s common stock,
$0.001 par value per share.
HOUSTON
WIRE & CABLE COMPANY
Form
10-Q
For
the Quarter Ended March 31, 2010
INDEX
PART
I. FINANCIAL INFORMATION
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Item
1. Financial Statements (Unaudited)
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Consolidated
Balance Sheets
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2
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Consolidated
Statements of Income
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3
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Consolidated
Statements of Cash Flows
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4
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Notes
to Consolidated Financial Statements
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5
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Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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7
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Overview
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7
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Results
of Operations
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9
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Impact
of Inflation and Commodity Prices
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11
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Liquidity
and Capital Resources
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11
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Contractual
Obligations
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12
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Cautionary
Statement for Purposes of the “Safe Harbor”
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12
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Item
3. Quantitative and Qualitative Disclosures about Market
Risk
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12
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Item
4. Controls and Procedures
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13
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PART
II. OTHER INFORMATION
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Item
1. Legal Proceedings
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13
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Item
1A. Risk Factors
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13
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Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds
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13
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Item
3. Defaults Upon Senior
Securities
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13
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Item
4. (Removed and
reserved)
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13
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Item
5. Other Information
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13
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Item
6. Exhibits
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13
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14
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Signature
Page
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15
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HOUSTON WIRE & CABLE
COMPANY
Consolidated
Balance Sheets
(In
thousands, except share data)
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March 31,
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December 31,
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2010
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2009
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(unaudited)
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Assets
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Current
assets:
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Accounts
receivable, net
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$
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43,786
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$
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46,859
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Inventories,
net
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56,263
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61,325
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Deferred
income taxes
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1,801
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1,776
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Prepaids
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860
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3,649
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Total
current assets
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102,710
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113,609
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Property
and equipment, net
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3,136
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3,169
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Goodwill
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2,362
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2,362
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Deferred
income taxes
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3,043
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2,855
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Other
assets
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10
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19
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Total
assets
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$
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111,261
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$
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122,014
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Liabilities
and stockholders' equity
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Current
liabilities:
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Book
overdraft
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$
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423
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$
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907
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Trade
accounts payable
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9,846
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11,610
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Accrued
and other current liabilities
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8,931
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10,924
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Income
taxes payable
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1,472
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281
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Total
current liabilities
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20,672
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23,722
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Long
term obligations
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9,000
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17,479
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Stockholders'
equity:
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Preferred
stock, $0.001 par value; 5,000,000 shares authorized, none issued and
outstanding
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—
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—
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Common
stock, $0.001 par value; 100,000,000 shares authorized: 20,988,952 shares
issued: 17,733,737 and 17,732,737 outstanding at March 31, 2010 and
December 31, 2009, respectively
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21
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21
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Additional
paid-in-capital
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57,164
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56,609
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Retained
earnings
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77,776
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77,571
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Treasury
stock
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(53,372
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)
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(53,388
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)
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Total
stockholders' equity
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81,589
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80,813
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Total
liabilities and stockholders' equity
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$
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111,261
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$
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122,014
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The
accompanying Notes are an integral part of these Consolidated Financial
Statements.
HOUSTON WIRE & CABLE
COMPANY
Consolidated
Statements of Income
(Unaudited)
(In
thousands, except share and per share data)
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Three Months Ended
March 31,
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2010
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2009
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Sales
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$
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61,168
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$
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65,832
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Cost
of sales
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48,661
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52,019
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Gross
profit
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12,507
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13,813
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Operating
expenses:
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Salaries
and commissions
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5,119
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5,538
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Other
operating expenses
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4,395
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4,620
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Depreciation
and amortization
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142
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142
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Total
operating expenses
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9,656
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10,300
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Operating
income
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2,851
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3,513
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Interest
expense
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|
76
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155
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Income
before income taxes
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2,775
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3,358
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Income
taxes
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1,070
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1,294
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Net
income
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$
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1,705
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$
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2,064
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Earnings
per share:
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Basic
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$
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0.10
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$
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0.12
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Diluted
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$
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0.10
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$
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0.12
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Weighted
average common shares outstanding:
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Basic
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17,652,881
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17,642,856
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Diluted
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17,703,953
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17,649,340
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Dividends
declared per share
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$
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0.085
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$
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0.085
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The
accompanying Notes are an integral part of these Consolidated Financial
Statements.
HOUSTON WIRE& CABLE COMPANY
Consolidated
Statements of Cash Flows
(Unaudited)
(In
thousands)
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Three Months
Ended March 31,
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2010
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2009
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Operating
activities
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|
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Net
income
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|
$
|
1,705
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$
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2,064
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Adjustments
to reconcile net income to net cash provided by operating
activities:
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|
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Depreciation
and amortization
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142
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|
142
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Amortization
of capitalized loan costs
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9
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20
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Amortization
of unearned stock compensation
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562
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599
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Provision
for doubtful accounts
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60
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—
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Provision
for returns and allowances
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(62
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))))
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(45
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)
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Provision
for inventory obsolescence
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137
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147
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Deferred
income taxes
|
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|
(213
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)
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(341
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)
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Changes
in operating assets and liabilities:
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Accounts
receivable
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3,075
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9,005
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Inventories
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4,925
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5,807
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Prepaids
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2,789
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(182
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)
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Other
assets
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|
—
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4
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Book
overdraft
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|
(484
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)
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|
|
(4,046
|
)
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Trade
accounts payable
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(1,764
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)
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(2,924
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)
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Accrued
and other current liabilities
|
|
|
(1,993
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)
|
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(1,511
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)
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Income
taxes
|
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1,191
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|
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|
44
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|
Net
cash provided by operating activities
|
|
|
10,079
|
|
|
|
8,783
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|
|
|
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|
|
|
|
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Investing
activities
|
|
|
|
|
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Expenditures
for property and equipment
|
|
|
(109
|
)
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|
|
(48
|
)
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Net
cash used in investing activities
|
|
|
(109
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)
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|
|
(48
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)
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|
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|
|
|
|
|
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Financing
activities
|
|
|
|
|
|
|
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Borrowings
on revolver
|
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|
53,825
|
|
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|
67,124
|
|
Payments
on revolver
|
|
|
(62,304
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)
|
|
|
(74,365
|
)
|
Proceeds
from exercise of stock options
|
|
|
9
|
|
|
|
6
|
|
Payment
of dividends
|
|
|
(1,500
|
)
|
|
|
(1,500
|
)
|
Net
cash used in financing activities
|
|
|
(9,970
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)
|
|
|
(8,735
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)
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
—
|
|
|
|
—
|
|
Cash
at beginning of period
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
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|
Cash
at end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
The
accompanying Notes are an integral part of these Consolidated Financial
Statements.
HOUSTON WIRE & CABLE COMPANY
Notes
to Consolidated Financial Statements
(Unaudited)
(in
thousands, except share data)
1.
Basis of Presentation and Principles of Consolidation
Houston Wire & Cable Company (the
“Company”) through its wholly owned subsidiaries, HWC Wire & Cable Company,
Advantage Wire & Cable and Cable Management Services Inc., distributes
specialty electrical wire and cable to the U.S. electrical distribution market
through eleven locations in ten states throughout the United
States. The Company has no other business activity.
The consolidated financial statements
as of March 31, 2010 and for the three months ended March 31, 2010 and 2009 have
been prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) for interim financial information and Article 10 of Regulation S-X.
Accordingly they do not include all of the information and footnotes required by
GAAP for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation of the results of these interim periods have
been included. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the full year.
The Company has evaluated subsequent events through the time these financial
statements in this Form 10-Q were filed with the Securities and Exchange
Commission (the “SEC”).
The preparation of the financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. The most significant estimates are those relating
to the allowance for doubtful accounts, the reserve for returns and allowances,
the inventory obsolescence reserve and the accrual for vendor
rebates. These estimates are continually reviewed and adjusted as
necessary, but actual results could differ from those estimates.
For further information, refer to the
consolidated financial statements and footnotes thereto included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the
SEC.
Recent
Accounting Pronouncements
There are no recent accounting
pronouncements applicable to the Company.
2.
Earnings per Share
Basic earnings per share is calculated
by dividing the net income by the weighted average number of common shares
outstanding. Diluted earnings per share include the dilutive effects of stock
option and restricted stock awards.
The following reconciles the
denominator used in the calculation of earnings per share:
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted
average common shares for basic earning per share
|
|
|
17,652,881
|
|
|
|
17,642,856
|
|
Effect
of dilutive securities
|
|
|
51,072
|
|
|
|
6,484
|
|
Weighted
average common shares for diluted earnings per share
|
|
|
17,703,953
|
|
|
|
17,649,340
|
|
The weighted average common shares for
diluted earnings per share exclude stock options to purchase 825,000 and
1,163,501 shares for the periods ended March 31, 2010 and 2009, respectively.
These options have been excluded from the calculation of diluted securities, as
including them would have an anti-dilutive effect on earnings per share for the
respective periods.
3.
Long Term
Obligations
On September 21, 2009, the Company as
guarantor and HWC Wire & Cable Company as borrower, entered into the Second
Amended and Restated Loan and Security Agreement (“Loan Agreement”), with Bank
of America, N.A., as agent and lender. The Loan Agreement provides for a $75
million revolving loan at the agent’s base interest rate and matures on
September 21, 2013. The lender has a security interest in all of the assets of
the Company with the exception of the real estate in Houston, Texas.
Availability under the Loan Agreement is calculated as a percentage of
qualifying accounts receivable and inventory. The Company was in compliance with
the financial covenants governing its indebtedness at March 31,
2010.
The Loan Agreement contains certain
provisions that may cause the debt to be classified as a current liability, in
accordance with US GAAP, if availability falls below certain thresholds,
however, the ultimate maturity date under the Loan Agreement would remain as
September 21, 2013.
4. Stockholders’
Equity
In 2007, the Board of Directors
approved a stock repurchase program, where the Company is authorized to purchase
up to $75 million of its outstanding shares of common stock, depending on market
conditions, trading activity, business conditions and other factors. The program
was initially scheduled to expire on December 31, 2009 but has been extended
through December 31, 2011. Shares of stock purchased under the program are
currently being held as treasury stock and may be used to satisfy the exercise
of options and restricted stock, to fund acquisitions, or for other uses as
authorized by the Board of Directors. During the quarters ended March
31, 2010 and 2009, the Company did not repurchase any of its outstanding
shares.
On February 9, 2010, the Board of
Directors approved a quarterly dividend of $0.085 per share payable to
stockholders of record on February 19, 2010. Dividends paid were $1,500
during each of the three months ended March 31, 2010 and 2009.
5.
Stock Based Compensation
Stock
Option Awards
On May 8, 2009, at the Annual Meeting
of Stockholders, the Company issued options to purchase 5,000 shares of its
common stock to each non-employee director who was re-elected (other than the
Chairman of the Board, who received an option to purchase 10,000 shares of the
Company’s common stock), for an aggregate of 35,000 shares. Each option has an
exercise price equal to the fair market value of the
Company’s
common stock at the close of trading on May 8, 2009, has a contractual life of
ten years and vests one year after the date of grant.
There were no options granted during
the first quarter of 2010 or 2009.
Restricted
Stock Awards
On December 15, 2009, the Company
granted 80,000 voting shares of Restricted Stock under the 2006 Stock Plan to
management. These shares vest in one third increments, on the third, fourth and
fifth anniversary of the grant. Any dividends declared will be accrued and paid
to the recipient on the vesting date as long as the recipient is still employed
by the Company.
Restricted common shares, under fixed
plan accounting, are measured at fair value on the date of grant based on the
number of shares
granted,
estimated forfeitures and the quoted price of the common stock. Such value is
recognized as compensation expense over the
corresponding
vesting period of five years.
Total share-based compensation cost was
$562 and $599 for the three months ended March 31, 2010 and 2009, respectively.
Total income tax benefit recognized for stock-based compensation arrangements
was $217 and $232 for the three months ended March 31, 2010 and 2009,
respectively.
As of March 31, 2010, there was $4,676
of total unrecognized stock compensation cost related to nonvested share-based
compensation arrangements. The cost is expected to be recognized over a weighted
average period of approximately thirty-one months.
6.
Contingencies
The Company, along with many other
defendants, has been named in a number of lawsuits in the state courts of
Minnesota, North Dakota, New Jersey, and South Dakota alleging that certain wire
and cable which may have contained asbestos caused injury to the plaintiffs who
were exposed to this wire and cable. These lawsuits are individual personal
injury suits that seek unspecified amounts of money damages as the sole remedy.
It is not clear whether the alleged injuries occurred as a result of the wire
and cable in question or whether the Company, in fact, distributed the wire and
cable alleged to have caused any injuries. The Company maintains general
liability insurance that has applied to these claims. To date, all costs
associated with these claims have been covered by the applicable insurance
policies and all defense of these claims has been handled by the applicable
insurance companies. In addition, the Company did not manufacture any of the
wire and cable at issue, and the Company would rely on any warranties from the
manufacturers of such wire and cable if it were determined that any of the wire
or cable that the Company distributed contained asbestos which caused injury to
any of these plaintiffs. In connection with ALLTEL's sale of the Company in
1997, ALLTEL provided indemnities with respect to costs and damages associated
with these claims that the Company believes it could enforce if its insurance
coverage proves inadequate.
The Company has a past due accounts
receivable of $4,800 for wire installed in certain facilities. In February 2010,
the Company gave notice to the owner of the facilities that the Company intends
to file for a lien. The Company is currently working with the supplier and the
owner of the facilities that the Company intends to file for a lien. The Company
is currently working with the supplier and the owner of the facilities to
resolve the issue. The Company believes it has legal rights to the recovery of
amounts due, either from the Company’s customer or the owner of the facilities,
and as such, no reserve has been recorded against the receivable balance at
March 31, 2010.
There are no legal proceedings pending
against or involving the Company that, in management's opinion, based on the
current known facts and circumstances, are expected to have a material adverse
effect on the Company's consolidated financial position, cash flows, or results
from operations.
7. Subsequent
Events
On May 7, 2010, the Board of Directors
approved a dividend on the shares of common stock of the Company in the amount
of $0.085 per share, payable on May 28, 2010, to stockholders of record at the
close of business on May 17, 2010.
Following the Annual Meeting of
Stockholders on May 7, 2010, the Company issued options to purchase 5,000 shares
of its common stock to each non-employee director who was re-elected (other than
the Chairman of the Board, who received an option to purchase 10,000 shares of
the Company’s common stock), for an aggregate of 35,000 shares. Each option has
an exercise price equal to the fair market value of the Company’s common stock
at the close of trading on May 7, 2010, has a contractual life of ten years and
vests one year after the date of grant.
On May 18, 2009, the Company’s Board of Directors adopted a
stockholder rights plan and declared a dividend of one preferred stock purchase
right for each share for of the Company’s common stock outstanding at the
close of business on May 28, 2009. Based on the results of the stockholder vote
at the Company’s 2010 annual meeting, the Board of Directors amended the rights
plan to change the definition of “Final Expiration Date” to be the close of
business on May 7, 2010. As a result, the rights ceased to be outstanding on May
7, 2010 and the rights plan has been terminated.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following Management’s Discussion
and Analysis (“MD&A”) is intended to help the reader understand the
Company’s financial position and results of operations. MD&A is
provided as a supplement to the Company’s Consolidated Financial Statements
(unaudited) and the accompanying Notes to Consolidated Financial Statements
(unaudited) and should be read in conjunction with the MD&A included in the
Company’s Form 10-K for the year ended December 31, 2009.
Overview
We are one of the largest distributors
of specialty wire and cable and related services to the U.S. electrical
distribution market. We serve over 3,000 customers in over 8,700 individual
locations, including virtually all of the top 200 electrical distributors in the
U.S. We have strong relationships with leading wire and cable manufacturers and
provide them with efficient access to the fragmented electrical distribution
market. We distribute approximately 21,000 SKUs (stock-keeping units) from
eleven strategically located distribution centers in ten states. We are focused
on providing our electrical distributor customers with a single-source solution
for specialty wire and cable and related services by offering a large selection
of in-stock items, exceptional customer service and high levels of product
expertise.
We offer products in most categories of
specialty wire and cable, including:
|
·
|
continuous
and interlocked armor cable (cable encapsulated in either a seamless or
interlocked aluminum protective sheath);
|
|
·
|
control
and power cable (single or multiple conductor industrial
cable);
|
|
·
|
electronic
wire and cable (computer, audio and signal cable);
|
|
·
|
flexible
and portable cords (flexible, heavy duty industrial
cable);
|
|
·
|
instrumentation
and thermocouple cable (cables used for transmitting signals for
instruments and heat sensing devices);
|
|
·
|
lead
and high temperature cable (single conductor cable used for low or high
temperature applications);
|
|
·
|
medium
voltage cable (cables used for applications between 2,001 volts and 35,000
volts); and
|
|
·
|
premise
and category wire and cable (cable used for home and high speed data
applications).
|
We also offer private branded products,
including our LifeGuard™ low-smoke, zero-halogen cable. Low-smoke, zero halogen
products are made with cable jackets that produce no halogen gases and very
little smoke while under combustion.
In addition to our product offerings,
we provide comprehensive value-added services including: standard same day
shipment from our extensive inventory and distribution network; application
engineering support through our knowledgeable sales and technical support staff;
custom cutting of wire and cable to exact specifications; inventory management
programs that provide job-specific asset management and just-in-time delivery;
job-site delivery and logistics support; 24/7/365 customer service provided by
our own employees; and customized internet-based ordering
capabilities.
Critical
Accounting Policies
Critical accounting policies are those
that both are important to the accurate portrayal of a company's financial
condition and results of operations, and require subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
In order to prepare financial
statements that conform to GAAP, we make estimates and assumptions that affect
the amounts reported in our financial statements and accompanying notes. Certain
estimates are particularly sensitive due to their significance to the financial
statements and the possibility that future events may be significantly different
from our expectations.
We have identified the following
accounting policies as those that require us to make the most subjective or
complex judgments in order to fairly present our consolidated financial position
and results of operations. Actual results in these areas could differ materially
from management's estimates under different assumptions and
conditions.
Allowance
for Doubtful Accounts
We maintain an allowance for doubtful
accounts receivable for estimated losses resulting from the inability of our
customers to make required payments. We perform periodic credit evaluations of
our customers and typically do not require collateral. Consistent with industry
practices, we require payment from most customers within 30 days of invoice
date. We have an estimation procedure, based on historical data, current
economic conditions and recent changes in the aging of these receivables, which
we use to record reserves throughout the year. In the last five years,
write-offs against our allowance for doubtful accounts have averaged $0.1
million per year. A 20% change in our estimate at March 31, 2010 would have
resulted in a change in income before income taxes of less than $0.1 million for
the quarter ended March 31, 2010.
Reserve
for Returns and Allowances
We estimate the gross profit impact of
returns and allowances for previously recorded sales. This reserve is calculated
on historical and statistical returns and allowances data and adjusted as trends
in the variables change. A 20% change in our estimate at March 31, 2010 would
have resulted in a change in income before income taxes of $0.1 million for the
quarter ended March 31, 2010.
Inventories
Inventories are valued at the lower of
cost, using the average cost method, or market. We continually monitor our
inventory levels at each of our distribution centers. Our reserve for inventory
obsolescence is based on the age of the inventory, movements of our inventory
over the prior twelve months and the experience of our purchasing and sales
departments in estimating demand for the product in the succeeding year. Our
inventories are generally not susceptible to technological obsolescence. A 20%
change in our estimate at March 31, 2010 would have resulted in a change in
income before income taxes of $0.5 million for the quarter ended March 31,
2010.
Vendor
Rebates
Many of our arrangements with our
vendors entitle us to receive a rebate of a specified amount when we achieve any
of a number of measures, generally related to the volume of purchases from the
vendor. We account for these rebates as a reduction of the prices of the
vendor's products and therefore as a reduction of inventory until we sell the
product, at which time these rebates reduce cost of sales. Throughout the year,
we estimate the amount of rebates earned based on our estimate of purchases to
date relative to the purchase levels that mark our progress toward earning the
rebates. We continually revise these estimates to reflect actual rebates earned
based on actual purchase levels and all estimated rebate amounts are reconciled.
A 20% change in our estimate of total rebates earned during the three months
ended March 31, 2010 would have resulted in a change in income before income
taxes of $0.3 million for the quarter ended March 31, 2010.
Goodwill
Goodwill represents the excess of the
amount we paid to acquire businesses over the estimated fair value of tangible
assets and identifiable intangible assets acquired, less liabilities assumed. At
March 31, 2010, our net goodwill balance was $2.4 million, representing 2.1% of
our total assets.
We test goodwill for impairment
annually, or more frequently if indications of possible impairment exist, by
applying a fair value-based test. In October 2009, we performed our annual
goodwill impairment test for goodwill and, as a result of this test, we believe
the goodwill on our balance sheet is not impaired. If circumstances change or
events occur to indicate that our fair market value has fallen below book value,
we will compare the estimated fair value of the goodwill to its carrying value.
If the carrying value of goodwill exceeds the estimated fair value of goodwill,
we will recognize the difference as an impairment loss in operating
income.
Results
of Operations
The following table shows, for the
periods indicated, information derived from our consolidated statements of
income, expressed as a percentage of net sales for the periods
presented.
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost
of sales
|
|
|
79.6
|
%
|
|
|
79.0
|
%
|
Gross
profit
|
|
|
20.4
|
%
|
|
|
21.0
|
%
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Salaries
and commissions
|
|
|
8.4
|
%
|
|
|
8.4
|
%
|
Other
operating expenses
|
|
|
7.2
|
%
|
|
|
7.0
|
%
|
Depreciation
and amortization
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
15.8
|
%
|
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
4.7
|
%
|
|
|
5.3
|
%
|
Interest
expense
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
4.5
|
%
|
|
|
5.1
|
%
|
Income
tax provision
|
|
|
1.7
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
2.8
|
%
|
|
|
3.1
|
%
|
Note:
Due to rounding,
percentages may not add up to total operating expenses, operating income, income
before taxes or net income.
Comparison of the Three Months Ended March 31,
2010 and 2009
Sales
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Sales
|
|
$
|
61.2
|
|
|
$
|
65.8
|
|
|
$
|
(4.7
|
)
|
|
|
(7.1)
|
%
|
Sales in the first quarter of 2010
decreased 7.1% to $61.2 million from $65.8 million in the first quarter of 2009.
The primary reason for this decrease was continued reduced demand for our
products due to difficult economic conditions. We estimate sales in our core
business sectors of capital projects and Repair and Replacement, also referred
to as Maintenance, Repair and Operations (“MRO”), were down as a result of the
challenging economy which we believe lowered overall demand and discretionary
spending. In addition, sales within our five internal growth initiatives
encompassing Emission Controls, Engineering & Construction, Industrials,
LifeGuard™ (and other private branded products) and Utility Power Generation
were also slightly down.
Gross
Profit
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Gross
profit
|
|
$
|
12.5
|
|
|
$
|
13.8
|
|
|
$
|
(1.3
|
)
|
|
|
(9.5
|
)%
|
Gross
profit as a percent of sales
|
|
|
20.4
|
%
|
|
|
21.0
|
%
|
|
|
(0.6
|
)%
|
|
|
|
|
Gross profit decreased $1.3 million or
9.5% to $12.5 million in 2010 from $13.8 million in 2009. This decrease was
primarily attributable to lower sales volume. Our gross profit as a percentage
of sales (gross margin) decreased to 20.4% in 2010 from 21.0% in 2009. The gross
margin decrease was primarily related to increased customer rebates as more
customers earned rebates. Vendor rebates and prompt pay discounts as a
percentage of purchases decreased which also affected gross margin.
Operating
Expenses
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Dollars in millions)
|
|
2010
|
|
2009
|
|
Change
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries
and commissions
|
|
|
$
|
5.1
|
|
|
$
|
5.5
|
|
|
$
|
(0.4
|
)
|
|
|
(7.6
|
)%
|
Other
operating expenses
|
|
|
|
4.4
|
|
|
|
4.6
|
|
|
|
(0.2
|
)
|
|
|
(4.9
|
)%
|
Depreciation
and amortization
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
0.0
|
%
|
Total
operating expenses
|
|
|
$
|
9.7
|
|
|
$
|
10.3
|
|
|
$
|
(0.6
|
)
|
|
|
(6.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses as a percent of sales
|
|
|
|
15.8
|
%
|
|
|
15.6
|
%
|
|
|
0.2
|
%
|
|
|
|
|
Note: Due
to rounding, numbers may not add up to total operating expenses.
The decrease in salaries and
commissions was primarily attributable to lower salaries as a result of the
headcount reduction that occurred in March 2009.
Other operating expenses decreased
primarily due to our cost control initiatives involving tighter management of
discretionary expenses and decreased expenses associated with a lower
headcount.
Depreciation and amortization expense
was consistent at $0.1 million.
Operating expenses as a percent of
sales increased slightly to 15.8% in 2010 from 15.6% in 2009 due to the
deleveraging of operating expenses from the reduction in sales.
Interest
Expense
Interest expense decreased $0.1 million
or 51.0% to $0.1 million in 2010 from $0.2 million in 2009. The decrease was
attributed to lower debt levels as cash from operations was used to pay down
debt. Average debt was $12.6 million in 2010 compared to $28.6 million in 2009.
The average effective interest rate increased slightly to 2.2% in 2010 from 1.8%
in 2009 due to the new loan agreement which was executed in September
2009.
Income
Taxes
Income taxes decreased $0.2 million or
17.3% to $1.1 million in 2010 from $1.3 million in 2009. Our effective income
tax rate was 38.6% in 2010 compared to 38.5% in 2009.
Net
Income
We achieved net income of $1.7 million
in 2010 compared to $2.1 million in 2009, a decrease of 17.4%.
Impact
of Inflation and Commodity Prices
Our results of operations are affected
by changes in the inflation rate and commodity prices. Moreover, because copper
and petrochemical products are components of the wire and cable we sell,
fluctuations in the costs of these and other commodities have historically
affected our operating results. To the extent we are unable to pass on to our
customers cost increases due to inflation or rising commodity prices, it could
adversely affect our operating results. To the extent commodity prices decline,
the net realizable value of our existing inventory could be reduced, and our
gross profits could be adversely affected. If we turn our inventory
approximately four times a year, the impact of severe fluctuations in copper
prices would primarily affect the results of the succeeding calendar quarter.
Average copper prices for the quarter ended March 31, 2010, December 31, 2009
and March 31, 2009 were $3.28, $3.03 and $1.57, respectively.
Liquidity
and Capital Resources
Our primary capital needs are for
working capital obligations, dividend payments, the stock repurchase program and
other general corporate purposes, including acquisitions and capital
expenditures. Our primary sources of working capital are cash from operations
supplemented by bank borrowings.
Liquidity is defined as the ability to
generate adequate amounts of cash to meet the current need for cash. We assess
our liquidity in terms of our ability to generate cash to fund our operating
activities. Significant factors which could affect liquidity include the
following:
|
•
|
the
adequacy of available bank lines of credit;
|
|
•
|
the
ability to attract long-term capital with satisfactory
terms;
|
|
•
|
additional
stock repurchases;
|
|
•
|
cash
flows generated from operating activities;
|
|
•
|
payment
of dividends;
|
|
•
|
capital
expenditures; and
|
|
•
|
acquisitions.
|
Comparison
of the Three Months Ended March 31, 2010 and 2009
Our net cash provided by operating
activities was $10.1 million in 2010, an increase of $1.3 million or 14.8%
compared to cash provided by operating activities of $8.8 million in 2009. Our
net income decreased by $0.4 million or 17.4% to $1.7 million in 2010 from $2.1
million in 2009.
Changes in our operating assets and
liabilities resulted in cash provided by operating activities of $7.7 million.
Inventory decreased $4.9 million due to the reduction in cable management
inventory and regular stock. Cable management inventory fluctuates higher when
we are staging and cutting inventory in preparation for shipment and lower when
the product ships to the job site. Our regular stock inventory decreased to more
closely align inventory levels with the lower sales activity. Accounts
receivable decreased $3.1 million due to lower sales volume. Prepaids decreased
$2.8 million due to a prepayment for inventory at December 31, 2009; the
inventory was received in January 2010. Accrued and other current liabilities
decreased $2.0 million primarily due to lower prepayments on cable management
projects as many of these projects began shipping in 2010, lower accrued wire
purchases, a reduction in customer discounts payable and lower accrued property
taxes as these liabilities are typically paid in the first quarter. Trade
accounts payable decreased $1.8 million primarily from vendor rebates earned in
2009 and not yet utilized.
Net cash used in investing activities
was $0.1 million in 2010 and less than $0.1 million in 2009 as requirements for
additional capital resources remained low.
Net cash used in financing activities
was $10.0 million in 2010 compared to $8.7 million in 2009. Net payments on the
revolver of $8.5 million and dividend payments of $1.5 million were the main
components of cash used in financing activities during the first quarter of
2010.
Indebtedness
Our principal source of liquidity at
March 31, 2010 was working capital of $82.0 million compared to $89.9 million at
December 31, 2009. We also had available borrowing capacity of approximately
$56.2 million at March 31, 2010 and $49.7 million at December 31, 2009 under our
$75 million loan and security agreement.
We believe that we will have adequate
availability of capital to fund our present operations, meet our commitments on
our existing debt, continue the stock repurchase program, continue to fund our
dividend payments, and fund anticipated growth over the next twelve months,
including expansion in existing and targeted market areas. We continually seek
potential acquisitions and from time to time hold discussions with acquisition
candidates. If suitable acquisition opportunities or working capital needs arise
that would require additional financing, we believe that our financial position
and earnings history provide a solid base for obtaining additional financing
resources at competitive rates and terms. Additionally, based on market
conditions, we may issue additional shares of common or preferred stock to raise
funds.
Loan
and Security Agreement
We have a loan agreement with Bank of
America, N.A., as agent and lender that provides for a $75 million revolving
loan. We amended and restated the loan agreement in September 2009 to extend the
maturity through September 21, 2013. The loan agreement does not limit the
amount of dividends we may pay or stock we may repurchase, as long as we are not
in default under the loan agreement and we maintain defined levels of fixed
charge coverage and minimum levels of availability. The lender has a security
interest in all of our assets except for the real property in Houston, Texas.
The loan bears interest at the agent’s base interest rate. Portions
of the outstanding loan may be converted to LIBOR loans in minimum amounts of
$1.0 million and integral multiples of $0.1 million. Upon such conversion,
interest is payable at LIBOR plus a margin ranging from 1.25% to 1.75%,
depending on the Company’s debt-to-EBITDA ratio. We have entered into a series
of one-month LIBOR loans, which, upon maturity, are either rolled back into the
revolving loan or renewed under a new LIBOR contract. The loan agreement
contains certain provisions that may cause the debt to be classified as a
current liability, in accordance with US GAAP, if availability falls below
certain thresholds, however, the ultimate maturity date under the loan agreement
would remain as September 21, 2013.
Contractual Obligations
The following table describes our loan
commitment at March 31, 2010:
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More
than
5 years
|
|
|
|
(In
thousands)
|
Term
loans and loans payable
|
|
$
|
9,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,000
|
|
|
$
|
—
|
|
There were no new material changes in
operating lease obligations or non-cancellable purchase obligations since
December 31, 2009.
Cautionary Statement for Purposes of the
“Safe Harbor”
Forward-looking statements in this
report are made in reliance upon the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements may
relate to, but are not limited to, information or assumptions about our sales
and marketing strategy, sales (including pricing), income, operating income or
gross margin improvements, working capital, cash flow, interest rates, impact of
changes in accounting standards, future economic performance, management’s
plans, goals and objectives for future operations, performance and growth or the
assumptions relating to any of the forward-looking statements. These statements
can be identified by the fact that they do not relate strictly to historical or
current facts. They use words such as “aim”, “anticipate”, “believe”, “could”,
“estimate”, “expect”, “intend”, “may”, “plan”, “project”, “should”, “will be”,
“will continue”, “will likely result”, “would” and other words and terms of
similar meaning in conjunction with a discussion of future operating or
financial performance. The Company cautions that forward-looking statements are
not guarantees because there are inherent difficulties in predicting future
results. Actual results could differ materially from those expressed or implied
in the forward-looking statements. The factors listed under “Risk Factors” in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2009,
as well as any cautionary language in this report, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking
statements.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
There were no material changes to our
market risk as set forth in Items 7A and 7 of our Annual Report on Form 10-K for
the year ended December 31, 2009.
Item 4. Controls and
Procedures
As of March 31, 2010, an evaluation was
performed by the Company’s management, under the supervision and with the
participation of the Company’s chief executive officer and chief financial
officer, of the effectiveness of the Company’s disclosure controls and
procedures. Based on that evaluation, the chief executive officer and
the chief financial officer concluded that the Company’s disclosure controls and
procedures were effective. There were no changes in the Company’s
internal control over financial reporting that occurred during the quarter ended
March 31, 2010 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
Part
II. Other Information
Item
1 – Not applicable and has been omitted.
Item 1A. Risk Factors
There have been no material changes in
our risk factors from those disclosed in the Form 10-K for the year ended
December 31, 2009.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
The following table provides
information about our purchases of common stock for the three months ended March
31, 2010 pursuant to the Company’s stock repurchase program.
Period
|
|
Total number
of shares
purchased
|
|
|
Average
price
paid per
share
|
|
|
Total number
of shares
purchased as
part of publicly
announced
plans
or
programs
(1)
|
|
|
Maximum
dollar value
that may yet
be used for
purchases
under the
plan
|
|
January
1 – 31, 2010
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
19,385,303
|
|
February
1 – 28, 2010
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,385,303
|
|
March
1 – 31, 2010
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
19,385,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
|
|
(1)
|
The
board authorized a stock repurchase program of $30 million in August 2007.
This amount was increased to $50 million in September 2007 and to $75
million effective January 2008. There were no purchases made under the
Company’s stock repurchase program in the first quarter of
2010.
|
Item
3 – Not applicable and has been omitted.
Item
4 – (Removed and reserved)
Item
5 – Not applicable and has been omitted.
Item
6. Exhibits
(a)
Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number
|
|
Document Description
|
|
|
|
31.1
|
|
Certification
by Charles A. Sorrentino pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
31.2
|
|
Certification
by Nicol G. Graham pursuant to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.1
|
|
Certification
by Charles A. Sorrentino and Nicol G. Graham pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
Signature
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May
10, 2010
|
HOUSTON
WIRE & CABLE COMPANY
|
|
|
|
BY: /s/ Nicol G.
Graham
|
|
Nicol
G. Graham, Chief Financial
Officer
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Document Description
|
|
|
|
31.1
|
|
Certification
by Charles A. Sorrentino pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
31.2
|
|
Certification
by Nicol G. Graham pursuant to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.1
|
|
Certification
by Charles A. Sorrentino and Nicol G. Graham pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
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