UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
(Amendment
No. 1)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2010
or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period
from to
Commission
File Number: 000-52046
(Exact
name of registrant as specified in its charter)
Delaware
|
|
36-4151663
|
(State
or other jurisdiction of incorporation or
organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
10201
North Loop East
Houston,
Texas
|
|
77029
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(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
¨
|
Accelerated
Filer
x
|
Non-Accelerated
Filer
¨
|
Smaller
Reporting Company
¨
|
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
November 1, 2010 there were 17,760,987 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 September 30, 2010
EXPLANATORY
NOTE
This
Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends our quarterly report on
Form 10-Q for the fiscal quarter ended September 30, 2010 as filed with the
Securities and Exchange Commission on November 9, 2010, and is being filed
solely to amend Note 3 “Business Combination” in the “Notes to Consolidated
Financial Statements” (Part I, Item 1). The third party provider inadvertently
filed a pre-final version of this Form 10-Q. The entire document is
being re-filed.
HOUSTON
WIRE & CABLE COMPANY
Form
10-Q
For
the Quarter Ended September 30, 2010
INDEX
PART
I. FINANCIAL INFORMATION
|
|
|
|
Item
1. Financial Statements (Unaudited)
|
|
Consolidated
Balance Sheets
|
2
|
Consolidated
Statements of Income
|
3
|
Consolidated
Statements of Cash Flows
|
4
|
Notes
to Consolidated Financial Statements
|
5
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
9
|
Overview
|
9
|
Results
of Operations
|
11
|
Impact
of Inflation and Commodity Prices
|
14
|
Liquidity
and Capital Resources
|
14
|
Contractual
Obligations
|
16
|
Cautionary
Statement for Purposes of the “Safe Harbor
”
|
16
|
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
16
|
|
|
Item
4. Controls and Procedures
|
16
|
|
|
PART
II. OTHER INFORMATION
|
17
|
|
|
Item
1.
|
Legal
Proceedings
|
17
|
Item 1A.
|
Risk
Factors
|
17
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
17
|
Item
3.
|
Defaults
Upon Senior Securities
|
17
|
Item
4.
|
(Removed
and reserved)
|
17
|
Item
5.
|
Other
Information
|
17
|
Item
6.
|
Exhibits
|
18
|
|
|
Signature
Page
|
19
|
HOUSTON WIRE & CABLE
COMPANY
Consolidated
Balance Sheets
(In
thousands, except share data)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
65,605
|
|
|
$
|
46,859
|
|
Inventories,
net
|
|
|
64,707
|
|
|
|
61,325
|
|
Deferred
income taxes
|
|
|
2,833
|
|
|
|
1,776
|
|
Prepaids
|
|
|
944
|
|
|
|
3,649
|
|
Other
assets
|
|
|
200
|
|
|
|
—
|
|
Total
current assets
|
|
|
134,289
|
|
|
|
113,609
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
7,481
|
|
|
|
3,169
|
|
Intangible
assets, net
|
|
|
15,936
|
|
|
|
—
|
|
Goodwill
|
|
|
25,163
|
|
|
|
2,362
|
|
Deferred
income taxes
|
|
|
—
|
|
|
|
2,855
|
|
Other
assets
|
|
|
95
|
|
|
|
19
|
|
Total
assets
|
|
$
|
182,964
|
|
|
$
|
122,014
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Book
overdraft
|
|
$
|
1,472
|
|
|
$
|
907
|
|
Trade
accounts payable
|
|
|
21,296
|
|
|
|
11,610
|
|
Accrued
and other current liabilities
|
|
|
18,473
|
|
|
|
10,924
|
|
Income
taxes payable
|
|
|
321
|
|
|
|
281
|
|
Total
current liabilities
|
|
|
41,562
|
|
|
|
23,722
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
55,640
|
|
|
|
17,479
|
|
Other
long term obligations
|
|
|
144
|
|
|
|
—
|
|
Deferred
income taxes
|
|
|
1,862
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized, none issued and
outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $0.001 par value; 100,000,000 shares authorized: 20,988,952 shares
issued: 17,760,987 and 17,732,737 outstanding at September 30, 2010 and
December 31, 2009, respectively
|
|
|
21
|
|
|
|
21
|
|
Additional
paid-in-capital
|
|
|
57,876
|
|
|
|
56,609
|
|
Retained
earnings
|
|
|
78,784
|
|
|
|
77,571
|
|
Treasury
stock
|
|
|
(52,925
|
)
|
|
|
(53,388
|
)
|
Total
stockholders' equity
|
|
|
83,756
|
|
|
|
80,813
|
|
Total
liabilities and stockholders' equity
|
|
$
|
182,964
|
|
|
$
|
122,014
|
|
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)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
90,536
|
|
|
$
|
63,579
|
|
|
$
|
214,973
|
|
|
$
|
191,293
|
|
Cost
of sales
|
|
|
72,962
|
|
|
|
50,117
|
|
|
|
172,139
|
|
|
|
151,046
|
|
Gross
profit
|
|
|
17,574
|
|
|
|
13,462
|
|
|
|
42,834
|
|
|
|
40,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and commissions
|
|
|
7,191
|
|
|
|
5,143
|
|
|
|
17,481
|
|
|
|
15,882
|
|
Other
operating expenses
|
|
|
5,644
|
|
|
|
4,395
|
|
|
|
14,463
|
|
|
|
13,527
|
|
Depreciation
and amortization
|
|
|
676
|
|
|
|
138
|
|
|
|
972
|
|
|
|
421
|
|
Total
operating expenses
|
|
|
13,511
|
|
|
|
9,676
|
|
|
|
32,916
|
|
|
|
29,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
4,063
|
|
|
|
3,786
|
|
|
|
9,918
|
|
|
|
10,417
|
|
Interest
expense
|
|
|
318
|
|
|
|
140
|
|
|
|
466
|
|
|
|
403
|
|
Income
before income taxes
|
|
|
3,745
|
|
|
|
3,646
|
|
|
|
9,452
|
|
|
|
10,014
|
|
Income
taxes
|
|
|
1,512
|
|
|
|
1,405
|
|
|
|
3,737
|
|
|
|
3,864
|
|
Net
income
|
|
$
|
2,233
|
|
|
$
|
2,241
|
|
|
$
|
5,715
|
|
|
$
|
6,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.13
|
|
|
$
|
0.32
|
|
|
$
|
0.35
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.13
|
|
|
$
|
0.32
|
|
|
$
|
0.35
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,660,056
|
|
|
|
17,651,074
|
|
|
|
17,656,129
|
|
|
|
17,647,334
|
|
Diluted
|
|
|
17,697,934
|
|
|
|
17,666,284
|
|
|
|
17,705,643
|
|
|
|
17,659,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
declared per share
|
|
$
|
0.085
|
|
|
$
|
0.085
|
|
|
$
|
0.255
|
|
|
$
|
0.255
|
|
The
accompanying Notes are an integral part of these Consolidated Financial
Statements.
HOUSTON
WIRE & CABLE COMPANY
Consolidated
Statements of Cash Flows
(Unaudited)
(In
thousands)
|
|
Nine Months
Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,715
|
|
|
$
|
6,150
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
972
|
|
|
|
421
|
|
Amortization
of capitalized loan costs
|
|
|
28
|
|
|
|
91
|
|
Amortization
of unearned stock compensation
|
|
|
1,706
|
|
|
|
1,699
|
|
Provision
for doubtful accounts
|
|
|
75
|
|
|
|
—
|
|
Provision
for returns and allowances
|
|
|
(210
|
)
|
|
|
(106
|
)
|
Provision
for inventory obsolescence
|
|
|
595
|
|
|
|
366
|
|
Gain
on disposals of property and equipment
|
|
|
(8
|
)
|
|
|
—
|
|
Deferred
income taxes
|
|
|
(721
|
)
|
|
|
(541
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(7,494
|
)
|
|
|
8,735
|
|
Inventories
|
|
|
3,495
|
|
|
|
1,145
|
|
Prepaids
|
|
|
2,773
|
|
|
|
12
|
|
Other
assets
|
|
|
140
|
|
|
|
(31
|
)
|
Book
overdraft
|
|
|
85
|
|
|
|
(3,277
|
)
|
Trade
accounts payable
|
|
|
6,319
|
|
|
|
3,849
|
|
Accrued
and other current liabilities
|
|
|
3,339
|
|
|
|
615
|
|
Income
taxes payable
|
|
|
(155
|
)
|
|
|
(1,300
|
)
|
Net
cash provided by operating activities
|
|
|
16,654
|
|
|
|
17,828
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Expenditures
for property and equipment
|
|
|
(374
|
)
|
|
|
(262
|
)
|
Proceeds
from disposal of property and equipment
|
|
|
20
|
|
|
|
—
|
|
Cash
paid for acquisition
|
|
|
(50,000
|
)
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
(50,354
|
)
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Borrowings
on revolver
|
|
|
253,392
|
|
|
|
193,524
|
|
Payments
on revolver
|
|
|
(215,231
|
)
|
|
|
(206,625
|
)
|
Proceeds
from exercise of stock options
|
|
|
36
|
|
|
|
22
|
|
Excess
tax benefit for stock options
|
|
|
5
|
|
|
|
13
|
|
Payment
of dividends
|
|
|
(4,502
|
)
|
|
|
(4,500
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
33,700
|
|
|
|
(17,566
|
)
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
—
|
|
|
|
—
|
|
Cash
at beginning of period
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
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, distributes wire and cable
and related hardware to the U.S. industrial distribution market through
locations in twelve states throughout the United States. The Company
has no other business activity.
The consolidated financial statements
as of September 30, 2010 and for the three and nine months ended September 30,
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 fair value for the assets and liabilities acquired in the Business
Combination disclosed in footnote 3, 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 the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009
filed with the SEC.
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
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares for basic earnings per share
|
|
|
17,660,056
|
|
|
|
17,651,074
|
|
|
|
17,656,129
|
|
|
|
17,647,334
|
|
Effect
of dilutive securities
|
|
|
37,878
|
|
|
|
15,210
|
|
|
|
49,514
|
|
|
|
12,091
|
|
Weighted
average common shares for diluted earnings per share
|
|
|
17,697,934
|
|
|
|
17,666,284
|
|
|
|
17,705,643
|
|
|
|
17,659,425
|
|
The weighted average common shares for
diluted earnings per share exclude stock options to purchase 921,071 and 890,000
shares for the three months ended September 30, 2010 and 2009, respectively, and
864,524 and 1,060,393 shares for the nine months ended September 30, 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. Business
Combination
On June 25, 2010, the Company completed
the acquisition of Southwest Wire Rope LP (SWWR) and its subsidiary, Southern
Wire LLC (SW), from Teleflex Incorporated. The acquisition has been accounted
for in accordance with Accounting Standards Codification (“ASC”) Topic 805,
Business Combinations. Accordingly, the total purchase price has been allocated
on a provisional basis to the assets acquired and liabilities assumed based on
their estimated fair values as of the acquisition date. These allocations
reflect current estimates based on information available at this time and are
subject to change once the purchase price allocation valuations are finalized.
The acquired companies distribute mechanical wire rope and related hardware to
the industrial market. Under the terms of the acquisition agreement, the
purchase price was $50 million, subject to an adjustment based on net working
capital of the acquired companies as of the date of closing. The Company has
elected to treat the acquisition as a stock purchase for tax purposes. The
amount of goodwill deductible for tax purposes is $5,993. The acquisition was
funded from the Company’s loan agreement. This acquisition expands the Company’s
product offerings to the industrial marketplace that purchases its electrical
wire and cable products.
The
following table summarizes the current estimated fair value of the acquired
assets and assumed liabilities recorded as of the date of
acquisition.
|
|
At June 25, 2010
|
|
Accounts
receivable
|
|
$
|
11,117
|
|
Inventories
|
|
|
7,472
|
|
Deferred
income taxes
|
|
|
825
|
|
Prepaids
|
|
|
68
|
|
Property
and equipment
|
|
|
4,486
|
|
Intangibles
|
|
|
16,370
|
|
Goodwill
|
|
|
22,801
|
|
Other
assets
|
|
|
445
|
|
Total
assets acquired
|
|
|
63,584
|
|
|
|
|
|
|
Book
overdraft
|
|
|
480
|
|
Trade
accounts payable
|
|
|
3,367
|
|
Accrued
and other current liabilities
|
|
|
3,010
|
|
Deferred
income taxes
|
|
|
5,383
|
|
Long
term obligations
|
|
|
144
|
|
Total
liabilities assumed
|
|
|
12,384
|
|
|
|
|
|
|
Net
assets purchased
|
|
$
|
51,200
|
|
Intangible
assets, from the acquisition, consist of customer relationships - $11,540, trade
names - $4,580, and non-compete agreements - $250. Customer relationships and
non-compete agreements will be amortized over a 7 ½ and 1 year useful life,
respectively. Trade names are not amortized. As of September 30, 2010,
accumulated amortization and amortization expense recognized on the acquired
intangible assets was $434. Amortization expense to be recognized on the
acquired intangible assets is expected to be $1,613 in 2011 and $1,488 per year
in 2012 through 2015.
Goodwill
represents the future economic benefits arising from other assets acquired that
could not be individually identified and separately recognized. The goodwill
arising from the acquisition consists primarily of sales and operational
synergies that will be achieved by expanding the regionally based operations of
SWWR and SW to the Company’s national platform.
Under ASC
Topic 805-10, acquisition related costs (e.g. legal, valuation and advisory) are
not included as a component of consideration paid, but are accounted for as
expenses in the periods in which the costs are incurred. For the three months
and nine months ended September 30, 2010, the Company incurred $115 and $533 of
acquisition related costs, respectively.
The amount of revenue and net income of
SWWR and SW included in the Company’s consolidated statement of income from the
acquisition date through the period ended September 30, 2010 was $21,880 and
$904, respectively.
The
results of operations of SWWR and SW are included in our consolidated statement
of operations prospectively from June 25, 2010. The unaudited pro forma combined
historical results of the Company, giving effect to the acquisition assuming the
transaction was consummated on January 1, 2009, are as follows:
|
|
Nine Months ended
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
Sales
|
|
$
|
249,631
|
|
|
$
|
255,313
|
|
Net
income
|
|
|
6,838
|
|
|
|
7,150
|
|
Basic
earnings per share
|
|
|
0.39
|
|
|
|
0.41
|
|
Diluted
earnings per share
|
|
|
0.39
|
|
|
|
0.40
|
|
The
unaudited pro forma combined historical results do not reflect any cost savings
or other synergies that might result from the transaction. They are provided for
informational purposes only and are not necessarily indicative of the combined
results of operations for future periods or the results that actually would have
been realized had the acquisition occurred as of the beginning of each
period.
4.
Debt
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. 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 September 30,
2010.
The Loan
Agreement contains certain provisions that may cause the debt to be classified
as a current liability, in accordance with GAAP, if availability falls below
certain thresholds, even though the ultimate maturity date under the Loan
Agreement would remain as September 21, 2013. Availability has remained above
these thresholds.
5. 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 issued upon the exercise of
options, as restricted stock, to fund acquisitions, or for other uses as
authorized by the Board of Directors. During the quarters ended
September 30, 2010 and 2009, the Company did not repurchase any of its
outstanding shares.
During each of the first three quarters
of 2010, the Board of Directors approved a quarterly dividend of $0.085 per
share payable to stockholders. Dividends paid were $4,502 and $4,500 during
the nine months ended September 30, 2010 and 2009, respectively.
6.
Stock Based Compensation
Stock
Option Awards
At the last two Annual Meetings of
Stockholders, held on May 7, 2010 and May 8, 2009, the Company issued options
under the 2006 Stock Plan 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 year. Each option has an exercise price
equal to the fair market value of the Company’s common stock at the close of
trading on the date of grant, has a contractual life of ten years and vests one
year after the date of grant.
The following assumptions were used to
calculate the fair value of the Company’s options issued during the nine months
ended September 30, 2010 and 2009:
|
|
2010
|
|
|
2009
|
|
Expected
volatility
|
|
|
82
|
%
|
|
|
81
|
%
|
Expected
life in years
|
|
2.0
years
|
|
|
2.0
years
|
|
Risk-free
interest rate
|
|
|
0.83
|
%
|
|
|
1.00
|
%
|
Dividend
yield
|
|
|
2.74
|
%
|
|
|
3.29
|
%
|
Restricted
Stock Awards
On June
28, 2010, the Company granted 19,500 voting shares of Restricted Stock under the
2006 Stock Plan to new members of the management team, who joined the Company as
part of the acquisition of SWWR and SW. These shares vest in one-third
increments, on the first, second and third anniversaries of the date of grant,
as long as the recipient is then employed by the Company. Any dividends declared
will be accrued and paid to the recipient when the related shares
vest.
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 anniversaries of the date of grant, as long as the recipient is then
employed by the Company. Any dividends declared will be accrued and paid to the
recipient when the related shares vest.
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 which ranges from one to five
years.
Total share-based compensation cost was
$568 and $504 for the three months ended September 30, 2010 and 2009,
respectively, and $1,706 and $1,699 for the nine months ended September 30, 2010
and 2009, respectively. Total income tax benefit recognized for stock-based
compensation arrangements was $229 and $194 for the three months ended September
30, 2010 and 2009, respectively, and $673 and $654 for the nine months ended
September 30, 2010 and 2009, respectively.
As of September 30, 2010, there was
$3,886 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 twenty-six months.
7.
Commitments and Contingencies
As part
of the June 2010 acquisition, the Company assumed the liability for the
post-remediation monitoring of the soil and water quality at one of the acquired
facilities in Louisiana. The expected liability of $144 relates entirely to the
cost of the monitoring, which will be incurred over approximately the next 10
years. Remediation work was completed prior to the acquisition in accordance
with the requirements of the Louisiana Commission of Environmental
Quality.
The Company, along with many other
defendants, has been named in a number of lawsuits in the state courts of
Minnesota, North Dakota, South Dakota and Illinois alleging that certain
electrical wire and cable which may have contained asbestos caused injury to the
plaintiffs who were exposed to this electrical 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 electrical wire and cable in question or whether the
Company, in fact, distributed the electrical 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 electrical wire and cable at issue, and
the Company would rely on any warranties from the manufacturers of such
electrical wire and cable if it were determined that any of the electrical 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. The Company filed complaints to establish mechanic’s liens
against the properties in February 2010. In lieu of a temporary mechanic’s lien
being established against the properties pending a trial on the lien claims, the
property owners filed release of mechanic’s lien bonds with the Court in July
2010, securing the Company’s claims. The Company is currently working with the
supplier and the owner of the facilities to resolve the issue and anticipates a
resolution by the end of the year. 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 September 30, 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
of operations.
8. Subsequent
Events
On November 5, 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 November 26, 2010, to stockholders of
record at the close of business on November 15, 2010.
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 wire and cable and related hardware in the
U.S. industrial distribution market. The June 25, 2010 purchase of SWWR and SW
allowed the Company to expand its product offerings to include mechanical wire
and cable and related hardware. We have strong relationships with leading wire
and cable manufacturers and provide them with efficient access to the industrial
distribution market. We are focused on providing our distributor customers with
a single-source solution for wire and cable and related hardware by offering a
large selection of in-stock items, exceptional customer service and high levels
of product expertise.
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 September
30, 2010 would have resulted in a change in income before income taxes of $0.1
million.
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 September 30, 2010 would have resulted in a change in income
before income taxes of $0.1 million.
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 September 30, 2010 would have
resulted in a change in income before income taxes of $0.6 million.
Vendor
Rebates
Some
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 nine months ended September 30, 2010 would have resulted in a
change in income before income taxes of $0.9 million.
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 September 30, 2010, our goodwill balance
was $25.2 million, representing 13.8% 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. Our annual
impairment test is performed in the first month of our fourth quarter. 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
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost
of sales
|
|
|
80.6
|
%
|
|
|
78.8
|
%
|
|
|
80.1
|
%
|
|
|
79.0
|
%
|
Gross
profit
|
|
|
19.4
|
%
|
|
|
21.2
|
%
|
|
|
19.9
|
%
|
|
|
21.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and commissions
|
|
|
7.9
|
%
|
|
|
8.1
|
%
|
|
|
8.1
|
%
|
|
|
8.3
|
%
|
Other
operating expenses
|
|
|
6.2
|
%
|
|
|
6.9
|
%
|
|
|
6.7
|
%
|
|
|
7.1
|
%
|
Depreciation
and amortization
|
|
|
0.7
|
%
|
|
|
0.2
|
%
|
|
|
0.5
|
%
|
|
|
0.2
|
%
|
Total
operating expenses:
|
|
|
14.9
|
%
|
|
|
15.2
|
%
|
|
|
15.3
|
%
|
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
4.5
|
%
|
|
|
6.0
|
%
|
|
|
4.6
|
%
|
|
|
5.4
|
%
|
Interest
expense
|
|
|
0.4
|
%
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
4.1
|
%
|
|
|
5.7
|
%
|
|
|
4.4
|
%
|
|
|
5.2
|
%
|
Income
taxes
|
|
|
1.7
|
%
|
|
|
2.2
|
%
|
|
|
1.7
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
2.5
|
%
|
|
|
3.5
|
%
|
|
|
2.7
|
%
|
|
|
3.2
|
%
|
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 September 30, 2010 and 2009
Sales
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Sales
|
|
$
|
90.5
|
|
|
$
|
63.6
|
|
|
$
|
27.0
|
|
|
|
42.4
|
%
|
Sales in
the third quarter of 2010 increased 42.4% to $90.5 million
from $63.6 million in the third quarter of 2009. Most of the
sales increase was attributed to the June 2010 acquisition of SWWR and SW
(“Acquisition”) which generated sales of $21.1 million in the quarter. We
estimate the balance of the increase is from both of our core business sectors
which are capital projects and Repair and Replacement, also referred to as
Maintenance, Repair and Operations (“MRO”). Sales within our five internal
growth initiatives encompassing Emission Controls, Engineering &
Construction, Industrials, LifeGuard™ (and other private branded products) and
Utility Power Generation continued to improve as broad economic conditions
slowly return to historical levels. Project activity remained strong due to
previously funded backlog demand, and we estimate sales were up approximately
20% during the quarter. We believe sales in our Repair and Replacement sector
were up approximately 6% and also benefited from the recovering
economy.
Gross
Profit
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Gross
profit
|
|
$
|
17.6
|
|
|
$
|
13.5
|
|
|
$
|
4.1
|
|
|
|
30.5
|
%
|
Gross
profit as a percent of sales
|
|
|
19.4
|
%
|
|
|
21.2
|
%
|
|
|
(1.8
|
)%
|
|
|
|
|
Gross
profit increased 30.5% to $17.6 million in 2010 from $13.5 million in 2009. The
increase in gross profit was attributed to the Acquisition as the contribution
from the HWC legacy business (pre-acquisition) decreased. This decrease in HWC’s
legacy business gross profit was primarily related to increased customer rebates
as more customers earned rebates and to increased freight expenses. Gross profit
as a percentage of sales (gross margin) decreased due to the competitive market
place, sales mix and increased sales discounts and freight
expenses.
Operating
Expenses
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and commissions
|
|
$
|
7.2
|
|
|
$
|
5.1
|
|
|
$
|
2.0
|
|
|
|
39.8
|
%
|
Other
operating expenses
|
|
|
5.6
|
|
|
|
4.4
|
|
|
|
1.2
|
|
|
|
28.4
|
%
|
Depreciation
and amortization
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
389.9
|
%
|
Total
operating expenses
|
|
$
|
13.5
|
|
|
$
|
9.7
|
|
|
$
|
3.8
|
|
|
|
39.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses as a percent of sales
|
|
|
14.9
|
%
|
|
|
15.2
|
%
|
|
|
(0.3
|
)%
|
|
|
|
|
Note: Due
to rounding, numbers may not add up to total operating expenses.
Salaries
and commissions increased primarily due to the additional personnel from the
Acquisition.
Other
operating expenses increased due to the additional operations obtained from the
Acquisition and to acquisition costs of $0.1 million, which the Company did not
incur in 2009.
Depreciation
and amortization increased to $0.7 million in 2010 from $0.1 million in 2009 due
to depreciation and amortization on the assets acquired in the
Acquisition.
Operating
expenses as a percentage of sales decreased to 14.9% in 2010 from 15.2% in 2009
due to ongoing cost control initiatives and operating leverage from HWC’s legacy
business.
Interest Expense
Interest
expense increased 127.1% or $0.2 million to $0.3 million in 2010 from $0.1
million in 2009 due to higher debt levels as the Acquisition was funded entirely
from the Company’s Loan Agreement. Average debt was $57.1 million in 2010
compared to $19.0 million in 2009. The average effective interest rate increased
to 2.1% in 2010 from 1.8% in 2009. This increase was due to a higher percentage
of debt in LIBOR borrowings in 2009, which is at a lower interest rate than
revolving loan borrowings.
Income
Taxes
Income
taxes increased $0.1 million to $1.5 million in 2010 from $1.4 million in 2009
as pre-tax income increased slightly. Our effective income tax rate
increased to 40.4% in 2010 from 38.5% in 2009. This rate increased due to
acquisition expenses that were not deductible for federal income
tax.
Net
Income
Net
income remained flat at $2.2 million in 2010 and 2009.
Comparison
of the Nine Months Ended September 30, 2010 and 2009
Sales
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Sales
|
|
$
|
215.0
|
|
|
$
|
191.3
|
|
|
$
|
23.7
|
|
|
|
12.4
|
%
|
Sales for the first nine months of 2010
increased 12.4% to $215.0 million from $191.3 million in the first nine months
of 2009. The primary reason for the increase in sales is due to $21.9 million of
sales generated from the Acquisition. We estimate sales in our core Repair and
Replacement sector were essentially flat as a result of the challenging economy
which we believe lowered overall demand and discretionary spending. We estimate
sales increased within our five internal growth initiatives encompassing
Emission Controls, Engineering & Construction, Industrials, LifeGuard™ (and
other private branded products) and Utility Power Generation. Sales within our
growth initiatives remained more resilient to the overall market and economy as
projects in these areas were already in progress before the economic downturn
and had been previously funded. Project activity for our growth initiatives in
2010 remained active and we estimate sales were up approximately 7% as a result
of our continued penetration into these markets.
Gross
Profit
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Gross
profit
|
|
$
|
42.8
|
|
|
$
|
40.2
|
|
|
$
|
2.6
|
|
|
|
6.4
|
%
|
Gross
profit as a percent of sales
|
|
|
19.9
|
%
|
|
|
21.0
|
%
|
|
|
(1.1
|
)%
|
|
|
|
|
Gross
profit increased 6.4% to $42.8 million in 2010 from $40.2 million in 2009. This
increase is attributable to higher sales volume generated as a result of the
Acquisition. Our gross margin decreased to 19.9% in 2010 from 21.0% in 2009. The
reduction in gross margin attributable to HWC’s legacy business was impacted by
competitive economic conditions which compressed gross margins, increased
customer rebates as more customers earned rebates, increased freight expenses,
and lower vendor rebates and prompt pay discounts as a percentage of
purchases.
Operating
Expenses
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and commissions
|
|
$
|
17.5
|
|
|
$
|
15.9
|
|
|
$
|
1.6
|
|
|
|
10.1
|
%
|
Other
operating expenses
|
|
|
14.5
|
|
|
|
13.5
|
|
|
|
0.9
|
|
|
|
6.9
|
%
|
Depreciation
and amortization
|
|
|
1.0
|
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
130.9
|
%
|
Total
operating expenses
|
|
$
|
32.9
|
|
|
$
|
29.8
|
|
|
$
|
3.1
|
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses as a percent of sales
|
|
|
15.3
|
%
|
|
|
15.6
|
%
|
|
|
(0.3
|
)%
|
|
|
|
|
Note: Due
to rounding, numbers may not add up to total operating
expenses.
The
increase in salaries and commissions is due to additional personnel obtained in
the Acquisition and was partially offset by lower costs in HWC’s legacy business
as headcount levels decreased from the prior year period.
Other
operating expenses increased due to the additional operations obtained from the
Acquisition partially offset by lower costs in HWC’s legacy business from lower
headcount levels and cost reduction initiatives. Other operating expenses
included $0.5 million of acquisition related expenses in 2010, which the Company
did not incur in 2009.
Depreciation
and amortization expense increased by $0.6 million due to depreciation and
amortization on the assets acquired in the Acquisition.
Operating
expenses as a percentage of sales decreased to 15.3% in 2010 from 15.6% in 2009
due to ongoing cost control initiatives and operating leverage from HWC’s legacy
business.
Interest
Expense
Interest expense increased $0.1 million
as the Acquisition was funded entirely from borrowings under the Company’s Loan
Agreement. Average debt was $26.4 million in 2010 compared to $22.4 million in
2009. The average effective interest rate increased to 2.2% in 2010 from 1.8% in
2009. This increase was due to a higher percentage of debt in LIBOR borrowings
in 2009, which is at a lower interest rate than revolving loan borrowings, and
an increase in the LIBOR margin under the new Loan Agreement executed in
September 2009.
Income
Taxes
Income
taxes decreased $0.1 million. Our effective income tax rate increased to 39.5%
in 2010 from 38.6% in 2009. This rate increased due to acquisition expenses that
were not deductible for federal income tax.
Net
Income
We achieved net income of $5.7 million
in 2010 compared to $6.2 million in 2009.
Impact
of Inflation and Commodity Prices
Our results of operations are affected
by changes in the inflation rate and commodity prices. Moreover, because copper,
steel 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 were to
turn our inventory approximately four times a year, the impact of severe
fluctuations in copper and steel prices would primarily affect the results of
the succeeding calendar quarter.
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;
|
|
•
|
capital expenditures;
and
|
Comparison
of the Nine Months Ended September 30, 2010 and 2009
Our net cash provided by operating
activities for the nine months ended September 30, 2010 was $16.7 million
compared to $17.8 million in the prior year period. Our net income decreased by
$0.4 million to $5.7 million in 2010 from $6.2 million in 2009.
Changes in our operating assets and
liabilities resulted in cash provided by operating activities of $8.5 million in
2010. Accounts payable increased $6.3 million primarily from changes
in the timing of the weekly check run between periods. Inventory decreased $3.5
million due to a reduction in cable management inventory, as many of these
projects began shipping in 2010. The cable management inventory balances
increase when we are staging and cutting inventory in preparation for shipment
and declines when the product ships to the job site. Accrued and other
liabilities increased $3.3 million primarily due to higher accrued wire
purchases, additional accruals for volume rebates to our customers, increased
payroll related accruals and lower prepayments on cable management projects,
reflecting shipments in 2010. Prepaids decreased $2.8 million due to a
prepayment for inventory at December 31, 2009. The inventory was received in
January 2010, and there was no prepayment for inventory at September 30, 2010.
Accounts receivable increased $7.5 million due to increased sales.
Net cash used in investing activities
was $50.4 million in 2010 compared to $0.3 million in 2009 due to the $50.0
million acquisition of SWWR and SW.
Net cash provided by financing
activities was $33.7 million in 2010 compared to net cash used in financing
activities of $17.6 million in 2009. Net borrowings under the Loan Agreement of
$38.2 million, which included borrowings of $50.0 million to finance the
acquisition of SWWR and SW, and dividend payments of $4.5 million, were the main
components of net cash provided by financing activities during
2010.
Indebtedness
Our principal source of liquidity at
September 30, 2010 was working capital of $92.7 million compared to $89.9
million at December 31, 2009. We also had available borrowing capacity of
approximately $19.4 million at September 30, 2010 and $49.7 million at December
31, 2009 under our $75 million Loan 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 further suitable acquisition opportunities or working capital
needs arise that would require increased financing, we believe that our
financial position and earnings history provide a solid base for obtaining such
financing resources at competitive rates and terms. Additionally, based on
market conditions, we may issue more 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. 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 GAAP, if availability falls below
certain thresholds, even though the ultimate maturity date under the loan
agreement would remain as September 21, 2013. Availability has remained above
these thresholds.
Contractual
Obligations
The
following table summarizes our loan commitment at September 30,
2010:
In
thousands
|
|
Total
|
|
|
Less than
1
year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More
than
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$
|
55,640
|
|
|
$
|
—
|
|
|
$
|
55,640
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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 September 30, 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
September 30, 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 were no material changes in the
risk factors disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2009 and our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2010.
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
September 30, 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
|
|
July
1 – 31, 2010
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
19,385,303
|
|
August
1 – 31, 2010
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,385,303
|
|
September
1 – 30, 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 third 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: November
9, 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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