HOUSTON WIRE & CABLE COMPANY
Consolidated Balance Sheets
(In thousands, except share data)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
—
|
|
|
$
|
274
|
|
Accounts receivable, net
|
|
|
59,218
|
|
|
|
65,892
|
|
Inventories, net
|
|
|
81,767
|
|
|
|
84,662
|
|
Deferred income taxes
|
|
|
2,631
|
|
|
|
2,455
|
|
Prepaids
|
|
|
1,125
|
|
|
|
841
|
|
Total current assets
|
|
|
144,741
|
|
|
|
154,124
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
5,787
|
|
|
|
5,824
|
|
Intangible assets, net
|
|
|
11,533
|
|
|
|
11,967
|
|
Goodwill
|
|
|
25,082
|
|
|
|
25,082
|
|
Other assets
|
|
|
143
|
|
|
|
158
|
|
Total assets
|
|
$
|
187,286
|
|
|
$
|
197,155
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Book overdraft
|
|
$
|
3,855
|
|
|
$
|
—
|
|
Trade accounts payable
|
|
|
10,481
|
|
|
|
12,330
|
|
Accrued and other current liabilities
|
|
|
9,126
|
|
|
|
15,379
|
|
Income taxes
|
|
|
2,481
|
|
|
|
5
|
|
Total current liabilities
|
|
|
25,943
|
|
|
|
27,714
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
48,010
|
|
|
|
58,588
|
|
Other long term obligations
|
|
|
103
|
|
|
|
103
|
|
Deferred income taxes
|
|
|
1,534
|
|
|
|
1,670
|
|
Total liabilities
|
|
|
75,590
|
|
|
|
88,075
|
|
|
|
|
|
|
|
|
|
|
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: 17,910,794 and 17,899,499 outstanding at March 31, 2013 and December 31, 2012, respectively
|
|
|
21
|
|
|
|
21
|
|
Additional paid-in-capital
|
|
|
55,475
|
|
|
|
55,291
|
|
Retained earnings
|
|
|
106,499
|
|
|
|
104,252
|
|
Treasury stock
|
|
|
(50,299
|
)
|
|
|
(50,484
|
)
|
Total stockholders' equity
|
|
|
111,696
|
|
|
|
109,080
|
|
Total liabilities and stockholders' equity
|
|
$
|
187,286
|
|
|
$
|
197,155
|
|
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
|
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
94,304
|
|
|
$
|
94,462
|
|
Cost of sales
|
|
|
72,925
|
|
|
|
73,324
|
|
Gross profit
|
|
|
21,379
|
|
|
|
21,138
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Salaries and commissions
|
|
|
7,967
|
|
|
|
7,229
|
|
Other operating expenses
|
|
|
6,281
|
|
|
|
6,374
|
|
Depreciation and amortization
|
|
|
745
|
|
|
|
733
|
|
Total operating expenses
|
|
|
14,993
|
|
|
|
14,336
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6,386
|
|
|
|
6,802
|
|
Interest expense
|
|
|
273
|
|
|
|
266
|
|
Income before income taxes
|
|
|
6,113
|
|
|
|
6,536
|
|
Income taxes
|
|
|
2,251
|
|
|
|
2,520
|
|
Net income
|
|
$
|
3,862
|
|
|
$
|
4,016
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
0.23
|
|
Diluted
|
|
$
|
0.22
|
|
|
$
|
0.23
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,752,682
|
|
|
|
17,698,600
|
|
Diluted
|
|
|
17,845,442
|
|
|
|
17,814,902
|
|
|
|
|
|
|
|
|
|
|
Dividend declared per share
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
The accompanying Notes are an integral part
of these Consolidated Financial Statements.
HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
Three Months
Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,862
|
|
|
$
|
4,016
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
745
|
|
|
|
733
|
|
Amortization of capitalized loan costs
|
|
|
5
|
|
|
|
5
|
|
Amortization of unearned stock compensation
|
|
|
245
|
|
|
|
268
|
|
Provision for doubtful accounts
|
|
|
(59
|
)
|
|
|
9
|
|
Provision for returns and allowances
|
|
|
25
|
|
|
|
(96
|
)
|
Provision for inventory obsolescence
|
|
|
210
|
|
|
|
158
|
|
Deferred income taxes
|
|
|
(312
|
)
|
|
|
(108
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6,708
|
|
|
|
(5,146
|
)
|
Inventories
|
|
|
2,685
|
|
|
|
(12,291
|
)
|
Prepaids
|
|
|
(284
|
)
|
|
|
(201
|
)
|
Other assets
|
|
|
10
|
|
|
|
(2
|
)
|
Book overdraft
|
|
|
3,855
|
|
|
|
3,316
|
|
Trade accounts payable
|
|
|
(1,849
|
)
|
|
|
4,708
|
|
Accrued and other current liabilities
|
|
|
(6,272
|
)
|
|
|
(2,941
|
)
|
Income taxes payable
|
|
|
2,475
|
|
|
|
2,564
|
|
Other long term obligations
|
|
|
—
|
|
|
|
(3
|
)
|
Net cash provided by (used in) operating activities
|
|
|
12,049
|
|
|
|
(5,011
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Expenditures for property and equipment
|
|
|
(274
|
)
|
|
|
(101
|
)
|
Net cash used in investing activities
|
|
|
(274
|
)
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Borrowings on revolver
|
|
|
94,696
|
|
|
|
94,060
|
|
Payments on revolver
|
|
|
(105,274
|
)
|
|
|
(87,466
|
)
|
Proceeds from exercise of stock options
|
|
|
122
|
|
|
|
137
|
|
Excess tax benefit for stock options
|
|
|
5
|
|
|
|
28
|
|
Payment of dividends
|
|
|
(1,596
|
)
|
|
|
(1,593
|
)
|
Purchase of treasury stock
|
|
|
(2
|
)
|
|
|
(54
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(12,049
|
)
|
|
|
5,112
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(274
|
)
|
|
|
—
|
|
Cash at beginning of period
|
|
|
274
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
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.,
provides wire and cable, hardware and related services to the U.S. market through nineteen locations in twelve states throughout
the United States. The Company has no other business activity.
The consolidated financial statements as
of March 31, 2013 and for the three months ended March 31, 2013 and 2012 have been prepared following accounting principles generally
accepted in the United States (“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. All significant inter-company balances and transactions have
been eliminated. 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
inventory obsolescence reserve, the reserve for returns and allowances, vendor rebates and asset impairments. Actual results could
differ materially from the estimates and assumptions used for the preparation of the financial statements.
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, 2012 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 diluted effects of stock options and unvested restricted stock awards
and units.
The following reconciles the denominator used in the calculation of dilutive earnings per share:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares for basic earnings per share
|
|
|
17,752,682
|
|
|
|
17,698,600
|
|
Effect of dilutive securities
|
|
|
92,760
|
|
|
|
116,302
|
|
Weighted average common shares for diluted earnings per share
|
|
|
17,845,442
|
|
|
|
17,814,902
|
|
The weighted average common shares for
diluted earnings per share exclude stock options to purchase 596,410 and 300,000 shares for the three months ended March 31, 2013
and 2012, 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. Debt
On September 30, 2011, HWC Wire & Cable
Company, as borrower, entered into the Third Amended and Restated Loan and Security Agreement (“2011 Loan Agreement”),
with certain lenders and Bank of America, N.A., as agent, and the Company, as guarantor, executed a Second Amended and Restated
Guaranty of the borrower’s obligations thereunder. The 2011 Loan Agreement provides for a $100 million revolving credit facility,
bears interest at the agent’s base rate, with a London Interbank Offered Rate (“LIBOR”) rate option and expires
on September 30, 2016. The 2011 Loan Agreement is secured by a lien on substantially all the property of the Company, other
than real estate. Availability under the 2011 Loan Agreement is limited to a borrowing base equal to 85% of the value of eligible
accounts receivable, plus 65% of the value of eligible inventory, less certain reserves.
Portions of the loan may be converted to
LIBOR loans in minimum amounts of $1,000 and integral multiples of $100. LIBOR loans bear interest at the British Bankers Association
LIBOR Rate plus 125 to 200 basis points based on availability, and loans not converted to LIBOR loans bear interest at a fluctuating
rate equal to the greatest of the agent’s prime rate, the federal funds rate plus 50 basis points, or 30-day LIBOR plus 150
basis points. Unused commitment fees are 25 or 30 basis points, depending on the amount of the unused commitment.
The 2011 Loan Agreement includes, among
other things, covenants that require the Company to maintain a specified minimum fixed charge coverage ratio and availability levels.
Additionally, the 2011 Loan Agreement allows for the unlimited payment of dividends and repurchases of stock, subject to the absence
of events of default and maintenance of a fixed charge coverage ratio and minimum level of availability. The 2011 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 remains as September 30, 2016.
Availability has remained above these thresholds. At March 31, 2013, the Company was in compliance with the financial covenants
governing its indebtedness.
The carrying amount of long term debt approximates
fair value as it bears interest at variable rates, which is a Level 2 measurement as defined in Accounting Standards Codification
(“ASC”) Topic 820, Fair Value Measurement.
4. Stockholders’ Equity
During the first quarter of 2013, the Board
of Directors approved a quarterly dividend of $0.09 per share payable to stockholders. Dividends paid were $1,596 and $1,593
during the three months ended March 31, 2013 and 2012, respectively.
5. Stock Based Compensation
There were no stock options, restricted
stock awards or restricted stock units granted during the first quarter of 2013 or 2012.
Total stock-based compensation cost was
$245 and $268 for the three months ended March 31, 2013 and 2012, respectively and is included in salaries and commissions. Total
income tax benefit recognized for stock-based compensation arrangements was $90 and $103 for the three months ended March 31, 2013
and 2012, respectively.
6. Commitments and Contingencies
As part of the 2010 acquisition, the Company
assumed the liability for the post-remediation monitoring of the water quality at one of the acquired facilities in Louisiana.
The expected liability of $103 at March 31, 2013 relates to the cost of the monitoring, which the Company estimates will be incurred
over approximately the next 4 years, and also the cost to plug the wells. Remediation work was completed prior to the acquisition
in accordance with the requirements of the Louisiana Department of Environmental Quality.
The Company, along with many other defendants,
has been named in a number of lawsuits in the state courts of Illinois, Minnesota, North Dakota, 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, to date,
has covered the defense of and all costs associated with these claims. 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 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.
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, 2013, the Board of Directors
approved a dividend on the shares of common stock of the Company in the amount of $0.11 per share, payable on May 30, 2013, to
stockholders of record at the close of business on May 17, 2013.
Following the Annual Meeting of
Stockholders on May 7, 2013, the Company awarded restricted stock units with a value of $50 to each non-employee
director who was re-elected, for an aggregate of 21,006 restricted stock units. Each award of restricted stock
units vests at the date of the 2014 Annual Meeting of Stockholders. Each non-employee director is entitled to receive a
number of shares of the Company's common stock equal to the number of vested restricted stock units, together with
dividend equivalents from the date of grant, at such time as the director’s service on the board terminates
for any reason.
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, 2012.
Overview
We are one of the largest distributors
of wire and cable and related services to the U.S. market. We provide our customers with a single-source solution for wire and
cable, hardware and related services by offering a large selection of in-stock items, exceptional customer service and high levels
of product expertise.
Critical Accounting Policies
The preparation of our consolidated
financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities,
revenue and expenses. On an on-going basis, we make and evaluate estimates and judgments, including those related to the
allowance for doubtful accounts, the reserve for returns and allowances, the inventory reserve, intangible assets, vendor
rebates and goodwill. We base our estimates on historical experience and various other assumptions that we believe are
reasonable under the circumstances; the results of which form the basis for making judgments about amounts and timing of
revenue and expenses, the carrying values of assets and the recorded amounts of liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates and such estimates may change if the underlying
conditions or assumptions change. We have discussed the development and selection of critical accounting policies and
estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our related disclosures.
The critical accounting policies related to the estimates and judgments are discussed in our Annual Report on Form 10-K for
the year ended December 31, 2012 under Management’s Discussion and Analysis of Financial Condition and Results of
Operations. There have been no changes to our critical accounting policies and estimates during the three months ended March
31, 2013,
which includes the potential goodwill impairment of the
Southern Wire reporting unit, should it not achieve the anticipated significant growth in its business.
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, 2012, 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.
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,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
77.3
|
%
|
|
|
77.6
|
%
|
Gross profit
|
|
|
22.7
|
%
|
|
|
22.4
|
%
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Salaries and commissions
|
|
|
8.4
|
%
|
|
|
7.7
|
%
|
Other operating expenses
|
|
|
6.7
|
%
|
|
|
6.7
|
%
|
Depreciation and amortization
|
|
|
0.8
|
%
|
|
|
0.8
|
%
|
Total operating expenses:
|
|
|
15.9
|
%
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6.8
|
%
|
|
|
7.2
|
%
|
Interest expense
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
6.5
|
%
|
|
|
6.9
|
%
|
Income taxes
|
|
|
2.4
|
%
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.1
|
%
|
|
|
4.3
|
%
|
Note:
Due to rounding, percentages may not add
up to total operating expenses, operating income, income before income taxes or net income.
Comparison of the Three Months Ended March 31, 2013 and 2012
Sales
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Dollars in millions)
|
|
2013
|
|
|
2012
|
|
|
Change
|
|
Sales
|
|
$
|
94.3
|
|
|
$
|
94.5
|
|
|
$
|
(0.2
|
)
|
|
|
(0.2
|
)%
|
Our sales for the first quarter were flat from the prior
year period. When adjusted for metal prices, which fell over the quarter, sales were up approximately 2% when compared to 2012.
Project business generated from our growth initiatives encompassing Environmental Compliance, Engineering & Construction,
Industrials, LifeGuard™ (and other private branded products), Utility Power Generation, and Mechanical were down approximately
4% from the same period in 2012. Regional market weakness and typical first quarter seasonality, continued to delay the start
of new projects. We estimate sales in our core Maintenance, Repair and Operations (“MRO”) sector were up
approximately 3% reflecting the continued post recession recovery in operations investment.
Gross Profit
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Dollars in millions)
|
|
2013
|
|
|
2012
|
|
|
Change
|
|
Gross profit
|
|
$
|
21.4
|
|
|
$
|
21.1
|
|
|
$
|
0.2
|
|
|
|
1.1
|
%
|
Gross profit as a percent of sales
|
|
|
22.7
|
%
|
|
|
22.4
|
%
|
|
|
0.3
|
%
|
|
|
|
|
Gross profit increased 1.1% to $21.4 million in 2013 from $21.1 million in 2012. The increase in gross
profit was primarily attributed to the increase in gross margin (gross profit as a percentage of sales) which increased to 22.7%
in 2013 from 22.4% in 2012. This increase is primarily due to our emphasis to increase the gross margin on certain product groups,
and sales from higher margin products.
Operating Expenses
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Dollars in millions)
|
|
2013
|
|
|
2012
|
|
|
Change
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and commissions
|
|
$
|
8.0
|
|
|
$
|
7.2
|
|
|
$
|
0.7
|
|
|
|
10.2
|
%
|
Other operating expenses
|
|
|
6.3
|
|
|
|
6.4
|
|
|
|
(0.1
|
)
|
|
|
(1.5
|
)%
|
Depreciation and amortization
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
0.0
|
|
|
|
1.6
|
%
|
Total operating expenses
|
|
$
|
15.0
|
|
|
$
|
14.3
|
|
|
$
|
0.7
|
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses as a percent of sales
|
|
|
15.9
|
%
|
|
|
15.2
|
%
|
|
|
0.7
|
%
|
|
|
|
|
Note: Due to rounding, numbers may not add up to
total operating expenses.
Salaries and commissions increased 10.2% due to additional headcount primarily in sales and marketing.
Other operating expenses decreased slightly
to $6.3 million in 2013 from $6.4 million in 2012.
Depreciation and amortization remained
consistent at $0.7 million.
Operating expenses as a percentage of
sales increased to 15.9% in 2013 from 15.2% in 2012 due to the increase in salaries and commissions.
Interest Expense
Interest expense increased 2.6% due to
higher average debt levels. Average debt was $53.3 million in 2013 compared to $47.6 million in 2012. The average effective interest
rate decreased to 1.9% in 2013 from 2.1% in 2012 due to a higher percentage of the borrowings at the London Interbank Offered
Rate, which is lower than the base interest rate of the loan.
Income Taxes
Income tax expense decreased $0.3 million or 10.7% to $2.3 million
in 2013 compared to $2.5 million in 2012. The effective income tax rate decreased to 36.8% in 2013 from 38.6% in 2012 due to a
$0.2 million adjustment for an over accrual of state income taxes from a prior period.
Net Income
We achieved net income of $3.9 million
in 2013 compared to $4.0 million in 2012, a decrease of 3.8%.
Impact of Inflation and Commodity Prices
Our results of operations are affected
by changes in the inflation rate and commodity prices. Moreover, because copper, petrochemical, aluminum and steel products are
components of the wire and cable and related hardware we sell, fluctuations in the costs of these and other commodities have historically
affected our operating results. To the extent commodity prices decline, the net realizable value of our existing inventory could
also decline, and our gross profit could be adversely affected because of either reduced selling prices or lower of cost or market
adjustments in the carrying value of our inventory. If we turn our inventory approximately four times a year, the impact of changes
in commodity prices in any particular quarter would primarily affect the results of the succeeding calendar quarter. If we are
unable to pass on to our customers future cost increases due to inflation or rising commodity prices, our operating results could
be adversely affected.
Liquidity and Capital Resources
Our primary capital needs are for working
capital obligations, capital expenditures, dividend payments and other general corporate purposes, including acquisitions. 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;
|
|
·
|
cash flows generated from operating activities;
|
|
·
|
capital expenditures;
|
|
·
|
payment of dividends;
|
|
·
|
acquisitions; and
|
|
·
|
the ability to attract long-term capital with satisfactory terms
|
Comparison of the Three Months Ended March 31, 2013 and
2012
Our net cash provided by operating activities
was $12.0 million in 2013 compared to net cash used in operating activities of $5.0 million in 2012. Our net income decreased
by $0.2 million or 3.8% to $3.9 million in 2013 from $4.0 million in 2012.
Changes in our operating assets and liabilities
resulted in cash provided by operating activities of $7.3 million in 2013. The decrease in accounts receivable of $6.7 million
is primarily related to lower accrued purchase discounts from our vendors and lower trade receivables. Book overdraft, which is
funded by our revolving credit facility as soon as the related vendor checks clear our disbursement account, increased $3.9 million.
Inventories decreased $2.7 million as the Company continued to fine tune its inventory profiles. Partially offsetting these sources
of cash was the reduction of accrued and other current liabilities of $6.3 million relating to lower volume rebates to our customers,
accrued wire purchases, property taxes and payroll related accruals.
Net cash used in investing activities
was $0.3 million in 2013 compared to $0.1 million in 2012. The increase was primarily attributable to the purchase of machinery
and equipment used in operations.
Net cash used in financing activities was
$12.0 million in 2013 compared to cash provided by financing activities of $5.1 million in 2012. Net payments on the revolver of
$10.6 million and the payment of dividends of $1.6 million were the main components of financing activities in 2013.
Indebtedness
Our principal source of liquidity at March
31, 2013 was working capital of $118.8 million compared to $126.4 million at December 31, 2012. We also had additional available
borrowing capacity of approximately $51.4 million at March 31, 2013 and $41.4 million at December 31, 2012 under our 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 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 decide to issue additional shares of common or preferred stock to raise funds.
Loan and Security Agreement
On September 30, 2011, we entered into
a Third Amended and Restated Loan and Security Agreement (the “2011 Loan Agreement”) with certain lenders and Bank
of America, N.A., as agent. The 2011 Loan Agreement provides for a $100 million revolving credit facility and expires on September
30, 2016. Availability under the 2011 Loan Agreement is limited to a borrowing base equal to 85% of the value of eligible accounts
receivable, plus 65% of the value of eligible inventory, less certain reserves. The 2011 Loan Agreement is secured by a lien on
substantially all our property, other than real estate.
Portions of the loan under the 2011 Loan
Agreement may be converted to LIBOR loans in minimum amounts of $1.0 million and integral multiples of $0.1 million. LIBOR loans
bear interest at the British Bankers Association LIBOR Rate plus 125 to 200 basis points based on availability, and loans not
converted to LIBOR loans bear interest at a fluctuating rate equal to the greatest of the agent’s prime rate, the federal
funds rate plus 50 basis points, or 30-day LIBOR plus 150 basis points. Additionally, we are obligated to pay an unused facility
fee on the unused portion of the loan commitment. Unused commitment fees are 25 or 30 basis points, depending on the amount of
the unused commitment.
Covenants in the 2011 Loan Agreement require
us to maintain certain minimum financial ratios and availability levels. Repaid amounts can be re-borrowed subject to the borrowing
base. As of March 31, 2013, we were in compliance with all financial covenants.
Contractual Obligations
The following table summarizes our loan
commitment at March 31, 2013:
In thousands
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More
than
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
48,010
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48,010
|
|
|
$
|
—
|
|
There were no new material changes in
operating lease obligations or non-cancellable purchase obligations since December 31, 2012.