Wired to Connect
bridging industry
and infrastructure
20
10
annual
report
infrastructure
engineering + construction
utilities
large industrials
marine transportation
oil + gas
Houston Wire & Cable Company
was founded in 1975 and is
one of the largest providers of
electrical and mechanical wire
and cable and related services
in the u.s. market .
quarterly
sales
(in millions)
100
80
60
40
20
0
0
1
/
2
1
0
1
/
9
0
1
/
6
0
1
/
3
9
0
/
2
1
9
0
/
9
9
0
/
6
9
0
/
3
8
0
/
2
1
8
0
/
9
8
0
/
6
8
0
/
3
7
0
/
2
1
7
0
/
9
7
0
/
6
7
0
/
3
6
0
/
2
1
6
0
/
9
6
0
/
6
6
0
/
3
(dollars in thousands except per share data)
financial
highlights
2010
2009
2008
2007
2006
Net SaleS
SaleS per employee
operatiNg iNcome
operatiNg margiN
Net iNcome
diluted earNiNgS per Share
total aSSetS
loNg-term obligatioNS
StockholderS’ equity
$308,522
$254,819
$360,939
$359,115
$323,467
955
907
15,006
13,772
4.86%
8,619
0.49
5.40%
8,032
0.45
1,168
40,384
11.19%
23,737
1.33
1,201
49,708
13.84%
30,225
1.48
1,131
53,074
16.41%
30,674
1.62
185,490
122,014
134,753
139,091
116,864
55,911
85,720
17,479
80,813
29,808
76,595
34,507
71,170
12,059
81,674
In a wired world,
connections have never been
more critical.
Houston Wire & Cable
Company’s products bridge
the needs of utility, industrial
and infrastructure markets.
Our services unite supply
and demand , and our people
reinforce the relationships that
underpin our continued success.
Dear Fellow
Shareholders,
2010 was an important year for your company. The acquisition
of southwest Wire Rope , LLP and southern Wire , LLC added
experienced , enthusiastic men and women to our team and
expanded our offerings to include mechanical wire and cable ,
related hardware and services.
the acquisition is aligned with our strategic growth initiatives but was made possible through each organization’s
united and universal commitment to houston Wire & cable company’s (hWcc) core values. customer service,
aggressiveness, integrity and leadership connect our corporate cultures, bridge our past to our future and
consistently drive our business.
it is within the framework of these values that we present the year’s progress and accomplishments.
2
our commitment
to operational
excellence
At HWCC, equilibrium
is the balance of service
and supply, shipments
and satisfaction. We
maintain ours through
achieving operational excellence
Several years ago, we instituted our operational
excellence program to align the actions of every
employee in our company in the daily pursuit of
Operational Excellence, an
outstanding customer service. We measure our
ongoing, all-encompassing
program that involves
every employee in the
daily pursuit of legendary
customer service.
Results include improved
operational efficiencies,
operating margins and
customer retention…plus
these best-in-class metrics.
99.92%
order accuracy
(.03% improvement over 2009)
99.98%
on time performance
(.01% improvement over 2009)
progress through customer service metrics and, to my
knowledge, we are the only company in our industry
to publish our metrics. We believe that challenging
ourselves with precise, systematic and public
evaluations inspires us to do even better, which has
contributed to the retention of both customers and
valued members of our team.
While the numbers speak for themselves, they do
not reflect the complexity of the orders they address.
the vast majority of orders we complete daily are
unique in length and part number and sourced from
approximately 30,000 distinct Skus. hWcc has
taken mass customization to new levels, creating an
customer service drives growth
at its simplest, providing our customers the right
product, at the right place, at the right time is more
organization and systems that can accommodate
than good customer service—it is our business.
unlimited permutations of orders and accurately serve
i am proud to report that in 2010 two key customer
service metrics—on time deliveries and order accuracy—
both exceeded 99%, as they have for the past five years.
hWcc retained all major accounts, and we added
260 new customers to our business.
Several quarters back, in the midst of the recession,
thousands of customers with only a few hours of lead
time. this achievement has helped us to increase
market share despite the challenging economic
conditions faced in early 2010.
improving productivity through technology
investment in our enterprise resource planning
we made some important decisions in regards to
platform has resulted in increased efficiencies and
managing our business. believing that long-term growth
functionalities—including the ability to provide up-to-
is dependent on retaining our current customer base,
date tracking information for all orders. in combination
we sought to increase our market share and decrease
with our operational excellence program, our systems
our costs, while refusing to sacrifice excellence in
have helped us to weigh the cost-benefit of stocking
customer service. our commitment to this value is
varying levels of inventory, thus optimizing inventory
reinforced internally through our operational excellence
for customer acquisition and existing customer
program and reflected in our metrics.
retention. We will continue to manage accordingly.
3
next generation
performance:
lifeguard™
HWCC introduced
LifeGuard™ low-smoke
zero-halogen cable, a
technologically advanced
alternative for Hypalon®,
to the U.S. in 2003. Today,
the U.S. market’s potential
is estimated at $1.4 billion
and LifeGuard™ has been
accepted for use by more
than 300 end users.
The proprietary
product construction
of LifeGuard™ provides
significant advantages over
traditional cable, including
excellent electrical and
mechanical characteristics,
superior flame resistance,
low smoke production and
reduced toxicity.
LifeGuard™ is an ideal
green product offering
competition demands aggressive action
in a highly competitive marketplace such as ours,
strategic aggressiveness is critical. our customers, and
our business, depend on our ability to read the market
and find both new products and new opportunities to
expand our service offerings.
on the product side, our introduction of low-smoke,
for a range of utility,
zero-halogen lifeguard™ cable to the u.S. market
engineering, construction
is a great example. this product has been a driver
and industrial applications.
of hWcc’s growth, and we expect to benefit from
our first mover advantage as we continue to develop
the market.
recognized by buildinggreen as a top 10 green
building product, today lifeguard™ is found in many
environments that require high performance, reliability
and protection of life and equipment. New construction
and upgrades to utility and industrial plants, data
centers and highly populated facilities like schools,
hospitals, hotels and mass transit stations drive the
continued growth of lifeguard™ in the marketplace.
4
decisive expansion through acquisition
in late June of 2010, we completed the acquisitions of
Southwest Wire rope and Southern Wire. a multi-year
effort to strengthen liquidity in our balance sheet gave
us the financial wherewithal to speed the growth of our
business through these additions.
established more than 40 years ago to serve industries
along the gulf coast, Southwest Wire rope offers a
complete range of custom fabricated lifting products
including wire rope slings, nylon slings, round slings,
chain, shackles, thimbles, sockets and other related
hardware from locations in texas and louisiana.
Southern Wire brings nearly 40 years of experience
supplying industrial wire rope, aircraft cable and
related hardware from locations in california,
mississippi and missouri.
together, we serve complementary end markets that
require the complete spectrum of our goods and
services. most importantly, both Southwest Wire rope
and Southern Wire are backed by strong management
and effective support teams that share our passion for
outstanding customer service.
acquisitive growth initiatives
common end markets
organic growth potential
experienced management/sales teams
customer brand equity
synergistic expense/capital opportunities
future favorable impact to return on capital
organic growth initiatives
utility power generation
environmental compliance
engineering & construction (e&c)
industrials
lifeguard™
geographic expansion of mechanical wire
houston wire & cable company
southwest wire rope
southern wire
national & networked
On time, accurate delivery from a nationwide network of strategically located sales
and distribution centers—that is industry-leading distribution. Centrally managed
administration teams, 24/7/365 service and ISO 9001:2008 certification reinforce
our commitment to our customers. And $100 million of bar-coded inventory in
approximately 750,000 square feet of warehouse space provides our customers
the right product, at the right place, at the right time.
5
why cable
management is
critical
+ no waste
integrity builds relationships;
relationships build business
From product strength to principled service,
dependable team; dedicated inventory
more than 25 years ago, hWcc pioneered the cable
+ product availability
integrity is a core value that serves as a foundation
management concept. We have continued to evolve
for every decision we make and every action we take.
this market advantage—aligning technical expertise,
our newly acquired businesses have long shared
dedicated inventory and logistics—to serve even larger,
these values. Southwest Wire rope’s mission includes
faster-paced and more price-competitive capital and
dedication to continual improvement “motivated
construction projects.
+ guaranteed pricing
and employees.” Southern Wire pursues “pride
by a genuine interest in the welfare of our customers
in performance” achieved only alongside total
customer satisfaction.
our project teams include senior management,
technical field specialists, project managers and
account managers who, in the course of their daily
responsibilities, coordinate and control specification
+ just-in-time delivery
+ around-the-clock service
every one of our team members understands that
compliance, documentation, scheduling, reporting
customers’ trust in hWcc, its people and its systems,
and shipping. in addition to professional inventory
is critically important to our continued success. many of
management, a cable management partnership
our customers are repeat buyers, some with purchase
gives hWcc customers guaranteed pricing, product
frequencies several times per week. We nurture these
availability and application engineering. product
long-term relationships, recognizing that trust is built
recommendations and specification also increase value,
over time with each order providing a new opportunity
improve product performance and reduce costs.
through cable management, we leverage the depth
and breadth of our experience for the successful
completion of wastewater, mass transit, marine,
power and all varieties of industrial developments.
to confirm our commitment to handling every
interaction with integrity. our operational excellence
program measures the results of that trust through our
customer service metrics.
integrity of action is also invaluable to our relationships
with suppliers. Working with the industry’s leading
manufacturers and treating suppliers fairly assures
maximum product availability for our customers.
integrity manifested through principled action is
our way of doing business. customers, suppliers,
shareholders and employees deserve nothing less.
We will continue to deliver.
6
96% customer satisfaction
broad and deep inventory
long-term
relationships
24/7/365 service
national platform
restricted lines
strong balance sheet
specialized work force
superior strength in the marketplace
The union of Houston Wire & Cable Company, Southwest Wire Rope and Southern
Wire leverages eight strategic characteristics that, together, form a formidable
barrier to entry for would-be competitors. Our financial, service and inventory
strengths safeguard our customers’ projects, schedules and budgets.
7
defining leadership
While houston Wire & cable company is one of
our values inspire achievement
by focusing on customer service, aggressiveness,
the industry’s largest providers, leadership requires
integrity and leadership, houston Wire & cable
far more than size. leadership is challenging our
company emerges from 2010 a stronger company.
suppliers to provide the highest quality product at the
We are very pleased to welcome the men and women of
best value; challenging ourselves to meet aggressive
Southwest Wire rope and Southern Wire who, through
customer service goals measured and defined by
their continued efforts, leave us better positioned to
metrics; challenging our systems to ensure that our
provide customers with even more of the right products
products are easy to order and our service is customer-
from more right places at exactly the right time.
friendly and approachable.
moving into 2011, our combined national network
true leadership is challenging. We believe it demands
will continue to serve complementary end markets
investment and that fostering leadership development
including oil and gas, marine transportation and
perpetually increases profitability. We also believe that
construction, utility, infrastructure and industrial.
leadership can, and should, be cultivated at every level
We will offer more products from additional geographic
of our organization.
during difficult economic times, we work together
locations, but we will do so guided by the timeless
values that have driven our company to date.
to remain positive, recognize achievements and
on behalf of the board of directors, i would like to
promote the long-term success of our business.
thank our team for their loyalty to our company and
during good times, we do exactly the same. We
their commitment to our customers. i want to thank our
invest heavily in team development, understanding
customers for their continued business, and i want to
that there is a direct correlation between employee
thank you, our investors, for your confidence in our team
retention and customer retention.
and your ongoing support.
We are industry leaders because our employees are
Sincerely,
empowered to make decisions based on our core
values that best serve our customers. they lead by
example, strengthening relationships internally and
externally and reinforcing our leadership position
through their actions.
charles a. sorrentino
President, Chief Executive Officer and Director
8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‐K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 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: 00052046
Delaware
(State or other jurisdiction of incorporation or organization)
364151663
(I.R.S. Employer Identification No.)
(Exact name of registrant as specified in its charter)
10201 North Loop East
Houston, Texas
(Address of principal executive offices)
77029
(Zip Code)
(713) 6092100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Common stock, par value $0.001 per share
Name of Each Exchange on Which Registered
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well‐known seasoned issuer, as defined in Rule 405 of the Securities Act. YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES
NO
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
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 if disclosure of delinquent filers pursuant to Item 405 of Regulations S‐K is not contained herein, and will not be contained, to the
best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‐K or any amendment to
this Form 10‐K.
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
definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b‐2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
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
The aggregate market value of the voting stock (common stock) held by non‐affiliates of the registrant as of June 30, 2010 was $175,524,345.
At March 1, 2011, there were 17,748,487 outstanding shares of the registrant’s common stock, $.001 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates by reference specific portions of the registrant’s definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 6, 2011.
HOUSTON WIRE & CABLE COMPANY
Form 10‐K
For the Fiscal Year Ended December 31, 2010
INDEX
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Reserved
Supplemental Item. Executive Officers of the Registrant
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV.
Item 15.
3
6
8
9
9
10
10
11
13
15
24
25
44
44
47
47
47
47
47
47
48
2
ITEM 1. BUSINESS
Overview
PART I
We are one of the largest providers of wire and cable and related services to the U.S. market. The June 25, 2010
purchase of Southwest Wire Rope LP (“SWWR”), its general partner Southwest Wire Rope GP LLC (“GP”) and SWWR’s
wholly owned subsidiary, Southern Wire LLC (“SW”) (collectively “the acquired companies” or “the acquisition”), allowed
the Company to expand its product offerings to include mechanical wire and cable and related hardware. 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.
Our wide product selection and specialized services support our position in the supply chain between wire and cable
manufacturers and the customer. The breadth and depth of wire and cable and related hardware that we offer, require
significant warehousing resources and a large number of SKU’s (stock‐keeping units). While manufacturers may have the
space and capabilities to maintain a large supply of inventory, we do not believe that any single manufacturer has the
breadth and depth of product that we offer. More importantly, manufacturers historically have not offered the services that
our customers need, such as complimentary custom cutting and same day shipment, and do not have multiple distribution
centers across the nation.
Our Cable Management Program addresses our customers’ growing requirement for sophisticated and efficient just‐in‐
time product management for large capital projects. This program entails purchasing and storing dedicated inventory, so
our customers have immediate product availability for the duration of their project. Some advantages of this program
include extra pre‐allocated safety stock, firm pricing, zero cable surplus and just‐in‐time delivery. Used on large
construction and capital expansion projects, our Cable Management Program combines the expertise of our cable
specialists with dedicated project inventory and superior logistics to finish complex projects on time, within budget and
with minimal residual waste.
History
We were founded in 1975 and have a long history of reliable customer service, broad product selection and strong
product expertise. In 1987, we completed our first initial public offering and were subsequently purchased in 1989 by
ALLTEL Corporation. In 1997, we were purchased by investment funds affiliated with Code, Hennessy & Simmons LLC. In
June 2006, we completed our second initial public offering.
In 2000, we acquired our largest direct competitor, the Futronix division of Kent Electronics Corporation. In 2010, we
acquired the operations of SWWR and SW from Teleflex Corporation.
Products
We offer products in most categories of wire and cable, including: continuous and interlocked armor cable; control and
power cable; electronic wire and cable; flexible and portable cords; instrumentation and thermocouple cable; lead and high
temperature cable; medium voltage cable; premise and category wire and cable, wire rope and wire rope slings, as well as
nylon slings, chain, shackles and other related hardware. We also offer private branded products, including our proprietary
brand LifeGuard™, a low‐smoke, zero‐halogen cable. Our products are used in repair and replacement, also referred to as
maintenance, repair and operations ("MRO"), and related projects, larger‐scale projects in the utility, industrial and
infrastructure markets and a diverse range of industrial applications including communications, energy, engineering and
construction, general manufacturing, mining, construction, oilfield services, infrastructure, petrochemical, transportation,
utility, wastewater treatment industries, marine construction and marine transportation.
Targeted Markets
Our business is driven, in part, by the strength, growth prospects and activity in the end‐markets in which our
products are used. We have targeted three of these markets—the utility, industrial and infrastructure markets—in our
recent sales and marketing initiatives.
Utility Market. The utility market includes large investor‐owned utilities, rural cooperatives and municipal power
authorities. According to Industrial Information Resources’ (“IIR’s”) 2011 Global Industrial Outlook, the spending on the
3
power market in 2011 within the United States is expected to be $63 billion. While we do not distribute the power lines
used for the transmission of electricity, we sell many products used in the construction of a power plant and the related
pollution control equipment. As such we are positioned to benefit from expenditures for new power generation needed to
satisfy a growing population with increasing energy demands and to comply with federal mandates to reduce toxic outputs
from power generating facilities. We expect to benefit from this trend as our customers utilize our cable management
services to support the distribution of wire and cable required for the construction of new power plants and upgrading of
existing power plants. These upgrades often require the addition of highly‐engineered and capital‐intensive environmental
compliance devices such as selective catalytic reduction (SCR) and flue gas desulfurization (FGD) systems to remove
harmful emissions from these existing power generation units. These projects require the specialty instrumentation, and
power and control wire and cable that we distribute.
Industrial Market. The industrial market is one of the largest segments of the U.S. economy and is comprised of a
diverse base of manufacturing and production companies. According to IIR’s 2011 Global Industrial Outlook, the 2011
projected total industrial spending within the United States is expected to be $179 billion. We provide a wide variety of
products specifically designed for the petroleum refining, chemical processing, metal/mineral, and manufacturing
industries where there may be significant exposure to caustic materials or extreme temperatures. As with the utilities
market, we are positioned to benefit from several environmental compliance projects.
Infrastructure Market. We believe that significant infrastructure improvements and additions to support population
density and growth will be needed over the next several years. Infrastructure market opportunities include construction
within the transportation, water management, waste management, education and health care industries. The American
Recovery and Reinvestment Act (ARRA), passed in February 2009, is providing $787 billion to support infrastructure
projects throughout the country. According to McGraw Hill Construction, $20 billion of this stimulus has been set aside for
water and environment construction, while $31 billion has been set aside for energy projects, including $11 billion for the
smart grid. We believe we are positioned to benefit from this investment as capital projects associated
with multiple opportunities including waste water treatment, mass transit, and newly emerging energy markets, require
the products and services offered by our company. We are assisting our customers to further penetrate the engineering
and construction markets by working with application engineers to drive wire and cable specifications in these large
construction projects.
LifeGuard™ Opportunity
We believe that demand for low‐smoke, zero‐halogen products is in its infancy in the U.S. and represents a significant
opportunity within our targeted markets. Low‐smoke, zero‐halogen cables have been used extensively in Europe and Asia
for many years. We are leading the development of the market for low‐smoke, zero‐halogen cable in the U.S. When
traditional cable burns, the acid gases produced are particularly destructive to electrical and electronic equipment, which
represents a significant investment for many businesses. In contrast, low‐smoke, zero‐halogen compounds provide
significant flame resistance, minimal smoke production and substantially reduced toxicity and corrosiveness when burned,
as compared to traditional wire and cable. We sell our LifeGuard™ products across most of our end‐user markets.
Distribution Logistics
We believe that our national distribution presence and value‐added services make us an essential partner in the supply
chain for our suppliers. We have successfully expanded our business from one original location in Houston, Texas to
nineteen locations nationwide, which includes two third‐party logistics providers. Our standard practice is to process
customers' orders the same day they are received. Our strategically located distribution centers generally allow for ground
delivery nationwide within 24 hours of shipment. Orders are delivered through a variety of distribution methods, including
less‐than‐truck‐load, truck‐load, air or parcel service providers, direct from supplier and cross‐dock shipments. Freight
costs are typically borne by our customers. Due to our shipment volume, we have preferred pricing relationships with our
contract carriers.
Customers
During 2010, we served approximately 4,300 customers, shipping approximately 25,000 SKU’s to over 12,000
customer locations nationwide. No customer represented 10% or more of our 2010 sales.
Suppliers
We obtain products from most of the leading wire and cable suppliers. We believe we have strong relationships with
our top suppliers. Although we believe that alternative sources are available for the majority of our wire and cable
4
products, we have strategically concentrated our purchases of wire and cable with four leading suppliers in order to
maximize product quality, delivery dependability, purchasing efficiencies, and vendor rebates. As a result, in 2010
approximately 53% of our annual purchases came from four suppliers. We do not believe we are dependent on any one
supplier for any of our wire and cable products and related hardware.
Our top four suppliers in 2010 were Belden, General Cable Corp., Nexans Energy USA, Inc and Southwire Company.
Sales
We market our wire and cable and related services through an inside sales force located throughout our regional
offices and a field sales force located in key geographic markets throughout the U.S. By operating under a decentralized
process, region managers are able to adapt quickly to market‐specific occurrences, allowing us to compete effectively with
local competitors. We believe the breadth and depth of our sales force is critical to serving our fragmented and diverse
customer and end‐user base.
Competition
The wire and cable market is highly competitive and fragmented, with several hundred wire and cable competitors
serving this market. The product offerings and levels of service provided by the other wire and cable providers with whom
we compete vary widely. We primarily compete with other wire and cable providers on a regional and local basis. Most of
our direct competitors are smaller companies that focus on a specific geographical area or feature a select product offering,
such as surplus wire. In addition to the direct competition with other wire and cable providers, we also face, on a much
more limited basis, competition with the distributors and manufacturers that sell products directly or through multiple
distribution channels to end‐users or other resellers. In the markets that we serve, competition is primarily based on
product line breadth, quality, product availability, service capabilities and price.
Employees
At December 31, 2010, we had 380 employees. Our sales and marketing staff accounted for 157 employees, including
40 field sales personnel and 89 inside sales and technical support personnel.
Our employees are not represented by a labor union or covered by a collective bargaining agreement. We believe that
our employee relations are good.
Website Access
We maintain an internet website at www.houwire.com. We make available, free of charge under the “Investor
Relations” heading on our website, our annual report on Form 10‐K, quarterly reports on Form 10‐Q, current reports on
Form 8‐K, and if applicable, amendments to those reports, as well as proxy and information statements, as soon as
reasonably practicable after such documents are electronically filed with or furnished to the Securities and Exchange
Commission (the “SEC”). Information contained on our website is not part of, and should not be construed as being
incorporated by reference into, this Annual Report on Form 10‐K.
Government Regulation
We are subject to regulation by various federal, state and local agencies. We believe we are in compliance in all
material respects with existing applicable statutes and regulations affecting environmental issues and our employment,
workplace health and workplace safety practices.
5
ITEM 1A. RISK FACTORS
In addition to other information in this Annual Report on Form 10K, the following risk factors should be carefully
considered in evaluating our business, because such factors may have a significant impact on our business, operating results,
cash flows and financial condition. As a result of the risks set forth below and elsewhere in this Annual Report, actual results
could differ materially from those projected in any forwardlooking statements.
Downturns in capital spending and cyclicality in certain of the markets we serve could have a material adverse effect
on our financial condition and results of operations.
The majority of our products are used in the construction, maintenance and operation of facilities, plants and projects
in the communications, energy, engineering and construction, general manufacturing, infrastructure, petrochemical,
mining, oilfield services, transportation, utility, wastewater treatment, marine construction and marine transportation
industries. The demand for our products and services depends to a large degree on the capital spending levels of end‐users
in these markets. Many of these end‐users defer capital expenditures or cancel projects during economic downturns. In
addition, certain of the markets we serve are cyclical, which affects capital spending by end‐users in these industries.
We have risks associated with our customers’ access to credit.
The current turmoil in global financial markets has not impaired our access to our credit facility to finance our
operations. However, poor credit market conditions may adversely impact the availability of construction and other project
financing, upon which many of our customers depend, resulting in project cancellations or delays. Our utility and industrial
customers may also face limitations when trying to access the credit markets to fund ongoing operations or capital
projects. Credit constraints experienced by our customers may result in lost revenues and reduced gross margins for us
and, in some cases, higher than expected bad debt losses. Our suppliers’ ability to deliver products may also be affected by
financing constraints caused by credit market conditions, which could negatively impact our revenue and cost of products
sold, at least until alternate sources of supply are arranged.
We have risks associated with inventory.
Our business requires us to maintain substantial levels of inventory. We must identify the right mix and quantity of
products to keep in our inventory to fulfill customer orders. Failure to do so could adversely affect our sales and earnings.
However, if our inventory levels are too high, we are at risk that unexpected changes in circumstances, such as a shift in
market demand, drop in prices or default or loss of a customer, could have a material adverse impact on the net realizable
value of our inventory.
Our operating results are affected by fluctuations in commodity prices.
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 higher commodity prices result
in increases in the costs we pay for our products, we attempt to reflect the increase in the prices we charge our customers.
While we historically have been able to pass most of these cost increases on to our customers, to the extent we are unable
to do so in the future, it could have a material adverse effect on our operating results. In addition, as commodity costs
increase, our customers may delay or decrease their purchases of our wire and cable, which could adversely affect the
demand for our products. To the extent commodity prices decline, the net realizable value of our existing inventory could
be reduced, and our gross profit could be adversely affected.
Our sales of wire rope and related hardware are impacted by the level of oil and gas offshore drilling activity.
Recent events in the Gulf Coast have resulted in tighter drilling and permitting qualifications by the U.S. Government.
Until drilling companies meet these qualifications or they are eased, oil and gas drilling activity will remain at low levels,
limiting the demand for the products we sell to this market.
If we are unable to maintain our relationships with our customers, it could have a material adverse effect on our
financial results.
We rely on customers to purchase our wire and cable and related hardware. The number, size, business strategy and
operations of these customers vary widely from market to market. Our success depends heavily on our ability to identify
and respond to our customers’ needs.
6
In 2010, our ten largest customers accounted for approximately 39% of our sales. If we were to lose one or more of our
large customers, or if one or more of our large customers were to significantly reduce the amount of wire and cable and
related hardware they purchase from us, and we were unable to replace the lost sales on similar terms, we could
experience a significant loss of revenue and profits. In addition, if one or more of our key customers failed or were unable
to pay, we could experience a write‐off or write‐down of the related receivables, which could adversely affect our earnings.
We participate in a number of national marketing groups and engage in joint promotional sales activities with the members
of those groups. Any permanent exclusion of us from, or refusal to allow us to participate in, such national marketing
groups could have a material adverse effect on our sales and our results of operations.
An inability to obtain the products that we distribute could result in lost revenues and reduced profits and damage
our relationships with customers.
In 2010, we sourced products from approximately 345 suppliers. However, we have adopted a strategy to concentrate
our purchases of wire and cable with a small number of suppliers in order to maximize product quality, delivery
dependability, purchasing efficiencies and supplier incentives. As a result, in 2010 approximately 53% of our purchases
came from four suppliers. If any of these suppliers changes its sales strategy or decides to terminate its business
relationship with us, our sales and earnings would be adversely affected unless and until we were able to establish
relationships with suppliers of comparable products. In addition, if we are not able to obtain the products we distribute
from either our current suppliers or other competitive sources, we could experience a loss of revenue, reduction in profits
and damage to our relationships with our customers. Supply shortages may occur as a result of unanticipated demand or
production cutbacks, shortages of raw materials, labor disputes or weather conditions affecting products or shipments,
transportation disruptions or other reasons beyond our control. When shortages occur, wire and cable suppliers often
allocate products among their customers, and our allocations might not be adequate to meet our customers' needs.
Loss of key personnel or our inability to attract and retain new qualified personnel could hurt our ability to operate
and grow successfully.
Our success is highly dependent upon the services of Charles Sorrentino, our President and Chief Executive Officer,
Nicol Graham, our Chief Financial Officer, and James Pokluda, our Vice President of Sales and Marketing. Our success will
continue to depend to a significant extent on our executive officers and key management and sales personnel. We do not
have key man life insurance covering any of our executive officers. We may not be able to retain our executive officers and
key personnel or attract additional qualified management and sales personnel. The loss of any of our executive officers or
our other key management and sales personnel or our inability to recruit and retain qualified personnel could hurt our
ability to operate and make it difficult to maintain our market share and to execute our growth strategies.
A change in vendor rebate programs could adversely affect our gross margins and results of operations.
The terms on which we purchase products from many of our suppliers entitle us to receive a rebate based on the
volume of our purchases. These rebates effectively reduce our costs for products. If market conditions change, suppliers
may adversely change the terms of some or all of these programs. These changes may lower our gross margins on products
we sell and may have an adverse effect on our operating income.
Our private branded products might not gain market acceptance.
An important element of our growth strategy is the continued development and market acceptance of our LifeGuard™
line of low‐smoke, zero‐halogen cable and other products sold under our private brands. Our success with our private
branded products, however, depends on our ability to market these products in the appropriate channels and, ultimately,
on the acceptance of these products in the markets we serve. We have been selling LifeGuard™ cable since 2003, and our
efforts to develop and market new private branded products might not be successful. Further, demand for our products
could diminish as a result of a competitor's introduction of higher quality, better performing or lower cost products in the
marketplace. In addition, the low‐smoke, zero‐halogen properties of our LifeGuard™ line of cable products depend on a
highly‐engineered petrochemical material. If there is not an adequate supply of this material, we may be unable to have our
LifeGuard™ products manufactured, or our LifeGuard™ products may be available only at a higher cost or after a long delay.
If we cannot sustain the growth in demand for our LifeGuard™ products, or if we cannot have those products manufactured
on acceptable terms or if we do not develop additional private branded products, we will be unable to realize fully our
growth strategy.
7
If we encounter difficulties with our management information systems, we would experience problems managing our
business.
We believe our management information systems are a competitive advantage in maintaining our leadership position
in the wire and cable industry. We rely upon our management information systems to manage and replenish inventory, fill
and ship orders on a timely basis and coordinate our sales and marketing activities. If we experience problems with our
management information systems, we could experience product shortages, diminished inventory control or an increase in
accounts receivable. Any failure by us to maintain our management information systems could adversely impact our ability
to attract and serve customers and would cause us to incur higher operating costs and experience reduced profitability.
An increase in competition could decrease sales or earnings.
We operate in a highly competitive industry. We compete directly with national, regional and local providers of wire
and cable and related hardware. Competition is primarily focused in the local service area and is generally based on
product line breadth, product availability, service capabilities and price. Some of our existing competitors have, and new
market entrants may have, greater financial and marketing resources than we do. To the extent existing or future
competitors seek to gain or retain market share by reducing prices, we may be required to lower our prices, thereby
adversely affecting our financial results. Existing or future competitors also may seek to compete with us for acquisitions,
which could have the effect of increasing the price and reducing the number of suitable acquisitions. Other companies,
including our current customers, could seek to compete directly with our private branded products, which could adversely
affect our sales of those products and ultimately our financial results. Our existing customers, as well as suppliers, could
seek to compete with us by offering services similar to ours, which could adversely affect our market share and our
financial results. In addition, competitive pressures resulting from the economic downturn and the industry trend toward
consolidation could adversely affect our growth and profit margins.
We may be subject to product liability claims that could be costly and time consuming.
We sell wire and cable and related hardware. As a result, from time to time we have been named as defendants in
lawsuits alleging that these products caused physical injury or injury to property. We rely on product warranties and
indemnities from the product manufacturers, as well as insurance that we maintain, to protect us from these claims.
However, manufacturers' warranties and indemnities are typically limited in duration and scope and may not cover
all claims that might be asserted. Moreover, our insurance coverage may not be available or may not be adequate to cover
every claim asserted or the entire amount of every claim.
We may not be able to successfully identify acquisition candidates, effectively integrate newly acquired businesses
into our operations or achieve expected profitability from our acquisitions.
To supplement our growth, we intend to selectively pursue acquisition opportunities. If we are not successful in
finding attractive acquisition candidates that we can acquire on satisfactory terms, or if we cannot complete those
acquisitions that we identify, we will not be able to realize the benefit of this growth strategy.
Acquisitions involve numerous possible risks, including unforeseen difficulties in integrating operations, technologies,
services, accounting and personnel; the diversion of financial and management resources from existing operations;
unforeseen difficulties related to entering geographic regions or target markets where we do not have prior experience;
the potential loss of key employees; and the inability to generate sufficient profits to offset acquisition or investment‐
related expenses. If we finance acquisitions by issuing equity securities or securities convertible into equity securities, our
existing stockholders could be diluted, which, in turn, could adversely affect the market price of our stock. If we finance an
acquisition with debt, it could result in higher leverage and interest costs. As a result, if we fail to evaluate and execute
acquisitions properly, we might not achieve the anticipated benefits of these acquisitions, and we may incur costs in excess
of what we anticipate.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
8
ITEM 2. PROPERTIES
Facilities
The following table sets forth information about our facilities and our distribution centers as of December 31, 2010.
Location
Houston, TX – 3 facilities
New Iberia, LA
Sulphur, LA
Houston, TX – 2 facilities
Chicago, IL
Olive Branch, MS
Charlotte, NC
Philadelphia, PA
Los Angeles, CA
Atlanta, GA
Tampa, FL
Seattle, WA
Baton Rouge, LA
Kansas City, MO
Total
Total
Space
(Sq Ft)
192,488
21,250
17,590
90,887
86,705
80,000
76,159
60,000
52,901
50,733
49,776
30,363
22,200
10,000
Distribution
Center
(Sq Ft)
161,960
18,750
15,090
81,475
81,635
72,000
68,892
54,500
47,036
47,483
45,374
28,275
19,700
7,000
841,052
749,170
Owned/Leased
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
We own three of the five facilities we operate in Houston, Texas, as well as two other facilities acquired as part of
SWWR. Our primary national distribution center as well as our corporate headquarters is located in Houston, Texas. This
facility houses all centralized and back office functions such as finance, marketing, purchasing, human resources and
information technology. We believe that our properties are in good operating condition and adequately serve our current
business operations.
As a test of potential new markets and to augment our distribution network, we contract with two third‐party logistics
firms. The location of and services provided by these third party logistics firms are as follows:
•
•
Denver, Colorado —Inventory and ship pre‐packaged and cut‐to‐order lengths of wire and cable for a monthly fixed
fee plus a per transaction charge; and
San Francisco, California —Inventory and ship pre‐packaged and cut‐to‐order lengths of wire and cable for a
monthly fixed fee plus a per transaction charge.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in lawsuits that are brought against us in the normal course of business. We are not
currently a party to any legal proceedings that we expect, either individually or in the aggregate, to have a material adverse
effect on our business or financial condition. We, along with many other defendants, have 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 we, in fact, distributed the
wire and cable alleged to have caused any injuries. We maintain 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, we did not manufacture any of the wire
and cable at issue, and we would rely on any warranties from the manufacturers of such cable if it were determined that
any of the wire or cable that we distributed contained asbestos which caused injury to any of these plaintiffs. In connection
with ALLTEL's sale of our company in 1997, ALLTEL provided indemnities with respect to costs and damages associated
with these claims that we believe we could enforce if our insurance coverage proves inadequate.
9
ITEM 4. RESERVED
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Name/Office
Charles A. Sorrentino
President and Chief Executive Officer
Served
as an
Business Experience
Officer
During Last 5 Years
Since
1998 President and Chief Executive
Officer of the Company.
Age
66
Nicol G. Graham
Chief Financial Officer, Treasurer and Secretary
58
1997 Chief Financial Officer, Treasurer
and Secretary of the Company.
10
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock is listed on The NASDAQ Global Market under the symbol “HWCC”. The following table lists
quarterly information on the price range of our common stock based on the high and low reported sale prices for our
common stock as reported by The NASDAQ Global Market for the periods indicated below.
Year ended December 31, 2010:
First quarter
Second quarter
Third quarter
Fourth quarter
Year ended December 31, 2009:
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$
$
$
$
$
$
$
$
14.68 $
14.53 $
13.17 $
13.64 $
9.34 $
14.76 $
12.66 $
13.49 $
11.31
9.66
8.64
9.61
4.70
7.45
8.56
10.51
There were 16 holders of record of our common stock as of December 31, 2010.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information about our purchases of common stock for the quarter ended December 31,
2010. For further information regarding our stock repurchase activity, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Liquidity and Capital Resources.”
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
$
—
$
—
—
$
—
19,385,303
19,385,303
19,385,303
Period
October 1 – 31, 2010
November 1 – 30, 2010
December 1 – 31, 2010
Total
__________
(1) The board authorized a stock buyback in the amount 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 4th quarter of 2010.
Stock Performance Graph
The following graph compares the total stockholder return on our common stock with the total return on the NASDAQ
US Index and the Russell 2000 Index. We believe the Russell 2000 Index includes companies with capitalization
comparable to ours. Houston Wire & Cable Company has a unique niche in the marketplace and due to the size and scope
of our business platform, we are unable to identify peer issuers as the public companies within our industry are
substantially more diversified than we are.
Total return is based on an initial investment of $100 on June 15, 2006, the date of our IPO, and reinvestment of
dividends.
11
$150
137.41
112.35
112.65
$100
100.00
123.70
109.27
92.97
HWCC
NASDAQ
Russell
2000
123.73
111.78
88.36
105.83
89.21
78.24
73.55
71.24
61.21
$50
Jun-06
D ec-06
Jun-07
D ec-07
Jun-08
D ec-08
Jun-09
D ec-09
Jun-10
D ec-10
Dividend Policy
We have paid a quarterly cash dividend since August 2007. Since February 1, 2008, our quarterly cash dividend has
been $0.085 per share, as approved by our Board of Directors. In each of 2009 and 2010, the cash dividend was $0.34 per
share, resulting in total dividends paid of $6.0 million in each year.
As a holding company, our only source of funds to pay dividends is distributions from our operating subsidiary. Our
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.
Securities Authorized for Issuance under Equity Compensation Plans
The information called for by this item and by Item 12 regarding securities available for issuance is presented under
Item 12.
12
ITEM 6. SELECTED FINANCIAL DATA
You should read the following selected financial information together with our consolidated financial statements and
the related notes and the "Management's Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Form 10‐K. We have derived the consolidated statement of income data for each of the years
ended December 31, 2010, 2009 and 2008, and the consolidated balance sheet data at December 31, 2010 and 2009, from
our audited financial statements, which are included in this Form 10‐K. We have derived the consolidated statement of
income data for each of the years ended December 31, 2007 and 2006, and the consolidated balance sheet data at
December 31, 2008, 2007 and 2006 from our audited financial statements, which are not included in this Form 10‐K.
Year Ended December 31,
2010
2009
2008
2007
2006
(Dollars in thousands, except share data)
CONSOLIDATED STATEMENT OF
INCOME DATA:
Sales
Cost of sales
Gross profit
Operating expenses:
Salaries and commissions
Other operating expenses
Management fee to stockholder (1)
Depreciation and amortization
Total operating expenses
Operating income
Interest expense
Income before income taxes
Income tax provision
Net income
Earnings per share (2) :
Basic
Diluted
Weighted average common shares
outstanding (2) :
Basic
Diluted
$
308,522 $
245,932
254,819 $
201,865
360,939 $
275,224
359,115 $
266,276
323,467
231,128
62,590
52,954
85,715
92,839
92,339
25,281
20,565
—
1,738
47,584
15,006
844
14,162
5,543
20,596
18,023
—
563
39,182
13,772
520
13,252
5,220
24,080
20,728
—
523
45,331
40,384
1,825
38,559
14,822
23,861
18,811
—
459
43,131
49,708
1,188
48,520
18,295
22,706
15,975
208
376
39,265
53,074
3,075
49,999
19,325
8,619 $
8,032 $
23,737 $
30,225 $
30,674
0.49 $
0.46 $
1.33 $
1.49 $
0.49 $
0.45 $
1.33 $
1.48 $
1.63
1.62
$
$
$
17,657,682
17,648,696
17,789,739
17,710,123
17,665,924
17,838,072
20,328,182
20,406,000
18,875,192
18,984,826
__________
(1)
(2)
The management fee arrangement was terminated as of the completion of our initial public offering in June 2006.
The 2006 share information has been restated for the 1.875‐for‐1 stock split on May 16, 2006.
13
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Total assets
Book overdraft (1)
Total debt (2) (3)
Stockholders’ equity (3)
_______
2010
2009
2008
2007
2006
As of December 31,
(Dollars in thousands)
$
$
$
$
$
$
$
— $
67,838 $
67,503 $
185,490 $
3,055 $
54,825 $
85,720 $
— $
46,859 $
61,325 $
122,014 $
907 $
17,479 $
80,813 $
— $
50,798 $
73,459 $
134,753 $
4,933 $
29,808 $
76,595 $
— $
58,202 $
69,299 $
139,091 $
3,854 $
34,507 $
71,170 $
—
52,128
56,329
116,864
1,265
12,059
81,674
(1)
(2)
(3)
Our book overdraft is funded by our revolving credit facility as soon as the related checks clear our disbursement account.
On June 25, 2010, we completed the purchase of the acquired companies for a total purchase price of $51.5 million of which
$51.2 million was paid in 2010 and was funded from our loan agreement.
A stock repurchase program was approved in 2007. During the years ended December 31, 2008 and 2007, purchases of stock
totaling $14,725 and $40,890, respectively, were made, part of which was funded by debt. No repurchases were made during
the years ended December 31, 2010 and 2009.
14
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our consolidated financial statements and related notes
appearing elsewhere in this Form 10K. In addition to historical information, this discussion contains forwardlooking
statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our
expectations. Factors that could cause such differences include those described in “Risk Factors” and elsewhere in this Form
10K. Certain tabular information may not foot due to rounding.
Overview
Since our founding over 35 years ago, we have grown to be one of the largest providers of wire and cable and related
services to the U.S. market. Today, we serve approximately 4,300 customers. Our products are used in MRO activities and
related projects, as well as for larger‐scale projects in the utility, industrial and infrastructure markets and a diverse range
of industrial applications including communications, energy, engineering and construction, general manufacturing, mining,
construction, oilfield services, infrastructure, petrochemical, transportation, utility, wastewater treatment industries,
marine construction and marine transportation.
Our revenue is driven in part by the level of capital spending within the end‐markets we serve. Because many of these
end‐markets defer capital expenditures during periods of economic downturns, our business has experienced cyclicality
from time to time. We believe that our revenue will continue to be impacted by fluctuations in capital spending and by our
ability to drive demand through our sales and marketing initiatives and the continued development and marketing of our
private branded products, such as LifeGuard™. The recent economic uncertainty and volatile commodity prices have
impacted sales and the level of demand. This has had and will continue to have an impact on our performance, until
economic conditions stabilize.
Our direct costs will continue to be influenced significantly by the prices we pay our suppliers to procure the products
we distribute to our customers. Changes in these costs may result, for example, from increases or decreases in raw material
costs, changes in our relationships with suppliers or changes in vendor rebates. Our operating expenses will continue to be
affected by our investment in sales, marketing and customer support personnel and commissions paid to our sales force for
revenue and profit generated. Some of our operating expenses are related to our fixed infrastructure, including rent,
utilities, administrative salaries, maintenance, insurance and supplies. To meet our customers’ needs for an extensive
product offering and short delivery times, we will need to continue to maintain adequate inventory levels. Our ability to
obtain this inventory will depend, in part, on our relationships with suppliers.
Critical Accounting Policies and Estimates
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 accounting principles generally accepted in the United States,
commonly referred to as 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 the
invoice date. We have an estimation procedure, based on historical data and recent changes in the aging of the receivables,
that 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 December 31, 2010 would have resulted in
a change in income before income taxes of $0.1 million.
15
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 December 31, 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 December 31, 2010 would have resulted in a change in
income before income taxes of $0.6 million.
Intangible Assets
The Company’s intangible assets, excluding goodwill, represent purchased trade names, customer relationships, and
non‐compete agreements with certain of our employees. Trade names are not being amortized and are treated as indefinite
lived assets. Trade names are tested for recoverability on an annual basis in October of each year. This test was performed
and no impairment was deemed necessary. The Company assigns useful lives to its intangible assets based on the periods
over which it expects the assets to contribute directly or indirectly to the future cash flows of the Company. Customer
relationships and non‐compete agreements are being amortized over a 7 ½ year and 1 year useful life, respectively. If
events or circumstances were to indicate that any of the Company’s definite‐lived intangible assets might be impaired, the
Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the
applicable intangible asset.
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 such 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 such rebates reduce cost of sales. Throughout the year, we estimate the amount of the 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 2010 would have resulted in a change
in income before income taxes of $1.3 million for the year ended December 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 December 31, 2010, our goodwill balance was
$25.1 million, representing 13.5% 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 2010, we performed our annual goodwill impairment test 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.
Sales
We generate most of our sales by providing wire and cable and related hardware to our customers, as well as billing
for freight charges. We recognize revenue upon shipment of our products to customers from our distribution centers or
directly from our suppliers. Sales incentives earned by customers are accrued in the same month as the shipment is
invoiced.
16
Cost of Sales
Cost of sales consists primarily of the average cost of the wire and cable and related hardware that we sell. We also
incur shipping and handling costs in the normal course of business. Cost of sales also reflects cash discounts for prompt
payment to vendors and vendor rebates generally related to annual purchase targets, as well as inventory obsolescence
charges.
Operating Expenses
Operating expenses include all expenses incurred to receive, sell and ship product and administer the operations of the
Company.
Salaries and Commissions. Salary expense includes the base compensation, and any overtime earned by hourly
personnel, for all sales, administrative and warehouse employees and stock compensation expense for options and
restricted stock granted to employees. Commission expense is earned by inside sales personnel based on gross profit
dollars generated, by field sales personnel from generating sales and meeting various objectives, by sales, national and
marketing managers for driving the sales process, by region managers based on the profitability of their branches and by
corporate managers based primarily on our profitability and also on other operating metrics.
Other Operating Expenses. Other operating expenses include all other expenses, except for salaries and commissions
and depreciation and amortization. This includes all payroll taxes, health insurance, traveling expenses, public company
expenses, advertising, management information system expenses, facility rent and all distribution expenses such as
packaging, reels, and repair and maintenance of equipment and facilities.
Depreciation and Amortization. We incur depreciation expense for costs related to the capitalization of property and
equipment on a straight‐line basis over the estimated useful lives of the assets, which range from three to thirty years. We
incur amortization expense on leasehold improvements over the shorter of the lease term or the life of the related asset
and on intangible assets over the estimated life of the asset.
Interest Expense
Interest expense consists primarily of interest we incur on our debt.
Results of Operations
The following discussion compares our results of operations for the years ended December 31, 2010, 2009 and 2008.
The following table shows, for the periods indicated, information derived from our consolidated statements of income,
expressed as a percentage of sales for the period presented.
Year Ended December 31,
2009
2010
2008
Sales
Cost of sales
Gross profit
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Total operating expenses
Operating income
Interest expense
Income before income taxes
Income tax provision
Net income
100.0%
79.7%
20.3%
100.0 %
79.2 %
20.8 %
100.0%
76.3%
23.7%
8.2%
6.7%
0.6%
15.4%
4.9%
0.3%
4.6%
1.8%
8.1 %
7.1 %
0.2 %
15.4 %
5.4 %
0.2 %
5.2 %
2.0 %
6.7%
5.7%
0.1%
12.6%
11.2%
0.5%
10.7%
4.1%
2.8%
3.2 %
6.6%
Note: Due to rounding, numbers may not add up to total operating expenses, operating income or income before income
taxes.
17
Comparison of Years Ended December 31, 2010 and 2009
Sales
(Dollars in millions)
Sales
Year Ended
December 31,
2010
2009
$
308.5 $
254.8 $
Change
53.7
21.1 %
Our sales for 2010 increased 21.1% to $308.5 million from $254.8 million in the fiscal year 2009. The primary reasons
for this increase were the late June acquisition of SWWR, GP and SW, which generated sales of $37.6 million, improved
demand for our products due to recovering economic conditions and the increase in the average price of copper, a
component in certain of our products, which rose 45.5% over 2009 levels during 2010. We estimate sales in our core MRO
sector were up slightly as a result of improved economic conditions in the fourth quarter of 2010. Sales within the areas
that we have identified as our legacy growth initiatives ‐ Environmental Compliance, Engineering & Construction,
Industrials, LifeGuard™ (and other private branded products) and Utility Power Generation ‐ increased at a greater rate
than MRO sales, as sales within our growth initiatives remained more resilient to difficult early year economic
conditions as projects in these areas were already in progress and had been previously funded. Project bookings and
backlog for our growth initiatives in 2010 remained strong as a result of our continued penetration into these markets.
Gross Profit
(Dollars in millions)
Gross profit
Gross profit as a percent of sales
Year Ended
December 31,
2010
2009
Change
$
62.6 $
20.3%
53.0 $
20.8%
9.6
(0.5 ) %
18.2 %
Gross profit increased 18.2% to $62.6 million in 2010 from $53.0 million in 2009. The increase in gross profit was
attributed to the acquisition as the contribution from the HWC legacy business (pre‐acquisition) remained flat due to more
customers earning rebates and increased freight expenses. Gross profit as a percentage of sales (gross margin) decreased
due to the competitive market place, sales mix and increased customer rebates and freight expenses.
Operating Expenses
(Dollars in millions)
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Total operating expenses:
Year Ended
December 31,
2009
2010
$
$
25.3 $
20.6
1.7
47.6 $
20.6 $
18.0
0.6
39.2 $
Operating expenses as a percent of sales
15.4%
15.4 %
Change
4.7
2.5
1.2
8.4
—
22.7%
14.1%
208.7%
21.4%
Note: Due to rounding, numbers may not add up to total operating expenses, operating income or income before income
taxes.
Salaries and Commissions. Salaries and commissions increased primarily due to the additional personnel from the
acquisition.
Other Operating Expenses. Other operating expenses increased due to the additional operations obtained from the
acquisition and acquisition costs of $0.9 million, which the Company did not incur in 2009. These additional expenses were
partially offset by ongoing cost control initiatives from HWC’s legacy business.
18
Depreciation and Amortization. The depreciation and amortization increase is attributable to the assets acquired in the
acquisition.
Operating expenses as a percentage of sales remained flat at 15.4% in 2010 and 2009.
Interest Expense
Interest expense increased 62.3% or $0.3 million to $0.8 million in 2010 from $0.5 million in 2009 due to higher debt
levels as the acquisition was funded entirely from the Company’s loan agreement. Average debt was $33.5 million in 2010
compared to $20.8 million in 2009. The average effective interest rate increased to 2.2% in 2010 from 1.8% in 2009. This
increase was primarily due to the higher base spreads over LIBOR under the September 2009 amendment to our loan
agreement and an increase in the applicable LIBOR spread as a result of the higher debt‐to‐EBITDA ratio caused by the
acquisition.
Income Tax Expense
Income tax expense increased $0.3 million or 6.2% to $5.5 million in 2010 as our income before taxes increased 6.9%.
The effective income tax rate decreased to 39.1% in 2010 from 39.4% in 2009. The effective income tax rate was lower in
2010 due to 2009 reflecting a deferred tax adjustment relating to prior periods which increased the effective income tax
rate in 2009. This decrease was partially offset by the effect of nondeductible expenses incurred in 2010 associated with
the acquisition.
Net Income
We achieved net income of $8.6 million in 2010 compared to $8.0 million in 2009, an increase of 7.3%.
Comparison of Years Ended December 31, 2009 and 2008
Sales
(Dollars in millions)
Sales
2009
$
254.8 $
Year Ended
December 31,
2008
360.9 $
Change
(106.1)
(29.4) %
Our sales for 2009 decreased 29.4% to $254.8 million from $360.9 million in 2008. The two primary reasons for this
decrease were continued reduced demand for our products, as our customers sought to conserve capital and minimize
expenditures during a difficult economic environment, and the reduction in the price of copper, which fell on average by
24.9% during 2009. Since copper is a major component in many of our products, a decrease in the market price of copper
reduces the prices at which we can sell those products. We estimate sales in our core MRO sector were down as a result of
the challenging economy which we believe lowered overall demand and discretionary spending. Partially offsetting this
decrease in MRO sales was the increase in sales within our legacy growth initiatives encompassing Utility Power
Generation, Environmental Compliance, Engineering & Construction, Industrials, and LifeGuard™ (and other private
branded products). Sales within our growth initiatives remained more resilient to the overall market and economy
as projects in these areas were already in progress and had been previously funded. Project bookings and backlog for our
growth initiatives in 2009 increased as a result of our continued penetration into these markets.
Gross Profit
(Dollars in millions)
Gross profit
Gross profit as a percent of sales
$
2009
53.0 $
20.8%
Year Ended
December 31,
2008
85.7 $
23.7 %
Change
(32.8)
(2.9) %
(38.2) %
Gross profit decreased $32.8 million or 38.2% to $53.0 million in 2009 from $85.7 million in 2008. This decrease was
primarily attributable to lower sales volume. Our gross profit as a percentage of sales (gross margin) decreased to 20.8% in
2009 from 23.7% in 2008. The gross margin compression resulted from competitive pricing pressures throughout the year
due to the prolonged economic slowdown. In addition, the severe drop in copper prices in the fourth quarter of 2008
19
adversely impacted gross margin on sales from certain stock products with heavy copper content, primarily in the first two
quarters of 2009.
Operating Expenses
(Dollars in millions)
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Total operating expenses:
Year Ended
December 31,
2008
2009
$
$
20.6 $
18.0
0.6
39.2 $
24.1 $
20.7
0.5
45.3 $
Change
(3.5)
(2.7)
0.1
(6.1)
(14.5)%
(13.0)%
7.6%
(13.6)%
Operating expenses as a percent of sales
15.4%
12.6 %
2.8%
Salaries and Commissions. The decrease in salaries and commissions was a result of lower incentive compensation due
to the lower sales levels, gross margin, gross profit levels and other financial metrics used in the various incentive
programs and a lower headcount which reduced salaries.
Other Operating Expenses. Other operating expenses in 2009 decreased primarily due to our cost control initiatives
involving tighter management of discretionary expenses, reduced warehouse supplies due to declining sales and decreased
expenses associated with a lower headcount.
Depreciation and Amortization. Depreciation and amortization increased slightly to $0.6 million in 2009 from $0.5
million in 2008.
Operating expenses as a percentage of sales increased to 15.4% in 2009 from 12.6% in 2008 due to the deleveraging of
operating expenses from the reduction in sales.
Interest Expense
Interest expense decreased $1.3 million or 71.5% to $0.5 million in 2009 from $1.8 million in 2008. The decrease in
interest expense is due to a lower average effective interest rate in 2009 resulting from market interest rate declines, and
lower debt levels due to the pay down of debt using cash from operations. The average effective interest rate decreased to
1.8% in 2009 from 4.2% in 2008. Average debt was $20.8 million in 2009 compared to $41.5 million in 2008. In addition,
during 2009 there were no treasury stock purchases, which we historically have funded through borrowings, while there
were $15.4 million of funded treasury stock purchases in 2008.
Income Tax Expense
Income taxes decreased 64.8% or $9.6 million to $5.2 million in 2009 from $14.8 million in 2008 as our income before
taxes decreased 65.6%. Our effective income tax rate was 39.4% in 2009 compared to 38.4% in 2008. The effective income
tax rate increased due primarily to a deferred tax adjustment recorded in 2009 relating to prior periods and the effect of
permanent differences over a lower pretax income base.
Net Income
We achieved net income of $8.0 million in 2009 compared to $23.7 million in 2008, a decrease of 66.2%.
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 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. Copper prices have increased
from an average price per pound of $3.28 in the first quarter of 2010 to a high of $3.93 per pound in the fourth quarter of
2010. The impact of increasing copper prices on sales and net income during 2010 cannot be isolated, as product mix
changes and improving economic demand also impacted performance. 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
20
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 copper and steel 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, the stock repurchase program, dividend payments 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 Years Ended December 31, 2010 and 2009
Our net cash provided by operating activities was $19.3 million in 2010, an increase of $0.5 million or 2.9% compared
to cash provided by operating activities of $18.7 million in 2009. Our net income increased by $0.6 million or 7.3% to $8.6
million in 2010 from $8.0 million in 2009.
Changes in our operating assets and liabilities resulted in cash provided by operating activities of $7.5 million in 2010.
Accrued and other liabilities increased $5.5 million primarily due to higher accruals for volume rebates to our customers,
additional payroll related accruals and increased accrued wire purchases. Accounts payable increased $5.0 million due to
additional inventory received in December 2010 compared to December 2009 in response to increased sales. Prepaids
decreased $3.0 million primarily related to a prepayment for inventory at December 31, 2009, which was subsequently
received in January 2010. The book overdraft, which is funded by our revolving credit facility as soon as the related vendor
checks clear our disbursement account, increased $1.7 million. Offsetting these sources of cash was an increase in accounts
receivable of $9.8 million due to higher sales.
Net cash used in investing activities was $50.7 million in 2010 compared to $0.4 million in 2009. The increase was
attributable to the Company paying $51.2 million for the acquisition in 2010.
Net cash provided by financing activities was $31.4 million in 2010 compared to cash used in financing activities of
$18.3 million in 2009. Net borrowings on the revolver of $37.3 million and dividend payments of $6.0 million were the
main components of financing activities in 2010.
Comparison of Years Ended December 31, 2009 and 2008
Our net cash provided by operating activities was $18.7 million in 2009, a decrease of $7.7 million or 29.1% compared
to cash provided by operating activities of $26.4 million in 2008. Our net income decreased by $15.7 million or 66.2% to
$8.0 million in 2009 from $23.7 million in 2008.
Changes in our operating assets and liabilities resulted in cash provided by operating activities of $8.2 million which
was primarily caused by a reduction in inventory of $11.6 million. The inventory decrease more closely aligned inventory
levels with the lower sales activity caused by the economic recession. Accounts receivable decreased $4.0 million due to
lower sales in 2009. In addition, at December 31, 2009, a customer was withholding payment on $4.8 million of accounts
receivable in connection with a dispute. The book overdraft, which is funded by our revolving credit facility as soon as the
related vendor checks clear our disbursement account, decreased $4.0 million. Prepaids increased $2.8 million primarily
related to a prepayment for inventory which was subsequently received in January 2010. Accounts payable increased $1.5
million due in part to our withholding payment of $4.9 million in connection with the dispute mentioned above. Income
21
taxes payable decreased $1.4 million due to a $1.2 million dollar federal tax payment that was postponed from December
2008 until January 2009 as allowed by the Internal Revenue Service for businesses in the Hurricane Ike disaster area.
Net cash used in investing activities decreased to $0.4 million in 2009 from $0.6 million in 2008 as the Company
enacted a more stringent policy for capital expenditures due to the slowing economic conditions during 2009.
Net cash used in financing activities decreased $7.6 million or 29.3% to $18.3 million in 2009 from $25.9 million in
2008. Net repayments on the revolver of $12.3 million and dividend payments of $6.0 million were the main components of
financing activities in 2009.
Indebtedness
Our principal source of liquidity at December 31, 2010 was working capital of $94.6 million compared to $89.9 million
at December 31, 2009. We also had available borrowing capacity in the amount of $20.2 million at December 31, 2010 and
$49.7 million at December 31, 2009 under our loan agreement.
We believe that we 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 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 21, 2013. Availability has remained above these thresholds. 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 our 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.
Covenants in the loan agreement require us to maintain certain minimum financial ratios and restrict the level of
capital expenditures. Repaid amounts can be re‐borrowed subject to the borrowing base. Additionally, we are obligated to
pay an unused facility fee on the unused portion of the loan commitment. As of December 31, 2010, we were in compliance
with all financial covenants. We paid approximately $0.1 million in unused facility fees for the year ended December 31,
2010.
Contractual Obligations
The following table describes our cash commitments to settle contractual obligations as of December 31, 2010.
Total
Less than
1 year
1‐3 years
(In thousands)
3‐5 years
More than
5 years
Loans payable
Operating lease obligations
Non‐cancellable purchase obligations (1)
$
54,825 $
7,759
39,170
$ 101,754 $
— $
3,129
39,170
42,299 $
54,825 $
3,458
—
58,283 $
— $
1,172
—
1,172 $
—
—
—
—
These obligations reflect purchase orders outstanding with manufacturers as of December 31, 2010. We believe
that some of these obligations may be cancellable upon negotiation with our vendors, but we are treating these as
non‐cancellable for this disclosure due to the absence of an express cancellation right.
Total
__________
(1)
22
Capital Expenditures
We made capital expenditures of $0.5 million in each of the years ended December 31, 2010 and 2009 and $0.6 million
in the year ended December 31, 2008.
Off‐Balance Sheet Arrangements
We have no off‐balance sheet arrangements, other than operating leases.
Share Repurchases
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. There were no shares repurchased during 2010 and 2009.
Financial Derivatives
We have no financial derivatives.
Market Risk Management
We are exposed to market risks arising from changes in market prices, including movements in interest rates and
commodity prices.
Interest Rate Risk
Our variable interest rate debt is sensitive to changes in the general level of interest rates. At December 31, 2010, the
weighted average interest rate on our $54.8 million of variable interest debt was approximately 2.2%.
While our variable rate debt obligations expose us to the risk of rising interest rates, management does not believe that
the potential exposure is material to our overall financial performance or results of operations. Based on December 31,
2010 borrowing levels, a 1.0% increase or decrease in the applicable interest rates would have a $0.5 million effect on our
annual interest expense.
Commodity Risk
We are subject to periodic fluctuations in copper prices as our products have varying levels of copper content in their
construction. In addition, varying steel prices also impact certain of the products we purchase. Profitability is influenced by
these fluctuations as prices change between the time we buy and sell our products.
Foreign Currency Exchange Rate Risk
Our products are purchased and invoiced in U.S. dollars. Accordingly, we do not believe we are exposed to foreign
exchange rate risk.
Climate Risk
Our operations are subject to inclement weather conditions including hurricanes, earthquakes and abnormal weather
events. Our previous experience from these events has had a minimal effect on our operations and results.
Factors Affecting Future Results
This Annual Report on Form 10‐K contains statements that may be considered forward‐looking. 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,"
23
"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. You should read statements that contain these words carefully, because they discuss
our future expectations, contain projections of our future results of operations or of our financial position or state other
"forward‐looking" information. Actual results could differ materially from the results indicated by these statements,
because the realization of those results is subject to many risks and uncertainties. Some of these risks and uncertainties
are discussed in greater detail under Item 1A, "Risk Factors."
All forward‐looking statements are based on current management expectations. Except as required under federal
securities laws and the rules and regulations of the SEC, we do not have any intention, and do not undertake, to update any
forward‐looking statements to reflect events or circumstances arising after the date of this Form 10‐K. Any forward looking
statements speak only as of the date of this filing and the Company undertakes no obligation to publicly update such
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures about Market Risk are reported in Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”, under the captions “Market Risk Management”, “Interest Rate
Risk”, “Commodity Risk”, and “Foreign Currency Exchange Rate Risk”.
24
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Houston Wire & Cable Company
Index to consolidated financial statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements
Page
26
27
28
29
30
31
25
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of Houston Wire & Cable Company
We have audited the accompanying consolidated balance sheets of Houston Wire & Cable Company as of December 31,
2010 and 2009, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the
three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Houston Wire & Cable Company at December 31, 2010 and 2009, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Houston Wire & Cable Company’s internal control over financial reporting as of December 31, 2010, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 15, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
March 15, 2011
26
Houston Wire & Cable Company
Consolidated Balance Sheets
$
$
$
December 31,
2010
(In thousands, except
share data)
2009
67,838 $
67,503
2,399
763
138,503
6,255
15,557
25,082
—
93
185,490 $
3,055 $
19,987
19,781
1,036
43,859
54,825
141
945
99,770
46,859
61,325
1,776
3,649
113,609
3,169
—
2,362
2,855
19
122,014
907
11,610
10,924
281
23,722
17,479
—
—
41,201
Assets
Current assets:
Accounts receivable, net
Inventories, net
Deferred income taxes
Prepaids
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred income taxes
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Book overdraft
Trade accounts payable
Accrued and other current liabilities
Income taxes
Total current liabilities
Debt
Other long‐term obligations
Deferred income taxes
Total liabilities
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: 17,748,487 and 17,732,737 shares outstanding at December 31, 2010 and
2009, respectively
Additional paid‐in capital
Retained earnings
Treasury stock
Total stockholders’ equity
—
—
21
58,642
80,187
(53,130 )
85,720
21
56,609
77,571
(53,388)
80,813
Total liabilities and stockholders’ equity
$
185,490 $
122,014
The accompanying notes are an integral part of these consolidated financial statements.
27
Houston Wire & Cable Company
Consolidated Statements of Income
Year Ended December 31,
2008
2009
(In thousands, except share and per share data)
2010
$
308,522 $
245,932
62,590
254,819 $
201,865
52,954
360,939
275,224
85,715
25,281
20,565
1,738
47,584
15,006
844
14,162
5,543
8,619 $
20,596
18,023
563
39,182
13,772
520
13,252
5,220
8,032 $
0.49 $
0.49 $
0.46 $
0.45 $
24,080
20,728
523
45,331
40,384
1,825
38,559
14,822
23,737
1.33
1.33
$
$
$
Sales
Cost of sales
Gross profit
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Total operating expenses
Operating income
Interest expense
Income before income taxes
Income tax provision
Net income
Earnings per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
17,657,682
17,710,123
17,648,696
17,665,924
17,789,739
17,838,072
Dividends declared per share
$
0.34 $
0.34 $
0.34
The accompanying notes are an integral part of these consolidated financial statements.
28
Houston Wire & Cable Company
Consolidated Statements of Stockholders' Equity
Common Stock
Shares
Amount
Additional
Paid‐In
Capital
Retained
Earnings
Treasury Stock
Shares
Amount
Total
Stockholders'
(In thousands, except share data)
21 $
—
—
54,131 $ 57,846
23,737
—
—
(628)
(2,411,225 )
$
—
42,079
(40,828) $
—
686
20,988,952 $
—
—
—
—
264
—
—
2,134
—
—
—
—
—
—
—
—
—
—
—
—
—
(6,043)
(977,254 )
—
(14,725)
—
(14,725)
(6,043)
Balance at December 31,
2007
Net income
Exercise of stock options
Excess tax benefit for stock
options
Amortization of unearned
stock compensation
Purchase of treasury stock,
net
Dividends paid
Balance at December 31,
2008
Net income
Exercise of stock options
Excess tax benefit for stock
20,988,952
—
—
21
—
—
55,901
—
(145)
75,540
8,032
—
(3,346,400 )
—
10,185
(54,867)
—
167
options
Deferred tax adjustment
related to stock
compensation
Amortization of unearned
stock compensation
Issuance of restricted stock
awards
Dividends paid
—
—
13
—
—
—
—
—
(53)
—
—
2,205
—
—
—
—
—
—
—
—
—
—
(1,312)
—
—
(6,001)
80,000
—
1,312
—
Balance at December 31,
2009
Net income
Exercise of stock options
Excess tax benefit for stock
options
Amortization of unearned
stock compensation
Impact of forfeited vested
options
Impact of forfeited
restricted stock awards
Issuance of restricted stock
awards
Dividends paid
20,988,952
—
—
21
—
—
56,609
—
(134)
77,571
8,619
—
(3,256,215 )
—
10,750
(53,388)
—
176
—
—
7
—
—
2,260
—
—
—
—
—
—
—
—
(18)
—
—
—
—
—
238
—
(14,500 )
(238)
—
—
—
—
(320)
—
—
(6,003)
19,500
—
320
—
—
(6,003)
Balance at December 31,
2010
20,988,952 $
21 $
58,642 $
80,187
(3,240,465 ) $
(53,130) $
85,720
The accompanying notes are an integral part of these consolidated financial statements.
29
Equity
71,170
23,737
58
264
2,134
76,595
8,032
22
13
(53)
2,205
—
(6,001)
80,813
8,619
42
7
2,260
(18)
Houston Wire & Cable Company
Consolidated Statements of Cash Flows
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Amortization of capitalized loan costs
Amortization of unearned stock compensation
Provision for doubtful accounts
Provision for returns and allowances
Provision for inventory obsolescence
(Gain) loss on disposals of property and equipment
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaids
Other assets
Book overdraft
Trade accounts payable
Accrued and other current liabilities
Long term liabilities
Income taxes
Net cash provided by operating activities
Investing activities
Expenditures for property and equipment
Proceeds from disposals of property and equipment
Cash paid for acquisition
Net cash used in investing activities
Financing activities
Borrowings on revolver
Payments on revolver
Proceeds from exercise of stock options
Payment of dividends
Excess tax benefit for options
Purchase of treasury stock
Net cash provided by (used in) financing activities
Net change in cash
Cash at beginning of year
Cash at end of year
Supplemental disclosures
Cash paid during the year for interest
Cash paid during the year for income taxes
2010
Year Ended December 31,
2009
(In thousands)
2008
$
8,619 $
8,032 $
23,737
1,738
46
2,260
93
(118 )
734
26
(1,603 )
(9,785 )
1,059
2,954
354
1,668
5,010
5,466
(3 )
755
19,273
(459 )
956
(51,162 )
(50,665 )
352,276
(314,930 )
42
(6,003 )
7
—
31,392
563
99
2,205
—
(109)
529
(15)
(741)
4,048
11,606
(2,820)
(31)
(4,026)
1,519
(758)
—
(1,363)
18,738
(462)
19
—
(443)
523
80
2,134
214
70
46
8
(900)
7,120
(4,206)
3
(53)
1,079
(2,206)
(4,861)
—
3,648
26,436
(572)
1
—
(571)
255,829
(268,158)
22
(6,001)
13
—
(18,295)
371,915
(376,614)
58
(6,043)
264
(15,445)
(25,865)
—
—
— $
—
—
— $
—
—
—
743 $
514 $
1,920
6,191 $
7,352 $
11,908
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
30
Houston Wire & Cable Company
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
1. Organization and Summary of Significant Accounting Policies
Description of Business
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 and related services to the U.S.
market through nineteen locations in twelve states throughout the United States. On June 25, 2010, the Company
purchased Southwest Wire Rope LP (“SWWR”), its general partner Southwest Wire Rope GP LLC (“GP”) and SWWR’s
wholly owned subsidiary, Southern Wire (“SW”) (collectively “the acquired companies”, or “the acquisition”). On January 1,
2011, the acquired companies were merged into HWC Wire & Cable Company. The Company has no other business activity.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries and have been
prepared following accounting principles generally accepted in the United States (“GAAP”) and the requirements of the
Securities and Exchange Commission (“SEC”). The financial statements include all normal and recurring adjustments that
are necessary for a fair presentation of the Company’s financial position and operating results. All significant inter‐
company balances and transactions have been eliminated.
Use of Estimates
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 that we use for the preparation of our financial statements.
Earnings per Share
Basic earnings per share is calculated by dividing 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:
Denominator:
Weighted average common shares for basic earnings per share
Effect of dilutive securities
Denominator for diluted earnings per share
Year Ended December 31,
2009
2010
2008
17,657,682
52,441
17,710,123
17,648,696
17,228
17,665,924
17,789,739
48,333
17,838,072
Options to purchase 882,455, 1,042,795 and 829,822 shares of common stock were not included in the diluted net
income per share calculation for 2010, 2009 and 2008, respectively, as their inclusion would have been anti‐dilutive.
Accounts Receivable
Accounts receivable consists primarily of receivables from customers, less an allowance for doubtful accounts of $358
and $282, and a reserve for returns and allowances of $486 and $604 at December 31, 2010 and 2009, respectively.
Consistent with industry practices, the Company normally requires payment from its customers within 30 days. The
Company has no contractual repurchase arrangements with its customers. Credit losses have been within management’s
expectations.
The following table summarizes the changes in the allowance for doubtful accounts for the past three years:
31
Balance at beginning of year
Acquisition
Bad debt expense
Write‐offs, net of recoveries
Balance at end of year
Inventories
2010
2009
2008
$
$
282 $
173
93
(190)
358 $
262 $
—
—
20
282 $
130
—
214
(82)
262
Inventories are carried at the lower of cost, using the average cost method, or market and consist primarily of goods
purchased for resale, less a reserve for obsolescence and unusable items and unamortized vendor rebates. The reserve for
inventory is based upon a number of factors, including the experience of the purchasing and sales departments, age of the
inventory, new product offerings, and other factors. The reserve for inventory may periodically require adjustment as the
factors identified above change. The inventory reserve was $3,036 and $2,228 at December 31, 2010 and 2009,
respectively.
Vendor Rebates
Under many of the Company’s arrangements with its vendors, the Company receives a rebate of a specified amount of
consideration, payable when the Company achieves any of a number of measures, generally related to the volume level of
purchases from the vendors. The Company accounts for such rebates as a reduction of the prices of the vendors’ products
and therefore as a reduction of inventory until it sells the products, at which time such rebates reduce cost of sales in the
accompanying consolidated statements of income. Throughout the year, the Company estimates the amount of the rebates
earned based on its estimate of purchases to date relative to the purchase levels that mark its progress toward earning the
rebates. The Company continually revises these estimates to reflect actual rebates earned based on actual purchase levels.
Property and Equipment
The Company provides for depreciation on a straight‐line method over the following estimated useful lives:
Buildings
Machinery and equipment
25 to 30 years
3 to 5 years
Leasehold improvements are depreciated over their estimated life or the term of the lease, whichever is shorter.
Depreciation expense was approximately $805, $563, and $523 for the years ended December 31, 2010, 2009 and 2008,
respectively.
Goodwill
Goodwill represents excess cost over the net tangible and intangible assets of acquired businesses. Goodwill is not
amortized but is reviewed annually for impairment, or more frequently if indications of possible impairment exist, by
applying a fair‐value based test. The Company completes the required annual assessment as of October 1 of each year. The
Company has performed the requisite impairment tests for goodwill and has determined that goodwill was not impaired as
of October 1, 2010.
Other Assets
Other assets include deferred financing costs of $1,832. The capitalized loan costs are amortized on a straight‐line
basis over the contractual life of the related debt agreement, which approximates the effective interest method, and such
amortization expense is included in interest expense in the accompanying consolidated statements of income. Accumulated
amortization at December 31, 2010 and 2009 was approximately $1,802 and $1,779, respectively.
Estimated future amortization expense for capitalized loan costs through the maturity of the agreement are $19, $8,
and $3 for the years 2011 through 2013, respectively.
Intangibles
Intangible assets, from the acquisition, consist of customer relationships, trade names, and non‐compete agreements.
The customer relationships and non‐compete agreements are being amortized over a 7 ½ and 1 year useful life,
32
respectively. If events or circumstances were to indicate that any of the Company’s definite‐lived intangible assets might be
impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated
from the applicable intangible asset. Trade names are not being amortized and are tested for impairment on an annual
basis.
Self Insurance
The Company retains certain self‐insurance risks for both health benefits and property and casualty insurance
programs. The Company limits its exposure to these self insurance risks by maintaining excess and aggregate liability
coverage. Self insurance reserves are established based on claims filed and estimates of claims incurred but not reported.
The estimates are based on information provided to the Company by its claims administrators.
Segment Reporting
The Company operates in a single operating and reporting segment, sales of wire and cable and related services to the
U.S. market.
Revenue Recognition, Returns & Allowances
The Company recognizes revenue when the following four basic criteria have been met:
1. Persuasive evidence of an arrangement exists;
2. Delivery has occurred or services have been rendered;
3. The seller’s price to the buyer is fixed or determinable; and
4. Collectibility is reasonably assured.
The Company records revenue when customers take delivery of products. Customers may pick up products at any
distribution center location, or products may be delivered via third party carriers. Products shipped via third party carriers
are considered delivered based on the shipping terms, which are generally FOB shipping point. Normal payment terms are
net 30 days. Customers are permitted to return product only on a case‐by‐case basis. Product exchanges are handled as a
credit, with any replacement items being re‐invoiced to the customer. Customer returns are recorded as an adjustment to
net sales. In the past, customer returns have not been material. The Company has no installation obligations.
The Company may offer volume rebates, which are accrued monthly as an adjustment to net sales.
Shipping and Handling
The Company incurs shipping and handling costs in the normal course of business. Freight amounts invoiced to
customers are included as sales and freight charges are included as a component of cost of sales.
Credit Risk
The Company’s customers are located primarily throughout the United States. No single customer accounted for 10%
or more of the Company’s sales in 2010, 2009 or 2008. The Company performs periodic credit evaluations of its customers
and generally does not require collateral.
Advertising Costs
Advertising costs are expensed when incurred. Advertising expenses were $163, $94, and $722 for the years ended
December 31, 2010, 2009, and 2008, respectively.
Financial Instruments
The carrying values of the accounts receivable, trade accounts payable and accrued and other current liabilities
approximate fair value, due to the short maturity of these instruments. The carrying amount of long term debt
approximates fair value as it bears interest at variable rates.
33
StockBased Compensation
Stock options issued under the Company’s stock plan have an exercise price equal to the fair value of the Company’s
stock on the grant date. Restricted stock is valued at the closing price of the Company’s stock on the grant date. The
Company recognizes compensation expense ratably over the vesting period. The Company’s compensation expense is
included in salaries and commissions expense in the accompanying consolidated statements of income.
The Company receives a tax deduction for certain stock option exercises in the period in which the options are
exercised, generally for the excess of the market price on the date of exercise over the exercise price of the options. The
Company reports excess tax benefits from the award of equity instruments as financing cash flows. Excess tax benefits
result when a deduction reported for tax return purposes for an award of equity instruments exceeds the cumulative
compensation cost for the instruments recognized for financial reporting purposes.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes and are measured using the
enacted tax rates and laws that will be in effect when the differences are expected to reverse.
2. Business Combination
On June 25, 2010, the Company completed the acquisition of SWWR, its general partner Southwest Wire Rope GP LLC
and SWWR’s subsidiary, 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 to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. SWWR
and SW provide mechanical wire rope and related hardware to the industrial market; GP’s sole activity is to serve as the
general partner of SWWR. Under the terms of the acquisition agreement, the purchase price was $50 million, subject to an
adjustment based on the net working capital of the acquired companies as of the date of closing. The adjustment was $1.5
million making the total purchase price $51.5 million, of which $51.2 million was paid in 2010. 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.
Accounts receivable
Inventories
Deferred income taxes
Prepaids
Property and equipment
Intangibles
Goodwill
Other assets
Total assets acquired
Book overdraft
Trade accounts payable
Accrued and other current liabilities
Deferred income taxes
Long term obligations
Total liabilities assumed
Net assets purchased
At June 25, 2010
11,169
$
7,971
117
68
4,413
16,490
22,720
475
63,423
480
3,367
3,053
4,879
144
11,923
51,500
$
The fair values of the assets acquired and liabilities assumed were determined using the market, income and cost
approaches. The market approach used by the Company included prices at which comparable assets are purchased under
similar circumstances. The income approach indicates value for a subject asset based on the present value of cash flows
projected to be generated by the asset over its useful life. Projected cash flows are discounted at a market rate of return
34
that reflects the relative risk associated with the asset and the time value of money. The cost approach estimates value by
determining the current cost of replacing an asset with another of equivalent economic utility. The cost to replace a given
asset reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to
depreciation.
Intangible assets, from the acquisition, consist of customer relationships ‐ $11,630, trade names ‐ $4,610, and non‐
compete agreements ‐ $250. Customer relationships and non‐compete agreements are being amortized over a 7 ½ and 1
year useful life, respectively. The weighted average amortization period for intangible assets is 7.1 years. Trade names are
not being amortized. As of December 31, 2010, accumulated amortization and amortization expense recognized on the
acquired intangible assets was $933. Amortization expense to be recognized on the acquired intangible assets is expected
to be $1,741 in 2011 and $1,616 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 the acquired companies to the Company’s
national platform.
The purchase accounting with respect to deferred taxes has not yet been finalized as the Company is still awaiting
receipt from the seller of the tax basis of the acquired assets.
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 year ended
December 31, 2010, the Company incurred $860 of acquisition‐related costs.
The amount of revenue and net income of the acquired companies included in the Company’s consolidated statement
of income from the acquisition date through the period ended December 31, 2010 was $37,611 and $811, respectively.
The results of operations of the acquired companies 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:
Sales
Net income
Basic earnings per share
Diluted earnings per share
$
Year ended December 31,
2009
335,440
9,162
0.52
0.52
2010
343,180
9,534
0.54
0.54
$
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 January 1, 2009.
3. Detail of Selected Balance Sheet Accounts
Property and Equipment
Property and equipment are stated at cost and consist of:
Land
Buildings
Machinery and equipment
Less accumulated depreciation
35
At December 31,
2010
2009
$
$
1,436 $
3,599
7,628
12,663
6,408
6,255 $
617
2,209
6,109
8,935
5,766
3,169
Intangibles assets
Intangibles assets consist of:
Trade names
Customer relationships
Non‐compete agreements
Less accumulated amortization
Trade names
Customer relationships
Non‐compete agreements
Goodwill
Changes in goodwill during 2010 were as follows:
Balance at beginning of year
Current year acquisitions
Balance at end of year
Accrued and Other Current Liabilities
Accrued and other current liabilities consist of:
Customer advances
Customer rebates
Payroll, commissions, and bonuses
Accrued inventory purchases
Other
4. Debt
At December 31,
2010
2009
$
4,610 $
11,630
250
16,490
—
808
125
933
$
15,557 $
—
—
—
—
—
—
—
—
—
At December 31,
2010
2009
$
$
2,362 $
22,720
25,082 $
2,362
—
2,362
At December 31,
2010
2009
$
$
3,844 $
4,402
3,326
4,303
3,906
19,781 $
3,756
1,791
1,271
1,205
2,901
10,924
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 $75,000 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
property. Availability under the Loan Agreement is calculated as a percentage of qualifying accounts receivable and
inventory.
Portions of the outstanding loan may be converted to LIBOR loans in minimum amounts of $1,000 and integral
multiples of $100. 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. The Company has 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.
36
The Loan Agreement includes, among other things, covenants that require the Company to maintain certain minimum
financial ratios. Additionally, the Loan Agreement allows for the unlimited payment of dividends and repurchases of stock,
subject to the absence of events of default, maintaining defined levels of fixed charge coverage and minimum levels of
availability. 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 remains as September 21, 2013. Availability has remained above these thresholds. At December 31, 2010, the
Company was in compliance with the financial covenants governing its indebtedness.
The Company’s borrowings at December 31, 2010 and 2009 were $54,825 and $17,479, respectively. The weighted
average interest rates on outstanding borrowings were 2.2% and 2.1% at December 31, 2010 and 2009, respectively.
During 2010, the Company had an average available borrowing capacity of approximately $35,265. This average was
computed from the monthly borrowing base certificates prepared for the lender. At December 31, 2010, the Company had
available borrowing capacity of $20,175 under the terms of the Loan Agreement. Under the Loan Agreement, the Company
is obligated to pay an unused facility fee ranging from 0.2% to 0.3%, depending on the Company’s debt‐to‐EBITDA,
computed on a daily basis. During the years ended December 31, 2010, 2009 and 2008, the Company paid $108, $107, and
$68, respectively, for the unused facility.
Principal repayment obligations for succeeding fiscal years are as follows:
2011
2012
2013
Total
5. Income Taxes
The provision (benefit) for income taxes consists of:
$
$
—
—
54,825
54,825
Year Ended December 31,
2009
2010
2008
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total
$
6,392 $
754
7,146
5,307 $
654
5,961
14,022
1,700
15,722
(1,457)
(146)
(1,603)
(674 )
(67 )
(741 )
(819)
(81)
(900)
$
5,543 $
5,220 $
14,822
A reconciliation of the U.S. Federal statutory tax rate to the effective tax rate on income before taxes is as follows:
Federal statutory rate
State taxes, net of federal benefit
Non‐deductible items
Other
Total effective tax rate
Year Ended December 31,
2009
2010
2008
35.0%
2.8
0.6
0.7
39.1%
35.0 %
2.8
0.9
0.7
39.4 %
35.0%
2.7
0.5
0.2
38.4%
37
Significant components of the Company’s deferred taxes were as follows:
Deferred tax assets:
Property and equipment
Goodwill
Uniform capitalization adjustment
Inventory reserve
Allowance for doubtful accounts
Stock compensation expense
Other
Total deferred tax assets
Deferred tax liabilities
Property and equipment
Goodwill
Intangibles
Total deferred tax liabilities
Net deferred tax assets
Year Ended
December 31,
2010
2009
$
$
— $
—
933
1,169
138
3,227
137
5,604
173
393
3,584
4,150
1,454 $
386
148
634
858
109
2,397
99
4,631
—
—
—
—
4,631
The Company recognizes interest on any tax issue as a component of interest expense and any related penalties in
other operating expenses. As of December 31, 2010, 2009 and 2008, the Company made no provisions for interest or
penalties related to uncertain tax positions. The tax years 2006 through 2010 remain open to examination by the major
taxing jurisdictions to which the Company is subject.
6. Stockholders’ Equity
In 2007, the Board of Directors approved a stock repurchase program, where the Company is authorized to purchase
up to $75,000 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 the issuance of restricted stock, to fund acquisitions, or for other uses as
authorized by the Board of Directors. During the years ended December 31, 2010 and 2009, the Company did not
repurchase any of its stock. During the year ended December 31, 2008, the Company repurchased 977,254 shares for a
total cost of $14,725. As of December 31, 2010, the Company had total repurchases of 3,391,854 shares for a total cost of
$55,615.
Since February 2008, the Company has paid a quarterly cash dividend of $0.085 per share, resulting in aggregate
dividends in 2010, 2009 and 2008 of $6,003, $6,001 and $6,043, respectively.
On May 18, 2009, the Company’s Board of Directors adopted a stockholder rights plan and announced that the plan
would be submitted for stockholder ratification at the 2010 annual meeting of stockholders. The stockholders of the
Company failed to ratify the rights plan at the 2010 annual meeting, and the plan was terminated effective May 7, 2010.
The Company is authorized to issue 5,000,000 shares of preferred stock, par value $.001 per share. The Board of
Directors is authorized to fix the particular preferences, rights, qualifications and restrictions of each series of preferred
stock. In connection with the adoption of the stockholder rights plan, the Board of Directors designated 100,000 shares as
Series A Junior Participating Preferred Stock, although the plan has subsequently been terminated. No shares of preferred
stock have been issued.
7. Employee Benefit Plans
The Company maintains a combination profit‐sharing plan and salary deferral plan (the “Plan”) for the benefit of its
employees. Employees who are eligible to participate in the Plan can contribute a percentage of their base compensation,
up to the maximum percentage allowable not to exceed the limits of Internal Revenue Code (“Code”) Sections 401(k), 404,
and 415, subject to the IRS‐imposed dollar limit. Employee contributions are invested in certain equity and fixed‐income
securities, based on employee elections. The Company has adopted the Safe Harbor provisions of the Code, whereby
contributions up to the first 3% of an employee’s compensation are matched 100% by the Company and the next 2% are
38
matched 50% by the Company. The Company’s match for the years ended December 31, 2010, 2009 and 2008 was $599,
$537, and $623, respectively.
8. Incentive Plans
On March 23, 2006, the Company adopted and on May 1, 2006, the stockholders approved the 2006 Stock Plan (the
“2006 Plan”) to provide incentives for certain key employees and directors through awards and the exercise of options. The
2006 Plan provides for options to be granted at the fair market value of the Company’s common stock at the date of grant
and may be either nonqualified stock options or incentive stock options as defined by Section 422 of the Code. Under the
2006 Plan a maximum of 1,800,000 shares may be issued to designated participants. The maximum number of shares
available to any one participant in any one calendar year is 500,000.
Stock Option Awards
The Company also has options outstanding under a stock option plan adopted in 2000 (the “2000 Plan”). The 2000
Plan provided for options to be granted at the fair market value of the Company’s common stock at the date of the grant,
which options could be either nonqualified stock options or incentive stock options as defined by Section 422 of the Code.
In connection with the adoption of the 2006 Plan, the Board of Directors resolved that no further options would be granted
under the 2000 Plan.
The Company has granted options to purchase its common stock to employees and directors of the Company under the
two stock option plans at no less than the fair market value of the underlying stock on the date of grant. These options are
granted for a term not exceeding ten years and may be forfeited in the event the employee or director terminates, other
than by retirement, his or her employment or relationship with the Company. Options granted to employees generally vest
over three to five years, and options granted to directors generally vest one year after the date of grant. Shares issued to
satisfy the exercise of options may be newly issued shares or treasury shares. Both option plans contain anti‐dilutive
provisions that permit an adjustment of the number of shares of the Company’s common stock represented by each option
for any change in capitalization. Compensation cost for options granted is charged to expense on a straight line basis over
the term of the option.
On December 17, 2008, the Company granted options to purchase 65,000 shares of its common stock to the Company’s
chief executive officer with the exercise price equal to the fair market value of the Company’s stock at the close of trading
on December 17, 2008. On January 9, 2008, the Company granted options to purchase 65,000 shares of its common stock to
the Company’s chief executive officer with an exercise price equal to the fair market value of the Company’s stock at the
close of trading on January 9, 2008. In each case, the options have a contractual life of ten years and vest 50% on March 9,
2011 and the remaining 50% on March 9, 2012, provided that in the event of the chief executive officer’s death or
permanent disability, such options would vest ratably based on the days served from the date of grant.
At the last two Annual Meetings of Stockholders, held on May 7, 2010 and May 8, 2009, the Company issued options
under the 2006 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 fair value of each option awarded is estimated on the date of grant using a Black‐Scholes option‐pricing model.
Expected volatilities are based on historical volatility of the Company’s stock and the historical volatility of the stock of
similar companies, and other factors. The Company uses historical data to estimate option exercises and employee
terminations within the valuation model. The expected life of options granted represents the period of time that options
granted are expected to be outstanding. The risk‐free rate for periods within the life of the option is based on the
U.S. Treasury yield curve in effect at the time of grant. For options issued, the following weighted average assumptions
were used:
Risk‐free interest rate
Expected dividend yield
Weighted average expected life
Expected volatility
39
Year Ended
December 31,
2009
2010
1.86%
2.80%
4.5 years
64%
1.00 %
3.29 %
2 years
81 %
2008
2.51%
3.21%
5.5 years
55%
During the years ended December 31, 2010, 2009 and 2008, tax benefits of $7, $13 and $264, respectively, were
reflected in financing cash flows.
The total intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008 was $77, $77
and $738, respectively.
The following summarizes stock option activity and related information:
2010
Options
(in 000’s)
Weighted
Average
Exercise Price
Aggregate
Intrinsic
Value
Outstanding—Beginning of year
Granted
Exercised
Forfeitures
Expired
Outstanding—End of year
Exercisable—End of year
Weighted average fair value of options granted during 2010 $
Weighted average fair value of options granted during 2009 $
Weighted average fair value of options granted during 2008 $
1,195 $
123
(11)
(13)
(3)
1,291 $
399 $
5.04
4.04
5.24
18.93 $
12.14
3.90
14.48
0.53
18.49 $
15.39 $
1,146
1,705
818
Vesting dates range from May 7, 2011 to December 14, 2015, and expiration dates range from January 1, 2012
to December 14, 2020 at exercise prices and average contractual lives as follows:
Exercise
Prices
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.53
2.67
9.27
10.32
11.99
12.03
12.43
13.00
15.40
16.98
17.36
17.98
21.73
26.19
30.25
Outstanding
as of
12/31/10
(in 000’s)
6
36
209
35
65
88
35
15
67
30
45
15
125
500
20
1,291
Weighted
Average
Remaining
Contractual
Life
1.68
5.00
7.96
8.35
7.02
9.95
9.35
5.47
6.96
5.55
7.35
5.61
5.97
6.19
6.33
6.89
Exercisable
as of
12/31/10
(in 000’s)
6
36
57
35
—
—
—
15
40
30
45
15
100
—
20
399
Weighted
Average
Remaining
Contractual
Life
1.68
5.00
7.96
8.35
—
—
—
5.47
6.96
5.55
7.35
5.61
5.97
—
6.33
6.52
The total fair value of options vested during the years ended December 31, 2010, 2009 and 2008 was $703, $1,013 and
$773, respectively.
Restricted Stock Awards
On June 28, 2010, the Company granted 19,500 voting shares of restricted stock under the 2006 Plan to new members
of the management team, who joined the Company as part of the acquisition. These shares vest in one‐third increments, on
40
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 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.
The following summarizes restricted stock awards as of December 31, 2010:
2010
Non‐vested —Beginning of year
Granted
Vested
Cancelled/Forfeitures
Non‐vested —End of year
Weighted
Average
Market
Value at
Grant Date
12.20
11.62
—
11.72
12.14
$
Shares
(in 000’s)
80
20
—
(15)
85
$
Total stock‐based compensation cost was $2,260, $2,205 and $2,134 for the years ended December 31, 2010, 2009 and
2008, respectively. Total income tax benefit recognized for stock‐based compensation arrangements was $885, $869 and
$820 for the years ended December 31, 2010, 2009 and 2008, respectively.
As of December 31, 2010, there was $3,560 of total unrecognized compensation cost related to nonvested share‐based
compensation arrangements. The cost is expected to be recognized over a weighted average period of approximately 28
months. There were 459,875 shares available for future grants under the 2006 Plan at December 31, 2010.
9. Commitments and Contingencies
The Company has entered into operating leases, primarily for distribution centers and office facilities. These operating
leases frequently include renewal options at the fair rental value at the time of renewal. For leases with step rent
provisions, whereby the rental payments increase incrementally over the life of the lease, the Company recognizes the total
minimum lease payments on a straight line basis over the minimum lease term. Facility rent expense was approximately
$2,602 in 2010, $2,161 in 2009 and $1,999 in 2008.
Future minimum lease payments under non‐cancelable operating leases with initial terms of one year or more
consisted of the following at December 31, 2010:
2011
2012
2013
2014
2015
Thereafter
Total minimum lease payments
$
$
3,129
2,096
1,362
961
211
—
7,759
The Company had aggregate purchase commitments for fixed inventory quantities of approximately $39,170 at
December 31, 2010.
As part of the June 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 $141 relates to the cost of the
41
monitoring, which the Company estimates will be incurred over approximately the next 6 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
Commission 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 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 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.
As of December 31, 2010 and 2009, the Company had a past due account receivable of $4,800. The customer had
withheld payment due to a product dispute. That dispute has been resolved, and the Company received payment of the
account receivable in the first quarter of 2011.
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.
10. Subsequent Events
On March 11, 2011, the Company granted 2,500 voting shares of restricted stock under the 2006 Plan to a recently
promoted member of the management team. These shares vest equally over five years on the anniversary 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 February 2, 2011, the Board of Directors approved a quarterly dividend of $0.085 per share payable to
stockholders of record on February 14, 2011. This dividend totaling $1,501 was paid on February 25, 2011. The Company
has evaluated subsequent events through the time these financial statements in this Form 10‐K were filed with the SEC.
42
11. Select Quarterly Financial Data (unaudited)
The following table presents the Company’s unaudited quarterly results of operations for each of the last eight
quarters ended December 31, 2010. The unaudited information has been prepared on the same basis as the audited
consolidated financial statements.
Year Ended December 31, 2010
Fourth
Quarter
Third
Quarter
Second
Quarter
(in thousands, except per share data)
First
Quarter
Sales
Gross profit
Operating income
Net income
Earnings per share:
Basic
Diluted
Sales
Gross profit
Operating income
Net income
Earnings per share:
Basic
Diluted
$
$
$
$
$
$
93,549
19,756
5,088
2,904
$
$
$
$
90,536
17,574
4,063
2,233
$
$
$
$
63,269 $
12,753 $
3,004 $
1,777 $
61,168
12,507
2,851
1,705
0.16
0.16
$
$
0.13
0.13
$
$
0.10 $
0.10 $
0.10
0.10
Year Ended December 31, 2009
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
(in thousands, except per share data)
$
$
$
$
$
$
63,526 $
12,707 $
3,355 $
1,882 $
63,579 $
13,462 $
3,786 $
2,241 $
61,882 $ 65,832
12,972 $ 13,813
3,118 $
3,513
1,845 $
2,064
0.11 $
0.11 $
0.13 $
0.13 $
0.10 $
0.10 $
0.12
0.12
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In accordance with Exchange Act Rules 13a‐15 and 15a‐15, we carried out an evaluation, under the supervision and
with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as
of December 31, 2010.
Design and Evaluation of Internal Control over Financial Reporting
Pursuant to Section 404 of the Sarbanes‐Oxley Act of 2002, we included a report of management’s assessment of the
design and effectiveness of our internal controls as part of this Annual Report on Form 10‐K for the fiscal year ended
December 31, 2010. Ernst & Young, LLP, our independent registered public accounting firm, also attested to our internal
control over financial reporting. Management’s report and the independent registered accounting firm’s attestation report
are included on pages 46 and 47 under the captions entitled “Management’s Report on Internal Control Over Financial
Reporting” and “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting,”
and are incorporated herein by reference.
There has been no change in our internal controls over financial reporting that occurred during the year ended
December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal controls over
financial reporting.
44
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2010
based on criteria established by Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO Framework”). The Company’s management is responsible for
establishing and maintaining adequate internal controls over financial reporting. The Company’s independent registered
public accountants that audited the Company’s financial statements as of December 31, 2010 have issued an attestation
report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting, which
appears on page 47.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
The Company’s assessment of the effectiveness of its internal control over financial reporting included testing and
evaluating the design and operating effectiveness of its internal controls. In conducting this assessment, the businesses
acquired in June 2010 for a total purchase price of $51.5 million, as more fully described in Note 2 of the Notes to
Consolidated Financial Statements, were excluded. These operations accounted for 12% of the Company’s consolidated
revenues, 9% of income before income taxes, 33% of total assets and 1% of net assets as of and for the year ended
December 31, 2010. In management’s opinion, the Company has maintained effective internal control over financial
reporting as of December 31, 2010, based on criteria established in the COSO Framework.
/s/ Charles A. Sorrentino
Charles A. Sorrentino
President and Chief Executive Officer
/s/ Nicol G. Graham
Nicol G. Graham
Chief Financial Officer, Treasurer
and Secretary (Chief Accounting Officer)
45
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Board of Directors and Stockholders of Houston Wire & Cable Company
We have audited Houston Wire & Cable Company’s internal control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Houston Wire & Cable Company’s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Southwest Wire Rope LP, Southwest Wire Rope GP LLC, and Southern Wire LLC, which are included in the 2010
consolidated financial statements of Houston Wire & Cable Company and constituted 33% and 1% of total and net assets,
respectively, as of December 31, 2010 and 12% and 9% of revenues and income before income taxes, respectively, for the
year then ended. Our audit of internal control over financial reporting of Houston Wire & Cable Company also did not
include an evaluation of the internal control over financial reporting of Southwest Wire Rope LP, Southwest Wire Rope GP
LLC, and Southern Wire LLC.
In our opinion, Houston Wire & Cable Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Houston Wire & Cable Company as of December 31, 2010 and 2009, and the
related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2010 of Houston Wire & Cable Company and our report dated March 15, 2011 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
March 15, 2011
46
ITEM 9B. OTHER INFORMATION
We have no information to report pursuant to Item 9B.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information called for by Item 10 relating to directors and nominees for election to the Board of Directors is
incorporated herein by reference to the “Election of Directors” section of the registrant’s definitive Proxy Statement
relating to the Annual Meeting of Stockholders to be held on May 3, 2011. The information called for by Item 10 relating to
executive officers and certain significant employees is set forth in Part I of this Annual Report on Form 10‐K.
The information called for by Item 10 relating to disclosure of delinquent Form 3, 4 or 5 filers is incorporated herein by
reference to the “Stock Ownership of Certain Beneficial Owners and Management” section of the registrant’s
definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 3, 2011.
The information called for by Item 10 relating to the code of ethics is incorporated herein by reference to the
“Corporate Governance and Board Committees – Code of Business Practices” section of the registrant’s definitive Proxy
Statement relating to the Annual Meeting of Stockholders to be held on May 3, 2011.
The information called for by Item 10 relating to the procedures by which security holders may recommend nominees
to the Board of Directors is incorporated herein by reference to the “Corporate Governance and Board Committees –
Stockholder Recommendations for Director Nominations” section of the registrant’s definitive Proxy Statement relating to
the Annual Meeting of Stockholders to be held on May 3, 2011.
The information called for by Item 10 relating to the audit committee and the audit committee financial expert is
incorporated herein by reference to the “Corporate Governance and Board Committees – Committees Established by the
Board – Audit Committee” section of the registrant’s definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 3, 2011.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference to the “Report of the Compensation
Committee,” “Compensation Committee Interlocks and Insider Participation,” “Executive Compensation” and “Director
Compensation” sections of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders to be
held on May 3, 2011.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information called for by Item 12 is incorporated herein by reference to the “Stock Ownership of Certain Beneficial
Owners and Management” and “Equity Compensation Plan Information” sections of the registrant’s definitive Proxy
Statement relating to the Annual Meeting of Stockholders to be held on May 3, 2011.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information called for by Item 13 is incorporated herein by reference to the “Corporate Governance and Board
Committees – Are a Majority of the Directors Independent?” and “Certain Relationships and Related Transactions” sections
of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 3, 2011.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information called for by Item 14 is incorporated herein by reference to the “Principal Independent Accountant
Fees and Services” section of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders to
be held on May 3, 2011.
47
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
The following financial statements of our Company and Report of the Independent Registered Public Accounting Firm
are included in Part II:
• Report of Independent Registered Public Accounting Firm
•
•
•
•
• Notes to Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
(b)
Financial Statement Schedules:
Financial statement schedules have been omitted because they are either not applicable or the required information has
been disclosed in the financial statements or notes thereto.
(c)
Exhibits
Exhibits are set forth on the attached exhibit index
48
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: March 15, 2011
HOUSTON WIRE & CABLE COMPANY
(Registrant)
By:
/s/ NICOL G. GRAHAM
Nicol G. Graham
Chief Financial Officer, Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ CHARLES A. SORRENTINO
Charles A. Sorrentino
Director
President, Chief Executive Officer and
March 15, 2011
/s/ NICOL G. GRAHAM
Nicol G. Graham
/s/ PETER M. GOTSCH
Peter M. Gotsch
/s/ IAN STEWART FARWELL
Ian Stewart Farwell
/s/ WILLIAM H. SHEFFIELD
William H. Sheffield
/s/ SCOTT L. THOMPSON
Scott L. Thompson
/s/ WILSON B. SEXTON
Wilson B. Sexton
/s/ MICHAEL T. CAMPBELL
Michael T. Campbell
Chief Financial Officer, Treasurer and
Secretary (Chief Accounting Officer)
March 15, 2011
Director
Director
Director
Director
Director
Director
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
March 15, 2011
49
EXHIBIT
NUMBER
INDEX TO EXHIBITS
EXHIBIT
3.1
Amended and Restated Certificate of Incorporation of Houston Wire & Cable Company (incorporated herein by
reference to Exhibit 3.1 to Houston Wire & Cable Company’s Registration Statement on Form S‐1 (Registration
No. 333‐132703))
3.2
By‐Laws of Houston Wire & Cable Company (incorporated herein by reference to Exhibit 3.2 to Houston Wire &
Cable Company’s Registration Current Report on Form 8‐K filed August 6, 2007)
10.1
Houston Wire & Cable Company 2000 Stock Plan (incorporated herein by reference to Exhibit 10.2 to Houston
Wire & Cable Company’s Registration Statement on Form S‐1 (Registration No. 333‐132703))
10.2
Houston Wire & Cable Company 2006 Stock Plan (incorporated herein by reference to Exhibit 10.3 to Houston
Wire & Cable Company’s Registration Statement on Form S‐1 (Registration No. 333‐132703))
10.3
Employment Agreement, dated as of April 26, 2006, by and between Charles A. Sorrentino and Houston Wire &
Cable Company (incorporated herein by reference to Exhibit 10.14 to Houston Wire & Cable Company’s
Registration Statement on Form S‐1 (Registration No. 333‐132703))
10.4
Form of Employee Stock Option Agreement under Houston Wire & Cable Company’s 2006 Stock Plan
(incorporated herein by reference to Exhibit 10.17 to Houston Wire & Cable Company’s Annual Report on Form
10‐K for the year ended December 31, 2007)
10.5
Form of Director Stock Option Agreement under Houston Wire & Cable Company’s 2006 Stock Plan
(incorporated herein by reference to Exhibit 10.17 to Houston Wire & Cable Company’s Annual Report on Form
10‐K for the year ended December 31, 2007)
10.6
Description of Senior Management Bonus Program (incorporated herein by reference to Exhibit 10.3 to Houston
Wire & Cable Company’s Current Report on Form 8‐K filed December 27, 2006)
10.7
Form of Director/Officer Indemnification Agreement by and between Houston Wire & Cable Company and a
director, member of a committee of the Board of Directors or officer of Houston Wire & Cable Company
(incorporated herein by reference to Exhibit 10.24 to Houston Wire & Cable Company’s Annual Report on Form
10‐K for the year ended December 31, 2006)
10.8
10.9
Second Amended and Restated Loan and Security Agreement, dated as of September 21, 2009 (incorporated
herein by reference to Exhibit 10.1 to Houston Wire & Cable Company’s Current Report on Form 8‐K filed
September 24, 2009)
Equity Interest Purchase Agreement between Houston Wire & Cable Company and Teleflex Incorporated dated
May 26, 2010 (incorporated herein by reference to Exhibit 10.1 to Houston Wire & Cable Company’s Current
Report on Form 8‐K filed May 28, 2010)
21.1
Subsidiaries of Houston Wire & Cable Company (incorporated herein by reference to Exhibit 21.1 to Houston
Wire & Cable Company’s Registration Statement on Form S‐1 (Registration No. 333‐132703))
23.1*
Consent of Ernst & Young, LLP
31.1*
Certification of CEO Pursuant to Section 302 of the Sarbanes‐Oxley Act of 2002
31.2*
Certification of CFO Pursuant to Section 302 of the Sarbanes‐Oxley Act of 2002
32.1*
Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes‐Oxley Act of 2002
* Filed herewith
50
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S‐8 No. 333‐135777) pertaining to
the Houston Wire & Cable Company 2000 Stock Plan and the Houston Wire & Cable Company 2006 Stock Plan of our
reports dated March 15, 2011, with respect to the consolidated financial statements of Houston Wire & Cable Company,
and the effectiveness of internal control over financial reporting of Houston Wire & Cable Company, included in this Annual
Report (Form 10‐K) for the year ended December 31, 2010.
Exhibit 23.1
/s/Ernst & Young LLP
Houston, Texas
March 15, 2011
51
Exhibit 31.1
Certification of CEO Pursuant to Section 302 of the Sarbanes‐Oxley Act of 2002
I, Charles A. Sorrentino, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10‐K for the year ended December 31, 2010 of Houston Wire & Cable Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a‐15(e) and 15d‐15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a‐15(f) and 15d‐15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 15, 2011
/s/ Charles A. Sorrentino
Charles A. Sorrentino
Chief Executive Officer
52
Exhibit 31.2
Certification of CFO Pursuant to Section 302 of the Sarbanes‐Oxley Act of 2002
I, Nicol G. Graham, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10‐K for the year ended December 31, 2010 of Houston Wire & Cable Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a‐15(e) and 15d‐15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a‐15(f) and 15d‐15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 15, 2011
/s/ Nicol G. Graham
Nicol G. Graham
Chief Financial Officer
53
Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes‐Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report of Houston Wire & Cable Company (the “Corporation”) on Form 10‐K for the fiscal
year ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
Charles A. Sorrentino, as Chief Executive Officer of the Corporation, and Nicol G. Graham, as Chief Financial Officer of the
Corporation, each hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes‐
Oxley Act of 2002, to the best of their knowledge, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations
of the Corporation.
Date:
March 15, 2011
Date:
March 15, 2011
/s/ Charles A. Sorrentino
Charles A. Sorrentino
Chief Executive Officer
/s/ Nicol G. Graham
Nicol G. Graham
Chief Financial Officer
This certification accompanies the Report pursuant to section 906 of the Sarbanes‐Oxley Act of 2002 and shall not be
deemed filed by Houston Wire & Cable Company for purposes of section 18 of the Securities Exchange Act of 1934, as
amended.
54
corporate information
corporate headquarters
houston Wire & cable company
10201 North loop east
houston, texas 77029-1415
telephone (713) 609-2200
annual meeting
the annual meeting of Shareholders will be held
may 3, 2011 at 8:30 a.m. cdt, at the company’s
corporate headquarters in houston, texas.
common stock listing
ticker Symbol: hWcc
NaSdaq Stock exchange
transfer agent
american Stock transfer & trust company
59 maiden lane
New york, New york 10038
independent auditors
ernst & young, llp
1401 mckinney Street, Ste. 1200
houston, texas 77010
legal counsel
Schiff hardin, llp
233 South Wacker drive
6600 Willis tower
chicago, illinois 60606
investor relations
a complimentary copy of this report can be found
online at www.houwire.com or by sending a written
request to our corporate headquarters address,
calling (713) 609-2110 or contacting
investor.relations@houwire.com.
website
www.houwire.com
directors
Michael T. Campbell [ 1 ]
independent director
Ian Stewart Farwell [ 2 ]
independent director
Peter M. Gotsch [ 3 ]
ellipse capital, llc
partner
Wilson B. Sexton [ 4 ]
independent director
William H. Sheffield [ 5 ]
independent director
Charles A. Sorrentino [ 6 ]
houston Wire & cable company
president & ceo
Scott L. Thompson [ 7 ]
chairman of the board and
dollar thrifty automotive group
president & ceo
4
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10201 north loop east
houston, texas 77029-1415
713.609.2200 / 1.800.houwire
www.houwire.com