10201 North Loop East
Houston, Texas 77029-1415
(713) 609-2200
1.800.HOUWIRE
WWW.HOUWIRE.COM
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Right Product, Right Place, Right Time®
2012 AnnuAl RepoRt
Right Product, Right Place, Right Time®
Wire and cable for industry
and infrastructure
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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.
Financial Highlights
(Dollars in thousands except per share data)
2012
2011
2010
2009
2008
net sales
$ 393,036
$ 396,410
$ 308,522 $ 254,819 $ 360,939
sales per employee
954
1,010
955
907
1,168
operating income
28,926
33,377
15,006
13,772
40,384
operating margin
7.36%
8.42%
4.86%
5.40%
11.19%
net income
17,039
19,677
8,619
8,032
23,737
diluted earnings
per share
0.96
1.11
0.49
0.45
1.33
total assets
197,155
179,153
185,490
122,014
134,753
long-term
obligations
60,361
50,345
55,911
17,479
29,808
stockholders’ equity
109,080
97,338
85,720
80,813
76,595
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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 7, 2013 at 8:30 a.m. Cdt, at
the Company’s corporate headquarters in
Houston, texas.
DIReCtoRS
1. Wilson B. Sexton
Chairman of the Board of POOLCORP
2. William H. Sheffield
Chairman of the Board of Houston Wire
& Cable Company
3. James l. pokluda III
President & Chief Executive Officer
of Houston Wire & Cable Company
CoMMon StoCK lIStInG
ticker symbol: HWCC
nasdaq stock exchange
4. Ian Stewart Farwell
Independent Director
5. peter M. Gotsch
Managing Director of Svoboda Capital
Partners LLC
6. Scott l. thompson
Former President, Chief Executive Officer
& Chairman of the Board of Dollar Thrifty
Automotive Group, Inc.
7. Michael t. Campbell
Independent Director
tRAnSFeR AGent
american stock transfer & trust Company
59 maiden lane
new york, new york 10038
InDepenDent AuDItoRS
ernst & young, llp
1401 mcKinney street, suite 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
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Power Generation
Environmental Compliance
The Right Markets
Industrials
Right Product, Right Place, Right Time®
Infrastructure
2012 Annual Report | 01
DEar SharEholDErS
James L. Pokluda III
President, CEO and Director
The Right Time for HWCC
Every day, we
live our tagline,
Right Product,
Right Place,
Right Time.®
2012 was an exciting year for
Houston Wire & Cable
Company (HWCC). We
launched several new business development initiatives,
accomplished multiple strategic goals and supplied our
customers more than 43,000 unique constructions of
specialty electrical and mechanical wire and cable with
better than 99% on-time performance and accuracy.
Every day, we live our tagline, Right Product, Right Place,
Right Time,® and I am delighted to be part of such a solid
organization whose people and culture so highly value
the importance of its commitment to world-class
customer service and operational excellence.
In 2012, we knew the mega-projects that produced record
2011 revenues would not repeat; therefore, to ensure sound
performance for the Company, we made it a top priority to
increase investments in new products and services, strategic
resources to drive new business and operational excellence.
Our new products were well received by our customers,
and market share gains continued as we added more than
370 new customers, an increase of almost 30% over the
285 added in the prior year. The plan is working, and I am
immensely proud of all the hard work and dedication from
our team members who made these results possible.
Our sales in 2012 were within one percent of the previous
year’s record levels, and increased approximately three
percent on a metals adjusted basis. Quarterly net income
was consistent at just over $4 million, and we were pleased
with the fourth quarter results, which were significantly
ahead of the prior year period and beat internal expecta-
tions. Our commitment to growing the Company by
investing in additional sales and marketing personnel
02 | Houston Wire & Cable Company
continued; and operating expenses, once adjusted for the
stock compensation credit in the prior year, increased
slightly to 1.6% above the 2011 level.
The balance sheet remained strong and easily supported
continued investments in new products and additional
inventory required to meet the growing demand in the
oil and gas market. Year-end working capital was 32% of
sales, well within our historical range of 26% to 35%, and
operating income provided interest coverage at a ratio of
23:1 versus an industry average of 3.5:1. Our liquidity
position also remained very solid, as we had $41 million of
available capacity under our $100 million bank line and our
2012 weighted average cost of borrowed capital was 2.1%.
The RighT Plan
Right Product, Right Place, Right Time® starts with
the “Right Plan.” HWCC’s growth plan targets new
product and business development initiatives in markets
encompassing Power Generation, Environmental
Compliance, Engineering and Construction, Industrials,
Mechanical Wire Rope and LifeGuard™ low-smoke
zero-halogen cable. The plan serves as a template for
driving decisions involving capital investment, strategic
marketing, operational excellence and employee
development, and has doubled the size of the Company
since its implementation.
Power Generation
Power generation projects in 2012 did not include the
mega-project coal fired power plants seen in prior years,
as the industry transitioned to greater investments in
natural gas and renewable energy technologies. HWCC
transitioned as well.
Our MarkEt SEgMEntS
Power Generation
industrials
environmental ComPlianCe
infrastruCture
:: Fossil Fuel
:: Oil and Gas
:: Flue Gas Desulfurization
:: Wastewater
:: Wind
:: Solar
:: Hydro
:: Co-Generation
:: Biomass
:: Mining and Minerals
:: Selective Catalytic
:: Security
:: Steel
:: Petrochemical
:: Pharmaceutical
:: Food Processing
:: General Manufacturing
:: Material Handling
Reduction
:: Mercury Capture Systems
:: Baghouse Installation
and Optimization
:: Telecommunications
:: Facilities
:: Transportation
:: Marine
:: Cranes
:: Mooring
For years, we have excelled at supplying the wire and
cable required in the construction of coal, natural gas
and alternative fuel power plants, and our shift to support
increased demand in changing technologies was seamless.
HWCC’s inventories align with specification requirements
for all power production technologies, regardless of the
fuel source, and during the year we had several nice wins,
including North America’s largest solar and biomass
power plant and several large wind farms.
Every year, one of the industry’s most highly recognized
publications, Power Engineering, and RenewableEnergy-
World.com name the world’s projects of the year at the
industry’s largest event, POWER-GEN International.
We were honored to learn that Houston Wire & Cable
Company was the primary cable supplier for all United
States winners and runners up in the Coal, Natural Gas
and Biomass categories.
The outlook for growth in the power generation market
is expected to be positive in 2013, and our continued focus
on this space remains an important element of our
growth plan.
Environmental Compliance
The combustion of fossil fuels to generate electrical
power produces gases and other waste products that
must be captured prior to their release in the atmosphere.
Elaborate pollution control devices such as Flue Gas
Desulfurization Units (Scrubbers), Selective Catalytic
Reduction Units, Mercury Capture Systems and Baghouses
effectively remove significant quantities of environmental
contaminants. These massive projects are capital-intensive,
very complex, highly engineered investments. Environmental
control devices must function on a continual basis in
extreme environmental and operating conditions, and
require the use of some of the industry’s most specialized
wire and cable. Our products are perfectly suited for these
applications, and we have become experts in supplying
and servicing the needs of these high-demand projects.
Driven by requirements to minimize the amount of
pollution emitted, utility providers will continue to invest
in these systems to remain industry compliant and to
reduce their environmental footprint. Installations of
pollution control devices for new power plants to support
increasing power demands, and retrofits and upgrades to
aged power generating facilities, many of which have no
control device at all, will continue for several years.
Engineering and Construction
Companies that specialize in engineering, procurement,
and construction target and support markets that align
with HWCC’s growth initiatives. Our product, service
and delivery capabilities are able to support any industrial
project, and these are areas in which we excel. In fact, for
projects completed in 2012, HWCC was recently honored
with a superior performance award by one of the industry’s
big three engineering, procurement and construction
companies. Our success in this space helped to deliver
record results in smaller-scale projects and substantially
filled the void from the absence of mega-projects.
Expert execution of our Cable Management Services
program also fueled project growth. This program
provides guaranteed availability of project material in
a secure HWCC facility, just-in-time product delivery to
the job site, elimination of scrap material and surplus,
Cable Management
Services, when
combined with
our technical field
sales team and
our outstanding
distributor partners,
drives significant
cost savings to
our customers.
Right Product, Right Place, Right Time®
2012 Annual Report | 03
Our LOCatIOnS
1 Seattle, WA
2 San Francisco, CA
3 Los Angeles, CA
4 Denver, CO
5 Kansas City, MO
6 Houston, TX (5)
7 Lake Charles, LA
8 New Iberia, LA
9 Baton Rouge, LA
10 Memphis, TN
11 Chicago, IL
12 Atlanta, GA
13 Tampa, FL
14 Charlotte, NC
15 Philadelphia, PA
In 2012…
We supplied more
than 43,000 unique
product construc-
tions to industry.
We successfully
launched several
new products for
use in infrastructure,
utility and oil & gas
markets.
We expanded our
value-added service
offering to include
light manufacturing.
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Five locations
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and protection from theft. This service, when combined
with our technical field sales team and our outstanding
distributor partners, drives significant cost savings to
our customers and is an integral component to every
element of our growth plan.
Engineering and construction activity remained steady
through 2012, and we expect our pipeline to continue to
build throughout 2013.
Industrials
The industrial initiative focuses on oil and gas extraction,
metals and minerals, petrochemical refining, pharma-
ceutical, food processing and general manufacturing.
Driven by increased oil and gas drilling and exploration,
the industrial market performed exceptionally well in
2012. The petrochemical industry’s increased investments
in hydrocarbon-rich shale geographies drove substantial
growth in on-shore drilling and the expansion of upstream
and mid-stream transportation and processing infrastructure.
This increased oil and gas supply also led to further growth
in the downstream space, as multiple refinery upgrades,
system modifications and plant expansions were required
to process the additional oil and gas feedstock.
In addition to increased oil and gas activity, other
industrial segments improved as well. Metals and
minerals benefited from increased steel production,
and specialty mining for items such as potash and
phosphates were at industry highs. Other industry
markers such as industrial manufacturing and plant
utilization continued their ascent, and select segments
such as durable and non-durable goods closed 2012
at record levels.
Mechanical Wire Rope
Wire rope demand for heavy-lift applications continued
to slowly recover across multiple markets, but remained
below the historical levels experienced in the Gulf of
Mexico prior to the drilling moratorium in 2010. The
integration of our mechanical wire rope operation is
complete, and strategic investments in additional sales
and marketing resources, development of new market
opportunities and improved manufacturing efficiencies
will continue in 2013.
The RighT PRoducT
For 37 years, HWCC has serviced the industrial market
with one of the largest inventories of specialty electrical
and mechanical wire, cable and hardware, and is a trusted
supplier to the industry’s most demanding customers.
In 2012, we supplied more than 43,000 unique product
constructions to industry, and our products and services
are an essential component in countless industrial
applications, including everything from electricity
transmission using our copper and aluminum products
to mooring and heavy-lift applications using our high
carbon steel wire and hardware.
Inventory is a core asset to HWCC, and our commitment
to the “Right Product” requires us to be experts in our
target markets and deeply involved with our customers
in order to assure we have proper product availability.
User demand is very time sensitive and product specific,
with unique requirements for individual applications.
To make a long story short – we must have the right
inventory in the right locations or we are of no value to our
customers. In 2012, our fill rates remained at all-time highs.
04 | Houston Wire & Cable Company
OPEratIOnaL ExCELLEnCE99%+ Industry
Recognized
Each year, the best power projects
around the world are honored
On-time
Performance
and Accuracy
during the POWER-GEN Interna-
tional’s Projects of the Year awards
gala. Several of the winning
projects were supported by
Houston Wire & Cable Company’s
Cable Management Services.
A key to our inventory investment and business
development strategy is the addition of new products
and services to support increasing customer and market
demands. In 2012, we successfully launched several new
products for use in infrastructure, utility and oil & gas
markets, and expanded our value-added service offering
to include light manufacturing. These new products and
services are a natural fit for our Company and will allow us
to further penetrate target markets and provide greater
service to our customers. Our light manufacturing work
cell for value-added services was completed late in the
year, and we are excited that formerly outsourced services
can now be done in-house.
Because our standard customer requirement is for
same-day shipment, it is absolutely critical that our
19 distribution centers are located in the correct
geographies. The good news is we have built a great
distribution network, and we are able to reach more
than 95% of our customers using standard overnight
truck freight. Our customers rely on us to have the
product nearby, because capital project and daily
Maintenance, Repair and Operations (MRO) demand
for our items is often unpredictable. When our customers
call, we need to move fast. Plant maintenance, equipment
failures and natural disasters all create requirements
for our wire, cable and services.
LifeGuard™ low-smoke zero-halogen cable remains a
great example of an earlier new product introduction.
Unlike traditional constructions of cable, LifeGuard™
cable is manufactured using materials that produce
near-zero smoke and acid gas while under combustion.
LifeGuard™ is a great option where protection of expensive
equipment and safety are concerns. We were one of the
first to introduce this innovative product to the United
States, and it remains a market leader in many critical
industrial applications.
The RighT Place
Another key driver for our business involves HWCC’s
ability to have the products customers need, where they
need them. When we say “Right Place,” we mean just that.
The items we sell are highly specialized, often required
without notice, and always critical to keep industry
running – as with our electrical cable – or to keep things
moving – as with our mechanical wire. Simply said:
industry stops without our products.
Whether it’s a late afternoon shipment to repair a
scrubber at a power plant, a weekend shipment to fix
a coker unit at a refinery, or an upgrade to an Ethernet
network in a work cell on the factory floor, we have the
products in the right location to get the job done.
The RighT Time
HWCC operates all day, every day, and whenever our
customers need us. The “Right Time” means all sites
stand ready to respond quickly to customer needs, and
have orders ready for pickup or shipment on time. Each
HWCC site is capable of processing orders any time
of day and any day of the year. All sites have extended
hours to better serve customers, and all sites can be
opened for emergency shipments on a moment’s notice.
Even when major hurricanes hit, our regional distribution
centers are back in operation within hours due to our
emergency power generation systems and disaster
recovery programs.
We were one of
the first to introduce
low-smoke zero-
halogen cable to the
united States, and it
remains a market
leader in many
critical industrial
applications.
Right Product, Right Place, Right Time®
2012 Annual Report | 05
OPEratIOnaL
ExCELLEnCE
CuStOMEr
IntIMaCy
Where we excel
We back up the promises we
make to our customers through
operational excellence.
through strategic
planning, hard work
and outstanding
execution, HWCC
grew adjusted sales
in 2012.
As a company deeply committed to operational excellence,
HWCC continues to set high expectations internally.
Through a system of rigorous internal controls, we
measure our customer satisfaction, operational efficiencies,
fixed and variable costs, employee safety and several
other key performance indicators. Internal tracking is
not enough, though. Using external audits, we verify the
proper systems, processes and control measures are in
place to achieve our 99.9% on-time shipping and order
accuracy goal. An early adopter of ISO standards, all
HWCC sites follow rigorous ISO 9001 protocols.
Our focus on quality translates to excellent service for
our customers. In 2012, both on-time shipping and order
accuracy surpassed 99%. Operational excellence is a
journey, and we will continue to drive improvements in
distribution and logistics to assure we remain a market
leader in execution and operational excellence.
The RighT PeoPle
Our best asset at Houston Wire & Cable Company
is our people. We have more than 400 talented and
hardworking employees with an average tenure of
ten years. Several of our team members began their
employment with HWCC and are still with us over
20 years later. Since 1975, our customers have been able
to comfortably rely on the expertise and operational
execution of our experienced team, and some of the
relationships formed have spanned three decades.
It is HWCC’s strong commitment to talent development
that helps to create this type of culture. Whether through
product training for our technical sales force, safety
certifications for our operations team or new job
experiences for high potential employees, HWCC’s
investment in its people is a key to our high levels of
employee retention and customer satisfaction.
The RighT FuTuRe
Through strategic planning, hard work and outstanding
execution, Houston Wire & Cable Company grew metals
adjusted sales in 2012. We launched new products and
services, expanded our customer base, recruited additional
sales and marketing resources and further extended our
reach into the industrial marketplace. The words we live
by, Right Product, Right Place, and Right Time,® drive a
continued commitment to world-class customer service,
and with the right growth plan and target markets, I am
excited about the year ahead as we have positioned
ourselves well for the future.
I would like to thank our valued Houston Wire & Cable
Company team members for their continued commitment
to the Company and its customers. On behalf of the
Board of Directors and the entire HWCC organization,
I thank you, our investors, for the ongoing support and
confidence you have placed in our Company.
James L. Pokluda III
President, CEO and Director
06 | Houston Wire & Cable Company
Right Product, Right Place, Right Time®
10-k FInanCIaL rEPOrt
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the Fiscal Year ended December 31, 2012
or
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-52046
Delaware
(State or other jurisdiction of incorporation or organization)
36-4151663
(I.R.S. Employer Identification No.)
10201 North Loop East
Houston, Texas
(Address of principal executive offices)
(713) 609-2100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
77029
(Zip Code)
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, 2012 was $191,649,680.
At March 1, 2013, there were 17,899,499 shares of the registrant’s common stock, $.001 par value per share, outstanding.
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 7, 2013.
HOUSTON WIRE & CABLE COMPANY
Form 10-K
For the Fiscal Year Ended December 31, 2012
INDEX
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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 Accounting Fees and Services
Exhibits, 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.
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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. 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, requires 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, cable coiling, custom slings and
harnesses, paralleling, bundling, striping 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. 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 allow complex projects to be completed on
time, within budget and with minimal residual waste.
History
We were founded in 1975 and have a long history of exceptional customer service, broad product selection and high levels of 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. 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 businesses”, or “the
acquisition”). On January 1, 2011, the acquired businesses were merged into HWC Wire & Cable Company. The Company has no other
business activity.
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, primary and secondary aluminum distribution 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 work, 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, 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, which are
primarily in the continental United States. We have targeted three of these markets—the utility, industrial and infrastructure markets—in our
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”) 2013 Global Industrial Outlook, the spending on the power market in 2013 within
the United States is expected to be $65 billion. While we are not a significant distributor of 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 supply the wire and cable required in 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 existing power generation
units. These projects require the specialty instrumentation, power and control wire and cable that we distribute.
3
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 2013 Global Industrial Outlook, the 2013 projected total industrial spending
within the United States is expected to be $198 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. We are well positioned to take advantage of the expansion of land based petroleum and gas expansion driven by hydrocarbon
rich shale geographies.
Infrastructure Market. We believe that many infrastructure improvements will be needed over the next several years and include
market opportunities within the transportation, water management, waste management, education and health care industries. A recent report
from the American Society of Civil Engineers, entitled “A Failure to Act”, stated that water-related infrastructure in the United States is
clearly aging, and investment is not able to keep up with the need. If current trends continue, the investment required will amount to $126
billion by 2020, and the anticipated capital funding gap will be $84 billion. We have the right products for these markets and are positioned to
benefit from the capital project investments. In turn, we are assisting our customers by working closely with engineering and construction
engineers to drive the 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 lead the early
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 2012, we served approximately 6,100 customers, shipping approximately 43,000 SKU’s to over 10,000 customer locations
nationwide. No customer represented 10% or more of our 2012 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 products, we have strategically concentrated
our purchases of wire and cable with five leading suppliers in order to maximize product quality, delivery dependability, purchasing
efficiencies, and vendor rebates. As a result, in 2012 approximately 52% of our annual purchases came from five 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 five suppliers in 2012 were Belden Inc, General Cable Corp, Lake Cable, Nexans Energy USA, Inc and Southwire Company.
Sales
We market our wire and cable and related services through an inside sales force situated in our regional offices and a field sales force
focused on 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 knowledge, experience and tenure
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 from the other wire and cable providers with whom we compete vary widely. We compete with
many wire and cable providers on a national, 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 varying basis, competition with distributors and manufacturers that sell products directly or through
4
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, 2012, we had 427 employees. Our sales and marketing staff accounted for 194 employees, including 58 field sales
personnel and 101 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 10-K, 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 forward-looking 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, repair 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 continuing uncertainty in global financial markets has not impaired our access to credit 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 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, aluminum 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.
The 2010 oil spill in the Gulf of Mexico 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 lower than historical 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.
In 2012, our ten largest customers accounted for approximately 37% 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.
6
An inability to obtain the products that we distribute could result in lost revenues and reduced profits and damage our relationships with
customers.
In 2012, we sourced products from approximately 285 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
vendor rebates. As a result, in 2012 approximately 52% of our purchases came from five 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 James L. Pokluda III, our President and Chief Executive Officer and Nicol G.
Graham, our Chief Financial Officer. 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 suppliers adversely change the terms of some or all of these programs, the changes
may lower our gross margins on products we sell and may have an adverse effect on our operating results.
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 private branded products
including our LifeGuard™ line of low-smoke, zero-halogen cable. Our success with our private branded products, however, depends on our
ability to market these products in the appropriate channels, develop and market new private branded products and, ultimately, on the
acceptance of these products in the markets we serve. 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 manufacturing 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.
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.
7
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.
The Company is anticipating significant growth in the recently acquired businesses and if this growth is not achieved, a goodwill
impairment may result.
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.
8
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Facilities
We operate out of nineteen distribution centers strategically located throughout the continental United States with approximately 776,000
sq ft of distribution space. We own two facilities in Houston, TX (one of which houses all centralized and back office functions such as
finance, marketing, purchasing, human resources and information technology) and two facilities in Louisiana. All of the other facilities are
leased, including two from third-party logistics providers. Fifteen of the facilities, in addition to containing inventory for re-sale, house
knowledgeable sales staff. We believe that our properties are in good operating condition and adequately serve our current business
operations.
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, to date, has covered the defense of and all
costs associated with these claims. 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Name/Office
James L. Pokluda III
President and Chief Executive Officer
Age
Business Experience
During Last 5 Years
48
Chief Executive Officer since
January 2012 and President since
May 2011. Prior thereto, Vice
President Sales & Marketing from
April 2007 until May 2011.
Nicol G. Graham
Chief Financial Officer, Treasurer and Secretary
60
Chief Financial Officer, Treasurer
and Secretary since 1997.
9
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, 2012:
First quarter
Second quarter
Third quarter
Fourth quarter
Year ended December 31, 2011:
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$
$
$
$
$
$
$
$
15.33 $
14.12 $
12.29 $
12.29 $
15.00 $
18.00 $
17.15 $
14.54 $
12.91
10.60
10.58
10.32
11.56
13.30
11.21
10.01
There were 22 holders of record of our common stock as of December 31, 2012.
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, 2012. 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
—
—
5,299
5,299
$
$
$
$
Average
price paid
per share
—
—
11.10
11.10
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
—
— $
— $
— $
—
Period
October 1 – 31, 2012
November 1 – 30, 2012
December 1 – 31, 2012 (2)
Total
(1)
(2)
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 2012. The program expired December 31, 2012.
These shares were surrendered in connection with the exercise of a stock option to pay the exercise price and withholding taxes
in accordance with the terms of our 2006 Stock Plan and accordingly were not shares acquired under the publicly announced
plan.
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, due to the size and scope of our business platform, and we are unable to identify peer issuers,
as the public companies within our industry are substantially more diversified than we are.
10
Total return is based on an initial investment of $100 on January 1, 2008, and reinvestment of dividends.
Dividend Policy
Holders of our common stock are entitled to receive dividends when, as and if declared by our Board of Directors. We have paid a
quarterly cash dividend since August 2007. From February 2008 through February 2011, our quarterly cash dividend was $0.085 per share.
Beginning in May 2011, the Board of Directors approved a quarterly cash dividend of $0.09 per share. During 2012 and 2011, the cash
dividend was $0.36 and $0.355 per share, resulting in total dividends paid of $6.4 million and $6.3 million, respectively.
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 availability.
Securities Authorized for Issuance under Equity Compensation Plans
The information called for by this item regarding securities available for issuance is provided in response to Item 12.
11
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, 2012, 2011 and 2010, and the
consolidated balance sheet data at December 31, 2012 and 2011, 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, 2009 and 2008, and the consolidated
balance sheet data at December 31, 2010, 2009 and 2008 from our audited financial statements, which are not included in this Form 10-K.
Year Ended December 31,
2012
2011
(Dollars in thousands, except share data)
2010
2009
2008
CONSOLIDATED STATEMENT OF
INCOME DATA:
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
$
393,036 $
306,017
396,410 $
307,515
308,522 $
245,932
254,819 $
201,865
360,939
275,224
87,019
88,895
62,590
52,954
85,715
30,013
25,139
2,941
58,093
28,926
1,252
27,674
10,635
28,053
24,513
2,952
55,518
33,377
1,424
31,953
12,276
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
17,039 $
19,677 $
8,619 $
8,032 $
23,737
0.96 $
1.11 $
0.49 $
0.46 $
0.96 $
1.11 $
0.49 $
0.45 $
1.33
1.33
$
$
$
17,723,277
17,815,401
17,679,524
17,801,134
17,657,682
17,710,123
17,648,696
17,665,924
17,789,739
17,838,072
12
2012
2011
2010
2009
2008
(Dollars in thousands)
As of December 31,
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)
$
$
$
$
$
$
$
274 $
65,892 $
84,662 $
197,155 $
— $
58,588 $
109,080 $
— $
59,731 $
69,517 $
179,153 $
2,270 $
47,967 $
97,338 $
— $
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
(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 businesses 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 and expired effective December 31, 2012. During the year ended December
31, 2008, purchases of stock totaling $14,725 were made, part of which was funded by debt. No repurchases under the stock
repurchase program were made during the years ended December 31, 2012, 2011, 2010 and 2009.
13
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 10-K. In addition to historical information, this discussion contains forward-looking 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 10-K. Certain tabular information may not foot due to
rounding.
Overview
Since our founding over 37 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 6,100 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, 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 continuing economic
uncertainty and volatility in 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, current economic conditions and recent changes in the aging of the receivables, which we use to record reserves throughout the year. In
the last five years, write-offs against our allowance for doubtful accounts have averaged $0.1 million per year. A 20% change in our estimate
at December 31, 2012 would have resulted in a change in income before income taxes of less than $0.1 million.
Reserve for Returns and Allowances
We estimate the gross profit impact of returns and allowances for previously recorded sales. This reserve is calculated on historical and
statistical returns and allowances data and adjusted as trends in the variables change. A 20% change in our estimate at December 31, 2012
would have resulted in a change in income before income taxes of $0.1 million.
14
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, 2012, 2011 and 2010.
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.
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
Year Ended December 31,
2011
2010
2012
100.0 %
77.9 %
22.1 %
100.0 %
77.6 %
22.4 %
100.0 %
79.7 %
20.3 %
7.6 %
6.4 %
0.7 %
14.8 %
7.1 %
6.2 %
0.7 %
14.0 %
7.4 %
0.3 %
7.0 %
2.7 %
8.4 %
0.4 %
8.1 %
3.1 %
4.3 %
5.0 %
8.2 %
6.7 %
0.6 %
15.4 %
4.9 %
0.3 %
4.6 %
1.8 %
2.8 %
Note: Due to rounding, numbers may not add up to total operating expenses, operating income or income before income taxes.
Comparison of Years Ended December 31, 2012 and 2011
Sales
(Dollars in millions)
Sales
Year Ended
December 31,
2012
2011
Change
$
393.0 $
396.4
$
(3.4 )
(0.9 )%
Our sales in 2012 decreased 0.9% to $393.0 million from $396.4 million in 2011. When adjusted for fluctuation in metals prices,
revenues in 2012 were up approximately 3% over 2011 sales. While mega projects which occurred in 2011 did not repeat, our overall project
business remained flat in 2012, buoyed by large and medium sizes projects in our key growth initiatives – Environmental Compliance,
Engineering & Construction, Industrials, LifeGuard™ (and other private branded products), Power Generation, and Mechanical Wire Rope.
MRO business ended the year down approximately 3% or roughly flat when adjusted for metals prices.
16
Gross Profit
(Dollars in millions)
Gross profit
Gross profit as a percent of sales
2012
$
Year Ended
December 31,
2011
87.0
$
22.1 %
88.9
$
22.4 %
Change
(1.9 )
(0.3 )%
(2.1 )%
Gross profit decreased 2.1% to $87.0 million in 2012 from $88.9 million in 2011. The decrease in gross profit was primarily attributed to
the reduction in sales and the gross profit as a percentage of sales (gross margin) decreasing to 22.1% in 2012 from 22.4% in 2011. This
decrease was primarily attributed to a change in product mix, competitive pricing and some large, direct-ship, low margin orders invoiced in
the fourth quarter.
Operating Expenses
(Dollars in millions)
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Total operating expenses
Year Ended
December 31,
2012
2011
Change
$
$
30.0 $
25.1
2.9
58.1 $
28.1
24.5
3.0
55.5
$
$
2.0
0.6
0.0
2.6
7.0 %
2.6 %
(0.4 )%
4.6 %
Operating expenses as a percent of sales
14.8 %
14.0 %
0.8 %
Note: Due to rounding, numbers may not add up to total operating expenses.
Salaries and Commissions. Salaries and commissions increased 7.0% to $30.0 million in 2012 from $28.1 million in 2011. The increase
was primarily due to a onetime reversal during 2011 relating to $1.7 million of salary expense recognized prior to January 1, 2011 attributed
to the change in the estimated forfeiture rate from 0% to 100% for non-vested options previously awarded to our former chief executive
officer and to additional headcount in 2012. This was offset by a decrease in commissions in 2012 due to the lower level of profitability.
Other Operating Expenses. Other operating expenses increased slightly primarily due to costs associated with the higher headcount and
an increase in consulting and professional fees during the 2012 period.
Depreciation and Amortization. Depreciation and amortization decreased slightly between the periods.
Operating expenses as a percentage of sales increased to 14.8% in 2012 from 14.0% in 2011. More than half of this increase resulted from
the onetime reversal during 2011 relating to $1.7 million of salary expense recognized prior to January 1, 2011 attributed to the change in the
estimated forfeiture rate from 0% to 100% for non-vested options previously awarded to our former chief executive officer.
Interest Expense
Interest expense decreased 12.1% to $1.3 million in 2012 from $1.4 million in 2011 due to lower London Interbank Offered Rate
(“LIBOR”) interest rates and a higher percentage of the debt in LIBOR borrowings. Average debt was $58.0 million in 2012 compared to
$58.5 million in 2011. The average effective interest rate decreased to 2.1% in 2012 from 2.3% in 2011. This decrease was primarily due to a
lower applicable LIBOR spread as a result of the higher availability under the loan agreement in 2012.
Income Tax Expense
Income tax expense decreased $1.6 million or 13.4% to $10.6 million in 2012 compared to $12.3 million in 2011, as pretax income
decreased by 13.4% year over year. The effective income tax rate remained the same for both periods at 38.4%.
Net Income
We achieved net income of $17.0 million in 2012 compared to $19.7 million in 2011, a decrease of 13.4%.
17
Comparison of Years Ended December 31, 2011 and 2010
Sales
(Dollars in millions)
Sales
Year Ended
December 31,
2011
2010
$
396.4 $
308.5 $
Change
87.9
28.5 %
Our sales for 2011 increased 28.5% to $396.4 million from $308.5 million in fiscal year 2010. The primary reasons for this increase
were the contribution from the acquired businesses, improved demand for our products due to recovering economic conditions and
the increase in the price of copper, a component in our products, which rose approximately 17% during 2011. We estimate sales in our
MRO business increased approximately 8%-10% as a result of improved economic conditions. Sales within our five internal growth
initiatives encompassing Environmental Compliance, Engineering & Construction, Industrials, LifeGuard™ (and other private branded
products) and Power Generation increased approximately 30% as project activity in these areas remained strong due to ongoing market
penetration and previously booked backlog.
Gross Profit
(Dollars in millions)
Gross profit
Gross profit as a percent of sales
2011
$
Year Ended
December 31,
2010
88.9
$
22.4 %
62.6
$
20.3 %
Change
26.3 42.0 %
2.1 %
Gross profit increased 42.0% to $88.9 million in 2011 from $62.6 million in 2010. The increase in gross profit was attributed to an
increase in our legacy business and the contribution from the acquired businesses. Gross margin increased to 22.4% in 2011 from 20.3% in
2010 due to a better macroeconomic business environment which allowed a higher gross margin on our products and higher margins from the
acquired businesses.
Operating Expenses
(Dollars in millions)
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Total operating expenses
Year Ended
December 31,
2011
2010
Change
$
$
28.1 $
24.5
3.0
55.5 $
25.3
20.6
1.7
47.6
$
$
2.8
3.9
1.2
7.9
11.0 %
19.2 %
69.9 %
16.7 %
Operating expenses as a percent of sales
14.0 %
15.4 %
(1.4 )%
Note: Due to rounding, numbers may not add up to total operating expenses.
Salaries and Commissions. Salaries and commissions increased primarily due to the additional personnel from the acquisition and
increases in commissions from our legacy business associated with higher organic sales volumes and related profitability. This increase was
partially offset by a $1.7 million onetime reversal in 2011 of salary expense recorded prior to January 1, 2011 attributed to the change in the
estimated forfeiture rate from 0% to 100% for non-vested options previously awarded to the former chief executive officer, who retired from
the Company effective December 31, 2011.
Other Operating Expenses. Other operating expenses increased primarily due to the additional operations of the acquired businesses and
increased expenses associated with higher sales.
Depreciation and Amortization. The depreciation and amortization increase is primarily attributable to the assets from the acquisition.
Operating expenses as a percentage of sales decreased to 14.0% in 2011 from 15.4% in 2010. This decrease is attributed to the reversal of
salary expense, ongoing cost control initiatives and operating leverage from our legacy business, partially offset by the acquired businesses.
18
Comparison of Years Ended December 31, 2011 and 2010
Our net cash provided by operating activities was $14.3 million in 2011 compared to $19.3 million in 2010. Our net income increased by
$11.1 million or 128.3% to $19.7 million in 2011from $8.6 million in 2010.
Changes in our operating assets and liabilities resulted in cash used in operating activities of $8.8 million in 2011. Trade accounts payable
decreased $9.9 million primarily due to payment in early 2011 of $4.9 million of vendor invoices under dispute at December 31, 2010 and a
planned slow down of inventory purchases for our legacy business in December 2011. Inventory increased $2.8 million as a result of the
acquired businesses. This additional inventory included products needed to support projected sales, consignment inventory that was
converted to regular stock and the addition of new stocking sites. Income taxes decreased $2.8 million due to federal and state tax payments.
Offsetting these uses of cash was a decrease in accounts receivable of $8.1 million due to lower sales in December 2011 compared to
December 2010 and the receipt in 2011 of an amount outstanding since 2009 due to a product dispute.
Net cash used in investing activities was $1.2 million in 2011 compared to $50.7 million in 2010. Cash paid for the acquisition decreased
from $51.2 million in 2010 to the $0.3 million final payment made in 2011. Expenditures for property and equipment increased from $0.5
million in 2010 to $1.3 million in 2011 primarily due to expenditures made for the acquired businesses.
Net cash used in financing activities was $13.1 million in 2011 compared to cash provided by financing activities of $31.4 million in
2010. Net payments on the revolver of $6.9 million and dividends of $6.3 million were the main components of financing activities in 2011.
Indebtedness
Our principal source of liquidity at December 31, 2012 was working capital of $126.4 million compared to $102.6 million at
December 31, 2011. We also had available borrowing capacity in the amount of $41.4 million at December 31, 2012 and $35.0 million at
December 31, 2011 under our loan agreement.
We believe that we will have adequate availability of capital to fund our present operations, meet our commitments on our existing debt,
continue to fund our dividend payments, and fund anticipated growth over the next twelve months, including expansion in existing and
targeted market areas. We continually seek potential acquisitions and from time to time hold discussions with acquisition candidates. If
suitable acquisition opportunities or working capital needs arise that would require additional financing, we believe that our financial position
and earnings history provide a solid base for obtaining additional financing resources at competitive rates and terms. Additionally, based on
market conditions, we may decide to issue additional shares of common or preferred stock to raise funds.
Loan and Security Agreement
On September 30, 2011, we entered into a Third Amended and Restated Loan and Security Agreement (the “2011 Loan Agreement”)
with certain lenders and Bank of America, N.A., as agent. The 2011 Loan Agreement provides for a $100 million revolving credit facility and
expires on September 30, 2016. Availability under the 2011 Loan Agreement is limited to a borrowing base equal to 85% of the value of
eligible accounts receivable, plus 65% of the value of eligible inventory, less certain reserves. The 2011 Loan Agreement is secured by a lien
on substantially all our property, other than real estate.
Portions of the loan under the 2011 Loan Agreement may be converted to LIBOR loans in minimum amounts of $1.0 million and integral
multiples of $0.1 million. LIBOR loans bear interest at the British Bankers Association LIBOR Rate plus 125 to 200 basis points based on
availability, and loans not converted to LIBOR loans bear interest at a fluctuating rate equal to the greatest of the agent’s prime rate, the
federal funds rate plus 50 basis points, or 30-day LIBOR plus 150 basis points. Additionally, we are obligated to pay an unused facility fee on
the unused portion of the loan commitment. Unused commitment fees are 25 or 30 basis points, depending on the amount of the unused
commitment.
Covenants in the 2011 Loan Agreement require us to maintain certain minimum financial ratios and availability levels. Repaid amounts
can be re-borrowed subject to the borrowing base. As of December 31, 2012, we were in compliance with all financial covenants.
20
Contractual Obligations
The following table describes our cash commitments to settle contractual obligations as of December 31, 2012.
Total
Less than
1 year
1-3 years
(In thousands)
$
$
58,588 $
8,398
33,043
100,029 $
— $
2,991
33,043
36,034 $
— $
3,399
—
3,399 $
3-5 years
More than
5 years
58,588 $
1,785
—
60,373 $
—
223
—
223
Loans payable
Operating lease obligations
Non-cancellable purchase obligations (1)
Total
(1)
These obligations reflect purchase orders outstanding with manufacturers as of December 31, 2012. 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.
Capital Expenditures
We made capital expenditures of $1.0 million, $1.3 million and $0.5 million in the years ended December 31, 2012, 2011 and 2010,
respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, other than operating leases.
Share Repurchase Program
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 scheduled to expire on December 31, 2009 but was initially extended through December 31, 2011 and on November 4, 2011 was further
extended through December 31, 2012. Shares of stock purchased under the program are currently being held as treasury stock and may be
issued upon the exercise of options, as restricted stock, to fund acquisitions, or for other uses as authorized by the Board of Directors. There
were no shares repurchased during 2012 and 2011 under the stock repurchase program. This program expired on December 31, 2012.
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
Borrowings under our 2011 Loan Agreement bear interest at variable interest rates and therefore are sensitive to changes in the general
level of interest rates. At December 31, 2012, the weighted average interest rate on our $58.6 million of variable interest debt was
approximately 1.8%.
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, 2012 borrowing levels, a 1.0%
increase or decrease in the applicable interest rates would have a $0.6 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, aluminum and petrochemical prices also impact certain products we purchase. Profitability is influenced by these
fluctuations as prices change between the time we buy and sell our products.
21
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," "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 and speak only as of the date of this filing. 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.
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”.
22
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, 2012 and 2011
Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
Page
24
25
26
27
28
29
23
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Houston Wire & Cable Company
We have audited the accompanying consolidated balance sheets of Houston Wire & Cable Company (the Company) as of December 31,
2012 and 2011, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2012. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Houston Wire & Cable Company at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2012, 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, 2012, 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 18,
2013 expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
Houston, Texas
March 18, 2013
24
Houston Wire & Cable Company
Consolidated Balance Sheets
$
$
$
Assets
Current assets:
Cash
Accounts receivable, net
Inventories, net
Deferred income taxes
Income taxes
Prepaids
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
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:
17,899,499 and 17,811,806 shares outstanding at December 31, 2012 and 2011, respectively
Additional paid-in capital
Retained earnings
Treasury stock
Total stockholders’ equity
December 31,
2012
2011
(In thousands, except
share data)
274
$
65,892
84,662
2,455
—
841
154,124
5,824
11,967
25,082
158
197,155 $
— $
12,330
15,379
5
27,714
58,588
103
1,670
88,075
—
59,731
69,517
2,268
1,693
828
134,037
6,029
13,700
25,082
305
179,153
2,270
10,099
19,101
—
31,470
47,967
128
2,250
81,815
—
—
21
55,291
104,252
(50,484 )
109,080
21
55,760
93,588
(52,031 )
97,338
Total liabilities and stockholders’ equity
$
197,155 $
179,153
The accompanying notes are an integral part of these consolidated financial statements.
25
Houston Wire & Cable Company
Consolidated Statements of Income
2012
Year Ended December 31,
2011
(In thousands, except share and per share data)
2010
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
$
$
393,036
306,017
87,019
$
396,410
307,515
88,895
308,522
245,932
62,590
30,013
25,139
2,941
58,093
28,926
1,252
27,674
10,635
17,039
$
28,053
24,513
2,952
55,518
33,377
1,424
31,953
12,276
19,677
$
0.96
0.96
$
$
1.11
1.11
$
$
25,281
20,565
1,738
47,584
15,006
844
14,162
5,543
8,619
0.49
0.49
$
$
$
Weighted average common shares outstanding:
Basic
Diluted
17,723,277
17,815,401
17,679,524
17,801,134
17,657,682
17,710,123
Dividends declared per share
$
0.36
$
0.355
$
0.34
The accompanying notes are an integral part of these consolidated financial statements.
26
Houston Wire & Cable Company
Consolidated Statements of Stockholders' Equity
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
(In thousands, except share data)
Treasury Stock
Shares
Amount
Stockholders'
Total
Equity
20,988,952
—
—
—
—
—
—
—
—
20,988,952
—
—
—
—
—
—
—
—
—
—
20,988,952
—
—
—
—
—
—
—
—
21
—
—
—
—
—
—
—
—
21
—
—
—
—
—
—
—
—
—
—
21
—
—
—
—
—
—
—
—
56,609
—
(134 )
7
2,260
(18 )
238
(320 )
—
58,642
—
(383 )
37
(48 )
(707 )
(1,153 )
82
(710 )
—
—
55,760
—
(395 )
35
(13 )
1,040
(6 )
82
(1,212 )
77,571
8,619
—
—
—
—
—
—
(6,003 )
80,187
19,677
—
—
—
—
—
—
—
—
(6,276 )
93,588
17,039
—
—
—
—
—
—
—
(3,256,215 )
—
10,750
—
(53,388 )
—
176
—
—
—
(14,500 )
19,500
—
—
—
(238 )
320
—
(3,240,465 )
—
26,899
—
—
(53,130 )
—
497
—
—
—
—
(5,000 )
43,251
(1,831 )
—
(3,177,146 )
—
27,977
—
—
—
—
(5,000 )
74,203
—
—
(82 )
710
(26 )
—
(52,031 )
—
532
—
—
—
—
(82 )
1,212
80,813
8,619
42
7
2,260
(18 )
—
—
(6,003 )
85,720
19,677
114
37
(48 )
(707 )
(1,153 )
—
—
(26 )
(6,276 )
97,338
17,039
137
35
(13 )
1,040
(6 )
—
—
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
Balance at December 31, 2010
Net income
Exercise of stock options
Excess tax benefit for stock options
Excess tax deficiency for stock options
Amortization of unearned
stock compensation
Impact of forfeited vested options
Impact of forfeited restricted stock awards
Issuance of restricted stock awards
Impact of surrendered equity awards to
satisfy taxes
Dividends paid
Balance at December 31, 2011
Net income
Exercise of stock options, net
Excess tax benefit for stock options
Excess tax deficiency for stock options
Amortization of unearned
stock compensation
Impact of forfeited vested options
Impact of forfeited restricted stock awards
Issuance of restricted stock awards
Impact of surrendered equity awards to
satisfy taxes
Dividends paid
Balance at December 31, 2012
—
—
20,988,952 $
—
—
21 $
—
—
55,291 $
—
(6,375 )
104,252
(9,487 )
—
(3,089,453 ) $
(115 )
—
(50,484 ) $
(115 )
(6,375 )
109,080
The accompanying notes are an integral part of these consolidated financial statements.
27
Houston Wire & Cable Company
Consolidated Statements of Cash Flows
2012
Year Ended December 31,
2011
(In thousands)
2010
$
17,039 $
19,677 $
8,619
Operating activities
Net income
Adjustments to reconcile net income to net cash (used in) 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 (used in) 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
Deferred loan cost
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
2,941
18
1,040
(19 )
(61 )
815
(7 )
(773 )
(6,081 )
(15,960 )
(13 )
129
(2,270 )
2,231
(3,722 )
(25 )
1,685
(3,033 )
(1,005 )
9
—
(996 )
2,952
14
(707 )
(9 )
66
826
(2 )
283
8,050
(2,840 )
(65 )
(126 )
(785 )
(9,888 )
(337 )
(13 )
(2,777 )
14,319
(1,319 )
452
(343 )
(1,210 )
402,231
(391,610 )
—
137
(6,375 )
35
(115 )
4,303
274
—
274 $
405,741
(412,599 )
(100 )
114
(6,276 )
37
(26 )
(13,109 )
—
—
— $
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
—
—
—
1,231 $
1,445 $
743
9,762 $
14,732 $
6,191
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
28
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, hardware 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 businesses”, or “the acquisition”). On January 1, 2011, the acquired businesses 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 used for the preparation of the 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:
Year Ended December 31,
2011
2012
2010
Denominator:
Weighted average common shares for basic earnings per share
Effect of dilutive securities
Denominator for diluted earnings per share
17,723,277
92,124
17,657,682
52,441
17,815,401 17,801,134 17,710,123
17,679,524
121,610
Options to purchase 525,846, 811,939 and 882,455 shares of common stock were not included in the diluted net income per share
calculation for 2012, 2011 and 2010, respectively, as their inclusion would have been anti-dilutive. The 2011 and 2010 amounts include
490,385 options and 532,500 options, respectively, held by the former CEO who retired effective December 31, 2011.
Accounts Receivable
Accounts receivable consists primarily of receivables from customers, less an allowance for doubtful accounts of $213 and $211, and a
reserve for returns and allowances of $491 and $552 at December 31, 2012 and 2011, respectively. Consistent with industry practices, the
Company normally requires payment from most customers within 30 days. The Company has no contractual repurchase arrangements with its
customers. Credit losses have been within management’s expectations.
29
The following table summarizes the changes in the allowance for doubtful accounts for the past three years:
Balance at beginning of year
Acquisition
Bad debt expense
Write-offs, net of recoveries
Balance at end of year
Inventories
2012
2011
2010
211 $
—
(19 )
21
213 $
358 $
—
(9 )
(138 )
211 $
282
173
93
(190 )
358
$
$
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 $3,746 and
$2,975 at December 31, 2012 and 2011, 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 purchases to date relative to the total purchase levels expected to be achieved
during the rebate period. The Company continually revises these estimates to reflect rebates expected to be earned based on actual purchase
levels and forecasted purchase volumes for the remainder of the rebate period.
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. Total depreciation
expense was approximately $1,208, $1,095, and $805 for the years ended December 31, 2012, 2011 and 2010, respectively.
Goodwill
Goodwill represents the excess of the amount the Company paid to acquire businesses over the estimated fair value of tangible assets and
identifiable intangible assets acquired, less liabilities assumed. 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. Because the acquired businesses were not meeting
the internal performance expectations used in the October 2011 annual impairment test, an interim goodwill impairment test was performed as
of July 31, 2012. This test was performed using the same methodology as used for the annual test and the result indicated that no impairment
had occurred. The annual test in October 2012 also indicated that no impairment had occurred. The fair value of the Southern Wire reporting
unit exceeded its carrying value by approximately 11% and its goodwill balance was $20.1 million at December 31, 2012. The Company is
still anticipating significant growth in the acquired businesses, but if this growth is not achieved a goodwill impairment may result.
Other Assets
Other assets include deferred financing costs on the current loan agreement of $100. The deferred financing costs are amortized on a
straight-line basis over the contractual life of the related loan 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, 2012 and 2011 was approximately $32 and $14, respectively.
Estimated future amortization expense for capitalized loan costs through the maturity of the loan agreement are $18 for each of the years
2013 through 2015 and $14 in 2016.
30
Intangibles
Intangible assets, from the acquisition, consist of customer relationships, trade names, and non-compete agreements. The customer
relationships are amortized over 6 or 7 year useful lives and non-compete agreements were amortized over a 1 year useful life. 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, hardware 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. Collectability 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 sales. In the past, customer returns have not been material. The Company has no
installation obligations.
The Company may offer sales incentives, which are accrued monthly as an adjustment to 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 2012, 2011 or 2010. 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 $314, $212, and $163 for the years ended December 31, 2012,
2011, and 2010, respectively.
Financial Instruments
The carrying values of 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.
31
Stock-Based 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 awards and units are 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. 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
Total
Intangibles assets
Intangibles assets consist of:
Trade names
Customer relationships
Non-compete agreements
Less accumulated amortization
Trade names
Customer relationships
Non-compete agreements
Total
At December 31,
2012
2011
$
$
1,187 $
3,466
9,646
14,299
8,475
5,824 $
1,187
3,411
8,810
13,408
7,379
6,029
At December 31,
2012
2011
$
$
4,610 $
11,630
250
16,490
—
4,273
250
4,523
11,967 $
4,610
11,630
250
16,490
—
2,540
250
2,790
13,700
Intangible assets include customer relationships which are being amortized over 6 or 7 year useful lives and non-compete agreements
which were amortized over a 1 year useful life. The weighted average amortization period for intangible assets is 6.6 years. Trade names are
not amortized; however, they are tested annually for impairment. As of December 31, 2012, accumulated amortization on the acquired
intangible assets was $4,523, and amortization expense was $1,733 and $1,857 for the years ended December 31, 2012 and 2011 and $933
from the date of the acquisition through December 31, 2010, respectively. Future amortization expense to be recognized on the acquired
intangible assets is expected to be as follows:
32
2013
2014
2015
2016
2017
Goodwill
Changes in goodwill 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
Total
3. Debt
$
Annual
Amortization
Expense
1,733
1,733
1,733
1,512
646
At December 31,
2012
2011
$
$
25,082 $
—
25,082 $
25,082
—
25,082
At December 31,
2012
2011
$
$
429 $
4,383
2,553
5,107
2,907
15,379 $
2,539
5,112
3,760
4,324
3,366
19,101
On September 30, 2011, HWC Wire & Cable Company, as borrower, entered into the Third Amended and Restated Loan and Security
Agreement (“2011 Loan Agreement”), with certain lenders and Bank of America, N.A., as agent, and the Company, as guarantor, executed a
Second Amended and Restated Guaranty of the borrower’s obligations thereunder. The 2011 Loan Agreement provides for a $100 million
revolving credit facility, bears interest at the agent’s base rate, with a LIBOR rate option and expires on September 30, 2016. The 2011 Loan
Agreement is secured by a lien on substantially all the property of the Company, other than real estate. Availability under the 2011 Loan
Agreement is limited to a borrowing base equal to 85% of the value of eligible accounts receivable, plus 65% of the value of eligible
inventory, less certain reserves.
Portions of the loan may be converted to LIBOR loans in minimum amounts of $1,000 and integral multiples of $100. LIBOR loans bear
interest at the British Bankers Association LIBOR Rate plus 125 to 200 basis points based on availability, and loans not converted to LIBOR
loans bear interest at a fluctuating rate equal to the greatest of the agent’s prime rate, the federal funds rate plus 50 basis points, or 30-day
LIBOR plus 150 basis points. Unused commitment fees are 25 or 30 basis points, depending on the amount of the unused commitment.
The 2011 Loan Agreement includes, among other things, covenants that require the Company to maintain a specified minimum fixed
charge coverage ratio and availability levels. Additionally, the 2011 Loan Agreement allows for the unlimited payment of dividends and
repurchases of stock, subject to the absence of events of default and maintenance of a fixed charge coverage ratio and minimum level of
availability. The 2011 Loan Agreement contains certain provisions that may cause the debt to be classified as a current liability, in accordance
with GAAP, if availability falls below certain thresholds, even though the ultimate maturity date under the loan agreement remains as
September 30, 2016. Availability has remained above these thresholds. At December 31, 2012, the Company was in compliance with the
financial covenants governing its indebtedness.
The Company’s borrowings at December 31, 2012 and 2011 were $58,588 and $47,967, respectively. The weighted average interest rates
on outstanding borrowings were 1.8% and 2.3% at December 31, 2012 and 2011, respectively.
33
During 2012, the Company had an average available borrowing capacity of approximately $39,295. This average was computed from the
monthly borrowing base certificates prepared for the lender. At December 31, 2012, the Company had available borrowing capacity of
$41,380 under the terms of the 2011 Loan Agreement. During the years ended December 31, 2012, 2011 and 2010, the Company paid $101,
$71, and $108, respectively, for the unused facility.
Principal repayment obligations for succeeding fiscal years are as follows:
2013
2014
2015
2016
2017
Total
4. Income Taxes
The provision (benefit) for income taxes consists of:
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total
$
$
—
—
—
58,588
—
58,588
2012
Year Ended December 31,
2011
2010
$
10,129 $
1,279
11,408
10,612 $
1,381
11,993
(703)
(70)
(773)
258
25
283
$
10,635 $
12,276 $
6,392
754
7,146
(1,457 )
(146 )
(1,603 )
5,543
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
2012
Year Ended December 31,
2011
2010
35.0 %
2.8
0.6
—
38.4 %
35.0 %
2.8
0.6
—
38.4 %
35.0 %
2.8
0.6
0.7
39.1 %
34
Significant components of the Company’s deferred taxes were as follows:
Deferred tax assets:
Uniform capitalization adjustment
Inventory reserve
Allowance for doubtful accounts
Stock compensation expense
Property and equipment
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,
2012
2011
$
$
$
796
1,442
82
1,928
43
29
4,320
—
834
2,701
3,535
785
$
875
1,146
81
1,685
—
31
3,818
14
613
3,173
3,800
18
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, 2012, 2011 and 2010, the Company made no provisions for interest or penalties related to uncertain tax
positions. The tax years 2008 through 2012 remain open to examination by the major taxing jurisdictions to which the Company is subject.
5. 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 scheduled to expire on December 31, 2009 but was initially extended through December 31, 2011 and on November 4, 2011 was further
extended through December 31, 2012. Shares of stock purchased under the program are currently being held as treasury stock and may be
used to satisfy the exercise of options, as restricted stock, to fund acquisitions, or for other uses as authorized by the Board of Directors.
During the years ended December 31, 2012 and 2011, the Company did not repurchase any of its stock under the stock repurchase program.
As of December 31, 2012, the Company had made total repurchases under the stock repurchase program of 3,391,854 shares for a total cost of
$55,615. This program expired on December 31, 2012.
Under the terms of the 2006 Stock Plan, the Company repurchased 35,214 shares that were surrendered by the holders to fund the
exercise of the related awards and to pay withholding taxes in 2012. These repurchases were not made under the stock repurchase program.
The Company has paid a quarterly cash dividend since August 2007, resulting in aggregate dividends in 2012, 2011 and 2010 of $6,375,
$6,276 and $6,003, respectively.
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 a
stockholder rights plan, which was subsequently terminated, the Board of Directors designated 100,000 shares as Series A Junior
Participating Preferred Stock. No shares of preferred stock have been issued.
6. 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 matched 50% by the Company. The Company’s match for the years ended December 31, 2012, 2011 and 2010
was $735, $727, and $599, respectively.
35
7. 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 of stock options and restricted stock awards and units. The 2006
Plan provides for incentives 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.
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.
Stock Option Awards
The Company has granted options to purchase its common stock to employees and directors of the Company under the two stock 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 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 May 8, 2012, the Company granted options under the 2006 Stock Plan to purchase 10,000 shares of its common stock with an exercise
price equal to the fair market value of the Company’s stock at the close of trading on May 8, 2012 to new members of the management team.
These options have a contractual life of ten years and vest in five equal annual installments on the first five anniversaries of the date of the
grant.
On December 20, 2011, the Company granted options to purchase 64,330 shares and 8,580 shares of its common stock to the Company’s
President (as part of his overall compensation plan commensurate upon assuming the Chief Executive Officer role effective January 1, 2012)
with the exercise price equal to the fair market value of the Company’s stock at the close of trading on December 20, 2011. The first option
grant has a contractual life of ten years and vests 50% on December 31, 2016 and the remaining 50% on December 31, 2017. The second grant
also has a contractual life of ten years and vests in five equal annual installments on the first five anniversaries of the date of the grant. Both
grants provide 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.
On December 20, 2011, the Company granted options to purchase 97,500 shares of its common stock to its managers with the exercise
price equal to the fair market value of the Company’s stock at the close of business on December 20, 2011. This grant has a contractual life of
ten years and vests in five equal annual installments on the first five anniversaries of the date of the 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 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:
Year Ended
December 31,
2011
2012
0.89 %
3.01 %
1.01 %
2.55 %
5.5 years
5.5 years
64 %
65 %
2010
1.86 %
2.80 %
4.5 years
64 %
Risk-free interest rate
Expected dividend yield
Weighted average expected life
Expected volatility
36
Vesting dates range from May 8, 2013 to December 31, 2017, and expiration dates range from January 1, 2014 to May 8, 2022. The
following summarizes stock option activity and related information:
2012
Options
(in 000’s)
Weighted
Average
Exercise Price
Aggregate
Intrinsic
Value
Weighted
Average
Remaining
Contractual Life
(in years)
Outstanding—Beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding—End of year
Exercisable—End of year
Weighted average fair value of options granted during 2012 $
Weighted average fair value of options granted during 2011 $
Weighted average fair value of options granted during 2010 $
837 $
10
(54 )
(11 )
(4 )
778 $
547 $
5.29
6.55
5.04
14.25 $
11.98
9.02
12.77
0.53
14.67 $
15.38 $
1,430
656
558
6.17
5.22
During the years ended December 31, 2012, 2011 and 2010, tax benefits of $35, $37 and $7, respectively, were reflected in financing
cash flows.
The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $258, $277 and $77,
respectively.
The total fair value of options vested during the years ended December 31, 2012, 2011 and 2010 was $404, $3,890 and $703,
respectively. The December 31, 2011 amount includes vested options of the retired former chief executive officer in the amount of $2,993.
These options expired upon his departure.
Restricted Stock Awards and Restricted Stock Units
On December 17, 2012, the Company granted 56,250 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. Any dividends declared will be accrued and paid
to the recipient if and when the related shares vest as long as the recipient is still employed by the Company.
Following the Annual Meeting of Stockholders on May 8, 2012, the Company awarded restricted stock units with a grant date award
value of $50 to each non-employee director who was re-elected, for an aggregate of 25,044 restricted stock units. Each award of restricted
stock units vests at the date of the 2013 Annual Meeting of Stockholders. Upon vesting, the non-employee directors are entitled to receive a
number of shares of the Company's common stock equal to the number of restricted stock units, together with dividend equivalents from the
date of grant, at such time as the director’s service on the board terminates for any reason.
On December 20, 2011, the Company granted a restricted stock award to the Company’s President (as part of his overall compensation
plan commensurate upon assuming the Chief Executive Officer role effective January 1, 2012) in the amount of 26,576 shares. The grant vests
in two equal amounts on December 31, 2016 and December 31, 2017.
The Company also granted performance based restricted stock awards to the Company’s President on December 20, 2011 and December
17, 2012 in the amount of 14,175 shares and 17,953 shares respectively. These awards are based on the Company achieving at least 85% of a
cumulative operating income target for the three year period commencing January 1, 2012 and ending December 31, 2014 for the 2011 grant
and the three year period commencing January 1, 2013 and ending December 31, 2015 for the 2012 grant. Each award will vest at the 100%
level if the Company achieves 100% or more of the cumulative operating income target and on a sliding scale down to 0% vesting if the
Company achieves less than 85% of the cumulative operating income target. Vesting is dependent upon the recipient being employed and any
dividends declared will be accrued and paid to the recipient when the related shares vest.
Following the Annual Meeting of Stockholders on May 3, 2011, the Company awarded restricted stock units with a grant date award
value of $50 to each non-employee director who was re-elected, for an aggregate of 18,204 restricted stock units. Each award of restricted
stock units vests at the date of the 2012 Annual Meeting of Stockholders. Upon vesting, the non-employee directors are entitled to receive an
equal number of shares of the Company's common stock, together with dividend equivalents from the date of grant, at such time as the
director’s service on the Board of Directors terminates for any reason.
37
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 in five equal annual installments on the first five 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 if and 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 activity for the year ended December 31, 2012:
Awards
Units
2012
Weighted
Average
Market
Value at
Grant Date
Weighted
Average
Market
Value at
Grant Date
Shares
(in 000’s)
Shares
(in 000’s)
122 $
74
(25 )
(5 )
166 $
12.82
11.14
12.18
12.21
12.19
18 $
25
(18 )
—
25 $
16.48
11.98
16.48
—
11.98
Non-vested —Beginning of year
Granted
Vested
Cancelled/Forfeited
Non-vested —End of year
Total stock-based compensation cost/(benefit) was $1,040, $(707) and $2,260 for the years ended December 31, 2012, 2011 and 2010,
respectively. Total income tax benefit/(expense) recognized for stock-based compensation arrangements was $400, $(274) and $885 for the
years ended December 31, 2012, 2011 and 2010, respectively. The credit for share-based compensation for the year ended December 31, 2011
is due to the reversal of $1.7 million of compensation expense which was recorded prior to January 1, 2011. This reversal resulted from a
change in the estimated forfeiture rate from 0% to 100% of non-vested options previously awarded to the former chief executive officer, who
retired from the Company effective December 31, 2011.
As of December 31, 2012, there was $2,551 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 45 months. There were 467,388 shares
available for future grants under the 2006 Plan at December 31, 2012.
8. 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 $2,671 in 2012, $2,809 in 2011 and $2,602 in 2010.
Future minimum lease payments under non-cancelable operating leases with initial terms of one year or more consisted of the following
at December 31, 2012:
2013
2014
2015
2016
2017
Thereafter
Total minimum lease payments
$
$
2,991
2,176
1,223
967
818
223
8,398
The Company had aggregate purchase commitments for fixed inventory quantities of approximately $33,043 at December 31, 2012.
As part of a recent acquisition, the Company assumed the liability for the post-remediation monitoring of the water quality at one of the
acquired facilities in Louisiana. The expected liability of $103 at December 31, 2012 relates to the cost of the monitoring, which the Company
estimates will be incurred over approximately the next 4 years and also the cost to plug the wells. Remediation work was completed prior to
the acquisition in accordance with the requirements of the Louisiana Department of Environmental Quality.
38
The Company, along with many other defendants, has been named in a number of lawsuits in the state courts of Illinois, Minnesota,
North Dakota, and South Dakota alleging that certain wire and cable which may have contained asbestos caused injury to the plaintiffs who
were exposed to this wire and cable. These lawsuits are individual personal injury suits that seek unspecified amounts of money damages as
the sole remedy. It is not clear whether the alleged injuries occurred as a result of the wire and cable in question or whether the Company, in
fact, distributed the wire and cable alleged to have caused any injuries. The Company maintains general liability insurance that, to date, has
covered the defense of and all costs associated with these claims. In addition, the Company did not manufacture any of the wire and cable at
issue, and the Company would rely on any warranties from the manufacturers of such cable if it were determined that any of the wire or cable
that the Company distributed contained asbestos which caused injury to any of these plaintiffs. In connection with ALLTEL's sale of the
Company in 1997, ALLTEL provided indemnities with respect to costs and damages associated with these claims that the Company believes
it could enforce if its insurance coverage proves inadequate.
There are no legal proceedings pending against or involving the Company that, in management’s opinion, based on the current known
facts and circumstances, are expected to have a material adverse effect on the Company’s consolidated financial position, cash flows, or
results from operations.
9. Subsequent Events
On February 11, 2013, the Board of Directors approved a quarterly dividend of $0.09 per share payable to shareholders of record on
February 21, 2013. This dividend totaling $1,596 was paid on February 28, 2013.
10. Select Quarterly Financial Data (unaudited)
The following table presents the Company’s unaudited quarterly results of operations for each of the last eight quarters in the period
ended December 31, 2012. The unaudited information has been prepared on the same basis as the audited consolidated financial statements.
Sales
Gross profit
Operating income
Net income
Earnings per share:
Basic
Diluted
Sales
Gross profit
Operating income
Net income
Earnings per share:
Basic
Diluted
Year Ended December 31, 2012
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
(in thousands, except per share data)
$
$
$
$
$
$
104,379 $
22,017 $
7,438 $
4,370 $
96,113 $
21,612 $
7,156 $
4,232 $
98,082 $
22,252 $
7,530 $
4,421 $
0.25 $
0.25 $
0.24 $
0.24 $
0.25 $
0.25 $
94,462
21,138
6,802
4,016
0.23
0.23
Year Ended December 31, 2011
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
(in thousands, except per share data)
$
$
$
$
$
$
87,481 $
19,917 $
5,306 $
3,052 $
105,782 $
23,006 $
8,386 $
4,965 $
103,420 $
23,720 $
11,527 $
6,842 $
0.17 $
0.17 $
0.28 $
0.28 $
0.39 $
0.38 $
99,727
22,252
8,158
4,818
0.27
0.27
39
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, 2012.
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, 2012. 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 41 and 42 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”.
There has been no change in our internal controls over financial reporting that occurred during the year ended December 31, 2012 that has
materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
40
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, 2012 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, 2012 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 management’s opinion, the Company has maintained effective internal control over
financial reporting as of December 31, 2012, based on criteria established in the COSO Framework.
/s/ James L. Pokluda III
James L. Pokluda III
President and Chief Executive Officer
/s/ Nicol G. Graham
Nicol G. Graham
Chief Financial Officer, Treasurer
and Secretary (Chief Accounting Officer)
41
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Houston Wire & Cable Company
We have audited Houston Wire & Cable Company’s internal control over financial reporting as of December 31, 2012, 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.
In our opinion, Houston Wire & Cable Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2012, 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, 2012 and 2011, and the related consolidated statements
of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2012 of Houston Wire & Cable
Company and our report dated March 18, 2013 expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
Houston, Texas
March 18, 2013
42
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 7, 2013. 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 7, 2013.
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 7, 2013.
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 7, 2013.
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 7, 2013.
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 7, 2013.
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 7, 2013.
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 7, 2013.
ITEM 14. PRINCIPAL ACCOUNTING 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 7, 2013.
43
ITEM 15. EXHIBITS, 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
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
(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
44
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 18, 2013
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
/s/ JAMES L. POKLUDA III
James L. Pokluda III
/s/ NICOL G. GRAHAM
Nicol G. Graham
/s/ MICHAEL T. CAMPBELL
Michael T. Campbell
/s/ IAN STEWART FARWELL
Ian Stewart Farwell
/s/ PETER M. GOTSCH
Peter M. Gotsch
/s/ WILSON B. SEXTON
Wilson B. Sexton
/s/ WILLIAM H. SHEFFIELD
William H. Sheffield
/s/ SCOTT L. THOMPSON
Scott L. Thompson
TITLE
DATE
President, Chief Executive Officer and Director March 18, 2013
Chief Financial Officer, Treasurer and
Secretary (Principal Accounting Officer)
March 18, 2013
March 18, 2013
March 18, 2013
March 18, 2013
March 18, 2013
March 18, 2013
March 18, 2013
Director
Director
Director
Director
Director
Director
45
EXHIBIT
NUMBER
3.1
3.2
INDEX TO EXHIBITS
EXHIBIT
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))
Amended and Restated 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 May 11, 2012)
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
10.3
10.4
Houston Wire & Cable Company 2006 Stock Plan, as amended (incorporated herein by reference to (i) Exhibit 10.3 to Houston Wire
& Cable Company’s Registration Statement on Form S-1 (Registration No. 333-132703) and (ii) Exhibit 10.1 to Houston Wire &
Cable Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, as amended)
Executive Employment Agreement dated as of January 1, 2012 between James L. Pokluda, III and Houston Wire & Cable Company
(incorporated herein by reference to Exhibit 10.3 to Houston Wire & Cable Company’s Annual Report on Form 10-K for the year
ended December 31, 2011)
Form of Employee Stock Option Agreement under Houston Wire & Cable Company’s 2006 Stock Plan (incorporated herein by
reference to Exhibit 10.23 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 10.24 to Houston Wire & Cable Company’s Annual Report on Form 10-K for the year ended December 31,
2007)
10.6
Form of Employee Stock Award Agreement under Houston Wire & Cable Company’s 2006 Stock Plan (incorporated herein by
reference to Exhibit 10.6 to Houston Wire & Cable Company’s Annual Report on Form 10-K for the year ended December 31, 2011)
10.7
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under Houston Wire & Cable Company’s 2006 Stock
Plan (incorporated herein by reference to Exhibit 10.2 to Houston Wire & Cable Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2011, as amended)
10.8
Description of Senior Management Bonus Program (incorporated herein by reference to Exhibit 10.8 to Houston Wire & Cable
Company’s Annual Report on Form 10-K for the year ended December 31, 2011)
10.9
10.10
10.11
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)
Third Amended and Restated Loan and Security Agreement, dated as of September 30, 2011, among HWC Wire & Cable Company,
as borrower, Houston Wire & Cable Company, as Guarantor, certain financial institutions, as lenders, and Bank of America, N.A., as
agent (incorporated herein by reference to Exhibit 10.1 to Houston Wire & Cable Company’s Current Report on Form 8-K filed
October 5, 2011)
Second Amended and Restated Guaranty dated as of September 30, 2011, by Houston Wire & Cable Company, as guarantor, in favor
of Bank of America, N.A., as agent (incorporated herein by reference to Exhibit 10.2 to Houston Wire & Cable Company’s Current
Report on Form 8-K filed October 5, 2011)
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*
31.1*
31.2*
32.1*
Consent of Ernst & Young, LLP
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
46
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
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 18, 2013, 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, 2012.
/s/Ernst & Young LLP
Houston, Texas
March 18, 2013
47
Exhibit 31.1
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James L. Pokluda III, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2012 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 18, 2013
/s/ James L. Pokluda III
James L. Pokluda III
Chief Executive Officer
48
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, 2012 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 18, 2013
/s/ Nicol G. Graham
Nicol G. Graham
Chief Financial Officer
49
Exhibit 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
In connection with the Annual Report of Houston Wire & Cable Company (the “Corporation”) on Form 10-K for the fiscal year ended
December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), James L. Pokluda III, 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 18, 2013
Date:
March 18, 2013
/s/ James L. Pokluda III
James L. Pokluda III
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.
50
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.
Financial Highlights
(Dollars in thousands except per share data)
2012
2011
2010
2009
2008
net sales
$ 393,036
$ 396,410
$ 308,522 $ 254,819 $ 360,939
sales per employee
954
1,010
955
907
1,168
operating income
28,926
33,377
15,006
13,772
40,384
operating margin
7.36%
8.42%
4.86%
5.40%
11.19%
net income
17,039
19,677
8,619
8,032
23,737
diluted earnings
per share
0.96
1.11
0.49
0.45
1.33
total assets
197,155
179,153
185,490
122,014
134,753
long-term
obligations
60,361
50,345
55,911
17,479
29,808
stockholders’ equity
109,080
97,338
85,720
80,813
76,595
1
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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 7, 2013 at 8:30 a.m. Cdt, at
the Company’s corporate headquarters in
Houston, texas.
DIReCtoRS
1. Wilson B. Sexton
Chairman of the Board of POOLCORP
2. William H. Sheffield
Chairman of the Board of Houston Wire
& Cable Company
3. James l. pokluda III
President & Chief Executive Officer
of Houston Wire & Cable Company
CoMMon StoCK lIStInG
ticker symbol: HWCC
nasdaq stock exchange
4. Ian Stewart Farwell
Independent Director
5. peter M. Gotsch
Managing Director of Svoboda Capital
Partners LLC
6. Scott l. thompson
Former President, Chief Executive Officer
& Chairman of the Board of Dollar Thrifty
Automotive Group, Inc.
7. Michael t. Campbell
Independent Director
tRAnSFeR AGent
american stock transfer & trust Company
59 maiden lane
new york, new york 10038
InDepenDent AuDItoRS
ernst & young, llp
1401 mcKinney street, suite 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
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10201 North Loop East
Houston, Texas 77029-1415
(713) 609-2200
1.800.HOUWIRE
WWW.HOUWIRE.COM
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Right Product, Right Place, Right Time®
2012 AnnuAl RepoRt
Right Product, Right Place, Right Time®
Wire and cable for industry
and infrastructure
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