HOUSTON WIRE & CABLE COMPANY 2014 Annual Report
ELECTRICAL AND MECHANICAL WIRE AND CABLE FOR INDUSTRY AND INFRASTRUCTURE
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Houston Wire & Cable Company
1-800-HOUWIRE
10201 North Loop East
Houston, Texas 77029
Phone: 713 609 2100
Fax: 713 609 2205
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FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
2014
2013*
2012
2011
2010
Net Sales
Sales Per Employee
Operating Income
Operating Margin
Net Income
Diluted Earnings
Per Share
Total Assets
Long-term
Obligations
$ 390,011
$ 383,292
$ 393,036
$ 396,410
$ 308,522
1,017
25,423
908
24,667
954
28,926
1,010
955
33,377
15,006
6.52%
6.44%
7.36%
8.42%
4.86%
14,972
14,594
17,039
19,677
8,619
0.85
0.82
0.96
1.11
0.49
189,813
196,175
197,155
179,153
185,490
Stockholders’ Equity
111,307
110,694
109,080
* Non-GAAP excludes the impact of the goodwill impairment charge of $7,562. See notes 3 and 11 to the consolidated financial statements.
2013 results as reported were operating income of $17,105, net income of $7,902, and diluted earnings per share of $0.44.
54,118
48,478
60,361
50,345
97,338
55,911
85,720
Left to right: G. Gary Yetman, Michael T. Campbell, Wilson B. Sexton, James L. Pokluda III,
Ian Stewart Farwell, Scott L. Thompson, William H. Sheffield, Mark A. Ruelle
DIRECTORS
G. Gary Yetman
Former President & Chief Executive Officer of
Coleman Cable, Inc.
Michael T. Campbell
Independent Director
Wilson B. Sexton
Chairman of the Board of POOLCORP
James L. Pokluda III
President & Chief Executive Officer of
Houston Wire & Cable Company
Ian Stewart Farwell
Independent Director
Scott L. Thompson
Former President, Chief Executive Officer
& Chairman of the Board of
Dollar Thrifty Automotive Group, Inc.
William H. Sheffield
Chairman of the Board of
Houston Wire & Cable Company
Mark A. Ruelle
President & Chief Executive Officer of
Westar Energy, Inc.
CORPORATE HEADQUARTERS
Houston Wire & Cable Company
10201 North Loop East
Houston, Texas 77029-1415
Telephone (713) 609-2100
ANNUAL MEETING
The Annual Meeting of Shareholders will
be held May 5, 2015, at 8:30 a.m. CDT, at
the Company’s corporate headquarters in
Houston, Texas.
COMMON STOCK LISTING
Ticker Symbol: HWCC
Nasdaq Stock Exchange
TRANSFER AGENT
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
INDEPENDENT AUDITORS
Ernst & Young, LLP
1401 McKinney Street, 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) 609-2227, or contacting:
investor.relations@houwire.com.
WEBSITE
www.houwire.com
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DEAR SHAREHOLDERS, 2014 was a year of progress.
Sales increased approximately 4% on a metals-adjusted
basis and the Company set a new record when
compared to all prior year metals-adjusted sales. Despite
difficult headwinds from an inconsistently performing
industrial economy, metals deflation, and the late year
negative impact on sales from the decline in the price of
oil, we successfully increased revenue, contained
expenses, grew net income, and continued our practice
of returning earnings to shareholders through dividends
and share repurchases.
James L. Pokluda III
President, CEO and Director
Additional notable accomplishments for the year were
double digit sales growth of new products including
aluminum cable, oil and gas cable, and OEM/building wire; doubling the size of our
Baton Rouge distribution center; the addition of new distribution centers in Anchorage,
Alaska, and Odessa, Texas; and joining the Affiliated Distributors buying group. These
business development initiatives materially contributed to our results and, we believe, grew
our market share.
Market strength continued to recover in 2014 across all major geographic regions.
■ The industrial market remained our largest target market with major subcategories being
general manufacturing; metals and minerals; and oil and gas. Multiple areas including steel;
general rigging, which includes lifting, towing, and load securement; agriculture; food and
beverage; and oil and gas all performed well in 2014. Oil and gas was the largest contributor
through a combination of upstream, midstream, and downstream activity, with midstream
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and downstream providing the greatest opportunities. We
believe the largest long-term opportunity will be in the
downstream space, and although sales to this market have
been good, projects have been frustratingly slow to come to
fruition. Moving into 2015, we are hopeful that the release
of downstream projects will accelerate as oil and gas markets
recover from recent market lows.
■ Power generation and environmental compliance markets
performed well in 2014. A strong backlog from previously
booked projects, new build construction, and environmental
compliance construction all contributed to double digit
year-over-year growth. Ongoing regulatory requirements
for reduced fossil fuel emissions will continue to drive capital
improvements in 2015, and the EPA’s proposed CO2 rules are
accelerating the closure of aged coal-fired power plants
whose generating capacity will have to be replaced with
new build construction.
■ Infrastructure markets, led primarily by reduced activity
in telecommunications, were slightly negative in 2014.
We were encouraged by year-over-year strength in certain
areas such as institutional construction and transportation;
however, additional infrastructure markets including water/
wastewater and telecommunications underperformed.
With housing starts forecasted to improve throughout
2015, we anticipate continued slow recovery in the
infrastructure markets.
2014 also began with a strong emphasis on gross margin
optimization and expense reduction. We worked diligently
throughout the year and achieved success with both
initiatives. Although the competitiveness of the marketplace
and the ongoing reduction in the price of copper applied
pressure to our business, I am pleased that the new price
controls we implemented delivered a 22% gross margin.
Operating expense reductions resulting from reduced
headcount, as well as additional gains from cost savings
initiatives executed across all areas of our business, produced
savings in the latter part of the year and have laid the
foundation for a more efficient expense structure as we
go into 2015.
Our distribution business model is relatively simple and
historically requires a low level of capex. This manifests
itself in a balance sheet that, while heavily dependent on
working capital, is robust in terms of asset leverage, interest
coverage, and a low debt to equity ratio. We also have
ample borrowing capacity with our current capital structure
and are well positioned to fund the Company’s future
business initiatives.
We enter 2015 firmly established as a market leader with
a highly talented team of deeply committed employees,
outstanding customer and supplier relationships, superior
operational excellence in on-time performance and order
accuracy, tightly controlled expenses, and a solid balance
sheet that provides ample financial strength and liquidity.
We are well positioned to perform in 2015; however, we
must remain mindful that changes in industrial activity as
a result of fluctuations in oil prices will influence our financial
performance. With the above in mind, driving even greater
success with our new business development initiatives and
continuing our expense management are our top priorities
for 2015.
Finally, this September, Houston Wire & Cable Company
celebrates its 40th anniversary. From a humble beginning in
Houston, Texas, with the simple idea of providing great
service and timely shipments of high quality wire and cable
to electrical distributors, to the publicly traded industry
leader in its space today, this year marks another great
milestone in our history.
On behalf of our Board of Directors and employees, I thank
you for your continued support and the confidence you have
placed in our Company.
James L. Pokluda III
President, CEO and Director
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HWCC
HOUSTON WIRE & CABLE COMPANY
FORM 10-K
10-K FINAN-
CIAL REPORT
2014
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the Fiscal Year ended December 31, 2014
or
For the transition period from to
Commission File Number: 000-52046
(713) 609-2100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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.
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, 2014 was $215,790,429.
At March 2, 2015, there were 17,423,315 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 5, 2015.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-52046
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)
77029
(Zip Code)
(713) 609-2100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Common stock, par value $0.001 per share
Name of Each Exchange on Which Registered
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). YES NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES NO
The aggregate market value of the voting stock (common stock) held by non-affiliates of the registrant as of June 30, 2014 was $215,790,429.
At March 2, 2015, there were 17,423,315 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 5, 2015.
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HOUSTON WIRE & CABLE COMPANY
Form 10-K
For the Fiscal Year Ended December 31, 2014
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 and Financial Statement Schedules
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
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6
9
9
9
9
9
10
12
14
22
23
39
39
42
42
42
42
42
42
43
ITEM 1. BUSINESS
Overview
PART I
We are one of the largest providers of electrical and mechanical wire and cable, hardware and related services to the U.S. market. We
provide our customers with a single-source solution for these items 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, cable management for large capital projects, and same day shipment, and do not have multiple distribution centers across the
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.
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 and in 1997
by investment funds affiliated with Code, Hennessy & Simmons LLC. In June 2006, we completed our second initial public offering. On June
25, 2010, we purchased Southwest Wire Rope LP, its general partner Southwest Wire Rope GP LLC and its wholly owned subsidiary, Southern
Wire and on January 1, 2011, merged the acquired businesses into our operating subsidiary. We have no other business activity.
nation.
History
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 cord; instrumentation and thermocouple cable; lead and high temperature cable; medium voltage
cable; premise and category wire and cable, primary and secondary aluminum distribution cable, steel wire rope and wire rope slings, as well as
synthetic fiber rope 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, marine construction and
marine transportation, mining, construction, infrastructure, oilfield services, petrochemical, transportation, utility, and wastewater treatment.
Targeted Markets
sales and marketing initiatives.
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
Utility Market. The utility market includes large investor-owned utilities, rural cooperatives and municipal power authorities. According
to Industrial Information Resources’ (“IIR’s”) 2015 Global Industrial Outlook, 2015 spending within the United States power market is expected
to be $68.9 billion, up over 8% from 2014 estimates. 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.
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 2015 Global Industrial Outlook, the 2015 projected total industrial spending
within the United States is expected to be $217.7 billion, up 3% over 2014 spend. We provide a wide variety of products specifically designed
for use in manufacturing, metal/mineral, and oil and gas upstream, midstream and downstream markets.
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2
3
HOUSTON WIRE & CABLE COMPANY
For the Fiscal Year Ended December 31, 2014
Form 10-K
INDEX
ITEM 1. BUSINESS
Overview
PART I
We are one of the largest providers of electrical and mechanical wire and cable, hardware and related services to the U.S. market. We
provide our customers with a single-source solution for these items 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, cable management for large capital projects, 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 and in 1997
by investment funds affiliated with Code, Hennessy & Simmons LLC. In June 2006, we completed our second initial public offering. On June
25, 2010, we purchased Southwest Wire Rope LP, its general partner Southwest Wire Rope GP LLC and its wholly owned subsidiary, Southern
Wire and on January 1, 2011, merged the acquired businesses into our operating subsidiary. We have 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 cord; instrumentation and thermocouple cable; lead and high temperature cable; medium voltage
cable; premise and category wire and cable, primary and secondary aluminum distribution cable, steel wire rope and wire rope slings, as well as
synthetic fiber rope 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, marine construction and
marine transportation, mining, construction, infrastructure, oilfield services, petrochemical, transportation, utility, and wastewater treatment.
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”) 2015 Global Industrial Outlook, 2015 spending within the United States power market is expected
to be $68.9 billion, up over 8% from 2014 estimates. 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.
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 2015 Global Industrial Outlook, the 2015 projected total industrial spending
within the United States is expected to be $217.7 billion, up 3% over 2014 spend. We provide a wide variety of products specifically designed
for use in manufacturing, metal/mineral, and oil and gas upstream, midstream and downstream markets.
2
3
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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.
Infrastructure Market. Investments in the development, construction and maintenance of infrastructure markets including education
Government Regulation
and health care; air, ground and rail transportation; telecommunications, and wastewater are expected to continue to improve from
post-recession lows that resulted from public funding shortfalls and budget constraints. Certain segments such as transportation, rail and
telecommunications have been identified as candidates for growth in 2015. According to the American Road & Transportation Builders
Association (ARTBA), the overall U.S. transportation infrastructure construction market is estimated to grow approximately 3% from $185.9
billion in 2014 to $191.7 billion in 2015. Furthermore, health care and educational institutions are forecasting construction spending to increase
in 2015 by 5% and 3% respectively, according to FMI’s Research Services Group. With ongoing advancements in telecommunications
technology and growing U.S. demand for greater bandwidth, FMI is also forecasting a 7% increase in the communications market after a 3%
decline in 2014. The infrastructure growth projections are opportunities for our product and service offering.
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 the original location in Houston, Texas to twenty-two locations nationwide, which
includes five 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 2014, we served approximately 6,300 customers, shipping approximately 42,000 SKU’s to approximately 10,500 customer
locations nationwide. No customer represented 10% or more of our 2014 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 products, we have strategically concentrated our purchases of
electrical wire and cable with five leading suppliers in order to maximize product quality, delivery dependability, purchasing efficiencies, and
vendor rebates. As a result, in 2014, approximately 54% of our 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 2014 were Belden Inc., General Cable Corporation, Lake Cable LLC, 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 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, 2014, we had 360 employees. Our sales and marketing staff accounted for 159 employees, including 42 field sales
personnel and 88 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” tab 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.
20152510_10_K.indd 6
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4
5
Infrastructure Market. Investments in the development, construction and maintenance of infrastructure markets including education
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.
and health care; air, ground and rail transportation; telecommunications, and wastewater are expected to continue to improve from
post-recession lows that resulted from public funding shortfalls and budget constraints. Certain segments such as transportation, rail and
telecommunications have been identified as candidates for growth in 2015. According to the American Road & Transportation Builders
Association (ARTBA), the overall U.S. transportation infrastructure construction market is estimated to grow approximately 3% from $185.9
billion in 2014 to $191.7 billion in 2015. Furthermore, health care and educational institutions are forecasting construction spending to increase
in 2015 by 5% and 3% respectively, according to FMI’s Research Services Group. With ongoing advancements in telecommunications
technology and growing U.S. demand for greater bandwidth, FMI is also forecasting a 7% increase in the communications market after a 3%
decline in 2014. The infrastructure growth projections are opportunities for our product and service offering.
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 the original location in Houston, Texas to twenty-two locations nationwide, which
includes five 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
During 2014, we served approximately 6,300 customers, shipping approximately 42,000 SKU’s to approximately 10,500 customer
locations nationwide. No customer represented 10% or more of our 2014 sales.
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 products, we have strategically concentrated our purchases of
electrical wire and cable with five leading suppliers in order to maximize product quality, delivery dependability, purchasing efficiencies, and
vendor rebates. As a result, in 2014, approximately 54% of our 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 2014 were Belden Inc., General Cable Corporation, Lake Cable LLC, Nexans Energy USA, Inc. and Southwire
Distribution Logistics
with our contract carriers.
Customers
Suppliers
Company.
Sales
Competition
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.
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 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, 2014, we had 360 employees. Our sales and marketing staff accounted for 159 employees, including 42 field sales
personnel and 88 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” tab 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.
4
5
20152510_10_K.indd 7
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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.
If we encounter difficulties with our management information systems, including cyber attacks, 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
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
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 economic conditions and the industry trend
toward consolidation could adversely affect our growth and profit margins.
ITEM 1A. RISK FACTORS
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
In addition to other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating
occur, wire and cable suppliers often allocate products among their customers, and our allocations might not be adequate to meet our customers'
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.
needs.
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, marine construction, marine
transportation, mining, oilfield services, transportation, utility, and wastewater treatment 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 or periods of uncertainty. 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.
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.
experience reduced profitability.
An increase in competition could decrease sales or earnings.
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
capabilities and price. Some of our existing competitors have, and new market entrants may have, greater financial and marketing resources than
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 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 are impacted by the level of oil and gas drilling activity.
We estimate that approximately one-third of our sales are to the oil and gas markets. MRO and project demand for our products and services
We may not be able to successfully identify acquisition candidates, effectively integrate newly acquired businesses into our operations or
in these markets could reduce with decreases in the price of oil, and its effect on exploration and production.
achieve expected profitability from our acquisitions.
If we are unable to maintain our relationships with our customers, it could have a material adverse effect on our financial results.
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
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.
to realize the benefit of this growth strategy.
In 2014, our ten largest customers accounted for approximately 40% 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 with 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.
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, and goodwill impairments may result.
An inability to obtain the products that we distribute could result in lost revenues and reduced profits and damage our relationships with
customers.
We are anticipating growth in the businesses we acquired in 2010. However, the investment in the Southern Wire reporting unit had a
goodwill impairment during 2013 as it did not meet its financial objectives as of that date. Future goodwill impairments may result, should the
In 2014, we sourced products from approximately 300 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 2014 approximately 54% 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 could 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
6
acquired businesses not achieve their growth or profitability targets.
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
7
20152510_10_K.indd 8
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ITEM 1A. RISK FACTORS
forward-looking statements.
condition and results of operations.
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
Downturns in capital spending and cyclicality in certain of the markets we serve could have a material adverse effect on our financial
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, marine construction, marine
transportation, mining, oilfield services, transportation, utility, and wastewater treatment 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 or periods of uncertainty. 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.
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 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 are impacted by the level of oil and gas drilling activity.
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.
If we encounter difficulties with our management information systems, including cyber attacks, 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 economic conditions and the industry trend
toward consolidation could adversely affect our growth and profit margins.
We estimate that approximately one-third of our sales are to the oil and gas markets. MRO and project demand for our products and services
in these markets could reduce with decreases in the price of oil, and its effect on exploration and production.
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.
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 2014, our ten largest customers accounted for approximately 40% 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 with national marketing groups and engage in joint promotional sales activities with the members
of those groups. Any permanent exclusion of us from, or refusal to allow us to participate in, such national marketing groups could have a
material adverse effect on our sales and our results of operations.
An inability to obtain the products that we distribute could result in lost revenues and reduced profits and damage our relationships with
customers.
In 2014, we sourced products from approximately 300 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 2014 approximately 54% 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 could 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
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, and goodwill impairments may result.
We are anticipating growth in the businesses we acquired in 2010. However, the investment in the Southern Wire reporting unit had a
goodwill impairment during 2013 as it did not meet its financial objectives as of that date. Future goodwill impairments may result, should the
acquired businesses not achieve their growth or profitability targets.
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
6
7
20152510_10_K.indd 9
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insurance that we maintain, to protect us from these claims. However, if manufacturers' warranties and indemnities and our insurance coverage
are not available or inadequate to cover every claim, it could have an adverse effect on our operating results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
None.
Facilities
We operate out of twenty-two distribution centers strategically located throughout the United States with approximately 820,000 square
feet of distribution space. We own three facilities in Houston, Texas, including our corporate headquarters and a facility purchased in December
2013 in which, following extensive building modifications, the four existing Houston operations of Southwest Wire Rope will be consolidated in
the second quarter of 2015. We also own two facilities in Louisiana. All of the other facilities are leased, including five 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
20152510_10_K.indd 10
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8
9
insurance that we maintain, to protect us from these claims. However, if manufacturers' warranties and indemnities and our insurance coverage
ITEM 1B. UNRESOLVED STAFF COMMENTS
are not available or inadequate to cover every claim, it could have an adverse effect on our operating results.
None.
ITEM 2. PROPERTIES
Facilities
We operate out of twenty-two distribution centers strategically located throughout the United States with approximately 820,000 square
feet of distribution space. We own three facilities in Houston, Texas, including our corporate headquarters and a facility purchased in December
2013 in which, following extensive building modifications, the four existing Houston operations of Southwest Wire Rope will be consolidated in
the second quarter of 2015. We also own two facilities in Louisiana. All of the other facilities are leased, including five 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
50
Business Experience
During Last 5 Years
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
62
Chief Financial Officer, Treasurer and Secretary since 1997.
8
9
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PART II
Total return is based on an initial investment of $100 on January 1, 2009, and reinvestment of dividends.
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”. As of February 11, 2015, there were 2,181
holders of record, including participants in security position listings. This figure does not include those beneficial holders whose shares may be
held of record by brokerage firms and clearing agencies. 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, 2014:
First quarter
Second quarter
Third quarter
Fourth quarter
Year ended December 31, 2013:
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$
$
$
$
$
$
$
$
14.47
13.34
13.26
14.00
12.97
14.82
15.07
14.49
$
$
$
$
$
$
$
$
12.58
11.29
11.92
11.51
10.89
12.70
12.25
12.42
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, 2014. For further
information regarding our stock repurchase activity, see Note 6 to our Consolidated Financial Statements.
Total number
of
shares
purchased
Average
price paid
per share
Total number of shares
purchased as part of
publicly announced
plans or programs (1)
Maximum number (or
approximate dollar
value) of shares that
may yet be purchased
under the plans or
programs (1)
45,100
33,693
41,385
120,178
$
$
$
$
12.30
13.26
12.33
12.58
45,100
33,693
41,385
120,178
$
$
$
19,089,314
18,642,692
18,132,372
Period
October 1 – 31, 2014
November 1 – 30, 2014
December 1 – 31, 2014
Total
(1)
The board authorized a stock repurchase program of $25 million in March 2014. The program has no expiration date.
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 market 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.
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
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, from May
2011 through February 2013 was $0.09 per share and from May 2013 through February 2014 was $0.11 per share. Beginning in May 2014, the
Board of Directors approved a quarterly cash dividend of $0.12 per share. For the years ended December 31, 2014 and 2013, cash dividends
were $0.47 and $0.42 per share, resulting in total dividends paid of $8.3 million and $7.5 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.
20152510_10_K.indd 12
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10
11
PART II
Total return is based on an initial investment of $100 on January 1, 2009, and reinvestment of dividends.
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”. As of February 11, 2015, there were 2,181
holders of record, including participants in security position listings. This figure does not include those beneficial holders whose shares may be
held of record by brokerage firms and clearing agencies. 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.
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, 2014. For further
information regarding our stock repurchase activity, see Note 6 to our Consolidated Financial Statements.
The board authorized a stock repurchase program of $25 million in March 2014. The program has no expiration date.
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 market 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.
HWCC
NASDAQ
Russell 2000
180.93
181.79
107.38
205.16
188.20
95.91
114.92
122.43
107.87
112.85
115.75
110.91
130.80
132.69
98.48
$250
$225
$200
$175
$150
$125
$100
$75
$50
Jan 10
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
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, from May
2011 through February 2013 was $0.09 per share and from May 2013 through February 2014 was $0.11 per share. Beginning in May 2014, the
Board of Directors approved a quarterly cash dividend of $0.12 per share. For the years ended December 31, 2014 and 2013, cash dividends
were $0.47 and $0.42 per share, resulting in total dividends paid of $8.3 million and $7.5 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.
10
11
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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, 2014, 2013 and 2012, and the consolidated balance
sheet data at December 31, 2014 and 2013, 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, 2011 and 2010, and the consolidated balance sheet data at
December 31, 2012, 2011 and 2010 from our audited financial statements, which are not included in this Form 10-K.
Year Ended December 31,
2014
2013
(Dollars in thousands, except share data)
2012
2011
2010
CONSOLIDATED STATEMENT OF
INCOME DATA:
Sales
Cost of sales
Gross profit
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment of goodwill
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
$
390,011
304,073
85,938
$
383,292 $
298,633
84,659
393,036 $
306,017
87,019
396,410 $
307,515
88,895
308,522
245,932
62,590
31,196
26,400
2,919
—
60,515
25,423
1,168
24,255
9,283
30,946
26,068
2,978
7,562
67,554
17,105
992
16,113
8,211
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
$
14,972
$
(1)
7,902
$
17,039
$
19,677
$
8,619
$
$
0.85
0.85
$
$
(1) $
0.44
0.44 (1) $
0.96
$
0.96 $
1.11
$
1.11 $
0.49
0.49
17,605,290
17,683,931
17,805,464
17,723,277
17,679,524
17,657,682
17,900,372
17,815,401
17,801,134
17,710,123
(1)
2013 net income excluding the after tax impact of the impairment of goodwill was $14,594, and basic and fully diluted earnings per share
were each $0.82.
20152510_10_K.indd 14
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12
13
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, 2014, 2013 and 2012, and the consolidated balance
sheet data at December 31, 2014 and 2013, 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, 2011 and 2010, and the consolidated balance sheet data at
December 31, 2012, 2011 and 2010 from our audited financial statements, which are not included in this Form 10-K.
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Total assets
Book overdraft (1)
Total debt
Stockholders’ equity
As of December 31,
2014
2013
2012
2011
2010
(Dollars in thousands)
$
$
$
$
$
$
$
— $
61,599 $
88,958 $
189,813 $
3,113 $
53,847 $
111,307 $
— $
60,408 $
96,107 $
196,175 $
4,594 $
47,952 $
110,694 $
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
(1)
Our book overdraft is funded by our revolving credit facility as soon as the related checks clear our disbursement account.
2013 net income excluding the after tax impact of the impairment of goodwill was $14,594, and basic and fully diluted earnings per share
were each $0.82.
12
13
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
lives. 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.
You should read the following discussion in conjunction with our consolidated financial statements and related notes appearing elsewhere
Vendor Rebates
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 almost 40 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 6,300 customers. Our products are used in MRO activities and related projects, as well as for
larger-scale projects in the utility, industrial and infrastructure markets and a diverse range of industrial applications including communications,
energy, engineering and construction, general manufacturing, mining, construction, oilfield services, infrastructure, petrochemical,
transportation, utility, wastewater treatment, marine construction and marine transportation.
Goodwill
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.
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, 2014 would
have resulted in a change in income before income taxes of less than $0.1 million.
Inventories
Inventories are valued at the lower of cost, using the average cost method, or market. We continually monitor our inventory levels at each of
our distribution centers. Our reserve for inventory is based on the age of the inventory, movements of our inventory over the prior twelve months
and the experience of our purchasing and sales departments in estimating demand for the product in the succeeding year. Our inventories are
generally not susceptible to technological obsolescence. A 20% change in our estimate at December 31, 2014 would have resulted in a change in
income before income taxes of $0.9 million.
Sales
Intangible Assets
The Company’s intangible assets, excluding goodwill, represent purchased trade names and customer relationships. Trade names are not
being amortized and are treated as indefinite lived assets. Trade names are tested for recoverability on an annual basis in October of each year.
The annual test for 2014 showed no indication of impairment. If this test had indicated that an impairment had occurred, we would have
recognized the loss in operating income. The Company assigns useful lives to its intangible assets based on the periods over which it expects the
assets to contribute directly or indirectly to the future cash flows of the Company. Customer relationships are amortized over 6 or 7 year useful
Many of our arrangements with our vendors entitle us to receive a rebate of a specified amount when we achieve any of a number of
measures, generally related to the volume of purchases from the vendor. We account for such rebates as a reduction of the prices of the vendor’s
products and therefore as a reduction of inventory until we sell the product, at which time such rebates reduce cost of sales. Throughout the year,
we estimate the amount of the rebates earned based on purchases to date relative to the total purchase levels expected to be achieved during the
rebate period. We continually revise 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. A 20% change in our estimate of total rebates earned during 2014 would have resulted
in a change in income before income taxes of $1.4 million for the year ended December 31, 2014.
Goodwill represents the excess of the amount we paid to acquire businesses over the estimated fair value of tangible assets and identifiable
intangible assets acquired, less liabilities assumed. Determining the fair value of assets acquired and liabilities assumed requires management’s
judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount
rates and asset lives among other items. At December 31, 2014, our goodwill balance was $17.5 million, representing 9.2% of our total assets.
The Company reviews goodwill for impairment annually, or more frequently if indications of possible impairment exist, using a three-step
process. The first step is a qualitative evaluation as to whether it is more likely than not that the fair value of any of the reporting units is less than
its carrying value using an assessment of relevant events and circumstances. Examples of such events and circumstances include financial
performance, industry and market conditions, macroeconomic conditions, reporting unit-specific events, historical results of goodwill
impairment testing and the timing of the last performance of a quantitative assessment. If the Company concludes that the goodwill associated
with any reporting units is more likely than not impaired, a second step is performed for that reporting unit. This second step, used to
quantitatively screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. The
third step, employed for any reporting unit that fails the second step, is used to measure the amount of any potential impairment and compares
the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill.
The second and third steps that we use to evaluate goodwill for impairment involve the determination of the fair value of our reporting units.
Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of
current economic indicators and market valuations, and assumptions about our strategic plans. In developing fair values for our reporting units,
we may employ a market multiple or a discounted cash flow methodology, or a combination thereof. The market multiple methodology
compares us to similar companies on the basis of risk characteristics to determine our risk profile relative to the comparable companies as a
group. This analysis generally focuses on quantitative considerations, which include financial performance and other quantifiable data, and
qualitative considerations, which include any factors which are expected to impact future financial performance. The most significant
assumptions affecting the market multiple methodology are the market multiples and control premium. A control premium represents the value
an investor would pay above non-controlling interest transaction prices in order to obtain a controlling interest in the respective company.
The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be
generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect
all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses
our projections of financial performance. The most significant assumptions used in the discounted cash flow methodology are the discount rate,
the customer attrition rate and expected future revenue and operating margins, which vary among reporting units. If actual results are not
consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future
impairment losses that could be material to our results of operations.
An impairment test was performed during the third quarter of 2014 and no indications of impairment were determined.
During the third quarter of 2013 and prior to the annual impairment test of goodwill at October 1, 2013, the Company concluded that
impairment indicators existed at the Southern Wire reporting unit, due to a decline in the overall financial performance and overall market
demand. The carrying value of the Southern Wire reporting unit’s goodwill was $20.1 million and its implied fair value resulting from the
impairment test was less than the carrying value. As a result, the Company recorded a non-cash goodwill impairment charge of $7.6 million
during the year ended December 31, 2013.
We generate most of our sales by providing wire and cable and related hardware to our customers, as well as billing for freight charges. We
recognize revenue upon shipment of our products to customers from our distribution centers or directly from our suppliers. Sales incentives
earned by customers are accrued in the same month as the shipment is invoiced and are accounted for as a reduction in sales.
20152510_10_K.indd 16
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14
15
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
lives. 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.
You should read the following discussion in conjunction with our consolidated financial statements and related notes appearing elsewhere
Vendor Rebates
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 almost 40 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 6,300 customers. Our products are used in MRO activities and related projects, as well as for
larger-scale projects in the utility, industrial and infrastructure markets and a diverse range of industrial applications including communications,
energy, engineering and construction, general manufacturing, mining, construction, oilfield services, infrastructure, petrochemical,
transportation, utility, wastewater treatment, 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.
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, 2014 would
have resulted in a change in income before income taxes of less than $0.1 million.
Inventories are valued at the lower of cost, using the average cost method, or market. We continually monitor our inventory levels at each of
our distribution centers. Our reserve for inventory is based on the age of the inventory, movements of our inventory over the prior twelve months
and the experience of our purchasing and sales departments in estimating demand for the product in the succeeding year. Our inventories are
generally not susceptible to technological obsolescence. A 20% change in our estimate at December 31, 2014 would have resulted in a change in
Reserve for Returns and Allowances
Inventories
income before income taxes of $0.9 million.
Intangible Assets
The Company’s intangible assets, excluding goodwill, represent purchased trade names and customer relationships. Trade names are not
being amortized and are treated as indefinite lived assets. Trade names are tested for recoverability on an annual basis in October of each year.
The annual test for 2014 showed no indication of impairment. If this test had indicated that an impairment had occurred, we would have
recognized the loss in operating income. The Company assigns useful lives to its intangible assets based on the periods over which it expects the
assets to contribute directly or indirectly to the future cash flows of the Company. Customer relationships are amortized over 6 or 7 year useful
Many of our arrangements with our vendors entitle us to receive a rebate of a specified amount when we achieve any of a number of
measures, generally related to the volume of purchases from the vendor. We account for such rebates as a reduction of the prices of the vendor’s
products and therefore as a reduction of inventory until we sell the product, at which time such rebates reduce cost of sales. Throughout the year,
we estimate the amount of the rebates earned based on purchases to date relative to the total purchase levels expected to be achieved during the
rebate period. We continually revise 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. A 20% change in our estimate of total rebates earned during 2014 would have resulted
in a change in income before income taxes of $1.4 million for the year ended December 31, 2014.
Goodwill
Goodwill represents the excess of the amount we paid to acquire businesses over the estimated fair value of tangible assets and identifiable
intangible assets acquired, less liabilities assumed. Determining the fair value of assets acquired and liabilities assumed requires management’s
judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount
rates and asset lives among other items. At December 31, 2014, our goodwill balance was $17.5 million, representing 9.2% of our total assets.
The Company reviews goodwill for impairment annually, or more frequently if indications of possible impairment exist, using a three-step
process. The first step is a qualitative evaluation as to whether it is more likely than not that the fair value of any of the reporting units is less than
its carrying value using an assessment of relevant events and circumstances. Examples of such events and circumstances include financial
performance, industry and market conditions, macroeconomic conditions, reporting unit-specific events, historical results of goodwill
impairment testing and the timing of the last performance of a quantitative assessment. If the Company concludes that the goodwill associated
with any reporting units is more likely than not impaired, a second step is performed for that reporting unit. This second step, used to
quantitatively screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. The
third step, employed for any reporting unit that fails the second step, is used to measure the amount of any potential impairment and compares
the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill.
The second and third steps that we use to evaluate goodwill for impairment involve the determination of the fair value of our reporting units.
Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of
current economic indicators and market valuations, and assumptions about our strategic plans. In developing fair values for our reporting units,
we may employ a market multiple or a discounted cash flow methodology, or a combination thereof. The market multiple methodology
compares us to similar companies on the basis of risk characteristics to determine our risk profile relative to the comparable companies as a
group. This analysis generally focuses on quantitative considerations, which include financial performance and other quantifiable data, and
qualitative considerations, which include any factors which are expected to impact future financial performance. The most significant
assumptions affecting the market multiple methodology are the market multiples and control premium. A control premium represents the value
an investor would pay above non-controlling interest transaction prices in order to obtain a controlling interest in the respective company.
The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be
generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect
all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses
our projections of financial performance. The most significant assumptions used in the discounted cash flow methodology are the discount rate,
the customer attrition rate and expected future revenue and operating margins, which vary among reporting units. If actual results are not
consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future
impairment losses that could be material to our results of operations.
An impairment test was performed during the third quarter of 2014 and no indications of impairment were determined.
During the third quarter of 2013 and prior to the annual impairment test of goodwill at October 1, 2013, the Company concluded that
impairment indicators existed at the Southern Wire reporting unit, due to a decline in the overall financial performance and overall market
demand. The carrying value of the Southern Wire reporting unit’s goodwill was $20.1 million and its implied fair value resulting from the
impairment test was less than the carrying value. As a result, the Company recorded a non-cash goodwill impairment charge of $7.6 million
during the year ended December 31, 2013.
Sales
We generate most of our sales by providing wire and cable and related hardware to our customers, as well as billing for freight charges. We
recognize revenue upon shipment of our products to customers from our distribution centers or directly from our suppliers. Sales incentives
earned by customers are accrued in the same month as the shipment is invoiced and are accounted for as a reduction in sales.
14
15
20152510_10_K.indd 17
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Cost of Sales
Results of Operations
Cost of sales consists primarily of the average cost of the wire and cable and related hardware that we sell. We also incur shipping and
handling costs in the normal course of business. Cost of sales also reflects cash discounts for prompt payment to vendors and vendor rebates
generally related to annual purchase targets, as well as inventory obsolescence charges.
The following discussion compares our results of operations for the years ended December 31, 2014, 2013 and 2012.
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.
Operating Expenses
Operating expenses include all expenses, excluding freight, incurred to receive, sell and ship product and administer the operations of the
Company.
Salaries and Commissions. Salary expense includes the base compensation, and any overtime earned by hourly personnel, for all sales,
administrative and warehouse employees and stock compensation expense for options and restricted stock granted to employees. Commission
expense is earned by inside sales personnel based on gross profit dollars generated, by field sales personnel from generating sales and meeting
various objectives, by sales, national and marketing managers for driving the sales process, by region managers based on the profitability of their
branches and by corporate managers based primarily on our profitability and also on other operating metrics.
Other Operating Expenses. Other operating expenses include all other expenses, except for salaries and commissions and depreciation
and amortization. This includes all payroll taxes, health insurance, traveling expenses, public company expenses, advertising, management
information system expenses, facility rent and all distribution expenses such as packaging, reels, and repair and maintenance of equipment and
facilities.
Depreciation and Amortization. We incur depreciation expense on costs related to capitalized 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.
Note: Due to rounding, percentages may not add up to total operating expenses, operating income, income before income taxes or net income.
Comparison of Years Ended December 31, 2014 and 2013
Sales
Our sales in 2014 increased 1.8% to $390.0 million from $383.3 million in 2013. When adjusted for the fluctuation in metal prices, revenues
for the 2014 fiscal year increased approximately 4% compared to 2013 sales. Our project business, especially across our key growth initiatives –
Environmental Compliance, Engineering & Construction, Industrials, LifeGuard™, Utility Power Generation, and Mechanical wire rope, was
up approximately 9% on a metals-adjusted basis. Maintenance, repair, and operations (MRO) business grew at approximately 1% on a
metals-adjusted basis.
Gross Profit
Gross profit increased 1.5% to $85.9 million in 2014 from $84.7 million in 2013. The increase in gross profit was primarily attributed to the
increase in sales. Gross margin (gross profit as a percentage of sales) decreased slightly to 22.0% in 2014 from 22.1% in 2013.
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16
17
Cost of sales consists primarily of the average cost of the wire and cable and related hardware that we sell. We also incur shipping and
The following discussion compares our results of operations for the years ended December 31, 2014, 2013 and 2012.
handling costs in the normal course of business. Cost of sales also reflects cash discounts for prompt payment to vendors and vendor rebates
generally related to annual purchase targets, as well as inventory obsolescence charges.
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.
Results of Operations
Operating expenses include all expenses, excluding freight, incurred to receive, sell and ship product and administer the operations of the
Salaries and Commissions. Salary expense includes the base compensation, and any overtime earned by hourly personnel, for all sales,
administrative and warehouse employees and stock compensation expense for options and restricted stock granted to employees. Commission
expense is earned by inside sales personnel based on gross profit dollars generated, by field sales personnel from generating sales and meeting
various objectives, by sales, national and marketing managers for driving the sales process, by region managers based on the profitability of their
branches and by corporate managers based primarily on our profitability and also on other operating metrics.
Other Operating Expenses. Other operating expenses include all other expenses, except for salaries and commissions and depreciation
and amortization. This includes all payroll taxes, health insurance, traveling expenses, public company expenses, advertising, management
information system expenses, facility rent and all distribution expenses such as packaging, reels, and repair and maintenance of equipment and
Depreciation and Amortization. We incur depreciation expense on costs related to capitalized 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.
Sales
Cost of sales
Gross profit
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment of goodwill
Total operating expenses
Operating income
Interest expense
Income before income taxes
Income tax provision
Net income
2014
Year Ended December 31,
2013
2012
100.0 %
78.0 %
22.0 %
100.0 %
77.9 %
22.1 %
8.0 %
6.8 %
0.7 %
— %
15.5 %
6.5 %
0.3 %
6.2 %
2.4 %
3.8 %
8.1 %
6.8 %
0.8 %
2.0 %
17.6 %
4.5 %
0.3 %
4.2 %
2.1 %
2.1 %
100.0 %
77.9 %
22.1 %
7.6 %
6.4 %
0.7 %
— %
14.8 %
7.4 %
0.3 %
7.0 %
2.7 %
4.3 %
Cost of Sales
Operating Expenses
Company.
facilities.
Interest Expense
Interest expense consists primarily of interest we incur on our debt.
Note: Due to rounding, percentages may not add up to total operating expenses, operating income, income before income taxes or net income.
Comparison of Years Ended December 31, 2014 and 2013
Sales
(Dollars in millions)
Sales
Year Ended
December 31,
2014
2013
$
390.0 $
383.3 $
Change
6.7
1.8 %
Our sales in 2014 increased 1.8% to $390.0 million from $383.3 million in 2013. When adjusted for the fluctuation in metal prices, revenues
for the 2014 fiscal year increased approximately 4% compared to 2013 sales. Our project business, especially across our key growth initiatives –
Environmental Compliance, Engineering & Construction, Industrials, LifeGuard™, Utility Power Generation, and Mechanical wire rope, was
up approximately 9% on a metals-adjusted basis. Maintenance, repair, and operations (MRO) business grew at approximately 1% on a
metals-adjusted basis.
Gross Profit
(Dollars in millions)
Gross profit
Gross profit as a percent of sales
Year Ended
December 31,
2014
2013
$
85.9 $
22.0 %
84.7 $
22.1 %
Change
1.3
(0.1) %
1.5 %
Gross profit increased 1.5% to $85.9 million in 2014 from $84.7 million in 2013. The increase in gross profit was primarily attributed to the
increase in sales. Gross margin (gross profit as a percentage of sales) decreased slightly to 22.0% in 2014 from 22.1% in 2013.
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Operating Expenses
(Dollars in millions)
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment of goodwill
Total operating expenses
Year Ended
December 31,
2014
2013
Change
$
$
31.2 $
26.4
2.9
—
60.5 $
30.9
26.1
3.0
7.6
67.6
$
$
0.3
0.3
(0.1 )
(7.6 )
(7.0 )
0.8 %
1.3 %
(2.0 )%
(100.0 )%
(10.4 )%
Gross Profit
Operating Expenses
Operating expenses as a percent of sales
15.5 %
17.6 %
(2.1 )%
Note: Due to rounding, numbers may not add up to total operating expenses.
Salaries and Commissions. Salaries and commissions increased 0.8% to $31.2 million in 2014 from $30.9 million in 2013. Commissions
increased $0.8 million as certain salespersons and managers exceeded targets and some managers received bonuses. Salaries decreased $0.5
million due to our cost savings initiative.
Other Operating Expenses. Other operating expenses increased 1.3% to $26.4 million in 2014 from $26.1 million in 2013 primarily due to
increased costs of the distribution network including the addition of two new operating locations, partially offset by lower benefits and employee
related expenses as the full-time employee headcount decreased.
Depreciation and Amortization. Depreciation and amortization decreased 2.0% to $2.9 million in 2014 from $3.0 million in 2013.
Impairment of Goodwill. The Company recorded a non-cash goodwill impairment charge in 2013 with respect to its Southern Wire
reporting unit. (See Note 3 to our Consolidated Financial Statements)
Operating expenses as a percentage of sales decreased to 15.5% in 2014 from 17.6% in 2013 due to the absence of a goodwill impairment
charge in 2014 partially offset by higher salaries and commissions, and other operating expenses.
Interest Expense
Interest expense increased 17.7% to $1.2 million in 2014 from $1.0 million in 2013 due to higher average debt and a higher effective
interest rate. Average debt was $55.6 million in 2014 compared to $47.8 million in 2013. The average effective interest rate increased to 2.1% in
2014 from 1.9% in 2013. This increase was primarily due to the higher applicable London Interbank Offered Rate (“LIBOR”) spread as a result
of the lower availability under the loan agreement in 2014.
Income Tax Expense
Income tax expense increased 13.1% to $9.3 million in 2014 compared to $8.2 million in 2013. The effective income tax rate decreased to
38.3% in 2014 from 51.0% in 2013 primarily due to the non-deductible portion of the goodwill impairment charge in 2013.
Interest Expense
Net Income
We achieved net income of $15.0 million in 2014 compared to $7.9 million in 2013, an increase of 89.5%, primarily due to the non-cash
goodwill impairment in 2013.
Comparison of Years Ended December 31, 2013 and 2012
Sales
(Dollars in millions)
Sales
Year Ended
December 31,
2013
2012
$
383.3 $
393.0 $
Change
(9.7)
(2.5) %
Our sales in 2013 decreased 2.5% to $383.3 million from $393.0 million in 2012. When adjusted for the fluctuation in metal prices,
revenues for the 2013 fiscal year were unchanged compared to 2012 sales. Our project business, especially across our key growth initiatives –
Environmental Compliance, Engineering & Construction, Industrials, LifeGuard™, Utility Power Generation, and Mechanical wire rope, was
down approximately 16%, or 14% on a metals-adjusted basis, primarily due to delays in project starts and market uncertainty. MRO business
grew approximately 5%, or 7% on a metals-adjusted basis, for the year.
Gross profit decreased 2.7% to $84.7 million in 2013 from $87.0 million in 2012. The decrease in gross profit was primarily attributed to the
decrease in sales. The gross margin remained consistent at 22.1% between the periods.
Note: Due to rounding, numbers may not add up to total operating expenses.
Salaries and Commissions. Salaries and commissions increased 3.1% to $30.9 million in 2013 from $30.0 million in 2012. This increase
was due to additional headcount primarily in operations and sales/marketing which was partially offset by lower commissions.
Other Operating Expenses. Other operating expenses increased 3.7% to $26.1 million in 2013 from $25.1 million in 2012. This increase is
primarily related to higher operations expenses related to additional facilities and higher inventory. Additional headcount also contributed to the
increase.
Depreciation and Amortization. Depreciation and amortization increased slightly between the periods.
Impairment of Goodwill. The Company recorded a non-cash goodwill impairment charge in 2013 with respect to its SW reporting unit. (See
Note 3 to our Consolidated Financial Statements)
Operating expenses as a percentage of sales increased to 17.6% in 2013 from 14.8% in 2012. This increase primarily relates to the
impairment of goodwill, as well as higher operations cost and personnel costs.
Interest expense decreased 20.8% to $1.0 million in 2013 from $1.3 million in 2012 due to lower average interest rates, lower average debt
and a higher percentage of the debt in LIBOR borrowings. Average debt was $47.8 million in 2013 compared to $58.0 million in 2012. The
average effective interest rate decreased to 1.9% in 2013 from 2.1% in 2012. This decrease was primarily due to a lower applicable LIBOR
spread as a result of the higher availability under the loan agreement in 2013.
Income tax expense decreased 22.8% to $8.2 million in 2013 compared to $10.6 million in 2012. This percentage decrease was lower than
the percentage decrease in operating income due to the non-deductible portion of the goodwill impairment.
Income Tax Expense
Net Income
Our net income in 2013 was $7.9 million compared to $17.0 million in 2012, a decrease of 53.6%.
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19
Operating Expenses
Note: Due to rounding, numbers may not add up to total operating expenses.
Salaries and Commissions. Salaries and commissions increased 0.8% to $31.2 million in 2014 from $30.9 million in 2013. Commissions
increased $0.8 million as certain salespersons and managers exceeded targets and some managers received bonuses. Salaries decreased $0.5
million due to our cost savings initiative.
Other Operating Expenses. Other operating expenses increased 1.3% to $26.4 million in 2014 from $26.1 million in 2013 primarily due to
increased costs of the distribution network including the addition of two new operating locations, partially offset by lower benefits and employee
related expenses as the full-time employee headcount decreased.
Impairment of Goodwill. The Company recorded a non-cash goodwill impairment charge in 2013 with respect to its Southern Wire
reporting unit. (See Note 3 to our Consolidated Financial Statements)
Operating expenses as a percentage of sales decreased to 15.5% in 2014 from 17.6% in 2013 due to the absence of a goodwill impairment
charge in 2014 partially offset by higher salaries and commissions, and other operating expenses.
Interest expense increased 17.7% to $1.2 million in 2014 from $1.0 million in 2013 due to higher average debt and a higher effective
interest rate. Average debt was $55.6 million in 2014 compared to $47.8 million in 2013. The average effective interest rate increased to 2.1% in
2014 from 1.9% in 2013. This increase was primarily due to the higher applicable London Interbank Offered Rate (“LIBOR”) spread as a result
of the lower availability under the loan agreement in 2014.
Interest Expense
Income Tax Expense
Net Income
goodwill impairment in 2013.
Comparison of Years Ended December 31, 2013 and 2012
Sales
We achieved net income of $15.0 million in 2014 compared to $7.9 million in 2013, an increase of 89.5%, primarily due to the non-cash
Our sales in 2013 decreased 2.5% to $383.3 million from $393.0 million in 2012. When adjusted for the fluctuation in metal prices,
revenues for the 2013 fiscal year were unchanged compared to 2012 sales. Our project business, especially across our key growth initiatives –
Environmental Compliance, Engineering & Construction, Industrials, LifeGuard™, Utility Power Generation, and Mechanical wire rope, was
down approximately 16%, or 14% on a metals-adjusted basis, primarily due to delays in project starts and market uncertainty. MRO business
grew approximately 5%, or 7% on a metals-adjusted basis, for the year.
Gross Profit
(Dollars in millions)
Gross profit
Gross profit as a percent of sales
Year Ended
December 31,
2013
2012
$
84.7 $
22.1 %
87.0 $
22.1 %
Change
(2.4)
(0.0) %
(2.7) %
Gross profit decreased 2.7% to $84.7 million in 2013 from $87.0 million in 2012. The decrease in gross profit was primarily attributed to the
decrease in sales. The gross margin remained consistent at 22.1% between the periods.
Operating Expenses
(Dollars in millions)
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment of goodwill
Total operating expenses
Year Ended
December 31,
2013
2012
Change
$
$
30.9 $
26.1
3.0
7.6
67.6 $
30.0 $
25.1
2.9
—
58.1 $
0.9
0.9
0.0
7.6
9.5
3.1 %
3.7 %
1.3 %
n/a
16.3 %
Depreciation and Amortization. Depreciation and amortization decreased 2.0% to $2.9 million in 2014 from $3.0 million in 2013.
Operating expenses as a percent of sales
17.6 %
14.8 %
2.8 %
Note: Due to rounding, numbers may not add up to total operating expenses.
Salaries and Commissions. Salaries and commissions increased 3.1% to $30.9 million in 2013 from $30.0 million in 2012. This increase
was due to additional headcount primarily in operations and sales/marketing which was partially offset by lower commissions.
Other Operating Expenses. Other operating expenses increased 3.7% to $26.1 million in 2013 from $25.1 million in 2012. This increase is
primarily related to higher operations expenses related to additional facilities and higher inventory. Additional headcount also contributed to the
increase.
Depreciation and Amortization. Depreciation and amortization increased slightly between the periods.
Impairment of Goodwill. The Company recorded a non-cash goodwill impairment charge in 2013 with respect to its SW reporting unit. (See
Note 3 to our Consolidated Financial Statements)
Operating expenses as a percentage of sales increased to 17.6% in 2013 from 14.8% in 2012. This increase primarily relates to the
impairment of goodwill, as well as higher operations cost and personnel costs.
Income tax expense increased 13.1% to $9.3 million in 2014 compared to $8.2 million in 2013. The effective income tax rate decreased to
38.3% in 2014 from 51.0% in 2013 primarily due to the non-deductible portion of the goodwill impairment charge in 2013.
Interest Expense
Interest expense decreased 20.8% to $1.0 million in 2013 from $1.3 million in 2012 due to lower average interest rates, lower average debt
and a higher percentage of the debt in LIBOR borrowings. Average debt was $47.8 million in 2013 compared to $58.0 million in 2012. The
average effective interest rate decreased to 1.9% in 2013 from 2.1% in 2012. This decrease was primarily due to a lower applicable LIBOR
spread as a result of the higher availability under the loan agreement in 2013.
Income Tax Expense
Income tax expense decreased 22.8% to $8.2 million in 2013 compared to $10.6 million in 2012. This percentage decrease was lower than
the percentage decrease in operating income due to the non-deductible portion of the goodwill impairment.
Net Income
Our net income in 2013 was $7.9 million compared to $17.0 million in 2012, a decrease of 53.6%.
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19
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Impact of Inflation and Commodity Prices
Our results of operations are affected by changes in the inflation rate and commodity prices. Moreover, because copper, steel, aluminum
and petrochemical products are components of the wire and cable and related hardware we sell, fluctuations in the costs of these and other
commodities have historically affected our operating results. We estimate decreasing metal prices negatively impacted sales by approximately
3% in 2014. To the extent commodity prices decline, the net realizable value of our existing inventory could also decline, and our gross profit
can be adversely affected because of either reduced selling prices or lower of cost or market adjustments in the carrying value of our inventory.
If we turn our inventory approximately four times a year, the impact of changes in commodity prices in any particular quarter would primarily
affect the results of the succeeding calendar quarter. If we are unable to pass on to our customers future cost increases due to inflation or rising
commodity prices, our operating results could be adversely affected.
Liquidity and Capital Resources
Indebtedness
Our principal source of liquidity at December 31, 2014 was working capital of $130.1 million compared to $123.3 million at December 31,
2013. We also had available borrowing capacity under our loan agreement in the amount of $42.4 million at December 31, 2014 and
$50.7 million at December 31, 2013.
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 stock repurchase program, 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.
Our primary capital needs are for working capital obligations, capital expenditures, dividend payments, our stock repurchase program and
other general corporate purposes, including acquisitions. Our primary sources of working capital are cash from operations supplemented by
bank borrowings.
Loan and Security Agreement
Liquidity is defined as the ability to generate adequate amounts of cash to meet the current need for cash. We assess our liquidity in terms
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, 2011, we entered into a Third Amended and Restated Loan and Security Agreement (the “2011 Loan Agreement”) with
of our ability to generate cash to fund our operating activities. Significant factors which could affect liquidity include the following:
the adequacy of available bank lines of credit;
cash flows generated from operating activities;
capital expenditures;
additional stock repurchases;
payment of dividends;
acquisitions; and
the ability to attract long-term capital with satisfactory terms
Comparison of Years Ended December 31, 2014 and 2013
Our net cash provided by operating activities was $11.3 million in 2014 compared to $20.7 million in 2013. Our net income increased by
$7.1 million or 89.5% to $15.0 million in 2014 from $7.9 million in 2013.
Changes in our operating assets and liabilities resulted in cash used in operating activities of $7.5 million in 2014. Trade accounts payable
decreased $5.6 million primarily due to lower inventory. Accrued and other current liabilities decreased $5.6 million primarily due to lower
accrued wire purchases. Partially offsetting these uses of cash was the decrease in inventory totaling $6.1 million.
Net cash used in investing activities was $2.2 million in 2014 compared to $3.4 million in 2013. The decrease was primarily attributable to
the purchase of a building in December 2013. The building is currently undergoing renovation, which is expected to be substantially complete in
the second quarter of 2015, and will be used to consolidate four existing Southwest Wire Rope locations.
Net cash used in financing activities was $9.1 million in 2014 compared to $17.6 million in 2013. The payment of dividends of $8.3 million
and the purchase of treasury stock of $6.9 million partially offset by net borrowings on the revolver of $5.9 million were the main components of
financing activities in 2014.
Comparison of Years Ended December 31, 2013 and 2012
Our net cash provided by operating activities was $20.7 million in 2013 compared to net cash used in operating activities of $3.0 million in
2012. Although our net income decreased by $9.1 million or 53.6% to $7.9 million in 2013 from $17.0 million in 2012, this was primarily due to
the $7.6 million goodwill impairment charge, which was a non-cash item.
Changes in our operating assets and liabilities resulted in cash provided by operating activities of $2.3 million in 2013. Accounts receivable
were lower by $5.5 million due to decreased sales in the fourth quarter. Book overdraft, which is funded by our revolving credit facility as soon
as the related vendor checks clear our disbursement account, increased $4.6 million. Accrued and other current liabilities increased $3.3 million
due primarily to higher accrued purchases and volume rebates to our customers. Trade accounts payable increased $1.3 million due to higher
inventory purchases.
Partially offsetting these sources of cash was the $12.0 million increase in inventory. The increase in inventory resulted from the Company
taking advantage of lower pricing and increased rebates from manufacturers in the fourth quarter, geographic expansion, the addition of new
product lines and expanding certain other product lines.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, other than operating leases.
Net cash used in investing activities was $3.4 million in 2013 compared to $1.0 million in 2012. The increase was primarily attributable to
the purchase of a new building in December 2013 which will be used to consolidate four existing Southwest Wire Rope locations.
Financial Derivatives
Net cash used in financing activities was $17.6 million in 2013 compared to net cash provided by financing activities of $4.3 million in
2012. Net payments on the revolver of $10.6 million and the payment of dividends of $7.5 million were the main components of financing
activities in 2013.
We have no financial derivatives.
20
21
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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 of 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. On November 3, 2014, we entered into a Second Amendment to the 2011 Loan Agreement, which
added an availability-based covenant as an alternative to the existing fixed charge coverage ratio. As of December 31, 2014, we met the
availability-based covenant.
Contractual Obligations
The following table describes our cash commitments to settle contractual obligations as of December 31, 2014.
Capital Expenditures
We made capital expenditures of $2.2 million, $3.4 million and $1.0 million in the years ended December 31, 2014, 2013 and 2012,
respectively. The increase in 2013 was primarily due to the $2.5 million purchase of a facility which will be used to consolidate the Southwest
Wire Rope operations in Houston. The 2014 expenditures primarily relate to the renovation and build out of the facility acquired in 2013.
Liquidity is defined as the ability to generate adequate amounts of cash to meet the current need for cash. We assess our liquidity in terms
of our ability to generate cash to fund our operating activities. Significant factors which could affect liquidity include the following:
Liquidity and Capital Resources
bank borrowings.
the adequacy of available bank lines of credit;
cash flows generated from operating activities;
capital expenditures;
additional stock repurchases;
payment of dividends;
acquisitions; and
the ability to attract long-term capital with satisfactory terms
Comparison of Years Ended December 31, 2014 and 2013
Our net cash provided by operating activities was $11.3 million in 2014 compared to $20.7 million in 2013. Our net income increased by
$7.1 million or 89.5% to $15.0 million in 2014 from $7.9 million in 2013.
Changes in our operating assets and liabilities resulted in cash used in operating activities of $7.5 million in 2014. Trade accounts payable
decreased $5.6 million primarily due to lower inventory. Accrued and other current liabilities decreased $5.6 million primarily due to lower
accrued wire purchases. Partially offsetting these uses of cash was the decrease in inventory totaling $6.1 million.
Net cash used in investing activities was $2.2 million in 2014 compared to $3.4 million in 2013. The decrease was primarily attributable to
the purchase of a building in December 2013. The building is currently undergoing renovation, which is expected to be substantially complete in
the second quarter of 2015, and will be used to consolidate four existing Southwest Wire Rope locations.
Net cash used in financing activities was $9.1 million in 2014 compared to $17.6 million in 2013. The payment of dividends of $8.3 million
and the purchase of treasury stock of $6.9 million partially offset by net borrowings on the revolver of $5.9 million were the main components of
financing activities in 2014.
Comparison of Years Ended December 31, 2013 and 2012
Our net cash provided by operating activities was $20.7 million in 2013 compared to net cash used in operating activities of $3.0 million in
2012. Although our net income decreased by $9.1 million or 53.6% to $7.9 million in 2013 from $17.0 million in 2012, this was primarily due to
the $7.6 million goodwill impairment charge, which was a non-cash item.
Changes in our operating assets and liabilities resulted in cash provided by operating activities of $2.3 million in 2013. Accounts receivable
were lower by $5.5 million due to decreased sales in the fourth quarter. Book overdraft, which is funded by our revolving credit facility as soon
as the related vendor checks clear our disbursement account, increased $4.6 million. Accrued and other current liabilities increased $3.3 million
due primarily to higher accrued purchases and volume rebates to our customers. Trade accounts payable increased $1.3 million due to higher
inventory purchases.
Impact of Inflation and Commodity Prices
Our results of operations are affected by changes in the inflation rate and commodity prices. Moreover, because copper, steel, aluminum
and petrochemical products are components of the wire and cable and related hardware we sell, fluctuations in the costs of these and other
commodities have historically affected our operating results. We estimate decreasing metal prices negatively impacted sales by approximately
3% in 2014. To the extent commodity prices decline, the net realizable value of our existing inventory could also decline, and our gross profit
can be adversely affected because of either reduced selling prices or lower of cost or market adjustments in the carrying value of our inventory.
If we turn our inventory approximately four times a year, the impact of changes in commodity prices in any particular quarter would primarily
affect the results of the succeeding calendar quarter. If we are unable to pass on to our customers future cost increases due to inflation or rising
commodity prices, our operating results could be adversely affected.
Indebtedness
Our principal source of liquidity at December 31, 2014 was working capital of $130.1 million compared to $123.3 million at December 31,
2013. We also had available borrowing capacity under our loan agreement in the amount of $42.4 million at December 31, 2014 and
$50.7 million at December 31, 2013.
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 stock repurchase program, 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.
Our primary capital needs are for working capital obligations, capital expenditures, dividend payments, our stock repurchase program and
other general corporate purposes, including acquisitions. Our primary sources of working capital are cash from operations supplemented by
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 of 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. On November 3, 2014, we entered into a Second Amendment to the 2011 Loan Agreement, which
added an availability-based covenant as an alternative to the existing fixed charge coverage ratio. As of December 31, 2014, we met the
availability-based covenant.
Contractual Obligations
The following table describes our cash commitments to settle contractual obligations as of December 31, 2014.
Total
Less than
1 year
1-3 years
(In thousands)
3-5 years
More than
5 years
Loans payable
Operating lease obligations
Non-cancellable purchase obligations (1)
Total
$
$
53,847 $
7,760
38,742
100,349 $
— $
2,545
38,742
41,287 $
53,847 $
3,643
—
57,490 $
— $
1,487
—
1,487 $
—
85
—
85
(1) These obligations reflect purchase orders outstanding with manufacturers as of December 31, 2014. 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 $2.2 million, $3.4 million and $1.0 million in the years ended December 31, 2014, 2013 and 2012,
respectively. The increase in 2013 was primarily due to the $2.5 million purchase of a facility which will be used to consolidate the Southwest
Wire Rope operations in Houston. The 2014 expenditures primarily relate to the renovation and build out of the facility acquired in 2013.
Partially offsetting these sources of cash was the $12.0 million increase in inventory. The increase in inventory resulted from the Company
taking advantage of lower pricing and increased rebates from manufacturers in the fourth quarter, geographic expansion, the addition of new
Off-Balance Sheet Arrangements
product lines and expanding certain other product lines.
We have no off-balance sheet arrangements, other than operating leases.
Net cash used in investing activities was $3.4 million in 2013 compared to $1.0 million in 2012. The increase was primarily attributable to
the purchase of a new building in December 2013 which will be used to consolidate four existing Southwest Wire Rope locations.
Financial Derivatives
Net cash used in financing activities was $17.6 million in 2013 compared to net cash provided by financing activities of $4.3 million in
2012. Net payments on the revolver of $10.6 million and the payment of dividends of $7.5 million were the main components of financing
activities in 2013.
We have no financial derivatives.
20
21
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Houston Wire & Cable Company
Index to consolidated financial statements
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, 2014, the weighted average interest rate on our $53.8 million of variable interest debt was
approximately 1.9%.
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, 2014 borrowing levels, a 1.0% change
in the applicable interest rates would have a $0.5 million effect on our annual interest expense.
Commodity Risk
We are subject to periodic fluctuations in copper prices, as our products have varying levels of copper content in their construction. In
addition, varying steel, 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.
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.
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”.
20152510_10_K.indd 24
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22
23
We are exposed to market risks arising from changes in market prices, including movements in interest rates and commodity prices.
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, 2014 and 2013
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Page
24
25
26
27
28
29
Market Risk Management
Interest Rate Risk
approximately 1.9%.
Commodity Risk
Foreign Currency Exchange Rate Risk
Climate Risk
Factors Affecting Future Results
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, 2014, the weighted average interest rate on our $53.8 million of variable interest debt was
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, 2014 borrowing levels, a 1.0% change
in the applicable interest rates would have a $0.5 million effect on our annual interest expense.
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.
Our products are purchased and invoiced in U.S. dollars. Accordingly, we do not believe we are exposed to foreign exchange rate 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.
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
23
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Houston Wire & Cable Company
Consolidated Balance Sheets
Report of Independent Registered Public Accounting Firm
The 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,
2014 and 2013, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Houston Wire & Cable Company at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2014, 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, 2014, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our
report dated March 12, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
March 12, 2015
The accompanying notes are an integral part of these consolidated financial statements.
20152510_10_K.indd 26
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24
25
Report of Independent Registered Public Accounting Firm
The 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,
2014 and 2013, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Houston Wire & Cable Company at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2014, 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, 2014, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our
report dated March 12, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
March 12, 2015
Houston Wire & Cable Company
Consolidated Balance Sheets
$
$
$
December 31,
2014
2013
(In thousands, except
share data)
61,599 $
88,958
3,188
219
565
154,529
8,954
8,501
17,520
309
189,813 $
3,113 $
7,993
13,282
24,388
53,847
96
175
78,506
60,408
96,107
2,591
420
762
160,288
7,974
10,234
17,520
159
196,175
4,594
13,637
18,772
37,003
47,952
97
429
85,481
Assets
Current assets:
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
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: 17,508,015 and 17,954,032 shares outstanding at
December 31, 2014 and 2013, respectively
Additional paid-in capital
Retained earnings
Treasury stock
Total stockholders’ equity
—
—
21
54,871
111,233
(54,818 )
111,307
21
55,642
104,607
(49,576 )
110,694
Total liabilities and stockholders’ equity
$
189,813 $
196,175
The accompanying notes are an integral part of these consolidated financial statements.
24
25
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Houston Wire & Cable Company
Consolidated Statements of Income
Houston Wire & Cable Company
Consolidated Statements of Stockholders' Equity
Sales
Cost of sales
Gross profit
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment of goodwill
Total operating expenses
Operating income
Interest expense
Income before income taxes
Income tax provision
Net income
Earnings per share:
Basic
Diluted
2014
Year Ended December 31,
2013
2012
(In thousands, except share and per share data)
$
390,011 $
304,073
85,938
383,292 $
298,633
84,659
393,036
306,017
87,019
31,196
26,400
2,919
—
60,515
25,423
1,168
24,255
9,283
14,972 $
30,946
26,068
2,978
7,562
67,554
17,105
992
16,113
8,211
7,902 $
0.85 $
0.85 $
0.44 $
0.44 $
30,013
25,139
2,941
—
58,093
28,926
1,252
27,674
10,635
17,039
0.96
0.96
$
$
$
Weighted average common shares outstanding:
Basic
Diluted
17,605,290
17,683,931
17,805,464
17,900,372
17,723,277
17,815,401
Dividends declared per share
$
0.47 $
0.42 $
0.36
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
20152510_10_K.indd 28
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26
27
Houston Wire & Cable Company
Consolidated Statements of Income
Houston Wire & Cable Company
Consolidated Statements of Stockholders' Equity
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury Stock
Shares
Amount
Total
Stockholders'
Equity
20,988,952 $
—
—
—
20,988,952
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance at December 31, 2011
Net income
Exercise of stock options, net
Excess tax benefit (deficiency)
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 on common stock
Balance at December 31, 2012
Net income
Exercise of stock options, net
Excess tax benefit (deficiency)
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 on common stock
Net income
Exercise of stock options, net
Repurchase of treasury shares
Excess tax benefit (deficiency)
Amortization of unearned stock
compensation
Impact of forfeited vested options
Impact of forfeited restricted stock
awards
Impact of released vested restricted
stock units
Issuance of restricted stock awards
Dividends on common stock
Balance at December 31, 2014
Balance at December 31, 2013
20,988,952
(In thousands, except share data)
55,760 $ 93,588
17,039
—
—
—
(395 )
22
1,040
(6 )
82
(1,212 )
—
—
—
—
(3,177,146 ) $
—
27,977
—
—
—
(52,031 ) $
—
532
—
—
—
(5,000
)
74,203
)
(82
1,212
97,338
17,039
137
22
1,040
(6)
—
—
—
—
—
(6,375)
)
(9,487
—
)
(115
—
)
(115
(6,375 )
55,291
—
(526 )
39
104,252
7,902
—
—
(3,089,453 )
—
62,312
—
(50,484 )
—
1,018
—
109,080
7,902
492
39
900
(108 )
232
(186 )
—
—
—
—
—
—
—
—
(14,165
)
11,338
)
(232
186
900
(108 )
—
—
—
—
—
(7,547 )
(4,952
)
—
)
(64
—
(64
)
(7,547 )
55,642
—
(116 )
—
(10 )
104,607
14,972
—
—
(3,034,920
)
—
18,500
(555,008 )
)
(49,576
—
297
(6,980 )
—
—
—
—
—
—
—
(11,666
)
(186
)
868
(72 )
186
(172
)
(1,455 )
—
110,694
14,972
181
(6,980 )
(10 )
868
(72 )
—
—
—
(8,346 )
111,307
21 $
—
—
—
—
—
—
—
—
—
21
—
—
—
—
—
—
—
—
—
21
—
—
—
—
—
—
—
—
—
—
21 $
—
—
—
20,988,952 $
10,709
91,448
—
(8,346 )
172
1,455
—
(54,818 ) $
54,871 $ 111,233
(3,480,937 ) $
The accompanying notes are an integral part of these consolidated financial statements.
26
27
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The accompanying notes are an integral part of these consolidated financial statements.
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
twenty-two locations in fourteen states throughout the United States. On June 25, 2010, the Company purchased Southwest Wire Rope LP, its
general partner Southwest Wire Rope GP LLC and its wholly owned subsidiary, Southern Wire and on January 1, 2011, merged them into the
Company’s operating subsidiary. 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.
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. The most significant estimates are those relating to the allowance for
doubtful accounts, the reserve for returns and allowances, the inventory obsolescence reserve, vendor rebates, and asset impairments. Actual
results could differ materially from the estimates and assumptions used for the preparation of the financial statements.
Use of Estimates
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 unvested restricted stock awards and units.
The following reconciles the denominator used in the calculation of diluted earnings per share:
Options to purchase 476,473, 478,458 and 525,846 shares of common stock were not included in the diluted net income per share
calculation for 2014, 2013 and 2012, respectively, as their inclusion would have been anti-dilutive.
Houston Wire & Cable Company
Consolidated Statements of Cash Flows
Houston Wire & Cable Company
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
Operating activities
Net income
$
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
2014
Year Ended December 31,
2013
(In thousands)
2012
14,972 $
7,902 $
17,039
Description of Business
Impairment of goodwill
Depreciation and amortization
Amortization of unearned stock compensation
Provision for inventory obsolescence
Deferred income taxes
Other non-cash items
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Book overdraft
Trade accounts payable
Accrued and other current liabilities
Income taxes
Other operating activities
Net cash provided by (used in) operating activities
Investing activities
Expenditures for property and equipment
Proceeds from disposals of property and equipment
Net cash used in investing activities
Financing activities
Borrowings on revolver
Payments on revolver
Proceeds from exercise of stock options
Payment of dividends
Excess tax benefit for options
Purchase of treasury stock
Net cash (used in) provided by 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
$
$
$
—
2,919
868
1,002
(923 )
(43 )
(1,144 )
6,147
(1,481 )
(5,644 )
(5,616 )
184
28
11,269
(2,177 )
25
(2,152 )
405,884
(399,989 )
181
(8,293 )
7
(6,907 )
(9,117 )
—
—
7,562
2,978
900
559
(1,485 )
(15 )
5,516
(12,004 )
4,594
1,307
3,312
(435 )
54
20,745
(3,396 )
2
(3,394 )
396,724
(407,360 )
492
(7,466 )
49
(64 )
(17,625 )
(274 )
274
— $
— $
—
2,941
1,040
815
(773 )
(69 )
(6,081 )
(15,960 )
(2,270 )
2,231
(3,722 )
1,685
91
(3,033 )
(1,005 )
9
(996 )
402,231
(391,610 )
137
(6,375 )
35
(115 )
4,303
274
—
274
1,160 $
998 $
10,029 $
10,236 $
1,231
9,762
Accounts Receivable
Accounts receivable consists primarily of receivables from customers, less an allowance for doubtful accounts of $139 and $148, and a
reserve for returns and allowances of $422 and $518 at December 31, 2014 and 2013, 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
The accompanying notes are an integral part of these consolidated financial statements.
customers. Credit losses have been within management’s expectations.
The following table summarizes the changes in the allowance for doubtful accounts for the past three years:
28
29
Inventories
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
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Houston Wire & Cable Company
Consolidated Statements of Cash Flows
The accompanying notes are an integral part of these consolidated financial statements.
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
twenty-two locations in fourteen states throughout the United States. On June 25, 2010, the Company purchased Southwest Wire Rope LP, its
general partner Southwest Wire Rope GP LLC and its wholly owned subsidiary, Southern Wire and on January 1, 2011, merged them into the
Company’s operating subsidiary. 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 reserve for returns and allowances, the inventory obsolescence reserve, 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 unvested restricted stock awards and units.
The following reconciles the denominator used in the calculation of diluted earnings per share:
Denominator:
Weighted average common shares for basic earnings per share
Effect of dilutive securities
Denominator for diluted earnings per share
2014
Year Ended December 31,
2013
2012
17,605,290
78,641
17,683,931
17,805,464
94,908
17,900,372
17,723,277
92,124
17,815,401
Options to purchase 476,473, 478,458 and 525,846 shares of common stock were not included in the diluted net income per share
calculation for 2014, 2013 and 2012, respectively, as their inclusion would have been anti-dilutive.
Accounts Receivable
Accounts receivable consists primarily of receivables from customers, less an allowance for doubtful accounts of $139 and $148, and a
reserve for returns and allowances of $422 and $518 at December 31, 2014 and 2013, 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.
The following table summarizes the changes in the allowance for doubtful accounts for the past three years:
Balance at beginning of year
Bad debt expense
Write-offs, net of recoveries
Balance at end of year
Inventories
2014
2013
2012
$
$
148 $
50
(59 )
139 $
213 $
(59 )
(6 )
148 $
211
(19 )
21
213
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
28
29
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inventory may periodically require adjustment as the factors identified above change. The inventory reserve was $4,478 and $3,934 at
December 31, 2014 and 2013, respectively.
Vendor Rebates
Segment Reporting
market.
The Company operates in a single operating and reporting segment, sales of wire and cable, hardware and related services to the U.S.
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
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
The Company provides for depreciation on a straight-line method over the following estimated useful lives:
4. Collectability is reasonably assured.
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 $1,186, $1,245, and $1,208 for the years ended December 31, 2014, 2013 and 2012,
respectively.
Goodwill
Goodwill represents the excess of the amount paid to acquire businesses over the estimated fair value of tangible assets and identifiable
intangible assets acquired, less liabilities assumed. Determining the fair value of assets acquired and liabilities assumed requires management’s
judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount
rates and asset lives among other items. At December 31, 2014, the goodwill balance was $17.5 million, representing 9.2% of the Company’s
total assets.
The Company reviews goodwill for impairment annually, or more frequently if indications of possible impairment exist, using a three-step
process. The first step is a qualitative evaluation as to whether it is more likely than not that the fair value of any of the reporting units is less than
its carrying value using an assessment of relevant events and circumstances. Examples of such events and circumstances include financial
performance, industry and market conditions, macroeconomic conditions, reporting unit-specific events, historical results of goodwill
impairment testing and the timing of the last performance of a quantitative assessment. If the Company concludes that the goodwill associated
with any reporting unit is more likely than not impaired, a second step is performed for that reporting unit. This second step, used to
quantitatively screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. The
third step, employed for any reporting unit that fails the second step, is used to measure the amount of any potential impairment and compares
the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill.
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.
Recent Accounting Pronouncements
Estimated future amortization expense for capitalized loan costs through the maturity of the loan agreement are $18 in 2015 and $14 in
606), which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue
2016.
Intangibles
Intangible assets, from the acquisition of Southwest Wire Rope and Southern Wire in 2010, consist of customer relationships, trade names,
contract. The amendments in the ASU must be applied using one of two retrospective methods and are effective for annual and interim periods
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
implementation method the Company will use.
Stock-Based Compensation
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.
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.
20152510_10_K.indd 32
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30
31
Shipping and Handling
Credit Risk
collateral.
Advertising Costs
2013, and 2012, respectively.
Financial Instruments
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.
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 and are included as a component of cost of sales.
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 2014, 2013 or 2012. The Company performs periodic credit evaluations of its customers and generally does not require
Advertising costs are expensed when incurred. Advertising expenses were $284, $333, and $314 for the years ended December 31, 2014,
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.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic
Recognition,” and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from
customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a
beginning after December 15, 2016. Early adoption is not permitted. As the Company recognizes revenue only once product has shipped, it does
not believe that this ASU will have a significant impact on its revenue recognition policy. However, the Company is still evaluating the impact
of this ASU on its financial position and results of operations before it makes a final determination whether this ASU applies and if so, which
inventory may periodically require adjustment as the factors identified above change. The inventory reserve was $4,478 and $3,934 at
Segment Reporting
December 31, 2014 and 2013, respectively.
Vendor Rebates
The Company operates in a single operating and reporting segment, sales of wire and cable, hardware and related services to the U.S.
market.
Under many of the Company’s arrangements with its vendors, the Company receives a rebate of a specified amount of consideration,
Revenue Recognition, Returns & Allowances
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
The Company recognizes revenue when the following four basic criteria have been met:
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
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
The Company provides for depreciation on a straight-line method over the following estimated useful lives:
4. Collectability is reasonably assured.
Leasehold improvements are depreciated over their estimated life or the term of the lease, whichever is shorter.
Total depreciation expense was approximately $1,186, $1,245, and $1,208 for the years ended December 31, 2014, 2013 and 2012,
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
Goodwill represents the excess of the amount paid to acquire businesses over the estimated fair value of tangible assets and identifiable
The Company incurs shipping and handling costs in the normal course of business. Freight amounts invoiced to customers are included as
intangible assets acquired, less liabilities assumed. Determining the fair value of assets acquired and liabilities assumed requires management’s
sales and freight charges and are included as a component of cost of sales.
judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount
rates and asset lives among other items. At December 31, 2014, the goodwill balance was $17.5 million, representing 9.2% of the Company’s
Credit Risk
The Company reviews goodwill for impairment annually, or more frequently if indications of possible impairment exist, using a three-step
process. The first step is a qualitative evaluation as to whether it is more likely than not that the fair value of any of the reporting units is less than
its carrying value using an assessment of relevant events and circumstances. Examples of such events and circumstances include financial
performance, industry and market conditions, macroeconomic conditions, reporting unit-specific events, historical results of goodwill
impairment testing and the timing of the last performance of a quantitative assessment. If the Company concludes that the goodwill associated
with any reporting unit is more likely than not impaired, a second step is performed for that reporting unit. This second step, used to
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 2014, 2013 or 2012. 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 $284, $333, and $314 for the years ended December 31, 2014,
quantitatively screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. The
2013, and 2012, respectively.
third step, employed for any reporting unit that fails the second step, is used to measure the amount of any potential impairment and compares
the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill.
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.
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.
Recent Accounting Pronouncements
Estimated future amortization expense for capitalized loan costs through the maturity of the loan agreement are $18 in 2015 and $14 in
Intangible assets, from the acquisition of Southwest Wire Rope and Southern Wire in 2010, 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.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic
606), which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue
Recognition,” and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from
customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a
contract. The amendments in the ASU must be applied using one of two retrospective methods and are effective for annual and interim periods
beginning after December 15, 2016. Early adoption is not permitted. As the Company recognizes revenue only once product has shipped, it does
not believe that this ASU will have a significant impact on its revenue recognition policy. However, the Company is still evaluating the impact
of this ASU on its financial position and results of operations before it makes a final determination whether this ASU applies and if so, which
implementation method the Company will use.
Stock-Based Compensation
The Company retains certain self-insurance risks for both health benefits and property and casualty insurance programs. The Company
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
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
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.
30
31
respectively.
Goodwill
total assets.
Other Assets
2016.
Intangibles
Self Insurance
claims administrators.
20152510_10_K.indd 33
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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.
Accrued and Other Current Liabilities
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
Less accumulated amortization:
Trade names
Customer relationships
Total
At December 31,
2014
2013
2,476 $
5,759
11,220
19,455
10,501
8,954 $
2,476
4,717
10,354
17,547
9,573
7,974
$
$
At December 31,
2014
2013
$
4,610 $
11,630
16,240
—
7,739
7,739
8,501 $
$
4,610
11,630
16,240
—
6,006
6,006
10,234
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, 2014, accumulated amortization on the acquired intangible
assets was $7,739 and amortization expense was $1,733 for each of the years ended December 31, 2014, 2013 and 2012. Future amortization
expense to be recognized on the acquired intangible assets is expected to be as follows:
2015
2016
2017
Goodwill
Goodwill
Accumulated impairment losses
Net balance
Annual
Amortization
Expense
$
1,733
1,512
646
At December 31,
2014
2013
$
$
25,082 $
(7,562 )
17,520 $
25,082
(7,562 )
17,520
An impairment test was performed during the third quarter of 2014 and no impairments were identified.
During the third quarter of 2013 and prior to the annual impairment test of goodwill in October, the Company concluded that impairment
indicators existed at the SW reporting unit, due to a decline in the overall financial performance and overall market demand.
The Company performed step two of the impairment test and concluded that the fair value of the Southern Wire reporting unit was less than
its carrying value; therefore, the Company performed step three of the impairment analysis.
Step three of the impairment analysis measures the impairment charge by allocating the reporting unit’s fair value to all of the assets and
liabilities of the reporting unit in a hypothetical analysis that calculates implied fair value of goodwill in the same manner as if the reporting unit
was being acquired in a business combination and recording the deferred tax impact. Any excess of the carrying value of the reporting unit’s
goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss.
The fair value of the Southern Wire reporting unit was estimated using a discounted cash flow model combined with a market approach,
with a weighting of 50% to the discounted cash flow analysis and 50% to the market approach. The material assumptions used for the income
approach included a weighted average cost of capital of 13% and a long-term growth rate of 3-4%. The carrying value of the Southern Wire
reporting unit’s goodwill was $ 20.1 million and its implied fair value resulting from step two of the impairment test was less than the carrying
value. As a result, the Company recorded a non-cash goodwill impairment charge of $7.6 million during the year ended December 31, 2013.
The Company is still anticipating significant growth in the businesses it acquired in 2010, but if this growth is not achieved, further
goodwill impairments may result.
On September 30, 2011, HWC Wire & Cable Company, as borrower, entered into the Third Amended and Restated Loan and Security
Agreement (“2011 Loan Agreement”), with certain lenders and Bank of America, N.A., as agent, and the Company, as guarantor, executed a
Second Amended and Restated Guaranty of the borrower’s obligations thereunder. The 2011 Loan Agreement provides for a $100 million
revolving credit facility, bears interest at the agent’s base rate, with a London Interbank Offered Rate (“LIBOR”) rate option and expires on
September 30, 2016. The 2011 Loan Agreement is secured by a lien on substantially all the property of the Company, other than real estate.
Availability under the 2011 Loan Agreement is limited to a borrowing base equal to 85% of the value of eligible accounts receivable, plus 65%
of the value of eligible inventory, less certain reserves.
Portions of the loan may be converted to LIBOR loans in minimum amounts of $1,000 and integral multiples of $100. LIBOR loans bear
interest at the British Bankers Association LIBOR Rate plus 125 to 200 basis points based on availability, and loans not converted to LIBOR
loans bear interest at a fluctuating rate equal to the greatest of the agent’s prime rate, the federal funds rate plus 50 basis points, or 30-day LIBOR
plus 150 basis points. Unused commitment fees are 25 or 30 basis points, depending on the amount of the unused commitment.
The 2011 Loan Agreement includes, among other things, covenants that require the Company to maintain a specified minimum fixed
charge coverage ratio and availability levels. Additionally, the 2011 Loan Agreement allows for the unlimited payment of dividends and
repurchases of stock, subject to the absence of events of default and maintenance of a fixed charge coverage ratio and minimum level of
availability. The 2011 Loan Agreement contains certain provisions that may cause the debt to be classified as a current liability, in accordance
with GAAP, if availability falls below certain thresholds, even though the ultimate maturity date under the loan agreement remains as September
30, 2016. Availability has remained above these thresholds. On November 3, 2014, the Company entered into a Second Amendment to the 2011
Loan Agreement, which added an availability-based covenant as an alternative to the existing fixed charge coverage ratio. At December 31,
2014, the Company was in compliance with the availability-based covenants governing its indebtedness.
The Company’s borrowings at December 31, 2014 and 2013 were $53,847 and $47,952, respectively. The weighted average interest rates
on outstanding borrowings were 1.9% and 2.0% at December 31, 2014 and 2013, respectively.
During 2014, the Company had an average available borrowing capacity of approximately $45,380. This average was computed from the
monthly borrowing base certificates prepared for the lender. At December 31, 2014, the Company had available borrowing capacity of $42,398
20152510_10_K.indd 34
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32
33
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.
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
Income Taxes
when the differences are expected to reverse.
Detail of Selected Balance Sheet Accounts
Property and Equipment
Property and equipment are stated at cost and consist of:
Intangibles assets
Intangibles assets consist of:
Goodwill
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, 2014, accumulated amortization on the acquired intangible
assets was $7,739 and amortization expense was $1,733 for each of the years ended December 31, 2014, 2013 and 2012. Future amortization
expense to be recognized on the acquired intangible assets is expected to be as follows:
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.
Impairment of Goodwill
At December 31,
2014
2013
$
$
62 $
5,145
2,349
2,778
2,948
13,282 $
522
4,952
2,226
8,161
2,911
18,772
An impairment test was performed during the third quarter of 2014 and no impairments were identified.
During the third quarter of 2013 and prior to the annual impairment test of goodwill in October, the Company concluded that impairment
indicators existed at the SW reporting unit, due to a decline in the overall financial performance and overall market demand.
The Company performed step two of the impairment test and concluded that the fair value of the Southern Wire reporting unit was less than
its carrying value; therefore, the Company performed step three of the impairment analysis.
Step three of the impairment analysis measures the impairment charge by allocating the reporting unit’s fair value to all of the assets and
liabilities of the reporting unit in a hypothetical analysis that calculates implied fair value of goodwill in the same manner as if the reporting unit
was being acquired in a business combination and recording the deferred tax impact. Any excess of the carrying value of the reporting unit’s
goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss.
The fair value of the Southern Wire reporting unit was estimated using a discounted cash flow model combined with a market approach,
with a weighting of 50% to the discounted cash flow analysis and 50% to the market approach. The material assumptions used for the income
approach included a weighted average cost of capital of 13% and a long-term growth rate of 3-4%. The carrying value of the Southern Wire
reporting unit’s goodwill was $ 20.1 million and its implied fair value resulting from step two of the impairment test was less than the carrying
value. As a result, the Company recorded a non-cash goodwill impairment charge of $7.6 million during the year ended December 31, 2013.
The Company is still anticipating significant growth in the businesses it acquired in 2010, but if this growth is not achieved, further
goodwill impairments may result.
4. Debt
On September 30, 2011, HWC Wire & Cable Company, as borrower, entered into the Third Amended and Restated Loan and Security
Agreement (“2011 Loan Agreement”), with certain lenders and Bank of America, N.A., as agent, and the Company, as guarantor, executed a
Second Amended and Restated Guaranty of the borrower’s obligations thereunder. The 2011 Loan Agreement provides for a $100 million
revolving credit facility, bears interest at the agent’s base rate, with a London Interbank Offered Rate (“LIBOR”) rate option and expires on
September 30, 2016. The 2011 Loan Agreement is secured by a lien on substantially all the property of the Company, other than real estate.
Availability under the 2011 Loan Agreement is limited to a borrowing base equal to 85% of the value of eligible accounts receivable, plus 65%
of the value of eligible inventory, less certain reserves.
Portions of the loan may be converted to LIBOR loans in minimum amounts of $1,000 and integral multiples of $100. LIBOR loans bear
interest at the British Bankers Association LIBOR Rate plus 125 to 200 basis points based on availability, and loans not converted to LIBOR
loans bear interest at a fluctuating rate equal to the greatest of the agent’s prime rate, the federal funds rate plus 50 basis points, or 30-day LIBOR
plus 150 basis points. Unused commitment fees are 25 or 30 basis points, depending on the amount of the unused commitment.
The 2011 Loan Agreement includes, among other things, covenants that require the Company to maintain a specified minimum fixed
charge coverage ratio and availability levels. Additionally, the 2011 Loan Agreement allows for the unlimited payment of dividends and
repurchases of stock, subject to the absence of events of default and maintenance of a fixed charge coverage ratio and minimum level of
availability. The 2011 Loan Agreement contains certain provisions that may cause the debt to be classified as a current liability, in accordance
with GAAP, if availability falls below certain thresholds, even though the ultimate maturity date under the loan agreement remains as September
30, 2016. Availability has remained above these thresholds. On November 3, 2014, the Company entered into a Second Amendment to the 2011
Loan Agreement, which added an availability-based covenant as an alternative to the existing fixed charge coverage ratio. At December 31,
2014, the Company was in compliance with the availability-based covenants governing its indebtedness.
The Company’s borrowings at December 31, 2014 and 2013 were $53,847 and $47,952, respectively. The weighted average interest rates
on outstanding borrowings were 1.9% and 2.0% at December 31, 2014 and 2013, respectively.
During 2014, the Company had an average available borrowing capacity of approximately $45,380. This average was computed from the
monthly borrowing base certificates prepared for the lender. At December 31, 2014, the Company had available borrowing capacity of $42,398
32
33
20152510_10_K.indd 35
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under the terms of the 2011 Loan Agreement. During the years ended December 31, 2014, 2013 and 2012, the Company paid $114, $130, and
$101, respectively, for the unused facility.
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, 2014, 2013 and 2012, the Company made no provisions for interest or penalties related to uncertain tax positions. The tax
years 2010 through 2014 remain open to examination by the major taxing jurisdictions to which the Company is subject.
Principal repayment obligations for succeeding fiscal years are as follows:
2015
2016
2017
2018
2019
Total
5.
Income Taxes
The provision (benefit) for income taxes consists of:
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total
$
$
—
53,847
—
—
—
53,847
2014
Year Ended December 31,
2013
2012
$
9,123 $
1,083
10,206
(794 )
(129 )
(923 )
8,675 $
1,021
9,696
(1,290 )
(195 )
(1,485 )
10,129
1,279
11,408
(703 )
(70 )
(773 )
$
9,283 $
8,211 $
10,635
A reconciliation of the U.S. Federal statutory tax rate to the effective tax rate on income before taxes is as follows:
2014
Year Ended December 31,
2013
2012
On March 7, 2014, the Board of Directors adopted a new stock repurchase program under which the Company is authorized to purchase up
to $25 million of its outstanding shares of common stock from time to time, depending on market conditions, trading activity, business
conditions and other factors. Shares of stock purchased under the program will be held as treasury shares and may be used to satisfy the exercise
of options, issuance of restricted stock, to fund acquisitions or for other uses as authorized by the Board of Directors. During 2014, the Company
made repurchases under the stock repurchase program of 545,564 shares for a total cost of $6,867,628.
Under the terms of the 2006 Stock Plan, the Company acquired 9,444 shares that were surrendered by the holders to pay withholding taxes
in 2014.
$7,466 and $6,375, respectively.
The Company has paid a quarterly cash dividend since August 2007, resulting in aggregate dividends in 2014, 2013 and 2012 of $8,293,
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 now
terminated stockholder rights plan, the Board of Directors designated 100,000 shares as Series A Junior Participating Preferred Stock. No shares
of preferred stock have been issued.
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. Effective January 1, 2014, the Company
adjusted its match and now matches 100% of the first 1 % of the employee’s contribution. Accordingly, the Company is no longer adopting the
Safe Harbor provisions of the Code. Through 2013, the Company adopted the Safe Harbor provisions of the Code, whereby contributions up to
the first 3 % of an employee’s compensation were matched 100% by the Company and the next 2% were matched 50% by the Company. The
Company’s match for the years ended December 31, 2014, 2013 and 2012 was $217, $803, and $735, respectively.
Federal statutory rate
State taxes, net of federal benefit
Non-deductible items
Other
Total effective tax rate
35.0 %
2.7
0.7
(0.1 )
38.3 %
35.0 %
3.9
12.6
(0.6 )
50.9 %
35.0 %
2.8
0.6
—
38.4 %
500,000.
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 options 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 granted to designated participants. The maximum number of shares available to any one participant in any one calendar year is
The non-deductible items in 2013 include the impact of the $5.3 million non-deductible portion of the $7.6 million impairment charge.
Significant components of the Company’s deferred taxes were as follows:
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.
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
Goodwill
Intangibles
Other
Total deferred tax liabilities
Net deferred tax assets
Year Ended
December 31,
2014
2013
Stock Option Awards
$
$
1,219 $
1,724
53
2,053
136
128
5,313
405
1,895
—
2,300
3,013 $
1,009
1,514
57
2,064
102
—
4,746
185
2,303
96
2,584
2,162
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.
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 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. There were no options granted in 2014 or 2013.
20152510_10_K.indd 36
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34
35
under the terms of the 2011 Loan Agreement. During the years ended December 31, 2014, 2013 and 2012, the Company paid $114, $130, and
$101, respectively, for the unused facility.
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, 2014, 2013 and 2012, the Company made no provisions for interest or penalties related to uncertain tax positions. The tax
years 2010 through 2014 remain open to examination by the major taxing jurisdictions to which the Company is subject.
Principal repayment obligations for succeeding fiscal years are as follows:
6. Stockholders’ Equity
Income Taxes
The provision (benefit) for income taxes consists of:
A reconciliation of the U.S. Federal statutory tax rate to the effective tax rate on income before taxes is as follows:
The non-deductible items in 2013 include the impact of the $5.3 million non-deductible portion of the $7.6 million impairment charge.
Significant components of the Company’s deferred taxes were as follows:
On March 7, 2014, the Board of Directors adopted a new stock repurchase program under which the Company is authorized to purchase up
to $25 million of its outstanding shares of common stock from time to time, depending on market conditions, trading activity, business
conditions and other factors. Shares of stock purchased under the program will be held as treasury shares and may be used to satisfy the exercise
of options, issuance of restricted stock, to fund acquisitions or for other uses as authorized by the Board of Directors. During 2014, the Company
made repurchases under the stock repurchase program of 545,564 shares for a total cost of $6,867,628.
Under the terms of the 2006 Stock Plan, the Company acquired 9,444 shares that were surrendered by the holders to pay withholding taxes
in 2014.
The Company has paid a quarterly cash dividend since August 2007, resulting in aggregate dividends in 2014, 2013 and 2012 of $8,293,
$7,466 and $6,375, 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 now
terminated stockholder rights plan, the Board of Directors designated 100,000 shares as Series A Junior Participating Preferred Stock. No shares
of preferred stock have been issued.
7. Employee Benefit Plans
The Company maintains a combination profit-sharing plan and salary deferral plan (the “Plan”) for the benefit of its employees. Employees
who are eligible to participate in the Plan can contribute a percentage of their base compensation, up to the maximum percentage allowable not
to exceed the limits of Internal Revenue Code (“Code”) Sections 401(k), 404, and 415, subject to the IRS-imposed dollar limit. Employee
contributions are invested in certain equity and fixed-income securities, based on employee elections. Effective January 1, 2014, the Company
adjusted its match and now matches 100% of the first 1 % of the employee’s contribution. Accordingly, the Company is no longer adopting the
Safe Harbor provisions of the Code. Through 2013, the Company adopted the Safe Harbor provisions of the Code, whereby contributions up to
the first 3 % of an employee’s compensation were matched 100% by the Company and the next 2% were matched 50% by the Company. The
Company’s match for the years ended December 31, 2014, 2013 and 2012 was $217, $803, and $735, respectively.
8.
Incentive Plans
On March 23, 2006, the Company adopted and on May 1, 2006, the stockholders approved the 2006 Stock Plan (the “2006 Plan”) to provide
incentives for certain key employees and directors through awards 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 options 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 granted 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.
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 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. There were no options granted in 2014 or 2013.
34
35
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Vesting dates range from May 8, 2015 to December 31, 2017, and expiration dates range from December 30, 2015 to May 8, 2022. The
The following summarizes restricted stock activity for the year ended December 31, 2014:
following summarizes stock option activity and related information:
2014
Outstanding—Beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding—End of year
Exercisable—End of year
Weighted average fair value of options granted during 2014
Weighted average fair value of options granted during 2013
Weighted average fair value of options granted during 2012
$
$
$
Weighted
Average
Remaining
Contractual Li
fe
(in years)
Aggregate
Intrinsic
Value
563
243
243
4.17
3.56
Options
(in 000’s)
Weighted
Average
Exercise Price
15.33
—
9.78
15.37
—
15.50
15.88
$
$
$
655 $
—
(19)
(35)
—
602 $
491 $
—
—
5.29
During the years ended December 31, 2014, 2013 and 2012, excess tax benefits of $7, $49 and $35, respectively, were reflected in financing
cash flows.
The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $51, $366 and $258,
respectively.
The total fair value of options vested during the years ended December 31, 2014, 2013 and 2012 was $168, $271 and $404, respectively.
Restricted Stock Awards and Restricted Stock Units
On December 8, 2014, the Company granted 4,112 and 12,336 voting shares of restricted stock to the Company’s President. The grant of
4,112 shares vest 100% on December 8, 2015 and the grant of 12,336 shares vest in one third increments on the first, second and third
anniversaries of the date of grant. 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.
The Company also granted 50,000 voting shares of restricted stock under the 2006 Plan to members of management on December 8, 2014.
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.
On November 4, 2014, the Company awarded restricted stock units with a grant date value of $25, for a total of 1,817 restricted stock units,
to its newly-elected non-employee director. This award of restricted stock units vests at the date of the 2015 Annual Meeting of Stockholders.
The grant entitles the non-employee director to receive a number of shares of the Company's common stock equal to the number of vested
restricted stock units, together with dividend equivalents from the date of grant, at such time as the director’s service on the board terminates for
any reason.
On September 11, 2014 and February 10, 2014, the Company granted 5,000 and 20,000 voting shares, respectively, of restricted stock under
the Company’s 2006 Stock Plan to three members of management. These shares vest in one third increments, on the third, fourth and fifth
anniversaries of the respective 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 6, 2014, the Company awarded restricted stock units with a grant date value of $50
to each non-employee director who was re-elected, for an aggregate of 25,422 restricted stock units. Each award of restricted stock units vests at
the date of the 2015 Annual Meeting of Stockholders. Each non-employee director is entitled to receive a number of shares of the Company's
common stock equal to the number of vested restricted stock units, together with dividend equivalents from the date of grant, at such time as the
director’s service on the board terminates for any reason.
Restricted common shares are measured at fair value on the date of grant based on 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, based on the number of awards
that vest.
Total stock-based compensation cost was $868, $900 and $1,040 for the years ended December 31, 2014, 2013 and 2012, respectively.
Total income tax benefit recognized for stock-based compensation arrangements was $332, $459 and $400 for the years ended December 31,
2014, 2013 and 2012, respectively.
As of December 31, 2014, there was $1,706 of total unrecognized compensation cost related to non-vested, share-based compensation
arrangements. The cost is expected to be recognized over a weighted average period of approximately 38 months. There were 443,608 shares
available for future grants under the 2006 Plan at December 31, 2014.
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 $2,865 in 2014, $2,697 in 2013 and $2,671 in 2012.
Future minimum lease payments under non-cancelable operating leases with initial terms of one year or more consisted of the following at
December 31, 2014:
The Company had aggregate purchase commitments for fixed inventory quantities of approximately $38,742 at December 31, 2014.
As part of the acquisition of Southwest Wire Rope and Southern Wire in 2010, 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 $96 at December 31, 2014 relates to the
cost of the monitoring, which the Company estimates will be incurred over approximately the next 2 years and also the cost to plug the wells.
Remediation work was completed prior to the acquisition in accordance with the requirements of the Louisiana Department of Environmental
Quality.
The Company, along with many other defendants, has been named in a number of lawsuits in the state courts of Illinois, Minnesota, North
Dakota, and South Dakota alleging that certain wire and cable which may have contained asbestos caused injury to the plaintiffs who were
exposed to this wire and cable. These lawsuits are individual personal injury suits that seek unspecified amounts of money damages as the sole
remedy. It is not clear whether the alleged injuries occurred as a result of the wire and cable in question or whether the Company, in fact,
distributed the wire and cable alleged to have caused any injuries. The Company maintains general liability insurance that, to date, has covered
the defense of and all costs associated with these claims. In addition, the Company did not manufacture any of the wire and cable at issue, and the
Company would rely on any warranties from the manufacturers of such cable if it were determined that any of the wire or cable that the
Company distributed contained asbestos which caused injury to any of these plaintiffs. In connection with ALLTEL's sale of the Company in
1997, ALLTEL provided indemnities with respect to costs and damages associated with these claims that the Company believes it could enforce
if its insurance coverage proves inadequate.
There are no legal proceedings pending against or involving the Company that, in management’s opinion, based on the current known facts
and circumstances, are expected to have a material adverse effect on the Company’s consolidated financial position, cash flows, or results from
operations.
20152510_10_K.indd 38
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36
37
Vesting dates range from May 8, 2015 to December 31, 2017, and expiration dates range from December 30, 2015 to May 8, 2022. The
The following summarizes restricted stock activity for the year ended December 31, 2014:
following summarizes stock option activity and related information:
Awards
Units
2014
Weighted
Average
Market
Value at
Grant Date
Shares
(in 000’s)
Shares
(in 000’s)
141
91
(20 )
(11 )
201
$12.33
10.18
12.20
11.29
$11.43
Weighted
Average
Market
Value at
Grant Date
21
27
(21 )
—
27
$14.28
11.93
14.28
—
$11.93
Non-vested —Beginning of year
Granted
Vested
Cancelled/Forfeited
Non-vested —End of year
Total stock-based compensation cost was $868, $900 and $1,040 for the years ended December 31, 2014, 2013 and 2012, respectively.
Total income tax benefit recognized for stock-based compensation arrangements was $332, $459 and $400 for the years ended December 31,
2014, 2013 and 2012, respectively.
As of December 31, 2014, there was $1,706 of total unrecognized compensation cost related to non-vested, share-based compensation
arrangements. The cost is expected to be recognized over a weighted average period of approximately 38 months. There were 443,608 shares
available for future grants under the 2006 Plan at December 31, 2014.
During the years ended December 31, 2014, 2013 and 2012, excess tax benefits of $7, $49 and $35, respectively, were reflected in financing
9. Commitments and Contingencies
The Company has entered into operating leases, primarily for distribution centers and office facilities. These operating leases frequently
include renewal options at the fair rental value at the time of renewal. For leases with step rent provisions, whereby the rental payments increase
incrementally over the life of the lease, the Company recognizes the total minimum lease payments on a straight line basis over the minimum
lease term. Facility rent expense was approximately $2,865 in 2014, $2,697 in 2013 and $2,671 in 2012.
Future minimum lease payments under non-cancelable operating leases with initial terms of one year or more consisted of the following at
December 31, 2014:
2015
2016
2017
2018
2019
Thereafter
Total minimum lease payments
$
$
2,545
2,048
1,595
989
498
85
7,760
The Company had aggregate purchase commitments for fixed inventory quantities of approximately $38,742 at December 31, 2014.
As part of the acquisition of Southwest Wire Rope and Southern Wire in 2010, 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 $96 at December 31, 2014 relates to the
cost of the monitoring, which the Company estimates will be incurred over approximately the next 2 years and also the cost to plug the wells.
Remediation work was completed prior to the acquisition in accordance with the requirements of the Louisiana Department of Environmental
Quality.
The Company, along with many other defendants, has been named in a number of lawsuits in the state courts of Illinois, Minnesota, North
Dakota, and South Dakota alleging that certain wire and cable which may have contained asbestos caused injury to the plaintiffs who were
exposed to this wire and cable. These lawsuits are individual personal injury suits that seek unspecified amounts of money damages as the sole
remedy. It is not clear whether the alleged injuries occurred as a result of the wire and cable in question or whether the Company, in fact,
distributed the wire and cable alleged to have caused any injuries. The Company maintains general liability insurance that, to date, has covered
the defense of and all costs associated with these claims. In addition, the Company did not manufacture any of the wire and cable at issue, and the
Company would rely on any warranties from the manufacturers of such cable if it were determined that any of the wire or cable that the
Company distributed contained asbestos which caused injury to any of these plaintiffs. In connection with ALLTEL's sale of the Company in
1997, ALLTEL provided indemnities with respect to costs and damages associated with these claims that the Company believes it could enforce
if its insurance coverage proves inadequate.
There are no legal proceedings pending against or involving the Company that, in management’s opinion, based on the current known facts
and circumstances, are expected to have a material adverse effect on the Company’s consolidated financial position, cash flows, or results from
operations.
36
37
20152510_10_K.indd 39
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cash flows.
respectively.
The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $51, $366 and $258,
The total fair value of options vested during the years ended December 31, 2014, 2013 and 2012 was $168, $271 and $404, respectively.
Restricted Stock Awards and Restricted Stock Units
On December 8, 2014, the Company granted 4,112 and 12,336 voting shares of restricted stock to the Company’s President. The grant of
4,112 shares vest 100% on December 8, 2015 and the grant of 12,336 shares vest in one third increments on the first, second and third
anniversaries of the date of grant. 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.
The Company also granted 50,000 voting shares of restricted stock under the 2006 Plan to members of management on December 8, 2014.
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.
On November 4, 2014, the Company awarded restricted stock units with a grant date value of $25, for a total of 1,817 restricted stock units,
to its newly-elected non-employee director. This award of restricted stock units vests at the date of the 2015 Annual Meeting of Stockholders.
The grant entitles the non-employee director to receive a number of shares of the Company's common stock equal to the number of vested
restricted stock units, together with dividend equivalents from the date of grant, at such time as the director’s service on the board terminates for
any reason.
On September 11, 2014 and February 10, 2014, the Company granted 5,000 and 20,000 voting shares, respectively, of restricted stock under
the Company’s 2006 Stock Plan to three members of management. These shares vest in one third increments, on the third, fourth and fifth
anniversaries of the respective 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 6, 2014, the Company awarded restricted stock units with a grant date value of $50
to each non-employee director who was re-elected, for an aggregate of 25,422 restricted stock units. Each award of restricted stock units vests at
the date of the 2015 Annual Meeting of Stockholders. Each non-employee director is entitled to receive a number of shares of the Company's
common stock equal to the number of vested restricted stock units, together with dividend equivalents from the date of grant, at such time as the
director’s service on the board terminates for any reason.
Restricted common shares are measured at fair value on the date of grant based on 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, based on the number of awards
that vest.
10. Subsequent Events
On February 9, 2015, the Board of Directors approved a quarterly dividend of $ 0.12 per share payable to shareholders of record on
February 20, 2015. This dividend totaling $2,069 was paid on February 27, 2015.
None.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
11. Select Quarterly Financial Data (unaudited)
The following table presents the Company’s unaudited quarterly results of operations for each of the last eight quarters in the period ended
December 31, 2014. The unaudited information has been prepared on the same basis as the audited consolidated financial statements.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Sales
Gross profit
Operating income
Net income
Earnings per share:
Basic
Diluted
Sales
Gross profit
Operating (loss) income
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Fourth
Quarter
Year Ended December 31, 2014
Second
Quarter
Third
Quarter
First
Quarter
(in thousands, except per share data)
89,530
20,718
6,207
3,668
0.21
0.21
$
$
$
$
$
$
96,721
21,077
5,980
3,528
0.20
0.20
$
$
$
$
$
$
103,461
22,439
6,888
4,031
0.23
0.23
Fourth
Quarter
Year Ended December 31, 2013
Second
Quarter
Third
Quarter
(in thousands, except per share data)
94,442
20,633
5,408
3,149
0.18
0.18
$
$
$
$
$
$
95,214
$
$
20,922
(1,556 ) (1) $
(3,162 ) (1) $
(0.18 ) (1) $
(0.18 ) (1) $
99,332
21,725
6,867
4,053
0.23
0.23
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
100,299
21,704
6,348
3,745
0.21
0.21
First
Quarter
94,304
21,379
6,386
3,862
0.22
0.22
(1) During the third quarter of 2014, the Company recorded a non-cash goodwill impairment charge of $7,562, related to the Southern Wire
reporting unit. See Note 3 for additional information.
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, 2014.
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, 2014. 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 40 and 41 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 quarter ended December 31, 2014 that
has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
20152510_10_K.indd 40
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39
On February 9, 2015, the Board of Directors approved a quarterly dividend of $ 0.12 per share payable to shareholders of record on
February 20, 2015. This dividend totaling $2,069 was paid on February 27, 2015.
None.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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, 2014. The unaudited information has been prepared on the same basis as the audited consolidated financial statements.
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, 2014.
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, 2014. 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 40 and 41 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 quarter ended December 31, 2014 that
has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
During the third quarter of 2014, the Company recorded a non-cash goodwill impairment charge of $7,562, related to the Southern Wire
reporting unit. See Note 3 for additional information.
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Report of Independent Registered Public Accounting Firm
The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2014 based on criteria
established by Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (“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, 2014 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 41.
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
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
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, 2014, 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)
The 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, 2014, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (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
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, 2014, 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 as of December 31, 2014 and 2013, and the related consolidated statements of income, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2014 of Houston Wire & Cable Company and our report dated March 12,
2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
March 12, 2015
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40
41
The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2014 based on criteria
established by Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (“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, 2014 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 41.
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,
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, 2014, based on criteria established in the COSO Framework.
/s/ Nicol G. Graham
Nicol G. Graham
Chief Financial Officer, Treasurer
and Secretary (Chief Accounting Officer)
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Report of Independent Registered Public Accounting Firm
The 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, 2014, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (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.
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
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, 2014, 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 as of December 31, 2014 and 2013, and the related consolidated statements of income, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2014 of Houston Wire & Cable Company and our report dated March 12,
2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
March 12, 2015
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
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.
Exhibits are set forth on the attached exhibit index
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 5, 2015. 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
“General – Section 16 (a) Beneficial Ownership Reporting Compliance” section of the registrant’s definitive Proxy Statement relating to the
Annual Meeting of Stockholders to be held on May 5, 2015.
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 Conduct” section of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders
to be held on May 5, 2015.
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
5, 2015.
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 5, 2015.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference to the “Compensation Committee Report,” “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 5, 2015.
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 5, 2015.
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 – Director
Independence” and “Related Party Transaction Policy” sections of the registrant’s definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 5, 2015.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information called for by Item 14 is incorporated herein by reference to the “Principal Independent Accounting Fees and Services”
section of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 5, 2015.
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43
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
The following financial statements of our Company and Report of the Independent Registered Public Accounting Firm are included
in Part II:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
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
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 5, 2015. 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
“General – Section 16 (a) Beneficial Ownership Reporting Compliance” section of the registrant’s definitive Proxy Statement relating to the
Annual Meeting of Stockholders to be held on May 5, 2015.
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 Conduct” section of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders
to be held on May 5, 2015.
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
5, 2015.
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 5, 2015.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference to the “Compensation Committee Report,” “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 5, 2015.
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 5, 2015.
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 – Director
Independence” and “Related Party Transaction Policy” sections of the registrant’s definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 5, 2015.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information called for by Item 14 is incorporated herein by reference to the “Principal Independent Accounting Fees and Services”
section of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 5, 2015.
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SIGNATURES
INDEX TO EXHIBITS
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.
HOUSTON WIRE & CABLE COMPANY
(Registrant)
Date: March 12, 2015
By:
/s/ NICOL G. GRAHAM
Nicol G. Graham
Chief Financial Officer, Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ JAMES L. POKLUDA III
James L. Pokluda III
/s/ NICOL G. GRAHAM
Nicol G. Graham
/s/ WILLIAM H. SHEFFIELD
William H. Sheffield
President, Chief Executive Officer and Director
March 12, 2015
Chief Financial Officer, Treasurer and
Secretary (Principal Accounting Officer)
March 12, 2015
Chairman of the Board
March 12, 2015
/s/ MICHAEL T. CAMPBELL
Michael T. Campbell
Director
/s/ IAN STEWART FARWELL
Ian Stewart Farwell
Director
/s/ MARK A. RUELLE
Mark A. Ruelle
/s/ WILSON B. SEXTON
Wilson B. Sexton
/s/ SCOTT L. THOMPSON
Scott L. Thompson
/s/ G. GARY YETMAN
G. Gary Yetman
Director
Director
Director
Director
March 12, 2015
March 12, 2015
March 12, 2015
March 12, 2015
March 12, 2015
March 12, 2015
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45
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.
EXHIBIT
NUMBER
SIGNATURES
INDEX TO EXHIBITS
EXHIBIT
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
Company’s Registration Statement on Form S-1 (Registration No. 333-132703))
of the registrant and in the capacities and on the dates indicated.
3.1
Amended and Restated Certificate of Incorporation of Houston Wire & Cable Company (incorporated herein by reference to Exhibit
3.1 to Houston Wire & Cable Company’s Registration Statement on Form S-1 (Registration No. 333-132703))
3.2
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
10.2*
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), (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), (iii) Exhibit 10.12 to Houston Wire &
Cable Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and (iv) Exhibit 10.2 to Houston Wire & Cable
Company’s Current Report on Form 8-K filed December 12, 2014.
10.3*
Amended and Restated Executive Employment Agreement dated as of January 1, 2015 between James L. Pokluda, III and Houston
Wire & Cable Company **
10.4*
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 10.1 to Houston Wire & Cable
Company’s Current Report on Form 8-K filed December 12, 2014)
10.9*
Form of Director/Officer Indemnification Agreement by and between Houston Wire & Cable Company and a director, member of a
committee of the Board of Directors or officer of Houston Wire & Cable Company (incorporated herein by reference to Exhibit 10.24
to Houston Wire & Cable Company’s Annual Report on Form 10-K for the year ended December 31, 2006)
10.10
Third Amended and Restated Loan and Security Agreement, dated as of September 30, 2011, as amended 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 (i) Exhibit 10.1 to Houston Wire & Cable Company’s Current Report on
Form 8-K filed October 5, 2011), (ii) Exhibit 10.2 to Houston Wire & Cable Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2014 and (iii) Exhibit 10.1 to Houston Wire & Cable Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2014)
10.11
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))
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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 **
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.3
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 **
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of January
1, 2015, by and between James L. Pokluda, III (the “Executive”) and Houston Wire & Cable Company, a Delaware corporation (the
* Management contract or compensatory plan or arrangement
** Filed herewith
“Company”).
Officer; and
WHEREAS, Executive is currently an elected director of the Company and holds the position of President and Chief Executive
WHEREAS, the Company currently employs Executive pursuant to a certain Executive Employment Agreement dated as of January
1, 2012 (the “Prior Agreement”); and
WHEREAS, the Company and Executive desire to amend the Prior Agreement as herein set forth to reflect certain mutually agreed
changes to the terms and conditions thereof; and
WHEREAS, for their mutual convenience, the Company and Executive desire to restate the Prior Agreement, as so amended, in its
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
entirety.
hereto agree as follows:
Capacities and Duties.
1.
1.1
Title. The Executive hereby continues to be employed in the capacity of President and Chief Executive Officer of the
Company and of HWC Wire & Cable Company. The Executive shall report directly to the Board of Directors of the Company (the “Board”)
and shall be subject to its supervision, control and direction. The Executive will at all times abide by the Company’s personnel policies in effect
from time to time and will faithfully, industriously and to the best of the Executive’s ability, experience and talents perform all of the duties that
may be required of and from the Executive by the Board pursuant to the express and implied terms hereof, consistent with the Executive’s status
as the President and Chief Executive Officer of the Company and HWC Wire & Cable Company.
1.2
Exclusive Services. During the Term, the Executive agrees to devote his best efforts and full business time to rendering
services to the Company. The Executive is specifically restricted from being employed by any other company, other than a Subsidiary or an
Affiliate (each as defined below) of the Company, while employed by the Company pursuant to this Agreement; provided that the Executive’s
service on boards of directors of other companies in accordance with the Company’s Corporate Governance Principles, or on boards of any
civic, charitable, education or professional organizations, shall not be considered employment in violation of this Section 1.2.
1.3
Election as Director. The Company shall use its best efforts to cause the Executive to remain elected as a member of the
Company’s Board of Directors during the term of this Agreement. The Company and the Executive have entered into an indemnification
agreement substantially similar to the form of agreement the Company has with the other members of the Board of Directors.
Term. The term of this Agreement (the “Term”) shall commence as of the date hereof and, unless terminated earlier as
herein provided, shall end on December 31, 2016, provided that on December 31, 2016 and each December 31 thereafter (each such December
31, an “Expiration Date”), the Term shall automatically and without any action by either party be extended for an additional period of one year,
unless at least one year prior to any Expiration Date either party notifies the other of its election not to extend the Term, in which case the Term
shall end on such Expiration Date, unless terminated earlier as herein provided.
agrees to pay or provide the Executive with the following:
Compensation and Benefits. For the Executive’s services performed during the Term of this Agreement, the Company
3.1
Salary. An annual base salary (“Base Salary”) of $430,000, to be paid according to the Company’s general payroll practices
as in effect from time to time. The Executive’s Base Salary will be subject to annual reviews and increases (but not decreases) as approved by
the Board and the Compensation Committee of the Board.
3.2
Incentive Compensation Program. The Company shall pay the Executive an annual bonus (“Incentive Bonus”) of up to 75%
of his Base Salary for each full fiscal year of the Company in which the Executive is employed by the Company, based upon achievement of a
series of performance targets for such fiscal year as described in this Section 3.2. The targets will correspond to an Incentive Bonus equal to
10%, 25%, 50% and 75% of the Executive’s Base Salary for that fiscal year. If the Company does not meet the performance target for the 10%
level, no Incentive Bonus will be paid for the fiscal year. If the Company performs at a level that is between two of the performance targets, the
Incentive Bonus shall be a percentage of the Executive’s Base Salary for that fiscal year calculated on a straight line basis between the
percentages that would apply at those two targets. As used in this Section 3.2, “Base Salary” means the rate of Base Salary in effect for a
majority of that fiscal year (or, if no Base Salary rate was in effect for a majority of such fiscal year, then a rate equal to the actual Base Salary
2.
3.
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47
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 **
* Management contract or compensatory plan or arrangement
** Filed herewith
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.3
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of January
1, 2015, by and between James L. Pokluda, III (the “Executive”) and Houston Wire & Cable Company, a Delaware corporation (the
“Company”).
WHEREAS, Executive is currently an elected director of the Company and holds the position of President and Chief Executive
Officer; and
WHEREAS, the Company currently employs Executive pursuant to a certain Executive Employment Agreement dated as of January
1, 2012 (the “Prior Agreement”); and
WHEREAS, the Company and Executive desire to amend the Prior Agreement as herein set forth to reflect certain mutually agreed
changes to the terms and conditions thereof; and
WHEREAS, for their mutual convenience, the Company and Executive desire to restate the Prior Agreement, as so amended, in its
entirety.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1.
Capacities and Duties.
1.1
Title. The Executive hereby continues to be employed in the capacity of President and Chief Executive Officer of the
Company and of HWC Wire & Cable Company. The Executive shall report directly to the Board of Directors of the Company (the “Board”)
and shall be subject to its supervision, control and direction. The Executive will at all times abide by the Company’s personnel policies in effect
from time to time and will faithfully, industriously and to the best of the Executive’s ability, experience and talents perform all of the duties that
may be required of and from the Executive by the Board pursuant to the express and implied terms hereof, consistent with the Executive’s status
as the President and Chief Executive Officer of the Company and HWC Wire & Cable Company.
1.2
Exclusive Services. During the Term, the Executive agrees to devote his best efforts and full business time to rendering
services to the Company. The Executive is specifically restricted from being employed by any other company, other than a Subsidiary or an
Affiliate (each as defined below) of the Company, while employed by the Company pursuant to this Agreement; provided that the Executive’s
service on boards of directors of other companies in accordance with the Company’s Corporate Governance Principles, or on boards of any
civic, charitable, education or professional organizations, shall not be considered employment in violation of this Section 1.2.
1.3
Election as Director. The Company shall use its best efforts to cause the Executive to remain elected as a member of the
Company’s Board of Directors during the term of this Agreement. The Company and the Executive have entered into an indemnification
agreement substantially similar to the form of agreement the Company has with the other members of the Board of Directors.
2.
Term. The term of this Agreement (the “Term”) shall commence as of the date hereof and, unless terminated earlier as
herein provided, shall end on December 31, 2016, provided that on December 31, 2016 and each December 31 thereafter (each such December
31, an “Expiration Date”), the Term shall automatically and without any action by either party be extended for an additional period of one year,
unless at least one year prior to any Expiration Date either party notifies the other of its election not to extend the Term, in which case the Term
shall end on such Expiration Date, unless terminated earlier as herein provided.
3.
Compensation and Benefits. For the Executive’s services performed during the Term of this Agreement, the Company
agrees to pay or provide the Executive with the following:
3.1
Salary. An annual base salary (“Base Salary”) of $430,000, to be paid according to the Company’s general payroll practices
as in effect from time to time. The Executive’s Base Salary will be subject to annual reviews and increases (but not decreases) as approved by
the Board and the Compensation Committee of the Board.
3.2
Incentive Compensation Program. The Company shall pay the Executive an annual bonus (“Incentive Bonus”) of up to 75%
of his Base Salary for each full fiscal year of the Company in which the Executive is employed by the Company, based upon achievement of a
series of performance targets for such fiscal year as described in this Section 3.2. The targets will correspond to an Incentive Bonus equal to
10%, 25%, 50% and 75% of the Executive’s Base Salary for that fiscal year. If the Company does not meet the performance target for the 10%
level, no Incentive Bonus will be paid for the fiscal year. If the Company performs at a level that is between two of the performance targets, the
Incentive Bonus shall be a percentage of the Executive’s Base Salary for that fiscal year calculated on a straight line basis between the
percentages that would apply at those two targets. As used in this Section 3.2, “Base Salary” means the rate of Base Salary in effect for a
majority of that fiscal year (or, if no Base Salary rate was in effect for a majority of such fiscal year, then a rate equal to the actual Base Salary
46
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paid for that fiscal year). No later than 60 days after the beginning of each fiscal year, the Board (or the Compensation Committee) and the
Executive shall mutually agree upon the performance targets for such fiscal year, which performance targets will be consistent with the
Company’s business plan approved by the Board for such fiscal year. Except as provided for in this Agreement, the Compan y shall not be
obligated to pay any Incentive Bonus for any fiscal year unless the Executive is employed by the Company at the end of that fiscal year. The
Executive shall be paid the Incentive Bonus by March 15 of the year following the fiscal year to which the Bonus relates, provided that if the
audit of the Company and its Subsidiaries is not completed by such date, payment shall be made within 60 days following the completion of the
audit, but no later than December 31 of such year.
3.3
Stock Plan. The Executive will participate in the Company’s 2006 Stock Plan (including any amended or successor plan, the
“Stock Plan”). The Executive will be eligible to receive awards of stock options, restricted stock and/or restricted stock units during the Term
in accordance with the Company’s regular annual grant procedures.
3.4
Benefits. The Executive shall be entitled to receive all benefits of employment generally available to the Company’s other
executive employees when and as such benefits, if any, become available and the Executive becomes eligible for them, including any medical,
dental, life and disability insurance benefits, paid time off benefits, long-term incentive plan, stock option plan, pension plan and/or
profit-sharing plan; provided that the Executive shall not participate in the Senior Management Bonus Program. The Company has the right to
amend or terminate any such benefit plans or programs. The Executive shall be insured under the Company’s director and officer
indemnification policy.
3.5
Vacation. The Executive shall be entitled to four weeks of paid vacation each year during the Term, which shall accrue each
January 1 during the Term. The Executive will use his reasonable efforts to schedule vacation periods to minimize disruption of the Company’s
business.
A prorata payment of the Incentive Bonus that would have been earned by the Executive had he remained employed
through the end of the fiscal year in which the termination occurs (determined on the basis of the number of days of employment during
such fiscal year), paid at the same time bonuses for such fiscal year are paid by the Company to other executive employees.
3.6
executive employees.
Vehicle Allowance. The Executive shall be entitled to participate in the Company’s automobile policy as it applies to
3.7
Reimbursement of Expenses. The Company shall reimburse the Executive for up to $5,000 in legal expenses incurred in
connection with the review and negotiation of this Agreement. The Company shall also reimburse the Executive for any reasonable business
expenses incurred by the Executive in the ordinary course of the Company’s business in accordance with the Company’s reimbursement policies
then in effect. These expenses shall be substantiated by invoices and receipts, to be submitted by the Executive within 30 days after incurrence,
and reimbursement shall be made by the Company within 60 days following its receipt of all necessary documentation with respect to such
expenses.
4.
Termination of Employment.
4.1
For Cause or Other than for Good Reason or Disability. If, prior to the expiration of the Term, the Company terminates the
Executive’s employment for Cause or the Executive terminates his employment for any reason other than Good Reason or Disability, the
Company shall pay the Executive the unpaid Base Salary earned by the Executive through the date of termination and any vacation pay, expense
reimbursements and other cash entitlements accrued by the Executive that are payable pursuant to the Company’s policies as of such date. Such
payment shall be made within 30 days of termination or earlier if required by law. All unexercised stock options and all outstanding restricted
stock or restricted stock units and other equity incentive compensation awards previously granted to the Executive shall be exercisable or
forfeited, as the case may be, in accordance with the applicable agreement or award between the Company and the Executive.
4.2
Without Cause or for Good Reason or Disability. If, prior to the expiration of the Term, the Company terminates the
Executive’s employment without Cause, the Executive terminates his employment for Good Reason or the Executive’s employment terminates
due to Disability, the Executive shall be entitled to receive:
(e)
If the effective date of termination of the Executive’s employment occurs before December 31, 2017, then on such
effective date (a) the stock options granted on December 20, 2011 with respect to 64,330 shares of the Company’s common stock,
which will vest 50% on December 31, 2016 and 50% on December 31, 2017, and (b) the 26,576 shares of restricted stock granted on
December 20, 2011, which will vest 50% on December 31, 2016 and 50% on December 31, 2017 each shall vest as to a number of
shares equal to the sum of (i) and (ii), where (i) is the product of (A) the total number of shares subject to unvested awards that would
vest on December 31, 2016, if any, and (B) a fraction, the numerator of which is the number of days in the period beginning January 1,
2012 through the effective date of termination of employment, and the denominator of which is the number of days in the period
beginning January 1, 2012 through December 31, 2016 and (ii) is the product of (A) the total number of shares subject to unvested
awards that would vest on December 31, 2017 and (B) a fraction, the numerator of which is the number of days in the period beginning
January 1, 2012 through the effective date of termination of employment, and the denominator of which is the number of days in the
period beginning January 1, 2012 through December 31, 2017. All other unexercised stock options, outstanding restricted stock or
restricted stock units and equity incentive compensation awards granted to the Executive shall be exercisable or forfeited, as the case
may be, in accordance with the applicable agreement or award between the Company and the Executive.
4.3
Death. If prior to the expiration of the Term the Executive’s employment terminates due to his death, the Executive’s estate
shall be entitled to receive:
(a)
(b)
The cash amounts described in Section 4.1 above.
(c)
Continuation of medical benefits under the Company’s group health plan as in effect from time to time for the
Executive’s surviving spouse and covered dependents for 36 months pursuant to COBRA. Coverage during the first 18 months is
subject to the beneficiaries’ timely payment of premiums at active employee rates for such coverage, provided that the beneficiary
timely elects COBRA continuation coverage, and provided, further, that if such premium subsidization results in adverse tax
consequences for the Company or the beneficiary, the beneficiary shall pay the entire premium for such coverage and the Company
shall reimburse the beneficiary monthly, on an after-tax basis, for the cost of such coverage in excess of the active employee premium.
Coverage for the remainder of the 36-month continuation period is subject to the beneficiaries’ payment of the entire premium for such
coverage. The medical benefits provided under this Section shall terminate at such time that the Executive’s surviving spouse and
covered dependents become eligible for medical benefits under any other benefit plan or policy to the extent not prohibited by
COBRA.
(d)
All unexercised stock options and all unpaid restricted stock or restricted stock units and other equity incentive
compensation awards previously granted to the Executive shall be exercisable or forfeited, as the case may be, in accordance with the
applicable agreement or award between the Company and the Executive.
4.4
Without Cause or for Good Reason following a Change in Control. If, prior to the expiration of the Term and within two
years following a Change in Control, the Company terminates the Executive’s employment without Cause (other than for Disability) or the
Executive terminates his employment for Good Reason, the Executive shall be entitled to receive:
(a)
Within ten days after the date of termination, a lump-sum payment equal to the sum of:
(i)
(ii)
The cash amounts described in Section 4.1 above;
Two times the Executive’s Base Salary as then in effect; and
(a)
(b)
The cash amounts described in Section 4.1 above.
Continuation of the Executive’s Base Salary as then in effect for the 24-month period beginning on the date of such
year.
(iii)
Two times the amount of the Incentive Bonus paid to the Executive for the most recently completed fiscal
termination of employment, payable in accordance with the Company’s payroll policy then in effect.
(c)
Two payments, each equal to the amount of the Incentive Bonus paid to the Executive for the most recently
completed fiscal year, the first paid at the same time bonuses for the fiscal year in which termination occurs are paid by the Company
to other executive employees and the second paid at the same time bonuses for the subsequent fiscal year are paid by the Company to
other executive employees.
(d)
Continuation of medical benefits under the Company’s group health plan as in effect from time to time for the
Executive and his spouse and covered dependents for 36 months. Coverage during the first 18 months is subject to the Executive’s
timely payment of premiums at active employee rates for such coverage and shall be concurrent with coverage under Title I, Part 6 of
the Employee Retirement Income Security Act of 1974 (“COBRA”), provided that the Executive timely elects COBRA continuation
coverage, and provided, further, that if such premium subsidization results in adverse tax consequences for the Company or the
Executive, the Executive shall pay the entire premium for such coverage and the Company shall reimburse the Executive monthly, on
an after-tax basis, for the cost of such coverage in excess of the active employee premium. Coverage for the remainder of the
36-month continuation period is subject to the Executive’s payment of the entire premium for such coverage. The medical benefits
provided under this Section shall terminate at such time that the Executive and his spouse and covered dependents become eligible for
medical benefits under any other benefit plan or policy to the extent not prohibited by COBRA.
48
(b)
Continuation of medical benefits under the Company’s group health plan as in effect from time to time for the
Executive and his spouse and covered dependents for 36 months. Coverage during the first 18 months is subject to the Executive’s
timely payment of premiums at active employee rates for such coverage and shall be concurrent with coverage under COBRA,
provided that the Executive timely elects COBRA continuation coverage, and provided, further, that if such premium subsidization
results in adverse tax consequences for the Company or the Executive, the Executive shall pay the entire premium for such coverage
and the Company shall reimburse the Executive monthly, on an after-tax basis, for the cost of such coverage in excess of the active
employee premium. Coverage for the remainder of the 36-month continuation period is subject to the Executive’s payment of the
entire premium for such coverage. The medical benefits provided under this Section shall terminate at such time that the Executive
and his spouse and covered dependents become eligible for medical benefits under any other benefit plan or policy to the extent not
prohibited by COBRA.
(c)
All unexercised stock options, outstanding unpaid restricted stock or restricted stock units and equity incentive
compensation awards previously granted to the Executive shall be exercisable or paid, as the case may be, in accordance with the
applicable agreement or award between the Company and the Executive.
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paid for that fiscal year). No later than 60 days after the beginning of each fiscal year, the Board (or the Compensation Committee) and the
Executive shall mutually agree upon the performance targets for such fiscal year, which performance targets will be consistent with the
Company’s business plan approved by the Board for such fiscal year. Except as provided for in this Agreement, the Compan y shall not be
obligated to pay any Incentive Bonus for any fiscal year unless the Executive is employed by the Company at the end of that fiscal year. The
Executive shall be paid the Incentive Bonus by March 15 of the year following the fiscal year to which the Bonus relates, provided that if the
audit of the Company and its Subsidiaries is not completed by such date, payment shall be made within 60 days following the completion of the
audit, but no later than December 31 of such year.
3.3
Stock Plan. The Executive will participate in the Company’s 2006 Stock Plan (including any amended or successor plan, the
“Stock Plan”). The Executive will be eligible to receive awards of stock options, restricted stock and/or restricted stock units during the Term
in accordance with the Company’s regular annual grant procedures.
3.4
Benefits. The Executive shall be entitled to receive all benefits of employment generally available to the Company’s other
executive employees when and as such benefits, if any, become available and the Executive becomes eligible for them, including any medical,
dental, life and disability insurance benefits, paid time off benefits, long-term incentive plan, stock option plan, pension plan and/or
profit-sharing plan; provided that the Executive shall not participate in the Senior Management Bonus Program. The Company has the right to
amend or terminate any such benefit plans or programs. The Executive shall be insured under the Company’s director and officer
3.5
Vacation. The Executive shall be entitled to four weeks of paid vacation each year during the Term, which shall accrue each
January 1 during the Term. The Executive will use his reasonable efforts to schedule vacation periods to minimize disruption of the Company’s
3.6
Vehicle Allowance. The Executive shall be entitled to participate in the Company’s automobile policy as it applies to
3.7
Reimbursement of Expenses. The Company shall reimburse the Executive for up to $5,000 in legal expenses incurred in
connection with the review and negotiation of this Agreement. The Company shall also reimburse the Executive for any reasonable business
expenses incurred by the Executive in the ordinary course of the Company’s business in accordance with the Company’s reimbursement policies
then in effect. These expenses shall be substantiated by invoices and receipts, to be submitted by the Executive within 30 days after incurrence,
and reimbursement shall be made by the Company within 60 days following its receipt of all necessary documentation with respect to such
indemnification policy.
business.
executive employees.
expenses.
4.
4.1
Termination of Employment.
For Cause or Other than for Good Reason or Disability. If, prior to the expiration of the Term, the Company terminates the
Executive’s employment for Cause or the Executive terminates his employment for any reason other than Good Reason or Disability, the
Company shall pay the Executive the unpaid Base Salary earned by the Executive through the date of termination and any vacation pay, expense
reimbursements and other cash entitlements accrued by the Executive that are payable pursuant to the Company’s policies as of such date. Such
payment shall be made within 30 days of termination or earlier if required by law. All unexercised stock options and all outstanding restricted
stock or restricted stock units and other equity incentive compensation awards previously granted to the Executive shall be exercisable or
forfeited, as the case may be, in accordance with the applicable agreement or award between the Company and the Executive.
4.2
Without Cause or for Good Reason or Disability. If, prior to the expiration of the Term, the Company terminates the
Executive’s employment without Cause, the Executive terminates his employment for Good Reason or the Executive’s employment terminates
due to Disability, the Executive shall be entitled to receive:
(e)
If the effective date of termination of the Executive’s employment occurs before December 31, 2017, then on such
effective date (a) the stock options granted on December 20, 2011 with respect to 64,330 shares of the Company’s common stock,
which will vest 50% on December 31, 2016 and 50% on December 31, 2017, and (b) the 26,576 shares of restricted stock granted on
December 20, 2011, which will vest 50% on December 31, 2016 and 50% on December 31, 2017 each shall vest as to a number of
shares equal to the sum of (i) and (ii), where (i) is the product of (A) the total number of shares subject to unvested awards that would
vest on December 31, 2016, if any, and (B) a fraction, the numerator of which is the number of days in the period beginning January 1,
2012 through the effective date of termination of employment, and the denominator of which is the number of days in the period
beginning January 1, 2012 through December 31, 2016 and (ii) is the product of (A) the total number of shares subject to unvested
awards that would vest on December 31, 2017 and (B) a fraction, the numerator of which is the number of days in the period beginning
January 1, 2012 through the effective date of termination of employment, and the denominator of which is the number of days in the
period beginning January 1, 2012 through December 31, 2017. All other unexercised stock options, outstanding restricted stock or
restricted stock units and equity incentive compensation awards granted to the Executive shall be exercisable or forfeited, as the case
may be, in accordance with the applicable agreement or award between the Company and the Executive.
4.3
Death. If prior to the expiration of the Term the Executive’s employment terminates due to his death, the Executive’s estate
shall be entitled to receive:
(a)
The cash amounts described in Section 4.1 above.
(b)
A prorata payment of the Incentive Bonus that would have been earned by the Executive had he remained employed
through the end of the fiscal year in which the termination occurs (determined on the basis of the number of days of employment during
such fiscal year), paid at the same time bonuses for such fiscal year are paid by the Company to other executive employees.
(c)
Continuation of medical benefits under the Company’s group health plan as in effect from time to time for the
Executive’s surviving spouse and covered dependents for 36 months pursuant to COBRA. Coverage during the first 18 months is
subject to the beneficiaries’ timely payment of premiums at active employee rates for such coverage, provided that the beneficiary
timely elects COBRA continuation coverage, and provided, further, that if such premium subsidization results in adverse tax
consequences for the Company or the beneficiary, the beneficiary shall pay the entire premium for such coverage and the Company
shall reimburse the beneficiary monthly, on an after-tax basis, for the cost of such coverage in excess of the active employee premium.
Coverage for the remainder of the 36-month continuation period is subject to the beneficiaries’ payment of the entire premium for such
coverage. The medical benefits provided under this Section shall terminate at such time that the Executive’s surviving spouse and
covered dependents become eligible for medical benefits under any other benefit plan or policy to the extent not prohibited by
COBRA.
(d)
All unexercised stock options and all unpaid restricted stock or restricted stock units and other equity incentive
compensation awards previously granted to the Executive shall be exercisable or forfeited, as the case may be, in accordance with the
applicable agreement or award between the Company and the Executive.
4.4
Without Cause or for Good Reason following a Change in Control. If, prior to the expiration of the Term and within two
years following a Change in Control, the Company terminates the Executive’s employment without Cause (other than for Disability) or the
Executive terminates his employment for Good Reason, the Executive shall be entitled to receive:
(a)
Within ten days after the date of termination, a lump-sum payment equal to the sum of:
(i)
(ii)
The cash amounts described in Section 4.1 above;
Two times the Executive’s Base Salary as then in effect; and
The cash amounts described in Section 4.1 above.
(a)
(b)
termination of employment, payable in accordance with the Company’s payroll policy then in effect.
Continuation of the Executive’s Base Salary as then in effect for the 24-month period beginning on the date of such
year.
(iii)
Two times the amount of the Incentive Bonus paid to the Executive for the most recently completed fiscal
(c)
Two payments, each equal to the amount of the Incentive Bonus paid to the Executive for the most recently
completed fiscal year, the first paid at the same time bonuses for the fiscal year in which termination occurs are paid by the Company
to other executive employees and the second paid at the same time bonuses for the subsequent fiscal year are paid by the Company to
other executive employees.
(d)
Continuation of medical benefits under the Company’s group health plan as in effect from time to time for the
Executive and his spouse and covered dependents for 36 months. Coverage during the first 18 months is subject to the Executive’s
timely payment of premiums at active employee rates for such coverage and shall be concurrent with coverage under Title I, Part 6 of
the Employee Retirement Income Security Act of 1974 (“COBRA”), provided that the Executive timely elects COBRA continuation
coverage, and provided, further, that if such premium subsidization results in adverse tax consequences for the Company or the
Executive, the Executive shall pay the entire premium for such coverage and the Company shall reimburse the Executive monthly, on
an after-tax basis, for the cost of such coverage in excess of the active employee premium. Coverage for the remainder of the
36-month continuation period is subject to the Executive’s payment of the entire premium for such coverage. The medical benefits
provided under this Section shall terminate at such time that the Executive and his spouse and covered dependents become eligible for
medical benefits under any other benefit plan or policy to the extent not prohibited by COBRA.
48
(b)
Continuation of medical benefits under the Company’s group health plan as in effect from time to time for the
Executive and his spouse and covered dependents for 36 months. Coverage during the first 18 months is subject to the Executive’s
timely payment of premiums at active employee rates for such coverage and shall be concurrent with coverage under COBRA,
provided that the Executive timely elects COBRA continuation coverage, and provided, further, that if such premium subsidization
results in adverse tax consequences for the Company or the Executive, the Executive shall pay the entire premium for such coverage
and the Company shall reimburse the Executive monthly, on an after-tax basis, for the cost of such coverage in excess of the active
employee premium. Coverage for the remainder of the 36-month continuation period is subject to the Executive’s payment of the
entire premium for such coverage. The medical benefits provided under this Section shall terminate at such time that the Executive
and his spouse and covered dependents become eligible for medical benefits under any other benefit plan or policy to the extent not
prohibited by COBRA.
(c)
All unexercised stock options, outstanding unpaid restricted stock or restricted stock units and equity incentive
compensation awards previously granted to the Executive shall be exercisable or paid, as the case may be, in accordance with the
applicable agreement or award between the Company and the Executive.
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Notwithstanding the foregoing, in the event the Change in Control is not a change in ownership or effective control within the meaning of Code
Section 409A (as defined in Section 13 below) and the regulations thereunder, payment of the amounts described in Section 4.4(a)(ii) and
4.4(a)(iii) shall be paid over the same time frame and in the same manner as the payments described in Section 4.2(b) and 4.2(c), respectively.
in a material negative change to the Executive; provided, however, that termination for Good Reason by the Executive shall not be
permitted unless (x) the Executive has given the Company at least 30 day’s prior written notice that he has a basis for a termination
for Good Reason, which notice shall specify the facts and circumstances constituting Good Reason, and (y) the Company has not
remedied such facts and circumstances constituting Good Reason within such 30-day period.
4.5
Entitlement To Benefits. Notwithstanding any other Section of this Agreement, upon termination of the Executive’s
employment, the Executive shall be entitled to all vested benefits, vested stock-based awards, accrued and unused vacation, return of personal
effects, COBRA rights and other rights that may not be waived or released as a matter of law, in addition to any other sums, benefits, or rights
which are provided for in this Agreement.
Restrictive Covenants.
5.
5.1
4.6
Release of Claims. The Executive agrees that, as a condition to receiving benefits under this Section 4, the Executive will
execute a general release of claims in a form provided by the Company on the date of termination of the Executive’s employment.. If the
Executive timely executes the release and does not revoke the release, payments of any continued Base Salary shall begin on the first payroll
period occurring after the 55th day following the Executive’s termination of employment, and the first payment shall include amounts that
would have been paid to the Executive in the interim had employment continued. Any release executed by the Executive shall contain
exceptions to the release for (a) any existing right to indemnification, contribution and a defense, (b) any directors and officers and general
liability insurance coverage of the Executive, (c) the Executive’s rights as a shareholder, (d) all vested rights of the Executive, (e) the
Executive’s right to enforce this Agreement and (f) any rights which cannot be waived or released as a matter of law.
4.7
No Offset. Subject to Section 6, there shall be no offset of any kind to the payment of the severance benefits described in this
continuing services to the Company, he will learn valuable trade secrets and other Confidential and Proprietary Information relating to the
Section 4.
4.8
Action Required to Terminate the Executive. Action by the affirmative vote of a majority of the members of the
Board, other than the Executive, taken at a meeting of the Board or by written consent of the Board shall be required for the Company
to terminate the Executive’s employment.
4.9
Internal Revenue Code Section 280G. If (a) in connection with a Change in Control, the Executive would be or is subject to
an excise tax under Section 4999 of the Internal Revenue Code (an “Excise Tax”) with respect to any cash, benefits or other property received, or
any acceleration of vesting of any benefit or award (the “Change in Control Benefits”), and (b) (i) the total net after-tax value of the Change in
Control Benefits to the Executive (taking into account federal, state and local income and employment taxes and the Excise Tax) is less than (ii)
the total net after-tax value of the Change in Control Benefits (taking into account federal, state and local income and employment taxes and the
Excise Tax) reduced to the largest amount payable without triggering the imposition of any Excise Tax, then the Change in Control Benefits
payable under this Agreement shall be reduced to the amount described in (b)(ii). No later than 30 days after the date of the Change in Control,
a nationally recognized accounting firm selected by the Company shall make a determination as to whether any Excise Tax would be reported
with respect to the Change in Control Benefits and, if so, the amounts described in each of (b)(i) and (b)(ii) above. If a reduction to the Change
in Control Benefits is necessary, the Executive shall determine the Change in Control Benefits to be reduced, and the Company shall provide the
Executive with such information as is necessary to make such determination. The Company and the Executive shall furnish to the accounting
firm such information and documents as the accounting firm may reasonably request in order to make a determination under this Section 4.9.
The Company shall be responsible for all fees and expenses connected with the determinations by the accounting firm pursuant to this Section
4.9. The Executive agrees to notify the Company in the event of any audit or other proceeding by the Internal Revenue Service or any taxing
authority in which the Internal Revenue Service or other taxing authority asserts that any Excise Tax should be assessed against the Executive
and to cooperate with the Company in contesting any such proposed assessment with respect to such Excise Tax.
4.10
Definitions of Terms Used in Section 4.
(a)
Cause. “Cause” shall exist if there is (i) a material neglect by the Executive of his assigned duties, which
includes any failure to follow the written direction of the Board or to comply with the Company’s code of ethics or written
policies, or repeated refusal by the Executive to perform his assigned duties, in each case other than by reason of Disability,
which continues for 30 days following receipt of written notice from the Board; (ii) the commission by the Executive of any act of
fraud or embezzlement against Company or any of its Affiliates or the commission of any felony or act involving dishonesty; (iii) the
commission by the Executive of any act of moral turpitude which actually causes financial harm to the Company or any of its
Affiliates; (iv) a material breach by the Executive of the terms of Section 5.1 of this Agreement or any other confidentiality or
non-disclosure agreement of the Executive with the Company; or (v) the Executive’s commencement of employment with another
company while he is an employee of the Company without the prior consent of the Board.
(b)
Change in Control. “Change in Control” shall have the meaning set forth in the Stock Plan, as in effect on the date
of this Agreement.
(c)
Disability. “Disability” means, in the sole judgment of the Board, the Executive’s inability to engage in any
substantial gainful activity by reason of any medically-determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
(d)
Good Reason. “For Good Reason” shall mean voluntary termination of this Agreement by the Executive if,
without the prior consent of the Executive: (a) the Company shall relocate its principal executive offices to a location outside the
Houston, Texas metropolitan area, (b) there is a material reduction by the Company in the Executive’s responsibilities, duties,
authority, title or reporting relationship; or (c) the Company acts in any way that would materially reduce the Executive’s Base Salary
(as defined or subsequently increased pursuant to Section 3.1) or if the Company adversely affects the Executive’s participation in or
reduces the Executive’s benefit under any benefit plan of the Company in which the Executive is participating in a manner that results
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Confidential and Proprietary Information. During the Term and for a period of two years following the date of
termination of the Executive’s employment with the Company (except as to trade secrets, which shall not be disclosed at any time), the
Executive acknowledges that he has as of the date of this Agreement, and will continue to have, access to and use of Confidential and
Proprietary Information and agrees that he will not, either directly or indirectly, and he will not permit any Covered Entity which is
Controlled by the Executive to, either directly or indirectly, divulge to any Person or use any of the Confidential and Proprietary Information,
except as required in connection with the performance of the Executive’s duties to the Company. The Executive and each Covered Entity (and
if deceased, his personal representative) shall promptly, following a request therefor from the Company, return to the Company, without
retaining copies, all tangible items (including electronic data storage devices) which are or which contain Confidential and Proprietary
Information.
5.2
Non-Competition; Non-Solicitation; No Disparagement. The Executive acknowledges and agrees that: (i) through his
Company’s businesses; (ii) the Executive’s services to the Company are unique in nature, and (iii) the Company would be irreparably damaged
if the Executive were to provide services to any Person in violation of the restrictions contained in this Agreement. Accordingly, as an
inducement to the Company to enter into this Agreement, the Executive agrees that except in the Executive’s capacity as an employee of the
Company, neither the Executive nor any Covered Entity shall directly or indirectly, without the prior written consent of the Company (which
may be withheld in its sole discretion), during the Restriction Period:
(a)
engage or participate in, anywhere in the Territory (as defined below), as an employee, owner, partner, shareholder,
officer, director, member, manager, advisor, consultant, lender, lessor, agent or (without limitation by the specific enumeration of the
foregoing) otherwise, or permit his name to be used by or render services of any type for, any Competing Business (as defined below)
or any Person developing a Competing Business; provided, however, that nothing in this Agreement shall prevent the Executive from
acquiring or owning, but solely as a passive investment, up to five percent of any class of voting securities registered under the
Securities Exchange Act of 1934, as amended, of any issuer engaged in a Competing Business;
(b)
take any action which could reasonably be expected to divert from the Company any opportunity which would be
within the scope of the Company’s business;
(c)
solicit or attempt to solicit any Person who is or has been (A) a customer of the Company at any time within one
year prior to the date of termination of the Executive’s employment to purchase any product or service which may be provided by the
Company, or (B) a customer, supplier, licensor, licensee or other business relation conducting business with the Company at any time
within one year prior to the date of termination of the Executive’s employment, to cease doing business with, or to alter or limit its
business relationship with, the Company;
her or its association with the Company;
(d)
solicit, attempt to solicit, or assist anyone else to solicit any Business Associate (as defined below) to terminate his,
(e)
recruit, solicit, hire or otherwise retain the services of any Business Associate, whether on a full-time basis,
part-time basis or otherwise and whether as an employee, independent contractor, consultant, advisor or in another capacity; or
(f)
make (or cause to be made) to any Person any knowingly disparaging, derogatory or other negative statement about
the Company or any of its officers, directors, employees or agents.
5.3
Protection of and Rights to Intellectual Property. All Intellectual Property developed by the Executive during the Term shall
be the sole and exclusive property of the Company, without further compensation. Any Intellectual Property based upon Confidential and
Proprietary Information and developed at any time either during or following the Term shall be the property of the Company. The Executive
shall assign to the Company or its designees, the entire right, title and interest in said Intellectual Property. The Executive shall, at the
Company’s request and expense, make applications for domestic or foreign patents, execute all documents necessary thereto, assist in securing,
defending or enforcing any such title and right thereto, and assist the Company in any other claims or litigation involving said Intellectual
Property. Consistent with applicable law, the Company acknowledges that no provision in this Agreement is intended to require assignment of
any of the Executive’s rights in an invention if no equipment, supplies, facilities, or trade secret information of the Company was used, and the
invention was developed entirely on the Executive’s own time, unless the invention relates to the Business or to the Company’s current or
demonstrably anticipated business, research or development, or the invention results from any work performed by the Executive for the
Company.
5.4
Specific Performance. The Executive agrees that any violation by him of Sections 5.1, 5.2 or 5.3 of this Agreement would
be highly injurious to the Company and would cause irreparable harm to the Company. By reason of the foregoing, the Executive consents and
agrees that if he violates any provision of Sections 5.1, 5.2 or 5.3 of this Agreement, the Company shall be entitled, in addition to any other rights
and remedies that it may have, to apply to any court of competent jurisdiction in Houston, Texas for specific performance and/or injunctive or
other equitable relief in order to enforce, or prevent any continuing violation of, the provisions of such Sections 5.1, 5.2 and 5.3. The Executive
Notwithstanding the foregoing, in the event the Change in Control is not a change in ownership or effective control within the meaning of Code
Section 409A (as defined in Section 13 below) and the regulations thereunder, payment of the amounts described in Section 4.4(a)(ii) and
4.4(a)(iii) shall be paid over the same time frame and in the same manner as the payments described in Section 4.2(b) and 4.2(c), respectively.
4.5
Entitlement To Benefits. Notwithstanding any other Section of this Agreement, upon termination of the Executive’s
employment, the Executive shall be entitled to all vested benefits, vested stock-based awards, accrued and unused vacation, return of personal
effects, COBRA rights and other rights that may not be waived or released as a matter of law, in addition to any other sums, benefits, or rights
which are provided for in this Agreement.
4.6
Release of Claims. The Executive agrees that, as a condition to receiving benefits under this Section 4, the Executive will
execute a general release of claims in a form provided by the Company on the date of termination of the Executive’s employment.. If the
Executive timely executes the release and does not revoke the release, payments of any continued Base Salary shall begin on the first payroll
period occurring after the 55th day following the Executive’s termination of employment, and the first payment shall include amounts that
would have been paid to the Executive in the interim had employment continued. Any release executed by the Executive shall contain
exceptions to the release for (a) any existing right to indemnification, contribution and a defense, (b) any directors and officers and general
liability insurance coverage of the Executive, (c) the Executive’s rights as a shareholder, (d) all vested rights of the Executive, (e) the
Executive’s right to enforce this Agreement and (f) any rights which cannot be waived or released as a matter of law.
4.7
No Offset. Subject to Section 6, there shall be no offset of any kind to the payment of the severance benefits described in this
Section 4.
4.8
Action Required to Terminate the Executive. Action by the affirmative vote of a majority of the members of the
Board, other than the Executive, taken at a meeting of the Board or by written consent of the Board shall be required for the Company
to terminate the Executive’s employment.
4.9
Internal Revenue Code Section 280G. If (a) in connection with a Change in Control, the Executive would be or is subject to
an excise tax under Section 4999 of the Internal Revenue Code (an “Excise Tax”) with respect to any cash, benefits or other property received, or
any acceleration of vesting of any benefit or award (the “Change in Control Benefits”), and (b) (i) the total net after-tax value of the Change in
Control Benefits to the Executive (taking into account federal, state and local income and employment taxes and the Excise Tax) is less than (ii)
the total net after-tax value of the Change in Control Benefits (taking into account federal, state and local income and employment taxes and the
Excise Tax) reduced to the largest amount payable without triggering the imposition of any Excise Tax, then the Change in Control Benefits
payable under this Agreement shall be reduced to the amount described in (b)(ii). No later than 30 days after the date of the Change in Control,
a nationally recognized accounting firm selected by the Company shall make a determination as to whether any Excise Tax would be reported
with respect to the Change in Control Benefits and, if so, the amounts described in each of (b)(i) and (b)(ii) above. If a reduction to the Change
in Control Benefits is necessary, the Executive shall determine the Change in Control Benefits to be reduced, and the Company shall provide the
Executive with such information as is necessary to make such determination. The Company and the Executive shall furnish to the accounting
firm such information and documents as the accounting firm may reasonably request in order to make a determination under this Section 4.9.
The Company shall be responsible for all fees and expenses connected with the determinations by the accounting firm pursuant to this Section
4.9. The Executive agrees to notify the Company in the event of any audit or other proceeding by the Internal Revenue Service or any taxing
authority in which the Internal Revenue Service or other taxing authority asserts that any Excise Tax should be assessed against the Executive
and to cooperate with the Company in contesting any such proposed assessment with respect to such Excise Tax.
4.10
Definitions of Terms Used in Section 4.
(a)
Cause. “Cause” shall exist if there is (i) a material neglect by the Executive of his assigned duties, which
includes any failure to follow the written direction of the Board or to comply with the Company’s code of ethics or written
policies, or repeated refusal by the Executive to perform his assigned duties, in each case other than by reason of Disability,
which continues for 30 days following receipt of written notice from the Board; (ii) the commission by the Executive of any act of
fraud or embezzlement against Company or any of its Affiliates or the commission of any felony or act involving dishonesty; (iii) the
commission by the Executive of any act of moral turpitude which actually causes financial harm to the Company or any of its
Affiliates; (iv) a material breach by the Executive of the terms of Section 5.1 of this Agreement or any other confidentiality or
non-disclosure agreement of the Executive with the Company; or (v) the Executive’s commencement of employment with another
company while he is an employee of the Company without the prior consent of the Board.
(b)
Change in Control. “Change in Control” shall have the meaning set forth in the Stock Plan, as in effect on the date
of this Agreement.
(c)
Disability. “Disability” means, in the sole judgment of the Board, the Executive’s inability to engage in any
substantial gainful activity by reason of any medically-determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
(d)
Good Reason. “For Good Reason” shall mean voluntary termination of this Agreement by the Executive if,
without the prior consent of the Executive: (a) the Company shall relocate its principal executive offices to a location outside the
Houston, Texas metropolitan area, (b) there is a material reduction by the Company in the Executive’s responsibilities, duties,
authority, title or reporting relationship; or (c) the Company acts in any way that would materially reduce the Executive’s Base Salary
(as defined or subsequently increased pursuant to Section 3.1) or if the Company adversely affects the Executive’s participation in or
reduces the Executive’s benefit under any benefit plan of the Company in which the Executive is participating in a manner that results
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in a material negative change to the Executive; provided, however, that termination for Good Reason by the Executive shall not be
permitted unless (x) the Executive has given the Company at least 30 day’s prior written notice that he has a basis for a termination
for Good Reason, which notice shall specify the facts and circumstances constituting Good Reason, and (y) the Company has not
remedied such facts and circumstances constituting Good Reason within such 30-day period.
5.
Restrictive Covenants.
5.1
Confidential and Proprietary Information. During the Term and for a period of two years following the date of
termination of the Executive’s employment with the Company (except as to trade secrets, which shall not be disclosed at any time), the
Executive acknowledges that he has as of the date of this Agreement, and will continue to have, access to and use of Confidential and
Proprietary Information and agrees that he will not, either directly or indirectly, and he will not permit any Covered Entity which is
Controlled by the Executive to, either directly or indirectly, divulge to any Person or use any of the Confidential and Proprietary Information,
except as required in connection with the performance of the Executive’s duties to the Company. The Executive and each Covered Entity (and
if deceased, his personal representative) shall promptly, following a request therefor from the Company, return to the Company, without
retaining copies, all tangible items (including electronic data storage devices) which are or which contain Confidential and Proprietary
Information.
5.2
Non-Competition; Non-Solicitation; No Disparagement. The Executive acknowledges and agrees that: (i) through his
continuing services to the Company, he will learn valuable trade secrets and other Confidential and Proprietary Information relating to the
Company’s businesses; (ii) the Executive’s services to the Company are unique in nature, and (iii) the Company would be irreparably damaged
if the Executive were to provide services to any Person in violation of the restrictions contained in this Agreement. Accordingly, as an
inducement to the Company to enter into this Agreement, the Executive agrees that except in the Executive’s capacity as an employee of the
Company, neither the Executive nor any Covered Entity shall directly or indirectly, without the prior written consent of the Company (which
may be withheld in its sole discretion), during the Restriction Period:
(a)
engage or participate in, anywhere in the Territory (as defined below), as an employee, owner, partner, shareholder,
officer, director, member, manager, advisor, consultant, lender, lessor, agent or (without limitation by the specific enumeration of the
foregoing) otherwise, or permit his name to be used by or render services of any type for, any Competing Business (as defined below)
or any Person developing a Competing Business; provided, however, that nothing in this Agreement shall prevent the Executive from
acquiring or owning, but solely as a passive investment, up to five percent of any class of voting securities registered under the
Securities Exchange Act of 1934, as amended, of any issuer engaged in a Competing Business;
(b)
take any action which could reasonably be expected to divert from the Company any opportunity which would be
within the scope of the Company’s business;
(c)
solicit or attempt to solicit any Person who is or has been (A) a customer of the Company at any time within one
year prior to the date of termination of the Executive’s employment to purchase any product or service which may be provided by the
Company, or (B) a customer, supplier, licensor, licensee or other business relation conducting business with the Company at any time
within one year prior to the date of termination of the Executive’s employment, to cease doing business with, or to alter or limit its
business relationship with, the Company;
(d)
solicit, attempt to solicit, or assist anyone else to solicit any Business Associate (as defined below) to terminate his,
her or its association with the Company;
(e)
recruit, solicit, hire or otherwise retain the services of any Business Associate, whether on a full-time basis,
part-time basis or otherwise and whether as an employee, independent contractor, consultant, advisor or in another capacity; or
(f)
make (or cause to be made) to any Person any knowingly disparaging, derogatory or other negative statement about
the Company or any of its officers, directors, employees or agents.
5.3
Protection of and Rights to Intellectual Property. All Intellectual Property developed by the Executive during the Term shall
be the sole and exclusive property of the Company, without further compensation. Any Intellectual Property based upon Confidential and
Proprietary Information and developed at any time either during or following the Term shall be the property of the Company. The Executive
shall assign to the Company or its designees, the entire right, title and interest in said Intellectual Property. The Executive shall, at the
Company’s request and expense, make applications for domestic or foreign patents, execute all documents necessary thereto, assist in securing,
defending or enforcing any such title and right thereto, and assist the Company in any other claims or litigation involving said Intellectual
Property. Consistent with applicable law, the Company acknowledges that no provision in this Agreement is intended to require assignment of
any of the Executive’s rights in an invention if no equipment, supplies, facilities, or trade secret information of the Company was used, and the
invention was developed entirely on the Executive’s own time, unless the invention relates to the Business or to the Company’s current or
demonstrably anticipated business, research or development, or the invention results from any work performed by the Executive for the
Company.
5.4
Specific Performance. The Executive agrees that any violation by him of Sections 5.1, 5.2 or 5.3 of this Agreement would
be highly injurious to the Company and would cause irreparable harm to the Company. By reason of the foregoing, the Executive consents and
agrees that if he violates any provision of Sections 5.1, 5.2 or 5.3 of this Agreement, the Company shall be entitled, in addition to any other rights
and remedies that it may have, to apply to any court of competent jurisdiction in Houston, Texas for specific performance and/or injunctive or
other equitable relief in order to enforce, or prevent any continuing violation of, the provisions of such Sections 5.1, 5.2 and 5.3. The Executive
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also recognizes that the territorial, time and scope limitations set forth in Sections 5.1 and 5.2, as applicable, are reasonable and are properly
required for the protection of the Company, and, in the event that any such territorial, time or scope limitation is deemed to be unreasonable by
a court of competent jurisdiction, the Company and the Executive agree, and the Executive submits, to the reduction of any or all of said
territorial, time or scope limitations to such an area, period or scope as said court shall deem reasonable under the circumstances. If such partial
enforcement is not possible, then to the extent permitted by law, the provision shall be deemed severed, and the remaining provisions of this
Agreement shall remain in full force and effect. If any covenant in Section 5.1 or 5.2 is breached, then (to the extent permitted by law) the
Restricted Period with respect to such covenant shall be extended by the number of days during which such breach exists.
5.5
Impact of Breach of Section 5 on Certain Payments. The Executive agrees that the payment of any compensation or benefits
pursuant to Section 4.2 or 4.4 is conditioned on the Executive’s compliance with the provisions of Sections 5.1, 5.2 and 5.3.
Company.
(j)
Restriction Period. “Restriction Period” shall mean the period commencing on the date hereof and continuing
during the Executive’s employment with the Company and for a period of one year (two years in the event the Executive is entitled to
continuation of Base Salary under Section 4.2(b)) following the date of termination of the Executive’s employment with the Company.
(k)
Solicit. To “solicit” means to encourage or induce, or to take any action that is intended or calculated to encourage
or induce, or which is reasonably likely to result in encouragement or inducement.
(l)
Subsidiary. “Subsidiary” shall mean any Person which is Controlled, directly or indirectly, by the Company,
including through the ownership of stock or other interests in one or more other business enterprises which are connected with the
5.6
Definitions of Terms Used in Section 5.
(m)
Territory. “Territory” means the United States of America.
(a)
with such first Person.
Affiliate. An “Affiliate” of a Person is another Person that Controls, is Controlled by or is under common Control
Compensation Recoupment Policy, as from time to time in effect.
Recoupment. All incentive compensation paid under this Agreement shall be subject to the Company’s Incentive
(b)
Business Associate. “Business Associate” means any employee, representative, consultant or agent of the
Company who is acting in such capacity as of the date hereof or has acted in such capacity at any time within the 12 month period
immediately preceding the date of hire, recruitment, solicitation or retention by the Executive or a Covered Entity.
(c)
Competing Business. A “Competing Business” means a business which is, in whole or in part, directly or
indirectly, competitive with the business of the Company as conducted at the time of enforcement of Section 5.2 (if such enforcement
occurs prior to the termination of the Executive’s employment) or at the time of the termination of the Executive’s employment (if
enforcement of Section 5.2 occurs at or following such time) or under development at either such time, as the case may be, and
expected to be introduced or undertaken within one year following such date of enforcement. Without limiting the generality of the
foregoing sentence, the term Competing Business shall include the business of the Company.
and other items the Company may be required to deduct, as such items may exist under this Agreement or otherwise from time to time.
Withholding. The Executive authorizes the Company to make any and all applicable withholdings of federal and state taxes
Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by the
Executive, the Company and their respective heirs, successors and assigns, except that the Executive shall not have any right to assign or
otherwise transfer this Agreement, or any of the Executive’s rights, duties or any other interest herein, to any party without the prior written
consent of the Company, and any such purported assignment shall be null and void.
of this Agreement.
Survival of Rights and Obligations. The rights and obligations of the parties as stated herein shall survive the termination
(d)
Confidential and Proprietary Information. “Confidential and Proprietary Information” means all information and
any idea in any form whatsoever, tangible or intangible, pertaining in any manner to the business of the Company or any Affiliate of the
Company, or to the Company’s clients, consultants or business associates, unless the information is or becomes publicly known
through lawful means (other than disclosure by the Executive, unless such disclosure by the Executive is made in good faith in the
course of performing the Executive’s duties under this Agreement, or with the express written consent of the Board of Directors).
Entire Agreement. This Agreement sets forth the parties’ sole and entire agreement regarding the subject matter hereof and
supersedes any and all other agreements, statements and representations of the parties, including but not limited to any employment agreement
or other agreement regarding the Executive’s compensation or terms of employment entered into prior to the date hereof. Notwithstanding the
foregoing, benefits provided under the Company’s employee benefit plans, including any awards granted under the Stock Plan, will be subject to
the terms and conditions of the relevant plans and, where applicable, award agreements.
(e)
Control. “Control” means (i) in the case of corporate entities, direct or indirect ownership of more than 50% of the
stock or participating assets entitled to vote for the election of directors; and (ii) in the case of non-corporate entities (such as
individuals, limited liability companies, partnerships or limited partnerships), either (A) direct or indirect ownership of more than fifty
percent 50% of the equity interest or (B) the power to direct the management and policies of the noncorporate entity.
(f)
Covered Entity. “Covered Entity” means every Affiliate of the Executive, and every Person in which the
Executive has invested (whether through debt or equity securities), or to which the Executive has contributed any capital or made any
advances, or in which any Affiliate of the Executive has an ownership interest or profit sharing percentage, or a firm from which the
Executive or any Affiliate of the Executive receives or is entitled to receive income, compensation or consulting fees, or in which the
Executive or any Affiliate of the Executive has an interest as a lender (other than solely as a trade creditor for the sale of goods or
provision of services that do not otherwise violate the provisions of this Agreement). The agreements of the Executive contained
herein specifically apply to each Person which is presently a Covered Entity or which becomes a Covered Entity subsequent to the date
of this Agreement. Notwithstanding the foregoing, nothing contained in this Agreement prohibits the Executive or any Affiliate of the
Executive from owning less than five percent of any class of voting securities registered under the Securities Exchange Act of 1934, as
amended, of any issuer, and no such issuer shall be considered a Covered Entity solely by virtue of such ownership or the incidents
thereof. Further notwithstanding anything contained in the foregoing provisions to the contrary, the term “Covered Entity” shall not
include the Company, any Subsidiary of the Company, or any Affiliate of the Company or any such Subsidiary.
(g)
Engage. To “engage” in a business means (i) to render services in (or with respect to) the Territory for that
business, or (ii to own, manage, operate or control (or participate in the ownership, management, operation or control of) an enterprise
engaged in that business in (or with respect to) the Territory.
(h)
Intellectual Property. “Intellectual Property” means all discoveries, inventions, improvements, computer
programs, formulas, ideas, devices, writings or other intellectual property (including any notes, records, reports, sketches, plans,
memoranda and other tangible information relating to such Intellectual Property), whether or not subject to protection under the patent
or copyright laws, which the Executive shall conceive solely or jointly with others, in the course of, or within the scope of employment,
or which relates directly to the business of the Company or its actual or anticipated research and development, or which was conceived
or created using the Company’s materials or facilities, whether during or after working hours.
11.
Modifications or Waivers. The terms and provisions of this Agreement may be modified or amended only by a written
instrument executed by each of the parties hereto, and compliance with the terms and provisions hereof may be waived only by a written
instrument executed by each party entitled to the benefits thereof. No failure or delay on the part of any party in exercising any right, power, or
privilege granted hereunder shall constitute a waiver thereof, nor shall any single or partial exercise of any such right, power, or privilege
preclude any other or further exercise thereof or the exercise of any other right, power, or privilege granted hereunder.
without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction
Governing Law. This Agreement shall be governed pursuant to federal law, as applicable or the laws of the State of Texas,
other than the State of Texas.
Internal Revenue Code Section 409A. If at the time of the Executive’s termination of employment for reasons other than
death he is a “specified employee” (as such term is defined and determined in accordance with the procedures set forth in Treas. Reg.
§1.409A-1(i)), any amounts payable to the Executive pursuant to this Agreement that are subject to Section 409A of the Internal Revenue Code
(“Code Section 409A”) shall not be paid or commence to be paid until six months following the Employee’s termination of employment or, if
earlier, the Employee’s subsequent death. Each cash payment made pursuant to Section 4 shall be considered a separate payment for purposes
of Code Section 409A. This Agreement is to be construed and interpreted in a manner consistent with Code Section 409A, and the
parties hereto agree to amend this Agreement as necessary to avoid the imposition of penalty taxes under Code Section 409A against the
Executive. No payment required to be made hereunder shall be accelerated or deferred by the Company or the Executive in a manner
that would subject such payment to any excise tax under Code Section 409A.
14.
Severability. If any part, clause or condition of this Agreement is held to be partially or wholly invalid, unenforceable or
inoperative for any reason whatsoever, such shall not affect any other provision or portion hereof, which shall continue to be effective as though
such invalid, unenforceable or inoperative part, clause or condition had not been made. If any provision, or its application to any Person or
circumstance, is held by a court of competent jurisdiction or an arbitrator pursuant to Section 18 hereof to be invalid or unenforceable, the court
or the arbitrator is empowered to and shall modify any such provision so as to be enforceable. All remaining provisions shall remain valid and
enforceable.
15.
Interpretation.
(i)
Person. “Person” means any individual, partnership, limited partnership, corporation, limited liability company,
association, joint stock company, trust, joint venture, unincorporated organization or any other entity.
15.1
Section Headings. The section and subsection heading of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its provisions.
6.
7.
8.
9.
10.
12.
13.
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also recognizes that the territorial, time and scope limitations set forth in Sections 5.1 and 5.2, as applicable, are reasonable and are properly
required for the protection of the Company, and, in the event that any such territorial, time or scope limitation is deemed to be unreasonable by
a court of competent jurisdiction, the Company and the Executive agree, and the Executive submits, to the reduction of any or all of said
territorial, time or scope limitations to such an area, period or scope as said court shall deem reasonable under the circumstances. If such partial
enforcement is not possible, then to the extent permitted by law, the provision shall be deemed severed, and the remaining provisions of this
Agreement shall remain in full force and effect. If any covenant in Section 5.1 or 5.2 is breached, then (to the extent permitted by law) the
Restricted Period with respect to such covenant shall be extended by the number of days during which such breach exists.
5.5
Impact of Breach of Section 5 on Certain Payments. The Executive agrees that the payment of any compensation or benefits
pursuant to Section 4.2 or 4.4 is conditioned on the Executive’s compliance with the provisions of Sections 5.1, 5.2 and 5.3.
(j)
Restriction Period. “Restriction Period” shall mean the period commencing on the date hereof and continuing
during the Executive’s employment with the Company and for a period of one year (two years in the event the Executive is entitled to
continuation of Base Salary under Section 4.2(b)) following the date of termination of the Executive’s employment with the Company.
(k)
Solicit. To “solicit” means to encourage or induce, or to take any action that is intended or calculated to encourage
or induce, or which is reasonably likely to result in encouragement or inducement.
(l)
Subsidiary. “Subsidiary” shall mean any Person which is Controlled, directly or indirectly, by the Company,
including through the ownership of stock or other interests in one or more other business enterprises which are connected with the
Company.
5.6
Definitions of Terms Used in Section 5.
(m)
Territory. “Territory” means the United States of America.
with such first Person.
(a)
Affiliate. An “Affiliate” of a Person is another Person that Controls, is Controlled by or is under common Control
6.
Recoupment. All incentive compensation paid under this Agreement shall be subject to the Company’s Incentive
Compensation Recoupment Policy, as from time to time in effect.
(b)
Business Associate. “Business Associate” means any employee, representative, consultant or agent of the
Company who is acting in such capacity as of the date hereof or has acted in such capacity at any time within the 12 month period
immediately preceding the date of hire, recruitment, solicitation or retention by the Executive or a Covered Entity.
(c)
Competing Business. A “Competing Business” means a business which is, in whole or in part, directly or
indirectly, competitive with the business of the Company as conducted at the time of enforcement of Section 5.2 (if such enforcement
occurs prior to the termination of the Executive’s employment) or at the time of the termination of the Executive’s employment (if
enforcement of Section 5.2 occurs at or following such time) or under development at either such time, as the case may be, and
expected to be introduced or undertaken within one year following such date of enforcement. Without limiting the generality of the
foregoing sentence, the term Competing Business shall include the business of the Company.
7.
Withholding. The Executive authorizes the Company to make any and all applicable withholdings of federal and state taxes
and other items the Company may be required to deduct, as such items may exist under this Agreement or otherwise from time to time.
8.
Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by the
Executive, the Company and their respective heirs, successors and assigns, except that the Executive shall not have any right to assign or
otherwise transfer this Agreement, or any of the Executive’s rights, duties or any other interest herein, to any party without the prior written
consent of the Company, and any such purported assignment shall be null and void.
9.
of this Agreement.
Survival of Rights and Obligations. The rights and obligations of the parties as stated herein shall survive the termination
(d)
Confidential and Proprietary Information. “Confidential and Proprietary Information” means all information and
any idea in any form whatsoever, tangible or intangible, pertaining in any manner to the business of the Company or any Affiliate of the
Company, or to the Company’s clients, consultants or business associates, unless the information is or becomes publicly known
through lawful means (other than disclosure by the Executive, unless such disclosure by the Executive is made in good faith in the
course of performing the Executive’s duties under this Agreement, or with the express written consent of the Board of Directors).
10.
Entire Agreement. This Agreement sets forth the parties’ sole and entire agreement regarding the subject matter hereof and
supersedes any and all other agreements, statements and representations of the parties, including but not limited to any employment agreement
or other agreement regarding the Executive’s compensation or terms of employment entered into prior to the date hereof. Notwithstanding the
foregoing, benefits provided under the Company’s employee benefit plans, including any awards granted under the Stock Plan, will be subject to
the terms and conditions of the relevant plans and, where applicable, award agreements.
(e)
Control. “Control” means (i) in the case of corporate entities, direct or indirect ownership of more than 50% of the
stock or participating assets entitled to vote for the election of directors; and (ii) in the case of non-corporate entities (such as
individuals, limited liability companies, partnerships or limited partnerships), either (A) direct or indirect ownership of more than fifty
percent 50% of the equity interest or (B) the power to direct the management and policies of the noncorporate entity.
(f)
Covered Entity. “Covered Entity” means every Affiliate of the Executive, and every Person in which the
Executive has invested (whether through debt or equity securities), or to which the Executive has contributed any capital or made any
advances, or in which any Affiliate of the Executive has an ownership interest or profit sharing percentage, or a firm from which the
Executive or any Affiliate of the Executive receives or is entitled to receive income, compensation or consulting fees, or in which the
Executive or any Affiliate of the Executive has an interest as a lender (other than solely as a trade creditor for the sale of goods or
provision of services that do not otherwise violate the provisions of this Agreement). The agreements of the Executive contained
herein specifically apply to each Person which is presently a Covered Entity or which becomes a Covered Entity subsequent to the date
of this Agreement. Notwithstanding the foregoing, nothing contained in this Agreement prohibits the Executive or any Affiliate of the
Executive from owning less than five percent of any class of voting securities registered under the Securities Exchange Act of 1934, as
amended, of any issuer, and no such issuer shall be considered a Covered Entity solely by virtue of such ownership or the incidents
thereof. Further notwithstanding anything contained in the foregoing provisions to the contrary, the term “Covered Entity” shall not
include the Company, any Subsidiary of the Company, or any Affiliate of the Company or any such Subsidiary.
(g)
Engage. To “engage” in a business means (i) to render services in (or with respect to) the Territory for that
business, or (ii to own, manage, operate or control (or participate in the ownership, management, operation or control of) an enterprise
engaged in that business in (or with respect to) the Territory.
(h)
Intellectual Property. “Intellectual Property” means all discoveries, inventions, improvements, computer
programs, formulas, ideas, devices, writings or other intellectual property (including any notes, records, reports, sketches, plans,
memoranda and other tangible information relating to such Intellectual Property), whether or not subject to protection under the patent
or copyright laws, which the Executive shall conceive solely or jointly with others, in the course of, or within the scope of employment,
or which relates directly to the business of the Company or its actual or anticipated research and development, or which was conceived
or created using the Company’s materials or facilities, whether during or after working hours.
11.
Modifications or Waivers. The terms and provisions of this Agreement may be modified or amended only by a written
instrument executed by each of the parties hereto, and compliance with the terms and provisions hereof may be waived only by a written
instrument executed by each party entitled to the benefits thereof. No failure or delay on the part of any party in exercising any right, power, or
privilege granted hereunder shall constitute a waiver thereof, nor shall any single or partial exercise of any such right, power, or privilege
preclude any other or further exercise thereof or the exercise of any other right, power, or privilege granted hereunder.
12.
Governing Law. This Agreement shall be governed pursuant to federal law, as applicable or the laws of the State of Texas,
without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction
other than the State of Texas.
13.
Internal Revenue Code Section 409A. If at the time of the Executive’s termination of employment for reasons other than
death he is a “specified employee” (as such term is defined and determined in accordance with the procedures set forth in Treas. Reg.
§1.409A-1(i)), any amounts payable to the Executive pursuant to this Agreement that are subject to Section 409A of the Internal Revenue Code
(“Code Section 409A”) shall not be paid or commence to be paid until six months following the Employee’s termination of employment or, if
earlier, the Employee’s subsequent death. Each cash payment made pursuant to Section 4 shall be considered a separate payment for purposes
of Code Section 409A. This Agreement is to be construed and interpreted in a manner consistent with Code Section 409A, and the
parties hereto agree to amend this Agreement as necessary to avoid the imposition of penalty taxes under Code Section 409A against the
Executive. No payment required to be made hereunder shall be accelerated or deferred by the Company or the Executive in a manner
that would subject such payment to any excise tax under Code Section 409A.
14.
Severability. If any part, clause or condition of this Agreement is held to be partially or wholly invalid, unenforceable or
inoperative for any reason whatsoever, such shall not affect any other provision or portion hereof, which shall continue to be effective as though
such invalid, unenforceable or inoperative part, clause or condition had not been made. If any provision, or its application to any Person or
circumstance, is held by a court of competent jurisdiction or an arbitrator pursuant to Section 18 hereof to be invalid or unenforceable, the court
or the arbitrator is empowered to and shall modify any such provision so as to be enforceable. All remaining provisions shall remain valid and
enforceable.
15.
Interpretation.
(i)
Person. “Person” means any individual, partnership, limited partnership, corporation, limited liability company,
association, joint stock company, trust, joint venture, unincorporated organization or any other entity.
15.1
Section Headings. The section and subsection heading of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its provisions.
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IN WITNESS WHEREOF, the parties hereto have executed, or caused their duly authorized representatives to execute, this
Agreement as of the Effective Date.
EXECUTIVE
James L. Pokluda III
HOUSTON WIRE & CABLE COMPANY
By:
William H. Sheffield
Chairman of the Board
15.2
Gender and Number. Whenever required by the context, the singular shall include the plural, the plural shall include the
singular, and the masculine gender shall include the neuter and feminine genders and vice versa.
16.
Notices. All notices and other communications under or in connection with this Agreement shall be in writing and shall be
deemed given (a) if delivered personally, upon delivery, (b) if delivered by registered or certified mail (return receipt requested), upon the earlier
of actual delivery or three days after being mailed, (c) if given by overnight courier with receipt acknowledgment requested, the next business
day following the date sent, or (d) if given by telecopy, upon confirmation of transmission by telecopy, in each case to the parties at the following
addresses:
To the Company:
with a copy to:
Houston Wire & Cable Company
10201 North Loop East
Houston, TX 77029
Facsimile: (713) 609-2168
Attention: Chairman of the Board
Schiff Hardin LLP
6600 Sears Tower
Chicago, Illinois 60606
Facsimile: (312) 258-5600
Attention: Robert Minkus
To the Executive:
James L. Pokluda III
At the most recent address on file with the Company
17.
Joint Preparation. Each of the parties to this Agreement has negotiated it at length, and has had the opportunity to consult
with and be represented by its or his own competent counsel. This Agreement is therefore deemed to have been jointly prepared by the parties
and any uncertainty or ambiguity existing in it shall not be interpreted against any party, but rather shall be interpreted according to the rules
generally governing the interpretation of contracts.
18.
Mediation and Arbitration. If requested by the Company or the Executive, any unresolved controversy or claim
arising from or related to this Agreement or breach hereof shall be resolved by use of mediation initially, and if that fails to resolve the
matter, by arbitration. Mediation shall be in Houston, Texas, before one mediator qualified in mediation of employment matters
agreed upon by the parties, or if no agreement on a mediator is reached, before a mediator chosen according to the American
Arbitration Association (“AAA”) National Rules for the Resolution of Employment Disputes, specifically the Employment Mediation
Rules. There shall be only one mediator. The parties will use best efforts to obtain a mediator and complete the mediation within 30
days from the date of request for mediation. If the mediation has not been completed within 45 days from the date of request for
mediation, any party may, by notice to all other parties and the AAA, forego mediation and move directly to arbitration under the AAA
National Rules for the Resolution of Employment Disputes; provided, however, that such arbitration shall be before three arbitrators,
not one, and shall be in Houston, Texas. Also, by written agreement signed by the Company and the Executive, the parties hereto may
agree to forego mediation, may make any agreement regarding scheduling of the mediation or the arbitration process, discovery or
hearing, which agreement shall be binding on the mediator or arbitrator, despite any AAA rule to the contrary. In any arbitration, if
the Executive is the prevailing party, the Company shall pay all reasonable attorney’s fees of the Executive, as well as the expenses and
administrative fees related to the arbitration. If the Company is the prevailing party at the arbitration, each party shall pay its own
attorney’s fees and expenses and its share of the administrative fees and expenses related to the arbitration. Notwithstanding the
foregoing provisions of this Section 18, (a) the parties are not required to arbitrate any issue for which injunctive relief is sought by any
party hereto, (b) all parties may seek injunctive relief in any federal or state court having jurisdiction located in Harris County, Texas,
and (c) claims of worker’s compensation and unemployment compensation shall not be subject to arbitration under this Agreement.
19.
Cooperation and Further Actions. The parties agree to perform any and all acts and to execute and deliver any and all
documents necessary or convenient to carry out the terms of this Agreement.
20.
Counterparts. This Agreement may be executed in two or more counterparts, including electronically transmitted
counterparts, each of which shall be deemed an original and all of which shall be considered one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed, or caused their duly authorized representatives to execute, this
Agreement as of the Effective Date.
EXECUTIVE
James L. Pokluda III
HOUSTON WIRE & CABLE COMPANY
By:
William H. Sheffield
Chairman of the Board
15.2
Gender and Number. Whenever required by the context, the singular shall include the plural, the plural shall include the
singular, and the masculine gender shall include the neuter and feminine genders and vice versa.
16.
Notices. All notices and other communications under or in connection with this Agreement shall be in writing and shall be
deemed given (a) if delivered personally, upon delivery, (b) if delivered by registered or certified mail (return receipt requested), upon the earlier
of actual delivery or three days after being mailed, (c) if given by overnight courier with receipt acknowledgment requested, the next business
day following the date sent, or (d) if given by telecopy, upon confirmation of transmission by telecopy, in each case to the parties at the following
addresses:
To the Company:
Houston Wire & Cable Company
with a copy to:
10201 North Loop East
Houston, TX 77029
Facsimile: (713) 609-2168
Attention: Chairman of the Board
Schiff Hardin LLP
6600 Sears Tower
Chicago, Illinois 60606
Facsimile: (312) 258-5600
Attention: Robert Minkus
To the Executive:
James L. Pokluda III
At the most recent address on file with the Company
17.
Joint Preparation. Each of the parties to this Agreement has negotiated it at length, and has had the opportunity to consult
with and be represented by its or his own competent counsel. This Agreement is therefore deemed to have been jointly prepared by the parties
and any uncertainty or ambiguity existing in it shall not be interpreted against any party, but rather shall be interpreted according to the rules
generally governing the interpretation of contracts.
18.
Mediation and Arbitration. If requested by the Company or the Executive, any unresolved controversy or claim
arising from or related to this Agreement or breach hereof shall be resolved by use of mediation initially, and if that fails to resolve the
matter, by arbitration. Mediation shall be in Houston, Texas, before one mediator qualified in mediation of employment matters
agreed upon by the parties, or if no agreement on a mediator is reached, before a mediator chosen according to the American
Arbitration Association (“AAA”) National Rules for the Resolution of Employment Disputes, specifically the Employment Mediation
Rules. There shall be only one mediator. The parties will use best efforts to obtain a mediator and complete the mediation within 30
days from the date of request for mediation. If the mediation has not been completed within 45 days from the date of request for
mediation, any party may, by notice to all other parties and the AAA, forego mediation and move directly to arbitration under the AAA
National Rules for the Resolution of Employment Disputes; provided, however, that such arbitration shall be before three arbitrators,
not one, and shall be in Houston, Texas. Also, by written agreement signed by the Company and the Executive, the parties hereto may
agree to forego mediation, may make any agreement regarding scheduling of the mediation or the arbitration process, discovery or
hearing, which agreement shall be binding on the mediator or arbitrator, despite any AAA rule to the contrary. In any arbitration, if
the Executive is the prevailing party, the Company shall pay all reasonable attorney’s fees of the Executive, as well as the expenses and
administrative fees related to the arbitration. If the Company is the prevailing party at the arbitration, each party shall pay its own
attorney’s fees and expenses and its share of the administrative fees and expenses related to the arbitration. Notwithstanding the
foregoing provisions of this Section 18, (a) the parties are not required to arbitrate any issue for which injunctive relief is sought by any
party hereto, (b) all parties may seek injunctive relief in any federal or state court having jurisdiction located in Harris County, Texas,
and (c) claims of worker’s compensation and unemployment compensation shall not be subject to arbitration under this Agreement.
documents necessary or convenient to carry out the terms of this Agreement.
Cooperation and Further Actions. The parties agree to perform any and all acts and to execute and deliver any and all
counterparts, each of which shall be deemed an original and all of which shall be considered one and the same instrument.
Counterparts. This Agreement may be executed in two or more counterparts, including electronically transmitted
19.
20.
[Signature Page Follows]
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Consent of Independent Registered Public Accounting Firm
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 23.1
Exhibit 31.1
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 12, 2015, 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, 2014.
I, James L. Pokluda III, certify that:
/s/ Ernst & Young LLP
Houston, Texas
March 12, 2015
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57
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-135777) pertaining to the Houston Wire &
I, James L. Pokluda III, certify that:
Consent of Independent Registered Public Accounting Firm
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 23.1
Exhibit 31.1
Cable Company 2000 Stock Plan and the Houston Wire & Cable Company 2006 Stock Plan of our reports dated March 12, 2015, 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, 2014.
/s/ Ernst & Young LLP
Houston, Texas
March 12, 2015
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2014 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 12, 2015
/s/ James L. Pokluda III
James L. Pokluda III
Chief Executive Officer
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Exhibit 31.2
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, 2014 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:
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.
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, 2014 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 12, 2015
/s/ Nicol G. Graham
Nicol G. Graham
Chief Financial Officer
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59
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Nicol G. Graham, certify that:
I have reviewed this annual report on Form 10-K for the year ended December 31, 2014 of Houston Wire & Cable Company;
Exhibit 31.2
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, 2014 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 12, 2015
Date:
March 12, 2015
/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.
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FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
2014
2013*
2012
2011
2010
Net Sales
Sales Per Employee
Operating Income
Operating Margin
Net Income
Diluted Earnings
Per Share
Total Assets
Long-term
Obligations
$ 390,011
$ 383,292
$ 393,036
$ 396,410
$ 308,522
1,017
25,423
908
24,667
954
28,926
1,010
955
33,377
15,006
6.52%
6.44%
7.36%
8.42%
4.86%
14,972
14,594
17,039
19,677
8,619
0.85
0.82
0.96
1.11
0.49
189,813
196,175
197,155
179,153
185,490
Stockholders’ Equity
111,307
110,694
109,080
* Non-GAAP excludes the impact of the goodwill impairment charge of $7,562. See notes 3 and 11 to the consolidated financial statements.
2013 results as reported were operating income of $17,105, net income of $7,902, and diluted earnings per share of $0.44.
54,118
48,478
60,361
50,345
97,338
55,911
85,720
Left to right: G. Gary Yetman, Michael T. Campbell, Wilson B. Sexton, James L. Pokluda III,
Ian Stewart Farwell, Scott L. Thompson, William H. Sheffield, Mark A. Ruelle
DIRECTORS
G. Gary Yetman
Former President & Chief Executive Officer of
Coleman Cable, Inc.
Michael T. Campbell
Independent Director
Wilson B. Sexton
Chairman of the Board of POOLCORP
James L. Pokluda III
President & Chief Executive Officer of
Houston Wire & Cable Company
Ian Stewart Farwell
Independent Director
Scott L. Thompson
Former President, Chief Executive Officer
& Chairman of the Board of
Dollar Thrifty Automotive Group, Inc.
William H. Sheffield
Chairman of the Board of
Houston Wire & Cable Company
Mark A. Ruelle
President & Chief Executive Officer of
Westar Energy, Inc.
CORPORATE HEADQUARTERS
Houston Wire & Cable Company
10201 North Loop East
Houston, Texas 77029-1415
Telephone (713) 609-2100
ANNUAL MEETING
The Annual Meeting of Shareholders will
be held May 5, 2015, at 8:30 a.m. CDT, at
the Company’s corporate headquarters in
Houston, Texas.
COMMON STOCK LISTING
Ticker Symbol: HWCC
Nasdaq Stock Exchange
TRANSFER AGENT
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
INDEPENDENT AUDITORS
Ernst & Young, LLP
1401 McKinney Street, 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) 609-2227, or contacting:
investor.relations@houwire.com.
WEBSITE
www.houwire.com
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HOUSTON WIRE & CABLE COMPANY 2014 Annual Report
ELECTRICAL AND MECHANICAL WIRE AND CABLE FOR INDUSTRY AND INFRASTRUCTURE
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Houston Wire & Cable Company
1-800-HOUWIRE
10201 North Loop East
Houston, Texas 77029
Phone: 713 609 2100
Fax: 713 609 2205
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