HOUSTON WIRE & CABLE COMPANY
2019 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
2019
2018
2017
2016*
2015**
Net Sales
$ 338,286
$ 356,858
$ 317,697
$ 261,644
$ 308,133
Sales Per Employee
Operating Income (loss)
Operating Margin
Net Income (loss)
Diluted Earnings (loss) Per Share
Total Assets
Long-term Obligations
Stockholders’ Equity
783
840
782
733
6,882
13,898
4,604
(3,290)
856
9,435
2.00%
3.89%
1.45%
(1.26)%
3.06%
2,550
0.15
8,636
0.52
(222)
(3,308)
(0.01)
(0.21)
5,171
0.30
240,148
203,057
194,039
175,870
159,113
96,659
71,894
74,995
60,904
39,463
103,628
100,678
90,744
90,131
100,001
* Non-GAAP excludes the impact of the impairment charge of $2,384 and acquisition expenses related to Vertex of $861. See notes 2, 4 and 12 to the consolidated financial statements.
2016 results as reported were an operating loss of $(6,535), net loss of $(6,006) and diluted loss per share of $(0.37).
** Non-GAAP excludes the impact of the impairment charge of $3,417. See notes 3 and 11 to the consolidated financial statements. 2015 results as reported were operating income of
$6,018, net income of $2,044 and diluted earnings per share of $0.12.
Dear Fellow Shareholders:
Over the past several weeks all of our lives have changed, and today we are operating in a business environment that has been fundamentally
altered due to the Coronavirus (COVID-19) pandemic. These are certainly unprecedented times; however, governments, business communities,
and families are leading, adjusting, and persevering in unique and well-intended ways. For that I am grateful. Despite existing near-term challenges,
our optimism for Houston Wire & Cable Company’s ability to execute in the present environment, including maintaining our superior levels of
customer service, remains intact.
Current Operating Environment
Execution of our COVID-19 Preparedness and Business Continuity Plan has enabled all business units including Houston Wire & Cable, Southwest
Wire Rope, Southern Wire, and Vertex to remain 100% operational. The products we supply are critical elements of the industrial, commercial, and
disaster recovery supply chain, and all reporting units are considered “Essential Businesses”. We supply electrical wire and cable used in a myriad
of industrial and commercial applications; steel wire rope and slings used in construction, agriculture and public works projects; and fasteners that
are used extensively in manufacturing, agriculture, power generation, and healthcare. Our nation is reliant on these products for countless applications
that enable daily commerce and civil and economic recovery.
The operating environment is changing daily, pricing pressure has increased, and customer demand varies by regional geography. It is difficult to
predict when the economy will return to pre-COVID-19 levels, therefore, prudent management of working capital and supply chain is a top priority.
Supply Chain
We have a diverse network of domestic and international suppliers. When trade negotiations between the United States and China hit a standstill, the
resulting tariffs impacted a portion of the products that we distribute. Although the majority of our products were not affected, we experienced supply
disruptions for fasteners and some electrical products. We also experienced price increases as a result of the tariffs, which pressured margins.
Where we could, we renegotiated existing supply agreements, and where that was not possible we transitioned to new suppliers. We were disciplined
with our pricing and estimate minimal margin erosion during the transition period. Today we are well positioned with a superior mix of reliable, worldclass,
high quality suppliers to service current market demand and future economic recovery.
Debt Reduction
We enjoy a strong relationship with our lender and in 2019 we extended the term of our asset-based credit facility to 2024 and increased the
borrowing capacity to $115 million. Our credit facility provides our company with the funds needed for successful operations. Our business model
is counter cyclical and generates positive cash flow in periods of decline. In addition, for 2020, we have aggressive plans in place that are focused
on debt reduction and strengthening the balance sheet through comprehensive working capital management and expense reduction.
We look forward to updating you on our progress with these plans in our quarterly communications.
On behalf of our Board of Directors, and all my Houston Wire & Cable Company coworkers, I thank
you for your continued support and the confidence you have placed in our Company.
Sincerely,
James L. Pokluda III
President, CEO and Director
HOUSTON WIRE & CABLE COMPANY
FORM 10-K 2019
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
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
or
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 each class
Common stock, par value $0.001 per share
Trading symbol
HWCC
Name of each exchange on which registered
The Nasdaq Stock Market
Securities registered pursuant to Section 12(b) 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 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 such
files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act
Large Accelerated Filer ☐
Accelerated Filer ☒
Non-Accelerated Filer ☐
Smaller Reporting Company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) 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, 2019 was $83,886,290.
At March 1, 2020, there were 16,556,950 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, 2020.
HOUSTON WIRE & CABLE COMPANY
Form 10-K
For the Fiscal Year Ended December 31, 2019
INDEX
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.
Item 16.
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
Form 10-K Summary
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4
7
7
7
7
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8
8
9
11
18
19
20
21
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ITEM 1. BUSINESS
Overview
PART I
We are a provider of industrial products including electrical and mechanical wire and cable, industrial fasteners, hardware and related services to
the U.S. market. We sell electrical products through wholesale electrical distributors, steel wire rope and synthetic products through rigging
wholesalers, fastener products through industrial distributors, and fabricated steel wire rope and synthetic lifting and hardware products to
distributors and end users. We provide our customers with a single-source solution 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 manufacturers and the customer. The
breadth and depth of wire and cable, fasteners, lifting products and related hardware that we offer requires significant warehousing resources and a
large number of SKUs (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 manufactured 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’ 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 availa bility for the
duration of their projects. 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 o ur 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 prod uct 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 2006, we completed our second initial public offering. In 2010, we pur chased Southwest
Wire Rope LP (“Southwest”), its general partner Southwest Wire Rope GP LLC and its wholly owned subsidiary, Southern Wire (“Southern”), and
subsequently merged the acquired businesses into our operating subsidiary. In 2016 we completed the acquisition of Vertex Corporate Holdings,
Inc., and its subsidiaries (“Vertex”) from DXP Enterprises. Vertex is a master distributor of industrial fasteners, and this acquisition expanded our
product offerings to the industrial marketplace that purchases our wire and cable products.
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 ro pe
slings, chain, shackles, related hardware and corrosion resistant products including inch and metric bolts, screws, nuts, washers, rivets and hose clamps.
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, infrastructure, oilfield services, petrochemical, transportation, utility,
wastewater treatment and food and beverage.
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, where we target the utility, industrial and infrastructure markets.
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. The largest driver of our success in this market results from the level of U.S. investment in upstr eam, midstream and
downstream oil and gas exploration, transportation and production. We provide a wide variety of products specifically designed for u se in
manufacturing, metal/mineral, and oil and gas markets.
Utility Market. The utility market includes large investor-owned utilities, rural cooperatives and municipal power authorities. We are not a
significant distributor of power lines used for the transmission of electricity but have products in our portfolio that are u sed in this sector. We sell
our core products for the construction of power plants and the related pollution control equipment used to comply with environmental stan dards as
well as plant modernizations implemented to extend the life of power generation facilities. Our customers utilize our cabl e management services to
supply the wire and cable required in the construction of new power plants and upgrading of existing power plants.
2
Infrastructure Market. Investments in the development, construction and maintenance of infrastructure markets (including commercial
buildings, education and health care; air, ground and rail transportation; telecommunications, and wastewater) are opportunit ies for our product and
service offerings.
Distribution Logistics
Our national distribution presence and value-added services make us an essential partner in the supply chain for our suppliers, customers and
end users. We have successfully expanded our business from the original location in Houston, Texas to 22 locations nationwide, which includes four
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, cross-dock shipments and customer pick-
up. Freight costs are typically borne by our customers. Due to our shipment volume, we have preferred pricing relationships with our contract carriers.
Customers
During 2019, we served over 10,000 customers, shipping approximately 44,000 SKUs to approximately 14,500 customer loc ations nationwide.
No customer represented 10% or more of our 2019 sales.
Suppliers
We obtain products from leading suppliers and believe we have strong relationships with our top suppliers. We source a portio n of our products
from offshore. While alternative sources are available for the majority of our products, we have strategically concentrated our purchases with our
top suppliers in order to maximize product quality, delivery dependability, purchasing efficiencies, and vendor rebates. As a result, in 2019,
approximately 51% of our purchases came from five suppliers. We do not believe we are dependent on any one supplier for any o f the industrial
products that we sell.
Our top five suppliers in 2019 were AmerCable Incorporated, Belden Inc., General Cable Corporation, Nexans Energy USA, Inc. and Southwire
Company.
Sales
We market our products and related services through an inside sales force situated in our regional offices, a field sales for ce focused on key
geographic markets, and regional sales agencies. By operating under a decentralized structure, 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 ten ure of our sales force
are critical to serving our fragmented and diverse customer and end-user base.
Competition
The industrial products market remains very competitive and fragmented, with several hundred electrical wire and cable, steel wire rope, and
fastener competitors serving this market. The product offerings and levels of service from the other providers of product with which we compe te
vary widely at the national, regional or local levels. In addition to the direct competition with other product providers, we also face, on a varying
basis, competitors that sell products directly or through multiple distribution channels to end-users or other resellers.
In the markets that we sell our industrial products, competition is primarily based on product line breadth, quality, product availability, service
capabilities and price.
Employees
At December 31, 2019, we had 432 employees. Our sales and marketing staff accounted for 201 employees, including 30 field sal es personnel
and 127 inside sales and technical support personnel. We believe that our employee relations are good.
Website Access
We maintain an internet website at www.houwire.com. We make available, 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.
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.
3
ITEM 1A. RISK FACTORS
In addition to other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating our
business, because such factors may have a significant impact on our business, operating results, cash flows and financial condition. As a result of
the risks set forth below and elsewhere in this Annual Report, actual results could differ materially from those projected in any forward-looking
statements.
Downturns in capital spending and cyclicality in the markets we serve have had and could continue to 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 projec ts in the
communications, energy, engineering and construction, general manufacturing, infrastructure, oil and gas, marine construction, marine
transportation, mining, oilfield services, transportation, utility, wastewater treatment and food and beverage 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.
Poor credit market conditions may adversely impact the availability of construction and other project financing, upon which m any 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, 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 invento ry 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, nickel and petrochemical products are components of the products we sell. Fluctuations in the costs of these and other
commodities have historically affected our operating results. If commodity prices decline, the net realizable value of our existing inventory could be
reduced, and our gross profit could be adversely affected. 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, if commodity costs increase, our customers may delay or decrease their purchases of our products.
Our sales are impacted by the level of oil and gas drilling activity.
We estimate that approximately one-third of our sales directly depend upon the level of capital and operating expenditures in the oil and gas
industry, including capital and other expenditures in connection with exploration, drilling, production, gathering, transport ation, refining and
processing operations. Demand for the products we distribute is sensitive to the level of exploration, development and production activity of, and
the corresponding capital and other expenditures by, oil and gas companies. A material decline in oil or gas prices, inability to access capital, and
consolidation within the industry could all depress levels of exploration, development and production activity and, therefore, could lead to a decrease
in our sales due to curtailed capital and MRO expenditures.
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 industrial products. 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 2019, our ten largest customers accounted for approximately 37% of our sales. If we were to lose one or more of our large customers, or if
one or more of our large customers were to significantly reduce their purchases 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 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.
4
An inability to obtain the products that we distribute could result in lost revenues and reduced profits and damage our relat ionships with
customers.
In 2019, we sourced products from approximately 376 suppliers. However, we have adopted a strategy to concentrate our purchases with a small
number of suppliers in order to maximize product quality, delivery dependability, purchasing efficiencies and vendor rebates. As a result, in 2019
approximately 51% 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 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, 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 Christopher M.
Micklas, our Chief Financial Officer. Our success will continue to depend to a significant extent on our executive officers, 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, key
personnel or attract additional qualified management and sales personnel. The loss of any of our executive officers or our ot her 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 p urchases. 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 a leadership position in the industrial supply
industry. We rely upon our management information systems to manage and replenish inventory, determine pricing, 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 industrial products. Competition
is primarily focused in the local service area and is generally based on product line breadth, quality, 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, as well as the increasing trend of our suppliers to
sell direct to our customer and industry consolidation, 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 affe ct our growth and profit
margins.
We may not be able to successfully identify acquisition candidates, effectively integrate newly acquired businesses into our operations or achieve
expected profitability from our acquisitions.
To supplement our growth, we intend to selectively pursue acquisition opportunities. If we are not successful in finding attractive acquisition
candidates that we can acquire on satisfactory terms, or if we cannot complete those acquisitions that we identify, we will not be able to realize the
benefit of this growth strategy.
Acquisitions involve numerous possible risks, including unforeseen difficulties in integrating operations, technologies, serv ices, 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 ge nerate 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.
5
We are anticipating growth in the businesses we acquired in 2010 and in 2016. However, the Southwest reporting unit had an impairment of
intangibles in 2019 and 2018 and goodwill in 2015, and the Southern reporting unit had an impairment of intangibles in 2013 and 2016. Future
goodwill and tradename impairments may result, should the acquired businesses not achieve their currently forecasted growth or profitability targets,
which would adversely affect our results of operations.
We import a relatively small but growing percentage of our wire and cable products, as well as a significant portion of our h ardware products,
from foreign manufacturers. Changes resulting from the 2017 Tax Cuts and Jobs Act could disrupt supply chains on imported goods which could
result in limited availability of supply, or cost competitiveness of supply. In addition, recent tariff proposals have create d uncertainty about future
trade policies and any changes in import tariffs or other trade regulations, could have a negative impact on our cash flow, and require us to change
our sourcing and supply chain strategies, and adversely affect our profitability.
(cid:3)
We may be adversely affected by the potential discontinuation of LIBOR.
In July 2017, the Financial Conduct Authority in the United Kingdom, which regulates LIBOR, publicly announced that it will no longer compel
or persuade banks to make LIBOR submissions after 2021. This announcement is expected to effectively end LIBOR rates beginning in 2022, and,
while other alternatives have been proposed, it is unclear which, if any, alternative to LIBOR will be available and widely accepted in major financial
markets.
Our loan agreement permits both base rate borrowings and LIBOR borrowings. If an alternative to LIBOR is not available and widely accepted
after 2021, our ability to borrow at an alternative to the base rate under our loan agreement may be adversely impacted, and the costs associated with
any potential future borrowings may increase.
Epidemics and other events outside our control, and our inability to successfully mitigate the effects of such events, may ha rm our business.
All of our facilities are subject to natural or man-made disasters such as floods, fires, acts of terrorism, failures of utilities and epidemics or
pandemics such as the coronavirus COVID-19. If such an event were to occur, our business could be harmed due to the event or our inability to
successfully mitigate the effects of the particular event. Potential harms include the loss of business continuity, the loss of business data and damage
to infrastructure.
Our production and supply chains could be severely affected if our employees or the regions in which our facilities or suppliers are located are
affected by a significant outbreak of any disease, epidemic or pandemic. For example, a facility could be closed by government authorities for a
sustained period of time, some or all of our workforce could be unavailable due to quarantine, fear of catching the disease or other factors, and local,
national or international transportation or other infrastructure could be affected, leading to delays or loss of production. In addition, our suppliers
and customers are subject to similar risks, which could lead to a shortage of inventory or components, or a reduction in our customers’ demand for
our products.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Facilities
We operate out of twenty-two distribution centers strategically located throughout the United States with approximately 922,000 square feet of
distribution space. We own three facilities in Houston, Texas, including our corporate headquarters, and two facilities in Louisiana. All of the other
facilities are leased, except for our four locations operated by third-party logistics providers, which are provided under service agreements. Nineteen
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.
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
Christopher M. Micklas
Chief Financial Officer, Treasurer and Secretary
Age
Business Experience
During Last 5 Years
55
Chief Executive Officer since January 2012 and
President since May 2011. Prior thereto, Vice President
Sales & Marketing of the Company from April 2007
until May 2011.
52
Chief Financial Officer, Treasurer and Secretary since
April 2018. Prior thereto, Chief Financial Officer and
Chief Accounting Officer at Par Pacific Holdings, Inc.
from December 2013 until April 2017.
7
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Our common stock is listed on The NASDAQ Global Market under the symbol “HWCC”. As of January 31, 2020, there were 1,498 hold ers of
record, including participants in security position listings. This figure does not include those beneficial holders whose sha res may be held by
brokerage firms and clearing agencies.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The board authorized a stock repurchase program of $25 million in March 2014. The program has no expiration date. Purchases u nder the stock
repurchase program were suspended in November 2016 and reactivated in August 2019. At December 31, 2019, there was $ 8.1 million available
under the program to repurchase stock.
Dividend Policy
Holders of our common stock are entitled to receive dividends when, as and if declared by our Board of Directors. We paid a quarterly cash
dividend from August 2007 until August 2016. The Board of Directors determined to suspend the regular dividend in November 2016, to redeploy
funds for other purposes, including the Vertex acquisition.
As a holding company, our only source of funds to pay dividends is distributions from our operating subsidiaries. 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 agreemen t and we maintain
defined levels of fixed charge coverage and/or 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.
8
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 operations data for each of the years ended December 31, 2019, 2018 and 2017, and the consolida ted balance sheet
data at December 31, 2019 and 2018, from our audited financial statements, which are included in this Form 10-K. We have derived the consolidated
statement of operations data for each of the years ended December 31, 2016 and 2015, and the consolidated balance sheet data at December 31, 2017,
2016 and 2015 from our audited financial statements, which are not included in this Form 10-K.
Year Ended December 31,
2019
2018
2017
2016
2015
(Dollars in thousands, except share data)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Sales
Cost of sales
$
338,286 $
258,364
356,858 $
271,650
317,697 $
245,035
261,644 $
208,694
Gross profit
79,922
85,208
72,662
52,950
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment charge
Total operating expenses
Operating income (loss)
Interest expense
Income (loss) before income taxes
Income tax expense (benefit)
37,180
33,238
2,502
120
73,040
6,882
3,057
3,825
1,275
38,110
30,962
2,178
60
71,310
13,898
2,907
10,991
2,355
36,570
28,716
2,772
—
68,058
4,604
2,073
2,531
2,753
29,369
24,714
3,018
2,384
59,485
(6,535 )
845
(7,380 )
(1,374 )
308,133
242,223
65,910
28,537
25,023
2,915
3,417
59,892
6,018
901
5,117
3,073
Net income (loss)
$
2,550 $
8,636 $
(222 ) $
(6,006 ) $
2,044
Earnings (loss) per share:
Basic
Diluted
$
$
0.16 $
0.15 $
0.53 $
0.52 $
(0.01 ) $
(0.01 ) $
(0.37 ) $
(0.37 ) $
0.12
0.12
Weighted average common shares outstanding:
Basic
Diluted
16,433,644
16,389,876
16,269,611
16,345,679
17,012,560
16,552,866
16,523,599
16,269,611
16,345,679
17,067,593
9
As of December 31,
2019
2018
2017
2016
2015
(Dollars in thousands)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Total assets
Book overdraft (1)
Total debt
Stockholders’ equity
$
$
$
$
$
$
$
4,096 $
56,965 $
114,069 $
240,148 $
— $
83,500 $
103,628 $
1,393 $
59,793 $
94,325 $
203,057 $
— $
71,316 $
100,678 $
— $
57,396 $
88,115 $
194,039 $
3,028 $
73,555 $
90,744 $
— $
44,677 $
79,783 $
175,870 $
3,181 $
60,388 $
90,131 $
—
46,250
75,777
159,113
3,701
39,188
100,001
(1) Our book overdraft is funded by our revolving credit facility as soon as the related checks clear our disbursement accounts
10
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our consolidated financial statements and related notes appearin g elsewhere in
this Form 10-K. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and
assumptions that could cause actual results to differ materially from our expectations. Factors that could cause such differe nces 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 44 years ago, we have grown to be a large provider of industrial products to the U.S. market. Today, we serve over 10,000
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, marine construction and marine transportation, infrastructure, oilfield services, petrochemical, transportation, utility, wastewater treatment
and food and beverage. In the past few years, activity in the MRO market has fluctuated, while the level of competition has increased.
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. Our revenue has been and 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 co ntinued development
and marketing of our private branded products, such as LifeGuardTM. The recent increased levels of economic activity and commodity prices have
impacted sales and the level of demand.
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 ar e 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 a nd 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. Certai n 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.
Inventory Reserves
Inventories are valued at the lower of cost, using the average cost method, or net realizable value. 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. At December 31, 2019 and 2018, inventory reserves totaled $3.6 million and $3.7 million,
respectively. A 20% change in our inventory reserve estimate at December 31, 2019 would have resulted in a change in income before income taxes
of $0.7 million.
Goodwill
Goodwill represents the excess of the amount we paid to acquire businesses over the estimated fair value of tangible assets a nd 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 ca sh flows, discount rates
and asset lives among other items. At December 31, 2019, our goodwill balance was $22.4 million, representing 9.3% of our total assets.
We conduct impairment testing for goodwill annually in the fourth quarter of our fiscal year and more frequently, on an interim basis, when an
event occurs or circumstances change that indicate that the fair value of a reporting unit may have declined below its carrying value. Events or
circumstances which could indicate a probable impairment include, but are not limited to, financial performance, industry and market condit ions,
macroeconomic conditions, reporting unit-specific events, historical results of goodwill impairment testing and the timing of the last performance of
a quantitative assessment.
11
We test goodwill at the reporting unit level, which is defined as an operating segment or one level below an operating segment that constitutes
a business for which financial information is available and is regularly reviewed by management. We have determined that we have four reporting
units for this purpose. Before testing goodwill, we consider whether or not to first assess qualitative factors to determine whether the existence of
events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount
and whether an impairment test is required.
The goodwill impairment test consists of assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of a
reporting unit is less than its carrying amount, including goodwill. We may bypass the qualitative assessment for any reporting unit in any period
and proceed directly to performing the quantitative goodwill impairment test. The quantitative goodwill impairment test, used to identify both the
existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill.
If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of
a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill
allocated to that reporting unit.
When performing goodwill impairment testing, the fair values of reporting units are determined based on valuation techniques using the best
available information. 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 o ur
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 unit.
The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flow s to be generated
from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present va lue 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 methodolo gy uses our projections
of financial performance. The most significant assumptions used in the discounted cash flow methodology are the discount rate and expected future
revenue and operating margins, which vary among reporting units. If actual results are not consistent with our assumptions an d 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.
Intangible Assets
Our intangible assets, excluding goodwill, represent tradenames and customer relationships acquired in purchase transactions. At December 31,
2019, our intangible asset balance was $10.3 million, representing 4.3% of our total assets. Tradenames are not being amortized and are treated as
indefinite-lived assets. Tradenames are tested for recoverability in the fourth quarter of our fiscal year, and more frequently, on an interim basis,
when an event occurs or circumstances change that indicate that the fair value may have declined below its carrying value. We consider whether or
not to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-
not that the fair value of an intangible asset is less than its carrying amount. If as a result of our qualitative assessment, we determine that an impairment
test is required, or alternatively, if we elect to forego the qualitative assessment, we perform a quantitative test and, if required, record an impairment
for the difference in the discounted cash flows and the carrying value. The results of the annual qualitative test for 2019 indicated that certain of the
tradenames at Southwest were impaired. Accordingly, we performed a quantitative test on Southwest which resulted in an impairment charge of $0.1
million in 2019.
We assign useful lives to our intangible assets based on the periods over which we expect the assets to contribute directly or i ndirectly to our
future cash flows. Customer relationships are amortized over 6 to 9 year useful lives. If events or circumstances were to indicate that any of our
definite-lived intangible assets might be impaired, we would assess recoverability based on the estimated undiscounted future cash flows to be
generated from the applicable intangible asset.
When performing quantitative assessments for impairment, we use various assumptions in determining the current fair value of these indefinite-
lived intangible assets, including future expected cash flows and discount rates under the relief from royalty method, as well as other fair value
measures. If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and as set fair values, we may
be exposed to future impairment charges that could be material to our results of operations.
Income Taxes
We determine deferred tax assets and liabilities based on differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and measure them using the enacted tax rates and laws that will be in e ffect when the
differences are expected to reverse. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law, making significant changes to the US
Internal Revenue Code. In 2018, we completed our analysis of our accounting for the income tax effects of tax reform and as a result, no additional
adjustments were recorded.
12
Estimates, judgments and assumptions are required in determining whether deferred tax assets will be fully or partially reali zed. We establish a
valuation allowance to reduce the deferred tax assets when it is more-likely-than-not that some portion or all of the deferred tax assets will not be
realized. In evaluating the ability to realize deferred tax assets, we consider all available positive and negative evidence, in determini ng whether,
based on the weight of that evidence, a valuation allowance is needed for part or all of the deferred tax assets. In de termining the need for a valuation
allowance on our deferred tax assets, we place greater weight on recent and objectively verifiable current information, as compared to more forward-
looking information that is used in valuing other assets on the balance sheet. We have considered taxable income in prior carryback years, future
reversals of existing taxable temporary differences, future taxable income, and tax planning strategies in assessing the need for the valuation
allowance.
We establish liabilities for estimated tax issues, and the provisions and benefits resulting from changes to those liabilities are included in our
annual tax provision along with related interest. We recognize interest on any tax issue as a component of interest expense a nd any related penalties
in other operating expenses.
Sales
Our primary source of revenue is the sale of industrial products based upon purchase orders or contracts with customers, as w ell as billing for
freight charges. Revenue is recognized at a point in time once we have determined that the customer has obtained control over the product. Control
is typically deemed to have been transferred to the customer when the product is shipped, or delivered (either by customer pi ckup or through common
carrier. 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.
Cost of Sales
Cost of sales consists primarily of the average cost of the industrial products 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 genera lly related to annual
purchase targets, as well as inventory obsolescence charges.
Operating Expenses
Operating expenses include all expenses, excluding freight, incurred to receive, sell and ship product and administer the ope rations 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 payroll taxes, health insurance, travel 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 and
finance leases 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.
13
Results of Operations
The following discussion compares our results of operations for the years ended December 31, 2019, 2018 and 2017.
The following table shows, for the periods indicated, information derived from our consolidated statements of operations, expressed as a
percentage of sales for the period presented.
Sales
Cost of sales
Gross profit
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment charge
Total operating expenses
Operating income
Interest expense
Income before income taxes
Income tax expense
Net income (loss)
Year Ended December 31,
2019
2018
2017
100.0 %
76.4 %
23.6 %
11.0 %
9.8 %
0.7 %
n/m
21.6 %
2.0 %
0.9 %
1.1 %
0.4 %
0.8 %
100.0 %
76.1 %
23.9 %
10.7 %
8.7 %
0.6 %
n/m
20.0 %
3.9 %
0.8 %
3.1 %
0.7 %
100.0 %
77.1 %
22.9 %
11.5 %
9.0 %
0.9 %
0.0 %
21.4 %
1.4 %
0.7 %
0.8 %
0.9 %
2.4 %
(0.1 )%
Note: Due to rounding, percentages may not add up to total operating expenses, operating income, income before income taxes o r net income (loss).
Comparison of Years Ended December 31, 2019 and 2018
Sales
Year Ended
December 31,
(Dollars in millions)
Sales
2019
2018
Change
$
338.3 $
356.9 $
(18.6 )
(5.2)%
Our sales in 2019 decreased $18.6 million or 5.2% from 2018. The decrease in sales was primarily due to reduced industrial market demand in oil
and gas geographies, reduced demand for fasteners and reduced availability of inventory due to supply chain disruptions resulting from the on-going
trade discussions between the United States and China. We estimate sales for our project business, which targets end markets for Environmental
Compliance, Engineering & Construction, Industrials, Utility Power Generation, and Mechanical Wire Rope, decreased 5%, while Maintenance,
Repair, and Operations (MRO) sales decreased 6%, as compared to 2018. When adjusted for fluctuations in commodity prices of approximately 2%,
we estimate that MRO and project business sales decreased by 4% and 3%, respectively.
Gross Profit
(Dollars in millions)
Gross profit
Gross profit as a percent of sales
Year Ended
December 31,
2019
2018
Change
$
79.9
$
23.6 %
85.2
$
23.9 %
(5.3 ) (6.2) %
Gross profit decreased $5.3 million or 6.2% from 2018. The decrease in gross profit was primarily due to decreased sales. Gross margin (gross
profit as a percentage of sales) was near flat at 23.6% in 2019 compared to 23.9% in 2018.
14
Operating Expenses
(Dollars in millions)
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment charge
Total operating expenses
Year Ended
December 31,
2019
2018
$
$
37.2
33.2
2.5
0.1
$
38.1
31.0
2.2
0.1
$
73.0
$
71.3
$
Change
(0.9 )
2.3
0.3
0.1
1.7
(2.4) %
7.4 %
14.9 %
0.0 %
2.4 %
Operating expenses as a percent of sales
21.6 %
20.0 %
Salaries and Commissions. Salaries and commissions decreased $0.9 million or 2.4% primarily due to lower commissions resulting from the
reduction in sales and gross profit.
Other Operating Expenses. Other operating expenses increased $2.3 million or 7.4% primarily due to the $2.2 million early termination liability
related to Vertex’s Massachusetts facility lease and additional warehouse distribution expenses resulting from the closure of this facility and t wo
additional warehouse moves in the fourth quarter.
Depreciation and Amortization. Depreciation and amortization increased slightly to $2.5 million in 2019 from $2.2 million in 2018 primarily
due to depreciation on right-of-use assets from the adoption of Accounting Standards Update (“ASU”) 842.
Impairment Charge. The Company recorded non-cash impairment charges in 2019 and 2018 with respect to tradenames at its Southwest
reporting unit. (See Note 4 to our Consolidated Financial Statements)
Operating expenses as a percentage of sales increased to 21.6% in 2019 from 20.0% in 2018, as ope rating expenses increased combined with a
reduction in sales.
Interest Expense
Interest expense increased 5.2% to $3.1 million in 2019 from $2.9 million in 2018 due to higher average debt to fund increase d working capital
and the payment of the early termination liability discussed above. Average debt was $76.6 million in 2019 compared to $76.8 million in 2018. The
average effective interest rate increased slightly to 3.8% in 2019 from 3.7% in 2018.
Income Tax
Income tax expense decreased 45.9% to $1.3 million in 2019 from $2.4 million in 2018. The effective income tax rate was 33.3 % in 2019
compared to 21.4% in 2018. The effective tax rate is affected by recurring items, such as nondeductible expenses, share -based compensation and
state taxes. In addition, the effective tax rate for 2018 included a benefit of (9.5%) for the release of the valuation allowance on our net deferred tax
assets.
15
Comparison of Years Ended December 31, 2018 and 2017
Sales
(Dollars in millions)
Sales
Year Ended
December 31,
2018
2017
Change
$
356.9 $
317.7 $
39.2
12.3 %
Our sales in 2018 increased $39.2 million or 12.3% from 2017. The increase in sales was primarily due to improved industrial activity and
disciplined pricing. We estimate sales for our project business, which targets end markets, encompassing Environmental Compliance, Engineering
& Construction, Industrials, Utility Power Generation, and Mechanical Wire Rope, increased 17%, while MRO sales increased 11% , as compared
to 2017.
Gross Profit
(Dollars in millions)
Gross profit
Gross profit as a percent of sales
2018
2017
Change
$
85.2
$
23.9 %
72.7
$
22.9 %
12.5 17.3 %
Year Ended
December 31,
Gross profit increased $12.5 million or 17.3% from 2017. The increase in gross profit was primarily due to increased sales. Gross margin
increased to 23.9% in 2018 from 22.9% in 2017 primarily due to ongoing pricing discipline and product mix.
Operating Expenses
(Dollars in millions)
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment charge
Total operating expenses
Year Ended
December 31,
2018
2017
Change
$
$
38.1
31.0
2.2
0.1
$
36.6
28.7
2.8
—
4.2 %
1.5
2.2
7.8 %
(0.6 ) (21.4 )%
0.1 100.0 %
$
71.3
$
68.1
$
3.3
4.8 %
Operating expenses as a percent of sales
20.0 %
21.4 %
Salaries and Commissions. Salaries and commissions increased $1.5 million or 4.2% primarily due to additional sales and warehouse personnel,
as well as an increase in commissions due to higher sales and gross profit.
Other Operating Expenses. Other operating expenses increased $2.2 million or 7.8% primarily due to additional warehouse distribution expenses
as sales increased and increased administrative expenses due to increased personnel.
Depreciation and Amortization. Depreciation and amortization decreased slightly to $2.2 million in 2018 from $2.8 million in 2017 primarily
due to the full amortization of the Southern Wire reporting unit tradenames in 2017.
Impairment Charge. The Company recorded a non-cash impairment charge in 2018 with respect to tradenames at its Southwest Wire Rope
reporting unit. (See Note 4 to our Consolidated Financial Statements)
Operating expenses as a percentage of sales decreased to 20.0% in 2018 from 21.4% in 2017. This decrease primarily relates to the leverage
obtained from increased sales, which rose at a higher rate than the increase in operating expenses.
Interest Expense
Interest expense increased 40.2% to $2.9 million in 2018 from $2.1 million in 2017 due to higher average debt to fund increas ed working capital
and an increase in the average effective interest rate. Average debt was $76.8 million in 2018 compared to $71.8 million in 2017. The average
effective interest rate increased to 3.7% in 2018 from 2.8% in 2017.
16
Income Tax
Income tax expense decreased 14.5% to $2.4 million in 2018 from $2.8 million in 2017. The effective income tax rate was 21.4% in 2018
compared to 108.8% in 2017. The 2018 tax rate included a benefit of (9.5%) for the release of the valuation allowance on our net deferred tax assets
and 1.2% for share- based compensation. This compares to the 2017 tax rate which included a 41.0% charge for the establishment of a valuation
allowance on our net deferred tax assets, 15.2% for share-based compensation expense and a 12.9% charge for deferred tax assets in respect of the
tax reform rate change.
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, nickel
and petrochemical products are components of the industrial products we sell, fluctuations in the costs of these and other commodities have
historically affected our operating results. To the extent commodity prices decline, the net realizable value of our existing inventory could also decline,
and our gross profit can be adversely affected because of either reduced selling prices or lower of cost or net realizable value adjustments in the
carrying value of our inventory. We turn our inventory approximately three times a year, therefore, the impact of changes in commodity prices in
any particular quarter would primarily affect the results of the succeeding two calendar quarters. If we are unable to pass o n to our customers future
cost increases due to inflation or rising commodity prices, our operating results could be adversely affected.
Liquidity and Capital Resources
Our primary capital needs are for working capital obligations, capital expenditures, and other general corporate purposes, in cluding acquisitions.
Our primary sources of working capital are cash from operations supplemented by bank borrowings.
Liquidity is defined as the ability to generate adequate amounts of cash to meet the current need for cash. We assess our liquidity in terms of our
ability to generate cash to fund our operating activities. Significant factors which could affect liquidity include the following:
●
●
●
●
●
the adequacy of available bank lines of credit;
cash flows generated from operating activities;
capital expenditures;
acquisitions; and
the ability to attract long-term capital with satisfactory terms
Comparison of Years Ended December 31, 2019 and 2018
Our net cash used in operating activities was $5.6 million in 2019 compared to cash provided by operating activities of $5.3 million in 2018.
We had net income of $2.6 million in 2019 compared to $8.6 million in 2018.
Changes in our operating assets and liabilities resulted in cash used in operating activities of $19.3 million in 2019. The majority of the change
was due to increased inventories of $20.3 million and lease payments of $6.2 million. Partially offsetting these uses of cash was the increase of
accounts payable of $2.6 million, increase in accrued liabilities of $2.4 million and decrease in accounts receivable of $2.6 million.
Net cash used in investing activities was $2.4 million in 2019 compared to $1.5 million in 2018. The increase was primarily d ue to expenditures
for the computer system upgrade and conversion.
Net cash provided by financing activities was $10.7 million in 2019 compared to cash used in financing activities of $2.5 million in 2018. Net
borrowings under our revolver of $12.2 million and the purchase of treasury stock of $1.2 million were the main components of financing activities
in 2019.
Comparison of Years Ended December 31, 2018 and 2017
Our net cash provided by operating activities was $5.3 million in 2018 compared to net cash used in operating activities of $11.3 million in 2017.
We had net income of $8.6 million in 2018 compared to a net loss of $0.2 million in 2017.
Changes in our operating assets and liabilities resulted in cash used in operating activities of $6.2 million in 2018. Invent ories increased $6.8
million in alignment with the increase in sales volume. Accounts receivable increased $2.5 million, primarily due to increased sales in 2018. Partially
offsetting these uses of cash was the decrease in book overdraft of $3.0 million, an increase in accounts payable of $2.8 mil lion, an increase in
accrued and other current liabilities of $2.5 million primarily due to increased inventory and customer volume discounts and a decrease in prepaid
expenses of $1.2 million.
Net cash used in investing activities was $1.5 million in 2018 compared to $1.6 million in 2017.
Net cash used in financing activities was $2.5 million in 2018 compared to net cash provided by financing activities of $12.9 million in 2017.
Net payments under our revolver of $2.2 million and the purchase of treasury stock of $0.2 million were the main components of financing activities
in 2018.
17
Indebtedness
Our principal source of liquidity at December 31, 2019 was working capital of $138.5 million compared to $126.2 million at December 31, 2018.
We also had available borrowing capacity of approximately $22.8 million at December 31, 2019 and $28.7 million at December 31, 2018 under our
loan agreement.
We believe that we will have adequate availability of capital to fund our present operations, meet our commitments on our existing debt, and
fund anticipated growth over the next twelve months, including expansion in existing and targeted market areas. We continuall y seek potential
acquisitions and from time to time hold discussions with acquisition candidates. If suitable acquisition opportunities or working capital needs arise
that would require additional financing, we believe that our financial position and earnings history provide a solid base for obtaining additional
financing resources at competitive rates and terms. Additionally, based on market conditions, we may decide to issue additional shares of common
or preferred stock to raise funds.
Loan and Security Agreement
HWC Wire & Cable Company, Vertex, and Bank of America, N.A., as agent and lender, are parties to the Fourth Amended and Restated Loan
and Security Agreement (the “Loan Agreement”), as amended on December 10, 2019. The Loan Agreement provides a $115 million revolving credit
facility and expires on March 12, 2024. Under certain circumstances we may request an increase in the commitment by an additional $50 million.
Borrowings under the Loan Agreement bear interest at the British Bankers Association LIBOR Rate plus 100 to 150 basis points based on availability,
if a LIBOR loan, or at a fluctuating rate equal to the greatest of the agent’s prime rate, the federal funds rate plus 50 basis points, or LIBOR for a 30-
day interest period plus 150 basis points, if a base rate loan. The unused commitment fee is 25 basis points. Availability under the Loan Agreement
is limited to a borrowing base equal to 85% of the value of eligible accounts receivable, plus the lesser of 70% of the value of eligible inventory or
90% of the net orderly liquidation value percentage of the value of eligible inventory, in each case less certain reserves. The Loan Agreement is
secured by substantially all of our property, other than real estate.
Covenants in the Loan Agreement require us to maintain a specified minimum fixed charge coverage ratio, unless certain availability levels exist.
Repaid amounts can be re-borrowed subject to the borrowing base. As of December 31, 2019, we met the availability-based covenant.
Capital Expenditures
We made capital expenditures of $2.4 million, $1.5 million and $1.8 million in the years ended December 31, 2019, 2018 and 2017,
respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Financial Derivatives
We have no financial derivatives.
Climate Risk
Our operations are subject to inclement weather conditions, which could potentially be related to global warming, including hurri canes,
earthquakes and abnormal weather events. Our previous experience from these events has had a minimal effect on our operation s.
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 t erms 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 real ization of those results is
subject to many risks and uncertainties. Some of these risks and uncertainties are discussed in g reater 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 requi red
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. – Not applicable and has been omitted.
18
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, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Page
F-1
F-2
F-3
F-4
F-5
F-6
19
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Houston Wire & Cable Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Houston Wire & Cable Company (the Company) as of December 31, 2019 and
2018, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2019, 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) (PCAO B), the
Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our repo rt dated March 13, 2020
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the a udit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud , and performing
procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by ma nagement, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 1997.
/s/ Ernst & Young LLP
Houston, Texas
March 13, 2020
F-1
Houston Wire & Cable Company
Consolidated Balance Sheets
December 31,
2019
2018
(In thousands, except
share data)
$
4,096
$
1,393
50,325
6,640
114,069
1,353
1,833
178,316
14,589
10,282
22,353
600
13,481
527
52,946
6,847
94,325
435
737
156,683
11,456
11,179
22,353
930
—
456
$
240,148
$
203,057
$
$
13,858
23,261
2,742
39,861
83,500
11,182
1,977
136,520
11,253
19,232
—
30,485
71,316
—
578
102,379
Assets
Current assets:
Cash
Accounts receivable, net
Trade
Other
Inventories, net
Income tax receivable
Prepaids and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred income taxes
Operating lease right-of-use assets, net
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable
Accrued and other current liabilities
Operating lease liabilities
Total current liabilities
Debt
Operating lease long term liabilities
Other long-term obligations
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: 16,556,950 and 16,611,651 shares outstanding at December 31,
2019 and 2018, respectively
Additional paid-in capital
Retained earnings
Treasury stock
Total stockholders’ equity
21
52,304
108,626
(57,323 )
103,628
21
53,514
105,975
(58,832 )
100,678
Total liabilities and stockholders’ equity
$
240,148
$
203,057
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Houston Wire & Cable Company
Consolidated Statements of Operations
Year Ended December 31,
2019
2018
2017
(In thousands, except share and per share data)
$
338,286
258,364
79,922
37,180
33,238
2,502
120
73,040
6,882
3,057
3,825
1,275
2,550
0.16
0.15
$
$
$
$
$
$
$
356,858
271,650
85,208
38,110
30,962
2,178
60
71,310
13,898
2,907
10,991
2,355
8,636
0.53
0.52
$
$
$
$
317,697
245,035
72,662
36,570
28,716
2,772
—
68,058
4,604
2,073
2,531
2,753
(222 )
(0.01 )
(0.01 )
Sales
Cost of sales
Gross profit
Operating expenses:
Salaries and commissions
Other operating expenses
Depreciation and amortization
Impairment charge
Total operating expenses
Operating income
Interest expense
Income before income taxes
Income tax expense
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
16,433,644
16,552,866
16,389,876
16,523,599
16,269,611
16,269,611
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Houston Wire & Cable Company
Consolidated Statements of Stockholders’ Equity
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury Stock
Stockholders’
Shares
Amount
Equity
Total
Balance at January 1, 2017
20,988,952
Net loss
Repurchase of treasury shares
Amortization of unearned stock
compensation
Impact of forfeited awards
Impact of released vested
restricted stock units
Issuance of restricted stock
awards
Dividends accrual reversal
—
—
—
—
—
—
—
Balance at December 31, 2017
20,988,952
Net income
Repurchase of treasury shares
Amortization of unearned stock
compensation
Amortization of reclassed liability
awards
Impact of forfeited awards
Impact of released vested
restricted stock units
Issuance of restricted stock
awards
Dividend accrual reversal
—
—
—
—
—
—
—
—
Balance at December 31, 2018
20,988,952
Net income
Repurchase of treasury shares
Amortization of unearned stock
compensation
Impact of forfeited awards
Impact of released vested
restricted stock units
Settlement of director’s deferred
compensation
Issuance of restricted stock
awards
Cumulative effect of accounting
change (Note 10)
Balance at December 31, 2019
—
—
—
—
—
—
—
21
—
—
—
—
—
—
—
21
—
—
—
—
—
—
—
—
21
—
—
—
—
—
—
—
(In thousands, except share data)
53,824
—
—
1,004
361
(372 )
(811 )
—
54,006
—
—
1,059
411
179
(353 )
(1,788 )
—
53,514
—
1,471
117
(1,019 )
—
(1,779 )
97,550
(4,531,427 )
(61,264 )
(222 )
—
—
—
—
—
8
97,336
8,636
—
—
—
—
—
—
3
—
(27,156 )
—
(26,707 )
27,519
60,000
—
—
(177 )
—
(361 )
372
811
—
(4,497,771 )
(60,619 )
—
(25,368 )
—
—
(13,332 )
26,185
132,985
—
—
(175 )
—
—
(179 )
353
1,788
—
105,975
2,550
—
(4,377,301 )
—
(262,231 )
(58,832 )
—
(1,188 )
—
—
—
—
—
—
(9,142 )
—
(117 )
77,046
1,019
2,251
16
137,375
1,779
90,131
(222 )
(177 )
1,004
—
—
—
8
90,744
8,636
(175 )
1,059
411
—
—
—
3
100,678
2,550
(1,188 )
1,471
—
—
16
—
—
20,988,952
—
21 $
—
52,304
101
$ 108,626
—
—
(4,432,002 ) $ (57,323 ) $
101
103,628
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Houston Wire & Cable Company
Consolidated Statements of Cash Flows
Year Ended December 31,
2019
2018
(In thousands)
2017
$
2,550
$
8,636
$
(222 )
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Impairment charge
Depreciation and amortization
Amortization of unearned stock compensation
Non-cash lease expense
Provision for doubtful accounts
Provision for refund liability
Provision for inventory obsolescence
Deferred income taxes
Other non-cash items
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Income taxes
Prepaid expenses
Lease payments
Book overdraft
Trade accounts payable
Accrued and other current liabilities
Other operating activities
Net cash (used in) provided by operating activities
Investing activities
Purchase of property and equipment
Proceeds from disposals of property and equipment
Cash refunded (paid) for acquisition
Net cash used in investing activities
Financing activities
Borrowings on revolver
Payments on revolver
Payment of dividends
Purchase of treasury stock/stock surrendered on vested awards
Lease payments
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
$
$
$
120
2,502
1,471
5,887
119
84
515
431
54
2,625
(20,259 )
(918 )
(265 )
(6,194 )
—
2,605
2,394
673
(5,606 )
(2,379 )
5
—
(2,374 )
364,671
(352,487 )
(36 )
(1,172 )
(293 )
10,683
2,703
1,393
60
2,178
1,298
—
73
37
615
(1,344 )
25
(2,507 )
(6,825 )
14
1,201
—
(3,028 )
2,804
2,460
(359)
5,338
(1,503 )
20
—
(1,483 )
367,513
(369,752 )
(48 )
(175 )
—
(2,462 )
1,393
—
4,096
$
1,393
$
—
2,772
1,176
—
68
180
34
1,314
42
(12,719 )
(7,942 )
1,499
(1,368 )
—
(153 )
38
3,571
368
(11,342 )
(1,769 )
8
193
(1,568 )
333,301
(320,133 )
(81 )
(177 )
—
12,910
—
—
—
3,011
$
1,762
$
2,811
$
3,696
$
1,961
64
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Houston Wire & Cable Company Notes to Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies
Description of Business
Houston Wire & Cable Company (the “Company”), through its wholly owned subsidiaries, provides industrial products to the U.S. market
through twenty-two locations in fourteen states throughout the United States. 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 followi ng 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 tha t 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 refund liability, the inventory obsolescence reserve, vendor rebates, the realization of deferred tax assets and the valuation of goodwill
and indefinite-lived assets. Actual results could differ materially from the estimates and assumptions used for the preparation of the finan cial
statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Accounts Receivable
Accounts receivable consists primarily of receivables from customers, less an allowance for doubtful accounts of $0.2 million at December 31,
2019 and 2018. The Company has no contractual repurchase arrangements with its customers. Credit losses have been within management’s
expectations.
(cid:3)
Inventories
Inventories are carried at the lower of cost, using the average cost method, and net realizable value and consist primarily of goods purchased for
resale, less a reserve for obsolescence and unusable items and unamortized vendor rebates. The reserve for inventory is based upon a number of factors,
including the experience of the purchasing and sales departments, age of the inventory, new product offerings, and other factors. The reserve for
inventory may periodically require adjustment as the factors identified above change.
Vendor Rebates
Under many of the Company’s arrangements with its vendors, the Company receives a rebate of a specified amount of consideration, payable
when the Company achieves any of a number of measures, generally related to the volume level of purchases from the vendors. The Company accounts
for such rebates as a reduction of the prices of the vendors’ products and therefore as a reduction of inventory until it sells the products, at which time
such rebates reduce cost of sales in the accompanying consolidated statements of operations. 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 reb ate period. At year end,
the Company recalculates the rebates earned based on actual purchases made.
Property and Equipment
The Company provides for depreciation on a straight-line method over the following estimated
useful lives: Buildings
Machinery and equipment
25 to 30 years
3 to 10 years
Leasehold improvements are depreciated over their estimated life or the term of the lease, whichever is shorter.
Total depreciation expense was approximately $1.7 million for the year ended December 31, 2019, and $1.4 million for each of the years ended
December 31, 2018 and 2017.
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, 2019, the goodwill balance was $22.4 million, representing 9.3% of the Company’s total assets.
F-6
The Company conducts impairment testing for goodwill annually in the fourth quarter of its fiscal year and more frequently, on an interim basis,
when an event occurs or circumstances change that indicate that the fair value of a reporting unit may have declined below its car rying value. Events
or circumstances which could indicate a probable impairment include, but are not limited to, 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.
The Company tests goodwill at the reporting unit level, which is defined as an operating segment or one level below an operating segment that
constitutes a business for which financial information is available and is regularly reviewed by management. The Company determined that it has
four reporting units for this purpose. Before testing goodwill, the Company considers whether or not to first assess qualitative factors to determine
whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less
than its carrying amount and whether an impairment test is required. If as a result of the qualitative assessment, the Company determines that an
impairment test is required, or alternatively, if the Company elects to forego the qualitative assessment, the Company performs a quantitative
assessment and records an impairment to goodwill to the extent the carrying amount of the reporting unit, including goodwill, exceeds the fair value
of the reporting unit. See Note 4 for more details.
Intangibles
Intangible assets, from the acquisition of Southwest and Southern in 2010 and the acquisition of Vertex in 2016, consist of customer relationships
and tradenames. The customer relationships are amortized over 6 to 9 year useful lives. If events or circumst ances 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. If the undiscounted cash flows were less than the carrying value, then the intangible
assets would be written down to their fair value. Tradenames have an indefinite life and are not being amortized and are tested for impairment on an
annual basis. See Note 4 for more details.
Leases
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The assessment is based o n (1) whether the
contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the
use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. All signifi cant lease arrangements
are recognized at lease commencement. Leases with a lease term of 12 months or less at inception are not recorded on the Consolidated Balance
Sheets and are expensed on a straight-line basis over the lease term in the Consolidated Statements of Operations. The Company determines the
lease term by assuming the exercise of renewal options that are reasonably certain. As most of the leases do not provide an implicit int erest rate, the
Company uses the incremental borrowing rate which approximates to a collateralized rate at the commencement date to determine the present value
of future payments that are reasonably certain. See Note 11 for more details.
Self Insurance
The Company retains certain self-insurance risks for health benefits. The Company limits its exposure to these self-insurance risks by maintaining
excess and aggregate liability coverage. Self-insurance reserves are established based on claims filed and estimates of claims incurred but not reported.
The estimates are based on information provided to the Company by its claims administrators.
Segment Reporting
The Company operates in a single operating and reportable segment, sales of industrial products, including electrical and mec hanical wire and
cable, industrial fasteners, hardware and related services to the U.S. market. The Company’s chief operating decision maker (“CODM”) is its Chief
Executive Officer. The CODM makes operational and resource decisions based on company-wide sales and margin performance compared to the
established strategic goals of the Company.
Revenue Recognition, Returns & Allowances
The Company’s primary source of revenue is the sale of industrial products based upon purchase orders or contracts with custo mers. Revenue
is recognized at a point in time once the Company has determined that the customer has obtained control over the product. Control is typically
deemed to have been transferred to the customer when the product is shipped, or delivered (either by customer pickup or throu gh common carrier).
It is not normal Company practice to grant extended payment terms. Revenue is recognized net of any sales taxes collected, which are subsequently
remitted to the appropriate taxing authorities. The Company treats its transportation costs (shipping and handling) as fulfil lment costs and not as a
separate performance obligation. These transportation costs are recorded in cost of sales.
The amount of revenue recognized reflects the consideration the Company expects to be entitled to receive in exchange for pro ducts sold.
Revenue is recorded at the transaction price net of estimates of variable consideration, which may include product returns, trade discounts and
allowances. The Company accrues for variable consideration using the expected value method. Estimates of variable consideration are included in
revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.
Customers are permitted to return product only on a case-by-case basis. Product exchanges are handled as a credit, with any replacement item
being re- invoiced to the customer. Customer returns are recorded as a refund liability, included in accrued and other liabilities, with a corresponding
reduction to sales. The Company has no installation obligations.
The Company may offer sales incentives, which are accrued monthly as an adjustment to sales.
F-7
Shipping and Handling
The Company incurs shipping and handling costs in the normal course of business. Freight amounts invoiced to customers are included as sales,
and freight charges are included as a component of cost of sales.
Credit Risk
No single customer accounted for 10% or more of the Company’s sales in 2019, 2018 or 2017. The Company performs periodic cred it
evaluations of its customers and generally does not require collateral.
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.
Stock-Based Compensation
Restricted stock awards, units and cash awards are valued at the closing price of the Company’s stock on the grant date and are granted under
the Company’s 2017 Stock Plan. Stock options issued under the Company’s now-expired 2006 Stock Plan have an exercise price equal to the fair
value of the Company’s stock on the grant date. The Company recognizes compensation expense ratably over the vesting period. The Company’s
stock-based compensation expense is included in salaries and commissions expense for employees and in other operating expenses for non-employee
directors in the accompanying consolidated statements of operations.
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 ben efits from the award of
equity instruments as operating cash flows. Excess tax benefits result when a deduction reported for tax return purposes for an award of equity
instruments exceeds the cumulative compensation cost for the instruments recognized for financial reporting purposes.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between the carrying amounts of assets and liabilities for financi al
reporting purposes and the amounts used for income tax purposes and are measured using the enacted tax rates and laws that wi ll be in effect when
the differences are expected to reverse. A valuation allowance for deferred tax assets is recognized when it is more -likely-than-not that some or all
of the benefit from the deferred tax assets will not be realized. To assess that likelihood, the Company uses its current financial position, results of
operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies to determine whether a valuation allowance
is required.
Recently Adopted Accounting Standards
The Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) is the sole source of authoritative GAAP
other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standard Update (“ASU”) to
communicate changes to the codification. The Company considers the applicability and impact of all ASUs. The following are those recent A SUs
that were recently adopted by the Company.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Under the new guidance as amended, a lessee is required to
recognize a right-of use asset and a lease liability for leases greater than 1 year, both finance and operating leases. This update was effective for
public companies for fiscal years beginning after December 15, 2018. Under the transition rules, an entity initially applies the new leases standard
at the adoption date, and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption and the
comparative periods presented in the financial statements continue to be in accordance with previously-existing GAAP. The Company adopted this
ASU effective January 1, 2019. See Note 11 for detailed information.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-
Based Payment Accounting,” which simplifies the accounting for share-based payment arrangements with nonemployees for goods and services.
Under the ASU, the guidance on such payments to nonemployees is aligned with the accounting for share-based payments granted to employees,
including the measurement of equity-classified awards, which is fixed at the grant date under the new guidance. The ASU superseded Subtopic 505-
50, “Equity - Equity-Based Payments to Non-Employees,” and was effective for public entities for interim and annual reporting periods beginning
after December 15, 2018. The Company adopted this ASU in the first quarter of 2019, and the adoption did not have a material impact on the
Company’s consolidated financial statements.
F-8
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement.” The amendments in this update eliminate, add and modify certain disclosure requirements for fair value
measurements as part of the FASB’s disclosure framework project. The guidance is effective for public companies beginning in the first quarter of
2020. The Company is currently assessing the impact of this ASU on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40); Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The amendments in this update
require implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same
premises of authoritative guidance for internal-use software, and deferred over the non-cancellable term of the cloud computing arrangement plus any
option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider.
The guidance is effective for public companies beginning in the first quarter of 2020. The Company is currently assessing the impact of this ASU on
its consolidated financial statements.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU,
among other narrow-scope improvements, clarifies guidance around how to report expected recoveries. This ASU permits organizations to record
expected recoveries on assets purchased with credit deterioration. In addition to other narrow technical improvements, the AS U also reinforces
existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities. The effective date and
transition methodology are the same as in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The FASB deferred the effective dates of this ASU for smaller reporting companies (“SRC”) to fiscal years beginning after
December 15, 2022. As of December 31, 2019, the Company qualifies as a SRC and will adopt this ASU in the first quarter of 20 23.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes
specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether certain exceptions
apply in a given period. This ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP
for: a) Franchise taxes that are partially based on income; b) Transactions with a government that result in a step up in the tax basis of goodwill; c)
Separate financial statements of legal entities that are not subject to tax; and d) Enacted changes in tax laws in interim periods. For public business
entities, ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company
is currently assessing the impact of this ASU on its consolidated financial statements.
2. Earnings (loss) per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding.
Diluted earnings (loss) per share include the dilutive effects of options and unvested restricted stock awards and units.
The following reconciles the denominator used in the calculation of diluted earnings (loss) per share:
Denominator:
Weighted average common shares for basic earnings per share
Effect of dilutive securities
Denominator for diluted earnings per share
16,433,644
119,222
16,552,866
16,389,876
133,723
16,523,599
16,269,611
—
16,269,611
Year Ended December 31,
2019
2018
2017
Stock awards to purchase 369,325, 298,406 and 808,391 shares of common stock were not included in the diluted net income (loss) per share
calculation for 2019, 2018 and 2017, respectively, as their inclusion would have been anti-dilutive. In 2017 and for the first quarter of 2018, the
Company calculated earnings per share using the “two-class” method, whereby unvested share-based payment awards that contained non-forfeitable
rights to dividends or dividend equivalents were considered “participating securities”, as discussed in Note 9, and therefore, these participating
securities were treated as a separate class in computing earnings per share.
F-9
3. Detail of Selected Balance Sheet Accounts
Accounts Receivable
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
2019
2018
2017
(In thousands)
$
$
182 $
119
(90)
211 $
172 $
73
(63 )
182 $
151
68
(47 )
172
The following table summarizes the changes in the inventory reserves for the past three years:
Balance at beginning of year
Provision for inventory write-downs
Deduction for inventory write-offs
Balance at end of year
2019
2018
2017
$
$
(In thousands)
3,709 $
515
(640)
3,584 $
3,925 $
615
(831 )
3,709 $
4,366
34
(475 )
3,925
Property and Equipment, net
Property and equipment are stated at cost and consist of:
Land
Buildings
Machinery and equipment (1)
Less accumulated depreciation
Total
(1) This includes finance leases. See Note 11 for more details.
Intangible assets
Intangible assets consist of:
Tradenames
Customer relationships
Less accumulated amortization:
Tradenames
Customer relationships
At December 31,
2019
2018
(In thousands)
$
$
2,476
8,712
19,199
30,387
(15,798 )
$
14,589
$
2,476
8,501
14,867
25,844
(14,388 )
11,456
$
At December 31,
2019
2018
(In thousands)
$
5,816
18,620
24,436
—
(14,154 )
(14,154 )
5,936
18,620
24,556
—
(13,377 )
(13,377 )
Total
$
10,282
$
11,179
F-10
As of December 31, 2019, accumulated amortization on the acquired intangible assets was $14.2 million, and amortization expense was $0.8
million in the years ended December 31, 2019 and 2018 and $1.4 million in the year ended December 31, 2017. Future amortizati on expense to be
recognized on the acquired intangible assets is expected to be as follows:
Intangible assets
Intangible assets consist of:
Tradenames
Customer relationships
Less accumulated amortization:
Tradenames
Customer relationships
Total
Goodwill
Balance at beginning of year
Less purchase price adjustment
Balance at end of year (1)
$
At December 31,
2019
2018
(In thousands)
$
5,816
18,620
24,436
—
(14,154 )
(14,154 )
5,936
18,620
24,556
—
(13,377 )
(13,377 )
$
10,282
$
11,179
At December 31,
2019
2018
$
$
(In thousands)
$
22,353
—
22,353
$
22,353
—
22,353
(1) The balance is net of $12.6 million of accumulated impairment losses, of which none were recorded in 2019 or 2018.
F-11
Accrued and Other Current Liabilities
Goodwill
Balance at beginning of year
Less purchase price adjustment
Balance at end of year (1)
At December 31,
2019
2018
$
$
(In thousands)
$
22,353
—
22,353
$
22,353
—
22,353
(1) The balance is net of $12.6 million of accumulated impairment losses, of which none were recorded in 2019 or 2018.
4.
Impairment of Goodwill and Intangible Assets
The annual goodwill and indefinite-lived intangibles impairment test was performed using the qualitative assessment option as of October 1,
2019 for the Southern, Southwest and Vertex reporting units, resulting in a conclusion that it was more-likely-than-not that the fair value of the
reporting units exceeded their respective carrying values except for certain tradenames of the Southwest reporting unit for which a quantitative test
was necessary and an impairment charge of $0.1 million was recorded in 2019.
In 2018, a quantitative assessment was performed in which the fair values of the reporting units were estimated using a discounted cash flow
model (income approach) and a guideline public company method (market approach), giving 50% weight to each. The material assu mptions used
included cash flows based on future expected performance for the reporting units, weighted average costs of capital ranging from 11.5% to 15.0%,
a long-term growth rate of 3% for the income approach and a control premium of 25.0% for the guideline public company method. The re sults of
the test indicated that certain of the tradenames at Southwest were impaired. Accordingly, a charge of less than $0.1 million was recorded for 2018.
The Company is still anticipating significant growth in the businesses acquired in 2010 and in 2016. If this projected growth is not achieved and
or there are future reductions in our market capitalization or market multiples, further goodwill and intangible assets impai rments may result.
5. Debt
On March 12, 2019 and December 10, 2019, the Company, as guarantor, HWC Wire & Cable Company and Vertex, as borrowers, and Bank of
America, N.A., as agent and lender, entered into the Second and Third Amendments, respectively, to the Fourth Amended and Res tated Loan and
Security Agreement (such agreement, as so amended, the “Loan Agreement”). The Second Amendment extends the expiration date until March 12,
2024 and the Third Amendment increases the revolving credit facility to $115 million. Under certain circumstances the Company may request an
increase in the commitment by an additional $50 million.
Portions of the loan 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 100 to 150 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 bas is points, or 30-day LIBOR
plus 150 basis points. The unused commitment fee is 25 basis points.
Availability under the Loan Agreement is limited to a borrowing base equal to 85% of the value of eligible accounts receivable, plus the lesser
of 70% of the value of eligible inventory or 90% of the net orderly liquidation value percentage of the value of eligible inventory, in each case less
certain reserves. The Loan Agreement is secured by substantially all of the property of the Company, other than real estate.
The Loan Agreement includes, among other things, covenants that require the Company to maintain a specified minimum fixed charge coverage
ratio, unless certain availability levels exist. Additionally, the 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 avai lability. The Loan
Agreement contains certain provisions that may cause the debt to be classified as a current liability, in accordance with GAAP, if availability falls
below certain thresholds, even though the ultimate maturity date under the Loan Agreement remains March 12, 2024. At December 31, 2019, the
Company was in compliance with the availability- based covenant and fixed coverage ratio governing its indebtedness.
The carrying amount of long term debt approximates fair value as it bears interest at variable rates. The fair value is a Level 2 measurement as defined
in ASC Topic 820, “Fair Value Measurement.”
The Company’s borrowings at December 31, 2019 and 2018 were $83.5 million and $71.3 million, respectively. The weighted average interest rate on
outstanding borrowings were 3.4% and 4.1% at December 31, 2019 and 2018, respectively.
At December 31, 2019, the Company had available borrowing capacity of $22.8 million under the terms of the Loan Agreement. The Company paid
$0.1 million for each of the years ended December 31, 2019, 2018, and 2017, for the unused facility.
F-12
Principal repayment obligations for succeeding fiscal years are as follows:
2020
2021
2022
2023
2024
Total
6.
Income Taxes
The provision (benefit) for income taxes consists of:
(In thousands)
—
—
—
—
83,500
83,500
$
$
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total
Year Ended December 31,
2019
2018
(In thousands)
2017
$
719
125
844
400
31
431
$
$
3,041
658
3,699
(1,246 )
(98 )
(1,344 )
1,280
159
1,439
1,259
55
1,314
$
1,275
$
2,355
$
2,753
A reconciliation of the U.S. Federal statutory tax rate to the effective tax rate on income before taxes is as follows:
Federal statutory rate
State taxes, net of federal benefit
Impairment, non-deductible portion
Share-based compensation
Non-deductible items
Valuation allowance
Tax reform rate change
Other
Total effective tax rate
Year Ended December 31,
2019
2018
2017
21.0 %
3.4
—
3.7
5.4
—
—
(0.2 )
33.3 %
21.0 %
4.3
0.1
1.2
2.1
(9.5 )
—
2.2
21.4 %
35.0 %
4.2
—
15.2
4.6
41.0
12.9
(4.1 )
108.8 %
F-13
Significant components of the Company’s deferred taxes were as follows:
Deferred tax assets:
Operating lease right-of-use assets
Inventory reserve
Uniform capitalization adjustment
Stock compensation expense
State deferred tax asset
Accrued commission
Other
Total deferred tax assets
Deferred tax liabilities
Operating lease right-of-use assets
Goodwill
Intangible assets
Other
Total deferred tax liabilities
Net deferred tax assets
$
Year Ended
December 31,
2019
2018
(In thousands)
$
2,924
915
1,394
568
128
106
144
6,179
(2,831 )
(715 )
(1,904 )
(129 )
(5,579 )
—
1,007
1,254
586
145
297
230
3,519
—
(554 )
(1,976 )
(59 )
(2,589 )
$
600
$
930
On December 22, 2017, the United States enacted significant changes to the U.S. tax law following the passage and signing of H.R.1, “An Act to
Provide the Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (previously known as “The
Tax Cuts and Jobs Act”). In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to
SEC Staff Accounting Bulletin No. 118 (SEC Update).” This ASU added the SEC guidance released on December 22, 2017 regarding the income
tax accounting implication of the Tax Cuts and Jobs Act to ASC Topic 740. During 2017, the Company recorded income tax expense of $0.3 million
to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%. As of December 31, 2018, the Company completed its analysis of its
accounting for the income tax effects of tax reform and as a result no additional adjustments were recorded.
The Company does not have any unrecognized tax benefits recorded at December 2019, 2018 and 2017. The Company recognizes intere st on
any tax issue as a component of interest expense and any related penalties in other operating expenses. As of December 31, 20 19, 2018 and 2017,
the Company recorded no provision for interest or penalties related to uncertain tax positions. The tax years 2015 through 20 19 remain open to
examination by the major taxing jurisdictions to which the Company is subject.
6. Stockholders’ Equity
On March 7, 2014, the Board of Directors adopted a 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 are held as treasury shares and may be used to satisfy the exercise of o ptions, issuance of
restricted stock, to fund acquisitions or for other uses as authorized by the Board of Directors. In November 2016, the Board of Directors suspended
purchases under the stock repurchase program. In August 2019, the plan was reactivated. During 2019, the Company made repurch ases under the
stock repurchase program of 235,500 shares for a total cost of $1.1 million.
Under the terms of the 2017 Stock Plan, the Company acquired 26,731 shares and 25,368 shares that were surrendered by the holders to pay
withholding taxes in 2019 and 2018, respectively.
The Company paid a quarterly cash dividend from August 2007 until August 2016. The Company has not paid a cash dividend since 2016.
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.
F-14
5. Retirement-related Benefits
Defined Contribution Plan
The Company maintains a combination profit-sharing plan and salary deferral plan for the benefit of its employees who are not covered by a
collective bargaining agreement. 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 Sections 401(k), 404, and 415, subject to the IRS-imposed
dollar limit. Employee contributions are invested in certain equity and fixed-income securities, based on employee elections. The Company matches
100% of the first 1% of the employee’s contribution. The Company’s match for the years ended December 31, 2019, 2018 and 2017 was $0.2 million
for each year.
Defined Benefit Plan
The Company has a non-contributory defined benefit pension plan for those current and former employees of Vertex who are subject to a
collective bargaining agreement. Effective November 30, 2019, there are no active employees in the plan as the plan was froze n with the closure of
Vertex’s Massachusetts facility. The benefit provisions to participants of the defined benefit plan were calculated based on the number of years of
service and an annual negotiated plan benefit per year of service. Annual compensation (or future compensation increases) is not used in cal culating
the benefit or future plan contributions. It is the Company’s policy to fund amounts for pensions sufficient to meet the minimum funding requirements
set forth in applicable employee benefit laws, which currently approximate the benefit payments made each year. A total contribution of less than
$0.1 million was made during each of the years ended December 31, 2019, 2018 and 2017.
The current projected benefit obligation was $1.3 million and $1.1 million as of December 31, 2019 and 2018, respectively. Th e discount rate
used to determine the projected benefit obligation was 3.2% and 4.2% in 2019 and 2018, respectively.
The fair value of the assets of the defined benefit plan was $1.3 million and $1.0 million in 2019 and 2018, respectively. The plan assets are all
classified as Level 1 and as such have readily observable prices and therefore a reliable fair market value.
As of November 30, 2019, the defined benefit plan is inactive, with no additional incremental benefits being accrued and no c ontributions being
made.
6.
Incentive Plans
On August 4, 2017, the Board of Directors approved the Houston Wire & Cable Company 2017 Stock Plan (the “2017 Plan”). The 20 17 Plan
was approved by the stockholders at the 2018 Annual Meeting on May 8, 2018. The 2017 Plan provides for discretionary grants of stock options,
stock awards, stock units and stock appreciation rights (SARs) to employees and directors up to a total of 1,000,000 shares. Shares issuable under
the 2017 Plan may be authorized but unissued shares or treasury shares. If any award granted under the 2017 Plan expires, terminates or is forfeited
or cancelled for any reason, the shares subject to the award will again be available for issuance. Any shares subject to an award that are delivered to
the Company or withheld by the Company on behalf of a participant as payment for the award (including the exercise price of a stock option or SAR)
or as payment for any withholding taxes due in connection with the award, or that are purchased by the Company with proceeds received from a
stock option exercise, will not again be available for issuance. The 2017 Plan’s purpose is to attract and retain outstanding individuals as employees
and directors of the Company and its subsidiaries and to provide them with additional incentive to expand and improve the Company’s profits by
giving them the opportunity to acquire or increase their proprietary interest in the Company.
The 2017 Plan succeeded the Company’s 2006 Stock Plan (the “2006 Plan”), which expired on May 1, 2017. The types of equity awards
previously authorized under the 2006 Plan did not significantly differ from those permitted under the 2017 Plan.
Stock Option Awards
The Company may grant options to purchase its common stock to employees and directors of the Company under the 2006 Plan and 2017 Plan
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. Each plan contains 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 2019, 2018 or 2017.
F-15
All granted stock options have vested, with the last grant having an expiration date of December 20, 2021. The following summarizes stock
option activity and related information:
Options
(in 000’s)
Weighted
Average
Exercise Price
Aggregate
Intrinsic
Value
Weighted
Average
Remaining
Contractual Life
(in years)
2019
2018
2019
2018
2019
2018
2019
2018
Outstanding-Beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding-End of year
154
—
—
(22)
(10)
122
223
—
—
(30)
(39)
154
13.40
—
—
13.04
10.32
13.72
$ —
$ —
2.52
2.84
13.10
—
—
11.17
13.42
13.40
$ —
$ —
$ —
1.75
1.75
2.52
2.52
Exercisable-End of year
122
154
13.72
13.40
$ —
There was no excess tax benefit for the years ended December 31, 2019, 2018 and
2017.
There were no options exercised in the years ended December 31, 2019, 2018 and 2017. There is no intrinsic value of options outstanding and
exercisable as of December 31, 2019 as the closing stock price at the end of 2019 creates a negative intrinsic value.
The total grant-date fair value of options vested during 2019 was $0, as all the options vested as of December 31, 2018. The total grant-date fair
value of options vested during the year ended December 31, 2017 was $0.2 million.
Restricted Stock Awards, Restricted Stock Units and Cash Awards
As a result of the approval of the 2017 Plan by the stockholders at the 2018 Annual Meeting, all cash/liability awards granted prior to stockholder
approval of the 2017 Plan were reclassified to restricted stock units (equity) effective May 8, 2018. The total liability reclassified to additional paid-
in-capital was $0.4 million. This modification resulted in an increase in total fair value of $0.1 million, recognized over the terms of the grants, which
range from 1 to 5 years.
On December 3, 2019, the Board of Directors granted to the Company’s President and CEO 78,125 voting shares of restricted sto ck and to the
CFO, 19,531 voting shares of restricted stock under the 2017 Plan. The shares vest in one-third increments on the first, second and third anniversaries
of the date of grant, in each case as long as the recipient is then employed by the Company. Any dividends declared will be accrued and paid if and
when the related shares or units vest.
Also, on December 3, 2019, the Board of Directors granted 250,000 shares of restricted stock to the Company’s President and CEO and 125,000
shares of restricted stock to the CFO. Each grant vests if there is a Change in Control of the Company (as defined in the 2017 Plan) on or before
December 2, 2024, as long as the recipient remained in continuous employment with the Company or a Subsidiary until the Change in Control or if
the recipient was terminated by the Company without cause within one year before the Change in Control. Any dividends declare d will be accrued
and paid to the grantee if and when the related shares vest.
The Board of Directors also granted 39,719 voting shares of restricted stock under the 2017 Plan to members of management in December 2019.
The shares vest in one-third increments on the third, fourth and fifth anniversaries of the date of grant, in each case as long as the recipient is then
employed by the Company. Any dividends declared will be accrued and paid if and when the related shares or units vest.
Following the Annual Meeting of Stockholders on May 7, 2019, the Company granted restricted stock units with a grant date value of $60,000
to each nonemployee director who was elected, for an aggregate of 58,920 restricted stock units. Each award of restricted sto ck units vests at the
date of the 2020 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.
On March 12, 2019, the Board of Directors granted 52,910 performance stock units to the Company’s President and CEO and 13,228
performance stock units to the CFO. Each grant of performance stock units vests on December 31, 2021, based on and subject to the Company ’s
achievement of cumulative EBITDA and stock price performance goals over a three-year period, as long as the grantee is then employed by the
Company, and upon vesting will be settled in shares of our common stock. Any dividends declared will be accrued and paid to the grantee if and
when the related shares vest.
On December 4, 2018, the Board of Directors granted to the Company’s President and CEO 48,387 voting shares of restricted stock and to the
CFO, 12,097 voting shares of restricted stock under the 2017 Plan. The shares vest in one-third increments on the first, second and third anniversaries
of the date of grant, in each case as long as the recipient is then employed by the Company. Any dividends declared will be accrued and paid if and
when the related shares or units vest.
F-16
The Board of Directors also granted 44,357 voting shares of restricted stock under the 2017 Plan to members of management on December 4,
2018. The shares vest in one-third increments on the third, fourth and fifth anniversaries of the date of grant, in each case as long as the recipient is
then employed by the Company. Any dividends declared will be accrued and paid if and when the related shares or units vest.
On November 6, 2018 and June 1, 2018, the Company awarded restricted stock units with a grant date value of $30,000 and $55,0 00 for a total
of 4,950 and 6,667 restricted stock units, respectively, to its newly appointed non-employee directors. These awards of restricted stock units vest at
the date of the 2019 Annual Meeting of Stockholders. Each 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 May 8, 2018, the Company approved the award of restricted stock units with a grant date value of $60,000 to each non-employee director who
was re- elected, for an aggregate of 31,372 restricted stock units. Each award of restricted stock units vests at the date of the 201 9 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.
Also on May 8, 2018, the Company granted 28,144 voting shares of restricted stock to new members of the management team. Of t he 28,144
shares granted, 26,144 shares vest in one third increments on the first, second and third anniversaries of the date of grant and the remaining 2,000
shares vest in one third increments on the third, fourth and fifth anniversaries of the date of grant, in each case as long a s the recipient is then
employed by the Company. Any dividends declared will be accrued and paid if and when the related shares vest.
Restricted common shares and restricted stock units 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 t he
number of awards that vest.
The following summarizes restricted stock activity for the years ended December 31, 2019 and 2018:
2019
2018
Shares
Weighted
Average
Market
Value at
Grant Date
Shares
(in 000’s)
Weighted
Average
Market
Value at
Grant Date
Shares
(in 000’s)
Non-vested -Beginning of year
Granted
Vested
Cancelled/Forfeited
Expired
Cash awards converted to equity
Non-vested -End of year
Shares
(in 000’s)
Non-vested -Beginning of year
Granted
Vested
Cancelled/Forfeited
Expired
Cash awards converted to equity
Non-vested -End of year
259 $
511
(107 )
(9 )
—
—
654 $
2019
215 $
125
(60)
(3)
—
—
277
6.78
3.84
7.24
6.34
—
—
5.18
Units
Weighted
Average
Market
Value at
Grant Date
Shares
(in 000’s)
7.59
5.88
7.59
7.65
—
—
6.83
$
238
133
(99 )
(13 )
—
—
259
2018
$
40
43
(60 )
(5 )
—
197
215
7.33
6.51
7.61
7.63
—
—
6.78
Weighted
Average
Market
Value at
Grant Date
7.50
7.47
7.65
7.65
—
7.65
7.59
F-17
Total stock-based compensation cost was $1.5 million for the year ended December 31, 2019, $1.3 million for the year ended December 31,
2018, and $1.2 million for the year ended December 31, 2017, of which $1.0 million was for equity awards and $0.2 million was for l iability
awards. Total income tax benefit recognized for equity awards stock-based compensation arrangements was $0.2 million for each of the years ended
December 31, 2019, 2018 and 2017.
As of December 31, 2019, there was $1.8 million of total unrecognized compensation cost related to non-vested, stock-based compensation
arrangements. The cost is expected to be recognized over a weighted average period of approximately 26 months. There are 5,148 shares available for
future grants under the 2017 Plan at December 31, 2019.
7. Commitments and Contingencies
The Company had aggregate purchase commitments for fixed inventory quantities of approximately $59.0 million at December 31, 2019.
The Company had outstanding under the Loan Agreement letters of credit totaling $1.8 million to certain vendors as of December 31, 2019.
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 the Company’s consolidated financial position, cash
flows, or results from operations.
8. Leases
Effective January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842)” and the series of related ASUs that followed
(collectively referred to as “Topic 842”). The most significant changes under the new guidance include clarification of the definition of a lease, and
the requirements for lessees to recognize a right-of-use (ROU) asset and a lease liability for all qualifying leases with terms longer than twelve months
in the consolidated balance sheet. In addition, under Topic 842, additional disclosures are required to meet the objective of enabling users of financial
statements to assess the amount, timing and uncertainty of cash flows arising from leases.
The Company elected the practical expedient available under ASU 2018-11 “Leases: Targeted Improvements,” which allows the Company to
apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earliest comparative period presented in the Company’s
financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019 but without retrospec tive application. The
Company also elected all other available practical expedients except the hindsight practical expedient. In electing the practical expedients, the
Company utilized the transition practical expedient package whereby the Company did not reassess (i) whether any of the Compa ny’s expired or
existing contracts contain a lease,
(ii) the classification for any expired or existing leases and (iii) initial direct costs for any existing leases.
The impact of Topic 842 on the Company’s consolidated balance sheet as of January 1, 2019 was the recognition of ROU assets a nd lease
liabilities for operating leases, while the Company’s accounting for finance leases remained substantially unchanged. The Com pany’s finance leases
were immaterial prior to the adoption of Topic 842, and no change was made to the classification of these leases. As a result of the adoption of Topic
842, beginning retained earnings was impacted by $0.1 million and there was no impact to the income statement.
The Company leases property including warehouse space, offices, vehicles and equipment. The Company de termines if an arrangement is a
lease at inception. As part of the transition to the new standard, the Company reviewed agreements with suppliers, vendors, c ustomers, and other
outside parties to determine if any agreements met the definition of an embedded lease. This is based on the nature of the contracts reviewed, and
various factors, including identified assets included in the agreement to which the Company has exclusive rights of control a s described by Topic
842. The Company concluded that these are not material agreements with parties that would constitute an embedded lease. For purposes of calculating
operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company
will exercise that option.
Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments
over the lease term at commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining
lease payments over the remaining lease term as of January 1, 2019. The Company is required to determine a discount rate in o rder to calculate the
present value of lease payments. If the rate is not included in the lease or cannot be readily determined, the Company uses its incremental secured
borrowing rate based on lease term information available at the commencement date of the lease in determining the present val ue of lease payments.
The Company recognizes lease components and non-lease components together and not as separate parts of a lease for all leases. The Company will
exercise this practical expedient in the future by asset class.
Lease Type
(Dollars in thousands)
Consolidated operating lease expense
Consolidated financing lease amortization
Consolidated financing lease interest
Consolidating financing lease expense
Net lease cost
Income Statement Classification
Operating expenses
Depreciation and amortization
Interest expense
Amount
$
5,887
305
61
366
$
6,253
Rent expense was approximately $3.7 million and $3.5 million in 2018 and 2017, respectively.
F-18
The value of the net assets and liabilities generated by the leasing activity of the Company as lessee as of December 31, 2019 were as follows:
Lease Type
(Dollars in thousands)
Total ROU operating lease assets (1)
Total ROU financing lease assets (2)
Total lease assets
Total current operating lease obligation
Total current financing lease obligation
Total current lease obligation
Total long term operating lease obligation
Total long term financing lease obligation
Total long term lease obligation
Balance Sheet Classification
Amount
Operating lease right-of-use assets, net
Property and equipment, net
Operating lease liabilities
Accrued and other current liabilities
Operating lease long term liabilities
Other long term liabilities
$
$
$
$
$
$
13,481
2,430
15,911
2,742
593
3,335
11,182
1,860
13,042
(1) Operating lease assets are recorded net of accumulated amortization of $2.3 million as of December 31, 2019
(2) Financing lease assets are recorded net of accumulated amortization of $0.4 million as of December 31, 2019
The future minimum lease payments for finance and operating lease liabilities of the Company as lessee as of December 31, 2019 were as follows:
Maturity Date of Lease Liabilities
(Dollars in thousands)
Year one
Year two
Year three
Year four
Year five
Subsequent years
Total lease payments
Less: Interest
Present value of lease liabilities
Operating Leases
Financing Leases
Total
$
$
3,391
3,298
3,169
2,509
2,181
1,266
15,814
1,900
13,914
708
661
599
517
256
—
2,741
289
2,452
4,099
3,959
3,768
3,026
2,437
1,266
18,555
2,189
16,366
The weighted average remaining lease terms and discount rates of the leases held by the Company as of December 31, 2019 were as follows:
Lease Type
Operating leases
Financing leases
Weighted Average
Term in Years
4.9
4.2
Weighted Average
Interest Rate
5.3
5.3
The cash outflows of the leasing activity of the Company as lessee for the twelve months ended December 31, 2019 were as follows:
Cash Flow Source
(Dollars in thousands)
Operating cash outflows from operating leases
Operating cash outflows from financing leases
Financing cash outflows from financing leases
Classification
Operating activities
Operating activities
Financing activities
Amount
$
6,140
54
293
During the year ended December 31, 2019, the Company recorded non-cash ROU financing lease assets and corresponding financing lease obligations
totaling $2.5 million primarily related to warehouse machinery and IT infrastructure lease agreements.
During the year ended December 31, 2019, the Company modified certain terms of the lease agreement with the landlord of Vertex’s Massachusetts
facility, including early termination of the lease on November 30, 2019 and Vertex subleasing a portion of the space until the end of November. In connection
with the modification, the Company recognized expense related to the early termination of approximately $2.2 million.
The Company has entered into two operating leases during 2020, with significant rights and obligations that total $0.8 million. All other leases are not
material.
F-19
12. 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,
2019. The unaudited information has been prepared on the same basis as the audited consolidated financial statements.
Fourth
Quarter
Year Ended December 31, 2019
Third
Quarter
Second
Quarter
(in thousands, except per share data)
First
Quarter
82,287
18,695
76
(656 )
$
$
$
$
(0.04 )
(0.04 )
$
$
85,403
19,431
(87)
(721)
$
$
$
$
(0.04)
(0.04)
$
$
85,326
20,537
3,030
1,643
$
$
$
$
0.10
0.10
$
$
85,270
21,259
3,863
2,284
0.14
0.14
Fourth
Quarter
Year Ended December 31, 2018
Third
Quarter
Second
Quarter
(in thousands, except per share data)
First
Quarter
87,906
20,979
3,190
1,628
0.10
0.10
$
$
$
$
$
$
90,074
21,393
3,046
2,455
$
$
$
$
0.15
0.15
$
$
93,852
22,347
4,392
2,606
0.16
0.16
$
$
$
$
$
$
85,026
20,489
3,270
1,947
0.12 (1)
0.12 (1)
$
$
$
$
$
$
$
$
$
$
$
$
Sales
Gross profit
Operating (loss) income
Net (loss) income
Earnings (loss) per share:
Basic
Diluted
Sales
Gross profit
Operating income
Net income
Earnings per share:
Basic
Diluted
(1) The “two-class” method was used to calculate earnings per share which resulted in the same value.
F-20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of December 31, 2019.
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, 2019. 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 21 and 22 under the captions entitled “Management’s Rep ort 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 , 2019 that has
materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
20
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2019 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, 2019 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 22.
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 m ay 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 evaluatin g the design and
operating effectiveness of its internal controls. In management’s opinion, the Company has maintained effective internal cont rol over financial
reporting as of December 31, 2019, based on criteria established in the COSO Framework.
/s/ James L. Pokluda III
James L. Pokluda III
President and Chief Executive Officer
/s/ Christopher M. Micklas
Christopher M. Micklas
Chief Financial Officer, Treasurer
and Secretary (Chief Accounting Officer)
21
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Houston Wire & Cable Company
Opinion on Internal Control over Financial Reporting
We have audited Houston Wire & Cable Company’s internal control over financial reporting as of December 31, 2019, 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). In our opinion, Houston Wire & Cable Company (the Company) maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operation s, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated March 13, 2020
expressed an unqualified opinion thereon.
Basis for Opinion
The 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 are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with t he U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the au dit 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 materia l weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such oth er procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for ou r opinion.
Definition and Limitations of Internal Control Over Financial Reporting
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 comp any’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of recor ds 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 comp any; 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.
/s/ Ernst & Young LLP
Houston, Texas
March 13, 2020
22
ITEM 9B. OTHER INFORMATION
None.
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 “Proposal No. 1 – Election of Directors” section of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders
to be held on May 5, 2020. 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
– Delinquent Section 16(a) Reports” section of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held
on May 5, 2020.
The information called for by Item 10 relating to the code of ethics is incorporated herein by reference to the “Corporate Go vernance - Code of
Business Conduct” section of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 5, 2020.
The information called for by Item 10 relating to the procedures by which security holders may recommend nominees to the Boar d of Directors
is incorporated herein by reference to the “Corporate Governance – Committee Established by the Board of Directors – Nominating and Corporate
Governance Committee – 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, 2020.
The information called for by Item 10 relating to the audit committee and the audit committee financial expert is incorporate d herein by reference
to the “Corporate Governance - Committees Established by the Board of Directors - Audit Committee” section of the registrant’s definitive Proxy
Statement relating to the Annual Meeting of Stockholders to be held on May 5, 2020.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference to the “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, 2 020.
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 Owner s 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, 2020.
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 Person Transaction Policy” sections of the registrant’s definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 5, 2020.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information called for by Item 14 is incorporated herein by reference to the “Principal Independent Accountant Fees and S ervices” section
of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 5, 2020.
23
T IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
PAR
(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, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
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 16. FORM 10-K SUMMARY
Not applicable
24
EXHIBIT
NUMBER
3.1
3.2
4.1
INDEX TO EXHIBITS
EXHIBIT
Amended and Restated Certificate of Incorporation of Houston Wire & Cable Company (incorporated herein by reference to
Exhibit 3.1 to Houston Wire & Cable Company’s Registration Statement on Form S-1 (Registration No. 333-132703))
Amended and Restated By-Laws of Houston Wire & Cable Company (incorporated herein by reference to Exhibit 3.2 to
Houston Wire & Cable Company’s Registration Current Report on Form 8-K filed May 11, 2012)
Description of the Registrant’s Securities**
10.1*
Houston Wire & Cable Company 2006 Stock Plan, as amended and restated effective March 1, 2015, as amended
(incorporated herein by reference to Exhibit 10.1 to Houston Wire & Cable Company’s Current Report on Form 8-K filed
March 13, 2015 and Exhibit 10.12 to Houston Wire & Cable Company’s Annual Report on Form 10-K for the year ended
December 31, 2016)
10.2*
Amended and Restated Executive Employment Agreement dated as of January 1, 2017 between James L. Pokluda, III and
Houston Wire & Cable Company (incorporated by reference to Exhibit 10.1 to Houston Wire & Cable Company’s Current
Report on Form 8-K filed March 29, 2017)
10.3*
Form of Employee Non-Qualified Stock Option Agreement under Houston Wire & Cable Company’s 2006 Stock Plan
(incorporated herein by reference to Exhibit 10.4 to Houston Wire & Cable Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2015)
10.4*
Form of Director Non-Qualified Stock Option Agreement 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, 2015)
10.5*
Form of Stock Award Agreement for Key Employees under Houston Wire & Cable Company’s 2006 Stock Plan
(incorporated herein by reference to Exhibit 10.3 to Houston Wire & Cable Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2015)
10.6*
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 10.1 to Houston Wire & Cable Company’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2015)
10.7*
Form of Performance Stock Unit Award Agreement under Houston Wire & Cable Company’s 2006 Stock Plan
(incorporated herein by reference to Exhibit 10.7 to Houston Wire & Cable Company’s Annual Report on Form 10-K for
the year ended December 31, 2016)
10.8*
Description of Senior Management Bonus Program (incorporated herein by reference to Exhibit 10.7 to Houston Wire &
Cable Company’s Annual Report on Form 10-K for the year ended December 31, 2015)
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
Fourth Amended and Restated Loan and Security Agreement, dated as of October 1, 2015, as amended on March 12, 2019
and December 10, 2019, among HWC Wire & Cable Company, as borrower, Houston Wire & Cable Company, as
Guarantor, certain financial institutions, as lenders, and Bank of America, N.A., as agent (incorporated herein by reference
to Exhibit 10.1 to Houston Wire & Cable Company’s Current Report on Form 8-K filed October 2, 2015, Exhibit 10.1 to
Houston Wire & Cable Company’s Current Report on Form 8-K filed October 5, 2016, Exhibit 10.1 to Houston Wire &
Cable Company’s Current Report on Form 8-K filed March 14, 2019 and Exhibit 10.1 to Houston Wire & Cable Company’s
Current Report on Form 8-K filed on December 12, 2019)
10.11
Third Amended and Restated Guaranty dated as of October 1, 2015, 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 2, 2015)
25
10.12*
Houston Wire & Cable Company 2017 Stock Plan (incorporated herein by reference to Exhibit 10.1 to Houston Wire &
Cable Company’s Current Report on Form 8-K filed August 8, 2017)
10.13*
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (incorporated herein by reference to Exhibit
10.2 to Houston Wire & Cable Company’s Current Report on Form 8-K filed August 8, 2017)
10.14*
Form of Restricted Stock Unit Award Agreement for Key Employees (incorporated herein by reference to Exhibit 10.3 to
Houston Wire & Cable Company’s Current Report on Form 8-K filed August 8, 2017)
10.15*
Form of Stock Appreciation Agreement (incorporated herein by reference to Exhibit 10.4 to Houston Wire & Cable
Company’s Current Report on Form 8-K filed August 8, 2017)
10.16*
Form of Stock Award Agreement for Key Employees (incorporated by reference to Exhibit 10.1 to Houston Wire & Cable
Company’s Current Report on Form 8-K filed May 14, 2018)
10.18*
Letter Agreement dated April 5, 2018 between Houston Wire & Cable Company and Christopher M. Micklas (incorporated
by reference to Exhibit 10.1 to Houston Wire & Cable Company’s Current Report on Form 8-K filed April 13, 2018)
10.19*
Houston Wire & Cable Company Nonemployee Directors’ Deferred Compensation Plan (incorporated by reference to
Exhibit 10.1 to Houston Wire & Cable Company’s Current Report on Form 8-K filed December 14, 2017)
21.1
23.1
31.1
31.2
32.1
Subsidiaries of Houston Wire & Cable Company **
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
26
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 13, 2020
HOUSTON WIRE & CABLE COMPANY
(Registrant)
By:
/s/ CHRISTOPHER M. MICKLAS
Christopher M. Micklas
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/ CHRISTOPHER M. MICKLAS
Christopher M. Micklas
President, Chief Executive Officer and Director
March 13, 2020
Chief Financial Officer, Treasurer and
Secretary (Principal Accounting Officer)
March 13, 2020
/s/ WILLIAM H. SHEFFIELD
Chairman of the Board
March 13, 2020
William H. Sheffield
/s/ ROY W. HALEY
Director
Roy W. Haley
/s/ MARGARET S. LAIRD
Director
Margaret S. Laird
/s/ ROBERT L. REYMOND
Director
Robert Reymond
/s/ SANDFORD W. ROTHE
Director
Sandford W. Rothe
/s/ G. GARY YETMAN
Director
G. Gary Yetman
March 13, 2020
March 13, 2020
March 13, 2020
March 13, 2020
March 13, 2020
27
Description of the Registrant’s Securities
Exhibit 4.1
Our authorized capital stock consists of 100,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock. The
following summary describes all material provisions of our capital stock.
Common Stock
Shares of our common stock have the following rights, preferences and privileges:
•
Voting Rights. Each outstanding share of common stock entitles its holder to one vote on all matters submitted to a vote of our
stockholders, including the election of directors. There are no cumulative voting rights. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all shares of common stock present or represented by proxy.
•
Dividends. Subject to the rights of the holders of any preferred stock which may be outstanding from time to time, the holders of
common stock are entitled to receive dividends as, when and if dividends are declared by our board of directors out of assets legally available for the
payment of dividends.
•
Liquidation. In the event of a liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, after
payment of our liabilities and obligations to creditors and any holders of preferred stock, our remaining assets will be distributed ratably among
the holders of shares of common stock on a per share basis.
•
Rights and Preferences. Our common stock has no preemptive, redemption, conversion or subscription rights. The rights, powers,
preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of
any series of preferred stock that we may designate and issue in the future.
•
Merger. In the event we merge or consolidate with or into another entity, holders of each share of common stock will be entitled to
receive the same per share consideration.
Our common stock is listed on The Nasdaq Global Market under the symbol “HWCC.”
Preferred Stock
Our amended and restated certificate of incorporation provides that the board of directors has the authority, without action by the
stockholders, to designate and issue up to 5,000,000 shares of preferred stock in one or more classes or series and to fix for each class or series the
powers, rights, preferences and privileges of each series of preferred stock, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any class or series, which may be greater than the rights of the holders
of the common stock.
Other Provisions of Our Certificate of Incorporation and By-Laws
No Stockholder Action by Written Consent. Our certificate of incorporation and by-laws provide that stockholder action can be taken
only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting.
No Ability to Call Special Meetings. Our certificate of incorporation and by-laws provide that, except as otherwise required by law,
special meetings of our stockholders can only be called pursuant to a resolution adopted by a majority of our board of directors or by our chief
executive officer or the chairman of our board of directors. Stockholders are not permitted to call a special meeting or to require our board to call a
special meeting.
Advance Notice Procedures for Stockholder Proposals. Our by-laws establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board . Stockholders at our
annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of
our board or by a stockholder who was a stockholder of record on the record date for the meeting and upon giving of notice and provided that the
stockholder has given to our secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting.
Anti-Takeover Effects of Delaware Law
We are subject to provisions of the Delaware General Corporation Law that prohibit a publicly-held Delaware corporation from
engaging in any “business combination” transaction with any “interested stockholder” for a period of three years after the date on which the
person became an “interested stockholder,” unless:
•
prior to this date, the board of directors approved either the “business combination” or the transaction which resulted in the
“interested stockholder” obtaining this status;
28
•
upon consummation of the transaction which resulted in the stockholder becoming an “interested stockholder,” the “interested
stockholder” owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of
determining the voting stock outstanding (but not the outstanding voting stock owned by the “interested stockholder”) those shares owned by ( a)
persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•
at or subsequent to this time the “business combination” is approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of at least 662¤3% of the outstanding voting stock which is not
owned by the “interested stockholder.”
A “business combination” is defined to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder. In
general, an “interested stockholder” is a person who, together with affiliates and associates, owns 15% or more of a corporation’s voting stock or
within the past three years owned 15% or more of a corporation’s voting stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.
29
Exhibit 21.1
Subsidiary
HWC Wire & Cable Company
Subsidiary
PFI, LLC
Subsidiary of Houston Wire & Cable
Company
Subsidiary of HWC Wire & Cable
Company
Jurisdiction
Delaware
Jurisdiction
Rhode Island
30
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-224026) pertaining to the Houston Wire & Cable
Company 2017 Stock Plan of our reports dated March 13, 2020, 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, 2019.
/s/ Ernst & Young LLP
Houston, Texas
March 13, 2020
31
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, James L. Pokluda III, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of Houston Wire & Cable Company;
2. 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;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in a ll material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. 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) 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;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be desig ned 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusio ns 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
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the re gistrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is r easonably 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) 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
(b) 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 13, 2020
/s/ James L. Pokluda III
James L. Pokluda III
Chief Executive Officer
32
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Christopher M. Micklas, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of Houston Wire & Cable Company;
2. 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;
3. 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;
4. 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) 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;
(b) 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 financia l statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusio ns 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
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the re gistrant’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) 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
(b) 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 13, 2020
/s/ Christopher M. Micklas
Christopher M. Micklas
Chief Financial Officer
33
Certifications of CEO and CFO Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report of Houston Wire & Cable Company (the “Corporation”) on Form 10-K for the fiscal year ended December
31, 2019 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 Christopher M. Micklas, 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) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Corporation.
Date:
March 13, 2020
Date:
March 13, 2020
/s/ James L. Pokluda III
James L. Pokluda III
Chief Executive Officer
/s/ James L. Pokluda III
James L. Pokluda III
Chief Executive 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.
34
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DIRECTORS
James L. Pokluda III
President & Chief Executive Officer of
Houston Wire & Cable Company
G. Gary Yetman
Former Chief Executive Officer & President of
Coleman Cable, Inc.
Roy W. Haley
FFormer Chairman of the Board of
WESCO International, Inc.
Robert “Bob” Reymond
President of the Oil, Gas and Chemical
Division & a Director of Burns & McDonnell
Sandford “Sandy” Rothe
Former Partner of Deloitte LLP
William H. Sheffield
Chairman of the Board of
Houston Wire & Cable Company
Maggie Laird
Chief Pricing Officer of Hitachi Vantara
David Nierenberg
Founder and President of Nierenberg Investment
Management Company
WEBSITE
www.houwire.com
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 5th, 2020, 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
HOUSTON WIRE & CABLE COMPANY
1-800-HOUWIRE
10201 North Loop East
Houston, Texas 77029
Phone: 713-609-2100
Fax: 713-609-2205