Houston Wire & Cable Company
Houston Wire & Cable CO (Form: 10-Q, Received: 11/09/2010 17:17:41)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                              
 
Commission File Number: 000-52046


(Exact name of registrant as specified in its charter)

Delaware
 
36-4151663
(State or other jurisdiction of  incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
10201 North Loop East
Houston, Texas
 
77029
(Address of principal executive offices)
 
(Zip Code)
(713) 609-2100
(Registrant’s telephone number, including area code)

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 x        NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
YES ¨       NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Large Accelerated Filer    ¨
Accelerated Filer    x
  Non-Accelerated Filer    ¨
Smaller Reporting Company     ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    YES ¨
NO x

At November 1, 2010 there were 17,760,987 outstanding shares of the registrant’s common stock, $0.001 par value per share.

 
 

 

HOUSTON WIRE & CABLE COMPANY
Form 10-Q
For the Quarter Ended September 30, 2010

INDEX
 
PART I. FINANCIAL INFORMATION
 
   
Item 1.  Financial Statements (Unaudited)
 
Consolidated Balance Sheets
2
Consolidated Statements of Income
3
Consolidated Statements of Cash Flows
4
Notes to Consolidated Financial Statements
5
    
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
9
Overview
9
Results of Operations
11
Impact of Inflation and Commodity Prices
14
Liquidity and Capital Resources
14
Contractual Obligations
16
Cautionary Statement for Purposes of the “Safe Harbor”
16
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk
16
   
Item 4.   Controls and Procedures
16
   
PART II. OTHER INFORMATION
 
   
Item 1.
Legal Proceedings
16
Item 1A.
Risk Factors
16
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
17
Item 3.
Defaults Upon Senior Securities
17
Item 4.
(Removed and reserved)
17
Item 5.
Other Information
17
Item 6.
Exhibits
17
 
18
Signature Page
19
 
 
1

 

HOUSTON WIRE & CABLE COMPANY
Consolidated Balance Sheets
(In thousands, except share data)

 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
   
(unaudited)
       
Assets
           
Current assets:
           
Accounts receivable, net
  $ 65,605     $ 46,859  
Inventories, net
    64,707       61,325  
Deferred income taxes
    2,833       1,776  
Prepaids
    944       3,649  
Other assets
    200        
Total current assets
    134,289       113,609  
                 
Property and equipment, net
    7,481       3,169  
Intangible assets, net
    15,936        
Goodwill
    25,163       2,362  
Deferred income taxes
          2,855  
Other assets
    95       19  
Total assets
  $ 182,964     $ 122,014  
                 
Liabilities and stockholders' equity
               
Current liabilities:
               
Book overdraft
  $ 1,472     $ 907  
Trade accounts payable
    21,296       11,610  
Accrued and other current liabilities
    18,473       10,924  
Income taxes payable
    321       281  
Total current liabilities
    41,562       23,722  
                 
Debt
    55,640       17,479  
Other long term obligations
    144        
Deferred income taxes
    1,862        
                 
Stockholders' equity:
               
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding
           
Common stock, $0.001 par value; 100,000,000 shares authorized: 20,988,952 shares issued: 17,760,987 and 17,732,737 outstanding at September 30, 2010 and December 31, 2009, respectively
    21       21  
Additional paid-in-capital
    57,876       56,609  
Retained earnings
    78,784       77,571  
Treasury stock
    (52,925 )     (53,388 )
Total stockholders' equity
    83,756       80,813  
Total liabilities and stockholders' equity
  $ 182,964     $ 122,014  

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 
2

 

HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Income
(Unaudited)
(In thousands, except share and per share data)

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Sales
 
$
90,536
   
$
63,579
   
$
214,973
   
$
191,293
 
Cost of sales
   
72,962
     
50,117
     
172,139
     
151,046
 
Gross profit
   
17,574
     
13,462
     
42,834
     
40,247
 
                                 
Operating expenses:
                               
Salaries and commissions
   
7,191
     
5,143
     
17,481
     
15,882
 
Other operating expenses
   
5,644
     
4,395
     
14,463
     
13,527
 
Depreciation and amortization
   
676
     
138
     
972
     
421
 
Total operating expenses
   
13,511
     
9,676
     
32,916
     
29,830
 
                                 
Operating income
   
4,063
     
3,786
     
9,918
     
10,417
 
Interest expense
   
318
     
140
     
466
     
403
 
Income before income taxes
   
3,745
     
3,646
     
9,452
     
10,014
 
Income taxes
   
1,512
     
1,405
     
3,737
     
3,864
 
Net income
 
$
2,233
   
$
2,241
   
$
5,715
   
$
6,150
 
                                 
Earnings per share:
                               
Basic
 
$
0.13
   
$
0.13
   
$
0.32
   
$
0.35
 
Diluted
 
$
0.13
   
$
0.13
   
$
0.32
   
$
0.35
 
Weighted average common shares outstanding:
                               
Basic
   
17,660,056
     
17,651,074
     
17,656,129
     
17,647,334
 
Diluted
   
17,697,934
     
17,666,284
     
17,705,643
     
17,659,425
 
                                 
Dividend declared per share
 
$
0.085
   
$
0.085
   
$
0.255
   
$
0.255
 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 
3

 

HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

   
Nine Months
Ended September 30,
 
   
2010
   
2009
 
             
Operating activities
           
Net income
 
$
5,715
   
$
6,150
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
972
     
421
 
Amortization of capitalized loan costs
   
28
     
91
 
Amortization of unearned stock compensation
   
1,706
     
1,699
 
Provision for doubtful accounts
   
75
     
 
Provision for returns and allowances
   
(210
)
   
(106
)
Provision for inventory obsolescence
   
595
     
366
 
Gain on disposals of property and equipment
   
(8
)
   
 
Deferred income taxes
   
(721
)
   
(541
)
Changes in operating assets and liabilities:
               
Accounts receivable
   
(7,494
   
8,735
 
Inventories
   
3,495
     
1,145
 
Prepaids
   
2,773
     
12
 
Other assets
   
140
     
(31
)
Book overdraft
   
85
     
(3,277
)
Trade accounts payable
   
6,319
     
3,849
 
Accrued and other current liabilities
   
3,339
     
615
 
Income taxes payable
   
(155
)
   
(1,300
)
Net cash provided by operating activities
   
16,654
     
17,828
 
                 
Investing activities
               
Expenditures for property and equipment
   
(374
)
   
(262
)
Proceeds from disposal of property and equipment
   
20
     
 
Cash paid for acquisition
   
(50,000
)
   
 
Net cash used in investing activities
   
(50,354
)
   
(262
)
                 
Financing activities
               
Borrowings on revolver
   
253,392
     
193,524
 
Payments on revolver
   
(215,231
)
   
(206,625
)
Proceeds from exercise of stock options
   
36
     
22
 
Excess tax benefit for stock options
   
5
     
13
 
Payment of dividends
   
(4,502
)
   
(4,500
)
Net cash provided by (used in) financing activities
   
33,700
     
(17,566
)
                 
Net change in cash
   
     
 
Cash at beginning of period
   
     
 
                 
Cash at end of period
 
$
   
$
 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 
4

 

  HOUSTON WIRE & CABLE COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share data)

1. Basis of Presentation and Principles of Consolidation

Houston Wire & Cable Company (the “Company”), through its wholly owned subsidiaries, distributes wire and cable and related hardware to the U.S. industrial distribution market through locations in twelve states throughout the United States.  The Company has no other business activity.

The consolidated financial statements as of September 30, 2010 and for the three and nine months ended September 30, 2010 and 2009 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Article 10 of Regulation S-X.  Accordingly they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the results of these interim periods have been included.  The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. The Company has evaluated subsequent events through the time these financial statements in this Form 10-Q were filed with the Securities and Exchange Commission (the “SEC”).

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The most significant estimates are those relating to fair value for the assets and liabilities acquired in the Business Combination disclosed in footnote 3, the allowance for doubtful accounts, the reserve for returns and allowances, the inventory obsolescence reserve and the accrual for vendor rebates.  These estimates are continually reviewed and adjusted as necessary, but actual results could differ from those estimates.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC.

2. Earnings per Share

Basic earnings per share is calculated by dividing the net income by the weighted average number of common shares outstanding. Diluted earnings per share include the dilutive effects of stock option and restricted stock awards.

The following reconciles the denominator used in the calculation of earnings per share:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Denominator:
                       
Weighted average common shares for basic earnings per share
    17,660,056       17,651,074       17,656,129       17,647,334  
Effect of dilutive securities
    37,878       15,210       49,514       12,091  
Weighted average common shares for diluted earnings per share
    17,697,934       17,666,284       17,705,643       17,659,425  
 
The weighted average common shares for diluted earnings per share exclude stock options to purchase 921,071 and 890,000 shares for the three months ended September 30, 2010 and 2009, respectively, and 864,524 and 1,060,393 shares for the nine months ended September 30, 2010 and 2009, respectively. These options have been excluded from the calculation of diluted securities, as including them would have an anti-dilutive effect on earnings per share for the respective periods.
 
 
5

 

3.   Business Combination

On June 25, 2010, the Company completed the acquisition of Southwest Wire Rope LP (SWWR) and its subsidiary, Southern Wire LLC (SW), from Teleflex Incorporated. The acquisition has been accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Accordingly, the total purchase price has been allocated on a provisional basis to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. These allocations reflect current estimates based on information available at this time and are subject to change once the purchase price allocation valuations are finalized. The acquired companies distribute mechanical wire rope and related hardware to the industrial market. Under the terms of the acquisition agreement, the purchase price was $50 million, subject to an adjustment based on net working capital of the acquired companies as of the date of closing. The Company has elected to treat the acquisition as a stock purchase for tax purposes. The amount of goodwill deductible for tax purposes is $5,993. The acquisition was funded from the Company’s loan agreement. This acquisition expands the Company’s product offerings to the industrial marketplace that purchases its electrical wire and cable products.

        The following table summarizes the current estimated fair value of the acquired assets and assumed liabilities recorded as of the date of acquisition.
   
At June 25, 2010
 
Accounts  receivable
  $ 11,117  
Inventories
    7,472  
Deferred income taxes
    825  
Prepaids
    68  
Property and equipment
    4,486  
Intangibles
    16,370  
Goodwill
    22,802  
Other assets
    444    
Total assets acquired
    63,584    
         
Book overdraft
    480  
Trade accounts payable
    3,367  
Accrued and other current liabilities
    3,010  
Deferred income taxes
    5,383  
Long term obligations
    144    
Total liabilities assumed
    12,384    
         
Net assets purchased
  $ 51,200  

Intangible assets, from the acquisition, consist of customer relationships - $11,540, trade names - $4,580, and non-compete agreements - $250. Customer relationships and non-compete agreements will be amortized over a 7 ½ and 1 year useful life, respectively. Trade names are not amortized.

Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition consists primarily of sales and operational synergies that will be achieved by expanding the regionally based operations of SWWR and SW to the Company’s national platform.

Under ASC Topic 805-10, acquisition related costs (e.g. legal, valuation and advisory) are not included as a component of consideration paid, but are accounted for as expenses in the periods in which the costs are incurred. For the three months and nine months ended September 30, 2010, the Company incurred $115 and $533 of acquisition related costs, respectively.

The amount of revenue and net income of SWWR and SW included in the Company’s consolidated statement of income from the acquisition date through the period ended September 30, 2010 was $21,880 and $904, respectively.

The results of operations of SWWR and SW are included in our consolidated statement of operations prospectively from June 25, 2010. The unaudited pro forma combined historical results of the Company, giving effect to the acquisition assuming the transaction was consummated on January 1, 2009, are as follows:

   
Nine Months ended
September 30,
 
   
2010
   
2009
 
Sales
  $ 250,437     $ 255,313  
Net income
    7,132       7,749  
Basic earnings per share
    0.40       0.44  
Diluted earnings per share
    0.40       0.44  
 
 
6

 

The unaudited pro forma combined historical results do not reflect any cost savings or other synergies that might result from the transaction. They are provided for informational purposes only and are not necessarily indicative of the combined results of operations for future periods or the results that actually would have been realized had the acquisition occurred as of the beginning of each period.

  4.   Debt

On September 21, 2009, the Company, as guarantor and HWC Wire & Cable Company as borrower, entered into the Second Amended and Restated Loan and Security Agreement (“Loan Agreement”), with Bank of America, N.A., as agent and lender. The Loan Agreement provides for a $75 million revolving loan at the agent’s base interest rate and matures on September 21, 2013. The lender has a security interest in all of the assets of the Company with the exception of the real estate. Availability under the Loan Agreement is calculated as a percentage of qualifying accounts receivable and inventory. The Company was in compliance with the financial covenants governing its indebtedness at September 30, 2010.

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 would remain as September 21, 2013. Availability has remained above these thresholds.

5.  Stockholders’ Equity

In 2007, the Board of Directors approved a stock repurchase program, where the Company is authorized to purchase up to $75 million of its outstanding shares of common stock, depending on market conditions, trading activity, business conditions and other factors. The program was initially scheduled to expire on December 31, 2009 but has been extended through December 31, 2011. Shares of stock purchased under the program are currently being held as treasury stock and may be issued upon the exercise of options, as restricted stock, to fund acquisitions, or for other uses as authorized by the Board of Directors.  During the quarters ended September 30, 2010 and 2009, the Company did not repurchase any of its outstanding shares.

During each of the first three quarters of 2010, the Board of Directors approved a quarterly dividend of $0.085 per share payable to stockholders. Dividends paid were $4,502 and $4,500 during the nine months ended September 30, 2010 and 2009, respectively.

6. Stock Based Compensation

Stock Option Awards

At the last two Annual Meetings of Stockholders, held on May 7, 2010 and May 8, 2009, the Company issued options under the 2006 Stock Plan to purchase 5,000 shares of its common stock to each non-employee director who was re-elected (other than the Chairman of the Board, who received an option to purchase 10,000 shares of the Company’s common stock), for an aggregate of 35,000 shares each year. Each option has an exercise price equal to the fair market value of the Company’s common stock at the close of trading on the date of grant, has a contractual life of ten years and vests one year after the date of grant.

The following assumptions were used to calculate the fair value of the Company’s options issued during the nine months ended September 30, 2010 and 2009:
 
   
2010
   
2009
 
Expected volatility
    82 %     81 %
Expected life in years
 
2.0 years
   
2.0 years
 
Risk-free interest rate
    0.83 %     1.00 %
Dividend yield
    2.74 %     3.29 %
 
Restricted Stock Awards

On June 28, 2010, the Company granted 19,500 voting shares of Restricted Stock under the 2006 Stock Plan to new members of the management team, who joined the Company as part of the acquisition of SWWR and SW. These shares vest in one-third increments, on the first, second and third anniversaries of the date of grant, as long as the recipient is then employed by the Company. Any dividends declared will be accrued and paid to the recipient when the related shares vest.

 
7

 

On December 15, 2009, the Company granted 80,000 voting shares of Restricted Stock under the 2006 Stock Plan to management. These shares vest in one-third increments, on the third, fourth and fifth anniversaries of the date of grant, as long as the recipient is then employed by the Company. Any dividends declared will be accrued and paid to the recipient when the related shares vest.
 
Restricted common shares, under fixed plan accounting, are measured at fair value on the date of grant based on the number of shares granted, estimated forfeitures and the quoted price of the common stock. Such value is recognized as compensation expense over the corresponding vesting period which ranges from one to five years.   

Total share-based compensation cost was $568 and $504 for the three months ended September 30, 2010 and 2009, respectively, and $1,706 and $1,699 for the nine months ended September 30, 2010 and 2009, respectively. Total income tax benefit recognized for stock-based compensation arrangements was $229 and $194 for the three months ended September 30, 2010 and 2009, respectively, and $673 and $654 for the nine months ended September 30, 2010 and 2009, respectively.

As of September 30, 2010, there was $3,886 of total unrecognized stock compensation cost related to nonvested share-based compensation arrangements. The cost is expected to be recognized over a weighted average period of approximately twenty-six months.

7. Commitments and Contingencies

As part of the June 2010 acquisition, the Company assumed the liability for the post-remediation monitoring of the soil and water quality at one of the acquired facilities in Louisiana. The expected liability of $144 relates entirely to the cost of the monitoring, which will be incurred over approximately the next 10 years. Remediation work was completed prior to the acquisition in accordance with the requirements of the Louisiana Commission of Environmental Quality.

The Company, along with many other defendants, has been named in a number of lawsuits in the state courts of Minnesota, North Dakota, South Dakota and Illinois alleging that certain electrical wire and cable which may have contained asbestos caused injury to the plaintiffs who were exposed to this electrical wire and cable. These lawsuits are individual personal injury suits that seek unspecified amounts of money damages as the sole remedy. It is not clear whether the alleged injuries occurred as a result of the electrical wire and cable in question or whether the Company, in fact, distributed the electrical wire and cable alleged to have caused any injuries. The Company maintains general liability insurance that has applied to these claims. To date, all costs associated with these claims have been covered by the applicable insurance policies and all defense of these claims has been handled by the applicable insurance companies. In addition, the Company did not manufacture any of the electrical wire and cable at issue, and the Company would rely on any warranties from the manufacturers of such electrical wire and cable if it were determined that any of the electrical wire or cable that the Company distributed contained asbestos which caused injury to any of these plaintiffs. In connection with ALLTEL's sale of the Company in 1997, ALLTEL provided indemnities with respect to costs and damages associated with these claims that the Company believes it could enforce if its insurance coverage proves inadequate.

The Company has a past due accounts receivable of $4,800 for wire installed in certain facilities. The Company filed complaints to establish mechanic’s liens against the properties in February 2010. In lieu of a temporary mechanic’s lien being established against the properties pending a trial on the lien claims, the property owners filed release of mechanic’s lien bonds with the Court in July 2010, securing the Company’s claims. The Company is currently working with the supplier and the owner of the facilities to resolve the issue and anticipates a resolution by the end of the year. The Company believes it has legal rights to the recovery of amounts due, either from the Company’s customer or the owner of the facilities, and, as such, no reserve has been recorded against the receivable balance at September 30, 2010.

There are no legal proceedings pending against or involving the Company that, in management's opinion, based on the current known facts and circumstances, are expected to have a material adverse effect on the Company's consolidated financial position, cash flows, or results of operations.

8.  Subsequent Events

On November 5, 2010, the Board of Directors approved a dividend on the shares of common stock of the Company in the amount of $0.085 per share, payable on November 26, 2010, to stockholders of record at the close of business on November 15, 2010.

 
8

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the Company’s financial position and results of operations.  MD&A is provided as a supplement to the Company’s Consolidated Financial Statements (unaudited) and the accompanying Notes to Consolidated Financial Statements (unaudited) and should be read in conjunction with the MD&A included in the Company’s Form 10-K for the year ended December 31, 2009.

Overview

We are one of the largest distributors of wire and cable and related hardware in the U.S. industrial distribution market. The June 25, 2010 purchase of SWWR and SW allowed the Company to expand its product offerings to include mechanical wire and cable and related hardware. We have strong relationships with leading wire and cable manufacturers and provide them with efficient access to the industrial distribution market. We are focused on providing our distributor customers with a single-source solution for wire and cable and related hardware by offering a large selection of in-stock items, exceptional customer service and high levels of product expertise.

In addition to our product offerings, we provide comprehensive value-added services including: standard same day shipment from our extensive inventory and distribution network; application engineering support through our knowledgeable sales and technical support staff; custom cutting of wire and cable to exact specifications; inventory management programs that provide job-specific asset management and just-in-time delivery; job-site delivery and logistics support; 24/7/365 customer service provided by our own employees; and customized internet-based ordering capabilities.

Critical Accounting Policies

      Critical accounting policies are those that both are important to the accurate portrayal of a company's financial condition and results of operations, and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

      In order to prepare financial statements that conform to GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.

      We have identified the following accounting policies as those that require us to make the most subjective or complex judgments in order to fairly present our consolidated financial position and results of operations. Actual results in these areas could differ materially from management's estimates under different assumptions and conditions.

Allowance for Doubtful Accounts

      We maintain an allowance for doubtful accounts receivable for estimated losses resulting from the inability of our customers to make required payments. We perform periodic credit evaluations of our customers and typically do not require collateral. Consistent with industry practices, we require payment from most customers within 30 days of invoice date. We have an estimation procedure, based on historical data, current economic conditions and recent changes in the aging of these receivables, which we use to record reserves throughout the year. In the last five years, write-offs against our allowance for doubtful accounts have averaged $0.1 million per year. A 20% change in our estimate at September 30, 2010 would have resulted in a change in income before income taxes of $0.1 million.

Reserve for Returns and Allowances

      We estimate the gross profit impact of returns and allowances for previously recorded sales. This reserve is calculated on historical and statistical returns and allowances data and adjusted as trends in the variables change. A 20% change in our estimate at September 30, 2010 would have resulted in a change in income before income taxes of $0.1 million.
 
 
9

 

Inventories

Inventories are valued at the lower of cost, using the average cost method, or market. We continually monitor our inventory levels at each of our distribution centers. Our reserve for inventory obsolescence is based on the age of the inventory, movements of our inventory over the prior twelve months and the experience of our purchasing and sales departments in estimating demand for the product in the succeeding year. Our inventories are generally not susceptible to technological obsolescence. A 20% change in our estimate at September 30, 2010 would have resulted in a change in income before income taxes of $0.6 million.

Vendor Rebates

Some of our arrangements with our vendors entitle us to receive a rebate of a specified amount when we achieve any of a number of measures, generally related to the volume of purchases from the vendor. We account for these rebates as a reduction of the prices of the vendor's products and therefore as a reduction of inventory until we sell the product, at which time these rebates reduce cost of sales. Throughout the year, we estimate the amount of rebates earned based on our estimate of purchases to date relative to the purchase levels that mark our progress toward earning the rebates. We continually revise these estimates to reflect actual rebates earned based on actual purchase levels and all estimated rebate amounts are reconciled. A 20% change in our estimate of total rebates earned during the nine months ended September 30, 2010 would have resulted in a change in income before income taxes of $0.9 million.

  Goodwill

Goodwill represents the excess of the amount we paid to acquire businesses over the estimated fair value of tangible assets and identifiable intangible assets acquired, less liabilities assumed. At September 30, 2010, our goodwill balance was $25.2 million, representing 13.8% of our total assets.

We test goodwill for impairment annually, or more frequently if indications of possible impairment exist, by applying a fair value-based test. Our annual impairment test is performed in the first month of our fourth quarter. In October 2009, we performed our annual goodwill impairment test for goodwill and, as a result of this test, we believe the goodwill on our balance sheet is not impaired. If circumstances change or events occur to indicate that our fair market value has fallen below book value, we will compare the estimated fair value of the goodwill to its carrying value. If the carrying value of goodwill exceeds the estimated fair value of goodwill, we will recognize the difference as an impairment loss in operating income.

 
10

 

Results of Operations
 
      The following table shows, for the periods indicated, information derived from our consolidated statements of income, expressed as a percentage of net sales for the periods presented.

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Sales
    100.0 %     100.0 %     100.0 %     100.0 %
Cost of sales
    80.6 %     78.8 %     80.1 %     79.0 %
Gross profit
    19.4 %     21.2 %     19.9 %     21.0 %
                                 
Operating expenses:
                               
Salaries and commissions
    7.9 %     8.1 %     8.1 %     8.3 %
Other operating expenses
    6.2 %     6.9 %     6.7 %     7.1 %
Depreciation and amortization
    0.7 %     0.2 %     0.5 %     0.2 %
Total operating expenses:
    14.9 %     15.2 %     15.3 %     15.6 %
                                 
Operating income
    4.5 %     6.0 %     4.6 %     5.4 %
Interest expense
    0.4 %     0.2 %     0.2 %     0.2 %
                                 
Income before income taxes
    4.1 %     5.7 %     4.4 %     5.2 %
Income taxes
    1.7 %     2.2 %     1.7 %     2.0 %
 
                               
Net income
    2.5 %     3.5 %     2.7 %     3.2 %

Note:   Due to rounding, percentages may not add up to total operating expenses, operating income, income before taxes or net income.

Comparison of the Three Months Ended September 30, 2010 and 2009

Sales
 
   
Three Months Ended
 
   
September 30,
 
(Dollars in millions)
 
2010
   
2009
   
Change
 
Sales
  $ 90.5     $ 63.6     $ 27.0       42.4 %
 
Sales in the third quarter of 2010 increased 42.4% to $90.5 million from $63.6 million in the third quarter of 2009. Most of the sales increase was attributed to the June 2010 acquisition of SWWR and SW (“Acquisition”) which generated sales of $21.1 million in the quarter. We estimate the balance of the increase is from both of our core business sectors which are capital projects and Repair and Replacement, also referred to as Maintenance, Repair and Operations (“MRO”). Sales within our five internal growth initiatives encompassing Emission Controls, Engineering & Construction, Industrials, LifeGuard™ (and other private branded products) and Utility Power Generation continued to improve as broad economic conditions slowly return to historical levels. Project activity remained strong due to previously funded backlog demand, and we estimate sales were up approximately 20% during the quarter. We believe sales in our Repair and Replacement sector were up approximately 6% and also benefited from the recovering economy.

 
11

 

Gross Profit
   
Three Months Ended
 
   
September 30,
 
(Dollars in millions)
 
2010
   
2009
   
Change
 
Gross profit
  $ 17.6     $ 13.5     $ 4.1       30.5 %
Gross profit as a percent of sales
    19.4 %     21.2 %     (1.8 )%        

Gross profit increased 30.5% to $17.6 million in 2010 from $13.5 million in 2009. The increase in gross profit was attributed to the Acquisition as the contribution from the HWC legacy business (pre-acquisition) decreased. This decrease in HWC’s legacy business gross profit was primarily related to increased customer rebates as more customers earned rebates and to increased freight expenses. Gross profit as a percentage of sales (gross margin) decreased due to the competitive market place, sales mix and increased sales discounts and freight expenses.

Operating Expenses
 
   
Three Months Ended
 
   
September 30,
 
(Dollars in millions)
 
2010
   
2009
   
Change
 
Operating expenses:
                       
Salaries and commissions
  $ 7.2     $ 5.1     $ 2.0       39.8 %
Other operating expenses
    5.6       4.4       1.2       28.4 %
Depreciation and amortization
    0.7       0.1       0.5       389.9 %
Total operating expenses
  $ 13.5     $ 9.7     $ 3.8       39.6 %
                                 
Operating expenses as a percent of sales
    14.9 %     15.2 %     (0.3 )%        
 
Note:  Due to rounding, numbers may not add up to total operating expenses.

Salaries and commissions increased primarily due to the additional personnel from the Acquisition.

Other operating expenses increased due to the additional operations obtained from the Acquisition and to acquisition costs of $0.1 million, which the Company did not incur in 2009.

Depreciation and amortization increased to $0.7 million in 2010 from $0.1 million in 2009 due to depreciation and amortization on the assets acquired in the Acquisition.

Operating expenses as a percentage of sales decreased to 14.9% in 2010 from 15.2% in 2009 due to ongoing cost control initiatives and operating leverage from HWC’s legacy business.

  Interest Expense

Interest expense increased 127.1% or $0.2 million to $0.3 million in 2010 from $0.1 million in 2009 due to higher debt levels as the Acquisition was funded entirely from the Company’s Loan Agreement. Average debt was $57.1 million in 2010 compared to $19.0 million in 2009. The average effective interest rate increased to 2.1% in 2010 from 1.8% in 2009. This increase was due to a higher percentage of debt in LIBOR borrowings in 2009, which is at a lower interest rate than revolving loan borrowings.

Income Taxes

Income taxes increased $0.1 million to $1.5 million in 2010 from $1.4 million in 2009 as pre-tax income increased slightly. Our effective income tax rate increased to 40.4% in 2010 from 38.5% in 2009. This rate increased due to acquisition expenses that were not deductible for federal income tax.

 
12

 

Net Income

      Net income remained flat at $2.2 million in 2010 and 2009.
 
Comparison of the Nine Months Ended September 30, 2010 and 2009

Sales
 
   
Nine Months Ended
 
   
September 30,
 
(Dollars in millions)
 
2010
   
2009
   
Change
 
Sales
  $ 215.0     $ 191.3     $ 23.7       12.4 %
 
Sales for the first nine months of 2010 increased 12.4% to $215.0 million from $191.3 million in the first nine months of 2009. The primary reason for the increase in sales is due to $21.9 million of sales generated from the Acquisition. We estimate sales in our core Repair and Replacement sector were essentially flat  as a result of the challenging economy which we believe lowered overall demand and discretionary spending. We estimate sales increased within our five internal growth initiatives encompassing Emission Controls, Engineering & Construction, Industrials, LifeGuard™ (and other private branded products) and Utility Power Generation. Sales within our growth initiatives remained more resilient to the overall market and economy as projects in these areas were already in progress before the economic downturn and had been previously funded. Project activity for our growth initiatives in 2010 remained active and we estimate sales were up approximately 7% as a result of our continued penetration into these markets.
 
Gross Profit
   
Nine Months Ended
 
   
September 30,
 
(Dollars in millions)
 
2010
   
2009
   
Change
 
Gross profit
  $ 42.8     $ 40.2     $ 2.6       6.4 %
Gross profit as a percent of sales
    19.9 %     21.0 %     (1.1 )%        

Gross profit increased 6.4% to $42.8 million in 2010 from $40.2 million in 2009. This increase is attributable to higher sales volume generated as a result of the Acquisition. Our gross margin decreased to 19.9% in 2010 from 21.0% in 2009. The reduction in gross margin attributable to HWC’s legacy business was impacted by competitive economic conditions which compressed gross margins, increased customer rebates as more customers earned rebates, increased freight expenses, and lower vendor rebates and prompt pay discounts as a percentage of purchases.
   
Operating Expenses
 
     
Nine Months Ended
 
   
September 30,
 
(Dollars in millions)
 
2010
   
2009
   
Change
 
Operating expenses:
                       
Salaries and commissions
  $ 17.5     $ 15.9     $ 1.6       10.1 %
Other operating expenses
    14.5       13.5       0.9       6.9 %
Depreciation and amortization
    1.0       0.4       0.6       130.9 %
Total operating expenses
  $ 32.9     $ 29.8     $ 3.1       10.3 %
 
                               
Operating expenses as a percent of sales
    15.3     15.6     (0.3 )%        
 
Note:  Due to rounding, numbers may not add up to total operating expenses.
 
 
13

 

The increase in salaries and commissions is due to additional personnel obtained in the Acquisition and was partially offset by lower costs in HWC’s legacy business as headcount levels decreased from the prior year period.

Other operating expenses increased due to the additional operations obtained from the Acquisition partially offset by lower costs in HWC’s legacy business from lower headcount levels and cost reduction initiatives. Other operating expenses included $0.5 million of acquisition related expenses in 2010, which the Company did not incur in 2009.

Depreciation and amortization expense increased by $0.6 million due to depreciation and amortization on the assets acquired in the Acquisition.

Operating expenses as a percentage of sales decreased to 15.3% in 2010 from 15.6% in 2009 due to ongoing cost control initiatives and operating leverage from HWC’s legacy business.

Interest Expense

Interest expense increased $0.1 million as the Acquisition was funded entirely from borrowings under the Company’s Loan Agreement. Average debt was $26.4 million in 2010 compared to $22.4 million in 2009. The average effective interest rate increased to 2.2% in 2010 from 1.8% in 2009. This increase was due to a higher percentage of debt in LIBOR borrowings in 2009, which is at a lower interest rate than revolving loan borrowings, and an increase in the LIBOR margin under the new Loan Agreement executed in September 2009.

Income Taxes

Income taxes decreased $0.1 million. Our effective income tax rate increased to 39.5% in 2010 from 38.6% in 2009. This rate increased due to acquisition expenses that were not deductible for federal income tax.

Net Income

We achieved net income of $5.7 million in 2010 compared to $6.2 million in 2009.

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 and petrochemical products are components of the wire and cable we sell, fluctuations in the costs of these and other commodities have historically affected our operating results. To the extent we are unable to pass on to our customers cost increases due to inflation or rising commodity prices, it could adversely affect our operating results.  To the extent commodity prices decline, the net realizable value of our existing inventory could be reduced, and our gross profits could be adversely affected. If we were to turn our inventory approximately four times a year, the impact of severe fluctuations in copper and steel prices would primarily affect the results of the succeeding calendar quarter.

  Liquidity and Capital Resources

Our primary capital needs are for working capital obligations, dividend payments, the stock repurchase program and other general corporate purposes, including acquisitions and capital expenditures. Our primary sources of working capital are cash from operations supplemented by bank borrowings.

Liquidity is defined as the ability to generate adequate amounts of cash to meet the current need for cash. We assess our liquidity in terms of our ability to generate cash to fund our operating activities. Significant factors which could affect liquidity include the following:

 
the adequacy of available bank lines of credit;
 
the ability to attract long-term capital with satisfactory terms;
 
additional stock repurchases;
 
cash flows generated from operating activities;

 
14

 

 
payment of dividends;
 
capital expenditures; and
 
acquisitions.

Comparison of the Nine Months Ended September 30, 2010 and 2009

Our net cash provided by operating activities for the nine months ended September 30, 2010 was $16.7 million compared to $17.8 million in the prior year period. Our net income decreased by $0.4 million to $5.7 million in 2010 from $6.2 million in 2009.
 
Changes in our operating assets and liabilities resulted in cash provided by operating activities of $8.5 million in 2010.  Accounts payable increased $6.3 million primarily from changes in the timing of the weekly check run between periods. Inventory decreased $3.5 million due to a reduction in cable management inventory, as many of these projects began shipping in 2010. The cable management inventory balances increase when we are staging and cutting inventory in preparation for shipment and declines when the product ships to the job site. Accrued and other liabilities increased $3.3 million primarily due to higher accrued wire purchases, additional accruals for volume rebates to our customers, increased payroll related accruals and lower prepayments on cable management projects, reflecting shipments in 2010. Prepaids decreased $2.8 million due to a prepayment for inventory at December 31, 2009. The inventory was received in January 2010, and there was no prepayment for inventory at September 30, 2010. Accounts receivable increased $7.5 million due to increased sales.
 
Net cash used in investing activities was $50.4 million in 2010 compared to $0.3 million in 2009 due to the $50.0 million acquisition of SWWR and SW.
 
Net cash provided by financing activities was $33.7 million in 2010 compared to net cash used in financing activities of $17.6 million in 2009. Net borrowings under the Loan Agreement of $38.2 million, which included borrowings of $50.0 million to finance the acquisition of SWWR and SW, and dividend payments of $4.5 million, were the main components of net cash provided by financing activities during 2010.
 
Indebtedness

Our principal source of liquidity at September 30, 2010 was working capital of $92.7 million compared to $89.9 million at December 31, 2009. We also had available borrowing capacity of approximately $19.4 million at September 30, 2010 and $49.7 million at December 31, 2009 under our $75 million Loan Agreement.

We believe that we will have adequate availability of capital to fund our present operations, meet our commitments on our existing debt, continue the stock repurchase program, continue to fund our dividend payments, and fund anticipated growth over the next twelve months, including expansion in existing and targeted market areas. We continually seek potential acquisitions and from time to time hold discussions with acquisition candidates. If further suitable acquisition opportunities or working capital needs arise that would require increased financing, we believe that our financial position and earnings history provide a solid base for obtaining such financing resources at competitive rates and terms. Additionally, based on market conditions, we may issue more shares of common or preferred stock to raise funds.
 
  Loan and Security Agreement

We have a loan agreement with Bank of America, N.A., as agent and lender, that provides for a $75 million revolving loan. We amended and restated the loan agreement in September 2009 to extend the maturity through September 21, 2013. The loan agreement does not limit the amount of dividends we may pay or stock we may repurchase, as long as we are not in default under the loan agreement and we maintain defined levels of fixed charge coverage and minimum levels of availability. The lender has a security interest in all of our assets except for the real property. The loan bears interest at the agent’s base interest rate.  Portions of the outstanding loan may be converted to LIBOR loans in minimum amounts of $1.0 million and integral multiples of $0.1 million. Upon such conversion, interest is payable at LIBOR plus a margin ranging from 1.25% to 1.75%, depending on the Company’s debt-to-EBITDA ratio. We have entered into a series of one-month LIBOR loans, which, upon maturity, are either rolled back into the revolving loan or renewed under a new LIBOR contract. 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 would remain as September 21, 2013. Availability has remained above these thresholds.

 
15

 
 
Contractual Obligations

      The following table summarizes our loan commitment at September 30, 2010:

In thousands
 
Total
   
Less than
  year
   
1-3 years
   
3-5 years
   
More
than
  years
 
                               
Total debt
  $ 55,640     $     $ 55,640     $     $  

There were no new material changes in operating lease obligations or non-cancellable purchase obligations since December 31, 2009.

Cautionary Statement for Purposes of the “Safe Harbor”

Forward-looking statements in this report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements may relate to, but are not limited to, information or assumptions about our sales and marketing strategy, sales (including pricing), income, operating income or gross margin improvements, working capital, cash flow, interest rates, impact of changes in accounting standards, future economic performance, management’s plans, goals and objectives for future operations, performance and growth or the assumptions relating to any of the forward-looking statements.  These statements can be identified by the fact that they do not relate strictly to historical or current facts.  They use words such as “aim”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “project”, “should”, “will be”, “will continue”, “will likely result”, “would” and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance.  The Company cautions that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results.  Actual results could differ materially from those expressed or implied in the forward-looking statements.  The factors listed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes to our market risk as set forth in Items 7A and 7 of our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4. Controls and Procedures

As of September 30, 2010, an evaluation was performed by the Company’s management, under the supervision and with the participation of the Company’s chief executive officer and chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures.  Based on that evaluation, the chief executive officer and the chief financial officer concluded that the Company’s disclosure controls and procedures were effective.  There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

  Part II. Other Information
 
Item 1 – Not applicable and has been omitted.

Item 1A.  Risk Factors

There were no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

 
16

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about our purchases of common stock for the three months ended September 30, 2010 pursuant to the Company’s stock repurchase program.
Period
 
Total number
of shares
purchased
   
Average price
paid per
share
   
Total number
of shares
purchased as
part of publicly
announced
plans or
programs  (1)
   
Maximum
dollar value
that may yet
be used for
purchases
under the
plan
 
July 1 – 31, 2010  
        $           $ 19,385,303  
August 1 – 31, 2010  
                      19,385,303  
September 1 – 30, 2010  
                    $ 19,385,303  
   
                               
Total  
        $                 
 

(1)
The board authorized a stock repurchase program of $30 million in August 2007. This amount was increased to $50 million in September 2007 and to $75 million effective January 2008. There were no purchases made under the Company’s stock repurchase program in the third quarter of 2010.
 
Item 3 – Not applicable and has been omitted.

Item 4 – (Removed and reserved)

Item 5 – Not applicable and has been omitted.

 
17

 

  Item 6.  Exhibits

(a) Exhibits required by Item 601 of Regulation S-K.

Exhibit
Number
 
Document Description
     
31.1
 
Certification by Charles A. Sorrentino pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
 
Certification by Nicol G. Graham pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1
 
Certification by Charles A. Sorrentino and Nicol G. Graham pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
18

 

Signature

 Pursuant to the requirements 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.
 
Date:  November 9, 2010
HOUSTON WIRE & CABLE COMPANY
   
 
BY:   /s/ Nicol   G.   Graham
 
Nicol G. Graham, Chief Financial Officer

 
19

 

EXHIBIT INDEX

Exhibit
Number
 
Document Description
     
31.1
 
Certification by Charles A. Sorrentino pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
 
Certification by Nicol G. Graham pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1
 
Certification by Charles A. Sorrentino and Nicol G. Graham pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
20

 
Exhibit 31.1
 
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Charles A. Sorrentino, Chief Executive Officer of Houston Wire & Cable Company, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 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 controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
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:   November 9, 2010
/s/ Charles A. Sorrentino
 
Charles A. Sorrentino
 
Chief Executive Officer
 
 
 

 
 
Exhibit 31.2
 
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Nicol G. Graham, Chief Financial Officer of Houston Wire & Cable Company, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 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 controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
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:   November 9, 2010
/s/ Nicol G. Graham
 
Nicol G. Graham
 
Chief Financial Officer
 
 
 

 
 
Exhibit 32.1
 
Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Houston Wire & Cable Company (the “Corporation”) for the fiscal quarter ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Charles A. Sorrentino, as Chief Executive Officer of the Corporation, and Nicol G. Graham, as Chief Financial Officer of the Corporation, each hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of his 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:   November 9, 2010
/s/ Charles A. Sorrentino
 
Charles A. Sorrentino
 
Chief Executive Officer
   
Date:   November 9, 2010
/s/ Nicol G. Graham
 
Nicol G. Graham
 
Chief Financial Officer
 
This certification accompanies the Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Houston Wire & Cable Company for purposes of section 18 of the Securities Exchange Act of 1934, as amended.