Houston Wire & Cable Company
Houston Wire & Cable CO (Form: 10-K, Received: 03/15/2011 17:21:19)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2010
 
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                              to  

Commission File Number: 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)
Securities registered pursuant to Section 12(b) of the Act:

Title of Class
 
Name of Each Exchange on Which Registered
Common stock, par value $0.001 per share
 
The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
YES   ¨                 NO   x
 
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   x
 
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 if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     x

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

Large Accelerated Filer   ¨
Accelerated Filer   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
  
The aggregate market value of the voting stock (common stock) held by non-affiliates of the registrant as of June 30, 2010 was $175,524,345.
  
At March 1, 2011, there were 17,748,487 outstanding shares of the registrant’s common stock, $.001 par value per share.
 
  DOCUMENTS INCORPORATED BY REFERENCE
   Part III of this report incorporates by reference specific portions of the registrant’s definitive Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 6, 2011.  

 
 

 
 
HOUSTON WIRE & CABLE COMPANY
Form 10-K
For the Fiscal Year Ended December 31, 2010

INDEX
PART I.
     
Item 1.
Business
  2
Item 1A.
Risk Factors
  5
Item 1B.
Unresolved Staff Comments
  7
Item 2.
Properties
  8
Item 3.
Legal Proceedings
  8
Item 4.
Reserved
  9
 
Supplemental Item. Executive Officers of the Registrant 
  9
       
PART II.
     
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  10
Item 6.
Selected Financial Data
  12
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  14
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
  23
Item 8.
Consolidated Financial Statements and Supplementary Data
  24
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  42
Item 9A.
Controls and Procedures
  42
Item 9B.
Other Information
  45
       
PART III.
     
Item 10.
Directors, Executive Officers and Corporate Governance
  45
Item 11.
Executive Compensation
  45
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  45
Item 13.
Certain Relationships and Related Transactions, and Director Independence
  45
Item 14.
Principal Accountant Fees and Services
  45
       
Part IV.
     
Item 15.
Exhibits and Financial Statement Schedules
  46

 
1

 

PART I

ITEM 1.  BUSINESS

Overview

We are one of the largest providers of wire and cable and related services to the U.S. market. The June 25, 2010 purchase of Southwest Wire Rope LP (“SWWR”), its general partner Southwest Wire Rope GP LLC (“GP”) and SWWR’s wholly owned subsidiary, Southern Wire LLC (“SW”) (collectively “the acquired companies” or “the acquisition”), allowed the Company to expand its product offerings to include mechanical wire and cable and related hardware. We provide our customers with a single-source solution for wire and cable, hardware and related services by offering a large selection of in-stock items, exceptional customer service and high levels of product expertise.

Our wide product selection and specialized services support our position in the supply chain between wire and cable manufacturers and the customer. The breadth and depth of wire and cable and related hardware that we offer, require significant warehousing resources and a large number of SKU’s (stock-keeping units). While manufacturers may have the space and capabilities to maintain a large supply of inventory, we do not believe that any single manufacturer has the breadth and depth of product that we offer. More importantly, manufacturers historically have not offered the services that our customers need, such as complimentary custom cutting and same day shipment, and do not have multiple distribution centers across the nation.

Our Cable Management Program addresses our customers’ growing requirement for sophisticated and efficient just-in-time product management for large capital projects. This program entails purchasing and storing dedicated inventory, so our customers have immediate product availability for the duration of their project. Some advantages of this program include extra pre-allocated safety stock, firm pricing, zero cable surplus and just-in-time delivery. Used on large construction and capital expansion projects, our Cable Management Program combines the expertise of our cable specialists with dedicated project inventory and superior logistics to finish complex projects on time, within budget and with minimal residual waste.

History

We were founded in 1975 and have a long history of reliable customer service, broad product selection and strong product expertise. In 1987, we completed our first initial public offering and were subsequently purchased in 1989 by ALLTEL Corporation. In 1997, we were purchased by investment funds affiliated with Code, Hennessy & Simmons LLC. In June 2006, we completed our second initial public offering.

In 2000, we acquired our largest direct competitor, the Futronix division of Kent Electronics Corporation. In 2010, we acquired the operations of SWWR and SW from Teleflex Corporation.

Products

We offer products in most categories of wire and cable, including: continuous and interlocked armor cable; control and power cable; electronic wire and cable; flexible and portable cords; instrumentation and thermocouple cable; lead and high temperature cable; medium voltage cable; premise and category wire and cable, wire rope and wire rope slings, as well as nylon slings, chain, shackles and other related hardware. We also offer private branded products, including our proprietary brand LifeGuard™, a low-smoke, zero-halogen cable. Our products are used in repair and replacement, also referred to as maintenance, repair and operations ("MRO"), and related projects, larger-scale projects in the utility, industrial and infrastructure markets and a diverse range of industrial applications including  communications, energy, engineering and construction, general manufacturing, mining, construction, oilfield services, infrastructure, petrochemical, transportation, utility, wastewater treatment industries, marine construction and marine transportation.

Targeted Markets

Our business is driven, in part, by the strength, growth prospects and activity in the end-markets in which our products are used. We have targeted three of these markets—the utility, industrial and infrastructure markets—in our recent sales and marketing initiatives.

 
2

 

Utility Market.     The utility market includes large investor-owned utilities, rural cooperatives and municipal power authorities. According to Industrial Information Resources’ (“IIR’s”) 2011 Global Industrial Outlook, the spending on the power market in 2011 within the United States is expected to be $63 billion. While we do not distribute the power lines used for the transmission of electricity, we sell many products used in the construction of a power plant and the related pollution control equipment. As such we are positioned to benefit from expenditures for new power generation needed to satisfy a growing population with increasing energy demands and to comply with federal mandates to reduce toxic outputs from power generating facilities. We expect to benefit from this trend as our customers utilize our cable management services to support the distribution of wire and cable required for the construction of new power plants and upgrading of existing power plants. These upgrades often require the addition of highly-engineered and capital-intensive environmental compliance devices such as selective catalytic reduction (SCR) and flue gas desulfurization (FGD) systems to remove harmful emissions from these existing power generation units. These projects require the specialty instrumentation, and power and control wire and cable that we distribute.

Industrial Market.     The industrial market is one of the largest segments of the U.S. economy and is comprised of a diverse base of manufacturing and production companies. According to IIR’s 2011 Global Industrial Outlook, the 2011 projected total industrial spending within the United States is expected to be $179 billion. We provide a wide variety of products specifically designed for the petroleum refining, chemical processing, metal/mineral, and manufacturing industries where there may be significant exposure to caustic materials or extreme temperatures. As with the utilities market, we are positioned to benefit from several environmental compliance projects.
 
Infrastructure Market.      We believe that significant infrastructure improvements and additions to support population density and growth will be needed over the next several years. Infrastructure market opportunities include construction within the transportation, water management, waste management, education and health care industries. The American Recovery and Reinvestment Act (ARRA), passed in February 2009, is providing $787 billion to support infrastructure projects throughout the country. According to McGraw Hill Construction, $20 billion of this stimulus has been set aside for water and environment construction, while $31 billion has been set aside for energy projects, including $11 billion for the smart grid. We believe we are positioned to benefit from this investment as capital projects associated with multiple opportunities including waste water treatment, mass transit, and newly emerging energy markets, require the products and services offered by our company. We are assisting our customers to further penetrate the engineering and construction markets by working with application engineers to drive wire and cable specifications in these large construction projects.

LifeGuard™ Opportunity

We believe that demand for low-smoke, zero-halogen products is in its infancy in the U.S. and represents a significant opportunity within our targeted markets. Low-smoke, zero-halogen cables have been used extensively in Europe and Asia for many years. We are leading the development of the market for low-smoke, zero-halogen cable in the U.S. When traditional cable burns, the acid gases produced are particularly destructive to electrical and electronic equipment, which represents a significant investment for many businesses. In contrast, low-smoke, zero-halogen compounds provide significant flame resistance, minimal smoke production and substantially reduced toxicity and corrosiveness when burned, as compared to traditional wire and cable. We sell our LifeGuard™ products across most of our end-user markets.

Distribution Logistics

We believe that our national distribution presence and value-added services make us an essential partner in the supply chain for our suppliers. We have successfully expanded our business from one original location in Houston, Texas to nineteen locations nationwide, which includes two third-party logistics providers. Our standard practice is to process customers' orders the same day they are received. Our strategically located distribution centers generally allow for ground delivery nationwide within 24 hours of shipment. Orders are delivered through a variety of distribution methods, including less-than-truck-load, truck-load, air or parcel service providers, direct from supplier and cross-dock shipments. Freight costs are typically borne by our customers. Due to our shipment volume, we have preferred pricing relationships with our contract carriers.

Customers

During 2010, we served approximately 4,300 customers, shipping approximately 25,000 SKU’s to over 12,000 customer locations nationwide. No customer represented 10% or more of our 2010 sales.

Suppliers

We obtain products from most of the leading wire and cable suppliers. We believe we have strong relationships with our top suppliers. Although we believe that alternative sources are available for the majority of our wire and cable products, we have strategically concentrated our purchases of wire and cable with four leading suppliers in order to maximize product quality, delivery dependability, purchasing efficiencies, and vendor rebates. As a result, in 2010 approximately 53% of our annual purchases came from four suppliers. We do not believe we are dependent on any one supplier for any of our wire and cable products and related hardware.
 
Our top four suppliers in 2010 were Belden, General Cable Corp., Nexans Energy USA, Inc and Southwire Company.

 
3

 

Sales

We market our wire and cable and related services through an inside sales force located throughout our regional offices and a field sales force located in key geographic markets throughout the U.S. By operating under a decentralized process, region managers are able to adapt quickly to market-specific occurrences, allowing us to compete effectively with local competitors. We believe the breadth and depth of our sales force is critical to serving our fragmented and diverse customer and end-user base.

Competition

The wire and cable market is highly competitive and fragmented, with several hundred wire and cable competitors serving this market. The product offerings and levels of service provided by the other wire and cable providers with whom we compete vary widely. We primarily compete with other wire and cable providers on a regional and local basis. Most of our direct competitors are smaller companies that focus on a specific geographical area or feature a select product offering, such as surplus wire. In addition to the direct competition with other wire and cable providers, we also face, on a much more limited basis, competition with the distributors and manufacturers that sell products directly or through multiple distribution channels to end-users or other resellers. In the markets that we serve, competition is primarily based on product line breadth, quality, product availability, service capabilities and price.

Employees

At December 31, 2010, we had 380 employees. Our sales and marketing staff accounted for 157 employees, including 40 field sales personnel and 89 inside sales and technical support personnel.

Our employees are not represented by a labor union or covered by a collective bargaining agreement. We believe that our employee relations are good.

Website Access

We maintain an internet website at www.houwire.com. We make available, free of charge under the “Investor Relations” heading on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and if applicable, amendments to those reports, as well as proxy and information statements, as soon as reasonably practicable after such documents are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). Information contained on our website is not part of, and should not be construed as being incorporated by reference into, this Annual Report on Form 10-K.

Government Regulation

We are subject to regulation by various federal, state and local agencies. We believe we are in compliance in all material respects with existing applicable statutes and regulations affecting environmental issues and our employment, workplace health and workplace safety practices.

 
4

 

ITEM 1A.  RISK FACTORS

In addition to other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating our business, because such factors may have a significant impact on our business, operating results, cash flows and financial condition. As a result of the risks set forth below and elsewhere in this Annual Report, actual results could differ materially from those projected in any forward-looking statements.

Downturns in capital spending and cyclicality in certain of the markets we serve could have a material adverse effect on our financial condition and results of operations.

The majority of our products are used in the construction, maintenance and operation of facilities, plants and projects in the communications, energy, engineering and construction, general manufacturing, infrastructure, petrochemical, mining, oilfield services, transportation, utility, wastewater treatment, marine construction and marine transportation industries. The demand for our products and services depends to a large degree on the capital spending levels of end-users in these markets. Many of these end-users defer capital expenditures or cancel projects during economic downturns. In addition, certain of the markets we serve are cyclical, which affects capital spending by end-users in these industries.

We have risks associated with our customers’ access to credit.

The current turmoil in global financial markets has not impaired our access to our credit facility to finance our operations. However, poor credit market conditions may adversely impact the availability of construction and other project financing, upon which many of our customers depend, resulting in project cancellations or delays. Our utility and industrial customers may also face limitations when trying to access the credit markets to fund ongoing operations or capital projects. Credit constraints experienced by our customers may result in lost revenues and reduced gross margins for us and, in some cases, higher than expected bad debt losses. Our suppliers’ ability to deliver products may also be affected by financing constraints caused by credit market conditions, which could negatively impact our revenue and cost of products sold, at least until alternate sources of supply are arranged.

  We have risks associated with inventory.

Our business requires us to maintain substantial levels of inventory. We must identify the right mix and quantity of products to keep in our inventory to fulfill customer orders. Failure to do so could adversely affect our sales and earnings. However, if our inventory levels are too high, we are at risk that unexpected changes in circumstances, such as a shift in market demand, drop in prices or default or loss of a customer, could have a material adverse impact on the net realizable value of our inventory.

Our operating results are affected by fluctuations in commodity prices.

Copper, steel and petrochemical products are components of the wire and cable we sell. Fluctuations in the costs of these and other commodities have historically affected our operating results. To the extent higher commodity prices result in increases in the costs we pay for our products, we attempt to reflect the increase in the prices we charge our customers. While we historically have been able to pass most of these cost increases on to our customers, to the extent we are unable to do so in the future, it could have a material adverse effect on our operating results. In addition, as commodity costs increase, our customers may delay or decrease their purchases of our wire and cable, which could adversely affect the demand for our products. To the extent commodity prices decline, the net realizable value of our existing inventory could be reduced, and our gross profit could be adversely affected.

Our sales of wire rope and related hardware are impacted by the level of oil and gas offshore drilling activity.

Recent events in the Gulf Coast have resulted in tighter drilling and permitting qualifications by the U.S. Government. Until drilling companies meet these qualifications or they are eased, oil and gas drilling activity will remain at low levels, limiting the demand for the products we sell to this market.

If we are unable to maintain our relationships with our customers, it could have a material adverse effect on our financial results.

We rely on customers to purchase our wire and cable and related hardware. The number, size, business strategy and operations of these customers vary widely from market to market. Our success depends heavily on our ability to identify and respond to our customers’ needs.

 
5

 

In 2010, our ten largest customers accounted for approximately 39% of our sales. If we were to lose one or more of our large customers, or if one or more of our large customers were to significantly reduce the amount of wire and cable and related hardware they purchase from us, and we were unable to replace the lost sales on similar terms, we could experience a significant loss of revenue and profits. In addition, if one or more of our key customers failed or were unable to pay, we could experience a write-off or write-down of the related receivables, which could adversely affect our earnings. We participate in a number of national marketing groups and engage in joint promotional sales activities with the members of those groups. Any permanent exclusion of us from, or refusal to allow us to participate in, such national marketing groups could have a material adverse effect on our sales and our results of operations.  

An inability to obtain the products that we distribute could result in lost revenues and reduced profits and damage our relationships with customers.

In 2010, we sourced products from approximately 345 suppliers. However, we have adopted a strategy to concentrate our purchases of wire and cable with a small number of suppliers in order to maximize product quality, delivery dependability, purchasing efficiencies and supplier incentives. As a result, in 2010 approximately 53% of our purchases came from four suppliers. If any of these suppliers changes its sales strategy or decides to terminate its business relationship with us, our sales and earnings would be adversely affected unless and until we were able to establish relationships with suppliers of comparable products. In addition, if we are not able to obtain the products we distribute from either our current suppliers or other competitive sources, we could experience a loss of revenue, reduction in profits and damage to our relationships with our customers. Supply shortages may occur as a result of unanticipated demand or production cutbacks, shortages of raw materials, labor disputes or weather conditions affecting products or shipments, transportation disruptions or other reasons beyond our control. When shortages occur, wire and cable suppliers often allocate products among their customers, and our allocations might not be adequate to meet our customers' needs.

Loss of key personnel or our inability to attract and retain new qualified personnel could hurt our ability to operate and grow successfully.

Our success is highly dependent upon the services of Charles Sorrentino, our President and Chief Executive Officer, Nicol Graham, our Chief Financial Officer, and James Pokluda, our Vice President of Sales and Marketing. Our success will continue to depend to a significant extent on our executive officers and key management and sales personnel. We do not have key man life insurance covering any of our executive officers. We may not be able to retain our executive officers and key personnel or attract additional qualified management and sales personnel. The loss of any of our executive officers or our other key management and sales personnel or our inability to recruit and retain qualified personnel could hurt our ability to operate and make it difficult to maintain our market share and to execute our growth strategies.

A change in vendor rebate programs could adversely affect our gross margins and results of operations.

The terms on which we purchase products from many of our suppliers entitle us to receive a rebate based on the volume of our purchases. These rebates effectively reduce our costs for products. If market conditions change, suppliers may adversely change the terms of some or all of these programs. These changes may lower our gross margins on products we sell and may have an adverse effect on our operating income.

Our private branded products might not gain market acceptance.

An important element of our growth strategy is the continued development and market acceptance of our LifeGuard™ line of low-smoke, zero-halogen cable and other products sold under our private brands. Our success with our private branded products, however, depends on our ability to market these products in the appropriate channels and, ultimately, on the acceptance of these products in the markets we serve. We have been selling LifeGuard™ cable since 2003, and our efforts to develop and market new private branded products might not be successful. Further, demand for our products could diminish as a result of a competitor's introduction of higher quality, better performing or lower cost products in the marketplace. In addition, the low-smoke, zero-halogen properties of our LifeGuard™ line of cable products depend on a highly-engineered petrochemical material. If there is not an adequate supply of this material, we may be unable to have our LifeGuard™ products manufactured, or our LifeGuard™ products may be available only at a higher cost or after a long delay. If we cannot sustain the growth in demand for our LifeGuard™ products, or if we cannot have those products manufactured on acceptable terms or if we do not develop additional private branded products, we will be unable to realize fully our growth strategy.

If we encounter difficulties with our management information systems, we would experience problems managing our business.

We believe our management information systems are a competitive advantage in maintaining our leadership position in the wire and cable industry. We rely upon our management information systems to manage and replenish inventory, fill and ship orders on a timely basis and coordinate our sales and marketing activities. If we experience problems with our management information systems, we could experience product shortages, diminished inventory control or an increase in accounts receivable. Any failure by us to maintain our management information systems could adversely impact our ability to attract and serve customers and would cause us to incur higher operating costs and experience reduced profitability.

 
6

 
 
An increase in competition could decrease sales or earnings.

We operate in a highly competitive industry. We compete directly with national, regional and local providers of wire and cable and related hardware. Competition is primarily focused in the local service area and is generally based on product line breadth, product availability, service capabilities and price. Some of our existing competitors have, and new market entrants may have, greater financial and marketing resources than we do. To the extent existing or future competitors seek to gain or retain market share by reducing prices, we may be required to lower our prices, thereby adversely affecting our financial results. Existing or future competitors also may seek to compete with us for acquisitions, which could have the effect of increasing the price and reducing the number of suitable acquisitions. Other companies, including our current customers, could seek to compete directly with our private branded products, which could adversely affect our sales of those products and ultimately our financial results. Our existing customers, as well as suppliers, could seek to compete with us by offering services similar to ours, which could adversely affect our market share and our financial results. In addition, competitive pressures resulting from the economic downturn and the industry trend toward consolidation could adversely affect our growth and profit margins.

We may be subject to product liability claims that could be costly and time consuming.

We sell wire and cable and related hardware. As a result, from time to time we have been named as defendants in lawsuits alleging that these products caused physical injury or injury to property. We rely on product warranties and indemnities from the product manufacturers, as well as insurance that we maintain, to protect us from these claims. However, manufacturers' warranties and indemnities are typically limited in duration and scope and may not cover all claims that might be asserted. Moreover, our insurance coverage may not be available or may not be adequate to cover every claim asserted or the entire amount of every claim.

We may not be able to successfully identify acquisition candidates, effectively integrate newly acquired businesses into our operations or achieve expected profitability from our acquisitions.

To supplement our growth, we intend to selectively pursue acquisition opportunities. If we are not successful in finding attractive acquisition candidates that we can acquire on satisfactory terms, or if we cannot complete those acquisitions that we identify, we will not be able to realize the benefit of this growth strategy.

Acquisitions involve numerous possible risks, including unforeseen difficulties in integrating operations, technologies, services, accounting and personnel; the diversion of financial and management resources from existing operations; unforeseen difficulties related to entering geographic regions or target markets where we do not have prior experience; the potential loss of key employees; and the inability to generate sufficient profits to offset acquisition or investment-related expenses. If we finance acquisitions by issuing equity securities or securities convertible into equity securities, our existing stockholders could be diluted, which, in turn, could adversely affect the market price of our stock. If we finance an acquisition with debt, it could result in higher leverage and interest costs. As a result, if we fail to evaluate and execute acquisitions properly, we might not achieve the anticipated benefits of these acquisitions, and we may incur costs in excess of what we anticipate.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

 
7

 

ITEM 2.  PROPERTIES

Facilities

The following table sets forth information about our facilities and our distribution centers as of December 31, 2010.
 
Location
 
Total  
Space
 
Distribution
  Center
 
Owned/Leased
   
(Sq Ft)
 
(Sq Ft)
   
Houston, TX – 3 facilities
   
192,488
 
161,960
 
Owned
New Iberia, LA
   
21,250
 
  18,750
 
Owned
Sulphur, LA
   
17,590
 
  15,090
 
Owned
Houston, TX – 2 facilities
   
90,887
 
  81,475
 
Leased
Chicago, IL
   
86,705
 
  81,635
 
Leased
Olive Branch, MS
   
80,000
 
  72,000
 
Leased
Charlotte, NC
   
76,159
 
  68,892
 
Leased
Philadelphia, PA
   
60,000
 
  54,500
 
Leased
Los Angeles, CA
   
52,901
 
  47,036
 
Leased
Atlanta, GA
   
50,733
 
  47,483
 
Leased
Tampa, FL
   
49,776
 
  45,374
 
Leased
Seattle, WA
   
30,363
 
  28,275
 
Leased
Baton Rouge, LA
   
22,200
 
  19,700
 
Leased
Kansas City, MO
   
10,000
 
     7,000
 
Leased
               
Total
   
841,052
 
749,170
   
 
We own three of the five facilities we operate in Houston, Texas, as well as two other facilities acquired as part of SWWR. Our primary national distribution center as well as our corporate headquarters is located in Houston, Texas. This facility houses all centralized and back office functions such as finance, marketing, purchasing, human resources and information technology. We believe that our properties are in good operating condition and adequately serve our current business operations.

As a test of potential new markets and to augment our distribution network, we contract with two third-party logistics firms. The location of and services provided by these third party logistics firms are as follows:
 
 
Denver, Colorado —Inventory and ship pre-packaged and cut-to-order lengths of wire and cable for a monthly fixed fee plus a per transaction charge; and
 
 
 
San Francisco, California —Inventory and ship pre-packaged and cut-to-order lengths of wire and cable for a monthly fixed fee plus a per transaction charge.

ITEM 3.  LEGAL PROCEEDINGS

From time to time, we are involved in lawsuits that are brought against us in the normal course of business. We are not currently a party to any legal proceedings that we expect, either individually or in the aggregate, to have a material adverse effect on our business or financial condition. We, along with many other defendants, have been named in a number of lawsuits in the state courts of Illinois, Minnesota, North Dakota, and South Dakota alleging that certain wire and cable which may have contained asbestos caused injury to the plaintiffs who were exposed to this wire and cable. These lawsuits are individual personal injury suits that seek unspecified amounts of money damages as the sole remedy. It is not clear whether the alleged injuries occurred as a result of the wire and cable in question or whether we, in fact, distributed the wire and cable alleged to have caused any injuries. We maintain general liability insurance that has applied to these claims. To date, all costs associated with these claims have been covered by the applicable insurance policies and all defense of these claims has been handled by the applicable insurance companies. In addition, we did not manufacture any of the wire and cable at issue, and we would rely on any warranties from the manufacturers of such cable if it were determined that any of the wire or cable that we distributed contained asbestos which caused injury to any of these plaintiffs. In connection with ALLTEL's sale of our company in 1997, ALLTEL provided indemnities with respect to costs and damages associated with these claims that we believe we could enforce if our insurance coverage proves inadequate.

 
8

 

ITEM 4.  RESERVED

SUPPLEMENTAL ITEM.  EXECUTIVE OFFICERS OF THE REGISTRANT

Name/Office
 
Age
 
Served
as an
Officer
Since
 
Business Experience
During Last 5 Years
Charles A. Sorrentino
President and Chief Executive Officer
 
66
 
1998
 
President and Chief Executive Officer of the Company.
             
Nicol G. Graham
Chief Financial Officer, Treasurer and Secretary
 
58
 
1997
 
Chief Financial Officer, Treasurer and Secretary of the Company.

 
9

 

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on The NASDAQ Global Market under the symbol “HWCC”.  The following table lists quarterly information on the price range of our common stock based on the high and low reported sale prices for our common stock as reported by The NASDAQ Global Market for the periods indicated below.

   
High
   
Low
 
Year ended December 31, 2010:
           
First quarter
 
$
14.68
   
$
11.31
 
Second quarter
 
$
14.53
   
$
9.66
 
Third quarter
 
$
13.17
   
$
8.64
 
Fourth quarter
 
$
13.64
   
$
9.61
 
                 
Year ended December 31, 2009:
               
First quarter 
 
$
9.34
   
$
4.70
 
Second quarter
 
$
14.76
   
$
7.45
 
Third quarter
 
$
12.66
   
$
8.56
 
Fourth quarter
 
$
13.49
   
$
10.51
 

There were 16 holders of record of our common stock as of December 31, 2010.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about our purchases of common stock for the quarter ended December 31, 2010. For further information regarding our stock repurchase activity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
 
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
 
October 1 – 31, 2010
        $           $ 19,385,303  
November 1 – 30, 2010
        $           $ 19,385,303  
December 1 – 31, 2010
        $           $ 19,385,303  
Total
        $                
__________
 
(1)       The board authorized a stock buyback in the amount of $30 million in August 2007. This amount was increased to $50 million in September 2007 and to $75 million effective January 2008. There were no purchases made under the Company’s stock repurchase program in the 4th quarter of 2010.
 
Stock Performance Graph

The following graph compares the total stockholder return on our common stock with the total return on the NASDAQ US Index and the Russell 2000 Index.  We believe the Russell 2000 Index includes companies with capitalization comparable to ours.  Houston Wire & Cable Company has a unique niche in the marketplace and due to the size and scope of our business platform, we are unable to identify peer issuers as the public companies within our industry are substantially more diversified than we are.

Total return is based on an initial investment of $100 on June 15, 2006, the date of our IPO, and reinvestment of dividends.

 
10

 


Dividend Policy
 
We have paid a quarterly cash dividend since August 2007. Since February 1, 2008, our quarterly cash dividend has been $0.085 per share, as approved by our Board of Directors. In each of 2009 and 2010, the cash dividend was $0.34 per share, resulting in total dividends paid of $6.0 million in each year.
 
As a holding company, our only source of funds to pay dividends is distributions from our operating subsidiary. Our loan agreement does not limit the amount of dividends we may pay or stock we may repurchase, as long as we are not in default under the loan agreement and we maintain defined levels of fixed charge coverage and minimum levels of availability. 

Securities Authorized for Issuance under Equity Compensation Plans

The information called for by this item and by Item 12 regarding securities available for issuance is presented under Item 12.

 
11

 

ITEM 6.  SELECTED FINANCIAL DATA

You should read the following selected financial information together with our consolidated financial statements and the related notes and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Form 10-K. We have derived the consolidated statement of income data for each of the years ended December 31, 2010, 2009 and 2008, and the consolidated balance sheet data at December 31, 2010 and 2009, from our audited financial statements, which are included in this Form 10-K. We have derived the consolidated statement of income data for each of the years ended December 31, 2007 and 2006, and the consolidated balance sheet data at December 31, 2008, 2007 and 2006 from our audited financial statements, which are not included in this Form 10-K.

   
Year Ended December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(Dollars in thousands, except share data)
 
                               
CONSOLIDATED STATEMENT OF INCOME DATA:
                             
Sales
 
$
308,522
   
$
254,819
   
$
360,939
   
$
359,115
   
$
323,467
 
Cost of sales
   
245,932
     
201,865
     
275,224
     
266,276
     
231,128
 
                                         
Gross profit
   
62,590
     
52,954
     
85,715
     
92,839
     
92,339
 
Operating expenses:
                                       
Salaries and commissions
   
25,281
     
20,596
     
24,080
     
23,861
     
22,706
 
Other operating expenses
   
20,565
     
18,023
     
20,728
     
18,811
     
15,975
 
Management fee to stockholder (1)
   
     
     
     
     
208
 
Depreciation and amortization
   
1,738
     
563
     
523
     
459
     
376
 
Total operating expenses
   
47,584
     
39,182
     
45,331
     
43,131
     
39,265
 
                                         
Operating income
   
15,006
     
13,772
     
40,384
     
49,708
     
53,074
 
Interest expense
   
844
     
520
     
1,825
     
1,188
     
3,075
 
                                         
Income before income taxes
   
14,162
     
13,252
     
38,559
     
48,520
     
49,999
 
Income tax provision
   
5,543
     
5,220
     
14,822
     
18,295
     
19,325
 
                                         
Net income
 
$
8,619
   
$
8,032
   
$
23,737
   
$
30,225
   
$
30,674
 
                                         
Earnings per share (2) :
                                       
Basic
 
$
0.49
   
$
0.46
   
$
1.33
   
$
1.49
   
$
1.63
 
                                         
Diluted
 
$
0.49
   
$
0.45
   
$
1.33
   
$
1.48
   
$
1.62
 
                                         
Weighted average common shares outstanding  (2) :
                                       
Basic
   
17,657,682
     
17,648,696
     
17,789,739
     
20,328,182
     
18,875,192
 
Diluted
   
17,710,123
     
17,665,924
     
17,838,072
     
20,406,000
     
18,984,826
 
__________
(1)
The management fee arrangement was terminated as of the completion of our initial public offering in June 2006.
(2)
The 2006 share information has been restated for the 1.875-for-1 stock split on May 16, 2006.

 
12

 
 
   
As of December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(Dollars in thousands)
 
CONSOLIDATED BALANCE SHEET DATA:
                             
Cash and cash equivalents
 
$
   
$
   
$
   
$
   
$
 
Accounts receivable, net
 
$
67,838
   
$
46,859
   
$
50,798
   
$
58,202
   
$
52,128
 
Inventories, net
 
$
67,503
   
$
61,325
   
$
73,459
   
$
69,299
   
$
56,329
 
Total assets
 
$
185,490
   
$
122,014
   
$
134,753
   
$
139,091
   
$
116,864
 
Book overdraft   (1)
 
$
3,055
   
$
907
   
$
4,933
   
$
3,854
   
$
1,265
 
Total debt   (2) (3)
 
$
54,825
   
$
17,479
   
$
29,808
   
$
34,507
   
$
12,059
 
Stockholders’ equity   (3)
 
$
85,720
   
$
80,813
   
$
76,595
   
$
71,170
   
$
81,674
 
_______
(1)
Our book overdraft is funded by our revolving credit facility as soon as the related checks clear our disbursement account.
(2)
On June 25, 2010, we completed the purchase of the acquired companies for a total purchase price of $51.5 million of which $51.2 million was paid in 2010 and was funded from our loan agreement.
(3)
A stock repurchase program was approved in 2007. During the years ended December 31, 2008 and 2007, purchases of stock totaling $14,725 and $40,890, respectively, were made, part of which was funded by debt. No repurchases were made during the years ended December 31, 2010 and 2009.

 
13

 
 
ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Form 10-K. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause such differences include those described in “Risk Factors” and elsewhere in this Form 10-K. Certain tabular information may not foot due to rounding.

Overview

Since our founding over 35 years ago, we have grown to be one of the largest providers of wire and cable and related services to the U.S. market. Today, we serve approximately 4,300 customers. Our products are used in MRO activities and related projects, as well as for larger-scale projects in the utility, industrial and infrastructure markets and a diverse range of industrial applications including  communications, energy, engineering and construction, general manufacturing, mining, construction, oilfield services, infrastructure, petrochemical, transportation, utility, wastewater treatment industries, marine construction and marine transportation.

Our revenue is driven in part by the level of capital spending within the end-markets we serve. Because many of these end-markets defer capital expenditures during periods of economic downturns, our business has experienced cyclicality from time to time. We believe that our revenue will continue to be impacted by fluctuations in capital spending and by our ability to drive demand through our sales and marketing initiatives and the continued development and marketing of our private branded products, such as LifeGuard™. The recent economic uncertainty and volatile commodity prices have impacted sales and the level of demand. This has had and will continue to have an impact on our performance, until economic conditions stabilize.

Our direct costs will continue to be influenced significantly by the prices we pay our suppliers to procure the products we distribute to our customers. Changes in these costs may result, for example, from increases or decreases in raw material costs, changes in our relationships with suppliers or changes in vendor rebates. Our operating expenses will continue to be affected by our investment in sales, marketing and customer support personnel and commissions paid to our sales force for revenue and profit generated. Some of our operating expenses are related to our fixed infrastructure, including rent, utilities, administrative salaries, maintenance, insurance and supplies. To meet our customers’ needs for an extensive product offering and short delivery times, we will need to continue to maintain adequate inventory levels. Our ability to obtain this inventory will depend, in part, on our relationships with suppliers.

Critical Accounting Policies and Estimates

Critical accounting policies are those that both are important to the accurate portrayal of a company’s financial condition and results of operations, and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
 
In order to prepare financial statements that conform to accounting principles generally accepted in the United States, commonly referred to as GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.

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

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts receivable for estimated losses resulting from the inability of our customers to make required payments. We perform periodic credit evaluations of our customers and typically do not require collateral. Consistent with industry practices, we require payment from most customers within 30 days of the invoice date. We have an estimation procedure, based on historical data and recent changes in the aging of the receivables, that we use to record reserves throughout the year. In the last five years, write-offs against our allowance for doubtful accounts have averaged $0.1 million per year. A 20% change in our estimate at December 31, 2010 would have resulted in a change in income before income taxes of $0.1 million.

 
14

 

Reserve for Returns and Allowances

We estimate the gross profit impact of returns and allowances for previously recorded sales. This reserve is calculated on historical and statistical returns and allowances data and adjusted as trends in the variables change. A 20% change in our estimate at December 31, 2010 would have resulted in a change in income before income taxes of $0.1 million.

Inventories

Inventories are valued at the lower of cost, using the average cost method, or market. We continually monitor our inventory levels at each of our distribution centers. Our reserve for inventory obsolescence is based on the age of the inventory, movements of our inventory over the prior twelve months and the experience of our purchasing and sales departments in estimating demand for the product in the succeeding year. Our inventories are generally not susceptible to technological obsolescence. A 20% change in our estimate at December 31, 2010 would have resulted in a change in income before income taxes of $0.6 million.

Intangible Assets

The Company’s intangible assets, excluding goodwill, represent purchased trade names, customer relationships, and non-compete agreements with certain of our employees. Trade names are not being amortized and are treated as indefinite lived assets. Trade names are tested for recoverability on an annual basis in October of each year. This test was performed and no impairment was deemed necessary. The Company assigns useful lives to its intangible assets based on the periods over which it expects the assets to contribute directly or indirectly to the future cash flows of the Company. Customer relationships and non-compete agreements are being amortized over a 7 ½ year and 1 year useful life, respectively. If events or circumstances were to indicate that any of the Company’s definite-lived intangible assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable intangible asset.

Vendor Rebates

Many of our arrangements with our vendors entitle us to receive a rebate of a specified amount when we achieve any of a number of measures, generally related to the volume of purchases from the vendor. We account for such rebates as a reduction of the prices of the vendor’s products and therefore as a reduction of inventory until we sell the product, at which time such rebates reduce cost of sales. Throughout the year, we estimate the amount of the rebates earned based on our estimate of purchases to date relative to the purchase levels that mark our progress toward earning the rebates. We continually revise these estimates to reflect actual rebates earned based on actual purchase levels and all estimated rebate amounts are reconciled. A 20% change in our estimate of total rebates earned during 2010 would have resulted in a change in income before income taxes of $1.3 million for the year ended December 31, 2010.

Goodwill

Goodwill represents the excess of the amount we paid to acquire businesses over the estimated fair value of tangible assets and identifiable intangible assets acquired, less liabilities assumed. At December 31, 2010, our goodwill balance was $25.1 million, representing 13.5% of our total assets.

We test goodwill for impairment annually, or more frequently if indications of possible impairment exist, by applying a fair value-based test. In October 2010, we performed our annual goodwill impairment test and, as a result of this test, we believe the goodwill on our balance sheet is not impaired. If circumstances change or events occur to indicate that our fair market value has fallen below book value, we will compare the estimated fair value of the goodwill to its carrying value. If the carrying value of goodwill exceeds the estimated fair value of goodwill, we will recognize the difference as an impairment loss in operating income.

Sales

We generate most of our sales by providing wire and cable and related hardware to our customers, as well as billing for freight charges. We recognize revenue upon shipment of our products to customers from our distribution centers or directly from our suppliers. Sales incentives earned by customers are accrued in the same month as the shipment is invoiced.

Cost of Sales

Cost of sales consists primarily of the average cost of the wire and cable and related hardware that we sell. We also incur shipping and handling costs in the normal course of business. Cost of sales also reflects cash discounts for prompt payment to vendors and vendor rebates generally related to annual purchase targets, as well as inventory obsolescence charges.

 
15

 

Operating Expenses

Operating expenses include all expenses incurred to receive, sell and ship product and administer the operations of the Company.

Salaries and Commissions.  Salary expense includes the base compensation, and any overtime earned by hourly personnel, for all sales, administrative and warehouse employees and stock compensation expense for options and restricted stock granted to employees. Commission expense is earned by inside sales personnel based on gross profit dollars generated, by field sales personnel from generating sales and meeting various objectives, by sales, national and marketing managers for driving the sales process, by region managers based on the profitability of their branches and by corporate managers based primarily on our profitability and also on other operating metrics.

Other Operating Expenses.  Other operating expenses include all other expenses, except for salaries and commissions and depreciation and amortization. This includes all payroll taxes, health insurance, traveling expenses, public company expenses, advertising, management information system expenses, facility rent and all distribution expenses such as packaging, reels, and repair and maintenance of equipment and facilities.
 
Depreciation and Amortization.  We incur depreciation expense for costs related to the capitalization of property and equipment on a straight-line basis over the estimated useful lives of the assets, which range from three to thirty years. We incur amortization expense on leasehold improvements over the shorter of the lease term or the life of the related asset and on intangible assets over the estimated life of the asset.

Interest Expense

Interest expense consists primarily of interest we incur on our debt.

Results of Operations

The following discussion compares our results of operations for the years ended December 31, 2010, 2009 and 2008.

The following table shows, for the periods indicated, information derived from our consolidated statements of income, expressed as a percentage of sales for the period presented.
 
   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
Sales
   
100.0
%
   
100.0
%
   
100.0
%
Cost of sales
   
79.7
%
   
79.2
%
   
76.3
%
Gross profit
   
20.3
%
   
20.8
%
   
23.7
%
                         
Operating expenses:
                       
Salaries and commissions
   
8.2
%
   
8.1
%
   
6.7
%
Other operating expenses
   
6.7
%
   
7.1
%
   
5.7
%
Depreciation and amortization
   
0.6
%
   
0.2
%
   
0.1
%
Total operating expenses
   
15.4
%
   
15.4
%
   
12.6
%
                         
Operating income
   
4.9
%
   
5.4
%
   
11.2
%
Interest expense
   
0.3
%
   
0.2
%
   
0.5
%
Income before income taxes
   
4.6
%
   
5.2
%
   
10.7
%
Income tax provision
   
1.8
%
   
2.0
%
   
4.1
%
                         
Net income
   
2.8
%
   
3.2
%
   
6.6
%

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

 
16

 

Comparison of Years Ended December 31, 2010 and 2009

Sales
   
Year Ended
 
   
December 31,
 
(Dollars in millions)
 
2010
   
2009
   
Change
 
Sales
 
$
308.5
   
$
254.8
   
$
53.7
     
21.1
%

Our sales for 2010 increased 21.1% to $308.5 million from $254.8 million in the fiscal year 2009. The primary reasons for this increase were the late June acquisition of SWWR, GP and SW, which generated sales of $37.6 million, improved demand for our products due to recovering economic conditions and the increase in the average price of copper, a component in certain of our products, which rose 45.5% over 2009 levels during 2010. We estimate sales in our core MRO sector were up slightly as a result of improved economic conditions in the fourth quarter of 2010.  Sales within the areas that we have identified as our legacy growth initiatives - Environmental Compliance, Engineering & Construction, Industrials, LifeGuard™ (and other private branded products) and Utility Power Generation - increased at a greater rate than MRO sales, as sales within our growth initiatives remained more resilient to difficult early year economic conditions as projects in these areas were already in progress and had been previously funded. Project bookings and backlog for our growth initiatives in 2010 remained strong as a result of our continued penetration into these markets. 

Gross Profit
   
Year Ended
 
   
December 31,
 
(Dollars in millions)
 
2010
   
2009
   
Change
 
Gross profit
 
$
62.6
   
$
53.0
   
$
9.6
     
18.2
%
Gross profit as a percent of sales
   
20.3
%
   
20.8
%
   
(0.5
)%
       

Gross profit increased 18.2% to $62.6 million in 2010 from $53.0 million in 2009. The increase in gross profit was attributed to the acquisition as the contribution from the HWC legacy business (pre-acquisition) remained flat due to more customers earning rebates and increased freight expenses. Gross profit as a percentage of sales (gross margin) decreased due to the competitive market place, sales mix and increased customer rebates and freight expenses.

Operating Expenses
   
Year Ended
 
   
December 31,
 
(Dollars in millions)
 
2010
   
2009
   
Change
 
Operating expenses:
                       
Salaries and commissions
 
$
25.3
   
$
20.6
   
$
4.7
     
22.7
%
Other operating expenses
   
20.6
     
18.0
     
2.5
     
14.1
%
Depreciation and amortization
   
1.7
     
0.6
     
1.2
     
208.7
%
Total operating expenses:
 
$
47.6
   
$
39.2
   
$
8.4
     
21.4
%
                                 
Operating expenses as a percent of sales
   
15.4
%
   
15.4
%
   
 
       

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

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

Other Operating Expenses.  Other operating expenses increased due to the additional operations obtained from the acquisition and acquisition costs of $0.9 million, which the Company did not incur in 2009. These additional expenses were partially offset by ongoing cost control initiatives from HWC’s legacy business.

Depreciation and Amortization . The depreciation and amortization increase is attributable to the assets acquired in the acquisition.

 
17

 

Operating expenses as a percentage of sales remained flat at 15.4% in 2010 and 2009.

Interest Expense

Interest expense increased 62.3% or $0.3 million to $0.8 million in 2010 from $0.5 million in 2009 due to higher debt levels as the acquisition was funded entirely from the Company’s loan agreement. Average debt was $33.5 million in 2010 compared to $20.8 million in 2009. The average effective interest rate increased to 2.2% in 2010 from 1.8% in 2009. This increase was primarily due to the higher base spreads over LIBOR under the September 2009 amendment to our loan agreement and an increase in the applicable LIBOR spread as a result of the higher debt-to-EBITDA ratio caused by the acquisition.

Income Tax Expense

Income tax expense increased $0.3 million or 6.2% to $5.5 million in 2010 as our income before taxes increased 6.9%. The effective income tax rate decreased to 39.1% in 2010 from 39.4% in 2009. The effective income tax rate was lower in 2010 due to 2009 reflecting a deferred tax adjustment relating to prior periods which increased the effective income tax rate in 2009. This decrease was partially offset by the effect of nondeductible expenses incurred in 2010 associated with the acquisition.

Net Income

We achieved net income of $8.6 million in 2010 compared to $8.0 million in 2009, an increase of 7.3%.

Comparison of Years Ended December 31, 2009 and 2008

Sales
   
Year Ended
 
   
December 31,
 
(Dollars in millions)
 
2009
   
2008
   
Change
 
Sales
 
$
254.8
   
$
360.9
   
$
(106.1
)
   
(29.4
)%

Our sales for 2009 decreased 29.4% to $254.8 million from $360.9 million in 2008. The two primary reasons for this decrease were continued reduced demand for our products, as our customers sought to conserve capital and minimize expenditures during a difficult economic environment, and the reduction in the price of copper, which fell on average by 24.9% during 2009. Since copper is a major component in many of our products, a decrease in the market price of copper reduces the prices at which we can sell those products. We estimate sales in our core MRO sector were down as a result of the challenging economy which we believe lowered overall demand and discretionary spending. Partially offsetting this decrease in MRO sales was the increase in sales within our legacy growth initiatives encompassing Utility Power Generation, Environmental Compliance, Engineering & Construction, Industrials, and LifeGuard™ (and other private branded products). Sales within our growth initiatives remained more resilient to the overall market and economy as projects in these areas were already in progress and had been previously funded.   Project bookings and backlog for our growth initiatives in 2009 increased as a result of our continued penetration into these markets.

Gross Profit
   
Year Ended
 
   
December 31,
 
(Dollars in millions)
 
2009
   
2008
   
Change
 
Gross profit
 
$
53.0
   
$
85.7
   
$
(32.8
)
   
(38.2
)%
Gross profit as a percent of sales
   
20.8
%
   
23.7
%
   
(2.9
)%
       

Gross profit decreased $32.8 million or 38.2% to $53.0 million in 2009 from $85.7 million in 2008. This decrease was primarily attributable to lower sales volume. Our gross profit as a percentage of sales (gross margin) decreased to 20.8% in 2009 from 23.7% in 2008. The gross margin compression resulted from competitive pricing pressures throughout the year due to the prolonged economic slowdown. In addition, the severe drop in copper prices in the fourth quarter of 2008 adversely impacted gross margin on sales from certain stock products with heavy copper content, primarily in the first two quarters of 2009.

 
18

 

Operating Expenses
   
Year Ended
 
   
December 31,
 
(Dollars in millions)
 
2009
   
2008
   
Change
 
Operating expenses:
                       
Salaries and commissions
 
$
20.6
   
$
24.1
   
$
(3.5
)
   
(14.5
)%
Other operating expenses
   
18.0
     
20.7
     
(2.7
)
   
(13.0
)%
Depreciation and amortization
   
0.6
     
0.5
     
0.1
     
7.6
%
Total operating expenses:
 
$
39.2
   
$
45.3
   
$
(6.1
)
   
(13.6
)%
                                 
Operating expenses as a percent of sales
   
15.4
%
   
12.6
%
   
2.8
%
       

Salaries and Commissions. The decrease in salaries and commissions was a result of lower incentive compensation due to the lower sales levels, gross margin, gross profit levels and other financial metrics used in the various incentive programs and a lower headcount which reduced salaries.

Other Operating Expenses.  Other operating expenses in 2009 decreased primarily due to our cost control initiatives involving tighter management of discretionary expenses, reduced warehouse supplies due to declining sales and decreased expenses associated with a lower headcount.

Depreciation and Amortization . Depreciation and amortization increased slightly to $0.6 million in 2009 from $0.5 million in 2008.

Operating expenses as a percentage of sales increased to 15.4% in 2009 from 12.6% in 2008 due to the deleveraging of operating expenses from the reduction in sales.

Interest Expense

Interest expense decreased $1.3 million or 71.5% to $0.5 million in 2009 from $1.8 million in 2008. The decrease in interest expense is due to a lower average effective interest rate in 2009 resulting from market interest rate declines, and lower debt levels due to the pay down of debt using cash from operations. The average effective interest rate decreased to 1.8% in 2009 from 4.2% in 2008. Average debt was $20.8 million in 2009 compared to $41.5 million in 2008. In addition, during 2009 there were no treasury stock purchases, which we historically have funded through borrowings, while there were $15.4 million of funded treasury stock purchases in 2008.

Income Tax Expense

Income taxes decreased 64.8% or $9.6 million to $5.2 million in 2009 from $14.8 million in 2008 as our income before taxes decreased 65.6%. Our effective income tax rate was 39.4% in 2009 compared to 38.4% in 2008. The effective income tax rate increased due primarily to a deferred tax adjustment recorded in 2009 relating to prior periods and the effect of permanent differences over a lower pretax income base.

  Net Income

We achieved net income of $8.0 million in 2009 compared to $23.7 million in 2008, a decrease of 66.2%.

Impact of Inflation and Commodity Prices

Our results of operations are affected by changes in the inflation rate and commodity prices. Moreover, because copper, petrochemical and steel products are components of the wire and cable and related hardware we sell, fluctuations in the costs of these and other commodities have historically affected our operating results. Copper prices have increased from an average price per pound of $3.28 in the first quarter of 2010 to a high of $3.93 per pound in the fourth quarter of 2010. The impact of increasing copper prices on sales and net income during 2010 cannot be isolated, as product mix changes and improving economic demand also impacted performance. To the extent commodity prices decline, the net realizable value of our existing inventory could also decline, and our gross profit could be adversely affected because of either reduced selling prices or lower of cost or market adjustments in the carrying value of our inventory. If we turn our inventory approximately four times a year, the impact of changes in copper and steel prices in any particular quarter would primarily affect the results of the succeeding calendar quarter. If we are unable to pass on to our customers future cost increases due to inflation or rising commodity prices, our operating results could be adversely affected.

 
19

 

Liquidity and Capital Resources

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

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

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

Comparison of Years Ended December 31, 2010 and 2009

Our net cash provided by operating activities was $19.3 million in 2010, an increase of $0.5 million or 2.9% compared to cash provided by operating activities of $18.7 million in 2009. Our net income increased by $0.6 million or 7.3% to $8.6 million in 2010 from $8.0 million in 2009.

Changes in our operating assets and liabilities resulted in cash provided by operating activities of $7.5 million in 2010. Accrued and other liabilities increased $5.5 million primarily due to higher accruals for volume rebates to our customers, additional payroll related accruals and increased accrued wire purchases. Accounts payable increased $5.0 million due to additional inventory received in December 2010 compared to December 2009 in response to increased sales. Prepaids decreased $3.0 million primarily related to a prepayment for inventory at December 31, 2009, which was subsequently received in January 2010. The book overdraft, which is funded by our revolving credit facility as soon as the related vendor checks clear our disbursement account, increased $1.7 million. Offsetting these sources of cash was an increase in accounts receivable of $9.8 million due to higher sales.

Net cash used in investing activities was $50.7 million in 2010 compared to $0.4 million in 2009. The increase was attributable to the Company paying $51.2 million for the acquisition in 2010.

Net cash provided by financing activities was $31.4 million in 2010 compared to cash used in financing activities of $18.3 million in 2009. Net borrowings on the revolver of $37.3 million and dividend payments of $6.0 million were the main components of financing activities in 2010.

Comparison of Years Ended December 31, 2009 and 2008

Our net cash provided by operating activities was $18.7 million in 2009, a decrease of $7.7 million or 29.1% compared to cash provided by operating activities of $26.4 million in 2008. Our net income decreased by $15.7 million or 66.2% to $8.0 million in 2009 from $23.7 million in 2008.

Changes in our operating assets and liabilities resulted in cash provided by operating activities of $8.2 million which was primarily caused by a reduction in inventory of $11.6 million. The inventory decrease more closely aligned inventory levels with the lower sales activity caused by the economic recession. Accounts receivable decreased $4.0 million due to lower sales in 2009. In addition, at December 31, 2009, a customer was withholding payment on $4.8 million of accounts receivable in connection with a dispute. The book overdraft, which is funded by our revolving credit facility as soon as the related vendor checks clear our disbursement account, decreased $4.0 million. Prepaids increased $2.8 million primarily related to a prepayment for inventory which was subsequently received in January 2010. Accounts payable increased $1.5 million due in part to our withholding payment of $4.9 million in connection with the dispute mentioned above. Income taxes payable decreased $1.4 million due to a $1.2 million dollar federal tax payment that was postponed from December 2008 until January 2009 as allowed by the Internal Revenue Service for businesses in the Hurricane Ike disaster area.

 
20

 

Net cash used in investing activities decreased to $0.4 million in 2009 from $0.6 million in 2008 as the Company enacted a more stringent policy for capital expenditures due to the slowing economic conditions during 2009.

Net cash used in financing activities decreased $7.6 million or 29.3% to $18.3 million in 2009 from $25.9 million in 2008. Net repayments on the revolver of $12.3 million and dividend payments of $6.0 million were the main components of financing activities in 2009.

Indebtedness

Our principal source of liquidity at December 31, 2010 was working capital of $94.6 million compared to $89.9 million at December 31, 2009. We also had available borrowing capacity in the amount of $20.2 million at December 31, 2010 and $49.7 million at December 31, 2009 under our loan agreement.

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

We have a loan agreement with Bank of America, N.A., as agent and lender, that provides for a $75 million revolving loan. We amended and restated the loan agreement in September 2009 to extend the maturity through September 21, 2013. The loan agreement does not limit the amount of dividends we may pay or stock we may repurchase, as long as we are not in default under the loan agreement and we maintain defined levels of fixed charge coverage and minimum levels of availability. The loan agreement contains certain provisions that may cause the debt to be classified as a current liability, in accordance with GAAP, if availability falls below certain thresholds, even though the ultimate maturity date under the loan agreement remains as September 21, 2013. Availability has remained above these thresholds. The lender has a security interest in all of our assets except for the real property. The loan bears interest at the agent’s base interest rate.

Portions of the outstanding loan may be converted to LIBOR loans in minimum amounts of $1.0 million and integral multiples of $0.1 million. Upon such conversion, interest is payable at LIBOR plus a margin ranging from 1.25% to 1.75%, depending on our debt-to-EBITDA ratio. We have entered into a series of one-month LIBOR loans, which, upon maturity, are either rolled back into the revolving loan or renewed under a new LIBOR contract.

Covenants in the loan agreement require us to maintain certain minimum financial ratios and restrict the level of capital expenditures. Repaid amounts can be re-borrowed subject to the borrowing base. Additionally, we are obligated to pay an unused facility fee on the unused portion of the loan commitment. As of December 31, 2010, we were in compliance with all financial covenants. We paid approximately $0.1 million in unused facility fees for the year ended December 31, 2010.

Contractual Obligations

The following table describes our cash commitments to settle contractual obligations as of December 31, 2010.
 
   
Total
   
Less than
1 year
   
1-3 years
   
3-5 years
   
More than
5 years
 
   
(In thousands)
Loans payable
 
$
54,825
   
$
   
$
54,825
   
$
   
$
 
Operating lease obligations
   
7,759
     
3,129
     
3,458
     
1,172
     
 
Non-cancellable purchase obligations (1)
   
39,170
     
39,170
     
     
     
 
Total
 
$
101,754
   
$
42,299
   
$
58,283
   
$
1,172
   
$
 
__________
(1)
These obligations reflect purchase orders outstanding with manufacturers as of December 31, 2010. We believe that some of these obligations may be cancellable upon negotiation with our vendors, but we are treating these as non-cancellable for this disclosure due to the absence of an express cancellation right.

 
21

 

Capital Expenditures

We made capital expenditures of $0.5 million in each of the years ended December 31, 2010 and 2009 and $0.6 million in the year ended December 31, 2008.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than operating leases.

Share Repurchases

In 2007, the Board of Directors approved a stock repurchase program, where the Company is authorized to purchase up to $75 million of its outstanding shares of common stock, depending on market conditions, trading activity, business conditions and other factors. The program was initially scheduled to expire on December 31, 2009 but has been extended through December 31, 2011. Shares of stock purchased under the program are currently being held as treasury stock and may be used to satisfy the exercise of options and restricted stock, to fund acquisitions, or for other uses as authorized by the Board of Directors. There were no shares repurchased during 2010 and 2009.

Financial Derivatives

We have no financial derivatives.

Market Risk Management

We are exposed to market risks arising from changes in market prices, including movements in interest rates and commodity prices.

Interest Rate Risk

Our variable interest rate debt is sensitive to changes in the general level of interest rates. At December 31, 2010, the weighted average interest rate on our $54.8 million of variable interest debt was approximately 2.2%.

While our variable rate debt obligations expose us to the risk of rising interest rates, management does not believe that the potential exposure is material to our overall financial performance or results of operations. Based on December 31, 2010 borrowing levels, a 1.0% increase or decrease in the applicable interest rates would have a $0.5 million effect on our annual interest expense.

Commodity Risk

We are subject to periodic fluctuations in copper prices as our products have varying levels of copper content in their construction. In addition, varying steel prices also impact certain of the products we purchase. Profitability is influenced by these fluctuations as prices change between the time we buy and sell our products.

Foreign Currency Exchange Rate Risk

Our products are purchased and invoiced in U.S. dollars. Accordingly, we do not believe we are exposed to foreign exchange rate risk.

Climate Risk

Our operations are subject to inclement weather conditions including hurricanes, earthquakes and abnormal weather events. Our previous experience from these events has had a minimal effect on our operations and results.

 
22

 

Factors Affecting Future Results

This Annual Report on Form 10-K contains statements that may be considered forward-looking.  These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "aim," "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "will be," "will continue," "will likely result," "would" and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance. You should read statements that contain these words carefully, because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other "forward-looking" information.  Actual results could differ materially from the results indicated by these statements, because the realization of those results is subject to many risks and uncertainties.  Some of these risks and uncertainties are discussed in greater detail under Item 1A, "Risk Factors."

All forward-looking statements are based on current management expectations. Except as required under federal securities laws and the rules and regulations of the SEC, we do not have any intention, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this Form 10-K. Any forward looking statements speak only as of the date of this filing and the Company undertakes no obligation to publicly update such statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk are reported in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, under the captions “Market Risk Management”, “Interest Rate Risk”, “Commodity Risk”, and “Foreign Currency Exchange Rate Risk”.

 
23

 

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Houston Wire & Cable Company

Index to consolidated financial statements

   
Page
Report of Independent Registered Public Accounting Firm
  25
Consolidated Balance Sheets as of December 31, 2010 and 2009
  26
Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008
  27
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008
  28
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
  29
Notes to Consolidated Financial Statements
  
30

 
24

 

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of Houston Wire & Cable Company

We have audited the accompanying consolidated balance sheets of Houston Wire & Cable Company as of December 31, 2010 and 2009, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2010.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Houston Wire & Cable Company at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Houston Wire & Cable Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2011 expressed an unqualified opinion thereon.

 
/s/ Ernst & Young LLP

Houston, Texas
March 15, 2011

 
25

 

Houston Wire & Cable Company
Consolidated Balance Sheets

   
December 31,
 
   
2010
   
2009
 
   
(In thousands, except
share data)
 
             
Assets
           
Current assets:
           
Accounts receivable, net
 
$
67,838
   
$
46,859
 
Inventories, net
   
67,503
     
61,325
 
Deferred income taxes
   
2,399
     
1,776
 
Prepaids
   
763
     
3,649
 
Total current assets
   
138,503
     
113,609
 
                 
Property and equipment, net
   
6,255
     
3,169
 
Intangible assets, net
   
15,557
     
 
Goodwill
   
25,082
     
2,362
 
Deferred income taxes
   
     
2,855
 
Other assets
   
93
     
19
 
Total assets
 
$
185,490
   
$
122,014
 
                 
Liabilities and stockholders’ equity
               
Current liabilities:
               
Book overdraft
 
$
3,055
   
$
907
 
Trade accounts payable
   
19,987
     
11,610
 
Accrued and other current liabilities
   
19,781
     
10,924
 
Income taxes
   
1,036
     
281
 
Total current liabilities
   
43,859
     
23,722
 
                 
Debt
   
54,825
     
17,479
 
Other long-term obligations
   
141
     
 
Deferred income taxes
   
945
     
 
Total liabilities
   
99,770
     
41,201
 
                 
Stockholders’ equity:
               
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding
   
     
 
Common stock, $0.001 par value; 100,000,000 shares authorized: 20,988,952 shares issued: 17,748,487 and 17,732,737 shares outstanding at December 31, 2010 and 2009, respectively
   
21
     
21
 
Additional paid-in capital
   
58,642
     
56,609
 
Retained earnings
   
80,187
     
77,571
 
Treasury stock
   
(53,130
)
   
(53,388
)
Total stockholders’ equity
   
85,720
     
80,813
 
                 
Total liabilities and stockholders’ equity
 
$
185,490
   
$
122,014
 

The accompanying notes are an integral part of these consolidated financial statements.

 
26

 

Houston Wire & Cable Company
 Consolidated Statements of Income

   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
   
(In thousands, except share and per share data)
 
                   
Sales
 
$
308,522
   
$
254,819
   
$
360,939
 
Cost of sales
   
245,932
     
201,865
     
275,224
 
Gross profit
   
62,590
     
52,954
     
85,715
 
                         
Operating expenses:
                       
Salaries and commissions
   
25,281
     
20,596
     
24,080
 
Other operating expenses
   
20,565
     
18,023
     
20,728
 
Depreciation and amortization
   
1,738
     
563
     
523
 
Total operating expenses
   
47,584
     
39,182
     
45,331
 
                         
Operating income
   
15,006
     
13,772
     
40,384
 
Interest expense
   
844
     
520
     
1,825
 
Income before income taxes
   
14,162
     
13,252
     
38,559
 
Income tax provision
   
5,543
     
5,220
     
14,822
 
Net income
 
$
8,619
   
$
8,032
   
$
23,737
 
                         
Earnings per share:
                       
Basic
 
$
0.49
   
$
0.46
   
$
1.33
 
Diluted
 
$
0.49
   
$
0.45
   
$
1.33
 
                         
Weighted average common shares outstanding:
                       
Basic
   
17,657,682
     
17,648,696
     
17,789,739
 
Diluted
   
17,710,123
     
17,665,924
     
17,838,072
 
                         
Dividends declared per share
 
$
0.34
   
$
0.34
   
$
0.34
 

The accompanying notes are an integral part of these consolidated financial statements.

 
27

 
 
Houston Wire & Cable Company
 Consolidated Statements of Stockholders' Equity

                 
Additional
               
Total
 
   
Common Stock
   
Paid-In
   
Retained
   
Treasury Stock
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
Shares
   
Amount
   
Equity
 
   
(In thousands, except share data)
 
       
Balance at December 31, 2007
    20,988,952     $ 21     $ 54,131     $ 57,846       (2,411,225 )   $ (40,828 )   $ 71,170  
Net income
                      23,737                   23,737  
Exercise of stock options
                (628 )           42,079       686       58  
Excess tax benefit for stock options
                264                         264  
Amortization of unearned stock compensation
                2,134                         2,134  
Purchase of treasury stock, net
                            (977,254 )     (14,725 )     (14,725 )
Dividends paid
                      (6,043 )                 (6,043 )
                                                         
Balance at December 31, 2008
    20,988,952       21       55,901       75,540       (3,346,400 )     (54,867 )     76,595  
Net income
                      8,032                   8,032  
Exercise of stock options
                (145 )           10,185       167       22  
Excess tax benefit for stock options
                13                         13  
Deferred tax adjustment related to stock compensation
                (53 )                       (53 )
Amortization of unearned stock compensation
                2,205                         2,205  
Issuance of restricted stock awards
                (1,312 )           80,000       1,312        
Dividends paid
                      (6,001 )                 (6,001 )
                                                         
Balance at December 31, 2009
    20,988,952       21       56,609       77,571       (3,256,215 )     (53,388 )     80,813  
Net income
                      8,619                   8,619  
Exercise of stock options
                (134 )           10,750       176       42  
Excess tax benefit for stock options
                7                         7  
Amortization of unearned stock compensation
                2,260                         2,260  
Impact of forfeited vested options
                (18 )                       (18 )
Impact of forfeited restricted stock awards
                238             (14,500 )     (238 )        
Issuance of restricted stock awards
                (320 )           19,500       320        
Dividends paid
                      (6,003 )                 (6,003 )
Balance at December 31, 2010
    20,988,952     $ 21     $ 58,642     $ 80,187       (3,240,465 )   $ (53,130 )   $ 85,720  

The accompanying notes are an integral part of these consolidated financial statements.

 
28

 

Houston Wire & Cable Company
Consolidated Statements of Cash Flows
   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
   
(In thousands)
 
Operating activities
                 
Net income
 
$
8,619
   
$
8,032
   
$
23,737
 
                         
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
   
1,738
     
563
     
523
 
Amortization of capitalized loan costs
   
46
     
99
     
80
 
Amortization of unearned stock compensation
   
2,260
     
2,205
     
2,134
 
Provision for doubtful accounts
   
93
     
     
214
 
Provision for returns and allowances
   
(118
)
   
(109
   
70
 
Provision for inventory obsolescence
   
734
     
529
     
46
 
(Gain) loss on disposals of property and equipment
   
26
     
(15
   
8
 
Deferred income taxes
   
(1,603
)
   
(741
)
   
(900
)
Changes in operating assets and liabilities:
                       
Accounts receivable
   
(9,785
   
4,048
     
7,120
 
Inventories
   
1,059
     
11,606
     
(4,206
)
Prepaids
   
2,954
     
(2,820
   
3
 
Other assets
   
354
     
(31
)
   
(53
)
Book overdraft
   
1,668
     
(4,026
   
1,079
 
Trade accounts payable
   
5,010
     
1,519
     
(2,206
Accrued and other current liabilities
   
5,466
     
(758
)
   
(4,861
Long term liabilities
   
(3
)
   
     
 
Income taxes
   
755
     
(1,363
   
3,648
 
Net cash provided by operating activities
   
19,273
     
18,738
     
26,436
 
                         
Investing activities
                       
Expenditures for property and equipment
   
(459
)
   
(462
)
   
(572
)
Proceeds from disposals of property and equipment
   
956
     
19
     
1
 
Cash paid for acquisition
   
(51,162
)
   
     
 
Net cash used in investing activities
   
(50,665
)
   
(443
)
   
(571
)
                         
Financing activities
                       
Borrowings on revolver
   
352,276
     
255,829
     
371,915
 
Payments on revolver
   
(314,930
)
   
(268,158
)
   
(376,614
)
Proceeds from exercise of stock options
   
42
     
22
     
58
 
Payment of dividends
   
(6,003
)
   
(6,001
)
   
(6,043
)
Excess tax benefit for options
   
7
     
13
     
264
 
Purchase of treasury stock
   
     
     
(15,445
)
Net cash provided by (used in) financing activities
   
31,392
     
(18,295
)
   
(25,865
)
                         
Net change in cash
   
     
     
 
Cash at beginning of year
   
     
     
 
                         
Cash at end of year
 
$
   
$
   
$
 
                         
Supplemental disclosures
                       
Cash paid during the year for interest
 
$
743
   
$
514
   
$
1,920