UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,
2015
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
![](tlogo.jpg)
(Exact name of
registrant as specified in its charter)
Delaware |
|
36-4151663 |
(State or other jurisdiction of incorporation
or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
10201 North Loop East |
|
|
Houston, Texas |
|
77029 |
(Address of principal executive offices) |
|
(Zip Code) |
(713) 609-2100
(Registrant’s telephone number, including
area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days YES x
NO ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES
x
NO ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act
Large Accelerated Filer ¨ |
Accelerated Filer x |
Non-Accelerated Filer ¨ |
Smaller Reporting Company ¨ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES
¨
NO x
At May 1, 2015 there were 17,205,911 outstanding shares of the registrant’s
common stock, $0.001 par value per share.
HOUSTON WIRE
& CABLE COMPANY
Form 10-Q
For the Quarter Ended
March 31, 2015
INDEX
HOUSTON WIRE &
CABLE COMPANY
Consolidated Balance
Sheets
(In thousands, except
share data)
| |
March 31, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(unaudited) | | |
| |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Accounts receivable, net | |
$ | 55,158 | | |
$ | 61,599 | |
Inventories, net | |
| 81,630 | | |
| 88,958 | |
Deferred income taxes | |
| 3,444 | | |
| 3,188 | |
Income taxes | |
| — | | |
| 219 | |
Prepaids | |
| 1,014 | | |
| 565 | |
Total current assets | |
| 141,246 | | |
| 154,529 | |
| |
| | | |
| | |
Property and equipment, net | |
| 9,116 | | |
| 8,954 | |
Intangible assets, net | |
| 8,067 | | |
| 8,501 | |
Goodwill | |
| 17,520 | | |
| 17,520 | |
Other assets | |
| 294 | | |
| 309 | |
Total assets | |
$ | 176,243 | | |
$ | 189,813 | |
| |
| | | |
| | |
Liabilities and stockholders' equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Book overdraft | |
$ | 1,479 | | |
$ | 3,113 | |
Trade accounts payable | |
| 7,520 | | |
| 7,993 | |
Accrued and other current liabilities | |
| 8,034 | | |
| 13,282 | |
Income taxes | |
| 1,478 | | |
| — | |
Total current liabilities | |
| 18,511 | | |
| 24,388 | |
| |
| | | |
| | |
Debt | |
| 47,719 | | |
| 53,847 | |
Other long term obligations | |
| 95 | | |
| 96 | |
Deferred income taxes | |
| 48 | | |
| 175 | |
Total liabilities | |
| 66,373 | | |
| 78,506 | |
| |
| | | |
| | |
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: 17,316,607 and 17,508,015 outstanding at March 31, 2015 and December 31, 2014, respectively | |
| 21 | | |
| 21 | |
Additional paid-in-capital | |
| 55,470 | | |
| 54,871 | |
Retained earnings | |
| 111,341 | | |
| 111,233 | |
Treasury stock | |
| (56,962 | ) | |
| (54,818 | ) |
Total stockholders' equity | |
| 109,870 | | |
| 111,307 | |
Total liabilities and stockholders' equity | |
$ | 176,243 | | |
$ | 189,813 | |
The accompanying Notes are an integral part
of these Consolidated Financial Statements.
HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Income
(Unaudited)
(In thousands, except share and per share data)
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Sales | |
$ | 81,600 | | |
$ | 100,299 | |
Cost of sales | |
| 63,876 | | |
| 78,595 | |
Gross profit | |
| 17,724 | | |
| 21,704 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Salaries and commissions | |
| 7,238 | | |
| 8,123 | |
Other operating expenses | |
| 6,048 | | |
| 6,492 | |
Depreciation and amortization | |
| 712 | | |
| 741 | |
Total operating expenses | |
| 13,998 | | |
| 15,356 | |
| |
| | | |
| | |
Operating income | |
| 3,726 | | |
| 6,348 | |
Interest expense | |
| 265 | | |
| 268 | |
Income before income taxes | |
| 3,461 | | |
| 6,080 | |
Income taxes | |
| 1,275 | | |
| 2,335 | |
Net income | |
$ | 2,186 | | |
$ | 3,745 | |
| |
| | | |
| | |
Earnings per share: | |
| | | |
| | |
Basic | |
$ | 0.13 | | |
$ | 0.21 | |
Diluted | |
$ | 0.13 | | |
$ | 0.21 | |
Weighted average common shares outstanding: | |
| | | |
| | |
Basic | |
| 17,296,978 | | |
| 17,850,911 | |
Diluted | |
| 17,376,928 | | |
| 17,944,010 | |
| |
| | | |
| | |
Dividends declared per share | |
$ | 0.12 | | |
$ | 0.11 | |
The accompanying Notes are an integral part
of these Consolidated Financial Statements.
HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| |
Three Months
Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Operating activities | |
| | | |
| | |
Net income | |
$ | 2,186 | | |
$ | 3,745 | |
Adjustments to reconcile net income to net cash provided
by (used in) operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 712 | | |
| 741 | |
Amortization of unearned stock compensation | |
| 217 | | |
| 213 | |
Provision for inventory obsolescence | |
| 356 | | |
| 412 | |
Deferred income taxes | |
| (419 | ) | |
| (243 | ) |
Other non-cash items | |
| 44 | | |
| 17 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 6,402 | | |
| (6,632 | ) |
Inventories | |
| 6,972 | | |
| 3,763 | |
Book overdraft | |
| (1,634 | ) | |
| (1,646 | ) |
Trade accounts payable | |
| (473 | ) | |
| (111 | ) |
Accrued and other current liabilities | |
| (5,331 | ) | |
| (9,264 | ) |
Income taxes payable | |
| 1,697 | | |
| 2,522 | |
Other operating activities | |
| (440 | ) | |
| (529 | ) |
Net cash provided by (used in) operating activities | |
| 10,289 | | |
| (7,012 | ) |
| |
| | | |
| | |
Investing activities | |
| | | |
| | |
Expenditures for property and equipment | |
| (440 | ) | |
| (655 | ) |
Net cash used in investing activities | |
| (440 | ) | |
| (655 | ) |
| |
| | | |
| | |
Financing activities | |
| | | |
| | |
Borrowings on revolver | |
| 76,746 | | |
| 99,007 | |
Payments on revolver | |
| (82,874 | ) | |
| (88,789 | ) |
Payment of dividends | |
| (2,070 | ) | |
| (1,959 | ) |
Purchase of treasury stock | |
| (1,651 | ) | |
| (626 | ) |
Other financing activities | |
| — | | |
| 34 | |
Net cash (used in) provided by financing
activities | |
| (9,849 | ) | |
| 7,667 | |
| |
| | | |
| | |
Net change in cash | |
| — | | |
| — | |
Cash at beginning of period | |
| — | | |
| — | |
| |
| | | |
| | |
Cash at end of period | |
$ | — | | |
$ | — | |
The accompanying Notes are an integral part
of these Consolidated Financial Statements.
HOUSTON WIRE & CABLE COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands, except share data)
1. Basis of Presentation and Principles of Consolidation
Houston Wire & Cable Company (the “Company”),
through its wholly owned subsidiaries, HWC Wire & Cable Company, Advantage Wire & Cable and Cable Management Services
Inc., provides wire and cable, hardware and related services to the U.S. market through twenty-two locations in fourteen states
throughout the United States. The Company has no other business activity.
The consolidated financial statements as of
March 31, 2015 and for the three months ended March 31, 2015 and 2014 have been prepared following accounting principles generally
accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation
of the results of these interim periods have been included. The results of operations for the interim periods are not necessarily
indicative of the results that may be expected for the full year. All significant inter-company balances and transactions have
been eliminated. The Company has evaluated subsequent events through the time these financial statements in this Form 10-Q were
filed with the Securities and Exchange Commission (the “SEC”).
The preparation of the financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The most significant estimates are those relating to the inventory obsolescence reserve, the
reserve for returns and allowances, vendor rebates and asset impairments. Actual results could differ materially from the estimates
and assumptions used for the preparation of the financial statements.
For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2014 filed with the SEC.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards
Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the
revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition,”
and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue
and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized
from costs incurred to obtain or fulfill a contract. The amendments in the ASU must be applied using one of two retrospective
methods and are effective for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted. As
the Company recognizes revenue only once product has shipped, it does not believe this ASU will have a significant impact on its
revenue recognition policy. However, the Company is still evaluating the impact of this ASU on its financial position and results
of operations before it makes a final determination whether this ASU applies and if so, which implementation method the Company
will use.
2. Earnings per Share
Basic earnings per share are calculated by
dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share include the dilutive
effects of stock options and unvested restricted stock awards and units.
The following reconciles the denominator used
in the calculation of diluted earnings per share:
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
Denominator: | |
| | | |
| | |
Weighted average common shares for basic earnings per share | |
| 17,296,978 | | |
| 17,850,911 | |
Effect of dilutive securities | |
| 79,950 | | |
| 93,099 | |
Weighted average common shares for diluted earnings per share | |
| 17,376,928 | | |
| 17,944,010 | |
The weighted average common shares for diluted
earnings per share exclude stock options to purchase 564,746 and 448,410 shares for the three months ended March 31, 2015 and
2014, respectively. These options have been excluded from the calculation, as including them would have an anti-dilutive effect
on earnings per share for the respective periods.
3. Goodwill
Goodwill represents the excess of the amount
paid to acquire businesses over the estimated fair value of tangible assets and identifiable intangible assets acquired, less
liabilities assumed. At March 31, 2015 the Company’s goodwill balance was $17.5 million representing 9.9% of total assets.
4. Debt
On September 30, 2011, HWC Wire & Cable
Company, as borrower, entered into the Third Amended and Restated Loan and Security Agreement (as amended, “2011 Loan Agreement”),
with certain lenders and Bank of America, N.A., as agent, and the Company, as guarantor, executed a Second Amended and Restated
Guaranty of the borrower’s obligations thereunder. The 2011 Loan Agreement provides for a $100 million revolving credit
facility, bears interest at the agent’s base rate, with a London Interbank Offered Rate (“LIBOR”) option and
expires on September 30, 2016. The 2011 Loan Agreement is secured by a lien on substantially all the property of the Company,
other than real estate. Availability under the 2011 Loan Agreement is limited to a borrowing base equal to 85% of the value of
eligible accounts receivable, plus 65% of the value of eligible inventory, less certain reserves.
Portions of the loan may be converted to LIBOR
loans in minimum amounts of $1,000 and integral multiples of $100. LIBOR loans bear interest at the British Bankers Association
LIBOR Rate plus 125 to 200 basis points based on availability, and loans not converted to LIBOR loans bear interest at a fluctuating
rate equal to the greatest of the agent’s prime rate, the federal funds rate plus 50 basis points, or 30-day LIBOR plus
150 basis points. Unused commitment fees are 25 or 30 basis points, depending on the amount of the unused commitment.
The 2011 Loan Agreement includes, among other
things, covenants that require the Company to maintain a specified minimum fixed charge coverage ratio and availability levels.
Additionally, the 2011 Loan Agreement allows for the unlimited payment of dividends and repurchases of stock, subject to the absence
of events of default and maintenance of a fixed charge coverage ratio and minimum level of availability. The 2011 Loan Agreement
contains certain provisions that may cause the debt to be classified as a current liability, in accordance with GAAP, if availability
falls below certain thresholds, even though the ultimate maturity date under the loan agreement remains as September 30, 2016.
Availability has remained above these thresholds. On November 3, 2014, the Company entered into a Second Amendment to the 2011
Loan Agreement, which added an availability-based covenant as an alternative to the existing fixed charge coverage ratio. At March
31, 2015, the Company was in compliance with the availability-based covenants governing its indebtedness.
The carrying amount of long term debt approximates
fair value as it bears interest at variable rates. The carrying amount is a Level 2 measurement as defined in ASC Topic 820, “Fair
Value Measurement.”
5. Stockholders’ Equity
During the first quarter of 2015, the Board
of Directors approved a quarterly dividend of $0.12 per share, payable to stockholders. Dividends paid were $2,070 and $1,959
during the three months ended March 31, 2015 and 2014, respectively.
6. Stock Based Compensation
There were no stock option awards, restricted
stock awards or restricted stock units granted during the first three months of 2015.
Total stock-based compensation cost was $217
and $213 for the three months ended March 31, 2015 and 2014, respectively, and is included in salaries and commissions.
7. Commitments and Contingencies
As part of the acquisition of Southwest Wire
Rope and Southern Wire made in 2010, the Company assumed the liability for the post-remediation monitoring of the water quality
at one of the acquired facilities in Louisiana. The expected liability of $95 at March 31, 2015 relates to the cost of the monitoring,
which the Company estimates will be incurred over approximately the next 2 years, and also the cost to plug the wells. Remediation
work was completed prior to the acquisition in accordance with the requirements of the Louisiana Department of Environmental Quality.
The Company, along with many other defendants, has been named in a number of lawsuits in the state courts of Illinois, Minnesota,
North Dakota, and South Dakota alleging that certain wire and cable which may have contained asbestos caused injury to the plaintiffs
who were exposed to this wire and cable. These lawsuits are individual personal injury suits that seek unspecified amounts of
money damages as the sole remedy. It is not clear whether the alleged injuries occurred as a result of the wire and cable in question
or whether the Company, in fact, distributed the wire and cable alleged to have caused any injuries. The Company maintains
general liability insurance that, to date, has covered the defense of and all costs associated with these claims. In addition,
the Company did not manufacture any of the wire and cable at issue, and the Company would rely on any warranties from the manufacturers
of such cable if it were determined that any of the wire or cable that the Company distributed contained asbestos which caused
injury to any of these plaintiffs. In connection with ALLTEL’s sale of the Company in 1997, ALLTEL provided indemnities
with respect to costs and damages associated with these claims that the Company believes it could enforce if its insurance coverage
proves inadequate.
There are no legal proceedings pending
against or involving the Company that, in management’s opinion, based on the current known facts and circumstances, are
expected to have a material adverse effect on the Company’s consolidated financial position, cash flows, or results from
operations.
8. Subsequent Events
On May 5, 2015, the Board of Directors approved
a dividend on the shares of common stock of the Company in the amount of $0.12 per share, payable on May 29, 2015, to stockholders
of record at the close of business on May 18, 2015.
Following the Annual Meeting of Stockholders
on May 5, 2015, the Company awarded restricted stock units with a value of $50 to each non-employee director who was elected
or re-elected, for an aggregate of 38,290 restricted stock units. Each award of restricted stock units vests at the
date of the 2016 Annual Meeting of Stockholders. Each non-employee director is entitled to receive a number of shares of
the Company's common stock equal to the number of vested restricted stock units, together with dividend equivalents from the date
of grant, at such time as the director’s service on the board terminates for any reason.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following Management’s Discussion
and Analysis (“MD&A”) is intended to help the reader understand the Company’s financial position and results
of operations. MD&A is provided as a supplement to the Company’s Consolidated Financial Statements (unaudited) and the
accompanying Notes to Consolidated Financial Statements (unaudited) and should be read in conjunction with the MD&A included
in the Company’s Form 10-K for the year ended December 31, 2014.
Overview
We are one of the largest distributors of
wire and cable and related services to the U.S. market. We provide our customers with a single-source solution for wire and cable,
hardware and related services by offering a large selection of in-stock items, exceptional customer service and high levels of
product expertise.
Critical Accounting Policies
The preparation of our consolidated financial
statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and
expenses. On an on-going basis, we make and evaluate estimates and judgments, including those related to the reserve for returns
and allowances, the inventory reserve, intangible assets, vendor rebates and goodwill. We base our estimates on historical experience
and various other assumptions that we believe are reasonable under the circumstances; the results of which form the basis for
making judgments about amounts and timing of revenue and expenses, the carrying values of assets and the recorded amounts of liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates and such estimates may change
if the underlying conditions or assumptions change. We have discussed the development and selection of critical accounting policies
and estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our related disclosures.
The critical accounting policies related to the estimates and judgments are discussed in our Annual Report on Form 10-K for the
year ended December 31, 2014 under Management’s Discussion and Analysis of Financial Condition and Results of Operations.
There have been no changes to our critical accounting policies and estimates during the three months ended March 31, 2015.
Cautionary Statement for Purposes of the “Safe Harbor”
Forward-looking statements in this report
are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may relate to, but are not limited to, information or assumptions about our sales and marketing strategy,
sales (including pricing), income, operating income or gross margin improvements, working capital, cash flow, interest rates,
impact of changes in accounting standards, future economic performance, management’s plans, goals and objectives for future
operations, performance and growth or the assumptions relating to any of the forward-looking statements. These statements
can be identified by the fact that they do not relate strictly to historical or current facts. They use words such
as “aim”, “anticipate”, “believe”, “could”, “estimate”, “expect”,
“intend”, “may”, “plan”, “project”, “should”, “will be”,
“will continue”, “will likely result”, “would” and other words and terms of similar meaning
in conjunction with a discussion of future operating or financial performance. The Company cautions that forward-looking
statements are not guarantees because there are inherent difficulties in predicting future results. Actual results
could differ materially from those expressed or implied in the forward-looking statements. The factors listed under
“Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as well as
any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results
to differ materially from the expectations we describe in our forward-looking statements.
Results of Operations
The following table shows, for the periods
indicated, information derived from our consolidated statements of income, expressed as a percentage of net sales for the periods
presented.
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Sales | |
| 100.0 | % | |
| 100.0 | % |
Cost of sales | |
| 78.3 | % | |
| 78.4 | % |
Gross profit | |
| 21.7 | % | |
| 21.6 | % |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Salaries and commissions | |
| 8.9 | % | |
| 8.1 | % |
Other operating expenses | |
| 7.4 | % | |
| 6.5 | % |
Depreciation and amortization | |
| 0.9 | % | |
| 0.7 | % |
Total operating expenses: | |
| 17.2 | % | |
| 15.3 | % |
| |
| | | |
| | |
Operating income | |
| 4.6 | % | |
| 6.3 | % |
Interest expense | |
| 0.3 | % | |
| 0.3 | % |
| |
| | | |
| | |
Income before income taxes | |
| 4.2 | % | |
| 6.1 | % |
Income taxes | |
| 1.6 | % | |
| 2.3 | % |
| |
| | | |
| | |
Net income | |
| 2.7 | % | |
| 3.7 | % |
Note: Due to rounding, percentages may not add up
to total operating expenses, operating income, income before income taxes or net income.
Comparison of the Three Months Ended March 31, 2015 and 2014
Sales
| |
Three Months Ended | |
| |
March 31, | |
(Dollars in millions) | |
2015 | | |
2014 | | |
Change | |
Sales | |
$ | 81.6 | | |
$ | 100.3 | | |
$ | (18.7 | ) | |
| (18.6 | )% |
Our sales for the first quarter
decreased 18.6% to $81.6 million in 2015 from $100.3 million in 2014. We estimate that, when adjusted for the fluctuation in
metal prices, sales for 2015 were down approximately 14% compared to the first quarter of 2014. Our project business, which
includes our key growth initiatives encompassing Environmental Compliance, Engineering & Construction, Industrials,
Utility Power Generation, and Mechanical Wire Rope, are estimated to have decreased 33%, or approximately 29% on a metals
adjusted basis, over 2014. Maintenance, Repair, and Operations (MRO) fell 9%, or approximately 5% when adjusted for metals
over 2014.
Gross Profit
| |
Three Months Ended | |
| |
March 31, | |
(Dollars in millions) | |
2015 | | |
2014 | | |
Change | |
Gross profit | |
$ | 17.7 | | |
$ | 21.7 | | |
$ | (4.0 | ) | |
| (18.3 | )% |
Gross margin | |
| 21.7 | % | |
| 21.6 | % | |
| 0.1 | % | |
| | |
Gross profit decreased 18.3% to $17.7
million in 2015 from $21.7 million in 2014. The decrease in gross profit was primarily attributed to the lower sales in 2015.
Gross margin (gross profit as a percentage of sales) increased to 21.7% in 2015 from 21.6% in 2014.
Operating Expenses
| |
Three Months Ended | |
| |
March 31, | |
(Dollars in millions) | |
2015 | | |
2014 | | |
Change | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Salaries and commissions | |
$ | 7.2 | | |
$ | 8.1 | | |
$ | (0.9 | ) | |
| (10.9 | )% |
Other operating expenses | |
| 6.0 | | |
| 6.5 | | |
| (0.4 | ) | |
| (6.8 | )% |
Depreciation and amortization | |
| 0.7 | | |
| 0.7 | | |
| - | | |
| (3.9 | )% |
Total operating expenses | |
$ | 14.0 | | |
$ | 15.4 | | |
$ | (1.4 | ) | |
| (8.8 | )% |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses as a percent of sales | |
| 17.2 | % | |
| 15.3 | % | |
| 1.9 | % | |
| | |
Note: Due to rounding, numbers may not add up
to total operating expenses.
Salaries and commissions decreased
$0.9 million between the periods as sales and gross margin declined reducing commissions and due to a lower headcount.
Other operating expenses decreased
$0.4 million primarily due to lower warehouse supplies and public company expenses.
Depreciation and amortization remained
consistent between the periods.
Operating expenses as a percentage
of sales increased to 17.2% in 2015 from 15.3% in 2014, as sales levels fell at a greater rate than the reduction in operating
expenses.
Interest Expense
Interest expense was nearly flat between
the periods. Average debt was $49.1 million in 2015 compared to $54.9 million in 2014. The average effective interest rate was
2.0% in 2015 compared to 1.9% in 2014.
Income Taxes
Income tax expense of $1.3 million
decreased by approximately $1.0 million in 2015 from $2.3 million in 2014, a decrease of 45.4%, primarily due to the reduction
in pre-tax income.
Net Income
We achieved net income of $2.2 million
in 2015 compared to a net income of $3.7 million in 2014.
Impact of Inflation and Commodity Prices
Our results of operations are affected
by changes in the inflation rate and commodity prices. Moreover, because copper, steel, aluminum and petrochemical products are
components of the wire and cable and related hardware we sell, fluctuations in the costs of these and other commodities have historically
affected our operating results. 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 commodity prices in any particular quarter would primarily affect the results of the succeeding calendar quarter. If we are
unable to pass on to our customers future cost increases due to inflation or rising commodity prices, our operating results could
be adversely affected.
Liquidity and Capital Resources
Our primary capital needs are for working
capital obligations, capital expenditures, dividend payments, our stock repurchase program and other general corporate purposes,
including acquisitions. Our primary sources of working capital are cash from operations supplemented by bank borrowings.
Liquidity is defined as the ability
to generate adequate amounts of cash to meet the current need for cash. We assess our liquidity in terms of our ability to generate
cash to fund our operating activities. Significant factors which could affect liquidity include the following:
| · | the
adequacy of available bank lines of credit; |
| · | cash
flows generated from operating activities; |
| · | additional
stock repurchases; |
| · | the
ability to attract long-term capital with satisfactory terms |
Comparison of the Three Months Ended March 31, 2015 and
2014
Our net cash provided by operating
activities was $10.3 million for the three months ended March 31, 2015 compared to the use of $7.0 million in 2014. Our net income
decreased by $1.6 million or 41.6% to $2.2 million in 2015 from $3.7 million in 2014.
Changes in our operating assets and
liabilities resulted in cash provided by operating activities of $7.2 million in 2015. A reduction in our inventory investment
of $7.0 million as regional profiles continued to be refined and a decrease in accounts receivable of $6.4 million due to lower
sales and the collection of vendor rebates, were the main sources of cash. Partially offsetting these sources of cash was a reduction
in accrued and other current liabilities of $5.3 million primarily due to lower accrued wire purchases and volume rebates to our
customers and a decrease in the book overdraft of $1.6 million.
Net cash used in investing activities
was $0.4 million in 2015 compared to $0.7 million in 2014. The decrease was primarily attributable to higher renovation costs
in the prior year period of a facility purchased in December 2013 which will be used to consolidate four existing Southwest Wire
Rope locations in the second quarter of 2015.
Net cash used in financing activities
was $9.8 million in 2015 compared to $7.7 million of cash provided in 2014. The payment of dividends of $2.1 million, the purchase
of treasury stock of $1.7 million and the net payments on the revolver of $6.1 million were the main components of financing activities
in 2015.
Indebtedness
Our principal source of liquidity at
March 31, 2015 was working capital of $122.7 million compared to $130.1 million at December 31, 2014. We also had additional available
borrowing capacity of approximately $45.9 million at March 31, 2015 and $42.4 million at December 31, 2014 under our loan agreement.
We believe that we will have adequate
availability of capital to fund our present operations, meet our commitments on our existing debt, continue to fund our dividend
payments and stock repurchase program, and fund anticipated growth over the next twelve months, including expansion in existing
and targeted market areas. We continually seek potential acquisitions and from time to time hold discussions with acquisition
candidates. If suitable acquisition opportunities or working capital needs arise that would require additional financing, we believe
that our financial position and earnings history provide a solid base for obtaining additional financing resources at competitive
rates and terms. Additionally, based on market conditions, we may decide to issue additional shares of common or preferred stock
to raise funds.
Loan and Security Agreement
On September 30, 2011, we entered into
a Third Amended and Restated Loan and Security Agreement (as amended, the “2011 Loan Agreement”) with certain lenders
and Bank of America, N.A., as agent. The 2011 Loan Agreement provides for a $100 million revolving credit facility and expires
on September 30, 2016. Availability under the 2011 Loan Agreement is limited to a borrowing base equal to 85% of the value of
eligible accounts receivable, plus 65% of the value of eligible inventory, less certain reserves. The 2011 Loan Agreement is secured
by a lien on substantially all our property, other than real estate.
Portions of the loan under
the 2011 Loan Agreement may be converted to LIBOR loans in minimum amounts of $1.0 million and integral multiples of $0.1 million.
LIBOR loans bear interest at the British Bankers Association LIBOR Rate plus 125 to 200 basis points based on availability, and
loans not converted to LIBOR loans bear interest at a fluctuating rate equal to the greatest of the agent’s prime rate,
the federal funds rate plus 50 basis points, or 30-day LIBOR plus 150 basis points. Additionally, we are obligated to pay an unused
facility fee on the unused portion of the loan commitment. Unused commitment fees are 25 or 30 basis points, depending on the
amount of the unused commitment.
Covenants in the 2011 Loan Agreement
require us to maintain certain minimum financial ratios and availability levels. Repaid amounts can be re-borrowed subject to
the borrowing base. On November 3, 2014, we entered into a Second Amendment to the 2011 Loan Agreement, which added an availability-based
covenant as an alternative to the existing fixed charge coverage ratio. As of March 31, 2015, we met the availability-based covenant.
Contractual Obligations
The following table summarizes our
loan commitment at March 31, 2015:
In thousands | |
Total | | |
Less than 1 year | | |
1-3 years | | |
3-5 years | | |
More than 5 years | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total debt | |
$ | 47,719 | | |
$ | — | | |
$ | 47,719 | | |
$ | — | | |
$ | — | |
There were no material changes in operating
lease obligations or non-cancellable purchase obligations since December 31, 2014.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
There were no material changes to our
market risk as set forth in Items 7A and 7 of our Annual Report on Form 10-K for the year ended December 31, 2014.
Item 4. Controls and Procedures
As of March 31, 2015, an evaluation
was performed by the Company’s management, under the supervision and with the participation of the Company’s chief
executive officer and chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures. Based
on that evaluation, the chief executive officer and the chief financial officer concluded that the Company’s disclosure
controls and procedures were effective. There were no changes in the Company’s internal control over financial reporting
that occurred during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Part II. Other Information
Item 1 – Not applicable and has been omitted.
Item 1A. Risk Factors
There were no material changes in the
risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
The following table provides information
about our purchases of common stock for the three months ended March 31, 2015.
Period | |
Total number
of shares purchased
(1) | | |
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
(1) | |
January 1 – 31, 2015 | |
| 40,200 | | |
$ | 11.36 | | |
| 40,200 | | |
$ | 17,675,604 | |
February 1 – 28, 2015 | |
| 39,800 | | |
| 10.84 | | |
| 39,800 | | |
| 17,244,253 | |
March 1 – 31, 2015 | |
| 84,600 | | |
| 9.89 | | |
| 84,600 | | |
| 16,407,884 | |
Total | |
| 164,600 | | |
$ | 10.48 | | |
| 164,600 | | |
| | |
(1) |
The board authorized a stock
repurchase program of $25 million in March 2014. The program has no expiration date. |
Item 3 – Not applicable and has been omitted.
Item 4 – Not applicable and has been omitted.
Item 5 – Not applicable and has been omitted.
Item 6. Exhibits
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number |
|
Document Description |
|
|
|
31.1 |
|
Certification by James L. Pokluda III
pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification by Nicol G. Graham pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification by James L. Pokluda III
and Nicol G. Graham pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
|
XBRL Instance Document(1) |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase |
| (1) | Attached as exhibit 101 to this report are the following
documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at March 31, 2015 and
December 31, 2014; (ii) the Consolidated Statements of Income for the three month periods ended March 31, 2015 and 2014; (iii)
the Consolidated Statements of Cash Flows for the three month periods ended March 31, 2015 and 2014; and (vi) Notes to the Consolidated
Financial Statements. |
Signature
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 7, 2015 |
HOUSTON WIRE & CABLE
COMPANY |
|
|
|
|
BY: |
/s/ Nicol
G. Graham |
|
Nicol G. Graham, Chief Financial
Officer |
EXHIBIT INDEX
Exhibit
Number |
|
Document Description |
|
|
|
31.1 |
|
Certification by James L. Pokluda III
pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification by Nicol G. Graham pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification by James L. Pokluda III
and Nicol G. Graham pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
|
XBRL Instance Document(1) |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase |
| (1) | Attached as exhibit 101 to this report are the following
documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at March 31, 2015 and
December 31, 2014; (ii) the Consolidated Statements of Income for the three month periods ended March 31, 2015 and 2014; (iii)
the Consolidated Statements of Cash Flows for the three month periods ended March 31, 2015 and 2014; and (vi) Notes to the Consolidated
Financial Statements. |
Exhibit 31.1
Certification of CEO Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
I, James L. Pokluda III, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 of Houston Wire & Cable Company; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 7, 2015 |
/s/ James L. Pokluda III |
|
James L. Pokluda III |
|
Chief Executive Officer |
Exhibit 31.2
Certification of CFO Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
I, Nicol G. Graham, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 of Houston Wire & Cable Company; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 7, 2015 |
/s/ Nicol G. Graham |
|
Nicol G. Graham |
|
Chief Financial Officer |
Exhibit 32.1
Certifications of CEO and CFO Pursuant
to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report
on Form 10-Q of Houston Wire & Cable Company (the “Corporation”) for the fiscal quarter ended March 31, 2015 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), James L. Pokluda III, as Chief
Executive Officer of the Corporation, and Nicol G. Graham, as Chief Financial Officer of the Corporation, each hereby certifies,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge,
that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
Date: May 7, 2015 |
/s/ James L. Pokluda III |
|
James L. Pokluda III |
|
Chief Executive Officer |
|
|
Date: May 7, 2015 |
/s/ Nicol G. Graham |
|
Nicol G. Graham |
|
Chief Financial Officer |
This certification accompanies the Report
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Houston Wire & Cable Company for
purposes of section 18 of the Securities Exchange Act of 1934, as amended.
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