The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying
notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
Notes to Consolidated Financial Statements
|
1.
|
Organization
and Summary of Significant Accounting Policies
|
Description of Business
Houston Wire & Cable Company (the
“Company”), through its wholly owned subsidiaries, HWC Wire & Cable Company, Advantage Wire & Cable and
Cable Management Services Inc., provides industrial products to the U.S. market through twenty-two locations in fourteen
states throughout the United States. In 2010, the Company purchased Southwest Wire Rope LP (“Southwest”), its
general partner Southwest Wire Rope GP LLC and its wholly owned subsidiary, Southern Wire (“Southern”) and
subsequently merged them into the Company’s operating subsidiary. On October 3, 2016, the Company purchased Vertex
Corporate Holdings, Inc. and its subsidiaries (“Vertex”). The Company has no other business activity.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and its subsidiaries and have been prepared following accounting principles generally accepted in the
United States (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”). The financial
statements include all normal and recurring adjustments that are necessary for a fair presentation of the Company’s financial
position and operating results. All significant inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of the financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The most significant estimates are those relating to the allowance for doubtful accounts, the
reserve for returns and allowances, the inventory obsolescence reserve, vendor rebates, and asset impairments. Actual results could
differ materially from the estimates and assumptions used for the preparation of the financial statements.
Earnings (loss) per Share
Basic earnings (loss) per share is calculated
by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share include
the dilutive effects of option and unvested restricted stock awards and units.
The following reconciles the denominator used
in the calculation of diluted earnings (loss) per share:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for basic earnings per share
|
|
|
16,345,679
|
|
|
|
17,012,560
|
|
|
|
17,605,290
|
|
Effect of dilutive securities
|
|
|
—
|
|
|
|
55,033
|
|
|
|
78,641
|
|
Denominator for diluted earnings per share
|
|
|
16,345,679
|
|
|
|
17,067,593
|
|
|
|
17,683,931
|
|
Stock awards to purchase 685,054, 643,738 and
476,473 shares of common stock were not included in the diluted net income (loss) per share calculation for 2016, 2015 and 2014,
respectively, as their inclusion would have been anti-dilutive.
Accounts Receivable
Accounts receivable consists primarily of receivables
from customers, less an allowance for doubtful accounts of $0.2 million and $0.1 million, and a reserve for returns and allowances
of $0.2 million and $0.3 million at December 31, 2016 and 2015, respectively. The Company has no contractual repurchase arrangements
with its customers. Credit losses have been within management’s expectations.
The following table summarizes
the changes in the allowance for doubtful accounts for the past three years:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Balance at beginning of year
|
|
$
|
132
|
|
|
$
|
139
|
|
|
$
|
148
|
|
Bad debt expense
|
|
|
285
|
|
|
|
97
|
|
|
|
50
|
|
Write-offs, net of recoveries
|
|
|
(266
|
)
|
|
|
(104
|
)
|
|
|
(59
|
)
|
Balance at end of year
|
|
$
|
151
|
|
|
$
|
132
|
|
|
$
|
139
|
|
Inventories
Inventories are carried at the lower of cost,
using the average cost method, or market and consist primarily of goods purchased for resale, less a reserve for obsolescence and
unusable items and unamortized vendor rebates. The reserve for inventory is based upon a number of factors, including the experience
of the purchasing and sales departments, age of the inventory, new product offerings, and other factors. The reserve for inventory
may periodically require adjustment as the factors identified above change. The inventory reserve was $4.4 million and $4.8 million
at December 31, 2016 and 2015, respectively.
Vendor Rebates
Under many of the Company’s arrangements
with its vendors, the Company receives a rebate of a specified amount of consideration, payable when the Company achieves any of
a number of measures, generally related to the volume level of purchases from the vendors. The Company accounts for such rebates
as a reduction of the prices of the vendors’ products and therefore as a reduction of inventory until it sells the products,
at which time such rebates reduce cost of sales in the accompanying consolidated statements of operations. Throughout the year,
the Company estimates the amount of the rebates earned based on purchases to date relative to the total purchase levels expected
to be achieved during the rebate period. The Company continually revises these estimates to reflect rebates expected to be earned
based on actual purchase levels and forecasted purchase volumes for the remainder of the rebate period.
Property and Equipment
The Company provides for depreciation on a
straight-line method over the following estimated useful lives:
Buildings
|
|
25 to 30 years
|
Machinery and equipment
|
|
3 to 10 years
|
Leasehold improvements are depreciated over
their estimated life or the term of the lease, whichever is shorter.
Total depreciation expense was approximately
$1.3 million for the year ended December 31, 2016 and $1.2 million for each of the years ended December 31, 2015 and 2014.
Goodwill
Goodwill represents the excess of the amount
paid to acquire businesses over the estimated fair value of tangible assets and identifiable intangible assets acquired, less liabilities
assumed. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often
involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates
and asset lives among other items. At December 31, 2016, the goodwill balance was $22.8 million, representing 12.9% of the Company’s
total assets.
The Company reviews goodwill
for impairment annually, or more frequently if indications of possible impairment exist, using a three-step process. The
first step is a qualitative evaluation as to whether it is more likely than not that the fair value of any of the reporting
units is less than its carrying value using an assessment of relevant events and circumstances. Examples of such events
and circumstances include financial performance, industry and market conditions, macroeconomic conditions,
reporting unit-specific events, historical results of goodwill impairment testing and the timing of the last performance of
a quantitative assessment. If the Company is unable to conclude that the goodwill associated with any reporting unit is not
impaired, a second step is performed for that reporting unit. This second step, used to quantitatively screen for potential
impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. The third step,
employed for any reporting unit that fails the second step, is used to measure the amount of any potential impairment and
compares the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill.
Intangibles
Intangible assets, from the acquisition of Southwest and Southern in 2010 and the recent acquisition of
Vertex in October 2016, consist of customer relationships and tradenames. The customer relationships are amortized over 6 to 9
year useful lives. If events or circumstances were to indicate
that any of the Company’s definite-lived intangible assets might be impaired, the Company would assess recoverability based
on the estimated undiscounted future cash flows to be generated from the applicable intangible asset. If the undiscounted cash
flows were less than the carrying value, then the intangible assets would be written down to their fair value. Tradenames have
an indefinite life and are not being amortized and are tested for impairment on an annual basis.
Self Insurance
The Company retains certain self-insurance
risks for both health benefits and property and casualty insurance programs. The Company limits its exposure to these self-insurance
risks by maintaining excess and aggregate liability coverage. Self-insurance reserves are established based on claims filed and
estimates of claims incurred but not reported. The estimates are based on information provided to the Company by its claims administrators.
Segment Reporting
The Company operates in a single operating
and reporting segment, sales of industrial products, including electrical and mechanical wire and cable, industrial fasteners,
hardware and related services to the U.S. market.
Revenue Recognition, Returns & Allowances
The Company recognizes revenue when the following
four basic criteria have been met:
1. Persuasive
evidence of an arrangement exists;
2. Delivery has
occurred or services have been rendered;
3. The seller’s
price to the buyer is fixed or determinable; and
4. Collectability
is reasonably assured.
The Company records revenue when customers
take delivery of products. Customers may pick up products at any distribution center location, or products may be delivered via
third party carriers. Products shipped via third party carriers are considered delivered based on the shipping terms, which are
generally FOB shipping point. Customers are permitted to return product only on a case-by-case basis. Product exchanges are handled
as a credit, with any replacement item being re-invoiced to the customer. Customer returns are recorded as an adjustment to sales.
In the past, customer returns have not been material. The Company has no installation obligations.
The Company may offer sales incentives, which
are accrued monthly as an adjustment to sales.
Shipping and Handling
The Company incurs shipping and handling costs
in the normal course of business. Freight amounts invoiced to customers are included as sales and freight charges and are included
as a component of cost of sales.
Credit Risk
No single customer accounted for 10% or more
of the Company’s sales in 2016, 2015 or 2014. The Company performs periodic credit evaluations of its customers and generally
does not require collateral.
Advertising Costs
Advertising costs are expensed when incurred.
Advertising expenses were $0.4 million for each of the years ended December 31, 2016 and 2015 and $0.3 million for the year ended
December 31, 2014.
Financial Instruments
The carrying values of accounts receivable,
trade accounts payable and accrued and other current liabilities approximate fair value, due to the short maturity of these instruments.
The carrying amount of long term debt approximates fair value as it bears interest at variable rates.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (the
“FASB”) Accounting Standards Codification (“ASC”) is the sole source of authoritative GAAP other than SEC
issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standard Update ("ASU")
to communicate changes to the codification. The Company considers the applicability and impact of all ASUs. The following are those
ASUs that are relevant to the Company.
In January 2017, the FASB issued ASU No. 2017-04,
“Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The amendment in
this ASU provides final guidance that simplifies the accounting for goodwill impairment for all entities by requiring impairment
charges to be based on the first step in today’s two-step impairment test under ASC 350. ASU No. 2017-04 is effective for
annual and interim impairment test performed in periods beginning after December 15, 2019. Early adoption is permitted for annual
and interim goodwill impairment testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting
as well as the timing of when it will adopt this ASU.
In August 2016, the FASB issued ASU No. 2016-15,
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The amendments in
this ASU address eight cash flow issues with the intention of reducing current diversity in practice among business entities. The
Company will evaluate the eight issues in the amendment and determine if any changes are necessary for compliance. ASU No. 2016-15
is effective for annual and interim periods beginning after December 15, 2017; early adoption is permitted and should be applied
retrospectively where practical. The Company will determine the date of adoption, once the Company has evaluated the impact of
this ASU.
In March 2016, the FASB issued ASU No. 2016-09,
“Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The new guidance
addresses several aspects of the accounting for share-based payment award transactions, including: (a) the recognition of the income
tax effects of awards in the income statement when the awards vest, forfeit, or are settled, thus eliminating additional paid-in-capital
pools, (b) classification of awards as either equity or liabilities, and (c) classification on the statement of cash flows. This
update is effective for public companies for fiscal years beginning after December 15, 2016 with early adoption permitted. The Company is currently evaluating the elections the Company may make and therefore the full effects
of the adoption of the standard are not yet known. However, as the Company does not have an APIC pool, upon adoption, the change
in the recognition of income tax effects will not have an impact on the Company. Additionally, the awards the Company currently
has outstanding will remain classified in equity. The Company will adopt this ASU in the first quarter of 2017.
In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842)”. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases
greater than 1 year, both capital and operating leases. This update is effective for public companies for fiscal years beginning
after December 15, 2018 with early adoption permitted. The Company is currently evaluating the impacts of adopting as well as the
timing of when it will adopt this ASU.
In November 2015, the FASB issued ASU No.
2015-17, “Income Taxes (Topic 740) — Balance Sheet Classification of Deferred Taxes.” ASU No. 2015-17
eliminates the requirement to classify deferred tax assets and liabilities as current or long-term based on how the related
assets or liabilities are classified. All deferred taxes are now required to be classified as long-term including any
associated valuation allowances. The Company adopted this guidance in the third quarter of 2016 and has applied it
retrospectively. It did not have a material impact on the consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11,
“Simplifying the Measurement of Inventory” (Topic 330), which changes guidance for subsequent measurement of inventory
within the scope of the update from the lower of cost or market to the lower of cost and net realizable value. This update is effective
for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. The Company does not believe
there will be any material impact upon the adoption of this guidance on the Company’s consolidated financial statements and
will adopt this ASU in the first quarter of 2017.
In April 2015, the FASB issued ASU No. 2015-03,
“Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30).” The amendments in this ASU require debt issuance
costs to be presented on the balance sheet as a direct reduction from the carrying amount of the related debt liability. However,
the guidance in this ASU did not address the presentation or subsequent measurement of debt issuance costs related to line-of-credit
arrangements. As a result, in August 2015 the FASB issued ASU No. 2015-15 “Interest—Imputation of Interest (Subtopic
835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Agreements,” to clarify
that, with respect to a line-of-credit agreement, the SEC staff would not object to an entity deferring and presenting debt issuance
costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement.
The Company adopted this guidance in the first quarter of 2016 and is continuing to treat debt issuance costs associated with its
revolving credit facility as a deferred asset and amortizing the deferred asset over the term of the credit agreement. Therefore,
the adoption did not have any impact on the Company’s financial position or results of operations.
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in 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. 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. The Company will adopt this ASU effective January 1, 2018 and is still evaluating its impact on its financial
position and results of operations and which implementation method the Company will use.
Stock-Based Compensation
Stock options issued under the Company’s
stock plan have an exercise price equal to the fair value of the Company’s stock on the grant date. Restricted stock awards
and units are valued at the closing price of the Company’s stock on the grant date. The Company recognizes compensation expense
ratably over the vesting period. The Company’s compensation expense is included in salaries and commissions expense in the
accompanying consolidated statements of operations.
The Company receives a tax deduction for certain
stock option exercises in the period in which the options are exercised, generally for the excess of the market price on the date
of exercise over the exercise price of the options. The Company reports excess tax benefits from the award of equity instruments
as financing cash flows. Excess tax benefits result when a deduction reported for tax return purposes for an award of equity instruments
exceeds the cumulative compensation cost for the instruments recognized for financial reporting purposes.
Income Taxes
Deferred tax assets and liabilities are determined
based on differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes and are measured using the enacted tax rates and laws that will be in effect when the differences are expected
to reverse.
2. Business Combination
On October 3, 2016, the Company completed the
acquisition of Vertex from DXP Enterprises. The acquisition has been accounted for in accordance with ASC Topic 805, Business Combinations.
Accordingly, the total purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values
as of the acquisition date. Vertex is a master distributor of industrial fasteners, specializing in corrosion resistant and specialty
alloy inch and metric threaded fasteners, rivets, and hose clamps, to the industrial market. Under the terms of the acquisition
agreement, the purchase price was $32.3 million, subject to an adjustment based on the net working capital of Vertex as of the
date of closing. The current working capital adjustment (which is still subject to change) is $0.1 million, making the total purchase
price $32.4 million. The Company has elected to treat the acquisition as a stock purchase for tax purposes. The amount of goodwill
deductible for tax purposes is $1.0 million. The acquisition was funded by borrowing under the Company’s loan agreement.
This acquisition expands the Company’s product offerings to the industrial marketplace that purchases its wire and cable
products.
The following table summarizes the current
estimated fair value of the acquired assets and assumed liabilities recorded as of the date of acquisition. The fair value of all
assets acquired and liabilities assumed are preliminary and subject to the completion of incremental analysis of the fair values
of the assets acquired and liabilities assumed:
|
|
At October 3, 2016
|
|
|
|
(In thousands)
|
|
Cash
|
|
$
|
3
|
|
Accounts receivable
|
|
|
2,626
|
|
Inventories
|
|
|
14,582
|
|
Prepaids
|
|
|
46
|
|
Property and equipment
|
|
|
59
|
|
Intangibles
|
|
|
9,161
|
|
Goodwill
|
|
|
10,266
|
|
Other assets
|
|
|
116
|
|
Total assets acquired
|
|
|
36,859
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
1,130
|
|
Accrued and other current liabilities
|
|
|
919
|
|
Deferred income taxes
|
|
|
2,440
|
|
Total liabilities assumed
|
|
|
4,489
|
|
|
|
|
|
|
Net assets purchased
|
|
$
|
32,370
|
|
The preliminary fair values of the assets
acquired and liabilities assumed were determined using the market, income and cost approaches. The market approach used by
the Company included prices at which comparable assets were purchased under similar circumstances. The income approach
indicated value for the subject net assets based on the present value of cash flows projected to be generated by the net
assets over their useful life. Projected cash flows were discounted at a market rate of return that reflects the relative
risk associated with the asset and the time value of money. The cost approach estimated value by determining the current cost
of replacing the asset with another of equivalent economic utility. The cost to replace a given asset reflected the estimated
reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation
Intangible asset acquired, consist of customer
relationships - $7.0 million and trade names - $2.1 million. Trade names are not being amortized, while customer relationships
are being amortized over a 9 year useful life. As of December 31, 2016, accumulated amortization and amortization expense recognized
on the acquired intangible assets was $0.2 million. Amortization expense to be recognized on the acquired intangible assets is
expected to be $0.8 million per year in 2017 through 2024 and $0.6 million in 2025.
Goodwill represents the future economic benefits
arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from
the acquisition consists primarily of sales and operational synergies that will be achieved by consolidating certain of Vertex’s
locations into existing Company locations and expanding Vertex’s product offerings throughout the balance of the Company’s
national platform.
Under ASC Topic 805-10, acquisition-related
costs (e.g. legal, valuation and advisory) are not included as a component of consideration paid, but are accounted for as operating
expenses in the periods in which the costs are incurred. For the year ended December 31, 2016, the Company incurred $0.9 million
of acquisition-related costs, which were recorded in other operating expenses on the statement of operations.
The amount of revenue and net income of Vertex
included in the Company’s consolidated statement of operations from October 3, 2016 through December 31, 2016 was $7.0 million
and $0.2 million, respectively.
The results of operations of Vertex are included
in the consolidated statement of operations from October 3, 2016 through December 31, 2016. The unaudited pro forma combined historical
results of the Company, giving effect to the acquisition assuming the transaction was consummated on January 1, 2015, are as follows:
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
|
(In thousands)
|
|
Sales
|
|
$
|
284,310
|
|
|
$
|
342,129
|
|
Net income (loss)
|
|
|
(5,466
|
)
|
|
|
3,560
|
|
Basic earnings (loss) per share
|
|
|
(0.33
|
)
|
|
|
0.21
|
|
Diluted earnings (loss) per share
|
|
|
(0.33
|
)
|
|
|
0.21
|
|
The unaudited pro forma combined historical
results do not reflect any cost savings or other synergies that might result from the transaction. They are provided for informational
purposes only and are not necessarily indicative of the results of operations for future periods or the results that actually would
have been realized had the acquisition occurred as of January 1, 2015.
|
3.
|
Detail
of Selected Balance Sheet Accounts
|
Property and Equipment
Property and equipment are stated at cost and consist
of:
|
|
At December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Land
|
|
$
|
2,476
|
|
|
$
|
2,476
|
|
Buildings
|
|
|
8,105
|
|
|
|
7,706
|
|
Machinery and equipment
|
|
|
12,934
|
|
|
|
11,885
|
|
|
|
|
23,515
|
|
|
|
22,067
|
|
Less accumulated depreciation
|
|
|
12,254
|
|
|
|
11,168
|
|
Total
|
|
$
|
11,261
|
|
|
$
|
10,899
|
|
Intangible assets
Intangible assets consist of:
|
|
At December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Tradenames
|
|
$
|
5,996
|
|
|
$
|
3,846
|
|
Customer relationships
|
|
|
18,620
|
|
|
|
11,630
|
|
|
|
|
24,616
|
|
|
|
15,476
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
|
|
Tradenames
|
|
|
—
|
|
|
|
—
|
|
Customer relationships
|
|
|
11,238
|
|
|
|
9,492
|
|
|
|
|
11,238
|
|
|
|
9,492
|
|
Total
|
|
$
|
13,378
|
|
|
$
|
5,984
|
|
Intangible assets include customer relationships
which are being amortized over 6 to 9 year useful lives. The weighted average amortization period for intangible assets is 8.8
years. Tradenames are not amortized; however, they are tested annually for impairment. As of December 31, 2016, accumulated amortization
on the acquired intangible assets, was $11.2 million and amortization expense was $1.7 million in the year ended December 31, 2016,
$1.8 million in the year ended December 31, 2015 and $1.7 million in the year ended December 31, 2014. Future amortization expense
to be recognized on the acquired intangible assets is expected to be as follows:
|
|
Annual
Amortization
Expense
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
1,362
|
|
2018
|
|
|
777
|
|
2019
|
|
|
777
|
|
2020
|
|
|
777
|
|
2021
|
|
|
777
|
|
2022
|
|
|
777
|
|
2023
|
|
|
777
|
|
2024
|
|
|
777
|
|
2025
|
|
|
583
|
|
Goodwill
|
|
At December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Goodwill
|
|
$
|
25,082
|
|
|
$
|
25,082
|
|
Current year acquisitions
|
|
|
10,266
|
|
|
|
—
|
|
|
|
|
35,348
|
|
|
|
25,082
|
|
|
|
|
|
|
|
|
|
|
Less accumulated impairment losses
|
|
|
12,578
|
|
|
|
10,216
|
|
Net balance
|
|
$
|
22,770
|
|
|
$
|
14,866
|
|
Accrued and Other Current Liabilities
Accrued and other current liabilities consist of:
|
|
At December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Customer advances
|
|
$
|
—
|
|
|
$
|
169
|
|
Customer rebates
|
|
|
3,343
|
|
|
|
3,166
|
|
Payroll, commissions, and bonuses
|
|
|
1,783
|
|
|
|
1,148
|
|
Accrued inventory purchases
|
|
|
4,268
|
|
|
|
1,800
|
|
Other
|
|
|
3,854
|
|
|
|
3,285
|
|
Total
|
|
$
|
13,248
|
|
|
$
|
9,568
|
|
|
4.
|
Impairment
of Goodwill and Intangibles
|
The annual goodwill impairment qualitative test was performed as of October 1, 2016 related to the Southern
reporting unit, the one reporting unit with goodwill at that date. This qualitative test, which compared current year to date performance
to plan, indicated that it was more likely that the goodwill was not impaired. If there are further reductions in our market capitalization
and market multiples, or the projected performance is not achieved, this reporting unit could be at risk of failing the second
step in the future.
During the second quarter of 2016 and prior
to the annual impairment test of goodwill in October, the Company concluded that impairment indicators existed at the Houston Wire
& Cable (“HWC”) reporting unit, due to a decline in its overall financial performance, decrease in the market capitalization
and overall market demand. In the second quarter, the Company also concluded that there were impairment indicators for certain
of the Company’s tradenames related to the Southern reporting unit.
The Company performed step one of the impairment
test and concluded that the fair value of the HWC reporting unit was less than its carrying value. Therefore, the Company performed
step two of the impairment analysis. The step one test also indicated that one of the tradenames at Southern was impaired, and
the Company recorded a non-cash charge of less than $0.1 million against the tradenames during the quarter ended June 30, 2016.
Step two of the impairment analysis measures
the impairment charge by allocating the HWC reporting unit’s fair value to all of the assets and liabilities of the reporting
unit in a hypothetical analysis that calculates implied fair value of goodwill in the same manner as if the reporting unit was
being acquired in a business combination and recording the deferred tax impact. Any excess of the carrying value of the reporting
unit’s goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss.
The fair value of the HWC reporting unit was
estimated using a discounted cash flow model (income approach) and a guideline public company method, giving 50% weight to each.
The material assumptions used included a weighted average cost of capital of 11.0% and a long-term growth rate of 3-7% for the
income approach and an adjusted invested capital multiple of 0.2 times revenue and a control premium of 10.0% for the guideline
public company method. The carrying value of the HWC reporting unit’s goodwill was $2.4 million and its implied fair value
resulting from step two of the impairment test was zero. As a result, the Company recorded a non-cash goodwill impairment charge
of $2.4 million during the quarter ended June 30, 2016.
The fair value for goodwill and tradenames
(indefinite-lived intangible assets) were both determined using a Level 3 measurement approach. The Level 3 value of all of the
Company’s tradenames at June 30, 2016 was $4.5 million.
During the second quarter of 2015 and prior
to the annual impairment test of goodwill in October, the Company concluded that impairment indicators existed at the Southwest
reporting unit, due to a decline in the overall financial performance and overall market demand. Impairment indicators also existed
for certain of the Company’s tradenames related to the Southwest and Southern reporting units.
After performing the necessary analysis the
Company recorded, during the quarter ended June 30, 2015, a non-cash charge of $0.8 million against the tradenames and a non-cash
goodwill impairment charge of $2.6 million.
The Company is still anticipating significant
growth in the businesses acquired in 2010 and in 2016, but if this growth is not achieved, further goodwill impairments may result.
On October 3, 2016, in connection
with the Vertex acquisition, HWC Wire & Cable Company, the Company, Vertex, and Bank of America, N.A., as agent and
lender, entered into a First Amendment (“the Loan Agreement Amendment”) amending the Fourth Amended and Restated
Loan and Security Agreement (the “2015 Loan Agreement”). The Loan
Agreement Amendment adds Vertex as borrower (and lien grantor) and provides the terms for inclusion of Vertex’s
eligible accounts receivable and eligible inventory in the borrowing base for the 2015 Loan Agreement. The 2015 Loan
Agreement was expanded to include incremental availability on eligible accounts receivable and inventory up to $5 million,
which will be amortized quarterly, starting April 1, 2017, over two and a half years. The 2015 Loan Agreement provides a
$100 million revolving credit facility and expires on September 30, 2020. Under certain circumstances the Company may request
an increase in the commitment by an additional $50 million.
Portions of the loan may be converted to LIBOR
loans in minimum amounts of $1.0 million and integral multiples of $0.1 million. LIBOR loans bear interest at the British Bankers
Association LIBOR Rate plus 100 to 150 basis points based on availability, and loans not converted to LIBOR loans bear interest
at a fluctuating rate equal to the greatest of the agent’s prime rate, the federal funds rate plus 50 basis points, or 30-day
LIBOR plus 150 basis points. The unused commitment fee is 25 basis points.
Availability under the 2015 Loan Agreement
is limited to a borrowing base equal to 85% of the value of eligible accounts receivable, plus the lesser of 70% of the value of
eligible inventory or 90% of the net orderly liquidation value percentage of the value of eligible inventory, in each case less
certain reserves. The 2015 Loan Agreement is secured by substantially all of the property of the Company, other than real estate.
The 2015 Loan Agreement includes, among other
things, covenants that require the Company to maintain a specified minimum fixed charge coverage ratio, unless certain availability
levels exist. Additionally, the 2015 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 2015
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, 2020. At December 31, 2016, the Company was in compliance with the availability-based covenants governing its
indebtedness.
The Company’s borrowings at December
31, 2016 and 2015 were $60.4 million and $39.2 million, respectively. The weighted average interest rates on outstanding borrowings
were 2.4% and 1.7% at December 31, 2016 and 2015, respectively.
During 2016, the Company had an average available
borrowing capacity of approximately $38.7 million. This average was computed from the monthly borrowing base certificates prepared
for the lender. At December 31, 2016, the Company had available borrowing capacity of $25.6 million under the terms of the
2015 Loan Agreement. During the years ended December 31, 2016 and 2015, the Company paid $0.2 million each year and for the
year ended December 31, 2014, paid $0.1 million, for the unused facility.
Principal repayment obligations
for succeeding fiscal years are as follows:
|
|
(In thousands)
|
|
2017
|
|
$
|
—
|
|
2018
|
|
|
—
|
|
2019
|
|
|
—
|
|
2020
|
|
|
60,388
|
|
Total
|
|
$
|
60,388
|
|
The provision (benefit) for income taxes consists
of:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,285
|
)
|
|
$
|
3,166
|
|
|
$
|
9,123
|
|
State
|
|
|
(95
|
)
|
|
|
392
|
|
|
|
1,083
|
|
Total current
|
|
|
(1,380
|
)
|
|
|
3,558
|
|
|
|
10,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
13
|
|
|
|
(436
|
)
|
|
|
(794
|
)
|
State
|
|
|
(7
|
)
|
|
|
(49
|
)
|
|
|
(129
|
)
|
Total deferred
|
|
|
6
|
|
|
|
(485
|
)
|
|
|
(923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,374
|
)
|
|
$
|
3,073
|
|
|
$
|
9,283
|
|
A reconciliation of the U.S. Federal statutory
tax rate to the effective tax rate on income (loss) before taxes is as follows:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
|
1.7
|
|
|
|
4.1
|
|
|
|
2.7
|
|
Impairment, non-deductible portion
|
|
|
(6.6
|
)
|
|
|
20.0
|
|
|
|
—
|
|
Share-based compensation deficit
|
|
|
(9.0
|
)
|
|
|
3.7
|
|
|
|
—
|
|
Non-deductible items
|
|
|
(3.9
|
)
|
|
|
3.0
|
|
|
|
0.7
|
|
Other
|
|
|
1.4
|
|
|
|
(5.7
|
)
|
|
|
(0.1
|
)
|
Total effective tax rate
|
|
|
18.6
|
%
|
|
|
60.1
|
%
|
|
|
38.3
|
%
|
The share-based compensation deficit
resulted in incremental income tax expense, because the grant date fair value of share-based payments exceeded the actual tax
deductions realized, either upon exercise or vesting or due to forfeitures. Any future net deficits arising from stock-based
compensation transactions will result in incremental income tax expense, and will likely negatively impact the effective tax
rate. In 2015, the other credit includes the impact of over accruals of both federal and state taxes in earlier years.
Significant components of the Company’s
deferred taxes were as follows:
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Uniform capitalization adjustment
|
|
$
|
1,420
|
|
|
$
|
1,240
|
|
Inventory valuation
|
|
|
2,496
|
|
|
|
1,835
|
|
Accounts receivable valuation
|
|
|
159
|
|
|
|
50
|
|
Stock compensation expense
|
|
|
1,368
|
|
|
|
1,900
|
|
Property and equipment
|
|
|
145
|
|
|
|
109
|
|
Other
|
|
|
96
|
|
|
|
77
|
|
Total deferred tax assets
|
|
|
5,684
|
|
|
|
5,211
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
393
|
|
|
|
601
|
|
Intangibles
|
|
|
4,211
|
|
|
|
1,148
|
|
Other
|
|
|
188
|
|
|
|
124
|
|
Total deferred tax liabilities
|
|
|
4,792
|
|
|
|
1,873
|
|
Net deferred tax assets
|
|
$
|
892
|
|
|
$
|
3,338
|
|
The Company recognizes interest on any tax
issue as a component of interest expense and any related penalties in other operating expenses. As of December 31, 2016, 2015 and
2014, the Company recorded no provision for interest or penalties related to uncertain tax positions. The tax years 2012 through
2016 remain open to examination by the major taxing jurisdictions to which the Company is subject.
On March 7, 2014, the Board of Directors adopted
a stock repurchase program under which the Company is authorized to purchase up to $25 million of its outstanding shares of common
stock from time to time, depending on market conditions, trading activity, business conditions and other factors. Shares of stock
purchased under the program are held as treasury shares and may be used to satisfy the exercise of options, issuance of restricted
stock, to fund acquisitions or for other uses as authorized by the Board of Directors. In November 2016, the Board of Directors
suspended purchases under the stock repurchase program. During 2016, the Company made repurchases under the stock repurchase program
of 366,820 shares for a total cost of $2.2 million. During 2015, the Company made repurchases under the stock repurchase program
of 858,628 shares for a total cost of $6.8 million.
Under the terms of the 2006 Stock Plan, the
Company acquired 10,040 shares and 7,294 shares that were surrendered by the holders to pay withholding taxes in 2016 and 2015,
respectively.
The Company paid a quarterly cash dividend
from August 2007 until August 2016, resulting in aggregate dividends in 2016, 2015 and 2014 of $2.5 million, $7.2 million
and $8.3 million, respectively.
The Company is authorized to issue 5,000,000
shares of preferred stock, par value $.001 per share. The Board of Directors is authorized to fix the particular preferences, rights,
qualifications and restrictions of each series of preferred stock. In connection with the adoption of a now terminated stockholder
rights plan, the Board of Directors designated 100,000 shares as Series A Junior Participating Preferred Stock. No shares of preferred
stock have been issued.
|
8.
|
Retirement-related
Benefits
|
Defined Contribution Plan
The Company maintains a combination profit-sharing
plan and salary deferral plan for the benefit of its employees-not covered by a collective bargaining
agreement. Employees who are eligible to participate in the plan can contribute a percentage of their base compensation, up to
the maximum percentage allowable not to exceed the limits of Internal Revenue Code (“Code”) Sections 401(k), 404, and
415, subject to the IRS-imposed dollar limit. Employee contributions are invested in certain equity and fixed-income securities,
based on employee elections. The Company matches 100% of the first 1% of the employee’s contribution. The Company’s
match for the years ended December 31, 2016, 2015 and 2014 was $0.2 million each year.
Defined Benefit Plan
The Company’s Vertex reporting unit has
a non-contributory defined benefit pension plan for those current and former employees at its Attleboro, Massachusetts location
who are subject to a collective bargaining agreement under the PFI Union. At this time there are fourteen active employees, fourteen
retired and eight terminated employees, covered by the plan.
The benefit provisions to participants of the defined benefit
plan are calculated based on the number of years of service and an annual negotiated plan benefit per year of service. Annual compensation
(or future compensation increases) is not used in calculating the benefit or future plan contributions.
It is the Company’s policy to fund amounts
for pensions sufficient to meet the minimum funding requirements set forth in applicable employee benefit laws, which currently
approximates the benefit payments made each year. A total contribution of approximately $6,000 was made subsequent to the acquisition.
The acquired projected benefit obligation on the date of the
acquisition was $1.0 million. At that time, the fair value of the plan assets was $0.9 million resulting in an acquired liability
of $0.1 million, which was recorded in accrued and other liabilities. The discount rate used to determine the projected benefit
obligation was 3.62%. During the fourth quarter of 2016, these balances did not materially change.
The Company’s investment policy is to
maximize the expected return for an acceptable level of risk. Our expected long-term rate of return on plan assets, which was 5%,
is based on a target allocation of assets, which is based on the goal of earning the highest rate of return while maintaining risk
at acceptable levels. As of December 31, 2016, the target asset allocations for the defined benefit plan were 67% equity
securities and 33% debt securities.
The fair value of the assets of the defined benefit plan as
of December 31, 2016 was $0.9 million, which consisted of $0.6 million of equity mutual funds and $0.3 million of fixed income
– corporate bonds. The plan assets are all classified as Level 1 and as such have readily observable prices and therefore
a reliable fair market value.
The Company expects to contribute approximately $0.1 million to the defined benefit plan in 2017 and expects
the annual benefit payments to be less than $0.3 million
per year.
On March 23, 2006, the Company adopted
and on May 1, 2007, the stockholders approved the 2006 Stock Plan (the “2006 Plan”) to provide incentives for certain
key employees and directors through awards of stock options and restricted stock awards and units. The 2006 Plan provides for incentives
to be granted at the fair market value of the Company’s common stock at the date of grant and options may be either nonqualified
stock options or incentive stock options as defined by Section 422 of the Code. Under the 2006 Plan a maximum of 1,800,000
shares may be granted to designated participants. No single participant may receive, in any calendar year, stock options with respect
to more than 500,000 shares or performance-based stock awards and units with respect to more than 150,000 shares.
Stock Option Awards
The Company has granted options to purchase
its common stock to employees and directors of the Company under the 2006 Plan at no less than the fair market value of the underlying
stock on the date of grant. These options are granted for a term not exceeding ten years and may be forfeited in the event the
employee or director terminates his or her employment or relationship with the Company. Options granted to employees generally
vest over three to five years, and options granted to directors generally vest one year after the date of grant. Shares issued
to satisfy the exercise of options may be newly issued shares or treasury shares. The plan contains anti-dilutive provisions that
permit an adjustment of the number of shares of the Company’s common stock represented by each option for any change in capitalization.
Compensation cost for options granted is charged to expense on a straight line basis over the term of the option.
The fair value of each option awarded is estimated
on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on historical volatility of the
Company’s stock and other factors. The expected life of options granted represents the period of time that options granted
are expected to be outstanding. The risk-free rate for periods within the life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant. There were no options granted in 2016 or 2015.
The remaining unvested option grant will vest
on December 31, 2017, with an expiration date of December 20, 2021. The following summarizes stock option activity and related
information:
|
|
2016
|
|
|
|
Options
(in 000’s)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|
Outstanding—Beginning of year
|
|
|
493
|
|
|
|
15.60
|
|
|
$
|
—
|
|
|
|
3.26
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(54
|
)
|
|
|
16.31
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(125
|
)
|
|
|
19.66
|
|
|
|
|
|
|
|
|
|
Outstanding—End of year
|
|
|
314
|
|
|
|
13.85
|
|
|
$
|
—
|
|
|
|
3.28
|
|
Exercisable—End of year
|
|
|
282
|
|
|
|
13.83
|
|
|
$
|
—
|
|
|
|
3.08
|
|
Weighted average fair value of options granted during 2016
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during 2015
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during 2014
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no excess tax benefit for the years
ended December 31, 2016 and 2015. During the years ended December 31, 2014, excess tax benefits of less than $0.1 million
was reflected in financing cash flows.
There were no options exercised in the
year ended December 31, 2016. The total intrinsic value of options exercised during the years ended December 31, 2015 and
2014 was less than $0.1 million in each year. There is no intrinsic value of options outstanding and exercisable as of December
31, 2016 as the closing stock price at the end of 2016 creates a negative intrinsic value.
The total grant-date fair value of
options vested during the years ended December 31, 2016, 2015 and 2014 was $0.3 million, $0.1 million and $0.2 million,
respectively.
Restricted Stock Awards and Restricted Stock Units
On November 4, 2016 and December 19, 2016,
the Company granted 30,000 and 22,388, respectively, voting shares of restricted stock to the Company’s President and CEO.
The shares granted in November vest on December 31, 2017, and the shares granted in December vest in one third increments on the
first, second and third anniversaries of the date of grant as long as the recipient is then employed by the Company. Any dividends
declared will be accrued and paid to the recipient when the related shares vest.
The Company also granted 49,250 voting shares
of restricted stock under the 2006 Plan to members of management on December 12, 2016. Of the 49,250 shares granted, 5,000 shares
vest in one third increments, on the first, second and third anniversaries of the date of grant and the remaining 44,250 shares
vest in one third increments, on the third, fourth and fifth anniversaries of the date of grant, in each case as long as the recipient
is then employed by the Company. Any dividends declared will be accrued and paid to the recipient if and when the related shares
vest.
On October 3, 2016, the Company granted 21,000
voting shares of restricted stock to new members of the management team, who joined the Company as part of the Vertex acquisition.
Of the 21,000 shares granted, 4,000 shares vest, on the third anniversary of the date of grant and the remaining 17,000 shares
vest in one third increments, on the third, fourth and fifth anniversaries of the date of grant in each case, as long as the recipient
is then employed by the Company. Any dividends declared will be accrued and paid to the recipient if and when the related shares
vest.
On August 4, 2016, the Company granted 7,000
shares of restricted stock to a new member of the management team. These shares vest in one third increments, on the third, fourth
and fifth anniversaries of the date of grant as long as the recipient is then employed by the Company. Any dividends declared will
be accrued and paid to the recipient if and when the related shares vest.
Following the Annual Meeting of Stockholders on May 3, 2016, the Company awarded restricted stock units
with a value of $50,000 to each non-employee director who was elected or re-elected, for an aggregate of 35,515 restricted stock
units. Each award of restricted stock units vests at the date of the 2017 Annual Meeting of Stockholders. Each non-employee director
is entitled to receive a number of shares of the Company's common stock equal to the number of vested restricted stock units, together
with dividend equivalents from the date of grant, at such time as the director’s service on the board terminates for any
reason.
Restricted common shares are measured at fair
value on the date of grant based on the quoted price of the common stock. Such value is recognized as compensation expense over
the corresponding vesting period which ranges from one to five years, based on the number of awards that vest.
The following summarizes restricted stock activity
for the year ended December 31, 2016:
|
|
2016
|
|
|
|
Awards
|
|
|
Units
|
|
|
|
Shares
(in 000’s)
|
|
|
Weighted
Average
Market
Value at
Grant Date
|
|
|
Shares
(in 000’s)
|
|
|
Weighted
Average
Market
Value at
Grant Date
|
|
Non-vested —Beginning of year
|
|
|
234
|
|
|
$
|
9.57
|
|
|
|
33
|
|
|
$
|
9.14
|
|
Granted
|
|
|
129
|
|
|
|
6.35
|
|
|
|
36
|
|
|
|
7.04
|
|
Vested
|
|
|
(36
|
)
|
|
|
10.86
|
|
|
|
(33
|
)
|
|
|
9.14
|
|
Cancelled/Forfeited
|
|
|
(17
|
)
|
|
|
9.50
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(11
|
)
|
|
|
13.23
|
|
|
|
—
|
|
|
|
—
|
|
Non-vested —End of year
|
|
|
299
|
|
|
$
|
7.88
|
|
|
|
36
|
|
|
$
|
7.04
|
|
Total stock-based compensation cost was $0.9
million for each of the years ended December 31, 2016, 2015 and 2014. Total income tax benefit recognized for stock-based
compensation arrangements was $0.3 million for each of the years ended December 31, 2016, 2015 and 2014.
As of December 31, 2016, there was $1.6 million
of total unrecognized compensation cost related to non-vested, share-based compensation arrangements. The cost is expected to be
recognized over a weighted average period of approximately 33 months. There were 807,326 shares available for future grants under
the 2006 Plan at December 31, 2016.
|
10.
|
Commitments
and Contingencies
|
The Company has entered into operating leases,
primarily for distribution centers and office facilities. These operating leases frequently include renewal options at the fair
rental value at the time of renewal. For leases with step rent provisions, whereby the rental payments increase incrementally over
the life of the lease, the Company recognizes the total minimum lease payments on a straight line basis over the minimum lease
term. Facility rent expense was approximately $2.6 million in 2016, $2.5 million in 2015 and $2.9 million in 2014.
Future minimum lease payments under non-cancelable
operating leases with initial terms of one year or more consisted of the following at December 31, 2016:
|
|
(In thousands)
|
|
2017
|
|
$
|
3,567
|
|
2018
|
|
|
2,821
|
|
2019
|
|
|
2,104
|
|
2020
|
|
|
1,536
|
|
2021
|
|
|
1,305
|
|
Thereafter
|
|
|
1,645
|
|
Total minimum lease payments
|
|
$
|
12,978
|
|
The Company had aggregate purchase commitments
for fixed inventory quantities of approximately $34.0 million at December 31, 2016.
As part of the acquisition of Southwest and
Southern 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 $0.1 million at December 31, 2016 relates to the cost of the monitoring, which
the Company estimates will be incurred in the next year 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 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.
On January 30, 2017, the Board of Directors
granted to the Company’s President and CEO 60,000 voting shares of restricted stock and performance stock units with respect
to an additional 40,000 shares of common stock. Of the 60,000 shares of restricted stock, 20,000 shares vest on December 19, 2017
and 40,000 vest in one-third increments on January 30, 2018, December 31, 2018 and December 31, 2019, the first, second and third
anniversaries of the date of grant, in each case as long as Mr. Pokluda is then employed by the Company. The performance stock
units vest on December 31, 2019 based on and subject to the Company’s achievement of cumulative EBITDA and stock price performance
goals over a three-year period, as long as Mr. Pokluda is then employed by the Company, and upon vesting will be settled in shares
of our common stock. Any dividends declared will be accrued and paid to Mr. Pokluda if and when the related shares vest.
|
12.
|
Select
Quarterly Financial Data (unaudited)
|
The following table presents the Company’s
unaudited quarterly results of operations for each of the last eight quarters in the period ended December 31, 2016. The unaudited
information has been prepared on the same basis as the audited consolidated financial statements.
|
|
Year Ended December 31, 2016
|
|
|
|
Fourth
Quarter
|
|
|
Third
Quarter
|
|
|
Second
Quarter
|
|
|
First
Quarter
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
69,257
|
|
|
$
|
65,222
|
|
|
$
|
62,454
|
|
|
$
|
64,711
|
|
Gross profit
|
|
$
|
15,076
|
|
|
$
|
12,045
|
|
|
$
|
12,430
|
|
|
$
|
13,399
|
|
Operating income (loss)
|
|
$
|
(1,630
|
)
(1)
|
|
$
|
(1,804
|
)
|
|
$
|
(3,062
|
)
(2)
|
|
$
|
(39
|
)
|
Net income (loss)
|
|
$
|
(1,826
|
)
(1)
|
|
$
|
(1,439
|
)
|
|
$
|
(2,557
|
)
(2)
|
|
$
|
(184
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
(1)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.16
|
)
(2)
|
|
$
|
(0.01
|
)
|
Diluted
|
|
$
|
(0.11
|
)
(1)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.16
|
)
(2)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
Fourth
Quarter
|
|
|
Third
Quarter
|
|
|
Second
Quarter
|
|
|
First
Quarter
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
70,314
|
|
|
$
|
78,260
|
|
|
$
|
77,959
|
|
|
$
|
81,600
|
|
Gross profit
|
|
$
|
15,120
|
|
|
$
|
16,131
|
|
|
$
|
16,935
|
|
|
$
|
17,724
|
|
Operating income (loss)
|
|
$
|
743
|
(3)
|
|
$
|
1,783
|
|
|
$
|
(234
|
)
(4)
|
|
$
|
3,726
|
|
Net income (loss)
|
|
$
|
(199
|
)
(3)
|
|
$
|
676
|
|
|
$
|
(619
|
)
(4)
|
|
$
|
2,186
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
(3)
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
(4)
|
|
$
|
0.13
|
|
Diluted
|
|
$
|
(0.01
|
)
(3)
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
(4)
|
|
$
|
0.13
|
|
|
(1)
|
During the fourth quarter of 2016, the Company recorded a charge of $483 of additional cost of sales expense that
related to the first three quarters of 2016 and was immaterial to each quarter.
|
|
(2)
|
During
the second quarter of 2016, the Company recorded a non-cash impairment charge of $2,384. See Note 4 for additional information.
|
|
(3)
|
During
the fourth quarter of 2015, the Company recorded a non-cash impairment charge of $423. See Note 4 for additional information.
|
|
(4)
|
During
the second quarter of 2015, the Company recorded a non-cash impairment charge of $2,994. See Note 4 for additional information.
|