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, provides industrial products to the U.S. market
through twenty-one locations in fourteen states throughout the United States. The Company has no other business activity.
Basis of Presentation and Principles of Consolidation
The consolidated financial
statements include the accounts of the Company and its subsidiaries and have been prepared 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 refund liability, the inventory obsolescence reserve, vendor rebates, the realization of deferred tax
assets and the valuation of goodwill and indefinite-lived assets. Actual results could differ materially from the estimates and
assumptions used for the preparation of the financial statements.
Reclassifications
Certain prior period
amounts have been reclassified to conform to the current period presentation
.
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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for basic earnings per share
|
|
|
16,389,876
|
|
|
|
16,269,611
|
|
|
|
16,345,679
|
|
Effect of dilutive securities
|
|
|
133,723
|
|
|
|
—
|
|
|
|
—
|
|
Denominator for diluted earnings per share
|
|
|
16,523,599
|
|
|
|
16,269,611
|
|
|
|
16,345,679
|
|
Stock awards to purchase
298,406, 808,391 and 685,054 shares of common stock were not included in the diluted net income (loss) per share calculation for
2018, 2017 and 2016, respectively, as their inclusion would have been anti-dilutive. In 2017 and for the first quarter of 2018,
the Company calculated earnings per share using the “two-class” method, whereby unvested share-based payment awards
that contained non-forfeitable rights to dividends or dividend equivalents were considered “participating securities”,
as discussed in Note 8, and therefore, these participating securities were treated as a separate class in computing earnings per
share.
Accounts Receivable
Accounts receivable consists primarily of receivables from customers, less an allowance for doubtful accounts
of $0.2 million at December 31, 2018 and 2017, and a reserve for returns and allowances of $0.4 million at December 31, 2017.
In 2018, the reserve for returns and allowances has been reclassified to accrued liabilities as a refund liability as a result
of the adoption of the new revenue recognition standard. 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:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Balance at beginning of year
|
|
$
|
172
|
|
|
$
|
151
|
|
|
$
|
132
|
|
Bad debt expense
|
|
|
73
|
|
|
|
68
|
|
|
|
285
|
|
Write-offs, net of recoveries
|
|
|
(63
|
)
|
|
|
(47
|
)
|
|
|
(266
|
)
|
Balance at end of year
|
|
$
|
182
|
|
|
$
|
172
|
|
|
$
|
151
|
|
Inventories
Inventories are carried
at the lower of cost, using the average cost method, and net realizable value and consist primarily of goods purchased for resale,
less a reserve for obsolescence and unusable items and unamortized vendor rebates. The reserve for inventory is based upon a number
of factors, including the experience of the purchasing and sales departments, age of the inventory, new product offerings, and
other factors. The reserve for inventory may periodically require adjustment as the factors identified above change.
The following table summarizes the changes
in the inventory reserves for the past three years:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Balance at beginning of year
|
|
$
|
3,925
|
|
|
$
|
4,366
|
|
|
$
|
4,829
|
|
Provision for inventory write-downs
|
|
|
615
|
|
|
|
34
|
|
|
|
93
|
|
Deduction for inventory write-offs
|
|
|
(831
|
)
|
|
|
(475
|
)
|
|
|
(556
|
)
|
Balance at end of year
|
|
$
|
3,709
|
|
|
$
|
3,925
|
|
|
$
|
4,366
|
|
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 $1.4 million for the each of the years ended December 31, 2018 and 2017, and $1.3 million for the year
ended December 31, 2016.
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, 2018, the goodwill balance was $22.4 million,
representing 11.0% of the Company’s total assets.
The Company conducts
impairment testing for goodwill annually in the fourth quarter of its fiscal year and more frequently, on an interim basis, when
an event occurs or circumstances change that indicate that the fair value of a reporting unit may have declined below its carrying
value. Events or circumstances which could indicate a probable impairment include, but are not limited to, financial performance,
industry and market conditions, macroeconomic conditions, reporting unit-specific events, historical results of goodwill impairment
testing and the timing of the last performance of a quantitative assessment.
The
Company tests goodwill at the reporting unit level, which is defined as an operating segment or one level below an operating segment
that constitutes a business for which financial information is available and is regularly reviewed by management. The Company
determined that it has four reporting units for this purpose. Before testing goodwill, the Company considers whether or not to
first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it
is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount and whether an impairment test
is required. If as a result of the qualitative assessment, the Company determines that an impairment test is required, or alternatively,
if the Company elects to forego the qualitative assessment, the Company records an impairment to goodwill to the extent the carrying
amount of the reporting unit, including goodwill, exceeds the fair value of the reporting unit.
Intangibles
Intangible assets,
from the acquisition of Southwest and Southern in 2010 and the 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 reportable segment, sales of industrial products, including electrical and mechanical wire and cable,
industrial fasteners, hardware and related services to the U.S. market. The Company’s chief operating decision maker (“CODM”)
is its Chief Executive Officer. The CODM makes operational and resource decisions based on company-wide sales and margin performance
compared to the established strategic goals of the Company.
Revenue Recognition, Returns & Allowances
The Company’s
primary source of revenue is the sale of industrial products based upon purchase orders or contracts with customers. Revenue is
recognized at a point in time once the Company has determined that the customer has obtained control over the product. Control
is typically deemed to have been transferred to the customer when the product is shipped, or delivered (either by customer pickup
or through common carrier). It is not normal Company practice to grant extended payment terms. Revenue is recognized net of any
sales taxes collected, which are subsequently remitted to the appropriate taxing authorities. The Company treats its transportation
costs (shipping and handling) as fulfillment costs and not as a separate performance obligation. These transportation costs are
recorded in cost of sales.
The amount of revenue
recognized reflects the consideration the Company expects to be entitled to receive in exchange for products sold. Revenue is recorded
at the transaction price net of estimates of variable consideration, which may include product returns, trade discounts and allowances.
The Company accrues for variable consideration using the expected value method. Estimates of variable consideration are included
in revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not
occur.
Customers are permitted
to return product only on a case-by-case basis. Product exchanges are handled as a credit, with any replacement item being re-invoiced
to the customer. Customer returns are recorded as an adjustment to sales. As a result of the adoption of the new revenue recognition standard, the reserve for returns and allowances has been reclassified
from a contra-accounts receivable account to a liability account. 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 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 2018, 2017 or 2016. 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 $0.5 million for each of the years ended December 31, 2018 and 2017 and $0.4
million for the year ended December 31, 2016.
Financial Instruments
The carrying values
of accounts receivable, trade accounts payable and accrued and other current liabilities approximate fair value, due to the short
maturity of these instruments.
Stock-Based Compensation
Restricted stock awards, units and cash
awards are valued at the closing price of the Company’s stock on the grant date and are granted under the Company’s
2017 Stock Plan. Stock options issued under the Company’s now-expired 2006 Stock Plan had an exercise price equal to the
fair value of the Company’s stock on the grant date. The Company recognizes compensation expense ratably over the vesting
period. The Company’s stock-based compensation expense is included in salaries and commissions expense for employees and
in other operating expenses for non-employee directors in the accompanying consolidated statements of operations.
The Company receives a tax deduction for
certain stock option exercises in the period in which the options are exercised, generally for the excess of the market price on
the date of exercise over the exercise price of the options. The Company reports excess tax 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. A valuation allowance for deferred tax assets is recognized when it is more likely
than not that some or all of the benefit from the deferred tax assets will not be realized. To assess that likelihood, the Company
uses its current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities,
and tax planning strategies to determine whether a valuation allowance is required.
Recently Adopted Accounting Standards
The Financial Accounting
Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) is the sole source of authoritative
GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standard Update
(“ASU”) to communicate changes to the codification. The Company considers the applicability and impact of all ASUs.
The following are those recent ASUs that were recently adopted by the Company.
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 amendments in the ASU were effective for
annual and interim periods beginning after December 15, 2017. The Company adopted this ASU effective January 1, 2018, using the
modified retrospective method, and adoption did not have a material impact on the Company’s consolidated financial statements.
See above for the Company’s updated revenue recognition policy.
In May 2017, the FASB issued ASU No. 2017-09,
“Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in this update provide
guidance about which changes to the terms and conditions of a share-based payment award require the application of modification
accounting. This update was effective for public companies for annual periods beginning after December 15, 2017. The Company adopted
this ASU in the first quarter of 2018 and the adoption did not have a material impact on the Company’s consolidated financial
statements.
In March 2017, the FASB issued ASU No.
2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Postretirement Benefit Cost.” The new guidance requires that an employer disaggregate the service cost component
from the other components of net benefit cost. This update was effective for public companies for annual periods beginning after
December 15, 2017. The Company adopted this ASU in the first quarter of 2018 and the adoption did not have a material impact on
the Company’s consolidated financial statements.
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 amends prior guidance and simplifies the accounting for goodwill impairment for all entities by requiring impairment
charges to be based on the first step in the two-step impairment test under ASC 350. ASU No. 2017-04 is effective for annual and
interim impairment tests 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 elected to early adopt this ASU in the first quarter of 2018
and the adoption did not have a material impact on the Company’s consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05,
“Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update).”
This ASU added the SEC guidance released on December 22, 2017 regarding the income tax accounting implication of the Tax Cuts and
Jobs Act to ASC Topic 740. At December 31, 2018, the Company has not made a material adjustment to the tax provision recorded under
this ASU at December 31, 2017. The Company has completed its accounting for all of the tax effects of the Tax Cuts and Jobs Act.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13,
“Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”
The amendments in this update eliminate, add and modify certain disclosure requirements for fair value measurements as part of
its disclosure framework project. The guidance is effective for public companies beginning in the first quarter of 2020 and early
adoption is permitted. The Company is currently assessing the impact of this ASU on its consolidated financial statements and evaluating
the timing of adoption.
In August 2018, the FASB issued ASU 2018-14,
“Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.” The amendments in
this update eliminate, add and modify certain disclosure requirements for defined benefit pension plans. The guidance is effective
for public companies beginning in the first quarter of 2020 and early adoption is permitted. The Company is currently assessing
the impact of this ASU on its consolidated financial statements and evaluating the timing of adoption.
In August 2018, the FASB issued ASU 2018-15,
“Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40); Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The amendments in this update
require implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized
under the same premises of authoritative guidance for internal-use software, and deferred over the non-cancellable term of the
cloud computing arrangement plus any option renewal periods that are reasonably certain to be exercised by the customer or for
which the exercise is controlled by the service provider. The guidance is effective for public companies beginning in the first
quarter of 2020 and early adoption is permitted. The Company is currently assessing the impact of this ASU on its consolidated
financial statements and evaluating the timing of adoption.
In June 2018, the FASB issued ASU No. 2018-07,
“Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” that
simplifies the accounting for share-based payment arrangements with nonemployees for goods and services. Under the ASU, the guidance
on such payments to nonemployees is aligned with the accounting for share-based payments granted to employees, including the measurement
of equity-classified awards, which is fixed at the grant date under the new guidance. The ASU supersedes Subtopic 505-50, Equity
- Equity-Based Payments to Non-Employees and is effective for public entities for interim and annual reporting periods beginning
after December 15, 2018. The Company is assessing ASU 2018-07 and does not expect it to have a material impact on its accounting
and disclosures.
In February 2016, the FASB issued ASU No.
2016-02, “Leases (Topic 842).” Under the new guidance, a lessee will be required to recognize a right-to-use asset
and a lease liability 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. In August 2018, the FASB amended the ASU with
an additional (and optional) transition method to adopt the new leases standard. Under the new transition method, an entity initially
applies the new leases standard at the adoption date and recognizes a cumulative effect adjustment to the opening balance of retained
earnings in the period of adoption and the comparative periods presented in the financial statements continue to be in accordance
with current GAAP. The Company will elect to use the package of practical expedients available under this amendment and will not
elect the use of hindsight during transition. The Company has identified its leases or other contracts impacted by the new standard
and is currently in the process of (i) finalizing the implementation of a software solution to account for leases under the new
standard and (ii) updating its business processes and related policies, systems and controls to support recognition and disclosure
under the new standard. The Company is still evaluating the impact that adopting this guidance will have on its consolidated financial
statements.
2.
|
Detail of Selected Balance Sheet Accounts
|
Property and Equipment
Property and equipment are stated at cost and consist
of:
|
|
At December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Land
|
|
$
|
2,476
|
|
|
$
|
2,476
|
|
Buildings
|
|
|
8,501
|
|
|
|
8,207
|
|
Machinery and equipment
|
|
|
14,867
|
|
|
|
14,165
|
|
|
|
|
25,844
|
|
|
|
24,848
|
|
Less accumulated depreciation
|
|
|
14,388
|
|
|
|
13,493
|
|
Total
|
|
$
|
11,456
|
|
|
$
|
11,355
|
|
Intangible assets
Intangible assets consist of:
|
|
At December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Tradenames
|
|
$
|
5,936
|
|
|
$
|
5,996
|
|
Customer relationships
|
|
|
18,620
|
|
|
|
18,620
|
|
|
|
|
24,556
|
|
|
|
24,616
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
|
|
Tradenames
|
|
|
—
|
|
|
|
—
|
|
Customer relationships
|
|
|
13,377
|
|
|
|
12,601
|
|
|
|
|
13,377
|
|
|
|
12,601
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,179
|
|
|
$
|
12,015
|
|
Intangible assets include customer relationships
which are being amortized over 6 to 9 year useful lives. Tradenames have an indefinite life and are not amortized; however, they are tested annually for impairment. As of December
31, 2018, accumulated amortization on the acquired intangible assets was $13.4 million, and amortization expense was $0.8 million
in the year ended December 31, 2018, $1.4 million in the year ended December 31, 2017 and $1.7 million in the year ended December
31, 2016. Future amortization expense to be recognized on the acquired intangible assets is expected to be as follows:
|
|
Annual
Amortization
Expense
|
|
|
|
(In thousands)
|
|
2019
|
|
$
|
777
|
|
2020
|
|
|
777
|
|
2021
|
|
|
777
|
|
2022
|
|
|
777
|
|
2023
|
|
|
777
|
|
2024
|
|
|
777
|
|
2025
|
|
|
583
|
|
Goodwill
|
|
At December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Balance at beginning of year
|
|
$
|
22,353
|
|
|
$
|
22,770
|
|
Less purchase price adjustment
|
|
|
—
|
|
|
|
417
|
|
Balance at end of year
(1)
|
|
$
|
22,353
|
|
|
$
|
22,353
|
|
(1) The balance is net of $12.6
million of accumulated impairment losses.
Accrued and Other Current Liabilities
Accrued and other current liabilities consist of:
|
|
At December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Customer rebates
|
|
$
|
6,163
|
|
|
$
|
5,648
|
|
Payroll, commissions, and bonuses
|
|
|
3,047
|
|
|
|
3,056
|
|
Accrued inventory purchases
|
|
|
5,140
|
|
|
|
4,796
|
|
Property taxes
|
|
|
1,041
|
|
|
|
943
|
|
Freight
|
|
|
689
|
|
|
|
318
|
|
Refund liability
|
|
|
435
|
|
|
|
—
|
|
Professional fees
|
|
|
415
|
|
|
|
448
|
|
Accrued interest
|
|
|
259
|
|
|
|
206
|
|
Other
|
|
|
2,043
|
|
|
|
1,408
|
|
Total
|
|
$
|
19,232
|
|
|
$
|
16,823
|
|
|
3.
|
Impairment of Goodwill and Intangible Assets
|
The
annual goodwill and indefinite-lived intangibles impairment test was performed as of October 1, 2018 for the Southern,
Southwest and Vertex reporting units. This quantitative test indicated that goodwill was not impaired.
The
fair values of the reporting units were estimated using a discounted cash flow model (income approach) and a guideline
public company method (market approach), giving 50% weight to each. The material assumptions used included cash flows based
on future expected performance for the reporting units, weighted average costs of capital ranging from 11.5% to 15%, a
long-term growth rate of 3% for the income approach and a control premium of 25.0% for the guideline public company method.
The results of the test indicated that certain of the tradenames at Southwest were impaired. Accordingly, a charge of less
than $0.1 million was recorded for 2018.
During the second quarter of 2016 and prior to the annual impairment test of goodwill in October 2016, 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. There were no
such impairment indicators for the Southern Wire 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 measured the goodwill 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 calculated 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 was 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.
The Company is still
anticipating significant growth in the businesses acquired in 2010 and in 2016. If this projected growth is not achieved and or
there are future reductions in our market capitalization or market multiples, further goodwill and intangible assets impairments
may result.
HWC Wire & Cable
Company, the Company, Vertex, and Bank of America, N.A., as agent and lender, are parties to the Fourth Amended and Restated Loan
and Security Agreement dated as of October 3, 2016 (the “Loan Agreement”). The 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 Loan Agreement is limited to a borrowing base equal to 85% of the value of eligible accounts receivable, plus the lesser of
70% of the value of eligible inventory or 90% of the net orderly liquidation value percentage of the value of eligible inventory,
in each case less certain reserves. The Loan Agreement is secured by substantially all of the property of the Company, other than
real estate.
The Loan Agreement
includes, among other things, covenants that require the Company to maintain a specified minimum fixed charge coverage ratio, unless
certain availability levels exist. Additionally, the Loan Agreement allows for the unlimited payment of dividends and repurchases
of stock, subject to the absence of events of default and maintenance of a fixed charge coverage ratio and minimum level of availability.
The Loan Agreement contains certain provisions that may cause the debt to be classified as a current liability, in accordance with
GAAP, if availability falls below certain thresholds, even though the ultimate maturity date under the loan agreement remains as
September 30, 2020. At December 31, 2018, 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 fair value is a Level 2 measurement as defined
in ASC Topic 820, “Fair Value Measurement.”
The Company’s
borrowings at December 31, 2018 and 2017 were $71.3 million and $73.6 million, respectively. The weighted average interest rates
on outstanding borrowings were 4.1% and 3.2% at December 31, 2018 and 2017, respectively.
During 2018, the Company
had an average available borrowing capacity of approximately $24.0 million. This average was computed from the monthly borrowing
base certificates prepared for the lender. At December 31, 2018, the Company had available borrowing capacity of $28.7 million
under the terms of the Loan Agreement. The Company paid $0.1 million for each of the years ended December 31, 2018 and 2017 and
$0.2 million for the year ended December 31, 2016, for the unused facility.
Principal repayment
obligations for succeeding fiscal years are as follows:
|
|
(In thousands)
|
|
2019
|
|
$
|
—
|
|
2020
|
|
|
71,316
|
|
Total
|
|
$
|
71,316
|
|
On December 22, 2017, the United States enacted significant changes to the U.S. tax law following the passage
and signing of H.R.1, “An Act to Provide the Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the
Budget for Fiscal Year 2018” (previously known as “The Tax Cuts and Jobs Act”). In March 2018, the FASB issued
ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC
Update).” This ASU added the SEC guidance released on December 22, 2017 regarding the income tax accounting implication of
the Tax Cuts and Jobs Act to ASC Topic 740. During 2017, the Company recorded income tax expense of $0.3 million to reflect the
reduction in the U.S. corporate income tax rate from 35% to 21%. As of December 31, 2018, the Company completed its analysis
of its accounting for the income tax effects of tax reform and as a result no additional adjustments were recorded.
The provision (benefit) for income taxes
consists of:
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
3,041
|
|
|
$
|
1,280
|
|
|
$
|
(1,285
|
)
|
State
|
|
|
658
|
|
|
|
159
|
|
|
|
(95
|
)
|
Total current
|
|
|
3,699
|
|
|
|
1,439
|
|
|
|
(1,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,246
|
)
|
|
|
1,259
|
|
|
|
13
|
|
State
|
|
|
(98
|
)
|
|
|
55
|
|
|
|
(7
|
)
|
Total deferred
|
|
|
(1,344
|
)
|
|
|
1,314
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,355
|
|
|
$
|
2,753
|
|
|
$
|
(1,374
|
)
|
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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
|
21.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
|
4.3
|
|
|
|
4.2
|
|
|
|
1.7
|
|
Impairment, non-deductible portion
|
|
|
0.1
|
|
|
|
—
|
|
|
|
(6.6
|
)
|
Share-based compensation
|
|
|
1.2
|
|
|
|
15.2
|
|
|
|
(9.0
|
)
|
Non-deductible items
|
|
|
2.1
|
|
|
|
4.6
|
|
|
|
(3.9
|
)
|
Valuation allowance
|
|
|
(9.5
|
)
|
|
|
41.0
|
|
|
|
—
|
|
Tax reform rate change
|
|
|
—
|
|
|
|
12.9
|
|
|
|
—
|
|
Other
|
|
|
2.2
|
|
|
|
(4.1
|
)
|
|
|
1.4
|
|
Total effective tax rate
|
|
|
21.4
|
%
|
|
|
108.8
|
%
|
|
|
18.6
|
%
|
The share-based compensation 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.
Significant components of the Company’s
deferred taxes were as follows:
|
|
Year Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Uniform capitalization adjustment
|
|
$
|
1,469
|
|
|
$
|
1,272
|
|
Inventory valuation
|
|
|
1,179
|
|
|
|
1,334
|
|
Accounts receivable allowance
|
|
|
45
|
|
|
|
51
|
|
Stock compensation expense
|
|
|
681
|
|
|
|
725
|
|
Property and equipment
|
|
|
31
|
|
|
|
62
|
|
Other
|
|
|
548
|
|
|
|
134
|
|
Total deferred tax assets
|
|
|
3,953
|
|
|
|
3,578
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
649
|
|
|
|
460
|
|
Intangibles
|
|
|
2,315
|
|
|
|
2,385
|
|
Other
|
|
|
59
|
|
|
|
109
|
|
Total deferred tax liabilities
|
|
|
3,023
|
|
|
|
2,954
|
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
—
|
|
|
|
1,038
|
|
Net deferred tax assets/(liabilities)
|
|
$
|
930
|
|
|
$
|
(414
|
)
|
A valuation allowance
for deferred tax assets is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets
will not be realized. To assess that likelihood, the Company uses its current financial position, results of operations, both actual
and forecasted, the reversal of deferred tax liabilities, and tax planning strategies, to determine whether a valuation allowance
is required. The result of the Company’s assessment is that it is more likely than not that the Company will generate sufficient
taxable income to utilize the deferred tax assets. Therefore, the Company no longer requires a valuation allowance.
The Company does not
have any unrecognized tax benefits recorded at December 2018, 2017 and 2016. 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, 2018, 2017 and 2016,
the Company recorded no provision for interest or penalties related to uncertain tax positions. The tax years 2014 through 2018
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.
Under the terms of
the 2017 Stock Plan, the Company acquired 25,368 shares that were surrendered by the holders to pay withholding taxes in 2018.
Under the terms of the 2006 Stock Plan, the Company acquired 27,156 shares that were surrendered by the holders to pay withholding
taxes in 2017.
The Company paid a
quarterly cash dividend from August 2007 until August 2016, resulting in aggregate dividends in 2016 of $2.5 million.
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.
|
7.
|
Retirement-related Benefits
|
Defined Contribution Plan
The Company maintains
a combination profit-sharing plan and salary deferral plan for the benefit of its employees who are not covered by a collective
bargaining agreement. Employees who are eligible to participate in the plan can contribute a percentage of their base compensation,
up to the maximum percentage allowable not to exceed the limits of Internal Revenue Code Sections 401(k), 404, and 415, subject
to the IRS-imposed dollar limit. Employee contributions are invested in certain equity and fixed-income securities, based on employee
elections. The Company matches 100% of the first 1% of the employee’s contribution. The Company’s match for the years
ended December 31, 2018, 2017 and 2016 was $0.2 million for each year.
Defined Benefit Plan
The Company has a non-contributory
defined benefit pension plan for those current and former employees of Vertex who are subject to a collective bargaining agreement.
Currently, there are fifteen active employees, sixteen retired and six 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 approximate the benefit payments made each year. A
total contribution of less than $0.1 million was made during each of the years ended December 31, 2018, 2017 and 2016.
The current projected
benefit obligation was $1.1 million and $1.0 million as of December 31, 2018 and 2017, respectively. The discount rate used to
determine the projected benefit obligation was 4.18% and 3.77% in 2018 and 2017, respectively.
The Company’s
investment policy is to maximize the expected return for an acceptable level of risk. The expected long-term rate of return on
plan assets, which was 5%, is based on a target allocation of assets with the goal of earning the highest rate of return while
maintaining risk at acceptable levels. The target asset allocations for the defined benefit plan were 68% and 69% equity securities
and 32% and 31% debt securities as of December 31, 2018 and 2017, respectively.
The fair value of
the assets of the defined benefit plan were as follows:
|
|
At December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Equity mutual funds
|
|
$
|
701
|
|
|
$
|
740
|
|
Fixed income – corporate bonds
|
|
|
326
|
|
|
|
326
|
|
Total fair value of assets
|
|
$
|
1,027
|
|
|
$
|
1,066
|
|
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 2019 and expects the annual benefit payments to be approximately
$0.1 million per year.
On August 4, 2017,
the Board of Directors approved the Houston Wire & Cable Company 2017 Stock Plan (the “2017 Plan”). The
2017 Plan was approved by the stockholders at the 2018 Annual Meeting on May 8, 2018. The 2017 Plan provides for discretionary
grants of stock options, stock awards, stock units and stock appreciation rights (SARs) to employees and directors up to a total
of 1,000,000 shares. Shares issuable under the 2017 Plan may be authorized but unissued shares or treasury shares. If any award
granted under the 2017 Plan expires, terminates or is forfeited or cancelled for any reason, the shares subject to the award will
again be available for issuance. Any shares subject to an award that are delivered to the Company or withheld by the Company on
behalf of a participant as payment for the award (including the exercise price of a stock option or SAR) or as payment for any
withholding taxes due in connection with the award, or that are purchased by the Company with proceeds received from a stock option
exercise, will not again be available for issuance. The 2017 Plan’s purpose is to attract and retain outstanding individuals
as employees and directors of the Company and its subsidiaries and to provide them with additional incentive to expand and improve
the Company’s profits by giving them the opportunity to acquire or increase their proprietary interest in the Company.
The 2017 Plan succeeded the Company’s
2006 Stock Plan (the “2006 Plan”), which expired on May 1, 2017. The types of equity awards previously authorized under
the 2006 Plan did not significantly differ from those permitted under the 2017 Plan.
Stock Option Awards
The Company 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 2018, 2017 or 2016.
All granted stock options have vested,
with the last grant having an expiration date of December 20, 2021. The following summarizes stock option activity and related
information:
|
|
2018
|
|
|
|
Options
(in 000’s)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|
Outstanding-Beginning of year
|
|
|
223
|
|
|
$
|
13.10
|
|
|
$
|
—
|
|
|
|
2.84
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(30
|
)
|
|
|
11.17
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(39
|
)
|
|
|
13.42
|
|
|
|
|
|
|
|
|
|
Outstanding-End of year
|
|
|
154
|
|
|
|
13.40
|
|
|
$
|
—
|
|
|
|
2.52
|
|
Exercisable-End of year
|
|
|
154
|
|
|
|
13.40
|
|
|
$
|
—
|
|
|
|
2.52
|
|
There was no excess tax benefit for the
years ended December 31, 2018, 2017 and 2016.
There were no options
exercised in the years ended December 31, 2018, 2017 and 2016. There is no intrinsic value of options outstanding and exercisable
as of December 31, 2018 as the closing stock price at the end of 2018 creates a negative intrinsic value.
The total grant-date
fair value of options vested during 2018 was $0, as all the options vested as of December 31, 2017. The total grant-date fair
value of options vested during the years ended December 31, 2017 and 2016 was $0.2 million and $0.3 million, respectively.
Restricted Stock Awards, Restricted Stock Units and Cash
Awards
As a result of the
approval of the 2017 Plan by the stockholders at the 2018 Annual Meeting, all cash/liability awards granted prior to stockholder
approval of the 2017 Plan were reclassified to restricted stock units (equity) effective May 8, 2018. The total liability reclassified
to additional paid-in-capital was $0.4 million. This modification resulted in an increase in total fair value of $0.1 million,
recognized over the terms of the grants, which range from 1 to 5 years.
On December 4, 2018,
the Board of Directors granted to the Company’s President and CEO 48,387 voting shares of restricted stock and to the CFO,
12,097 voting shares of restricted stock under the 2017 Plan. The shares vest in one-third increments on the first, second and
third anniversaries of the date of grant, in each case as long as the recipient is then employed by the Company. Any dividends
declared will be accrued and paid if and when the related shares or units vest.
The Board of Directors
also granted 44,357 voting shares of restricted stock under the 2017 Plan to members of management on December 4, 2018. The shares
vest in one-third increments on the third, fourth and fifth anniversaries of the date of grant, in each case as long as the recipient
is then employed by the Company. Any dividends declared will be accrued and paid if and when the related shares or units vest.
On November 6, 2018
and June 1, 2018, the Company awarded restricted stock units with a grant date value of $30,000 and $55,000 for a total of 4,950
and 6,667 restricted stock units, respectively, to its newly appointed non-employee directors. These awards of restricted stock
units vest at the date of the 2019 Annual Meeting of Stockholders. Each grant entitles the non-employee director to receive a number
of shares of the Company’s common stock equal to the number of vested restricted stock units, together with dividend equivalents
from the date of grant, at such time as the director’s service on the board terminates for any reason.
Following the Annual
Meeting of Stockholders on May 8, 2018, the Company approved the award of restricted stock units with a grant date value of $60,000
to each non-employee director who was re-elected, for an aggregate of 31,372 restricted stock units. Each award of restricted stock
units vests at the date of the 2019 Annual Meeting of Stockholders. Each non-employee director is entitled to receive a number
of shares of the Company’s common stock equal to the number of vested restricted stock units, together with dividend equivalents
from the date of grant, at such time as the director’s service on the board terminates for any reason.
Also on May 8, 2018,
the Company granted 28,144 voting shares of restricted stock to new members of the management team. Of the 28,144 shares granted,
26,144 shares vest in one third increments on the first, second and third anniversaries of the date of grant and the remaining
2,000 shares vest in one third increments on the third, fourth and fifth anniversaries of the date of grant, in each case as long
as the recipient is then employed by the Company. Any dividends declared will be accrued and paid if and when the related shares
vest.
Restricted common
shares and restricted stock units are measured at fair value on the date of grant based on the quoted price of the common stock.
Such value is recognized as compensation expense over the corresponding vesting period which ranges from one to five years, based
on the number of awards that vest.
The following summarizes restricted stock
activity for the year ended December 31, 2018:
|
|
2018
|
|
|
|
Shares
|
|
|
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
|
|
|
238
|
|
|
$
|
7.33
|
|
|
|
40
|
|
|
$
|
7.50
|
|
Granted
|
|
|
133
|
|
|
|
6.51
|
|
|
|
43
|
|
|
|
7.47
|
|
Vested
|
|
|
(99
|
)
|
|
|
7.61
|
|
|
|
(60
|
)
|
|
|
7.65
|
|
Cancelled/Forfeited
|
|
|
(13
|
)
|
|
|
7.63
|
|
|
|
(5
|
)
|
|
|
7.65
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cash awards converted to equity
|
|
|
—
|
|
|
|
—
|
|
|
|
197
|
|
|
|
7.65
|
|
Non-vested -End of year
|
|
|
259
|
|
|
$
|
6.78
|
|
|
|
215
|
|
|
$
|
7.59
|
|
Total stock-based
compensation cost was $1.3 million for the year ended December 31, 2018, $1.2 million for the year ended December 31, 2017, of
which $1.0 million was for equity awards and $0.2 million was for liability awards, and $0.9 million for the year ended December 31,
2016. Total income tax benefit recognized for equity awards stock-based compensation arrangements was $0.2 million for each of
the years ended December 31, 2018 and 2017 and $0.3 million for the year ended December 31, 2016.
As of December 31,
2018, there was $2.0 million of total unrecognized compensation cost related to non-vested, stock-based compensation arrangements.
The cost is expected to be recognized over a weighted average period of approximately 29 months. There are 627,283 shares available
for future grants under the 2017 Plan at December 31, 2018.
|
9.
|
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 $3.7 million in 2018, $3.5 million in 2017 and $2.6 million in
2016.
Future minimum lease payments under non-cancelable
operating leases with initial terms of one year or more consisted of the following at December 31, 2018:
|
|
(In thousands)
|
|
2019
|
|
$
|
3,868
|
|
2020
|
|
|
3,026
|
|
2021
|
|
|
2,698
|
|
2022
|
|
|
2,550
|
|
2023
|
|
|
1,410
|
|
Thereafter
|
|
|
1,575
|
|
Total minimum lease payments
|
|
$
|
15,127
|
|
The Company had aggregate purchase commitments
for fixed inventory quantities of approximately $54.5 million at December 31, 2018.
As a result of unfavorable
lease terms relative to market for one of the leases acquired as part of the Vertex acquisition in 2016, there is a remaining additional
liability of $0.2 million that is being amortized over the remaining term of the lease, which was 54 months at December 31, 2018.
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 March 12, 2019, the Company, as
guarantor, HWC Wire & Cable Company and Vertex, as borrowers, and Bank of America, N.A., as lender and agent entered into
a Second Amendment to Fourth Amended and Restated Loan and Security Agreement, extending the expiration date of the Company’s
$100 million revolving credit facility until March 12, 2024, substantially, on the same terms as currently in effect.
|
11.
|
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, 2018. The unaudited information has been prepared on the same basis as the audited consolidated financial statements.
|
|
Year Ended December 31, 2018
|
|
|
|
Fourth
Quarter
|
|
|
Third
Quarter
|
|
|
Second
Quarter
|
|
|
First
Quarter
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
87,906
|
|
|
$
|
90,074
|
|
|
$
|
93,852
|
|
|
$
|
85,026
|
|
Gross profit
|
|
$
|
20,979
|
|
|
$
|
21,393
|
|
|
$
|
22,347
|
|
|
$
|
20,489
|
|
Operating income
|
|
$
|
3,190
|
|
|
$
|
3,046
|
|
|
$
|
4,392
|
|
|
$
|
3,270
|
|
Net income
|
|
$
|
1,628
|
|
|
$
|
2,455
|
|
|
$
|
2,606
|
|
|
$
|
1,947
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.15
|
|
|
$
|
0.16
|
|
|
$
|
0.12
|
(1)
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.15
|
|
|
$
|
0.16
|
|
|
$
|
0.12
|
(1)
|
|
|
Year Ended December 31, 2017
|
|
|
|
Fourth
Quarter
|
|
|
Third
Quarter
|
|
|
Second
Quarter
|
|
|
First
Quarter
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
82,146
|
|
|
$
|
81,196
|
|
|
$
|
75,646
|
|
|
$
|
78,709
|
|
Gross profit
|
|
$
|
20,843
|
|
|
$
|
18,570
|
|
|
$
|
16,318
|
|
|
$
|
16,931
|
|
Operating income (loss)
|
|
$
|
2,969
|
|
|
$
|
2,047
|
|
|
$
|
(162
|
)
|
|
$
|
(250
|
)
|
Net income (loss)
|
|
$
|
1,996
|
|
|
$
|
(1,711
|
)
|
|
$
|
(54
|
)
|
|
$
|
(453
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
(1)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.03
|
)
|
Diluted
|
|
$
|
0.12
|
(1)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.03
|
)
|
(1)
|
The “two-class” method
was used to calculate earnings per share which resulted in the same value.
|