10-Q

UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 10-Q

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

 For the quarterly period ended June 30, 2020

or

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

For the transition period from                              to                              

Commission File Number: 000-52046

  (Exact name of registrant as specified in its charter)

Delaware	36-4151663
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
10201 North Loop East
Houston, Texas	77029
(Address of principal executive offices)	(Zip Code)

(713) 609-2100 

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, par value $0.001 per share	HWCC	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days   Yes ☒        No ☐

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

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

Large Accelerated Filer    ☐	Accelerated Filer    ☒	Non-Accelerated Filer    ☐	Smaller Reporting Company     ☒
Emerging Growth Company     ☐

 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes ☐ No ☒

At August 1, 2020 there were 16,555,248 outstanding shares of the registrant’s common stock, $0.001 par value per share.

HOUSTON WIRE & CABLE COMPANY 

Form 10-Q 

For the Quarter Ended June 30, 2020

INDEX

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	2
	Consolidated Statements of Operations	3
	Consolidated Statements of Stockholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Overview	10
	Cautionary Statement for Purposes of the “Safe Harbor”	11
	Results of Operations	12
	Impact of Inflation and Commodity Prices	14
	Liquidity and Capital Resources	15
	Contractual Obligations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.	Controls and Procedures	16
PART II. OTHER INFORMATION		16
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
Signature Page		19

 1

HOUSTON WIRE & CABLE COMPANY 

Consolidated Balance Sheets 

(In thousands, except share data)

	June 30,			December 31,
	2020			2019
		(unaudited)
Assets
Current assets:
Cash	$	5,696		$	4,096
Accounts receivable, net:
Trade		43,593			50,325
Other		2,921			6,640
Inventories, net		106,018			114,069
Income taxes		1,314			1,353
Prepaids and other current assets		2,885			1,833
Total current assets		162,427			178,316
Property and equipment, net		15,774			14,589
Intangible assets, net		9,521			10,282
Goodwill		22,353			22,353
Deferred income taxes		900			600
Operating lease right-of-use assets, net		12,244			13,481
Other assets		380			527
Total assets	$	223,599		$	240,148
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	10,212		$	13,858
Accrued and other current liabilities		14,932			23,261
Operating lease liabilities		2,803			2,742
Total current liabilities		27,947			39,861
Revolver Debt		74,540			83,500
Paycheck Protection Program Loan		6,185			—
Operating lease long term liabilities		9,946			11,182
Other long term liabilities		2,227			1,977
Total liabilities		120,845			136,520
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding		—			—
Common stock, $0.001 par value; 100,000,000 shares authorized: 20,988,952 shares issued: 16,591,818 and 16,556,950 outstanding at June 30, 2020 and December 31, 2019, respectively		21			21
Additional paid-in-capital		52,484			52,304
Retained earnings		107,008			108,626
Treasury stock, at cost		(56,759	)		(57,323	)
Total stockholders’ equity		102,754			103,628
Total liabilities and stockholders’ equity	$	223,599		$	240,148

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

 2

HOUSTON WIRE & CABLE COMPANY 

Consolidated Statements of Operations 

(Unaudited) 

(In thousands, except share and per share data)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2020			2019		2020			2019
Sales	$	66,777		$	85,326	$	150,310		$	170,596
Cost of sales		52,541			64,789		116,482			128,800
Gross profit		14,236			20,537		33,828			41,796
Operating expenses:
Salaries and commissions		8,407			9,244		17,881			18,424
Other operating expenses		7,029			7,729		14,594			15,392
Depreciation and amortization		815			534		1,582			1,087
Impairment charge		173			—		373			—
Total operating expenses		16,424			17,507		34,430			34,903
Operating income (loss)		(2,188	)		3,030		(602	)		6,893
Interest expense		474			738		1,287			1,479
Income (loss) before income taxes		(2,662	)		2,292		(1,889	)		5,414
Income tax (benefit) expense		(499	)		649		(271	)		1,487
Net income (loss)	$	(2,163	)	$	1,643	$	(1,618	)	$	3,927
Earnings (loss) per share:
Basic	$	(0.13	)	$	0.10	$	(0.10	)	$	0.24
Diluted	$	(0.13	)	$	0.10	$	(0.10	)	$	0.24
Weighted average common shares outstanding:
Basic		16,442,493			16,504,471		16,414,976			16,491,236
Diluted		16,442,493			16,597,496		16,414,976			16,571,113

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

 3

HOUSTON WIRE & CABLE COMPANY 

Consolidated Statements of Stockholders’ Equity 

(Unaudited)

					Additional												Total
	Common Stock				Paid-In			Retained			Treasury Stock						Stockholders’
	Shares		Amount		Capital			Earnings			Shares			Amount			Equity
	(In thousands, except share data)
Balance at December 31, 2019		20,988,952	$	21	$	52,304		$	108,626			(4,432,002	)	$	(57,323	)	$	103,628
Net income		—		—		—			545			—			—			545
Amortization of unearned stock compensation		—		—		328			—			—			—			328
Impact of released vested restricted stock units		—		—		(356	)		—			27,510			356			—
Balance at March 31, 2020		20,988,952	$	21	$	52,276		$	109,171			(4,404,492	)	$	(56,967	)	$	104,501
Net loss		—		—		—			(2,163	)		—			—			(2,163	)
Repurchase of treasury shares		—		—		—			—			(10,668	)		(24	)		(24	)
Amortization of unearned stock compensation		—		—		440			—			—			—			440
Impact of released vested restricted stock units		—		—		(232	)		—			18,026			232			—
Balance at June 30, 2020		20,988,952	$	21	$	52,484		$	107,008			(4,397,134	)	$	(56,759	)	$	102,754

					Additional											Total
	Common Stock				Paid-In			Retained		Treasury Stock						Stockholders’
	Shares		Amount		Capital			Earnings		Shares			Amount			Equity
	(In thousands, except share data)
Balance at December 31, 2018		20,988,952	$	21	$	53,514		$	105,975		(4,377,301	)	$	(58,832	)	$	100,678
Net income		—		—		—			2,284		—			—			2,284
Repurchase of treasury shares		—		—		—			—		(1,506	)		(8	)		(8	)
Amortization of unearned stock compensation		—		—		342			—		—			—			342
Settlement of director’s deferred compensation		—		—		—			—		2,251			16			16
Cumulative effect of accounting change		—		—		—			101		—			—			101
Balance at March 31, 2019		20,988,952	$	21	$	53,856		$	108,360		(4,376,556	)	$	(58,824	)	$	103,413
Net income		—		—		—			1,643		—			—			1,643
Repurchase of treasury shares		—		—		—			—		(11,951	)		(73	)		(73	)
Amortization of unearned stock compensation		—		—		365			—		—			—			365
Impact of released vested restricted stock units		—		—		(601	)		—		44,737			601			—
Balance at June 30, 2019		20,988,952	$	21	$	53,620		$	110,003		(4,343,770	)	$	(58,296	)	$	105,348

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

 4

HOUSTON WIRE & CABLE COMPANY

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands) 

	Six Months  Ended June 30,
	2020			2019
Operating activities
Net income (loss)	$	(1,618	)	$	3,927
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Impairment charge		373			—
Depreciation and amortization		1,582			1,087
Amortization of unearned stock compensation		768			707
Non-cash lease expense		1,793			1,968
Provision for refund liability		77			471
Provision for inventory obsolescence		1,273			459
Deferred income taxes		(300	)		460
Other non-cash items		68			83
Changes in operating assets and liabilities:
Accounts receivable		10,374			75
Inventories		6,778			(12,407	)
Prepaids		(952	)		(1,371	)
Other assets		18			(550	)
Lease payments		(1,800	)		(1,963	)
Book overdraft		—			330
Trade accounts payable		(3,646	)		2,106
Accrued and other current liabilities		(8,702	)		2,235
Income taxes		39			(142	)
Other operating activities		250			359
Net cash provided by (used in) operating activities		6,375			(2,166	)
Investing activities
Expenditures for property and equipment		(1,626	)		(875	)
Net cash used in investing activities		(1,626	)		(875	)
Financing activities
Borrowings on revolver		162,681			175,417
Payments on revolver		(171,641	)		(173,626	)
Proceeds from Paycheck Protection Program loan		6,185			—
Payment of dividends		(1	)		(30	)
Purchase of treasury stock/stock surrendered on vested awards		(24	)		(65	)
Lease payments		(349	)		(48	)
Net cash (used in) provided by financing activities		(3,149	)		1,648
Net change in cash		1,600			(1,393	)
Cash at beginning of period		4,096			1,393
Cash at end of period	$	5,696		$	—
Supplemental disclosures of non-cash activities
Purchase of assets under finance leases	$	752		$	407

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

 5

  HOUSTON WIRE & CABLE COMPANY

Notes to Consolidated Financial Statements

(Unaudited)

1.     Basis of Presentation and Principles of Consolidation

Houston Wire & Cable Company (the “Company”), through its wholly owned subsidiaries, provides industrial products including electrical wire and cable, steel wire rope and hardware, and fasteners to the U.S. market through twenty-one locations in fourteen states throughout the United States. The Company has no other business activity.

The consolidated financial statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 have been prepared following accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the results of these interim periods have been included. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. All significant intercompany balances and transactions have been eliminated. The Company has evaluated subsequent events through the time these financial statements in this Form 10-Q were filed with the Securities and Exchange Commission (the “SEC”).

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates are those relating to the 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.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC.

Risks and Uncertainties

The Company is currently subject to additional risks and uncertainties due to the COVID-19 pandemic. The pandemic, and governmental and other actions taken in response to it, have had an adverse effect on the demand for the Company’s products and on its results of operations, and the virus continues to spread. Capital markets and economies worldwide have been negatively impacted by the COVID-19 pandemic, and it is possible that the impact could cause an extended local and/or global economic recession. Such economic disruption could have a material adverse effect on our business as companies in many industries curtail and reduce capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support specific industries and their economies as a whole. However, the overall effectiveness of these actions remains uncertain.

The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be materially adversely affected by delays in payments of outstanding receivables, supply chain disruptions, uncertain or reduced demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these financial statements, the extent to which the COVID-19 pandemic may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain.

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 ASUs that were recently adopted by the Company.

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 the FASB’s disclosure framework project. The Company adopted this ASU in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

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 Company adopted this ASU in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

 6

Recent Accounting Pronouncements

In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses.” This ASU, among other narrow-scope improvements, clarifies guidance around how to report expected recoveries. This ASU permits organizations to record expected recoveries on assets purchased with credit deterioration. In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities. The effective date and transition methodology are the same as in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB deferred the effective dates of these ASUs for smaller reporting companies (“SRC”) to fiscal years beginning after December 15, 2022. As of June 30, 2020, the Company qualifies as a SRC and expects to adopt these ASUs in the first quarter of 2023.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU removes specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether certain exceptions apply in a given period. This ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: a) Franchise taxes that are partially based on income; b) Transactions with a government that result in a step up in the tax basis of goodwill; c) Separate financial statements of legal entities that are not subject to tax; and d) Enacted changes in tax laws in interim periods. For public business entities, ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently assessing the impact of this ASU on its consolidated financial statements.

2.     Earnings per Share

Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per share include the dilutive effects of options and unvested restricted stock awards and units.

The following reconciles the denominator used in the calculation of diluted earnings (loss) per share: 

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Denominator:
Weighted average common shares outstanding for basic earnings per share		16,442,493		16,504,471		16,414,976		16,491,236
Effect of dilutive securities		—		93,025		—		79,877
Weighted average common shares outstanding for diluted earnings per share		16,442,493		16,597,496		16,414,976		16,571,113

Stock awards to purchase 940,682 and 275,494 shares of common stock for the three months ended June 30, 2020 and 2019, respectively, and 961,526 and 286,141shares for the six months ended June 30, 2020 and 2019, respectively, were not included in the diluted net income (loss) per share calculation as their inclusion would have been anti-dilutive.

3.     Debt

On March 12, 2019 and December 10, 2019, the Company, as guarantor, HWC Wire & Cable Company and Vertex, as borrowers, and Bank of America, N.A., as agent and lender, entered into a Second and Third Amendments, respectively, to the Fourth Amended and Restated Loan and Security Agreement (such agreement, as so amended, the “Loan Agreement”). The Second Amendment extends the expiration date until March 12, 2024 and the Third Amendment increased the revolving credit facility to $115 million. Under certain circumstances theCompany 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.

 7

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 March 12, 2024. At June 30, 2020, 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.”

On May 4, 2020, the Company received a $6.2 million Paycheck Protection Program (“PPP”) loan from Bank of America (“Lender”), funded under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), pursuant to a Promissory Note issued by the Company to Lender. The Company will use the funds to pay its payroll related expenses as well as rent expenses, as allowed by the terms of the loan. The Company intends to apply for loan forgiveness in the third quarter 2020. Under current rules, which could still be clarified further, the Company believes it will achieve around 80-90% forgiveness. The forgivenessamount will be equal to the amount that the Company uses for the approved expenses, a minimum of 60% on payroll related expenses and up to 40% on non-payroll expenses. If the total of the loan is not forgiven, the Company will have two years from the funded date of May 4, 2020 to repay the balance of the PPP loan to Bank of America. No principal or interest payments will be due prior to the end of the six-month deferment period and the interest rate on the balance of the loan will not exceed 1.0% per annum.

4.    Impairment of Goodwill and Intangible Assets

The Company tests goodwill and indefinite lived intangibles for impairment at least annually or more frequently whenever events or circumstances occur indicating that it might be impaired. During the first and second quarter of 2020, the Company’s market capitalization declined significantly, driven by current macroeconomic and geopolitical conditions due in large part to the COVID-19 outbreak, which has contributed to a decline in demand for the Company’s products, a decline in overall financial performance, partially due to the decline in oil prices, and decline in industry and market conditions. Based on these events, the Company concluded that it was more-likely-than-not that the fair values of certain of its reporting units were less than their carrying values. Therefore, the Company performed an interim goodwill impairment test for both the first and second quarter.

Goodwill impairment is evaluated at each of the four reporting units. The Company determined the fair values of two reporting units with goodwill and certain of its indefinite lived intangibles exceeded their respective carrying values. The amount of goodwill at June 30, 2020 for the two reporting units, Southern Wire and Vertex, were $12.5 million and $9.8 million, respectively, and the Vertex reporting unit has a negative carrying value. Additionally, the Company determined the fair value of its Vertex reporting unit’s tradenames was below its carrying value, and as a result recorded an impairment charge of $0.1 million in June 2020. The Company also determined the fair value of its Southwest reporting unit’s tradenames was below its carrying value, and as a result, recorded an impairment charge of $0.1 million in June 2020 and $0.2 million in March2020.

5.    Income Taxes

The effective tax rate for the six months ended June 30, 2020 was 14.3%, compared to 27.5% for the same period in 2019. Compared to the U.S. statutory rate, the effective tax rate was impacted by state income taxes and nondeductible expenses. Due to the continuing uncertainty in the Company’s industry, the Company has utilized the method of recording income taxes on a year-to-date effective tax rate for the six months ended June 30, 2020. The Company will evaluate its use of this method each quarter until such time as a return to the annualized estimated effective tax rate method is deemed appropriate.

The CARES Act was signed into law on March 27, 2020. The CARES Act contains several tax law changes for corporations, including modifications for net operating loss carrybacks, the refundability of prior-year minimum tax liability, limitations on business interest and limitations on charitable contribution deductions. These benefits did not impact the Company’s tax provision for the three months ended June 30, 2020.

6.    Incentive Plans  

Stock Option Awards

There were no stock option awards granted during the first six months of 2020 or 2019.

 8

Restricted Stock Awards and Restricted Stock Units

On June 26, 2020, the Board of Directors granted 10,000 restricted stock units to the newly named executive chairman of the board. The award shall vests in two equal installments on June 26, 2021 and June 26, 2022. The award entitles the executive chairman of the board to receivea 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 his service on the board terminates for any reason.

Following the Annual Meeting of Stockholders on May 7, 2019, the Company granted restricted stock units with a grant date value of $60,000 to each non-employee director who was elected and re-elected, for an aggregate of 58,920 restricted stock units. Each award of restricted stock units vested at the date of the 2020 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. The Company did not grant equity awards to the non-employee directors following the 2020 Annual Meeting.

On March 12, 2019, the Board of Directors granted 52,910 performance stock units to the Company’s President and CEO and 13,228 performance stock units to the CFO. Each grant of performance stock units vests on December 31, 2021, 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 the grantee 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 the grantee if and when the related shares vest.

Total stock-based compensation cost was $0.4 million for each of the three months ended June 30, 2020 and 2019, and $0.8 million for the six monthsended June 30, 2020 and $0.7 million for the six months ended June 30, 2019, and is included in salaries and commissions for employees, and in other operating expenses for non-employee directors. 

7.    Commitments and Contingencies

The Company had outstanding under the Loan Agreement letters of credit totaling $0.7 million to certain vendors as of June 30, 2020.

From time to time, the Company is involved in lawsuits that are brought against it in the normal course of business. The Company is not currently a party to any legal proceedings that it expects, either individually or in the aggregate, to have a material adverse effect on the Company’s consolidated financial position, cash flows, or results from operations. 

 9

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

        The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the Company’s financial position and results of operations. MD&A is provided as a supplement to the Company’s Consolidated Financial Statements (unaudited) and the accompanying Notes to Consolidated Financial Statements (unaudited) and should be read in conjunction with the MD&A included in the Company’s Form 10-K for the year ended December 31, 2019.

Overview

We are a provider of industrial products including electrical wire and cable, steel wire rope and hardware, and fasteners to the U.S. market. We provide our customers with a single-source solution by offering a large selection of in-stock items, exceptional customer service and high levels of product expertise.

Critical Accounting Policies

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses. On an on-going basis, we make and evaluate estimates and assumptions, including those related 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. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about amounts and timing of revenue and expenses, the carrying values of assets and the recorded amounts of liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. We have discussed the development and selection of critical accounting policies and estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our related disclosures. The critical accounting policies related to the estimates and assumptions are discussed in our Annual Report on Form 10-K for the year ended December 31, 2019 under Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no changes to our critical accounting policies and estimates during the three and six months ended June 30, 2020.  

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has spread throughout the United States and the countries in which our offshore suppliers are located. Governments in affected regions have implemented, and may continue to implement, safety precautions which include quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary. Many organizations and individuals, including the Company and our employees are taking additional steps to avoid or reduce infection, including limiting travel and working remotely. We continue to monitor our operations and government recommendations and have made modifications to our normal operations because of the pandemic, including requiring most of its non-essential employees to work remotely. We have maintained a substantial portion of our operational capacity at our warehouses across the continental United States and have instituted several health and safety protocols and procedures to safeguard our employees.

The rapid development and uncertainty of the COVID-19 pandemic precludes any prediction as to the ultimate adverse impact of the COVID-19 outbreak on our business. However, the outbreak has had an adverse impact on our business, including reductions in the demand for our products. In response, we applied for and received funds under the Paycheck Protection Program and have implemented several cost savings measures which include furloughing employees, payroll reductions, and other actions to decrease corporate and non-critical expenses. These cost savings measures are not fully reflected in the second quarter but we anticipate additional savings in the third and fourth quarters due to the continued execution of multiple expense reduction initiatives. While we cannot reasonably estimate the length or severity of this pandemic, we currently anticipate an adverse impact on our consolidated financial position, consolidated results of operations, and consolidated cash flows in fiscal 2020.

 10

Cautionary Statement for Purposes of the “Safe Harbor”

Forward-looking statements in this report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements may relate to, but are not limited to, information or assumptions about the duration, extent and impact of the COVID-19 pandemic, our sales and marketing strategy, sales (including pricing), income, operating income or gross margin improvements, working capital, cash flow, interest rates, impact of changes in accounting standards, future economic performance, management’s plans, goals and objectives for future operations, performance and growth or the assumptions relating to any of the forward-looking statements.  These statements can be identified by the fact that they do not relate strictly to historical or current facts.  They use words such as “aim”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “project”, “should”, “will be”, “will continue”, “will likely result”, “would” and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance.  The Company cautions that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results.  Actual results could differ materially from those expressed or implied in the forward-looking statements.  The factors listed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A of this report, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

 11

Results of Operations

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		78.7	%		75.9	%		77.5	%		75.5	%
Gross profit		21.3	%		24.1	%		22.5	%		24.5	%
Operating expenses:
Salaries and commissions		12.6	%		10.8	%		11.9	%		10.8	%
Other operating expenses		10.5	%		9.1	%		9.7	%		9.0	%
Depreciation and amortization		1.2	%		0.6	%		1.1	%		0.6	%
Impairment charge		0.3	%		—			0.2	%		—
Total operating expenses		24.6	%		20.5	%		22.9	%		20.5	%
Operating income (loss)		(3.3	)%		3.6	%		(0.4	)%		4.0	%
Interest expense		0.7	%		0.9	%		0.9	%		0.9	%
Income (loss) before income taxes		(4.0	)%		2.7	%		(1.3	)%		3.2	%
Income tax expense (benefit)		(0.7	)%		0.8	%		(0.2	)%		0.9	%
Net income (loss)		(3.2	)%		1.9	%		(1.1	)%		2.3	%

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

Comparison of the Three Months Ended June 30, 2020 and 2019

Sales

	Three Months Ended
	June 30,
(Dollars in millions)	2020		2019		Change
Sales	$	66.8	$	85.3	$	(18.5	)	(21.7	)%

Our sales for the second quarter decreased from $85.3 million in 2019 to $66.8 million in 2020, primarily due to reduced market demand, as a result of current economic conditions caused by the COVID-19 pandemic, as well as the decline in the oil and gas market. We estimate sales for our project business, which targets end markets for Environmental Compliance, Engineering & Construction, Industrials, Utility Power Generation, and Mechanical Wire Rope, decreased 7.1%, while Maintenance, Repair, and Operations (MRO) sales decreased 24.6%, as compared to 2019.

Gross Profit

	Three Months Ended
	June 30,
(Dollars in millions)	2020			2019			Change
Gross profit	$	14.2		$	20.5		$	(6.3	)	(30.7	)%
Gross margin		21.3	%		24.1	%

Gross profit decreased 30.7% to $14.2 million in 2020 from $20.5 million in 2019. The decrease in gross profit was attributable to reduced sales from the COVID-19 pandemic and the decline in the oil and gas market. Gross margin (gross profit as a percentage of sales) decreased to 21.3% in 2020 from 24.1% in 2019 primarily due to the decline in demand for our product as a result of the pandemic and the decline in the oil and gas market, combined with the relatively low price of copper through much of the quarter The Company also recorded an impairment charge of $0.6 million for inventory that will be returned under a one-time agreement with the supplier.

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Operating Expenses

	Three Months Ended
	June 30,
(Dollars in millions)	2020			2019			Change
Operating expenses:
Salaries and commissions	$	8.4		$	9.2		$	(0.8	)	(9.1	)%
Other operating expenses		7.0			7.7			(0.7	)	(9.1	)%
Depreciation and amortization		0.8			0.5			0.3		52.6	%
Impairment charge		0.2			—			0.2		100.0	%
Total operating expenses	$	16.4		$	17.5		$	(1.1	)	(6.2	)%
Operating expenses as a percent of sales		24.6	%		20.5	%

Note:  Due to rounding, numbers may not add up to total operating expenses.

Salaries and commissions decreased $0.8 million from the second quarter 2019 compared to 2020 due to reduced full-time employee headcount, salary reductions, fewer temporary warehouse labor hours due to decreased activity as of result of COVID-19 and lower commissions resulting from the reduction in sales and gross profit.

Other operating expenses decreased due to our efforts to reduce expenses in response to COVID-19, mainly travel and entertainment expense and reduced office and other administrative expenses.

Depreciation and amortization increased primarily due to depreciation on additional right-of-use assets acquired in the second quarter of 2020.

We recorded an impairment charge in the second quarter of 2020 with respect to tradenames at our Southwest and Vertex reporting units. (See Note 4 of our Consolidated Financial Statements)

Interest Expense

Interest expense decreased from $0.7 million in 2019 to $0.5 million in 2020 as a result of lower average interest rates. Average debt was $78.0 million in 2020 compared to $74.3 million in 2019. The average effective interest rate was 2.2% in 2020 compared to 3.9% in 2019.

Income Taxes

The income tax benefit of $0.5 million in the second quarter 2020 decreased from the income tax expense of $0.6 million decreased in the prior year period due to lower pretax income. The effective income tax rate for the quarter was 18.7% in 2020 compared to 28.3% in 2019.

Comparison of the Six Months Ended June 30, 2020 and 2019

	Six Months Ended
	June 30,
(Dollars in millions)	2020		2019		Change
Sales	$	150.3	$	170.6	$	(20.3	)	(11.9	)%

Our sales for the second quarter decreased from $170.6 million in 2019 to $150.3 million in 2020, primarily due to reduced market demand, as a result of current economic conditions caused by the COVID-19 pandemic, as well as the decline in the oil and gas market. We estimate sales for our project business, which targets end markets for Environmental Compliance, Engineering & Construction, Industrials, Utility Power Generation, and Mechanical Wire Rope, decreased 6.3%, while MRO decreased 12.8% from 2019.

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Gross Profit  

	Six Months Ended
	June 30,
(Dollars in millions)	2020			2019			Change
Gross profit	$	33.8		$	41.8		$	(8.0	)	(19.1	)%
Gross margin		22.5	%		24.5	%

Gross profit decreased 17.6% from $41.8 million in 2019 to $34.4 million in 2020. The decrease in gross profit was primarily attributable to the reduction in sales. Gross margin decreased to 22.9% in 2020 from 24.5% in 2019, primarily due to the decline in demand for our product as a result of the pandemic and the decline in the oil and gas market, combined with the relatively low price of copper through the first half of 2020.

Operating Expenses 

	Six Months Ended
	June 30,
(Dollars in millions)	2020			2019			Change
Operating expenses:
Salaries and commissions	$	17.9		$	18.4		$	(0.5	)	(2.9	)%
Other operating expenses		14.6			15.4			(0.8	)	(5.2	)%
Depreciation and amortization		1.6			1.1			0.5		45.5	%
Impairment charge		0.4			—			0.4		100.0	%
Total operating expenses	$	34.4		$	34.9		$	(0.5	)	(1.4	)%
Operating expenses as a percent of sales		22.9	%		20.5	%

Note:  Due to rounding, numbers may not add up to total operating expenses.

Salaries and commissions decreased $0.5 million between the periods due to lower commissions resulting from the reduction in sales and gross profit, reduced full-time employee headcount, salary reductions and fewer temporary warehouse labor hours due to decreased activity as a result of COVID-19.

Other operating expenses decreased due to our efforts to reduce expenses in response to COVID-19, mainly travel and entertainment expense and reduced office and other administrative expenses.

Depreciation and amortization increased primarily due to depreciation on additional right-of-use assets acquired in the first half of 2020.

We recorded an impairment charge in the first and second quarters of 2020 with respect to tradenames at our Southwest and Vertex reporting units. (See Note 4 of our Consolidated Financial Statements)

Interest Expense

Interest expense decreased 13.0% from $1.5 million in 2019 to $1.3 million in 2020 due to lower interest rates. Average debt was $83.6 million in 2020 compared to $73.9 million in 2019 and the average effective interest rate fell to 2.8% in 2020 from 3.9% in the prior year period.

Income Taxes

The income tax benefit of $0.3 million in 2020 decreased $1.8 million compared to the income tax expense of $1.5 million in 2019 due to lower pretax income. The effective income tax rate was 14.3% in 2020 compared to 27.5% in 2019.

Impact of Inflation and Commodity Prices

Our results of operations are affected by changes in the inflation rate and commodity prices. Moreover, because copper, steel, aluminum, nickel and petrochemical products are components of the industrial products we sell, fluctuations in the costs of these and other commodities have historically affected our operating results. To the extent commodity prices decline, the net realizable value of our existing inventory could also decline, and our gross profit can be adversely affected because of either reduced selling prices or lower of cost or net realizable value adjustments in the carrying value of our inventory. If we turn our inventory approximately three times a year, the impact of changes in commodity prices in any particular quarter would primarily affect the results of the succeeding two calendar quarters. If we are unable to pass on to our customers future cost increases due to inflation or rising commodity prices, our operating results could be adversely affected. 

 14

Liquidity and Capital Resources

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

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

● the adequacy of available bank lines of credit;

● cash flows generated from operating activities;

● capital expenditures;

● acquisitions; and

● the ability to attract long-term capital with satisfactory terms

Comparison of the Six Months Ended June 30, 2020 and 2019

Our net cash provided by operating activities was $6.4 million for the six months ended June 30, 2020 compared to cash used in operating activities of $2.2 million for the same period in 2019. We had a net loss of $1.6 million in 2020 compared to net income of $3.9 million in 2019.

Changes in our operating assets and liabilities resulted in cash provided by operating activities of $2.3 million in 2020. A decrease in accounts receivables of $10.4 million due to decreased sales and a decrease in inventories of $6.8 million primarily due to efforts to align inventory levels with sales activities were the main sources of cash. The main uses of cash provided by operating activities were a decrease in accrued and other current liabilities of $8.7 million, a decrease in trade accounts payable of $3.6 million as a result of the decrease in inventory, lease payments of $1.8 million and prepaid expenses of $1.0 million.

Net cash used in investing activities was $1.6 million in 2020 compared to $0.9 million in 2019.

Net cash used in financing activities was $3.1 million in 2020 compared to net cash provided by financing activities of $1.6 million in 2019. Net payments on the revolver of $9.0 million were the primary uses of cash for financing activities in 2020, offset by the Paycheck Protection Plan (“PPP”) loan of $6.2 million received in the second quarter of 2020. We will be applying for loan forgiveness for the PPP loan in the third quarter and the outcome of the loan forgiveness application will determine how the loan funds are accounted for.

Indebtedness

Our principal source of liquidity at June 30, 2020 was working capital of $134.5 million compared to $138.5 million at December 31, 2019. We also had available borrowing capacity of $22.6 million at June 30, 2020 and $22.8 million at December 31, 2019 under our loan agreement. The availability at June 30, 2020 was net of outstanding letters of credit of $0.7 million.

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

 15

Contractual Obligations

The following table summarizes our loan commitment at June 30, 2020.  

In thousands	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Total debt	$	80,725	$	—	$	6,185	$	74,540	$	—

There were no material changes in non-cancellable purchase obligations since December 31, 2019.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes to our market risk as set forth in Items 7A and 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.

Item 4. Controls and Procedures

As of June 30, 2020, an evaluation was performed by the Company’s management, under the supervision and with the participation of the Company’s chief executive officer and chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the chief executive officer and the chief financial officer concluded that the Company’s disclosure controls and procedures were effective. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1 - Not applicable and has been omitted.

Item 1A.  Risk Factors

The COVID-19 pandemic, efforts to mitigate or disrupt the pandemic and the related weak, or weakening of, economic or other negative conditions, have had a negative impact on our business, and the duration and extent of the pandemic could prolong or increase the adverse impact.

A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019 and subsequently declared a pandemic by the World Health Organization. As of the date of this report, the virus continues to spread and there is no effective vaccine available. The preventative measures taken to contain or mitigate the outbreak have caused, and are continuing to cause, business slowdown or shutdown in affected areas and significant disruption in the financial markets both globally and in the United States, which could lead to a decline in capital spending, and in turn further impact, possibly materially, our business, sales, financial condition and results of operations. It is currently not practicable to predict the precise potential impact, as well as the extent of any impact, of the COVID-19 pandemic on our business, and on the global economy as a whole. It is also currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. A prolonged situation could have a significant adverse effect on economies and financial markets globally, potentially leading to a significant worldwide economic downturn, which could have a significant adverse effect on our business, operating results and financial condition.

The extent to which the COVID-19 pandemic adversely affects our business, results of operations, and financial condition will likely depend on numerous evolving factors which are highly uncertain and cannot be predicted, including but not limited to:

● Reductions in the demand for our products as a result of downturns in capital spending and our customers’ cost containment actions,

● Disruption to our distribution centers and our suppliers and other vendors, including through the effects of facility closures,

● Impacts to our distribution and logistics providers’ ability to operate or increases in their operating costs,

● Labor shortages,

● Real time changes in operating procedures and costs, including for additional cleaning and disinfection

● Significant disruption of global financial markets, which could have a negative impact on our ability to access capital in the future.

 16

We intend to continue to monitor the situation and adjust our current policies and practices as more information and guidance become available.

Other than this item, there were no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. 

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

Our board authorized a stock repurchase program of $25 million in March 2014. The program has no expiration date. Purchases under the stock repurchase program were suspended in November 2016 and reactivated in August 2019.

No shares of common stock were purchased during the three months ended June 30, 2020. As of June 30, 2020, $8.1 million remained available under the repurchase authorization.

Item 3 - Not applicable and has been omitted.

Item 4 - Not applicable and has been omitted.

Item 5 - Not applicable and has been omitted.

 17

Item 6.  Exhibits

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

Exhibit Number	Document Description
31.1	Certification by James L. Pokluda III pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Eric W. Davis pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by James L. Pokluda III and Eric W. Davis pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document (1)
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

⁽¹⁾ Attached as exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2020 and December 31, 2019; (ii) the Consolidated Statements of Operations for the three and six month periods ended June 30, 2020 and 2019; (iii) the Consolidated Statements of Cash Flows for the six month periods ended June 30, 2020 and 2019; and (vi) Notes to the Consolidated Financial Statements.

 18

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  

Date:  August 7, 2020	HOUSTON WIRE & CABLE COMPANY
	BY:	/s/ Eric W. Davis
	Eric W. Davis, Chief Financial Officer

 19

EX-31.1

Exhibit 31.1

Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James L. Pokluda III, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 of Houston Wire & Cable Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:   August 7, 2020			/s/ James L. Pokluda III
			James L. Pokluda III
			Chief Executive Officer

20

EX-31.2

Exhibit 31.2

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

I, Eric W. Davis, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 of Houston Wire & Cable Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:   August 7, 2020			/s/ Eric W. Davis
			Eric W. Davis
			Chief Financial Officer

21

EX-32.1

Exhibit 32.1

Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Houston Wire & Cable Company (the “Corporation”) for the fiscal quarter ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), James L. Pokluda III, as Chief Executive Officer of the Corporation, and Eric W. Davis, as Chief Financial Officer of the Corporation, each hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
Date:  August 7, 2020		/s/ James L. Pokluda III
		James L. Pokluda III
		Chief Executive Officer
Date:  August 7, 2020		/s/ Eric W. Davis
		Eric W. Davis
		Chief Financial Officer

This certification accompanies the Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Houston Wire & Cable Company for purposes of section 18 of the Securities Exchange Act of 1934, as amended.

22

XML

Cover - shares	6 Months Ended
	Jun. 30, 2020	Aug. 01, 2020
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2020
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2020
Current Fiscal Year End Date	--12-31
Entity File Number	000-52046
Entity Registrant Name	Houston Wire & Cable CO
Entity Central Index Key	0001356949
Entity Tax Identification Number	36-4151663
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	10201 North Loop East
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77029
City Area Code	(713)
Local Phone Number	609-2100
Title of 12(b) Security	Common stock, par value $0.001 per share
Trading Symbol	HWCC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		16,555,248

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Consolidated Balance Sheets (unaudited) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current assets:
Cash	$ 5,696	$ 4,096
Accounts receivable, net:
Trade	43,593	50,325
Other	2,921	6,640
Inventories, net	106,018	114,069
Income taxes	1,314	1,353
Prepaids and other current assets	2,885	1,833
Total current assets	162,427	178,316
Property and equipment, net	15,774	14,589
Intangible assets, net	9,521	10,282
Goodwill	22,353	22,353
Deferred income taxes	900	600
Operating lease right-of-use assets, net	12,244	13,481
Other assets	380	527
Total assets	223,599	240,148
Current liabilities:
Trade accounts payable	10,212	13,858
Accrued and other current liabilities	14,932	23,261
Operating lease liabilities	2,803	2,742
Total current liabilities	27,947	39,861
Revolver Debt	74,540	83,500
Paycheck Protection Program Loan	6,185
Operating lease long term liabilities	9,946	11,182
Other long term liabilities	2,227	1,977
Total liabilities	120,845	136,520
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding
Common stock, $0.001 par value; 100,000,000 shares authorized: 20,988,952 shares issued: 16,591,818 and 16,556,950 outstanding at June 30, 2020 and December 31, 2019, respectively	21	21
Additional paid-in-capital	52,484	52,304
Retained earnings	107,008	108,626
Treasury stock, at cost	(56,759)	(57,323)
Total stockholders’ equity	102,754	103,628
Total liabilities and stockholders’ equity	$ 223,599	$ 240,148

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Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized	5,000,000	5,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized	100,000,000	100,000,000
Common stock, issued	20,988,952	20,988,952
Common stock, outstanding	16,591,818	16,556,950

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Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Statement [Abstract]
Sales	$ 66,777	$ 85,326	$ 150,310	$ 170,596
Cost of sales	52,541	64,789	116,482	128,800
Gross profit	14,236	20,537	33,828	41,796
Operating expenses:
Salaries and commissions	8,407	9,244	17,881	18,424
Other operating expenses	7,029	7,729	14,594	15,392
Depreciation and amortization	815	534	1,582	1,087
Impairment charge	173		373
Total operating expenses	16,424	17,507	34,430	34,903
Operating income (loss)	(2,188)	3,030	(602)	6,893
Interest expense	474	738	1,287	1,479
Income (loss) before income taxes	(2,662)	2,292	(1,889)	5,414
Income tax (benefit) expense	(499)	649	(271)	1,487
Net income (loss)	$ (2,163)	$ 1,643	$ (1,618)	$ 3,927
Earnings (loss) per share:
Basic	$ (0.13)	$ 0.10	$ (0.10)	$ 0.24
Diluted	$ (0.13)	$ 0.10	$ (0.10)	$ 0.24
Weighted average common shares outstanding:
Basic	16,442,493	16,504,471	16,414,976	16,491,236
Diluted	16,442,493	16,597,496	16,414,976	16,571,113

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Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Beginning balance, value at Dec. 31, 2018	$ 21	$ 53,514	$ 105,975	$ (58,832)	$ 100,678
Balance at Beginning (in shares) at Dec. 31, 2018	20,988,952			(4,377,301)
Net income			2,284		2,284
Amortization of unearned stock compensation		342			342
Repurchase of treasury shares				$ (8)	(8)
Repurchase of treasury shares (in shares)				(1,506)
Ending balance, value at Mar. 31, 2019	$ 21	53,856	108,360	$ (58,824)	103,413
Balance at Ending (in shares) at Mar. 31, 2019	20,988,952			(4,376,556)
Settlement of director’s deferred compensation				$ 16	16
Settlement of director's deferred compensation (in shares)				2,251
Cumulative effect of accounting change			101		101
Beginning balance, value at Dec. 31, 2018	$ 21	53,514	105,975	$ (58,832)	100,678
Balance at Beginning (in shares) at Dec. 31, 2018	20,988,952			(4,377,301)
Net income					3,927
Ending balance, value at Jun. 30, 2019	$ 21	53,620	110,003	$ (58,296)	105,348
Balance at Ending (in shares) at Jun. 30, 2019	20,988,952			(4,343,770)
Beginning balance, value at Mar. 31, 2019	$ 21	53,856	108,360	$ (58,824)	103,413
Balance at Beginning (in shares) at Mar. 31, 2019	20,988,952			(4,376,556)
Net income			1,643		1,643
Amortization of unearned stock compensation		365			365
Impact of released vested restricted stock units		(601)		$ 601
Impact of released vested restricted stock units (in shares)				44,737
Repurchase of treasury shares				$ (73)	(73)
Repurchase of treasury shares (in shares)				(11,951)
Ending balance, value at Jun. 30, 2019	$ 21	53,620	110,003	$ (58,296)	105,348
Balance at Ending (in shares) at Jun. 30, 2019	20,988,952			(4,343,770)
Beginning balance, value at Dec. 31, 2019	$ 21	52,304	108,626	$ (57,323)	103,628
Balance at Beginning (in shares) at Dec. 31, 2019	20,988,952			(4,432,002)
Net income			545		545
Amortization of unearned stock compensation		328			328
Impact of released vested restricted stock units		(356)		$ 356
Impact of released vested restricted stock units (in shares)				27,510
Ending balance, value at Mar. 31, 2020	$ 21	52,276	109,171	$ (56,967)	104,501
Balance at Ending (in shares) at Mar. 31, 2020	20,988,952			(4,404,492)
Beginning balance, value at Dec. 31, 2019	$ 21	52,304	108,626	$ (57,323)	103,628
Balance at Beginning (in shares) at Dec. 31, 2019	20,988,952			(4,432,002)
Net income					(1,618)
Ending balance, value at Jun. 30, 2020	$ 21	52,484	107,008	$ (56,759)	102,754
Balance at Ending (in shares) at Jun. 30, 2020	20,988,952			(4,397,134)
Beginning balance, value at Mar. 31, 2020	$ 21	52,276	109,171	$ (56,967)	104,501
Balance at Beginning (in shares) at Mar. 31, 2020	20,988,952			(4,404,492)
Net income			(2,163)		(2,163)
Amortization of unearned stock compensation		440			440
Impact of released vested restricted stock units		(232)		$ 232
Impact of released vested restricted stock units (in shares)				18,026
Repurchase of treasury shares				$ (24)	(24)
Repurchase of treasury shares (in shares)				(10,668)
Ending balance, value at Jun. 30, 2020	$ 21	$ 52,484	$ 107,008	$ (56,759)	$ 102,754
Balance at Ending (in shares) at Jun. 30, 2020	20,988,952			(4,397,134)

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Operating activities
Net income (loss)	$ (1,618)	$ 3,927
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Impairment charge	373
Depreciation and amortization	1,582	1,087
Amortization of unearned stock compensation	768	707
Non-cash lease expense	1,793	1,968
Provision for refund liability	77	471
Provision for inventory obsolescence	1,273	459
Deferred income taxes	(300)	460
Other non-cash items	68	83
Changes in operating assets and liabilities:
Accounts receivable	10,374	75
Inventories	6,778	(12,407)
Prepaids	(952)	(1,371)
Other assets	18	(550)
Lease payments	(1,800)	(1,963)
Book overdraft		330
Trade accounts payable	(3,646)	2,106
Accrued and other current liabilities	(8,702)	2,235
Income taxes	39	(142)
Other operating activities	250	359
Net cash provided by (used in) operating activities	6,375	(2,166)
Investing activities
Expenditures for property and equipment	(1,626)	(875)
Net cash used in investing activities	(1,626)	(875)
Financing activities
Borrowings on revolver	162,681	175,417
Payments on revolver	(171,641)	(173,626)
Proceeds from Paycheck Protection Program loan	6,185
Payment of dividends	(1)	(30)
Purchase of treasury stock/stock surrendered on vested awards	(24)	(65)
Lease payments	(349)	(48)
Net cash (used in) provided by financing activities	(3,149)	1,648
Net change in cash	1,600	(1,393)
Cash at beginning of period	4,096	1,393
Cash at end of period	5,696
Supplemental disclosures of non-cash activities
Purchase of assets under finance leases	$ 752	$ 407

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Basis of Presentation and Principles of Consolidation

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation and Principles of Consolidation

1.     Basis of Presentation and Principles of Consolidation

Houston Wire & Cable Company (the “Company”), through its wholly owned subsidiaries, provides industrial products including electrical wire and cable, steel wire rope and hardware, and fasteners to the U.S. market through twenty-one locations in fourteen states throughout the United States. The Company has no other business activity.

The consolidated financial statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 have been prepared following accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the results of these interim periods have been included. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. All significant intercompany balances and transactions have been eliminated. The Company has evaluated subsequent events through the time these financial statements in this Form 10-Q were filed with the Securities and Exchange Commission (the “SEC”).

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates are those relating to the 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.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC.

Risks and Uncertainties

The Company is currently subject to additional risks and uncertainties due to the COVID-19 pandemic. The pandemic, and governmental and other actions taken in response to it, have had an adverse effect on the demand for the Company’s products and on its results of operations, and the virus continues to spread. Capital markets and economies worldwide have been negatively impacted by the COVID-19 pandemic, and it is possible that the impact could cause an extended local and/or global economic recession. Such economic disruption could have a material adverse effect on our business as companies in many industries curtail and reduce capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support specific industries and their economies as a whole. However, the overall effectiveness of these actions remains uncertain.

The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be materially adversely affected by delays in payments of outstanding receivables, supply chain disruptions, uncertain or reduced demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these financial statements, the extent to which the COVID-19 pandemic may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain.

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 ASUs that were recently adopted by the Company.

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 the FASB’s disclosure framework project. The Company adopted this ASU in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

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 Company adopted this ASU in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses.” This ASU, among other narrow-scope improvements, clarifies guidance around how to report expected recoveries. This ASU permits organizations to record expected recoveries on assets purchased with credit deterioration. In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities. The effective date and transition methodology are the same as in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB deferred the effective dates of these ASUs for smaller reporting companies (“SRC”) to fiscal years beginning after December 15, 2022. As of June 30, 2020, the Company qualifies as a SRC and expects to adopt these ASUs in the first quarter of 2023.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU removes specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether certain exceptions apply in a given period. This ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: a) Franchise taxes that are partially based on income; b) Transactions with a government that result in a step up in the tax basis of goodwill; c) Separate financial statements of legal entities that are not subject to tax; and d) Enacted changes in tax laws in interim periods. For public business entities, ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently assessing the impact of this ASU on its consolidated financial statements.

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Earnings per Share

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Earnings per Share

2.     Earnings per Share

Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per share include the dilutive effects of options and unvested restricted stock awards and units.

The following reconciles the denominator used in the calculation of diluted earnings (loss) per share: 

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Denominator:
Weighted average common shares outstanding for basic earnings per share		16,442,493		16,504,471		16,414,976		16,491,236
Effect of dilutive securities		—		93,025		—		79,877
Weighted average common shares outstanding for diluted earnings per share		16,442,493		16,597,496		16,414,976		16,571,113

Stock awards to purchase 940,682 and 275,494 shares of common stock for the three months ended June 30, 2020 and 2019, respectively, and 961,526 and 286,141 shares for the six months ended June 30, 2020 and 2019, respectively, were not included in the diluted net income (loss) per share calculation as their inclusion would have been anti-dilutive.

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Debt

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Debt

3.     Debt

On March 12, 2019 and December 10, 2019, the Company, as guarantor, HWC Wire & Cable Company and Vertex, as borrowers, and Bank of America, N.A., as agent and lender, entered into a Second and Third Amendments, respectively, to the Fourth Amended and Restated Loan and Security Agreement (such agreement, as so amended, the “Loan Agreement”). The Second Amendment extends the expiration date until March 12, 2024 and the Third Amendment increased the revolving credit facility to $115 million. 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 March 12, 2024. At June 30, 2020, 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.”

On May 4, 2020, the Company received a $6.2 million Paycheck Protection Program (“PPP”) loan from Bank of America (“Lender”), funded under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), pursuant to a Promissory Note issued by the Company to Lender. The Company will use the funds to pay its payroll related expenses as well as rent expenses, as allowed by the terms of the loan. The Company intends to apply for loan forgiveness in the third quarter 2020. Under current rules, which could still be clarified further, the Company believes it will achieve around 80-90% forgiveness. The forgiveness amount will be equal to the amount that the Company uses for the approved expenses, a minimum of 60% on payroll related expenses and up to 40% on non-payroll expenses. If the total of the loan is not forgiven, the Company will have two years from the funded date of May 4, 2020 to repay the balance of the PPP loan to Bank of America. No principal or interest payments will be due prior to the end of the six-month deferment period and the interest rate on the balance of the loan will not exceed 1.0% per annum.

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Impairment of Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Impairment of Goodwill and Intangible Assets

4.    Impairment of Goodwill and Intangible Assets

The Company tests goodwill and indefinite lived intangibles for impairment at least annually or more frequently whenever events or circumstances occur indicating that it might be impaired. During the first and second quarter of 2020, the Company’s market capitalization declined significantly, driven by current macroeconomic and geopolitical conditions due in large part to the COVID-19 outbreak, which has contributed to a decline in demand for the Company’s products, a decline in overall financial performance, partially due to the decline in oil prices, and decline in industry and market conditions. Based on these events, the Company concluded that it was more-likely-than-not that the fair values of certain of its reporting units were less than their carrying values. Therefore, the Company performed an interim goodwill impairment test for both the first and second quarter.

Goodwill impairment is evaluated at each of the four reporting units. The Company determined the fair values of two reporting units with goodwill and certain of its indefinite lived intangibles exceeded their respective carrying values. The amount of goodwill at June 30, 2020 for the two reporting units, Southern Wire and Vertex, were $12.5 million and $9.8 million, respectively, and the Vertex reporting unit has a negative carrying value. Additionally, the Company determined the fair value of its Vertex reporting unit’s tradenames was below its carrying value, and as a result recorded an impairment charge of $0.1 million in June 2020. The Company also determined the fair value of its Southwest reporting unit’s tradenames was below its carrying value, and as a result, recorded an impairment charge of $0.1 million in June 2020 and $0.2 million in March 2020.

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Income Taxes

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

5.    Income Taxes

The effective tax rate for the six months ended June 30, 2020 was 14.3%, compared to 27.5% for the same period in 2019. Compared to the U.S. statutory rate, the effective tax rate was impacted by state income taxes and nondeductible expenses. Due to the continuing uncertainty in the Company’s industry, the Company has utilized the method of recording income taxes on a year-to-date effective tax rate for the six months ended June 30, 2020. The Company will evaluate its use of this method each quarter until such time as a return to the annualized estimated effective tax rate method is deemed appropriate.

The CARES Act was signed into law on March 27, 2020. The CARES Act contains several tax law changes for corporations, including modifications for net operating loss carrybacks, the refundability of prior-year minimum tax liability, limitations on business interest and limitations on charitable contribution deductions. These benefits did not impact the Company’s tax provision for the three months ended June 30, 2020.

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Incentive Plans

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Incentive Plans

6.    Incentive Plans  

Stock Option Awards

There were no stock option awards granted during the first six months of 2020 or 2019.

Restricted Stock Awards and Restricted Stock Units

On June 26, 2020, the Board of Directors granted 10,000 restricted stock units to the newly named executive chairman of the board. The award shall vests in two equal installments on June 26, 2021 and June 26, 2022. The award entitles the executive chairman of the board 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 his service on the board terminates for any reason.

Following the Annual Meeting of Stockholders on May 7, 2019, the Company granted restricted stock units with a grant date value of $60,000 to each non-employee director who was elected and re-elected, for an aggregate of 58,920 restricted stock units. Each award of restricted stock units vested at the date of the 2020 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. The Company did not grant equity awards to the non-employee directors following the 2020 Annual Meeting.

On March 12, 2019, the Board of Directors granted 52,910 performance stock units to the Company’s President and CEO and 13,228 performance stock units to the CFO. Each grant of performance stock units vests on December 31, 2021, 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 the grantee 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 the grantee if and when the related shares vest.

Total stock-based compensation cost was $0.4 million for each of the three months ended June 30, 2020 and 2019, and $0.8 million for the six months ended June 30, 2020 and $0.7 million for the six months ended June 30, 2019, and is included in salaries and commissions for employees, and in other operating expenses for non-employee directors. 

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

7.    Commitments and Contingencies

The Company had outstanding under the Loan Agreement letters of credit totaling $0.7 million to certain vendors as of June 30, 2020.

From time to time, the Company is involved in lawsuits that are brought against it in the normal course of business. The Company is not currently a party to any legal proceedings that it expects, either individually or in the aggregate, to have a material adverse effect on the Company’s consolidated financial position, cash flows, or results from operations. 

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Basis of Presentation and Principles of Consolidation (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Risks and Uncertainties

Risks and Uncertainties

The Company is currently subject to additional risks and uncertainties due to the COVID-19 pandemic. The pandemic, and governmental and other actions taken in response to it, have had an adverse effect on the demand for the Company’s products and on its results of operations, and the virus continues to spread. Capital markets and economies worldwide have been negatively impacted by the COVID-19 pandemic, and it is possible that the impact could cause an extended local and/or global economic recession. Such economic disruption could have a material adverse effect on our business as companies in many industries curtail and reduce capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support specific industries and their economies as a whole. However, the overall effectiveness of these actions remains uncertain.

The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be materially adversely affected by delays in payments of outstanding receivables, supply chain disruptions, uncertain or reduced demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these financial statements, the extent to which the COVID-19 pandemic may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain.

Recently Adopted Accounting Standards

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 ASUs that were recently adopted by the Company.

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 the FASB’s disclosure framework project. The Company adopted this ASU in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

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 Company adopted this ASU in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses.” This ASU, among other narrow-scope improvements, clarifies guidance around how to report expected recoveries. This ASU permits organizations to record expected recoveries on assets purchased with credit deterioration. In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities. The effective date and transition methodology are the same as in ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB deferred the effective dates of these ASUs for smaller reporting companies (“SRC”) to fiscal years beginning after December 15, 2022. As of June 30, 2020, the Company qualifies as a SRC and expects to adopt these ASUs in the first quarter of 2023.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU removes specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether certain exceptions apply in a given period. This ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: a) Franchise taxes that are partially based on income; b) Transactions with a government that result in a step up in the tax basis of goodwill; c) Separate financial statements of legal entities that are not subject to tax; and d) Enacted changes in tax laws in interim periods. For public business entities, ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently assessing the impact of this ASU on its consolidated financial statements.

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Earnings per Share (Tables)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

The following reconciles the denominator used in the calculation of diluted earnings (loss) per share

The following reconciles the denominator used in the calculation of diluted earnings (loss) per share: 

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Denominator:
Weighted average common shares outstanding for basic earnings per share		16,442,493		16,504,471		16,414,976		16,491,236
Effect of dilutive securities		—		93,025		—		79,877
Weighted average common shares outstanding for diluted earnings per share		16,442,493		16,597,496		16,414,976		16,571,113

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Basis of Presentation and Principles of Consolidation (Details Narrative)	6 Months Ended
	Jun. 30, 2020 Number
Accounting Policies [Abstract]
Number of location	21
Number of states	14

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The following reconciles the denominator used in the calculation of diluted earnings (loss) per share (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Denominator:
Weighted average common shares outstanding for basic earnings per share	16,442,493	16,504,471	16,414,976	16,491,236
Effect of dilutive securities		93,025		79,877
Weighted average common shares outstanding for diluted earnings per share	16,442,493	16,597,496	16,414,976	16,571,113

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Earnings per Share (Details Narrative) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Earnings Per Share [Abstract]
Options to purchase stock awards	940,682	275,494	961,526	286,141

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Debt (Details Narrative) - USD ($)				6 Months Ended
	May 04, 2020	Dec. 10, 2019	Mar. 12, 2019	Jun. 30, 2020
Line of Credit Facility [Line Items]
Description of loan converted				Portions of the loan may be converted to LIBOR loans in minimum amounts of $1.0 million and integral multiples of $0.1 million.
Description of interest rate				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.
Percentage of unused capacity commitment fee				25.00%
Payroll Protection Program [Member] | Bank Of America [Member]
Line of Credit Facility [Line Items]
Loan face amount	$ 6,200,000
Payroll related expenses	60.00%
Non-payroll expenses	40.00%
Loan interest rate	the interest rate on the balance of the loan will not exceed 1.0% per annum.
Payroll Protection Program [Member] | Bank Of America [Member] | Minimum [Member]
Line of Credit Facility [Line Items]
Forgiveness percentage	80.00%
Payroll Protection Program [Member] | Bank Of America [Member] | Maximum [Member]
Line of Credit Facility [Line Items]
Forgiveness percentage	90.00%
Second Amended And Restated Loan And Security Agreement [Member] | Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Minimum amount outstanding			Mar. 12, 2024
Third Amended And Restated Loan And Security Agreement [Member] | Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Minimum amount outstanding		$ 115,000,000,000
Additional commitment amount		$ 50,000,000,000
Fourth Amended and Restated Loan and Security Agreement (the 2015 Loan Agreement) [Member] | Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Percentage of the value of eligible accounts receivable				85.00%
Percentage of the value of eligible inventory				70.00%
Percentage of the value of net orderly liquidation				90.00%
Description of collateral				The Loan Agreement is secured by substantially all of the property of the Company, other than real estate.

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Impairment of Goodwill and Intangible Assets (Details Narrative)	1 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Jun. 30, 2020 USD ($) Number	Dec. 31, 2019 USD ($)
Indefinite-lived Intangible Assets [Line Items]
Number of reporting units | Number			4
Goodwill	$ 22,353,000		$ 22,353,000	$ 22,353,000
Southern Wire Reporting Unit [Member]
Indefinite-lived Intangible Assets [Line Items]
Goodwill	12,500,000		12,500,000
Vertex Reporting Unit [Member]
Indefinite-lived Intangible Assets [Line Items]
Goodwill	9,800,000		$ 9,800,000
Vertex Reporting Unit [Member] | Trade Names [Member]
Indefinite-lived Intangible Assets [Line Items]
Impairment charge	100,000
Southwest Reporting Unit [Member] | Trade Names [Member]
Indefinite-lived Intangible Assets [Line Items]
Impairment charge	$ 100,000	$ 200,000

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Income Taxes (Details Narrative)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Income Tax Disclosure [Abstract]
Effective tax rate	14.30%	27.50%

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Incentive Plans (Details Narrative) - USD ($)				3 Months Ended		6 Months Ended
	Jun. 26, 2020	May 07, 2019	Mar. 12, 2019	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option awards granted						0	0
Stock-based compensation cost						$ 768,000	$ 707,000
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting date			Dec. 31, 2021
Term of vesting period			3 years
Board of Directors Chairman [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units grants	10,000
Board of Directors Chairman [Member] | Restricted Stock [Member] | Share-based Payment Arrangement, Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting date	Jun. 26, 2021
Board of Directors Chairman [Member] | Restricted Stock [Member] | Share-based Payment Arrangement, Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting date	Jun. 26, 2022
Non Employee Directors [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units grants		58,920
Number of units grants, value		$ 60,000
President And Chief Executive Officer [Member] | Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares granted under plan			52,910
Chief Financial Officer [Member] | Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares granted under plan			13,228
Employees And Non Employee Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation cost				$ 400,000	$ 400,000	$ 800,000	$ 700,000

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Commitments and Contingencies (Details Narrative)	Jun. 30, 2020 USD ($)
Loan Agreement [Member] | Vendors [Member]
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Outstanding line of credit	$ 700,000