UNITED
STATES


SECURITIES AND
EXCHANGE COMMISSION


Washington, D.C.
20549





FORM
10-K





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




For
the Fiscal Year ended December 31, 2007






or




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




For
the transition period from to






Commission
File Number: 000-52046











(Exact
name of registrant as specified in its charter)







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





(713)
609-2100


(Registrant’s
telephone number, including area code)


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





Title
      of Class
            
            Name
      of Each Exchange on Which RegisteredCommon
      stock, par value $0.001 per share
            
            The
      Nasdaq Stock Market





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




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  YES  ̈NO x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  YES  ̈NO x




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days   YES xNO  ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulations S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x









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


Large
      Accelerated Filer  ̈
            Accelerated
      Filer x
            Non-Accelerated
      Filer  ̈
            Smaller
      reporting company  ̈




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)     YES  ̈NO x






The
aggregate market value of the voting stock (common stock) held by non-affiliates
of the registrant as of June 30, 2007 was $471,422,386.






At March 1, 2008, there were18,577,727outstanding shares of the registrant’s
common stock, $.001 par value per share.






DOCUMENTS
INCORPORATED BY REFERENCE






Part III
of this report incorporates by reference specific portions of the registrant’s
definitive Proxy Statement relating to the Annual Meeting of Stockholders to be
held on May 8, 2008.





2





HOUSTON WIRE & CABLE COMPANY


Form
10-K


For
the Fiscal Year Ended December 31, 2007





INDEX


PART
      I.Item
      1.
            Business
            4Item
      1A.
            Risk Factors
            15Item
      1B.
            Unresolved Staff Comments
            17Item
      2.
            Properties
            17Item
      3.
            Legal Proceedings
            17Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            18Supplemental
      Item
            Executive Officers of the
    Registrant
            18PART
      II.Item
      5.
            Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            19Item
      6.
            Selected Financial Data
            21Item
      7.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            23Item
      7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            31Item
      8.
            Financial Statements and Supplementary
    Data
            32Item
      9.
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            48Item
      9A.
            Controls and Procedures
            48Item
      9B.
            Other Information
            51PART
      III.Item
      10.
            Directors, Executive Officers and Corporate
      Governance
            52Item
      11.
            Executive Compensation
            52Item
      12.
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            52Item
      13.
            Certain Relationships and Related Transactions, and Director
      Independence
            52Item
      14.
            Principal Accounting Fees and Services
            52Part
      IV.Item
      15.
            Exhibits and Financial Statement
    Schedules
            53





3
 Index





PART
I





ITEM 1. BUSINESS








Overview





We
are one of the largest distributors of specialty wire and cable and related
services to the U.S. electrical distribution market. During 2007, we served over
2,800 customers, including virtually all of the top 200 electrical distributors
in the U.S. We have strong relationships with leading wire and cable
manufacturers and provide them with efficient access to the fragmented
electrical distribution market. During 2007, we distributed approximately 23,000
SKUs (stock-keeping units) to over 8,200 customer locations nationwide from
eleven strategically located distribution centers in ten states. We are focused
on providing our electrical distributor customers with a single-source solution
for specialty wire and cable and related services by offering a large selection
of in-stock items, exceptional customer service and high levels of product
expertise.





We
offer products in most categories of specialty wire and cable, including:
continuous and interlocked armor cable; control and power cable; electronic wire
and cable; flexible and portable cords; instrumentation and thermocouple cable;
lead and high temperature cable; medium voltage cable; and premise and category
wire and cable. We also offer private branded products, including our LifeGuardTM
low-smoke, zero-halogen cable. Our specialty wire and cable is primarily used in
repair and replacement, also referred to as maintenance, repair and operations
("MRO"), related projects and is increasingly purchased for larger-scale
projects in the utility, industrial and infrastructure markets. Our specialty
wire and cable is used within a diverse range of industries, including the
communications, energy, engineering and construction, general manufacturing,
infrastructure, petrochemical, transportation, utility and wastewater treatment
industries.





Our
value-added services include:





•
            Standard
      same day shipment from our extensive inventory and distribution
      network





•
            Application
      engineering support through our knowledgeable sales and technical support
      staff





•
            Custom
      cutting of wire and cable to exact specifications at no additional
      charge





•
            Inventory
      management programs that provide job-specific asset management and
      just-in-time delivery





•
            Job-site
      delivery and logistics support





•
            24/7/365
      customer service





•
            Customized
      internet-based ordering
capabilities





Our
wide product selection and specialized services support our position in the
supply chain between wire and cable manufacturers and electrical distributors
and their customers. Offering the breadth and depth of specialty wire and cable
that we do requires significant warehousing resources and a large number of
SKUs. An electrical distributor, however, typically sells a wide variety of
electrical products ranging from lighting to MRO supplies, and only a small
percentage of these items represent specialty wire and cable. In addition, given
their bulk and weight, specialty wire and cable require a disproportionately
high percentage of warehouse space and materials handling capabilities compared
to the sales volume they generate for an electrical distributor. Instead of
dedicating larger amounts of warehouse space to inventory and making the
investments in employee training, same day shipment capabilities for specialty
wire and cable, end-user support, and information technology needed to maintain
industry leading levels of service, our distributor customers rely on us to
supply much of their specialty wire and cable. At the other end of the supply
chain, while manufacturers may have the space and capabilities to maintain a
large supply of inventory, we do not believe that any single manufacturer has
the breadth of product that we offer. More importantly, manufacturers
historically have not offered the services that our customers need, such as
complementary custom cutting and same day shipment, and do not have multiple
distribution locations across the nation. As a result, we believe that we serve
an important role in the supply chain for specialty wire and cable and that it
would be uneconomical for manufacturers or electrical distributors to compete
with us, given our nationwide product and service capabilities.





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





History





We were
founded in 1975 and have a long history of reliable customer service, broad
product selection and strong product expertise. In 1987, we completed our first
initial public offering and were subsequently purchased in 1989 by ALLTEL
Corporation. In 1997, we were purchased by investment funds affiliated with
Code, Hennessy & Simmons LLC. In June 2006, we completed our second
initial public offering. During our 32 year history, we have successfully
expanded our business from one original location in Houston, Texas to eleven
strategic locations nationwide.





4
 Index





In
2000, we acquired our largest direct competitor, the Futronix division of
Kent Electronics Corporation. In 2003, we implemented a new sales and
marketing strategy to expand our sales force, to introduce new private branded
products and to work in concert with our distributor customers to generate
demand from end-users in our targeted markets, including the utility, industrial
and infrastructure markets. As part of this initiative, we are partnering with
our distributor customers and strengthening our relationships with project and
specifying engineers to generate demand for our specialty wire and cable. For
example, in the utility markets, we seek to capitalize on increased spending on
new power generation assets and environmental compliance initiatives. In
addition, in the engineering and construction market we work with specifying
engineers to drive specialty wire and cable specifications in large capital
projects and market our cable management program as a tool to manage wire and
cable at those projects.





U.S. Industry
Overview





We
operate within the U.S. electrical distribution market, which Electrical Wholesaling
magazine estimates had industry-wide sales of $89.1 billion in 2007.
Electrical distribution has historically been a growing segment of the
industrial distribution industry, with a compound annual growth rate (“CAGR”) of
4.7% since 1985.





Within
the electrical distribution industry, our business focuses on specialty wire and
cable. According to the U.S. Census Bureau, the total value of manufacturers'
shipments of specialty wire and cable totaled approximately $9.4billion in 2006. The
specialty wire and cable we sell generally consists of continuous and
interlocked armor cable; control and power cable; electronic wire and cable;
flexible and portable cords; instrumentation and thermocouple cable; lead and
high temperature cable; medium voltage cable; and premise and category wire and
cable. These products are often highly engineered and require sophisticated
knowledge to insure proper application. Examples of primary end-markets for
specialty wire and cable include the communications, energy, engineering and
construction, general manufacturing, infrastructure, petrochemical,
transportation, utility and wastewater treatment industries.





The
sales channel for specialty wire and cable depends on a number of factors,
including order type, product selection, service level expectations, inventory
management and delivery requirements. The greater the need for customization and
high service levels (represented by the right side of the following diagram),
the more likely the transaction will involve a specialty wire and cable
distributor such as us.











In
certain circumstances, manufacturers of specialty wire and cable sell their
products directly to the end-user. These transactions typically consist of a
bulk volume of wire and cable, involve little or no customized services and may
require long lead times between order and delivery. An example of this type of
transaction would be the purchase of full reels of cable with manufacturing lead
times ranging from 8 to 16 weeks after receipt of the order. More frequently, an
electrical distributor serves as the sales channel directly between the
manufacturer and the contractor or end-user. The typical sale by an electrical
distributor may involve a commonly purchased item that is specifically
designated by the end-user and shipped from stock along with a variety of other
electrical products. It is generally most economical for electrical distributors
to carry in their inventories only those wire and cable SKUs that are commonly
ordered and do not require high levels of specialized knowledge or
services.





5
 Index





For
customers requiring highly specialized wire and cable, custom cut lengths,
technical expertise, short lead times or additional services, electrical
distributors will generally source products from a specialty wire and cable
distributor. We believe that the increasing complexity of specialty wire and
cable specifications and the growing need for just-in-time delivery and
logistics support will drive further growth in purchases through specialty wire
and cable distributors.





Targeted
Markets





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





Utility
Market.    The utility market includes large
investor-owned utilities, rural cooperatives and municipal power authorities.
While we do not distribute the power lines used for the transmission of
electricity, we sell many products used in a power plant and in the related
pollution control equipment. As such we are positioned to benefit from
expenditures for new power generation needed to satisfy a growing population
with increasing energy demands and to comply with federal mandates to reduce
toxic outputs from power generating facilities. We expect to benefit from this
trend as our customers utilize our cable management services to support the
distribution of specialty wire and cable required for the construction of new
power plants and upgrading of existing power plants. For example, large
coal-fired utility plants across the U.S. may be retrofitted with flue gas
desulphurization systems (commonly referred to as scrubbers) to comply with
pollution-control initiatives. This type of project requires the specialty
instrumentation, power and control products that we distribute.





Industrial
Market.    The industrial market is one of the
largest segments of the U.S. economy, comprised of a diverse base of
manufacturing and production companies. Based on a compilation of January 2008
Industrial Information Resources reports, spending on industrial capital
projects in the U.S. during 2008 is expected to total $123 billion. We help
our electrical distributor customers provide specialty wire and cable to
industrial companies with large, complex plant maintenance, repair and
operations requirements and for new capital projects. We offer specialty wire
and cable that is specifically designed for a variety of industrial
applications, and we are benefiting from on-going capital spending due to
factory and plant upgrades. For example, in petroleum refining and other
harsh-environment operations, we distribute specialty cables specifically
designed to endure exposure to caustic materials or extreme
temperatures.





Infrastructure
Market.    We believe that significant infrastructure
improvements and additions to support population density and growth will be
needed over the next several years. For example, the U.S. Conference of Mayors
Water Council’s 2007 National City Water Survey report states, “More than $82
billion was spent in 2005 on water and sewer services and infrastructure, and
from 1992 to 2005 total expenditures exceeded $841 billion”. This report further
stated, “Annual local government spending may exceed $110 billion by 2010”. We
expect to benefit from this trend given that the specialty wire and cable we
distribute is used in the construction of wastewater treatment facilities and
throughout other major infrastructure projects. We are assisting our customers
to further penetrate the engineering and construction market by working with
application engineers to drive specialty wire and cable specifications in these
large construction projects.





LifeGuardTM
Market Opportunity





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





Our
LifeGuardTM cable has been accepted for use by several hundred end-users,
including leading engineering and construction firms, and is increasingly
included in specifications for utility, data center and industrial related
projects. LifeGuardTM can be used in harsh environments for power, control and
lighting circuits in a broad range of commercial, industrial and utility
applications. We are currently marketing LifeGuardTM to the utility industry for
use in power generation and co-generation; to industrial plants for
petrochemical, pharmaceutical and wastewater treatment related uses; to general
industry for use in data centers, such as computer rooms, switching centers and
central offices; and to the engineering and construction market for use in
highly populated facilities such as multi-story buildings, schools, hotels,
hospitals, sports centers, airports and mass transit stations.





Competitive
Strengths





We
are a nationally recognized, full-service distributor of specialty wire and
cable and related services. Through eleven strategic locations across the United
States, we provide same-day shipment to a broad customer base including, among
others, Border States Electric Supply, Consolidated Electrical
Distributors, Inc., GEXPRO (formerly GE Supply Company), Graybar
Electric Company, Inc., HD Supply, Inc., Mayer Electric Supply
Company Inc., Rexel, Inc., The Reynolds Company, Sonepar USA and WESCO
Distribution, Inc. We operate in a highly fragmented market, and we believe that
the following competitive strengths have helped us achieve our leading position
in the market and a strong reputation among manufacturers and
customers.








Comprehensive
Value-Added Services and Product Expertise





Our
business model focuses on providing our customers with comprehensive value-added
services and high levels of expertise across a broad range of our suppliers'
products. Our services are designed to provide maximum efficiency and
flexibility for our customers and include extensive product knowledge and
application engineering support, inventory management, custom cut capabilities
and 24/7/365 customer service. We help our customers achieve efficient and
effective procurement of specialty wire and cable on terms that typically
include short lead times and the ability to ship a high percentage of the
products ordered within 24 hours. Critical to our success is our
application engineering support, in which our knowledgeable sales people help
customers match products based on intended use, cost and performance
specifications. We have developed the expertise, infrastructure and
relationships to provide extensive customer service that we believe would be
costly to build and support without the scale we have achieved.





6
 Index





Strength
and Tenure of Specialized Sales Force





We have
invested in developing a sales force of highly knowledgeable professionals with
considerable industry expertise. As of December 31, 2007, our sales force
consisted of 54 field sales personnel and 90 inside sales and technical support
personnel. The size of our field sales force has increased significantly since
2003 and is aligned according to targeted industries, geography and select
customer relationships. Our sales personnel receive ongoing, comprehensive
training about innovations in specialty wire and cable as well as changes
affecting our targeted markets. We use a consultative selling approach that
leverages our extensive product expertise and knowledge of our customers' needs
in the markets in which the products are used. Our sales effort is designed to
augment the sales efforts of manufacturers as well as those of our distributor
customers. We believe that our sales approach results in increased demand for
the products we distribute and maximizes our reputation as a highly
knowledgeable source of specialty wire and cable information.





First-Mover
Advantage with LifeGuardTM Cable





We
believe we have established a first-mover advantage in the U.S. with our
LifeGuardTM line of low-smoke, zero-halogen cable products. We believe our
LifeGuard line of cable has the potential to become the industry standard in the
U.S. for low-smoke, zero-halogen cable needs. Since its introduction in 2003,
our LifeGuardTM line of cable has been accepted for use by several hundred
end-users, including leading engineering and construction firms, and is
increasingly included in specifications for utility, data center and industrial
related projects. We have identified a substantial potential market for these
products and believe that our early entrance into the market provides us
witha significant
competitive advantage.





Operating
Efficiency





Our
ability to offer a high level of customer service is due in part to our highly
efficient and effective operations that leverage centralized back-office
administration and purchasing, a scalable information technology platform,
automated warehouse operations and electronic product tracking. The products we
carry are bar-coded with exact product specifications and length and tracked on
a real-time basis in our system, which allows us to cost-effectively route
orders to our warehouses across the country based on delivery distance,
availability and quantity of product. Our process minimizes waste by targeting
specific locations and reels for optimal custom cut orders. Efficient purchasing
and management of our products have helped us increase our average inventory
turns from 3.37 in 2003 to 3.97 in 2007 and improved our gross margin during the
same period from 23.6% to 25.9%. In addition, by leveraging our national
infrastructure and implementing back-office initiatives, we have decreased our
operating expenses as a percentage of revenue from 20.4% in 2003 to 12.0% in
2007. Based on data for 2006 reflected in the 2007 Performance Analysis
Report (“PAR Report”) published by the National Association of Electrical
Distributors (“NAED”), we compare favorably to the electrical distribution
industry averages across several metrics, including average sales per employee
of approximately $1,201,000 in 2007 versus $548,000 for the industry in
2006.





Extensive
Product Offering and Strong Supplier Relationships





In
2007, we sold approximately 23,000 SKUs, representing a broad and deep selection
of high-quality specialty wire and cable. Our products include national brands
of continuous and interlocked armor cable; control and power cable; electronic
wire and cable; flexible and portable cords; instrumentation and thermocouple
cable; lead and high temperature cable; medium voltage cable; and premise and
category wire and cable. We also offer several products under our private
brands, including our LifeGuardTM line of low-smoke, zero-halogen cable. Our
strategy is to maintain a wide breadth and depth of inventory, allowing us to
ship a high percentage of the products ordered within 24 hours. We believe
that our vast product offering and value-added services are significant factors
in attracting and retaining many of our customers. In addition, we have strong,
often decades-long, relationships with large wire and cable manufacturers such
as Belden CDT, General Cable Corp., Nexans, Service Wire Company and
Southwire Company. Because of our national scale, market leadership position and
specialized services, we believe we provide an important function in the supply
chain and are critical to our suppliers' sales efforts. We also believe that our
strategic decision to concentrate our purchases with our top suppliers allows us
to solidify our relationships with these vendors while optimizing our vendor
rebates.





Strong
and Diversified Customer Base





During
2007, we served over 2,800 customers, including virtually all of the top
200 electrical distributors in the U.S. We have experienced exceptional customer
retention, and we believe that we are the primary supplier of specialty wire and
cable to a majority of our customers. Each of our top ten customers in 2007 has
purchased products from us every year over the last decade. Our direct customers
are electrical distributors, and our products are used within a diverse range of
industries including the communications, energy, engineering and construction,
general manufacturing, infrastructure, petrochemical, transportation, utility
and wastewater treatment industries. We believe that the strength of our broad
customer relationships provides us with a significant competitive
advantage.





7
 Index





Experienced
Management Team





Our
highly experienced team of executive officers and key management has an average
tenure with us of over 15 years. This continuity strengthens our
relationships with our customers and suppliers and enables us to provide our
customers with a high level of product and industry expertise. Our management
team is led by our President and Chief Executive Officer,
Charles Sorrentino, who joined us in 1998. Working with Mr. Sorrentino
is a team of industry veterans who have been instrumental to our strong growth
and success to date and will enable us to leverage our competitive strengths and
pursue further strategic growth opportunities.





Growth
Strategies





Since
implementing our new sales and marketing strategy in 2003, our revenue has
increased from $149.1 million in 2003 to $359.1 million in 2007, and
our operating income has increased from $4.7 million to $49.7 million.
We intend to continue to leverage our competitive strengths and pursue select
strategic initiatives to drive growth in revenue and profit.





Generate
Demand from Targeted Markets





During
2003, we realigned our sales efforts to work in concert with our distributor
customers to generate demand directly from end-users in our targeted markets,
including the utility, industrial and infrastructure markets. We believe that
our sales and marketing programs and product application expertise can help our
distributor customers drive demand from their customers. In select target
markets, we are assisting our customers in forming relationships with project
and specifying engineers to create demand for our specialty wire and cable. For
example, in the utility market, we are positioned to capitalize on the increased
spending on new power generation assets and environmental compliance
initiatives. Additionally, we are marketing our cable management program to the
engineering and construction market as a tool to manage supplies at large
capital projects. We also believe that many of these new relationships have been
awarded to us based on the range of value added services that we are able to
provide. We believe that our ability to help generate demand and manage the
logistics of delivering our specialty wire and cable increases the value we
bring to our customers and suppliers alike. We believe that the relationships we
have developed with specifying engineers enhance our role in the sales and
marketing process and established a platform to accelerate sales of our private
branded products through our distribution channels.





Expand
Our Sales Force





As
part of our ongoing strategy to penetrate new markets, we expect to continue to
expand our sales force and further focus our sales and marketing efforts on
supporting our distributor customers in our targeted markets. We typically hire
experienced personnel for our sales force, and since 2003 we have significantly
increased the number of our field sales personnel. Based on data for 2006
reflected in the 2007 PAR Report published by the NAED, our sales personnel
outperformed industry averages with average sales per sales employee of $2.2
million in 2007 versus $1.1 million for the industry in 2006. We believe we are
in the early stages of penetrating additional sales channel opportunities in
targeted markets and will continue to add specialized sales personnel to
generate demand for our products.





Increase
Sales of Private Branded Products





Beginning
in 2003, we spearheaded the development and marketing of select private branded
products, including LifeGuardTM, a low-smoke, zero-halogen line of cable;
Houwire®, a low-cost sound and security wire; and DataGuard®, a high-end
electronic cable product line. Low-smoke, zero-halogen cables have been used
extensively in Europe andAsiafor many years. While we are still in
the early stages of selling these product lines, we believe the possible markets
for these products are significant. Since its introduction in 2003, our
LifeGuardTM line of cable hasbeen acceptedfor use byseveral hundredend-users, including leading
engineering and construction firms, and is increasingly included in
specifications for utility, data center and industrial related
projects.





Focus
on Efficient Operations and Cost Control





We
seek ways to reduce costs, increase efficiency and ultimately enhance our
ability to serve our customers. For example, we continuously measure our
performance and implement best practices across our organization to improve our
operations. We tie a portion of our manager compensation to profitable growth.
In addition, we have invested in highly flexible and scalable information
systems, which have been instrumental to the efficient integration of our sales,
distribution and logistics capabilities. Improvements in our inventory
management have created capacity in our warehouses that can be used to support
our continued growth. We believe that our dedicated focus on efficient
operations and scalable technology will help us drive productivity improvements
and cost savings in the future.





Selectively
Pursue Acquisition Opportunities





Our
senior management team has experience in identifying and integrating acquisition
targets. In 2000, we acquired our largest direct competitor, Futronix, from
Kent Electronics. Following the acquisition we successfully integrated
operations, including the elimination of seven Futronix warehouses. While we are
not dependent on acquisitions to achieve our growth plan, we will selectively
pursue acquisitions that leverage our established infrastructure and allow us to
strategically address select target markets, grow our product and service
offering, expand geographically and leverage our efficient distribution and
operations platform.





8
 Index





Products





Through
our relationships with many of the large wire and cable manufacturers, we have
access to a full spectrum of specialty wire and cable, allowing us to
consistently meet the needs of our customers. Our focus is on specialty wire and
cable that is engineered for specific usage and supplies critical power and data
to end-users across diverse markets. We custom cut our wire and cable to exact
specifications so that they can be installed as soon as they arrive at the
destination. Our product strategy is to carry an extensive array of specialty
wire and cable to meet the diverse, dynamic and time-sensitive needs of our
customers. In addition, our infrastructure is designed to respond to short lead
times with high levels of product availability and same day
shipment.





Product
Categories.    We distribute a wide array of wire and
cable types for a host of applications, including:





•
            Continuous Armor.
      Continuous armor cable is available in low voltage and medium voltage
      constructions and is used in harsh environments where maximum conductor
      protection is required. The corrugated seamless aluminum armor prevents
      the entrance
      of water, gas and corrosive elements into the electrical core of the
      cable. Continuous armor cable is used in a wide variety
      of applications including industrial power distribution, pulp and
      paper, utility and petrochemical operations. This product can beused
      indoors and outdoors, aerially, in conduits, ducts, cable trays and direct
      burial applications.





•
            Control &
      Power. Control and power cable is 600 volt single or multiple
      conductor cable used in a broad range of commercial, industrial and
      utility applications. Applications include lighting, control and power
      circuits in wet and dry locations in conduits, ducts and raceways.
      Control and power cable is chemical, gasoline and oil resistant, and may
      be directly buried or installed in cable
trays.





•
            Electronic. Electronic
      cable is primarily used in audio, control, instrumentation and computer
      applications. It is highly engineered cable that provides specific
      electrical performance characteristics for a broad range of data,
      communications and industrial
applications.





•
            Flexible & Portable
      Cord.
      Flexible and portable cord is a highly flexible and durable single or
      multiple conductor cable used in heavy-duty industrial applications. These
      cables are commonly used for energizing mobile mining equipment, diesel
      electric locomotives, lifting magnets, cranes and loaders, as well as for
      portable power distribution for tools, equipment, small motors and
      machinery.





•
            Instrumentation &
      Thermocouple. Instrumentation and thermocouple cable is 300 volt or
      600 volt, twisted pair or triad cable used to transmit signals for
      instrument, process and control, or heat sensing instruments. It may be
      used in wet and dry locations, indoors or outdoors,
      aerially, in conduits, ducts, cable trays or 600 volt direct burial
      applications.





•
            Interlocked Armor.
      Interlocked armor cable is available in low voltage and medium voltage
      constructions and is used in harsh environments where maximum conductor
      protection is required. The protective sheath is made from a thick
      corrugated metal tape that locks together as it is wrapped around the
      cable core. It is used in a wide variety of applications including
      industrial power distribution, pulp and paper, utility and petrochemical
      operations. This product can be used indoors and outdoors, aerially, in
      conduits, ducts, cable trays and direct burial
    applications.





•
            Lead & High
      Temperature. Lead and high temperature cable is 600 volt single
      conductor cable used to create or complete electrical circuits. Many of
      these cables are capable of withstanding flame temperatures in excess of
      2,000°C or higher. This product is commonly used for power, control, and
      instrumentation circuits in iron, steel, glass, aluminum and refining
      applications, and in industrial heating and cooking
    equipment.





•
            Medium Voltage. Medium
      Voltage cable is a single or multi-conductor cable that is rated for 2,001
      volts to 35,000 volts. This power cable can be used in open air, conduit,
      duct, cable tray (when CT rated), wet and dry locations or be directly
      buried in earth. It is commonly used in chemical plants, refineries, steel
      mills, industrial plants, commercial buildings, utility substations and
      generating stations.





•
            Premise & Category
      Wiring. Premise wiring is used for general purpose remote control
      signaling and voice and data applications. Category cables are used for
      high speed data transmission of voice, data and telephony
      information.





Our Private
Branded Products.    We also sell our own private
branded products, LifeGuardTM, DataGuard® and Houwire®, across many of the
product categories identified above.





•
            LifeGuardTM. LifeGuardTM cable is a
      low-smoke, zero-halogen cable constructed with highly engineered polymers.
      LifeGuard'sTM properties exceed those of standard cable construction, and
      it has excellent electrical and mechanical characteristics. The jacket on
      LifeGuardTM cable is highly flame-retardant, produces very small amounts of
      smoke when burned and contains no halogens. LifeGuardTM is used in harsh
      environments for power, control and lighting circuits in a broad range of
      commercial, industrial and utility applications. LifeGuardTM cable is ideal
      for applications where a high degree of safety and equipment protection is
      required. We are currently marketing LifeGuardTM to the utility industry
      for use in power generation; to industrial plants for petrochemical,
      pharmaceutical and wastewater treatment related uses; to general industry
      for use in data centers, such as computer rooms, switching centers and
      central offices; and to the engineering and construction market for
      use in highly populated facilities, such as multi-story buildings,
      schools, hotels, hospitals, sports centers, airports and mass transit
      stations.





9
 Index





•
            DataGuard®. We introduced our
      DataGuard® product line in 2006 to address the data and communications
      wire and cable market. These expansive and performance driven markets
      require cables with exacting electrical characteristics. Our DataGuard®
      products are premium quality, highly engineered cables specifically
      designed to meet these demanding requirements and are used in a broad
      range of audio, control, instrumentation and computer
      applications.





•
            Houwire®. Our Houwire® product
      line has been custom tailored for the sound, security and fire alarm
      market. Houwire® products are low-voltage cables that have been value
      engineered for multiple applications in both industrial plants and
      commercial facilities. These competitively priced items have helped to
      position us for additional penetration into the broad and expanding sound
      and security market.





Services





In
addition to the broad selection of specialty wire and cable that we distribute,
we offer a wide array of value-added services to our customers to assist them
with their wire and cable requirements. These services allow customers to use
our industry expertise to efficiently manage their wire and cable requirements
with improved service and minimal waste and expense.





We
believe our inventory depth and breadth, distribution capabilities and
value-added services are critical to our customers' wire and cable procurement
needs and significantly reduce their cost by:





•
            eliminating
      long lead times typically required by
  manufacturers;





•
            reducing
      on-site labor costs;





•
            fulfilling
      small orders without subjecting customers to purchase order minimums and
      price premiums;





•
            reducing
      waste through our cut-to-length service
  offering;





•
            moderating
      inventory carrying costs by offering next-day delivery for SKUs which take
      up substantial warehouse space;





•
            providing
      access to restricted and exclusive
brands;





•
            offering
      technical resource capabilities through our product specialists'
      24-hours-a-day, seven-days-a-week, 365-days-a-year service;
      and





•
            managing
      large, intermittent product orders through our cable management
      program.





Our value-added services
include the following:





•
            Application Engineering
      Support. Our sales personnel have significant technical knowledge
      of the specialty wire and cable we distribute and their applications and
      specifications. Our sales staff assists customers with selecting the
      appropriate wire and cable products based on the intended use, cost and
      performance specifications.





•
            Standard Same Day Shipment
      from Our Extensive Inventory. Through our nine distribution
      facilities and two third-party logistics providers, it is our standard
      practice to ship product the day it is ordered, and we generally have it
      delivered by ground the next business
day.





•
            24-Hours, 7-Days-a-Week,
      365-Days-a-Year Service Anywhere in the United States. Our sales
      offices and distribution facilities provide
      customers with around-the-clock customer support and can deliver
      customized orders on short notice from any of our
    locations.





•
            Custom Color Striping.
      We provide custom striping services, including color-coding products for
      circuit design applications.





•
            Cut-to-Length Capabilities at
      No Additional Charge. We estimate that approximately 90% of
      our stock orders are cut-to-length, which eliminates excess labor costs
      and remnants for our customers.





•
            Wire & Cable Training
      Programs. We are actively engaged in wire and cable training both
      for our distributor customers and for their end-user customers. Typical
      training activities include wire schools at both supplier facilities and
      our own, plant and site tours at our facilities and our suppliers'
      facilities and on-site product training with cable
    engineers.





•
            Full Extranet
      Capabilities. We give our customers internet-based, password
      protected access to select areas of our real-time ERP system, which allows
      them to check product availability, obtain pricing, and confirm order
      status—including detailed shipping information identifying the carrier
      used and shipment tracking number.





•
            Cable Selection System.
      Our cable selection system is an internet-accessible order release site
      that allows customers to self-manage their cable requirements such that
      they arrive just-in-time at the job site and allows customers to initiate
      release of wire and cable via our website. With our cable selection
      system, the customer can request the exact circuit lengths to which cable
      is cut, project inventory status is available for review at any time, and
      the project engineer or field manager can submit changes to their orders
      from the field.





10
 Index





•
            Cable Management
      Program. Our cable management program is an inventory system that
      pre-allocates specialty wire and cable for a customer's specific
      project and includes a custom program designed to manage all of the wire
      and cable requirements for a customer's project. The major benefits of our
      cable management program include guaranteed availability of materials,
      plus safety stock; immediate shipment of material upon field release; firm
      pricing and a dedicated project manager. As part of the program, wire and
      cable stock is reserved in our warehouse and identified with a unique part
      number to ensure it is available for sale when requested by the customer.
      In addition, customers can review a project's inventory 24 hours a
      day via a secure internet site and can obtain details on items such as
      individual circuit cut history, shipment and order tracking information.
      Our cable management program allows customers to better manage their large
      projects and helps to eliminate job site theft, expenses associated with
      delayed shipments of materials and surplus
  materials.





Customers





During
2007, we served over 2,800customers,
including virtually all of the top 200 U.S. electrical distributors,
representing over 8,200 customer locations nationwide.





Our
customers' primary end-markets include the communications, energy, engineering
and construction, general manufacturing, infrastructure, petrochemical,
transportation, utility and wastewater treatment industries. While downturns or
cyclicality in the markets our distributor customers serve could affect our
business, we believe that the market and geographic diversity of our end-users
helps to mitigate risks associated with regional or sector-specific cycles. In
2007, our largest customer, Wesco Distribution, represented approximately 12% of
our sales. No other customer represented more than 10% of our 2007
sales.





Suppliers





We
obtain products from most of the leading wire and cable suppliers. We believe we
have strong relationships with our top suppliers. Although we believe that
alternative sources are available for the majority of our wire and cable
products, we have strategically concentrated our purchases with four leading
suppliers in order to maximize product quality, delivery dependability,
purchasing efficiencies, and supplier incentives. As a result, in 2007
approximately 65%of our annual purchases
came from four suppliers. We do not believe we are dependent on any one supplier
for any of our wire and cable products.





Our top
five suppliers in 2007 were Aetna Insulated Wire Company, Belden CDT, General
Cable Corp., Nexans, and Southwire Company. Products we purchased from Belden
CDT, General Cable Corp., Nexans, and Southwire Company each generated more than
10% of our sales in 2007.





We
believe that our national distribution presence and value-added services make us
an essential partner in the supply chain for our suppliers. In addition, we
believe our role in the supply chain, through our national distribution channel
and value-added services, provides our suppliers cost savings by:





•
            eliminating
      the need to maintain their own asset intensive distribution system across
      the U.S.;





•
            placing
      large orders, which allow suppliers to have efficient and cost-effective
      production planning;





•
            reducing
      their marketing and sales functions and expenses;
  and





•
            allowing
      them to rely on our technical specialists to provide technical support to
      our customers and end-users.





Sales
and Marketing





Sales
Strategy





The
primary objectives of our sales process are (i) to continue to generate
market awareness, (ii) to identify profitable specialty wire and cable
markets and (iii) to penetrate targeted markets through cost benefit
analyses and customized service offerings. Our sales force is trained to
identify the needs of our customers and develop a single-source wire and cable
solution that meets their needs while creating a competitive advantage for
us.





11
 Index





Sales
Organization





In
order to meet our growth initiatives and manage the corresponding increased
contact with customers, we invested heavily in sales resources (including
significantly increasing the size of our field sales force from 2003 to 2007).
We have also transformed our compensation programs to drive a more proactive
sales process. For example, we have realigned the incentives for our field sales
force by tying more than 50% of their incentive-based compensation to new
business. Our inside sales force compensation structure focuses on monthly
adjusted gross profit dollars and margin percentage targets.





We
have expanded our sales channels to support our electrical distributor customers
as "channel partners" to penetrate our targeted markets, including the utility,
industrial and infrastructure markets. In cooperation with these distributors,
we are implementing a pull-through sales strategy to increase demand for our
products and services among selected end-users.





As of
December 31, 2007, our sales and marketing staff consisted of approximately
168 employees. We market our specialty wire and cable through an inside sales
force located throughout our regional offices and a field sales force located in
key geographic markets throughout the U.S. By operating under a decentralized
process, regional managers are able to adapt quickly to market-specific
occurrences, allowing us to compete effectively with local competitors. We
believe the breadth and depth of our sales force is critical to serving our
fragmented and diverse customer and end-user base.





Our
field sales force focuses on developing demand for our products. In addition to
adding field sales resources, since 2003 we have reorganized our sales
organization to service our customer base more effectively and to penetrate new
and larger end-markets. Our sales force optimization plan has
involved:





•
            driving
      the specification of our private branded products such as
      LifeGuardTM;





•
            developing
      targeted account lists within regional sales
  territories;





•
            adding
      sales managers in larger regions to assist regional
    managers;





•
            adding
      support personnel for the development of our targeted
    markets;





•
            partnering
      with leading electrical distributor marketing groups to target Fortune 100
      companies;





•
            revising
      the sales commission plan to motivate and compensate personnel for
      profitable incremental growth;





•
            adding
      national account managers to service our largest customers;
      and





•
            implementing
      a customer relationship management platform to help target and develop new
      accounts.





Our
inside sales force's primary objective is to maintain, service and develop
existing accounts. Our inside sales personnel assist customers and end-users
with selecting the appropriate wire and cable products based on intended use,
cost and performance specifications. With our national presence, the inside
sales force also has the ability to designate the distribution facility that
will process a customer's order, which helps to reduce freight charges and
transportation time. In addition to assisting customers with proper product
selection, our inside sales personnel facilitate the designation of our products
in project specifications, increasing the utilization of our products. Part of
our inside sales force consists of our National Service Center
(“NSC”), an outbound call center located in Houston, Texas, that is focused on
developing smaller or less active accounts. The NSC cultivates our customers
using a cost effective and consistently applied sales and marketing process. We
believe the NSC represents a valuable, hands-on and profitable training ground
for the development of our current and future sales force.





Through
the NSC, we offer continuous in-depth training for our entry-level sales
personnel. In addition to our NSC training, we offer our sales force extensive
training and education, including training on ISO 9001:2000 standard
sales-related procedures, a hands-on multi-department orientation, an in-house
wire school facilitated by in-house experts and factory engineers, and
attendance at the "Belden College of Wire Knowledge" at Belden CDT's
manufacturing facility. All sales professionals are educated on our regimented
sales process with complete protocols, requirements and controls.





Marketing





As
a result of the initiatives we adopted in 2003, we have augmented our marketing
activities and functions by:





•
            creating
      an executive marketing position responsible for continual strategic
      analysis of our marketing channels, customers, products, and brand
      awareness;





•
            implementing
      a sales and marketing organizational infrastructure driven by corporate
      market managers and segmented by targeted
  markets;





•
            introducing
      a marketing services manager to handle customer-specific marketing
      programs;





•
            adopting
      pricing matrices and controls;





12
 Index





•
            developing
      marketing plans to target new markets and customers;
  and





•
            developing
      new private branded products, such as LifeGuardTM, DataGuard® and
      Houwire®.





Our
marketing materials include a master catalog, targeted mini-catalogs, product
brochures, direct mail and an online presence that includes an e-catalog,
company overview and LifeGuardTM cable informational videos. The extranet access
we provide allows customers to obtain custom pricing, inventory availability and
information on shipping and order-tracking. We also regularly participate in
trade shows.





We
employ database mining techniques to identify new business development
opportunities and customers. We utilize our own data as well as third-party
provided data. Our database contains over 23,000 contacts from over 8,200
accounts at electrical distributors nationwide. In addition, we have
approximately another 18,700 contacts of engineering and procurement
professionals. We believe we possess one of the largest databases of contact
information for electrical distributors of specialty wire and cable in the
U.S.





We
are members of various national marketing groups that represent hundreds of
electrical distributors across the U.S. As a supplier member of these groups, we
are recognized as a preferred supplier to these customers. We believe that our
relationships with these groups are strong. We also maintain direct
relationships with all of our customers who are distributor members of these
groups.








Operations &
Facilities





Purchasing





To
maximize purchasing efficiencies, we utilize a centralized purchasing function
located at our corporate headquarters in Houston, Texas, which manages each
distribution facility's unique product profile and inventory levels. The
purchasing department is led by the Vice President of Sales and Marketing, who
oversees a Director of Purchasing, senior buyers who are responsible for
purchasing specific product groups, length allocation specialists, who are
responsible for efficient reel selection, and a logistics and product analyst,
who is responsible for inventory optimization initiatives. Additionally, the
corporate market managers and sales personnel provide feedback on product lines
to the Vice President of Sales and Marketing and the Director of Purchasing. Our
ability to consolidate demand and purchase large quantities of wire and cable
provides substantial manufacturing scale for our suppliers and results in
competitive prices including attractive rebate programs.





Our
centralized purchasing function is supported by our ERP system, which notifies
the senior buyers of required inventory purchases through the use of a real-time
inventory forecasting system. Under this system all inventory items have a
classification based on sales frequency, which is customized for every SKU.
Based on a particular item's classification, demand analysis is developed from
usage history, minimum acceptable safety stock and projected manufacturing lead
times.





Logistics





Our
logistics process is highly automated through an ERP system that enables the
seamless integration of operating functions. In 1999, we implemented a radio
frequency bar-coded inventory system. This bar-coding system has facilitated our
length allocation process, which audits all customers' orders prior to their
release into the distribution facilities and subsequently directs warehouse
personnel to particular reels for cut-to-length orders. This process reduces
wire and cable remnants, ensures accuracy and maintains our real-time inventory
system for sales personnel.





We
process customers' orders the same day they are received. Our strategically
located distribution centers generally allow for ground delivery nationwide
within 24 hours of shipment. Orders are delivered through a variety of
distribution methods, including less-than-truck-load, truck-load, air or parcel
service providers, direct from supplier and cross-dock shipments. Freight costs
are typically borne by our customers. Due to our shipment volume, we have
preferred pricing relationships with our contract carriers.





Information
Systems and Technology





We
utilize scalable information systems and technology to provide support for all
of our operations. We utilize a proprietary state-of-the-industry ERP system.
Over the years, the system has been upgraded and customized for our operations
and allows for the seamless integration of financial, operational and
administrative functions. Each of our locations is connected to our computer
networks through dedicated data lines. These systems are protected by the
support of recognized security systems, and we maintain a disaster recovery
system that provides for the back-up of our data.





Our
automated bar-coded inventory system allows us to track and manage our inventory
on a real-time basis. With more than 48,000 reels across eleven distribution
facilities, our information technology systems allow complete traceability of
our products through the entire supply chain from our suppliers to delivery to
our customers. We also developed a proprietary cable management system that
allows our customers to review online the wire and cable products designated for
specific projects, release orders for shipment and review previous
shipments.





In
2004, we augmented our ERP system with the implementation of a CRM platform for
customer relationship and sales force management, which allows for advanced
customer management in a secure environment.





We
have an experienced and dedicated information technology department, including
on-site programmers and other network professionals.





13
 Index





Employees





As of
December 31, 2007, we had 304 employees, of which approximately 82% were
sales or warehouse personnel.





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





Competition





Like
the general U.S. electrical distribution market, the specialty wire and cable
market is highly competitive and fragmented, with over 200 specialty wire and
cable distributors serving this market. The product offerings and levels of
service provided by the other specialty wire and cable distributors with which
we compete vary widely. We primarily compete with other specialty wire and cable
distributors on a regional and local basis. Most of our direct competitors are
smaller companies that focus on a specific geographical area or feature a select
product offering, such as surplus wire. In addition to the direct competition
with other specialty wire and cable distributors, we also face, on a much more
limited basis, competition with the hundreds of electrical distributors and
manufacturers that sell products directly or through multiple distribution
channels to end-users or other resellers. In the markets that we serve,
competition is primarily based on product line breadth, quality, product
availability, service capabilities and price.





Website
Access





Our
internet address is www.houwire.com.
Information contained on our website is not part of, and should not be construed
as being incorporated by reference into, this Annual Report on Form 10-K. We
make available, free of charge under the “Investor Relations” heading on our
website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as well as proxy and information statements, as soon as
reasonably practicable after such documents are electronically filed or
furnished, as applicable, with the Securities and Exchange Commission (the
“SEC”). You also may read and copy any material we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at www.sec.gov that
contains reports, proxy and information statements and other information
regarding issuers like us who file electronically with the SEC.





Government
Regulation





We
are subject to regulation by various federal, state and local agencies. These
agencies include the Environmental Protection Agency, Department of
Transportation, Interstate Commerce Commission, Occupational Safety and Health
Administration, Department of Labor and Equal Employment Opportunity Commission.
We believe we are in compliance in all material respects with existing
applicable statutes and regulations affecting environmental issues and our
employment, workplace health and workplace safety practices.





14
 Index





ITEM 1A.  RISK FACTORS





Investing
in our common stock involves a high degree of risk. You should carefully
consider the following factors, as well as other information contained in this
Form 10-K, before deciding to invest in shares of our common stock. The trading
price of our common stock could decline due to any of these risks, and you may
lose all or part of your investment in our common stock.








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





The
majority of our products are used in the construction, maintenance and operation
of facilities, plants and projects in the communications, energy, engineering
and construction, general manufacturing, infrastructure, petrochemical,
transportation, utility and wastewater treatment industries. The demand for our
products and services depends to a large degree on the capital spending levels
of end-users in these markets. Many of these end-users defer capital
expenditures or cancel projects during economic downturns. In addition, certain
of the markets we serve are cyclical, which affects capital spending by
end-users in these industries. For example, in late 2005, our sales benefited
from the cleanup and rebuilding efforts following Hurricanes Katrina and Rita,
but this increased demand waned as construction activity returned to more
typical levels. A downturn in the general economy, or in one or more of the
end-markets for our specialty wire and cable, could have a material adverse
effect on our financial condition and results of operations.




We
have risks associated with inventory.





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





Our
operating results may be affected by fluctuations in commodity
prices.





Copper
and petrochemical products are components of the wire and cable we sell.
Fluctuations in the costs of these and other commodities have historically
affected our operating results. We estimate that approximately one-fifth of the
growth in sales from 2005 to 2006 and between $4.5 million and $6.5 million of
net income in 2006 was attributable to higher commodity prices for certain
components of our products, principally copper and polymers. In contrast, there
were minimal changes in the average price of copper and petrochemical products
during 2007 and we estimate that these items had no measurable impact on the
increase in sales during 2007 or on the net income for the year. To the extent
higher commodity prices result in increases in the costs we pay for our
products, we attempt to reflect the increase in the prices we charge our
customers. While we historically have been able to pass most of these cost
increases on to our customers, to the extent we are unable to do so in the
future, it could have a material adverse effect on our operating results. In
addition, as commodity costs increase, our customers may delay or decrease their
purchases of our wire and cable, which could adversely affect the demand for our
products. To the extent commodity prices decline, the net realizable value of
our existing inventory could be reduced, and our gross profits could be
adversely affected.





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





We
rely on electrical distributors to purchase our wire and cable. The number,
size, business strategy and operations of these electrical distributors vary
widely from market to market. The success of our sales and distribution channels
depends heavily on our successful cooperation with these electrical distributors
in each of our various markets.





In
2007, our ten largest customers accounted for approximately 42% of our sales,
and our largest customer accounted for approximately 12% of our sales. If we
were to lose one or more of our large electrical distributor customers, or if
one or more of our large electrical distributor customers were to significantly
reduce the amount of specialty wire and cable they purchase from us, and we were
unable to replace the lost sales on similar terms, we could experience a
significant loss of revenue and profits. In addition, if one or more of our key
electrical distributor customers failed or were unable to pay, we could
experience a write-off or write-down of the related receivables, which could
adversely affect our earnings. We participate in a number of national marketing
groups and engage in joint promotional sales activities with the electrical
distributor members of those groups. Any permanent exclusion of us from, or
refusal to allow us to participate in, such national marketing groups could have
a material adverse effect on our sales and our results of
operations.





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





We
currently source products from approximately 150 suppliers. However, we have
adopted a strategy to concentrate our purchases with a small number of suppliers
in order to maximize product quality, delivery dependability, purchasing
efficiencies and supplier incentives. As a result, in 2007 approximately 65% of
our annual purchases came from four suppliers. If any of these suppliers changed
its sales strategy to reduce its reliance on distributors, or decided to
terminate its business relationship with us, our sales and earnings would be
adversely affected unless and until we were able to establish relationships with
suppliers of comparable products. In addition, if we are not able to obtain the
products we distribute from either our current suppliers or other competitive
sources, we could experience a loss of revenue, reduction in profits and damage
to our relationships with our customers. Supply shortages may occur as a result
of unanticipated demand or production cutbacks, shortages of raw materials,
labor disputes or weather conditions affecting products or shipments,
transportation disruptions or other reasons beyond our control. When shortages
occur, specialty wire and cable suppliers often allocate products among
distributors, and our allocations might not be adequate to meet our customers'
needs.





15
 Index





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





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





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





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





Our
private branded products might not continue to gain market
acceptance.





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





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





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





An
increase in competition could decrease sales or earnings.





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





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





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





16
 Index





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





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





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





ITEM 1B.  UNRESOLVED STAFF COMMENTS





None.





ITEM 2.  PROPERTIES





Facilities





The
following table sets forth information about our executive offices and our
warehouse facilities as of December 31, 2007.





Location
            
            Total
              Square
      Feet
            
            
            Warehouse
              Square
      Feet
            
            Owned/LeasedHouston,
      TX
            
            
            166,720
            
            
            
            136,720
            
            OwnedChicago,
      IL
            
            
            86,705
            
            
            
            81,635
            
            LeasedPhiladelphia,
      PA
            
            
            60,000
            
            
            
            54,500
            
            LeasedLos
      Angeles, CA
            
            
            52,901
            
            
            
            47,036
            
            LeasedAtlanta,
      GA
            
            
            50,733
            
            
            
            47,483
            
            LeasedTampa,
      FL
            
            
            49,776
            
            
            
            45,374
            
            LeasedCharlotte,
      NC
            
            
            44,159
            
            
            
            38,892
            
            LeasedBaton
      Rouge, LA
            
            
            22,200
            
            
            
            19,700
            
            LeasedSeattle,
      WA
            
            
            30,363
            
            
            
            28,275
            
            LeasedTotal
            
            
            563,557
            
            
            
            499,615





We
own our Houston, Texas facility, which serves as a regional distribution center
as well as our corporate headquarters. Constructed in 1995 on 11.5 acres, the
facility houses all centralized and back office functions such as finance,
marketing, purchasing, human resources and information technology. Our Houston
headquarters is pledged as collateral to our lenders. We believe that our
properties are in good operating condition and adequately serve our current
business operations.





As
a test of potential new markets and to augment our distribution network, we
contract with two third party logistics firms. The location of and services
provided by these third party logistics firms are as follows:





•
            Denver,
      Colorado—Inventory and ship pre-packaged and cut-to-order lengths
      of specialty wire and cable for a monthly service fee for an
      unlimited number of transactions;
and





•
            San Francisco,
      California—Inventory and ship pre-packaged and cut-to-order lengths
      of specialty wire and cable on a per-transaction fee
  basis.





ITEM 3.  LEGAL PROCEEDINGS





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





17
 Index





ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No
matters were submitted to a vote of our security holders during the fourth
quarter of the year ended December 31, 2007.





SUPPLEMENTAL ITEM.  EXECUTIVE OFFICERS OFTHE
REGISTRANT





Name/Office
            
            Age
            
            Served
      as an
              Officer
      Since
            
            Business
      Experience
              During
      Last 5 YearsCharles
      A. Sorrentino
              President and Chief Executive
      Officer
            
            63
            
            1998
            
            President
      and Chief Executive Officer of the Company.Nicol
      G. Graham
              Chief Financial Officer, Treasurer and
      Secretary
            
            55
            
            1997
            
            Chief
      Financial Officer, Treasurer and Secretary of the
  Company.




18
 Index





PART
II





ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUERPURCHASES OFEQUITY SECURITIES





Our
common stock has been traded on The Nasdaq Global Market under the symbol “HWCC”
since June 15, 2006.  Prior to that time, there was no public market
for our stock.  The following table lists quarterly information on the
price range of our common stock based on the high and low reported sale prices
for our common stock as reported by The Nasdaq Global Market for the periods
indicated below.





High
            
            
            LowYear
      ended December 31, 2007:First
      quarter
            
            $
            28.40
            
            
            $
            19.45Second
      quarter
            
            $
            31.19
            
            
            $
            24.40Third
      quarter
            
            $
            28.69
            
            
            $
            15.81Fourth
      quarter
            
            $
            21.55
            
            
            $
            12.73Year
      ended December 31, 2006:Second
      quarter (since June 15, 2006)
            
            $
            17.97
            
            
            $
            15.00Third
      quarter
            
            $
            23.89
            
            
            $
            15.88Fourth
      quarter
            
            $
            25.50
            
            
            $
            17.54





There
were 17 holders of record of our common stock as of December 31,
2007.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers





The
following table provides information about our purchases of common stock for the
quarter ended December 31, 2007. For further information regarding out stock
repurchase activity, see “Management’s Discussion and Analysis of Financial
Conditions and Results of Operations – Liquidity and Capital
Resources.”




Period
            
            (a)
      Total number of sharespurchased
            
            
            (b)
      Average price paid
              per
      share
            
            
            (c)
      Total number of sharespurchased
      as part ofpublicly
      announced plansor
      programs (1)
            
            
            (d)
      Maximum dollar valuethat
      may yet be used forpurchases
      under the planOctober
      1 – 31, 2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            22,058,389November
      1 – 30, 2007
            
            
            720,205
            
            
            $
            13.82
            
            
            
            720,205
            
            
            $
            12,106,677December
      1 – 31, 2007
            
            
            196,284
            
            
            $
            15.26
            
            
            
            196,284
            
            
            $
            9,110,464Total
            
            
            916,489
            
            
            $
            14.13
            
            
            
            916,489





(1) The
board authorized a stock buyback in the amount of $30 million in August 2007.
This amount was increased to $50 million in September 2007, and to $75 million
effective January 2008. All of the above purchases were made under the Company’s
stock repurchase program.







Stock
Performance Graph





The following graph compares quarterly
shareholder return on our common stock since the public offering in June 2006.
We do not believe a published industry index exists that provides an appropriate
comparison to our stock. As a recent public company, we have not yet developed a
peer group against which we believe an appropriate comparison can be made. Total
return is based on $100 initial investment and reinvestment of
dividends.





19
 Index








Dividend
Policy





We paid a
special dividend aggregating $20.0 million on our common stock on
December 30, 2005. On August 1, 2007, the Board of Directors approved a
quarterly dividend of $0.075 per share payable to stockholders of record on
August 15, 2007. This dividend totaling $1.6 million was paid on August 31,
2007. On November 2, 2007, the Board also declared a cash dividend of $0.075 per
share payable to stockholders of record on November 15, 2007. This dividend
totaling $1.4 million was paid on November 30, 2007.




On
February 1, 2008, the Board of Directors approved an increase in the quarterly
dividend and declared a dividend of $0.085 per share payable on February 29,
2008 to stockholders of record on February 15, 2008.




As a
holding company, our only source of funds to pay dividends is distributions from
our operating subsidiary. Under our credit facility, our operating subsidiary
may only pay us distributions for specified purposes. The credit facility allows
our subsidiary to pay distributions of up to $10 million in any twelve month
period for the purpose of paying dividends on our common stock and, as of
January 2008, up to an aggregate of $75 million to make share
repurchases.










Securities
Authorized for Issuance under Equity Compensation Plans





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





20
 Index





ITEM 6.  SELECTED FINANCIAL DATA





You
should read the following selected financial information together with our
consolidated financial statements and the related notes and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Form 10-K. We have derived the consolidated
statement of income data for each of the years ended December 31, 2007,
2006 and 2005, and the consolidated balance sheet information at
December 31, 2007 and December 31, 2006 from our audited financial
statements, which are included in this Form 10-K. We have derived the
consolidated statement of income data for each of the years ended
December 31, 2004 and December 31, 2003, and the consolidated balance
sheet data at December 31, 2005, 2004 and 2003 from our audited financial
statements, which are not included in this Form 10-K.











Year
      Ended December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(Dollars
      in thousands, except share data)CONSOLIDATED
              STATEMENT
      OF
              INCOME
      DATA:Sales
            
            $
            359,115
            
            
            $
            323,467
            
            
            $
            213,957
            
            
            $
            172,723
            
            
            $
            149,084Cost
      of sales
            
            
            266,276
            
            
            
            231,128
            
            
            
            158,240
            
            
            
            131,419
            
            
            
            113,959Gross
      profit
            
            
            92,839
            
            
            
            92,339
            
            
            
            55,717
            
            
            
            41,304
            
            
            
            35,125Operating
      expenses:Salaries
      and commissions
            
            
            23,861
            
            
            
            22,706
            
            
            
            18,707
            
            
            
            16,665
            
            
            
            14,588Other
      operating expenses
            
            
            18,811
            
            
            
            15,975
            
            
            
            14,016
            
            
            
            12,392
            
            
            
            13,857Management
      feeto
      stockholder(1)
            
            
            —
            
            
            
            208
            
            
            
            500
            
            
            
            501
            
            
            
            502Litigation
      settlements
            
            
            —
            
            
            
            —
            
            
            
            (672
            )
            
            
            (650
            )
            
            
            —Depreciation
      and amortization
            
            
            459
            
            
            
            376
            
            
            
            398
            
            
            
            876
            
            
            
            1,481Total
      operating expenses
            
            
            43,131
            
            
            
            39,265
            
            
            
            32,949
            
            
            
            29,784
            
            
            
            30,428Operating
      income
            
            
            49,708
            
            
            
            53,074
            
            
            
            22,768
            
            
            
            11,520
            
            
            
            4,697Interest
      expense
            
            
            1,188
            
            
            
            3,075
            
            
            
            2,955
            
            
            
            3,544
            
            
            
            4,186Income
      before income taxes
            
            
            48,520
            
            
            
            49,999
            
            
            
            19,813
            
            
            
            7,976
            
            
            
            511Income
      tax provision
            
            
            18,295
            
            
            
            19,325
            
            
            
            7,299
            
            
            
            3,167
            
            
            
            295Net
      income
            
            $
            30,225
            
            
            $
            30,674
            
            
            $
            12,514
            
            
            $
            4,809
            
            
            $
            216Earnings
      per share:Basic
            
            $
            1.49
            
            
            $
            1.63
            
            
            $
            0.75
            
            
            $
            0.29
            
            
            $
            0.01Diluted
            
            $
            1.48
            
            
            $
            1.62
            
            
            $
            0.75
            
            
            $
            0.29
            
            
            $
            0.01Weighted
      average common shares outstanding(2):Basic
            
            
            20,328,182
            
            
            
            18,875,192
            
            
            
            16,606,672
            
            
            
            16,350,465
            
            
            
            16,334,079Diluted
            
            
            20,406,000
            
            
            
            18,984,826
            
            
            
            16,757,303
            
            
            
            16,520,601
            
            
            
            16,504,215


__________


(1)
            The
      management fee arrangement was terminated as of the completion of our
      initial public offering in June
2006.


(2)
            All
      of the share information has been restated for the 1.875 stock split
      discussed in Note 1 of the consolidated financial
    statements.





21
 Index





As
      of December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(Dollars
      in thousands)CONSOLIDATED
              BALANCE
      SHEET DATA:Cash
      and cash equivalents
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —Accounts
      receivable, net
            
            $
            58,202
            
            
            $
            52,128
            
            
            $
            41,309
            
            
            $
            27,072
            
            
            $
            21,644Inventories,
      net
            
            $
            69,299
            
            
            $
            56,329
            
            
            $
            31,306
            
            
            $
            29,836
            
            
            $
            26,905Total
      assets
            
            $
            139,091
            
            
            $
            116,864
            
            
            $
            81,241
            
            
            $
            65,724
            
            
            $
            58,455Book
      overdraft (1)
            
            $
            3,854
            
            
            $
            1,265
            
            
            $
            2,119
            
            
            $
            1,341
            
            
            $
            174Total
      debt (2)
            
            $
            34,507
            
            
            $
            12,059
            
            
            $
            61,406
            
            
            $
            43,752
            
            
            $
            46,548Stockholder’s
      equity(2)
            
            $
            71,170
            
            
            $
            81,674
            
            
            $
            742
            
            
            $
            8,228
            
            
            $
            3,364


_______


(1)
            Our
      book overdraft is funded by our revolving credit facility as soon as the
      related checks clear our disbursement
account.


(2)
            On
      December 30, 2005, we paid a special dividend of $20.0 million to our
      common stockholders and funded the payment by borrowing under our existing
      credit facility.





22
 Index





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




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




Overview




Since our
founding over 30 years ago, we have grown to be one of the largest
distributors of specialty wire and cable and related services to the U.S.
electrical distribution market. Today, we serve over 2,800 customers, including
virtually all of the top 200 electrical distributors in the U.S. Our specialty
wire and cable is primarily used in our repair and replacement sector, also
referred to as maintenance, repair and operations (“MRO”), related projects and
is increasingly purchased for larger scale projects in the communications,
energy, engineering and construction, general manufacturing, infrastructure,
petrochemical, transportation, utility and wastewater treatment
industries.




In 2000,
we acquired our largest competitor, the Futronix division of Kent Electronics
Corporation. Since that time, we have pursued a number of initiatives designed
to improve our operating efficiencies and increase our share of the fragmented
market for specialty wire and cable. We integrated the Futronix business into
our own and rationalized inventory, facilities and low-margin customer
relationships. We have made substantial investments in warehouse facilities and
information systems in order to enhance our ability to provide customers with
comprehensive value-added services, including application engineering support,
inventory management, custom cut capabilities and 24/7/365 customer service,
order fulfillment and shipping. During the years 2001 through 2003, the U.S.
electrical distribution market was adversely affected by the general slowdown of
the U.S. economy. In response to these economic conditions, we increased our
focus on achieving operating efficiencies by leveraging our investments in our
centralized back-office administration and purchasing, investing in a scalable
information technology platform and implementing automated warehouse operations
and electronic product tracking. This focus has assisted us in increasing our
operating income margin from 3.2% in 2003 to 13.8% in 2007.




Since
2003, the U.S. electrical distribution market has experienced increased demand,
as large industrial and commercial companies have increased capital spending to
“catch-up” on deferred maintenance and upgrade and expand infrastructure.
According to Electrical
Wholesaling magazine, the U.S. electrical distribution market is
estimated to have grown from approximately $67.8 billion of industry-wide
sales in 2004 to $89.1 billion in 2007. At the same time as the electrical
distribution market began to recover, we implemented a new sales and marketing
strategy that focuses on working in concert with our distributor customers to
generate demand from end-users in our targeted markets and to strengthen
relationships with project and specifying engineers to stimulate demand for our
specialty wire and cable. In addition, we have significantly increased the size
of our sales force since 2003, and as of December 31, 2007 we had 167 sales
employees. In 2003, we introduced our LifeGuardTM line of low-smoke, zero-halogen
cable products which, due to their highly engineered specifications and safety
benefits, generate higher margins for us than traditional cable products. As a
result of our new sales and marketing initiatives, as well as general market
growth, our revenue has increased at a CAGR of 24.6% over the past four years,
from $149.1 million in 2003 to $359.1 million in 2007.




Our
revenue is driven in part by the level of capital spending within the
end-markets we serve. Because many of these end-markets defer capital
expenditures during periods of economic downturns, our business has experienced
cyclicality from time to time. We believe that our revenue will continue to be
impacted by fluctuations in capital spending and by our ability to drive demand
through our sales and marketing initiatives and the continued development and
marketing of our private branded products, such as LifeGuardTM.




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




Changes
in Connection with Becoming a Public Company




In June
2006, we completed our initial public offering, in which we issued 4,250,000
shares of common stock which were subsequently sold to the public for $13 per
share.  Certain selling stockholders sold an additional 5,525,000
shares which also were resold to the public for $13 per share.  The
Company received net proceeds of $49.9 million after deducting the underwriting
discounts and offering expenses.  The net proceeds were used to repay
debt.




In March
2007, our then largest stockholder, Code, Hennessy & Simmons II, L.P., and
other selling stockholders sold approximately 7,500,000 common shares at $25 per
share in a registered underwritten offering.  All the shares were sold
by selling stockholders, thus there was no dilution to earnings per share nor
any proceeds to the company.  As a result of the offering, Code,
Hennessy & Simmons II, L.P.’s ownership was reduced from 38% to
8%.  Code, Hennessy & Simmons II, L.P. subsequently distributed
all of the remaining shares to its partners and no longer holds any shares of
common stock.




As a
public company, we have incurred significant additional operating expenses such
as increased audit fees, professional fees, stock compensation, directors’ and
officers’ insurance costs, compensation for our board of directors, and expenses
related to hiring additional personnel and expanding our administrative
functions. Many of these expenses were not incurred or were incurred at a lower
level by us as a private company and were not included in our results of
operations prior to June 2006.





23
 Index





On
December 30, 2005, we paid a special dividend of $20.0 million to our
common stockholders and funded the payment by borrowing under our existing
credit facilities. Due to the interest payable on these borrowings, our net
earnings, and earnings per share, in 2006 were lower than they would have been
had we not paid the special dividend.




Critical
Accounting Policies and Estimates




Critical
accounting policies are those that both are important to the accurate portrayal
of a company’s financial condition and results, and require subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.




In order
to prepare financial statements that conform to accounting principles generally
accepted in the United States, commonly referred to as GAAP, we make estimates
and assumptions that affect the amounts reported in our financial statements and
accompanying notes. Certain estimates are particularly sensitive due to their
significance to the financial statements and the possibility that future events
may be significantly different from our expectations.




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




Allowance
for Doubtful Accounts




We
maintain an allowance for doubtful accounts receivable for estimated losses
resulting from the inability of our customers to make required payments. We
perform periodic credit evaluations of our customers and typically do not
require collateral. Consistent with industry practices, we require payment from
most customers within 30 days of invoice date. We have an estimation
procedure, based on historical data and recent changes in the aging of these
receivables, that we use to record reserves throughout the year. In the last
five years, write-offs against our allowance for doubtful accounts have averaged
approximately $103,000 per year. A 20% change in our estimate at
December 31, 2007 would have resulted in a change in income before income
taxes of $26,000 for the year ended December 31, 2007.




Reserve
for Returns and Allowances




We
estimate the gross profit impact of returns and allowances for previously
recorded sales. This reserve is calculated on historical and statistical returns
and allowances data and adjusted as trends in the variables change. A 20% change
in our estimate at December 31, 2007 would have resulted in a change in
income before income taxes of $129,000 for the year ended December 31,
2007.




Inventory
Obsolescence




We
continually monitor our inventory levels at each of our distribution locations.
Our reserve for inventory obsolescence is based on the age of the inventory,
movements of our inventory over the prior twelve months and the experience of
our purchasing and sales departments in estimating demand for the product in the
succeeding year. Our inventories are generally not susceptible to technological
obsolescence. A 20% change in our estimate at December 31, 2007 would have
resulted in a change in income before income taxes of $396,000 for the year
ended December 31, 2007.




Vendor
Rebates




Many of
our arrangements with our vendors entitle us to receive a rebate of a specified
amount when we achieve any of a number of measures, generally related to the
volume of purchases from the vendor. We account for these rebates as a reduction
of the prices of the vendor’s products, which reduces inventory until we sell
the product, at which time these rebates reduce cost of sales. Throughout the
year, we estimate the amount of rebates earned based on our purchases to date
and our estimate of purchases to be made for the remainder of the year relative
to the purchase levels that mark our progress toward earning the rebates. We
continually revise these estimates to reflect actual purchase levels. A 20%
change in our estimate of total rebates earned during 2007 would have resulted
in a change in income before income taxes of $1,835,000 for the year ended
December 31, 2007.




Goodwill




Goodwill
represents the excess of the amount we paid to acquire businesses over the
estimated fair value of tangible assets and identifiable intangible assets
acquired, less liabilities assumed. At December 31, 2007, our goodwill
balance was $3.0 million, representing 2.2% of our total assets.




In 2002,
we adopted the provisions of Statement of Financial Accounting Standards
No. 142, Goodwill and
Other Intangible Assets (“SFAS 142”). Under SFAS 142, we test
goodwill for impairment annually, or more frequently if indications of possible
impairment exist, by applying a fair value-based test. In October 2007, we
performed our annual goodwill impairment tests for goodwill and, as a result of
this test, we believe the goodwill on our balance sheet is not impaired. If
circumstances change or events occur to indicate that our fair market value has
fallen below book value, we will compare the estimated fair value of the
goodwill to its carrying value. If the carrying value of goodwill exceeds the
estimated fair value of goodwill, we will recognize the difference as an
impairment loss in operating income.




Adoption
of New Accounting Policy




In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R establishes principles and
requirement for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R
also requires transaction costs related to the business combination to be
expensed as incurred and establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination. SFAS
141R is effective for fiscal years beginning after December 15, 2008, and will
be adopted in the first quarter of fiscal 2009. We do not expect the adoption of
SFAS 141R to have a material impact on our Consolidated Financial
Statements.





24
 Index





In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115 (“SFAS 159”). SFAS 159 permits companies to choose to
measure many financial instruments and certain other items at fair value in
order to mitigate volatility in reported earning caused by measuring related
assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 is effective for financial statements issued
for fiscal years beginning after November 15, 2007. At the effective date, a
company may elect the fair value option for eligible items that exist at that
date. The company shall report the effect of the first remeasurement to fair
value as a cumulative effect adjustment to the opening balance of retained
earnings for the fiscal year in which this statement is initially applied. The
provisions of SFAS No. 159 are effective beginning January 1, 2008. We do not
expect the adoption of SFAS No. 159 to have a material impact on our
Consolidated Financial Statements.




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, Fair Value
Measurements (“SFAS 157”). SFAS 157 provides guidance for using fair
value to measure assets and liabilities. It also responds to investors’ requests
for expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value, and the
effect of fair value measurements on earnings. SFAS 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair
value, and does not expand the use of fair value in any new circumstances. The
effective date for us is January 1, 2008. However in November 2007, the FASB
deferred the implementation of SFAS 157 for non-financial assets and
liabilities. We believe the adoption of this standard will have no material
effect on our Consolidated Financial Statements.




Sales




We
generate most of our sales by providing specialty wire and cable to our
customers. We also collect sales through freight charges. We recognize revenue
upon shipment of our products to customers from our distribution centers or
directly from our suppliers. Sales incentives earned by customers are accrued in
the same month as the shipment is invoiced.




Cost
of Sales




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




Operating
Expenses




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




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




Other Operating
Expenses.Other operating
expenses include all other expenses, except for salaries and commissions,
management fees and depreciation and amortization. This includes all payroll
taxes, health insurance, traveling expenses, public company expenses,
advertising, management information system expenses, facility rent and
maintenance and all distribution expenses such as packaging, reels, and repair
and maintenance of equipment and facilities.




Management Fee.The management fee
consists of expenses that we paid to CHS Management II, L.P. for certain
management and advisory services. This management fee arrangement was cancelled
upon the completion of the June 2006 public offering.




Litigation Settlements.Litigation
settlements reflect the funds received from a court award in 2005 related to a
claim for breach of contract that occurred under the previous
ownership.




Depreciation and
Amortization.We incur
depreciation and amortization expenses for costs related to the capitalization
of property and equipment on a straight-line basis over the estimated useful
lives of the assets, which range from three to thirty years. We amortize
leasehold improvements over the shorter of the lease term or the life of the
related asset.




Interest
Expense




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





25
 Index





Results
of Operations




The
following discussion compares our results of operations for the years ended
December 31, 2007, 2006 and 2005.




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







Year Ended December 31,2007
            
            
            2006
            
            
            2005Sales
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of sales
            
            
            74.1
            %
            
            
            71.5
            %
            
            
            74.0
            %Gross
      profit
            
            
            25.9
            %
            
            
            28.5
            %
            
            
            26.0
            %Operating
      expenses:Salaries
      and commissions
            
            
            6.6
            %
            
            
            7.0
            %
            
            
            8.7
            %Other
      operating expenses
            
            
            5.2
            %
            
            
            4.9
            %
            
            
            6.6
            %Management
      fee to stockholder
            
            
            0.0
            %
            
            
            0.1
            %
            
            
            0.2
            %Litigation
      settlements
            
            
            0.0
            %
            
            
            0.0
            %
            
            
            (0.3
            %)Depreciation
      and amortization
            
            
            0.1
            %
            
            
            0.1
            %
            
            
            0.2
            %Total
      operating expenses
            
            
            12.0
            %
            
            
            12.1
            %
            
            
            15.4
            %Operating
      income
            
            
            13.8
            %
            
            
            16.4
            %
            
            
            10.6
            %Interest
      expense
            
            
            0.3
            %
            
            
            1.0
            %
            
            
            1.4
            %Income
      before income taxes
            
            
            13.5
            %
            
            
            15.5
            %
            
            
            9.3
            %Income
      tax provision
            
            
            5.1
            %
            
            
            6.0
            %
            
            
            3.4
            %Net
      income
            
            
            8.4
            %
            
            
            9.5
            %
            
            
            5.8
            %






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







Comparison
of Years Ended December 31, 2007 and 2006




Sales




Our sales
for 2007 increased 11.0% to $359.1 million from $323.5 million in fiscal year
2006 in spite of a very difficult comparison from last year’s sales growth of
51.2%. Internal growth accounted for the entire increase in sales. Within the
three targeted markets, we continue to penetrate our five major growth
initiatives, encompassing Emission Controls, Engineering & Construction,
Selected Industrials, LifeGuardTM (and
other private branded products), Utility Power Generation and our core
distributor business. We estimate that all of our sales growth resulted from
these new initiatives as our core Repair and Replacement sector, also referred
to as Maintenance, Repair and Operations (“MRO”), was flat. Our Repair and
Replacement sector faced a moderating economy resulting in reduced industrial
economic activity which we believe lowered discretionary spending.







Cost
of Sales




Cost of
sales were $266.3 million in 2007, an increase of $35.1 million, or 15.2%,
compared to cost of sales of $231.1 million in 2006. The increase was due to the
additional demand for our products. The increase in products were partially
offset by vendor rebates and discounts for prompt payment totaling $1.6 million
more in 2007 than 2006. Vendor rebates and discounts for prompt payment
increased primarily due to increased sales volume. Vendor rebates also increased
due to more favorable terms in the agreements in 2007. Other offsets were
inventory obsolescence charges of $0.1 million in 2007 versus $0.3 million in
2006 and lower freight costs of $0.3 million in 2007.





Gross
Profit




Gross
profit for 2007 increased 0.5% to $92.8 million in 2007 from $92.3 million in
2006. Gross profit as a percentage of net sales, commonly referred to as gross
margin, decreased to 25.9% in 2007 from 28.5% in 2006 a level that we cautioned
last year was likely unsustainable. The decrease in gross margin was
attributable to competitive pricing pressures experienced in the current market
environment and unfavorable comparisons to last year’s gross margin, which
increased 250 basis points over 2005 primarily due to inflation including higher
commodity prices and market conditions in 2006. The decrease in gross margin was
partially offset by vendor rebates, discounts for prompt payment, better
inventory management and reduced customer incentives due to a lower increase in
sales from last year’s historic sales increase.





26
 Index





Operating
Expenses




Operating
expenses were $43.1 million in 2007, an increase of $3.9 million or 9.8%,
compared to operating expenses of $39.3 million in 2006. Operating expenses as a
percentage of sales was 12.0% in 2007, which remained relatively flat from 12.1%
in 2006. The increase in operating expenses was attributable to the specific
factors discussed below.





Salaries and Commissions.Salaries and commissions increased $1.2 million, or 5.1%, to $23.9
million in 2007 from $22.7 million in 2006. The increase was due primarily to
higher stock compensation expense of $1.3 million, and additional sales
personnel salaries of $0.8 million due to headcount additions. Lower commissions
of $1.0 million partially offset these increases. The lower commissions were a
result of higher objectives based upon the record year in 2006 that were not
fully met in 2007, lower gross margin and changes to commission
programs.





Other Operating Expenses.
Other operating expenses increased $2.8 million, or 17.8%, to $18.8 million in
2007 from $16.0 million in 2006. The increase in other operating expenses was
due to the higher level of business activity, and public company expenses
primarily related to Sarbanes Oxley compliance in 2007 that was not incurred in
2006.





Management Fee. There were no
management fee expenses in 2007 compared to the $0.2 million in 2006. The
management services agreement was cancelled in connection with the IPO in June
2006.





Depreciation and
Amortization. Depreciation and amortization expense remained relatively
flat at $0.5 million in 2007 and $0.4 million in 2006.





Interest
Expense




Interest
expense decreased $1.9 million, or 61.4%, from $3.1 million in 2006 to $1.2
million in 2007 due primarily to the use of IPO proceeds to reduce the
outstanding debt balance in June of 2006. The interest expense reduction was
partially offset by borrowings to fund stock repurchases in the latter portion
of 2007. Average debt was $15.3 million for 2007 compared to $37.2 million in
2006. Average effective interest rates remained constant at 7.4% in 2007 and
2006.





Income
Tax Expense




Income
taxes decreased $1.0 million or 5.3% as our income before taxes decreased $1.5
million or 3.0%. The effective income tax rate decreased from 38.7% in 2006 to
37.7% in 2007 due to lower estimated state income taxes in 2007.





Net
Income




The
Company achieved net income of $30.2 million in 2007 compared to net income of
$30.7 million in 2006, a decrease of 1.5%. We estimate that the 2006 results
were favorably impacted by inflation of $4.5 million to $6.5
million.







Comparison
of Years Ended December 31, 2006 and 2005




Sales




Our sales
for 2006 increased 51.2% to $323.5 million from $214.0 million in fiscal year
2005. We estimate that approximately 8% to 12% of the growth in sales is
attributable to higher commodity prices for certain components of our products,
principally copper and polymers. The remaining 39% to 43% of the increase in
sales represents growth, net of inflation, within the three targeted markets
which emcompass the five major end-user growth initiatives, Emission Controls,
Engineering & Construction, Industrials, LifeGuardTM (and other private
branded products), Utility Power Generation and our core distributor business.
Additionally, during the year, we increased the size of our sales force by
approximately 10%, which also positively impacted sales growth.




Cost
of Sales




Cost of
sales was $231.1 million in 2006, an increase of $72.9 million, or 46.1%,
compared to cost of sales of $158.2 million in 2005. The increase was primarily
due to the increase in demand for our products. The increase also resulted in
part from an increase in freight costs of $1.0 million in 2006 over 2005.
Additionally, there was an inventory obsolescence charge of $0.3 million in 2006
compared to a credit of $0.2 million in 2005. Partially offsetting these
increases were vendor rebates and discounts for prompt payments totaling $4.5
million more in 2006 than in 2005. Vendor rebates and discounts for prompt
payment increased primarily due to increased sales volume. Vendor rebates also
increased due to more favorable terms in the agreements in 2006 versus
2005.




Gross
Profit




Gross
profit for 2006 increased 65.7% to $92.3 million in 2006 from $55.7 million in
2005. The increase in gross profit was primarily due to increased sales. Gross
profit as a percentage of net sales, commonly referred to as gross margin,
increased to 28.5% in 2006 from 26.0% in 2005. The increase in the Company’s
gross margin was principally a result of better price realization because of
improved product availability and service capabilities as a result of our
decision to increase inventory levels. Increased sales of private branded
products, which typically sell at a higher gross margin than our other products,
and increased vendor rebates also helped increase gross margin.





27
 Index





Operating
Expenses




Operating
expenses were $39.3 million in 2006, an increase of $6.3 million, or 19.2%,
compared to operating expenses of $32.9 million in 2005. As a percentage of
sales, overall operating expenses decreased to 12.1% in 2006 from 15.4% in 2005,
reflecting our ability to leverage fixed costs over the higher sales volume. The
increase in operating expenses was attributable to the specific factors
discussed below.




Salaries and
Commissions.Salaries and
commissions increased $4.0 million, or 21.4%, to $22.7 million in 2006 from
$18.7 million in 2005. This increase resulted from higher head count, annual pay
increases and increased commission expense due to higher sales levels, gross
profit dollars and profitability. Salaries and commissions as a percentage of
net sales decreased to 7.0% in 2006 from 8.7% in 2005 due to changes in, or
maximum payouts under, commission programs.




Other Operating
Expenses.Other operating
expenses increased $2.0 million, or 14.0%, to $16.0 million in 2006 from $14.0
million in 2005. The increase in other operating expenses was due to the higher
level of business activity and public company expenses which were not incurred
in 2005.




Management Fee.Management fee
expenses decreased to $0.2 million in 2006 from $0.5 million in 2005. This
reduction was due to the cancellation of the management services agreement in
connection with the IPO in June 2006.




Depreciation and
Amortization.Depreciation and
amortization expense was consistent at $0.4 million in 2006 and
2005.




Interest
Expense




Interest
expense increased $0.1 million, or 4.1%, from $3.0 million in 2005 to $3.1
million in 2006. The slight increase in interest expense was the result of the
increase in debt to fund the dividend payout in December 2005, offset by
the pay down of debt from the proceeds of our initial public offering in
June 2006.




Income
Tax Expense




Income
taxes increased $12.0 million or 164.8%, primarily due to the 152.4% increase in
income before taxes. Our effective income tax rate increased from 36.8% in 2005
to 38.7% in 2006, primarily due to an increase in state income
taxes.




Net
Income




We
achieved net income of $30.7 million in 2006 compared to net income of
$12.5 million in 2005, an increase of 145.1%. We estimate that net income
benefited by $4.5 million to $6.5 million in 2006 due to the effect of
inflation on certain components of our products, principally copper and
polymers.




Impact
of Inflation and Commodity Prices




Our
results of operations are affected by changes in the inflation rate and
commodity prices. Moreover, because copper and petrochemical products are
components of the wire and cable we sell, fluctuations in the costs of these and
other commodities have historically affected our operating results. We estimate
that approximately one-fifth of the growth in our sales from 2005 to 2006 and
between $4.5 million and $6.5 million of net income in 2006 is
attributable to higher commodity prices for certain components of our products,
principally copper and polymers. There were minimal changes
in the average price of copper and petrochemical products during 2007 compared
to 2006. Accordingly we do not believe that these items had any measurable
impact on the increase in sales during 2007 or on the net income for the year.To the extent we are unable to pass on to our customers cost increases
due to inflation or rising commodity prices, it could adversely affect our
operating results. To the extent commodity prices decline, the net realizable
value of our existing inventory could be reduced, and our gross profits could be
adversely affected. As we turn our inventory approximately four times a year,
the impact of decreasing copper prices would primarily affect the results of the
succeeding calendar quarter.




Liquidity
and Capital Resources




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




We had a
book overdraft of $3.9 million at December 31, 2007 compared to a book overdraft
of $1.3 million at December 31, 2006. The book overdraft is funded by our
revolving credit facility as soon as the related vendor checks clear our
disbursement account. Our net working capital was $98.0 million at December 31,
2007 compared to $86.9 million at December 31, 2006. The increase in working
capital was primarily due to the increase in inventory and accounts receivable.
Inventory increased largely to support our customers and end markets and
accounts receivable increased due to higher sales volume. Offsetting the
increases to working capital were additional accrued liabilities that were a
result of higher prepayments for the cable management projects and increased
accrued wire purchases.





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




·
            the
      adequacy of available bank lines of
credit;




·
            the
      ability to attract long-term capital with satisfactory
    terms;




28
 Index





·
            additional
      stock repurchases;




·
            cash
      flows generated from operating
activities;




·
            payment
      of dividends;




·
            capital
      expenditures and




·
            acquisitions






Comparison
of Years Ended December 31, 2007 and 2006





Our net
cash provided by operating activities was $20.8 in 2007 compared to less than
$0.1 million in 2006. Our net income was down slightly from $30.7 million in
2006 compared to $30.2 million in 2007. Inventories increased $13.0 million in
2007 compared to $25.3 million in 2006, primarily to support our increased sales
activity, the addition of new products and cable management projects. Our cable
management program involves purchasing and storing dedicated inventory, so our
customers have immediate availability for the duration of their projects.
Accounts receivable increased $5.8 million in 2007 compared to $11.0 million in
2006, due to the increase in sales. Accrued liabilities increased $6.9 million
in 2007 due to higher prepayments on cable management projects and increased
accrued wire purchases.





Net cash
used in investing activities for 2007 was $0.7 million compared to $0.6 million
in 2006. The increase in capital expenditures resulted from an upgrade in office
equipment.





Net cash
used in financing activities was $20.1 million in 2007 compared to net cash
provided by financing activities of $0.6 million in 2006. Treasury stock
purchases of $40.9 million and dividend payments of $3.0 million were the main
components of cash used in financing activities which were partially offset by
the net borrowings on the revolving loan of $22.4 million.





Comparison
of Years Ended December 31, 2006 and 2005




Our net
cash provided by operating activities was less than $0.1 million in 2006
compared to net cash used in operating activities of $3.8 million in 2005. The
positive components to net cash provided by operating activities were net income
of $30.7 million and increases in accounts payable of $2.7 million and accrued
liabilities of $2.5 million. The increases in accounts payable and accrued
liabilities were primarily due to the increase in sales in 2006 over 2005
levels. These components to cash provided by operating activities were offset by
the increase in inventory of $25.3 million and the increase in accounts
receivable of $11.0 million. Inventory increased to support the increased sales
activity and cable management projects. The increase to accounts receivable was
due to increased sales.




Net cash
used in investing activities for 2006 was $0.6 million compared to $0.3 million
in 2005. The capital expenditures increased primarily due to purchases of
warehouse equipment to service our growth and to upgrade or maintain our
forklifts.




Net cash
provided by financing activities for 2006 was $0.6 million compared to $4.1
million in 2005. The cash proceeds from financing activities in 2006 reflected
the proceeds from our IPO, net of offering costs, of $49.9 million, and the
subsequent pay off of our term loan of $14.5 million, with the remaining balance
going to payments on our revolving loan. The net cash provided by financing
activities in 2005 was due to the net borrowings on the revolving and term bank
loans of $33.9 million. These borrowings were primarily incurred to pay off the
junior subordinated promissory notes of $9.6 million, which carried a much
higher interest rate than our bank loans, and the payment of a special $20.0
million dividend.




Indebtedness




Our
principal source of liquidity at December 31, 2007 was working capital of
$98.0 million compared to $86.9 million at December 31, 2006. We
also had available borrowing capacity in the amount of $40.5 million at
December 31, 2007 and $32.9 million at December 31, 2006 under
our loan and security agreement with a commercial bank syndicate.




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




Loan
and Security Agreement




We have a
loan and security agreement with a commercial bank that provides for a revolving
loan through May 21, 2010. On September 28, 2007, we increased the facility to
$75.0 million to fund the stock repurchase program and fund business growth. The
agreement allows for the payments of dividends, not to exceed $10 million in the
aggregate in any twelve month period; and, effective January 29, 2008, the
repurchase of stock, prior to December 31, 2009, in the aggregate amount of not
more than $75 million. The lender has a security interest in all of our assets,
including accounts receivable and inventory. The loan bears interest at the
agent bank’s base interest rate.




Portions
of the outstanding loans may be converted to LIBOR loans in minimum amounts
ranging between $0.1 million to $1.0 million and integral multiples of $0.1
million. Upon such conversion, interest is payable at LIBOR plus 1.00%. We have
entered into a series of one-month LIBOR loans, which, upon maturity, are either
rolled back into the revolving loan or renewed under a new LIBOR
contract.





29
 Index





Covenants
in the loan agreement require us to maintain certain minimum financial ratios,
restrict our ability to pay dividends and make capital expenditures and require
us to use 75% of our excess cash flow to reduce outstanding borrowings which
funds can be re-borrowed subject to the borrowing base. Additionally, we are
obligated to pay an unused facility fee on the unused portion of the loan
commitment. As of December 31, 2007, we were in compliance with all
financial covenants. We paid approximately $0.1 million in unused facility fees
for the year ended December 31, 2007.




Contractual
Obligations




The
following table describes our cash commitments to settle contractual obligations
as of December 31, 2007.




Total
            
            
            Less than
              1 year
            
            
            1-3 years
            
            
            3-5 years
            
            
            More than
              5 years(In thousands)Term
      loans and loans payable
            
            $
            34,507
            
            
            $
            —
            
            
            $
            34,507
            
            
            $
            —
            
            
            $
            —Operating
      lease obligations
            
            
            9,179
            
            
            
            2,278
            
            
            
            3,570
            
            
            
            2,537
            
            
            
            794Non-cancellable
      purchase obligations(1)
            
            
            37,618
            
            
            
            37,618
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            $
            81,304
            
            
            $
            39,896
            
            
            $
            38,077
            
            
            $
            2,537
            
            
            $
            794





(1)
            These
      obligations reflect purchase orders outstanding with manufacturers as of
      December 31, 2007. We believe that some of these obligations may be
      cancellable upon negotiation with our vendors, but we are treating these
      as non-cancellable for this disclosure due to the absence of an express
      cancellation right.




Capital
Expenditures




We made
capital expenditures of $0.7 million, $0.6 million and
$0.3 million in the years ended December 31, 2007, 2006 and 2005,
respectively.




Off-Balance
Sheet Arrangements




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




Share
Repurchases




The Board
of Directors approved a stock repurchase program to be completed on or before
August 30, 2009, where the Company is authorized to purchase up to $75 million
of its outstanding shares of common stock, from time to time, depending on
market conditions, trading activity, business conditions and other factors.
Shares of stock purchased under the program are currently being held as treasury
shares and may be used to satisfy the exercise of options, fund acquisitions, or
other uses as authorized by the Board of Directors. During the year ended
December 31, 2007, the Company repurchased 2,414,600 shares for a total cost of
$40.9 million.




Financial
Derivatives




We have
no financial derivatives.




Market
Risk Management




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




Interest
Rate Risk




Our
variable interest rate debt is sensitive to changes in the general level of
interest rates. At December 31, 2007, the weighted average interest rate on
our $34.5 million of variable interest debt was
approximately 6.17%.




While our
variable rate debt obligations expose us to the risk of rising interest rates,
management does not believe that the potential exposure is material to our
overall financial performance or results of operations. Based on
December 31, 2007 borrowing levels, a 1.0% increase or decrease in current
market interest rates would have a $0.3 million effect on our interest
expense.




Foreign
Currency Exchange Rate Risk




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






Factors
Affecting Future Results





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





30
 Index





All
forward-looking statements are based on current management expectations. Except
as required under federal securities laws and the rules and regulations of the
SEC, we do not have any intention, and do not undertake, to update any
forward-looking statements to reflect events or circumstances arising after the
date of this Form 10-K.







ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK




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





31
 Index





ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA





Houston
Wire & Cable Company





Index
to consolidated financial statements





PageReport
      of Independent Registered Public Accounting Firm
            33Consolidated
      Balance Sheets as of December 31, 2007 and 2006
            34Consolidated
      Statements of Income for the years ended December 31, 2007, 2006 and
      2005
            35Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2007,
      2006 and 2005
            36Consolidated
      Statements of Cash Flows for the years ended December 31, 2007, 2006 and
      2005
            37Notes
      to Consolidated Financial Statements
            38




32
 Index





Report
of Independent Registered Public Accounting Firm








The Board
of Directors and Stockholders


Houston
Wire & Cable Company





We have
audited the accompanying consolidated balance sheets of Houston Wire & Cable
Company as of December 31, 2007 and 2006, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2007.  These financial
statements are the responsibility of the company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.





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





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Houston Wire &
Cable Company at December 31, 2007 and 2006, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2007, in conformity with U.S. generally accepted accounting
principles.





As
discussed in Notes 1 and 8 to the consolidated financial statements, in 2006 the
Company changed its method of accounting for stock based
compensation.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Houston Wire & Cable Company’s internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated
February 27, 2008 expressed an unqualified opinion thereon.








/s/
      Ernst & Young LLP








Houston,
Texas


February
27, 2008





33
 Index





Houston
Wire & Cable Company


Consolidated
Balance Sheets





December
      31,2007
            
            
            2006(In
      thousands, except share data)AssetsCurrent
      assets:Accounts
      receivable, net
            
            $
            58,202
            
            
            $
            52,128Inventories,
      net
            
            
            69,299
            
            
            
            56,329Deferred
      income taxes
            
            
            1,054
            
            
            
            1,165Prepaid
      expenses
            
            
            832
            
            
            
            450Income
      taxes
            
            
            2,004
            
            
            
            —Total
      current assets
            
            
            131,391
            
            
            
            110,072Property
      and equipment, net
            
            
            3,234
            
            
            
            2,973Goodwill
            
            
            2,996
            
            
            
            2,996Deferred
      income taxes
            
            
            1,356
            
            
            
            688Other
      assets
            
            
            114
            
            
            
            135Total
      assets
            
            $
            139,091
            
            
            $
            116,864Liabilities
      and stockholders’ equityCurrent
      liabilities:Book
      overdraft
            
            $
            3,854
            
            
            $
            1,265Trade
      accounts payable
            
            
            12,297
            
            
            
            10,988Accrued
      and other current liabilities
            
            
            17,263
            
            
            
            10,358Income
      taxes
            
            
            —
            
            
            
            520Total
      current liabilities
            
            
            33,414
            
            
            
            23,131Long-term
      obligations
            
            
            34,507
            
            
            
            12,059Stockholders’
      equity:Common
      stock, $0.001 par value; 100,000,000 shares authorized:20,988,952
      shares issued and 18,577,727 shares outstanding at December 31, 2007 and
      20,867,172 issued and outstanding at December 31, 2006
            
            
            21
            
            
            
            21Additional
      paid-in capital
            
            
            54,131
            
            
            
            50,979Retained
      earnings
            
            
            57,846
            
            
            
            30,674Less:
      Cost of treasury stock
            
            
            (40,828
            )
            
            
            —Total
      stockholders’ equity
            
            
            71,170
            
            
            
            81,674Total
      liabilities and stockholders’ equity
            
            $
            139,091
            
            
            $
            116,864








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





34
 Index





Houston
Wire & Cable Company


Consolidated
Statements of Income





Year
      Ended December 31,2007
            
            
            2006
            
            
            2005(In
      thousands, except share data)Sales
            
            $
            359,115
            
            
            $
            323,467
            
            
            $
            213,957Cost
      of sales
            
            
            266,276
            
            
            
            231,128
            
            
            
            158,240Gross
      profit
            
            
            92,839
            
            
            
            92,339
            
            
            
            55,717Operating
      expenses:Salaries
      and commissions
            
            
            23,861
            
            
            
            22,706
            
            
            
            18,707Other
      operating expenses
            
            
            18,811
            
            
            
            15,975
            
            
            
            14,016Management
      fee to stockholder
            
            
            —
            
            
            
            208
            
            
            
            500Litigation
      settlements
            
            
            —
            
            
            
            —
            
            
            
            (672
            )Depreciation
      and amortization
            
            
            459
            
            
            
            376
            
            
            
            398Total
      operating expenses
            
            
            43,131
            
            
            
            39,265
            
            
            
            32,949Operating
      income
            
            
            49,708
            
            
            
            53,074
            
            
            
            22,768Interest
      expense
            
            
            1,188
            
            
            
            3,075
            
            
            
            2,955Income
      before income taxes
            
            
            48,520
            
            
            
            49,999
            
            
            
            19,813Income
      tax provision
            
            
            18,295
            
            
            
            19,325
            
            
            
            7,299Net
      income
            
            $
            30,225
            
            
            $
            30,674
            
            
            $
            12,514Earnings
      per share:Basic
            
            $
            1.49
            
            
            $
            1.63
            
            
            $
            0.75Diluted
            
            $
            1.48
            
            
            $
            1.62
            
            
            $
            0.75Weighted
      average common shares outstanding:Basic
            
            
            20,328,182
            
            
            
            18,875,192
            
            
            
            16,606,672Diluted
            
            
            20,406,000
            
            
            
            18,984,826
            
            
            
            16,757,303Dividends
      declared per share
            
            $
            0.15
            
            
            
            —
            
            
            $
            1.21








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





35
 Index





Houston
Wire & Cable Company


Consolidated
Statements of Stockholders' Equity





Additional
            
            
            Unearned
            
            
            
            
            
            
            
            
            TotalCommon
      Stock
            
            
            Paid-In
            
            
            Stock
            
            
            Retained
            
            
            Treasury
      Stock
            
            
            Stockholders'Shares
            
            
            Amount
            
            
            Capital
            
            
            Compensation
            
            
            Earnings
            
            
            Shares
            
            
            Amount
            
            
            Equity(In
      thousands, except share data)Balance
      at December 31, 2004
            
            
            16,606,672
            
            
            $
            17
            
            
            $
            5,075
            
            
            
            —
            
            
            $
            3,136
            
            
            
            —
            
            
            
            —
            
            
            $
            8,228Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            12,514
            
            
            
            —
            
            
            
            —
            
            
            
            12,514Issuance
      of stock options
            
            
            —
            
            
            
            —
            
            
            
            559
            
            
            
            (559
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Dividend
      paid
            
            
            —
            
            
            
            —
            
            
            
            (4,350
            )
            
            
            —
            
            
            
            (15,650
            )
            
            
            —
            
            
            
            —
            
            
            
            (20,000
            )Balance
      at December 31, 2005
            
            
            16,606,672
            
            
            
            17
            
            
            
            1,284
            
            
            
            (559
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            742Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            30,674
            
            
            
            —
            
            
            
            —
            
            
            
            30,674Issuance
      of stock
            
            
            4,250,000
            
            
            
            4
            
            
            
            49,896
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            49,900Exercise
      of stock options
            
            
            10,500
            
            
            
            —
            
            
            
            6
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            6Excess
      tax benefit for stock options
            
            
            —
            
            
            
            —
            
            
            
            20
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            20Reclassification
      for adoption of SFAS 123 ( R)
            
            
            —
            
            
            
            —
            
            
            
            (559
            )
            
            
            559
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Amortization
      of unearned stock compensation
            
            
            —
            
            
            
            —
            
            
            
            332
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            332Balance
      at December 31, 2006
            
            
            20,867,172
            
            
            
            21
            
            
            
            50,979
            
            
            
            —
            
            
            
            30,674
            
            
            
            —
            
            
            
            —
            
            
            
            81,674Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            30,225
            
            
            
            —
            
            
            
            —
            
            
            
            30,225Exercise
      of stock options
            
            
            121,780
            
            
            
            —
            
            
            
            91
            
            
            
            —
            
            
            
            (56
            )
            
            
            3,375
            
            
            
            62
            
            
            
            97Excess
      tax benefit for stock options
            
            
            —
            
            
            
            —
            
            
            
            1,235
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,235Amortization
      of unearned stock compensation
            
            
            —
            
            
            
            —
            
            
            
            1,826
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,826Purchase
      of treasury stock, net
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,414,600
            )
            
            
            (40,890
            )
            
            
            (40,890
            )Dividends
      paid
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,997
            )
            
            
            —
            
            
            
            —
            
            
            
            (2,997
            )Balance
      at December 31, 2007
            
            
            20,988,952
            
            
            $
            21
            
            
            $
            54,131
            
            
            
            —
            
            
            $
            57,846
            
            
            
            (2,411,225
            )
            
            $
            (40,828
            )
            
            $
            71,170








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





36
 Index





Houston
Wire & Cable Company


Consolidated
Statements of Cash Flows


Year
      Ended December 31,2007
              
              
              2006
              
              
              2005(In
      thousands)Operating
      activitiesNet
      income
              
              $
              30,225
              
              
              $
              30,674
              
              
              $
              12,514Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
              
              
              459
              
              
              
              376
              
              
              
              398Amortization
      of capitalized loan costs
              
              
              66
              
              
              
              326
              
              
              
              124Amortization
      of unearned stock compensation
              
              
              1,826
              
              
              
              332
              
              
              
              —Provision
      for doubtful accounts
              
              
              (238
              )
              
              
              —
              
              
              
              13Provision
      for returns and allowances
              
              
              (37
              )
              
              
              211
              
              
              
              —Provision
      for inventory obsolescence
              
              
              55
              
              
              
              289
              
              
              
              (196
              )(Gain)
      loss on disposals of property and equipment
              
              
              (15
              )
              
              
              1
              
              
              
              (11
              )Deferred
      income taxes
              
              
              (557
              )
              
              
              119
              
              
              
              298Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (5,799
              )
              
              
              (11,030
              )
              
              
              (14,250
              )Inventories
              
              
              (13,025
              )
              
              
              (25,312
              )
              
              
              (1,274
              )Prepaid
      expenses
              
              
              (382
              )
              
              
              40
              
              
              
              (74
              )Other
      assets
              
              
              (45
              )
              
              
              (26
              )
              
              
              10Book
      overdraft
              
              
              2,589
              
              
              
              (854
              )
              
              
              (5,944
              )Trade
      accounts payable
              
              
              1,309
              
              
              
              2,720
              
              
              
              3,153Accrued
      and other current liabilities
              
              
              6,905
              
              
              
              2,476
              
              
              
              833Income
      taxes payable
              
              
              (2,524
              )
              
              
              (304
              )
              
              
              585Net
      cash provided by (used in) operating activities
              
              
              20,812
              
              
              
              38
              
              
              
              (3,821
              )Investing
      activitiesExpenditures
      for property, plant, and equipment
              
              
              (728
              )
              
              
              (623
              )
              
              
              (329
              )Proceeds
      from disposals of property and equipment
              
              
              23
              
              
              
              6
              
              
              
              12Net
      cash used in investing activities
              
              
              (705
              )
              
              
              (617
              )
              
              
              (317
              )Financing
      activitiesBorrowings
      on revolver
              
              
              397,471
              
              
              
              332,488
              
              
              
              225,022Payments
      on revolver
              
              
              (375,023
              )
              
              
              (367,335
              )
              
              
              (205,587
              )Borrowings
      on long-term obligations
              
              
              —
              
              
              
              —
              
              
              
              14,500Payments
      on long-term obligations
              
              
              —
              
              
              
              (14,500
              )
              
              
              —Payments
      on junior subordinated debt
              
              
              —
              
              
              
              —
              
              
              
              (9,559
              )Payments
      for financing costs
              
              
              —
              
              
              
              —
              
              
              
              (238
              )Proceeds
      from exercise of stock options
              
              
              97
              
              
              
              6
              
              
              
              —Payment
      of dividends
              
              
              (2,997
              )
              
              
              —
              
              
              
              (20,000
              )Proceeds
      from sale of stock
              
              
              —
              
              
              
              51,382
              
              
              
              —Payment
      of offering costs
              
              
              —
              
              
              
              (1,482
              )
              
              
              —Excess
      tax benefit for options
              
              
              1,235
              
              
              
              20
              
              
              
              —Purchase
      of treasury stock
              
              
              (40,890
              )
              
              
              —
              
              
              
              —Net
      cash (used in) provided by financing activities
              
              
              (20,107
              )
              
              
              579
              
              
              
              4,138Net
      change in cash
              
              
              —
              
              
              
              —
              
              
              
              —Cash
      at beginning of year
              
              
              —
              
              
              
              —
              
              
              
              —Cash
      at end of year
              
              $
              —
              
              
              $
              —
              
              
              $
              —Supplemental
      disclosuresCash
      paid during the year for interest
              
              $
              1,119
              
              
              $
              2,982
              
              
              $
              1,910Cash
      paid during the year for income taxes
              
              $
              20,148
              
              
              $
              19,459
              
              
              $
              6,356





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





37
 Index





Houston
Wire & Cable Company


Notes
to Consolidated Financial Statements


December
31, 2007





(in
thousands, except per share data)








1.Organization and
Summary of Significant Accounting Policies




Description
of Business




Houston
Wire & Cable Company (“HWC” or the “Company”), through its wholly owned
subsidiaries, HWC Wire & Cable Company, Advantage Wire & Cable
and Cable Management Services Inc., distributes specialty electrical wire
and cable to the U.S. electrical distribution market through eleven locations in
ten states throughout the United States. The Company has no other business
activity.




Basis
of Presentation and Principles of Consolidation




The
consolidated financial statements include the accounts of the Company and its
subsidiaries and have been prepared following accounting principles generally
accepted in the United States (“GAAP”) and the requirements of the Securities
and Exchange Commission (“SEC”). The financial statements include all normal and
recurring adjustments that are necessary for a fair presentation of the
Company’s financial position and operating results. All significant
inter-company balances and transactions have been eliminated.




On
March 23, 2006, HWC Holding Corporation amended its certificate of
incorporation to change its name to Houston Wire & Cable Company and to
increase its authorized capital stock from 10,000 shares of common stock to
100,000 shares of common stock and 5,000 shares of preferred stock.
All references to authorized shares in the accompanying consolidated financial
statements have been retroactively restated for such increase in authorized
shares.




On
May 16, 2006, the Company effected a 1.875-for-1 stock split for its
outstanding common stock in the form of a stock dividend. All stockholder equity
balances and disclosures in the accompanying consolidated financial statements
have been retroactively restated for such stock split.




Use
of Estimates




The
preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. The most significant estimates
are those relating to the allowance for doubtful accounts, the inventory
obsolescence reserve, the reserve for returns and allowances, and vendor
rebates. These estimates are continually reviewed and adjusted as necessary, but
actual results could differ from those estimates.




Earnings
per Share




In
accordance with Statement of Financial Accounting Standards (“SFAS”) 128,
Earnings per Share,
basic earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share include
the dilutive effects of stock option awards.




The
following reconciles the numerator and denominator used in the calculation of
earnings per share:




Year Ended December 31,2007
            
            
            2006
            
            
            2005Numerator:Net
      income for basic earnings per share
            
            $
            30,225
            
            
            $
            30,674
            
            
            $
            12,514Effect
      of dilutive securities
            
            
            —
            
            
            
            —
            
            
            
            —Numerator
      for diluted earnings per share
            
            $
            30,225
            
            
            $
            30,674
            
            
            $
            12,514Denominator:Weighted
      average common shares for basic earnings per share
            
            
            20,328
            
            
            
            18,875
            
            
            
            16,607Effect
      of dilutive securities
            
            
            78
            
            
            
            110
            
            
            
            150Denominator
      for diluted earnings per share
            
            
            20,406
            
            
            
            18,985
            
            
            
            16,757







Options
to purchase 586, 29 and 0 shares of common stock were not included in the
diluted net income per share calculation for 2007, 2006 and 2005, respectively,
as their inclusion would have been anti-dilutive.




Accounts
Receivable




Accounts
receivable consists primarily of receivables from customers, less an allowance
for doubtful accounts of $130 and $490, and a reserve for returns and allowances
of $643 and $680 at December 31, 2007 and 2006, respectively. Consistent
with industry practices, we normally require payment from our customers within
30 days. The Company has no contractual repurchase arrangements with its
customers. Credit losses have been within management’s
expectations.




The
following table summarizes the changes in our allowance for doubtful accounts
for the past three years (in thousands):





38
 Index




2007
            
            
            2006
            
            
            2005Balance
      at beginning of year
            
            $
            490
            
            
            $
            447
            
            
            $
            475Bad
      debt expense
            
            
            (238
            )
            
            
            —
            
            
            
            13Write-offs,
      net of recoveries
            
            
            (122
            )
            
            
            43
            
            
            
            (41
            )Balance
      at end of year
            
            $
            130
            
            
            $
            490
            
            
            $
            447







Inventories




Inventories
are carried at the lower of cost, using the average cost method, or market and
consist primarily of goods purchased for resale, less a reserve for obsolescence
and unusable items. The reserve for inventory is based upon a number of factors,
including the experience of the purchasing and sales departments, age of the
inventory, new product offerings, and other factors. Management believes that
the reserve for inventory may periodically require adjustment as the factors
identified above change. The inventory reserve was $1,982 and $1,965 at
December 31, 2007 and 2006, respectively.




Vendor
Rebates




We
account for vendor rebates in accordance with the Emerging Issues Task Force
Issue 02-16, Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from a
Vendor. Many of our arrangements with our vendors provide for us to
receive a rebate of a specified amount of consideration, payable to us when we
achieve any of a number of measures, generally related to the volume level of
purchases from our vendors. We account for such rebates as a reduction of the
prices of the vendor’s products and therefore as a reduction of inventory until
we sell the product, at which time such rebates reduce cost of sales in the
accompanying consolidated statements of income. Throughout the year, we estimate
the amount of the rebate earned based on our estimate of purchases to date
relative to the purchase levels that mark our progress toward earning the
rebates. We continually revise these estimates to reflect actual rebates earned
based on actual purchase levels.




Property
and Equipment




The
Company provides for depreciation on a straight-line method over the following
estimated useful lives:




Buildings
            30
      yearsMachinery
      and equipment
            3
      to 5 years







Leasehold
improvements are depreciated over their estimated life or the term of the lease,
whichever is shorter. Depreciation expense was approximately $459,$376, and $398 for the
years ended December 31, 2007, 2006 and 2005, respectively.




Goodwill




The
Company accounts for goodwill under the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”). Under SFAS 142, goodwill is not amortized
but is reviewed annually for impairment, or more frequently if indications of
possible impairment exist, by applying a fair value-based test. The Company
completes the required annual assessment as of October 1 of each year. The
Company has performed the requisite impairment tests for goodwill and has
determined that goodwill was not impaired.




Other
Assets




Other
assets include deferred financing costs of approximately $1,771. The capitalized
loan costs are amortized on a straight-line basis over the contractual life of
the related debt agreement, which approximates the effective interest method,
and such amortization expense is included in interest expense in the
accompanying consolidated statements of income. Accumulated amortization at
December 31, 2007 and 2006, was approximately $1,670 and $1,639,
respectively.




Estimated
future amortization expense for capitalized loan costs through the maturity of
the agreement are $42, $42, and $17 for the years 2008 through 2010
respectively.




Self
Insurance




The
Company retains certain self-insurance risks for both health benefits and
property and casualty insurance programs. The Company limits its exposure to
these self insurance risks by maintaining excess and aggregate liability
coverage. Self insurance reserves are established based on claims filed and
estimates of claims incurred but not reported. The estimates are based on
information provided to the Company by its claims administrators.




Segment
Reporting




SFAS
No. 131, Disclosures
about Segments of an Enterprise and Related Information, establishes
standards for the way that public companies report information about operating
segments in annual financial statements and for related disclosures about
products and services, geographic areas and major customers. The Company
operates in a single operating and reporting segment, sales of specialty wire
and cable.





39
 Index





Revenue
Recognition, Returns & Allowances




The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
(“SAB”) 104, Revenue
Recognition in Financial Statements, and the appropriate amendments. SAB
104 requires that four basic criteria must be met before we can recognize
revenue:




1.       Persuasive
evidence of an arrangement exists;




2.       Delivery
has occurred or services have been rendered;




3.       The
seller’s price to the buyer is fixed or determinable; and




4.       Collectibility
is reasonably assured.




The
Company records revenue when customers take delivery of products. Customers may
pick up products at any warehouse location, or products may be delivered via
third party carriers. Products shipped via third party carriers are considered
delivered based on the shipping terms, which are generally FOB shipping point.
Normal payment terms are net 30 days. Customers are permitted to return product
only on a case-by-case basis. Product exchanges are handled as a credit, with
any replacement items being re-invoiced to the customer. Customer returns are
recorded as an adjustment to net sales. In the past, customer returns have not
been material. The Company has no installation obligations.




The
Company may offer volume rebates, which are accrued monthly as an adjustment to
net sales.




Shipping
and Handling




The
Company incurs shipping and handling costs in the normal course of business.
Freight amounts invoiced to customers are included as sales and freight charges
are included as a component of cost of sales.




Credit
Risk




The
Company’s customers are located primarily throughout the United States. One
customer accounted for approximately 12%, 13%, and 11% of the Company’s sales in
2007, 2006 and 2005, respectively. The Company performs periodic credit
evaluations of its customers and generally does not require
collateral.




Advertising
Costs




Advertising
costs are expensed when incurred. Advertising expenses were $947, $385, and $610
for the years ended December 31, 2007, 2006, and 2005,
respectively.




Financial
Instruments




The
carrying values of the accounts receivable, trade accounts payable and accrued
and other current liabilities approximate fair value, due to the short maturity
of these instruments. The carrying amount of long term debt approximates fair
value as it bears interest at variable rates.




Stock-Based
Compensation




In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
SFAS 123(R), Share-Based
Payment (“SFAS 123(R)”). This standard requires companies to
recognize compensation cost for stock options and other stock-based awards based
on their fair value as measured on the grant date. The new standard prohibits
companies from accounting for stock-based compensation under the provisions of
Accounting Principles Board Opinion No. 25 (“APB 25”).




Effective
January 1, 2006 the Company adopted SFAS 123(R) using the
prospective transition method and, therefore, the impact on the Company’s net
income subsequent to January 1, 2006 includes the remaining amortization of
the intrinsic value of existing stock-based awards, plus the fair value of any
future grants.  See Note 8 for additional information.




Prior to
January 1, 2006, the Company accounted for its employee stock options under
the intrinsic value method described by APB 25. Accordingly, the Company
did not record compensation expense for options issued with an exercise price
equal to the stock’s fair market price on the grant date. Additionally, the
stock compensation expense recorded in 2005 for the stock options granted below
the Company’s estimate of its stock’s fair market value was less than $1, as
those options were granted on December 30, 2005. As a result of this grant,
the Company recorded $559 of unearned compensation that is being amortized over
the vesting period of five years.





40
 Index





Income
Taxes




Deferred
income taxes are determined by the liability method in accordance with SFAS
No. 109, Accounting for
Income Taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.




New
Accounting Pronouncements




In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R establishes principles and
requirement for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R
also requires transaction costs related to the business combination to be
expensed as incurred and establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination. SFAS
141R is effective for fiscal years beginning after December 15, 2008, and the
Company will adopt it in the first quarter of fiscal 2009. The Company does not
expect the adoption of SFAS 141R to have a material impact on its Consolidated
Financial Statements.




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115 (“SFAS 159”). SFAS 159 permits companies to choose to measure many
financial instruments and certain other items at fair value in order to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007. At the effective date, a company may
elect the fair value option for eligible items that exist at that date. The
company shall report the effect of the first remeasurement to fair value as a
cumulative effect adjustment to the opening balance of retained earnings for the
fiscal year in which this statement is initially applied. The provisions of SFAS
No. 159 are effective beginning January 1, 2008. The Company does not expect the
adoption of SFAS No. 159 to have a material impact on its Consolidated Financial
Statements.




In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets
and liabilities. It also responds to investors’ requests for expanded
information about the extent to which companies measure assets and liabilities
at fair value, the information used to measure fair value, and the effect of
fair value measurements on earnings. SFAS 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value, and does
not expand the use of fair value in any new circumstances. The effective date
for the Company is January 1, 2008. However in November 2007, the FASB deferred
the implementation of SFAS 157 for non-financial assets and liabilities. The
Company believes the adoption of this standard will have no material effect on
its Consolidated Financial Statements.




2.Initial Public
Offering




In June
2006, the Company completed its initial public offering in which it issued
4,250 shares of common stock which were subsequently sold to the public for
$13.00 per share. Certain selling stockholders sold an additional
5,525 shares which also were resold to the public for $13.00 per
share. The Company received net proceeds of $49,900 after deducting the
underwriting discount and offering expenses. The net proceeds were used to repay
debt.




3.Detail of Selected
Balance Sheet Accounts




Property
and Equipment




Property
and equipment are stated at cost and consist of the following at:




December 31,2007
            
            2006Land
            
            $
            617
            
            
            $
            617Buildings
            
            
            2,113
            
            
            
            2,057Machinery
      and equipment
            
            
            5,666
            
            
            
            5,1628,396
            
            
            
            7,836Less
      accumulated depreciation
            
            
            5,162
            
            
            
            4,863$
            3,234
            
            
            $
            2,973




41
 Index


Accrued
and Other Current Liabilities




Accrued
and other current liabilities consist of the following at:




December 31,2007
                
                
                2006Customer
      advances
                
                $
                5,727
                
                
                $
                822Customer
      rebates
                
                
                2,983
                
                
                
                4,094Payroll,
      commissions, and bonuses
                
                
                2,185
                
                
                
                2,325Accrued
      inventory purchases
                
                
                2,941
                
                
                
                357Other
                
                
                3,427
                
                
                
                2,760$
                17,263
                
                
                $
                10,358







4.Long-Term
Obligations




HWC has a
loan and security agreement (“Agreement”) with a commercial bank syndicate
(“Lender”). The Agreement is guaranteed by HWC through the pledge of its
interest in the capital stock of HWC Wire & Cable Company.
Additionally, the Company has provided to the Lender a security interest in all
of its assets, including accounts receivable, inventory, and all assets owned by
the Company and HWC Wire & Cable Company. The Agreement, which matures
May 21, 2010, consists of a $75,000 revolving loan (“Revolver”) that bears
interest at the Lender’s base interest rate.




Portions
of the outstanding loan under the Agreement may be converted to LIBOR loans in
minimum amounts ranging between $0.1 million to $1.0 million and integral
multiples of $0.1 million. Upon such conversion, interest is payable at LIBOR
plus 1.00%. The Company has entered into a series of one-month LIBOR loans,
which upon maturity are either rolled back into the Revolver or renewed under a
new LIBOR contract.




The
Agreement includes, among other things, covenants that require the Company to
maintain certain minimum financial ratios. Additionally, the Agreement allows
the Company to make stock buybacks and to pay dividends not to exceed $10,000 in
any twelve month period, limits capital expenditures and requires that 75% of
the Excess Cash Flow (as defined) be used to reduce indebtedness. The Company is
in compliance with the financial covenants governing its
indebtedness.




The
Company’s borrowings and related weighted average interest rates consisted of
the following:




Weighted AverageInterest Rateat December 31,
            
            December 31,2007
            
            2007
            
            
            2006Revolver
      loan – all long term obligations
            
            
            6.17
            %
            
            $
            34,507
            
            
            $
            12,059







During
2007, the Company had an average available borrowing capacity of approximately
$40,484. This average was computed from the monthly borrowing base certificates
prepared for the Lender. At December 31, 2007 the Company had available
borrowing capacity of approximately $40,493 under the terms of the Agreement.
Under the Agreement, the Company is obligated to pay an unused facility fee of
0.2% computed on a daily basis. During the years ended December 31, 2007,
2006 and 2005, the Company paid approximately $77, $83, and $69, respectively,
for the unused facility.




Principal
repayment obligations for succeeding fiscal years are as follows:




2007
            
            $
            —2008
            
            
            —2009
            
            
            —2010
            
            
            34,507Total
            
            $
            34,507




42
 Index





5.Income
Taxes




The
provision (benefit) for income taxes consists of:




Year Ended December 31,2007
            
            
            2006
            
            
            2005Current:Federal
            
            $
            16,607
            
            
            $
            16,592
            
            
            $
            6,070State
            
            
            2,245
            
            
            
            2,614
            
            
            
            931Total
      current
            
            
            18,852
            
            
            
            19,206
            
            
            
            7,001Deferred:Federal
            
            
            (511
            )
            
            
            108
            
            
            
            294State
            
            
            (46
            )
            
            
            11
            
            
            
            4Total
      deferred
            
            
            (557
            )
            
            
            119
            
            
            
            298Total
            
            $
            18,295
            
            
            $
            19,325
            
            
            $
            7,299







A
reconciliation of the U.S. Federal statutory tax rate to the effective tax rate
on income before taxes is as follows:




Year ended December 31,2007
            
            
            2006
            
            
            2005Federal
      statutory rate
            
            
            35.0
            %
            
            
            35.0
            %
            
            
            35.0
            %State
      taxes, net of federal benefit
            
            
            2.9
            %
            
            
            3.4
            %
            
            
            3.6
            %Non-deductible
      items
            
            
            0.3
            %
            
            
            0.2
            %
            
            
            0.5
            %Litigation
      settlement
            
            —
            
            
            
            —
            
            
            
            (1.2
            )%Other
            
            
            (0.5
            )%
            
            
            0.1
            %
            
            
            (1.1
            )%Total
      effective tax rate
            
            
            37.7
            %
            
            
            38.7
            %
            
            
            36.8
            %







Significant
components of the Company’s deferred tax assets were as follows:




Year Ended
              December 31,2007
            
            
            2006Deferred
      tax assets:Property
      and equipment
            
            $
            515
            
            
            $
            548Goodwill
            
            
            22
            
            
            
            140Uniform
      capitalization adjustment
            
            
            418
            
            
            
            360Inventory
      reserve
            
            
            606
            
            
            
            545Capital
      loss carryover
            
            
            —
            
            
            
            48Allowance
      for doubtful accounts
            
            
            50
            
            
            
            189Stock
      compensation expense
            
            
            820
            
            
            
            —Other
            
            
            (21
            )
            
            
            71Total
      deferred tax assets
            
            
            2,410
            
            
            
            1,901Less
      valuation allowance
            
            
            —
            
            
            
            48Net
      deferred tax assets
            
            $
            2,410
            
            
            $
            1,853







The
Company’s U.S Capital loss carryover expired unused in 2007. As a result the
deferred tax asset and the related valuation allowance were written
off.




The
Company adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48, Accounting for Income Taxes(FIN 48), on January 1, 2007. The adoption of FIN 48 resulted in no
impact on the Company’s consolidated financial statements.




The
Company recognizes interest on any tax issue as a component of interest expense
and any related penalties in other operating expenses. As of December 31, 2007
the Company made no provisions for interest or penalties related to uncertain
tax positions. The tax years 2003 through 2007 remain open to examination by the
major taxing jurisdictions to which we are subject.




6.Related-Party
Transactions




In March
2007, the Company registered an offering for its then largest stockholder, Code,
Hennessy & Simmons II, L.P. and other selling stockholders, who sold
approximately 7,500 common shares at $25 per share. All the shares were sold by
selling stockholders, including approximately 6,900 common shares by Code,
Hennessy & Simmons II, L.P., thus there was no dilution to earnings per
share or any proceeds to the Company. After the offering, Code, Hennessy &
Simmons II, L.P.’s ownership was reduced from 38% to 8%. Code Hennessy &
Simmons II, L.P. subsequently distributed all of the remaining shares to its
partners and no longer holds any shares of common stock.





43
 Index





Until
June 2006, HWC had a management services agreement with an affiliate of the
majority stockholder of the Company that provided for the payment of monthly
management fees and the reimbursement of certain expenses. This management fee
arrangement was cancelled upon the completion of the June 2006
IPO.  Management fees and expenses of $0,$208, and $500, were
incurred and paid under this agreement for the years ended December 31,
2007, 2006 and 2005, respectively.




7.Employee Benefit
Plans




A
combination profit-sharing plan and salary deferral plan (the “Plan”) is
provided for the benefit of HWC’s employees. Employees who are eligible to
participate in the Plan can contribute a percentage of their base compensation,
up to the maximum percentage allowable not to exceed the limits of Internal
Revenue Code Sections 401(k), 404, and 415, subject to the IRS-imposed dollar
limit. Employee contributions are invested in certain equity and fixed-income
securities, based on employee elections. Effective January 1, 2006, the
Company’s match increased to 50% of the employee’s first 5% of contributions.
Effective January 1, 2007, the Company adopted the Safe Harbor provisions
of the Internal Revenue Code, whereby contributions up to the first 3% of an
employee’s compensation are matched 100% by the Company and the next 2% are
matched 50% by the Company.  The Company’s match for the years ended
December 31, 2007, 2006 and 2005 was $619, $351, and $238
respectively




8.   
Stock Option Plan




On
March 23, 2006, the Company adopted the 2006 Stock Plan to provide
incentives for certain key employees and directors through awards and the
exercise of options. The 2006 Stock Plan provides for options to be granted at
the fair market value of the Company’s common stock at the date of grant and may
be either nonqualified stock options or incentive stock options as defined by
Section 422 of the Code. Under the 2006 Stock Plan a maximum of
1,800 shares may be issued to designated participants. The maximum number
of shares available to any one participant in any one calendar year is
500.




The
Company also has options outstanding under a stock option plan adopted in 2000
(the “2000 Plan”). The 2000 Plan provided for options to be granted at the fair
market value of the Company’s common stock at the date of the grant, which
options could be either nonqualified stock options or incentive stock options as
defined by Section 422 of the Internal Revenue Code. In connection with the
adoption of the 2006 Stock Plan, the Board of Directors resolved that no further
options would be granted under the 2000 Plan.




Adoption
of SFAS 123(R)




The
Company has granted options to purchase its common stock to employees and
directors of the Company under various stock option plans at no less than the
fair market value of the underlying stock on the date of grant. These options
are granted for a term not exceeding ten years and may be forfeited in the event
the employee or director terminates, other than by retirement, his or her
employment or relationship with the Company. Options granted to employees
generally vest over three to five years, and options granted to directors
generally vest one year after the date of grant. Shares issued to satisfy the
exercise of options may be issued from treasury stock shares. All option plans
contain anti-dilutive provisions that permit an adjustment of the number of
shares of the Company’s common stock represented by each option for any change
in capitalization.




The
Company adopted the fair value recognition provisions of
SFAS 123(R) on January 1, 2006, using the prospective transition
method. The fair value of the options granted after January 1, 2006 is
estimated using a Black-Scholes option-pricing model and amortized to expense
over the options’ vesting period. Prior to adoption of SFAS 123(R), the
Company accounted for stock based payments under the  recognition and
measurement provisions of APB 25, and related Interpretations, as permitted
by SFAS 123. Under the prospective transition method, compensation cost
recognized beginning in 2006 includes: (a) compensation cost for all stock
based payments granted prior to, but not yet vested as of January 1, 2006,
based on the remaining amortization of the intrinsic value of such stock based
awards, and (b) compensation cost for all stock based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated
in accordance with the provisions of SFAS 123(R). As permitted by
SFAS 123(R), results for prior periods were not restated.




On
March 9, 2007, the Company granted to the Company’s chief executive
officer, an option to purchase 500 shares of its common stock with an
exercise price equal to the fair market value of the Company’s stock at the
close of trading on March 9, 2007. This option has a contractual life of
ten years and vests 50% four years after the date of grant and the remaining 50%
five years after the date of grant, provided that in the event of the chief
executive officer’s death or permanent disability, such option would vest
ratably based on the days served from the date of grant.





44
 Index





The fair
value of each option awarded is estimated on the date of grant using a
Black-Scholes option-pricing model. Expected volatilities are based on
historical volatility on the Company’s stock and the historical volatility of
the stock of similar companies, and other factors. The Company uses historical
data to estimate option exercises and employee terminations within the valuation
model. The expected life of options granted represents the period of time that
options granted are expected to be outstanding. The risk-free rate for periods
within the life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. For options issued, the following weighted average
assumptions were used:




Year
      Ended
              December
      31,2007
            
            
            2006Risk-free
      interest rate
            
            
            4.53
            %
            
            
            4.74
            %Expected
      dividend yield
            
            
            0.25
            %
            
            
            0.0
            %Weighted
      average expected life
            
            5.5
      years
            
            
            5.5
      yearsExpected
      volatility
            
            
            45
            %
            
            
            45
            %







Prior to
the adoption of SFAS 123(R), the Company presented all tax benefits of
deductions resulting from the exercise of stock options as operating cash flows
in the Statement of Cash Flows. SFAS 123(R) requires the cash flows
resulting from the tax benefits resulting from tax deductions in excess of the
compensation cost recognized for those options (excess tax benefits) to be
classified as financing cash flows. In 2007, $1,235 and in 2006 $20 of such tax
benefits were reflected in financing cash flows.




The total
intrinsic value of options exercised during the years ended December 31,
2007 and 2006 was $3,200 and $131 respectively.




The
following summarizes stock option activity and related information:




2007Options
            
            Weighted
              Average
              Exercise Price
            
            Aggregate
              Intrinsic
              ValueOutstanding—Beginning
      of year
            
            
            437
            
            
            $
            9.67Granted
            
            
            602
            
            
            
            24.90Exercised
            
            
            (125)
            
            
            
            0.77Forfeitures
            
            
            (4)
            
            
            
            (0.53)Expired
            
            
            —
            
            
            
            —Outstanding—End
      of year
            
            
            910
            
            
            $
            21.02
            
            
            $
            1,390Exercisable—End
      of year
            
            
            137
            
            
            $
            12.08
            
            
            $
            638Weighted
      average fair value of options granted during 2007
            
            $
            11.53Weighted
      average fair value of options granted during 2006
            
            $
            9.63







A summary
of the Company’s nonvested options at December 31, 2007, and changes during
the twelve months then ended, is presented below:




Weighted AverageGrant DateOptions
              
              
              Fair ValueNonvested
      at January 1, 2007
              
              
              298
              
              
              $
              7.89Granted
              
              
              602
              
              
              
              11.53Vested
              
              
              (126
              )
              
              
              6.97Forfeited
              
              
              (1
              )
              
              
              0.07Nonvested
      at December 31, 2008
              
              
              773
              
              
              $
              10.88




45
 Index





Vesting
dates range from January 1, 2008 to December 20, 2012, and
expiration dates range from June 26, 2010 to December 18, 2017 at
exercise prices and average contractual lives as follows:




Exercise Prices
            
            Outstanding
              as of
              12/31/07
            
            Weighted
              Average
              Remaining
              Contractual
              Life
            
            Exercisable
              as of 12/31/07
            
            Weighted
              Average
              Remaining
              Contractual
              Life$0.53
            
            
            37
            
            
            
            4.92
            
            
            
            27
            
            
            
            4.53$2.67
            
            
            75
            
            
            
            8.00
            
            
            
            22
            
            
            
            8.00$13.00
            
            
            15
            
            
            
            8.47
            
            
            
            15
            
            
            
            8.47$15.40
            
            
            78
            
            
            
            9.96
            
            
            
            —
            
            
            
            —$16.98
            
            
            30
            
            
            
            8.55
            
            
            
            30
            
            
            
            8.55$17.98
            
            
            15
            
            
            
            8.61
            
            
            
            15
            
            
            
            8.61$21.73
            
            
            140
            
            
            
            8.97
            
            
            
            28
            
            
            
            8.97$26.19
            
            
            500
            
            
            
            9.19
            
            
            
            —
            
            
            
            —$30.25
            
            
            20
            
            
            
            9.33
            
            
            
            —
            
            
            
            —910
            
            
            
            8.91
            
            
            
            137
            
            
            
            7.75







Total
stock-based compensation cost was $1,826 and $332 for the years ended
December 31, 2007 and 2006 respectively. Total income tax benefit
recognized for stock-based compensation arrangements was $689 and $126 for the
years ended December 31, 2007 and 2006 respectively. No stock-based
compensation costs were incurred during the year ended December 31,
2005.




As a
result of adopting SFAS 123(R) on January 1, 2006, the Company
recognized $220 of additional stock-based compensation expense related to stock
options during the year ended December 31, 2006. The Company’s income
before income taxes and net income for the year ended December 31, 2006,
were therefore $220 and $136, respectively, lower than if the Company had
continued to account for stock-based compensation under APB 25. Basic and
diluted earnings per share were $0.01 lower for the year ended December 31,
2006, than if the Company had continued to account for the stock-based
compensation under APB 25.




As of
December 31, 2007, there was $7,224 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements. The cost is expected
to be recognized over a weighted average period of approximately forty nine
months. There were 1,003 shares available for future grants under the 2006 Plan
at December 31, 2007. The Company may issue new shares or treasury shares
when options are exercised.




The total
fair value of options vested during the years ended December 31, 2007, 2006
and 2005 was $885, $121 and $3 respectively.




9.Commitments and
Contingencies




The
Company has entered into operating leases, primarily for warehouse and office
facilities. These operating leases frequently include renewal options at the
fair rental value at that time. For leases with step rent provisions, whereby
the rental payments increase incrementally over the life of the lease, we
recognize the total minimum lease payments on a straight line basis over the
minimum lease term. Rent expense was approximately $1,931 in 2007, $1,737 in
2006 and $1,611 in 2005. Future minimum lease payments under non-cancelable
operating leases with initial terms of one year or more consisted of the
following at December 31, 2007:




2008
            
            $
            2,2782009
            
            
            2,0772010
            
            
            1,4942011
            
            
            1,5162012
            
            
            1,0212013
            
            
            505Thereafter
            
            
            288Total
      minimum lease payments
            
            $
            9,179







The
Company had aggregate purchase commitments for inventory of approximately
$37,618at
December 31, 2007.




In
September 2000, HWC lost a court case brought by a vendor for alleged
breach of contract. The jury found in favor of the vendor and awarded the vendor
the sum of $1,300 plus accrued interest, which totaled approximately $1,600. The
breach of contract occurred prior to the acquisition of the Company from its
previous owner (“ALLTEL”). In 2001, HWC filed suit against ALLTEL under the
terms of the purchase agreement, in which HWC is to be indemnified by ALLTEL,
for any liability either disclosed or undisclosed in the agreement of sale. In
October 2004, the court rendered its verdict on the suit. HWC was awarded
approximately $672 for ALLTEL’s breach under one portion of the suit which
amount was received in January 2005 and included in litigation settlements
in the accompanying 2005 statement of income, while the court found in favor of
ALLTEL on the second portion of the suit. HWC appealed the decision on the
second portion of the suit, but this decision was affirmed by the Illinois
Appellate Court in March 2006.




HWC,
along with many other defendants, has been named in a number of lawsuits in the
state courts of Minnesota, North Dakota and South Dakota alleging that certain
wire and cable which may have contained asbestos caused injury to the plaintiffs
who were exposed to this wire and cable. These lawsuits are individual personal
injury suits that seek unspecified amounts of money damages as the sole remedy.
It is not clear whether the alleged injuries occurred as a result of the wire
and cable in question or whether HWC, in fact, distributed the wire and cable
alleged to have caused any injuries. In addition, HWC did not manufacture any of
the wire and cable at issue, and HWC would rely on any warranties from the
manufacturers of such cable if it were determined that any of the wire or cable
that HWC distributed contained asbestos which caused injury to any of these
plaintiffs. In connection with ALLTEL’s sale of the company in 1997, ALLTEL
provided indemnities with respect to costs and damages associated with these
claims that HWC believes it could enforce if its insurance coverage proves
inadequate. In addition, HWC maintains general liability insurance that has
applied to these claims. To date, all costs associated with these claims have
been covered by the applicable insurance policies and all defense of these
claims has been handled by the applicable insurance companies.





46
 Index





In
addition to the foregoing cases, there are no legal proceedings pending against
or involving the Company that, in management’s opinion, based on the current
known facts and circumstances, are expected to have a material adverse effect on
the Company’s consolidated financial position, cash flows, or results from
operations.




10.Subsequent
Events




On
January 9, 2008, the Company granted 65 options to purchase shares of its common
stock to the Company’s chief executive officer with an exercise price of the
fair market value of the Company’s stock at the close of trading on January 9,
2008. These options have a contractual life of ten years and vest 50% on March
19, 2011 and the remaining 50% on March 19, 2012, provided that in the event of
death or permanent disability such options would vest proportionately based on
the days served from the grant date.




On
January 29, 2008 the Board of Directors authorized an increase in its stock
buyback program from $50 million to a maximum of $75 million.




On
February 1, 2008 the Board of Directors approved a quarterly dividend of $0.085
per share payable to shareholders of record on February 15, 2008. This dividend
totaling $1.53 million was paid on February 29, 2008.




11. Select
Quarterly Financial Data (unaudited)


The
following table presents our unaudited quarterly results of operations for each
of our last eight quarters ended December 31, 2007. We have prepared the
unaudited information on the same basis as our audited consolidated financial
statements.





Quarter EndedDecember 31,
              2007
            
            
            September 30,
              2007
            
            
            June 30,
              2007
            
            
            March 31,
              2007
            
            
            December
      31,
              2006
            
            
            September 30,
              2006
            
            
            June 30,
              2006
            
            
            March 31,
              2006(In thousands, except per share data)CONSOLIDATED STATEMENT
      OF INCOME:Sales
            
            $
            89,195
            
            
            $
            98,922
            
            
            $
            89,210
            
            
            $
            81,788
            
            
            $
            82,892
            
            
            $
            89,963
            
            
            $
            84,184
            
            
            $
            66,428Gross
      profit
            
            $
            21,700
            
            
            $
            24,806
            
            
            $
            23,724
            
            
            $
            22,609
            
            
            $
            23,618
            
            
            $
            26,203
            
            
            $
            24,527
            
            
            $
            17,991Operating
      income
            
            $
            10,259
            
            
            $
            13,578
            
            
            $
            13,816
            
            
            $
            12,055
            
            
            $
            13,701
            
            
            $
            15,857
            
            
            $
            14,563
            
            
            $
            8,953Net
      income
            
            $
            6,213
            
            
            $
            8,294
            
            
            $
            8,421
            
            
            $
            7,297
            
            
            $
            8,150
            
            
            $
            9,468
            
            
            $
            8,254
            
            
            $
            4,802Earnings
      per share:Basic
            
            $
            0.33
            
            
            $
            0.41
            
            
            $
            0.40
            
            
            $
            0.35
            
            
            $
            0.39
            
            
            $
            0.45
            
            
            $
            0.48
            
            
            $
            0.29Diluted
            
            $
            0.32
            
            
            $
            0.41
            
            
            $
            0.40
            
            
            $
            0.35
            
            
            $
            0.39
            
            
            $
            0.45
            
            
            $
            0.48
            
            
            $
            0.29




47
 Index





ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE





None.





ITEM 9A.  CONTROLS AND PROCEDURES


Evaluation
of Disclosure Controls and Procedures





In
accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2007.





Design
and Evaluation of Internal Control over Financial Reporting





Pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, we included a report of management’s assessment of
the design and effectiveness of our internal controls as part of this Annual
Report on Form 10-K for the fiscal year ended December 31, 2007. Ernst &
Young, LLP, our independent registered public accounting firm, also attested to
our internal control over financial reporting. Management’s report and the
independent registered accounting firm’s attestation report are included in our
2007 Consolidated Financial Statements on pages F-3 and F-4 under the captions
entitled “Management’s Report on Internal Control Over Financial Reporting” and
“Report of Independent Registered Public Accounting Firm on Internal Control
Over Financial Reporting,” and are incorporated herein by
reference.





There has been no change in our
internal controls over financial reporting that occurred during the three months
ended December 31, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.





48
 Index





MANAGEMENT’S
REPORT ON INTERNAL CONTROL








The
Company has assessed the effectiveness of its internal control over financial
reporting as of December 31, 2007 based on criteria established byInternal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO Framework”) . The Company’s management is
responsible for establishing and maintaining adequate internal controls over
financial reporting. The Company’s independent registered public accountants
that audited the Company’s financial statements as of December 31, 2007
have issued an attestation report on management’s assessment of the
effectiveness of the Company’s internal control over financial reporting, which
appears on page F- 4.





Internal
control over financial reporting is a process designed 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. Internal control over financial reporting
includes those policies and procedures that: (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.





The
Company’s assessment of the effectiveness of its internal control over financial
reporting included testing and evaluating the design and operating effectiveness
of its internal controls. In management’s opinion, the Company has maintained
effective internal control over financial reporting as of December 31,
2007, based on criteria established in the COSO Framework.





/s/
      Charles A. Sorrentino
            
            /s/
      Nicol G. GrahamCharles
      A. Sorrentino
            
            Nicol
      G. GrahamPresident
      and Chief Executive Officer
            
            Chief
      Financial Officer, Treasurerand
      Secretary (Chief Accounting
Officer)





49
 Index





Report
of Independent Registered Public Accounting Firm








The Board
of Directors and Stockholders


Houston
Wire & Cable Company





We have
audited Houston Wire & Cable Company’s internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Houston Wire & Cable
Company’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Report on Internal Control. Our responsibility is to express an
opinion on the company’s internal control over financial reporting based on our
audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company’s internal control over financial reporting is a process designed 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. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





In our
opinion, Houston Wire & Cable Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based onthe COSO
criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Houston Wire
& Cable Company as of December 31, 2007 and 2006, and the related
consolidated statements of income, stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2007 of Houston Wire &
Cable Company and our report dated February 27, 2008 expressed an unqualified
opinion thereon.





/s/
      Ernst & Young LLP








Houston,
Texas


February
27, 2008





50
 Index





ITEM 9B.  OTHER INFORMATION





We
have no information to report pursuant to Item 9B.





51
 Index





PART
III








ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The information called for by Item 10
relating to directors and nominees for election to the Board of Directors is
incorporated herein by reference to the “Election of Directors” section of the
registrant’s definitive Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 8, 2008.  The information called for by
Item 10 relating to executive officers and certain significant employees is set
forth in Part I of this Annual Report on Form 10-K.





The information called for by Item 10
relating to disclosure of delinquent Form 3, 4 or 5 filers is incorporated
herein by reference to the “Stock Ownership of Certain Beneficial Owners and
Management” section of the registrant’s definitive  Proxy Statement
relating to the Annual Meeting of Stockholders to be held on May 8,
2008.





The information called for by Item 10
relating to the code of ethics is incorporated herein by reference to the
“Corporate Governance and Board Committees – Code of Business Practices” section
of the registrant’s definitive  Proxy Statement relating to the
Annual Meeting of Stockholders to be held on May 8, 2008.





The information called for by Item 10
relating to the procedures by which security holders may recommend nominees to
the Board of Directors is incorporated herein by reference to the “Corporate
Governance and Board Committees – Stockholder Recommendations for Director
Nominations” section of the registrant’s definitive Proxy Statement
relating to the Annual Meeting of Stockholders to be held on May 8,
2008.





The information called for by Item 10
relating to the audit committee and the audit committee financial expert is
incorporated herein by reference to the “Corporate Governance and Board
Committees – Committees Established by the Board – Audit Committee” section of
the registrant’s definitive Proxy Statement relating to the Annual Meeting
of Stockholders to be held on May 8, 2008.





ITEM 11.  EXECUTIVE COMPENSATION





The information called for by Item 11
is incorporated herein by reference to the “Report of the Compensation
Committee,” “Compensation Committee Interlocks and Insider Participation,”
“Executive Compensation” and “Director Compensation” sections of the
registrant’s definitive  Proxy Statement relating to the Annual
Meeting of Stockholders to be held on May 8, 2008.





ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The information called for by Item 12
is incorporated herein by reference to the “Stock Ownership of Certain
Beneficial Owners and Management” and “Equity Compensation Plan Information”
sections of the registrant’s definitive  Proxy Statement
relating to the Annual Meeting of Stockholders to be held on May 8,
2008.





ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE





The information called for by Item 13
is incorporated herein by reference to the “Corporate Governance and Board
Committees – Are a Majority of the Directors Independent?” and “Certain
Relationships and Related Transactions” sections of the registrant’s
definitive  Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 8, 2008.





ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES





The information called for by Item 14
is incorporated herein by reference to the “Principal Independent Accountant
Fees and Services” section of the registrant’s definitive Proxy Statement
relating to the Annual Meeting of Stockholders to be held on May 8,
2008.





52
 Index





PART
IV





ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES





(a)
            The
      following financial statements of our Company and Report of the
      Independent Registered Public Accounting Firm are included in Part
      II:


·
            Report
      of Independent Registered Public Accounting
Firm


·
            Consolidated
      Balance Sheets as of December 31, 2007 and
2006


·
            Consolidated
      Statements of Operations for the years ended December 31, 2007, 2006 and
      2005


·
            Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2007,
      2006 and 2005


·
            Consolidated
      Statements of Cash Flows for the years ended December 31, 2007, 2006 and
      2005


·
            Notes
      to Consolidated Financial
Statements





(b)           Financial
Statement Schedules:





Financial statement schedules have been
omitted because they are either not applicable or the required information has
been disclosed in the financial statements or notes thereto.





(c)           Exhibits





Exhibits are set forth on the attached
exhibit index




53
 Index





SIGNATURES





Pursuant to the requirements of Section
13 or 15(d) 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.










HOUSTON
      WIRE & CABLE COMPANY

              (Registrant)Date:
      March 17, 2008
            By:
            /s/  NICOL G.
    GRAHAMNicol
      G. Graham
              Chief
      Financial Officer, Treasurer and
Secretary





Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.




SIGNATURE
            
            TITLE
            
            DATE/s/  CHARLES
      A. SORRENTINO
            
            President,
      Chief Executive Officer and Director
            
            March
      17, 2008Charles A.
      Sorrentino/s/  NICOL
      G. GRAHAM
            
            Chief
      Financial Officer, Treasurer and Secretary (Chief Accounting
      Officer)
            
            March
      17, 2008Nicol G.
      Graham/s/  PETER
      M. GOTSCH
            
            Director
            
            March
      17, 2008Peter M.
      Gotsch/s/  ROBERT
      G. HOGAN
            
            Director
            
            March
      17, 2008Robert G.
      Hogan/s/  IAN
      STEWART FARWELL
            
            Director
            
            March
      17, 2008Ian
      Stewart Farwell/s/  WILLIAM
      H. SHEFFIELD
            
            Director
            
            March
      17, 2008William
      H. Sheffield/s/  SCOTT
      L. THOMPSON
            
            Director
            
            March
      17, 2008Scott
      L. Thompson/s/  WILSON
      B. SEXTON
            
            Director
            
            March
      17, 2008Wilson B.
      Sexton




54
 Index




INDEX
TO EXHIBITS




EXHIBIT
              NUMBER
            
            EXHIBIT3.1
            
            Amended
      and Restated Certificate of Incorporation of Houston Wire & Cable
      Company (incorporated herein by reference to Exhibit 3.1 to Houston Wire
      & Cable Company’s Registration Statement on Form S-1 (Registration No.
      333-132703))3.2
            
            By-Laws
      of Houston Wire & Cable Company (incorporated herein by reference
      to Exhibit 3.2 to Houston Wire & Cable Company’s Registration Current
      Report on Form 8-K filed August 6, 20074.1
            
            Form
      of Specimen Common Stock Certificate of Houston Wire & Cable
      Company (incorporated herein by reference to Exhibit 4.1 to Houston Wire
      & Cable Company’s Registration Statement on Form S-1 (Registration No.
      333-132703))10.1
            
            Houston
      Wire & Cable Company 2000 Stock Plan (incorporated herein by
      reference to Exhibit 10.2 to Houston Wire & Cable Company’s
      Registration Statement on Form S-1 (Registration No.
      333-132703))10.2
            
            Houston
      Wire & Cable Company 2006 Stock Plan (incorporated herein by
      reference to Exhibit 10.3 to Houston Wire & Cable Company’s
      Registration Statement on Form S-1 (Registration No.
      333-132703))10.3
            
            Amended
      and Restated Loan and Security Agreement, dated as of May 22, 2000,
      by and among various specified lenders, Fleet Capital Corporation (now
      Bank of America, Inc.) and HWC Holding Company (now Houston
      Wire & Cable Company) (incorporated herein by reference to
      Exhibit 10.4 to Houston Wire & Cable Company’s Registration Statement
      on Form S-1 (Registration No. 333-132703))10.4
            
            First
      Amendment to Amended and Restated Loan Agreement, dated as of
      July 13, 2000 (incorporated herein by reference to Exhibit 10.5 to
      Houston Wire & Cable Company’s Registration Statement on Form S-1
      (Registration No. 333-132703))10.5
            
            Second
      Amendment to Amended and Restated Loan Agreement, dated as of May 30,
      2001 (incorporated herein by reference to Exhibit 10.6 to Houston Wire
      & Cable Company’s Registration Statement on Form S-1 (Registration No.
      333-132703))10.6
            
            Third
      Amendment to Amended and Restated Loan Agreement, dated as of
      October 22, 2001 (incorporated herein by reference to Exhibit 10.7 to
      Houston Wire & Cable Company’s Registration Statement on Form S-1
      (Registration No. 333-132703))10.7
            
            Fourth
      Amendment to Amended and Restated Loan Agreement, dated as of
      December 31, 2002 (incorporated herein by reference to Exhibit 10.8
      to Houston Wire & Cable Company’s Registration Statement on Form S-1
      (Registration No. 333-132703))10.8
            
            Fifth
      Amendment to Amended and Restated Loan Agreement, dated as of
      November 19, 2003 (incorporated herein by reference to Exhibit 10.9
      to Houston Wire & Cable Company’s Registration Statement on Form S-1
      (Registration No. 333-132703))10.9
            
            Sixth
      Amendment to Amended and Restated Loan Agreement, dated as of May 26,
      2005 (incorporated herein by reference to Exhibit 10.10 to Houston Wire
      & Cable Company’s Registration Statement on Form S-1 (Registration No.
      333-132703))10.10
            
            Seventh
      Amendment to Amended and Restated Loan Agreement, dated as of
      December 14, 2005 (incorporated herein by reference to Exhibit 10.11
      to Houston Wire & Cable Company’s Registration Statement on Form S-1
      (Registration No. 333-132703))10.11
            
            Eighth
      Amendment to Amended and Restated Loan Agreement, dated as of
      December 30, 2005 (incorporated herein by reference to Exhibit 10.12
      to Houston Wire & Cable Company’s Registration Statement on Form S-1
      (Registration No. 333-132703))10.12
            
            Ninth
      Amendment to Amended and Restated Loan Agreement, dated as of May 23, 2006
      (incorporated herein by reference to Exhibit 10.19 to Houston Wire &
      Cable Company’s Registration Statement on Form S-1 (Registration No.
      333-132703))10.13
            
            Tenth
      Amendment to Amended and Restated Loan Agreement, dated as of November 3,
      2006 (incorporated herein by reference to Exhibit 10.1 to Houston Wire
      & Cable Company’s Current Report on Form 8-K filed November 7,
      2006)10.14
            
            Eleventh
      Amendment to Amended and Restated Loan Agreement, dated as of July 31,
      2007 (incorporated herein by reference to Exhibit 10.1 to Houston Wire
      & Cable Company’s Current Report on Form 10-Q filed August 1,
      2007)10.15
            
            Twelfth
      Amendment to Amended and Restated Loan Agreement, dated as of August 3,
      2007 (incorporated herein by reference to Exhibit 10.1 to Houston Wire
      & Cable Company’s Current Report on Form 8-K filed August 20,
      2007)10.16
            
            Thirteen
      Amendment to Amended and Restated Loan Agreement, dated as of September
      28, 2007 (incorporated herein by reference to Exhibit 10.1 to Houston Wire
      & Cable Company’s Current Report on Form 8-K filed October 2,
      2007)10.17*
            
            Fourteenth
      Amendment to Amended and Restated Loan Agreement, dated as of January 31,
      2008




55
 Index




10.18
            
            Employment
      Agreement, dated as of April 26, 2006, by and between Charles A.
      Sorrentino and Houston Wire & Cable Company (incorporated herein
      by reference to Exhibit 10.14 to Houston Wire & Cable Company’s
      Registration Statement on Form S-1 (Registration No.
      333-132703))10.19
            
            Form
      of Executive Securities Agreement by and among Code, Hennessy &
      Simmons II, L.P., HWC Holding Corporation (now Houston
      Wire & Cable Company) and executive (incorporated herein by
      reference to Exhibit 10.15 to Houston Wire & Cable Company’s
      Registration Statement on Form S-1 (Registration No.
      333-132703))10.20
            
            Investor
      Securities Agreement, dated as of May 22, 1997, by and among Code,
      Hennessy & Simmons II, L.P., HWC Holding
      Corporation (now Houston Wire & Cable Company) and various
      specified investors (incorporated herein by reference to Exhibit 10.16 to
      Houston Wire & Cable Company’s Registration Statement on Form S-1
      (Registration No. 333-132703))10.21
            
            Executive
      Securities Agreement, dated as of December 31, 1998, and amended as
      of June 28, 2000, and April 26, 2006, by and among Code,
      Hennessy & Simmons II, L.P., HWC Holding Corporation (now Houston
      Wire & Cable Company) and Charles A. Sorrentino
      (incorporated herein by reference to Exhibit 10.17 to Houston Wire &
      Cable Company’s Registration Statement on Form S-1 (Registration No.
      333-132703))10.22
            
            Executive
      Securities Agreement, dated as of September 11, 1997, by and among
      Code, Hennessy & Simmons II, L.P., HWC Holding Corporation (now
      Houston Wire & Cable Company) and Nicol G. Graham
      (incorporated herein by reference to Exhibit 10.18 to Houston Wire &
      Cable Company’s Registration Statement on Form S-1 (Registration No.
      333-132703))10.23*
            
            Form
      of Employee Stock Option Agreement under Houston Wire & Cable
      Company’s 2006 Stock Plan10.24*
            
            Form
      of Director Stock Option Agreement under Houston Wire & Cable
      Company’s 2006 Stock Plan10.25
            
            Description
      of Senior Management Bonus Program (incorporated herein by reference to
      Exhibit 10.3 to Houston Wire & Cable Company’s Current Report on Form
      8-K filed December 27, 2006)10.26
            
            Form
      of Director/Officer Indemnification Agreement by and between Houston Wire
      & Cable Company and a director, member of a committee of the Board of
      Directors or officer of Houston Wire & Cable Company (incorporated
      herein by reference to Exhibit 10.24 to Houston Wire & Cable Company’s
      Annual Report on Form 10-K for the year ended December 31, 2006
      )21.1
            
            Subsidiaries
      of Houston Wire & Cable Company (incorporated herein by reference
      to Exhibit 21.1 to Houston Wire & Cable Company’s Registration
      Statement on Form S-1 (Registration No. 333-132703))23.1*
            
            Consent
      of Ernst & Young, LLP31.1*
            
            Certification
      of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2*
            
            Certification
      of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232.1*
            
            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









56