-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MGp4XGhWa/DA17bM6ksfFbZVOIknUehRRr1dxdsSqpRe6i/FA8bSFSgTZl6oU8R5 +wlZjZghtOPQqKFpBAGvOw== 0000950134-00-002424.txt : 20000328 0000950134-00-002424.hdr.sgml : 20000328 ACCESSION NUMBER: 0000950134-00-002424 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENCORE WIRE CORP /DE/ CENTRAL INDEX KEY: 0000850460 STANDARD INDUSTRIAL CLASSIFICATION: ROLLING DRAWING & EXTRUDING OF NONFERROUS METALS [3350] IRS NUMBER: 752274963 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-20278 FILM NUMBER: 578930 BUSINESS ADDRESS: STREET 1: 1410 MILLWOOD RD STREET 2: P O BOX 1149 CITY: MCKINNEY STATE: TX ZIP: 75069 BUSINESS PHONE: 2145629473 MAIL ADDRESS: STREET 1: 1410 MILLWOOD RD STREET 2: P O BOX 1149 CITY: MCKINNEY STATE: TX ZIP: 75069 10-K405 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1999 1 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 (Fee required) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) For the transition period from to ------- ------- Commission File Number: 020278 ENCORE WIRE CORPORATION (Exact Name of Registrant as Specified in its Charter) DELAWARE 75-2274963 (State of incorporation) (I.R.S. Employer Identification No.) 1410 MILLWOOD ROAD MCKINNEY, TEXAS 75069 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 562-9473 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation 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. Yes [ X ] No [ ] Aggregate market value of Common Stock held by nonaffiliates as of March 10, 2000: $ 73,621,562 Number of shares of Common Stock outstanding as of March 10, 2000: 15,227,122 DOCUMENTS INCORPORATED BY REFERENCE Listed below are documents, parts of which are incorporated herein by reference and the part of this report into which the document is incorporated: (1) Proxy statement for the 2000 annual meeting of stockholders -- Part III 2 TABLE OF CONTENTS
PAGE NUMBER ------ PART I..................................................................................................... 1 ITEM 1. BUSINESS.................................................................................. 1 General................................................................................... 1 Strategy.................................................................................. 1 Products.................................................................................. 2 Manufacturing............................................................................. 2 Customers................................................................................. 3 Marketing and Distribution................................................................ 3 Employees................................................................................. 4 Raw Materials............................................................................. 4 Competition............................................................................... 4 Patent Matters............................................................................ 5 ITEM 2. PROPERTIES................................................................................ 5 ITEM 3. LEGAL PROCEEDINGS......................................................................... 5 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................... 5 EXECUTIVE OFFICERS OF THE COMPANY........................................................ 5 PART II.................................................................................................... 7 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................... 7 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA...................................................... 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 9 General................................................................................... 9 Results of Operations..................................................................... 9 Liquidity and Capital Resources........................................................... 12 Impact of Year 2000....................................................................... 13 Information Regarding Forward Looking Statements.......................................... 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................ 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................... 14 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...... 26 PART III................................................................................................... 26 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY........................................... 26 ITEM 11. EXECUTIVE COMPENSATION.................................................................... 26 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................ 26 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS...................................... 26 PART IV.................................................................................................... 26 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................................................................. 26
ii 3 PART I ITEM 1. BUSINESS GENERAL Encore Wire Corporation is a low-cost manufacturer of copper electrical building wire and cable. The Company is a significant supplier of both residential wire for interior electrical wiring in homes, apartments and manufactured housing, as well as building wire for electrical distribution in commercial and industrial buildings. Based upon the latest available U.S. Department of Commerce data, the Company's share of the market for residential wire was approximately 15% in 1997. Based on the same information, the Company's share of the market for the commercial wire that it manufactures was approximately 8% in 1997. Although the Department of Commerce has not released the 1998 data, the Company believes its market share rankings are substantially similar to those in 1997. The principal customers for Encore's wire are wholesale electrical distributors, which serve both the residential and commercial wire markets. The Company sells its products primarily through manufacturers' representatives located throughout the United States and, to a lesser extent, through its own direct marketing efforts. Encore's strategy is to further expand its share of the markets for residential wire and for commercial wire primarily by emphasizing a high level of customer service and low-cost production and, to a lesser extent, the addition of new products that compliment its current product line. The Company maintains product inventory levels sufficient to meet anticipated customer demand and believes that the speed and completeness with which it fills customer orders are key competitive advantages critical to marketing its products. Encore's low-cost production capability features an efficient plant design incorporating highly automated manufacturing equipment, an integrated production process and a small, incentivized work force. In 1999, the Company restructured its operations by transferring its operations into Encore Wire Limited, a new Texas limited partnership ("Encore Wire Limited"). The general partner of Encore Wire Limited is EWC GP Corp., a Delaware corporation domiciled in Texas and a wholly-owned subsidiary of the Company and the limited partner is EWC LP Corp., a Delaware corporation domiciled in Nevada and a wholly-owned subsidiary of the Company. As a result of the restructuring, the Company's operations are conducted by Encore Wire Limited. The Company is a Delaware corporation with its principal executive offices and plant located at 1410 Millwood Road, McKinney, Texas 75069. Its telephone number is (972) 562-9473. As used in this Annual Report, unless otherwise required by the context, the terms "Company" and "Encore" refer to Encore Wire Corporation and its consolidated entities, including Encore Wire Limited. STRATEGY Encore's strategy for expanding its share of the residential wire and commercial wire markets emphasizes customer service coupled with low-cost production. Customer Service. Responsiveness to customers is a primary focus of Encore, with an emphasis on building and maintaining strong customer relationships. Encore seeks to establish customer loyalty by achieving a high order fill rate and rapidly handling customer inquiries, orders, shipments and returns. The Company maintains product inventories sufficient to meet anticipated customer demand and believes that the speed and completeness with which it fills orders are key competitive advantages critical to marketing its products. Low-Cost Production. Encore's low-cost production capability features an efficient plant design and a small, incentivized work force. Efficient Plant Design. Encore's highly automated wire manufacturing equipment is integrated in an efficient design that reduces materials handling, including labor and in-process inventory. Incentivized Work Force. Encore's hourly manufacturing employees are eligible to receive incentive pay tied to productivity and quality standards. The Company believes that this compensation 1 4 program enables the plant's manufacturing lines to attain high output and motivates manufacturing employees to continually maintain product quality. The Company also believes that its stock option plan enhances the motivation of its salaried manufacturing supervisors. The Company has coupled these incentives with a comprehensive safety program that emphasizes employee participation. PRODUCTS Encore offers a residential wire product line that consists primarily of NM cable and UF cable. Its commercial product line consists primarily of THHN, the most widely used type of commercial wire. Additionally, the Company manufactures other types of commercial wire products. The Company's NM, UF and THHN cable are all manufactured with copper as the conductor. The Company also purchases small quantities of other types of wire to re-sell to the customers that buy the products it manufactures. The Company maintains between 400 and 500 stock keeping units (SKUs) of residential wire and between 3,000 and 3,500 SKUs of commercial wire. The principal bases for differentiation among SKUs are product diameter, insulation, color and packaging. Residential Wire NM Cable. Non-metallic sheathed cable is used primarily as interior wiring in homes, apartments and manufactured housing. NM cable is composed of either two or three insulated copper wire conductors, with or without an uninsulated ground wire, all sheathed in a polyvinyl chloride ("PVC") jacket. UF Cable. Underground feeder cable is used to conduct power underground to outside lighting and other applications remote from residential buildings. UF cable is composed of two or three PVC insulated copper wire conductors, with or without an uninsulated ground wire, all jacketed in PVC. Commercial Wire THHN Cable. THHN cable is used primarily as feeder, circuit and branch wiring in commercial and industrial buildings. It is composed of a single conductor, either stranded or solid, and insulated with PVC, which is further coated with nylon. Users typically enclose THHN cable in protective pipe or conduit. MANUFACTURING The efficiency of Encore's highly automated manufacturing facility is a key element of its low-cost production capability. Encore's residential wire manufacturing lines have been integrated so that handling of product is substantially reduced. At the few points remaining where handling between manufacturing steps is necessary the Company has, for the most part, replaced reels with large baskets, each capable of handling approximately four times the capacity of a reel. Encore's commercial wire plant is designed to reduce product handling by integrating steps within production stages and, again, by using baskets instead of reels where feasible. The manufacturing process for the Company's products involves up to four steps: drawing, stranding, insulating and jacketing. Drawing. Drawing is the process of reducing 5/16 inch copper rod through converging dies until the specified wire diameter is attained. The wire is then heated with electrical current to soften or "anneal" the wire to make it easier to handle. Stranding. Stranding is the process of twisting together from seven to 61 individual wire strands to form a single cable. The purpose of stranding is to improve the flexibility of wire while maintaining its electrical current carrying capacity. Insulating. Insulating is the process of extruding first PVC and then nylon (where applicable) over the solid or stranded wire. 2 5 Jacketing. Jacketing is the process of extruding PVC over two or more insulated conductor wires, with or without an uninsulated ground wire, to form a finished product. The Company's jacketing lines are integrated with packaging lines that cut the wire and coil it onto reels or package it in boxes or shrink wrap. Encore manufactures and tests all of its products in accordance with the standards of Underwriters Laboratories, Inc. ("U/L"), a nationally recognized testing and standards agency. Encore's machine operators and quality control inspectors conduct frequent product tests. At three separate manufacturing stages, the Company spark tests insulated wire for defects. The Company tests finished products for electrical continuity to insure compliance with its own quality standards and those of U/L. Encore's manufacturing lines are equipped with laser micrometers to measure wire diameter and insulation thickness while the lines are in operation. During each shift, operators take physical measurements of products, which Company inspectors randomly verify on a daily basis. Although suppliers pretest PVC and nylon compounds, the Company tests products for aging and for cracking and brittleness of insulation and jacketing. Encore sells all of its products with a one-year replacement warranty. CUSTOMERS Encore sells its wire principally to wholesale electrical distributors throughout the United States and, to a lesser extent, to retail home improvement centers. Most distributors supply products to electrical contractors. The Company now sells its products to more than 50% of the top 250 wholesale electrical distributors (by volume) in the United States according to information reported in the June 1999 issue of Electrical Wholesaling magazine. No customer accounted for more than eight percent of net sales in 1999. Encore believes that the speed and completeness with which it fills customers' orders are crucial to its ability to expand the market share for its products. The Company also believes that, in order to reduce costs, many customers no longer maintain their own substantial warehouse inventories. Because of this trend, the Company seeks to maintain sufficient inventories to satisfy customers' prompt delivery requirements. MARKETING AND DISTRIBUTION Encore markets its products throughout the United States primarily through manufacturers' representatives and, to a lesser extent, through its own direct marketing efforts. Encore maintains most of its product inventory at its plant in McKinney, Texas. At December 31, 1999, it held approximately 89% of its finished goods inventory at that location. In order to provide flexibility in handling customer requests for immediate delivery of the Company's products, additional product inventories are maintained at the warehouses owned and operated by independent manufacturers' representatives located throughout the United States. At December 31, 1999, additional product inventories are maintained at the warehouses of independent manufacturers' representatives located in Chattanooga, Tennessee; Cincinnati, OH; Detroit, Michigan; Edison, New Jersey; Louisville, Kentucky; Greensboro, North Carolina; Norcross, Georgia; Orlando, Florida; Pittsburgh, Pennsylvania; and San Francisco, California. Some of these manufacturers' representatives, as well as the Company's other manufacturers' representatives, maintain offices without warehouses in numerous locations throughout the United States. Finished goods are typically delivered to warehouses and customers by trucks operated by common carriers. The decision regarding the carrier to be used is based primarily on cost and availability. The Company invoices its customers directly for products purchased and, if an order has been obtained through a manufacturer's representative, pays the representative a commission based on pre-established rates. The Company determines customers' credit limits. The Company's bad debt experience was .01%, .35% and .05% of net sales in 1999, 1998 and 1997, respectively. The manufacturers' representatives have no discretion to increase customers' credit limits or to determine prices charged for the Company's products, and all sales are subject to approval by the Company. 3 6 EMPLOYEES Encore believes that its hourly employees are highly motivated and that their motivation contributes significantly to the plant's operating efficiency. The Company attributes the motivation of these employees largely to the fact that a significant portion of their compensation can be incentive pay tied to productivity and quality standards. The Company believes that its incentive program focuses its employees on maintaining product quality. Encore emphasizes safety to its manufacturing employees through its safety program. On a weekly basis, each team of employees meets to review safety standards and, on a monthly basis, a group of participants from each team discusses safety issues and inspects each area of the plant for compliance. In addition, the Company awards incentive bonuses to employees who achieve certain safety goals. The Company's safety program is an integral part of its general attention to cost control. As of December 31, 1999, Encore had 424 employees, of whom 355 were paid hourly wages and were primarily engaged in the operation and maintenance of the Company's manufacturing and warehouse facility. The remainder of the Company's employees were executive, supervisory, administrative, sales and clerical personnel. The Company considers its relations with its employees to be good. The Company has no collective bargaining agreements with any of its employees. RAW MATERIALS The principal raw materials used by Encore in manufacturing its products are copper cathode, copper rod, copper scrap, PVC thermoplastic compounds, paper and nylon, all of which are readily available from a number of suppliers. Copper requirements are purchased primarily from producers and merchants at prices determined each month primarily based on the average daily closing prices for copper for that month, plus a negotiated premium. The Company also purchases raw materials necessary to manufacture various polyvinyl chloride ("PVC") thermoplastic compounds. These raw materials primarily include PVC resin, clay and plasticiser. The Company began production from its copper rod fabrication facility in June 1998. Prior to completion of the new copper rod fabrication facility, the Company used copper rod purchased from others to manufacture its wire and cable products. Following completion of the new facility, the Company continued to purchase significant amounts of copper rod from others pursuant to existing annual purchase commitments. In 1999, the new copper rod fabrication facility manufactured the majority of the Company's copper rod requirements. The Company produces copper rod from purchased copper cathodes. The Company also reprocesses copper scrap generated by its operations and copper scrap purchased from others. In 1999, the Company completed a new facility to manufacture PVC. The process involves the mixture of PVC raw material components to produce the PVC used to insulate the Company's wire and cable products. The raw materials include PVC resin, clay and plasticiser. During 1999, this facility produced less than half of the Company's PVC requirements. It is anticipated that the percentage of the Company's requirements supplied by the facility will significantly increase in future periods. COMPETITION The electrical wire and cable industry is highly competitive. The Company competes with several manufacturers of wire and cable products, which have substantially greater resources than the Company and offer more complete lines of electrical wire and cable products. The Company's competitors include Southwire Corporation, Essex Wire and Cable (a subsidiary of Superior Telecom, Inc.) and BICCGeneral. These competitors are vertically integrated insofar as they possess rod fabrication facilities and plastic compounding operations. The principal elements of competition in the electrical wire and cable industry are, in the opinion of the Company, pricing, order fill rate and, in some instances, breadth of product line. The Company believes that it is competitive with respect to all these factors. Competition in the electrical wire and cable industry, although intense, has been primarily from U.S. manufacturers, including foreign owned facilities located in the U.S. The Company has encountered no significant 4 7 competition from imports of residential or commercial wire. The Company believes this is because direct labor costs generally account for a relatively small percentage of the cost of goods sold for these products. PATENT MATTERS Encore neither has no, nor is seeking any, patents, believing instead that the success of its manufacturing operations is dependent on its marketing abilities, technical competence and customer service. ITEM 2. PROPERTIES Encore maintains its corporate office and manufacturing plant in McKinney, Texas, approximately 35 miles north of Dallas. The Company's facilities are located on a combined site of approximately one hundred acres and consist of buildings containing approximately 745,000 square feet of floor space, of which approximately 24,000 square feet are used for office space and 721,000 square feet are used for manufacturing and warehouse operations. The plant and equipment are owned by the Company and are not mortgaged to secure any of the Company's existing indebtedness. Encore believes that its plant and equipment are suited to its present needs, comply with applicable federal, state and local laws and regulations and are properly maintained and adequately insured. ITEM 3. LEGAL PROCEEDINGS By letter dated February 17, 1998, the Company was issued "Findings of Violation and Order for Compliance" by the EPA. In this document, the EPA alleged that the Company had failed to obtain a federal storm water discharge permit pursuant to the Clean Water Act ("CA") for its past and current ongoing operations in McKinney, Texas, and to otherwise meet the terms of this permitting program. The Company was ordered timely to (1) apply for a federal storm water discharge permit, (2) prepare and submit a Storm Water Pollution Prevention Plan and (3) prepare and file a report with the EPA describing actions that the Company has taken or would take to correct violations alleged by the EPA. On March 23, 1998, the Company filed the Storm Water Pollution Prevention Plan and the written report required by the "Findings of Violation and Order for Compliance" with the EPA. The Company's ultimate liabilities, cost and expenses paid and accrued in relation to the federal storm water discharge enforcement action and other EPA liabilities have been finally determined and were not material to the operations of the Company. The sum of $124,950 has been paid in settlement of all potential liability related to the EPA claims. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE COMPANY Information regarding Encore's executive officers including their respective ages at March 19, 1999 is set forth below.
Name Age Position with Company - ---- --- --------------------- Vincent A. Rego 76 Chairman of the Board of Directors, and Chief Executive Officer Donald E. Courtney 69 Vice Chairman of the Board of Directors Daniel L. Jones 36 President, Chief Operating Officer, and Member of the Board of Directors David K. Smith 40 Vice President -- Operations Scott D. Weaver 41 Vice President -- Finance, Treasurer and Secretary
5 8 Mr. Rego has been Chairman of the Board of Directors of Encore since 1989. In October 1997, Mr. Rego was named President and Chief Executive Officer. He served as President until May 1998. From 1978 until 1988, Mr. Rego served as President, Chief Executive Officer and Chairman of the Board of Directors of Capital Wire and Cable Corporation ("Capital Wire"), which was purchased by General Cable Corporation in 1988. Prior thereto, Mr. Rego was associated with predecessors of Capital Wire in various executive capacities. Mr. Courtney was elected Vice Chairman of the Board of Directors in May 1998. Mr. Courtney has served as President and Chairman of the Board of Directors of Investech, Ltd., a private importing firm. Mr. Courtney served as President and Chairman of the Board of Directors of S.O. I. Industries, Inc. from 1982 until 1994. During such period, he was also Chairman of the Board of Directors of two subsidiaries of S.O.I Industries, Inc. Magnatech Corporation, which is engaged in videotape duplication, and Tempo Lighting, Inc., which manufactures residential lighting. Mr. Courtney retired and resigned from these positions in June 1994. Mr. Courtney was re-elected to the Board of Directors of Tempo Lighting and is also a director of F.O.M. Corporation, a manufacturer of floor cleaning equipment. Mr. Jones was Vice President -- Sales and Marketing of Encore from 1992 to May 1997. In May 1997, Mr. Jones was named Executive Vice President of the Company, in October 1997, he was named Chief Operating Officer and, in May 1998, he was named President of the Company. He also serves as a member of the Board of Directors. From 1985 to 1988, Mr. Jones attended college while working on a part time basis for Capital Wire. Mr. Smith has been Vice President -- Operations of Encore since 1992. From 1984 until joining the Company in 1990, General Cable Corporation (now known as BICCGeneral) employed Mr. Smith. Mr. Weaver has been Vice President -- Finance, Treasurer and Secretary of Encore since 1993. From 1990 until joining the Company in 1993, Mr. Weaver was employed by the Federal Depository Insurance Corporation and was responsible for the financial oversight of assisted acquisitions of certain failed savings and loan institutions. From 1984 until 1989, Mr. Weaver was Vice President -- Finance of 2M Companies, a Dallas area investment company. From 1980 until 1984, Mr. Weaver was with the public accounting firm of Ernst & Whinney (now known as Ernst & Young LLP). All executive officers are elected annually by the Board of Directors to serve until the next annual meeting of the Board or until their respective successors are chosen and qualified. 6 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is quoted in the NASDAQ Stock Market's National Market under the symbol "WIRE." The following table sets forth the high and low closing sales prices per share for the Common Stock as reported in the NASDAQ Stock Market's National Market for the periods indicated. The reported prices have been adjusted to reflect two 3-for-2 splits of the Common Stock effective August 18, 1997 and June 15, 1998.
HIGH LOW ---- --- 1999 First Quarter ..................................................... 12 13/16 7 3/4 Second Quarter..................................................... 12 7 7/8 Third Quarter...................................................... 12 9 Fourth Quarter..................................................... 9 1/4 6 1/2 1998 First Quarter...................................................... 22 16 11/16 Second Quarter..................................................... 27 5/16 13 5/8 Third Quarter...................................................... 20 1/2 9 1/4 Fourth Quarter..................................................... 16 1/2 6 3/4
On March 10, 2000, the last reported sale price of the Common Stock was $6.75 per share. As of March 10, 2000, there were 131 record holders of the Common Stock. The Company estimates that there were approximately 4,000 beneficial holders of the Common Stock. The Company has never paid cash dividends. Management intends to retain any future earnings for the operation and expansion of the Company's business and does not anticipate paying any cash dividends in the foreseeable future. The Company's present credit arrangements restrict the Company's ability to pay cash dividends. See Note 4 of Notes to Consolidated Financial Statements. 7 10 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Net sales ............................. $ 229,670 $ 244,044 $ 254,640 $ 179,132 $ 151,308 Cost of goods sold .................... 197,636 195,060 201,323 153,448 140,323 --------- --------- --------- --------- --------- Gross profit ........................ 32,034 48,984 53,317 25,684 10,985 Selling, general and administrative expenses ............................ 18,742 18,083 16,236 12,413 10,255 --------- --------- --------- --------- --------- Operating income ...................... 13,292 30,901 37,081 13,271 730 Other income (expense): Interest and other income ........... 104 145 142 92 108 Interest expense .................... (2,922) (1,876) (1,367) (1,722) (1,724) --------- --------- --------- --------- --------- Income (loss) before income taxes ..... 10,474 29,170 35,856 11,641 (886) Income tax expense (benefit) .......... 3,880 11,602 14,163 4,482 (341) --------- --------- --------- --------- --------- Net income (loss) ..................... $ 6,594 $ 17,568 $ 21,693 $ 7,159 $ (545) ========= ========= ========= ========= ========= Net income (loss) per common and common Equivalent share - diluted .......... $ 0.42 $ 1.07 $ 1.32 $ 0.45 $ (0.03) ========= ========= ========= ========= ========= Weighted average common and common Equivalent shares - diluted ......... 15,713 16,388 16,482 15,867 15,900
DECEMBER 31, ------------------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital ....................... $ 74,228 $ 52,825 $ 43,710 $ 39,137 $ 35,560 Total assets .......................... 182,389 156,948 128,755 91,068 84,655 Long-term debt, net of Current portion ..................... 60,600 44,000 22,200 18,500 23,000 Stockholders' equity .................. 87,423 83,655 70,010 46,899 40,377
8 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Price competition for electrical wire and cable is intense, and the Company sells its products in accordance with prevailing market prices. Copper, a commodity product, is the principal raw material used by the Company in manufacturing its products. Copper accounted for approximately 60.6%, 66.2%, 73.8%, 77.4% and 76.8% of the Company's cost of goods sold during fiscal 1999, 1998, 1997, 1996 and 1995, respectively. The price of copper fluctuates, depending on general economic conditions and in relation to supply and demand and other factors, and has caused monthly variations in the cost of copper purchased by the Company. The Company cannot predict copper prices in the future or the effect of fluctuations in the cost of copper on the Company's future operating results. RESULTS OF OPERATIONS The following table presents certain items of income and expense as a percentage of net sales for the periods indicated.
YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ----- ----- ----- Net sales .................................. 100.0% 100.0% 100.0% Cost of goods sold: Copper ................................. 52.1 52.9 58.4 Other raw materials .................... 15.7 14.3 12.3 Depreciation ........................... 3.3 2.3 1.5 Labor and overhead ..................... 14.5 11.5 7.5 LIFO adjustment ........................ 1.5 (1.6) (1.1) Lower of cost or market adjustment ..... (1.1) 0.6 0.5 ----- ----- ----- 86.0 80.0 79.1 ----- ----- ----- Gross profit ............................... 14.0 20.0 20.9 Selling, general and administrative 8.2 7.4 6.3 expenses ................................... ----- ----- ----- Operating income ........................... 5.8 12.6 14.6 Interest expense, net ...................... 1.2 0.7 0.5 ----- ----- ----- Income before income taxes ................. 4.6 11.9 14.1 Income tax expense ......................... 1.7 4.7 5.6 ----- ----- ----- Net income ................................. 2.9% 7.2% 8.5% ===== ===== =====
The following discussion and analysis relates to factors that have affected the operating results of the Company for the years ended December 31, 1999, 1998 and 1997. Reference should also be made to the consolidated financial statements and the related notes included elsewhere in this Annual Report. Net sales were $229.7 million in 1999, compared to $244.0 million in 1998 and $254.6 million in 1997. The decrease in 1999 from 1998, which was partially offset by a 9.5% increase in sales volume, was due primarily to a 9% decrease in the average cost of copper, which resulted in a decrease in the average sales price per copper pound of the Company's products. The decrease from 1997 to 1998 was due primarily to a 16% increase in sales volume offset by a 26% decrease in the average cost of copper, which resulted in a decrease in the average sales price per copper pound of the Company's products. Sales volume increases were due to several factors, including increases in customer acceptance and product availability. In 1999, the Company continued to expand sales to some existing customers and increased the number of customers to which it sold its products. The Company currently sells its products to more than 50% of the top 250 wholesale electrical distributors (by volume) in the United States, as reported in the June 1999 issue of Electrical Wholesaling magazine. The average sales price per copper pound of product sold was $1.37 in 1999 compared to $1.60 in 1998 and $1.93 in 1997. The changes each year are primarily a result of changing price competition and changing copper raw material prices. The average price per copper pound paid by the Company in 1999, 1998 and 1997 was $.74, $.81 and $1.09, respectively. 9 12 Cost of goods sold was $197.6 million in 1999, compared to $195.0 million in 1998 and $201.3 million in 1997. Copper costs decreased to $119.8 million in 1999 from $129.3 million in 1998 and $148.6 million in 1997. The average cost per copper pound purchased was $.74 in 1999, $.81 in 1998 and $1.09 in 1997. Copper costs as a percentage of net sales decreased to 52.1% in 1999 from 52.9% in 1998 and 58.4% in 1997. The decrease as a percentage of net sales was due primarily to an decreasing differential between what the Company pays per pound of copper purchased and the Company's net sales price per copper pound sold. This differential has decreased primarily due to competitive pricing for the Company's products. Other raw material costs as a percentage of net sales were 15.7%, 14.3% and 12.3% in 1999, 1998 and 1997, respectively. The increase is due primarily to the Company's sales price per copper pound sold decreasing (as discussed above) while the cost of other raw materials per pound of copper sold remained relatively constant. Depreciation, labor and overhead costs as a percentage of net sales were 17.8% in 1999, compared to 13.8% in 1998 and 9.0% in 1997. The increases in 1999 and 1998 were due primarily to expenses relating to increasing the Company's production capacity and vertical integration projects (copper rod fabrication facility and PVC manufacturing facility). Additionally, these expense items increased as a percentage of sales, due to a decrease in the sales price per copper pound sold (as discussed above) combined with an increase in the overhead and depreciation per copper pound sold. Inventories are stated at the lower of cost, using the last in, first out (LIFO) method, or market. The Company changed its method of accounting for inventories to the LIFO method on January 1, 1992. The Company believes that the LIFO method more fairly presents its results of operations by matching current costs with current revenues. As permitted by generally accepted accounting principles, the Company maintains its inventory costs and cost of goods sold on a first in, first out (FIFO) basis and makes a quarterly LIFO adjustment to adjust total inventory and cost of goods sold to LIFO. As a result of decreases in the cost of copper during 1997 (specifically at the end of 1997), the value of all inventory at December 31, 1997 using the LIFO method was greater than its FIFO value by approximately $2,629,000, resulting in a corresponding decrease in the cost of goods sold of $2,751,000, including the reversal of the $122,000 difference at December 31, 1996. At December 31, 1997, LIFO value exceeded the market value of the inventory by $1,278,000, thereby necessitating a $1,278,000 lower of cost or market decrease in the value of inventory and a corresponding increase in the cost of goods sold. The net of these two adjustments decreased cost of goods sold by $1,473,000. As a result of further decreases in the cost of copper during 1998, the value of all inventory at December 31, 1998 using the LIFO method was greater than its FIFO value by approximately $6,637,000, resulting in an additional decrease in the cost of goods sold of $4,008,000. At December 31, 1998, LIFO value exceeded the market value of the inventory by $2,625,000, thereby necessitating an additional $1,347,000 lower of cost or market decrease in the value of inventory and a corresponding increase in the cost of goods sold. The net of these two adjustments decreased cost of goods sold by $2,661,000. Although average copper costs during 1999 were lower than 1998, the cost at the end of 1999 was higher than the cost at the end of 1998. As a result of increases in the cost of copper during 1999 (specifically at the end of 1999), the value of all inventory at December 31, 1999 using the LIFO method was greater than its FIFO value by approximately $3,276,000, resulting in a corresponding increase in the cost of goods sold of $3,360,833. At December 31, 1999, LIFO value exceeded the market value of the inventory by $159,000, thereby necessitating a reversal of the previously established lower of cost or market reserve in the amount of $2,465,000 and a corresponding decrease in the cost of goods sold. The net of these two adjustments increased cost of goods sold by $263,000. Future reductions in the price of copper could require the Company to record additional lower of cost or market adjustments against the related inventory balance. Additionally, a reduction in the quantity of inventory could cause copper that is carried in inventory at costs different from the cost of copper in the period in which the reduction occurs to be included in cost of goods sold for that period at the different price. Gross profit decreased to $32.0 million, or 14.0% of net sales, in 1999 from $48.9 million, or 20.0% of net sales, in 1998 and $53.3 million, or 20.9% of net sales, in 1997. The changes in gross profit were due to the factors discussed above. General and administrative expenses were $5.2 million in 1999, $5.0 million in 1998 and $3.8 million in 1997. As a percentage of net sales, general and administrative expenses were 2.3% in 1999, 2.0% in 1998 and 1.5% in 1997. In 1999 and 1998, general and administrative costs increased due to increased costs relating to higher sales volumes. These higher costs increased as a percentage of sales due to a lower sales price per copper pound as discussed above. Selling expenses, which include freight and sales commissions, were $13.5 million in 1999, $13.0 million in 1998 and $12.4 million in 1997. As a percentage of net sales, selling expenses were 5.9% in 1999, 5.3% 10 13 in 1998 and 4.9% in 1997. The changes in these items, as a percentage of sales, is due primarily to freight charges remaining relatively constant per copper pound of product shipped while the sales price per copper pound sold decreased as discussed above. Interest expense increased to $2,922,000 in 1999 from $1,876,000 in 1998 and $1,367,000 in 1997. The increase is due primarily to the increase in debt relating to capital expenditures during these periods including the construction of the Company's copper rod fabrication facility and PVC manufacturing facility. In addition, the Company used debt to finance common stock repurchases in 1998 and 1999. The Company capitalized interest expense relating to the construction of assets in the amounts of $330,000 in 1999, $570,000 in 1998 and $374,000 in 1997. The Company's effective tax rate decreased in 1999 to 37.0% as a result of an entity restructuring. It remained constant at 39.5% in 1998 and 1997. As a result of the foregoing factors, the Company's net income was $6.6 million in 1999, $17.6 million in 1998 and $21.7 million in 1997. 11 14 LIQUIDITY AND CAPITAL RESOURCES The following table summarizes the Company's cash flow activities.
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- -------- -------- (In thousands) Net income ................................... $ 6,594 $ 17,567 $ 21,693 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ............ 8,088 5,937 4,060 Other non-cash items ..................... 2,993 2,760 469 Increase in accounts receivable, inventory and other assets .............. (24,964) (2,226) (14,709) Increase in trade accounts payable, accrued liabilities and other liabilities ............................. 2,085 (8,580) 10,225 Net cash provided by (used in) operating -------- -------- -------- activities .................................. (5,206) 15,458 21,738 Investing activities: Purchases of property, plant and equipment (net) .......................... (8,744) (33,068) (26,952) Financing activities: Increase in indebtedness, net ............ 16,600 21,800 3,700 Issuances of common stock ................ 65 635 1,517 Purchase of treasury stock ............... (2,891) (4,558) (99) -------- -------- -------- Net cash provided by financing activities ................................... 13,774 17,877 5,118 -------- -------- -------- Net increase (decrease) in cash .............. $ (176) $ 267 $ (96) ======== ======== ========
The Company maintains a substantial inventory of finished products to satisfy customers' prompt delivery requirements. As is customary in the industry, the Company provides payment terms to most of its customers that exceed terms that it receives from its suppliers. Therefore, the Company's liquidity needs have generally consisted of operating capital necessary to finance these receivables and inventory. Capital expenditures have historically been necessary to expand the production capacity of the Company's manufacturing operations. The Company has satisfied its liquidity and capital expenditure needs with cash generated from operations, borrowings under its revolving credit facilities and sales of its common stock. Effective August 31, 1999, the Company through its indirectly wholly owned subsidiary, Encore Wire Limited completed an unsecured loan facility with a group of banks (the "Financing Agreement"). The Financing Agreement replaced the Company's existing credit facility, and the Company is a guarantor of the indebtedness. The Financing Agreement provides for maximum borrowings of the lesser of $65.0 million or the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials, less any available reserves established by the banks. The calculated maximum borrowing amount available at December 31, 1999, as computed under the Financing Agreement, was $65.0 million. The Financing Agreement is unsecured and contains customary covenants and events of default. The Company was in compliance with these covenants as of December 31, 1999. Pursuant to the Financing Agreement, the Company is prohibited from declaring, paying or issuing cash dividends. At December 31, 1999, the balance outstanding under the Financing Agreement was $60.6 million. Amounts 12 15 outstanding under the Financing Agreement are payable on May 31, 2001 with interest due quarterly based on the bank's prime rate or LIBOR Rate options, at the Company's election. In March 1995, the Board of Directors authorized the Company to purchase up to 900,000 shares, or approximately 5.6%, of its outstanding common stock dependent upon market conditions. Purchases made pursuant to this common stock authorization were made in the open market or through privately negotiated transactions. As of December 31, 1999, the Company had repurchased an aggregate of 1,006,000 shares of its common stock in the open market pursuant to this program and subsequent Board authorization. The weighted average cost of these shares was $9.00 per share. The Company purchased an aggregate of 303,425 shares under this authorization during 1999. Cash used in operations was $5.2 million in 1999 compared to cash provided by operations of $15.5 million in 1999 and $21.7 million in 1998. The changes from 1998 to 1999 were due primarily to changes in the Company's net income and increases in accounts receivable and inventory. Cash used in investing activities decreased to $8.7 million in 1999 from $33.1 million in 1999 and $26.9 million in 1998. These funds were used primarily to increase the Company's production capacity, including the construction of the Company's new copper rod fabrication facility, PVC manufacturing facility and distribution center. The cash provided by financing activities was primarily due to increases in the amount of indebtedness provided by additional borrowings on the Company's loan facility. Cash provided by financing activities was reduced by $2.9 million in 1999, $4.6 million in 1998 and $99,000 in 1997, as a result of the purchase of treasury stock. Cash provided by financing activities was increased by $65,000 in 1999, $635,000 in 1998, and $1.5 million in 1997 as the result of the issuance of common stock. During 1999, the Company expects its capital expenditures will consist of maintaining and adding manufacturing equipment for its residential and commercial wire operations. The total capital expenditures associated with these capital expenditures are estimated not to exceed $7.5 million. The Company also expects its working capital requirements to increase during 2000 as a result of continued increases in sales and potential increases in the cost of copper. Moreover, the Company expects that the inventory levels necessary to support sales of commercial wire will continue to be greater than the levels necessary to support comparable sales of residential wire. The Company believes that the cash flow from operations and the financing that it expects to receive from its banks will satisfy working capital and capital expenditure requirements for the next twelve months. IMPACT OF YEAR 2000 In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of these planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes its systems successfully responded to the Year 2000 date change. The Company expensed less than $50,000 during 1999 directly in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. INFORMATION REGARDING FORWARD LOOKING STATEMENTS This report contains various forward-looking statements and information that are based on management's belief as well as assumptions made by and information currently available to management. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected. Among the key factors that may have a direct bearing on the Company's operating results are fluctuations in the economy and in the level of activity in the building and construction industry, demand for the Company's products, the impact of price competition and fluctuations in the price of copper. 13 16 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not engage in metal futures trading or hedging activities and does not enter into derivative financial instrument transactions for trading or other speculative purposes. However, the Company is generally exposed to commodity price and interest rate risks. The Company purchases copper cathode and copper rod primarily from producers and merchants at prices determined each month based on the average daily closing prices for copper for that month, plus a negotiated premium. As a result, fluctuations in copper prices caused by market forces can significantly affect the Company's financial results. Interest rate risk is attributable to the Company's long-term debt. Effective August 31, 1999, the Company through its indirectly wholly owned subsidiary, Encore Wire Limited completed an unsecured loan facility with a group of banks (the "Financing Agreement"). The amounts outstanding under the Financing Agreement are payable on May 31, 2001, with interest due quarterly based on the bank's prime rate or LIBOR rate options, at the Company's election. At December 31, 1999, the balance outstanding under the Financing Agreement was $60.6 million, and the average interest rate was 6.993%. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company's future financing requirements. For further information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Auditors and the consolidated financial statements of the Company and the notes thereto appear on the following pages. 14 17 Report of Independent Auditors Board of Directors Encore Wire Corporation We have audited the accompanying consolidated balance sheets of Encore Wire Corporation (the Company) as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the 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 Encore Wire Corporation at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Dallas, Texas January 28, 2000 15 18 Encore Wire Corporation Consolidated Balance Sheets
DECEMBER 31 1999 1998 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 1,255,915 $ 1,431,536 Accounts receivable, net of allowance for losses of $485,156 and $500,000 in 1999 and 1998, respectively 46,592,413 37,945,765 Inventories (Note 2) 54,638,357 37,859,917 Prepaid expenses and other 367,690 246,899 Current taxes receivable -- 581,783 ------------- ------------- Total current assets 102,854,375 78,065,900 Property, plant, and equipment - at cost: Land 3,583,329 3,568,329 Construction-in-progress 2,190,627 12,296,115 Buildings and improvements 26,003,321 25,363,242 Machinery and equipment 74,051,866 56,873,800 Furniture and fixtures 1,865,323 1,212,235 ------------- ------------- 107,694,466 99,313,721 Accumulated depreciation and amortization (28,304,905) (20,653,774) ------------- ------------- 79,389,561 78,659,947 Other assets 145,035 222,535 ------------- ------------- Total assets $ 182,388,971 $ 156,948,382 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 18,081,545 $ 16,847,937 Accrued liabilities (Note 3) 8,212,761 7,876,908 Current income taxes payable 514,366 -- Current deferred income taxes (Note 5) 1,818,057 516,000 ------------- ------------- Total current liabilities 28,626,729 25,240,845 Noncurrent deferred income taxes (Note 5) 5,739,550 4,052,934 Long-term note payable (Note 4) 60,600,000 44,000,000 Stockholders' equity (Note 4 and 6): Convertible preferred stock, $.01 par value: Authorized shares - 2,000,000 Issued and outstanding shares - none Common stock, $.01 par value: Authorized shares - 20,000,000 Issued and outstanding shares -16,337,922 in 1999 and 16,304,129 in 1998 163,379 163,041 Additional paid-in capital 30,655,663 30,591,061 Treasury Stock, at cost - 1,006,000 in 1999 and 702,575 in 1998 (9,057,353) (6,166,525) Retained earnings 65,661,003 59,067,026 ------------- ------------- Total stockholders' equity 87,422,692 83,654,603 ------------- ------------- Total liabilities and stockholders' equity $ 182,388,971 $ 156,948,382 ============= =============
See accompanying notes. 16 19 Encore Wire Corporation Consolidated Statements of Income
YEAR ENDED DECEMBER 31 1999 1998 1997 ------------- ------------- ------------- Net sales $ 229,669,808 $ 244,044,135 $ 254,639,993 Cost of goods sold 197,635,985 195,059,722 201,323,137 ------------- ------------- ------------- Gross profit 32,033,823 48,984,413 53,316,856 Selling, general, and administrative expenses 18,741,589 18,083,414 16,235,787 ------------- ------------- ------------- Operating income 13,292,234 30,900,999 37,081,069 Other income (expense): Interest and other income 103,605 145,056 141,836 Interest expense (2,921,762) (1,876,315) (1,367,068) ------------- ------------- ------------- Income before income taxes 10,474,077 29,169,740 35,855,837 Income tax expense (Note 5) 3,880,100 11,602,400 14,163,062 ------------- ------------- ------------- Net income $ 6,593,977 $ 17,567,340 $ 21,692,775 ============= ============= ============= Weighted average common shares - basic (Note 7) 15,468,107 15,843,591 15,791,856 ============= ============= ============= Basic earnings per common share $ 0.43 $ 1.11 $ 1.37 ============= ============= ============= Weighted average common shares - diluted (Note 7) 15,713,491 16,388,259 16,481,925 ============= ============= ============= Diluted earnings per common share $ 0.42 $ 1.07 $ 1.32 ============= ============= =============
See accompanying notes. 17 20 Encore Wire Corporation Consolidated Statements of Stockholders' Equity
ADDITIONAL COMMON STOCK PAID-IN TREASURY RETAINED SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL ------------ ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1996 7,112,917 $ 71,129 $ 28,528,910 $ (1,509,011) $ 19,807,985 $ 46,899,013 Proceeds from exercise of stock options 98,520 985 810,547 -- -- 811,532 Purchase of treasury stock -- -- -- (99,379) -- (99,379) Tax benefit on exercise of stock options -- -- 706,463 -- -- 706,463 Stock split 3,586,948 35,869 (35,869) -- (336) (336) Net income -- -- -- -- 21,692,775 21,692,775 ------------ ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1997 10,798,385 107,983 30,010,051 (1,608,390) 41,500,424 70,010,068 Proceeds from exercise of stock 80,425 804 412,983 -- -- 413,787 options Purchase of treasury stock -- -- -- (4,558,135) -- (4,558,135) Tax benefit on exercise of stock options -- -- 222,281 -- -- 222,281 Stock split 5,425,319 54,254 (54,254) -- (738) (738) Net income -- -- -- -- 17,567,340 17,567,340 ------------ ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1998 16,304,129 163,041 30,591,061 (6,166,525) 59,067,026 83,654,603 Proceeds from exercise of stock options 33,793 338 42,977 -- -- 43,315 Purchase of treasury stock -- -- -- (2,890,828) -- (2,890,828) Tax benefit on exercise of stock options -- -- 21,625 -- -- 21,625 Net income -- -- -- -- 6,593,977 6,593,977 ------------ ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1999 16,337,922 $ 163,379 $ 30,655,663 $ (9,057,353) $ 65,661,003 $ 87,422,692 ============ ============ ============ ============ ============ ============
See accompanying notes. 18 21 Encore Wire Corporation Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1999 1998 1997 ------------ ------------ ------------ OPERATING ACTIVITIES Net income $ 6,593,977 $ 17,567,340 $ 21,692,775 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,088,037 5,937,397 4,060,125 Provision for bad debts -- 650,000 340,869 Deferred income taxes 2,988,673 2,122,090 127,844 (Gain) loss on disposal of assets 3,904 (11,942) 2,154 Changes in operating assets and liabilities: Accounts receivable (8,646,648) 5,706,342 (11,411,105) Inventories (16,778,440) (7,263,186) (3,348,802) Prepaid expenses and other (120,791) (87,996) 50,821 Current income taxes receivable 581,783 (581,783) -- Trade accounts payable 1,233,608 (6,531,734) 7,822,083 Accrued liabilities 335,853 (371,108) 2,082,636 Current income taxes payable 514,366 (1,677,402) 318,539 ------------ ------------ ------------ Net cash (used in) provided by operating activities (5,205,678) 15,458,018 21,737,939 INVESTING ACTIVITIES Purchases of property, plant, and equipment (8,939,393) (33,302,363) (26,621,051) Increase in long term investments 4,500 -- (4,180) (Increase) decrease in deposits 73,000 188,560 (343,415) Proceeds from sale of equipment 117,838 45,450 16,000 ------------ ------------ ------------ Net cash used in investing activities (8,744,055) (33,068,353) (26,952,646) FINANCING ACTIVITIES Increase in long-term note payable 16,600,000 21,800,000 3,700,000 Proceeds from issuance of common stock, net 64,940 635,330 1,517,659 Purchase of treasury stock (2,890,828) (4,558,135) (99,379) ------------ ------------ ------------ Net cash provided by financing activities 13,774,112 17,877,195 5,118,280 ------------ ------------ ------------ Net increase (decrease) in cash (175,621) 266,860 (96,427) Cash at beginning of year 1,431,536 1,164,676 1,261,103 ------------ ------------ ------------ Cash at end of year $ 1,255,915 $ 1,431,536 $ 1,164,676 ============ ============ ============
See accompanying notes. 19 22 1. SIGNIFICANT ACCOUNTING POLICIES BUSINESS Encore Wire Corporation (the Company) conducts its business in one segment - the manufacture of copper electrical wire, principally NM cable, for use primarily as interior wiring in homes, apartments, and manufactured housing, and THHN cable, for use primarily as wiring in commercial and industrial buildings. The Company sells its products primarily through approximately 30 manufacturers' representatives located throughout the United States and, to a lesser extent, through its own direct marketing efforts. The principal customers for Encore's commercial and residential wire are wholesale electrical distributors. Copper, a commodity product, is the principal raw material used in the Company's manufacturing operations. Copper accounted for approximately 60.6%, 66.2%, and 73.8% of its cost of goods sold during 1999, 1998, and 1997, respectively. The price of copper fluctuates, depending on general economic conditions and in relation to supply and demand and other factors, and has caused monthly variations in the cost of copper purchased by the Company. The Company cannot predict copper prices in the future or the effect of fluctuations on the cost of copper on the Company's future operating results. Future reductions in the price of copper could require the Company to record an additional lower of cost or market adjustment against the related inventory balance. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Significant intercompany accounts and transactions have been eliminated upon consolidation. Certain prior year balances have been reclassed to conform to current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK Cash, accounts receivable, trade accounts payable, accrued liabilities, and notes payable are stated at expected settlement amounts which approximate fair value. Accounts receivable represent amounts due from customers (primarily wholesale electrical distributors, manufactured housing suppliers, and retail home improvement centers) related to the sale of the Company's products. Such receivables are uncollateralized and are generally due from a diverse group of customers located throughout the United States. The Company charged off accounts receivable of $27,343 and $859,830 in 1999 and 1998, respectively. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost using the last-in, first-out (LIFO) method or market. 20 23 PROPERTY, PLANT, AND EQUIPMENT Depreciation of property, plant, and equipment for financial reporting is provided on the straight-line method over the estimated useful lives of the respective assets as follows: buildings and improvements, 15 to 30 years; machinery and equipment, 3 to 10 years; and furniture and fixtures, 3 to 5 years. Accelerated cost recovery methods are used for tax purposes. REVENUE RECOGNITION Revenue from the sale of the Company's products is recognized upon shipment to the customer. EARNINGS PER SHARE Effective December 15, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Income per common and common equivalent share is computed using the weighted average number of shares of common stock and common stock equivalents outstanding during each period. The dilutive effects of stock options and common stock warrants, which are common stock equivalents, are calculated using the treasury stock method. INCOME TAXES Income taxes are provided based on the deferred method, resulting in income tax assets and liabilities due to temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. 2. INVENTORIES Inventories consist of the following at December 31:
1999 1998 ------------ ------------ Raw materials $ 9,014,495 $ 6,152,026 Work-in-process 5,961,346 4,339,609 Finished goods 36,545,571 23,355,863 ------------ ------------ 51,521,412 33,847,498 Adjust to LIFO cost 3,276,378 6,637,212 Lower of cost or market adjustment (159,433) (2,624,793) ------------ ------------ $ 54,638,357 $ 37,859,917 ============ ============
3. ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31:
1999 1998 ------------ ------------ Sales volume discounts payable $ 4,800,813 $ 5,073,488 Property taxes payable 1,643,402 1,015,951 Commissions payable 693,547 349,297 Other accrued liabilities 1,074,999 1,438,172 ------------ ------------ $ 8,212,761 $ 7,876,908 ============ ============
21 24 4. LONG-TERM NOTE PAYABLE On August 31, 1999, the Company signed a new Financing Agreement with a bank to provide for a maximum borrowings of the lesser of $65.0 million or the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials inventories as defined in the Financing Agreement (approximately $68.2 million at December 31, 1999). The Facility is unsecured and contains customary covenants and conditions providing for events of default. The Company is prohibited from declaring, paying, or issuing cash dividends. At December 31, 1999, the balance outstanding under the revolving credit facility was $60.6 million. Amounts outstanding under the facility are payable on May 31, 2001, with interest due quarterly based on the bank's prime rate, LIBOR or CD Rate options, at the Company's election (average interest rate at December 31, 1999 was 6.993%). Each of the interest rate options includes a premium dependent upon the Company's financial performance. The Company paid interest totaling $2,831,275, $1,957,269, and $1,761,660 in 1999, 1998, and 1997, respectively. The Company capitalized $329,738 and $570,136 of interest in 1999 and 1998, respectively, relating to the construction of the distribution center, rod mill, and plastics mill. 5. INCOME TAXES The provisions for income tax expense are summarized as follows:
1999 1998 1997 ----------- ----------- ----------- Current: Federal $ 802,604 $ 8,181,896 $12,108,230 State 88,823 1,298,414 1,926,988 Deferred 2,988,673 2,122,090 127,844 ----------- ----------- ----------- $ 3,880,100 $11,602,400 $14,163,062 =========== =========== ===========
The differences between the provision for income taxes and income taxes computed using the federal income tax rate are as follows:
1999 1998 1997 ----------- ----------- ----------- Amount computed using the statutory rate $ 3,661,526 $10,209,409 $12,549,543 State income taxes, net of federal tax benefit 145,395 1,011,677 1,497,702 Change in tax rate -- -- 68,000 Other items 73,179 381,314 47,817 ----------- ----------- ----------- $ 3,880,100 $11,602,400 $14,163,062 =========== =========== ===========
22 25 The tax effect of each type of temporary difference giving rise to the deferred tax liability at December 31, 1999 and 1998, is as follows:
DEFERRED TAX ASSET (LIABILITY) 1999 1998 -------------------------------------------------------- CURRENT NONCURRENT CURRENT NONCURRENT ----------- ----------- ----------- ----------- Depreciation and amortization $ -- $(5,739,550) $ -- $(4,052,934) Inventory (2,472,617) -- (1,009,000) -- Allowance for doubtful accounts 186,785 -- 193,000 -- Accrued expenses 124,269 -- 196,000 -- Uniform capitalization rules 400,115 -- 146,000 -- Other (56,609) -- (42,000) -- ----------- ----------- ----------- ----------- $(1,818,057) $(5,739,550) $ (516,000) $(4,052,934) =========== =========== =========== ===========
The Company made income tax payments (refunds) of $(227,000) in 1999, $11,521,000 in 1998, and $13,010,000 in 1997. 6. STOCK OPTIONS The Company has a stock option plan for employees that provides for the granting of stock options and authorizes the issuance of common stock upon the exercise of such options for up to 1,741,500 shares of common stock. The stock options vest over five years and expire ten years from grant date. The following summarizes activity in the stock option plan for the years ended December 31, 1999, 1998, and 1997:
SHARES UNDER PRICE PER AGGREGATE OPTION OPTIONS SHARE PRICE ------------ ------------ ---------------- Options outstanding at December 31, 1996 1,042,200 $ 0.33-6.22 $ 4,728,614 Options granted 178,500 8.33-17.00 1,945,500 Options exercised (193,545) 0.33-6.22 (811,517) Options canceled (89,820) 3.06-8.45 (537,850) ----------- ------------ ----------- Options outstanding at December 31, 1997 937,335 0.33-17.00 5,324,747 Options granted 109,100 9.00-17.33 1,156,748 Options exercised (106,585) 0.33-8.33 (621,746) Options canceled (14,050) 6.22-17.00 (4,590) ----------- ------------ ----------- Options outstanding at December 31, 1998 925,800 0.33-17.33 5,855,159 OPTIONS GRANTED 116,500 6.50-9.25 775,125 OPTIONS EXERCISED (33,793) 0.33-4.50 (197,126) OPTIONS CANCELED (33,555) 4.17-10.00 (10,961) ----------- ------------ ----------- OPTIONS OUTSTANDING AT DECEMBER 31, 1999 974,952 $ 0.33-17.33 $ 6,422,197 =========== ============ ===========
At December 31, 1999, 674,592 options are currently exercisable and 974,952 common shares are reserved for future issuance. The Company has elected to continue to follow the expense recognition criteria in Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Therefore, the Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," will have no effect on the Company's financial statements. As required by the Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), pro forma information regarding net income and income per share has been determined as if the Company had accounted for employee stock options granted subsequent to December 31, 1994, under the fair value method provided for under FAS 123. The fair value for the stock options granted to directors, officers, and key employees of 23 26 the Company on or after January 1, 1995, was estimated at the date of the grant using the Black-Scholes options pricing model with the following weighted-average assumptions: 6. STOCK OPTIONS (CONTINUED)
1999 1998 1997 ---------- ---------- ---------- Risk-free interest rate 6.43% 4.73% 6.17% Expected dividend yield 0.00% 0.00% 0.00% Expected volatility 54% 51% 45% Expected lives 5.0 YEARS 5.0 years 5.0 years
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The weighted-average fair value of stock options granted during the years ended December 31, 1999, 1998, and 1997, was $3.57, $5.16 and $5.22, respectively. For purposes of the pro forma disclosures, the estimated fair value of stock options granted has been amortized to expense over the vesting period. The Company's pro forma information for FAS 123 is as follows (in thousands, except for earnings per common share information):
1999 1998 1997 ------ ------- ------- Net income As reported $6,594 $17,567 $21,693 Pro forma $6,436 $17,434 $21,616 Basic earnings per common share As reported $0.43 $1.11 $1.37 Pro forma $0.42 $1.10 $1.37 Diluted earnings per common share As reported $0.42 $1.07 $1.32 Pro forma $0.41 $1.06 $1.31
7. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
1999 1998 1997 ----------- ----------- ----------- Numerator: Net income $ 6,593,977 $17,567,340 $21,692,775 =========== =========== =========== Denominator: Denominator for basic earnings per share - weighted average shares 15,468,107 15,843,591 15,791,856 Effect of dilutive securities: Employee stock options 245,384 544,668 690,609 ----------- ----------- ----------- Denominator for diluted earnings per share -weighted average shares 15,713,491 16,388,259 16,481,925 =========== =========== ===========
24 27 8. CONTINGENCIES The Company is a party to litigation and claims that arise out of the ordinary business of the Company. While the results of these matters can not be predicted with certainty, the Company does not believe the final outcome of such litigation and claims will have a material adverse effect on the financial condition, the results of operation or the cash flows of the Company because the Company believes that it has adequate insurance and reserves to cover any damages that may ultimately be awarded. 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is a summary of the unaudited quarterly financial information for the two years ended December 31, 1999 and 1998 (in thousands, except per share amounts):
THREE MONTHS ENDED 1999 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- Net sales $ 63,524 $ 55,442 $ 53,063 $ 57,641 Gross profit 9,182 6,063 8,054 8,735 Net income 2,258 586 1,909 1,841 Net income per common share - basic 0.14 .04 0.12 0.12 Net income per common share - diluted 0.14 .04 0.12 0.12
THREE MONTHS ENDED 1998 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- Net sales $ 62,927 $ 63,905 $ 69,556 $ 47,654 Gross profit 15,449 12,460 15,337 5,738 Net income 6,436 4,565 5,902 664 Net income per common share - basic .41 .29 .37 .04 Net income per common share - diluted .39 .27 .36 .04
25 28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The section entitled "Election of Directors" appearing in the Company's proxy statement for the annual meeting of stockholders to be held on May 8, 2000 sets forth certain information with respect to the directors of the Company and is incorporated herein by reference. Certain information with respect to persons who are or may be deemed to be executive officers of the Company is set forth under the caption "Executive Officers of the Company" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" appearing in the Company's proxy statement for the annual meeting of stockholders to be held on May 8, 2000 sets forth certain information with respect to the compensation of management of the Company and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Security Ownership of Certain Beneficial Owners and Management" appearing in the Company's proxy statement for the annual meeting of stockholders to be held on May 8, 2000 sets forth certain information with respect to the ownership of the Company's Common Stock and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Not Applicable PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) Financial Statements included in Item 8 herein: Report of Independent Auditors Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements (2) Financial Statement Schedules included in Item 8 herein: All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (3) Exhibits: The information required by this Item 14(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report on Form 10-K. (b) No Current Reports on Form 8-K were filed during the quarter ended December 31, 1999. 26 29 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, Encore Wire Corporation has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. ENCORE WIRE CORPORATION Date: March 27, 2000 By: /s/ VINCENT A. REGO -------------------------------- Vincent A. Rego Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ VINCENT A. REGO Chairman of the Board March 27, 2000 - --------------------------------------------- of Directors and Chief Vincent A. Rego Executive Officer /s/ DANIEL L. JONES President and Chief Operating March 27, 2000 - --------------------------------------------- Officer Daniel L. Jones /s/ SCOTT D. WEAVER Vice President-- Finance, March 27, 2000 - --------------------------------------------- Secretary and Treasurer Scott D. Weaver (Principal Financial and Accounting Officer)
27 30 /s/ DONALD E. COURTNEY Vice-Chairman of the March 27, 2000 - --------------------------------------------- Board of Directors Donald E. Courtney /s/ JOSEPH M. BRITO Director March 27, 2000 - --------------------------------------------- Joseph M. Brito /s/ JOHN H. WILSON Director March 27, 2000 - --------------------------------------------- John H. Wilson /s/ JOHN P. PRINGLE Director March 27, 2000 - --------------------------------------------- John P. Pringle /s/ WILLIAM R. THOMAS Director March 27, 2000 - --------------------------------------------- William R. Thomas
28 31 INDEX TO EXHIBITS
Exhibit Page Number Description Number - ------ ----------- ------ 3.1 Certificate of Incorporation of Encore Wire Corporation, as amended (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1, as amended (No. 33-47696), and incorporated herein by reference). 3.2 Amended and Restated Bylaws of Encore Wire Corporation (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.1 Amended and Restated Financing Agreement dated as of June 15, 1994 by and between NationsBank of Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference). 10.2 Revolving Note dated as of August 31, 1995 executed by Encore Wire Corporation payable to the order of NationsBank of Texas, N.A. (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 10.3 First Amendment to Amended and Restated Financing Agreement dated as of July 26, 1994 by and between NationsBank of Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference). 10.4 Second Amendment to Amended and Restated Financing Agreement dated effective December 29, 1994 by and between NationsBank of Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 10.5 Third Amendment to Amended and Restated Financing Agreement dated effective April 7, 1995 by and between NationsBank of Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 10.6 Fourth Amendment to Amended and Restated Financing Agreement dated effective August 31, 1995 by and between NationsBank of Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 10.7 Fifth Amendment to Amended and Restated Financing Agreement dated effective March 19, 1996 by and between NationsBank of Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 10.8 Sixth Amendment to Amended and Restated Financing Agreement dated effective September 17, 1996 by and between NationsBank of Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference). 10.9 Seventh Amendment to Amended and Restated Financing Agreement dated effective December 11, 1996 by and between NationsBank of Texas, N.A. and Encore Wire Corporation (filed as
32
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). 10.10 * Amended and Restated Agreement Not to Compete dated March 8, 1994, between Encore Wire Corporation and Vincent A. Rego (filed as Exhibit 10.9 to the Company's Registration Statement on Form S-1, as amended (No. 33-76216), and incorporated herein by reference). 10.11 * Amended and Restated Agreement Not to Compete dated March 8, 1994, between Encore Wire Corporation and Donald M. Spurgin (filed as Exhibit 10.10 to the Company's Registration Statement on Form S-1, as amended (No. 33-76216), and incorporated herein by reference). 10.12 * 1989 Stock Option Plan (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, as amended (No. 33-54484), and incorporated herein by reference). 10.13 * 1989 Stock Option Plan, as amended (filed as Exhibit 10.12 to the Company's Registration Statement on Form S-1, as amended (No. 33-76216), and incorporated herein by reference). 10.14 1989 Stock Option Plan, as amended and restated (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 333-38729), and incorporated herein by reference). 10.15 Second Amended and Restated Financing Agreement dated as of June 9, 1997 by and among Encore Wire Corporation, NationsBank of Texas, N.A. and Bank of America, Texas N/A (filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference). 10.16 $35,000,000 Revolving Note to NationsBank of Texas, N.A. (filed as exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference). 10.17 $25,000,000 Revolving Note to Bank of America, Texas N.A. (filed as exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference). 10.18 NationsBank of Texas, N.A. Guaranty Agreement (filed as exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference). 10.19 Bank of America, Texas N.A. Guaranty Agreement (filed as exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference). 10.20 * Employment Agreement dated as of October 1, 1996 between the Company and Donald M. Spurgin (filed as exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.21 First Amendment to Second Amended and Restated Financing Agreement dated as of February 20, 1998 by and among Encore Wire Corporation, NationsBank of Texas, N.A. and Bank of America, Texas N.A. (filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference). 10.22 Second Amendment to Second Amended and Restated Financing Agreement dated as of June 15, 1998 by and among Encore Wire Corporation, NationsBank of Texas, N/A and Bank of America, Texas N.A. (filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference). 10.23 Third Amendment to Second Amended and Restated Financing Agreement dated as of August 28, 1998 by and among Encore Wire Corporation, NationsBank of Texas, N.A. and Comerica
33 Bank - Texas (filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 and incorporated herein by reference). 10.24 Fourth Amendment to Second Amended and Restated Financing Agreement dated as of October 28, 1998 by and among Encore Wire Corporation, NationsBank of Texas, N.A. and Comerica Bank - Texas (filed as exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 and incorporated herein by reference). 10.25 Financing Agreement by and among Encore Wire Limited, as Borrower, Bank of America, National Association, as Agent, and Bank of America, National Association, and Comerica Bank-Texas, as Lenders, dated August 31, 1999 (filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference). 21.1 Subsidiary. 23.1 Consent of Ernst & Young LLP. 27.1 Financial Data Schedule * Management contract or compensatory plan
EX-21.1 2 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 2 SUBSIDIARIES EWC Aviation Corp., a Texas corporation EWC GP Corp., a Delaware corporation EWC LP Corp., a Delaware corporation Encore Wire Limited, a Texas Limited Partnership EX-23.1 3 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-38729, Form S-8 No. 33-89126 and Form S-8 No. 33-54484) pertaining to the 1989 Stock Option Plan of Encore Wire Corporation of our report dated January 28, 2000, with respect to the consolidated financial statements of Encore Wire Corporation included in the Form 10-K for the year ended December 31, 1999. /s/ Ernst & Young LLP -------------------------- Dallas, Texas March 27, 2000 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1,255 0 47,077 485 54,638 102,854 107,694 28,305 182,389 28,626 0 0 0 163 87,259 182,389 229,669 229,669 197,635 18,741 0 0 2,818 10,474 3,880 6,593 0 0 0 6,593 .43 .42
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