<PAGE> 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, 1996
[ ] 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, 1997: $108,192,425
Number of shares of Common Stock outstanding as of March 10, 1997: 7,124,717
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 1997 annual meeting of stockholders --
Part III
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I.......................................................................................................... 1
ITEM 1. BUSINESS............................................................................................ 1
General .................................................................................................. 1
Recent Events.............................................................................................. 1
Strategy .................................................................................................. 2
Products .................................................................................................. 2
Manufacturing ............................................................................................. 3
Customers ................................................................................................. 3
Marketing and Distribution................................................................................. 4
Employees ................................................................................................. 4
Raw Materials ............................................................................................. 4
Competition ............................................................................................... 5
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................................................................... 6
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
Information Regarding Forward Looking Statements........................................................... 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................................... 14
ITEM 9. 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
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Encore is a low-cost manufacturer of copper electrical building wire
and cable. The Company is a significant supplier of residential wire for
interior wiring in homes, apartments and manufactured housing. In 1994, the
Company completed a major plant expansion and began manufacturing commercial
wire for commercial and industrial buildings. This expansion allows Encore to
offer a broad line of copper electrical building wire and cable to its
customers.
The Company began operations in 1990. Through four plant expansions
(including the commercial wire plant expansion described above) and the
addition in 1994 of new manufacturing equipment, the Company estimates that its
production capacity is 600,000 pounds of residential wire per day and 400,000
pounds of commercial wire per day. The Company's net sales have grown from
$10.7 million in 1990 to $179.1 million in 1996. As a result, based upon the
latest available U.S. Department of Commerce data, the Company increased its
share of the market for residential wire from less than 2% in 1990 to
approximately 12% in 1995. Based on the same information, the Company's share
of the market for the commercial wire that it manufactures was approximately 5%
in 1995. According to this same Department of Commerce data, the total dollar
value of all 1995 U.S. shipments of the types of residential and commercial
wire that the Company manufactures amounted to approximately $729.5 million and
$1.5 billion, respectively.
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 by emphasizing a high level of
customer service and low-cost production. 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.
The Company was founded in 1989 as a Delaware corporation by Vincent
A. Rego and Donald M. Spurgin, who have been colleagues in the wire and cable
business since the mid-1950s. The Company's principal executive offices and
plant are located at 1410 Millwood Road, McKinney, Texas 75069 and 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 subsidiary.
RECENT EVENTS
The Company's Board of Directors recently authorized a new project
whereby the Company would construct and equip a copper rod fabrication
facility. Although plans have not been finalized, the Company intends for the
new facility to include additional warehouse space. The new facility will be
located adjacent to the Company's existing plant on property which the Company
has contracted to purchase. The total cost of the project is estimated to be
approximately $19 million. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company presently uses copper rod purchased from others to
manufacture its wire and cable products. If the new facility is completed, the
Company will produce its own copper rod from copper cathodes. The Company would
also be able to reprocess copper scrap generated by its operations and copper
scrap purchased from others.
1
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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.
o 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.
o 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
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 of NM
cable and UF cable and, in 1994, began offering a line of THHN cable, the most
widely used type of commercial wire. 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 100 and 150 stock keeping units
(SKUs) of residential wire and between 450 and 500 SKUs of commercial wire. The
principal bases for differentiation among SKUs are product diameter,
insulation, color and packaging.
Residential Wire
o 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.
o 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
o 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.
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MANUFACTURING
The efficiency of Encore's highly automated manufacturing facility is
a key element of its low-cost production capability. Encore's methods for
manufacturing residential wire differ from batch processing in traditional
mills, in which manufacturing is broken into several steps requiring materials
handlers to move product between steps on reels. 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, reels for the most part have been replaced
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 over the solid or stranded wire.
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 diameters and insulation
thicknesses 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 1996 issue of Electrical Wholesaling magazine.
No customer accounted for more than seven percent of net sales in 1996.
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.
3
<PAGE> 6
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, 1996, it held approximately 84% 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, 1996, additional product inventories are
maintained at the warehouses of independent manufacturers' representatives
located in Chattanooga, Tennessee; Detroit, Michigan; Edison, New Jersey;
Houston, Texas; Louisville, Kentucky; Norcross, Georgia; Orlando, Florida;
Pittsburgh, Pennsylvania; Portland, Oregon; Salt Lake City, Utah; 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, including a related third party. See "Item
13. Certain Relationships and Related Party Transactions." 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 manufacturers' representative,
pays the representative a commission based on pre-established rates. Customers'
credit limits are determined by the Company. The Company's bad debt experience
was .09%, .09% and .16% of net sales in 1996, 1995 and 1994, 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.
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 the 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, 1996, Encore had 262 employees, of whom 221 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 rod, PVC thermoplastic compounds, paper and nylon, all of
which are readily available from a number of suppliers. The Company purchases
copper rod from three major producers at prices determined each month primarily
based on the average daily closing prices for copper for that month, plus a
negotiated premium.
4
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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. Some of these competitors are
owned and operated by large, diversified companies. The Company's competitors
include Southwire Corporation, Essex Group, Inc. and General Cable Corporation,
an indirect wholly-owned subsidiary of Wassall PLC. These competitors are also
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. The Company has
encountered no significant foreign competition in the production 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 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 an eighteen acre site and consist of a building
containing approximately 384,000 square feet of floor space, of which
approximately 17,000 square feet are used for office space and 367,000 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
There are no material legal proceedings pending or threatened to which
the Company is a party or of which any of the Company's property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE COMPANY
Information regarding Encore's executive officers including their
respective ages at March 19, 1997, is set forth below.
<TABLE>
<CAPTION>
Name Age Position with Company
- ---- --- ---------------------
<S> <C> <C>
Vincent A. Rego 73 Chairman of the Board of Directors,
President, Chief Executive Officer
Donald M. Spurgin 59 Vice Chairman of the Board of Directors
Daniel L. Jones 33 Vice President-- Sales and Marketing
David K. Smith 37 Vice President-- Operations
Scott D. Weaver 38 Vice President-- Finance, Treasurer
and Secretary
Shirley A. Wright 55 Vice President-- Credit and Assistant
Secretary
</TABLE>
Mr. Rego has been Chairman of the Board of Directors of Encore since
1989. In October 1996, Mr. Rego was named President and Chief Executive
Officer. 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 then, and is now (as General Cable
Corporation, an indirect wholly owned subsidiary of Wassall PLC), engaged in
the manufacture of electrical wire and cable products. Prior thereto, Mr. Rego
was associated with predecessors of Capital Wire in various executive
capacities.
Mr. Spurgin was President, Chief Executive Officer and a director of
Encore from 1989 until October 1996, and was Secretary of the Company from 1989
until 1992. In October 1996, Mr. Spurgin, for health reasons, resigned as
President and Chief Executive Officers of the Company and was named Vice
Chairman of the Board of Directors. From 1979 to 1988, Mr. Spurgin was
Executive Vice President, Chief Operating Officer and a director of Capital
Wire. Prior thereto, Mr. Spurgin was associated with predecessors of Capital
Wire in various executive capacities.
Mr. Jones has been Vice President -- Sales and Marketing of Encore
since 1992. From 1985 to 1988, Mr. Jones attended college while working on a
part time basis for Capital Wire. From 1988 until joining the Company in 1989,
he was employed as a sales representative by Lone Star Transportation Inc., a
freight brokerage firm. Mr. Jones is the son-in-law of Mr. Spurgin.
Mr. Smith has been Vice President -- Operations of Encore since 1992.
From 1984 until joining the Company in 1990, Mr. Smith was employed as a
Department Manager by General Cable Company, a manufacturer of
telecommunications cable.
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).
Ms. Wright has been employed by Encore since its inception and has
been its Vice President -- Credit and Assistant Secretary since 1992. From 1970
until 1989, Ms. Wright was employed in various capacities by Capital Wire, most
recently as Vice President -- Credit/Administration.
All executive officers are elected annually by the Board of Directors
to serve until the next annual meeting of the Board and until their respective
successors are chosen and qualified.
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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." Public trading of the Common Stock
commenced on July 16, 1992, the date of the Company's initial public offering.
Prior to that date, there was no public market for the Common Stock.
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.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1996
<S> <C> <C>
First Quarter ........................................................ 10 1/2 8 3/4
Second Quarter........................................................ 11 9
Third Quarter......................................................... 15 9 5/8
Fourth Quarter........................................................ 19 1/8 13 3/4
1995
First Quarter......................................................... 17 3/4 13
Second Quarter........................................................ 15 3/4 10
Third Quarter......................................................... 13 3/8 10 1/2
Fourth Quarter........................................................ 12 1/4 9 1/4
</TABLE>
On March 10, 1997, the last reported sale price of the Common Stock
was $22.75 per share. As of March 10, 1997, there ere 89 record 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.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
NET SALES ............................. $ 179,132 $ 151,308 $ 122,698 $73,954 $63,136
COST OF GOODS SOLD .................... 153,448 140,323 102,220 62,913 52,859
--------- --------- --------- --------- ---------
GROSS PROFIT ........................ 25,684 10,985 20,478 11,041 10,277
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ............................ 12,413 10,255 9,089 6,632 4,431
--------- --------- --------- --------- ---------
OPERATING INCOME ...................... 13,271 730 11,389 4,409 5,846
OTHER INCOME (EXPENSE):
INTEREST AND OTHER INCOME ........... 92 108 55 20 2
INTEREST EXPENSE .................... (1,722) (1,724) (598) (123) (429)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ..... 11,641 (886) 10,846 4,306 5,419
INCOME TAX (BENEFIT) EXPENSE .......... 4,482 (341) 4,176 1,659 2,087
--------- --------- --------- --------- ---------
NET INCOME (LOSS) ..................... $ 7,159 $ (545) $ 6,670 $ 2,647 $ 3,332
========= ========= ========= ========= =========
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE .................... $1.00 $ (0.08) $0.98 $0.45 $0.64
========= ========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES ................... 7,180 7,067 6,834 5,894 5,191
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
WORKING CAPITAL........................ $ 39,137 $ 35,560 $32,159 $ 9,809 $ 9,352
TOTAL ASSETS........................... 91,068 84,655 75,094 43,331 25,697
LONG-TERM DEBT, NET OF
CURRENT PORTION...................... 18,500 23,000 16,900 10,847 --
STOCKHOLDERS' EQUITY................... 46,899 40,377 41,562 20,149 17,022
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company was incorporated in 1989 and during the remainder of that year
used its resources to acquire, equip and test its manufacturing facility. In
1990, the Company began to manufacture and sell residential wire. In 1994, the
Company completed a plant expansion for the production of commercial wire.
Price competition for electrical wire and cable is intense, and the
Company sells its products in accordance with prevailing market prices. Copper
rod, a commodity product, is the principal raw material used by the Company in
manufacturing its products. Copper accounted for approximately 77.4%, 76.8%,
67.9%, 70.0% and 73.9% of the Company's cost of goods sold during fiscal 1996,
1995, 1994, 1993 and 1992 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales ........................................ 100.0% 100.0% 100.0%
Cost of goods sold:
Copper ....................................... 66.3 71.3 56.6
Other raw materials .......................... 13.6 12.8 14.6
Depreciation ................................. 1.8 2.0 1.6
Labor and overhead ........................... 7.3 6.0 5.8
LIFO adjustment .............................. (3.3) 0.7 4.9
Lower of cost or market adjustment ........... 0.0 0.0 (0.2)
----- ----- -----
85.7 92.8 83.3
----- ----- -----
Gross profit ..................................... 14.3 7.2 16.7
Selling, general and administrative expenses ..... 6.9 6.8 7.4
----- ----- -----
Operating income ................................. 7.4 0.4 9.3
Interest expense, net ............................ 0.9 1.0 0.5
----- ----- -----
Income (loss) before income taxes ................ 6.5 (0.6) 8.8
Income tax (benefit) expense ..................... 2.5 (0.2) 3.4
----- ----- -----
Net income (loss) ................................ 4.0% (0.4)% 5.4%
===== ===== =====
</TABLE>
The following discussion and analysis relates to factors that have
affected the operating results of the Company for the years ended December 31,
1996, 1995 and 1994. Reference should also be made to the consolidated
financial statements and the related notes included elsewhere in this Annual
Report.
Net sales were $179.1 million in 1996, compared to $151.3 million in
1995 and $122.7 million in 1994. The increase from 1995 to 1996 was due to a
33% increase in sales volume offset by a lower average cost of copper, which
resulted in a decrease in the average sales price per copper pound of the
Company's products. The increase from 1994 to 1995 was due primarily to the
combination of an increase in sales volume and an increase in the average cost
of copper, which resulted in an increase in the average sales price per copper
pound of the Company's products. Sales volume increased due to several factors,
including increases in customer acceptance and product availability and the
introduction of the Company's new commercial product line in 1994. The sales
volume of this product line increased in 1996 and 1995 as compared to the
previous year. In 1996, the Company continued to expand sales to some existing
customers and increased the number of customers to which it sold its
9
<PAGE> 12
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 1996 issue of Electrical Wholesaling magazine. The average
sales price per copper pound of product sold was $1.79 in 1996, compared to
$2.01 in 1995 and $1.88 in 1994. The changes each year are primarily a result
of changing price competition and changing copper raw material prices. The
average price per copper pound the Company paid in 1996, 1995 and 1994 was
$1.12, $1.42 and $1.12, respectively.
Cost of goods sold was $153.4 million in 1996, compared to $140.3
million in 1995 and $102.2 million in 1994. Copper costs increased to $118.7
million in 1996 from $107.8 million in 1995 and $69.4 million in 1994. The
average cost per copper pound purchased was $1.12 in 1996, $1.42 in 1995 and
$1.12 in 1994. Copper costs as a percentage of net sales decreased to 66.3% in
1996 from 71.3% in 1995, which was an increase from 56.6% in 1994. The decrease
as a percentage of net sales in 1996 from 1995 was due primarily to a
significantly larger differential between what the Company pays per pound of
copper purchased and the Company's net sales price per copper pound sold. The
increase as a percentage of net sales in 1995 from 1994 was due primarily to
the differential being significantly smaller. This differential increased
during 1996 primarily because of improved pricing for the Company's products.
It decreased in 1995, compared to 1994, primarily because of extreme price
competition for the Company's products, the effect of which was magnified by
the increase in sales volume of the Company's commercial wire product, which
contains a higher percentage of copper. Other raw material costs as a
percentage of net sales were 13.6%, 12.8% and 14.6% in 1996, 1995 and 1994,
respectively. The increase from 1995 to 1996 was 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 remaining relatively
constant. The decrease from 1994 to 1995 was due primarily to the Company's
sales price per copper pound sold increasing as well as the introduction of the
Company's commercial wire product line in 1994, which, compared to residential
wire, requires fewer raw materials (other than copper). Depreciation, labor and
overhead costs as a percentage of net sales were 9.1% in 1996 compared to 8.0%
in 1995 and 7.4% in 1994. This increase was due primarily to expenses relating
to increasing the Company's production capacity.
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 increases in the cost of copper during 1994, the value of all
inventory at December 31, 1994 using the LIFO method was less than its FIFO
value by approximately $5,097,000, resulting in a corresponding increase in the
cost of goods sold of $6,028,000, including the reversal of a $931,000
difference at December 31, 1993. At December 31, 1994, LIFO value did not
exceed the market value of the inventory, therefore, no lower or cost
adjustment was necessary, resulting in a reversal of a $289,000 adjustment from
the previous year with a corresponding decrease to cost of goods sold. The net
effect of these two adjustments increased cost of goods sold in 1994 by
$5,739,000. As a result of further increases in the cost of copper during 1995,
the value of all inventory at December 31, 1995 using the LIFO method was less
than its FIFO value by approximately $6,147,000. The difference between the
LIFO value of inventory and the FIFO value of inventory increased $1,050,000,
resulting in a corresponding $1,050,000 increase in the cost of goods sold. At
December 31, 1995, LIFO value did not exceed the market value of the inventory,
therefore, no lower or cost adjustment was necessary. As a result of decreases
in the cost of copper during 1996, the value of all inventory at December 31,
1996 using the LIFO method was less than its FIFO value by approximately
$122,000, resulting in a corresponding decrease in the cost of goods sold of
$6,025,000, including the reversal of the $6,147,000 difference at December 31,
1995. At December 31, 1996, LIFO value did not exceed the market value of the
inventory, therefore, no lower of cost or market adjustment was necessary.
Future reductions in the price of copper could require the Company to record a
lower of cost or market adjustment 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 increased to $25.7 million , or 14.3% of net sales, in
1996 from $11.0 million, or 7.2% of net sales, in 1995 and $20.5 million, or
16.7% of net sales, in 1994. The changes in gross profit were due to the
factors discussed above.
10
<PAGE> 13
General and administrative expenses were $2.9 million in 1996, $2.7
million in 1995 and $2.5 million in 1994. As a percentage of net sales, general
and administrative expenses were 1.6% in 1996, 1.8% in 1995 and 2.0% in 1994.
Selling expenses, which include freight and sales commissions, were $9.5
million in 1996, $7.6 million in 1995 and $6.6 million in 1994. As a percentage
of net sales, selling expenses were 5.3% in 1996, 5.0% in 1995 and 5.4% in
1994. The decrease from 1994 to 1995 was due primarily to freight charges
remaining relatively constant per copper pound of product shipped while the
sales price per copper pound sold increased. The increase in 1996 was due
primarily to freight charges remaining relatively constant per copper pound of
product shipped while the sales price per copper pound sold decreased.
Interest expense remained relatively constant at $1,722,000 in 1996
compared to $1,724,000 in 1995, which increased from $598,000 in 1994. Interest
remained relatively constant from 1995 to 1996 due to the average balance of
the Company's debt remaining relatively constant. The balance of the Company's
debt at the end of 1996 decreased from the balance at the end of 1995 due to
the Company's cash flow (see discussion in Liquidity and Capital Resources
section below). The increase in 1995 was due to an increased average debt
balance during 1995 compared to 1994 caused by increased working capital
requirements related to an increase in accounts receivable, the build up of
inventories in connection with the commencement of sales of commercial wire
products, increased sales volumes, increased capital expenditures and the
increased cost of copper. The debt incurred to build the Company's commercial
wire plant was retired from the proceeds of the Company's secondary offering of
Common Stock in April 1994. Interest in the amount of $178,000 incurred in 1994
on debt relating to the construction of the Company's commercial wire plant was
capitalized in 1994.
The Company's effective tax rate remained constant in 1996, 1995 and
1994 at 38.5%.
As a result of the foregoing factors, the Company had net income of
$7.2 million in 1996 compared to a loss of $545,000 in 1995 and net income of
$6.7 million in 1994.
11
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's cash flow activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
------ ------ -----
(In thousands)
<S> <C> <C> <C>
Net income (loss) .................................. $7,159 $ (545) $6,670
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization ................... 3,396 3,054 2,043
Other non-cash items ............................ 1,192 451 965
Increase in accounts receivable,
inventory and other assets ..................... (6,928) (7,495) (25,315)
Increase in trade accounts payable,
accrued liabilities and other liabilities ...... 3,428 4,213 3,699
-------- -------- --------
Net cash provided by (used in) operating
activities ......................................... 8,247 (322) (11,938)
Investing activities:
Purchases of property, plant and
equipment (net) ................................. (2,840) (5,297) (7,698)
Financing activities:
Increase (decrease) in indebtedness, net ........ (4,500) 6,100 6,053
Issuances of common stock ....................... 34 85 14,743
Purchase of treasury stock ...................... (671) (838) --
-------- -------- --------
Net cash (used in) provided by financing
activities ....................................... (5,137) 5,347 20,796
-------- -------- --------
Net increase (decrease) in cash .................... $ 270 $ (272) $ 1,160
======== ======== ========
</TABLE>
The Company maintains a substantial inventory of finished products to
satisfy customers' prompt delivery requirements. As is customary in the
industry, the Company provides to most of its customers 60-day payment terms,
although the Company's suppliers typically require more immediate payment,
generally within 30 days. 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 June 15, 1994, the Company completed an unsecured loan
facility with a bank (the "Financing Agreement"). The Financing Agreement
initially provided for maximum borrowings of the lesser of $25.0 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 bank.
The maximum borrowing amount was increased to the lesser of a calculated amount
or $35.0 million effective August 31, 1995. The calculated maximum borrowing
amount available at December 31, 1996, as computed in the Financing Agreement,
was $34.9 million. The Financing Agreement is unsecured and contains customary
covenants and events of default. Because of the net loss incurred in 1995, the
Company was in default at December 31, 1995 under certain of the covenants
contained in the Financing Agreement. However, the bank waived the Company's
default as of December 31, 1995, and the bank and the Company amended the
Financing Agreement, effective as of March 19, 1996, so that it contains less
restrictive covenants. The Company was in compliance with these new covenants
as of December 31, 1996. At December 31, 1996, the balance outstanding under
the Financing Agreement was $18.5 million. The Financing Agreement was amended
September 17, 1996 to extend the term of the agreement and to make other minor
changes.
12
<PAGE> 15
Amounts outstanding under the Financing Agreement are payable on July 15, 1998
with interest due quarterly based on the bank's prime rate, LIBOR or CD Rate
options, at the Company's election. Each of the interest rate options includes
a premium dependent upon the Company's financial performance, which is computed
quarterly. The Agreement was amended again on December 11, 1996 to clarify
certain provisions relating to the repurchase of the Company's stock. Effective
October 1, 1996, and continuing into 1997, the Company's financial performance
earned it the lowest interest rate option offered by the Financing Agreement.
In the first quarter of 1995, the Board of Directors of the Company
authorized the Company to purchase up to 400,000 shares, or approximately 5.6%,
of its outstanding Common Stock dependent upon market conditions. Common Stock
purchased under the authorization will be made from time to time on the open
market or through privately negotiated transactions at prices determined by the
Chairman of the Board or the President of the Company. Cash provided by
operations and borrowings under the Financing Agreement will be used to fund
any repurchase of shares by the Company. The repurchase program permits the
Company to purchase shares of its Common Stock whenever management believes
that the stock price is undervalued relative to the performance and future
prospects of the Company. The Financing Agreement has been amended to permit
the proposed purchase of these shares not to exceed 400,000 shares or $5.5
million. Purchases of common stock under the repurchase program will be carried
out in accordance with applicable rules and regulations of the Securities and
Exchange Commission. As of December 31, 1996, the Company had repurchased
128,500 shares of its common stock in the open market at a weighted average
price of $11.74 per share.
Cash provided by operations increased to $8.2 million 1996, compared
to cash used by operations of $322,000 in 1995 and $11.9 million in 1994. This
increase in cash provided by operations from 1995 to 1996 was due primarily to
the Company's increase in 1996 net income compared to a loss in 1995. The
decrease in use of cash from 1994 to 1995 was primarily a result of a smaller
increase in accounts receivable and inventory in 1995 compared to the increase
in 1994. Inventory was increased significantly in 1994 due to the Company's
commencement of commercial wire product sales and manufacturing during that
year. Cash used in investing activities decreased to $2.8 million in 1996 from
$5.3 million in 1995 and $7.7 million in 1994. These funds were used primarily
to increase the Company's production capacity, including the construction of
the Company's new commercial wire plant in 1994. The cash used in/provided by
financing activities was primarily due to an increases and decreases in the
amount of indebtedness provided by additional borrowings and repayments on the
Company's loan facility. Cash used in/provided by financing activities was
reduced by $671,000 and $838,000 in 1996 and 1995 respectively, as a result of
the purchase of treasury stock.
During 1997, the Company expects its capital expenditures will consist
of additional manufacturing equipment for its residential and wire operations.
In addition, the Company plans to construct and equip a copper rod fabrication
facility. See "Item 1. Business." The total capital expenditures associated
with the fabrication facility and the additional manufacturing equipment are
estimated to be approximately $19.0 million. The Company also expects its
working capital requirements to increase during 1997 as a result of continued
increases in sales. 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 is currently negotiating with its bank to provide additional financing
for the capital expenditures and working capital requirements. The Company
believes that the cash flow from operations and the financing that it expects
to receive from its bank will satisfy working capital and capital expenditure
requirements for the next twelve months.
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
<PAGE> 16
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
<PAGE> 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, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. 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 generally accepted auditing
standards. 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, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
January 22, 1997
Dallas, Texas
15
<PAGE> 18
ENCORE WIRE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
ASSETS
Current assets:
<S> <C> <C>
Cash $ 1,261,103 $ 991,516
Accounts receivable, net of allowance for losses of
$473,000 and $431,000 in 1996 and 1995, respectively 33,231,871 28,187,793
Inventories (Note 2) 27,247,929 24,548,787
Prepaid expenses and other assets 209,724 209,393
Current taxes receivable -- 1,042,460
Deferred income taxes (Note 5) 268,000 234,000
------------ ------------
Total current assets 62,218,627 55,213,949
Property, plant, and equipment - on the basis of cost:
Land 286,654 286,654
Buildings and improvements 8,749,460 8,188,423
Machinery and equipment 29,962,109 27,996,966
Furniture and fixtures 675,918 506,835
------------ ------------
39,674,141 36,978,878
Accumulated depreciation and amortization 10,888,424 7,585,013
------------ ------------
28,785,717 29,393,865
Other assets 63,500 47,500
------------ ------------
Total assets $ 91,067,844 $ 84,655,314
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 15,473,269 $ 15,488,107
Accrued liabilities (Note 3) 6,249,699 4,166,237
Current income taxes payable 1,358,863 --
------------ ------------
Total current liabilities 23,081,831 19,654,344
Noncurrent deferred income taxes (Note 5) 2,587,000 1,624,000
Long-term note payable (Note 4) 18,500,000 23,000,000
Stockholders' equity (Note 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 - 7,112,917 in 1996
and 7,104,417 in 1995 71,129 71,044
Additional paid-in capital 28,528,910 28,495,115
Treasury Stock - 128,500 in 1996 and 77,500 in 1995 (1,509,011) (838,083)
Retained earnings 19,807,985 12,648,894
------------ ------------
Total stockholders' equity 46,899,013 40,376,970
------------ ------------
Total liabilities and stockholders' equity $ 91,067,844 $ 84,655,314
============ ============
</TABLE>
See accompanying notes.
16
<PAGE> 19
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 179,131,812 $ 151,308,363 $ 122,698,137
Cost of goods sold 153,448,265 140,323,624 102,219,671
------------- ------------- -------------
Gross profit 25,683,547 10,984,739 20,478,466
Selling, general, and administrative expenses 12,412,537 10,254,718 9,088,899
------------- ------------- -------------
Operating income 13,271,010 730,021 11,389,567
Other income (expense):
Interest and other income 92,233 108,129 54,078
Interest expense (1,722,445) (1,724,324) (597,777)
------------- ------------- -------------
Income (loss) before income taxes 11,640,798 (886,174) 10,845,868
Income tax (benefit) expense (Note 5) 4,481,707 (341,177) 4,175,659
------------- ------------- -------------
Net income (loss) $ 7,159,091 $ (544,997) $ 6,670,209
============= ============= =============
Net income (loss) per common and
common equivalent share $ 1.00 $(0.08) $ 0.98
Weighted average common and common equivalent
shares 7,179,948 7,066,948 6,834,270
</TABLE>
See accompanying notes.
17
<PAGE> 20
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Additional
Common Stock Stock Paid-In Treasury Retained
Shares Amount Warrants Capital Stock Earnings Total
------ ------ -------- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 5,608,400 $56,084 12,701 $13,556,334 $ -- $ 6,523,682 $ 20,148,801
Proceeds from issuance of common
stock 1,218,167 12,181 -- 14,520,689 -- -- 14,532,870
Proceeds from exercise of stock
options 79,750 798 -- 82,020 -- -- 82,818
Proceeds from exercise of common
stock warrants 174,000 1,740 (12,701) 137,961 -- -- 127,000
Net income -- -- -- -- -- 6,670,209 6,670,209
--------- ------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1994 7,080,317 70,803 -- 28,297,004 -- 13,193,891 41,561,698
Proceeds from exercise of stock
options 24,100 241 -- 51,792 -- -- 52,033
Purchase of treasury stock -- -- -- -- (838,083) -- (838,083)
Tax benefit on exercise of stock
options -- -- -- 112,972 -- -- 112,972
Other -- -- -- 33,347 -- -- 33,347
Net -- -- -- -- -- (544,997) (544,997)
--------- ------- ------- ----------- ----------- ------------ ------------
Balance at December 31, 1995 7,104,417 71,044 -- 28,495,115 (838,083) 12,648,894 40,376,970
Proceeds from exercise of stock
options 8,500 85 -- 33,795 -- -- 33,880
Purchase of treasury stock -- -- -- -- (670,928) -- (670,928)
Net income -- -- -- -- -- 7,159,091 7,159,091
--------- ------- ------- ----------- ----------- ----------- ------------
Balance at December 31, 1996 7,112,917 $71,129 -- $28,528,910 $(1,509,011) $19,807,985 $ 46,899,013
========= ======= ======= =========== =========== =========== ============
</TABLE>
SEE ACCOMPANYING NOTES.
18
<PAGE> 21
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
Operating Activities
<S> <C> <C> <C>
Net income (loss) .................................................. $ 7,159,091 $ (544,997) $ 6,670,209
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization .................................. 3,396,015 3,054,319 2,043,202
Provision for bad debts ........................................ 227,000 139,218 367,798
Deferred income taxes .......................................... 929,000 199,000 597,000
Tax benefit on exercise of stock options ....................... -- 112,972 --
Changes in operating assets and liabilities:
Accounts receivable ......................................... (5,271,078) (9,220) (16,516,633)
Inventories ................................................. (2,699,142) (6,683,537) (8,766,243)
Prepaid expenses ............................................ (331) 33,589 (148,715)
Current income taxes receivable ............................. 1,042,460 (1,042,460) --
Other assets ................................................ -- 206,028 116,491
Trade accounts payable ...................................... (14,838) 4,349,224 2,293,990
Accrued liabilities ......................................... 2,083,462 503,035 1,441,471
Current income taxes payable ................................ 1,358,863 (639,177) (35,926)
Loss on disposal of assets ....................................... 36,110 -- --
----------- ---------- -------------
Net cash (used in) provided by operating
activities ....................................................... 8,246,612 (322,006) (11,937,356)
Investing Activities
Purchases of property, plant, and equipment ........................ (2,946,177) (5,297,591) (7,698,804)
Increase in long term investments .................................. (16,000) -- --
Proceeds from sale of equipment .................................... 122,200 -- --
----------- ---------- -------------
Net cash used in investing activities .............................. (2,839,977) (5,297,591) (7,698,804)
Financing Activities
Increase in long-term note payable ................................. -- 6,100,000 22,118,232
Repayment of note payable .......................................... (4,500,000) -- (16,065,000)
Proceeds from issuance of common stock ............................. 33,880 85,380 14,742,688
Purchase of treasury stock ......................................... (670,928) (838,083) --
----------- ----------- ------------
Net cash (used in)/provided by financing activities ................ (5,137,048) 5,347,297 20,795,920
----------- ----------- ------------
Net increase (decrease) in cash .................................... 269,587 (272,300) 1,159,760
Cash at beginning of year .......................................... 991,516 1,263,816 104,056
----------- ----------- ------------
Cash at end of year ................................................ $ 1,261,103 $ 991,516 $ 1,263,816
=========== =========== ============
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE> 22
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
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 as
interior wiring in homes, apartments, and manufactured housing, and THHN cable,
for use 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 rod, a commodity product, is the principal raw material used in the
Company's manufacturing operations. Copper rod accounted for approximately
77.4%, 76.8%, and 67.9% of its cost of goods sold during 1996, 1995, and 1994,
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 a
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.
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 $177,183, $151,164, and $198,810 in 1996, 1995, and
1994, respectively.
INVENTORIES
Inventories are stated at the lower of cost using the last-in, first-out (LIFO)
method or market.
20
<PAGE> 23
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
INCOME (LOSS) PER SHARE
Income (loss) 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:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials ........... $ 1,364,299 $ 3,290,096
Work-in-process ......... 4,184,517 4,991,879
Finished goods .......... 21,820,867 22,414,271
27,369,683 30,696,246
------------ ------------
Decrease to LIFO cost ... (121,754) (6,147,459)
------------ ------------
$ 27,247,929 $ 24,548,787
============ ============
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Sales volume discounts payable $4,758,070 $3,204,631
Property taxes payable 134,087 476,399
Commissions payable 387,629 322,017
Other accrued liabilities 969,913 163,190
---------- ----------
$6,249,699 $4,166,237
========== ==========
</TABLE>
21
<PAGE> 24
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM NOTE PAYABLE
The Company amended its unsecured loan facility (Facility) with a bank as of
August 31, 1995 to provide for a maximum borrowings of the lesser of $35.0
million or the amount of eligible accounts receivable plus the amount of
eligible finished goods and raw materials as defined in the Financing Agreement
(approximately $34.9 million at December 31, 1996). The Facility is unsecured
and contains customary covenants and conditions providing for events of
default.
The Company is prohibited from declaring, paying, or issuing dividends in
excess of an amount greater than 50% of the Company's net income for the
preceding year. At December 31, 1996, the balance outstanding under the
revolving credit facility was $18.5 million. Amounts outstanding under the
facility are payable on July 15, 1998, 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, 1996 was 6.62%). Each of the interest rate
options includes a premium dependent upon the Company's financial performance.
The Company paid interest totaling $1,730,525, $1,688,266, and $757,778 in
1996, 1995, and 1994, respectively. The Company capitalized $177,903 of
interest in 1994 relating to the construction of the plant expansion.
5. INCOME TAXES
The provisions for income tax (benefit) expense are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Current:
<S> <C> <C> <C>
Federal $ 3,252,757 $(540,177) $3,163,000
State 404,950 -- 415,659
Deferred 824,00 199,000 597,000
----------- --------- ----------
$ 4,481,707 $(341,177) $4,175,659
=========== ========= ==========
</TABLE>
22
<PAGE> 25
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The differences between the provision for income taxes and income taxes
computed using the federal income tax rate are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Amount computed using the statutory rate $ 3,957,871 $ (301,299) $3,688,000
State income taxes 459,950 (55,000) 415,659
Other items 63,886 15,122 72,000
----------- ----------- ----------
$ 4,481,707 $ (341,177) $4,175,659
=========== =========== ==========
</TABLE>
The tax effect of each type of temporary difference and carryforward giving
rise to the deferred tax asset and liability at December 31, 1996 and 1995, is
as follows:
<TABLE>
<CAPTION>
DEFERRED TAX ASSET (LIABILITY)
1996 1995
------------------------------------------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------------------------------------------------------
<S> <C> <C>
Depreciation and amortization $ -- $ (2,587,000) $ - $(2,062,000)
Inventory (26,000) -- (39,000) --
Allowance for doubtful accounts
161,000 -- 146,000 --
Alternate minimum tax credit
carryforward -- -- -- 438,000
Uniform capitalization rules 112,000 -- 91,000 --
Other 21,000 -- 36,000 --
--------- ----------- ---------- -----------
$ 268,000 $(2,587,000) $ 234,000 $(1,624,000)
========= =========== ========== ===========
</TABLE>
The Company made income tax payments of $1,151,000 in 1996, $1,028,000 in 1995
and $3,090,000 in 1994.
23
<PAGE> 26
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 674,000 shares of common stock. The
following summarizes activity in the stock option plan for the years ended
December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
SHARES UNDER PRICE PER AGGREGATE
OPTIONS SHARE OPTION PRICE
------- ----- ------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1993 238,750 $ .73 - 6.88 $ 604,770
Options granted 291,500 13.125 - 14.00 3,907,000
Options exercised (79,750) .73 - 6.88 (82,818)
Options canceled (2,000) 14.00 (28,000)
Options outstanding at December 31, 1994 448,500 .73 - 14.00 4,400,952
------- --------------- -----------
Options granted -- -- --
Options exercised (24,100) .73 - 6.88 (52,033)
Options canceled (4,000) 14.00 (56,000)
Options outstanding at December 31, 1995 420,400 .73 - 14.00 4,292,919
Options granted 63,700 9.375 - 10.25 613,575
Options exercised (8,500) .73 - 6.88 (33,880)
Options canceled (12,400) 9.375 - 14.00 (144,000)
------- --------------- -----------
Options outstanding at December 31, 1996 463,200 $ .73 - 14.00 $ 4,728,614
======= =============== ============
</TABLE>
At December 31, 1996, 330,200 options are currently exercisable and 463,250
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, Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation" will have no
effect on the Company's financial statements. The pro forma disclosures
mandated by SFAS 123 are not provided as the effect of adopting the expense
recognition criteria of SFAS 123 for stock options granted subsequent to
January 1, 1995 would not be material to the Company.
7. RELATED PARTY TRANSACTIONS
The Company paid a related party common carrier $1,905,188 in 1996, $1,370,104
in 1995 and $1,051,551 in 1994. The Company believes that rates charged by this
carrier compare favorably with rates charged by other carriers.
24
<PAGE> 27
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information for
the two years ended December 31, 1996 and 1995 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1996 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $40,015 $44,747 $46,099 $48,271
Gross profit 3,432 4,544 8,752 8,955
Net income 184 586 3,103 3,286
Net income per common and
common equivalent share .03 .08 .44 .46
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1995 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $38,093 $ 38,674 $ 41,945 $ 32,596
Gross profit 3,844 2,797 2,947 1,396
Net income (loss) 626 (168) (111) (892)
Net income (loss) per common and
common equivalent share .09 (.02) (.02) (.13)
</TABLE>
25
<PAGE> 28
ITEM 9. 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 2, 1997 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 2, 1997 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 2, 1997 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
The section entitled "Certain Transactions" appearing in the Company's
proxy statement for the annual meeting of stockholders to be held on May 2,
1997 sets forth certain information with respect to certain business
relationships and transactions between the Company and its directors and
officers and is incorporated herein by reference.
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, 1996
and 1995
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for years
ended December 31, 1996, 1995 and 1994
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, 1996.
26
<PAGE> 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 26, 1997
By: /s/ VINCENT A. REGO
----------------------------------------
Vincent A. Rego
President and 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ VINCENT A. REGO Chairman of the Board March 26, 1997
- ---------------------------------------- of Directors, President and Chief
Vincent A. Rego Executive Officer
/s/ DONALD M. SPURGIN Vice Chairman of the Board March 26, 1997
- ---------------------------------------- of Directors
Donald M. Spurgin
/s/ SCOTT D. WEAVER Vice President-- Finance, March 26, 1997
- ---------------------------------------- Secretary and Treasurer
Scott D. Weaver (Principal Financial
and Accounting Officer)
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DONALD E. COURTNEY Director March 26, 1997
- -----------------------------------------
Donald E. Courtney
/s/ ARTHUR A. GINGELL Director March 26, 1997
- -----------------------------------------
Arthur A. Gingell
/s/ JOHN H. WILSON Director March 26, 1997
- -----------------------------------------
John H. Wilson
/s/ JOHN P. PRINGLE Director March 26, 1997
- -----------------------------------------
John P. Pringle
/s/ WILLIAM R. THOMAS Director March 26, 1997
- -----------------------------------------
William R. Thomas
/s/ DANIEL L. JONES Director March 26, 1997
- -----------------------------------------
Daniel L. Jones
28
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ------
<S> <C> <C>
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 Bylaws of Encore Wire Corporation (filed as Exhibit 3.3 to the
Company's Registration Statement on Form S-1, as amended (No.
33-47696), 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
</TABLE>
29
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ------
<S> <C>
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).
21.1 Subsidiary.
23.1 Consent of Ernst & Young LLP.
</TABLE>
30
<PAGE> 1
EXHIBIT 10.9
SEVENTH AMENDMENT
TO
AMENDED AND RESTATED FINANCING AGREEMENT
This Seventh Amendment to Amended and Restated Financing Agreement is
executed and entered into by and between NATIONSBANK OF TEXAS, N.A., a national
bank ("Lender") and ENCORE WIRE CORPORATION, a Delaware corporation
("Borrower"), executed as of December 11, 1996, as follows:
RECITALS
NationsBank and Encore are parties to the certain Amended and Restated
Financing Agreement dated effective June 15, 1994, as amended by the
First Amendment to Amended and Restated Financing Agreement dated July
26, 1994, the Second Amendment to Amended and Restated Financing
Agreement dated December 29, 1994, the Third Amendment to Amended and
Restated Financing Agreement dated April 7, 1995, the Fourth Amendment
to Amended and Restated Financing Agreement dated August 31, 1995, the
Fifth Amendment to Amended and Restated Financing Agreement dated
March 19, 1995, and the Sixth Amendment to Amended and Restated
Financing Agreement dated September 17, 1996 (hereinafter called the
"Agreement"). Terms defined in the Agreement, wherever used in this
Seventh Amendment, shall have the same meanings as are prescribed by
the Agreement.
NationsBank and Encore have agreed to amend the Agreement as provided
hereinbelow.
NOW THEREFORE, for value received, and in consideration of the
premises, NationsBank and Encore hereby agree as follows:
1. Paragraph 7.31 ("Redemptions and Acquisitions of Shares")
hereby is amended to read in its entirety as follows:
"7.31 REDEMPTIONS AND ACQUISITIONS OF SHARES. Borrower will
not make any payment on account of the purchase, redemption or other
acquisition or retirement of any shares of capital stock, provided,
that notwithstanding the foregoing, for so long as no Event of Default
shall have occurred and be continuing, and no other event or condition
which is reasonably expected to result in a Material Adverse Effect or
would be the subject of a required notice under paragraph 7.13 is in
existence, Borrower shall not be prohibited from repurchasing shares
to be held as treasury shares, provided further that (i) the aggregate
number of such shares purchased shall not exceed 400,000 and the
aggregate purchase price paid by Borrower for all such shares shall
not exceed the maximum amount of $5,500,000.00, and (ii) no Event of
Default shall result from, or exist immediately following, any such
repurchase."
<PAGE> 2
2. Paragraph 1 of this Seventh Amendment shall be deemed
effective as of April 7, 1995.
3. The following items shall be delivered to Lender prior to or
simultaneously with execution and delivery of this Seventh Amendment:
(a) A certificate signed by the corporate secretary of
Borrower (i) certifying to Lender that its Certificate of
Incorporation and Bylaws have not been amended since Borrower's
certification thereof under Secretary's Certificate previously
submitted to Lender as of June 15, 1994 in connection with execution
of the Agreement, and specifying that the officers of Borrower listed
therein are duly elected, qualified and acting as of the effective
date hereof (or alternatively, specifying any change in such listing)
and (ii) attaching and certifying resolutions duly adopted by the
board of directors of Borrower authorizing the Seventh Amendment and
the transactions evidenced hereby, and authorizing and directing one
or more named officers of Borrower to execute and deliver the Seventh
Amendment, and all related documentation required by Lender, on behalf
of Borrower, which certificate shall be in form satisfactory to
Lender; and
(b) Such other documentation as Lender may reasonably
require in connection with the Agreement or this Seventh Amendment.
4. In consideration of this Seventh Amendment, Borrower
represents to Lender that (i) no Event of Default, or other event or condition
which would be the subject of a required notice under paragraph 7.13 of the
Agreement, is in existence as of the effective date hereof and (ii) each of the
representations and warranties contained in the following paragraphs of the
Agreement are true and correct as of the effective date of this Seventh
Amendment: paragraph 6.1 through paragraph 6.21.
5. The Agreement hereby is ratified and confirmed as being and
continuing in full force and effect according to its terms, as amended by this
Seventh Amendment.
6. This Agreement (i) is binding upon Borrower and Lender and
their respective successors and assigns, (ii) represents the entire agreement
between the parties regarding the subject matter hereof and may not be amended
or modified except in writing signed by both parties, (iii) shall be governed
and construed according to the laws of the State of Texas and (iv) may be
executed by counterpart, in which case each such counterpart together shall be
considered to be the same agreement. A telecopy of any such executed
counterpart shall be valid as an original.
2
<PAGE> 3
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED effective as of the date specified in the preamble.
NATIONSBANK OF TEXAS, N.A.
By: /s/ FRANK IZZO
-------------------------------------
Name: Frank Izzo
-----------------------------------
Title: Sr. Vice President
----------------------------------
By: /s/ TODD M. BURNS
-------------------------------------
Name: Todd M. Burns
-----------------------------------
Title: Banking Officer
----------------------------------
ENCORE WIRE CORPORATION
By: /s/ SCOTT WEAVER
-------------------------------------
Name: Scott Weaver
-----------------------------------
Title: VP Finance
----------------------------------
CONSENT BY GUARANTOR
EWC Leasing Corp. hereby (i) consents to execution and performance by
Borrower of the foregoing Seventh Amendment to Amended and Restated Financing
Agreement ("Seventh Amendment") and (ii) ratifies and confirms its Guaranty
dated effective as of June 15, 1994 as continuing in full force and effect with
respect to all "Obligations" defined by the Agreement, including as amended by
the Seventh Amendment, as of the effective date hereof.
EWC LEASING CORP.
By:/s/ SCOTT WEAVER
-------------------------------------
Name: SCOTT WEAVER
-----------------------------------
Title: VP Finance
----------------------------------
3
<PAGE> 4
THE STATE OF TEXAS )
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared TODD M.
BURNS, known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that the same was the act of the
said NATIONSBANK OF TEXAS, N.A., and was executed for the purposes and
consideration therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 18th day of December,
1996.
/s/ DANA ANN WOODRUFF
-----------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires: DANA ANN WOODRUFF
4/29/97 -----------------------------
- ---------------------- (Printed Name of Notary)
THE STATE OF TEXAS )
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared Frank
IZZO, known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that the same was the act of the
said NATIONSBANK OF TEXAS, N.A., and was executed for the purposes and
consideration therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the_____________day of
December, 1996.
/s/ DANA ANN WOODRUFF
-----------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires: DANA ANN WOODRUFF
4/29/97 -----------------------------
- --------------------- (Printed Name of Notary)
4
<PAGE> 5
THE STATE OF TEXAS )
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared SCOTT
WEAVER, known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that the same was the act of the
said ENCORE WIRE CORPORATION, a Delaware corporation, and that he executed the
same as the act of such corporation for the purposes and consideration therein
expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 12th day of December, 1996.
/s/ SHIRLEY WRIGHT
-----------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires: SHIRLEY WRIGHT
1-31-97 -----------------------------
- ---------------------- (Printed Name of Notary)
THE STATE OF TEXAS )
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, on this day personally appeared SCOTT
WEAVER, known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that the same was the act of the
said EWC LEASING CORP., a Nevada corporation, and that he executed the same as
the act of such corporation for the purposes and consideration therein expressed
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 12th day of December, 1996.
/s/ SHIRLEY WRIGHT
-----------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires: SHIRLEY WRIGHT
1-31-97 -----------------------------
- ---------------------- (Printed Name of Notary)
5
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARY
EWC Leasing Corp., a Nevada corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(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 22, 1997,
with respect to the consolidated financial statements of Encore Wire
Corporation included in the Form 10-K for the year ended December 31, 1996.
Dallas, Texas
March 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,261
<SECURITIES> 0
<RECEIVABLES> 33,705
<ALLOWANCES> 473
<INVENTORY> 27,248
<CURRENT-ASSETS> 62,219
<PP&E> 39,068
<DEPRECIATION> 10,888
<TOTAL-ASSETS> 91,068
<CURRENT-LIABILITIES> 23,081
<BONDS> 0
0
0
<COMMON> 71
<OTHER-SE> 46,828
<TOTAL-LIABILITY-AND-EQUITY> 91,068
<SALES> 179,132
<TOTAL-REVENUES> 179,132
<CGS> 153,448
<TOTAL-COSTS> 12,186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 227
<INTEREST-EXPENSE> 1,630
<INCOME-PRETAX> 11,641
<INCOME-TAX> 4,482
<INCOME-CONTINUING> 7,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,159
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
