<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, 1997
[ ] 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, 1998: $ 230,099,791
Number of shares of Common Stock outstanding as of March 10, 1998: 10,808,385
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 1998 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 Event................................................................................... 1
Strategy....................................................................................... 1
Products....................................................................................... 2
Manufacturing.................................................................................. 3
Customers...................................................................................... 3
Marketing and Distribution..................................................................... 3
Employees...................................................................................... 4
Raw Materials.................................................................................. 4
Competition.................................................................................... 4
Patent Matters................................................................................. 5
ITEM 2. PROPERTIES...................................................................................... 5
ITEM 3. LEGAL PROCEEDINGS............................................................................... 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................. 5
EXECUTIVE OFFICERS OF THE COMPANY............................................................ 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................................................................ 11
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>
ii
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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, allowing Encore to offer a broad
line of copper electrical building wire and cable to its customers.
The Company began operations in 1990. The Company has undergone four
plant expansions (including the commercial wire plant expansion described
above). The Company's net sales have grown from $10.7 million in 1990 to $254.6
million in 1997. 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 16% in 1996. Based on the same
information, the Company's share of the market for the commercial wire that it
manufactures was approximately 8% in 1996. According to this same Department of
Commerce data, the total dollar value of all 1996 U.S. shipments of the types of
residential and commercial wire that the Company manufactures amounted to
approximately $825.3 million and $1.7 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 primarily by emphasizing a high level
of customer service and low-cost production and, to a lesser extent, the
addition of new products that compliment its current product line. The Company
maintains product inventory levels sufficient to meet anticipated customer
demand and believes that the speed and completeness with which it fills customer
orders are key competitive advantages critical to marketing its products.
Encore's low-cost production capability features an efficient plant design
incorporating highly automated manufacturing equipment, an integrated production
process and a small, incentivized work force.
The Company is a Delaware corporation with its principal executive
offices and plant located at 1410 Millwood Road, McKinney, Texas 75069. Its
telephone number is (972) 562-9473. As used in this Annual Report, unless
otherwise required by the context, the terms "Company" and "Encore" refer to
Encore Wire Corporation and its consolidated subsidiary.
RECENT EVENTS
In 1996, the Company's Board of Directors authorized a new project
whereby the Company would construct and equip a copper rod fabrication facility,
as well as a new distribution facility. The new distribution center was
completed in the fourth quarter of 1997 and the copper rod facility is estimated
to be completed in the third quarter of 1998. Both facilities will be located
adjacent to the Company's existing plant on property that was acquired in 1997.
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. When the new copper rod fabrication
facility is completed, the Company will produce its own copper rod from copper
cathodes. The Company will also be able to reprocess copper scrap generated by
its operations and copper scrap purchased from others.
STRATEGY
Encore's strategy for expanding its share of the residential wire and
commercial wire markets emphasizes customer service coupled with low-cost
production.
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Customer Service. Responsiveness to customers is a primary focus of
Encore, with an emphasis on building and maintaining strong customer
relationships. Encore seeks to establish customer loyalty by achieving
a high order fill rate and rapidly handling customer inquiries,
orders, shipments and returns. The Company maintains product
inventories sufficient to meet anticipated customer demand and
believes that the speed and completeness with which it fills orders
are key competitive advantages critical to marketing its products.
Low-Cost Production. Encore's low-cost production capability features
an efficient plant design and a small, incentivized work force.
Efficient Plant Design. Encore's highly automated wire
manufacturing equipment is integrated in an efficient design
that reduces materials handling, including labor and
in-process inventory.
Incentivized Work Force. Encore's hourly manufacturing
employees are eligible to receive incentive pay tied to
productivity and quality standards. The Company believes that
this compensation program enables the plant's manufacturing
lines to attain high output and motivates manufacturing
employees to continually maintain product quality. The Company
also believes that its stock option plan enhances the
motivation of its salaried manufacturing supervisors. The
Company has coupled these incentives with a comprehensive
safety program that emphasizes employee participation.
PRODUCTS
Encore offers a residential wire product line that consists primarily
of NM cable and UF cable and, in 1994, began offering a line of THHN cable, the
most widely used type of commercial wire. Additionally, the Company manufactures
other types of commercial wire products. 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
NM Cable. Non-metallic sheathed cable is used primarily as
interior wiring in homes, apartments and manufactured housing.
NM cable is composed of either two or three insulated copper
wire conductors, with or without an uninsulated ground wire,
all sheathed in a polyvinyl chloride ("PVC") jacket.
UF Cable. Underground feeder cable is used to conduct power
underground to outside lighting and other applications remote
from residential buildings. UF cable is composed of two or
three PVC insulated copper wire conductors, with or without an
uninsulated ground wire, all jacketed in PVC.
Commercial Wire
THHN Cable. THHN cable is used primarily as feeder, circuit
and branch wiring in commercial and industrial buildings. It
is composed of a single conductor, either stranded or solid,
and insulated with PVC, which is further coated with nylon.
Users typically enclose THHN cable in protective pipe or
conduit.
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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 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 diameter and insulation
thickness while the lines are in operation. During each shift, operators take
physical measurements of products, which Company inspectors randomly verify on a
daily basis. Although suppliers pretest PVC and nylon compounds, the Company
tests products for aging and for cracking and brittleness of insulation and
jacketing. Encore sells all of its products with a one-year replacement
warranty.
CUSTOMERS
Encore sells its wire principally to wholesale electrical distributors
throughout the United States and, to a lesser extent, to retail home improvement
centers. Most distributors supply products to electrical contractors. The
Company now sells its products to more than 50% of the top 250 wholesale
electrical distributors (by volume) in the United States according to
information reported in the June 1997 issue of Electrical Wholesaling magazine.
No customer accounted for more than eight percent of net sales in 1997.
Encore believes that the speed and completeness with which it fills
customers' orders are crucial to its ability to expand the market share for its
products. The Company also believes that in order to reduce costs, many
customers no longer maintain their own substantial warehouse inventories.
Because of this trend, the Company seeks to maintain sufficient inventories to
satisfy customers' prompt delivery requirements.
MARKETING AND DISTRIBUTION
Encore markets its products throughout the United States primarily
through manufacturers' representatives and, to a lesser extent, through its own
direct marketing efforts.
Encore maintains most of its product inventory at its plant in
McKinney, Texas. At December 31, 1997, it held approximately 82% of its finished
goods inventory at that location. In order to provide flexibility in handling
3
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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, 1997, additional product inventories are maintained at the
warehouses of independent manufacturers' representatives located in Chattanooga,
Tennessee; Detroit, Michigan; Edison, New Jersey; Louisville, Kentucky;
Norcross, Georgia; Orlando, Florida; Pittsburgh, Pennsylvania; 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 manufacturer's representative, pays the
representative a commission based on pre-established rates. The Company
determines customers' credit limits. The Company's bad debt experience was .05%,
.09% and .09% of net sales in 1997, 1996 and 1995, 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, 1997, Encore had 381 employees, of whom 330 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.
COMPETITION
The electrical wire and cable industry is highly competitive. The
Company competes with several manufacturers of wire and cable products, which
have substantially greater resources than the Company and offer more complete
lines of electrical wire and cable products. The Company's competitors include
Southwire Corporation, Essex International Inc. and General Cable Corporation.
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.
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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 a combined site of approximately fifty acres and
consist of buildings containing approximately 745,000 square feet of floor space
(including the Company's copper rod fabrication facility currently being
completed), of which approximately 24,000 square feet are used for office space
and 721,000 square feet are used for manufacturing and warehouse operations. The
plant and equipment are owned by the Company and are not mortgaged to secure any
of the Company's existing indebtedness. Encore believes that its plant and
equipment are suited to its present needs, comply with applicable federal, state
and local laws and regulations and are properly maintained and adequately
insured.
ITEM 3. LEGAL PROCEEDINGS
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, 1998 is set forth below.
<TABLE>
<CAPTION>
Name Age Position with Company
- ---- --- ---------------------
<S> <C> <C>
Vincent A. Rego 74 Chairman of the Board of Directors,
President, Chief Executive Officer
Donald M. Spurgin 60 Vice Chairman of the Board of
Directors
Daniel L. Jones 34 Executive Vice President, Chief
Operating Officer, Member of
the Board of Directors
David K. Smith 38 Vice President-- Operations
Scott D. Weaver 39 Vice President-- Finance, Treasurer
and Secretary
Shirley A. Wright 56 Vice President-- Credit and
Assistant Secretary
</TABLE>
Mr. Rego has been Chairman of the Board of Directors of Encore since
1989. In October 1997, Mr. Rego was named President and Chief Executive Officer.
From 1978 until 1988, Mr. Rego served as President, Chief Executive Officer and
Chairman of the Board of Directors of Capital Wire and Cable Corporation
("Capital Wire"), which was purchased by General Cable Corporation in 1988.
Prior thereto, Mr. Rego was associated with predecessors of Capital Wire in
various executive capacities.
Mr. 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 was Vice President -- Sales and Marketing of Encore from 1992
to May 1997. In May 1997, Mr. Jones was named Executive Vice President of the
Company and in October 1997, he was named Chief Operating Officer. He also
serves as a member of the Board of Directors. From 1985 to 1988, Mr. Jones
attended college while working on a part time basis for Capital Wire. From 1988
until joining the Company in 1989, Lone Star Transportation Inc., a freight
brokerage firm, employed him as a sales representative. 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 by General
Cable Corporation.
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.
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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.
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. The reported prices have been adjusted to
reflect a 3-for-2 split of the Common Stock effective August 19, 1997.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter ..................................................... 15 7/8 11 3/8
Second Quarter..................................................... 20 5/8 12 1/8
Third Quarter...................................................... 35 19 5/8
Fourth Quarter..................................................... 38 1/2 22 1/2
1996
First Quarter...................................................... 7 5 7/8
Second Quarter..................................................... 7 3/8 6
Third Quarter...................................................... 10 6 1/2
Fourth Quarter..................................................... 12 3/4 9 1/8
</TABLE>
On March 10, 1998, the last reported sale price of the Common Stock was
$29 1/8 per share. As of March 10, 1998, there were 162 record holders of the
Common Stock. The Company estimates that there were approximately 1500
beneficial holders of the Common Stock.
The Company has never paid cash dividends. Management intends to retain
any future earnings for the operation and expansion of the Company's business
and does not anticipate paying any cash dividends in the foreseeable future. The
Company's present credit arrangements restrict the Company's ability to pay cash
dividends. See Note 4 of Notes to Consolidated Financial Statements.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales....................................... $ 254,640 $ 179,132 $ 151,308 $ 122,698 $ 73,954
Cost of goods sold.............................. 201,323 153,448 140,323 102,220 62,913
---------- ---------- ---------- ---------- ----------
Gross profit.................................. 53,317 25,684 10,985 20,478 11,041
Selling, general and administrative
expenses...................................... 16,236 12,413 10,255 9,089 6,632
---------- ---------- ---------- ---------- ----------
Operating income................................ 37,081 13,271 730 11,389 4,409
Other income (expense):
Interest and other income..................... 142 92 108 55 20
Interest expense.............................. (1,367) (1,722) (1,724) (598) (123)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes............... 35,856 11,641 (886) 10,846 4,306
Income tax (benefit) expense.................... 14,163 4,482 (341) 4,176 1,659
---------- ---------- ---------- ---------- ----------
Net income (loss)............................... $ 21,693 $ 7,159 $ (545) $ 6,670 $ 2,647
========== ========== ========== ========== ==========
Net income (loss) per common and common
equivalent share.............................. $ 1.97 $ 1.00 $ (0.08) $ 0.98 $ 0.45
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares - diluted................... 10,988 10,578 10,600 10,251 8,841
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital................................. $ 43,710 $ 39,137 $ 35,560 $ 32,159 $ 9,809
Total assets.................................... 128,755 91,068 84,655 75,094 43,331
Long-term debt, net of
current portion............................... 22,200 18,500 23,000 16,900 10,847
Stockholders' equity............................ 70,010 46,899 40,377 41,562 20,149
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Price competition for electrical wire and cable is intense, and the Company
sells its products in accordance with prevailing market prices. Copper rod, a
commodity product, is the principal raw material used by the Company in
manufacturing its products. Copper accounted for approximately 73.8%, 77.4%,
76.8%, 67.9%, and 70.0% of the Company's cost of goods sold during fiscal 1997,
1996, 1995, 1994 and 1993, 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,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold:
Copper.................................... 58.4 66.3 71.3
Other raw materials....................... 12.3 13.6 12.8
Depreciation..............................
Labor and overhead........................
LIFO adjustment........................... (1.1) (3.3) 0.7
Lower of cost or market adjustment........ 0.5 0.0 (0.0)
----- ----- -----
79.1 85.7 92.8
----- ----- -----
Gross profit.................................. 20.9 14.3 7.2
Selling, general and administrative expenses.. 6.3 6.9 6.8
----- ----- -----
Operating income.............................. 14.6 7.4 0.4
Interest expense, net......................... 6.4 0.9 1.0
----- ----- -----
Income (loss) before income taxes 14.1 6.5 (0.6)
Income tax (benefit) expense 5.6 2.5 (0.2)
----- ----- -----
Net income (loss) 8.5% 4.0% (0.4)%
===== ===== =====
</TABLE>
The following discussion and analysis relates to factors that have
affected the operating results of the Company for the years ended December 31,
1997, 1996 and 1995. Reference should also be made to the consolidated financial
statements and the related notes included elsewhere in this Annual Report.
Net sales were $254.6 million in 1997, compared to $179.1 million in
1996 and $151.3 million in 1995. The increase from 1996 to 1997 was due
primarily to a 31% increase in sales volume combined with 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. 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. Sales volume increased due to several factors, including
increases in customer acceptance and product availability. In 1997, the Company
continued to expand sales to some existing customers and increased the number of
customers to which it sold its products. The Company currently sells its
products to more than 50% of the top 250 wholesale electrical distributors (by
volume) in the United States, as reported in the June 1997 issue of Electrical
Wholesaling magazine. The average sales price per copper pound of product sold
was $1.93 in 1997, compared to $1.79 in 1996 and $2.01 in 1995. The changes each
year are primarily a result of changing price competition and changing copper
raw material
9
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prices. The average price per copper pound the Company paid in 1997, 1996 and
1995 was $1.09, $1.12 and $1.42, respectively.
Cost of goods sold was $201.3 million in 1997, compared to $153.4
million in 1996 and $140.3 million in 1995. Copper costs increased to $148.6
million in 1997 from $118.7 million in 1996 and $107.8 million in 1995. The
average cost per copper pound purchased was $1.09 in 1997, $1.12 in 1996 and
$1.42 in 1995. Copper costs as a percentage of net sales decreased to 58.4% in
1997 from 66.3% in 1996 and 71.3% in 1995. The decrease as a percentage of net
sales was due primarily to an increasing differential between what the Company
pays per pound of copper purchased and the Company's net sales price per copper
pound sold. This differential increased during 1997 and 1996 primarily because
of improved pricing for the Company's products. Other raw material costs as a
percentage of net sales were 12.3%, 13.6% and 12.8% in 1997, 1996 and 1995,
respectively. The decrease from 1996 to 1997 was due primarily to the Company's
sales price per copper pound sold increasing (as discussed above) while the cost
of other raw materials per pound of copper sold decreased slightly. This
decrease was primarily caused by increased sales of the Company's commercial
wire product line in 1997 as a percentage of total sales compared to 1996, which
product line, as compared to residential wire, requires fewer raw materials
(other than copper). 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 remained
relatively constant. Depreciation labor and overhead costs as a percentage of
net sales were 9.0% in 1997 compared to 9.1% in 1996 and 8.0% in 1995. This
increase in 1996 and 1997 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 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, resulting in a corresponding increase in the cost of goods sold of
$1,050,000, which is net of a $5,097,000 difference at December 31, 1994. At
December 31, 1995, LIFO value did not exceed the market value of the inventory,
therefore, no lower of cost or market 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 partial 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. As a result of further decreases in the cost of copper
during 1997 (specifically at the end of 1997), the value of all inventory at
December 31, 1997 using the LIFO method was greater than its FIFO value by
approximately $2,629,000, resulting in a corresponding decrease in the cost of
goods sold of $2,751,000, including the reversal of the $122,000 difference at
December 31, 1996. At December 31, 1997, LIFO value exceeded the market value of
the inventory by $1,278,000, thereby necessitating a $1,278,000 lower of cost or
market decrease in the value of inventory and a corresponding increase in the
cost of goods sold. The net of these two adjustments decreased cost of goods
sold by $1,473,000. Future reductions in the price of copper could require the
Company to record additional lower of cost or market adjustments against the
related inventory balance. Additionally, a reduction in the quantity of
inventory could cause copper that is carried in inventory at costs different
from the cost of copper in the period in which the reduction occurs to be
included in cost of goods sold for that period at the different price.
Gross profit increased to $53.3 million, or 20.9% of net sales, in 1997
from $25.7 million, or 14.3% of net sales, in 1996 and $11.0 million, or 7.2% of
net sales, in 1995. The changes in gross profit were due to the factors
discussed above.
General and administrative expenses were $3.8 million in 1997, $2.9
million in 1996 and $2.7 million in 1995. As a percentage of net sales, general
and administrative expenses were 1.5% in 1997, 1.6% in 1996 and 1.8% in 1995.
Selling expenses, which include freight and sales commissions, were $12.4
million in 1997, $9.5 million in 1996 and $7.6 million in 1995. As a percentage
of net sales, selling expenses were 4.9% in 1997, 5.3% in 1996 and 5.0% in 1995.
The changes in these items, as a percentage of sales, is due primarily to
freight charges remaining relatively constant per copper pound of product
shipped while the sales price per copper pound sold decreased from 1995 to 1996
and increased from 1996 to 1997.
10
<PAGE> 13
Interest expense decreased to $1,367,000 in 1997 from $1,722,000 in
1996, which was relatively constant from $1,724,000 in 1995. 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 decrease in 1997 was due primarily to the capitalization of $374,000
of interest expense relating to the construction of the Company's copper rod
fabrication facility and distribution center. Without this capitalization of
interest, the interest expense incurred by the Company in 1997 would have been
relatively constant with the interest expense incurred in 1996.
The Company's effective tax rate increased in 1997 to 39.5% due to the
Company's increased net income causing it to be placed in a higher statutory tax
bracket. It remained constant in 1996 and 1995 at 38.5%.
As a result of the foregoing factors, the Company had net income of $21.7
million in 1997 compared to $7.1 million in 1996 and a loss of $545,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's cash flow activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net income (loss).................................. $ 21,693 $ 7,159 $ (545)
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating
Activities:
Depreciation and amortization.................. 4,060 3,396 3,054
Other non-cash items........................... 469 1,192 451
Increase in accounts receivable,
Inventory and other assets.................... (14,709) (6,928) (7,495)
Increase in trade accounts payable,
accrued liabilities and other liabilities..... 10,225 3,428 4,213
-------- -------- --------
Net cash provided by (used in) operating
activities........................................ 21,738 8,247 (322)
Investing activities:
Purchases of property, plant and
equipment (net)................................ (26,952) (2,840) (5,297)
Financing activities:
Increase (decrease) in indebtedness, net....... 3,700 (4,500) 6,100
Issuances of common stock...................... 1,517 34 85
Purchase of treasury stock..................... (99) (671) (838)
-------- -------- --------
Net cash (used in) provided by financing
activities........................................ 5,118 (5,137) 5,347
-------- -------- --------
Net increase (decrease) in cash.................... $ 96 $ 270 $ (272)
-------- -------- --------
</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,
11
<PAGE> 14
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 9, 1997, the Company completed an unsecured loan
facility with a group of banks (the "Financing Agreement"). The Financing
Agreement provides for maximum borrowings of the lesser of $55.0 million (the
Company has notified the banks of its intention to decrease this maximum
borrowing to $40.0 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 calculated maximum borrowing amount
available at December 31, 1997, as computed in the Financing Agreement, was
$46.0 million. The Financing Agreement is unsecured and contains customary
covenants and events of default. The Company was in compliance with these
covenants as of December 31, 1997. Pursuant to the Financing Agreement, the
Company is prohibited from declaring, paying, or issuing cash dividends. At
December 31, 1997, the balance outstanding under the Financing Agreement was
$22.2 million. Amounts outstanding under the Financing Agreement are payable on
June 9, 2000 with interest due quarterly based on the lead bank's prime rate or
LIBOR Rate option, at the Company's election.
In 1995, the Board of Directors authorized the Company to purchase up
to 600,000 shares, or approximately 5.6%, of its outstanding Common Stock from
time to time dependent upon market conditions. Purchases made pursuant to the
repurchase program are 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. The Company uses cash provided by
operations and borrowings under the Financing Agreement to fund any repurchase
of shares. 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. As of December
31, 1997, the Financing Agreement discussed above allows the Company to purchase
up to 407,250 shares with the aggregate price of these shares not to exceed
$3,991,410. In 1997, the Company repurchased 5,000 shares. As of December 31,
1997, the Company had repurchased 200,250 shares of its Common Stock in the open
market at an $8.03 per share weighted average price.
Cash provided by operations increased to $21.7 million 1997 from $8.2
million in 1996, compared to cash used by operations of $322,000 in 1995. This
increase in cash provided by operations from 1995 to 1997 was due primarily to
the Company's increased net income in 1997 and 1996 compared to a loss in 1995.
Cash used in investing activities increased to $26.9 million in 1997 from $2.8
million in 1996 and $5.3 million in 1995. These funds were used primarily to
increase the Company's production capacity, including the construction of the
Company's new copper rod fabrication facility and distribution center in 1997.
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 $99,000 in 1997, $671,000 in 1996 and
$838,000 in 1995, as a result of the purchase of treasury stock. Cash used
in/provided by financing activities was increased by $1.5 million in 1997,
$33,000 in 1996 and $85,000 in 1995, as the result of the issuance of common
stock.
During 1998, the Company expects its capital expenditures will consist
of additional manufacturing equipment for its residential and commercial wire
operations. In addition, the Company plans to complete its copper rod
fabrication facility. See "Item 1. Business." The total capital expenditures
associated with the fabrication facility completion and the additional
manufacturing equipment are estimated to be approximately $21.0 million. The
Company also expects its working capital requirements to increase during 1998 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 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.
IMPACT OF YEAR 2000
The Company is currently working to determine the impact of the year
2000 issue on the processing of date sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the
12
<PAGE> 15
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Based on information available at this time,
costs of addressing potential problems are not currently expected to have a
material adverse impact on the Company's financial position, results of
operations or cash flows in future periods. The Company is currently engaged in
identifying and resolving all significant year 2000 issues in a timely manner.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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, 1997 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
January 23, 1998
Dallas, Texas
15
<PAGE> 18
Encore Wire Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,164,676 $ 1,261,103
Accounts receivable, net of allowance for losses of $675,000 and
$473,000 in 1997 and 1996, respectively 44,302,107 33,231,871
Inventories (Note 2) 30,596,731 27,247,929
Prepaid expenses and other assets 158,903 209,724
Deferred income taxes (Note 5) 793,000 268,000
------------- -------------
Total current assets 77,015,417 62,218,627
Property, plant, and equipment - on the basis of cost:
Land 1,747,308 286,654
Construction In Progress 19,257,517 --
Buildings and improvements 8,793,423 8,749,460
Machinery and equipment 35,497,584 29,962,109
Furniture and fixtures 829,340 675,918
------------- -------------
66,125,172 39,674,141
Accumulated depreciation and amortization (14,796,683) (10,888,424)
------------- -------------
51,328,489 28,785,717
Other assets 411,095 63,500
------------- -------------
Total assets $ 128,755,001 $ 91,067,844
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 23,379,671 $ 15,473,269
Accrued liabilities (Note 3) 8,248,016 6,249,699
Current income taxes payable 1,677,402 1,358,863
------------- -------------
Total current liabilities 33,305,089 23,081,831
Noncurrent deferred income taxes (Note 5) 3,239,844 2,587,000
Long-term note payable (Note 4) 22,200,000 18,500,000
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 - 10,798,385 in 1997 and
7,112,917 in 1996 107,983 71,129
Additional paid-in capital 30,010,051 28,528,910
Treasury Stock - 200,250 in 1997 and 192,750 in 1996 (1,608,390) (1,509,011)
Retained earnings 41,500,424 19,807,985
------------- -------------
Total stockholders' equity 70,010,068 46,899,013
------------- -------------
Total liabilities and stockholders' equity $ 128,755,001 $ 91,067,844
============= =============
</TABLE>
See accompanying notes.
16
<PAGE> 19
Encore Wire Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Net sales $ 254,639,993 $ 179,131,812 $ 151,308,363
Cost of goods sold 201,323,137 153,448,265 140,323,624
------------- ------------- -------------
Gross profit 53,316,856 25,683,547 10,984,739
Selling, general, and administrative expenses 16,235,787 12,412,537 10,254,718
------------- ------------- -------------
Operating income 37,081,069 13,271,010 730,021
Other income (expense):
Interest and other income 141,836 92,233 108,129
Interest expense (1,367,068) (1,722,445) (1,724,324)
------------- ------------- -------------
Income (loss) before income taxes 35,855,837 11,640,798 (886,174)
Income tax (benefit) expense (Note 5) 14,163,062 4,481,707 (341,177)
============= ============= =============
Net income (loss) $ 21,692,775 $ 7,159,091 $ (544,997)
============= ============= =============
Weighted average common shares - basic (Note 8) 10,527,904 10,515,246 10,600,422
============= ============= =============
Basic earnings per common share $ 2.06 $ .68 $ (.05)
============= ============= =============
Weighted average common shares - diluted (Note 8) 10,987,950 10,578,160 10,600,422
============= ============= =============
Diluted earnings per common share $ 1.97 $ .68 $ (.05)
============= ============= =============
</TABLE>
See accompanying notes.
17
<PAGE> 20
Encore Wire Corporation
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN TREASURY RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 loss -- -- -- -- (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
Proceeds from exercise of stock
options 98,520 985 810,547 -- -- 811,532
Purchase of treasury stock -- -- -- (99,379) -- (99,379)
Tax benefit on exercise of
stock options -- -- 706,463 -- -- 706,463
Stock split 3,586,948 35,869 (35,869) -- (336) (336)
Net income -- -- -- -- 21,692,775 21,692,775
----------------------------------------------------------------------------------------
Balance at December 31, 1997 10,798,385 $ 107,983 $ 30,010,051 $ (1,608,390) $ 41,500,424 $ 70,010,068
========================================================================================
</TABLE>
See accompanying notes.
18
<PAGE> 21
Encore Wire Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 21,692,775 $ 7,159,091 $ (544,997)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,060,125 3,396,015 3,054,319
Provision for bad debts 340,869 227,000 139,218
Deferred income taxes 127,844 929,000 199,000
Tax benefit on exercise of stock options -- -- 112,972
Changes in operating assets and liabilities:
Accounts receivable (11,411,105) (5,271,078) (9,220)
Inventories (3,348,802) (2,699,142) (6,683,537)
Prepaid expenses 50,821 (331) 33,589
Current income taxes receivable -- 1,042,460 (1,042,460)
Other assets -- -- 206,028
Trade accounts payable 7,906,402 (14,838) 4,349,224
Accrued liabilities 1,998,317 2,083,462 503,035
Current income taxes payable 318,539 1,358,863 (639,177)
Loss on disposal of assets 2,154 36,110 --
------------ ------------ ------------
Net cash provided (used in) by operating activities 21,737,939 8,246,612 (322,006)
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (26,621,051) (2,946,177) (5,297,591)
Increase in long term investments (4,180) (16,000) --
Increase in deposits (343,415) -- --
Proceeds from sale of equipment 16,000 122,200 --
------------ ------------ ------------
Net cash used in investing activities (26,952,646) (2,839,977) (5,297,591)
FINANCING ACTIVITIES
Increase in long-term note payable 3,700,000 -- 6,100,000
Repayment of note payable -- (4,500,000) --
Proceeds from issuance of common stock 1,517,659 33,880 85,380
Purchase of treasury stock (99,379) (670,928) (838,083)
------------ ------------ ------------
Net cash provided (used in) by financing activities 5,118,280 (5,137,048) 5,347,297
------------ ------------ ------------
Net increase (decrease) in cash (96,427) 269,587 (272,300)
Cash at beginning of year 1,261,103 991,516 1,263,816
------------ ------------- ------------
Cash at end of year $ 1,164,676 $ 1,261,103 $ 991,516
============ ============ ============
</TABLE>
See accompanying notes.
19
<PAGE> 22
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Encore Wire Corporation (the Company) conducts its business in one segment - the
manufacture of copper electrical wire, principally NM cable, for use primarily
as interior wiring in homes, apartments, and manufactured housing, and THHN
cable, for use primarily as wiring in commercial and industrial buildings. The
Company sells its products primarily through approximately 30 manufacturers'
representatives located throughout the United States and, to a lesser extent,
through its own direct marketing efforts. The principal customers for the
Company'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
73.8%, 77.4%, and 76.8% of its cost of goods sold during 1997, 1996, and 1995,
respectively. The price of copper fluctuates, depending on general economic
conditions and in relation to supply and demand and other factors, and has
caused monthly variations in the cost of copper purchased by the Company. The
Company cannot predict copper prices in the future or the effect of fluctuations
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 $140,022, $117,183, and $151,164 in 1997, 1996, and 1995,
respectively.
INVENTORIES
Inventories are stated at the lower of cost using the last-in, first-out (LIFO)
method or market.
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.
20
<PAGE> 23
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Income per common and common equivalent share is computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding during each period. The dilutive effects of stock options and common
stock warrants, which are common stock equivalents, are calculated using the
treasury stock method.
Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." This Statement simplifies
the standards for computing EPS by replacing the historical presentation of
primary and fully diluted EPS with a presentation of basic and diluted EPS. The
Company's historical presentations of net income per common and common
equivalent share compare with the presentation of diluted earnings per share as
required by Statement No. 128.
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>
1997 1996
------------------------------
<S> <C> <C>
Raw materials $ 2,299,301 $ 1,364,299
Work-in-process 6,127,977 4,184,517
Finished goods 20,818,224 21,820,867
------------ ------------
29,245,502 27,369,683
Adjust to LIFO cost 2,628,860 (121,754)
Lower of Cost or Market Adjustment (1,277,631) --
------------ ------------
$ 30,596,731 $ 27,247,929
============ ============
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------
<S> <C> <C>
Sales volume discounts payable $6,303,949 $4,758,070
Property taxes payable 17,000 134,087
Commissions payable 501,385 387,629
Other accrued liabilities 1,425,683 969,913
---------- ----------
$8,248,017 $6,249,699
========== ==========
</TABLE>
21
<PAGE> 24
4. LONG-TERM NOTE PAYABLE
The Company amended its unsecured loan facility (Facility) with a group of banks
as of June 9, 1997 to provide for a maximum borrowings of the lesser of $55.0
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 $46.0 million at December 31, 1997). 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, 1997, the balance outstanding under the revolving credit
facility was $22.2 million. Amounts outstanding under the facility are payable
on June 9, 2000, with interest due quarterly based on the lead bank's prime rate
or LIBOR Rate option, at the Company's election (average interest rate at
December 31, 1997 was 6.81%). Each of the interest rate options includes a
premium dependent upon the Company's financial performance.
The Company paid interest totaling $1,761,660, $1,730,525, and $1,688,266 in
1997, 1996, and 1995, respectively. The Company capitalized $373,823 of interest
in 1997 relating to the construction of the distribution center.
5. INCOME TAXES
The provisions for income tax (benefit) expense are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Current:
Federal $12,108,230 $ 3,252,757 $ (540,177)
State 1,926,988 404,950 --
Deferred 127,844 824,000 199,000
--------------------------------------------
$14,163,062 $ 4,481,707 $ (341,177)
============================================
</TABLE>
The differences between the provision for income taxes and income taxes computed
using the federal income tax rate are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Amount computed using the
statutory rate $12,617,543 $ 3,957,871 $ (301,299)
State income taxes 1,497,702 459,950 (55,000)
Other items 47,817 63,886 15,122
--------------------------------------------
$14,163,062 $ 4,481,707 $ (341,177)
============================================
</TABLE>
22
<PAGE> 25
5. INCOME TAXES (CONTINUED)
The tax effect of each type of temporary difference and carryforward giving rise
to the deferred tax asset and liability at December 31, 1997 and 1996, is as
follows:
<TABLE>
<CAPTION>
DEFERRED TAX ASSET (LIABILITY)
1997 1996
--------------------------------------------------------------
CURRENT NONCURRENT CURRENT NONCURRENT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation and amortization $ -- $(3,239,844) $ -- $(2,587,000)
Inventory 125,000 -- (26,000) --
Allowance for doubtful accounts 260,000 -- 161,000 --
Accrued expenses 200,000 -- -- --
Uniform capitalization rules 219,000 -- 112,000 --
Other (11,000) -- 21,000 --
--------------------------------------------------------------
$ 793,000 $(3,239,844) $ 268,000 $(2,587,000)
==============================================================
</TABLE>
The Company made income tax payments of $13,010,000 in 1997, $1,151,000 in 1996,
and $1,028,000 in 1995.
6. STOCK OPTIONS
The Company has a stock option plan for employees that provides for the granting
of stock options and authorizes the issuance of common stock upon the exercise
of such options for up to 1,161,000 shares of common stock. The stock options
vest over five years and expire ten years from grant date. The following
summarizes activity in the stock option plan for the years ended December 31,
1997, 1996, and 1995:
<TABLE>
<CAPTION>
SHARES UNDER PRICE PER AGGREGATE
OPTIONS SHARE OPTION PRICE
--------------------------------------------------
<S> <C> <C> <C>
Options outstanding at December 31, 1994 672,750 $ .49-9.33 $4,400,952
Options granted - - -
Options exercised (36,150) .49-4.59 (52,033)
Options canceled (6,000) 9.33 (56,000)
--------------------------------------------------
Options outstanding at December 31, 1995 630,600 .49-9.33 4,292,919
Options granted 95,550 6.25-6.83 613,575
Options exercised (12,750) .49-4.59 (33,880)
Options canceled (18,600) 6.25-9.33 (144,000)
--------------------------------------------------
Options outstanding at December 31, 1996 694,800 .49-9.33 4,728,614
Options granted 119,000 12.50-25.50 1,945,500
Options exercised (129,030) .49-9.33 (811,517)
Options canceled (59,880) 4.59-12.67 (537,850)
--------------------------------------------------
Options outstanding at December 31, 1997 624,890 $ .49-25.50 $5,324,747
==================================================
</TABLE>
23
<PAGE> 26
6. STOCK OPTIONS (CONTINUED)
At December 31, 1997, 424,350 options are currently exercisable and 624,890
common shares are reserved for future issuance.
The Company has elected to continue to follow the expense recognition criteria
in Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees". Therefore, the Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation" will have no
effect on the Company's financial statements. 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 $1,662,397 in 1997, $1,905,188
in 1996, and $1,370,104 in 1995. The Company believes that rates charged by this
carrier compare favorably with rates charged by other carriers.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Numerator:
Net Income $21,692,775 $7,159,091 $ (544,997)
Denominator:
Denominator for basic earnings
per share- weighted average
shares 10,527,904 10,515,246 10,600,422
Effect of dilutive securities:
Employee stock options 460,406 62,914 --
----------------------------------------------
Denominator for diluted earnings
per share -weighted average
shares 10,987,950 10,578,160 10,600,422
==============================================
</TABLE>
24
<PAGE> 27
9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information for
the two years ended December 31, 1997 and 1996 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1997 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $55,131 $66,889 $70,728 $61,893
Gross profit 10,471 13,269 15,347 14,230
Net income 4,057 5,259 6,321 6,055
Net income per common share - basic .39 .50 .60 .57
Net income per common share - diluted .38 .48 .57 .55
</TABLE>
<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 share - basic .02 .03 .26 .31
Net income per common share - diluted .02 .03 .26 .31
</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 5, 1998
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 5, 1998 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 5, 1998 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 5, 1998
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, 1997
and 1996
Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for years ended
December 31, 1997, 1996 and 1995
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, 1997.
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 27, 1998
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 27, 1998
- --------------------------------------------- of Directors, President and Chief
Vincent A. Rego Executive Officer
/s/ DONALD M. SPURGIN Vice Chairman of the Board March 27, 1998
- --------------------------------------------- of Directors
Donald M. Spurgin
/s/ SCOTT D. WEAVER Vice President-- Finance, March 27, 1998
- --------------------------------------------- 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 27, 1998
- ---------------------------------------------
Donald E. Courtney
/s/ JOSEPH M. BRITO Director March 27, 1998
- ---------------------------------------------
Joseph M. Brito
/s/ JOHN H. WILSON Director March 27, 1998
- ---------------------------------------------
John H. Wilson
/s/ JOHN P. PRINGLE Director March 27, 1998
- ---------------------------------------------
John P. Pringle
/s/ WILLIAM R. THOMAS Director March 27, 1998
- ---------------------------------------------
William R. Thomas
/s/ DANIEL L. JONES Director March 27, 1998
- ---------------------------------------------
Daniel L. Jones
</TABLE>
28
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <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 Amended and Restated Bylaws of Encore Wire Corporation
10.1 Amended and Restated Financing Agreement dated as of June 15, 1994
by and between NationsBank of Texas, N.A. and Encore Wire
Corporation (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994 and
incorporated herein by reference).
10.2 Revolving Note dated as of August 31, 1995 executed by Encore Wire
Corporation payable to the order of NationsBank of Texas, N.A.
(filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference).
10.3 First Amendment to Amended and Restated Financing Agreement dated
as of July 26, 1994 by and between NationsBank of Texas, N.A. and
Encore Wire Corporation (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994
and incorporated herein by reference).
10.4 Second Amendment to Amended and Restated Financing Agreement dated
effective December 29, 1994 by and between NationsBank of Texas,
N.A. and Encore Wire Corporation (filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.5 Third Amendment to Amended and Restated Financing Agreement dated
effective April 7, 1995 by and between NationsBank of Texas, N.A.
and Encore Wire Corporation (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.6 Fourth Amendment to Amended and Restated Financing Agreement dated
effective August 31, 1995 by and between NationsBank of Texas,
N.A. and Encore Wire Corporation (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.7 Fifth Amendment to Amended and Restated Financing Agreement dated
effective March 19, 1996 by and between NationsBank of Texas, N.A.
and Encore Wire Corporation (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.8 Sixth Amendment to Amended and Restated Financing Agreement dated
effective September 17, 1996 by and between NationsBank of Texas,
N.A. and Encore Wire Corporation (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).
10.9 Seventh Amendment to Amended and Restated Financing Agreement
dated effective December 11, 1996 by and between NationsBank of
Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).
</TABLE>
29
<PAGE> 32
<TABLE>
<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).
10.14 1989 Stock Option Plan, as amended and restated (filed as Exhibit
4.1 to the Company's Registration Statement on Form S-8 (No.
333-38729), and incorporated herein by reference.
10.15 Second Amended and Restated Financing Agreement dated as of June
9, 1997 by and among Encore Wire Corporation, NationsBank of
Texas, N.A. and Bank of America, Texas N.A. (filed as exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 and incorporated herein by reference).
10.16 $35,000,000 Revolving Note to NationsBank of Texas, N.A. (filed as
exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 and incorporated herein by
reference).
10.17 $25,000,000 Revolving Note to Bank of America, Texas N.A. (filed
as exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 and incorporated herein by
reference).
10.18 NationsBank of Texas, N.A. Guaranty Agreement (filed as exhibit
10.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference).
10.19 Bank of America, Texas N.A. Guaranty Agreement (filed as exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference).
10.20* Employment Agreement dated as of October 1, 1996 between the
Company and Donald M. Spurgin.
21.1 Subsidiary.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule
o Management contract or compensatory plan
</TABLE>
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
ENCORE WIRE CORPORATION
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ARTICLE I.
OFFICES
Section 1. The registered office of the corporation shall be in
the City of Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of Dallas, State of Texas, at such place as
may be fixed from time to time by the Board of Directors, or at such other
place either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting. Meetings of stockholders for any other purpose may be held at such
time and place, within or without the State of Delaware, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on the
first Tuesday in April, if not a legal holiday, and if a legal holiday, then on
the next secular day following, at nine o'clock a.m., or at such other date and
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a Board of Directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than fifty days before the date
of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before each annual
meeting of stockholders, a complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing
<PAGE> 2
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president or the vice chairman and shall be
called by the president, the vice chairman or secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing
of stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
Section 10. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by a such stockholder, but no proxy
shall be voted after three years from its date, unless the proxy provides for a
longer period.
-2-
<PAGE> 3
Section 11. Whenever the vote of stockholders at a meeting thereof
is required or permitted to be taken for or in connection with any corporate
action, by any provision of the statutes, the meeting and vote of stockholders
may be dispensed with if all of the stockholders who would have been entitled
to vote upon the action if such meeting were held shall consent in writing to
such corporate action being taken; or if the certificate of incorporation
authorizes the action to be taken with the written consent of the holders of
less than all of the stock who would have been entitled to vote upon the action
if a meeting were held, then on the written consent of the stockholders having
not less than such percentage of the number of votes as may be authorized in
the certificate of incorporation; provided that in no case shall the written
consent be by the holders of stock having less than the minimum percentage of
the vote required by statute for the proposed corporate action, and provided
that prompt notice must be given to all stockholders of the taking of corporate
action without a meeting and by less than unanimous consent.
ARTICLE III.
DIRECTORS
Section 1. The number of directors which shall constitute the
whole board shall be nine (9). The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
the next annual meeting of stockholders and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors
in office then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. The business of the corporation shall be managed by its
Board of Directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
-3-
<PAGE> 4
Section 5. The first meeting of each newly elected Board of
Directors shall be held immediately following and at the same place as the
annual meeting of stockholders and no notice of such meeting shall be necessary
to the newly elected directors in order legally to constitute the meeting,
provided a quorum shall be present. In the event such meeting is not held at
such time and place, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the Board of Directors may be
called by the president or the vice chairman on twenty-four hours notice to
each director, either personally or by mail or by telegram; special meetings
shall be called by the president, vice chairman or secretary in like manner and
on like notice on the written request of two directors.
Section 8. At all meetings of the Board of Directors a majority of
the directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum, shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. The members of the Board of Directors or any committee
thereof may participate in a meeting of such board or committee utilizing
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee
to consist of two or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation
to be affixed to all papers which may require it; provided, however, that in
the absence or disqualification of any member of such committee or committees
the member or members thereof present at any meeting and not
-4-
<PAGE> 5
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as a director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV.
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of
the corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by prepaid telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V.
Section 1. Elected Officers. The officers of the corporation
shall be chosen by the Board of Directors and shall be a chairman of the Board
of Directors, a president, one or more vice presidents, a secretary and a
treasurer. The officers of the corporation may also include a vice chairman,
who shall be chosen by the Board of Directors.
Section 2. Election. The Board of Directors, at its first meeting
after each annual meeting of stockholders, shall choose a chairman of the Board
of Directors and a president from its members, and one or more vice presidents,
a secretary and a treasurer, none of whom need be a member of the Board of
Directors. The Board of Directors may also choose a vice
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chairman, who need not be a member of the Board of Directors. The Board of
Directors, the chairman of the Board of Directors or the president at any time
may also appoint one or more assistant secretaries and assistant treasurers.
Section 3. Appointed Officers. The Board of Directors may appoint
such other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board of Directors.
Section 4. Compensation. The salaries of the chairman of the
Board of Directors, of the president, of the vice chairman, of any vice
president and of the secretary and the treasurer of the corporation shall be
fixed by the Board of Directors.
Section 5. Term of Office; Removal; Filling of Vacancies. Except
as may be otherwise provided by the Board of Directors or in these bylaws, each
officer of the corporation shall hold office until the first meeting of
directors after the next annual meeting of stockholders following his election
or appointment and until his successor is chosen and qualified. Any officer
elected or appointed by the Board of Directors may be removed at any time by
the affirmative vote of a majority of the whole Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy shall be
filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The chairman of the board shall, when present, preside
at meetings of the Board of Directors and the stockholders. He shall assist
the Board of Directors in the formulation of policies of the corporation and
shall be available to other officers for consultation and advice. Where
formulation of policies of the corporation does not require action by the Board
of Directors, such policies shall be formulated by the chairman of the board in
collaboration with the president. He shall have power and general authority to
execute bonds, deeds and contracts in the name of the corporation and to affix
the corporate seal thereto; to sign stock certificates; to cause the employment
or appointment of such employees and agents of the corporation as the proper
conduct of operations may require and to fix their compensation, subject to the
provisions of these bylaws; to remove or suspend any employee or agent who
shall have been employed or appointed under his authority or under the
authority of an officer subordinate to him; and to suspend for cause, pending
final action by the authority which shall have elected or appointed him, any
officer subordinate to the chairman of the board. He shall have such other
powers and duties as may, from time to time, be prescribed by the Board of
Directors.
THE VICE CHAIRMAN
Section 7. The vice chairman, if one is elected, shall have the
power to call special meetings of the stockholders and of the Board of
Directors for any purpose or purposes, and, in the absence of the chairman of
the board, the vice chairman shall preside at all meetings of the Board of
Directors unless he shall be absent. The vice chairman shall advise and
counsel the other officers of the corporation and shall exercise such powers
and perform such duties as shall
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be assigned to or required of him from time to time by the Board of Directors
or the chairman of the board.
THE PRESIDENT
Section 8. The President shall be the chief executive officer of
the corporation, shall, in the absence of the chairman of the board, preside
(1) at all meetings of the stockholders and (2) in the absence of the vice
chairman, if one is elected, at all meetings of the Board of Directors, shall
have general and active management of the business of the corporation and shall
see that all orders and resolutions of the Board of Directors and all policies
formulated by the Board of Directors, or by the chairman of the board in
collaboration with the president, are carried into effect. The president shall
have power and general authority to execute bonds, deeds and contracts in the
name of the corporation and to affix the corporate seal thereto; to sign stock
certificates; to cause the employment or appointment of such employees and
agents of the corporation as the proper conduct of operations may require and
to fix their compensation, subject to the provisions of these bylaws; to remove
or suspend any employee or agent who shall have been employed or appointed
under his authority or under authority of an officer subordinate to him; to
suspend for cause, pending final action by the authority which shall have
elected or appointed him, any officer subordinate to the president; and in
general to exercise all the powers usually appertaining to the office of
president and chief executive officer of a corporation, except as otherwise
provided by statute, the certificate of incorporation or these bylaws. In the
event of the absence or disability of the president, his duties shall be
performed and his powers may be exercised by the vice presidents in the order
of their seniority, unless otherwise determined by the president, the chairman
of the board, the Executive Committee or the Board of Directors.
THE VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS
Section 9. In the absence of the president or in the event of his
inability or refusal to act, the vice president (or in the event there be more
than one vice president, the vice presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the president, and when so acting, shall have all the powers or
and be subject to all the restrictions upon the president. The vice presidents
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 10. The assistant vice president, or if there be more than
one, the assistant vice presidents in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall in the absence of any vice president or in the event of the
inability or refusal to act of any vice president, perform the duties and
exercise the powers of such vice president and shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation
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and of the Board of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He shall give,
or cause to be given, notice of all meetings of the stockholders and special
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or president, under whose supervision
he shall be. He shall have custody of the corporate seal of the corporation
and he, or an assistant secretary, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by his
signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 12. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have custody of the corporate funds
and securities of the corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
Section 14. The treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 15. If required by the Board of Directors, the treasurer
shall give the corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control be
longing to the corporation.
Section 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
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ARTICLE VI.
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation,
by the chairman or vice-chairman of the board of directors, or the president or
a vice president and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation, certifying the number
of shares owned by him in the corporation.
Section 2. Where a certificate is countersigned (1) by a transfer
agent other than the corporation or its employee, or (2) by a registrar other
than the corporation or its employee, any other signature on the certificate
may be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of and to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful
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action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of and to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII.
GENERAL PROVISIONS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1.
(a) The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests
of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the
corporation, or is or was
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serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless
and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a director, officer, employee or
agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsection (a) or (b), or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under subsection (a) or (b) (unless
ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b). Such determination
shall be made (1) by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Reasonable expenses, including court costs and
attorneys' fees, incurred by a person who was or is a witness or who
was or is named as a defendant or respondent in any threatened,
pending or completed action, claim, suit or proceeding, whether civil,
criminal, administrative or investigative, any appeal in such an
action, suit or proceeding, and any inquiry or investigation that
could lead to such an action, suit or proceeding (a "Proceeding"), by
reason of the fact that such individual is or was a director or
officer of the corporation, or while a director or officer of the
corporation is or was serving at the request of the corporation as a
director, officer, partner, venturer, proprietor, trustee, employee,
agent or similar functionary of another corporation, partnership,
trust, employee benefit plan or other enterprise, shall be paid by the
corporation at reasonable intervals in advance of the final
disposition of such Proceeding, and without the determination set
forth in Section 1(d) of this Article VII, upon receipt by the
corporation of a written affirmation by such person of his good faith
belief that he has met the standard of conduct necessary for
indemnification under this Section 1, and a written undertaking by or
on behalf of such person to repay the amount paid or reimbursed by the
corporation if it is ultimately determined that he is not entitled to
be indemnified by the corporation as authorized in this Section 1.
Such written undertaking shall be an unlimited obligation of such
person and it may be accepted without reference to financial ability
to make
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repayment. Such expenses (including attorneys' fees) incurred by
other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification provided by this section shall not
be deemed exclusive of any other rights to which those indemnified may
be entitled under the certificate of incorporation or any agreement,
vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of
such a person.
(g) The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of this section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of
this section with respect to the resulting or surviving corporation as
he would have with respect to such constituent corporation if its
separate existence had continued.
INTERESTED DIRECTORS AND OFFICERS; QUORUM
Section 2. No contract or transaction between the corporation and
one or more of its directors or officers, or between the corporation and any
other corporation, partnership, association or other organization in which one
or more of its directors or officers are directors or officers or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if (i) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the board or the
committee, and the board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote
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thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the corporation as of the time it is authorized, approved or ratified by the
board, a committee thereof or the stockholders. Common or interested directors
may be counted in determining the presence of a quorum at a meeting of the
board or of a committee which authorizes the contract or transaction.
DIVIDENDS
Section 3. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the
capital stock, subject to the provisions of the certificate of incorporation.
Section 4. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as
a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 5. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 6. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 7. The corporate seal shall have inscribed thereon the
name of the corporation and shall be in such form as may be approved from time
to time by the Board of Directors. The seal may be used by causing it or a
facsimile thereof to be impressed, affixed, imprinted or in any manner
reproduced.
ARTICLE VIII.
AMENDMENTS
These bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or by the Board of Directors at any regular meeting
of the stockholders or of the Board of Directors or at any special meeting of
the stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting.
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EXHIBIT 10.20
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of October 1, 1996,
between Encore Wire Corporation, a Delaware corporation (the "Company"), and
Donald M. Spurgin, an individual residing in Whitewright, Texas (the
"Employee").
WHEREAS, the Company desires to employ the Employee, and the Employee
desires to be employed by the Company, on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and the Employee hereby agree as follows:
1. Employment. The Company agrees to employ the Employee, and
the Employee agrees to enter the employ of the Company, for the period set
forth in Paragraph 2, in the position and with the duties and responsibilities
set forth in Paragraph 3, and upon the other terms and conditions herein
provided.
2. Term. The employment of the Employee by the Company as
provided in Paragraph 1 shall be for a period commencing on October 1, 1996
through and ending on September 6, 2001, the Employee's 64th birthday, unless
sooner terminated as herein provided.
3. Position and Duties. During the term of his employment
hereunder, the Employee shall serve as an executive of the Company, accountable
to the Chairman of the Board and the Board of Directors of the Company. In
such capacity, the Employee shall render consulting services relating to the
operations of the Company's manufacturing plant and shall have such other
duties, functions, responsibilities and authority delegated to him from time to
time by the Chairman of the Board or the Board of Directors of the Company and
shall be available for duties during normal business hours when requested;
provided, that reasonable notice is given.
4. Compensation and Related Matters.
(a) Base Salary. During the Employment Term, the Company shall
pay to the Employee for his services hereunder a salary at the rate of $99,000
per year, payable in installments in accordance with the general payroll
practices of the Company in effect at the time such payment is made, but in no
event less frequently than monthly.
(b) Employee Benefits. During the term of his employment
hereunder, the Employee shall be entitled to participate in employee benefit
plans, programs and arrangements relating to life insurance, medical, dental,
accident and disability provided by the Company from time to time to its
employees generally.
5. Termination of Employment.
(a) Death. The Employee's employment hereunder shall terminate
automatically upon his death.
<PAGE> 2
(b) Termination by Company. The Company may terminate the
Employee's employment hereunder for Cause (as defined below). For purposes of
this Agreement, "Cause" shall mean any of the following: (i) willful
misconduct by the Employee that is materially and demonstrably detrimental to
the Company, monetarily or otherwise; or (ii) conviction of the Employee of a
felony.
(c) Termination by Employee. The Employee may terminate his
employment hereunder upon 15 days' written notice to the Company.
6. Confidentiality. During the term of this Agreement and for a
period of three years following the termination of his employment hereunder,
the Employee shall hold in strict confidence and shall not, directly or
indirectly, disclose or reveal to any person, or use for his own personal
benefit or for the benefit of anyone else, any trade secrets, confidential
dealings or other confidential or proprietary information of any kind, nature
or description (whether or not acquired, learned, obtained or developed by the
Employee alone or in conjunction with others) belonging to or concerning the
Company, except (i) with the prior written consent of the Company duly
authorized by the Chairman of the Board of the Company, (ii) in the course of
the proper performance of the Employee's duties hereunder or (iii) as required
by applicable law or legal process. The provisions of this Paragraph 6 shall
continue in effect notwithstanding termination of the Employee's employment
hereunder for any reason.
7. Noncompetition.
(a) Employee agrees that he will not engage or participate in any
manner, whether directly or indirectly through any family member or as an
employee, employer, consultant, agent, principal, partner, more than one
percent shareholder, officer, director, licensor, lender, lessor or in any
other individual or representative capacity during the three-year period
following termination of his employment hereunder, in any business or activity
engaged in by the Company at that time in any location where the Company is
engaged in such business; provided that, this Section 7 shall not preclude
Employee from making personal investments in securities of companies that are
registered on a national stock exchange, if the aggregate amount owned by
Employee and all family members and affiliates does not exceed 1% of such
company's outstanding securities.
(b) Employee will not during the three-year period following
termination of his employment hereunder, solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who within the preceding ninety
(90) days was an employee) of the Company or any other person who is under
contract with or rendering services to the Company, to (i) terminate his or her
employment by, or contractual relationship with, such person, (ii) refrain from
extending or renewing the same (upon the same or new terms), (iii) refrain from
rendering services to or for such person, (iv) become employed by or to enter
into contractual relations with any persons other than such person, or (v)
enter into a relationship with a competitor of the Company.
8. Withholding Taxes. The Company shall withhold from any
payments to be made to the Employee hereunder such amounts (including social
security contributions and federal income taxes) as shall be required by
federal, state, and local withholding tax laws.
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9. Injunctive Relief. In recognition of the fact that a breach
by the Employee of any of the provisions of Paragraphs 6 and 7 will cause
irreparable damage to the Company for which monetary damages alone will not
constitute an adequate remedy, the Company shall be entitled as a matter of
right (without being required to prove damages or furnish any bond or other
security) to obtain a restraining order, an injunction or other equitable
relief from any court of competent jurisdiction restraining any further
violation of such provisions by the Employee. Such right to equitable relief
shall not be exclusive but shall be in addition to all other rights and
remedies to which the Company may be entitled at law or in equity.
10. Survival. Neither the expiration or the termination of the
term of the Employee's employment hereunder shall impair the rights or
obligations of either party hereto which shall have accrued hereunder prior to
such expiration or termination.
11. Notices. All notices and other communications required or
permitted to be given hereunder by either party hereto shall be in writing and
shall be given by hand delivery or by first class registered or certified
United States mail, postage prepaid, return receipt requested, to the party for
which intended at the following addresses (or at such other addresses as shall
be specified by the parties by like notice):
If to the Company, at:
Encore Wire Corporation
P.O. Box 1149
McKinney, Texas 75069-0545
Attention: Vincent A. Rego
If to the Employee, at:
Route 1, Box 116K
Whitewright, Texas 75491
All such notices and other communications shall be effective only upon receipt
by the addressee.
12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to such subject matter.
13. Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns; provided, however, that the
Employee shall not assign or otherwise transfer this Agreement or any of his
rights or obligations hereunder without the prior written consent of the
Company.
14. Amendment. This Agreement may not be modified or amended in
any respect except by an instrument in writing signed by the party against whom
such modification or amendment is sought to be enforced.
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15. Waiver. Any term or condition of this Agreement may be waived
at any time by the party hereto which is entitled to have the benefit thereof,
but such waiver shall only be effective if evidenced by a writing signed by
such party, and a waiver on one occasion shall not be deemed to be a waiver of
the same or any other type of breach on a future occasion. No failure or delay
by a party hereto in exercising any right or power hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right or power.
16. Severability. If any provision of this Agreement is held to
be unenforceable, (a) this Agreement shall be considered divisible, (b) such
provision shall be deemed inoperative to the extent it is deemed unenforceable
and (c) in all other respects this Agreement shall remain in full force and
effect; provided, however, that if any such provision may be made enforceable
by limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
17. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officer, and the Employee has
executed this Agreement, as of the date first set forth above.
ENCORE WIRE CORPORATION
By: /s/ Vincent A. Rego
---------------------------------------------
Vincent A. Rego, Chairman of the Board,
President and Chief Executive Officer
"COMPANY"
/s/ Donald M. Spurgin
--------------------------------------------------
Donald M. Spurgin
"EMPLOYEE"
-4-
<PAGE> 1
SUBSIDIARY
EWC Leasing Corp., a Nevada corporation
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-38729, Form S-8 No. 33-89126 and Form S-8 No. 33-54484)
pertaining to the 1989 Stock Option Plan of Encore Wire Corporation of our
report dated January 23, 1998, with respect to the consolidated financial
statements of Encore Wire Corporation included in the Form 10-K for the year
ended December 31, 1997.
/s/ Ernst & Young LLP
- ---------------------
Dallas, Texas
March 23, 1998
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