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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1999
FOR THE QUARTER ENDED
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number: 0-20278
ENCORE WIRE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2274963
(State of incorporation) (I.R.S. employer identification number)
1410 MILLWOOD ROAD
MCKINNEY, TEXAS 75069
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 562-9473
[X] Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No
Number of shares of Common Stock outstanding as of April 30, 1999: 15,519,222
Page 1 of 16 Sequentially Numbered Pages
Index to Exhibits on Page 16
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FORM 10-Q
ENCORE WIRE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 1999 (Unaudited) and December 31, 1998 ......................................3
Consolidated Statements of Income (Unaudited)
Quarters ended March 31, 1999 and
March 31, 1998.........................................................................5
Consolidated Statements of Cash Flows (Unaudited)
Quarters ended March 31, 1999 and March 31, 1998.......................................6
Notes to Consolidated Financial Statements......................................................7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..............................................................................14
ITEM 6. Exhibits and Reports on Form 8-K...............................................................14
Signatures.......................................................................................................15
</TABLE>
2
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FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ENCORE WIRE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
In Thousands of Dollars 1999 1998
(Unaudited) See Note 1
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash .......................................... $ 1,168 $ 1,431
Accounts receivable (net of allowance of
$507 and $500) ............................ 49,844 37,946
Inventories (Note 2) .......................... 36,644 37,859
Prepaid expenses and other assets ............. 191 247
Current taxes receivable ...................... -- 582
-------- --------
Total current assets ...................... 87,847 78,065
Property, plant and equipment-on the basis of cost:
Land .......................................... 3,575 3,569
Construction in Progress ...................... 10,610 12,296
Buildings and improvements .................... 25,413 25,363
Machinery and equipment ....................... 61,426 56,874
Furniture and fixtures ........................ 1,228 1,212
-------- --------
Total property, plant, and equipment ...... 102,252 99,314
Accumulated depreciation and
amortization .......................... 22,517 20,654
-------- --------
79,735 78,660
Other assets ........................................... 225 223
-------- --------
Total assets ........................................... $167,807 $156,948
======== ========
</TABLE>
See accompanying notes
3
<PAGE> 4
FORM 10-Q
ENCORE WIRE CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
March 31, December 31,
In Thousands of Dollars, Except Share Data 1999 1998
(Unaudited) See Note 1
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Trade accounts payable ......................... $ 16,471 $ 16,848
Accrued liabilities ............................ 4,667 7,877
Current income taxes payable ................... 2,967 --
Current deferred income taxes .................. 516 516
--------- ---------
Total current liabilities ...................... 24,621 25,241
Non-current deferred income taxes ....................... 4,053 4,053
Long term notes payable ................................. 53,200 44,000
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - (16,330,797
at March 31, 1999 and 16,304,129 at
December 31, 1998) ...................... 163 163
Additional paid-in capital .............................. 30,612 30,591
Treasury stock - 702,575 at March 31, 1999 and
December 31, 1998 .............................. (6,167) (6,167)
Retained earnings ....................................... 61,325 59,067
--------- ---------
Total stockholders' equity ..................... 85,933 83,654
--------- ---------
Total liabilities and stockholders' equity .............. $ 167,807 $ 156,948
========= =========
</TABLE>
Note: The consolidated balance sheet at December 31, 1998, as presented, is
derived from the audited consolidated financial statements at that date.
See accompanying notes
4
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FORM 10-Q
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
In Thousands of Dollars, Except Per Share Data 1999 1998
------- -------
<S> <C> <C>
Net sales ......................................................... $63,524 $62,927
Cost of goods sold ................................................ 53,498 47,478
Lower of cost or market reserve ................................... 844 --
------- -------
Gross profit ...................................................... 9,182 15,449
Selling, general, and administrative expenses ..................... 4,993 4,558
------- -------
Operating income .................................................. 4,189 10,891
Net interest expense .............................................. 518 253
------- -------
Income before income taxes ........................................ 3,671 10,638
Provision for income taxes ........................................ 1,413 4,202
------- -------
Net income ........................................................ $ 2,258 $ 6,436
======= =======
Net income per common and common equivalent share - basic ......... $ 0.14 $ 0.40
======= =======
Weighted average common and common equivalent shares - basic ...... 15,623 15,900
======= =======
Net income per common and common equivalent share - diluted ....... $ 0.14 $ 0.39
======= =======
Weighted average common and common equivalent shares - diluted .... 15,966 16,565
======= =======
Cash dividends declared per share ................................. $ -- $ --
======= =======
</TABLE>
See accompanying notes
5
<PAGE> 6
FORM 10-Q
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
In Thousands of Dollars 1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ..................................................................... $ 2,258 $ 6,436
Adjustments to reconcile net income to cash provided by (used) in operating
activities:
Depreciation and amortization .......................................... 1,874 1,232
Provision for bad debts ................................................ -- 200
Changes in operating assets and liabilities:
Accounts receivable .................................................... (11,898) (4,328)
Inventory .............................................................. 1,216 208
Accounts payable and accrued liabilities ............................... (3,587) (4,866)
Other assets and liabilities ........................................... 59 30
Current income taxes receivable/payable ................................ 3,549 4,009
-------- --------
NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES .................... (6,529) 2,921
-------- --------
INVESTING ACTIVITIES
Purchases of property, plant and equipment ..................................... (2,983) (4,940)
Increase in long-term investments .............................................. -- 89
Proceeds from sale of equipment ................................................ 28 12
-------- --------
NET CASH USED IN INVESTING ACTIVITIES .................................. (2,955) (4,839)
-------- --------
FINANCING ACTIVITIES
Increase in note payable ....................................................... 9,200 1,600
Proceeds from issuance of common stock ......................................... 21 31
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES .............................. 9,221 1,631
-------- --------
Net increase (decrease) in cash .................................................... (263) (287)
Cash at beginning of period ........................................................ 1,431 1,165
-------- --------
Cash at end of period .............................................................. $ 1,168 $ 878
======== ========
</TABLE>
See accompanying notes
6
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FORM 10-Q
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Encore Wire
Corporation have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. Results of operations
for the periods presented do not necessarily indicate the results that may be
expected for the year ending December 31, 1999. These financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost, determined by the last-in
first-out (LIFO) method, or market.
Inventories (in thousands) consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Raw materials....................................... $ 3,708 $ 6,152
Work-in-process .................................... 3,821 4,339
Finished goods ..................................... 23,629 23,356
-------- --------
31,158 33,847
Increase to LIFO cost .............................. 8,955 6,637
-------- --------
40,113 40,484
Lower of Cost or Market Adjustment ................. (3,469) (2,625)
-------- --------
$ 36,644 $ 37,859
======== ========
</TABLE>
An actual valuation of inventory under the LIFO method can be made
only at the end of each year based on the inventory levels and costs at that
time. Accordingly, interim LIFO calculations must necessarily be based on
management's estimates of expected year-end inventory levels and costs. Because
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FORM 10-Q
these are subject to many forces beyond management's control, interim results
are subject to the final year-end LIFO inventory valuation.
NOTE 3 - INCOME PER SHARE
Income (loss) per common and common equivalent share is computed using
the weighted average number of shares of common stock and common stock
equivalents outstanding during each period. If dilutive, the effect of stock
options, treated as common stock equivalents, is calculated using the treasury
stock method.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Quarter Ending Quarter Ending
3/31/98 3/31/97
<S> <C> <C>
Numerator:
Net Income $ 2,258,000 $ 6,436,000
=========== ===========
Denominator:
Denominator for basic earnings per share - weighted
average shares 15,622,543 15,900,702
Effect of dilutive securities:
Employee stock options 343,160 663,966
----------- -----------
Denominator for diluted earnings per share - weighted
average shares 15,965,703 16,564,668
=========== ===========
</TABLE>
NOTE 4 - LONG TERM NOTE PAYABLE
Effective June 9, 1997, the Company completed an unsecured loan
facility with a group of banks (the "Financing Agreement"). This Financing
Agreement has been amended four times since June 9, 1997 to change, among other
items, the maximum borrowing amount, the term of the loan covenants and the
allowable purchases of the Company's common stock. The Financing Agreement
provides for maximum borrowings of the lesser of $65.0 million or the amount of
eligible accounts receivable plus the amount of eligible finished goods and raw
materials, less any available reserves established by the banks. The calculated
maximum borrowing amount available at March 31, 1999, as computed under the
Financing Agreement, was $63.4 million. The Financing Agreement is unsecured
and contains customary covenants and events of default. The Company was in
compliance with these covenants, as amended, as of March 31, 1999. Pursuant to
the Financing Agreement, the Company is prohibited from declaring, paying or
issuing cash dividends. At March 31, 1999, the balance outstanding under the
Financing Agreement was $53.2 million. Amounts outstanding under the Financing
Agreement are payable on May 31, 2001 with interest due quarterly based on the
bank's prime rate or LIBOR Rate options, at the Company's election.
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FORM 10-Q
NOTE 5 - STOCK REPURCHASE AUTHORIZATION
In March 1995, the Board of Directors authorized the Company to
purchase up to 900,000 shares, or approximately 5.6%, of its outstanding common
stock dependent upon market conditions. Purchases made pursuant to this
authorization are made in the open market or through privately negotiated
transactions. As of March 31, 1999, the Company had repurchased an aggregate of
702,575 shares of its common stock in the open market at a weighted average
price of $8.77 per share. The Financing Agreement, as amended, discussed in
note 4 allows the Company to purchase up to 900,000 shares with an aggregate
price of these shares not to exceed $11,300,000. The Company did not purchase
any shares under this authorization during the first quarter of 1999.
NOTE 6 - STOCK DIVIDENDS
On July 22, 1997 the Board of Directors of the Company declared a
3-for-2 stock split to be paid as a 50% stock dividend on its common stock. The
stock dividend was paid August 18, 1997 to stockholders of record at the close
of business on August 11, 1997.
On May 5, 1998 the Board of Directors of the Company declared a
3-for-2 stock split to be paid as a 50% stock dividend on its common stock. The
stock dividend was paid June 15, 1998 to stockholders of record at the close of
business on June 8, 1998.
The per share amounts disclosed in this filing have been restated to reflect
each of the foregoing stock dividends.
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FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS GENERAL
The Company 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 and commercial
wire for commercial and industrial buildings.
Price competition for electrical wire and cable is intense, and the
Company sells its products in accordance with prevailing market prices. Copper
is the principal raw material used by the Company in manufacturing its
products. Copper accounted for approximately 66.2%, 73.8%, 77.4%, 76.8%, and
67.9% of the Company's cost of goods sold during fiscal 1998, 1997, 1996, 1995
and 1994, respectively. The price of copper fluctuates, depending on general
economic conditions and in relation to supply and demand and other factors, and
has caused monthly variations in the cost of copper purchased by the Company.
The Company cannot predict copper prices in the future or the effect of
fluctuations in the cost of copper on the Company's future operating results.
The following discussion and analysis relates to factors that have
affected the operating results of the Company for the three month period ended
March 31, 1999 and 1998. Reference should also be made to the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS
Net sales for the first quarter of 1999 amounted to $63.5 million
compared with net sales of $62.9 million for the first quarter of 1998. This
increase was due to an increase in sales volume of 35% that was largely offset
by a lower selling price per copper pound for the Company's products. The lower
selling price per copper pound of product sold was primarily due to a
significant decrease in the price of copper in the first quarter of 1999
compared to the first quarter of 1998 and to competitive pricing pressures for
the Company's wire products. Sales volume increased due to several factors,
including increases in customer acceptance and product availability. Sales
volume of both the residential and commercial products increased during the
first quarter of 1999 compared to the first quarter of 1998. The average sales
price per copper pound of product sold was $1.29 in the first quarter of 1999,
compared to $1.73 in the first quarter of 1998. Fluctuations in sales prices
are primarily a result of changing copper raw material prices and product price
competition.
Cost of goods sold was $54.3 million in the first quarter of 1999,
compared to $47.5 million in the first quarter of 1998. Copper costs increased
to $34.7 million in the first quarter of 1999 compared to $32.5 million in the
first quarter of 1998. This increase was due to the increased pounds of copper
sold, offset in part by the lower price of copper in the first quarter of 1999
compared to the first quarter of 1998. The average cost per copper pound
purchased decreased to $.67 in the first quarter of 1999 from $.85 in the first
quarter of 1998. Copper costs as a percentage of net sales increased to 54.7%
in the first quarter of 1999 from 51.7% in the first quarter of 1998. This
increase as a percentage of net sales in the first quarter of 1999 from the
comparable quarter in 1998 was due primarily to a decreased differential
between what the Company pays per pound of copper purchased and the Company's
net sales price per copper pound sold. This differential decreased in the first
quarter of 1999 due to competitive pricing for the
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FORM 10-Q
Company's products. Other raw material costs as a percentage of net sales
increased to 16.7% in the first quarter of 1999, compared with 14.9% in the
first quarter of 1998. This increase as a percentage of sales was due to other
raw material costs per copper pound decreasing while the sales price per copper
pound (the denominator) decreased as discussed above. Depreciation, labor and
overhead costs as a percentage of net sales increased to 16.5% in the first
quarter of 1999 from 10.6% in the first quarter of 1998. This increase is due
to an increase in depreciation, labor and overhead per pound of copper sold
relating to the Company's expansion projects as well as a lower sales price per
copper pound of product sold as discussed above.
Inventories are stated at the lower of cost, determined by the last
in, first out (LIFO) method, or market. As permitted by generally accepted
accounting principles, the Company maintains its inventory costs and cost of
goods sold on a first in, first out (FIFO) basis and makes a quarterly LIFO
adjustment to adjust total inventory and cost of goods sold to LIFO. As a
result of decreases in the price of copper during the first quarter of 1999,
the value of all inventory at March 31, 1999 using the LIFO method was greater
than its FIFO value by approximately $8.9 million, resulting in a corresponding
decrease in the cost of goods sold of $2.3 million. At March 31, 1999, LIFO
value exceeded the market value of the inventory by $3.5 million. At December
31, 1998 there was a reserve in the amount of $2.6 million for this excess.
Thus, at March 31, 1999 an addition was made to this reserve in the amount of
$844,000 which decreased the cost of inventory to market and increased the cost
of goods sold. As a result of decreases in the price of copper during the first
quarter of 1998, the value of all inventory at March 31, 1998 using the LIFO
method was greater than its FIFO value by approximately $3.8 million, resulting
in a corresponding decrease in the cost of goods sold of $1.2 million. At March
31, 1998, LIFO value exceeded the market value of the inventory by
approximately $1.2 million. Since a reserve of $1.2 million was provided at
December 31, 1997 reducing the cost of inventory to market there was no
addition to this reserve at March 31, 1998. 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 which would result in a negative impact
on net income. Additionally, a reduction in the quantity of inventory in any
period could cause copper that is carried in inventory at costs different from
the cost of copper in that period to be included at the different price in cost
of goods sold for that period.
Gross profit decreased to $9.2 million, or 14.5% of net sales, for the
first quarter of 1999 from $15.4 million, or 24.6% of net sales, for the first
quarter of 1998. The decrease in gross profit as a percentage of net sales was
due primarily to competitive pricing for the Company's products offset by
increased sales volume the first quarter of 1999, as discussed above.
General and administrative expenses remained constant at $1.2 million,
or 1.9% of net sales, in the first quarter of 1999 compared to the first
quarter of 1998. Selling expenses for the first quarter of 1999 were $3.8
million, or 6.0% of net sales, compared to $3.3 million, or 5.3% of net sales,
in the first quarter of 1998. The increase was due primarily to the increase in
copper pounds sold during the first quarter of 1999. The increase as a
percentage of net sales was due primarily to freight charges per copper pound
of product shipped remaining relatively unchanged while the sales price per
copper pound sold decreased.
Net interest expense was $518,000 in the first quarter of 1999
compared to $253,000 in the first quarter of 1998. The increase was due to a
higher average debt balance during the first quarter of 1999 compared to the
first quarter of 1998. The average balance of the Company's debt in the first
quarter of
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FORM 10-Q
1999 increased from the first quarter of 1998 primarily due to the Company's
capital expenditures during 1998 and working capital needs.
The Company's effective tax rate decreased to 38.5% in the first
quarter of 1999 from 39.5% in the first quarter of 1998.
As a result of the foregoing factors, the Company's net income
decreased to $2.3 million in the first quarter of 1999 from $6.4 million in the
first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a substantial inventory of finished products to
satisfy customers' prompt delivery requirements. As is customary in the
industry, the Company provides payment terms to most of its customers that
exceed terms that it receives from its suppliers. Therefore, the Company's
liquidity needs have generally consisted of operating capital necessary to
finance these receivables and inventory. Capital expenditures have historically
been necessary to expand the production capacity of the Company's manufacturing
operations. The Company has satisfied its liquidity and capital expenditure
needs with cash generated from operations, borrowings under its revolving
credit facilities and sales of its common stock.
Effective June 9, 1997, the Company completed an unsecured loan
facility with a group of banks (the "Financing Agreement"). The Financing
Agreement has been amended four times since June 9, 1997 to change, among other
items, the maximum borrowing amount, the term of the loan covenants and the
allowable purchases of the Company's common stock. The Financing Agreement
provides for maximum borrowings of the lesser of $65.0 million or the amount of
eligible accounts receivable plus the amount of eligible finished goods and raw
materials, less any available reserves established by the banks. The calculated
maximum borrowing amount available at March 31, 1999, as computed under the
Financing Agreement, was $63.4 million. The Financing Agreement is unsecured
and contains customary covenants and events of default. The Company was in
compliance with these covenants, as amended, as of March 31, 1999. Pursuant to
the Financing Agreement, the Company is prohibited from declaring, paying or
issuing cash dividends. At March 31, 1999, the balance outstanding under the
Financing Agreement was $53.2 million. Amounts outstanding under the Financing
Agreement are payable on May 31, 2001 with interest due quarterly based on the
bank's prime rate or LIBOR Rate options, at the Company's election.
Cash used by operations was $6.5 million in the first quarter of 1999
compared to cash provided by operations in the amount of $2.9 million in the
first quarter of 1998. This increase in cash used by operations is primarily
the result of a decrease in net income and a greater increase in accounts
receivable during the first quarter of 1999 compared to 1998 offset by lower
copper prices in the first quarter of 1999 compared to 1998. Cash used in
investing activities decreased from $4.8 million in the first quarter of 1998
to $2.9 million in the first quarter of 1999. In both quarters, these funds
were used primarily to increase the Company's production capacity and to
purchase equipment for use in the Company's vertical integration projects that
are discussed in the following paragraph. The cash provided by financing
activities was due primarily to borrowings in the first quarter of 1999 and
1998, the proceeds of which were used to fund the activities discussed above.
During 1999, 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
12
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FORM 10-Q
the construction of its new facility to manufacture polyvinyl chloride ("PVC").
This PVC manufacturing facility will allow the Company to produce its own PVC
instead of purchasing it from outside sources. During 1998 the Company
completed the construction of its copper rod fabrication facility which allows
the Company to manufacture its own copper rod instead of purchasing it from
outside vendors. The Company believes that both of these vertical integration
projects will reduce the cost of the Company's raw materials. The total capital
expenditures in 1999 associated with the PVC facility and the additional
manufacturing equipment are estimated to be approximately $7.5 million. The
Company also expects its working capital requirements to increase during 1999
as a result of expected continued increases in sales. Moreover, the Company
expects that the inventory levels necessary to support sales of additional wire
products will continue to grow. These requirements will be impacted by the
price of copper. The Company believes that the cash flow from operations and
the financing that it expects to receive from its banks under the Financing
Agreement will satisfy working capital and capital expenditure requirements for
the next twelve months.
IMPACT OF YEAR 2000
The year 2000 issue is the result of computer programs being written
to use two digits rather than four digits to define the applicable year. Any
computer program that has date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
temporary inability to process transactions or engage in normal manufacturing
or other business activities.
The Company has completed its initial review of the impact of the year
2000 issue on the Company's information systems and support systems, including
hardware and software used in the manufacture and distribution of its products.
Based on the Company's initial inventory and assessment of its systems, the
Company does not believe that any modifications to or replacement of its
information technology or other systems are necessary as a result of the year
2000 problem. Unrelated to any potential year 2000 issues, the Company is in
the process of replacing its financial accounting software, and the Company
expects the new system to be operational by year-end 1999 and to be fully Year
2000 compliant.
The Company has initiated communications with some of its significant
third party suppliers and customers to determine the extent to which the
Company may be vulnerable to their failure to correct their own year 2000
issues. The Company intends to continue such communications in 1999. The
Company does not participate in any electronic data interchange with any of its
principal vendors and only participates with a limited number of customers. As
a result, the Company's vulnerability to third party Year 2000 failures should
be limited. The Company believes its significant trading partners have
addressed year 2000 issues, but their failure to do so could have a material
adverse effect on the Company's operations.
A contingency plan has not been developed for dealing with the most
reasonably likely year 2000 worst case scenario, and such scenario has not been
clearly identified. The Company intends to review in the summer of 1999 the
extent to which contingency plans may be required for any third parties that
fail to achieve year 2000 compliance. The Company currently plans to complete
such analysis and implement any necessary contingency plan by December 31,
1999.
The Company believes that the cost of its year 2000 identification,
assessment, remediation and testing efforts, will not exceed $100,000, and, to
date, the Company has incurred costs significantly less than that amount in
connection with such efforts. The costs and timing of such efforts by the
Company
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FORM 10-Q
are based on management's current evaluation using available information.
Factors that might cause material changes include, but are not limited to
availability of key year 2000 personnel, the readiness of third parties and the
Company's ability to respond to unforeseen year 2000 complications.
While the Company believes its efforts to address the year 2000 issue
will allow the Company to successfully avoid any material adverse effect on the
Company's operations or financial condition, it recognizes that failure by the
Company, its customers or vendors to resolve adequately the year 2000 problem
on a timely basis could, in a most reasonably likely worst case scenario, limit
its ability to manufacture and distribute its products and process its daily
business transactions for a period of time, especially if such failure is
coupled with infrastructure failures.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL MATTERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) No reports on Form 8-K were filed by the Company during the
three months ended March 31, 1999.
14
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FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENCORE WIRE CORPORATION
-------------------------------------------
(Registrant)
Date: May 14, 1999 /s/ VINCENT A. REGO
-------------------------------------------
Vincent A. Rego, Chairman of the Board and
Chief Executive Officer
Date: May 14, 1999 /s/ DANIEL L. JONES
-------------------------------------------
Daniel L. Jones, President and
Chief Operating Officer
Date: May 14, 1999 /s/ SCOTT D. WEAVER
-------------------------------------------
Scott D. Weaver, Vice President - Finance,
Treasurer and Secretary
(Principal Financial Officer)
15
<PAGE> 16
FORM 10-Q
INDEX TO EXHIBITS
<TABLE>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ----
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,168
<SECURITIES> 0
<RECEIVABLES> 50,351
<ALLOWANCES> 507
<INVENTORY> 36,644
<CURRENT-ASSETS> 87,847
<PP&E> 102,252
<DEPRECIATION> 22,517
<TOTAL-ASSETS> 167,807
<CURRENT-LIABILITIES> 24,621
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 85,770
<TOTAL-LIABILITY-AND-EQUITY> 167,807
<SALES> 63,524
<TOTAL-REVENUES> 63,524
<CGS> 54,342
<TOTAL-COSTS> 4,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 518
<INCOME-PRETAX> 3,671
<INCOME-TAX> 1,413
<INCOME-CONTINUING> 2,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,258
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
