<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, 1998
[ ] 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 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,
1999: $ 103,097,107
Number of shares of Common Stock outstanding as of March 10, 1999: 15,628,222
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 1999 annual meeting of stockholders --
Part III
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I.........................................................................................................1
ITEM 1. BUSINESS........................................................................................1
General.........................................................................................1
Recent Events...................................................................................1
Strategy........................................................................................1
Products........................................................................................2
Manufacturing...................................................................................2
Customers.......................................................................................3
Marketing and Distribution......................................................................3
Employees.......................................................................................4
Raw Materials...................................................................................4
Competition.....................................................................................4
Patent Matters..................................................................................5
ITEM 2. PROPERTIES......................................................................................5
ITEM 3. LEGAL PROCEEDINGS...............................................................................5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................5
EXECUTIVE OFFICER OF THE COMPANY................................................................6
PART II........................................................................................................7
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........................7
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA............................................................8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........9
General.........................................................................................9
Results of Operations...........................................................................9
Liquidity and Capital Resources................................................................12
Impact of Year 2000............................................................................13
Information Regarding Forward Looking Statements...............................................14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........26
PART III......................................................................................................26
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY................................................26
ITEM 11. EXECUTIVE COMPENSATION.........................................................................26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS...........................................26
PART IV.......................................................................................................26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.....................................................................................26
</TABLE>
ii
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Encore Wire Corporation is a low-cost manufacturer of copper
electrical building wire and cable. The Company is a significant supplier of
both residential wire for interior electrical wiring in homes, apartments and
manufactured housing, as well as building wire for electrical distribution in
commercial and industrial buildings. Based upon the latest available U.S.
Department of Commerce data, the Company's share of the market for residential
wire was approximately 15% in 1997. Based on the same information, the
Company's share of the market for the commercial wire that it manufactures was
approximately 8% in 1997.
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
The Company recently completed the construction of its copper rod
fabrication facility and production from this facility began in June 1998.
Additionally, the Company anticipates completing a new facility to manufacture
polyvinyl chloride ("PVC") in the first quarter of 1999. Both facilities are
located adjacent to the Company's existing plant. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Prior to completion of the new copper rod fabrication facility, the
Company used copper rod purchased from others to manufacture its wire and cable
products. Following completion of the new facility, the Company continued to
purchase significant amounts of copper rod from others pursuant to existing
annual purchase commitments. In 1999, the Company anticipates that the new
copper rod fabrication facility will manufacture the majority of its copper rod
requirements. The Company produces copper rod from purchased copper cathodes.
The Company also reprocesses copper scrap generated by its operation 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.
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.
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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. Its commercial product line consists primarily of
THHN, the most widely used type of commercial wire. Additionally, the Company
manufactures other types of commercial wire products. 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 600 and 800 SKUs of
commercial wire. The principal bases for differentiation among SKUs are product
diameter, insulation, color and packaging.
Residential Wire
NM Cable. Non-metallic sheathed cable is used primarily as
interior wiring in homes, apartments and manufactured housing. NM
cable is composed of either two or three insulated copper wire
conductors, with or without an uninsulated ground wire, all
sheathed in a polyvinyl chloride ("PVC") jacket.
UF Cable. Underground feeder cable is used to conduct power
underground to outside lighting and other applications remote from
residential buildings. UF cable is composed of two or three PVC
insulated copper wire conductors, with or without an uninsulated
ground wire, all jacketed in PVC.
Commercial Wire
THHN Cable. THHN cable is used primarily as feeder, circuit and
branch wiring in commercial and industrial buildings. It is
composed of a single conductor, either stranded or solid, and
insulated with PVC, which is further coated with nylon. Users
typically enclose THHN cable in protective pipe or conduit.
MANUFACTURING
The efficiency of Encore's highly automated manufacturing facility is
a key element of its low-cost production capability. Encore's residential wire
manufacturing lines have been integrated so that handling of product is
substantially reduced. At the few points remaining where handling between
manufacturing steps is necessary the Company has, for the most part, replaced
reels with large baskets, each capable of handling approximately four times the
capacity of a reel. Encore's commercial wire plant is designed to reduce
product handling by integrating steps within production stages and, again, by
using baskets instead of reels where feasible.
The manufacturing process for the Company's products involves up to
four steps: drawing, stranding, insulating and jacketing.
Drawing. Drawing is the process of reducing 5/16 inch copper rod
through converging dies until the specified wire diameter is attained.
The wire is then heated with electrical current to soften or "anneal"
the wire to make it easier to handle.
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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 1998 issue of Electrical Wholesaling magazine.
No customer accounted for more than eight percent of net sales in 1998.
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, 1998, it held approximately 84% of its
finished goods inventory at that location. In order to provide flexibility in
handling customer requests for immediate delivery of the Company's products,
additional product inventories are maintained at the warehouses owned and
operated by independent manufacturers' representatives located throughout the
United States. At December 31, 1998, 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; and San Francisco, California. Some of these manufacturers'
representatives, as well as the Company's other manufacturers' representatives,
maintain offices without warehouses in numerous locations throughout the United
States.
Finished goods are typically delivered to warehouses and customers by
trucks operated by common carriers. The decision regarding the carrier to be
used is based primarily on cost and availability.
3
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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 .35%, .05% and .09% of net sales in 1998, 1997 and 1996, 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 its employees on maintaining product quality.
Encore emphasizes safety to its manufacturing employees through its
safety program. On a weekly basis, each team of employees meets to review
safety standards and, on a monthly basis, a group of participants from each
team discusses safety issues and inspects each area of the plant for
compliance. In addition, the Company awards incentive bonuses to employees who
achieve certain safety goals. The Company's safety program is an integral part
of its general attention to cost control.
As of December 31, 1998, Encore had 427 employees, of whom 360 were
paid hourly wages and were primarily engaged in the operation and maintenance
of the Company's manufacturing and warehouse facility. The remainder of the
Company's employees were executive, supervisory, administrative, sales and
clerical personnel. The Company considers its relations with its employees to
be good. The Company has no collective bargaining agreements with any of its
employees.
RAW MATERIALS
The principal raw materials used by Encore in manufacturing its
products are copper cathode, copper rod, copper scrap, PVC thermoplastic
compounds, paper and nylon, all of which are readily available from a number of
suppliers. Copper rod requirements are purchased primarily 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. Upon
completion of the Company's PVC manufacturing facility, the Company will
purchase the raw materials necessary to manufacture various PVC thermoplastic
compounds.
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. (recently acquired by Superior
Telecom, Inc.) and General Cable Corporation. These competitors are vertically
integrated insofar as they possess rod fabrication facilities and plastic
compounding operations.
The principal elements of competition in the electrical wire and cable
industry are, in the opinion of the Company, pricing, order fill rate and, in
some instances, breadth of product line. The Company believes that it is
competitive with respect to all these factors.
Competition in the electrical wire and cable industry, although
intense, has been primarily from U.S. manufacturers. 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.
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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 one hundred acres
and consist of buildings containing approximately 745,000 square feet of floor
space, of which approximately 24,000 square feet are used for office space and
721,000 square feet are used for manufacturing and warehouse operations. The
plant and equipment are owned by the Company and are not mortgaged to secure
any of the Company's existing indebtedness. Encore believes that its plant and
equipment are suited to its present needs, comply with applicable federal,
state and local laws and regulations and are properly maintained and adequately
insured.
ITEM 3. LEGAL PROCEEDINGS
In fiscal year 1998, a suit was filed against the Company as a result
of an accident that occurred on the Company's premises. Subsequently, the
Company has entered into a settlement agreement with the plaintiffs. All
financial terms of the agreement are fully covered by the Company's insurance
carrier. Therefore, the resolution of this matter will not have a material
adverse effect on the financial position, results of operations, or cash flows
of the Company
There are no other 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, 1999 is set forth below.
<TABLE>
<CAPTION>
Name Age Position with Company
- ---- --- ---------------------
<S> <C> <C>
Vincent A. Rego 75 Chairman of the Board of Directors,
Chief Executive Officer
Donald E. Courtney 61 Vice Chairman of the Board of
Directors
Daniel L. Jones 35 President, Chief Operating Officer,
Member of the Board of Directors
David K. Smith 39 Vice President-- Operations
Scott D. Weaver 40 Vice President-- Finance, Treasurer
and Secretary
Shirley A. Wright 57 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. He served as President until May 1998. From 1978 until 1988, Mr. Rego
served as President, Chief Executive Officer and Chairman of the Board of
Directors of Capital Wire and Cable Corporation ("Capital Wire"), which was
purchased by General Cable Corporation in 1988. Prior thereto, Mr. Rego was
associated with predecessors of Capital Wire in various executive capacities.
Mr. Courtney was elected Vice Chairman of the Board of Directors in
May 1998. Mr. Courtney has served as President and Chairman of the Board of
Directors of Investech, Ltd., a private importing firm. Mr. Courtney served as
President and Chairman of the Board of Directors of S.O. I. Industries, Inc.
from 1982 until 1994. During such period, he was also Chairman of the Board of
Directors of two subsidiaries of S.O.I Industries, Inc. Magnatech Corporation,
which is engaged in videotape duplication, and Tempo Lighting, Inc., which
manufactures residential lighting. Mr. Courtney retired and resigned from these
positions in June 1994. Mr. Courtney was re-elected to the Board of Directors
of Tempo Lighting and is also a director of F.O.M. Corporation, a manufacturer
of floor cleaning equipment.
Mr. Jones was Vice President -- Sales and Marketing of Encore from
1992 to May 1997. In May 1997, Mr. Jones was named Executive Vice President of
the Company, in October 1997, he was named Chief Operating Officer and, in May
1998, he was named President of the Company. He also serves as a member of the
Board of Directors. From 1985 to 1988, Mr. Jones attended college while working
on a part time basis for Capital Wire.
Mr. Smith has been Vice President -- Operations of Encore since 1992.
From 1984 until joining the Company in 1990, 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.
All executive officers are elected annually by the Board of Directors
to serve until the next annual meeting of the Board and until their respective
successors are chosen and qualified.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted in the NASDAQ Stock Market's
National Market under the symbol "WIRE."
The following table sets forth the high and low closing sales prices per share
for the Common Stock as reported in the NASDAQ Stock Market's National Market
for the periods indicated. The reported prices have been adjusted to reflect two
3-for-2 splits of the Common Stock effective August 18, 1997 and June 15, 1998.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1998
<S> <C> <C>
First Quarter ..................................................... 22 16 11/16
Second Quarter..................................................... 27 5/16 13 5/ 8
Third Quarter...................................................... 20 1/ 2 9 1/ 4
Fourth Quarter..................................................... 16 1/ 2 6 3/ 4
1997
First Quarter...................................................... 10 9/16 7 9/16
Second Quarter..................................................... 13 3/4 8 1/16
Third Quarter...................................................... 23 3/8 13 1/16
Fourth Quarter..................................................... 25 5/8 15
</TABLE>
On March 10, 1999, the last reported sale price of the Common Stock
was $9.50 per share. As of March 10, 1999, there were 135 record holders of the
Common Stock. The Company estimates that there were approximately 3,000
beneficial holders of the Common Stock.
The Company has never paid cash dividends. Management intends to
retain any future earnings for the operation and expansion of the Company's
business and does not anticipate paying any cash dividends in the foreseeable
future. The Company's present credit arrangements restrict the Company's
ability to pay cash dividends. See Note 4 of Notes to Consolidated Financial
Statements.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ............................. $ 244,044 $ 254,640 $ 179,132 $ 151,308 $ 122,698
Cost of goods sold .................... 195,060 201,323 153,448 140,323 102,220
--------- --------- --------- --------- ---------
Gross profit ........................ 48,984 53,317 25,684 10,985 20,478
Selling, general and administrative
Expenses ............................ 18,083 16,236 12,413 10,255 9,089
--------- --------- --------- --------- ---------
Operating income ...................... 30,901 37,081 13,271 730 11,389
Other income (expense):
Interest and other income ........... 145 142 92 108 55
Interest expense .................... (1,876) (1,367) (1,722) (1,724) (598)
--------- --------- --------- --------- ---------
Income (loss) before income taxes ..... 29,170 35,856 11,641 (886) 10,846
Income tax (benefit) expense .......... 11,602 14,163 4,482 (341) 4,176
--------- --------- --------- --------- ---------
Net income (loss) ..................... $ 17,568 $ 21,693 $ 7,159 $ (545) $ 6,670
========= ========= ========= ========= =========
Net income (loss) per common and common
equivalent share .................... $ 1.07 $ 1.32 $ 0.45 $ (0.03) $ 0.43
========= ========= ========= ========= =========
Weighted average common and common
equivalent shares - diluted ......... 16,388 16,482 15,867 15,900 15,377
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ..................... $ 52,825 $ 43,710 $ 39,137 $ 35,560 $ 32,159
Total assets ........................ 156,948 128,755 91,068 84,655 75,094
Long-term debt, net of
current portion ................... 44,000 22,200 18,500 23,000 16,900
Stockholders' equity ................ 83,655 70,010 46,899 40,377 41,562
</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 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.
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,
-------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales ............................................. 100.0% 100.0% 100.0%
Cost of goods sold:
Copper ............................................ 52.9 58.4 66.3
Other raw materials ............................... 14.3 12.3 13.6
Depreciation ...................................... 2.3 1.5 1.8
Labor and overhead ................................ 11.5 7.5 7.3
LIFO adjustment ................................... (1.6) (1.1) (3.3)
Lower of cost or market adjustment ................ 0.6 0.5 0.0
----- ----- -----
80.0 79.1 85.7
----- ----- -----
Gross profit .......................................... 20.0 20.9 14.3
Selling, general and administrative expenses .......... 7.4 6.3 6.9
----- ----- -----
Operating income ...................................... 12.6 14.6 7.4
Interest expense, net ................................. 0.7 0.5 0.9
Income before income taxes ............................ 11.9 14.1 6.5
Income tax expense .................................... 4.7 5.6 2.5
----- ----- -----
Net income ............................................ 7.2% 8.5% 4.0%
===== ===== =====
</TABLE>
The following discussion and analysis relates to factors that have
affected the operating results of the Company for the years ended December 31,
1998, 1997 and 1996. Reference should also be made to the consolidated
financial statements and the related notes included elsewhere in this Annual
Report.
Net sales were $244.0 million in 1998, compared to $254.6 million in
1997 and $179.1 million in 1996. The decrease in 1998 from 1997, which was
partially offset by a 16% increase in sales volume, was due primarily to a 26%
decrease in the average cost of copper, which resulted in a decrease in the
average sales price per copper pound of the Company's products. 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. Sales
volume increases in 1997 were due to several factors, including increases in
customer acceptance and product availability. In 1998, 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 1998 issue of Electrical Wholesaling
magazine. The average sales price per copper pound of product sold was $1.60 in
1998 compared to $1.93 in 1997 and $1.79 in 1996. The changes each year are
primarily a result of changing price competition and changing copper raw
material prices. The average price per copper pound paid by the Company in 1998,
1997 and 1996 was $.81, $1.09 and $1.12, respectively.
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Cost of goods sold was $195.0 million in 1998, compared to $201.3
million in 1997 and $153.4 million in 1996. Copper costs, which had increased to
$148.6 million in 1997 from $118.7 million in 1996 decreased to $129.3 million
in 1998. The average cost per copper pound purchased was $.81 in 1998, $1.09 in
1997 and $1.12 in 1996. Copper costs as a percentage of net sales decreased to
52.9% in 1998 from 58.4% in 1997 and 66.3% in 1996. 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 decreased slightly in 1998 compared to
1997. However, the percentage decreased due to a smaller percentage decrease in
the sales price per copper pound compared to the percentage decrease of the
Company's average cost of copper. This differential decreased in 1998 primarily
due to competitive pricing for the Company's products. It increased during 1997
primarily because of improved pricing for the Company's products during that
year. Other raw material costs as a percentage of net sales were 14.3%, 12.3%
and 13.6% in 1998, 1997 and 1996, respectively. The increase from 1997 to 1998
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 remained relatively constant. 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). Depreciation, labor and overhead costs
as a percentage of net sales were 13.8% in 1998, compared to 9.0% in 1997 and
9.1% in 1996. These increases in 1998, 1997 and 1996 were due primarily to
expenses relating to increasing the Company's production capacity and vertical
integration projects (copper rod fabrication facility and PVC manufacturing
facility). Additionally, these expense items increased in 1998, as a percentage
of sales, due to a decrease in the sales price per copper pound sold (as
discussed above) in 1998 combined with an increase in the overhead and
depreciation per copper pound sold.
Inventories are stated at the lower of cost, using the last in, first
out (LIFO) method, or market. The Company changed its method of accounting for
inventories to the LIFO method on January 1, 1992. The Company believes that
the LIFO method more fairly presents its results of operations by matching
current costs with current revenues. As permitted by generally accepted
accounting principles, the Company maintains its inventory costs and cost of
goods sold on a first in, first out (FIFO) basis and makes a quarterly LIFO
adjustment to adjust total inventory and cost of goods sold to LIFO. As a
result of decreases in the cost of copper during 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. As a result of further decreases in the cost
of copper during 1998, the value of all inventory at December 31, 1998 using
the LIFO method was greater than its FIFO value by approximately $6,637,000,
resulting in a corresponding decrease in the cost of goods sold of $4,008,000.
At December 31, 1998, LIFO value exceeded the market value of the inventory by
$2,625,000, thereby necessitating an additional $1,347,000 lower of cost or
market decrease in the value of inventory and a corresponding increase in the
cost of goods sold. The net of these two adjustments decreased cost of goods
sold by $2,661,000. Future reductions in the price of copper could require the
Company to record additional lower of cost or market adjustments against the
related inventory balance. Additionally, a reduction in the quantity of
inventory could cause copper that is carried in inventory at costs different
from the cost of copper in the period in which the reduction occurs to be
included in cost of goods sold for that period at the different price.
Gross profit decreased to $48.9 million, or 20.0% of net sales, in
1998 from $53.3 million, or 20.9% of net sales, in 1997 and $25.7 million, or
14.3% of net sales, in 1996. The changes in gross profit were due to the
factors discussed above.
10
<PAGE> 13
General and administrative expenses were $5.0 million in 1998, $3.8
million in 1997 and $2.9 million in 1996. As a percentage of net sales, general
and administrative expenses were 2.0% in 1998, 1.5% in 1997 and 1.6% in 1996.
In 1998, general and administrative costs increased due to increased costs
relating to higher sales volumes. These higher costs increased as a percentage
of sales due to a lower sales price per copper pound as discussed above.
Selling expenses, which include freight and sales commissions, were $13.0
million in 1998, $12.4 million in 1997 and $9.5 million in 1996. As a
percentage of net sales, selling expenses were 5.3% in 1998, 4.9% in 1997 and
5.3% in 1996. 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 1997
to 1998 and increased from 1996 to 1997.
Interest expense increased to $1,876,000 in 1998 from $1,367,000 in
1997, which decreased from $1,722,000 in 1996. The increase in 1998 was due
primarily to the increase in debt relating to capital expenditures during 1998
including the construction of the Company's copper rod fabrication facility and
PVC manufacturing facility. Additionally, the Company repurchased treasury
stock during 1998, using debt to finance the acquisition. 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 remained constant in 1998 at 39.5%.
It increased in 1997 to 39.5% due to the Company's increased net income, which
placed the Company in a higher statutory tax bracket.
As a result of the foregoing factors, the Company's net income was
$17.6 million in 1998, $21.7 million in 1997 and $7.1 million in 1996.
11
<PAGE> 14
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 ............................................ $ 17,567 $ 21,693 $ 7,159
Adjustments to reconcile net income to net
Cash provided by (used in) operating
Activities:
Depreciation and amortization ..................... 5,937 4,060 3,396
Other non-cash items .............................. 2,760 469 1,192
Increase in accounts receivable,
Inventory and other assets ....................... (2,226) (14,709) (6,928)
Increase in trade accounts payable,
Accrued liabilities and other liabilities ........ (8,580) 10,225 3,428
--------- --------- ---------
Net cash provided by operating
Activities ........................................... 15,458 21,738 8,247
Investing activities:
Purchases of property, plant and
Equipment (net) ................................... (33,068) (26,952) (2,840)
Financing activities:
Increase (decrease) in indebtedness, net .......... 21,800 3,700 (4,500)
Issuances of common stock ......................... 635 1,517 34
Purchase of treasury stock ........................ (4,558) (99) (671)
--------- --------- ---------
Net cash (used in) provided by
financing activities ................................. 17,877 5,118 (5,137)
--------- --------- ---------
Net increase (decrease) in cash ....................... $ 267 $ (96) $ 270
--------- --------- ---------
</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 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 December 31, 1998, as computed under the
Financing Agreement, was $53.3 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 December 31, 1998. Pursuant
to the Financing Agreement, the Company is prohibited from declaring, paying or
issuing cash dividends. At December 31, 1998, the balance outstanding under the
Financing Agreement was $44.0 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.
12
<PAGE> 15
In March 1995, the Board of Directors authorized the Company to
purchase up to 900,000 shares, or approximately 5.6%, of its outstanding common
stock dependent upon market conditions. Purchases made pursuant to this common
stock authorization are made in the open market or through privately negotiated
transactions. As of December 31, 1998, 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 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 purchased 402,200 shares under this
authorization during 1998.
Cash provided by operations decreased to $15.5 million in 1998 from
$21.7 million 1997 compared to $8.2 million in 1996. The changes from 1996 to
1998 were due primarily to changes in the Company's net income. Cash used in
investing activities increased to $33.1 million in 1998 from $26.9 million in
1997 and $2.8 million in 1996. These funds were used primarily to increase the
Company's production capacity, including the construction of the Company's new
copper rod fabrication facility, PVC manufacturing facility and distribution
center. The cash used in/provided by financing activities was primarily due to
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 $4.6 million in 1998, $99,000 in 1997
and $671,000 in 1996, as a result of the purchase of treasury stock. Cash used
in/provided by financing activities increased by $635,000 in 1998, $1.5 million
in 1997 and $33,000 in 1996 as the result of the issuance of common stock.
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 its PVC manufacturing
facility. See "Item 1. Business." The total capital expenditures associated
with the PVC manufacturing facility completion and the additional manufacturing
equipment are estimated not to exceed $7.5 million. The Company also expects
its working capital requirements to increase during 1999 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 banks 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 and to be fully Year 2000
compliant.
The Company has not initiated formal 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 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 Spring of 1999 the
13
<PAGE> 16
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 plans 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 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in metal futures trading or hedging
activities and does not enter into derivative financial instrument transactions
for trading or other speculative purposes. However, the Company is generally
exposed to commodity price and interest rate risks.
The Company purchases copper cathode and copper rod primarily from
three major producers at prices determined each month based on the average
daily closing prices for copper for that month, plus a negotiated premium. As a
result, fluctuations in copper prices caused by market forces can significantly
affect the Company's financial results.
Interest rate risk is attributable to the Company's long-term debt. In
June 1997, the Company completed an unsecured loan facility with a group of
banks. The amounts outstanding under the Financing Agreement are payable on May
31, 2001, with interest due quarterly based on the bank's prime rate or LIBOR
rate options, at the Company's election. At December 31, 1998, the balance
outstanding under the Financing Agreement was $44.0 million, and the average
interest rate paid under the facility was 6.365%. There is inherent rollover
risk for borrowings as they mature and are renewed at current market rates. The
extent of this risk is not quantifiable or predictable because of the
variability of future interest rates and the Company's future financing
requirements.
For further information, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Auditors and the consolidated financial
statements of the Company and the notes thereto appear on the following pages.
14
<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, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
January 22, 1999
Dallas, Texas
15
<PAGE> 18
ENCORE WIRE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,431,536 $ 1,164,676
Accounts receivable, net of allowance for losses of $500,000 and
$675,000 in 1998 and 1997, respectively 37,945,765 44,302,107
Inventories (Note 2) 37,859,917 30,596,731
Prepaid expenses and other 246,899 158,903
Current taxes receivable 581,783 --
Deferred income taxes (Note 5) -- 793,000
-------------- --------------
Total current assets 78,065,900 77,015,417
Property, plant, and equipment - at cost:
Land 3,568,329 1,747,308
Construction-in-progress 12,296,115 19,257,517
Buildings and improvements 25,363,242 8,793,423
Machinery and equipment 56,873,800 35,497,584
Furniture and fixtures 1,212,235 829,340
-------------- --------------
99,313,721 66,125,172
Accumulated depreciation and amortization (20,653,774) (14,796,683)
-------------- --------------
78,659,947 51,328,489
Other assets 222,535 411,095
-------------- --------------
Total assets $ 156,948,382 $ 128,755,001
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 16,847,937 $ 22,716,079
Accrued liabilities (Note 3) 7,876,908 8,911,608
Current income taxes payable -- 1,677,402
Current deferred income taxes (Note 5) 516,000 --
-------------- --------------
Total current liabilities 25,240,845 33,305,089
Noncurrent deferred income taxes (Note 5) 4,052,934 3,239,844
Long-term note payable (Note 4) 44,000,000 22,200,000
Stockholders' equity (Note 4 and 6):
Convertible preferred stock, $.01 par
value:
Authorized shares - 2,000,000
Issued and outstanding shares - none
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 16,304,129 in 1998 and
10,798,385 in 1997 163,041 107,983
Additional paid-in capital 30,591,061 30,010,051
Treasury Stock, at cost - 702,575 in 1998 and 300,375 in 1997 (6,166,525) (1,608,390)
Retained earnings 59,067,026 41,500,424
-------------- --------------
Total stockholders' equity 83,654,603 70,010,068
-------------- --------------
Total liabilities and stockholders' equity $ 156,948,382 $ 128,755,001
============== ==============
</TABLE>
See accompanying notes.
16
<PAGE> 19
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 244,044,135 $ 254,639,993 $ 179,131,812
Cost of goods sold 195,059,722 201,323,137 153,448,265
------------- ------------- -------------
Gross profit 48,984,413 53,316,856 25,683,547
Selling, general, and administrative expenses 18,083,414 16,235,787 12,412,537
------------- ------------- -------------
Operating income 30,900,999 37,081,069 13,271,010
Other income (expense):
Interest and other income 145,056 141,836 92,233
Interest expense (1,876,315) (1,367,068) (1,722,445)
------------- ------------- -------------
Income before income taxes 29,169,740 35,855,837 11,640,798
Income tax expense (Note 5) 11,602,400 14,163,062 4,481,707
============= ============= =============
Net income $ 17,567,340 $ 21,692,775 $ 7,159,091
============= ============= =============
Weighted average common shares - basic (Note 8) 15,843,591 15,791,856 15,772,869
============= ============= =============
Basic earnings per common share $ 1.11 $ 1.37 $ .45
============= ============= =============
Weighted average common shares - diluted (Note 8) 16,388,259 16,481,925 15,867,240
============= ============= =============
Diluted earnings per common share $ 1.07 $ 1.32 $ .45
============= ============= =============
</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, 1995 7,104,417 $ 71,044 $28,495,115 $ (838,083) $12,648,894 $40,376,970
Proceeds from exercise of stock 8,500 85 33,795 -- -- 33,880
options
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 98,520 985 810,547 -- -- 811,532
options
Purchase of treasury stock -- -- -- (99,379) -- (99,379)
Tax benefit on exercise of stock -- -- 706,463 -- -- 706,463
options
Stock split 3,586,948 35,869 (35,869) -- (336) (336)
Net income -- -- -- -- 21,692,775 21,692,775
---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 10,798,385 107,983 30,010,051 (1,608,390) 41,500,424 70,010,068
Proceeds from exercise of stock 80,425 804 412,983 -- -- 413,787
options
Purchase of treasury stock -- -- -- (4,558,135) -- (4,558,135)
Tax benefit on exercise of stock -- -- 222,281 -- -- 222,281
options
Stock split 5,425,319 54,254 (54,254) -- (738) (738)
Net income -- -- -- -- 17,567,340 17,567,340
---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 16,304,129 $ 163,041 $30,591,061 $(6,166,525) $59,067,026 $83,654,603
========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
18
<PAGE> 21
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,567,340 $ 21,692,775 $ 7,159,091
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,937,397 4,060,125 3,396,015
Provision for bad debts 650,000 340,869 227,000
Deferred income taxes 2,122,090 127,844 929,000
(Gain) loss on disposal of assets (11,942) 2,154 36,110
Changes in operating assets and liabilities:
Accounts receivable 5,706,342 (11,411,105) (5,271,078)
Inventories (7,263,186) (3,348,802) (2,699,142)
Prepaid expenses and other (87,996) 50,821 (331)
Current income taxes receivable (581,783) -- 1,042,460
Trade accounts payable (6,531,734) 7,822,083 (14,838)
Accrued liabilities (371,108) 2,082,636 2,083,462
Current income taxes payable (1,677,402) 318,539 1,358,863
------------ ------------ ------------
Net cash provided by operating activities 15,458,018 21,737,939 8,246,612
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (33,302,363) (26,621,051) (2,946,177)
Increase in long term investments -- (4,180) (16,000)
(Increase) decrease in deposits 188,560 (343,415) --
Proceeds from sale of equipment 45,450 16,000 122,200
------------ ------------ ------------
Net cash used in investing activities (33,068,353) (26,952,646) (2,839,977)
FINANCING ACTIVITIES
Increase in long-term note payable 21,800,000 3,700,000 --
Repayment of note payable -- -- (4,500,000)
Proceeds from issuance of common stock, net 635,330 1,517,659 33,880
Purchase of treasury stock (4,558,135) (99,379) (670,928)
------------ ------------ ------------
Net cash (used in) provided by financing activities 17,877,195 5,118,280 (5,137,048)
------------ ------------ ------------
Net increase (decrease) in cash 266,860 (96,427) 269,587
Cash at beginning of year 1,164,676 1,261,103 991,516
------------ ------------ ------------
Cash at end of year $ 1,431,536 $ 1,164,676 $ 1,261,103
============ ============ ============
</TABLE>
See accompanying notes.
19
<PAGE> 22
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Encore Wire Corporation (the Company) conducts its business in one segment -
the manufacture of copper electrical wire, principally NM cable, for use
primarily as interior wiring in homes, apartments, and manufactured housing,
and THHN cable, for use primarily as wiring in commercial and industrial
buildings. The Company sells its products primarily through approximately 30
manufacturers' representatives located throughout the United States and, to a
lesser extent, through its own direct marketing efforts. The principal
customers for Encore's commercial and residential wire are wholesale electrical
distributors.
Copper, a commodity product, is the principal raw material used in the
Company's manufacturing operations. Copper accounted for approximately 66.2%,
73.8%, and 77.4% of its cost of goods sold during 1998, 1997, and 1996,
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.
Certain prior year balances have been re-classed to conform to current year
presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Cash, accounts receivable, trade accounts payable, accrued liabilities, and
notes payable are stated at expected settlement amounts which approximate fair
value.
Accounts receivable represent amounts due from customers (primarily wholesale
electrical distributors, manufactured housing suppliers, and retail home
improvement centers) related to the sale of the Company's products. Such
receivables are uncollateralized and are generally due from a diverse group of
customers located throughout the United States. The Company charged off
account's receivable of $859,830 and $140,022 in 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
20
<PAGE> 23
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.
EARNINGS PER SHARE
Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." Income per common and
common equivalent share is computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during each period.
The dilutive effects of stock options and common stock warrants, which are
common stock equivalents, are calculated using the treasury stock method.
INCOME TAXES
Income taxes are provided based on the deferred method, resulting in income tax
assets and liabilities due to temporary differences. Temporary differences are
differences between the tax bases of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years.
2. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 6,152,026 $ 2,299,301
Work-in-process 4,339,609 6,127,977
Finished goods 23,355,863 20,818,224
------------ ------------
33,847,498 29,245,502
Adjust to LIFO cost 6,637,212 2,628,860
Lower of cost or market adjustment (2,624,793) (1,277,631)
------------ ------------
$ 37,859,917 $ 30,596,731
============ ============
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Sales volume discounts payable $5,073,488 $6,303,949
Property taxes payable 1,015,951 680,591
Commissions payable 349,297 501,385
Other accrued liabilities 1,438,171 1,425,683
---------- ----------
$7,876,908 $8,911,608
========== ==========
</TABLE>
4. LONG-TERM NOTE PAYABLE
The Company amended its unsecured loan facility (Facility) with a bank as of
August 28, 1998, to provide for a
21
<PAGE> 24
maximum borrowings of the lesser of $65.0 million or the amount of eligible
accounts receivable plus the amount of eligible finished goods and raw
materials inventories as defined in the Financing Agreement (approximately
$53.3 million at December 31, 1998). The Facility is unsecured and contains
customary covenants and conditions providing for events of default.
The Company is prohibited from declaring, paying, or issuing cash dividends. At
December 31, 1998, the balance outstanding under the revolving credit facility
was $44.0 million. Amounts outstanding under the facility are payable on May
31, 2001, with interest due quarterly based on the bank's prime rate, LIBOR or
CD Rate options, at the Company's election (average interest rate at December
31, 1998 was 6.365%). Each of the interest rate options includes a premium
dependent upon the Company's financial performance.
The Company paid interest totaling $1,957,269, $1,761,660, and $1,730,525 in
1998, 1997, and 1996, respectively. The Company capitalized $570,136 and
$373,823 of interest in 1998 and 1997, respectively, relating to the
construction of the distribution center, rod mill, and plastics mill.
5. INCOME TAXES
The provisions for income tax expense are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 8,181,896 $12,108,230 $ 3,252,757
State 1,298,414 1,926,988 404,950
Deferred 2,122,090 127,844 824,000
----------- ----------- -----------
$11,602,400 $14,163,062 $ 4,481,707
=========== =========== ===========
</TABLE>
The differences between the provision for income taxes and income taxes
computed using the federal income tax rate are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed using
the statutory rate $10,209,409 $12,549,543 $ 3,957,871
State income taxes 1,011,677 1,497,702 459,950
Change in tax rate -- 68,000 --
Other items 381,314 47,817 63,886
----------- ----------- -----------
$11,602,400 $14,163,062 $ 4,481,707
=========== =========== ===========
</TABLE>
5. INCOME TAXES (CONTINUED)
The tax effect of each type of temporary difference and carry forward giving
rise to the deferred tax asset and liability at December 31, 1998 and 1997, is
as follows:
<TABLE>
<CAPTION>
DEFERRED TAX ASSET (LIABILITY)
1998 1997
-----------------------------------------------------------
CURRENT NONCURRENT CURRENT NONCURRENT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Depreciation and amortization $ -- $(4,052,934) $ -- $(3,239,844)
Inventory (1,009,000) -- 125,000 --
Allowance for doubtful accounts 193,000 -- 260,000 --
Accrued expenses 196,000 -- 200,000 --
Uniform capitalization rules 146,000 -- 219,000 --
Other (42,000) -- (11,000) --
----------- ----------- ----------- -----------
$ (516,000) $(4,052,934) $ 793,000 $(3,239,844)
=========== =========== =========== ===========
</TABLE>
22
<PAGE> 25
The Company made income tax payments of $11,521,000 in 1998, $13,010,000 in
1997, and $1,151,000 in 1996.
6. STOCK OPTIONS
The Company has a stock option plan for employees that provides for the
granting of stock options and authorizes the issuance of common stock upon the
exercise of such options for up to 1,741,500 shares of common stock. The stock
options vest over five years and expire ten years from grant date. The
following summarizes activity in the stock option plan for the years ended
December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
SHARES UNDER PRICE PER AGGREGATE OPTION
OPTIONS SHARE PRICE
--------- ------------ -----------
<S> <C> <C> <C>
Options outstanding at December 31, 1995 945,900 $ .33-6.22 $ 4,292,919
Options granted 143,325 4.17-4.55 613,575
Options exercised (19,125) .33-3.06 (33,880)
Options canceled (27,900) 4.17-6.22 (144,000)
--------- ------------ -----------
Options outstanding at December 31, 1996 1,042,200 .33-6.22 4,728,614
Options granted 178,500 8.33-17.00 1,945,500
Options exercised (193,545) .33-6.22 (811,517)
Options canceled (89,820) 3.06-8.45 (537,850)
--------- ------------ -----------
Options outstanding at December 31, 1997 937,335 .33-17.00 5,324,747
OPTIONS GRANTED 109,100 9.00-17.33 1,156,748
OPTIONS EXERCISED (106,585) 0.33-8.33 (621,746)
OPTIONS CANCELED (14,050) 6.22-17.00 (4,590)
--------- ------------ -----------
OPTIONS OUTSTANDING AT DECEMBER 31, 1998 925,800 $ .33-17.33 $ 5,855,159
========= ============ ===========
</TABLE>
At December 31, 1998, 622,955 options are currently exercisable and 925,800
common shares are reserved for future issuance.
The Company has elected to continue to follow the expense recognition criteria
in Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees." Therefore, the Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," will
have no effect on the Company's financial statements.
As required by the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), pro forma information
regarding net income and income per share has been determined as if the Company
had accounted for employee stock options granted subsequent to December 31,
1994, under the fair value method provided for under FAS 123. The fair value
for the stock options granted to directors, officers, and key employees of the
Company on or after January 1, 1995, was estimated at the date of the grant
using the Black-Scholes options pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate 4.73% 6.17% 5.13%
Expected dividend yield 0.00% 0.00% 0.00%
Expected volatility 51% 45% 41%
Expected lives 5.0 years 5.0 years 5.0 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
23
<PAGE> 26
The weighted-average fair value of stock options granted during the years ended
December 31, 1998, 1997, and 1996, was $5.16, $5.22 and $1.88, respectively.
For purposes of the pro forma disclosures, the estimated fair value of stock
options granted has been amortized to expense over the vesting period. The
Company's pro forma information for FAS 123 is as follows (in thousands, except
for loss per common share information):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C> <C>
Net income As reported $17,567 $21,693 $7,159
Pro forma $17,434 $21,616 $7,144
Basic earnings per common share As reported $1.11 $1.37 $.45
Pro forma $1.10 $1.37 $.45
Diluted earnings per common share As reported $1.07 $1.32 $.45
Pro forma $1.06 $1.31 $.45
</TABLE>
Because FAS 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect will not be fully reflected until 1999.
7. RELATED PARTY TRANSACTIONS
The Company paid a related party common carrier $1,662,397 in 1997. The Company
believes that rates charged by this carrier compared favorably with rates
charged by other carriers. The carrier was sold in September 1997 and is no
longer a related party.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income $17,567,340 $21,692,775 $ 7,159,091
=========== =========== ===========
Denominator:
Denominator for basic earnings
per share - weighted average
shares 15,843,591 15,791,856 15,772,869
Effect of dilutive securities:
Employee stock options 544,668 690,609 94,371
----------- ----------- -----------
Denominator for diluted earnings
per share weighted average
shares 16,388,259 16,481,925 15,867,240
=========== =========== ===========
</TABLE>
9. CONTINGENCIES
In fiscal year 1998, a suit was filed against the Company as a result of an
accident that occurred on the Company's premises. Subsequently, the Company has
entered into a settlement agreement with the plaintiffs. All financial terms of
the agreement are fully covered by the Company's insurance carrier. Therefore,
the resolution of this matter will not have a material adverse effect on the
financial position, results of operations, or cash flows of the Company.
24
<PAGE> 27
10. QUARTERLY FINANCIAL INFORMATION (UN-AUDITED)
The following is a summary of the un-audited quarterly financial information
for the two years ended December 31, 1998 and 1997 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1998 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---- -------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 62,927 $ 63,905 $ 69,556 $ 47,654
Gross profit 15,449 12,460 15,337 5,738
Net income 6,436 4,565 5,902 664
Net income per common share - basic .41 .29 .37 .04
Net income per common share - diluted .39 .27 .36 .04
</TABLE>
<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 .26 .33 .40 .38
Net income per common share - diluted .25 .32 .38 .37
</TABLE>
25
<PAGE> 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The section entitled "Election of Directors" appearing in the Company's proxy
statement for the annual meeting of stockholders to be held on May 4, 1999 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 4, 1999 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 4, 1999 sets forth certain information with
respect to the ownership of the Company's Common Stock and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Not Applicable
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements included in Item 8 herein:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for years ended
December 31, 1998, 1997 and 1996
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, 1998.
26
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, Encore Wire Corporation has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENCORE WIRE CORPORATION
Date: March 26, 1999
By: /s/ VINCENT A. REGO
-----------------------------------
Vincent A. Rego
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ VINCENT A. REGO Chairman of the Board March 26, 1999
- ------------------------------ of Directors, and Chief
Vincent A. Rego Executive Officer
/s/ DANIEL L. JONES President and Chief Operating March 26, 1999
- ------------------------------ Officer
Daniel L. Jones
/s/ SCOTT D. WEAVER Vice President-- Finance, March 26, 1999
- ------------------------------ Secretary and Treasurer
Scott D. Weaver (Principal Financial
and Accounting Officer)
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DONALD E. COURTNEY Vice-Chairman of the March 26, 1999
- ------------------------------- Board of Directors
Donald E. Courtney
/s/ JOSEPH M. BRITO Director March 26, 1999
- -------------------------------
Joseph M. Brito
/s/ JOHN H. WILSON Director March 26, 1999
- -------------------------------
John H. Wilson
/s/ JOHN P. PRINGLE Director March 26, 1999
- -------------------------------
John P. Pringle
/s/ WILLIAM R. THOMAS Director March 26, 1999
- -------------------------------
William R. Thomas
/s/ DONALD M. SPURGIN Director March 26, 1999
- -------------------------------
Donald M. Spurgin
</TABLE>
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- ------------ ------
<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 (filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference).
10.1 Amended and Restated Financing Agreement dated as of June 15,
1994 by and between NationsBank of Texas, N.A. and Encore Wire
Corporation (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994 and
incorporated herein by reference).
10.2 Revolving Note dated as of August 31, 1995 executed by Encore
Wire Corporation payable to the order of NationsBank of Texas,
N.A. (filed as Exhibit 10.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference).
10.3 First Amendment to Amended and Restated Financing Agreement dated
as of July 26, 1994 by and between NationsBank of Texas, N.A. and
Encore Wire Corporation (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994
and incorporated herein by reference).
10.4 Second Amendment to Amended and Restated Financing Agreement
dated effective December 29, 1994 by and between NationsBank of
Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
10.5 Third Amendment to Amended and Restated Financing Agreement dated
effective April 7, 1995 by and between NationsBank of Texas, N.A.
and Encore Wire Corporation (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.6 Fourth Amendment to Amended and Restated Financing Agreement
dated effective August 31, 1995 by and between NationsBank of
Texas, N.A. and Encore Wire Corporation (filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
10.7 Fifth Amendment to Amended and Restated Financing Agreement dated
effective March 19, 1996 by and between NationsBank of Texas,
N.A. and Encore Wire Corporation (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference).
10.8 Sixth Amendment to Amended and Restated Financing Agreement dated
effective September 17, 1996 by and between NationsBank of Texas,
N.A. and Encore Wire Corporation (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).
10.9 Seventh Amendment to Amended and Restated Financing Agreement
dated effective December 11, 1996 by and between NationsBank of
Texas, N.A. and Encore Wire Corporation (filed as 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>
<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 (filed as exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference).
10.21 First Amendment to Second Amended and Restated Financing Agreement
dated as of February 20, 1998 by and among Encore Wire
Corporation, NationsBank of Texas, N.A. and Bank of America, Texas
N.A. (filed as exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and incorporated
herein by reference).
10.22 Second Amendment to Second Amended and Restated Financing
Agreement dated as of June 15, 1998 by and among Encore Wire
Corporation, NationsBank of Texas, N/A and Bank of America, Texas
N.A. (filed as exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 and incorporated
herein by reference).
10.23 Third Amendment to Second Amended and Restated Financing Agreement
dated as of August 28, 1998 by and among Encore Wire Corporation,
NationsBank of Texas, N.A. and Comerica Bank - Texas (filed as
exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 and incorporated herein by
reference).
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
10.24 Fourth Amendment to Second Amended and Restated Financing
Agreement dated as of October 28, 1998 by and among Encore Wire
Corporation, NationsBank of Texas, N.A. and Comerica Bank - Texas
(filed as exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998 and incorporated
herein by reference).
21.1 Subsidiary.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule
* Management contract or compensatory plan
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARY
EWC Leasing Corp., a Nevada corporation
EWC Aviation Corp., a Texas corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 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 22, 1999, with respect to the consolidated financial
statements of Encore Wire Corporation included in the Form 10-K for the year
ended December 31, 1998.
/s/ Ernst & Young LLP
- ---------------------
Dallas, Texas
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,431
<SECURITIES> 0
<RECEIVABLES> 38,445
<ALLOWANCES> 500
<INVENTORY> 37,859
<CURRENT-ASSETS> 78,066
<PP&E> 99,314
<DEPRECIATION> 20,653
<TOTAL-ASSETS> 156,948
<CURRENT-LIABILITIES> 25,241
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 83,491
<TOTAL-LIABILITY-AND-EQUITY> 156,948
<SALES> 244,044
<TOTAL-REVENUES> 244,044
<CGS> 195,060
<TOTAL-COSTS> 17,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 650
<INTEREST-EXPENSE> 1,731
<INCOME-PRETAX> 29,170
<INCOME-TAX> 11,607
<INCOME-CONTINUING> 17,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,567
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.07
</TABLE>
