<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number: 0-20278
ENCORE WIRE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 75-2274963
(State of incorporation) (I.R.S. employer identification number)
1410 MILLWOOD ROAD
MCKINNEY, TEXAS 75069
(Address of principal executive offices) (Zip code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 562-9473
[X] Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No
--- ---
Number of shares of Common Stock outstanding as of
October 31, 2000: 15,129,409
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<PAGE> 2
FORM 10-Q
ENCORE WIRE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets.....................................................................3
September 30, 2000 (Unaudited) and December 31, 1999
Consolidated Statements of Income (Unaudited)...................................................5
Quarters and nine months ended September 30, 2000 and
September 30, 1999
Consolidated Statements of Cash Flows (Unaudited)...............................................6
Nine months ended September 30, 2000 and September 30, 1999
Notes to Consolidated Financial Statements (Unaudited)..........................................7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................................10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..............................................................................15
ITEM 6. Exhibits and Reports on Form 8-K...............................................................15
Signatures.......................................................................................................16
</TABLE>
2
<PAGE> 3
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ENCORE WIRE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
In Thousands of Dollars (Unaudited) (See Note 1)
----------------------- ------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash ................................................... $ 499 $ 1,256
Accounts receivable (net of allowance of
$492 and $485) ..................................... 59,730 46,592
Inventories (Note 2) ................................... 40,525 54,638
Prepaid expenses and other assets ...................... 649 368
Current taxes receivable ............................... -- --
--------- ---------
Total current assets ............................... 101,403 102,854
Property, plant and equipment-on the basis of cost:
Land ................................................... 3,583 3,583
Construction in Progress ............................... 2,474 2,191
Buildings and improvements ............................. 26,086 26,004
Machinery and equipment ................................ 76,944 74,052
Furniture and fixtures ................................. 2,016 1,865
--------- ---------
Total property, plant, and equipment ............... 111,103 107,695
Accumulated depreciation and
Amortization ................................... 35,103 28,305
--------- ---------
76,000 79,390
Other assets .................................................... 275 145
--------- ---------
Total assets .................................................... $ 177,678 $ 182,389
========= =========
</TABLE>
See accompanying notes
3
<PAGE> 4
FORM 10-Q
ENCORE WIRE CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
Sept. 30, December 31,
2000 1999
In Thousands of Dollars, Except Share Data (Unaudited) (See Note 1)
------------------------------------------ ----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ...................................... $ 24,563 $ 18,082
Accrued liabilities ......................................... 7,621 8,213
Current income taxes payable ................................ 554 514
Current deferred income taxes ............................... 1,818 1,818
--------- ---------
Total current liabilities ................................... 34,556 28,627
Non-current deferred income taxes .................................... 5,740 5,739
Long term notes payable .............................................. 46,200 60,600
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - (16,637,509
at September 30, 2000 and 16,337,922 at .............. 166 163
December 31, 1999)
Additional paid-in capital ........................................... 32,162 30,656
Treasury stock -1,488,100 at September 30, 2000 and 1,006,000 at
December 31, 1999 ........................................... (12,221) (9,057)
Retained earnings .................................................... 71,075 65,661
--------- ---------
Total stockholders' equity .................................. 91,182 87,423
--------- ---------
Total liabilities and stockholders' equity ........................... $ 177,678 $ 182,389
========= =========
</TABLE>
Note: The consolidated balance sheet at December 31, 1999, as presented, is
derived from the audited consolidated financial statements at that date.
See accompanying notes
4
<PAGE> 5
FORM 10-Q
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
In Thousands of Dollars, Except Per Share Data 2000 1999 2000 1999
---------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ............................................. $ 70,387 $ 53,063 $ 210,463 $ 172,029
Cost of goods sold .................................... 59,963 45,009 181,068 148,730
--------- --------- --------- ---------
Gross profit .......................................... 10,424 8,054 29,395 23,299
Selling, general, and administrative expense .......... 6,040 4,366 17,880 13,842
--------- --------- --------- ---------
Operating income ...................................... 4,384 3,688 11,515 9,457
Interest expense (net) ................................ 985 705 3,056 1,854
--------- --------- --------- ---------
Income before income taxes ............................ 3,399 2,983 8,459 7,603
Provision for income taxes ............................ 1,224 1,074 3,045 2,851
--------- --------- --------- ---------
Net income ............................................ $ 2,175 $ 1,909 $ 5,414 $ 4,752
========= ========= ========= =========
Net income per common and common
equivalent share - basic ........................... $ .14 $ .12 $ .36 $ .31
========= ========= ========= =========
Weighted average common and common
equivalent shares - basic .......................... 15,182 15,380 15,247 15,510
========= ========= ========= =========
Net income per common and common
equivalent share - diluted ......................... $ .14 $ .12 $ .35 $ .30
========= ========= ========= =========
Weighted average common and common
equivalent shares - diluted ........................ 15,282 15,718 15,496 15,857
========= ========= ========= =========
Cash dividends declared per share ..................... $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
See accompanying notes
5
<PAGE> 6
FORM 10-Q
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
In Thousands of Dollars 2000 1999
----------------------- -------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ...................................................................... $ 5,414 $ 4,752
Adjustments to reconcile net income to cash provided by (used in) operating
activities:
Depreciation and amortization ........................................... 6,845 5,895
Provision for bad debts ................................................. 50 --
Changes in operating assets and liabilities:
Accounts receivable ................................................. (13,187) (6,751)
Inventory ........................................................... 14,113 (10,434)
Accounts payable and accrued liabilities ............................ 5,890 2,089
Other assets and liabilities ........................................ (309) (235)
Current income taxes payable ........................................ 40 3,086
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ................. 18,856 (1,598)
-------- --------
INVESTING ACTIVITIES
Purchases of property, plant and equipment ...................................... (3,484) (7,378)
Increase (decrease) in Long Term Investments .................................... (130) 5
Proceeds from Sale of Equipment ................................................. 55 132
-------- --------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES ............................ (3,559) (7,241)
-------- --------
FINANCING ACTIVITIES
Borrowings (repayments) under notes payable ..................................... (14,400) 11,300
Purchases of Treasury Stock ..................................................... (3,164) (2,665)
Proceeds from issuance of common stock .......................................... 1,510 43
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ............................ (16,054) 8,678
-------- --------
NET INCREASE (DECREASE) IN CASH ..................................................... (757) (161)
Cash at beginning of period ......................................................... 1,256 1,431
-------- --------
Cash at end of period ............................................................... $ 499 $ 1,270
======== ========
</TABLE>
See accompanying notes
6
<PAGE> 7
FORM 10-Q
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The unaudited consolidated financial statements of Encore Wire
Corporation have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. Results of operations for
the periods presented are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. These financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
NOTE 2 -- INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method.
Inventories (in thousands) consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials .......................... $ 8,413 $ 9,015
Work-in-process ........................ 3,767 5,961
Finished goods ......................... 27,583 36,545
-------- --------
39,763 51,521
Increase to LIFO cost .................. 800 3,276
-------- --------
40,563 54,797
Lower of Cost or Market Adjustment ..... (38) (159)
-------- --------
$ 40,525 $ 54,638
======== ========
</TABLE>
An actual valuation of inventory under the LIFO method can be made only
at the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of
expected year-end inventory levels and costs. Because these are subject to
7
<PAGE> 8
FORM 10-Q
many forces beyond management's control, interim results are subject to the
final year-end LIFO inventory valuation.
NOTE 3 -- INCOME 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. If dilutive, the effect of stock options,
treated as common stock equivalents, is calculated using the treasury stock
method.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Quarter Ending Quarter Ending
September 30, 2000 September 30, 1999
<S> <C> <C>
Numerator:
Net Income $ 2,175,000 $ 1,909,000
============ ============
Denominator:
Denominator for basic earnings per share --
weighted average shares 15,181,520 15,380,148
Effect of dilutive securities:
Employee stock options 100,409 337,981
------------ ------------
Denominator for diluted earnings per share --
weighted average shares 15,281,929 15,718,129
============ ============
</TABLE>
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Nine Months Ending Nine Months Ending
September 30, 2000 September 30, 1999
<S> <C> <C>
Numerator:
Net Income $ 5,414,000 $ 4,752,000
============ ============
Denominator:
Denominator for basic earnings per share --
weighted average shares 15,246,874 15,509,990
Effect of dilutive securities:
Employee stock options 249,146 347,412
------------ ------------
Denominator for diluted earnings per share --
weighted average shares 15,496,020 15,857,402
============ ============
</TABLE>
8
<PAGE> 9
FORM 10-Q
NOTE 4 -- LONG TERM NOTE PAYABLE
Effective August 31, 1999, the Company through its indirectly wholly
owned subsidiary, Encore Wire Limited, a Texas limited partnership, completed an
unsecured loan facility with a group of banks (the "Financing Agreement"). The
Financing Agreement replaced the Company's existing credit facility, and the
Company is a guarantor of the indebtedness. The Financing Agreement has been
amended once since August 31, 1999, to extend the term to May 31, 2003. 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
September 30, 2000, as computed under the Financing Agreement, was $65.0
million. The Financing Agreement is unsecured and contains customary covenants
and events of default. The Company was in compliance with these covenants, as
amended, as of September 30, 2000. Pursuant to the Financing Agreement, the
Company is prohibited from declaring, paying or issuing cash dividends. At
September 30, 2000, the balance outstanding under the Financing Agreement was
$46.2 million. Amounts outstanding under the Financing Agreement are payable on
May 31, 2003 with interest due quarterly based on the bank's prime rate or LIBOR
Rate options, at the Company's election.
NOTE 5 -- STOCK REPURCHASE AUTHORIZATION
On March 24, 1995, the Company announced that its Board of Directors
had authorized it to purchase up to 900,000 shares, or approximately 5.6%, of
its outstanding common stock dependent upon market conditions. Subsequent Board
actions have increased this authorization. As of September 30, 2000, the Company
had repurchased an aggregate of 1,488,100 shares of its common stock in the open
market.
9
<PAGE> 10
FORM 10-Q
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a low-cost manufacturer of copper electrical building
wire and cable. The Company is a significant supplier of residential wire for
interior wiring in homes, apartments and manufactured housing and commercial
wire for commercial and industrial buildings.
Price competition for electrical wire and cable is intense, and the
Company sells its products in accordance with prevailing market prices. Copper
is the principal raw material used by the Company in manufacturing its products.
Copper accounted for approximately 60.6%, 66.2%, 73.8%, 77.4% and 76.8% of the
Company's cost of goods sold during fiscal 1999, 1998, 1997, 1996 and 1995
respectively. The price of copper fluctuates, depending on general economic
conditions and in relation to supply and demand and other factors, and has
caused monthly variations in the cost of copper purchased by the Company. The
Company cannot predict copper prices in the future or the effect of fluctuations
in the cost of copper on the Company's future operating results.
The following discussion and analysis relates to factors that have
affected the operating results of the Company for the quarter and nine month
periods ended September 30, 2000 and 1999. Reference should also be made to the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
RESULTS OF OPERATIONS
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999
Net sales for the third quarter of 2000 amounted to $70.4 million
compared with net sales of $53.1 million for the third quarter of 1999. This
increase was due to an increase in the average sales price per copper pound of
the Company's products, together with a 24% increase in the pounds of copper
shipped during the period. The increase in the average sales price per copper
pound of the Company's products was due to a 11% increase in the average cost of
copper from the third quarter of 1999 to the same period in 2000, offset
somewhat by competitive pricing pressure of the Company's products. Sales volume
increased due to several factors, including increases in customer acceptance and
product availability. The average sales price per copper pound of product sold
was $1.55 in the third quarter of 2000, compared to $1.45 in the third quarter
of 1999. Fluctuations in sales prices are primarily a result of price
competition and changing copper raw material prices.
10
<PAGE> 11
FORM 10-Q
Cost of goods sold increased to $60.0 million in the third quarter of
2000 from $45.0 million in the third quarter of 1999. Copper costs increased to
$36.9 million in the third quarter of 2000 from $25.4 million in the third
quarter of 1999. The average cost per copper pound purchased increased to $.88
in the third quarter of 2000 from $.79 in the third quarter of 1999. Copper
costs as a percentage of net sales increased to 52.4% in the third quarter of
2000 from 47.9% in the third quarter of 1999. This increase as a percentage of
net sales in the third quarter of 2000 versus the comparable quarter in 1999 was
primarily due to higher copper costs per pound of product sold partially offset
by an increased differential between what the Company pays per pound of copper
purchased and the Company's net sales price per copper pound. This differential
increased in the third quarter of 2000 because the average cost per copper pound
purchased increased less than the average price per copper pound sold. Other raw
material costs as a percentage of net sales decreased to 13.8% in the third
quarter of 2000, compared with 15.7% in the third quarter of 1999. This decrease
was due to raw materials per pound of copper sold remaining relatively constant
while the sales price per copper pound of product sold increased as discussed
above. Depreciation, labor and overhead costs as a percentage of net sales
increased slightly to 17.4% in the third quarter of 2000, compared with 17.0% in
the third quarter of 1999 due to an increase in depreciation and overhead
associated with the company's expansion projects completed over the last year.
Inventories are stated at the lower of cost, determined by the last in,
first out (LIFO) method, or market. As permitted by generally accepted
accounting principles, the Company maintains its inventory costs and cost of
goods sold on a first in, first out (FIFO) basis and makes a quarterly LIFO
adjustment to adjust total inventory and cost of goods sold to LIFO. The price
of copper increased during the third quarter of 2000 (as compared to the second
quarter of 2000), which would necessitate an increase in the LIFO reserve and a
corresponding decrease in cost of goods sold, if inventory levels increased or
remained constant. In the third quarter of 2000, however, inventory levels
dropped $2.6 million, drawing down lower cost LIFO layers and pulling $1.4
million of expense into cost of goods sold out of the LIFO reserve. Also, at
September 30, 2000, the market value of the inventory exceeded the LIFO cost.
Therefore, there was a decrease in the lower of cost or market reserve and a
decrease in the cost of goods sold in the amount of $332,000. The resulting
lower of cost or market reserve at September 30, 2000 was $38,000
Due to the items discussed above, gross profit in 2000 increased to
$10.4 million, or 14.8% of net sales, for the quarter compared to $8.1 million,
or 15.2% of net sales, for the third quarter of 1999.
General and administrative expenses in 2000 were $1.6 million, or 2.2%
of net sales in the quarter, compared to $1.3 million, or 2.5% of net sales in
the third quarter of 1999. General and administrative expenses as a percentage
of sales decreased. General and administrative dollar expenses increased
primarily due to expenses related to the Company's new ERP (sales, distribution
and accounting) system. Selling expenses for the third quarter of 2000 were $4.5
million, or 6.3% of net sales, compared to $3.0 million, or 5.7% of net sales,
in the third quarter of 1999. The dollar increase in selling expenses was due to
the increase in sales volumes driving gross commissions higher, while the
percentage increase was due to the mix of products sold shifting to items with
higher commissions in 2000.
Net interest expense was $1.0 million in the third quarter of 2000
compared to $737,000 in the third quarter of 1999. The increase was due to
higher floating interest rates on the debt in 2000 versus 1999.
The Company's effective tax rate remained constant at 36.0% in the
third quarter of 2000 versus the same period in 1999.
11
<PAGE> 12
FORM 10-Q
As a result of the aforementioned factors, the Company's net income was
$2.2 million in the third quarter of 2000 compared to $1.9 million in the third
quarter of 1999.
Nine Months Ended September 30, 2000 compared to Nine Months Ended
September 30, 1999
Net sales for the first nine months of 2000 amounted to $210.5 million
compared with net sales of $172.0 million for the first nine months of 1999.
This increase was due to an increase in the average sales price per copper pound
of the Company's products and an increase in the pounds of copper shipped during
the period. The increase in the average sales price per copper pound of the
Company's products resulted from a 20% increase in the average cost of copper
from the first nine months of 1999 to the same period in 2000, offset somewhat
by competitive pricing pressure on the Company's products in the first nine
months of 2000. Sales volume increased due to several factors, including
increases in customer acceptance and product availability. Sales volume of the
Company's residential and commercial products increased during the first nine
months of 2000 compared to the first nine months of 1999. The average sales
price per copper pound of product sold was $1.51 in the first nine months of
2000, compared to $1.33 in the first nine months of 1999. Fluctuations in sales
prices were primarily a result of price competition and changing copper raw
material prices.
Cost of goods sold was $181.1 million in the first nine months of 2000,
compared to $148.7 million in the first nine months of 1999. Copper costs
increased to $113.5 million in the first nine months of 2000 from $88.9 million
in the first nine months of 1999. The average cost per copper pound purchased
increased to $.85 in the first nine months of 2000 from $.71 in the first nine
months of 1999. Copper costs as a percentage of net sales increased to 54.0% in
the first nine months of 2000 compared to 51.7% in the first nine months of
1999. The higher copper cost per pound of product sold in the first nine months
of 2000 as compared to the same period of 1999 did not adversely affect margins.
The differential between what the Company pays per pound of copper purchased and
the Company's net sales price per copper pound increased in the first nine
months of 2000 compared to the same period in 1999. Other raw material costs as
a percentage of net sales decreased to 14.5% in the first nine months of 2000,
from 16.7% in the first nine months of 1999. This decrease was due to the
increase in the sales price per copper pound sold, as discussed above.
Depreciation, labor and overhead costs as a percentage of net sales decreased to
16.4% in the first nine months of 2000 compared to 17.5% in the first nine
months of 1999. This decrease was due to an increase in volume resulting in
economies of scale as well as the higher sales price per copper pound of product
sold as discussed above.
Inventories are stated at the lower of cost, determined by the last in,
first out (LIFO) method, or market. As permitted by generally accepted
accounting principles, the Company maintains its inventory costs and cost of
goods sold on a first in, first out (FIFO) basis and makes a quarterly LIFO
adjustment to adjust total inventory and cost of goods sold to LIFO. The price
of copper was relatively stable during the first eight months of 2000 with an
increase in September. The inventory level, however, decreased by $14.1 million.
This resulted in a decrease in the LIFO reserve of $2.5 million that resulted in
a decrease to the inventory value and an increase in cost of goods sold. In the
first nine months of 1999, inventory levels and the LIFO reserve increased
resulting in an increase to the inventory value and a decrease to the cost of
goods sold of $1.3 million. Also, at September 30, 2000, LIFO cost exceeded the
market value of the inventory. Therefore, there was a decrease in the lower of
cost or market reserve and a decrease in the cost of goods sold in the amount of
$121,000.
12
<PAGE> 13
FORM 10-Q
Due to the items discussed above, gross profit increased to $29.4
million, or 14.0% of net sales, for the first nine months of 2000 compared to
$23.3 million, or 13.5% of net sales, for the first nine months of 1999.
General and administrative expenses were $4.6 million, or 2.2% of net
sales, in the first nine months of 2000 compared to $3.8 million, or 2.2% of net
sales, in the first nine months of 1999. This increase in general and
administrative expenses was due primarily to the Company's new ERP system. The
Company added $50,000 to the provision for bad debts in the first nine months of
2000 compared to zero in the first nine months of 1999. Selling expenses for the
first nine months of 2000 were $13.2 million, or 6.3% of net sales, compared to
$10.1 million, or 5.9% of net sales, in the first nine months of 1999. As
explained in the quarterly review, this percentage increase was due to the mix
of products sold shifting to items with higher commissions in 2000.
Net interest expense increased to $3.1 million in the first nine months
of 2000 compared to $1.9 million in the first nine months of 1999. The increase
was due to a higher average debt balance outstanding during the first nine
months of 2000 than the comparable period during 1999, due primarily to the
higher working capital required to grow the business and higher floating
interest rates in 2000 versus 1999, as discussed in the quarterly review above.
The Company's effective tax rate decreased to 36% in the first nine
months of 2000 compared to 37.5% in the first nine months of 1999. The lower
effective tax rate is the result of a lower state tax rate due to a subsidiary
restructuring completed in the third quarter of 1999.
As a result of the aforementioned factors, the Company's net income
increased to $5.4 million in the first nine months of 2000 from $4.8 million in
the first nine months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a substantial inventory of finished products to
satisfy customers' prompt delivery requirements. As is customary in the
industry, the Company provides payment terms to most of its customers that
exceed terms that it receives from its suppliers. Therefore, the Company's
liquidity needs have generally consisted of operating capital necessary to
finance these receivables and inventory. Capital expenditures have historically
been necessary to expand the production capacity of the Company's manufacturing
operations. The Company has satisfied its liquidity and capital expenditure
needs with cash generated from operations, borrowings under its revolving credit
facilities and sales of its common stock.
Effective August 31, 1999, the Company through its indirectly wholly
owned subsidiary, Encore Wire Limited, a Texas limited partnership, completed an
unsecured loan facility with a group of banks (the "Financing Agreement"). The
Financing Agreement replaced the Company's existing credit facility, and the
Company is a guarantor of the indebtedness. The Financing Agreement has been
amended once since August 31, 1999, to extend the term to May 31, 2003. 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
September 30, 2000, as computed under the Financing Agreement, was $65.0
million. The Financing Agreement is unsecured and contains customary covenants
and events of default. The Company was in compliance with these covenants, as
amended, as of
13
<PAGE> 14
FORM 10-Q
September 30, 2000. Pursuant to the Financing Agreement, the Company is
prohibited from declaring, paying or issuing cash dividends. At September 30,
2000, the balance outstanding under the Financing Agreement was $46.2 million.
Amounts outstanding under the Financing Agreement are payable on May 31, 2003
with interest due quarterly based on the bank's prime rate or LIBOR Rate
options, at the Company's disgression.
Cash provided by operations was $18.9 million in the first nine months
of 2000 compared to cash used by operations of $1.6 million in the first nine
months of 1999. This increase of $20.5 million in cash provided by operations
was primarily the result of a $14.1 million reduction of inventory in the first
three quarters of 2000. Cash used in investing activities decreased from $7.2
million in the first nine months of 1999 to $3.6 million in the first nine
months of 2000. In both periods, these funds were used primarily to increase the
Company's production capacity. The $16.1 million of cash used by financing
activities was due primarily to the $14.4 million of debt the Company was able
to pay down in the first nine months of 2000.
During 2000, the Company expects to expend less capital for additional
manufacturing equipment than it spent in 1999. During 2000, the Company expects
its capital expenditures will consist of additional manufacturing equipment for
its wire operations. The Company will continue to manage its working capital
requirements. These requirements may increase as a result of expected continued
sales increases. These requirements will be impacted by the price of copper. The
Company believes that the cash flow from operations and the financing that it
expects to receive from its banks under the Financing Agreement will satisfy
working capital and capital expenditure requirements for the next twelve months.
On March 24, 1995, the Company announced that its Board of Directors
had authorized it to purchase up to 900,000 shares, or approximately 5.6%, of
its outstanding common stock dependent upon market conditions. Subsequent Board
actions increased this authorization. As of September 30, 2000, the Company had
repurchased an aggregate of 1,488,100 shares of its common stock in the open
market.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information provided in
Item 7.A. of the Company's Annual Report on Form 10-K for the year ended
December 31,1999.
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.
14
<PAGE> 15
FORM 10-Q
PART II. OTHER INFORMATION
ITEM 1. LEGAL MATTERS
On July 19, 1999, a lawsuit styled Jose Delgado et al v. Encore Wire
Corporation was filed in the District Court of Collin County, Texas against the
Company. The plaintiffs are former employees of the Company who allege that they
were discharged in retaliation for seeking workers' compensation benefits in
violation of chapter 451 of the Texas Labor Code. The plaintiffs also claim
intentional infliction of emotional distress. The Company denies the allegations
and will contest the claims vigorously. The plaintiffs claim that they are
entitled to recover over $50 million. The Company believes the plaintiffs'
claims are without merit. On May 22, 2000, the district court granted the
Company's motion to sever the case into eight separate cases.
In addition, the Company is a defendant from time to time in lawsuits
incidental to its business. Based on currently available information, the
Company believes that resolution of all known contingencies including the above
described cases, would not have a material adverse impact on the Company's
financial statements. However, there can be no assurances that future costs
would not be material to the results of operations of the Company for a
particular future period. In addition, the Company's estimates of future costs
are subject to change as circumstances change and additional information becomes
available during the course of litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) No reports on Form 8-K were filed by the Company during the
three months ended September 30, 2000.
15
<PAGE> 16
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENCORE WIRE CORPORATION
------------------------------------------------
(Registrant)
Date: November 13, 2000 /s/ VINCENT A. REGO
------------------------------------------------
Vincent A. Rego,
Chairman of the Board of Directors
Chief Executive Officer
Date: November 13, 2000 /s/ DANIEL L. JONES
------------------------------------------------
Daniel L. Jones, President
Chief Operating Officer
Date: November 13, 2000 /s/ FRANK J. BILBAN
------------------------------------------------
Frank J. Bilban, Vice President - Finance,
Treasurer and Secretary,
Chief Financial Officer
16
<PAGE> 17
FORM 10-Q
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27 Financial Data Schedule
</TABLE>
