<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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No fee required)
For the transition period from to
------- -------
Commission File Number: 020278
ENCORE WIRE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 75-2274963
(State of incorporation) (I.R.S. Employer Identification No.)
1410 MILLWOOD ROAD
MCKINNEY, TEXAS 75069
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 562-9473
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes [ X ] No [ ]
Aggregate market value of Common Stock held by nonaffiliates as of March 10,
2000: $ 73,621,562
Number of shares of Common Stock outstanding as of March 10, 2000: 15,227,122
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 2000 annual meeting of stockholders -- Part III
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I..................................................................................................... 1
ITEM 1. BUSINESS.................................................................................. 1
General................................................................................... 1
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 OFFICERS OF THE COMPANY........................................................ 5
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.......................................... 13
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. Although the Department of Commerce has not released
the 1998 data, the Company believes its market share rankings are substantially
similar to those 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.
In 1999, the Company restructured its operations by transferring its
operations into Encore Wire Limited, a new Texas limited partnership ("Encore
Wire Limited"). The general partner of Encore Wire Limited is EWC GP Corp., a
Delaware corporation domiciled in Texas and a wholly-owned subsidiary of the
Company and the limited partner is EWC LP Corp., a Delaware corporation
domiciled in Nevada and a wholly-owned subsidiary of the Company. As a result of
the restructuring, the Company's operations are conducted by Encore Wire
Limited.
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 entities, including Encore Wire Limited.
STRATEGY
Encore's strategy for expanding its share of the residential wire and
commercial wire markets emphasizes customer service coupled with low-cost
production.
Customer Service. Responsiveness to customers is a primary focus of Encore,
with an emphasis on building and maintaining strong customer relationships.
Encore seeks to establish customer loyalty by achieving a high order fill
rate and rapidly handling customer inquiries, orders, shipments and
returns. The Company maintains product inventories sufficient to meet
anticipated customer demand and believes that the speed and completeness
with which it fills orders are key competitive advantages critical to
marketing its products.
Low-Cost Production. Encore's low-cost production capability features an
efficient plant design and a small, incentivized work force.
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
1
<PAGE> 4
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. The Company's 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 400 and 500 stock
keeping units (SKUs) of residential wire and between 3,000 and 3,500 SKUs of
commercial wire. The principal bases for differentiation among SKUs are product
diameter, insulation, color and packaging.
Residential Wire
NM Cable. Non-metallic sheathed cable is used primarily as interior
wiring in homes, apartments and manufactured housing. NM cable is
composed of either two or three insulated copper wire conductors, with
or without an uninsulated ground wire, all sheathed in a polyvinyl
chloride ("PVC") jacket.
UF Cable. Underground feeder cable is used to conduct power
underground to outside lighting and other applications remote from
residential buildings. UF cable is composed of two or three PVC
insulated copper wire conductors, with or without an uninsulated
ground wire, all jacketed in PVC.
Commercial Wire
THHN Cable. THHN cable is used primarily as feeder, circuit and branch
wiring in commercial and industrial buildings. It is composed of a
single conductor, either stranded or solid, and insulated with PVC,
which is further coated with nylon. Users typically enclose THHN cable
in protective pipe or conduit.
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.
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
(where applicable) over the solid or stranded wire.
2
<PAGE> 5
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 1999 issue of Electrical Wholesaling magazine.
No customer accounted for more than eight percent of net sales in 1999.
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, 1999, it held approximately 89% 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, 1999, additional product inventories are maintained at the warehouses of
independent manufacturers' representatives located in Chattanooga, Tennessee;
Cincinnati, OH; Detroit, Michigan; Edison, New Jersey; Louisville, Kentucky;
Greensboro, North Carolina; 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.
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 .01%,
.35% and .05% of net sales in 1999, 1998 and 1997, 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.
3
<PAGE> 6
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, 1999, Encore had 424 employees, of whom 355 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
requirements are purchased primarily from producers and merchants at prices
determined each month primarily based on the average daily closing prices for
copper for that month, plus a negotiated premium. The Company also purchases raw
materials necessary to manufacture various polyvinyl chloride ("PVC")
thermoplastic compounds. These raw materials primarily include PVC resin, clay
and plasticiser.
The Company began production from its copper rod fabrication facility in
June 1998. 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 new copper rod fabrication facility
manufactured the majority of the Company's copper rod requirements. The Company
produces copper rod from purchased copper cathodes. The Company also reprocesses
copper scrap generated by its operations and copper scrap purchased from others.
In 1999, the Company completed a new facility to manufacture PVC. The
process involves the mixture of PVC raw material components to produce the PVC
used to insulate the Company's wire and cable products. The raw materials
include PVC resin, clay and plasticiser. During 1999, this facility produced
less than half of the Company's PVC requirements. It is anticipated that the
percentage of the Company's requirements supplied by the facility will
significantly increase in future periods.
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 Wire and Cable (a subsidiary of Superior Telecom,
Inc.) and BICCGeneral. 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, including foreign owned facilities
located in the U.S. The Company has encountered no significant
4
<PAGE> 7
competition from imports of residential or commercial wire. The Company believes
this is because direct labor costs generally account for a relatively small
percentage of the cost of goods sold for these products.
PATENT MATTERS
Encore neither has no, 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
By letter dated February 17, 1998, the Company was issued "Findings of
Violation and Order for Compliance" by the EPA. In this document, the EPA
alleged that the Company had failed to obtain a federal storm water discharge
permit pursuant to the Clean Water Act ("CA") for its past and current ongoing
operations in McKinney, Texas, and to otherwise meet the terms of this
permitting program. The Company was ordered timely to (1) apply for a federal
storm water discharge permit, (2) prepare and submit a Storm Water Pollution
Prevention Plan and (3) prepare and file a report with the EPA describing
actions that the Company has taken or would take to correct violations alleged
by the EPA. On March 23, 1998, the Company filed the Storm Water Pollution
Prevention Plan and the written report required by the "Findings of Violation
and Order for Compliance" with the EPA.
The Company's ultimate liabilities, cost and expenses paid and accrued in
relation to the federal storm water discharge enforcement action and other EPA
liabilities have been finally determined and were not material to the operations
of the Company. The sum of $124,950 has been paid in settlement of all potential
liability related to the EPA claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 76 Chairman of the Board of Directors,
and Chief Executive Officer
Donald E. Courtney 69 Vice Chairman of the Board of
Directors
Daniel L. Jones 36 President, Chief Operating Officer,
and Member of the Board of Directors
David K. Smith 40 Vice President -- Operations
Scott D. Weaver 41 Vice President -- Finance, Treasurer
and Secretary
</TABLE>
5
<PAGE> 8
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, General Cable Corporation (now known as
BICCGeneral) employed Mr. Smith.
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).
All executive officers are elected annually by the Board of Directors to
serve until the next annual meeting of the Board or until their respective
successors are chosen and qualified.
6
<PAGE> 9
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
---- ---
<S> <C> <C>
1999
First Quarter ..................................................... 12 13/16 7 3/4
Second Quarter..................................................... 12 7 7/8
Third Quarter...................................................... 12 9
Fourth Quarter..................................................... 9 1/4 6 1/2
1998
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
</TABLE>
On March 10, 2000, the last reported sale price of the Common Stock was
$6.75 per share. As of March 10, 2000, there were 131 record holders of the
Common Stock. The Company estimates that there were approximately 4,000
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.
7
<PAGE> 10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ............................. $ 229,670 $ 244,044 $ 254,640 $ 179,132 $ 151,308
Cost of goods sold .................... 197,636 195,060 201,323 153,448 140,323
--------- --------- --------- --------- ---------
Gross profit ........................ 32,034 48,984 53,317 25,684 10,985
Selling, general and administrative
expenses ............................ 18,742 18,083 16,236 12,413 10,255
--------- --------- --------- --------- ---------
Operating income ...................... 13,292 30,901 37,081 13,271 730
Other income (expense):
Interest and other income ........... 104 145 142 92 108
Interest expense .................... (2,922) (1,876) (1,367) (1,722) (1,724)
--------- --------- --------- --------- ---------
Income (loss) before income taxes ..... 10,474 29,170 35,856 11,641 (886)
Income tax expense (benefit) .......... 3,880 11,602 14,163 4,482 (341)
--------- --------- --------- --------- ---------
Net income (loss) ..................... $ 6,594 $ 17,568 $ 21,693 $ 7,159 $ (545)
========= ========= ========= ========= =========
Net income (loss) per common and common
Equivalent share - diluted .......... $ 0.42 $ 1.07 $ 1.32 $ 0.45 $ (0.03)
========= ========= ========= ========= =========
Weighted average common and common
Equivalent shares - diluted ......... 15,713 16,388 16,482 15,867 15,900
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ....................... $ 74,228 $ 52,825 $ 43,710 $ 39,137 $ 35,560
Total assets .......................... 182,389 156,948 128,755 91,068 84,655
Long-term debt, net of
Current portion ..................... 60,600 44,000 22,200 18,500 23,000
Stockholders' equity .................. 87,423 83,655 70,010 46,899 40,377
</TABLE>
8
<PAGE> 11
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, a
commodity product, 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.
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,
-------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0%
Cost of goods sold:
Copper ................................. 52.1 52.9 58.4
Other raw materials .................... 15.7 14.3 12.3
Depreciation ........................... 3.3 2.3 1.5
Labor and overhead ..................... 14.5 11.5 7.5
LIFO adjustment ........................ 1.5 (1.6) (1.1)
Lower of cost or market adjustment ..... (1.1) 0.6 0.5
----- ----- -----
86.0 80.0 79.1
----- ----- -----
Gross profit ............................... 14.0 20.0 20.9
Selling, general and administrative 8.2 7.4 6.3
expenses ................................... ----- ----- -----
Operating income ........................... 5.8 12.6 14.6
Interest expense, net ...................... 1.2 0.7 0.5
----- ----- -----
Income before income taxes ................. 4.6 11.9 14.1
Income tax expense ......................... 1.7 4.7 5.6
----- ----- -----
Net income ................................. 2.9% 7.2% 8.5%
===== ===== =====
</TABLE>
The following discussion and analysis relates to factors that have affected
the operating results of the Company for the years ended December 31, 1999, 1998
and 1997. Reference should also be made to the consolidated financial statements
and the related notes included elsewhere in this Annual Report.
Net sales were $229.7 million in 1999, compared to $244.0 million in 1998
and $254.6 million in 1997. The decrease in 1999 from 1998, which was partially
offset by a 9.5% increase in sales volume, was due primarily to a 9% 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 decrease from 1997 to 1998
was due primarily to a 16% increase in sales volume offset by 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. Sales volume increases were
due to several factors, including increases in customer acceptance and product
availability. In 1999, 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 1999 issue of Electrical Wholesaling magazine. The average sales
price per copper pound of product sold was $1.37 in 1999 compared to $1.60 in
1998 and $1.93 in 1997. 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 1999, 1998 and 1997 was $.74, $.81 and
$1.09, respectively.
9
<PAGE> 12
Cost of goods sold was $197.6 million in 1999, compared to $195.0 million
in 1998 and $201.3 million in 1997. Copper costs decreased to $119.8 million in
1999 from $129.3 million in 1998 and $148.6 million in 1997. The average cost
per copper pound purchased was $.74 in 1999, $.81 in 1998 and $1.09 in 1997.
Copper costs as a percentage of net sales decreased to 52.1% in 1999 from 52.9%
in 1998 and 58.4% in 1997. The decrease as a percentage of net sales was due
primarily to an decreasing differential between what the Company pays per pound
of copper purchased and the Company's net sales price per copper pound sold.
This differential has decreased primarily due to competitive pricing for the
Company's products. Other raw material costs as a percentage of net sales were
15.7%, 14.3% and 12.3% in 1999, 1998 and 1997, respectively. The increase is due
primarily to the Company's sales price per copper pound sold decreasing (as
discussed above) while the cost of other raw materials per pound of copper sold
remained relatively constant. Depreciation, labor and overhead costs as a
percentage of net sales were 17.8% in 1999, compared to 13.8% in 1998 and 9.0%
in 1997. The increases in 1999 and 1998 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 as a percentage of sales, due to a
decrease in the sales price per copper pound sold (as discussed above) 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 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 an additional 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. Although average copper costs during 1999 were lower than
1998, the cost at the end of 1999 was higher than the cost at the end of 1998.
As a result of increases in the cost of copper during 1999 (specifically at the
end of 1999), the value of all inventory at December 31, 1999 using the LIFO
method was greater than its FIFO value by approximately $3,276,000, resulting in
a corresponding increase in the cost of goods sold of $3,360,833. At December
31, 1999, LIFO value exceeded the market value of the inventory by $159,000,
thereby necessitating a reversal of the previously established lower of cost or
market reserve in the amount of $2,465,000 and a corresponding decrease in the
cost of goods sold. The net of these two adjustments increased cost of goods
sold by $263,000. 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 $32.0 million, or 14.0% of net sales, in 1999
from $48.9 million, or 20.0% of net sales, in 1998 and $53.3 million, or 20.9%
of net sales, in 1997. The changes in gross profit were due to the factors
discussed above.
General and administrative expenses were $5.2 million in 1999, $5.0 million
in 1998 and $3.8 million in 1997. As a percentage of net sales, general and
administrative expenses were 2.3% in 1999, 2.0% in 1998 and 1.5% in 1997. In
1999 and 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 $13.5 million in
1999, $13.0 million in 1998 and $12.4 million in 1997. As a percentage of net
sales, selling expenses were 5.9% in 1999, 5.3%
10
<PAGE> 13
in 1998 and 4.9% in 1997. 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
as discussed above.
Interest expense increased to $2,922,000 in 1999 from $1,876,000 in 1998
and $1,367,000 in 1997. The increase is due primarily to the increase in debt
relating to capital expenditures during these periods including the construction
of the Company's copper rod fabrication facility and PVC manufacturing facility.
In addition, the Company used debt to finance common stock repurchases in 1998
and 1999. The Company capitalized interest expense relating to the construction
of assets in the amounts of $330,000 in 1999, $570,000 in 1998 and $374,000 in
1997.
The Company's effective tax rate decreased in 1999 to 37.0% as a result of
an entity restructuring. It remained constant at 39.5% in 1998 and 1997.
As a result of the foregoing factors, the Company's net income was $6.6
million in 1999, $17.6 million in 1998 and $21.7 million in 1997.
11
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's cash flow activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net income ................................... $ 6,594 $ 17,567 $ 21,693
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization ............ 8,088 5,937 4,060
Other non-cash items ..................... 2,993 2,760 469
Increase in accounts receivable,
inventory and other assets .............. (24,964) (2,226) (14,709)
Increase in trade accounts payable,
accrued liabilities and other
liabilities ............................. 2,085 (8,580) 10,225
Net cash provided by (used in) operating -------- -------- --------
activities .................................. (5,206) 15,458 21,738
Investing activities:
Purchases of property, plant and
equipment (net) .......................... (8,744) (33,068) (26,952)
Financing activities:
Increase in indebtedness, net ............ 16,600 21,800 3,700
Issuances of common stock ................ 65 635 1,517
Purchase of treasury stock ............... (2,891) (4,558) (99)
-------- -------- --------
Net cash provided by financing
activities ................................... 13,774 17,877 5,118
-------- -------- --------
Net increase (decrease) in cash .............. $ (176) $ 267 $ (96)
======== ======== ========
</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 August 31, 1999, the Company through its indirectly wholly owned
subsidiary, Encore Wire Limited 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 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, 1999, 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 of December
31, 1999. Pursuant to the Financing Agreement, the Company is prohibited from
declaring, paying or issuing cash dividends. At December 31, 1999, the balance
outstanding under the Financing Agreement was $60.6 million. Amounts
12
<PAGE> 15
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.
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 were made in the open market or through privately negotiated
transactions. As of December 31, 1999, the Company had repurchased an aggregate
of 1,006,000 shares of its common stock in the open market pursuant to this
program and subsequent Board authorization. The weighted average cost of these
shares was $9.00 per share. The Company purchased an aggregate of 303,425 shares
under this authorization during 1999.
Cash used in operations was $5.2 million in 1999 compared to cash provided
by operations of $15.5 million in 1999 and $21.7 million in 1998. The changes
from 1998 to 1999 were due primarily to changes in the Company's net income and
increases in accounts receivable and inventory. Cash used in investing
activities decreased to $8.7 million in 1999 from $33.1 million in 1999 and
$26.9 million in 1998. 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 provided by financing activities was primarily due to increases in the
amount of indebtedness provided by additional borrowings on the Company's loan
facility. Cash provided by financing activities was reduced by $2.9 million in
1999, $4.6 million in 1998 and $99,000 in 1997, as a result of the purchase of
treasury stock. Cash provided by financing activities was increased by $65,000
in 1999, $635,000 in 1998, and $1.5 million in 1997 as the result of the
issuance of common stock.
During 1999, the Company expects its capital expenditures will consist of
maintaining and adding manufacturing equipment for its residential and
commercial wire operations. The total capital expenditures associated with these
capital expenditures are estimated not to exceed $7.5 million. The Company also
expects its working capital requirements to increase during 2000 as a result of
continued increases in sales and potential increases in the cost of copper.
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
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of these planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes its
systems successfully responded to the Year 2000 date change. The Company
expensed less than $50,000 during 1999 directly in connection with remediating
its systems. The Company is not aware of any material problems resulting from
Year 2000 issues, either with its products, its internal systems, or the
products and services of third parties. The Company will continue to monitor its
mission critical computer applications and those of its suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This report contains various forward-looking statements and information
that are based on management's belief as well as assumptions made by and
information currently available to management. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those expected. Among the key factors that may have a direct
bearing on the Company's operating results are fluctuations in the economy and
in the level of activity in the building and construction industry, demand for
the Company's products, the impact of price competition and fluctuations in the
price of copper.
13
<PAGE> 16
ITEM 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
producers and merchants 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.
Effective August 31, 1999, the Company through its indirectly wholly owned
subsidiary, Encore Wire Limited completed an unsecured loan facility with a
group of banks (the "Financing Agreement"). 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, 1999, the balance outstanding under the Financing Agreement was
$60.6 million, and the average interest rate was 6.993%. 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, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Dallas, Texas
January 28, 2000
15
<PAGE> 18
Encore Wire Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,255,915 $ 1,431,536
Accounts receivable, net of allowance for losses of $485,156 and
$500,000 in 1999 and 1998, respectively 46,592,413 37,945,765
Inventories (Note 2) 54,638,357 37,859,917
Prepaid expenses and other 367,690 246,899
Current taxes receivable -- 581,783
------------- -------------
Total current assets 102,854,375 78,065,900
Property, plant, and equipment - at cost:
Land 3,583,329 3,568,329
Construction-in-progress 2,190,627 12,296,115
Buildings and improvements 26,003,321 25,363,242
Machinery and equipment 74,051,866 56,873,800
Furniture and fixtures 1,865,323 1,212,235
------------- -------------
107,694,466 99,313,721
Accumulated depreciation and amortization (28,304,905) (20,653,774)
------------- -------------
79,389,561 78,659,947
Other assets 145,035 222,535
------------- -------------
Total assets $ 182,388,971 $ 156,948,382
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 18,081,545 $ 16,847,937
Accrued liabilities (Note 3) 8,212,761 7,876,908
Current income taxes payable 514,366 --
Current deferred income taxes (Note 5) 1,818,057 516,000
------------- -------------
Total current liabilities 28,626,729 25,240,845
Noncurrent deferred income taxes (Note 5) 5,739,550 4,052,934
Long-term note payable (Note 4) 60,600,000 44,000,000
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 -16,337,922 in 1999 and
16,304,129 in 1998 163,379 163,041
Additional paid-in capital 30,655,663 30,591,061
Treasury Stock, at cost - 1,006,000 in 1999 and 702,575 in 1998 (9,057,353) (6,166,525)
Retained earnings 65,661,003 59,067,026
------------- -------------
Total stockholders' equity 87,422,692 83,654,603
------------- -------------
Total liabilities and stockholders' equity $ 182,388,971 $ 156,948,382
============= =============
</TABLE>
See accompanying notes.
16
<PAGE> 19
Encore Wire Corporation
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 229,669,808 $ 244,044,135 $ 254,639,993
Cost of goods sold 197,635,985 195,059,722 201,323,137
------------- ------------- -------------
Gross profit 32,033,823 48,984,413 53,316,856
Selling, general, and administrative expenses 18,741,589 18,083,414 16,235,787
------------- ------------- -------------
Operating income 13,292,234 30,900,999 37,081,069
Other income (expense):
Interest and other income 103,605 145,056 141,836
Interest expense (2,921,762) (1,876,315) (1,367,068)
------------- ------------- -------------
Income before income taxes 10,474,077 29,169,740 35,855,837
Income tax expense (Note 5) 3,880,100 11,602,400 14,163,062
------------- ------------- -------------
Net income $ 6,593,977 $ 17,567,340 $ 21,692,775
============= ============= =============
Weighted average common shares - basic (Note 7) 15,468,107 15,843,591 15,791,856
============= ============= =============
Basic earnings per common share $ 0.43 $ 1.11 $ 1.37
============= ============= =============
Weighted average common shares - diluted (Note 7) 15,713,491 16,388,259 16,481,925
============= ============= =============
Diluted earnings per common share $ 0.42 $ 1.07 $ 1.32
============= ============= =============
</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, 1996 7,112,917 $ 71,129 $ 28,528,910 $ (1,509,011) $ 19,807,985 $ 46,899,013
Proceeds from exercise of stock
options 98,520 985 810,547 -- -- 811,532
Purchase of treasury stock -- -- -- (99,379) -- (99,379)
Tax benefit on exercise of stock
options -- -- 706,463 -- -- 706,463
Stock split 3,586,948 35,869 (35,869) -- (336) (336)
Net income -- -- -- -- 21,692,775 21,692,775
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 10,798,385 107,983 30,010,051 (1,608,390) 41,500,424 70,010,068
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
options -- -- 222,281 -- -- 222,281
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
Proceeds from exercise of stock
options 33,793 338 42,977 -- -- 43,315
Purchase of treasury stock -- -- -- (2,890,828) -- (2,890,828)
Tax benefit on exercise of stock
options -- -- 21,625 -- -- 21,625
Net income -- -- -- -- 6,593,977 6,593,977
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 16,337,922 $ 163,379 $ 30,655,663 $ (9,057,353) $ 65,661,003 $ 87,422,692
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
18
<PAGE> 21
Encore Wire Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,593,977 $ 17,567,340 $ 21,692,775
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 8,088,037 5,937,397 4,060,125
Provision for bad debts -- 650,000 340,869
Deferred income taxes 2,988,673 2,122,090 127,844
(Gain) loss on disposal of assets 3,904 (11,942) 2,154
Changes in operating assets and liabilities:
Accounts receivable (8,646,648) 5,706,342 (11,411,105)
Inventories (16,778,440) (7,263,186) (3,348,802)
Prepaid expenses and other (120,791) (87,996) 50,821
Current income taxes receivable 581,783 (581,783) --
Trade accounts payable 1,233,608 (6,531,734) 7,822,083
Accrued liabilities 335,853 (371,108) 2,082,636
Current income taxes payable 514,366 (1,677,402) 318,539
------------ ------------ ------------
Net cash (used in) provided by operating activities (5,205,678) 15,458,018 21,737,939
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (8,939,393) (33,302,363) (26,621,051)
Increase in long term investments 4,500 -- (4,180)
(Increase) decrease in deposits 73,000 188,560 (343,415)
Proceeds from sale of equipment 117,838 45,450 16,000
------------ ------------ ------------
Net cash used in investing activities (8,744,055) (33,068,353) (26,952,646)
FINANCING ACTIVITIES
Increase in long-term note payable 16,600,000 21,800,000 3,700,000
Proceeds from issuance of common stock, net 64,940 635,330 1,517,659
Purchase of treasury stock (2,890,828) (4,558,135) (99,379)
------------ ------------ ------------
Net cash provided by financing activities 13,774,112 17,877,195 5,118,280
------------ ------------ ------------
Net increase (decrease) in cash (175,621) 266,860 (96,427)
Cash at beginning of year 1,431,536 1,164,676 1,261,103
------------ ------------ ------------
Cash at end of year $ 1,255,915 $ 1,431,536 $ 1,164,676
============ ============ ============
</TABLE>
See accompanying notes.
19
<PAGE> 22
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Encore Wire Corporation (the Company) conducts its business in one segment - the
manufacture of copper electrical wire, principally NM cable, for use primarily
as interior wiring in homes, apartments, and manufactured housing, and THHN
cable, for use primarily as wiring in commercial and industrial buildings. The
Company sells its products primarily through approximately 30 manufacturers'
representatives located throughout the United States and, to a lesser extent,
through its own direct marketing efforts. The principal customers for 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 60.6%, 66.2%, and
73.8% of its cost of goods sold during 1999, 1998, and 1997, 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 an additional 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 reclassed 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 accounts
receivable of $27,343 and $859,830 in 1999 and 1998, 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.
INVENTORIES
Inventories are stated at the lower of cost using the last-in, first-out (LIFO)
method or market.
20
<PAGE> 23
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.
REVENUE RECOGNITION
Revenue from the sale of the Company's products is recognized upon shipment to
the customer.
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>
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 9,014,495 $ 6,152,026
Work-in-process 5,961,346 4,339,609
Finished goods 36,545,571 23,355,863
------------ ------------
51,521,412 33,847,498
Adjust to LIFO cost 3,276,378 6,637,212
Lower of cost or market adjustment (159,433) (2,624,793)
------------ ------------
$ 54,638,357 $ 37,859,917
============ ============
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Sales volume discounts payable $ 4,800,813 $ 5,073,488
Property taxes payable 1,643,402 1,015,951
Commissions payable 693,547 349,297
Other accrued liabilities 1,074,999 1,438,172
------------ ------------
$ 8,212,761 $ 7,876,908
============ ============
</TABLE>
21
<PAGE> 24
4. LONG-TERM NOTE PAYABLE
On August 31, 1999, the Company signed a new Financing Agreement with a bank to
provide for a 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 $68.2
million at December 31, 1999). 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, 1999, the balance outstanding under the revolving credit facility
was $60.6 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,
1999 was 6.993%). Each of the interest rate options includes a premium dependent
upon the Company's financial performance.
The Company paid interest totaling $2,831,275, $1,957,269, and $1,761,660 in
1999, 1998, and 1997, respectively. The Company capitalized $329,738 and
$570,136 of interest in 1999 and 1998, 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>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 802,604 $ 8,181,896 $12,108,230
State 88,823 1,298,414 1,926,988
Deferred 2,988,673 2,122,090 127,844
----------- ----------- -----------
$ 3,880,100 $11,602,400 $14,163,062
=========== =========== ===========
</TABLE>
The differences between the provision for income taxes and income taxes computed
using the federal income tax rate are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed using the
statutory rate $ 3,661,526 $10,209,409 $12,549,543
State income taxes, net of federal
tax benefit 145,395 1,011,677 1,497,702
Change in tax rate -- -- 68,000
Other items 73,179 381,314 47,817
----------- ----------- -----------
$ 3,880,100 $11,602,400 $14,163,062
=========== =========== ===========
</TABLE>
22
<PAGE> 25
The tax effect of each type of temporary difference giving rise to the deferred
tax liability at December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
DEFERRED TAX ASSET (LIABILITY)
1999 1998
--------------------------------------------------------
CURRENT NONCURRENT CURRENT NONCURRENT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Depreciation and amortization $ -- $(5,739,550) $ -- $(4,052,934)
Inventory (2,472,617) -- (1,009,000) --
Allowance for doubtful accounts 186,785 -- 193,000 --
Accrued expenses 124,269 -- 196,000 --
Uniform capitalization rules 400,115 -- 146,000 --
Other (56,609) -- (42,000) --
----------- ----------- ----------- -----------
$(1,818,057) $(5,739,550) $ (516,000) $(4,052,934)
=========== =========== =========== ===========
</TABLE>
The Company made income tax payments (refunds) of $(227,000) in 1999,
$11,521,000 in 1998, and $13,010,000 in 1997.
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,
1999, 1998, and 1997:
<TABLE>
<CAPTION>
SHARES UNDER PRICE PER AGGREGATE OPTION
OPTIONS SHARE PRICE
------------ ------------ ----------------
<S> <C> <C> <C>
Options outstanding at December 31, 1996 1,042,200 $ 0.33-6.22 $ 4,728,614
Options granted 178,500 8.33-17.00 1,945,500
Options exercised (193,545) 0.33-6.22 (811,517)
Options canceled (89,820) 3.06-8.45 (537,850)
----------- ------------ -----------
Options outstanding at December 31, 1997 937,335 0.33-17.00 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 0.33-17.33 5,855,159
OPTIONS GRANTED 116,500 6.50-9.25 775,125
OPTIONS EXERCISED (33,793) 0.33-4.50 (197,126)
OPTIONS CANCELED (33,555) 4.17-10.00 (10,961)
----------- ------------ -----------
OPTIONS OUTSTANDING AT DECEMBER 31, 1999 974,952 $ 0.33-17.33 $ 6,422,197
=========== ============ ===========
</TABLE>
At December 31, 1999, 674,592 options are currently exercisable and 974,952
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
23
<PAGE> 26
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:
6. STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate 6.43% 4.73% 6.17%
Expected dividend yield 0.00% 0.00% 0.00%
Expected volatility 54% 51% 45%
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.
The weighted-average fair value of stock options granted during the years ended
December 31, 1999, 1998, and 1997, was $3.57, $5.16 and $5.22, 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 earnings
per common share information):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- -------
<S> <C> <C> <C> <C>
Net income As reported $6,594 $17,567 $21,693
Pro forma $6,436 $17,434 $21,616
Basic earnings per common share As reported $0.43 $1.11 $1.37
Pro forma $0.42 $1.10 $1.37
Diluted earnings per common share As reported $0.42 $1.07 $1.32
Pro forma $0.41 $1.06 $1.31
</TABLE>
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income $ 6,593,977 $17,567,340 $21,692,775
=========== =========== ===========
Denominator:
Denominator for basic earnings
per share - weighted average
shares 15,468,107 15,843,591 15,791,856
Effect of dilutive securities:
Employee stock options 245,384 544,668 690,609
----------- ----------- -----------
Denominator for diluted earnings
per share -weighted average
shares 15,713,491 16,388,259 16,481,925
=========== =========== ===========
</TABLE>
24
<PAGE> 27
8. CONTINGENCIES
The Company is a party to litigation and claims that arise out of the ordinary
business of the Company. While the results of these matters can not be predicted
with certainty, the Company does not believe the final outcome of such
litigation and claims will have a material adverse effect on the financial
condition, the results of operation or the cash flows of the Company because the
Company believes that it has adequate insurance and reserves to cover any
damages that may ultimately be awarded.
9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information for
the two years ended December 31, 1999 and 1998 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1999 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 63,524 $ 55,442 $ 53,063 $ 57,641
Gross profit 9,182 6,063 8,054 8,735
Net income 2,258 586 1,909 1,841
Net income per common share - basic 0.14 .04 0.12 0.12
Net income per common share - diluted 0.14 .04 0.12 0.12
</TABLE>
<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>
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 8, 2000 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 8, 2000 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 8, 2000 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, 1999 and 1998
Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for years ended December
31, 1999, 1998 and 1997
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, 1999.
26
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, Encore Wire Corporation has duly caused this Annual Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
ENCORE WIRE CORPORATION
Date: March 27, 2000
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 27, 2000
- --------------------------------------------- of Directors and Chief
Vincent A. Rego Executive Officer
/s/ DANIEL L. JONES President and Chief Operating March 27, 2000
- --------------------------------------------- Officer
Daniel L. Jones
/s/ SCOTT D. WEAVER Vice President-- Finance, March 27, 2000
- --------------------------------------------- Secretary and Treasurer
Scott D. Weaver (Principal Financial
and Accounting Officer)
</TABLE>
27
<PAGE> 30
<TABLE>
<S> <C> <C>
/s/ DONALD E. COURTNEY Vice-Chairman of the March 27, 2000
- --------------------------------------------- Board of Directors
Donald E. Courtney
/s/ JOSEPH M. BRITO Director March 27, 2000
- ---------------------------------------------
Joseph M. Brito
/s/ JOHN H. WILSON Director March 27, 2000
- ---------------------------------------------
John H. Wilson
/s/ JOHN P. PRINGLE Director March 27, 2000
- ---------------------------------------------
John P. Pringle
/s/ WILLIAM R. THOMAS Director March 27, 2000
- ---------------------------------------------
William R. Thomas
</TABLE>
28
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
3.1 Certificate of Incorporation of Encore Wire Corporation, as amended
(filed as Exhibit 3.1 to the Company's Registration Statement on Form
S-1, as amended (No. 33-47696), and incorporated herein by reference).
3.2 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
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C>
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).
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
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
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).
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).
10.25 Financing Agreement by and among Encore Wire Limited, as Borrower,
Bank of America, National Association, as Agent, and Bank of America,
National Association, and Comerica Bank-Texas, as Lenders, dated
August 31, 1999 (filed as exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999 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
<PAGE> 2
SUBSIDIARIES
EWC Aviation Corp., a Texas corporation
EWC GP Corp., a Delaware corporation
EWC LP Corp., a Delaware corporation
Encore Wire Limited, a Texas Limited Partnership
<PAGE> 1
EXHIBIT 23.1
<PAGE> 2
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 28, 2000, with respect to the consolidated financial
statements of Encore Wire Corporation included in the Form 10-K for the year
ended December 31, 1999.
/s/ Ernst & Young LLP
--------------------------
Dallas, Texas
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,255
<SECURITIES> 0
<RECEIVABLES> 47,077
<ALLOWANCES> 485
<INVENTORY> 54,638
<CURRENT-ASSETS> 102,854
<PP&E> 107,694
<DEPRECIATION> 28,305
<TOTAL-ASSETS> 182,389
<CURRENT-LIABILITIES> 28,626
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 87,259
<TOTAL-LIABILITY-AND-EQUITY> 182,389
<SALES> 229,669
<TOTAL-REVENUES> 229,669
<CGS> 197,635
<TOTAL-COSTS> 18,741
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,818
<INCOME-PRETAX> 10,474
<INCOME-TAX> 3,880
<INCOME-CONTINUING> 6,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,593
<EPS-BASIC> .43
<EPS-DILUTED> .42
</TABLE>
