FORM 10-K
FORM 10-K |
ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2016
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ENCORE WIRE CORPORATION
(Exact name of registrant as specified in its charter)
ENCORE WIRE CORPORATION (Exact name of registrant as specified in its charter) |
Delaware | 75-2274963 | |
| (I.R.S. Employer Identification No.) | |
1329 Millwood Road McKinney, Texas | 75069 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $.01 per share | The NASDAQ Global Select Market |
Large accelerated filer | ý | Accelerated filer | ||||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | ¨ |
23, 2017: 20,736,248
(1) | Proxy statement for the |
PAGE | ||||
Item 16. Form 10-K Summary | ||||
employees. polyvinyl chloride (PVC). pipe. sheathing. with a single layer of cross-linked polyethylene (XLPE) insulation.its’its low-cost production capabilities to help the Company prosper. 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.capabilities. Encore’s low-cost production capability features an efficient plant design incorporating highly automated manufacturing equipment, an integrated production process and a highly motivatedhighly-motivated work force.StrategyEncore’s strategy for expanding its share of the building wire markets emphasizesservice and product innovations coupled with low-cost production.Customer Service. Responsiveness to customers is a primary focus of Encore,needs, 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 orders, shipments, inquiries 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.Innovation.Innovation: Encore has been a leader in bringing new ideas to a commodity product. Encore pioneered the widespread use of color feeder sizes of commercial wire and colors in the residential non-metallic cable. The colors have improved on the jobon-the-job safety and reduced installation times for contractors. Encore Wire’s new patented SmartColor ID® system for metal-clad and armor cladarmor-clad cables allows for quick and accurate identification of gauge, number of conductors, wire and jacket type. Additionally, Encore currently has two patentednineteen patents and seventeentwenty-nine patent-pending innovations that range from process improvements to packaging solutions.Production.Production: Encore’s low-cost production capability features an efficient plant design and an incentivized work force.Design.Design: Encore’s highly automated wire manufacturing equipment is integrated in an efficient design that reduces material handling, labor and in-process inventory.Force.Force: The Company has a stock option plan and a stock appreciation rights plan that enhancesenhance the motivation of its salaried manufacturing supervisors. The Company also has a comprehensive safety program that emphasizes employee participation. The Company provides a 401(k) retirement savings plan to all employees with at least one year of service.metal cladmetal-clad and armored cable. All of these products are manufactured with copper or aluminum as the conductor. The Company also purchases small quantities of other types of wire to re-sell to customers that buy products that the Company manufactures. The principal bases for differentiation among stock-keeping units (“SKUs”) are product type, conductor type, diameter, insulation, color and packaging.Cable.Cable: Non-metallic sheathed cable is used primarily as interior wiring in homes, apartments and manufactured housing. NM-B cable is composed of either two or three insulated copper wire conductors, with an un-insulateduninsulated ground wire, all sheathed in a polyvinyl chloride (“PVC”) jacket.Cable.Cable: Underground feeder cable is used to conduct power underground to outside lighting and other applications remote from buildings.buildings or structures. UF-B cable is composed of two or three PVCpolyvinyl chloride (PVC) insulated copper wire conductors, with an un-insulateduninsulated ground wire, all jacketed in PVC.Cable.Cable (Style U): Service Entrance cable is primarily utilized as an aboveground external service dropentrance cable from the meter enclosure to the meter base to theservice distribution equipment. SESE-U style cable is composed of copper or aluminum multiple conductors, insulated with PVCpolyvinyl chloride (PVC) or a single layer of cross-linked polyethylene (XLPE) insulation, all jacketed in PVC.Cable.Cable: THHN/THWN-2 cable is used primarily as branch circuit, feeder circuit and branch wiring inservice entrance conductors within commercial and industrial buildings.buildings and structures. It is composed of a copper or aluminum single conductor, either stranded or solid, and insulated with PVC, which is further coated with nylon. Users typically pull THHN/THWN-2 cable through cable tray or protective conduit pipeCable.XHHW-2 wirecable is intended for general purpose applications utilized in conduit or other recognized raceways forused primarily as branch circuit, feeder and service feeders,entrance conductors within commercial and branch-circuit wiring.industrial buildings and structures. It is composed of a copper or aluminum single conductor, either stranded or solid, and with a single layer of cross-linked polyethylene (XLPE) insulation.USE-2 Cable. wire cable is intended for general purpose applications utilized in conduit or installed indirect burial, underground applications as USE-2 or as RHH or RHW-2 for either aboveground or underground applications in recognizedlisted raceways for branch circuit, feeder and service feeders, and branch-circuit wiring.entrance conductors. It is composed of a copper or aluminum single conductor, either stranded or solid, and with a single layer of cross-linked polyethylene (XLPE) insulation suitable for wet locations.Metal CladArmored Cable.Metal cladsignal circuits for direct installations in raceways, outdoor locations where supported by a messenger wire, in cable trays and armoreddirect burial in underground installations where evaluated for the specific condition of use. It is composed of copper or aluminum multiple conductors, insulated with polyvinyl chloride (PVC) or cross-linked polyethylene (XLPE) with either insulated or bare equipment grounding conductor, all jacketed in rugged polyvinyl chloride (PVC).branch wiring,feeders, primarily in commercial and industrial buildings. It is composed of multiple conductors, either stranded or solid, and insulated with PVC,polyvinyl chloride (PVC), which are further coated with nylon and then fully encased in a flexible aluminum or steel “armored” protective sheath that eliminates the need to pull the wire through pipe or conduit.Cable.Single-Conductor Cable: Photovoltaic (PV) style conductors and/or cables are designedprimarily intended for use as photovoltaic (PV) direct-current output circuit and source circuits between the PV arrays and combiner boxes. It is composed of a copper or aluminum single conductor, either stranded or solid, and with a single layer of cross-linked polyethylene (XLPE) insulation.meet the different needsmobile homes as defined in Article 550 of the emerging Solar Industry by providing connections between PV panels, collector boxesNational Electrical Code®. It may be directly buried in earth or in a listed raceway system in both wet and inverters;dry locations. It is composed of a copper or aluminum single conductor, either stranded or solid, and where also allowed by the National Electric Code (NEC).Bare Copper.Bare copperwith a single layer of cross-linked polyethylene (XLPE) insulation.used inprimarily for overhead secondary distribution, as service entrance conductors overhead, and as service drop conductors from utility transformers to premise wiring systems. It is composed of electrical transmissiongrade 1350 series aluminum alloy conductors, typically stranded, and distribution systems for grounding electrical systems, and where high-conductivity and flexibility are required for equipment and circuit grounding.Casting.Drawing.Stranding.Compounding.Compounding: PVC compounding is the process of mixing the various raw materials that are required to produce the PVC necessary to meet U/L specifications of Underwriters Laboratories, Inc. (“UL”) for the insulation and jacket requirements for the wire that is manufactured.Insulating.Jacketing.un-insulateduninsulated 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. Jacketing also comprises extruding a nylon covering over some PVC insulatedPVC-insulated products, such as THHN/THWN-2.Metal CladdingArmoring.Metal claddingArmoring: Metal-cladding and armoring is the process of covering two or more insulated conductor wires, with or without an un-insulateduninsulated ground wire, with a spiral interlocking cover of aluminum or steel to form a finished product.standards of Underwriters Laboratories Inc. (“U/L”),(UL) standards, a nationally recognized testing and standards agency. Encore’s machine operators and quality control inspectors conduct routine product tests.inspections. The Company tests finished products for electrical continuity to ensure compliance with its own quality standards and those of U/L.UL. 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 perform and record routine physical measurements of products, all of which are separately verified and approved by quality control inspectors. Although suppliers pre-test PVC and nylon compounds, the Company tests products for aging, cracking and brittleness of insulation and jacketing. Additionally, UL representatives routinely visit and test products from each area of manufacturing. principally to wholesale electrical distributors throughout the United States and, to a lesser extent, to retail home improvement centers.States. Most distributors supply products to electrical contractors. Encore’s customer base is numerous and diversified. Encore has two customers, each of whom slightly exceed 10% of the Company's total sales. Encore has no customer, the loss of which would have a material adverse effect on the Company.in order to reduce costs,for a variety of reasons, many customers do notstrive to maintain substantiallean inventories. Because of this trend, the Company seeks to maintain sufficient inventories to satisfy customers’ prompt delivery requirements.of the Company’s products, additional product inventories are maintained at warehouses owned and operated by independent manufacturers’ representatives located throughout the United States. As of December 31, 2013, additional product inventories are maintained at the warehouses of independent manufacturers’ representatives located in Chattanooga, Tennessee;TN; Norcross, Georgia;GA; Cincinnati, Ohio;OH; Canton, Michigan; Edison, New Jersey;MI; Fairless Hills, PA; Louisville, Kentucky;KY; Greensboro, North Carolina;NC; Pittsburgh, Pennsylvania;PA; Santa Fe Springs, California;CA; Hayward, California;CA; Portland, OR, andFlorida.FL. 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.nominalno bad debt charges in 2013, 2012,2016, 2015, and 2011.2014. The manufacturers’ representatives have no discretion to determine prices charged for the Company’s products, and all sales are subject to approval by the Company.Company approval. Encore sells all of its products with a one-year replacement warranty. Warranty expenses have historically been nominal. The Company attributes the motivation of these employees largely to the fact that Encore offers competitive hourly compensation that is directly tied to productivity and quality standards. The Company believes that competitive hourly compensation coupled with sound management practices focuses its employees on maintaining high production standards and product quality.2013,2016, Encore had 1,1081,253 employees, 9431,060 of whom were paid hourly wages and were primarily engaged in the operation and maintenance of the Company’s manufacturing and warehouse facility.facilities. The rest of the Company’s remaining 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.nearly 85.6%77.8% of the dollar value of all raw materials used by the Company during 2013.2016. Copper requirements are purchased primarily from miners and commodity brokers at prices determined each month primarily based on the average daily COMEX closing prices for copper for that month, plus a negotiated premium. The Company also purchases raw materials necessary to manufacture various PVC thermoplastic compounds. These raw materials include PVC resin, clay and plasticizer.cathodescathode and copper scrap in its own rod fabrication facility. The Company reprocesses copper scrap generated by its operations andas well as copper scrap purchased from others. In 2013,2016, the Company’s copper rod fabrication facility manufactured the majority of the Company’s copper rod requirements. The Company purchases aluminum rod from various suppliers for aluminum wire production.United Copper Industries, General Cable Corporation and AFC Cable Systems, Inc. of the Company, order fill rate, quality, pricing, and, in some instances, breadth of product line. The Company believes that it is competitive with respect to all of these factors.ResearchCosts attributable to Company-sponsored research and development costsactivities were approximately $1.5$2.0 million, $1.6$1.8 million and $1.0$1.7 million for the years ended December 31, 2013, 20122016, 2015 and 2011,2014, respectively. Research and development costs attributable to customer-sponsored research activities performed by the Company were insignificant.20152017 and 2023, but each registration can be renewed indefinitely as long as the respective mark continues to be used in commerce and the requisite proof of continued use or renewal application, as applicable, is filed. These trademarks provide source identification for the goods manufactured and sold by the Company and allow the Company to achieve brand recognition within the industry.“Investors Info”“Investors” section of our website, the Company provides a link to our electronic Securities and Exchange Commission (“SEC”) filings, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, director and officer beneficial ownership reports filed pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and any amendments to these reports. All such reports are available free of charge and are available as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC.
slows down. common stock.productproducts in accordance with prevailing market prices. Wire prices can, and frequently do, change on a daily basis. This competitive pricing market for wire does not always mirror changes in copper prices, making margins highly volatile. Copper, a commodity product, is the principal raw material used in the Company’s manufacturing operations. Copper accounted for approximately 77.6%65.2%, 79.0%72.1% and 86.1%74.7% of the costs of goods sold by the Company during 2013, 20122016, 2015 and 2011,2014, respectively, and the Company expects that copper will continue to account for a significant portion of these costs in the future. The price of copper fluctuates depending on general economic conditions and in relation to supply and demand and other factors, and it causes monthly variations in the cost of copper purchased by the Company. The SEC has recently issued an order amending a rule to allowallows shares of a physically backed copper exchange traded fundfunds (“ETF”ETFs”) to be listed and publicly traded. Such fundfunds and other copper ETFs like it hold copper cathode as collateral against their shares. The acquisition of copper cathode by Copper ETFs may materially decrease or interrupt the availability of copper for immediate delivery in the United States, which could materially increase the Company’s cost of copper. In addition to rising copper prices and potential supply shortages, we believe that ETFs and similar copper-backed derivative products could lead to increased copper price volatility. The quarterly results of operations may fluctuate as a result of a number of factors, including fluctuation in the demand for and shipments of the Company’s products. Therefore, quarter-to-quarter comparisons of results of operations have been and will be impacted by the volume of such orders and shipments. In addition, itsthe Company's operating results could be adversely affected by the following factors, among others, such as variations in the mix of product sales, price changes in response to competitive factors, increases in raw material costs and other significant costs, the loss of key manufacturer’s representatives who sell the Company’s product line, increases in utility costs (particularly electricity and natural gas) and various types of insurance coverage and interruptions in plant operations resulting from the interruption of raw material supplies and other factors.rates, among other factors.rates. Industry sales of electrical wire and cable products tend to parallel general construction activity, which includes remodeling. Housing constructionConstruction activity in the United States declined significantlysuffered through a severe recession in 20062008 through 2012. Construction began to pick up in strongly in 2013 and continued its downward trenddoing well through 2010, improving somewhat in 2011 through 2013. Nationally, commercial2016. While volumes were not at "boom" levels nationally, there were regional pockets of strength, such as Texas, while other regions of the country had lower levels of activity. According to various industry and national economic forecasts, the future is unclear for the next few years. Data on remodeling is not as readily available. However, remodeling activity historically trends up when new construction had been strong through 2007, but slowed significantly in 2008, and continued downward through 2012, improving slightly in 2013. The ongoing sluggish economy in the United States and the overhang of excess housing and commercial and industrial buildings may have a negative impact on the construction industry for some time to come. current industry and economic conditions may result in reduced sales, an inability to collect receivables and payment delays or losses due to a customer’s bankruptcy or insolvency. Although the Company’s bad debt experience has been relatively low even in recent years, the Company’s inability to collect receivables may increase the amounts the Company must expense against its bad debt reserve, decreasing the Company’s profitability. TheA downturn in the residential, commercial or industrial construction industries and general economic conditions as a whole may continue to have a material adverse effect on the Company.Common Stockcommon stock to fluctuate substantially. These fluctuations, as well as general economic, political and market conditions, such as recessions, world events, military conflicts or market or market-sector declines, may materially and adversely affect the market price of the Common Stock.40%44% of the Company’s outstanding common stock of the Company.stock. Depending on stockholder turnout for a stockholder vote, these stockholders, acting together, could be able to control the election of directors and certain matters requiring majority approval by the Company’s stockholders. The interests of this group of stockholders may not always coincide with the Company’s interests or the interests of other stockholders.In February 2012, the Company entered into a Registration Rights Agreement with Capital Southwest Corporation and Capital Southwest Venture Corporation (together, the “Capital Southwest”), pursuant to which the Company agreed to register the offer and sale of an aggregate of 4,086,750 shares of the Company’s common stock held by Capital Southwest on a registration statement on Form S-3 (the “Registration”). On May 14, 2012, the Company repurchased 2,774,250 shares of common stock owned by Capital Southwest Venture Corporation at an aggregate purchase price of $66,638,000, based on a price of $24.02 per share. The Company cannot predict if, when or in what amounts Capital Southwest willstockholders may sell any of the other shares covered by the Registration. However, the Registration enables Capital Southwest to sell all of such shares in the public market without any volume limitation, subject to certain trading restrictions.their shares. Sales of substantial amounts of the Company’s common stock in the public market by existing stockholders or the perception that these sales could occur, may adversely affect the market price of our common stock by creating a public perception of difficulties or problems with the Company’s business.Common Stockcommon stock prevailing from time to time. Sales of substantial amounts of Common Stock,common stock, or the perception that such sales might occur, could adversely affect prevailing market prices of the Common Stock.common stock.
425430 acres and consist of buildings containing approximately 1.62.1 million square feet of floor space. 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.
Disclosures. Name Position with Company 1992, and was named Chairman of the Board in 2014.Disclosures28, 2014,24, 2017, is set forth below:Age AgeDaniel L. Jones 5053 President, Chief Executive Officer, and MemberChairman of the Board of Directors, President and Chief Executive OfficerFrank J. Bilban 5760 Vice President – Finance, Treasurer, Secretary, and Chief Financial Officer 2006,2005, Mr. Jones was President and Chief Operating Officer of the Company. He previously held the positions of Chief Operating Officer from October 1997 until May 1998, Executive Vice President from May 1997 to October 1997, Vice President-Sales and Marketing from 1992 to May 1997, after serving as Director of Sales since joining the Company in November 1989. He has also served as a member of the Board of Directors since May 1994.
2013 First Quarter Second Quarter Third Quarter Fourth Quarter 2012 First Quarter Second Quarter Third Quarter Fourth Quarter common stock. Directors has Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) PLAN CATEGORY Equity compensation plans approved by security holders Equity compensation plans not approved by security holders TOTAL 2016. Symbol Total Return For: ¿ n p Symbol Total Return For: ¿ n p Symbol Total Return For: ¿ n p 2016Common Stockcommon stock is traded and quoted on the NASDAQ Stock Market’s Global Select Market under the symbol “WIRE.” The following table sets forth the high and low intraday sales prices per share for the Common Stockcommon stock as reported by NASDAQ for the periods indicated. High Low $ 35.41 $ 30.69 35.90 31.46 42.48 34.07 54.84 37.95 $ 30.74 $ 25.16 30.19 23.58 30.49 25.37 32.64 29.27 High Low 2016 First Quarter $ 40.13 $ 32.96 Second Quarter 41.46 35.40 Third Quarter 43.78 34.03 Fourth Quarter 46.40 33.70 2015 First Quarter $ 38.10 $ 29.36 Second Quarter 48.50 37.05 Third Quarter 46.32 30.23 Fourth Quarter 44.95 31.89 27, 2014,23, 2017, there were 4133 holders of record holders of the Company’s Common Stock.2013.2016. Aside from periodic dividends, management intends to retain the majority of future earnings for the operation and expansion of the Company’s business.1,000,000an authorized number of shares of its common stock through December 31, 2007 on the open market or through privately negotiated transactions at prices determined by the President of the Company.Company during the term of the program. The Company’s Board ofsubsequently authorized several increases and annual extensions of this stock repurchase program. Asprogram, and, as of December 31, 2013, the2016, 1,132,946 shares remained authorized for repurchase authorization had 1,225,750 shares remaining authorized through March 31, 2015.2018. The Company did not repurchase any shares of its stock in 2013. On May 14, 2012, the2016 and 2014. The Company repurchased 2,774,25092,804 shares of commonits stock owned by Capital Southwest Venture Corporation at an aggregate purchase pricein the third quarter of $66,638,000, based on2015, its only purchases in 2015. The Company also has a price of $24.02 per share. Appropriate consentsbroker agreement to the repurchase were also obtained from lenders under the Company’s Financing Agreement. The repurchase represented approximately 11.8% of the Company’s outstanding shares as of the purchase date and was the only repurchasestock in 2012. Other than the Company’s repurchase of 2,774,250 shares of common stock owned by Capital Southwest Venture Corporation on May 14, 2012, all shares purchased under the program were purchased on the open market by the Company’s brokerat certain trigger points pursuant to a Rule 10b5-1 plan announced on November 28, 2007.2013. (a) (b) (c) 345,150 $ 25.03 343,500 0 0 0 345,150 $ 25.03 343,500 PLAN CATEGORY (a) (b) (c) Equity compensation plans approved by security holders 351,400 $ 31.28 172,300 Common Stock,common stock, the Russell 2000 Index, and the Company’s self-determined peer group for the yearfive years ended December 31, 2013, and the Russell 2000 Index. 12/31/2008 3/31/2009 6/30/2009 9/30/2009 12/31/2009 3/31/2010 6/30/2010 Encore Wire Corporation 100.00 113.03 112.71 118.16 111.44 110.22 96.50 Russell 2000 Index 100.00 85.03 102.62 122.39 127.09 138.30 124.57 Peer Group 100.00 84.18 141.97 162.79 133.47 141.72 128.45 9/30/2010 12/31/2010 3/31/2011 6/30/2011 9/30/2011 12/31/2011 3/31/2012 Encore Wire Corporation 108.91 133.18 129.46 128.93 109.55 138.00 158.53 Russell 2000 Index 138.63 161.17 173.97 171.17 133.75 154.44 173.65 Peer Group 140.60 187.15 213.15 210.06 131.74 154.56 177.60 6/30/2012 9/30/2012 12/31/2012 3/31/2013 6/30/2013 9/30/2013 12/31/2013 Encore Wire Corporation 142.89 156.24 161.95 187.24 182.43 211.12 290.27 Russell 2000 Index 167.62 176.43 179.75 202.02 208.25 229.50 249.53 Peer Group 157.45 176.10 198.10 236.37 220.03 260.14 275.33 As of December 31, Symbol Total Return For: 2011 2012 2013 2014 2015 2016 « Encore Wire Corporation 100.00 117.36 210.42 145.20 144.50 169.25 n Russell 2000 Index 100.00 116.35 151.52 169.42 161.95 195.45 ▲ Peer Group 100.00 129.34 170.78 159.20 105.77 164.04 (1) Data presented in the performance graph is complete through December 31, 2013.2016.
(2) | The Peer Group is self-determined and consists of the following companies: General Cable Corporation |
(3) | The peer group index uses only such peer group’s performance and excludes the performance of the Company. The peer group index uses beginning of period market capitalization weighting. |
(4) | Each data line represents quarterly index levels derived from compounded daily returns that include all dividends. |
(5) | The index level for all data lines was set to $100.00 on December 31, |
Statement of Income Data: Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Operating income Interest and other (income) expense Interest expense Income before income taxes Provision for income taxes Net income Net income per common and common equivalent shares – basic Weighted average common and common equivalent shares – basic Net income per common and common equivalent shares – diluted Weighted average common and common equivalent shares – diluted Balance Sheet Data: Working capital Total assets Long-term debt, net of current portion Stockholders’ equity Annual dividends paid Annual dividends paid per common share Year Ended December 31, 2013 2012 2011 2010 2009 (In thousands, except per share amounts) $ 1,158,252 $ 1,072,348 $ 1,180,474 $ 910,222 $ 649,613 1,023,180 982,021 1,039,619 827,813 599,498 135,072 90,327 140,855 82,409 50,115 64,453 60,981 64,577 57,073 43,767 70,619 29,346 76,278 25,336 6,348 (329 ) (343 ) (239 ) 2,395 (1,633 ) 265 313 322 522 3,181 70,683 29,376 76,195 22,419 4,800 23,773 9,565 26,064 7,129 1,164 $ 46,910 $ 19,811 $ 50,131 $ 15,290 $ 3,636 $ 2.27 $ 0.91 $ 2.15 $ 0.66 $ 0.16 20,676 21,680 23,300 23,184 23,011 $ 2.26 $ 0.91 $ 2.14 $ 0.66 $ 0.16 20,764 21,732 23,410 23,342 23,298 As of December 31, 2013 2012 2011 2010 2009 (In thousands, except per share amounts) $ 282,148 $ 261,493 $ 334,484 $ 283,944 $ 276,882 525,826 472,467 516,146 477,276 534,558 — — — — — 456,581 410,164 457,743 407,377 392,984 1,654 1,763 1,863 1,854 1,840 $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08 Year Ended December 31, 2016 2015 2014 2013 2012 (in thousands, except per share data) Statement of Income Data: Net sales $ 940,790 $ 1,017,622 $ 1,166,979 $ 1,158,252 $ 1,072,348 Cost of goods sold 820,673 880,900 1,042,002 1,023,180 982,021 Gross profit 120,117 136,722 124,977 135,072 90,327 Selling, general and administrative expenses 69,351 64,493 68,876 64,453 60,981 Operating income 50,766 72,229 56,101 70,619 29,346 Net interest and other income (48 ) (155 ) (56 ) (64 ) (30 ) Income before income taxes 50,814 72,384 56,157 70,683 29,376 Provision for income taxes 16,975 24,779 19,034 23,773 9,565 Net income $ 33,839 $ 47,605 $ 37,123 $ 46,910 $ 19,811 Earnings per common and common equivalent shares – basic $ 1.63 $ 2.30 $ 1.79 $ 2.27 $ 0.91 Weighted average common and common equivalent shares – basic 20,704 20,713 20,714 20,676 21,680 Earnings per common and common equivalent shares – diluted $ 1.63 $ 2.29 $ 1.78 $ 2.26 $ 0.91 Weighted average common and common equivalent shares – diluted 20,773 20,787 20,821 20,764 21,732 Annual dividends paid per common share $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08 As of December 31, 2016 2015 2014 2013 2012 (in thousands) Balance Sheet Data: $ 325,500 $ 315,913 $ 284,671 $ 277,392 $ 255,703 Total assets 657,964 628,116 572,751 525,826 472,467 Long-term debt, net of current portion — — — — — Stockholders’ equity 573,109 538,639 493,187 456,581 410,164
Industryindustry leading order-fillorder fill rates and responsive customer service.service
the result of the slowdown in construction throughout the United States. The Company also believes that the reduced percentage declinewere up 4.4% for copper and 1.0% for aluminum in the Company’slast seven months of 2015 versus the same period in 2014. In 2016, unit sales volumewere up 2.4% in 2010copper wire and the increase7.6% in 2011 was caused, in large part, by the exit of a former competitor from the industry in the first quarter of 2010. aluminum wire versus 2015.
October 2013 | November 2013 | December 2013 | Quarter Ended Dec. 31, 2013 | Year-to-Date Dec. 31, 2013 | ||||||||||||||||
High | $ | 3.33 | $ | 3.29 | $ | 3.47 | $ | 3.47 | $ | 3.78 | ||||||||||
Low | 3.22 | 3.15 | 3.20 | 3.15 | 3.03 | |||||||||||||||
Average | 3.28 | 3.22 | 3.34 | 3.28 | 3.34 |
2016
October 2016 | November 2016 | December 2016 | Quarter Ended Dec. 31, 2016 | Year Ended Dec. 31, 2016 | |||||||||||||||
High | $ | 2.20 | $ | 2.67 | $ | 2.69 | $ | 2.69 | $ | 2.69 | |||||||||
Low | 2.08 | 2.22 | 2.47 | 2.08 | 1.94 | ||||||||||||||
Average | 2.14 | 2.47 | 2.57 | 2.39 | 2.20 |
October 2012 | November 2012 | December 2012 | Quarter Ended Dec. 31, 2012 | Year-to-Date Dec. 31, 2012 | ||||||||||||||||
High | $ | 3.81 | $ | 3.63 | $ | 3.70 | $ | 3.81 | $ | 3.97 | ||||||||||
Low | 3.50 | 3.44 | 3.53 | 3.44 | 3.28 | |||||||||||||||
Average | 3.68 | 3.50 | 3.62 | 3.60 | 3.61 |
2015
October 2015 | November 2015 | December 2015 | Quarter Ended Dec. 31, 2015 | Year Ended Dec. 31, 2015 | |||||||||||||||
High | $ | 2.43 | $ | 2.33 | $ | 2.14 | $ | 2.43 | $ | 2.95 | |||||||||
Low | 2.31 | 2.02 | 2.03 | 2.02 | 2.02 | ||||||||||||||
Average | 2.37 | 2.16 | 2.08 | 2.20 | 2.51 |
October 2011 | November 2011 | December 2011 | Quarter Ended Dec. 31, 2011 | Year-to-Date Dec. 31, 2011 | ||||||||||||||||
High | $ | 3.70 | $ | 3.58 | $ | 3.60 | $ | 3.70 | $ | 4.62 | ||||||||||
Low | 3.05 | 3.27 | 3.26 | 3.05 | 3.05 | |||||||||||||||
Average | 3.34 | 3.44 | 3.43 | 3.41 | 4.00 |
2014
October 2014 | November 2014 | December 2014 | Quarter Ended Dec. 31, 2014 | Year Ended Dec. 31, 2014 | |||||||||||||||
High | $ | 3.11 | $ | 3.08 | $ | 2.95 | $ | 3.11 | $ | 3.43 | |||||||||
Low | 2.98 | 2.86 | 2.84 | 2.84 | 2.84 | ||||||||||||||
Average | 3.04 | 3.02 | 2.90 | 2.98 | 3.12 |
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of goods sold: | ||||||||||||
Copper | 68.6 | 72.3 | 75.8 | |||||||||
Other raw materials | 11.5 | 9.6 | 7.3 | |||||||||
Depreciation | 1.1 | 1.2 | 1.0 | |||||||||
Labor and overhead | 8.1 | 7.5 | 5.9 | |||||||||
LIFO adjustment | (1.0 | ) | 1.0 | (2.0 | ) | |||||||
Lower cost or market adjustment | 0.0 | 0.0 | 0.0 | |||||||||
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88.3 | 91.6 | 88.0 | ||||||||||
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Gross profit | 11.7 | 8.4 | 12.0 | |||||||||
Selling, general and administrative expenses | 5.6 | 5.7 | 5.5 | |||||||||
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Operating income | 6.1 | 2.7 | 6.5 | |||||||||
Interest and other (income) expense | 0.0 | 0.0 | 0.0 | |||||||||
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Income before income taxes | 6.1 | 2.7 | 6.5 | |||||||||
Provision for income taxes | 2.0 | 0.9 | 2.3 | |||||||||
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Net income | 4.1 | % | 1.8 | % | 4.2 | % | ||||||
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Year Ended December 31, | ||||||||
2016 | 2015 | 2014 | ||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||
Cost of goods sold: | ||||||||
Copper | 56.9 | % | 62.4 | % | 66.7 | % | ||
Other raw materials | 15.0 | % | 14.9 | % | 13.2 | % | ||
Depreciation | 1.5 | % | 1.4 | % | 1.2 | % | ||
Labor and overhead | 12.6 | % | 11.0 | % | 9.0 | % | ||
LIFO adjustment | 1.2 | % | (3.1 | )% | (0.8 | )% | ||
87.2 | % | 86.6 | % | 89.3 | % | |||
Gross profit | 12.8 | % | 13.4 | % | 10.7 | % | ||
Selling, general and administrative expenses | 7.4 | % | 6.3 | % | 5.9 | % | ||
Operating income | 5.4 | % | 7.1 | % | 4.8 | % | ||
Interest and other (income) expense | — | % | — | % | — | % | ||
Income before income taxes | 5.4 | % | 7.1 | % | 4.8 | % | ||
Provision for income taxes | 1.8 | % | 2.4 | % | 1.6 | % | ||
Net income | 3.6 | % | 4.7 | % | 3.2 | % |
quarter of 2015.
The 9.2% decrease in net sales in 2012 versus 2011 was primarily the result of a 10.4% decrease in the average price of product sold and a 1.3% decrease in the volume of copper pounds of product sold. The average price of copper purchased in 2012 decreased 10.7% versus the 2011 average price. In the fourth quarter of 2012, net sales increased 3.9% versus the fourth quarter of 2011. The small increase in net sales was due largely to the growth in aluminum net sales in the fourth quarter of 2012, which were up 196.1% versus the fourth quarter of 2011, driven by a unit volume increase of 229.9% in the fourth quarter of 2012 versus the fourth quarter of 2011. Aluminum sales, however, comprised only 5.1% of net sales in the quarter. Copper unit volume was up 2.2% in the fourth quarter of 2012 compared to the fourth quarter of 2011 while the average selling price per copper pound sold was down 1.8% between the same periods, resulting in nearly flat fourth quarter results for copper sales. On a sequential quarter comparison, net sales in the fourth quarter of 2012 decreased 4.2%, due primarily to a 9.4% decrease in copper wire unit sales offset somewhat by 3.6% increase in average prices. Margins in the fourth quarter of 2012 were consistent with those of the third quarter of 2012, producing similar results.
In 2012, the average sales price of wire that contained a pound of copper decreased more than the average price of copper purchased during the period. Therefore, margins contracted as the spread between the price of wire sold and the cost of raw copper purchased in 2012 decreased by 9.4%, as compared to 2011, due primarily to somewhat weaker industry pricing discipline. Fluctuations in sales prices are primarily a result of changing copper raw material prices and product price competition. Margins were weaker in all four quarters of 2012 versus 2011, bottoming in the second quarter of 2012.
The increase in copper prices and the corresponding increase in net sales dollars in 2011 caused most of the other costs to shrink in terms of their percentage of net sales dollars. The cost of other raw materials, however, rose from 6.6% of net sales in 2010 to 7.3% in 2011. On a cents per pound basis, the cost of other raw materials increased by 35.7% in 2011 versus 2010, consistent with the cost of copper and other commodities and in small part due to the fact the Company began producing aluminum wire in 2011. Although the quantity of aluminum building wire sold in 2011 was insignificant compared to copper volumes, the Company did slowly increase its sales of aluminum wire during the year. The Company produced aluminum wire in its existing plants in 2011. In December of 2011, the Company announced that it was building a new 202,000 square-foot manufacturing plant on its McKinney, Texas campus, in which the Company would expand its aluminum wire and cable production.
2014.
2013 | 2012 | 2011 | ||||||||||
Raw materials | $ | 28,293 | $ | 26,013 | $ | 18,482 | ||||||
Work-in-process | 21,881 | 22,309 | 22,955 | |||||||||
Finished goods | 82,997 | 88,750 | 84,819 | |||||||||
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Total | 133,171 | 137,072 | 126,256 | |||||||||
Adjust to LIFO cost | (62,391 | ) | (73,416 | ) | (62,765 | ) | ||||||
Lower of cost or market adjustment | — | — | — | |||||||||
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Inventory, net | $ | 70,780 | $ | 63,656 | $ | 63,491 | ||||||
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2016 | 2015 | 2014 | |||||||||
Raw materials | $ | 23,144 | $ | 26,245 | $ | 28,283 | |||||
Work-in-process | 20,889 | 20,155 | 19,169 | ||||||||
Finished goods | 81,764 | 70,348 | 84,020 | ||||||||
Total | 125,797 | 116,748 | 131,472 | ||||||||
Adjust to LIFO cost | (32,523 | ) | (21,494 | ) | (53,221 | ) | |||||
Inventory | $ | 93,274 | $ | 95,254 | $ | 78,251 |
In 2012, copper traded in a more consistent range than in 2011, but still exhibited some volatility. Copper prices in 2012 finished higher than at the end of 2011. In addition2014. However, the quantity of total copper inventory on hand rose slightlyincreased somewhat in 2012.2015, compared to 2014. The other materials category, which includes a large number of raw materials, had quantity changes that included increases primarilyand decreases in aluminum.various other materials. These factors resulted in the 20122015 year-end inventory value of all inventories using the LIFO method being $73.4$21.5 million less than the FIFO value, and the 20122015 year end LIFO reserve balance being $10.7$31.7 million higherlower than at the end of 2011.2014. This resulted in a LIFO adjustment increasingdecreasing cost of sales by $10.7 million. In the fourth quarter of 2011, as part of the Company’s aforementioned expansion into aluminum wire products and$31.7 million in anticipation of the start of production at the Company’s new aluminum wire plant in 2012, the Company began a new aluminum wire inventory pool which is accounted for separately from the Company’s copper wire inventory pool. The Company established this new aluminum wire pool in accordance with U.S. GAAP, which requires that new inventory items not previously present in significant quantities and having qualities significantly different from those items previously inventoried, as is the case with the physical, chemical, and cost differences between copper and aluminum metals, be accounted for separately. 2015.
In 2011, copper traded in a relatively consistent range, at or near historical highs for most of the first three quarters and then made a fairly steep decline in the fourth quarter. This was offset slightly by a small increase in the amount of inventory on hand. These factors resulted in the 2011 year-end inventory value of all inventories using the LIFO method being $62.8 million less than the FIFO value, and the 2011 year end LIFO reserve balance being $24.0 million lower than at the end of 2010. This resulted in a LIFO adjustment decreasing cost of sales by $24.0 million.
2014.
2014.
3.4%, compared to 1.2% and 3.0% in 2015 and 2014, respectively.
2014.
Year Ended December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Net cash provided by operating activities | $ | 47,218 | $ | 30,060 | $ | 26,169 | ||||||
Net cash used in investing activities | (43,466 | ) | (40,284 | ) | (16,946 | ) | ||||||
Net cash used in financing activities | (857 | ) | (68,191 | ) | (177 | ) | ||||||
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Net increase (decrease) in cash and cash equivalents | $ | 2,895 | $ | (78,415 | ) | $ | 9,046 | |||||
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Year Ended December 31, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Net cash provided by operating activities | $ | 58,560 | $ | 70,768 | $ | 63,122 | |||||
Net cash used in investing activities | (41,582 | ) | (43,469 | ) | (44,231 | ) | |||||
Net cash used in financing activities | (377 | ) | (2,811 | ) | (1,005 | ) | |||||
Net increase in cash and cash equivalents | $ | 16,601 | $ | 24,488 | $ | 17,886 | |||||
Annual dividends paid | $ | 1,656 | $ | 1,657 | $ | 1,657 |
2016.
2014, respectively, none of which was capitalized.
purchase pricein the third quarter of $66,638,000, based on2015, its only purchases that year. The Company also has a price of $24.02 per share. Appropriate consentsbroker agreement to the repurchase were also obtained from lenders under the Company’s Financing Agreement. The repurchase represented approximately 11.8% of the Company’s outstanding shares as of the purchase date and was the only repurchasestock in 2012. Other than the Company’s repurchase of 2,774,250 shares of common stock owned by Capital Southwest Venture Corporation on May 14, 2012, all shares purchased under the program were purchased on the open market by the Company’s brokerat certain trigger points pursuant to a Rule 10b5-1 plan announced on November 28, 2007.
2015.
2014.
The net cash used of $1.0 million in 2014 consisted primarily of $1.7 million in dividend payments offset by $0.5 million proceeds from issuance of Company stock related to employees exercising stock options.
Payments Due By Period ($ in Thousands) | ||||||||||||||||||||
Contractual Obligations | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | |||||||||||||||
Long-Term Debt Obligations | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Capital Lease Obligations | — | — | — | — | — | |||||||||||||||
Operating Lease Obligations | — | — | — | — | — | |||||||||||||||
Purchase Obligations | 74,486 | 74,486 | — | — | — | |||||||||||||||
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Total | $ | 74,486 | $ | 74,486 | $ | — | $ | — | $ | — | ||||||||||
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Payments Due By Period ($ in Thousands) | ||||||||||||||||
Contractual Obligations | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | |||||||||||
Purchase Obligations | $ | 68,528 | $ | 68,528 | — | — | — |
Note: | Amounts listed as purchase obligations consist of open purchase orders for major raw material purchases and |
2013,2016, the Company was a party to the Credit Agreement. Amounts outstanding2017,2021, with interest payments due quarterly. At December 31, 2013,2016, the balance outstanding under the Credit Agreement was zero.20142016 would increase the Company’s interest expense by $1.0 million.
24, 2017 In Thousands of Dollars, Except Share Data Assets Current assets: Cash and cash equivalents Accounts receivable, net of allowance of $2,065 and $2,064 Inventories Income taxes receivable Deferred income taxes Prepaid expenses and other Total current assets Property, plant and equipment – at cost: Land and land improvements Construction-in-progress Buildings and improvements Machinery and equipment Furniture and fixtures Total property, plant and equipment Accumulated depreciation Property, plant and equipment – net Other assets Total assets Liabilities and Stockholders’ Equity Current liabilities: Trade accounts payable Accrued liabilities Income taxes payable Deferred income taxes Total current liabilities Noncurrent deferred income taxes Commitments and contingencies Stockholders’ equity: Preferred stock, $.01 par value: Authorized shares – 2,000,000; none issued Common stock, $.01 par value: Authorized shares – 40,000,000; Issued shares – 26,631,653 and 26,597,753 Additional paid-in capital Treasury stock, at cost – 5,934,651 and 5,934,651 shares Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity In Thousands, Except Per Share Data Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Operating income Other (income) expense: Interest and other income Interest expense Income before income taxes Provision for income taxes Net income Net income per common and common equivalent share – basic Weighted average common and common equivalent shares outstanding – basic Net income per common and common equivalent share – diluted Weighted average common and common equivalent shares outstanding – diluted Cash dividends declared per share In Thousands, Except Per Share Data Balance at December 31, 2010 Net income Proceeds from exercise of stock options Tax benefit on exercise of stock options Stock-based compensation Dividend declared—$0.08 per share Purchase of treasury stock Balance at December 31, 2011 Net income Proceeds from exercise of stock options Tax benefit on exercise of stock options Stock-based compensation Dividend declared—$0.08 per share Purchase of treasury stock Balance at December 31, 2012 Net income Proceeds from exercise of stock options Tax benefit on exercise of stock options Stock-based compensation Dividend declared—$0.08 per share Purchase of treasury stock Balance at December 31, 2013 notes. In Thousands of Dollars Operating Activities Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization Deferred income taxes Excess tax benefits of options exercised Stock-based compensation Provision for bad debts Other Changes in operating assets and liabilities: Accounts receivable Inventories Trade accounts payable and accrued liabilities Other assets and liabilities Current income taxes receivable / payable Net cash provided by (used in) operating activities Investing Activities Purchases of property, plant and equipment Proceeds from sale of assets Net cash provided by (used in) investing activities Financing Activities Purchase of treasury stock Proceeds from issuance of common stock, net Dividends paid Excess tax benefits of options exercised Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2016 sold. is based on Level 1 measurements. Allowance for Losses Progression (In Thousands of Dollars) Beginning balance January 1 (Write offs) of bad debts, net of collections of previous write offs Bad debt provision Ending balance at December 31 The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period the change in rate is enacted. time. In Thousands of Dollars Raw materials Work-in-process Finished goods Total Adjust to LIFO cost Lower of cost or market adjustment Inventory, net In Thousands of Dollars Sales volume discounts payable Property taxes payable Commissions payable Accrued salaries Other accrued liabilities Total accrued liabilities 2016. 2014, respectively, none of which was capitalized. In Thousands of Dollars Current: Federal State Deferred Total Income Tax Expense In Thousands of Dollars Amount computed using the statutory rate State income taxes, net of federal tax benefit Qualified domestic production activity deduction Other items Total Income Tax Expense In Thousands of Dollars Depreciation Inventory Allowance for doubtful accounts Uniform capitalization rules Other Deferred income tax asset (liability) 2014. Options: Outstanding at January 1, 2013 Granted Exercised Forfeited/Cancelled Outstanding at December 31, 2013 Vested and exercisable at December 31, 2013 2016: Risk-free interest rate Expected dividend yield Expected volatility Expected lives In Thousands Numerator: Net income Denominator: Denominator for basic earnings per share – weighted average shares Effect of dilutive securities: Employee stock options Denominator for diluted earnings per share –weighted average shares In Thousands, Except Per Share Data Weighted average anti-dilutive stock options Weighted average exercise price per share Directors has vested. 2014. Effective January 1, 2015, any profit-sharing contributions that are made to the 401(k) Plan will be 100% vested. 2013 Net sales Gross profit Net income (loss) Net income (loss) per common share – basic Net income (loss) per common share – diluted 2012 Net sales Gross profit Net income (loss) Net income (loss) per common share – basic Net income (loss) per common share – diluted20132016 and 2012,2015, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2013.2016. 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.20132016 and 2012,2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013,2016, in conformity with U.S. generally accepted accounting principles. also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Encore Wire Corporation’s internal control over financial reporting as of December 31, 2013,2016, based on criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 Framework) and our report dated February 28, 201424, 2017 expressed an unqualified opinion thereon.28, 2014 December 31 2013 2012 $ 36,778 $ 33,883 215,739 197,980 70,780 63,656 — — 4,756 5,790 2,013 5,541 330,066 306,850 47,324 18,466 12,222 25,434 90,930 90,790 224,502 196,838 8,564 8,426 383,542 339,954 (189,288 ) (175,030 ) 194,254 164,924 1,506 693 $ 525,826 $ 472,467 $ 23,465 $ 20,112 23,006 23,438 1,447 1,807 — — 47,918 45,357 21,327 16,946 — — 266 266 49,459 48,298 (88,134 ) (88,134 ) 494,990 449,734 456,581 410,164 $ 525,826 $ 472,467 2016 2015 Assets Current assets: Cash and cash equivalents $ 95,753 $ 79,152 Accounts receivable, net of allowance of $2,036 and $2,065 184,876 186,065 Inventories 93,274 95,254 Income taxes receivable — 7,344 Prepaid expenses and other 2,479 2,340 Total current assets 376,382 370,155 Property, plant and equipment – at cost: Land and land improvements 50,934 50,580 Construction-in-progress 35,825 33,942 Buildings and improvements 121,432 102,432 Machinery and equipment 289,493 274,755 Furniture and fixtures 9,204 9,012 Total property, plant and equipment 506,888 470,721 Accumulated depreciation (225,499 ) (215,953 ) Property, plant and equipment – net 281,389 254,768 Other assets 193 3,193 Total assets $ 657,964 $ 628,116 Liabilities and Stockholders’ Equity Current liabilities: Trade accounts payable $ 18,577 $ 28,743 Accrued liabilities 27,986 25,499 Income taxes payable 4,319 — Total current liabilities 50,882 54,242 Deferred income taxes 33,973 35,235 Commitments and contingencies Stockholders’ equity: Preferred stock, $.01 par value: Authorized shares – 2,000,000; none issued — — Common stock, $.01 par value: Authorized shares – 40,000,000; Issued shares – 26,762,703 and 26,715,216 268 267 Additional paid-in capital 55,311 53,024 Treasury stock, at cost – 6,027,455 and 6,027,455 shares (91,056 ) (91,056 ) Retained earnings 608,586 576,404 Total stockholders’ equity 573,109 538,639 Total liabilities and stockholders’ equity $ 657,964 $ 628,116 Year ended December 31 2013 2012 2011 $ 1,158,252 $ 1,072,348 $ 1,180,474 1,023,180 982,021 1,039,619 135,072 90,327 140,855 64,453 60,981 64,577 70,619 29,346 76,278 (329 ) (343 ) (239 ) 265 313 322 70,683 29,376 76,195 23,773 9,565 26,064 $ 46,910 $ 19,811 $ 50,131 $ 2.27 $ 0.91 $ 2.15 20,676 21,680 23,300 $ 2.26 $ 0.91 $ 2.14 20,764 21,732 23,410 $ 0.08 $ 0.08 $ 0.08 2016 2015 2014 Net sales $ 940,790 $ 1,017,622 $ 1,166,979 Cost of goods sold 820,673 880,900 1,042,002 Gross profit 120,117 136,722 124,977 Selling, general and administrative expenses 69,351 64,493 68,876 Operating income 50,766 72,229 56,101 Net interest and other income (48 ) (155 ) (56 ) Income before income taxes 50,814 72,384 56,157 Provision for income taxes 16,975 24,779 19,034 Net income $ 33,839 $ 47,605 $ 37,123 $ 1.63 $ 2.30 $ 1.79 20,704 20,713 20,714 $ 1.63 $ 2.29 $ 1.78 20,773 20,787 20,821 Cash dividends declared per share $ 0.08 $ 0.08 $ 0.08 Stockholders’Stockholders' Equity Common Stock Additional
Paid-In
Capital Treasury
Stock Retained
Earnings Shares Amount Total 26,367 264 45,040 (21,294 ) 383,367 407,377 — — — — 50,131 50,131 220 2 1,786 — — 1,788 — — 100 — — 100 — — 416 — — 416 — — — — (1,867 ) (1,867 ) — — — (202 ) — (202 ) 26,587 266 47,342 (21,496 ) 431,631 457,743 — — — — 19,811 19,811 11 — 198 — — 198 — — 12 — — 12 — — 746 — — 746 — — — — (1,708 ) (1,708 ) — — — (66,638 ) — (66,638 ) 26,598 266 48,298 (88,134 ) 449,734 410,164 — — — — 46,910 46,910 34 — 622 — — 622 — — 175 — — 175 — — 364 — — 364 — — — — (1,654 ) (1,654 ) — — — — — — 26,632 $ 266 $ 49,459 $ (88,134 ) $ 494,990 $ 456,581 Common Stock Shares Amount Total Balance at January 1, 2014 26,632 $ 266 $ 49,459 $ (88,134 ) $ 494,990 $ 456,581 Net income — — — — 37,123 37,123 Exercise of stock options 25 1 528 — — 529 Tax benefit on exercise of stock options — — 123 — — 123 Stock-based compensation — — 488 — — 488 Dividend declared—$0.08 per share — — — — (1,657 ) (1,657 ) Balance at December 31, 2014 26,657 267 50,598 (88,134 ) 530,456 493,187 Net income — — — — 47,605 47,605 Exercise of stock options 58 — 1,728 — — 1,728 Tax benefit on exercise of stock options — — 40 — — 40 Stock-based compensation — — 658 — — 658 Dividend declared—$0.08 per share — — — — (1,657 ) (1,657 ) Purchase of treasury stock — — — (2,922 ) — (2,922 ) Balance at December 31, 2015 26,715 267 53,024 (91,056 ) 576,404 538,639 Net income — — — — 33,839 33,839 Exercise of stock options 48 1 1,436 — — 1,437 Tax benefit on exercise of stock options — — 60 — — 60 Stock-based compensation — — 791 — — 791 Dividend declared—$0.08 per share — — — — (1,657 ) (1,657 ) Balance at December 31, 2016 26,763 $ 268 $ 55,311 $ (91,056 ) $ 608,586 $ 573,109 notes Year ended December 31 2013 2012 2011 $ 46,910 $ 19,811 $ 50,131 14,788 14,280 13,728 5,415 (6,085 ) 9,980 (175 ) (12 ) (100 ) 364 746 416 — — — (604 ) (91 ) (596 ) (17,760 ) 1,424 (9,002 ) (7,124 ) (165 ) (21,387 ) 2,921 3,617 (16,104 ) 2,668 (4,110 ) (106 ) (185 ) 645 (791 ) 47,218 30,060 26,169 (44,505 ) (40,301 ) (25,007 ) 1,039 17 8,061 (43,466 ) (40,284 ) (16,946 ) — (66,638 ) (202 ) 622 198 1,788 (1,654 ) (1,763 ) (1,863 ) 175 12 100 (857 ) (68,191 ) (177 ) 2,895 (78,415 ) 9,046 33,883 112,298 103,252 $ 36,778 $ 33,883 $ 112,298 2016 2015 2014 Operating Activities Net income $ 33,839 $ 47,605 $ 37,123 Depreciation and amortization 16,811 16,063 15,453 Deferred income taxes (1,262 ) 16,315 2,349 Excess tax benefits of options exercised (60 ) (40 ) (123 ) Stock-based compensation 1,596 802 703 Other 1,294 (190 ) (116 ) Changes in operating assets and liabilities: Accounts receivable 1,210 20,843 8,831 Inventories 1,980 (17,003 ) (7,471 ) Trade accounts payable and accrued liabilities (8,583 ) (5,859 ) 9,309 Other assets and liabilities 12 (2,415 ) 339 Current income taxes receivable / payable 11,723 (5,353 ) (3,275 ) Net cash provided by operating activities 58,560 70,768 63,122 Investing Activities Purchases of property, plant and equipment (45,374 ) (43,711 ) (44,274 ) Proceeds from sale of assets 3,792 242 75 Other — — (32 ) Net cash used in investing activities (41,582 ) (43,469 ) (44,231 ) Financing Activities Deferred financing fees (197 ) — — Purchase of treasury stock — (2,922 ) — Proceeds from issuance of common stock, net 1,416 1,728 529 Dividends paid (1,656 ) (1,657 ) (1,657 ) Excess tax benefits of options exercised 60 40 123 Net cash used in financing activities (377 ) (2,811 ) (1,005 ) Net increase in cash and cash equivalents 16,601 24,488 17,886 Cash and cash equivalents at beginning of year 79,152 54,664 36,778 Cash and cash equivalents at end of year $ 95,753 $ 79,152 $ 54,664 2013metal cladmetal-clad and armored cable for use primarily as wiring in commercial and industrial buildings. The Company sells its products primarily through 3129 manufacturers’ representatives located throughout the United States and, to a lesser extent, through its own direct marketing efforts. The principal customers for Encore’s building wire are wholesale electrical distributors.77.6%65.2%%, 79.0%72.1% and 86.1%74.7% of the cost of goods sold during 2013, 2012,2016, 2015, and 2011,2014, 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 future copper prices or the effect of fluctuations in the cost of copper on the Company’s future operating results. As the Company continues to expand its product offerings with aluminum wire, the cost of aluminum will impact the raw materials discussion contained in this paragraph and throughout this report. During 2013,2016, aluminum rod used to draw into aluminum wire constituted 3.3%4.6% of cost of goods sold.$21.7$24.1 million, $20.1$22.7 million and $18.4$24.9 million for the years ended December 31, 2013, 20122016, 2015 and 2011,2014, respectively.basis.basis, primarily cash equivalents held in banks. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level hierarchy is followed for disclosure to show the extent and level of judgment used to estimate fair value measurements:20132016 and 2012,2015, the Company had no financial instruments that were required to be measured at fair value on a recurring basis.At December 31, 2013 and 2012, the Company’s faircarrying value of cash and cash equivalents of $36.8 million and $33.9 million respectively, approximated carrying value due to the short maturity of these financial instruments.(primarilyprimarily 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. Encore has two customers, each of whom slightly exceed 10% of the Company's total sales. 2013 2012 2011 $ 2,064 $ 2,102 $ 2,582 1 (38 ) (480 ) — — — $ 2,065 $ 2,064 $ 2,102 Allowance for Losses Progression (In Thousands) 2016 2015 2014 Beginning balance January 1 $ 2,065 $ 2,065 $ 2,065 (Write offs) of bad debts, net of collections of previous write offs (29 ) — — Ending balance at December 31 $ 2,036 $ 2,065 $ 2,065 20132016 and 2012,2015, the Company’s cash equivalents consisted of investments in money market accounts with the Company’s banks.1520 years; and furniture and fixtures, 3 to 15 years. Accelerated cost recovery methods are used for tax purposes. Repairs and maintenance costs are expensed as incurred.Standards Update (ASU) 2011-5, Comprehensive Income,Pronouncementsfiscal yearsannual and interim periods within those fiscal years beginning after December 15, 2011, with earlyJanuary 1, 2018. We currently expect to apply the modified retrospective method of adoption permitted and retrospective application required. Under ASU 2011-5, for companiesat that report items of other comprehensive income, there is a requirement to present comprehensive income along with net income in either a single continuous statement or two separate but consecutive statements. The Company has early adopted the provisions of ASU 2011-5 in fiscal 2011. However, as there were no differences between comprehensive income and reported income, the adoption did not have an effect on the Company’s financial statements as of December 31, 2013 and 2012, or for the three fiscal years ended December 31, 2013. 2013 2012 $ 28,293 $ 26,013 21,881 22,309 82,997 88,750 133,171 137,072 (62,391 ) (73,416 ) — — $ 70,780 $ 63,656 In Thousands 2016 2015 Raw materials $ 23,144 $ 26,245 Work-in-process 20,889 20,155 Finished goods 81,764 70,348 Total 125,797 116,748 Adjust to LIFO cost (32,523 ) (21,494 ) Inventory $ 93,274 $ 95,254 20132016, the Company liquidated portions of the inventory layers established in 2015 in both the copper and 2012aluminum wire pools. In both pools, the liquidation had an insignificant effect on the net income of the Company. During 2015 and 2014, the Company did not liquidate any LIFO inventory layers established in prior years. 2013 2012 $ 15,898 $ 13,940 3,226 2,937 2,027 1,768 1,314 4,235 541 558 $ 23,006 $ 23,438 In Thousands 2016 2015 Sales volume discounts payable $ 13,590 $ 13,193 Property taxes payable 3,932 3,444 Commissions payable 2,157 1,939 Accrued salaries 6,198 5,801 Other accrued liabilities 2,109 1,122 Total accrued liabilities $ 27,986 $ 25,499 20132016 and December 31, 2012,2015, the Company had no debt outstanding.agent (the “Credit Agreement”).agent. The Credit Agreement extends through October 1, 2017,2021, and provides for maximum borrowings of $150.0 million. In the lesserthird quarter of $150.0million or2016, the Company signed a Third Amendment to the Credit Agreement, which, along with other minor changes, eliminated the restriction of maximum borrowings based on the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials, less any reserves established by the banks. Additionally, at our request and subject to certain conditions, the commitments under the Credit Agreement may be increased by a maximum of up to $100.0 million as long as existing or new lenders agree to provide such additional commitments. The calculated maximum borrowing amount available at December 31, 2013, as computed under the Credit Agreement, was $149.5 million. Borrowings under the line of credit bear interest, at the Company’s option, at either (1) LIBOR plus a margin that varies from 0.875% to 1.75% depending upon the Leverage Ratio (as defined in the Credit Agreement), or (2) the base rate (which is the highest of the federal funds rate plus 0.5%, the prime rate, or LIBOR plus 1.0%) plus 0% to 0.25% (depending upon the Leverage Ratio). A commitment fee ranging from 0.15% to 0.30% (depending upon the Leverage Ratio) is payable on the unused line of credit. At December 31, 2013,2016, there were no borrowings outstanding under the Credit Agreement, and letters of credit outstanding in the amount of $1.0 million left $149.0 million of credit available under the Credit Agreement. Obligations under the Credit Agreement are the only contractual borrowing obligations or commercial borrowing commitments of the Company.2013.$265,000, $313,000$0.2 million, $0.3 million and $322,000$0.3 million in 2013, 20122016, 2015 and 2011, respectively. The Company did not capitalize any interest in 2013, 2012 and 2011. 2013 2012 2011 $ 17,011 $ 14,609 $ 15,098 1,347 1,041 986 5,415 (6,085 ) 9,980 $ 23,773 $ 9,565 $ 26,064 In Thousands 2016 2015 2014 Current: Federal $ 17,139 $ 7,918 $ 15,742 State 1,098 546 943 Deferred: Federal (905 ) 16,486 2,222 State (357 ) (171 ) 127 Total Income Tax Expense $ 16,975 $ 24,779 $ 19,034 2013 2012 2011 $ 24,739 $ 10,282 $ 26,668 1,063 463 990 (1,797 ) (1,522 ) (1,511 ) (232 ) 342 (83 ) $ 23,773 $ 9,565 $ 26,064 In Thousands 2016 2015 2014 Amount computed using the statutory rate $ 17,769 $ 25,334 $ 19,655 State income taxes, net of federal tax benefit 482 244 691 Qualified domestic production activity deduction (1,712 ) (859 ) (1,698 ) Other items 436 60 386 Total Income Tax Expense $ 16,975 $ 24,779 $ 19,034 2.5%3.4%, 5.1%1.2%, and 2.0%3.0% for 2013, 20122016, 2015 and 2011,2014, respectively.20132016 and 20122015 is as follows: Deferred Tax Asset (Liability) 2013 2012 Current Non-current Current Non-current $ — $ (21,327 ) $ — $ (16,945 ) 3,104 — 4,313 — 749 — 748 — 309 — 350 — 594 — 378 — $ 4,756 $ (21,327 ) $ 5,789 $ (16,945 ) In Thousands 2016 2015 Depreciation $ (30,845 ) $ (26,892 ) Inventory (5,807 ) (10,101 ) Allowance for doubtful accounts 738 749 Uniform capitalization rules 932 145 Other 1,009 864 Deferred income tax liability $ (33,973 ) $ (35,235 ) $18.5$6.7 million in 2013, $15.02016, $14.0 million in 20122015 and $16.9$20.0 million in 2011.20092012 remain subject to examination. The Company’s income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2008.2011. The Company has no reserves for uncertain tax positions as of December 31, 2013.2016 and 2015. Interest and penalties resulting from audits by tax authorities have been immaterial and are included in the provision for income taxes in the consolidated statements of income.The American Taxpayer Relief Act2012 was enactedDeferred Taxes.” ASU No. 2015-17 eliminates the requirement to classify deferred tax assets and liabilities as current or long-term based on January 2, 2013. Included withinhow the related assets or liabilities are classified. All deferred taxes are now required to be classified as long-term, including any associated valuation allowances. This guidance is effective for public companies for fiscal years beginning after December 15, 2016 with early adoption permitted on either a prospective or retrospective basis. We adopted this legislation was an extension of the research and development credit which had previously expiredASU retrospectively on December 31, 2011. This legislation retroactively reinstated2016, and extended the credit from the previous expiration date throughhave reclassified deferred income taxes current liabilities of $8.5 million as of December 31, 2013. The2015 to deferred income tax impacttaxes non-current liabilities.2013 research and development credit was a benefit of $32,000. As the legislation was not enacted until 2013, the income tax impact of the retroactive reinstatement and extension related to 2012 was not recognized until the first quarter of 2013. If the tax impact of the research and development credit had been recognized in 2012, it would have represented a $77,000 tax benefit.In addition, the American Taxpayer Relief Act of 2012 renewed the alternative fuels tax credit. The income tax impact of the 2013 alternative fuels tax credit was a benefit of $150,000. The income tax impact of the retroactive reinstatement and extension related to 2012 was not recognized until the first quarter of 2013. If the tax impact of the alternative fuels tax credit had been recognized in 2012, it would have represented a $127,000 tax benefit.6. years ended December 31:In Thousands 2016 2015 2014 Stock options $ 791 $ 658 $ 488 Stock appreciation rights (“SARs”) 805 144 215 Total stock-based compensation expense $ 1,596 $ 802 $ 703 Tax benefit on exercise of stock options $ 60 $ 40 $ 123 OptionsPlan”,Plan,” which expired on June 28, 2009, the 2010 Stock Option Plan permits the grant of stock options to directors, officers and employees of the Company. The Company granted stock option awards in 20122016, 2015 and 2014 with exercise prices equal to the fair market value of its stock on the date of grant of the options. These options vest ratably over a period of five years from the time the options were granted. No options were granted in 2013 or 2011. The maximum term of any option granted under the 1999 or 2010 Stock Option Plan is ten years. New shares are issued upon the exercise of options. As of December 31, 2013, 345,5002016, 172,300 options were available to be granted in the future under the 2010 Stock Option Plan.During 2013, 2012 and 2011, the Company recorded $364,000, $746,000 and $416,000, respectively, of stock based compensation included in selling, general and administrative expenses. The income tax benefit realized in excess of book deductions associated with stock based compensation totaled $175,000, $12,000 and $100,000 for the years ended December 31, 2013, 2012 and 2011, respectively.2013: Number
of
Shares Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term Aggregate
Intrinsic Value
(In Thousands) 345,150 $ 25.03 0 0.00 (33,900 ) 18.37 (2,000 ) 28.74 309,250 $ 25.73 5.76 $ 8,804 189,950 $ 24.26 4.37 $ 5,686 Number
of
Shares Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term Aggregate
Intrinsic Value
(In Thousands)Outstanding at January 1, 2016 320,887 $ 30.25 Granted 80,000 34.79 Exercised (47,487 ) 29.34 Forfeited/Canceled (2,000 ) 21.12 Outstanding at December 31, 2016 351,400 $ 31.28 5.9 years $ 4,647 Vested and exercisable at December 31, 2016 179,599 $ 26.64 3.9 years $ 3,164 2013, 2012,2016, 2015, and 2011,2014, was estimated on the date of grant using a Black-Scholes optionsoption pricing model and the following weighted average assumptions: Year Ended December 31, 2013 2012 2011 n/a 0.78 % n/a n/a 0.28 % n/a n/a 44.9 % n/a n/a 5.0 years n/a Year Ended December 31, 2016 2015 2014 Risk-free interest rate 1.46 % 1.22 % 1.57 % Expected dividend yield 0.23 % 0.25 % 0.15 % Expected volatility 32.9 % 31.9 % 32.9 % Expected lives 5.0 years 5.0 years 5.0 years risk freerisk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding to the expected life of the option. The expected dividend yield is based on the annualized dividend payment paid on common shares.ASC 718 requires the estimation of forfeitures when recognizing compensation expense and adjustment of the estimated forfeiture rate over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment, which is recognized in the period of change and impacts the amount of un-recognized compensation expense to be recorded in future periods.2013, 2012,2016, 2015, and 2011,2014, the weighted average grant date fair value of options granted was n/a, $11.11$10.64, $9.25 and n/a,$16.03, respectively, and the total intrinsic value of options exercised was $0.8$0.5 million, $0.1$0.7 million and $3.1$0.7 million, respectively. As of December 31, 2013,2016, total unrecognized compensation cost related to non-vested stock options of $0.9$1.0 million was expected to be recognized over a weighted average period of 2.903.2 years. Cash-settled SARs Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term Aggregate
Intrinsic Value
(In Thousands)Outstanding at January 1, 2016 133,000 $ 41.59 Granted 142,000 34.79 Exercised (1,000 ) 41.59 Forfeited/Canceled (47,500 ) 38.51 Outstanding at December 31, 2016 226,500 $ 37.97 8.4 years $ 1,218 Vested and exercisable at December 31, 2016 42,400 $ 41.59 7.6 years $ 75 Year Ended December 31, 2016 2015 2014 Risk-free interest rate 1.53 % 1.39 % 1.60 % Expected dividend yield 0.18 % 0.22 % 0.21 % Expected volatility 33.25 % 30.30 % 32.10 % Expected lives 3.4 years 3.2 years 4.6 years 2013 2012 2011 $ 46,910 $ 19,811 $ 50,131 20,676 21,680 23,300 88 52 110 20,764 21,732 23,410 In Thousands 2016 2015 2014 Numerator: Net income $ 33,839 $ 47,605 $ 37,123 Denominator: Denominator for basic earnings per share – weighted average shares 20,704 20,713 20,714 Effect of dilutive securities: Employee stock options 69 74 107 Denominator for diluted earnings per share – weighted average shares 20,773 20,787 20,821 2013 2012 2011 191 179 80 $ 31.16 $ 31.37 $ 31.28 In Thousands, Except Per Share Data 2016 2015 2014 Weighted average anti-dilutive stock options 143 96 54 Weighted average exercise price per share $ 40.39 $ 43.43 $ 49.90 1,000,000an authorized number of shares of its common stock through December 31, 2007 on the open market or through privately negotiated transactions at prices determined by the President of the Company.Company during the term of the program. The Company’s Board ofsubsequently authorized several increases and annual extensions of this stock repurchase program. Asprogram, and, as of December 31, 2013, the2016, 1,132,946 shares remained authorized for repurchase authorization had 1,225,750 shares remaining authorized through March 31, 2015.2018. The Company did not repurchase any shares of its stock in 2013. On May 14, 2012, the2016 and 2014. The Company repurchased 2,774,25092,804 shares of commonits stock owned by Capital Southwest Venture Corporation at an aggregate purchase pricein the third quarter of $66,638,000, based on2015, its only purchases in 2015. The Company also has a price of $24.02 per share. Appropriate consentsbroker agreement to the repurchase were also obtained from lenders under the Company’s Financing Agreement. The repurchase represented approximately 11.8% of the Company’s outstanding shares as of the purchase date and was the only repurchasestock in 2012. Other than the Company’s repurchase of 2,774,250 shares of common stock owned by Capital Southwest Venture Corporation on May 14, 2012, all shares purchased under the program were purchased on the open market by the Company’s brokerat certain trigger points pursuant to a Rule 10b5-1 plan announced on November 28, 2007.On July 7, 2009, Southwire Company, a Delaware corporation (“Southwire”), filed a complaint for patent infringement against the Company and Cerro Wire, Inc. (“Cerro”) in the United States District Court for the Eastern District of Texas. In the complaint, Southwire alleged that the Company infringed one or more claims of United States Patent No. 7,557,301 (the “‘301 patent”), entitled “Method of Manufacturing Electrical Cable Having Reduced Required Force for Installation,” by making and selling electrical cables, including the Company’s Super Slick cables. The case has been transferred to the Northern District of Georgia and the parties have agreed to stay it pending reexamination of the ‘301 patent by the United States Patent and Trademark Office (the “USPTO”). On June 23, 2011, the USPTO issued an office action in the reexamination finally rejecting all the claims of the ‘301 patent. Southwire responded to these final rejections on August 8, 2011 by submitting substantially amended claims. The examiner determined that the amended claims captured patentable subject matter and on September 21, 2011 issued a notice that a reexamination certificate would be issued evidencing the patentability of the amended claims. The reexamination certificate was issued on the ‘301 patent on December 27, 2011. Subsequent to the issuance of the ‘301 reexamination certificate, a new inter partes reexamination proceeding was instituted by Cerro Wire against the reexamined ‘301 patent. At this time all of the claims of the reexamined ‘301 patent have been rejected by the USPTO. This decision is not final.On July 2, 2010, the Company filed a complaint against Southwire in the Northern District of Georgia. The complaint alleged that Southwire was using a deceptively misdescriptive trademark on its SimPull products, and that Southwire had made false statements about the Company’s Slick Wire products. Southwire’s United States Patent No. 7,749,024 (“the ‘024 patent”) issued on July 6, 2010. The morning the patent issued, the Company amended its complaint to seek a declaratory judgment that the Company’s Slick Wire products do not infringe the ‘024 patent. Later that same day, Southwire filed a separate complaint against the Company and Cerro Wire in the Eastern District of Texas alleging infringement of the ‘024 patent. The Company’s complaint against Southwire was stayed by agreement on April 11, 2011. The case will remain stayed until the USPTO issues a certificate of reexamination of the ‘024 patent. The complaint filed by Southwire in the Eastern District of Texas has been voluntarily dismissed and Southwire will have the option to pursue its claims against the Company in the Northern District of Georgia, once the reexamination is completed. On October 8, 2010, the Company filed a request with the USPTO for an inter partes reexamination of the ‘024 patent. On November 9, 2010, the USPTO ordered the reexamination of the ‘024 patent. In ordering reexamination of Southwire’s ‘024 patent, the USPTO determined that the Company’s submission of prior art raised a substantial new question of patentability of the claims of the ‘024 patent. On December 3, 2010, the USPTO issued a non-final office action rejecting all of the claims of the ‘024 Patent. Southwire filed a response to the non-final office action on February 3, 2011, which included legal arguments and supporting technical declarations. The Company filed its comments to the Southwire response on March 3, 2011, including points and authorities, legal arguments, and supporting technical declarations. On July 9, 2012, the Examiner issued an Action Closing Prosecution (“ACP”) finally rejecting patent claims 4-7 and 9-12 in the reexamination of the ‘024 patent. On August 15, 2012, Southwire filed a response to the ACP, which included extensive proposed claim amendments and arguments supporting the patentability of the proposed amended claims. The Company filed its comments to the Southwire response to the ACP on September 13, 2012, including points and authorities, legal arguments, and a supporting technical declaration. The Examiner refused entry of Southwire’s proposed amendments and maintained the rejection of all the claims under reexamination in a Right of Appeal Notice mailed September 28, 2012. On October 17, 2012 Southwire filed two petitions requesting that the reexamination be reopened or, in the alternative, that the proposed amendments presented in its September 13, 2012 response to ACP be entered into the record. These petitions were denied by the USPTO in a decision mailed April 5, 2013. Southwire filed a Notice of Appeal on October 29, 2012 and its Appellant’s Brief on December 31, 2012, followed by the Company filing its Respondent’s Brief on January 25, 2013. The Examiner’s Brief was mailed on July 16, 2013. Southwire filed its Rebuttal Brief on August 16, 2013, and the case now stands in front of the Patent Trial and Appeal Board awaiting a decision.The ‘024 patent was also subject to parallel Inter Partes Reexamination Control No. 95/000,594, instituted by Cerro on November 11, 2010 (“the ‘594 reexamination”). The ‘024 patent exam proceeded with the ‘594 reexamination and ultimately all the claims were finally rejected by the Examiner in an ACP mailed August 10, 2012. In response to aright of appeal notice mailed by the Examiner on October 25, 2012, Southwire filed a notice of appeal on November 26, 2012 and filed an appeal brief on January 28, 2013. Southwire’s appeal brief exceeded the page limitations allowed for patent owner’s appeal briefs during reexaminations, and therefore the USPTO mailed a notice of defective appeal brief on February 20, 2013. Although Southwire was given at least one month to file a corrected appeal brief, Southwire filed a petition with the Patent Trial and Appeal Board (“PTAB”) on March 5, 2013, requesting a waiver of the page limit on appeal brief length. On June 24, 2013, the PTAB denied the petition to waive the appeal brief page limit and, since the time limit to file a corrected appeal brief had expired, also dismissed Southwire’s appeal. On July 12, 2013, the Examiner mailed a Notice of Intent to Issue Inter Partes Reexamination Certificate, cancelling all claims of the ‘024 patent. On August 6, 2013, Southwire petitioned for revival of the ‘024 Patent and re-opening of the ‘594 Reexamination on the grounds that its failure to timely file an Appellant’s Brief was unintentional. This petition was accompanied by a corrected Appellant’s Brief. Southwire’s petition to revive the ‘024 Patent was granted on October 24, 2013 and the ‘594 Reexamination was re-opened at the appeals stage. With the re-opening of the ‘594 Reexamination, Cerro filed their Respondent’s Brief on November 25, 2013, which was followed by the Examiner’s Answer to Southwire’s Appellant’s Brief on December 4, 2013. On January 6, 2014, both Southwire and Cerro submitted Rebuttal Briefs in response to the Examiner’s Answer. Once any remaining briefs are filed by the parties, the appeal will be submitted to the PTAB for a decision. Southwire’s complaints sought unspecified damages and injunctive relief. At this time, all pending litigation between Encore and Southwire has been dismissed or stayed by agreement of the parties.The parties convened on March 21, 2012 and August 27, 2012 for settlement conferences regarding the ‘301 patent lawsuit. Such settlement conferences did not result in any negotiation, agreement, decision or other development that the Company believed is material to such lawsuit. Settlement discussions continue between the parties. The potentially applicable factual and legal issues related to the above claims asserted against the Company have not been resolved. The Company disputes all of Southwire’s claims and alleged damages and intends to vigorously defend the lawsuits and vigorously pursue its own claims against Southwire if and when the litigation resumes. vested when paid.$0.9$1.9 million, $0.7$1.5 million and $0.6$0.9 million in years 2013, 20122016, 2015 and 2011,2014, respectively.2013, 20122016, 2015 or 2011.The Company purchases certain finished goods inventory components from a company that is partially owned by a family member of an individual serving on its Board of Directors. The Company purchases these products from this company, which totaled approximately $12.0 million, $8.1 million and $6.9 million in 2013, 2012 and 2011, respectively, at prices that we believe are no less favorable than prices available from non-affiliated parties. Additionally, for2013, 20122016, 2015 and 2011,2014, amounts paid to the affiliated freight carrier were not significant.Each of theseThese transactions waswere approved by the Audit Committee pursuant to Encore Wire Corporation’s Related Party Transactions Policy.In February 2012, the Company entered into a Registration Rights Agreement with Capital Southwest Corporation and Capital Southwest Venture Corporation (together, “Capital Southwest”), pursuant to which the Company agreed to register the offer and sale of 4,086,750 shares of common stock of the Company held by Capital Southwest on a registration statement on Form S-3 (the “Registration Statement”). In exchange for registration of the offer and sale of such shares, Capital Southwest agreed to reimburse the Company for all costs, fees and expenses incurred by the Company in connection with such registration, unless the Registration Statement did not become effective solely due to the actions or omissions of the Company and without fault of Capital Southwest. The disinterested members of the board of directors of the Company approved the Company entering into the Registration Rights Agreement.On May 14, 2012, the Company repurchased 2,774,250 shares of common stock owned by Capital Southwest Venture Corporation at an aggregate purchase price of $66,638,000, based on a price of $24.02 per share. A special committee of the board of directors comprised of disinterested members of the board approved the Company repurchasing such shares.Neither the Company’s registration of the shares owned by Capital Southwest pursuant to the Registration Statement nor the Company’s repurchase of shares owned by Capital Southwest Venture Corporation necessarily means that Capital Southwest will offer or sell the remaining shares covered by the Registration Statement. The Company cannot predict if, when or in what amounts Capital Southwest may sell any of the remaining shares covered by the Registration Statement.20132016 and 20122015 (in thousands, except per share amounts)data): Three Months Ended March 31 June 30 September 30 December 31 $ 265,351 $ 289,460 $ 309,927 $ 293,514 24,301 40,151 37,904 32,716 6,395 15,502 13,802 11,212 0.31 0.75 0.67 0.54 0.31 0.75 0.66 0.54 Three Months Ended March 31 June 30 September 30 December 31 $ 280,466 $ 264,730 $ 269,152 $ 258,000 24,461 19,391 24,136 22,339 6,694 2,370 5,527 5,220 0.29 0.11 0.27 0.25 0.29 0.11 0.27 0.25 Three Months Ended 2016 March 31 June 30 September 30 December 31 Net sales $ 225,544 $ 238,831 $ 237,168 $ 239,247 Gross profit 30,143 28,631 27,818 33,525 Net income 8,599 7,839 5,999 11,402 Earnings per common share – basic 0.42 0.38 0.29 0.55 Earnings per common share – diluted 0.41 0.38 0.29 0.55 Three Months Ended 2015 March 31 June 30 September 30 December 31 Net sales $ 250,262 $ 253,747 $ 262,756 $ 250,857 Gross profit 32,430 32,905 38,335 33,052 Net income 10,789 11,353 14,511 10,952 Earnings per common share – basic 0.52 0.55 0.70 0.53 Earnings per common share – diluted 0.52 0.54 0.70 0.53
Procedures. 24, 2017Procedures.2013.2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control —Integrated Framework(1992 (2013 Framework). Based on our assessment, we concluded that, as of December 31, 2013,2016, the Company’s internal control over financial reporting is effective based on those criteria.2013.2016. Ernst & Young LLP’s attestation report on the Company’s internal control over financial reporting appears directly below. (the Company) internal control over financial reporting as of December 31, 2013,2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 Framework) (the COSO criteria). The Company’sEncore Wire Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’scompany’s internal control over financial reporting based on our audit.2013,2016, based on the COSO criteria.20132016 and 20122015 and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 20132016 and our report dated February 28, 201424, 2017 expressed an unqualified opinion thereon.28, 2014
6, 20149, 2017 setting forth certain information with respect to the directors of the Company, Section 16(a) reporting obligations of directors and officers, the Company’s audit committee, the Company’s audit committee financial expert and the procedures by which security holders may recommend nominees to the Board of Directors are 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.“Investor Info”“Investors” section of the Company’s website at http://www.encorewire.com, and is incorporated herein by reference. The Company intends to post amendments to or waivers of its Code of Business Conduct and Ethics (to the extent applicable to any officer or director of the Company) at such location on its website.
6, 2014,9, 2017, sets forth certain information with respect to the compensation of management of the Company and compensation committee interlocks and insider participation and is incorporated herein by reference.
6, 20149, 2017 sets forth certain information with respect to the ownership of the Company’s common stock, and is incorporated herein by reference. Certain information with respect to the Company’s equity compensation plans that is required to be set forth in this Item 12 is set forth under the caption “Equity Compensation Plan Information” contained in “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Form 10-K and is incorporated herein by reference.
6, 20149, 2017 set forth certain information with respect to certain relationships and related transactions, and director independence, and are incorporated herein by reference.
6, 2014,9, 2017, sets forth certain information with respect to certain fees paid to accountants, and is incorporated herein by reference.
(1) Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K; and
(2) | Financial statement schedules have been omitted because they are not applicable or the information required therein is included in the financial statements or notes thereto in Item 8 of this Annual Report on Form 10-K. |
(3) | The exhibits required by Item 601 of Regulation S-K, as set forth in the Index to Exhibits accompanying this Annual Report on Form 10-K. |
Date: February | 24, 2017 | ENCORE WIRE CORPORATION | ||||
By: | /s/ Daniel L. Jones | |||||
Daniel L. Jones Chairman, President and Chief Executive Officer |
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Signature | Title | Date | ||
/s/ DANIEL L. JONES | Chairman, President and Chief Executive Officer (Principal Executive Officer) | February | ||
Daniel L. Jones | ||||
/s/ FRANK J. BILBAN | Vice President-Finance, Treasurer, Secretary and Chief Financial Officer (Principal Financial and Accounting Officer) | February | ||
Frank J. Bilban | ||||
/s/ DONALD E. COURTNEY | Director | February | ||
Donald E. Courtney | ||||
/s/ GREGORY J. FISHER | Director | February | ||
Gregory J. Fisher | ||||
/s/ WILLIAM R. THOMAS, III | Director | February | ||
William R. Thomas, III | ||||
/s/ SCOTT D. WEAVER | Director | February | ||
Scott D. Weaver | ||||
/s/ JOHN H. WILSON | Lead Independent Director | February | ||
John H. Wilson |
Exhibit Number | Description | |
3.1 | Certificate of Incorporation of Encore Wire Corporation and all amendments thereto (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 and incorporated herein by reference). | |
3.2 | Third Amended and Restated Bylaws of Encore Wire Corporation, as amended through February 27, 2012 (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference). | |
4.1 | Form of certificate for Common Stock (filed as Exhibit 1 to the Company’s registration statement on Form 8-A, filed with the SEC on June 4, 1992 and incorporated herein by reference). | |
10.1* | 1999 Stock Option Plan, as amended and restated, effective as of February 20, 2006 (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (No. 333-138165) and incorporated herein by reference). | |
10.2* | 2010 Stock Option Plan (filed as Annex A to the Company’s Proxy Statement filed with the SEC on March 26, 2010 and incorporated herein by reference). | |
10.3* | Form of Indemnification Agreement (filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 and incorporated herein by reference). | |
10.4* | Form of Stock Option Agreement under the 1999 Stock Option Plan (filed as Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 and incorporated herein by reference). | |
10.5* | Form of Incentive Stock Option Agreement under the 2010 Stock Option Plan (filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference). | |
10.6* | Form of Non-Qualified Stock Option Agreement under the 2010 Stock Option Plan (filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated here by reference). | |
10.7 | ||
Credit Agreement dated September 27, 2012 by and among the Company, Bank of America, N.A., as administrative agent and letter of credit issuer, Wells Fargo Bank, National Association, as syndication agent and the other lender parties thereto (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 2, 2012 and incorporated herein by reference). | ||
10.8 | First Amendment to Credit Agreement, dated as of | |
10.9 | Second Amendment to Credit Agreement, dated as of December 31, 2014, by and among the Company, Bank of America, N.A., as lender and administrative agent and Wells Fargo Bank, National Association, as lender (filed as Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference). | |
10.10 | Third Amendment to Credit Agreement, dated as of September 29, 2016, by and among Encore Wire Corporation, as borrower, Bank of America, N.A., as administrative agent and letter of credit issuer, Wells Fargo Bank, National Association, as syndication agent, the financial institutions a party thereto as lenders and EWC Aviation Corporation, as guarantor (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2016 and incorporated herein by reference). | |
10.11* | Encore Wire Corporation 2014 Stock Appreciation Rights Plan | |
21.1 | Subsidiaries | |
23.1 | Consent of Ernst & Young LLP |
31.1 | Certification by Daniel L. Jones, Chairman, President and Chief Executive Officer of the Company, dated February | |
31.2 | Certification by Frank J. Bilban, Vice President — Finance, Treasurer, Secretary and Chief Financial Officer of the Company, dated February | |
32.1 | Certification by Daniel L. Jones, Chairman, President and Chief Executive Officer of the Company, dated February | |
32.2 | Certification by Frank J. Bilban, Vice President — Finance, Treasurer, Secretary and Chief Financial Officer, dated February | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Management contract or compensatory plan |