Encore Wire (WIRE) 10-Q 2010 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended
June 30, 2010

or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number: 000-20278

ENCORE WIRE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	75-2274963
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1329 Millwood Road
McKinney, Texas	75069
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:(972) 562-9473

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [  ] No [  ]

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]	Accelerated filerx
Non-accelerated filer    [  ] (Do not check if a smaller reporting company)	Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] Nox

Number of shares of Common Stock, par value $.01, outstanding as of August 2, 2010: 23,179,452

ENCORE WIRE CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

	Page No.
PART I—FINANCIAL INFORMATION
Item 1.    Financial Statements
Consolidated Balance Sheets June 30, 2010 (Unaudited) and December 31, 2009		1
Consolidated Statements of Income (Unaudited) Quarters and Six Months ended June 30, 2010 and June 30, 2009		3
Consolidated Statements of Cash Flows (Unaudited) Six Months ended June 30, 2010 and June 30, 2009		4
Notes to Consolidated Financial Statements		5
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.    Quantitative and Qualitative Disclosures About Market Risk		15
Item 4.    Controls and Procedures		15
Item 4T.  Controls and Procedures		16
PART II—OTHER INFORMATION
Item 1.    Legal Proceedings		16
Item 1A.  Risk Factors		16
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 6.    Exhibits		17
Signatures		17
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ENCORE WIRE CORPORATION

CONSOLIDATED BALANCE SHEETS

	June 30,		December 31,
In Thousands of Dollars	2010		2009
	(Unaudited)		(See Note)
ASSETS
Current assets:
Cash and cash equivalents	$	90,503	$	226,769
Accounts receivable (net of allowance of $2,432 and $2,278)		182,309		133,176
Inventories		39,992		42,563
Income taxes receivable		1,078		2,660
Prepaid expenses and other		1,138		2,331
Total current assets		315,020		407,499
Property, plant and equipment - at cost:
Land and land improvements		17,928		13,177
Construction-in-progress		6,842		6,481
Buildings and improvements		69,477		68,125
Machinery and equipment		173,605		168,984
Furniture and fixtures		6,807		6,742
Total property, plant and equipment		274,659		263,509
Accumulated depreciation		(143,360)		(136,653)
Property, plant and equipment - net		131,299		126,856
Other assets		197		203
Total assets	$	446,516	$	534,558

Note:	The consolidated balance sheet at December 31, 2009, as presented, is
	derived from the audited consolidated financial statements at that date.
	See accompanying notes.

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ENCORE WIRE CORPORATION

CONSOLIDATED BALANCE SHEETS (continued)

	June 30,		December 31,
In Thousands of Dollars, Except Share Data	2010		2009
	(Unaudited)		(See Note)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	17,876	$	11,942
Accrued liabilities		17,888		17,140
Current deferred income taxes		2,007		1,105
Current portion of notes payable		–		100,430
Total current liabilities		37,771		130,617
Non-current deferred income taxes		10,631		10,957
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 – 26,328,402 and 26,308,002		263		263
Additional paid-in capital		44,446		44,057
Treasury stock, at cost – 3,148,950 and 3,148,950 shares		(21,269)		(21,269)
Retained earnings		374,674		369,933
Total stockholders’ equity		398,114		392,984
Total liabilities and stockholders’ equity	$	446,516	$	534,558

Note:	The consolidated balance sheet at December 31, 2009, as presented, is
	derived from the audited consolidated financial statements at that date.
	See accompanying notes.

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ENCORE WIRE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	Quarter Ended				Six Months Ended
	June 30,				June 30,
In Thousands, Except Per Share Data	2010		2009		2010		2009
Net sales	$	236,094	$	159,351	$	411,323	$	303,836
Cost of goods sold		209,179		147,491		373,807		274,141
Gross profit		26,915		11,860		37,516		29,695
Selling, general, and administrative expenses		14,068		10,730		26,052		21,338
Operating income		12,847		1,130		11,464		8,357
Net interest and other expenses		94		476		2,797		764
Income before income taxes		12,753		654		8,667		7,593
Provision for income taxes		4,618		54		2,998		2,377
Net income	$	8,135	$	600	$	5,669	$	5,216
Net income per common and common equivalent share – basic	$	0.35	$	0.03	$	0.24	$	0.23
Weighted average common and common equivalent shares – basic		23,171		22,999		23,165		22,998
Net income per common and common equivalent share – diluted	$	0.35	$	0.03	$	0.24	$	0.22
Weighted average common and common equivalent shares – diluted		23,334		23,299		23,246		23,288
Cash dividends declared per share	$	0.02	$	0.02	$	0.04	$	0.04

See accompanying notes.

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ENCORE WIRE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended
	June 30,
In Thousands of Dollars	2010		2009
OPERATING ACTIVITIES
Net income	$	5,669	$	5,216
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,861		7,006
Deferred income taxes		576		(12)
Long-term debt prepayment fee		2,919		–
Other		(82)		191
Changes in operating assets and liabilities:
Accounts receivable		(49,287)		14,396
Inventories		2,571		4,488
Trade accounts payable and accrued liabilities		6,681		1,155
Other assets and liabilities		1,120		(646)
Current income taxes receivable / payable		1,607		(407)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(21,365)		31,387
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(11,175)		(16,064)
Proceeds from sale of assets		10		117
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(11,165)		(15,947)
FINANCING ACTIVITIES
Repayment of notes payable		(102,919)		–
Deferred financing fees		(50)		–
Proceeds from issuances of common stock		135		80
Dividend paid		(927)		(920)
Excess tax benefits of options exercised		25		41
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(103,736)		(799)
Net increase (decrease) in cash and cash equivalents		(136,266)		14,641
Cash and cash equivalents at beginning of period		226,769		217,666
Cash and cash equivalents at end of period	$	90,503	$	232,307

See accompanying notes.

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ENCORE WIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2010

NOTE 1 – BASIS OF PRESENTATION

The unaudited consolidated financial statements of Encore Wire Corporation (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete annual financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Results of operations for interim periods presented do not necessarily indicate the results that may be expected for the entire year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

NOTE 2 – INVENTORIES

Inventories are stated at the lower of cost, determined by the last-in, first-out (LIFO) method, or market.

Inventories consist of the following:

	June 30,		December 31,
In Thousands of Dollars	2010		2009
Raw materials	$	7,548	$	14,497
Work-in-process		17,010		12,239
Finished goods		74,144		75,239
		98,702		101,975
Adjust to LIFO cost		(58,710)		(59,412)
Lower of cost or market adjustment		–		–
	$	39,992	$	42,563

LIFO pools are established at the end of each fiscal year. During the first three quarters of every year, LIFO calculations are based on the inventory levels and costs at that time. Accordingly, interim LIFO balances will fluctuate up and down in tandem with inventory levels and costs.

During the first six months of 2010, the Company liquidated a portion of the layer established in 2005. As a result, under the LIFO method, this inventory layer was liquidated at historical costs that were less than current costs, which favorably impacted net income for the second quarter of 2010 by $644,000 and the six months by $1,480,000. During the first six months of 2009, the Company also liquidated prior year inventory layers, favorably impacting net income for the six months by $371,000, all in the second quarter.

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NOTE 3 – ACCRUED LIABILITIES

Accrued liabilities consist of the following:

	June 30,		December 31,
In Thousands of Dollars	2010		2009
Sales volume discounts payable	$	11,395	$	10,120
Property taxes payable		1,361		2,555
Commissions payable		2,175		1,569
Accrued salaries		1,604		418
Other accrued liabilities		1,353		2,478
	$	17,888	$	17,140

NOTE 4 – INCOME TAXES

Income taxes were accrued at an effective rate of 36.2% in the second quarter of 2010 versus 8.3% in the second quarter of 2009, consistent with the Company’s estimated liabilities. The volatility of the effective rate is due to the fact that relatively small dollar amounts of book versus tax adjustments have a larger percentage impact when the pre-tax earnings or loss are at or near break even. For the six months ended June 30^th, the effective tax rates accrued were 34.6% in 2010 and 31.3% in 2009.

NOTE 5 – NET EARNINGS (LOSS) PER SHARE

Net earnings (loss) per common and common equivalent share are computed using the weighted average number of shares of common stock and common stock equivalents outstanding during each period. If dilutive, the effect of stock options, treated as common stock equivalents, is calculated using the treasury stock method.

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The following table sets forth the computation of basic and diluted net earnings per share:

	Quarter Ended
	June 30,		June 30,
In Thousands	2010		2009
Numerator:
Net income (loss)	$	8,135	$	600
Denominator:
Denominator for basic earnings per share – weighted average shares		23,171		22,999
Effect of dilutive securities:
Employee stock options		163		300
Denominator for diluted earnings per share – weighted average shares		23,334		23,299

The number of weighted average employee stock options excluded from the determination of diluted earnings per share for the second quarter was 211,857 in 2010 and 197,923 in 2009. Such options were anti-dilutive for the respective periods.

The following table sets forth the computation of basic and diluted net earnings per share (in thousands):

	Six Months Ended
	June 30,		June 30,
In Thousands	2010		2009
Numerator:
Net income	$	5,669	$	5,216
Denominator:
Denominator for basic earnings per share – weighted average shares		23,165		22,998
Effect of dilutive securities:
Employee stock options		81		290
Denominator for diluted earnings per share – weighted average shares		23,246		23,288

The number of weighted average employee stock options excluded from the determination of diluted earnings per share for the six months ended June 30 was 347,758 in 2010 and 203,309 in 2009. Such options were anti-dilutive for the respective periods.

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NOTE 6 – LONG TERM NOTES PAYABLE

The Company is party to a Financing Agreement with two banks, Bank of America, N.A., as Agent, and Wells Fargo Bank, National Association (as amended, the “Financing Agreement”). The Financing Agreement extends through August 6, 2013, and provides for maximum borrowings of the lesser of $150,000,000 or the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials, less any reserves established by the banks. The calculated maximum borrowing amount available at June 30, 2010, as computed under the Financing Agreement was $149,660,000. Borrowings under the line of credit bear interest, at the Company’s option, at either (1) LIBOR plus a margin that varies from 1.0% to 1.75% depending upon the ratio of debt outstanding to adjusted earnings or (2) the base rate (which is the higher of the federal funds rate plus 0.5% or the prime rate) plus 0% to 0.25% (depending upon the ratio of debt outstanding to adjusted earnings). A commitment fee ranging from 0.20% to 0.375% (depending upon the ratio of debt outstanding to adjusted earnings) is payable on the unused line of credit. On June 30, 2010, there were no borrowings outstanding under the Financing Agreement. Obligations under the Financing Agreement are the only contractual borrowing obligations or commercial borrowing commitments of the Company.

Obligations under the Financing Agreement are unsecured and contain customary covenants and events of default. The Company was not in compliance with these covenants as of December 31, 2009. The Company received a waiver for those covenant violations from the two banks for the December 31^st reporting period. In the first quarter, the Company executed an amendment to the Financing Agreement that reduced the fixed charge ratio that the Company must maintain and amended certain related definitions. The Company was in compliance with the revised covenants as of June 30, 2010.

The Company, through its agent bank, was also a party to a Note Purchase Agreement (the “2004 Note Purchase Agreement”) with Hartford Life Insurance Company, Great-West Life & Annuity Insurance Company, London Life Insurance Company and London Life and Casualty Reinsurance Corporation (collectively, the “2004 Purchasers”), whereby the Company issued and sold $45,000,000 of 5.27% Senior Notes, Series 2004-A, due August 27, 2011 (the “Fixed Rate Senior Notes”) to the 2004 Purchasers, the proceeds of which were used to repay a portion of the Company’s outstanding indebtedness under its previous financing agreement.

On September 28, 2006, the Company, through its agent bank, entered into a second Note Purchase Agreement (the “2006 Note Purchase Agreement”) with Metropolitan Life Insurance Company, Metlife Insurance Company of Connecticut and Great-West Life & Annuity Insurance Company, whereby the Company issued and sold $55,000,000 of Floating Rate Senior Notes, Series 2006-A, due September 30, 2011 (the “Floating Rate Senior Notes”), the proceeds of which were used to repay a portion of the Company’s outstanding indebtedness under its Financing Agreement.

On January 15, 2010, the Company used available cash to pay off all of its then outstanding debt, comprised of the Fixed Rate Senior Notes and the Floating Rate Senior Notes. The Company paid off the $100 million debt with a payment totaling $103.8 million, which included accrued and unpaid interest, along with a pre-payment

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fee applicable to the Fixed Rate Senior Notes. The Company incurred a one-time charge of $2.6 million in the first quarter of 2010 in connection with this transaction. For the second quarter and six months ended June 30, 2010, the Company made an immaterial adjustment to reclassify the cash pre-payment fee from operating activities to financing activities in the accompanying consolidated statement of cash flows.

NOTE 7 – STOCK REPURCHASE AUTHORIZATION

On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 1,000,000 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. The Company’s Board of Directors has subsequently authorized annual extensions of this stock repurchase program through February 28, 2011 authorizing the Company to repurchase up to the remaining 2,610,000 shares of its common stock. The Company did not repurchase any shares of its stock in the first six months of 2010 or 2009.

NOTE 8 – CONTINGENCIES

On July 7, 2009, Southwire Company, a Delaware corporation (“Southwire”), filed a complaint for patent infringement against the Company and Cerro Wire, Inc. in the United States District Court for the Eastern District of Texas. In the complaint, Southwire alleges that the Company has infringed one or more claims of United States Patent No. 7,557,301, 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. On February 5, 2010, the United States Patent and Trademark Office (the “USPTO”) ordered the re-examination of the U.S. Patent 7,557,301. In ordering re-examination of Southwire’s ‘301 patent, the USPTO has determined that the Company’s submission of prior art not previously considered during the original examination of the ‘301 patent has raised a substantial new question of patentability of the claims of the ‘301 patent. In the re-examination, an Examiner in the USPTO will review the claims of the Southwire ‘301 patent and make a new determination of the patentability of those claims.

On August 24, 2009, Southwire filed a second complaint for patent and trademark infringement against the Company. In the second complaint, Southwire has alleged that the Company infringed one or more of the claims of United States Patent No. 6,486,395 entitled “Interlocked Metal Clad Cable” by making and selling electrical cables, including the Company’s MCMP Multipurpose cables. Southwire has also alleged that the Company has infringed Southwire’s United States Trademark registration for the mark, “MCAP”, Registration No. 3,292,777. The second complaint also alleges violations of Federal, State and Common law unfair competition claims. The Company has filed counterclaims against Southwire alleging claims of statutory and common law unfair competition violations, tortious interference with existing and prospective business relations, misappropriation and claims for declaratory relief.

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 misdescriptive trademark, and that Southwire had made false statements about the Company’s slick wire products. On July 6, 2010, the Company amended its complaint to seek a declaratory judgment that the Company’s slick wire products do not infringe Southwire’s United States Patent No. 7,749,024. Later on July 6, 2010, Southwire filed a complaint against the Company in the Eastern District of Texas for infringement of the ‘024 patent.

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The complaints seek unspecified damages and injunctive relief. The Company disputes all of Southwire’s claims and alleged damages and intends to vigorously defend the lawsuits and vigorously pursue its own claims.

The Company is also a party to litigation and claims arising out of the ordinary business of the Company.

NOTE 9 – SUBSEQUENT EVENTS

Subsequent events were evaluated through the date the financial statements were issued.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

The Company is a low-cost manufacturer of copper electrical building wire and cable. The Company is a significant supplier of residential wire for interior wiring in homes, apartments and manufactured housing and commercial wire for commercial and industrial buildings.

The Company’s operating results in any given time period are driven by several key factors, including the volume of product produced and shipped, the cost of copper and other raw materials, the competitive pricing environment in the wire industry and the resulting influence on gross margins and the efficiency with which the Company’s plants operate during the period, among others. Price competition for electrical wire and cable is intense, and the Company sells its products in accordance with prevailing market prices. Copper is the principal raw material used by the Company in manufacturing its products. Copper accounted for approximately 73.5% and 90.3% of the Company’s cost of goods sold during fiscal 2009 and 2008, respectively. The price of copper fluctuates, depending on general economic conditions and in relation to supply and demand and other factors, which 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.

The following discussion and analysis relates to factors that have affected the operating results of the Company for the quarterly and six-month periods ended June 30, 2010 and 2009. Reference should also be made to the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Results of Operations

Quarter Ended June 30, 2010 Compared to Quarter Ended June 30, 2009

Net sales for the second quarter of 2010 amounted to $236.1 million compared with net sales of $159.4 million for the second quarter of 2009. This dollar increase was primarily the result of a 44.9% increase in the price of wire sold and a 2.3% increase in the unit volume of product shipped. The average cost per pound of raw copper purchased increased 48.1% in the second quarter of 2010 compared to the second quarter of 2009,

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and was the principal driver of the increased average sales price of wire. Fluctuations in sales prices are primarily a result of changing copper raw material prices and product price competition.

Cost of goods sold increased to $209.2 million, or 88.6% of net sales, in the second quarter of 2010, compared to $147.5 million, or 92.6% of net sales, in the second quarter of 2009. Gross profit increased to $26.9 million, or 11.4% of net sales, in the second quarter of 2010 versus $11.9 million, or 7.4% of net sales, in the second quarter of 2009. The increased gross profit and gross margin percentages were primarily the result of the increased spread between what the Company paid for a pound of copper and the price of wire that contained a pound of copper. In comparing the second quarter of 2010 to the second quarter of 2009, this spread increased by 35.7% resulting in the increased margins. Spreads increased as a result of improved industry pricing discipline in the second quarter of 2010.

Inventories are stated at the lower of cost, using the last-in, first-out (LIFO) method, or market. The Company maintains only one inventory pool for LIFO purposes as all inventories held by the Company generally relate to the Company’s only business segment, the manufacture and sale of copper building wire products. As permitted by U.S. generally accepted accounting principles, the Company maintains its inventory costs and cost of goods sold on a first-in, first-out (FIFO) basis and makes a quarterly adjustment to adjust total inventory and cost of goods sold from FIFO to LIFO. The Company applies the lower of cost or market (LCM) test by comparing the LIFO cost of its raw materials, work-in-process and finished goods inventories to estimated market values, which are based primarily upon the most recent quoted market price of copper, in pound quantities, as of the end of each reporting period. Additionally, future reductions in the quantity of inventory on hand could cause copper that is carried in inventory at costs different from the cost of copper in the period in which the reduction occurs to be included in cost of goods sold for that period.

As a result of decreasing copper costs, offset slightly by an increase in the quantity of inventory on hand during the second quarter of 2010, a LIFO adjustment was recorded decreasing cost of sales by $9.2 million during the quarter. Based on copper prices at the end of the quarter, no LCM adjustment was necessary. Future reductions in the price of copper could require the Company to record an LCM adjustment against the related inventory balance, which would result in a negative impact on net income.

Selling expenses, consisting of commissions and freight, for the second quarter of 2010 were $10.0 million, or 4.3% of net sales, compared to $8.0 million, or 5.0% of net sales, in the second quarter of 2009. Commissions paid to independent manufacturers’ representatives are paid as a relatively stable percentage of sales, and therefore, rose $1.8 million in concert with the increased sales dollars. Additionally, freight costs increased by $0.3 million due to the 2.3% increase in unit sales. General and administrative expenses increased to $4.0 million, or 1.7% of net sales, in the second quarter of 2010 compared to $2.7 million, or 1.7% of net sales, in the second quarter of 2009. The general and administrative dollar costs rose primarily due to increased legal and administrative costs, while the percentage of net sales remained stable. The provision for bad debts was $75,000 in the second quarter of both 2010 and 2009.

The net interest and other income and expense category decreased in expense to $94,000 in the second quarter of 2010 from $476,000 expense in the second quarter of

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2009, due primarily to the early retirement of the Company’s $100 million in long-term notes payable during the first quarter of 2010. Income taxes were accrued at an effective rate of 36.2% in the second quarter of 2010 versus 8.3% in the second quarter of 2009, consistent with the Company’s estimated liabilities. The volatility of the effective rate is due to the fact that relatively small dollar amounts of book versus tax adjustments have a larger percentage impact when the pre-tax earnings are near break even, which drove the 2009 rate downward.

As a result of the foregoing factors, the Company had net income of $8.1 million in the second quarter of 2010 versus $600,000 in the second quarter of 2009.

Six Months Ended June 30, 2010 compared to Six Months Ended June 30, 2009

Net sales for the first six months of 2010 amounted to $411.3 million compared with net sales of $303.8 million for the first half of 2009. This dollar increase was the result of a 59.2% increase in the average price of wire sold, partially offset by a 14.9% decrease in the unit volume of wire sold, measured in pounds of copper contained in the wire. The average cost per pound of raw copper purchased increased 74.1% in the first six months of 2010 compared to the first six months of 2009, but increased less than the selling price of wire per copper pound did in dollar terms. In comparing the first half of 2010 to the first half of 2009, the average sales price of wire that contained a pound of copper increased more than the average price of copper purchased during the period. Margins expanded as the spread between the price of wire sold and the cost of raw copper purchased increased by 24.3%, due primarily to industry pricing discipline. In addition, the unit volume decreased as discussed above. Fluctuations in sales prices are primarily a result of changing copper raw material prices and product price competition.

Cost of goods sold increased to $373.8 million in the first six months of 2010, compared to $274.1 million in the first six months of 2009. Gross profit increased to $37.5 million, or 9.1% of net sales, in the first six months of 2010 versus $29.7 million, or 9.8% of net sales, in the first six months of 2009. The increased gross profit dollars were primarily the result of the 35.4% increase in net sales dollars in the first six months of 2010 versus the same period in 2009 as discussed above, while the percentage margin decreased slightly.

As a result of decreasing copper costs in the second quarter and a slightly decreased amount of inventory on hand during the first six months of 2010, a LIFO adjustment was recorded decreasing cost of sales by $702,000 during the six month period. Based on the current copper prices, there is no LCM adjustment necessary. Future reductions in the price of copper could require the Company to record an LCM adjustment against the related inventory balance, which would result in a negative impact on net income.

Selling expenses for the first six months of 2010 increased to $17.7 million, or 4.3% of net sales, compared to $15.6 million, or 5.1% of net sales, in the same period of 2009. Commissions paid to independent manufacturers’ representatives are paid as a percentage of sales, and therefore, rose $2.5 million in concert with the increased sales dollars. This increase in commissions was slightly offset by freight costs, which decreased $383,000 due to the decrease in unit sales. Commissions amounted to 2.6% and 2.7% in the first six months of 2010 and 2009, respectively. General and administrative expenses increased to $8.2 million, or 2.0% of net sales, in the first six months of 2010 compared to $5.6 million, or 1.9% of net sales, in the same period of

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2009. The general and administrative costs rose primarily due to increased legal and administrative costs, while decreasing slightly as a percentage of net sales. The provision for bad debts was $150,000 in the first six months of both 2010 and 2009.

Net interest and other expense was $2.8 million in the first six months of 2010 compared to $764,000 in the first half of 2009. The increase was due primarily to a $2.6 million one-time charge associated with the early retirement of the Company’s $100 million in long-term notes payable. Income taxes were accrued at an effective rate of 34.6% in the first six months of 2010 versus 31.3% in the first six months of 2009 consistent with the Company’s estimated liabilities.

As a result of the foregoing factors, the Company’s net income increased to $5.7 million in the first half of 2010 from $5.2 million in the first half of 2009.

Liquidity and Capital Resources

The Company maintains a substantial inventory of finished products to satisfy the prompt delivery requirements of its customers. As is customary in the industry, the Company provides payment terms to most of its customers that exceed terms that it receives from its suppliers. Therefore, the Company’s liquidity needs have generally consisted of operating capital necessary to finance these receivables and inventory. Capital expenditures have historically been necessary to expand the production capacity of the Company’s manufacturing operations. The Company has historically satisfied its liquidity and capital expenditure needs with cash generated from operations, borrowings under its various debt arrangements and sales of its common stock. Prior to building the current substantial cash balance, the Company historically used its revolving credit facility to manage day to day operating cash needs as required by daily fluctuations in working capital, and has the facility in place should such a need arise in the future.

The Company is party to a Financing Agreement with two banks, Bank of America, N.A., as Agent, and Wells Fargo Bank, National Association (as amended, the “Financing Agreement”). The Financing Agreement extends through August 6, 2013, and provides for maximum borrowings of the lesser of $150,000,000 or the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials, less any reserves established by the banks. The calculated maximum borrowing amount available at June 30, 2010, as computed under the Financing Agreement was $149,660,000. Borrowings under the line of credit bear interest, at the Company’s option, at either (1) LIBOR plus a margin that varies from 1.0% to 1.75% depending upon the ratio of debt outstanding to adjusted earnings or (2) the base rate (which is the higher of the federal funds rate plus 0.5% or the prime rate) plus 0% to 0.25% (depending upon the ratio of debt outstanding to adjusted earnings). A commitment fee ranging from 0.20% to 0.375% (depending upon the ratio of debt outstanding to adjusted earnings) is payable on the unused line of credit. On June 30, 2010, there were no borrowings outstanding under the Financing Agreement. Obligations under the Financing Agreement are the only contractual borrowing obligations or commercial borrowing commitments of the Company.

Obligations under the Financing Agreement are unsecured and contain customary covenants and events of default. The Company was not in compliance with these covenants as of December 31, 2009. The Company received a waiver for those covenant violations from the two banks for the December 31^st reporting period. In the

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first quarter, the Company executed an amendment to the Financing Agreement that reduced the fixed charge ratio that the Company must maintain and amended certain related definitions. The Company was in compliance with the revised covenants as of June 30, 2010.

The Company, through its agent bank, was also a party to a Note Purchase Agreement (the “2004 Note Purchase Agreement”) with Hartford Life Insurance Company, Great-West Life & Annuity Insurance Company, London Life Insurance Company and London Life and Casualty Reinsurance Corporation (collectively, the “2004 Purchasers”), whereby the Company issued and sold $45,000,000 of 5.27% Senior Notes, Series 2004-A, due August 27, 2011 (the “Fixed Rate Senior Notes”) to the 2004 Purchasers, the proceeds of which were used to repay a portion of the Company’s outstanding indebtedness under its previous financing agreement.

On September 28, 2006, the Company, through its agent bank, entered into a second Note Purchase Agreement (the “2006 Note Purchase Agreement”) with Metropolitan Life Insurance Company, Metlife Insurance Company of Connecticut and Great-West Life & Annuity Insurance Company, whereby the Company issued and sold $55,000,000 of Floating Rate Senior Notes, Series 2006-A, due September 30, 2011 (the “Floating Rate Senior Notes”), the proceeds of which were used to repay a portion of the Company’s outstanding indebtedness under its Financing Agreement.

On January 15, 2010, the Company used available cash to pay off all of its then outstanding debt, comprised of the Fixed Rate Senior Notes and the Floating Rate Senior Notes. The Company paid off the $100 million debt with a payment totaling $103.8 million, which included accrued and unpaid interest, along with a pre-payment fee applicable to the Fixed Rate Senior Notes. The Company incurred a one-time charge of $2.6 million in the first quarter of 2010 in connection with this transaction and expects to realize a net cash savings of $1.8 million based on interest rates in effect at the time of the payoff, over the original remaining life of the notes. For the second quarter and six months ended June 30, 2010, the Company made an immaterial adjustment to reclassify the cash pre-payment fee from operating activities to financing activities in the accompanying consolidated statement of cash flows.

Cash used by operating activities was $21.4 million in the first six months of 2010 compared to cash provided of $31.4 million in the first six months of 2009. The following changes in components of cash flow were notable. The Company had net income of $5.7 million in the first six months of 2010 versus net income of $5.2 million in the first six months of 2009. Accounts receivable decreased in the first six months of 2009, providing $14.4 million in cash, while accounts receivable increased by $49.3 million in the first six months of 2010, resulting in a $63.7 million negative swing in cash provided by operations. Accounts receivable increased in concert with the increased sales in 2010. Trade accounts payable and accrued liabilities had a $5.5 million increase in cash flow provided in the first six months of 2010 versus the first six months of 2009 due primarily to the increase in accounts payable, attributable to increased sales and production along with the timing of inventory receipts at quarter end. These changes in cash flow were the primary drivers of the $52.8 million decrease in cash flow from operations in the first six months of 2010 versus the first six months of 2009.

Cash used in investing activities decreased to $11.2 million in the first six months of 2010 from $15.9 million in the first six months of 2009. In 2009, the funds were used

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primarily for equipment purchases, while in 2010 the reduced funds were used for both equipment and land purchases. The $103.7 million of cash used in financing activities in the first six months of 2010 was primarily the result of the Company’s early retirement of long-term notes payable discussed above. In the first half of 2010, the Company’s revolving line of credit remained at $0. The Company’s cash balance was $90.5 million at June 30, 2010.

During the remainder of 2010, the Company expects its capital expenditures will consist primarily of purchases of additional plant and equipment for its building wire operations. The total capital expenditures for all of 2010 associated with these projects are currently estimated to be between $16 million and $19 million. The Company will continue to manage its working capital requirements. These requirements may increase as a result of increased sales and may be impacted by the price of copper. The Company believes that the current cash balance, cash flow from operations, and the financing available under the Financing Agreement will satisfy working capital and capital expenditure requirements during 2010.

Information Regarding Forward Looking Statements

This quarterly report on Form 10-Q contains various “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information that are based on management’s belief as well as assumptions made by and information currently available to management. The words “believes”, “estimates”, “anticipates”, “plans”, “seeks”, “expects”, “intends” and similar expressions identify some of the forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected. Among the key factors that may have a direct bearing on the Company’s operating results are fluctuations in the economy and in the level of activity in the building and construction industry, demand for the Company’s products, the impact of price competition and fluctuations in the price of copper. For more information regarding “forward looking statements” see “Information Regarding Forward Looking Statements” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, which is hereby incorporated by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes from the information provided in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4. Controls and Procedures.

The Company maintains controls and procedures designed to ensure that information required to be disclosed by it in the reports it files with or submits to the Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in such reports is accumulated and

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communicated to the Company’s management, including the Chief Executive and Chief Financial Officers, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report conducted by the Company’s management, with the participation of the Chief Executive and Chief Financial Officers, the Chief Executive and Chief Financial Officers concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files with or submits to the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive and Chief Financial Officers, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the period covered by this report.

Item 4T. Controls and Procedures.

Not applicable.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

Please refer to Note 8 – “Contingencies” in Notes to Consolidated Financial Statements of this quarterly report on Form 10-Q for information on legal proceedings.

Item 1A. Risk Factors.

There have been no material changes to the Company’s risk factors as disclosed in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 1,000,000 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. The Company’s Board of Directors has subsequently authorized annual extensions of this stock repurchase program through February 28, 2011 authorizing the Company to repurchase up to the remaining 2,610,000 shares of its common stock. The Company did not repurchase any shares of its stock in the first six months of 2010 or 2009.

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Item 6. Exhibits.

The information required by this Item 6 is set forth in the Index to Exhibits accompanying this Form 10-Q.

SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ENCORE WIRE CORPORATION
	(Registrant)
Dated: August 4, 2010	/s/ DANIEL L. JONES
	Daniel L. Jones, President and
	Chief Executive Officer
Dated: August 4, 2010	/s/ FRANK J. BILBAN
	Frank J. Bilban, Vice President – Finance,
	Chief Financial Officer,
	Treasurer and Secretary

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INDEX TO EXHIBITS

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 June 30, 2009, and incorporated herein by reference).
3.2	Second Amended and Restated Bylaws of Encore Wire Corporation, as amended through December 13, 2007 (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference).
31.1	Certification by Daniel L. Jones, President and Chief Executive Officer of Encore Wire Corporation, dated August 4, 2010 and submitted pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Frank J. Bilban, Vice President-Finance, Chief Financial Officer, Treasurer and Secretary of Encore Wire Corporation, dated August 4, 2010 and submitted pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by Daniel L. Jones, President and Chief Executive Officer of Encore Wire Corporation, dated August 4, 2010 and submitted as required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by Frank J. Bilban, Vice President-Finance, Chief Financial Officer, Treasurer and Secretary of Encore Wire Corporation, dated August 4, 2010 as required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.