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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 2001
FOR THE QUARTER ENDED
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-20278
ENCORE WIRE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2274963
(State of incorporation) (I.R.S. employer identification number)
1410 MILLWOOD ROAD
MCKINNEY, TEXAS 75069
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 562-9473
[X] Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [ ] No [ ]
Number of shares of Common Stock outstanding as of April 30, 2001: 15,057,472
Page 1 of 14 Sequentially Numbered Pages
Index to Exhibits on Page 14
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FORM 10-Q
ENCORE WIRE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 2001 (Unaudited) and December 31, 2000 ......................................3
Consolidated Statements of Income (Unaudited)
Quarters ended March 31, 2001 and
March 31, 2000.........................................................................5
Consolidated Statements of Cash Flows (Unaudited)
Quarters ended March 31, 2001 and March 31, 2000.......................................6
Notes to Consolidated Financial Statements......................................................7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K...............................................................12
Signatures.......................................................................................................13
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FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ENCORE WIRE CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
In Thousands of Dollars 2001 2000
(Unaudited) See Note 1
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ASSETS
Current assets:
Cash .......................................... $ 1,224 $ 56
Accounts receivable (net of allowance of
$450 and $414) ............................ 49,357 54,003
Inventories (Note 2) .......................... 42,830 42,867
Prepaid expenses and other assets ............. 317 461
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Total current assets ...................... 93,728 97,387
Property, plant and equipment-on the basis of cost:
Land .......................................... 3,583 3,583
Construction in Progress ...................... 3,543 2,978
Buildings and improvements .................... 26,135 26,086
Machinery and equipment ....................... 77,042 77,013
Furniture and fixtures ........................ 2,073 2,021
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Total property, plant, and equipment ...... 112,376 111,681
Accumulated depreciation and
amortization .......................... 39,618 37,420
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72,758 74,261
Other assets ........................................... 820 191
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Total assets ........................................... $167,306 $171,839
======== ========
See accompanying notes
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ENCORE WIRE CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
In Thousands of Dollars, Except Share Data March 31, December 31,
2001 2000
(Unaudited) See Note 1
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .................................. $ 19,550 $ 18,487
Accrued liabilities ..................................... 5,142 8,655
Current income taxes payable ............................ 1,871 738
Current deferred income taxes ........................... 961 960
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Total current liabilities ............................... 27,524 28,840
Non-current deferred income taxes ................................ 6,853 6,853
Long term notes payable .......................................... 38,000 42,600
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - (16,678,572
at March 31, 2001 and 16,637,509 at
December 31, 2000) ............................... 167 166
Additional paid-in capital ....................................... 32,175 32,162
Treasury stock - 1,615,800 at March 31, 2001 and 1,528,100 at
December 31, 2000 ....................................... (13,156) (12,493)
Retained earnings ................................................ 75,743 73,711
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Total stockholders' equity .............................. 94,929 93,546
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Total liabilities and stockholders' equity ....................... $ 167,306 $ 171,839
========= =========
Note: The consolidated balance sheet at December 31, 2000, as presented, is
derived from the audited consolidated financial statements at that date.
See accompanying notes
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FORM 10-Q
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter Ended
March 31,
In Thousands of Dollars, Except Per Share Data 2001 2000
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Net sales .............................................................. $69,757 $67,049
Cost of goods sold ..................................................... 58,927 57,862
Lower of cost or market reserve ........................................ 1,000 --
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Gross profit ........................................................... 9,830 9,187
Selling, general, and administrative expenses .......................... 5,994 5,780
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Operating income ....................................................... 3,836 3,407
Net interest expense ................................................... 661 1,015
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Income before income taxes ............................................. 3,175 2,392
Provision for income taxes ............................................. 1,143 861
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Net income ............................................................. $ 2,032 $ 1,531
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Net income per common and common equivalent share - basic .............. $ 0.13 $ 0.10
======= =======
Weighted average common and common equivalent shares - basic ........... 15,079 15,300
======= =======
Net income per common and common equivalent share - diluted ............ $ 0.13 $ 0.10
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Weighted average common and common equivalent shares - diluted ......... 15,223 15,538
======= =======
Cash dividends declared per share ...................................... $ -- $ --
======= =======
See accompanying notes
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FORM 10-Q
ENCORE WIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter Ended
March 31,
In Thousands of Dollars 2001 2000
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OPERATING ACTIVITIES
Net income ................................................................ $ 2,032 $ 1,531
Adjustments to reconcile net income to cash provided by (used) in operating
activities:
Depreciation and amortization ..................................... 2,350 2,230
Provision for bad debts ........................................... 37 --
Changes in operating assets and liabilities:
Accounts receivable ............................................... 4,608 (7,202)
Inventory ......................................................... 37 5,495
Accounts payable and accrued liabilities .......................... (2,449) (936)
Other assets and liabilities ...................................... (473) 144
Current income taxes receivable/payable ........................... 1,134 1,285
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............... 7,276 2,547
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INVESTING ACTIVITIES
Purchases of property, plant and equipment ................................ (931) (903)
Increase in long-term investments ......................................... 0 (18)
Proceeds from sale of equipment ........................................... 72 31
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ............... (859) (890)
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FINANCING ACTIVITIES
Increase (decrease) in long-term note payable ............................. (4,600) (1,000)
Proceeds from issuance of common stock .................................... 13 --
Purchase of treasury stock ................................................ (662) (787)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............... (5,249) (1,787)
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Net increase (decrease) in cash ............................................... 1,168 (130)
Cash at beginning of period ................................................... 56 1,256
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Cash at end of period ......................................................... $ 1,224 $ 1,126
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See accompanying notes
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FORM 10Q
ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Encore Wire
Corporation have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. Results of operations for
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, 2000.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost, determined by the last-in,
first-out (LIFO) method, or market.
Inventories (in thousands) consisted of the following:
March 31, December 31,
2001 2000
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Raw materials .............................. $ 9,651 $ 13,421
Work-in-process ............................ 2,792 3,404
Finished goods ............................. 27,420 24,694
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39,863 41,519
Increase to LIFO cost ...................... 3,967 1,348
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43,830 42,867
Lower of Cost or Market Adjustment ......... (1,000) --
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$ 42,830 $ 42,867
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An actual valuation of inventory under the LIFO method can be made only
at the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation. The Company did, however, set up
a $1,000,000 lower of cost or market reserve to
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reflect the fact that the LIFO cost basis as currently calculated, exceeded the
current market value by that amount at the end of the first quarter of 2001.
NOTE 3 - INCOME PER SHARE
Income (loss) per common and common equivalent share is computed using
the weighted average number of shares of common stock and common stock
equivalents outstanding during each period. If dilutive, the effect of stock
options, treated as common stock equivalents, is calculated using the treasury
stock method.
The following table sets forth the computation of basic and diluted earnings per
share:
Quarter Ending Quarter Ending
3/31/01 3/31/00
Numerator:
Net Income $ 2,032,000 $ 1,531,000
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Denominator:
Denominator for basic earnings per share - weighted
average shares 15,079,187 15,300,343
Effect of dilutive securities:
Employee stock options 143,818 237,381
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Denominator for diluted earnings per share -
weighted average shares 15,223,005 15,537,724
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NOTE 4 - LONG TERM NOTE PAYABLE
Effective August 31, 1999, the Company through its indirectly wholly
owned subsidiary, Encore Wire Limited, a Texas limited partnership, completed an
unsecured loan facility with a group of banks (the "Financing Agreement"). The
Financing Agreement replaced the Company's existing credit facility, and the
Company is a guarantor of the indebtedness. The Financing Agreement has been
amended once since August 31, 1999, to extend the term to May 31, 2003. The
Financing Agreement provides for maximum borrowings of the lesser of $65.0
million or the amount of eligible accounts receivable plus the amount of
eligible finished goods and raw materials, less any available reserves
established by the banks. The calculated maximum borrowing amount available at
March 31, 2001, as computed under the Financing Agreement, was $65.0 million.
The Financing Agreement is unsecured and contains customary covenants and events
of default. The Company was in compliance with these covenants, as amended, as
of March 31, 2001. Pursuant to the Financing Agreement, the Company is
prohibited from declaring, paying or issuing cash dividends. At March 31, 2001,
the balance outstanding under the Financing Agreement was $38.0 million. Amounts
outstanding under the Financing Agreement are payable on May 31, 2003 with
interest due quarterly based on the bank's prime rate or LIBOR rate options, at
the Company's election.
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NOTE 5 - STOCK REPURCHASE AUTHORIZATION
On March 24, 1995, the Company announced that its Board of Directors
had authorized it to purchase up to 900,000 shares, or approximately 5.6%, of
its outstanding common stock dependent upon market conditions. Subsequent Board
actions increased this authorization. As of March 31, 2001, the Company had
repurchased an aggregate of 1,615,800 shares of its common stock in the open
market.
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.
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 63.9%, 60.6%, 66.2%, 73.8% and 77.4% of the
Company's cost of goods sold during fiscal 2000, 1999, 1998, 1997 and 1996,
respectively. The price of copper fluctuates, depending on general economic
conditions and in relation to supply and demand and other factors, which has
caused monthly variations in the cost of copper purchased by the Company. The
Company cannot predict copper prices in the future or the effect of fluctuations
in the cost of copper on the Company's future operating results.
The following discussion and analysis relates to factors that have
affected the operating results of the Company for the three month period ended
March 31, 2001 and 2000. 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, 2000.
RESULTS OF OPERATIONS
Net sales for the first quarter of 2001 amounted to $69.8 million
compared with net sales of $67.0 million for the first quarter of 2000. This
dollar increase was due to an increase in the volume of product shipped. Sales
volume increased primarily as a result of market share gains. The average sales
price per copper pound of product sold was down in the first quarter of 2001,
compared to the first quarter of 2000. Fluctuations in sales prices are
primarily a result of changing copper raw material prices and product price
competition.
The cost of goods sold was $59.9 million in the first quarter of 2001,
compared to $57.9 million in the first quarter of 2000. Copper costs increased
to $41.1 million in the first quarter of 2001 compared to $35.8 million in the
first quarter of 2000. This increase was due to the higher volume of copper in
the first quarter of 2001 compared to the first quarter of 2000. The average
cost per copper pound purchased remained constant at $.85 in the first quarter
of 2000 versus the first quarter of 2000. Copper costs as a percentage of net
sales increased to 58.9% in the first quarter of 2001 from 53.4% in the first
quarter of 2000. This increase as a percentage of net sales in the first quarter
of 2001 from the comparable quarter in 2000 was primarily due to a decreased
differential between what the Company paid per pound of copper purchased and the
Company's net sales price per copper pound sold. This differential decreased in
the first quarter of 2001 due to intense
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competitive pricing for the Company's products. Other raw material costs as a
percentage of net sales decreased to 13.3% in the first quarter of 2001,
compared with 15.0% in the first quarter of 2000. This decrease as a percentage
of sales was a result of other raw material costs per copper pound decreasing
due to market conditions, volume rebates and cost saving programs.
Depreciation, labor and overhead costs as a percentage of net sales
remained constant at 16.0% in the first quarter of 2001 versus the first quarter
of 2000. This was due to tight cost controls and the increased volume offsetting
the lower pricing prevalent in the marketplace.
Inventories are stated at the lower of cost, determined by the last in,
first out (LIFO) method, or market. As permitted by generally accepted
accounting principles, the Company maintains its inventory costs and cost of
goods sold on a first in, first out (FIFO) basis and makes a quarterly LIFO
adjustment to adjust total inventory and cost of goods sold to LIFO. As a result
of decreases in the price of copper during the first quarter of 2001 versus
existing LIFO inventory layers and the reduction of current inventory value, the
value of all inventory at March 31, 2001 using the LIFO method was greater than
its FIFO value by approximately $4.0 million, resulting in a corresponding
decrease in the cost of goods sold of $2.6 million. At March 31, 2001, the LIFO
cost basis of the inventory exceeded the market value by $1,000,000. Thus, at
March 31, 2001 a $1,000,000 addition was made to the LCM reserve. Future
reductions in the price of copper could require the Company to record a lower of
cost or market adjustment against the related inventory balance, which would
result in a negative impact on net income. Additionally, a reduction in the
quantity of inventory in any period could cause copper that is carried in
inventory at costs different from the cost of copper in that period to be
included at the different price in cost of goods sold for that period.
Gross profit increased to $9.8 million, or 14.1% of net sales, for the
first quarter of 2001 versus $9.2 million, or 13.7% of net sales, for the first
quarter of 2000. The increase in gross profit as a percentage of net sales was
due primarily to increased sales volume and the cost of goods sold factors in
the first quarter of 2001, as discussed above, partially offset by an
increasingly competitive pricing environment for the Company's products.
Selling expenses for the first quarter of 2001 were $4.3 million, or
6.1% of net sales, compared to $4.3 million, or 6.4% of net sales, in the first
quarter of 2000. The percentage decrease was due to a lower percentage of sales
paid out in commissions due to a change in the mix of product sold. General and
administrative expenses increased to $1.7 million, or 2.4% of net sales, in the
first quarter of 2000 compared to $1.5 million, or 2.2% of net sales, in the
first quarter of 2000. This increase was due primarily to increased costs
relating to the Company's information systems upgrade and infrastructure put in
place for increased sales volume.
Net interest expense was $660,000 in the first quarter of 2001 compared
to $1,015,000 in the first quarter of 2000. The decrease was due to a lower
average debt balance outstanding during the first quarter of 2001 than the
comparable period during 2000, coupled with lower interest rates. The lower
rates are a result of general interest rate declines and a decline in the
Company's interest rate due to balance sheet ratios reaching trigger points in
the debt agreements.
As a result of the foregoing factors, the Company's net income
increased to $2.0 million in the first quarter of 2001 from $1.5 million in the
first quarter of 2000.
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FORM 10Q
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a substantial inventory of finished products to
satisfy customers' prompt delivery requirements. As is customary in the
industry, the Company provides payment terms to most of its customers that
exceed terms that it receives from its suppliers. Therefore, the Company's
liquidity needs have generally consisted of operating capital necessary to
finance these receivables and inventory. Capital expenditures have historically
been necessary to expand the production capacity of the Company's manufacturing
operations. The Company has satisfied its liquidity and capital expenditure
needs with cash generated from operations, borrowings under its revolving credit
facilities and sales of its common stock.
Note 4 of the Notes to Consolidated Financial Statements in Part I is
incorporated herein by reference as if fully restated herein.
Cash provided by operations was $7.3 million in the first quarter of
2001 compared to $2.5 million in the first quarter of 2000. This increase in
cash provided by operations primarily resulted from a reduction in accounts
receivable in the first quarter of 2001 versus an increase in the first quarter
of 2000. Cash used in investing activities remained constant at $900,000 in the
first quarter of 2001 and 2000. In both quarters, these funds were used
primarily for routine production capacity projects. The $5.2 million of cash
used by financing activities in the first quarter of 2001 was used to repay
borrowings under the Company's line of credit ($4.6 million) and to purchase
treasury stock ($662,000).
During 2001, the Company expects its capital expenditures will consist
of additional plant and equipment for its residential and commercial wire
operations. The Company will continue to manage its working capital
requirements. These requirements may increase as a result of expected continued
sales increases. These requirements will be impacted by the price of copper. The
Company believes that the cash flow from operations and the financing that it
expects to receive from its banks under the Financing Agreement will satisfy
working capital and capital expenditure requirements for the next twelve months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information provided in
Item 7.A. of the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains various "forward-looking statements"
(within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934) and information that are based on
management's belief as well as assumptions made by and information currently
available to management. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
expected. Among the key factors that may have a direct bearing on the Company's
operating results are fluctuations in the economy and in the level of activity
in the building and construction industry, demand for the Company's products,
the impact of price competition and fluctuations in the price of copper.
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FORM 10Q
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The information required by this Item 6(a) is set forth in the Index
to Exhibits accompanying this Form 10-Q.
(b) No reports on Form 8-K were filed by the Company during the three
months ended March 31, 2001.
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FORM 10Q
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
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(Registrant)
Date: May 14, 2001 /s/ VINCENT A. REGO
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Vincent A. Rego, Chairman of the Board and
Chief Executive Officer
Date: May 14, 2001 /s/ DANIEL L. JONES
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Daniel L. Jones, President and
Chief Operating Officer
Date: May 14, 2001 /s/ Frank J. Bilban
------------------------------------------
Frank J. Bilban, Vice President - Finance,
Treasurer and Secretary
(Principal Financial Officer)
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FORM 10-Q
INDEX TO EXHIBITS
Exhibit
Number Description
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3.1 Certificate of Incorporation of Encore Wire Corporation, as amended
(filed as Exhibit 3/1 to the Company's Registration Statement on Form
S-1, as amended (No. 33-47696), and incorporated herein by reference).
3.2 Amended and Restated Bylaws of Encore Wire Corporation (filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference).
10.1* Amended and Restated Agreement Not to Compete dated March 8, 1994,
between Encore Wire Corporation and Vincent A. Rego (filed as Exhibit
10.9 to the Company's Registration Statement on Form S-1, as amended
(No. 33-76216), and incorporated herein by reference).
10.2* Amended and Restated Agreement Not to Compete dated March 8, 1994,
between Encore Wire Corporation and Donald M. Spurgin (filed as Exhibit
10.10 to the Company's Registration Statement on Form S-1, as amended
(No. 33-76216), and incorporated herein by reference).
10.3* Employment Agreement dated as of October 1, 1996 between the Company
and Spurgin (filed as Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated
reference).
10.4 Financing Agreement by and among Encore Wire Limited, as Borrower, Bank
of America, National Association, as Agent, and Bank of America,
National Association, and Comerica Bank-Texas, as Lenders, dated August
31, 1999 (filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999, and incorporated
herein by reference).
10.5 First amendment to Financing Agreement of August 31, 1999, dated June
27, 2000 by and among Encore Wire Limited, as Borrower, Bank of
America, National Association, as Agent, and Bank of America, National
Association, and Comerica Bank-Texas, as Lenders, as Agent and Bank of
America, National Association and Comerica Bank - Texas as Lenders
(files as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000, and incorporated herein by
reference).
21.1 Subsidiaries (filed as Exhibit 21.1 to the Company's Annual Report on
Form 10-K For the year ended December 31, 2000, and incorporated herein
by reference).
* Management contract or compensatory plan.
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