ENCORE WIRE CORP - Quarter Report: 2005 June (Form 10-Q)

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

		For the quarterly period ended June 30, 2005

		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: 0-20278

ENCORE WIRE CORPORATION

(Exact name of registrant as specified in its charter)


Delaware (State of Incorporation)		75-2274963 (I.R.S. employer identification number)


1410 Millwood Road McKinney, Texas (Address of principal executive offices)		75069 (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. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Number of shares of Common Stock outstanding as of July 31, 2005: 23,108,928

Page 1 of 26 Sequentially Numbered Pages
Index to Exhibits on Page 20

FORM 10-Q

ENCORE WIRE CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005


			Page No.
PART I. FINANCIAL INFORMATION

	ITEM 1. Consolidated Financial Statements

		Consolidated Balance Sheets June 30, 2005 (Unaudited) and December 31, 2004		3

		Consolidated Statements of Income (Unaudited) Quarters and Six Months ended June 30, 2005 and June 30, 2004		5

		Consolidated Statements of Cash Flows (Unaudited) Six Months ended June 30, 2005 and June 30, 2004		6

		Notes to Consolidated Financial Statements		7

	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12

	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			17

	ITEM 4. Controls and Procedures			17

PART II. OTHER INFORMATION

	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			17

	ITEM 4. Submission of Matters to a Vote of Security Holders			18

	ITEM 6. Exhibits			18

	Signatures			19
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

FORM 10-Q

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ENCORE WIRE CORPORATION

CONSOLIDATED BALANCE SHEETS


	June 30,		December 31,
	2005		2004
In Thousands of Dollars	(Unaudited)		(See Note)

ASSETS

Current Assets:
Cash	$	1,058	$	2,640
Accounts receivable (net of allowance of $666 and $577)		124,611		108,752
Inventories (Note 3)		49,722		39,111
Prepaid expenses and other assets		9,400		6,910
Current taxes receivable		3,453		4,751


Total current assets		188,244		162,164

Property, plant and equipment-on the basis of cost:
Land		7,093		6,783
Construction in progress		2,862		3,378
Buildings and improvements		38,130		37,972
Machinery and equipment		118,561		115,866
Furniture and fixtures		3,634		3,195


Total property, plant, and equipment		170,280		167,194

Accumulated depreciation and amortization		83,459		78,515


		86,821		88,679

Other assets		982		672


Total assets	$	276,047	$	251,515


Note: The consolidated balance sheet at December 31, 2004 as presented, is derived from the audited consolidated financial statements at that date.

See accompanying notes.

FORM 10-Q

ENCORE WIRE CORPORATION

CONSOLIDATED BALANCE SHEETS (continued)


	June 30,			December 31,
	2005			2004
In Thousands of Dollars, Except Share Data	(Unaudited)			(See Note)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Trade accounts payable	$	18,996		$	15,091
Accrued liabilities		11,475			13,658
Current income taxes payable		—			—
Current deferred income taxes		1,128			733


Total current liabilities		31,599			29,482

Non-current deferred income taxes		11,157			12,653
Long term notes payable		70,254			49,836

Stockholders equity:
Common stock, $.01 par value:
Authorized 40,000,000 shares; issued and oustanding shares 25,867,878 and 25,863,078		259			259
Additional paid-in capital		38,049			38,020
Treasury stock 2,758,950 and 2,758,950 shares at cost		(15,275	)		(15,275	)
Retained earnings		140,004			136,540


Total stockholders’ equity		163,037			159,544

Total liabilities and stockholders’ equity	$	276,047		$	251,515


Note:		The consolidated balance sheet at December 31, 2004, as presented, is derived from the audited consolidated financial statements at that date.

Note: All share and per share data in this Quarterly Report have been restated to reflect the effect of the Company’s 3-for-2 stock split which was effective in August 2004.

See accompanying notes.

FORM 10-Q

ENCORE WIRE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


	Quarter Ended				Six Months Ended
	June 30,				June 30,
In Thousands of Dollars, Except Per Share Data	2005		2004		2005		2004

Net sales	$	169,265	$	138,148	$	306,459	$	297,090
Cost of goods sold		153,894		117,112		280,340		243,133


Gross profit		15,371		21,036		26,119		53,957

Selling, general, and administrative expenses		10,898		8,917		20,486		20,135


Operating income (loss)		4,473		12,119		5,633		33,822

Net interest & other expenses		770		761		1,602		1,395


Income (loss) before income taxes		3,703		11,358		4,031		32,427

Provision (benefit) for income taxes		1,277		4,089		568		11,894


Net income (loss)	$	2,426	$	7,269	$	3,463	$	20,533


Net income (loss) per common and common equivalent shares — basic	$	.10	$	.32	$	.15	$	.90


Weighted average common and common equivalent shares — basic		23,107		23,050		23,107		22,931

Net income (loss) per common and common equivalent shares — diluted	$	.10	$	.31	$	.15	$	.87


Weighted average common and common equivalent shares — diluted		23,393		23,590		23,413		23,569

Cash dividends declared per share	$	—	$	—	$	—	$	—


Note: All share and per share data in this Quarterly Report have been restated to reflect the effect of the Company’s 3-for-2 stock split which was effective in August 2004.

See accompanying notes.

FORM 10-Q

ENCORE WIRE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	June 30,
In Thousands of Dollars	2005			2004

OPERATING ACTIVITIES
Net income (loss)	$	3,463		$	20,533
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization		6,143			5,642
Provision for bad debts		90			210
Changes in operating assets and liabilities:
Accounts receivable		(15,948	)		(15,599	)
Inventory		(10,610	)		(7,240	)
Accounts payable and accrued liabilities		1,721			(3,918	)
Other assets and liabilities		(2,648	)		(2,342	)
Current income taxes receivable/payable		197			(4,767	)


NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(17,592	)		(7,481	)


INVESTING ACTIVITIES
Purchases of property, plant and equipment		(4,633	)		(13,939	)
Change in long-term investments		—			—
Proceeds from sale of equipment		196			374


NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(4,437	)		(13,565	)


FINANCING ACTIVITIES
Borrowings (repayments) under notes payable		20,418			19,075
Proceeds from exercise of stock options		29			2,709
Purchase of treasury stock		—			—


NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		20,447			21,784


Net increase (decrease) in cash		(1,582	)		738
Cash at beginning of period		2,640			391


Cash at end of period	$	1,058		$	1,129

See accompanying notes.

FORM 10-Q

ENCORE WIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The unaudited consolidated financial statements of Encore Wire Corporation (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 financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. All share and per share data in this Quarterly Report have been restated to reflect the effect of the Company’s 3-for-2 stock split which was effective in August 2004. 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, 2004.

NOTE 2 — STOCK BASED EMPLOYEE COMPENSATION

The Company has a stock option plan for employees that provides for the granting of stock options. The Company accounts for stock-based compensation utilizing the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, no compensation expense is recognized for fixed option plans because the exercise prices of employee stock options equal or exceed the market prices of the underlying stock on the dates of grant.

FORM 10-Q

The following table represents the effect on net income (loss) and earnings per share if the Company had applied the fair value based method and recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based Employee compensation: ($’s in 000’s)


	Quarter
	Ended June 30,				Six Months Ended June 30,
In Thousands of Dollars, Except Per Share Data	2005		2004		2005		2004

Net income (loss), as reported	$	2,426	$	7,269	$	3,463	$	20,533

Add: Stock-based employee compensation expense included in reported income, net of related tax effects		—		—		—		—

Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards net of related tax effects		82		95		165		187


Pro forma net income (loss)	$	2,344	$	7,174	$	3,298	$	20,346


Net income (loss) per share

Basic, as reported	$	0.10	$	0.32	$	0.15	$	0.90

Basic, pro forma	$	0.10	$	0.31	$	0.14	$	0.88

Diluted, as reported	$	0.10	$	0.31	$	0.15	$	0.87

Diluted, pro forma	$	0.10	$	0.31	$	0.14	$	0.87

As required, the pro forma disclosures above include options granted since January 1, 1995. Consequently, the effects of applying SFAS 123 for providing pro forma disclosures may not be representative of the effects on reported net income for future years until all options outstanding are included in the pro forma disclosures. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period.

FORM 10-Q

NOTE 3 — 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:


	June 30,			December 31,
	2005			2004
Raw materials	$	10,554		$	5,026
Work-in-process		7,697			5,311
Finished goods		52,544			43,389


		70,795			53,726

Adjust to LIFO cost		(21,073	)		(14,615	)


		49,722			39,111

Lower of Cost or Market Adjustment		—			—


	$	49,722		$	39,111

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.

FORM 10-Q

NOTE 4 — NET INCOME PER SHARE

Net 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 net income per share:


	Quarter Ended		Quarter Ended
	6/30/05		6/30/04
Numerator:
Net income	$	2,426,396	$	7,268,635


Denominator:
Denominator for basic earnings per share — weighted average shares		23,107,499		23,049,774

Effect of dilutive securities:
Employee stock options		285,657		540,300


Denominator for diluted earnings per share — weighted average shares		23,393,156		23,590,074

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


	Six Months		Six Months
	Ended		Ended
	6/30/05		6/30/04
Numerator:
Net income	$	3,463,229	$	20,533,271


Denominator:
Denominator for basic earnings per share — weighted average shares		23,106,618		22,930,655

Effect of dilutive securities:
Employee stock options		306,237		638,188


Denominator for diluted earnings per share — weighted average shares		23,412,855		23,568,843

FORM 10-Q

NOTE 5 — LONG TERM NOTE PAYABLE

Effective August 27, 2004, the Company through its indirectly wholly-owned subsidiary, Encore Wire Limited, a Texas Limited partnership (“Encore Wire Limited”), refinanced its unsecured loan facility with two banks (the “Financing Agreement”) and also arranged for a private placement of debt (the “Note Purchase Agreement”). The Company is the guarantor of the indebtedness. Obligations under the Financing Agreement and the Note Purchase Agreement are the only contractual obligations or commercial borrowing commitments of the Company. The term of the Financing Agreement extends through August 27, 2009. The Financing Agreement provides for maximum borrowings of the lesser of $85 million 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, 2005, as computed under the Financing Agreement, was $85 million. The Financing Agreement is with two banks, Bank of America, N.A., as Agent, and Wells Fargo Bank, National Association, and replaces the previous financing agreement that was effective August 31, 1999 and had been extended by amendments through May 31, 2007 with a total credit line of $125 million.

Concurrent with the Financing Agreement, Encore Wire Limited and the Company, through its agent bank, entered into the 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 referred to as the “Purchasers”), whereby Encore Wire Limited issued and sold $45 million of 5.27% Senior Notes, Series 2004-A, due August 27, 2011 (the “Senior Notes”) to the Purchasers, the proceeds of which were used to repay a portion of the Company’s outstanding indebtedness under the previous financing agreement. Through its agent bank, the Company then entered into an interest rate swap agreement to convert the fixed rate on the Senior Notes to a variable rate based on LIBOR plus a fixed adder for the seven-year duration of these notes. As of June 30, 2005, the Company recorded an unrealized addition to Notes Payable on the balance sheet of $866,623 to account for the fair value of the interest rate swap.

The Financing Agreement and the Senior Notes are unsecured and contain customary covenants and events of default. The Company was in compliance with these covenants, as of June 30, 2005. Under the Financing Agreement, the Company is allowed to pay cash dividends. At June 30, 2005, the total balance outstanding under the Financing Agreement and the Senior Notes was $70.3 million. Amounts outstanding under the Financing Agreement are payable on August 27, 2009, with interest payments due quarterly. Interest payments on the Senior Notes are due semi-annually.

NOTE 6 — STOCK REPURCHASE AUTHORIZATION

On November 6, 2001, the Board of Directors of the Company approved a stock repurchase program covering the purchase of up to 450,000 shares of its common stock dependent upon market conditions. Common stock purchases under this program were authorized through December 31, 2002 on the open market or through privately negotiated transactions at prices determined by the Chairman of the Board or the President of the Company. As of December 31, 2002, 225,300 shares had been purchased under this authorization. The Board of Directors has extended this program

FORM 10-Q

three times, through December 31, 2005 for the remaining 224,700 shares, however there were no repurchases of stock in 2003, 2004 and thus far in 2005.

NOTE 7 — CONTINGENCIES

The Company is a party to litigation and claims that arise out of the ordinary business of the Company. While the results of these matters cannot be predicted with certainty, the Company does not believe the final outcome of such litigation and claims will have a material adverse effect on the financial condition, the results of operation or the cash flows of the Company. The Company also believes that it has adequate insurance to cover any damages that may ultimately be awarded.

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 plant operates 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 73.0%, 67.1% and 63.9% of the Company’s cost of goods sold during fiscal 2004, 2003 and 2002, respectively. The price of copper fluctuates, depending on general economic conditions and in relation to supply and demand and other factors, which has caused significant 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 quarterly and six-month periods ended June 30, 2005 and 2004. 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, 2004.

Results of Operations

Quarter Ended June 30, 2005 Compared to Quarter Ended June 30, 2004

Net sales for the second quarter of 2005 amounted to $169.3 million compared with net sales of $138.1 million for the second quarter of 2004. This dollar increase was the result of an 11% increase in the volume of product shipped, coupled with an 11% increase in the average price of wire sold. The average cost per pound of raw copper

FORM 10-Q

purchased increased in the second quarter of 2005 compared to the second quarter of 2004, and was the principal reason the average sales price for wire increased. However, the average price of wire sold did not increase as much as the average cost of raw copper purchased, resulting in lower gross margins. Fluctuations in sales prices are primarily a result of changing copper raw material prices and product price competition.

Cost of goods sold increased to $153.9 million, or 90.9% of net sales, in the second quarter of 2005, compared to $117.1 million, or 84.8% of net sales, in the second quarter of 2004. Gross profit decreased to $15.4 million, or 9.1% of net sales, in the second quarter of 2005 versus $21.0 million, or 15.2% of net sales, in the second quarter of 2004. The decreased gross profit and gross margin percentages were primarily the result of competitive market pricing pressures.

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 costs of goods sold for that period.

As a result of increasing copper costs and an increase in the amount of inventory on hand during the second quarter 2005, a LIFO adjustment was recorded, increasing cost of sales by $3.9 million during the quarter. 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 a LCM adjustment against the related inventory balance, which would result in a negative impact on net income.

Selling expenses for the second quarter of 2005 were $8.9 million, or 5.3% of net sales, compared to $7.2 million, or 5.2% of net sales, for the second quarter of 2004. The percentage increase was due to the increase in freight costs as a percentage of net sales, offset by a decrease in commissions on sales paid to independent sales reps. Freight costs increased primarily due to higher fuel costs in the trucking industry. General and administrative expenses increased to $1.9 million, or 1.1% of net sales, in the second quarter of 2005 compared to $1.7 million, or 1.2% of net sales, in the second quarter of 2004. The general and administrative costs are semi-fixed by nature and therefore did not increase proportionately with sales and dropped as a percentage of sales. The provision for bad debts was $45,000 in the second quarter of 2005 versus $30,000 in the second quarter of 2004.

Net interest expense was virtually unchanged at $770,000 in the second quarter of 2005 compared to $761,000 in the second quarter of 2004.

FORM 10-Q

As a result of the foregoing factors, the Company’s net income decreased to $2.4 million in the second quarter of 2005 from $7.3 million in the second quarter of 2004.

Six Months Ended June 30, 2005 compared to Six Months Ended June 30, 2004

Net sales for the first six months of 2005 amounted to $306.5 million compared with net sales of $297.1 million for the first half of 2004. This dollar increase was the result of a 3.5% decrease in the volume of product shipped, offset by a 7.0% increase in the average price of wire sold. Fluctuations in sales prices are primarily a result of changing copper raw material prices and product price competition.

Cost of goods sold increased to $280.3 million in the first six months of 2005, compared to $243.1 million in the first six months of 2004. Gross profit decreased to $26.1 million, or 8.5% of net sales, in the first six months of 2005 versus $54.0 million, or 18.2% of net sales, in the first six months of 2004. The decreased gross profit and gross margin percentages were primarily the result of decreased volumes and the margin compression in 2005 versus 2004 discussed in the quarterly analysis above.

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 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. 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 costs of goods sold for that period at the different price.

As a result of increasing copper costs and an increased amount of inventory on hand during the first six months of 2005, a LIFO adjustment was recorded increasing cost of sales by $6.5 million during the 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 a 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 2005 were $16.6 million, or 5.4% of net sales, compared to $16.2 million, or 5.5% of net sales, in the same period of 2004. The percentage decrease was due to the increase in freight costs as a percentage of net sales, offset by a decrease in commissions on sales paid to independent sales reps. Freight costs increased primarily due to higher fuel costs in the trucking industry. General and administrative expenses remained flat at $3.7 million, or 1.2% of net sales, in the first six months of 2005 compared to $3.7 million, or 1.2% of net sales, in the same period of 2004. The provision for bad debts was $90,000 in the first six months of 2005 versus $210,000 in the first six months of 2004. The Company added to its provision in 2004 to reflect the larger accounts receivable balances outstanding consistent with the rapid growth of sales in 2004 versus 2003.

FORM 10-Q

Net interest expense was $1,602,000 in the first six months of 2005 compared to $1,395,000 in the first half of 2004. The increase was due primarily to higher average debt balances during the first six months of 2005 than during the comparable period of 2004.

As a result of the foregoing factors, the Company’s net income decreased to $3.5 million in the first half of 2005 from $20.5 million in the first half of 2004.

Liquidity and Capital Resources

The Company maintains a substantial inventory of finished products to satisfy customer’s 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 historically satisfied its liquidity and capital expenditure needs with cash generated from operations, borrowings under its revolving credit facilities and sales of its common stock.

FORM 10-Q

Cash used in operations was $17.6 million in the first six months of 2005 compared to $7.5 million of cash used by operations in the first six months of 2004. This decrease in cash provided by operations resulted primarily from the decrease in net income to $3.5 million in the first six months of 2005 from $20.5 million in the first six months of 2004, offset by an increase in accounts payable of $3.9 million in 2005 versus a decrease of $3.2 million in 2004. The increase in accounts payable is due primarily to timing differences. Cash used in investing activities decreased to $4.4 million in the first six months of 2005 from $13.6 million in the first six months of 2004. In 2004, the funds were used primarily to begin construction of the new 162,000 square foot addition to the Company’s distribution center as well as the purchase of manufacturing equipment. The $20.4 million of cash provided by financing activities in the first six months of 2005 was a result of the Company’s increase in outstanding bank debt, which was required to satisfy the cash demands discussed above.

During the remainder of 2005, the Company expects its capital expenditures will consist of additional plant and equipment for its residential and commercial wire operations, primarily related to the new armored cable plant, which was discussed in a press release, dated March 21, 2005. Current plans are to construct this plant during 2005 and the first half of 2006. The total capital expenditures associated with these projects in 2005 are currently estimated to be in the $15.0 to $20.0 million range. The Company will also continue to manage its working capital requirements. These requirements may increase as a result of expected continued sales increases and may be impacted by the price of copper. The Company believes that the cash flow from operations and the financing available under the amended Financing Agreement will satisfy working capital and capital expenditure requirements for the next twelve months.

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, 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. 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

FORM 10-Q

Report on Form 10-K for the year ended December 31, 2004, 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 7.A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 and 15d-15. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures are adequately designed to ensure that the information required to be disclosed in this report has been accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding such required disclosure and to ensure that the Company’s disclosure controls and procedures are functioning effectively.

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.

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchase Program

FORM 10-Q

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Annual Meeting of Stockholders

	(a)		The annual meeting of the stockholders of the Company was held in McKinney, Texas at 9:00 a.m., local time, on May 3, 2005.

	(b)		Proxies were solicited by the Board of Directors of the Company pursuant to Regulation 14A under the Securities and Exchange Act of 1934; there was no solicitation in opposition to the Board of Directors’ nominees for director as listed in the proxy statement; and all of such nominees were duly elected as reported below.

	(c)		Out of a total of 23,107,128 shares of the Company’s common stock outstanding and entitled to vote, 21,766,657 shares were present in person or by proxy, representing approximately 94.2% of the outstanding shares.

			The first matter voted on by the stockholders, as fully described in the proxy statement for the annual meeting, was the election of directors. No nominee for director received less than 90.7% of the shares voted. The following table presents the number of shares voted for, voted against, and withheld for each nominee for director.


NOMINEE FOR	NUMBER OF		NUMBER OF
DIRECTOR	VOTES FOR		VOTES WITHHELD
Vincent A. Rego		21,493,123		273,534
Donald E. Courtney		21,498,411		268,246
Daniel L. Jones		21,535,221		231,436
Thomas L. Cunningham		21,547,437		219,220
William R. Thomas		21,487,887		278,770
John H. Wilson		21,559,762		206,895
Joseph M. Brito		21,488,441		278,216
Scott D. Weaver		20,956,544		810,113

			The second matter voted on by the stockholders, as fully described in the proxy statement for the annual meeting, was a resolution to approve Ernst & Young LLP as the independent auditors of the Company’s financial statements for the year ending December 31, 2005. The resolution was adopted with the holders of 21,652,290 shares voting in favor of the resolution and the holders of 102,529 shares voting against. Holders of 11,837 shares abstained from voting.

	(d)		Inapplicable.

ITEM 6. EXHIBITS

(a)

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

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 behalf by the undersigned thereunto duly authorized.


		ENCORE WIRE CORPORATION

		(Registrant)

Dated: August 5, 2005		/s/ DANIEL L. JONES

		Daniel L. Jones, President and
		Chief Executive Officer

Dated: August 5, 2005		/s/ FRANK J. BILBAN

		Frank J. Bilban, Vice President — Finance,
		Treasurer and Secretary
		Chief Financial Officer

FORM 10-Q

INDEX TO EXHIBITS


Exhibit
Number		Description
3.1		Certificate of Incorporation of Encore Wire Corporation, as amended through July 20, 2004 (filed on Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).

3.2		Amended and Restated Bylaws of Encore Wire Corporation, as amended through July 20, 2004 (filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference).

10.1*		1999 Stock Option Plan, as amended and restated, effective as of October 24, 2001 (filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (No. 333-86620), and incorporated herein by reference).

10.2*		1989 Stock Option Plan, as amended and restated (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (No. 333-38729), and incorporated herein by reference), terminated except with respect to outstanding options thereunder.

31.1		Certification by Daniel L. Jones, President and Chief Executive Officer of Encore Wire Corporation, dated August 5, 2005 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, and Treasurer and Secretary of Encore Wire Corporation, dated August 5, 2005 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 5, 2005 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 5, 2005 as required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


* Management contract or compensatory plan.

ENCORE WIRE CORP - Quarter Report: 2005 June (Form 10-Q)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents