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ENCORE WIRE CORP - Quarter Report: 2021 September (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
___________________________________________
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
☐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)
__________________________________________________________
Delaware75-2274963
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
1329 Millwood Road
McKinneyTexas75069
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (972) 562-9473
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.01 per shareWIREThe NASDAQ Global Select Market

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  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).                         Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes  ☐    No  ☒
Number of shares of Common Stock, par value $0.01, outstanding as of October 27, 2021: 20,256,016



ENCORE WIRE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2021

Table of Contents
Page No.



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Encore Wire Corporation
Balance Sheets
(In thousands, except share and per share data)
September 30, 2021December 31, 2020
(Unaudited)(Audited)
Assets
Current assets:
Cash and cash equivalents$294,860 $183,123 
Accounts receivable, net of allowance of $3,800 and $2,215
536,178 275,781 
Inventories, net90,727 92,322 
Income tax receivable— 1,256 
Prepaid expenses and other4,146 2,651 
Total current assets925,911 555,133 
Property, plant and equipment - at cost:
Land and land improvements72,838 60,662 
Construction-in-progress60,097 91,688 
Buildings and improvements215,452 153,094 
Machinery and equipment391,491 373,902 
Furniture and fixtures13,646 15,345 
Total property, plant and equipment753,524 694,691 
Accumulated depreciation(286,656)(283,923)
Property, plant and equipment - net466,868 410,768 
Other assets602 553 
Total assets$1,393,381 $966,454 
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable$67,475 $56,726 
Accrued liabilities68,623 36,866 
Income taxes payable15,932 — 
Total current liabilities152,030 93,592 
Deferred income taxes and other34,476 35,133 
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 – 27,060,100 and 27,025,388
271 270 
Additional paid-in capital71,217 67,885 
Treasury stock, at cost – 6,862,084 and 6,468,705 shares
(144,450)(111,718)
Retained earnings1,279,837 881,292 
Total stockholders’ equity1,206,875 837,729 
Total liabilities and stockholders’ equity$1,393,381 $966,454 

See accompanying notes.
1

Encore Wire Corporation
Statements of Income
(In thousands, except per share data)
 Quarter Ended September 30,Nine Months Ended September 30,
2021202020212020
(Unaudited)(Unaudited)
Net sales$716,320 $339,700 $1,904,869 $896,125 
Cost of goods sold445,554 286,241 1,272,256 760,393 
Gross profit270,766 53,459 632,613 135,732 
Selling, general, and administrative expenses43,816 26,350 116,109 69,394 
Operating income226,950 27,109 516,504 66,338 
Net interest and other income52 39 116 1,190 
Income before income taxes227,002 27,148 516,620 67,528 
Provision for income taxes51,464 6,136 116,840 15,561 
Net income$175,538 $21,012 $399,780 $51,967 
Earnings per common and common equivalent share – basic$8.60 $1.02 $19.48 $2.52 
Earnings per common and common equivalent share – diluted$8.51 $1.02 $19.31 $2.51 
Weighted average common and common equivalent shares outstanding – basic20,421 20,548 20,523 20,613 
Weighted average common and common equivalent shares outstanding – diluted20,629 20,602 20,703 20,664 
Cash dividends declared per share$0.02 $0.02 $0.06 $0.06 

See accompanying notes.

2

Encore Wire Corporation
Statements of Stockholders' Equity
(In thousands, except per share data)
2021Common StockAdditional
Paid-In
Capital		Treasury StockRetained
Earnings		Total Stockholders' Equity
(Unaudited)SharesAmountSharesAmount
Balance at December 31, 202027,025 $270 $67,885 (6,468)$(111,718)$881,292 $837,729 
Net income— — — — — 41,189 41,189 
Exercise of stock options3 — 155 — — — 155 
Stock-based compensation13 — 737 — — — 737 
Dividend declared—$0.02 per share
— — — — — (413)(413)
Balance at March 31, 202127,041 $270 $68,777 (6,468)$(111,718)$922,068 $879,397 
Net income— — — — — 183,053 183,053 
Exercise of stock options9 1 258 — — — 259 
Stock-based compensation6 — 1,331 — — — 1,331 
Dividend declared—$0.02 per share
— — — — — (415)(415)
Balance at June 30, 202127,056 $271 $70,366 (6,468)$(111,718)$1,104,706 $1,063,625 
Net income— — — — — 175,538 175,538 
Stock-based compensation4 — 851 — — — 851 
Dividend declared—$0.02 per share
— — — — — (407)(407)
Purchase of treasury stock— — — (394)(32,732)— (32,732)
Balance at September 30, 202127,060 $271 $71,217 (6,862)$(144,450)$1,279,837 $1,206,875 


2020Common StockAdditional
Paid-In
Capital		Treasury StockRetained
Earnings		Total Stockholders' Equity
(Unaudited)SharesAmountSharesAmount
Balance at December 31, 201926,939 $269 $63,009 (6,027)$(91,056)$806,874 $779,096 
Net income— — — — — 18,607 18,607 
Stock-based compensation8 — 460 — — — 460 
Dividend declared—$0.02 per share
— — — — — (411)(411)
Purchase of treasury stock— — — (439)(20,580)— (20,580)
Balance at March 31, 202026,947 $269 $63,469 (6,466)$(111,636)$825,070 $777,172 
Net income— — — — — 12,347 12,347 
Exercise of stock options53 1 2,454 — — — 2,455 
Stock-based compensation5 — 631 — — — 631 
Dividend declared—$0.02 per share
— — — — — (412)(412)
Purchase of treasury stock— — — (2)(82)— (82)
Balance at June 30, 202027,005 $270 $66,554 (6,468)$(111,718)$837,005 $792,111 
Net income— — — — — 21,012 21,012 
Exercise of stock options16 — 544 — — — 544 
Stock-based compensation4 — 396 — — — 396 
Dividend declared—$0.02 per share
— — — — — (413)(413)
Balance at September 30, 202027,025 $270 $67,494 (6,468)$(111,718)$857,604 $813,650 

See accompanying notes.
3

Encore Wire Corporation
Statements of Cash Flow
(In thousands)
 Nine Months Ended September 30,
20212020
(Unaudited)
Operating Activities:
Net income$399,780 $51,967 
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization17,154 14,314 
Deferred income taxes(639)3,082 
Stock-based compensation attributable to equity awards2,919 1,487 
Other5,085 518 
Changes in operating assets and liabilities:
Accounts receivable(261,860)(34,812)
Inventories1,595 2,513 
Other assets(1,014)(1,333)
Trade accounts payable and accrued liabilities50,716 11,762 
Current income taxes receivable / payable17,188 5,022 
Net cash provided by operating activities230,924 54,520 
Investing Activities:
Purchases of property, plant and equipment(85,489)(49,569)
Proceeds from sale of assets405 90 
Net cash used in investing activities(85,084)(49,479)
Financing Activities:
Deferred financing fees(550)— 
Purchase of treasury stock(32,732)(20,662)
Proceeds from issuance of common stock, net414 2,999 
Dividends paid(1,235)(1,240)
Net cash used in financing activities(34,103)(18,903)
Net increase (decrease) in cash and cash equivalents111,737 (13,862)
Cash and cash equivalents at beginning of period183,123 230,965 
Cash and cash equivalents at end of period$294,860 $217,103 
See accompanying notes.

4

ENCORE WIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2021
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited financial statements of Encore Wire Corporation (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) 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. GAAP 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 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The Company is unable to predict the impact that COVID-19, or any ongoing variants, may have on our financial position and operating results in future periods. The duration or re-emergence of the outbreak and its long-term impact on our business remain uncertain.
Revenue Recognition
Our revenue is derived by fulfilling customer orders for the purchase of our products, which include electrical building wire and cable. We recognize revenue at the point in time that control of the ordered products is transferred to the customer, which is typically upon shipment to the customer from our manufacturing facilities and based on agreed upon shipping terms on the related purchase order. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis through standard payment terms.
Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. The amount of consideration we expect to receive and revenue we recognize includes estimates for trade payment discounts and customer rebates which are estimated using historical experience and other relevant factors and is recorded within the same period that the revenue is recognized. We review and update these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments resulting from updated estimates of trade payment discounts and customer rebates were not material.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the sole source of authoritative U.S. GAAP, along with the Securities and Exchange Commission ("SEC") and Public Company Accounting Oversight Board (“PCAOB”) issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standard Update (“ASU”) to communicate changes to the codification. The Company considers the applicability and impact of all ASUs. The following are those ASUs that are relevant to the Company.
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. This ASU is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. We adopted this new standard January 1, 2021, and it has had no material impact on the Company's financial statements or disclosures.
5

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:
In ThousandsSeptember 30, 2021December 31, 2020
Raw materials$55,088 $40,842 
Work-in-process48,443 30,311 
Finished goods101,203 88,544 
Total Inventory at FIFO cost204,734 159,697 
Adjust to LIFO cost(114,007)(67,375)
Inventory, net$90,727 $92,322 
Inventories are stated at the lower of cost, using the last-in, first out (“LIFO”) method, or market. The Company maintains two inventory pools for LIFO purposes. 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 monthly 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 and other material prices as of the end of each reporting period. The Company performs a lower of cost or market calculation quarterly. As of September 30, 2021, no LCM adjustment was required. However, decreases in copper and other material prices could necessitate establishing an LCM reserve in future periods. Additionally, future reductions in the quantity of inventory on hand could cause copper or other raw materials that are carried in inventory at costs different from the cost of copper and other raw materials in the period in which the reduction occurs to be included in costs of goods sold for that period at the different price.
In the third quarter of 2021, LIFO adjustments were recorded, increasing cost of sales by $0.6 million, compared to LIFO adjustments increasing cost of sales by $14.5 million in the third quarter of 2020. In the nine months ended September 30, 2021, LIFO adjustments were recorded, increasing cost of sales by $46.6 million, compared to LIFO adjustments increasing cost of sales by $5.6 million in the nine months ended September 30, 2020.
NOTE 3 – ACCRUED LIABILITIES
Accrued liabilities consist of the following:
In ThousandsSeptember 30, 2021December 31, 2020
Sales rebates payable$36,495 $19,317 
SAR Liability10,001 5,343 
Property taxes payable3,764 4,427 
Accrued salaries11,869 4,096 
Other accrued liabilities6,494 3,683 
Total accrued liabilities$68,623 $36,866 

NOTE 4 – INCOME TAXES
Income taxes were accrued at an effective rate of 22.7% in the third quarter of 2021 versus 22.6% in the third quarter of 2020, consistent with the Company’s estimated liabilities. In all periods, the differences between the provisions for income taxes and the income taxes computed using the federal income tax statutory rate are due primarily to the incremental taxes accrued for state and local taxes.
NOTE 5 – EARNINGS PER SHARE
Earnings 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 awards, treated as common stock equivalents, is calculated using the treasury stock method.
6

The following table sets forth the computation of basic and diluted earnings per share:
 Quarter Ended September 30,Nine Months Ended September 30,
In Thousands2021202020212020
Numerator:
Net income$175,538 $21,012 $399,780 $51,967 
Denominator:
Denominator for basic earnings per share – weighted average shares20,421 20,548 20,523 20,613 
Effect of dilutive securities:
Employee stock awards208 54 180 51 
Denominator for diluted earnings per share – weighted average shares20,629 20,602 20,703 20,664 

The weighted average number of employee stock awards excluded from the determination of diluted earnings per common and common equivalent share for the third quarter was 49 in 2021 and 165,424 in 2020. The weighted average number of employee stock awards excluded from the determination of diluted earnings per common and common equivalent share for the nine months ended September 30 was 16 in 2021 and 214,881 in 2020. Such awards were anti-dilutive for their respective periods.
NOTE 6 – DEBT
On February 9, 2021, the Company terminated its previous credit agreement and entered into a new Credit Agreement (the “2021 Credit Agreement”) with two banks, Bank of America, N.A., as administrative agent and letter of credit issuer, and Wells Fargo Bank, National Association, as syndication agent. The 2021 Credit Agreement extends through February 9, 2026 and provides for maximum borrowings of $200.0 million. At our request, and subject to certain conditions, the commitments under the 2021 Credit Agreement may be increased by a maximum of up to $100.0 million as long as existing or new lenders agree to provide such additional commitments. Borrowings under the line of credit bear interest, at the Company’s option, at either (1) LIBOR plus a margin that varies from 1.000% to 1.875% depending upon the Leverage Ratio (as defined in the 2021 Credit Agreement), or (2) the base rate (which is the highest of the federal funds rate plus 0.5%, the prime rate, or LIBOR plus 1.0%) plus 0% to 0.375% (depending upon the Leverage Ratio). A commitment fee ranging from 0.200% to 0.325% (depending upon the Leverage Ratio) is payable on the unused line of credit. At September 30, 2021, there were no borrowings outstanding under the 2021 Credit Agreement, and letters of credit outstanding in the amount of $0.6 million left $199.4 million of credit available under the 2021 Credit Agreement. Obligations under the 2021 Credit Agreement are the only contractual borrowing obligations or commercial borrowing commitments of the Company.
Obligations under the 2021 Credit Agreement are unsecured and contain customary covenants and events of default. The Company was in compliance with the covenants as of September 30, 2021.
NOTE 7 – STOCKHOLDERS’ EQUITY
On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to an authorized number of shares of its common stock from time to time in open market or private transactions, at the Company's discretion. This authorization originally expired on December 31, 2007, and the Company’s Board of Directors has authorized several increases and annual extensions of this stock repurchase program, most recently on May 5, 2021, authorizing the repurchase of up to 1,000,000 shares of our common stock. As of September 30, 2021, 606,621 shares remained authorized for repurchase through March 31, 2022. The Company repurchased 393,379 shares of its stock in the nine months ended September 30, 2021 compared to 441,250 shares in the nine months ended September 30, 2020.
NOTE 8 - CONTINGENCIES
There are no material pending proceedings to which the Company is a party or to which any of its property is subject. However, the Company is from time to time involved in litigation, certain other claims and arbitration matters arising in the ordinary course of its business.
7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Encore believes it is a low-cost manufacturer of electrical building wire and cable. The Company is a significant supplier of building wire for interior electrical wiring in commercial and industrial buildings, homes, apartments, and manufactured housing.
As discussed in Note 1, in the notes to the financial statements, the duration or re-emergence of the COVID-19 outbreak and its long-term impact on our business remain uncertain. Developments surrounding COVID-19, and any of the ongoing variants, continue to change, and we have limited visibility into the extent to which market demand for our products, as well as sector manufacturing and distribution capacity, will be impacted.
The Company’s operating results in any given 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 margin 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, a commodity product, is the principal raw material used by the Company in manufacturing its products. Copper accounted for approximately 69.6%, 69.9%, and 73.0% of the Company’s cost of goods sold during fiscal 2020, 2019 and 2018, respectively. The price of copper fluctuates depending on general economic conditions and in relation to supply and demand and other factors, which causes monthly variations in the cost of the Company’s purchased copper. Additionally, the SEC allows shares of certain physically backed copper exchange-traded funds (“ETFs”) to be listed and publicly traded. Such funds and other copper ETFs like them hold copper cathode as collateral against their shares. The acquisition of copper cathode by copper ETFs may materially decrease or interrupt the availability of copper for immediate delivery in the United States, which could materially increase the Company’s cost of copper. In addition to raising copper prices and potential supply shortages, we believe that ETFs and similar copper-backed derivative products could lead to increased price volatility for copper. The Company cannot predict copper prices or the effect of fluctuations in the cost of copper on the Company’s future operating results. Wire prices can, and frequently do, change on a daily basis. This competitive pricing market for wire does not always mirror changes in copper prices, making margins highly volatile. With the volatility of both raw material prices and wire prices in the Company’s end market, hedging raw materials can be risky. Historically, the Company has not engaged in hedging strategies for raw material purchases. The tables below highlight the range of closing prices of copper on a per pound basis on the Comex exchange for the periods shown.
COMEX COPPER CLOSING PRICE 2021
July
2021		August
2021		September
2021		Quarter Ended September 30, 2021Nine Months Ended September 30, 2021
High$4.59 $4.43 $4.45 $4.59 $4.78 
Low4.21 4.04 4.09 4.04 3.54 
Average4.35 4.29 4.27 4.30 4.20 
COMEX COPPER CLOSING PRICE 2020
July
2020		August
2020		September
2020		Quarter Ended September 30, 2020Nine Months Ended September 30, 2020
High$2.94 $3.04 $3.11 $3.11 $3.11 
Low2.72 2.79 2.96 2.72 2.12 
Average2.87 2.92 3.02 2.93 2.65 

The following discussion and analysis relate to factors that have affected the operating results of the Company for the quarters and nine months ended September 30, 2021 and 2020. 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, 2020.
8

Results of Operations
Quarter Ended September 30, 2021 Compared to Quarter Ended September 30, 2020
Net sales were $716.3 million in the third quarter of 2021 compared to $339.7 million in the third quarter of 2020. The increase in net sales dollars is the result of a 95.5% increase in the average selling price of copper wire and a 7.9% increase in copper wire unit volume shipped. Unit volume is measured in pounds of copper contained in the wire shipped during the period. Fluctuations in selling prices are primarily a result of changing prices for copper and other raw materials and product price competition. The average cost per pound of raw copper purchased increased 48.0% in the third quarter of 2021 compared to the third quarter of 2020 and was a driver of the increased average selling price of copper wire.
Cost of goods sold was $445.6 million, or 62.2% of net sales, in the third quarter of 2021, compared to $286.2 million, or 84.3% of net sales, in the third quarter of 2020. Gross profit increased to $270.8 million, or 37.8% of net sales, in the third quarter of 2021 from $53.5 million, or 15.7% of net sales, in the third quarter of 2020.
The increase in gross profit margin was the result of two factors. Copper unit volumes increased 7.9%, while the spread between the average price paid for a pound of raw copper and the average selling price for a pound of copper contained in finished wire increased 181.1% in the third quarter of 2021 when compared to the third quarter of 2020. The spread increased as a result of the average selling price per pound of copper sold in the third quarter of 2021 increasing 95.5% while the per pound cost of raw copper purchased increased 48.0% in the same period compared to the third quarter of 2020. The percentage change on sales is on a higher nominal dollar amount than on purchases and, therefore, spreads change on a nominal dollar basis.
Total raw materials cost as a percentage of sales decreased to 55.2% in the third quarter of 2021, from 72.2% in the third quarter of 2020. Overhead costs decreased to 7.0% of net sales in the third quarter of 2021, from 12.1% of net sales in the third quarter of 2020. Overheads contain some fixed and semi-fixed components which do not fluctuate as much as sales dollars fluctuate.
Selling expenses, consisting of commissions and freight, for the third quarter of 2021 were $29.9 million, or 4.2% of net sales, compared to $19.2 million, or 5.7% of net sales, in the third quarter of 2020. Commissions paid to independent manufacturers’ representatives are paid as a relatively stable percentage of sales dollars and, therefore, exhibited little change as a percentage of sales. Freight costs decreased to 1.7% of net sales in the third quarter of 2021 from 3.2% of net sales in the third quarter of 2020. General and administrative (“G&A”) expenses for the third quarter of 2021 were $14.0 million, or 1.9% of net sales, compared to $7.1 million, or 2.1% of net sales, in the third quarter of 2020. The G&A expense increase was driven by increased bonus and stock compensation expense as our stock price increased from $75.79 on June 30, 2021 to $94.83 on September 30, 2021.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Net sales for the first nine months of 2021 were $1.905 billion compared to net sales of $896.1 million for the first nine months of 2020. This 112.6% increase in net sales is primarily the result of a 116.5% increase in copper wire sales, driven by a 91.0% increase in the average selling price of copper wire and a 13.3% increase in copper wire unit volume shipped. Unit volume is measured in pounds of copper contained in the wire shipped during the period. Fluctuations in sales prices are primarily a result of changing prices for copper and other raw materials and product price competition. The average cost per pound of raw copper purchased increased 55.6% in the first nine months of 2021 compared to the first nine months of 2020 and was the principal driver of the increased average selling price of copper wire.
Cost of goods sold increased to $1.272 billion in the first nine months of 2021, compared to $760.4 million in the first nine months of 2020. Gross profit increased to $632.6 million, or 33.2% of net sales, in the first nine months of 2021 versus $135.7 million, or 15.1% of net sales, in the first nine months of 2020.
The increase in gross profit margin was the result of two factors. Copper unit volumes increased 13.3%, while the spread between the average price paid for a pound of raw copper and the average selling price for a pound of copper contained in finished wire increased 155.1% in the first nine months of 2021 when compared to the first nine months of 2020. The spread increased as a result of the average selling price per pound of copper sold in the first nine months of 2021 increasing 91.0% while the per pound cost of raw copper purchased increased 55.6% in the same period compared to the first nine months of 2020. The percentage change on sales is on a higher nominal dollar amount than on purchases and, therefore, spreads change on a nominal dollar basis.
Due primarily to increases in copper costs and an increase in copper inventory quantities on hand, and aided somewhat by price and volume movements of other materials in the first nine months of 2021, LIFO adjustments were recorded, increasing cost of
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sales by $46.6 million. During the same period in 2020, LIFO adjustments were recorded, increasing cost of sales by $5.6 million. Based on 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 nine months of 2021 increased to $79.4 million, or 4.2% of net sales, compared to $48.0 million, or 5.4% of net sales, in the same period of 2020. Commissions paid to independent manufacturers’ representatives are paid as a relatively stable percentage of sales dollars, and therefore, exhibited little change in percentage terms, increasing $23.3 million in concert with the increased sales dollars. Freight costs for the first nine months of 2021 were 1.8% of net sales, compared to 2.9% of net sales for the first nine months of 2020. General and administrative expenses were $35.3 million, or 1.9% of net sales, in the first nine months of 2021 compared to $20.7 million, or 2.3% of net sales, in the first nine months of 2020. The G&A expense increase was driven by increased bonus expense and stock compensation expense driven by the mark to market accounting on stock appreciation rights. The net stock compensation expense increased $10.2 million in the first nine months of 2021 versus the first nine months of 2020.
The favorable market conditions in the third quarter and year-to-date periods ended September 30, 2021 were partially driven by rising raw material prices coupled with demand recovery for our products. In addition, production challenges across the sector, including inconsistent access to raw materials, disruptions in the manufacturing and distribution network, and access to skilled labor, created unique market conditions in the first nine months of 2021. Although we were largely able to avoid these factors, we do expect these disruptions will begin to abate during the remainder of 2021.
Liquidity and Capital Resources
The Company maintains a substantial inventory of finished products to satisfy customers’ delivery requirements promptly. As is customary in the building wire industry, the Company provides payment terms to most of its customers that exceed terms that it receives from its suppliers. Copper suppliers generally give very short payment terms (less than 15 days) while the Company and the building wire industry give customers much longer terms. In general, the Company’s standard payment terms result in the collection of a significant majority of net sales within approximately 75 days of the date of invoice. As a result of this timing difference, building wire companies must have sufficient cash and access to capital resources to finance their working capital needs, thereby creating a barrier to entry for companies who do not have sufficient liquidity and capital resources. The two largest components of working capital, receivables and inventory, and to a lesser extent, capital expenditures, are the primary drivers of the Company’s liquidity needs. Generally, these needs will cause the Company’s cash balance to rise and fall inversely to the receivables and inventory balances. The Company’s receivables and inventories will rise and fall in concert with several factors, most notably the price of copper and other raw materials and the level of unit sales. Capital expenditures have historically been necessary to expand and update 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 and borrowings under its various debt arrangements. The Company historically uses 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. We believe that the Company has sufficient liquidity, and will continue to have sufficient liquidity beyond the short-term outlook, and do not believe COVID-19, or any of the ongoing variants, will materially impact our liquidity, but we continue to assess COVID-19, and any ongoing variants, and their impact on our business, including on our customer base and suppliers.
For more information on the Company’s revolving credit facility, see Note 6 to the Company’s financial statements included in Item 1 to this report, which is incorporated herein by reference.
Cash provided by operating activities was $230.9 million in the first nine months of 2021 compared to cash provided of $54.5 million in the first nine months of 2020. The following changes in components of cash flow from operations were notable. The Company had net income of $399.8 million in the first nine months of 2021 compared to net income of $52.0 million in the first nine months of 2020. Accounts receivable increased $261.9 million in the first nine months of 2021 compared to increasing $34.8 million in the first nine months of 2020, resulting in a negative impact to cash flow of $227.1 million in the first nine months of 2021 versus the first nine months of 2020. Accounts receivable generally fluctuate in proportion to dollar sales and, to a lesser extent, are affected by the timing of when sales occur during a given quarter. With an average of 60 to 75 days of sales outstanding, quarters in which sales are more back-end loaded will have higher accounts receivable balances outstanding at quarter-end. Inventory, net decreased $1.6 million in the first nine months of 2021 compared to decreasing $2.5 million in the first nine months of 2020 producing a negative impact to cash flow of $0.9 million in 2021 versus 2020. Trade accounts payable and accrued liabilities favorably impacted cash by $50.7 million in the first nine months of 2021 versus favorably impacting cash by $11.8 million in the first nine months of 2020. In the first nine months of 2021, changes in current and deferred taxes favorably impacted cash by $16.5 million versus $8.1 million of favorable impact in the first nine months of
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2020. These changes in cash flow were the primary drivers of the $176.4 million increase in positive cash flow provided by operations in the first nine months of 2021 compared to the first nine months of 2020.
Cash used in investing activities increased to $85.1 million in the first nine months of 2021 from $49.5 million in the first nine months of 2020 due to higher capital expenditures on plant and equipment, among other factors.
Cash used in financing activities in the first nine months of 2021 consisted of $32.7 million paid to purchase our own stock, $1.2 million of cash dividends paid, $0.4 million of proceeds from exercised stock options, and $0.6 million of financing fees for the new credit agreement. These activities in cash flow used $34.1 million cash in financing activities for the first nine months of 2021 compared to $18.9 million used in the first nine months of 2020. As of September 30, 2021, the balance on the Company’s revolving line of credit remained at zero.
The Company’s cash balance was $294.9 million at September 30, 2021 versus $217.1 million at September 30, 2020.
During the remainder of 2021, the Company expects its capital expenditures will consist primarily of expenditures related to the purchases of manufacturing equipment throughout its facilities to update equipment and the previously-announced expansion plans which remain on schedule. The new service center opened in mid-May and is fully operational today. Phase two, which is focused on repurposing our now vacated distribution center to expand manufacturing capacity and extend our market reach, is on schedule for an early 2022 opening. As announced in July of 2021, current market conditions have afforded us the opportunity to accelerate our capital expenditure plans and incrementally invest across our campus. We continue to believe these investments will broaden our position as a low-cost manufacturer in the sector and further increase manufacturing capacity to accelerate growth. The incremental spending in 2021 through 2023 will expand vertical integration in our manufacturing processes to reduce costs as well as modernize select wire manufacturing facilities to increase capacity and efficiency. Capital expenditures are now expected to range from $115 - $125 million in 2021, $150 - $170 million in 2022, and $120 - $140 million in 2023. We expect to fund these investments with existing cash reserves and operating cash flows.
Critical Accounting Estimates and Policies
Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The Company’s unaudited financial statements are impacted by the accounting policies used and the estimates and assumptions made by management in their preparation. See Note 1 to the notes to the financial statements for information on the Company’s significant accounting policies.
As of September 30, 2021, there have been no significant changes to the Company’s critical accounting policies and related estimates previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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. Forward-looking statements can be identified by words such as: “anticipate”, “intend”, “plan”, “goal”, “seek”, “believe”, “project”, “estimate”, “expect”, “strategy”, “future”, “likely”, “may”, “should”, “will” and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, 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 anticipated, estimated or projected. Therefore, you should not rely on any of these forward-looking statements. Examples of such uncertainties and risks include, but are not limited to, statements about the pricing environment of copper, aluminum and other raw materials, the duration, magnitude and impact of the ongoing COVID-19 global pandemic, along with any ongoing variants, our order fill rates, profitability and stockholder value, payment of future dividends, future purchases of stock, the impact of competitive pricing and other risks detailed from time to time in the Company’s reports filed with the Securities and Exchange Commission (the “SEC”). Actual results may vary materially from those anticipated. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. 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, 2020, which is hereby incorporated by reference.
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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, 2020.
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 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. 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, the Company's internal control over financial reporting during the period covered by this report.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
For information on the Company’s legal proceedings, see Note 8 to the Company’s financial statements included in Item 1 to this report and incorporated herein by reference.
Item 1A. Risk Factors.
This section supplements and updates the risk factors disclosed in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”). The following risk factor supersedes the corresponding risks described in the Annual Report and should be read together with the other risk factors disclosed in the Annual Report. In addition to the other information in this Quarterly Report on Form 10-Q, all of these risk factors should be carefully considered in evaluating us and our common stock. Any of these risks, many of which are beyond our control, could materially and adversely affect our financial condition, results of operations or cash flows, or cause our actual results to differ materially from those projected in any forward-looking statements. We may also face other risks and uncertainties that are not presently known, are not currently believed to be material, or are not identified below because they are common to all businesses. Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. For more information, see “Information Regarding Forward-Looking Statements” in Item 2 of Part I of this report.
Supply and Availability of Raw Materials and Recent Supply Chain Constraints
The success of our business depends on our ability to meet customer demand in a highly competitive market, and sourcing an adequate supply of raw materials, including copper, is vital to our business and operations. While the Company generally believes our supply of raw materials is adequate, the Company could experience instances of limited supply of certain raw materials, resulting in extended lead times and higher prices.
Shortages or interruptions (including due to labor or political disputes) in the supply of our raw materials could disrupt our operations, and our business and financial condition could be materially adversely affected by such disruptions. Limitations inherent within our supply chain of certain raw materials, including competitive, governmental, and legal limitations, natural disasters, and other events, could impact costs, and future increases in the costs of these items. For example, the adoption of new tariffs by the United States and other countries, and the worldwide COVID-19 pandemic could adversely affect our profitability and availability of raw materials. There can be no assurance that future price increases will be successfully passed through to customers or that we will be able to find alternative suppliers.
Additionally, in the second and third quarters of 2021, supply chain constraints, driven in part by the COVID-19 pandemic, positively impacted the prices at which we sell our products, resulting in our increased profitability. There can be no assurance that product prices or our profitability will remain at current levels. We expect the supply chain constraints will abate in the future, but we are unable to predict the timing, impact, or whether such abatement will be gradual or abrupt.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Note 7 to the Company’s financial statements included in Item 1 to this report is hereby incorporated herein by reference.
The following table provides information relating to our purchases of shares of our common stock during the three months ended September 30, 2021.
(a)(b)(c)(d)
PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
 July 1, 2021 – July 31, 2021— $— — 1,000,000 
 August 1, 2021 – August 31, 2021242,045 82.39 242,045 757,955 
 September 1, 2021 – September 30, 2021151,334 84.52 151,334 606,621 
393,379 83.21 393,379 
(1) On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to an authorized number of shares of its common stock from time to time in open market or private transactions, at the Company's discretion. This authorization originally expired on December 31, 2007, and the Company’s Board of Directors has authorized several increases and annual extensions of this stock repurchase program, most recently on May 5, 2021, authorizing the repurchase of up to 1,000,000 shares of our common stock. As of September 30, 2021, 606.621 shares remained authorized for repurchase through March 31, 2022.
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Item 6. Exhibits.
Exhibit NumberDescription
3.1
3.2
4.1Form of certificate for Common Stock (filed as Exhibit 1 to the Company’s registration statement on Form 8-A, filed with the SEC on June 4, 1992, and incorporated herein by reference).
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

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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: October 28, 2021/s/ DANIEL L. JONES
Daniel L. Jones
Chairman, President and Chief Executive Officer
Dated: October 28, 2021/s/ BRET J. ECKERT
Bret J. Eckert
Vice President-Finance, Treasurer,
Secretary and Chief Financial Officer

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