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

NOTE 8 - CONTINGENCIES

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 72.1%65.2%, 74.7%72.1%, and 77.6%74.7% of the Company’s cost of goods sold during fiscal 2016, 2015 2014 and 2013,2014, 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 itthem hold copper cathode as collateral against their shares. The acquisition of copper cathode by copper ETFs may materially decrease or interrupt the availability of copper for immediate delivery in the United States, which could materially increase the Company’s cost of copper. In addition to rising copper prices and potential supply shortages, we believe that ETFs and similar copper-backed derivative products could lead to increased 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 Company’s expansion into aluminum conductors in some of its building wire products, we expect aluminum will slowly grow its percentage share of the raw materials cost for the Company. The Company built a plant to expand the production of aluminum building wire beginning in late 2011. The plant was fully operational by mid-year 2013. In 2012, aluminumAluminum wire sales constituted 3.6% of net sales, growing to 6.9%represented 9.9% and 10.3% of net sales in 2013, 8.9% in 2014,2015 and 9.9% in 2015. This growth of aluminum sales to over $103.4 million in 2014 provided the impetus for the Company to construct a 250,000 square foot expansion to the aluminum plant to allow for the continued growth of this business. The construction of the building expansion and the machinery and equipment installation was completed during the fourth quarter of 2015.2016, respectively. Historically, the cost of aluminum has been much

Cost of goods sold was $255.7 million, or 87.7% of net sales, in the second quarter of 2017, compared to $210.2 million, or 88.0% of net sales, in the second quarter of 2016, compared2016. Gross profit increased to $220.8$35.9 million, or 87.0%12.3% of net sales, in the second quarter of 2015. Gross profit decreased to2017 versus $28.6 million, or 12.0% of net sales, in the second quarter of 2016 versus $32.9 million, or 13.0% of net sales, in the second quarter of 2015.2016.

The decreaseincrease in gross profit margin percentage was driven primarily by decreased copper wireincreased spreads. The spread between the average price paid for a pound of raw copper and the average salesales price for a pound of copper decreased 8.5%contained in finished wire increased 5.5% in the second quarter of 20162017 versus the second quarter of 2015.2016. The spread decreasedincreased as a result of the average sales price per copper pound sold declining 17.8%increasing 14.4% while the per pound cost of raw copper decreased 22.1%increased 19.2%. The aluminum wire spread also decreased 14.2%14.6% in the same quarterly comparison. However, totalThe percentage change on sales is on a higher nominal dollar amount than on purchases and, therefore, spreads change on a nominal dollar basis. The margin changes were due primarily to the competitive pricing environment in the industry. It appears that the industry consolidation of a copper competitor that took place last year and damaged margins in the second and third quarters of 2016 may be resolving itself. On the aluminum side, however, there are a couple of small competitors importing aluminum wire and selling it at below market prices. We understand that the government is looking into this import activity. We also have a financially stressed competitor who appears to readily follow these low-price competitors. We believe both of these factors have contributed to the unsettled pricing environment and impacted our aluminum spreads negatively.

Total raw materials cost, including the LIFO adjustment, decreasedincreased to 75.7% of net sales in the second quarter of 2017, from 73.3% of net sales in the second quarter of 2016, versus 75.1%2016. Lower overhead costs as a percentage of net sales, in the second quarter of 2015. This decreaseoffset somewhat by this increase in total raw materials cost as a percentage of net sales, was offset by the higher percentages of overhead cost, resultingresulted in the decreasedincreased gross profit margin percentage. Overheads contained some fixed and semi-fixed components which will risefluctuate as a percentage of sales when sales dollars decline.vary.

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, aluminum and finished wire prices as of the end of each reporting period.

Selling expenses, consisting of commissions and freight, for the second quarter of 20162017 were $12.1$14.1 million, or 5.1%4.8% of net sales, compared to $11.5$12.1 million, or 4.5%5.1% of net sales, in the second quarter of 2015.2016. Commissions paid to independent manufacturers’ representatives are paid as a relatively stable percentage of sales dollars and, therefore, exhibited little change in percentage terms. Freight costs as a percentage of net sales increaseddecreased to 2.3% of net sales in the second quarter of 2017 from 2.6% of net sales in the second quarter of 2016, from 2.1% of net sales in the second quarter of 2015, primarily due to the dropincrease in top line sales dollars as well as small changes in the mix of products sold, fuel costs and the geographical distribution of product sold. General and administrative expenses for the second quarter of 20162017 were $4.6$5.2 million, or 1.9%1.8% of net sales, compared to $4.4$4.6 million, or 1.7%1.9% of net sales, in the second quarter of 2015.2016. The Company did not record any bad debt expense during the second quarters of 2016 and 2015.2017 or 2016.

For more information on the Company’s revolving credit facility, see Note 6 to the Company’s consolidated financial statements included in Item 1 to this report, which is incorporated herein by reference.

Cash provided byin operating activities was $0.7 million in the first six months of 2017 compared to cash provided of $24.1 million in the first six months of 2016 compared to cash provided of $13.8 million in the first six months of 2015.2016. The following changes in components of cash flow from operations were notable. The Company had net income of $24.6 million in the first six months of 2017 compared to net income of $16.4 million in the first six months of 2016 compared to net income of $22.12016. Accounts receivable increased $35.7 million in the first six months of 2015. Accounts receivable decreased2017 compared to decreasing $7.3 million in the first six months of 2016, compared to decreasing $6.6 million in the first six months of 2015, resulting in a source of cash in both years.2016 and a use of cash in 2017, a net decrease of $43.0 million in cash provided. 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 value increased in the first six months of both 2016 and 2015, resulting in2017, using cash of $2.2 million versus a use of cash of $0.3 million and $14.3 million, respectively.in the first six months of 2016, resulting in a negative swing in cash flow of $1.9 million. Trade accounts payable and accrued liabilities were a use ofprovided cash of $13.6$14.5 million in 20162017 versus a $15.0$13.2 million use of cash in 2015.2016, resulting in a change in cash flow of $27.7 million. In the first six months of 2016,2017, changes in current and deferred taxes providedused cash of $5.0$7.6 million versus cash provided of $6.2$5.0 million in the first six months of 2015.2016. These changes in cash flow were the primary drivers of the $10.3$23.4 million increasedecrease in cash provided by operations in the first six months of 20162017 compared to the first six months of 2015.2016.

Cash used in investing activities decreased to $10.2 million in the first six months of 2017 from $21.5 million in the first six months of 2016 from $22.5 million in the first six months of 2015.2016. Cash used in financing activities consisted of $0.8 million of cash dividends paid, partially offset by $0.2$0.4 million of proceeds from exercised stock options resultingoptions. These changes in $0.6cash flow were the primary drivers of the $0.4 million of cash used in financing activities for the first six months of 20162017 versus $0.4$0.6 million used in the first six months of 2015.2016. As of June 30, 2016,2017, the balance on the Company’s revolving line of credit remained at zero. The Company’s cash balance was $85.9 million at June 30, 2017 versus $81.1 million at June 30, 2016 versus $45.6 million at June 30, 2015.2016.

During the remainder of 2016,2017, 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 address bottlenecks in these facilities.bottlenecks. The total capital expenditures for all of 20162017 associated with these projects are currently estimated to be between $42$30 million and $47$35 million. The Company also expects its future working capital requirements to fluctuate as a result of changes in unit sales volumes and the price of copper and other raw materials. The Company believes that the current cash balance, cash flow from operations, and the financing available from its revolving credit facility will satisfy anticipated working capital and capital expenditure requirements during 2016.2017.

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.

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.