UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended March 31, ~~2018~~2019



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

For the transition period from to

Commission File Number: 000-20278

ENCORE WIRE CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		75-2274963
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1329 Millwood Road McKinney, Texas		75069
(Address of principal executive offices)		(Zip Code)

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

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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	WIRE	The 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 x No ¨

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

Non-accelerated filer	¨ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨

		Emerging growth company	o

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.			o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Number of shares of Common Stock, par value $0.01, outstanding as of May ~~2, 2018: 20,844,148~~1, 2019: 20,894,148

ENCORE WIRE CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, ~~2018~~2019

Table of Contents



	Page No.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
~~Consolidated~~ Balance Sheets - March 31, ~~2018~~2019 (Unaudited) and December 31, ~~2017~~2018	1
~~Consolidated~~ Statements of Income - ~~Quarter~~Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018 (Unaudited)	2
~~Consolidated~~ Statements of Stockholders' Equity - Three Months Ended March 31, 2019 and 2018 (Unaudited)	3
Statements of Cash Flow - Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018 (Unaudited)	34
Notes to ~~Consolidated~~ Financial Statements	45
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	78
Item 3. Quantitative and Qualitative Disclosures About Market Risk	1011
Item 4. Controls and Procedures	1011
PART II—OTHER INFORMATION
Item 1. Legal Proceedings	1112
Item 1A. Risk Factors	1112
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	1112
Item 6. Exhibits	1112
Signatures	1213

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Encore Wire Corporation

~~Consolidated~~ Balance Sheets

(In thousands, except share and per share data)


	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(Unaudited)			(See Note)			(Unaudited)			(See Note)
Assets
Current assets:
Cash and cash equivalents	$	107,827		$	123,362		$	177,974		$	178,405
Accounts receivable, net of allowance of $2,028 and $2,028	248,466			228,885
Inventories	94,498			92,365
Accounts receivable, net of allowance of $2,031 and $2,030							231,470			235,353
Inventories, net							101,592			102,367
Income tax receivable							—			1,389
Prepaid expenses and other	1,751			2,372			1,019			1,723
Total current assets	452,542			446,984			512,055			519,237

Property, plant and equipment - at cost:
Land and land improvements	51,075			51,024			51,169			51,169
Construction-in-progress	19,522			13,782			27,409			24,623
Buildings and improvements	150,603			150,603			152,258			151,758
Machinery and equipment	301,743			300,250			320,153			314,175
Furniture and fixtures	9,608			9,602			9,920			9,687
Total property, plant and equipment	532,551			525,261			560,909			551,412
Accumulated depreciation	(242,439		)	(238,463		)	(256,791		)	(252,754		)
Property, plant and equipment - net	290,112			286,798			304,118			298,658

Other assets	193			193			790			165
Total assets	$	742,847		$	733,975		$	816,963		$	818,060

Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable	$	41,097		$	36,330		$	30,673		$	36,706
Accrued liabilities	23,621			35,005			24,512			36,866
Income taxes payable	4,205			296			2,558			—
Total current liabilities	68,923			71,631			57,743			73,572

Deferred income taxes	20,688			20,999
Deferred income taxes and other							24,580			24,032
Commitments and contingencies

Stockholders’ equity:
Preferred stock, $.01 par value:
Authorized shares – 2,000,000; none issued	—			—			—			—
Common stock, $.01 par value:
Authorized shares – 40,000,000;
Issued shares – 26,871,603 and 26,859,203	269			269
Issued shares – 26,921,603 and 26,906,603							269			269
Additional paid-in capital	59,147			58,192			62,013			60,822
Treasury stock, at cost – 6,027,455 and 6,027,455 shares	(91,056		)	(91,056		)	(91,056		)	(91,056		)
Retained earnings	684,876			673,940			763,414			750,421
Total stockholders’ equity	653,236			641,345			734,640			720,456
Total liabilities and stockholders’ equity	$	742,847		$	733,975		$	816,963		$	818,060

Note: The ~~consolidated~~ balance sheet at December 31, ~~2017,~~2018, as presented, is derived from the audited ~~consolidated~~ financial statements at that date.

See accompanying notes.

Encore Wire Corporation

~~Consolidated~~ Statements of Income

(In thousands, except per share data)


	Quarter Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
	(Unaudited)				(Unaudited)

Net sales	$	291,431	$	279,392	$	314,707	$	291,431
Cost of goods sold	253,937		240,187		273,381		253,937
Gross profit	37,494		39,205		41,326		37,494

Selling, general, and administrative expenses	22,887		18,737		24,999		22,887
Operating income	14,607		20,468		16,327		14,607

Net interest and other income	343		16		1,079		343
Income before income taxes	14,950		20,484		17,406		14,950

Provision for income taxes	3,597		6,852		3,995		3,597
Net income	$	11,353	$	13,632	$	13,411	$	11,353
Earnings per common and common equivalent share – basic	$	0.54	$	0.66	$	0.64	$	0.54
Earnings per common and common equivalent share – diluted	$	0.54	$	0.65	$	0.64	$	0.54
Weighted average common and common equivalent shares outstanding – basic	20,835		20,738		20,884		20,835
Weighted average common and common equivalent shares outstanding – diluted	20,911		20,834		20,983		20,911
Cash dividends declared per share	$	0.02	$	0.02	$	0.02	$	0.02

See accompanying notes.

Encore Wire Corporation

~~Consolidated~~ Stockholders' Equity

For the Three Months Ended March 31, 2019 and 2018

(In thousands, except per share data)



	Common Stock			Additional Paid-In Capital		Treasury Stock				Retained Earnings
	Shares	Amount		Additional Paid-In Capital		Shares	Amount			Retained Earnings			Total
Balance at December 31, 2017	26,859	$	269	$	58,192	6,027	$	(91,056	)	$	673,940		$	641,345
Net income	—	—		—		—	—			11,353			11,353
Exercise of stock options	13	—		306		—	—			—			306
Stock-based compensation	—	—		649		—	—			—			649
Dividend declared—$0.02 per share	—	—		—		—	—			(417		)	(417		)
Balance at March 31, 2018	26,872	$	269	$	59,147	6,027	$	(91,056	)	$	684,876		$	653,236



	Common Stock			Additional Paid-In Capital		Treasury Stock				Retained Earnings
	Shares	Amount		Additional Paid-In Capital		Shares	Amount			Retained Earnings			Total
Balance at December 31, 2018	26,907	$	269	$	60,822	6,027	$	(91,056	)	$	750,421		$	720,456
Net income	—	—		—		—	—			13,411			13,411
Exercise of stock options	15	—		431		—	—			—			431
Stock-based compensation	—	—		760		—	—			—			760
Dividend declared—$0.02 per share	—	—		—		—	—			(418		)	(418		)
Balance at March 31, 2019	26,922	$	269	$	62,013	6,027	$	(91,056	)	$	763,414		$	734,640

See accompanying notes.

Encore Wire Corporation

Statements of Cash Flow

(In thousands)


	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
	(Unaudited)						(Unaudited)

Operating Activities:
Net income	$	11,353		$	13,632		$	13,411		$	11,353
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	4,109			3,798			4,344			4,109
Deferred income taxes	(311		)	(779		)	48			(311		)
Stock-based compensation attributable to equity awards	649			384			760			649
Other	(7		)	(499		)	(49		)	(7		)
Changes in operating assets and liabilities:
Accounts receivable	(19,581		)	(26,728		)	3,883			(19,581		)
Inventories	(2,133		)	(2,364		)	775			(2,133		)
Other assets	609			446			724			609
Trade accounts payable and accrued liabilities	(6,558		)	9,248			(16,437		)	(6,558		)
Current income taxes receivable / payable	3,909			(1,584		)	3,947			3,909
Net cash used in operating activities	(7,961		)	(4,446		)
Net cash provided by (used in) operating activities							11,406			(7,961		)

Investing Activities:
Purchases of property, plant and equipment	(7,463		)	(5,554		)	(11,872		)	(7,463		)
Proceeds from sale of assets	—			923			22			—
Net cash used in investing activities	(7,463		)	(4,631		)	(11,850		)	(7,463		)

Financing Activities:
Deferred financing fees	—			(1		)
Proceeds from issuance of common stock, net	306			222			431			306
Dividends paid	(417		)	(415		)	(418		)	(417		)
Net cash used in financing activities	(111		)	(194		)
Net cash provided by (used in) financing activities							13			(111		)

Net decrease in cash and cash equivalents	(15,535		)	(9,271		)	(431		)	(15,535		)
Cash and cash equivalents at beginning of period	123,362			95,753			178,405			123,362
Cash and cash equivalents at end of period	$	107,827		$	86,482		$	177,974		$	107,827

See accompanying notes.

ENCORE WIRE CORPORATION

NOTES TO ~~CONSOLIDATED~~ FINANCIAL STATEMENTS

(Unaudited)

March 31, ~~2018~~2019

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

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 (“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 ~~consolidated~~ financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Revenue Recognition

The majority of 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 ~~product(s)~~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 ~~recognized in first quarters of 2018 and 2017~~ resulting from updated estimates of ~~revenue for product sales~~trade payment discounts and customer rebates were not material.

Recent Accounting Pronouncements

The Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) is the sole source of authoritative U.S. GAAP other than Securities and Exchange Commission ("SEC") 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 ~~followings~~following are those ASUs that are relevant to the Company.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118),” which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Since the 2017 Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation is expected over the next twelve months, management considers the deferred tax re-measurements and other items to be incomplete due to the forthcoming guidance and the ongoing analysis of final year-end data and tax positions. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.

In May 2014, the FASB issued ASU No. 2014-09, ~~Revenue~~“Revenue from Contracts with Customers (ASC ~~Topic~~ 606),” which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. On January 1, 2018, we adopted the requirements of ASC ~~Topic~~ 606 and all the related amendments to all of our contracts using the modified retrospective method. ~~Upon completing our implementation assessment of Topic ASC 606, we concluded that no~~No adjustment was required to the opening balance of retained earnings at the date of initial application. The comparative information has also not been restated and continues to be reported under the accounting standards in effect for those periods. Additional disclosures required by ASC ~~Topic~~ 606 are presented under Revenue Recognition above.

~~In February 2016,~~The Company has a minimal number of leases, all of which are classified as operating. As a result of the ~~FASB issued~~adoption of ASU No. 2016-02, “Leases (Topic 842).,” Under the new guidance, a lessee will be required to recognize a right to use asset and a lease liability for all leases with terms of twelve months or longer. Lessor accounting remains largely consistent with existing U.S. generally accepted accounting principles. The new standard will be effective for us beginningon January 1, ~~2019. Early adoption is permitted. The standard requires~~2019, the Company recorded $0.7 million of right of use assets which are included in other non-current assets in the accompanying balance sheet, $0.2 million of ~~a modified retrospective transition method. The Company is evaluating the effect that~~current lease liabilities which are included in accounts payable and $0.5 million of long-term lease liabilities included in other non-current liabilities. We will evaluate any future lease commitments in conformance with ASU ~~2016-02 will have on its consolidated financial statements and related disclosures.~~

No. 2016-02.

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 Thousands	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018

Raw materials	$	25,257		$	32,928		$	22,937		$	28,455
Work-in-process	19,681			22,753			27,937			30,529
Finished goods	103,380			88,497			99,825			88,708
Total Inventory at FIFO cost	148,318			144,178			150,699			147,692
Adjust to LIFO cost	(53,820		)	(51,813		)	(49,107		)	(45,325		)
Lower of cost or market adjustment							—			—
Inventory, net	$	94,498		$	92,365		$	101,592		$	102,367

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 depending on those inventory levels and costs.

In the first quarter of ~~2018,~~2019, LIFO adjustments were recorded, increasing cost of sales by ~~$2.0~~$3.8 million, versus LIFO adjustments increasing cost of sales by ~~$4.4~~$2.0 million in the first quarter of 2017. During the first quarter of 2018, the Company liquidated a portion of the LIFO inventory layer in the aluminum wire pool established in prior years. This liquidation had an insignificant effect on the net income of the Company. During the first quarter of 2017, the Company did not liquidate any LIFO inventory layers established in prior years.2018.

NOTE 3 – ACCRUED LIABILITIES

Accrued liabilities consist of the following:


In Thousands	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018

Sales rebates payable	$	12,184	$	17,386	$	11,965	$	18,565
Property taxes payable	980		3,802		998		3,962
Accrued salaries	4,300		8,318		4,953		8,790
Other accrued liabilities	6,157		5,499		6,596		5,549
Total accrued liabilities	$	23,621	$	35,005	$	24,512	$	36,866

NOTE 4 – INCOME TAXES

Income taxes were accrued at an effective rate of 23.0% in the first quarter of 2019 versus 24.1% in the first quarter of 2018, ~~versus 33.5% in the first quarter of 2017,~~ consistent with the Company’s estimated liabilities. ~~The~~In 2019, 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.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. The law significantly reformed the Internal Revenue Code of 1986, as amended. The reduction in the corporate tax rate required a one-time revaluation of certain tax related assets and liabilities to reflect their value at the lower corporate tax rate of 21%. Due to the complexities involved in the accounting for the enactment of the new law, the SEC Staff Accounting Bulletin (“SAB”) 118 allowed a provisional estimate for the year ended December 31, 2017, which we made. As of March 31, 2018, we have not made any material adjustments to our provisional estimate at December 31, 2017. We have made a reasonable estimate of the effect on our deferred tax balances. We will continue to analyze the impact of the new law and additional impacts will be recorded as they are identified during the measurement period provided for in SAB 118.

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 options, treated as common stock equivalents, is calculated using the treasury stock method.

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


	Three Months Ended March 31,				Three Months Ended March 31,
In Thousands	2018		2017		2019		2018

Numerator:
Net income	$	11,353	$	13,632	$	13,411	$	11,353

Denominator:
Denominator for basic earnings per share – weighted average shares	20,835		20,738		20,884		20,835

Effect of dilutive securities:
Employee stock options	76		96		79		76
Restricted stock grants					20		—

Denominator for diluted earnings per share – weighted average shares	20,911		20,834		20,983		20,911

The weighted average of employee stock options excluded from the determination of diluted earnings per common and common equivalent share for the first quarter was 117,500 in 2019 and 146,000 in ~~2018 and 114,000 in 2017.~~2018. Such options were anti-dilutive for their respective periods.

NOTE 6 – DEBT

The Company is party to a Credit Agreement (the “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 Credit Agreement, as amended, extends through October 1, 2021 and provides for maximum borrowings of $150.0 million. At our request, and subject to certain conditions, the commitments under the 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 0.875% to 1.75% depending upon the Leverage Ratio (as defined in the 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 0.25% (depending upon the Leverage Ratio). A commitment fee ranging from 0.15% to 0.30% (depending upon the Leverage Ratio) is payable on the unused line of credit. At March 31, ~~2018,~~2019, there were no borrowings outstanding under the Credit Agreement, and letters of credit outstanding in the amount of $1.3 million left $148.7 million of credit available under the Credit Agreement. Obligations under the Credit Agreement are the only contractual borrowing obligations or commercial borrowing commitments of the Company.

Obligations under the Credit Agreement are unsecured and contain customary covenants and events of default. The Company was in compliance with the covenants as of March 31, ~~2018.~~2019.

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 on the open market or through privately negotiated transactions at prices determined by the President of the Company during the term of the program. The Company’s Board of Directors has authorized several increases and annual extensions of this stock repurchase program, and, as of March 31, ~~2018,~~2019, 1,132,946 shares remained authorized for repurchase through March 31, ~~2019.~~2020. The Company did not repurchase any shares of its stock in the three months ended March 31, ~~2018~~2019 or 2017. There were no changes to stockholders’ equity for the three months ended March 31, 2018 and 2017 other than net income, the declaration of dividends, stock compensation, and the issuance of immaterial amounts of shares of common stock.2018.

NOTE 8 - CONTINGENCIES

~~The~~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. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of the probability of a loss and the determination as to whether a loss is reasonably estimable. Any such accruals are reviewed at least quarterly and adjusted to

reflect the effects of negotiations, settlements, rulings, advice of legal counsel and technical experts and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility (within the meaning of ASC ~~450)~~450 (Contingencies)) that probable losses could exceed amounts already accrued, if any, and the additional loss or range of loss is able to be estimated, management discloses the additional loss or range of loss.

For matters where the Company has evaluated that a loss is not probable, but is reasonably possible, the Company will disclose an estimate of the possible loss or range of loss or make a statement that such an estimate cannot be made. In some instances, for reasonably possible losses, the Company cannot estimate the possible loss or range of loss. The nature and progression of litigation can make it difficult to predict the impact a particular lawsuit will have on the Company. There are many reasons that the Company cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding; damages sought that are unspecified, unsupportable, unexplained or uncertain; discovery is incomplete; the complexity of the facts that are in dispute; the difficulty of assessing novel claims; the parties not having engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and/or the often slow pace of litigation.

On July 7, 2009, Southwire Company, a Delaware corporation (“Southwire”), filed a complaint for patent infringement against the Company and Cerro Wire, Inc. (“Cerro”) in the United States District Court for the Eastern District of Texas. In the complaint, Southwire alleged that the Company infringed one or more claims of United States Patent No. 7,557,301 (the “301 Patent”), entitled “Method of Manufacturing Electrical Cable Having Reduced Required Force for Installation,” by making and selling electrical cables, including the Company’s Super Slick cables. The case has been transferred to the Northern District of Georgia and the parties have agreed to stay it pending reexamination of the 301 Patent by the United States Patent and Trademark Office. In an inter partes reexamination proceeding, not involving the Company, concerning the ’301, the Patent and Trial Appeal Board found all claims of the ’301 patent invalid. Southwire appealed the decision and ultimately lost its appeal. Subsequently, Southwire chose not to continue its appeal of the Patent and Trial Appeal Board decision. On March 27, 2018 the parties filed a Stipulated Dismissal with Prejudice in the ’301 Patent case. As of the date hereof, the Court has not entered the Order of Dismissal.

The potentially applicable factual and legal issues related to the above claims asserted against the Company have not been resolved. The Company disputes all of Southwire’s claims and alleged damages and intends to vigorously defend the lawsuits and vigorously pursue its own claims against Southwire if and when the litigation resumes.

At this time, given the status of the proceedings, the complexities of the facts in dispute and the multiple claims involved, the Company has not concluded that a probable loss exists with respect to the Southwire litigation. Accordingly, no accrual has been made. Additionally, given the aforementioned uncertainties, while it is reasonably possible that we may incur a loss, the Company is unable to estimate any possible loss or range of losses for disclosure purposes.

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.

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 ~~69.7%~~73.0%, ~~65.2%~~69.7%, and ~~72.1%~~65.2% of the Company’s cost of goods sold during fiscal 2018, 2017 ~~2016~~ and ~~2015,~~2016, 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 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 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 ~~2018~~2019


	January 2018		February 2018		March 2018		Quarter Ended March 31, 2018		January 2019		February 2019		March 2019		Three Months Ended March 31, 2019
High	$	3.26	$	3.24	$	3.14	$	3.26	$	2.79	$	2.96	$	2.94	$	2.96
Low	3.09		3.02		2.96		2.96		2.57		2.77		2.84		2.57
Average	3.19		3.17		3.07		3.14		2.68		2.86		2.90		2.81

COMEX COPPER CLOSING PRICE ~~2017~~2018


	January 2017		February 2017		March 2017		Quarter Ended March 31, 2017		January 2018		February 2018		March 2018		Three Months Ended March 31, 2018
High	$	2.72	$	2.78	$	2.73	$	2.78	$	3.26	$	3.24	$	3.14	$	3.26
Low	2.48		2.61		2.57		2.48		3.09		3.02		2.96		2.96
Average	2.62		2.69		2.64		2.65		3.19		3.17		3.07		3.14

The following discussion and analysis ~~relates~~relate to factors that have affected the operating results of the Company for the quarters ~~and three months~~ ended March 31, ~~2018~~2019 and ~~2017.~~2018. 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, ~~2017.~~2018.

Results of Operations

Quarter Ended March 31, ~~2018~~2019 Compared to Quarter Ended March 31, ~~2017~~2018

Net sales were $314.7 million in the first quarter of 2019 compared to $291.4 million in the first quarter of ~~2018 compared to $279.4 million in the first quarter of 2017.~~2018. This ~~4.3%~~8.0% increase in net sales dollars is primarily the result of a ~~6.4%~~13.5% increase in copper wire ~~sales, driven~~unit volume shipped, offset somewhat by a ~~15.6% increase~~5.9% decrease in the average selling price of copper ~~wire offset by a 7.9% decrease in copper wire unit volume shipped.~~wire. Unit volume is measured in pounds of copper contained in the wire shipped during the period. The 13.5% increase in unit volume shipped was primarily due to particularly rough winter weather that slowed construction and impacted volumes in the first quarter of 2018, particularly in January. Fluctuations in sales prices are primarily a result of changing copper and other raw material prices and product price competition. The average cost per pound of raw copper purchased ~~increased 18.3%~~decreased 9.6% in the first quarter of ~~2018~~2019 compared to the first quarter of ~~2017~~2018 and was the principal driver of the ~~increased~~decreased average sales price of copper wire. ~~Unit volume decreased~~

Cost of goods sold was $273.4 million, or 86.9% of net sales, in the first quarter of ~~2018~~2019, compared to ~~the first quarter of 2017 primarily due to particularly rough winter weather that slowed construction and impacted our volumes, particularly in January.~~

~~Cost of goods sold was~~ $253.9 million, or 87.1% of net sales, in the first quarter of ~~2018, compared~~2018. Gross profit increased to ~~$240.2~~$41.3 million, or ~~86.0%~~13.1% of net sales, in the first quarter of ~~2017. Gross profit decreased to~~2019 from $37.5 million, or 12.9% of net sales, in the first quarter of ~~2018 versus $39.2 million, or 14.0% of net sales, in the first quarter of 2017.~~2018.

The ~~decrease~~increase in gross profit margin percentage was driven ~~by multiple factors, including a 7.9% decline in copper wire unit sales, which was more than offset~~principally by the increase of the copper wire spread. The spread between the average price paid for a pound of raw copper and the average sales price for a pound of copper contained in finished wire increased ~~10.1%~~2.2% in the first quarter of ~~2018~~2019 versus the first quarter of ~~2017.~~2018. The spread increased as a result of the average sales price per pound of copper ~~pound~~ sold ~~increasing 15.6%~~decreasing 5.9% while the per pound cost of raw copper ~~increased 18.3%~~purchased decreased 9.6%. ~~Increases in the cost of other raw materials more than offset the positive impact of the increased copper spread on gross profit margins.~~ The 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. In aluminum wire, which represented 7.8% of our net sales in the first quarter of 2019, we continue to enforce our rights under the U.S. trade remedy laws. On April 8, 2019, the U.S. Commerce Department imposed preliminary countervailing duties on imports of aluminum wire from China at rates ranging from 11.57 to 164.16 percent. The final results of the U.S. Government’s ongoing antidumping and countervailing duty investigations are not expected until the end of the year.

Total raw materials cost, including the LIFO adjustment, ~~increased~~decreased to 75.0% of net sales in the first quarter of 2019, from 76.5% of net sales in the first quarter of ~~2018, from 73.9% of net sales in the first quarter of 2017. Lower~~2018. Increased overhead costs ~~as a percentage of net sales somewhat offset this~~added to the increase in total ~~raw materials~~ cost of sales dollars and increased as a ~~percentage~~percent of net sales. Overheads ~~contained~~contain some fixed and semi-fixed components which ~~will~~do not fluctuate as ~~a percentage of sales when~~much as sales dollars ~~vary.~~fluctuate.

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~~other material prices as of the end of each reporting period. The Company performs a lower of cost or market calculation quarterly. As of March 31, ~~2018,~~2019, no LCM adjustment was required. However,

~~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.

Due primarily to increases in copper costs and price and volume movements of other materials, a LIFO adjustment was recorded, increasing cost of sales by ~~$2.0~~$3.8 million during the first quarter of ~~2018.~~2019. During the first quarter of ~~2017,~~2018, a LIFO adjustment was recorded, increasing cost of sales by ~~$4.4~~$2.0 million.

Selling expenses, consisting of commissions and freight, for the first quarter of ~~2018~~2019 were ~~$15.6~~$16.4 million, or ~~5.3%~~5.2% of net sales, compared to ~~$13.5~~$15.6 million, or ~~4.8%~~5.3% of net sales, in the first quarter of ~~2017.~~2018. 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~~decreased to 2.7% of net sales ~~increased $1.8 million to $8.4 million or~~in the first quarter of 2019 from 2.9% of net sales in the first quarter of ~~2018 from 2.4%~~2018. General and administrative (“G&A”) expenses for the first quarter of 2019 were $8.6 million, or 2.7% of net sales, compared to $7.3 million, or 2.5% of net sales, in the first quarter of 2017, primarily due to significant increases in freight rates. Freight rates are up nationally as the highly publicized shortage of drivers and new regulations on the trucking industry impact rates in that industry. General and administrative expenses for the first quarter of 2018 were $7.3 million, or 2.5% of net sales, compared to $5.2 million, or 1.9% of net sales, in the first quarter of 2017.2018. The G&A increase was driven primarily by increased stock compensation ~~expenses,~~expense, driven primarily by our strong stock price performance driving the ~~Company's recording~~mark to market accounting on stock appreciation rights. The net stock compensation expense increased $800,000 in the first quarter of ~~a $0.5 million gain on sale~~2019 versus the first quarter of ~~assets in 2017 that did not reoccur in 2018 and increased computer service charges.~~2018. The Company did not record any bad debt expense during the first quarters of ~~2018~~2019 or ~~2017.~~

2018.

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.

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 ~~used in~~provided by operating activities was ~~$8.0~~$11.4 million in the first three months of ~~2018~~2019 compared to ~~$4.4~~$8.0 million of cash used in the first three months of ~~2017.~~2018. The following changes in components of cash flow from operations were notable. The Company had net income of $13.4 million in the first three months of 2019 compared to net income of $11.4 million in the first three months of ~~2018 compared to net income of $13.6~~2018. Accounts receivable decreased $3.9 million in the first three months of ~~2017. Accounts receivable increased~~2019 compared to increasing $19.6 million in the first three months of 2018, ~~compared to increasing $26.7~~resulting in a positive change in cash flow of $23.5 million in the first three months of ~~2017, resulting in a negative change in cash flow of $7.1 million in the first three months of 2018~~2019 versus the first three months of ~~2017.~~2018. 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 three months of 2018 and 2017, using cash of $2.1 million and $2.4~~decreased $0.8 million in the first three months of ~~2018 and 2017.~~2019 compared to increasing $2.1 million in the first three months 2018. Trade accounts payable and accrued liabilities used cash of $16.4 million in the first three months of 2019 versus $6.6 million in ~~2018 versus a $9.2 million source~~the first three months of ~~cash in 2017,~~2018, resulting in a negative change in cash flow of ~~$15.8~~$9.8 million. In the first three months of ~~2018,~~2019, changes in current and deferred taxes provided cash of $4.0 million versus a $3.6 million ~~versus using~~source of cash ~~of $2.4 million~~ in the first three months of ~~2017.~~2018. These changes in cash flow were the primary drivers of the ~~$3.5~~$19.4 million increase in cash ~~used in~~provided by operations in the first three months of ~~2018~~2019 compared to the first three months of ~~2017.~~2018.

Cash used in investing activities increased to $11.9 million in the first three months of 2019 from $7.5 million in the first three months of 2018 ~~from $4.6 million in the first three months of 2017,~~ due to higher capital expenditures on plant and equipment. Cash ~~used~~provided in financing activities in the first three months of 2019 consisted of $0.4

million of cash dividends paid, ~~partially~~ offset by ~~$0.3~~$0.4 million of proceeds from exercised stock options. These changes in cash flow ~~were the primary drivers of the~~provided less than $0.1 million of cash ~~used~~ in financing activities for the first three months of ~~2018~~2019 versus ~~$0.2~~

$0.1 million used in the first three months of ~~2017.~~2018. As of March 31, ~~2018,~~2019, the balance on the Company’s revolving line of credit remained at zero. The Company’s cash balance was $178.0 million at March 31, 2019 versus $107.8 million at March 31, ~~2018 versus $86.5 million at March 31, 2017.~~2018.

During the remainder of ~~2018,~~2019, 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 production bottlenecks. The total capital expenditures for all of ~~2018~~2019 associated with these projects are currently estimated to be between ~~$28~~$38 million and ~~$33~~$43 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 ~~2018.~~2019.

Information Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains various “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information that is based on management’s belief as well as assumptions made by and information currently available to management. The words “believes”, “estimates”, “anticipates”, “plans”, “seeks”, “expects”, “intends” and similar expressions identify some of the forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected. Among the key factors that may have a direct bearing on the Company’s operating results are fluctuations in the economy and in the level of activity in the building and construction industry, demand for the Company’s products, the impact of price competition and fluctuations in the price of copper and other raw materials. For more information regarding “forward-looking ~~statements”~~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, ~~2017,~~2018, which is hereby incorporated by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes from the information provided in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 4. Controls and Procedures.

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

For information on the Company’s legal proceedings, see Note 8 to the Company’s ~~consolidated~~ financial statements included in Item 1 to this report and incorporated herein by reference.

Item 1A. Risk Factors.

There have been no material changes to the Company’s risk factors as disclosed in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

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

Note 7 to the Company’s ~~consolidated~~ financial statements included in Item 1 to this report is hereby incorporated herein by reference.

Item 6. Exhibits.



Exhibit Number	Description
3.1	Certificate of Incorporation of Encore Wire Corporation and all amendments thereto (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, and incorporated herein by reference).
3.2	Third Amended and Restated Bylaws of Encore Wire Corporation, as amended through February 27, 2012 (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
4.1	Form 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	Certification by Daniel L. Jones, Chairman, President and Chief Executive Officer of the Company, dated May ~~3, 2018~~2, 2019 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, Treasurer, Secretary and Chief Financial Officer of the Company, dated May ~~3, 2018~~2, 2019 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, Chairman, President and Chief Executive Officer of the Company, dated May ~~3, 2018~~2, 2019 as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by Frank J. Bilban, Vice President – Finance, Treasurer, Secretary and Chief Financial Officer of the Company, dated May ~~3, 2018~~2, 2019 as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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: May ~~3, 2018~~2, 2019	/s/ DANIEL L. JONES
	Daniel L. Jones Chairman, President and Chief Executive Officer

Dated: May ~~3, 2018~~2, 2019	/s/ FRANK J. BILBAN
	Frank J. Bilban Vice President-Finance, Treasurer, Secretary and Chief Financial Officer

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