Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2014

2015

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)

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)

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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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 October 31, 2014: 20,720,052

29, 2015: 20,667,648



ENCORE WIRE CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIODQUARTER ENDED SEPTEMBER 30, 2014

2015
Table of Contents
Page No.

PART I—FINANCIAL INFORMATION

Page No.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements

 

Consolidated Balance Sheets September 30, 20142015 (Unaudited) and December 31, 20132014

1

Consolidated Statements of Income (Unaudited) QuartersQuarter and Nine Months endedEnded September 30, 20142015 and September 30, 20132014

2

Consolidated Statements of Cash Flows (Unaudited) Nine Months endedEnded September 30, 20142015 and September 30, 20132014

3

Notes to Consolidated Financial Statements

4

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

7

Item 3. Quantitative and Qualitative Disclosures About Market Risk

11

Item 4. Controls and Procedures

11

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

12

Item 1A. Risk Factors

12

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

12

Item 6. Exhibits

12

Signatures

13



Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Encore Wire Corporation
Consolidated Balance Sheets
As of September 30, 2015 and December 31, 2014
(In thousands, except share and per share data)
 September 30, 2015 December 31, 2014
 (Unaudited) (See Note)
Assets   
Current assets:   
Cash and cash equivalents$58,817
 $54,664
Accounts receivable, net of allowance of $2,065 and $2,065192,005
 206,908
Inventories97,834
 78,251
Income tax receivable—
 1,951
Deferred income taxes—
 1,306
Prepaid expenses and other2,732
 2,235
Total current assets351,388
 345,315
    
Property, plant and equipment—at cost:   
Land and land improvements50,326
 48,305
Construction-in-progress43,444
 48,245
Buildings and improvements101,051
 96,405
Machinery and equipment260,954
 228,371
Furniture and fixtures8,960
 8,682
Total property, plant and equipment464,735
 430,008
    
Accumulated depreciation(213,262) (203,502)
Property, plant and equipment – net251,473
 226,506
    
Other assets454
 930
Total assets$603,315
 $572,751
    
Liabilities and Stockholders’ Equity   
Current liabilities:   
Trade accounts payable$26,051
 $31,147
Accrued liabilities22,922
 28,191
Income taxes payable1,121
 —
Deferred income taxes6,624
 —
Total current liabilities56,718
 59,338
    
Non-current deferred income taxes19,849
 20,226
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 – 26,682,603 and 26,657,003267
 267
Additional paid-in capital51,672
 50,598
Treasury stock, at cost – 6,027,455 and 5,934,651 shares(91,056) (88,134)
Retained earnings565,865
 530,456
Total stockholders’ equity526,748
 493,187
Total liabilities and stockholders’ equity$603,315
 $572,751
Note:    The consolidated balance sheet at December 31, 2014, as presented, is derived from the audited consolidated financial statements at that date.
See accompanying notes.

1
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Encore Wire Corporation
Consolidated Statements of Income
Unaudited for the Quarter and Nine Months Ended September 30, 2015 and 2014
(In thousands, except per share data)
 Quarter Ended September 30, Nine Months Ended September 30,
 2015 2014 2015 2014
        
Net sales$262,756
 $297,351
 $766,766
 $881,637
Cost of goods sold224,421
 263,278
 663,095
 781,877
Gross profit38,335
 34,073
 103,671
 99,760
        
Selling, general, and administrative expenses16,063
 17,442
 47,952
 51,129
Operating income22,272
 16,631
 55,719
 48,631
        
Other (income) expenses:

 

    
Interest and other income(81) (90) (320) (255)
Interest expense63
 77
 187
 223
Income before income taxes22,290
 16,644
 55,852
 48,663
        
Provision for income taxes7,779
 5,581
 19,200
 16,593
Net income$14,511
 $11,063
 $36,652
 $32,070
Earnings per common and common equivalent share – basic$0.70
 $0.53
 $1.77
 $1.55
Weighted average common and common equivalent shares outstanding – basic20,716
 20,718
 20,726
 20,712
Earnings per common and common equivalent share – diluted$0.70
 $0.53
 $1.76
 $1.54
Weighted average common and common equivalent shares outstanding – diluted20,774
 20,819
 20,797
 20,831
Cash dividends declared per share$0.02
 $0.02
 $0.06
 $0.06
See accompanying notes.


2
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Encore Wire Corporation
Consolidated Statements of Cash Flow
Unaudited for the Nine Months Ended September 30, 2015 and 2014
(In thousands)
 Nine Months Ended September 30,
 2015 2014
    
Operating Activities   
Net income$36,652
 $32,070
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:		   
Depreciation and amortization11,972
 11,631
Deferred income taxes7,553
 2,937
Excess tax benefits of options exercised(24) (114)
Stock-based compensation500
 515
Other(146) (77)
Changes in operating assets and liabilities:   
Accounts receivable14,903
 (14,441)
Inventories(19,583) (9,693)
Trade accounts payable and accrued liabilities(12,283) 3,598
Other assets and liabilities(56) (697)
Current income taxes receivable / payable3,096
 3,564
Net cash provided by (used in) operating activities42,584
 29,293
    
Investing Activities   
Purchases of property, plant and equipment(34,897) (26,624)
Proceeds from sale of assets52
 75
Other—
 (32)
Net cash provided by (used in) investing activities(34,845) (26,581)
    
Financing Activities   
Purchase of treasury stock(2,922) —
Proceeds from issuance of common stock, net555
 483
Dividends paid(1,243) (1,243)
Excess tax benefits of options exercised24
 114
Net cash provided by (used in) financing activities(3,586) (646)
    
Net increase (decrease) in cash and cash equivalents4,153
 2,066
Cash and cash equivalents at beginning of period54,664
 36,778
Cash and cash equivalents at end of period$58,817
 $38,844
See accompanying notes.


3
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ENCORE WIRE CORPORATION

CONSOLIDATED BALANCE SHEETS

In Thousands of Dollars

  September 30,
2014
(Unaudited)		  December 31,
2013
(See Note)		 

ASSETS

   

Current assets:

   

Cash and cash equivalents

  $38,844   $36,778  

Accounts receivable, net of allowance of $2,065 and $2,065

   230,180    215,739  

Inventories

   80,473    70,780  

Income tax receivable

   —     —   

Deferred income taxes

   414    4,756  

Prepaid expenses and other

   2,577    2,013  
  

 

 

  

 

 

 

Total current assets

   352,488    330,066  

Property, plant and equipment—at cost:

   

Land and land improvements

   48,305    47,324  

Construction-in-progress

   29,262    12,222  

Buildings and improvements

   96,405    90,930  

Machinery and equipment

   227,479    224,502  

Furniture and fixtures

   8,652    8,564  
  

 

 

  

 

 

 

Total property, plant and equipment

   410,103    383,542  

Accumulated depreciation

   (199,874)   (189,288) 
  

 

 

  

 

 

 

Property, plant and equipment – net

   210,229    194,254  

Other assets

   1,636    1,506  
  

 

 

  

 

 

 

Total assets

  $564,353   $525,826  
  

 

 

  

 

 

 

In Thousands of Dollars, Except Share Data

  September 30,
2014
(Unaudited)		  December 31,
2013
(See Note)		 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

Current liabilities:

   

Trade accounts payable

  $24,865   $23,465  

Accrued liabilities

   26,180    23,006  

Income taxes payable

   4,897    1,447  

Deferred income taxes

   —     —   
  

 

 

  

 

 

 

Total current liabilities

   55,942    47,918  

Non-current deferred income taxes and other

   20,045    21,327  

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 – 26,654,703 and 26,631,653

   267    266  

Additional paid-in capital

   50,416    49,459  

Treasury stock, at cost – 5,934,651 and 5,934,651 shares

   (88,134)   (88,134) 

Retained earnings

   525,817    494,990  
  

 

 

  

 

 

 

Total stockholders’ equity

   488,366    456,581  
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

  $564,353   $525,826  
  

 

 

  

 

 

 

Note:The consolidated balance sheet at December 31, 2013, as presented, is derived from the audited consolidated financial statements at that date.

See accompanying notes.

ENCORE WIRE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

   Quarter Ended
September 30,		  Nine Months Ended
September 30,		 

In Thousands, Except Per Share Data

  2014  2013  2014  2013 

Net sales

  $297,351   $309,927   $881,637   $864,738  

Cost of goods sold

   263,278    272,023    781,877    762,382  
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   34,073    37,904    99,760    102,356  

Selling, general, and administrative expenses

   17,442    17,126    51,129    48,485  
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

   16,631    20,778    48,631    53,871  

Net interest and other (income) expenses

   (13)   (10)   (32)   (44) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Income before income taxes

   16,644    20,788    48,663    53,915  

Provision for income taxes

   5,581    6,986    16,593    18,216  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

  $11,063   $13,802   $32,070   $35,699  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income per common and common equivalent share – basic

  $0.53   $0.67   $1.55   $1.73  
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average common and common equivalent shares outstanding – basic

   20,718    20,680    20,712    20,663  

Net income per common and common equivalent share – diluted

  $0.53   $0.66   $1.54   $1.72  
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average common and common equivalent shares outstanding – diluted

   20,819    20,768    20,831    20,739  

Cash dividends declared per share

  $0.02   $0.02   $0.06   $0.06  
  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes.

ENCORE WIRE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

   

Nine Months Ended

September 30,

 

In Thousands of Dollars

  2014  2013 

OPERATING ACTIVITIES

   

Net income

  $32,070   $35,699  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

   

Depreciation and amortization

   11,631    10,947  

Deferred income taxes

   2,937    5,845  

Other

   324    214  

Changes in operating assets and liabilities:

   

Accounts receivable

   (14,441)   (38,954) 

Inventories

   (9,693)   (8,957) 

Trade accounts payable and accrued liabilities

   3,598    13,279  

Other assets and liabilities

   (697)   2,579  

Current income taxes receivable / payable

   3,564    1,824  
  

 

 

  

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

   29,293    22,476  
  

 

 

  

 

 

 

INVESTING ACTIVITIES

   

Purchases of property, plant and equipment

   (26,624)   (39,465) 

Proceeds from sale of assets

   75    —   

Other

   (32)   —   
  

 

 

  

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

   (26,581)   (39,465) 
  

 

 

  

 

 

 

FINANCING ACTIVITIES

   

Proceeds from issuances of common stock

   483    439  

Dividends paid

   (1,243)   (1,241) 

Excess tax benefits of options exercised

   114    53  
  

 

 

  

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

   (646)   (749) 
  

 

 

  

 

 

 

Net increase (decrease) in cash and cash equivalents

   2,066    (17,738) 

Cash and cash equivalents at beginning of period

   36,778    33,883  
  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  $38,844   $16,145  
  

 

 

  

 

 

 

See accompanying notes.

ENCORE WIRE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2014

2015

NOTE 1 – BASIS OF PRESENTATION

The unaudited consolidated financial statements of Encore Wire Corporation (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete 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, 2013.

2014.

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 of Dollars

  September 30,
2014		  December 31,
2013		 

Raw materials

  $21,129   $28,293  

Work-in-process

   20,998    21,881  

Finished goods

   93,747    82,997  
  

 

 

  

 

 

 

Total

   135,874    133,171  

Adjust to LIFO cost

   (55,401)   (62,391) 

Lower of cost or market adjustment

   —     —   
  

 

 

  

 

 

 

Inventory, net

  $80,473   $70,780  
  

 

 

  

 

 

 

In ThousandsSeptember 30, 2015 December 31, 2014
    
Raw materials$25,225
 $28,283
Work-in-process23,836
 19,169
Finished goods77,877
 84,020
Total126,938
 131,472
Adjust to LIFO cost(29,104) (53,221)
Lower of cost or market adjustment—
 —
Inventory, net$97,834
 $78,251
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 in tandem with inventory levels and costs.

During the first nine months of 2015, the Company did not liquidate any LIFO inventory layers established in prior years. A LIFO adjustment was recorded decreasing cost of sales by $13.3 million during the third quarter of 2015 and by $24.1 million in the first nine months of 2015. During the first six months of 2014, 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 third quarter of 2014, that layer was replenished. During the first quarter of 2013, the Company liquidated a portion of the copper layer established in 2011. During the second and third quarters of 2013 that layer was replenished. As a result, under the LIFO method, this inventory layer was liquidated at historical costs that were higher than current costs, which positively impacted net income for the third quarter of 2013 by $0.9 million offsetting the $0.9 million negative net impact from the liquidation in the first six months of 2013. During 2014, LIFO adjustments were recorded decreasing cost of sales by $0.2 million in the third quarter and by $7.0 million in the first nine months.

.

NOTE 3 – ACCRUED LIABILITIES

Accrued liabilities consist of the following:

In Thousands of Dollars

  September 30,
2014		   December 31,
2013		 

Sales volume discounts payable

  $15,444    $15,898  

Property taxes payable

   2,566     3,226  

Commissions payable

   2,207     2,027  

Accrued salaries

   4,689     1,314  

Other accrued liabilities

   1,274     541  
  

 

 

   

 

 

 

Total accrued liabilities

  $26,180    $23,006  
  

 

 

   

 

 

 

In ThousandsSeptember 30, 2015 December 31, 2014
    
Sales volume discounts payable$12,721
 $16,011
Property taxes payable2,800
 3,510
Commissions payable1,826
 2,064
Accrued salaries4,464
 4,800
Other accrued liabilities1,111
 1,806
Total accrued liabilities$22,922
 $28,191

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NOTE 4 – INCOME TAXES

Income taxes were accrued at an effective rate of 34.9% in the third quarter of 2015 versus 33.5% in the third quarter of 2014, versus 33.6% in the third quarter of 2013, consistent with the Company’s estimated liabilities. For the nine months ended September 30, the Company’s effective tax rate was approximately 34.4% in 2015 and 34.1% in 2014. The decreaseincrease in the effective rate was due to a change in the proportional effects of permanent items on the effective rate. For the nine months ended September 30, the Company’s effectivedifferences between transactions reported for financial reporting and tax rate was approximately 34.1% in 2014 and 33.8% in 2013.

purposes.

NOTE 5 – EARNINGS PER SHARE

Net earnings (loss) 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 net earnings (loss) per share:

   Quarters Ended 

In Thousands

  Sept. 30,
2014		   Sept. 30,
2013		 

Numerator:

    

Net income (loss)

  $11,063    $13,802  
  

 

 

   

 

 

 

Denominator:

    

Denominator for basic net income per common and common equivalent share – weighted average shares

   20,718     20,680  

Effect of dilutive securities:

    

Employee stock options

   101     88  
  

 

 

   

 

 

 

Denominator for diluted net income per common and common equivalent share – weighted average shares

   20,819     20,768  
  

 

 

   

 

 

 

 Quarters Ended
In ThousandsSeptember 30, 2015
September 30, 2014
    
Numerator:


Net income (loss)$14,511
 $11,063
    
Denominator:   
Denominator for basic earnings per share – weighted average shares20,716
 20,718
    
Effect of dilutive securities: 
 
Employee stock options58

101
    
Denominator for diluted earnings per share – weighted average shares20,774
 20,819
The weighted average of employee stock options excluded from the determination of diluted net income per common and common equivalent share for the third quarter was 148,000 in 2015 and 49,000 in 2014 and zero in 2013.2014. Such options were anti-dilutive for the respective periods.

The following table sets forth the computation of basic and diluted net earnings (loss) per share:

   Nine Months Ended 

In Thousands

  Sept. 30,
2014		   Sept. 30,
2013		 

Numerator:

    

Net income (loss)

  $32,070    $35,699  
  

 

 

   

 

 

 

Denominator:

    

Denominator for basic net income per common and common equivalent share – weighted average shares

   20,712     20,663  

Effect of dilutive securities:

    

Employee stock options

   119     76  
  

 

 

   

 

 

 

Denominator for diluted net income per common and common equivalent share – weighted average shares

   20,831     20,739  
  

 

 

   

 

 

 

 Nine Months Ended
In ThousandsSeptember 30, 2015 September 30, 2014
    
Numerator:   
Net income (loss)$36,652
 $32,070
    
Denominator:   
Denominator for basic earnings per share – weighted average shares20,726
 20,712
    
Effect of dilutive securities:   
Employee stock options71
 119
    
Denominator for diluted earnings per share – weighted average shares20,797
 20,831
The weighted average of employee stock options excluded from the determination of diluted net income per common and common equivalent share for the nine months ended September 30 was 112,000 in 2015 and 39,000 in 2014 and 127,000 in 2013.2014. Such options were anti-dilutive for the respective periods.



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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”).agent. The Credit Agreement extends through October 1, 2017 and provides for maximum borrowings of the lesser of $150.0 million or the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials, less any reserves established by the banks. Additionally, 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. The calculated maximum borrowing amount available at September 30, 2014,2015, as computed under the Credit Agreement, was $149.5 million. 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 September 30, 2014,2015, there were no borrowings outstanding 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 September 30, 2014.

2015.

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 amount 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 September 30, 2014,2015, the repurchase authorization had 1,225,7501,132,946 shares remaining authorized through March 31, 2015.2016. The Company repurchased 92,804 shares of its stock in the third quarter of 2015, its only purchases this year. The Company did not repurchase any shares of its stock in the first nine months of 2014 or 2013.2014. Other than net income and the purchase of treasury shares, there was no material change in stockholders equity during the quarter and nine months ended September 30, 2014.

2015.

NOTE 8 –- CONTINGENCIES


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) 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 (the “USPTO”). On June 23, 2011, the USPTO issued an office action in the reexamination finally rejecting all the claims of the ‘301 patent. Southwire responded to these final rejections on August 8, 2011 by submitting substantially amended claims. The examiner determined that the amended claims captured patentable subject matter and on September 21, 2011 issued a notice that a reexamination certificate would be issued evidencing the patentability of the amended claims. The reexamination certificate was

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issued on the ‘301 patent on December 27, 2011. Subsequent to the issuance of the ‘301 reexamination certificate, a new inter partes reexamination proceeding was instituted by Cerro Wire against the reexamined ‘301 patent. At this time,The parties convened on March 21, 2012 and August 27, 2012 for settlement conferences regarding the ‘301 patent lawsuit. Such settlement conferences did not result in any negotiation, agreement, decision or other development that the Company believed is material to such lawsuit. Settlement discussions continue between the parties. On September, 29, 2015, the Patent Trial and Appeal Board (the “PTAB”) issued an opinion affirming the Examiner’s rejection of all of the claims of the reexamined ‘301 patent have been rejected by the USPTO. This decision is not final.

’301 Patent. Southwire intends to appeal this decision.


On July 2, 2010, the Company filed a complaint against Southwire in the Northern District of Georgia. The complaint alleged that Southwire was using a deceptively misdescriptive trademark on its SimPull products, and that Southwire had made false statements about the Company’s Slick Wire products. Southwire’s United States Patent No. 7,749,024 (“the ‘024 patent”) issued on July 6, 2010. The morning the patent issued, the Company amended its complaint to seek a declaratory judgment that the Company’s Slick Wire products do not infringe the ‘024 patent. Later that same day, Southwire filed a separate complaint against the Company and Cerro Wire in the Eastern District of Texas alleging infringement of the ‘024 patent. The Company’s complaint against Southwire was stayed by agreement on April 11, 2011. The case will remain stayed until the USPTO issues a certificate of reexamination of the ‘024 patent.is currently stayed. The complaint filed by Southwire in the Eastern District of Texas has been voluntarily dismissed and Southwire will have the option to pursue its claims against the Company in the Northern District of Georgia, once the reexamination is completed.dismissed. On October 8, 2010, the Company filed a request with the USPTO for an inter partes reexamination of the ‘024 patent. On November 9, 2010, the USPTO ordered the reexamination of the ‘024 patent. In ordering reexamination of Southwire’s ‘024 patent,On March 28, 2014, the USPTO determined thatPTAB issued its Decision on Appeal, and issued its Decision on the Company’s submission of prior art raised a substantial new question of patentability ofRequest for Rehearing on November 3, 2014. Southwire and the claims ofCompany each appealed the ‘024 patent. On December 3, 2010, the USPTO issued a non-final office action rejecting all of the claims of the ‘024 Patent. Southwire filed a responsePTAB’s Decision to the non-final office actionFederal Circuit. Oral argument was held on February 3, 2011, which included legal arguments and supporting technical declarations. The Company filed its comments toOctober 7, 2015. On October 20, 2015, the Southwire response on March 3, 2011, including points and authorities, legal arguments, and supporting technical declarations. On July 9, 2012,Federal Circuit dismissed the Examiner issued an Action Closing Prosecution (“ACP”) finally rejecting patent claims 4-7 and 9-12 inappeal as moot because the reexamination ofFederal Circuit had the ‘024 patent. On August 15, 2012, Southwire filed a response to the ACP, which included extensive proposed claim amendments and arguments supporting the patentability of the proposed amended claims. The Company filed its comments to the Southwire response to the ACP on September 13, 2012, including points and authorities, legal arguments, and a supporting technical declaration. The Examiner refused entry of Southwire’s proposed amendments and maintainedsame day affirmed the rejection of all the claims under reexamination in a Right of Appeal Notice mailed September 28, 2012. On October 17, 2012, Southwire filed two petitions requesting that the reexamination be reopened or,’024 patent in the alternative, thatCerro reexamination. Southwire will now have an opportunity to appeal to the proposed amendments presented in its September 13, 2012 response to ACP be entered into the record. Southwire filed a Notice of Appeal on October 29, 2012 and its Appellant’s Brief on December 31, 2012, followed by the Company filing its Respondent’s Brief on January 25, 2013.

The petitions filed by Southwire on October 17, 2012 were denied by the USPTO in a decision mailed April 5, 2013. The Examiner’s Brief was mailed on July 16, 2013. Southwire filed its Rebuttal Brief on August 16, 2013. On March 28, 2014, the Patent Trial and Appeal Board (“PTAB”) issued its Decision on Appeal. In its opinion, the PTAB fully addressed one of nine grounds of rejection of the claims under reexamination as obvious in view of the prior art, sustaining the rejections of the broadest claims, but reversing the rejections of a number of the narrower claims. In light of the PTAB’s failure to address the remaining eight grounds of rejection with regards to these narrower claims, the Company filed a Request for Rehearing on April 22, 2014.

The parties convened on March 21, 2012 and August 27, 2012 for settlement conferences regarding the ‘301 patent lawsuit. Such settlement conferences did not result in any negotiation, agreement, decision or other development that the Company believed is material to such lawsuit. Settlement discussions continue between the parties. United States Supreme Court.


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. 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) 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.


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 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 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 74.7%, 77.6%, 79.0% and 86.1%79.0% of the Company’s cost of goods sold during fiscal 2014, 2013 2012 and 2011,2012, 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 has issued an order amending a rule to allownow allows shares of certain physically backed copper exchange-traded funds (“ETFs”) to be listed and publicly traded. Such funds and other copper ETFs like it 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, aluminum will slowly grow its percentage share of the raw materials cost.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 fiscal 2013,2012, aluminum wire sales constituted less than 7.0%3.6% of net sales.sales, growing to 6.9% of net sales in 2013 and 8.9% in 2014. 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 was completed in the fourth

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quarter of 2014. Machinery and equipment installation is expected to be completed during the fourth quarter of 2015. Historically, the cost of aluminum has been much lesslower than copper and also less 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 the Comex exchange for the periods shown.

COMEX COPPER CLOSING PRICE 2015

July 2015 August 2015 September 2015 Quarter Ended September 30, 2015Year to Date September 30, 2015
High$2.64
 $2.41
 $2.46
 $2.64
$2.95
Low2.35
 2.25
 2.25
 2.25
2.25
Average2.48
 2.33
 2.37
 2.40
2.61
COMEX COPPER CLOSING PRICE 2014

   July
2014		   August
2014		   September
2014		   Quarter Ended
Sept. 30, 2014		   Year-to-Date
Sept. 30, 2014		 

High

  $3.27    $3.24    $3.16    $3.27    $3.43  

Low

   3.17     3.09     3.01     3.01     2.98  

Average

   3.23     3.16     3.09     3.16     3.16  

COMEX COPPER CLOSING PRICE 2013

   July
2013		   August
2013		   September
2013		   Quarter Ended
Sept. 30, 2013		   Year-to-Date
Sept. 30, 2013		 

High

  $3.20    $3.36    $3.35    $3.36    $3.78  

Low

   3.04     3.16     3.21     3.04     3.03  

Average

   3.14     3.28     3.27     3.23     3.36  


July 2014 August 2014 September 2014 Quarter Ended September 30, 2014Year to Date September 30, 2014
High$3.27
 $3.24
 $3.16
 $3.27
$3.43
Low3.17
 3.09
 3.01
 3.01
2.98
Average3.23
 3.16
 3.09
 3.16
3.16
The following discussion and analysis relates to factors that have affected the operating results of the Company for the quarters and nine months ended September 30, 20142015 and 2013.2014. 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, 2013.

2014.

Results of Operations

Quarter Ended September 30, 20142015 Compared to Quarter Ended September 30, 2013

2014

Net sales were $262.8 million in the third quarter of 2015 compared to $297.4 million in the third quarter of 2014 compared to $309.9 million in the third quarter of 2013.2014. This 4.1%11.6% decrease in net sales is primarily the result of a 6.4%12.7% decrease in copper wire sales driven by a 5.7%15.2% decrease in the average selling price of copper wire, offset somewhat by a 3.0% increase in copper wire unit volume shipped, along with decreases in average selling prices of 0.7% and 2.0% of copper and aluminum wire, respectively, offset somewhat byshipped. Additionally, there was a 25.8% increase1.8% decrease in aluminum wire sales driven by a 28.4%4.0% decrease in the average selling price of aluminum wire, offset somewhat by a 2.2% increase in aluminum wire unit volume shipped. Unit volume is measured in pounds of copper or aluminum contained in the wire shipped during the period. 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 decreased 1.8%23.1% in the third quarter of 20142015 compared to the third quarter of 2013,2014, and was the principal driver of the decreased average sales price of copper wire. In the third quarter of 2014,2015, aluminum building wire constituted 9.4%10.5% of the Company’s net sales dollars compared to 7.2%9.4% in the third quarter of 2013.

2014.

Cost of goods sold was $224.4 million, or 85.4% of net sales, in the third quarter of 2015, compared to $263.3 million, or 88.5% of net sales, in the third quarter of 2014, compared2014. Gross profit increased to $272.0$38.3 million, or 87.8%14.6% of net sales, in the third quarter of 2013. Gross profit decreased to2015 versus $34.1 million, or 11.5% of net sales, in the third quarter of 2014 versus $37.9 million, or 12.2% of net sales, in the third quarter of 2013.

2014.

The small percentage decreaseincrease in gross profit margin percentage was primarily the result of an increase in the other overhead category from 7.1% of net sales in the third quarter of 2013 to 8.2% in the third quarter of 2014.increased copper wire spreads. The spread between the average price paid for a pound of raw copper and the average sale price for a pound of copper increased 2.1%4.5% in the third quarter of 20142015 versus the third quarter of 2013.2014. The spread increased as a result of the average sales price per copper pound sold declining 0.7%15.2% while the per pound cost of raw copper decreased 1.8%23.1%. The aluminum wire spread decreased 9.7%also increased 8.1% in the same quarterly comparison. In 2014, totalTotal raw materials cost, including the LIFO adjustment, decreased to 72.5% of net sales in the third quarter of 2015, versus 78.2% of net sales in the third quarter of 2014, versus 78.6% of net sales in the third quarter of 2013.

2014.

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. The Company performs a lower of cost or market calculation quarterly. As of September 30, 2014,2015, no LCM adjustment was

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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.


Due primarily to a decreasedecreases in copper inventory quantities on hand, largelycosts, offset by an increase in aluminum costs aided somewhat by price and volume movements of other materials during the third quarter of 2015, a LIFO adjustment was recorded decreasing cost of sales by $13.3 million during the third quarter of 2015. As discussed in Note 2 to the Company’s consolidated financial statements included in Item 1 to this report, during the third quarter of 2015, the Company did not liquidate any LIFO layers established in prior years. Additionally, during the third quarter of 2014, a LIFO adjustment was recorded decreasing cost of sales by $0.2 million during the quarter. As discussed in Note 2 to the Company’s consolidated financial statements included in

Item 1 to this report, during the first six months of 2014, 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 third quarter of 2014, that layer was replenished. During the first quarter of 2013, the Company liquidated a portion of the LIFO inventory layer in the copper wire pool established in 2011. During the second and third quarters of 2013 that layer was replenished. As a result, under the LIFO method, this inventory layer was liquidated at historical costs that were higher than current costs, which positively impacted net income for the third quarter of 2013 by $0.9 million offsetting the $0.9 million negative net impact from the liquidation in the first six months of 2013.

million.

Selling expenses, consisting of commissions and freight, for the third quarter of 20142015 were $13.3$12.1 million, or 4.5%4.6% of net sales, compared to $12.8$13.3 million, or 4.1%4.5% of net sales, in the third quarter of 2013.2014. 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 increased to 2.2% of net sales in the third quarter of 2015 from 2.1% of net sales in the third quarter of 2014, from 1.8% of net sales in the third quarter of 2013, primarily due to small changes in the mix of both product sold, fuel costs and the geographical distribution of product sold. General and administrative expenses remained relatively constant atfor the third quarter of 2015 were $3.9 million, or 1.5% of net sales, compared to $4.2 million, or 1.4% of net sales, in the third quartersquarter of both years.2014. The provision for bad debts was $0 for the third quarters of 20142015 and 2013.

2014.

Net interest and other (income) expense was virtually zeronominal in the third quarters of 20142015 and 2013.2014. Income taxes were accrued at an effective rate of 34.9% in the third quarter of 2015, versus an effective rate of 33.5% in the third quarter of 2014, versus an effective rate of 33.6% in the third quarter of 2013. The decrease in the effective rate was due to a change in the proportional effects of permanent items on the effective rate.

2014.

As a result of the foregoing factors, the Company’s net income decreasedincreased to $14.5 million in the third quarter of 2015 from $11.1 million in the third quarter of 2014 from $13.8 million in the third quarter of 2013.

2014.

Nine Months Ended September 30, 20142015 compared to Nine Months Ended September 30, 2013

2014

Net sales for the first nine months of 20142015 were $881.6$766.8 million compared with net sales of $864.7$881.6 million for the first nine months of 2013.2014. This 2.0% increase13.0% decrease in net sales is primarily the result of a 36.9% increase in aluminum wire sales driven by a 43.6% increase in aluminum wire unit volume shipped, offset somewhat by 4.7% and 4.3% decreases10.7% decrease in the average selling price of aluminum and copper wire respectively.sold coupled with a 3.7% decrease in copper wire unit volume shipped. Unit volume is measured in pounds of copper or aluminum contained in the wire shipped during the period. 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 decreased 4.9%17.3% in the first nine months of 20142015 compared to the first nine months of 2013,2014, and was the principal driver of the decreased average sales price of copper wire. In the first nine months of 2014,2015, aluminum building wire constituted 8.8%9.8% of the Company’s net sales dollars compared to 6.5%8.8% in the first nine months of 2013.

2014.


Cost of goods sold increaseddecreased to $663.1 million in the first nine months of 2015, compared to $781.9 million in the first nine months of 2014, compared2014. Gross profit increased to $762.4$103.7 million, or 13.5% of net sales, in the first nine months of 2013. Gross profit decreased to2015 versus $99.8 million, or 11.3% of net sales, in the first nine months of 2014 versus $102.4 million, or 11.8% of net sales, in the first nine months of 2013.

2014.


The decreaseincrease in gross profit margin percentage was primarily the result of several factors, including a decreasean increase in the spread between the average price paid for a pound of raw copper and the average sale price for a pound of copper in the first nine months of 20142015 versus the first nine months of 2013.2014 due primarily to increased industry pricing discipline. Fluctuations in sales prices are primarily a result of changing copper raw material prices and product price competition. The copper spread between the average price paid for a pound of raw copper and the average sale price for a pound of copper decreased 2.6%increased 6.3% in the first nine months of 20142015 versus the first nine months of 2013.2014. The spread was compressedexpanded as a result of the 4.3%10.7% decline in the average sales price per copper pound sold while the per pound cost of raw copper decreased 4.9%17.3%. (In nominal dollars, the sales price declined moreless than the cost of copper.) Aluminum wire followed the samethat trend, with the spread decreasing 7.7%increasing 1.5% in the same year-to-date comparison.


Due primarily to decreases in copper costs and volume fluctuationsa small increase in copper and other materials,inventory quantities on hand, aided somewhat offset by price and volume movements of other materials in the first nine months of 2014,2015, a LIFO adjustment was recorded decreasing cost of sales by $7.0 million during the nine month period.$24.1 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 2014 increased2015 decreased to $35.3 million, or 4.6% of net sales, compared to $39.1 million, or 4.4% of net sales, compared to $35.9 million, or 4.2% of net sales, in the same period of 2013.2014. 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 $0.8decreasing $2.3 million in concert with the increaseddecreased sales dollars. Freight costs for the first nine months of 2014 increased $2.42015 decreased $1.5 million to $16.8 million

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or 2.2% of net sales versus $18.4 million or 2.1% of net sales versus $16.0 million or 1.8% of net sales for the first nine months of 2013.2014. General and administrative expenses were $12.7 million, or 1.7% of net sales, in the first nine months of 2015 compared to $12.0 million, or 1.4% of net sales, in the first nine months of 2014 compared to $12.6 million, or 1.5% of net sales, in the first nine months of 2013.2014. The provision for bad debts was zero in the first nine months of 2015 and 2014, and 2013, respectively.


Net interest and other expense (income) was virtually zeronominal in the first nine months of both 20142015 and 2013.2014. Income taxes were accrued at an effective rate of 34.4% in the first nine months of 2015 versus 34.1% in the first nine months of 2014, versus 33.8% in the first nine months of 2013, consistent with the Company’s estimated liabilities.


As a result of the foregoing factors, the Company’s net income decreasedincreased to $36.7 million in the first nine months of 2015 from $32.1 million in the first nine months of 2014 from $35.7 million in the first nine months of 2013.

2014.

Liquidity and Capital Resources

The Company maintains a substantial inventory of finished products to promptly satisfy customers’ delivery requirements.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 provided by operating activities was $42.6 million in the first nine months of 2015 compared to cash provided of $29.3 million in the first nine months of 2014 compared to cash provided of $22.5 million in the first nine months of 2013.2014. The following changes in components of cash flow from operations were notable. The Company had net income of $36.7 million in the first nine months of 2015 versus net income of $32.1 million in the first nine months of 2014 versus net income of $35.72014. Accounts receivable decreased $14.9 million in the first nine months of 2013. Accounts receivable increased2015 while increasing $14.4 million in the first nine months of both 2014, and 2013, although at different amounts, resulting in a usesource of cash of $14.4 millionin 2015 and $39.0 million, respectively, driving a $24.5 million lower use of cash in 2014, driving a $29.3 million higher source of cash in 2015 versus 2013.2014. Accounts receivable generally increase in proportion to dollar sales and to a lesser extent are affected by the timing of when sales occur during a given quarter. AccountsThe swing in accounts receivable increased in the first nine months of both years,2015 versus 2014 was primarily due to increaseddecreased sales dollars.dollars resulting from the lower copper prices discussed earlier. 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 nine months of both 20142015 and 2013,2014, resulting in a use of cash of $9.7$19.6 million and $9.0$9.7 million, respectively. Trade accounts payable and accrued liabilities resultedwere a use of cash of $12.3 million in 2015 versus a $3.6 million source of cash in 2014, resulting in a $9.7$15.9 million increase in cash used in the first nine months of 20142015 versus the first nine months of 20132014, attributable primarily to the timing of inventory receipts at quarter end. In the first nine months of 2014,2015, changes in current and deferred taxes provided cash of $6.5$10.6 million versus $7.7cash provided of $6.5 million in the first nine months of 2013.2014. These changes in cash flow were the primary drivers of the $6.8$13.3 million increase in cash provided by operations in the first nine months of 20142015 versus the first nine months of 2013.

2014.

Cash used in investing activities decreasedincreased to $34.8 million in the first nine months of 2015 from $26.6 million in the first nine months of 2014, from $39.5 million indue primarily to purchases of equipment for the first nine months of 2013. In 2013, the Company purchased 201 acres of land adjacent to the Company’s campus for $25.7 million.aluminum plant expansion. Cash used in financing activities consisted of $2.9 million used for the purchase of Company stock, and $1.2 million of cash dividends paid offset by $0.6$0.5 million of proceeds and tax benefits from exercised stock options resulting in $0.6$3.6 million of cash used in the first nine months of 2014,2015 versus $0.7$0.6 million used in the first nine months of 2013.2014. As of September 30, 2014,2015, the balance on the Company’s revolving line of credit remained at $0. The Company’s cash balance was $58.8 million at September 30, 2015 versus $38.8 million at September 30, 2014, versus $16.1 million at September 30, 2013.

2014.

During the remainder of 2014,2015, the Company expects its capital expenditures will consist primarily of expenditures related to the recently announced expansion of its aluminum building wire plant and purchases of manufacturing equipment throughout its facilities. The total capital expenditures for all of 20142015 associated with these projects are currently estimated to be between $42 million and $46$47 million. The

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Company also expects its future working capital requirements mayto 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 2014.

2015.

Information Regarding Forward LookingForward-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“forward-looking statements” see “Information Regarding Forward LookingForward-Looking Statements” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013,2014, which is hereby incorporated by reference.

Item 3.Quantitative3. 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, 2013.

2014.

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, internal control over financial reporting during the period covered by this report.


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PART II –OTHER– 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.

Other than the risk factor set forth below, there

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, 2013.

Cybersecurity Breaches and other Disruptions to our Information Technology Systems

The efficient operation of our business is dependent on our information technology system to process, transmit and store sensitive electronic data, including employee, distributor and customer records, and to manage and support our business operations and manufacturing processes. The secure maintenance of this information is critical to our operations. Despite our security measures, our information technology system may be vulnerable to attacks by hackers or breaches due to errors or malfeasance by employees and others who have access to our system, or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters. Any such event could compromise our information technology system, expose our customers, distributors and employees to risks of misuse of confidential information, impair our ability to effectively and timely operate our business and manufacturing processes, and cause other disruptions, which could result in legal claims or proceedings, disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, any of which could adversely affect our results of operations and competitive position.

2014.

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.

The following table provides information relating to our purchases of shares of our common stock during the three months ended September 30, 2015.
ISSUER PURCHASES OF EQUITY SECURITIES(1)
                 
Period 
(a)
Total
Number of
Shares
Purchased
  
(b)
Average
Price Paid
Per Share
  
(c)
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
  
(d)
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
 
July 1, 2015 - July 31, 2015  —
   $—
   —
   —
 
August 1, 2015 - August 31, 2015  47,106
   31.17
   —
   —
 
September 1, 2015 - September 30, 2015  45,698
   31.82
   —
   —
 
Total  92,804
   $31.49
   —
   —
 

(1) On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to an aggregate of 1,000,000 shares of its common stock through December 31, 2007 on the open market or through privately negotiated transactions at prices determined by the President of the Company. On May 11, 2012, the Board of Directors authorized the repurchase of up to an aggregate amount of 4,000,000 shares of its common stock under the previously approved stock repurchase program of the Company. The Company's Board of Directors has subsequently authorized annual extensions of this stock repurchase program through March 31, 2016.

Item 6. Exhibits.

The information required by this Item 6 is set forth in the Index to Exhibits accompanying this Form 10-Q and incorporated herein by reference.



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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 31, 2014

/s/ DANIEL L. JONES

Daniel L. Jones, President and
Chief Executive Officer

Dated: October 31, 2014

/s/ FRANK J. BILBAN

Frank J. Bilban, Vice President – Finance,

Chief Financial Officer,

Treasurer and Secretary

INDEX TO EXHIBITS

Exhibit

Number

Description

 3.1ENCORE WIRE CORPORATION
(Registrant)
 
Dated: October 30, 2015/s/ DANIEL L. JONES
Daniel L. Jones
Chairman, President and Chief Executive Officer
Dated: October 30, 2015/s/ FRANK J. BILBAN
Frank J. Bilban
Vice President-Finance, Treasurer,
Secretary and Chief Financial Officer

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INDEX TO EXHIBITS
Exhibit
Number
Description
3.1Certificate 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).
3.2Third 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).
4.1Form 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).
    4.2Registration Rights Agreement dated February 29, 2012 among the Company, Capital Southwest Corporation and Capital Southwest Venture Corporation (filed as Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
31.1Certification by Daniel L. Jones, Chairman, President and Chief Executive Officer of the Company, dated SeptemberOctober 30, 20142015 and submitted pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification by Frank J. Bilban, Vice President – Finance, Treasurer, Secretary and Chief Financial Officer of the Company, dated SeptemberOctober 30, 20142015 and submitted pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification by Daniel L. Jones, Chairman, President and Chief Executive Officer of the Company, dated SeptemberOctober 30, 20142015 as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2Certification by Frank J. Bilban, Vice President – Finance, Treasurer, Secretary and Chief Financial Officer of the Company, dated SeptemberOctober 30, 20142015 as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document



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