x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2015
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
Large accelerated filer | x | Accelerated filer | ||||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
29, 2015: 20,667,648
Page No. | |||||
In Thousands of Dollars ASSETS Current assets: Cash and cash equivalents Accounts receivable, net of allowance of $2,065 and $2,065 Inventories Income tax receivable Deferred income taxes Prepaid expenses and other Total current assets Property, plant and equipment—at cost: Land and land improvements Construction-in-progress Buildings and improvements Machinery and equipment Furniture and fixtures Total property, plant and equipment Accumulated depreciation Property, plant and equipment – net Other assets Total assets In Thousands of Dollars, Except Share Data LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Trade accounts payable Accrued liabilities Income taxes payable Deferred income taxes Total current liabilities Non-current deferred income taxes and other 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 Additional paid-in capital Treasury stock, at cost – 5,934,651 and 5,934,651 shares Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity In Thousands, Except Per Share Data Net sales Cost of goods sold Gross profit Selling, general, and administrative expenses Operating income Net interest and other (income) expenses Income before income taxes Provision for income taxes Net income Net income per common and common equivalent share – basic Weighted average common and common equivalent shares outstanding – basic Net income per common and common equivalent share – diluted Weighted average common and common equivalent shares outstanding – diluted Cash dividends declared per share Nine Months Ended September 30, In Thousands of Dollars OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization Deferred income taxes Other Changes in operating assets and liabilities: Accounts receivable Inventories Trade accounts payable and accrued liabilities Other assets and liabilities Current income taxes receivable / payable NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES Purchases of property, plant and equipment Proceeds from sale of assets Other NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Proceeds from issuances of common stock Dividends paid Excess tax benefits of options exercised NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 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 $2,065 192,005 206,908 Inventories 97,834 78,251 Income tax receivable — 1,951 Deferred income taxes — 1,306 Prepaid expenses and other 2,732 2,235 Total current assets 351,388 345,315 Property, plant and equipment—at cost: Land and land improvements 50,326 48,305 Construction-in-progress 43,444 48,245 Buildings and improvements 101,051 96,405 Machinery and equipment 260,954 228,371 Furniture and fixtures 8,960 8,682 Total property, plant and equipment 464,735 430,008 Accumulated depreciation (213,262 ) (203,502 ) Property, plant and equipment – net 251,473 226,506 Other assets 454 930 Total assets $ 603,315 $ 572,751 Liabilities and Stockholders’ Equity Current liabilities: Trade accounts payable $ 26,051 $ 31,147 Accrued liabilities 22,922 28,191 Income taxes payable 1,121 — Deferred income taxes 6,624 — Total current liabilities 56,718 59,338 Non-current deferred income taxes 19,849 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 26,657,003 267 267 Additional paid-in capital 51,672 50,598 Treasury stock, at cost – 6,027,455 and 5,934,651 shares (91,056 ) (88,134 ) Retained earnings 565,865 530,456 Total stockholders’ equity 526,748 493,187 Total liabilities and stockholders’ equity $ 603,315 $ 572,751 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 sold 224,421 263,278 663,095 781,877 Gross profit 38,335 34,073 103,671 99,760 Selling, general, and administrative expenses 16,063 17,442 47,952 51,129 Operating income 22,272 16,631 55,719 48,631 Other (income) expenses: Interest and other income (81 ) (90 ) (320 ) (255 ) Interest expense 63 77 187 223 Income before income taxes 22,290 16,644 55,852 48,663 Provision for income taxes 7,779 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 – basic 20,716 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 – diluted 20,774 20,819 20,797 20,831 Cash dividends declared per share $ 0.02 $ 0.02 $ 0.06 $ 0.06 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 amortization 11,972 11,631 Deferred income taxes 7,553 2,937 Excess tax benefits of options exercised (24 ) (114 ) Stock-based compensation 500 515 Other (146 ) (77 ) Changes in operating assets and liabilities: Accounts receivable 14,903 (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 / payable 3,096 3,564 Net cash provided by (used in) operating activities 42,584 29,293 Investing Activities Purchases of property, plant and equipment (34,897 ) (26,624 ) Proceeds from sale of assets 52 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, net 555 483 Dividends paid (1,243 ) (1,243 ) Excess tax benefits of options exercised 24 114 Net cash provided by (used in) financing activities (3,586 ) (646 ) Net increase (decrease) in cash and cash equivalents 4,153 2,066 Cash and cash equivalents at beginning of period 54,664 36,778 Cash and cash equivalents at end of period $ 58,817 $ 38,844 September 30,
2014
(Unaudited) December 31,
2013
(See Note) $ 38,844 $ 36,778 230,180 215,739 80,473 70,780 — — 414 4,756 2,577 2,013 352,488 330,066 48,305 47,324 29,262 12,222 96,405 90,930 227,479 224,502 8,652 8,564 410,103 383,542 (199,874 ) (189,288 ) 210,229 194,254 1,636 1,506 $ 564,353 $ 525,826 September 30,
2014
(Unaudited) December 31,
2013
(See Note) $ 24,865 $ 23,465 26,180 23,006 4,897 1,447 — — 55,942 47,918 20,045 21,327 — — 267 266 50,416 49,459 (88,134 ) (88,134 ) 525,817 494,990 488,366 456,581 $ 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 CORPORATIONCONSOLIDATED STATEMENTS OF INCOME(Unaudited) Quarter Ended
September 30, Nine Months Ended
September 30, 2014 2013 2014 2013 $ 297,351 $ 309,927 $ 881,637 $ 864,738 263,278 272,023 781,877 762,382 34,073 37,904 99,760 102,356 17,442 17,126 51,129 48,485 16,631 20,778 48,631 53,871 (13 ) (10 ) (32 ) (44 ) 16,644 20,788 48,663 53,915 5,581 6,986 16,593 18,216 $ 11,063 $ 13,802 $ 32,070 $ 35,699 $ 0.53 $ 0.67 $ 1.55 $ 1.73 20,718 20,680 20,712 20,663 $ 0.53 $ 0.66 $ 1.54 $ 1.72 20,819 20,768 20,831 20,739 $ 0.02 $ 0.02 $ 0.06 $ 0.06 See accompanying notes.ENCORE WIRE CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) 2014 2013 $ 32,070 $ 35,699 11,631 10,947 2,937 5,845 324 214 (14,441 ) (38,954 ) (9,693 ) (8,957 ) 3,598 13,279 (697 ) 2,579 3,564 1,824 29,293 22,476 (26,624 ) (39,465 ) 75 — (32 ) — (26,581 ) (39,465 ) 483 439 (1,243 ) (1,241 ) 114 53 (646 ) (749 ) 2,066 (17,738 ) 36,778 33,883 $ 38,844 $ 16,145 See accompanying notes.ENCORE WIRE CORPORATION20142015
2014.
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 | ||||||
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Total | 135,874 | 133,171 | ||||||
Adjust to LIFO cost | (55,401 | ) | (62,391 | ) | ||||
Lower of cost or market adjustment | — | — | ||||||
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Inventory, net | $ | 80,473 | $ | 70,780 | ||||
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In Thousands | September 30, 2015 | December 31, 2014 | |||||
Raw materials | $ | 25,225 | $ | 28,283 | |||
Work-in-process | 23,836 | 19,169 | |||||
Finished goods | 77,877 | 84,020 | |||||
Total | 126,938 | 131,472 | |||||
Adjust to LIFO cost | (29,104 | ) | (53,221 | ) | |||
Lower of cost or market adjustment | — | — | |||||
Inventory, net | $ | 97,834 | $ | 78,251 |
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 | ||||||
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Total accrued liabilities | $ | 26,180 | $ | 23,006 | ||||
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In Thousands | September 30, 2015 | December 31, 2014 | |||||
Sales volume discounts payable | $ | 12,721 | $ | 16,011 | |||
Property taxes payable | 2,800 | 3,510 | |||||
Commissions payable | 1,826 | 2,064 | |||||
Accrued salaries | 4,464 | 4,800 | |||||
Other accrued liabilities | 1,111 | 1,806 | |||||
Total accrued liabilities | $ | 22,922 | $ | 28,191 |
Quarters Ended | ||||||||
In Thousands | Sept. 30, 2014 | Sept. 30, 2013 | ||||||
Numerator: | ||||||||
Net income (loss) | $ | 11,063 | $ | 13,802 | ||||
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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 | ||||||
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Denominator for diluted net income per common and common equivalent share – weighted average shares | 20,819 | 20,768 | ||||||
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Quarters Ended | |||||||
In Thousands | September 30, 2015 | September 30, 2014 | |||||
Numerator: | |||||||
Net income (loss) | $ | 14,511 | $ | 11,063 | |||
Denominator: | |||||||
Denominator for basic earnings per share – weighted average shares | 20,716 | 20,718 | |||||
Effect of dilutive securities: | |||||||
Employee stock options | 58 | 101 | |||||
Denominator for diluted earnings per share – weighted average shares | 20,774 | 20,819 |
Nine Months Ended | ||||||||
In Thousands | Sept. 30, 2014 | Sept. 30, 2013 | ||||||
Numerator: | ||||||||
Net income (loss) | $ | 32,070 | $ | 35,699 | ||||
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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 | ||||||
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Denominator for diluted net income per common and common equivalent share – weighted average shares | 20,831 | 20,739 | ||||||
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Nine Months Ended | |||||||
In Thousands | September 30, 2015 | September 30, 2014 | |||||
Numerator: | |||||||
Net income (loss) | $ | 36,652 | $ | 32,070 | |||
Denominator: | |||||||
Denominator for basic earnings per share – weighted average shares | 20,726 | 20,712 | |||||
Effect of dilutive securities: | |||||||
Employee stock options | 71 | 119 | |||||
Denominator for diluted earnings per share – weighted average shares | 20,797 | 20,831 |
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.
2015.
’301 Patent. Southwire intends to appeal this decision.
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.
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.
High Low Average High Low Average 2014. 2014 2014. 2014. 2014. million. 2014. 2014. 2014. 2014 2014. 2014. 2014. 2014. 2014. 2015.79.0% 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 fourthlesslower 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.July 2015 August 2015 September 2015 Quarter Ended September 30, 2015 Year to Date September 30, 2015 High $ 2.64 $ 2.41 $ 2.46 $ 2.64 $ 2.95 Low 2.35 2.25 2.25 2.25 2.25 Average 2.48 2.33 2.37 2.40 2.61 July
2014 August
2014 September
2014 Quarter Ended
Sept. 30, 2014 Year-to-Date
Sept. 30, 2014 $ 3.27 $ 3.24 $ 3.16 $ 3.27 $ 3.43 3.17 3.09 3.01 3.01 2.98 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 $ 3.20 $ 3.36 $ 3.35 $ 3.36 $ 3.78 3.04 3.16 3.21 3.04 3.03 3.14 3.28 3.27 3.23 3.36 July 2014 August 2014 September 2014 Quarter Ended September 30, 2014 Year to Date September 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 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, 2013.20142015 Compared to Quarter Ended September 30, 20132014 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, 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.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 2013.2014,2015, no LCM adjustment wasa 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 inItem 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 2013.20142015 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.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.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 2013.20142015 compared to Nine Months Ended September 30, 201320142015 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.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.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.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.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 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.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.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.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.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.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, 2013.2014,2015, 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. Themayto 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.Forward LookingForward-Looking Statements“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.
3.Quantitative3. Quantitative and Qualitative Disclosures About Market Risk.2013.2014.
–OTHER– OTHER INFORMATION
Other than the risk factor set forth below, there2013.Cybersecurity Breaches and other Disruptions to our Information Technology SystemsThe 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.
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 | — | — |
ENCORE WIRE CORPORATION(Registrant)Dated: October 31, 2014/s/ DANIEL L. JONESDaniel L. Jones, President andChief Executive OfficerDated: October 31, 2014/s/ FRANK J. BILBANFrank J. Bilban, Vice President – Finance,Chief Financial Officer,Treasurer and SecretaryINDEX TO EXHIBITSExhibitNumberDescription 3.1ENCORE WIRE CORPORATION (Registrant) Dated: October 30, 2015 /s/ DANIEL L. JONES Daniel L. Jones
Chairman, President and Chief Executive OfficerDated: October 30, 2015 /s/ FRANK J. BILBAN
Secretary and Chief Financial OfficerDescription 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). 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).31.1 Certification 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 2002.31.2 Certification 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 2002.32.1 Certification 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 2002.32.2 Certification 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.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 101.DEFXBRL Taxonomy Extension Definition Linkbase Document