##### Table of Contents



SECURITIES AND EXCHANGE COMISSION Washington, D.C. 20549
 FORM 10-K þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee required)
 For the fiscal year ended December 31, 2004 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHAGE ACT OF 1934 (No fee required)
 For the transition period from ____ to ____ Commission File Number: 020278 ENCORE WIRE CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware
    
    75-2274963(State of incorporation)
    
    (I.R.S. Employer Identification No.)1410 Millwood RoadMcKinney, Texas
    
    75069(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (972) 562-9473 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share
(Title of class) 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 than the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.     Yes þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
229.405 of this chapter) is not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.             þ Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of
the Securities Exchange Act of 1934, as amended).     Yes þ No o The aggregate market value of the Common Stock held by non-affiliates of the Registrant computed by
reference to the price at which the common equity was last sold as of the last business day of the
Registrants most recently completed second fiscal quarter was $297,512,949 (the characterization
of officers and directors of the Registrant for purposes of this computation should not be
construed as an admission for any other purpose that any such person is in fact an affiliate of the
Registrant). Number of shares of Common Stock outstanding as of March 4, 2005: 23,107,128 Documents incorporated by reference Listed below are documents, parts of which are incorporated herein by reference, and the part of
this report into which the document is incorporated:  (1)
    Proxy statement for the 2005 annual meeting of stockholders  Part III




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TABLE OF CONTENTS Number
    
    PagePART I
    
    
    1ITEM 1. BUSINESS
    
    
    1General
    
    
    1Strategy
    
    
    1Products
    
    
    2Manufacturing
    
    
    2Customers
    
    
    3Marketing and Distribution
    
    
    3Employees
    
    
    4Raw Materials
    
    
    4Competition
    
    
    4Intellectual Property Matters
    
    
    5Internet Address/SEC Filings
    
    
    5ITEM 2. PROPERTIES
    
    
    5ITEM 3. LEGAL PROCEEDINGS
    
    
    5ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    5EXECUTIVE OFFICERS OF THE COMPANY
    
    
    6PART II
    
    
    7ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
    
    
    7Equity Compensation Plan Information
    
    
    7ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    8ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    9Executive Overview
    
    
    9General
    
    
    9Stock Split
    
    
    9Results of Operations
    
    
    10Off-Balance Sheet Arrangements
    
    
    12Liquidity and Capital Resources
    
    
    12Contractual Obligations

    
    
    14Critical Accounting Policies and Estimates
    
    
    14Recent Accounting Pronouncements
    
    
    15Information Regarding Forward Looking Statements
    
    
    16ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    16ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    17ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    30ITEM 9A. CONTROLS AND PROCEDURES
    
    
    30ITEM 9B. OTHER INFORMATION
    
    
    32PART III
    
    
    32ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
    
    
    32ITEM 11. EXECUTIVE COMPENSATION
    
    
    32ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    32ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    32ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    32PART IV
    
    
    33ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    33SIGNATURES
    
    
    34CERTIFICATIONS
    
    
    39Consent of Ernst & Young LLP, Independent Registered Public Accounting FirmCertification of Chairman and CEO Pursuant to Section 302Certification of Vice President, Treasurer, Secretary and CFO Pursuant to Section 302Certification of Chairman and CEO Pursuant to Section 906Certification of Vice President, Treasurer, Secretary and CFO Pursuant to Section 906
  ii




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PART I 
 ITEM 1. BUSINESS 
 General Encore Wire Corporation is a Delaware corporation, incorporated in 1989, with its principal
executive office and plant located at 1410 Millwood Road, McKinney, Texas 75069. Its telephone
number is (972) 562-9473. As used in this Annual Report, unless otherwise required by the context,
the terms Company and Encore refer to Encore Wire Corporation and its consolidated entities,
including Encore Wire Limited, a Texas limited partnership (Encore Wire Limited) through which
the Companys operations are conducted. Encore is a low-cost manufacturer of copper electrical building wire and cable. The Company is a
significant supplier of both residential wire for interior electrical wiring in homes, apartments
and manufactured housing, and commercial wire for electrical distribution in commercial and
industrial buildings. The principal customers for Encores wire are wholesale electrical distributors, which serve both
the residential and commercial wire markets. The Company sells its products primarily through
manufacturers representatives located throughout the United States and, to a lesser extent,
through its own direct in-house marketing efforts. Encores strategy is to further expand its share of the markets for residential wire and for
commercial wire primarily by emphasizing a high level of customer service and low-cost production
and, to a lesser extent, the addition of new products that complement its current product line.
The Company maintains product inventory levels sufficient to meet anticipated customer demand and
believes that the speed and completeness with which it fills customer orders are key competitive
advantages critical to marketing its products. Encores low-cost production capability features an
efficient plant design incorporating highly automated manufacturing equipment, an integrated
production process and a small, incentivized work force. 
 Strategy Encores strategy for expanding its share of the residential wire and commercial wire markets
emphasizes customer service and product innovations coupled with low-cost production. Customer Service.Responsiveness to customers is a primary focus of Encore, with an emphasis on
building and maintaining strong customer relationships. Encore seeks to establish customer loyalty
by achieving a high order fill rate and rapidly handling customer orders, shipments, inquiries and
returns. The Company maintains product inventories sufficient to meet anticipated customer demand
and believes that the speed and completeness with which it fills orders are key competitive
advantages critical to marketing its products. Product Innovation.Encore has been a leader in bringing new ideas to a commodity product. Encore
pioneered the widespread use of color feeder sizes of commercial wire and colors in the residential
non-metallic wires. The colors have improved on the job safety and reduced installation times for
contractors. Low-Cost Production.Encores low-cost production capability features an efficient plant design
and a small, incentivized work force. Efficient Plant Design.Encores highly automated wire manufacturing equipment is integrated in an
efficient design that reduces material handling, labor and in-process inventory. Incentivized Work Force.Encores hourly manufacturing employees are eligible to receive
incentive pay tied to productivity and quality standards. The Company believes that this
compensation program enables the plants manufacturing lines to attain high output and motivates
manufacturing employees
to continually maintain product quality. The Company also believes that its stock option plan 1




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enhances the motivation of its salaried manufacturing supervisors. The Company has coupled these
incentives with a comprehensive safety program that emphasizes employee participation. 
 Products Encore offers a residential wire product line that consists primarily of NM cable and UF cable.
Encores commercial product line consists primarily of THWN-2, the most widely used type of
commercial wire. Additionally, the Company manufactures other types of commercial wire products.
The Companys NM, UF and THWN-2 cable are all manufactured with copper as the conductor. The
Company also purchases small quantities of other types of wire to re-sell to the customers that buy
the products it manufactures. The Company maintains between 400 and 500 stock-keeping units
(SKUs) of residential wire and between 4,000 and 4,500 SKUs of commercial wire. The principal
bases for differentiation among SKUs are product diameter, insulation, color and packaging. Residential Wire NM Cable.Non-metallic sheathed cable is used primarily as interior wiring in homes, apartments
and manufactured housing. NM cable is composed of either two or three insulated copper wire
conductors, with or without an uninsulated ground wire, all sheathed in a polyvinyl chloride
(PVC) jacket. UF Cable.Underground feeder cable is used to conduct power underground to outside lighting and
other applications remote from residential buildings. UF cable is composed of two or three PVC
insulated copper wire conductors, with or without an uninsulated ground wire, all jacketed in PVC. Commercial Wire THWN-2 cable. THWN-2 cable is used primarily as feeder, circuit and branch wiring in commercial and
industrial buildings. It is composed of a single conductor, either stranded or solid, and
insulated with PVC, which is further coated with nylon. Users typically enclose THWN-2 cable in
protective pipe or conduit. 
 Manufacturing The efficiency of Encores highly automated manufacturing facility is a key element of its low-cost
production capability. Encores residential wire manufacturing lines have been integrated so that
handling of product is substantially reduced. At the few points remaining where handling between
manufacturing steps is necessary the Company has, for the most part, replaced reels with large
baskets, each capable of handling approximately four times the capacity of a reel. Encores
commercial wire plant is designed to reduce product handling by integrating steps within production
stages and, again, by using baskets instead of reels where feasible. The manufacturing process for the Companys products involves up to six steps: casting, drawing,
stranding, blending, insulating and jacketing. Rod Casting. Rod Casting is the process of melting sheets of copper cathode and copper scrap and
casting the hot copper into a 5/16 inch copper rod to be drawn into copper wire. Drawing. Drawing is the process of reducing 5/16 inch copper rod through converging dies until the
specified wire diameter is attained. The wire is then heated with electrical current to soften or
anneal the wire to make it easier to handle. Stranding.Stranding is the process of twisting together from seven to sixty-one individual wire
strands to form a single cable. The purpose of stranding is to improve the flexibility of wire
while maintaining its electrical current carrying capacity. PVC Blending.PVC blending is the process of mixing the various raw materials that are required to
produce the PVC necessary to meet U/L specifications for the insulation and jacket requirements for
the wire that is manufactured. 2




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Insulating.Insulating is the process of extruding first PVC and then nylon (where applicable)
over the solid or stranded wire. Jacketing.Jacketing is the process of extruding PVC over two or more insulated conductor wires,
with or without an uninsulated ground wire, to form a finished product. The Companys jacketing
lines are integrated with packaging lines that cut the wire and coil it onto reels or package it in
boxes or shrink-wrap. Encore manufactures and tests all of its products in accordance with the standards of Underwriters
Laboratories, Inc. (U/L), a nationally recognized testing and standards agency. Encores machine
operators and quality control inspectors conduct frequent product tests. At three separate
manufacturing stages, the Company spark tests insulated wire for defects. The Company tests
finished products for electrical continuity to ensure compliance with its own quality standards and
those of U/L. Encores manufacturing lines are equipped with laser micrometers to measure wire
diameter and insulation thickness while the lines are in operation. During each shift, operators
take physical measurements of products, which Company inspectors randomly verify on a daily basis.
Although suppliers pretest PVC and nylon compounds, the Company tests products for aging and for
cracking and brittleness of insulation and jacketing. 
 Customers Encore sells its wire principally to wholesale electrical distributors throughout the United States
and, to a lesser extent, to retail home improvement centers. Most distributors supply products to
electrical contractors. The Company sells its products to at least 60% of the top 200 wholesale
electrical distributors (by volume) in the United States according to information reported in the
June 2004 issue of Electrical Wholesaling magazine. No customer accounted for more than ten
percent of net sales in 2004. Encore believes that the speed and completeness with which it fills customers orders is crucial to
its ability to expand the market share for its products. The Company also believes that, in order
to reduce costs, many customers no longer maintain their own substantial inventories. Because of
this trend, the Company seeks to maintain sufficient inventories to satisfy customers prompt
delivery requirements. 
 Marketing and Distribution Encore markets its products throughout the United States primarily through manufacturers
representatives and, to a lesser extent, through its own direct marketing efforts. Encore maintains the majority of its finished product inventory at its plant in McKinney, Texas.
In order to provide flexibility in handling customer requests for immediate delivery of the
Companys products, additional product inventories are maintained at warehouses owned and operated
by independent manufacturers representatives located throughout the United States. At December
31, 2004, additional product inventories are maintained at the warehouses of independent
manufacturers representatives located in Chattanooga, Tennessee; Cincinnati, Ohio; Detroit,
Michigan; Edison, New Jersey; Louisville, Kentucky; Greensboro, North Carolina; Pittsburgh,
Pennsylvania; Santa Fe Springs, California; and Hayward, California. Some of these manufacturers
representatives, as well as the Companys other manufacturers representatives, maintain offices
without warehouses in numerous locations throughout the United States. Finished goods are typically delivered to warehouses and customers by trucks operated by common
carriers. The decision regarding the carrier to be used is based primarily on cost and
availability. The Company invoices its customers directly for products purchased and, if an order has been
obtained through a manufacturers representative, pays the representative a commission based on
pre-established rates. The Company determines customers credit limits. The Companys bad debt
experience in 2004, 2003 and 2002 was 0.04%, 0.05% and 0.06% of net sales, respectively. The
manufacturers representatives have no discretion to increase customers credit limits or to
determine
prices charged for the Companys products, and all sales are subject to approval by the Company.
Encore sells all of its products with a one-year replacement warranty. 3




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Employees Encore believes that its hourly employees are highly motivated and that their motivation
contributes significantly to the plants efficient operation. The Company attributes the
motivation of these employees largely to the fact that a significant portion of their compensation
comes from incentive pay that is tied to productivity and quality standards. The Company believes
that its incentive program focuses its employees on maintaining product quality. Encore emphasizes safety to its manufacturing employees through its safety program. On a weekly
basis, each team of employees meets to review safety standards and, on a monthly basis, a group of
participants from each team discusses safety issues and inspects each area of the plant for
compliance. The Companys safety program is an integral part of its focus on cost control. As of December 31, 2004, Encore had 643 employees, 563 of whom were paid hourly wages and were
primarily engaged in the operation and maintenance of the Companys manufacturing and warehouse
facility. The remainder of the Companys employees were executive, supervisory, administrative,
sales and clerical personnel. The Company considers its relations with its employees to be good.
The Company has no collective bargaining agreements with any of its employees. 
 Raw Materials The principal raw materials used by Encore in manufacturing its products are copper cathode, copper
scrap, PVC thermoplastic compounds, paper and nylon, all of which are readily available from a
number of suppliers. Copper requirements are purchased primarily from producers and merchants at
prices determined each month primarily based on the average daily closing prices for copper for
that month, plus a negotiated premium. The Company also purchases raw materials necessary to
manufacture various PVC thermoplastic compounds. These raw materials include PVC resin, clay and
plasticizer. The Company produces copper rod in its own rod fabrication facility. The Company produces copper
rod from purchased copper cathodes. The Company also reprocesses copper scrap generated by its
operations and copper scrap purchased from others. In 2004, the copper rod fabrication facility
manufactured the majority of the Companys copper rod requirements. The Company also compounds its own wire jacket and insulation compounds. The process involves the
mixture of PVC raw material components to produce the PVC used to insulate the Companys wire and
cable products. The raw materials include PVC resin, clay and plasticizer. During 2004, this
facility produced all of the Companys PVC requirements. 
 Competition The electrical wire and cable industry is highly competitive. The Company competes with several
manufacturers of wire and cable products beyond the building wire segment in which the Company
competes. The Companys primary competitors include Southwire Corporation, Cerro Wire and Cable
Co., Inc., and Essex Electric Inc. (a subsidiary of Alpine Group, Inc.). The principal elements of competition in the electrical wire and cable industry are, in the opinion
of the Company, pricing, order fill rate and, in some instances, breadth of product line. The
Company believes that it is competitive with respect to all of these factors. Competition in the electrical wire and cable industry, although intense, has been primarily from
U.S. manufacturers, including foreign owned facilities located in the United States. The Company
has encountered no significant competition from imports of residential or commercial wire. The
Company believes this is because direct labor costs generally account for a relatively small
percentage of the cost of goods sold for these products. 4




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Intellectual Property Matters The Company owns the following federally registered trademarks: U.S. Registration Number 2,687,746
for the ENCORE WIRE mark; U.S. Registration Number 2,582,340 for the mark NONLEDEX for use in
connection with the conductor insulation material; U.S. Registration Number 1,900,498 for the
ENCORE WIRE LOGO design mark; and U.S. Registration Number 2,263,692 for the mark HANDY MANS
CHOICE. The current terms of trademark protection for these marks will expire on various dates
through 2014, but each term can be renewed indefinitely as long as the respective mark continues to
be used in commerce. These trademarks provide source identification for the goods manufactured and
sold by the Company and allow the Company to achieve brand recognition within the industry. 
 Internet Address/SEC Filings The Companys Internet
address is http://www.encorewire.com. The Companys filings with the U.S.
Securities and Exchange Commission (SEC), can be accessed free of charge by linking directly from
the Company website to NASDAQs, a database that allows you to access the annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as
soon as reasonably practicable after the reports have been electronically filed with or furnished
to the SEC. 
 ITEM 2. PROPERTIES Encore maintains its corporate office and manufacturing plant in McKinney, Texas, approximately 35
miles north of Dallas. The Companys facilities are located on a combined site of approximately
105 acres and consist of buildings containing approximately 1,113,000 square feet of floor space,
of which approximately 24,000 square feet is used for office space and 1,089,000 square feet is
used for manufacturing and warehouse operations. The plant and equipment are owned by the Company
and are not mortgaged to secure any of the Companys existing indebtedness. Encore believes that
its plant and equipment are suited to its present needs, comply with applicable federal, state and
local laws and regulations and are properly maintained and adequately insured. In the fourth quarter of fiscal 2004, the Company completed a 162,000 square foot expansion to the
Companys distribution center. The expansion of the distribution center was part of a $23.8
million capital expenditure program for 2004 that included the expansion of railroad spurs and the
installation of new machinery installed in the wire mills designed to address capacity constraints
and add flexibility to manufacturing scheduling. 
 ITEM 3. LEGAL PROCEEDINGS There are no material pending proceedings to which the Company is a party or of which any of its
property is the subject. However, the Company is a party to litigation and claims arising out of
the ordinary business of the Company. While the results of these matters cannot be predicted with
certainty, the Company does not believe the final outcome of such litigation and claims will have a
material adverse effect on the financial condition, the results of operations or cash flows of the
Company, in part because the Company believes that it has adequate insurance to cover any damages
that may ultimately be awarded. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 5




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EXECUTIVE OFFICERS OF THE COMPANY Information regarding Encores executive officers including their respective ages at March 19, 2005
is set forth below: Name
    
    Age
    
    Position with CompanyVincent A. Rego
    
    
    81
    
    
    Chairman of the Board of Directors, and Chief
Executive OfficerDaniel L. Jones
    
    
    41
    
    
    President, Chief Operating Officer, and Member of
the Board of DirectorsFrank J. Bilban
    
    
    48
    
    
    Vice President  Finance, Treasurer, Secretary,
and Chief Financial Officer
 Mr. Regohas been Chairman of the Board of Directors of Encore since 1989. In October 1997, Mr.
Rego was named President and Chief Executive Officer of the Company. He served as President until
May 1998. From 1978 until 1988, Mr. Rego served as President, Chief Executive Officer and Chairman
of the Board of Capital Wire and Cable Corporation (Capital Wire), which was purchased by General
Cable Corporation in 1988. Prior thereto, Mr. Rego was associated with predecessors of Capital
Wire in various executive capacities. Mr. Joneshas been President and Chief Operating Officer of the Company since May 1998. In May
1997, Mr. Jones was named Executive Vice President of the Company, and in October 1997, he was
named Chief Operating Officer. He previously held the position of Vice President-Sales and
Marketing of Encore from 1992 to May 1997, after serving as Director of Sales since joining the
Company in November 1989. He also serves as a member of the Board of Directors. Mr. Bilbanhas been Vice President-Finance, Treasurer and Secretary of Encore since June 2000.
From 1998 until joining the Company in June 2000, Mr. Bilban was Executive Vice President and Chief
Financial Officer of Alpha Holdings, Inc., a plastics manufacturing conglomerate. From 1996 until
1998, Mr. Bilban was Vice President and Chief Financial Officer of Wedge Dia-Log Inc., an oil field
services company. From 1991 until 1996, Mr. Bilban held financial positions, including Division
Controller, with the CT Film Division of Rexene Corporation. From 1978 until 1991 he was employed
in various financial capacities with several divisions of Outboard Marine Corporation. All executive officers are elected annually by the Board of Directors to serve until the next
annual meeting of the Board or until their respective successors are chosen and qualified. 6




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PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Companys Common Stock is traded and quoted on the NASDAQ Stock Markets National Market under
the symbol WIRE. The following table sets forth the high and low closing sales prices per share
for the Common Stock as reported in the NASDAQ Stock Markets National Market for the periods
indicated. On August 16, 2004, the Company effected a three-for-two stock split in the form of a
stock dividend payable to stockholders of record at the close of business on August 6, 2004. All
prior share and per share amounts have been restated to reflect the stock split. 2004
    
    
     High
    
    
    LowFirst Quarter
    
    $
    24.82
    
    
    $
    11.87Second Quarter
    
    
    25.80
    
    
    
    17.85Third Quarter
    
    
    18.54
    
    
    
    11.10Fourth Quarter
    
    
    16.20
    
    
    
    12.202003First Quarter
    
    $
    6.64
    
    
    $
    5.64Second Quarter
    
    
    8.04
    
    
    
    5.67Third Quarter
    
    
    9.72
    
    
    
    6.57Fourth Quarter

    
    
    12.29
    
    
    
    9.18
 As of March 4, 2005, there were 96 record holders of the Companys Common Stock. The Company has never paid cash dividends. Management presently intends to retain future earnings
for the operation and expansion of the Companys business. The Companys existing credit
arrangements permit the Company to pay cash dividends in the future, subject to certain financial
limitations, if the Board of Directors deems it appropriate. The Company did not repurchase any
shares of its common stock during the year ended December 31, 2004. For further information see
Note 4 of the Consolidated Financial Statements under Item 8, Financial Statements and
Supplementary Data. 
 Equity Compensation Plan Information The following table provides information about the Companys equity compensation plans as of
December 31, 2004. Number of securitiesNumber of
    
    
    
    
    
    
    remaining available forsecurities to
    
    
    
    
    
    
    future issuance underbe issued upon
    
    
    Weighted-average
    
    
    equity compensationexercise of outstanding
    
    
    exercise price of
    
    
    plans (excludingoptions, warrants and
    
    
    outstanding options,
    
    
    securities reflected inrights
    
    
    warrants and rights
    
    
    column (a))PLAN CATEGORY
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    722,500
    
    
    $
    6.79
    
    
    
    41,750Equity compensation

plans not approved
by security holders
    
    
    0
    
    
    
    0
    
    
    
    0TOTAL
    
    
    722,500
    
    
    $
    6.79
    
    
    
    41,750
  Note: All share and per share data in this Report have been restated to reflect the effect of the
Companys 3-for-2 stock split which was effective in
August 2004. 7




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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(In thousands, except per share amounts)Statement of Operations Data:Net sales
    
    $
    603,225
    
    
    $
    384,750
    
    
    $
    285,207
    
    
    $
    281,010
    
    
    $
    283,689Cost of goods sold
    
    
    506,819
    
    
    
    328,887
    
    
    
    250,267
    
    
    
    240,553
    
    
    
    243,132Gross profit
    
    
    96,406
    
    
    
    55,863
    
    
    
    34,940
    
    
    
    40,457
    
    
    
    40,557Selling, general and
administrative expenses
    
    
    42,218
    
    
    
    31,090
    
    
    
    23,891
    
    
    
    24,475
    
    
    
    24,027Operating income
    
    
    54,188
    
    
    
    24,773
    
    
    
    11,049
    
    
    
    15,982
    
    
    
    16,530Other income (expense):Interest and other income
    
    
    473
    
    
    
    113
    
    
    
    (64
    )
    
    
    116
    
    
    
    128Interest expense
    
    
    (2,857
    )
    
    
    (2,423
    )
    
    
    (1,666
    )
    
    
    (1,833
    )
    
    
    (4,080
    )Income before income taxes
    
    
    51,804
    
    
    
    22,463
    
    
    
    9,319
    
    
    
    14,265
    
    
    
    12,578Income tax expense
    
    
    18,444
    
    
    
    8,087
    
    
    
    3,355
    
    
    
    5,135
    
    
    
    4,528Net income
    
    $
    33,360
    
    
    $
    14,376
    
    
    $
    5,964
    
    
    $
    9,130
    
    
    $
    8,050Net income per common and
common equivalent shares 
basic
    
    $
    1.45
    
    
    $
    .63
    
    
    $
    .26
    
    
    $
    .40
    
    
    $
    .35Net income per common and
common equivalent shares 
diluted
    
    $
    1.42
    
    
    $
    .63
    
    
    $
    .26
    
    
    $
    .40
    
    
    $
    .35Weighted average common and
common equivalent shares 
basic
    
    
    23,018
    
    
    
    22,682
    
    
    
    22,805
    
    
    
    22,602
    
    
    
    22,826Weighted average common and
common equivalent shares 
diluted
    
    
    23,528
    
    
    
    22,924
    
    
    
    23,009
    
    
    
    22,736
    
    
    
    23,075
 As
of December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(In thousands, except per share amounts)Balance Sheet Data:Working capital
    
    $
    132,682
    
    
    $
    106,257
    
    
    $
    75,679
    
    
    $
    62,363
    
    
    $
    68,547Total assets
    
    
    251,515
    
    
    
    225,299
    
    
    
    183,129
    
    
    
    171,696
    
    
    
    171,839Long-term debt, net of current portion
    
    
    49,836
    
    
    
    53,425
    
    
    
    47,500
    
    
    
    30,000
    
    
    
    42,600Stockholders equity
    
    
    159,544
    
    
    
    121,776
    
    
    
    106,519
    
    
    
    102,928
    
    
    
    93,546
  Note: All share and per share data in this Report have been restated to
reflect the effect of the Companys 3-for-2 stock split which was
effective in August 2004. 8




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND
RESULTS OF OPERATIONS Introduction The following managements discussion and analysis is intended to provide a better understanding of
key factors, drivers and risks regarding the Company and the building wire industry. 
 Executive Overview Encore Wire, as stated throughout this report, sells a commodity product in a highly competitive
market. Management strongly believes that the historical strength of the Companys growth and
earnings is attributable to the following main factors:  
    Industry leading order fill rates and responsive customer service.
    Product innovations based on listening to and understanding customer needs.
    Low cost manufacturing operations, resulting from a state of the art manufacturing plant.
    A focused management team leading a highly motivated incentivized work force.
    Low general & administrative overhead costs.
    A team of experienced independent manufacturers representatives with strong customer
relationships across the United States. These factors, and others, have allowed Encore Wire to post year over year unit volume sales
increases every year since the Company was founded, despite industry downturns in volume. Encore
has built a loyal following of customers throughout the lower 48 United States. These customers
have developed a brand preference for Encore Wire in a commodity product line, due to the reasons
noted above, among others. The Company prides itself on striving to grow sales only where profit
margins are acceptable. Top management monitors gross margins daily, frequently extending down to
the individual order level. Management strongly believes that this focused approach to the
building wire business has produced success thus far and will lead to continued success. U.S. housing construction activity continues to be strong. Nationally, commercial construction has
been down over the last several years, however, industry projections forecast commercial wire sales
to improve over the next several years. 
 General 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
73.0%, 67.1%, 63.9%, 66.6%, and 63.9% of the Companys cost of goods sold during fiscal 2004, 2003,
2002, 2001, and 2000, 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 copper purchased by the Company. The price of copper rose gradually in 2003 and
then accelerated its rise in the fourth quarter. In 2004, copper prices trended upward in the
first quarter and then traded in a range during the remainder of 2004. However, the Company cannot
predict copper prices in the future or the effect of fluctuations in the cost of copper on the
Companys future operating results. 
 Stock Split On August 16, 2004, the Company effected a three-for-two stock split in the form of a stock
dividend payable to stockholders of record at the close of business on August 6, 2004. All
financial statements and per share amounts included in this Form 10-K for periods prior to August
16, 2004 have been restated to reflect the change in the number of shares outstanding as of the
beginning of the earliest period presented. 9




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##### Table of Contents



Results of Operations The following table presents certain items of income and expense as a percentage of net sales for
the periods indicated. Year Ended December 31,2004
    
    
    2003
    
    
    2002Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold:Copper
    
    
    61.3
    
    
    
    57.3
    
    
    
    56.1Other raw materials
    
    
    9.7
    
    
    
    11.7
    
    
    
    12.7Depreciation
    
    
    1.8
    
    
    
    3.1
    
    
    
    3.5Labor and overhead
    
    
    9.2
    
    
    
    11.9
    
    
    
    14.2LIFO adjustment
    
    
    2.0
    
    
    
    2.5
    
    
    
    0.7Lower cost or market adjustment
    
    
    0.0
    
    
    
    (1.0
    )
    
    
    0.584.0
    
    
    
    85.5
    
    
    
    87.7Gross profit
    
    
    16.0
    
    
    
    14.5
    
    
    
    12.3Selling, general and administrative expenses
    
    
    7.0
    
    
    
    8.1
    
    
    
    8.4Operating income
    
    
    9.0
    
    
    
    6.4
    
    
    
    3.9Other income
(expense), net
    
    
    0.4
    
    
    
    0.6
    
    
    
    0.6Income before income taxes
    
    
    8.6
    
    
    
    5.8
    
    
    
    3.3Income tax expense
    
    
    3.1
    
    
    
    2.1
    
    
    
    1.2Net income
    
    
    5.5
    %
    
    
    3.7
    %
    
    
    2.1
    %
 The following discussion and analysis relates to factors that have affected the operating results
of the Company for the years ended December 31, 2004, 2003, and 2002. Reference should also be
made to the Consolidated Financial Statements and the related notes included under Item 8.
Financial Statements and Supplementary Data of this Annual Report. Net sales were $603.2 million in 2004, compared to $384.8 million in 2003 and $285.2 million in
2002. The increase in net sales in 2004 versus 2003 was the net result of a 10.5% increase in the
volume of copper pounds of product sold, coupled with a 42.1% increase in the average price of
product sold. The large increase in the average price was primarily driven by the increase in raw
copper prices in 2004 versus 2003. Changes in the mix of product sold also impacted the average
prices to some extent. The increase in net sales in 2003 over 2002 was the net result of a 24.9%
increase in the volume of copper pounds of product sold, coupled with a 7.7% increase in average
price of product sold and a slight change in the mix of product sold. Sales volume increases are
generally due to several factors, including increased customer acceptance and product availability.
In 2004, the Company continued to expand sales to its existing customer base and also slightly
increased the number of customers to which it sold its products. In 2003, the 24.9% increase in
unit sales was due to Encores continued historical growth momentum, as well as the fact that
significant capacity was taken off-line by competitors, one of whom declared Chapter 7 Bankruptcy
and liquidated, and another who closed a major plant. The effect of these two competitors actions
carried on into 2004 and affected the first half of the year more strongly than the second half.
The 42.1% increase in the average price of product sold in 2004 was due primarily to the rising
cost of copper during the year. Also in 2004, the company realized an increase in the spread
between the sales price of wire and the price of raw copper for the year as a whole. This spread
was highest in the first quarter of 2004, with the intense price competition in the building wire
industry compressing the Companys spread during the succeeding three quarters. Cost of goods sold was $506.8 million in 2004, compared to $328.9 million in 2003 and $250.3
million in 2002. Copper costs increased to $370.1 million in 2004 from $220.6 million in 2003 and
$159.9 million in 2002. Copper costs as a percentage of net sales increased to 61.4% in 2004 from
57.3% in 2003 and 56.1% in 2002. The increase as a percentage of net sales was due to copper costs
rising more than other costs and more than the price of copper wire sold, in percentage terms as
discussed above. Other raw material costs as a percentage of net sales were 9.7%, 11.7% and 12.7%,
in 2004, 10




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##### Table of Contents



2003, and 2002, respectively. The decrease is due primarily to the Companys cost of other raw
materials per pound of copper sold increasing less than the price of copper wire sold.
Depreciation, labor and overhead costs as a percentage of net sales were 10.9% in 2004, compared to
14.9% in 2003 and 17.8% in 2002. The percentage decrease in 2004 was due to these costs containing
significant fixed components versus the elastic nature of the price
of copper wire sold.
Inventories consist of the following at December 31: 2004
    
    
    2003
    
    
    2002Raw materials
    
    $
    5,025,479
    
    
    $
    12,975,655
    
    
    $
    12,690,079Work-in-process
    
    
    5,311,035
    
    
    
    5,490,458
    
    
    
    4,231,225Finished goods
    
    
    43,389,467
    
    
    
    43,506,841
    
    
    
    30,215,62253,725,981
    
    
    
    61,972,954
    
    
    
    47,136,926Adjust to LIFO cost
    
    
    (14,614,598
    )
    
    
    (2,629,089
    )
    
    
    7,017,373Lower of cost or market adjustment
    
    
    0
    
    
    
    0
    
    
    
    (3,989,406
    )$
    39,111,383
    
    
    $
    59,343,865
    
    
    $
    50,164,893
 Copper prices trended upward in the first quarter of 2004, and then traded in a more stable range
during the remainder of 2004. As of December 31, 2004, the value of all inventories using the LIFO
method was less than the FIFO value by $14.6 million. This differential increased $12.0 million
versus the December 31, 2003 differential of $2.6 million, resulting in a corresponding increase
of $12.0 million in cost of goods sold. Due to the management of inventory levels during the third
and fourth quarters of 2004, the Company liquidated the LIFO inventory layers established in 2003,
2002, 2001, 1999 and a portion of the inventory layer established in 1998. As a result, under the
LIFO method, these inventory layers were liquidated at historical costs that were less than current
costs, which favorably impacted cost of goods sold by $11.7 million for the full year and net
income for the full year by $7.5 million. As of December 31, 2004, the LIFO cost basis of
inventory was less than the market value resulting in no lower of cost or market adjustment being
required. Copper prices trended upward during 2003. As of December 31, 2003, the value of all
inventories using the LIFO method was less than the FIFO value by $2.6 million. This differential
was $9.6 million less than the December 31, 2002 debit differential of $7.0 million, resulting in a
corresponding increase of $9.6 million in cost of goods sold. As of December 31, 2003, the LIFO
cost basis of inventory was less than the market value resulting in the Company reversing the lower
of cost or market reserve that existed at the end of 2002, which decreased cost of goods sold by
$4.0 million. The net effect of these two adjustments increased cost of goods sold for the year by
$5.7 million. As of December 31, 2002, the value of all inventories using the LIFO method was
greater than the FIFO value by $7.0 million. This differential was $1.9 million less than the
December 31, 2001 differential of $8.9 million, resulting in a corresponding increase in cost of
goods sold. As of December 31, 2002, the LIFO cost basis of inventory exceeded its market value by
$4.0 million, resulting in the Company establishing a lower of cost of market reserve for this
amount, which increased cost of goods sold by $1.4 million. The net effect of these two
adjustments increased cost of goods sold for the year by $3.3 million. Gross profit increased to $96.4 million, or 16.0% of net sales in 2004 from $55.9 million, or 14.5%
of net sales in 2003 and from $34.9 million, or 12.3% of net sales, in 2002. The changes in gross
profit were due to the factors discussed above. Selling expenses, which include freight and sales commissions, were $34.4 million in 2004, $24.0
million in 2003 and $17.9 million in 2002. As a percentage of net sales, selling expenses dropped
to 5.7% in 2004, versus 6.3% in 2003 and 6.3% in 2002. The percentage drop was due to freight
expenses dropping in relation to sales, which increased dramatically in 2004. General and
administrative expenses, as a percentage of net sales, were 1.3% in 2004, 1.8% in 2003 and 2.1% in
2002. In 2004 and 2003, general and administrative costs decreased as a percent of net sales due
to the semi-fixed nature of many of these costs. Interest expense increased to $2.9 million in 2004 from $2.4 million in 2003 and $1.7 million in
2002. The increases in the last two years are due to the higher average debt levels in 2004 and
2003. The Company capitalized interest expense relating to the construction of assets in the
amounts of approximately $165,000 in 2004 and $349,000 in 2002. No interest expense relating to
the construction of assets was capitalized in 2003. 11




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##### Table of Contents



The Companys effective tax rate was 35.6% in 2004 and 36.0% in 2003 and 2002. The slight decrease
in the effective tax rate in 2004 was primarily due to less overall state tax expense as a
percentage of pre-tax income. In October 2004, the American Jobs Creation Act of 2004 (the Act) was passed, which provides a
deduction for income from qualified domestic production activities which generally will be phased
in from 2005 through 2010. Subsequently, the Financial Accounting Standards Board (FASB) passed
FSP FAS 109-1, which indicates that the available qualified domestic production activity deduction
will be treated as a special deduction as described in SFAS No. 109. As such, there is no impact
to the Companys deferred tax assets or liabilities existing as of the enactment date. Rather, the
impact of any deduction will be reported in the period in which the deduction is claimed on the
Companys tax return. As a result of the foregoing factors, the Companys net income was $33.4 million in 2004, $14.4
million in 2003 and $6.0 million in 2002. 
 Off-Balance Sheet Arrangements The Company does not currently have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on the Companys financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources that is
material to investors. 
 Liquidity and Capital Resources The following table summarizes the Companys cash flow activities: Year Ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)Net income
    
    $
    33,360
    
    
    $
    14,376
    
    
    $
    5,964Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    11,626
    
    
    
    12,630
    
    
    
    10,686Other non-cash items
    
    
    6,262
    
    
    
    1,953
    
    
    
    (746
    )(Increase) decrease in accounts
receivable, inventory and other assets
    
    
    (11,066
    )
    
    
    (48,630
    )
    
    
    (4,683
    )Increase (decrease) in trade accounts
payable accrued liabilities and other
liabilities
    
    
    (15,253
    )
    
    
    19,743
    
    
    
    (9,694
    )Net cash provided by operating
activities
    
    
    24,929
    
    
    
    72
    
    
    
    1,527Investing activities:Purchases of property, plant and equipment
(net)
    
    
    (21,314
    )
    
    
    (5,822
    )
    
    
    (18,801
    )Financing activities:Increase (decrease) in indebtedness, net
    
    
    (4,128
    )
    
    
    5,925
    
    
    
    17,500Issuances of common stock
    
    
    2,761
    
    
    
    56
    
    
    
    97Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (1,415
    )Net cash provided by (used in) financing
activities
    
    
    (1,367
    )
    
    
    5,981
    
    
    
    16,182Net increase (decrease) in cash
    
    $
    2,248
    
    
    $
    231
    
    
    $
    (1,092
    )
 12




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##### Table of Contents



The Company maintains a substantial inventory of finished products to satisfy customers prompt
delivery requirements. As is customary in the industry, the Company provides payment terms to most
of its customers that exceed terms that it receives from its suppliers. Therefore, the Companys
liquidity needs have generally consisted of operating capital necessary to finance receivables and
inventory. Capital expenditures have historically been necessary to expand 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, borrowings under its various
debt arrangements and sales of its common stock. Effective August 27, 2004, the Company through its indirectly wholly-owned subsidiary, Encore Wire
Limited, a Texas Limited partnership (Encore Wire Limited), refinanced its unsecured revolving
loan facility with two banks (the Financing Agreement). Effective the same day and concurrent
with the Financing Agreement, the Company arranged for a private placement of debt by entering into
a Note Purchase Agreement (the Note Purchase Agreement). The Company and its wholly owned
subsidiaries are the guarantors of the indebtedness under each of
these agreements. The term of the Financing Agreement extends
through August 27, 2009. The Financing Agreement provides for maximum borrowings of the lesser of
$85 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. The calculated maximum
borrowing amount available at December 31, 2004, as computed under the Financing Agreement, was $85
million. The Financing Agreement is with two banks, Bank of America, N.A., as Agent, and Wells
Fargo Bank, National Association, and replaces the previous financing agreement that was effective
August 31, 1999 and had been extended by amendments through May 31, 2007 with a total credit line
of $125 million. As of December 31, 2004, the Company had total borrowings of $4.8 million
outstanding under the Financing Agreement. Concurrent with the Financing Agreement, Encore Wire Limited and the Company, through its agent
bank, entered into the Note Purchase Agreement with Hartford Life Insurance Company, Great-West
Life & Annuity Insurance Company, London Life Insurance Company and London Life and Casualty
Reinsurance Corporation (collectively referred to as the Purchasers), whereby Encore Wire Limited
issued and sold $45 million of 5.27% Senior Notes, Series 2004-A, due August 27, 2011 (the Senior
Notes) to the Purchasers, the proceeds of which were used to repay a portion of the Companys
outstanding indebtedness under the previous financing agreement. Through its agent bank, the
Company then entered into an interest rate swap agreement to convert the fixed rate on the Senior
Notes to a variable rate based on LIBOR plus a fixed adder for the seven-year duration of these
notes. As of December 31, 2004, the Company recorded an unrealized addition to Notes Payable on
the balance sheet of $539,482 to account for the fair value of the interest rate swap. The Financing Agreement and the Senior Notes are unsecured and contain customary covenants and
events of default. The Company was in compliance with these covenants, as of December 31, 2004.
Under the Financing Agreement, the Company is permitted to pay cash dividends subject to certain
financial limitations. Amounts outstanding under the Financing Agreement are payable on August
27, 2009, with interest payments due quarterly. Interest payments on the Senior Notes are due
semi-annually. On November 6, 2001, the Board of Directors of the Company approved a new stock repurchase program
covering the purchase of up to 450,000 additional shares of its common stock dependent upon market
conditions. Common stock purchases under this program were authorized through December 31, 2002 on
the open market or through privately negotiated transactions at prices determined by the Chairman
of the Board or the President of the Company. As of December 31, 2002, 225,300 shares had been
purchased under this authorization. The Board of Directors has extended this program twice through
December 31, 2004 for the remaining 224,700 shares, however there were no repurchases of stock in
2003 or 2004. Cash provided by operations was $24.9 million in 2004 compared to $0.1 million in 2003 and $1.5
million in 2002. The increase in 2004 versus 2003 was due primarily to a $19.0 million increase in
net income as well as a $20.2 million decrease in inventory, offset by a $27.6 million increase in
accounts receivable. Inventories quantities were cut in raw materials
and finished goods, as 13




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##### Table of Contents



the Company worked to increase inventory
turns while maintaining order fill rates. This was accomplished
by pressuring suppliers to be more responsive as well as utilizing the flexibility in receiving
copper with the additional railroad tracks and utilizing the flexibility of the new machinery put
in service in the wire mills to respond quickly to changes in product demand. In 2003, cash flow
from operations was used primarily for a $35.0 million increase in accounts receivable due to
higher sales dollars in the fourth quarter of 2003 versus the fourth quarter of 2002. Cash used in investing activities increased to $21.3 million from $5.8 million in 2003 and $18.8
million in 2002. During 2004 capital expenditures increased to expand the distribution center,
expand railroad access and selectively add machinery to increase
efficiency in the wire mills.
2003 was a low year for capital expenditures. In 2002, capital expenditures were made to complete
Plant 3 and buy new manufacturing equipment. The relatively high level of capital expenditures in
2004 was funded by the strong operating cash flow discussed above,
which also funded cash used in
financing activities of $1.4 million. The cash provided by financing activities in 2003 was used
to fund the increased working capital demands resulting from the increased sales in 2003. The cash
provided by financing activities in 2002 was used primarily to fund capital expenditures. Cash
provided by financing activities was reduced by $1.4 million in 2002 as a result of the purchase of
Company common stock. Cash provided by financing activities was increased by $2.8 million in 2004,
$0.1 million in 2003 and $0.1 million in 2002, as the result of the issuance of common stock,
primarily to satisfy employee option exercises. During 2005, the Company expects its capital expenditures will consist of maintaining and adding
manufacturing equipment for its residential and commercial wire operations. The Company also
expects its working capital requirements may increase during 2005 as a result of continued
increases in sales and potential increases in the price of copper. The Company believes that the
cash flow from operations and the financing available from its revolving credit facility will
satisfy working capital and capital expenditure requirements for the next twelve months. 
 Contractual Obligations As shown below, the Company had the following contractual obligations as of December 31, 2004. Payments Due By Period ($ in Thousands)Less Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsLong-Term Debt Obligations
    
    $
    49,297
    
    
    $
    
    
    
    $
    
    
    
    $
    4,297
    
    
    $
    45,000Capital Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations
    
    
    25,329
    
    
    
    25,329
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term
Liabilities Reflected on the
Companys Balance Sheet under
GAAP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    74,626
    
    
    $
    25,329
    
    
    $
    
    
    
    $
    4,297
    
    
    $
    45,000
  Note:
    
    Amounts listed as purchase obligations consist of major raw material purchase orders open as
of December 31, 2004. 
 Critical Accounting Policies and Estimates Managements discussion and analysis of its financial condition and results of operations are based
upon the Companys consolidated financial statements, which have been prepared in accordance with
U.S. generally accepted accounting principles. The preparation of these financial statements
requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from those estimates.
See Note 1 to the Consolidated Financial Statements. Management believes the following critical
accounting policies affect its more significant estimates and assumptions used in the preparation
of its consolidated financial statements. 14




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##### Table of Contents



Inventories are stated at the lower of cost, using the last-in, first out (LIFO) method, or market.
The Company maintains only one inventory pool for LIFO purposes as all inventories held by the
Company generally relate to the Companys only business segment, the manufacture and sale of copper
building wire products. 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 quarterly adjustment to adjust total inventory and cost of goods sold from FIFO to LIFO.
The Company applies the lower of cost or market test by comparing the LIFO cost of its raw
materials, work-in-process and finished goods inventories to estimated market values, which are
based primarily upon the most recent quoted market price of copper and finished wire prices as of
the end of each reporting period. As of December 31, 2004, a $0.05 reduction in the fair market
value of copper per pound would not have resulted in any lower of cost or market reserve for the
year ended December 31, 2004. However, larger decreases in copper prices could necessitate
establishing an LCM reserve in future periods. Additionally, future reductions in the quantity of
inventory on hand could cause copper that is carried in inventory at costs different from the cost
of copper in the period in which the reduction occurs to be included in costs of goods sold for
that period at the different price. The Company has provided an allowance for losses on customer receivables based upon estimates of
those customers inability to make required payments. Such estimate is established and adjusted
based upon the makeup of the current receivable portfolio, past bad debt experience and current
market conditions. If the financial condition of our customers was to deteriorate and impair their
ability to make payments to the Company, additional allowances for losses might be required in
future periods. 
 Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R is a
revision of SFAS No. 123, Accounting for Stock Based Compensation, and supersedes APB 25. Among
other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting,
and requires companies to recognize the cost of employee services received in exchange for awards
of equity instruments, based on the grant date fair value of those awards, in the financial
statements. The effective date of SFAS 123R is the first reporting period beginning after June 15,
2005, which is third quarter 2005 for calendar year companies,
although early adoption is allowed. SFAS 123R permits companies to adopt its requirements using either a modified prospective method,
or a modified retrospective method. Under the modified prospective method, compensation cost
is recognized in the financial statements beginning with the effective date, based on the
requirements of SFAS 123R for all share-based payments granted after that date, and based on the
requirements of SFAS 123 for all non-vested awards granted prior to the effective date of SFAS
123R. Under the modified retrospective method, the requirements are the same as under the
modified prospective method, but also permits entities to restate financial statements of
previous periods based on proforma disclosures made in accordance with SFAS 123. The Company currently utilizes a standard option pricing model (i.e., Black-Scholes) to measure the
fair value of stock options granted to Employees. While SFAS 123R permits entities to continue to
use such a model, the standard also permits the use of other models. The Company has not yet
determined which model it will use to measure the fair value of employee stock options upon the
adoption of SFAS 123R. SFAS 123R also requires that the benefits associated with the tax deductions in excess of
recognized compensation cost be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net operating cash flows
and increase net financing cash flows in periods after the effective date. These future amounts
cannot be estimated, because they depend on, among other things, when employees exercise stock
options. The Company currently expects to adopt SFAS 123R effective July 1, 2005; however, the Company has
not yet determined which of the aforementioned adoption methods it will use. In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, Inventory
Costs, an amendment of ARB No. 43, Chapter 4. SFAS No. 151 clarifies that abnormal amounts of idle
facility expense, freight, handling costs, and wasted materials should be recognized as 15




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current-period charges and by requiring the allocation of fixed production overheads to inventory
based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005, though earlier application is
permitted. The provisions of SFAS No. 151 are to be applied prospectively. The Company does not
believe that the adoption of SFAS No. 151 will have a material impact on its financial condition,
results of operations, or cash flows. 
 Information Regarding Forward Looking Statements This report contains various forward-looking statements and information that are based on
managements belief as well as assumptions made by and information currently available to
management. 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 and stock price are:  
    Fluctuations in the global and national economy.
    Fluctuations in the level of activity in the construction and remodeling industries.
    Demand for the Companys products.
    The impact of price competition on the Companys margins.
    Fluctuations in the price of copper and other key raw materials.
    The loss of key manufacturers representatives who sell the Companys product line.
    Fluctuations in utility costs, especially electricity and natural gas.
    Fluctuations in insurance costs of various types.
    Weather related disasters at the Companys and/or key vendors operating facilities.
    Stock price fluctuations due to stock market expectations.
    Unforeseen future legal issues and/or government regulatory changes.
    Fluctuations in the Companys financial position or national banking issues that impede
the Companys ability to obtain reasonable financing. This list highlights some of the major factors that could affect the Companys operation or stock
price, but cannot enumerate all the potential issues that management faces on a day-to-day basis,
many of which are totally out of managements control. For further discussion of the factors
described herein and their potential effects on the Company, see Item 1. Business, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations and Item
7A. Quantitative and Qualitative Disclosures About Market Risk. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not engage in metal futures trading or hedging activities and does not enter into
derivative financial instrument transactions for trading or other speculative purposes. However,
the Company is generally exposed to commodity price and interest rate risks. In order to take
advantage of the relatively large difference between prevailing interest rates in 2004 and the
fixed rate on the Companys $45 million seven-year notes, the Company entered into an interest rate
swap agreement on this fixed portion of its long-term debt. This arrangement was entered into to
float the interest rate on that portion of the debt until August 2011. The Company purchases copper cathode primarily from producers and merchants at prices determined
each month based on the average daily closing prices for copper for that month, plus a negotiated
premium. As a result, fluctuations in copper prices caused by market forces can significantly
affect the Companys financial results. Interest rate risk is attributable to the Companys long-term debt. Effective August 27, 2004, the
Company through its indirectly wholly-owned subsidiary, Encore Wire Limited, entered into the
Financing Agreement. Effective the same day and concurrent with the Financing Agreement, the
Company entered into the Note Purchase Agreement. The Company and its wholly owned 16




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##### Table of Contents



subsidiaries are the guarantors of the indebtedness under both of these agreements. Amounts
outstanding under the Financing Agreement are payable on August 27, 2009, with interest payments
due quarterly. Amounts outstanding under the Note Agreement are payable on August 27, 2011, with
interest only payments due semi-annually. At December 31, 2004,
the balances outstanding under the
Financing Agreement and the Note Purchase Agreements were $49.8 million, and the average interest rate was 3.36%. There is inherent
rollover risk for borrowings under the Financing Agreement as they mature and are renewed at
current market rates. The extent of this risk is not quantifiable or predictable because of the
variability of future interest rates and the Companys future financing requirements. Holding
borrowing levels at December 31, 2004 constant, an average 1% interest rate increase in 2005 would
increase interest expense by $492,970. For further information, see Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company and the notes thereto appear on the following
pages. 17




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##### Table of Contents



Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders
Encore Wire Corporation We have audited the accompanying consolidated balance sheets of Encore Wire Corporation (the
Company) as of December 31, 2004 and 2003, and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three years in the period ended December 31,
2004. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Encore Wire Corporation at December 31, 2004 and
2003, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Encore Wire Corporations internal control over
financial reporting as of December 31, 2004, based on criteria established in Internal
Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 7, 2005 expressed an
unqualified opinion thereon. /s/ Ernst & Young LLP
 Dallas, Texas
March 7, 2005 18




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##### Table of Contents



Encore Wire Corporation Consolidated Balance Sheets December 312004
    
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,639,579
    
    
    $
    391,114Accounts receivable, net of allowance for losses of $577,305
and $490,143 in 2004 and 2003, respectively
    
    
    108,752,028
    
    
    
    81,429,927Inventories
    
    
    39,111,383
    
    
    
    59,343,865Income taxes receivable
    
    
    4,751,043
    
    
    
  Prepaid expenses and other
    
    
    6,910,293
    
    
    
    5,112,219Total current assets
    
    
    162,164,326
    
    
    
    146,277,125Property, plant, and equipment  at cost:Land and land improvements
    
    
    6,783,457
    
    
    
    5,858,077Construction-in-progress
    
    
    3,378,129
    
    
    
    2,396,219Buildings and improvements
    
    
    37,972,384
    
    
    
    30,855,408Machinery and equipment
    
    
    115,865,574
    
    
    
    104,849,050Furniture and fixtures
    
    
    3,194,755
    
    
    
    2,941,609167,194,299
    
    
    
    146,900,363Accumulated depreciation
    
    
    (78,515,439
    )
    
    
    (67,976,136
    )88,678,860
    
    
    
    78,924,227Other assets
    
    
    671,899
    
    
    
    97,880Total assets
    
    $
    251,515,085
    
    
    $
    225,299,232Liabilities and Stockholders EquityCurrent liabilities:Trade accounts payable
    
    $
    15,090,694
    
    
    $
    24,430,205Accrued liabilities
    
    
    13,658,285
    
    
    
    10,431,600Current income taxes payable
    
    
  
    
    
    
    5,158,470Current deferred income taxes
    
    
    732,931
    
    
    
  Total current liabilities
    
    
    29,481,910
    
    
    
    40,020,275Noncurrent deferred income taxes
    
    
    12,652,428
    
    
    
    10,077,560Long-term note payable
    
    
    49,836,482
    
    
    
    53,425,000ContingenciesStockholders equity:Convertible preferred stock, $.01 par value: Authorized shares
2,000,000. Issued and outstanding shares  none.Common stock, $.01 par value: Authorized shares  40,000,000.
Issued and outstanding shares  25,863,078 in 2004 and
25,450,125 in 2003.
    
    
    258,631
    
    
    
    254,501Additional paid-in capital
    
    
    38,019,869
    
    
    
    34,108,622Treasury stock, at cost  2,758,950 shares in 2004 and 2003
    
    
    (15,274,643
    )
    
    
    (15,274,643
    )Accumulated other comprehensive income (loss)
    
    
    
    
    
    
    (492,454
    )Retained earnings
    
    
    136,540,408
    
    
    
    103,180,371Total stockholders equity
    
    
    159,544,265
    
    
    
    121,776,397Total liabilities and stockholders equity
    
    $
    251,515,085
    
    
    $
    225,299,232See accompanying notes.
  Note:
    
    All share and per share data in this Report have been restated to reflect the effect of the
Companys 3-for-2 stock split which was effective in August 2004. 19




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##### Table of Contents



Encore Wire Corporation Consolidated Statements of Income Year ended December 312004
    
    
    2003
    
    
    2002Net sales
    
    $
    603,225,293
    
    
    $
    384,750,208
    
    
    $
    285,207,344Cost of goods sold
    
    
    506,818,934
    
    
    
    328,887,173
    
    
    
    250,267,112Gross profit
    
    
    96,406,359
    
    
    
    55,863,035
    
    
    
    34,940,232Selling, general, and administrative expenses
    
    
    42,218,563
    
    
    
    31,090,355
    
    
    
    23,891,276Operating income
    
    
    54,187,796
    
    
    
    24,772,680
    
    
    
    11,048,956Other income (expense):Interest and other income
    
    
    473,080
    
    
    
    112,814
    
    
    
    (64,016
    )Interest expense
    
    
    (2,856,718
    )
    
    
    (2,423,230
    )
    
    
    (1,666,180
    )Income before income taxes
    
    
    51,804,158
    
    
    
    22,462,264
    
    
    
    9,318,760Income tax expense
    
    
    18,444,121
    
    
    
    8,086,600
    
    
    
    3,354,700Net income
    
    $
    33,360,037
    
    
    $
    14,375,664
    
    
    $
    5,964,060Weighted average common shares  basic
    
    
    23,017,848
    
    
    
    22,681,711
    
    
    
    22,804,432Basic earnings per common share
    
    $
    1.45
    
    
    $
    0.63
    
    
    $
    0.26Weighted average common shares  diluted
    
    
    23,528,155
    
    
    
    22,924,459
    
    
    
    23,009,073Diluted earnings per common share
    
    $
    1.42
    
    
    $
    0.63
    
    
    $
    0.26
 See accompanying notes.  Note: All share and per share data in this Report have been restated to reflect the effect of the
Companys 3-for-2 stock split which was effective in
August 2004. 20




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##### Table of Contents



Encore Wire Corporation Consolidated Statements of Stockholders Equity AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Treasury
    
    
    Comprehensive
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    (Loss)
    
    
    Earnings
    
    
    TotalBalance at December 31, 2001
    
    
    16,944,785
    
    
    $
    169,448
    
    
    $
    34,040,542
    
    
    $
    (13,859,288
    )
    
    $
    (262,881
    )
    
    $
    82,840,647
    
    
    $
    102,928,468Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,964,060
    
    
    
    5,964,060Unrealized loss on hedging
activities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,055,893
    )
    
    
    
    
    
    
    (1,055,893
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,908,167Proceeds from exercise of stock
options
    
    
    13,580
    
    
    
    136
    
    
    
    97,208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,344Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,415,355
    )
    
    
    
    
    
    
    
    
    
    
    (1,415,355
    )Balance at December 31, 2002
    
    
    16,958,365
    
    
    
    169,584
    
    
    
    34,137,750
    
    
    
    (15,274,643
    )
    
    
    (1,318,774
    )
    
    
    88,804,707
    
    
    
    106,518,624Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,375,664
    
    
    
    14,375,664Unrealized gain on hedging
activities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    826,320
    
    
    
    
    
    
    
    826,320Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,201,984Proceeds from exercise of stock
options
    
    
    8,385
    
    
    
    84
    
    
    
    55,705
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,789Balance at December 31, 2003
    
    
    16,966,750
    
    
    
    169,668
    
    
    
    34,193,455
    
    
    
    (15,274,643
    )
    
    
    (492,454
    )
    
    
    103,180,371
    
    
    
    121,776,397Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,360,037
    
    
    
    33,360,037Unrealized gain on hedging
activities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    492,454
    
    
    
    
    
    
    
    492,454Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,201,984Proceeds from exercise of stock
options
    
    
    275,326
    
    
    
    2,753
    
    
    
    2,758,287
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,761,040Tax benefit on exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    1,154,337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,154,337Capital adjustment for 3-for-2
stock split
    
    
    8,621,002
    
    
    
    86,210
    
    
    
    (86,210
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2004
    
    
    25,863,078
    
    
    $
    258,631
    
    
    $
    38,019,869
    
    
    $
    (15,274,643
    )
    
    $
    
    
    
    $
    136,540,408
    
    
    $
    159,544,265
 See accompanying notes  Note: All share and per share data in this Report have been restated to reflect the effect of the
Companys 3-for-2 stock split which was effective in
August 2004. 21




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##### Table of Contents



Encore Wire Corporation Consolidated Statements of Cash Flows Year ended December 312004
    
    
    2003
    
    
    2002Operating ActivitiesNet income
    
    $
    33,360,037
    
    
    $
    14,375,664
    
    
    $
    5,964,060Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    11,626,004
    
    
    
    12,630,221
    
    
    
    10,686,444Provision for bad debts
    
    
    300,000
    
    
    
    180,000
    
    
    
    90,000Deferred income taxes
    
    
    4,912,410
    
    
    
    466,096
    
    
    
    (1,019,713
    )Tax benefit of option exercise
    
    
    1,154,337
    
    
    
    
    
    
    
    (Gain) or Loss on disposal of assets
    
    
    (104,494
    )
    
    
    (297,353
    )
    
    
    183,365Changes in operating assets and liabilities:Accounts receivable
    
    
    (27,622,100
    )
    
    
    (35,010,287
    )
    
    
    (1,073,342
    )Inventories
    
    
    20,232,482
    
    
    
    (9,178,972
    )
    
    
    (5,328,313
    )Prepaid expenses and other
    
    
    (3,676,090
    )
    
    
    (2,835,532
    )
    
    
    1,718,271Trade accounts payable
    
    
    (9,339,511
    )
    
    
    13,694,875
    
    
    
    (9,439,301
    )Accrued liabilities
    
    
    3,996,144
    
    
    
    3,540,032
    
    
    
    (1,202,534
    )Current income taxes payable (receivable)
    
    
    (9,909,514
    )
    
    
    2,507,827
    
    
    
    948,520Net cash provided by operating activities
    
    
    24,929,705
    
    
    
    72,571
    
    
    
    1,527,457Investing ActivitiesPurchases of property, plant, and equipment
    
    
    (23,805,702
    )
    
    
    (6,124,366
    )
    
    
    (19,452,755
    )Increase in long term investments
    
    
    (38,137
    )
    
    
    
    
    
    
    (Increase) decrease in deposits
    
    
    
    
    
    
    68,032
    
    
    
    51,239Proceeds from sale of assets
    
    
    2,529,559
    
    
    
    234,000
    
    
    
    600,010Net cash used in investing activities
    
    
    (21,314,280
    )
    
    
    (5,822,334
    )
    
    
    (18,801,506
    )Financing ActivitiesProceeds from Issuance of Private Placement debt
    
    
    45,000,000
    
    
    
    
    
    
    
    Proceeds from (repayments of) long-term note payable, net
    
    
    (49,128,000
    )
    
    
    5,925,000
    
    
    
    17,500,000Proceeds from issuance of common stock, net
    
    
    2,761,040
    
    
    
    55,789
    
    
    
    97,344Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (1,415,355
    )Net cash provided by (used in) financing activities
    
    
    (1,366,960
    )
    
    
    5,980,789
    
    
    
    16,181,989Net increase (decrease) in cash and cash equivalents
    
    
    2,248,465
    
    
    
    231,026
    
    
    
    (1,092,060
    )Cash and cash equivalents at beginning of year
    
    
    391,114
    
    
    
    160,088
    
    
    
    1,252,148Cash and cash equivalents at end of year
    
    $
    2,639,579
    
    
    $
    391,114
    
    
    $
    160,088Non-cash activitiesUnrealized gain (loss) on hedging activities
    
    $
    1,031,936
    
    
    $
    826,320
    
    
    $
    (1,055,893
    )
 See accompanying notes. 22




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##### Table of Contents



Encore Wire Corporation Notes to Consolidated Financial Statements December 31, 2004 1. Significant Accounting Policies Business Encore Wire Corporation (the Company) conducts its business in one segment  the manufacture of
copper electrical wire, principally NM cable, for use primarily as interior wiring in homes,
apartments, and manufactured housing, and THHN cable, for use primarily as wiring in commercial and
industrial buildings. The Company sells its products primarily through approximately 31
manufacturers representatives located throughout the United States and, to a lesser extent,
through its own direct marketing efforts. The principal customers for Encores commercial and
residential wire are wholesale electrical distributors. Copper, a commodity product, is the principal raw material used in the Companys manufacturing
operations. Copper accounted for approximately 73.0%, 67.1%, and 63.9%, of its cost of goods sold
during 2004, 2003, and 2002, respectively. The price of copper fluctuates, depending on general
economic conditions and in relation to supply and demand and other factors, and has caused monthly
variations in the cost of copper purchased by the Company. The Company cannot predict copper prices
in the future or the effect of fluctuations on the cost of copper on the Companys future operating
results. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiary, Encore Wire Limited, a Texas limited partnership (Encore Wire Limited). Significant
intercompany accounts and transactions have been eliminated upon consolidation. Certain prior year
balances have been reclassed to conform to the current year presentation. Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R is a
revision of SFAS No. 123, Accounting for Stock Based Compensation, and supersedes APB 25. Among
other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting,
and requires companies to recognize the cost of employee services received in exchange for awards
of equity instruments, based on the grant date fair value of those awards, in the financial
statements. The effective date of SFAS 123R is the first reporting period beginning after June 15,
2005, which is third quarter 2005 for calendar year companies,
although early adoption is allowed. SFAS 123R permits companies to adopt its requirements using either a modified prospective method,
or a modified retrospective method. Under the modified prospective method, compensation cost
is recognized in the financial statements beginning with the effective date, based on the
requirements of SFAS 123R for all share-based payments granted after that date, and based on the
requirements of SFAS 123 for all non-vested awards granted prior to the effective date of SFAS
123R. Under the modified retrospective method, the requirements are the same as under the
modified prospective method, but also permits entities to restate financial statements of
previous periods based on proforma disclosures made in accordance with SFAS 123. The Company currently utilizes a standard option pricing model (i.e., Black-Scholes) to measure the
fair value of stock options granted to Employees. While SFAS 123R permits entities to continue to
use such a model, the standard also permits the use of other models. The Company has not yet
determined which model it will use to measure the fair value of employee stock options upon the
adoption of SFAS 123R. SFAS 123R also requires that the benefits associated with the tax deductions in excess of
recognized compensation cost be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net operating cash flows
and increase net financing cash flows in periods after the effective date. These future amounts
cannot be estimated, because they depend on, among other things, when employees exercise stock
options. The Company currently expects to adopt SFAS 123R effective July 1, 2005; however, the Company has
not yet determined which of the aforementioned adoption methods it will use. 23




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##### Table of Contents



1. Significant Accounting Policies (continued) In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, Inventory
Costs, an amendment of ARB No. 43, Chapter 4. SFAS No. 151 clarifies that abnormal amounts of idle
facility expense, freight, handling costs, and wasted materials should be recognized as
current-period charges and by requiring the allocation of fixed production overheads to inventory
based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005, though earlier application is
permitted. The provisions of SFAS No. 151 are to be applied prospectively. The Company does not
believe that the adoption of SFAS No. 151 will have a material impact on its financial conditions,
results of operations, or cash flows. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that effect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from those
estimates. Revenue Recognition Revenue from the sale of the Companys products is recognized upon shipment to the customer, which
is when title and risk of loss pass to the customer. The Company provides for estimated returns and
allowances at the time of sale. Freight Expenses The Company classifies shipping and handling costs as a component of selling, general and
administrative expenses. Shipping and handling costs were approximately $16.5 million, $12.9
million, and $9.8 million for the fiscal years ended December 31, 2004, 2003, and 2002,
respectively. Financial Instruments and Concentrations of Credit Risk Cash, accounts receivable, trade accounts payable, accrued liabilities, and notes payable are
stated at expected settlement amounts which approximate fair value. Accounts receivable represent amounts due from customers (primarily wholesale electrical
distributors, manufactured housing suppliers, and retail home improvement centers) related to the
sale of the Companys products. Such receivables are uncollateralized and are generally due from a
diverse group of customers located throughout the United States. The Company establishes an
allowance for losses based upon the makeup of the current portfolio, past bad debt experience and
current market conditions. Allowance for Losses Progression
    
    2004
    
    
    2003
    
    
    2002Beginning balance January 1
    
    $
    490,143
    
    
    $
    480,174
    
    
    $
    541,476Write offs of bad debts net of collections of previous write offs
    
    
    (212,838
    )
    
    
    (170,031
    )
    
    
    (151,302
    )Bad debt provision
    
    
    300,000
    
    
    
    180,000
    
    
    
    90,000Ending balance December 31
    
    $
    577,305
    
    
    $
    490,143
    
    
    $
    480,174
 Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. Inventories Inventories are stated at the lower of cost, using the last-in, first-out (LIFO) method, or market.
The Company evaluates the market value of its raw materials, work-in-process and finished goods
inventory primarily based upon reference to current raw and finished copper and other materials
prices at the end of each period. Property, Plant, and Equipment Depreciation of property, plant, and equipment for financial reporting is provided on the
straight-line method over the estimated useful lives of the respective assets as follows: buildings
and improvements, 15 to 30 years; machinery and equipment, 3 to 10 years; and furniture and
fixtures, 3 to 5 years. Accelerated cost recovery methods are used for tax purposes. Repairs and
maintenance costs are expensed as incurred. 24




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##### Table of Contents



1. Significant Accounting Policies (continued) Stock Options The Company has elected to continue to follow the expense recognition criteria in Accounting
Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees and provides
the related disclosures as required by Statement of Financial Accounting Standards No. 123 (FAS
123), Accounting for Stock-Based Compensation. Pro forma information regarding net income and income per share has been determined as if the
Company had accounted for employee stock options granted subsequent to December 31, 1994, under the
fair value method provided for under FAS 123. The fair value for the stock options granted to
directors, officers, and key employees of the Company on or after January 1, 1995, was estimated at
the date of the grant using the Black-Scholes options pricing model with the following
weighted-average assumptions: Year Ended
December 31,2004
    
    
    2003
    
    
    2002Risk-free interest rate
    
    
    3.42
    %
    
    
    n/a
    
    
    
    4.17
    %Expected dividend yield
    
    
    0.00
    %
    
    
    n/a
    
    
    
    0.00
    %Expected volatility
    
    
    62.5
    %
    
    
    n/a
    
    
    
    57
    %Expected lives
    
    5.0 years
    
    
    n/a
    
    
    5.0 years
 The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including the expected stock
price volatility. The weighted-average fair value of stock options granted during the years ended December 31, 2004,
2003, and 2002, was $9.74, $0, and $6.67, respectively. For purposes of the pro forma
disclosures, the estimated fair value of stock options granted has been amortized to expense over
the vesting period. The Companys pro forma information for FAS 123 is as follows (in thousands,
except for earnings per common share information): Year Ended
December 31,2004
    
    
    2003
    
    
    2002Net income, as reported
    
    $
    33,360
    
    
    $
    14,376
    
    
    $
    5,964Add: Stock-based employee compensation expense included in
reported income, net of related tax effects
    
    
    
    
    
    
    
    
    
    
    Deduct: Total stock-based employee compensation
expense determined under fair value based
methods for all awards net of related tax
effects
    
    
    375
    
    
    
    385
    
    
    
    429Pro forma net income
    
    $
    32,985
    
    
    $
    13,991
    
    
    $
    5,535Net income per shareBasic, as reported
    
    $
    1.45
    
    
    $
    0.63
    
    
    $
    0.26Basic, pro forma
    
    
    1.43
    
    
    
    0.62
    
    
    
    0.24Diluted, as reported
    
    
    1.42
    
    
    
    0.63
    
    
    
    0.26Diluted, pro forma
    
    
    1.40
    
    
    
    0.61
    
    
    
    0.24
  Note: All share and per share data in this Report have been restated to reflect the effect of the
Companys 3-for-2 stock split which was effective in
August 2004. Earnings Per Share Income per common and common equivalent share is computed using the weighted average number of
shares of common stock and common stock equivalents outstanding during each period. The dilutive
effects of stock options and common stock warrants, which are common stock equivalents, are
calculated using the treasury stock method. Income Taxes Income taxes are provided based on the liability method, resulting in income tax assets and
liabilities arising due to temporary differences. Temporary differences are differences between the
tax bases of assets and liabilities and their reported amounts in the financial statements that
will result in taxable or deductible amounts in future years. 25




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##### Table of Contents



2. Inventories Inventories consist of the following at December 31: 2004
    
    
    2003Raw materials
    
    $
    5,025,479
    
    
    $
    12,975,655Work-in-process
    
    
    5,311,035
    
    
    
    5,490,458Finished goods
    
    
    43,389,467
    
    
    
    43,506,84153,725,981
    
    
    
    61,972,954Adjust to LIFO cost
    
    
    (14,614,598
    )
    
    
    (2,629,089
    )Lower of cost or market adjustment
    
    
    
    
    
    
    $
    39,111,383
    
    
    $
    59,343,865
 During the third and fourth quarters of 2004, the Company liquidated the LIFO inventory layers
established in 2003, 2002, 2001, 1999 and a portion of the inventory layer established in 1998. As
a result, under the LIFO method, these inventory layers were liquidated at historical costs, that
were less than current costs, which favorably impacted net income for the full year by $7.5
million. During 2003 and 2002, there were no liquidations of inventory quantities. 3. Accrued Liabilities Accrued liabilities consist of the following at December 31: 2004
    
    
    2003Sales volume discounts payable
    
    $
    7,997,282
    
    
    $
    4,766,997Property taxes payable
    
    
    1,935,756
    
    
    
    1,867,828Commissions payable
    
    
    1,441,318
    
    
    
    1,120,947Unrealized loss on hedging activities
    
    
    
    
    
    
    492,454Accrued salaries
    
    
    1,776,748
    
    
    
    1,713,095Other accrued liabilities
    
    
    507,181
    
    
    
    470,279$
    13,658,285
    
    
    $
    10,431,600
 4. Long-Term Notes Payable Long-term notes payable consist of the following at December 31: 2004
    
    
    20035.27% Senior Notes due 2011
    
    $
    45,000,000
    
    
    $
    Revolving line of credit
    
    
    4,297,000
    
    
    
    53,425,000Fair value of interest rate swap
    
    
    539,482
    
    
    
    $
    49,836,482
    
    
    $
    53,425,000
 Effective August 27, 2004, the Company through its indirectly wholly-owned subsidiary, Encore Wire
Limited, a Texas Limited partnership (Encore Wire Limited), refinanced its unsecured revolving
loan facility with two banks (the Financing Agreement). Effective the same day and concurrent
with the Financing Agreement, the Company entered into the Note Purchase Agreement. The Company
and its wholly subsidiaries are the guarantors of the indebtedness under each of these agreements.
Obligations under the Financing Agreement and the Note Purchase Agreement are the only contractual
obligations or commercial borrowing commitments of the Company. The term of the Financing
Agreement extends through August 27, 2009. The Financing Agreement provides for maximum borrowings
of the lesser of $85 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. The
calculated maximum borrowing amount available at December 31, 2004, as computed under the Financing
Agreement, was $85 million. The Financing Agreement is with two banks, Bank of America, N.A., as
Agent, and Wells Fargo Bank, National Association, and replaces the previous financing agreement
that was effective August 31, 1999 and had been extended by amendments through May 31, 2007 with a
total credit line of $125 million. As of December 31, 2004, the Company had total borrowings of
$4.8 million outstanding under the Financing Agreement. Concurrent with the Financing Agreement, Encore Wire Limited and the Company, through its agent
bank, entered into the Note Purchase Agreement with Hartford Life Insurance Company, Great-West
Life & Annuity Insurance 26




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##### Table of Contents



Company, London Life Insurance Company and London Life and Casualty Reinsurance Corporation
(collectively referred to as the Purchasers), whereby Encore Wire Limited issued and sold $45
million of 5.27% Senior Notes, Series 2004-A, due August 27, 2011 (the Senior Notes) to the
Purchasers, the proceeds of which were used to repay a portion of the Companys outstanding
indebtedness under the previous financing agreement. Through its agent bank, the Company then
entered into an interest rate swap agreement to convert the fixed rate on the Senior Notes to a
variable rate based on LIBOR plus a fixed adder for the seven-year duration of these notes. As of
December 31, 2004, the Company recorded an unrealized addition to Notes Payable on the balance
sheet of $539,482 to account for the fair value of the interest rate swap. The Financing Agreement and the Senior Notes are unsecured and contain customary covenants and
events of default. The Company was in compliance with these covenants, as of December 31, 2004.
Under the Financing Agreement, the Company is permitted to pay cash dividends subject to certain
financial limitations. Amounts outstanding under the Financing Agreement are payable on August
27, 2009, with interest payments due quarterly. Interest payments on the Senior Notes are due
semi-annually. The Company paid interest totaling $2,978,845, $2,330,861, and $1,936,982 in 2004, 2003, and 2002,
respectively. The Company capitalized $165,048, $0, and $349,379 of interest in 2004, 2003, and
2002, respectively. In December 2001, the Company entered into an interest rate swap agreement on $24.0 million of its
variable rate debt in order to hedge against an increase in variable interest rates. The terms of
the agreement effectively fixed the interest rate on $24.0 million of the Companys variable rate,
long-term note payable to 4.6% per annum plus a variable adder based upon certain financial ratios
contained in its loan covenants. This hedge expired in December 2004. Based upon its terms and
conditions, the hedge qualified for the short-cut method under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, and all unrealized gains or losses
related to the hedge instrument were recorded through accumulated other comprehensive income. For
the fiscal years ended December 31, 2004 and 2003, the Company recorded unrealized gains and
(losses) of $492,454 and $826,320, respectively, related to its interest rate swap agreement. 5. Income Taxes The provisions for income tax expense are summarized as follows
for the year ended December 31: 2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    13,022,404
    
    
    $
    7,262,120
    
    
    $
    4,048,083State
    
    
    509,307
    
    
    
    358,384
    
    
    
    326,330Deferred
    
    
    4,912,410
    
    
    
    466,096
    
    
    
    (1,019,713
    )$
    18,444,121
    
    
    $
    8,086,600
    
    
    $
    3,354,700
 The differences between the provision for income taxes and income taxes computed using the federal
income tax rate are as follows
for the year ended December 31: 2004
    
    
    2003
    
    
    2002Amount computed using the statutory rate
    
    $
    18,131,455
    
    
    $
    7,861,793
    
    
    $
    3,261,566State income taxes, net of federal tax benefit
    
    
    658,868
    
    
    
    164,258
    
    
    
    144,069Other items
    
    
    (346,202
    )
    
    
    60,549
    
    
    
    (50,935
    )$
    18,444,121
    
    
    $
    8,086,600
    
    
    $
    3,354,700
 The tax effect of each type of temporary difference giving rise to the net deferred tax liability at
December 31, 2004 and 2003, is as follows: Deferred Tax Asset (Liability)2004
    
    

2003Current
    
    
    Non-current
    
    
    Current
    
    
    Non-currentDepreciation
    
    $
    
    
    
    $
    (12,652,428
    )
    
    $
    
    
    
    $
    (10,077,560
    )Inventory
    
    
    (1,053,836
    )
    
    
    
    
    
    
    985,974
    
    
    
    Allowance for doubtful accounts
    
    
    216,504
    
    
    
    
    
    
    
    183,816
    
    
    
    Uniform capitalization rules
    
    
    187,041
    
    
    
    
    
    
    
    615,897
    
    
    
    Other
    
    
    (82,640
    )
    
    
    
    
    
    
    (181,076
    )
    
    
    $
    (732,931
    )
    
    $
    (12,652,428
    )
    
    $
    1,604,611
    
    
    $
    (10,077,560
    )
 27




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##### Table of Contents



The Company made income tax payments of $22.3 million in 2004, $6.0 million in 2003, and $3.4
million in 2002. In October 2004, the American Jobs Creation Act of 2004 (the Act) was passed, which provides a
deduction for income from qualified domestic production activities which generally will be phased
in from 2005 through 2010. Subsequently, the Financial Accounting Standards Board (FASB) passed
FSP FAS 109-1, which indicates that the available qualified domestic production activity deduction
will be treated as a special deduction as described in SFAS No. 109. As such, there is no impact
to the Companys deferred tax assets or liabilities existing as of the enactment date. Rather, the
impact of any deduction will be reported in the period in which the deduction is claimed on the
Companys tax return. 6. Stock Options The Company has a stock option plan for employees that provides for the granting of stock options
and authorizes the issuance of common stock upon the exercise of such options for up to 764,250
shares of common stock as of December 31, 2004. The stock options vest over five years and expire
ten years from the grant date. The following summarizes activity in the stock option plan for the
years ended December 31, 2004, 2003, and 2002: Shares Under
    
    
    Price per
    
    
    Aggregate OptionOptions
    
    
    Share
    
    
    PriceOptions outstanding at December 31, 2001
    
    
    1,110,285
    
    
    $
    3.03   $11.55
    
    
    $
    7,103,866Options granted
    
    
    42,750
    
    
    
    8.40
    
    
    
    359,100Options exercised
    
    
    (20,370
    )
    
    
    3.03  6.67
    
    
    
    (95,308
    )Options canceled
    
    
    (2,100
    )
    
    
    6.67
    
    
    
    (14,000
    )Options outstanding at December 31, 2002
    
    
    1,130,565
    
    
    
    3.03  11.55
    
    
    
    7,353,658Options granted
    
    
    
    
    
    
    
    
    
    
    Options exercised
    
    
    (12,577
    )
    
    
    4.67  6.67
    
    
    
    (36,000
    )Options canceled
    
    
    
    
    
    
    
    
    
    
    Options outstanding at December 31, 2003
    
    
    1,117,988
    
    
    
    3.03  11.55
    
    
    
    7,317,658Options granted
    
    
    17,500
    
    
    
    14.25 20.94
    
    
    
    349,727Options exercised
    
    
    (412,988
    )
    
    
    3.75  11.33
    
    
    
    (2,761,163
    )Options canceled
    
    
    
    
    
    
    
    
    
    
    Options outstanding at December 31, 2004
    
    
    722,500
    
    
    $
    3.75   $20.94
    
    
    $
    4,906,222
 The following summarizes information about stock options outstanding at December 31, 2004: Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    WeightedWeighted Average
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Remaining
    
    
    Exercise
    
    
    Shares
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Contractual Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$3.75  $4.67
    
    
    245,400
    
    
    5.3 years
    
    $
    4.37
    
    
    
    223,695
    
    
    $
    4.36$5.35  $8.43
    
    
    448,350
    
    
    6.4 years
    
    $
    7.48
    
    
    
    283,620
    
    
    $
    7.35$11.56  $20.94
    
    
    28,750
    
    
    6.9 years
    
    $
    16.69
    
    
    
    11,250
    
    
    $
    11.56$3.75  $20.94
    
    
    722,500
    
    
    6.1 years
    
    $
    6.79
    
    
    
    518,565
    
    
    $
    6.15
  Note: All share and per share data in this Report have been restated to reflect the effect of the
Companys 3-for-2 stock split which was effective in
August 2004. 28




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##### Table of Contents



7. Earnings Per Share The following table sets
forth the computation of basic and diluted earnings per share for the
year ended December 31: 2004
    
    
    2003
    
    
    2002Numerator:Net income
    
    $
    33,360,037
    
    
    $
    14,375,664
    
    
    $
    5,964,060Denominator:Denominator for basic
earnings per share  weighted
average shares
    
    
    23,017,848
    
    
    
    22,681,711
    
    
    
    22,804,432Effect of dilutive securities:Employee stock options
    
    
    510,307
    
    
    
    242,748
    
    
    
    204,641Denominator for diluted
earnings per share  weighted
average shares
    
    
    23,528,155
    
    
    
    22,924,459
    
    
    
    23,009,073
  Note: All share and per share data in this Report have been restated to reflect the effect of the
Companys 3-for-2 stock split which was effective in
August 2004. 8. Stockholders Equity On November 6, 2001, the Board of Directors of the Company approved a new stock repurchase program
covering the purchase of up to 450,000 additional shares of its common stock dependent upon market
conditions. Common stock purchases under this program were authorized through December 31, 2002 on
the open market or through privately negotiated transactions at prices determined by the Chairman
of the Board or the President of the Company. As of December 31, 2002, 225,300 shares had been
purchased under this authorization. Although the Board of Directors extended this program twice
through December 31, 2004 for the remaining 224,700 shares, there were no repurchases of stock in
2003 or 2004. On August 16, 2004, the Company effected a three-fortwo stock split in the form of a stock
dividend. All share and per share amounts included in this Form 10-K for periods prior to August
16, 2004 have been restated to reflect the change in the number of shares outstanding as of the
beginning of the earliest period presented. 9. Contingencies There are no material pending proceedings to which the Company is a party or of which any of its
property is the subject. However, the Company is a party to litigation and claims arising out of
the ordinary business of the Company. While the results of these matters can not be predicted with
certainty, the Company does not believe the final outcome of such litigation and claims will have a
material adverse effect on the financial condition, the results of
operations or the cash flows of
the Company, in part because the Company believes that it has adequate insurance to cover any
damages that may ultimately be awarded. 10. Encore Wire 401-K Plan The Company sponsors an employee savings plan (the 401-K Plan) that is intended to provide
participating employees with additional income upon retirement. Employees may contribute between 1%
and 15% of eligible compensation to the 401-K Plan. The Company matches 50% of the first 6%
deferred by employees. Employees are eligible to participate in the 401-K Plan and related Company
matching contributions after one year of service. Employer matching contributions are vested at a
rate of 20% per year and are fully vested after five years of employment. The Companys
contribution expense was $279,003, $216,011, and $244,502 in fiscal years 2004, 2003 and 2002,
respectively . 11. Related Party Transactions The Company purchases certain finished goods inventory components from a company that is partially
owned by a family member of an individual serving on our Board of Directors. The Company believes
such purchases, which totaled approximately $5.6 million, $4.3 million and $3.7 million in fiscal
years 2004, 2003 and 2002, respectively, were made at prices that are no less favorable than are
available from non-affiliated parties. Additionally, for a minor portion of its freight
requirements, the Company uses a freight carrier that is owned by a family member of one of the
Companys executive officers. During fiscal years 2004, 2003 and 2002, amounts paid to the
affiliated freight carrier were not significant. 29




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##### Table of Contents



12. Quarterly Financial Information (Unaudited) The following is a summary of the unaudited quarterly financial information for the two years ended
December 31, 2004 and 2003 (in thousands, except per share amounts): Three Months Ended2004
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Net sales
    
    $
    158,942
    
    
    $
    138,148
    
    
    $
    158,629
    
    
    $
    147,506Gross profit
    
    
    32,921
    
    
    
    21,036
    
    
    
    21,770
    
    
    
    20,679Net income (loss)
    
    
    13,265
    
    
    
    7,269
    
    
    
    6,390
    
    
    
    6,436Net income per common share  basic
    
    
    .58
    
    
    
    .32
    
    
    
    .28
    
    
    
    .28Net income per common share  diluted
    
    
    .56
    
    
    
    .31
    
    
    
    .27
    
    
    
    .27Three Months Ended2003
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Net sales
    
    $
    67,153
    
    
    $
    80,584
    
    
    $
    113,877
    
    
    $
    123,136Gross profit
    
    
    5,657
    
    
    
    11,801
    
    
    
    17,622
    
    
    
    20,783Net income (loss)
    
    
    (517
    )
    
    
    2,653
    
    
    
    5,222
    
    
    
    7,017Net income per common share  basic
    
    
    (0.02
    )
    
    
    0.12
    
    
    
    0.23
    
    
    
    0.31Net income per common share  diluted
    
    
    (0.02
    )
    
    
    0.12
    
    
    
    0.23
    
    
    
    0.30
  Note: All share and per share data in this Report have been restated to reflect the
effect of the Companys 3-for-2 stock split which was effective
in August 2004.  
 ITEM 9.
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE Not applicable.  
 ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures The Company maintains controls and procedures designed to ensure that it is able to collect the
information it is required to disclose in the reports it files with the SEC, and to process,
summarize and disclose this information within the time periods specified in the rules of the SEC.
Based on an evaluation of the Companys disclosure controls and procedures 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
believe that these controls and procedures are effective to ensure that the Company is able to
collect, process and disclose the information it is required to disclose in the reports it files
with the SEC within the required time periods. Managements Report on Internal Control over Financial Reporting Management of the Company is responsible for establishing and maintaining effective internal
control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of
1934. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Management assessed the effectiveness of the Companys internal control over financial reporting as
of December 31, 2004. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control 
Integrated Framework.Based on our assessment, we believe that, as of December 31, 2004, the
Companys internal control over financial reporting is effective based on those criteria. 30




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##### Table of Contents



Managements assessment of the effectiveness of internal control over financial reporting as of
December 31, 2004, has been audited by Ernst & Young LLP, the independent registered public
accounting firm who also audited the
Companys consolidated financial statements. Ernst & Youngs attestation report on managements
assessment of the Companys internal control over financial reporting appears directly below. /s/ Vincent A. Rego
    
    /s/ Frank J. BilbanChairman & CEO
    
    V.P. & CFO
 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Board of Directors and Stockholders   Internal ControlIntegrated Framework
 We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that Encore Wire Corporation maintained effective internal
control over financial reporting as of December 31, 2004, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion, Encore Wire Corporation maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2004,
based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Encore Wire Corporation as of December
31, 2004 and 2003 and the related consolidated statements of income, stockholders equity and cash
flows for each of the three years in the period ended December 31, 2004. Our report dated March 7,
2005 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Dallas, Texas
March 7, 2005 31




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ITEM 9B. OTHER INFORMATION None. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The section entitled Election of Directors and Section 16 (a) Beneficial Ownership Reporting
Compliance appearing in the Companys proxy statement for the annual meeting of stockholders to be
held on May 3, 2005 sets forth certain information with respect to the directors of the Company,
with respect to Section 16 (a) reporting obligations of directors and officers, with respect to the
Companys audit committee, and with respect to the Companys code of ethics that is incorporated
herein by reference. Certain information with respect to persons who are or may be deemed to be
executive officers of the Company is set forth under the caption Executive Officers of the
Company in Part I of this report. In connection with Companys long-standing commitment to conduct its business in compliance with
applicable laws and regulations and in accordance with its ethical principles, the Board of
Directors has adopted a Code of Business Conduct and Ethics applicable to all employees, officers,
directors, and advisors of the Company. The Code of Business Conduct and Ethics of the Company is
available under the Investor Relations  Corporate Governance section of the Companys website at
http://www.encorewire.com, and is incorporated herein by reference. 
 ITEM 11. EXECUTIVE COMPENSATION The section entitled Executive Compensation appearing in the Companys proxy statement for the
annual meeting of stockholders to be held on May 3, 2005, sets forth certain information with
respect to the compensation of management of the Company and is incorporated herein by reference. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled Security Ownership of Certain Beneficial Owners, Directors and Executive
Officers appearing in the Companys proxy statement for the annual meeting of stockholders to be
held on May 3, 2005 sets forth certain information with respect to the ownership of the Companys
common stock, and is incorporated herein by reference. Certain information with respect to the
Companys equity compensation plans that is required to be set forth in this Item 12 is set forth
under the caption Item 5. Market for Registrants Common Equity and Related Stockholder Matters. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled Executive Compensation  Certain Relationships and Related Transactions
appearing in the Companys proxy statement for the annual meeting of stockholders to be held on May
3, 2005 sets forth certain information with respect to certain relationships and related
transactions, and is incorporated herein by reference. 
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The Section entitled Proposal Two  Ratification of Appointment of Independent Public Accountants
appearing in the Companys proxy statement for the annual meeting of stockholders to be held on May
3, 2005, sets forth certain information with respect to certain fees paid to accountants, and is
incorporated herein by reference. 32




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PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  (a)
    The following documents are filed as a part of this report:  (1)
    Consolidated Financial Statements included in Item 8 above are
filed as part of this annual report.(2)
    Consolidated Financial Statement Schedules included in Item 8 herein:All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.(3)
    Exhibits:The information required by this Item 15(a)(3) is set forth in the
Index to Exhibits accompanying this Annual Report on Form 10-K. 33




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Encore
Wire Corporation has duly caused this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized. ENCORE WIRE CORPORATIONDate: March 14, 2005By:
    /s/ VINCENT A. REGOVincent A. Rego
Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been
signed by the following persons in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/
VINCENT A.
REGO

Vincent A. Rego
    
    Chairman of the Board
of Directors and Chief
Executive Officer
    
    March 14, 2005/s/
DANIEL L. JONES

Daniel L. Jones
    
    President and Chief Operating
Officer
Director

    
    March 14, 2005/s/
FRANK J.
BILBAN

Frank J. Bilban
    
    Vice President-Finance,
Secretary and Treasurer
(Principal Financial
and Accounting Officer)
    
    March 14, 2005
 34




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##### Table of Contents



Signature
    
    Title
    
    Date/s/ DONALD E. COURTNEY
    
    Vice-Chairman of the
    
    March 14, 2005Donald E. Courtney
    
    Board of Directors/s/ JOSEPH M. BRITO
    
    Director
    
    March 14, 2005Joseph M. Brito/s/ JOHN H. WILSON
    
    Director
    
    March 14, 2005John H. Wilson/s/ WILLIAM R. THOMAS
    
    Director
    
    March 14, 2005William R. Thomas/s/ SCOTT D. WEAVER
    
    Director
    
    March 14, 2005Scott D. Weaver/s/ THOMAS L. CUNNINGHAM
    
    Director
    
    March 14, 2005Thomas L. Cunningham
 35




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INDEX TO EXHIBITS** ExhibitNumber
    
    
    Description3.1


    
    Certificate of Incorporation of Encore Wire Corporation, as amended (filed as Exhibit 3.1
to the Companys Registration Statement on Form S-1, as amended (No. 33-47696), and
incorporated herein by reference).3.2
    
    
    Amended and Restated Bylaws of Encore Wire Corporation, as amended through February 7,
2002 (filed as Exhibit 3.2 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2001, and incorporated herein by reference).10.1
    
    
    Financing Agreement by and among Encore Wire Limited, as Borrower, Bank of America,
National Association, as Agent, and Bank of America, National Association, and Comerica
Bank-Texas, as Lenders, dated August 31, 1999 (filed as exhibit 10.1 to the Companys
Quarterly Report on Form 10Q for the quarter ended September 30, 1999 and incorporated
herein by reference).10.2
    
    
    First amendment to Financing Agreement of August 31, 1999, dated June 27, 2000 by and
among Encore Wire Limited, as Borrower, Bank of America, National Association, as Agent,
and Bank of America, National Association, and Comerica Bank-Texas, as Lenders (filed as
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2000, and incorporated herein by reference).10.3
    
    
    Second amendment to Financing Agreement of August 31, 1999, dated June 28, 2002 by and
among Encore Wire Limited, as Borrower, Bank of America, National Association, as Agent,
and Bank of America, National Association, and Comerica Bank-Texas, as Lenders (filed as
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, and incorporated herein by reference).10.4
    
    
    Third amendment to Financing Agreement of August 31, 1999, dated March 31, 2003 by and
among Encore Wire Limited, as Borrower, Bank of America, National Association, as Agent,
and Bank of America, National Association, and Comerica Bank-Texas, as Lenders (filed as
Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the quarter ended March
31, 2003 and incorporated herein by reference).10.5
    
    
    Fourth amendment to Financing Agreement of August 31, 1999, dated November 5, 2003, by and
among Encore Wire Limited, as Borrower, Bank of America, National Association, as Agent,
and Bank of America, National Association, and Comerica Bank-Texas, as Lenders filed as
exhibit 10.5 to the Companys Annual Report on Form 10-K for the year ended December 31,
2004 and incorporated herein by reference.10.6
    
    
    Fifth amendment to Financing Agreement of August 31, 1999, dated January 15, 2004 by and
among Encore Wire Limited, as Borrower, Bank of America, National Association, as Agent,
and Bank of America, National Association, Comerica Bank-Texas, Wells Fargo Bank, N.A.,
Bank One, N.A., Guaranty Bank and Hibernia National Bank, as Lenders filed as exhibit 10.6
to the Companys Annual Report on Form 10-K for the year ended December 31, 2004 and
incorporated herein by reference.10.7
    
    
    Credit Agreement by and among Encore Wire Limited, as Borrower, Bank of America, N.A., as
Agent, and Bank of America, N.A. and Wells Fargo Bank, National Association, as Lenders,
dated August 27, 2004 (filed as Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the quarter ended September 30, 2004 and incorporated herein by reference).10.8
    
    
    Note Purchase Agreement by and among Encore Wire Limited and Encore Wire Corporation, as
Debtors, and Hartford Life Insurance Company, Great-West Life & Annuity Insurance Company,
London Life Insurance Company and London Life and Casualty Reinsurance Corporation, as
Purchasers, dated August 27, 2004 (filed as Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by
reference.
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ExhibitNumber
    
    
    Description10.9*
    
    
    1999 Stock Option Plan, as amended and restated, effective as of October 24, 2001 (filed
as Exhibit 99.1 to the Companys Registration Statement on Form S-8 (No. 333-86620), and
incorporated herein by reference).10.10*
    
    
    1989 Stock Option Plan, as amended and restated, (filed as Exhibit 4.1 to the Companys
Registration Statement on Form S-8 (No. 333-38729), and incorporated herein by reference),
terminated except with respect to outstanding options thereunder.21.1
    
    
    Subsidiaries (filed as Exhibit 21.1 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2001 and incorporated herein by reference).23.1
    
    
    Consent of Ernst & Young
LLP, Independent Registered Public Accounting Firm, dated
March 14, 2005, (included herein).31.1
    
    
    Certificate by Vincent A. Rego, Chairman and Chief Executive Officer of the Company, dated
March 14, 2005 and submitted pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (included herein).31.2
    
    
    Certificate by Frank J. Bilban, Vice President  Finance, Treasurer, Secretary and Chief
Financial Officer of the Company, dated March 14, 2005 and submitted pursuant to Rule
13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(included herein).32.1
    
    
    Certificate by Vincent A. Rego, Chairman and Chief Executive Officer of the Company, dated
March 14, 2005 as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (included herein).32.2
    
    
    Certificate by Frank J. Bilban, Vice President  Finance, Treasurer, Secretary and Chief
Financial Officer, dated March 14, 2005 as required by 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (included herein).*
    
    
    Management contract or compensatory plan
 37