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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended
September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-20278
 ENCORE WIRE CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    75-2274963(State of Incorporation)
    
    (I.R.S. employer identification number)1410 Millwood RoadMcKinney, Texas
    
    75069(Address of principal executive offices)
    
    (Zip code)
 Registrants telephone number, including area code: (972) 562-9473
 þ o
  o þ o
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ENCORE WIRE CORPORATION
 FORM 10-Q
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006
 Page No.PART I. FINANCIAL INFORMATIONITEM 1. Consolidated Financial StatementsConsolidated Balance Sheets
September 30, 2006 (Unaudited) and December 31, 2005
    
    
    3Consolidated Statements of Income (Unaudited)
Quarters and Nine Months ended September 30, 2006 and
September 30, 2005
    
    
    5Consolidated Statements of Cash Flows (Unaudited)
Nine Months ended September 30, 2006 and September 30, 2005
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    12ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18ITEM 4. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONITEM 1A. Risk Factors
    
    
    18ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18ITEM 6. Exhibits
    
    
    18Signatures
    
    
    19Second Amendment to Credit AgreementMaster Note Purchase AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Purusant to Section 906Certification Purusant to Section 906
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PART I. FINANCIAL INFORMATION
 
   
  September 30,
    
    
    December 31,2006
    
    
    2005In Thousands of Dollars
    
    (Unaudited)
    
    
    (See Note)ASSETSCurrent assets:Cash
    
    $
    34,683
    
    
    $
    2,622Accounts receivable (net of allowance
of $835 and $690)
    
    
    292,078
    
    
    
    164,930Inventories (Note 3)
    
    
    114,323
    
    
    
    67,932Prepaid expenses and other assets
    
    
    23,937
    
    
    
    18,628Current deferred income taxes
    
    
    4,278
    
    
    
    1,121Total current assets
    
    
    469,299
    
    
    
    255,233Property, plant, and equipment, at cost:Land
    
    
    9,468
    
    
    
    8,375Construction in progress
    
    
    6,509
    
    
    
    12,113Buildings and improvements
    
    
    47,065
    
    
    
    38,063Machinery and equipment
    
    
    134,053
    
    
    
    120,326Furniture and fixtures
    
    
    3,928
    
    
    
    3,624Total property, plant, and equipment
    
    
    201,023
    
    
    
    182,501Accumulated depreciation and amortization
    
    
    97,720
    
    
    
    89,364103,303
    
    
    
    93,137Other assets
    
    
    102
    
    
    
    106Total assets
    
    $
    572,704
    
    
    $
    348,476
 Note:
    
    The consolidated balance sheet at December 31, 2005, as presented, is
derived from the audited consolidated financial statements at that date.
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September 30,
    
    
    December 31,2006
    
    
    2005In Thousands of Dollars, Except Share and Per Share Data
    
    (Unaudited)
    
    
    (See Note)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    31,541
    
    
    $
    17,277Accrued liabilities
    
    
    23,667
    
    
    
    19,304Current income taxes payable
    
    
    1,393
    
    
    
    19,540Total current liabilities
    
    
    56,601
    
    
    
    56,121Non-current deferred income taxes
    
    
    9,913
    
    
    
    10,620Long term notes payable
    
    
    184,067
    
    
    
    70,438Other long term liabilities
    
    
    933
    
    
    
    762Stockholders equity:Common stock, $.01 par value:40,000,000 shares authorized, 26,028,802 and
25,939,103 shares issued
    
    
    261
    
    
    
    259Additional paid-in capital
    
    
    40,628
    
    
    
    38,932Treasury stock (2,758,950 and 2,758,950 shares, at cost)
    
    
    (15,275
    )
    
    
    (15,275
    )Retained earnings
    
    
    295,576
    
    
    
    186,619Total stockholders equity
    
    
    321,190
    
    
    
    210,535Total liabilities and stockholders equity
    
    $
    572,704
    
    
    $
    348,476
 Note:
    
    The consolidated balance sheet at December 31, 2005, as presented, is
derived from the audited consolidated financial statements at that date.
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Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,In Thousands, Except Per Share Data
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    372,915
    
    
    $
    207,459
    
    
    $
    987,011
    
    
    $
    513,917Cost of goods sold
    
    
    298,649
    
    
    
    176,462
    
    
    
    766,520
    
    
    
    456,802Gross profit
    
    
    74,266
    
    
    
    30,997
    
    
    
    220,491
    
    
    
    57,115Selling, general, and administrative expenses
    
    
    16,589
    
    
    
    12,769
    
    
    
    46,760
    
    
    
    33,254Operating income (loss)
    
    
    57,677
    
    
    
    18,228
    
    
    
    173,731
    
    
    
    23,861Net interest & other expenses
    
    
    2,530
    
    
    
    1,074
    
    
    
    5,608
    
    
    
    2,676Income (loss) before income taxes
    
    
    55,147
    
    
    
    17,154
    
    
    
    168,123
    
    
    
    21,185Provision (benefit) for income taxes
    
    
    19,386
    
    
    
    5,949
    
    
    
    59,166
    
    
    
    6,517Net income (loss)
    
    $
    35,761
    
    
    $
    11,205
    
    
    $
    108,957
    
    
    $
    14,668Net earnings (loss) per common and common
equivalent share  basic
    
    $
    1.54
    
    
    $
    .48
    
    
    $
    4.69
    
    
    $
    .63Weighted average common and common
equivalent shares  basic
    
    
    23,267
    
    
    
    23,111
    
    
    
    23,248
    
    
    
    23,108Net earnings (loss) per common and common
equivalent share  diluted
    
    $
    1.51
    
    
    $
    .48
    
    
    $
    4.60
    
    
    $
    .63Weighted average common and common
equivalent shares  diluted
    
    
    23,680
    
    
    
    23,495
    
    
    
    23,666
    
    
    
    23,447Cash dividends declared per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
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Nine Months EndedSeptember 30,In Thousands of Dollars
    
    2006
    
    
    2005OPERATING ACTIVITIESNet income (loss)
    
    $
    108,957
    
    
    $
    14,668Adjustments to reconcile net income to cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    9,052
    
    
    
    9,365Deferred income taxes
    
    
    (3,864
    )
    
    
    784Excess tax benefits of options exercised
    
    
    (768
    )
    
    
    Stock based compensation
    
    
    307
    
    
    
    Provision for bad debts
    
    
    135
    
    
    
    285(Gain) loss on sale of equipment
    
    
    34
    
    
    
    152Changes in operating assets and liabilities:Accounts receivable
    
    
    (127,283
    )
    
    
    (50,735
    )Inventory
    
    
    (46,391
    )
    
    
    (11,083
    )Trade accounts payable and accrued liabilities
    
    
    18,627
    
    
    
    10,398Other assets and liabilities
    
    
    (5,279
    )
    
    
    (4,375
    )Current income taxes receivable/payable
    
    
    (17,379
    )
    
    
    5,277NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    (63,852
    )
    
    
    (25,264
    )INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (19,351
    )
    
    
    (10,105
    )Change in long-term investments
    
    
    
    
    
    
    15Proceeds from sale of equipment
    
    
    225
    
    
    
    202NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    
    (19,126
    )
    
    
    (9,888
    )FINANCING ACTIVITIESBorrowings (repayments) under notes payable
    
    
    113,800
    
    
    
    34,463Proceeds from issuance of common stock
    
    
    623
    
    
    
    71Excess tax benefits of options exercised
    
    
    768
    
    
    
    Long-term financing fees
    
    
    (152
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    115,039
    
    
    
    34,534Net increase (decrease) in cash
    
    
    32,061
    
    
    
    (618
    )Cash at beginning of period
    
    
    2,622
    
    
    
    2,640Cash at end of period
    
    $
    34,683
    
    
    $
    2,022
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Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Share-Based Payment
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Weighted
    
    
    Weighted AverageNumber
    
    
    Average Exercise
    
    
    Remaining
    
    
    Aggregate IntrinsicOf Shares
    
    
    Price
    
    
    Contractual Term
    
    
    ValueBalance outstanding
at December 31,
2005
    
    
    639,825
    
    
    $
    6.73Granted
    
    
    50,000
    
    
    $
    37.95Exercised
    
    
    (88,399
    )
    
    $
    7.69Forfeited/Cancelled
    
    
    (1,500
    )
    
    $
    7.70Balance outstanding
at September 30,
2006
    
    
    599,926
    
    
    $
    6.25
    
    
    
    4.56
    
    
    $
    17,422Options exercisable
at September 30,
2006
    
    
    478,046
    
    
    $
    5.82
    
    
    
    3.83
    
    
    $
    14,107
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Nine Months Ended September 30,2006
    
    2005Expected stock price volatility
    
    
    55.7
    %
    
    
    N/AExpected life of options
    
    
    5.0
    
    
    
    N/ARisk-free interest rate
    
    
    3.8
    %
    
    
    N/ADividend yield
    
    
    0.0
    %
    
    
    N/A
     September 30,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    25,093
    
    
    $
    11,288Work-in-process
    
    
    22,102
    
    
    
    8,428Finished goods
    
    
    162,672
    
    
    
    84,665209,867
    
    
    
    104,381Adjust to LIFO cost
    
    
    (95,544
    )
    
    
    (36,449
    )114,323
    
    
    
    67,932Lower of Cost or Market Adjustment
    
    
    
    
    
    
    $
    114,323
    
    
    $
    67,932
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Quarter Ended
    
    
    Quarter Ended9/30/06
    
    
    9/30/05Numerator:Net income
    
    $
    35,761,035
    
    
    $
    11,204,923Denominator:Denominator for basic
earnings per share 
weighted average shares
    
    
    23,267,114
    
    
    
    23,110,539Effect of dilutive securities:Employee stock options
    
    
    413,107
    
    
    
    384,793Denominator for diluted
earnings per share 
weighted average shares
    
    
    23,680,221
    
    
    
    23,495,332
 Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended9/30/06
    
    
    9/30/05Numerator:Net income
    
    $
    108,957,054
    
    
    $
    14,668,152Denominator:Denominator for basic earnings
per share  weighted average
shares
    
    
    23,247,618
    
    
    
    23,107,940Effect of dilutive securities:Employee stock options
    
    
    418,748
    
    
    
    338,703Denominator for diluted earnings
per share  weighted average
shares
    
    
    23,666,366
    
    
    
    23,446,643
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 General
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Results of Operations
 Quarter Ended September 30, 2006 Compared to Quarter Ended September 30, 2005
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Nine Months Ended September 30, 2006 compared to Nine Months Ended September 30, 2005
    14




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Liquidity and Capital Resources
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Information Regarding Forward Looking Statements
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PART II. OTHER INFORMATION
 
   
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
 Stock Repurchase Program
  
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ENCORE WIRE CORPORATION(Registrant)Dated: November 7, 2006
    
    /s/ DANIEL L. JONESDaniel L. Jones, President andChief Executive OfficerDated: November 7, 2006
    
    /s/ FRANK J. BILBANFrank J. Bilban, Vice President  Finance,Treasurer and SecretaryChief Financial Officer
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ExhibitNumber
    
    Description3.1
    
    Certificate of Incorporation of Encore Wire Corporation, as
amended through July 20, 2004 (filed on Exhibit 3.1 to the
Companys Quarterly Report on Form 10-Q for the quarter ended June
30, 2004, and incorporated herein by reference).3.2
    
    Amended and Restated Bylaws of Encore Wire Corporation, as amended
through February 20, 2006 (filed as Exhibit 3.2 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2005,
and incorporated herein by reference).10.1
    
    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).10.2
    
    First Amendment to Credit Agreement of August 27, 2004, dated May
16, 2006, 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 (filed as Exhibit 10.3 to
the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2006 and incorporated herein by reference).10.3
    
    Second Amendment to Credit Agreement of August 27, 2004, dated
August 31, 2006, 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.10.4
    
    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).10.5
    
    Master Note Purchase Agreement by and among Encore Wire Limited
and Encore Wire Corporation, as Debtors, and Metropolitan Life
Insurance Company, Metlife Insurance Company of Connecticut and
Great-West Life & Annuity Insurance Company, as Purchasers, dated
September 28, 2006.10.6*
    
    1999 Stock Option Plan, as amended and restated, effective as of
February 20, 2006 (filed as Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31,
2006, and incorporated herein by reference).
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ExhibitNumber
    
    Description10.7*
    
    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 there under.31.1
    
    Certification by Daniel L. Jones, President and Chief Executive
Officer of Encore Wire Corporation, dated November 7, 2006 and
submitted pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification by Frank J. Bilban, Vice President-Finance, Chief
Financial Officer, Treasurer and Secretary of Encore Wire
Corporation, dated November 7, 2006 and submitted pursuant to Rule
13a-14(a)/15d-14(a) and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification by Daniel L. Jones, President and Chief Executive
Officer of Encore Wire Corporation, dated November 7, 2006 and
submitted as required by 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification by Frank J. Bilban, Vice President-Finance, Chief
Financial Officer, Treasurer and Secretary of Encore Wire
Corporation, dated November 7, 2006 as required by 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Management contract or compensatory plan. 21