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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 endedJune 30, 2004 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the transition period
from ______ to ______ Commission File Number: 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 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such Reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes þ No o Number of shares of Common Stock outstanding as of July 31, 2004: 15,402,776 Page 1 of 23 Sequentially Numbered Pages
Index to Exhibits on Page 22




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FORM 10-Q ENCORE WIRE CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004  
 Page No.PART I. FINANCIAL
INFORMATIONITEM 1.
    
    Consolidated Financial StatementsConsolidated
Balance Sheets
  June 30, 2004 (Unaudited) and December 31, 2003
    
    
    3Consolidated
Statements of Income (Unaudited)
  Quarters and Six Months ended June 30, 2004 and June 30, 2003
    
    
    5Consolidated
Statements of Cash Flows (Unaudited)
  Six Months ended June 30, 2004 and June 30, 2003
    
    
    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
    
    
    17ITEM 4.
    
    Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONITEM 2.
    
    Changes in Securities and Use of Proceeds
    
    
    18ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18ITEM 6.
    
    Exhibits and Reports on Form 8-K
    
    
    20Signatures
    
    
    21Certificate of IncorporationAmended and Restated BylawsCertification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Chief Financial Officer Pursuant to Section 906
 2




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FORM 10-Q  
 PART I. FINANCIAL INFORMATION 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS 
 ENCORE WIRE
CORPORATION
CONSOLIDATED BALANCE SHEETS June 30,
    
    December 31,In Thousands of Dollars
    
    2004
    
    2003(Unaudited)
    
    (See Note)ASSETSCurrent Assets:Cash
    
    $
    1,129
    
    
    $
    391Accounts receivable (net of allowance
of $616 and $490)
    
    
    96,820
    
    
    
    81,430Inventories (Note 3)
    
    
    66,585
    
    
    
    59,344Prepaid expenses and other assets
    
    
    7,361
    
    
    
    5,112Current taxes receivable
    
    
    
    
    
    
    Total current assets
    
    
    171,895
    
    
    
    146,277Property, plant and equipment-on the basis of cost:Land
    
    
    5,894
    
    
    
    5,858Construction in progress
    
    
    10,389
    
    
    
    2,396Buildings and improvements
    
    
    30,994
    
    
    
    30,855Machinery and equipment
    
    
    109,616
    
    
    
    104,849Furniture and fixtures
    
    
    2,966
    
    
    
    2,942Total property, plant, and equipment
    
    
    159,859
    
    
    
    146,900Accumulated depreciation and amortization
    
    
    72,942
    
    
    
    67,97686,917
    
    
    
    78,924Other assets
    
    
    120
    
    
    
    98Total assets
    
    $
    258,932
    
    
    $
    225,299
  Note:
    
    The consolidated balance sheet at December 31, 2003 as presented, is
derived from the audited consolidated financial statements at that date. See accompanying notes. 3




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FORM 10-Q ENCORE WIRE CORPORATION
 
CONSOLIDATED BALANCE SHEETS (continued) June 30,
    
    December 31,In Thousands of Dollars, Except Share Data
    
    2004
    
    2003(Unaudited)
    
    (See Note)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    21,208
    
    
    $
    24,430Accrued liabilities
    
    
    9,460
    
    
    
    10,432Current income taxes payable
    
    
    392
    
    
    
    5,158Current deferred income taxes
    
    
    
    
    
    
    Total current liabilities
    
    
    31,060
    
    
    
    40,020Non-current deferred income taxes
    
    
    10,078
    
    
    
    10,078Long term notes payable
    
    
    72,500
    
    
    
    53,425Stockholders equity:Common stock, $.01 par value:Authorized 20,000,000 shares; issued
17,242,076 and 16,966,750 shares; outstanding
15,402,776 and 15,127,450 shares
    
    
    172
    
    
    
    170Additional paid-in capital
    
    
    36,900
    
    
    
    34,193Treasury stock 1,839,300 and 1,839,300 shares at cost
    
    
    (15,275
    )
    
    
    (15,275
    )Accumulated other comprehensive income (loss)
    
    
    (216
    )
    
    
    (492
    )Retained earnings
    
    
    123,713
    
    
    
    103,180Total stockholders equity
    
    
    145,294
    
    
    
    121,776Total liabilities and stockholders equity
    
    $
    258,932
    
    
    $
    225,299
  Note:
    
    The consolidated balance sheet at December 31, 2003, as presented,is
derived from the audited consolidated financial statements at that date. See accompanying notes. 4




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FORM 10-Q 
 ENCORE WIRE CORPORATION
 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) Quarter Ended
    
    Six Months EndedJune 30,
    
    June 30,In Thousands of Dollars, Except Per Share Data
    
    2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    138,148
    
    
    $
    80,584
    
    
    $
    297,090
    
    
    $
    147,737Cost of goods sold
    
    
    117,112
    
    
    
    68,783
    
    
    
    243,133
    
    
    
    130,279Gross profit
    
    
    21,036
    
    
    
    11,801
    
    
    
    53,957
    
    
    
    17,458Selling, general, and administrative expenses
    
    
    8,917
    
    
    
    6,982
    
    
    
    20,135
    
    
    
    12,936Operating income (loss)
    
    
    12,119
    
    
    
    4,819
    
    
    
    33,822
    
    
    
    4,522Net interest & other expenses
    
    
    761
    
    
    
    674
    
    
    
    1,395
    
    
    
    1,184Income (loss) before income taxes
    
    
    11,358
    
    
    
    4,145
    
    
    
    32,427
    
    
    
    3,338Provision (benefit) for income taxes
    
    
    4,089
    
    
    
    1,492
    
    
    
    11,894
    
    
    
    1,202Net income (loss)
    
    $
    7,269
    
    
    $
    2,653
    
    
    $
    20,533
    
    
    $
    2,136Net income (loss) per common and common
equivalent shares  basic
    
    $
    .47
    
    
    $
    .18
    
    
    $
    1.34
    
    
    $
    .14Weighted average common and common
equivalent shares  basic
    
    
    15,367
    
    
    
    15,119
    
    
    
    15,287
    
    
    
    15,119Net income (loss) per common and common
equivalent shares  diluted
    
    $
    .46
    
    
    $
    .17
    
    
    $
    1.31
    
    
    $
    .14Weighted average common and common
equivalent shares  diluted
    
    
    15,727
    
    
    
    15,212
    
    
    
    15,713
    
    
    
    15,193Cash dividends declared per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 See accompanying notes. 5




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FORM 10-Q 
 ENCORE WIRE CORPORATION
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Six Months EndedJune 30,In Thousands of Dollars
    
    2004
    
    2003OPERATING ACTIVITIESNet income (loss)
    
    $
    20,533
    
    
    $
    2,136Adjustments to reconcile net income to cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    5,642
    
    
    
    6,157Provision for bad debts
    
    
    210
    
    
    
    90Changes in operating assets and liabilities:Accounts receivable
    
    
    (15,599
    )
    
    
    (15,289
    )Inventory
    
    
    (7,240
    )
    
    
    6,304Accounts payable and accrued liabilities
    
    
    (3,918
    )
    
    
    12,440Other assets and liabilities
    
    
    (2,342
    )
    
    
    (2,224
    )Current income taxes receivable/payable
    
    
    (4,767
    )
    
    
    1,958NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    (7,481
    )
    
    
    11,572INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (13,939
    )
    
    
    (2,852
    )Change in long-term investments
    
    
    
    
    
    
    (10
    )Proceeds from sale of equipment
    
    
    374
    
    
    
    30NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    
    (13,565
    )
    
    
    (2,832
    )FINANCING ACTIVITIESBorrowings (repayments) under notes payable
    
    
    19,075
    
    
    
    (7,500
    )Proceeds from exercise of stock options
    
    
    2,709
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    21,784
    
    
    
    (7,500
    )Net increase (decrease) in cash
    
    
    738
    
    
    
    1,240Cash at beginning of period
    
    
    391
    
    
    
    160Cash at end of period
    
    $
    1,129
    
    
    $
    1,400
 See accompanying notes. 6




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FORM 10-Q 
 ENCORE WIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) NOTE 1  BASIS OF PRESENTATION The unaudited consolidated financial statements of Encore Wire Corporation (the
Company) have been prepared in accordance with generally accepted accounting
principles for interim information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. Results of operations
for interim periods presented do not necessarily indicate the results that may
be expected for the entire year. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2003. NOTE 2  STOCK BASED EMPLOYEE COMPENSATION The Company has a stock option plan for employees that provides for the
granting of stock options. The Company accounts for stock-based compensation
utilizing the intrinsic value method in accordance with the provisions of
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock
Issued to Employees and related interpretations. Accordingly, no compensation
expense is recognized for fixed option plans because the exercise prices of
employee stock options equal or exceed the market prices of the underlying
stock on the dates of grant. 7




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FORM 10-Q The following table represents the effect on net income (loss) and earnings per
share if the Company had applied the fair value based method and recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based Employee
compensation: ($s in 000s) Quarter Ended
    
    Six Months EndedJune 30,
    
    June 30,In Thousands of Dollars, Except Per Share Data
    
    2004
    
    2003
    
    2004
    
    2003Net income (loss), as reported
    
    
    7,269
    
    
    
    2,653
    
    
    
    20,533
    
    
    
    2,136Add:
    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
    
    
    95
    
    
    
    100
    
    
    
    187
    
    
    
    201Pro forma net income (loss)
    
    
    7,174
    
    
    
    2,553
    
    
    
    20,346
    
    
    
    1,935Net income (loss) per shareBasic, as reported
    
    $
    0.47
    
    
    $
    0.18
    
    
    $
    1.34
    
    
    $
    0.14Basic, pro forma
    
    $
    0.47
    
    
    $
    0.17
    
    
    $
    1.33
    
    
    $
    0.13Diluted, as reported
    
    $
    0.46
    
    
    $
    0.17
    
    
    $
    1.31
    
    
    $
    0.14Diluted, pro forma
    
    $
    0.46
    
    
    $
    0.17
    
    
    $
    1.29
    
    
    $
    0.13
 As required, the pro forma disclosures above include options granted since
January 1, 1995. Consequently, the effects of applying SFAS 123 for providing
pro forma disclosures may not be representative of the effects on reported net
income for future years until all options outstanding are included in the pro
forma disclosures. For purposes of pro forma disclosures, the estimated fair
value of stock-based compensation plans and other options is amortized to
expense primarily over the vesting period. 8




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FORM 10-Q NOTE 3  INVENTORIES Inventories are stated at the lower of cost, determined by the last-in,
first-out (LIFO) method, or market. Inventories (in thousands) consisted of the following: June 30,
    
    December 31,2004
    
    2003Raw materials
    
    $
    11,365
    
    
    $
    12,976Work-in-process
    
    
    7,994
    
    
    
    5,490Finished goods
    
    
    66,172
    
    
    
    43,50785,531
    
    
    
    61,973Adjust to LIFO cost
    
    
    (18,947
    )
    
    
    (2,629
    )66,584
    
    
    
    59,344Lower of Cost or Market Adjustment
    
    
    
    
    
    
    $
    66,584
    
    
    $
    59,344
 An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on
managements estimates of expected year-end inventory levels and costs.
Because these are subject to many forces beyond managements control, interim
results are subject to the final year-end LIFO inventory valuation. NOTE 4  NET INCOME PER SHARE Net income (loss) 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. If dilutive, the effect of stock options,
treated as common stock equivalents, is calculated using the treasury stock
method. 9




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FORM 10-Q The following table sets forth the computation of basic and diluted net income
per share: Quarter Ended
    
    Quarter Ended6/30/04
    
    6/30/03Numerator:Net income
    
    $
    7,268,635
    
    
    $
    2,652,965Denominator:Denominator
for basic earnings per share 
weighted average shares
    
    
    15,366,516
    
    
    
    15,119,065Effect of dilutive securities:Employee stock options
    
    
    360,200
    
    
    
    92,911Denominator
for diluted earnings per share 
weighted average shares
    
    
    15,726,716
    
    
    
    15,211,976
 The following table sets forth the computation of basic and diluted earnings per share: Six Months
    
    Six MonthsEnded
    
    Ended6/30/04
    
    6/30/03Numerator:Net income
    
    $
    20,533,271
    
    
    $
    2,136,255Denominator:Denominator
for basic earnings per share 
weighted average shares
    
    
    15,287,103
    
    
    
    15,119,065Effect of dilutive securities:Employee stock options
    
    
    425,459
    
    
    
    73,821Denominator
for diluted earnings per share 
weighted average shares
    
    
    15,712,562
    
    
    
    15,192,886
 NOTE 5  LONG TERM NOTE PAYABLE Effective August 31, 1999, the Company through its indirectly wholly-owned
subsidiary, Encore Wire Limited, a Texas Limited partnership (Encore Wire
Limited), refinanced its unsecured loan facility with a group of banks (the
Financing Agreement). The Company is a guarantor of the indebtedness.
Obligations under the Financing Agreement are the only contractual obligations
or commercial commitments of the Company. The Financing Agreement has been
amended five times since August 31, 1999, primarily to extend the terms to May
31, 2007. The fifth amendment, which was executed on January 15, 2004, also
expanded the credit line from $65 million to $125 million with the addition of
four new banks to the participant list. The Financing 10




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FORM 10-Q Agreement provides for maximum borrowings of the lesser of $125 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 June 30, 2004, as computed
under the fifth amendment of the Financing Agreement, was $122.2 million. The Financing Agreement is unsecured and contains customary covenants and
events of default. The Company was in compliance with these covenants, as of
June 30, 2004. Under the amended Financing Agreement, the Company is allowed
to pay cash dividends. At June 30, 2004, the balance outstanding under the
Financing Agreement was $72.5 million. Amounts outstanding under the Financing
Agreement are payable on May 31, 2007, with interest payments due quarterly. In December 2001, the Company entered into an interest 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 fix 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 that is based on certain financial ratios
contained in the loan covenants. This three-year agreement expires on December
20, 2004. For the six months ended June 30, 2004, the Company recorded an
unrealized gain of $276,125, resulting in a net unrealized loss of $216,329
recorded in accumulated other comprehensive income (loss) as of June 30, 2004
in the equity section of the balance sheet. NOTE 6  STOCK REPURCHASE AUTHORIZATION On November 6, 2001, the Board of Directors of the Company approved a stock
repurchase program covering the purchase of up to 300,000 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, 150,200 shares
had been purchased under this authorization. Early in 2003, the Board of
Directors extended this program through December 31, 2003 for the remaining
149,800 shares. There were no repurchases of stock in 2003. In February 2004,
the Board of Directors extended this program through December 31, 2004 for the
remaining 149,800 shares. There were no repurchases of stock during the first
two quarters of 2004. NOTE 7  CONTINGENCIES The Company is a party to litigation and claims that arise 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 operation or the cash flows of the Company. The
Company also believes that it has adequate insurance to cover any damages that
may ultimately be awarded. NOTE 8  SUBSEQUENT EVENTS On July 20, 2004 the Company held a special meeting of stockholders to vote
upon a proposal to amend the Companys Certificate of Incorporation to increase
the authorized shares of common stock of the Company from 20,000,000 to
40,000,000 in order to 11




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FORM 10-Q permit, among other things, a 3-for-2 stock split to be paid as a 50% stock
dividend on its common stock. The stockholders approved this
amendment. At a Board of Directors meeting also held on July 20, 2004, the Board of
Directors declared a 3-for-2 stock split to be effected as a 50% stock dividend to
stockholders of record as of the close of business on August 6, 2004, to be
paid on August 16, 2004. The per share amounts presented in this report have
not been restated to reflect this stock dividend. 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS General The Company is a low-cost manufacturer of copper electrical building wire and
cable. The Company is a significant supplier of residential wire for interior
wiring in homes, apartments and manufactured housing and commercial wire for
commercial and industrial buildings. The Companys operating results in any given time period are driven by several
key factors, including; the volume of product produced and shipped, the cost of
copper and other raw materials, the competitive pricing environment in the wire
industry and the resulting influence on gross margins and the efficiency with
which the Companys plant operates during the period, among others. Price
competition for electrical wire and cable is intense, and the Company sells its
products in accordance with prevailing market prices. Copper is the principal
raw material used by the Company in manufacturing its products. Copper
accounted for approximately 67.1%, 63.9% and 66.6% of the Companys cost of
goods sold during fiscal 2003, 2002 and 2001, respectively. The price of
copper fluctuates, depending on general economic conditions and in relation to
supply and demand and other factors, which has caused significant variations in
the cost of copper purchased by the Company. 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. The following discussion and analysis relates to factors that have affected the
operating results of the Company for the quarterly and six-month periods ended
June 30, 2004 and 2003. Reference should also be made to the audited financial
statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended December 31, 2003. Results of Operations Quarter Ended June 30, 2004 Compared to Quarter Ended June 30, 2003 Net sales for the second quarter of 2004 amounted to $138.1 million compared
with net sales of $80.6 million for the second quarter of 2003. This dollar
increase was the result of a 12% increase in the volume of product shipped,
coupled with a 53% increase in the average price of wire sold. The Company
believes the volume of wire sold increased principally due to the reduced
presence of certain competitors in the marketplace. The average cost per pound
of raw copper purchased increased in the second quarter of 2004 compared to the
second quarter of 2003, and was the principal reason the average 12




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FORM 10-Q sales price for wire increased. Fluctuations in sales prices are primarily a
result of changing copper raw material prices and product price competition. Cost of goods sold increased to $117.1 million, or 84.8% of net sales, in the
second quarter of 2004, compared to $68.8 million, or 85.4% of net sales, in
the second quarter of 2003. Gross profit increased to $21.0 million, or 15.2%
of net sales, in the second quarter of 2004 versus $11.8 million, or 14.6% of
net sales, in the second quarter of 2003. The increased gross profit and gross
margin percentages were primarily the result of the increased volumes and
prices in 2004 versus 2003. 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 accounting principles generally accepted in the
United States, 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 (LCM) test by comparing the LIFO cost of
its raw materials, work-in-process and finished goods inventories to estimated
market values, which are based primarily upon the most recent quoted market
price of copper, in pound quantities, as of the end of each reporting period.
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. As a result of increasing copper costs during the second quarter 2004, a LIFO
adjustment was recorded increasing cost of sales by $1.0 million during the
quarter. Based on the current copper prices, there is no LCM adjustment
necessary. Future reductions in the price of copper could require the Company
to record a LCM adjustment against the related inventory balance, which would
result in a negative impact on net income. Selling expenses for the second quarter of 2004 were $7.2 million, or 5.2% of
net sales, compared to $5.1 million, or 6.4% of net sales, in the second
quarter of 2003. The percentage decrease was due to the increase in selling
prices per pound of wire that reduced the freight costs as a percentage of net
sales. General and administrative expenses increased to $1.7 million, or 1.2%
of net sales, in the second quarter of 2004 compared to $1.8 million, or 2.2%
of net sales, in the second quarter of 2003. The General and Administrative
costs are semi-fixed by nature and therefore did not increase proportionately
with sales and dropped as a percentage of sales. The provision for bad debts
was $30,000 in the second quarter of 2004 versus $45,000 in the second quarter
of 2003. Net interest expense was $761,000 in the second quarter of 2004 compared to
$673,000 in the second quarter of 2003. The increase was due to slightly
higher average debt balances and interest rates during the second quarter of
2004 than in the comparable period during 2003. As a result of the foregoing factors, the Companys net income increased to
$7.3 million in the second quarter of 2004 from $2.7 million in the second
quarter of 2003. 13




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FORM 10-Q Six Months Ended June 30, 2004 compared to Six Months Ended June 30, 2003 Net sales for the first six months of 2004 amounted to $297.1 million compared
with net sales of $147.7 million for the first half of 2003. This dollar
increase was the result of a 29% increase in the volume of product shipped,
coupled with a 55% increase in the average price of wire sold. Fluctuations in
sales prices are primarily a result of changing copper raw material prices and
product price competition. Cost of goods sold increased to $243.1 million in the first six months of 2004,
compared to $130.3 million in the first six months of 2003. Gross profit
increased to $54.0 million, or 18.2% of net sales, in the first six months of
2004 versus $17.5 million, or 11.8% of net sales, in the first six months of
2003. The increased gross profit and gross margin percentages were primarily
the result of the increased volumes and prices in 2004 versus 2003. 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 accounting principles generally accepted in the
United States, 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, in pound quantities, as of the end of each reporting period. 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. As a result of increasing copper costs during the first six months of 2004, a
LIFO adjustment was recorded increasing cost of sales by $16.3 million during
the period. Based on the current copper prices, there is no LCM adjustment
necessary. Future reductions in the price of copper could require the Company
to record a lower of cost or market adjustment against the related inventory
balance, which would result in a negative impact on net income. Selling expenses for the first six months of 2004 were $16.2 million, or 5.5%
of net sales, compared to $9.5 million, or 6.4% of net sales, in the same
period of 2003. The percentage decrease was due to a decrease in freight costs
as a percentage of net sales, attributable to freight becoming relatively lower
as sales prices increased substantially in 2004. General and administrative
expenses increased to $3.7 million, or 1.2% of net sales, in the first six
months of 2004 compared to $3.3 million, or 2.3% of net sales, in the same
period of 2003. General and administrative costs are semi-fixed in nature and
decreased dramatically in percentage terms as the Company more than doubled
sales dollars in 2004 versus 2003. The provision for bad debts was $210,000 in
the first six months of 2004 versus $90,000 in the first six months of 2003, as
the Company added to its provision to reflect the larger accounts receivable
balances outstanding consistent with the rapid growth of sales. 14




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FORM 10-Q Net interest expense was $1,395,000 in the first six months of 2004 compared to
$1,184,000 in the first half of 2003. The increase was due to higher average
debt balances during the first six months of 2004 than during the comparable
period of 2003. As a result of the foregoing factors, the Companys net income increased to
$20.5 million in the first half of 2004 from $2.1 million in the first half of
2003. Liquidity and Capital Resources The Company maintains a substantial inventory of finished products to satisfy
customers 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 these 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 revolving credit
facilities and sales of its common stock. Effective August 31, 1999, the Company through Encore Wire Limited, refinanced
its unsecured loan facility with a group of banks (the Financing Agreement).
The Company is a guarantor of the indebtedness. Obligations under the
Financing Agreement are the only contractual obligations or commercial
commitments of the Company. The Financing Agreement has been amended five
times since August 31, 1999, primarily to extend the terms to May 31, 2007.
The fifth amendment, which was executed on January 15, 2004, also expanded the
credit line from $65 million to $125 million with the addition of four new
banks to the participant list. The Financing Agreement provides for maximum
borrowings of the lesser of $125.0 million or the amount of eligible accounts
receivable plus the amount of eligible finished goods and raw materials, less
any reserves established by the banks. The calculated maximum borrowing amount
available at June 30, 2004, as computed under the fifth amendment of the
Financing Agreement, was $122.2 million. The Financing Agreement is unsecured and contains customary covenants and
events of default. The Company was in compliance with these covenants, as of
June 30, 2004. Under the amended Financing Agreement, the Company is allowed
to pay cash dividends. At June 30, 2004, the balance outstanding under the
Financing Agreement was $72.5 million. Amounts outstanding under the Financing
Agreement are payable on May 31, 2007, with interest payments due quarterly. In December 2001, the Company entered into an interest 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 fix 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 that is based on certain financial ratios
contained in the loan covenants. This three-year agreement expires on December
20, 2004. For the six months ended June 30, 2004, the Company recorded an
unrealized gain of $276,125, resulting in a net unrealized loss of $216,329
recorded as of June 30, 2004 in accumulated other comprehensive income (loss)
in the equity section of the balance sheet. 15




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FORM 10-Q Cash used in operations was $7.5 million in the first six months of 2004
compared to $11.6 million of cash provided by operations in the first six
months of 2003. This decrease in cash provided by operations resulted
primarily from an increase in accounts receivable of $15.6 million and an
increase in inventory of $7.2 million in the first six months of 2004, versus
an increase in accounts receivable of $15.3 million and a decrease in inventory
of $6.3 million in the first six months of 2003, further increased by a
decrease in accounts payable of $3.2 million and a $4.8 million decrease in
income taxes payable in the first six months of 2004 versus a increase of $12.4
million in the first six months of 2003. The increase in accounts receivable
and inventory is due to the growth in the Companys unit sales and the rising
prices of copper and wire. The decreases in accounts payable and taxes payable
are primarily timing differences. This increase in working capital is to be
expected in the case of a company growing its sales as the Company did in the
year over year comparison. The earnings by the Company, however,
minimized this impact, as illustrated by the fact that working capital
increased by $34.6 million in the first six months of 2004 which along with the
$13.6 million in first six months net capital expenditures created a cash need
of $48.5 million of which only $19.1 million came from increased borrowings and
$2.7 million came from proceeds from the exercise of stock options, while $26.7
million was internally generated. Cash used in investing activities increased
to $13.6 million in the first six months of 2004 from $2.8 million in the first
six months of 2003. In 2004, the funds were used primarily to begin
construction of the new 162,000 square foot addition to the Companys
distribution center as well as the purchase of associated manufacturing
equipment that was part of the Companys capital plan announced in a press
release issued on February 3, 2004. The $21.8 million of cash provided by
financing activities in the first six months of 2004 was a result of the
Companys increase in outstanding bank debt and from the sale of common stock
through option exercises. During the remainder of 2004, the Company expects its capital expenditures will
consist of additional plant and equipment for its residential and commercial
wire operations. The total capital expenditures associated with these projects
are currently estimated to be in the $18.0 to $21.0 million range in 2004. The
Company will also continue to manage its working capital requirements. These
requirements may increase as a result of expected continued sales increases and
may be impacted by the price of copper. The Company believes that the cash
flow from operations and the financing available under the amended Financing
Agreement will satisfy working capital and capital expenditure requirements for
the next twelve months. Information Regarding Forward Looking Statements This report on Form 10-Q contains various forward-looking statements (within
the meaning of Section 27A of the securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended) and information
that 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 are fluctuations in the economy and
in the level of activity in the building and construction industry, demand for
the 16




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FORM 10-Q Companys products, the impact of price competition and fluctuations in the
price of copper. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes from the information provided in Item 7.A
of the Companys Annual Report on Form 10-K for the year ended December 31,
2003. 
 ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, an evaluation was performed
under the supervision and with the participation of the Companys management,
including the Chief Executive Officer (the CEO) and the Chief Financial
Officer (the CFO), of the effectiveness of the design and operation of the
Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-15 and 15d-15. Based on that evaluation, the Companys management,
including the CEO and CFO, concluded that the Companys disclosure controls and
procedures are adequately designed to ensure that the information required to
be disclosed in this report has been accumulated and communicated to
management, including the CEO and CFO, as appropriate, to allow timely
decisions regarding such required disclosure. There have been no changes in the Companys internal control over financial
reporting or in other factors that have materially affected, or are reasonably
likely to materially affect, internal control over financial reporting
subsequent to the period covered by this report. 17




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FORM 10-Q 
 PART II. OTHER INFORMATION 
 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Stock Repurchase Program On November 6, 2001, the Board of Directors of the Company approved a stock
repurchase program covering the purchase of up to 300,000 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, 150,200 shares
had been purchased under this authorization. Early in 2003, the Board of
Directors extended this program through December 31, 2003 for the remaining
149,800 shares. There were no repurchases of stock in 2003. In February 2004,
the Board of Directors extended this program through December 31, 2004 for the
remaining 149,800 shares. There were no repurchases of stock during the first
two quarters of 2004. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Annual Meeting of Stockholders  (a)
    
    The annual meeting of the stockholders of the Company was
held in McKinney, Texas at 9:00 a.m., local time, on May 4, 2004.(b)
    
    Proxies were solicited by the Board of Directors of the
Company pursuant to Regulation 14A under the Securities and
Exchange Act of 1934; there was no solicitation in opposition to
the Board of Directors nominees for director as listed in the
proxy statement; and all of such nominees were duly elected as
reported below.(c)
    
    Out of a total of 15,308,688 shares of the Companys
common stock outstanding and entitled to vote, 14,596,491 shares
were present in person or by proxy, representing approximately
95.3% of the outstanding shares.The first matter voted on by the stockholders, as fully
described in the proxy statement for the annual meeting, was
the election of directors. No nominee for director received
less than 86.5% of the shares voted. The following table
presents the number of votes received by and voted against each
nominee for director. 18




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FORM 10-Q NUMBER OF
    
    NUMBER OFNOMINEE FOR DIRECTOR
    
    VOTES RECEIVED
    
    VOTES AGAINSTVincent A. Rego
    
    
    14,464,815
    
    
    
    131,676Donald E. Courtney
    
    
    14,444,160
    
    
    
    152,331Daniel L. Jones
    
    
    14,439,510
    
    
    
    156,981Thomas L. Cunningham
    
    
    14,538,678
    
    
    
    57,813William R. Thomas
    
    
    14,465,117
    
    
    
    131,374John H. Wilson
    
    
    14,534,178
    
    
    
    62,313Joseph M. Brito
    
    
    14,571,379
    
    
    
    25,112Scott D. Weaver
    
    
    12,169,372
    
    
    
    1,977,119
  The second matter voted on by the stockholders, as fully described in the proxy
statement for the annual meeting, was a resolution to approve Ernst & Young LLP
as the independent auditors of the Companys financial statements for the year
ending December 31, 2004. The resolution was adopted with the holders of
14,323,010 shares voting in favor of the resolution and the holders of 270,955
shares voting against. Holders of 2,526 shares abstained from voting.(d)
    
    Inapplicable. Special Meeting of Stockholders  (a)
    
    A special meeting of the stockholders of the Company was held
in McKinney, Texas at 9:00 a.m., local time, on July 20, 2004.(b)
    
    Inapplicable.(c)
    
    Out of a total of 15,387,876 shares of the Companys common
stock outstanding and entitled to vote, 14,298,450 shares were
present in person or by proxy, representing approximately 92.9% of
the outstanding shares.The matter voted on by the stockholders, as fully described in the
proxy statement for the special meeting, was a proposal to amend
the Companys Certificate of Incorporation to increase the
Companys authorized shares of common stock from 20,000,000 to
40,000,000 to permit, among other things, a 3-for-2 stock split to
be paid as a 50% stock dividend. The proposal to amend the
Companys Certificate of Incorporation was adopted with the
holders of 14,182,498 shares voting in favor of the proposal. The
holders of 114,712 shares voted against the proposal, and the
holders of 1,240 shares abstained from voting.Following the special meeting of stockholders, the Board of
Directors of the Company met and declared a 3-for-2 stock split to
be paid as a 50% stock dividend on the Companys common stock.
The stock dividend is payable August 16, 2004 to stockholders of
record at the close of business on August 6, 2004. No fractional shares
will be issued in connection with the stock split; each
stockholder of the Company entitled 19




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FORM 10-Q  to receive a fraction of a share of common stock as a result of
the stock split will be entitled to receive a cash payment in lieu
of any such fraction of a share. The Board of Directors also
approved the amendment and restatement of the Bylaws of the
Company to clarify the respective duties of the Chairman of the
Board and the President of the Company.  (d)
    
    Inapplicable. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    The information required by this Item 6(a) is set forth in
the Index to Exhibits accompanying this Form 10-Q.(b)
    
    Reports on Form 8-K The Company did not file any reports on Form 8-K during the second quarter of
2004; however, the following reports on Form 8-K were furnished to the SEC
during the second quarter of 2004: On April 22, 2004, the Company furnished a report on Form 8-K pursuant to Items
7(c), 9 and 12 indicating that the Company issued an earnings release
describing selected financial results of the Company for the first
quarter of
2004. On May 10, 2004, the Company furnished a report on Form 8-K pursuant to Items
7(c), and 9 indicating that the Company issued a press release regarding a
proposed charter amendment to increase the Companys authorized shares of
common stock from 20,000,000 to 40,000,000 to permit a 3-for-2 stock split to
be paid as a 50% stock dividend on the Companys common stock. 20




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FORM 10-Q 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized. ENCORE WIRE CORPORATION(Registrant)Dated: August 6, 2004
    /s/ VINCENT A. REGOVincent A. Rego, Chairman of the Board andChief Executive Officer Dated: August 6, 2004
    /s/ DANIEL L. JONESDaniel L. Jones, President andChief Operating Officer Dated: August 6, 2004
    /s/ FRANK J. BILBANFrank J. Bilban, Vice President  Finance,Treasurer and Secretary
Chief Financial Officer 21




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FORM 10-Q  INDEX TO EXHIBITS ExhibitNumber
    
    Description3.1
    
    
    Certificate of Incorporation of Encore Wire Corporation, as
amended through July 20, 2004 (included herein).3.2
    
    
    Amended and Restated Bylaws of Encore Wire Corporation, as amended
through July 20, 2004 (included herein).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 10-Q 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 September 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, 2003, 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
 22




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FORM 10-Q ExhibitNumber
    
    DescriptionAmerica, 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, 2003, and
incorporated herein by reference).10.7*
    
    
    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).10.8*
    
    
    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.31.1
    
    
    Certification by Vincent A. Rego, Chairman and Chief Executive
Officer of Encore Wire Corporation, dated August 6, 2004 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 August 6, 2004 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 Vincent A. Rego, Chairman and Chief Executive
Officer of Encore Wire Corporation, dated August 6, 2004 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 August 6, 2004 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. 23