2022
Annual Report
March 20, 2023
To Our Stockholders:
We cordially invite you to attend the annual meeting of stockholders of Encore Wire Corporation, which will be held
in a live virtual meeting format only, via webcast, at www.virtualshareholdermeeting.com/WIRE2023, on Tuesday,
May 2, 2023, at 9:00 a.m., central time. As always, we encourage you to vote your shares prior to the virtual annual
meeting. The purposes of the meeting are to elect a Board of Directors for the ensuing year, to approve, in a non-
binding advisory vote, the compensation of Encore’s named executive officers, to determine, in a non-binding
advisory vote, whether a stockholder vote to approve the compensation of the Company’s named executive officers
should occur every one, two, or three years, to ratify the appointment of auditors for 2023, and to conduct other
business that may properly come before the meeting.
Our results in 2022 mark another year of exceptional earnings, strong cash flow and consistent volume growth. Our
single-site, vertically integrated business model affords us the flexibility and agility to adapt quickly to changing
market conditions while continuing to serve our customers at a level consistent with our high standards. Net sales for
the year ended December 31, 2022 were $3.018 billion, while net income for the year was $717.8 million, with fully
diluted net earnings per common share of $36.91. By continuing to execute on our core values of providing unbeatable
customer service and high order fill rates, we were able to increase both copper and aluminum volumes sold on an
annual basis over 2021 levels. We will continue our efforts to grow Encore organically while providing our customers
superior order fill rates and innovative products. As orders come in from electrical contractors, our distributors can
depend on us for quick deliveries coast to coast.
Our balance sheet remains strong with $730.6 million of cash on hand at December 31, 2022. We have no long-term
debt, and our revolving line of credit remains untapped. Our low-cost structure and strong balance sheet have allowed
us the flexibility to adapt quickly to changing market conditions, and we believe they are continuing to prove valuable
now.
During 2022 we repurchased 2,055,470 shares of our common stock for a total cash outlay of $247.6 million. Since
the first quarter of 2020, we have repurchased 2,972,277 shares of our common stock for a total cash outlay of $311.6
million.
Sustainability remains a vital part of Encore Wire's rich history and long-term commitment to our community. Our
corporate culture, which is grounded in efficiency, rigorous cost management and unparalleled customer service, has
provided us the opportunity to grow into a leader in our industry. Our environmental, social, and governance (ESG)
initiatives over the past decade, from our Zero Waste initiative to our Target Zero safety initiative to our deep-rooted
culture of ‘doing the right thing,’ have allowed us to produce and deliver innovative, high-quality products to our
customers. These results and our experience have demonstrated that responsible corporate citizenship and sustainable
performance are fundamental to the future health of our Company.
In March 2023, we published the Company’s first Environmental, Social, and Governance (ESG) Report. This
comprehensive report outlines the Company’s approach to integrating ESG management into our corporate strategy
and highlights our sustainability achievements to date. The strategies detailed in the 2022 ESG Report have formalized
our commitment to sustainability. We look forward to continuing to improve our position as a sustainable and
responsible company in our industry.
We would like to thank our stockholders for their support and investment. We also wish to recognize the many
contributions of all our employees and associates whose efforts have resulted in our continued growth and success.
Daniel L. Jones
Chairman, President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
For the fiscal year ended December 31, 2022
or
Commission File Number: 000-20278
ENCORE WIRE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1329 Millwood Road
McKinney, Texas
(Address of principal executive offices)
75-2274963
(I.R.S. Employer
Identification No.)
75069
(Zip Code)
Title of each class
Common Stock, par value $.01 per share
Registrant’s telephone number, including area code: (972) 562-9473
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
Name of each exchange on which registered
WIRE
Securities registered pursuant to Section 12(g) of the Act: None
The NASDAQ Global Select Market
È Yes ‘ No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ‘ Yes È No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ‘ Yes È No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those
Sections.
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer È
Non-accelerated filer ‘
È Yes ‘ No
‘
Accelerated filer
Smaller reporting company ‘
Emerging growth company ‘
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial
ff
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. È
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ‘
Indicate by check mark whether any of these error correction are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ‘ Yes È No
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 Stock was last sold as of
the last business day of the registrant’s most recently completed second fiscal quarter was $1,391,693,315 (Note: The aggregate market value of Common Stock held by the
Company’s directors, executive officers, immediate family members of such directors and executive officers, 10% or greater stockholders and other stockholders deemed to
be affiliates was excluded from the computation of the foregoing amount. The characterization of such persons as “affiliates” should not be construed as an admission that
any such person is an affiliate of the Registrant for any other purpose).
Number of shares of Common Stock outstanding as of February 15, 2023: 18,270,386
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 2023 annual meeting of stockholders – Part III
DOCUMENTS INCORPORATED BY REFERENCE
ENCORE WIRE CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2022
Table of Contents
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
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Item 1. Business.
General
PART I
Encore Wire Corporation is a Delaware corporation, incorporated in 1989, with its principal executive office and
manufacturing plants located at 1329 Millwood Road, McKinney, Texas 75069. The Company’s telephone number is
(972) 562-9473. As used in this annual report, unless otherwise required by the context, the terms “we,” “our,”
“Company,” “Encore” and “Encore Wire” refer to Encore Wire Corporation.
The Company manufactures a broad range of electrical wire and cables, used to distribute power from the transmission
grid to the wall outlet or switch. Encore’s diversified product portfolio and low-cost of production positions it
exceptionally well to play a key role in the transition to a more sustainable and reliable energy infrastructure. Our
products are proudly made in America at our vertically-integrated, single-site, Texas campus.
The Company sells its products through manufacturers’ representatives to wholesale electrical distributors servicing the
residential, commercial, industrial and renewable energy sectors.
Strategy
Encore Wire’s strategy is to combine its industry-leading delivery model, with world-class operations, to expand market
share and profitability with loyal electrical distributor customers in a high-performance industry. Encore’s legendary
customer service, expansive single-campus model, low-cost production, centralized distribution, product innovation, and
deep company culture have promoted Encore’s growth and will contribute to its future success.
Customer Service: Customer loyalty has been a key driver of Encore’s success, which it has earned through an intense
focus on customer needs, building and maintaining strong relationships, exceeding performance and delivery expectations
with an industry-leading order fill rate, and rapidly handling customer orders, shipments, and inquiries. Encore maintains
broad and deep product inventories based on our customers’ needs, and believes that the speed and completeness with
which it fills orders are critical to marketing its products.
Single-Campus Model: Encore’s single-site campus is a key competitive advantage. It enables a cohesive culture of
loyalty and performance, low-cost manufacturing, distribution and administration efficiencies, speed to manufacture and
deliver product, exceptional quality and safety programs, manufacturing flexibility and agility, acute cost control,
optimized raw material planning and usage, and a resilience to supply chain issues experienced by others in our industry.
Product Innovation: Encore has been a leader in bringing new ideas and innovative products to a “commodity” product
line.
Encore pioneered the widespread use of Colored Insulation on feeder sizes of commercial wire, as well as colors on
residential (non-metallic) cable. Encore’s colors have become the industry standard and have improved job-site safety,
provided handling efficiencies for electrical distributors, and reduced installation times for electrical contractors. Use of
colors also enable building inspectors to immediately identify installed wire.
Encore Wire’s patented SmartColor ID® system for metal-clad and armor-clad cables allows for quick and accurate
identification of gauge, number of conductors, wire and jacket type.
Our spool-free PullPro® is a lightweight, portable, durable case weighing less than thirty pounds that requires no
additional tools for a tangle-free wire pull. With no spools to crack or discard, it improves job-site scrap rates and
reduces trash and waste.
We believe our Reel Payoff® is the industry's first self-spinning wooden reel, which allows pulling on or off the pallet
with no additional tools.
Additionally, Encore currently has multiple patents and patent-pending innovations that range from process improvements
to packaging solutions.
Low-Cost Production: Encore’s low-cost production capability features an efficient plant design and an incentivized work
force.
1
Efficient Plant Design: Encore’s automated wire manufacturing equipment is integrated in an efficient design that reduces
material handling, labor and in-process inventory.
Incentivized Work Force: The Company has a long term incentive plan that enhances the motivation of its salaried
manufacturing supervisors. The Company also has a comprehensive safety program creating a world-class culture by
engaging employees, identifying and eliminating risk, and training employees to be successful. The Company provides a
401(k) retirement savings plan to all employees, and a monthly operations incentive plan for hourly employees.
Products
Encore offers an electrical building wire product line that consists primarily of NM-B cable, UF-B cable, THHN/THWN-
2, XHHW-2, USE-2, RHH/RHW-2 and other types of wire products, including SEU, SER, Photovoltaic, URD, tray cable,
metal-clad and armored cable. All of these products are manufactured with copper or aluminum as the current-carrying
component of the conductor. The principal bases for differentiation among stock-keeping units are product type,
conductor type, diameter, insulation, length, color and packaging.
Manufacturing
The efficiency of Encore’s automated manufacturing facility is a key element of its low-cost production capability.
Encore’s wire manufacturing lines have been integrated so that the handling of product is substantially reduced
throughout the production process. The manufacturing process for the Company’s various products involves multiple
steps, including: casting, drawing, stranding, compounding, insulating, cabling, jacketing and armoring.
Encore manufactures and tests all of its products in accordance with the Underwriters Laboratories (UL) standards, a
nationally recognized testing and standards agency. Additionally, UL representatives routinely visit and test products from
each area of manufacturing.
Customers
Encore sells its wire to wholesale electrical distributors throughout the United States. Most distributors supply products to
electrical contractors. Encore’s customers are numerous and diversified. Encore has two customers, each of whom slightly
exceeds 10% of the Company's total sales. Encore has no customer, the loss of which would have a material adverse
effect on the Company.
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, for a variety of reasons, many customers strive to maintain
lean 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 through independent manufacturers’ representatives.
Encore maintains the majority of its finished product inventory at its service center in McKinney, Texas. In order to
provide flexibility in handling customer requests for immediate delivery, additional finished product inventories are
maintained at warehouses owned and operated by some of the Company's independent manufacturers’ representatives
located strategically across the United States.
Finished goods are typically delivered to customers by trucks operated by common carriers. The decision regarding the
carrier to be used is based primarily on availability and cost.
The Company invoices its customers directly for products purchased and pays the manufacturer's representative a
commission based on pre-established rates. The Company determines customer credit limits. The Company recorded no
reserve for credit losses in 2022, but reserved $1.5 million and $0.7 million for credit losses in 2021 and 2020
respectively. The manufacturers’ representatives have no discretion to determine prices charged for the Company’s
products, and all sales are subject to Company approval.
2
Human Capital
General
The Company fosters a culture for our employees based on the old-fashioned values of service, professionalism and
stewardship. We encourage our employees to do the right thing under any circumstances and to conform to our Code of
Conduct and Ethics. These values are a key aspect of our human capital retention and they inform our employment and
compensation philosophies.
Employees
Encore believes that its hourly employees are highly motivated and that their motivation contributes significantly to
Encore’s efficient operation. The Company believes that competitive hourly compensation coupled with sound
management practices focuses its employees on maintaining high production standards and product quality.
As of December 31, 2022, Encore had 1,672 employees, 1,406 of whom were paid hourly wages and were primarily
engaged in the operation and maintenance of the Company’s manufacturing and warehouse facilities. The Company’s
remaining 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.
Compensation and Benefits
The Company rewards employees with competitive compensation and benefits packages, including attractive medical
plans, a 401(K) retirement savings plan, opportunities for annual bonuses and, for eligible employees, long-term
incentives and a deferred compensation plan. The Company believes that long term incentives like stock-based
compensation are a critical part of its compensation program and allows the Company to attract and retain talented
employees.
Health and Safety
Employee health and safety is a top priority for the Company. The Company is committed to providing a safe and healthy
work environment and to conducting its business in a safe and environmentally protective manner. All employees and
officers are expected to perform their duties consistent with site specific safety and environmental rules and regulations
and site application of Company best practices. The Company understands how the health of its employees impacts not
only their work, but their family life, too. The Company offers an Occumed On-Site Clinic with a nurse practitioner for
employees and their immediate families. For many, the Occumed On-Site Clinic provides basic health screenings and
treatment equal to those at a general practice facility which otherwise might not be possible. The Company also offers a
wide range of health and wellness services to assist its employees and their families with making good lifestyle choices.
Diversity and Inclusion
The Company is committed to and values hiring employees with varied personal and professional backgrounds,
perspectives and experiences, promoting a culture of diversity and inclusion. The diversity of the Company’s employees
is a tremendous asset, and the Company is firmly committed to providing equal opportunity in all aspects of employment
and will not tolerate acts of discrimination or harassment. The Company is committed to employing and advancing in
employment all persons without regard to their race, color, sex, religion, national origin, citizenship, age, gender identity,
sexual orientation, marital status, genetic information, veteran status, disability, or other protected categories.
Raw Materials
The principal raw materials used by Encore in manufacturing its products are copper cathode, copper scrap, PVC
thermoplastic compounds, XLPE compounds, aluminum, steel, paper and nylon, all of which are readily available from a
number of suppliers. Copper is the principal raw material used by the Company in manufacturing its products,
constituting 78.6% of the dollar value of all raw materials used by the Company during 2022. Copper requirements for
manufacturing our wire are purchased primarily from miners and commodity brokers at prices determined each month
primarily based on the average daily COMEX 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.
3
The Company produces copper rod from purchased copper cathode and copper scrap in its own rod fabrication facility.
The Company reprocesses copper scrap generated by its operations as well as copper scrap purchased from others. In
2022, the Company’s copper rod fabrication facility manufactured the majority of the Company’s copper rod
requirements. The Company purchases aluminum rod from various suppliers for aluminum wire production.
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 the last year, the Company’s plastic compounding facility produced the
vast majority of the Company’s PVC requirements.
Competition
The electrical wire and cable industry is highly competitive. The Company competes with several companies who
manufacture and sell wire and cable products beyond the building wire segment in which the Company competes. The
Company’s primary competitors include Southwire Company, LLC, Cerrowire (a Marmon/Berkshire Hathaway
company), General Cable (a company of the Prysmian Group) and AFC Cable Systems, Inc. (a part of Atkore
International).
For all our products, the Company believes that it is competitive with respect to all relevant factors, including order fill
rate, quality, pricing, and, in some instances, breadth of product line.
Compliance with Governmental and Environmental Regulations
The Company is subject to federal, state and local laws covering a wide variety of subject matters, including
environmental protection laws and regulations governing the Company’s operations and the use, handling, disposal and
remediation of hazardous substances currently or formerly used by the Company. Management believes the Company is
in compliance with all such rules including certain environmental permitting and reporting requirements. Historically,
compliance with laws and regulations, including environmental regulations, has not had a material impact on the capital
expenditures, earnings and competitive position of the Company.
Intellectual Property Matters
From time to time, the Company files patent applications with the United States Patent and Trademark Office. The
Company currently owns several patents and pending patent applications. The Company also owns several registered
trademarks and pending trademark applications with the U.S. Patent and Trademark Office. The current registrations for
the marks will expire on various dates from 2023 to 2031, but each registration can be renewed indefinitely as long as the
respective mark continues to be used in commerce and the requisite proof of continued use or renewal application, as
applicable, is filed. 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 https://www.encorewire.com. Under the “Investors” section of our website, the
Company provides a link to our electronic Securities and Exchange Commission (“SEC”) filings, including our annual
report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, director and officer beneficial
ownership reports filed pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and any amendments
to these reports. All such reports are available free of charge and are available as soon as reasonably practicable after the
Company files such material with, or furnishes it to, the SEC.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at https://www.sec.gov.
4
Information about our Executive Officers
Information regarding Encore’s executive officers including their respective ages as of February 16, 2023, is set forth
below:
Name
Daniel L. Jones
Position with Company
Chairman of the Board of Directors, President and Chief
Executive Officer
Age
59
Bret J. Eckert
56
Executive Vice President and Chief Financial Officer
Mr. Jones has held the office of President and Chief Executive Officer of the Company since February 2006. He
performed the duties of the Chief Executive Officer in an interim capacity from May 2005 to February 2006. From May
1998 until February 2005, Mr. Jones was President and Chief Operating Officer of the Company. He previously held the
positions of Chief Operating Officer from October 1997 until May 1998, Executive Vice President from May 1997 to
October 1997, Vice President-Sales and Marketing from 1992 to May 1997, after serving as Director of Sales since
joining the Company in November 1989. He has also served as a member of the Board of Directors since May 1992, and
was named Chairman of the Board in 2014.
Mr. Eckert has held the office of Executive Vice President since December 2022. He served as Vice President-Finance,
Treasurer, Secretary and Chief Financial Officer of Encore since January 2020. He joined the Company in August 2019 as
Vice President-Finance. Prior to joining the Company, Bret served as Executive Managing Director for the Houston
office of Riveron Consulting LLC, a business advisory firm, from June 2018 to August 2019. Previously he was Senior
Vice President and Chief Financial Officer of Atmos Energy Corporation in Dallas for approximately five years. He spent
the first twenty-two years of his career with Ernst & Young LLP where he was a partner for ten years.
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.
Item 1A. Risk Factors.
The following are risk factors that could affect the Company’s business, financial results and results of operations. These
risk factors should be carefully considered in evaluating us and our common stock. Any of these risks, many of which are
beyond our control, could materially and adversely affect our financial condition, results of operations or cash flows, or
cause our actual results to differ materially from those projected in any forward-looking statements contained in this
Annual Report on Form 10-K. Before purchasing the Company’s stock, an investor should know that making such an
investment involves some risks, including the risks described below. If any of the risks mentioned below or other
unknown risks actually occur, the Company’s business, financial condition or results of operations could be negatively
affected. In that case, the trading price of its stock could fluctuate significantly. We may also face other risks and
uncertainties that are not presently known, are not currently believed to be material, or are not identified below because
they are common to all businesses. Past financial performance may not be a reliable indicator of future performance, and
historical trends should not be used to anticipate results or trends in future periods.
Risks Related to Our Business and Industry
Supply and Availability of Raw Materials, Supply Chain Constraints and Profitability Margins
The success of our business depends on our ability to meet customer demand of a commodity product in a highly
competitive market, and sourcing an adequate supply of raw materials, including copper, is vital to our business and
operations. While the Company generally believes our supply of raw materials is adequate, the Company could
experience instances of limited supply of certain raw materials, resulting in extended lead times and higher prices.
Shortages or interruptions (including due to labor or political disputes) in the supply of our raw materials could disrupt
our operations, and our business and financial condition could be materially adversely affected by such disruptions.
Limitations inherent within our supply chain of certain raw materials, including competitive, governmental, and legal
limitations, natural disasters, and other events, could impact costs, and future increases in the costs of these items,
including, for example, the adoption of new tariffs by the United States and other countries, and a resurgence of the
COVID-19 pandemic could adversely affect our profitability and availability of raw materials. There can be no assurance
that future price increases will be successfully passed through to customers or that we will be able to find alternative
suppliers.
5
Additionally, in the last three quarters of 2021 and throughout 2022, supply chain constraints, driven in part by the
COVID-19 pandemic, positively impacted the prices at which we sold our products, resulting in our increased
profitability. There can be no assurance that product prices or our profitability will remain at current levels. We anticipate
the supply chain constraints abating in the future, but we are unable to predict the timing, impact, or whether such
abatement will be gradual or abrupt.
Product Pricing and Volatility of Copper Market
Price competition for copper electrical wire and cable is significant, and the Company sells its products in accordance
with prevailing market prices. Wire and cable prices can, and frequently do, change on a daily basis. This competitive
pricing market for wire does not always mirror changes in copper prices, making margins highly volatile. Copper, a
commodity product, is the principal raw material used in the Company’s manufacturing operations. The price of copper
fluctuates depending on general economic conditions and in relation to supply and demand and other factors, including
changes in regulatory, geopolitical, political, social, economic, tax or monetary policies, and it causes monthly variations
in the cost of copper purchased by the Company. The SEC allows shares of physically backed copper exchange traded
funds (“ETFs”) to be listed and publicly traded. Such funds and other copper ETFs like them hold copper cathode as
collateral against their shares. The acquisition of copper cathode by copper ETFs may materially decrease or interrupt the
availability of copper for immediate delivery in the United States, which could materially increase the Company’s cost of
copper. In addition to rising copper prices and potential supply shortages, we believe that ETFs and similar copper-backed
derivative products could lead to increased copper price volatility. While the Company has experienced increased
profitability in recent quarters, the Company cannot predict future copper prices or the effect of fluctuations in the costs
of copper on the Company’s future operating results and, as a result, cannot predict how long the Company's increased
profitability will continue and whether such positive financial trends will be sustained. Consequently, fluctuations in
copper prices caused by market forces can significantly affect the Company’s financial results.
Industry Conditions and Cyclicality
The residential, commercial and industrial construction industry, which is the end user of the Company’s products, is
cyclical and is affected by a number of factors, including the general condition of the economy, market demand and
changes in interest rates. Industry sales of electrical wire and cable products tend to parallel general construction activity,
which includes remodeling. Data on remodeling is not readily available. However, remodeling activity historically trends
up when new construction slows down. Construction activity is affected by the ability of our end users to finance projects,
which may be severely reduced due to a widespread outbreak of contagious disease, including an epidemic or pandemic
such as the ongoing COVID-19 pandemic. Residential, commercial and industrial construction could decline if companies
and consumers are unable to finance construction projects or if the economy precipitously declines or stalls, which could
result in delays or cancellations of capital projects.
Deterioration in the financial condition of the Company’s customers due to industry and economic conditions may result
in reduced sales, an inability to collect receivables and payment delays or losses due to a customer’s bankruptcy or
insolvency. Although the Company’s bad debt experience has been low in recent years, the Company’s inability to collect
receivables may increase the amounts the Company must expense against its bad debt reserve, decreasing the Company’s
profitability. A downturn in the residential, commercial or industrial construction industries and general economic
conditions may have a material adverse effect on the Company.
Competition
The electrical wire and cable industry is highly competitive. The Company competes with several manufacturers of wire
and cable products that have substantially greater resources than the Company. Some of these competitors are owned and
operated by large, diversified companies. The principal elements of competition in the wire and cable industry are, in the
opinion of the Company, pricing, product availability and quality and, in some instances, breadth of product line. The
Company believes that it is competitive with respect to all of these factors. While the number of manufacturers producing
wire and cable has declined in the past, there can be no assurance that new competitors will not emerge or that existing
producers will not employ or improve upon the Company’s manufacturing and marketing strategy.
6
Risks Related to Our Operations
Operating Results May Fluctuate
Encore’s results of operations may fluctuate as a result of a number of factors, including fluctuation in the demand for and
shipments of the Company’s products. Therefore, comparisons of results of operations, including recent periods of
increased profitability, have been and will be impacted by the volume of such orders and shipments, and the Company
cannot predict if periods of increased profitability will continue in the future. In addition, the Company's operating results
could be adversely affected by the following factors, among others, such as variations in the mix of product sales, price
changes in response to competitive factors, increases in raw material costs, freight and other significant costs, the loss of
key manufacturer’s representatives who sell the Company’s product line, increases in utility costs (particularly electricity
and natural gas) and various types of insurance coverage and interruptions in plant operations resulting from the
interruption of raw material supplies and other factors. Additionally, our results of operations could be impacted by
macro-economic and geopolitical conditions as well as other outside factors, including changes in regulatory, geopolitical,
political, social, economic, tax or monetary policies and other factors.
Reliance on Senior Management
Encore’s future operating results depend, in part, upon the continued service of its senior management, including, Mr.
Daniel L. Jones, Chairman, President and Chief Executive Officer, and Mr. Bret J. Eckert, the Company’s Executive Vice
President and Chief Financial Officer (neither of whom is bound by an employment agreement). The Company’s future
success will depend upon its continuing ability to attract and retain highly qualified managerial and technical personnel.
Competition for such personnel is intense, and there can be no assurance that the Company will retain its key managerial
and technical employees or that it will be successful in attracting, assimilating or retaining other highly qualified
personnel in the future.
Patent and Intellectual Property Disputes
Disagreements about patents and intellectual property rights occur in the wire and cable industry. The unfavorable
resolution of a patent or intellectual property dispute could preclude the Company from manufacturing and selling certain
products or could require the Company to pay a royalty on the sale of certain products. Patent and intellectual property
disputes could also result in substantial legal fees and other costs.
Cybersecurity Breaches and other Disruptions to our Information Technology Systems
The efficient operation of our business is dependent on our information technology systems to process, transmit and store
sensitive electronic data, including employee, distributor and customer records, and to manage and support our business
operations and manufacturing processes. The secure maintenance of this information is critical to our operations. Despite
our security measures, our information technology system may be vulnerable to attacks by hackers or breaches due to
errors or malfeasance by employees and others who have access to our system, or other disruptions during the process of
upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility
failures or natural disasters. Any such event could compromise our information technology system, expose our customers,
distributors and employees to risks of misuse of confidential information, impair our ability to effectively and timely
operate our business and manufacturing processes, and cause other disruptions, which could result in legal claims or
proceedings, disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of
confidence in our products and services, any of which could adversely affect our results of operations and competitive
position.
Climate Change
Future deterioration of the environment due to climate change or increased severe weather related events associated with
climate change could affect both our operations and the operations of our suppliers and customers. The Company could
experience increased operating costs due to new regulatory requirements and increased physical risks to our facilities due
to volatile weather. The Company could experience disruptions or limitations to access of water. Our suppliers may face
similar challenges, which could impact our supply chain. Demand for our products may be impacted regionally as local
climates adapt to global environmental changes.
7
Risks Related to Ownership of Our Stock
Common Stock Price May Fluctuate
Future announcements concerning Encore or its competitors or customers, quarterly variations in operating results,
announcements of technological innovations, the introduction of new products or changes in product pricing policies by
the Company or its competitors, developments regarding proprietary rights, changes in earnings estimates by analysts or
reports regarding the Company or its industry in the financial press or investment advisory publications, among other
factors, could cause the market price of the common stock to fluctuate substantially. These fluctuations, as well as general
economic, political and market conditions, such as recessions, world events, military conflicts or market or market-sector
declines, may materially and adversely affect the market price of the common stock.
Beneficial Ownership of the Company’s Common Stock by a Small Number of Stockholders
A small number of significant stockholders beneficially own greater than 35% of the Company’s outstanding common
stock. Depending on stockholder turnout for a stockholder vote, these stockholders, acting together, could be able to
control the election of directors and certain matters requiring majority approval by the Company’s stockholders. The
interests of this group of stockholders may not always coincide with the Company’s interests or the interests of other
stockholders.
In the future, these stockholders could sell large amounts of common stock over relatively short periods of time. The
Company cannot predict if, when or in what amounts stockholders may sell any of their shares. Sales of substantial
amounts of the Company’s common stock in the public market by existing stockholders or the perception that these sales
could occur, may adversely affect the market price of our common stock by creating a public perception of difficulties or
problems with the Company’s business.
Future Sales of Common Stock Could Affect the Price of Common Stock
No prediction can be made as to the effect, if any, that future sales of shares or the availability of shares for sale will have
on the market price of the common stock prevailing from time to time. Sales of substantial amounts of common stock, or
the perception that such sales might occur, could adversely affect prevailing market prices of the common stock.
Risks Related to Laws and Regulations
Environmental Liabilities
The Company is subject to federal, state and local environmental protection laws and regulations governing the
Company’s operations and the use, handling, disposal and remediation of hazardous substances currently or formerly used
by the Company. A risk of environmental liability is inherent in the Company’s current manufacturing activities in the
event of a release or discharge of a hazardous substance generated by the Company. Under certain environmental laws,
the Company could be held jointly and severally responsible for the remediation of any hazardous substance
contamination at the Company’s facilities and at third party waste disposal sites and could also be held liable for any
consequences arising out of human exposure to such substances or other environmental damage. There can be no
assurance that the costs of complying with environmental, health and safety laws and requirements in the Company’s
current operations or the liabilities arising from past releases of, or exposure to, hazardous substances, will not result in
future expenditures by the Company that could materially and adversely affect the Company’s financial results, cash flow
or financial condition.
Regulations Related to Conflict-free Minerals May Force Us to Incur Additional Expenses
In August 2012, the SEC adopted disclosure requirements related to certain minerals sourced from the Democratic
Republic of Congo or adjoining countries, as required by Section 1502 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”). The SEC rules implementing Section 1502 of the Dodd-Frank Act
require us to perform due diligence, and report whether “conflict minerals,” which are defined as tin, tantalum, tungsten
and gold, necessary to the functionality of a product we purchase originated from the Democratic Republic of Congo or
an adjoining country. Since 2014, we have been required to file with the SEC on an annual basis a specialized disclosure
report on Form SD regarding such matters. As our supply chain is complex, we may incur significant costs to determine
the source and custody of conflict minerals that are used in the manufacture of our products in order to comply with these
regulatory requirements in the future. We may also face reputation challenges if we are unable to verify the origins for all
conflict minerals used in our products, or if we are unable to conclude that our products are “conflict free.” Over time,
8
conflict minerals reporting requirements may affect the sourcing, price and availability of our products, and may affect
the availability and price of conflict minerals that are certified as conflict free. Accordingly, we may incur significant
costs as a consequence of regulations related to conflict-free minerals, which may adversely affect our business, financial
condition or results of operations.
Changes in Tax Laws Could Increase Our Tax Rate and Adversely Affect Our Results of Operations.
A change in tax laws is one of many factors that impact the Company’s effective tax rate, and any such change could
adversely impact our effective tax rate, financial condition and results of operations.
The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise
tax on share repurchases that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax on
adjusted financial statement income. The Company does not expect the IRA to have a material adverse impact to its
financial statements.
It cannot be predicted whether or when tax laws, rules, regulations or ordinances may be enacted, issued, or amended that
could materially and adversely impact our financial position, results of operations, or cash flows.
General Risk Factors
Outbreak of Contagious Disease
Our business and the businesses of our suppliers, distributors and customers could be adversely affected by the effects of
a widespread outbreak of contagious diseases, including COVID-19, or any ongoing variants. Any outbreak of contagious
diseases, and other adverse public health developments, could cause a disruption in our supply chain, distribution and
demand for our products. The duration of any such disruption and the related financial impact from COVID-19, or any
ongoing variants, and other epidemics and pandemics cannot be reasonably estimated at this time. Although the effects of
the COVID-19 pandemic during 2022 were not as significant as prior years, new variants continued to cause waves of
COVID-19 cases around the world. The occurrence or continuation of any of these events could lead to decreased
revenues and limit our ability to execute on our business plan, which could adversely affect our business, financial
condition and results of operations.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Encore maintains its corporate office and manufacturing plants in McKinney, Texas, approximately 32 miles north of
downtown Dallas. The Company’s facilities are located on a combined site of approximately 460 acres and consist of
buildings containing over 3.0 million square feet of floor space. The corporate office, plants and equipment are owned by
the Company and are not mortgaged to secure any of the Company’s existing indebtedness. Encore believes that its plants
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.
Item 3. Legal Proceedings.
For information on the Company’s legal proceedings see Note 10 to the Company’s financial statements included in
Item 8 to this report and incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
9
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
PART II
The Company’s common stock is traded and quoted on the NASDAQ Stock Market’s Global Select Market under the
symbol “WIRE.” As of February 15, 2023, there were 29 holders of record of the Company’s common stock.
Aside from periodic cash dividends, which the Company currently expects to continue to make consistent with its
historical practice, management and the Board currently intend to retain the majority of future earnings for the operation
and expansion of the Company’s business.
Issuer Purchases of Equity Securities
Note 9 to the Company’s financial statements included in Item 8 to this report is hereby incorporated herein by reference.
The following table provides information relating to our purchases of shares of our common stock during the three
months ended December 31, 2022.
(a)
(b)
Total
Number of
Shares
Purchased
—
—
161,701
161,701
Average
Price Paid
Per Share
—
$
—
138.38
$ 138.38
(c)
Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs (1)
—
—
161,701
161,701
(d)
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs (1)
1,214,253
1,214,253
1,052,552
Period
October 1, 2022 – October 31, 2022
November 1, 2022 – November 30, 2022
December 1, 2022 – December 31, 2022
(1) On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to
repurchase up to an authorized number of shares of its common stock from time to time in the open market or private
transactions at the Company's discretion. This authorization originally expired on December 31, 2007, and the Company’s
Board of Directors has authorized several increases and annual extensions of this stock repurchase program, most recently
on August 1, 2022, authorizing the repurchase of up to 2,000,000 shares of our common stock. As of December 31,
2022, 1,052,552 shares remained authorized for repurchase through March 31, 2023. Under this program, the Company
repurchased 2,055,470 shares of its stock in 2022, 475,557 shares in 2021 and 441,250 shares in 2020.
Performance Graph
The following graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by
reference into any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as
amended, respectively.
The graph below sets forth the cumulative total stockholder return, which assumes reinvestment of dividends, of a $100
investment in the Company’s common stock, the Russell 2000 Index, the Company’s self-determined peer group for the
year ended December 31, 2021 (the “Prior Peer Group”), and the Company’s self-determined peer group for the year
ended December 31, 2022 (the “Peer Group”) for the five years ended December 31, 2022.
The Prior Peer Group consisted of Belden Inc., Apogee Enterprises, Inc., Quanex Building Products Corporation, Atkore
International Group, Inc., and Masonite International Corporation. For the year ended December 31, 2022, the Company
replaced Quanex Building Products Corporation and Masonite International Corporation, changing its Peer Group to
include Patrick Industries, Inc., Gibraltar Industries, Inc., Nexans S.A., and Prysmian S.P.A. The Company believes that
the updated Peer Group better reflects a broader group of peers with a more comparable median market capitalization
who either sell building products or electrical components to the Company’s end-use customers or directly compete with
the Company in certain product categories.
10
Total Return For:
2017
2018
2019
2020
2021
2022
Encore Wire Corporation
$
100.00 $
103.31 $
118.35 $
125.14 $
295.88 $
284.58
As of December 31,
Russell 2000 Index
Peer Group
Prior Peer Group
Notes
100.00
100.00
100.00
88.99
61.70
63.84
111.70
134.00
153.85
88.27
94.55
112.78
148.95
98.08
166.07
122.41
143.67
158.45
(1)
(2)
(3)
(4)
(5)
(6)
Data presented in the performance graph is complete through December 31, 2022.
The Peer Group is self-determined and consists of the following companies: Belden Inc., Patrick
Industries, Inc., Apogee Enterprises, Inc., Gibraltar Industries, Inc., Atkore Inc., Nexans S.A., and
Prysmian S.P.A.
The Prior Peer Group is self-determined and consists of the following companies: Belden Inc., Apogee
Enterprises, Inc., Quanex Building Products Corporation, Atkore International Group, Inc., and
Masonite International Corporation. The performance graph presented in our Annual Report on Form
10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022, consisted of this
peer group.
Each peer group index uses only the peer group’s performance and excludes the performance of the
Company. Each peer group index uses beginning of period market capitalization weighting.
Each data line represents annual index levels derived from compounded daily returns that include all
dividends.
The index level for all data lines was set to $100.00 on December 31, 2017.
11
Item 6. [Reserved].
Item 7. Management’s Discussion and Analysis of Financial 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. The duration and severity of the COVID-19, and any
ongoing variants, pandemic outbreak and their long-term impact on our business are uncertain at this time. Although the
effects of the COVID-19 pandemic during 2022 were not as significant as prior years, developments surrounding the
COVID-19 global pandemic are continuing to change daily, and we have limited visibility into the extent to which market
demand for our products as well as sector manufacturing and distribution capacity will be impacted.
Executive Overview
Encore Wire sells a commodity product in a highly competitive market. Management believes that the historical strength
of the Company’s growth and earnings is in large part attributable to the following main factors:
•
•
•
•
•
•
•
•
•
industry-leading order fill rates and responsive customer service;
single-site, vertically integrated business model;
deep supplier relationships for key raw materials;
product innovations and product line expansions based on listening to and understanding customer needs and
market trends;
low cost manufacturing operations, resulting from a state-of-the-art manufacturing complex;
low distribution and freight costs due in large part to the “one campus” business model;
a focused management team leading a skilled work force;
low general and administrative overhead costs; and
a team of experienced independent manufacturers’ representatives with strong customer relationships across the
United States.
These factors, and others, have allowed Encore Wire to grow from a startup in 1989 to what management believes is one
of the largest electric building wire companies in the United States of America. Encore has built a loyal following of
customers throughout the 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 by expanding its product offerings where profit margins are acceptable. Senior management monitors gross margins
daily, frequently extending down to the individual order level. Management strongly believes that this “hands-on” focused
approach to the building wire business has been an important factor in the Company's success, and will lead to continued
success.
Investment in residential, commercial, industrial and renewable energy infrastructure drives demand for the Company’s
wire and cable solutions. In 2022, pounds shipped increased 7.9% in copper wire versus 2021. In 2021, pounds shipped
increased 10.8% in copper wire versus 2020. In 2020, pounds shipped decreased 5.4% in copper wire versus 2019.
General
The Company’s operating results 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 plants operate during the period,
among others. Price competition for electrical wire and cable is significant, 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. 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
12
Company. Additionally, the SEC allows shares of physically backed copper exchange traded funds (“ETFs”) to be listed
and publicly traded. Such funds and other copper ETFs like it hold copper cathode as collateral against their shares. The
acquisition of copper cathode by Copper ETFs may materially decrease or interrupt the availability of copper for
immediate delivery in the United States, which could materially increase the Company’s cost of copper. In addition to
rising copper prices and potential supply shortages, we believe that ETFs and similar copper-backed derivative products
could lead to increased price volatility for copper. The Company cannot predict copper prices in the future or the effect of
fluctuations in the cost of copper on the Company’s future operating results. Wire prices can, and frequently do change on
a daily basis. This competitive pricing market for wire does not always mirror changes in copper prices, making margins
highly volatile. Historically, the cost of aluminum has been much lower and less volatile than copper. The tables below
highlight the range of closing prices of copper on the COMEX exchange for the periods shown.
COMEX COPPER CLOSING PRICE 2022
High
Low
Average
$
October
2022
3.63 $
3.36
3.47
November
2022
3.95 $
3.46
3.68
COMEX COPPER CLOSING PRICE 2021
High
Low
Average
$
October
2021
4.76 $
4.16
4.45
November
2021
4.46 $
4.27
4.37
COMEX COPPER CLOSING PRICE 2020
High
Low
Average
$
October
2020
3.19 $
2.86
3.06
November
2020
3.42 $
3.07
3.20
COMEX COPPER CLOSING PRICE 2022 by Quarter
December
2022
3.88 $
3.75
3.82
Quarter Ended
Dec. 31, 2022
Year-to-Date
Dec. 31, 2022
4.93
3.21
4.00
3.95 $
3.36
3.66
December
2021
4.47 $
4.18
4.33
Quarter Ended
Dec. 31, 2021
Year-to-Date
Dec. 31, 2021
4.78
3.54
4.25
4.76 $
4.16
4.38
December
2020
3.63 $
3.47
3.53
Quarter Ended
Dec. 31, 2020
Year-to-Date
Dec. 31, 2020
3.63
2.12
2.80
3.63 $
2.86
3.27
High
Low
Average
High
Low
Average
Quarter Ended
March 31, 2022
$
4.93 $
4.30
4.55
Quarter Ended
March 31, 2021
$
4.30 $
3.54
3.87
Quarter Ended
June 30, 2022
Quarter Ended
Sept. 30, 2022
Quarter Ended
Dec. 31, 2022
4.80 $
3.71
4.33
3.71 $
3.21
3.50
Quarter Ended
June 30, 2021
Quarter Ended
Sept. 30, 2021
Quarter Ended
Dec. 31, 2021
Year-to-Date
Dec. 31, 2022
4.93
3.21
4.00
3.95 $
3.36
3.66
Year-to-Date
Dec. 31, 2021
4.78
3.54
4.25
4.76 $
4.16
4.38
COMEX COPPER CLOSING PRICE 2021 by Quarter
4.78 $
4.00
4.42
4.59 $
4.04
4.30
13
Results of Operations
The following table presents certain items of income and expense as a percentage of net sales for the periods indicated.
Net sales
Cost of goods sold:
Copper
Other raw materials
Depreciation
Labor and overhead
LIFO adjustment
Total cost of goods sold
Gross profit
Selling, general and administrative expenses
Operating income
Net interest and other income
Income before income taxes
Provision for income taxes
Net income
Year Ended December 31,
2022
100.0 %
2021
100.0 %
2020
100.0 %
44.0 %
12.0 %
0.8 %
6.9 %
(0.6) %
63.1 %
36.9 %
6.5 %
30.4 %
0.3 %
30.7 %
6.9 %
46.7 %
10.5 %
0.8 %
6.6 %
1.9 %
66.5 %
33.5 %
6.5 %
27.0 %
— %
27.0 %
6.1 %
57.3 %
13.5 %
1.4 %
10.8 %
1.8 %
84.8 %
15.2 %
7.6 %
7.6 %
0.1 %
7.7 %
1.8 %
23.8 %
20.9 %
5.9 %
The following discussions and analyses relate to factors that have affected the operating results of the Company for the
years ended December 31, 2022, 2021 and 2020. Reference should also be made to the Financial Statements and the
related notes included under “Item 8. Financial Statements and Supplementary Data” of this Annual Report. Additional
information about results for year end 2020 and certain year-on-year comparisons between 2021 and 2020 can be found in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2021.
Net sales for the twelve months ended December 31, 2022 were $3.018 billion compared to $2.593 billion during the
same period in 2021 and $1.277 billion during the same period in 2020. The 16.4% increase in net sales dollars in 2022
versus 2021 was primarily the result of a 7.4% increase in copper wire sales, driven by a 7.9% increase in copper wire
pounds shipped, partially offset by a 0.5% decrease in the average selling price of copper wire due to moderate decreases
in copper commodity prices in the trailing six months of 2022. In the twelve months ended December 31, 2021 versus
the twelve months ended December 31, 2020, the 103.0% increase in net sales dollars was primarily the result of a
104.7% increase in copper wire sales. Sales dollars were driven higher by an 84.7% increase in average selling price of
copper wire, coupled with a 10.8% increase in copper wire pounds shipped. Average selling prices for wire sold were
driven higher by rising copper commodity prices. Additionally, aluminum net sales increased from 8.3% of net sales to
15.4% of net sales due to an increase in both price and volume shipped.
Cost of goods sold was $1.905 billion, or 63.1% of net sales, in 2022 versus $1.725 billion, or 66.5% of net sales, in 2021
and $1.082 billion, or 84.8% of net sales in 2020. Gross profit increased to $1.112 billion, or 36.9% of net sales in 2022,
compared to $867.7 million, or 33.5% of net sales, in 2021 and $194.5 million, or 15.2% of net sales in 2020.
Gross profit percentage for the twelve months ended December 31, 2022 was 36.9% compared to 33.5% during the same
period in 2021 and 15.2% during the same period in 2020. The average selling price of wire per copper pound sold
decreased 0.5% in the twelve months ended December 31, 2022 versus the twelve months ended December 31, 2021,
while the average cost of copper per pound purchased decreased 2.7%. The overall increase in total volumes shipped,
along with an increase in aluminum spreads during 2022, resulted in the increased gross profit margin for the full year of
2022 when compared to 2021. The increase in copper spreads in 2022 over 2021, along with increased aluminum spreads
over the same period, coupled with an overall increase in total volumes shipped, drove the gross profit margin higher in
2022 compared to 2021. The average selling price of wire per copper pound sold increased 84.7% in the twelve months
14
ended December 31, 2021 versus the twelve months ended December 31, 2020, while the average cost of copper per
pound purchased increased 49.5%.
Net income for the twelve months ended December 31, 2022 was $717.8 million versus $541.4 million in the same period
in 2021 and $76.1 million in the same period in 2020. Fully diluted net earnings per common share were $36.91 in the
twelve months ended December 31, 2022 versus $26.22 in the same period in 2021 and $3.68 in the same period in 2020.
Inventories consist of the following at December 31 (in thousands):
Raw materials
Work-in-process
Finished goods
Total
Adjust to LIFO cost
Inventory
2022
2020
42,611
2021
$ 69,567 $ 54,012 $ 40,842
30,311
40,422
138,943 123,401
88,544
251,121 217,835 159,697
(67,375)
$ 153,187 $ 100,816 $ 92,322
(97,934) (117,019)
The quantity of total copper inventory on hand increased in 2022, compared to 2021. The other materials category, which
includes a large number of raw materials, had quantity and price changes that included increases and decreases in various
other materials. This resulted in a last-in, first-out (LIFO) method adjustment decreasing cost of sales by $19.1 million in
2022. We utilize the LIFO method because it results in a better matching of costs and revenues.
The quantity of total copper inventory on hand increased somewhat in 2021, compared to 2020. The other materials
category, which includes a large number of raw materials, had quantity changes that included increases and decreases in
various other materials. This resulted in a LIFO method adjustment increasing cost of sales by $49.6 million in 2021.
Based on the current copper and other raw material prices, there is no lower of cost or market (LCM) adjustment
necessary in the periods presented above.
Gross profit was $1.112 billion, or 36.9% of net sales, in 2022 compared to $867.7 million, or 33.5% of net sales, in 2021
and $194.5 million, or 15.2% of net sales, in 2020. The changes in gross profit were due to the factors discussed above.
Selling expenses, which are made up of freight and sales commissions, were $133.7 million in 2022, $109.5 million in
2021 and $66.8 million in 2020. Freight costs increased as a result of increased sales volumes and an increase in overall
freight rates. Commission costs increased commensurate with the sales dollar increase. As a percentage of net sales,
selling expenses were 4.4% in 2022, 4.2% in 2021, and 5.2% in 2020. General and administrative expenses were $63.7
million in 2022, $57.6 million in 2021 and $29.5 million in 2020. As a percentage of net sales, general and administrative
expenses were 2.1% in 2022 versus 2.2% in 2021 and 2.3% in 2020. Accounts receivable write-offs were zero in 2022
and 2021 and $0.3 million in 2020. The Company did not increase the reserve for credit losses in 2022, but did increase
the reserve by $1.5 million and $0.7 million in 2021 and 2020, respectively.
Net interest and other income was $9.8 million in 2022, $0.2 million in 2021 and $1.3 million in 2020. Both the increase
in 2022 and the decrease in 2021 reflect the economic impact of the pandemic and its effect on interest rates during the
years and the resulting interest earned.
Our effective tax rate was 22.4% in 2022, 22.6% in 2021 and 23.0% in 2020. The differences between the provisions for
income taxes and the income taxes computed using the federal income tax statutory rate are primarily due to state taxes
and non-deductible expenses.
As a result of the foregoing factors, the Company’s net income was $717.8 million in 2022, $541.4 million in 2021 and
$76.1 million in 2020.
15
Liquidity and Capital Resources
The following table summarizes the Company’s cash flow activities (in thousands):
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase in cash and cash equivalents
Annual dividends paid
2022
2020
Year Ended December 31,
2021
$ 688,883 $ 418,418 $ 57,462
(85,991)
(148,350) (118,155)
(248,966)
(19,313)
(44,396)
$ 291,567 $ 255,867 $ (47,842)
1,650
$
1,548 $
1,633 $
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. In general, the Company’s standard payment terms result in the collection of a significant
majority of net sales within approximately 75 days of the date of the invoice. Therefore, the Company’s liquidity needs
have generally consisted of working capital necessary to finance receivables and inventory. Capital expenditures have
historically been necessary to expand and update the production capacity of the Company’s manufacturing operations.
The Company has historically satisfied its liquidity and capital expenditure needs with cash generated from operations,
borrowings under its various debt arrangements and sales of its common stock. We believe that the Company has
sufficient liquidity, and will continue to have sufficient liquidity beyond the short-term outlook, and do not believe
COVID-19, or any of its ongoing variants, will materially impact our liquidity, but we continue to assess the COVID-19
pandemic and any ongoing variants and their impact on our business, including on our customer base and suppliers.
At December 31, 2022 and 2021, the Company had no debt outstanding.
On February 9, 2021, the Company terminated its previous credit agreement and entered into a new Credit Agreement
(the “2021 Credit Agreement”) with two banks, Bank of America, N.A., as administrative agent and letter of credit issuer,
and Wells Fargo Bank, National Association, as syndication agent. The 2021 Credit Agreement extends through February
9, 2026 and provides for maximum borrowings of $200.0 million. At our request and subject to certain conditions, the
commitments under the 2021 Credit Agreement may be increased by a maximum of up to $100.0 million as long as
existing or new lenders agree to provide such additional commitments.
The 2021 Credit Agreement contains provisions to replace LIBOR with a replacement rate as described in the 2021 Credit
Agreement. On October 20, 2022, the Company entered into the First Amendment to the 2021 Credit Agreement (the
“Amended 2021 Credit Agreement”) which replaced LIBOR with BSBY as permitted under the 2021 Credit Agreement.
Borrowings under the line of credit bear interest, at the Company’s option, at either (1) BSBY plus a margin that varies
from 1.000% to 1.875% depending upon the Leverage Ratio (as defined in the 2021 Credit Agreement), or (2) the base
rate (which is the highest of the federal funds rate plus 0.5%, the prime rate, or BSBY plus 1.0%) plus 0% to 0.375%
(depending upon the Leverage Ratio). A commitment fee ranging from 0.20% to 0.325% (depending upon the Leverage
Ratio) is payable on the unused line of credit. At December 31, 2022, there were no borrowings outstanding under the
Amended 2021 Credit Agreement, and letters of credit outstanding in the amount of $0.3 million left $199.7 million of
credit available under the Amended 2021 Credit Agreement. Obligations under the Amended 2021 Credit Agreement are
the only contractual borrowing obligations or commercial borrowing commitments of the Company.
Obligations under the Amended 2021 Credit Agreement are unsecured and contain customary covenants and events of
default. The Company was in compliance with the covenants as of December 31, 2022.
The Company paid interest totaling $0.4 million, $0.4 million and $0.2 million in 2022, 2021 and 2020, respectively, none
of which was capitalized.
On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to
repurchase up to an authorized number of shares of its common stock from time to time in the open market or private
transactions at the Company's discretion. This authorization originally expired on December 31, 2007, and the Company’s
Board of Directors has authorized several increases and annual extensions of this stock repurchase program, most recently
on August 1, 2022, authorizing the repurchase of up to 2,000,000 shares of our common stock. As of December 31,
2022, 1,052,552 shares remained authorized for repurchase through March 31, 2023. The Company repurchased
2,055,470 shares of its stock in 2022, 475,557 shares in 2021, and 441,250 shares in 2020.
16
Subsequently, in February 2023, the Board of Directors extended the repurchase authorization for up to 2,000,000 shares
of our common stock through March 31, 2024.
Net cash provided by operations increased $270.5 million to $688.9 million in 2022 compared to $418.4 million in 2021
and $57.5 million in 2020. The increase in cash provided by operations of $270.5 million in 2022 versus 2021 was due to
several factors. Net income increased to $717.8 million in 2022 from $541.4 million in 2021. Accounts receivable
increased $7.6 million in 2022 compared to increasing $216.8 million in 2021, resulting in a positive impact to cash flow
of $209.2 million. Inventory, net increased $52.4 million in 2022 compared to increasing $8.5 million in 2021, producing
a negative impact to cash flow of $43.9 million. Trade accounts payable and accrued liabilities negatively impacted cash
by $12.0 million in 2022 versus favorably impacting cash by $66.9 million in 2021, a negative swing of $78.9 million.
These changes in cash flow were the primary drivers of the $270.5 million increase in net cash flow provided by
operations in 2022 versus 2021.
Net cash provided by operations increased $360.9 million to $418.4 million in 2021 compared to $57.5 million in 2020.
The increase in cash provided by operations of $360.9 million in 2021 versus 2020 was due to several factors. Net income
increased to $541.4 million in 2021 from $76.1 million in 2020. Accounts receivable increased $216.8 million in 2021
compared to increasing $53.4 million in 2020, resulting in a negative impact to cash flow of $163.4 million. Accounts
receivable was impacted by the $307.0 million increase in net sales in the fourth quarter of 2021 versus the fourth quarter
of 2020, due to a 70.5% increase in the average selling price per pound of copper wire sold, and a 3.9% increase in copper
volume shipped. Inventory, net increased $8.5 million in 2021 compared to increasing $2.6 million in 2020, producing a
negative impact to cash flow of $5.9 million. Trade accounts payable and accrued liabilities favorably impacted cash by
$66.9 million in 2021 versus favorably impacting cash by $7.6 million in 2020, a positive swing of $59.3 million. These
changes in cash flow were the primary drivers of the $360.9 million increase in net cash flow provided by operations in
2021 versus 2020.
Net cash used in investing activities was $148.4 million in 2022 versus $118.2 million in 2021 and $86.0 million in 2020.
In 2022, capital expenditures were used primarily for the purchase and installation of machinery and equipment
throughout the Company. The repurposing of our vacated distribution center into Plant 7 to expand manufacturing
capacity and extend our market reach was substantially completed in the second half of 2022. In 2021 and 2020, capital
expenditures were used primarily for the construction of our new service center, the acceleration of spending for our
repurposed distribution center, and the purchase and installation of machinery and equipment throughout the Company.
The net cash used by financing activities of $249.0 million in 2022 consisted primarily of $247.6 million used to purchase
Company stock and dividend payments of $1.5 million, partially offset by $0.2 million proceeds from issuance of
Company stock related to employees exercising stock options. The net cash used by financing activities of $44.4 million
in 2021 consisted primarily of $43.3 million used to purchase Company stock and dividend payments of $1.6 million,
partially offset by $1.1 million proceeds from issuance of Company stock related to employees exercising stock options.
The net cash used by financing activities of $19.3 million in 2020 consisted primarily of $20.7 million used to purchase
Company stock and dividend payments of $1.7 million, partially offset by $3.0 million proceeds from issuance of
Company stock related to employees exercising stock options.
The incremental investments announced in July 2021 continue in earnest, focused on broadening our position as a low-
cost manufacturer in the sector and increasing manufacturing capacity to drive growth. In 2022 we began construction on
a new, state of the art, cross-link polyethylene (XLPE) compounding facility to deepen vertical integration related to wire
and cable insulation. XLPE insulation today is used in many applications including Data Centers, Oil and Gas, Transit,
Waste-Water Treatment facilities, Utilities and Wind and Solar applications. We anticipate the new facility will be
substantially completed by the end of the third quarter of 2023. Capital spending in 2023 through 2025 will further
expand vertical integration in our manufacturing processes to reduce costs as well as modernize select wire manufacturing
facilities to increase capacity and efficiency and improve our position as a sustainable and environmentally responsible
company. Total capital expenditures were $148.4 million in 2022. We expect total capital expenditures to range from
$160 - $180 million in 2023, $150 - $170 million in 2024, and $80 - $100 million in 2025. We expect to continue to fund
these investments with existing cash reserves and operating cash flows.
As of December 31, 2022, the Company had contractual obligations of $273.1 million, consisting of open purchase orders
for major raw material purchases and $109.2 million of purchase orders for capital expenditures.
17
Critical Accounting Policies and Estimates
Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s
financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.
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 Financial Statements included under “Item 8. Financial Statements and Supplementary Data” of this
annual report. Management believes the following critical accounting policies affect its more significant estimates and
assumptions used in the preparation of its financial statements.
Inventories are stated at the lower of cost, using the LIFO method, or market. The Company maintains two inventory
pools for LIFO purposes. As permitted by U.S. generally accepted accounting principles, the Company maintains its
inventory costs and cost of goods sold on a first-in, first-out (FIFO) basis and makes a monthly adjustment to adjust total
inventory and cost of goods sold from FIFO to LIFO. The Company applies the 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 and other raw materials and finished wire prices as of the end of each
reporting period. The Company performs an LCM calculation quarterly. As of December 31, 2022, no LCM adjustment
was required. However, decreases in copper and other material prices could necessitate establishing an LCM reserve in
future periods. Additionally, future reductions in the quantity of inventory on hand could cause copper or other raw
materials that are carried in inventory at costs different from the cost of copper and other raw materials in the period in
which the reduction occurs to be included in costs of goods sold for that period at the different price.
Revenue from the sale of the Company’s products is recognized when goods are shipped to the customer, title and risk of
loss are transferred, pricing is fixed or determinable and collection is reasonably assured. A provision for payment
discounts and customer rebates is estimated based upon historical experience and other relevant factors and is recorded
within the same period that the revenue is recognized.
The Company has provided an allowance for credit losses on customer receivables based upon estimates of those
customers’ inability to make required payments. Such allowance 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
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the sole source of
authoritative U.S. GAAP, along with the Securities and Exchange Commission ("SEC") and Public Company Accounting
Oversight Board (“PCAOB”) issued rules and regulations that apply only to SEC registrants. The FASB issues an
Accounting Standard Update (“ASU”) to communicate changes to the codification. The Company considers the
applicability and impact of all ASUs. No new standards were adopted in 2022.
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;
the impact of a global pandemic;
fluctuations in the level of activity in the construction industry, including remodeling;
demand for the Company’s products;
18
•
•
•
•
•
•
•
•
•
•
•
the impact of price competition on the Company’s margins;
fluctuations in the price of copper, aluminum 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, and freight costs;
fluctuations in insurance costs and the availability of coverage 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” and other external variables;
unforeseen future legal issues and/or government regulatory changes;
changes in tax laws;
patent and intellectual property disputes; and
fluctuations in the Company’s financial position or national banking issues that impede the Company’s
ability to obtain reasonable and adequate financing.
This list highlights some of the major factors that could affect the Company’s operations or stock price, but cannot
enumerate all the potential issues that management faces on a daily 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 1A. Risk Factors,” “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.
Commodity Price Risk
The Company purchases copper cathode primarily from miners and commodity brokers at prices determined each month
based on the average daily COMEX 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
Interest rate risk is attributable to the Company’s long term debt. As of December 31, 2022, the Company was a party to
the Amended 2021 Credit Agreement. Amounts outstanding under the 2021 Credit Agreement are payable on February 9,
2026, with interest payments due quarterly. At December 31, 2022, there were no amounts outstanding under the
Amended 2021 Credit Agreement. There is an inherent rollover risk for borrowings under the Amended 2021 Credit
Agreement as such borrowings 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.
For further information regarding market risk, see “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and “Item 1A. Risk Factors.”
19
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Company and the notes thereto appear on the following pages. The Reports of
independent registered public accounting firm (PCAOB: 42) also appear on the following pages.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Encore Wire Corporation
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Encore Wire Corporation (the Company) as of December 31, 2022
and 2021, the related statements of income, stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022
and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), and our report dated February 16, 2023 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the account or disclosure to which it relates.
20
Valuation of inventories
Description of
the Matter
At December 31, 2022, the Company’s inventory balance was $153.2 million. As discussed in
Notes 1 and 2 to the financial statements, inventories are stated at the lower of cost, using the
last-in, first-out (LIFO) method, or market. The Company maintains two inventory pools for
LIFO purposes. As permitted by U.S. generally accepted accounting principles, the Company
maintains its inventory costs and cost of goods sold on a first-in, first-out (FIFO) basis and
adjusts total inventory and cost of goods sold from FIFO to LIFO at each month end.
Auditing management’s calculations to adjust the FIFO inventory balances to LIFO was
challenging due to the complexities of the manual calculations.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s calculations of the adjustments to convert FIFO inventory
balances to LIFO, including controls over management’s review of the manual calculations
described above.
To test the LIFO inventory balance, we performed audit procedures that included, among
others, assessing methodologies and testing the underlying data used in the Company’s
calculations to adjust the FIFO inventory balances to LIFO. We also tested the mathematical
accuracy of the Company’s calculations.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1990.
Dallas, Texas
February 16, 2023
21
Encore Wire Corporation
Balance Sheets
As of December 31, 2022 and 2021
(In thousands, except share data)
2022
2021
498,762
153,187
15,143
3,992
$ 730,557 $ 438,990
491,126
100,816
951
3,167
1,401,641 1,035,050
494,916
570
$ 2,018,732 $ 1,530,536
616,601
490
$
62,780 $
81,381
144,161
55,905
75,353
78,747
154,100
37,347
—
—
271
83,622
(402,639)
271
72,753
(155,014)
2,137,412 1,421,079
1,818,666 1,339,089
$ 2,018,732 $ 1,530,536
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance of $3,800 and $3,800
Inventories, net
Income taxes receivable
Prepaid expenses and other
Total current assets
Property, plant and equipment, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable
Accrued liabilities
Total current liabilities
Deferred income taxes and other
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value:
Authorized shares – 2,000,000; none issued
Common stock, $.01 par value:
Authorized shares – 40,000,000;
Issued shares – 27,139,611 and 27,083,100
Additional paid-in capital
Treasury stock, at cost – 8,999,732 and 6,944,262 shares
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
22
Encore Wire Corporation
Statements of Income
For the Years Ended December 31, 2022, 2021 and 2020
(In thousands, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Operating income
Net interest and other income
Income before income taxes
Provision for income taxes
Net income
Earnings per common and common equivalent share – basic
Earnings per common and common equivalent share – diluted
2022
2021
2020
$ 3,017,555 $ 2,592,721 $ 1,276,948
1,905,134 1,724,975 1,082,413
1,112,421
867,746
194,535
197,418
168,543
97,008
915,003
699,203
97,527
9,847
194
1,269
924,850
699,397
98,796
207,009
157,975
22,729
$ 717,841 $ 541,422 $
76,067
$
$
37.47 $
26.49 $
3.69
36.91 $
26.22 $
3.68
Weighted average common and common equivalent shares outstanding – basic
19,159
20,439
20,599
Weighted average common and common equivalent shares outstanding – diluted
19,446
20,649
20,653
Cash dividends declared per share
See accompanying notes.
$
0.08 $
0.08 $
0.08
23
Encore Wire Corporation
Statements of Stockholders' Equity
(In thousands, except per share data)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Treasury Stock
Shares Amount
Retained
Earnings
Total
Balance at January 1, 2020
Net income
Exercise of stock options
Stock-based compensation
Dividend declared—$0.08 per
share
Purchase of treasury stock
Balance at December 31, 2020
Net income
Exercise of stock options
Stock-based compensation
Dividend declared—$0.08 per
share
Purchase of treasury stock
Balance at December 31, 2021
Net income
Exercise of stock options
Stock-based compensation
Dividend declared—$0.08 per
share
Purchase of treasury stock
Balance at December 31, 2022
See accompanying notes.
26,939 $
269 $ 63,009 (6,027) $ (91,056) $ 806,874 $ 779,096
—
69
17
—
—
—
1
—
—
—
— —
2,998 —
1,878 —
—
—
—
76,067
76,067
—
—
2,999
1,878
— —
—
(1,649)
(1,649)
— (441)
(20,662)
—
(20,662)
27,025
270
67,885 (6,468) (111,718) 881,292 837,729
—
35
23
—
—
—
1
—
—
—
— —
— 541,422 541,422
1,083 —
3,785 —
—
—
—
—
1,084
3,785
— —
—
(1,635)
(1,635)
— (476)
(43,296)
—
(43,296)
27,083
271
72,753 (6,944) (155,014) 1,421,079 1,339,089
—
4
52
—
—
—
—
—
—
—
— —
— 717,841 717,841
207 —
10,662 —
—
—
—
—
207
10,662
— —
—
(1,508)
(1,508)
— (2,056) (247,625)
— (247,625)
27,139 $
271 $ 83,622 (9,000) $ (402,639) $2,137,412 $1,818,666
24
Encore Wire Corporation
Statements of Cash Flows
For the Years Ended December 31, 2022, 2021 and 2020
(In thousands)
2022
2021
2020
$ 717,841 $ 541,422 $ 76,067
26,232
19,539
10,662
1,796
23,288
2,264
3,786
5,831
19,459
6,429
1,878
470
(7,636) (216,808)
(8,494)
(52,371)
(62)
(980)
66,886
(12,008)
305
(14,192)
688,883 418,418
(53,383)
(2,638)
(746)
7,580
2,346
57,462
(148,350) (118,252)
97
(148,350) (118,155)
—
(86,082)
91
(85,991)
—
(247,625)
207
(1,548)
(248,966)
(550)
(43,296)
1,083
(1,633)
(44,396)
—
(20,662)
2,999
(1,650)
(19,313)
291,567 255,867
(47,842)
438,990 183,123 230,965
$ 730,557 $ 438,990 $ 183,123
Operating Activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Deferred income taxes
Stock-based compensation attributable to equity awards
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other assets
Trade accounts payable and accrued liabilities
Current income taxes receivable / payable
Net cash provided by operating activities
Investing Activities
Purchases of property, plant and equipment
Proceeds from sale of assets
Net cash used in investing activities
Financing Activities
Deferred financing fees
Purchase of treasury stock
Proceeds from issuance of common stock, net
Dividends paid
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
See accompanying notes.
25
Encore Wire Corporation
Notes to Financial Statements
December 31, 2022
1. Significant Accounting Policies
Business
The Company conducts its business in one segment, the manufacture of electric building wire, manufacturing a broad
range of electrical wire and cables used to distribute power from the transmission grid to the wall outlet or switch.
Encore’s diversified product portfolio and low-cost of production position it exceptionally well to play a key role in the
transition to a more sustainable and reliable energy infrastructure. Our products are proudly made in America at our
vertically-integrated, single-site, Texas campus. The Company sells its products through manufacturers’ representatives
to wholesale electrical distributors servicing the residential, commercial, industrial and renewable energy sectors.
Copper, a commodity product, is the principal raw material used in the Company’s manufacturing operations. 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 future
copper prices or the effect of fluctuations in the cost of copper on the Company’s future operating results.
Basis of Presentation
The Company's financial statements have been prepared in accordance with accounting principles generally accepted in
the United States (“U.S. GAAP”).
In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment
and mitigation measures worldwide. The Company is unable to predict the impact that COVID-19, or any ongoing
variants, may have on our financial position and operating results in future periods. The duration or re-emergence of the
outbreak and its long-term impact on our business remain uncertain.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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.
Revenue Recognition
Our revenue is derived by fulfilling customer orders for the purchase of our products, which include electrical building
wire and cable. We recognize revenue at the point in time that control of the ordered products is transferred to the
customer, which is typically upon shipment to the customer from our manufacturing facilities and based on agreed upon
shipping terms on the related purchase order. Amounts billed and due from our customers are classified as accounts
receivable on the balance sheet and require payment on a short-term basis through standard payment terms.
Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. The
amount of consideration we expect to receive and revenue we recognize includes estimates for trade payment discounts
and customer rebates which are estimated using historical experience and other relevant factors and is recorded within the
same period that the revenue is recognized. We review and update these estimates regularly and the impact of any
adjustments are recognized in the period the adjustments are identified. The adjustments resulting from updated estimates
of trade payment discounts and customer rebates were not material.
Freight Expenses
The Company classifies shipping and handling costs as a component of selling, general and administrative expenses.
Shipping and handling costs were approximately $58.9 million, $47.2 million and $35.2 million for the years ended
December 31, 2022, 2021 and 2020, respectively.
Derivatives
The Company may purchase copper and aluminum at current market prices for delivery in future months. These
purchases meet the definition of a derivative in Accounting Standards Codification 815, Derivatives and Hedging (ASC
26
815). These transactions also qualify for the exclusion from derivative accounting as they meet the normal purchase and
normal sale criterion in ASC 815.
Fair Value of Financial Instruments
Certain items are required to be measured at fair value on a recurring basis, primarily cash equivalents held in banks. Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. A three-level hierarchy is followed for disclosure to show the extent and level of judgment used to
estimate fair value measurements:
Level 1 – Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the
identical assets or liabilities as of the reporting date.
Level 2 – Inputs used to measure fair value, other than quoted prices included in Level 1, are either directly or indirectly
observable as of the reporting date through correlation with market data, including quoted prices for similar assets and
liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that
are valued using models or other pricing methodologies that do not require significant judgment since the input
assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data
from actively quoted markets for substantially the full term of the financial instrument.
Level 3 – Inputs used to measure fair value are unobservable inputs that are supported by little or no market activity and
reflect the use of significant management judgment. These values are generally determined using pricing models for
which the assumptions utilize management’s estimates of market participant assumptions.
At December 31, 2022 and 2021, the carrying value of cash and cash equivalents is based on Level 1 measurements.
Concentrations of Credit Risk and Accounts Receivable
Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and
cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high credit quality
financial institutions.
Accounts receivable represent amounts due from customers, primarily wholesale electrical distributors, related to the sale
of the Company’s products. Such receivables are uncollateralized and are generally due from customers located
throughout the United States. Encore has two customers, each of whom slightly exceeds 10% of the Company's total
sales. The Company establishes an allowance for credit losses based upon the makeup of the current portfolio, past bad
debt experience and current market conditions.
Allowance for Credit Losses (In Thousands)
Beginning balance January 1
Write-offs of bad debts
Collection of previous write-offs
Adjustment to allowance for credit losses
Ending balance at December 31
Cash and Cash Equivalents
2022
2021
2020
$
$
3,800 $
—
—
—
3,800 $
2,215 $
—
122
1,463
3,800 $
1,801
(286)
—
700
2,215
The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash
equivalents. At December 31, 2022 and 2021, the Company’s cash equivalents consisted of investments in money market
accounts with the Company’s banks.
Inventories
Inventories are stated at the lower of cost, using the LIFO method, or market. The Company evaluates the market value of
its raw materials, work-in-process and finished goods inventory primarily based upon current raw material and finished
goods prices at the end of each period.
27
Property, Plant, and Equipment
Property, plant and equipment is recorded at cost. Depreciation is recorded on a straight-line method over the estimated
useful lives of the respective assets as follows: buildings and improvements, 3 to 39 years; machinery and equipment, 2 to
20 years; and furniture and fixtures, 5 to 20 years. Accelerated cost recovery methods are used for tax purposes. Repairs
and maintenance costs are expensed as incurred.
Stock-Based Compensation
Compensation cost for all stock-based compensation expected to vest is measured at fair value on the date of grant and
recognized over the related service period. The fair value of stock awards is determined based on the number of shares
granted and the quoted price of Encore’s common stock, and the fair value of stock options and stock appreciation rights
is estimated on the date of grant using the Black-Scholes model. Such value is recognized as expense over the service
period, net of estimated forfeitures, on a straight-line basis. To the extent actual forfeitures or updated estimates of
forfeitures differ from management’s current estimates, such amounts are recorded as a cumulative adjustment in the
period estimates are revised.
Earnings Per Share
Earnings 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 awards, which
are common stock equivalents, are calculated using the treasury stock method.
Income Taxes
Income taxes are provided for based on the liability method, resulting in deferred income tax assets and liabilities arising
due to temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The
effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period the
change in rate is enacted.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. There were no differences between comprehensive income and
reported income in the periods presented.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the sole source of
authoritative U.S. GAAP, along with the Securities and Exchange Commission ("SEC") and Public Company Accounting
Oversight Board (“PCAOB”) issued rules and regulations that apply only to SEC registrants. The FASB issues an
Accounting Standard Update (“ASU”) to communicate changes to the codification. The Company considers the
applicability and impact of all ASUs. No new standards were adopted in 2022.
2. Inventories
Inventories consist of the following as of December 31:
In Thousands
Raw materials
Work-in-process
Finished goods
Total
Adjust to LIFO cost
Inventory, net
2022
2021
42,611
$ 69,567 $ 54,012
40,422
138,943 123,401
251,121 217,835
(97,934) (117,019)
$ 153,187 $ 100,816
There were no liquidations of inventories that had a material impact on the Company’s results of operations for any period
presented.
28
3. Property, Plant and Equipment, net
Property, plant and equipment consist of the following as of December 31:
In Thousands
Land and land improvements
Construction-in-progress
Buildings and improvements
Machinery and equipment
Furniture and fixtures
Property, plant and equipment, gross
Accumulated depreciation
Property, plant and equipment, net
2022
2021
$ 85,286 $ 72,897
125,809
92,414
232,758 217,985
438,303 362,996
13,805
897,334 760,097
(280,733) (265,181)
$ 616,601 $ 494,916
15,178
Depreciation expense for the years ended December 31, 2022, 2021 and 2020 was $26.1 million, $23.2 million and $19.4
million, respectively.
4. Accrued Liabilities
Accrued liabilities consist of the following as of December 31:
In Thousands
Sales rebates payable
Stock Appreciation Rights (SAR) Liability
Property taxes payable
Accrued salaries
Other accrued liabilities
Total accrued liabilities
5. Debt
At December 31, 2022 and 2021, the Company had no debt outstanding.
2022
2021
$ 40,909 $ 40,657
22,095
5,018
4,778
6,199
$ 81,381 $ 78,747
20,282
5,287
7,616
7,287
On February 9, 2021, the Company terminated its previous credit agreement and entered into a new Credit Agreement
(the “2021 Credit Agreement”) with two banks, Bank of America, N.A., as administrative agent and letter of credit issuer,
and Wells Fargo Bank, National Association, as syndication agent. The 2021 Credit Agreement extends through February
9, 2026 and provides for maximum borrowings of $200.0 million. At our request and subject to certain conditions, the
commitments under the 2021 Credit Agreement may be increased by a maximum of up to $100.0 million as long as
existing or new lenders agree to provide such additional commitments.
The 2021 Credit Agreement contains provisions to replace LIBOR with a replacement rate as described in the 2021 Credit
Agreement. On October 20, 2022, the Company entered into the First Amendment to the 2021 Credit Agreement (the
“Amended 2021 Credit Agreement”) which replaced LIBOR with BSBY as permitted under the 2021 Credit Agreement.
Borrowings under the line of credit bear interest, at the Company’s option, at either (1) BSBY plus a margin that varies
from 1.000% to 1.875% depending upon the Leverage Ratio (as defined in the 2021 Credit Agreement), or (2) the base
rate (which is the highest of the federal funds rate plus 0.5%, the prime rate, or BSBY plus 1.0%) plus 0% to 0.375%
(depending upon the Leverage Ratio). A commitment fee ranging from 0.20% to 0.325% (depending upon the Leverage
Ratio) is payable on the unused line of credit. At December 31, 2022, there were no borrowings outstanding under the
Amended 2021 Credit Agreement, and letters of credit outstanding in the amount of $0.3 million left $199.7 million of
credit available under the Amended 2021 Credit Agreement. Obligations under the Amended 2021 Credit Agreement are
the only contractual borrowing obligations or commercial borrowing commitments of the Company.
Obligations under the Amended 2021 Credit Agreement are unsecured and contain customary covenants and events of
default. The Company was in compliance with the covenants as of December 31, 2022.
29
The Company paid interest totaling $0.4 million, $0.4 million and $0.2 million in 2022, 2021 and 2020, respectively, none
of which was capitalized.
6. Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. The
CARES Act includes several provisions for corporations including payroll tax credits, deferment of employer social
security tax payments, expanded net operating loss carryback periods, accelerated alternative minimum tax credit refunds,
modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified
improvement property. The CARES Act did not have a material impact on the Company's income tax provision in the
year ended December 31, 2022 and 2021.
The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise
tax on share repurchases that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax on
adjusted financial statement income. The Company does not expect the IRA to have a material adverse impact to its
financial statements.
The provision for income tax expense is summarized as follows for the years ended December 31:
In Thousands
Current:
2022
2021
2020
Federal
State
Deferred:
Federal
State
Total income tax expense
$ 175,090 $ 143,392 $ 14,277
2,024
12,379
12,319
19,797
(257)
6,285
143
$ 207,009 $ 157,975 $ 22,729
2,132
132
The differences between the provision for income taxes and income taxes computed using the federal income tax rate are
as follows for the years ended December 31:
In Thousands
Amount computed using the statutory rate
State income taxes, net of federal tax benefit
Other
Total income tax expense
2021
$ 194,218 $ 146,873 $ 20,747
1,732
250
$ 207,009 $ 157,975 $ 22,729
9,576
3,215
9,836
1,266
2022
2020
The tax effect of each type of temporary difference giving rise to the net deferred tax liability at December 31 is as
follows:
In Thousands
Depreciation
Inventory
Allowance for credit losses
Uniform capitalization rules
Stock-based compensation
Other
Net deferred income tax liability
(60,304) $
(2,080)
843
574
4,791
536
(55,640) $
(42,966)
423
856
729
5,032
(175)
(36,101)
2022
2021
$
$
The Company's inventory costing method for federal income tax purposes differs from the method allowed by GAAP.
Both methods of inventory costing result in the same recovery of inventory. However, the timing of the recovery varies.
As of December 31, 2022 the Company's tax inventory exceeds its book inventory, which created a deferred tax liability
of $2.1 million.
The Company made income tax payments of $201.7 million in 2022, $155.5 million in 2021 and $14.1 million in 2020.
30
The Company’s federal income tax returns for the years subsequent to December 31, 2018 remain subject to examination.
The Company’s income tax returns in major state income tax jurisdictions remain subject to examination for various
periods subsequent to December 31, 2017. The Company has no reserves for uncertain tax positions as of December 31,
2022 and 2021. Interest and penalties resulting from audits by tax authorities have been immaterial and are included in the
provision for income taxes in the statements of income.
7. Stock-Based Compensation
Total stock-based compensation expense by type of award was as follows for the years ended December 31:
In Thousands
Restricted Stock Units
Stock grants
Stock options
Stock appreciation rights (“SARs”)
Restricted Stock Awards
Total stock-based compensation expense
1,889 $
489
435
22,188
1,005
$ 18,391 $ 26,006 $
9,054 $
724
289
7,319
1,005
2021
2022
$
2020
—
244
561
3,377
1,101
5,283
In 2020, the Board of Directors adopted a new incentive plan called the Encore Wire 2020 Long Term Incentive Plan (the
“2020 LTIP”) which was approved by the Company’s stockholders at the 2020 Annual Meeting of Stockholders. The
2020 LTIP permits the granting of 1,000,000 securities in the form of options to purchase shares of common stock, stock
appreciation rights, restricted common stock, restricted stock units, unrestricted common stock, dividend equivalents,
cash awards, or performance awards to non-employee directors, officers and employees of the Company. As of
December 31, 2022, 706,600 securities remained available for grant under the 2020 LTIP.
Restricted Stock Units:
Restricted units granted to employees vest ratably over a period of three years from the time the restricted units were
granted. During the years ended December 31, 2022 and 2021, the Company granted 177,200 units and 98,600 units,
respectively, of restricted stock to employees pursuant to the 2020 Long Term Incentive Plan, with weighted grant date
fair values of $127.58 and $61.92 per unit, respectively. There were zero restricted units issued in 2020. As of December
31, 2022, there was $17.6 million of total unrecognized compensation cost related to unvested units. That cost is expected
to be recognized over a weighted-average period of 2.0 years.
The following presents a summary of restricted stock activity for the year ended December 31, 2022:
Outstanding at January 1, 2022
Granted
Vested
Forfeited/Canceled
Unvested at December 31, 2022
Stock Grants:
Number of Units
Weighted Average
Grant Date Fair Value
98,600 $
177,200
(32,864)
(1,500)
241,436 $
61.92
127.58
61.92
128.69
109.69
In May 2022, the Company granted 1,250 shares of stock to 4 non-employee directors with a grant date fair value of
$123.45 per share. In September 2022, the Company granted 850 shares of stock to 1 non-employee director with a grant
date fair value of $125.37 per share. In May 2021, the Company granted 1,250 shares of stock to each of the 5 non-
employee directors, with a grant date fair value of $78.29 per share. In May 2020, the Company granted 1,100 shares of
stock to each of the 5 non-employee directors, with a grant date fair value of $44.31 per share.
Stock Options:
No stock option awards were granted in 2022, 2021 or 2020. Options vest ratably over a period of five years from the
time the options were granted. The maximum term of any option previously granted under the 2010 Stock Option Plan or
granted in the future under the 2020 LTIP is ten years. New shares are issued upon the exercise of options.
31
The following presents a summary of stock option activity for the year ended December 31, 2022:
Outstanding at January 1, 2022
Exercised
Forfeited/Canceled
Outstanding at December 31, 2022
Vested and exercisable at December 31, 2022
Number
of
Shares
Weighted
Average
Exercise
Price
279,500 $
(4,000)
—
275,500 $
258,000 $
43.18
51.63
—
43.06
42.51
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
(In Thousands)
3.6 years $
3.5 years $
26,036
24,522
During the years ended December 31, 2022, 2021 and 2020, the total intrinsic value of options exercised was $0.2
million, $3.1 million and $0.4 million, respectively. As of December 31, 2022, total unrecognized compensation cost
related to non-vested stock options was negligible.
Stock Appreciation Rights:
In 2014, the Board of Directors adopted a new stock appreciation rights plan called the Encore Wire 2014 Stock
Appreciation Rights Plan (the “2014 SARs Plan”). The 2014 SARs Plan permits the grant of SARs that may only be
settled in cash to non-executive officers and employees of the Company. SARs granted to employees vest ratably over a
period of five years from the time the SARs were granted. The maximum term of any SARs granted under the 2014 SARs
Plan is ten years. These awards are classified as liability awards. The liability balances were $20.3 million and $22.1
million at December 31, 2022 and 2021, respectively, and are included in accrued liabilities. Compensation cost for these
awards is determined using a fair value method and remeasured at each reporting date until the date of settlement. As of
December 31, 2022, a total of 332,164 SARs were outstanding under the 2014 SARs Plan. No SARs were granted
subsequent to 2020 as this plan was replaced with a long-term deferred compensation plan.
The following presents a summary of SARs activity for the year ended December 31, 2022:
Outstanding at January 1, 2022
Exercised
Forfeited/Canceled
Outstanding at December 31, 2022
Vested and exercisable at December 31, 2022
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
(In Thousands)
53.55
51.13
56.66
54.18
52.07
6.2 years $
5.8 years $
27,696
10,059
Cash-settled
SARs
467,668 $
(113,904)
(21,600)
332,164 $
117,664 $
The fair value of SARs outstanding during the years ended December 31, 2022, 2021 and 2020, are revalued each quarter
using a Black-Scholes option pricing model and the following weighted average assumptions:
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected lives
Year Ended December 31,
2021
2020
2022
4.46 %
0.06 %
44.03 %
1.3 years
0.70 %
0.06 %
38.64 %
2.1 years
0.18 %
0.13 %
35.51 %
2.8 years
The Company bases expected volatilities on historical volatilities of Encore's common stock. The expected life represents
the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting
periods and management’s consideration of historical exercise patterns. The risk-free rate is based on the U.S. Treasury
yield curve in effect at the time of grant for periods corresponding to the expected life of the option. The expected
dividend yield is based on the annualized dividend payment paid on common shares.
32
During the years ended December 31, 2022, 2021 and 2020, the weighted average fair value of SARs was $87.20, $90.04
and $17.94, respectively, and the total intrinsic value of SARs exercised was $9.1 million, $5.4 million and $1.1 million,
respectively. As of December 31, 2022, total unrecognized compensation cost related to non-vested SARs of $9.3 million
was expected to be recognized over a weighted average period of 1.7 years.
Restricted Stock Awards:
Restricted shares granted to employees vest ratably over a period of five years from the time the restricted shares were
granted. There were no restricted shares issued in 2022 and 2021. During the years ended December 31, 2020 and 2019,
the Company granted 37,000 shares and 60,000 shares, respectively, of restricted stock to employees pursuant to the 2010
Stock Option Plan, with weighted grant date fair values of $58.90 and $54.49 per share, respectively. As of December 31,
2022, there was $1.4 million of total unrecognized compensation cost related to unvested shares. That cost is expected to
be recognized over a weighted-average period of 1.5 years. The total fair value of shares vested during the year ending
December 31, 2022 was $2.2 million.
The following presents a summary of restricted stock activity for the year ended December 31, 2022:
Outstanding at January 1, 2022
Granted
Vested
Unvested at December 31, 2022
8. Earnings Per Share
Number of Shares
Weighted Average
Grant Date Fair Value
58,000 $
—
(17,000)
41,000 $
56.88
—
56.61
57.00
The following table sets forth certain components of the computation of basic and diluted earnings per share for the years
ended December 31:
In Thousands
Numerator:
Net income
$ 717,841 $ 541,422 $ 76,067
2021
2020
2022
Denominator:
Denominator for basic earnings per share – weighted average shares
19,159
20,439
20,599
Effect of dilutive securities:
Employee stock awards
287
210
54
Denominator for diluted earnings per share – weighted average shares
19,446
20,649
20,653
Stock options to purchase common stock at exercise prices in excess of the average actual stock price for the period that
were anti-dilutive and that were excluded from the determination of diluted earnings per share are as follows:
In Thousands, Except Per Share Data
Weighted average anti-dilutive stock options
2021
2020
2022
136
—
—
Weighted average exercise price per share
$
— $
— $
51.20
9. Stockholders’ Equity
On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to
repurchase up to an authorized number of shares of its common stock from time to time in the open market or private
transactions at the Company's discretion. This authorization originally expired on December 31, 2007, and the Company’s
33
Board of Directors has authorized several increases and annual extensions of this stock repurchase program, most recently
on August 1, 2022, authorizing the repurchase of up to 2,000,000 shares of our common stock. As of December 31,
2022, 1,052,552 shares remained authorized for repurchase through March 31, 2023. Under this program, the Company
repurchased 2,055,470 shares of its stock in 2022, 475,557 shares in 2021 and 441,250 shares in 2020.
Subsequently, in February 2023, the Board of Directors extended the repurchase authorization for up to 2,000,000 shares
of our common stock through March 31, 2024.
10. Contingencies
There are no material pending proceedings to which the Company is a party or to which any of its property is subject.
However, the Company is from time to time involved in litigation, certain other claims and arbitration matters arising in
the ordinary course of its business.
11. Encore Wire Corporation 401(k) Profit Sharing Plan
The Company sponsors a 401(k) profit sharing plan (the “Plan”) that permits eligible employees to make self-directed
contributions of their compensation, a portion of which is matched by the Company, subject to applicable limitations. At
the discretion of its Board of Directors, the Company may, but is not required to, make profit-sharing contributions to the
Plan on behalf of its employees. The Company’s matching contributions were $3.7 million, $3.0 million and $2.5 million
in 2022, 2021 and 2020, respectively.
12. Quarterly Financial Information (Unaudited)
The following is a summary of the unaudited quarterly financial information for the two years ended December 31, 2022
and 2021 (in thousands, except per share data):
2022
Net sales
Gross profit
Net income
Earnings per common share – basic
Earnings per common share – diluted
2021
Net sales
Gross profit
Net income
Earnings per common share – basic
Earnings per common share – diluted
$
$
Three Months Ended
March 31
June 30
September 30 December 31
723,072 $
243,747
161,531
8.08
7.96
838,235 $
320,772
210,538
10.84
10.71
762,363 $
299,447
191,773
10.11
9.97
693,885
248,455
153,998
8.43
8.28
Three Months Ended
March 31
June 30
September 30 December 31
444,140 $
84,504
41,189
2.00
1.99
744,408 $
277,342
183,053
8.89
8.82
716,320 $
270,766
175,538
8.60
8.51
687,853
235,134
141,642
7.02
6.91
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable.
34
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
The Company maintains controls and procedures designed to ensure that information required to be disclosed by it in the
reports it files with or submits to the Securities and Exchange Commission (the “SEC”) is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms and to ensure that information
required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s
management, including the Chief Executive and Chief Financial Officers, as appropriate to allow timely decisions
regarding required disclosure. Based on an evaluation of the Company’s disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the
period covered by this report conducted by the Company’s management, with the participation of the Chief Executive and
Chief Financial Officers, the Chief Executive and Chief Financial Officers concluded that the Company’s disclosure
controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports
it files with or submits to the SEC is recorded, processed, summarized and reported, within the time periods specified in
the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in such reports is
accumulated and communicated to the Company’s management, including the Chief Executive and Chief Financial
Officers, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) for the Company.
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,
2022. 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 (2013 Framework). Based on our
assessment, we concluded that, as of December 31, 2022, the Company’s internal control over financial reporting is
effective based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s financial statements,
has also audited the Company’s internal control over financial reporting as of December 31, 2022. Ernst & Young LLP’s
attestation report on the Company’s internal control over financial reporting appears directly below.
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, the Company’s internal control over financial reporting
during the Company’s last fiscal quarter.
35
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Encore Wire Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Encore Wire Corporation’s internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Encore Wire Corporation (the
Company) maintained, in all material respects, effective internal control over financial reporting as of December 31,
2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the balance sheets of the Company as of December 31, 2022 and 2021, the related statements of
income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the
related notes and our report dated February 16, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Dallas, Texas
February 16, 2023
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not Applicable.
36
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The sections entitled “Election of Directors”, “Corporate Governance and Other Board Matters” and, if applicable,
“Delinquent Section 16(a) Reports” appearing in the Company’s proxy statement for the annual meeting of stockholders
to be held on May 2, 2023 setting forth certain information with respect to the directors of the Company, Section 16(a)
reporting obligations of directors and officers, the Company’s audit committee, the Company’s audit committee financial
expert and the procedures by which security holders may recommend nominees to the Board of Directors are 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 “Information about our Executive Officers” in Part I, Item 1 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
the Company’s website at
and Ethics of
http://www.encorewire.com, and is incorporated herein by reference. The Company intends to post amendments to or
waivers of its Code of Business Conduct and Ethics (to the extent applicable to any officer or director of the Company) at
such location on its website.
the “Investors” section of
is available under
the Company
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 2, 2023, sets forth certain information with respect to the compensation of management of
the Company and compensation committee interlocks and insider participation and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
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 2, 2023 sets forth certain
information with respect to the ownership of the Company’s common stock, and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information about the Company’s equity compensation plans as of December 31, 2022.
Number of
securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-
average exercise
price of outstanding
options, warrants
and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
275,500 $
43.06 (2)
706,600 (3)
PLAN CATEGORY
Equity compensation
plans approved by security
holders (1)
(1) Pursuant to SEC rules and the reporting requirements for this table, we have not included in (a) above 41,000 shares of
restricted stock that are issued and outstanding.
(2) Weighted average exercise price of outstanding options excludes time-based restricted stock units.
(3) Represents securities remaining available for issuance under our 2020 Long Term Incentive Plan as of December 31,
2022 that may be granted in the form of unrestricted common stock, restricted common stock, options to purchase shares
of common stock, stock appreciation rights, restricted stock units, dividend equivalents, performance awards or other
stock-based awards.
37
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The sections entitled “Executive Compensation — Certain Relationships and Related Transactions” and “Corporate
Governance and Other Board Matters — Board Independence” appearing in the Company’s proxy statement for the
annual meeting of stockholders to be held on May 2, 2023 set forth certain information with respect to certain
relationships and related transactions, and director independence, and are incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The Section entitled “Proposal Three — Ratification of Appointment of Independent Registered Public Accounting Firm”
appearing in the Company’s proxy statement for the annual meeting of stockholders to be held on May 2, 2023, sets forth
certain information with respect to certain fees paid to accountants, and is incorporated herein by reference.
38
Item 15. Exhibits and Financial Statement Schedules.
The following documents are filed as a part of this report:
PART IV
(1)
(2)
Financial Statements included in Item 8 of this Annual Report on Form 10-K; and
Financial statement schedules have been omitted because they are not applicable or the information
required therein is included in the financial statements or notes thereto in Item 8 of this Annual Report
on Form 10-K.
(3)
The exhibits required by Item 601 of Regulation S-K are set forth below:
Exhibit Number
Description
3.1
3.2
4.1
4.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Certificate of Incorporation of Encore Wire Corporation and all amendments thereto (filed as
Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2009 and incorporated herein by reference).
Third Amended and Restated Bylaws of Encore Wire Corporation, as amended through
February 27, 2012 (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2011 and incorporated herein by reference).
Form of certificate for Common Stock (filed as Exhibit 1 to the Company’s registration
statement on Form 8-A, filed with the SEC on June 4, 1992 and incorporated herein by
reference).
Description of Registrant's Securities.
2010 Stock Option Plan as amended and restated effective February 20, 2017 (filed as Annex
A to the Company’s Notice and Proxy Statement filed with on March 27, 2017 and
incorporated herein by reference).
2020 Long Term Incentive Plan (filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K, filed with the SEC on May 6, 2020, and incorporated herein by reference).
Form of Indemnification Agreement (filed as Exhibit 10.11 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2009 and incorporated herein by
reference).
Form of Incentive Stock Option Agreement under the 2010 Stock Option Plan (filed as Exhibit
10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010
and incorporated herein by reference).
Form of Non-Qualified Stock Option Agreement under the 2010 Stock Option Plan (filed as
Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December
31, 2010 and incorporated here by reference).
Form of Encore Wire 2010 Stock Option Plan Stock Award Agreement (filed as Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 2, 2017 and
incorporated herein by reference).
Form of Encore Wire Corporation Restricted Stock Award Agreement (filed as Exhibit 10.7 to
the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and
incorporated herein by reference).
Form of Encore Wire Corporation Stock Award Agreement under the 2020 Long Term
Incentive Plan (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with
the SEC on May 6, 2020, and incorporated herein by reference).
39
10.9*
10.10
10.11
10.12*
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Form of Encore Wire Corporation Time-Based Restricted Stock Unit Award Agreement under
the 2020 Long Term Incentive Plan.
Credit Agreement dated February 9, 2021 by and among the Company, Bank of America,
N.A., as administrative agent, swingline lender and letter of credit issuer, Wells Fargo Bank,
National Association, as syndication agent and the other lender parties thereto. (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February
16, 2021 and incorporated herein by reference).
First Amendment to Credit Agreement, by and among the Company, Bank of America, N.A.,
as administrative agent, swingline lender and letter of credit issuer, Wells Fargo Bank,
National Association, as syndication agent and the other lenders parties thereto, dated as of
October 20, 2022 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
with the SEC on October 27, 2022 and incorporated herein by reference).
Encore Wire Corporation 2014 Stock Appreciation Rights Plan (filed as Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2014 and
incorporated herein by reference).
Consent of Ernst & Young LLP.
Certification by Daniel L. Jones, Chairman, President and Chief Executive Officer of the
Company, dated February 16, 2023 and submitted pursuant to Rule 13a-14(a)/15d-14(a) and
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Bret J. Eckert, Executive Vice President and Chief Financial Officer of the
Company, dated February 16, 2023 and submitted pursuant to Rule 13a-14(a)/15d-14(a) and
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Daniel L. Jones, Chairman, President and Chief Executive Officer of the
Company, dated February 16, 2023 as required by 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification by Bret J. Eckert, Executive Vice President and Chief Financial Officer of the
Company, dated February 16, 2023 as required by 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File - formatted as Inline XBRL and contained in Exhibit 101
* Management contract or compensatory plan
Item 16. Form 10-K Summary.
None.
40
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 16, 2023
ENCORE WIRE CORPORATION
SIGNATURES
By:
/s/ Daniel L. Jones
Daniel L. Jones
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ DANIEL L. JONES
Daniel L. Jones
/s/ BRET J. ECKERT
Bret J. Eckert
/s/ GINA A. NORRIS
Gina A. Norris
/s/ WILLIAM R. THOMAS
William R. Thomas
/s/ W. KELVIN WALKER
W. Kelvin Walker
/s/ SCOTT D. WEAVER
Scott D. Weaver
/s/ JOHN H. WILSON
John H. Wilson
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
February 16, 2023
Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
Lead Independent Director
February 16, 2023
41
1329 Millwood Road
McKinney, Texas 75069
972-562-9473
www.encorewire.com