Encore Wire Corp. (WIRE, Financial) filed Quarterly Report for the period ended 2009-09-30.
Encore Wire Corporation is a low-cost manufacturer of copper electrical building wire and cable. The Company is a significant supplier ofboth residential wire for interior electrical wiring in homes apartments and manufactured housing as well as building wire for electrical distribution in commercial and industrial buildings. Encore Wire Corp. has a market cap of $463.6 million; its shares were traded at around $20.15 with a P/E ratio of 21 and P/S ratio of 0.4. The dividend yield of Encore Wire Corp. stocks is 0.4%. Encore Wire Corp. had an annual average earning growth of 16.9% over the past 10 years.
Selling expenses for the third quarter of 2009 were $8.0 million, or 4.8% of net sales, compared to $12.9 million, or 4.3% of net sales, in the third quarter of 2008. The dramatic drop in selling expense dollars was due to the fact that commissions paid to independent manufacturers representatives are relatively constant as a percentage of sales, and therefore, fell in relative proportion to the decreased sales dollars. This was offset somewhat on a percentage basis by freight costs which, although down in dollar terms, still rose in percentage terms due to the decrease in sales. Commissions and freight are the only two components of selling expenses. General and administrative expenses remained flat at $2.8 million, or 1.7% of net sales, in the third quarter of 2009 compared to $2.8 million, or 0.9% of net sales, in the third quarter of 2008. The general and administrative costs are semi-fixed by nature and therefore do not fluctuate proportionately with sales, resulting in an increase in general and administrative costs as a percentage of net sales in 2009 in concert with the lower sales prices per pound as discussed above. The provision for bad debts was $75,000 in the third quarter of both 2009 and 2008.
Cost of goods sold decreased to $431.5 million in the first nine months of 2009, compared to $817.6 million in the first nine months of 2008. Gross profit decreased to $41.0 million, or 8.7% of net sales, in the first nine months of 2009 versus $83.3 million, or 9.3% of net sales, in the first nine months of 2008. The decrease in gross profit dollars was primarily the result of the 47.6% decrease in net sales dollars in the first nine months of 2009 versus the same period in 2008 as discussed above. The decrease in gross profit as a percentage of net sales was due to the compressed spread between the price of wire sold and the cost of raw copper purchased by the Company, as discussed above.
The Company, through its agent bank, is also a party to a Note Purchase Agreement (the 2004 Note Purchase Agreement) with Hartford Life Insurance Company, Great-West Life & Annuity Insurance Company, London Life Insurance Company and London Life and Casualty Reinsurance Corporation (collectively, the 2004 Purchasers), whereby the Company issued and sold $45,000,000 of 5.27% Senior Notes, Series 2004-A, due August 27, 2011 (the Fixed Rate Senior Notes) to the 2004 Purchasers, the proceeds of which were used to repay a portion of the Companys outstanding indebtedness under its previous financing agreement. Through its agent bank, the Company was also a party to an interest rate swap agreement to convert the fixed rate on the Fixed Rate Senior Notes to a variable rate based on LIBOR plus a fixed adder for the seven-year duration of these notes. Commensurate with declining interest rates, the Company elected to terminate, prior to its maturity, this swap agreement on November 29, 2007. As a result of this swap termination, the Company received cash proceeds and realized a net settlement gain of $929,231 that was recorded as an adjustment to the carrying amount of the related debt in the consolidated balance sheet. This settlement gain is being amortized into earnings over the remaining term of the associated long term notes payable. During the nine months ended September 30, 2009 and 2008, $182,599 and $175,000, respectively, was recognized as a reduction in interest expense in the accompanying consolidated statements of income. The unamortized balance remaining at September 30, 2009 was $492,395.
Cash flow was increased significantly by a $2.7 million decrease in accounts receivable in the first nine months of 2009 versus a use of cash of $17.0 million due to an increase in accounts receivable in the first nine months of 2008, resulting in a $19.7 million increase in cash flow in the first nine months of 2009 versus the same period in 2008. The increase in cash flow in the first nine months of 2009 was offset by a use of cash of $18.1 million due to an increase in other assets and liabilities compared to a decrease of $7.4 million for the same period last year, resulting in a $25.5 million decrease in cash flow in the first nine months of 2009 versus the same period in 2008. Additionally, the Company experienced a decrease in cash flow of $10.5 million due to a smaller reduction in inventory levels in the first nine months of 2009 versus the same period in 2008. The Company reduced inventory dollars by reducing the units of inventory on hand in both years. The Company has made a concerted effort to manage inventory levels in the last two years in tandem with lower sales volumes. Other fluctuations in cash flow between the first nine months of 2008 and the same period in 2009 resulted from a $6.6 million increase in cash flow from an increase in accounts payable and accrued liabilities in the first nine months of 2009.
Net cash used in investing activities increased to $15.6 million in the first nine months of 2009 from $12.6 million in the first nine months of 2008. In both 2009 and 2008, the funds were used primarily for equipment purchases. Net cash used in financing activities in the first nine months of 2009 decreased to $1.2 million from $3.4 million during the same period in 2008. Cash dividends of $1.4 million were paid in the first nine months of both 2009 and 2008. However, in the first nine months of 2008, an additional $2.1 million was used to repurchase the Companys common stock. The Companys borrowings against its revolving line of credit remained at $0 throughout the first nine months of 2009 and 2008, while the cash balances as of September 30, 2009 and September 30, 2008 were $213.6 million and $108.5 million, respectively.
Read the The complete ReportWIRE is in the portfolios of Third Avenue Management, John Keeley of Keeley Fund Management.
Encore Wire Corporation is a low-cost manufacturer of copper electrical building wire and cable. The Company is a significant supplier ofboth residential wire for interior electrical wiring in homes apartments and manufactured housing as well as building wire for electrical distribution in commercial and industrial buildings. Encore Wire Corp. has a market cap of $463.6 million; its shares were traded at around $20.15 with a P/E ratio of 21 and P/S ratio of 0.4. The dividend yield of Encore Wire Corp. stocks is 0.4%. Encore Wire Corp. had an annual average earning growth of 16.9% over the past 10 years.
Highlight of Business Operations:
Cost of goods sold decreased to $157.3 million, or 93.3% of net sales, in the third quarter of 2009 compared to $268 million, or 90.4% of net sales, in the third quarter of 2008. Gross profit decreased to $11.4 million, or 6.7% of net sales, in the third quarter of 2009 versus $28.3 million, or 9.6% of net sales, in the third quarter of 2008. The decrease in gross profit dollars was primarily the result of the decreased wire prices which fell in concert with raw material costs in 2009 versus 2008. However, in comparing the third quarter of 2009 to the third quarter of 2008, the average sales price of wire that contained a pound of copper decreased more than the average price of copper purchased during the quarter. Margins were compressed as the spread between the price of wire sold and the cost of raw copper purchased decreased by 24.3%, in addition to the volume decrease discussed above. This compression occurred as a result of competitive industry pricing. The Company attempted to lead the industry with several price increases during the quarter, but met limited success.Selling expenses for the third quarter of 2009 were $8.0 million, or 4.8% of net sales, compared to $12.9 million, or 4.3% of net sales, in the third quarter of 2008. The dramatic drop in selling expense dollars was due to the fact that commissions paid to independent manufacturers representatives are relatively constant as a percentage of sales, and therefore, fell in relative proportion to the decreased sales dollars. This was offset somewhat on a percentage basis by freight costs which, although down in dollar terms, still rose in percentage terms due to the decrease in sales. Commissions and freight are the only two components of selling expenses. General and administrative expenses remained flat at $2.8 million, or 1.7% of net sales, in the third quarter of 2009 compared to $2.8 million, or 0.9% of net sales, in the third quarter of 2008. The general and administrative costs are semi-fixed by nature and therefore do not fluctuate proportionately with sales, resulting in an increase in general and administrative costs as a percentage of net sales in 2009 in concert with the lower sales prices per pound as discussed above. The provision for bad debts was $75,000 in the third quarter of both 2009 and 2008.
Cost of goods sold decreased to $431.5 million in the first nine months of 2009, compared to $817.6 million in the first nine months of 2008. Gross profit decreased to $41.0 million, or 8.7% of net sales, in the first nine months of 2009 versus $83.3 million, or 9.3% of net sales, in the first nine months of 2008. The decrease in gross profit dollars was primarily the result of the 47.6% decrease in net sales dollars in the first nine months of 2009 versus the same period in 2008 as discussed above. The decrease in gross profit as a percentage of net sales was due to the compressed spread between the price of wire sold and the cost of raw copper purchased by the Company, as discussed above.
The Company, through its agent bank, is also a party to a Note Purchase Agreement (the 2004 Note Purchase Agreement) with Hartford Life Insurance Company, Great-West Life & Annuity Insurance Company, London Life Insurance Company and London Life and Casualty Reinsurance Corporation (collectively, the 2004 Purchasers), whereby the Company issued and sold $45,000,000 of 5.27% Senior Notes, Series 2004-A, due August 27, 2011 (the Fixed Rate Senior Notes) to the 2004 Purchasers, the proceeds of which were used to repay a portion of the Companys outstanding indebtedness under its previous financing agreement. Through its agent bank, the Company was also a party to an interest rate swap agreement to convert the fixed rate on the Fixed Rate Senior Notes to a variable rate based on LIBOR plus a fixed adder for the seven-year duration of these notes. Commensurate with declining interest rates, the Company elected to terminate, prior to its maturity, this swap agreement on November 29, 2007. As a result of this swap termination, the Company received cash proceeds and realized a net settlement gain of $929,231 that was recorded as an adjustment to the carrying amount of the related debt in the consolidated balance sheet. This settlement gain is being amortized into earnings over the remaining term of the associated long term notes payable. During the nine months ended September 30, 2009 and 2008, $182,599 and $175,000, respectively, was recognized as a reduction in interest expense in the accompanying consolidated statements of income. The unamortized balance remaining at September 30, 2009 was $492,395.
Cash flow was increased significantly by a $2.7 million decrease in accounts receivable in the first nine months of 2009 versus a use of cash of $17.0 million due to an increase in accounts receivable in the first nine months of 2008, resulting in a $19.7 million increase in cash flow in the first nine months of 2009 versus the same period in 2008. The increase in cash flow in the first nine months of 2009 was offset by a use of cash of $18.1 million due to an increase in other assets and liabilities compared to a decrease of $7.4 million for the same period last year, resulting in a $25.5 million decrease in cash flow in the first nine months of 2009 versus the same period in 2008. Additionally, the Company experienced a decrease in cash flow of $10.5 million due to a smaller reduction in inventory levels in the first nine months of 2009 versus the same period in 2008. The Company reduced inventory dollars by reducing the units of inventory on hand in both years. The Company has made a concerted effort to manage inventory levels in the last two years in tandem with lower sales volumes. Other fluctuations in cash flow between the first nine months of 2008 and the same period in 2009 resulted from a $6.6 million increase in cash flow from an increase in accounts payable and accrued liabilities in the first nine months of 2009.
Net cash used in investing activities increased to $15.6 million in the first nine months of 2009 from $12.6 million in the first nine months of 2008. In both 2009 and 2008, the funds were used primarily for equipment purchases. Net cash used in financing activities in the first nine months of 2009 decreased to $1.2 million from $3.4 million during the same period in 2008. Cash dividends of $1.4 million were paid in the first nine months of both 2009 and 2008. However, in the first nine months of 2008, an additional $2.1 million was used to repurchase the Companys common stock. The Companys borrowings against its revolving line of credit remained at $0 throughout the first nine months of 2009 and 2008, while the cash balances as of September 30, 2009 and September 30, 2008 were $213.6 million and $108.5 million, respectively.
Read the The complete ReportWIRE is in the portfolios of Third Avenue Management, John Keeley of Keeley Fund Management.
