10-K405 1 d85492e10-k405.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee required) For the fiscal year ended December 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) For the transition period from ______ to ____ Commission File Number: 020278 ENCORE WIRE CORPORATION (Exact Name of Registrant as Specified in its Charter) DELAWARE 75-2274963 (State of incorporation) (I.R.S. Employer Identification No.) 1410 MILLWOOD ROAD MCKINNEY, TEXAS 75069 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 562-9473 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [ X ] No [ ] Aggregate market value of Common Stock held by nonaffiliates as of March 14, 2001: $ 92,646,374 Number of shares of Common Stock outstanding as of March 14, 2001: 15,067,772 DOCUMENTS INCORPORATED BY REFERENCE Listed below are documents, parts of which are incorporated herein by reference and the part of this report into which the document is incorporated: (1) Proxy statement for the 2001 annual meeting of stockholders -- Part III 2 TABLE OF CONTENTS

PAGE NUMBER PART I....................................................................... 1 ITEM 1. BUSINESS....................................................... 1 General........................................................ 1 Strategy....................................................... 1 Products....................................................... 2 Manufacturing.................................................. 2 Customers...................................................... 3 Marketing and Distribution..................................... 3 Employees...................................................... 4 Raw Materials.................................................. 4 Competition.................................................... 4 Patent and Trademark Matters................................... 5 ITEM 2. PROPERTIES..................................................... 5 ITEM 3. LEGAL PROCEEDINGS.............................................. 5 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 5 EXECUTIVE OFFICERS OF THE COMPANY......................................... 5 PART II...................................................................... 7 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................................... 7 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA........................... 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................... 9 General........................................................ 9 Results of Operations.......................................... 9 Liquidity and Capital Resources................................ 11 Information Regarding Forward Looking Statements............... 12 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 13 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...................................... 29 PART III..................................................................... 29 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.................. 29 ITEM 11. EXECUTIVE COMPENSATION........................................... 29 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 29 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS............. 29 PART IV...................................................................... 29 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........................................................ 29

ii 3 PART I ITEM 1. BUSINESS GENERAL Encore Wire Corporation is a low-cost manufacturer of copper electrical building wire and cable. The Company is a significant supplier of both residential wire for interior electrical wiring in homes, apartments and manufactured housing, as well as building wire for electrical distribution in commercial and industrial buildings. Based upon the latest available U.S. Department of Commerce data, the Company's share of the market for residential wire was approximately 15% in 1999. Based on the same information, the Company's share of the market for the commercial wire that it manufactures was approximately 11% in 1999. Although the Department of Commerce has not released the 2000 data, the Company believes its market share rankings are substantially similar to those in 1999. The principal customers for Encore's wire are wholesale electrical distributors, which serve both the residential and commercial wire markets. The Company sells its products primarily through manufacturers' representatives located throughout the United States and, to a lesser extent, through its own direct in-house marketing efforts. Encore's strategy is to further expand its share of the markets for residential wire and for commercial wire primarily by emphasizing a high level of customer service and low-cost production and, to a lesser extent, the addition of new products that compliment its current product line. The Company maintains product inventory levels sufficient to meet anticipated customer demand and believes that the speed and completeness with which it fills customer orders are key competitive advantages critical to marketing its products. Encore's low-cost production capability features an efficient plant design incorporating highly automated manufacturing equipment, an integrated production process and a small, incentivized work force. The Company is a Delaware corporation with its principal executive offices and plant located at 1410 Millwood Road, McKinney, Texas 75069. Its telephone number is (972) 562-9473. As used in this Annual Report, unless otherwise required by the context, the terms "Company" and "Encore" refer to Encore Wire Corporation and its consolidated entities, including Encore Wire Limited, a Texas limited partnership ("Encore Wire Limited") through which the Company's operations are conducted. STRATEGY Encore's strategy for expanding its share of the residential wire and commercial wire markets emphasizes customer service coupled with low-cost production. Customer Service. Responsiveness to customers is a primary focus of Encore, with an emphasis on building and maintaining strong customer relationships. Encore seeks to establish customer loyalty by achieving a high order fill rate and rapidly handling customer inquiries, orders, shipments and returns. The Company maintains product inventories sufficient to meet anticipated customer demand and believes that the speed and completeness with which it fills orders are key competitive advantages critical to marketing its products. Low-Cost Production. Encore's low-cost production capability features an efficient plant design and a small, incentivized work force. Efficient Plant Design. Encore's highly automated wire manufacturing equipment is integrated in an efficient design that reduces materials handling, including labor and in-process inventory. Incentivized Work Force. Encore's hourly manufacturing employees are eligible to receive incentive pay tied to productivity and quality standards. The Company believes that this compensation program enables the plant's manufacturing lines to attain high output and motivates manufacturing employees to continually maintain product quality. The Company also believes that 1 4 its stock option plan enhances the motivation of its salaried manufacturing supervisors. The Company has coupled these incentives with a comprehensive safety program that emphasizes employee participation. PRODUCTS Encore offers a residential wire product line that consists primarily of NM cable and UF cable. Its commercial product line consists primarily of THHN, the most widely used type of commercial wire. Additionally, the Company manufactures other types of commercial wire products. The Company's NM, UF and THHN cable are all manufactured with copper as the conductor. The Company also purchases small quantities of other types of wire to re-sell to the customers that buy the products it manufactures. The Company maintains between 400 and 500 stock keeping units (SKUs) of residential wire and between 4,500 and 5,000 SKUs of commercial wire. The principal bases for differentiation among SKUs are product diameter, insulation, color and packaging. Residential Wire NM Cable. Non-metallic sheathed cable is used primarily as interior wiring in homes, apartments and manufactured housing. NM cable is composed of either two or three insulated copper wire conductors, with or without an uninsulated ground wire, all sheathed in a polyvinyl chloride ("PVC") jacket. UF Cable. Underground feeder cable is used to conduct power underground to outside lighting and other applications remote from residential buildings. UF cable is composed of two or three PVC insulated copper wire conductors, with or without an uninsulated ground wire, all jacketed in PVC. Commercial Wire THHN Cable. THHN cable is used primarily as feeder, circuit and branch wiring in commercial and industrial buildings. It is composed of a single conductor, either stranded or solid, and insulated with PVC, which is further coated with nylon. Users typically enclose THHN cable in protective pipe or conduit. MANUFACTURING The efficiency of Encore's highly automated manufacturing facility is a key element of its low-cost production capability. Encore's residential wire manufacturing lines have been integrated so that handling of product is substantially reduced. At the few points remaining where handling between manufacturing steps is necessary the Company has, for the most part, replaced reels with large baskets, each capable of handling approximately four times the capacity of a reel. Encore's commercial wire plant is designed to reduce product handling by integrating steps within production stages and, again, by using baskets instead of reels where feasible. The manufacturing process for the Company's products involves up to six steps: casting, drawing, stranding, blending, insulating and jacketing. Rod Casting. Rod casting is the process of melting sheets of copper cathode and copper scrap and casting the hot copper into a 5/16 inch copper rod to be drawn into copper wire. Drawing. Drawing is the process of reducing 5/16 inch copper rod through converging dies until the specified wire diameter is attained. The wire is then heated with electrical current to soften or "anneal" the wire to make it easier to handle. Stranding. Stranding is the process of twisting together from seven to 61 individual wire strands to form a single cable. The purpose of stranding is to improve the flexibility of wire while maintaining its electrical current carrying capacity. 2 5 PVC Blending. PVC blending is the process of mixing the various raw materials that are required to produce the PVC necessary to meet UL specifications for the insulation and jacket requirements for the wire that is manufactured. Insulating. Insulating is the process of extruding first PVC and then nylon (where applicable) over the solid or stranded wire. Jacketing. Jacketing is the process of extruding PVC over two or more insulated conductor wires, with or without an uninsulated ground wire, to form a finished product. The Company's jacketing lines are integrated with packaging lines that cut the wire and coil it onto reels or package it in boxes or shrink-wrap. Encore manufactures and tests all of its products in accordance with the standards of Underwriters Laboratories, Inc. ("U/L"), a nationally recognized testing and standards agency. Encore's machine operators and quality control inspectors conduct frequent product tests. At three separate manufacturing stages, the Company spark tests insulated wire for defects. The Company tests finished products for electrical continuity to insure compliance with its own quality standards and those of U/L. Encore's manufacturing lines are equipped with laser micrometers to measure wire diameter and insulation thickness while the lines are in operation. During each shift, operators take physical measurements of products, which Company inspectors randomly verify on a daily basis. Although suppliers pretest PVC and nylon compounds, the Company tests products for aging and for cracking and brittleness of insulation and jacketing. Encore sells all of its products with a one-year replacement warranty. CUSTOMERS Encore sells its wire principally to wholesale electrical distributors throughout the United States and, to a lesser extent, to retail home improvement centers. Most distributors supply products to electrical contractors. The Company sells its products to more than 70% of the top 250 wholesale electrical distributors (by volume) in the United States according to information reported in the June 2000 issue of Electrical Wholesaling magazine. No customer accounted for more than ten percent of net sales in 2000. Encore believes that the speed and completeness with which it fills customers' orders are crucial to its ability to expand the market share for its products. The Company also believes that, in order to reduce costs, many customers no longer maintain their own substantial warehouse inventories. Because of this trend, the Company seeks to maintain sufficient inventories to satisfy customers' prompt delivery requirements. MARKETING AND DISTRIBUTION Encore markets its products throughout the United States primarily through manufacturers' representatives and, to a lesser extent, through its own direct marketing efforts. Encore maintains the majority of its finished product inventory at its plant in McKinney, Texas. In order to provide flexibility in handling customer requests for immediate delivery of the Company's products, additional product inventories are maintained at the warehouses owned and operated by independent manufacturers' representatives located throughout the United States. At December 31, 2000, additional product inventories are maintained at the warehouses of independent manufacturers' representatives located in Chattanooga, Tennessee; Cincinnati, Ohio; Detroit, Michigan; Edison, New Jersey; Louisville, Kentucky; Greensboro, North Carolina; Norcross, Georgia; Orlando, Florida; Pittsburgh, Pennsylvania; Santa Fe Springs, California; and Hayward, California. Some of these manufacturers' representatives, as well as the Company's other manufacturers' representatives, maintain offices without warehouses in numerous locations throughout the United States. Finished goods are typically delivered to warehouses and customers by trucks operated by common carriers. The decision regarding the carrier to be used is based primarily on cost and availability. The Company invoices its customers directly for products purchased and, if an order has been obtained through a manufacturer's representative, pays the representative a commission based on pre-established rates. The 3 6 Company determines customers' credit limits. The Company's bad debt experience was .05%, .01%, and .35% of net sales in 2000, 1999 and 1998, respectively. The manufacturers' representatives have no discretion to increase customers' credit limits or to determine prices charged for the Company's products, and all sales are subject to approval by the Company. EMPLOYEES Encore believes that its hourly employees are highly motivated and that their motivation contributes significantly to the plant's operating efficiency. The Company attributes the motivation of these employees largely to the fact that a significant portion of their compensation can be incentive pay tied to productivity and quality standards. The Company believes that its incentive program focuses its employees on maintaining product quality. Encore emphasizes safety to its manufacturing employees through its safety program. On a weekly basis, each team of employees meets to review safety standards and, on a monthly basis, a group of participants from each team discusses safety issues and inspects each area of the plant for compliance. In addition, the Company awards incentive bonuses to employees who achieve certain safety goals. The Company's safety program is an integral part of its general attention to cost control. As of December 31, 2000, Encore had 474 employees, of whom 406 were paid hourly wages and were primarily engaged in the operation and maintenance of the Company's manufacturing and warehouse facility. The remainder of the Company's employees were executive, supervisory, administrative, sales and clerical personnel. The Company considers its relations with its employees to be good. The Company has no collective bargaining agreements with any of its employees. RAW MATERIALS The principal raw materials used by Encore in manufacturing its products are copper cathode, copper rod, copper scrap, PVC thermoplastic compounds, paper and nylon, all of which are readily available from a number of suppliers. Copper requirements are purchased primarily from producers and merchants at prices determined each month primarily based on the average daily closing prices for copper for that month, plus a negotiated premium. The Company also purchases raw materials necessary to manufacture various PVC thermoplastic compounds. These raw materials primarily include PVC resin, clay and plasticiser. The Company began production from its copper rod fabrication facility in June 1998. Prior to completion of the new copper rod fabrication facility, the Company used copper rod purchased from others to manufacture its wire and cable products. In 2000, the copper rod fabrication facility manufactured all of the Company's copper rod requirements. The Company produces copper rod from purchased copper cathodes. The Company also reprocesses copper scrap generated by its operations and copper scrap purchased from others. In 1999, the Company completed a new facility to manufacture PVC. 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 plasticiser. During 2000, this facility attained the capacity to produce all of the Company's PVC requirements. COMPETITION The electrical wire and cable industry is highly competitive. The Company competes with several manufacturers of wire and cable products, which have substantially greater resources than the Company and offer more complete lines of electrical wire and cable products. The Company's competitors include Southwire Corporation, Essex Wire and Cable (a subsidiary of Superior Telecom, Inc.) and General Cable Corporation. These competitors are vertically integrated insofar as they possess rod fabrication facilities and plastic compounding operations. 4 7 The principal elements of competition in the electrical wire and cable industry are, in the opinion of the Company, pricing, order fill rate and, in some instances, breadth of product line. The Company believes that it is competitive with respect to all these factors. Competition in the electrical wire and cable industry, although intense, has been primarily from U.S. manufacturers, including foreign owned facilities located in the U.S. The Company has encountered no significant competition from imports of residential or commercial wire. The Company believes this is because direct labor costs generally account for a relatively small percentage of the cost of goods sold for these products. PATENT AND TRADEMARK MATTERS On April 17, 2000, Encore Wire filed for a patent for a Conductor Insulation Material developed by Encore that does not contain lead. That application is currently pending. The U.S. Patent & Trademark Office has approved for publication the trademark "NONLEDEX" for use in connection with the Conductor Insulation Material. The Company also owns 2 registered trademarks, U.S. Registration numbers 1,900,498 and 2,263,692 for the Encore Wire "LOGO" Design and "HANDY MAN'S CHOICE," respectively. The Company also has a pending application for registration of the trademark "ENCORE WIRE," filed on August 24, 1999. ITEM 2. PROPERTIES Encore maintains its corporate office and manufacturing plant in McKinney, Texas, approximately 35 miles north of Dallas. The Company's facilities are located on a combined site of approximately one hundred acres and consist of buildings containing approximately 745,000 square feet of floor space, of which approximately 24,000 square feet are used for office space and 721,000 square feet are used for manufacturing and warehouse operations. The plant and equipment are owned by the Company and are not mortgaged to secure any of the Company's existing indebtedness. Encore believes that its plant and equipment are suited to its present needs, comply with applicable federal, state and local laws and regulations and are properly maintained and adequately insured. ITEM 3. LEGAL PROCEEDINGS On July 19,1999, a lawsuit styled Jose Delgado et al v. Encore Wire Corporation was filed in the District Court of Collin County, Texas against the Company. The plaintiffs are former employees of the Company who allege that they were discharged in retaliation for seeking workers' compensation benefits in violation of chapter 451 of the Texas Labor Code. The plaintiffs also claim intentional infliction of emotional distress. The Company denies the allegations and will contest the claims vigorously. The plaintiffs claim that they are entitled to recover over $50 million. The Company believes the plaintiffs' claims are without merit. On May 22, 2000, the district court granted the Company's motion to sever the case into eight separate cases. In addition, the Company is a party to litigation and claims that arise out of the ordinary business of the Company. While the results of these matters cannot be predicted with certainty, the Company does not believe the final outcome of such litigation and claims will have a material adverse effect on the financial condition, the results of operations or cash flows of the Company because the Company believes that it has adequate insurance and reserves to cover any damages that may ultimately be awarded. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE COMPANY Information regarding Encore's executive officers including their respective ages at March 19, 2001 is set forth below.

NAME AGE POSITION WITH COMPANY ---- --- --------------------- Vincent A. Rego 77 Chairman of the Board of Directors, and Chief Executive Officer

5 8

NAME AGE POSITION WITH COMPANY ---- --- --------------------- Daniel L. Jones 37 President, Chief Operating Officer, and Member of the Board of Directors David K. Smith 41 Vice President -- Operations Frank J. Bilban 44 Vice President -- Finance, Treasurer and Secretary

Mr. Rego has been Chairman of the Board of Directors of Encore since 1989. In October 1997, Mr. Rego was named President and Chief Executive Officer. He served as President until May 1998. From 1978 until 1988, Mr. Rego served as President, Chief Executive Officer and Chairman of the Board of Directors of Capital Wire and Cable Corporation ("Capital Wire"), which was purchased by General Cable Corporation in 1988. Prior thereto, Mr. Rego was associated with predecessors of Capital Wire in various executive capacities. Mr. Jones was Vice President -- Sales and Marketing of Encore from 1992 to May 1997. In May 1997, Mr. Jones was named Executive Vice President of the Company, in October 1997, he was named Chief Operating Officer and, in May 1998, he was named President of the Company. He also serves as a member of the Board of Directors. From 1985 to 1988, Mr. Jones attended college while working on a part time basis for Capital Wire. Mr. Smith has been Vice President -- Operations of Encore since 1992. From 1984 until joining the Company in 1990 Mr. Smith was employed by General Cable Corporation. Mr. Bilban has been Vice President -- Finance, Treasurer and Secretary of Encore since June 2000. From 1998 until joining the Company in June 2000, Mr. Bilban was Executive Vice President and Chief Financial Officer of Alpha Holdings Inc., a plastics manufacturing concern with three subsidiaries based in Dallas. From 1996 until 1998, Mr. Bilban was Vice President and Chief financial Officer of Wedge Dia-Log Inc., an oil field services company based in Grand Prairie, Texas. From 1991 until 1996, Mr. Bilban held financial positions including Division Controller with the CT Film Division of Rexene Corporation. From 1978 until 1991 he was employed in various financial capacities with several divisions of Outboard Marine Corporation. All executive officers are elected annually by the Board of Directors to serve until the next annual meeting of the Board or until their respective successors are chosen and qualified. 6 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is quoted in the NASDAQ Stock Market's National Market under the symbol "WIRE." The following table sets forth the high and low closing sales prices per share for the Common Stock as reported in the NASDAQ Stock Market's National Market for the periods indicated. The reported prices have been adjusted to reflect two 3-for-2 splits of the Common Stock effective August 18, 1997 and June 15, 1998, respectively.

High Low ---- --- 2000 First Quarter.......................................... 9 1/32 6 9/16 Second Quarter......................................... 7 5 3/8 Third Quarter.......................................... 7 13/16 5 1/2 Fourth Quarter......................................... 8 5 3/8 1999 First Quarter.......................................... 12 13/16 7 3/4 Second Quarter......................................... 12 7 7/8 Third Quarter.......................................... 12 9 Fourth Quarter......................................... 9 1/4 6 1/2

On March 14, 2001, the last reported sale price of the Common Stock was $8.84 per share. As of March 14, 2001, there were 131 record holders of the Common Stock. The Company estimates that there were approximately 4,000 beneficial holders of the Common Stock. The Company has never paid cash dividends. Management intends to retain any future earnings for the operation and expansion of the Company's business and does not anticipate paying any cash dividends in the foreseeable future. The Company's present credit arrangements restrict the Company's ability to pay cash dividends. See Note 4 of Notes to Consolidated Financial Statements. 7 10 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- (In thousands, except per share amounts) STATEMENT OF OPERATIONS DATA: Net sales.......................................... $283,689 $229,670 $244,044 $254,640 $179,132 Cost of goods sold................................. 243,132 197,636 195,060 201,323 153,448 -------- -------- -------- -------- -------- Gross profit..................................... 40,557 32,034 48,984 53,317 25,684 Selling, general and administrative expenses....... 24,027 18,742 18,083 16,236 12,413 -------- -------- -------- -------- -------- Operating income................................... 16,530 13,292 30,901 37,081 13,271 Other income (expense): Interest and other income........................ 128 104 145 142 92 Interest expense................................. (4,080) (2,922) (1,876) (1,367) (1,722) --------- -------- -------- -------- -------- Income before income taxes......................... 12,578 10,474 29,170 35,856 11,641 Income tax expense................................. 4,528 3,880 11,602 14,163 4,482 --------- -------- -------- -------- -------- Net income......................................... $ 8,050 $ 6,594 $ 17,568 $ 21,693 $ 7,159 ========= ======== ======== ======== ======== Net income per common and common equivalent share -- diluted...................... $ 0.52 $ 0.42 $ 1.07 $ 1.32 $ 0.45 ========= ======== ======== ======== ======== Weighted average common and common equivalent shares -- diluted..................... 15,383 15,713 16,388 16,482 15,867

DECEMBER 31, --------------------------------------------------------- 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- (In thousands) BALANCE SHEET DATA: Working capital.................................... $ 68,547 $ 74,228 $ 52,825 $ 43,710 $39,137 Total assets....................................... 171,839 182,389 156,948 128,755 91,068 Long-term debt, net of current portion............. 42,600 60,600 44,000 22,200 18,500 Stockholders' equity............................... 93,546 87,423 83,655 70,010 46,899

8 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Price competition for electrical wire and cable is intense, and the Company sells its products in accordance with prevailing market prices. Copper, a commodity product, is the principal raw material used by the Company in manufacturing its products. Copper accounted for approximately 63.9%, 60.6%, 66.2%, 73.8%, and 77.4% of the Company's cost of goods sold during fiscal 2000, 1999, 1998, 1997, and 1996, respectively. The price of copper fluctuates, depending on general economic conditions and in relation to supply and demand and other factors, and has caused monthly variations in the cost of copper purchased by the Company. The Company cannot predict copper prices in the future or the effect of fluctuations in the cost of copper on the Company's future operating results. RESULTS OF OPERATIONS The following table presents certain items of income and expense as a percentage of net sales for the periods indicated.

YEAR ENDED DECEMBER 31, ------------------------- 2000 1999 1998 ---- ---- ---- Net sales......................................... 100.0% 100.0% 100.0% Cost of goods sold: Copper........................................ 54.8 52.1 52.9 Other raw materials........................... 14.0 15.7 14.3 Depreciation.................................. 3.0 3.3 2.3 Labor and overhead............................ 13.3 14.5 11.5 LIFO adjustment............................... 0.7 1.5 (1.6) Lower of cost or market adjustment............ (0.1) (1.1) 0.6 ----- ----- ---- .................................................. 85.7 86.0 80.0 ----- ----- ----- Gross profit...................................... 14.3 14.0 20.0 Selling, general and administrative expenses...... 8.5 8.2 7.4 ----- ----- ----- Operating income.................................. 5.8 5.8 12.6 Interest expense, net............................. 1.4 1.2 0.7 ----- ----- ----- Income before income taxes........................ 4.4 4.6 11.9 Income tax expense................................ 1.6 1.7 4.7 ----- ----- ----- Net income........................................ 2.8% 2.9% 7.2% ===== ===== =====

The following discussion and analysis relates to factors that have affected the operating results of the Company for the years ended December 31, 2000, 1999, and 1998. Reference should also be made to the consolidated financial statements and the related notes included elsewhere in this Annual Report. Net sales were $283.7 million in 2000, compared to $229.7 million in 1999 and $244.0 million in 1998. The increase in Net Sales in 2000 over 1999, resulted from an 11.0% increase in sales volume, and a 12% increase in the price of copper. The decrease from 1998 to 1999, which was partially offset by a 9.5% increase in sales volume, was due primarily to an 8.6% decrease in the average cost of copper, which resulted in a decrease in the average sales price per copper pound of the Company's products. Sales volume increases were due to several factors, including increases in customer acceptance and product availability. In 2000, the Company continued to expand sales to some existing customers and increased the number of customers to which it sold its products. The Company currently sells its products to more than 60% of the top 250 wholesale electrical distributors (by volume) in the United States, as reported in the June 2000 issue of Electrical Wholesaling magazine. The average sales price per copper pound of product sold was $1.53 in 2000 compared to $1.37 in 1999 and $1.60 in 1998. The changes each year are primarily a result of price competition and fluctuating copper prices. The average price per copper pound paid by the Company in 2000, 1999 and 1998 was $.86, $.74, and $.81, respectively. 9 12 Cost of goods sold was $243.1 million in 2000, compared to $197.6 million in 1999 and $195.0 million in 1998. Copper costs increased to $155.4 million in 2000 from $119.8 million in 1999 and $129.3 million in 1998. The average cost per copper pound purchased was $.86, in 2000, $.74 in 1999, and $.81 in 1998. Copper costs as a percentage of net sales increased to 54.8% in 2000 from 52.1% in 1999 and 52.9% in 1998. The increase as a percentage of net sales was due primarily to the significant increase in copper cost over 1999, while other costs remained more constant. Other raw material costs as a percentage of net sales were 14.0%, 15.7%, and 14.3% in 2000, 1999, and 1998, respectively. The decrease is due primarily to the Company's sales price per copper pound sold increasing (as discussed above) while the cost of other raw materials per pound of copper sold remained relatively constant. Depreciation, labor and overhead costs as a percentage of net sales were 16.3% in 2000, compared to 17.8% in 1999 and 13.8% in 1998. The decrease in 2000 was due primarily to increased efficiencies relating to increased production capacity and vertical integration projects (copper rod fabrication facility and PVC manufacturing facility) that were completed in the prior year. Additionally, these expense items decreased as a percentage of sales, due to an increase in the sales price per copper pound sold (as discussed above) partially offset with an increase in the overhead and depreciation per copper pound sold. Inventories are stated at the lower of cost, using the last in, first out (LIFO) method or market. As permitted by generally accepted accounting principles, the Company maintains its inventory costs and cost of goods sold on a first in, first out (FIFO) basis and makes a quarterly LIFO adjustment to adjust total inventory and cost of goods sold to LIFO. As a result of decreases in the cost of copper during 1998, the value of all inventories at December 31, 1998 using the LIFO method was greater than its FIFO value by approximately $6,637,000, resulting in an additional decrease in the cost of goods sold of $4,008,000. At December 31, 1998, LIFO value exceeded the market value of the inventory by $2,625,000, thereby necessitating an additional $1,347,000 lower of cost or market decrease in the value of inventory and a corresponding increase in the cost of goods sold. The net of these two adjustments decreased cost of goods sold by $2,661,000. Although average copper costs during 1999 were lower than 1998, the cost at the end of 1999 was higher than the cost at the end of 1998. As a result of increases in the cost of copper during 1999 (specifically at the end of 1999), the value of all inventory at December 31, 1999 using the LIFO method was greater than its FIFO value by approximately $3,276,000, resulting in a corresponding increase in the cost of goods sold of $3,360,833. At December 31, 1999, LIFO value exceeded the market value of the inventory by $159,000, thereby necessitating a reversal of the previously established lower of cost or market reserve in the amount of $2,465,000 and a corresponding decrease in the cost of goods sold. The net of these two adjustments increased cost of goods sold by $263,000. Although copper prices were relatively stable in 2000, the price at the end of 2000 was higher than at the end of 1999 and the copper pounds in inventory were reduced. As a result of the increase in the cost of copper in 2000, the value of all inventories at December 31, 2000 using the LIFO method was greater than the FIFO value by approximately $1,348,000 resulting in a corresponding increase in the cost of goods sold of $1,928,315. At December 31, 2000, LIFO value was less than the market value of the inventory, thereby requiring a reversal of the previously established lower of cost or market reserve of $159,433 and a corresponding decrease in the cost of goods sold. The net of the two above adjustments increased cost of good sold by $1,768,882. Future reductions in the price of copper could require the Company to record additional lower of cost or market adjustments against the related inventory balance. Additionally, a reduction in the quantity of inventory could cause copper that is carried in inventory at costs different from the cost of copper in the period in which the reduction occurs to be included in cost of goods sold for that period at the different price. Gross profit increased to $40.6 million, or 14.3% of net sales, in 2000 from $32.0 million, or 14.0% of net sales, in 1999 and $48.9 million, or 20.0% of net sales, in 1998. The changes in gross profit were due to the factors discussed above. General and administrative expenses were $6.4 million in 2000, $5.2 million in 1999 and $5.0 million in 1998. As a percentage of net sales, general and administrative expenses were 2.3% in 2000, 2.3% in 1999 and 2.0% in 1998. In 2000 and 1999, general and administrative costs increased due to increased costs relating to higher sales volumes. These costs remained constant as a percentage of sales due to a higher sales price per copper pound as discussed above. Selling expenses, which include freight and sales commissions, were $17.6 million in 2000, $13.5 million in 1999 and $13.0 million in 1998. As a percentage of net sales, selling expenses were 6.2% in 2000, 5.9% in 1999 and 5.3% in 1998. The increase, as a percentage of sales, is due primarily to increased sales commissions stemming from a change in the mix of products sold. 10 13 Interest expense increased to $4,080,000 in 2000 from $2,922,000 in 1999 and $1,876,000 in 1998. The increase is due to a higher average debt level during 2000, coupled with the market wide increase in interest rates. These factors were partially offset by an $18.0 million reduction in debt during 2000. In addition, the Company used debt to finance common stock repurchases in 1998, 1999 and 2000. The Company capitalized interest expense relating to the construction of assets in the amounts of $0 in 2000, $330,000 in 1999, and $570,000 in 1998. The Company's effective tax rate decreased in 2000 to 36.0% from 37.0% in 1999 as a result of an entity restructuring in mid 1999. The effective rate was 39.5% in 1998. As a result of the foregoing factors, the Company's net income was $8.0 million in 2000, $6.6 million in 1999, and $17.6 million in 1998. LIQUIDITY AND CAPITAL RESOURCES The following table summarizes the Company's cash flow activities.

YEAR ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- (In thousands) Net income...................................... $ 8,050 $ 6,594 $ 17,567 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............... 9,187 8,088 5,937 Other non-cash items........................ 402 2,993 2,760 Increase(decrease) in accounts receivable, Inventory and other assets.................. 4,179 (24,966) (2,226) Increase in trade accounts payable, Accrued liabilities and other liabilities... 1,071 2,085 (8,850) -------- -------- -------- Net cash provided by (used in) operating Activities..................................... 22,889 (5,206) 15,458 Investing activities: Purchases of property, plant and Equipment (net)............................. (4,163) (8,744) (33,068) Financing activities: (Decrease) increase in indebtedness, net.... (18,000) 16,600 21,800 Issuances of common stock................... 1,510 65 635 Purchase of treasury stock.................. (3,436) (2,891) (4,558) -------- -------- -------- Net cash (used in) provided by financing Activities.................................. (19,926) 13,774 17,877 -------- -------- -------- Net increase (decrease) in cash................. $ (1,200) $ (176) $ 267 ======== ======== ========

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 11 14 exceed terms that it receives from its suppliers. Therefore, the Company's liquidity needs have generally consisted of operating capital necessary to finance these receivables and inventory. Capital expenditures have historically been necessary to expand the production capacity of the Company's manufacturing operations. The Company has satisfied its liquidity and capital expenditure needs with cash generated from operations, borrowings under its revolving credit facilities and sales of its common stock. Effective August 31, 1999, the Company through its indirectly wholly owned subsidiary, Encore Wire Limited, completed an unsecured loan facility with a group of banks (the "Financing Agreement"). The Financing Agreement replaced the Company's existing credit facility, and the Company is a guarantor of the indebtedness. The Financing Agreement has been amended once since August 31, 1999, to extend the term to May 31, 2003. The Financing Agreement provides for maximum borrowings of the lesser of $65.0 million or the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials, less any available reserves established by the banks. The calculated maximum borrowing amount available at December 31, 2000, as computed under the Financing Agreement, was $65.0 million. The Financing Agreement is unsecured and contains customary covenants and events of default. The Company was in compliance with these covenants as of December 31, 2000. Pursuant to the Financing Agreement, the Company is prohibited from declaring, paying or issuing cash dividends. At December 31, 2000, the balance outstanding under the Financing Agreement was $42.6 million. Amounts outstanding under the Financing Agreement are payable on May 31, 2003, with interest due quarterly based on the bank's prime rate or LIBOR Rate options, at the Company's election. On March 24, 1995, the Company announced that its Board of Directors had authorized it to purchase up to 900,000 shares, or approximately 5.6%, of its outstanding common stock dependent upon market conditions. Subsequent Board actions increased this authorization. As of December 31, 2000, the Company had repurchased an aggregate of 1,528,100 shares of its common stock in the open market pursuant to this program and subsequent Board authorizations. The average cost of these shares was $8.18 per share. The Company purchased an aggregate of 522,100 shares under this authorization during 2000 at an average cost of $6.58. Cash provided by operations was $22.9 million in 2000 compared to cash used by operations of $5.2 million in 1999 and $15.5 million provided in 1998. The increase of $28.1 million from 1999 to 2000 was primarily the result of an $11.8 million reduction in inventory in 2000 versus a $16.8 million increase in inventory in 1999. Cash used in investing activities decreased to $4.2 million in 2000 from $8.7 million in 1999 and $33.0 million in 1998. During 2000, capital expenditures returned to a maintenance level after large investments were made the previous two years to expand capacity by constructing a copper rod fabrication facility, a PVC manufacturing facility and a distribution center. The cash consumed by financing activities in 2000 was primarily used to decrease borrowings on the Company's loan facility by $18.0 million. Cash provided by financing activities was reduced by $3.4 million in 2000, $2.9 million in 1999 and $4.6 million in 1998, as a result of the purchase of treasury stock. Cash provided by financing activities was increased by $1.5 million in 2000, $65,000 in 1999, and $635,000 in 1998 as the result of the issuance of common stock. During 2001, the Company expects its capital expenditures will consist of maintaining and adding manufacturing equipment for its residential and commercial wire operations. The total capital expenditures associated with these capital expenditures are estimated not to exceed $10.0 million in 2001. The Company also expects its working capital requirements to increase during 2001 as a result of continued increases in sales and potential increases in the cost of copper. Moreover, the Company expects that the inventory levels necessary to support sales of commercial wire will continue to be greater than the levels necessary to support comparable sales of residential wire. The Company believes that the cash flow from operations and the financing available from it's revolving credit facility will satisfy working capital and capital expenditure requirements for the next twelve months. 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 12 15 bearing on the Company's operating results are fluctuations in the economy and in the level of activity in the building and construction industry, demand for the Company's products, the impact of price competition and fluctuations in the price of copper. 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. The Company purchases copper cathode and copper rod primarily from producers and merchants at prices determined each month based on the average daily closing prices for copper for that month, plus a negotiated premium. As a result, fluctuations in copper prices caused by market forces can significantly affect the Company's financial results. Interest rate risk is attributable to the Company's long-term debt under the Financing Agreement. The amounts outstanding under the Financing Agreement are payable on May 31, 2003, with interest due quarterly based on the bank's prime rate or LIBOR rate options, at the Company's election. At December 31, 2000, the balance outstanding under the Financing Agreement was $42.6 million, and the average interest rate was 7.428%. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company's future financing requirements. A 1% increase in the interest rate for the year 2000 would have increased the Company's interest expense by $527,500. For further information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Auditors and the consolidated financial statements of the Company and the notes thereto appear on the following pages. 13 16 Report of Independent Auditors Board of Directors Encore Wire Corporation We have audited the accompanying consolidated balance sheets of Encore Wire Corporation (the Company) as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Encore Wire Corporation at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/Ernst & Young LLP Dallas, Texas January 27, 2001 14 17 Encore Wire Corporation Consolidated Balance Sheets

DECEMBER 31 --------------------------------- 2000 1999 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 55,979 $ 1,255,915 Accounts receivable, net of allowance for losses of $413,648 and $485,156 in 2000 and 1999, respectively 54,002,608 46,592,413 Inventories (Note 2) 42,867,516 54,638,357 Prepaid expenses and other 460,543 367,690 ----------- ------------ Total current assets 97,386,646 102,854,375 Property, plant, and equipment - at cost: Land 3,583,329 3,583,329 Construction-in-progress 2,977,463 2,190,627 Buildings and improvements 26,086,303 26,003,321 Machinery and equipment 77,013,253 74,051,866 Furniture and fixtures 2,020,454 1,865,323 ------------ ------------ 111,680,802 107,694,466 Accumulated depreciation and amortization (37,419,640) (28,304,905) ------------ ------------ 74,261,162 79,389,561 Other assets 191,121 145,035 ------------ ------------ Total assets $171,838,929 $182,388,971 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 18,487,044 $ 18,081,545 Accrued liabilities (Note 3) 8,654,745 8,212,761 Current income taxes payable 737,674 514,366 Current deferred income taxes (Note 5) 960,465 1,818,057 ------------ ------------ Total current liabilities 28,839,928 28,626,729 Non-current deferred income taxes (Note 5) 6,852,848 5,739,550 Long-term note payable (Note 4) 42,600,000 60,600,000 Contingencies (Note 8) Stockholders' equity (Note 6 and 7): Convertible preferred stock, $.01 par value: Authorized shares - 2,000,000 Issued and outstanding shares -- none Common stock, $.01 par value: Authorized shares - 20,000,000 Issued and outstanding shares - 16,637,509 in 2000 and 16,337,922 in 1999 166,375 163,379 Additional paid-in capital 32,162,267 30,655,663 Treasury Stock, at cost - 1,528,100 in 2000 and 1,006,000 in 1999 (12,493,338) (9,057,353) Retained earnings 73,710,849 65,661,003 ------------ ------------ Total stockholders' equity 93,546,153 87,422,692 ------------ ------------ Total liabilities and stockholders' equity $171,838,929 $182,388,971 ============ ============

See accompanying notes. 15 18 Encore Wire Corporation Consolidated Statements of Income

YEAR ENDED DECEMBER 31, ------------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ Net sales $283,689,096 $229,669,808 $244,044,135 Cost of goods sold 243,132,019 197,635,985 195,059,722 ------------ ------------ ------------ Gross profit 40,557,077 32,033,823 48,984,413 Selling, general, and administrative expenses 24,027,034 18,741,589 18,083,414 ------------ ------------ ------------ Operating income 16,530,043 13,292,234 30,900,999 Other income (expense): Interest and other income 127,831 103,605 145,056 Interest expense (4,079,928) (2,921,762) (1,876,315) ------------ ------------ ------------ Income before income taxes 12,577,946 10,474,077 29,169,740 Income tax expense (Note 5) 4,528,100 3,880,100 11,602,400 ------------ ------------ ------------ Net income $ 8,049,846 $ 6,593,977 $ 17,567,340 ============ ============ ============ Weighted average common shares - basic (Note 7) 15,216,650 15,468,107 15,843,591 ============ ============ ============ Basic earnings per common share $ 0.53 $ 0.43 $ 1.11 ============ ============ ============ Weighted average common shares - diluted (Note 7) 15,382,870 15,713,491 16,388,259 ============ ============ ============ Diluted earnings per common share $ 0.52 $ 0.42 $ 1.07 ============ ============ ============

See accompanying notes. 16 19 Encore Wire Corporation Consolidated Statements of Stockholders' Equity

ADDITIONAL COMMON STOCK PAID-IN TREASURY RETAINED SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL ---------- -------- ----------- ------------ ----------- ---------- Balance at December 31, 1997 10,798,385 $107,983 $30,010,051 $ (1,608,390) $41,500,424 $70,010,068 Proceeds from exercise of stock options 80,425 804 412,983 -- -- 413,787 Purchase of treasury stock -- -- -- (4,558,135) -- (4,558,135) Tax benefit on exercise of stock options -- -- 222,281 -- -- 222,281 Stock split 5,425,319 54,254 (54,254) -- (738) (738) Net income -- -- -- -- 17,567,340 17,567,340 ---------- -------- ----------- ------------ ----------- ----------- Balance at December 31, 1998 16,304,129 163,041 30,591,061 (6,166,525) 59,067,026 83,654,603 Proceeds from exercise of stock options 33,793 338 42,977 -- -- 43,315 Purchase of treasury stock -- -- -- (2,890,828) -- (2,890,828) Tax benefit on exercise of stock options -- -- 21,625 -- -- 21,625 Net income -- -- -- -- 6,593,977 6,593,977 ---------- -------- ----------- ------------ ----------- ----------- Balance at December 31, 1999 16,337,922 163,379 30,655,663 (9,057,353) 65,661,003 87,422,692 Proceeds from exercise of stock options 299,587 2,996 1,506,604 -- -- 1,509,600 Purchase of treasury stock -- -- -- (3,435,985) -- (3,435,985) Tax benefit on exercise of stock options -- -- -- -- -- -- Net income -- -- -- -- 8,049,846 8,049,846 ---------- -------- ----------- ------------ ----------- ----------- Balance at December 31, 2000 16,637,509 $166,375 $32,162,267 $(12,493,338) $73,710,849 $93,546,153 ========== ======== =========== ============ =========== ===========

See accompanying notes. 17 20 Encore Wire Corporation Consolidated Statements of Cash Flows

YEAR ENDED DECEMBER 31, --------------------------------------------- 2000 1999 1998 ------------ ------------ ----------- OPERATING ACTIVITIES Net income $ 8,049,846 $ 6,593,977 $17,567,340 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,187,014 8,088,037 5,937,397 Provision for bad debts 87,500 -- 650,000 Deferred income taxes 255,706 2,988,673 2,122,090 (Gain) loss on disposal of assets 58,587 3,904 (11,942) Changes in operating assets and liabilities: Accounts receivable (7,497,695) (8,646,648) 5,706,342 Inventories 11,770,841 (16,778,440) (7,263,186) Prepaid expenses and other (92,853) (120,791) (87,996) Current income taxes receivable -- 581,783 (581,783) Trade accounts payable 405,499 1,233,608 (6,531,734) Accrued liabilities 441,984 335,853 (371,108) Current income taxes payable 223,308 514,366 (1,677,402) ------------ ------------ ----------- Net cash provided by (used in) operating activities 22,889,737 (5,205,678) 15,458,018 INVESTING ACTIVITIES Purchases of property, plant, and equipment (4,169,203) (8,939,393) (33,302,363) Increase in long term investments -- 4,500 -- (Increase) decrease in deposits (46,085) 73,000 188,560 Proceeds from sale of equipment 52,000 117,838 45,450 ------------ ------------ ----------- Net cash used in investing activities (4,163,288) (8,744,055) (33,068,353) FINANCING ACTIVITIES (Decrease) increase in long-term note payable, net (18,000,000) 16,600,000 21,800,000 Proceeds from issuance of common stock, net 1,509,600 64,940 635,330 Purchase of treasury stock (3,435,985) (2,890,828) (4,558,135) ------------ ------------ ----------- Net cash (used in) provided by financing activities (19,926,385) 13,774,112 17,877,195 ------------ ------------ ----------- Net (decrease) increase in cash (1,199,936) (175,621) 266,860 Cash at beginning of year 1,255,915 1,431,536 1,164,676 ------------ ------------ ----------- Cash at end of year $ 55,979 $ 1,255,915 $ 1,431,536 ============ ============ ===========

See accompanying notes. 18 21 Encore Wire Corporation Notes to Consolidated Financial Statements December 31, 2000 1. SIGNIFICANT ACCOUNTING POLICIES BUSINESS Encore Wire Corporation (the Company) conducts its business in one segment -- the manufacture of copper electrical wire, principally NM cable, for use primarily as interior wiring in homes, apartments, and manufactured housing, and THHN cable, for use primarily as wiring in commercial and industrial buildings. The Company sells its products primarily through approximately 30 manufacturers' representatives located throughout the United States and, to a lesser extent, through its own direct marketing efforts. The principal customers for Encore's commercial and residential wire are wholesale electrical distributors. Copper, a commodity product, is the principal raw material used in the Company's manufacturing operations. Copper accounted for approximately 63.9%, 60.6%, and 66.2% of its cost of goods sold during 2000, 1999, and 1998, respectively. The price of copper fluctuates, depending on general economic conditions and in relation to supply and demand and other factors, and has caused monthly variations in the cost of copper purchased by the Company. The Company cannot predict copper prices in the future or the effect of fluctuations on the cost of copper on the Company's future operating results. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Significant intercompany accounts and transactions have been eliminated upon consolidation. Certain prior year balances have been reclassified to conform to current year presentation. 19 22 Encore Wire Corporation Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), as amended, which was adopted by the Company on January 1, 2001. SFAS 133 requires that all derivatives be recorded on the balance sheet at fair value. Changes in derivatives that are not hedges are adjusted to fair value through income. Changes in derivatives that meet the Statement's hedge criteria will either be offset through income, or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company has evaluated the impact of SFAS 133 and determined that its adoption on January 1, 2001 had no material impact on the Company's financial condition, results of operations or cash flows. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that effect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK Cash, accounts receivable, trade accounts payable, accrued liabilities, and notes payable are stated at expected settlement amounts which approximate fair value. Accounts receivable represent amounts due from customers (primarily wholesale electrical distributors, manufactured housing suppliers, and retail home improvement centers) related to the sale of the Company's products. Such receivables are uncollateralized and are generally due from a diverse group of customers located throughout the United States. The Company charged off accounts receivable of $169,591, $27,343 and $859,830 in 2000, 1999 and 1998, respectively. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with a maturity of three months or less when purchased to be cash equivalents. 20 23 Encore Wire Corporation Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES Inventories are stated at the lower of cost using the last-in, first-out (LIFO) method or market. PROPERTY, PLANT, AND EQUIPMENT Depreciation of property, plant, and equipment for financial reporting is provided on the straight-line method over the estimated useful lives of the respective assets as follows: buildings and improvements, 15 to 30 years; machinery and equipment, 3 to 10 years; and furniture and fixtures, 3 to 5 years. Accelerated cost recovery methods are used for tax purposes. REVENUE RECOGNITION Revenue from the sale of the Company's products is recognized upon shipment to the customer. FREIGHT EXPENSES Costs incurred related to freight on customer shipments were $8,571,000, $6,841,000 and $6,550,000 in 2000, 1999 and 1998, respectively, and are classified as a component of Selling, general and administrative expenses. EARNINGS PER SHARE Earnings per common and common equivalent shares are computed using the weighted average number of shares of common stock and common stock equivalents outstanding during each period. The dilutive effects of stock options and common stock warrants, which are common stock equivalents, are calculated using the treasury stock method. INCOME TAXES Deferred income taxes reported using the liability method reflect the net tax effects of the temporary differences between the carrying amount of the assets and liabilities for financial reporting purposes and the amount used for income tax purposes. 21 24 Encore Wire Corporation Notes to Consolidated Financial Statements (continued) 2. INVENTORIES Inventories consist of the following at December 31:

2000 1999 ----------- ----------- Raw materials $13,421,656 $ 9,014,495 Work-in-process 3,403,708 5,961,346 Finished goods 24,694,088 36,545,571 ----------- ----------- 41,519,452 51,521,412 Adjust to LIFO cost 1,348,064 3,276,378 Lower of cost or market adjustment -- (159,433) ----------- ----------- $42,867,516 $54,638,357 =========== ===========

3. ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31:

2000 1999 ----------- ----------- Sales volume discounts payable $ 4,749,635 $ 4,800,813 Property taxes payable 1,729,478 1,643,402 Commissions payable 686,521 693,547 Other accrued liabilities 1,489,111 1,074,999 ----------- ----------- $ 8,654,745 $ 8,212,761 =========== ===========

4. LONG-TERM NOTE PAYABLE On August 31, 1999, the Company signed a new Financing Agreement (Facility) with a bank to provide for maximum borrowings of the lesser of $65.0 million or the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials inventories as defined in the Financing Agreement (approximately $69.3 million at December 31, 2000). The Facility is unsecured and contains customary covenants and conditions providing for events of default. 22 25 Encore Wire Corporation Notes to Consolidated Financial Statements (continued) 4. LONG-TERM NOTE PAYABLE (CONTINUED) The Company is prohibited from declaring, paying, or issuing cash dividends. At December 31, 2000, the balance outstanding under the Facility was $46.2 million. Amounts outstanding under the Facility are payable on May 31, 2003, with interest due quarterly based on the bank's prime rate, LIBOR or CD Rate options, at the Company's election (average interest rate at December 31, 2000 was 7.428%). Each of the interest rate options includes a premium dependent upon the Company's financial performance. The Company paid interest totaling $4,021,313, $2,831,275, and $1,957,269 in 2000, 1999, and 1998, respectively. The Company capitalized $0, $329,738 and $570,136 of interest in 2000, 1999 and 1998, respectively, relating to the construction of the distribution center, rod mill, and plastics mill. 5. INCOME TAXES The provisions for income tax expense are summarized as follows:

2000 1999 1998 ---------- ---------- ----------- Current: Federal $3,986,658 $ 802,604 $ 8,181,896 State 285,736 88,823 1,298,414 Deferred 255,706 2,988,673 2,122,090 ---------- ---------- ----------- $4,528,100 $3,880,100 $11,602,400 ========== ========== ===========

The differences between the provision for income taxes and income taxes computed using the federal income tax rate are as follows:

2000 1999 1998 ---------- ---------- ----------- Amount computed using the statutory rate $4,402,281 $3,661,526 $10,209,409 State income taxes, net of federal tax benefit 221,556 145,395 1,011,677 Change in tax rate (153,324) -- -- Other items 57,587 73,179 381,314 ---------- ---------- ----------- $4,528,100 $3,880,100 $11,602,400 ========== ========== ===========

23 26 Encore Wire Corporation Notes to Consolidated Financial Statements (continued) 5. INCOME TAXES (CONTINUED) The tax effect of each type of temporary difference giving rise to the net deferred tax liability at December 31, 2000 and 1999, is as follows:

DEFERRED TAX ASSET (LIABILITY) -------------------------------------------------------------------- 2000 1999 --------------------------------- --------------------------------- CURRENT NON-CURRENT CURRENT NON-CURRENT --------------- --------------- -------------- --------------- Depreciation and amortization $ -- $(6,852,848) $ -- $(5,739,550) Inventory (1,603,384) -- (2,472,617) -- Allowance for doubtful accounts 151,974 -- 186,785 -- Accrued expenses (9,079) -- 124,269 -- Uniform capitalization rules 251,043 -- 400,115 -- AMT Credit 348,007 -- -- -- Other (99,026) -- (56,609) -- ----------- ----------- ----------- ----------- $ (960,465) $(6,852,848) $(1,818,057) $(5,739,550) =========== =========== =========== ===========

The Company made income tax payments (refunds) of $3,618,512 in 2000, $(227,000) in 1999, and $11,521,000 in 1998. 24 27 Encore Wire Corporation Notes to Consolidated Financial Statements (continued) 6. STOCK OPTIONS The Company has a stock option plan for employees that provides for the granting of stock options and authorizes the issuance of common stock upon the exercise of such options for up to 2,041,500 shares of common stock. The stock options vest over five years and expire ten years from grant date. The following summarizes activity in the stock option plan for the years ended December 31, 2000, 1999, and 1998:

SHARES UNDER PRICE PER AGGREGATE OPTIONS SHARE OPTION PRICE ------------ ------------- ------------- Options outstanding at December 31, 1997 937,335 $0.33 - 17.00 $ 5,324,747 Options granted 109,100 9.00 - 17.33 1,156,748 Options exercised (106,585) 0.33 - 8.33 (621,746) Options canceled (14,050) 6.22 - 17.00 (4,590) -------- ------------ ----------- Options outstanding at December 31, 1998 925,800 0.33 - 17.33 5,855,159 Options granted 116,500 6.50 - 9.25 775,125 Options exercised (33,793) 0.33 - 4.50 (197,126) Options canceled (33,555) 4.17 - 10.00 (10,961) -------- ------------ ----------- Options outstanding at December 31, 1999 974,952 0.33 - 17.33 6,422,197 Options granted 87,000 5.63 - 7.00 565,500 Options exercised (299,587) 0.33 - 5.84 (1,509,665) Options canceled (28,850) 6.22 - 10.00 (240,191) -------- ------------ ----------- Options outstanding at December 31, 2000 733,515 $0.33 - 17.33 $ 5,237,841 ======== ============= ===========

At December 31, 2000, 440,710 options are currently exercisable and 733,515 common shares are reserved for future issuance. The Company has elected to continue to follow the expense recognition criteria in Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." As required by the Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), pro-forma information regarding net income and earnings per common share has been determined as if the Company had accounted for employee stock options granted subsequent to December 31, 1994, under the fair value method provided for under FAS 123. The fair value for the stock options granted to directors, officers, and key 25 28 Encore Wire Corporation Notes to Consolidated Financial Statements (continued) 6. STOCK OPTIONS (CONTINUED) employees of the Company on or after January 1, 1995, was estimated at the date of the grant using the Black-Scholes options pricing model with the following weighted-average assumptions:

2000 1999 1998 --------- ---------- ---------- Risk-free interest rate 5.54% 6.43% 4.73% Expected dividend yield 0.00% 0.00% 0.00% Expected volatility 55% 54% 51% Expected lives 5.0 YEARS 5.0 years 5.0 years

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The weighted-average fair value of stock options granted during the years ended December 31, 2000, 1999, and 1998, was $3.43, $3.57 and $5.16, respectively. For purposes of the pro-forma disclosures, the estimated fair value of stock options granted has been amortized to expense over the vesting period. The Company's pro-forma information for FAS 123 is as follows (in thousands, except for earnings per common share information):

2000 1999 1998 ------ ------ ------- Net income As reported $8,050 $6,594 $17,567 Pro-forma $7,863 $6,436 $17,434 Basic earnings per common share As reported $0.53 $0.43 $1.11 Pro-forma $0.52 $0.42 $1.10 Diluted earnings per common share As reported $0.52 $0.42 $1.07 Pro-forma $0.51 $0.41 $1.06

26 29 Encore Wire Corporation Notes to Consolidated Financial Statements (continued) 7. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:

2000 1999 1998 ----------- ----------- ----------- Numerator: Net income $ 8,049,846 $ 6,593,977 $17,567,340 ----------- ----------- ----------- Denominator: Denominator for basic earnings per share -- weighted average shares 15,216,650 15,468,107 15,843,591 Effect of dilutive securities: Employee stock options 166,220 245,384 544,668 ----------- ----------- ----------- Denominator for diluted earnings per share -- weighted average shares 15,382,870 15,713,491 16,388,259 =========== =========== ===========

8. CONTINGENCIES On July 19, 1999, a lawsuit styled Jose Delgado et al v. Encore Wire Corporation was filed in the district Court of Collin county, Texas against the Company. The plaintiffs are former employees of the Company who allege that they were discharged in retaliation for seeking workers' compensation benefits in violation of chapter 451 of the Texas Labor Code. The plaintiffs also claim intentional infliction of emotional distress. The Company denies the allegations and will contest the claims vigorously. The plaintiffs claim that they are entitled to recover over $50 million. The Company believes the plaintiff's claims are without merit. On May 22, 2000, the district court granted the Company's motion to sever the case into eight separate cases. In addition, the Company is a party to litigation and claims that arise out of the ordinary business of the Company. While the results of these matters cannot be predicted with certainty, the Company does not believe the final outcome of such litigation and claims will have a material adverse effect on the financial condition, the results of operations or cash flows of the Company because the Company believes that it has adequate insurance and reserves to cover any damages that may ultimately be awarded. 27 30 Encore Wire Corporation Notes to Consolidated Financial Statements (continued) 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is a summary of the unaudited quarterly financial information for the two years ended December 31, 2000 and 1999 (in thousands, except per share amounts):

THREE MONTHS ENDED 2000 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------------------------------- -------- ------- ------------ ----------- Net sales $67,049 $73,027 $70,387 $73,226 Gross profit 9,187 9,784 10,424 11,162 Net income 1,531 1,708 2,175 2,636 Earnings per common share -- basic 0.10 0.11 0.14 0.17 Earnings per common share -- diluted 0.10 0.11 0.14 0.17

THREE MONTHS ENDED 1999 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------------------------------- --------- ------- ------------ ----------- Net sales $63,524 $55,442 $53,063 $57,641 Gross profit 9,182 6,063 8,054 8,735 Net income 2,258 586 1,909 1,841 Earnings per common share -- basic 0.14 .04 0.12 0.12 Earnings per common share -- diluted 0.14 .04 0.12 0.12

28 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The sections entitled "Election of Directors" and "Section 16 (a) Beneficial Ownership Reporting Compliance" appearing in the Company's proxy statement for the annual meeting of stockholders to be held on May 7, 2001 set forth certain information with respect to the directors of the Company and with respect to Section 16 (a) reporting obligations of directors and officers, respectively, and 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 "Executive Officers of the Company" in Part I of this report. 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 7, 2001 sets forth certain information with respect to the compensation of management of the Company and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Security Ownership of Certain Beneficial Owners and Management" appearing in the Company's proxy statement for the annual meeting of stockholders to be held on May 7, 2001 sets forth certain information with respect to the ownership of the Company's Common Stock and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Not applicable PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) Financial Statements included in Item 8 herein: Report of Independent Auditors Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Income for the years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements (2) Financial Statement Schedules included in Item 8 herein: All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (3) Exhibits: The information required by this Item 14(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report on Form 10-K. (b) No Current Reports on Form 8-K were filed during the quarter ended December 31, 2000. 29 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Encore Wire Corporation has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. ENCORE WIRE CORPORATION Date: March 26, 2001 By: /s/ VINCENT A. REGO ---------------------------- Vincent A. Rego Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the following persons in the capacities and on the dates indicated.

SIGNATURE TITLE DATE --------- ----- ---- /s/ VINCENT A. REGO Chairman of the Board March 26, 2001 ----------------------------- of Directors and Chief Vincent A. Rego Executive Officer /s/ DANIEL L. JONES President and March 26, 2001 ----------------------------- chief Operating Daniel L. Jones Officer Director /s/ FRANK J. BILBAN Vice President-- Finance, March 26, 2001 ----------------------------- Secretary and Treasurer Frank J. Bilban (Principal Financial and Accounting Officer)

30 33

SIGNATURE TITLE DATE --------- ----- ---- /s/ DONALD E. COURTNEY Vice-Chairman of the March 26, 2001 ------------------------------- Board of Directors Donald E. Courtney /s/ JOSEPH M. BRITO Director March 26, 2001 ------------------------------- Joseph M. Brito /s/ JOHN H. WILSON Director March 26, 2001 ------------------------------- John H. Wilson /s/ JOHN P. PRINGLE Director March 26, 2001 ------------------------------- John P. Pringle /s/ WILLIAM R. THOMAS Director March 26, 2001 ------------------------------- William R. Thomas

31 34 INDEX TO EXHIBITS

EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 Certificate of Incorporation of Encore Wire Corporation, as amended (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1, as amended (No. 33-47696), and incorporated herein by reference). 3.2 Amended and Restated Bylaws of Encore Wire Corporation (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.1* Amended and Restated Agreement Not to Compete dated March 8, 1994, between Encore Wire Corporation and Vincent A. Rego (filed as Exhibit 10.9 to the Company's Registration Statement on Form S-1, as amended (No. 33-76216), and incorporated herein by reference). 10.2* Amended and Restated Agreement Not to Compete dated March 8, 1994, between Encore Wire Corporation and Donald M. Spurgin (filed as Exhibit 10.10 to the Company's Registration Statement on Form S-1, as amended (No. 33-76216), and incorporated herein by reference). 10.3* Employment Agreement dated as of October 1, 1996 between the Company and Donald M. Spurgin (filed as exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference). 10.4 Financing Agreement by and among Encore Wire Limited, as Borrower, Bank of America, National Association, as Agent, and Bank of America, National Association, and Comerica Bank-Texas, as Lenders, dated August 31, 1999 (filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference). 10.5 First amendment to Financing Agreement of August 31, 1999, dated June 27, 2000 by and among Encore Wire Limited, as Borrower, Bank of America, National Association, as Agent, and Bank of America, National Association, and Comerica Bank-Texas, as Lenders, as Agent and Bank of America, National Association and Comerica Bank -- Texas as Lenders (filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). 21.1 Subsidiary (included herein). 23.1 Consent of Ernst & Young LLP (included herein).

* Management contract or compensatory plan