wire-20211231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K

(Mark One)


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-20278



ENCORE WIRE CORPORATION (Exact name of registrant as specified in its charter)


Delaware		75-2274963
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1329 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:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	WIRE	The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes ý No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ý No

The aggregate market value of the Common Stock held by non-affiliates of the registrant computed by reference to the price at which the Common Stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $1,130,147,966 (Note: The aggregate market value of Common Stock held by the Company’s directors, executive officers, immediate family members of such directors and executive officers, 10% or greater stockholders and other stockholders deemed to be affiliates was excluded from the computation of the foregoing amount. The characterization of such persons as “affiliates” should not be construed as an admission that any such person is an affiliate of the Registrant for any other purpose).

Number of shares of Common Stock outstanding as of February 16, 2022: 20,228,588

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 2022 annual meeting of stockholders – Part III

ENCORE WIRE CORPORATION

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2021

Table of Contents


PART I			PAGE
Item 1. Business			1
Item 1A. Risk Factors			5
Item 1B. Unresolved Staff Comments			8
Item 2. Properties			8
Item 3. Legal Proceedings			9
Item 4. Mine Safety Disclosures			9
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			10
Item 6. [Reserved]			11
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			19
Item 8. Financial Statements and Supplementary Data			20
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			34
Item 9A. Controls and Procedures			35
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections			36
PART III
Item 10. Directors, Executive Officers and Corporate Governance			37
Item 11. Executive Compensation			37
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			37
Item 13. Certain Relationships and Related Transactions, and Director Independence			37
Item 14. Principal Accounting Fees and Services			37
PART IV
Item 15. Exhibits and Financial Statement Schedules			39
Item 16. Form 10-K Summary			40
SIGNATURES			41

PART I

Item 1. Business.

General

Encore Wire Corporation is a Delaware corporation, incorporated in 1989, with its principal executive office and manufacturing plants located at 1329 Millwood Road, McKinney, Texas 75069. The Company’s telephone number is (972) 562-9473. As used in this annual report, unless otherwise required by the context, the terms “we,” “our,” “Company,” “Encore” and “Encore Wire” refer to Encore Wire Corporation.

Encore believes it is a low-cost manufacturer of electrical building wire and cable. The Company is a significant supplier of building wire for interior electrical wiring in commercial and industrial buildings, homes, apartments, manufactured housing, and data centers.

The principal customers for Encore’s wire are wholesale electrical distributors, who sell building wire and a variety of other products to electrical contractors. The Company sells its products primarily through independent manufacturers’ representatives located throughout the United States and, to a lesser extent, through its own direct in-house marketing efforts.

Strategy

Encore’s strategy is to further expand its share of the building wire market primarily by emphasizing a high level of customer service and the addition of new products that complement its current product line, while maintaining and enhancing its low-cost production capabilities. Encore’s low-cost production capability features an efficient plant design incorporating highly automated manufacturing equipment, an integrated production process and a highly-motivated work force. Encore's plants and principal executive office are all located on one large campus. This single-site campus enables and enhances low-cost manufacturing, distribution and administration, as well as helps to build and maintain a cohesive company culture.

Customer Service: Encore is highly focused on responding to customer needs, with an emphasis on building and maintaining strong customer relationships. Encore seeks to establish customer loyalty by achieving an industry-leading order fill rate and rapidly handling customer orders, shipments, inquiries and, when appropriate, 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.

Product Innovation: Encore has been a leader in bringing new ideas to a commodity product. Encore pioneered the widespread use of color feeder sizes of commercial wire and colors in residential non-metallic cable. The colors have improved on-the-job safety, reduced installation times for contractors and enabled building inspectors to rapidly and accurately inspect construction projects. Encore Wire’s patented SmartColor ID® system for metal-clad and armor-clad cables allows for quick and accurate identification of gauge, number of conductors, wire and jacket type. Our spool-free PullPro® is a lightweight, durable case weighing less than thirty pounds that requires no additional tools for a tangle-free wire pull. We believe our Reel Payoff® is the industry's first self-spinning wooden reel, which allows pulling on or off the pallet with no additional tools. Additionally, Encore currently has multiple patents and patent-pending innovations that range from process improvements to packaging solutions.

Low-Cost Production: Encore’s low-cost production capability features an efficient plant design and an incentivized work force.

Efficient Plant Design: Encore’s highly automated wire manufacturing equipment is integrated in an efficient design that reduces material handling, labor and in-process inventory.

Incentivized Work Force: The Company has a long term incentive plan that enhances the motivation of its salaried manufacturing supervisors. The Company also has a comprehensive safety program creating a world-class culture by engaging employees, identifying and eliminating risk, and training employees to be successful. The Company provides a 401(k) retirement savings plan to all employees.

Products

Encore offers an electrical building wire product line that consists primarily of NM-B cable, UF-B cable, THHN/THWN-2, XHHW-2, USE-2, RHH/RHW-2 and other types of wire products, including SEU, SER, Photovoltaic, URD, tray cable, metal-clad and armored cable. All of these products are manufactured with copper or aluminum as the current-carrying component of the conductor. The principal bases for differentiation among stock-keeping units are product type, conductor type, diameter, insulation, length, color and packaging.

Manufacturing

The efficiency of Encore’s highly automated manufacturing facility is a key element of its low-cost production capability. Encore’s wire manufacturing lines have been integrated so that the handling of product is substantially reduced throughout the production process. The manufacturing process for the Company’s various products involves multiple steps, including: casting, drawing, stranding, compounding, insulating, cabling, jacketing and armoring.

Encore manufactures and tests all of its products in accordance with the Underwriters Laboratories (UL) standards, a nationally recognized testing and standards agency. Additionally, UL representatives routinely visit and test products from each area of manufacturing.

Customers

Encore sells its wire to wholesale electrical distributors throughout the United States. Most distributors supply products to electrical contractors. Encore’s customers are numerous and diversified. Encore has three customers, each of whom slightly exceeds 10% of the Company's total sales. Encore has no customer, the loss of which would have a material adverse effect on the Company.

Encore believes that the speed and completeness with which it fills customers’ orders is crucial to its ability to expand the market share for its products. The Company also believes that, for a variety of reasons, many customers strive to maintain lean inventories. Because of this trend, the Company seeks to maintain sufficient inventories to satisfy customers’ prompt delivery requirements.

Marketing and Distribution

Encore markets its products throughout the United States primarily through independent manufacturers’ representatives and, to a lesser extent, through its own direct in-house marketing efforts.

Encore maintains the majority of its finished product inventory at its service center in McKinney, Texas. In order to provide flexibility in handling customer requests for immediate delivery, additional finished product inventories are maintained at warehouses owned and operated by some of the Company's independent manufacturers’ representatives located strategically across the United States.

Finished goods are typically delivered to customers by trucks operated by common carriers. The decision regarding the carrier to be used is based primarily on availability and cost.

The Company invoices its customers directly for products purchased and, if an order has been obtained through a manufacturer's representative, the Company pays the representative a commission based on pre-established rates. The Company determines customer credit limits. The Company recorded a $1.5 million and $0.7 million estimate for credit losses in 2021 and 2020 respectively, but recorded no estimates for credit losses in 2019. The manufacturers’ representatives have no discretion to determine prices charged for the Company’s products, and all sales are subject to Company approval.

Human Capital

General

The Company fosters a culture for our employees based on the old-fashioned values of service, professionalism and stewardship. We encourage our employees to do the right thing under any circumstances and to conform to our Code of Conduct and Ethics. These values are a key aspect of our human capital retention and they inform our employment and compensation philosophies.

Employees

Encore believes that its hourly employees are highly motivated and that their motivation contributes significantly to Encore’s efficient operation. The Company believes that competitive hourly compensation coupled with sound management practices focuses its employees on maintaining high production standards and product quality.

As of December 31, 2021, Encore had 1,440 employees, 1,190 of whom were paid hourly wages and were primarily engaged in the operation and maintenance of the Company’s manufacturing and warehouse facilities. The Company’s remaining employees were executive, supervisory, administrative, sales and clerical personnel. The Company considers its relations with its employees to be good. The Company has no collective bargaining agreements with any of its employees.

Compensation and Benefits

The Company rewards employees with competitive compensation and benefits packages, including attractive medical plans, retirement plans, opportunities for annual bonuses and, for eligible employees, long-term incentives and an employee stock appreciation rights plan. The Company believes that long term incentives like stock-based compensation are a critical part of its compensation program and allows the Company to attract and retain talented employees.

Health and Safety

Employee health and safety is a top priority for the Company. The Company is committed to providing a safe and healthy work environment and to conducting its various businesses in a safe and environmentally protective manner. All employees and officers are expected to perform their duties consistent with site specific safety and environmental rules and regulations and site application of Company best practices. The Company understands how the health of its employees impacts not only their work, but their family life, too. The Company offers a Medcor On-Site Clinic with a nurse practitioner for employees and their immediate families. For many, the Medcor On-Site Clinic provides basic health screenings and treatment equal to those at a general practice facility which otherwise might not be possible. The Company also offers a wide range of health and wellness services to assist its employees and their families with making good lifestyle choices.

Additionally, during the COVID-19 pandemic, the Company’s primary focus has been on the wellbeing and safety of its employees and their families. We have taken numerous steps throughout our organization to ensure that our employees have a safe work environment.

The Company’s corporate workforce worked remotely and successfully through mid-May 2021. For these remote employees, the Company provided supplies needed to work from home, supported information technology needs, and provided guidance for managers to ensure that employees remain connected and maintain physical, mental, and emotional wellbeing. In deciding to have its employees return onsite in its facilities, the Company leveraged the advice and recommendations of medical experts, health organizations such as the CDC, and our onside medical partner, Medcor, to implement new protocols to ensure the safety of its onsite employees. These recommendations include face coverings, temperature checks, health certifications, cleaning and disinfection best practices, COVID-19 updates and education, social distancing and capacity limits. Further, the Company supported its employees through programs and benefits provided throughout the year, pivoting all of our people programs and practices to enable business continuity in the current environment.

Diversity and Inclusion

The Company is committed to and values hiring employees with varied personal and professional backgrounds, perspectives and experiences, promoting a culture of diversity and inclusion. The diversity of the Company’s employees is a tremendous asset, and the Company is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate acts of discrimination or harassment. The Company is committed to employing and advancing in employment all persons without regard to their race, color, sex, religion, national origin, citizenship, age, gender identity, sexual orientation, marital status, genetic information, veteran status, disability, or other protected categories.

Raw Materials

The principal raw materials used by Encore in manufacturing its products are copper cathode, copper scrap, PVC thermoplastic compounds, XLPE compounds, aluminum, steel, paper and nylon, all of which are readily available from a number of suppliers. Copper is the principal raw material used by the Company in manufacturing its products, constituting 81.7% of the dollar value of all raw materials used by the Company during 2021. Copper requirements are purchased primarily from miners and commodity brokers at prices determined each month primarily based on the average daily COMEX closing prices for copper for that month, plus a negotiated premium. The Company also purchases raw materials necessary to manufacture various PVC thermoplastic compounds. These raw materials include PVC resin, clay and plasticizer.

The Company produces copper rod from purchased copper cathode and copper scrap in its own rod fabrication facility. The Company reprocesses copper scrap generated by its operations as well as copper scrap purchased from others. In 2021, the Company’s copper rod fabrication facility manufactured virtually all of the Company’s copper rod requirements. The Company purchases aluminum rod from various suppliers for aluminum wire production.

The Company also compounds its own wire jacket and insulation compounds. The process involves the mixture of PVC raw material components to produce the PVC used to insulate the Company’s wire and cable products. The raw materials include PVC resin, clay and plasticizer. During the last year, the Company’s plastic compounding facility produced the vast majority of the Company’s PVC requirements.

Competition

The electrical wire and cable industry is highly competitive. The Company competes with several companies who manufacture and sell wire and cable products beyond the building wire segment in which the Company competes. The Company’s primary competitors include Southwire Company, Cerro Wire LLC, General Cable (a company of the Prysmian Group) and AFC Cable Systems, Inc.

For all our products, the Company believes that it is competitive with respect to all relevant factors, including order fill rate, quality, pricing, and, in some instances, breadth of product line.

Compliance with Governmental and Environmental Regulations

The Company is subject to federal, state and local laws covering a wide variety of subject matters, including environmental protection laws and regulations governing the Company’s operations and the use, handling, disposal and remediation of hazardous substances currently or formerly used by the Company. Management believes the Company is in compliance with all such rules including certain environmental permitting and reporting requirements. Historically, compliance with laws and regulations, including environmental regulations, has not had a material impact on the capital expenditures, earnings and competitive position of the Company.

Intellectual Property Matters

From time to time, the Company files patent applications with the United States Patent and Trademark Office. The Company currently owns several patents and pending patent applications. The Company also owns several registered trademarks and pending trademark applications with the U.S. Patent and Trademark Office. The current registrations for the marks will expire on various dates from 2022 to 2029, but each registration can be renewed indefinitely as long as the respective mark continues to be used in commerce and the requisite proof of continued use or renewal application, as applicable, is filed. These trademarks provide source identification for the goods manufactured and sold by the Company and allow the Company to achieve brand recognition within the industry.

Internet Address/SEC Filings

The Company’s Internet address is https://www.encorewire.com. Under the “Investors” section of our website, the Company provides a link to our electronic Securities and Exchange Commission (“SEC”) filings, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, director and officer beneficial ownership reports filed pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and any amendments to these reports. All such reports are available free of charge and are available as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov.

Information about our Executive Officers

Information regarding Encore’s executive officers including their respective ages as of February 17, 2022, is set forth below:


Name	Age	Position with Company
Daniel L. Jones	58	Chairman of the Board of Directors, President and Chief Executive Officer

Bret J. Eckert	55	Vice President – Finance, Treasurer, Secretary, and Chief Financial Officer

Mr. Jones has held the office of President and Chief Executive Officer of the Company since February 2006. He performed the duties of the Chief Executive Officer in an interim capacity from May 2005 to February 2006. From May 1998 until February 2005, Mr. Jones was President and Chief Operating Officer of the Company. He previously held the positions of Chief Operating Officer from October 1997 until May 1998, Executive Vice President from May 1997 to October 1997, Vice President-Sales and Marketing from 1992 to May 1997, after serving as Director of Sales since joining the Company in November 1989. He has also served as a member of the Board of Directors since May 1992, and was named Chairman of the Board in 2014.

Mr. Eckert has served as Vice President-Finance, Treasurer, Secretary and Chief Financial Officer of Encore since January 2020. He joined the Company in August 2019 as Vice President-Finance. Prior to joining the Company, Bret served as Executive Managing Director for the Houston office of Riveron Consulting LLC, a business advisory firm, from June 2018 to August 2019. Previously he was Senior Vice President and Chief Financial Officer of Atmos Energy Corporation in Dallas for approximately five years. He spent the first twenty-two years of his career with Ernst & Young LLP where he was a partner for ten years.

All executive officers are elected annually by the Board of Directors to serve until the next annual meeting of the Board or until their respective successors are chosen and qualified.

Item 1A. Risk Factors.

The following are risk factors that could affect the Company’s business, financial results and results of operations. These risk factors should be carefully considered in evaluating us and our common stock. Any of these risks, many of which are beyond our control, could materially and adversely affect our financial condition, results of operations or cash flows, or cause our actual results to differ materially from those projected in any forward-looking statements contained in this Annual Report on Form 10-K. Before purchasing the Company’s stock, an investor should know that making such an investment involves some risks, including the risks described below. If any of the risks mentioned below or other unknown risks actually occur, the Company’s business, financial condition or results of operations could be negatively affected. In that case, the trading price of its stock could fluctuate significantly. We may also face other risks and uncertainties that are not presently known, are not currently believed to be material, or are not identified below because they are common to all businesses. Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.

Risks Related to Our Business and Industry

Supply and Availability of Raw Materials, Supply Chain Constraints and Profitability Margins

The success of our business depends on our ability to meet customer demand of a commodity product in a highly competitive market, and sourcing an adequate supply of raw materials, including copper, is vital to our business and operations. While the Company generally believes our supply of raw materials is adequate, the Company could experience instances of limited supply of certain raw materials, resulting in extended lead times and higher prices.

Shortages or interruptions (including due to labor or political disputes) in the supply of our raw materials could disrupt our operations, and our business and financial condition could be materially adversely affected by such disruptions. Limitations inherent within our supply chain of certain raw materials, including competitive, governmental, and legal limitations, natural disasters, and other events, could impact costs, and future increases in the costs of these items, including, for example, the adoption of new tariffs by the United States and other countries, and the worldwide COVID-19 pandemic could adversely affect our profitability and availability of raw materials. There can be no assurance that future price increases will be successfully passed through to customers or that we will be able to find alternative suppliers.

Additionally, in the last three quarters of 2021, supply chain constraints, driven in part by the COVID-19 pandemic, positively impacted the prices at which we sell our products, resulting in our increased profitability. There can be no assurance that product prices or our profitability will remain at current levels. We expect the supply chain constraints will abate in the future, but we are unable to predict the timing, impact, or whether such abatement will be gradual or abrupt.

Product Pricing and Volatility of Copper Market

Price competition for copper electrical wire and cable is significant, and the Company sells its products in accordance with prevailing market prices. Wire and cable prices can, and frequently do, change on a daily basis. This competitive pricing market for wire does not always mirror changes in copper prices, making margins highly volatile. Copper, a commodity product, is the principal raw material used in the Company’s manufacturing operations. The price of copper fluctuates depending on general economic conditions and in relation to supply and demand and other factors, including changes in regulatory, geopolitical, political, social, economic, tax or monetary policies and other factors resulting from the transition to the new administration, and it causes monthly variations in the cost of copper purchased by the Company. The SEC allows shares of physically backed copper exchange traded funds (“ETFs”) to be listed and publicly traded. Such funds and other copper ETFs like them hold copper cathode as collateral against their shares. The acquisition of copper cathode by copper ETFs may materially decrease or interrupt the availability of copper for immediate delivery in the United States, which could materially increase the Company’s cost of copper. In addition to rising copper prices and potential supply shortages, we believe that ETFs and similar copper-backed derivative products could lead to increased copper price volatility. The Company cannot predict future copper prices or the effect of fluctuations in the costs of copper on the Company’s future operating results. Consequently, fluctuations in copper prices caused by market forces can significantly affect the Company’s financial results.

Industry Conditions and Cyclicality

The residential, commercial and industrial construction industry, which is the end user of the Company’s products, is cyclical and is affected by a number of factors, including the general condition of the economy, market demand and changes in interest rates. Industry sales of electrical wire and cable products tend to parallel general construction activity, which includes remodeling. Data on remodeling is not readily available. However, remodeling activity historically trends up when new construction slows down. Construction activity is affected by the ability of our end users to finance projects, which may be severely reduced due to a widespread outbreak of contagious disease, including an epidemic or pandemic such as the current COVID-19 pandemic. Residential, commercial and industrial construction could decline if companies and consumers are unable to finance construction projects or if the economy precipitously declines or stalls, which could result in delays or cancellations of capital projects.

Deterioration in the financial condition of the Company’s customers due to industry and economic conditions may result in reduced sales, an inability to collect receivables and payment delays or losses due to a customer’s bankruptcy or insolvency. Although the Company’s bad debt experience has been low in recent years, the Company’s inability to collect receivables may increase the amounts the Company must expense against its bad debt reserve, decreasing the Company’s profitability. A downturn in the residential, commercial or industrial construction industries and general economic conditions may have a material adverse effect on the Company.

Competition

The electrical wire and cable industry is highly competitive. The Company competes with several manufacturers of wire and cable products that have substantially greater resources than the Company. Some of these competitors are owned and operated by large, diversified companies. The principal elements of competition in the wire and cable industry are, in the opinion of the Company, pricing, product availability and quality and, in some instances, breadth of product line. The Company believes that it is competitive with respect to all of these factors. While the number of manufacturers producing wire and cable has declined in the past, there can be no assurance that new competitors will not emerge or that existing producers will not employ or improve upon the Company’s manufacturing and marketing strategy.

Risks Related to Our Operations

Operating Results May Fluctuate

Encore’s results of operations may fluctuate as a result of a number of factors, including fluctuation in the demand for and shipments of the Company’s products. Therefore, comparisons of results of operations have been and will be impacted by the volume of such orders and shipments. In addition, the Company's operating results could be adversely affected by the following factors, among others, such as variations in the mix of product sales, price changes in response to competitive factors, increases in raw material costs, freight and other significant costs, the loss of key manufacturer’s representatives who sell the Company’s product line, increases in utility costs (particularly electricity and natural gas) and various types of insurance coverage and interruptions in plant operations resulting from the interruption of raw material supplies and other factors. Additionally, our results of operations could be impacted by macro-economic and geopolitical conditions as well as other outside factors, including changes in regulatory, geopolitical, political, social, economic, tax or monetary policies and other factors.

Reliance on Senior Management

Encore’s future operating results depend, in part, upon the continued service of its senior management, including, Mr. Daniel L. Jones, Chairman, President and Chief Executive Officer, and Mr. Bret J. Eckert, the Company’s Vice President and Chief Financial Officer (neither of whom is bound by an employment agreement). The Company’s future success will depend upon its continuing ability to attract and retain highly qualified managerial and technical personnel. Competition for such personnel is intense, and there can be no assurance that the Company will retain its key managerial and technical employees or that it will be successful in attracting, assimilating or retaining other highly qualified personnel in the future.

Patent and Intellectual Property Disputes

Disagreements about patents and intellectual property rights occur in the wire and cable industry. The unfavorable resolution of a patent or intellectual property dispute could preclude the Company from manufacturing and selling certain products or could require the Company to pay a royalty on the sale of certain products. Patent and intellectual property disputes could also result in substantial legal fees and other costs.

Cybersecurity Breaches and other Disruptions to our Information Technology Systems

The efficient operation of our business is dependent on our information technology systems to process, transmit and store sensitive electronic data, including employee, distributor and customer records, and to manage and support our business operations and manufacturing processes. The secure maintenance of this information is critical to our operations. Despite our security measures, our information technology system may be vulnerable to attacks by hackers or breaches due to errors or malfeasance by employees and others who have access to our system, or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters. Any such event could compromise our information technology system, expose our customers, distributors and employees to risks of misuse of confidential information, impair our ability to effectively and timely operate our business and manufacturing processes, and cause other disruptions, which could result in legal claims or proceedings, disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, any of which could adversely affect our results of operations and competitive position.

Climate Change

Future deterioration of the environment due to climate change or increased severe weather related events associated with climate change could affect both our operations and the operations of our suppliers and customers. The Company could experience increased operating costs due to new regulatory requirements and increased physical risks to our facilities due to volatile weather. The Company could experience disruptions or limitations to access of water. Our suppliers may face similar challenges, which could impact our supply chain. Demand for our products may be impacted regionally as local climates adapt to global environmental changes.

Risks Related to Ownership of Our Stock

Common Stock Price May Fluctuate

Future announcements concerning Encore or its competitors or customers, quarterly variations in operating results, announcements of technological innovations, the introduction of new products or changes in product pricing policies by the Company or its competitors, developments regarding proprietary rights, changes in earnings estimates by analysts or reports regarding the Company or its industry in the financial press or investment advisory publications, among other factors, could cause the market price of the common stock to fluctuate substantially. These fluctuations, as well as general economic, political and market conditions, such as recessions, world events, military conflicts or market or market-sector declines, may materially and adversely affect the market price of the common stock.

Beneficial Ownership of the Company’s Common Stock by a Small Number of Stockholders

A small number of significant stockholders beneficially own greater than 33% of the Company’s outstanding common stock. Depending on stockholder turnout for a stockholder vote, these stockholders, acting together, could be able to control the election of directors and certain matters requiring majority approval by the Company’s stockholders. The interests of this group of stockholders may not always coincide with the Company’s interests or the interests of other stockholders.

In the future, these stockholders could sell large amounts of common stock over relatively short periods of time. The Company cannot predict if, when or in what amounts stockholders may sell any of their shares. Sales of substantial amounts of the Company’s common stock in the public market by existing stockholders or the perception that these sales could occur, may adversely affect the market price of our common stock by creating a public perception of difficulties or problems with the Company’s business.

Future Sales of Common Stock Could Affect the Price of Common Stock

No prediction can be made as to the effect, if any, that future sales of shares or the availability of shares for sale will have on the market price of the common stock prevailing from time to time. Sales of substantial amounts of common stock, or the perception that such sales might occur, could adversely affect prevailing market prices of the common stock.

Risks Related to Laws and Regulations

Environmental Liabilities

The Company is subject to federal, state and local environmental protection laws and regulations governing the Company’s operations and the use, handling, disposal and remediation of hazardous substances currently or formerly used by the Company. A risk of environmental liability is inherent in the Company’s current manufacturing activities in the event of a release or discharge of a hazardous substance generated by the Company. Under certain environmental laws, the Company could be held jointly and severally responsible for the remediation of any hazardous substance contamination at the Company’s facilities and at third party waste disposal sites and could also be held liable for any consequences arising out of human exposure to such

substances or other environmental damage. There can be no assurance that the costs of complying with environmental, health and safety laws and requirements in the Company’s current operations or the liabilities arising from past releases of, or exposure to, hazardous substances, will not result in future expenditures by the Company that could materially and adversely affect the Company’s financial results, cash flow or financial condition.

Regulations Related to Conflict-free Minerals May Force Us to Incur Additional Expenses

In August 2012, the SEC adopted disclosure requirements related to certain minerals sourced from the Democratic Republic of Congo or adjoining countries, as required by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The SEC rules implementing Section 1502 of the Dodd-Frank Act require us to perform due diligence, and report whether “conflict minerals,” which are defined as tin, tantalum, tungsten and gold, necessary to the functionality of a product we purchase originated from the Democratic Republic of Congo or an adjoining country. Since 2014, we have been required to file with the SEC on an annual basis a specialized disclosure report on Form SD regarding such matters. As our supply chain is complex, we may incur significant costs to determine the source and custody of conflict minerals that are used in the manufacture of our products in order to comply with these regulatory requirements in the future. We may also face reputation challenges if we are unable to verify the origins for all conflict minerals used in our products, or if we are unable to conclude that our products are “conflict free.” Over time, conflict minerals reporting requirements may affect the sourcing, price and availability of our products, and may affect the availability and price of conflict minerals that are certified as conflict free. Accordingly, we may incur significant costs as a consequence of regulations related to conflict-free minerals, which may adversely affect our business, financial condition or results of operations.

Changes in Tax Laws Could Increase Our Tax Rate and Adversely Affect Our Results of Operations.

A change in tax laws is one of many factors that impact the Company’s effective tax rate, and any such change could adversely impact our effective tax rate, financial condition and results of operations.

While certain draft legislation has been publicly released and debated, the likelihood of these or other changes being enacted or implemented is unclear. For example, a minimum tax on book income equal to 15% has been proposed for corporations with greater than $1 billion in average annual profits. While the minimum tax is not expected to apply to the Company as currently proposed, adjustments to the threshold could impact the Company in future periods. Additionally, the imposition of an excise tax on the fair market value of stock that is repurchased by certain corporations has been proposed. We do not expect this excise tax to materially impact the Company if it were to be enacted. However, it cannot be predicted whether or when tax laws, rules, regulations or ordinances may be enacted, issued, or amended that could materially and adversely impact our financial position, results of operations, or cash flows.

General Risk Factors

Outbreak of Contagious Disease

Our business and the businesses of our suppliers, distributors and customers could be adversely affected by the effects of a widespread outbreak of contagious diseases, including COVID-19, or any ongoing variants. Any outbreak of contagious diseases, and other adverse public health developments, could cause a disruption in our supply chain, distribution and demand for our products. The duration of any such disruption and the related financial impact from COVID-19, or any ongoing variants, and other epidemics and pandemics cannot be reasonably estimated at this time. The occurrence or continuation of any of these events could lead to decreased revenues and limit our ability to execute on our business plan, which could adversely affect our business, financial condition and results of operations.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Encore maintains its corporate office and manufacturing plants in McKinney, Texas, approximately 32 miles north of downtown Dallas. The Company’s facilities are located on a combined site of approximately 449 acres and consist of buildings containing approximately 2.8 million square feet of floor space. The corporate office, plants and equipment are owned by the Company and are not mortgaged to secure any of the Company’s existing indebtedness. Encore believes that its plants and equipment are suited to its present needs, comply with applicable federal, state and local laws and regulations, and are properly maintained and adequately insured.

Item 3. Legal Proceedings.

For information on the Company’s legal proceedings see Note 10 to the Company’s financial statements included in Item 8 to this report and incorporated herein by reference.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company’s common stock is traded and quoted on the NASDAQ Stock Market’s Global Select Market under the symbol “WIRE.” As of February 16, 2022, there were 27 holders of record of the Company’s common stock.

Aside from periodic cash dividends, which the Company currently expects to continue to make consistent with its historical practice, management and the Board currently intend to retain the majority of future earnings for the operation and expansion of the Company’s business.

Issuer Purchases of Equity Securities

Note 9 to the Company’s financial statements included in Item 8 to this report is hereby incorporated herein by reference.

The following table provides information relating to our purchases of shares of our common stock during the three months ended December 31, 2021.


	(a)	(b)			(c)	(d)
Period	Total Number of Shares Purchased	Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
October 1, 2021 – October 31, 2021	—	$		—	—	606,621
November 1, 2021 – November 30, 2021	—	—			—	1,000,000
December 1, 2021 – December 31, 2021	82,178	128.54			82,178	917,822
	82,178	$	128.54		82,178

(1) On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to an authorized number of shares of its common stock from time to time in the open market or private transactions at the Company's discretion. This authorization originally expired on December 31, 2007, and the Company’s Board of Directors has authorized several increases and annual extensions of this stock repurchase program, including on November 8, 2021, authorizing the repurchase of up to 1,000,000 shares of our common stock. As of December 31, 2021, 917,822 shares remained authorized for repurchase through March 31, 2022. Under this program, the Company repurchased 475,557 shares of its stock in 2021 and 441,250 shares in 2020. The Company did not repurchase any shares of its stock in 2019.

Subsequently, in February 2022, the Board of Directors increased the repurchase authorization for up to 2,000,000 shares of our common stock through March 31, 2023.

Performance Graph

The following graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, respectively.

The graph below sets forth the cumulative total stockholder return, which assumes reinvestment of dividends, of a $100 investment in the Company’s common stock, the Russell 2000 Index, and the Company’s self-determined peer group (the “Peer Group”)for the five years ended December 31, 2021.


		As of December 31,
Symbol	Total Return For:	2016	2017	2018	2019	2020	2021
Û	Encore Wire Corporation	100.00	112.43	116.15	133.05	140.69	332.65
£	Russell 2000 Index	100.00	114.65	102.02	128.06	153.62	176.39
r	Peer Group	100.00	101.20	64.60	95.61	99.19	168.05

Notes

(1)Data presented in the performance graph is complete through December 31, 2021.

(2)The Peer Group is self-determined and consists of the following companies: Belden, Inc., Apogee Enterprises, Inc., Quanex Building Products Corporation, Atkore International Group, Inc., and Masonite International Corporation. The performance graph presented in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 22, 2021, consisted of this peer group.

(3)The peer group index uses only the Peer Group’s performance and excludes the performance of the Company. The peer group index uses beginning of period market capitalization weighting.

(4)Each data line represents annual index levels derived from compounded daily returns that include all dividends.

(5)The index level for all data lines was set to $100.00 on December 31, 2016.

Item 6. [Reserved].

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

The following management’s discussion and analysis is intended to provide a better understanding of key factors, drivers and risks regarding the Company and the building wire industry. The duration and severity of the COVID-19, and any ongoing variants, pandemic outbreak and their long-term impact on our business are uncertain at this time. Developments surrounding the COVID-19 global pandemic are continuing to change daily, and we have limited visibility into the extent to which market demand for our products as well as sector manufacturing and distribution capacity will be impacted.

Executive Overview

Encore Wire sells a commodity product in a highly competitive market. Management believes that the historical strength of the Company’s growth and earnings is in large part attributable to the following main factors:

•industry-leading order fill rates and responsive customer service;

•product innovations and product line expansions based on listening to and understanding customer needs and market trends;

•low cost manufacturing operations, resulting from a state-of-the-art manufacturing complex;

•low distribution and freight costs due in large part to the “one campus” business model;

•a focused management team leading a skilled work force;

•low general and administrative overhead costs; and

•a team of experienced independent manufacturers’ representatives with strong customer relationships across the United States.

These factors, and others, have allowed Encore Wire to grow from a startup in 1989 to what management believes is one of the largest electric building wire companies in the United States of America. Encore has built a loyal following of customers throughout the United States. These customers have developed a brand preference for Encore Wire in a commodity product line due to the reasons noted above, among others. The Company prides itself on striving to grow sales by expanding its product offerings where profit margins are acceptable. Senior management monitors gross margins daily, frequently extending down to the individual order level. Management strongly believes that this “hands-on” focused approach to the building wire business has been an important factor in the Company's success, and will lead to continued success.

The construction and remodeling industries drive demand for building wire. In 2021, unit sales increased 10.8% in copper wire versus 2020. In 2020, unit sales decreased 5.4% in copper wire versus 2019. In 2019, unit sales increased 4.1% versus 2018.

General

The Company’s operating results are driven by several key factors, including the volume of product produced and shipped, the cost of copper and other raw materials, the competitive pricing environment in the wire industry and the resulting influence on gross margins and the efficiency with which the Company’s plants operate during the period, among others. Price competition for electrical wire and cable is significant, and the Company sells its products in accordance with prevailing market prices. Copper, a commodity product, is the principal raw material used by the Company in manufacturing its products. The price of copper fluctuates, depending on general economic conditions and in relation to supply and demand and other factors, which causes monthly variations in the cost of copper purchased by the Company. Additionally, the SEC allows shares of physically backed copper exchange traded funds (“ETFs”) to be listed and publicly traded. Such funds and other copper ETFs like it hold copper cathode as collateral against their shares. The acquisition of copper cathode by Copper ETFs may materially decrease or interrupt the availability of copper for immediate delivery in the United States, which could materially increase the Company’s cost of copper. In addition to rising copper prices and potential supply shortages, we believe that ETFs and similar copper-backed derivative products could lead to increased price volatility for copper. The Company cannot predict copper prices in the future or the effect of fluctuations in the cost of copper on the Company’s future operating results. Wire prices can, and frequently do change on a daily basis. This competitive pricing market for wire does not always mirror changes in copper prices, making margins highly volatile. Historically, the cost of aluminum has been much lower and less volatile than copper. The tables below highlight the range of closing prices of copper on the COMEX exchange for the periods shown.

COMEX COPPER CLOSING PRICE 2021


	October 2021		November 2021		December 2021		Quarter Ended Dec. 31, 2021		Year-to-Date Dec. 31, 2021
High	$	4.76	$	4.46	$	4.47	$	4.76	$	4.78
Low	4.16		4.27		4.18		4.16		3.54
Average	4.45		4.37		4.33		4.38		4.25

COMEX COPPER CLOSING PRICE 2020


	October 2020		November 2020		December 2020		Quarter Ended Dec. 31, 2020		Year-to-Date Dec. 31, 2020
High	$	3.19	$	3.42	$	3.63	$	3.63	$	3.63
Low	2.86		3.07		3.47		2.86		2.12
Average	3.06		3.20		3.53		3.27		2.80

COMEX COPPER CLOSING PRICE 2019


	October 2019		November 2019		December 2019		Quarter Ended Dec. 31, 2019		Year-to-Date Dec. 31, 2019
High	$	2.68	$	2.72	$	2.86	$	2.86	$	2.98
Low	2.55		2.62		2.61		2.55		2.51
Average	2.61		2.65		2.77		2.68		2.72

COMEX COPPER CLOSING PRICE 2021 by Quarter


	Quarter Ended March 31, 2021	Quarter Ended June 30, 2021	Quarter Ended Sept. 30, 2021	Quarter Ended Dec. 31, 2021	Year-to-Date Dec. 31, 2021
High	$4.30	$4.78	$4.59	$4.76	$4.78
Low	3.54	4.00	4.04	4.16	3.54
Average	3.87	4.42	4.30	4.38	4.25

COMEX COPPER CLOSING PRICE 2020 by Quarter


	Quarter Ended March 31, 2020	Quarter Ended June 30, 2020	Quarter Ended Sept. 30, 2020	Quarter Ended Dec. 31, 2020	Year-to-Date Dec. 31, 2020
High	$2.88	$2.71	$3.11	$3.63	$3.63
Low	2.12	2.19	2.72	2.86	2.12
Average	2.56	2.43	2.93	3.27	2.80

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,
	2021		2020		2019
Net sales	100.0	%	100.0	%	100.0	%
Cost of goods sold:
Copper	46.7	%	57.3	%	60.8	%
Other raw materials	10.5	%	13.5	%	14.0	%
Depreciation	0.8	%	1.4	%	1.2	%
Labor and overhead	6.6	%	10.8	%	11.0	%
LIFO adjustment	1.9	%	1.8	%	—	%

Total cost of goods sold	66.5	%	84.8	%	87.0	%

Gross profit	33.5	%	15.2	%	13.0	%
Selling, general and administrative expenses	6.5	%	7.6	%	7.4	%
Operating income	27.0	%	7.6	%	5.6	%
Net interest and other income	—	%	0.1	%	0.4	%

Income before income taxes	27.0	%	7.7	%	6.0	%
Provision for income taxes	6.1	%	1.8	%	1.4	%

Net income	20.9	%	5.9	%	4.6	%

The following discussions and analyses relate to factors that have affected the operating results of the Company for the years ended December 31, 2021, 2020 and 2019. Reference should also be made to the Financial Statements and the related notes included under “Item 8. Financial Statements and Supplementary Data” of this Annual Report. Additional information about results for year end 2019 and certain year-on-year comparisons between 2020 and 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Net sales for the twelve months ended December 31, 2021 were $2.593 billion compared to $1.277 billion during the same period in 2020 and $1.275 billion during the same period in 2019. The 103.0% increase in net sales dollars in 2021 versus 2020 is primarily the result of a 104.7% increase in copper wire sales. Sales dollars were driven higher by an 84.7% increase in average selling price of copper wire, coupled with a 10.8% increase in copper wire pounds shipped. Average selling prices for wire sold were driven higher by rising copper commodity prices. In the twelve months ended December 31, 2020 versus the twelve months ended December 31, 2019, copper unit volume, measured in pounds of copper contained in the wire sold, decreased 5.4%.

Cost of goods sold was $1.725 billion in 2021 versus $1.082 billion in 2020 and $1.109 billion in 2019. The increase in 2021 compared to 2020 was driven by an increase in material costs to support the increase in net sales. The increase in material cost in 2021 from 2020 reflects a 10.8% increase in copper volume shipped and a 49.5% increase in the cost of copper purchased. The decrease in 2020 compared to 2019 was mainly driven by a decrease in material costs, and to a lesser extent, a decrease in labor and overhead costs year-over year. The decrease in 2020 from 2019 reflects a 5.4% decrease in copper volume shipped, offset by a 2.6% increase in the cost of copper purchased.

Gross profit percentage for the twelve months ended December 31, 2021 was 33.5% compared to 15.2% during the same period in 2020 and 13.0% during the same period in 2019. The average selling price of wire per copper pound sold increased 84.7% in the twelve months ended December 31, 2021 versus the twelve months ended December 31, 2020, while the average cost of copper per pound purchased increased 49.5%. The average selling price of wire per copper pound sold increased 4.7% in the twelve months ended December 31, 2020 versus the twelve months ended December 31, 2019, while the average cost of copper per pound purchased increased 2.6%.

Net income for the twelve months ended December 31, 2021 was $541.4 million versus $76.1 million in the same period in 2020 and $58.12 million in the same period in 2019. Fully diluted net earnings per common share were $26.22 in the twelve months ended December 31, 2021 versus $3.68 in the same period in 2020 and $2.77 in the same period in 2019.

Inventories consist of the following at December 31 (in thousands):


	2021		2020		2019
Raw materials	$	54,012	$	40,842	$	25,882
Work-in-process	40,422		30,311		25,381
Finished goods	123,401		88,544		83,222
Total	217,835		159,697		134,485
Adjust to LIFO cost	(117,019)		(67,375)		(44,801)
Lower of cost or market adjustment	—		—		—
Inventory	$	100,816	$	92,322	$	89,684

The quantity of total copper inventory on hand increased somewhat in 2021, compared to 2020. The other materials category, which includes a large number of raw materials, had quantity changes that included increases and decreases in various other materials. This resulted in a last-in, first-out (LIFO) method adjustment increasing cost of sales by $49.6 million in 2021. We utilize the LIFO method because it results in a better matching of costs and revenues.

The quantity of total copper inventory on hand increased somewhat in 2020, compared to 2019. The other materials category, which includes a large number of raw materials, had quantity changes that included increases and decreases in various other materials. This resulted in a LIFO method adjustment increasing cost of sales by $22.6 million in 2020.

Based on the current copper and other raw material prices, there is no lower of cost or market (LCM) adjustment necessary in the periods presented above. Future reductions in the price of copper and other raw materials could require the Company to record an LCM adjustment against the related inventory balance, which would result in a negative impact on net income.

Gross profit was $867.7 million, or 33.5% of net sales, in 2021 compared to $194.5 million, or 15.2% of net sales, in 2020 and $166.0 million, or 13.0% of net sales, in 2019. The changes in gross profit were due to the factors discussed above.

Selling expenses, which are made up of freight and sales commissions, were $109.5 million in 2021, $66.8 million in 2020 and $66.0 million in 2019. Freight costs increased as a result of increased sales volumes and an increase in overall freight rates. Commission costs increased commensurate with the sales dollar increase. As a percentage of net sales, selling expenses were 4.2% in 2021 and 5.2% in both 2020 and 2019. General and administrative expenses were $57.6 million in 2021, $29.5 million in 2020 and $28.5 million in 2019. The increase in 2021 is primarily the result of increased stock-based compensation as a result of a 136% increase in our stock price. As a percentage of net sales, general and administrative expenses were 2.2% in 2021 versus 2.3% in 2020 and 2.2% in 2019. Accounts receivable write-offs were zero in 2021, $0.3 million in 2020 and $0.2 million in 2019. The Company increased the reserve for credit losses by $1.5 million and $0.7 million in 2021 and 2020, respectively, and did not increase the reserve in 2019.

Net interest and other income was $0.2 million in 2021, $1.3 million in 2020 and $4.2 million in 2019. The decrease in 2021 and 2020 reflect the economic impact of the pandemic and its effect on interest rates during the year and the resulting interest earned.

Our effective tax rate was 22.6% in 2021, 23.0% in 2020 and 23.2% in 2019. The differences between the provisions for income taxes and the income taxes computed using the federal income tax statutory rate are primarily due to state taxes and non-deductible expenses.

As a result of the foregoing factors, the Company’s net income was $541.4 million in 2021, $76.1 million in 2020 and $58.1 million in 2019.

Liquidity and Capital Resources

The following table summarizes the Company’s cash flow activities (in thousands):


	Year Ended December 31,
	2021		2020		2019
Net cash provided by operating activities	$	418,418	$	57,462	$	106,121
Net cash used in investing activities	(118,155)		(85,991)		(52,456)
Net cash used in financing activities	(44,396)		(19,313)		(1,105)
Net increase in cash and cash equivalents	$	255,867	$	(47,842)	$	52,560
Annual dividends paid	$	(1,633)	$	(1,650)	$	(1,673)

The Company maintains a substantial inventory of finished products to satisfy customers’ prompt delivery requirements. As is customary in the industry, the Company provides payment terms to most of its customers that exceed terms that it receives from its suppliers. In general, the Company’s standard payment terms result in the collection of a significant majority of net sales within approximately 75 days of the date of the invoice. Therefore, the Company’s liquidity needs have generally consisted of working capital necessary to finance receivables and inventory. Capital expenditures have historically been necessary to expand and update the production capacity of the Company’s manufacturing operations. The Company has historically satisfied its liquidity and capital expenditure needs with cash generated from operations, borrowings under its various debt arrangements and sales of its common stock. We believe that the Company has sufficient liquidity, and will continue to have sufficient liquidity beyond the short-term outlook, and do not believe COVID-19, or any of its ongoing variants, will materially impact our liquidity, but we continue to assess the COVID-19 pandemic and any ongoing variants and their impact on our business, including on our customer base and suppliers.

At December 31, 2021 and 2020, the Company had no debt outstanding.

On February 9, 2021, the Company terminated its previous credit agreement and entered into a new Credit Agreement (the “2021 Credit Agreement”) with two banks, Bank of America, N.A., as administrative agent and letter of credit issuer, and Wells Fargo Bank, National Association, as syndication agent. The 2021 Credit Agreement extends through February 9, 2026 and provides for maximum borrowings of $200.0 million. At our request and subject to certain conditions, the commitments under the 2021 Credit Agreement may be increased by a maximum of up to $100.0 million as long as existing or new lenders agree to provide such additional commitments. Borrowings under the line of credit bear interest, at the Company’s option, at either (1) LIBOR plus a margin that varies from 1.000% to 1.875% depending upon the Leverage Ratio (as defined in the 2021 Credit Agreement), or (2) the base rate (which is the highest of the federal funds rate plus 0.5%, the prime rate, or LIBOR plus 1.0%) plus 0% to 0.375% (depending upon the Leverage Ratio). A commitment fee ranging from 0.20% to 0.325% (depending upon the Leverage Ratio) is payable on the unused line of credit. At December 31, 2021, there were no borrowings outstanding under the 2021 Credit Agreement, and letters of credit outstanding in the amount of $0.4 million left $199.6 million of credit available under the 2021 Credit Agreement. Obligations under the 2021 Credit Agreement are the only contractual borrowing obligations or commercial borrowing commitments of the Company. The 2021 Credit Agreement contains provisions to replace LIBOR with a replacement rate as described in the 2021 Credit Agreement.

Obligations under the 2021 Credit Agreement are unsecured and contain customary covenants and events of default. The Company was in compliance with the covenants as of December 31, 2021.

The Company paid interest totaling $0.4 million, $0.2 million and $0.2 million in 2021, 2020 and 2019, respectively, none of which was capitalized.

On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to an authorized number of shares of its common stock from time to time in the open market or private transactions at the Company's discretion. This authorization originally expired on December 31, 2007, and the Company’s Board of Directors has authorized several increases and annual extensions of this stock repurchase program, most recently on November 8, 2021, authorizing the repurchase of up to 1,000,000 shares of our common stock. As of December 31, 2021, 917,822 shares remained authorized for repurchase through March 31, 2022. The Company repurchased 475,557 shares of its stock in 2021 and 441,250 shares in 2020. The Company did not repurchase any shares of its stock in 2019.

Net cash provided by operations increased $360.9 million to $418.4 million in 2021 compared to $57.5 million in 2020 and $106.1 million in 2019. The increase in cash provided by operations of $360.9 million in 2021 versus 2020 was due to several factors. Net income increased to $541.4 million in 2021 from $76.1 million in 2020. Accounts receivable increased $216.8 million in 2021 compared to increasing $53.4 million in 2020, resulting in a negative impact to cash flow of $163.4 million. Accounts receivable was impacted by the $307.0 million increase in net sales in the fourth quarter of 2021 versus the fourth quarter of 2020, due to a 70.5% increase in the average selling price per pound of copper wire sold, and a 3.9% increase in

copper volume shipped. Inventory, net increased $8.5 million in 2021 compared to increasing $2.6 million in 2020, producing a negative impact to cash flow of $5.9 million. Trade accounts payable and accrued liabilities favorably impacted cash by $66.9 million in 2021 versus favorably impacting cash by $7.6 million in 2020, a positive swing of $59.3 million. These changes in cash flow were the primary drivers of the $360.9 million increase in net cash flow provided by operations in 2021 versus 2020.

Net cash provided by operations decreased $48.6 million to $57.5 million in 2020 compared to $106.1 million in 2019. The decrease in cash provided by operations of $48.6 million in 2020 versus 2019 was due to several factors. Net income increased to $76.1 million in 2020 from $58.1 million in 2019. Accounts receivable increased in 2020, resulting in cash used of $53.4 million versus cash provided of $12.3 million in 2019, a decrease in operating cash flow of $65.7 million. Accounts receivable was impacted by the $78.5 million increase in net sales in the fourth quarter of 2020 versus the fourth quarter of 2019, brought on by a 21.1% increase in the average selling price per pound of copper wire sold, and a 4.3% increase in copper volume shipped. Changes in inventory resulted in cash used of $2.6 million in 2020 versus cash provided of $12.7 million in 2019, a $15.3 million decrease in cash provided. Changes in trade accounts payable and accrued liabilities resulted in cash provided of $7.6 million in 2020 versus cash provided of $2.0 million in 2019, a positive swing of $5.6 million. These changes in cash flow were the primary drivers of the $48.6 million decrease in net cash flow provided by operations in 2020 versus 2019.

Net cash used in investing activities was $118.2 million in 2021 versus $86.0 million in 2020 and $52.5 million in 2019. In 2021 and 2020, capital expenditures were used primarily for the construction of our new service center, the acceleration of spending for our repurposed distribution center, and the purchase and installation of machinery and equipment throughout the Company. In 2019, capital expenditures were used primarily for the purchase and installation of machinery and equipment throughout the Company.

The net cash used by financing activities of $44.4 million in 2021 consisted primarily of $43.3 million used to purchase Company stock and dividend payments of $1.6 million, partially offset by $1.1 million proceeds from issuance of Company stock related to employees exercising stock options. The net cash used by financing activities of $19.3 million in 2020 consisted primarily of $20.7 million used to purchase Company stock and dividend payments of $1.7 million, partially offset by $3.0 million proceeds from issuance of Company stock related to employees exercising stock options. The net cash used by financing activities of $1.1 million in 2019 consisted primarily of $1.7 million in dividend payments, offset by $0.6 million proceeds from issuance of Company stock related to employees exercising stock options.

The new service center opened in mid-May and is fully operational today. The repurposing of our vacated distribution center to expand manufacturing capacity and extend our market reach will be completed in the second quarter of 2022.

The incremental investments announced in July 2021 continue in earnest, focused on broadening our position as a low-cost manufacturer in the sector and increasing manufacturing capacity to drive growth. Capital spending in 2022 through 2024 will expand vertical integration in our manufacturing processes to reduce costs as well as modernize select wire manufacturing facilities to increase capacity and efficiency. Total capital expenditures were $118 million in 2021. We expect total capital expenditures to range from $150 - $170 million in 2022, $150 - $170 million in 2023, and $80 - $100 million in 2024. We expect to continue to fund these investments with existing cash reserves and operating cash flows.

As of December 31, 2021, the Company had contractual obligations of $117.8 million, consisting of open purchase orders for major raw material purchases and $75.9 million of purchase orders for capital expenditures.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. See Note 1 to the Financial Statements included under “Item 8. Financial Statements and Supplementary Data” of this annual report. Management believes the following critical accounting policies affect its more significant estimates and assumptions used in the preparation of its financial statements.

Inventories are stated at the lower of cost, using the LIFO method, or market. The Company maintains two inventory pools for LIFO purposes. As permitted by U.S. generally accepted accounting principles, the Company maintains its inventory costs and cost of goods sold on a first-in, first-out (FIFO) basis and makes a monthly adjustment to adjust total inventory and cost of goods sold from FIFO to LIFO. The Company applies the LCM test by comparing the LIFO cost of its raw materials, work-in-process and finished goods inventories to estimated market values, which are based primarily upon the most recent quoted market price of copper and other raw materials and finished wire prices as of the end of each reporting period. The Company performs an LCM calculation quarterly. As of December 31, 2021, no LCM adjustment was required. However, decreases in copper and other material prices could necessitate establishing an LCM reserve in future periods. Additionally, future

reductions in the quantity of inventory on hand could cause copper or other raw materials that are carried in inventory at costs different from the cost of copper and other raw materials in the period in which the reduction occurs to be included in costs of goods sold for that period at the different price.

Revenue from the sale of the Company’s products is recognized when goods are shipped to the customer, title and risk of loss are transferred, pricing is fixed or determinable and collection is reasonably assured. A provision for payment discounts and customer rebates is estimated based upon historical experience and other relevant factors and is recorded within the same period that the revenue is recognized.

The Company has provided an allowance for credit losses on customer receivables based upon estimates of those customers’ inability to make required payments. Such allowance is established and adjusted based upon the makeup of the current receivable portfolio, past bad debt experience and current market conditions. If the financial condition of our customers was to deteriorate and impair their ability to make payments to the Company, additional allowances for losses might be required in future periods.

Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the sole source of authoritative U.S. GAAP, along with the Securities and Exchange Commission ("SEC") and Public Company Accounting Oversight Board (“PCAOB”) issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standard Update (“ASU”) to communicate changes to the codification. The Company considers the applicability and impact of all ASUs. The following are those ASUs that are relevant to the Company.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. This ASU is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. We adopted this new standard effective January 1, 2021, and it has had no material impact on the Company's financial statements or disclosures.

Information Regarding Forward-Looking Statements

This report contains various forward-looking statements and information that are based on management’s belief as well as assumptions made by and information currently available to management. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected.

Among the key factors that may have a direct bearing on the Company’s operating results and stock price are:

•fluctuations in the global and national economy;

•the impact of a global pandemic;

SEC Form 10-K filed by Encore Wire Corporation