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Published: 2021-07-29 15:25:21 ET
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wire-20210630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
___________________________________________
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 000-20278
__________________________________________________________
ENCORE WIRE CORPORATION
(Exact name of registrant as specified in its charter)
__________________________________________________________
Delaware75-2274963
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
1329 Millwood Road
McKinneyTexas75069
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (972) 562-9473
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.01 per shareWIREThe NASDAQ Global Select Market

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  ☒    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).                         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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes  ☐    No  ☒
Number of shares of Common Stock, par value $0.01, outstanding as of July 28, 2021: 20,649,395



ENCORE WIRE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2021

Table of Contents
Page No.



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Encore Wire Corporation
Balance Sheets
(In thousands, except share and per share data)
June 30, 2021December 31, 2020
(Unaudited)(Audited)
Assets
Current assets:
Cash and cash equivalents$157,872 $183,123 
Accounts receivable, net of allowance of $3,800 and $2,215
574,191 275,781 
Inventories, net87,920 92,322 
Income tax receivable— 1,256 
Prepaid expenses and other3,342 2,651 
Total current assets823,325 555,133 
Property, plant and equipment - at cost:
Land and land improvements73,725 60,662 
Construction-in-progress42,440 91,688 
Buildings and improvements216,793 153,094 
Machinery and equipment389,647 373,902 
Furniture and fixtures13,714 15,345 
Total property, plant and equipment736,319 694,691 
Accumulated depreciation(285,376)(283,923)
Property, plant and equipment - net450,943 410,768 
Other assets636 553 
Total assets$1,274,904 $966,454 
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable$77,458 $56,726 
Accrued liabilities58,540 36,866 
Income taxes payable42,093 — 
Total current liabilities178,091 93,592 
Deferred income taxes and other33,188 35,133 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value:
Authorized shares – 2,000,000; none issued
— — 
Common stock, $.01 par value:
Authorized shares – 40,000,000;
Issued shares – 27,056,100 and 27,025,388
271 270 
Additional paid-in capital70,366 67,885 
Treasury stock, at cost – 6,468,705 and 6,468,705 shares
(111,718)(111,718)
Retained earnings1,104,706 881,292 
Total stockholders’ equity1,063,625 837,729 
Total liabilities and stockholders’ equity$1,274,904 $966,454 

See accompanying notes.
1

Encore Wire Corporation
Statements of Income
(In thousands, except per share data)
 Quarter Ended June 30,Six Months Ended June 30,
2021202020212020
(Unaudited)(Unaudited)
Net sales$744,408 $253,631 $1,188,548 $556,425 
Cost of goods sold467,066 217,132 826,702 474,153 
Gross profit277,342 36,499 361,846 82,272 
Selling, general, and administrative expenses41,140 20,755 72,292 43,044 
Operating income236,202 15,744 289,554 39,228 
Net interest and other income38 267 64 1,151 
Income before income taxes236,240 16,011 289,618 40,379 
Provision for income taxes53,187 3,664 65,376 9,424 
Net income$183,053 $12,347 $224,242 $30,955 
Earnings per common and common equivalent share – basic$8.89 $0.60 $10.90 $1.50 
Earnings per common and common equivalent share – diluted$8.82 $0.60 $10.81 $1.50 
Weighted average common and common equivalent shares outstanding – basic20,581 20,496 20,574 20,646 
Weighted average common and common equivalent shares outstanding – diluted20,763 20,537 20,741 20,696 
Cash dividends declared per share$0.02 $0.02 $0.04 $0.04 

See accompanying notes.

2

Encore Wire Corporation
Statements of Stockholders' Equity
(In thousands, except per share data)
2021Common StockAdditional
Paid-In
Capital		Treasury StockRetained
Earnings		Total Stockholders' Equity
(Unaudited)SharesAmountSharesAmount
Balance at December 31, 202027,025 $270 $67,885 (6,468)$(111,718)$881,292 $837,729 
Net income— — — — — 41,189 41,189 
Exercise of stock options3 — 155 — — — 155 
Stock-based compensation13 — 737 — — — 737 
Dividend declared—$0.02 per share
— — — — — (413)(413)
Balance at March 31, 202127,041 $270 $68,777 (6,468)$(111,718)$922,068 $879,397 
Net income— — — — — 183,053 183,053 
Exercise of stock options9 1 258 — — — 259 
Stock-based compensation6 — 1,331 — — — 1,331 
Dividend declared—$0.02 per share
— — — — — (415)(415)
Balance at June 30, 202127,056 $271 $70,366 (6,468)$(111,718)$1,104,706 $1,063,625 


2020Common StockAdditional
Paid-In
Capital		Treasury StockRetained
Earnings		Total Stockholders' Equity
(Unaudited)SharesAmountSharesAmount
Balance at December 31, 201926,939 $269 $63,009 (6,027)$(91,056)$806,874 $779,096 
Net income— — — — — 18,607 18,607 
Stock-based compensation8 — 460 — — — 460 
Dividend declared—$0.02 per share
— — — — — (411)(411)
Purchase of treasury stock— — — (439)(20,580)— (20,580)
Balance at March 31, 202026,947 $269 $63,469 (6,466)$(111,636)$825,070 $777,172 
Net income— — — — — 12,347 12,347 
Exercise of stock options53 1 2,454 — — — 2,455 
Stock-based compensation5 — 631 — — — 631 
Dividend declared—$0.02 per share
— — — — — (412)(412)
Purchase of treasury stock— — — (2)(82)— (82)
Balance at June 30, 202027,005 $270 $66,554 (6,468)$(111,718)$837,005 $792,111 

See accompanying notes.
3

Encore Wire Corporation
Statements of Cash Flow
(In thousands)
 Six Months Ended June 30,
20212020
(Unaudited)
Operating Activities:
Net income$224,242 $30,955 
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization10,977 9,321 
Deferred income taxes(1,958)3,327 
Stock-based compensation attributable to equity awards2,068 1,091 
Other4,078 520 
Changes in operating assets and liabilities:
Accounts receivable(299,873)30,331 
Inventories4,402 1,804 
Other assets(185)(1,652)
Trade accounts payable and accrued liabilities47,239 (21,514)
Current income taxes receivable / payable43,349 6,101 
Net cash provided by operating activities34,339 60,284 
Investing Activities:
Purchases of property, plant and equipment(58,844)(21,921)
Proceeds from sale of assets213 90 
Net cash used in investing activities(58,631)(21,831)
Financing Activities:
Deferred financing fees(550)— 
Purchase of treasury stock— (20,662)
Proceeds from issuance of common stock, net414 2,455 
Dividends paid(823)(828)
Net cash used in financing activities(959)(19,035)
Net increase (decrease) in cash and cash equivalents(25,251)19,418 
Cash and cash equivalents at beginning of period183,123 230,965 
Cash and cash equivalents at end of period$157,872 $250,383 
See accompanying notes.

4

ENCORE WIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 2021
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited financial statements of Encore Wire Corporation (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Results of operations for interim periods presented do not necessarily indicate the results that may be expected for the entire year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The Company is unable to predict the impact that COVID-19 may have on our financial position and operating results in future periods. The duration or re-emergence of the outbreak and its long-term impact on our business remain uncertain.
Revenue Recognition
Our revenue is derived by fulfilling customer orders for the purchase of our products, which include electrical building wire and cable. We recognize revenue at the point in time that control of the ordered products is transferred to the customer, which is typically upon shipment to the customer from our manufacturing facilities and based on agreed upon shipping terms on the related purchase order. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis through standard payment terms.
Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. The amount of consideration we expect to receive and revenue we recognize includes estimates for trade payment discounts and customer rebates which are estimated using historical experience and other relevant factors and is recorded within the same period that the revenue is recognized. We review and update these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments resulting from updated estimates of trade payment discounts and customer rebates were not material.
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 January 1, 2021, and it has had no material impact on the Company's financial statements or disclosures.
5

NOTE 2 – INVENTORIES
Inventories are stated at the lower of cost, determined by the last-in, first-out (LIFO) method, or market.
Inventories consist of the following:
In ThousandsJune 30, 2021December 31, 2020
Raw materials$61,183 $40,842 
Work-in-process44,762 30,311 
Finished goods95,366 88,544 
Total Inventory at FIFO cost201,311 159,697 
Adjust to LIFO cost(113,391)(67,375)
Inventory, net$87,920 $92,322 
Inventories are stated at the lower of cost, using the last-in, first out (“LIFO”) method, or market. The Company maintains two inventory pools for LIFO purposes. As permitted by U.S. generally accepted accounting principles, the Company maintains its inventory costs and cost of goods sold on a first-in, first-out (“FIFO”) basis and makes a monthly adjustment to adjust total inventory and cost of goods sold from FIFO to LIFO. The Company applies the lower of cost or market (“LCM”) test by comparing the LIFO cost of its raw materials, work-in-process and finished goods inventories to estimated market values, which are based primarily upon the most recent quoted market price of copper and other material prices as of the end of each reporting period. The Company performs a lower of cost or market calculation quarterly. As of June 30, 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.
In the second quarter of 2021, LIFO adjustments were recorded, increasing cost of sales by $24.1 million, compared to LIFO adjustments increasing cost of sales by $0.7 million in the second quarter of 2020. In the six months ended June 30, 2021, LIFO adjustments were recorded, increasing cost of sales by $46.0 million, compared to LIFO adjustments decreasing cost of sales by $8.9 million in the six months ended June 30, 2020.
NOTE 3 – ACCRUED LIABILITIES
Accrued liabilities consist of the following:
In ThousandsJune 30, 2021December 31, 2020
Sales rebates payable$33,362 $19,317 
SAR Liability5,918 5,343 
Property taxes payable2,436 4,427 
Accrued salaries9,930 4,096 
Other accrued liabilities6,894 3,683 
Total accrued liabilities$58,540 $36,866 

NOTE 4 – INCOME TAXES
Income taxes were accrued at an effective rate of 22.5% in the second quarter of 2021 versus 22.9% in the second quarter of 2020, consistent with the Company’s estimated liabilities. In all periods, the differences between the provisions for income taxes and the income taxes computed using the federal income tax statutory rate are due primarily to the incremental taxes accrued for state and local taxes.
NOTE 5 – EARNINGS PER SHARE
Earnings per common and common equivalent share are computed using the weighted average number of shares of common stock and common stock equivalents outstanding during each period. If dilutive, the effect of stock awards, treated as common stock equivalents, is calculated using the treasury stock method.
6

The following table sets forth the computation of basic and diluted earnings per share:
 Quarter Ended June 30,Six Months Ended June 30,
In Thousands2021202020212020
Numerator:
Net income$183,053 $12,347 $224,242 $30,955 
Denominator:
Denominator for basic earnings per share – weighted average shares20,581 20,496 20,574 20,646 
Effect of dilutive securities:
Employee stock awards182 41 167 50 
Denominator for diluted earnings per share – weighted average shares20,763 20,537 20,741 20,696 

The weighted average number of employee stock awards excluded from the determination of diluted earnings per common and common equivalent share for the second quarter was zero in 2021 and 238,433 in 2020. The weighted average number of employee stock awards excluded from the determination of diluted earnings per common and common equivalent share for the six months ended June 30 was zero in 2021 and 239,609 in 2020. Such awards were anti-dilutive for their respective periods.
NOTE 6 – DEBT
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 0.200% to 0.325% (depending upon the Leverage Ratio) is payable on the unused line of credit. At June 30, 2021, there were no borrowings outstanding under the 2021 Credit Agreement, and letters of credit outstanding in the amount of $0.6 million left $199.4 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.
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 June 30, 2021.
NOTE 7 – STOCKHOLDERS’ EQUITY
On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to an authorized number of shares of its common stock on the open market or through privately negotiated transactions at prices determined by the President of the Company during the term of the program. The Company’s Board of Directors has authorized several increases and annual extensions of this stock repurchase program, and, as of June 30, 2021, 1,000,000 shares remained authorized for repurchase through March 31, 2022. The Company repurchased zero shares of its stock in the six months ended June 30, 2021 compared to 441,250 shares in the six months ended June 30, 2020.
NOTE 8 - CONTINGENCIES
There are no material pending proceedings to which the Company is a party or to which any of its property is subject. However, the Company is from time to time involved in litigation, certain other claims and arbitration matters arising in the ordinary course of its business.
7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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, and manufactured housing.
As discussed in Note 1, in the notes to the financial statements, the duration or re-emergence of the COVID-19 outbreak and its long-term impact on our business remain uncertain. Developments surrounding COVID-19 continue to change, 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.
The Company’s operating results in any given period are driven by several key factors, including the volume of product produced and shipped, the cost of copper and other raw materials, the competitive pricing environment in the wire industry and the resulting influence on gross margin and the efficiency with which the Company’s plants operate during the period, among others. Price competition for electrical wire and cable is intense, and the Company sells its products in accordance with prevailing market prices. Copper, a commodity product, is the principal raw material used by the Company in manufacturing its products. Copper accounted for approximately 69.6%, 69.9%, and 73.0% of the Company’s cost of goods sold during fiscal 2020, 2019 and 2018, respectively. 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 the Company’s purchased copper. Additionally, the SEC allows shares of certain 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 raising 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 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. With the volatility of both raw material prices and wire prices in the Company’s end market, hedging raw materials can be risky. Historically, the Company has not engaged in hedging strategies for raw material purchases. The tables below highlight the range of closing prices of copper on a per pound basis on the Comex exchange for the periods shown.
COMEX COPPER CLOSING PRICE 2021
April
2021		May
2021		June
2021		Quarter Ended June 30, 2021Six Months Ended June 30, 2021
High$4.74 $4.78 $4.66 $4.78 $4.78 
Low4.00 4.50 4.16 4.00 3.54 
Average4.25 4.64 4.40 4.42 4.15 
COMEX COPPER CLOSING PRICE 2020
April
2020		May
2020		June
2020		Quarter Ended June 30, 2020Six Months Ended June 30, 2020
High$2.38 $2.47 $2.71 $2.71 $2.88 
Low2.19 2.32 2.47 2.19 2.12 
Average2.31 2.39 2.60 2.43 2.50 

The following discussion and analysis relate to factors that have affected the operating results of the Company for the quarters and six months ended June 30, 2021 and 2020. Reference should also be made to the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
8

Results of Operations
Quarter Ended June 30, 2021 Compared to Quarter Ended June 30, 2020
Net sales were $744.4 million in the second quarter of 2021 compared to $253.6 million in the second quarter of 2020. The increase in net sales dollars is the result of a 129.6% increase in the average selling price of copper wire and a 33.4% increase in copper wire unit volume shipped. Unit volume is measured in pounds of copper contained in the wire shipped during the period. Fluctuations in sales prices are primarily a result of changing copper and other raw material prices and product price competition. The average cost per pound of raw copper purchased increased 73.5% in the second quarter of 2021 compared to the second quarter of 2020 and was a driver of the increased average sales price of copper wire.
Cost of goods sold was $467.1 million, or 62.7% of net sales, in the second quarter of 2021, compared to $217.1 million, or 85.6% of net sales, in the second quarter of 2020. Gross profit increased to $277.3 million, or 37.3% of net sales, in the second quarter of 2021 from $36.5 million, or 14.4% of net sales, in the second quarter of 2020.
The increase in gross profit margin was the result of two factors. Copper unit volumes increased 33.4%, while the spread between the average price paid for a pound of raw copper and the average sales price for a pound of copper contained in finished wire increased 234.0% in the second quarter of 2021 versus the second quarter of 2020. The spread increased as a result of the average sales price per pound of copper sold increasing 129.6% while the per pound cost of raw copper purchased increased 73.5%. The percentage change on sales is on a higher nominal dollar amount than on purchases and, therefore, spreads change on a nominal dollar basis.
Total raw materials cost as a percentage of sales decreased to 55.9% in the second quarter of 2021, from 72.2% in the second quarter of 2020. Overhead costs decreased to 6.8% of net sales in the second quarter of 2021, from 13.5% of net sales in the second quarter of 2020. Overheads contain some fixed and semi-fixed components which do not fluctuate as much as sales dollars fluctuate.
Selling expenses, consisting of commissions and freight, for the second quarter of 2021 were $28.9 million, or 3.9% of net sales, compared to $13.5 million, or 5.3% of net sales, in the second quarter of 2020. Commissions paid to independent manufacturers’ representatives are paid as a relatively stable percentage of sales dollars and, therefore, exhibited little change as a percentage of sales. Freight costs decreased to 1.5% of net sales in the second quarter of 2021 from 2.8% of net sales in the second quarter of 2020. General and administrative (“G&A”) expenses for the second quarter of 2021 were $10.8 million, or 1.5% of net sales, compared to $7.3 million, or 2.9% of net sales, in the second quarter of 2020. The G&A expense increase was driven by increased stock compensation expense as our stock price increased from $67.13 on March 31, 2021 to $75.79 on June 30, 2021.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Net sales for the first six months of 2021 were $1.189 billion compared to net sales of $556.4 million for the first six months of 2020. This 113.6% increase in net sales is primarily the result of a 119.8% increase in copper wire sales, driven by an 89.2% increase in the average selling price of copper wire and a 16.2% increase in copper wire unit volume shipped. Unit volume is measured in pounds of copper contained in the wire shipped during the period. Fluctuations in sales prices are primarily a result of changing copper and other raw material prices and product price competition. The average cost per pound of raw copper purchased increased 60.5% in the first six months of 2021 compared to the first six months of 2020 and was the principal driver of the increased average sales price of copper wire.
Cost of goods sold increased to $826.7 million in the first six months of 2021, compared to $474.2 million in the first six months of 2020. Gross profit increased to $361.8 million, or 30.4% of net sales, in the first six months of 2021 versus $82.3 million, or 14.8% of net sales, in the first six months of 2020.
Gross profit percentage for the six months ended June 30, 2021 was 30.4% compared to 14.8% during the same period in 2020. The average selling price of wire per copper pound sold increased 89.2% in the six months ended June 30, 2021 versus the six months ended June 30, 2020, while the average cost of copper per pound purchased increased 60.5%. The percentage change on sales is on a higher nominal dollar amount than on purchases and, therefore, spreads change on a nominal dollar basis.
Due primarily to increases in copper costs and an increase in copper inventory quantities on hand, aided somewhat by price and volume movements of other materials in the first six months of 2021, LIFO adjustments were recorded, increasing cost of sales by $46.0 million. During the same period in 2020, LIFO adjustments were recorded, decreasing cost of sales by $8.9 million. Based on current copper prices, there is no LCM adjustment necessary. Future reductions in the price of copper could require the Company to record an LCM adjustment against the related inventory balance, which would result in a negative impact on net income.
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Selling expenses for the first six months of 2021 increased to $49.5 million, or 4.2% of net sales, compared to $28.8 million, or 5.2% of net sales, in the same period of 2020. Commissions paid to independent manufacturers’ representatives are paid as a relatively stable percentage of sales dollars, and therefore, exhibited little change in percentage terms, increasing $14.3 million in concert with the increased sales dollars. Freight costs for the first six months of 2021 were 1.8% of net sales, compared to 2.7% of net sales for the first six months of 2020. General and administrative expenses were $21.3 million, or 1.8% of net sales, in the first half of 2021 compared to $13.5 million, or 2.4% of net sales, in the first half of 2020. The G&A expense increase was driven by increased stock compensation expense driven by the mark to market accounting on stock appreciation rights. The net stock compensation expense increased $4.6 million in the first six months of 2021 versus the first six months of 2020.
The favorable market conditions in the second quarter and year-to-date periods ended June 30, 2021 were partially driven by rising copper prices coupled with demand recovery for our products. In addition, production challenges across the sector, including inconsistent access to raw materials, disruptions in the manufacturing and distribution network, and access to skilled labor, created unique market conditions in the first half of 2021. Although we were largely able to avoid these factors, we do expect these disruptions will begin to abate during the remainder of 2021.
Liquidity and Capital Resources
The Company maintains a substantial inventory of finished products to satisfy customers’ delivery requirements promptly. As is customary in the building wire industry, the Company provides payment terms to most of its customers that exceed terms that it receives from its suppliers. Copper suppliers generally give very short payment terms (less than 15 days) while the Company and the building wire industry give customers much longer terms. 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 invoice. As a result of this timing difference, building wire companies must have sufficient cash and access to capital resources to finance their working capital needs, thereby creating a barrier to entry for companies who do not have sufficient liquidity and capital resources. The two largest components of working capital, receivables and inventory, and to a lesser extent, capital expenditures, are the primary drivers of the Company’s liquidity needs. Generally, these needs will cause the Company’s cash balance to rise and fall inversely to the receivables and inventory balances. The Company’s receivables and inventories will rise and fall in concert with several factors, most notably the price of copper and other raw materials and the level of unit sales. 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 and borrowings under its various debt arrangements. The Company historically uses its revolving credit facility to manage day to day operating cash needs as required by daily fluctuations in working capital and has the facility in place should such a need arise in the future. We believe that the Company has sufficient liquidity and do not believe COVID-19 will materially impact our liquidity, but we continue to assess COVID-19 and its impact on our business, including on our customer base and suppliers.
For more information on the Company’s revolving credit facility, see Note 6 to the Company’s financial statements included in Item 1 to this report, which is incorporated herein by reference.
Cash provided by operating activities was $34.3 million in the first six months of 2021 compared to cash provided of $60.3 million in the first six months of 2020. The following changes in components of cash flow from operations were notable. The Company had net income of $224.2 million in the first six months of 2021 compared to net income of $31.0 million in the first six months of 2020. Accounts receivable increased $299.9 million in the first six months of 2021 compared to decreasing $30.3 million in the first six months of 2020, resulting in a negative impact to cash flow of $330.2 million in the first six months of 2021 versus the first six months of 2020. Accounts receivable generally fluctuate in proportion to dollar sales and, to a lesser extent, are affected by the timing of when sales occur during a given quarter. With an average of 60 to 75 days of sales outstanding, quarters in which sales are more back-end loaded will have higher accounts receivable balances outstanding at quarter-end. Inventory value decreased $4.4 million in the first six months of 2021 compared to decreasing $1.8 million in the first six months of 2020 producing a positive impact to cash flow of $2.6 million in 2021 versus 2020. Trade accounts payable and accrued liabilities provided cash of $47.2 million in the first six months of 2021 versus using $21.5 million in the first six months of 2020. In the first six months of 2021, changes in current and deferred taxes provided cash of $41.4 million versus $9.4 million of cash provided in the first six months of 2020. These changes in cash flow were the primary drivers of the $25.9 million decrease in cash provided by operations in the first six months of 2021 compared to the first six months of 2020.
Cash used in investing activities increased to $58.6 million in the first six months of 2021 from $21.8 million in the first six months of 2020 due to higher capital expenditures on plant and equipment.
Cash used in financing activities in the first six months of 2021 consisted of $0.8 million of cash dividends paid, $0.4 million of proceeds from exercised stock options, and $0.6 million of financing fees for the new credit agreement. These activities in cash
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flow used $1.0 million cash in financing activities for the first six months of 2021 compared to $19.0 million used in the first six months of 2020. As of June 30, 2021, the balance on the Company’s revolving line of credit remained at zero.
The Company’s cash balance was $157.9 million at June 30, 2021 versus $250.4 million at June 30, 2020.
During the remainder of 2021, the Company expects its capital expenditures will consist primarily of expenditures related to the purchases of manufacturing equipment throughout its facilities to update equipment and the previously-announced expansion plans which remain on schedule. The new service center opened seamlessly in mid-May and is fully operational today. Phase two, which is focused on repurposing our now vacated distribution center to expand manufacturing capacity and extend our market reach, is on schedule for an early 2022 opening. Current market conditions have afforded us the opportunity to accelerate our capital expenditure plans and incrementally invest across our campus. We believe these investments will broaden our position as a low-cost manufacturer in the sector and further increase manufacturing capacity to accelerate growth. The incremental spending in 2021 through 2023 will expand vertical integration in our manufacturing processes to reduce costs as well as modernize select wire manufacturing facilities to increase capacity and efficiency. Capital expenditures are now expected to range from $150 - $170 million in 2021, $140 - $160 million in 2022, and $60 - $80 million in 2023. We expect to fund these investments with existing cash reserves and operating cash flows.
Critical Accounting Estimates and Policies
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 Company’s unaudited financial statements are impacted by the accounting policies used and the estimates and assumptions made by management in their preparation. See Note 1 to the notes to the financial statements for information on the Company’s significant accounting policies.
As of June 30, 2021, there have been no significant changes to the Company’s critical accounting policies and related estimates previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Information Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by words such as: “anticipate”, “intend”, “plan”, “goal”, “seek”, “believe”, “project”, “estimate”, “expect”, “strategy”, “future”, “likely”, “may”, “should”, “will” and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, 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 anticipated, estimated or projected. Therefore, you should not rely on any of these forward-looking statements. Examples of such uncertainties and risks include, but are not limited to, statements about the pricing environment of copper, aluminum and other raw materials, the duration, magnitude and impact of the ongoing COVID-19 global pandemic, our order fill rates, profitability and stockholder value, payment of future dividends, future purchases of stock, the impact of competitive pricing and other risks detailed from time to time in the Company’s reports filed with the Securities and Exchange Commission (the “SEC”). Actual results may vary materially from those anticipated. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. For more information regarding “forward-looking statements,” see “Information Regarding Forward-Looking Statements” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which is hereby incorporated by reference.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes from the information provided in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Item 4. Controls and Procedures.
The Company maintains controls and procedures designed to ensure that information required to be disclosed by it in the reports it files with or submits to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in such reports is
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accumulated and communicated to the Company’s management, including the Chief Executive and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure. Based on an evaluation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report conducted by the Company’s management, with the participation of the Chief Executive and Chief Financial Officers, the Chief Executive and Chief Financial Officers concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files with or submits to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the period covered by this report.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
For information on the Company’s legal proceedings, see Note 8 to the Company’s financial statements included in Item 1 to this report and incorporated herein by reference.
Item 1A. Risk Factors.
There have been no material changes to the Company’s risk factors as disclosed in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Note 7 to the Company’s financial statements included in Item 1 to this report is hereby incorporated herein by reference.
Item 6. Exhibits.
Exhibit NumberDescription
3.1
3.2
4.1Form of certificate for Common Stock (filed as Exhibit 1 to the Company’s registration statement on Form 8-A, filed with the SEC on June 4, 1992, and incorporated herein by reference).
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
ENCORE WIRE CORPORATION
(Registrant)
Dated: July 29, 2021/s/ DANIEL L. JONES
Daniel L. Jones
Chairman, President and Chief Executive Officer
Dated: July 29, 2021/s/ BRET J. ECKERT
Bret J. Eckert
Vice President-Finance, Treasurer,
Secretary and Chief Financial Officer

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