Encore Wire(WIRE) - 2022 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited interim financial statements, including balance sheets, income, equity, cash flows, and detailed accounting notes Balance Sheets Presents comparative balance sheets for June 30, 2022, and December 31, 2021, detailing assets, liabilities, and equity | Metric (In thousands) | June 30, 2022 | December 31, 2021 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Total assets | $1,768,782 | $1,530,536 | +$238,246 | | Cash and cash equivalents | $469,540 | $438,990 | +$30,550 | | Accounts receivable, net | $606,132 | $491,126 | +$115,006 | | Inventories, net | $121,418 | $100,816 | +$20,602 | | Total current liabilities | $145,179 | $154,100 | -$8,921 | | Total stockholders' equity | $1,583,896 | $1,339,089 | +$244,807 | | Treasury stock, at cost | $(286,870) | $(155,014) | -$131,856 | Statements of Income Details comparative statements of income for Q2 and six months ended June 30, 2022 and 2021, showing sales, profit, and EPS | Metric (In thousands, except per share) | Q2 2022 | Q2 2021 | Q2 YoY Change | 6M 2022 | 6M 2021 | 6M YoY Change | | :------------------------------------ | :------ | :------ | :------------ | :------ | :------ | :------------ | | Net sales | $838,235 | $744,408 | +12.6% | $1,561,307 | $1,188,548 | +31.4% | | Gross profit | $320,772 | $277,342 | +15.7% | $564,519 | $361,846 | +56.0% | | Operating income | $270,367 | $236,202 | +14.5% | $477,903 | $289,554 | +65.1% | | Net income | $210,538 | $183,053 | +15.0% | $372,070 | $224,242 | +65.9% | | Basic EPS | $10.84 | $8.89 | +21.9% | $18.88 | $10.90 | +73.2% | | Diluted EPS | $10.71 | $8.82 | +21.4% | $18.62 | $10.81 | +72.2% | | Cash dividends declared per share | $0.02 | $0.02 | 0% | $0.04 | $0.04 | 0% | Statements of Stockholders' Equity Presents comparative statements of stockholders' equity for Q2 and six months ended June 30, 2022 and 2021 | Metric (In thousands) | Balance at Dec 31, 2021 | 6M Ended Jun 30, 2022 Changes | Balance at Jun 30, 2022 | | :-------------------- | :---------------------- | :---------------------------- | :---------------------- | | Total Stockholders' Equity | $1,339,089 | +$244,807 | $1,583,896 | | Net income | | +$372,070 | | | Stock-based compensation | | +$5,215 | | | Dividend declared | | -$776 | | | Purchase of treasury stock | | -$131,856 | | Statements of Cash Flow Provides comparative cash flow statements for six months ended June 30, 2022 and 2021, across key activities | Metric (In thousands) | 6M Ended Jun 30, 2022 | 6M Ended Jun 30, 2021 | YoY Change | | :-------------------- | :-------------------- | :-------------------- | :--------- | | Net cash provided by operating activities | $238,289 | $34,339 | +$203,950 | | Net cash used in investing activities | $(75,246) | $(58,631) | -$16,615 | | Net cash used in financing activities | $(132,493) | $(959) | -$131,534 | | Net increase (decrease) in cash and cash equivalents | $30,550 | $(25,251) | +$55,801 | | Cash and cash equivalents at end of period | $469,540 | $157,872 | +$311,668 | Notes to Financial Statements Provides detailed explanations and disclosures supporting the interim financial statements, covering various accounting areas NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES Outlines the company's key accounting principles, including interim reporting, revenue recognition, and COVID-19 impact - Financial statements are unaudited and prepared under U.S. GAAP for interim reporting, with all necessary recurring adjustments included[21] - Revenue is recognized at the point of shipment when control of products transfers to the customer, with estimates for trade payment discounts and customer rebates based on historical experience[23][24] - The company is unable to predict the future impact of COVID-19 or its variants on financial position and operating results, and no new accounting standards were adopted in 2022[22][25] NOTE 2 – INVENTORIES Details inventory composition and valuation methods, including LIFO adjustments and their impact on cost of sales | Inventory Component (In Thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------- | :------------ | :---------------- | | Raw materials | $34,875 | $54,012 | | Work-in-process | $57,500 | $40,422 | | Finished goods | $147,421 | $123,401 | | Total Inventory at FIFO cost | $239,796 | $217,835 | | Adjust to LIFO cost | $(118,378) | $(117,019) | | Inventory, net | $121,418 | $100,816 | | LIFO Adjustments Impact on Cost of Sales (In Millions) | Q2 2022 | Q2 2021 | 6M 2022 | 6M 2021 | | :----------------------------------------------------- | :------ | :------ | :------ | :------ | | LIFO adjustment (decrease/increase) | -$11.5 | +$24.1 | +$1.4 | +$46.0 | NOTE 3 - PROPERTY, PLANT and EQUIPMENT Presents the composition of property, plant, and equipment, along with associated depreciation expenses | PPE Component (In Thousands) | June 30, 2022 | December 31, 2021 | | :--------------------------- | :------------ | :---------------- | | Land and land improvements | $84,616 | $72,897 | | Construction-in-progress | $142,171 | $92,414 | | Buildings and improvements | $220,338 | $217,985 | | Machinery and equipment | $376,687 | $362,996 | | Furniture and fixtures | $14,056 | $13,805 | | Property, plant and equipment, net | $561,205 | $494,916 | | Depreciation Expense (In Millions) | Q2 2022 | Q2 2021 | 6M 2022 | 6M 2021 | | :--------------------------------- | :------ | :------ | :------ | :------ | | Depreciation expense | $6.3 | $5.7 | $12.5 | $11.0 | NOTE 4 – ACCRUED LIABILITIES Details the breakdown of accrued liabilities, including sales rebates, SAR liability, and accrued salaries | Accrued Liability (In Thousands) | June 30, 2022 | December 31, 2021 | Change | | :------------------------------- | :------------ | :---------------- | :----- | | Sales rebates payable | $39,477 | $40,657 | -$1,180 | | SAR Liability | $11,016 | $22,095 | -$11,079 | | Property taxes payable | $2,467 | $5,018 | -$2,551 | | Accrued salaries | $11,685 | $4,778 | +$6,907 | | Other accrued liabilities | $8,137 | $6,199 | +$1,938 | | Total accrued liabilities | $72,782 | $78,747 | -$5,965 | NOTE 5 – INCOME TAXES Provides information on the company's effective income tax rates for the reported periods | Metric | Q2 2022 | Q2 2021 | | :--------------- | :------ | :------ | | Effective tax rate | 22.3% | 22.5% | NOTE 6 – EARNINGS PER SHARE Presents detailed calculations for basic and diluted earnings per share, including weighted average shares outstanding | Metric (In Thousands, except per share) | Q2 2022 | Q2 2021 | 6M 2022 | 6M 2021 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Net income | $210,538 | $183,053 | $372,070 | $224,242 | | Basic EPS | $10.84 | $8.89 | $18.88 | $10.90 | | Diluted EPS | $10.71 | $8.82 | $18.62 | $10.81 | | Weighted average shares outstanding – basic | 19,419 | 20,581 | 19,709 | 20,574 | | Weighted average shares outstanding – diluted | 19,666 | 20,763 | 19,982 | 20,741 | NOTE 7 – DEBT Outlines the terms of the company's credit agreement, available borrowings, and compliance with covenants - The 2021 Credit Agreement provides for maximum borrowings of $200.0 million, extendable by up to $100.0 million, and matures on February 9, 2026[33] - As of June 30, 2022, there were no outstanding borrowings, and $199.6 million of credit was available under the agreement[34] - The company was in compliance with all covenants of the unsecured 2021 Credit Agreement as of June 30, 2022[35] NOTE 8 – STOCKHOLDERS' EQUITY Details the company's stock repurchase program, shares repurchased, and remaining authorization - The Board authorized a stock repurchase program for up to 2,000,000 shares, most recently on February 14, 2022[36] - The company repurchased 1,108,022 shares in the six months ended June 30, 2022, compared to zero shares in the same period of 2021[36] - As of June 30, 2022, 891,978 shares remained authorized for repurchase through March 31, 2023[36] NOTE 9 - CONTINGENCIES Confirms the absence of material pending legal proceedings against the company - There are no material pending legal proceedings to which the Company is a party[37] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial condition and operating results, highlighting sales, profit, liquidity, and capital resources, influenced by volume and costs - Encore Wire Corporation is a leading manufacturer of copper and aluminum electrical wire and cables, focusing on low-cost production and exceptional customer service from its vertically-integrated, single-site Texas campus[38] - Operating results are driven by product volume, copper and other raw material costs, competitive pricing, and plant efficiency, with copper price volatility being a significant factor[40] COMEX Copper Closing Price Trends | Period | High ($) | Low ($) | Average ($) | | :--------------------- | :------- | :------ | :---------- | | Quarter Ended June 30, 2022 | 4.80 | 3.71 | 4.33 | | Quarter Ended June 30, 2021 | 4.78 | 4.00 | 4.42 | | Six Months Ended June 30, 2022 | 4.93 | 3.71 | 4.44 | | Six Months Ended June 30, 2021 | 4.78 | 3.54 | 4.15 | - Net sales for Q2 2022 increased by 12.6% to $838.2 million (from $744.4 million in Q2 2021), driven by a 2.7% increase in copper volume and a rise in aluminum sales from 6.1% to 15.0% of net sales[42] - Gross profit margin for Q2 2022 increased to 38.3% (from 37.3% in Q2 2021), primarily due to increased sales and volume, while raw material costs as a percentage of sales decreased to 55.1% (from 55.9%)[43][44] - Net sales for the first six months of 2022 increased by 31.4% to $1.561 billion (from $1.189 billion in 6M 2021), mainly due to a 21.9% increase in copper wire sales, driven by a 15.6% increase in average selling price and a 5.5% increase in unit volume[46] - Gross profit percentage for the first six months of 2022 rose to 36.2% (from 30.4% in 6M 2021), as the average selling price of wire per copper pound increased 15.6% while the average cost of copper per pound purchased increased 10.2%[47][48][49] - Cash provided by operating activities significantly increased to $238.3 million in the first six months of 2022, compared to $34.3 million in the same period of 2021, primarily due to higher net income and changes in working capital components[54] - Cash used in investing activities increased to $75.2 million (from $58.6 million in 6M 2021) due to higher capital expenditures, while cash used in financing activities increased substantially to $132.5 million (from $1.0 million in 6M 2021) mainly due to $131.9 million in treasury stock purchases[55][56] - The company's cash balance was $469.5 million at June 30, 2022, and it expects capital expenditures to range from $150-$170 million in 2022 and 2023, and $80-$100 million in 2024, funded by existing cash and operating cash flows for expansion and modernization[57][58] Item 3. Quantitative and Qualitative Disclosures About Market Risk Confirms no material changes to market risk disclosures since the Annual Report on Form 10-K for December 31, 2021 - No material changes from the market risk disclosures provided in the Annual Report on Form 10-K for the year ended December 31, 2021[62] Item 4. Controls and Procedures Management confirms effective disclosure controls and procedures, with no material changes to internal control over financial reporting - Disclosure controls and procedures were effective as of June 30, 2022, ensuring timely and accurate reporting of required information[63] - No material changes occurred in the company's internal control over financial reporting during the period covered by the report[64] PART II—OTHER INFORMATION Item 1. Legal Proceedings Refers to Note 9, confirming no material pending legal proceedings against the company - No material pending legal proceedings are reported, as referenced in Note 9 to the financial statements[67] Item 1A. Risk Factors Confirms no material changes to risk factors since the Annual Report on Form 10-K for December 31, 2021 - No material changes to the company's risk factors since the Annual Report on Form 10-K for the year ended December 31, 2021[68] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details stock repurchase activities for Q2 2022, including shares purchased and average price paid under the authorized program | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Number of Shares that May Yet Be Purchased Under the Programs (1) | | :--------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | | April 2022 | — | $— | 1,499,083 | | May 2022 | 488,777 | $123.87 | 1,010,306 | | June 2022 | 118,328 | $109.25 | 891,978 | | Total Q2 | 607,105 | $121.02 | | - The company repurchased 1,108,022 shares in the six months ended June 30, 2022, under a program authorizing up to 2,000,000 shares, with 891,978 shares remaining authorized through March 31, 2023[70] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including corporate documents, executive certifications, and XBRL files - Exhibits include the Certificate of Incorporation, Bylaws, Common Stock certificate, Section 302 and 906 certifications from CEO and CFO, and various XBRL taxonomy documents[71] Signatures Report signed by Daniel L. Jones (CEO) and Bret J. Eckert (CFO) on July 27, 2022 - The report was signed by Daniel L. Jones (Chairman, President and CEO) and Bret J. Eckert (VP-Finance, Treasurer, Secretary and CFO) on July 27, 2022[72]