Encore Wire(WIRE) - 2018 Q4 - Annual Report

Company Overview - Encore Wire Corporation is a low-cost manufacturer of electrical building wire and cable, with a significant share in the commercial and industrial building market[13]. - As of December 31, 2018, Encore had 1,278 employees, with a focus on maintaining high production standards and product quality[30]. - The Company has been recognized for its commitment to environmental practices, including recycling tens of millions of pounds of scrap copper annually[39]. Financial Performance - Net sales for 2018 were $1.289 billion, a 10.7% increase from $1.164 billion in 2017, driven by an 11.8% increase in copper wire sales[93]. - Gross profit margin improved to 14.7% in 2018 from 13.4% in 2017, reflecting effective cost management and pricing strategies[91]. - Operating income increased to $99.5 million in 2018, representing 7.7% of net sales, compared to 6.8% in 2017[91]. - Net income for 2018 was $78.15 million, or 6.1% of net sales, up from 5.8% in 2017[91]. - Working capital increased to $445.67 million in 2018, compared to $375.35 million in 2017[82]. - Total assets rose to $818.06 million in 2018, up from $733.98 million in 2017[82]. - The company reported net cash provided by operating activities of $81,590,000 in 2018, compared to $48,013,000 in 2017, an increase of about 70.0%[159]. - Net income for 2018 was $78,150,000, a significant increase from $67,017,000 in 2017, marking a growth of approximately 16.8%[153]. Cost Structure - Copper constituted 83.5% of the dollar value of all raw materials used by the Company during 2018, with copper rod fabrication meeting virtually all of the Company's requirements[31][32]. - Copper accounted for approximately 73.0%, 69.7%, and 65.2% of the costs of goods sold during 2018, 2017, and 2016, respectively, indicating a significant reliance on copper prices[49]. - Cost of goods sold was $1.099 billion in 2018, with copper costs included at $802.7 million, representing 62.3% of net sales[99]. Market and Competition - The electrical wire and cable industry is cyclical, with sales trends closely tied to general construction activity, which has shown recovery since 2013[52]. - The company faces intense competition from larger manufacturers, which may impact its market position and pricing strategies[56]. - The Company is committed to expanding its market share through customer service and the introduction of new complementary products[15]. Risk Factors - The company has not engaged in hedging strategies for raw material purchases, which exposes it to risks from raw material price volatility[49]. - The company's operating results may fluctuate due to variations in product demand, shipment volumes, and increases in raw material and freight costs[50]. - The company is subject to environmental regulations that could result in significant future expenditures related to compliance and remediation[55]. - Future sales of common stock could adversely affect the market price of the company's common stock, depending on the volume and timing of such sales[61]. Shareholder Information - A small number of significant stockholders own greater than 44% of the company's outstanding common stock, which could influence corporate governance decisions[59]. - The company has a stock repurchase program with 1,132,946 shares authorized for repurchase as of December 31, 2018, although no shares were repurchased in 2016, 2017, or 2018[73]. Taxation - The effective tax rate was 23.1% in 2018, compared to 16.1% in 2017, influenced by the Tax Cuts and Jobs Act of 2017[109]. - Total income tax expense for 2018 was $23.534 million, an increase of 83% from $12.859 million in 2017[192]. Inventory and Assets - Total inventories at year-end 2018 were valued at $102.4 million, reflecting a LIFO adjustment that decreased cost of sales by $6.5 million[101]. - Total stockholders' equity increased to $720,456,000 in 2018 from $641,345,000 in 2017, representing a growth of approximately 12.3%[149]. Employee Compensation - The Company matched contributions to its 401(k) profit sharing plan amounting to $2.1 million in 2018, $1.9 million in 2017, and $1.9 million in 2016[209].