Encore Wire Corporation
Encore Wire Corporation
1410 Millwood Road
McKinney, Texas 75069
Telephone: (972) 562-9473
Toll Free: (800) 962-9473
Fax: (972) 562-4744
Web site: http://www.encorewire.com
Sales: $758.1 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: WIRE
NAIC: 331422 Copper Wire Drawing
Located 35 miles north of Dallas in McKinney, Texas, Encore Wire Corporation manufactures NM cable, used for the interior wiring in residential construction, and THHN cable, used in commercial and industrial buildings. The company also has begun offering armored cable, industrial wiring with an aluminum jacket. Although a relatively young company, Encore boasts a seasoned management team, which has assembled the most modern production facilities in the industry. The McKinney operation is vertically integrated, with manufacturing, copper rod production, copper recycling, warehousing, and distribution facilities located on the same site. In this way, Encore is better able to control costs and achieve an order fill rate that is virtually 100 percent. As a result of its dependability, Encore has steadily increased its market share. In 15 years sales have grown from $11 million to more than $750 million.
The company is regarded as an innovator in its field, highly praised for the introduction of color-coded cabling that allows contractors and inspectors to quickly, and safely, determine if a project's cabling is done properly. Although Encore does some direct marketing, its products are mostly sold through a network of more than 30 manufacturer's representatives located across the United States. The company is content to serve the domestic market and is adamant about not straying from the far-from-glamorous field of residential and commercial wiring. "We are conservative, and we stick to our business," Chief Financial Officer Frank J. Bilban once told the Dallas Morning News. "We are not going to get into orange juice or ladies' high-heeled shoes."
COFOUNDER'S INVOLVEMENT WITH WIRE SINCE WORLD WAR II
Encore was founded by Vincent A. Rego and his longtime right-hand man, Donald M. Spurgin. Born in 1924, Rego became involved in the wire industry after serving in the military during World War II. In 1953 he became the plant manager for Narragansett Wire Co. when it opened in Plano, Texas, and a year later he began his association with Spurgin. Narragansett was struggling by the start of the 1960s and in 1961 Rego put together a group of investors to acquire the plant. When some of the backers pulled out suddenly, the deal almost had to be scrapped, but Rego was able to convince the Dallas venture capital firm Capital Southwest to provide a loan to make up for the shortfall. The company chose the name Capital Wire and Cable, which Rego and Spurgin took public in 1964. Four years later Stamford, Connecticut-based U.S. Industries, Inc., acquired Capital and the two men managed it as a U.S. Industries division until 1974 when Spurgin left to become chief executive officer of another U.S. Industries' division, Hamilton Industries. Then, in 1978, Rego created a new company called Capital Wire and bought the U.S. Industries cable division for $19 million in another leveraged buyout.
Spurgin rejoined Rego in 1979 and once again they were running a cabling company together. They had hoped to quickly take the new Capital Wire public, but the stock offering had to be put on hold after the company posted a $300,000 loss in 1981, the first loss since the days of Narragansett Wire, and the consequence of Rego straying from his conservative principles. He dabbled in the metal futures market (copper serving as the key raw material in cabling) and got burned, losing $3.5 million on the investment. A year later the board of directors adopted a resolution banning futures trading, but Rego had already learned his lesson about sticking to the basics, one that he would apply later when launching Encore. Capital was finally taken public in April 1986, raising $16 million, and soon it became the object of several unsolicited buyout inquiries. In December 1987 Rego hired Dallas-based investment firm Eppler, Guerin & Turner Inc., which had handled Capital's initial public offering (IPO) of stock, to help sort out the interest. Capital was ultimately sold to the Penn Central Corporation in August 1988.
INCORPORATING IN 1989
Although at retirement age, Rego had no intention of giving up the work he loved. Instead he soon was making plans for an "encore." He lined up investors and in April 1989 he and Spurgin formed Encore Wire Corporation to become involved in the residential wire and cable business. Initially Rego served as chairman and Spurgin became president and chief executive officer. They bought a former mobile home plant on a 12-acre tract in northeast McKinney and set up their operation with just eight employees, spending the first several months in acquiring equipment and installing and testing it. The company shipped its first NM cable (nonmetallic sheath cable for interior wiring) and UF cable (underground feeder cable) in February 1990, and by the end of the year total sales reached $11 million. In the company's first full year in operation, 1991, sales increased to $31 million. This strong debut took place despite a recession and a housing market that in 1991 was lower than it had been in a generation. Because it was a new operation, Encore was able to install new state-of-the art equipment, while its competitors continued to rely on equipment that had been in use since the 1950s and 1960s. In addition, the company optimized the plant layout to cut down on production time. Hence, Encore had higher production levels, providing a pricing edge. The company also was able to run a lean operation, with the low overhead resulting in fatter profit margins.
Encore was ready to expand and tap the public equity market for the funds needed to fuel its growth. The company filed for an IPO in May 1992 and later in the year about 1.5 million shares (of which 300,000 were owned by existing shareholders) were sold at $9 per share. Not only did the IPO, managed by A.G. Edwards & Sons Inc., raise money that was used to retire bank debt and buy new manufacturing equipment, it also gave management the ability to use stock options to retain and motivate employees. Stock options became available to staff members at all levels. Moreover, the company implemented an incentive pay system, so that about 60 percent of an employee's salary was a base and the rest was determined in terms of productivity and quality—this on top of stock options that extended to all ranks of the company.
In 1992 Encore added to its original 68,000-square-foot facility by building a 38,000-square-foot expansion. More room would soon be needed as the company moved into the commercial wire sector. Encore had already established a strong relationship with its customers because of a near perfect order fill rate, with the ability to reliably deliver a completed order within five days coast to coast. Many of these customers also wanted Encore to supply them with commercial wire as well, and the company accommodated them in 1994. To produce THHN cable, the company added another 231,200-square-foot facility to its McKinney complex.
Since 1990, we've grown steadily with a firm focus on customer service. Responsiveness to our customer is our primary goal at Encore, with an emphasis on building and maintaining strong relationships.
Sales reached $123 million in 1994 and increased to $151 million in 1995, but in that year Encore also posted a loss, due primarily to the financial problems encountered by competitor Triangle Wire & Cable. When it was unable to fill its customers' orders, the top three wire companies launched a price war to capture those customers. Distracted by its entry into the commercial wiring sector, Encore failed to keep its prices in line with the competition and lost some customers. Encore shifted its strategy somewhat, placing even more emphasis on customer service, and its exceptional order fulfillment rate, as a way to distinguish itself. The strategy worked, the company returned to profitability, and sales continued to climb.
In 1996 Spurgin retired, but Rego made it clear that he had no intention of following his friend's lead, instead adding the CEO position to his duties. Despite his 72 years, Rego continued to work seven days a week and was known to come in on holidays. In fact, on the verge of his 80th birthday in 2004, he told the Dallas Morning News, "Why would I leave this? I'm not going to retire—never—not until they bury me. Hey, I'm still a baby."
Encore's revenues topped the $250 million mark in 1997, but the company's steady growth rate was interrupted for the next five years due to a dip in copper prices that resulted in an industry-wide loss of pricing discipline that adversely impacted revenues and earnings. Nevertheless, Encore continued to expand its operations in order to position itself for a return of better business conditions. In 1997 a 259,200-square-foot distribution center opened, followed a year later by a 50,000-square-foot copper rod mill facility. The company was now able to produce copper sheets to be converted into copper rods that could be fashioned into wire. The facility also was able to reprocess copper scrap produced by Encore and others. As a result, Encore would be able to lower the cost of its copper raw materials and gain a competitive advantage. Also in 1998 Encore constructed a 5,000-foot railroad spur expansion and a 1,000-foot conveyor expansion. Further vertical integration of the business occurred in 1999 when Encore added a 12,400-square-foot plastic mill to produce its own sheathing.
INTRODUCING COLOR WIRE IN 1999
Copper prices began to stabilize by 2000 and Encore was able to increase sales to $284 million in 2000 after dipping as low as $230 million in 1999. The economy began to stall but Encore maintained sales above $280 million over the next two years because of the introduction of color coded wire. The innovation grew out of a Columbus, Ohio, meeting in the mid-1990s that Rego and executive Dan Jones attended with electrical inspectors, maintenance engineers, and electrical contractors. They heard complaints from some of the attendees about the expense in terms of money and time to have electricians identifying cables by wrapping different colored tape around them. To make matters worse, the tape could be ripped off when cable was pulled through piping or dried out over time, making inspections and repair another time-consuming proposition. Moreover, people were known to handle a hot wire that was not marked and were killed. In response to this concern, Encore began developing colored feeder cable, and once the company showed it to safety engineers it was an immediate hit. The product was introduced for the commercial market in 1999 and became available for the residential market in December 2001. Inspectors then suggested that Encore apply the color cable idea to its nonmetallic cable, and that was added as well. Encore's color-coded wire was so well received by contractors that in 2002 trade publication EC&M/CEE News named it the product of the year. It not only served to further distinguish Encore from its competition, the new product line allowed it to attract new customers despite poor economic conditions. Encore also was able to continue to add to its production capabilities during this period. In 2001 it completed a 192,000-square-foot plant expansion.
With copper prices stabilized, Encore experienced a surge in sales in 2002 to $385 million, accompanied by $6 million in net income. A year later sales soared even higher, to $603 million, as Encore controlled about 25 percent of the copper wire market, a 7 percent increase in just two years. Moreover, earnings in 2003 increased 141 percent over the prior year to $14.4 million. The trend continued in 2005 when Encore posted revenues of $758 million and net income of more than $50 million.
- The company is founded.
- The first residential wire is shipped.
- An initial public offering of stock is made.
- Commercial wire is added.
- Color-coded wire is first sold.
- The founder retires.
In the meantime, the company continued to invest money in building up its McKinney complex on the more than 55,000 acres of surrounding land it had purchased since 1998. In 2004 the company added 162,000 square feet to its distribution center as well as another 5,000-foot railroad spur. While Encore was not about to stray too far from its area of expertise, in 2006 it added 150,000 square feet of manufacturing space to accommodate the production of armored cable, industrial wiring using an aluminum jacket, which would also be made available in different colors. It was another case of listening to customers, who were urging Encore to provide this product as well. With an apparent opening in the market—and a demand for all of its products needed in the multiyear rebuilding of the Gulf Coast following the 2005 devastation of the Gulf Coast area—Encore was well positioned to enjoy strong success for an extended period of time. It would do so with less input from its founder, however. In May 2006 Rego suffered from a stroke and was named chairman emeritus as he recovered. He opted not to stand for re-election to the board of directors at the annual stockholders' meeting held that same month. He was replaced as CEO by Daniel L. Jones, who had been groomed for the role by Rego for several years.
EWC Aviation Corporation; EWC GP Corporation; EWC LP Corporation; Encore Wire Limited.
General Cable Corporation; Southwire Company; Superior Essex Inc.
Lucy, Jim, "Encore's Color-Coded Cable," EC&M, July 1, 2002.
Quinn, Steve, "Dallas-Area Wire Manufacturer Thrives Despite Shaky Economy," Dallas Morning News, July 21, 2002.
――――――, "79-Year-Old Founder Pours Energy into McKinney, Texas, Copper-Wire Firm," Dallas Morning News, February 28, 2004.
Schmeiser, Lisa, "Wire Manufacturer Keeps Making the Right Connections," Investor's Business Daily, March 9, 2006, p. A07.
Weil, Jonathan, "After Plant Expansion, Encore Wire Could Unreel Further Stock Gains," Wall Street Journal, January 7, 1998, p. T2.