• Product innovations based on listening to and understanding customer needs.

• Low cost manufacturing operations, resulting from a state of the art manufacturing plant.

• A focused management team leading an incentivized work force.

• Low general and administrative overhead costs.

• 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 $1.081 billion in net sales in 2008. 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 only where profit margins are acceptable. Senior management monitors gross margins daily, frequently extending down to the individual order level. Management strongly believes that this focused approach to the building wire business has produced success thus far and will lead to continued success. The construction and remodeling industries drive demand for building wire. Housing construction activity in the United States softened significantly in 2006 and continued its downward trend through 2007 and 2008. Nationally, commercial construction had been relatively strong through 2007, but slowed down in 2008. According to various industry forecasts the future is unclear for the next few years. The current "credit crisis" could negatively impact the availability of capital to fund construction projects for some time to come. Data on remodeling is not as readily available, however, remodeling activity tends to trend up when new construction slows down. General
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 90.3%, 86.5% and 82.3% of the Company's cost of goods sold during fiscal 2008, 2007 and 2006, 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 copper purchased by the Company. In 2006, copper prices rose quickly from January through May and then slowly descended throughout the rest of the year. In 2007, copper prices began the year at what proved to be a low point and then moved upward and traded in a fairly wide range during the year with significant volatility. In 2008, copper prices rose during the first quarter and then held at high levels through early July, before beginning a precipitous decline through the rest of the year falling from a COMEX close of $3.92 per pound on July 1st to close at $1.39 per pound on December 31st. This unprecedented swift decline in copper prices mirrored that of many other commodities in the second half of 2008. 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.

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,
                                                       2008        2007        2006
      Net sales                                        100.0 %     100.0 %     100.0 %
      Cost of goods sold:
      Copper                                            80.0        78.4        66.2
      Other raw materials                                6.6         6.3         5.0
      Depreciation                                       1.2         1.1          .9
      Labor and overhead                                 5.6         5.4         4.6
      LIFO adjustment                                   (4.8 )       (.6 )       3.7
      Lower cost or market adjustment                    0.0         0.0         0.0

                                                        88.6        90.6        80.4


      Gross profit                                      11.4         9.4        19.6
      Selling, general and administrative expenses       5.7         5.1         4.8

      Operating income                                   5.7         4.3        14.8
      Other (income) expense, net                        0.2         0.3         0.7


      Income before income taxes                         5.5         4.0        14.1
      Income tax expense                                 1.8         1.4         4.9


      Net income                                         3.7 %       2.6 %       9.2 %

The following discussion and analysis relates to factors that have affected the operating results of the Company for the years ended December 31, 2008, 2007 and 2006. Reference should also be made to the Consolidated Financial Statements and the related notes included under "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
Net sales were $1.081 billion in 2008, compared to $1.185 billion in 2007 and $1.249 billion in 2006. The 9% decrease in net sales in 2008 versus 2007 was primarily the result of a 4% increase in the average selling price of product sold offset by a 12% decrease in the volume of copper pounds of product sold affected slightly by a change in the mix of product sold. Unit volume declined in concert with declining industry sales due to the continued low level of housing construction and the deterioration of commercial construction in the United States as discussed throughout this report. The average price of copper purchased, however, decreased by 1%. This decreased cost of copper and increased price of wire sold expanded the spread between the sales price of wire and the price of raw copper, increasing margins. Margins were lowest during the second quarter, during which price cutting by the Company's competitors was at its peak. Margins improved in the second half of the year even though copper prices declined precipitously. The margins were at their highest in the fourth quarter as the Company and the industry were able to cut the selling price of wire slower than copper prices fell, driving spreads and corresponding earnings higher.
The 5% decrease in net sales in 2007 versus 2006 was primarily the result of a 6% decrease in the average selling price of product sold along with a change in the mix of product sold offset slightly by a 1% increase in the volume of copper pounds of product sold. The average price of copper purchased, however, increased by 5%. The drop in the average selling price in 2007, despite a 5% increase in copper costs, reinforces the point (as mentioned numerous times in this document) that building wire is a commodity product sold in a highly competitive industry and Encore is forced to sell at or near market prices. This increased cost of copper and decreased price of wire sold compressed the spread between the sales price of wire and the price of raw copper, affecting margins adversely. Margins were low throughout most of 2007, with the second quarter being the only quarter in which the Company experienced a significant increase in margins and earnings. Margins were at their lowest in the fourth quarter, during which copper prices were volatile and price cutting by competitors was rampant.
In 2006, the Company realized an increase in the spread between the sales price of wire and the price of raw copper for the year as a whole, although the quarterly spreads varied widely. Margins during 2006 were volatile. The first quarter of 2006 had lower spreads. However, during the second quarter as copper ran to a record high COMEX price of $4.07 per pound on May 23, 2006, spreads rose to a record high. Margins and spreads slowly declined in the third quarter and then accelerated their decline in the fourth quarter of 2006.
Cost of goods sold was $958 million in 2008, compared to $1.073 billion in 2007 and $1.005 billion in 2006. Copper costs were $865.2 million in 2008 compared to $929.0 million in 2007 and $826.8 million in 2006. Copper costs as a percentage of net sales increased to 80.0% in 2008 from 78.4% in 2007 and 66.2% in 2006. The increase as a percentage of net sales was due to copper costs increasing more than other costs. Other raw material costs as a

percentage of net sales were 6.6%, 6.3% and 5.0%, in 2008, 2007, and 2006, respectively. Percentage increases in all material costs in 2008 were offset by a 4.8% LIFO credit. This credit was generated in the fourth quarter as commodity prices fell.
The increase in 2007 is due primarily to the decrease in average sales prices for the Company's products as discussed above, along with an increase in plastic prices driven by higher oil prices. Depreciation, labor and overhead costs as a percentage of net sales were 6.8% in 2008, compared to 6.5% in 2007 and 5.5% in 2006. The percentage increase in 2008 was due primarily to lower production volumes in concert with lower unit sales. The percentage increase in 2007 was due to the lower production volumes and decrease in unit inventory at year-end, coupled with slightly higher overhead costs during the year. Inventories consist of the following at December 31 (in thousands):

                                               2008          2007          2006

        Raw materials                        $  16,184     $  28,190     $  18,259
        Work-in-process                          8,746        14,919        17,998
        Finished goods                          63,718       113,756       149,962

                                                88,648       156,865       186,219
        Adjust to LIFO cost                    (23,115 )     (74,852 )     (82,272 )
        Lower of cost or market adjustment           -             -             -

                                             $  65,533     $  82,013     $ 103,947

Copper prices began 2008 at a relative low point in the first quarter and then trended upward in the second quarter, peaking in early July and then dropping dramatically through the second half of the year in concert with the global collapse of commodity prices. The 2008 year-end price of copper was significantly below the 2007 year-end price. The unit volume of inventory on-hand also decreased in 2008. These factors resulted in the 2008 year-end inventory value of all inventories using the LIFO method being $23.1 million less than the FIFO value, and $51.7 million less than at the end of 2007. This resulted in a corresponding decrease of $51.7 million in cost of goods sold for the year. Due to the management of inventory levels commensurate with declining unit sales volumes during 2008, the Company liquidated the remainder of the LIFO inventory layer established in 2006 and a portion of the inventory layer established in 2005. Part of the 2006 layer was depleted in 2007. As a result, under the LIFO method, these inventory layers were liquidated at historical costs that were less than current costs, which favorably impacted cost of goods sold by $1.5 million for the full year and net income for the full year by $1.0 million.
Copper prices began 2007 at a relative low point in the first quarter and then trended upward significantly in the second quarter, trading in a fairly wide range during the year with significant volatility from month to month. The 2007 year-end price of copper was slightly below the 2006 year-end price. The unit volume of inventory on-hand also decreased in 2007. These factors resulted in the 2007 year-end inventory value of all inventories using the LIFO method being $74.9 million less than the FIFO value, and $7.4 million less than at the end of 2006. This resulted in a corresponding decrease of $7.4 million in cost of goods sold for the year. Due to the management of inventory levels commensurate with declining unit sales volumes during 2007, the Company liquidated a portion of the LIFO inventory layer established in 2006. As a result, under the LIFO method, this inventory layer was liquidated at historical costs that were less than current costs, which favorably impacted cost of goods sold by $689,000 for the full year and net income for the full year by $454,000. Copper prices trended upward dramatically in the first half of 2006, particularly in the second quarter and then slowly descended in the third quarter, accelerating their decrease in the fourth quarter of 2006. However, the 2006 year-end price of copper was still above the beginning of the year price. As of December 31, 2006, the value of all inventories using the LIFO method was less than the FIFO value by $82.3 million. This differential increased $45.8 million versus the December 31, 2005 differential of $36.4 million, resulting in a corresponding increase of $45.8 million in cost of goods sold for the year.
Gross profit was $123.4 million, or 11.4% of net sales in 2008 compared to $111.3 million, or 9.4% of net sales in 2007 and $244.3 million or 19.6% of net sales in 2006. The changes in gross profit were due to the factors discussed above.
Selling expenses, which include freight and sales commissions, were $48.0 million in 2008, $51.1 million in 2007 and $51.2 million in 2006. As a percentage of net sales, selling expenses increased slightly to 4.5% in 2008, versus 4.3% in 2007 and 4.1% in 2006. The 2008 increase is attributable to freight costs increasing on both a percentage and per pound basis due to high diesel fuel costs in 2008 and some shifts in regional sales. 2007 was almost unchanged from 2006. General and administrative expenses, as a percentage of net sales, were 1.0% in 2008, 0.8% in 2007 and

0.7% in 2006. The 2008 percentage increase is due to the semi-fixed costs being divided by lower dollar sales. 2007 was almost unchanged from 2006. During 2008, the Company wrote off $1.4 million in receivables which were uncollectible, almost entirely due to one customer. The Company wrote these amounts off against the bad debt reserve. The Company expensed $2.4 million or 0.2% of net sales during the year resulting in a bad debt reserve balance of $2.0 million. This balance was raised to this level at year-end after taking into account the current state of the U.S. economy among other factors.
Interest expense decreased to $4.7 million in 2008 from $5.8 million in 2007 and $7.7 million in 2006. The 2008 decrease was due to lower average interest rates versus 2007 on the same amount of debt. The decrease in 2007 was due to the lower average debt levels versus 2006. The Company capitalized interest expense relating to the construction of assets in the amounts of approximately $659,000 in 2008, $829,000 in 2007 and $657,000 in 2006.
The Company's effective tax rate was 33.6% in 2008, 34.2% in 2007 and 34.9% in 2006. The American Jobs Creation Act of 2004 provides a deduction from income for qualified domestic production activities that generally will be phased in from 2005 through 2010. Subsequently, the Financial Accounting Standards Board ("FASB") passed FSP FAS 109-1, which indicates that the available qualified domestic production activity deduction will be treated as a "special deduction" as described in SFAS No. 109. Accordingly, the impact of any deductions is being reported in the period for which the deduction will be claimed on the Company's tax return. The domestic production activity deduction reduced the 2008 effective tax rate approximately 1.5%.
As a result of the foregoing factors, the Company's net income was $39.8 million in 2008, $30.8 million in 2007 and $115.1 million in 2006. Off-Balance Sheet Arrangements
The Company does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Liquidity and Capital Resources
The following table summarizes the Company's cash flow activities:

                                                                  Year Ended December 31,
                                                          2008             2007             2006
                                                                      (In thousands)
Net income                                              $  39,771        $  30,796        $ 115,133

Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization                              13,933           13,819           12,437
Other non-cash items                                        7,028            5,358           (2,113 )
(Increase) decrease in accounts receivable,
inventory and other assets                                113,516           17,830          (74,087 )
Increase (decrease) in trade accounts payable
accrued liabilities and other liabilities                 (12,289 )         16,982          (37,119 )

Net cash provided by (used in) operating
activities                                                161,959           84,785           14,251

Investing activities:
Purchases of property, plant and equipment (net)          (17,635 )        (28,232 )        (22,112 )

Financing activities:
Increase (decrease) in indebtedness, net                        -                -           28,800
Issuances of common stock                                     156              622              692
Tax benefit of option exercise                                 98               95              805
Deferred financing fees                                         -                -             (455 )
Dividends paid                                             (1,853 )         (1,867 )              -
Termination of interest rate swap                               -              929                -
Purchase of treasury stock                                 (3,954 )         (2,040 )              -


Net cash provided by (used in) financing
activities                                                 (5,553 )         (2,261 )         29,842


Net increase (decrease) in cash                         $ 138,771        $  54,292        $  21,981

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. Therefore, the Company's liquidity needs have generally consisted of operating capital necessary to finance receivables and inventory. Capital expenditures have historically been necessary to expand 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.
The Company is party to a Financing Agreement with two banks, Bank of America, N.A., as Agent, and Wells Fargo Bank, National Association (as amended, the "Financing Agreement"). The Financing Agreement has been amended four times. In 2006, the Financing Agreement was amended twice. The Financing Agreement was first amended May 16, 2006, to expand the Company's line of credit from $85,000,000 to $150,000,000. The Financing Agreement was amended a second time on August 31, 2006, to expand the Company's line of credit from $150,000,000 to $200,000,000. In 2007, the Financing Agreement was amended to reflect the Company as the primary obligor of the indebtedness as a result of the reorganization transaction described below that became effective June 30, 2007. The Financing Agreement was amended a fourth time on August 6, 2008, to decrease the Company's line of credit from $200,000,000 to $150,000,000. The Financing Agreement, as amended, extends through August 6, 2013, and provides for maximum borrowings of the lesser of $150,000,000 or the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials, less any reserves established by the banks. The calculated maximum borrowing amount available at December 31, 2008, as computed under the Financing Agreement, as amended, was $147,191,000. Borrowings under the line of credit bear interest, at the Company's option, at either (1)

LIBOR plus a margin that varies from 1.0% to 1.75% depending upon the ratio of debt outstanding to adjusted earnings or (2) the base rate (which is the higher of the federal funds rate plus 0.5% or the prime rate) plus 0% to 0.25% (depending upon the ratio of debt outstanding to adjusted earnings). A commitment fee ranging from 0.20% to 0.375% (depending upon the ratio of debt outstanding to adjusted earnings) is payable on the unused line of credit. On December 31, 2008, there were no borrowings outstanding under the Financing Agreement.
The Company, through its agent bank, is also a party to a Note Purchase Agreement (the "2004 Note Purchase Agreement") with Hartford Life Insurance Company, Great-West Life & Annuity Insurance Company, London Life Insurance Company and London Life and Casualty Reinsurance Corporation (collectively, the "2004 Purchasers"), whereby the Company issued and sold $45,000,000 of 5.27% Senior Notes, Series 2004-A, due August 27, 2011 (the "Fixed Rate Senior Notes") to the 2004 Purchasers, the proceeds of which were used to repay a portion of the Company's outstanding indebtedness under its previous financing agreement. Through its agent bank, the Company was also a party to an interest rate swap agreement to convert the fixed rate on the Fixed Rate Senior Notes to a variable rate based on LIBOR plus a fixed adder for the seven-year duration of these notes. Commensurate with declining interest rates, the Company elected to terminate, prior to its maturity, this swap agreement on November 29, 2007. As a result of this swap termination, the Company received cash proceeds and realized a net settlement gain of $929,231 that was recorded as an adjustment to the carrying amount of the related debt in the consolidated balance sheet. This settlement gain is being amortized into earnings over the remaining term of the associated long term notes payable. During the year ended December 31, 2008, $235,000 was recognized as a reduction in interest expense in the accompanying consolidated statements of income.
On September 28, 2006, the Company, through its agent bank, entered into a second Note Purchase Agreement (the "2006 Note Purchase Agreement") with Metropolitan Life Insurance Company, Metlife Insurance Company of Connecticut and Great-West Life & Annuity Insurance Company, whereby the Company issued and sold $55,000,000 of Floating Rate Senior Notes, Series 2006-A, due September 30, 2011 (the "Floating Rate Senior Notes"), the proceeds of which were used to repay a portion of the Company's outstanding indebtedness under its Financing Agreement.
Obligations under the Financing Agreement, the Fixed Rate Senior Notes and the Floating Rate Senior Notes are unsecured and contain customary covenants and events of default. The Company was in compliance with these covenants, as amended, as of December 31, 2008. Under the Financing Agreement, the 2004 Note Purchase Agreement and the 2006 Note Purchase Agreement, the Company is allowed to pay cash dividends subject to calculated limits based on earnings. At December 31, 2008, the total balance outstanding under the Financing Agreement, the Fixed Rate Senior Notes and the Floating Rate Senior Notes was $100,000,000. Amounts outstanding under the Financing Agreement are payable on August 6, 2013, with interest payments due quarterly. Interest payments on the Fixed Rate Senior Notes are due semi-annually, while interest payments on the Floating Rate Senior Notes are due quarterly. Obligations under the Financing Agreement, the 2004 Note Purchase Agreement and the 2006 Note Purchase Agreement are the only contractual borrowing obligations or commercial borrowing commitments of the Company.
Effective June 30, 2007, the Company consummated a reorganization in order to simplify its corporate structure and become an operating company. As a part of the reorganization, the Company became the primary obligor of the indebtedness under the Financing Agreement, the 2004 Note Purchase Agreement and the 2006 Note Purchase Agreement. The Company entered into amendments to each of such agreements and issued new notes to the banks, the 2004 Note Purchasers and the 2006 Note Purchasers.
On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 1,000,000 shares of its common stock through December 31, 2007 on the open market or through privately negotiated transactions at prices determined by the President of the Company. On November 7, 2007, the Company repurchased 10,000 shares. The Company's Board of Directors authorized an extension of this stock repurchase program through December 31, 2008 and authorized the Company to repurchase up to the remaining 990,000 shares of its common stock. Subsequent to that date, shares were purchased on the open market by the Company's broker pursuant to a Rule 10b5-1 plan announced on November 28, 2007. The Company's Board of Directors authorized an extension of this stock repurchase program through February 28, 2010 and authorized the Company to repurchase up to the remaining 610,000 shares of its common stock.
Cash provided by operations was $162.0 million in 2008 compared to cash provided by operations of $84.8 million in 2007 and cash provided by operations of $14.3 million in 2006. The increase in cash provided by operations of $77.2 million in 2008 versus 2007 was due primarily to the $90.2 million positive change in accounts receivable, a $9.6 million positive swing in prepaid expenses and a $9.0 million positive change in net income, offset primarily by a $28.7 million negative swing in accounts payable and accrued liabilities. Receivables decreased dramatically in the fourth quarter of 2008 as copper prices plunged in concert with the global collapse in commodity prices driving down the selling price of copper electric building wire as discussed throughout this report. Inventories, net of the LIFO reserve

also declined by $16.5 million in 2008 after a similar decline of $21.9 million in 2007. Accounts payable and accrued liabilities decreased dramatically in 2008 due to the drop in commodity prices along with the Company having paid for virtually all of its 2008 purchases prior to year-end. Very little raw material was received in the latter part of December 2008 ahead of a planned holiday maintenance shut-down. . . .