-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BADeAEIxL3HOqDp9ZMJRdA+lU/q8CvzOhGHBfpQIiAvO35tJKyoPXOoMCe7o+R+r +pG1naKL9JCB1JDFay59Pg== 0000950144-96-004675.txt : 19960731 0000950144-96-004675.hdr.sgml : 19960731 ACCESSION NUMBER: 0000950144-96-004675 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960730 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSTEEL INDUSTRIES INC CENTRAL INDEX KEY: 0000764401 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 560674867 STATE OF INCORPORATION: NC FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09929 FILM NUMBER: 96600811 BUSINESS ADDRESS: STREET 1: 1373 BOGGS DR CITY: MOUNT AIRY STATE: NC ZIP: 27030 BUSINESS PHONE: 9107862141 MAIL ADDRESS: STREET 1: 1373 BOGGS DRIVE CITY: MOUNT AIRY STATE: NC ZIP: 27030 FORMER COMPANY: FORMER CONFORMED NAME: EXPOSAIC INDUSTRIES INC DATE OF NAME CHANGE: 19880511 10-Q 1 INSTEEL INDUSTRIES, INC. FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 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 1-9929 INSTEEL INDUSTRIES, INC. ------------------------ (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0674867 -------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1373 BOGGS DRIVE, MOUNT AIRY, NORTH CAROLINA 27030 -------------------------------------------- ----- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 786-2141 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 [X] No [ ] The number of shares outstanding of the registrant's common stock as of July 25, 1996 was 8,435,461. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INSTEEL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands)
(UNAUDITED) JUNE 30, SEPTEMBER 30, 1996 1995 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 392 $ 263 Accounts receivable, net 35,774 31,516 Inventories 36,336 40,566 Prepaid expenses and other 954 1,509 ------------- ------------- Total current assets 73,456 73,854 Property, plant and equipment, net 67,995 65,100 Other assets 5,689 7,181 ------------- ------------- Total assets $ 147,140 $ 146,135 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 32,496 $ 27,471 Accrued expenses 6,756 6,897 Short-term debt - 8,260 Current portion of long-term debt 3,293 5,196 ------------- ------------- Total current liabilities 42,545 47,824 Deferred income taxes 5,457 5,010 Long-term debt 27,003 22,089 Stockholders' equity: Common stock 16,856 16,787 Additional paid-in capital 38,159 38,033 Retained earnings 17,120 16,392 ------------- ------------- Total stockholders' equity 72,135 71,212 ------------- ------------- Total liabilities and stockholders' equity $ 147,140 $ 146,135 ============= =============
3 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands except for per share data) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ----------------------------- 1996 1995 1996 1995 ------------ ------------ ----------- ------------ Net sales $ 72,991 $ 69,360 $ 194,260 $ 193,982 Cost of sales 65,399 62,662 178,838 175,667 ------------ ------------ ----------- ------------ Gross profit 7,592 6,698 15,422 18,315 Selling, general and administrative expense 3,782 3,542 10,136 10,276 ------------ ------------ ----------- ------------ Operating income 3,810 3,156 5,286 8,039 Interest expense 504 614 1,723 1,718 Equity in loss (income) of affiliate 26 (12) (7) 84 Other expense (income) (29) 37 99 26 ------------ ------------ ----------- ------------ Earnings before income taxes 3,309 2,517 3,471 6,211 Provision (benefit) for income taxes 1,171 921 1,228 (95) ------------ ------------ ----------- ------------ Net earnings $ 2,138 $ 1,596 $ 2,243 $ 6,306 ============ ============ =========== ============ Weighted average shares outstanding 8,422 8,377 8,410 8,357 ============ ============ =========== ============ Net earnings per share $ .25 $ .19 $ .27 $ .75 ============ ============ =========== ============ Dividends paid per share $ .06 $ .06 $ .18 $ .18 ============ ============ =========== ============
4 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
NINE MONTHS ENDED JUNE 30, ------------------------------------ 1996 1995 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 2,243 $ 6,306 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 6,208 6,033 Equity in loss (income) of affiliate (7) 84 Accounts receivable, net (3,539) 1,285 Inventories 4,230 (16,239) Accounts payable and accrued expenses 4,884 2,723 Other changes 1,404 (1,758) ------------- ------------- Total adjustments 13,180 (7,872) ------------- ------------- Net cash provided by (used in) operating activities 15,423 (1,566) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (8,543) (3,896) Proceeds from (increase in) notes receivable (184) 193 ------------- ------------- Net cash used in investing activities (8,727) (3,703) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term debt, net (8,260) 7,431 Proceeds from issuance of debt 50,847 1,978 Payments on debt (47,835) (3,411) Proceeds from employee stock options 195 301 Dividends paid (1,514) (1,505) ------------- ------------- Net cash provided by (used in) financing activities (6,567) 4,794 ------------- ------------- Net increase (decrease) in cash 129 (475) Cash and cash equivalents at beginning of period 263 1,234 ------------- ------------- Cash and cash equivalents at end of period $ 392 $ 759 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 2,208 $ 2,114 Income taxes $ 146 $ 1,552
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In thousands, except as noted) (1) BASIS OF PRESENTATION The consolidated unaudited financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and financial disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1995. The unaudited consolidated financial statements included herein reflect all adjustments (consisting only of normal recurring accruals) that the Company considers necessary for a fair presentation of the financial position, results of operations and cash flows for all periods presented. The results for the interim periods are not necessarily indicative of the results for the entire fiscal year. (2) INVENTORIES
JUNE 30, SEPTEMBER 30, 1996 1995 ---------- ------------ Raw materials $16,835 $24,025 Work in process 1,648 1,372 Finished goods 15,787 13,042 Supplies 2,066 2,127 ------- ------- Total inventories $36,336 $40,566 ======= =======
6 ITEM 2. MANAGAEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table presents selected financial data from the Consolidated Statements of Earnings as a percentage of net sales for the three months and nine months ended June 30, 1996 and 1995:
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 1996 1995 1996 1995 -------- -------- ------- -------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 89.6% 90.3% 92.1% 90.6% ----- ----- ----- ----- Gross profit 10.4% 9.7% 7.9% 9.4% Selling, general and administrative expense 5.2% 5.1% 5.2% 5.3% ----- ----- ----- ----- Operating income 5.2% 4.6% 2.7% 4.1% Interest expense 0.7% 0.9% 0.9% 0.9% Other expense (income) - 0.1% - - ----- ----- ----- ----- Earnings before income taxes 4.5% 3.6% 1.8% 3.2% ===== ===== ===== =====
Net sales increased to a record $73.0 million for the third quarter, a 5% increase over a year ago. For the first nine months of fiscal 1996, sales were flat compared with the same period last year. Total wire products shipments were up 9% for the quarter and 3% for the nine months relative to the year-earlier periods. Average selling prices decreased 4% for the quarter and 3% for the nine months compared with the same periods last year. The quarterly sales increase was primarily attributable to improved market conditions for most product lines in comparison to the weakening demand that occurred in the prior year period. Shipments of Insteel 3-D(R) building panel were flat for the quarter and up 34% for the nine months compared with a year ago. Gross profit margins for the third quarter increased to 10.4% compared with 9.7% in the same period last year. Margins were favorably impacted by higher shipment volumes and wider spreads between raw material costs and selling values. For the first nine months, margins decreased to 7.9% from 9.4% a year ago. The decrease in year-to-date margins was due to narrower spreads during the first six months resulting from the consumption of higher cost inventories together with lower selling prices. Selling, general and administrative expense ("SG&A expense") increased 7% for the quarter, rising to 5.2% of sales compared with 5.1% in the year-earlier period as a result of expenses related to the collated nail and bead wire expansions. For the first nine months, SG&A expense decreased 1%, falling to 5.2% of sales compared with 5.3% a year ago. Collated nail and bead wire start-up costs reduced net earnings by four cents a share in the third quarter and seven cents a share for the nine months. Interest expense decreased 18% for the third quarter primarily due to lower debt levels compared with the year-earlier period. For the first nine months, interest expense was flat compared with a year ago. The provision for income taxes for the first nine months of fiscal 1995 reflects a $2.4 million reduction that was recorded in the second quarter relating to the future utilization of tax benefits arising from the acquisition of the remaining interest in Insteel Construction Systems. Excluding this adjustment, the Company's effective income tax rate for the nine months of fiscal 1996 was 35.4% compared with 36.6% in the prior year period. The decrease in the fiscal 1996 rate is primarily due to a reduction in the estimated state income tax rate. 7 FINANCIAL CONDITION The following table presents selected financial data from the consolidated financial statements for the nine months ended June 30, 1996 and 1995:
NINE MONTHS ENDED JUNE 30, --------------------------- 1996 CHANGE 1995 -------- ------ -------- Net sales $194,260 - $193,982 Accounts receivable, net $ 35,774 12% $ 32,060 Inventories $ 36,336 (19%) $ 44,989 Working capital $ 30,911 9% $ 28,454 Earnings before interest, taxes and depreciation $ 11,402 (18%) $ 13,962 Capital expenditures $ 8,543 119% $ 3,896 Long-term debt $ 27,003 8% $ 24,966 Total debt $ 30,296 (25%) $ 40,142 Stockholders' equity $ 72,135 1% $ 71,562
Operating activities generated $15.4 million of cash during the first nine months of fiscal 1996 compared with using $1.6 million in the year-earlier period. The primary factor driving the year-to-year improvement was the sharp reduction in inventories during the current fiscal year. Weak market conditions and depressed shipment levels had resulted in excess inventories throughout the second half of fiscal 1995. Inventory balances at June 30, 1996 were 10% below September 30, 1995 levels and 19% below a year ago. The downturn in operating performance earlier in the year resulted in a decrease in earnings before interest, taxes and depreciation to $11.4 million during the first mine months of fiscal 1996 compared with $14.0 million in the year-ago period. Investing activities consumed $8.7 million during the first nine months of fiscal 1996 compared to $3.7 million during the year-ago period as a result of higher capital expenditures primarily related to the collated nail facility. Total expenditures for the PC strand expansion and bead wire projects will approximate $3.0 million and $15.0 million, respectively. Financing activities used $6.6 million during the first nine months of fiscal 1996 compared with providing $4.8 million in the prior year period. In January 1996, the annual lines of credit that provided total availability of $20.0 million were replaced by a $35.0 million unsecured revolving credit facility that will expire in November 2000. As a result, the short-term debt balance outstanding was refinanced under the revolver and is now reflected as a long-term liability. At June 30, 1996, approximately $26.2 million was available under the $35.0 million revolving credit facility. The Company currently expects to fund its capital expenditure requirements and liquidity needs from a combination of internally generated funds, the revolving credit facility and additional long-term sources of financing. FACTORS THAT MAY AFFECT FUTURE RESULTS Insteel operates in a rapidly changing environment that involves a number of risks and uncertainties, some of which are beyond the Company's control. The Company has short delivery cycles and as a result does not have a large order backlog, which makes the forecasting of revenue inherently uncertain. As delivery lead times have decreased, the Company has generated a higher percentage of sales from new order bookings in the same fiscal period. 8 Business conditions and growth in the general economy have an impact on the Company's operating results. Seasonality also affects the Company's operating results, particularly in the first quarter of the fiscal year, which has historically represented the lowest quarterly sales volume. Shipments typically increase in the second quarter and reach a high point in the third or fourth quarter, reflecting the buying patterns of the Company's customers. Wire rod market conditions also have a significant impact on the Company's operating results. Hot rolled steel rod is the Company's primary raw material and constitutes the largest component of manufacturing costs. Realized selling values for the Company's products cannot always be adjusted in the short-term to recover cost increases in steel rod, but generally tend to reflect changes in these prices over the long-run. Recently announced expansions in domestic wire rod capacity should increase supplier competition and favorably impact quality and availability. As order lead times begin to decrease, the Company should be able to significantly reduce raw material inventory levels in comparison to recent years when maintaining adequate supply was a primary concern. Insteel's business strategy continues to be focused on further expansion into higher value-added products that offer superior returns relative to the Company's traditional businesses. In March 1996, the Company entered the collated nail business with the start-up of a new manufacturing facility in Andrew, South Carolina. The plant produces nails that are pneumatically driven by nail guns, a market that is related to the Company's existing bulk nail business. The expansion of the PC strand operation in Gallatin, Tennessee remains on schedule, with start-up anticipated in August 1996. The Company has also announced plans to enter the tire reinforcement business, with the reconfiguration and expansion of its Fredericksburg, Virginia high carbon wire plant into a state-of-the-art bead wire manufacturing facility. The initial capacity of the operation will be 40,000 tons, with production scheduled to commence during the second quarter of fiscal 1997. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 27.1 Financial Data Schedule b. Reports on Form 8-K: No reports on Form 8-K were filed by the Registrant during the quarter ended June 30, 1996. 9 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. INSTEEL INDUSTRIES, INC. ------------------------ Registrant Dated: July 26, 1996 By /s/ H. O. Woltz, III ------------------------------------- H.O. Woltz, III President and Chief Executive Officer Dated: July 26, 1996 By /s/ Michael C. Gazmarian ------------------------------------- Michael C. Gazmarian Chief Financial Officer and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF INSTEEL INDUSTRIES, INC. FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1996 OCT-01-1995 JUN-30-1996 392 0 35,774 0 36,336 73,456 67,995 0 147,140 42,545 0 0 0 16,856 55,279 147,140 194,260 194,260 178,838 178,838 0 0 1,723 3,471 1,228 2,243 0 0 0 2,243 .27 .27
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