-----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, Ht43A4kVDcb8w9TAka0GVVkxdgMGJDrInq9GLj/VM29BaEpb3jv4sz0tKAIeZYmw 4MbgHEAlr51nnq0ToDifUg== 0000950144-97-005383.txt : 19970512 0000950144-97-005383.hdr.sgml : 19970512 ACCESSION NUMBER: 0000950144-97-005383 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970509 SROS: NONE 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: 97599897 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. 10-Q 3/31/97 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 MARCH 31, 1997 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 May 7, 1997 was 8,436,597. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INSTEEL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
MARCH 31, SEPTEMBER 30, 1997 1996 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 457 $ 1,423 Accounts receivable, net 29,836 32,981 Inventories 40,243 31,705 Prepaid expenses and other 913 1,653 Net assets of discontinued operations 1,943 5,846 -------- -------- Total current assets 73,392 73,608 Property, plant and equipment, net 77,285 67,558 Other assets 4,775 4,956 -------- -------- Total assets $155,452 $146,122 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 27,455 $ 23,770 Accrued expenses 6,928 9,161 Current portion of long-term debt 3,080 3,188 -------- -------- Total current liabilities 37,463 36,119 Long-term debt 40,856 29,655 Deferred income taxes 5,893 5,935 Other liabilities 769 736 Shareholders' equity: Common stock 16,871 16,871 Additional paid-in capital 38,192 38,192 Retained earnings 15,408 18,614 -------- -------- Total shareholders' equity 70,471 73,677 -------- -------- Total liabilities and shareholders' equity $155,452 $146,122 ======== ========
3 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands except for per share data) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ---------------------- ------------------------ 1997 1996 1997 1996 -------- -------- --------- --------- Net sales $ 65,250 $ 63,040 $ 123,676 $ 120,046 Cost of sales 60,607 58,066 115,623 112,326 -------- -------- --------- --------- Gross profit 4,643 4,974 8,053 7,720 Selling, general and administrative expense 3,167 2,985 6,123 5,704 -------- -------- --------- --------- Operating income 1,476 1,989 1,930 2,016 Interest expense 432 526 836 1,054 Other expense 10 177 8 184 -------- -------- --------- --------- Earnings from continuing operations before income taxes 1,034 1,286 1,086 778 Provision for income taxes 376 454 394 275 -------- -------- --------- --------- Earnings from continuing operations 658 832 692 503 Discontinued operations: Loss from operations of Insteel Construction Systems net of income tax benefits of $229, $95, $395 and $218 (401) (176) (693) (398) Loss on disposal of Insteel Construction Systems, including provision of $400 for operating losses during phase-out period (net of income tax benefit of $1,245) (2,184) -- (2,184) -- -------- -------- --------- --------- Loss from discontinued operations (2,585) (176) (2,877) (398) -------- -------- --------- --------- Net earnings (loss) $ (1,927) $ 656 $( 2,185) $ 105 ======== ======== ========= ========= Weighted average shares outstanding 8,436 8,415 8,436 8,404 ======== ======== ========= ========= Per share: Earnings from continuing operations $ 0.08 $ 0.10 $ 0.08 $ 0.06 Loss from discontinued operations (0.31) (0.02) (0.34) (0.05) ======== ======== ========= ========= Net earnings (loss) $ (0.23) $ 0.08 $ (0.26) $ 0.01 ======== ======== ========= ========= Dividends paid $ 0.06 $ 0.06 $ 0.12 $ 0.12 ======== ======== ========= =========
4 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
SIX MONTHS ENDED MARCH 31, ---------------------- 1997 1996 -------- -------- OPERATING ACTIVITIES: Net earnings from continuing operations $ 692 $ 503 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 4,339 3,947 Accounts receivable, net 3,097 342 Inventories (8,538) 4,834 Accounts payable and accrued expenses 1,452 (2,155) Other changes 669 986 -------- -------- Total adjustments 1,019 7,954 -------- -------- Net cash provided by operating activities 1,711 8,457 -------- -------- DISCONTINUED OPERATING ACTIVITIES: Net cash provided by discontinued operating activities 1,026 438 INVESTING ACTIVITIES: Capital expenditures (13,886) (5,275) Proceeds (payments) on notes receivable 78 (253) -------- -------- Net cash used for investing activities (13,808) (5,528) -------- -------- FINANCING ACTIVITIES: Net decrease in short-term debt -- (8,260) Proceeds from long-term debt 56,225 26,374 Principal payments on long-term debt (45,099) (20,475) Proceeds from stock options 0 148 Dividends paid (1,021) (1,009) -------- -------- Net cash provided by (used for) financing activities 10,105 (3,222) -------- -------- Net increase (decrease) in cash (966) 145 Cash and cash equivalents at beginning of period 1,423 263 -------- -------- Cash and cash equivalents at end of period $ 457 $ 408 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 1,131 $ 1,302 Income taxes 419 131
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share data) (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 footnote 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, 1996. These 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
MARCH 31, SEPTEMBER 30, 1997 1996 ------- ------- Raw materials $19,411 $15,797 Supplies 2,151 2,099 Work in process 1,635 1,426 Finished goods 17,046 12,383 ------- ------- Total inventories $40,243 $31,705 ======= =======
(3) DISCONTINUED OPERATIONS On March 27, 1997, the Company adopted a plan to sell its Insteel Construction Systems division (ICS). ICS manufactures and markets the Insteel 3-D(R) building panel. The Company anticipates that the business will be disposed of before the end of its current fiscal year ending September 30, 1997. ICS has been classified as a discontinued operation in the accompanying financial statements in accordance with Accounting Principles Board Opinion No. 30. The operating results of the discontinued ICS division are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------------------------------ 1997 1996 1997 1996 ----- ----- ------- ------- Net sales $ 205 $ 724 $ 580 $ 1,223 Cost of sales 320 654 743 1,113 ----- ----- ------- ------- Gross profit (loss) (115) 70 (163) 110 Selling, general and administrative expense 356 330 720 650 ----- ----- ------- ------- Operating loss (471) (260) (883) (540) Interest expense 41 85 82 165 Other expense (income) 118 (74) 123 (89) ----- ----- ------- ------- Loss from operations of Insteel Construction Systems before income taxes (630) (271) (1,088) (616) Benefit for income taxes (229) (95) (395) (218) ----- ----- ------- ------- Loss from operations of Insteel Construction Systems $(401) $(176) $ (693) $ (398) ===== ===== ======= =======
6 During the quarter ended March 31, 1997, the Company recorded a provision of $2,184 for the estimated loss on disposal of ICS (net of a $1,245 tax benefit) which included a $400 provision for anticipated operating losses prior to disposal. The net assets of the discontinued ICS division were valued at the lower of cost or net realizable value. The components of the net assets are as follows:
MARCH 31, SEPTEMBER 30, 1997 1996 ------- ------- Accounts receivable, net $ 100 $ 891 Inventories 0 140 Prepaid expenses and other 32 40 Property, plant and equipment, net 1,960 3,514 Other assets 0 802 ------- ------- Total assets 2,092 5,387 ------- ------- Accounts payable 49 71 Accrued expenses (759) (1,005) Deferred income taxes 859 475 ------- ------- Total liabilities 149 (459) ------- ------- Net assets of discontinued operations $ 1,943 $ 5,846 ======= =======
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS STATEMENTS OF EARNINGS - SELECTED DATA ($ in thousands)
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31, ------------------------------------- -------------------------------------- 1997 CHANGE 1996 1997 CHANGE 1996 ---------- ------ --------- ---------- ------ ---------- Net sales $ 65,250 4% $ 63,040 $ 123,676 3% $ 120,046 Gross profit 4,643 (7)% 4,974 8,053 4% 7,720 Percentage of net sales 7.1% 7.9% 6.5% 6.4% Selling, general and administrative expense $ 3,167 6% $ 2,985 $ 6,123 7% $ 5,704 Percentage of net sales 4.8% 4.7% 4.9% 4.8% Operating income $ 1,476 (26)% $ 1,989 $ 1,930 (4)% $ 2,016 Percentage of net sales 2.3% 3.2% 1.6% 1.7% Interest expense $ 432 (18)% $ 526 $ 836 (21)% $ 1,054 Percentage of net sales 0.7% 0.8% 0.7% 0.9% Effective income tax rate 36.3% 35.4% 36.3% 35.4% Earnings from continuing operations $ 658 (21)% $ 832 $ 692 38% $ 503 Percentage of net sales 1.0% 1.3% 0.6% 0.4%
Insteel's net sales rose to $65.3 million for the second quarter, a 4% increase over the year-ago period. For the first six months, net sales increased 3% over the prior year to $123.7 million. Wire product shipments rose 3% for the second quarter and first six months compared with the year-ago periods. Average selling prices increased 1% for the second quarter and were flat for the first six months relative to the prior year. The increase in second quarter sales was driven by improvements in the Company's new businesses, PC strand and collated nails, together with higher shipments of welded wire mesh products. These same factors, together with higher bulk nail sales, were responsible for the sales increase for the first six months. Sales of agricultural fencing products continued to be weak due to soft market conditions and Mexican import competition. Gross profit for the second quarter decreased 7% compared with the prior year, declining as a percentage of sales to 7.1% from 7.9%. For the first six months, gross profit rose 4%, increasing as a percentage of sales to 6.5% compared with 6.4% in the year-ago period. Expenses were negatively impacted by preoperating costs related to the Virginia tire bead wire expansion together with the related transfer of equipment and industrial wire capacity to other Insteel locations. Gross margins benefited from a widening in the spread between selling values and raw material costs relative to year-ago levels. Selling, general and administrative expense (SG&A expense) increased 6% for the second quarter, rising to 4.8% of sales from 4.7% in the prior year period. For the first six months, SG&A expense rose 7%, increasing to 4.9% of sales compared with 4.8% a year ago. The increase in SG&A expense was driven by expenditures related to the upgrade of the Company's management information systems. Interest expense declined 18% for the second quarter and 21% for the first six months compared with the year-ago periods as a result of capitalized interest related to the tire bead wire expansion together with a decrease in the Company's average borrowing rates. The Company's effective income tax rate for the second quarter and first six months increased to 36.3% compared with 35.4% in the prior year periods as a result of a higher estimated state income tax rate. Earnings from continuing operations decreased 21% in the second quarter, declining as a percentage of sales to 1.0% from 1.3% in the prior year. For the first six months, earnings from continuing operations rose 38% to 0.6% of sales compared with 0.4% a year ago. The second quarter and six-month results reflect losses of $2.6 million and $2.9 million, respectively, for the anticipated disposal of the Company's Insteel Construction Systems division (ICS) and the reclassification of the segment as discontinued operations. ICS manufactures and markets the Insteel 3-D(R) building panel. 8 FINANCIAL CONDITION SELECTED FINANCIAL DATA ($ in thousands)
SIX MONTHS ENDED MARCH 31, -------------------------- 1997 1996 --------- --------- Net cash provided by operating activities $ 1,711 $ 8,457 Net cash used for investing activities (13,808) (5,528) Net cash provided by (used for) financing activities 10,105 (3,222) Long-term debt 40,856 29,786 Percentage of total capital 37% 30% Shareholders' equity $ 70,471 $ 70,455 Percentage of total capital 63% 70% Total capital (long-term debt + shareholders' equity) $ 111,327 $ 100,241
Operating activities generated $1.7 million of cash during the first six months compared with $8.5 million in the same period last year. The primary factor driving the decrease was a reduction in excess inventories during the year-ago period compared with the typical seasonal increase that occurred in the current year. Cash generated by accounts receivable increased during the current year as a result of a reduction in the average days sales outstanding. Investing activities consumed $13.8 million during the first six months compared with $5.5 million in the same period last year as a result of higher capital expenditures primarily related to the tire bead wire expansion. The remainder of the expenditures for the $17.0 million expansion will occur during the third fiscal quarter. Financing activities provided $10.1 million during the first six months primarily to fund the outlays for the tire bead wire expansion. In the prior year period, financing activities used $3.2 million of cash. Insteel's financial position remains strong. The Company's long-term debt to capital ratio increased to 37% at March 31, 1997 compared with 30% a year ago primarily as a result of the capital expenditures related to the tire bead wire expansion. In January 1996, the Company entered into a $35.0 million unsecured revolving credit facility that will expire in November 2000, replacing the annual lines of credit that provided total availability of $20.0 million. As a result, the short-term debt balance outstanding was refinanced under the revolver and is now reflected as a long-term liability. At March 31, 1997, approximately $9.7 million was available under the facility. In April 1997, the revolving credit facility was amended, increasing the Company's availability from $35.0 million to $50.0 million. 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. 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. Domestic wire rod market conditions have tightened recently due to production outages at some of the major manufacturers together with the filing of anti-dumping charges against certain countries exporting into the U.S.. Recently announced expansions in domestic wire rod capacity should increase supplier competition and favorably impact quality and availability once the additional capacity is operational. 9 Insteel's business strategy continues to be focused on further expansion into higher value-added products that offer the potential for superior returns relative to the Company's traditional businesses. In January 1994, the Company entered the PC strand business with the start-up of a new manufacturing facility. The operation was expanded in October 1996 with the addition of a second production line. In March 1996, the Company entered the collated fastener business with the start-up of a new manufacturing facility. The Company is preceding with plans to enter the tire reinforcement business. Limited production of tire bead wire began in April 1997 with the first significant revenues anticipated in the fourth quarter of fiscal 1997. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 1997 Annual Meeting of Shareholders on February 4, 1997. The only item on the agenda was the election of three directors for terms ending in 2000 as follows:
Votes ------------------------------------ For Withheld -------------- ---------------- H.O. Woltz III 7,837,069 42,078 Frances H. Johnson 7,836,699 42,448 Charles B. Newsome 7,837,016 42,131
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 March 31, 1997. 10 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 Date: May 8, 1997 By /s/ H.O. Woltz III ------------------------- H.O. Woltz III President and Chief Executive Officer Date: May 8, 1997 By /s/ Michael C. Gazmarian ------------------------- Michael C. Gazmarian Chief Financial Officer and Treasurer EX-27.1 2 FINANCIAL DATA SCHEDULE ( FOR SEC USE ONLY )
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF INSTEEL INDUSTRIES, INC. FOR THE SIX MONTH PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-1997 MAR-31-1997 457 0 29,836 0 40,243 73,392 77,285 0 155,452 37,463 0 0 0 16,871 53,600 155,452 123,676 123,676 115,623 115,623 0 0 836 1,086 394 692 (2,877) 0 0 (2,185) (.26) (.26)
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