-----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, GA69Z7VXfqQ5H/i0gy3QbFemYHzk88Gmsxyn10gModIVzbygSMSn+1Y9v7pXS1u+ YX+CbOEvG1OHs+cqtZDsWA== 0000950144-00-006963.txt : 20000517 0000950144-00-006963.hdr.sgml : 20000517 ACCESSION NUMBER: 0000950144-00-006963 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000516 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: SEC FILE NUMBER: 001-09929 FILM NUMBER: 637997 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. 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 APRIL 1, 2000 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: 336-786-2141 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 12, 2000 was 8,460,187. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INSTEEL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
APRIL 1, OCTOBER 2, 2000 1999 --------- --------- Assets Current assets: Cash and cash equivalents $ 1,326 $ 827 Accounts receivable, net 53,348 31,054 Inventories 52,152 36,360 Prepaid expenses and other 6,128 3,012 --------- --------- Total current assets 112,954 71,253 Property, plant and equipment, net 112,398 85,529 Other assets 32,808 11,114 --------- --------- Total assets $ 258,160 $ 167,896 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,475 $ 25,035 Accrued expenses 15,728 9,965 Current portion of long-term debt 8,840 620 --------- --------- Total current liabilities 55,043 35,620 Long-term debt 115,930 46,197 Deferred income taxes 8,082 7,734 Other liabilities 1,023 1,016 Shareholders' equity: Common stock 16,920 16,914 Additional paid-in capital 38,327 38,314 Retained earnings 22,835 22,101 --------- --------- Total shareholders' equity 78,082 77,329 --------- --------- Total liabilities and shareholders' equity $ 258,160 $ 167,896 ========= =========
3 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands except for per share data) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------- ---------------------- APRIL 1, APRIL 3, APRIL 1, APRIL 3, 2000 1999 2000 1999 -------- -------- -------- -------- Net sales $ 78,822 $ 66,162 $137,393 $128,429 Cost of sales 69,528 56,958 121,982 112,659 -------- -------- -------- -------- Gross profit 9,294 9,204 15,411 15,770 Selling, general and administrative expense 4,827 4,565 8,922 8,119 -------- -------- -------- -------- Operating income 4,467 4,639 6,489 7,651 Interest expense 2,487 655 3,237 1,248 Other expense 519 82 409 138 -------- -------- -------- -------- Earnings before income taxes 1,461 3,902 2,843 6,265 Provision for income taxes 563 1,385 1,095 2,224 -------- -------- -------- -------- Net earnings $ 898 $ 2,517 $ 1,748 $ 4,041 ======== ======== ======== ======== Weighted average shares outstanding (basic) 8,460 8,443 8,459 8,443 ======== ======== ======== ======== Net earnings per share (basic) $ 0.11 $ 0.30 $ 0.21 $ 0.48 ======== ======== ======== ======== Dividends paid per share $ 0.06 $ 0.06 $ 0.12 $ 0.12 ======== ======== ======== ========
4 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
SIX MONTHS ENDED --------------------------- APRIL 1, APRIL 3, 2000 1999 --------- --------- Cash Flows From Operating Activities: Net earnings $ 1,748 $ 4,041 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,234 4,497 Loss (gain) on sale of assets 195 (17) Net changes in assets and liabilities (excluding effect of acquisition): Accounts receivable, net 639 1,379 Inventories 4,694 2,019 Accounts payable and accrued expenses (11,173) (6,668) Other changes 427 1,638 --------- --------- Total adjustments 16 2,848 --------- --------- Net cash provided by operating activities 1,764 6,889 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Florida Wire and Cable, Inc., net of cash acquired (68,494) -- Payment of acquisition related costs (1,144) -- Capital expenditures (4,762) (3,664) Equity investments -- (3,250) Purchases of short-term investments -- (1,875) Proceeds from (issuance of) notes receivable 212 (1,421) Proceeds from sale of property, plant and equipment 95 159 --------- --------- Net cash used for investing activities (74,093) (10,051) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 80,000 -- Repayments of long-term debt (2,450) (450) Borrowings under revolving credit facility 88,958 51,437 Repayments on revolving credit facility (88,555) (46,434) Payment of debt issuance costs (4,130) -- Proceeds from exercise of stock options 19 22 Cash dividends paid (1,014) (1,013) --------- --------- Net cash provided by financing activities 72,828 3,562 --------- --------- Net increase in cash 499 400 Cash and cash equivalents at beginning of period 827 422 --------- --------- Cash and cash equivalents at end of period $ 1,326 $ 822 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 2,738 $ 685 Income taxes 1,201 1,060
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except for 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 October 2, 1999. 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
APRIL 1, OCTOBER 2, (Amounts in thousands) 2000 1999 --------- --------- Raw materials $ 20,971 $ 20,414 Supplies 4,213 2,601 Work in process 1,993 1,578 Finished goods 24,975 11,767 --------- --------- Total inventories $ 52,152 $ 36,360 ========= =========
(3) EARNINGS PER SHARE The reconciliation of basic and diluted earnings per share ("EPS") is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------- ------------------------- APRIL 1, APRIL 3, APRIL 1, APRIL 3, (Amounts in thousands, except per share data) 2000 1999 2000 1999 ------- ------- ------- ------- Net Earnings $ 898 $ 2,517 $ 1,748 $ 4,041 ======= ======= ======= ======= Weighted average shares outstanding: Weighted average shares outstanding (basic) 8,460 8,443 8,458 8,443 Dilutive effect of stock options 79 15 95 2 ------- ------- ------- ------- Weighted average shares outstanding (diluted) 8,539 8,458 8,553 8,445 ======= ======= ======= ======= Net earnings per share (basic) $ 0.11 $ 0.30 $ 0.21 $ 0.48 ======= ======= ======= ======= Net earnings per share (diluted) $ 0.11 $ 0.30 $ 0.20 $ 0.48 ======= ======= ======= =======
Options to purchase 241,000 shares and 443,000 shares for the three months ended April 1, 2000 and April 3, 1999, respectively, were antidilutive and were not included in the diluted EPS computation. 6 (4) ACQUISITION OF FLORIDA WIRE AND CABLE, INC. On January 31, 2000, the Company completed its acquisition of Florida Wire and Cable, Inc. ("FWC"). FWC is the nation's leading producer of prestressed concrete strand ("PC strand") and one of the largest manufacturers of galvanized strand. Under the terms of the purchase agreement, the Company acquired all of the outstanding stock of FWC for $68.5 million from GS Technologies Operating Co., Inc., a subsidiary of GS Industries, Inc. ("GSI"). The purchase price is subject to an adjustment that is to be determined based on FWC's closing balance sheet which the Company expects will be finalized during the third quarter. In addition, the Company has entered into a five-year agreement with GSI under which GSI will supply FWC with a portion of its raw material requirements. The acquisition has been accounted for under the purchase method of accounting and, accordingly, the results of FWC have been included in the consolidated financial statements since the acquisition date. The excess of cost over the estimated fair value of net assets acquired was approximately $18.3 million and has been recorded as goodwill. The goodwill amount may be adjusted for any change in the preliminary purchase price adjustment currently recorded as a receivable in the accompanying consolidated balance sheet. Goodwill is being amortized on a straight-line basis over 20 years. The acquisition was financed with funding provided under a $140.0 million senior secured credit facility that the Company has entered into with Bank of America, N.A., as agent and lender, Branch Banking and Trust Company, First Union National Bank, and National Bank of Canada, a Canadian Chartered Bank, consisting of a $60.0 million revolving credit loan and a $80.0 million term loan. Borrowings under the new credit facility were also used to pay off the balances outstanding on the Company's previous $60.0 million unsecured revolving credit facility. The additional funding available under the new credit facility will be used for working capital, capital expenditures and other general corporate purposes. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS STATEMENTS OF EARNINGS - SELECTED DATA ($ in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------------ -------------------------------------- APRIL 1, APRIL 3, APRIL 1, APRIL 3, 2000 CHANGE 1999 2000 CHANGE 1999 ----------- -------- ------------ ------------ -------- ------------ Net sales $ 78,822 19% $66,162 $ 137,393 7% $ 128,429 Gross profit 9,294 1% 9,204 15,411 (2)% 15,770 Percentage of net sales 11.8% 13.9% 11.2% 12.3% Selling, general and administrative expense $ 4,827 6% $ 4,565 $ 8,922 10% $ 8,119 Percentage of net sales 6.1% 6.9% 6.5% 6.3% Operating income $ 4,467 (4)% $ 4,639 $ 6,489 (15)% $ 7,651 Percentage of net sales 5.7% 7.0% 4.7% 6.0% Interest expense $ 2,487 280% $ 655 $ 3,237 159% $ 1,248 Percentage of net sales 3.2% 1.0% 2.4% 1.0% Effective income tax rate 38.5% 35.5% 38.5% 35.5% Net earnings $ 898 (64)% $ 2,517 $ 1,748 (57)% $ 4,041 Percentage of net sales 1.1% 3.8% 1.3% 3.1%
Net sales for the second quarter increased 19% to $78.8 million from $66.2 million in the year-ago period. For the six-month period, sales rose 7% from the prior year. The increase was due to the additional revenues contributed by Florida Wire and Cable, Inc. ("FWC"), which was acquired in January 2000. On a comparable basis excluding the sales of FWC, sales decreased 5% for the quarter and 6% for the six-month period primarily as a result of lower sales of industrial wire. Industrial wire sales dropped 39% for the quarter due to the closure of the Company's Tennessee industrial wire plant during the first quarter together with transition-related inefficiencies associated with changes in the Company's operating strategy. During the first quarter, the Company completed a realignment of its manufacturing capacity, ceasing the production of industrial wire at its Gallatin, Tennessee plant and shifting the majority of the volume to its Andrews, South Carolina facility. In addition, an increasing proportion of wire was consumed internally by downstream processes to manufacture other higher value products. Sales of bulk nails decreased 8% from a year ago due to price deterioration largely driven by import competition. Collated nail sales rose 30% as a result of higher shipment volumes. Sales of tire bead wire increased to another new high for the quarter. Sales of concrete reinforcing products rose 13% for the quarter (excluding the sales of FWC) due to higher shipments of welded wire fabric. The increase was primarily generated by the Hickman, Kentucky facility, which was acquired in April 1999, together with favorable market conditions. 7 Gross profit for the second quarter decreased to 11.8% of sales compared with 13.9% in the prior year. For the six-month period, gross profit decreased to 11.2% of sales from 12.3% a year ago. Gross profit was negatively impacted by the operating inefficiencies associated with the reconfiguration of the industrial wire business, which resulted in unfavorable manufacturing costs as well as reduced sales. These factors were partially offset by the contributions of the FWC acquisition, the improved performance of the concrete reinforcing business, and the higher operating volumes of the Company's recent expansions. Selling, general and administrative expense ("SG&A expense") rose 6% for the second quarter, but decreased as a percentage of sales to 6.1% from 6.9% in the prior year. For the six-month period, SG&A expense increased 10%, rising to 6.5% of sales from 6.3% a year ago. The increase was due to the incremental expenses associated with FWC that were partially offset by lower incentive plan expenses. Interest expense increased for the three and six-month periods compared with a year ago due to the higher debt levels principally related to the acquisition of FWC together with an increase in the Company's borrowing rates under its new credit facility. FINANCIAL CONDITION SELECTED FINANCIAL DATA ($ in thousands)
SIX MONTHS ENDED --------------------------- APRIL 1, APRIL 3, 2000 1999 --------- --------- Net cash provided by operating activities $ 1,764 $ 6,889 Net cash used for investing activities (74,093) (10,051) Net cash provided by financing activities 72,828 3,562 Total long-term debt 124,770 40,916 Percentage of total capital 62% 36% Shareholders' equity $ 78,082 $ 72,309 Percentage of total capital 38% 64% Total capital (total long-term debt + shareholders' equity) $ 202,852 $ 113,225
Operating activities generated $1.8 million of cash for the six-month period compared with $6.9 million a year ago. The year-to-year change was primarily due to the reduction in accounts payable and accrued expenses resulting from lower raw material purchases as well as the decrease in net earnings. These uses of cash were offset by a planned reduction in raw material inventories. Investing activities consumed $74.1 million of cash for the six-month period compared with $10.1 million a year ago primarily due to the acquisition of FWC. Financing activities provided $72.8 million of cash for the six-month period compared with $3.6 million a year ago. In January 2000, the Company entered into a $140.0 million senior secured credit facility with a group of banks, consisting of a $60.0 million revolving credit loan and a $80.0 million term loan. Borrowings under the new credit facility were used to fund the acquisition of FWC and pay off the balances outstanding on the Company's previous $60.0 million unsecured revolving credit facility. Under the terms of the credit agreement, the Company may elect different interest rate options based upon LIBOR or a base rate that is established at the higher of the prime rate or 0.5% plus the federal funds rate. In addition, a commitment fee is payable on the unused portion of the revolving credit facility. Beginning in the Company's fiscal quarter ending September 30, 2000, the applicable interest rate margins and unused commitment fee will be adjusted quarterly based on the Company's ratio of debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). Advances under the revolving credit facility are limited to the lesser of $60.0 million or a borrowing base amount that is calculated based upon a percentage of eligible receivables and inventories. At April 1, 2000, approximately $16.7 million was available under the revolving credit facility. The credit facility contains restrictive covenants which, among other restrictions, places limitations on certain financial ratios, capital expenditures and additional liens or indebtedness as well as requiring that consolidated net worth be maintained at or above specified levels. The credit facility is collateralized by all of the Company's assets. The Company 8 currently expects to fund its cash requirements for working capital, capital expenditures and other corporate purposes from internally generated funds together with borrowings available under the credit facility. In April 2000, the Company entered into interest rate swap agreements to reduce the financial impact of future interest rate fluctuations on its earnings and cash flows. These agreements effectively convert $50 million of the Company's floating rate debt to a fixed rate of 9.825% based upon the current applicable interest rate margin. OUTLOOK The Company's operating results are impacted by seasonal factors, 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. Market conditions for the Company's primary raw material, hot-rolled carbon steel wire rod, remained stable through the first quarter. In January 1999, domestic steel wire rod producers initiated a Section 201 filing with the U.S. International Trade Commission ("ITC") alleging that rising import levels had resulted in serious injury to the domestic industry. In response to the ITC's report, on February 11, 2000, President Clinton announced import relief for the domestic industry in the form of a "tariff-rate-quota" ("TRQ"), which will remain in place for three years. In the first year, steel wire rod from countries subject to the TRQ will face additional duties of 10 percent once imports exceed 1.58 million net tons. In the second and third years, the quantity of imports exempt from the higher duty will increase by 2.0 percent a year and the level of the surcharge will decline by 2.5 percentage points a year. The future impact of these actions on the Company's financial results is difficult to predict, depending upon the Company's ability to recover any raw material price increases in its markets. The Company's preliminary analysis indicates that imported wire rod will continue to be available in quantities that are sufficient to support the requirements of the domestic market. The Company increased its raw material inventories through the end of the first quarter to partially protect itself against the potential unfavorable impact of a negative outcome. The Company expects to substantially reduce its inventories through the remainder of the year. The Company expects that the recently enacted federal highway spending legislation ("TEA-21") will have a favorable impact on the demand for its concrete reinforcing products. As customer requirements rise, the Company expects to gradually increase the operating volumes of its recently expanded PC strand manufacturing facility to its full design capacity. During the second quarter, sales of the Company's most recent product addition, tire bead wire, rose to a new high as the Company continued to gain customer acceptance and further its market penetration. As the Company is currently incurring substantially all of the anticipated operating costs required to support its new business, the incremental impact of projected increases in sales is expected to have a significant favorable impact on its financial performance. The Company's business strategy continues to be focused on (1) expansion opportunities in existing businesses as well as in related products that leverage off of the Company's core competencies in the manufacture and marketing of wire products and (2) continued improvement in the financial performance of the Company's traditional businesses. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that reflect management's current assumptions and estimates of future performance and economic conditions. Such statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those projected, stated or implied by the statements. Such risks and uncertainties include, but are not limited to, general economic conditions in the markets in which the Company operates; unanticipated changes in customer demand, order patterns and inventory levels; fluctuations in the cost and availability of the Company's primary raw material, hot rolled steel wire rod; the Company's ability to raise selling prices in order to recover increases in wire rod prices; the impact of the resolution of the Section 201 trade filing on the cost and availability of wire rod; legal, environmental or regulatory developments that significantly impact the Company's operating costs; increased demand for the Company's concrete reinforcing products resulting from increased federal funding levels provided for in the TEA-21 highway spending legislation; the financial impact of the acquisition of FWC, the 25% interest in SRP and the Hickman, Kentucky manufacturing facility; the success of the Company's new product initiatives, including the PC strand, collated nail and tire bead wire expansions; the inability of the Company to expedite the qualification process with prospective customers for tire bead wire; the failure of the Company to receive regular and substantial orders for its new products; the financial impact of the realignment of the Company's industrial wire manufacturing capacity; and the Company's ability to successfully integrate FWC. 9 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 27 - Financial Data Schedule (for SEC use only) b. Reports of Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended April 1, 2000. 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 12, 2000 By: /s/ H.O. Woltz III ------------------------------------------- H.O. Woltz III President and Chief Executive Officer Date: May 12, 2000 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 FORM 10-Q OF INSTEEL INDUSTRIES, INC. FOR THE SIX MONTHS ENDED APRIL 1, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-2000 OCT-03-1999 APR-01-2000 1,326 0 54,409 1,061 52,152 112,954 178,533 66,135 258,160 55,043 0 0 0 16,920 61,162 258,160 137,393 137,393 121,982 121,982 409 0 3,237 2,843 1,095 1,748 0 0 0 1,748 .21 .21
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