-----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, CcJbhuF4pvR72Bbxb20vZSZQW6ljOocrDO4zd7teb0uOtXDqV/r60scmb3xdLrqm wBYzR4mPXqbYzvKqkv2RoA== 0000950144-98-005104.txt : 19980427 0000950144-98-005104.hdr.sgml : 19980427 ACCESSION NUMBER: 0000950144-98-005104 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980424 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: SEC FILE NUMBER: 001-09929 FILM NUMBER: 98600471 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 10-Q 3-28-1998 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 28, 1998 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 Carol 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 April 23, 1998 was 8,442,512. 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements INSTEEL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
MARCH 28, SEPTEMBER 30, 1998 1997 ---------- ------------- ASSETS Current assets: Cash and cash equivalents $ 1,097 $ 1,079 Accounts receivable, net 34,562 31,049 Inventories 44,311 44,463 Prepaid expenses and other 1,762 1,702 Net assets of discontinued operations -- 1,869 ---------- ------------- Total current assets 81,732 80,162 Property, plant and equipment, net 81,990 86,401 Other assets 5,641 4,913 ---------- ------------- Total assets $ 169,363 $ 171,476 ========== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 31,092 $ 31,639 Accrued expenses 9,186 9,216 Current portion of long term debt 620 2,620 ---------- ------------- Total current liabilities 40,898 43,475 Long term debt 54,934 49,673 Deferred income taxes 4,620 5,989 Other liabilities 1,032 1,017 Shareholders' equity: Common stock 16,885 16,873 Additional paid in capital 38,232 38,200 Retained earnings 12,762 16,249 ---------- ------------- Total shareholders' equity 67,879 71,322 ---------- ------------- Total liabilities and shareholders' equity $ 169,363 $ 171,476 ========== =============
3 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands except for per share data) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------- ------------------------ MARCH 28, MARCH 31, MARCH 28, MARCH 31, 1998 1997 1998 1997 --------- --------- --------- --------- Net sales $ 62,996 $ 65,250 $ 122,915 $ 123,676 Cost of sales 61,669 60,607 120,113 115,623 --------- --------- --------- --------- Gross profit 1,327 4,643 2,802 8,053 Selling, general and administrative expense 3,338 3,167 6,418 6,123 --------- --------- --------- --------- Operating income (loss) (2,011) 1,476 (3,616) 1,930 Interest expense 1,049 432 2,017 836 Other expense (income) (2,472) 10 (2,430) 8 --------- --------- --------- --------- Earnings (loss) from continuing operations before income taxes and extraordinary item (588) 1,034 (3,203) 1,086 Provision (benefit) for income taxes (209) 376 (1,137) 394 --------- --------- --------- --------- Earnings (loss) from continuing operations before extraordinary item (379) 658 (2,066) 692 Discontinued operations: Loss from operations of Insteel Construction Systems net of income tax benefits of $ - , $229, $ - and $395 -- (401) -- (693) 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) -- (2,877) --------- --------- --------- --------- Loss before extraordinary item (379) (1,927) (2,066) (2,185) Extraordinary item: Loss on early extinguishment of debt (net of income tax benefit of $224) (408) -- (408) -- --------- --------- --------- --------- Net loss $ (787) $ (1,927) $ (2,474) $ (2,185) ========= ========= ========= ========= Weighted average shares outstanding 8,443 8,436 8,442 8,436 ========= ========= ========= ========= Per share: Earnings (loss) from continuing operations $ (0.04) $ 0.08 $ (0.24) $ 0.08 Loss from discontinued operations -- (0.31) -- (0.34) Extraordinary loss on early extinguishment of debt (0.05) -- (0.05) -- ========= ========= ========= ========= Net loss $ (0.09) $ (0.23) $ (0.29) $ (0.26) ========= ========= ========= ========= 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 28, MARCH 31, 1998 1997 --------- --------- OPERATING ACTIVITIES: Net earnings (loss) from continuing operations $ (2,474) $ 692 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt 408 -- Depreciation and amortization 4,696 4,339 Accounts receivable, net (3,450) 3,097 Inventories 153 (8,538) Accounts payable and accrued expenses (578) 1,452 Gain on sale of property, plant and equipment (5,177) (57) Other changes (2,335) 726 --------- --------- Total adjustments (6,283) 1,019 --------- --------- Net cash provided by (used for) operating activities (8,757) 1,711 --------- --------- DISCONTINUED OPERATING ACTIVITIES: Net cash provided by discontinued operating activities 1,869 1,026 INVESTING ACTIVITIES: Capital expenditures (3,937) (13,886) Proceeds on notes receivable 12 78 Proceeds from sale of property, plant and equipment 8,966 --------- --------- Net cash provided by (used for) investing activities 5,041 (13,808) --------- --------- FINANCING ACTIVITIES: Proceeds from long term debt 64,469 56,225 Principal payments on long term debt (61,635) (45,099) Proceeds from stock options 44 Dividends paid (1,013) (1,021) --------- --------- Net cash provided by financing activities 1,865 10,105 --------- --------- Net increase (decrease) in cash 18 (966) Cash and cash equivalents at beginning of period 1,079 1,423 --------- --------- Cash and cash equivalents at end of period $ 1,097 $ 457 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 2,288 $ 1,131 Income taxes 523 419
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, 1997. 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) CHANGE IN FISCAL YEAR Effective October 1, 1997, the Company has adopted a 52 or 53 week fiscal year ending on the Saturday nearest the last day of September in each year. All references to years relate to fiscal years rather than calendar years. (3) INVENTORIES
MARCH 28, SEPTEMBER 30, 1998 1997 --------- ------------- Raw materials $ 23,979 $ 24,698 Supplies 2,160 2,147 Work in process 1,748 1,730 Finished goods 16,424 15,888 --------- ------------- Total inventories $ 44,311 $ 44,463 ========= =============
(4) Sale of Agricultural Fencing Product Line In February 1998, the Company sold the inventory and equipment related to its agricultural fencing product line to Keystone Consolidated Industries, Inc. for approximately $12.6 million. The final sales price is subject to adjustment based upon changes in the specific equipment and inventories included in the transaction. Under the terms of the agreement, Insteel will continue manufacturing agricultural fencing products for Keystone during a transition period until the equipment is relocated to Keystone's production facilities. Insteel's second-quarter financial results reflect a pre-tax gain of $2.5 million on the sale of the assets in other income, net of a provision for the estimated transition-related costs. The Company expects to gradually cease its agricultural fencing manufacturing activities during the second half of 1998 as the equipment is relocated. (5) EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT In March 1998, the Company retired its $10.0 million 8.25% senior secured notes due 2002, funding the prepayment under its unsecured revolving credit facility. The Company recorded an extraordinary loss of $408,000 after income taxes, or approximately five cents per share, in the second quarter of 1998 related to the redemption premium and write-off of deferred financing costs. 6 (6) DISCONTINUED OPERATIONS In May 1997, the Company sold its Insteel Construction Systems division ("ICS"), which manufactured and marketed the Insteel 3-D(R) building panel. 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 28, MARCH 31, MARCH 28, MARCH 31, 1998 1997 1998 1997 --------- --------- --------- --------- Net sales $ -- $ 205 $ -- $ 580 Cost of sales -- 320 -- 743 --------- --------- --------- --------- Gross loss -- (115) -- (163) Selling, general and administrative expense -- 356 -- 720 --------- --------- --------- --------- Operating loss -- (471) -- (883) Interest expense -- 41 -- 82 Other expense -- 118 -- 123 --------- --------- --------- --------- Loss from operations of Insteel Construction Systems before income taxes -- (630) -- (1,088) Benefit for income taxes -- (229) -- (395) --------- --------- --------- --------- Loss from operations of Insteel Construction Systems $ -- $ (401) $ -- $ (693) ========= ========= ========= =========
The net assets of the discontinued ICS division were valued at the lower of cost or realizable value. The components of net assets are as follows:
MARCH 28, SEPTEMBER 30, 1998 1997 ----------- ------------- Prepaid expenses and other $ -- $ 323 Property, plant and equipment, net -- 1,418 Other assets -- 803 ----------- ------------- Total assets -- 2,544 ----------- ------------- Accrued expenses -- 675 ----------- ------------- Total liabilities -- 675 ----------- ------------- Net assets of discontinued operations $ -- $ 1,869 =========== =============
7 (7) Earnings Per Share Effective December 27, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 replaces the primary and fully diluted earnings per share ("EPS") computations with basic and diluted EPS. Basic EPS are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted EPS are computed by dividing net earnings by the weighted average number of common shares and dilutive securities outstanding during the period. Securities that have the effect of increasing EPS are considered to be antidilutive and are not included in the computation of diluted EPS. Options to purchase 532,000 shares and 459,000 shares for the quarters ended March 28, 1998 and March 31, 1997, respectively, were antidilutive and were not included in the diluted EPS computation. The reconciliation of basic and diluted EPS is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 28, MARCH 31, MARCH 28, MARCH 31, 1998 1997 1998 1997 --------- --------- --------- --------- Earnings (loss) from continuing operations (379) 658 (2,066) 692 Loss from discontinued operations -- (2,585) -- (2,877) Extraordinary loss on early extinguishment of debt (408) -- (408) -- --------- --------- --------- --------- Net loss (787) (1,927) (2,474) (2,185) ========= ========= ========= ========= Weighted average shares outstanding: Weighted average shares outsstandng (basic) 8,433 8,436 8,442 8,436 Dilutive effect of stock options -- -- -- -- --------- --------- --------- --------- Weighted average shares oustanding (diluted) 8,433 8,436 8,442 8,436 ========= ========= ========= ========= Earnings (loss) per share (basic and diluted): Earnings (loss) from continuing operations (0.04) 0.08 (0.24) 0.08 Loss from discontinued operation -- (0.31) -- (0.34) Extraordinary loss on early extinguishment of debt (0.05) -- (0.05) -- --------- --------- --------- --------- Net loss (0.09) (0.23) (0.29) (0.26) ========= ========= ========= =========
(8) NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected information about operating segments and related disclosures about products and services, major customers and geographic areas. As the requirements of these statements only impact financial statement disclosures, they are not expected to have a material impact on the Company's consolidated financial position or results of operations. The Company will adopt SFAS' No. 130 and 131 in 1999. 8 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 ------------------------------------- --------------------------------------- MARCH 28, MARCH 31, MARCH 28, MARCH 31, 1998 CHANGE 1997 1998 CHANGE 1997 --------- --------- --------- ---------- ------ -------- Net sales $ 62,996 (3%) $ 65,250 $ 122,915 (1%) $123,676 Gross profit 1,327 (71%) 4,643 2,802 (65%) 8,053 Percentage of net sales 2.1% 7.1% 2.3% 6.5% Selling, general and administrative expense $ 3,338 5% $ 3,167 $ 6,418 5% $ 6,123 Percentage of net sales 5.3% 4.9% 5.2% 5.0% Operating income (loss) $ (2,011) N/M $ 1,476 $ (3,616) N/M $ 1,930 Percentage of net sales (3.2%) 2.3% (2.9%) 1.6% Interest expense $ 1,049 143% $ 432 $ 2,017 141% $ 836 Percentage of net sales 1.7% 0.7% 1.6% 0.7% Effective income tax rate 35.5% 36.3% 35.5% 36.3% Earnings (loss) from continuing operations $ (379) N/M $ 658 $ (2,066) N/M $ 692 Percentage of net sales (0.6%) 1.0% (1.7%) 0.6%
Insteel's net sales for the second quarter declined 3% from a year ago to $63.0 million. For the six-month period, sales were down 1% from the prior year. The sales decrease was primarily a result of the Company's exit from the agricultural fencing business that reduced current year sales relative to the comparable year-ago periods. Excluding agricultural fencing products, sales of the wire products business unit were up 12% and 5% for the second quarter and six-month periods due to higher sales of bulk nails, collated fasteners and industrial wire. Sales of the concrete reinforcing products business unit fell 5% for the second quarter primarily as a result of lower shipments of PC strand. For the six-month period, sales of concrete reinforcing products were up 1% due to higher sales of welded wire mesh. Sales of tire bead wire and welding wire were insignificant for the second quarter and six-month periods as the Company continued to operate under testing and qualification conditions with prospective customers. Gross margins for the second quarter decreased 71% to 2.1% of sales compared with 7.1% in the prior year. For the six-month period, gross margins fell 65% to 2.3% of sales from 6.5% a year ago. The reduction in margins was primarily caused by a narrowing in spreads between selling values and raw material costs in certain products and markets together with low operating volumes at the Company's recent expansions. The Virginia manufacturing facility continued to operate at a significant loss as substantially all of the anticipated production costs related to tire bead wire and welding wire were incurred with negligible offsetting revenues. The Company's other new business initiative, collated fasteners, operated at a loss due to insufficient sales volume. Gross margins were also negatively impacted by higher per-unit conversion costs at the Company's other production facilities as manufacturing expenses rose disproportionate to operating volumes. Selling, general and administrative expense ("SG&A expense") rose 5% for the second quarter, increasing to 5.3% of sales from 4.9% in the prior year. For the six-month period, SG&A expense increased 5%, rising to 5.2% of sales from 5.0% a year ago. The increase in SG&A expense was primarily caused by higher selling expenses related to the Company's new businesses. Interest expense rose sharply for the second quarter and six-month periods compared with a year ago due to higher borrowing levels on the Company's revolving credit facility. The increase in debt was primarily related to capital expenditures for the tire bead wire and welding wire expansion together with higher inventory levels. Second-quarter results reflect a pre-tax gain of $2.5 million on the sale of the assets in other income, net of a provision for the estimated transition-related costs. In February 1998, the Company sold the inventory and equipment related to its agricultural fencing product line. The Company recorded an extraordinary loss of $408,000 after income taxes, or approximately five cents per share, in the second quarter related to the early extinguishment of debt. In March 1998, the Company retired its $10.0 million 8.25% senior secured notes due 2002, funding the prepayment under its unsecured revolving credit facility. 9 Second quarter and six-month results for the prior year reflect a $2.6 million and $2.9 million loss, respectively, related to the sale of the company's Insteel Construction Systems division (ICS) and the reclassification of the segment as discontinued operations. ICS manufactured and marketed the Insteel 3-D(R) building panel. FINANCIAL CONDITION SELECTED FINANCIAL DATA ($ in thousands)
SIX MONTHS ENDED ------------------------- MARCH 28, MARCH 31, 1998 1997 --------- --------- Net cash provided by (used for) operating activities $ (8,757) $ 1,711 Net cash provided by (used for) investing activities 5,041 (13,808) Net cash provided by financing activities 1,865 10,105 Long-term debt 54,934 40,856 Percentage of total capital 45% 37% Shareholders' equity $ 67,879 $ 70,471 Percentage of total capital 55% 63% Total capital (long-term debt + shareholders' equity) $ 122,813 $ 111,327
Operating activities used $8.8 million of cash for the six-month period while providing $1.7 million a year ago. The year-to-year change was principally related to the deterioration in the financial results of the Company during the current year. Receivables increased largely due to the balances associated with the sale of the assets of the agricultural fencing product line in comparison to the prior year decline. Inventory levels remained flat during the current year due to higher beginning-of- the-year balances and the sale of agricultural fencing inventories. During the year ago period, inventories had increased in anticipation of the seasonal upturn in sales that normally occurs in the second half of the year. Investing activities provided $5.0 million of cash for the six-month period while using $13.8 million a year ago. The year-to-year change was primarily related to the current year proceeds from the sale of agricultural fencing equipment together with a reduction in capital expenditures. Capital expenditures were higher during the year-ago period principally due to the tire bead wire and welding wire expansion. Financing activities provided $1.9 million of cash for the six-month period compared with $10.1 million a year ago. The increase in debt during the prior year was primarily related to capital expenditures for the tire bead wire and welding wire expansion together with the increase in inventories. The Company's long-term debt to capital ratio increased to 45% at March 28, 1998 compared with 37% at March 31, 1997 primarily as a result of capital expenditures related to the tire bead wire and welding wire expansion together with higher inventory levels. In January 1998, the Company's unsecured revolving credit facility was amended, increasing the availability to $55.0 million and raising the permitted ratio of funded debt to earnings before interest, taxes, depreciation and amortization through March 1998. In March 1998, the revolving credit facility was again amended in order to fund the prepayment of the Company's $10.0 million 8.25% senior secured notes. The Company's availability was increased to $60.0 million through October 3, 1998, declining to $57.5 million on October 4, 1998 and $55.0 million on January 3, 1999. At March 28, 1998, approximately $9.2 million was available under the 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. YEAR 2000 The Company has initiated a Year 2000 program to assess and develop plans to resolve the issue both internally and externally. The Company is currently in the process of upgrading its business systems to Year 2000 compliant software which is expected to enhance the performance of the Company's customer service, manufacturing and administrative processes. In addition, the Company is surveying key suppliers and customers in order to identify potential Year 2000 problems and determine the appropriate actions to be taken. The Company does not expect the costs directly associated with Year 2000 compliance will have a material impact on its consolidated financial position or results of operations. The Company also does not expect any significant disruption in operations in the event that any of its suppliers or customers fail to achieve Year 2000 compliance. 10 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. Domestic wire rod market conditions tightened during the previous year and prices escalated due to actual and expected production outages at some of the major producers together with the filing of petitions alleging subsidized imports and dumping against certain countries exporting into the U.S.. In November 1997, the U.S. International Trade Commission ("ITC") ruled that while imports from certain countries were subsidized, such subsidies did not cause or threaten to cause material injury to domestic producers of wire rod. In March 1998, the ITC ruled against the domestic wire rod producers on the dumping allegations as well. These developments have expanded the availability of wire rod to the Company, alleviating the supply constraints that have characterized the market over the past year. The Company expects that the resolution of the ITC filing together with recently announced expansions in domestic wire rod capacity should increase supplier competition and favorably impact quality and availability as the additional capacity becomes fully operational. The Company's business strategy continues to be focused on (1) further expansion into higher value products that offer the potential to generate significantly more attractive returns than the Company's traditional businesses and (2) improving the financial performance of the Company's traditional businesses or redeploying the capital investment into more productive uses. During 1994 - 1997, the Company built two new production facilities and reconfigured an existing operation in order to develop the manufacturing capabilities required to enter the markets for PC strand, collated fasteners, tire bead wire and welding wire. Sales of these new products are expected to increase from $33.1 million in 1997 to $100.0 million in 2000 when fully operational. The Company is proceeding with plans to expand the PC strand manufacturing facility to its design capacity of approximately $45.0 million in revenues. The expansion will be completed in May 1998 at an incremental cost of approximately $1.0 million. During the second quarter, significant progress was made towards the completion of the qualification process for tire bead wire and welding wire as the Company began to ship truckload quantities of both products. Sales of collated fasteners increased within the quarter, rising to a record level in March. The operating results of the Company will continue to be negatively impacted until sales of these new products rise to significant levels. As the Company is currently incurring substantially all of the anticipated operating costs at these facilities, the incremental impact of projected increases in volume is expected to significantly improve its financial performance. The Company's cash flow is expected to significantly increase through the remainder of the year as a result of the sale of the agricultural fencing product line (see Note (4) of Notes to Consolidated Financial Statements), lower inventory levels, reduced capital expenditure requirements, and gradual improvement in operating results. Management currently intends to utilize any excess cash flow generated to pay down debt, thereby reducing interest expense. FACTORS THAT MAY AFFECT FUTURE RESULTS 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 rod; the Company's ability to raise selling prices in order to recover increases in steel rod prices; legal, environmental or regulatory developments that significantly impact the Company's operating costs; the success of the Company's new product initiatives, including the PC strand, collated fastener, tire bead wire and welding wire expansions; the inability of the Company to expedite the qualification process with prospective customers for tire bead wire and welding wire; the failure of the Company to receive regular and substantial orders for its new products; and unexpected delays in completion of the expansion of the PC strand facility. 11 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 1998 Annual Meeting of Shareholders on February 3, 1998. The items acted upon at the meeting and voting results were as follows: (1) Election of three directors of the Company for three-year terms ending in 2001:
VOTES ------------------------------- FOR WITHHELD --------- -------- Howard O. Woltz, Jr. 7,266,210 84,724 C. Richard Vaughn 7,263,050 87,884 Louis E. Hannen 7,266,263 84,671
(2) Approval of the issuance of shares of the Company's Common Stock to certain employees of the Company as partial payment of bonuses under the Company's Return on Capital Incentive Compensation Plan:
VOTES ------------------------------------------------- FOR WITHHELD ABSTAIN --------- -------- -------- 6,770,552 501,301 79,081
(3) Approval of the issuance of shares of the Company's Common Stock to non-employee directors as partial payment of their annual retainer fee under the Company's Director Compensation Plan:
VOTES ---------------------------------------------------- FOR WITHHELD ABSTAIN --------- -------- ------- 7,107,492 143,045 100,397
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 27 - 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 28, 1998. 12 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: April 23, 1998 By /s/H.O. Woltz ------------------------------------- H.O. Woltz III President and Chief Executive Officer Date: April 23, 1998 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 SIX MONTHS ENDED MARCH 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS OCT-03-1998 MAR-28-1998 1,097 0 34,562 0 44,311 81,732 81,990 0 169,363 40,898 0 0 0 16,885 50,994 169,363 122,915 122,915 120,113 120,113 0 0 2,017 (3,203) (1,137) (2,066) 0 (408) 0 (2,474) (0.29) (0.29)
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