-----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, LfN4YcDDJS+hYaZF9CSvb4NPfFVhN6744FOBbhcuFBehRXYaaduefsH+rVFLpJAv NsnRr7tKHSlV7EYj09ublQ== 0000950144-98-009264.txt : 19980812 0000950144-98-009264.hdr.sgml : 19980812 ACCESSION NUMBER: 0000950144-98-009264 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19980810 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: 98680568 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 27, 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 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 August 7, 1998 was 8,442,512. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INSTEEL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
JUNE 27, SEPTEMBER 30, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 719 $ 1,079 Accounts receivable, net 32,145 31,049 Inventories 37,381 44,463 Prepaid expenses and other 1,862 1,702 Net assets of discontinued operations -- 1,869 ------------ ------------ Total current assets 72,107 80,162 Property, plant and equipment, net 80,935 86,401 Other assets 5,363 4,913 ------------ ------------ Total assets $ 158,405 $ 171,476 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 27,242 $ 31,639 Accrued expenses 8,973 9,216 Current portion of long-term debt 620 2,620 ------------ ------------ Total current liabilities 36,835 43,475 Long-term debt 48,498 49,673 Deferred income taxes 4,658 5,989 Other liabilities 1,036 1,017 Shareholders' equity: Common stock 16,885 16,873 Additional paid-in capital 38,232 38,200 Retained earnings 12,261 16,249 ------------ ------------ Total shareholders' equity 67,378 71,322 ------------ ------------ Total liabilities and shareholders' equity $ 158,405 $ 171,476 ============ ============
3 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands except for per share data) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------- ------------------------- JUNE 27, JUNE 30, JUNE 27, JUNE 30, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net sales $ 69,275 $ 68,127 $ 192,190 $ 191,803 Cost of sales 65,258 62,265 185,371 177,888 ---------- ---------- ---------- ---------- Gross profit 4,017 5,862 6,819 13,915 Selling, general and administrative expense 3,070 3,223 9,488 9,346 ---------- ---------- ---------- ---------- Operating income (loss) 947 2,639 (2,669) 4,569 Interest expense 911 636 2,928 1,472 Other expense (income) 28 158 (2,402) 166 ---------- ---------- ---------- ---------- Earnings (loss) from continuing operations before income taxes and extraordinary item 8 1,845 (3,195) 2,931 Provision (benefit) for income taxes 3 669 (1,134) 1,063 ---------- ---------- ---------- ---------- Earnings (loss) from continuing operations before extraordinary item 5 1,176 (2,061) 1,868 Discontinued operations: Loss from operations of Insteel Construction Systems net of income tax benefit of $395 -- -- -- (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) ---------- ---------- ---------- ---------- Loss from discontinued operations -- -- -- (2,877) ---------- ---------- ---------- ---------- Earnings (loss) before extraordinary item 5 1,176 (2,061) (1,009) Extraordinary item: Loss on early extinguishment of debt (net of income tax benefit of $224) -- -- (408) -- ---------- ---------- ---------- ---------- Net earnings (loss) $ 5 $ 1,176 $ (2,469) $ (1,009) ========== ========== ========== ========== Weighted average shares outstanding (basic) 8,443 8,437 8,442 8,436 ========== ========== ========== ========== Per share (basic): Earnings (loss) from continuing operations $ -- $ 0.14 $ (0.24) $ 0.22 Loss from discontinued operations -- -- -- (0.34) Extraordinary loss on early extinguishment of debt -- -- (0.05) -- ---------- ---------- ---------- ---------- Net earnings (loss) $ -- $ 0.14 $ (0.29) $ (0.12) ========== ========== ========== ========== Dividends paid $ 0.06 $ 0.06 $ 0.18 $ 0.18 ========== ========== ========== ==========
4 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
NINE MONTHS ENDED ----------------------------- JUNE 27, JUNE 30, 1998 1997 ---------- ---------- OPERATING ACTIVITIES: Net earnings (loss) from continuing operations $ (2,469) $ 1,868 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt 408 -- Depreciation and amortization 6,767 6,253 Accounts receivable, net (1,091) 1,408 Inventories 7,082 (12,880) Accounts payable and accrued expenses (4,639) 5,521 Gain on sale of assets (4,704) -- Other changes (2,688) 617 ---------- ---------- Total adjustments 1,135 919 ---------- ---------- Net cash provided by (used for) operating activities (1,334) 2,787 ---------- ---------- DISCONTINUED OPERATING ACTIVITIES: Net cash provided by discontinued operating activities 1,869 847 INVESTING ACTIVITIES: Capital expenditures (5,261) (22,354) Proceeds on notes receivable 134 636 Proceeds from sale of property, plant and equipment 8,864 -- ---------- ---------- Net cash provided by (used for) investing activities 3,737 (21,718) ---------- ---------- FINANCING ACTIVITIES: Proceeds from long-term debt 86,118 89,676 Principal payments on long-term debt (89,275) (71,425) Proceeds from stock options 44 -- Dividends paid (1,519) (1,527) ---------- ---------- Net cash provided by (used for) financing activities (4,632) 16,724 ---------- ---------- Net decrease in cash (360) (1,360) Cash and cash equivalents at beginning of period 1,079 1,423 ---------- ---------- Cash and cash equivalents at end of period $ 719 $ 63 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 3,177 $ 1,609 Income taxes 596 613
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
JUNE 27, SEPTEMBER 30, 1998 1997 ---------- ------------- Raw materials $ 20,652 $ 24,698 Supplies 2,187 2,147 Work in process 1,588 1,730 Finished goods 12,954 15,888 ---------- ---------- Total inventories $ 37,381 $ 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 agreed to manufacture agricultural fencing products for Keystone during a transition period until the equipment was relocated to Keystone's production facilities. Insteel's nine-month 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 cease its agricultural fencing manufacturing activities by the end of the current fiscal year. (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. Insteel's nine-month financial results reflect an extraordinary loss of $408,000 after income taxes, or approximately five cents per share, 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 NINE MONTHS ENDED --------------------- --------------------- JUNE 27, JUNE 30, JUNE 27, JUNE 30, 1998 1997 1998 1997 -------- -------- -------- -------- Net sales $ -- $ -- $ -- $ 580 Cost of sales -- -- -- 743 -------- -------- -------- -------- Gross loss -- -- -- (163) Selling, general and administrative expense -- -- -- 720 -------- -------- -------- -------- Operating loss -- -- -- (883) Interest expense -- -- -- 82 Other expense -- -- -- 123 -------- -------- -------- -------- Loss from operations of Insteel Construction Systems before income taxes -- -- -- (1,088) Benefit for income taxes -- -- -- (395) -------- -------- -------- -------- Loss from operations of Insteel Construction Systems $ -- $ -- $ -- $ (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:
JUNE 27, 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 In December 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 354,000 shares and 269,000 shares for the quarters ended June 27, 1998 and June 30, 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 NINE MONTHS ENDED --------------------- --------------------- JUNE 27, JUNE 30, JUNE 27, JUNE 30, 1998 1997 1998 1997 -------- -------- -------- -------- Earnings (loss) from continuing operations $ 5 $ 1,176 $ (2,061) $ 1,868 Loss from discontinued operations -- -- -- (2,877) Extraordinary loss on early extinguishment of debt -- -- (408) -- -------- -------- -------- -------- Net earnings (loss) $ 5 $ 1,176 $ (2,469) $ (1,009) ======== ======== ======== ======== Weighted average shares outstanding: Weighted average shares outstanding (basic) 8,443 8,437 8,442 8,436 Dilutive effect of stock options 12 13 -- -- -------- -------- -------- -------- Weighted average shares outstanding (diluted) 8,455 8,450 8,442 8,436 ======== ======== ======== ======== Earnings (loss) per share (basic and diluted): Earnings (loss) from continuing operations $ -- $ 0.14 $ (0.24) $ 0.22 Loss from discontinued operations -- -- -- (0.34) Extraordinary loss on early extinguishment of debt -- -- (0.05) -- -------- -------- -------- -------- Net earnings (loss) $ -- $ 0.14 $ (0.29) $ (0.12) ======== ======== ======== ========
(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 the 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 NINE MONTHS ENDED -------------------------------------- -------------------------------------- JUNE 27, JUNE 30, JUNE 27, JUNE 30, 1998 CHANGE 1997 1998 CHANGE 1997 ---------- ---------- ---------- ---------- ---------- ---------- Net sales $ 69,275 2% $ 68,127 $ 192,190 -- $ 191,803 Gross profit 4,017 (31%) 5,862 6,819 (51%) 13,915 Percentage of net sales 5.8% 8.6% 3.5% 7.3% Selling, general and administrative expense $ 3,070 (5%) $ 3,223 $ 9,488 2% $ 9,346 Percentage of net sales 4.4% 4.7% 4.9% 4.9% Operating income (loss) $ 947 N/M $ 2,639 $ (2,669) N/M $ 4,569 Percentage of net sales 1.4% 3.9% (1.4%) 2.4% Interest expense $ 911 43% $ 636 $ 2,928 99% $ 1,472 Percentage of net sales 1.3% 0.9% 1.5% .8% Effective income tax rate 37.5% 36.3% 35.5% 36.3% Earnings (loss) from continuing operations $ 5 (100%) $ 1,176 $ (2,061) N/M $ 1,868 Percentage of net sales -- 1.7% (1.1%) 1.0%
Insteel's net sales for the third quarter rose 2% from a year ago to $69.3 million. For the nine-month period, sales increased slightly from the prior year. The growth in sales was in spite of the Company's exit from the agricultural fencing business, which reduced current year sales relative to the comparable year-ago periods. Excluding agricultural fencing products, sales of wire products rose 11% and 6% for the third quarter and nine-month periods primarily due to higher sales of bulk nails. Sales of concrete reinforcing products increased 8% and 4% for the third quarter and nine-month periods as a result of higher shipments of welded wire mesh. Sales of tire bead wire and welding wire increased during the third quarter as the Company obtained customer approval on certain products and began to achieve consistent shipment levels. Gross margins for the third quarter decreased 31% to 5.8% of sales compared with 8.6% in the prior year. For the nine-month period, gross margins fell 51% to 3.5% of sales from 7.3% 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 revenues remained well below the levels required to cover the costs necessary to support the anticipated ramp-up of the tire bead wire and welding wire businesses. The Company's other new business initiative, collated fasteners, also operated at a loss due to insufficient sales volume and pricing pressure resulting from increased import competition. Selling, general and administrative expense ("SG&A expense") declined 5% for the third quarter, falling to 4.4% of sales from 4.7% in the prior year. For the nine-month period, SG&A expense increased 2%, remaining flat as a percentage of sales at 4.9%. Selling expenses related to the Company's new businesses increased over the prior year while employee profit-sharing and incentive plan expenses declined. Interest expense rose sharply for the third quarter and nine-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 average inventory levels. In February 1998, the Company sold the inventory and equipment related to its agricultural fencing product line. Nine-month 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 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. Nine-month results reflect an extraordinary loss of $408,000 after income taxes, or approximately five cents per share, related to the early extinguishment of debt. Nine-month results for the prior year reflect a $2.9 million loss related to the sale of the company's Insteel Construction Systems division (ICS) and the reclassification of the segment as discontinued operations. ICS manufactured and marketed the Insteel 3-D(R) building panel. 9 FINANCIAL CONDITION SELECTED FINANCIAL DATA ($ in thousands)
NINE MONTHS ENDED ------------------------- JUNE 27, JUNE 30, 1998 1997 ---------- ---------- Net cash provided by (used for) operating activities $ (1,334) $ 2,787 Net cash provided by (used for) investing activities 3,737 (21,718) Net cash provided by (used for) financing activities (4,632) 16,724 Long-term debt 49,118 48,262 Percentage of total capital 42% 40% Shareholders' equity $ 67,378 $ 71,140 Percentage of total capital 58% 60% Total capital (long-term debt + shareholders' equity) $ 116,496 $ 119,402
Operating activities used $1.3 million of cash for the nine-month period while providing $2.8 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. Inventories decreased during the current year primarily due to a reduction in raw material inventory levels together with the sale of agricultural fencing inventories. During the year-ago period, inventories were increased in anticipation of further price escalation in the fourth quarter. Cash generated from the inventory reduction during the current year was partially offset by a decline in accounts payable related to lower raw material purchases. During the prior year, accounts payable had increased as a result of higher purchase volumes required to build inventories. Investing activities provided $3.8 million of cash for the nine-month period while using $21.7 million a year ago. The year-to-year change was primarily related to a reduction in capital expenditures together with the current year proceeds from the sale of agricultural fencing equipment. Capital expenditures were higher during the year-ago period principally due to the tire bead wire and welding wire expansion. Financing activities used $4.6 million of cash for the nine-month period while providing $16.7 million a year ago. The increase in debt during the prior year was primarily related to funding the 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 42% at June 27, 1998 compared with 40% at June 30, 1997 primarily as a result of capital expenditures related to the tire bead wire and welding wire expansion together with the decline in the Company's financial results. 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 June 27, 1998, approximately $15.6 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. Although the Company does not expect any significant disruption in operations in the event that any of its suppliers or customers fail to achieve Year 2000 compliance, there can be no assurances given to that effect. 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. 10 OUTLOOK The Company's financial 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. The resolution of the ITC filing together with recent expansions in domestic capacity have expanded the availability of wire rod to the Company and significantly increased supplier competition, resulting in lower price levels. The Company expects that these developments will alleviate the supply constraints that have characterized the market over the past year and favorably impact its financial results in ensuing quarters. 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. During the third quarter, the Company completed the expansion of the PC strand manufacturing facility to its full design capacity. The Company expects that the recently enacted federal highway spending legislation will have a favorable impact on the demand for its concrete reinforcing products. Significant progress was made towards the completion of the qualification process for tire bead wire and welding wire as the Company obtained customer approval on certain products and began to attain consistent shipment volumes. The financial results of the Company will continue to be negatively impacted until sales of these products rise to projected levels. As the Company is currently incurring substantially all of the anticipated operating costs required to support its new businesses, the incremental impact of forecasted increases in sales is expected to significantly improve its financial performance. 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; and the failure of the Company to receive regular and substantial orders for its new products. 11 PART II - OTHER INFORMATION 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 June 27, 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: August 7, 1998 By /s/ H.O. Woltz III ---------------------------------------- H.O. Woltz III President and Chief Executive Officer Date: August 7, 1998 By /s/ Michael C. Gazmarian ---------------------------------------- Michael C. Gazmarian Chief Financial Officer and Treasurer EX-27 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 NINE MONTHS ENDED JUNE 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS OCT-03-1998 JUN-27-1998 719 0 32,145 0 37,381 72,107 80,935 0 158,405 36,835 0 0 0 16,885 50,493 158,405 192,190 192,190 185,371 185,371 0 0 2,928 (3,195) (1,134) (2,061) 0 (408) 0 (2,469) (0.29) (0.29)
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