<PAGE> 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 December 31, 1994
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1373 BOGGS DRIVE, MOUNT AIRY, NORTH CAROLINA 27030
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(Address of principal executive offices)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 8,336,744 shares of
Common Stock (No Par Value) as of February 9, 1995.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSTEEL INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
December 31, 1994 and September 30, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
1994 1994
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,091 $ 1,234
Receivables (Net) 25,723 33,399
Inventories (Note 2) 37,830 28,750
Prepaid Expenses and Other 646 1,119
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TOTAL CURRENT ASSETS 65,290 64,502
PROPERTY, PLANT AND EQUIPMENT 105,090 104,497
Less accumulated depreciation (39,326) (37,957)
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65,764 66,540
OTHER ASSETS 7,555 7,837
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TOTAL ASSETS $ 138,609 $ 138,879
============= =============
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 35,328 $ 31,972
Short-Term Borrowings 1,925 4,940
Current Portion of Long-Term Debt 2,416 2,407
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TOTAL CURRENT LIABILITIES 39,669 39,319
DEFERRED INCOME TAXES 6,212 6,302
LONG-TERM DEBT less current portion 26,083 26,797
STOCKHOLDERS' EQUITY:
Common Stock 16,667 16,667
Additional Paid-in Capital 37,730 37,730
Retained Earnings 12,248 12,064
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TOTAL STOCKHOLDERS' EQUITY 66,645 66,461
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TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 138,609 $ 138,879
============= =============
</TABLE>
<PAGE> 3
INSTEEL INDUSTRIES, INC.
Consolidated Statements of Earnings
(000's Omitted Except for Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1994 1993
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<S> <C> <C>
NET SALES $ 58,619 $ 50,356
Cost of Sales 53,945 47,514
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GROSS PROFIT 4,674 2,842
Selling, General and Administrative Expense 3,187 2,682
Minority Interest in Loss of Subsidiary (164) (171)
Equity in Loss of Affiliate 5 101
------------ -----------
OPERATING INCOME 1,646 230
Interest Expense 546 337
Other Expense/(Income) 18 (156)
------------ -----------
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE 1,082 49
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Income Tax Expense 398 32
------------ -----------
EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE 684 17
IN ACCOUNTING PRINCIPLE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING - 1,325
PRINCIPLE (Note 3)
------------ -----------
NET EARNINGS $ 684 $ 1,342
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,333 8,271
============ ===========
EARNINGS PER COMMON SHARE:
Before Cumulative Effect of Change in Accounting Principle $ .08 $ -
Cumulative Effect of Change in Accounting Principle - .16
------------ -----------
NET EARNINGS PER SHARE $ .08 $ .16
============ ===========
DIVIDENDS PAID PER SHARE $ .06 $ .06
============ ===========
</TABLE>
<PAGE> 4
INSTEEL INDUSTRIES, INC.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1994 1993
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 684 $ 1,342
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Cumulative effect of change in accounting principle - (1,325)
Depreciation and amortization 2,035 1,870
Provision for doubtful accounts 85 83
Minority interest in loss of subsidiary (164) (171)
Equity in loss of affiliate 5 100
Decrease in deferred income taxes (89) (45)
Decrease in accounts receivable 7,607 6,081
Increase in inventories (9,080) (10,845)
Decrease in prepaid expenses 473 688
Increase in other assets (28) (31)
Increase in accounts payable 4,583 2,046
Decrease in accrued salaries, wages and related items (183) (82)
Decrease in accrued expenses (1,241) (1,258)
Increase (decrease) in accrued income taxes 197 (110)
------------ -----------
Total adjustments 4,200 (2,999)
------------ -----------
Net cash provided by (used in) operating activities 4,884 (1,657)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,053) (3,705)
Proceeds on notes receivable 83 -
------------ -----------
Net cash used in investing activities (970) (3,705)
------------ -----------
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (3,015) 2,054
Proceeds from long-term debt - 1,275
Principal payments on long-term debt (706) (2,156)
Proceeds from employee stock options - 103
Dividends paid (500) (497)
Capital contribution to subsidiary by minority interest 164 171
------------ -----------
Net cash provided by (used in) financing activities (4,057) 950
------------ -----------
NET DECREASE IN CASH (143) (4,412)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,234 9,289
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,091 $ 4,877
============ ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the quarter for:
Interest $ 911 $ 480
Income taxes $ 287 $ 162
</TABLE>
Notes to Unaudited Condensed Consolidated Financial Statements
1. General
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, 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. These unaudited financial statements should be read in conjunction
with the financial statements and related notes contained in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1994 as
filed with the Securities and Exchange Commission.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments except as may be specifically disclosed) necessary
for a fair presentation of the information therein. Results of operations for
the interim periods should not be regarded as necessarily indicative of the
results to be expected for a full year.
<PAGE> 6
2. Inventories
Inventories at December 31, 1994 and September 30, 1994 have been
stated at the lower of cost (first-in, first-out method) or market.
<TABLE>
<CAPTION> December 31, September 30,
1994 1994
(000's omitted) (000's omitted)
------------------- -------------------
<S> <C> <C>
Raw Materials $ 18,715 $ 14,067
Work in Process 1,428 1,274
Finished Products 15,159 10,900
Supplies 2,528 2,509
------------------- -------------------
$ 37,830 $ 28,750
=================== ===================
</TABLE>
3. Income Taxes
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes,"(SFAS No. 109) effective October 1, 1993.
This Statement supersedes SFAS No. 96, "Accounting for Income Taxes," which was
adopted by the Company in fiscal year 1988. The cumulative effect of adopting
SFAS No. 109 on the Company's financial statements was to increase income by
$1,325,000 ($.16 per share) for the three months ended December 31, 1993.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1995, $4.9 million of cash was
generated by operations in comparison to $1.7 million used by operations for
the same quarter last year. Due to the seasonality of the Company's business,
the first fiscal quarter typically represents the lowest sales volume for the
year, resulting in lower receivables and higher inventories compared to
September 30 year-end balances. The primary reasons for the improvement in
operating cash flow are larger receivables reductions and smaller inventory
increases relative to the same period last year. Although net sales for the
current quarter were up 16.4%, receivables and inventories increased only 10.4%
and 9.5% over December 31, 1993 levels. An additional factor contributing to
the improvement in cash flow was the Company's improved operating performance.
Net earnings before depreciation and amortization and excluding the cumulative
effect of an accounting change were $2.7 million for the current quarter
compared to $1.9 million for the prior year quarter, an increase of 44.1%.
Working capital increased slightly to $25.6 million in comparison to
September 30, 1994, but was down $1.7 million, or 6.2%, from December 31, 1993.
The decrease is due to temporary cash balances held last year related to the
$15.0 million private placement of senior notes. Although half of the notes
were funded in September 1993, there was still $4.9 million of cash on hand at
December 31, 1993, which was eventually used to fund fiscal 1994 capital
expenditures.
Capital expenditures decreased to $1.1 million for the current quarter
compared to $3.7 million for the same period last year. Management expects that
capital expenditures will continue to run below prior year levels but are
subject to increase should additional projects be undertaken later in the
current year.
The Company uses short-term borrowings to fund its working capital
requirements. At December 31, 1994, there was $1.9 million outstanding on
unsecured lines of credit providing total availability of $20.0 million. The
Company uses these lines to meet seasonal working capital needs, and management
believes that they are sufficient for that purpose.
The Company's financial position continues to be strong, with
favorable debt-to-equity and debt-to-total capital ratios of 39.1% and 28.1% as
of December 31, 1994. Management believes that continuing improvements in
operating performance together with the strength of the Company's balance sheet
will allow it to access additional long-term sources of financing as needed and
that funds provided by operations and external sources of financing are
sufficient to support future requirements.
<PAGE> 8
RESULTS OF OPERATIONS
Net sales for the current quarter increased 16.4% over the same period
last year, rising from $50.4 million to $58.6 million. The majority of the
increase was due to the performance of the prestressed concrete strand ("PC
strand") plant, which was non-operational during the prior year period. Tonnage
shipments of wire and wire products increased 10.7%, while average selling
prices were up 3.9% due to improved product mix and higher pricing levels.
Gross profit rose to $4.7 million for the current quarter from $2.8
million for the year-ago period, an increase of 64.4%. As a result, gross
profit as a percent of net sales improved from 5.6% to 8.0%. The PC strand
operation, which incurred substantial start-up losses during the prior year
period, was responsible for the largest portion of the increase. Most of
Insteel Wire Products' ("IWP") other plants also reported significant
improvement over prior year results. Insteel Construction Systems ("ICS")
continued to operate below breakeven volume, incurring a loss equivalent to the
prior year quarter.
Selling, general and administrative expense increased to $3.2 million,
or 5.4% of net sales for the current quarter, from $2.8 million, or 5.6% of net
sales for the year-ago quarter. The majority of the dollar increase was due to
higher profit-sharing expense resulting from the improvement in operating
performance. Interest expense increased to $.5 million for the current quarter
from $.3 million for the prior year quarter primarily due to the capitalization
of interest related to construction of the PC strand plant in the first fiscal
quarter of 1994.
Results for the first quarter of fiscal 1994 reflect the Company's
adoption of SFAS No. 109, "Accounting for Income Taxes." The Company recognized
a $1.3 million benefit resulting from the recognition of previously unrecorded
deferred tax assets related to net operating loss carryforwards. As a result of
the new accounting treatment, the Company's effective tax rate has increased to
statutory levels. The higher effective tax rate in the prior year quarter was
due to a provision for foreign income taxes.
The outlook for IWP's markets continues to be positive. Prices for
the Company's primary raw material, hot rolled wire rod, have escalated sharply
since September 30, 1994. Although the Company is pursuing increases in
selling prices, at this point it has not fully recovered these additional
costs.
The start-up inefficiencies that negatively impacted fiscal 1994
results have diminished as a result of the improved performance of the PC
strand plant and continuing progress at the Wilmington, Delaware plant and the
operation of its new welding line. However, the industrial wire and
agricultural products plant in Gallatin, Tennessee has not achieved acceptable
performance levels. Management expects that the rate of improvement at the
Gallatin plant will accelerate in the second quarter.
ICS continues to struggle to gain market acceptance of its 3-D
building panel due to the lack of cost effective concreting capacity. It is
implementing a refocused marketing strategy predicated upon the establishment
of a national distributor network with concreting capability and the
development of sales to the precast industry. In addition, ICS is
<PAGE> 9
continuing to pursue business in Central America and the Caribbean and has
quoted a number of large projects which could result in future orders. Although
it is difficult to predict when volume will increase to a profitable level,
management expects ICS' financial performance to improve over the remainder of
the year.
The Company's joint venture in Mexico, Insteel Panel/MEX, has been
severely impacted by the recent devaluation of the Mexican peso in relation to
the U.S. dollar. The plant, which was operating at capacity in December in
response to strong market demand, is now operating on an intermittent basis and
it is difficult to predict when the Mexican economy will rebound. Despite the
devaluation, it is management's opinion that the long-term prospects remain
promising and that the Company's investment value will not be significantly
impacted. The investment in the joint venture and its operating results are
immaterial in relation to Insteel's overall financial position and performance.
The format of the Consolidated Statements of Earnings has been revised
to provide the financial statement user with a more meaningful presentation of
the Company's performance. Prior year results have been reclassified on a
consistent basis to allow for accurate comparisons between periods.
<PAGE> 10
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 on Form 8-K: None filed during the quarter
with respect to which this report is filed.
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
By H. O. Woltz III
-------------------------------------
H. O. Woltz III
President and Chief Executive Officer
Date: February 13, 1995 By Michael C. Gazmarian
------------------ -------------------------------------
Michael C. Gazmarian
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INSTEEL INDUSTRIES, INC. FOR THE THREE MONTH PERIOD
ENDED DECEMBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,091
<SECURITIES> 0
<RECEIVABLES> 25,723
<ALLOWANCES> 0
<INVENTORY> 37,830
<CURRENT-ASSETS> 65,290
<PP&E> 105,090
<DEPRECIATION> 39,326
<TOTAL-ASSETS> 138,609
<CURRENT-LIABILITIES> 39,669
<BONDS> 26,083
<COMMON> 16,667
0
0
<OTHER-SE> 49,978
<TOTAL-LIABILITY-AND-EQUITY> 138,609
<SALES> 58,619
<TOTAL-REVENUES> 58,619
<CGS> 53,945
<TOTAL-COSTS> 53,945
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546
<INCOME-PRETAX> 1,082
<INCOME-TAX> 398
<INCOME-CONTINUING> 684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 684
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
