<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 MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-9929
INSTEEL INDUSTRIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0674867
-------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1373 BOGGS DRIVE, MOUNT AIRY, NORTH CAROLINA 27030
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 786-2141
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of
May 6, 1996 was 8,420,087.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSTEEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 408 $ 263
Accounts receivable, net 31,449 31,516
Inventories 35,750 40,566
Prepaid expenses and other 864 1,509
-------- --------
Total current assets 68,471 73,854
Property, plant and equipment, net 66,619 65,100
Other assets 6,562 7,181
-------- --------
Total assets $141,652 $146,135
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,706 $ 27,471
Accrued expenses 6,283 6,897
Short-term debt - 8,260
Current portion of long-term debt 3,398 5,196
-------- --------
Total current liabilities 36,387 47,824
Deferred income taxes 5,024 5,010
Long-term debt 29,786 22,089
Stockholders' equity:
Common stock 16,840 16,787
Additional paid-in capital 38,127 38,033
Retained earnings 15,488 16,392
-------- --------
Total stockholders' equity 70,455 71,212
-------- --------
Total liabilities and stockholders' equity $141,652 $146,135
======== ========
</TABLE>
<PAGE> 3
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- ---------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $63,764 $66,003 $121,269 $124,622
Cost of sales 58,720 59,060 113,439 113,005
------- ------- -------- --------
Gross profit 5,044 6,943 7,830 11,617
Selling, general and administrative expense 3,315 3,547 6,354 6,734
------- ------- -------- --------
Operating income 1,729 3,396 1,476 4,883
Interest expense 611 558 1,219 1,104
Minority interest in loss of
subsidiary - 164 - -
Equity in loss (income) of affiliate (31) 91 (33) 96
Other expense (income) 134 (29) 128 (11)
------- ------- -------- --------
Earnings before income taxes 1,015 2,612 162 3,694
Provision (benefit) for income taxes 359 (1,414) 57 (1,016)
------- ------- -------- --------
Net earnings $ 656 $ 4,026 $ 105 $ 4,710
======= ======= ======== ========
Weighted average shares outstanding 8,415 8,361 8,404 8,347
======= ======= ======== ========
Net earnings per share $ .08 $ .48 $ .01 $ .56
======= ======= ======== ========
Dividends paid per share $ .06 $ .06 $ .12 $ .12
======= ======= ======== ========
</TABLE>
<PAGE> 4
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------
1996 1995
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 105 $ 4,710
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 4,134 4,064
Equity in loss (income) of affiliate (33) 96
Accounts receivable, net 222 969
Inventories 4,816 (7,799)
Accounts payable and accrued expenses (1,380) 6,994
Other changes 1,027 (2,797)
-------- -------
Total adjustments 8,786 1,527
-------- -------
Net cash provided by operating activities 8,891 6,237
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,274) (2,803)
Proceeds from (increase in) notes receivable (250) 112
-------- -------
Net cash used in investing activities (5,524) (2,691)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term debt, net (8,260) (2,657)
Proceeds from issuance of debt 26,374 1,941
Payments on debt (20,475) (2,479)
Proceeds from employee stock options 148 301
Dividends paid (1,009) (1,003)
-------- -------
Net cash used in financing activities (3,222) (3,897)
-------- -------
Net decrease (increase) in cash 145 (351)
Cash and cash equivalents at beginning of period 263 1,234
-------- -------
Cash and cash equivalents at end of period $ 408 $ 883
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,302 $ 1,101
Income taxes $ 131 $ 874
</TABLE>
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except as noted)
(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, 1995.
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
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
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<S> <C> <C>
Raw materials $13,104 $24,025
Work in process 1,728 1,372
Finished goods 18,870 13,042
Supplies 2,048 2,127
------- -------
Total inventories $35,750 $40,566
======= =======
</TABLE>
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents selected financial data from the Consolidated
Statements of Earnings as a percentage of net sales for the three months and
six months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 92.1% 89.5% 93.5% 90.7%
------ ------ ------ ------
Gross profit 7.9% 10.5% 6.5% 9.3%
Selling, general and administrative
expense 5.2% 5.4% 5.3% 5.4%
------ ------ ------ ------
Operating income 2.7% 5.1% 1.2% 3.9%
Interest expense 0.9% 0.8% 1.0% 0.9%
Minority interest in loss of subsidiary - 0.2% - -
Equity in loss (income) of affiliate - 0.1% - -
Other expense (income) 0.2% - 0.1% -
------ ------ ------ ------
Earnings before income taxes 1.6% 4.0% 0.1% 3.0%
====== ====== ====== ======
</TABLE>
Net sales were $63.8 million for the second quarter and $121.3 million for
the first six months of fiscal 1996, down 3% from the record volume of the
comparable prior year periods. Total wire products shipments were flat for the
quarter and down 1% for the six months relative to the year-ago periods.
Average selling prices decreased 4% for the quarter and 2% for the six months
compared with the same periods of fiscal 1995. The quarterly sales decline was
primarily attributable to lower selling values in most product lines together
with decreased shipments of agricultural products and nails. Sales of concrete
reinforcing products improved as the result of a second consecutive record
quarter for PC strand shipments. Shipments of Insteel 3-D(R) building panel
were up 90% for the quarter and 55% for the six months, reducing the operating
loss of Insteel Construction Systems ("ICS") by more than half.
Gross profit margins for the second quarter fell to 7.9% compared with
10.5% for the corresponding period of fiscal 1995. For the first six months,
margins decreased to 6.5% from 9.3% for the comparable prior year period.
Margins were negatively impacted by narrowing spreads between raw material
costs and selling prices relative to the year-ago periods. During the second
half of fiscal 1995, weak market conditions and depressed shipment levels
resulted in excess wire rod inventories at the end of the fiscal year,
September 30, 1995. As these inventories were sharply reduced during the first
six months of fiscal 1996, the consumption of higher cost wire rod together
with lower selling prices compressed margins relative to comparable prior year
periods. The decrease in gross profit also reflected the combination of higher
manufacturing costs and lower production levels compared with the same periods
of fiscal 1995.
Selling, general and administrative expense ("SG & A expense") decreased
7% for the quarter, declining as a percentage of sales to 5.2% compared with
5.4% in the prior year period. For the first six months of the year, SG & A
expense dropped 6%, falling to 5.3% of sales compared with 5.4% last year. The
decline was primarily due to a reduction in profit-sharing expense caused by
weaker operating performance.
Interest expense increased 9% for the quarter and 10% for the six months
compared to the year-ago periods as a result of higher average outstanding
balances on the Company's lines of credit.
The statement of earnings for the second quarter of fiscal 1995 reflected
the reversal of the first quarter accrual of the former joint venture partner's
share of ICS' losses. The contribution owed was negotiated as a reduction in
the purchase price for their 30% interest. As a result of the purchase of the
remaining interest in ICS and subsequent merger into Insteel Wire Products,
minority interest was not applicable going forward.
<PAGE> 7
The provision for income taxes in the second quarter of fiscal 1995 was
reduced by $2.4 million to reflect the future utilization of tax benefits
arising from the acquisition of the remaining interest in ICS. Excluding this
adjustment, the Company's effective income tax rate for the first six months of
fiscal 1996 was 35.4% compared to 36.6% in the prior year period. The decrease
in the fiscal 1996 rate is primarily due to a reduction in the estimated state
income tax rate.
FINANCIAL CONDITION
The following table presents selected financial data from the consolidated
financial statements for the six months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-------------------------------
1996 Change 1995
-------- ------ --------
<S> <C> <C> <C>
Net sales $121,269 (3%) $124,622
Accounts receivable, net $ 31,449 (3%) $ 32,438
Inventories $ 35,750 (2%) $ 36,549
Working capital $ 32,084 22% $ 26,233
Earnings before interest, taxes and depreciation $ 5,515 (38%) $ 8,862
Capital expenditures $ 5,274 88% $ 2,803
Long-term debt $ 29,786 15% $ 25,801
Total debt $ 33,184 7% $ 30,949
Stockholders' equity $ 70,455 - $ 70,469
</TABLE>
Operating activities generated $8.9 million of cash during the first six
months of fiscal 1996 compared to $6.2 million for the corresponding period of
the previous year. Raw material inventories were reduced by $10.9 million, or
45%, from the September 30, 1995 fiscal year-end balance. Cash provided by the
reduction in raw material inventories was partially offset by decreases in
accounts payable and accrued expenses. The downturn in operating performance
resulted in a decrease in earnings before interest, taxes and depreciation to
$5.5 million during the first six months of fiscal 1996 compared with $8.9
million in the year-ago period.
Investing activities consumed $5.5 million during the first six months of
fiscal 1996 compared to $2.7 million during the year-ago period as a result of
higher capital expenditures primarily related to the new collated nail
facility. Total expenditures for the collated nail and PC strand expansion
projects will approximate $9.0 million.
Financing activities used $3.2 million during the first six months of
fiscal 1996 compared to $3.9 million in the prior year period. In January 1996,
the annual lines of credit that provided total availability of $20.0 million
were replaced by a $35.0 million unsecured revolving credit facility that will
expire in November 2000. As a result, the short-term debt balance outstanding
was refinanced under the revolver and is now reflected as a long-term
liability.
At March 31, 1996, approximately $24.5 million was available under the
$35.0 million revolving credit 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Insteel operates in a rapidly changing environment that involves a number
of risks and uncertainties, some of which are beyond the Company's control. The
Company has short delivery cycles and as a result does not have a large
<PAGE> 8
order backlog, which makes the forecasting of revenue inherently uncertain. As
delivery lead times have decreased, the Company has generated a higher
percentage of sales from new order bookings in the same fiscal period.
Business conditions and growth in the general economy have an impact on
the Company's operating results. Seasonality also affects the Company's
operating results, particularly in the first quarter of the fiscal year, which
has historically represented the lowest quarterly sales volume. Shipments
typically increase in the second quarter and reach a high point in the third or
fourth quarter, reflecting the buying patterns of the Company's customers.
Wire rod market conditions also have a significant impact on the Company's
operating results. Hot rolled steel rod is the Company's primary raw material
and constitutes the largest component of manufacturing costs. Recently
announced increases in domestic wire rod capacity should increase supplier
competition and favorably impact quality and availability. As order lead times
begin to decrease, the Company should be able to significantly reduce raw
material inventory levels in comparison to recent years when maintaining
adequate supply was a primary concern.
Insteel's business strategy continues to be focused on further expansion
into higher value-added products that offer superior returns relative to the
Company's traditional businesses. In March 1996, the Company entered the
collated nail business with the start-up of a new manufacturing facility in
Andrews, South Carolina. The plant produces nails that are pneumatically driven
by nail guns, a market that is related to the Company's existing bulk nail
business. The Company has also extended purchase commitments to expand the
capacity of its PC strand operation in Gallatin, Tennessee, with start-up
anticipated in August 1996. Neither of these projects are expected to have a
material impact on the Company's fiscal 1996 operating results.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1996 Annual Meeting of Shareholders on February 13,
1996. The only item on the agenda was the election of three directors for terms
ending in 1999, as follows:
<TABLE>
<CAPTION>
Votes
-------------------------
For Withheld
--------- --------
<S> <C> <C>
John E. Woltz 7,864,546 73,594
W. Allen Rogers, II 7,873,439 64,701
Joseph D. Noell, III 7,873,504 64,636
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27.1 Financial Data Schedule (for SEC use only)
b. Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
quarter ended March 31, 1996.
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSTEEL INDUSTRIES, INC.
------------------------
Registrant
Date: May 8, 1996 By /s/ H.O. Woltz III
-------------------------------------
H. O. Woltz III
President and Chief Executive Officer
Date: May 8, 1996 By /s/ 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 SIX MONTH PERIOD
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY TO REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 408
<SECURITIES> 0
<RECEIVABLES> 31,449
<ALLOWANCES> 0
<INVENTORY> 35,750
<CURRENT-ASSETS> 68,471
<PP&E> 66,619
<DEPRECIATION> 0
<TOTAL-ASSETS> 141,652
<CURRENT-LIABILITIES> 36,387
<BONDS> 0
0
0
<COMMON> 16,840
<OTHER-SE> 53,615
<TOTAL-LIABILITY-AND-EQUITY> 141,652
<SALES> 121,269
<TOTAL-REVENUES> 121,269
<CGS> 113,439
<TOTAL-COSTS> 113,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,219
<INCOME-PRETAX> 162
<INCOME-TAX> 57
<INCOME-CONTINUING> 105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
