<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 JUNE 30, 1996
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)
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<S> <C>
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) (Zip Code)
</TABLE>
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 July 25, 1996 was 8,435,461.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSTEEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 392 $ 263
Accounts receivable, net 35,774 31,516
Inventories 36,336 40,566
Prepaid expenses and other 954 1,509
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Total current assets 73,456 73,854
Property, plant and equipment, net 67,995 65,100
Other assets 5,689 7,181
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Total assets $ 147,140 $ 146,135
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,496 $ 27,471
Accrued expenses 6,756 6,897
Short-term debt - 8,260
Current portion of long-term debt 3,293 5,196
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Total current liabilities 42,545 47,824
Deferred income taxes 5,457 5,010
Long-term debt 27,003 22,089
Stockholders' equity:
Common stock 16,856 16,787
Additional paid-in capital 38,159 38,033
Retained earnings 17,120 16,392
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Total stockholders' equity 72,135 71,212
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Total liabilities and stockholders' equity $ 147,140 $ 146,135
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<PAGE> 3
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -----------------------------
1996 1995 1996 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 72,991 $ 69,360 $ 194,260 $ 193,982
Cost of sales 65,399 62,662 178,838 175,667
------------ ------------ ----------- ------------
Gross profit 7,592 6,698 15,422 18,315
Selling, general and administrative expense 3,782 3,542 10,136 10,276
------------ ------------ ----------- ------------
Operating income 3,810 3,156 5,286 8,039
Interest expense 504 614 1,723 1,718
Equity in loss (income) of affiliate 26 (12) (7) 84
Other expense (income) (29) 37 99 26
------------ ------------ ----------- ------------
Earnings before income taxes 3,309 2,517 3,471 6,211
Provision (benefit) for income taxes 1,171 921 1,228 (95)
------------ ------------ ----------- ------------
Net earnings $ 2,138 $ 1,596 $ 2,243 $ 6,306
============ ============ =========== ============
Weighted average shares outstanding 8,422 8,377 8,410 8,357
============ ============ =========== ============
Net earnings per share $ .25 $ .19 $ .27 $ .75
============ ============ =========== ============
Dividends paid per share $ .06 $ .06 $ .18 $ .18
============ ============ =========== ============
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<PAGE> 4
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
------------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,243 $ 6,306
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 6,208 6,033
Equity in loss (income) of affiliate (7) 84
Accounts receivable, net (3,539) 1,285
Inventories 4,230 (16,239)
Accounts payable and accrued expenses 4,884 2,723
Other changes 1,404 (1,758)
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Total adjustments 13,180 (7,872)
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Net cash provided by (used in) operating activities 15,423 (1,566)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,543) (3,896)
Proceeds from (increase in) notes receivable (184) 193
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Net cash used in investing activities (8,727) (3,703)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt, net (8,260) 7,431
Proceeds from issuance of debt 50,847 1,978
Payments on debt (47,835) (3,411)
Proceeds from employee stock options 195 301
Dividends paid (1,514) (1,505)
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Net cash provided by (used in) financing activities (6,567) 4,794
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Net increase (decrease) in cash 129 (475)
Cash and cash equivalents at beginning of period 263 1,234
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Cash and cash equivalents at end of period $ 392 $ 759
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,208 $ 2,114
Income taxes $ 146 $ 1,552
</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 financial
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
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<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
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<S> <C> <C>
Raw materials $16,835 $24,025
Work in process 1,648 1,372
Finished goods 15,787 13,042
Supplies 2,066 2,127
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Total inventories $36,336 $40,566
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<PAGE> 6
ITEM 2. MANAGAEMENT'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 nine months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1996 1995 1996 1995
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.6% 90.3% 92.1% 90.6%
----- ----- ----- -----
Gross profit 10.4% 9.7% 7.9% 9.4%
Selling, general and administrative expense 5.2% 5.1% 5.2% 5.3%
----- ----- ----- -----
Operating income 5.2% 4.6% 2.7% 4.1%
Interest expense 0.7% 0.9% 0.9% 0.9%
Other expense (income) - 0.1% - -
----- ----- ----- -----
Earnings before income taxes 4.5% 3.6% 1.8% 3.2%
===== ===== ===== =====
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Net sales increased to a record $73.0 million for the third quarter, a
5% increase over a year ago. For the first nine months of fiscal 1996, sales
were flat compared with the same period last year. Total wire products
shipments were up 9% for the quarter and 3% for the nine months relative to the
year-earlier periods. Average selling prices decreased 4% for the quarter and
3% for the nine months compared with the same periods last year. The quarterly
sales increase was primarily attributable to improved market conditions for
most product lines in comparison to the weakening demand that occurred in the
prior year period. Shipments of Insteel 3-D(R) building panel were flat for
the quarter and up 34% for the nine months compared with a year ago.
Gross profit margins for the third quarter increased to 10.4% compared
with 9.7% in the same period last year. Margins were favorably impacted by
higher shipment volumes and wider spreads between raw material costs and
selling values. For the first nine months, margins decreased to 7.9% from 9.4%
a year ago. The decrease in year-to-date margins was due to narrower spreads
during the first six months resulting from the consumption of higher cost
inventories together with lower selling prices.
Selling, general and administrative expense ("SG&A expense") increased
7% for the quarter, rising to 5.2% of sales compared with 5.1% in the
year-earlier period as a result of expenses related to the collated nail and
bead wire expansions. For the first nine months, SG&A expense decreased 1%,
falling to 5.2% of sales compared with 5.3% a year ago. Collated nail and bead
wire start-up costs reduced net earnings by four cents a share in the third
quarter and seven cents a share for the nine months.
Interest expense decreased 18% for the third quarter primarily due to
lower debt levels compared with the year-earlier period. For the first nine
months, interest expense was flat compared with a year ago.
The provision for income taxes for the first nine months of fiscal
1995 reflects a $2.4 million reduction that was recorded in the second quarter
relating to the future utilization of tax benefits arising from the acquisition
of the remaining interest in Insteel Construction Systems. Excluding this
adjustment, the Company's effective income tax rate for the nine months of
fiscal 1996 was 35.4% compared with 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.
<PAGE> 7
FINANCIAL CONDITION
The following table presents selected financial data from the
consolidated financial statements for the nine months ended June 30, 1996 and
1995:
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<CAPTION>
NINE MONTHS ENDED JUNE 30,
---------------------------
1996 CHANGE 1995
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<S> <C> <C>
Net sales $194,260 - $193,982
Accounts receivable, net $ 35,774 12% $ 32,060
Inventories $ 36,336 (19%) $ 44,989
Working capital $ 30,911 9% $ 28,454
Earnings before interest, taxes and depreciation $ 11,402 (18%) $ 13,962
Capital expenditures $ 8,543 119% $ 3,896
Long-term debt $ 27,003 8% $ 24,966
Total debt $ 30,296 (25%) $ 40,142
Stockholders' equity $ 72,135 1% $ 71,562
</TABLE>
Operating activities generated $15.4 million of cash during the first
nine months of fiscal 1996 compared with using $1.6 million in the year-earlier
period. The primary factor driving the year-to-year improvement was the sharp
reduction in inventories during the current fiscal year. Weak market
conditions and depressed shipment levels had resulted in excess inventories
throughout the second half of fiscal 1995. Inventory balances at June 30, 1996
were 10% below September 30, 1995 levels and 19% below a year ago. The
downturn in operating performance earlier in the year resulted in a decrease in
earnings before interest, taxes and depreciation to $11.4 million during the
first mine months of fiscal 1996 compared with $14.0 million in the year-ago
period.
Investing activities consumed $8.7 million during the first nine
months of fiscal 1996 compared to $3.7 million during the year-ago period as a
result of higher capital expenditures primarily related to the collated nail
facility. Total expenditures for the PC strand expansion and bead wire
projects will approximate $3.0 million and $15.0 million, respectively.
Financing activities used $6.6 million during the first nine months of
fiscal 1996 compared with providing $4.8 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 June 30, 1996, approximately $26.2 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 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.
<PAGE> 8
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.
Realized selling values for the Company's products cannot always be adjusted in
the short-term to recover cost increases in steel rod, but generally tend to
reflect changes in these prices over the long-run. Recently announced
expansions 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
Andrew, 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 expansion of the PC strand operation in Gallatin, Tennessee
remains on schedule, with start-up anticipated in August 1996. The Company has
also announced plans to enter the tire reinforcement business, with the
reconfiguration and expansion of its Fredericksburg, Virginia high carbon wire
plant into a state-of-the-art bead wire manufacturing facility. The initial
capacity of the operation will be 40,000 tons, with production scheduled to
commence during the second quarter of fiscal 1997.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27.1 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 30, 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
Dated: July 26, 1996 By /s/ H. O. Woltz, III
-------------------------------------
H.O. Woltz, III
President and Chief Executive Officer
Dated: July 26, 1996 By /s/ Michael C. Gazmarian
-------------------------------------
Michael C. Gazmarian
Chief Financial Officer and Treasurer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INSTEEL INDUSTRIES, INC. FOR THE PERIOD ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 392
<SECURITIES> 0
<RECEIVABLES> 35,774
<ALLOWANCES> 0
<INVENTORY> 36,336
<CURRENT-ASSETS> 73,456
<PP&E> 67,995
<DEPRECIATION> 0
<TOTAL-ASSETS> 147,140
<CURRENT-LIABILITIES> 42,545
<BONDS> 0
0
0
<COMMON> 16,856
<OTHER-SE> 55,279
<TOTAL-LIABILITY-AND-EQUITY> 147,140
<SALES> 194,260
<TOTAL-REVENUES> 194,260
<CGS> 178,838
<TOTAL-COSTS> 178,838
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,723
<INCOME-PRETAX> 3,471
<INCOME-TAX> 1,228
<INCOME-CONTINUING> 2,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,243
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
