<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, 1995
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.
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(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)
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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 February 2, 1996 was 8,406,446.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSTEEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1995 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 435 $ 263
Accounts receivable, net 25,166 31,516
Inventories 35,586 40,566
Prepaid expenses and other 1,035 1,509
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Total current assets 62,222 73,854
Property, plant and equipment, net 65,788 65,100
Other assets 6,950 7,181
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Total assets $ 134,960 $ 146,135
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,550 $ 27,471
Accrued expenses 4,725 6,897
Short-term debt 7,201 8,260
Current portion of long-term debt 5,071 5,196
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Total current liabilities 39,547 47,824
Deferred income taxes 4,852 5,010
Long-term debt 20,404 22,089
Stockholders' equity:
Common stock 16,787 16,787
Additional paid-in capital 38,033 38,033
Retained earnings 15,337 16,392
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Total stockholders' equity 70,157 71,212
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Total liabilities and stockholders' equity $ 134,960 $ 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 DECEMBER 31,
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1995 1994
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<S> <C> <C>
Net sales $ 57,505 $ 58,619
Cost of sales 54,719 53,945
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Gross profit 2,786 4,674
Selling, general and administrative expense 3,039 3,187
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Operating income (loss) (253) 1,487
Interest expense 608 546
Minority interest in loss of subsidiary - (164)
Equity in loss (income) of affiliate (2) 5
Other expense (income) (6) 18
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Earnings (loss) before income taxes (853) 1,082
Provision (benefit) for income taxes (302) 398
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Net earnings (loss) $ (551) $ 684
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Weighted average shares outstanding 8,393 8,333
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Net earnings (loss) per share $ (.07) $ .08
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Dividends paid per share $ .06 $ .06
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<PAGE> 4
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-----------------------------------
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (551) $ 684
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,066 2,035
Minority interest in loss of subsidiary - (164)
Equity in loss (income) of affiliate (2) 5
Accounts receivable, net 6,350 7,692
Inventories 4,981 (9,080)
Accounts payable and accrued expenses (7,092) 3,356
Other changes 339 356
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Total adjustments 6,642 4,200
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Net cash provided by operating activities 6,091 4,884
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,568) (1,053)
Proceeds on notes receivable 21 83
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Net cash used in investing activities (2,547) (970)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term debt (1,059) (3,015)
Proceeds from long-term debt 20 -
Principal payments on long-term debt (1,830) (706)
Dividends paid (503) (500)
Capital contribution to subsidiary by minority interest - 164
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Net cash used in financing activities (3,372) (4,057)
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Net decrease (increase) in cash 172 (143)
Cash and cash equivalents at beginning of period 263 1,234
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Cash and cash equivalents at end of period $ 435 $ 1,091
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the quarter for:
Interest $ 1,026 $ 911
Income taxes $ 88 $ 287
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<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
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<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
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<S> <C> <C>
Raw materials $ 15,661 $ 24,025
Work in process 1,698 1,372
Finished goods 16,193 13,042
Supplies 2,034 2,127
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Total inventories $ 35,586 $ 40,566
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<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
quarters ended December 31, 1995 and 1994:
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<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
--------------------------------
1995 1994
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<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 95.2 92.0
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Gross profit 4.8 8.0
Selling, general and administrative expense 5.2 5.5
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Operating income (loss) (0.4) 2.5
Interest expense 1.1 0.9
Minority interest in loss of subsidiary 0.0 (0.2)
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Earnings (loss) before income taxes (1.5%) 1.8%
===== =====
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Sales for the first quarter of fiscal 1996 were $57.5 million, a
decrease of 2% from the prior year period. The sales decline was primarily
attributable to weak demand for industrial wire products. Sales of concrete
reinforcing products were up as a result of a record sales quarter for PC
strand. Total wire products shipments decreased 2%, while average selling
prices per ton were flat relative to the year-ago period. Sales for Insteel
Construction Systems (ICS), which produces the Insteel 3-D(R) building panel,
increased 32% over the prior year period, but remained substantially below
breakeven levels.
Gross profit as a percentage of sales fell to 4.8% in the first
quarter of fiscal 1996 compared with 8.0% in the prior year period. The erosion
in margins was primarily caused by narrowing spreads between selling prices and
raw material costs. During the second half of fiscal 1995, weak market
conditions and depressed shipment levels resulted in excess wire rod
inventories. As these inventories were sharply reduced during the first quarter
of fiscal 1996, the consumption of higher cost wire rod together with flat
selling prices compressed margins relative to prior year levels. The decrease
in gross profit also reflected the combination of higher manufacturing costs
and lower production levels compared to the year-ago period.
Selling, general and administrative expense (SG & A expense) decreased
5% for the first quarter of fiscal 1996, declining as a percentage of sales to
5.2% compared with 5.5% in the prior year period. The decline in SG & A expense
was primarily due to a reduction in profit-sharing expense caused by weaker
operating performance.
Interest expense increased 11% in the first quarter of fiscal 1996
over the year-ago period as a result of higher average outstanding balances on
the Company's lines of credit.
The statement of earnings for fiscal 1995 reflected the funding of 30%
of ICS' losses by Insteel's former joint venture partner. As a result of the
purchase of the remaining interest in ICS in the second quarter of fiscal 1995,
minority interest was not applicable to fiscal 1996 results.
The Company's effective income tax rate for the first quarter of
fiscal 1996 was 35.4% compared to 36.8% in the prior year period. The decrease
in the fiscal 1995 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 quarters ended December 31, 1995 and
1994:
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<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
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1995 % Change 1994
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<S> <C> <C> <C>
Net sales $ 57,505 (2%) $ 58,619
Accounts receivable, net 25,166 (2) 25,723
Inventories 35,586 (6) 37,830
Working capital 22,675 (11) 25,621
Earnings before interest, taxes and depreciation 1,821 (50) 3,663
Capital expenditures 2,568 244 1,053
Long-term debt 20,404 (22) 26,083
Total debt 32,676 7 30,424
Stockholders' equity 70,157 5 66,645
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Operating activities generated $6.1 million of cash during the first
quarter of fiscal 1996 compared to $4.9 million in the year-earlier period.
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 $1.8 million during the first quarter of fiscal 1996
compared with $3.7 million in the year-ago period.
Investing activities consumed $2.6 million during the first quarter of
fiscal 1996 compared to $1.0 million during the year-ago period as a result of
higher capital expenditures. Total expenditures for the collated nail and PC
strand projects will approximate $9.0 million.
Financing activities used $3.4 million during the first quarter of
fiscal 1996 compared to $4.1 million in the prior year period. Short-term debt
levels remained higher than a year ago as a result of the decline in operating
results.
At December 31, 1995, the Company had lines of credit totalling $20.0
million, of which approximately $12.8 million was available. In January 1996,
these lines of credit were replaced by a $35.0 million unsecured revolving
credit facility that will expire in November 2000. 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.
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.
<PAGE> 8
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 late February 1996, the Company
will enter the collated nail business with the start-up of a new manufacturing
facility in Andrews, South Carolina. The plant will produce 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 June 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27.1 Financial Data Schedule (for SEC purposes only)
b. Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during
the quarter ended December 31, 1995.
<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.
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Registrant
Date: February 8, 1996 By /s/ H. O. Woltz III
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H. O. Woltz III
President and Chief Executive Officer
Date: February 8, 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 THREE MONTH PERIOD
ENDED DECEMBER 31, 1995 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-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 435
<SECURITIES> 0
<RECEIVABLES> 25,166
<ALLOWANCES> 0
<INVENTORY> 35,586
<CURRENT-ASSETS> 62,222
<PP&E> 65,788
<DEPRECIATION> 0
<TOTAL-ASSETS> 134,960
<CURRENT-LIABILITIES> 39,547
<BONDS> 0
0
0
<COMMON> 16,787
<OTHER-SE> 53,370
<TOTAL-LIABILITY-AND-EQUITY> 134,960
<SALES> 57,505
<TOTAL-REVENUES> 57,505
<CGS> 54,719
<TOTAL-COSTS> 54,719
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 608
<INCOME-PRETAX> (853)
<INCOME-TAX> (302)
<INCOME-CONTINUING> (551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (551)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
