<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
COMMON STOCK (NO PAR VALUE) NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates
of the registrant as of December 5, 1997 was $44,519,585.
The number of shares outstanding of the registrant's common stock as of
December 5, 1997 was 8,442,512.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement to be delivered to
shareholders in connection with the 1998 Annual Meeting of Shareholders are
incorporated by reference into Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Insteel Industries, Inc. ("Insteel" or "the Company") is a leading
manufacturer of wire products. The Company's wholly-owned subsidiary, Insteel
Wire Products Company ("IWP"), manufactures and markets concrete reinforcing
products, industrial wire, nails, agricultural products, tire bead wire and
welding wire. Insteel's products are used for construction, industrial, home
furnishings, appliance and agricultural applications.
Insteel's business strategy is to attain leadership positions in the
markets that it serves and continue expanding into higher value products that
offer the potential to generate more attractive returns than the Company's
traditional businesses. Future growth will leverage off of the Company's core
competencies in the manufacture and sales of wire products.
From its founding in 1953 up until its entry into the wire business in
1974, Insteel manufactured concrete building products for the construction
industry. Sales of wire products expanded substantially during 1975-1988, as
the Company attained leadership positions in a number of its product lines and
markets. In 1988, the Company elected to focus its resources on the wire
industry and sold its concrete products division.
INSTEEL WIRE PRODUCTS. During 1992 and 1993, the Company completed a
strategic realignment program which included the redeployment of production
capacity and the consolidation of the management and administrative
responsibilities for its previously stand-alone wire products subsidiaries.
Three manufacturing facilities were closed while three other facilities were
significantly expanded. In 1993, the Company merged its Expo Wire Company,
Rappahannock Wire Company, Forbes Steel & Wire Corporation and Intersteel
Corporation subsidiaries into one wholly-owned subsidiary, IWP. Also during
1993, the scrap brokerage business that bought and sold steel scrap on a
commissioned basis was terminated.
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 prestressed concrete strand ("PC
strand"), collated fasteners, tire bead wire and welding wire. The PC strand
facility began production in 1994, followed by collated fasteners in 1996, and
tire bead wire and welding wire in 1997.
IWP is organized into three business units: (1) wire products
consisting of industrial wire, bulk nails, agricultural products and collated
fasteners, (2) concrete reinforcing products which includes welded wire fabric
and PC strand, and (3) tire bead wire and welding wire. Each business unit has
complete responsibility for the manufacturing, sales and marketing activities
relating to its products and markets.
INSTEEL CONSTRUCTION SYSTEMS. Due to the ongoing losses that had been
incurred, in 1997, the Company sold its Insteel Construction Systems division
and exited the building panel business.
PRODUCTS
CONCRETE REINFORCING PRODUCTS include welded wire fabric and PC strand.
Welded wire fabric is produced as both a commodity and specially engineered
reinforcing product for concrete pipe, commercial construction and
infrastructure construction. The product is manufactured in both rolls and mats
in widths of up to 13.5 feet. PC strand is a sophisticated concrete reinforcing
product used in both pretensioned and posttensioned prestressed concrete
construction for structural members, bridges, buildings, parking decks, pilings,
railroad ties and utility poles.
INDUSTRIAL WIRE PRODUCTS are primarily sold to manufacturers of bedding
and furniture springs, appliances, strapping ties, display racks, grocery carts
and chain link fences. Product attributes vary with the end use and can include
galvanizing for corrosion resistance and intermediate heat-treating, in addition
to stringent tolerance requirements and mechanical properties.
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BULK NAILS consist of a wide variety of products such as common nails,
finishing nails, box nails, sinkers, duplex nails and galvanized nails where
corrosion resistance is required.
COLLATED FASTENERS are comprised of a broad range of collated nails
that are used by most of the pneumatic automatic power tools currently
manufactured. The Company anticipates future expansion into other collated
fastener products.
AGRICULTURAL PRODUCTS are primarily galvanized wire that is woven,
welded or formed into fencing or barbed wire used on farms as well as in
commercial and residential applications.
TIRE BEAD WIRE is a bronze-plated steel wire that is used to reinforce
the inside diameter of a tire.
WELDING WIRE is a copper-plated steel wire that is used as a filler
metal material in MIG welding applications.
MARKETING AND DISTRIBUTION
Insteel markets its products through sales representatives who are
employees of the Company. The Company's sales organization resides in the three
business units assigned to the specific markets served. The Company's products
are sold directly to users and through numerous wholesalers, distributors and
retailers located primarily in the eastern part of the U.S. as well as portions
of the Southwest and West Coast.
Insteel delivers its products using either its own trucking fleet, or
via common or contract carriers, depending upon comparative costs and scheduling
requirements. In order to minimize freight costs, the Company backhauls raw
materials on its fleet whenever customer locations are in close proximity to its
suppliers.
CUSTOMERS
The Company sells its products to a broad range of customers including
original equipment manufacturers, distributors, wholesalers and retailers. In
1997, Sealy Corporation accounted for approximately 10% of the Company's
consolidated sales and the ten largest customers represented approximately 36%
of the Company's consolidated sales. There were no customers that accounted for
10% or more of the Company's consolidated sales in 1996 or 1995.
RAW MATERIALS
The primary raw material required in the production of Insteel's wire
products is hot rolled carbon steel wire rod. The Company purchases wire rod
from both domestic and foreign suppliers.
During 1997, anti-dumping charges were filed by domestic wire rod
producers against certain offshore manufacturers exporting into the U.S. These
filings had the impact of tightening market conditions and rod availability,
particularly in the second half of the year, leading to higher price levels. In
the short term, the wire rod market continues to be tight as two suppliers have
entered into labor contract negotiations which could potentially result in
supply disruptions. The Company believes that it has built sufficient
inventories and has alternative sources of supply available to ensure its
ability to service its customers should rod production be interrupted.
Recent increases in domestic wire rod capacity together with announced
expansions scheduled over the next few years should have a favorable impact on
the quality and availability of raw material for Insteel. The Company believes
that raw materials and supplies are available in quantities adequate to meet its
current and future needs.
COMPETITION
The markets in which the Company's business is conducted are highly
competitive. Insteel faces formidable competition in most of its market
segments, including competition from companies whose revenues and financial
resources are much larger than the Company's. Some of its competitors are
integrated steelmakers that produce both wire rod and wire products and offer
multiple product lines over broad geographical areas. Other competitors are
smaller independent wire mills that offer limited competition in certain
markets. Market participants compete on the basis of price, quality and service.
Selling
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prices tend to ultimately move with changes in raw material costs,
although spreads can widen or narrow depending upon market conditions.
Technology has become a critical factor in maintaining competitive levels of
conversion costs and quality. The Company believes that it is one of the leading
low cost producers of wire products based upon its technologically-advanced
manufacturing facilities and production capabilities. In addition, the Company
offers a broader range of products through more diverse distribution channels
than any of its competitors. The Company believes that it is well-positioned to
compete favorably on the industry's critical success factors.
EMPLOYEES
As of September 30, 1997, the Company employed 1,137 people. The
Company has a collective bargaining agreement with a labor union at its Delaware
plant covering its hourly employees. The Company believes that relations with
the labor union and employees are satisfactory.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance in all material respects
with applicable environmental laws and regulations. The Company has experienced
no material difficulties in complying with legislative or regulatory standards
and believes that these standards have not materially impacted Insteel's
financial position or results of operations. Compliance with future additional
environmental requirements could necessitate capital outlays. However, the
Company does not believe that these expenditures should ultimately result in a
material adverse effect on Insteel's financial position or results of
operations.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ------------------------ --- --------------------------------------------------
<S> <C> <C>
Howard O. Woltz, Jr. 72 Chairman of the Board and a Director
H.O. Woltz III 41 President, Chief Executive Officer and a Director
Gary D. Kniskern 52 Vice President - Administration and Secretary
Michael C. Gazmarian 38 Chief Financial Officer and Treasurer
</TABLE>
Howard O. Woltz, Jr., has been Chairman of the Board since 1958 and has
served in various capacities for more than 40 years. He had been President of
the Company from 1958 to 1968 and from 1974 to 1989. He previously served as
Vice President, General Counsel and a director of Quality Mills, Inc., a
publicly-held manufacturer of knit apparel and fabrics, for more than 35 years
prior to its acquisition in 1988 by Russell Corporation.
H. O. Woltz III, a son of Howard O. Woltz, Jr., was elected Chief
Executive Officer in 1991 and has served in various capacities for more than 19
years. He was named President and Chief Operating Officer in 1989. He had been
Vice President of the Company since 1988 and, previously, President of
Rappahannock Wire Company, a subsidiary of the Company, since 1981. Mr. Woltz
has been a director of the Company since 1986 and also serves as President of
Insteel Wire Products Company.
Gary D. Kniskern was elected Vice President - Administration in 1994
and has served in various capacities for more than 18 years. He had been
Secretary and Treasurer since 1984 and, previously, internal auditor since 1979.
Michael C. Gazmarian joined Insteel as Chief Financial Officer and was
elected Treasurer in 1994. He had been with Guardian Industries Corp., a
privately-held glass manufacturer, since 1986, serving in various financial
capacities. Most recently, he was Vice President - Finance and Administration
for Consolidated Glass & Mirror Corp., a Guardian subsidiary.
The executive officers listed above were elected by the Board of
Directors at its annual meeting held February 4, 1997. All officers serve until
the next annual meeting of the Board of Directors or until their successors are
elected and qualify. The next meeting at which officers will be elected is
scheduled for February 3, 1998.
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ITEM 2. PROPERTIES.
Insteel's corporate headquarters and IWP's divisional office are
located in Mount Airy, North Carolina. IWP has eight manufacturing facilities
located in Andrews, South Carolina (2 plants); Gallatin, Tennessee (2 plants);
Dayton, Texas; Fredericksburg, Virginia; Mount Airy, North Carolina; and
Wilmington, Delaware.
The Company owns all of its properties with the exception of the land
at its Wilmington facility, which is leased. The Dayton, Fredericksburg, and
Gallatin plants are all pledged as security under long-term financing
agreements. The Company owns and leases a fleet of trucks and trailers for the
delivery of its products.
The Company considers that its properties are in good operating
condition and that its machinery and equipment have been well-maintained. The
Company's manufacturing facilities are suitable for their intended purposes and
have capacities adequate for current and projected needs for existing products.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or which any of their property is a subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The Company's common stock is listed on the New York Stock Exchange
under the symbol III. At December 1, 1997, there were 726 shareholders of
record.
FINANCIAL DATA BY QUARTER (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
DEC 31 MAR 31 JUN 30 SEP 30
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997
OPERATING RESULTS
Net sales $ 58,426 $ 65,250 $ 68,127 $ 70,522
Gross profit 3,410 4,643 5,862 4,937
Earnings from continuing operations 34 658 1,176 668
Loss from discontinued operations (292) (2,585) - -
Net earnings (loss) (258 (1,927) 1,176 668
PER SHARE DATA
Earnings from continuing operations - .08 .14 .08
Loss from discontinued operations (.03) (.31) - -
Net earnings (loss) (.03) (.23) .14 .08
Dividends declared .06 .06 .06 .06
Stock prices
High 9.25 9.63 9.13 8.25
Low 6.63 8.00 7.50 7.19
1996
OPERATING RESULTS
Net sales $ 57,006 $ 63,040 $ 72,619 $ 71,717
Gross profit 2,746 4,974 7,642 6,862
Earnings (loss) from continuing
operations (329) 832 2,447 2,287
Loss from discontinued operations (222) (176) (309) (287)
Net earnings (loss) (551) 656 2,138 2,000
PER SHARE DATA
Earnings (loss) from continuing
operations (.04) .10 .29 .27
Loss from discontinued operations (.03) (.02) (.04) (.03)
Net earnings (loss) (.07) .08 .25 .24
Dividends declared .06 .06 .06 .06
Stock prices
High 7.38 7.50 7.38 7.25
Low 6.38 6.50 6.63 6.63
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 262,325 $ 264,382 $ 258,582 $ 245,621 $ 243,428
Earnings from continuing operations
before cumulative effect of
change in accounting principle 2,536 5,237 5,344 5,230 7,572
Net earnings (loss ) (341) 4,243 6,336 5,097 6,292
Earnings per share from continuing
operations before cumulative
effect of change in accounting
principle (primary) .30 .62 .64 .63 .96
Net earnings (loss) per share
(primary) (.04) .50 .76 .61 .80
Cash dividends per share .24 .24 .24 .24 .23
Total assets 171,476 146,122 148,920 138,548 132,663
Long-term debt 49,673 29,655 21,451 26,215 28,637
Shareholders' equity 71,322 73,677 71,212 66,461 62,930
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
STATEMENTS OF EARNINGS-SELECTED DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1997 CHANGE 1996 CHANGE 1995
------------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 262,325 (1%) $ 264,382 2% $ 258,582
Gross profit 18,852 (15%) 22,224 1% 22,102
Percentage of net sales 7.2% 8.4% 8.5%
Selling, general and administrative $ 12,395 4% $ 11,973 1% $ 11,824
expense 4.7% 4.5% 4.6%
Percentage of net sales
Operating income $ 6,457 (37%) $ 10,251 - $ 10,278
Percentage of net sales 2.5% 3.9% 4.0%
Interest expense $ 2,276 18% $ 1,923 (6%) $ 2,041
Percentage of net sales 0.9% 0.7% 0.8%
Effective income tax rate 36.4% 35.4% 36.6%
Earnings from continuing operations $ 2,536 (52%) $ 5,237 (2%) $ 5,344
Percentage of net sales 1.0% 2.0% 2.1%
</TABLE>
1997 COMPARED WITH 1996
Net sales declined slightly to $262.3 million in 1997 from $264.4
million in 1996. Total wire product shipments decreased 2% from 1996 as a result
of soft market demand in the wire products business unit. Average selling prices
per ton increased 2% from 1996. Sales of bulk nails and agricultural products
fell by 12% and 10%, respectively, from 1996 due to weak market conditions and
unusually low order levels during the second half of 1997. Sales of concrete
reinforcing products increased significantly in 1997 driven by the ramp-up of PC
strand operating volume following the completion of the expansion to the
facility in October 1996.
Gross margins fell to 7.2% of sales in 1997 from 8.4% in 1996. Gross
margins were negatively impacted by pre-operating costs related to the tire bead
wire and welding wire expansion together with start-up inefficiencies associated
with the transfer of industrial wire capacity from the Virginia plant to other
manufacturing facilities within the Company. The combined impact of these
start-up expenses reduced 1997 net earnings by 20 cents per share. Additionally,
the decline in sales
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of the wire products business unit had a unfavorable effect on margins. Spreads
between selling values and raw material costs widened in 1997 compared with
1996, but declined in the second half of the year relative to the first half.
Selling, general and administrative expense ("SG&A expense") increased
4% in 1997 from 1996 rising to 4.7% of sales from 4.5%. The Company is
undertaking a major upgrade of its management information systems that will
enhance its manufacturing, customer service and administrative processes. The
increase in SG&A expense was primarily driven by expenditures related to this
project.
Interest expense rose 18% in 1997 from 1996. Borrowings on the
Company's revolving credit facility increased primarily due to capital
expenditures related to the tire bead wire and welding wire expansion together
with the rise in inventories. The higher debt levels were partially offset by a
decrease in the Company's average borrowing rates.
The Company's financial statements reflect the disposal of its 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. The Company recorded a provision of $2.2 million for the
estimated loss on disposal of ICS (net of a $1.2 million tax benefit) which
included a $400,000 provision for anticipated operating losses prior to
disposal.
1996 COMPARED WITH 1995
Net sales reached a record high in 1996, rising 2% to $264.4 million
from $258.6 million in 1995. Total wire product shipments increased 5% from 1995
as a result of favorable market conditions during the second half of 1996.
Average selling prices per ton decreased 3% from 1995. Sales of PC strand
continued to increase, rising 17% from 1995. The new collated fastener facility,
which started production in March 1996, also contributed to the sales increase
together with higher shipments of bulk nail products. Agricultural products
experienced weak demand as a result of the deferral of fencing projects caused
by high grain costs and low cattle prices, together with a surge in imports from
Mexican competitors.
Gross margins decreased slightly to 8.4% of sales in 1996 from 8.5% in
1995. The softening in demand that compressed gross margins during the second
half of 1995 carried over into the first half of 1996. Gross margins continued
to be reduced by the consumption of higher cost inventories together with lower
selling values. During the second half of 1996, margins improved due to higher
shipment volumes and wider spreads between raw material costs and selling
values. The PC strand operation contributed significantly higher gross profit in
1996 driven by increased sales volumes and lower conversion costs resulting from
improved production efficiencies.
SG&A expense increased 1% in 1996 from 1995, declining to 4.5% of sales
from 4.6%. Start-up expenses that were reflected in SG&A expense together with
operating losses related to the collated fastener, tire bead wire and welding
wire expansions reduced 1996 net earnings by 10 cents per share.
Interest expense decreased 6% in 1996 compared with 1995 as a result of
a reduction in the Company's average borrowing rates.
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LIQUIDITY AND CAPITAL RESOURCES
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
--------- ------------ -----------
<S> <C> <C> <C>
Net cash provided by operating activities $ 7,277 $ 15,729 $ 5,961
Net cash used for investing activities (26,438) (12,804) (5,313)
Net cash provided by (used for) financing activities 17,717 (3,744) (186)
Working capital 36,687 37,489 32,494
Turnover ratios: 1
Working capital 2 8.2 9.9 11.3
Receivables 8.2 8.4 8.3
Inventories 6.4 6.7 6.8
Total debt $ 52,293 $ 32,843 $ 34,907
Percentage of total capitalization 42% 31% 33%
Shareholders' equity $ 71,322 $ 73,677 $ 71,212
Percentage of total capitalization 58% 69% 67%
Total capital $ 123,615 $ 106,520 $ 106,119
</TABLE>
1 Based upon average year-end balances
2 Excluding cash and cash equivalents and net assets of discontinued operations
Operating activities generated $7.3 million of cash in 1997 compared
with $15.7 million and $6.0 million in 1996 and 1995, respectively. The
fluctuations in cash generated from operations during the last three years were
largely due to changes in inventory levels. The primary factor driving the
inventory build-up during 1997 was a planned increase in raw material
inventories in anticipation of further price escalation and supply disruptions
that could result from labor contract negotiations at two of the major wire rod
producers. Inventories were reduced substantially during 1996, returning to
normal levels. In 1995, weak market conditions and depressed shipment volumes
during the second half of the year had resulted in a sharp increase in
inventories.
Investing activities consumed $26.4 million of cash in 1997 compared
with $12.8 million and $5.3 million in 1996 and 1995, respectively. The 1997
increase in capital expenditures was principally related to the reconfiguration
and expansion of the Virginia facility into a state-of-the-art tire bead wire
and welding wire manufacturing facility. Over the last three years, capital
expenditures amounted to $45.8 million primarily to support the Company's
expansion into the markets for collated fasteners, tire bead wire and welding
wire. In addition, the Company expanded the capacity of its PC strand operation
and upgraded its existing manufacturing facilities.
Financing activities provided $17.7 million in 1997 while using $3.7
million and $186,000 in 1996 and 1995, respectively. The increase in debt during
1997 was primarily related to capital expenditures for the tire bead wire and
welding wire expansion together with higher inventory levels.
The financial position of the Company remains strong. The Company's
long-term debt to capital ratio increased to 42% at September 30, 1997 compared
with 31% and 33% at September 30, 1996 and 1995, respectively. The increase in
the debt level was primarily due to capital expenditures related to the tire
bead wire and welding wire expansion together with higher inventories. In
January 1996, the Company entered into a $35.0 million unsecured revolving
credit facility that expires in November 2000, replacing the annual lines of
credit that had provided total availability of $20.0 million. In April 1997, the
revolving credit facility was amended, increasing the Company's availability
from $35.0 million to $50.0 million. At September 30, 1997, approximately $13.9
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.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a
number of risks and uncertainties, some of which are beyond its 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.
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.
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. The PC strand facility began production in
1994, followed by collated fasteners in 1996, and tire bead wire and welding
wire in 1997. Although the start-up costs related to these expansions have
initially had a negative impact on earnings, the Company expects that its
financial performance will improve as the operating levels of the new businesses
continue to increase.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(A) FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets as of September 30, 1997 and 1996 11
Consolidated Statements of Earnings for the three years ended September 30, 1997 12
Consolidated Statements of Shareholders' Equity for the three years ended September 30, 1997 13
Consolidated Statements of Cash Flows for the three years ended September 30, 1997 14
Notes to Consolidated Financial Statements 15
Report of Independent Accountants on Schedule 24
Schedule II - Valuation and Qualifying Accounts for the three years ended September 30, 1997 25
Report of Independent Accountants 26
</TABLE>
(B) SUPPLEMENTARY DATA
Selected quarterly financial data appears under the caption "Financial
Information by Quarter (Unaudited)" in Item 5 of this report.
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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,079 $ 1,423
Accounts receivable, net 31,049 32,981
Inventories 44,463 31,705
Prepaid expenses and other 1,702 1,653
Net assets of discontinued operations 1,869 5,846
----------- -----------
Total current assets 80,162 73,608
Property, plant and equipment, net 86,401 67,558
Other assets 4,913 4,956
----------- -----------
Total assets $ 171,476 $ 146,122
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 31,639 $ 23,770
Accrued expenses 9,216 9,161
Current portion of long-term debt 2,620 3,188
----------- -----------
Total current liabilities 43,475 36,119
Long-term debt 49,673 29,655
Deferred income taxes 5,989 5,935
Other liabilities 1,017 736
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value
Authorized shares: 1,000
None issued - -
Common stock, $2 stated value
Authorized shares: 20,000
Issued and outstanding shares: 1997 8,437; 1996 8,435 16,873 16,871
Additional paid-in capital 38,200 38,192
Retained earnings 16,249 18,614
----------- -----------
Total shareholders' equity 71,322 73,677
----------- -----------
Total liabilities and shareholders' equity $ 171,476 $ 146,122
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 12
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 262,325 $ 264,382 $ 258,582
Cost of sales 243,473 242,158 236,480
---------- ---------- ----------
Gross profit 18,852 22,224 22,102
Selling, general and administrative expense 12,395 11,973 11,824
---------- ---------- ----------
Operating income 6,457 10,251 10,278
Interest expense 2,276 1,923 2,041
Other expense (income) 193 221 (191)
---------- ---------- ----------
Earnings from continuing operations before
income taxes 3,988 8,107 8,428
Provision for income taxes 1,452 2,870 3,084
---------- ---------- ----------
Earnings from continuing operations 2,536 5,237 5,344
Discontinued operations:
Earnings (loss) from operations of Insteel
Construction Systems net of income tax
benefits of $395, $544 and $3,161 (693) (994) 992
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) - -
---------- ---------- ----------
Earnings (loss) from discontinued operations (2,877) (994) 992
---------- ---------- ----------
Net earnings (loss) $ (341) $ 4,243 $ 6,336
========== ========== ==========
Per share:
Earnings from continuing operations $ 0.30 $ 0.62 $ 0.64
Earnings (loss) from discontinued operations (0.34) (0.12) 0.12
---------- ---------- ----------
Net earnings (loss) $ (0.04) $ 0.50 $ 0.76
========== ========== ==========
Cash dividends per share $ 0.24 $ 0.24 $ 0.24
========== ========== ==========
Weighted average shares outstanding 8,436 8,416 8,363
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 13
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year $ 16,871 $ 16,787 $ 16,667
Stock options exercised 2 84 120
--------- --------- ---------
Balance, end of year $ 16,873 $ 16,871 $ 16,787
========= ========= =========
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year $ 38,192 $ 38,033 $ 37,730
Stock options exercised 8 159 303
--------- --------- ---------
Balance, end of year $ 38,200 $ 38,192 $ 38,033
========= ========= =========
RETAINED EARNINGS:
Balance, beginning of year $ 18,614 $ 16,392 $ 12,064
Cash dividends declared (2,024) (2,021) (2,008)
Net earnings (loss) (341) 4,243 6,336
--------- --------- ---------
Balance, end of year $ 16,249 $ 18,614 $ 16,392
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 14
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings from continuing operations $ 2,536 $ 5,237 $ 5,344
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 8,224 7,688 7,396
Accounts receivable, net 1,347 (2,476) 1,297
Inventories (12,758) 8,760 (11,821)
Accounts payable and accrued expenses 7,924 (2,451) 3,741
Other changes 4 (1,029) 4
------------ ------------ ------------
Total adjustments 4,741 10,492 617
------------ ------------ ------------
Net cash provided by operating activities 7,277 15,729 5,961
------------ ------------ ------------
CASH FLOWS FROM DISCONTINUED OPERATING ACTIVITIES:
Net cash provided by (used for) discontinued
operating activities 1,100 1,979 (1,433)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (27,076) (13,193) (5,550)
Proceeds from notes receivable 638 389 237
------------ ------------ ------------
Net cash used for investing activities (26,438) (12,804) (5,313)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term debt - (8,260) 3,320
Proceeds from long-term debt 115,256 80,424 1,986
Principal payments on long-term debt (95,525) (74,130) (3,907)
Proceeds from stock options 10 243 423
Dividends paid (2,024) (2,021) (2,008)
------------ ------------ ------------
Net cash provided by (used for) financing 17,717 (3,744) (186)
activities ------------ ------------ ------------
Net increase (decrease) in cash (344) 1,160 (971)
Cash and cash equivalents at beginning of year 1,423 263 1,234
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,079 $ 1,423 $ 263
============ ============ =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,023 $ 2,257 $ 2,176
Income taxes 896 926 1,569
Non-cash activities:
Purchase of minority interest through issuance of notes - - 832
payable
Conversion of accounts receivable to investment in - - 300
affiliate
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 15
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(Amounts in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS. The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
REVENUE RECOGNITION. Revenue is recognized when the related products
are shipped.
INVENTORIES. Inventories are valued at the lower of average cost (which
approximates computation on a first-in, first-out basis) or market (net
realizable value or replacement cost).
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated
at cost. Depreciation is computed for financial reporting purposes principally
by use of the straight-line method over the following estimated useful lives:
machinery and equipment, 3-15 years; buildings 10-30 years; land improvements,
5-15 years. Capitalized software is amortized over the shorter of the estimated
useful life or 5 years. Capitalized interest costs were $492 in 1997. No
interest costs were capitalized in 1996 or 1995.
OTHER ASSETS. Other assets consist principally of various intangible
assets, long-term notes receivable and the cash surrender value of life
insurance policies. Intangible assets are amortized on a straight-line basis
over the expected periods to be benefited.
IMPAIRMENT OF LONG-LIVED ASSETS. In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that
long-lived assets be reviewed for impairment and written down to fair value
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. The Company adopted this statement during 1997 and has
determined that no impairment loss need be recognized for the applicable assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts for certain
of the Company's financial instruments, including cash and cash equivalents,
accounts and notes receivable, accounts payable and other accrued liabilities
approximate fair value because of their short maturities. The estimated fair
value of long-term debt is primarily based upon quoted market prices as well as
borrowing rates currently available to the Company for bank loans with similar
terms and maturities. This fair value approximates the carrying amount of
long-term debt.
INCOME TAXES. Income tax expense is based on pretax financial
accounting income. Deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between the tax bases of
assets and liabilities and their reported amounts.
EARNINGS PER SHARE. Earnings per share are based on the weighted
average number of shares outstanding. Common equivalent shares did not have a
dilutive effect in 1997, 1996 or 1995.
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
("EPS"), which simplifies existing computational guidelines, revises disclosure
requirements and increases the comparability of EPS on an international basis.
SFAS No. 128 is effective for periods ending after December 15, 1997, and
requires restatement of all prior period EPS data presented. The Company will
adopt SFAS No. 128 in the first quarter of 1998. Management believes that the
adoption of SFAS No. 128 will not have a material impact on the Company's
consolidated financial position or results of operations.
RECLASSIFICATIONS. Certain reclassifications have been made in prior
years' financial statements for consistent presentation.
(2) DISCONTINUED OPERATIONS
In May 1997, the Company sold the assets of its Insteel Construction
Systems division ("ICS"), which manufactured and marketed the Insteel 3-D(R)
building panel, under a plan of disposition established in March 1997. ICS has
been classified as a discontinued operation in the accompanying financial
statements in accordance with Accounting Principles Board ("APB") Opinion No.
30. The Company recorded a provision of $2,184 for the estimated loss on
disposal of ICS (net of a $1,245 tax benefit) which included a $400 provision
for anticipated operating losses prior to disposal.
The operating results of the discontinued ICS division are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Net sales $ 580 $ 2,388 $ 1,762
Cost of sales 743 2,247 1,957
------------- ------------- --------------
Gross profit (loss) (163) 141 (195)
Selling, general and administrative expense 720 1,465 1,340
------------- ------------- --------------
Operating loss (883) (1,324) (1,535)
Interest expense 82 350 303
Other expense (income) 123 (136) 331
------------- ------------- --------------
Loss from operations of Insteel Construction Systems
before income taxes (1,088) (1,538) (2,169)
Benefit for income taxes (395) (544) (3,161)
------------- ------------- --------------
Earnings (loss) from operations of Insteel
Construction Systems $ (693) $ (994) $ 992
============= ============ ==============
</TABLE>
The benefit for income taxes in 1995 reflects a $2,368 reduction in the
deferred tax provision arising from the expected utilization of net operating
loss carryforwards generated by ICS prior to its merger into the Company's
wholly-owned subsidiary, Insteel Wire Products Company.
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accounts receivable, net $ - $ 891
Inventories - 140
Prepaid expenses and other 323 1,140
Property, plant and equipment, net 1,418 3,513
Other assets 803 803
------------- -------------
Total assets 2,544 6,487
Accounts payable - 71
Accrued expenses 675 95
Deferred income taxes - 475
Total liabilities 675 641
------------- -------------
Net assets of discontinued operations $ 1,869 $ 5,846
============= =============
</TABLE>
(3) DEBT AND CREDIT FACILITIES
Long-term debt, due dates and interest rates are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revolving credit agreement; expires November 2000 at variable
Interest rate (6.25% at September 30, 1997) $ 36,133 $ 12,412
Senior secured notes; due dates through 2002 at 8.25% 11,000 13,000
Industrial revenue refunding bonds; due dates through 2005 at
6.50%-7.75% 2,520 2,800
Industrial development revenue refunding bonds; due dates through
1999 at variable interest rate (4.20% and 3.95% at September 30,
1997 and 1996) 2,040 2,380
Mortgage note 600 600
Industrial revenue bonds; due dates through 2000 at variable interest
rate (4.05% at September 30, 1996) - 1,543
Unsecured note payable; due dates through 1996 at 6.50% - 108
------------- -------------
Total long-term debt 52,293 32,843
Less current maturities 2,620 3,188
------------- -------------
Long-term debt, excluding current maturities $ 49,673 $ 29,655
============= =============
</TABLE>
In January 1996, the Company entered into a $35.0 million unsecured
revolving credit facility with a commercial bank. The Company refinanced its
annual lines of credit that had been classified as short-term debt under the
facility in addition to a portion of its long-term debt. In April 1997, the
revolving credit facility was amended, increasing the Company's availability
from $35.0 million to $50.0 million. Under the revolving credit agreement,
interest is payable at a variable rate based on LIBOR and the Company pays a
commitment fee based on the unused portion of the facility. The interest spread
over LIBOR and unused commitment fee are adjusted quarterly based on the
Company's ratio of debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA"). At September 30, 1997, approximately $13.9 million was
available under the facility.
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
The revolving credit facility and certain other debt agreements contain
restrictive covenants which, among other restrictions, limit the amount of
additional debt relative to total capitalization and EBITDA, require tangible
net worth to be maintained at specified amounts and restrict the payment of
dividends. At September 30, 1997, the Company was in compliance with all of the
restrictive covenants. Property, plant and equipment with an aggregate carrying
value of $51,506 is pledged as collateral under the Company's debt agreements.
Aggregate maturities of long-term debt for the next five years are as
follows: 1998, $2,620; 1999, $2,620; 2000, $3,640; 2001, $38,133; 2002, $2,000;
beyond, $3,280.
(4) SHAREHOLDERS' EQUITY
Shares of common stock outstanding are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of year 8,435 8,393 8,333
Stock options exercised 2 42 60
-------------- ------------- --------------
Balance, end of year 8,437 8,435 8,393
============== ============= ==============
</TABLE>
In August 1995, the Board of Directors authorized the repurchase of up
to one million shares of the Company's common stock. The Board action did not
specify either a time period or the price at which shares may be repurchased. As
of September 30, 1997, no shares had been repurchased by the Company.
(5) STOCK OPTION PLANS
The Company has stock option plans under which employees and directors
may be granted options to purchase shares of common stock at the fair market
value on the date of the grant. Options granted under the 1985 employee and 1990
director stock option plans vest over five years and expire five years from the
date of the grant. By action of the Board of Directors in September 1994, no
further options may be granted under these plans. Options granted under the 1994
employee and director stock option plans vest over five years and expire ten
years from the date of the grant. At September 30, 1997, 664 shares were
available for future grants under the plans. Options exercisable were 343 at
September 30, 1997 and 250 at September 30, 1996. The weighted average exercise
price for these shares was $8.99 for 1997 and $9.18 for 1996.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
PRICE PER SHARE
----------------------------------------------
WEIGHTED
SHARES RANGE AVERAGE
---------- -------------------------- -----------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 464 $ 5.21 - $ 12.25 $ 8.73
Granted 95 7.50 - 7.88 7.75
Exercised (100) 5.78 - 6.96 6.41
Cancelled (50) 6.01 - 10.44 8.91
----------
Balance, September 30, 1995 409 5.21 - 12.25 9.05
Granted 94 6.88 - 7.13 7.03
Exercised (42) 5.21 - 6.20 5.75
Cancelled (15) 5.21 - 12.25 10.49
----------
Balance, September 30, 1996 446 6.88 - 10.68 8.88
Granted 106 7.56 - 9.13 8.14
Exercised (13) 8.57 - 8.57 8.57
Cancelled (35) 7.00 - 10.44 9.31
==========
Balance, September 30, 1997 504 6.88 - 10.68 8.71
==========
</TABLE>
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
The weighted average characteristics of outstanding stock options at
September 30, 1997 for various price ranges are as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------------------------ -----------------------------
WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE PRICES SHARES LIFE(Years) PRICE SHARES PRICE
- ---------------------------- ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
$ 6.88 - $ 7.50 122 7.9 $ 7.15 76 $ 7.17
7.56 - 7.88 126 8.5 7.71 59 7.80
8.50 - 9.63 103 5.0 9.15 80 9.20
10.44 - 10.68 153 1.0 10.47 128 10.48
</TABLE>
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," issued in October 1995. In accordance with SFAS No. 123, the
Company applies APB Opinion No. 25 and related interpretations in accounting for
its stock option plans, and accordingly does not record compensation costs. If
the Company had elected, beginning in 1996, to recognize compensation cost based
on the fair value of the options granted at grant date as prescribed by SFAS No.
123, net earnings and earnings per share would not be significantly reduced.
The weighted average estimated fair values of options granted during
fiscal 1997 and 1996 were $2.48 and $2.07 per share, respectively. The fair
value of the options at the date of grant were estimated using the Black-Scholes
option-pricing model based on the following weighted average assumptions:
expected life of 5 years, expected dividend yield of 3.0%, expected volatility
of .30, and risk-free interest rates of 6.3% in 1997 and 5.8% in 1996.
(6) INCOME TAXES
The provision for income taxes for continuing operations consists of:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT:
Federal $ 1,673 $ 3,574 $ 2,935
State 112 268 138
-------- -------- ---------
1,785 3,842 3,073
DEFERRED:
Federal (522) (683) 48
State 189 (289) (37)
-------- -------- ---------
(333) (972) 11
-------- -------- ---------
Provision for income taxes $ 1,452 $ 2,870 $ 3,084
========= ======== =========
</TABLE>
The provision for income taxes for continuing operations differs from
the amount computed by applying the federal statutory rate to the Company's
earnings from continuing operations before taxes as a result of the following
differences:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Provision for income taxes at statutory rate $ 1,356 $ 2,756 $ 2,865
State income taxes, net of federal income tax
benefit 74 177 91
Other, net 22 (63) 128
-------- -------- --------
Provision for income taxes $ 1,452 $ 2,870 $ 3,084
======== ======== ========
</TABLE>
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
Deferred tax assets and liabilities are recognized for the differences
between the tax basis of assets and liabilities and their reported financial
statement amounts. Significant components of deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Accrued expenses or asset reserves for financial statements not
yet deductible for tax purposes $ 2,474 $ 1,912
Alternative minimum tax credit carryforwards 1,712 1,424
---------- -------------
Gross deferred tax assets 4,186 3,336
DEFERRED TAX LIABILITIES:
Plant and equipment principally due to differences in
depreciation and capitalized interest (8,542) (7,551)
Other reserves (525) (873)
Prepaid expenses for financial statements that were deducted for
tax purposes (127) (253)
---------- -------------
Gross deferred tax liabilities (9,194) (8,677)
---------- -------------
Net deferred tax liability $ (5,008) $ (5,341)
========== =============
</TABLE>
(7) EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS. Insteel has various defined benefit pension plans for
eligible employees that provide benefits based primarily upon years of service
and compensation levels. The Company's funding policy is to contribute amounts
at least equal to those required by law. The funded status of these plans and
amounts recognized in the Company's consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 9,869 $ 8,949
Nonvested benefit obligation 703 676
------------- -------------
Accumulated benefit obligation 10,572 9,625
Projected benefit obligation 13,223 11,604
Plan assets at fair market value 13,108 10,789
------------- -------------
Projected benefit obligation in excess of plan assets (115) (815)
Unrecognized net asset (197) (265)
Unrecognized prior service benefit (cost) 392 (458)
Unrecognized net loss (2,368) (361)
------------- -------------
Accrued pension liability included in accrued expenses $ (2,288) $ (1,899)
============= =============
</TABLE>
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
The weighted average discount rates and long-term rates for
compensation increases used for estimating the benefit obligations and the
expected return on plan assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Assumptions at year-end:
Discount rate 7.5% 7.5% 7.5%
Rate of increase in compensation levels 5.0% 5.0% 6.0%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
</TABLE>
Pension expense includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 661 $ 608 $ 639
Interest cost on projected benefit obligation 859 806 793
Expected investment return on plan assets (2,747) (1,028) (662)
Net amortization and deferral 1,785 136 (60)
--------- --------- ---------
Net pension expense $ 558 $ 522 $ 710
========= ========= =========
</TABLE>
Plan assets are primarily invested in publicly traded stocks and bonds,
pooled equity funds, fixed income investment funds and insurance company
guaranteed investment accounts The plans hold 27 shares of Insteel common stock
with a market value of $211 at September 30, 1997.
PROFIT-SHARING AND INCENTIVE PLANS. The Company has a profit-sharing
plan covering substantially all of its employees. Under the plan, a profit pool
of 10% of earnings before income taxes is paid to the Company's employees each
year. Corporate officers and a portion of the Company's management participate
in other incentive plans based upon the attainment of certain targeted levels
for return on capital and key performance measurements. Profit-sharing and
incentive plan expense was $658 in 1997, $1,074 in 1996 and $958 in 1995.
RETIREMENT SAVINGS PLAN. In May 1996, the Company adopted the
Retirement Savings Plan of Insteel Industries, Inc. ("the Plan") to provide
retirement benefits and stock ownership for its employees. The Plan is an
amendment and restatement of the Company's Employee Stock Ownership Plan
("ESOP"). As allowed under Sections 401(a) and 401(k) of the Internal Revenue
Code, the Plan is a stock bonus plan that provides tax-deferred salary
deductions for eligible employees.
Employees may contribute up to 10% of their annual compensation to the
Plan, limited to a maximum annual amount as set periodically by the Internal
Revenue Code. In addition, the Plan allows for discretionary contributions to be
made by the Company as determined by the Board of Directors. Such contributions
to the Plan are allocated among eligible participants in the proportion of their
compensation to the total compensation of all participants. Company
contributions to the Plan were $85 in 1997, 1996 and 1995.
MANAGEMENT SECURITY PROGRAM. The Company has a management security
program for certain employees. Under the plan, participants are entitled to cash
benefits upon retirement at age 65, payable annually for 15 years. The plan is
funded by life insurance policies on the participants purchased by the Company.
Management security program expense was $84 in 1997, $87 in 1996 and $74 in
1995.
VEBA. The Company has a Voluntary Employee Beneficiary Association
("VEBA"). Under the plan, both employees and the Company may make contributions
to pay for medical benefits. Company contributions to the VEBA were $350 in
1997, $727 in 1996 and $685 in 1995.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
(8) COMMITMENTS AND CONTINGENCIES
LEASES. The Company leases a portion of its property, plant and
equipment under operating leases that expire at various dates through 2026.
Under most lease agreements, the Company pays insurance, taxes and maintenance.
Rental expense for operating leases was $1,068 in 1997, $1,084 in 1996 and
$1,159 in 1995. Minimum rental commitments under all non-cancelable leases with
an initial term in excess of one year are payable as follows: 1998, $718; 1999,
$278; 2000, $185; 2001, $138; 2002, $102; beyond, $594.
PURCHASE COMMITMENTS. Commitments for the construction or purchase of
property, plant and equipment approximate $993 at September 30, 1997.
LEGAL PROCEEDINGS. The Company is involved in lawsuits, claims,
investigations and proceedings, including commercial, environmental and
employment matters, which arise in the ordinary course of business. Management
does not expect that the ultimate costs to resolve these matters will have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
(9) MAJOR CUSTOMERS
One customer accounted for 10% of the Company's net sales in 1997.
There were no customers that accounted for 10% or more of the Company's sales in
1996 or 1995. The Company's ten largest customers accounted for approximately
36% of consolidated sales in 1997.
(10) RELATED PARTY TRANSACTIONS
Howard O. Woltz, Jr., Chairman of the Company, is a shareholder in ICS
3-D Panel Works, Inc. ("ICSPW"). As discussed in Note 2, in May 1997, the
Company sold its ICS division to ICSPW, a new corporation organized by the
division's management group. Prior to the sale, the Audit Committee of the
Company's Board of Directors reviewed the terms of the proposed transaction
focusing particularly on the participation of Mr. Woltz as an investor. Based
upon the continuing operating losses of ICS and the prospective benefit to the
Company from the sale of the division, the Audit Committee concluded that (1)
Mr. Woltz' participation was essential to the transaction and beneficial to the
Company and (2) approval of the transaction was in the best interests of the
Company. Based upon the Audit Committee's recommendation, the Board of Directors
approved the transaction.
C. Richard Vaughn, a director of the Company, is Chairman of John S.
Clark Company, Inc. ("John S. Clark"), a general building contractor. John S.
Clark provided construction services to the Company amounting to $5,904 in 1997
and $1,434 in 1996.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
(11) OTHER FINANCIAL DATA
Balance sheet information:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1997 1996
-------- ---------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $ 31,291 $ 33,221
Less allowance for doubtful accounts (242) (240)
-------- ---------
Total $ 31,049 $ 32,981
======== =========
Inventories:
Raw materials $ 24,698 $ 15,797
Supplies 2,147 2,099
Work in process 1,730 1,426
Finished goods 15,888 12,383
-------- ---------
Total $ 44,463 $ 31,705
======== =========
Property, plant and equipment, net:
Land and land improvements $ 5,106 $ 5,029
Buildings 35,938 28,507
Machinery and equipment 99,554 77,483
Construction in progress 1,851 6,331
-------- ---------
142,449 117,350
Less accumulated depreciation (56,048) (49,792)
-------- ---------
Total $ 86,401 $ 67,558
======== =========
</TABLE>
23
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders
Insteel Industries, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of Insteel Industries, Inc. and subsidiaries as of
September 30, 1997 and 1996, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for the years then ended, and
have issued our report thereon dated October 16, 1997. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in Item 14(a)(2) of this Form 10-K is the responsibility of the
Company's management and is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The September 30, 1997 and 1996 information included in
this schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
October 16, 1997.
24
<PAGE> 25
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of year $ 240 $ 250 $ 205
Additions charged to earnings 18 (10) 61
Accounts written off (16) - (16)
------- -- ---- -------
Balance, end of year $ 242 $ 240 $ 250
======= ====== ======
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Insteel Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Insteel
Industries, Inc. and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The accompanying 1995
financial statements of Insteel Industries, Inc. and subsidiaries were audited
by other auditors whose report dated October 24, 1995 expressed an unqualified
opinion on those financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Insteel Industries, Inc. and subsidiaries as of September 30, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
October 16, 1997.
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Insteel Industries, Inc.:
We have audited the accompanying consolidated statements of earnings,
shareholders' equity, and cash flows of Insteel Industries, Inc. and
subsidiaries for the year ended September 30, 1995, and the additional financial
statement schedule listed at Item 14(a)(2) for the year ended September 30,
1995. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Insteel
Industries, Inc. and subsidiaries for the year ended September 30, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
October 24, 1995
27
<PAGE> 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to directors and nominees appears under the
caption "Election of Directors" in the Company's Proxy Statement for the 1998
Annual Meeting of Shareholders and is incorporated by reference.
Information on executive officers appears under the caption "Executive
Officers of the Company" in Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required for this item appears under the captions
"Executive Compensation" and "Performance GraphGraph" in the Company's Proxy
Statement for the 1998 Annual Meeting of Shareholders and is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required for this item appears under the captions
"Principal Shareholders" and "Security Ownership of Management" in the Company's
Proxy Statement for the 1998 Annual Meeting of Shareholders and is incorporated
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required for this item appears under the captions
"Executive Compensation-Compensation Committee Interlocks and Insider
Participation" and "Transactions With Management and Others" in the Company's
Proxy Statement for the 1998 Annual Meeting of Shareholders and is incorporated
by reference.
28
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)(1) FINANCIAL STATEMENTS
The financial statements as set forth under Item 8 are filed as part of
this report.
(A)(2) FINANCIAL STATEMENT SCHEDULES
Supplemental Schedule II - Valuation and Qualifying Accounts appears on
page 25 of this report.
All other schedules have been omitted because they are either not
required or not applicable.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1997.
(C) EXHIBITS
See exhibit index on page 31.
(D) FINANCIAL STATEMENT SCHEDULES
See Item 14 (a)(2) above.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 5, 1997 By: /s/ H. O. WOLTZ III
------------------------
H. O. WOLTZ III
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on December 5, 1997 below by the following persons
on behalf of the registrant and in the capacities indicated:
<TABLE>
<CAPTION>
Name and Signature Positions(s)
- ------------------------------------------------ --------------------------------------------------------
<S> <C>
/s/ HOWARD O. WOLTZ, JR. Chairman of the Board
- ---------------------------
HOWARD O. WOLTZ, JR.
/s/ H. O. WOLTZ III President, Chief Executive Officer and a Director
- ---------------------------
H. O. WOLTZ III
/s/ MICHAEL C. GAZMARIAN Chief Financial Officer and Treasurer (Principal
- --------------------------- Financial and Accounting Officer
MICHAEL C. GAZMARIAN
/s/ THOMAS J. CUMBY Director
- ---------------------------
THOMAS J. CUMBY
/s/ LOUIS E. HANNEN Director
- ---------------------------
LOUIS E. HANNEN
/s/ FRANCES H. JOHNSON Director
- ---------------------------
FRANCES H. JOHNSON
/s/ CHARLES B. NEWSOME Director
- ---------------------------
CHARLES B. NEWSOME
/s/ C. RICHARD VAUGHN Director
- ---------------------------
C. RICHARD VAUGHN
/s/ JOHN E. WOLTZ Director
- ---------------------------
JOHN E. WOLTZ
</TABLE>
30
<PAGE> 31
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
3- ARTICLES OF INCORPORATION AND BYLAWS
3.1 Restated articles of incorporation of the
registrant, as amended (Incorporated by reference
to Exhibit 3.1 to the Company's Current Report on
Form 8-K, dated May 3, 1988.)
3.2 Bylaws of the registrant (as last amended February
5, 1991) (incorporated by reference to the exhibit
of the same number contained in the Company's
Annual Report on Form 10-K for the year ended
September 30, 1991).
4- INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
HOLDERS, INCLUDING INDENTURES
4.2 Articles IV and VI of the registrant's restated
articles of incorporation, which are incorporated
herein by reference to Exhibit 3.1.
4.3 Article 2, Section 8, of the registrant's bylaws,
which is incorporated herein by reference to
Exhibit 3.2.
* 4.13 Loan Agreement dated as of September 1, 1988,
between Liberty County Industrial Development
Corporation ("Issuer") and Insteel Industries, Inc.
("Company") pursuant to which the Issuer agreed to
loan the proceeds from its $3,400,000 Industrial
Development Revenue Refunding Bonds, Series 1988
(Insteel Industries, Inc. Project) (the "Bonds") to
the Company and the Company agreed to repay such
loan to the Issuer.
* 4.14 Promissory Note dated October 26, 1988 and issued
by the Company to the Issuer in the principal
amount of $3,400,000, which note evidences the
loan from the Issuer to the Company under the Loan
Agreement (Exhibit 4.13).
* 4.15 Purchase Contract dated October 26, 1988, among
the Issuer, the Company, Texas Department of
Commerce and Federated Tax-Free Trust ("Purchaser")
pursuant to which the Purchaser agreed to purchase
the Bonds issued by the Issuer.
* 4.16 Letter of Credit and Reimbursement Agreement dated
as of September 1, 1988, by and between the
Company and First Union National Bank of North
Carolina ("Bank") pursuant to which the Bank
agreed to issue its Letter of Credit to secure
payment of the Bonds and the Company agreed to
reimburse the Bank for any and all drawings made
under the Letter of Credit.
+ 4.17 Loan Agreement dated as of May 1, 1989, between
Brunswick and Glynn County Development Authority
("Issuer") and Insteel Industries, Inc.
("Company"), pursuant to which the Issuer agreed
to loan the proceeds from its $4,500,000
Industrial Development Revenue Bonds, Series 1989
(Insteel Industries, Inc. Project) (the "Bonds")
to the Company and the Company agreed to repay
such loan to the Issuer.
+ 4.18 Promissory Note dated June 27, 1989, and issued
by the Company to the Issuer in the principal
amount of $4,500,000 which note evidences the loan
from the Issuer to the Company under the Loan
Agreement (Exhibit 4.17).
+ 4.19 Purchase Contract dated June 27, 1989, among the
Issuer, the Company, and Seaboard Corporation
("Purchaser") pursuant to which the Purchaser
agrees to purchase the Bonds issued by the Issuer.
+ 4.20 Letter of Credit and Reimbursement Agreement
dated as of May 1, 1989, by and between the Company
and First Union National Bank of North Carolina
("Bank") pursuant to which the Bank agreed to issue
its Letter of Credit to secure payment of the Bonds
and the Company agreed to reimburse the Bank for
any and all drawings made under the Letter of
Credit.
</TABLE>
31
<PAGE> 32
EXHIBIT INDEX, CONTINUED
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------
<S> <C> <C>
# 4.24 Indenture of Trust between Industrial
Development Authority of the City of
Fredericksburg, Virginia and Crestar Bank as
Trustee, dated as of September 1, 1990, relating to
$4,205,000 Industrial Development Authority of the
City of Fredericksburg, Virginia Industrial
Development First Mortgage Revenue Refunding Bonds
(Insteel Industries, Inc./Rappahannock Wire Company
Project) Series of 1990.
# 4.25 Refunding Agreement between Industrial Development
Authority of the City of Fredericksburg, Virginia
("Issuer") and Insteel Industries, Inc., and
Rappahannock Wire Company (since renamed Insteel
Wire Products Company) (together, the "Companies"),
dated as of September 1, 1990 pursuant to which the
Issuer agreed to loan the proceeds from its
$4,205,000 Industrial Development First Mortgage
Revenue Refunding Bonds (Insteel Industries,
Inc./Rappahannock Wire Company Project), Series of
1990 to the Companies and the Companies agreed to
repay such loan to the Issuer.
** 4.35 Note Agreement (including formal Note, appendices
and exhibits) between Insteel Industries, Inc. and
Jefferson-Pilot Life Insurance Company, dated as of
April 15, 1993, relating to $15,000,000 principal
amount of 8.25% Senior Secured Notes due October
15, 2002.
** 4.36 Deed of Trust, Security Agreement, Assignment
of Rents and Financing Statement, dated as of April
15, 1993, relating to the 8.25% Senior Secured
Notes issued pursuant to Exhibit 4.35.
** 4.37 Guaranty Agreement, dated as of April 15, 1993,
relating to the 8.25% Senior Secured Notes issued
pursuant to Exhibit 4.35.
## 4.41 Amended and Restated Credit Agreement between
First Union National Bank of North Carolina and
Insteel Industries, Inc. dated January 26, 1996
providing for a $35,000,000 revolving line of
credit and a $17,500,000 letter of credit and
banker=s acceptance facility.
*** 4.42 First Amendment dated April 11, 1997 to Amended and
Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
*** 4.43 Second Amendment dated April 30, 1997 to Amended
and Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
4.44 Third Amendment dated November 17, 1997 to Amended
and Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
UNDERTAKING: The Company agrees to file upon
request of the Commission any instrument with
respect to long-term debt not registered for which
the total amount authorized does not exceed 10% of
the total assets of the Company and its
subsidiaries on a consolidated basis.
10- MATERIAL CONTRACTS
# 10.4 1985 Insteel Industries, Inc. Employee Incentive
Stock Option Plan (amended February 6, 1990).
+ 10.5 Employee Stock Ownership Plan of Insteel
Industries, Inc., including Employee Stock
Ownership Plan Trust Agreement.
</TABLE>
32
<PAGE> 33
EXHIBIT INDEX, CONTINUED
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
10.6 1990 Director Stock Option Plan of Insteel
Industries, Inc. (incorporated by reference to the
exhibit of the same number contained in the
Company's Annual Report on Form 10-K for the year
ended September 30, 1991).
** 10.7 Profit Sharing Plan of Insteel Wire Products
Company.
** 10.8 Profit Sharing Plan of Insteel Industries, Inc.
++ 10.9 1994 Employee Stock Option Plan of Insteel
Industries, Inc.
++ 10.10 1994 Director Stock Option Plan of Insteel
Industries, Inc.
10.11 Nonqualified Stock Option Plan (incorporated by
reference to the exhibit of the same number
contained in the Company's Annual Report on Form
10-K for the year ended September 30, 1995).
## 10.20 Retirement Savings Plan of Insteel Industries, Inc.
10.21 Insteel Industries, Inc. Return on Capital
Incentive Compensation Plan for Key Members of
Management
10.22 1997 Declaration of Amendment to Insteel
Industries, Inc. Return on Capital Incentive
Compensation Plan for Key Members of Management
10.30 Insteel Industries, Inc. Director Compensation Plan
21- List of Subsidiaries of Insteel Industries, Inc.,
at September 30, 1997.
23- Consents of Experts and Counsel: Independent
Auditors' Consent.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG Peat Marwick LLP
27- Financial Data Schedule (for SEC use only)
* Incorporated by reference to the exhibit of the
same number contained in the Company's Annual
Report on Form 10-K for the year ended September
30, 1988.
+ Incorporated by reference to the exhibit of the
same number contained in the Company's Annual
Report on Form 10-K for the year ended September
30, 1989.
# Incorporated by reference to the exhibit of the
same number contained in the Company's Annual
Report on Form 10-K for the year ended September
30, 1990.
** Incorporated by reference to the exhibit of the
same number contained in the Company's Annual
Report on Form 10-K for the year ended September
30, 1993.
++ Incorporated by reference to the exhibit of the
same number contained in the Company's Annual
Report on Form 10-K for the year ended September
30, 1994.
## Incorporated by reference to the exhibit of the
same number contained in the Company's Annual
Report on Form 10-K for the year ended September
30, 1996.
*** Incorporated by reference to the exhibit of the
same number contained in the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1997.
</TABLE>
33
<PAGE> 1
EXHIBIT 4.44
THIRD AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Amendment"), dated this 17th day of November, 1997, is made by and between
INSTEEL INDUSTRIES, INC., a North Carolina corporation (the "Borrower"); and
FIRST UNION NATIONAL BANK, a national banking association (the "Bank"), to the
Amended and Restated Credit Agreement, dated January 26, 1996, as amended by
First Amendment thereto, dated April 11, 1997, and by Second Amendment thereto,
dated as of April 30, 1997 (the Amended and Restated Credit Agreement, as
amended, modified, restated or supplemented from time to time, being hereinafter
referred to as the "Credit Agreement). All capitalized terms used herein
without definitions shall have the meanings ascribed to such terms in the Credit
Agreement.
RECITALS
A. Pursuant to the Credit Agreement, the Bank has made available
to the Borrower a Revolving Line of Credit in the amount of $50,000,000 and a
Letter of Credit Facility in the amount of $10,000,000.
B. The Borrower has requested that the Bank (i) consent to the
sale of certain equipment owned by Insteel Wire Products Company, a subsidiary
of Borrower ("IWP"), which equipment is leased by IWP to Insteel PanelMex S.A.
de C.V. ("PanelMex") and the sale of IWP's seventy-one percent (71%) investment
in PanelMex, (ii) change the ratio for the calculation for the marginal rate of
interest and marginal facility fee to be paid by Borrower, and (iii) amend
certain financial covenants.
C. The Bank has agreed to such requests and the Borrower and the
Bank have therefore agreed to amend the Credit Agreement as set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby expressly acknowledged, the Borrower and the Bank hereby agree as
follows:
ARTICLE I
AMENDMENTS TO CREDIT AGREEMENT
The Credit Agreement is hereby amended as follows:
1.1 Defined Terms. Section 1.1. of the Credit Agreement is
amended by deleting the definition of "Applicable Margin" in its entirety and
by substituting in lieu thereof the following:
<PAGE> 2
"Applicable Margin" shall mean, at any date of determination, the
marginal rate of interest which shall be paid by Borrower in addition to the
LIBOR Rate and the marginal facility fee rate to be paid which coincides to the
Funded Debt to EBITDA Ratio (calculated for each Fiscal Quarter with respect to
the Fiscal Quarter then ended and the immediately preceding three (3) Fiscal
Quarters), which rates shall be determined at the end of each Interest Period
and, if appropriate, the Applicable Margin shall be reduced or increased for
the next Interest Period according to the following schedule:
<TABLE>
<CAPTION>
Funded Debt to Applicable Margin
EBITDA Ratio For LIBOR Rate Loan Facility Fee
------------ ------------------- ------------
<S> <C> <C>
Equal to or less than 0.375% 0.175%
1.5 to 1.0
Greater than 1.5 to 0.500% 0.175%
1.0 but less than or
equal to 2.0 to 1.0
Greater than 2.0 to 0.625% 0.200%
1.0 but less than or
equal to 2.5 to 1.0
Greater than 2.5 to 0.750% 0.200%
1.0 but less than or
equal to 3.0 to 1.0
Greater than 3.0 to 0.875% 0.225%
1.0 but less than or
equal to 3.25 to 1.0
Greater than 3.25 to 1.000% 0.250%
1.0 but less than or
equal to 3.5 to 1.0
Greater than 3.5 to 3.000% 0.500%
1.0
</TABLE>
During the period from the effective date of this Amendment through
March 31, 1998, if the Funded Debt to EBITDA Ratio is greater than 3.5 to 1.0
but less than or equal to 3.75 to 1.0, then the Applicable Margin for LIBOR Rate
Loans and the facility fee shall be 1% and 0.25%, respectively. If the Funded
Debt to EBITDA Ratio is greater than 3.75 to 1.0 on or prior to March 31, 1998
or if the Funded Debt to EBITDA Ratio is greater than 3.5 to 1.0 after March 31,
2
<PAGE> 3
1998, then (i) the Default Rate shall be applicable to the Obligations
and (ii) the facility fee due and payable pursuant to Section 4.6 of
this Agreement shall be computed at the rate of 0.500%."
1.2 Negative Covenants. Section 8.16, Funded Debt to EBITDA, is
amended in its entirety to read as follows:
"8.16 Funded Debt to EBITDA Ratio. Permit the Funded Debt to
EBITDA Ratio to be greater than (a) 3.75 to 1.0 for the four (4) Fiscal
Quarters ending September 30, 1997, December 31, 1997 and March 31,
1998, and (b) 3.5 to 1.0 at the end of any Fiscal Quarter thereafter
for the four (4) Fiscal Quarters then ended."
ARTICLE II
CONSENT
2.1 CONSENT. The Borrower has requested that the Bank consent to
the sale of certain equipment owned by IWP, which equipment is leased by IWP to
PanelMex, and the sale of IWP's seventy-one percent (71%) investment in
PanelMex. The Bank hereby grants its consent to such sales in accordance with
the terms and provisions of the purchase and sale agreement, dated on or about
the date of this Amendment, provided that not less than the aggregate sum of
$1,200,000 in cash and notes or other instruments are received by the Borrower
in connection with such sale, and of such amounts not less than $100,000 in
cash on the closing date of such sale is paid directly to the Bank, for the
account of the Borrower, and applied to the Obligations owing by the Borrower
to the Bank. In such event, the Bank agrees that such sale shall not
constitute an Event of Default under the Credit Agreement or any of the other
Loan Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Bank that:
3.1 Acknowledgment of Obligations. As of the close of business on
November 5, 1997, the aggregate principal amount of Revolving Loans owing by
the Borrower was in the sum of $41,467,204.99, the aggregate amount of Letter
of Credit Obligations owing by the Borrower was in the sum of $3,730,621.95,
and the aggregate amount of Bankers' Acceptance Obligations owing by the
Borrower was in the sum of $-0-, and that all such Obligations are due and
owing by the Borrower to the Bank without any defense, deduction, offset or
counterclaim of any nature.
3
<PAGE> 4
3.2. Compliance With the Credit Agreement. As of the execution of this
Amendment, the Borrower is in compliance with all the terms and provisions set
forth in the Loan Documents to be observed or performed by the Borrower, except
where the failure of the Borrower to comply has been waived in writing by the
Bank.
3.3 Representations in Credit Agreement. The representations and
warranties of the Borrower set forth in Credit Agreement are true and correct
in all material respects
3.4 No Event of Default. No Default or Event of Default exists.
ARTICLE IV
MODIFICATION OF LOAN DOCUMENTS
4.1 Loan Documents. Any individual or collective reference to any of the
Loan Documents shall hereafter mean such Loan Document as amended by this
Amendment, and as further amended, restated, supplemented or modified from time
to time, including, without limitation, all references to the Credit Agreement,
which shall mean the Credit Agreement as amended hereby and as further amended
from time to time.
ARTICLE V
GENERAL
5.1 Full Force and Effect. Except as expressly amended hereby, the Credit
Agreement and the other Loan Documents shall continue in full force and effect
in accordance with the provisions thereof. As used in the Credit Agreement and
the other Loan Documents, "hereinafter", "hereto", "hereof", or words of similar
import, shall mean the Credit Agreement of the other Loan Documents, as the case
may be, as amended by this Amendment.
5.2 Applicable Law. This Amendment shall be governed by and construed in
accordance with the internal laws and judicial decisions of the State of North
Carolina.
5.3 Headings. The headings of this Amendment are for the purpose of
reference only and shall not effect the construction of this Amendment.
5.4 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, THE BORROWER AND THE BANK EACH WAIVE THE RIGHT TO A JURY TRIAL IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE CREDIT
AGREEMENT OR THE OTHER LOAN DOCUMENTS.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered under seal by their duly authorized officers to be
effective as of the date first above written.
ATTEST: INSTEEL INDUSTRIES, INC.
/s/ Sandra S. White By:/s/ Michael C. Gazmarian
- ------------------------------ ------------------------------------
Asst. Secretary Title: Chief Financial Officer and
[CORPORATE SEAL] Treasurer
[SEAL] FIRST UNION NATIONAL BANK
By:/s/ Richard J. Rizzo, Jr.
------------------------------------
Title: Vice President
5
<PAGE> 1
EXHIBIT 10.21
INSTEEL INDUSTRIES INC. RETURN ON CAPITAL INCENTIVE COMPENSATION
PLAN FOR KEY MEMBERS OF MANAGEMENT
1. Statement of Purpose
The purpose of the Insteel Industries Inc. Return on Capital Incentive
Compensation Plan For Key Members Of Management (the "Plan) is to encourage the
creation of shareholder value by establishing a direct link between the Return
on Capital (ROC) achieved and management's incentive compensation.
The Participants contribute to the success of Insteel Industries Inc. (the
"Company") through their ability and commitment to the Company. The Company
desires to receive the benefits derived from the services of the Participants,
to identify the continued interests of the Participants with the future success
of the Company, and to provide an incentive compensation plan that encourages
sustained achievement of the Company's objective to maximize shareholder
wealth.
2. Definitions
2.1 Bonus Award
"Bonus Award" means the dollar amount which results from the
multiplication of the Bonus Percent for the year, by the Participant's
Base Salary for the same year.
2.2 Bonus Percent
"Bonus Percent" means the percentage amount which results from the
multiplication of the Participant's Target Bonus Percent for the Year,
by the Performance Factor for the same Year.
2.3 Bonus Bank
"Bonus Bank" means the accrual account maintained by the Company for
each Participant, into which either (i) the excess, for any Year, of
any Bonus Award above One-Third of the Participant's Target Bonus
Amount is credited; or (ii) the deficiency, for any Year, of any Award
below zero (0) is debited; and/or (iii) the Bonus Bank Distribution,
for any Year, as calculated in accordance with Section 5.3 is debited.
Such account, for book accounting purposes, shall be accrued in
accordance with generally accepted accounting principles. The Company
does not and will not transfer cash into such accounts and the
accounts exist only as bookkeeping records to evidence the Company's
obligation to pay these amounts according to the Plan. No interest is
credited on amounts in the Bonus Bank, and the individual's Bonus Bank
balance shall never be less than zero (0). Participants are never
vested in amounts in the Bonus Bank, and such amounts are not earned
until the respective Distribution Date.
2.4. Base Salary
"Base Salary" means the Participant's actual base salary compensation
earned during the Year; or partial Year, in the event of death,
Disability or Retirement during the year; excluding incentive
payments, salary continuation, and other payments which are not, in
the sole determination of the Committee, actual base salary.
<PAGE> 2
2.5. Beneficiary
"Beneficiary" means the person or persons designated as such in
accordance with Section 6.
2.6. c*
"c*" also referred to as the "Weighted Average Cost of Capital," means
the Company's weighted average cost of debt and equity expressed as a
percent. It represents the Company's minimum required rate of return
on capital, as established by management. It shall be a rate rounded
to the nearest whole percent.
2.7. Committee
"Committee" means the Executive Compensation Committee.
2.8. Disability
"Disability" means a bodily injury or diseases as determined by the
Committee, that totally and continuously prevents the Participant, for
at least six (6) consecutive months, from engaging in an "occupation"
for pay or profit. During the first twenty-four (24) months of total
disability, "occupation" means the Participant's regular occupation.
After that period, "occupation" means any occupation for which the
Participant is reasonably fitted, based upon the Participant's
education, training or experience as determined by the Committee.
2.9. Distribution
"Distribution" means the cash payment and/or deferral amount resulting
from a Bonus Award or from a Bonus Bank or from a combination thereof.
2.10. Distribution Date
"Distribution Date" means the date on which the Employer makes
Distributions of Participant Awards and/or Distributions from the
Participants' Bonus Banks. The Distribution Date shall be once each
Year and no later than December 15 of the Year following the Year for
which an Award was calculated.
2.11 Effective Date
"Effective Date" means October 1, 1996, the date on which the Plan
commences.
2.12.Eligible Employee
"Eligible Employee" means a regular, exempt, salaried employee of the
Company who may be selected by management and recommended to the
Executive Compensation Committee for participation.
2.13. Employer
"Employer" (also referred to as the "Company") means Insteel
Industries Inc. and its wholly owned subsidiaries.
2.14. Executive Compensation Committee
"Executive Compensation Committee" (also referred to as the
"Committee") means the Executive Compensation
<PAGE> 3
Committee of the Board of Directors of Insteel Industries Inc., which
administers the Plan.
2.15. Expected Improvement Factor
The annual increase in SV, above the average of the prior year's
actual and target SV, required to produce a Performance Factor of 1.00
or the Target Bonus Percent.
2.16. Invested Capital
"Invested Capital" means total assets less non-interest bearing
current liabilities, and for the Year represents the average of each
of twelve (12) month end amounts.
2.17. Leverage Factor
"Leverage Factor" determines the sensitivity of the Bonus Award to
performance - the slope of the SV-Bonus Award Line.
2.18. Net Operating Profit After Tax
"Net Operating Profit After Tax" (also referred to as "NOPAT") means
operating income before financing costs and income taxes reduced by
income taxes which are computed by applying a statistical tax rate
appropriate to the jurisdiction(s) in which the Company operates. The
total Awards for all the incentive plans other than this Plan are
charged to operating income of the Company prior to the computation of
NOPAT.
2.19. Participant
"Participant" means an Eligible Employee who has been recommended for
participation in the Plan by management and approved by the Committee.
Designation as a Participant must be renewed annually.
2.20. Performance Factor
"Performance Factor" means that number described in Section 4.2 which
is multiplied by a Participant's Target Bonus Percent to arrive at
such Participant's Bonus Percent.
2.21. Plan
"Plan" means this 1995 Return on Capital Incentive Compensation Plan
for Key Members of Management, as it may be hereafter amended.
2.22. Retirement
"Retirement" means termination of employment by a Participant for
whatever reason other than death or Disability after attainment of age
fifty-five (55), or, if prior to having attained age fifty-five (55),
only after having obtained prior permission of the Committee. A
Participant who has experienced a Retirement as defined herein shall
be termed a "Retiree."
2.23. Shareholder Value
"Shareholder Value," also referred to as "SV," for the Company means
the amount obtained by subtracting (i) a capital charge computed by
multiplying Invested Capital for such year by c*, from(ii) Net
Operating Profit After Tax for such year, or as follows: SV = Net
Operating Profit After Tax - (Invested Capital x c*)
<PAGE> 4
2.24. Target SV
"Target SV" means that SV amount, whether positive, negative or zero
(0), which, if attained, produces a Performance Factor of one (1.000).
For any one Year, Target SV shall equal the sum of (i) the average of
prior Year's Target SV, and the prior Year's Actual SV and (ii)the
Expected Improvement Factor.
2.25. Target Bonus Amount
"Target Bonus Amount" means that dollar amount earned that results
from multiplying the Target Bonus Percent for the year by the
Participant's Base Salary for the same year.
2.26. Target Bonus Percent
"Target Bonus Percent" means Percent of Base Salary earned if actual
SV equals Target SV.
2.27. Year
"Year" means the fiscal year in respect of which performance is
measured under the Plan.
2.28. Administration of the Plan
The Executive Compensation Committee shall be the sole administrator
of the Plan. The Committee shall have full power to formulate
additional details and regulations and make interpretations for
carrying out the Plan. The Committee shall also be empowered to make
any and all of the determinations not herein specifically authorized
which may be necessary or desirable for the effective administration
of the Plan. Any decision or interpretation of any provision of this
Plan adopted by the Committee shall be final and conclusive.
3. Targets
3.1. Establishment of Target Bonus Percent
At the time a Participant commences participation in the Plan, there
shall be established for such Participant a Target Bonus Percent. The
Target Bonus Percent for such Participant for any future Year(s) may be
increased, decreased or left unchanged from the prior Year. Following
the end of each Year, the Target Bonus Percent for that Year will be
multiplied by the Base Salary of such Participant for that Year to
arrive at the Target Bonus Amount for such Participant. The Target
Bonus Amount will then be multiplied by the Performance Factor for that
Year to arrive at the amount of the Bonus Award, if any, and the amount
of the credit or debit to the Participant's Bonus Bank, if any.
4. Calculation of the Performance Factors, Awards, Bonus Banks and
Distributions
4.1. Timing of the Calculation
The calculations necessary to obtain the Performance Factor for the
Year most recently ended shall be made no later than December 15 of
the subsequent fiscal year. Such calculation shall be carried out in
accordance with this Section.
<PAGE> 5
4.2. Calculation of the Performance Factor
The Performance Factor for the Year corresponds with the difference
between the Actual SV and Target SV in relation to the leverage factor
where such difference is calculated by subtracting (i) the Target SV
from (ii) the Actual SV for the Year.
The Performance Factor shall be multiplied by the Participant's Target
Bonus Amount to arrive at such Participant's Award and Bonus Bank
credits or debits, if any, for such Year.
4.3. Calculation of Distributions
If the Performance Factor for the Year is greater than one, then the
Participant's Award Distribution for that Year's performance shall
equal the target bonus amount plus one-third of the Bonus Bank
balance. In addition, the Participant's Bonus Bank shall be credited
with an amount calculated consistent with Section 4.4.
If the Performance Factor for the Year is greater than zero (0) but
less than or equal to the Participant's Target Bonus Amount, then that
Performance Factor shall be multiplied by each Participant's Target
Bonus Amount and the result shall be each Participant's Award
Distribution for that Year's performance. In addition, if at the
beginning of the Year the Participant had a Bonus Bank balance
resulting from prior Years' performance of that Participating Unit, an
additional Distribution will be made from the Participant's Bonus Bank
in an amount which represents the lesser of (i) One-Third of the
Participant's Bonus Bank balance at the beginning of the Year or (ii)
an amount which when combined with the Award Distribution for that
Year's performance equals the Participant's Target Bonus Amount.
If the Performance Factor for the Year is zero (0), then the
Participant's Award Distribution for that Year's performance shall be
zero (0). However, if at the beginning of the Year, the Participant
had a Bonus Bank balance resulting from prior Years' performance, a
Distribution will be made from the Participant's Bonus Bank in an
amount which represents the lesser of (i) One-Third of the
Participant's Bonus Bank balance at the beginning of the Year or (ii)
an amount which equals the Participant's Target Bonus Amount.
If the Performance Factor for the Year is less than zero (0), then the
Participant's Award Distribution for that Year's performance shall be
zero (0). However, if subsequent to the completion of the calculation
described in Section 4.4, the Participant has a Bonus Bank balance
resulting from prior Years' performance, a Distribution will be made
from the Participant's Bonus Bank in an amount which represents the
lesser of (i) One-Third of the Participant's Bonus Bank balance
following the debit calculated consistent with Section 4.4 or (ii) an
amount which equals the Participant's Target Bonus Amount.
In the event the Target Bonus Percent of a Participant who is an
active employee is changed to zero (0) and such Participant's Bonus
Bank balance is greater than zero (0), then the Target Bonus Amount to
be used for Bonus Bank Distributions shall be that Target Bonus Amount
of such Participant for the Year immediately prior to the Year of such
change.
<PAGE> 6
4.4. Calculation of the Credits and Debits to Participant's Bonus Bank
Accounts
If the Performance Factor for the Year is greater than one (1) for any
respective Participant, then a credit to the Participant's respective
Bonus Bank will be made for Two-Thirds of that amount by which the
product obtained by multiplying, (i) the Performance Factor for such
Year times (ii) the Participant's Target Bonus Amount, exceeds the
Participant's Target Bonus Amount. Credits to the Bonus Bank do not
qualify as Distributions for the purpose of any deferred compensation
plan(s) maintained by the Company.
If the Performance Factor for the Year is less than zero (0) for any
respective Participation Basis, then a debit to the Participant's
respective Bonus Bank will be made in an amount equal to the product
obtained by multiplying, (i) the Performance Factor for such Year by
(ii) the Participant's Target Bonus Amount; however, in no event shall
a Participant's Bonus Bank ever be reduced to less than zero (0).
4.5. Calculation of Award Distributions and Credits and Debits to
Participants' Bonus Banks When a Participant Has Multiple
Participation Bases
In the event a Participant has been assigned multiple Participation
Bases for a Year, then Awards, Bonus Banks, Performance Factors and
Target Bonus Amounts shall be calculated separately and independently
for each Participation Basis of such Participant.
Bonus Banks shall be maintained separately for credits and debits from
each Participation Basis. Debits from one Participation Basis may not
be charged against a Bonus Bank of another Participation Basis.
4.6. Changes in Participation Basis During the Year
In the event a Participant experiences a change in Participation Basis
during a Year, then Awards, Bonus Banks, Performance Factors and
Target Bonus Amounts shall be calculated separately and independently
for each Participation Basis of such Participant using those portions
of the Participant's Base Salary actually paid for service while
included in each separate Participation Basis.
Bonus Banks shall be maintained separately for credits and debits from
each Participation Basis. Debits from one Participation Basis may not
be charged against a Bonus Bank of another Participation Basis.
Distribution(s) from the Bonus Bank for an individual who experiences
a change in Participation Basis will be the same as such
Distribution(s) would have been had there been no change in Base
Salary, Target Bonus Amount or Participation Basis, and such
Distribution(s) from more than one Participation Basis shall be made
by applying Sections 4.3 and 4.4 separately and independently to each
such Participation Basis.
4.7. Changes in Target Bonus Percent During the Year
In the event a Participant experiences a change in Target Incentive
<PAGE> 7
Percent without experiencing a change in Participation Basis during a
Year, then Award calculations and Bonus Bank adjustments will be made
separately using those portions of the Participant's Base Salary
actually paid for service while participating at each separate Target
Bonus Percent.
Separate Bonus Bank accounts shall not be maintained because Of
changes in a Participant's Target Bonus Percent. Total Bonus Bank
Distributions of such Participant may not exceed such Participant's
Target Bonus Amount subsequent to the change. In the event the new
Target Bonus Percent is zero (0), then the Target Bonus Amount to be
used for Bonus Bank Distributions shall be that Target Bonus Amount of
the Year immediately prior to the Year of such change.
4.8. Taxes: Withholding
To the extent required by law, the Company shall withhold from all
cash Distributions made hereunder any amount required to be withheld
by the federal and any state, provincial or local government.
5. Distributions Following Termination
5.1. Eligibility
A Participant who terminates prior to September 30 of a Year shall not
be eligible for any Distribution for such Year or any future
Distributions, unless such termination is by reason of Retirement,
death or Disability.
5.2. Distributions for the Year of Retirement, Disability
Distributions for a Participant for the Year of such Participant's
Retirement, death or Disability shall be on the same basis as for all
Other Participants.
5.3. Bonus Bank Distributions the Year Following the Year of
Retirement, Death or Disability
Bonus Bank Distributions to a Participant in the Year immediately
following the Year of such Participant's Retirement, death or
Disability shall be calculated in the same way as for all other
Participants, except that no adjustments for performance achieved
beyond the year of death or Disability shall be allowed in the case of
Participants who have experienced a termination by reason of death or
Disability. Adjustments to the Bonus Bank for individuals who have
experienced a Retirement will be the same as for all other
Participants for the Year of Retirement. Bonus Bank adjustments, if
any, for the Year immediately subsequent to the Year of Retirement for
such Participants may only be negative, and then only if the Actual
ROC is such that the Performance Factor for the Year subsequent to
Retirement is negative. Such calculations will be based upon the
Participant's Target Bonus Amount for the twelve months immediately
preceding retirement.
Complete Distribution of Bonus Banks of individuals who have
experienced a termination by reason of Retirement, death or Disability
shall be accomplished no later than the Distribution Date for the Year
following the Year of Retirement, death or Disability, even though
<PAGE> 8
such Distribution may exceed twice the terminated Participant's Target
Incentive Amount.
6. Beneficiary Designation
The Participant shall have the right, at any time and from time to
time, to designate and/or change or cancel any person/persons or
entity as to his Beneficiary (both principal and contingent) to whom
Distribution of Award(s) and/or Bonus Bank(s) under this Plan shall be
made in the event of such Participant's death prior to a Distribution.
Any Beneficiary change or cancellation shall become effective only
when filed in writing with the Committee during the Participant's
lifetime on a form provided by or otherwise acceptable to the Company.
The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed. Any finalized divorce of a
Participant subsequent to the date of filing of a Beneficiary
designation form shall revoke any prior designation of the divorced
spouse as a Beneficiary. The spouse of a Participant domiciled in a
community property jurisdiction shall be required to join in any
designation of Beneficiary other than the spouse in order for the
Beneficiary designation to be effective.
If a Participant fails to designate a Beneficiary as provided above,
or, if such Beneficiary designation is revoked by divorce, or
otherwise, without execution of a new designation, or if all
designated Beneficiaries predecease the Participant, then the
Distribution shall be made to the Participant's estate.
7. Miscellaneous
7.1. Unsecured General Creditor
Participants and their beneficiaries, heirs, successors and assigns
shall have no legal or equitable rights, interests, or other claim in
any property or assets of the Employer. Any and all assets shall
remain general, unpledged, unrestricted assets of the Employer. The
Company's obligation under the Plan shall be that of an unfunded and
unsecured promise to pay money in the future, and there shall be no
obligation to establish any fund, any security or any otherwise
restricted asset, in order to provide for the payment of amounts under
the Plan.
7.2. Obligations To The Employer
If a Participant becomes entitled to a Distribution under the Plan,
and, if, at the time of the Distribution, such Participant has
outstanding any debt, obligation or other liability representing an
amount owed to the Employer, then the Employer may offset such amounts
owing to it or any affiliate against the amount of any Distribution.
Such determination shall be made by the Committee. Any election by the
Committee not to reduce any Distribution shall not constitute a waiver
of any claim for any outstanding debt, obligation, or other liability
representing an amount owed to the Employer.
7.3. Nonassignability
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or
<PAGE> 9
otherwise encumber, transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any part
thereof, which are, and all rights to which are, expressly declared to
be unassignable and nontransferable. No part of an Award and/or Bonus
Bank, prior to actual Distribution, shall be subject to seizure or
sequestration for the payment of any debts,
Judgements, alimony or separate maintenance owed by a Participant or
any other person, nor shall it be transferable by operation of law in
the event of the Participant's or any other persons bankruptcy or
insolvency.
7.4. Employment or Future Eligibility to Participate Not Guaranteed
Nothing contained in this Plan nor any action taken hereunder shall be
construed as a contract of employment or as giving any Eligible
Employee or any Participant or any former Participant any right to be
retained in the employ of the Employer. Designation as an Eligible
Employee or as a Participant is on a year-by-year basis and may or may
not be renewed for any employment years not yet commenced.
7.5. Gender, Singular and Plural
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, or neuter, as the identity of the person or
persons may require. As the context may require, the singular may be
read as the plural and the plural as the singular.
7.6. Captions
The captions to the articles, sections, and paragraphs of this Plan
are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
7.7. Applicable Law
This Plan shall be governed and construed in accordance with the laws
of the State of North Carolina.
7.8. Validity
In the event any provision of the Plan is held invalid, void, or
unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provision of the Plan.
7.9. Notice
Any notice or filing required or permitted to be given to the
Committee shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail, to the principal office of the
Company, directed to the attention of the President and CEO of the
Company. Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
8. Amendment and Termination of the Plan
8.1. Amendment
The Committee may at any time amend the Plan in whole or in part
provided, however, that no amendment shall be effective to affect the
Participant's right to designate a beneficiary.
<PAGE> 10
8.2. Termination of the Plan
a. Employer's Right to Terminate. The Committee may at any
time terminate the Plan as to prospective earning of Awards,
if it determines in good faith that the continuation of the
Plan is not in the best interest of the Company and its
shareholders. No such termination of the Plan shall reduce
any Distribution already made.
b. Payments Upon Termination of the Plan. Upon any
termination of the Plan under this Section, Awards for future
years shall not be made. With respect to the Year in which
such termination takes place, the employer will pay to each
Participant the Participant's Award for such Year or partial
Year, less any applicable taxes on the 15th day of December
in the fiscal year following the year of termination of the
Plan. Bonus Bank Distributions shall be made in their
entirety to the Participants on the 15th day of December in
the fiscal year Following the year of termination of the
Plan, notwithstanding that such final Distribution may be in
excess of twice a Participant's Target Bonus Amount.
IN WITNESS WHEREOF, this Insteel Industries, Inc.
Return on Capital Incentive Plan has been executed in behalf of the Company
effective as of the _____________ day of ____________________, 199___.
INSTEEL INDUSTRIES, INC.
-------------------------
H.O. Woltz III
President
Attest:
- --------------------------------
Gary D. Kniskern, Secretary
<PAGE> 1
EXHIBIT 10.22
INSTEEL INDUSTRIES, INC.
1997 DECLARATION OF AMENDMENT TO
INSTEEL INDUSTRIES, INC.
RETURN ON CAPITAL INCENTIVE COMPENSATION PLAN
FOR KEY MEMBERS OF MANAGEMENT
THIS DECLARATION OF AMENDMENT, made this _____ day of ____________
__________________, 199__, by INSTEEL INDUSTRIES, INC., a North Carolina
corporation (the "Corporation"), to the Insteel Industries, Inc. Return on
Capital Incentive Compensation Plan for Key Members of Management (the "Plan").
R E C I T A L S:
WHEREAS, the Corporation has established the Plan, the purposes of
which include improving the association between shareholder value of the
Corporation and incentive compensation paid to selected members of management of
the Corporation; and
WHEREAS, to accomplish the Plan's purposes, the Plan currently provides
for the distribution of cash payments or deferral amounts, or both, from bonus
awards and individual bonus accrual accounts to those Plan participants who
qualify for such distributions; and
WHEREAS, the Corporation has determined that the purposes of the Plan
would be better served if the Plan provided for distributions in the form of
cash or shares of the common stock (the "Common Stock") of the Corporation, or
both, as determined in accordance with Plan terms by the Executive Compensation
Committee (the "Committee") of the Board of Directors of the Corporation; and
WHEREAS, the Corporation has reserved 100,000 shares of Common Stock
for distribution pursuant to the Plan; and
WHEREAS, the Committee has authority to administer and amend the Plan;
NOW, THEREFORE, IT IS DECLARED, that, effective as of ______________
___, 19__, the Plan shall be amended as follows:
1. The Plan is hereby amended to add new Section 2.7.1 immediately
following Section 2.7, as follows:
"2.7.1. Common Stock. "Common Stock" means the common stock of
the Company."
-1-
<PAGE> 2
2. Section 2.9 of the Plan shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
"2.9. Distribution. Distribution means the payment in cash or
shares of the Common Stock and/or the deferral amount payable in cash
or shares of Common Stock resulting from a Bonus Award or a Bonus Bank
or from a combination thereof."
3. The Plan is hereby amended to add a new Section 2.16.1
immediately following Section 2.17, as follows:
"2.16.1 Fair Market Value. The "Fair Market Value" per share
of the Common Stock shall be determined in good faith by the Committee
in accordance with the following provisions: (i) if the shares of
Common Stock are listed for trading on the New York Stock Exchange or
the American Stock Exchange or included in the Nasdaq National Market,
the Fair Market Value shall be the closing sales price of the shares on
the New York Stock Exchange or the American Stock Exchange or as
reported in the Nasdaq National Market (as applicable) on the date
immediately preceding the date as of which the valuation is being made,
or if there is no transaction on such date, then on the trading date
nearest preceding such date for which closing price information is
available and, provided further, if the shares are quoted on the Nasdaq
national market, the Fair Market Value shall be the mean between the
high bid and low asked quotations in the Nasdaq stock market on the
date immediately preceding the date as of which the valuation is being
made; or (ii) if the shares of Common Stock are not listed or reported
in any of the foregoing, then Fair Market Value shall be determined by
the Committee in accordance with the applicable provisions of Section
20.2031-2 of the Federal Estate Tax Regulations, or in any other manner
consistent with the Internal Revenue Code of 1986, as amended, and
accompanying regulations."
4. The Plan is hereby amended to add a Section 5.4 immediately
following Section 5.3:
"5.4 Form of Distributions.
(i) The Committee shall have sole discretion to
determine whether distributions which are otherwise due and
payable shall be paid in cash or shares of Common Stock and to
determine whether such distributions shall be paid on a
current basis or on a deferred or installment basis (subject
to the provisions of Section 4.7 herein). The Committee shall
also have sole discretion to determine whether, and to what
extent, interest shall accrue on distributions that are paid
on a deferred or installment basis.
(ii) Distributions that are made in the form of
Common Stock shall be valued so that the Fair Market Value of
such shares of Common Stock equals that portion of the dollar
value of the participant's Bonus Award or
-2-
<PAGE> 3
Bonus Bank which the Committee has determined shall be paid in
Common Stock. Valuation of the Common Stock shall be made on
the first trading day in December of each year. Certificates
for shares of Common Stock which are due and distributable to
a participant shall be issued to the participant (or his
beneficiary) as soon as practicable following the date such
distributions are due.
(iii) The distribution of shares of Common Stock
shall be subject to all applicable laws, rules and
regulations, and to such approval by any governmental or other
agencies, as may be required. No shares of Common Stock shall
be issued or distributed under the Plan unless and until all
legal requirements applicable to such issuance or distribution
have, in the opinion of counsel to the Company, been complied
with. In connection with any such issuance, distribution or
transfer, the person acquiring shares of Common Stock shall,
if requested by the Company, give assurances satisfactory to
the Company in respect to such matters as the Company may deem
desirable to assure compliance with all applicable legal
requirements.
(iv) To the extent required pursuant to Rule 16b-3
adopted under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or any successor statute or rule,
distributions in the form of Common Stock to persons subject
to Section 16 of the Exchange Act may not be disposed of for a
period of six months from the date of distribution of such
shares of Common Stock."
5. The following sentence shall be added to Section 7.1 after the
last sentence of such section, with the remainder of Section 7.1 being
unchanged:
"Notwithstanding the foregoing, the Company may elect to segregate
assets in a trust or otherwise for the purpose of making payments under
the Plan, but such assets shall remain subject to the claims of
creditors of the Company and participants shall have no interest in or
claim against such assets as beneficiaries or otherwise."
-3-
<PAGE> 4
IN WITNESS WHEREOF, this Declaration of Amendment is executed on behalf
of Insteel Industries, Inc. as of the day and year first above written.
INSTEEL INDUSTRIES, INC.
By:
----------------------------------------
[PRESIDENT AND CHIEF EXECUTIVE OFFICER]
ATTEST:
Secretary
[Corporate Seal]
-4-
<PAGE> 1
EXHIBIT 10.30
INSTEEL INDUSTRIES, INC. DIRECTOR COMPENSATION PLAN
The Board of Directors has approved, subject, in part, to shareholder
approval, that the Insteel Industries, Inc. Director Compensation Plan be
adopted, effective February 3, 1998. The plan provides for the remuneration of
nonemployee directors for their service on the Board, as summarized below.
ANNUAL RETAINER AWARD
Under the plan, an annual retainer award will be paid to nonemployee
directors for service on the Board of Directors. The amount of the annual
retainer award for each director will be determined before (or as soon as
practicable following) the start of the retainer year by the Board (subject to
certain limitations, discussed below), and the amount of annual retainer awards
may vary from year to year. The retainer year will begin on the date of the
Annual Meeting of Shareholders at which directors are elected and end on the
date of the next following Annual Meeting of Shareholders at which directors are
elected. The retainer award may be paid in cash or in shares of Common Stock of
the Company, or a combination of cash and Common Stock, as determined by the
Board.
The designated cash portion of the retainer will be paid in equal
quarterly installments on or about March 31, June 30, September 30 and December
31. The designated stock portion of the retainer will be paid at the annual
meeting of the Board of Directors following the Annual Meeting of Shareholders
at which directors are elected. Each director's annual stock award will equal
the number of shares of Common Stock that have a fair market value equal (or as
close as possible) to the dollar value of the annual retainer award that has
been denominated in Common Stock. The fair market value will be determined as of
the close of business on the last trading day of the previous calendar year.
Nonemployee directors who are elected or appointed during a retainer year will
also be eligible for annual retainer awards as determined in the Board's
discretion, subject to plan terms. Unless otherwise provided by the Board in
connection with a grant of an award, each annual retainer award granted under
the plan shall be fully vested as of the date of grant of the award, except that
no director shall be entitled to any cash award quarterly installment payable
after the effective date of his or her resignation or removal as a director.
The Board has determined that the annual retainer award for each
nonemployee director for the retainer year commencing at the 1998 Annual Meeting
of Shareholders will be $4,800 and that this amount will be payable in cash only
(subject to adjustment by the Board in accordance with the plan). Pursuant to
the plan, the Board has authority to increase or otherwise adjust the amount of
an annual retainer award, including the amounts of each award payable in cash
and in stock, from year to year, subject, however, to the limitation that no
more than 50,000 newly issued shares will be available for distribution under
the plan. Shares distributed under the plan may be such newly issued shares or
shares acquired by open market or private purchases.
ADMINISTRATION
The plan will be administered by the Board of Directors, or upon its
delegation, by the Executive Committee of the Board. The plan may be amended,
suspended or terminated at any time by the Board, provided that (i) the consent
of a participant is necessary if any such action would adversely affect the
director's rights with respect to awards or fees previously earned, and (ii)
shareholder approval is required of an amendment only if required by applicable
laws, rules or regulations.
EFFECT ON DIRECTORS STOCK OPTION PLAN
Stock Options will continue to be granted to nonemployee directors as
specified in the 1994 Directors Stock Option Plan of Insteel Industries, Inc.
Under this plan, non-employee directors annually receive options to purchase
2,000 shares of Common Stock of the Company.
RESTRICTED STATUS OF SHARES
<PAGE> 2
Resale by the directors of the shares distributed to them under the
plan will be subject to Rule 144 under the Securities Act of 1933, as amended.
Under that Rule, directors holding shares issued pursuant to the plan may not
resell such shares on the open market for a period of one year after issuance,
unless the issuance of the shares under the plan is registered by the Company
with the Securities and Exchange Commission. After such one-year period, the
shares may be sold, as long as the Company is current with its periodic
reporting filings with the Commission and the director complies with certain
other regulatory matters in connection with the sale. If the issuance of the
shares under the plan is registered with the Commission, directors of the
Company, as "affiliates" of the Company, will nevertheless be required to comply
with Rule 144 in connection with any resale of such shares, except that the
one-year holding period requirement of the Rule will not apply.
Shareholder Approval for Stock Issuance
The rules of the New York Stock Exchange, on which the shares of Common
Stock are listed, require shareholder approval of the issuance of Common Stock
under the Plan. The Board of Directors believes that stock ownership by
directors should be encouraged and that it is in the best interests of the
Company to establish director compensation programs that are competitive with
other companies in order to attract the most qualified individuals for service
on the Board. For these reasons, the Board recommends that shareholders approve
this plan. The plan, coupled with the director stock option plans described
elsewhere in this Proxy Statement, will increase ownership of the Company's
stock by nonemployee directors, will enhance their interest in the affairs of
the Company and will reward their service with potential increased value.
The shares covered by the plan will be listed on the New York Stock
Exchange subject to notice of issuance in accordance with the plan. Since the
shares will be issued as partial compensation, they will be fully paid when
issued.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF INSTEEL INDUSTRIES, INC.
The following is a list of subsidiaries of the Company as of September 30, 1997,
each of which is wholly owned by the Company:
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION
- --------------------------------------- -----------------------------------
Insteel Wire Products Company North Carolina
Intercontinental Metals Corporation North Carolina
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP
The Board of Directors and Shareholders
Insteel Industries, Inc.:
We consent to incorporation by reference in the registration statements on Forms
S-8 (Nos. 33-01032, 33-40410, 33-35316, 33-61887, and 33-61889) of Insteel
Industries, Inc. of our reports dated October 16, 1997, relating to the
consolidated balance sheets of Insteel Industries, Inc. and subsidiaries as of
September 30, 1997 and 1996, and the related consolidated statements of
earnings, shareholders' equity and cash flows for the years then ended, and
related schedule for the years ended September 30, 1997 and 1996, which reports
appear in the September 30, 1997 annual report on Form 10-K of Insteel
Industries, Inc.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
December 5, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors and Shareholders
Insteel Industries, Inc.
We consent to incorporation by reference in the registration statements on Forms
S-8 (Nos. 33-01032, 33-40410, 33-35316, 33-61887, and 33-61889) of Insteel
Industries, Inc. of our report dated October 24, 1995, relating to the
consolidated statements of earnings, shareholders' equity and cash flows of
Insteel Industries, Inc. and subsidiaries for the year ended September 30, 1995
and related schedule for the year ended September 30, 1995 which report appears
in the September 30, 1997 annual report on Form 10-K of Insteel Industries, Inc.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
December 5, 1997
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K OF
INSTEEL INDUSTRIES, INC. FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<INVENTORY> 44,463
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0
0
<COMMON> 16,873
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<SALES> 262,325
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