<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-9929
INSTEEL INDUSTRIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0674867
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1373 BOGGS DRIVE, MOUNT AIRY, NORTH CAROLINA 27030
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 786-2141
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of
January 28, 1997 was 8,436,597.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSTEEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
1996 1996
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 425 $ 1,423
Accounts receivable, net 23,554 33,872
Inventories 37,842 31,845
Prepaid expenses and other 1,178 1,693
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Total current assets 62,999 68,833
Property, plant and equipment, net 74,270 71,072
Other assets 5,582 5,758
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Total assets $142,851 $145,663
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 24,879 $ 23,841
Accrued expenses 5,688 8,156
Current portion of long-term debt 3,080 3,188
-------- --------
Total current liabilities 33,647 35,185
Long-term debt 29,244 29,655
Deferred income taxes 6,295 6,410
Other liabilities 753 736
Shareholders' equity:
Common stock 16,871 16,871
Additional paid-in capital 38,192 38,192
Retained earnings 17,849 18,614
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Total shareholders' equity 72,912 73,677
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Total liabilities and shareholders' equity $142,851 $145,663
======== ========
</TABLE>
<PAGE> 3
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1996 1995
------------ --------------
<S> <C> <C>
Net sales $58,802 $57,505
Cost of sales 55,440 54,719
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Gross profit 3,362 2,786
Selling, general and administrative expense 3,320 3,039
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Operating income (loss) 42 (253)
Interest expense 444 608
Other expense (income) 3 (8)
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Loss before income taxes (405) (853)
Benefit for income taxes (147) (302)
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Net loss $ (258) $ (551)
======= ======
Weighted average shares outstanding 8,435 8,393
======= ======
Net loss per share $ (.03) $ (.07)
======= ======
Dividends paid per share $ .06 $ .06
======= ======
</TABLE>
<PAGE> 4
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------
1996 1995
---------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (258) $ (551)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,252 2,066
Accounts receivable, net 10,285 6,350
Inventories (5,997) 4,981
Accounts payable and accrued expenses (1,430) (7,092)
Other changes 419 337
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Total adjustments 5,529 6,642
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Net cash provided by operating activities 5,271 6,091
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Cash Flows From Investing Activities:
Capital expenditures (5,319) (2,568)
Proceeds on notes receivable 58 21
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Net cash used for investing activities (5,261) (2,547)
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Cash Flows From Financing Activities:
Net decrease in short-term debt - (1,059)
Proceeds from long-term debt 26,196 20
Principal payments on long-term debt (26,698) (1,830)
Dividends paid (506) (503)
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Net cash used for financing activities (1,008) (3,372)
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Net increase (decrease) in cash (998) 172
Cash and cash equivalents at beginning of period 1,423 263
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Cash and cash equivalents at end of period $ 425 $ 435
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the quarter for:
Interest $ 821 $ 1,026
Income taxes $ 388 $ 88
</TABLE>
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except per share data)
(1) BASIS OF PRESENTATION
The consolidated unaudited financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1996.
The unaudited consolidated financial statements included herein reflect
all adjustments (consisting only of normal recurring accruals) that the Company
considers necessary for a fair presentation of the financial position, results
of operations and cash flows for all periods presented. The results for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
(2) INVENTORIES
<TABLE>
<CAPTION>
December 31, September 30,
1996 1995
------------ -------------
<S> <C> <C>
Raw materials $18,478 $15,911
Supplies 2,197 2,099
Work in process 1,424 1,426
Finished goods 15,743 12,409
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Total inventories $37,842 $31,845
======= =======
</TABLE>
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Statements of Earnings - Selected Data
($ In Thousands)
<TABLE>
<CAPTION>
Three Months Ended December 31,
----------------------------------
1996 Change 1995
----------- ------ -----------
<S> <C> <C> <C>
Net sales $58,802 2% $57,505
Gross profit $ 3,362 21% $ 2,786
Percentage of net sales 5.7% 4.8%
Selling, general and administrative
expense $ 3,320 9% $ 3,039
Percentage of net sales 5.6% 5.3%
Operating income (loss) $ 42 N/M $ (253)
Percentage of net sales 0.1% (0.4%)
Interest expense $ 444 (27%) $ 608
Percentage of net sales 0.8% 1.1%
Loss before income taxes $ (405) (53%) $ (853)
Percentage of net sales (0.7%) (1.5%)
Effective income tax rate 36.3% 35.4%
</TABLE>
Net sales increased to $58.8 million for the first quarter, a 2% increase
over a year ago. Total wire product shipments rose 3% for the quarter primarily
due to increases in industrial wire and nails. Sales from the Company's new
businesses, PC strand and collated fasteners, also contributed to the
year-to-year increase. In October 1996, the expansion of the PC strand operation
was completed with the start-up of a second production line. Operating levels at
the collated fastener facility continued to increase with the addition of new
equipment. Average selling prices of wire products declined 1% compared with the
same period last year. Sales of the Insteel 3-D(R) building panel decreased 32%
compared with a year ago.
Gross profit increased 21% for the quarter compared with the prior year,
rising as a percentage of sales to 5.7% from 4.8%. Operating expenses were
negatively impacted by the transfer of equipment and industrial wire capacity
from the Virginia facility to other Insteel locations. Maintenance and process
improvements completed during plant shutdowns related to the usual seasonal
downturn in shipments also drove operating costs higher.
Selling, general and administrative expense increased 9% for the quarter,
rising to 5.6% of sales compared with 5.3% in the year-earlier period. The
primary factor driving the increase was expenditures related to the upgrade of
the Company's management information systems.
Interest expense decreased 27% for the first quarter compared with the
year-earlier period primarily due to lower average debt levels together with a
decrease in the Company's average borrowing rates.
The Company's effective income tax rate for the first quarter was 36.3%
compared with 35.4% in the prior year period. The increase in the fiscal 1997
rate is primarily due to a higher estimated state income tax rate.
<PAGE> 7
Financial Condition
<TABLE>
<CAPTION>
Selected Financial Data
($ In Thousands)
Three Months Ended December 31,
-------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net cash provided by operating activities $ 5,271 $ 6,091
Net cash used for investing activities $ (5,261) $ (2,547)
Net cash used for financing activities $ (1,008) $ (3,372)
EBITDA(1) $ 2,291 $ 1,821
Working capital $ 29,352 $ 22,675
Total debt $ 32,324 $ 32,023
Percentage of total capital 31% 31%
Shareholders'equity $ 72,912 $ 70,157
Percentage of total capital 69% 69%
Total capital $105,236 $102,180
</TABLE>
(1) Earnings before interest, taxes, depreciation and amortization.
Operating activities generated $5.3 million of cash in the first quarter
compared with $6.1 million in the same period last year. The primary factor
driving the year-to-year decrease was the reduction in excess inventories
during the year-ago period compared with the usual seasonal increase that
occurred in the current quarter. EBITDA rose to $2.3 million compared with $1.8
million a year ago.
Investing activities consumed $5.3 million in the quarter compared with
$2.5 million in the prior year period as a result of higher capital
expenditures primarily related to the tire bead wire project. Construction is
underway on the reconfiguration and expansion of the Company's Virginia plant
into a world-class tire bead wire manufacturing facility. Total expenditures
for the project are currently expected to approximate $16.0 million with the
largest portion occuring during the next two quarters.
Financing activities used $1.0 million in the quarter compared with $3.4
million in the year-ago period. In January 1996, the annual lines of credit
that provided total availability of $20.0 million were replaced by a $35.0
million unsecured revolving credit facility that will expire in November 2000.
As a result, the short-term debt balance outstanding was refinanced under the
revolver and is now reflected as a long-term liability.
Insteel's financial position continues to be strong. The Company's total
debt to capital ratio at December 31, 1996 remained at 31%, the same level as a
year ago. At December 31, 1996, approximately $21.6 million was available under
the $35.0 million revolving credit facility. The Company currently expects to
fund its capital expenditure requirements and liquidity needs from a
combination of internally generated funds, the revolving credit facility and
additional long-term sources of financing.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Insteel operates in a rapidly changing environment that involves a number
of risks and uncertainties, some of which are beyond the Company's control. The
Company has short delivery cycles and as a result does not have a large order
backlog, which makes the forecasting of revenue inherently uncertain. As
delivery lead times have decreased, the Company has generated a higher
percentage of sales from new order bookings in the same fiscal period.
Business conditions and growth in the general economy have an impact on the
Company's operating results. Seasonality also affects the Company's operating
results, particularly in the first quarter of the fiscal year, which has
historically represented the lowest quarterly sales volume. Shipments typically
increase in the second quarter and reach a high point in the third or fourth
quarter, reflecting the buying patterns of the Company's customers.
<PAGE> 8
Wire rod market conditions also have a significant impact on the Company's
operating results. Hot rolled steel rod is the Company's primary raw material
and constitutes the largest component of manufacturing costs. Realized selling
values for the Company's products cannot always be adjusted in the short-term
to recover cost increases in steel rod, but generally tend to reflect changes
in these prices over the long-run. Recently announced expansions in domestic
wire rod capacity should increase supplier competition and favorably impact
quality and availability. As order lead times begin to decrease, the Company
should be able to significantly reduce raw material inventory levels in
comparison to recent years when maintaining adequate supply was a primary
concern.
Insteel's business strategy continues to be focused on further expansion
into higher value-added products that offer superior returns relative to the
Company's traditional businesses. In January 1994, the Company entered the PC
strand business with the start-up of a new manufacturing facility. The operation
was expanded in October 1996 with the addition of a second production line. In
March 1996, the Company entered the collated fastener business with the start-up
of a new manufacturing facility. The Company has also announced plans to enter
the tire reinforcement business, with production of tire bead wire scheduled to
begin during the third quarter of fiscal 1997.
Operating volumes at Insteel Construction Systems have remained
substantially below break-even level. The Company expects to make a decision
regarding the continuation of this division during the second quarter of fiscal
1997.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-k
a. Exhibits:
27.1 Financial Data Schedule (for SEC use only)
b. Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
quarter ended December 31, 1996.
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSTEEL INDUSTRIES, INC.
Registrant
Date: January 28, 1997 By /s/ H.O. Woltz III
------------------------------
H. O. Woltz III
President and Chief Executive
Officer
Date: January 28, 1997 By /s/ Michael C. Gazmarian
------------------------------
Michael C. Gazmarian
Chief Financial Officer and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INSTEEL INDUSTRIES, INC. FOR THE THREE MONTH PERIOD
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 425
<SECURITIES> 0
<RECEIVABLES> 23,554
<ALLOWANCES> 0
<INVENTORY> 37,842
<CURRENT-ASSETS> 62,999
<PP&E> 74,270
<DEPRECIATION> 0
<TOTAL-ASSETS> 142,851
<CURRENT-LIABILITIES> 33,647
<BONDS> 0
0
0
<COMMON> 16,871
<OTHER-SE> 56,041
<TOTAL-LIABILITY-AND-EQUITY> 142,851
<SALES> 58,802
<TOTAL-REVENUES> 58,802
<CGS> 55,440
<TOTAL-COSTS> 55,440
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444
<INCOME-PRETAX> (405)
<INCOME-TAX> (147)
<INCOME-CONTINUING> (258)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (258)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
