<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------- --------
COMMISSION FILE NUMBER 1-9929
INSTEEL INDUSTRIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
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: 336-786-2141
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
August 7, 1998 was 8,442,512.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSTEEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 27, SEPTEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 719 $ 1,079
Accounts receivable, net 32,145 31,049
Inventories 37,381 44,463
Prepaid expenses and other 1,862 1,702
Net assets of discontinued operations -- 1,869
------------ ------------
Total current assets 72,107 80,162
Property, plant and equipment, net 80,935 86,401
Other assets 5,363 4,913
------------ ------------
Total assets $ 158,405 $ 171,476
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,242 $ 31,639
Accrued expenses 8,973 9,216
Current portion of long-term debt 620 2,620
------------ ------------
Total current liabilities 36,835 43,475
Long-term debt 48,498 49,673
Deferred income taxes 4,658 5,989
Other liabilities 1,036 1,017
Shareholders' equity:
Common stock 16,885 16,873
Additional paid-in capital 38,232 38,200
Retained earnings 12,261 16,249
------------ ------------
Total shareholders' equity 67,378 71,322
------------ ------------
Total liabilities and shareholders' equity $ 158,405 $ 171,476
============ ============
</TABLE>
<PAGE> 3
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
JUNE 27, JUNE 30, JUNE 27, JUNE 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 69,275 $ 68,127 $ 192,190 $ 191,803
Cost of sales 65,258 62,265 185,371 177,888
---------- ---------- ---------- ----------
Gross profit 4,017 5,862 6,819 13,915
Selling, general and administrative expense 3,070 3,223 9,488 9,346
---------- ---------- ---------- ----------
Operating income (loss) 947 2,639 (2,669) 4,569
Interest expense 911 636 2,928 1,472
Other expense (income) 28 158 (2,402) 166
---------- ---------- ---------- ----------
Earnings (loss) from continuing operations before
income taxes and extraordinary item 8 1,845 (3,195) 2,931
Provision (benefit) for income taxes 3 669 (1,134) 1,063
---------- ---------- ---------- ----------
Earnings (loss) from continuing operations before
extraordinary item 5 1,176 (2,061) 1,868
Discontinued operations:
Loss from operations of Insteel Construction Systems
net of income tax benefit of $395 -- -- -- (693)
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)
---------- ---------- ---------- ----------
Loss from discontinued operations -- -- -- (2,877)
---------- ---------- ---------- ----------
Earnings (loss) before extraordinary item 5 1,176 (2,061) (1,009)
Extraordinary item:
Loss on early extinguishment of debt (net of income
tax benefit of $224) -- -- (408) --
---------- ---------- ---------- ----------
Net earnings (loss) $ 5 $ 1,176 $ (2,469) $ (1,009)
========== ========== ========== ==========
Weighted average shares outstanding (basic) 8,443 8,437 8,442 8,436
========== ========== ========== ==========
Per share (basic):
Earnings (loss) from continuing operations $ -- $ 0.14 $ (0.24) $ 0.22
Loss from discontinued operations -- -- -- (0.34)
Extraordinary loss on early extinguishment of debt -- -- (0.05) --
---------- ---------- ---------- ----------
Net earnings (loss) $ -- $ 0.14 $ (0.29) $ (0.12)
========== ========== ========== ==========
Dividends paid $ 0.06 $ 0.06 $ 0.18 $ 0.18
========== ========== ========== ==========
</TABLE>
<PAGE> 4
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
JUNE 27, JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) from continuing operations $ (2,469) $ 1,868
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of debt 408 --
Depreciation and amortization 6,767 6,253
Accounts receivable, net (1,091) 1,408
Inventories 7,082 (12,880)
Accounts payable and accrued expenses (4,639) 5,521
Gain on sale of assets (4,704) --
Other changes (2,688) 617
---------- ----------
Total adjustments 1,135 919
---------- ----------
Net cash provided by (used for) operating activities (1,334) 2,787
---------- ----------
DISCONTINUED OPERATING ACTIVITIES:
Net cash provided by discontinued operating activities 1,869 847
INVESTING ACTIVITIES:
Capital expenditures (5,261) (22,354)
Proceeds on notes receivable 134 636
Proceeds from sale of property, plant and equipment 8,864 --
---------- ----------
Net cash provided by (used for) investing activities 3,737 (21,718)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from long-term debt 86,118 89,676
Principal payments on long-term debt (89,275) (71,425)
Proceeds from stock options 44 --
Dividends paid (1,519) (1,527)
---------- ----------
Net cash provided by (used for) financing activities (4,632) 16,724
---------- ----------
Net decrease in cash (360) (1,360)
Cash and cash equivalents at beginning of period 1,079 1,423
---------- ----------
Cash and cash equivalents at end of period $ 719 $ 63
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3,177 $ 1,609
Income taxes 596 613
</TABLE>
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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,
1997.
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) CHANGE IN FISCAL YEAR
Effective October 1, 1997, the Company has adopted a 52 or 53 week
fiscal year ending on the Saturday nearest the last day of September in each
year. All references to years relate to fiscal years rather than calendar years.
(3) INVENTORIES
<TABLE>
<CAPTION>
JUNE 27, SEPTEMBER 30,
1998 1997
---------- -------------
<S> <C> <C>
Raw materials $ 20,652 $ 24,698
Supplies 2,187 2,147
Work in process 1,588 1,730
Finished goods 12,954 15,888
---------- ----------
Total inventories $ 37,381 $ 44,463
========== ==========
</TABLE>
(4) SALE OF AGRICULTURAL FENCING PRODUCT LINE
In February 1998, the Company sold the inventory and equipment related
to its agricultural fencing product line to Keystone Consolidated Industries,
Inc. for approximately $12.6 million. The final sales price is subject to
adjustment based upon changes in the specific equipment and inventories included
in the transaction. Under the terms of the agreement, Insteel agreed to
manufacture agricultural fencing products for Keystone during a transition
period until the equipment was relocated to Keystone's production facilities.
Insteel's nine-month financial results reflect a pre-tax gain of $2.5 million on
the sale of the assets in other income, net of a provision for the estimated
transition-related costs. The Company expects to cease its agricultural fencing
manufacturing activities by the end of the current fiscal year.
(5) EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
In March 1998, the Company retired its $10.0 million 8.25% senior
secured notes due 2002, funding the prepayment under its unsecured revolving
credit facility. Insteel's nine-month financial results reflect an extraordinary
loss of $408,000 after income taxes, or approximately five cents per share,
related to the redemption premium and write-off of deferred financing costs.
<PAGE> 6
(6) DISCONTINUED OPERATIONS
In May 1997, the Company sold its Insteel Construction Systems division
("ICS"), which manufactured and marketed the Insteel 3-D(R) building panel. ICS
has been classified as a discontinued operation in the accompanying financial
statements in accordance with Accounting Principles Board Opinion No. 30.
The operating results of the discontinued ICS division are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
JUNE 27, JUNE 30, JUNE 27, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ -- $ -- $ -- $ 580
Cost of sales -- -- -- 743
-------- -------- -------- --------
Gross loss -- -- -- (163)
Selling, general and administrative expense -- -- -- 720
-------- -------- -------- --------
Operating loss -- -- -- (883)
Interest expense -- -- -- 82
Other expense -- -- -- 123
-------- -------- -------- --------
Loss from operations of Insteel Construction
Systems before income taxes -- -- -- (1,088)
Benefit for income taxes -- -- -- (395)
-------- -------- -------- --------
Loss from operations of Insteel Construction
Systems $ -- $ -- $ -- $ (693)
======== ======== ======== ========
</TABLE>
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>
JUNE 27, SEPTEMBER 30,
1998 1997
-------- -------------
<S> <C> <C>
Prepaid expenses and other $ -- $ 323
Property, plant and equipment, net -- 1,418
Other assets -- 803
-------- --------
Total assets -- 2,544
-------- --------
Accrued expenses -- 675
-------- --------
Total liabilities -- 675
======== ========
Net assets of discontinued operations $ -- $ 1,869
======== ========
</TABLE>
<PAGE> 7
(7) EARNINGS PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 replaces the
primary and fully diluted earnings per share ("EPS") computations with basic and
diluted EPS. Basic EPS are computed by dividing net earnings by the weighted
average number of common shares outstanding during the period. Diluted EPS are
computed by dividing net earnings by the weighted average number of common
shares and dilutive securities outstanding during the period. Securities that
have the effect of increasing EPS are considered to be antidilutive and are not
included in the computation of diluted EPS. Options to purchase 354,000 shares
and 269,000 shares for the quarters ended June 27, 1998 and June 30, 1997,
respectively, were antidilutive and were not included in the diluted EPS
computation.
The reconciliation of basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
JUNE 27, JUNE 30, JUNE 27, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings (loss) from continuing operations $ 5 $ 1,176 $ (2,061) $ 1,868
Loss from discontinued operations -- -- -- (2,877)
Extraordinary loss on early extinguishment of debt -- -- (408) --
-------- -------- -------- --------
Net earnings (loss) $ 5 $ 1,176 $ (2,469) $ (1,009)
======== ======== ======== ========
Weighted average shares outstanding:
Weighted average shares outstanding (basic) 8,443 8,437 8,442 8,436
Dilutive effect of stock options 12 13 -- --
-------- -------- -------- --------
Weighted average shares outstanding (diluted) 8,455 8,450 8,442 8,436
======== ======== ======== ========
Earnings (loss) per share (basic and diluted):
Earnings (loss) from continuing operations $ -- $ 0.14 $ (0.24) $ 0.22
Loss from discontinued operations -- -- -- (0.34)
Extraordinary loss on early extinguishment of debt -- -- (0.05) --
-------- -------- -------- --------
Net earnings (loss) $ -- $ 0.14 $ (0.29) $ (0.12)
======== ======== ======== ========
</TABLE>
(8) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components. SFAS No. 131, which is based on the management approach to
segment reporting, establishes requirements to report selected information about
operating segments and related disclosures about products and services, major
customers and geographic areas. As the requirements of these statements only
impact financial statement disclosures, they are not expected to have a material
impact on the Company's consolidated financial position or results of
operations. The Company will adopt SFAS' No. 130 and 131 in 1999.
<PAGE> 8
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 NINE MONTHS ENDED
-------------------------------------- --------------------------------------
JUNE 27, JUNE 30, JUNE 27, JUNE 30,
1998 CHANGE 1997 1998 CHANGE 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 69,275 2% $ 68,127 $ 192,190 -- $ 191,803
Gross profit 4,017 (31%) 5,862 6,819 (51%) 13,915
Percentage of net sales 5.8% 8.6% 3.5% 7.3%
Selling, general and administrative expense $ 3,070 (5%) $ 3,223 $ 9,488 2% $ 9,346
Percentage of net sales 4.4% 4.7% 4.9% 4.9%
Operating income (loss) $ 947 N/M $ 2,639 $ (2,669) N/M $ 4,569
Percentage of net sales 1.4% 3.9% (1.4%) 2.4%
Interest expense $ 911 43% $ 636 $ 2,928 99% $ 1,472
Percentage of net sales 1.3% 0.9% 1.5% .8%
Effective income tax rate 37.5% 36.3% 35.5% 36.3%
Earnings (loss) from continuing operations $ 5 (100%) $ 1,176 $ (2,061) N/M $ 1,868
Percentage of net sales -- 1.7% (1.1%) 1.0%
</TABLE>
Insteel's net sales for the third quarter rose 2% from a year ago to
$69.3 million. For the nine-month period, sales increased slightly from the
prior year. The growth in sales was in spite of the Company's exit from the
agricultural fencing business, which reduced current year sales relative to the
comparable year-ago periods. Excluding agricultural fencing products, sales of
wire products rose 11% and 6% for the third quarter and nine-month periods
primarily due to higher sales of bulk nails. Sales of concrete reinforcing
products increased 8% and 4% for the third quarter and nine-month periods as a
result of higher shipments of welded wire mesh. Sales of tire bead wire and
welding wire increased during the third quarter as the Company obtained customer
approval on certain products and began to achieve consistent shipment levels.
Gross margins for the third quarter decreased 31% to 5.8% of sales
compared with 8.6% in the prior year. For the nine-month period, gross margins
fell 51% to 3.5% of sales from 7.3% a year ago. The reduction in margins was
primarily caused by a narrowing in spreads between selling values and raw
material costs in certain products and markets together with low operating
volumes at the Company's recent expansions. The Virginia manufacturing facility
continued to operate at a significant loss as revenues remained well below the
levels required to cover the costs necessary to support the anticipated ramp-up
of the tire bead wire and welding wire businesses. The Company's other new
business initiative, collated fasteners, also operated at a loss due to
insufficient sales volume and pricing pressure resulting from increased import
competition.
Selling, general and administrative expense ("SG&A expense") declined
5% for the third quarter, falling to 4.4% of sales from 4.7% in the prior year.
For the nine-month period, SG&A expense increased 2%, remaining flat as a
percentage of sales at 4.9%. Selling expenses related to the Company's new
businesses increased over the prior year while employee profit-sharing and
incentive plan expenses declined.
Interest expense rose sharply for the third quarter and nine-month
periods compared with a year ago due to higher borrowing levels on the Company's
revolving credit facility. The increase in debt was primarily related to capital
expenditures for the tire bead wire and welding wire expansion together with
higher average inventory levels.
In February 1998, the Company sold the inventory and equipment related
to its agricultural fencing product line. Nine-month results reflect a pre-tax
gain of $2.5 million on the sale of the assets in other income, net of a
provision for the estimated transition-related costs.
In March 1998, the Company retired its $10.0 million 8.25% senior
secured notes due 2002, funding the prepayment under its unsecured revolving
credit facility. Nine-month results reflect an extraordinary loss of $408,000
after income taxes, or approximately five cents per share, related to the early
extinguishment of debt.
Nine-month results for the prior year reflect a $2.9 million loss
related to the sale of the company's Insteel Construction Systems division (ICS)
and the reclassification of the segment as discontinued operations. ICS
manufactured and marketed the Insteel 3-D(R) building panel.
<PAGE> 9
FINANCIAL CONDITION
SELECTED FINANCIAL DATA
($ in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
JUNE 27, JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
Net cash provided by (used for) operating activities $ (1,334) $ 2,787
Net cash provided by (used for) investing activities 3,737 (21,718)
Net cash provided by (used for) financing activities (4,632) 16,724
Long-term debt 49,118 48,262
Percentage of total capital 42% 40%
Shareholders' equity $ 67,378 $ 71,140
Percentage of total capital 58% 60%
Total capital (long-term debt + shareholders' equity) $ 116,496 $ 119,402
</TABLE>
Operating activities used $1.3 million of cash for the nine-month
period while providing $2.8 million a year ago. The year-to-year change was
principally related to the deterioration in the financial results of the Company
during the current year. Inventories decreased during the current year primarily
due to a reduction in raw material inventory levels together with the sale of
agricultural fencing inventories. During the year-ago period, inventories were
increased in anticipation of further price escalation in the fourth quarter.
Cash generated from the inventory reduction during the current year was
partially offset by a decline in accounts payable related to lower raw material
purchases. During the prior year, accounts payable had increased as a result of
higher purchase volumes required to build inventories.
Investing activities provided $3.8 million of cash for the nine-month
period while using $21.7 million a year ago. The year-to-year change was
primarily related to a reduction in capital expenditures together with the
current year proceeds from the sale of agricultural fencing equipment. Capital
expenditures were higher during the year-ago period principally due to the tire
bead wire and welding wire expansion.
Financing activities used $4.6 million of cash for the nine-month
period while providing $16.7 million a year ago. The increase in debt during the
prior year was primarily related to funding the capital expenditures for the
tire bead wire and welding wire expansion together with the increase in
inventories.
The Company's long-term debt to capital ratio increased to 42% at June
27, 1998 compared with 40% at June 30, 1997 primarily as a result of capital
expenditures related to the tire bead wire and welding wire expansion together
with the decline in the Company's financial results. In January 1998, the
Company's unsecured revolving credit facility was amended, increasing the
availability to $55.0 million and raising the permitted ratio of funded debt to
earnings before interest, taxes, depreciation and amortization through March
1998. In March 1998, the revolving credit facility was again amended in order to
fund the prepayment of the Company's $10.0 million 8.25% senior secured notes.
The Company's availability was increased to $60.0 million through October 3,
1998, declining to $57.5 million on October 4, 1998 and $55.0 million on January
3, 1999. At June 27, 1998, approximately $15.6 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.
YEAR 2000
The Company has initiated a Year 2000 program to assess and develop
plans to resolve the issue both internally and externally. The Company is
currently in the process of upgrading its business systems to Year 2000
compliant software which is expected to enhance the performance of the Company's
customer service, manufacturing and administrative processes. In addition, the
Company is surveying key suppliers and customers in order to identify potential
Year 2000 problems and determine the appropriate actions to be taken. Although
the Company does not expect any significant disruption in operations in the
event that any of its suppliers or customers fail to achieve Year 2000
compliance, there can be no assurances given to that effect. The Company does
not expect the costs directly associated with Year 2000 compliance will have a
material impact on its consolidated financial position or results of operations.
<PAGE> 10
OUTLOOK
The Company's financial results are impacted by seasonal factors,
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.
Domestic wire rod market conditions tightened during the previous year
and prices escalated due to actual and expected production outages at some of
the major producers together with the filing of petitions alleging subsidized
imports and dumping against certain countries exporting into the U.S.. In
November 1997, the U.S. International Trade Commission ("ITC") ruled that while
imports from certain countries were subsidized, such subsidies did not cause or
threaten to cause material injury to domestic producers of wire rod. In March
1998, the ITC ruled against the domestic wire rod producers on the dumping
allegations as well. The resolution of the ITC filing together with recent
expansions in domestic capacity have expanded the availability of wire rod to
the Company and significantly increased supplier competition, resulting in lower
price levels. The Company expects that these developments will alleviate the
supply constraints that have characterized the market over the past year and
favorably impact its financial results in ensuing quarters.
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. Sales of these new products are expected to
increase from $33.1 million in 1997 to $100.0 million in 2000 when fully
operational.
During the third quarter, the Company completed the expansion of the PC
strand manufacturing facility to its full design capacity. The Company expects
that the recently enacted federal highway spending legislation will have a
favorable impact on the demand for its concrete reinforcing products.
Significant progress was made towards the completion of the qualification
process for tire bead wire and welding wire as the Company obtained customer
approval on certain products and began to attain consistent shipment volumes.
The financial results of the Company will continue to be negatively impacted
until sales of these products rise to projected levels. As the Company is
currently incurring substantially all of the anticipated operating costs
required to support its new businesses, the incremental impact of forecasted
increases in sales is expected to significantly improve its financial
performance.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains forward-looking statements that reflect
management's current assumptions and estimates of future performance and
economic conditions. Such statements are made in reliance upon the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are subject to various risks and uncertainties that
could cause actual results to differ materially from those projected, stated or
implied by the statements. Such risks and uncertainties include, but are not
limited to, general economic conditions in the markets in which the Company
operates; unanticipated changes in customer demand, order patterns and inventory
levels; fluctuations in the cost and availability of the Company's primary raw
material, hot rolled steel rod; the Company's ability to raise selling prices in
order to recover increases in steel rod prices; legal, environmental or
regulatory developments that significantly impact the Company's operating costs;
the success of the Company's new product initiatives, including the PC strand,
collated fastener, tire bead wire and welding wire expansions; the inability of
the Company to expedite the qualification process with prospective customers for
tire bead wire and welding wire; and the failure of the Company to receive
regular and substantial orders for its new products.
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27 - Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended June 27, 1998.
<PAGE> 12
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: August 7, 1998 By /s/ H.O. Woltz III
----------------------------------------
H.O. Woltz III
President and Chief Executive Officer
Date: August 7, 1998 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 NINE MONTHS ENDED JUNE
27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> JUN-27-1998
<CASH> 719
<SECURITIES> 0
<RECEIVABLES> 32,145
<ALLOWANCES> 0
<INVENTORY> 37,381
<CURRENT-ASSETS> 72,107
<PP&E> 80,935
<DEPRECIATION> 0
<TOTAL-ASSETS> 158,405
<CURRENT-LIABILITIES> 36,835
<BONDS> 0
0
0
<COMMON> 16,885
<OTHER-SE> 50,493
<TOTAL-LIABILITY-AND-EQUITY> 158,405
<SALES> 192,190
<TOTAL-REVENUES> 192,190
<CGS> 185,371
<TOTAL-COSTS> 185,371
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,928
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