<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 OCTOBER 3, 1998
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
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 1, 1998 was $36,883,449.
The number of shares outstanding of the registrant's common stock as
of December 1, 1998 was 8,442,512.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement to be delivered to
shareholders in connection with the 1999 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 that serves a broad range of markets nationwide.
The Company's wholly-owned subsidiary, Insteel Wire Products Company ("IWP"),
manufactures and markets concrete reinforcing products, industrial wire, nails,
tire bead wire and welding wire for a multitude of construction and industrial
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 returns that exceed the Company's cost of
capital. Future growth will leverage off of the Company's core competencies in
the manufacture and sales of wire products.
During 1998, the Company sold the inventory and equipment related to
its agricultural fencing product line to Keystone Consolidated Industries, Inc.
and exited the fencing business. Under the terms of the sale, the Company
agreed to manufacture fencing products for Keystone until the equipment was
relocated to its facilities. The Company expects to cease the remainder of its
agricultural fencing activities by the end of the calendar year.
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 manufacturers, precasters,
distributors and construction companies. PC strand is a sophisticated
reinforcing product sold to precasters and post-tensioning suppliers that is
used for both pretensioned and post-tensioned prestressed concrete
construction.
INDUSTRIAL WIRE PRODUCTS are primarily sold to manufacturers of
springs for bedding, furniture, automotive seating and other applications,
appliances, display racks and a multitude of other products. 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.
BULK NAILS consist of a wide variety of products such as common nails,
finishing nails, box nails, sinkers, duplex nails and galvanized nails sold to
wholesalers and distributors primarily for construction-related applications.
COLLATED FASTENERS are comprised of a broad range of collated nails
that are used by a variety of pneumatic nailing tools. The products are sold to
distributors and original equipment manufacturers ("OEMs") primarily for
construction-related applications.
TIRE BEAD WIRE is a bronze-plated steel wire sold to tire
manufacturers that is used to reinforce the inside diameter of a tire and hold
the tire to the wheel.
WELDING WIRE is a copper-plated steel wire sold to distributors and
OEMs that is used as a filler metal material in GMAW welding applications.
MARKETING AND DISTRIBUTION
Insteel markets its products through sales representatives who are
employees of the Company. The Company's sales organization is aligned with its
product lines, 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
proximity to its suppliers.
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CUSTOMERS
The Company sells its products to a broad range of customers including
original equipment manufacturers, distributors, wholesalers and retailers.
Sealy Corporation accounted for approximately 11% of the Company's net sales in
1998 and 10% in 1997. There were no customers that represented 10% or more of
the Company's net sales in 1996.
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. Domestic wire rod market conditions
tightened during 1997 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 production
capacity have increased the availability of wire rod to the Company, driving
rod prices lower as supplier competition has intensified. The Company expects
that these developments will alleviate the supply constraints that have
characterized the market over the past year. The Company believes that raw
materials and supplies are available in quantities adequate to meet its current
and foreseeable needs and that alternative sources of supply are available to
ensure its ability to service its customers should rod production be
interrupted.
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 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 October 3, 1998, the Company employed 1,056 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 its 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 its financial position or results of operations.
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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. 73 Chairman of the Board and a Director
H.O. Woltz III 42 President, Chief Executive Officer and a Director
Gary D. Kniskern 53 Vice President - Administration and Secretary
Michael C. Gazmarian 39 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 20
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, formerly 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 19 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, including most recently as 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 3, 1998 for a term that will
expire at 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 9, 1999.
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 and Fredericksburg
plants are 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.
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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 1998.
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, 1998, there were 641 shareholders of
record. Selected quarterly financial data appears under the caption "Financial
Information by Quarter (Unaudited)" in Item 8(b) of this report.
ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------------------
OCTOBER 3, SEPTEMBER 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 266,147 $ 262,325 $ 264,382 $ 258,582 $ 245,621
Earnings from continuing operations
before extraordinary loss and 328 2,536 5,237 5,344 5,230
cumulative effect of change in
accounting principle
Net earnings (loss) (80) (341) 4,243 6,336 5,097
Earnings per share from continuing
operations before extraordinary
loss and cumulative effect of
change in accounting principle
(basic and diluted) .04 .30 .62 .64 .63
Net earnings (loss) per share
(basic and diluted) (.01) (.04) .50 .76 .61
Cash dividends per share .24 .24 .24 .24 .24
Total assets 147,131 171,476 146,122 148,920 138,548
Long-term debt 35,743 49,673 29,655 21,451 26,215
Shareholders' equity 69,260 71,322 73,677 71,212 66,461
</TABLE>
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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
---------------------------------------------------------------------------
OCTOBER 3, SEPTEMBER 30,
--------------------------------------------
1998 CHANGE 1997 CHANGE 1996
-------------- --------- ------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 266,147 1% $ 262,325 (1%) $ 264,382
Gross profit 13,353 (29%) 18,852 (15%) 22,224
Percentage of net sales 5.0% 7.2% 8.4%
Selling, general and administrative expense $ 13,410 8% $ 12,395 4% $ 11,973
Percentage of net sales 5.0% 4.7% 4.5%
Operating income (loss) $ (57) N/M $ 6,457 (37%) $ 10,251
Percentage of net sales -- 2.5% 3.9%
Interest expense $ 3,810 67% $ 2,276 18% $ 1,923
Percentage of net sales 1.4% 0.9% 0.7%
Effective income tax rate 35.4% 36.4% 35.4%
Earnings from continuing operations $ 328 (87%) $ 2,536 (52%) $ 5,237
Percentage of net sales 0.1% 1.0% 2.0%
</TABLE>
1998 COMPARED WITH 1997
Net sales rose 1% to $266.1 million in 1998 from $262.3 million in
1997. The growth in sales was in spite of the sale of the Company's
agricultural fencing product line, which reduced current year sales relative to
the prior year. Excluding sales of agricultural fencing products, sales
increased 8%. Sales of bulk nails rose sharply in 1998 as shipments reached a
new record high while industrial wire sales were flat. Sales of concrete
reinforcing products increased 7% primarily as a result of higher shipments of
welded wire fabric. Tire bead wire and welding wire sales gradually increased
during the year as the Company obtained customer approval on certain products
and began to achieve consistent shipment levels.
Gross margins fell to 5.0% of sales in 1998 from 7.2% in 1997. 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") rose 8%,
increasing to 5.0% of sales in 1998 from 4.7% in 1997. The increase in SG&A
expense was primarily due to higher selling expenses to support the new
businesses, rising employee benefit costs and expenditures related to the
upgrade of the Company's management information system. These increases were
partially offset by a decline in employee profit-sharing and incentive plan
expenses.
Interest expense rose sharply in 1998 compared with 1997 due to higher
average borrowing levels on the Company's revolving credit facility. The
increase in debt was primarily related to higher average inventory levels
together with capital expenditures for the tire bead wire and welding wire
expansion.
During 1998, the Company sold the inventory and equipment related to
its agricultural fencing product line. The Company's financial results reflect
a pre-tax gain of $3.4 million, or 26 cents per share after-tax, on the sale of
the assets in other income, net of a provision for the estimated
transition-related costs. Under the terms of the sale, the Company agreed to
manufacture fencing products for the buyer until the equipment was relocated to
the buyer's facilities. The Company expects to cease the remainder of its
agricultural fencing activities by the end of the calendar year.
The Company terminated one of its pension plans during 1998,
recognizing a pre-tax gain of $1.2 million, or 7 cents per share after-tax, in
other income for the curtailment of plan benefits and settlements that had been
made to date. The Company expects to complete the settlement of the plan by the
end of 1999.
Also in 1998, the Company retired its $10.0 million 8.25% senior
secured notes, funding the prepayment under its
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unsecured revolving credit facility. The Company's financial results reflect an
extraordinary loss of $408,000 after income taxes, or approximately 5 cents per
share, related to the early extinguishment of debt.
The Company's 1997 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.
1997 COMPARED WITH 1996
Net sales declined 1% to $262.3 million in 1997 from $264.4 million in
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.
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 of bulk nails and agricultural products had
an 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.
SG&A expense increased 4%, rising to 4.7% of sales in 1997 from 4.5%
in 1996. 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 1997 financial statements reflect the disposal of 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.
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LIQUIDITY AND CAPITAL RESOURCES
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
OCTOBER 3, SEPTEMBER 30,
-----------------------------------
1998 1997 1996
---------------- --------------- ---------------
<S> <C> <C> <C>
Net cash provided by continuing operating activities $ 14,517 $ 7,277 $ 15,729
Net cash provided by (used for) investing activities 2,372 (26,438) (12,804)
Net cash provided by (used for) financing activities (17,912) 17,717 (3,744)
Working capital 26,307 36,687 37,489
Turnover ratios: (1)
Working capital (2) 8.9 8.2 9.9
Receivables 8.9 8.2 8.4
Inventories 6.7 6.4 6.7
Total debt $ 36,363 $ 52,293 $ 32,843
Percentage of total capitalization 34% 42% 31%
Shareholders' equity $ 69,260 $ 71,322 $ 73,677
Percentage of total capitalization 66% 58% 69%
Total capital $ 105,623 $ 123,615 $ 106,520
</TABLE>
(1) Based upon average year-end balances
(2) Excluding cash and cash equivalents and net assets of discontinued
operations
Continuing operating activities generated $14.5 million of cash in
1998 compared with $7.3 million and $15.7 million in 1997 and 1996,
respectively. The fluctuations were primarily due to changes in the Company's
inventory levels. Inventories decreased during 1998 due to a substantial
reduction in raw material inventories together with the sale of the finished
goods inventories associated with the agricultural fencing product line. In
1997, inventories were increased in anticipation of rising raw material prices
together with potential supply disruptions resulting from labor contract
negotiations at two major wire rod producers. Inventories declined in 1996 from
the escalated levels of 1995 when weak market conditions and depressed shipment
volumes had resulted in a sharp increase in inventories. Cash generated from
the inventory reductions during 1998 and 1996 was partially offset by a decline
in accounts payable related to lower raw material purchases. During 1997,
accounts payable increased as a result of higher purchase volumes required to
build inventories. In 1998 and 1997, cash generated from continuing operating
activities was unfavorably impacted by the deterioration in the Company's
financial results in comparison to the earnings level of 1996.
Investing activities provided $2.4 million of cash in 1998 while using
$26.4 million and $12.8 million in 1997 and 1996, respectively. In 1998,
proceeds primarily related to the sale of the Company's agricultural fencing
equipment exceeded capital expenditures. During 1997 and 1996, capital
expenditures amounted to $40.3 million to support the Company's expansions into
the tire bead wire, welding wire and collated fastener businesses. In addition,
the Company expanded the capacity of its PC strand operation and upgraded its
existing manufacturing facilities.
Financing activities used $17.9 million and $3.7 million of cash in
1998 and 1996, respectively, while providing $17.7 million in 1997. During
1998, cash generated from the sharp reduction in inventories and the sale of
assets related to the agricultural fencing product line was used to pay down
debt. The increase in debt in 1997 was primarily related to funding the capital
expenditures for the tire bead wire and welding wire expansion together with
the increase in inventories.
The financial position of the Company remains strong. The Company's
debt to capital ratio decreased to 34% at October 3, 1998 compared with 42% and
31% at September 30, 1997 and 1996, respectively. During 1998, the Company's
revolving credit facility was amended, increasing the maximum availability to
$60.0 million, declining to $57.5 million on October 4, 1998 and $55.0 million
on January 3, 1999 and thereafter. The Company utilized a portion of the
increase to fund the prepayment of its $10.0 million 8.25% senior secured
notes. At October 3, 1998, approximately $28.2 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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YEAR 2000
The "Year 2000" issue refers to older computer systems and other
equipment operating on software that uses only two digits to represent the
year, rather than four digits. As a result, these older systems and equipment
may not process information or otherwise function properly when using the year
"2000", since that year will be indistinguishable from the year "1900".
The Company has initiated a Year 2000 program to assess and develop
plans to resolve the issue both internally and externally. During 1996, the
Company began developing a plan to upgrade its business and operating systems
to Year 2000 compliant software. In addition to addressing the Year 2000 issue,
the systems upgrade is expected to enhance the performance of the Company's
customer service, manufacturing and administrative processes. Implementation of
the upgrade began in 1997 with the initial testing of the system on a limited
basis prior to converting all of the Company's locations. As of October 3,
1998, the implementation had been completed at 25% of the Company's facilities
with the pace of the conversion expected to accelerate for the remaining
locations. The Company expects to complete the project by September 1999.
In order to identify potential Year 2000 problems at key suppliers and
customers, the Company has initiated external surveys to assess their level of
compliance. The Company expects to complete its assessment of outside parties
and develop the appropriate actions to be taken by April 1999.
The Company also is in the process of reviewing embedded software in
its equipment and facilities to identify potential Year 2000 issues. Equipment
manufacturers are being requested to certify their compliance and assist the
Company in developing solutions where they are currently non-compliant. The
Company expects to complete the assessment and testing process by September
1999.
While reasonable actions have been taken to address the Year 2000
problem and will continue to be taken in the future to mitigate such
disruption, the magnitude of all Year 2000 disturbances cannot be predicted.
Failure to complete these programs as planned could result in the corruption of
data, hardware or equipment failures or the inability to manufacture products
or conduct other business activities, all of which could have a material impact
on the Company's business, consolidated financial position or results of
operations. Management believes that past or expected future capital
requirements related to Year 2000 compliance issues will not have a material
impact on its consolidated financial position or results of operations.
The Company does not, at this time, have an overall contingency plan
to address Year 2000 disturbances. Its efforts to date have been concentrated
on mitigating such disturbances. As the Company proceeds forward with its
assessment programs and evaluates the reasonable potential risks, it will
determine the extent of contingency planning and resources that are
appropriate. Any such contingency actions and resources would be planned to be
in place in sufficient time for the Year 2000.
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
returns that exceed the Company's cost of capital and (2) improving the
financial performance
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of the Company's traditional businesses to acceptable levels. 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 $39.6
million in 1998 to $100.0 million when fully operational.
During 1998, 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 ("TEA-21") 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, 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; the failure of the Company to
receive regular and substantial orders for its new products; 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; disruptions in the business activities of the
Company and its suppliers and customers resulting from the Year 2000 problem;
and legal, environmental or regulatory developments that significantly impact
the Company's operating costs;.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(A) FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets as of October 3, 1998 and September 30, 1997 12
Consolidated Statements of Earnings for the three years ended October 3, 1998 and September 30, 1997 and 1996 13
Consolidated Statements of Shareholders? Equity for the three years ended October 3, 1998 and September 30, 1997 and 1996 14
Consolidated Statements of Cash Flows for the three years ended October 3, 1998 and September 30, 1997 and 1996 15
Notes to Consolidated Financial Statements 16
Report of Independent Public Accountants 26
Schedule II - Valuation and Qualifying Accounts for the three years ended October 3, 1998 and September 30, 1997 and 1996 27
Report of Independent Public Accountants on Schedule 28
</TABLE>
10
<PAGE> 11
(B) SUPPLEMENTARY DATA
Selected quarterly financial data is as follows:
FINANCIAL DATA BY QUARTER (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
DEC 27 MAR 28 JUN 27 OCT 3
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
1998
OPERATING RESULTS
Net sales $ 59,919 $ 62,996 $ 69,275 $ 73,957
Gross profit 1,475 1,327 4,017 6,534
Earnings (loss) before extraordinary item (1,687) (379) 5 2,389
Extraordinary loss -- (408) -- --
Net earnings (loss) (1,687) (787) 5 2,389
PER SHARE DATA (BASIC AND DILUTED)
Earnings (loss) before extraordinary item (0.20) (0.04) -- 0.28
Extraordinary loss -- (0.05) -- --
Net earnings (loss) (0.20) (0.09) -- 0.28
Cash dividends 0.06 0.06 0.06 0.06
Stock prices
High 8.63 7.81 8.44 6.69
Low 6.25 6.19 6.13 4.50
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
DEC 27 MAR 28 JUN 27 OCT 3
----------- ----------- ------------ ------------
<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 (BASIC AND DILUTED)
Earnings from continuing operations -- 0.08 0.14 0.08
Loss from discontinued operations (0.03) (0.31) -- --
Net earnings (loss) (0.03) (0.23) 0.14 0.08
Cash dividends 0.06 0.06 0.06 0.06
Stock prices
High 9.25 9.63 9.13 8.25
Low 6.63 8.00 7.50 7.19
</TABLE>
11
<PAGE> 12
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 30,
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 422 $ 1,079
Accounts receivable, net 28,687 31,049
Inventories 30,566 44,463
Prepaid expenses and other 2,023 1,702
Net assets of discontinued operations - 1,869
---------------- ----------------
Total current assets 61,698 80,162
Property, plant and equipment, net 80,350 86,401
Other assets 5,083 4,913
---------------- ----------------
Total assets $ 147,131 $ 171,476
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 28,758 $ 31,639
Accrued expenses 6,013 9,216
Current portion of long-term debt 620 2,620
---------------- ----------------
Total current liabilities 35,391 43,475
Long-term debt 35,743 49,673
Deferred income taxes 5,726 5,989
Other liabilities 1,011 1,017
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: 1998 8,443; 1997 8,437 16,885 16,873
Additional paid-in capital 38,232 38,200
Retained earnings 14,143 16,249
---------------- ----------------
Total shareholders' equity 69,260 71,322
---------------- ----------------
Total liabilities and shareholders' equity $ 147,131 $ 171,476
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 13
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
OCTOBER 3, SEPTEMBER 30,
---------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 266,147 $ 262,325 $ 264,382
Cost of sales 252,794 243,473 242,158
-------------- ------------- -------------
Gross profit 13,353 18,852 22,224
Selling, general and administrative expense 13,410 12,395 11,973
-------------- ------------- -------------
Operating income (loss) (57) 6,457 10,251
Interest expense 3,810 2,276 1,923
Other expense (income) (4,375) 193 221
-------------- ------------- -------------
Earnings from continuing operations before
income taxes 508 3,988 8,107
Provision for income taxes 180 1,452 2,870
-------------- ------------- -------------
Earnings from continuing operations before
extraordinary item 328 2,536 5,237
Discontinued operations:
Loss from operations of Insteel Construction
Systems net of income tax benefits of $395
and $544 -- (693) (994)
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) (994)
-------------- ------------- -------------
Earnings (loss) before extraordinary item 328 (341) 4,243
-------------- ------------- -------------
Extraordinary loss on early extinguishment of debt
(net of income tax benefit of $224) (408) -- --
-------------- ------------- -------------
Net earnings (loss) $ (80) $ (341) $ 4,243
============== ============= =============
Per share (basic and diluted):
Earnings from continuing operations $ 0.04 $ 0.30 $ 0.62
Loss from discontinued operations -- (0.34) (0.12)
Extraordinary loss (0.05) -- --
-------------- ------------- -------------
Net earnings (loss) $ (0.01) $ (0.04) $ 0.50
============== ============= =============
Cash dividends per share $ 0.24 $ 0.24 $ 0.24
============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 14
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------
OCTOBER 3, SEPTEMBER 30,
-----------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year $ 16,873 $ 16,871 $ 16,787
Stock options exercised 12 2 84
------------- ------------- -------------
Balance, end of year $ 16,885 $ 16,873 $ 16,871
============= ============= =============
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year $ 38,200 $ 38,192 $ 38,033
Stock options exercised 32 8 159
------------- ------------- -------------
Balance, end of year $ 38,232 $ 38,200 $ 38,192
============= ============= =============
RETAINED EARNINGS:
Balance, beginning of year $ 16,249 $ 18,614 $ 16,392
Cash dividends declared (2,026) (2,024) (2,021)
Net earnings (loss) (80) (341) 4,243
------------- ------------- -------------
Balance, end of year $ 14,143 $ 16,249 $ 18,614
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 15
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
SEPTEMBER 30,
OCTOBER 3, ---------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Net earnings (loss) $ (80) $ (341) $ 4,243
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 8,738 8,224 7,688
Extraordinary loss 408 -- --
Gain on sale of assets (4,575) -- --
Loss from discontinued operations -- 2,877 994
Net changes in assets and liabilities:
Accounts receivable, net 2,365 1,347 (2,476)
Inventories 13,898 (12,758) 8,760
Accounts payable and accrued expenses (6,083) 7,924 (2,451)
Other changes (154) 4 (1,029)
-------------- ------------ ------------
Total adjustments 14,597 7,618 11,486
-------------- ------------ ------------
Net cash provided by continuing operating activities 14,517 7,277 15,729
-------------- ------------ ------------
CASH FLOWS FROM DISCONTINUED OPERATING ACTIVITIES:
Net cash provided by discontinued operating activities 366 1,100 1,979
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,708) (27,076) (13,193)
Proceeds from notes receivable 222 638 389
Proceeds from sale of property, plant and equipment 8,858 -- --
-------------- ------------ ------------
Net cash provided by (used for) investing activities 2,372 (26,438) (12,804)
-------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term debt -- -- (8,260)
Proceeds from long-term debt 107,132 115,256 80,424
Principal payments on long-term debt (123,062) (95,525) (74,130)
Proceeds from exercise of stock options 44 10 243
Cash dividends paid (2,026) (2,024) (2,021)
-------------- ------------- -------------
Net cash provided by (used for) financing activities (17,912) 17,717 (3,744)
-------------- ------------- -------------
Net increase (decrease) in cash (657) (344) 1,160
Cash and cash equivalents at beginning of year 1,079 1,423 263
-------------- ------------- -------------
Cash and cash equivalents at end of year $ 422 $ 1,079 $ 1,423
============== ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,843 $ 2,023 $ 2,257
Income taxes 596 896 926
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 16
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 3, 1998 AND SEPTEMBER 30, 1997
AND 1996 (Amounts in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR. Effective October 1, 1997, the Company adopted a 52 or 53
week fiscal year ending on the Saturday nearest the last day of September in
each year. Prior to fiscal 1998, the Company's fiscal year was the 12-month
period ending September 30. All references to years relate to fiscal years
rather than calendar years.
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. No interest costs were
capitalized in 1998 or 1996. Capitalized interest costs were $492 in 1997.
OTHER ASSETS. Other assets consist principally of the cash surrender
value of life insurance policies, various intangible assets and long-term notes
receivable. Intangible assets are amortized on a straight-line basis over the
expected periods to be benefited.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts for 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. The carrying amount of long-term
debt approximates its estimated fair value.
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. The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128 "Earnings Per Share" in 1998. 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 other dilutive equity 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.
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components. As the statement only
impacts financial statement disclosures, it will not effect the Company's
financial position or results of operations. The Company will adopt SFAS No.
130 as required in its interim financial statements for the first quarter of
1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." 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
statement only impacts financial statement disclosures, it will not effect the
Company's financial position or results of operations. Management is in the
process of evaluating the effects of this change on its reporting. The Company
will adopt SFAS No. 131 as required in its annual report for 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. Management has not yet evaluated the effects of this
change on its operations. The Company will adopt SFAS No. 133 as required in
its interim financial statements for the first quarter of 2000.
RECLASSIFICATIONS. Certain reclassifications have been made in prior
years' financial statements for consistent presentation.
(2) EXTRAORDINARY LOSS - EARLY EXTINGUISHMENT OF DEBT
In 1998, the Company retired its $10.0 million 8.25% senior secured
notes due 2002, funding the prepayment under its unsecured revolving credit
facility. The Company recorded an extraordinary loss of $408,000 after income
taxes, or approximately 5 cents per share, related to the redemption premium
and write-off of deferred financing costs.
(3) DISCONTINUED OPERATIONS
In 1997, the Company sold the assets of 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 ("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
----------------------------------------------
OCTOBER 3, SEPTEMBER 30,
---------------------------
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
Net sales $ -- $ 580 $ 2,388
Cost of sales -- 743 2,247
------------ ----------- ----------
Gross profit (loss) -- (163) 141
Selling, general and administrative expense -- 720 1,465
------------ ----------- ----------
Operating loss -- (883) (1,324)
Interest expense -- 82 350
Other expense (income) -- 123 (136)
------------ ----------- ----------
Loss from operations of Insteel Construction
Systems -- (1,088) (1,538)
before income taxes
Benefit for income taxes -- (395) (544)
------------ ----------- ---------
Loss from operations of Insteel Construction Systems $ -- $ (693) $ (994)
============ =========== =========
</TABLE>
17
<PAGE> 18
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>
OCTOBER 3, 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
------------ -------------
(4) DEBT AND CREDIT FACILITIES
Long-term debt, due dates and interest rates are as follows:
<CAPTION>
OCTOBER 3, SEPTEMBER 30,
1998 1997
------------ -------------
<S> <C> <C>
Revolving credit agreement; expires November 2000 at variable
interest rate (7.53% at October 3, 1998 and 6.25% at September $ 31,823 $ 36,133
30, 1997)
Industrial revenue refunding bonds; due dates through 2005 at
6.50% - 7.75% 2,240 2,520
Industrial development revenue refunding bonds; due dates
through 1999 at variable interest rate (3.80% at October 3, 1998 1,700 2,040
and 4.20% at September 30, 1997)
Mortgage note 600 600
Senior secured notes; due dates through 2002 at 8.25% -- 11,000
------------ -------------
Total long-term debt 36,363 52,293
Less current maturities 620 2,620
------------ -------------
Long-term debt, excluding current maturities $ 35,743 $ 49,673
============ =============
</TABLE>
During 1998, the Company's unsecured revolving credit facility was
amended, increasing the maximum availability on its line of credit 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 thereafter. The Company utilized a portion
of the increase to fund the prepayment of its $10.0 million 8.25% senior
secured notes. At October 3, 1998, approximately $28.2 million was available
under the facility.
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").
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 and require
tangible net worth to be maintained at specified amounts. At October 3, 1998,
the Company was in compliance with all of the restrictive covenants. Property,
plant and equipment with an aggregate carrying value of $25,992 is pledged as
collateral under the Company?s debt agreements.
Aggregate maturities of long-term debt for the next five years are as
follows: 1999, $620; 2000, $1,640; 2001, $31,823; 2002, $0; 2003, $840; beyond,
$1,440.
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
(5) SHAREHOLDERS' EQUITY
Shares of common stock outstanding are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
OCTOBER 3, SEPTEMBER 30,
----------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Balance, beginning of year 8,437 8,435 8,393
Stock options exercised 6 2 42
---------- ---------- -----------
Balance, end of year 8,443 8,437 8,435
========== ========== ===========
</TABLE>
(6) 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 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.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
EXERCISE PRICE PER SHARE
----------------------------------------------
OPTIONS WEIGHTED
OUTSTANDING RANGE AVERAGE
----------- ------------------------- -----------
<S> <C> <C> <C> <C>
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
Granted 232 4.69 - 7.31 5.49
Exercised (6) 7.00 - 7.88 7.43
Cancelled (104) 6.38 - 10.68 9.41
===========
Balance, October 3, 1998 626 4.69 - 10.44 7.41
===========
The weighted average characteristics of outstanding stock options at
October 3, 1998 for various price ranges are as follows:
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
---------------------------------------------- ----------------------------
REMAINING WEIGHTED WEIGHTED
LIFE AVERAGE AVERAGE
RANGE OF EXERCISE PRICES SHARES (YEARS) PRICE SHARES PRICE
- ---------------------------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 4.69 - $ 4.69 130 9.9 $ 4.69 26 $ 4.69
6.38 - 7.00 133 8.5 6.60 62 6.74
7.13 - 7.56 130 8.0 7.42 71 7.40
7.88 - 9.13 122 6.2 8.42 104 8.39
10.44 - 10.44 111 0.1 10.44 111 10.44
</TABLE>
At October 3, 1998, 458 shares were available for future grants under
the plans. Options exercisable were 374 at October 3, 1998 and 343 at September
30, 1997. The weighted average exercise price for these shares was $8.28 for
1998 and $8.99 for 1997.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
The Company has elected to follow APB No. 25, "Accounting for Stock
Issued to Employees" in accounting for its stock option plans. APB No. 25
specifies that no compensation expense is recognized when the exercise price of
the stock options equals the market value of the underlying stock at the grant
date, as in the case of options granted under the Company's plans. SFAS No.
123, "Accounting for Stock-Based Compensation," specifies the use of certain
option valuation models to calculate estimated compensation expense to be
reflected in pro forma net earnings and net earnings per share. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
OCTOBER 3, SEPTEMBER 30,
----------------------------
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
Net earnings (loss) as reported under:
APB No. 25 $ (80) $ (341) $ 4,243
SFAS No. 123 (224) (445) 4,187
Basic and diluted net earnings (loss) per share as reported under:
APB No. 25 (0.01) (0.04) 0.50
SFAS No. 123 (0.03) (0.05) 0.50
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
OCTOBER 3, SEPTEMBER 30,
--------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Expected life (in years) 5.0 5.0 5.0
Risk-free interest rate 5.5% 6.3% 5.8%
Expected volatility 0.30 0.30 0.30
Expected dividend yield 3.0% 3.0% 3.0%
</TABLE>
The weighted average estimated fair values of options granted during
1998, 1997 and 1996 were $1.61, $2.48 and $2.07 per share, respectively.
The above pro forma disclosures of applying SFAS No. 123 are not
likely to be representative of the effects on net earnings and net earnings per
share in future years, because they do not take into consideration pro forma
compensation expense related to grants made prior to 1996.
(7) INCOME TAXES
The provision for income taxes for continuing operations consists of:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
OCTOBER 3, SEPTEMBER 30,
----------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
CURRENT:
Federal $ 373 $ 1,673 $ 3,574
State (5) 112 268
----------- ----------- ----------
368 1,785 3,842
DEFERRED:
Federal 10 (522) (683)
State (198) 189 (289)
------------ ----------- ----------
(188) (333) (972)
------------ ----------- ----------
Provision for income taxes $ 180 $ 1,452 $ 2,870
============ =========== ==========
</TABLE>
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
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
---------------------------------------------
OCTOBER 3, SEPTEMBER 30,
----------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Provision for income taxes at statutory rate $ 173 $ 1,356 $ 2,756
State income taxes, net of federal income (3) 74 177
tax benefit
Other, net 10 22 (63)
----------- ----------- ----------
Provision for income taxes $ 180 $ 1,452 $ 2,870
=========== =========== ==========
</TABLE>
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>
OCTOBER 3, SEPTEMBER 30,
1998 1997
------------ ---------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Accrued expenses or asset reserves for financial statements not $ 2,826 $ 2,474
yet deductible for tax purposes
Alternative minimum tax credit carryforwards 1,788 1,712
------------ --------------
Gross deferred tax assets 4,614 4,186
DEFERRED TAX LIABILITIES:
Plant and equipment principally due to differences in
Depreciation and capitalized interest (8,290) (8,542)
Other reserves (557) (525)
Prepaid expenses for financial statements that were deducted for tax purposes -- (127)
----------- -------------
Gross deferred tax liabilities (8,847) (9,194)
----------- -------------
Net deferred tax liability $ (4,233) $ (5,008)
=========== =============
</TABLE>
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
(8) EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS. The Company currently has two defined benefit
pension plans for eligible employees that provide benefits based primarily upon
years of service and compensation levels: (1) the Pension Plan of Insteel
Industries, Inc., ("the Insteel Plan"), and (2) the Insteel Wire Products
Company Retirement Income Plan for Hourly Employees, Wilmington, Delaware,
("the Delaware Plan"). The Company?s funding policy is to contribute amounts at
least equal to those required by law.
Effective October 1, 1997, the Company froze all benefit accruals for
additional years of credited service for plan participants in the Insteel Plan.
In August 1998, the Company terminated the Insteel Plan, recognizing a gain
based upon the curtailment of plan benefits and settlements that had been made
to date. The Company recorded a $1.2 million gain in other income relating to
the plan termination. The Company expects to complete the settlement of the
Insteel Plan by the end of 1999. Insteel Plan assets are primarily invested in
short-term money market investments in anticipation of the settlement. The
Insteel Plan held 27 shares of the Company's common stock with a market value
of $126 at October 3, 1998. The funded status and components of net pension
expense used for the Insteel Plan are as follows:
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 30,
1998 1997
------------ -------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 4,960 $ 7,227
Nonvested benefit obligation -- 344
------------ -------------
Accumulated benefit obligation 4,960 7,571
Projected benefit obligation 4,960 10,222
Plan assets at fair market value 5,168 9,873
------------ -------------
Plan assets in excess of (less than) projected benefit obligation 208 (349)
Unrecognized net transition asset (97) (238)
Unrecognized prior service cost -- 373
Unrecognized net loss (gain) 97 (2,075)
------------ -------------
Prepaid pension expense (accrued pension liability) included
in accrued expenses $ 208 $ (2,289)
------------ -------------
<CAPTION>
YEAR ENDED
-----------------------------------------------
OCTOBER 3, SEPTEMBER 30,
----------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ -- $ 555 $ 506
Interest cost on projected benefit obligation 722 654 623
Expected investment return on plan assets (776) (2,081) (823)
Net amortization and deferral (163) 1,304 76
Curtailment gain (1,200) -- --
--------- ---------- ----------
Net pension expense (income) $ (1,417) $ 432 $ 392
========= ========== ==========
</TABLE>
The Delaware Plan assets are primarily invested in publicly traded
equities and insurance company guaranteed investment accounts. The funded
status and components of net pension expense for the Delaware Plan are as
follows:
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 30,
1998 1997
------------ --------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 3,336 $ 2,642
Nonvested benefit obligation 392 359
------------ --------------
Accumulated benefit obligation 3,728 3,001
Projected benefit obligation 3,728 3,001
Plan assets at fair market value 2,806 3,235
------------ --------------
Projected benefit obligation (in excess of) less than plan assets (922) 234
Unrecognized net transition obligation 30 41
Unrecognized prior service cost 75 19
Unrecognized net gain (45) (293)
------------ --------------
Prepaid pension expense (accrued pension liability) included
in accrued expenses $ (922) $ 1
============ ==============
</TABLE>
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
OCTOBER 3, SEPTEMBER 30,
-------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 93 $ 106 $ 102
Interest cost on projected benefit
obligation 225 205 183
Expected investment return on plan assets 445 (666) (215)
Net amortization and deferral (696) 481 60
------------- ------------ ------------
Net pension expense $ 67 $ 126 $ 130
------------- ------------ ------------
</TABLE>
The weighted average assumptions used for the calculations for the
Insteel and Delaware Plans are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
OCTOBER 3, SEPTEMBER 30,
------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Assumptions at year-end:
Discount rate 5.9%-6.5% 7.5% 7.5%
Rate of increase in compensation levels 5.0% 5.0% 5.0%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
</TABLE>
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, a portion of the Company's management and certain
manufacturing facilities participate in other incentive plans based upon the
attainment of targeted levels for return on capital and key performance
measurements. Profit-sharing and incentive plan expense was $487 in 1998, $658
in 1997 and $1,074 in 1996.
RETIREMENT SAVINGS PLAN. In 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 15% of their annual compensation to the
Plan, limited to a maximum annual amount as set periodically by the Internal
Revenue Code. For 1998, the Company provided a matching contribution of 50% of
the first 5% of employee compensation paid to the Plan. 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 $496
in 1998 and $85 in 1997 and 1996.
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 $37 in 1998, $84 in 1997 and
$87 in 1996.
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 $0 in 1998,
$350 in 1997 and $727 in 1996.
(9) 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 $932 in 1998, $1,068 in 1997 and $1,084
in 1996. Minimum rental commitments under all non-cancelable leases with an
initial term in excess of one year are payable as follows: 1999, $330; 2000,
$217; 2001, $177; 2002, $114; 2003; $25; beyond, $569.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
PURCHASE COMMITMENTS. Commitments for the construction or purchase of
property, plant and equipment approximate $257 at October 3, 1998.
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.
(10) EARNINGS PER SHARE
The reconciliation of basic and diluted EPS as required under SFAS No.
128 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
OCTOBER 3, SEPTEMBER 30,
----------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Earnings from continuing operations $ 328 $ 2,536 $ 5,237
Loss from discontinued operations -- (2,877) (994)
Extraordinary loss (408) -- --
---------- ---------- ----------
Net earnings (loss) $ (80) $ (341) $ 4,243
========== ========== ==========
Weighted average shares outstanding:
Weighted average shares outstanding (basic) 8,442 8,436 8,416
Dilutive effect of stock options -- -- 3
---------- ---------- ----------
Weighted average shares outstanding (diluted) 8,442 8,436 8,419
---------- ---------- ----------
Earnings (loss) per share (basic and diluted):
Earnings from continuing operations $ 0.04 $ 0.30 $ 0.62
Loss from discontinued operations -- (0.34) (0.12)
Extraordinary loss (0.05) -- --
---------- ---------- ----------
Net earnings (loss) $ (0.01) $ (0.04) $ 0.50
========== ========== ==========
</TABLE>
Options to purchase 523 shares in 1998, 463 shares in 1997 and 403
shares in 1996 were antidilutive and were not included in the diluted EPS
computation.
(11) MAJOR CUSTOMERS
One customer accounted for 11% of the Company's net sales in 1998 and
10% in 1997. There were no customers that accounted for 10% or more of the
Company's net sales in 1996.
(12) 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 3, in 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.
Construction services provided by John S. Clark to the Company were $93 in 1998
and $5,904 in 1997.
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data)
(13) OTHER FINANCIAL DATA
Balance sheet information:
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $ 28,912 $ 31,291
Less allowance for doubtful accounts (225) (242)
------------- ------------
Total $ 28,687 $ 31,049
============= ============
Inventories:
Raw materials $ 15,514 $ 24,698
Supplies 2,242 2,147
Work in process 1,525 1,730
Finished goods 11,285 15,888
------------- ------------
Total $ 30,566 $ 44,463
============= ============
Property, plant and equipment, net:
Land and land improvements $ 5,140 $ 5,106
Buildings 36,225 35,938
Machinery and equipment 95,372 99,554
Construction in progress 1,660 1,851
------------- ------------
138,397 142,449
Less accumulated depreciation (58,047) (56,048)
------------- ------------
Total $ 80,350 $ 86,401
============= ============
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC 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 October 3, 1998 and September 30, 1997
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for the three years ended October 3, 1998 and September 30, 1997 and
1996. 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.
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Insteel Industries,
Inc. and subsidiaries as of October 3, 1998 and September 30, 1997, and the
results of their operations and their cash flows for the three years ended
October 3, 1998 and September 30, 1997 and 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
October 15, 1998.
26
<PAGE> 27
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED OCTOBER 3, 1998 AND SEPTEMBER 30, 1997 AND 1996
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------
OCTOBER 3, SEPTEMBER 30,
-----------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of year $ 242 $ 240 $ 250
Additions charged to earnings 19 18 (10)
Accounts written off (36) (16) --
------------- ------------- -------------
Balance, end of year $ 225 $ 242 $ 240
============= ============= =============
</TABLE>
27
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC 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
October 3, 1998 and September 30, 1997, and the related consolidated statements
of earnings, shareholders' equity, and cash flows for the three years ended
October 3, 1998 and September 30, 1997 and 1996, and have issued our report
thereon dated October 15, 1998. 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
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 15, 1998.
28
<PAGE> 29
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.
The information with respect to directors and nominees required for
this item appears under the caption "Election of Directors" in the Company's
Proxy Statement for the 1999 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 caption
"Executive Compensation" in the Company's Proxy Statement for the 1999 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 1999 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 1999 Annual Meeting of Shareholders and is incorporated
by reference.
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 27 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 October 3,
1998.
(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 2, 1998 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 2, 1998 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/ LOUIS E. HANNEN Director
- -----------------------------------
LOUIS E. HANNEN
/s/ FRANCES H. JOHNSON Director
- -----------------------------------
FRANCES H. JOHNSON
/s/ CHARLES B. NEWSOME Director
- -----------------------------------
CHARLES B. NEWSOME
/s/ GARY L. PECHOTA Director
- -----------------------------------
GARY L. PECHOTA
/s/ W. ALLEN ROGERS II Director
- -----------------------------------
W. ALLEN ROGERS II
/s/ WILLIAM J. SHIELDS Director
- -----------------------------------
WILLIAM J. SHIELDS
/s/ C. RICHARD VAUGHN Director
- -----------------------------------
C. RICHARD VAUGHN
</TABLE>
30
<PAGE> 31
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED
OCTOBER 3, 1998
<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.
# 4.24 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.
</TABLE>
31
<PAGE> 32
EXHIBIT INDEX, CONTINUED
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED
OCTOBER 3, 1998
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C> <C>
## 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.
4.45 Fourth Amendment dated January 6, 1998 to
Amended and Restated Credit Agreement between
First Union National Bank of North Carolina and
Insteel Industries, Inc. dated January 26,
1996.
4.46 Fifth Amendment dated March 27, 1998 to Amended
and Restated Credit Agreement between First
Union National Bank of North Carolina and
Insteel Industries, Inc. dated January 26,
1996.
4.47 Sixth Amendment dated August 7, 1998 to Amended
and Restated Credit Agreement between First
Union National Bank of North Carolina and
Insteel Industries, Inc. dated January 26,
1996.
4.48 Seventh Amendment dated October 27, 1998 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
+ 10.5 Employee Stock Ownership Plan of Insteel
Industries, Inc., including Employee Stock
Ownership Plan Trust Agreement.
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.
10.11 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).
10.12 1994 Director Stock Option Plan of Insteel
Industries, Inc. as Amended and Restated
Effective as of April 28, 1998.
+++ 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
</TABLE>
32
<PAGE> 33
EXHIBIT INDEX, CONTINUED
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED
OCTOBER 3, 1998
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C> <C>
+++ 10.30 Insteel Industries, Inc. Director Compensation
Plan
21- List of Subsidiaries of Insteel Industries,
Inc., at October 3, 1998.
23- CONSENTS OF EXPERTS AND COUNSEL: INDEPENDENT
AUDITORS' CONSENT.
--------------------------------------------
23.1 Consent of Arthur Andersen 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.
+++ 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, 1997.
</TABLE>
33
<PAGE> 1
EXHIBIT 4.45
FOURTH AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Amendment"), dated this sixth day of January, 1998, 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, by Second Amendment thereto,
dated as of April 30, 1997, and by Third Amendment thereto, dated November 17,
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 definition 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) increase the Revolving
Line of Credit Commitment for a limited period of time from $50,000,000 to
$55,000,000, (ii) decrease the Letter of Credit Facility Commitment for a
limited period of time from $10,000,000 to $5,000,000, (iii) consent to a
change of Borrower's fiscal year, (iv) amend in certain respects the ratio for
the calculation for the marginal rate of interest and marginal facility fee to
be paid by Borrower, and (v) amend certain financial and other 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 definitions of "Applicable Margin", "Fiscal Year", "Letter of
Credit Facility Commitment" and
<PAGE> 2
EXHIBIT 4.45
"Revolving Line of Credit Commitment" in their entirety and by substituting in
lieu thereof the following:
"Applicable Margin" shall mean, at any date of determination, the
marginal rate or 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 October 1, 1997 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 4.75 to 1.0, then the Applicable Margin for LIBOR Rate Loans and the facility
2
<PAGE> 3
EXHIBIT 4.45
fee shall be 1.0% and 0.25%, respectively. If the Funded Debt to EBITDA
Ratio is greater than 4.75 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,
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 0.5%.
"Fiscal Year" shall mean the 52/53 week period of Borrower ending on
the Saturday closest to September 30 of each calendar year and commencing
on the next calendar day following such date.
"Letter of Credit Facility Commitment" shall mean $10,000,000 during
the period from the effective date of the First Amendment to this Agreement
through December 31, 1997; $5,000,000 during the period from January 1,
1998 through March 31, 1998; and $10,000,000 on April 1, 1998 and at all
times thereafter.
"Revolving Line of Credit Commitment" shall mean $50,000,000 during
the period from the effective date of the First Amendment to this Agreement
through December 31, 1997; $55,000,000 during the period from January 1,
1998 through March 31, 1998; and $50,000,000 on April 1, 1998 and at all
times thereafter.
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, (b) 4.75 to 1.0 for the four (4) Fiscal Quarters
ended December 27, 1997 and March 28, 1998, and (b) 3.5 to 1.0 at the end
of any Fiscal Quarter thereafter for the four (4) Fiscal Quarters then
ended."
1.3 Exhibits. Exhibit A to the Credit Agreement is hereby amended by
deleting such exhibit in its entirety and by replacing it with the Exhibit A
attached to this Amendment.
ARTICLE II
CONSENT
2.1 Consent. The Borrower has requested that the Bank consent to the
change of Borrower's Fiscal year from September 30 to the 52/53 week period
ending on the Saturday closest to September 30 of each calendar year. The Bank
hereby grants its consent to such change and agrees that such change shall not
constitute an Event of Default under the Credit Agreement or any of the other
Loan Documents.
3
<PAGE> 4
EXHIBIT 4.45
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 January
5, 1998, the aggregate principal amount of Revolving Loans owing by the Borrower
was in the sum of $49,999,999.99, the aggregate amount of Letter of Credit
Obligations owing by the Borrower was in the sum of $3,560,621.95, 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.
3.2 Compliance With the Credit Agreement. As of the execution of this
Amendment, the Borrower is in compliance with all of 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 the 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 provisions thereof. As used in the Credit Agreement
and the other Loan Documents, "hereinafter", "hereto", or words of similar
import, shall mean the Credit Agreement or the other Loan Documents, as the
case may be, as amended by this Amendment.
4
<PAGE> 5
EXHIBIT 4.45
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.
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
- ------------------- --------------------------
Assistant Secretary Title: Chief Financial Officer
and Treasurer
[CORPORATE SEAL]
FIRST UNION NATIONAL BANK
[SEAL] By: /s/ Richard J. Rizzo, Jr.
-------------------------
Title: Vice President
5
<PAGE> 6
EXHIBIT 4.45
EXHIBIT A TO
CREDIT AGREEMENT
THIRD AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$55,000,000 Greensboro, North Carolina
January __, 1998
FOR VALUE RECEIVED, the undersigned INSTEEL INDUSTRIES, INC., a North
Carolina corporation ("Borrower"), promises to pay to FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, a national banking association ("Bank"), or order, at the
principal office of the Bank in Greensboro, North Carolina, or at such other
place as the Bank may from time to time designate in writing, the principal sum
of Fifty-Five Million Dollars ($55,000,000), or, if less, the unpaid balance of
all Revolving Loans made by the Bank to the Borrower under the Revolving Line
of Credit extended by the Bank to the Borrower pursuant to the Credit
Agreement, together with interest on the unpaid principal amount of this Note
at the rates provided in the Credit Agreement.
This Note amends and restates in its entirety that certain $50,000,000
Second Amended and Restated Revolving Credit Note, dated April 11, 1997,
executed by Borrower to the order of Bank and is the Revolving Credit Note
issued to evidence Revolving Loans made by the Bank to the Borrower under the
Revolving Line of Credit pursuant to Section 2.1 of the Credit Agreement, dated
June 14, 1995, between the Borrower and the Bank, as the same may from time to
time be amended, modified, restated or supplemented ("Credit Agreement"), and
is entitled to the benefits of, and the remedies provided in, the Credit
Agreement. All of the terms, conditions and covenants of the Credit Agreement
are expressly made a part of this Note, by reference in the same manner and
with the same effect as if set forth herein. Reference is made to the Credit
Agreement for provisions for the maturity, payment, prepayment and acceleration
of this Note. All capitalized terms used in this Note without definition shall
have the meanings ascribed to such terms in the Credit Agreement.
The Borrower, for itself and its successors and assigns, expressly waives
presentment for payment, demand, protest and notice of demand, notice of
dishonor and notice of nonpayment and all other notices.
This Note shall be governed by, construed and enforced in accordance with
the internal laws, and not the laws of conflicts, of the State of North
Carolina.
<PAGE> 7
EXHIBIT 4.45
In the event that this Note shall at any time after maturity be collected
by or through an attorney-at-law, the Borrower agrees to pay, in addition to
the entire unpaid principal balance and interest due hereunder, all collection
costs, including reasonable attorneys' fees, incurred by the Bank in collecting
the indebtedness due hereunder, computed on the basis of usual and customary
rates and not on the basis of a fixed percentage of the indebtedness due
hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed under
seal by its duly authorized corporate officers and its corporate seal to be
hereunto affixed on the day and year first above written.
ATTEST: INSTEEL INDUSTRIES, INC.
By:
- ------------------------------------ -------------------------------------
Secretary Title:
- --------------------------- -------------------------------
[CORPORATE SEAL]
2
<PAGE> 8
EXHIBIT 4.45
THIRD AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$55,000,000 Greensboro, North Carolina
January 6, 1998
FOR VALUE RECEIVED, the undersigned INSTEEL INDUSTRIES, INC., a North
Carolina corporation ("Borrower"), promises to pay to FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, a national banking association ("Bank"), or order, at the
principal office of the Bank in Greensboro, North Carolina, or at such other
place as the Bank may from time to time designate in writing, the principal sum
of Fifty-Five Million Dollars ($55,000,000), or, if less, the unpaid balance of
all Revolving Loans made by the Bank to the Borrower under the Revolving Line of
Credit extended by the Bank to the Borrower pursuant to the Credit Agreement,
together with interest on the unpaid principal amount of this Note at the rates
provided in the Credit Agreement.
This Note amends and restates in its entirety that certain $50,000,000
Second Amended and Restated Revolving Credit Note, dated April 11, 1997,
executed by Borrower to the order of Bank and is the Revolving Credit Note
issued to evidence Revolving Loans made by the Bank to the Borrower under the
Revolving Line of Credit pursuant to Section 2.1 of the Credit Agreement, dated
June 14, 1995, between the Borrower and the Bank, as the same may from time to
time be amended, modified, restated or supplemented ("Credit Agreement") and is
entitled to the benefits of, and the remedies provided in, the Credit Agreement.
All of the terms, conditions and covenants of the Credit Agreement are expressly
made a part of this Note, by reference in the same manner and with the same
effect as if set forth herein. Reference is made to the Credit Agreement for
provisions for the maturity, payment, prepayment and acceleration of this Note.
All capitalized terms used in this Note without definition shall have the
meanings ascribed to such terms in the Credit Agreement.
The Borrower, for itself and its successors and assigns, expressly waives
presentment for payment, demand, protest and notice of demand, notice of
dishonor and notice of nonpayment and all other notices.
This Note shall be governed by, construed and enforced in accordance with
the internal laws, and not the laws of conflicts, of the State of North
Carolina.
<PAGE> 9
EXHIBIT 4.45
In the event that this Note shall at any time after maturity be collected
by or through an attorney-in-law, the Borrower agrees to pay, in addition to
the entire unpaid principal balance and interest due hereunder, all collection
costs, including reasonable attorneys' fees, incurred by the Bank in collecting
the indebtedness due hereunder, computed on the basis of usual and customary
rates and not on the basis of a fixed percentage of the indebtedness due
hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed under
seal by its duly authorized corporate officers and its corporate seal to be
hereunto affixed on the day and year first above written.
ATTEST: INSTEEL INDUSTRIES, INC.
/s/ Sandra S. White By: /s/ Michael C. Gazmarian
- ------------------- ------------------------------
Assistant Secretary Title: Chief Financial Officer
and Treasurer
[CORPORATE SEAL]
[SEAL]
2
<PAGE> 1
EXHIBIT 4.46
FIFTH AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Amendment"), dated this 27th day of March, 1998, 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, by Second Amendment thereto, dated as of April
30, 1997, and by Third Amendment thereto, dated November 17, 1997, and by Fourth
Amendment thereto, dated 6, 1998 (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 definition 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 $55,000,000 and a Letter
of Credit Facility in the amount of $5,000,000.
B. The Borrower has requested that the Bank (i) increase the Revolving
Line of Credit Commitment for a limited period of time from $55,000,000 to
$60,000,000, (ii) continue the Letter of Credit Facility Commitment at a
maximum amount of $5,000,000 and (iii) delete from the allowed Funded Debt set
forth on Exhibit I the Indebtedness owing by Borrower to Jefferson Pilot
Insurance Company which Borrower is or has paid and satisfied in full.
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 definitions of "Letter of Credit Facility Commitment" and
"Revolving Line of Credit Commitment" in their entirety and by substituting in
lieu thereof the following:
<PAGE> 2
EXHIBIT 4.46
"Letter of Credit Facility Commitment" shall mean $5,000,000 from
January 1, 1998 and at all times thereafter.
"Revolving Line of Credit Commitment" shall mean $60,000,000 during
the period from the date of the Fifth Amendment to this Agreement through
October 3, 1998; $57,500,000 during the period from October 4, 1998 through
January 2, 1999; and $55,000,000 on January 3, 1999 and at all times
thereafter.
1.2 Exhibits.
(a) Exhibit A to the Credit Agreement is hereby amended by deleting
such exhibit in its entirety and by replacing it with the Exhibit A
attached to this Amendment.
(b) Exhibit I to the Credit Agreement is amended by deleting the
reference to the Funded Debt owing by Borrower to Jefferson Pilot Insurance
Company as follows:
"Jefferson-Pilot Life Insurance $14,000,000 Semi-Annual Installments of
Company $1,000,000 Through October 2002"
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Bank that:
2.1 Acknowledgment of Obligations. As of the close of business on March
25, 1998, the aggregate principal amount of Revolving Loans owing by the
Borrower was in the sum of $39,449,999.99, the aggregate amount of Letter of
Credit Obligations owing by the Borrower was in the sum of $3,552,121,95, 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.
2.2 Compliance With the Credit Agreement. As of the execution of this
Amendment, the Borrower is in compliance with all of 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.
2.3 Representations in Credit Agreement. The representations and
warranties of the Borrower set forth in the Credit Agreement are true and
correct in all material respects.
2.4 No Event of Default. No Default or Event of Default exists.
2
<PAGE> 3
EXHIBIT 4.46
2.5 Payment of Amendment Fee. On the date of this Amendment, the Borrower
shall pay to the Bank an amendment fee in the amount of $25,000 which shall be
fully earned and non-refundable on the date of this Agreement and shall be paid
concurrently with the execution hereof.
ARTICLE III
MODIFICATION OF LOAN DOCUMENTS
3.1 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.
3.2 Note. The Revolving Credit Note evidencing the unpaid Revolving Loans
made by the Bank under the Revolving Line of Credit is amended and restated in
its entirety pursuant to the $60,000,000 Fourth Amended and Restated Revolving
Credit Note, dated of even date herewith, executed by the Borrower to the order
of the Bank.
ARTICLE IV
GENERAL
4.1 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 or the other Loan Documents, as
the case may be, as amended by this Amendment.
4.2 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.
4.3 Headings. The headings of this Amendment are for the purpose of
reference only and shall not effect the construction of this Amendment.
4.4 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.
3
<PAGE> 4
EXHIBIT 4.46
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/ Gary D. Kniskern By: /s/ Michael C. Gazmarian
- ------------------------- ----------------------------------
Secretary Title: Chief Financial Officer and
- ---------------- Treasurer
[CORPORATE SEAL]
[INSTEEL CORPORATE SEAL]
FIRST UNION NATIONAL BANK
By: /s/ Richard J. Rizzo Jr.
----------------------------------
Title: Vice President
4
<PAGE> 5
EXHIBIT 4.46
EXHIBIT A TO
CREDIT AGREEMENT
FOURTH AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$60,000,000 Greensboro, North Carolina
March __, 1998
FOR VALUE RECEIVED, the undersigned INSTEEL INDUSTRIES, INC., a North
Carolina corporation ("Borrower"), promises to pay to FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, a national banking association ("Bank"), or order, at the
principal office of the Bank in Greensboro, North Carolina, or at such other
place as the Bank may from time to time designate in writing, the principal sum
of Sixty Million Dollars ($60,000,000), or, if less, the unpaid balance of all
Revolving Loans made by the Bank to the Borrower under the Revolving Line of
Credit extended by the Bank to the Borrower pursuant to the Credit Agreement,
together with interest on the unpaid principal amount of this Note at the rates
provided in the Credit Agreement.
This Note amends and restates in its entirety that certain $55,000,000
Third Amended and Restated Revolving Credit Note, dated January 6, 1997,
executed by Borrower to the order of Bank and is the Revolving Credit Note
issued to evidence Revolving Loans made by the Bank to the Borrower under the
Revolving Line of Credit pursuant to Section 2.1 of the Amended and Restated
Credit Agreement, dated January 26, 1996, between the Borrower and the Bank, as
the same may from time to time be amended, modified, restated or supplemented
("Credit Agreement"), and is entitled to the benefits of, and the remedies
provided in, the Credit Agreement. All of the terms, conditions and covenants
of the Credit Agreement are expressly made a part of this Note, by reference in
the same manner and with the same effect as if set forth herein. Reference is
made to the Credit Agreement for provisions for the maturity, payment,
prepayment and acceleration of this Note. All capitalized terms used in this
Note without definition shall have the meanings ascribed to such terms in the
Credit Agreement.
The Borrower, for itself and its successors and assigns, expressly waives
presentment for payment, demand, protest and notice of demand, notice of
dishonor and notice of nonpayment and all other notices.
This Note shall be governed by, construed and enforced in accordance with
the internal laws, and not the laws of conflicts, of the State of North
Carolina.
<PAGE> 6
EXHIBIT 4.46
In the event that this Note shall at any time after maturity be collected
by or through an attorney-at-law, the Borrower agrees to pay, in addition to
the entire unpaid principal balance and interest due hereunder, all collection
costs, including reasonable attorney's fees, incurred by the Bank in collecting
the indebtedness due hereunder, computed on the basis of usual and customary
rates and not on the basis of a fixed percentage of the indebtedness due
hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed under
seal by its duly authorized corporate officers and its corporate seal to be
hereunto affixed on the day and year first above written.
ATTEST: INSTEEL INDUSTRIES, INC.
By:
- ------------------------------ ------------------------------------
Secretary Title
- ------------------- -------------------------------
[CORPORATE SEAL]
2
<PAGE> 7
EXHIBIT 4.46
FOURTH AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$60,000,000 Greensboro, North Carolina
March 27, 1998
FOR VALUE RECEIVED, the undersigned INSTEEL INDUSTRIES, INC., a North
Carolina corporation ("Borrower"), promises to pay to FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, a national banking association ("Bank"), or order, at the
principal office of the Bank in Greensboro, North Carolina, or at such other
place as the Bank may from time to time designate in writing, the principal sum
of Sixty Million Dollars ($60,000,000), or, if less, the unpaid balance of all
Revolving Loans made by the Bank to the Borrower under the Revolving Line of
Credit extended by the Bank to the Borrower pursuant to the Credit Agreement,
together with interest on the unpaid principal amount of this Note at the rates
provided in the Credit Agreement.
This Note amends and restates in its entirety that certain $55,000,000
Third Amended and Restated Revolving Credit Note, dated January 6, 1997,
executed by Borrower to the order of Bank and is the Revolving Credit Note
issued to evidence Revolving Loans made by the Bank to the Borrower under the
Revolving Line of Credit pursuant to Section 2.1 of the Amended and Restated
Credit Agreement, dated January 26, 1996, between the Borrower and the Bank, as
the same may from time to time be amended, modified, restated or supplemented
("Credit Agreement"), and is entitled to the benefits of, and the remedies
provided in, the Credit Agreement. All of the terms, conditions and covenants
of the Credit Agreement are expressly made a part of this Note, by reference in
the same manner and with the same effect as if set forth herein. Reference is
made to the Credit Agreement for provisions for the maturity, payment,
prepayment and acceleration of this Note. All capitalized terms used in this
Note without definition shall have the meanings ascribed to such terms in the
Credit Agreement.
The Borrower, for itself and its successors and assigns, expressly waives
presentment for payment, demand, protest and notice of demand, notice of
dishonor and notice of nonpayment and all other notices.
The Note shall be governed by, construed and enforced in accordance with
the internal laws, and not the laws of conflicts, of the State of North
Carolina.
In the event that this Note shall at any time after maturity be collected
by or through an attorney-at-law, the Borrower agrees to pay, in addition to
the entire unpaid principal balance and interest due hereunder, all collection
costs, including reasonable attorneys' fees, incurred by the Bank in collecting
the indebtedness due hereunder, computed on the basis of usual and customary
rates and not on the basis of a fixed percentage of the indebtedness due
hereunder.
<PAGE> 8
EXHIBIT 4.46
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed under
seal by its duly authorized corporate officers and its corporate seal to be
hereunto affixed on the day and year first above written.
ATTEST: INSTEEL INDUSTRIES, INC.
Gary D. Kniskern By: Michael C. Gazmarian
- ---------------- -------------------------------
Secretary Title: Chief Financial Officer
and Treasurer
[CORPORATE SEAL]
[SEAL]
2
<PAGE> 1
EXHIBIT 4.47
SIXTH AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Amendment"), dated this 7th day of August, 1998, 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"), and
amends the Amended and Restated Credit Agreement, dated January 26, 1996, as
amended by First Amendment thereto, dated April 11, 1997, by Second Amendment
thereto, dated as of April 30, 1997, by Third Amendment thereto, dated November
17, 1997, by Fourth Amendment thereto, dated January 6, 1998, and by Fifth
Amendment thereto, dated as of March 27, 1998 (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 definition 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 $60,000,000 and a Letter
of Credit Facility in the amount of $5,000,000.
B. Borrower has requested that the Bank (i) amend the definition of
Applicable Margin (as defined in the Loan Agreement) and (ii) amend the
financial covenant contained in Section 8.16 of the Loan Agreement.
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, upon receipt of the amendment fee described below,
is 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
EXHIBIT 4.47
"Applicable Margin" shall mean, on and after June 27, 1998, the
marginal rate of interest and the marginal facility fee rate which shall be
paid by Borrower which shall be equal to, in the case of the LIBOR Rate,
two percent (2%), and, in the case of the facility fee, three-eighths of
one percent (0.575%).
1.2 Amendment Fee. A new Section 4.8, Amendment Fee, is added as follows:
"4.8 Amendment Fee. Borrower shall pay to Bank an amendment fee of
$81,250, which shall be fully earned and non-refundable on the date of the
execution by Borrower of the Sixth Amendment to this Agreement and shall be
paid concurrently with the execution and delivery of the same by Borrower."
1.3 Negative Covenants. Section 8.16, Funded Debt TO EBITDA Ratio, 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) 5.0 to 1.0 for the four (4) Fiscal Quarters
ending June 27, 1998 and (b) 3.5 to 1.0 at the end of each Fiscal Quarter
thereafter for the four (4) Fiscal Quarters then ended."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Bank that:
2.1 Acknowledgment of Obligations. As of the close of business on August
5, 1998, the aggregate principal amount of Revolving Loans owing by the
Borrower was in the sum of $40,206,999.99, the aggregate amount of Letter of
Credit Obligations owing by the Borrower was in the sum of $3,271,436.95, 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.
2.2 Compliance With the Credit Agreement. As of the execution of this
Amendment, the Borrower is in compliance with all of 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.
2.3 Representations in Credit Agreement. The representations and
warranties of the Borrower set forth in the Credit Agreement are true and
correct in all material respects.
2.4 No Event of Default. No Default or Event of Default exists.
2
<PAGE> 3
EXHIBIT 4.47
ARTICLE III
MODIFICATION OF LOAN DOCUMENTS
3.1 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 IV
GENERAL
4.1 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 or the other Loan Documents, as
the case may be, as amended by this Amendment.
4.2 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.
4.3 Headings. The headings of this Amendment are for the purpose of
reference only and shall not effect the construction of this Amendment.
4.4 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.
3
<PAGE> 4
EXHIBIT 4.47
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/ Gary D. Kniskern By: /s/ Michael C. Gazmarian
- -------------------- ------------------------------
__________ Secretary Title: Chief Financial Officer
and Treasurer
[CORPORATE SEAL]
[SEAL] FIRST UNION NATIONAL BANK
By: /s/ Richard J. Rizzo, Jr.
-------------------------
Title: Vice President
4
<PAGE> 1
EXHIBIT 4.48
October 27, 1998
SEVENTH AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT ("AMENDMENT")
Insteel Industries, Inc.
1373 Boggs Drive
Mount Airy, North Carolina 27030
Ladies and Gentlemen:
Reference is hereby made to that certain Amended and Restated Credit
Agreement, dated January 26, 1996, as amended by First Amendment thereto, dated
April 11, 1997, by Second Amendment thereto, dated as of April 30, 1997, by
Third Amendment thereto, dated November 17, 1997, by Fourth Amendment thereto,
dated January 6, 1998, by Fifth Amendment thereto, dated as of March 27, 1998,
and by Sixth Amendment thereto, dated August 7, 1998 (the Amended and Restated
Credit Agreement, as modified, amended, supplemented or restated from time to
time, being hereinafter called the "Credit Agreement"), between Insteel
Industries, Inc., a North Carolina corporation ("Borrower"), and First Union
National Bank ("Bank"), pursuant to which Bank has agreed to extend to Borrower,
upon the terms and subject to the conditions contained therein, a credit
facility of up to the sum of $60,000,000, as more particularly set forth
therein. All capitalized terms used herein without definition shall have the
meanings ascribed to such terms in the Credit Agreement.
Borrower has requested that Bank amend the definition of "EBITDA", and to
accomplish the foregoing purpose, Borrower and Bank hereby agree to amend
Section 1.1, Defined Terms, of the Credit Agreement effective as of the Fiscal
Quarter ending October 3, 1998 as follows:
(a) The definition of "EBITDA" is amended in its entirety to read as
follows:
"EBITDA" shall mean with respect to the Fiscal Quarter then ended and
the immediately preceding three (3) Fiscal Quarters, Operating Income, plus
depreciation, amortization, gains on the sale of the agricultural fencing
product line and pension plan termination of Borrower and its Subsidiaries
for such fiscal period minus (a) Operating Income plus depreciation and
amortization for such fiscal period of any Subsidiary of Borrower accrued
prior to the date it became a Subsidiary, (b) Operating Income plus
depreciation and amortization for such fiscal period of any corporation,
substantially all of the assets of which have been
<PAGE> 2
EXHIBIT 4.48
Insteel Industries, Inc.
October 27, 1998
Page 2
acquired in any manner by Borrower or any of its Subsidiaries, realized by
such corporation prior to the date of such acquisition, and (c) Operating
Income plus depreciation and amortization for such fiscal period of any
Person to which the assets of Borrower or any of its Subsidiaries shall
have been sold, transferred or disposed of, or into which Borrower or any
of its subsidiaries shall have been merger, or been a party to any
consolidation or other form of reorganization, prior to the date of such
transaction.
(b) The following definition is added in the appropriate alphabetical
sequence:
"Operating Income" shall mean, for any fiscal period, the operating
income (or loss) for such fiscal period of Borrower and its subsidiaries as
reflected on the financial statements of Borrower and its Subsidiaries
delivered to Bank pursuant to Section 7.3 of this Agreement, determined in
accordance with Generally Accepted Accounting Principles consistently
applied.
Except as expressly amended herein, the Credit Agreement and each of the
other Loan Documents and each and every term and provision thereof shall remain
in full force and effect in accordance with the provisions thereof.
This Amendment shall be governed by and construed in accordance with the
internal laws and judicial decisions of the State of North Carolina.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND 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.
If this letter correctly states our agreement as to the matters set forth
herein, please so indicate in the space provided below for your signature and
return an executed copy of this Amendment to us.
Yours very truly,
FIRST UNION NATIONAL BANK
By: /s/ Richard J. Rizzo Jr.
----------------------------------
Title: Vice President
[signatures continued on next page]
<PAGE> 3
EXHIBIT 4.48
Insteel Industries, Inc.
October 27, 1998
Page 3
AGREED TO AND ACCEPTED THIS
27TH DAY OF OCTOBER, 1998.
INSTEEL INDUSTRIES, INC.
By: /s/ Michael C. Gazmarian
--------------------------------------------
Title: Chief Financial Officer and Treasurer
<PAGE> 1
EXHIBIT 10.12
1994 DIRECTOR STOCK OPTION PLAN
OF
INSTEEL INDUSTRIES, INC.
(AS AMENDED AND RESTATED EFFECTIVE AS OF APRIL 28, 1998)
<PAGE> 2
EXHIBIT 10.12
1994 DIRECTOR STOCK OPTION PLAN OF
INSTEEL INDUSTRIES, INC.
(AS AMENDED AND RESTATED EFFECTIVE AS OF APRIL 28, 1998)
1. Purpose.
The purpose of the 1994 Director Stock Option Plan of Insteel
Industries, Inc. (the "Plan") is to encourage and enable nonemployee members of
the Board of Directors (the "Board" or the "Board of Directors") of Insteel
Industries, Inc. (the "Corporation"), to acquire or to increase their holdings
of common stock of the Corporation (the "Common Stock") in order to promote a
closer identification of their interests with those of the Corporation and its
shareholders, thereby further stimulating their efforts to enhance the
efficiency, soundness, profitability, growth and shareholder value of the
Corporation. This purpose will be carried out through the granting of
nonqualified stock options (individually, an "Option," and collectively,
"Options") to nonemployee Directors. For the purposes herein, a "nonemployee
Director" shall mean a Director who is not at the time an Option is granted an
employee of the Corporation or a related corporation.
2. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the
Corporation, unless the Board delegates all or part of its discretion to
administer the Plan to a committee comprised of members of the Board. In
such event, to the extent deemed necessary or advisable by the Board, the
Committee shall be comprised of such number of "non-employee directors," as
such term is defined in Rule 16b-3 adopted under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as may be necessary to comply
with Rule 16b-3. In the event of such delegation to the Committee,
references to the "Board" in the Plan (except for such references in
Section 14) shall include the Committee.
(b) Any action of the Board may be taken by a written instrument signed by
all of the members of the Board and any action so taken by written consent
shall be as fully effective as if it had been taken by a majority of the
members at a meeting duly held and called. Subject to the provisions of the
Plan, the Board shall have full and final authority, in its discretion, to
establish, amend and rescind rules and regulations for the administration
of the Plan; to construe and interpret the Plan, the rules and regulations,
and the agreements evidencing Options granted under the Plan; and to make
all other determinations deemed necessary or advisable for administering
the Plan.
(c) Notwithstanding Paragraph 2(b), to the extent necessary to comply with
Rule 16b-3, provision in Section 6(a) of the Plan relating to the grant of
Options following the annual meeting of shareholders of the Corporation,
and the amount, price and timing of such Options, shall not be subject to
the discretion of the Board or any other person.
3. Effective Date; Term of the Plan.
The effective date of the Plan shall be September 23, 1994. The Plan
was amended and restated effective as of April 28, 1998. Options may be granted
under the Plan on or after the effective date, but not after September 22, 2004.
4. Shares of Common Stock Subject to the Plan.
The number of shares of Common Stock that may be issued pursuant to
Options shall not exceed in the aggregate 200,000 shares of authorized but
unissued Common Stock. The Corporation hereby
<PAGE> 3
EXHIBIT 10.12
reserves sufficient authorized shares to provide for the exercise of such
Options. Any shares subject to an Option which, for any reason, expires or is
terminated unexercised as to such shares may again be subject to an Option
granted under the Plan. If there is any change in the shares of Common Stock
because of a merger, consolidation or reorganization involving the Corporation
or a related corporation, or if the Board declares a stock dividend or stock
split distributable in shares of Common Stock, or if there is a change in the
capital structure of the Corporation or a related corporation affecting the
Common Stock, the number of shares of Common Stock reserved for issuance under
the Plan shall be correspondingly adjusted, and the Board shall make such
adjustments to Options or to any provisions of this Plan as the Board deems
equitable to prevent dilution or enlargement of Options.
5. Eligibility.
An Option may be granted only to an individual who is a nonemployee
Director on the date the Option is granted.
6. Grant of Option.
(a) Annual Grant of Options. Following the close of business of the
Corporation on the date of the annual meeting of shareholders of the
Corporation held each year during the term of the Plan, commencing with the
1995 annual meeting, each nonemployee Director who is eligible to receive
an Option under the Plan (an "Optionee") shall be granted an Option to
purchase 2,000 shares of Common Stock.
(b) Additional Option Grants Upon Other Election or Appointment to
the Board. In addition to the grant of Options pursuant to Section 6(a)
herein, the Board of Directors shall have discretion to grant Options to
any nonemployee Director who is appointed or elected to the Board at any
time other than at the annual meeting of shareholders of the Corporation.
7. Option Price.
The price per share of Common Stock at which an Option may be
exercised (the "Option Price") shall be the fair market value per share of the
Common Stock on the date the Option is granted. For this purpose, the fair
market value of the Common Stock shall be determined in good faith by the Board,
and shall mean (i) the price per share of the last sale of such shares on the
New York Stock Exchange as reported in The Wall Street Journal for the date the
Option is granted or, if there are no shares traded on the date of grant, the
last trading day prior to the date of grant; or (ii) if the Common Stock is not
listed and traded on the New York Stock Exchange or another recognized
securities exchange, but is traded on the over the counter market, then the fair
market value shall be the closing sales price of such Common Stock as reported
in the NASDAQ National Market System on the date the Option is granted, or, if
the Option is not granted on a trading date, then on the trading date nearest
preceding the date the Option is granted for which closing sales price
information is available on the NASDAQ National Market System; or (iii) if the
Common Stock ceases to be traded on the open market, then the fair market value
shall be determined 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 (the "Code"), and
accompanying regulations.
8. Option Period and Limitations on the Right to Exercise Options.
(a) The period during which an Option may be exercised (the "Option
Period") shall be ten years from the date of grant. An Option may be
exercised in whole or in part at any time or from
-2-
<PAGE> 4
EXHIBIT 10.12
time to time during the Option Period. Any Option or portion thereof not
exercised before the expiration of the Option Period shall terminate.
Except as provided in Paragraph 9 (or otherwise determined by the Board),
no Option shall be exercised unless the Optionee is, at the time of
exercise, a nonemployee Director and has been a Director continuously since
the date the Option was granted.
(b) An Option may be exercised by giving written notice to the
Board or its designee at such time and place as the Board shall direct.
Such notice shall specify the number of shares to be purchased pursuant to
an Option and the aggregate purchase price to be paid therefor, and shall
be accompanied by the payment of such purchase price. Such payment shall be
in the form of (i) cash; (ii) shares of Common Stock delivered or withheld
by the Optionee at the time of exercise; (iii) funds borrowed from the
Corporation; (iv) delivery of written notice of exercise to the Board and
delivery to a broker of written notice of exercise and irrevocable
instructions to promptly deliver to the Corporation the amount of sale or
loan proceeds to pay the Option Price; or (v) a combination of such
methods. Shares delivered or withheld in payment on the exercise of an
Option shall be valued at their fair market value on the date of exercise,
which shall be determined in good faith by the Board and shall be (i) the
price per share of the last sale of such shares on the New York Stock
Exchange as reported in The Wall Street Journal for the last trading day
nearest preceding the date on which the option is exercised; of (ii) if the
Common Stock is not listed and traded on the New York Stock Exchange or
another recognized securities exchange but is traded in the over the
counter market, then the fair market value shall be the closing sales price
of such Common Stock as reported in the NASDAQ National Market System on
the last trading day nearest preceding the date of exercise; or (iii) if
the shares of the Corporation cease to be traded on the open market, then
the fair market value shall be determined 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 Code and accompanying regulations.
The closing with respect to the exercise of an Option shall occur on the
date specified in the notice of exercise, and shall take place at the
principal place of business of the Corporation, or such other place as the
Board and the Optionee shall agree. Notwithstanding the foregoing, the
closing may be delayed for such time period as is necessary to enable the
Corporation to comply with any federal and state securities laws applicable
to the exercise of the Options granted hereby.
(c) An Optionee or his legal representative, legatees or
distributees shall not be deemed to be the holder of any shares subject to
an Option unless and until certificates for such shares are issued to him
or them under the Plan.
9. Effect of Termination of Service as a Director
(a) Termination Due to Death. If an Optionee dies while a Director
or following the disability or retirement of the Director as described
below, and if, when such death occurs, all or part of the Optionee's Option
is outstanding, then any portion of the Option which could have been
exercised immediately before the Optionee's death shall be exercisable at
any time within one year after the Optionee's death by the executor or
administrator of the Optionee's estate, or by such person or persons as may
acquire all or part of such Option by will or by the laws of intestate
succession; provided, that no Option may be exercised after the close of
the Option Period.
(b) Termination Due to Disability. If an Optionee becomes disabled
as a Director, any portion of the Option which could have been exercised
immediately before the commencement of the disability may be exercised at
any time during the Option Period. For the purposes herein,
-3-
<PAGE> 5
EXHIBIT 10.12
"disability" shall mean a determination that the individual is unable to
perform his regular duties as a Director by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or to be of continuous duration.
(c) Termination Due to Retirement. If an Optionee retires as a
Director in accordance with the policies of the Corporation then in effect
relating to the retirement of Directors, any portion of the Option which
could have been exercised immediately before the retirement of the Director
may be exercised at any time during the Option Period.
(d) Other Termination. In the event that the services of an Optionee
as a Director terminate for reasons other than death, disability or
retirement (and other than for cause, as addressed below), then any portion
of his Option which could have been exercised immediately before the
termination of such services shall be exercisable at any time during the
three-month period following the date of termination of service and, after
such three-month period, the Option shall terminate; provided, however,
that (i) no portion of the Option may be exercised after the close of the
Option Period; and (ii) notwithstanding the preceding, in the event that
the Optionee terminates service for "cause" (as defined below), his Option
shall immediately terminate as of the date of his termination of service.
For the purposes herein, a Director's termination shall be for "cause" if
such termination is due to (i) dishonesty; (ii) refusal or failure to
perform his duties for the Corporation; or (iii) engaging in conduct that
could be materially damaging to the Corporation without a reasonable good
faith belief that such conduct was in the best interest of the Corporation.
10. Nontransferability of Options.
(a) Options shall not be transferable other than by will or the
laws of interstate succession, except as may be permitted by the Board in a
manner consistent with the registration provisions of the Securities Act of
1933, as amended (the "Securities Act") (or, with respect to Options
granted prior to April 28, 1998, except as may otherwise be provided in the
individual Option Agreement relating to the Option). The designation of a
beneficiary does not constitute a transfer.
(b) Unless the Board shall determine otherwise, shares of Common
Stock acquired upon exercise of an Option shall not be disposed of by the
Optionee until the expiration of six months after the date the Option was
granted.
11. Certain Definitions.
For purposes of the Plan, the following terms shall have the meaning
indicated:
(a) Related corporation means any parent, subsidiary or predecessor
of the Corporation.
(b) "Parent" or "parent corporation" shall mean any corporation
(other than the Corporation) in an unbroken chain of corporations ending
with the Corporation if, at the time as of which a determination is being
made, each corporation other than the Corporation owns stock possessing
fifty percent or more of the total combined voting power of all classes of
stock in another corporation in the chain.
-4-
<PAGE> 6
EXHIBIT 10.12
(c) "Subsidiary" or "subsidiary corporation" means any corporation
(other than the Corporation) in an unbroken chain of corporations beginning
with the Corporation if, at the time as of which a determination is being
made, each corporation other than the last corporation in the unbroken
chain owns stock possessing fifty percent or more of the total combined
voting power of all classes of stock in another corporation in the chain.
(d) "Predecessor" or "predecessor corporation" means a corporation
which was a party to a transaction described in Section 424(a) of the Code
(or which would be so described if a substitution or assumption under that
section had occurred) with the Corporation, or a corporation which is a
parent or subsidiary of the Corporation, or a predecessor of any such
corporation.
12. Stock Option Agreement.
The grant of any Option under the Plan shall be evidenced by the
execution of an agreement (the "Agreement") between the Corporation and the
Optionee, a specimen of which is attached to the Plan and made a part hereof
by reference. Each such Agreement shall set forth the date of grant of the
Option, the Option Price and the Option Period and any other terms and
conditions applicable to the Option.
13. Restrictions on Shares.
The Board may impose such restrictions on any shares issued pursuant
to the exercise of Options granted hereunder as it may deem advisable,
including without limitation restrictions under the Securities Act, under the
requirements of the New York Stock Exchange and under any state blue sky or
securities laws applicable to such shares. The Board may cause a restrictive
legend to be placed on any certificate issued pursuant to the exercise of an
Option granted hereunder in such form as may be prescribed from time to time by
applicable laws and regulations or as may be advised by legal counsel.
14. Amendment or Termination.
The Plan may be amended or terminated by action of the Board;
provided, that such amendment or termination shall not, without the consent of
the Optionee, adversely affect the rights of the Optionee with respect to an
Option previously granted; and provided further, that shareholder approval
shall be required for any amendment which requires such approval under
applicable law, rule or regulation. The term of the Plan shall end on the
earlier of: (i) the effective date of termination of the Plan by the Board, or
(ii) that date Options have been granted to purchase the last of the aggregate
shares which are available for Options hereunder. Any Options outstanding at
the end of the term shall continue to be outstanding and exercisable for the
remainder of the Option period.
15. Predecessor Plan.
As of the effective date of the Plan, no further options shall be
granted under the 1990 Director Stock Option Plan of Insteel Industries, Inc. as
amended (the "Predecessor Plan"). The Predecessor Plan shall continue in effect
and shall be applicable with respect to all options granted prior to the
effective date under the Predecessor Plan.
16. Section 16(b) Compliance.
-5-
<PAGE> 7
EXHIBIT 10.12
It is the intention of the Corporation that transactions under the
Plan shall comply with Rule 16b-3 under the Exchange Act. If any Plan provision
is later found not to be in compliance with Section 16 of the Exchange Act,
then, unless the Board shall determine otherwise, the provision shall be deemed
null and void or otherwise construed in such a manner as to enable transactions
under the Plan to meet the requirements of Rule 16b-3 or any successor rule.
17. Applicable Law.
Except as otherwise provided herein, the Plan shall be construed and
enforced according to the laws of the State of North Carolina.
IN WITNESS WHEREOF, this 1994 Director Stock Option Plan of Insteel
Industries, Inc., as amended and restated effective as of April 28, 1998, has
been executed in behalf of the Corporation.
INSTEEL INDUSTRIES, INC.
By:
----------------------------------
President
Attest:
Secretary
[CORPORATE SEAL]
-6-
<PAGE> 8
EXHIBIT 10.12
STOCK OPTION AGREEMENT
1994 DIRECTOR STOCK OPTION PLAN
OF
INSTEEL INDUSTRIES, INC.
THIS AGREEMENT (the "Agreement"), made the ___ day of _______, 199__,
between INSTEEL INDUSTRIES, INC., a North Carolina corporation (the
"Corporation"), and __________ (the "Optionee");
R E C I T A L S :
In furtherance of the purposes of the 1994 Director Stock Option Plan
of Insteel Industries, Inc., as amended and restated effective April 28, 1998
(the "Plan"), the Corporation and the Optionee hereby agree as follows:
1. The rights and duties of the Corporation and the Optionee under
this Agreement shall in all respects be subject to and governed by the
provisions of the Plan, a copy of which has been provided to the Optionee and
the terms of which are incorporated herein by reference and made a part of this
Agreement. In addition, without limiting the effect of the foregoing, in the
event that the Agreement is attached to and made a part of a Notice of Option
Grant (or similar form), then execution by the Corporation and the Optionee of
the Notice of Option Grant (or similar form) shall be deemed to constitute
execution of this Agreement.
2. The Corporation hereby grants to the Optionee pursuant to the
Plan, as a matter of separate inducement and agreement in connection with his
services to the Corporation or a related corporation, the right and option (the
"Option") to purchase all or any part of an aggregate of _______ (___) shares
of the Common Stock of the Corporation (the "shares"), at the purchase price of
$____ per share. The Option will expire if not exercised in full on or before
the ___ day of ____________, ____.
3. The period during which the Option may be exercised shall be ten
years from the date hereof. To the extent that an Option which is exercisable
is not exercised, such Option shall accumulate and be exercisable by the
Optionee in whole or in part at any time prior to expiration of the Option.
Upon the exercise of an Option in whole or in part, the Optionee (or his
beneficiary, in the event of the Optionee's death) shall pay the purchase price
to the Corporation in accordance with the provisions of Paragraph 8 of the
Plan, and the Corporation shall as soon thereafter as practicable deliver to
the Optionee (or his beneficiary) a certificate or certificates for the shares
purchased.
4. Nothing contained in this Agreement or the Plan shall require
the Corporation to continue the services of the Optionee as a Director for any
particular period to time, nor shall it require the Optionee to remain in
service to the Corporation as a Director for any particular period of time.
Except as otherwise expressly provided in the Plan, all rights of the Optionee
under the Plan with respect to the unexercised portion of his Option shall
terminate immediately upon termination of the services of the Optionee with the
Corporation as a Director.
5. This Option shall not be transferable (including by pledge or
hypothecation) other than by will or the laws of intestate succession (unless
otherwise permitted pursuant to the terms of the Plan).
<PAGE> 9
EXHIBIT 10.12
6. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective executors, administrators,
next-of-kin, successors and assigns.
7. This Agreement shall be governed by and construed in accordance
with the laws of the State of North Carolina.
IN WITNESS WHEREOF, this Agreement has been executed in behalf of the
corporation and by the Optionee on the day and year first above written.
INSTEEL INDUSTRIES, INC.
By:_________________________________
President
Attest:
____________________________________
Secretary
[CORPORATE SEAL]
OPTIONEE
____________________________________
Printed Name:_______________________
-2-
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF INSTEEL INDUSTRIES, INC.
The following is a list of subsidiaries of the Company as of October 3, 1998,
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, 33-61889 and 333-48011)
of Insteel Industries, Inc. of our reports dated October 15, 1998, relating to
the consolidated balance sheets of Insteel Industries, Inc. and subsidiaries as
of October 3, 1998 and September 30, 1997, and the related consolidated
statements of earnings, shareholders' equity and cash flows for the three years
ended October 3, 1998 and September 30, 1997 and 1996, and related schedule for
the years ended October 3, 1998 and September 30, 1997 and 1996, which reports
appear in the October 3, 1998 annual report on Form 10-K of Insteel Industries,
Inc.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
December 2, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K OF
INSTEEL INDUSTRIES, INC. FOR THE FISCAL YEAR ENDED OCTOBER 3, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> OCT-03-1998
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<SECURITIES> 0
<RECEIVABLES> 28,912
<ALLOWANCES> 225
<INVENTORY> 30,566
<CURRENT-ASSETS> 61,698
<PP&E> 138,307
<DEPRECIATION> 58,047
<TOTAL-ASSETS> 147,131
<CURRENT-LIABILITIES> 35,491
<BONDS> 0
0
0
<COMMON> 16,885
<OTHER-SE> 52,375
<TOTAL-LIABILITY-AND-EQUITY> 147,131
<SALES> 266,147
<TOTAL-REVENUES> 266,147
<CGS> 252,794
<TOTAL-COSTS> 252,794
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 3,810
<INCOME-PRETAX> 508
<INCOME-TAX> 180
<INCOME-CONTINUING> 328
<DISCONTINUED> (408)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (80)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
