<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------- ---------
COMMISSION FILE NUMBER 1-9929
INSTEEL INDUSTRIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0674867
-------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1373 Boggs Drive, Mount Airy, North Carol 27030
----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 336-786-2141
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of
April 23, 1998 was 8,442,512.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INSTEEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 28, SEPTEMBER 30,
1998 1997
---------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,097 $ 1,079
Accounts receivable, net 34,562 31,049
Inventories 44,311 44,463
Prepaid expenses and other 1,762 1,702
Net assets of discontinued operations -- 1,869
---------- -------------
Total current assets 81,732 80,162
Property, plant and equipment, net 81,990 86,401
Other assets 5,641 4,913
---------- -------------
Total assets $ 169,363 $ 171,476
========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,092 $ 31,639
Accrued expenses 9,186 9,216
Current portion of long term debt 620 2,620
---------- -------------
Total current liabilities 40,898 43,475
Long term debt 54,934 49,673
Deferred income taxes 4,620 5,989
Other liabilities 1,032 1,017
Shareholders' equity:
Common stock 16,885 16,873
Additional paid in capital 38,232 38,200
Retained earnings 12,762 16,249
---------- -------------
Total shareholders' equity 67,879 71,322
---------- -------------
Total liabilities and shareholders' equity $ 169,363 $ 171,476
========== =============
</TABLE>
<PAGE> 3
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ------------------------
MARCH 28, MARCH 31, MARCH 28, MARCH 31,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 62,996 $ 65,250 $ 122,915 $ 123,676
Cost of sales 61,669 60,607 120,113 115,623
--------- --------- --------- ---------
Gross profit 1,327 4,643 2,802 8,053
Selling, general and administrative expense 3,338 3,167 6,418 6,123
--------- --------- --------- ---------
Operating income (loss) (2,011) 1,476 (3,616) 1,930
Interest expense 1,049 432 2,017 836
Other expense (income) (2,472) 10 (2,430) 8
--------- --------- --------- ---------
Earnings (loss) from continuing operations before
income taxes and extraordinary item (588) 1,034 (3,203) 1,086
Provision (benefit) for income taxes (209) 376 (1,137) 394
--------- --------- --------- ---------
Earnings (loss) from continuing operations before
extraordinary item (379) 658 (2,066) 692
Discontinued operations:
Loss from operations of Insteel Construction Systems
net of income tax benefits of $ - , $229, $ - and $395 -- (401) -- (693)
Loss on disposal of Insteel Construction Systems,
including provision of $400 for operating losses
during phase out period (net of income tax benefit
of $1,245) -- (2,184) (2,184)
--------- --------- --------- ---------
Loss from discontinued operations -- (2,585) -- (2,877)
--------- --------- --------- ---------
Loss before extraordinary item (379) (1,927) (2,066) (2,185)
Extraordinary item:
Loss on early extinguishment of debt (net of income
tax benefit of $224) (408) -- (408) --
--------- --------- --------- ---------
Net loss $ (787) $ (1,927) $ (2,474) $ (2,185)
========= ========= ========= =========
Weighted average shares outstanding 8,443 8,436 8,442 8,436
========= ========= ========= =========
Per share:
Earnings (loss) from continuing operations $ (0.04) $ 0.08 $ (0.24) $ 0.08
Loss from discontinued operations -- (0.31) -- (0.34)
Extraordinary loss on early extinguishment of debt (0.05) -- (0.05) --
========= ========= ========= =========
Net loss $ (0.09) $ (0.23) $ (0.29) $ (0.26)
========= ========= ========= =========
Dividends paid $ 0.06 $ 0.06 $ 0.12 $ 0.12
========= ========= ========= =========
</TABLE>
<PAGE> 4
INSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
MARCH 28, MARCH 31,
1998 1997
--------- ---------
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings (loss) from continuing operations $ (2,474) $ 692
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of debt 408 --
Depreciation and amortization 4,696 4,339
Accounts receivable, net (3,450) 3,097
Inventories 153 (8,538)
Accounts payable and accrued expenses (578) 1,452
Gain on sale of property, plant and equipment (5,177) (57)
Other changes (2,335) 726
--------- ---------
Total adjustments (6,283) 1,019
--------- ---------
Net cash provided by (used for) operating activities (8,757) 1,711
--------- ---------
DISCONTINUED OPERATING ACTIVITIES:
Net cash provided by discontinued operating activities 1,869 1,026
INVESTING ACTIVITIES:
Capital expenditures (3,937) (13,886)
Proceeds on notes receivable 12 78
Proceeds from sale of property, plant and equipment 8,966
--------- ---------
Net cash provided by (used for) investing activities 5,041 (13,808)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from long term debt 64,469 56,225
Principal payments on long term debt (61,635) (45,099)
Proceeds from stock options 44
Dividends paid (1,013) (1,021)
--------- ---------
Net cash provided by financing activities 1,865 10,105
--------- ---------
Net increase (decrease) in cash 18 (966)
Cash and cash equivalents at beginning of period 1,079 1,423
--------- ---------
Cash and cash equivalents at end of period $ 1,097 $ 457
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,288 $ 1,131
Income taxes 523 419
</TABLE>
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
(1) BASIS OF PRESENTATION
The consolidated unaudited financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These unaudited consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended September 30,
1997.
The unaudited consolidated financial statements included herein reflect
all adjustments (consisting only of normal recurring accruals) that the Company
considers necessary for a fair presentation of the financial position, results
of operations and cash flows for all periods presented. The results for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
(2) CHANGE IN FISCAL YEAR
Effective October 1, 1997, the Company has adopted a 52 or 53 week
fiscal year ending on the Saturday nearest the last day of September in each
year. All references to years relate to fiscal years rather than calendar years.
(3) INVENTORIES
<TABLE>
<CAPTION>
MARCH 28, SEPTEMBER 30,
1998 1997
--------- -------------
<S> <C> <C>
Raw materials $ 23,979 $ 24,698
Supplies 2,160 2,147
Work in process 1,748 1,730
Finished goods 16,424 15,888
--------- -------------
Total inventories $ 44,311 $ 44,463
========= =============
</TABLE>
(4) Sale of Agricultural Fencing Product Line
In February 1998, the Company sold the inventory and equipment related
to its agricultural fencing product line to Keystone Consolidated Industries,
Inc. for approximately $12.6 million. The final sales price is subject to
adjustment based upon changes in the specific equipment and inventories included
in the transaction. Under the terms of the agreement, Insteel will continue
manufacturing agricultural fencing products for Keystone during a transition
period until the equipment is relocated to Keystone's production facilities.
Insteel's second-quarter financial results reflect a pre-tax gain of $2.5
million on the sale of the assets in other income, net of a provision for the
estimated transition-related costs. The Company expects to gradually cease its
agricultural fencing manufacturing activities during the second half of 1998 as
the equipment is relocated.
(5) EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
In March 1998, the Company retired its $10.0 million 8.25% senior
secured notes due 2002, funding the prepayment under its unsecured revolving
credit facility. The Company recorded an extraordinary loss of $408,000 after
income taxes, or approximately five cents per share, in the second quarter of
1998 related to the redemption premium and write-off of deferred financing
costs.
<PAGE> 6
(6) DISCONTINUED OPERATIONS
In May 1997, the Company sold its Insteel Construction Systems division
("ICS"), which manufactured and marketed the Insteel 3-D(R) building panel. ICS
has been classified as a discontinued operation in the accompanying financial
statements in accordance with Accounting Principles Board Opinion No. 30.
The operating results of the discontinued ICS division are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
MARCH 28, MARCH 31, MARCH 28, MARCH 31,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ -- $ 205 $ -- $ 580
Cost of sales -- 320 -- 743
--------- --------- --------- ---------
Gross loss -- (115) -- (163)
Selling, general and administrative expense -- 356 -- 720
--------- --------- --------- ---------
Operating loss -- (471) -- (883)
Interest expense -- 41 -- 82
Other expense -- 118 -- 123
--------- --------- --------- ---------
Loss from operations of Insteel Construction
Systems before income taxes -- (630) -- (1,088)
Benefit for income taxes -- (229) -- (395)
--------- --------- --------- ---------
Loss from operations of Insteel Construction
Systems $ -- $ (401) $ -- $ (693)
========= ========= ========= =========
</TABLE>
The net assets of the discontinued ICS division were valued at the
lower of cost or realizable value. The components of net assets are as follows:
<TABLE>
<CAPTION>
MARCH 28, SEPTEMBER 30,
1998 1997
----------- -------------
<S> <C> <C>
Prepaid expenses and other $ -- $ 323
Property, plant and equipment, net -- 1,418
Other assets -- 803
----------- -------------
Total assets -- 2,544
----------- -------------
Accrued expenses -- 675
----------- -------------
Total liabilities -- 675
----------- -------------
Net assets of discontinued operations $ -- $ 1,869
=========== =============
</TABLE>
<PAGE> 7
(7) Earnings Per Share
Effective December 27, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128
replaces the primary and fully diluted earnings per share ("EPS") computations
with basic and diluted EPS. Basic EPS are computed by dividing net earnings by
the weighted average number of common shares outstanding during the period.
Diluted EPS are computed by dividing net earnings by the weighted average number
of common shares and dilutive securities outstanding during the period.
Securities that have the effect of increasing EPS are considered to be
antidilutive and are not included in the computation of diluted EPS. Options to
purchase 532,000 shares and 459,000 shares for the quarters ended March 28, 1998
and March 31, 1997, respectively, were antidilutive and were not included in the
diluted EPS computation.
The reconciliation of basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 28, MARCH 31, MARCH 28, MARCH 31,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings (loss) from continuing operations (379) 658 (2,066) 692
Loss from discontinued operations -- (2,585) -- (2,877)
Extraordinary loss on early extinguishment of debt (408) -- (408) --
--------- --------- --------- ---------
Net loss (787) (1,927) (2,474) (2,185)
========= ========= ========= =========
Weighted average shares outstanding:
Weighted average shares outsstandng (basic) 8,433 8,436 8,442 8,436
Dilutive effect of stock options -- -- -- --
--------- --------- --------- ---------
Weighted average shares oustanding (diluted) 8,433 8,436 8,442 8,436
========= ========= ========= =========
Earnings (loss) per share (basic and diluted):
Earnings (loss) from continuing operations (0.04) 0.08 (0.24) 0.08
Loss from discontinued operation -- (0.31) -- (0.34)
Extraordinary loss on early extinguishment of debt (0.05) -- (0.05) --
--------- --------- --------- ---------
Net loss (0.09) (0.23) (0.29) (0.26)
========= ========= ========= =========
</TABLE>
(8) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. SFAS No. 131, which is based on the management approach to segment
reporting, establishes requirements to report selected information about
operating segments and related disclosures about products and services, major
customers and geographic areas. As the requirements of these statements only
impact financial statement disclosures, they are not expected to have a material
impact on the Company's consolidated financial position or results of
operations. The Company will adopt SFAS' No. 130 and 131 in 1999.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
STATEMENTS OF EARNINGS - SELECTED DATA
($ in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------- ---------------------------------------
MARCH 28, MARCH 31, MARCH 28, MARCH 31,
1998 CHANGE 1997 1998 CHANGE 1997
--------- --------- --------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 62,996 (3%) $ 65,250 $ 122,915 (1%) $123,676
Gross profit 1,327 (71%) 4,643 2,802 (65%) 8,053
Percentage of net sales 2.1% 7.1% 2.3% 6.5%
Selling, general and administrative expense $ 3,338 5% $ 3,167 $ 6,418 5% $ 6,123
Percentage of net sales 5.3% 4.9% 5.2% 5.0%
Operating income (loss) $ (2,011) N/M $ 1,476 $ (3,616) N/M $ 1,930
Percentage of net sales (3.2%) 2.3% (2.9%) 1.6%
Interest expense $ 1,049 143% $ 432 $ 2,017 141% $ 836
Percentage of net sales 1.7% 0.7% 1.6% 0.7%
Effective income tax rate 35.5% 36.3% 35.5% 36.3%
Earnings (loss) from continuing operations $ (379) N/M $ 658 $ (2,066) N/M $ 692
Percentage of net sales (0.6%) 1.0% (1.7%) 0.6%
</TABLE>
Insteel's net sales for the second quarter declined 3% from a year ago
to $63.0 million. For the six-month period, sales were down 1% from the prior
year. The sales decrease was primarily a result of the Company's exit from the
agricultural fencing business that reduced current year sales relative to the
comparable year-ago periods. Excluding agricultural fencing products, sales of
the wire products business unit were up 12% and 5% for the second quarter and
six-month periods due to higher sales of bulk nails, collated fasteners and
industrial wire. Sales of the concrete reinforcing products business unit fell
5% for the second quarter primarily as a result of lower shipments of PC strand.
For the six-month period, sales of concrete reinforcing products were up 1% due
to higher sales of welded wire mesh. Sales of tire bead wire and welding wire
were insignificant for the second quarter and six-month periods as the Company
continued to operate under testing and qualification conditions with prospective
customers.
Gross margins for the second quarter decreased 71% to 2.1% of sales
compared with 7.1% in the prior year. For the six-month period, gross margins
fell 65% to 2.3% of sales from 6.5% a year ago. The reduction in margins was
primarily caused by a narrowing in spreads between selling values and raw
material costs in certain products and markets together with low operating
volumes at the Company's recent expansions. The Virginia manufacturing facility
continued to operate at a significant loss as substantially all of the
anticipated production costs related to tire bead wire and welding wire were
incurred with negligible offsetting revenues. The Company's other new business
initiative, collated fasteners, operated at a loss due to insufficient sales
volume. Gross margins were also negatively impacted by higher per-unit
conversion costs at the Company's other production facilities as manufacturing
expenses rose disproportionate to operating volumes.
Selling, general and administrative expense ("SG&A expense") rose 5%
for the second quarter, increasing to 5.3% of sales from 4.9% in the prior year.
For the six-month period, SG&A expense increased 5%, rising to 5.2% of sales
from 5.0% a year ago. The increase in SG&A expense was primarily caused by
higher selling expenses related to the Company's new businesses.
Interest expense rose sharply for the second quarter and six-month
periods compared with a year ago due to higher borrowing levels on the Company's
revolving credit facility. The increase in debt was primarily related to capital
expenditures for the tire bead wire and welding wire expansion together with
higher inventory levels.
Second-quarter results reflect a pre-tax gain of $2.5 million on the
sale of the assets in other income, net of a provision for the estimated
transition-related costs. In February 1998, the Company sold the inventory and
equipment related to its agricultural fencing product line.
The Company recorded an extraordinary loss of $408,000 after income
taxes, or approximately five cents per share, in the second quarter related to
the early extinguishment of debt. In March 1998, the Company retired its $10.0
million 8.25% senior secured notes due 2002, funding the prepayment under its
unsecured revolving credit facility.
<PAGE> 9
Second quarter and six-month results for the prior year reflect a $2.6
million and $2.9 million loss, respectively, related to the sale of the
company's Insteel Construction Systems division (ICS) and the reclassification
of the segment as discontinued operations. ICS manufactured and marketed the
Insteel 3-D(R) building panel.
FINANCIAL CONDITION
SELECTED FINANCIAL DATA
($ in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
MARCH 28, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by (used for) operating activities $ (8,757) $ 1,711
Net cash provided by (used for) investing activities 5,041 (13,808)
Net cash provided by financing activities 1,865 10,105
Long-term debt 54,934 40,856
Percentage of total capital 45% 37%
Shareholders' equity $ 67,879 $ 70,471
Percentage of total capital 55% 63%
Total capital (long-term debt + shareholders' equity) $ 122,813 $ 111,327
</TABLE>
Operating activities used $8.8 million of cash for the six-month period
while providing $1.7 million a year ago. The year-to-year change was principally
related to the deterioration in the financial results of the Company during the
current year. Receivables increased largely due to the balances associated with
the sale of the assets of the agricultural fencing product line in comparison to
the prior year decline. Inventory levels remained flat during the current year
due to higher beginning-of- the-year balances and the sale of agricultural
fencing inventories. During the year ago period, inventories had increased in
anticipation of the seasonal upturn in sales that normally occurs in the second
half of the year.
Investing activities provided $5.0 million of cash for the six-month
period while using $13.8 million a year ago. The year-to-year change was
primarily related to the current year proceeds from the sale of agricultural
fencing equipment together with a reduction in capital expenditures. Capital
expenditures were higher during the year-ago period principally due to the tire
bead wire and welding wire expansion.
Financing activities provided $1.9 million of cash for the six-month
period compared with $10.1 million a year ago. The increase in debt during the
prior year was primarily related to capital expenditures for the tire bead wire
and welding wire expansion together with the increase in inventories.
The Company's long-term debt to capital ratio increased to 45% at March
28, 1998 compared with 37% at March 31, 1997 primarily as a result of capital
expenditures related to the tire bead wire and welding wire expansion together
with higher inventory levels. In January 1998, the Company's unsecured revolving
credit facility was amended, increasing the availability to $55.0 million and
raising the permitted ratio of funded debt to earnings before interest, taxes,
depreciation and amortization through March 1998. In March 1998, the revolving
credit facility was again amended in order to fund the prepayment of the
Company's $10.0 million 8.25% senior secured notes. The Company's availability
was increased to $60.0 million through October 3, 1998, declining to $57.5
million on October 4, 1998 and $55.0 million on January 3, 1999. At March 28,
1998, approximately $9.2 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.
YEAR 2000
The Company has initiated a Year 2000 program to assess and develop
plans to resolve the issue both internally and externally. The Company is
currently in the process of upgrading its business systems to Year 2000
compliant software which is expected to enhance the performance of the Company's
customer service, manufacturing and administrative processes. In addition, the
Company is surveying key suppliers and customers in order to identify potential
Year 2000 problems and determine the appropriate actions to be taken. The
Company does not expect the costs directly associated with Year 2000 compliance
will have a material impact on its consolidated financial position or results of
operations. The Company also does not expect any significant disruption in
operations in the event that any of its suppliers or customers fail to achieve
Year 2000 compliance.
<PAGE> 10
OUTLOOK
The Company's operating 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. These developments have expanded the availability of wire
rod to the Company, alleviating the supply constraints that have characterized
the market over the past year. The Company expects that the resolution of the
ITC filing together with recently announced expansions in domestic wire rod
capacity should increase supplier competition and favorably impact quality and
availability as the additional capacity becomes fully operational.
The Company's business strategy continues to be focused on (1) further
expansion into higher value products that offer the potential to generate
significantly more attractive returns than the Company's traditional businesses
and (2) improving the financial performance of the Company's traditional
businesses or redeploying the capital investment into more productive uses.
During 1994 - 1997, the Company built two new production facilities and
reconfigured an existing operation in order to develop the manufacturing
capabilities required to enter the markets for PC strand, collated fasteners,
tire bead wire and welding wire. Sales of these new products are expected to
increase from $33.1 million in 1997 to $100.0 million in 2000 when fully
operational. The Company is proceeding with plans to expand the PC strand
manufacturing facility to its design capacity of approximately $45.0 million in
revenues. The expansion will be completed in May 1998 at an incremental cost of
approximately $1.0 million.
During the second quarter, significant progress was made towards the
completion of the qualification process for tire bead wire and welding wire as
the Company began to ship truckload quantities of both products. Sales of
collated fasteners increased within the quarter, rising to a record level in
March. The operating results of the Company will continue to be negatively
impacted until sales of these new products rise to significant levels. As the
Company is currently incurring substantially all of the anticipated operating
costs at these facilities, the incremental impact of projected increases in
volume is expected to significantly improve its financial performance.
The Company's cash flow is expected to significantly increase through
the remainder of the year as a result of the sale of the agricultural fencing
product line (see Note (4) of Notes to Consolidated Financial Statements), lower
inventory levels, reduced capital expenditure requirements, and gradual
improvement in operating results. Management currently intends to utilize any
excess cash flow generated to pay down debt, thereby reducing interest expense.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains forward-looking statements that reflect
management's current assumptions and estimates of future performance and
economic conditions. Such statements are made in reliance upon the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are subject to various risks and uncertainties that
could cause actual results to differ materially from those projected, stated or
implied by the statements. Such risks and uncertainties include, but are not
limited to, general economic conditions in the markets in which the Company
operates; unanticipated changes in customer demand, order patterns and inventory
levels; fluctuations in the cost and availability of the Company's primary raw
material, hot rolled steel rod; the Company's ability to raise selling prices in
order to recover increases in steel rod prices; legal, environmental or
regulatory developments that significantly impact the Company's operating costs;
the success of the Company's new product initiatives, including the PC strand,
collated fastener, tire bead wire and welding wire expansions; the inability of
the Company to expedite the qualification process with prospective customers for
tire bead wire and welding wire; the failure of the Company to receive regular
and substantial orders for its new products; and unexpected delays in completion
of the expansion of the PC strand facility.
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1998 Annual Meeting of Shareholders on February 3,
1998. The items acted upon at the meeting and voting results were as follows:
(1) Election of three directors of the Company for three-year
terms ending in 2001:
<TABLE>
<CAPTION>
VOTES
-------------------------------
FOR WITHHELD
--------- --------
<S> <C> <C>
Howard O. Woltz, Jr. 7,266,210 84,724
C. Richard Vaughn 7,263,050 87,884
Louis E. Hannen 7,266,263 84,671
</TABLE>
(2) Approval of the issuance of shares of the Company's Common
Stock to certain employees of the Company as partial payment
of bonuses under the Company's Return on Capital Incentive
Compensation Plan:
<TABLE>
<CAPTION>
VOTES
-------------------------------------------------
FOR WITHHELD ABSTAIN
--------- -------- --------
<S> <C> <C>
6,770,552 501,301 79,081
</TABLE>
(3) Approval of the issuance of shares of the Company's Common
Stock to non-employee directors as partial payment of their
annual retainer fee under the Company's Director Compensation
Plan:
<TABLE>
<CAPTION>
VOTES
----------------------------------------------------
FOR WITHHELD ABSTAIN
--------- -------- -------
<S> <C> <C>
7,107,492 143,045 100,397
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27 - Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended March 28, 1998.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSTEEL INDUSTRIES, INC.
Registrant
Date: April 23, 1998 By /s/H.O. Woltz
-------------------------------------
H.O. Woltz III
President and Chief Executive Officer
Date: April 23, 1998 By /s/Michael C. Gazmarian
-------------------------------------
Michael C. Gazmarian
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INSTEEL INDUSTRIES, INC. FOR THE SIX MONTHS ENDED MARCH
28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> MAR-28-1998
<CASH> 1,097
<SECURITIES> 0
<RECEIVABLES> 34,562
<ALLOWANCES> 0
<INVENTORY> 44,311
<CURRENT-ASSETS> 81,732
<PP&E> 81,990
<DEPRECIATION> 0
<TOTAL-ASSETS> 169,363
<CURRENT-LIABILITIES> 40,898
<BONDS> 0
0
0
<COMMON> 16,885
<OTHER-SE> 50,994
<TOTAL-LIABILITY-AND-EQUITY> 169,363
<SALES> 122,915
<TOTAL-REVENUES> 122,915
<CGS> 120,113
<TOTAL-COSTS> 120,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,017
<INCOME-PRETAX> (3,203)
<INCOME-TAX> (1,137)
<INCOME-CONTINUING> (2,066)
<DISCONTINUED> 0
<EXTRAORDINARY> (408)
<CHANGES> 0
<NET-INCOME> (2,474)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
