<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 31, 2000
INSTEEL INDUSTRIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER 1-9929
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
<PAGE> 2
INFORMATION INCLUDED IN THIS REPORT:
On January 31, 2000, Insteel Industries, Inc. (the "Company") completed
its acquisition of Florida Wire and Cable, Inc. ("FWC"). Pursuant to General
Instruction B.3. of Form 8-K, the Company disclosed the transaction under Item 5
of the Company's quarterly report on Form 10-Q for the quarter ended January 1,
2000 (the "Form 10-Q"). The Company filed the Form 10-Q with the Commission on
February 15, 2000. The terms of the transaction are summarized in the Company's
press release dated January 31, 2000, which is attached to the Form 10-Q as
Exhibit 99.1.
The financial statements required by Item 7(a) and 7(b) of Form 8-K are
filed with this report, in accordance with Item 7(a)(4) and 7(b)(2).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED
The following financial statements of FWC are included in this report:
Report of Independent Public Accountants, dated April 11, 2000
Balance Sheets dated December 31, 1999 and 1998
Statements of Operations for the years ended December 31, 1999 and 1998
Statements of Changes in Shareholder's Equity for the years ended
December 31, 1999 and 1998
Statements of Cash Flows for the years ended December 31, 1999 and 1998
Notes to Financial Statements
<PAGE> 3
FLORIDA WIRE AND CABLE, INC.
Financial Statements for the Years Ended December 31, 1999 and 1998
Together with Report of Independent Public Accountants
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Insteel Industries, Inc.:
We have audited the accompanying balance sheets of Florida Wire and Cable, Inc.
(a wholly owned subsidiary of Insteel Industries, Inc.) (see Note 1) as of
December 31, 1999, and 1998, and the related statements of operations, changes
in shareholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Florida Wire and Cable, Inc.,
as of December 31, 1999 and 1998, and the results of its operations, changes in
shareholder's equity and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.
Charlotte, North Carolina,
April 11, 2000.
<PAGE> 5
FLORIDA WIRE AND CABLE, INC.
BALANCE SHEETS -- DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1999 1998
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8 $ 11
Trade accounts receivable, less allowance of
$570 and $303 in 1999 and 1998, respectively 15,417 18,677
Inventories 17,362 18,724
Prepaid expenses and other current assets 129 244
Deferred tax assets 2,770 565
------- -------
Total current assets 35,686 38,221
PROPERTY, PLANT AND EQUIPMENT, net 13,980 14,808
ACQUISITION PREMIUM, net of accumulated amortization
of $4,295 and $3,824 in 1999 and 1998, respectively 16,839 17,310
OTHER INTANGIBLE ASSETS, net of accumulated amortization
of $2,748 and $2,232 in 1999 and 1998, respectively 2,634 3,337
------- -------
Total assets $69,139 $73,676
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,837 $11,174
Accrued liabilities 8,574 3,111
Loans from Former Parent (Note 7) 16,914 23,908
------- -------
Total current liabilities 35,325 38,193
DEFERRED TAX LIABILITIES 2,077 1,736
------- -------
Total liabilities 37,402 39,929
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value, 10,000 shares authorized and 5,000 shares issued and
outstanding at December 31, 1999 and 1998 5 5
Additional paid-in-capital 28,942 28,942
Retained earnings 2,790 4,800
------- -------
Total shareholder's equity 31,737 33,747
------- -------
Total liabilities and shareholder's equity $69,139 $73,676
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE> 6
FLORIDA WIRE AND CABLE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
NET SALES $ 104,549 $ 99,514
COST OF SALES 91,131 89,301
--------- --------
Gross profit 13,418 10,213
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 12,376 8,078
--------- --------
Operating income 1,042 2,135
OTHER INCOME (EXPENSE):
Management fee from Former Parent (1,560) (1,200)
Interest income 2 53
Interest expense on loans from Former Parent (Note 7) (2,773) (2,852)
Other, net (Notes 7 and 8) 43 50
--------- --------
LOSS BEFORE INCOME TAXES (3,246) (1,814)
INCOME TAX BENEFIT (Note 6) 1,236 687
--------- --------
NET LOSS $ (2,010) $ (1,127)
========= ========
PER SHARE (BASIC AND DILUTED) $ (402.00) $(225.40)
========= ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE> 7
FLORIDA WIRE AND CABLE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 5,000 $ 5 $28,942 $ 5,927 $ 34,874
Net loss -- -- -- (1,127) (1,127)
----- ----- ------- ------- --------
BALANCE, December 31, 1998 5,000 5 28,942 4,800 33,747
Net loss -- -- -- (2,010) (2,010)
----- ----- ------- ------- --------
BALANCE, December 31, 1999 5,000 $ 5 $28,942 $ 2,790 $ 31,737
===== ===== ======= ======= ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE> 8
FLORIDA WIRE AND CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,010) $(1,127)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 4,264 4,154
Loss on disposition of properties 27 0
Deferred income taxes (1,864) (559)
Changes in operating assets and liabilities:
Trade accounts receivable 3,260 (4,805)
Inventories 1,362 3,412
Accounts payable (1,337) 4,948
Accrued liabilities 5,643 (870)
Prepaid expenses and other assets (64) (117)
------- -------
Net cash provided by operating activities 9,281 5,036
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,393) (247)
Proceeds from disposals of equipment 103 --
------- -------
Net cash used in investing activities (2,290) (247)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan repayments to Former Parent (6,994) (4,789)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3) --
CASH AND CASH EQUIVALENTS, beginning of year 11 11
------- -------
CASH AND CASH EQUIVALENTS, end of year $ 8 $ 11
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid to Former Parent during the period for interest $ 2,527 $ 3,054
Cash paid to (refunded from) Former Parent during the period for taxes (58) 11
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE> 9
FLORIDA WIRE AND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
1. BUSINESS AND ORGANIZATION:
BUSINESS
Florida Wire and Cable, Inc. (the Company or FWC) is a wholly-owned subsidiary
of Insteel Industries, Inc. (Insteel). FWC is a leading producer of prestressed
concrete strand and a major manufacturer of galvanized strand. The Company sells
to customers primarily located in the United States.
On January 31, 2000, Insteel acquired all of the outstanding stock of FWC from
GS Technologies Operating Co., Inc. for $68,500, subject to a purchase price
adjustment as defined in the stock purchase agreement. The accompanying
financial statements do not reflect any adjustments giving effect to, or
resulting from, this acquisition.
Prior to its acquisition by Insteel, FWC was a wholly-owned subsidiary of GS
Technologies Operating Co., Inc. (GSTOC - the "Former Parent"). GSTOC is a
wholly-owned subsidiary of GS Technologies Corporation (GST) which is, in turn,
a wholly-owned subsidiary of GS Industries, Inc. (GSI).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following summarizes the significant policies applied in the preparation of
the accompanying financial statements.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
REVENUE RECOGNITION
Sales and related cost of products sold are recognized upon shipment of products
to customers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits and cash equivalents which are
highly liquid instruments with maturities of three months or less at the time of
purchase.
INVENTORIES
Inventories are valued at the lower of FIFO (first-in, first-out) cost or
market.
<PAGE> 10
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Maintenance and repairs are
expensed in the year incurred. Expenditures which result in betterments or
extensions of the useful lives of assets are capitalized and depreciated over
the remaining estimated lives of such assets.
Depreciation expense is computed using the straight-line method over the
estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
Machinery and equipment 3-15 years
Buildings and improvements 5-40 years
</TABLE>
Leasehold improvements are capitalized and amortized over the lesser of their
estimated useful lives or the life of the related lease.
ACQUISITION PREMIUM AND IDENTIFIABLE INTANGIBLE ASSETS
As discussed in Note 1, FWC was a wholly-owned subsidiary of GSTOC prior to
January 31, 2000. GSTOC acquired FWC in October 1995 through the acquisition
of Georgetown Industries, Inc (GII), FWC's parent at the time. In connection
with GSTOC's acquisition of GII, GSTOC management allocated the cost of the
acquisition to the fair value of assets acquired and liabilities assumed of GII
and its wholly-owned subsidiaries, including FWC. The acquisition premium on
the accompanying balance sheets represents the resulting excess cost over the
fair value assigned to the net assets acquired of FWC. The acquisition premium
is being amortized on a straight-line basis over 40 years. Amortization expense
of approximately $471 for each of the years ended December 31, 1999 and 1998 is
included in selling, general and administrative expenses on the accompanying
statement of operations.
Other intangible assets include unamortized debt issuance costs, patents and
other identifiable intangible assets also resulting from the acquisition of FWC
by GSTOC. Debt issuance costs are amortized over the lives of the
corresponding GSTOC debt agreements and are included in interest expense on
loans to Former Parent on the statements of operations. Amortization of debt
issuance costs was approximately $197 for each of the years ended December 31,
1999 and 1998.
Other identifiable intangible assets are being amortized on a straight-line
basis over periods ranging from 5 to 17 years. Amortization of these costs was
approximately $544 and $621 for each of the years ended December 31, 1999 and
1998.
ASSET IMPAIRMENT
The Company continually monitors conditions that may affect the carrying value
of its long-lived assets. When conditions indicate potential impairment of a
long-lived asset, the Company will undertake necessary market studies and
reevaluate projected future cash flows associated with the long-lived asset. To
the extent projected future cash flows, not discounted for the time value of
money, are less than the carrying value of the asset, the impaired asset is
written down to its fair value. The Company has not recorded any impairment
charges.
INCOME TAXES
Prior to its acquisition by Insteel, the Company was included in the GSI
consolidated U.S. federal income tax return and was party to a tax sharing
agreement with GSI. The tax sharing agreement provides, among other things, that
the expense or benefit for U.S. federal income taxes for financial reporting
purposes is calculated as though the Company were filing separate U.S. federal
income tax returns. Payments by the Company to GSI were made at such times as
would be made to the federal government had the Company been filing separate tax
returns. State taxes are recorded and paid directly to the appropriate
governmental agencies. Taxes currently payable or receivable are due to or from
GSTOC and are included in payables to related parties on the balance sheets.
<PAGE> 11
ENVIRONMENTAL EXPENDITURES
Environmental expenditures by the Company are expensed or capitalized depending
upon their future economic benefit. Expenditures which improve a property as
compared with the condition of the property when originally constructed or
acquired and which prevent future environmental contamination are capitalized.
Expenditures which return a property to its condition at the time of acquisition
are expensed. Liabilities are recorded when it is probable that obligations have
been incurred and the amounts can be reasonably estimated.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to concentrations of
credit risk, consist primarily of trade accounts receivable. The Company had one
customer that accounted for 9% and 13% of trade sales in 1999 and 1998,
respectively. To minimize this risk, ongoing credit evaluations of customers'
financial condition are performed although collateral is generally not required.
In addition, the Company maintains allowances for potential credit losses based
on historical experience and analysis of specific past due accounts.
3. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Finished goods and work in process $ 8,659 $ 9,908
Raw materials 6,861 7,117
Supplies 1,842 1,699
-------- --------
$ 17,362 $ 18,724
======== ========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land and leasehold improvements $ 1,108 $ 1,108
Buildings and improvements 7,094 6,603
Machinery and equipment 16,750 16,007
Construction in progress 922 290
-------- --------
25,874 24,008
Less accumulated depreciation (11,894) (9,200)
-------- --------
$ 13,980 $ 14,808
======== ========
</TABLE>
Depreciation expense was approximately $3,052 and $2,865 for the years ended
December 31, 1999 and 1998, respectively.
<PAGE> 12
5. EMPLOYEE BENEFITS:
Prior to its acquisition by Insteel, the Company participated in a GSI qualified
non-contributory defined benefit pension plan covering most employees. Under the
Plan, retirement benefits were based upon years of service and compensation for
salaried employees and years of service for hourly employees. It was GSI's
policy to fund this plan, at a minimum, in amounts required under ERISA. The
expense allocated by GSI to FWC was approximately $58 and $209 for the years
ended December 31, 1999 and 1998, respectively.
The company sponsors profit sharing plans covering substantially all of its
employees. The costs of such plans are determined based upon a percentage of
adjusted net income. The expense of the plans amounted to approximately $1,216
and $303 for the years ended December 31, 1999 and 1998, respectively.
6. INCOME TAXES:
The income tax benefit consists of the following components:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current:
Federal $ 253 $ 0
State and local 10 (10)
-------- --------
Total current 263 (10)
-------- --------
Deferred:
Federal (1,174) (567)
State and local (325) (110)
-------- --------
Total deferred (1,499) (677)
-------- --------
$ (1,236) $ (687)
======== ========
</TABLE>
<PAGE> 13
Differences between income taxes computed using the U.S. federal income tax
statutory rate of 35% and income tax benefit recorded by the Company are
attributable to the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Income tax benefit using the U.S. statutory rate $ 1,136 $ 635
State income taxes (78) 53
Change in valuation allowance 126 0
Other, net 52 (1)
-------- --------
$ 1,236 $ 687
======== ========
</TABLE>
Deferred tax assets (liabilities) are composed of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Intangibles $ (1,708) $ (1,395)
Properties (686) (741)
Other (285) (242)
-------- --------
Gross deferred tax liabilities (2,679) (2,378)
-------- --------
NOL and AMT carryovers 602 768
Accrued expenses and nondeductible reserves 2,770 565
-------- --------
Gross deferred tax assets 3,372 1,333
-------- --------
Deferred tax asset valuation allowance -- (126)
-------- --------
Net deferred tax asset (liability) $ 693 $ (1,171)
======== ========
</TABLE>
Under the terms of the tax sharing agreement with GSI discussed in Note 2, if
the Company generated a net operating loss or other tax attributes that it was
unable to use in the current year, the Company was allowed to carry forward, but
not carry back, any unused net operating loss or tax attributes for purposes of
computing its separate federal income tax liability. As a result of the
acquisition by Insteel, all net operating loss carryforwards and other tax
attributes recorded by the Company for financial reporting purposes were
retained by the Former Parent.
Included in payables to related parties on the balance sheets are current taxes
due to GSI of $261 at December 31, 1999, and current taxes due from GSI of $60
at December 31, 1998.
7. RELATED PARTY TRANSACTIONS:
FWC purchased approximately $39,584 and $37,075 of products from Georgetown
Steel Corporation and GST Steel Company, subsidiaries of GSTOC, during the years
ended December 31, 1999 and 1998, respectively. Accounts payable to related
parties on the balance sheets includes approximately $8,171 and $6,672 as of
December 31, 1999 and 1998, respectively, related to accounts payable to the
Former Parent.
At December 31, 1999, the accompanying balance sheet includes loans from the
Former Parent of $4,738 borrowed by GSTOC under a term loan and $12,176 borrowed
by GSTOC under a revolving line of credit. Interest is charged on the loans at
the rate paid by GSTOC and accrued interest included in accrued liabilities was
$630 and $580 at December 31, 1999 and 1998, respectively. The weighted-average
borrowing rate was 12.08% and 11.49% for the years ended December 31, 1999 and
1998, respectively. The loans were converted to equity in connection with the
sale of the Company discussed in Note 1.
<PAGE> 14
FWC used certain administrative functions of GSI including senior executive
management services, finance and treasury services, accounting and human
resources. The cost of these functions has been allocated to FWC primarily
through a formula based upon the level of sales, assets and headcount of FWC.
The expense allocated by GSI to FWC was approximately $1,560 and $1,200 for the
years ended December 31, 1999 and 1998, respectively, and is included in other
expense on the accompanying statements of operations.
Workers compensation coverage for employees was provided under GSI's insurance
coverage, with a $250 deductible per claim. The expense is allocated to FWC
based upon estimates of the aggregate liability for claims incurred by FWC using
historical experience. The expense allocated was approximately $268 and $167 for
the years ended December 31, 1999 and 1998, respectively.
8. COMMITMENTS AND CONTINGENCIES:
The Company is involved in various legal proceedings considered normal to its
business. It is the Company's policy to accrue for amounts related to these
matters if it is probable that a liability has been incurred and an amount is
reasonably estimable by management. During 1999, the Company accrued $4.8
million related to loss contingencies associated with certain claims, which
amount is included in accrued liabilities in the accompanying balance sheet as
of December 31, 1999.
J.C. Penney Company, Inc. has filed a claim for $20 million against the Company
and its predecessor, Florida Wire and Cable, Co. (FWCC), for allegedly defective
product. The product was sold to J.C. Penney prior to GSTOC's acquisition of
FWC. In management's opinion, FWC does not have any liability related to this
matter.
ENVIRONMENTAL MATTERS
The Company is subject to a broad range of federal, state and local
environmental requirements, including those governing discharges to the air and
water, the handling and disposal of solid and hazardous wastes and the
remediation of contamination associated with releases of hazardous substances at
Company facilities and associated offsite disposal locations. Liabilities with
respect to hazardous substance release arise principally under the Federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
and similar state laws, which impose strict, retroactive, joint and several
liability upon statutorily defined classes of potentially responsible parties.
Based on the continuing review of environmental requirements, the Company
believes that it is currently in compliance with environmental requirements.
LABOR RELATIONS
Employees at the Company's Jacksonville, Florida facility are covered by a
collective bargaining agreement that expires on April 30, 2000. In the course of
previous contract negotiations, the Company has on occasion been affected by
work stoppages. During 1998, the Company was unable to reach agreement with the
union and a work stoppage commenced. The Company restaffed the facility with
permanent replacement workers. In July 1998, however, the union notified the
Company that striking workers had accepted the Company's final offer as proposed
by management before the work stoppage began.
<PAGE> 15
COMMITMENTS
Rent expense under equipment operating leases was approximately $913 and $753
for the years ended December 31, 1999 and 1998, respectively. Future minimum
noncancelable operating lease commitments are payable as follows:
<TABLE>
<S> <C>
2000 $923
2001 345
2002 52
2003 5
</TABLE>
(B) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet as
of January 1, 2000 combines the historical consolidated balance sheet
information of the Company and FWC as if the acquisition were consummated on
January 1, 2000. The unaudited pro forma combined condensed statements of income
for the year ended October 2, 1999 and for the three months ended January 1,
2000 combine the historical consolidated income statement information of the
Company and the historical income statement of FWC as if the FWC acquisition had
been consummated on October 4, 1998, the beginning of the earliest period
presented. The transaction is being recorded under the purchase method of
accounting, giving effect to the pro forma adjustments and assumptions described
in the accompanying notes.
The pro forma financial statements have been prepared by the management
of the Company based on historical information and preliminary assumptions and
estimates. Accordingly, the pro forma financial statements may not be indicative
of the actual financial position and results of operations of the Company that
would have resulted if the acquisition of FWC and related borrowings had been
effected on the dates indicated, nor does it purport to represent the financial
position and results of operations of the Company for any future period. The pro
forma financial statements should be read in conjunction with the Company's
audited consolidated financial statements and the notes thereto and FWC's
audited financial statements and the notes thereto.
<PAGE> 16
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
INSTEEL INDUSTRIES, INC. AND FLORIDA WIRE AND CABLE, INC.
(In thousands)
<TABLE>
<CAPTION>
JANUARY 1, 2000
-------------------------------------------------------------
PRO FORMA
COMPANY FWC ADJUSTMENTS COMBINED
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 885 $ 8 $ 827 1,4 $ 1,720
Accounts receivable, net 21,105 15,417 8,245 6 44,767
Inventories 40,532 17,362 449 3 58,343
Prepaid expenses and other 3,314 2,899 (439) 1,3 5,774
-------- ------- -------- --------
Total current assets 65,836 35,686 9,082 110,604
Property, plant and equipment, net 85,994 13,980 13,091 3 113,065
Goodwill, net -- 16,839 1,778 3,4,5,6,7,8 18,617
Other assets 11,921 2,634 649 3,5 15,204
-------- ------- -------- --------
Total assets $163,751 $69,139 $ 24,600 $257,490
======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,406 $ 9,837 $ -- $ 28,243
Accrued expenses 7,960 8,574 1,687 1,2,4,8 18,221
Current portion of long-term debt 620 -- 8,000 4 8,620
Short-term debt -- 16,914 (16,914) 1 --
-------- ------- -------- --------
Total current liabilities 26,986 35,325 (7,227) 55,084
Long-term debt 50,170 -- 65,641 4,5 115,811
Deferred income taxes 7,882 2,077 (2,077) 1 7,882
Other liabilities 1,022 -- -- 1,022
-------- ------- -------- --------
Total liabilities 59,074 2,077 53,564 124,712
Shareholders' equity:
Common stock 16,920 5 (5) 7 16,920
Additional paid-in capital 38,327 28,942 (28,942) 7 38,327
Retained earnings 22,444 2,790 (2,790) 1,2,3,7 22,444
-------- ------- -------- --------
Total shareholders' equity 77,691 31,737 (31,737) 77,691
-------- ------- -------- --------
Total liabilities and shareholders' equity $163,751 $69,139 $ 24,600 $257,490
======== ======= ======== ========
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
1. To eliminate assets and liabilities not assumed with purchase.
2. To establish liability assumed with purchase.
3. To restate net assets of FWC to their estimated fair values as of the
acquisition date.
4. To record debt incurred to acquire FWC.
5. To record additional acquisition and financing costs as an increase in
goodwill, other assets and long-term debt.
6. To record receivable from seller for purchase price adjustment based on
statement of net assets of FWC as of January 1, 2000. The Company is in
the process of reaching a final agreement with the Seller on the
purchase price adjustment amount, which it expects will be finalized
during its current quarter ending July 1, 2000. See Note (a) under
"The Acquisition", below.
7. To eliminate the equity of FWC.
8. To establish reserve for severance, facility closing expenses and other
restructuring costs to be incurred in connection with the FWC
acquisition.
<PAGE> 17
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
INSTEEL INDUSTRIES, INC. AND FLORIDA WIRE AND CABLE, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 2, 1999
-----------------------------------------------------------------------
PRO FORMA
COMPANY FWC ADJUSTMENTS COMBINED
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 270,992 $ 105,219 $ -- $ 376,211
Cost of sales 235,345 91,698 (1,003)A 326,040
--------- --------- ------- -----------
Gross profit 35,647 13,521 1,003 50,171
Selling, general and administrative expense 17,429 12,714 (1,446)A,D 28,697
--------- --------- ------- -----------
Operating income 18,218 807 2,449 21,474
Interest expense 2,482 2,759 4,163 B,C,E 9,404
Other expense 59 1,452 (1,470)B 41
--------- --------- ------- -----------
Earnings (loss) before income taxes 15,677 (3,404) (244) 12,029
Provision (benefit) for income taxes 5,691 (1,291) (33)F 4,367
--------- --------- ------- -----------
Net earnings (loss) $ 9,986 $ (2,113) $ (211) $ 7,662
========= ========= ======= ===========
Net earnings per share (basic and diluted) $ 1.18 $ 0.91
========= ===========
Weighted average shares outstanding (basic) 8,457 8,457
========= ===========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED JANUARY 1, 2000
---------------------------------------------------------------------------
PRO FORMA
COMPANY FWC ADJUSTMENTS COMBINED
--------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales $ 58,571 $ 24,119 $ -- $ 82,690
Cost of sales 52,454 21,531 (231)A 73,754
--------- --------- ------------- ---------
Gross profit 6,117 2,588 231 8,936
Selling, general and administrative expense 4,095 1,487 (362)A,D 5,220
--------- --------- ------------- ---------
Operating income 2,022 1,101 593 3,716
Interest expense 750 627 1,446 B,C,E 2,823
Other expense (income) (110) 356 (390)B (144)
--------- --------- ------------- ---------
Earnings before income taxes 1,382 118 (463) 1,037
Provision for income taxes 532 45 (178)F 399
--------- --------- ------------- ---------
Net earnings $ 850 $ 73 $ (285) $ 638
========= ========= ============= =========
Net earnings per share (basic and diluted) $ 0.10 $ 0.08
========= =========
Weighted average shares outstanding (basic) 8,460 8,460
========= =========
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
A. To record certain synergies which are within the direct control of the
Company, including: a) logistics improvements and the associated
reduction in freight expense resulting from the optimization of
shipping origin by plant based upon customer location; b) cost
reductions resulting from changes in the consolidated Company's
purchasing strategy; c) elimination of expenses associated with
overlapping selling, general and administrative activities; and d)
closure of distribution centers.
B. To eliminate FWC interest expense and management fees.
C. To record estimated interest expense on borrowings to fund the FWC
acquisition and to refinance the Insteel revolving credit facility at
an assumed interest rate of 7.88% for the year ended October 2, 1999,
and 8.65% for the quarter ended January 1, 2000.
D. To record the amortization of goodwill, which is based on the excess of
the purchase price of FWC shares over the fair market value of net
assets acquired. The goodwill will be amortized on a straight-line
basis over a period of 20 years.
E. To record the amortization of deferred financing fees as interest
expense, resulting from the debt incurred to acquire FWC and refinance
Insteel's revolving credit facility.
F. To record the tax effect of the above pro forma adjustments using a
36.3% effective rate for the year ended October 2, 1999, and 38.5% for
the quarter ended January 1, 2000.
<PAGE> 18
THE ACQUISITION
On January 31, 2000, the Company completed its acquisition of FWC. The
acquisition will be accounted for as a purchase, with the excess of the purchase
price over the fair value of the net assets acquired to be allocated to
goodwill.
A summary of the preliminary purchase price and the preliminary
purchase price allocation based on the net assets as of January 31, 2000 is as
follows (in thousands):
<TABLE>
<S> <C>
PRELIMINARY PURCHASE PRICE
Cash paid to GS Technologies Operating Co., Inc. $ 68,500
Purchase price adjustment (7,550)(a)
Financial advisors, accounting, legal and other direct acquisition costs 1,130
--------
Preliminary purchase price $ 62,080
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Preliminary purchase price $ 62,080
Less net book value of assets acquired (49,033)
--------
Excess of cost over net book value of assets acquired 13,047
Adjustments to record assets and liabilities at fair market value:
Inventories (510)
Property, plant and equipment (13,245)
Deferred tax assets (2,402)
Goodwill (historical) 16,800
Intangibles 2,183
Accrued expenses 2,404 (b)
--------
Total adjustments 5,230
Goodwill $18,277
========
</TABLE>
(a) The purchase price adjustment is based on the audited statement of net
assets as of January 31, 2000 and is in the process of being reviewed
by the Seller. Any disagreements between the Company and the Seller
regarding the statement of net assets which cannot be settled will be
submitted to an independent accounting firm for a final resolution of
the purchase price adjustment amount. The Company expects the purchase
price adjustment amount to be finalized during its current quarter
ending July 1, 2000.
(b) Reflects severance, facility closing expenses and other restructuring
costs to be incurred in connection with the FWC acquisition in
accordance with EITF 95-3 "Recognition of Liabilities in Connection
with a Purchase Business Combination."
<PAGE> 19
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 17, 2000 By: /s/ H.O. Woltz III
-------------------------------------------
H.O. Woltz III
President and Chief Executive Officer
Date: April 17, 2000 By: /s/ Michael C. Gazmarian
-------------------------------------------
Michael C. Gazmarian
Chief Financial Officer and Treasurer
