Insteel Industries Reports Second Quarter Financial Results
MOUNT AIRY, N.C., April 21, 2011 /PRNewswire/ — Insteel Industries, Inc. (NasdaqGS: IIIN) today reported net earnings of $2.6 million ($0.15 per share) for the second quarter of fiscal 2011 compared with $1.6 million ($0.09 per share) in the second quarter of fiscal 2010. Net earnings for the current year quarter include restructuring charges, acquisition-related costs and a bargain purchase gain related to the acquisition of certain of the assets of Ivy Steel & Wire, Inc. (“Ivy”), which had the net effect of reducing net earnings by $1.5 million ($0.08 per share).
Net sales for the second quarter of fiscal 2011 increased 66.3% to $86.9 million from $52.3 million in the second quarter of fiscal 2010 primarily due to the addition of Ivy’s facilities and higher average selling prices. Shipments for the second quarter of fiscal 2011 increased 42.6% from the prior year quarter and average selling prices increased 16.6%. On a sequential basis, shipments increased 54.7% from the first quarter of fiscal 2011 and average selling prices increased 7.5%.
For the first six months of fiscal 2011, the Company incurred a net loss of $5.0 million ($0.29 per share) compared with net earnings of $0.5 million ($0.03 per share) in the first six months of fiscal 2010. The six-month results for the current year include restructuring charges, acquisition-related costs and a bargain purchase gain related to the Ivy acquisition, which had the net effect of reducing net earnings by $6.0 million ($0.34 per share). The six-month results for the prior year include inventory write-downs to reduce the carrying value of inventory to the lower of cost or market, which reduced net earnings by $1.2 million ($0.07 per share).
Net sales for the first six months of fiscal 2011 increased 49.0% to $139.2 million from $93.5 million in the first six months of fiscal 2010. Shipments for the first six months of fiscal 2011 increased 30.8% from the first six months of fiscal 2010 and average selling prices increased 13.9%.
Insteel’s financial results for the second quarter of fiscal 2011 were favorably impacted by widening spreads between selling prices and raw material costs and the contribution from the Ivy facilities. Demand for the Company’s products remained at depressed levels due to the ongoing weakness in the construction sector. Insteel’s overall capacity utilization for the quarter was 46% compared with 35% in the first quarter of fiscal 2011 and 49% in the second quarter of fiscal 2010.
Operating activities provided $5.1 million of cash for the second quarter of fiscal 2011 compared with $29.2 million in the second quarter of fiscal 2010. Net working capital used $2.3 million of cash during the current year quarter while providing $11.3 million in the prior year quarter. Cash provided by operating activities in the prior year quarter benefited from the receipt of a $13.3 million income tax refund. Capital expenditures for the six-month period were $4.9 million and are expected to total less than $10.0 million for fiscal 2011. Insteel ended the quarter with $3.9 million of cash and cash equivalents, $13.5 million of total debt and no borrowings outstanding on its $75.0 million revolving credit facility.
Ivy Acquisition and Restructuring Activities
Following the completion of the Ivy acquisition in November 2010, the Company has proceeded with its plans to consolidate its Texas and Northeast operations. The leased facility in Houston, Texas was closed in December 2010 and the Wilmington, Delaware facility is now expected to be closed by the end of April 2011. The Company has also implemented staffing reductions across its sales, administration and manufacturing support functions to address the redundancies resulting from the acquisition.
The $2.2 million of restructuring charges recorded during the quarter include employee separation costs associated with the plant closures and other staffing reductions ($1.2 million); asset impairment charges to write down the carrying value of long-lived assets related to the plant closures and decommissioning of equipment ($0.6 million); other facility closure costs ($0.2 million); and equipment relocation costs ($0.2 million). The Company currently expects to incur approximately $1.0 million of additional restructuring charges for equipment relocation and employee separation costs.
“We are pleased with the substantial progress that was made with our Ivy integration efforts during the quarter,” said H.O. Woltz III, Insteel’s president and CEO. “The actions that we have taken to consolidate plants and realign staffing have yielded significant reductions in operating costs. All of the Ivy facilities have been transitioned over to Insteel’s information systems and we are currently in the process of implementing Insteel’s operating metrics and procedures. We are also proceeding with the rebalancing and reconfiguration of our manufacturing capabilities across locations, which should provide for additional synergies in the form of lower costs and enhanced customer service.”
Outlook
“Despite the continued weakness in our construction end-markets, as we move into the second half of the fiscal year we expect our financial results will be favorably impacted by the usual seasonal upturn in demand together with the increasing contributions and synergies associated with the Ivy acquisition,” commented Woltz. “Prices for our primary raw material, hot-rolled steel wire rod have spiked higher in recent months driven by the rising cost of steel scrap and increased demand from automotive and other non-construction applications. We have responded to these cost pressures by implementing price increases for our reinforcing products during our first and second fiscal quarters and have announced additional increases effective in April.
Looking ahead, the timing and trajectory for a recovery in the construction industry continues to be difficult to forecast. During the interim, we will remain focused on strengthening our market leadership positions across our product lines and capitalizing on any additional growth opportunities that may develop in this difficult environment.”
Conference Call
Insteel will hold a conference call at 10:00 a.m. ET today to discuss its second quarter 2011 financial results. A live webcast of this call can be accessed on Insteel’s website at http://investor.insteel.com/ and will be archived for replay until the next quarterly conference call.
About Insteel
Insteel is one of the nation’s largest manufacturers of steel wire reinforcing products for concrete construction applications. Insteel manufactures and markets PC strand and welded wire reinforcement, including concrete pipe reinforcement, engineered structural mesh (“ESM”) and standard welded wire reinforcement. Insteel’s products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. Headquartered in Mount Airy, North Carolina, Insteel currently operates ten manufacturing facilities located in the United States.
Cautionary Note Regarding Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this news release, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends,” “may,” “should” and similar expressions are intended to identify forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, such forward-looking statements are subject to a number of risks and uncertainties, and the Company can provide no assurances that such plans, intentions or expectations will be achieved. Many of these risks and uncertainties are discussed in detail in the Company’s periodic and other reports and statements that it files with the U.S. Securities and Exchange Commission (the “SEC”), in particular in its Annual Report on Form 10-K for the year ended October 2, 2010. You should carefully review these risks and uncertainties.
All forward-looking statements attributable to Insteel or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. All forward-looking statements speak only to the respective dates on which such statements are made and Insteel does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as may be required by law.
It is not possible to anticipate and list all risks and uncertainties that may affect Insteel’s future operations or financial performance; however, they include, but are not limited to, the following: potential difficulties that may be encountered in integrating the acquisition of certain assets of Ivy into Insteel’s existing business; potential difficulties in realizing synergies, including reduced operating costs, with respect to Insteel’s acquisition of certain assets of Ivy and the cessation of operations at the Wilmington, Delaware facility; competitive and customer responses to Insteel’s expanded business; general economic and competitive conditions in the markets in which Insteel operates; credit market conditions and the relative availability of financing to Insteel, its customers and the construction industry as a whole; the continuation of reduced spending for nonresidential construction, particularly commercial construction, and the impact on demand for Insteel’s products; the timing of the resolution of a new multi-year federal transportation funding authorization and the magnitude of the infrastructure-related funding provided for that requires the use of Insteel’s products; the severity and duration of the downturn in residential construction and the impact on those portions of Insteel’s business that are correlated with the housing sector; the cyclical nature of the steel and building material industries; fluctuations in the cost and availability of Insteel’s primary raw material, hot-rolled steel wire rod, from domestic and foreign suppliers; competitive pricing pressures and Insteel’s ability to raise selling prices in order to recover increases in wire rod costs; changes in U.S. or foreign trade policy affecting imports or exports of steel wire rod or Insteel’s products; unanticipated changes in customer demand, order patterns and inventory levels; the impact of weak demand and reduced capacity utilization levels on Insteel’s unit manufacturing costs; Insteel’s ability to further develop the market for engineered structural mesh (“ESM”) and expand its shipments of ESM; legal, environmental, economic or regulatory developments that significantly impact Insteel’s operating costs; unanticipated plant outages, equipment failures or labor difficulties; continued escalation in certain of Insteel’s operating costs; and the other risks and uncertainties discussed in Insteel’s Annual Report on Form 10-K for the year ended October 2, 2010 and in other filings made by Insteel with the SEC.
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for per share data)
(Unaudited)
Three Months Six Months
Ended Ended
------------ ----------
April April April April
2, 3, 2, 3,
2011 2010 2011 2010
---- ---- ---- ----
Net sales $86,933 $52,268 $139,239 $93,469
Cost of sales 75,330 46,049 127,771 83,575
Inventory write-downs - - - 1,933
--- --- --- -----
Gross profit 11,603 6,219 11,468 7,961
Selling, general and
administrative expense 4,523 4,182 8,691 7,924
Restructuring charges 2,213 - 6,603 -
Acquisition costs 768 - 3,518 -
Bargain purchase gain (500) - (500) -
Other income, net (56) (97) (69) (250)
Interest expense 253 147 404 295
Interest income (6) (14) (19) (26)
--- --- --- ---
Earnings (loss) from
continuing operations
before
income taxes 4,408 2,001 (7,160) 18
Income taxes 1,789 357 (2,151) (503)
----- --- ------ ----
Earnings (loss) from
continuing operations 2,619 1,644 (5,009) 521
Loss from discontinued
operations net of
income
taxes of $ -, ($6), $
-and ($14) - (10) - (23)
--- --- --- ---
Net earnings (loss) $2,619 $1,634 $(5,009) $498
====== ====== ======= ====
Per share amounts:
Basic:
Earnings (loss) from
continuing operations $0.15 $0.09 $(0.29) $0.03
Loss from discontinued
operations - - - -
--- --- --- ---
Net earnings (loss) $0.15 $0.09 $(0.29) $0.03
===== ===== ====== =====
Diluted:
Earnings (loss) from
continuing operations $0.15 $0.09 $(0.29) $0.03
Loss from discontinued
operations - - - -
--- --- --- ---
Net earnings (loss) $0.15 $0.09 $(0.29) $0.03
===== ===== ====== =====
Cash dividends declared $0.03 $0.03 $0.06 $0.06
===== ===== ===== =====
Weighted average shares
outstanding
Basic 17,551 17,458 17,531 17,434
====== ====== ====== ======
Diluted 17,802 17,647 17,531 17,643
====== ====== ====== ======
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
-----------
January October
April 2, 1, 2,
2011 2011 2010
---- ---- ----
Assets
Current assets:
Cash and cash equivalents $3,893 $2,787 $45,935
Accounts receivable, net 37,418 22,356 24,970
Inventories 61,717 61,062 43,919
Other current assets 4,930 4,961 3,931
----- ----- -----
Total current assets 107,958 91,166 118,755
Property, plant and
equipment, net 93,169 91,521 58,653
Other assets 5,770 7,583 5,097
----- -----
Total assets $206,897 $190,270 $182,505
======== ======== ========
Liabilities and
shareholders' equity
Current liabilities:
Accounts payable $35,870 $22,342 $20,689
Accrued expenses 8,555 8,316 5,929
Current portion of long-
term debt 675 675 -
Current liabilities of
discontinued operations - - 210
--- --- ---
Total current liabilities 45,100 31,333 26,828
Long-term debt 12,825 12,825 -
Other liabilities 5,970 5,852 7,521
Long-term liabilities of
discontinued operations - - 280
Shareholders' equity:
Common stock 17,614 17,579 17,579
Additional paid-in
capital 47,105 46,489 45,950
Retained earnings 80,592 78,501 86,656
Accumulated other
comprehensive loss (2,309) (2,309) (2,309)
------ ------
Total shareholders'
equity 143,002 140,260 147,876
------- ------- -------
Total liabilities and
shareholders' equity $206,897 $190,270 $182,505
======== ======== ========
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
------------------
April 2, April 3,
2011 2010
---- ----
Cash Flows From Operating Activities:
Net earnings (loss) $2,619 $1,634
Loss from discontinued operations - 10
--- ---
Earnings (loss) from continuing
operations 2,619 1,644
Adjustments to reconcile earnings
(loss) from continuing operations to
net cash
provided by operating activities of
continuing operations:
Depreciation and amortization 2,499 1,743
Amortization of capitalized financing
costs 20 124
Stock-based compensation expense 643 616
Asset impairment charges 583 -
Inventory write-downs - -
Excess tax deficiencies (benefits)
from stock-based compensation (81) 8
Loss on sale of property, plant and
equipment 16 -
Deferred income taxes 1,693 128
Gain from life insurance proceeds (357) -
Increase in cash surrender value of
life insurance policies over
premiums paid (50) (284)
Net changes in assets and liabilities
(net of assets and liabilities
acquired):
Accounts receivable, net (15,062) (5,435)
Inventories (655) 6,289
Accounts payable and accrued expenses 13,398 10,449
Other changes (133) 13,969
---- ------
Total adjustments 2,514 27,607
----- ------
Net cash provided by operating
activities -continuing operations 5,133 29,251
Net cash used for operating
activities -discontinued operations - (11)
--- ---
Net cash provided by operating
activities 5,133 29,240
----- ------
Cash Flows From Investing Activities:
Acquisition of business 280 -
Capital expenditures (4,396) (575)
Proceeds from life insurance claims 1,063 -
Proceeds from sale of property, plant
and equipment 18 -
Increase in cash surrender value of
life insurance policies (425) (299)
---- ----
Net cash used for investing
activities -continuing operations (3,460) (874)
------ ----
Net cash used for investing
activities (3,460) (874)
------ ----
Cash Flows From Financing Activities:
Proceeds from long-term debt 5,799 98
Principal payments on long-term debt (5,799) (98)
Cash received from exercise of stock
options 13 67
Excess tax benefits (deficiencies)
from stock-based compensation 81 (8)
Cash dividends paid (527) (527)
Other (134) 31
---- -
Net cash used for financing
activities -continuing operations (567) (437)
---- ----
Net cash used for financing
activities (567) (437)
---- ----
Net increase (decrease) in cash and
cash equivalents 1,106 27,929
Cash and cash equivalents at
beginning of period 2,787 24,334
----- ------
Cash and cash equivalents at end of
period $3,893 $52,263
====== =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $30 $22
Income taxes 51 2
Non-cash investing and financing
activities:
Purchases of property, plant and
equipment in accounts payable 368 6
Declaration of cash dividends to be
paid 527 -
Restricted stock surrendered for
withholding taxes payable 86 45
Note payable issued as consideration
for business acquired - -
Post-closing purchase price
adjustment for business acquired 500 -
Six Months Ended
----------------
April 2, April 3,
2011 2010
---- ----
Cash Flows From Operating Activities:
Net earnings (loss) $(5,009) $498
Loss from discontinued operations - 23
--- ---
Earnings (loss) from continuing
operations (5,009) 521
Adjustments to reconcile earnings
(loss) from continuing operations to
net cash
provided by operating activities of
continuing operations:
Depreciation and amortization 4,553 3,458
Amortization of capitalized financing
costs 40 249
Stock-based compensation expense 1,182 1,103
Asset impairment charges 3,451 -
Inventory write-downs - 1,933
Excess tax deficiencies (benefits)
from stock-based compensation (81) (3)
Loss on sale of property, plant and
equipment 16 11
Deferred income taxes (2,276) (217)
Gain from life insurance proceeds (357) -
Increase in cash surrender value of
life insurance policies over
premiums paid (298) (284)
Net changes in assets and liabilities
(net of assets and liabilities
acquired):
Accounts receivable, net (12,448) (1,922)
Inventories 2,787 4,449
Accounts payable and accrued expenses 9,360 (4,076)
Other changes (878) 14,258
---- ------
Total adjustments 5,051 18,959
----- ------
Net cash provided by operating
activities -continuing operations 42 19,480
Net cash used for operating
activities -discontinued operations - (40)
--- ---
Net cash provided by operating
activities 42 19,440
--- ------
Cash Flows From Investing Activities:
Acquisition of business (37,308) -
Capital expenditures (4,902) (902)
Proceeds from life insurance claims 1,063 -
Proceeds from sale of property, plant
and equipment 18 -
Increase in cash surrender value of
life insurance policies (425) (410)
---- ----
Net cash used for investing
activities -continuing operations (41,554) (1,312)
------- ------
Net cash used for investing
activities (41,554) (1,312)
------- ------
Cash Flows From Financing Activities:
Proceeds from long-term debt 5,908 150
Principal payments on long-term debt (5,908) (150)
Cash received from exercise of stock
options 13 84
Excess tax benefits (deficiencies)
from stock-based compensation 81 3
Cash dividends paid (527) (1,053)
Other (97) (1)
--- -
Net cash used for financing
activities -continuing operations (530) (967)
---- ----
Net cash used for financing
activities (530) (967)
---- ----
Net increase (decrease) in cash and
cash equivalents (42,042) 17,161
Cash and cash equivalents at
beginning of period 45,935 35,102
------ ------
Cash and cash equivalents at end of
period $3,893 $52,263
====== =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $66 $46
Income taxes 760 2
Non-cash investing and financing
activities:
Purchases of property, plant and
equipment in accounts payable 441 98
Declaration of cash dividends to be
paid 527 -
Restricted stock surrendered for
withholding taxes payable 86 52
Note payable issued as consideration
for business acquired 13,500 -
Post-closing purchase price
adjustment for business acquired 500 -
SOURCE Insteel Industries, Inc.
