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Insteel Industries Reports Third Quarter Financial Results

July 21, 2011

MOUNT AIRY, N.C., July 21, 2011 /PRNewswire/ — Insteel Industries, Inc. (NasdaqGS: IIIN) today reported net earnings of $3.7 million ($0.20 per diluted share) for the third quarter of fiscal 2011 compared with $1.6 million ($0.09 per share) in the third quarter of fiscal 2010. Net earnings for the current year quarter include restructuring charges of $2.0 million ($0.07 per share after-tax) related to the November 2010 acquisition of certain of the assets of Ivy Steel & Wire, Inc. (“Ivy”).

Insteel’s financial results for the third quarter of fiscal 2011 were favorably impacted by the contribution from the Ivy facilities and widening spreads between selling prices and raw material costs. Demand for the Company’s products remained at depressed levels due to the ongoing weakness in the construction sector. Insteel’s capacity utilization for the quarter was 48% compared with 46% in the second quarter of fiscal 2011 and 52% in the third quarter of fiscal 2010.

Net sales for the third quarter of fiscal 2011 increased 59.1% to $98.6 million from $62.0 million in the third quarter of fiscal 2010 primarily due to the addition of Ivy’s facilities and higher average selling prices. Shipments for the third quarter of fiscal 2011 increased 41.9% from the prior year quarter and average selling prices increased 12.1%. On a sequential basis, shipments increased 7.5% from the second quarter of fiscal 2011 and average selling prices increased 5.5%.

For the first nine months of fiscal 2011, Insteel incurred a net loss of $1.4 million ($0.08 per share) compared with net earnings of $2.1 million ($0.12 per share) in the first nine months of fiscal 2010. The nine-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 $11.6 million ($0.41 per share after-tax). Net earnings for the prior year period include $1.9 million ($0.07 per share after-tax) of inventory write-downs to reduce the carrying value of inventory to the lower of cost or market.

Net sales for the first nine months of fiscal 2011 increased 53.0% to $237.8 million from $155.4 million in the first nine months of fiscal 2010. Shipments for the first nine months of fiscal 2011 increased 35.0% from the prior year period and average selling prices increased 13.4%.

Liquidity and Capital Resources

Operating activities used $0.1 million of cash for the third quarter of fiscal 2011 compared with $6.8 million in the third quarter of fiscal 2010. Net working capital used $8.8 million of cash during the current year quarter and $10.7 million in the prior year quarter primarily due to the usual seasonal increase in sales volume together with sequential increases in selling prices and raw material costs. Capital expenditures for the nine-month period were $6.3 million and are expected to total less than $10.0 million for fiscal 2011. Insteel ended the quarter with $2.0 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

The Company has completed the consolidation of its welded wire reinforcement operations in Texas and the Northeast, which involved the closure of two facilities and absorption of the business by other Insteel locations. These actions were taken due to the close proximity of the Ivy facilities that were acquired in Hazleton, Pennsylvania and Houston, Texas to Insteel’s existing facilities in Wilmington, Delaware and Dayton, Texas. The leased facility in Houston was closed in December 2010 and the Wilmington facility was closed in May 2011. The Company is also in the process of reconfiguring certain of its operations and redeploying equipment across locations in order to achieve further improvements in its operating costs and customer service capabilities. These activities are currently expected to be completed by the end of the first quarter of fiscal 2012.

The $2.0 million of restructuring charges recorded during the quarter include asset impairment charges to write down the carrying value of long-lived assets related to the facility closures and decommissioning of equipment ($0.7 million); other facility closure-related costs ($0.6 million); equipment relocation costs ($0.6 million); and employee separation costs ($0.1 million). The Company currently expects to incur approximately $1.0 million of additional restructuring charges in connection with the remaining anticipated equipment relocation and facility closure-related costs.

“With the facility consolidations, staffing reductions and systems conversions essentially behind us, our integration efforts are now focused on the implementation of Insteel operating metrics and procedures at the former Ivy locations and the execution of the remainder of our reconfiguration plans,” said H.O. Woltz III, Insteel’s president and CEO. “We expect these initiatives will further strengthen Insteel’s competitive position and improve our earnings potential, which should become more apparent as market conditions improve.”

Outlook

Commenting on the outlook for the remainder of 2011, Woltz said, “As we head into the second half of the calendar year, we expect demand in our construction end-markets to remain at depressed levels pending a sustained recovery in the private sector and increased availability of credit for project financing. The outlook for infrastructure construction is clouded by the uncertainty regarding the duration and magnitude of a new federal transportation funding authorization and the fiscal constraints at the state and local level. During the interim, we expect market conditions to remain intensively competitive, although our financial results should be favorably impacted by increasing contributions from the Ivy acquisition and our ongoing process improvement initiatives. In addition, our strong balance sheet and financial flexibility position us to pursue additional acquisition opportunities in our core businesses that further our market penetration or expand our geographic footprint.”

Conference Call

Insteel will hold a conference call at 10:00 a.m. ET today to discuss its third 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 the nation’s largest manufacturer 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 nine manufacturing facilities located in the United States.

All references to “per share” amounts in this release indicate that the amounts referenced were the same on a basic and diluted basis.

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; 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 duration and magnitude of a new federal transportation funding authorization and the amount of 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 Ended
                                                  ------------------
                                                July 2,       July 3,
                                                    2011          2010
                                                    ----          ----

    Net sales                                    $98,579       $61,956
    Cost of sales                                 86,050        54,266
    Inventory write-downs                              -             -
                                                     ---           ---
        Gross profit                              12,529         7,690
    Selling, general and administrative
     expense                                       4,947         4,317
    Restructuring charges                          1,970             -
    Acquisition costs                                  -             -
    Bargain purchase gain                              -             -
    Other income, net                                (27)           (2)
    Interest expense                                 260           116
    Interest income                                  (18)          (45)
                                                     ---           ---
        Earnings (loss) from continuing
         operations before
            income taxes                           5,397         3,304
    Income taxes                                   1,747         1,680
                                                   -----         -----
        Earnings (loss) from continuing
         operations                                3,650         1,624
    Loss from discontinued operations net
     of income
        taxes of $ -, ($12), $ -and ($26)              -           (19)
                                                     ---           ---
                Net earnings (loss)               $3,650        $1,605
                                                  ======        ======

    Per share amounts:
        Basic:
            Earnings (loss) from continuing
             operations                            $0.21         $0.09
            Loss from discontinued operations          -             -
                                                     ---           ---
                Net earnings (loss)                $0.21         $0.09
                                                   =====         =====

        Diluted:
            Earnings (loss) from continuing
             operations                            $0.20         $0.09
            Loss from discontinued operations          -             -
                                                     ---           ---
                Net earnings (loss)                $0.20         $0.09
                                                   =====         =====

        Cash dividends declared                    $0.03         $0.03
                                                   =====         =====

    Weighted average shares outstanding
        Basic                                     17,587        17,492
                                                  ======        ======
        Diluted                                   17,855        17,695
                                                  ======        ======


                                                   Nine Months Ended
                                                   -----------------
                                                July 2,        July 3,
                                                    2011           2010
                                                    ----           ----

    Net sales                                   $237,818       $155,425
    Cost of sales                                213,821        137,841
    Inventory write-downs                              -          1,933
                                                     ---          -----
        Gross profit                              23,997         15,651
    Selling, general and administrative
     expense                                      13,638         12,241
    Restructuring charges                          8,573              -
    Acquisition costs                              3,518              -
    Bargain purchase gain                           (500)             -
    Other income, net                                (96)          (252)
    Interest expense                                 664            411
    Interest income                                  (37)           (71)
                                                     ---            ---
        Earnings (loss) from continuing
         operations before
            income taxes                          (1,763)         3,322
    Income taxes                                    (404)         1,177
                                                    ----          -----
        Earnings (loss) from continuing
         operations                               (1,359)         2,145

        taxes of $ -, ($12), $ -and ($26)              -            (42)
                                                     ---            ---
                Net earnings (loss)              $(1,359)        $2,103
                                                 =======         ======

    Per share amounts:
        Basic:
            Earnings (loss) from continuing
             operations                           $(0.08)         $0.12
            Loss from discontinued operations          -              -
                                                     ---            ---
                Net earnings (loss)               $(0.08)         $0.12
                                                  ======          =====

        Diluted:
            Earnings (loss) from continuing
             operations                           $(0.08)         $0.12
            Loss from discontinued operations          -              -
                                                     ---            ---
                Net earnings (loss)               $(0.08)         $0.12
                                                  ======          =====

        Cash dividends declared                    $0.09          $0.09
                                                   =====          =====

    Weighted average shares outstanding
        Basic                                     17,550         17,454
                                                  ======         ======
        Diluted                                   17,550         17,661
                                                  ======         ======

                   INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
                                             (Unaudited)
                                             -----------
                                       July 2,       April 2,   October 2,
                                           2011           2011        2010
                                           ----           ----        ----
    Assets
    Current assets:
        Cash and cash equivalents        $2,009         $3,893     $45,935
        Accounts receivable, net         43,691         37,418      24,970
        Inventories                      70,454         61,717      43,919
        Other current assets              5,699          4,930       3,931
                                          -----          -----       -----
            Total current assets        121,853        107,958     118,755
    Property, plant and
     equipment, net                      90,018         93,169      58,653
    Other assets                          6,077          5,770       5,097
                                          -----          -----       -----
            Total assets               $217,948       $206,897    $182,505
                                       ========       ========    ========

    Liabilities and
     shareholders' equity
    Current liabilities:
        Accounts payable                $41,952        $35,870     $20,689
        Accrued expenses                  8,267          8,555       5,929
        Current portion of long-
         term debt                          675            675           -
        Current liabilities of
         discontinued operations              -              -         210
                                            ---            ---         ---
            Total current liabilities    50,894         45,100      26,828
    Long-term debt                       12,825         12,825           -
    Other liabilities                     7,381          5,970       7,521
    Long-term liabilities of
     discontinued operations                  -              -         280
    Shareholders' equity:
        Common stock                     17,615         17,614      17,579
        Additional paid-in capital       47,828         47,105      45,950
        Retained earnings                83,714         80,592      86,656
        Accumulated other
         comprehensive loss              (2,309)        (2,309)     (2,309)
                                         ------         ------      ------
            Total shareholders' equity  146,848        143,002     147,876
                                        -------        -------     -------
            Total liabilities and
             shareholders' equity      $217,948       $206,897    $182,505
                                       ========       ========    ========

                                INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              (In thousands)
                                               (Unaudited)

                                                     Three Months Ended
                                                     ------------------
                                                  July 2,       July 3,

                                                      2011          2010
                                                      ----          ----
    Cash Flows From Operating
     Activities:
      Net earnings (loss)                           $3,650        $1,605
      Loss from discontinued
       operations                                        -            19
                                                       ---           ---
        Earnings (loss) from continuing
         operations                                  3,650         1,624
      Adjustments to reconcile
       earnings (loss) from continuing
       operations to net cash
          provided by (used for) operating
           activities of continuing
           operations:
          Depreciation and amortization              2,509         1,772
          Amortization of capitalized
           financing costs                              21            93
          Stock-based compensation
           expense                                     716           501
          Asset impairment charges                     683             -
          Inventory write-downs                          -             -
          Excess tax benefits from stock-
           based compensation                            -             -
          Loss (gain) on sale of property,
           plant and equipment                         (26)            2
          Deferred income taxes                      1,802          (222)
          Gain from life insurance
           proceeds                                      -             -
          Decrease (increase) in cash
           surrender value of life
           insurance policies over                     (59)          274
              premiums paid
          Net changes in assets and
           liabilities (net of assets and
           liabilities acquired):
            Accounts receivable, net                (6,273)       (5,245)
            Inventories                             (8,737)       (9,655)
            Accounts payable and accrued
             expenses                                6,227         4,159
            Other changes                             (650)          (91)
                                                      ----           ---
              Total adjustments                     (3,787)       (8,412)
                                                    ------        ------
                Net cash provided by (used for)
                 operating activities -
                 continuing operations                (137)       (6,788)
                Net cash used for operating
                 activities -discontinued
                 operations                              -           (33)
                                                       ---           ---
                  Net cash provided by (used for)
                   operating activities               (137)       (6,821)
                                                      ----        ------

    Cash Flows From Investing
     Activities:
      Acquisition of business                            -             -
      Capital expenditures                          (1,390)         (347)
      Proceeds from life insurance
       claims                                            -             -
      Proceeds from sale of property,
       plant and equipment                             146             -
      Increase in cash surrender value
       of life insurance policies                      (35)          (30)
      Proceeds from surrender of life
       insurance policies                               19             -
                                                       ---           ---
                Net cash used for investing
                 activities -continuing
                 operations                         (1,260)         (377)
                                                    ------          ----
                  Net cash used for investing
                   activities                       (1,260)         (377)
                                                    ------          ----

    Cash Flows From Financing
     Activities:
      Proceeds from long-term debt                   6,699            81
      Principal payments on long-term
       debt                                         (6,699)          (81)
      Financing costs                                    -          (395)
      Cash received from exercise of
       stock options                                     8            56
      Excess tax benefits from stock-
       based compensation                                -             -
      Cash dividends paid                             (528)         (527)
      Other                                             33           (29)
                                                         -           ---
                Net cash used for financing
                 activities -continuing
                 operations                           (487)         (895)
                                                      ----          ----
                  Net cash used for financing
                   activities                         (487)         (895)
                                                      ----          ----

    Net increase (decrease) in cash
     and cash equivalents                           (1,884)       (8,093)
    Cash and cash equivalents at
     beginning of period                             3,893        52,263
                                                     -----        ------
    Cash and cash equivalents at end
     of period                                      $2,009       $44,170
                                                    ======       =======

    Supplemental Disclosures of Cash
     Flow Information:
      Cash paid during the period for:
        Interest                                      $373           $23
        Income taxes                                  (106)          184
      Non-cash investing and
       financing activities:
        Purchases of property, plant and
         equipment in accounts payable                (434)           99
        Declaration of cash dividends to
         be paid                                       528             -
        Restricted stock surrendered for
         withholding taxes payable                       -             -
        Note payable issued as
         consideration for business
         acquired                                        -             -
        Post-closing purchase price
         adjustment for business
         acquired                                        -             -


                                                     Nine Months Ended
                                                     -----------------
                                                  July 2,       July 3,

                                                      2011          2010
                                                      ----          ----
    Cash Flows From Operating
     Activities:
      Net earnings (loss)                          $(1,359)       $2,103
      Loss from discontinued
       operations                                        -            42
                                                       ---           ---
        Earnings (loss) from continuing
         operations                                 (1,359)        2,145
      Adjustments to reconcile
       earnings (loss) from continuing
       operations to net cash
          provided by (used for) operating
           activities of continuing
           operations:
          Depreciation and amortization              7,062         5,230
          Amortization of capitalized
           financing costs                              61           342
          Stock-based compensation
           expense                                   1,898         1,604
          Asset impairment charges                   4,135             -
          Inventory write-downs                          -         1,933
          Excess tax benefits from stock-
           based compensation                          (81)           (3)
          Loss (gain) on sale of property,
           plant and equipment                         (10)           13
          Deferred income taxes                       (474)         (439)
          Gain from life insurance
           proceeds                                   (357)            -
          Decrease (increase) in cash
           surrender value of life
           insurance policies over                    (357)          (10)
              premiums paid
          Net changes in assets and
           liabilities (net of assets and
           liabilities acquired):
            Accounts receivable, net               (18,721)       (7,167)
            Inventories                             (5,950)       (5,206)
            Accounts payable and accrued
             expenses                               15,587            83
            Other changes                           (1,529)       14,167
                                                    ------        ------
              Total adjustments                      1,264        10,547
                                                     -----        ------
                Net cash provided by (used for)
                 operating activities -
                 continuing operations                 (95)       12,692
                Net cash used for operating
                 activities -discontinued
                 operations                              -           (73)
                                                       ---           ---
                  Net cash provided by (used for)
                   operating activities                (95)       12,619
                                                       ---        ------

    Cash Flows From Investing
     Activities:
      Acquisition of business                      (37,308)            -
      Capital expenditures                          (6,292)       (1,249)
      Proceeds from life insurance
       claims                                        1,063             -
      Proceeds from sale of property,
       plant and equipment                             164             -
      Increase in cash surrender value
       of life insurance policies                     (460)         (440)
      Proceeds from surrender of life
       insurance policies                               19             -
                                                       ---           ---
                Net cash used for investing
                 activities -continuing
                 operations                        (42,814)       (1,689)
                                                   -------        ------
                  Net cash used for investing
                   activities                      (42,814)       (1,689)
                                                   -------        ------

    Cash Flows From Financing
     Activities:
      Proceeds from long-term debt                  12,607           231
      Principal payments on long-term
       debt                                        (12,607)         (231)
      Financing costs                                    -          (395)
      Cash received from exercise of
       stock options                                    21           140
      Excess tax benefits from stock-
       based compensation                               81             3
      Cash dividends paid                           (1,055)       (1,580)
      Other                                            (64)          (30)
                                                       ---           ---
                Net cash used for financing
                 activities -continuing
                 operations                         (1,017)       (1,862)
                                                    ------        ------
                  Net cash used for financing
                   activities                       (1,017)       (1,862)
                                                    ------        ------

    Net increase (decrease) in cash
     and cash equivalents                          (43,926)        9,068
    Cash and cash equivalents at
     beginning of period                            45,935        35,102
                                                    ------        ------
    Cash and cash equivalents at end
     of period                                      $2,009       $44,170
                                                    ======       =======

    Supplemental Disclosures of Cash
     Flow Information:
      Cash paid during the period for:
        Interest                                      $439           $69
        Income taxes                                   654           186
      Non-cash investing and
       financing activities:
        Purchases of property, plant and
         equipment in accounts payable                   7           197
        Declaration of cash dividends to
         be paid                                       528             -
        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.


Source: newswire