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8-K/A - FORM 8-K/A - INSTEEL INDUSTRIES INC | g26679e8vkza.htm |
EX-99.1 - EX-99.1 - INSTEEL INDUSTRIES INC | g26679exv99w1.htm |
EX-23.1 - EX-23.1 - INSTEEL INDUSTRIES INC | g26679exv23w1.htm |
Exhibit 99.2
Unaudited Pro Forma Condensed Combined Financial Information
On November 19, 2010, Insteel Industries, Inc., through its wholly-owned subsidiary, Insteel Wire
Products Company (together referred to as Insteel), purchased certain assets and assumed certain
liabilities of Ivy Steel & Wire, Inc. (Ivy), a division of Oldcastle, Inc., the U.S. holding
company of CRH PLC (the Ivy Acquisition).
The following unaudited pro forma condensed combined financial statements combine the historical
consolidated balance sheets and statements of operations of Insteel and Ivy, giving effect to the
Ivy Acquisition using the purchase method of accounting. The unaudited pro forma condensed combined
balance sheet as of October 2, 2010 gives effect to the Ivy Acquisition as if it had occurred on
October 2, 2010. The unaudited pro forma condensed combined statement of operations for the year
ended October 2, 2010 gives effect to the Ivy Acquisition as if it had occurred at the beginning of
the year. The pro forma information presented, including the purchase price allocation, is based on
preliminary estimates of the fair values of the assets acquired and liabilities assumed. These
preliminary estimates and the asset lives that were assigned to compute depreciation materially
impact Insteels results of operations. Any adjustments that are made in Insteels final purchase
accounting assessment with respect to the Ivy Acquisition could potentially result in material
changes in the valuation of the assets acquired and liabilities assumed. Insteel will finalize the
purchase price allocation as soon as practicable, but no later than one year following the date of
the Ivy Acquisition. The final purchase price allocation will be reflected in Insteels filings
with the U.S. Securities and Exchange Commission (SEC) for periods presented subsequent to the
date upon which it is finalized. The pro forma financial information is based on certain
assumptions and adjustments as discussed in the accompanying notes to the unaudited pro forma
condensed combined financial statements. Certain historical balance sheet and income statement
amounts for Ivy have been reclassified to conform to the financial statement presentation of
Insteel.
Ivys fiscal year ends on the Saturday closest to December 31 and is comprised of 52 weeks.
Accordingly, Ivys fiscal year 2009 ended on December 26, 2009. Insteels fiscal year ends on the
Saturday closest to the end of September and is comprised of 52 or 53 weeks. Due to the differences
in the fiscal year-end dates for Insteel and Ivy, the unaudited pro forma condensed combined
financial statements are prepared based on a comparable period. The unaudited pro forma condensed
combined balance sheet as of October 2, 2010 is presented based on Insteels historical balance
sheet as of October 2, 2010 and Ivys historical balance sheet as of September 25, 2010. The
unaudited pro forma condensed combined statement of operations for the year ended October 2, 2010
is presented based on Insteels fiscal year ended October 2, 2010 and Ivys 52-week period ended
September 25, 2010. Ivys 52-week historical statement of operations for the period ended September
25, 2010 was derived by combining the results for the 13-week period ended December 26, 2009 and
the 39-week period ended September 25, 2010.
The unaudited pro forma condensed combined financial statements, including the notes thereto, do
not give effect to any cost savings or other synergies that could result from the Ivy Acquisition.
The unaudited pro forma condensed combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the consolidated financial position or
consolidated results of operations of Insteel had the Ivy Acquisition occurred on the dates
indicated, nor do they represent a forecast of the consolidated financial position of Insteel at
any future date or the consolidated results of operations of Insteel for any future period. In
addition, the preparation of financial statements in conformity with generally accepted accounting
principles in the United States (GAAP) requires management to make certain estimates and
assumptions. These estimates and assumptions are preliminary and have been made solely for the
purpose of developing the unaudited pro forma condensed combined financial statements. Actual
results could differ materially from these estimates and assumptions.
The unaudited pro forma condensed combined financial statements, including the notes thereto,
should be read in conjunction with the historical consolidated financial statements, including the
notes thereto, and other information of Insteel included in its Annual Report on Form 10-K for the
year ended October 2, 2010 and the financial statements of Ivy included as Exhibit 99.1 to the
Companys Current Report on Form 8-K filed on February 4, 2011.
Insteel Industries, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
October 2, 2010
(In thousands)
Unaudited Pro Forma Condensed Combined Balance Sheet
October 2, 2010
(In thousands)
Historical | Pro Forma | |||||||||||||||
Insteel | Ivy | |||||||||||||||
October 2, | September 25, | Pro Forma | Combined | |||||||||||||
2010 | 2010 | Adjustments | Pro Forma | |||||||||||||
Assets: |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 45,935 | $ | | $ | (37,588) | (A) | |||||||||
(3,200) | (E) | $ | 5,147 | |||||||||||||
Accounts receivable, net |
24,970 | 12,684 | (12,684) | (C) | 24,970 | |||||||||||
Inventories |
43,919 | 34,536 | (9,464) | (B) | ||||||||||||
(4,487) | (C) | 64,504 | ||||||||||||||
Prepaid expenses and other |
3,931 | 937 | 280 | (A) | ||||||||||||
(937) | (C) | 4,211 | ||||||||||||||
Assets held for sale, net |
| 1,152 | (1,152) | (C) | | |||||||||||
Total current assets |
118,755 | 49,309 | (69,232) | 98,832 | ||||||||||||
Property, plant and equipment, net |
58,653 | 33,953 | 3,990 | (B) | ||||||||||||
(732) | (C) | 95,864 | ||||||||||||||
Intangibles, net |
| 3,319 | (3,319) | (C) | | |||||||||||
Other assets |
5,097 | | 1,216 | (F) | 6,313 | |||||||||||
Total assets |
$ | 182,505 | $ | 86,581 | $ | (68,077) | $ | 201,009 | ||||||||
Liabilities and shareholders equity |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 20,689 | $ | 9,531 | $ | (3,268) | (C) | $ | 26,952 | |||||||
Accrued expenses |
5,929 | 3,429 | (2,704) | (C) | 6,654 | |||||||||||
Capital lease obligations |
| 140 | (140) | (C) | | |||||||||||
Current liabilities of discontinued operations |
210 | | | 210 | ||||||||||||
Total current liabilities |
26,828 | 13,100 | (6,112) | 33,816 | ||||||||||||
Long-term debt |
| 1,230 | 13,500 | (A) | ||||||||||||
(1,230) | (C) | 13,500 | ||||||||||||||
Other liabilities |
7,521 | 118 | (118) | (G) | 7,521 | |||||||||||
Long-term liabilities of discontinued operations |
280 | | | 280 | ||||||||||||
Total liabilities |
34,629 | 14,448 | 6,040 | 55,117 | ||||||||||||
Commitments and contingencies (Note 4) |
||||||||||||||||
Shareholders equity: |
||||||||||||||||
Common stock |
17,579 | | | 17,579 | ||||||||||||
Additional paid-in capital |
45,950 | | | 45,950 | ||||||||||||
Owners net investment |
| 72,133 | (72,133) | (D) | | |||||||||||
Retained earnings |
86,656 | | (3,200) | (E) | ||||||||||||
1,216 | (F) | 84,672 | ||||||||||||||
Accumulated other comprehensive loss |
(2,309 | ) | | | (2,309 | ) | ||||||||||
Total shareholders equity |
147,876 | 72,133 | (74,117) | 145,892 | ||||||||||||
Total liabilities and shareholders equity |
$ | 182,505 | $ | 86,581 | $ | (68,077) | $ | 201,009 | ||||||||
See accompanying notes to unaudited pro forma condensed combined financial statements.
Insteel Industries, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended October 2, 2010
(In thousands, except per share data)
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended October 2, 2010
(In thousands, except per share data)
Historical | Pro Forma | |||||||||||||||
Insteel | Ivy | |||||||||||||||
Year Ended | Year Ended | |||||||||||||||
October 2, | September 25, | Pro Forma | Combined | |||||||||||||
2010 | 2010 | Adjustments | Pro Forma | |||||||||||||
Net sales |
$ | 211,586 | $ | 105,003 | $ | (5,634 | )(K) | $ | 310,955 | |||||||
Cost of sales |
193,595 | 120,404 | (7,021 | )(K) | ||||||||||||
(2,546 | )(L) | 304,432 | ||||||||||||||
Gross profit (loss) |
17,991 | (15,401 | ) | 3,933 | 6,523 | |||||||||||
Selling, general and administrative expense |
16,024 | 22,434 | (15,549 | )(K) | ||||||||||||
(153) | (L) | 22,756 | ||||||||||||||
Other income, net |
(291 | ) | | | (291 | ) | ||||||||||
Legal settlement |
1,487 | | | 1,487 | ||||||||||||
Interest expense |
453 | 100 | 680 | (I) | 1,233 | |||||||||||
Interest income |
(102 | ) | | 75 | (H) | (27 | ) | |||||||||
Earnings (loss) from continuing operations
before income taxes |
420 | (37,935 | ) | 18,880 | (18,635 | ) | ||||||||||
Income taxes |
(38 | ) | | (7,241 | )(J) | (7,279 | ) | |||||||||
Earnings (loss) from continuing operations |
458 | (37,935 | ) | 26,121 | (11,356 | ) | ||||||||||
Earnings from discontinued operations net of
income taxes of $217 |
15 | | | 15 | ||||||||||||
Net earnings (loss) |
$ | 473 | $ | (37,935 | ) | $ | 26,121 | $ | (11,341 | ) | ||||||
Per share amounts (Note 5): |
||||||||||||||||
Basic: |
||||||||||||||||
Earnings (loss) from continuing
operations |
$ | 0.03 | | | $ | (0.65 | ) | |||||||||
Earnings from discontinued operations |
| | | | ||||||||||||
Net earnings (loss) |
$ | 0.03 | | | $ | (0.65 | ) | |||||||||
Diluted: |
||||||||||||||||
Earnings (loss) from continuing
operations |
$ | 0.03 | | | $ | (0.65 | ) | |||||||||
Earnings from discontinued operations |
| | | | ||||||||||||
Net earnings (loss) |
$ | 0.03 | | | $ | (0.65 | ) | |||||||||
Cash dividends declared |
$ | 0.12 | | | $ | 0.12 | ||||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
17,466 | | | 17,466 | ||||||||||||
Diluted |
17,564 | | | 17,466 | ||||||||||||
See accompanying notes to unaudited pro forma condensed combined financial statements.
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(In thousands, except per share information)
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(In thousands, except per share information)
(1) Basis of Presentation
On November 19, 2010, Insteel Industries, Inc. (the Company), through its wholly-owned
subsidiary, Insteel Wire Products Company, a North Carolina corporation, purchased certain assets
and assumed certain liabilities of Ivy Steel & Wire, Inc. (Ivy), a division of Oldcastle, Inc.,
the U.S. holding company of CRH PLC, (the Ivy Acquisition).
The unaudited pro forma condensed combined financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission. The condensed combined financial statements present the
results of operations for the year ended October 2, 2010 and give effect to the Ivy Acquisition as
if it had occurred at the beginning of the period and for the unaudited condensed combined balance
sheet on October 2, 2010. The historical consolidated financial information has been adjusted in
the accompanying unaudited pro forma condensed combined financial statements to give effect to pro
forma events that are (1) directly attributable to the Ivy Acquisition, (2) factually supportable
and (3) with respect to the unaudited pro forma condensed combined statement of operations,
expected to have a continuing impact on the consolidated results and exclude nonrecurring charges
directly attributable to the Ivy Acquisition.
Ivys fiscal year ends on the Saturday closest to December 31 and is comprised of 52 weeks.
Accordingly, Ivys fiscal year 2009 ended on December 26, 2009. The Companys fiscal year ends on
the Saturday closest to the end of September and is comprised of 52 or 53 weeks. Due to the
differences in the fiscal year-end dates for the Company and Ivy, the unaudited pro forma condensed
combined financial statements are prepared based on a comparable period. The unaudited pro forma
condensed combined balance sheet as of October 2, 2010 is presented based on the Companys balance
sheet as of October 2, 2010 and Ivys balance sheet as of September 25, 2010. The unaudited pro
forma condensed combined statement of operations for the year ended October 2, 2010 is presented
based on the Companys fiscal year ended October 2, 2010 and Ivys 52-week period ended September
25, 2010. Ivys 52-week historical statement of operations for the period ended September 25, 2010
was derived by combining the results of the 13-week period ended December 26, 2009 and the 39-week
period ended September 25, 2010.
The unaudited pro forma condensed combined financial information is not intended to reflect
the financial position and results of operations that would have actually occurred had the Ivy
Acquisition been effected on the dates indicated above. Furthermore, the pro forma results of
operations are not necessarily indicative of the results of operations that may be obtained in the
future. The Companys actual results following the date of the Ivy Acquisition may differ
significantly from the amounts reflected in the unaudited pro forma condensed combined financial
information for a number of reasons including, but not limited to, differences between the
assumptions used to prepare the unaudited pro forma condensed combined financial information and
the actual amounts, differences between the final valuations of the assets acquired and liabilities
assumed and the preliminary amounts, and the post-closing adjustments provided for in the Asset
Purchase Agreement. In addition, no adjustments have been made to reflect the non-recurring
integration-related costs that may have been incurred or the favorable impact of the operating
synergies that may have been realized had the acquisition occurred on October 4, 2009.
(2) Preliminary Purchase Price Allocation
The aggregate preliminary purchase price of the Ivy Acquisition was approximately $51.1
million, consisting of $37.6 million in cash and a $13.5 million secured subordinated promissory
note issued to Ivy (the Note). The purchase price is subject to a post-closing working capital
adjustment and certain additional post-closing adjustments. Subsequent to the date of the Ivy
Acquisition, the amount of the purchase price paid was reduced by approximately $0.3 million to
$50.8 million based on the final post-closing working capital adjustment, subject to certain
additional post-closing adjustments.
Following is a summary of the preliminary purchase price allocation (net of the working
capital adjustment) as of November 19, 2010:
(In thousands) | ||||
Assets acquired: |
||||
Inventories |
$ | 20,585 | ||
Property, plant and equipment |
37,211 | |||
Total assets acquired |
$ | 57,796 | ||
Liabilities assumed: |
||||
Accounts payable |
$ | (6,263 | ) | |
Accrued expenses |
(725 | ) | ||
Total liabilities assumed |
$ | (6,988 | ) | |
Net assets acquired |
$ | 50,808 | ||
The purchase price allocation will remain preliminary until the Company has completed its
final valuation of the assets acquired and liabilities assumed, including the finalization of any
additional post-closing adjustments. The final determination of the purchase price allocation is
expected to be completed as soon as practicable but no later than one year following the date of
the Ivy Acquisition. The final amounts allocated to the assets acquired and liabilities assumed
could differ materially from the amounts presented in the unaudited pro forma condensed combined
balance sheet.
(3) Pro Forma Adjustments
Following are explanations of the pro forma adjustments reflected in the unaudited pro forma
condensed combined balance sheet and unaudited pro forma condensed combined statement of
operations:
Pro Forma Adjustments Condensed Combined Balance Sheet
(A) Purchase Price Consideration
Reflects the Companys purchase price consideration consisting of the payment of $37.6 million
in cash and the issuance of the Note. Subsequent to the date of the Ivy Acquisition, the Company
recorded a post-closing working capital adjustment of $0.3 million which reduced the purchase price
to $50.8 million, subject to certain additional post-closing adjustments. The aggregate future
maturities of the Note, based on its contractual terms, are as follows:
(in thousands) | ||||
2011 |
$ | 675 | ||
2012 |
675 | |||
2013 |
675 | |||
2014 |
5,737 | |||
2015 |
5,738 | |||
Total |
$ | 13,500 | ||
(B) Fair Value of Assets Acquired and Liabilities Assumed
Reflects the adjustment of the assets acquired and liabilities assumed of Ivy to their
preliminary estimated fair values as of the date of the Ivy Acquisition (see Note 2 for further
information).
(C) Assets and Liabilities Not Purchased
Reflects the elimination of certain assets and liabilities of Ivy that were not purchased by
the Company.
(D) Total Shareholders Equity
Reflects the elimination of the historical shareholders equity of Ivy.
(E) Acquisition Costs
Reflects the estimated total acquisition-related costs of approximately $3.2 million, which
consist primarily of advisory, legal, accounting and other professional fees. The adjustment amount
reflects the use of cash and cash equivalents to pay for these costs. The expense has not been
included in the accompanying pro forma condensed combined statement of operations due to its
non-recurring nature, but is reflected as an adjustment to retained earnings.
(F) Deferred Taxes
Reflects the increase in deferred tax assets of $1.2 million related to the tax treatment of
the Ivy Acquisition costs using a statutory rate of 38%.
(G) Elimination of Intercompany Balances
Reflects the elimination of Ivy intercompany balances with its former parent company.
Pro Forma Adjustments Condensed Combined Statement of Operations
(H) Reduction of Interest Income
Reflects the reduction in interest income resulting from the $40.5 million decrease in the
average cash balance, which is the $37.3 million of cash paid for the Ivy Acquisition following the
post-closing working capital adjustment and the $3.2 million of cash paid for acquisition-related
costs. A weighted-average interest rate of 0.19% was applied to the reduction in cash for the year
ended October 2, 2010.
(I) Adjustment of Interest Expense
Reflects the interest expense on the Note that was issued in connection with the Ivy
Acquisition and matures on November 19, 2015. The Note requires semi-annual interest payments in
arrears, and annual principal payments payable on November 19th of each year during the
period 2011 2015. The Note bears interest on the unpaid principal balance at a fixed rate of 6%
per annum and is collateralized by certain of the real property and equipment acquired from Ivy.
(in thousands) | ||||
Historical Ivy balances |
$ | (100 | ) | |
Pro forma interest expense |
780 | |||
Total |
$ | 680 | ||
(J) Income Taxes
Reflects the adjustment to the income tax provision resulting from the application of the
estimated statutory rate of 38% to Ivys historical earnings and the pro forma adjustments.
(K) Elimination of Sales, Cost of Sales and Selling, General and Administrative Expenses
Reflects the elimination of transactions related to Ivy operations that were not purchased by
the Company.
(L) Depreciation Expense
Reflects depreciation expense after adjusting for the elimination of Ivys historical balances
and the addition of pro forma depreciation expense. Pro forma depreciation expense was calculated
after adjusting the cost basis of property, plant and equipment to fair value (see Note 2 for
further information) and using straight-line depreciation with assigned useful lives ranging from 1
to 15 years for property and equipment and 15 to 20 years for buildings. Due to the nature of the
assets acquired, the pro forma depreciation expense was entirely attributed to cost of sales.
Selling, General and | ||||||||||||
Administrative | ||||||||||||
(in thousands) | Cost of Sales | Expense | Total | |||||||||
Historical Ivy
balances |
$ | (5,084 | ) | $ | (153 | ) | $ | (5,237 | ) | |||
Pro forma
depreciation |
2,538 | | 2,538 | |||||||||
Total |
$ | (2,546 | ) | $ | (153 | ) | $ | (2,699 | ) | |||
(4) Commitments and Contingencies
Per the terms of the Asset Purchase Agreement relating to the Ivy Acquisition, although the
Company did assume certain contractual obligations of Ivy, the terms of the assumed contracts did
not result in the recognition of a liability. The Company did not assume any contingencies of Ivy
including, but not limited to, those relating to litigation or environmental matters.
(5) Adjustment to Common Shares and Equivalents Outstanding
Pro forma basic and diluted earnings per common share for the year ended October 2, 2010 have
been calculated based on the estimated weighted average number of common shares outstanding on a
pro forma basis, as described below. The unaudited pro forma condensed combined financial
information does not purport to represent what the Companys results of operations, including
earnings per share, would have actually been had the Ivy Acquisition occurred on October 4, 2009,
what such results will be for any future periods or what the consolidated balance sheet would have
been had the Ivy Acquisition occurred on October 2, 2010. The Companys actual results following
the date of the Ivy Acquisition including earnings per share may differ significantly from the
amounts reflected in the unaudited pro forma condensed combined financial information for a number
of reasons including, but not limited to, differences between the assumptions used to prepare the
unaudited pro forma condensed combined financial information and the actual amounts, differences
between the final valuations of the assets acquired and liabilities assumed and the preliminary
amounts, and the post-closing adjustments provided for in the Asset Purchase Agreement. In
addition, no adjustments have been made to reflect the non-recurring integration-related costs that
may have been incurred or the favorable impact of the operating synergies that may have been
realized had the Ivy Acquisition occurred on October 4, 2009.
Following is the computation of pro forma basic and diluted earnings per common share for the
year ended October 2, 2010:
For the Year Ended | ||||||||
October 2, 2010 | ||||||||
Historical | Pro Forma | |||||||
Net income (loss) from continuing operations |
$ | 458 | $ | (11,356 | ) | |||
Less allocation to participating securities |
(2 | ) | (2 | ) | ||||
Available to common shareholders |
$ | 456 | $ | (11,358 | ) | |||
Earnings from discontinued operations net of income taxes |
$ | 15 | $ | 15 | ||||
Less allocation to participating securities |
| | ||||||
Available to common shareholders |
$ | 15 | $ | 15 | ||||
Net earnings (loss) |
$ | 473 | $ | (11,341 | ) | |||
Less allocation to participating securities |
(2 | ) | (2 | ) | ||||
Available to common shareholders |
$ | 471 | $ | (11,343 | ) | |||
Basic weighted average shares outstanding |
17,466 | 17,466 | ||||||
Dilutive effect of stock-based compensation |
98 | | ||||||
Diluted weighted average shares outstanding |
17,564 | 17,466 | ||||||
Per share basic: |
||||||||
Earnings (loss) from continuing operations |
$ | 0.03 | $ | (0.65 | ) | |||
Earnings from discontinued operations |
| | ||||||
Net earnings (loss) |
$ | 0.03 | $ | (0.65 | ) | |||
Per share diluted: |
||||||||
Earnings (loss) from continuing operations |
$ | 0.03 | $ | (0.65 | ) | |||
Earnings from discontinued operations |
| | ||||||
Net earnings (loss) |
$ | 0.03 | $ | (0.65 | ) | |||