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EXCEL - IDEA: XBRL DOCUMENT - INSTEEL INDUSTRIES INC | Financial_Report.xls |
EX-32.2 - EX-32.2 - INSTEEL INDUSTRIES INC | g27637exv32w2.htm |
EX-32.1 - EX-32.1 - INSTEEL INDUSTRIES INC | g27637exv32w1.htm |
EX-31.2 - EX-31.2 - INSTEEL INDUSTRIES INC | g27637exv31w2.htm |
EX-31.1 - EX-31.1 - INSTEEL INDUSTRIES INC | g27637exv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended July 2, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From to
Commission File Number: 1-9929
Insteel Industries, Inc.
(Exact name of registrant as specified in its charter)
North Carolina | 56-0674867 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
1373 Boggs Drive, Mount Airy, North Carolina | 27030 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (336) 786-2141
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ | No o |
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ | No o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o | No þ |
The number of shares outstanding of the registrants common stock as of July 27, 2011 was
17,615,200.
TABLE OF CONTENTS
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for per share data)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for per share data)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
$ | 98,579 | $ | 61,956 | $ | 237,818 | $ | 155,425 | ||||||||
Cost of sales |
86,050 | 54,266 | 213,821 | 137,841 | ||||||||||||
Inventory write-downs |
| | | 1,933 | ||||||||||||
Gross profit |
12,529 | 7,690 | 23,997 | 15,651 | ||||||||||||
Selling, general and administrative expense |
4,947 | 4,317 | 13,638 | 12,241 | ||||||||||||
Restructuring charges |
1,970 | | 8,573 | | ||||||||||||
Acquisition costs |
| | 3,518 | | ||||||||||||
Bargain purchase gain |
| | (500 | ) | | |||||||||||
Other income, net |
(27 | ) | (2 | ) | (96 | ) | (252 | ) | ||||||||
Interest expense |
260 | 116 | 664 | 411 | ||||||||||||
Interest income |
(18 | ) | (45 | ) | (37 | ) | (71 | ) | ||||||||
Earnings (loss) from continuing operations before
income taxes |
5,397 | 3,304 | (1,763 | ) | 3,322 | |||||||||||
Income taxes |
1,747 | 1,680 | (404 | ) | 1,177 | |||||||||||
Earnings (loss) from continuing operations |
3,650 | 1,624 | (1,359 | ) | 2,145 | |||||||||||
Loss from discontinued operations net of income
taxes of $- , ($12), $- and ($26) |
| (19 | ) | | (42 | ) | ||||||||||
Net earnings (loss) |
$ | 3,650 | $ | 1,605 | $ | (1,359 | ) | $ | 2,103 | |||||||
Per share amounts: |
||||||||||||||||
Basic: |
||||||||||||||||
Earnings (loss) from continuing operations |
$ | 0.21 | $ | 0.09 | $ | (0.08 | ) | $ | 0.12 | |||||||
Loss from discontinued operations |
| | | | ||||||||||||
Net earnings (loss) |
$ | 0.21 | $ | 0.09 | $ | (0.08 | ) | $ | 0.12 | |||||||
Diluted: |
||||||||||||||||
Earnings (loss) from continuing operations |
$ | 0.20 | $ | 0.09 | $ | (0.08 | ) | $ | 0.12 | |||||||
Loss from discontinued operations |
| | | | ||||||||||||
Net earnings (loss) |
$ | 0.20 | $ | 0.09 | $ | (0.08 | ) | $ | 0.12 | |||||||
Cash dividends declared |
$ | 0.03 | $ | 0.03 | $ | 0.09 | $ | 0.09 | ||||||||
Weighted average shares outstanding |
||||||||||||||||
Basic |
17,587 | 17,492 | 17,550 | 17,454 | ||||||||||||
Diluted |
17,855 | 17,695 | 17,550 | 17,661 | ||||||||||||
See accompanying notes to consolidated financial statements.
3
Table of Contents
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) | ||||||||
July 2, | October 2, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,009 | $ | 45,935 | ||||
Accounts receivable, net |
43,691 | 24,970 | ||||||
Inventories, net |
70,454 | 43,919 | ||||||
Other current assets |
5,699 | 3,931 | ||||||
Total current assets |
121,853 | 118,755 | ||||||
Property, plant and equipment, net |
90,018 | 58,653 | ||||||
Other assets |
6,077 | 5,097 | ||||||
Total assets |
$ | 217,948 | $ | 182,505 | ||||
Liabilities and shareholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 41,952 | $ | 20,689 | ||||
Accrued expenses |
8,267 | 5,929 | ||||||
Current portion of long-term debt |
675 | | ||||||
Current liabilities of discontinued operations |
| 210 | ||||||
Total current liabilities |
50,894 | 26,828 | ||||||
Long-term debt |
12,825 | | ||||||
Other liabilities |
7,381 | 7,521 | ||||||
Long-term liabilities of discontinued operations |
| 280 | ||||||
Commitments and contingencies |
||||||||
Shareholders equity: |
||||||||
Common stock |
17,615 | 17,579 | ||||||
Additional paid-in capital |
47,828 | 45,950 | ||||||
Retained earnings |
83,714 | 86,656 | ||||||
Accumulated other comprehensive loss |
(2,309 | ) | (2,309 | ) | ||||
Total shareholders equity |
146,848 | 147,876 | ||||||
Total liabilities and shareholders equity |
$ | 217,948 | $ | 182,505 | ||||
See accompanying notes to consolidated financial statements.
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Table of Contents
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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 | ) | | |||||
Increase in cash surrender value of life insurance policies over premiums paid |
(357 | ) | (10 | ) | ||||
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, net |
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 | |
See accompanying notes to consolidated financial statements.
5
Table of Contents
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands)
(Unaudited)
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common Stock | Paid-In | Retained | Comprehensive | Shareholders | ||||||||||||||||||||
Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
Balance at October 2, 2010 |
17,579 | $ | 17,579 | $ | 45,950 | $ | 86,656 | $ | (2,309 | ) | $ | 147,876 | ||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||
Net loss |
(1,359 | ) | (1,359 | ) | ||||||||||||||||||||
Comprehensive loss |
(1,359 | ) | ||||||||||||||||||||||
Stock options exercised |
13 | 13 | 8 | 21 | ||||||||||||||||||||
Vesting of restricted stock units |
30 | 30 | (30 | ) | | |||||||||||||||||||
Compensation expense associated with stock-based plans |
1,898 | 1,898 | ||||||||||||||||||||||
Excess tax benefits from stock-based compensation |
81 | 81 | ||||||||||||||||||||||
Restricted stock surrendered for withholding taxes payable |
(7 | ) | (7 | ) | (79 | ) | (86 | ) | ||||||||||||||||
Cash dividends declared |
(1,583 | ) | (1,583 | ) | ||||||||||||||||||||
Balance at July 2, 2011 |
17,615 | $ | 17,615 | $ | 47,828 | $ | 83,714 | $ | (2,309 | ) | $ | 146,848 | ||||||||||||
See accompanying notes to consolidated financial statements.
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Table of Contents
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Insteel Industries,
Inc. (we, us, our, the Company or Insteel) have been prepared pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission (SEC) for quarterly reports on Form
10-Q. Certain information and note disclosures normally included in the audited financial
statements prepared in accordance with accounting principles generally accepted in the United
States (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures made are adequate to make the information not misleading. The
October 2, 2010 consolidated balance sheet was derived from the audited consolidated financial
statements at that date, but does not include all of the information and footnotes required by GAAP
for complete financial statements. These financial statements should therefore be read in
conjunction with the consolidated financial statements and notes for the fiscal year ended October
2, 2010 included in the Companys Annual Report on Form 10-K filed with the SEC.
The accompanying unaudited interim consolidated financial statements reflect all adjustments
of a normal recurring nature that the Company considers necessary for a fair presentation of
results for these interim periods. The results of operations for the nine-month period ended July
2, 2011 are not necessarily indicative of the results that may be expected for the fiscal year
ending October 1, 2011 or future periods.
On November 19, 2010, the Company purchased certain of the assets and assumed certain of the
liabilities of Ivy Steel and Wire, Inc. (Ivy) (see Note 3 to the consolidated financial
statements).
The Company has evaluated subsequent events through the time of filing this Quarterly Report
on Form 10-Q and has concluded that there are no significant events that occurred subsequent to the
balance sheet date but prior to the filing of this report that would have a material impact on the
consolidated financial statements.
(2) Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (FASB) issued an update that amends
the guidance provided in Accounting Standards Codification (ASC) Topic 220, Comprehensive Income,
by requiring that all nonowner changes in shareholders equity be presented either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. This
update will be effective for the Companys first quarter of fiscal 2013.
In May 2011, the FASB issued an update that amends the guidance provided in ASC Topic 820,
Fair Value Measurement, by clarifying some existing concepts, eliminating wording differences
between GAAP and International Financial Reporting Standards (IFRS), and in some limited cases,
changing some principles to achieve convergence between GAAP and IFRS. The update results in a
consistent definition of fair value, establishes common requirements for the measurement of and
disclosure about fair value between GAAP and IFRS, and expands the disclosures for fair value
measurements that are estimated using significant unobservable (Level 3) inputs. This update will
be effective for the Companys second quarter of fiscal 2012. The Company does not expect the
adoption of this update to have a material impact on its consolidated financial statements.
In December 2010, the FASB issued an update that clarifies the guidance provided in ASC Topic
805, Business Combinations, regarding the disclosure requirements for the pro forma presentation of
revenue and earnings related to a business combination. The Company elected to early adopt this
guidance during the first quarter of fiscal 2011.
(3) Business Combination
On November 19, 2010, the Company purchased certain of the assets and assumed certain of the
liabilities of Ivy for a preliminary purchase price of approximately $51.1 million, consisting of
$37.6 million of cash and a $13.5 million secured subordinated promissory note payable to Ivy (see
Note 10 to the consolidated financial statements) (the Ivy Acquisition). Subsequent to the date
of the Ivy Acquisition, the Company recorded $780,000 of post-closing adjustments which reduced the
final adjusted purchase price to $50.3 million.
7
Table of Contents
Ivy was one of the nations largest producers of welded wire reinforcement and wire products
for concrete construction applications. The Company believes the addition of Ivys facilities will
enhance the Companys competitiveness in its Northeast, Midwest and Florida markets, in addition to
providing a platform to serve the West Coast markets more effectively. The assets purchased
included Ivys production facilities in Arizona, Florida, Missouri and Pennsylvania; production
equipment in Texas; and certain related inventories. In addition, the Company assumed certain of
Ivys accounts payable and employee benefit obligations.
Following is a summary of the Companys final allocation of the adjusted purchase price to the
fair values of the assets acquired and liabilities assumed as of the date of the Ivy Acquisition:
(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 | |||
Purchase price |
50,308 | |||
Bargain purchase gain |
$ | 500 | ||
Accounting standards require that when the fair value of the net assets acquired exceeds
the purchase price, resulting in a bargain purchase gain, the acquirer must reassess the
reasonableness of the values assigned to all of the assets acquired, liabilities assumed and
consideration transferred. The Company has performed such a reassessment and has concluded that the
values assigned for the Ivy Acquisition are reasonable. Consequently, the Company has recorded a
$500,000 bargain purchase gain on the Ivy Acquisition.
The Ivy Acquisition was accounted for as a business purchase pursuant to ASC Topic 805,
Business Combinations. Acquisition and integration costs are not included as components of
consideration transferred, but are accounted for as expenses in the period in which the costs are
incurred (See Note 4 to the consolidated financial statements).
Following the Ivy Acquisition, net sales for the Ivy facilities for the three- and nine-month
periods ended July 2, 2011 were approximately $26.8 million and $50.2 million, respectively. The
actual amount of net sales specifically attributable to the Ivy Acquisition, however, cannot be
quantified due to the integration actions that have been taken by the Company involving the
transfer of business between the former Ivy facilities and the Companys existing facilities. The
Company has determined that the presentation of Ivys earnings for the three- and nine-month
periods ended July 2, 2011 is impractical due to the integration of Ivys operations into the
Company following the Ivy Acquisition.
The following unaudited supplemental pro forma financial information reflects the
combined results of operations of the Company had the Ivy Acquisition occurred at the beginning of
fiscal 2010. The pro forma information reflects certain adjustments related to the Ivy Acquisition,
including adjusted depreciation expense based on the fair value of the assets acquired, interest
expense related to the secured subordinated promissory note and an appropriate adjustment in the
current period for the acquisition-related costs. The pro forma information does not reflect any
operating efficiencies or potential cost savings which may result from the Ivy Acquisition.
Accordingly, this pro forma information is for illustrative purposes and is not intended to
represent or be indicative of the actual results of operations of the combined company that may
have been achieved had the Ivy Acquisition occurred at the beginning of fiscal 2010, nor is it
intended to represent or be indicative of future results of operations. The pro forma combined
results of operations for the current and comparative prior year periods are as follows:
8
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Three Months Ended | Nine Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net sales |
$ | 98,579 | $ | 91,146 | $ | 254,529 | $ | 226,524 | ||||||||
Earnings (loss) from
continuing operations
before income taxes |
5,397 | 694 | (1,003 | ) | (12,758 | ) | ||||||||||
Net earnings (loss) |
3,650 | 32 | (786 | ) | (8,334 | ) |
(4) Restructuring Charges and Acquisition Costs
Restructuring charges. Subsequent to the Ivy Acquisition, the Company elected to consolidate
certain of its welded wire reinforcement operations in order to reduce its operating costs, which
involved the closure of facilities in Wilmington, Delaware and Houston, Texas. These actions were
taken in response to the close proximity of Ivys facilities in Hazleton, Pennsylvania and Houston,
Texas to the Companys existing facilities in Wilmington, Delaware and Dayton, Texas. The Houston
plant closure was completed in December 2010 and the Wilmington plant closure was completed in May
2011.
Following is a summary of the restructuring activities and associated costs that were incurred
during the nine-month period ended July 2, 2011:
Severance | ||||||||||||||||||||
and other | Asset | Facility | Equipment | |||||||||||||||||
(In thousands) | employee costs | impairment | closure costs | relocation | Total | |||||||||||||||
Restructuring charges |
$ | 979 | $ | 2,868 | $ | 533 | $ | 10 | $ | 4,390 | ||||||||||
Cash payments |
(310 | ) | | (75 | ) | (10 | ) | (395 | ) | |||||||||||
Non-cash charges |
| (2,868 | ) | | | (2,868 | ) | |||||||||||||
Liability as of January 1,
2011 |
$ | 669 | $ | | $ | 458 | $ | | $ | 1,127 | ||||||||||
Restructuring charges |
1,176 | 584 | 224 | 229 | 2,213 | |||||||||||||||
Cash payments |
(1,486 | ) | | (367 | ) | (145 | ) | (1,998 | ) | |||||||||||
Non-cash charges |
| (584 | ) | | | (584 | ) | |||||||||||||
Liability as of April 2, 2011 |
$ | 359 | $ | | $ | 315 | $ | 84 | $ | 758 | ||||||||||
Restructuring charges |
118 | 683 | 615 | 554 | 1,970 | |||||||||||||||
Cash payments |
(152 | ) | | (758 | ) | (579 | ) | (1,489 | ) | |||||||||||
Non-cash charges |
| (683 | ) | | | (683 | ) | |||||||||||||
Liability as of July 2, 2011 |
$ | 325 | $ | | $ | 172 | $ | 59 | $ | 556 | ||||||||||
As of July 2, 2011, the Company recorded a liability of $556,000 on its consolidated
balance sheet for restructuring liabilities, including $59,000 in accounts payable and $497,000 in
accrued expenses. 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 costs through the first quarter of fiscal 2012 and that substantially all of the
cash payments related to the restructuring charges will be made before the end of the first quarter
of fiscal 2012.
Acquisition costs. During the nine-month period ended July 2, 2011, the Company recorded $3.5
million of acquisition-related costs associated with the Ivy Acquisition for advisory, accounting,
legal and other professional fees. The
Company did not record any acquisition costs during the three-month period ended July 2, 2011
and does not expect to incur any additional acquisition costs related to the Ivy Acquisition over
the remainder of the fiscal year.
(5) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The
authoritative guidance for fair value measurements establishes a three-level fair value hierarchy
that encourages an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The three levels of inputs used to measure fair
value are as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets.
9
Table of Contents
Level 3 Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities, including certain pricing
models, discounted cash flow methodologies and similar techniques that use significant
unobservable inputs.
As of July 2, 2011, the Company held financial assets that are required to be measured at fair
value on a recurring basis. The financial assets held by the Company and the fair value hierarchy
used to determine their fair values are as follows:
Quoted Prices | ||||||||||||
in Active | Observable | |||||||||||
Markets | Inputs | |||||||||||
(In thousands) | Total | (Level 1) | (Level 2) | |||||||||
Current assets: |
||||||||||||
Cash equivalents |
$ | 3,540 | $ | 3,540 | $ | | ||||||
Other assets: |
||||||||||||
Cash surrender
value of life
insurance
policies |
4,676 | | 4,676 | |||||||||
Total |
$ | 8,216 | $ | 3,540 | $ | 4,676 | ||||||
Cash equivalents, which include all highly liquid investments with original maturities of
three months or less, are classified as Level 1 of the fair value hierarchy. The carrying amount of
the Companys cash equivalents, which consist of investments in money market funds, approximates
fair value due to their short maturities. Cash surrender value of life insurance policies are
classified as Level 2. The fair value of the life insurance policies was determined by the
underwriting insurance companys valuation models and represents the guaranteed value the Company
would receive upon surrender of these policies as of July 2, 2011.
As of July 2, 2011, the Company had no nonfinancial assets that are required to be measured at
fair value on a nonrecurring basis other than the assets and liabilities acquired from Ivy (see
Note 3 to the consolidated financial statements) that were acquired at fair value. The carrying
amount for accounts receivable, accounts payable and accrued expenses approximates fair value due
to the short-term maturities of these financial instruments. The Company believes that the carrying
amount of the $13.5 million secured subordinated promissory note payable to Ivy approximates fair
value based on comparable debt with similar terms, conditions and proximity to the issuance date,
which would be considered a level 2 input.
(6) Discontinued Operations
In April 2006, the Company decided to exit the industrial wire business with the closure of
its Fredericksburg, Virginia facility, which manufactured tire bead wire and other industrial wire
for commercial and industrial applications. The Companys decision was based on the weakening in
the business outlook for the facility and the expected continuation of
difficult market conditions and reduced operating levels. Manufacturing activities at the Virginia
facility ceased in June 2006 and the Company liquidated the remaining assets of the business in
fiscal 2010. The results of operations and related non-recurring closure costs associated with the
industrial wire business have been reported as discontinued operations for the prior year period.
Liabilities of discontinued operations as of October 2, 2010 are as follows:
October 2, | ||||
(In thousands) | 2010 | |||
Current liabilities: |
||||
Accrued expenses |
$ | 210 | ||
Total current liabilities |
210 | |||
Other liabilities |
280 | |||
Total liabilities |
$ | 490 | ||
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(7) Stock-Based Compensation
Under the Companys equity incentive plans, employees and directors may be granted stock
options, restricted stock, restricted stock units and performance awards. As of July 2, 2011, there
were 277,000 shares available for future grants under the plans.
Stock option awards. Under the Companys equity incentive plans, employees and directors may
be granted options to purchase shares of the Companys common stock at the fair market value on the
date of the grant. Options granted under these plans generally vest over three years and expire ten
years from the date of the grant. Compensation expense and excess tax benefits associated with
stock options for the three- and nine-month periods ended July 2, 2011 and July 3, 2010 are as
follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Stock options: |
||||||||||||||||
Compensation expense |
$ | 266 | $ | 214 | $ | 773 | $ | 695 | ||||||||
Excess tax benefits |
| 6 | 81 | 3 |
As of July 2, 2011, the remaining unamortized compensation cost related to unvested stock
option awards was $537,000, which is expected to be recognized over a weighted average period of
1.32 years.
The fair value of each option grant is estimated on the date of grant using a Monte Carlo
valuation model based upon assumptions that are evaluated and revised, as necessary, to reflect
market conditions and actual historical experience. The risk-free interest rate for periods within
the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time
of the grant. The dividend yield is calculated based on the Companys annual dividend as of the
option grant date. The expected volatility is derived using a term structure based on historical
volatility and the volatility implied by exchange-traded options on the Companys common stock. The
expected term for options is based on the results of a Monte Carlo simulation model, using the
models estimated fair value as an input to the Black-Scholes-Merton model, and then solving for
the expected term.
The estimated fair value of stock options granted during the nine-month periods ended July 2,
2011 and July 3, 2010 was $5.86 and $4.62, respectively, based on the following assumptions:
Nine Months Ended | ||||||||
July 2, | July 3, | |||||||
2011 | 2010 | |||||||
Risk-free interest rate |
2.40 | % | 2.69 | % | ||||
Dividend yield |
0.97 | % | 1.29 | % | ||||
Expected volatility |
56.49 | % | 60.68 | % | ||||
Expected term (in years) |
5.11 | 5.71 |
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The following table summarizes stock option activity for the nine-month period ended July 2, 2011:
Contractual | Aggregate | |||||||||||||||||||||||||||
Options | Exercise Price Per Share | Term - | Intrinsic | |||||||||||||||||||||||||
Outstanding | Weighted | Weighted | Value | |||||||||||||||||||||||||
(in thousands) | Range | Average | Average | (in thousands) | ||||||||||||||||||||||||
Outstanding at October 2, 2010 |
847 | $ | 0.18 | - | $ | 20.27 | $ | 10.63 | ||||||||||||||||||||
Granted |
77 | 12.43 | - | 12.43 | 12.43 | |||||||||||||||||||||||
Expired |
| | - | | | |||||||||||||||||||||||
Forfeited |
(10 | ) | 11.15 | - | 11.15 | 11.15 | ||||||||||||||||||||||
Exercised |
(13 | ) | 1.06 | - | 7.55 | 1.60 | ||||||||||||||||||||||
Outstanding at July 2, 2011 |
901 | 0.18 | - | 20.27 | 10.91 | 6.95 years | $ | 2,335 | ||||||||||||||||||||
Vested and anticipated to vest in the
future at July 2, 2011 |
883 | 10.92 | 6.91 years | 2,294 | ||||||||||||||||||||||||
Exercisable at July 2, 2011 |
560 | 11.16 | 5.85 years | 1,574 |
Restricted stock awards. Under the Companys equity incentive plans, employees and
directors may be granted restricted stock awards (RSAs) which are valued based upon the fair
market value on the date of the grant. Restricted stock granted under these plans generally vests
one to three years from the date of the grant. There were no restricted stock grants during the
three- and nine-month periods ended July 2, 2011 and July 3, 2010. Amortization expense for
restricted stock for the three- and nine-month periods ended July 2, 2011 and July 3, 2010 is as
follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Amortization expense |
$ | 33 | $ | 96 | $ | 149 | $ | 364 |
As of July 2, 2011, the remaining unrecognized compensation cost related to unvested
restricted stock awards was $17,000, which is expected to be recognized over a weighted average
vesting period of 0.13 years.
During the nine-month periods ended July 2, 2011 and July 3, 2010, 40,580 and 26,620 shares,
respectively, of employee restricted stock awards vested. Upon vesting, employees have the option
of remitting payment for the minimum tax obligation to the Company or net-share settling such that
the Company will withhold shares with a value equivalent to the respective employees minimum tax
obligation. A total of 6,757 and 5,225 shares were withheld during the nine-month periods ended
July 2, 2011 and July 3, 2010, respectively, to satisfy employees minimum tax obligations.
The following table summarizes restricted stock activity during the nine-month period ended
July 2, 2011:
Weighted | ||||||||
Restricted | Average | |||||||
Stock Awards | Grant Date | |||||||
(Share amounts in thousands) | Outstanding | Fair Value | ||||||
Balance, October 2, 2010 |
67 | $ | 13.37 | |||||
Granted |
| | ||||||
Released |
(40 | ) | 11.15 | |||||
Balance, July 2, 2011 |
27 | $ | 16.69 | |||||
Restricted stock units. On January 21, 2009, the Executive Compensation Committee of the
Board of Directors approved a change in the equity compensation program such that awards of
restricted stock units (RSUs) to employees and directors would be made in lieu of awards of
restricted stock. RSUs granted under these plans are valued based upon the fair market value on the
date of the grant and provide for a dividend equivalent payment which is included in compensation
expense. The vesting period for RSUs is generally one to three years from the date of the grant.
RSUs do not have voting rights. RSU grants and amortization expense for the three- and nine-month
periods ended July 2, 2011 and July 3, 2010 are as follows:
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Three Months Ended | Nine Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Restricted stock unit grants: |
||||||||||||||||
Units |
19 | | 71 | 78 | ||||||||||||
Market value |
$ | 276 | $ | | $ | 928 | $ | 732 | ||||||||
Amortization expense |
417 | 193 | 976 | 545 |
As of July 2, 2011, the remaining unrecognized compensation cost related to unvested RSUs
was $1.1 million, which is expected to be recognized over a weighted average vesting period of 1.43
years.
The following table summarizes RSU activity during the nine-month period ended July 2, 2011:
Weighted | ||||||||
Restricted | Average | |||||||
Stock Units | Grant Date | |||||||
(Unit amounts in thousands) | Outstanding | Fair Value | ||||||
Balance, October 2, 2010 |
239 | $ | 9.23 | |||||
Granted |
71 | 12.99 | ||||||
Released |
(30 | ) | 9.39 | |||||
Balance, July 2, 2011 |
280 | $ | 10.17 | |||||
(8) Income Taxes
The Company has recorded the following amounts for deferred income taxes and accrued income
taxes on its consolidated balance sheet as of July 2, 2011: a current deferred tax asset (net of
valuation allowance) of $2.6 million in other current assets, a non-current deferred tax liability
of $1.3 million in other liabilities, accrued non-current income taxes payable of $55,000 in other
liabilities, and income taxes receivable of $1.3 million in other current assets. As of July 2,
2011, the Company has $27.3 million of gross state operating loss carryforwards (NOLs) that
principally expire during 2017 to 2030. The Company has also recorded deferred tax assets for
various state tax credits of $300,000, which principally expire during 2014 to 2019. The effective
income tax rate for the three-month period ended July 2, 2011 was 32.4% compared with 50.8% in the
same year-ago period as a result of changes in permanent book versus tax differences together with
$150,000 of net reserves that were recorded in the prior year period for known tax exposures.
The realization of the Companys deferred income tax assets is entirely dependent upon the
Companys ability to generate future taxable income in applicable jurisdictions. GAAP requires that
the Company periodically assess the need to establish a valuation allowance against its deferred
income tax assets to the extent that it no longer believes it is more likely than not they will be
fully utilized. As of July 2, 2011 and October 2, 2010, the Company recorded a valuation allowance
of $708,000 and $461,000, respectively, pertaining to various state NOLs and tax credits that were
not expected to be utilized. The valuation allowance established by the Company is subject to
periodic review and adjustment based on changes in facts and circumstances and would be reduced
should the Company utilize the state NOLs and tax credits against which an allowance had been
provided or determine that such utilization is more likely than not. The increase in the valuation
allowance for the nine-month period ended July 2, 2011 is primarily due to a change in the
Companys expectations regarding the future realization of deferred tax assets related to certain
state NOLs and tax credits.
The Company has established contingency reserves for material, known tax exposures, including
potential tax audit adjustments. The Companys tax reserves reflect managements judgment as to the
estimated liabilities that would be incurred in connection with the resolution of these matters. As
of July 2, 2011, the Company had approximately $15,000 of gross unrecognized tax benefits
classified in other current assets and $33,000 of gross unrecognized tax benefits classified as
other liabilities on its consolidated balance sheet, of which $37,000, if recognized, would reduce
its income tax rate in future periods. The Company anticipates the gross unrecognized tax benefit
of $15,000 will be resolved within the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits as a
component of income tax expense. As of July 2, 2011, the Company had accrued interest and penalties
related to unrecognized tax benefits of $91,000.
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The Company files U.S. federal income tax returns as well as state and local income tax
returns in various jurisdictions. Federal and certain state tax returns filed by the Company
subsequent to fiscal year 2007 remain subject to examination together with certain state tax
returns filed by the Company subsequent to fiscal year 2003.
(9) Employee Benefit Plans
Retirement plans. The Company has one defined benefit pension plan, the Insteel Wire Products
Company Retirement Income Plan for Hourly Employees, Wilmington, Delaware (the Delaware Plan).
The Delaware Plan provides benefits for eligible employees based primarily upon years of service
and compensation levels. The Delaware Plan was frozen effective September 30, 2008 whereby
participants will no longer earn additional service benefits. The Companys funding policy is to
contribute amounts at least equal to those required by law. The Company made contributions totaling
$33,000 and $444,000 to the Delaware Plan during the three- and nine-month periods ended July 2,
2011, respectively, and expects to contribute an additional $34,000 during the remainder of the
current fiscal year.
In February 2011, as part of the planned closure of the Wilmington, Delaware facility, the
Company amended the Delaware Plan granting certain participants additional service credit. The
amendment resulted in a one-time charge of $306,000 that was recorded in the second quarter of this
fiscal year and is included within the restructuring charges for the nine-month period ended July
2, 2011.
Net periodic pension costs and related components for the Delaware Plan for the three- and
nine-month periods ended July 2, 2011 and July 3, 2010 are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Interest cost |
$ | 48 | $ | 52 | $ | 144 | $ | 156 | ||||||||
Expected return on plan assets |
(52 | ) | (50 | ) | (156 | ) | (150 | ) | ||||||||
Recognized net actuarial loss |
58 | 49 | 174 | 147 | ||||||||||||
Net periodic pension cost |
$ | 54 | $ | 51 | $ | 162 | $ | 153 | ||||||||
Supplemental employee retirement plan. The Company maintains supplemental employee
retirement plans (each, a SERP) with certain of its employees (each, a Participant). Under the
SERPs, if the Participant remains in continuous service with the Company for a period of at least
30 years, the Company will pay to the Participant a supplemental retirement benefit for the 15-year
period following the Participants retirement equal to 50% of the Participants highest average
annual base salary for five consecutive years in the 10-year period preceding the Participants
retirement. If the Participant retires prior to the later of age 65 or the completion of 30 years
of continuous service with the Company, but has completed at least 10 years of continuous service
with the Company, the amount of the supplemental retirement benefit will be reduced by 1/360th for
each month short of 30 years that the Participant was employed by the Company.
Net periodic benefit costs and related components for the SERPs for the three- and nine-month
periods ended July 2, 2011 and July 3, 2010 are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost |
$ | 44 | $ | 41 | $ | 132 | $ | 123 | ||||||||
Interest cost |
71 | 70 | 213 | 210 | ||||||||||||
Amortization of prior service cost |
65 | 64 | 195 | 192 | ||||||||||||
Net periodic benefit cost |
$ | 180 | $ | 175 | $ | 540 | $ | 525 | ||||||||
(10) Long-Term Debt
Revolving Credit Facility. On June 2, 2010, the Company and each of its wholly-owned
subsidiaries entered into the Second Amended and Restated Credit Agreement (the Credit Agreement)
which amends and restates in its entirety the previous agreement pertaining to its revolving credit
facility that had been in effect since January 2006. The Credit Agreement, which matures on June 2,
2015, provides the Company with up to $75.0 million of financing on the credit facility to
supplement its operating cash flow and fund its working capital, capital expenditure, general
corporate and growth requirements. As of July 2, 2011, no borrowings were outstanding on the credit
facility, $73.9 million of additional borrowing capacity was available and outstanding letters of
credit totaled $1.1 million.
14
Table of Contents
Advances under the credit facility are limited to the lesser of the revolving credit
commitment or a borrowing base amount that is calculated based upon a percentage of eligible
receivables and inventories. Interest rates on the revolver are based upon (1) an index rate that
is established at the highest of the prime rate, 0.50% plus the federal funds rate or the LIBOR
rate plus the excess of the then-applicable margin for LIBOR loans over the then-applicable margin
for index rate loans, or (2) at the election of the Company, a LIBOR rate, plus in either case, an
applicable interest rate margin. The applicable interest rate margins are adjusted on a quarterly
basis based upon the amount of excess availability on the revolver within the range of 0.75%
1.50% for index rate loans and 2.25% 3.00% for LIBOR loans. In addition, the applicable interest
rate margins would be increased by 2.00% upon the occurrence of certain events of default provided
for in the Credit Agreement. Based on the Companys excess availability as of July 2, 2011, the
applicable interest rate margins on the revolver were 0.75% for index rate loans and 2.25% for
LIBOR loans.
The Companys ability to borrow available amounts under the revolving credit facility will be
restricted or eliminated in the event of certain covenant breaches, events of default or if the
Company is unable to make certain representations and warranties provided for in the Credit
Agreement.
Financial Covenants
The terms of the Credit Agreement require the Company to maintain a Fixed Charge Coverage
Ratio (as defined in the Credit Agreement) of not less than 1.10 at the end of each fiscal quarter
for the twelve-month period then ended when the amount of excess availability on the revolving
credit facility is less than $10.0 million. As of July 2, 2011, the Company was in compliance with
all of the financial covenants under the Credit Agreement.
Negative Covenants
In addition, the terms of the Credit Agreement restrict the Companys ability to, among other
things: engage in certain business combinations or divestitures; make investments in or loans to
third parties, unless certain conditions are met with respect to such investments or loans; pay
cash dividends or repurchase shares of the Companys stock subject to certain minimum borrowing
availability requirements; incur or assume indebtedness; issue securities; enter into certain
transactions with affiliates of the Company; or permit liens to encumber the Companys property and
assets. As of July 2, 2011, the Company was in compliance with all of the negative covenants under
the Credit Agreement.
Events of Default
Under the terms of the Credit Agreement, an event of default will occur with respect to the
Company upon the occurrence of, among other things: defaults or breaches under the loan documents,
subject in certain cases to cure periods; defaults or breaches by the Company or any of its
subsidiaries under any agreement resulting in the acceleration of amounts above certain thresholds
or payment defaults above certain thresholds; certain events of bankruptcy or insolvency with
respect to the Company; certain entries of judgment against the Company or any of its subsidiaries,
which are not covered by insurance; or a change of control of the Company.
Amortization of capitalized financing costs associated with the credit facility was $20,000
and $93,000 for the three-month periods ended July 2, 2011 and July 3, 2010, respectively, and
$61,000 and $342,000 for the nine-month periods ended July 2, 2011 and July 3, 2010, respectively.
Accumulated amortization of capitalized financing costs was $4.1 million and $4.0 million as of
July 2, 2011 and October 2, 2010, respectively.
Subordinated Note. As part of the consideration for the Ivy Acquisition, on November 19, 2010
(see Note 3 to the consolidated financial statements) the Company entered into a $13.5 million
secured subordinated promissory note (the Note) payable to Ivy over five years. The Note requires
semi-annual interest payments in arrears, and annual principal payments payable on November 19 of
each year during the period 2011 2015. The Note bears interest on the unpaid principal balance at
a fixed rate of 6.00% per annum and is collateralized by certain of the real property and equipment
acquired from Ivy. Based on the terms of the Note, the Company expects to make cash payments of
approximately $335,000 for interest and no principal payments during fiscal 2011. As of July 2,
2011, $675,000 of the outstanding balance on the Note is recorded as the current portion of
long-term debt on the Companys consolidated balance sheet.
15
Table of Contents
As of July 2, 2011, the aggregate maturities of the Note are as follows:
Fiscal years(s) | (In thousands) | |||
2012 |
$ | 675 | ||
2013 |
675 | |||
2014 |
675 | |||
2015 |
5,737 | |||
2016 |
5,738 | |||
Total future maturities |
$ | 13,500 | ||
Less: Current portion |
(675 | ) | ||
$ | 12,825 | |||
The scheduled principal payments will become immediately due and payable together with
interest in the event of certain covenant breaches, events of default or if the Company is unable
to make certain representations and warranties provided for in the Note. Additionally, there are
certain non-financial covenants associated with the Note that require the Company to effect its
corporate existence and all material rights and grant a perfected, first priority security interest
in all of the real and personal property representing collateral for the Note. The terms of the
Note provide that an event of default will occur with respect to the Company upon the occurrence
of, among other things: defaults or breaches under the loan document, subject in certain cases to
cure periods; certain events of bankruptcy or insolvency with respect to the Company; or a change
of control of the Company. As of July 2, 2011, the Company was in compliance with all of the
covenants under the Note.
(11) Earnings (Loss) Per Share
Effective October 4, 2009, the Company adopted certain provisions of ASC Topic 260, Earnings
Per Share, which requires unvested share-based payment awards that contain non-forfeitable rights
to dividends (whether paid or unpaid) to be treated as participating securities and included in the
computation of basic earnings per share. The Companys participating securities are its unvested
RSAs. Because the Companys unvested RSAs do not contractually participate in its losses, the
Company has not allocated such losses to the unvested RSAs in computing basic earnings per share,
using the two-class method, for the nine-month period ended July 2, 2011.
The computations of basic and diluted earnings (loss) per share attributable to common
shareholders for the three- and nine-month periods ended July 2, 2011 and July 3, 2010 are as
follows:
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Table of Contents
Three Months Ended | Nine Months Ended | |||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||
(In thousands except per share amounts) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Earnings (loss) from continuing operations |
$ | 3,650 | $ | 1,624 | $ | (1,359 | ) | $ | 2,145 | |||||||
Less allocation to participating securities |
(6 | ) | (8 | ) | | (12 | ) | |||||||||
Available to Insteel common shareholders |
$ | 3,644 | $ | 1,616 | $ | (1,359 | ) | $ | 2,133 | |||||||
Loss from discontinued operations net of income taxes |
$ | | $ | (19 | ) | $ | | $ | (42 | ) | ||||||
Less allocation to participating securities |
| | | | ||||||||||||
Available to Insteel common shareholders |
$ | | $ | (19 | ) | $ | | $ | (42 | ) | ||||||
Net earnings (loss) |
$ | 3,650 | $ | 1,605 | $ | (1,359 | ) | $ | 2,103 | |||||||
Less allocation to participating securities |
(6 | ) | (8 | ) | | (12 | ) | |||||||||
Available to Insteel common shareholders |
$ | 3,644 | $ | 1,597 | $ | (1,359 | ) | $ | 2,091 | |||||||
Basic weighted average shares outstanding |
17,587 | 17,492 | 17,550 | 17,454 | ||||||||||||
Dilutive effect of stock-based compensation |
268 | 203 | | 207 | ||||||||||||
Diluted weighted average shares outstanding |
17,855 | 17,695 | 17,550 | 17,661 | ||||||||||||
Per share basic: |
||||||||||||||||
Earnings (loss) from continuing operations |
$ | 0.21 | $ | 0.09 | $ | (0.08 | ) | $ | 0.12 | |||||||
Loss from discontinued operations |
| | | | ||||||||||||
Net earnings (loss) |
$ | 0.21 | $ | 0.09 | $ | (0.08 | ) | $ | 0.12 | |||||||
Per share diluted: |
||||||||||||||||
Earnings (loss) from continuing operations |
$ | 0.20 | $ | 0.09 | $ | (0.08 | ) | $ | 0.12 | |||||||
Loss from discontinued operations |
| | | | ||||||||||||
Net earnings (loss) |
$ | 0.20 | $ | 0.09 | $ | (0.08 | ) | $ | 0.12 | |||||||
Options and RSUs representing 348,000 and 465,000 shares for the three-month periods
ended July 2, 2011 and July 3, 2010, respectively, were antidilutive and were not included in the
diluted earnings per share calculation. Options and RSUs representing 496,000 and 486,000 shares
for the nine-month periods ended July 2, 2011 and July 3, 2010, respectively, were antidilutive and
were not included in the diluted earnings per share calculation. Options, RSAs and RSUs
representing 236,000 shares for the nine-month period ended July 2, 2011 were not included in the
diluted earnings per share calculation due to the net losses that were incurred.
(12) Share Repurchases
On November 18, 2008, the Companys board of directors approved a new share repurchase
authorization to buy back up to $25.0 million of the Companys outstanding common stock in the open
market or in privately negotiated transactions (the New Authorization). Repurchases may be made
from time to time in the open market or in privately negotiated transactions subject to market
conditions, applicable legal requirements and other factors. The Company is not obligated to
acquire any particular amount of common stock and the program may be commenced or suspended at any
time at the Companys discretion without prior notice. The New Authorization continues in effect
until terminated by the Board of Directors. As of July 2, 2011, there was $24.8 million remaining
available for future share repurchases under this authorization. No purchases of common stock were
made during the three-month periods ended July 2, 2011 and July 3, 2010. During the nine-month
periods ended July 2, 2011 and July 3, 2010, the Company repurchased $86,000 or 6,757 shares and
$51,000 or 5,225 shares, respectively, of its common stock through restricted stock net-share
settlements.
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Table of Contents
(13) Other Financial Data
Balance sheet information:
July 2, | October 2, | |||||||
(In thousands) | 2011 | 2010 | ||||||
Accounts receivable,
net: |
||||||||
Accounts receivable |
$ | 44,513 | $ | 27,266 | ||||
Less allowance for doubtful accounts |
(822 | ) | (2,296 | ) | ||||
Total |
$ | 43,691 | $ | 24,970 | ||||
Inventories, net: |
||||||||
Raw materials |
$ | 39,782 | $ | 23,817 | ||||
Work in process |
3,782 | 1,899 | ||||||
Finished goods |
26,890 | 18,203 | ||||||
Total |
$ | 70,454 | $ | 43,919 | ||||
Other current assets: |
||||||||
Current deferred
tax asset |
$ | 2,625 | $ | 2,612 | ||||
Income taxes receivable |
1,315 | 547 | ||||||
Capitalized financing costs, net |
82 | 82 | ||||||
Other |
1,677 | 690 | ||||||
Total |
$ | 5,699 | $ | 3,931 | ||||
Other assets: |
||||||||
Cash surrender value of life insurance
policies, net of loans of $446 and $505 |
$ | 4,676 | $ | 4,525 | ||||
Assets held for sale |
794 | | ||||||
Capitalized financing costs, net |
239 | 300 | ||||||
Other |
368 | 272 | ||||||
Total |
$ | 6,077 | $ | 5,097 | ||||
Property, plant and equipment, net: |
||||||||
Land and land improvements |
$ | 8,586 | $ | 5,571 | ||||
Buildings |
40,763 | 32,433 | ||||||
Machinery and equipment |
119,493 | 97,813 | ||||||
Construction in progress |
603 | 239 | ||||||
169,445 | 136,056 | |||||||
Less accumulated depreciation |
(79,427 | ) | (77,403 | ) | ||||
Total |
$ | 90,018 | $ | 58,653 | ||||
Accrued expenses: |
||||||||
Salaries, wages and related expenses |
$ | 2,070 | $ | 1,210 | ||||
Pension plan |
1,321 | 1,263 | ||||||
Deferred revenues |
1,143 | 321 | ||||||
Property taxes |
836 | 846 | ||||||
Customer rebates |
592 | 506 | ||||||
Dividends payable |
529 | | ||||||
Restructuring |
497 | | ||||||
Workers compensation |
333 | 683 | ||||||
Interest |
164 | | ||||||
Legal settlement |
| 600 | ||||||
Other |
782 | 500 | ||||||
Total |
$ | 8,267 | $ | 5,929 | ||||
Other liabilities: |
||||||||
Deferred compensation |
$ | 6,009 | $ | 5,688 | ||||
Deferred income taxes |
1,317 | 1,778 | ||||||
Other |
55 | 55 | ||||||
Total |
$ | 7,381 | $ | 7,521 | ||||
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(14) Business Segment Information
Following the Companys exit from the industrial wire business (see Note 6 to the consolidated
financial statements), the Companys operations are entirely focused on the manufacture and
marketing of concrete reinforcing products for the concrete construction industry. The Companys
concrete reinforcing products consist of welded wire reinforcement and PC strand. Based on the
criteria specified in ASC Topic 280, Segment Reporting, the Company has one reportable segment. The
results of operations for the industrial wire products business have been reported as discontinued
operations for the prior year periods presented.
(15) Contingencies
Legal proceedings. On November 19, 2007, Dwyidag Systems International, Inc (DSI) filed a
third-party lawsuit in the Ohio Court of Claims alleging that certain epoxy-coated strand sold by
the Company to DSI in 2002, and supplied by DSI to the Ohio Department of Transportation (ODOT)
for a bridge project, was defective. The third-party action sought recovery of any damages which
could have been assessed against DSI in the action filed against it by ODOT, which allegedly could
have been in excess of $8.3 million, plus $2.7 million in damages allegedly incurred by DSI. In
2009, the Ohio court granted the Companys motion for summary judgment as to the third-party claim
against it on the grounds that the statute of limitations had expired, but DSI filed an
interlocutory appeal of that ruling. In addition, the Company previously filed a lawsuit against
DSI in the North Carolina Superior Court in Surry County seeking recovery of $1.4 million (plus
interest) owed for other products sold by the Company to DSI, which action was removed by DSI to
the U.S. District Court for the Middle District of North Carolina.
On October 7, 2010, the Company participated in a structured mediation with ODOT and DSI which
led to settlement of all of the above legal matters. The parties dismissed the action in the Middle
District of North Carolina on December 23, 2010, and the Ohio Court of Claims action was dismissed
on January 21, 2011. Pursuant to the settlement agreement, which was approved by the Ohio Court of
Claims on January 5, 2011, the parties have released each other from all liability arising out of
the sale of strand for the bridge project. In connection with the settlement, the Company reserved
the remaining outstanding balance that it was owed by DSI and agreed to make a cash payment of
$600,000 to ODOT. In the second quarter of fiscal 2011, the Company paid $600,000 to ODOT and wrote
off the DSI receivables against the previously established reserve. The resolution of this matter
has enabled the Company to reinstate its commercial relationship with DSI that had existed prior to
the initiation of the legal proceedings. The Companys fourth quarter fiscal 2010 results reflect a
pre-tax charge of $1.5 million relating to the net effect of the settlement.
The Company is also involved in other lawsuits, claims, investigations and proceedings,
including commercial, environmental and employment matters, which arise in the ordinary course of
business. The Company does not expect that the ultimate costs to resolve these matters will have a
material adverse effect on its financial position, results of operations or cash flows.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, particularly under the caption
Outlook below. When used in this report, the words believes, anticipates, expects,
estimates, intends, may, should and similar expressions are intended to identify
forward-looking statements. Although we believe that our 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 we can provide no assurances
that such plans, intentions or expectations will be implemented or achieved. All forward-looking
statements are based on information that is current as of the date of this report. Many of these
risks and uncertainties are discussed in detail, and where appropriate, updated in our periodic and
other reports and statements, in particular under the caption Risk Factors in our Annual Report
on Form 10-K for the year ended October 2, 2010, filed with the U.S. Securities and Exchange
Commission. You should carefully review these risks and uncertainties.
All forward-looking statements attributable to us or persons acting on our 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 we do not
undertake and specifically decline 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.
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It is not possible to anticipate and list all risks and uncertainties that may affect our
future operations or financial performance; however, they would include, but are not limited to,
the following:
| potential difficulties that may be encountered in integrating the Ivy Acquisition into our existing business; | ||
| potential difficulties in realizing synergies, including reduced operating costs, with respect to the Ivy Acquisition; | ||
| competitive and customer responses to our expanded business following the Ivy Acquisition; | ||
| general economic and competitive conditions in the markets in which we operate; | ||
| credit market conditions and the relative availability of financing for us, our 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 our 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 our products; | ||
| the severity and duration of the downturn in residential construction activity and the impact on those portions of our 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 our primary raw material, hot-rolled steel wire rod, from domestic and foreign suppliers; | ||
| competitive pricing pressures and our ability to raise selling prices in order to recover increases in wire rod costs; | ||
| changes in United States (U.S.) or foreign trade policy affecting imports or exports of steel wire rod or our products; | ||
| unanticipated changes in customer demand, order patterns and inventory levels; | ||
| the impact of weak demand and reduced capacity utilization levels on our unit manufacturing costs; | ||
| our ability to further develop the market for engineered structural mesh (ESM) and expand our shipments of ESM; | ||
| legal, environmental, economic or regulatory developments that significantly impact our operating costs; | ||
| unanticipated plant outages, equipment failures or labor difficulties; | ||
| continued escalation in certain of our operating costs; and | ||
| the Risk Factors discussed in our Annual Report on Form 10-K for the year ended October 2, 2010 and in other filings that we make with the SEC. |
Overview
Insteel Industries, Inc. is the nations largest manufacturer of steel wire reinforcing
products for concrete construction applications. We manufacture and market PC strand and welded
wire reinforcement, including ESM, concrete pipe reinforcement and standard welded wire
reinforcement. Our products are sold primarily to manufacturers of concrete products that are used
in nonresidential construction. We market our products through sales representatives who are our
employees. Our products are sold nationwide as well as into Canada, Mexico, and Central and South
America, and delivered primarily by truck, using common or contract carriers. Our business strategy
is focused on: (1) achieving leadership positions in our markets; (2) operating as the lowest cost
producer; and (3) pursuing growth opportunities within our core businesses that further our
penetration of current markets served or expand our geographic reach.
On November 19, 2010, we, through our wholly-owned subsidiary, Insteel Wire Products Company,
purchased certain of the assets of Ivy for approximately $50.3 million, after giving effect to
post-closing adjustments. Ivy was one of the nations largest producers of welded wire
reinforcement and wire products for concrete construction applications (see Note 3 to the
consolidated financial statements). Among other assets, we acquired certain of Ivys inventories
and its production facilities located in Pennsylvania, Florida, Arizona and Missouri, in addition
to the production equipment located at a leased facility in Texas. We also entered into a
short-term sublease with Ivy for the Texas facility. Subsequent to the acquisition, we elected to
consolidate certain of our welded wire reinforcement operations in order to reduce our operating
costs, which involved the closure of facilities in Wilmington, Delaware and Houston, Texas. These
actions were taken in response to the
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close proximity of Ivys facilities in Hazleton, Pennsylvania and Houston, Texas to our existing
facilities in Wilmington, Delaware and Dayton, Texas.
Following our exit from the industrial wire business (see Note 6 to the consolidated financial
statements), our operations are entirely focused on the manufacture and marketing of concrete
reinforcing products. The results of operations for the industrial wire products business have been
reported as discontinued operations for all periods presented.
Results of Operations
Statements of Operations Selected Data
(Dollars in thousands)
(Dollars in thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
July 2, | July 3, | July 2, | July 3, | |||||||||||||||||||||
2011 | Change | 2010 | 2011 | Change | 2010 | |||||||||||||||||||
Net sales |
$ | 98,579 | 59.1 | % | $ | 61,956 | $ | 237,818 | 53.0 | % | $ | 155,425 | ||||||||||||
Gross profit |
12,529 | 62.9 | % | 7,690 | 23,997 | 53.3 | % | 15,651 | ||||||||||||||||
Percentage of net sales |
12.7 | % | 12.4 | % | 10.1 | % | 10.1 | % | ||||||||||||||||
Selling, general and administrative expense |
$ | 4,947 | 14.6 | % | $ | 4,317 | $ | 13,638 | 11.4 | % | $ | 12,241 | ||||||||||||
Percentage of net sales |
5.0 | % | 7.0 | % | 5.7 | % | 7.9 | % | ||||||||||||||||
Restructuring charges |
$ | 1,970 | N/M | $ | | $ | 8,573 | N/M | $ | | ||||||||||||||
Acquisition costs |
| N/M | | 3,518 | N/M | | ||||||||||||||||||
Bargain purchase gain |
| N/M | | (500 | ) | N/M | | |||||||||||||||||
Interest expense |
260 | 124.1 | % | 116 | 664 | 61.6 | % | 411 | ||||||||||||||||
Interest income |
(18 | ) | (60.0 | %) | (45 | ) | (37 | ) | (47.9 | %) | (71 | ) | ||||||||||||
Effective income tax rate |
32.4 | % | 50.8 | % | 22.9 | % | 35.4 | % | ||||||||||||||||
Earnings (loss) from continuing operations |
$ | 3,650 | 124.8 | % | $ | 1,624 | $ | (1,359 | ) | N/M | $ | 2,145 | ||||||||||||
Loss from discontinued operations |
| N/M | (19 | ) | | N/M | (42 | ) | ||||||||||||||||
Net earnings (loss) |
3,650 | 127.4 | % | 1,605 | (1,359 | ) | N/M | 2,103 |
N/M = not meaningful |
Third Quarter of Fiscal 2011 Compared to Third Quarter of Fiscal 2010
Net Sales
Net sales for the third quarter of 2011 increased 59.1% to $98.6 million from $62.0 million in
the same year-ago period. Shipments for the quarter increased 41.9% and average selling prices
increased 12.1% from the prior year levels. The increase in shipments was primarily due to the
addition of the Ivy facilities in the current fiscal year. The increase in average selling prices
was driven by price increases that were implemented during the current year to recover higher raw
material costs. Sales for both periods reflect severely depressed volumes due to the continuation
of recessionary conditions in the construction industry.
Gross Profit
Gross profit for the third quarter of 2011 was $12.5 million, or 12.7% of net sales, compared
with $7.7 million, or 12.4% of net sales, in the same year-ago period. The year-over-year
improvement was primarily due to the addition of the Ivy facilities in the current fiscal year
together with higher spreads between average selling prices and raw material costs. Gross profit
for both periods was unfavorably impacted by depressed shipment volumes and elevated unit
conversion costs resulting from reduced operating schedules.
Selling, General and Administrative Expense
Selling, general and administrative expense (SG&A expense) for the third quarter of 2011
increased 14.6% to $4.9 million, or 5.0% of net sales from $4.3 million, or 7.0% of net sales in
the same year-ago period primarily due to staffing increases largely related to the Ivy Acquisition
($280,000) together with higher employee benefit costs ($248,000), stock-based compensation expense
($182,000), travel expense ($87,000) and depreciation ($66,000). The increase in employee
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benefit costs was primarily due to higher employee medical expense during the current year period.
These increases were partially offset by the change in the cash surrender of life insurance
policies ($300,000), which increased $26,000 in the current year period and decreased $274,000 in
the prior year period due to the related changes in the value of the underlying investments, and a
reduction in legal expenses ($124,000) primarily due to the prior year costs associated with the PC
strand trade cases.
Restructuring Charges
Restructuring charges of $2.0 million were recorded during the third quarter of 2011 including
$683,000 for impairment charges related to plant closures and the decommissioning of equipment,
$615,000 for facility closure costs, $554,000 for equipment relocation costs and $118,000 for
employee separation costs associated with plant closures and other staffing reductions. The plant
closure costs were associated with the consolidation of our Texas and Northeast operations, which
involved the closure of facilities in Houston, Texas and Wilmington, Delaware and absorption of the
business by other Insteel facilities. The employee separation costs were related to the staffing
reductions that were implemented across our sales, administration and manufacturing support
functions to address the redundancies resulting from the Ivy Acquisition and in connection with the
plant closures. We currently expect to incur approximately $1.0 million of additional restructuring
charges in connection with the remaining anticipated equipment relocation and facility closure
costs through the first fiscal quarter of fiscal 2012.
Interest Expense
Interest expense for the third quarter of 2011 increased $144,000 or 124.1% to $260,000 from
$116,000 in the same year-ago period primarily due to the interest related to the secured
subordinated promissory note associated with the Ivy Acquisition, which was partially offset by
lower amortization of capitalized financing costs.
Income Taxes
The effective income tax rate for the third quarter of 2011 decreased to 32.4% from 50.8% in
the same year-ago period as a result of changes in permanent book versus tax differences together
with $150,000 of net reserves that were recorded in the prior year period for known tax exposures
in accordance with Accounting Standards Codification (ASC) Topic 740, Income Taxes.
Earnings From Continuing Operations
Earnings from continuing operations for the third quarter of 2011 was $3.7 million, or $0.21
per share compared to $1.6 million, or $0.09 per share in the same year-ago period primarily due to
the increase in gross profit, which was partially offset by the restructuring charges incurred in
connection with the Ivy Acquisition and higher SG&A expense.
Loss From Discontinued Operations
The $19,000 loss from discontinued operations in the prior year period, which did not have an
effect on the net loss per share, resulted from facility-related costs associated with the real
estate held for sale of the discontinued industrial wire business that was sold during the fourth
quarter of 2010.
Net Earnings
The net earnings for the third quarter of 2011 were $3.7 million, or $0.21 per share, compared
to $1.6 million, or $0.09 per share, in the same year-ago period primarily due to the increase in
gross profit partially offset by the restructuring charges incurred in connection with the Ivy
Acquisition and higher SG&A expense.
First Nine Months of Fiscal 2011 Compared to First Nine Months of Fiscal 2010
Net Sales
Net sales for the first nine months of 2011 increased 53.0% to $237.8 million from $155.4
million in the same year-ago period. Shipments for the period increased 35.0% and average selling
prices increased 13.4% from the prior year levels. The increase in shipments was primarily due to
the addition of the Ivy facilities in the current fiscal year. The increase in average selling
prices was driven by price increases that were implemented during the current year period to
recover higher raw material costs. Sales for both periods reflect severely depressed volumes due to
the continuation of recessionary conditions in the construction industry.
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Gross Profit
Gross profit for the first nine months of 2011 was $24.0 million, or 10.1% of net sales,
compared to $15.7 million, or 10.1% of net sales, in the same year-ago period. The year-over-year
improvement was primarily due to the addition of the Ivy facilities in the current fiscal year.
Gross profit for the current year period was unfavorably impacted by the sale of the higher cost
inventory acquired from Ivy that was valued at fair value in accordance with purchase accounting
requirements. Gross profit for the prior year period includes a pre-tax charge of $1.9 million for
inventory write-downs to reduce the carrying value of inventory to the lower of cost or market.
Gross profit for both periods was unfavorably impacted by depressed shipment volumes and elevated
unit conversion costs resulting from reduced operating schedules.
Selling, General and Administrative Expense
SG&A expense for the first nine months of 2011 increased 11.4% to $13.6 million, or 5.7% of
net sales from $12.2 million, or 7.9% of net sales in the same year-ago period primarily due to
staffing increases ($873,000) and other transition-related costs ($151,000) largely related to the
Ivy Acquisition together with higher employee benefit costs ($358,000), stock-based compensation
($283,000) and travel expense ($226,000). The increase in employee benefit costs was primarily due
to higher employee medical expense during the current period. These increases were partially offset
by the change in the cash surrender of life insurance policies ($406,000), which increased $416,000
in the current year period compared with $10,000 in the prior year period due to the related
changes in the value of the underlying investments, a net gain on the settlement of life insurance
policies ($357,000) and a reduction in legal expenses ($358,000) primarily due to the prior year
costs associated with the PC strand trade cases.
Restructuring Charges
Restructuring charges of $8.6 million were recorded during the first nine months of 2011,
including $4.1 million for impairment charges related to plant closures and the decommissioning of
equipment, $2.3 million for employee separation costs associated with plant closures and other
staffing reductions, $839,000 for facility closure costs, $793,000 for equipment relocation costs
and $533,000 for the future lease obligations associated with the closed Houston facility. The
plant closure costs were associated with the consolidation of our Texas and Northeast operations,
which involved the closure of facilities in Houston, Texas and Wilmington, Delaware, and the
absorption of the business by other Insteel facilities. The employee separation costs were related
to the staffing reductions that were implemented across our sales, administration and manufacturing
support functions to address the redundancies resulting from the Ivy Acquisition and in connection
with the plant closures. We currently expect to incur approximately $1.0 million of additional
restructuring charges in connection with the remaining anticipated equipment relocation and
facility closure costs through the first quarter of fiscal 2012.
Acquisition Costs
Acquisition costs of $3.5 million were incurred during the first nine months of 2011 for
advisory, accounting, legal and other professional fees directly related to the Ivy Acquisition.
The accounting requirements for business combinations require that acquisition costs be expensed in
the period in which they are incurred. We do not expect to incur any additional acquisition costs
related to the Ivy Acquisition over the remainder of the fiscal year.
Bargain Purchase Gain
A bargain purchase gain of $500,000 was recorded during the first nine months of 2011 based on
the excess of the fair value of the net assets acquired in the Ivy Acquisition over the purchase
price.
Interest Expense
Interest expense for the first nine months of 2011 increased $253,000 or 61.6% to $664,000
from $411,000 in the same year-ago period primarily due to the interest related to the secured
subordinated promissory note associated with the Ivy Acquisition, which was partially offset by
lower amortization of capitalized financing costs.
Income Taxes
The effective income tax rate for the first nine months of 2011 decreased to 22.9% from 35.4%
in the same year-ago period. The effective rate for the current year period reflects the
establishment of a valuation allowance against certain state net operating losses and state tax
credits that we do not expect to realize together with changes in permanent book versus tax
differences. The effective income tax rate for the prior year period was reduced by a $500,000
increase in a tax refund as the
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result of changes in the federal tax regulations regarding the carryback of net operating losses
together with changes in permanent book versus tax differences largely related to lower
non-deductible life insurance expense.
Earnings (Loss) From Continuing Operations
The loss from continuing operations for the first nine months of 2011 was $1.4 million, or
$0.08 per share compared with earnings of $2.1 million, or $0.12 per share in the same year-ago
period primarily due to the restructuring charges and acquisition costs incurred in connection with
the Ivy Acquisition and higher SG&A expense, which were partially offset by the increase in gross
profit.
Loss From Discontinued Operations
The $42,000 loss from discontinued operations in the prior year period, which did not have an
effect on the net loss per share, resulted from facility-related costs associated with the real
estate held for sale of the discontinued industrial wire business that was sold during the fourth
quarter of 2010.
Net Earnings (Loss)
The net loss for the first nine months of 2011 was $1.4 million, or $0.08 per share compared
with earnings of $2.1 million, or $0.12 per share in the same year-ago period primarily due to the
restructuring charges and acquisition costs incurred in connection with the Ivy Acquisition and
higher SG&A expense, which were partially offset by the increase in gross profit.
Liquidity and Capital Resources
Selected Financial Data
(Dollars in thousands)
(Dollars in thousands)
Cash Flow Analysis
Nine Months Ended | ||||||||
July 2, | July 3, | |||||||
2011 | 2010 | |||||||
Net cash (used for) provided by operating activities of continuing operations |
$ | (95 | ) | $ | 12,692 | |||
Net cash used for investing activities |
(42,814 | ) | (1,689 | ) | ||||
Net cash used for financing activities |
(1,017 | ) | (1,862 | ) | ||||
Net cash used for operating activities of discontinued operations |
| (73 | ) | |||||
Working capital |
70,959 | 87,398 | ||||||
Long-term debt |
12,825 | | ||||||
Percentage of total capital |
8.0 | % | | |||||
Shareholders equity |
$ | 146,848 | $ | 149,288 | ||||
Percentage of total capital |
92.0 | % | 100.0 | % | ||||
Total capital (total long-term debt + shareholders equity) |
$ | 159,673 | $ | 149,288 |
Operating activities of continuing operations used $95,000 of cash during the first nine
months of 2011 while providing $12.7 million during the same period last year. The year-over-year
change was primarily due to the prior year receipt of a $13.3 million income tax refund associated
with the carryback of net operating losses and the current year loss of $1.4 million. The current
year loss includes a pre-tax charge of $4.1 million for asset impairment charges related to
restructuring activities and the prior year earnings include a pre-tax charge of $1.9 million for
inventory write-downs. The net working capital components of accounts receivable, inventories, and
accounts payable and accrued expenses used $9.1 million in the current year compared to $12.3
million in the prior year. The cash used by net working capital in the current year was due to the
$18.7 million increase in accounts receivable that resulted from increases in shipments and selling
prices, and the $6.0 million increase in inventory due to increases in raw material purchases and
unit costs, which were partially offset by the $15.6 million increase in accounts payable and
accrued expenses resulting from increases in raw material purchases and unit costs. The cash used
by net working capital in the prior year was primarily due to the $7.2 million increase in accounts
receivable that resulted from increases in shipments and selling prices and the $5.2 million
increase in inventories (excluding the impact of the inventory write-downs) resulting from
increases in raw material purchases and unit costs. We may elect to make additional adjustments in
our operating activities should the current recessionary conditions in our
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construction end markets persist, which could materially impact our cash requirements. While a
downturn in the level of construction activity adversely affects sales to our customers, it
generally reduces our working capital requirements.
Investing activities used $42.8 million of cash during the first nine months of 2011 compared
to $1.7 million during the same period last year. The increase in cash used was primarily related
to the Ivy Acquisition and an increase in capital expenditures to $6.3 million in the current year
compared to $1.2 million in the prior year. Capital expenditures are expected to total less than
$10.0 million for fiscal 2011. Our investing activities are largely discretionary, which gives us
the ability to significantly curtail future outlays should future business conditions warrant that
such actions be taken.
Financing activities used $1.0 million of cash during the first nine months of 2011 compared
to $1.9 million during the same period last year. The year-over-year change was primarily due to
the inclusion of three quarterly cash dividend payments in the prior year compared with two in the
current year and $395,000 of financing costs that were incurred during the prior year in connection
with the amendment of our credit facility.
Credit Facilities
On June 2, 2010, we and each of our wholly-owned subsidiaries entered into the Second Amended
and Restated Credit Agreement (the Credit Agreement) which amends and restates in its entirety
the previous agreement pertaining to our revolving credit facility that had been in effect since
January 2006. The Credit Agreement, which matures on June 2, 2015, provides us with up to $75.0
million of financing on the credit facility to supplement our operating cash flow and fund our
working capital, capital expenditure, general corporate and growth requirements. As of July 2,
2011, no borrowings were outstanding on the credit facility, $73.9 million of additional borrowing
capacity was available and outstanding letters of credit totaled $1.1 million.
As part of the consideration for purchasing certain assets of Ivy on November 19, 2010 (See
Note 3 to the consolidated financial statements), we entered into a $13.5 million secured
subordinated promissory note (the Note) payable to Ivy over five years. The Note requires
semi-annual interest payments in arrears, and annual principal payments payable on November 19 of
each year during the period 2011 2015. The Note bears interest on the unpaid principal balance at
a fixed rate of 6.00% per annum and is collateralized by certain of the real property and equipment
acquired from Ivy. Based on the terms of the Note, we expect to make cash payments of approximately
$335,000 for interest and no principal payments during fiscal 2011.
We believe that, in the absence of significant unanticipated cash demands, cash and cash
equivalents, and net cash generated by operating activities will be sufficient to satisfy our
expected requirements for working capital, capital expenditures, dividends, principal and interest
payments on the Note and share repurchases, if any. We also expect to have access to the amounts
available under our revolving credit facility as required. However, further deterioration of market
conditions in the construction sector could result in additional reductions in demand from our
customers, which would likely reduce our operating cash flows. Our operating cash flows could also
be unfavorably impacted by unanticipated cash requirements arising in connection with the Ivy
Acquisition. Under such circumstances, we may need to curtail capital and operating expenditures,
delay or restrict share repurchases, cease dividend payments and/or realign our working capital
requirements.
Should we determine, at any time, that we require additional short-term liquidity, we would
evaluate the alternative sources of financing that are potentially available to provide such
funding. There can be no assurance that any such financing, if pursued, would be obtained, or if
obtained, would be adequate or on terms acceptable to us. However, we believe that our strong
balance sheet, flexible capital structure and borrowing capacity available to us under our
revolving credit facility position us to meet our anticipated liquidity requirements for the
foreseeable future.
Seasonality and Cyclicality
Demand in our markets is both seasonal and cyclical, driven by the level of construction
activity, but can also be impacted by fluctuations in the inventory positions of our customers.
From a seasonal standpoint, the highest level of sales within the year typically occurs when
weather conditions are the most conducive to construction activity. As a result, sales and
profitability are usually higher in the third and fourth quarters of the fiscal year and lower in
the first and second quarters. From a cyclical standpoint, the level of construction activity tends
to be correlated with general economic conditions although there can be significant differences
between the relative performance of the nonresidential versus residential construction sectors for
extended periods.
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Impact of Inflation
We are subject to inflationary risks arising from fluctuations in the market prices for our
primary raw material, hot-rolled steel wire rod, and, to a much lesser extent, freight, energy and
other consumables that are used in our manufacturing processes. We have generally been able to
adjust our selling prices to pass through increases in these costs or offset them through various
cost reduction and productivity improvement initiatives. However, our ability to raise our selling
prices depends on market conditions and competitive dynamics, and there may be periods during which
we are unable to fully recover increases in our costs. During 2010, our ability to fully recover
higher wire rod prices was mitigated by competitive pricing pressures resulting from the ongoing
weakness in demand. Since December 2010, wire rod prices have risen due to the escalation in the
cost of scrap and other raw materials for wire rod producers and increased demand from
non-construction applications, and could continue to trend higher. The timing and magnitude of any
future increases in the prices for wire rod and the impact on selling prices for our products is
uncertain at this time.
Off-Balance Sheet Arrangements
We do not have any material transactions, arrangements, obligations (including contingent
obligations), or other relationships with unconsolidated entities or other persons, as defined by
Item 303(a)(4) of Regulation S-K of the SEC, that have or are reasonably likely to have a material
current or future impact on our financial condition, results of operations, liquidity, capital
expenditures, capital resources or significant components of revenues or expenses.
Contractual Obligations
Except with respect to the debt maturity schedule described in Note 10 to our consolidated
financial statements herein, there have been no material changes in our contractual obligations and
commitments as disclosed in our Annual Report on Form 10-K as of October 2, 2010 other than those
which occur in the ordinary course of business.
Critical Accounting Policies
Our financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (GAAP). Our discussion and analysis of our financial condition and
results of operations are based on these financial statements. The preparation of our financial
statements requires the application of accounting policies in addition to certain estimates and
judgments based on current available information, actuarial estimates, historical results and other
assumptions believed to be reasonable. Actual results could differ from these estimates.
Following is a discussion of our most critical accounting policies, which are those that are
both important to the depiction of our financial condition and results of operations and that
require judgments, assumptions and estimates.
Revenue recognition. We recognize revenue from product sales when products are shipped and
risk of loss and title has passed to the customer. Sales taxes collected from customers are
recorded on a net basis and are thus excluded from revenue.
Concentration of credit risk. Financial instruments that subject us to concentrations of
credit risk consist principally of cash and cash equivalents and trade accounts receivable. Our
cash is concentrated primarily at one financial institution, which at times exceeds federally
insured limits. We are exposed to credit risk in the event of default by institutions in which our
cash and cash equivalents are held and by customers to the extent of the amounts recorded on the
balance sheet. We invest excess cash primarily in money market funds, which are highly liquid
securities that bear minimal risk.
Most of our accounts receivable are due from customers that are located in the U.S. and we
generally require no collateral depending upon the creditworthiness of the account. We provide an
allowance for doubtful accounts based upon our assessment of the credit risk of specific customers,
historical trends and other information. There is no disproportionate concentration of credit risk.
Allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated
losses resulting from the potential inability of our customers to make required payments on
outstanding balances owed to us. Significant management judgments and estimates are used in
establishing the allowances. These judgments and estimates consider such factors as customers
financial position, cash flows and payment history as well as current and expected business
conditions. It is reasonably likely that actual collections will differ from our estimates, which
may result in increases or decreases in the allowances. Adjustments to the allowances may also be
required if there are significant changes in the financial condition of our customers.
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Inventory valuation. We periodically evaluate the carrying value of our inventory. This
evaluation includes assessing the adequacy of allowances to cover losses in the normal course of
operations, providing for excess and obsolete inventory, and ensuring that inventory is valued at
the lower of cost or estimated net realizable value. Our evaluation considers such factors as the
cost of inventory, future demand, our historical experience and market conditions. In assessing the
realization of inventory values, we are required to make judgments and estimates regarding future
market conditions. Because of the subjective nature of these judgments and estimates, it is
reasonably likely that actual outcomes will differ from our estimates. Adjustments to these
reserves may be required if actual market conditions for our products are substantially different
than the assumptions underlying our estimates.
Long-lived assets. We review long-lived assets, which consist principally of property, plant
and equipment, for impairment whenever events or changes in circumstances indicate that the
carrying value of the asset may not be fully recoverable. Recoverability of long-lived assets to be
held and used is measured based on the future net undiscounted cash flows expected to be generated
by the related asset or asset group. If it is determined that an impairment loss has incurred, the
impairment loss is recognized during the period incurred and is calculated based on the difference
between the carrying value and the present value of estimated future net cash flows or comparable
market values. Assets to be disposed of by sale are recorded at the lower of the carrying value or
fair value less cost to sell when we have committed to a disposal plan, and are reported separately
as assets held for sale on our consolidated balance sheet. Unforeseen events and changes in
circumstances and market conditions could negatively affect the value of assets and result in an
impairment charge.
Self insurance. We are self-insured for certain losses relating to medical and workers
compensation claims. Self-insurance claims filed and claims incurred but not reported are accrued
based upon managements estimates of the discounted ultimate cost for uninsured claims incurred
using actuarial assumptions followed in the insurance industry and historical experience. These
estimates are subject to a high degree of variability based upon future inflation rates, litigation
trends, changes in benefit levels and claim settlement patterns. Because of uncertainties related
to these factors as well as the possibility of changes in the underlying facts and circumstances,
future adjustments to these reserves may be required.
Litigation. From time to time, we may be involved in claims, lawsuits and other proceedings.
Such matters involve uncertainty as to the eventual outcomes and the potential losses that we may
ultimately incur. We record expenses for litigation when it is probable that a liability has been
incurred and the amount of the loss can be reasonably estimated. We estimate the probability of
such losses based on the advice of legal counsel, the outcome of similar litigation, the status of
the lawsuits and other factors. Due to the numerous factors that enter into these judgments and
assumptions, it is reasonably likely that actual outcomes will differ from our estimates. We
monitor our potential exposure to these contingencies on a regular basis and may adjust our
estimates as additional information becomes available or as there are significant developments.
Assumptions for employee benefit plans. We have two defined employee benefit plans: the
Insteel Wire Products Company Retirement Income Plan for Hourly Employees, Wilmington, Delaware
(the Delaware Plan) and the supplemental employee retirement plans (each, a SERP). We recognize
net periodic pension costs and value pension assets or liabilities based on certain actuarial
assumptions, principally the assumed discount rate and the assumed long-term rate of return on plan
assets.
The discount rates we utilize for determining net periodic pension costs and the related
benefit obligations for our plans are based, in part, on current interest rates earned on long-term
bonds that receive one of the two highest ratings assigned by recognized rating agencies. Our
discount rate assumptions are adjusted as of each valuation date to reflect current interest rates
on such long-term bonds. The discount rates are used to determine the actuarial present value of
the benefit obligations as of the valuation date as well as the interest component of the net
periodic pension cost for the following year.
The assumed long-term rate of return on plan assets for the Delaware Plan represents the
estimated average rate of return expected to be earned on the funds invested or to be invested in
the plans assets to fund the benefit payments inherent in the projected benefit obligations.
Unlike the discount rate, which is adjusted each year based on changes in current long-term
interest rates, the assumed long-term rate of return on plan assets will not necessarily change
based upon the actual short-term performance of the plan assets in any given year. The amount of
net periodic pension cost that is recorded each year for the plan is based on the assumed long-term
rate of return on plan assets and the actual fair value of the plan assets as of the beginning of
the year. We regularly review our actual asset allocation and, when appropriate, rebalance the
investments in the plan to more accurately reflect the targeted allocation.
For 2010, the assumed long-term rate of return utilized for plan assets of the Delaware Plan
was 8%. We currently expect to use the same assumed rate for the long-term return on plan assets in
2011. In determining the appropriateness of this assumption, we considered the historical rate of
return of the plan assets, the current and projected asset mix, our investment objectives and
information provided by our third-party investment advisors.
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The projected benefit obligations and net periodic pension cost for the Delaware Plan are
based in part on expected increases in future compensation levels. Our assumption for the expected
increase in future compensation levels is based upon our average historical experience and
managements intentions regarding future compensation increases, which generally approximates
average long-term inflation rates.
Assumed discount rates and rates of return on plan assets are reevaluated annually. Changes in
these assumptions can result in the recognition of materially different pension costs over
different periods and materially different asset and liability amounts in our consolidated
financial statements. A reduction in the assumed discount rate generally results in an actuarial
loss, as the actuarially-determined present value of estimated future benefit payments will
increase. Conversely, an increase in the assumed discount rate generally results in an actuarial
gain. In addition, an actual return on plan assets for a given year that is greater than the
assumed return on plan assets results in an actuarial gain, while an actual return on plan assets
that is less than the assumed return results in an actuarial loss. Other actual outcomes that
differ from previous assumptions, such as individuals living longer or shorter lives than assumed
in the mortality tables that are also used to determine the actuarially-determined present value of
estimated future benefit payments, changes in such mortality tables themselves or plan amendments
will also result in actuarial losses or gains. Under GAAP, actuarial gains and losses are deferred
and amortized into income over future periods based upon the expected average remaining service
life of the active plan participants (for plans for which benefits are still being earned by active
employees) or the average remaining life expectancy of the inactive participants (for plans for
which benefits are not still being earned by active employees). However, any actuarial gains
generated in future periods reduce the negative amortization effect of any cumulative unamortized
actuarial losses, while any actuarial losses generated in future periods reduce the favorable
amortization effect of any cumulative unamortized actuarial gains.
The amounts recognized as net periodic pension cost and as pension assets or liabilities are
based upon the actuarial assumptions discussed above. We believe that all of the actuarial
assumptions used for determining the net periodic pension costs and pension assets or liabilities
related to the Delaware Plan are reasonable and appropriate. The funding requirements for the
Delaware Plan are based upon applicable regulations, and will generally differ from the amount of
pension cost recognized for financial reporting purposes. No contributions were required to be made
to the Delaware Plan in the prior year.
In February 2011, as part of the planned closure of the Wilmington, Delaware facility, we
amended the Delaware Plan granting certain participants additional service credit. The amendment
resulted in a one-time charge of $306,000 that was recorded in the second quarter of fiscal 2011
and is included within the restructuring charges for the nine-month period ended July 2, 2011. We
currently expect net periodic pension costs for both plans to total $1.0 million during fiscal
2011. Cash contributions to the plans during fiscal 2011 are expected to total $478,000 for the
Delaware Plan and $244,000 for the SERPs, matching the required benefit payments.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (FASB) issued an update that amends
the guidance provided in ASC Topic 220, Comprehensive Income, by requiring that all nonowner
changes in shareholders equity be presented either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. This update will be effective
for our first quarter of fiscal 2013.
In May 2011, the FASB issued an update that amends the guidance provided in ASC Topic 820,
Fair Value Measurement, by clarifying some existing concepts, eliminating wording differences
between GAAP and International Financial Reporting Standards (IFRS), and in some limited cases,
changing some principles to achieve convergence between GAAP and IFRS. The update results in a
consistent definition of fair value, establishes common requirements for the measurement of and
disclosure about fair value between GAAP and IFRS, and expands the disclosures for fair value
measurements that are estimated using significant unobservable (Level 3) inputs. This update will
be effective for our second quarter of fiscal 2012. We do not expect the adoption of this update to
have a material impact on our consolidated financial statements.
In December 2010, the FASB issued an update that clarifies the guidance provided in ASC Topic
805, Business Combinations, regarding the disclosure requirements for the pro forma presentation of
revenue and earnings related to a business combination. We elected to early adopt this guidance
during the first quarter of fiscal 2011.
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Outlook
Our visibility for business conditions through the remainder of fiscal 2011 is clouded by the
continued uncertainty regarding future economic conditions and the prospects for a pronounced
recovery in the economy and in the job market, the availability of financing in the credit markets
and the duration and magnitude of the next federal transportation funding authorization. We expect
nonresidential construction, our primary demand driver, to remain at depressed levels particularly
for commercial projects which have been the most severely impacted by the economic downturn. We
believe the favorable impact from the infrastructure-related funding provided for under the
American Recovery and Reinvestment Act has largely been mitigated by the project mix, which is
skewed towards pavement resurfacing and repairs that do not require the use of our products
together with reduced spending at the state and local government level. We expect that residential
construction will remain weak, but begin to show gradual improvement, favorably impacting shipments
to customers that have greater exposure to the housing sector.
In spite of the ongoing weakness in market conditions, prices for our primary raw material,
hot-rolled steel wire rod, have spiked higher since December 2010 driven by the sharp escalation in
scrap costs for steel producers. Our ability to recover additional increases in these costs in our
markets and the net impact on margins is uncertain at this time.
In response to the challenges facing us, we will continue to focus on the operational
fundamentals of our business: closely managing and controlling our expenses; aligning our
production schedules with demand in a proactive manner as there are changes in market conditions to
minimize our cash operating costs; and pursuing further improvements in the productivity and
effectiveness of all of our manufacturing, selling and administrative activities. As we move into
the fourth quarter of fiscal 2011, we expect the contributions from the Ivy Acquisition to increase
through the realization of the anticipated operational synergies and the completion of our
transition and integration activities. As market conditions improve, we also expect gradually
increasing contributions from the substantial investments we have made in our facilities in the
form of reduced operating costs and additional capacity to support future growth (see Cautionary
Note Regarding Forward-Looking Statements and Risk Factors). In addition, we will continue to
evaluate further potential acquisitions in our existing businesses that expand our penetration of
markets we currently serve or expand our geographic footprint.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our cash flows and earnings are subject to fluctuations resulting from changes in commodity
prices, interest rates and foreign exchange rates. We manage our exposure to these market risks
through internally established policies and procedures and, when deemed appropriate, through the
use of derivative financial instruments. We do not use financial instruments for trading purposes
and we are not a party to any leveraged derivatives. We monitor our underlying market risk
exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as
necessary.
Commodity Prices
We are subject to significant fluctuations in the cost and availability of our primary raw
material, hot-rolled steel wire rod, which we purchase from both domestic and foreign suppliers. We
negotiate quantities and pricing for both domestic and foreign steel wire rod purchases for varying
periods (most recently monthly for domestic suppliers), depending upon market conditions, to manage
our exposure to price fluctuations and to ensure adequate availability of material consistent with
our requirements. We do not use derivative commodity instruments to hedge our exposure to changes
in prices as such instruments are not currently available for steel wire rod. Our ability to
acquire steel wire rod from foreign sources on favorable terms is impacted by fluctuations in
foreign currency exchange rates, foreign taxes, duties, tariffs and other trade actions. Although
changes in wire rod costs and our selling prices may be correlated over extended periods of time,
depending upon market conditions and competitive dynamics, there may be periods during which we are
unable to fully recover increased wire rod costs through higher selling prices, which would reduce
our gross profit and cash flow from operations. Additionally, should wire rod costs decline, our
financial results may be negatively impacted if the selling prices for our products decrease to an
even greater degree and to the extent that we are consuming higher cost material from inventory.
Based on our shipments and average wire rod cost reflected in cost of sales for the first nine
months of fiscal 2011, a 10% increase in the price of steel wire rod would have resulted in a $6.4
million decrease in our pre-tax earnings for the nine months ended July 2, 2011 (assuming there was
not a corresponding change in our selling prices).
Interest Rates
Although the interest rate on our Note is fixed and we did not have any balances outstanding
on our revolving credit facility as of July 2, 2011, future borrowings under the facility would be
sensitive to changes in interest rates.
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Foreign Exchange Exposure
We have not typically hedged foreign currency exposures related to transactions denominated in
currencies other than U.S. dollars, as such transactions have not been material historically. We
will occasionally hedge firm commitments for certain equipment purchases that are denominated in
foreign currencies. The decision to hedge any such transactions is made by us on a case-by-case
basis. There were no forward contracts outstanding as of July 2, 2011.
Item 4. Controls and Procedures
We have conducted an evaluation of the effectiveness of our disclosure controls and procedures
as of July 2, 2011. This evaluation was conducted under the supervision and with the participation
of management, including our principal executive officer and our principal financial officer. Based
upon that evaluation, our principal executive officer and our principal financial officer concluded
that our disclosure controls and procedures were effective to ensure that information required to
be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as
amended (the Exchange Act), is recorded, processed, summarized and reported within the time
periods specified in the Commissions rules and forms. Further, we concluded that our disclosure
controls and procedures were effective to ensure that information is accumulated and communicated
to management, including our principal executive officer and our principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting that occurred during
the quarter ended July 2, 2011 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various lawsuits, claims, investigations and proceedings, including
commercial, environmental and employment matters, which arise in the ordinary course of business.
We do not expect that the ultimate costs to resolve these matters will have a material adverse
effect on our financial position, results of operations or cash flows.
Item 1A. Risk Factors
There were no material changes during the quarter ended July 2, 2011 from the risk factors set
forth under Part I, Item 1A., Risk Factors in our Annual Report on Form 10-K for the fiscal year
ended October 2, 2010. You should carefully consider these factors in addition to the other
information set forth in this report which could materially affect our business, financial
condition or future results. The risks and uncertainties described in this report and in our Annual
Report on Form 10-K for the year ended October 2, 2010, as well as other reports and statements
that we file with the SEC, are not the only risks and uncertainties facing us. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial may also have a
material adverse effect on our financial position, results of operations or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 18, 2008, our Board of Directors approved a new share repurchase authorization to
buy back up to $25.0 million of our outstanding common stock in the open market or in privately
negotiated transactions (the New Authorization). The New Authorization replaces the previous
authorization to repurchase up to $25.0 million of our common stock, which was scheduled to expire
on December 5, 2008. Repurchases may be made from time to time in the open market or in privately
negotiated transactions subject to market conditions, applicable legal requirements and other
factors. We are not obligated to acquire any particular amount of common stock and the program may
be commenced or suspended at any time at our discretion without prior notice. The New Authorization
continues in effect until terminated by the Board of Directors. As of July 2, 2011, there was $24.8
million remaining available for future share repurchases under this authorization. We did not
purchase any of our common stock under the repurchase program or otherwise during the three-month
period ended July 2, 2011.
Item 6. Exhibits
31.1 | Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 | Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
101* | The following financial information from our Quarterly Report on Form
10-Q for the quarter ended July 2, 2011, filed on July 28, 2011,
formatted in XBRL (eXtensible Business Reporting Language) includes: (i) the Consolidated Statements of Operations for the three- and
nine-months ended July 2, 2011 and July 3, 2010, (ii) the
Consolidated Balance Sheets as of July 2, 2011 and October 2, 2010,
(iii) the Consolidated Statements of Cash Flows for the nine months
ended July 2, 2011 and July 3, 2010, (iv) the Consolidated Statements
of Shareholders Equity as of July 2, 2011 and October 2, 2010, and
(v) the Notes to Consolidated Financial Statements, tagged as blocks
of text. |
* | The XBRL-related information has been furnished electronically herewith. This exhibit, regardless of whether it is an exhibit to a document incorporated by reference into any of our filings and except to the extent specifically stated otherwise, is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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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: July 28, 2011 | By: | /s/ Michael C. Gazmarian | ||
Michael C. Gazmarian | ||||
Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer) |
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EXHIBIT INDEX
Exhibit | ||
Number | Description | |
31.1 | Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 | Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
101* | The following financial information from our Quarterly Report on
Form 10-Q for the quarter ended July 2, 2011, filed on July 28,
2011, formatted in XBRL (eXtensible Business Reporting Language)
includes: (i) the Consolidated Statements of Operations for the
three- and nine-months ended July 2, 2011 and July 3, 2010, (ii)
the Consolidated Balance Sheets as of July 2, 2011 and October 2,
2010, (iii) the Consolidated Statements of Cash Flows for the nine
months ended July 2, 2011 and July 3, 2010, (iv) the Consolidated
Statements of Shareholders Equity as of July 2, 2011 and October
2, 2010, and (v) the Notes to Consolidated Financial Statements,
tagged as blocks of text. |
* | The XBRL-related information has been furnished electronically herewith. This exhibit, regardless of whether it is an exhibit to a document incorporated by reference into any of our filings and except to the extent specifically stated otherwise, is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
33