UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
OR
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) (Zip Code) |
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Registrant’s telephone number, including area code: ( |
Securities registered subject to Section 12(b) of the Exchange Act:
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Name of Each Exchange on Which Registered |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ |
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Non-accelerated filer ☐ |
Smaller reporting company Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of April 2, 2022 (the last business day of the registrant’s most recently completed second quarter), the aggregate market value of the common stock held by non-affiliates of the registrant was $
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s proxy statement to be delivered to shareholders in connection with the 2023 Annual Meeting of Shareholders are incorporated by reference as set forth in Part III hereof.
TABLE OF CONTENTS |
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Cautionary Note Regarding Forward-Looking Statements |
3 |
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PART I |
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Item 1. |
Business |
4 |
Item 1A. |
Risk Factors |
7 |
Item 1B. |
Unresolved Staff Comments |
11 |
Item 2. |
Properties |
11 |
Item 3. |
Legal Proceedings |
11 |
Item 4. |
Mine Safety Disclosures |
11 |
Information About Our Executive Officers |
11 |
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PART II |
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Item 5. |
Market for the Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities |
12 |
Item 6. |
Reserved |
13 |
Item 7. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
13 |
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
18 |
Item 8. |
Financial Statements and Supplementary Data |
19 |
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
43 |
Item 9A. |
Controls and Procedures |
43 |
Item 9B. |
Other Information |
45 |
Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
45 |
PART III |
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Item 10. |
Directors, Executive Officers and Corporate Governance |
45 |
Item 11. |
Executive Compensation |
45 |
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
45 |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
45 |
Item 14. |
Principal Accounting Fees and Services |
45 |
PART IV |
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Item 15. |
Exhibits, Financial Statement Schedules |
45 |
Item 16. |
Form 10-K Summary |
46 |
SIGNATURES |
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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 in the “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this report. When used in this report, the words “believes,” “anticipates,” “expects,” “estimates,” “appears,” “plans,” “intends,” “may,” “should,” “could,” “outlook,” “continues,” “remains” 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, they are subject to a number of risks and uncertainties and involve certain assumptions. Actual results may differ materially from those expressed in forward-looking statements, and we can provide no assurances that such plans, intentions or expectations will be implemented or achieved. Many of these risks and uncertainties are discussed in the “Risk Factors” section of this report and are updated from time to time in our filings with the United States (“U.S.”) Securities and Exchange Commission (“SEC”).
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 any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as may be required by law.
It is not possible to anticipate and list all risks and uncertainties that may affect our business, future operations or financial performance; however, they include, but are not limited to, the following:
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general economic and competitive conditions in the markets in which we operate; |
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changes in the spending levels for nonresidential and residential construction and the impact on demand for our products; |
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changes in the amount and duration of transportation funding provided by federal, state and local governments and the impact on spending for infrastructure construction and demand for our products; |
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the cyclical nature of the steel and building material industries; |
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credit market conditions and the relative availability of financing for us, our customers and the construction industry as a whole; |
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fluctuations in the cost and availability of our primary raw material, hot-rolled carbon steel wire rod, from domestic and foreign suppliers; |
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competitive pricing pressures and our ability to raise selling prices in order to recover increases in raw material or operating costs; |
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changes in U.S. or foreign trade policy affecting imports or exports of steel wire rod or our products; |
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unanticipated changes in customer demand, order patterns and inventory levels; |
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the impact of fluctuations in demand and capacity utilization levels on our unit manufacturing costs; |
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our ability to further develop the market for engineered structural mesh (“ESM”) and expand our shipments of ESM; |
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legal, environmental, economic or regulatory developments that significantly impact our business or operating costs; |
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unanticipated plant outages, equipment failures or labor difficulties; |
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the impact of COVID-19 on the economy, demand for our products and our operations, including the measures taken by governmental authorities to address it, which may precipitate or exacerbate other risks and/or uncertainties; and |
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the risks and uncertainties discussed herein under the caption “Risk Factors.” |
PART I
Item 1. Business
General
Insteel Industries, Inc. (“we,” “us,” “our,” “the Company” or “Insteel”) is the nation’s largest manufacturer of steel wire reinforcing products for concrete construction applications. We manufacture and market prestressed concrete strand (“PC strand”) and welded wire reinforcement (“WWR”), including ESM, concrete pipe reinforcement (“CPR”) and standard welded wire reinforcement (“SWWR”). Our products are sold mainly to manufacturers of concrete products that are used primarily in nonresidential construction. For fiscal 2022, we estimate that approximately 85% of our sales were related to nonresidential construction and 15% were related to residential construction.
Insteel is the parent holding company for two wholly-owned subsidiaries, Insteel Wire Products Company (“IWP”), an operating subsidiary, and Intercontinental Metals Corporation, an inactive subsidiary. We were incorporated in 1958 in the State of North Carolina.
Our business strategy is focused on: (1) achieving leadership positions in our markets; (2) operating as the lowest cost producer in our industry; and (3) pursuing growth opportunities within our core businesses that further our penetration of the markets we currently serve or expand our footprint. Headquartered in Mount Airy, North Carolina, we operate ten manufacturing facilities that are all located in the U.S. in close proximity to our customers and raw material suppliers. Our growth strategy is focused on organic opportunities as well as strategic acquisitions in existing or related markets that leverage our infrastructure and core competencies in the manufacture and marketing of concrete reinforcing products.
On March 16, 2020, we, through our wholly-owned subsidiary, IWP, purchased substantially all of the assets of Strand-Tech Manufacturing, Inc. (“STM”) for an adjusted purchase price of $19.4 million, which reflects certain post-closing adjustments (the “STM Acquisition”). STM was a leading manufacturer of PC strand for concrete construction applications. We acquired, among other assets, STM’s accounts receivable, inventories, production equipment and facility located in Summerville, South Carolina and assumed certain of its accounts payable and accrued liabilities. Subsequent to the acquisition, we elected to consolidate our PC strand operations with the closure of the Summerville facility.
Products
Our operations are entirely focused on the manufacture and marketing of steel wire reinforcing products for concrete construction applications. Our concrete reinforcing products consist of two product lines: PC strand and WWR. Based on the criteria specified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, we have one reportable segment.
PC strand is a high strength, seven-wire strand that is used to impart compression forces into precast concrete elements and structures, which may be either pretensioned or posttensioned, providing reinforcement for bridges, parking decks, buildings and other concrete structures. Its high tensile strength allows for the casting of longer spans and thinner sections. Pretensioned or “prestressed” concrete elements or structures are primarily used in nonresidential construction while posttensioned concrete elements or structures are used in both nonresidential and residential construction.
WWR is produced as either a standard or a specially engineered reinforcing product for use in nonresidential and residential construction. We produce a full range of WWR products, including ESM, CPR and SWWR. ESM is an engineered made-to-order product that is used as the primary reinforcement for concrete elements or structures, frequently serving as a lower cost reinforcing solution than hot-rolled rebar. CPR is an engineered made-to-order product that is used as the primary reinforcement in concrete pipe, box culverts and precast manholes for drainage and sewage systems, water treatment facilities and other related applications. SWWR is a secondary reinforcing product that is produced in standard styles for crack control applications in residential and light nonresidential construction, including driveways, sidewalks and various slab-on-grade applications.
See Note 15 for the disaggregation of our net sales by product line and geography.
Marketing and Distribution
We market our products through sales representatives who are our employees. Our outside sales representatives are trained on the technical applications for our products and sell multiple product lines in their respective territories. We sell our products nationwide across the U.S. and, to a much lesser extent, into Canada, Mexico and Central and South America. Our products are shipped primarily by truck, using common or contract carriers. The delivery method selected is determined based on backhaul opportunities, comparative costs and customer service requirements.
Customers
We sell our products to a broad range of customers that includes manufacturers of concrete products, and to a lesser extent, distributors, rebar fabricators and contractors. In fiscal 2022, we estimate that approximately 70% of our net sales were to manufacturers of concrete products and 30% were to distributors, rebar fabricators and contractors. In many cases, we are unable to identify the specific end use for our products as most of our customers sell products that are used for both nonresidential and residential construction, and the same products can be used for different end uses. We did not have any customers that represented 10% or more of our net sales in fiscal years 2022, 2021 and 2020. The loss of a single customer or a few customers would not have a material adverse impact on our business.
Backlog
Backlog for our business is minimal due to the relatively short lead times that are required by our customers. We believe that the majority of our firm orders as of the end of fiscal 2022 will be shipped during the first quarter of fiscal 2023.
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. Shipments are seasonal, typically reaching their highest level when weather conditions are the most conducive to construction activity. As a result, assuming normal seasonal weather patterns, shipments and profitability are usually higher in the third and fourth quarters of the fiscal year and lower in the first and second quarters. Construction activity and demand for our products is cyclical based on overall economic conditions, although there can be significant differences between the relative strength of nonresidential and residential construction for extended periods.
Raw Materials
The primary raw material used to manufacture our products is hot-rolled carbon steel wire rod, which we purchase from both domestic and foreign suppliers and can generally be characterized as a commodity product. We purchase several different grades and sizes of wire rod with varying specifications based on the diameter, chemistry, mechanical properties and metallurgical characteristics that are required for our products. High-carbon grades of wire rod are required for the production of PC strand while low-carbon grades are used to manufacture WWR.
Wire rod prices tend to fluctuate based on changes in scrap and other metallic prices for steel producers together with domestic and global market conditions. In most economic environments, domestic demand for wire rod exceeds domestic production capacity, and imports of wire rod are necessary to satisfy the supply requirements of the U.S. market. U.S. government trade policies and trade actions by domestic wire rod producers can significantly impact the pricing and availability of imported wire rod, which during fiscal years 2022 and 2021 represented approximately 26% and 16%, respectively, of our total wire rod purchases. We believe that our substantial wire rod requirements, desirable mix of sizes and grades and strong financial condition represent a competitive advantage by making us a relatively more attractive customer to our suppliers.
Our ability to source wire rod from overseas suppliers is limited by domestic content requirements generally referred to as “Buy America” or “Buy American” laws that exist at both the federal and state levels. These laws generally prescribe a domestic “melt and cast” standard for purposes of compliance. Customers purchasing PC strand and WWR for certain applications require the Company to certify compliance with Buy America laws.
Selling prices for our products tend to be correlated with changes in wire rod prices. However, the timing and magnitude of the relative price changes varies depending upon market conditions and competitive factors. Ultimately, the relative supply - demand balance in our markets and competitive dynamics determine whether our margins expand or contract during periods of rising or falling wire rod prices.
Competition
We are the nation’s largest manufacturer of steel wire reinforcing products for concrete construction applications. Our markets are highly competitive based on price, quality and service. Some of our competitors, such as Nucor Corporation, Liberty Steel USA (“Liberty”) and Oklahoma Steel and Wire, are vertically integrated companies that produce both wire rod and concrete reinforcing products and offer multiple product lines over broad geographic areas. Other competitors are smaller independent companies that offer limited competition in certain markets. Our primary competitors for WWR products are Engineered Wire Products, Inc. (a subsidiary of Liberty), Wire Mesh Corporation, Concrete Reinforcements, Inc., National Wire Products, Davis Wire Corporation and Oklahoma Steel & Wire Co., Inc. Our primary competitors for PC strand are Sumiden Wire Products Corporation and Wire Mesh Corporation. Import competition is also a significant factor in certain segments of the PC strand and SWWR markets that are not subject to “Buy America” requirements.
In response to illegally traded import competition from offshore PC strand suppliers, we have pursued trade cases, when necessary, as a means of ensuring that foreign producers were complying with the applicable trade laws and regulations. In 2003, we joined together with a coalition of domestic PC strand producers and filed petitions with the U.S. Department of Commerce (the “DOC”) alleging that imports of PC strand from Brazil, India, Korea, Mexico and Thailand were being “dumped” or sold in the U.S. at a price that was lower than fair value and had injured the domestic PC strand industry. The DOC ruled in our favor and imposed anti-dumping duties ranging from 12% up to 119%, which had the effect of limiting the participation of these countries in the domestic market. In 2010, we joined together with a coalition of domestic PC strand producers and filed petitions with the DOC alleging that imports of PC strand from China were being “dumped” or sold in the U.S. at a price that was lower than fair value and that subsidies were being provided to Chinese PC strand producers by the Chinese government, both of which had injured the domestic PC strand industry. The DOC ruled in our favor and imposed final countervailing duty margins ranging from 9% to 46% and anti-dumping margins ranging from 43% to 194%, which had the effect of limiting the continued participation of Chinese producers in the domestic market. In 2020, we joined two other domestic PC strand producers and filed anti-dumping petitions against Argentina, Columbia, Egypt, Indonesia, Italy, Malaysia, Netherlands, Saudi Arabia, South Africa, Spain, Taiwan, Tunisia, Turkey, Ukraine and the United Arab Emirates. In January 2021, with respect to 8 countries, and in April 2021, with respect to 7 countries, the DOC ruled in our favor and imposed anti-dumping duties ranging from 4% to 194%, which had the effect of limiting the participation of these countries in the domestic market. Additionally, in 2020, we and four other domestic producers of SWWR filed anti-dumping petitions against Mexico. In July 2021, the DOC ruled in our favor and imposed final countervailing duty margins ranging from 23% to 110%, which had the effect of limiting the continued participation of Mexican producers in the domestic market.
Quality and service expectations of customers have risen substantially over the years and are key factors that impact their selection of suppliers. Technology has become a critical competitive factor from the standpoint of manufacturing costs, quality and customer service capabilities. In view of our strong market positions, broad product offering and national footprint, technologically advanced manufacturing facilities, low-cost production capabilities, sophisticated information systems and financial strength and flexibility, we believe that we are well-positioned to compete favorably with other producers of our concrete reinforcing products.
Human Capital
We value all our employees and their important role in the long-term success of the company. Our human capital strategy is centered around four key areas: Safe Operations, Performance Based Compensation, Equal Opportunity and Hiring and Retention. As of October 1, 2022, we had 964 employees, none of which were represented by labor unions. In the event of production disruptions, we believe that our contingency plans would enable us to continue serving our customers, although there can be no assurances that a work slowdown or stoppage would not adversely impact our operating costs and financial results.
Safe Operations
Our employees are extensively trained in a formal process of risk assessment, risk reduction and hazard elimination and empowered with the authority to stop equipment or tasks until work can be safely accomplished. “Safe Operations with Zero Harm,” our internal safety philosophy, is a key part of our ongoing employee training and operations. Zero Harm is identifying and managing risk to avoid injuries, illness or other negative impacts experienced by employees, the community, customers, property, the environment and shareholders. We monitor our safety performance through a key range of leading and lagging measures of safety.
Leading Indicator Measures: |
Lagging Indicator Measures: |
● Hazard management process training ● Leadership engagement ● Employee involvement |
● Rolling 12-month Incident Recordable Rate ● Lost Time Rate ● Severity Rate – Days Away, Restricted, and Transferred (DART)
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Performance Based Compensation
Our production and skilled trades team members earn pay increases through our “Pay for Skills” program and share in productivity pay through our “Team Share” incentive program. Our salaried team members also have a compensation structure that rewards individual performance in addition to company performance. The Team Share incentive program is driven by variables that are controllable at the plant level. We believe a compensation structure, which rewards both individual initiative and team accomplishments, leads to higher levels of performance.
Equal Opportunity
Our business depends on talented individuals who bring diverse skills, experiences and backgrounds. We believe in a collaborative workplace that is based on the fundamentals of dignity, respect, equality and opportunity for all and encourage transparency and access to leadership through our Open-Door Policy, Code of Business Conduct (including Whistleblower Hotline), Equal Opportunity Policy, Harassment Policy and Mission and Values. Our performance and succession development process includes all employees. We have many team members in key leadership roles who started in entry-level roles and have grown in their careers by partnering with us in their development plans.
Hiring and Retention
Our performance relies on people who are developed and empowered to achieve results. We are improving the future of our company by identifying, developing and retaining talent that reflects our corporate philosophy. Our goal is to create a positive and engaging work environment that meets evolving employee needs in areas like flexible work schedules beyond the traditional full-time work schedule (such as part-time, weekend only, shared shift and other flexible approaches that attract a broader candidate pool). In addition, we are involved in many outreach programs in our communities to provide opportunities to diverse talent sources that may otherwise be overlooked or face barriers to equal opportunity.
Product Warranties
Our products are used in applications that are subject to inherent risks, including performance deficiencies, personal injury, property damage, environmental contamination or loss of production. We warrant our products to meet certain specifications. Although actual or claimed deficiencies from these specifications may give rise to claims, we do not maintain a reserve for warranties as the historical claims have been immaterial. We maintain product liability insurance coverage to minimize our exposure to such risks.
Environmental Matters
We believe that we are in compliance in all material respects with applicable environmental laws and regulations. We have experienced no material difficulties in complying with legislative or regulatory standards and believe that these standards have not materially impacted our financial position or results of operations. Although our future compliance with additional environmental requirements could necessitate capital outlays, we do not believe these expenditures would ultimately have a material adverse effect on our financial position or results of operations. We do not expect to incur material capital expenditures for environmental control facilities during fiscal 2023.
Available Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports are available at no cost on our website at https://investor.insteel.com and the SEC’s website at www.sec.gov as soon as reasonably practicable after we file these reports with the SEC. The information available on our website and the SEC’s website is not incorporated into this report or any of our filings with the SEC.
Item 1A. Risk Factors
An investment in our common stock involves risks and uncertainties. You should carefully consider the following risk factors, in addition to the other information contained in this annual report on Form 10-K, before deciding whether an investment in our common stock is suitable for you. The risk factors described below are not the only ones we face. There may be other risks and uncertainties that are currently unknown to us or that we currently consider to be immaterial that could adversely affect our business, results of operations, financial condition and cash flows.
Industry Specific Risks
Our business is cyclical and can be negatively impacted by prolonged economic downturns or tightening in the financial markets that reduce the level of construction activity and demand for our products.
Demand for our products is cyclical in nature and sensitive to changes in the economy and in the financial markets. Our products are sold primarily to manufacturers of concrete products that are used for a broad range of nonresidential and residential construction applications. Demand for our products is driven by the level of construction activity, which tends to be correlated with conditions in the overall economy as well as other factors beyond our control. Tightening in the financial markets could adversely impact demand for our products by reducing the availability of financing to our customers and the construction industry as a whole and increasing the risk of payment defaults on our accounts receivable. Future prolonged periods of economic weakness or reduced availability of financing could have a material adverse impact on our business, results of operations, financial condition and cash flows.
Our business can be negatively impacted by reductions in the amount and duration of government funding for infrastructure projects that reduce the level of construction activity and demand for our products.
Certain of our products are used in the construction of highways, bridges and other infrastructure projects that are funded by federal, state and local governments. Reductions in the amount of funding for such projects or the period for which it is provided could have a material adverse impact on our business, results of operations, financial condition and cash flows.
Foreign competition could adversely impact our financial results.
Certain of our PC strand and SWWR markets are subject to foreign import competition on an ongoing basis. If we are unable to purchase raw materials and achieve manufacturing costs that are competitive with those of foreign producers, or if the margin and return requirements of foreign producers are substantially lower, our market share and profit margins could be negatively impacted. In response to illegally traded import competition from offshore PC strand and SWWR suppliers, we have pursued trade cases, when necessary, as a means of ensuring that foreign producers were complying with the applicable trade laws and regulations. Such actions may be costly and may not be successful. Trade law enforcement is critical to our ability to maintain our competitive position against foreign PC strand and SWWR producers that engage in unlawful trade practices.
Our financial results can be negatively impacted by the volatility in the cost and availability of our primary raw material, hot-rolled carbon steel wire rod.
The primary raw material used to manufacture our products is hot-rolled carbon steel wire rod, which we purchase from both domestic and foreign suppliers. We do not use derivative commodity instruments to hedge our exposure to changes in the price of wire rod as such instruments are currently unavailable in the financial markets. Prices for wire rod have become increasingly volatile in recent years driven by the higher degree of variability in raw material costs for rod producers, changes in trade policy and the tightening of domestic supply. In response, wire rod producers have resorted to increasing the frequency of price adjustments, typically on a monthly basis, as well as unilaterally changing the terms of prior commitments.
Although changes in our wire rod costs and selling prices tend to be correlated, we may be unable to fully recover increased rod costs during weaker market environments, which would reduce our earnings and cash flows. Additionally, when raw material costs decline, our financial results would be negatively impacted if the selling prices for our products decrease to an even greater extent and if we are consuming higher cost material from inventory.
Our financial results can also be significantly impacted if raw material supplies are inadequate to satisfy our purchasing requirements. For example, U.S. government trade policies and trade actions by domestic wire rod producers against other countries can significantly impact the availability and cost of imported wire rod. The imposition of tariffs, quotas or anti-dumping or countervailing duty margins by the U.S. government against exporting countries can have the effect of reducing or eliminating their competitiveness and participation in the domestic market. If we were unable to obtain adequate and timely delivery of our raw material requirements, we may be unable to manufacture sufficient quantities of our products or operate our manufacturing facilities in an efficient manner, which could result in lost sales and higher operating costs. Because tight market conditions typically affect the entire industry, during past periods of short raw material supply, margins and profitability have been favorably impacted due to curtailed availability of PC strand and WWR that supported higher average selling prices. There is no assurance that future short supply conditions in raw material markets would result in similar outcomes, however.
Demand for our products is highly variable and difficult to forecast due to our minimal backlog and unanticipated changes that can occur in customer order patterns or inventory levels.
Demand for our products is highly variable. The short lead times for customer orders and minimal backlog that characterize our business make it difficult to forecast the future level of demand for our products. In some cases, unanticipated softening in demand can be exacerbated by inventory rebalancing measures pursued by our customers, which may cause significant fluctuations in our sales, profitability and cash flows.
Operational Risks
Our manufacturing facilities are subject to unexpected equipment failures, operational interruptions and casualty losses.
Our manufacturing facilities are subject to risks that may limit our ability to manufacture and sell our products, including unexpected equipment failures, operational interruptions and catastrophic losses due to other unanticipated events such as fires, explosions, accidents, adverse weather conditions and transportation interruptions. Any such equipment failures or events can subject us to plant shutdowns and periods of reduced production or unexpected downtime. Furthermore, the resolution of certain operational interruptions may require significant capital expenditures. Although our insurance coverage could offset the losses or expenditures relating to some of these events, our results of operations and cash flows would be negatively impacted to the extent that such claims were not covered or only partially covered by our insurance.
Our financial results could be adversely impacted by the escalation of our operating costs.
Consistent with the experience of other employers, our labor, medical and workers’ compensation costs have increased substantially in recent years and are expected to continue to rise. If this trend continues, the cost of labor and to provide healthcare and other benefits to our employees could increase, adversely impacting profitability. As the labor market recovers from the effects of the COVID-19 pandemic, availability of qualified employees and competition for them has escalated, which has increased costs associated with attracting and retaining employees. We cannot be certain that we will be able to maintain an adequately skilled labor force necessary to operate efficiently or that our labor costs will not increase as a result of a shortage in the availability of skilled employees. Additionally, employee turnover could result in lost time due to inefficiencies and the need for additional training, which could impact our operating results. Changes to healthcare regulations may also increase the cost of providing such benefits to our employees. We cannot predict the ultimate content, timing, or effect of any healthcare reform legislation or the impact of potential legislation or related proposals and policies on our results. Any significant increases in the costs attributable to our self-insured health and workers’ compensation plans could adversely impact our business, results of operations, financial condition and cash flows.
In addition, increasing transaction prices for freight, natural gas, electricity, fuel and consumables would adversely affect our manufacturing and distribution costs. For most of our business, we incur the transportation costs associated with the delivery of products to our customers. Although we have previously implemented numerous measures to offset the impact of increases in these costs, there can be no assurance that such actions will be effective. If we are unable to pass these additional costs through by raising our selling prices, our financial results could be adversely impacted.
Our business and operations are subject to risks related to climate change.
The long-term effects of global climate change could present both physical risks and transition risks (such as regulatory or technology changes), which are expected to be widespread and unpredictable. These changes could over time affect, for example, the availability and cost of raw materials, commodities and energy (including utilities), which in turn may impact our ability to procure goods or services required for the operation of our business at the quantities and levels we require. Additionally, we have facilities located in areas that may be impacted by the physical risks of climate change, and we face the risk of losses incurred as a result of physical damage to our facilities and inventory as well as business interruption caused by such events. Furthermore, periods of extended inclement weather or associated flooding may inhibit construction activity utilizing our products and delay shipments of our products to customers. We believe that adaptation strategies to accommodate rising sea levels and other climate related phenomena could stimulate demand for our products to the extent that reinforced concrete products are essential to managing surface waters.
We also use natural gas, diesel fuel, gasoline and electricity in our operations, all of which could face increased regulation as a result of climate change or other environmental concerns. Additionally, we may face increased costs to respond to future water laws and regulations, and operations in areas with limited water availability may be impacted if droughts become more frequent or severe. Any such events could have a material adverse effect on our costs or results of operations.
Financing Risks
Our operations are subject to seasonal fluctuations that may impact our cash flows.
Our shipments are typically lower in the first and second fiscal quarters due to the unfavorable impact of winter weather on construction activity during these periods and customer plant shutdowns associated with holidays. As a result, our cash flows may fluctuate from quarter to quarter due to these seasonal factors.
Our capital resources may not be adequate to provide for our capital investment and maintenance expenditures if we were to experience a substantial downturn in our financial performance.
Our operations are capital intensive and require substantial recurring expenditures for the routine maintenance of our equipment and facilities. Although we expect to finance our business requirements through internally generated funds or from borrowings under our $100 million revolving credit facility, we cannot provide any assurances these resources will be sufficient to support our business. A material adverse change in our operations or financial condition could limit our ability to borrow funds under our credit facility, which could further adversely impact our liquidity and financial condition. Any significant future acquisitions could require additional financing from external sources that may not be available on favorable terms, which could adversely impact our growth, operations, financial condition and results of operations.
Legal and Regulatory Risks
Changes in environmental compliance and remediation requirements could result in substantial increases in our capital investments and operating costs.
Our business is subject to numerous federal, state and local laws and regulations pertaining to the protection of the environment that could require substantial increases in capital investments and operating costs. These laws and regulations, which are constantly evolving, are becoming increasingly stringent, and the ultimate impact of compliance is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated or are undergoing revision. Legislation and increased regulation regarding climate change, including mandatory reductions in energy consumption or emissions of greenhouse gases, could impose significant costs on us, including costs related to energy requirements, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations.
General Risks
Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by pandemics, epidemics or other public health emergencies, such as the ongoing COVID-19 pandemic.
The COVID-19 pandemic and any preventive or protective actions taken by governmental authorities may have a material adverse effect on our operations, supply chain, customers and transportation networks, including business shutdowns or disruptions. While the U.S. economy has experienced a recovery from the conditions experienced at the onset of the COVID-19 pandemic, the emergence of new variants of COVID-19, labor shortages, supply chain disruptions, new or proposed legislation related to governmental spending, inflation and increases in interest rates have impacted, and will continue to impact, economic growth. Even after the COVID-19 pandemic has subsided, we may experience material adverse impacts to our business due to any resulting economic recession. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and the potential effect on our financial position, results of operations and cash flows. The situation remains dynamic, and the ultimate duration and impact on our business are not known at this time.
Our stock price can be volatile, often in connection with matters beyond our control.
Equity markets in the U.S. have been increasingly volatile in recent years. During fiscal 2022, our common stock traded as high as $47.70 and as low as $26.02. There are numerous factors that could cause the price of our common stock to fluctuate significantly, including: variations in our financial results; changes in our business outlook and expectations for the construction industry; changes in market valuations of companies in our industry; and announcements by us, our competitors or industry participants that may be perceived to impact our financial results.
We are increasingly dependent on information technology systems that are susceptible to certain risks, including cybersecurity breaches and data leaks, which could adversely impact our business.
Our increasing reliance on technology systems and infrastructure heightens our potential vulnerability to system failure and malfunction, breakdowns due to natural disasters, human error, unauthorized access, power loss and other unforeseen events. Data privacy breaches by employees and others with or without authorized access to our systems poses risks that sensitive data may be permanently lost or leaked to the public or other unauthorized persons. With the growing use and rapid evolution of technology, not limited to cloud-based computing and mobile devices, there are additional risks of unintentional data leaks. There is also the risk of the theft of confidential information, intentional vandalism, industrial espionage and a variety of cyber-attacks that could compromise our internal technology system and infrastructure or result in data leaks in-house or at our third-party providers and business partners. Failures of technology or related systems, or an improper release of confidential information, could adversely impact our business or subject us to unexpected liabilities.
Our financial results could be adversely impacted by the impairment of goodwill.
Our balance sheet includes intangible assets, including goodwill and other separately identifiable assets related to prior acquisitions, and we may acquire additional intangible assets in connection with future acquisitions. We are required to review goodwill for impairment on an annual basis or more frequently if certain indicators of permanent impairment arise such as, among other things, a decline in our stock price and market capitalization or a reduction in our projected operating results and cash flows. If our review indicates that goodwill has been impaired, the impaired portion would have to be written-off during that period which could adversely impact our business and financial results.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters and IWP’s sales and administrative offices are located in Mount Airy, North Carolina. We also have an engineering and administrative office located in Sugarloaf, Pennsylvania. As of October 1, 2022, we operated ten manufacturing facilities located in Dayton, Texas; Gallatin, Tennessee; Hazleton, Pennsylvania; Hickman, Kentucky; Houston, Texas; Jacksonville, Florida; Kingman, Arizona; Mount Airy, North Carolina; Sanderson, Florida; and St. Joseph, Missouri.
We own all of our real estate except for the office in Sugarloaf, Pennsylvania, which we lease. We believe that our properties are in good operating condition and that our machinery and equipment have been well maintained. We also believe that our manufacturing facilities are suitable for their intended purposes and have capacities adequate to satisfy the current and projected demand for our products.
Item 3. Legal Proceedings.
We are involved in lawsuits, claims, investigations and proceedings, including commercial, environmental and employment matters, which arise in the ordinary course of business. We do not anticipate that the ultimate cost to resolve these matters will have a material adverse effect on our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
Information About Our Executive Officers
Our executive officers are as follows:
Name |
Age |
Position |
||
H. O. Woltz III |
66 |
President, Chief Executive Officer and Chairman of the Board |
||
Mark A. Carano |
53 |
Senior Vice President, Chief Financial Officer and Treasurer |
||
James F. Petelle |
72 |
Vice President Administration, Secretary and Chief Legal Officer |
||
Richard T. Wagner |
63 |
Senior Vice President and Chief Operating Officer |
||
James R. York |
64 |
Senior Vice President, Sourcing and Logistics |
H. O. Woltz III, 66, has served as Chief Executive Officer since 1991, as President since 1989 and has been employed by us and our subsidiaries in various capacities since 1978. He was named President and Chief Operating Officer in 1989. He served as our Vice President from 1988 to 1989 and as President of Rappahannock Wire Company, formerly a subsidiary of our Company, from 1981 to 1989. Mr. Woltz has been a Director since 1986 and also serves as President of Insteel Wire Products Company. Mr. Woltz served as President of Florida Wire and Cable, Inc., formerly a subsidiary of our Company, until its merger with Insteel Wire Products Company in 2002. Mr. Woltz has served as Chairman of the Board since 2009.
Mark A. Carano, 53, has served as Senior Vice President, Chief Financial Officer and Treasurer since October 2020 and as Vice President, Chief Financial Officer and Treasurer from May 2020 to October 2020. Prior to Insteel, Mr. Carano had been employed by Big River Steel, a privately-held manufacturer of steel products, having served as Chief Financial Officer since April 2019. Prior to Big River Steel, he served in various senior management finance roles with Babcock & Wilcox Enterprises from June 2013 to October 2018. Mr. Carano also has 14 years of combined investment banking experience with Bank of America, Merrill Lynch, Deutsche Bank and First Union Securities.
James F. Petelle, 72, has served as Vice President, Administration, Secretary and Chief Legal Officer since October 2020. He joined us in October 2006 and was elected Vice President and Assistant Secretary in November 2006 and Vice President, Administration and Secretary in January 2007. He was previously employed by Andrew Corporation, a publicly-held manufacturer of telecommunications infrastructure equipment, having served as Secretary from 1990 to May 2006, and Vice President - Law from 2000 to October 2006.
Richard T. Wagner, 63, has served as Senior Vice President, Chief Operating Officer since October 2020 and as Vice President and General Manager of the Concrete Reinforcing Products Business Unit of our subsidiary, Insteel Wire Products Company, since 1998. He joined us in 1992 serving in various other management roles. From 1977 until 1992, Mr. Wagner served in various positions with Florida Wire and Cable, Inc., a manufacturer of PC strand and galvanized strand products, which was later acquired by us in 2000.
James R. York, 64, has served as Senior Vice President, Sourcing and Logistics since October 2020, and as Vice President, Sourcing and Logistics since joining us in 2018. Prior to Insteel, he served in various senior management roles with Leggett & Platt, a publicly-held manufacturer of diversified engineered products, from 2002 to 2018, including Group President-Rod and Wire Products, Unit President-Wire Products and Unit President-Specialty Products. Mr. York served in a range of leadership positions at Bekeart Corporation, a U.S. subsidiary of N.V. Bekeart A.S. of Belgium, from 1983 to 2002.
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “IIIN” and has traded on the NYSE since March 17, 2021. As of October 26, 2022, there were 467 shareholders of record.
We pay regular quarterly cash dividends and expect to continue to pay regular quarterly cash dividends in the foreseeable future, though each quarterly dividend payment is subject to review and approval by our Board of Directors. On November 16, 2021, our Board of Directors approved a one-time special cash dividend of $2.00 per share that was paid on December 17, 2021.
Issuer Purchases of Equity Securities
The following table summarizes the repurchases of common stock during the quarter ended October 1, 2022:
(In thousands except share and per share amounts) |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program |
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plan or Program |
||||||||||||
July 3, 2022 - August 6, 2022 |
- | - | - | $ | 24,756 | (1) | ||||||||||
August 7, 2022 - September 3, 2022 |
25,763 | $ | 29.26 | 25,763 | 24,002 | (1) | ||||||||||
September 4, 2022 - October 1, 2022 |
15,943 | $ | 28.20 | 15,943 | 23,552 | (1) | ||||||||||
41,706 | 41,706 |
(1) |
Under the $25.0 million share repurchase authorization announced on November 18, 2008, which continues in effect until terminated by the Board of Directors. |
Additional information regarding our share repurchase authorization is discussed in Note 18 to our consolidated financial statements and incorporated herein by reference.
Stock Performance Graph
The graph below compares the cumulative total shareholder return on our common stock with the cumulative total return of the Russell 2000 Index and the S&P Building Products Index for the five years ended October 1, 2022. The graph and table assume that $100 was invested on September 30, 2017 in our common stock and in each of the two indices and the reinvestment of all dividends. Cumulative total shareholder returns for our common stock, the Russell 2000 Index and the S&P Building Products Index are based on our fiscal year.
Fiscal Year Ended |
||||||||||||||||||||||||
September 30, 2017 |
September 29, 2018 |
September 28, 2019 |
October 3, 2020 |
October 2, 2021 |
October 1, 2022 |
|||||||||||||||||||
Insteel Industries, Inc. |
$ | 100.00 | $ | 142.87 | $ | 82.93 | $ | 76.42 | $ | 168.12 | $ | 120.44 | ||||||||||||
Russell 2000 |
100.00 | 115.24 | 104.99 | 105.40 | 155.66 | 119.08 | ||||||||||||||||||
S&P Building Products |
100.00 | 90.79 | 107.05 | 123.99 | 179.62 | 135.57 |
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The matters discussed in this section include forward-looking statements that are subject to numerous risks. You should carefully read the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this Form 10-K.
Overview
Our operations are entirely focused on the manufacture and marketing of concrete reinforcing products for the concrete construction industry. Our business strategy is focused on: (1) achieving leadership positions in our markets; (2) operating as the lowest cost producer in our industry; and (3) pursuing growth opportunities within our core businesses that further our penetration of the markets we currently serve or expand our footprint.
On March 16, 2020, we, through our wholly-owned subsidiary, IWP, purchased substantially all of the assets of STM for an adjusted purchase price of $19.4 million, which reflects certain post-closing adjustments. STM was a leading manufacturer of PC strand for concrete construction applications. We acquired, among other assets, STM’s accounts receivable, inventories, production equipment and facility located in Summerville, South Carolina and assumed certain of its accounts payable and accrued liabilities. Subsequent to the acquisition, we elected to consolidate our PC strand operations with the closure of the Summerville facility.
Impact of COVID-19
Despite the significant disruption in the U.S. and global economies, including supply chain challenges and labor market obstacles, COVID-19 has had a limited impact on our operations to date. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and the potential effect on our financial position, results of operations and cash flows.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Our discussion and analysis of our financial condition and results of operations are based on these consolidated financial statements. The preparation of our consolidated financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on currently available information, actuarial estimates, historical results and other assumptions believed to be reasonable. These estimates, assumptions and judgments are affected by our application of accounting policies, which are discussed in Note 2, "Summary of Significant Accounting Policies", and elsewhere in the accompanying consolidated financial statements. Estimates are used for, but not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities. Actual results could differ from these estimates.
Accounting estimates are considered critical if both of the following conditions are met: (1) the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change and (2) the effect of the estimates and assumptions is material to the financial statements.
We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented.
Recent Accounting Pronouncements.
The nature and impact of recent accounting pronouncements is discussed in Note 3 to our consolidated financial statements and incorporated herein by reference.
Results of Operations
The following discussion and analysis of our financial condition and results of operations is for the year ended October 1, 2022 compared with the year ended October 2, 2021. Discussions of our financial condition and results of operations for the year ended October 2, 2021 compared to October 3, 2020 that have been omitted under this item can be found in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended October 2, 2021, which was filed with the SEC on October 27, 2021.
The table below presents a summary of our results of operations for fiscal 2022 and fiscal 2021.
Statements of Operations – Selected Data
(Dollars in thousands)
Year Ended |
||||||||||||
October 1, |
October 2, |
|||||||||||
2022 |
Change |
2021 |
||||||||||
Net sales |
$ | 826,832 | 40.0 | % | $ | 590,601 | ||||||
Gross profit |
197,310 | 62.3 | % | 121,548 | ||||||||
Percentage of net sales |
23.9 | % | 20.6 | % | ||||||||
Selling, general and administrative expense |
$ | 36,048 | 11.3 | % | $ | 32,388 | ||||||
Percentage of net sales |
4.4 | % | 5.5 | % | ||||||||
Restructuring (recoveries) charges, net |
$ | (318 | ) | (111.1% | ) | $ | 2,868 | |||||
Effective income tax rate |
22.7 | % | 22.6 | % | ||||||||
Net earnings |
$ | 125,011 | 87.7 | % | $ | 66,610 |
2022 Compared with 2021
Net Sales
Net sales increased 40.0% to $826.8 million in 2022 from $590.6 million in 2021, reflecting a 51.9% increase in selling prices partially offset by a 7.8% decrease in shipments. The increase in average selling prices was driven by price increases implemented in the current year to recover the escalation in raw material costs. The decrease in shipments was due to tight supply conditions for raw materials during the first half of the current year followed by inventory management measures pursued by our customers and weakness in residential construction activity in the latter half of the year.
Gross Profit
Gross profit increased 62.3% to $197.3 million, or 23.9% of net sales, in 2022 from $121.5 million, or 20.6% of net sales, in 2021. The year-over-year increase was primarily due to higher spreads between average selling prices and raw material costs ($94.2 million) partially offset by higher manufacturing costs ($9.2 million) and a decrease in shipments ($9.2 million). The increase in spreads was driven by higher average selling prices ($282.0 million) partially offset by higher raw material costs ($181.9 million) and freight expense ($5.9 million).
Selling, General and Administrative Expense
Selling, general and administrative expense (“SG&A expense”) increased 11.3% to $36.0 million, or 4.4% of net sales, in 2022 from $32.4 million, or 5.5% of net sales, in 2021 primarily due to relative year-over-year changes in the cash surrender value of life insurance policies ($3.4 million), higher compensation ($948,000), travel ($423,000) and insurance ($265,000) expense partially offset by the lower legal ($1.8 million) and employee benefit ($321,000) expense. The cash surrender value of life insurance policies decreased $1.9 million in the current year compared with an increase of $1.5 million in the prior year due to the corresponding changes in the value of the underlying investments. The increase in compensation expense was largely driven by higher incentive and stock-based compensation expense. The decrease in legal expense was primarily related to costs associated with trade matters incurred in the prior year. The decrease in employee benefits expense was due to a net gain on the settlement of life insurance policies ($364,000) in the current year.
Restructuring (Recoveries) Charges, Net
Net restructuring recoveries of $318,000 were incurred in 2022 related to the closure of the Summerville, South Carolina facility, which had been acquired through the STM Acquisition, and the consolidation of our PC strand operations. Net restructuring recoveries in 2022 included a gain on sale of the Summerville facility ($622,000) partially offset by facility closure costs ($304,000). Net restructuring charges of $2.9 million were incurred in the prior year which included asset impairment charges ($1.4 million), facility closure costs ($1.0 million), equipment relocation costs ($423,000) and employee separation costs ($13,000).
Income Taxes
Our effective income tax rate for 2022 increased to 22.7% from 22.6% in 2021 due to changes in book versus tax differences.
Net Earnings
Net earnings increased to $125.0 million ($6.37 per diluted share) in 2022 from $66.6 million ($3.41 per diluted share) in 2021 primarily due to the increase in gross profit and the change in net restructuring (recoveries) charges partially offset by higher SG&A expense.
Liquidity and Capital Resources
Overview
Our sources of liquidity include cash and cash equivalents, cash generated by operating activities and borrowing availability provided under our $100.0 million revolving credit facility (the “Credit Facility”). Our principal capital requirements include funding working capital, capital expenditures, dividends and any share repurchases. As of October 1, 2022, our cash and cash equivalents totaled $48.3 million compared with $89.9 million as of October 2, 2021.
We believe that, in the absence of significant unanticipated cash demands, cash and cash equivalents, cash generated by operating activities and the borrowing availability provided under the Credit Facility will be sufficient to satisfy our expected requirements for working capital, capital expenditures, dividends and share repurchases, if any, in both the short- and long-term. We also expect to have access to the amounts available under our Credit Facility as required. However, should we experience future reductions in our operating cash flows due to weakening conditions in our construction end-markets and reduced demand from our customers, 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 were 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 Credit Facility position us to meet our anticipated liquidity requirements for the foreseeable future.
Selected Liquidity and Capital Resources Data
(Dollars in thousands)
Year Ended |
||||||||
October 1, |
October 2, |
|||||||
2022 |
2021 |
|||||||
Net cash provided by operating activities |
$ | 5,670 | $ | 69,878 | ||||
Net cash used for investing activities |
(6,039 | ) | (17,805 | ) | ||||
Net cash used for financing activities |
(41,199 | ) | (30,877 | ) | ||||
Cash and cash equivalents |
48,316 | 89,884 | ||||||
Net working capital |
272,736 | 178,057 | ||||||
Total debt |
- | - | ||||||
Percentage of total capital |
- | - | ||||||
Shareholders' equity |
$ | 389,744 | $ | 302,038 | ||||
Percentage of total capital |
100 | % | 100 | % | ||||
Total capital (total debt + shareholders' equity) |
$ | 389,744 | $ | 302,038 |
Operating Activities
Operating activities provided $5.7 million of cash in 2022 primarily from net earnings adjusted for non-cash items partially offset by an increase in working capital. Working capital used $134.3 million of cash due to a $118.6 million increase in inventories, a $13.7 million increase in accounts receivable and a $2.0 million decrease in accounts payable and accrued expenses. The increase in inventories was the result of higher raw material purchases during 2022 together with higher average unit costs. The increase in accounts receivable was due to higher average selling prices. The decrease in accounts payable and accrued expenses was primarily related to lower raw material purchases near the end of the current year.
Operating activities provided $69.9 million of cash in 2021 primarily from net earnings adjusted for non-cash items partially offset by an increase in working capital. Working capital used $12.3 million of cash due to a $14.1 million increase in accounts receivable and a $10.1 million increase in inventories partially offset by an $11.9 million increase in accounts payable and accrued expenses. The increase in accounts receivable and inventories were due to the escalation in raw material costs and average selling prices during 2021. The increase in accounts payable and accrued expenses was primarily related to raw material purchases with higher unit costs near the end of the period and, to a lesser extent, increases in accrued salaries, wages and related expenses and income taxes.
We may elect to adjust our operating activities as there are changes in the conditions in our construction end-markets, which could materially impact our cash requirements. While a downturn in the level of construction activity affects sales to our customers, it generally reduces our working capital requirements.
Investing Activities
Investing activities used $6.0 million of cash in 2022 primarily due to capital expenditures ($15.9 million) partially offset by the receipt of proceeds from the sale of assets held for sale ($6.9 million), life insurance claims ($1.5 million) and a decrease in cash surrender value of life insurance policies ($1.4 million). Investing activities used $17.8 million of cash in 2021 primarily due to capital expenditures ($17.5 million) and an increase in the cash surrender value of life insurance policies ($0.4 million). Capital expenditures for both years focused on cost and productivity improvement initiatives in addition to recurring maintenance requirements. Capital expenditures are expected to total up to approximately $30.0 million in 2023, which include expenditures primarily to advance the growth of our engineered structural mesh business and to support cost and productivity improvement initiatives as well as recurring maintenance requirements. Our investing activities are largely discretionary, providing us with the ability to significantly curtail outlays should future business conditions warrant that such actions be taken.
Financing Activities
Financing activities used $41.2 million of cash in 2022 and $30.9 million of cash in 2021. In 2022, $41.2 million of cash was used for dividend payments (including a special cash dividend of $38.8 million, or $2.00 per share, and regular cash dividends totaling $2.4 million) and $1.2 million for the repurchase of common stock, which was partially offset by $1.7 million of proceeds from the exercise of stock options. In 2021, $31.3 million of cash was used for dividend payments (including a special cash dividend of $29.0 million, or $1.50 per share, and regular cash dividends totaling $2.3 million), which was partially offset by $1.1 million of proceeds from the exercise of stock options.
Cash Management
Our cash is principally concentrated at one financial institution, which at times exceeds federally insured limits. We invest excess cash primarily in money market funds, which are highly liquid securities that bear minimal risk.
Credit Facility
We have a Credit Facility that is used to supplement our operating cash flow and fund our working capital, capital expenditure, general corporate and growth requirements. In May 2019, we entered into a new credit agreement, which amended and restated in its entirety the previous agreement pertaining to the revolving credit facility that had been in effect since June 2010. The new credit agreement, among other changes, extended the maturity date of the Credit Facility from May 13, 2020 to May 15, 2024 and provided for an accordion feature whereby its size may be increased by up to $50.0 million, subject to our lender’s approval. Advances under the Credit Facility are limited to the lesser of the revolving loan commitment amount (currently $100.0 million) or a borrowing base amount that is calculated based upon a percentage of eligible receivables and inventories. As of October 1, 2022, no borrowings were outstanding on the Credit Facility, $98.6 million of borrowing capacity was available and outstanding letters of credit totaled $1.4 million (see Note 8 to the consolidated financial statements). As of October 2, 2021, there were no borrowings outstanding on the Credit Facility.
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
In addition to our discussion and analysis surrounding our liquidity and capital resources, our contractual obligations and commitments as of October 1, 2022, include:
● |
Raw Material Purchase Commitments – See Note 12, “Commitments and Contingencies,” within our consolidated financial statements for further details concerning our non-cancelable raw material purchase commitments. |
● |
Supplemental Employee Retirement Plan Obligations – See Note 11, “Employee Benefit Plans,” within our consolidated financial statements for further detail of our obligations and the timing of expected future payments under our supplemental employee retirement plan. |
● |
Operating Leases – See Note 13, “Leases,” within our consolidated financial statements for further detail of our obligations and the timing of expected future payments, including a five-year maturity schedule. |
● |
Debt Obligations and Interest Payments - See Note 8, “Long-Term Debt,” within our consolidated financial statements for further detail of our debt and the timing of expected future principal and interest payments. As of October 1, 2022, there were no borrowings outstanding. |
● |
Capital Expenditures – As of October 1, 2022, we had contractual commitments for capital expenditures of $31.9 million. |
Impact of Inflation
We are subject to inflationary risks arising from fluctuations in the market prices for our primary raw material, hot-rolled carbon steel wire rod, and, to a much lesser extent, labor, 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 2022 and 2021, we were successful in implementing price increases sufficient to recover the escalation in our raw material costs that occurred over the course of each year. The timing and magnitude of any future increases in raw material costs and the impact on selling prices for our products is uncertain at this time.
Outlook
Looking ahead to fiscal 2023, we are optimistic about demand in both our private and public nonresidential construction markets. Backlogs across our customer base remain solid and widely monitored leading market indicators in private nonresidential construction point to continued expansion. Public nonresidential construction markets should benefit from incremental demand from both the strong financial position of state budgets and funding by the Infrastructure Investment and Jobs Act. Weakness in the residential construction market and heightened uncertainty regarding the future direction of the overall economy are areas we are closely monitoring, but we believe our strong balance sheet and flexible operating model position us to navigate challenges we may encounter.
Regardless of the market dynamics, we continue to focus on those factors we control: 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 operating costs; pursuing further improvements in the productivity and effectiveness of all our manufacturing, selling and administrative activities: and furthering our human capital strategy. 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. Finally, we will continue to pursue acquisitions opportunistically in our existing businesses that expand our penetration of markets we currently serve or expand our footprint.
The statements contained in this section are forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”.
Item 7A. 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 appropriate, through the use of derivative financial instruments. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe 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 carbon steel wire rod, which we purchase from both domestic and foreign suppliers. We negotiate quantities and pricing for both domestic and foreign 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 wire rod. Our ability to acquire wire rod from foreign sources on favorable terms is impacted by fluctuations in strength of home markets, foreign currency exchange rates, foreign taxes, duties, tariffs, quotas and other trade actions. Although changes in our wire rod costs and selling prices tend to be correlated, in weaker market environments, we may be unable to fully recover increased wire rod costs, which would reduce our earnings and cash flows. Additionally, when raw material costs decline, our financial results may be negatively impacted if the selling prices for our products decrease to an even greater extent and if we are consuming higher cost material from inventory. Based on our 2022 shipments and average wire rod cost reflected in cost of sales, a 10% increase in the price of wire rod would have resulted in a $48.5 million decrease in our annual pre-tax earnings (assuming there was not a corresponding change in our selling prices).
Interest Rates
Although we did not have any balances outstanding on our Credit Facility as of October 1, 2022, future borrowings under the facility are subject to a variable rate of interest and are sensitive to changes in interest rates.
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 October 1, 2022. During 2022, a 10% increase or decrease in the value of the U.S. dollar relative to foreign currencies to which we are typically exposed would not have had a material impact on our financial position, results of operations or cash flows.
Item 8. Financial Statements and Supplementary Data.
Financial Statements
Consolidated Statements of Operations for the years ended October 1, 2022, October 2, 2021 and October 3, 2020 |
20 |
Consolidated Statements of Comprehensive Income for the years ended October 1, 2022, October 2, 2021 and October 3, 2020 |
21 |
Consolidated Balance Sheets as of October 1, 2022 and October 2, 2021 |
22 |
Consolidated Statements of Shareholders’ Equity for the years ended October 1, 2022, October 2, 2021 and October 3, 2020 |
23 |
Consolidated Statements of Cash Flows for the years ended October 1, 2022, October 2, 2021 and October 3, 2020 |
24 |
Notes to Consolidated Financial Statements |
25 |
Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements (PCAOB ID Number |
42 |
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES |
||||||
CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||
(In thousands, except per share amounts) |
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
2022 |
2021 |
2020 |
||||||||||
Net sales |
$ | $ | $ | |||||||||
Cost of sales |
||||||||||||
Gross profit |
||||||||||||
Selling, general and administrative expense |
||||||||||||
Restructuring (recoveries) charges, net |
( |
) | ||||||||||
Acquisition costs |
||||||||||||
Other expense (income), net |
( |
) | ||||||||||
Interest expense |
||||||||||||
Interest income |
( |
) | ( |
) | ( |
) | ||||||
Earnings before income taxes |
||||||||||||
Income taxes |
||||||||||||
Net earnings |
$ | $ | $ | |||||||||
Net earnings per share: |
||||||||||||
Basic |
$ | $ | $ | |||||||||
Diluted |
||||||||||||
Cash dividends declared |
||||||||||||
Weighted average shares outstanding: |
||||||||||||
Basic |
||||||||||||
Diluted |
See accompanying notes to consolidated financial statements.
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES |
||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
||||||
(In thousands) |
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
2022 |
2021 |
2020 |
||||||||||
Net earnings |
$ | $ | $ | |||||||||
Adjustment to defined benefit plan liability, net of income taxes of ($ |
( |
) | ||||||||||
Other comprehensive income (loss) |
( |
) | ||||||||||
Comprehensive income |
$ | $ | $ |
See accompanying notes to consolidated financial statements.
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES |
||||
CONSOLIDATED BALANCE SHEETS |
||||
(In thousands, except per share amounts) |
October 1, |
October 2, |
|||||||
2022 |
2021 |
|||||||
Assets: |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net |
||||||||
Inventories |
||||||||
Other current assets |
||||||||
Total current assets |
||||||||
Property, plant and equipment, net |
||||||||
Intangibles, net |
||||||||
Goodwill |
||||||||
Other assets |
||||||||
Total assets |
$ | $ | ||||||
Liabilities and shareholders’ equity: |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | $ | ||||||
Accrued expenses |
||||||||
Total current liabilities |
||||||||
Other liabilities |
||||||||
Commitments and contingencies |
||||||||
Shareholders’ equity: |
||||||||
Preferred stock, |
||||||||
Common stock, $ |
||||||||
Additional paid-in capital |
||||||||
Retained earnings |
||||||||
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
Total shareholders’ equity |
||||||||
Total liabilities and shareholders’ equity |
$ | $ |
See accompanying notes to consolidated financial statements.
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES |
|||||||||||||
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY |
|||||||||||||
(In thousands) |
Accumulated |
||||||||||||||||||||||||
Additional |
Other |
Total |
||||||||||||||||||||||
Common Stock |
Paid-In |
Retained |
Comprehensive |
Shareholders' |
||||||||||||||||||||
Shares |
Amount |
Capital |
Earnings |
Income (Loss)(1) |
Equity |
|||||||||||||||||||
Balance at September 28, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
Net earnings |
||||||||||||||||||||||||
Other comprehensive income(1) |
||||||||||||||||||||||||
Vesting of restricted stock units |
( |
) | ||||||||||||||||||||||
Compensation expense associated with stock-based plans |
||||||||||||||||||||||||
Restricted stock units and stock options surrendered for withholding taxes payable |
( |
) | ( |
) | ||||||||||||||||||||
Cash dividends declared |
( |
) | ( |
) | ||||||||||||||||||||
Balance at October 3, 2020 |
( |
) | ||||||||||||||||||||||
Net earnings |
||||||||||||||||||||||||
Other comprehensive loss(1) |
( |
) | ( |
) | ||||||||||||||||||||
Stock options exercised |
||||||||||||||||||||||||
Vesting of restricted stock units |
( |
) | ||||||||||||||||||||||
Compensation expense associated with stock-based plans |
||||||||||||||||||||||||
Restricted stock units and stock options surrendered for withholding taxes payable |
( |
) | ( |
) | ||||||||||||||||||||
Cash dividends declared |
( |
) | ( |
) | ||||||||||||||||||||
Balance at October 2, 2021 |
( |
) | ||||||||||||||||||||||
Net earnings |
||||||||||||||||||||||||
Other comprehensive income(1) |
||||||||||||||||||||||||
Stock options exercised |
||||||||||||||||||||||||
Vesting of restricted stock units |
( |
) | ||||||||||||||||||||||
Compensation expense associated with stock-based plans |
||||||||||||||||||||||||
Repurchases of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
Restricted stock units and stock options surrendered for withholding taxes payable |
( |
) | ( |
) | ||||||||||||||||||||
Cash dividends declared |
( |
) | ( |
) | ||||||||||||||||||||
Balance at October 1, 2022 |
$ | $ | $ | $ | ( |
) | $ |
(1) |
See accompanying notes to consolidated financial statements.
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES |
|||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||||||
(In thousands) |
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
2022 |
2021 |
2020 |
||||||||||
Cash Flows From Operating Activities: |
||||||||||||
Net earnings |
$ | $ | $ | |||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
||||||||||||
Amortization of capitalized financing costs |
||||||||||||
Stock-based compensation expense |
||||||||||||
Deferred income taxes |
( |
) | ( |
) | ||||||||
Asset impairment charges |
||||||||||||
(Gain) loss on sale and disposition of property, plant and equipment and assets held for sale |
( |
) | ( |
) | ||||||||
Increase in cash surrender value of life insurance policies over premiums paid |
( |
) | ( |
) | ||||||||
Gain from life insurance proceeds |
( |
) | ( |
) | ||||||||
Net changes in assets and liabilities (net of assets and liabilities acquired): |
||||||||||||
Accounts receivable, net |
( |
) | ( |
) | ( |
) | ||||||
Inventories |
( |
) | ( |
) | ||||||||
Accounts payable and accrued expenses |
( |
) | ||||||||||
Other changes |
( |
) | ( |
) | ||||||||
Total adjustments |
( |
) | ||||||||||
Net cash provided by operating activities |
||||||||||||
Cash Flows From Investing Activities: |
||||||||||||
Acquisition of business |
( |
) | ||||||||||
Capital expenditures |
( |
) | ( |
) | ( |
) | ||||||
Proceeds from sale of property, plant and equipment |
||||||||||||
Proceeds from surrender of life insurance policies |
||||||||||||
Decrease (increase) in cash surrender value of life insurance policies |
( |
) | ( |
) | ||||||||
Proceeds from sale of assets held for sale |
||||||||||||
Proceeds from life insurance claims |
||||||||||||
Net cash used for investing activities |
( |
) | ( |
) | ( |
) | ||||||
Cash Flows From Financing Activities: |
||||||||||||
Proceeds from long-term debt |
||||||||||||
Principal payments on long-term debt |
( |
) | ( |
) | ( |
) | ||||||
Cash dividends paid |
( |
) | ( |
) | ( |
) | ||||||
Cash received from exercise of stock options |
||||||||||||
Repurchases of common stock |
( |
) | ||||||||||
Payment of employee tax withholdings related to net share transactions |
( |
) | ( |
) | ( |
) | ||||||
Net cash used for financing activities |
( |
) | ( |
) | ( |
) | ||||||
Net (decrease) increase in cash and cash equivalents |
( |
) | ||||||||||
Cash and cash equivalents at beginning of period |
||||||||||||
Cash and cash equivalents at end of period |
$ | $ | $ | |||||||||
Supplemental Disclosures of Cash Flow Information: |
||||||||||||
Cash paid during the period for: |
||||||||||||
Income taxes, net |
$ | $ | $ | |||||||||
Non-cash investing and financing activities: |
||||||||||||
Purchases of property, plant and equipment in accounts payable |
||||||||||||
Restricted stock units and stock options surrendered for withholding taxes payable |
||||||||||||
Payable related to holdback for business acquired |
See accompanying notes to consolidated financial statements.
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 1, 2022, OCTOBER 2, 2021 AND OCTOBER 3, 2020
(1) Description of Business
Insteel Industries, Inc. (“we,” “us,” “our,” “Insteel” or “the Company”) is the nation’s largest manufacturer of steel wire reinforcing products for concrete construction applications. Insteel is the parent holding company for two wholly-owned subsidiaries, Insteel Wire Products Company (“IWP”), an operating subsidiary, and Intercontinental Metals Corporation, an inactive subsidiary. We manufacture and market prestressed concrete strand (“PC strand”) and welded wire reinforcement (“WWR”), including engineered structural mesh, concrete pipe reinforcement and standard welded wire reinforcement. Our products are primarily sold to manufacturers of concrete products and, to a lesser extent, distributors, rebar fabricators and contractors. We sell our products nationwide across the United States (“U.S.”) and, to a much lesser extent, into Canada, Mexico and Central and South America.
On March 16, 2020, we, through our wholly-owned subsidiary, IWP, purchased substantially all of the assets of Strand-Tech Manufacturing, Inc. (“STM”).
We have evaluated all subsequent events that occurred after the balance sheet date through the time of filing this Annual Report on Form 10-K and concluded there were no events or transactions during this period that required additional recognition or disclosure in our consolidated financial statements.
(2) Summary of Significant Accounting Policies
(3) Recent Accounting Pronouncements
Current Adoptions
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12 "Simplifying the Accounting for Income Taxes (Topic 740)". ASU No. 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to provide for more consistent application. We adopted ASU No. 2019-12 in the first quarter of 2022. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Future Adoptions
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. ASU No. 2020-04 is effective March 12, 2020 through December 31, 2022. The adoption of this guidance will not have a material impact on our consolidated financial statements and disclosures.
(4) Revenue Recognition
We recognize revenues when performance obligations under the terms of a contract with our customers are satisfied, which generally occurs when products are shipped and control is transferred. We enter into contracts that pertain to products, which are accounted for as separate performance obligations and typically one year or less in duration. We do not exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. We present revenue net of amounts collected from customers for sales tax.
Variable consideration that may affect the total transaction price, including contractual discounts, rebates, returns and credits are included in net sales. Estimates for variable consideration are based on historical experience, anticipated performance and management's judgment and are updated as of each reporting date. Shipping and related expenses associated with outbound freight are accounted for as fulfillment costs and included in cost of sales. We do not have significant financing components. Contract costs are not significant and are recognized as incurred.
Contract assets primarily relate to our rights to consideration for products that are delivered but not billed as of the reporting date and are reclassified to receivables when the customer is invoiced. Contract liabilities primarily relate to performance obligations that are to be satisfied in the future and arise when we collect from the customer in advance of shipments. Contract assets and liabilities were not material as of October 1, 2022 and October 2, 2021.
Accounts receivable includes amounts billed and currently due from customers stated at their net estimated realizable value. Customer payment terms are generally 30 days. We maintain an allowance for doubtful accounts to provide for the estimated receivables that will not be collected, which is based upon our assessment of customer creditworthiness, historical payment experience and the age of outstanding receivables. Past-due trade receivable balances are written off when our collection efforts have been unsuccessful.
See Note 15 for the disaggregation of our net sales by product line and geography.
(5) Restructuring
On March 16, 2020, we purchased substantially all of the assets of STM for an adjusted purchase price of $
In connection with the STM acquisition, we elected to consolidate our PC strand operations through the closure of the Summerville facility and the redeployment of its equipment to our other three PC strand production facilities located in Gallatin, Tennessee; Houston, Texas; and Sanderson, Florida. Operations at the Summerville facility ceased during the third quarter of 2020, and the facility was sold in 2022. The consolidation of our PC strand operations was completed in 2022. Following is a summary of the restructuring activity during 2022, 2021 and 2020:
Employee |
Equipment |
Facility |
Loss (Gain) |
|||||||||||||||||||||
(In thousands) |
Separation |
Relocation |
Closure |
Asset |
on Sale of |
|||||||||||||||||||
Costs |
Costs |
Costs |
Impairments |
Equipment |
Total |
|||||||||||||||||||
2022 |
||||||||||||||||||||||||
Liability as of October 2, 2021 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Restructuring charges (recoveries), net |
( |
) | ( |
) | ||||||||||||||||||||
Cash payments |
( |
) | ( |
) | ||||||||||||||||||||
Non-cash charges |
||||||||||||||||||||||||
Liability as of October 1, 2022 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
2021 |
||||||||||||||||||||||||
Liability as of October 3, 2020 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Restructuring charges, net |
||||||||||||||||||||||||
Cash payments |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Non-cash charges |
( |
) | ( |
) | ||||||||||||||||||||
Liability as of October 2, 2021 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
2020 |
||||||||||||||||||||||||
Restructuring charges, net |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
Cash payments |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Non-cash charges |
( |
) | ( |
) | ||||||||||||||||||||
Liability as of October 3, 2020 |
$ | $ | $ | $ | $ | $ |
(6) 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.
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 October 1, 2022 and October 2, 2021, we held financial assets that are required to be measured at fair value on a recurring basis, which are summarized below:
(In thousands) |
Total |
Quoted Prices in Active Markets (Level 1) |
Observable Inputs (Level 2) |
|||||||||
As of October 1, 2022: |
||||||||||||
Current assets: |
||||||||||||
Cash equivalents |
$ | $ | $ | |||||||||
Other assets: |
||||||||||||
Cash surrender value of life insurance policies |
||||||||||||
Total |
$ | $ | $ | |||||||||
As of October 2, 2021: |
||||||||||||
Current assets: |
||||||||||||
Cash equivalents |
$ | $ | $ | |||||||||
Other assets: |
||||||||||||
Cash surrender value of life insurance policies |
||||||||||||
Total |
$ | $ | $ |
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 our 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 company’s valuation models and represents the guaranteed value we would receive upon surrender of these policies as of the reporting date.
As of October 1, 2022 and October 2, 2021, we had
(7) Intangible Assets
The primary components of our intangible assets and the related accumulated amortization are as follows:
(In thousands) |
Weighted- Average Useful Life (Years) |
Gross |
Accumulated Amortization |
Net Book Value |
|||||||||||
As of October 1, 2022: |
|||||||||||||||
Customer relationships |
$ | $ | ( |
) | $ | ||||||||||
Developed technology and know-how |
20.0 |
( |
) | ||||||||||||
Non-competition agreements |
( |
) | |||||||||||||
$ | $ | ( |
) | $ | |||||||||||
As of October 2, 2021: |
|||||||||||||||
Customer relationships |
$ | $ | ( |
) | $ | ||||||||||
Developed technology and know-how |
20.0 |
( |
) | ||||||||||||
Non-competition agreements |
( |
) | |||||||||||||
Trade name |
( |
) | |||||||||||||
$ | $ | ( |
) | $ |
Amortization expense for intangibles was $
(8) Long-Term Debt
Revolving Credit Facility. We have a $
Interest rates on the Credit Facility are based upon (1) an index rate that is established at the highest of the prime rate,
Our ability to borrow available amounts under the Credit Facility will be restricted or eliminated in the event of certain covenant breaches, events of default or if we are unable to make certain representations and warranties provided for under the terms of the Credit Facility. We are required to maintain a fixed charge coverage ratio of not less than
Amortization of capitalized financing costs associated with the Credit Facility was $
Fiscal year |
In thousands |
|||
2023 |
$ | |||
2024 |
(9) Stock-Based Compensation
Under our equity incentive plan, employees and directors may be granted stock options, restricted stock, restricted stock units and performance awards. Effective February 11, 2020, our shareholders approved an amendment to the 2015 Equity Incentive Plan of Insteel Industries, Inc. (the “2015 Plan”), which authorizes up to an additional
Stock option awards. Under our equity incentive plan, employees and directors may be granted options to purchase shares of common stock at the fair market value on the date of the grant. Options granted under the plan generally vest over
The fair value of each option award granted is estimated on the date of grant using a Monte Carlo valuation model. The weighted-average estimated fair values of stock options granted during 2022, 2021 and 2020 were $
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
2022 |
2021 |
2020 |
||||||||||
Expected term (in years) |
||||||||||||
Risk-free interest rate |
% | % | % | |||||||||
Expected volatility |
% | % | % | |||||||||
Expected dividend yield |
% | % | % |
The assumptions utilized in the Monte Carlo valuation model are evaluated and revised, as necessary, to reflect market conditions and actual historical experience. The expected term for options was based on the results of a Monte Carlo simulation model, using the model’s estimated fair value as an input to the Black-Scholes-Merton model, and then solving for the expected term. The risk-free interest rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was derived using a term structure based on historical volatility and the volatility implied by exchange-traded options on our common stock. The dividend yield was calculated based on our annual dividend as of the option grant date.
The following table summarizes stock option activity:
Contractual |
Aggregate |
|||||||||||||||
Options |
Weighted |
Term - Weighted |
Intrinsic |
|||||||||||||
Outstanding |
Average |
Average |
Value |
|||||||||||||
(in thousands) |
Exercise Price |
(in years) |
(in thousands) |
|||||||||||||
Outstanding at September 28, 2019 |
$ | |||||||||||||||
Granted |
||||||||||||||||
Forfeited |
( |
) | ||||||||||||||
Outstanding at October 3, 2020 |
||||||||||||||||
Granted |
||||||||||||||||
Exercised |
( |
) | $ | |||||||||||||
Outstanding at October 2, 2021 |
||||||||||||||||
Granted |
||||||||||||||||
Exercised |
( |
) | ||||||||||||||
Forfeited |
( |
) | ||||||||||||||
Outstanding at October 1, 2022 |
||||||||||||||||
Vested and anticipated to vest in the future at October 1, 2022 |
||||||||||||||||
Exercisable at October 1, 2022 |
Stock option exercises include “net exercises” for which the optionee received shares of common stock equal to the intrinsic value of the options (fair market value of common stock on the date of exercise less exercise price) reduced by any applicable withholding taxes.
Restricted stock units. Restricted stock units (“RSUs”) granted under our equity incentive plan 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
year from the date of the grant for RSUs granted to directors and years from the date of the grant for RSUs granted to employees. RSUs do not have voting rights. RSU grants and compensation expense are as follows:
October 1, |
October 2, |
October 3, |
||||||||||
(In thousands) |
2022 |
2021 |
2020 |
|||||||||
Restricted stock unit grants: |
||||||||||||
Units |
||||||||||||
Market value |
$ | $ | $ | |||||||||
Compensation expense |
As of October 1, 2022, there was $
The following table summarizes RSU activity:
Weighted |
Aggregate |
|||||||||||
Restricted |
Average |
Intrinsic |
||||||||||
Stock Units |
Grant Date |
Value |
||||||||||
(Unit amounts in thousands) |
Outstanding |
Fair Value |
(in thousands) |
|||||||||
Balance, September 28, 2019 |
$ | |||||||||||
Granted |
||||||||||||
Forfeited |
( |
) | ||||||||||
Released |
( |
) | $ | |||||||||
Balance, October 3, 2020 |
||||||||||||
Granted |
||||||||||||
Released |
( |
) | ||||||||||
Balance, October 2, 2021 |
||||||||||||
Granted |
||||||||||||
Forfeited |
( |
) | ||||||||||
Released |
( |
) | ||||||||||
Balance, October 1, 2022 |
(10) Income Taxes
The components of the provision for income taxes are as follows:
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
(Dollars in thousands) |
2022 |
2021 |
2020 |
|||||||||
Provision for income taxes: |
||||||||||||
Current: |
||||||||||||
Federal |
$ | $ | $ | |||||||||
State |
||||||||||||
Deferred: |
||||||||||||
Federal |
( |
) | ( |
) | ||||||||
State |
( |
) | ( |
) | ||||||||
( |
) | ( |
) | |||||||||
Income taxes |
$ | $ | $ | |||||||||
Effective income tax rate |
% | % | % |
The reconciliation between income taxes computed at the federal statutory rate and the provision for income taxes is as follows:
Year Ended |
||||||||||||||||||||||||
(Dollars in thousands) |
October 1, 2022 |
October 2, 2021 |
October 3, 2020 |
|||||||||||||||||||||
Provision for income taxes at federal statutory rate |
$ | % | $ | % | $ | % | ||||||||||||||||||
State income taxes, net of federal tax benefit |
||||||||||||||||||||||||
Stock-based compensation |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Valuation allowance |
(41 | ) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Net operating loss carryback - CARES Act |
( |
) | ( |
) | ||||||||||||||||||||
Nondeductible expenses and other, net |
941 | ( |
) | ( |
) | |||||||||||||||||||
Provision for income taxes |
$ | % | $ | % | $ | % |
The components of deferred tax assets and liabilities are as follows:
October 1, |
October 2, |
|||||||
(In thousands) |
2022 |
2021 |
||||||
Deferred tax assets: |
||||||||
Defined benefit plans |
$ | $ | ||||||
Accrued expenses and asset reserves |
||||||||
Stock-based compensation |
||||||||
Operating lease liability |
||||||||
State net operating loss carryforwards and tax credits |
||||||||
Valuation allowance |
( |
) | ( |
) | ||||
Deferred tax assets |
||||||||
Deferred tax liabilities: |
||||||||
Plant and equipment |
( |
) | ( |
) | ||||
Prepaid insurance |
( |
) | ( |
) | ||||
Right of use assets |
( |
) | ( |
) | ||||
Goodwill |
( |
) | ( |
) | ||||
Deferred tax liabilities |
( |
) | ( |
) | ||||
Net deferred tax liability |
$ | ( |
) | $ | ( |
) |
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act includes several changes impacting business, including, but not limited to, enhanced business interest deductibility, net operating loss ("NOL") carryback provisions, payroll tax deferral provisions and employee retention tax credits. We recorded a $
As of October 1, 2022 and October 2, 2021, we recorded deferred tax liabilities (net of valuation allowances) of $
The realization of our deferred tax assets is entirely dependent upon our ability to generate future taxable income in applicable jurisdictions. GAAP requires that we periodically assess the need to establish a reserve against our deferred tax assets to the extent we no longer believe it is more likely than not that they will be fully realized. As of October 1, 2022, we recorded a valuation allowance of $
As of October 1, 2022, we had no material, known tax exposures that required the establishment of contingency reserves for uncertain tax positions.
We classify interest and penalties related to unrecognized tax benefits as part of income tax expense. There were
interest and penalties related to unrecognized tax benefits incurred during 2022, 2021 and 2020.
We file U.S. federal income tax returns as well as state and local income tax returns in various jurisdictions. Federal and various state tax returns filed subsequent to 2017 remain subject to examination.
(11) Employee Benefit Plans
Supplemental retirement benefit plan. We have SRBAs with certain of our key employees (each, a “Participant”). Under the SRBAs, if the Participant remains in continuous service with us for a period of at least
The reconciliation of the projected benefit obligation, plan assets, funded status and amounts recognized for the SRBAs in our consolidated balance sheets is as follows:
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
(In thousands) |
2022 |
2021 |
2020 |
|||||||||
Change in benefit obligation: |
||||||||||||
Benefit obligation at beginning of year |
$ | $ | $ | |||||||||
Service cost |
||||||||||||
Interest cost |
||||||||||||
Actuarial (gain) loss |
( |
) | ( |
) | ||||||||
Distributions |
( |
) | ( |
) | ( |
) | ||||||
Benefit obligation at end of year |
$ | $ | $ | |||||||||
Change in plan assets: |
||||||||||||
Actual employer contributions |
$ | $ | $ | |||||||||
Actual distributions |
( |
) | ( |
) | ( |
) | ||||||
Plan assets at fair value at end of year |
$ | $ | $ | |||||||||
Reconciliation of funded status to net amount recognized: |
||||||||||||
Funded status |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Net amount recognized |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Amounts recognized in accumulated other comprehensive loss: |
||||||||||||
Unrecognized net loss |
$ | $ | $ | |||||||||
Net amount recognized |
$ | $ | $ | |||||||||
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): |
||||||||||||
Net (gain) loss |
$ | ( |
) | $ | $ | ( |
) | |||||
Amortization of net loss |
( |
) | ( |
) | ( |
) | ||||||
Total recognized in other comprehensive (loss) income |
$ | ( |
) | $ | $ | ( |
) |
In 2022, 2021 and 2020, the actuarial (gain) loss includes amounts resulting from changes in actuarial assumptions utilized to calculate our benefit plan obligation such as the discount rate, estimated future compensation levels and changes in plan participants.
The accumulated benefit obligation was $
Net periodic pension cost for the SRBAs includes the following components:
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
(In thousands) |
2022 |
2021 |
2020 |
|||||||||
Service cost |
$ | $ | $ | |||||||||
Interest cost |
||||||||||||
Amortization of net loss |
||||||||||||
Net periodic pension cost |
$ | $ | $ |
The assumptions used in the valuation of the SRBAs are as follows:
Measurement Date |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
2022 |
2021 |
2020 |
||||||||||
Assumptions at year-end: |
||||||||||||
Discount rate |
% | % | % | |||||||||
Rate of increase in compensation levels |
% | % | % |
The assumed discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review published market indices of high-quality debt securities, adjusted as appropriate for duration, and high-quality bond yield curves applicable to the expected benefit payments of the SRBAs. The SRBAs expected rate of increase in compensation levels is based on the anticipated increases in annual compensation.
The projected benefit payments under the SRBAs are as follows:
Fiscal year(s) |
In thousands |
||||||
2023 |
$ | ||||||
2024 |
|||||||
2025 |
|||||||
2026 |
|||||||
2027 |
|||||||
2028 | - | 2032 |
Retirement savings plan. In 1996, we adopted the Retirement Savings Plan of Insteel Industries, Inc. (the “Plan”) to provide retirement benefits and stock ownership for our employees. The Plan is an amendment and restatement of our Employee Stock Ownership Plan. As allowed under Sections 401(a) and 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary deductions for eligible employees.
The Plan allows for discretionary contributions to be made by us as determined by the Board of Directors, which are allocated among eligible participants based on their compensation relative to the total compensation of all participants. Employees are permitted to contribute up to
Voluntary Employee Beneficiary Associations (“VEBA”). We have a VEBA which allows both us and our employees to make contributions to pay for medical costs. Our contributions to the VEBA were $
(12) Commitments and Contingencies
Purchase commitments. As of October 1, 2022, we had $
Legal proceedings. We are involved in lawsuits, claims, investigations and proceedings, including commercial, environmental and employment matters, which arise in the ordinary course of business. We do not expect the ultimate outcome or cost to resolve these matters will have a material adverse effect on our financial position, results of operations or cash flows.
Severance and change of control agreements. We have entered into a severance agreement with our Chief Executive Officer that provides him with certain termination benefits in the event his employment with us is terminated without cause. The initial term of the agreement was
years, and it automatically renews for successive terms unless we or our Chief Executive Officer provide notice of termination as specified in the agreement. In the event of termination of the Chief Executive Officer’s employment without cause, this agreement provides that he would receive termination benefits equal to one and times his annual base salary in effect on the termination date and the continuation of health and welfare benefits for months. In addition, all of his stock options and restricted stock units would vest immediately, and outplacement services would be provided.
We have also entered into change in control agreements with key members of management, including our executive officers, which specify the terms of separation in the event that termination of their employment followed a change in control. The initial term of each agreement is
years, and they automatically renew for successive terms unless we or the executive provide notice of termination as specified in the agreement. The agreements do not provide assurances of continued employment or specify the terms of an executive’s termination should one occur in the absence of a change in control. The compensation payable under the terms of these agreements differs between the Chief Executive Officer and the other covered executives. In the event of termination of the Chief Executive Officer within two years of a change of control, he would receive severance benefits equal to times base compensation, times the average bonus for the prior years and the continuation of health and welfare benefits for years. In the event of such a termination of the other key members of management, including our other four executive officers, within two years of a change of control, they would receive severance benefits equal to times base compensation, times the average bonus for the prior years and the continuation of health and welfare benefits for year. In addition, for any covered executive that is terminated within two years of a change of control, all of their stock options and restricted stock units would vest immediately, and outplacement services would be provided.
(13) Leases
We have operating leases for certain equipment, office space and vehicles. We determine whether an arrangement is a lease at its inception if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases with an initial term of
Most of our leases include options to extend or terminate the leases which are exercised at our sole discretion. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate as of the commencement date in determining the present value of lease payments, which represents an estimate of the interest rate we would incur at the lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term.
Supplemental cash flow and non-cash information related to leases is as follows:
Year Ended |
||||||||
(In thousands) |
October 1, 2022 |
October 2, 2021 |
||||||
Cash paid for operating leases included in operating cash flows |
$ | $ | ||||||
Right-of-use assets obtained in exchange for new lease obligations |
Supplemental balance sheet information related to leases is as follows:
(In thousands) |
October 1, 2022 |
October 2, 2021 |
||||||
Right-of-use assets: |
||||||||
Other assets |
$ | $ | ||||||
Lease liabilities: |
||||||||
Accrued expenses |
$ | $ | ||||||
Other liabilities |
||||||||
Total operating lease liabilities |
$ | $ |
The weighted average remaining lease terms and discount rates for operating leases are as follows:
October 1, 2022 |
October 2, 2021 |
|||||||
Weighted average lease term (in years) |
||||||||
Weighted average discount rate |
% | % |
Aggregate future operating lease payments as of October 1, 2022 are as follows:
(In thousands) |
||||
2023 |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
Total future operating lease payments |
||||
Less: imputed interest |
( |
) | ||
Present value of lease liabilities |
$ |
(14) Earnings Per Share
The computation of basic and diluted earnings per share attributable to common shareholders is as follows:
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
(In thousands, except per share amounts) |
2022 |
2021 |
2020 |
|||||||||
Net earnings |
$ | $ | $ | |||||||||
Basic weighted average shares outstanding |
||||||||||||
Dilutive effect of stock-based compensation |
||||||||||||
Diluted weighted average shares outstanding |
||||||||||||
Net earnings per share: |
||||||||||||
Basic |
$ | $ | $ | |||||||||
Diluted |
Options and RSUs that were antidilutive and not included in the diluted EPS calculation amounted to
(15) Business Segment Information
Our operations are entirely focused on the manufacture and marketing of steel wire reinforcing products for concrete construction applications. Our concrete reinforcing products consist of two product lines: PC strand and WWR. Based on the criteria specified in ASC Topic 280, Segment Reporting, we have
reportable segment.
Our net sales by geographic region are as follows:
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
(In thousands) |
2022 |
2021 |
2020 |
|||||||||
Net sales: |
||||||||||||
United States |
$ | $ | $ | |||||||||
Foreign |
||||||||||||
Total |
$ | $ | $ |
Our sales by product line are as follows:
Year Ended |
||||||||||||
October 1, |
October 2, |
October 3, |
||||||||||
(In thousands) |
2022 |
2021 |
2020 |
|||||||||
Net sales: |
||||||||||||
Welded wire reinforcement |
$ | $ | $ | |||||||||
Prestressed concrete strand |
||||||||||||
Total |
$ | $ | $ |
There were no customers that accounted for
(16) Other Financial Data
Balance sheet information:
October 1, |
October 2, |
|||||||
(In thousands) |
2022 |
2021 |
||||||
Accounts receivable, net: |
||||||||
Accounts receivable |
$ | $ | ||||||
Less allowance for credit losses |
( |
) | ( |
) | ||||
Total |
$ | $ | ||||||
Inventories: |
||||||||
Raw materials |
$ | $ | ||||||
Work in process |
||||||||
Finished goods |
||||||||
Total |
$ | $ | ||||||
Other current assets: |
||||||||
Prepaid insurance |
$ | $ | ||||||
Other |
||||||||
Total |
$ | $ | ||||||
Other assets: |
||||||||
Cash surrender value of life insurance policies |
$ | $ | ||||||
Assets held for sale |
||||||||
Right-of-use assets |
||||||||
Capitalized financing costs, net |
||||||||
Other |
||||||||
Total |
$ | $ | ||||||
Property, plant and equipment, net: |
||||||||
Land and land improvements |
$ | $ | ||||||
Buildings |
||||||||
Machinery and equipment |
||||||||
Construction in progress |
||||||||
Less accumulated depreciation |
( |
) | ( |
) | ||||
Total |
$ | $ | ||||||
Accrued expenses: |
||||||||
Salaries, wages and related expenses |
$ | $ | ||||||
Customer rebates |
||||||||
Property taxes |
||||||||
Sales allowance reserves |
||||||||
Operating lease liabilities |
||||||||
State sales and use taxes |
||||||||
Income taxes |
||||||||
Other |
||||||||
Total |
$ | $ | ||||||
Other liabilities: |
||||||||
Deferred compensation |
$ | $ | ||||||
Deferred income taxes |
||||||||
Operating lease liabilities |
||||||||
Total |
$ | $ |
(17) Product Warranties
Our products are used in applications which are subject to inherent risks including performance deficiencies, personal injury, property damage, environmental contamination or loss of production. We warrant our products to meet certain specifications, and actual or claimed deficiencies from these specifications may give rise to claims. We do not maintain a reserve for warranties as the historical claims have been immaterial. We maintain product liability insurance coverage to minimize our exposure to such risks.
(18) Share Repurchases
On November 18, 2008, our Board of Directors approved a share repurchase authorization to buy back up to $
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
Board of Directors and Shareholders
Insteel Industries, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Insteel Industries, Inc. (a North Carolina corporation) and subsidiaries (the “Company”) as of October 1, 2022 and October 2, 2021, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended October 1, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 1, 2022 and October 2, 2021, and the results of its operations and its cash flows for each of the three years in the period ended October 1, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of October 1, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated October 27, 2022 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
We have served as the Company’s auditor since 2002.
October 27, 2022
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of October 1, 2022. 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, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Furthermore, we concluded that our disclosure controls and procedures were effective to ensure that such 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.
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes: (1) maintaining records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets; (2) providing reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with authorizations of management and directors; and (3) providing reasonable assurance that unauthorized acquisition, use or disposition of assets that could have a material effect on financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting can only provide reasonable assurance that a misstatement of financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control – Integrated Framework. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of October 1, 2022. During the quarter ended October 1, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our independent registered public accounting firm has issued an audit report on the effectiveness of our internal control over financial reporting as of October 1, 2022, which appears below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
INTERNAL CONTROL OVER FINANCIAL REPORTING
Board of Directors and Shareholders
Insteel Industries, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Insteel Industries, Inc. (a North Carolina corporation) and subsidiaries (the “Company”) as of October 1, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 1, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended October 1, 2022, and our report dated October 27, 2022 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Reports on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Grant Thornton LLP
Charlotte, North Carolina
October 27, 2022
Item 9B. Other Information.
None
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information called for by this item and not presented herein appears under the captions “Item Number One: Election of Directors”, “Security Ownership of Directors and Executive Officers – Delinquent Section 16(a) Reports” and “Corporate Governance Guidelines and Board Matters” in our Proxy Statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference. Information on executive officers appears under the caption “Information About Our Executive Officers” in Part I of this report.
We have adopted a Code of Business Conduct that applies to all directors, officers and employees, which is available on our website at https://investor.insteel.com. To the extent permissible under applicable law (the rules of the SEC or NYSE listing standards), we intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting on our website any amendment or waiver to a provision of our Code of Business Conduct that requires disclosure under applicable law (the rules of the SEC or NYSE listing standards). Our website does not constitute part of this Annual Report on Form 10-K.
Item 11. Executive Compensation.
The information called for by this item appears under the captions “Executive Compensation”, “Compensation Committee Interlocks and Insider Participation” and “Director Compensation” in our Proxy Statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information called for by this item appears under the captions “Security Ownership of Certain Beneficial Owners”, “Security Ownership of Directors and Executive Officers” and “Equity Compensation Plan Information” in our Proxy Statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information called for by this item appears under the captions “Certain Relationships and Related Person Transactions” and “Corporate Governance Guidelines and Board Matters” in our Proxy Statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information called for by this item appears under the caption “Item Number Three: Ratification of the Appointment of Grant Thornton LLP” in our Proxy Statement for the 2023 Annual Meeting of Shareholders and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements
The financial statements as set forth under Item 8 are filed as part of this report.
(a)(2) Financial Statement Schedules
All other schedules have been omitted because they are either not required or not applicable.
(a)(3) Exhibits
The list of exhibits filed as part of this annual report is set forth on the Exhibit Index immediately preceding the signatures to this annual report and is incorporated herein by reference.
(b) Exhibits
See Exhibit Index on pages 46 and 47.
(c) Financial Statement Schedules
See Item 15(a)(2) above.
Item 16. Form 10-K Summary
None.
EXHIBIT INDEX |
|
Exhibit Number |
Description |
3.1 |
Restated Articles of Incorporation for the Company (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 filed on May 2, 1985). |
3.2 |
Articles of Amendment to the Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated May 3, 1988). |
EXHIBIT INDEX |
|
Exhibit Number |
Description |
List of Subsidiaries of Insteel Industries, Inc. at October 1, 2022. |
|
101 |
The following financial information from our Annual Report on Form 10-K for the fiscal year ended October 1, 2022, filed on October 27, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language) includes: (i) the Consolidated Statements of Operations for the years ended October 2, 2021, October 3, 2020 and September 28, 2019, (ii) the Consolidated Statements of Comprehensive Income for the years ended October 1, 2022, October 2, 2021, and October 3, 2020, (iii) the Consolidated Balance Sheets as of October 1, 2022 and October 2, 2021, (iv) the Consolidated Statements of Cash Flows for the years ended October 1, 2022, October 2, 2021 and October 3, 2020, (v) the Consolidated Statements of Shareholders’ Equity as of October 1, 2022, October 2, 2021 and October 3, 2020 and (vi) the Notes to Consolidated Financial Statements. |
104 |
The cover page from our Annual Report on Form 10-K for the year ended October 1, 2022, filed October 27, 2022, formatted in iXBRL (included in Exhibit 101). |
* |
Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: October 27, 2022 |
By: |
/s/ Mark A. Carano |
Mark A. Carano |
||
Senior Vice President, Chief Financial Officer and Treasurer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on October 27, 2022 below by the following persons on behalf of the registrant and in the capacities indicated:
Name and Signature |
Position(s) |
|
/s/ H. O. WOLTZ III H. O. WOLTZ III |
President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) |
|
/s/ MARK A. CARANO MARK A. CARANO |
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
|
/s/ SCOT R. JAFROODI SCOT R. JAFROODI |
Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) |
|
/s/ ABNEY S. BOXLEY III ABNEY S. BOXLEY III |
Director |
|
/s/ ANNE H. LLOYD ANNE H. LLOYD |
Director |
|
/s/ W. ALLEN ROGERS II W. ALLEN ROGERS II |
Director |
|
/s/ JON M. RUTH JON M. RUTH |
Director |
|
/s/ JOSEPH A. RUTKOWSKI JOSEPH A. RUTKOWSKI |
Director |
|
/s/ G. KENNEDY THOMPSON G. KENNEDY THOMPSON |
Director |
Exhibit 10.24
INSTEEL INDUSTRIES, INC.
RETIREMENT SECURITY AGREEMENT
THIS RETIREMENT SECURITY AGREEMENT (the “Agreement”), made and entered into as of the 9th day of July, 2018 (the “effective date”), by and between INSTEEL INDUSTRIES, INC., a corporation located in Mount Airy, North Carolina (the “Corporation”), and James R. York (the “Executive”);
R E C I T A L S
The Corporation desires to provide supplemental retirement benefits to the Executive separate from and in addition to any other retirement benefits to which the Executive is or may become entitled under any plan of the Corporation or any other agreement between the Executive and the Corporation.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1 |
Purpose. |
This Agreement is being entered into by the Corporation to provide the Executive with additional retirement and death benefits for the Executive and his beneficiaries. The Agreement is not intended to be a qualified retirement plan under Section 401(a) of the Code, but it is intended to constitute an arrangement that provides nonqualified deferred compensation within the meaning of Section 409A of the Code. This Agreement is also intended to be a “plan” for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to be part of an unfunded plan maintained by the Corporation primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Corporation within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
SECTION 2 |
Supplemental Retirement Benefit. |
2.1 Normal retirement. If the Executive remains in continuous service with the Corporation until he completes thirty years of continuous service with the Corporation, but his continuous service terminates for reasons other than death or by the Corporation for “cause” (as defined in Section 2.4), the Corporation shall pay a supplemental retirement benefit to the Executive. The annual amount of the supplemental retirement benefit shall be fifty percent (50%) of the Executive’s final average compensation. The supplemental retirement benefit shall be paid in equal installments in accordance with the Corporation’s regular payroll practices for executives in effect from time to time, commencing as of the first payroll period ending coincident with or immediately following the Executive’s normal retirement date, and continuing for a term certain of fifteen years; except as otherwise provided in Sections 5 or 15. For purposes of this Agreement, unless otherwise indicated by the context:
(i) “Compensation” means the annual rate of gross base compensation in effect for the Executive for service with the Corporation in effect on the last day of the calendar year; provided, that for the year in which the Executive’s termination of employment with the Corporation occurs because of retirement or otherwise, his compensation shall be the annual base rate in effect on the date of his termination of employment.
(ii) “Continuous service” means the Executive’s uninterrupted service in the employment of the Corporation in a full-time capacity. The Executive’s continuous service shall not be deemed to be terminated or interrupted by a leave of absence or sick leave not exceeding one year granted to the Executive by the Corporation or any other leave granted to the Executive where Executive’s right to re-employment is guaranteed by statute or by contract.
(iii) “Final average compensation” means the average of the Executive’s compensation as of the last day of each of the five consecutive calendar years during the ten calendar years preceding the Executive’s termination of employment that produces the highest average. If the Executive has not worked during at least five consecutive calendar years during such ten calendar years immediately preceding his termination of employment, the Executive’s final average compensation means the average of his compensation for all of the calendar years he worked for the Corporation during such ten years.
(iv) “Normal retirement date” means the later of (i) the Executive’s sixty-fifth birthday or (ii) the date the Executive terminates continuous service with the Corporation after completing thirty years of continuous service.
(v) “Year of continuous service” means a twelve-month period of continuous service by the Executive, beginning on the Executive’s initial date of employment with the Corporation (and each anniversary thereof), and ending on the day immediately preceding the anniversary of that date.
2.2 If the Executive remains in continuous service with the Corporation until he completes at least ten years of continuous service with the Corporation but his continuous service terminates for reasons other than death or by the Corporation for “cause” (as defined in Section 2.4) after he attains age fifty-five but prior to his normal retirement date, and he has not previously incurred a “disability” (as defined in Section 2.3), the Corporation will pay a supplemental early retirement benefit to the Executive. The annual amount of the supplemental early retirement benefit shall be fifty percent (50%) of the Executive’s final average compensation determined as of the date of his termination of service, reduced by 1/360th for each full calendar month of continuous service less than 360 that the Executive has completed as of that date. The Executive’s supplemental early retirement benefit shall be paid in equal installments in accordance with the Corporation’s regular payroll practices for executives in effect from time to time, commencing as of the first payroll period ending coincident with or immediately following the later of the date the Executive attains age sixty-five or the date the Executive terminates continuous service, and continuing for a term certain of fifteen years; except as otherwise provided in Sections 5 or 15.
2.3 Disability retirement. If the Executive remains in continuous service with the Corporation until he completes at least ten years of continuous service with the Corporation but incurs a “disability” prior to his normal retirement date, the Corporation shall pay a supplemental disability benefit to the Executive. The amount of the supplemental disability benefit shall be as follows: (i) during the period, if any, that the Executive is receiving benefit payments under a long-term disability insurance plan for executives of the Corporation (the “LTD plan”), the amount determined under Section 2.2, treating the date of the Executive’s disability as his early retirement date, provided that such amount, when added to the Executive’s benefit under the LTD plan, shall not exceed one hundred percent (100%) of the Executive’s final average compensation determined as of the date of his termination of service because of disability; and (ii) during any period that the Executive is not receiving benefit payments under the LTD plan, an amount equal to the greater of the Executive’s benefit determined under Section 2.2 as of the date of his disability or fifty percent (50%) of the Executive’s final average compensation. The Executive’s supplemental disability benefit will be paid in equal installments in accordance with the Corporation’s regular payroll practices for executives in effect from time to time, commencing as of the first payroll period ending coincident with or immediately following the date as of which the Executive’s disability is deemed to have occurred, and continuing for a term certain of ten years. For this purpose, “disability” shall mean the Executive is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, or (ii) is, by reason of any medically determinable physical or medical impairment that can be expected to result in death or that can be expected to last for a continuous period of not less than twelve months, receiving income replacement benefits for a period of not less than three months under an accident or health plan covering employees of the Corporation. The determination of the existence or nonexistence of disability under (i) above shall be made by the Executive Compensation Committee of the Board of Directors of the Corporation (the “Compensation Committee”) pursuant to a medical examination by a medical doctor selected or approved by the Compensation Committee and a medical doctor selected or approved by the Executive; provided, that if the two medical doctors shall not agree that the Executive is or is not disabled, the two doctors shall select a third medical doctor to examine the Executive, and such third doctor’s determination of the Executive’s disability shall be conclusive.
2.4 Termination of continuous service for “cause.” Notwithstanding any other provision of this Agreement, if the Corporation terminates the Executive’s continuous service for “cause,” no benefit shall be paid by the Corporation pursuant to this Agreement. For this purpose, “cause” means (i) willful, deliberate and continued failure by the Executive (other than for reason of mental or physical illness) to perform his duties as established by the Board of Directors of the Corporation (the “Board”), or fraud or dishonesty in connection with such duties, in either case, if such conduct has a materially detrimental effect on the business operations of the Corporation; (ii) a material breach by the Executive of his fiduciary duties of loyalty or care to the Corporation; (iii) the conviction of the Executive of any crime (or upon entering a plea of guilty or nolo contendere to a charge of any crime) constituting a felony; (iv) misappropriation of the Corporation’s funds or property by the Executive; or (v) willful, flagrant, deliberate and repeated infractions of material published policies and regulations of the Corporation of which the Executive has actual knowledge. Whether the Executive’s termination is for “cause” shall be determined by the Compensation Committee.
SECTION 3 |
Death of Executive. |
3.1 Death while in continuous service. If the Executive dies while in continuous service with the Corporation, the Corporation will pay a supplemental death benefit to the Executive’s beneficiary. The annual amount of the supplemental death benefit shall be fifty percent (50%) of the Executive’s final average compensation, determined as of the date of the Executive’s death. The Executive’s supplemental death benefit provided in this Section 3.1 shall be paid in equal installments in accordance with the Corporation’s regular payroll practices for executives in effect from time to time, commencing as of the first payroll period ending coincident with or immediately following the date of the Executive’s death and continuing for a term certain of ten years.
3.2 Death after termination of continuous service but before benefit payments commence or death after benefit payments commence. If the Executive dies either (i) after his termination of continuous service for which he is entitled to receive supplemental benefits hereunder but before such supplemental benefit payments commence, or (ii) after the date as of which such supplemental benefit payments have commenced under this Agreement, payment of the Executive’s remaining supplemental benefits shall commence or continue, as the case may be, to the Executive’s beneficiary following the Executive’s death, treating the Executive’s beneficiary as the Executive for all purposes under this Agreement.
SECTION 4 |
Vesting. |
4.1 Vesting and forfeiture of benefits. The Executive shall become vested in his supplemental benefits under this Agreement, to the extent accrued as of any date, following the first to occur of his completion of the required years of continuous service with the Corporation to be entitled to the benefit, or the date of his termination of continuous service because of death. The Executive shall not be vested in his supplemental benefits under this Agreement if he terminates service with the Corporation prior to completing the required years of continuous service to be entitled to the benefit for any reason other than death. Notwithstanding the foregoing, the Executive shall forfeit any benefits earned and vested under this Agreement if his continuous service with the Corporation is terminated by the Corporation for cause (as defined in Section 2.4).
4.2 Accelerated vesting. Notwithstanding any other provision of this Agreement, the Compensation Committee may, with the approval of the Board, direct that all or part of the Executive’s supplemental benefits under this Agreement shall be nonforfeitable as of any date prior to the Executive’s normal retirement date on such terms and conditions as the Compensation Committee shall determine.
SECTION 5 |
Deferral of Payment Date. |
The Compensation Committee and the Executive may agree to establish a new date for payment of the Executive’s supplemental benefits under Sections 2.1 and 2.2 that is after the dates otherwise set forth therein (referred to herein as his “subsequent payment date”); provided, that such subsequent payment date satisfies the conditions of this Section 5. For a subsequent payment date to be effective, (i) the Executive and the Compensation Committee must agree on the subsequent payment date not less than 12 months prior to the date the first payment for the particular payment event is scheduled to be made, (ii) the agreement establishing the subsequent payment date must not take effect for at least 12 months and (iii) the subsequent payment date must extend the first payment that would have been made (other than on death or disability) for a period of not less than five years from the date such payment for the particular payment event otherwise would have been made. If a subsequent payment date is established pursuant to this Section 5, this Agreement shall be administered in all respects as if such subsequent payment date was the date specified in Sections 2.1 or 2.2, except that the supplemental retirement benefit described in Sections 2.1 and 2.2, and to which the Executive would otherwise be entitled, shall be adjusted actuarially by the Compensation Committee to reflect any delay in the commencement of benefits beyond the Executive’s attainment of age 65. For purposes of making such adjustment, the Compensation Committee shall apply actuarial assumptions agreed to by the Executive at the time the subsequent payment date is set.
SECTION 6 |
Change of Control. |
In the event that a Change of Control of the Corporation occurs prior to the date that payment of the Executive’s benefit commences under this Agreement, then notwithstanding any other provision of this Agreement, and in lieu of the benefits payable under Section 2 or Section 3, the Executive shall be fully vested in his accrued benefit and the Corporation shall pay the lump sum present value of such accrued benefit to the Executive in a single cash payment within thirty (30) days of the effective date of the Change of Control. For purposes of this Section 6, the term “Change of Control of the Corporation” shall include all events described in Section 1.409A-3 of the Treasury Regulations in effect from time to time. The lump sum present value of the Executive’s accrued benefit shall be based on the accumulated benefit obligation on the Change of Control date, as determined by the Corporation’s actuary in accordance with generally accepted accounting principles.
SECTION 7 |
Beneficiary. |
The Executive’s beneficiary shall be the person or persons designated by the Executive on the beneficiary designation form provided by and filed with the Compensation Committee or its designee. If the Executive does not designate a beneficiary, his beneficiary shall be his surviving spouse. If the Executive does not designate a beneficiary and has no surviving spouse, the beneficiary shall be the Executive’s estate. The designation of a beneficiary may be changed or revoked only by filing a new beneficiary designation form with the Compensation Committee or its designee. If the Executive’s beneficiary dies prior to asserting a written claim for any death benefit payable under the Agreement, such benefit shall be payable to the Executive’s estate. If a beneficiary (the “primary beneficiary”) is receiving or is entitled to receive payments under the Agreement and dies before receiving all of the payments due him, the balance to which he is entitled shall be paid to the contingent beneficiary, if any, named in the Executive’s current beneficiary designation form. If there is no contingent beneficiary, the balance shall be paid to the estate of the primary beneficiary. Any beneficiary may disclaim all or any part of any benefit to which such beneficiary shall be entitled hereunder by filing a written disclaimer with the Compensation Committee at least ten days before payment of such benefit is to be made. Such a disclaimer shall be made in form satisfactory to the Compensation Committee and shall be irrevocable when filed. Any benefit disclaimed shall be payable from the Corporation under this Agreement in the same manner as if the beneficiary who filed the disclaimer had died on the date of such filing.
SECTION 8 |
Administration by Compensation Committee. |
8.1 The Compensation Committee shall be responsible for the general administration and interpretation of this Agreement and for carrying out its provisions, except to the extent all or any of such obligations are specifically imposed on the Board.
8.2 The Compensation Committee shall maintain full and complete records of its deliberations and decisions with respect to this Agreement. The minutes of its proceedings shall be conclusive proof of the facts of the operation of the Agreement. The records of the Compensation Committee with respect to this Agreement shall contain all relevant data pertaining to the Executive and his rights under the Agreement.
8.3 Subject to the limitations of the Agreement, the Compensation Committee may from time to time establish rules or by-laws for the administration of the Agreement and the transaction of its business. The Compensation Committee may correct errors and, so far as practicable, may adjust any benefit or credit or payment accordingly. The Compensation Committee may in its discretion waive any notice requirements in the Agreement; provided, that a waiver of notice in one or more cases shall not be deemed to constitute a waiver of notice in any other case.
8.4 Subject to the provisions of Section 13, the Compensation Committee shall have the duty and authority to interpret and construe the provisions of this Agreement and to decide any dispute which may arise regarding the rights of the Executive hereunder. Benefits under this Agreement will be paid only if the Compensation Committee decides in its discretion that the Executive is entitled to them.
8.5 The Compensation Committee may engage an attorney, accountant or any other technical advisor on matters regarding the operation of the Agreement and to perform such other duties as shall be required in connection therewith, and may employ such clerical and related personnel as the Compensation Committee shall deem requisite or desirable in carrying out the provisions of the Agreement. The Compensation Committee shall from time to time, but no less frequently than annually, review the financial and liquidity needs of the Corporation under the Agreement. The Compensation Committee shall communicate such needs to the Corporation so that its policies may be appropriately coordinated to meet such needs.
8.6 The Compensation Committee shall be entitled to reimbursement by the Corporation for its reasonable expenses properly and actually incurred in the performance of its duties in the administration of the Agreement.
8.7 No member of the Compensation Committee shall be personally liable by reason of any contract or other instrument executed by him or on his behalf as a member of the Compensation Committee nor for any mistake of judgment made in good faith, and the Corporation shall indemnify and hold harmless, directly from its own assets (including the proceeds of any insurance policy the premiums for which are paid from the Corporation’s own assets), each member of the Compensation Committee and each other officer, employee, or director of the Corporation to whom any duty or power relating to the administration or interpretation of the Agreement may be delegated or allocated, against any unreimbursed or uninsured cost or expense (including any sum paid in settlement of a claim with the prior written approval of the Board) arising out of any act or omission to act in connection with the Agreement unless arising out of such person’s own fraud, bad faith, willful misconduct or gross negligence.
SECTION 9 |
Funding. |
The obligation of the Corporation to make payments hereunder shall constitute a liability of the Corporation to the Executive. Notwithstanding the foregoing, the Corporation may establish a grantor trust (the “Trust”) to which the Corporation shall contribute according to its terms to pay the benefits provided for in the Agreement; provided, that to the extent that there shall not be sufficient funds in the Trust to make one or more payments provided for under this Agreement, such payments shall be made from the general funds of the Corporation. Except as otherwise provided herein, the Corporation shall not be required to establish or maintain any special or separate fund, or otherwise to segregate assets to assure that such payments shall be made, and the Executive shall not have any interest in any particular assets of the Corporation by reason of its obligations hereunder. When the Trust is established, a copy of the document shall be attached hereto and its terms shall be incorporated herein by reference. Nothing contained in this Agreement or the Trust shall create or be construed as creating a trust of any kind or any other fiduciary relationship between or among the Corporation, the Executive, the trustee under the Trust, or any other person. To the extent that any person acquires a right to receive payment from the Corporation or the Trust, such right shall be no greater than the right of an unsecured creditor of the Corporation. In no event shall the Trust or the assets of the Trust be located outside of the United States and at no time shall the Trust be funded if such funding would cause the Executive to be subject to taxation or penalties pursuant to Section 409A of the Code.
SECTION 10 |
Allocation of Responsibilities. |
The persons responsible for the Agreement and the duties and responsibilities allocated to each are as follows:
10.1 Board. To amend or terminate this Agreement in accordance with Section 12;
10.2 Committee.
(i) To interpret the provisions of the Agreement and to determine the rights of the Executive under the Agreement, except to the extent otherwise provided in Section 13 relating to claims procedure;
(ii) To administer the Agreement in accordance with its terms, except to the extent powers to administer the Agreement are specifically delegated to another person or persons as provided in the Agreement;
(iii) To account for the supplemental benefits of the Executive; and
(iv) To file such reports as may be required with the United States Department of Labor, the Internal Revenue Service and any other government agencies to which reports may be required to be submitted from time to time.
SECTION 11 |
Benefits Not Assignable; Facility of Payments. |
11.1 No portion of any benefit credited or paid under this Agreement with respect to the Executive shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void, nor shall any portion of such benefit be in any manner payable to any assignee, receiver or any one trustee, or be liable for his debts, contracts, liabilities, engagements or torts, or be subject to any legal process to levy upon or attach.
11.2 If any individual entitled to receive a payment under the Agreement shall be physically, mentally or legally incapable of receiving or acknowledging receipt of such payment, the Compensation Committee, upon the receipt of satisfactory evidence of his incapacity and satisfactory evidence that another person or institution is maintaining him and that no guardian or committee has been appointed for him, may cause any payment otherwise payable to him to be made to such person or institution so maintaining him. Payment to such person or institution shall be in full satisfaction of all claims by or through the Executive to the extent of the amount thereof.
SECTION 12 |
Amendment and Termination of Agreement. |
This Agreement shall not be amended or terminated other than by a writing signed by the Corporation and the Executive. The Agreement may be terminated and the Executive’s accrued benefit paid to him in a single cash payment (i) within 12 months of a corporate dissolution of the Corporation taxed under Section 331 of the Code, or with the approval of a bankruptcy court pursuant to 11 U.S.C. 503(b)(1)(A), provided that the amounts deferred under the Agreement are paid to the Executive at the later of the calendar year in which the termination of the Agreement occurs, the first calendar year in which the payment is administratively practicable or the calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (ii) upon the agreement of the parties at any time so long as: (a) the Corporation terminates all other arrangements of the Corporation and its Related Entities that are treated as account balance plans as defined in Treasury Regulation Section 31.3121(v)(2)-1(c)(1)(ii)(A) (other than certain separation pay arrangements), (b) no payments other than payments that would be payable under the terms of the arrangements if the termination had not occurred are made within 12 months of the termination of the arrangements, (c) all payments are made within 24 months of the termination of the arrangements, (d) neither the Corporation nor its Related Entities adopt a new arrangement that would be treated as an account balance plan as defined in Treasury Regulation Section 31.3121(v)(2)-1(c)(1)(ii)(A) (other than certain separation pay arrangements) at any time within five years following the date of termination of the Agreement and (e) the Corporation and its Related Entities satisfy such other events and conditions as the Commissioner of the Internal Revenue Service may prescribe. The amount of any payment pursuant to this Section shall be based on the accumulated benefit obligation as of the date of payment, as determined by the Corporation’s actuary in accordance with generally accepted accounting principles. This Section is intended to satisfy the plan termination rules of Treasury Regulation Section 1.409A-3(h)(2)(viii) and shall be interpreted accordingly. For purposes of this Agreement “Related Entity” means any entity that is part of a controlled group of corporations or is under common control with the Corporation within the meaning of Sections 1563(a), 414(b) or 414(c) of the Code.
SECTION 13 |
Claims Procedure. |
The following claims procedure shall apply with respect to this Agreement:
13.1 Filing of a claim for benefits. If the Executive or his beneficiary (the “claimant”) believes that he is entitled to benefits under the Agreement which are not being paid to him or which are not being accrued for his benefit, he shall file a written claim therefor with the Compensation Committee within ninety (90) days of the date such benefits otherwise would have commenced (assuming the claimant is entitled to the benefits) or the claim will be forever barred.
13.2 Notification to claimant of decision.
(a) General. Within 90 days after receipt of a claim, other than a claim for benefits upon a disability, by the Compensation Committee (or within 180 days if special circumstances require an extension of time), the Compensation Committee shall notify the claimant in writing of its decision with regard to the claim. In the event of such special circumstances requiring an extension of time, there shall be furnished to the claimant prior to expiration of the initial 90-day period written notice of the extension, which notice shall set forth the special circumstances and the date by which the decision shall be furnished.
(b) Disability. Except as provided below, within 45 days after receipt of a disability claim by the Compensation Committee, the Compensation Committee shall notify the claimant in writing of its decision with regard to the claim (regardless of whether all the information necessary to make a benefit determination accompanies the claim) unless a 30-day extension is necessary due to matters beyond the control of the Compensation Committee. If such an extension is necessary, the Compensation Committee shall notify the claimant prior to the expiration of the initial 45-day period. If the Compensation Committee determines that a decision cannot be made within the first extension period due to matters beyond the control of the Compensation Committee, the time period for making a determination may be further extended for an additional 30 days. If such an additional extension is necessary, the Compensation Committee shall notify the claimant prior to the expiration of the first 30-day extension period. Any notice of an extension period shall indicate (i) the circumstances necessitating the extension of time, (ii) the date by which the Compensation Committee expects to furnish a notice of decision, (iii) the specific standards on which such entitlement to a benefit is based, (iv) the unresolved issues that prevent a decision on the claim and (v) any additional information needed to resolve those issues. A claimant will be provided a minimum of 45 days to submit any necessary additional information to the Compensation Committee. In the event that a 30-day extension is necessary due to a claimant’s failure to submit information necessary to decide a claim under this subsection, the period for furnishing a notice of decision shall be tolled from the date on which the notice of the extension is sent to the claimant until the date the claimant responds to the request for additional information.
(c) Denial. If such claim shall be wholly or partially denied, notice thereof shall be in writing and worded in a manner calculated to be understood by the claimant, and shall set forth: (i) the specific reason or reasons for the denial; (ii) specific reference to pertinent provisions of the Agreement on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the procedure for review of the denial and the time limits applicable to such procedures, including the claimant’s right to bring a civil action, to the extent permissible, following an adverse benefit determination on review. In addition to the information specified above, an adverse benefit determination concerning a disability claim shall also set forth, in a manner calculated to be understood by the claimant, (i) an explanation of any internal rule or guideline relied on to make the adverse determination, or (ii) a statement that a specific rule or guideline was relied upon and that a copy of the rule will be provided to the claimant free of charge upon request.
(d) Request for review. If a claim for benefits is denied in whole or in part, the claimant or his duly authorized representative may request in writing a full and fair review of the adverse benefit determination. The Compensation Committee may appoint a committee to review benefit claims, which must consider any denied claim that is submitted for review. If no committee is appointed, the Compensation Committee will process any valid request for review. The claims procedure must provide the claimant with (i) at least 60 days (180 days in the case of a Disability claim) following receipt of an adverse determination on which to appeal the determination, (ii) the opportunity to submit written comments, documents and records relating to the claim, (iii) reasonable access to and copies of documents and records relevant to the claim for benefits, upon request and free of charge, and (iv) a review taking into account all comments, documents, records and information submitted by the claimant relating to the claim, without regard to whether the information was submitted or considered in the initial benefit determination.
(e) Review of denied claims. The Compensation Committee must make a decision concerning the determination upon review of a denied claim within 60 days (45 days in the case of a disability claim) of receipt of a request for review. Under special circumstances, the review period may be extended for an additional 60 days (45 days in the case of a disability claim). If an extension is required, the Compensation Committee will provide the claimant with written notification of the special circumstances involved and the date by which the Compensation Committee expects to render a final decision.
(1) Hearing. The Compensation Committee or the committee appointed to review claims must determine whether there will be a hearing. A hearing must be scheduled to give sufficient time for this review and submission, giving notice of the schedule and deadlines for submission.
(2) Review by Compensation Committee or committee. If the Compensation Committee (or a committee if a one has been appointed) has regularly scheduled meetings at least quarterly, the rules in this subsection govern the time for the decision on review and supersede the rules described above. If the claimant’s written request for review is received more than 30 days before a meeting, a decision on review must be made at the next meeting after the request for review has been received. If the claimant’s written request for review is received 30 days or less before a meeting of the Compensation Committee (or committee), the decision on review must be made at the Compensation Committee’s (or committee’s) second meeting after the request for review has been received. If an extension of time is required, written notice of the extension must be furnished to the claimant before the extension begins.
(3) Disability claims. The review shall be conducted by the Compensation Committee (exclusive of the person who made the initial adverse decision or such person’s subordinate). In reviewing the appeal, the Compensation Committee shall (i) not afford deference to the initial denial of the claim, (ii) consult a medical professional who has appropriate training and experience in the field of medicine relating to the claimant’s disability and who was neither consulted as part of the initial denial nor is the subordinate of such individual and (iii) identify the medical or vocational experts whose advice was obtained with respect to the initial benefit denial, without regard to whether the advice was relied upon in making the decision. If a claim is denied due to a medical judgment, the reviewer will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment. The health care professional consulted will not be the same person consulted in connection with the initial benefit decision (nor be the subordinate of that person). The decision on review also will identify any medical or vocational experts who advised the Compensation Committee in connection with the original benefit decision, even if the advice was not relied upon in making the decision.
(f) Notification on review. If a request for review is wholly or partially denied, the Compensation Committee must give written or electronic notice to the claimant within the time provided in subsection (e). The notice must contain the information detailed in subsection (c). If the notification concerns the denial of a disability claim, the notice must also contain; (i) a statement describing any voluntary appeal procedures offered by the Agreement and the claimant’s right to obtain information about such procedures, and (ii) a statement that the claimant may have other voluntary alternative dispute resolution options, such as mediation.
(g) Determinations are binding. All good-faith determinations by the Compensation Committee are conclusive and binding on all persons, and there is no right of appeal except as provided above. Any electronic notification shall comply with the standards imposed by Department of Labor Regulation 2520.104b-1(c).
13.3 Arbitration. If a dispute remains following the decision of the Compensation Committee under Section 13.2, the issue or issues in dispute shall be settled and finally determined by arbitration in Winston-Salem, North Carolina, under the then existing rules of the American Arbitration Association; and judgment may be entered upon the award of the arbitrator by any Court of competent jurisdiction. The standard of review for such arbitration shall be de novo; therefore, discretion granted to the Compensation Committee by any other provision of this Agreement shall be disregarded, and there shall be no presumption in favor of any decision made by the Compensation Committee. If the Executive disagrees with the final decision of the Compensation Committee under Section 13.2, Executive must file the request for arbitration within ninety (90) days of the Compensation Committee’s final decision pursuant to Section 13.2 or the Compensation Committee’s decision shall be final and any further claim forever barred. Any expenses of such arbitration shall be allocated among the parties to this Agreement by the arbitrator.
13.4 Action by authorized representative of claimant. All actions set forth in this Section 13 to be taken by the claimant may likewise be taken by a representative of the claimant duly authorized by him to act in his behalf on such matters. The Compensation Committee may require such evidence as either may reasonably deem necessary or advisable of the authority to act of any such representative.
SECTION 14 |
Miscellaneous Provisions. |
14.1 Notices. The Executive and each beneficiary shall be responsible for furnishing the Compensation Committee or its designee with their current address for the mailing of notices and benefit payments. Any notice required or permitted to be given to the Executive or a beneficiary shall be deemed given if directed to such address and mailed by regular United States mail, first class, postage prepaid. If any check mailed to such address is returned as undeliverable to the addressee, mailing of checks will be suspended until the Executive or beneficiary furnishes the proper address. This provision shall not be construed as requiring the mailing of any notice or notification otherwise permitted to be given by posting or by other publication.
14.2 Lost distributees. A benefit shall be deemed forfeited if the Compensation Committee is unable after a reasonable period of time to locate the Executive or his beneficiary to whom payment is due; provided, however, that such benefit shall be reinstated if a valid claim is made by or on behalf of the Executive or his beneficiary for the forfeited benefit no later than ninety (90) days after the date such benefits otherwise would have commenced (assuming the claimant is entitled to the benefits) or the claim will be forever barred.
14.3 Reliance on data. The Corporation and the Compensation Committee shall have the right to rely on any data provided by the Executive or by any beneficiary. Representations of such data shall be binding upon any party seeking to claim a benefit through a Executive, and the Corporation and the Compensation Committee shall have no obligation to inquire into the accuracy of any representation made at any time by the Executive or his beneficiary.
14.4 Receipt and release for payments. Any payment made from the Corporation to or with respect to the Executive or his beneficiary, or pursuant to a disclaimer by a beneficiary, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Corporation with respect to the Agreement. The recipient of any payment may be required by the Compensation Committee, as a condition precedent to such payment, to execute a receipt and release with respect thereto in such form as shall be acceptable to the Compensation Committee.
14.5 Withholding. The Corporation shall withhold from any payments or benefits under this Agreement, or shall otherwise obtain payment from Executive for, all federal, state, or local taxes or other amounts as shall be required pursuant to any law or governmental regulation or ruling.
14.6 Headings. The headings and subheadings of the Agreement have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof.
14.7 Continuation of employment. The establishment of the Agreement shall not be construed as conferring any legal or other rights upon the Executive or any persons for continuation of employment or any right to receive or continue to receive any rate of pay or other compensation, nor shall it interfere with the right of the Corporation to discharge the Executive or to deal with him without regard to the effect thereof under the Agreement.
14.8 Binding on successors. The obligations of the parties hereto shall inure to the benefit of and shall be binding upon their successors and assigns, including any successor to the Corporation by merger, consolidation or otherwise that may agree to continue this Agreement.
14.9 Construction. The provisions of the Agreement shall be construed and enforced according to the laws of the State of North Carolina.
14.10 Compliance. No benefits shall be paid hereunder except in compliance with all applicable laws and regulations (including, without limitation, withholding tax requirements), any listing agreement with any stock exchange to which the Corporation is a party, and the rules of all domestic stock exchanges on which the Corporation’s shares of capital stock may be listed. The Corporation shall have the right to rely on an opinion of its counsel as to such compliance. No benefits shall be paid hereunder unless the Corporation has obtained such consent or approval as the Corporation may deem advisable from regulatory bodies having jurisdiction over such matters.
14.11 Confidentiality. The terms and conditions of this Agreement and the Executive’s participation hereunder shall remain strictly confidential. The Executive may not discuss or disclose any terms of this Agreement or its benefits with anyone except for Executive’s attorneys, accountants and immediate family members who shall be instructed to maintain the confidentiality agreed to under this Agreement, except as may be required by law.
SECTION 15 |
Application of Section 409A. |
15.1 Compliance. This Agreement is intended to comply with the applicable requirements of Section 409A of the Code and shall be construed and interpreted in accordance therewith. Notwithstanding the preceding, the Corporation and its Related Entities shall not be liable to the Executive or any other person if the Internal Revenue Service or any court or other authority having jurisdiction over such matter determines for any reason that any amount under this Agreement is subject to taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.
15.2 Separation from service. Notwithstanding any other provision of this Agreement, the Executive will not be entitled to payment upon his termination of employment pursuant to this Agreement unless the Executive has terminated employment with the Corporation and all of its Related Entities and otherwise had a “separation from service” as defined below. For purposes of this Agreement, “separation from service” means the termination of the Executive’s employment with the Corporation and all Related Entities; provided, however, that the Executive will not be considered as having had a separation from service if (i) the Executive continues to provide services to the Corporation or any of its Related Entities as an employee or otherwise at an annual rate that is at least equal to 50 percent of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is at least equal to 50 percent of the average annual remuneration earned during the final three full calendar years of employment (or if less, such lesser period), or (ii) the Executive is on military leave, sick leave or other bona fide leave of absence (such as temporary employment by the government) so long as the period of such leave does not exceed six months, or if longer, so long as the Executive’s right to reemployment with the Corporation or any Related Entity is provided either by statute or by contract. If the period of leave exceeds six months and the Executive’s right to reemployment is not provided either by statute or by contract, the separation from service will be deemed to occur on the first date immediately following such six-month period. For purposes of this Section, the annual rate of providing services shall be determined based upon the measurement used to determine the Executive’s base compensation. This definition of separation from service is intended to comply with the definition of “separation from service” as used in Section 409A(a)(2)(A)(i) of the Code and shall be interpreted accordingly.
15.3 Specified employee. Notwithstanding any other provision of this Agreement, if the Executive is a “specified employee” (as defined below), and if the Executive’s benefits hereunder are paid upon a Separation from Service then, to the extent necessary to comply with Section 409A of the Code, no payments may be made hereunder before the date which is six months after the Executive’s separation from service or, if earlier, his death. All such amounts, which would have otherwise been required to be paid during such six months or, if earlier, Executive’s death, shall be paid to Executive in one lump sum payment as soon as administratively practical after the date which is six months after Executive’s separation from service or, if earlier, Executive’s death. Any other payments scheduled to be made after such period shall be made at the times otherwise designated in this Agreement disregarding the delay for payments required herein. For purposes of this Agreement, “specified employee” generally means an employee who is (i) an officer of the Corporation or any of its Related Entities having annual compensation greater than $140,000 (with certain adjustments for inflation after 2006), (ii) a five-percent owner of the Corporation or (iii) a one-percent owner of the Corporation having annual compensation greater than $150,000. This definition is intended to comply with the specified employee rules of Section 409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly.
IN WITNESS WHEREOF, this Amended and Restated Retirement Security Agreement is executed by and in behalf of the parties hereto as the day and year first above written.
INSTEEL INDUSTRIES, INC. | ||
By: | ||
President |
Attest: | ||
Secretary | ||
[Corporate Seal] |
EXECUTIVE | |||
By: | (SEAL) |
Exhibit 10.25
“Group B”
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the “Agreement”) is made and entered into this 9th day of July, 2018, between INSTEEL INDUSTRIES INC. a North Carolina corporation (the “Company”) and James R. York (the “Executive”). Certain capitalized terms used in this Agreement are defined in Section 6.
R E C I T A L S
The Company acknowledges that Executive is expected to make significant contributions to the growth and success of the Company. The Company also acknowledges that there exists the possibility of a Change in Control of the Company. The Company recognizes that the possibility of a Change in Control may contribute to uncertainty on the part of senior management and may result in the departure or distraction of senior management from their operating responsibilities.
Strong and competent management of the Company is essential to advancing the best interests of the Company and its partners and its shareholders. In the event of a threat or occurrence of a bid to acquire or change control of the Company or to effect a business combination, it is particularly important that the business of the Company be continued with a minimum of disruption. The Company believes that the objective of securing and retaining strong management will be achieved if the Company’s key management employees are given assurances of employment security so that they will not be distracted by personal uncertainties and risks created by such circumstances.
NOW, THEREFORE, in consideration of the mutual covenants and obligations herein the Company and Executive agree as follows:
1. Effective Date. The Effective Date of this Agreement is July 9, 2018.
2. Term of Agreement. The Term of this Agreement begins on the Effective Date and ends on the day before the second anniversary of the Effective Date. Notwithstanding the preceding sentence, the Term of this Agreement shall be extended for an additional twelve month period, as of each anniversary of the Effective Date, unless either party gives written notice, at least ninety days prior to the applicable anniversary of the Effective Date, that the Term of this Agreement will not be extended.
3. Right to Receive Termination Benefits. Executive shall be entitled to receive the Termination Benefits described in Section 4 if (i) a Change in Control occurs during the Term of this Agreement and (ii) within two years after the Control Change Date either (x) the Company terminates Executive’s employment with the Company without Cause or (y) Executive resigns from the employment of the Company and Executive has Good Reason to resign from the Company, and either (x) or (y), as applicable, constitutes a Separation from Service with the Company.
No amounts will be payable under this Agreement unless Executive’s employment with the Company terminates or is terminated as described in the foregoing subsection.
4. Termination Benefits. Upon a termination of Executive’s employment in accordance with Section 3, Executive shall be entitled to receive the following payments and benefits (“Termination Benefits”):
(a) A lump sum payment of any accrued but unpaid salary from the Company through the date Executive’s employment terminates.
(b) A lump sum payment of any bonus that has been earned from the Company but which remains unpaid as of Executive’s termination of employment.
(c) A lump sum reimbursement for any expenses Executive incurred on behalf of the Company prior to termination of employment to the extent that such expenses are reimbursable under the Company’s standard reimbursement policies but have not been reimbursed as of Executive’s termination of employment.
(d) Continued payment of Executive’s base salary, for one year following Executive’s termination, at the rate in effect on the date of Executive’s termination of employment or, if greater, at the rate in effect on the Control Change Date. Except as provided in Section 19, such payments shall be made in accordance with the Company’s normal payroll practices beginning with the first payroll payment date following the Executive’s termination of employment.
(e) A lump sum payment equal to one times the average bonus paid to the Executive for the three -year period prior to the Executive’s termination of employment; provided, however, that if the Executive has not been employed for a full three years at the time of his termination of employment, Executive shall receive, in lieu of the foregoing amount, a lump sum payment equal to his annual base salary at the rate in effect on the date of Executive’s termination of employment or, if greater, at the rate in effect on the Control Change Date, multiplied by the average bonus percentage for the immediately preceding three years for the executive management group of the Company (not including the Executive).
(f) Reasonable outplacement services provided by the firm selected by Executive, the cost of which will be paid by the Company; provided, however, that the Company’s obligation under this subsection (f) will not exceed $15,000.
(g) Continued participation in the “employee welfare benefit plans” (as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) in which Executive participates immediately prior to Executive’s date of termination, on such terms as are then in effect, for one year following the termination of Executive’s employment with the Company and payment by the Company of the cost or premium for continued coverage in the Company health plan for a period of one year following Executive’s termination of employment. In the event that the continued coverage of Executive in any such employee welfare benefit plan, including without limitation the Company health plan, is barred by its terms, the Company shall pay Executive, for one year following Executive’s termination of employment, the cash equivalent of the portion of the insurance premium or other cost charged to the Company for Executive’s participation in such employee welfare benefit plan(s), including the entire insurance premium or other cost for coverage in the Company health plan, prior to Executive’s termination of employment, plus an additional amount such that, after payment of the income and employment tax liability on such payment, Executive retains an amount equal to the portion of the insurance premium or other cost charged to the Company for Executive’s participation in such employee welfare benefit plans, including the entire insurance premium or other cost for coverage in the Company health plan, prior to Executive’s termination of employment. Except as provided in Section 19, such cash payments, in lieu of coverage, shall be made in accordance with the Company’s normal payroll practices during such one-year period beginning with the first payroll payment date following the Executive’s termination of employment.
(h) All stock options and any other stock-based awards outstanding immediately prior to Executive’s termination of employment shall immediately vest and become exercisable by Executive for the remainder of the term provided for in the agreement evidencing the stock option or award in which such options or other stock-based awards were granted.
(i) Except as provided in Section 19, lump sum Termination Benefits shall be payable within 45 days of Executive’s termination of employment in accordance with Section 3 and the other Termination Benefits shall be payable as described above. The payment of the Termination Benefits shall be reduced by amounts required to be withheld for applicable income and employment taxes.
5. Limitation on Parachute Payments. The Termination Benefits and other payments, distributions and benefits provided by the Company for Executive’s benefit pursuant to this Agreement and under other plans, programs, and agreements may constitute Parachute Payments (as defined in Section 280G(b) of the Internal Revenue Code of 1986 (the “Code”) that are subject to the “golden parachute” rules of Code section 280G and the excise tax of Code section 4999. The Company and Executive intend to reduce any Parachute Payments (but not any payment, distribution or other benefit that is not a Parachute Payment) if, and only to the extent that, a reduction will allow Executive to receive a greater Net After Tax Amount than he would receive absent a reduction. The remaining provisions of this Section describe how that intent will be effectuated.
(a) The Company will first determine the amount of any Parachute Payments that are payable to Executive. The Company will also determine the Net After Tax Amount attributable to total Parachute Payments.
(b) The Company will next determine the amount of Executive’s Capped Parachute Payments. Thereafter, the Company will determine the Net After Tax Amount attributable to Executive’s Capped Parachute Payments.
(c) Executive shall receive the total Parachute Payments unless the Company determines that the Capped Parachute Payments will yield Executive a higher Net After Tax Amount, in which case Executive will receive the Capped Parachute Payments. If Executive will receive the Capped Parachute Payments, the total Parachute Payments will be adjusted by first reducing the amount payable under any other plan, program, or agreement that, by its terms, requires a reduction to prevent a “golden parachute” payment under Code section 280G; by next reducing Executive’s benefit, if any, under this Agreement, to the extent it is a Parachute Payment; and thereafter by reducing Parachute Payments payable under other plans and agreements (with the reductions first coming from cash benefits and then from noncash benefits). The Company will notify Executive if it determines that the Parachute Payments must be reduced to the Capped Parachute Payments and will send Executive a copy of its detailed calculations supporting that determination. The Company will pay Executive the Termination Benefits or the reduced Termination Benefits determined in this Section 5 as described in Sections 4 and 19.
6. Certain Definitions. As used in this Agreement, certain terms have the definitions set forth below.
(a) Acquiring Person means that a Person, considered alone or together with all Control Affiliates and Associates of that Person, is or becomes directly or indirectly the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of securities representing at least twenty five percent (25%) of the Company’s then outstanding securities entitled to vote generally in the election of the Board.
(b) Associate, with respect to any Person, is defined in Rule 12b-2 under the Exchange Act; provided, however, that an Associate shall not include the Company or a majority-owned affiliate of the Company.
(c) Board means the Board of Directors of the Company.
(d) Capped Parachute Payments means the largest amount of Parachute Payments that may be paid without liability for any excise tax under Code section 4999.
(e) Cause means (i) willful, deliberate and continued failure by Executive (other than for reason of mental or physical illness) to perform his duties as established by the Board, or fraud or dishonesty in connection with such duties, in either case, if such conduct has a materially detrimental effect on the business operations of the Company; (ii) a material breach by Executive of his fiduciary duties of loyalty or care to the Company; (iii) conviction of any crime (or upon entering a plea of guilty or nolo contendere to a charge of any crime) constituting a felony; (iv) misappropriation of the Company’s funds or property; or (v) willful, flagrant, deliberate and repeated infractions of material published policies and regulations of the Company of which Executive has actual knowledge.
(f) Change in Control means (i) a Person is or becomes an Acquiring Person; (ii) holders of the securities of the Company entitled to vote thereon approve any agreement with a Person (or, if such approval is not required by applicable law and is not solicited by the Company, the closing of such an agreement) that involves the transfer of more than fifty percent (50%) of the Company’s and its affiliates’ total assets on a consolidated basis, as reported in the Company’s consolidated financial statements filed with the Securities and Exchange Commission; (iii) holders of the securities of the Company entitled to vote thereon approve a transaction (or, if such approval is not required by applicable law and is not solicited by the Company, the closing of such a transaction) pursuant to which the Company will undergo a merger, consolidation, or statutory share exchange with a company, regardless of whether the Company is intended to be the surviving or resulting entity after the merger, consolidation, or statutory share exchange, other than a transaction that results in the voting securities of the Company carrying the right to vote in elections of persons to the Board outstanding immediately prior to the closing of the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the Company’s voting securities carrying the right to vote in elections of persons to the Board, or such securities of such surviving entity, outstanding immediately after the closing of such transaction; (iv) the Continuing Directors cease for any reason to constitute a majority of the Board; (v) holders of the securities of the Company entitled to vote thereon approve a plan of complete liquidation of the Company or an agreement for the sale or liquidation by the Company or its affiliates of substantially all of the assets of the Company and its affiliates (or, if such approval is not required by applicable law and is not solicited by the Company, the commencement of actions constituting such a plan or the closing of such an agreement); or (vi) the Board adopts a resolution to the effect that, in its judgment, as a consequence of any one or more transactions or events or series of transactions or events, a Change in Control of the Company has effectively occurred.
(g) Continuing Director means any member of the Board, while a member of the Board and (i) who was a member of the Board on the Effective Date or (ii) whose nomination for or election to the Board was recommended or approved by a majority of the Continuing Directors.
(h) Control Affiliate, with respect to any Person, means an affiliate as defined in Rule 12b-2 under the Exchange Act.
(i) Control Change Date means the date on which a Change in Control occurs. If a Change in Control occurs on account of a series of transactions or events, the “Control Change Date” is the date of the last of such transactions or events in the series.
(j) Exchange Act means the Securities Exchange Act of 1934, as amended.
(k) Good Reason means Executive’s resignation from the employment of the Company and its affiliates on account of one or more of the following events:
(i) a material diminution by the Board of the duties, functions and responsibilities of Executive as the Vice President and Secretary of the Company without his consent;
(ii) the failure of the Company to permit Executive to exercise such responsibilities as are consistent with Executive’s positions or are of a nature as are usually associated with such offices of a corporation engaged in substantially the same business as the Company;
(iii) the Company’s causing Executive to relocate his employment more than fifty (50) miles from Mt. Airy, North Carolina, or his place of primary residence as of the Effective Date of this Agreement, without the consent of Executive;
(iv) the failure of the Company to make a payment to Executive when due or, if later, within 10 days after Executive has made demand for such payment;
(v) the Company’s material reduction of Executive’s (A) annual base salary, as in effect from time to time after the Effective Date; (B) bonus, such that the aggregate threshold, target, or maximum bonus projected for Executive for a fiscal year is lower than the aggregate threshold, target, or maximum bonus, respectively, projected for Executive for the immediately preceding fiscal year; or (C) employee welfare, fringe or pension benefits, other than reductions determined to be necessary to comply with the Employee Retirement Income Security Act of 1974, as amended, or to retain the tax-qualified or tax-favored status of the benefit under the Code, which determination shall be made by the Board in good faith;
(vi) a breach of Section 10 of this Agreement;
(vii) the Company or the Board directs Executive to engage in unlawful or unethical conduct or conduct contrary to the Company’s good business practices.
(l) Net After Tax Amount means the amount of any Parachute Payments or Capped Parachute Payments, as applicable, net of taxes imposed under Code sections 1, 3101(b) and 4999 and any state or local income taxes applicable as in effect on the date of the payment under Section 5 of this Agreement. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Parachute Payments, as applicable, in effect for the year for which the determination is made.
(m) Person means any human being, firm, corporation, partnership, or other entity. “Person” also includes any human being, firm, corporation, partnership, or other entity as defined in sections 13(d)(3) and 14(d)(2) of the Exchange Act. The term “Person” does not include the Company, or any Related Entity, and the term Person does not include any employee-benefit plan maintained by the Company or any Related Entity, and any person or entity organized, appointed, or established by the Company or any Related Entity for or pursuant to the terms of any such employee-benefit plan, unless the Board determines that such an employee-benefit plan or such person or entity is a “Person”.
(n) Related Entity means any entity that is part of a controlled group of corporations or is under common control with the Company within the meaning of section 1563(a), 414(b) or 414(c) of the Code.
(o) Separation from Service means the termination of the Executive’s employment with the Company and all Related Entities; provided, however, that the Executive will not be considered as having had a Separation from Service if (i) the Executive continues to provide services to the Company or any Related Entity as an employee at an annual rate that is at least equal to 20 percent of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is at least equal to 20 percent of the average annual remuneration earned during the final three full calendar years of employment (or if less, such lesser period), (ii) the Executive continues to provide services to the Company or any Related Entity in a capacity other than as an employee and such services are provided at an annual rate that is 50 percent or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is 50 percent or more of the annual remuneration earned during the final three full calendar years of employment (or, if less, such lesser period) or (iii) the Executive is on military leave, sick leave or other bona fide leave of absence (such as temporary employment by the government) so long as the period of such leave does not exceed six months, or if longer, so long as the Executive’s right to reemployment with the Company or any Related Entity is provided either by statute or by contract. If the period of leave exceeds six months and the Executive’s right to reemployment is not provided either by statute or by contract, the Separation from Service will be deemed to occur on the first date immediately following such six-month period. For purposes of this Section 6(o), the annual rate of providing services shall be determined based upon the measurement used to determine the Executive’s base compensation. This definition of Separation from Service is intended to comply with the definition of “separation from service” as used in Section 409A(a)(2)(A)(i) of the Code and shall be interpreted accordingly.
(p) Specified Employee generally means an employee who is (i) an officer of the Company or a Related Entity having annual compensation greater than $140,000 (with certain adjustments for inflation after 2006), (ii) a five-percent owner of the Company or a Related Entity or (iii) a one-percent owner of the Company or a Related Entity having annual compensation greater than $150,000. This definition is intended to comply with the “specified employee” rules of Section 409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly.
7. Attorneys’ Fees. Executive shall be entitled to reimbursement by the Company for any attorneys’ fees and any other reasonable expenses that Executive incurs in enforcing or protecting his rights under this Agreement. Subject to Section 19, such reimbursement shall be made within thirty days following final resolution of the dispute or occurrence giving rise to such fees and expenses, regardless of whether Executive is deemed the prevailing party in the resolution of the dispute or occurrence.
8. No Assignment. Except as required by applicable law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law and any attempt to effect any such action shall be null, void and of no effect.
9. Governing Law. This Agreement shall be governed by the laws of the State of North Carolina other than its choice of law provisions to the extent that they would require the application of the laws of a State other than the State of North Carolina.
10. Successors. The Company shall require any successor to all or substantially all of the Company’s respective business or assets (whether direct or indirect, by purchase, merger, consolidation or otherwise), to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to resign from the employ of the Company and to receive the Termination Benefits and other benefits under this Agreement in the same amount and on the same terms as Executive would be entitled to hereunder if he terminated his employment for Good Reason following a Change in Control. References in this Agreement to the “Company” include the Company as herein before defined and any successor to the Company’s business, assets or both which assumes and agrees to perform this Agreement by operation of law or otherwise.
11. Binding Agreement. This Agreement shall inure to the benefit of and be enforceable by Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amount remains payable to him hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there is none, to Executive’s estate.
12. No Employment Rights. Nothing in this Agreement confers on Executive any right to continuance of employment by the Company or any Related Entity. Nothing in this Agreement interferes with the right of the Company or a Related Entity to terminate Executive’s employment at any time for any reason whatsoever, with or without Cause, subject to the requirements of this Agreement. Nothing in this Agreement restricts the right of Executive to terminate his employment with the Company and Related Entities at any time for any reason whatsoever, with or without Good Reason.
13. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together constitute one and the same instrument.
14. Entire Agreement. This Agreement expresses the whole and entire agreement between the parties with reference to the payment of the Termination Benefits and supersedes and replaces any prior agreement, understanding or arrangement (whether oral or written) by or between the Company and Executive with respect to the payment of the Termination Benefits.
15. Notices. All notices, requests and other communications to any party under this Agreement shall be in writing and shall be given to such party at its address set forth below or such other address as such party may hereafter specify for the purpose by notice to the other party:
If to Executive: |
James R. York 255 W. Oak Street Mount Airy, NC 27030 |
|
If to the Company: |
Insteel Industries Inc. 1373 Boggs Drive Mt. Airy, North Carolina 27030 |
Each notice, request or other communication shall be effective if (i) given by mail, seventy-two hours after such communication is deposited in the mails with first class postage prepaid, address as aforesaid or (ii) if given by any other means, when delivered at the address specified in this Section 15.
16. Modification of Agreement. No waiver or modification of this Agreement shall be valid unless in writing and duly executed by the party to be charged therewith. No evidence of any waiver or modification shall be offered or received in evidence at any proceeding, arbitration or litigation between the parties unless such waiver or modification is in writing, and duly executed. The parties agree that this Section 16 may not be waived except as herein set forth.
17. Recitals. The Recitals to this Agreement are incorporated herein and shall constitute an integral part of this Agreement.
18. Section 409A. This Agreement is intended to comply with the applicable requirements of Section 409A of the Code and shall be construed and interpreted in accordance therewith. Notwithstanding the preceding, the Company and its Related Entities shall not be liable to the Executive or any other person if the Internal Revenue Service or any court or other authority having jurisdiction over such matter determines for any reason that any amount under this Agreement is subject to taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.
19. Delay of Payment. Notwithstanding any other provision of this Agreement, if the Executive is a Specified Employee, to the extent necessary to comply with Section 409A of the Code, no payments or benefits (which are not otherwise exempt) may be paid or provided hereunder before the date which is six months after the Executive’s Separation from Service or, if earlier, his death. The amounts which would have otherwise been required to be paid, and the benefits which would have otherwise been provided, during such six months or, if earlier, until Executive’s death, shall be paid to Executive in one lump sum cash payment as soon as administratively practical after the date which is six months after Executive’s Separation from Service or, if earlier, after the Executive’s death. Any other payments scheduled to be made or benefits scheduled to be provided after such period shall be made or provided at the times otherwise designated in this Agreement disregarding the delay of payment for the payments and benefits described in this Section 19.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written.
James R. York |
|||
INSTEEL INDUSTRIES INC. |
|||
By: | |||
Name | H.O. Woltz III | ||
Title | President & CEO |
Exhibit 21.1
List of Subsidiaries of Insteel Industries, Inc.
The following is a list of our subsidiaries as of October 1, 2022, each of which is wholly-owned:
Name |
State or Other Jurisdiction of Incorporation |
|
Insteel Wire Products Company |
North Carolina |
|
Intercontinental Metals Corporation |
North Carolina |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We have issued our reports dated October 27, 2022 with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of Insteel Industries, Inc. on Form 10-K for the year ended October 1, 2022. We consent to the incorporation by reference of said reports in the Registration Statements of Insteel Industries, Inc. on Forms S-8 (File No. 333-236744, File No. 333-48011, File No. 333-30934, File No. 333-123325, File No. 333-179670 and File No. 333-202128).
/s/ Grant Thornton LLP
Charlotte, North Carolina
October 27, 2022
Exhibit 31.1
CERTIFICATION
I, H. O. Woltz III, certify that:
1. |
I have reviewed this Annual Report on Form 10-K for the year ended October 1, 2022 of Insteel Industries, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: October 27, 2022
/s/ H. O. Woltz III
H. O. Woltz III
President, Chief Executive Officer and Chairman of the Board
Exhibit 31.2
CERTIFICATION
I, Mark A. Carano, certify that:
1. |
I have reviewed this Annual Report on Form 10-K for the year ended October 1, 2022 of Insteel Industries, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: October 27, 2022
/s/ Mark A. Carano
Mark A. Carano
Senior Vice President, Chief Financial Officer and Treasurer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Insteel Industries, Inc. (the “Company”) for the period ended October 1, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, H. O. Woltz III, President, Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ H. O. Woltz III |
|
H. O. Woltz III |
|
President, Chief Executive Officer and Chairman of the Board |
|
October 27, 2022 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Insteel Industries, Inc. (the “Company”) for the period ended October 1, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark A. Carano, Senior Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Mark A. Carano |
|
Mark A. Carano |
|
Senior Vice President, Chief Financial Officer and Treasurer |
|
October 27, 2022 |
'
M-+#P-I?]FPQ2>1>WBRM%)-YDB;81Y+;F7
Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Net sales | $ 826,832 | $ 590,601 | $ 472,618 |
Cost of sales | 629,522 | 469,053 | 416,831 |
Gross profit | 197,310 | 121,548 | 55,787 |
Selling, general and administrative expense | 36,048 | 32,388 | 31,348 |
Restructuring (recoveries) charges, net | (318) | 2,868 | 1,695 |
Acquisition costs | 0 | 0 | 195 |
Other expense (income), net | 88 | 114 | (1,254) |
Interest expense | 91 | 96 | 106 |
Interest income | (326) | (21) | (473) |
Earnings before income taxes | 161,727 | 86,103 | 24,170 |
Income taxes | 36,716 | 19,493 | 5,161 |
Net earnings | $ 125,011 | $ 66,610 | $ 19,009 |
Net earnings per share | |||
Basic (in dollars per share) | $ 6.41 | $ 3.44 | $ 0.99 |
Diluted (in dollars per share) | 6.37 | 3.41 | 0.98 |
Cash dividends declared (in dollars per share) | $ 2.12 | $ 1.62 | $ 0.12 |
Weighted average shares outstanding | |||
Basic (in shares) | 19,517 | 19,344 | 19,278 |
Diluted (in shares) | 19,629 | 19,534 | 19,383 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
12 Months Ended | ||||
---|---|---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|||
Net earnings | $ 125,011 | $ 66,610 | $ 19,009 | ||
Adjustment to defined benefit plan liability, net of income taxes of ($463), $154 and ($93), respectively | 1,465 | (486) | 292 | ||
Other comprehensive income (loss) | [1] | 1,465 | (486) | 292 | |
Comprehensive income | $ 126,476 | $ 66,124 | $ 19,301 | ||
|
Consolidated Statements of Comprehensive Income-parentheticals (Parentheticals) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Other comprehensive (loss) income, related income taxes | $ (463) | $ 154 | $ (93) |
Consolidated Balance Sheets -parentheticals (Parentheticals) - $ / shares shares in Thousands |
Oct. 01, 2022 |
Oct. 02, 2021 |
---|---|---|
Preferred Stock, No Par Value (in dollars per share) | $ 0 | $ 0 |
Preferred Stock, Shares Authorized (in shares) | 1,000 | 1,000 |
Preferred Stock, Shares Issued (in shares) | 0 | 0 |
Common Stock, Par or Stated Value Per Share (in dollars per share) | $ 1 | $ 1 |
Common Stock, Shares Authorized (in shares) | 50,000 | 50,000 |
Common Stock, Shares, Issued (in shares) | 19,478 | 19,408 |
Common Stock, Shares, Outstanding, Ending Balance (in shares) | 19,478 | 19,408 |
Consolidated Statements of Shareholders' Equity -parentheticals (Parentheticals) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Other comprehensive (loss) income, related income taxes | $ (463) | $ 154 | $ (93) |
Consolidated Statements of Cash Flows - USD ($) |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Cash Flows From Operating Activities | |||
Net earnings | $ 125,011,000 | $ 66,610,000 | $ 19,009,000 |
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||
Depreciation and amortization | 14,486,000 | 14,521,000 | 14,255,000 |
Amortization of capitalized financing costs | 65,000 | 65,000 | 66,000 |
Stock-based compensation expense | 2,429,000 | 1,988,000 | 2,028,000 |
Deferred income taxes | 327,000 | (118,000) | (424,000) |
Asset impairment charges | 0 | 1,415,000 | 343,000 |
(Gain) loss on sale and disposition of property, plant and equipment and assets held for sale | (480,000) | 125,000 | (1,114,000) |
Increase in cash surrender value of life insurance policies over premiums paid | 0 | (1,533,000) | (243,000) |
Gain from life insurance proceeds | (364,000) | 0 | (200,000) |
Net changes in assets and liabilities (net of assets and liabilities acquired) | |||
Accounts receivable, net | (13,729,000) | (14,100,000) | (5,806,000) |
Increase (Decrease) in Inventories, Total | 118,605,000 | 10,086,000 | (5,060,000) |
Inventories | (118,605,000) | (10,086,000) | 5,060,000 |
Accounts payable and accrued expenses | (1,964,000) | 11,891,000 | 20,159,000 |
Increase (Decrease) in Other Operating Assets and Liabilities, Net, Total | 1,506,000 | 900,000 | (3,091,000) |
Other changes | (1,506,000) | (900,000) | 3,091,000 |
Total adjustments | (119,341,000) | 3,268,000 | 37,215,000 |
Net cash provided by operating activities | 5,670,000 | 69,878,000 | 56,224,000 |
Cash Flows From Investing Activities | |||
Acquisition of business | 0 | 0 | (18,356,000) |
Capital expenditures | (15,900,000) | (17,500,000) | (7,114,000) |
Proceeds from sale of property, plant and equipment | 0 | 0 | 40,000 |
Proceeds from surrender of life insurance policies | 110,000 | 32,000 | 260,000 |
Decrease (increase) in cash surrender value of life insurance policies | 1,361,000 | (416,000) | (390,000) |
Proceeds from sale of assets held for sale | 6,934,000 | 79,000 | 2,186,000 |
Proceeds from life insurance claims | 1,456,000 | 0 | 200,000 |
Net cash used for investing activities | (6,039,000) | (17,805,000) | (23,174,000) |
Cash Flows From Financing Activities | |||
Proceeds from long-term debt | 266,000 | 297,000 | 322,000 |
Principal payments on long-term debt | (266,000) | (297,000) | (322,000) |
Cash dividends paid | (41,162,000) | (31,294,000) | (2,313,000) |
Cash received from exercise of stock options | 1,650,000 | 1,082,000 | 0 |
Repurchases of common stock | (1,204,000) | 0 | 0 |
Payment of employee tax withholdings related to net share transactions | (483,000) | (665,000) | (230,000) |
Net cash used for financing activities | (41,199,000) | (30,877,000) | (2,543,000) |
Net (decrease) increase in cash and cash equivalents | (41,568,000) | 21,196,000 | 30,507,000 |
Cash and cash equivalents at beginning of period | 89,884,000 | 68,688,000 | 38,181,000 |
Cash and cash equivalents at end of period | 48,316,000 | 89,884,000 | 68,688,000 |
Supplemental Disclosures of Cash Flow Information: | |||
Income taxes, net | 41,483,000 | 16,799,000 | 1,919,000 |
Non-cash investing and financing activities | |||
Purchases of property, plant and equipment in accounts payable | 946,000 | 501,000 | 769,000 |
Restricted stock units and stock options surrendered for withholding taxes payable | 483,000 | 665,000 | 230,000 |
Payable related to holdback for business acquired | $ 0 | $ 0 | $ 1,000,000 |
Note 1 - Description of Business |
12 Months Ended |
---|---|
Oct. 01, 2022 | |
Notes to Financial Statements | |
Business Description and Basis of Presentation [Text Block] |
(1) Description of Business
Insteel Industries, Inc. (“we,” “us,” “our,” “Insteel” or “the Company”) is the nation’s largest manufacturer of steel wire reinforcing products for concrete construction applications. Insteel is the parent holding company for two wholly-owned subsidiaries, Insteel Wire Products Company (“IWP”), an operating subsidiary, and Intercontinental Metals Corporation, an inactive subsidiary. We manufacture and market prestressed concrete strand (“PC strand”) and welded wire reinforcement (“WWR”), including engineered structural mesh, concrete pipe reinforcement and standard welded wire reinforcement. Our products are primarily sold to manufacturers of concrete products and, to a lesser extent, distributors, rebar fabricators and contractors. We sell our products nationwide across the United States (“U.S.”) and, to a much lesser extent, into Canada, Mexico and Central and South America.
On March 16, 2020, we, through our wholly-owned subsidiary, IWP, purchased substantially all of the assets of Strand-Tech Manufacturing, Inc. (“STM”).
We have evaluated all subsequent events that occurred after the balance sheet date through the time of filing this Annual Report on Form 10-K and concluded there were no events or transactions during this period that required additional recognition or disclosure in our consolidated financial statements. |
Note 2 - Summary of Significant Accounting Policies |
12 Months Ended |
---|---|
Oct. 01, 2022 | |
Notes to Financial Statements | |
Significant Accounting Policies [Text Block] |
(2) Summary of Significant Accounting Policies
Fiscal year. Our fiscal year is the 52 or 53 weeks ending on the Saturday closest to September 30. Fiscal years 2022 and 2021 were 52-week periods, and fiscal year 2020 was a 53-week period. All references to years relate to fiscal years rather than calendar years.
Principles of consolidation. The consolidated financial statements include the accounts of Insteel and our subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. There is no assurance that actual results will not differ from these estimates.
Cash equivalents. We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
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 principally concentrated 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.
The majority of our accounts receivable are due from customers that are located in the U.S. and are generally not secured by collateral depending upon the creditworthiness of the account. We provide an allowance for credit losses based upon our assessment of the credit risk of specific customers, historical trends and other information. We write off accounts receivable when they become uncollectible. There is no disproportionate concentration of credit risk.
Stock-based compensation. We account for stock-based compensation in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation”, which requires stock-based compensation expense to be recognized in net earnings based on the fair value of the award on the date of the grant. We estimate for forfeitures over the service period. We determine the fair value of stock options issued by using a Monte Carlo valuation model at the grant date, which considers a range of assumptions including the expected term, volatility, dividend yield and risk-free interest rate.
Employee benefit plan. We account for our supplemental retirement benefit agreements (each, a “SRBA”) in accordance with ASC Topic 715, “Compensation - Retirement Benefits”. Under the provisions of ASC Topic 715, we recognize net periodic pension cost and value liabilities based on certain actuarial assumptions, principally the assumed discount rate.
The discount rate we utilize for determining net periodic pension cost and the related benefit obligation for the SRBAs is 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 rate is 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. We currently expect net periodic pension cost for 2023 to be $864,000 for the SRBAs. Cash contributions to the SRBAs during 2023 are expected to be $560,000.
The assumed discount rate is reevaluated annually. 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. 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 projected benefit obligations and net periodic pension cost for the SRBAs 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 our intentions regarding future compensation increases, which generally approximates average long-term inflation rates. A 0.25% decrease in the assumed discount rate for our SRBAs would have increased our projected and accumulated benefit obligations as of October 1, 2022 by approximately $297,000 and $244,000, respectively, and our expected net periodic pension cost for 2023 by approximately $30,000.
Revenue recognition. We recognize revenues when obligations under the terms of a contract with our customers are satisfied, which generally occurs when products are shipped and control is transferred. Revenue is measured as the amount of consideration expected to be received in exchange for our products.
Inventories. Inventories are valued at the lower of weighted average cost (which approximates computation on a first-in, first-out basis) and net realizable value. The valuation of inventory includes the costs for material, labor and manufacturing overhead.
Property, plant and equipment. Property, plant and equipment are recorded at cost or fair market value in the case of the assets acquired through acquisitions, or otherwise at reduced values to the extent there have been asset impairment write-downs. Expenditures for maintenance and repairs are charged directly to expense when incurred, while major improvements are capitalized. Depreciation is computed for financial reporting purposes principally by use of the straight-line method over the following estimated useful lives: machinery and equipment, 3 - 15 years; buildings, 10 - 30 years; and land improvements, 10 - 20 years. Depreciation expense was approximately $13.7 million in 2022, $13.6 million in 2021 and $13.2 million in 2020 and reflected in cost of sales and selling, general and administrative expense (“SG&A expense”) in the consolidated statements of operations. Capitalized software is amortized over the shorter of the estimated useful life or 5 years and reflected in SG&A expense. No interest costs were capitalized in 2022, 2021 and 2020.
Goodwill. Goodwill is the excess of cost over the fair value of net assets of businesses acquired. Goodwill is not amortized but is tested annually for impairment and whenever events or circumstances change that would make it more likely than not that an impairment may have occurred. We perform our annual impairment analysis as of the first day of the fourth quarter each year. The evaluation of impairment involves comparing the current estimated fair value of the reporting unit to its recorded value, including goodwill. We perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. It may be necessary to perform a quantitative analysis where a discounted cash flow model is used to determine the current estimated fair value of the reporting unit. Key assumptions used to determine the fair value of the reporting unit as part of our annual testing (and any required interim testing) include: (a) expected cash flows for the five-year period following the testing date; (b) an estimated terminal value using a terminal year growth rate based on the growth prospects of the reporting unit; (c) a discount rate based on our estimated after-tax weighted average cost of capital; and (d) a probability-weighted scenario approach by which varying cash flows are assigned to alternative scenarios based on their likelihood of occurrence. In developing these assumptions, we consider historical and anticipated future results, general economic and market conditions, the impact of planned business and operational strategies and all available information at the time the fair value of the reporting unit is estimated. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. Changes in assumptions and estimates may affect the fair value of goodwill and could result in impairment charges in future periods. Based on the results of our impairment analysis, no goodwill impairment losses were recognized in the consolidated statements of operations for 2022, 2021 and 2020. Subsequent to the analysis, there have been no events or circumstances that indicate any potential impairment of goodwill.
Long-lived assets. Long-lived assets include property, plant and equipment and identifiable intangible assets with definite useful lives. Finite-lived intangible assets are amortized over their estimated useful lives. Our intangible assets consist of customer relationships, developed technology and know-how, non-competition agreements and trade names and are being amortized on a straight-line basis over their finite useful lives (see Note 7 to the consolidated financial statements). We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. When we determine that the carrying value of such assets may not be recoverable, we measure recoverability based on the undiscounted cash flows expected to be generated by the related asset or asset group. If it is determined that an impairment loss has occurred, the loss is recognized in the period in which it is incurred and is calculated as the difference between the carrying value and the present value of estimated future net cash flows or comparable market values. There were no impairment losses in 2022. Impairment charges of $1.4 million and $0.3 million were recorded in 2021 and 2020, respectively, related to the impairment of long-lived assets resulting from the consolidation of our PC strand operations with the closure of our Summerville, South Carolina facility (see Note 5 to the consolidated financial statements).
Fair value of financial instruments. The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value because of their short maturities.
Income taxes. Income taxes are based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. We assess the need to establish a valuation allowance against deferred tax assets to the extent we no longer believe it is more likely than not that the tax assets will be fully realized. We recognize uncertain tax positions when we have determined it is more likely than not that a tax position will be sustained upon examination. However, new information may become available, or applicable laws or regulations may change, thereby resulting in a favorable or unfavorable adjustment to amounts recorded.
Earnings per share. Basic earnings per share (“EPS”) are computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS are computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock and other dilutive equity securities outstanding during the period. Securities that have the effect of increasing EPS are considered to be antidilutive and are not included in the computation of diluted EPS. |
Note 3 - Recent Accounting Pronouncements |
12 Months Ended |
---|---|
Oct. 01, 2022 | |
Notes to Financial Statements | |
Accounting Standards Update and Change in Accounting Principle [Text Block] |
(3) Recent Accounting Pronouncements
Current Adoptions
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12 "Simplifying the Accounting for Income Taxes (Topic 740)". ASU No. 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to provide for more consistent application. We adopted ASU No. 2019-12 in the first quarter of 2022. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Future Adoptions
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. ASU No. 2020-04 is effective March 12, 2020 through December 31, 2022. The adoption of this guidance will not have a material impact on our consolidated financial statements and disclosures. |
Note 4 - Revenue Recognition |
12 Months Ended |
---|---|
Oct. 01, 2022 | |
Notes to Financial Statements | |
Revenue from Contract with Customer [Text Block] |
(4) Revenue Recognition
We recognize revenues when performance obligations under the terms of a contract with our customers are satisfied, which generally occurs when products are shipped and control is transferred. We enter into contracts that pertain to products, which are accounted for as separate performance obligations and typically one year or less in duration. We do not exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. We present revenue net of amounts collected from customers for sales tax.
Variable consideration that may affect the total transaction price, including contractual discounts, rebates, returns and credits are included in net sales. Estimates for variable consideration are based on historical experience, anticipated performance and management's judgment and are updated as of each reporting date. Shipping and related expenses associated with outbound freight are accounted for as fulfillment costs and included in cost of sales. We do not have significant financing components. Contract costs are not significant and are recognized as incurred.
Contract assets primarily relate to our rights to consideration for products that are delivered but not billed as of the reporting date and are reclassified to receivables when the customer is invoiced. Contract liabilities primarily relate to performance obligations that are to be satisfied in the future and arise when we collect from the customer in advance of shipments. Contract assets and liabilities were not material as of October 1, 2022 and October 2, 2021.
Accounts receivable includes amounts billed and currently due from customers stated at their net estimated realizable value. Customer payment terms are generally 30 days. We maintain an allowance for doubtful accounts to provide for the estimated receivables that will not be collected, which is based upon our assessment of customer creditworthiness, historical payment experience and the age of outstanding receivables. Past-due trade receivable balances are written off when our collection efforts have been unsuccessful.
See Note 15 for the disaggregation of our net sales by product line and geography. |
Note 5 - Restructuring |
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Restructuring and Related Activities Disclosure [Text Block] |
(5) Restructuring
On March 16, 2020, we purchased substantially all of the assets of STM for an adjusted purchase price of $19.4 million, reflecting certain post-closing adjustments (the “STM Acquisition”). STM was a leading manufacturer of PC strand for concrete construction applications. We acquired, among other assets, STM’s accounts receivable, inventories, production equipment and facility located in Summerville, South Carolina, and assumed certain of its accounts payable and accrued liabilities.
In connection with the STM acquisition, we elected to consolidate our PC strand operations through the closure of the Summerville facility and the redeployment of its equipment to our other three PC strand production facilities located in Gallatin, Tennessee; Houston, Texas; and Sanderson, Florida. Operations at the Summerville facility ceased during the third quarter of 2020, and the facility was sold in 2022. The consolidation of our PC strand operations was completed in 2022. Following is a summary of the restructuring activity during 2022, 2021 and 2020:
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Note 6 - Fair Value Measurements |
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Fair Value Disclosures [Text Block] |
(6) 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.
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 October 1, 2022 and October 2, 2021, we held financial assets that are required to be measured at fair value on a recurring basis, which are summarized below:
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 our 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 company’s valuation models and represents the guaranteed value we would receive upon surrender of these policies as of the reporting date.
As of October 1, 2022 and October 2, 2021, we had no nonfinancial assets that are required to be measured at fair value on a nonrecurring basis. During 2021, we recognized $1.4 million of impairment charges related to the Summerville facility acquired in the STM Acquisition to reflect its fair value of $6.3 million as of October 2, 2021. The Summerville facility, which was sold in 2022, was classified as assets held for sale in other assets on our consolidated balance sheet as of October 2, 2021. The carrying amounts of accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturities of these financial instruments.
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Note 7 - Intangible Assets |
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Intangible Assets Disclosure [Text Block] |
(7) Intangible Assets
The primary components of our intangible assets and the related accumulated amortization are as follows:
Amortization expense for intangibles was $821,000 in 2022, $899,000 in 2021 and $1.0 million in 2020. Amortization expense for the next five years is $756,000 in 2023, $750,000 in 2024, $743,000 in 2025, $752,000 in 2026 and $480,000 in 2027. |
Note 8 - Long-term Debt |
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Long-Term Debt [Text Block] |
(8) Long-Term Debt
Revolving Credit Facility. We have a $100.0 million revolving credit facility (the “Credit Facility”) that is used to supplement our operating cash flow and fund our working capital, capital expenditure, general corporate and growth requirements. In May 2019, we entered into a new credit agreement, which amended and restated in its entirety the previous agreement pertaining to the revolving credit facility that had been in effect since June 2010. The new credit agreement, among other changes, extended the maturity date of the Credit Facility from May 13, 2020 to May 15, 2024 and provided for an accordion feature whereby its size may be increased by up to $50.0 million, subject to our lender’s approval. Advances under the Credit Facility are limited to the lesser of the revolving loan commitment amount (currently $100.0 million) or a borrowing base amount that is calculated based upon a percentage of eligible receivables and inventories. As of October 1, 2022, no borrowings were outstanding on the Credit Facility, $98.6 million of borrowing capacity was available and outstanding letters of credit totaled $1.4 million. As of October 2, 2021, there were no borrowings outstanding on the Credit Facility.
Interest rates on the Credit Facility 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 our election, 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 Credit Facility within the range of 0.25% to 0.50% for index rate loans and 1.25% to 1.50% 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 under the terms of the Credit Facility. Based on our excess availability as of October 1, 2022, the applicable interest rate margins on the Credit Facility were 0.25% for index rate loans and 1.25% for LIBOR loans.
Our ability to borrow available amounts under the Credit Facility will be restricted or eliminated in the event of certain covenant breaches, events of default or if we are unable to make certain representations and warranties provided for under the terms of the Credit Facility. We are required to maintain a fixed charge coverage ratio of not less than 1.0 at the end of each fiscal quarter for the twelve-month period then ended when the amount of liquidity on the Credit Facility is less than $10.0 million. In addition, the terms of the Credit Facility restrict our 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 our stock subject to certain minimum borrowing availability requirements; incur or assume indebtedness; issue securities; enter into certain transactions with our affiliates; or permit liens to encumber our property and assets. The terms of the Credit Facility also provide that an event of default will occur 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 us or any of our 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; certain entries of judgment against us or any of our subsidiaries, which are not covered by insurance; or a change of control. As of October 1, 2022, we were in compliance with all of the financial and negative covenants under the Credit Facility, and there have not been any events of default.
Amortization of capitalized financing costs associated with the Credit Facility was $65,000 in 2022, $65,000 in 2021 and $66,000 in 2020. We expect the amortization of capitalized financing costs to approximate the following amounts for the next five fiscal years:
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Note 9 - Stock-based Compensation |
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Share-Based Payment Arrangement [Text Block] |
(9) Stock-Based Compensation
Under our equity incentive plan, employees and directors may be granted stock options, restricted stock, restricted stock units and performance awards. Effective February 11, 2020, our shareholders approved an amendment to the 2015 Equity Incentive Plan of Insteel Industries, Inc. (the “2015 Plan”), which authorizes up to an additional 750,000 shares of our common stock for future grants under the plan and expires on February 17, 2025. As of October 1, 2022, there were 555,000 shares of our common stock available for future grants under the 2015 Plan, which is our only active equity incentive plan.
Stock option awards. Under our equity incentive plan, employees and directors may be granted options to purchase shares of common stock at the fair market value on the date of the grant. Options granted under the plan generally vest over years and expire years from the date of the grant. Compensation expense associated with stock options was $1.1 million in 2022, $860,000 in 2021 and $810,000 in 2020. As of October 1, 2022, there was $714,000 of unrecognized compensation cost related to unvested options which is expected to be recognized over a weighted average period of 2.11 years.
The fair value of each option award granted is estimated on the date of grant using a Monte Carlo valuation model. The weighted-average estimated fair values of stock options granted during 2022, 2021 and 2020 were $14.67, $14.47 and $8.05 per share, respectively, based on the following weighted-average assumptions:
The assumptions utilized in the Monte Carlo valuation model are evaluated and revised, as necessary, to reflect market conditions and actual historical experience. The expected term for options was based on the results of a Monte Carlo simulation model, using the model’s estimated fair value as an input to the Black-Scholes-Merton model, and then solving for the expected term. The risk-free interest rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was derived using a term structure based on historical volatility and the volatility implied by exchange-traded options on our common stock. The dividend yield was calculated based on our annual dividend as of the option grant date.
The following table summarizes stock option activity:
Stock option exercises include “net exercises” for which the optionee received shares of common stock equal to the intrinsic value of the options (fair market value of common stock on the date of exercise less exercise price) reduced by any applicable withholding taxes.
Restricted stock units. Restricted stock units (“RSUs”) granted under our equity incentive plan 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 year from the date of the grant for RSUs granted to directors and years from the date of the grant for RSUs granted to employees. RSUs do not have voting rights. RSU grants and compensation expense are as follows:
As of October 1, 2022, there was $1.1 million of unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average period of 1.73 years.
The following table summarizes RSU activity:
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Note 10 - Income Taxes |
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Income Tax Disclosure [Text Block] |
(10) Income Taxes
The components of the provision for income taxes are as follows:
The reconciliation between income taxes computed at the federal statutory rate and the provision for income taxes is as follows:
The components of deferred tax assets and liabilities are as follows:
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act includes several changes impacting business, including, but not limited to, enhanced business interest deductibility, net operating loss ("NOL") carryback provisions, payroll tax deferral provisions and employee retention tax credits. We recorded a $223,000 tax benefit in 2020 resulting from the NOL carryback provisions of the CARES Act.
As of October 1, 2022 and October 2, 2021, we recorded deferred tax liabilities (net of valuation allowances) of $7.1 million and $6.3 million, respectively, in other liabilities on our consolidated balance sheet. We have $5.6 million of state NOLs that begin to expire in 2031, but principally expire between 2031 and 2037.
The realization of our deferred tax assets is entirely dependent upon our ability to generate future taxable income in applicable jurisdictions. GAAP requires that we periodically assess the need to establish a reserve against our deferred tax assets to the extent we no longer believe it is more likely than not that they will be fully realized. As of October 1, 2022, we recorded a valuation allowance of $32,000 pertaining to various state NOLs that were not expected to be utilized. The valuation allowance is subject to periodic review and adjustment based on changes in facts and circumstances and would be reduced should we utilize the state NOLs and tax credits against which an allowance had previously been provided or determine that such utilization was more likely than not. The $ decrease in the valuation allowance during 2022 is primarily due to the utilization of state NOLs for which an allowance had been recorded together with a reduction in state apportionment rates.
As of October 1, 2022, we had no material, known tax exposures that required the establishment of contingency reserves for uncertain tax positions.
We classify interest and penalties related to unrecognized tax benefits as part of income tax expense. There were interest and penalties related to unrecognized tax benefits incurred during 2022, 2021 and 2020.
We file U.S. federal income tax returns as well as state and local income tax returns in various jurisdictions. Federal and various state tax returns filed subsequent to 2017 remain subject to examination. |
Note 11 - Employee Benefit Plans |
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Compensation and Employee Benefit Plans [Text Block] |
(11) Employee Benefit Plans
Supplemental retirement benefit plan. We have SRBAs with certain of our key employees (each, a “Participant”). Under the SRBAs, if the Participant remains in continuous service with us for a period of at least 30 years, we will pay the Participant a supplemental retirement benefit for the 15-year period following the Participant’s retirement equal to 50% of the Participant’s highest average annual base salary for consecutive years in the 10-year period preceding the Participant’s retirement. If the Participant retires prior to the later of age 65 or the completion of 30 years of continuous service with us, but has completed at least 10 years of continuous service, the amount of the Participant’s supplemental retirement benefit will be reduced by th for each month short of 30 years that the Participant was employed by us.
The reconciliation of the projected benefit obligation, plan assets, funded status and amounts recognized for the SRBAs in our consolidated balance sheets is as follows:
In 2022, 2021 and 2020, the actuarial (gain) loss includes amounts resulting from changes in actuarial assumptions utilized to calculate our benefit plan obligation such as the discount rate, estimated future compensation levels and changes in plan participants.
The accumulated benefit obligation was $10.7 million and $11.7 million as of October 1, 2022 and October 2, 2021, respectively.
Net periodic pension cost for the SRBAs includes the following components:
The assumptions used in the valuation of the SRBAs are as follows:
The assumed discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review published market indices of high-quality debt securities, adjusted as appropriate for duration, and high-quality bond yield curves applicable to the expected benefit payments of the SRBAs. The SRBAs expected rate of increase in compensation levels is based on the anticipated increases in annual compensation.
The projected benefit payments under the SRBAs are as follows:
Retirement savings plan. In 1996, we adopted the Retirement Savings Plan of Insteel Industries, Inc. (the “Plan”) to provide retirement benefits and stock ownership for our employees. The Plan is an amendment and restatement of our Employee Stock Ownership Plan. As allowed under Sections 401(a) and 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary deductions for eligible employees.
The Plan allows for discretionary contributions to be made by us as determined by the Board of Directors, which are allocated among eligible participants based on their compensation relative to the total compensation of all participants. Employees are permitted to contribute up to 75% of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Code. We match employee contributions up to 100% of the first 1% and 50% of the next 5% of eligible compensation that is contributed by employees. Our contributions to the Plan were $1.7 million in 2022, $1.5 million in 2021 and $1.3 million in 2020.
Voluntary Employee Beneficiary Associations (“VEBA”). We have a VEBA which allows both us and our employees to make contributions to pay for medical costs. Our contributions to the VEBA were $5.4 million in 2022, $6.4 million in 2021 and $6.0 million in 2020. We are primarily self-insured for our employee’s healthcare costs, carrying stop-loss insurance coverage for individual claims in excess of $175,000 per benefit plan year. Our self-insurance liabilities are based on the total estimated costs of claims filed and claims incurred but not reported, less amounts paid against such claims. We review current and historical claims data in developing our estimates. |
Note 12 - Commitments and Contingencies |
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Notes to Financial Statements | |
Commitments and Contingencies Disclosure [Text Block] |
(12) Commitments and Contingencies
Purchase commitments. As of October 1, 2022, we had $57.1 million in non-cancelable purchase commitments for raw material extending as long as approximately 30 days and $31.9 million of contractual commitments for the purchase of certain equipment that had not been fulfilled and are not reflected in our consolidated financial statements.
Legal proceedings. We are involved in lawsuits, claims, investigations and proceedings, including commercial, environmental and employment matters, which arise in the ordinary course of business. We do not expect the ultimate outcome or cost to resolve these matters will have a material adverse effect on our financial position, results of operations or cash flows.
Severance and change of control agreements. We have entered into a severance agreement with our Chief Executive Officer that provides him with certain termination benefits in the event his employment with us is terminated without cause. The initial term of the agreement was years, and it automatically renews for successive terms unless we or our Chief Executive Officer provide notice of termination as specified in the agreement. In the event of termination of the Chief Executive Officer’s employment without cause, this agreement provides that he would receive termination benefits equal to one and times his annual base salary in effect on the termination date and the continuation of health and welfare benefits for months. In addition, all of his stock options and restricted stock units would vest immediately, and outplacement services would be provided.
We have also entered into change in control agreements with key members of management, including our executive officers, which specify the terms of separation in the event that termination of their employment followed a change in control. The initial term of each agreement is years, and they automatically renew for successive terms unless we or the executive provide notice of termination as specified in the agreement. The agreements do not provide assurances of continued employment or specify the terms of an executive’s termination should one occur in the absence of a change in control. The compensation payable under the terms of these agreements differs between the Chief Executive Officer and the other covered executives. In the event of termination of the Chief Executive Officer within two years of a change of control, he would receive severance benefits equal to times base compensation, times the average bonus for the prior years and the continuation of health and welfare benefits for years. In the event of such a termination of the other key members of management, including our other four executive officers, within two years of a change of control, they would receive severance benefits equal to times base compensation, times the average bonus for the prior years and the continuation of health and welfare benefits for year. In addition, for any covered executive that is terminated within two years of a change of control, all of their stock options and restricted stock units would vest immediately, and outplacement services would be provided. |
Note 13 - Leases |
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Lessee, Operating Leases [Text Block] |
(13) Leases
We have operating leases for certain equipment, office space and vehicles. We determine whether an arrangement is a lease at its inception if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases with an initial term of months or less are not recorded on our consolidated balance sheet. Lease expense for operating leases with original terms of more than twelve months was $1.4 million in 2022, $1.4 million in 2021 and $1.3 million in 2020.
Most of our leases include options to extend or terminate the leases which are exercised at our sole discretion. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate as of the commencement date in determining the present value of lease payments, which represents an estimate of the interest rate we would incur at the lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term.
Supplemental cash flow and non-cash information related to leases is as follows:
Supplemental balance sheet information related to leases is as follows:
The weighted average remaining lease terms and discount rates for operating leases are as follows:
Aggregate future operating lease payments as of October 1, 2022 are as follows:
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Note 14 - Earnings Per Share |
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Earnings Per Share [Text Block] |
(14) Earnings Per Share
The computation of basic and diluted earnings per share attributable to common shareholders is as follows:
Options and RSUs that were antidilutive and not included in the diluted EPS calculation amounted to 49,000 shares in 2022, 142,000 shares in 2021 and 369,000 shares in 2020. |
Note 15 - Business Segment Information |
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Segment Reporting Disclosure [Text Block] |
(15) Business Segment Information
Our operations are entirely focused on the manufacture and marketing of steel wire reinforcing products for concrete construction applications. Our concrete reinforcing products consist of two product lines: PC strand and WWR. Based on the criteria specified in ASC Topic 280, Segment Reporting, we have reportable segment.
Our net sales by geographic region are as follows:
Our sales by product line are as follows:
There were no customers that accounted for 10% or more of our net sales in 2022, 2021 and 2020.
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Note 16 - Other Financial Data |
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Other Financial Data [Text Block] |
(16) Other Financial Data
Balance sheet information:
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Note 17 - Product Warranties |
12 Months Ended |
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Oct. 01, 2022 | |
Notes to Financial Statements | |
Product Warranty Disclosure [Text Block] |
(17) Product Warranties
Our products are used in applications which are subject to inherent risks including performance deficiencies, personal injury, property damage, environmental contamination or loss of production. We warrant our products to meet certain specifications, and actual or claimed deficiencies from these specifications may give rise to claims. We do not maintain a reserve for warranties as the historical claims have been immaterial. We maintain product liability insurance coverage to minimize our exposure to such risks. |
Note 18 - Share Repurchases |
12 Months Ended |
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Oct. 01, 2022 | |
Notes to Financial Statements | |
Stockholders' Equity Note Disclosure [Text Block] |
(18) Share Repurchases
On November 18, 2008, our Board of Directors approved a share repurchase authorization to buy back up to $25.0 million of our outstanding common stock (the “Authorization”). Under the 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. 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 Authorization continues in effect until terminated by the Board of Directors. During the year ended October 1, 2022, the Company repurchased $1.2 million or 41,706 shares of its common stock. As of October 1, 2022, there was $23.6 million remaining available for future share repurchases under this Authorization. There were no share repurchases during 2021 or 2020.
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Significant Accounting Policies (Policies) |
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Oct. 01, 2022 | |
Accounting Policies [Abstract] | |
Fiscal Period, Policy [Policy Text Block] | Fiscal year. Our fiscal year is the 52 or 53 weeks ending on the Saturday closest to September 30. Fiscal years 2022 and 2021 were 52-week periods, and fiscal year 2020 was a 53-week period. All references to years relate to fiscal years rather than calendar years. |
Consolidation, Policy [Policy Text Block] | Principles of consolidation. The consolidated financial statements include the accounts of Insteel and our subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. |
Use of Estimates, Policy [Policy Text Block] | Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. There is no assurance that actual results will not differ from these estimates. |
Cash and Cash Equivalents, Policy [Policy Text Block] | Cash equivalents. We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. |
Concentration Risk, Credit Risk, Policy [Policy Text Block] | 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 principally concentrated 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.The majority of our accounts receivable are due from customers that are located in the U.S. and are generally not secured by collateral depending upon the creditworthiness of the account. We provide an allowance for credit losses based upon our assessment of the credit risk of specific customers, historical trends and other information. We write off accounts receivable when they become uncollectible. There is no disproportionate concentration of credit risk. |
Share-Based Payment Arrangement [Policy Text Block] | Stock-based compensation. We account for stock-based compensation in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation”, which requires stock-based compensation expense to be recognized in net earnings based on the fair value of the award on the date of the grant. We estimate for forfeitures over the service period. We determine the fair value of stock options issued by using a Monte Carlo valuation model at the grant date, which considers a range of assumptions including the expected term, volatility, dividend yield and risk-free interest rate. |
Pension and Other Postretirement Plans, Policy [Policy Text Block] | Employee benefit plan. We account for our supplemental retirement benefit agreements (each, a “SRBA”) in accordance with ASC Topic 715, “Compensation - Retirement Benefits”. Under the provisions of ASC Topic 715, we recognize net periodic pension cost and value liabilities based on certain actuarial assumptions, principally the assumed discount rate.The discount rate we utilize for determining net periodic pension cost and the related benefit obligation for the SRBAs is 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 rate is 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. We currently expect net periodic pension cost for 2023 to be $864,000 for the SRBAs. Cash contributions to the SRBAs during 2023 are expected to be $560,000.The assumed discount rate is reevaluated annually. 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. 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 projected benefit obligations and net periodic pension cost for the SRBAs 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 our intentions regarding future compensation increases, which generally approximates average long-term inflation rates. A 0.25% decrease in the assumed discount rate for our SRBAs would have increased our projected and accumulated benefit obligations as of October 1, 2022 by approximately $297,000 and $244,000, respectively, and our expected net periodic pension cost for 2023 by approximately $30,000. |
Revenue [Policy Text Block] | Revenue recognition. We recognize revenues when obligations under the terms of a contract with our customers are satisfied, which generally occurs when products are shipped and control is transferred. Revenue is measured as the amount of consideration expected to be received in exchange for our products. |
Inventory, Policy [Policy Text Block] | Inventories. Inventories are valued at the lower of weighted average cost (which approximates computation on a first-in, first-out basis) and net realizable value. The valuation of inventory includes the costs for material, labor and manufacturing overhead. |
Property, Plant and Equipment, Impairment [Policy Text Block] | Property, plant and equipment. Property, plant and equipment are recorded at cost or fair market value in the case of the assets acquired through acquisitions, or otherwise at reduced values to the extent there have been asset impairment write-downs. Expenditures for maintenance and repairs are charged directly to expense when incurred, while major improvements are capitalized. Depreciation is computed for financial reporting purposes principally by use of the straight-line method over the following estimated useful lives: machinery and equipment, 3 - 15 years; buildings, 10 - 30 years; and land improvements, 10 - 20 years. Depreciation expense was approximately $13.7 million in 2022, $13.6 million in 2021 and $13.2 million in 2020 and reflected in cost of sales and selling, general and administrative expense (“SG&A expense”) in the consolidated statements of operations. Capitalized software is amortized over the shorter of the estimated useful life or 5 years and reflected in SG&A expense. No interest costs were capitalized in 2022, 2021 and 2020. |
Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | Goodwill. Goodwill is the excess of cost over the fair value of net assets of businesses acquired. Goodwill is not amortized but is tested annually for impairment and whenever events or circumstances change that would make it more likely than not that an impairment may have occurred. We perform our annual impairment analysis as of the first day of the fourth quarter each year. The evaluation of impairment involves comparing the current estimated fair value of the reporting unit to its recorded value, including goodwill. We perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. It may be necessary to perform a quantitative analysis where a discounted cash flow model is used to determine the current estimated fair value of the reporting unit. Key assumptions used to determine the fair value of the reporting unit as part of our annual testing (and any required interim testing) include: (a) expected cash flows for the five-year period following the testing date; (b) an estimated terminal value using a terminal year growth rate based on the growth prospects of the reporting unit; (c) a discount rate based on our estimated after-tax weighted average cost of capital; and (d) a probability-weighted scenario approach by which varying cash flows are assigned to alternative scenarios based on their likelihood of occurrence. In developing these assumptions, we consider historical and anticipated future results, general economic and market conditions, the impact of planned business and operational strategies and all available information at the time the fair value of the reporting unit is estimated. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. Changes in assumptions and estimates may affect the fair value of goodwill and could result in impairment charges in future periods. Based on the results of our impairment analysis, no goodwill impairment losses were recognized in the consolidated statements of operations for 2022, 2021 and 2020. Subsequent to the analysis, there have been no events or circumstances that indicate any potential impairment of goodwill. |
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | Long-lived assets. Long-lived assets include property, plant and equipment and identifiable intangible assets with definite useful lives. Finite-lived intangible assets are amortized over their estimated useful lives. Our intangible assets consist of customer relationships, developed technology and know-how, non-competition agreements and trade names and are being amortized on a straight-line basis over their finite useful lives (see Note 7 to the consolidated financial statements). We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. When we determine that the carrying value of such assets may not be recoverable, we measure recoverability based on the undiscounted cash flows expected to be generated by the related asset or asset group. If it is determined that an impairment loss has occurred, the loss is recognized in the period in which it is incurred and is calculated as the difference between the carrying value and the present value of estimated future net cash flows or comparable market values. There were no impairment losses in 2022. Impairment charges of $1.4 million and $0.3 million were recorded in 2021 and 2020, respectively, related to the impairment of long-lived assets resulting from the consolidation of our PC strand operations with the closure of our Summerville, South Carolina facility (see Note 5 to the consolidated financial statements). |
Fair Value Measurement, Policy [Policy Text Block] | Fair value of financial instruments. The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value because of their short maturities. |
Income Tax, Policy [Policy Text Block] | Income taxes. Income taxes are based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. We assess the need to establish a valuation allowance against deferred tax assets to the extent we no longer believe it is more likely than not that the tax assets will be fully realized. We recognize uncertain tax positions when we have determined it is more likely than not that a tax position will be sustained upon examination. However, new information may become available, or applicable laws or regulations may change, thereby resulting in a favorable or unfavorable adjustment to amounts recorded. |
Earnings Per Share, Policy [Policy Text Block] | Earnings per share. Basic earnings per share (“EPS”) are computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS are computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock and other dilutive equity securities outstanding during the period. Securities that have the effect of increasing EPS are considered to be antidilutive and are not included in the computation of diluted EPS. |
Note 5 - Restructuring (Tables) |
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Note 6 - Fair Value Measurements (Tables) |
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Note 7 - Intangible Assets (Tables) |
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Schedule of Finite-Lived Intangible Assets [Table Text Block] |
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Note 8 - Long-term Debt (Tables) |
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Schedule of Amortization of Financing Costs for Debt [Table Text Block] |
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Note 9 - Stock-based Compensation (Tables) |
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Note 10 - Income Taxes (Tables) |
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Schedule of Deferred Tax Assets and Liabilities [Table Text Block] |
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Note 11 - Employee Benefit Plans (Tables) |
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Schedule of Expected Benefit Payments [Table Text Block] |
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Schedule of Defined Benefit Plans Disclosures [Table Text Block] |
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Note 13 - Leases (Tables) |
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Note 14 - Earnings Per Share (Tables) |
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Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 15 - Business Segment Information (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Revenue from External Customers by Geographic Areas [Table Text Block] |
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Revenue from External Customers by Products and Services [Table Text Block] |
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Note 16 - Other Financial Data (Tables) |
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Other Financial Information, Balance Sheet [Table Text Block] |
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Note 2 - Summary of Significant Accounting Policies (Details Textual) - USD ($) |
12 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Depreciation, Total | $ 13,700,000 | $ 13,600,000 | $ 13,200,000 | |
Interest Costs Capitalized | 0 | 0 | 0 | |
Goodwill, Impairment Loss | 0 | 0 | 0 | |
Asset Impairment Charges, Total | $ 0 | $ 1,415,000 | $ 343,000 | |
Computer Software, Intangible Asset [Member] | ||||
Finite-Lived Intangible Asset, Useful Life | 5 years | |||
Machinery and Equipment [Member] | Minimum [Member] | ||||
Property, Plant and Equipment, Useful Life | 3 years | |||
Machinery and Equipment [Member] | Maximum [Member] | ||||
Property, Plant and Equipment, Useful Life | 15 years | |||
Building [Member] | Minimum [Member] | ||||
Property, Plant and Equipment, Useful Life | 10 years | |||
Building [Member] | Maximum [Member] | ||||
Property, Plant and Equipment, Useful Life | 30 years | |||
Land Improvements [Member] | Minimum [Member] | ||||
Property, Plant and Equipment, Useful Life | 10 years | |||
Land Improvements [Member] | Maximum [Member] | ||||
Property, Plant and Equipment, Useful Life | 20 years | |||
Forecast [Member] | ||||
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Total | $ 864,000 | |||
Defined Benefit Plan, Expected Future Benefit Payment | 560,000 | |||
Defined Benefit Plan, Increase in Expected Net Periodic Benefit Cost (Credit), Next Twelve Months | $ 30,000 | |||
Decrease in Assumed Discount Rate [Member] | ||||
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate | 0.25% | |||
Defined Benefit Plan, Increase of Pension Plan with Projected Benefit Obligation in Excess of Plan Assets, Plan Assets | $ 297,000 | |||
Defined Benefit Plan, Increase in Accumulated Benefit Obligation | $ 244,000 |
Note 5 - Restructuring (Details Textual) $ in Millions |
Mar. 16, 2020
USD ($)
|
---|---|
STM Acquisition [Member] | |
Business Combination, Consideration Transferred, Total | $ 19.4 |
Note 5 - Restructuring - Restructuring Activity (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Liability as of October 2, 2021 | $ 10 | $ 171 | |
Restructuring charges (recoveries), net | (318) | 2,868 | $ 1,695 |
Cash payments | (314) | (1,614) | (1,299) |
Non-cash charges | 622 | (1,415) | (225) |
Liability as of October 1, 2022 | 0 | 10 | 171 |
Employee Severance [Member] | |||
Liability as of October 2, 2021 | 0 | 0 | |
Restructuring charges (recoveries), net | 0 | 13 | 182 |
Cash payments | 0 | (13) | (182) |
Non-cash charges | 0 | 0 | 0 |
Liability as of October 1, 2022 | 0 | 0 | 0 |
Equipment Relocation [Member] | |||
Liability as of October 2, 2021 | 0 | 20 | |
Restructuring charges (recoveries), net | 0 | 423 | 482 |
Cash payments | 0 | (443) | (462) |
Non-cash charges | 0 | 0 | 0 |
Liability as of October 1, 2022 | 0 | 0 | 20 |
Facility Closing [Member] | |||
Liability as of October 2, 2021 | 10 | 151 | |
Restructuring charges (recoveries), net | 304 | 1,017 | 806 |
Cash payments | (314) | (1,158) | (655) |
Non-cash charges | 0 | ||
Liability as of October 1, 2022 | 0 | 10 | 151 |
Asset Impairments [Member] | |||
Liability as of October 2, 2021 | 0 | 0 | |
Restructuring charges (recoveries), net | 0 | 1,415 | 343 |
Cash payments | 0 | 0 | 0 |
Non-cash charges | 0 | (1,415) | (343) |
Liability as of October 1, 2022 | 0 | 0 | 0 |
Gain on Sale of Property and Equipment [Member] | |||
Liability as of October 2, 2021 | 0 | 0 | |
Restructuring charges (recoveries), net | (622) | 0 | (118) |
Cash payments | 0 | 0 | 0 |
Non-cash charges | 622 | 0 | 118 |
Liability as of October 1, 2022 | $ 0 | $ 0 | $ 0 |
Note 6 - Fair Value Measurements (Details Textual) - USD ($) $ in Thousands |
12 Months Ended | |
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Oct. 02, 2021 |
Oct. 01, 2022 |
|
Disposal Group, Including Discontinued Operation, Assets, Total | $ 6,306 | $ 0 |
Summerville Facility Acquired in STM Acquisition [Member] | ||
Disposal Group, Including Discontinued Operation, Assets, Total | 6,300 | |
Summerville Facility Acquired in STM Acquisition [Member] | Restructuring Charges [Member] | ||
Impairment of Long-Lived Assets to be Disposed of | 1,400 | |
Non Financial [Member] | Fair Value, Nonrecurring [Member] | ||
Assets, Fair Value Disclosure, Total | $ 0 | $ 0 |
Note 6 - Fair Value Measurements - Fair Value of Financial Assets (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands |
Oct. 01, 2022 |
Oct. 02, 2021 |
---|---|---|
Cash equivalents | $ 48,045 | $ 86,395 |
Cash surrender value of life insurance policies | 9,938 | 12,501 |
Total | 57,983 | 98,896 |
Fair Value, Inputs, Level 1 [Member] | ||
Cash equivalents | 48,045 | 86,395 |
Cash surrender value of life insurance policies | 0 | 0 |
Total | 48,045 | 86,395 |
Fair Value, Inputs, Level 2 [Member] | ||
Cash equivalents | 0 | 0 |
Cash surrender value of life insurance policies | 9,938 | 12,501 |
Total | $ 9,938 | $ 12,501 |
Note 7 - Intangible Assets (Details Textual) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Amortization of Intangible Assets | $ 821,000 | $ 899,000 | $ 1,000,000.0 |
Finite-Lived Intangible Asset, Expected Amortization, Year One | 756,000 | ||
Finite-Lived Intangible Asset, Expected Amortization, Year Two | 750,000 | ||
Finite-Lived Intangible Asset, Expected Amortization, Year Three | 743,000 | ||
Finite-Lived Intangible Asset, Expected Amortization, Year Four | 752,000 | ||
Finite-Lived Intangible Asset, Expected Amortization, Year Five | $ 480,000 |
Note 7 - Intangible Assets - Summary of Intangible Assets (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
|
Intangible assets, gross | $ 12,070 | $ 12,320 |
Intangible assets, accumulated amortization | (5,223) | (4,652) |
Net book value | $ 6,847 | $ 7,668 |
Customer Relationships [Member] | ||
Weighted average useful life (Year) | 17 years 1 month 6 days | 17 years 1 month 6 days |
Intangible assets, gross | $ 9,870 | $ 9,870 |
Intangible assets, accumulated amortization | (4,130) | (3,482) |
Net book value | 5,740 | 6,388 |
Technology-Based Intangible Assets [Member] | ||
Intangible assets, gross | 1,800 | 1,800 |
Intangible assets, accumulated amortization | (729) | (639) |
Net book value | $ 1,071 | $ 1,161 |
Noncompete Agreements [Member] | ||
Weighted average useful life (Year) | 5 years | 5 years |
Intangible assets, gross | $ 400 | $ 400 |
Intangible assets, accumulated amortization | (364) | (284) |
Net book value | $ 36 | $ 116 |
Trade Names [Member] | ||
Weighted average useful life (Year) | 2 years 8 months 12 days | |
Intangible assets, gross | $ 250 | |
Intangible assets, accumulated amortization | (247) | |
Net book value | $ 3 |
Note 8 - Long-term Debt (Details Textual) - USD ($) |
12 Months Ended | |||
---|---|---|---|---|
May 31, 2019 |
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Amortization of Debt Issuance Costs | $ 65,000 | $ 65,000 | $ 66,000 | |
Revolving Credit Facility [Member] | ||||
Line of Credit Facility, Maximum Borrowing Capacity | 100,000,000.0 | |||
Line Of Credit Facility, Additional Borrowing Capacity | $ 50,000,000.0 | |||
Long-Term Line of Credit, Total | 0 | |||
Line of Credit Facility, Remaining Borrowing Capacity | 98,600,000 | |||
Letters of Credit Outstanding, Amount | $ 1,400,000 | |||
Debt Instrument, Interest Rate, Increase (Decrease) | 2.00% | |||
Fixed Charge Coverage Ratio | 1.0 | |||
Credit Facility, Liquidity Amount | $ 10,000,000.0 | |||
Revolving Credit Facility [Member] | Federal Funds Rate [Member] | ||||
Debt Instrument, Basis Spread on Variable Rate | 0.50% | |||
Revolving Credit Facility [Member] | Base Rate [Member] | ||||
Line of Credit Facility, Interest Rate at Period End | 0.25% | |||
Revolving Credit Facility [Member] | Base Rate [Member] | Minimum [Member] | ||||
Debt Instrument, Basis Spread on Variable Rate | 0.25% | |||
Revolving Credit Facility [Member] | Base Rate [Member] | Maximum [Member] | ||||
Debt Instrument, Basis Spread on Variable Rate | 0.50% | |||
Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | ||||
Line of Credit Facility, Interest Rate at Period End | 1.25% | |||
Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member] | ||||
Debt Instrument, Basis Spread on Variable Rate | 1.25% | |||
Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member] | ||||
Debt Instrument, Basis Spread on Variable Rate | 1.50% |
Note 8 - Long-term Debt - Amortization of Financing Costs (Details) $ in Thousands |
Oct. 01, 2022
USD ($)
|
---|---|
2023, Amortization | $ 65 |
2024, Amortization | $ 41 |
Note 9 - Stock-based Compensation (Details Textual) - USD ($) |
12 Months Ended | |||
---|---|---|---|---|
Feb. 11, 2020 |
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ 14.67 | $ 14.47 | $ 8.05 | |
Share-Based Payment Arrangement, Option [Member] | ||||
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period | 3 years | |||
Share-Based Compensation Arrangement by Share-Based Payment Award, Expiration Period | 10 years | |||
Share-Based Payment Arrangement, Expense | $ 1,100,000 | $ 860,000 | $ 810,000 | |
Share-Based Payment Arrangement, Nonvested Award, Option, Cost Not yet Recognized, Amount | $ 714,000 | |||
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition | 2 years 1 month 9 days | |||
Restricted Stock Units (RSUs) [Member] | ||||
Share-Based Payment Arrangement, Expense | $ 1,365,000 | $ 1,128,000 | $ 1,218,000 | |
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition | 1 year 8 months 23 days | |||
Share-Based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount | $ 1,100,000 | |||
Restricted Stock Units (RSUs) [Member] | Director [Member] | ||||
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period | 1 year | |||
Restricted Stock Units (RSUs) [Member] | Employees [Member] | ||||
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period | 3 years | |||
The 2015 Equity Incentive Plan [Member] | ||||
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Additional Shares Authorized | 750,000 | |||
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant | 555,000 |
Note 9 - Stock-based Compensation - Stock Option Valuation Assumptions (Details) - Share-Based Payment Arrangement, Option [Member] |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Expected term (in years) (Year) | 4 years 7 months 9 days | 4 years 10 months 13 days | 4 years 9 months 21 days |
Risk-free interest rate | 3.03% | 0.68% | 0.95% |
Expected volatility | 49.63% | 50.34% | 47.18% |
Expected dividend yield | 0.34% | 0.42% | 0.59% |
Note 9 - Stock-based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Outstanding, shares (in shares) | 428 | 482 | 388 |
Outstanding, weighted average exercise price (in dollars per share) | $ 27.72 | $ 24.90 | $ 26.16 |
Granted, shares (in shares) | 82 | 74 | 121 |
Granted, weighted average exercise price (in dollars per share) | $ 35.32 | $ 34.76 | $ 21.08 |
Forfeited, shares (in shares) | (60) | (27) | |
Forfeited, weighted average exercise price (in dollars per share) | $ 29.29 | $ 25.88 | |
Exercised, shares (in shares) | (85) | (128) | |
Exercised, weighted average exercise price (in dollars per share) | $ 24.23 | $ 21.17 | |
Exercised, intrinsic value | $ 1,615 | $ 2,212 | |
Outstanding, shares (in shares) | 365 | 428 | 482 |
Outstanding, weighted average exercise price (in dollars per share) | $ 30.00 | $ 27.72 | $ 24.90 |
Outstanding, contractual term (Year) | 7 years 6 months 18 days | ||
Outstanding, intrinsic value | $ 820 | ||
Vested and anticipated to vest, shares (in shares) | 357 | ||
Vested and anticipated to vest, weighted average exercise price (in dollars per share) | $ 29.92 | ||
Vested and anticipated to vest, contractual term (Year) | 7 years 6 months 3 days | ||
Vested and anticipated to vest, intrinsic value | $ 815 | ||
Exercisable, shares (in shares) | 197 | ||
Exercisable, weighted average exercise price (in dollars per share) | $ 28.30 | ||
Exercisable, contractual term (Year) | 6 years 4 months 24 days | ||
Exercisable, intrinsic value | $ 614 |
Note 9 - Stock-based Compensation - RSU Grants and Compensation Expense (Details) - Restricted Stock Units (RSUs) [Member] - USD ($) shares in Thousands, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Units (in shares) | 43 | 43 | 68 |
Market value | $ 1,563 | $ 1,430 | $ 1,444 |
Compensation expense | $ 1,365 | $ 1,128 | $ 1,218 |
Note 9 - Stock-based Compensation - RSU Activity (Details) - Restricted Stock Units (RSUs) [Member] - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Restricted stock units outstanding, beginning balance (in shares) | 129 | 122 | 115 |
Weighted average grant date fair value, beginning balance (in dollars per share) | $ 24.73 | $ 23.07 | $ 26.16 |
Restricted stock units outstanding, granted (in shares) | 43 | 43 | 68 |
Weighted average grant date fair value, granted (in dollars per share) | $ 35.93 | $ 33.22 | $ 21.29 |
Restricted stock units outstanding, forfeited (in shares) | 3 | 6 | |
Weighted average grant date fair value, forfeited (in dollars per share) | $ 22.09 | $ 25.49 | |
Restricted stock units outstanding, released (in shares) | 49 | 36 | 55 |
Weighted average grant date fair value, released (in dollars per share) | $ 22.17 | $ 29.21 | $ 27.07 |
Aggregate intrinsic value, released | $ 1,773 | $ 1,191 | $ 1,127 |
Restricted stock units outstanding, ending balance (in shares) | 120 | 129 | 122 |
Weighted average grant date fair value, ending balance (in dollars per share) | $ 29.88 | $ 24.73 | $ 23.07 |
Note 10 - Income Taxes (Details Textual) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Income Tax Benefit Cares Act | $ 223,000 | ||
Deferred Tax Liabilities, Net, Total | $ 7,086,000 | $ 6,296,000 | |
Deferred Tax Assets, Valuation Allowance | 32,000 | 73,000 | |
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount | (41,000) | ||
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense, Total | 0 | $ 0 | $ 0 |
State and Local Jurisdiction [Member] | |||
Operating Loss Carryforwards | $ 5,600,000 | ||
State and Local Jurisdiction [Member] | Earliest Tax Year [Member] | |||
Operating Loss Carryforwards Expiration Date 1 | 2031 | ||
State and Local Jurisdiction [Member] | Latest Tax Year [Member] | |||
Operating Loss Carryforwards Expiration Date 1 | 2037 |
Note 10 - Income Taxes - Components of Provision for Income Taxes (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Federal | $ 33,377 | $ 17,904 | $ 5,056 |
State | 3,012 | 1,707 | 529 |
Current Income Tax Expense (Benefit), Total | 36,389 | 19,611 | 5,585 |
Federal | 627 | (180) | (288) |
State | (300) | 62 | (136) |
Deferred Income Tax Expense (Benefit), Total | 327 | (118) | (424) |
Income taxes | $ 36,716 | $ 19,493 | $ 5,161 |
Effective income tax rate | 22.70% | 22.60% | 21.40% |
Note 10 - Income Taxes - Income Tax Reconciliation (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Provision for income taxes at federal statutory rate | $ 33,963 | $ 18,082 | $ 5,076 |
Provision for income taxes at federal statutory rate, percent | 21.00% | 21.00% | 21.00% |
State income taxes, net of federal tax benefit | $ 2,108 | $ 1,544 | $ 319 |
State income taxes, net of federal tax benefit, percent | 1.30% | 1.80% | 1.30% |
Stock-based compensation | $ (255) | $ (253) | $ 128 |
Stock-based compensation, percent | (0.20%) | (0.30%) | 0.50% |
Valuation allowance, percent | (0.00%) | (0.20%) | (0.20%) |
Valuation allowance | $ (134) | $ (50) | |
Net operating loss carryback - CARES Act | $ 0 | $ 0 | $ (223) |
Net operating loss carryback - CARES Act, percent | 0.00% | 0.00% | (0.90%) |
Nondeductible expenses and other, net, percent | 0.60% | 0.30% | (0.30%) |
Nondeductible expenses and other, net | $ 254 | $ (89) | |
Provision for income taxes | $ 36,716 | $ 19,493 | $ 5,161 |
Provision for income taxes, percent | 22.70% | 22.60% | 21.40% |
Note 10 - Income Taxes - Deferred Tax Asset and Liability Components (Details) - USD ($) |
Oct. 01, 2022 |
Oct. 02, 2021 |
---|---|---|
Defined benefit plans | $ 2,617,000 | $ 2,921,000 |
Accrued expenses and asset reserves | 2,430,000 | 2,280,000 |
Stock-based compensation | 1,176,000 | 1,204,000 |
Operating lease liability | 353,000 | 387,000 |
State net operating loss carryforwards and tax credits | 142,000 | 54,000 |
Valuation allowance | (32,000) | (73,000) |
Deferred tax assets | 6,686,000 | 6,773,000 |
Plant and equipment | (11,546,000) | (10,901,000) |
Prepaid insurance | (1,279,000) | (1,374,000) |
Right of use assets | (352,000) | (385,000) |
Goodwill | (595,000) | (409,000) |
Deferred tax liabilities | (13,772,000) | (13,069,000) |
Net deferred tax liability | $ (7,086,000) | $ (6,296,000) |
Note 11 - Employee Benefit Plans (Details Textual) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Supplemental Employee Retirement Plan [Member] | |||
Supplemental Retirement Benefit Period (Year) | 15 years | ||
Defined Benefit Plan Percent of Highest Average Salary Base | 50.00% | ||
Defined Benefit Plan Number of Years in Average Annual Base Salary (Year) | 5 years | ||
Defined Benefit Plan Number of Years Preceding Retirement for Average Annual Base Salary Calculation (Year) | 10 years | ||
Defined Benefit Plan, Accumulated Benefit Obligation | $ 10,700,000 | $ 11,700,000 | |
Supplemental Employee Retirement Plan [Member] | Minimum [Member] | |||
Defined Benefit Plan, Employment Term (Year) | 30 years | ||
Reduced SERP [Member] | |||
Defined Benefit Plan Retirement Age | 65 | ||
Defined Benefit Plan, Reduction for Each Month | 0.28% | ||
Reduced SERP [Member] | Minimum [Member] | |||
Defined Benefit Plan, Employment Term (Year) | 10 years | ||
Retirement Savings Plan [Member] | |||
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent | 75.00% | ||
Defined Contribution Plan, Employer Matching Contribution, Percent of Match | 50.00% | ||
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay | 5.00% | ||
Defined Contribution Plan, Cost | $ 1,700,000 | 1,500,000 | $ 1,300,000 |
Retirement Savings Plan, First 1% of Employee Contribution [Member] | |||
Defined Contribution Plan, Employer Matching Contribution, Percent of Match | 100.00% | ||
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay | 1.00% | ||
VEBA [Member] | |||
Self-insured Health Insurance Plan, Contribution Cost | $ 5,400,000 | $ 6,400,000 | $ 6,000,000.0 |
Healthcare Coverage Claims in Excess of | $ 175,000 |
Note 11 - Employee Benefit Plans - Projected Benefit Obligation Reconciliation for SERP (Details) - Supplemental Employee Retirement Plan [Member] - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Benefit obligation at beginning of year | $ 12,888 | $ 11,610 | $ 11,278 |
Service cost | 399 | 312 | 338 |
Interest cost | 347 | 316 | 334 |
Actuarial (gain) loss | (1,650) | 855 | (91) |
Distributions | (205) | (205) | (249) |
Benefit obligation at end of year | 11,779 | 12,888 | 11,610 |
Actual employer contributions | 205 | 205 | 249 |
Actual distributions | (205) | (205) | (249) |
Plan assets at fair value at end of year | 0 | 0 | 0 |
Funded status | (11,779) | (12,888) | (11,610) |
Net amount recognized | (11,779) | (12,888) | (11,610) |
Unrecognized net loss | 1,285 | 3,213 | 2,574 |
Net amount recognized | 1,285 | 3,213 | 2,574 |
Net (gain) loss | (1,650) | 855 | (91) |
Amortization of net loss | (278) | (215) | (294) |
Total recognized in other comprehensive (loss) income | $ (1,928) | $ 640 | $ (385) |
Note 11 - Employee Benefit Plans - Net Periodic Pension Costs and Related Components (Details) - Supplemental Employee Retirement Plan [Member] - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Service cost | $ 399 | $ 312 | $ 338 |
Interest cost | 347 | 316 | 334 |
Amortization of net loss | 278 | 215 | 294 |
Net periodic pension cost | $ 1,024 | $ 843 | $ 966 |
Note 11 - Employee Benefit Plans - Plan Valuation Assumptions (Details) - Supplemental Employee Retirement Plan [Member] |
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
---|---|---|---|
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate | 4.50% | 2.75% | 2.75% |
Rate of increase in compensation levels | 3.00% | 3.00% | 3.00% |
Note 11 - Employee Benefit Plans - Projected Benefit Payments (Details) $ in Thousands |
Oct. 01, 2022
USD ($)
|
---|---|
2023 | $ 560 |
2024 | 601 |
2025 | 919 |
2026 | 844 |
2027 | 844 |
2028-2032 | $ 4,706 |
Note 12 - Commitments and Contingencies (Details Textual) $ in Millions |
12 Months Ended |
---|---|
Oct. 01, 2022
USD ($)
| |
Severance Benefit, Ratio of Base Compensation Received if Other Key Members of Management Termination Within Two Years | 1 |
Severance Benefit, Ratio of Average Bonus Received if Other Key Members of Management Termination Within Two Years | 1 |
Chief Executive Officer [Member] | |
Severance Agreement, Initial Term (Year) | 2 years |
Severance Agreement, Renewal Term (Year) | 1 year |
Termination Benefit, Ratio of Annual Base Salary Received on Termination Date | 1.5 |
Termination Benefit, Continuation Term for Health and Welfare Benefit (Month) | 18 months |
Severance Benefit, Ratio of Base Compensation Received if Termination Within Two Years | 2 |
Severance Benefit, Ratio of Average Bonus Received if CEO Termination Within Two Years | 2 |
Severance Benefit Received Term for the Prior Years if CEO Termination Within Two Years (Year) | 3 years |
Severance Benefits Continuation of Health and Welfare Benefits Term if CEO Termination Within Two Years (Year) | 2 years |
Key Members of Management [Member] | |
Control Agreement, Initial Term (Year) | 2 years |
Control Agreement, Automatically Renewal Term (Year) | 1 year |
Severance Benefit Received Term for the Prior Years if Other Members of Management Termination Within Two Years (Year) | 3 years |
Severance Benefits Continuation of Health and Welfare Benefits Term if Other Members of Management Termination Within Two Years (Year) | 1 year |
Non-cancelable Purchase Commitment for Raw Material [Member] | |
Purchase Commitment, Remaining Minimum Amount Committed | $ 57.1 |
Non-cancelable Purchase Commitment Term (Day) | 30 days |
Purchase Commitment for Equipment [Member] | |
Purchase Commitment, Remaining Minimum Amount Committed | $ 31.9 |
Note 13 - Leases (Details Textual) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Operating Lease, Term Required to be Recorded on the Balance Sheet, Threshold (Month) | 12 months | ||
Operating Lease, Expense | $ 1.4 | $ 1.4 | $ 1.3 |
Note 13 - Leases - Supplement Cash Flow and Non-cash Information, Weighted Average Remaining Lease Term and Discount Rate Related to Lease (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
|
Cash paid for operating leases included in operating cash flows | $ 1,418 | $ 1,413 |
Weighted average lease term (in years) (Year) | 1 year 8 months 12 days | 1 year 9 months 18 days |
Right-of-use assets obtained in exchange for new lease obligations | $ 1,206 | $ 579 |
Weighted average discount rate | 3.70% | 4.10% |
Note 13 - Leases - Supplemental Balance Sheet Information Related to Leases (Details) - USD ($) $ in Thousands |
Oct. 01, 2022 |
Oct. 02, 2021 |
---|---|---|
Other Noncurrent Assets [Member] | ||
Other assets | $ 1,565 | $ 1,717 |
Accrued Expenses, Current [Member] | ||
Accrued expenses | 997 | 1,030 |
Other Noncurrent Liabilities [Member] | ||
Other liabilities | 572 | 695 |
Accrued Expenses Current and Other Noncurrent Liabilities [Member] | ||
Total operating lease liabilities | $ 1,569 | $ 1,725 |
Note 13 - Leases - Aggregate Future Operating Lease Payments (Details) $ in Thousands |
Oct. 01, 2022
USD ($)
|
---|---|
2023 | $ 1,034 |
2024 | 512 |
2025 | 69 |
2026 | 2 |
2027 | 1 |
Total future operating lease payments | 1,618 |
Less: imputed interest | (49) |
Other Liabilities [Member] | |
Present value of lease liabilities | $ 1,569 |
Note 14 - Earnings Per Share (Details Textual) - shares |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 49,000 | 142,000 | 369,000 |
Note 14 - Earnings Per Share - Basic and Diluted Earnings Per Share Attributable to Common Shareholders (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Net earnings | $ 125,011 | $ 66,610 | $ 19,009 |
Basic weighted average shares outstanding (in shares) | 19,517 | 19,344 | 19,278 |
Dilutive effect of stock-based compensation (in shares) | 112 | 190 | 105 |
Diluted weighted average shares outstanding (in shares) | 19,629 | 19,534 | 19,383 |
Basic (in dollars per share) | $ 6.41 | $ 3.44 | $ 0.99 |
Diluted (in dollars per share) | $ 6.37 | $ 3.41 | $ 0.98 |
Note 15 - Business Segment Information (Details Textual) |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Number of Reportable Segments | 1 | ||
Customer Concentration Risk [Member] | Revenue Benchmark [Member] | No Customers [Member] | |||
Concentration Risk, Percentage | 10.00% | 10.00% | 10.00% |
Note 15 - Business Segment Information - Net Sales And Long-lived Assets By Geographic Region (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Revenue | $ 826,832 | $ 590,601 | $ 472,618 |
UNITED STATES | |||
Revenue | 820,641 | 583,458 | 470,420 |
Non-US [Member] | |||
Revenue | $ 6,191 | $ 7,143 | $ 2,198 |
Note 15 - Business Segment Information - Net Sales By Product Line (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
|
Revenue | $ 826,832 | $ 590,601 | $ 472,618 |
Welded Wire Reinforcement [Member] | |||
Revenue | 495,401 | 358,334 | 294,129 |
PC Strand [Member] | |||
Revenue | $ 331,431 | $ 232,267 | $ 178,489 |
Note 16 - Other Financial Data - Balance Sheet Information (Details) - USD ($) $ in Thousands |
Oct. 01, 2022 |
Oct. 02, 2021 |
---|---|---|
Accounts receivable | $ 82,043 | $ 68,274 |
Less allowance for credit losses | (397) | (357) |
Total | 81,646 | 67,917 |
Raw materials | 108,894 | 50,459 |
Work in process | 8,817 | 6,680 |
Finished goods | 79,943 | 21,910 |
Total | 197,654 | 79,049 |
Prepaid insurance | 4,563 | 5,169 |
Other | 3,153 | 4,887 |
Total | 7,716 | 10,056 |
Cash surrender value of life insurance policies | 9,938 | 12,501 |
Disposal Group, Including Discontinued Operation, Assets, Total | 0 | 6,306 |
Capitalized financing costs, net | 41 | 106 |
Other | 121 | 137 |
Total | 11,665 | 20,767 |
Land and land improvements | 14,947 | 14,554 |
Buildings | 55,044 | 53,182 |
Machinery and equipment | 191,790 | 180,654 |
Construction in progress | 11,745 | 10,191 |
Property, Plant and Equipment, Gross, Ending Balance | 273,526 | 258,581 |
Less accumulated depreciation | (165,370) | (152,957) |
Total | 108,156 | 105,624 |
Salaries, wages and related expenses | 8,128 | 8,229 |
Customer rebates | 2,760 | 2,354 |
Property taxes | 1,782 | 1,575 |
Sales allowance reserves | 1,013 | 991 |
State sales and use taxes | 595 | 760 |
Income taxes | 0 | 4,014 |
Other | 525 | 453 |
Total | 15,800 | 19,406 |
Deferred compensation | 11,747 | 12,832 |
Deferred Tax Liabilities, Net, Total | 7,086 | 6,296 |
Total | 19,405 | 19,823 |
Other Noncurrent Assets [Member] | ||
Other assets | 1,565 | 1,717 |
Accrued Expenses, Current [Member] | ||
Accrued expenses | 997 | 1,030 |
Other Noncurrent Liabilities [Member] | ||
Operating lease liabilities | $ 572 | $ 695 |
Note 18 - Share Repurchases (Details Textual) - USD ($) $ in Millions |
12 Months Ended | |||
---|---|---|---|---|
Oct. 01, 2022 |
Oct. 02, 2021 |
Oct. 03, 2020 |
Nov. 18, 2008 |
|
Stock Repurchase Program, Authorized Amount | $ 25.0 | |||
Stock Repurchased During Period, Value | $ 1.2 | |||
Stock Repurchased During Period, Shares | 41,706 | 0 | 0 | |
Stock Repurchase Program, Remaining Authorized Repurchase Amount | $ 23.6 |
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