Insteel IndustrIes
2008 Annual Repor t
400
350
300
250
200
150
100
50
0
2.5
2.0
1.5
1.0
0.5
0.0
30
25
20
15
10
5
0
Net Sales
(in millions)
Diluted Earnings Per Share
From Continuing Operations
Return on Total Capital(1)
$353.9
$2.47
29.7%
27.9%
$329.5
$297.8
$1.86
$1.33
18.2%
2006
2007
2008
2006
2007
2008
2006
2007
2008
Financial HigHligHts
(In thousands, except for per share amounts)
2008
2007
2006
Operating Results:
Net sales
Gross profit
% of net sales
Earnings from continuing operations
% of net sales
Net earnings
Per share Data:
Basic:
Earnings from continuing operations
Net earnings
Diluted:
Earnings from continuing operations
Net earnings
Cash dividends declared
Returns:
Return on total capital(1)
Return on shareholders’ equity(2)
Financial Position:
Cash and cash equivalents
Total assets
Total long-term debt
Shareholders’ equity
cash Flows:
$ 353,862
86,755
$ 297,806
56,061
$ 329,507
70,871
24.5%
18.8%
21.5%
$ 43,717
$ 24,284
$ 34,377
12.4%
8.2%
10.4%
$ 43,752
$ 24,162
$ 33,040
$
2.49
2.49
2.47
2.47
0.62
$
1.34
1.33
1.33
1.32
0.12
$
1.88
1.80
1.86
1.79
0.12
27.9%
27.9%
18.2%
18.2%
29.7%
31.3%
$ 26,493
228,220
—
169,847
$ 8,703
173,529
—
143,850
$ 10,689
166,596
—
122,438
Net cash provided by operating activities of
continuing operations
Capital expenditures
Depreciation and amortization
Repurchases of common stock
Cash dividends paid
$ 36,808
9,456
7,769
8,691
2,141
$ 17,065
17,013
6,209
—
2,176
$ 42,650
18,959
5,107
8,529
2,222
(1)Earnings from continuing operations/(average total long-term debt + average shareholders’ equity).
(2)Earnings from continuing operations/average shareholders’ equity.
Welded Wire reinforcement
(% of Net SaleS: 2008—55%, 2007—56%, 2006—54%)
Prefabricated reinforcement consisting of high-strength, cold-drawn or cold-rolled wires that
are welded together in square or rectangular grids according to customer requirements. Wire
intersections are electrically resistance-welded by a computer-controlled continuous automatic
welder that uses pressure and heat to fuse all wires in their proper position, creating a consistent
high-quality weld and providing the required reinforcing properties.
EnginEErEd Structural MESh
Engineered made-to-order product that is used as the primary reinforcement in concrete elements or structures,
frequently serving as a replacement for hot-rolled rebar.
Plant locationS
Dayton, Texas • Mount Airy, North Carolina
cuStoMEr SEgMEntS
Precast and Prestressed Producers • Rebar Fabricators • Distributors
End uSES
Nonresidential Construction
concrEtE PiPE rEinforcEMEnt
Engineered made-to-order product that is used as the primary reinforcement in concrete pipe and box culverts for
drainage and sewage systems, water treatment facilities and other related applications.
Plant locationS
Dayton, Texas • Mount Airy, North Carolina • Wilmington, Delaware
cuStoMEr SEgMEntS
Concrete Pipe and Precast Producers
End uSES
Nonresidential Construction • Residential Construction
Standard WEldEd WirE rEinforcEMEnt
Secondary reinforcing product that is produced in standard styles for crack control applications in residential and
light nonresidential construction, including driveways, sidewalks and a wide range of slab-on-grade applications.
Plant locationS
Dayton, Texas • Hickman, Kentucky • Mount Airy, North Carolina • Wilmington, Delaware
cuStoMEr SEgMEntS
Rebar Fabricators • Distributors
End uSES
Nonresidential Construction • Residential Construction
42" SINGLE SLOPE CONCRETE BARRIER SSCB(1)-99 And SSCB(2)-00 Cast In Place - Texas DOTVX12-D16/D14 78"Wide(2.5,2.5) X 31'-1"Long(24,1) 2.5Oh,2,8@4,10,8@4,2,2.5OhINSTEEL WIREPRODUCTS R1373 Boggs DriveMount Airy, N.C. 27030Tel. 800-334-9504Title:Customer:Project:Date: Insteel Dwg. #: Description:Date:Cust. P.O. #:IWP Order #:Customer Approval:Signiture:Mark No:Quantity:10-26-06VX12-D16/D1478"Wide(2.5,2.5) X 31'-1"Long(24,1)42" Single Slope Concrete Barrier (Cast In Place)SSCB(1)-99 And SSCB(2)-00 (Cast In Place) Texas DOT30' Coverage - 12" Minimum Lap434"8"4" Pin Dia.Elong. = .577"D16 X 31'-1"TypD1429 sp. @ 12"o/cHold (+0,-1)71316"434"71316"2'1'-8716"11316"11316"3'-334"10"4"4"4"4"4"4"4"4"4"2"4"4"4"4"4"4"2.5"4"2"2.5"3'-6"Hold3'-11316"06-DS-118 (210)134"2516"Cl.Cl. Prestressed concrete strand
(% of NET SAlES: 2008—45%, 2007—44%, 2006—46%)
High-strength seven-wire reinforcement consisting of six cold-drawn wires that are continuously
wrapped around a center wire forming a strand, which is then heat-treated while under tension to
impart low relaxation characteristics and increase the working range of the product.
PC strand is used to impart compression forces into prestressed concrete elements and structures,
which may be either pretensioned or posttensioned. Pretensioned means that the strands are
tensioned to their design load and anchored at the ends of a form. After the concrete has been placed
and allowed to cure to sufficient strength, the load on the strand is transferred from the external
anchors to the cured member, creating compression forces within the element, or “prestressing” it.
Posttensioned means that the strands are tensioned after the concrete has been placed and allowed
to cure.
PlAnt lOcAtiOns
Gallatin, Tennessee • Sanderson, Florida
custOMER sEgMEnts
Precast Prestress Producers • Posttensioning Suppliers
EnD usEs
Nonresidential Construction • Residential Construction
We market our products through sales representatives that are our employees and through a sales agent.
our sales force is organized by product line and trained in the technical applications of our products.
our products are sold nationwide as well as into Canada, Mexico, and Central and South America, and
delivered primarily by truck, using common or contract carriers.
Insteel Industries is one of the nation’s
largest manufacturers of steel wire
reinforcing products for concrete con-
struction applications. We manufacture
and market prestressed concrete strand
(“PC strand”) and welded wire reinforce-
ment, including engineered structural
mesh, concrete pipe reinforcement and
standard welded wire reinforcement.
our products are sold primarily to man-
ufacturers of concrete products that are
used in nonresidential construction.
Headquartered in Mount Airy, North
Carolina, we operate six manufacturing
facilities located in the United States.
$2.47
REcORD HigH EARnings
PER DilutED sHARE
27.9%
REtuRn On tOtAl cAPitAl
$45.4 million
2006–2008 cAPitAl
ExPEnDituREs
$26.5 million
OF cAsH AnD DEbt-FREE
bAlAncE sHEE t
2"Cl2"Cl12'-2"1'112"Cl112"ClShear Wall Mesh6X6-W4/W4 96"(2,2) X 11'-10"(2,2)(1) Layer Required Each Face#4 X 2'-2"#4 X Cont.MK1363MK1367Spandrel Mesh6X6-W4/W4(1) Layer Required8"10"934"5'-214"1'-4"8"(10) 12" Strand2"2"6"8'2"2"6"11'-10"W4W4TypTypShear Wall & Spandrel6X6-W4/W4 96"(2,2) X 11'-10"(2,2) Letter to SharehoLderS
2008 was a year of significant accomplishments for Insteel Industries. We achieved record financial results,
which were delivered against a background of extremely challenging market conditions. We completed a
comprehensive capital investment program to pursue growth opportunities in promising markets and reduce
our operating costs. We strengthened our balance sheet, positioning us to withstand future business downturns
and capitalize on growth opportunities that may arise.
Our business strategy remains focused on generating returns that exceed our cost of capital by: (1) achieving
leadership positions in our markets; (2) operating as the lowest cost producer; and (3) pursuing growth
opportunities in our core businesses that further our penetration of existing markets or expand our geographic
footprint.
RecoRd Financial Results
net sales for 2008 increased 18.8% to a record high $353.9 million from $297.8 million in 2007 driven
by a 28.7% increase in average selling prices, which more than offset a 7.7% reduction in shipments.
Despite the weakening in shipments, earnings from continuing operations also rose to a record high
$43.7 million ($2.47 per diluted share) from $24.3 million ($1.33 per diluted share) in the prior year
due to higher spreads between average selling prices and raw material costs. our return on total
capital improved to 27.9% compared with 18.2% in the prior year.
Market conditions deteriorated over the course of the year as the ongoing weakness in new
home construction was compounded by a gradual softening in nonresidential construction. In our
pC strand business, shipments to posttension customers remained at depressed levels, falling to
4% of consolidated shipments from 6% in 2007 and 14% in 2006 due to the increase in low-priced
Chinese imports.
1
20 0 8 A nnuAl Repo Rt 1
400
350
300
250
200
150
100
50
0
2.5
2.0
1.5
1.0
0.5
0.0
30
25
20
15
10
5
0
Net Sales
(in millions)
Diluted Earnings Per Share
From Continuing Operations
Return on Total Capital(1)
$353.9
$2.47
29.7%
27.9%
$329.5
$297.8
$1.86
$1.33
18.2%
2006
2007
2008
2006
2007
2008
2006
2007
2008
prices for our primary raw material, hot-rolled steel wire rod, surged to unprecedented levels during
the year due to tight supply conditions resulting from reduced import availability and dramatic
increases in the cost of scrap, energy and other raw materials for steel producers. In response to
these cost pressures, we implemented a series of price increases to reflect the higher replacement
cost for wire rod, which favorably impacted profit margins as we consumed lower cost inventory.
completion oF capital investment pRogRam
During 2008, we completed extensive upgrades at our Florida pC strand facility, including the
installation of new wire drawing and stranding equipment together with the reconfiguration of
the operation. this project represents the last component of our three-year, $45.4 million capital
investment program under which we have added two new engineered structural mesh (“eSM”)
production lines, reconfigured and expanded our pC strand facilities, and upgraded and expanded
our standard welded wire reinforcing capabilities. We anticipate that these projects will generate
dual benefits in the form of reduced operating costs and additional capacity to satisfy future growth
in demand. Although the weakening market environment has precluded us from ramping up our
expanded pC strand capacity, we are beginning to realize a portion of the expected returns on these
investments through their favorable impact on labor productivity and increased sales of eSM. With
the completion of the program behind us, we expect a significant drop-off in capital expenditures,
with maintenance-related outlays expected to total less than $5.0 million in 2009.
stRong Financial position
our continuing operations generated $36.8 million of cash for the year, which was primarily used
to fund $9.5 million of capital expenditures, repurchase $8.7 million of our common stock and pay
$2.1 million of dividends. Despite the substantial increase in our working capital investment, which
was driven by the sharp escalation in raw material costs and selling prices, we ended the year with
a debt-free balance sheet, $26.5 million of cash and the borrowing capacity available under our
$100.0 million revolving credit facility.
2
looking ahead
As we move into 2009, we expect business conditions to become increasingly harsh. In recent
months, we have seen a dramatic slowdown in business activity in response to the tightening in the
credit markets, the deteriorating outlook for the economy and the inventory destocking measures
being pursued by customers to increase their liquidity. purchase commitments have been scaled
back throughout our entire supply chain, with buyers seeking to minimize inventory levels until there
are indications of a rebound in pricing and demand. Although selling prices for our products have
declined at a more measured rate than the reductions in the prices for wire rod, we expect significant
margin compression until the destocking of higher cost inventory is completed. unfortunately the
timeline for this process will be extended to the extent that demand remains at depressed levels.
nonresidential construction is anticipated to decline from the levels of recent years, particularly
commercial construction, which has been the most severely impacted by the reduced availability
of credit and the economic downturn. Although additional federal economic stimulus measures
that would provide substantial funding for infrastructure projects appear to be increasingly likely,
the timing and magnitude of the impact is uncertain at this time. the upside potential for
residential construction appears limited as we expect the weakness in the housing markets to persist
through the year, continuing to adversely affect shipments to customers with greater exposure to
the housing sector.
As we navigate our way through this difficult period, we will maintain our focus on operational excel-
lence, continually looking for ways to become more efficient in every aspect of our business, reduce
our operating costs and better serve our customers. Following the recent completion of our capital
investment program, our state-of-the-art facilities and manufacturing capabilities place us in a
strong competitive position across all of our product lines.
3
400
350
300
250
200
150
100
50
0
2.5
2.0
1.5
1.0
0.5
0.0
30
25
20
15
10
5
0
Net Sales
(in millions)
Diluted Earnings Per Share
From Continuing Operations
Return on Total Capital(1)
$353.9
$2.47
29.7%
27.9%
$329.5
$297.8
$1.86
$1.33
18.2%
2006
2007
2008
2006
2007
2008
2006
2007
2008
We will also intensify our efforts to further the market acceptance for eSM as a replacement for
hot-rolled rebar, capitalizing on the inherent labor, cycle time and material cost advantages it offers
for many concrete reinforcing applications. With current domestic consumption of eSM estimated
to be less than 5% of the rebar volume it could potentially replace, the product is still early in its life
cycle and represents an attractive growth opportunity for Insteel. As we complete the ramp-up of
our two recent eSM expansions, we will evaluate the deployment of additional production lines in
our existing facilities as well as on a greenfield basis based on market conditions.
Finally, we will utilize our strong balance sheet and flexible capital structure to pursue strategic
acquisition opportunities that may arise in a more difficult market environment. Acquisitions enable
us to create value for our shareholders in multiple ways, allowing us to further our penetration of
existing markets, expand into new geographies, add new customers and strengthen our relationships
with existing customers. We will exercise valuation discipline and maintain sound judgment to ensure
that we achieve satisfactory returns for our shareholders.
As we look to the future, we wish to acknowledge and express our appreciation for the ongoing sup-
port of our employees, customers and shareholders.
Sincerely,
H.O. Woltz III
president and Chief executive officer
4
As we navigate our way through this difficult
period, we will maintain our focus on operational
excellence, continually looking for ways to
become more efficient in every aspect of our
business, reduce our operating costs and better
serve our customers.
Bulb tee girders
engineered structural mesh
(“eSM”) and prestressed concrete
strand (“pC strand”) are used
together in many concrete rein-
forcing applications, providing
maximum strength for the long
span beams used in highway or
bridge construction. In this 90"
deep bulb tee girder, eSM is used
to reinforce the top and bottom
flanges (the wider sections) and
in the web or stem (the vertical or
slightly inclined section), while
pC strand is used to strengthen
the long span of the beam.
7
median Barriers
eSM is increasingly used as the
primary reinforcing in roadway
barriers for highway and bridge
construction, offering significant
cost savings relative to hot-rolled
rebar. Barriers are produced in
a wide array of shapes that are
either precast at the customer’s
facility or cast-in-place at the
construction site. In this median
barrier application, concrete is
poured into a slip-form, which
is positioned over the eSM and
gradually moved along the roadway
as the previously poured concrete
hardens behind it.
8"
43
4 "
10"
4" Pin Dia.
Elong. = .577"
2 5
16 " Cl.
4"
4"
4"
4"
D16 X 31'-1"
Typ
D14
29 sp. @ 12"o/c
"
6
-
'
3
"
34
l
d
o
H
3
-
'
3
"
3
1
6
1
1
-
'
3
4"
4"
4"
4"
4"
4"
2"
2.5"
13
4 "
Cl.
113
16 "
713
16 "
4"
4"
4"
4"
4"
4"
2"
2.5"
713
16 "
113
16 "
43
4 "
7
16 "
Hold (+0,-1)
1'-8
2'
8
42" SINGLE SLOPE CONCRETE BARRIER
SSCB(1)-99 And SSCB(2)-00 Cast In Place - Texas DOT
VX12-D16/D14 78"Wide(2.5,2.5) X 31'-1"Long(24,1)
2.5Oh,2,8@4,10,8@4,2,2.5Oh
Date:
30' Coverage - 12" Minimum Lap
Cust. P.O. #:
IWP Order #:
42" Single Slope Concrete Barrier (Cast In Place)
SSCB(1)-99 And SSCB(2)-00 (Cast In Place) Texas DOT
Title:
Customer:
Customer Approval:
Signiture:
INSTEEL WIRE
Project:
PRODUCTS
1373 Boggs Drive
Mount Airy, N.C. 27030
Tel. 800-334-9504
R
Date: Insteel Dwg. #: Description:
VX12-D16/D14
10-26-06
06-DS-118 (210)
78"Wide(2.5,2.5) X 31'-1"Long(24,1)
Mark No:
Quantity:
20'-2"
tub girders
"
0
-
'
6
1
5'-6"
9'-2"
5'-6"
pC strand is frequently used as the
primary reinforcing in concrete
girders, allowing engineers to
design spans that can exceed
150 feet in length. this tub girder
uses 56 0.600" diameter strands
that are prestressed to a tension of
44,900 pounds. each of the girders
is then spliced together using
strands that are posttensioned,
which allows for even longer spans
and enables concrete girders
to compete effectively against
steel girders.
11
11'-10"
6"
Typ
W4
2"
"
2
"
6
p
y
T
'
8
Shear Wall & Spandrel
"
2
6X6-W4/W4 96"(2,2) X 11'-10"(2,2)
architectural
concrete panels
2"
eSM frequently serves as the pri-
mary reinforcing in architectural
concrete panels, which are used
in a wide range of structures. In
this concrete building and parking
structure, eSM provides the
exact area of steel and reinforcing
W4
configuration required for each
concrete shape, serving as a
higher strength and less labor
intensive concrete reinforcing
solution than hot-rolled rebar at a
lower total installed cost. eSM is
also used in combination with pC
strand to reinforce the “t” girders
that support these structures.
Shear Wall Mesh
6X6-W4/W4 96"(2,2) X 11'-10"(2,2)
(1) Layer Required Each Face
l
C
"
12
1
'
1
"
8
"
8
2"Cl
12
12'-2"
2"Cl
l
C
"
12
1
9
3
4
"
1'-4"
MK1363
5'-2
1
4
"
(10)
1
2 " Strand
MK1367
"
0
1
#4 X 2'-2"
#4 X Cont.
Spandrel Mesh
6X6-W4/W4
(1) Layer Required
Forward-Looking StatementS
This annual 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 “Letter to Shareholders” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used in this
report, the words “believes,” “anticipates,” “expects,” “estimates,” “intends,” “may,” “should” and similar expressions are intended to identify forward-looking
statements. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, they are
subject to a number of risks and uncertainties, and we can provide no assurances that such plans, intentions or expectations will be achieved. Many of these risks
and uncertainties are discussed in detail in our periodic and other reports and statements that we file with the U.S. Securities and Exchange Commission (the
“SEC”), in particular in our Annual Report on Form 10-K for the year ended September 27, 2008. You should carefully review these risks and uncertainties.
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. All
forward-looking statements speak only to the respective dates on which such statements are made and we do not undertake and specifically decline any obligation
to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated events.
It is not possible to anticipate and list all risks and uncertainties that may affect our future operations or financial performance; however, they would include, but
are not limited to, the following: general economic and competitive conditions in the markets in which we operate; credit market conditions and the impact of the
Emergency Economic Stabilization Act of 2008 on the relative availability of financing for us, our customers and the construction industry as a whole; the antici-
pated reduction in spending for nonresidential construction, particularly commercial construction, and the impact on demand for our concrete reinforcing prod-
ucts; the severity and duration of the downturn in residential construction activity and the impact on those portions of our business that are correlated with the
housing sector; the cyclical nature of the steel and building material industries; fluctuations in the cost and availability of our primary raw material, hot-rolled
steel wire rod, from domestic and foreign suppliers; our ability to raise selling prices in order to recover increases in wire rod costs; changes in U.S. or foreign
trade policy affecting imports or exports of steel wire rod or our products; the impact of increased imports of prestressed concrete strand; unanticipated changes in
customer demand, order patterns or inventory levels; the impact of weak demand and reduced capacity utilization levels on our unit manufacturing costs; our
ability to further develop the market for engineered structural mesh (“ESM”) and expand our shipments of ESM; the actual net proceeds realized and closure
costs incurred in connection with our exit from the industrial wire business; legal, environmental or regulatory developments that significantly impact our oper-
ating costs; unanticipated plant outages, equipment failures or labor difficulties; continued escalation in certain of our operating costs; and the “Risk Factors”
discussed in our Annual Report on Form 10-K for the year ended September 27, 2008 and in other filings made by us with the SEC.
Earnings from Continuing Operations
(in millions)
Net Cash Provided by Operating Activities
of Continuing Operations (in millions)
$43.7
$32.0
$34.4
$24.5
$24.3
$41.8
$42.7
$36.8
$29.9
$17.1
(% of
net sales)
10.7%
7.9%
10.4%
8.2%
12.4%
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
Shareholders’ Equity • Total Long-Term Debt • Cash and Cash Equivalents (in millions)
$143.9
$122.4
$97.0
$169.8
Shareholders’ Equity
Total Long-Term Debt
Cash and Cash Equivalents
$71.2
$52.4
$2.3
2004
14
$11.9
$1.4
2005
$10.7
$0
2006
$8.7
$0
2007
$26.5
$0
2008
Capital Expenditures
(in millions)
$19.0
$17.0
$9.5
$6.3
$2.9
2004
2005
2006
2007
2008
50
40
30
20
10
0
50
40
30
20
10
0
20
15
10
5
0
200
150
100
50
0
2008 Financial Review
Contents
16 Management’s Discussion and Analysis
of Financial Condition and Results of Operations
22
Quantitative and Qualitative Disclosures About
Market Risk
23 Management’s Report on Internal Control Over
Financial Reporting
24
25
26
27
28
30
31
46
47
47
48
Report of Independent Registered Public
Accounting Firm
Consolidated Financial Statements
Report of Independent Registered Public
Accounting Firm
Internal Control Over Financial Reporting
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’
Equity and Comprehensive Income
Notes to Consolidated Financial Statements
Stock Price and Dividend Data
Supplementary Quarterly Financial Data (Unaudited)
Stock Performance Graph
Selected Financial Data—Five-Year History
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
15
MAnA geMent’s Discussion An D AnAlysis of finAnci Al conDition An D
Results of opeR Ations
Overview
Following our exit from the industrial wire busi
ness (see Note 7 to the consolidated financial state
ments), our operations are entirely focused on the
manufacture and marketing of concrete reinforcing
products for the concrete construction industry. The
results of operations for the industrial wire business
have been reported as discontinued operations for all
periods presented. Our business strategy is focused
on: (1) achieving leadership positions in our markets;
(2) operating as the lowest cost producer; and (3) pur
suing growth opportunities within our core busi
nesses that further our penetration of current markets
served or expand our geographic reach.
CritiCal aCCOunting POliCies
Our 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 financial statements.
The preparation of our financial statements requires
the application of these accounting principles in addi
tion to certain estimates and judgments based on
current available information, actuarial estimates,
historical results and other assumptions believed to
be reasonable. Actual results could differ from these
estimates.
Following is a discussion of our most critical
accounting policies, which are those that are both
important to the depiction of our financial condition
and results of operations and that require judgments,
assumptions and estimates.
Revenue recognition.
We recognize revenue from
product sales in accordance with Staff Accounting
Bulletin (“SAB”) No. 104 when products are shipped
and risk of loss and title has passed to the customer.
Sales taxes collected from customers are recorded on
a net basis and as such, are excluded from revenue.
Concentration of credit risk. Financial instruments
that subject us to concentrations of credit risk consist
principally of cash and cash equivalents and trade
accounts receivable. We are exposed to credit risk in
the event of default by institutions in which our cash
and cash equivalents are held and customers to the
extent of the amounts recorded on the balance sheet.
We invest excess cash primarily in money market
funds, which are highly liquid securities that bear
minimal risk.
Most of our accounts receivable are due from
customers that are located in the United States and
we generally require no collateral depending upon
the creditworthiness of the account. We utilize credit
insurance on certain accounts receivable due from
customers located outside of the United States. We
provide an allowance for doubtful accounts based
upon our assessment of the credit risk of specific cus
tomers, historical trends and other information. There
is no disproportionate concentration of credit risk.
Allowance for doubtful accounts. We maintain allow
ances for doubtful accounts for estimated losses
resulting from the potential inability of our custom
ers to make required payments. If the financial con
dition of our customers were to change significantly,
adjustments to the allowances may be required. While
we believe our recorded trade receivables will be
collected, in the event of default in payment of a
trade receivable, we would follow normal collection
procedures.
Excess and obsolete inventory reserves. We write
down the carrying value of our inventory for esti
mated obsolescence to reflect the lower of the cost of
the inventory or its estimated net realizable value
based upon assumptions about future demand and
market conditions. If actual market conditions for our
products are substantially different than our projec
tions, adjustments to these reserves may be required.
Accruals for self-insured liabilities and litigation.
We
accrue estimates of the probable costs related to
selfinsured medical and workers’ compensation
claims and legal matters. These estimates have been
developed in consultation with actuaries, our legal
counsel and other advisors and are based on our
current understanding of the underlying facts and
circumstances. Because of uncertainties related to the
ultimate outcome of these issues as well as the pos
sibility of changes in the underlying facts and cir
cumstances, adjustments to these reserves may be
required in the future.
16
Recent accounting pronouncements.
In September
2006, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting
Standard (“SFAS”) No. 157, “Fair Value Measurements”
which defines fair value, establishes a framework for
measuring fair value in generally accepted account
ing principles and expands disclosures about fair
value measurements. SFAS No. 157 is effective for us
beginning in fiscal 2009. We do not expect the adop
tion of SFAS No. 157 to have a material effect on our
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), “Business Combinations” (“SFAS No.
141R”). SFAS No. 141R requires the acquiring entity
in a business combination to recognize all the assets
acquired and liabilities assumed in the transaction;
establishes the acquisitiondate fair value as the mea
surement objective for all assets acquired and lia
bilities assumed; and requires the acquirer to disclose
all of the information required to evaluate and under
stand the nature and financial effect of the business
combination. This statement is effective for acquisi
tion dates on or after the beginning of the first annual
reporting period beginning after December 15, 2008
and is not expected to have a material effect on our
consolidated financial statements to the extent that
we do not enter into business combinations subse
quent to adoption.
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements.” SFAS No. 160 amends Accounting
Research Bulletin No. 51, “Consolidated Financial
Statements,” to establish accounting and reporting
standards for noncontrolling interests in subsidiaries
and for the deconsolidation of subsidiaries. This state
ment clarifies that a noncontrolling interest in a sub
sidiary is an ownership interest in the consolidated
entity that should be reported as equity in the con
solidated financial statements. SFAS No. 160 is effec
tive for fiscal years beginning after December 15, 2008
and is not expected to have a material effect on our
consolidated financial statements to the extent that
we do not obtain any minority interests in subsidiar
ies subsequent to adoption.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and
Hedging Activities.” SFAS No. 161 requires enhanced
disclosures on an entity’s derivative and hedging
activities. SFAS No. 161 will become effective for us
beginning in fiscal 2009 and is not expected to have
any impact on our disclosures to the extent that we
do not initiate any such activities subsequent to
adoption.
In May 2008, the FASB issued SFAS No. 162, “The
Hierarchy of Generally Accepted Accounting Prin
ciples.” SFAS No. 162 identifies the sources of account
ing principles and the framework for selecting the
principles used in the preparation of financial state
ments of nongovernmental entities that are presented
in conformity with generally accepted accounting
principles in the United States. This statement is effec
tive 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments
to AU Section 411, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting
Principles.” We do not expect the adoption of SFAS
No. 162 to have a material effect on our consolidated
financial statements.
In June 2008, the FASB issued FASB Staff Posi
tion (“FSP”) No. EITF 0361, “Determining Whether
Instruments Granted in ShareBased Payment Trans
action Are Participating Securities.” FSP No. EITF
0361 requires that unvested sharebased payment
awards that contain nonforfeitable rights to dividends
or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the
computation of earnings per share pursuant to the
twoclass method. This statement is effective for
financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within
those years, and requires that all prior period earn
ings per share data presented (including interim
financial statements, summaries of earnings and
selected financial data) be adjusted retrospectively
to conform with its provisions. We are currently eval
uating the impact, if any, that the adoption of FSP
EITF 0361 will have on our consolidated financial
statements.
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
17
MAnA geMent’s Discussion An D AnAlysis of finAnci Al conDition An D
Results of opeR Ations (continued)
results Of OP eratiOns
Statements of Operations—Selected Data
(Dollars in thousands)
Net sales
Gross profit
Percentage of net sales
Selling, general and administrative expense
Percentage of net sales
Other expense (income), net
Interest expense
Interest income
Effective income tax rate
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
“N/M” = not meaningful
2008 COmPared with 2007
Net Sales
Net sales increased 18.8% to $353.9 million in
2008 from $297.8 million in 2007. Average selling
prices for the year increased 28.7% while shipments
decreased 7.7% from the prior year levels. The increase
in average selling prices was driven by price increases
that were implemented during the year to recover the
unprecedented escalation in our raw material costs.
The reduction in shipments was primarily due to the
continuation of weak demand from customers that
have been negatively impacted by the downturn in
residential construction activity.
Gross Profit
Gross profit increased 54.8% to $86.8 million, or
24.5% of net sales in 2008 from $56.1 million, or 18.8%
of net sales in 2007 primarily due to higher spreads
between average selling prices and raw material costs,
which more than offset lower shipments and higher
unit conversion costs. The widening in spreads dur
ing the current year was primarily driven by the price
increases that were implemented together with the
consumption of lower cost inventory under the first
in, firstout (“FIFO”) method of accounting.
Selling, General and Administrative Expense
Selling, general and administrative expense
(“SG&A expense”) increased 5.9% to $18.6 million, or
5.3% of net sales in 2008 from $17.6 million, or 5.9%
of net sales in 2007 primarily due to increases in
employee benefit costs ($812,000), bad debt expense
18
September 27,
2008
$353,862
86,755
24.5%
$ 18,623
5.3%
$ 85
594
(721)
35.9%
$ 43,717
35
43,752
Year Ended
September 29,
2007
$297,806
56,061
18.8%
Change
18.8%
54.8%
Change
(9.6%)
(20.9%)
September 30,
2006
$329,507
70,871
21.5%
5.9%
$ 17,583
3.5%
$ 16,996
N/M
0.3%
73.7%
80.0%
N/M
81.1%
5.9%
$ 4
592
(415)
36.6%
$ 24,284
(122)
24,162
N/M
(11.5%)
62.7%
(29.4%)
N/M
(26.9%)
5.2%
$ (446)
669
(255)
36.2%
$ 34,377
(1,337)
33,040
($630,000), compensation expense ($370,000) and
supplemental employee retirement plan expense
($291,000), which were partially offset by the net gain
on life insurance settlements ($661,000) and decreases
in consulting expense ($204,000), travel expense
($167,000) and legal fees ($79,000).
Interest Expense
Interest expense for 2008 was relatively flat at
$594,000 compared to $592,000 in 2007, primarily con
sisting of noncash amortization expense associated
with capitalized financing costs.
Interest Income
Interest income for 2008 increased $306,000, or
73.7%, to $721,000 from $415,000 in 2007 primarily
due to higher average cash balances.
Income Taxes
Our effective income tax rate decreased to 35.9%
in 2008 from 36.6% in 2007 due to an increase in per
manent differences resulting from higher tax credits
attributable to domestic production activities and
nontaxable proceeds associated with life insurance
settlements.
Earnings From Continuing Operations
Earnings from continuing operations for 2008
increased to $43.7 million, or $2.47 per diluted share,
compared to $24.3 million, or $1.33 per diluted share
in 2007 primarily due to the increases in sales and
gross profit which more than offset the increase in
SG&A expense.
Earnings (Loss) From Discontinued Operations
Other Expense (Income), Net
Earnings from discontinued operations for 2008
were $35,000, which had no effect on diluted earnings
per share, compared with a loss of $122,000, or $0.01
per diluted share in 2007. The earnings in 2008
resulted from escrow payments we received that were
forfeited by a prospective buyer of our Fredericksburg,
Virginia manufacturing facility, which we had closed
in 2006 in connection with our exit from the indus
trial wire business.
Net Earnings
Net earnings for 2008 increased to $43.8 million,
or $2.47 per diluted share, compared to $24.2 million,
or $1.32 per diluted share in 2007 primarily due to the
increases in sales and gross profit which more than
offset the increase in SG&A expense.
2007 COmPared with 2006
Net Sales
Net sales decreased 9.6% to $297.8 million in 2007
from $329.5 million in 2006. Shipments for the year
decreased 11.4% while average selling prices rose
2.0% from the prior year. The reduction in shipments
was driven by a combination of factors including:
(1) the continuation of weak demand and inventory
reduction measures pursued by customers that have
been negatively impacted by the downturn in resi
dential construction activity; (2) our decision to solicit
minimal new business from posttension customers in
the PC strand market due to lowpriced import com
petition; and (3) less favorable weather conditions in
certain of our markets relative to the prior year which
reduced the level of construction activity.
Gross Profit
Gross profit decreased 20.9% to $56.1 million, or
18.8% of net sales in 2007 from $70.9 million, or 21.5%
of net sales in 2006 primarily due to the reduction in
shipments, higher unit manufacturing costs resulting
from lower operating levels and higher raw material
costs which were partially offset by the increase in
average selling prices.
Selling, General and Administrative Expense
Selling, general and administrative expense
(“SG&A expense”) increased 3.5% to $17.6 million, or
5.9% of net sales in 2007 from $17.0 million, or 5.2% of
net sales in 2006 primarily due to higher compensa
tion expense ($989,000) which was partially offset by
lower employee benefit costs ($387,000).
Other expense was $4,000 in 2007 compared with
income of $446,000 in 2006. The income for 2006
was primarily related to a $247,000 litigation settle
ment and $128,000 of duties related to the dumping
and countervailing duty cases that were filed by a
coalition of domestic PC strand producers which
included us.
Interest Expense
Interest expense decreased $77,000, or 12%, to
$592,000 in 2007 from $669,000 in 2006 primarily
due to lower average outstanding balances on the
revolving credit facility in 2007 together with lower
amortization expense associated with capitalized
financing costs.
Income Taxes
Our effective income tax rate was relatively flat
for 2007 at 36.6% compared with 36.2% in 2006.
Earnings From Continuing Operations
Earnings from continuing operations for 2007
decreased to $24.3 million, or $1.33 per diluted
share, compared to $34.4 million, or $1.86 per diluted
share in 2006 primarily due to the lower sales and
gross profit.
Earnings (Loss) From Discontinued Operations
The loss from discontinued operations for 2007
was $122,000, or $0.01 per diluted share compared to
$1.3 million, or $0.07 per diluted share in 2006. The
2007 loss reflects the closure costs incurred to exit the
industrial wire business and close our Fredericksburg,
Virginia manufacturing facility. The 2006 loss reflects
the operating losses incurred by the industrial wire
business together with the closure costs which were
partially offset by a $1.3 million pretax gain on the
sale of certain machinery and equipment associated
with the industrial wire business for $6.0 million.
Net Earnings
Net earnings for 2007 decreased to $24.2 million,
or $1.32 per diluted share, compared to $33.0 million,
or $1.79 per diluted share in 2006 primarily due to the
lower sales and gross profit which was partially off
set by the reduction in the loss from discontinued
operations associated with our exit from the indus
trial wire business and closure of our Fredericksburg,
Virginia manufacturing facility.
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
19
MAnA geMent’s Discussion An D AnAlysis of finAnci Al conDition An D
Results of opeR Ations (continued)
liquidity and CaPital resOurCes
Selected Financial Data
(Dollars in thousands)
Net cash provided by operating activities of continuing operations
Net cash used for investing activities of continuing operations
Net cash used for financing activities of continuing operations
Net cash provided (used for) by operating activities of discontinued
operations
Net cash provided by investing activities of discontinued operations
Working capital
Total longterm debt
Percentage of total capital
Shareholders’ equity
Percentage of total capital
Total capital (total longterm debt + shareholders’ equity)
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$ 36,808
(8,249)
(10,710)
(59)
—
97,566
—
—
$169,847
100%
$169,847
$ 17,065
(17,062)
(1,842)
(147)
—
70,697
—
—
$143,850
$ 42,650
(19,472)
(22,008)
2,185
5,963
56,938
—
—
$122,438
100%
100%
$143,850
$122,438
Cash flOw analysis
Operating activities of continuing operations
provided $36.8 million of cash in 2008 compared with
$17.1 million in 2007 and $42.7 million in 2006. The
yearoveryear increase in 2008 was largely due to the
$19.4 million increase in earnings from continuing
operations. In 2008 and 2007, the net change in receiv
ables, inventory and accounts payable and accrued
expenses used $20.2 million and $14.6 million, respec
tively, of cash while providing $4.3 million in 2006.
The cash used by working capital in the current year
was due to the $23.8 million increase in inventory and
$15.1 million increase in accounts receivable, which
were in turn largely driven by the sharp escalation in
raw material costs and selling prices. These increases
were partially offset by the $18.7 million increase in
accounts payable and accrued expenses, which was
primarily due to the higher raw material costs. Depre
ciation and amortization rose $1.6 million, or 27.3%
from the prior year as a result of the elevated level of
capital expenditures and related asset additions over
the previous two years. Cash provided by deferred
income taxes decreased $1.5 million to $484,000 in
2008 from $2.0 million in 2007.
Investing activities of continuing operations used
$8.2 million of cash in 2008 compared with $17.1 mil
lion in 2007 and $19.5 million in 2006. The decrease
was primarily due to the $7.5 million reduction in
capital expenditures and $1.1 million of proceeds
from claims on life insurance policies. Capital expen
ditures amounted to $9.5 million, $17.0 million and
$19.0 million in 2008, 2007 and 2006, respectively, with
the current year outlays primarily associated with
the upgrading of our Florida PC strand facility in
addition to recurring maintenance requirements.
During 2007 and 2006, the higher levels of capital
expenditures were primarily related to the expansion
of our Tennessee PC strand facility, the addition of
new ESM production lines at our North Carolina and
Texas facilities, and the addition of a new SWWR pro
duction line at our Delaware facility. Maintenance
related capital expenditures are expected to total less
than $5.0 million in 2009. The actual timing of these
expenditures as well as the amounts are subject
to change based on future market conditions, our
financial performance and additional growth oppor
tunities that may arise. Investing activities from dis
continued operations did not provide or use cash in
2008 and 2007 while providing $6.0 million in 2006
from the net proceeds on the sale of certain machin
ery and equipment associated with our discontinued
industrial wire business.
Financing activities of continuing operations
used $10.7 million of cash in 2008 compared with $1.8
million in 2007 and $22.0 million in 2006. The year
overyear increase in 2008 was primarily due to the
$8.7 million of share repurchases in the current year.
Subsequent to the end of the fiscal year, on October 3,
2008, we paid a cash dividend to our shareholders
totaling $9.3 million in the aggregate or $0.53 per
share, which included a special cash dividend of $8.8
million, or $0.50 per share in addition to our regular
quarterly cash dividend of $525,000, or $0.03 per share.
20
Credit faCilities
As of September 27, 2008, we had a $100.0 million
revolving credit facility in place to supplement our
operating cash flow in funding our working capital,
capital expenditure and general corporate require
ments. No borrowings were outstanding on the credit
facility as of September 27, 2008 and September 29,
2007 and outstanding letters of credit totaled $1.2 mil
lion and $1.9 million, respectively. As of September
27, 2008, $80.0 million of borrowing capacity was
available on the credit facility (see Note 4 to the con
solidated financial statements).
Our balance sheet was debtfree as of September
27, 2008 and September 29, 2007. We believe that, in
the absence of significant unanticipated cash
demands, net cash generated by operating activities
and amounts available under our revolving credit
facility will be sufficient to satisfy our expected short
term and longterm requirements for working capital,
capital expenditures, dividends and share repur
chases, if any.
imPaCt Of inflatiOn
We are subject to inflationary risks arising from
fluctuations in the market prices for our primary raw
material, hotrolled steel wire rod, and, to a much
lesser extent, freight, energy and other consumables
that are used in our manufacturing processes. We
have generally been able to adjust our selling prices
to pass through increases in these costs or offset
them through various cost reduction and productiv
ity 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 2008, we implemented price
increases in response to the unprecedented escalation
in wire rod costs, materially increasing our net sales
and earnings from continuing operations due to the
consumption of lower cost inventory. During 2007
and 2006, inflation did not have a material impact on
our net sales or earnings from continuing operations.
Off-BalanCe sheet arrangements
We do not have any material transactions, arrange
ments, obligations (including contingent obligations),
or other relationships with unconsolidated entities
or other persons, as defined by Item 303(a)(4) of
Regulation SK of the SEC, that have or are reason
ably 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
Our contractual obligations and commitments at September 27, 2008 are as follows:
(In thousands)
Contractual obligations:
Operating leases
Raw material purchase commitments(1)
Supplemental employee retirement plan obligations
Pension benefit obligations
Trade letters of credit
Other unconditional purchase obligations(2)
Commitment fee on unused portion of credit facility
FIN No. 48 obligations including interest and penalties
Total
(1) Non-cancelable fixed price purchase commitments for raw materials.
(2) Contractual commitments for capital expenditures.
Payments Due by Period
Total
Less Than
1 Year
1–3
Years
3–5
Years
More Than
5 Years
$ 1,146
89,652
19,095
8,769
1,154
1,115
492
48
$ 587
89,652
155
607
1,154
1,115
295
48
$ 548
—
398
1,099
—
—
197
—
$
11
—
487
665
—
—
—
—
$ —
—
18,055
6,398
—
—
—
—
$ 121,471
$93,613
$ 2,242
$ 1,163
$24,453
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
21
MAnA geMent’s Discussion An D AnAlysis of finAnci Al conDition An D
Results of opeR Ations (continued)
OutlOOk
Our visibility for business conditions in fiscal
2009 is clouded by the increased uncertainty regard
ing future global economic conditions, tightening in
the credit markets and the anticipated reduction in
steel prices. Although we expect nonresidential con
struction, our primary demand driver, to decline from
the levels of recent years, the magnitude of the decrease
is highly uncertain at this time. We anticipate residen
tial construction will remain weak, which would con
tinue to adversely affect shipments to customers that
have greater exposure to the housing sector.
Prices for our primary raw material, hotrolled
steel wire rod, have begun to soften in recent months
following the unprecedented escalation that we
experienced during fiscal 2008 as scrap costs for steel
producers have plummeted and the availability of
competitively priced imports has increased. Pur
chasers at all levels of the supply chain have scaled
back their commitments to minimize inventories
in response to the heightened level of uncertainty
regarding future demand and speculation that prices
could fall further. These pricing pressures could be
exacerbated in our PC strand business by the increase
in irrationally priced imports from China.
In response to these challenges, we will continue
to focus on the operational fundamentals of our busi
ness: closely managing and controlling our expenses;
aligning our production schedules with demand in a
proactive manner as there are changes in market con
ditions to minimize our cash operating costs; and
pursuing further improvements in the productivity
and effectiveness of all of our manufacturing, selling
and administrative activities. We also expect gradu
ally increasing contributions from the substantial
investments we have made in our facilities in recent
years to expand and reconfigure our Tennessee
and Florida PC strand facilities, and add new ESM
production lines in our North Carolina and Texas
plants and a new standard welded wire reinforcing
line at our Delaware facility. As we ramp up produc
tion on the new equipment, we anticipate dual bene
fits in the form of reduced operating costs and
additional capacity to support future growth when
market conditions improve (see “ForwardLooking
Statements”). In addition to these organic growth and
cost reduction initiatives, we are continually evaluat
ing potential acquisitions in our existing businesses
that further our pene tration in current markets served
or expand our geographic reach.
quantitative and qualitative disClOsures aBOut
market risk
Our cash flows and earnings are subject to fluc
tuations resulting from changes in commodity prices,
interest rates and foreign exchange rates. We manage
our exposure to these market risks through inter
nally established policies and procedures and, when
deemed appropriate, through the use of derivative
financial instruments. We do not use financial instru
ments for trading purposes and we are not a party to
any leveraged derivatives. We monitor our underly
ing market risk exposures on an ongoing basis and
believe that we can modify or adapt our hedging
strategies as necessary.
Commodity Prices
We are subject to significant fluctuations in the
cost and availability of our primary raw material, hot
rolled carbon steel wire rod, which we purchase from
both domestic and foreign suppliers. We negotiate
quantities and pricing for both domestic and foreign
steel wire rod purchases for varying periods (most
recently monthly for domestic suppliers), depending
upon market conditions, to manage our exposure to
price fluctuations and to ensure adequate availability
of material consistent with our requirements. We do
not use derivative commodity instruments to hedge
our exposure to changes in prices as such instruments
are not currently available for steel wire rod. Our
ability to acquire steel wire rod from foreign sources
on favorable terms is impacted by fluctuations in for
eign currency exchange rates, foreign taxes, duties,
tariffs and other trade actions. Although changes in
wire rod costs and our selling prices may be corre
lated over extended periods of time, depending upon
market conditions and competitive dynamics, there
may be periods during which we are unable to fully
recover increased rod costs through higher selling
prices, which would reduce our gross profit and cash
flow from operations. Additionally, should wire rod
costs decline, our financial results may be negatively
impacted if the selling prices for our products
decrease to an even greater degree and to the extent
that we are consuming higher cost material from
inventory. Based on our 2008 shipments and average
rod cost reflected in cost of sales, a 10% increase in
the price of steel wire rod would have resulted in a
$19.7 million decrease in our annual pretax earnings
(assuming there was not a corresponding change in
our selling prices).
22
Interest Rates
Although we were debtfree as of September 27,
2008, future borrowings under our senior secured
credit facility 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 and any such trans
actions have not been material in the past. We will
occasionally hedge firm commitments for equipment
purchases that are denominated in foreign curren
cies. The decision to hedge any such transactions is
made by us on a casebycase basis. There were no
forward contracts outstanding as of September 27,
2008. During fiscal 2008, a 10% increase or decrease in
the value of the U.S. dollar relative to foreign curren
cies to which we are typically exposed would not
have had a material impact on our financial position,
results of operations or cash flows.
MAnAgeM ent’s RepoRt on inteR nAl contRol oveR finAnciAl RepoRting
Our management is responsible for establish
ing 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 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) pro
viding reasonable assurance that transactions are
recorded as necessary for preparation of financial
statements, and that receipts and expenditures are
made in accordance with authorizations of manage
ment and directors; and (3) providing reasonable
assurance that unauthorized acquisition, use or dis
position of assets that could have a material effect on
financial statements would be prevented or detected
on a timely basis. Because of its inherent limita
tions, internal control over financial reporting is not
intended to provide absolute assurance that a mis
statement 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 compli
ance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our
internal control over financial reporting based on
the criteria set forth by the Committee of Sponsor
ing Organizations of the Treadway Commission in
Internal Control—Integrated Framework. Based on this
assessment, management concluded that our internal
control over financial reporting was effective as of
September 27, 2008.
Our independent registered public accounting
firm has issued an audit report on the effectiveness of
our internal control over financial reporting as of
September 27, 2008 which is on page 25.
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
23
RepoRt of inDepenDent RegisteR eD puBlic Accounting fiRM
consoliDAteD finAnciAl stAteM ents
To the Board of Directors and Shareholders
Insteel Industries, Inc.:
We have audited the accompanying consolidated
balance sheets of Insteel Industries, Inc. and subsid
iaries (a North Carolina corporation) as of September
27, 2008 and September 29, 2007, and the related
consolidated statements of operations, shareholders’
equity and comprehensive income and cash flows for
each of the three years in the period ended September
27, 2008. These financial statements are the responsi
bility of the Company’s management. Our responsi
bility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Over
sight Board (United States). Those standards require
that we plan and perform the audit to obtain reason
able assurance about whether the financial statements
are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.
An audit also includes assessing the accounting prin
ciples used and significant estimates made by man
agement, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial state
ments referred to above present fairly, in all material
respects, the financial position of Insteel Industries,
Inc. and subsidiaries as of September 27, 2008 and
September 29, 2007, and the results of their operations
and their cash flows for each of the three years in
the period ended September 27, 2008 in conformity
with accounting principles generally accepted in the
United States.
As discussed in Note 2 to the financial state
ments, the Company adopted Financial Accounting
Standards Board Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” at the beginning of
fiscal 2008. In addition, as discussed in Note 8, the
Company has adopted Financial Accounting Stand
ards Board Statement No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement
Plans,” as of September 29, 2007.
We also have audited, in accordance with the
standards of the Public Company Accounting Over
sight Board (United States), Insteel Industries, Inc.
and subsidiaries’ internal control over financial
reporting as of September 27, 2008, based on criteria
established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) and our report
dated November 3, 2008 expressed an unqualified
opinion.
Greensboro, North Carolina
November 3, 2008
24
RepoRt of inDepenDent RegisteR eD puBlic Accounting fiRM
inteR nAl contRol oveR finAnciAl RepoRting
To the Board of Directors and Shareholders
Insteel Industries, Inc.:
We have audited Insteel Industries, Inc. and sub
sidiaries’ (a North Carolina corporation) internal
control over financial reporting as of September 27,
2008, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commis
sion (COSO). Insteel Industries, Inc. and subsidiaries’
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 accompany
ing Management’s Report on Internal Control over Finan-
cial Reporting. Our responsibility is to express an
opinion on Insteel Industries, Inc. and subsidiaries’
internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Over
sight Board (United States). Those standards require
that we plan and perform the audit to obtain reason
able assurance about whether effective internal con
trol 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 operat
ing 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.
A company’s internal control over financial
reporting is a process designed to provide reasonable
assurance regarding the reliability of financial report
ing 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 poli
cies and procedures that (1) pertain to the mainte
nance 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 accord
ance with generally accepted accounting principles,
and that receipts and expenditures of the company
are being made only in accordance with authoriza
tions of management and directors of the company;
and (3) provide reasonable assurance regarding pre
vention or timely detection of unauthorized acqui
sition, use, or disposition of the company’s assets
that could have a material effect on the financial
statements.
Because of its inherent limitations, internal con
trol 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 compli
ance with the policies or procedures may deteriorate.
In our opinion, Insteel Industries, Inc. and sub
sidiaries maintained, in all material respects, effec
tive internal control over financial reporting as of
September 27, 2008, based on criteria established
in Internal Control—Integrated Framework issued
by COSO.
We have also audited, in accordance with the
standards of the Public Company Accounting Over
sight Board (United States), the consolidated balance
sheets of Insteel Industries, Inc. and subsidiaries as of
September 27, 2008 and September 29, 2007 and the
related consolidated statements of operations, share
holders’ equity and comprehensive income and cash
flows for each of the three years in the period ended
September 27, 2008, and our report dated November
3, 2008, expressed an unqualified opinion on those
financial statements and contains an explanatory
paragraph relating to the adoption of Financial
Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” at the
beginning of fiscal 2008. In addition, as discussed in
Note 8, the Company adopted Financial Accounting
Standards Board Statement No. 158, “Employers’
Accounting for Defined Benefit Pension and Other
Postretirement Plans” on September 29, 2007.
Greensboro, North Carolina
November 3, 2008
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
25
consoliDAteD stAteMents of opeR Ations
(In thousands, except for per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expense
Other expense (income), net
Interest expense
Interest income
Earnings from continuing operations before income taxes
Income taxes
Earnings from continuing operations
Earnings (loss) from discontinued operations net of income
taxes of $23, ($77) and ($851)
Net earnings
Per share amounts:
Basic:
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Diluted:
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Cash dividends declared
Weighted shares outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$353,862
267,107
$297,806
241,745
$329,507
258,636
86,755
18,623
85
594
(721)
68,174
24,457
43,717
56,061
17,583
4
592
(415)
38,297
14,013
24,284
70,871
16,996
(446)
669
(255)
53,907
19,530
34,377
35
(122)
(1,337)
$ 43,752
$ 24,162
$ 33,040
$ 2.49
—
$ 2.49
$ 2.47
—
$ 2.47
$ 0.62
17,547
17,712
$ 1.34
(0.01)
$ 1.33
$ 1.33
(0.01)
$ 1.32
$ 0.12
$ 1.88
(0.08)
$ 1.80
$ 1.86
(0.07)
$ 1.79
$ 0.12
18,142
18,314
18,307
18,473
26
consoliDAteD BAl Ance sHeets
(In thousands, except for per share amounts)
Assets:
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses and other
Total current assets
Property, plant and equipment, net
Other assets
Noncurrent assets of discontinued operations
September 27,
2008
September 29,
2007
$ 26,493
49,581
71,220
3,122
150,416
69,105
5,064
3,635
$ 8,703
34,518
47,401
4,640
95,262
67,147
7,485
3,635
Total assets
$228,220
$173,529
Liabilities and shareholders’ equity:
Current liabilities:
Accounts payable
Accrued expenses
Current liabilities of discontinued operations
Total current liabilities
Other liabilities
Longterm liabilities of discontinued operations
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value
Authorized shares: 1,000
None issued
Common stock, $1 stated value
Authorized shares: 20,000
Issued and outstanding shares: 2008, 17,507; 2007, 18,303
Additional paidin capital
Deferred stock compensation
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
$ 23,581
29,081
188
52,850
5,306
217
$ 16,705
7,613
247
24,565
4,862
252
—
—
17,507
43,202
(1,456)
112,479
(1,885)
169,847
$228,220
18,303
48,939
(1,132)
79,859
(2,119)
143,850
$173,529
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
27
consoliDAteD stAteMents of cA sH floWs
(In thousands)
Cash Flows From Operating Activities:
Net earnings
Loss (earnings) from discontinued operations
Earnings from continuing operations
Adjustments to reconcile earnings from continuing
operations to net cash provided by operating activities
of continuing operations:
Depreciation and amortization
Amortization of capitalized financing costs
Stockbased compensation expense
Excess tax benefits from stockbased compensation
Loss on sale of property, plant and equipment
Deferred income taxes
Gain from life insurance proceeds
Increase in cash surrender value of life insurance over
premiums paid
Net changes in assets and liabilities:
Accounts receivable, net
Inventories
Accounts payable and accrued expenses
Other changes
Total adjustments
Net cash provided by operating activities—
continuing operations
Net cash provided by (used for) operating
activities—discontinued operations
Net cash provided by operating activities
Cash Flows From Investing Activities:
Capital expenditures
Proceeds from sale of assets held for sale
Proceeds from sale of property, plant and equipment
Proceeds from surrender of life insurance policies
Increase in cash surrender value of life insurance policies
Proceeds from life insurance claims
Net cash used for investing activities—
continuing operations
Net cash provided by investing activities—
discontinued operations
Net cash used for investing activities
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$ 43,752
(35)
43,717
$ 24,162
122
24,284
$ 33,040
1,337
34,377
7,271
498
1,759
(31)
289
484
(661)
—
(15,063)
(23,819)
18,699
3,665
(6,909)
36,808
(59)
36,749
(9,456)
—
116
170
(190)
1,111
(8,249)
—
(8,249)
5,711
498
1,258
(122)
301
2,003
—
(277)
3,001
(604)
(17,019)
(1,969)
(7,219)
17,065
(147)
16,918
(17,013)
590
—
—
(639)
—
4,578
529
1,173
(459)
82
(1,627)
—
(193)
1,082
(15,228)
18,456
(120)
8,273
42,650
2,185
44,835
(18,959)
—
52
—
(565)
—
(17,062)
(19,472)
—
(17,062)
5,963
(13,509)
(continued)
28
(In thousands)
Cash Flows From Financing Activities:
Proceeds from longterm debt
Principal payments on longterm debt
Financing costs
Cash received from exercise of stock options
Excess tax benefits from stockbased compensation
Repurchases of common stock
Cash dividends paid
Other
Net cash used for financing activities—
continuing operations
Net cash used for financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
951
(951)
—
120
31
(8,691)
(2,141)
(29)
(10,710)
(10,710)
17,790
8,703
16,999
(16,999)
—
162
122
—
(2,176)
50
(1,842)
(1,842)
(1,986)
10,689
135,219
(147,079)
(307)
360
459
(8,529)
(2,222)
91
(22,008)
(22,008)
9,318
1,371
Cash and cash equivalents at end of period
$ 26,493
$ 8,703
$ 10,689
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest
Income taxes
Noncash financing activity:
Purchases of property, plant and equipment in accounts
payable
Issuance of restricted stock
Declaration of cash dividends to be paid
Restricted stock surrendered for withholding taxes payable
See accompanying notes to consolidated financial statements.
$ 95
11,563
$ 93
16,785
$ 202
17,489
178
1,185
9,279
76
937
1,215
544
—
—
792
543
—
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
29
consoliDAteD stAteM ents of sHAReH olDeR s’ eQuit y AnD coMpReH ensive incoMe
(In thousands)
Common Stock
Shares Amount
Additional
PaidIn
Capital
Deferred
Retained
Compensation Earnings
Accumulated
Other
Comprehensive
Income (Loss)(1)
Total
Shareholders’
Equity
Balance at October 1, 2005
18,860
$18,861
$45,003
$ (508)
$ 34,772
$(1,092)
$ 97,036
Comprehensive income:
Net earnings
Reduction in pension plan liability(1)
Comprehensive income(1)
Stock options exercised
Restricted stock granted
Restricted stock shares from dividend
Compensation expense associated with
stockbased plans
Excess tax benefits from stockbased
compensation
Repurchases of common stock
Cash dividends declared
33,040
1,092
101
51
1
101
50
1
(800)
(800)
259
742
7
535
459
(792)
638
(7,729)
(2,201)
33,040
1,092
34,132
360
—
8
1,173
459
(8,529)
(2,201)
Balance at September 30, 2006
18,213
$18,213
$47,005
$ (662)
$ 57,882
$ —
$122,438
Comprehensive income:
Net earnings
Recognition of additional pension
plan liability(1)
Adjustment to adopt SFAS No. 158
Comprehensive income(1)
Stock options exercised
Restricted stock granted
Restricted stock shares from dividend
Compensation expense associated with
stockbased plans
Excess tax benefits from stockbased
compensation
Cash dividends declared
24,162
(9)
(2,110)
23
67
23
67
139
1,148
12
513
122
(1,215)
745
(2,185)
24,162
(9)
(2,110)
22,043
162
—
12
1,258
122
(2,185)
Balance at September 29, 2007
18,303
$18,303
$48,939
$(1,132)
$ 79,859
$(2,119)
$143,850
Comprehensive income:
Net earnings
Adjustment to defined benefit plan
liability(1)
Comprehensive income(1)
Stock options exercised
Restricted stock granted
Compensation expense associated with
stockbased plans
Adjustment to adopt FIN No. 48
Excess tax benefits from stockbased
compensation
Repurchases of common stock
Restricted stock surrendered for
withholding taxes payable
Cash dividends declared
43,752
234
(1,185)
861
24
93
24
93
(906)
(906)
96
1,092
898
31
(7,785)
(7)
(7)
(69)
(256)
(10,876)
43,752
234
43,986
120
—
1,759
(256)
31
(8,691)
(76)
(10,876)
Balance at September 27, 2008
17,507
$17,507
$43,202
$ (1,456)
$ 112,479
$(1,885)
$169,847
(1) Activity within accumulated other comprehensive income (loss) is reported net of related income taxes: 2006—($702), 2007—$1,299, 2008—($143)
See accompanying notes to consolidated financial statements.
30
notes to consoliDAteD finAnciAl stAteMents
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006
(1) desCriPtiOn Of Business
Insteel Industries, Inc. (“Insteel” or “the
Company”) is one of the nation’s largest manufactur
ers of steel wire reinforcing products for concrete
construction applications. Insteel is the parent hold
ing company for two whollyowned subsidiaries,
Insteel Wire Products Company (“IWP”) and Inter
continental Metals Corporation. The Company manu
factures and markets PC strand and welded wire
reinforcement products, including concrete pipe rein
forcement, engineered structural mesh and standard
welded wire reinforcement. The Company’s products
are primarily sold to manufacturers of concrete prod
ucts and to a lesser extent to distributors and rebar
fabricators that are located nationwide as well as in
Canada, Mexico, and Central and South America.
In 2006, the Company exited the industrial wire
business in order to narrow its strategic and opera
tional focus to concrete reinforcing products (see Note
7 to the consolidated financial statements). The results
of operations for the industrial wire business have
been reported as discontinued operations for all peri
ods presented.
(2) summary Of signifiCant aCCOunting POliCies
Fiscal year. The Company’s fiscal year is the 52 or
53 weeks ending on the Saturday closest to September
30. Fiscal years 2008, 2007 and 2006 were 52week fis
cal years. All references to years relate to fiscal years
rather than calendar years.
Principles of consolidation.
The consolidated finan
cial statements include the accounts of the Company
and its subsidiaries. All significant intercompany bal
ances and transactions have been eliminated.
Use of estimates. The preparation of financial state
ments in conformity with accounting principles
generally accepted in the United States requires
management to make estimates and assumptions
that affect the amounts reported in the financial state
ments and accompanying notes. There is no assur
ance that actual results will not differ from these
estimates.
Cash equivalents.
The Company considers 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 the Company to concentrations of credit
risk consist principally of cash and cash equivalents
and trade accounts receivable. The Company is
exposed to credit risk in the event of default by these
institutions and customers to the extent of the amount
recorded on the balance sheet. The Company invests
excess cash primarily in money market funds, which
are highly liquid securities.
The majority of the Company’s accounts receiv
able are due from customers that are located in the
United States and the Company generally requires no
collateral depending upon the creditworthiness of the
account. The Company utilizes credit insurance on
certain accounts receivable due from customers
located outside of the United States. The Company
provides an allowance for doubtful accounts based
upon its assessment of the credit risk of specific cus
tomers, historical trends and other information. The
Company writes off accounts receivable when they
become uncollectible and payments subsequently
received are credited to the allowance for doubtful
accounts. There is no disproportionate concentration
of credit risk.
Stock-based compensation. The Company accounts
for stockbased compensation in accordance with the
fair value recognition provisions of Statement of
Financial Accounting Standard (“SFAS”) No. 123R,
“ShareBased Payment,” which requires stockbased
compensation expense to be recognized in net earn
ings based on the fair value of the award on the date
of the grant. The Company determines the fair value
of stock options issued by using a Monte Carlo valua
tion model at the grant date. The Monte Carlo valua
tion model considers a range of assumptions including
the expected term, volatility, dividend yield and risk
free interest rate. Excess tax benefits generated from
option exercises during 2008, 2007 and 2006 were
$31,000, $122,000 and $459,000, respectively.
Revenue recognition.
The Company recognizes rev
enue from product sales in accordance with Staff
Accounting Bulletin No. 104, “Revenue Recognition”
when the products are shipped and risk of loss and
title has passed to the customer. Sales taxes collected
from customers are recorded on a net basis and as
such, are excluded from revenue.
Shipping and handling costs. The Company includes
all of the outbound freight, shipping and handling
costs associated with the shipment of products to cus
tomers in cost of sales. Any amounts paid by custom
ers to the Company for shipping and handling are
recorded in net sales on the consolidated statement of
operations.
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
31
notes to consoliDAteD finAnciAl stAteMents (continued)
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006
Inventories.
Inventories are valued at the lower of
weighted average cost (which approximates computa
tion on a firstin, firstout basis) or market (net realiz
able value or replacement cost).
Property, plant and equipment. Property, plant and
equipment are recorded at cost or otherwise at
reduced values to the extent there have been asset
impairment writedowns. Expenditures for mainte
nance and repairs are charged directly to expense
when incurred, while major improvements are capi
talized. Depreciation is computed for financial report
ing purposes principally by use of the straightline
method over the following estimated useful lives:
machinery and equipment, 3–15 years; buildings,
10–30 years; land improvements, 5–15 years. Depre
ciation expense was approximately $7.3 million in
2008, $5.7 million in 2007 and $4.6 million in 2006.
Capitalized software is amortized over the shorter of
the estimated useful life or 5 years. No interest costs
were capitalized in 2008, 2007 or 2006.
Other assets.
Other assets consist principally of
noncurrent deferred tax assets, capitalized financing
costs, the cash surrender value of life insurance poli
cies and assets held for sale. Capitalized financing
costs are amortized using the straightline method,
which approximates the effective interest method
over the life of the related credit agreement.
Long-lived assets.
Longlived assets include prop
erty, plant and equipment and identifiable intangible
assets with definite useful lives. The Company assesses
the impairment of longlived assets whenever events
or changes in circumstance indicate that the carrying
value may not be fully recoverable. When the Com
pany determines that the carrying value of such assets
may not be recoverable, it measures 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 during the period 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 2008, 2007, or 2006.
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 conse
quences of temporary differences between the tax
bases of assets and liabilities and their reported
amounts. The Company assesses the need to establish
a valuation allowance against its deferred tax assets
to the extent the Company no longer believes it is
more likely than not that the tax assets will be fully
utilized. The Company adopted Financial Accounting
Standards Board (“FASB”) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN
No. 48”) effective September 30, 2007, the beginning
of fiscal year 2008. The cumulative effect of adopting
FIN No. 48 resulted in a $256,000 increase in tax
reserves and a corresponding decrease in the Com
pany’s retained earnings balance as of September
30, 2007.
Earnings per share. Basic earnings per share (“EPS”)
are computed by dividing net earnings by the
weighted average number of common shares out
standing during the period. Diluted EPS are com
puted by dividing net earnings by the weighted
average number of common shares 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.
Recent accounting pronouncements.
In September
2006, the FASB issued SFAS No. 157, “Fair Value
Measurements,” which defines fair value, establishes
a framework for measuring fair value in generally
accepted accounting principles and expands disclo
sures about fair value measurements. SFAS No. 157 is
effective for the Company beginning in fiscal 2009.
The Company does not expect the adoption of SFAS
No. 157 to have a material effect on its consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), “Business Combinations” (“SFAS No.
141R”). SFAS No. 141R requires the acquiring entity
in a business combination to recognize all the assets
acquired and liabilities assumed in the transaction;
establishes the acquisitiondate fair value as the
measurement objective for all assets acquired and
liabilities assumed; and requires the acquirer to dis
close all of the information required to evaluate and
understand the nature and financial effect of the busi
ness combination. This statement is effective for
acquisition dates on or after the beginning of the first
32
annual reporting period beginning after December
15, 2008 and is not expected to have a material effect
on the Company’s consolidated financial statements
to the extent that it does not enter into business com
binations subsequent to adoption.
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements.” SFAS No. 160 amends Accounting
Research Bulletin No. 51, “Consolidated Financial
Statements,” to establish accounting and reporting
standards for noncontrolling interests in subsidiaries
and for the deconsolidation of subsidiaries. This state
ment clarifies that a noncontrolling interest in a sub
sidiary is an ownership interest in the consolidated
entity that should be reported as equity in the con
solidated financial statements. SFAS No. 160 is effec
tive for fiscal years beginning after December 15, 2008
and is not expected to have a material effect on the
Company’s consolidated financial statements to the
extent that it does not obtain any minority interests in
subsidiaries subsequent to adoption.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and
Hedging Activities.” SFAS No. 161 requires enhanced
disclosures on an entity’s derivative and hedging
activities. SFAS No. 161 will become effective for the
Company beginning in fiscal 2009 and is not expected
to have any impact on its disclosures to the extent that
it does not initiate any such activities subsequent to
adoption.
In May 2008, the FASB issued SFAS No. 162, “The
Hierarchy of Generally Accepted Accounting Prin
ciples.” SFAS No. 162 identifies the sources of account
ing principles and the framework for selecting the
principles used in the preparation of financial state
ments of nongovernmental entities that are presented
in conformity with generally accepted accounting
principles in the United States. This statement is effec
tive 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments
to AU Section 411, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting
Principles.” The Company does not expect the adop
tion of SFAS No. 162 to have a material effect on its
consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position
(“FSP”) No. EITF 0361, “Determining Whether
Instruments Granted in ShareBased Payment Trans
action Are Participating Securities.” FSP No. EITF
0361 requires that unvested sharebased payment
awards that contain nonforfeitable rights to dividends
or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the
computation of earnings per share pursuant to the
twoclass method. This statement is effective for
financial statements issued for fiscal years beginning
after December 15, 2008 and interim periods within
those years, and requires that all prior period earn
ings per share data presented (including interim
financial statements, summaries of earnings and
selected financial data) be adjusted retrospectively to
conform with its provisions. The Company is cur
rently evaluating the impact, if any, that the adop
tion of FSP EITF 0361 will have on its consolidated
financial statements.
(3) stOCk sPlit
On May 16, 2006, the Board of Directors approved
a twoforone split of the Company’s common stock
payable in the form of a stock dividend. The stock
split entitled each shareholder of record on June 2,
2006 to receive one share of common stock for each
outstanding share of common stock held on that date
and was distributed on June 16, 2006. Unless other
wise indicated, the capital stock accounts and all
share and earnings per share amounts in this report
give effect to the stock split, applied retroactively, to
all periods presented.
(4) Credit faCilities
As of September 27, 2008, the Company had a
$100.0 million revolving credit facility in place to
supplement its operating cash flow in funding its
working capital, capital expenditures and general cor
porate requirements. No borrowings were outstand
ing on the credit facility as of September 27, 2008 and
September 29, 2007 and outstanding letters of credit
totaled $1.2 million and $1.9 million, respectively. As
of September 27, 2008, $80.0 million of borrowing
capacity was available on the credit facility.
Advances under the credit facility are limited to
the lesser of the revolving credit commitment or a
borrowing base amount that is calculated based upon
a percentage of eligible receivables and inventories
plus, upon the Company’s request and subject to
certain conditions, a percentage of eligible equipment
and real estate. Interest rates on the revolver are based
upon (1) a base rate that is established at the higher
of the prime rate or 0.50% plus the federal funds rate,
or (2) at the election of the Company, a LIBOR rate,
plus in either case, an applicable interest rate margin.
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
33
notes to consoliDAteD finAnciAl stAteMents (continued)
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006
The applicable interest rate margins are adjusted on
a quarterly basis based upon the amount of excess
availability on the revolver within the range of
0.00%–0.50% for the base rate and 1.25%–2.00% for
the LIBOR rate. In addition, the applicable interest
rate margins would be adjusted to the highest per
centage indicated for each range upon the occurrence
of certain events of default provided for under the
credit facility. Based on the Company’s excess avail
ability as of September 27, 2008, the applicable interest
rate margins were 0.00% for the base rate and 1.25%
for the LIBOR rate on the revolver.
The Company’s ability to borrow available
amounts under the revolving credit facility will
be restricted or eliminated in the event of certain
covenant breaches, events of default or if the Com
pany is unable to make certain representations and
warranties.
Financial Covenants
The terms of the credit facility require the Com
pany to maintain a Fixed Charge Coverage Ratio (as
defined in the Credit Agreement) of not less than:
(1) 1.10 at the end of each fiscal quarter for the twelve
month period then ended when the amount of excess
availability on the revolving credit facility is less than
$10.0 million and the applicable borrowing base
only includes eligible receivables and inventories; or
(2) 1.15 at the end of each fiscal quarter for the twelve
month period then ended when the amount of excess
availability on the revolving credit facility is less
than $10.0 million and the applicable borrowing base
includes eligible receivables, inventories, equipment
and real estate. As of September 27, 2008, the Company
was in compliance with all of the financial covenants
under the credit facility.
Negative Covenants
In addition, the terms of the credit facility restrict
the Company’s 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 invest
ments or loans; pay cash dividends or repurchase
shares of the Company’s stock subject to certain mini
mum borrowing availability requirements; incur or
assume indebtedness; issue securities; enter into
certain transactions with affiliates of the Company;
or permit liens to encumber the Company’s property
and assets. As of September 27, 2008, the Company
was in compliance with all of the negative covenants
under the credit facility.
34
Events of Default
Under the terms of the credit facility, an event of
default will occur with respect to the Company upon
the occurrence of, among other things: a default or
breach by the Company or any of its subsidiaries
under any agreement resulting in the acceleration of
amounts due in excess of $500,000 under such agree
ment; certain payment defaults by the Company or
any of its subsidiaries in excess of $500,000; certain
events of bankruptcy or insolvency with respect
to the Company; an entry of judgment against the
Company or any of its subsidiaries for greater than
$500,000, which amount is not covered by insurance;
or a change of control of the Company.
Amortization of capitalized financing costs asso
ciated with the senior secured facility was $498,000 in
2008 and 2007, respectively, and $529,000 in 2006.
Accumulated amortization of capitalized financing
costs was $3.1 million and $2.6 million as of September
27, 2008 and September 29, 2007, respectively. The
Company expects the amortization of capitalized
financing costs to approximate the following amounts
for the next five fiscal years:
Fiscal year
In thousands
2009
2010
2011
2012
2013
$508
336
—
—
—
(5) stOCk-Based COmP ensatiOn
Under the Company’s equity incentive plans,
employees and directors may be granted stock
options, restricted stock, restricted stock units and
performance awards. As of September 27, 2008 there
were 1,035,000 shares available for future grants
under the plans.
Stock option awards. Under the Company’s equity
incentive plans, 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 these plans generally vest
over three years and expire ten years from the date
of the grant. Compensation expense associated with
stock options during 2008, 2007 and 2006, respectively,
was as follows:
(In thousands)
Stock options:
Compensation
expense
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$898
$513
$535
The remaining unrecognized compensation cost
related to unvested options at September 27, 2008 was
$974,000 which is expected to be recognized over a
weighted average period of 1.35 years.
The fair value of each option award granted is
estimated on the date of grant using a Monte Carlo
valuation model. The weightedaverage estimated
fair values of stock options granted during 2008,
2007, and 2006 were $6.00, $8.69 and $8.82 per share,
respectively, based on the following weightedaverage
assumptions:
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
Expected term
(in years)
Riskfree interest rate
Expected volatility
Expected dividend
yield
4.03
2.65%
66.62%
3.16
4.70%
65.84%
3.20
4.82%
74.72%
1.01%
0.65%
0.70%
The assumptions utilized in the Monte Carlo val
uation model are evaluated and revised, as necessary,
to reflect market conditions and actual historical
experience. The riskfree 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 dividend yield was calculated based on
the Company’s annual dividend as of the option grant
date. The expected volatility was derived using a term
structure based on historical volatility and the volatil
ity implied by exchangetraded options on the
Company’s stock. 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 BlackScholesMerton model, and then
solving for the expected term.
The following table summarizes stock option activity during 2006, 2007 and 2008:
(Share amounts in thousands)
Outstanding at October 1, 2005
Granted
Exercised
Outstanding at September 30, 2006
Granted
Exercised
Forfeited
Outstanding at September 29, 2007
Granted
Exercised
Outstanding at September 27, 2008
Vested and anticipated to vest in future
at September 27, 2008
Exercisable at September 27, 2008
Exercise Price Per Share
Options
Outstanding
Range
Weighted
Average
Contractual
Term—
Weighted
Average
Aggregate
Intrinsic Value
(in thousands)
328
55
(101)
282
79
(23)
(2)
336
219
(24)
531
522
247
$ 0.18 – $ 9.12
15.64 – 20.26
0.18 – 9.12
$ 4.48
17.54
3.56
0.18 – 20.26
17.11 – 20.27
4.56 – 15.64
20.26 – 20.26
0.18 – 20.27
11.15 – 16.69
3.19 – 9.12
0.18 – 20.27
7.37
18.54
7.12
20.26
9.95
12.37
4.96
11.17
11.13
8.24
$1,396
228
148
2,174
2,160
1,684
7.31 years
7.28 years
5.09 years
Restricted stock awards.
Under the Company’s
equity incentive plans, employees and directors may
be granted restricted stock awards which are valued
based upon the fair market value on the date of the
grant. Restricted stock granted under these plans
generally vests one to three years from the date of the
grant. Restricted stock grants and amortization
expense for restricted stock during 2008, 2007 and
2006, respectively, are as follows:
(In thousands)
Restricted stock
grants:
Shares
Market value
Amortization
expense
Years Ended
September 27,
2008
September 29,
2007
September 30,
2006
93
$1,185
67
$1,215
51
$792
861
745
638
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
35
notes to consoliDAteD finAnciAl stAteMents (continued)
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006
The remaining unrecognized compensation cost
related to unvested awards at September 27, 2008 was
$1.5 million which is expected to be recognized over a
weighted average period of 1.67 years.
For the year ended September 27, 2008, 44,533
shares of employee restricted stock awards vested
with a fair value of $489,000. Upon vesting, employees
have the option of remitting payment for the mini
mum tax obligation to the Company or netshare
settling such that the Company will withhold shares
with a value equivalent to the employees’ minimum
tax obligation. A total of 6,870 shares were withheld
during 2008 to satisfy employees’ minimum tax obli
gations. No shares vested during 2007 and 2006.
The following table summarizes restricted stock
activity during 2006, 2007 and 2008:
(Share amounts in thousands)
Balance, October 1, 2005
Granted
Released
Balance, September 30, 2006
Granted
Released
Balance, September 29, 2007
Granted
Released
Balance, September 27, 2008
Restricted
Stock Awards
Outstanding
Weighted
Average
Grant Date
Fair Value
82
51
(30)
103
67
(28)
142
93
(70)
165
$ 8.98
15.64
8.72
12.27
18.18
12.51
15.00
12.77
11.68
15.16
(6) inCOme taxes
The components of the provision for income taxes on continuing operations are as follows:
(Dollars in thousands)
Provision for income taxes:
Current:
Federal
State
Deferred:
Federal
State
Income taxes
Effective income tax rate
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$21,720
2,253
23,973
440
44
484
$10,801
1,209
12,010
1,821
182
2,003
$18,603
2,554
21,157
(1,437)
(190)
(1,627)
$24,457
$14,013
$19,530
35.9%
36.6%
36.2%
The reconciliation between income taxes computed at the federal statutory rate and the provision for income
taxes on continuing operations is as follows:
(Dollars in thousands)
Provision for income taxes at federal statutory rate
State income taxes, net of federal tax benefit
Qualified production activities deduction
Stock option expense benefit
Valuation allowance
Revisions to estimates based on filing of final tax return
Other, net
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$23,861
1,886
(1,322)
240
—
293
(501)
35.0%
2.8
(1.9)
0.3
—
0.4
(0.7)
$13,403
904
(374)
126
—
(32)
(14)
35.0% $18,867
1,381
(490)
151
(37)
(21)
(321)
2.4
(1.0)
0.3
—
(0.1)
(0.0)
35.0%
2.6
(0.9)
0.3
(0.1)
(0.1)
(0.6)
Provision for income taxes
$24,457
35.9%
$14,013
36.6% $19,530
36.2%
36
The components of deferred tax assets and liabil
ities are as follows:
(In thousands)
Deferred tax assets:
Accrued expenses or asset
reserves for financial
statements, not yet deduct
ible for tax purposes
State net operating loss
carryforwards
Goodwill, amortizable for
tax purposes
Defined benefit plans
Nonqualified stock options
not deductible in current
year
Valuation allowance
Gross deferred tax assets
Deferred tax liabilities:
Plant and equipment princi
pally due to differences in
depreciation and impair
ment charges
Other reserves
Gross deferred tax
liabilities
September 27,
2008
September 29,
2007
$ 3,524
$ 2,492
602
2,004
1,156
328
(602)
7,012
601
2,346
1,299
239
(601)
6,376
(4,489)
(445)
(3,001)
(671)
(4,934)
(3,672)
Net deferred tax asset
$ 2,078
$ 2,704
The Company has recorded the following amounts
for deferred taxes on its consolidated balance sheet as
of September 27, 2008: a current deferred tax asset
(net of valuation allowance) of $2.5 million in prepaid
expenses and other, and a noncurrent deferred tax
liability (net of valuation allowance) of $435,000 in
other liabilities. As of September 29, 2007, the Com
pany recorded a current deferred tax asset of $1.2
million in prepaid expenses and other and a $1.5 mil
lion noncurrent deferred tax asset in other assets.
The Company has $9.7 million of gross state operat
ing loss carryforwards that begin to expire in 2013,
but principally expire in 2018–2024.
The realization of the Company’s deferred tax
assets is entirely dependent upon the Company’s abil
ity to generate future taxable income in applicable
jurisdictions. GAAP requires that the Company peri
odically assess the need to establish a valuation allow
ance against its deferred tax assets to the extent the
Company no longer believes it is more likely than not
that they will be fully utilized. As of September 27,
2008, the Company had recorded a valuation allow
ance of $602,000 pertaining to various state NOLs that
were not anticipated to be utilized. The valuation
allowance established by the Company is subject to
periodic review and adjustment based on changes
in facts and circumstances and would be reduced
should the Company utilize the state net operating
loss carryforwards against which an allowance had
been provided or determine that such utilization is
more likely than not.
The Company adopted FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes”
(“FIN No. 48”) effective September 30, 2007, the begin
ning of its fiscal year. The cumulative effect of adopt
ing FIN No. 48 resulted in a $256,000 increase in
tax reserves and a corresponding decrease in the
Company’s retained earnings balance as of September
30, 2007.
Upon adoption of FIN No. 48, the Company had
$ 561,000 of gross unrecognized tax benefits, of
which $394,000 would, if recognized, reduce its
income tax rate in future periods. As of September 27,
2008, the Company had approximately $48,000 of
gross unrecognized tax benefits classified as other
liabilities on its consolidated balance sheet, of which
$46,000, if recognized, would reduce its income tax
rate in future periods. The reduction in gross unrec
ognized tax benefits is due to the resolution of out
standing state tax issues and the Company anticipates
the remaining unrecognized tax benefit will be
resolved in fiscal 2009.
A reconciliation of the beginning and ending
balance of total unrecognized tax benefits for 2008
is as follows:
(In thousands)
Balance at September 30, 2007
Increase in tax positions of prior years
Reductions for tax positions of prior years
Settlements
Balance at September 27, 2008
$ 561
48
(426)
(135)
$ 48
The Company has elected to classify interest and
penalties, which are required to be accrued under
FIN No. 48, as part of income tax expense. Upon
the adoption of FIN No. 48, the Company recorded
accrued interest and penalties of $168,000 related to
unrecognized tax benefits. As of September 27, 2008,
the Company has accrued interest and penalties
related to unrecognized tax benefits of $15,000. For
the year ended September 27, 2008 the Company
recorded $17,000 of expense related to interest and
penalties.
The Company files 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 by the Company subsequent to tax year
2003 remain subject to examination together with
certain state tax returns filed by the Company subse
quent to tax year 2002.
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
37
notes to consoliDAteD finAnciAl stAteMents (continued)
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006
(7) disCOntinued OP eratiOns
In April 2006, the Company decided to exit the
industrial wire business with the closure of its
Fredericksburg, Virginia facility which manufactured
tire bead wire and other industrial wire for commer
cial and industrial applications. The Company’s deci
sion was based on the weakening in the business
outlook for the facility and the expected continuation
of difficult market conditions and reduced operating
levels. Manufacturing activities at the Virginia facil
ity ceased in June 2006 and the Company is currently
in the process of liquidating the remaining assets of
the business.
The Company has determined that the exit from
the industrial wire business meets the criteria of a
discontinued operation in accordance with SFAS No.
144, “Accounting for the Impairment or Disposal of
LongLived Assets.” Accordingly, the results of opera
tions and related nonrecurring closure costs asso
ciated with the industrial wire business have been
reported as discontinued operations for all periods
presented. Additionally, the assets and liabilities of
the discontinued operations have been segregated in
the accompanying consolidated balance sheets.
The following table summarizes the results of
discontinued operations for 2006, 2007 and 2008:
The net loss from discontinued operations for
the year ended September 30, 2006 includes a pretax
gain of $1.3 million on the sale of certain machinery
and equipment associated with the industrial wire
business.
Assets and liabilities of discontinued operations
as of September 27, 2008 and September 29, 2007 are
as follows:
(In thousands)
Assets:
Other assets
Total assets
Liabilities:
Current liabilities:
Accounts payable
Accrued expenses
Total current liabilities
Other liabilities
September 27,
2008
September 29,
2007
$3,635
$3,635
$ 1
187
188
217
$3,635
$3,635
$ 4
243
247
252
Total liabilities
$ 405
$ 499
As of September 27, 2008 there was approximately
$251,000 of accrued expenses and other liabilities
related to ongoing lease obligations and closure
related liabilities incurred as a result of the Company’s
exit from the industrial wire business.
Year Ended
(8) emPlOyee Benefit Plans
(In thousands)
Net sales
Earnings (loss)
before income
taxes
Income taxes
Net earnings (loss)
September 27,
2008
September 29,
2007
September 30,
2006
$ —
$ —
$22,544
58
(23)
35
(199)
77
(122)
(2,188)
851
(1,337)
Included within results from discontinued opera
tions is an allocation of interest expense which was
calculated based on the net assets of the industrial
wire business relative to the consolidated net assets
of the Company. Interest expense allocated to discon
tinued operations was $64,000 for the year ended
September 30, 2006.
On September 29, 2007, the Company adopted the
recognition and disclosure provisions of SFAS No.
158, “Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans.” SFAS No.
158 requires that an employer recognize the over
funded or underfunded status of a defined benefit
postretirement plan on its balance sheet and changes
in the funded status through other comprehensive
income in the year in which the changes occur. SFAS
No. 158 also requires the measurement of defined
benefit plan assets and obligations as of the date of
the employer’s fiscal yearend balance sheet, which is
effective for the Company beginning in fiscal 2009.
As a result of adopting SFAS No. 158, the Company
recorded a $2.1 million reduction in shareholders’
equity, net of tax, as of September 29, 2007.
38
Retirement plans. The Company has one defined benefit pension plan, the Insteel Wire Products Company
Retirement Income Plan for Hourly Employees, Wilmington, Delaware (“the Delaware Plan”). The Delaware
Plan provides benefits for eligible employees based primarily upon years of service and compensation levels.
The Company’s funding policy is to contribute amounts at least equal to those required by law. The Company
did not make any contributions to the Delaware Plan in 2008 and it does not expect to make any contributions in
2009. In connection with the collective bargaining agreement that was reached between the Company and the
labor union at the Delaware facility in 2008, the Delaware Plan will be frozen effective September 30, 2008
whereby participants will no longer earn additional benefits.
The reconciliation of the projected benefit obligation, plan assets, funded status of the plan and amounts
recognized in the Company’s consolidated balance sheets at September 27, 2008, September 29, 2007 and
September 30, 2006 is as follows:
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Distributions
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Distributions
Fair value of plan assets at end of year
Reconciliation of funded status to net amount recognized:
Funded status
Unrecognized net loss
Unrecognized prior service cost
Net amount recognized
Amounts recognized in the consolidated balance sheet:
Current prepaid pension asset
Noncurrent prepaid pension asset
Accrued benefit liability
Accumulated other comprehensive loss (net of tax)
Net amount recognized
Amounts recognized in accumulated other comprehensive income:
Unrecognized net loss
Unrecognized prior service cost
Net amount recognized
Other changes in plan assets and benefit obligations recognized in
other comprehensive income:
Net loss (gain)
Amortization of prior service cost
Total recognized in other comprehensive income
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$4,702
82
253
(306)
(204)
$4,527
$3,334
79
1,318
(204)
$4,527
$ —
1,476
2
$1,478
$ 236
1,242
—
—
$1,478
$4,435
65
257
(171)
(209)
$4,377
$4,421
(448)
—
(209)
$3,764
$ (613)
—
—
$ (613)
$ —
—
(613)
1,091
$ 478
$1,759
—
$1,759
$ 426
(1)
$ 425
$4,527
78
269
203
(642)
$4,435
$4,527
536
—
(642)
$4,421
$ (14)
—
—
$ (14)
$ —
—
(14)
827
$ 813
$1,333
1
$1,334
$ (143)
(1)
$ (144)
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
39
notes to consoliDAteD finAnciAl stAteMents (continued)
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006
The Delaware Plan has a longterm target asset
mix of 65% equities and 35% fixed income. The ranges
for the longterm allocation are: equities 60% to 80%,
fixed income 20% to 40% and cash reserves 0 to 10%.
The investment strategy for equities emphasizes U.S.
large cap equities with the portfolio’s performance
measured against the S&P 500 index or other appli
cable indices. The investment strategy for fixed
income investments is focused on maintaining an
overall portfolio with a minimum credit rating of A1
as well as a minimum rating of any security at the
time of purchase of Baa/BBB by Moody’s or Standard
& Poor’s, if rated. The total fund has an expected
return of 8.0% based on the overall policy allocation
and historical market returns, compared to the
expected longterm rate of return of 8.0% used to
develop the plan’s net periodic pension cost.
Supplemental employee retirement plan. The Company
has Retirement Security Agreements (each, a “SERP”)
with certain of its employees (each, a “Participant”).
Under the SERP, if the Participant remains in continu
ous service with the Company for a period of at least
30 years, the Company will pay to the Participant a
supplemental retirement benefit for the 15year period
following the Participant’s retirement equal to 50% of
the Participant’s highest average annual base salary
for five consecutive years in the 10year period pre
ceding 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 the Company, but
has completed at least 10 years of continuous service
with the Company, the amount of the supplemental
retirement benefit will be reduced by 1/360th for each
month short of 30 years that the Participant was
employed by the Company. In 2005, the Company
amended the SERP to add Participants and increase
benefits to certain Participants already included in
the plan.
Net periodic pension cost includes the following
components:
(In thousands)
Service cost
Interest cost
Expected return
on plan assets
Amortization of
prior service cost
Recognized net
actuarial loss
Net periodic
pension cost
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$ 65
257
$ 78
269
$ 82
253
(325)
(324)
(243)
1
67
1
134
1
143
$ 65
$ 158
$ 236
The Company incurred a settlement loss of
$109,000 during the year ended September 27, 2008 for
lumpsum distributions to plan participants.
The estimated net loss that will be amortized
from accumulated other comprehensive income into
net periodic pension cost over the next fiscal year is
$140,000.
The assumptions used in the valuation of the plan
are as follows:
Assumptions at
yearend:
Discount rate
Rate of increase in
compensation
levels
Expected long
term rate of
return on assets
September 27,
2008
September 29,
2007
September 30,
2006
7.00%
6.50%
6.25%
N/A
N/A
N/A
8.00%
8.00%
8.00%
The projected benefit payments under the plan
In thousands
$ 607
605
494
383
282
1,472
are as follows:
Fiscal year(s)
2009
2010
2011
2012
2013
2014–2018
40
The reconciliation of the projected benefit obligation, plan assets, funded status of the plan and amounts
recognized in the Company’s consolidated balance sheets for the SERP at September 27, 2008, September 29, 2007
and September 30, 2006 is as follows:
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
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
Unrecognized net loss
Unrecognized prior service cost
Net amount recognized
Amounts recognized in accumulated other comprehensive loss:
Unrecognized net loss
Unrecognized prior service cost
Net amount recognized
Other changes in plan assets and benefit obligations recognized in
other comprehensive loss:
Net loss (gain)
Prior service costs
Total recognized on other comprehensive loss
Year Ended
September 27,
2008
September 29,
2007
(Revised)
September 30,
2006
$ 3,574
106
207
61
(80)
$ 3,868
$80
(80)
$ —
$(3,868)
510
1,588
$(1,770)
$ 4,192
155
266
(352)
(140)
$ 4,121
$ 140
(140)
$ —
$(4,121)
—
—
$(4,121)
$ 147
1,135
$ 1,282
$ (363)
(438)
$ (801)
$ 3,868
163
230
11
(80)
$ 4,192
$ 80
(80)
$ —
$(4,192)
—
—
$(4,192)
$ —
2,083
$ 2,083
$ 1
(227)
$ (226)
Net periodic pension cost includes the following
The assumptions used in the valuation of the
components:
(In thousands)
Service cost
Interest cost
Prior service cost
Recognized net
actuarial loss
Net periodic
pension cost
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$154
266
227
12
$659
$163
230
227
10
$106
207
227
2
$630
$542
SERP are as follows:
Assumptions at
yearend:
Discount rate
Rate of increase
in compensa
tion levels
Measurement Date
September 27,
2008
September 29,
2007
December 1,
2005
7.00%
6.25%
5.60%
3.00%
3.00%
3.00%
The projected benefit payments under the SERP
The estimated prior service costs that will be
amortized from accumulated other comprehensive
income into net periodic pension cost over the next
fiscal year is $227,000.
are as follows:
Fiscal year(s)
2009
2010
2011
2012
2013
2014–2018
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
In thousands
$ 155
155
244
244
244
1,300
41
notes to consoliDAteD finAnciAl stAteMents (continued)
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006
As noted above, the SERP was amended in 2005
to add Participants and increase benefits to certain
Participants already covered under the plan. However,
for certain Participants the Company still maintains
the benefits of the SERP that were in effect prior to
the 2005 amendment, which entitles them to fixed
cash benefits upon retirement at age 65, payable annu
ally for 15 years. This plan is supported by life insur
ance polices on the Participants purchased and owned
by the Company. The cash benefits paid under this
plan were $74,000 in 2008, 2007 and 2006, respectively.
The plan expense was $12,000 in 2008, $11,000 in 2007
and $10,000 in 2006.
Retirement savings plan. In 1996, the Company
adopted the Retirement Savings Plan of Insteel
Industries, Inc. (“the Plan”) to provide retirement
benefits and stock ownership for its employees. The
Plan is an amendment and restatement of the Com
pany’s Employee Stock Ownership Plan (“ESOP”). 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.
Employees may contribute up to 15% of their
annual compensation to the Plan, limited to a maxi
mum annual amount as set periodically by the
Internal Revenue Code. The Plan allows for discre
tionary contributions to be made by the Company as
determined by the Board of Directors. Such contri
butions to the Plan are allocated among eligible par
ticipants based on their compensation relative to the
total compensation of all participants. In 2008 and
2007, the Company matched employee contributions
up to 50% of the first 7% of eligible compensation that
was contributed by employees. In 2006, the Company
matched employee contributions up to 50% of the first
5% of eligible compensation that was contributed by
employees. Beginning in 2009, employees may con
tribute up to 75% of their annual compensation to the
Plan, limited to a maximum annual amount as set
periodically by the Internal Revenue Code. The
Company will match employee contributions dollar
for dollar on the first 1% and 50% on the next 5% of
eligible compensation. Company contributions to the
Plan were $407,000 in 2008, $402,000 in 2007 and
$351,000 in 2006.
Voluntary Employee Beneficiary Associations (“VEBA”).
The Company has a VEBA under which both employ
ees and the Company may make contributions to pay
for medical costs. Company contributions to the VEBA
were $1.7 million in 2008, $2.4 million in 2007 and
$3.1 million in 2006. The Company is primarily self
insured for employee’s healthcare costs, carrying
stoploss insurance coverage for individual claims in
excess of $150,000. The Company’s selfinsurance
liabilities are based on the total estimated costs of
claims filed and claims incurred but not reported,
less amounts paid against such claims. Management
reviews current and historical claims data in develop
ing its estimates.
(9) COmmitments and COntingenCies
Leases and purchase commitments.
The Company
leases a portion of its equipment under operating
leases that expire at various dates through 2010. Under
most lease agreements, the Company pays insurance,
taxes and maintenance. Rental expense for operating
leases was $977,000 in 2008, $920,000 in 2007 and
$836,000 in 2006. Minimum rental commitments
under all noncancelable leases with an initial term
in excess of one year are payable as follows: 2009,
$587,000; 2010, $365,000; 2011, $183,000; 2012, $11,000;
2013 and beyond, $0.
As of September 27, 2008, the Company had $89.7
million in noncancelable fixed price purchase com
mitments for raw material extending as long as
approximately 120 days. In addition, the Company
has contractual commitments for the purchase of cer
tain equipment. Portions of such contracts not com
pleted at yearend are not reflected in the consolidated
financial statements and amounted to $1.1 million as
of September 27, 2008.
Legal proceedings. On November 19, 2007, Dywidag
Systems International, Inc. (“DSI”) filed a thirdparty
lawsuit in the Ohio Court of Claims alleging that cer
tain epoxycoated strand sold by the Company to DSI
in 2002, and supplied by DSI to the Ohio Department
of Transportation (“ODOT”) for a bridge project, was
defective. The thirdparty action seeks recovery of
42
any damages which may be assessed against DSI in
the action filed against it by ODOT, which allegedly
could be in excess of $8.3 million, plus $2.7 million in
damages allegedly incurred by DSI. The Company
had previously filed a lawsuit against DSI in the
North Carolina Superior Court in Surry County on
July 25, 2007 seeking recovery of $1.4 million (plus
interest) owed for other products sold by the Company
to DSI and a judgment declaring that it had no liabil
ity to DSI arising out of the ODOT bridge project. The
Company’s North Carolina lawsuit was subsequently
removed by DSI to the U.S. District Court for the
Middle District of North Carolina. On March 5, 2008,
the Magistrate Judge in the U.S. District Court issued
his recommendation that the Company’s motion to
remand the matter to the Surry County Court should
be granted. DSI has appealed the Magistrate’s recom
mendation to the District Judge, who has not yet ruled
on DSI’s appeal. On April 17, 2008, the Ohio Court of
Claims reached a preliminary ruling denying the
Company’s motion to stay the proceedings against
the Company in that court. On June 24, 2008, the
Ohio Court of Claims reached a final ruling that DSI’s
action against the Company may proceed in that
court. The Company subsequently filed a motion to
dismiss the Ohio action on the grounds that it is
barred by the relevant Statute of Limitations. The
Ohio Court has not yet ruled on this motion. In any
event, the Company intends to vigorously defend the
claims asserted against it by DSI in addition to pursu
ing full recovery of the amounts owed to it by DSI.
The Company also is involved in various other
lawsuits, claims, investigations and proceedings,
including commercial, environmental and employ
ment matters, which arise in the ordinary course of
business. The Company does not expect that the ulti
mate cost to resolve these other matters will have a
material adverse effect on its financial position, results
of operations or cash flows.
Severance and change of control agreements. The
Company has entered into severance agreements with
its Chief Executive Officer and Chief Financial Officer
that provide certain termination benefits to these
executives in the event that an executive’s employ
ment with the Company is terminated without cause.
The initial term of each agreement is two years and
the agreements provide for an automatic renewal of
one year unless the Company or the executive pro
vides notice of termination as specified in the agree
ment. Under the terms of these agreements, in the
event of termination without cause, the executives
would receive termination benefits equal to one and
onehalf times the executive’s annual base salary in
effect on the termination date and the continuation
of health and welfare benefits for eighteen months.
In addition, all of the executive’s stock options and
restricted stock would vest immediately and out
placement services would be provided.
The Company has also entered into change in
control agreements with key members of manage
ment, including its executive officers, which specify
the terms of separation in the event that termination
of employment followed a change in control of the
Company. The initial term of each agreement is two
years and the agreements provide for an automatic
renewal of one year unless the Company or the execu
tive provides notice of termination as specified in the
agreement. The agreements do not provide assur
ances of continued employment, nor do they specify
the terms of an executive’s termination should the
termination occur in the absence of a change in con
trol. Under the terms of these agreements, in the event
of termination within two years of a change of con
trol, the Chief Executive Officer and Chief Financial
Officer would receive severance benefits equal to two
times base compensation, two times the average
bonus for the prior three years and the continuation
of health and welfare benefits for two years. The other
key members of management, including the Com
pany’s other two executive officers, would receive
severance benefits equal to one times base compen
sation, one times the average bonus for the prior
three years and the continuation of health and
welfare benefits for one year. In addition, all of the
executive’s stock options and restricted stock would
vest immediately and outplacement services would
be provided.
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
43
notes to consoliDAteD finAnciAl stAteMents (continued)
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006
(10) earnings Per share
The reconciliation of basic and diluted earnings per share (“EPS”) is as follows:
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$43,752
$24,162
$33,040
17,547
165
17,712
$ 2.49
—
$ 2.49
$ 2.47
—
$ 2.47
18,142
172
18,314
$ 1.34
(0.01)
$ 1.33
$ 1.33
(0.01)
$ 1.32
18,307
166
18,473
$ 1.88
(0.08)
$ 1.80
$ 1.86
(0.07)
$ 1.79
There were no customers that accounted for
10% or more of the Company’s net sales in 2008, 2007
or 2006.
(12) related Party transaCtiOns
In connection with the Company’s previous stock
repurchase program, on January 30, 2006, the Com
pany repurchased approximately 400,000 shares of
its common stock held by the chairman of the Com
pany’s board of directors and his wife. The purchase
price for the shares repurchased was $21.322 per share
based on a predetermined formula, which repre
sented a 15% discount from the closing price on
January 27, 2006. The number of shares repurchased
and purchase price per share are prior to the effect
of the twoforone split of the Company’s common
stock that was distributed as a stock dividend on June
16, 2006.
Sales to a company affiliated with one of the
Company’s directors amounted to $1.0 million in
2008, $967,000 in 2007 and $929,000 in 2006. Purchases
from another company affiliated with one of the
Company’s directors amounted to $5,800 in 2008,
$418,000 in 2007 and $1.5 million in 2006.
(In thousands, except for per share amounts)
Net earnings
Weighted average shares outstanding:
Weighted average shares outstanding (basic)
Dilutive effect of stockbased compensation
Weighted average shares outstanding (diluted)
Per share (basic):
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Per share (diluted):
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Options to purchase 180,000 shares in 2008, 67,000
shares in 2007 and 42,000 shares in 2006 were antidil
utive and were not included in the diluted EPS
computation.
(11) Business segment infOrmati On
Following the Company’s exit from the industrial
wire business (see Note 7 to the consolidated finan
cial statements), the Company’s operations are entirely
focused on the manufacture and marketing of con
crete reinforcing products for the concrete construc
tion industry. Based on the criteria specified in SFAS
No. 131, “Disclosures about Segments of an Enterprise
and Related Information,” the Company has one
reportable segment. The results of operations for the
industrial wire business have been reported as dis
continued operations for all periods presented.
The Company’s net sales and longlived assets
for continuing operations by geographic region are
as follows:
(In thousands)
Net sales:
United States
Foreign
Year Ended
September 27,
2008
September 29,
2007
September 30,
2006
$337,801
16,061
$287,202
10,604
$322,675
6,832
Total
$353,862
$297,806
$329,507
Longlived assets:
United States
Foreign
$ 76,678
—
$ 75,149
—
$ 62,935
—
Total
$ 76,678
$ 75,149
$ 62,935
44
(13) COmP rehensive lOss
The components of accumulated other comprehensive loss are as follows:
(In thousands)
Balance at September 30, 2006
Change
Balance at September 29, 2007
Change
Balance at September 27, 2008
Adjustment
to Defined
Benefit Plans
Adjustment
to Adopt
SFAS No. 158
Accumulated
Other
Comprehensive
Loss
$ —
(9)
(9)
234
$225
$ —
(2,110)
(2,110)
—
$ —
(2,119)
(2,119)
234
$(2,110)
$(1,885)
(14) Other finanCial data
(15) rights agreement
Balance sheet information:
(In thousands)
Accounts receivable, net:
Accounts receivable
Less allowance for doubtful
accounts
Total
Inventories:
Raw materials
Work in process
Finished goods
Total
Other assets:
September 27,
2008
September 29,
2007
$ 50,487
$ 35,128
(906)
(610)
$ 49,581
$ 34,518
$ 30,793
3,161
37,266
$ 25,443
2,083
19,875
$ 71,220
$ 47,401
Cash surrender value of life
insurance policies
Capitalized financing costs, net
Noncurrent deferred tax assets
Other
Total
Property, plant and equipment, net:
Land and land improvements
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
Total
Accrued expenses:
Income taxes
Cash dividends
Salaries, wages and related
expenses
Sales allowance reserve
Customer rebates
Property taxes
Worker’s compensation
Other
$ 3,938
844
—
282
$ 4,367
1,342
1,480
296
$ 5,064
$ 7,485
$ 5,631
31,819
96,638
2,195
136,283
(67,178)
$ 5,621
31,981
86,560
3,955
128,117
(60,970)
$ 69,105
$ 67,147
$ 10,861
9,279
$
—
544
4,128
1,493
840
794
673
1,013
4,278
236
840
749
499
467
Total
$ 29,081
$ 7,613
Other liabilities:
Deferred compensation
Deferred income taxes
Deferred revenues
Total
$ 4,476
435
395
$ 4,584
—
278
$ 5,306
$ 4,862
On April 26, 1999, the Company’s Board of
Directors adopted a Rights Agreement and declared
a dividend distribution of one right per share of the
Company’s common stock to shareholders of record
as of May 17, 1999. In addition, the Rights Agreement
provides that one right will attach to each share of the
Company’s common stock issued after May 17, 1999
until the tenth business day following a public
announcement that a person or group has acquired,
obtained the right to acquire or made a tender or
exchange offer for 20% or more of the outstanding
shares of the Company’s common stock (such tenth
business day, the “Distribution Date”).
Currently, the rights are not exercisable but trade
automatically with the Company’s common stock
shares and become exercisable on the Distribution
Date. Each right will entitle the holder, other than the
acquiring person or group, to purchase one one
hundredth of a share (a “Unit”) of the Company’s
Series A Junior Participating Preferred Stock at a pur
chase price of $80 per Unit, subject to adjustment as
described in the Rights Agreement (the “Purchase
Price”). All rights beneficially owned or acquired by
the acquiring person or group will become null and
void as of the Distribution Date. If an acquiring per
son or group acquires 20% or more of the Company’s
outstanding common stock, each rights holder, other
than the acquiring person or group, upon exercise of
his or her rights and payment of the Purchase Price,
will severally have the right to receive shares of the
Company’s common stock having a value equal to
two times the Purchase Price or, at the discretion of
the Board of Directors, upon exercise and without
payment of the Purchase Price, will have the right to
purchase the number of shares of the Company’s
common stock having a value equal to two times the
Purchase Price at a 50% discount.
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
45
notes to consoliDAteD finAnciAl stAteMents (continued)
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006
In addition, each rights holder, other than an
acquiring person or group, upon exercise of his or her
rights will have the right to receive shares of the com
mon stock of the acquiring corporation having a value
equal to two times the Purchase Price for such hold
er’s rights if the Company engages in a merger or
other business combination where it is not the surviv
ing entity or where it is the surviving entity and all or
part of the Company’s common stock is exchanged
for the stock or other securities of the other company,
or if 50% or more of the Company’s assets or earning
power is sold or transferred.
The rights will expire on April 26, 2009, and may
be redeemed by the Company at any time prior to the
Distribution Date at a price of $0.01 per right.
(16) PrOduCt warranties
The Company’s products are used in applications
which are subject to inherent risks including perfor
mance deficiencies, personal injury, property damage,
environmental contamination or loss of production.
The Company warrants its products to meet certain
specifications and actual or claimed deficiencies from
these specifications may give rise to claims. The
Company does not maintain a reserve for warranties
as the historical claims have been immaterial. The
Company maintains product liability insurance cov
erage to minimize its exposure to such risks.
(17) share rePurChases
On December 5, 2007, the Company’s board of
directors approved a share repurchase authorization
to buy back up to $25.0 million of the Company’s out
standing common stock over a period of up to twelve
months ending December 5, 2008. Repurchases under
the share repurchase authorization may be made
from time to time in the open market or in privately
negotiated transactions subject to market conditions,
applicable legal requirements and other factors. The
Company is not obligated to acquire any particular
amount of common stock under the authorization
and it may be suspended at any time at the Company’s
discretion. During the year ended September 27, 2008,
the Company repurchased 913,268 shares or $8.7 mil
lion of its common stock, which included 208,585
shares or $2.5 million under the previous $25.0 mil
lion share repurchase authorization that was termi
nated on December 5, 2007, 697,813 shares or $6.2
million under the $25.0 million share repurchase
authorization that expires on December 5, 2008 and
6,870 shares or $76,000 through restricted stock net
share settlements. As of September 27, 2008, there
was $18.8 million remaining under the $25.0 million
share repurchase authorization that expires on
December 5, 2008.
stock pR ice A nD DiviDenD DAtA
The common stock of Insteel Industries, Inc. is traded on the NASDAQ Global Select Market under the sym
bol IIIN. The following table summarizes the quarterly high and low sales prices as reported on the NASDAQ
Global Select Market and the cash dividend per share declared for the periods indicated:
Fiscal 2008
Fiscal 2007
High
Low
$16.35
12.45
19.14
20.17
$10.00
7.36
9.96
13.77
Cash
Dividends
Declared
$0.03
0.03
0.03
0.53
High
Low
$21.97
19.06
19.66
23.00
$16.58
15.89
16.43
15.35
Cash
Dividends
Declared
$0.03
0.03
0.03
0.03
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
46
suppleMentARy QuARteRly finAnci Al D AtA (unA uDiteD)
(In thousands, except for
per share amounts)
September 27,
2008
June 28,
2008
March 29,
2008
December 29,
2007
September 29,
2007
June 30,
2007
March 31,
2007
December 30,
2006
Quarter Ended
2008
2007
Operating results:
Net sales
Gross profit
Earnings from continuing
operations
Earnings (loss) from
discontinued operations
Net earnings
Per share data:
Basic:
Earnings from continuing
operations
Earnings (loss) from
discontinued operations
Net earnings
Diluted:
Earnings from continuing
operations
Earnings (loss) from
discontinued operations
Net earnings
$106,290
29,463
$104,332
30,885
$77,260
15,787
$65,980
10,620
$74,358
12,727
$78,966
17,352
$74,766
12,358
$69,716
13,624
15,646
16,948
6,892
4,231
5,065
8,344
4,944
5,931
37
15,683
(21)
16,927
26
6,918
(7)
4,224
98
5,163
(37)
8,307
(31)
4,913
(152)
5,779
0.90
—
0.90
0.89
—
0.89
0.98
—
0.98
0.97
—
0.97
0.40
—
0.40
0.39
—
0.39
0.23
—
0.23
0.23
—
0.23
0.28
—
0.28
0.28
—
0.28
0.46
—
0.46
0.46
(0.01)
0.45
0.27
—
0.27
0.27
—
0.27
0.33
(0.01)
0.32
0.32
—
0.32
stock peRfo RMAnce gR ApH
The following graph compares the total returns (including the reinvestment of dividends) of the Company, the
Russell 2000 Index, the S&P Building Products Index and the S&P 500 Index. The graph assumes $100 invested
on September 27, 2003 in the Company’s stock and September 30, 2003 in each of the indices. Total returns for the
indices are calculated on a monthend basis. Based on its market capitalization, the Company believes that the
Russell 2000 Index is a more appropriate performance benchmark for its common stock than the S&P 500 Index.
Beginning in fiscal 2009, the Company will no longer reflect the S&P 500 Index in its stock performance graph.
Insteel Industries, Inc.
Russell 2000
S&P Building Products
S&P 500
$6,000
5,000
4,000
3,000
2,000
1,000
0
9/27/03
10/2/04
10/1/05
9/30/06
9/29/07
9/27/08
(In dollars)
Insteel Industries, Inc.
Russell 2000
S&P Building Products
S&P 500
September 27,
2003
October 2,
2004
October 1,
2005
September 30,
2006
September 29,
2007
September 27,
2008
100.00
100.00
100.00
100.00
1,937.20
118.77
142.01
113.87
2,056.01
140.09
143.69
127.82
5,384.57
154.00
132.01
141.62
4,188.12
173.00
132.98
164.90
3,989.49
147.94
137.45
128.66
I NST E E L I N DUST R I ES, I NC. // 20 08 A nnual Repor t
47
6000
5000
4000
3000
2000
1000
0
selecteD finAnci Al D AtA—five-ye AR HistoRy
(In thousands, except for per share amounts)
Operating Results:
Net sales
Gross profit
% of net sales
Selling, general and administrative expense
Interest expense
Earnings from continuing operations
% of net sales
Earnings (loss) from discontinued operations
Net earnings
Per Share Data:
Per share (basic):
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Per share (diluted):
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Cash dividends declared
Returns:
Return on total capital(1)
Return on shareholders’ equity(2)
Financial Position:
Cash and cash equivalents
Total assets
Total longterm debt
Shareholders’ equity
Cash Flows:
Net cash provided by operating activities of
continuing operations
Capital expenditures
Depreciation and amortization
Repurchases of common stock
Cash dividends paid
Other Data:
Number of employees at yearend
Year Ended
(52 weeks)
September 27,
2008
(52 weeks)
September 29,
2007
(52 weeks)
September 30,
2006
(52 weeks)
October 1,
2005
(53 weeks)
October 2,
2004
$ 353,862
86,755
$ 297,806
56,061
$ 329,507
70,871
$ 309,320
57,898
$ 298,754
78,956
24.5%
18.8%
21.5%
18.7%
26.4%
$ 18,623
594
43,717
$
12.4%
35
43,752
$ 17,583
592
24,284
$
8.2%
(122)
24,162
$ 16,996
669
34,377
10.4%
$ (1,337)
33,040
$ 16,175
3,427
24,499
$
7.9%
546
25,045
$ 21,194
5,832
32,035
$
10.7%
(546)
31,489
$
2.49
—
2.49
2.47
—
2.47
0.62
$
1.34
(0.01)
1.33
1.33
(0.01)
1.32
0.12
$
1.88
(0.08)
1.80
1.86
(0.07)
1.79
0.12
$
1.31
0.03
1.34
1.29
0.03
1.32
0.06
$
1.85
(0.03)
1.82
1.78
(0.03)
1.75
—
27.9%
27.9%
18.2%
18.2%
29.7%
31.3%
21.1%
29.1%
28.6%
62.5%
$ 26,493
228,220
—
169,847
$ 36,808
9,456
7,769
8,691
2,141
$ 8,703
173,529
—
143,850
$ 10,689
166,596
—
122,438
$ 1,371
138,276
11,860
97,036
$ 2,317
151,291
52,368
71,211
$ 17,065
17,013
6,209
—
2,176
$ 42,650
18,959
5,107
8,529
2,222
$ 41,830
6,302
5,627
—
566
$ 29,929
2,921
6,209
—
—
523
559
621
655
669
(1) Earnings from continuing operations/(average total long-term debt + average shareholders’ equity).
(2) Earnings from continuing operations/average shareholders’ equity.
48
corPorate InformatIon
Board of dIrectors
louis e. Hannen(1)
Retired Senior Vice President
Wheat, First Securities, Inc.
charles B. newsome(2)
Executive Vice President
Johnson Concrete Company
Gary l. Pechota(1)
President and Chief Executive Officer
DT-Trak Consulting, Inc.
W. allen rogers II(1)
Principal
Ewing Capital Partners, LLC
William J. shields(2)
Retired Chairman and
Chief Executive Officer
Co-Steel, Inc.
c. richard Vaughn(2,3)
Chairman and Chief Executive Officer
John S. Clark Company, Inc.
Howard o. Woltz, Jr.(3)
Chairman of the Board
Insteel Industries, Inc.
H.o. Woltz III(3)
President and Chief Executive Officer
Insteel Industries, Inc.
(1) Member of the Audit Committee
(2) Member of the Executive Compensation
Committee
(3) Member of the Executive Committee
executIVe offIcers
H.o. Woltz III
President and Chief Executive Officer
michael c. Gazmarian
Vice President, Chief Financial Officer
and Treasurer
James f. Petelle
Vice President—Administration
and Secretary
richard t. Wagner
Vice President and General Manager—
Concrete Reinforcing Products Business Unit,
Insteel Wire Products Company
sHareHolder InformatIon
corporate Headquarters
1373 Boggs Drive
Mount Airy, North Carolina 27030-2148
(336) 786-2141
independent Registered Public
Accounting Firm
Grant Thornton LLP
Greensboro, North Carolina
Annual Meeting
Insteel shareholders are invited to attend
our annual meeting, which will be held on
Tuesday, February 10, 2009 at 9:00 a.m. ET
at the Cross Creek Country Club,
1129 Greenhill Road,
Mount Airy, North Carolina 27030
common stock
The Common Stock of Insteel Industries,
Inc. is traded on the NASDAQ Global
Select Market under the symbol IIIN.
At November 14, 2008, there were 1,025
shareholders of record.
shareholder services
For change of name, address, ownership
of stock; to replace lost stock certificates;
or to consolidate accounts, please contact:
American Stock Transfer &
Trust Company
59 Maiden Lane
New York, New York 10038
(866) 627-2704
www.amstock.com
investor Relations
For information on the Company,
additional copies of this report, Form 10-K
or other financial information, contact
Michael C. Gazmarian, Vice President,
Chief Financial Officer and Treasurer,
at the Company’s headquarters. You
may also visit the Investor Information
section on the Company’s Web site at
www.investor.insteel.com.
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Insteel IndustrIes, Inc.
1373 Boggs Drive, Mount Airy, North Carolina 27030-2148
phone (336) 786-2141
www.insteel.com