2020 ANNUAL REPORT
252457'-0"2326'-0"2253'-4"2151'-10"2051'-10"1951'-10"18.817'-4"17.939'-6"1746'-10"16.430'-2"151451'-10"1351'-10"111051'-10"951'-10"851'-10"7.476.433'-1"618'-9"5.241'-7"510'-3"451'-10"351'-10"251'-10"153'-4"0.226'-0"0.143'-0"BBAA.2A16'-9"47'-3"26'-0"BCDE56'-10"27'-8"27'-8"27'-8"F27'-8"G27'-8"H27'-8"J27'-8"K27'-8"L27'-8"M27'-8"N27'-8"P27'-8"27'-8"R27'-8"S27'-8"T27'-8"U56'-10"V69'-0"BBAA.2ABCDEFGHJKLMNPQRSTUV1651'-10"21'-8"1251'-10"51'-10"51'-10"QS1S1S1S1S1S1S1S1S1S1S1S1S1S19S2.0(15.25) S1 MATS EA.ROW LAP 16"(12) S1 MATS EA.ROW LAP 16"(24.25) S1 MATS EA.ROW LAP 16"(9) S1 MATS EA.ROW LAP 16"(16) S1 MATS EA.ROW LAP 16"(9) S1 MATS EA.ROW LAP 16"(3) S1 MATS EA.ROW LAP 16"(58) S1 MATS EA.ROW LAP 16"(20) S1 MATS EA.ROW LAP 16"(12.5) S1 MATS EA.ROW LAP 16"9S2.0S1S1S1S1S1S1S19S2.09S2.09S2.0S1S1S1S1S1S1S1S1S1S1S1S19S2.010S2.0ELEVATOR PITVCR PIT11'-1" X 59'-0"VCR PIT11'-1" X 45'-0"ELEVATOR PITSCRUBBERDUMP TRENCH ??VCR PIT11'-1" X 30'-2"S1VCR PIT 11'-1" x 13'-7"51'-10"S3S3S4(42) S3 MATS EA.ROW LAP 16"(42) S4 MATS EA.ROW LAP 16"(42) S3 MATS EA.ROW LAP 16"ROTAET83'-0"S6S5S6ROTAETS5(108) S5 MATS EA.ROW LAP 16"(108) S5 MATS EA.ROW LAP 16"(108) S6 MATS EA.ROW LAP 16"(108) S6 MATS EA.ROW LAP 16"717'-6"84'-11"ROAES7S7S6(72) S7 MATS EA.ROW LAP 16"S6(72) S6 MATS EA.ROW LAP 16"(72) S7 MATS EA.ROW LAP 16"(72) S6 MATS EA.ROW LAP 16"479'-6"S8S9S9(145) S9 MATS EA.ROW LAP 16"(145) S8 MATS EA.ROW LAP 16"(145) S9 MATS EA.ROW LAP 16"966'-558"55'-4"ROTAETTRIM S2 SHEETSAT DOCK PITS (TYP.)TRIM S2 SHEETSAT DOCK PITS (TYP.)S1CCCC(4) 1/2 WIDTH S1 MATSIN BUMP OUTTRIM S2 SHEETSAT DOCK PITS (TYP.)(41) S1 MATS EA.ROW LAP 16"S1(41) S1 MATS EA.ROW LAP 16"(45) S1 MATS EA.ROW LAP 16"S1(45) S1 MATS EA.ROW LAP 16"S1(45) S1 MATS EA.ROW LAP 16"S1(16.5) S1 MATS EA.ROW LAP 16"S1(12.5) S1 MATS EA.ROW LAP 16"S1S1(12) S1 MATS EA.ROW LAP 16"10S2.09S2.011S2.08S2.08S2.012S2.012S2.012S2.013S2.02TT 24
23
22
21
20
19
26'-0"
53'-4"
51'-10"
51'-10"
51'-10"
51'-10"
18
17
16
15
14
13
12
11
10
9
8
51'-10"
51'-10"
Insteel Industries is the nation’s largest
manufacturer of steel wire reinforcing
products for concrete construction applications.
DETAIL 1/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
53'-4"
5
4
6
3
2
7
1
0.3
0.1
26'-0"
43'-0"
DETAIL 3/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 8/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 7/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 2/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
8
SM-4
S
T
A
M
'
1
G
'
)
6
(
S
T
A
M
'
3
-
R
E
D
R
I
G
'
)
7
(
"
0
-
'
6
2
"
0
1
-
'
6
5
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
0
1
-
'
6
5
"
0
-
'
9
6
AA.2
A
B
C
D
E
F
G
H
J
K
L
M
N
P
Q
R
S
T
U
U
(3) 'G1' MATS
(15) 'G1' MATS
(5) 'G1' MATS
(86) 'G1' MATS
END TO END
8
SM-4
S
T
A
M
'
1
G
'
)
6
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
DETAIL 1/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
TRIM MATS
TO LIMIT
BUILD-UP
TYP.
(86) 'G1' MATS
(7) 'G1' MATS
(2) 'G1' MATS
TRIM AS REQIRED
(1) 'G1' MATS
TRIM AS REQIRED
(2) 'G1' MATS
TRIM AS REQIRED
DETAIL 6/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 4/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 5/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 5/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 6/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
CC
BB
AA.2
A
B
C
D
E
F
G
H
J
K
L
M
N
P
Q
R
S
T
U
V
"
0
-
'
6
2
"
0
1
-
'
6
5
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
0
1
-
'
6
5
"
0
-
'
9
6
43'-0"
26'-0"
53'-4"
51'-10"
51'-10"
51'-10"
51'-10"
24
23
22
21
20
19
51'-10"
51'-10"
51'-10"
We manufacture and market prestressed concrete strand and welded wire reinforcement, including engineered structural
mesh, concrete pipe reinforcement and standard welded wire reinforcement. Our products are sold to manufacturers of
concrete products and concrete contractors for use, primarily, in nonresidential construction applications. Headquartered
in Mount Airy, North Carolina, we operate ten manufacturing facilities located in the United States.
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
53'-4"
14
12
13
10
17
15
18
16
11
4
9
7
6
3
8
5
1
2
26'-0"
0.3
0.1
CC
BB
AA.2
"
'
0
-
6
2
'
"
0
1
-
6
5
"
'
8
-
7
2
"
'
8
-
7
2
S
T
A
M
'
1
G
'
)
6
(
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0.3
0.1
26'-0"
53'-4"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
53'-4"
26'-0"
43'-0"
DETAIL 2/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 8/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 1/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 7/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 3/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
(3) 'G1' MATS
(15) 'G1' MATS
(5) 'G1' MATS
(86) 'G1' MATS
END TO END
8
SM-4
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
S
T
A
M
'
1
G
'
)
3
3
(
8
SM-4
S
T
A
M
'
1
G
'
)
6
(
S
T
A
M
'
3
-
R
E
D
R
I
G
'
)
7
(
"
0
-
'
6
2
"
0
1
-
'
6
5
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
8
-
'
7
2
"
0
1
-
'
6
5
"
0
-
'
9
6
AA.2
A
B
C
D
E
F
G
H
J
K
L
M
N
P
Q
R
S
T
U
U
DETAIL 1/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
TRIM MATS
TO LIMIT
BUILD-UP
TYP.
(86) 'G1' MATS
(7) 'G1' MATS
(2) 'G1' MATS
TRIM AS REQIRED
(1) 'G1' MATS
TRIM AS REQIRED
(2) 'G1' MATS
TRIM AS REQIRED
DETAIL 6/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 4/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 5/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 5/SM5.2
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
DETAIL 6/SM5.1
FOR ADDITIONAL
REINFORCEMENT
AT OPENINGS
26'-0"
53'-4"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
51'-10"
53'-4"
26'-0"
43'-0"
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0.3
0.1
"
'
8
-
7
2
"
'
8
-
7
2
"
'
8
-
7
2
"
0
1
-
6
5
'
"
'
0
-
9
6
8
-
7
2
8
-
7
2
8
-
7
2
8
-
7
2
8
-
7
2
8
-
7
2
8
-
7
2
8
-
7
2
8
-
7
2
8
-
7
2
8
-
7
2
"
"
"
"
"
"
"
"
"
"
"
'
'
'
'
'
'
'
'
'
'
'
A
B
C
D
E
F
G
H
J
K
L
M
N
P
Q
R
S
T
U
V
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
2020
2019
2018
Operating Results:
Net sales
Gross profit
% of net sales
Net earnings
% of net sales
Per Share Data:
Net earnings:
Basic
Diluted
Cash dividends declared
Returns:
Return on total capital(1)
Return on shareholders' equity(2)
Financial Position:
Cash and cash equivalents
Total assets
Total debt
Shareholders' equity
Cash Flows:
Net cash provided by operating activities
Acquisition of business
Capital expenditures
Depreciation and amortization
Cash dividends paid
(1) Net earnings/(average total debt + average shareholders’ equity).
(2) Net earnings/average shareholders’ equity.
Net Sales
(In millions)
$453.2
$455.7
$472.6
$472,618
55,787
11.8 %
$455,713
30,061
$453,217
70,807
6.6%
15.6%
$ 19,009
$ 5,598
$ 36,266
4.0%
1.2%
8.0%
$ 0.99
0.98
0.12
$ 0.29
0.29
0.12
$ 1.90
1.88
1.12
7.4%
7.4%
2.3%
2.3%
15.6%
15.6%
$ 68,688
337,902
-
264,803
$ 56,224
18,356
7,114
14,255
2,313
$ 38,181
293,009
-
246,017
$ 43,941
329,534
-
241,665
$ 6,608
-
10,512
13,553
2,310
$ 53,969
3,300
18,449
12,818
21,333
Gross Margin
15.6%
11.8%
6.6%
2018
2019
2020
2018
2019
2020
Net Earnings
Per Share (Diluted)
$1.88
2018
$0.29
2019
$0.98
2020
Return on Total Capital
15.6%
2018
2.3%
2019
7.4%
2020
1
2020 ANNUAL REPORT | INSTEEL INDUSTRIES|
BUSINESS OVERVIEW
64% OF SALES
Welded Wire Reinforcement
Manufacturing Locations
Welded Wire Reinforcement
Prestressed Concrete Strand
Prefabricated reinforcement consisting of high-strength wires that are welded into specified patterns according to
customer requirements, which may provide for alternative wire diameters, lengths and spacings. Wire intersections are
electrically resistance-welded by computer-controlled continuous automatic welding lines that use pressure and heat
to fuse longitudinal and transverse wires in their proper position.
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, TX | Hazleton, PA |
Jacksonville, FL | Kingman, AZ |
Mount Airy, NC | St. Joseph, MO
Customer Segments
Precast and Prestressed Producers |
Rebar Fabricators | Distributors |
Contractors
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, TX | Jacksonville, FL |
Kingman, AZ | Mount Airy, NC |
St. Joseph, MO
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, TX | Hazleton, PA | Hickman, KY |
Jacksonville, FL | Mount Airy, NC
Customer Segments
Rebar Fabricators | Distributors
End Uses
Nonresidential Construction |
Residential Construction
36% OF SALES
Prestressed Concrete Strand
High-strength seven-wire reinforcement consisting of six wires that are
continuously wrapped around a center wire forming a strand, which is then
heat-treated while under tension. Provides compression forces in concrete
elements and structures, allowing for the use of longer, thinner and lighter spans
or sections. May be used in either pretensioned or posttensioned applications to
reinforce bridges, parking decks, buildings, other concrete structures and concrete
slabs for new homes in regions that have expansive soil.
Plant Locations
Gallatin, TN | Houston, TX | Sanderson, FL
Customer Segments
Precast Prestress Producers |
Posttensioning Suppliers
End Uses
Nonresidential Construction |
Residential Construction
2
2020 ANNUAL REPORT | INSTEEL INDUSTRIES| Manufacturing Locations
Welded Wire Reinforcement
Prestressed Concrete Strand
LETTER TO SHAREHOLDERS
During 2O2O, Insteel rebounded
from difficult market conditions and
delivered substantially improved
financial performance.
During 2020, Insteel rebounded from difficult market conditions and delivered substantially improved financial performance. Typical
seasonal weather patterns led to more consistent construction activity during the year as compared to the unusually wet conditions
experienced during much of the prior year, and margins recovered in our markets that were not affected by import competition.
In markets affected by unfair import competition, we filed anti-dumping and countervailing duty petitions which contributed to
stronger financial performance in 2020.
We planned carefully as COVID-19 emerged as a serious threat in our second fiscal quarter, although we are pleased to report the
impact on our people and markets has been minimal up to this point. We understand, however, that infection risk remains high and
the potential for adverse virus-related consequences is a risk for our markets. We are prepared to manage the risks to our people
and to navigate pandemic-related disruptions in construction schedules and project funding.
Our strategy for long-term growth and the creation of shareholder value remains centered on leveraging our market leadership
positions across our product portfolio and strengthening our low-cost producer status. With this in mind, we made substantial
investments in our plants and information systems to support cost and productivity improvement initiatives and broaden our
engineered structural mesh (“ESM”) manufacturing capabilities. We also maintained our strong balance sheet, assuring sufficient
financial flexibility to pursue strategic growth opportunities and return capital to shareholders as appropriate.
We can report three particularly consequential developments during the year that we expect to drive future growth and strengthen
our competitive position: our acquisition of certain assets of Strand-Tech Manufacturing, Inc. (“STM”), continued growth of our ESM
business and pursuit of trade remedies in two of our markets that have suffered from surging volumes of low priced imports.
ACQUISITION
GROWTH INITIATIVES
In March, we acquired certain assets of STM, which operated
a PC strand manufacturing plant in Summerville, SC, for $19.4
million and announced we would transition its production
capacity and customer base to existing Insteel facilities. We have
made significant progress updating and relocating the acquired
machinery and equipment and expect to realize meaningful cost
reductions by eliminating bottlenecks in various manufacturing
processes. This project should conclude by the end of our second
fiscal quarter of 2021. Additionally, we appreciate the support
we have received from previous STM customers and believe
that good communication and cooperation made the transition
seamless. Mutually beneficial relationships are ongoing with
practically all the former STM customers.
We reported last year that we had intensified our focus on our
primary organic growth initiative - the expansion of our ESM
business. For many applications, the substitution of ESM for
rebar represents an attractive value proposition by significantly
reducing jobsite installation labor and compressing timelines.
The elimination of the labor-intensive placing and hand-tying
inherent to rebar is particularly attractive in today’s tight job
market. An additional advantage is the higher yield strength of
ESM relative to rebar which allows for the use of less material
to obtain the equivalent reinforcement. As contractors and
precasters initially convert projects to ESM and experience its
advantages, many elect to make permanent changes in their
reinforcement methods and become repeat customers.
3
2020 ANNUAL REPORT | INSTEEL INDUSTRIES| Cash flow from operations totaled $56.2 million for the year,
which was used to fund the $18.4 million acquisition of STM
and $7.1 million of capital expenditures. We ended the year
debt-free with $68.7 million of cash on hand and no borrowings
outstanding on our $100 million revolving credit facility.
Following the end of the fiscal year, we declared a special cash
dividend of $1.50 per share paid in December 2020.
LOOKING AHEAD
As we move into 2021, there is considerable uncertainty
for nonresidential construction
surrounding prospects
markets that will continue to be affected by the pandemic's
impact on construction schedules, funding for infrastructure
projects and the risk profile for investments in nonresidential
construction projects. We are encouraged by the sharper
than expected rebound in state tax receipts, which contribute
funding to infrastructure projects, although the recovery is in
its infancy and favorable trends could moderate if widespread
new outbreaks dampen economic activity. We are also
encouraged by recent cement demand forecasts and other
construction industry forecasts and leading indicators that
have stabilized and are signaling a return to growth.
Regardless of market circumstances, we will continue to build
shareholder value by focusing on core competencies in our
concrete reinforcing markets, improving the effectiveness
of our manufacturing operations and capitalizing on both
organic and acquisition-related growth opportunities. We
are committed to building on our market leadership position
by investing in our people, state-of-the-art manufacturing
technology, and information systems while maintaining ample
financial flexibility to pursue attractive growth opportunities.
We are confident that Insteel will emerge from the pandemic
period even stronger and look forward to the opportunities that
lie ahead. We appreciate the support of our customers, Board
of Directors, employees and shareholders and will seek to earn
their continued trust and confidence.
H.O. Woltz III
Chairman, President and
Chief Executive Officer
resources
invested considerable
We have
to create
infrastructure that is deployed toward penetrating the 8 million
ton U.S. rebar market which provides growth opportunities,
even when spending in nonresidential construction markets is
weaker, and where we compete on the basis of value delivered
to the customer rather than solely on price. During 2020, our
market development efforts gained significant traction and we
look forward to additional growth in 2021.
To support our commercial activities, we commissioned a new
production line in 2020 and are scheduled to commission
an additional line during the third fiscal quarter of 2021. We
expect to make additional capital investments which will be
essential to supporting our growth.
TRADE LITIGATION
In view of surging volumes of low-priced imported PC strand and
Standard Welded Wire Reinforcement, we filed anti-dumping
and countervailing duty petitions against sixteen countries
alleging violations of U.S. trade laws. As with any litigation, we
cannot predict the outcome but believe the facts supporting the
cases are strong and that we will be successful.
We have considerable experience battling unfairly traded
imports and are aware that other foreign producers will attempt
to establish a presence in the U.S. market if anti-dumping or
countervailing duty orders result in the withdrawal of some
or all of the 2020 respondent countries from the U.S. market.
Accordingly, we will focus on constantly improving our cost
structure to compete effectively with imports and we will put
foreign producers on notice that flouting U.S. trade laws will
result in additional litigation. We expect the 2020 cases to wrap
up by the end of the third fiscal quarter of 2021.
FINANCIAL RESULTS
We reported record shipments and revenues for 2020 following
a difficult 2019. Gross margin recovered to a more normalized
level, most notably during the second half of the year, as the
impact of the pending trade cases resulted in some relief from
import pricing pressure and shipment volumes strengthened.
Robust market demand during the year demonstrated the
resiliency of our markets during the pandemic.
Net sales for 2020 rose 3.7% from the prior year to $472.6
million driven by 17.3% increase in shipments which offset
an 11.5% decrease in average selling prices. Gross margin
widened 520 basis points to 11.8% due to a combination of the
increased volume and higher spreads between selling prices
and raw material costs. Net earnings rose to $19.0 million, or
$0.98 per diluted share, from $5.6 million, or $0.29 per share.
4
2020 ANNUAL REPORT | INSTEEL INDUSTRIES| UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 3, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-9929
INSTEEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
North Carolina
(State or other jurisdiction of incorporation or organization)
56-0674867
(I.R.S. Employer Identification No.)
1373 Boggs Drive, Mount Airy, North Carolina 27030
(Address of principal executive offices) (Zip Code)
(336) 786-2141
Registrant’s telephone number, including area code:
SECURITIES REGISTERED SUBJECT TO SECTION 12(b) OF THE EXCHANGE ACT:
Title of Each Class
Trading Symbol(s)
Common Stock (No Par Value)
IIIN
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
Indicate by check mark
zz if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES
NO
zz if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
zz whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
zz whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files).
zz whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
zz If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
zz whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Emerging growth company
As of March 28, 2020 (the last business day of the registrant’s most recently completed second quarter), the aggregate market value
of the common stock held by non-affiliates of the registrant was $216,551,141 based upon the closing sale price as reported on the
Nasdaq Global Select Market. As of October 28, 2020, there were 19,305,612 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s proxy statement to be delivered to shareholders in connection with the 2021 Annual Meeting of
Shareholders are incorporated by reference as set forth in Part III hereof.
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
Information About Our Executive Officers
PART II
Item 5
Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Item 6 Selected Financial Data
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
Item 16 Form 10-K Summary
Signatures
04
05
05
08
11
11
11
11
12
13
13
14
14
20
21
45
45
47
47
47
47
47
47
48
48
48
48
52
3
INSTEEL INDUSTRIES INC. ❘ Form 10-K Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, particularly in the “Business,” “Risk
Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” sections of this report. When
used in this report, the words “believes,” “anticipates,” “expects,”
“estimates,” “appears,” “plans,” “intends,” “may,” “should,” “could”
“outlook,” “continues,” “remains” and similar expressions are
intended to identify forward-looking statements. Although we
believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable,
they are subject to a number of risks and uncertainties and involve
certain assumptions. Actual results may differ materially from those
expressed in forward-looking statements, and we can provide
no assurances that such plans, intentions or expectations will be
implemented or achieved. Many of these risks and uncertainties
are discussed in the “Risk Factors” section of this report and are
updated from time to time in our filings with the United States
(“U.S.”) Securities and Exchange Commission (“SEC”).
All forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by these
cautionary statements. All forward-looking statements speak only
to the respective dates on which such statements are made, and
we do not undertake any obligation to publicly release the results
of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or
unanticipated events, except as may be required by law.
It is not possible to anticipate and list all risks and uncertainties
that may affect our business, future operations or financial
performance; however, they include, but are not limited to, the
following:
zz the impact of COVID-19 on the economy, demand for our
products and our operations, including the measures taken by
governmental authorities to address it, which may precipitate
or exacerbate other risks and/or uncertainties;
zz general economic and competitive conditions in the markets
in which we operate;
zz changes in the spending levels for nonresidential and residential
construction and the impact on demand for our products;
zz changes in the amount and duration of transportation funding
provided by federal, state and local governments and the
impact on spending for infrastructure construction and demand
for our products;
zz the cyclical nature of the steel and building material industries;
zz credit market conditions and the relative availability of financing
for us, our customers and the construction industry as a whole;
zz fluctuations in the cost and availability of our primary raw
material, hot-rolled carbon steel wire rod, from domestic and
foreign suppliers;
zz competitive pricing pressures and our ability to raise selling
prices in order to recover increases in raw material or operating
costs;
zz changes in U.S. or foreign trade policy, including the Section
232 tariff on imported steel, affecting imports or exports of steel
wire rod or our products;
zz unanticipated changes in customer demand, order patterns
and inventory levels;
zz the impact of fluctuations in demand and capacity utilization
levels on our unit manufacturing costs;
zz our ability to further develop the market for engineered structural
mesh (“ESM”) and expand our shipments of ESM;
zz legal, environmental, economic or regulatory developments that
significantly impact our business or operating costs;
zz unanticipated plant outages, equipment failures or labor
difficulties; and
zz the risks and uncertainties discussed herein under the caption
“Risk Factors.”
4
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART I
Item 1 Business
General
Insteel Industries, Inc. (“we,” “us,” “our,” “the Company” or
“Insteel”) is the nation’s largest manufacturer of steel wire
reinforcing products for concrete construction applications.
We manufacture and market prestressed concrete strand (“PC
strand”) and welded wire reinforcement (“WWR”), including ESM,
concrete pipe reinforcement (“CPR”) and standard welded wire
reinforcement (“SWWR”). Our products are sold primarily to
manufacturers of concrete products that are used in nonresidential
construction. For fiscal 2020, we estimate that approximately 85%
of our sales were related to nonresidential construction and 15%
were related to residential construction.
Insteel is the parent holding company for two wholly-owned
subsidiaries, Insteel Wire Products Company (“IWP”), an operating
subsidiary, and Intercontinental Metals Corporation, an inactive
subsidiary. We were incorporated in 1958 in the State of North
Carolina.
Our business strategy is focused on: (1) achieving leadership
positions in our markets; (2) operating as the lowest cost producer
in our industry; and (3) pursuing growth opportunities within our
core businesses that further our penetration of the markets we
currently serve or expand our footprint. Headquartered in Mount
Airy, North Carolina, we operate ten manufacturing facilities that
are all located in the U.S. in close proximity to our customers and
raw material suppliers. Our growth strategy is focused on organic
opportunities as well as strategic acquisitions in existing or related
markets that leverage our infrastructure and core competencies in
the manufacture and marketing of concrete reinforcing products.
On March 16, 2020, we, through our wholly-owned subsidiary,
IWP, purchased substantially all of the assets of Strand-Tech
Manufacturing, Inc. (“STM”) for an adjusted purchase price of
$19.4 million, which reflects certain post-closing adjustments (the
“STM Acquisition”). STM was a leading manufacturer of PC strand
for concrete construction applications. We acquired, among
other assets, STM’s accounts receivable, inventories, production
equipment and facility located in Summerville, South Carolina and
assumed certain of its accounts payable and accrued liabilities.
Subsequent to the acquisition, we elected to consolidate our
PC strand operations with the closure of the Summerville facility.
Products
Our operations are entirely focused on the manufacture and
marketing of steel wire reinforcing products for concrete
construction applications. Our concrete reinforcing products
consist of two product lines: PC strand and WWR. Based on
the criteria specified in Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 280,
Segment Reporting, we have one reportable segment.
PC strand is a high strength, seven-wire strand that is used to impart
compression forces into precast concrete elements and structures,
which may be either pretensioned or posttensioned, providing
reinforcement for bridges, parking decks, buildings and other
concrete structures. Its high tensile strength allows for the casting
of longer spans and thinner sections. Pretensioned or “prestressed”
concrete elements or structures are primarily used in nonresidential
construction while posttensioned concrete elements or structures
are used in both nonresidential and residential construction.
WWR is produced as either a standard or a specially engineered
reinforcing product for use in nonresidential and residential
construction. We produce a full range of WWR products,
including ESM, CPR and SWWR. ESM is an engineered made-
to-order product that is used as the primary reinforcement for
concrete elements or structures, frequently serving as a lower cost
reinforcing solution than hot-rolled rebar. CPR is an engineered
made-to-order product that is used as the primary reinforcement
in concrete pipe, box culverts and precast manholes for drainage
and sewage systems, water treatment facilities and other related
applications. SWWR is a secondary reinforcing product that
is produced in standard styles for crack control applications
in residential and light nonresidential construction, including
driveways, sidewalks and various slab-on-grade applications.
See Note 15 for the disaggregation of our net sales by product
line and geography.
Marketing and Distribution
We market our products through sales representatives who are
our employees. Our outside sales representatives are trained
on the technical applications for our products and sell multiple
product lines in their respective territories. We sell our products
nationwide across the U.S. and, to a much lesser extent, into
Canada, Mexico, and Central and South America. Our products
are shipped primarily by truck, using common or contract
carriers. The delivery method selected is determined based on
backhaul opportunities, comparative costs and customer service
requirements.
5
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART I
Item 1 Business
Customers
We sell our products to a broad range of customers that includes
manufacturers of concrete products, and to a lesser extent,
distributors, rebar fabricators and contractors. In fiscal 2020,
we estimate that approximately 70% of our net sales were to
manufacturers of concrete products and 30% were to distributors,
rebar fabricators and contractors. In many cases we are unable
to identify the specific end use for our products as most of our
customers sell products that are used for both nonresidential
and residential construction, and the same products can be
used for different end uses. We did not have any customers that
represented 10% or more of our net sales in fiscal years 2020,
2019 and 2018. The loss of a single customer or a few customers
would not have a material adverse impact on our business.
Backlog
Backlog for our business is minimal due to the relatively short lead times that are required by our customers. We believe that the
majority of our firm orders as of the end of fiscal 2020 will be shipped during the first quarter of fiscal 2021.
Seasonality and Cyclicality
Demand in our markets is both seasonal and cyclical, driven
by the level of construction activity, but can also be impacted
by fluctuations in the inventory positions of our customers.
Shipments are seasonal, typically reaching their highest level
when weather conditions are the most conducive to construction
activity. As a result, assuming normal seasonal weather patterns,
shipments and profitability are usually higher in the third and
fourth quarters of the fiscal year and lower in the first and second
quarters. Construction activity and demand for our products is
cyclical based on overall economic conditions, although there
can be significant differences between the relative strength of
nonresidential and residential construction for extended periods.
Raw Materials
The primary raw material used to manufacture our products is
hot-rolled carbon steel wire rod, which we purchase from both
domestic and foreign suppliers and can generally be characterized
as a commodity product. We purchase several different grades
and sizes of wire rod with varying specifications based on the
diameter, chemistry, mechanical properties and metallurgical
characteristics that are required for our products. High carbon
grades of wire rod are required for the production of PC strand
while low carbon grades are used to manufacture WWR.
Wire rod prices tend to fluctuate based on changes in scrap and
other metallic prices for steel producers together with domestic
and global market conditions. In most economic environments,
domestic demand for wire rod exceeds domestic production
capacity and imports of wire rod are necessary to satisfy the
supply requirements of the U.S. market. U.S. government trade
policies and trade actions by domestic wire rod producers
can significantly impact the pricing and availability of imported
wire rod, which during fiscal years 2020 and 2019 represented
approximately 7% and 8%, respectively, of our total wire rod
Competition
purchases. We believe that our substantial wire rod requirements,
desirable mix of sizes and grades, and strong financial condition
represent a competitive advantage by making us a relatively more
attractive customer to our suppliers.
Our ability to source wire rod from overseas suppliers is limited
by domestic content requirements generally referred to as “Buy
America” or “Buy American” laws that exist at both the federal
and state levels. These laws generally prescribe a domestic “melt
and cast” standard for purposes of compliance. Customers
purchasing PC strand and WWR for certain applications require
the Company to certify compliance with Buy America laws.
Selling prices for our products tend to be correlated with changes
in wire rod prices. However, the timing and magnitude of the
relative price changes varies depending upon market conditions
and competitive factors. Ultimately the relative supply - demand
balance in our markets and competitive dynamics determine
whether our margins expand or contract during periods of rising
or falling wire rod prices.
We are the nation’s largest manufacturer of steel wire reinforcing
products for concrete construction applications. Our markets
are highly competitive based on price, quality and service. Some
of our competitors, such as Nucor Corporation, Liberty Steel
USA (“Liberty”) and Oklahoma Steel and Wire, are vertically
integrated companies that produce both wire rod and concrete
reinforcing products and offer multiple product lines over broad
geographic areas. Other competitors are smaller independent
companies that offer limited competition in certain markets. Our
primary competitors for WWR products are Engineered Wire
Products, Inc. (a subsidiary of Liberty), Wire Mesh Corporation,
Concrete Reinforcements, Inc., National Wire Products, Davis
Wire Corporation and Oklahoma Steel & Wire Co., Inc. Our
primary competitors for PC strand are Sumiden Wire Products
6
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART I
Item 1 Business
Corporation and Wire Mesh Corporation. Import competition is
also a significant factor in certain segments of the PC strand
and SWWR markets that are not subject to “Buy America”
requirements.
In response to illegally traded import competition from offshore PC
strand suppliers, we have pursued trade cases when necessary
as a means of ensuring that foreign producers were complying
with the applicable trade laws and regulations. In 2003, we joined
together with a coalition of domestic PC strand producers and
filed petitions with the U.S. Department of Commerce (the “DOC”)
alleging that imports of PC strand from Brazil, India, Korea, Mexico
and Thailand were being “dumped” or sold in the U.S. at a price
that was lower than fair value and had injured the domestic PC
strand industry. The DOC ruled in our favor and imposed anti-
dumping duties ranging from 12% up to 119%, which had the
effect of limiting the participation of these countries in the domestic
market. In 2010, we joined together with a coalition of domestic
PC strand producers and filed petitions with the DOC alleging
that imports of PC strand from China were being “dumped” or
sold in the U.S. at a price that was lower than fair value and that
subsidies were being provided to Chinese PC strand producers by
the Chinese government, both of which had injured the domestic
PC strand industry. The DOC ruled in our favor and imposed final
countervailing duty margins ranging from 9% to 46% and anti-
dumping margins ranging from 43% to 194%, which had the
effect of limiting the continued participation of Chinese producers
in the domestic market. On April 16, 2020, we joined two other
domestic PC strand producers and filed anti-dumping petitions
against Argentina, Columbia, Egypt, Indonesia, Italy, Malaysia,
Netherlands, Saudi Arabia, South Africa, Spain, Taiwan, Tunisia,
Turkey, Ukraine and the United Arab Emirates alleging dumping
margins ranging from 24% to 194%. These cases are scheduled
to conclude during our third fiscal quarter of 2021. Additionally, on
June 30, 2020, we and four other domestic producers of SWWR
filed an anti-dumping and countervailing duty petitions against
Mexico alleging dumping margins from 56% to 161%. These
cases are expected to conclude during our fourth fiscal quarter
of 2021. We cannot predict the outcome of either the PC strand
or SWWR cases at this time.
Quality and service expectations of customers have risen
substantially over the years and are key factors that impact
their selection of suppliers. Technology has become a critical
competitive factor from the standpoint of manufacturing costs,
quality and customer service capabilities. In view of our strong
market positions, broad product offering and national footprint,
technologically advanced manufacturing facilities, low-cost
production capabilities, sophisticated information systems and
financial strength and flexibility, we believe that we are well-
positioned to compete favorably with other producers of our
concrete reinforcing products.
Employees
As of October 3, 2020, we had 881 employees, none of which were represented by labor unions. In the event of production disruptions,
we believe that our contingency plans would enable us to continue serving our customers, although there can be no assurances that
a work slowdown or stoppage would not adversely impact our operating costs and financial results.
Product Warranties
Our products are used in applications that are subject to inherent
risks, including performance deficiencies, personal injury, property
damage, environmental contamination or loss of production. We
warrant our products to meet certain specifications. Although
actual or claimed deficiencies from these specifications may give
rise to claims, we do not maintain a reserve for warranties as
the historical claims have been immaterial. We maintain product
liability insurance coverage to minimize our exposure to such risks.
Environmental Matters
We believe that we are in compliance in all material respects
with applicable environmental laws and regulations. We have
experienced no material difficulties in complying with legislative
or regulatory standards and believe that these standards have not
materially impacted our financial position or results of operations.
Although our future compliance with additional environmental
Available Information
requirements could necessitate capital outlays, we do not believe
these expenditures would ultimately have a material adverse effect
on our financial position or results of operations. We do not expect
to incur material capital expenditures for environmental control
facilities during fiscal 2021.
Our annual report on Form 10-K, quarterly reports on Form 10-
Q, current reports on Form 8-K and any amendments to these
reports, are available at no cost on our web site at https://
insteelgcs.gcs-web.com/financial-information/sec-filings and the
SEC’s web site at www.sec.gov as soon as reasonably practicable
after we file these reports with the SEC. The information available
on our web site and the SEC’s website is not incorporated into
this report or any of our filings with the SEC.
7
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART I
Item 1A Risk Factors
Item 1A Risk Factors
An investment in our common stock involves risks and
uncertainties. You should carefully consider the following
risk factors, in addition to the other information contained in
this annual report on Form 10-K, before deciding whether an
investment in our common stock is suitable for you. The risk
factors described below are not the only ones we face. There may
be other risks and uncertainties that are currently unknown to us
or that we currently consider to be immaterial that could adversely
affect our business, results of operations, financial condition and
cash flows.
Our business, results of operations, financial
condition, cash flows and stock price can be
adversely affected by pandemics, epidemics or
other public health emergencies, such as the
recent outbreak of COVID-19.
Our business, results of operations, financial condition, cash
flows and stock price can be adversely affected by pandemics,
epidemics or other public health emergencies, such as the
recent outbreak of COVID-19 which has spread from China
to many other countries including the United States. In March
2020, the World Health Organization characterized COVID-19
as a pandemic, and the President of the United States declared
the COVID-19 outbreak a national emergency. The outbreak
has resulted in governments around the world implementing
increasingly stringent measures to help control the spread of the
virus, including quarantines, “shelter in place” and “stay at home”
orders, travel restrictions, business curtailments, school closures,
and other measures. In addition, governments and central banks
in several parts of the world have enacted fiscal and monetary
stimulus measures to counteract the impacts of COVID-19.
We are considered a critical infrastructure industry, as defined by
the U.S. Department of Homeland Security. Although we have
continued to operate our facilities to date consistent with federal
guidelines and state and local orders, the outbreak of COVID-19
and any preventive or protective actions taken by governmental
authorities may have a material adverse effect on our operations,
supply chain, customers and transportation networks, including
business shutdowns or disruptions. The extent to which
COVID-19 may adversely impact our business depends on future
developments, which are highly uncertain and unpredictable,
depending upon the severity and duration of the outbreak and
the effectiveness of actions taken globally to contain or mitigate
its effects. Even after the COVID-19 pandemic has subsided,
we may experience material adverse impacts to our business
due to any resulting economic recession. Additionally, concerns
over the economic impact of COVID-19 have caused extreme
volatility in financial and other capital markets which has and may
continue to adversely impact our stock price and our ability to
access capital markets. In view of the rapidly changing business
environment, unprecedented market volatility and heightened
degree of uncertainty resulting from COVID-19, we are currently
unable to fully determine its future impact on our business.
8
Our business is cyclical and can be negatively
impacted by prolonged economic downturns or
tightening in the financial markets that reduce the
level of construction activity and demand for our
products.
Demand for our products is cyclical in nature and sensitive
to changes in the economy and in the financial markets. Our
products are sold primarily to manufacturers of concrete products
that are used for a broad range of nonresidential and residential
construction applications. Demand for our products is driven by
the level of construction activity, which tends to be correlated with
conditions in the overall economy as well as other factors beyond
our control. Tightening in the financial markets could adversely
impact demand for our products by reducing the availability of
financing to our customers and the construction industry as a
whole and increasing the risk of payment defaults on our accounts
receivable. Future prolonged periods of economic weakness or
reduced availability of financing could have a material adverse
impact on our business, results of operations, financial condition
and cash flows.
Our business can be negatively impacted
by reductions in the amount and duration of
government funding for infrastructure projects
that reduce the level of construction activity and
demand for our products.
Certain of our products are used in the construction of highways,
bridges and other infrastructure projects that are funded by
federal, state and local governments. Reductions in the amount
of funding for such projects or the period for which it is provided
could have a material adverse impact on our business, results of
operations, financial condition and cash flows.
Our operations are subject to seasonal fluctuations
that may impact our cash flows.
Our shipments are typically lower in the first and second fiscal
quarters due to the unfavorable impact of winter weather on
construction activity during these periods and customer plant
shutdowns associated with holidays. As a result, our cash flows
may fluctuate from quarter to quarter due to these seasonal factors.
Demand for our products is highly variable and
difficult to forecast due to our minimal backlog and
unanticipated changes that can occur in customer
order patterns or inventory levels.
Demand for our products is highly variable. The short lead times
for customer orders and minimal backlog that characterize our
business make it difficult to forecast the future level of demand for
our products. In some cases, unanticipated softening in demand
can be exacerbated by inventory rebalancing measures pursued
by our customers, which may cause significant fluctuations in our
sales, profitability and cash flows.
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Our financial results can be negatively impacted
by the volatility in the cost and availability of our
primary raw material, hot-rolled carbon steel wire
rod.
The primary raw material used to manufacture our products
is hot-rolled carbon steel wire rod, which we purchase from
both domestic and foreign suppliers. We do not use derivative
commodity instruments to hedge our exposure to changes in the
price of wire rod as such instruments are currently unavailable in
the financial markets. Prices for wire rod have become increasingly
volatile in recent years driven by the higher degree of variability in
raw material costs for rod producers, changes in trade policy and
the tightening of domestic supply. In response, wire rod producers
have resorted to increasing the frequency of price adjustments,
typically on a monthly basis as well as unilaterally changing the
terms of prior commitments.
Although changes in our wire rod costs and selling prices tend
to be correlated, we may be unable to fully recover increased
rod costs during weaker market environments, which would
reduce our earnings and cash flows. Additionally, when raw
material costs decline, our financial results would be negatively
impacted if the selling prices for our products decrease to an
even greater extent and if we are consuming higher cost material
from inventory.
Our financial results can also be significantly impacted if raw
material supplies are inadequate to satisfy our purchasing
requirements. Also, U.S. government trade policies or trade
actions by domestic wire rod producers against other countries
can significantly impact the availability and cost of imported
wire rod. The imposition of tariffs, quotas or anti-dumping or
countervailing duty margins by the U.S. government against
exporting countries can have the effect of reducing or eliminating
their competitiveness and participation in the domestic market.
If we were unable to obtain adequate and timely delivery of our
raw material requirements, we may be unable to manufacture
sufficient quantities of our products or operate our manufacturing
facilities in an efficient manner, which could result in lost sales and
higher operating costs. Because tight market conditions typically
affect the entire industry, during past periods of short raw material
supply, margins and profitability have been favorably impacted
due to curtailed availability of PC strand and WWR that supported
higher average selling prices. There is no assurance that future
short supply conditions in raw material markets would result in
similar outcomes, however.
Foreign competition could adversely impact our
financial results.
Certain of our PC strand and SWWR markets are subject to
foreign import competition on an ongoing basis. If we are unable
to purchase raw materials and achieve manufacturing costs that
are competitive with those of foreign producers, or if the margin
and return requirements of foreign producers are substantially
lower, our market share and profit margins could be negatively
PART I
Item 1A Risk Factors
impacted. In response to illegally traded import competition from
offshore PC strand suppliers, we have pursued trade cases when
necessary as a means of ensuring that foreign producers were
complying with the applicable trade laws and regulations. These
trade cases have resulted in the imposition of duties which have
had the effect of limiting the continued participation of certain
countries in the domestic market. Trade law enforcement is critical
to our ability to maintain our competitive position against foreign
PC strand and SWWR producers that engage in unlawful trade
practices.
Increasing unfair import competition and the
perpetuation of the Section 232 tariff on imported
steel, if not addressed, could continue to
negatively impact our financial results and cash
flows.
The imposition of the Section 232 tariff on imported steel, which
became effective in March 2018, has resulted in a surge in low-
priced imports into PC strand and SWWR markets. The tariff,
which applies to imports of our primary raw material but excludes
our finished products, has provided offshore competitors with
the incentive to circumvent the tariff by exporting downstream
steel products not covered by the tariff. Imports of PC strand and
SWWR have been sold at unfairly low prices that prevent us from
recovering higher raw material costs resulting from the tariff. These
underpricing tactics have enabled imports to expand their market
share, thereby displacing U.S. production. We and other domestic
producers have filed trade actions in an attempt to remedy injury
caused by unfair imports. If the Administration does not remedy
the unfair import pricing practices through the trade cases, and
continues the tariff program without extending it to include our
finished products, the resulting adverse impact on our market
share, financial results and cash flow that we experienced during
2019 and 2020 will persist.
Our manufacturing facilities are subject to
unexpected equipment failures, operational
interruptions and casualty losses.
Our manufacturing facilities are subject to risks that may limit
our ability to manufacture and sell our products, including
unexpected equipment failures, operational interruptions and
catastrophic losses due to other unanticipated events such as
fires, explosions, accidents, adverse weather conditions and
transportation interruptions. Any such equipment failures or
events can subject us to plant shutdowns and periods of reduced
production or unexpected downtime. Furthermore, the resolution
of certain operational interruptions may require significant capital
expenditures. Although our insurance coverage could offset the
losses or expenditures relating to some of these events, our
results of operations and cash flows would be negatively impacted
to the extent that such claims were not covered or only partially
covered by our insurance.
9
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART I
Item 1A Risk Factors
We are increasingly dependent on information
technology systems that are susceptible to certain
risks, including cybersecurity breaches and data
leaks, which could adversely impact our business.
Our increasing reliance on technology systems and infrastructure
heightens our potential vulnerability to system failure and
malfunction, breakdowns due to natural disasters, human error,
unauthorized access, power loss and other unforeseen events.
Data privacy breaches by employees and others with or without
authorized access to our systems poses risks that sensitive
data may be permanently lost or leaked to the public or other
unauthorized persons. With the growing use and rapid evolution
of technology, not limited to cloud-based computing and mobile
devices, there are additional risks of unintentional data leaks.
There is also the risk of the theft of confidential information,
intentional vandalism, industrial espionage and a variety of cyber-
attacks that could compromise our internal technology system
and infrastructure or result in data leaks in-house or at our third-
party providers and business partners. Failures of technology or
related systems, or an improper release of confidential information,
could adversely impact our business or subject us to unexpected
liabilities.
Our financial results could be adversely impacted
by the escalation of our operating costs.
Consistent with the experience of other employers, our labor,
medical and workers’ compensation costs have increased
substantially in recent years and are expected to continue to
rise. The Patient Protection and Affordable Care Act (“ACA”) will
have a significant impact on employers, health care providers,
insurers and others associated with the health care industry and
increase our employee health care costs. This legislation requires
certain large employers like us to offer health care benefits to
full-time employees or face potential annual penalties. To avoid
these penalties, employers must offer health benefits providing a
minimum level of coverage and limit the amount that employees
are charged for the coverage. We cannot predict the ultimate
content, timing, or effect of any healthcare reform legislation or
the impact of potential legislation or related proposals and policies
on our results. Any significant increases in the costs attributable
to our self-insured health and workers’ compensation plans could
adversely impact our business, results of operations, financial
condition and cash flows.
In addition, increasing prices for freight, natural gas, electricity,
fuel and consumables would adversely affect our manufacturing
and distribution costs. For most of our business, we incur the
transportation costs associated with the delivery of products
to our customers. Although we have previously implemented
numerous measures to offset the impact of increases in these
costs, there can be no assurance that such actions will be
effective. If we are unable to pass these additional costs
through by raising our selling prices, our financial results could
be adversely impacted.
10
Our financial results could be adversely impacted
by the impairment of goodwill.
Our balance sheet includes intangible assets, including
goodwill and other separately identifiable assets related to prior
acquisitions, and we may acquire additional intangible assets in
connection with future acquisitions. We are required to review
goodwill for impairment on an annual basis, or more frequently if
certain indicators of permanent impairment arise such as, among
other things, a decline in our stock price and market capitalization
or a reduction in our projected operating results and cash flows. If
our review indicates that goodwill has been impaired, the impaired
portion would have to be written-off during that period which
could adversely impact our business and financial results.
Our capital resources may not be adequate to
provide for our capital investment and maintenance
expenditures if we were to experience a substantial
downturn in our financial performance.
Our operations are capital intensive and require substantial
recurring expenditures for the routine maintenance of our
equipment and facilities. Although we expect to finance our
business requirements through internally generated funds or from
borrowings under our $100.0 million revolving credit facility, we
cannot provide any assurances these resources will be sufficient to
support our business. A material adverse change in our operations
or financial condition could limit our ability to borrow funds under
our credit facility, which could further adversely impact our liquidity
and financial condition. Any significant future acquisitions could
require additional financing from external sources that may not be
available on favorable terms, which could adversely impact our
growth, operations, financial condition and results of operations.
Changes in environmental compliance and
remediation requirements could result in
substantial increases in our capital investments
and operating costs.
Our business is subject to numerous federal, state and local laws
and regulations pertaining to the protection of the environment
that could require substantial increases in capital investments and
operating costs. These laws and regulations, which are constantly
evolving, are becoming increasingly stringent, and the ultimate
impact of compliance is not always clearly known or determinable
because regulations under some of these laws have not yet been
promulgated or are undergoing revision.
Our stock price can be volatile, often in connection
with matters beyond our control.
Equity markets in the U.S. have been increasingly volatile in recent
years. During fiscal 2020, our common stock traded as high
as $26.61 and as low as $10.00. There are numerous factors
that could cause the price of our common stock to fluctuate
significantly, including: variations in our financial results; changes
in our business outlook and expectations for the construction
industry; changes in market valuations of companies in our
industry; and announcements by us, our competitors or industry
participants that may be perceived to impact our financial results.
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART I
Item 4 Mine Safety Disclosures
Item 1B Unresolved Staff Comments
None.
Item 2 Properties
Our corporate headquarters and IWP’s sales and administrative
offices are located in Mount Airy, North Carolina. As of October 3,
2020, we operated ten manufacturing facilities located in Dayton,
Texas; Gallatin, Tennessee; Hazleton, Pennsylvania; Hickman,
Kentucky; Houston, Texas; Jacksonville, Florida; Kingman,
Arizona; Mount Airy, North Carolina; Sanderson, Florida; and St.
Joseph, Missouri. Additionally, we are currently pursuing the sale
of an idle facility located in Summerville, South Carolina.
Item 3
Legal Proceedings
We own all of our real estate. We believe that our properties
are in good operating condition and that our machinery and
equipment have been well maintained. We also believe that our
manufacturing facilities are suitable for their intended purposes
and have capacities adequate to satisfy the current and projected
demand for our products.
We are involved in lawsuits, claims, investigations and proceedings, including commercial, environmental and employment matters,
which arise in the ordinary course of business. We do not anticipate that the ultimate cost to resolve these matters will have a material
adverse effect on our financial position, results of operations or cash flows.
Item 4 Mine Safety Disclosures
Not applicable.
11
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART I
Information About Our Executive Officers
Information About Our Executive Officers
Our executive officers are as follows:
Name
H. O. Woltz III
Mark A. Carano
James F. Petelle
Richard T. Wagner
Age
64
51
70
61
Position
President, Chief Executive Officer and Chairman of the Board
Senior Vice President, Chief Financial Officer and Treasurer
Vice President Administration, Secretary and Chief Legal Officer
Senior Vice President and Chief Opertating Officer
H. O. Woltz III, 64, Chief Executive Officer since 1991, as President
since 1989 and has been employed by us and our subsidiaries
in various capacities since 1978. He was named President and
Chief Operating Officer in 1989. He served as our Vice President
from 1988 to 1989 and as President of Rappahannock Wire
Company, formerly a subsidiary of our Company, from 1981
to 1989. Mr. Woltz has been a Director since 1986 and also
serves as President of Insteel Wire Products Company. Mr. Woltz
served as President of Florida Wire and Cable, Inc., formerly a
subsidiary of our Company, until its merger with Insteel Wire
Products Company in 2002. Mr. Woltz has served as Chairman
of the Board since 2009.
Mark A. Carano, 51, has served as Senior Vice President, Chief
Financial Officer and Treasurer since October 2020 and as Vice
President, Chief Financial Officer and Treasurer from May 2020 to
October 2020. Before joining us, Mr. Carano had been employed
by Big River Steel, a privately-held manufacturer of steel products,
having served as Chief Financial Officer since April 2019. Prior
to Big River Steel, he served in various senior management
finance roles with Babcock & Wilcox Enterprises from June 2013
to October 2018. Mr. Carano also has 14 years of combined
investment banking experience with Bank of America, Merrill
Lynch, Deutsche Bank and First Union Securities.
James F. Petelle, 70, has served as Vice President Administration,
Secretary and Chief Legal Officer since October 2020. He
joined us in October 2006 and was elected Vice President and
Assistant Secretary in November 2006 and Vice President,
Administration and Secretary in January 2007. He was previously
employed by Andrew Corporation, a publicly-held manufacturer
of telecommunications infrastructure equipment, having served
as Secretary from 1990 to May 2006, and Vice President - Law
from 2000 to October 2006.
Richard T. Wagner, 61, joined us in 1992 and has served as
Vice President and General Manager of the Concrete Reinforcing
Products Business Unit of our subsidiary, Insteel Wire Products
Company, since 1998. He was appointed Vice President of the
parent company, Insteel Industries, Inc. in February 2007 and
Senior Vice President and Chief Operating Officer in October
2020. From 1977 until 1992, Mr. Wagner served in various
positions with Florida Wire and Cable, Inc., a manufacturer of PC
strand and galvanized strand products, which was later acquired
by us in 2000.
12
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART II
Item 5 Market for Registrant’s Common Equity, Related
Shareholder Matters and Issuer Purchases
of Equity Securities
Our common stock is listed on the Nasdaq Global Select Market under the symbol “IIIN” and has been trading on Nasdaq since
September 28, 2004. As of October 28, 2020, there were 519 shareholders of record.
Stock Performance Graph
The graph below compares the cumulative total shareholder
return on our common stock with the cumulative total return of the
Russell 2000 Index and the S&P Building Products Index for the
five years ended October 3, 2020. The graph and table assume
that $100 was invested on October 3, 2015 in our common
stock and in each of the two indices and the reinvestment of all
dividends. Cumulative total shareholder returns for our common
stock, the Russell 2000 Index and the S&P Building Products
Index are based on our fiscal year.
Comparison of Five-Year Cumulative Return for Insteel Industries, Inc.,
the Russell 2000 Index and the S&P Building Products Index
In $
300
250
200
150
100
50
0
10/3/15
10/1/16
9/30/17
9/29/18
9/28/19
10/3/20
Insteel Industries, Inc.
Russell 2000
S&P Building Products
Insteel Industries, Inc.
$
Russell 2000
S&P Building Products
10/3/15
100.00
100.00
100.00
$
10/1/16
236.69
115.47
129.71
$
9/30/17
176.87
139.42
136.28
$
9/29/18
252.71
160.66
123.73
$
9/28/19
146.69
146.38
145.89
$
10/3/20
134.32
146.95
168.98
Fiscal Year Ended
Issuer Purchases of Equity Securities
Information regarding our share repurchase authorization is discussed in Note 19 to our consolidated financial statements and
incorporated herein by reference.
13
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 6 Selected Financial Data
Item 6
Selected Financial Data
Financial Highlights
(In thousands, except per
share amounts)
(53 weeks)
October 3, 2020
(52 weeks)
September 28, 2019
(52 weeks)
September 29, 2018
(52 weeks)
September 30, 2017
(52 weeks)
October 1, 2016
Year Ended
Net sales
Net earnings
Net earnings per
share (basic)
Net earnings per
share (diluted)
Cash dividends
declared
Total assets
Total debt
$
472,618
$
455,713
$
453,217
$
388,871
$
418,547
19,009
0.99
0.98
0.12
5,598
0.29
0.29
0.12
36,266
1.90
1.88
1.12
22,548
1.19
1.17
1.37
37,245
1.99
1.95
1.12
337,902
293,009
329,534
283,073
292,892
—
—
—
—
—
Shareholders’ equity
264,803
246,017
241,665
223,376
224,566
Item 7 Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The matters discussed in this section include forward-looking statements that are subject to numerous risks. You should
carefully read the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this Form 10-K.
Overview
Our operations are entirely focused on the manufacture and
marketing of concrete reinforcing products for the concrete
construction industry. Our business strategy is focused on:
(1) achieving leadership positions in our markets; (2) operating
as the lowest cost producer in our industry; and (3) pursuing
growth opportunities within our core businesses that further our
penetration of the markets we currently serve or expand our
footprint.
On March 16, 2020, we, through our wholly-owned subsidiary,
IWP, purchased substantially all of the assets of STM for an
adjusted purchase price of $19.4 million, which reflects certain
post-closing adjustments. STM was a leading manufacturer of
PC strand for concrete construction applications. We acquired,
among other assets, STM’s accounts receivable, inventories,
production equipment and facility located in Summerville, South
Carolina and assumed certain of its accounts payable and
accrued liabilities. Subsequent to the acquisition, we elected
to consolidate our PC strand operations with the closure of the
Summerville facility.
Impact of COVID-19
In March 2020, the World Health Organization characterized
COVID-19 as a pandemic, and the President of the United States
declared the COVID-19 outbreak a national emergency. The rapid
spread of the outbreak has caused significant disruptions in the
U.S. and global economies, and economists expect the impact
will continue during fiscal 2021. We are a company operating in a
critical infrastructure industry, as defined by the U.S. Department
of Homeland Security and our facilities have been allowed to
remain open. Accordingly, COVID-19 has had limited impact on
our operations to date. We have implemented new procedures
to support the health and safety of our employees and we are
following all U.S. Centers for Disease Control and Prevention
and state and local health department guidelines. The costs
associated with these safety procedures were not material. In view
of the rapidly changing business environment, unprecedented
market volatility and heightened degree of uncertainty resulting
14
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
from COVID-19, we are currently unable to fully determine its
future impact on our business. We are continuing to monitor the
progression of the pandemic, measures taken by governmental
authorities to address it, and the potential effect on our financial
position, results of operations, and cash flows.
Critical Accounting Policies
Our consolidated financial statements have been prepared
in accordance with accounting principles generally accepted
in the United States (“GAAP”). Our discussion and analysis of
our financial condition and results of operations are based on
these consolidated financial statements. The preparation of
our consolidated financial statements requires the application
of these accounting principles in addition to certain estimates
and judgments based on current available information, actuarial
estimates, historical results and other assumptions believed to
be reasonable. These estimates, assumptions and judgments
are affected by our application of accounting policies, which
are discussed in Note 2, “Summary of Significant Accounting
Policies”, and elsewhere in the accompanying consolidated
financial statements. Estimates are used for, but not limited to,
determining the net carrying value of trade accounts receivable,
inventories, recording self-insurance liabilities and other accrued
liabilities. Estimates are also used in establishing opening balances
in relation to purchase accounting. Actual results could differ from
these estimates.
We believe the following critical accounting policy is impacted
significantly by judgments, assumptions and estimates used in
the preparation of our consolidated financial statements.
Goodwill
Goodwill is tested annually for impairment and whenever events
or circumstances change that would make it more likely than not
that an impairment may have occurred. We perform our annual
impairment analysis as of the first day of the fourth quarter each
fiscal year, which involves comparing the current estimated fair
value of the reporting unit to its recorded value, including goodwill.
Recent Accounting Pronouncements
We perform a qualitative assessment to determine whether it
is more likely than not that the fair value of the reporting unit is
less than its carrying amount. It may be necessary to perform a
quantitative analysis where a discounted cash flow model is used
to determine the current estimated fair value of the reporting unit.
Key assumptions used to determine the fair value of the reporting
unit as part of our annual testing (and any required interim testing)
include: (a) expected cash flows for the five-year period following
the testing date; (b) an estimated terminal value using a terminal
year growth rate based on the growth prospects of the reporting
unit; (c) a discount rate based on our estimated after-tax weighted
average cost of capital; and (d) a probability-weighted scenario
approach by which varying cash flows are assigned to alternative
scenarios based on their likelihood of occurrence. In developing
these assumptions, we consider historical and anticipated future
results, general economic and market conditions, the impact of
planned business and operational strategies and all available
information at the time the fair value of the reporting unit is
estimated.
We monitor our operating results throughout the year to
determine if events or changes in circumstances warrant any
interim impairment testing. Otherwise, goodwill will be subject
to the required annual impairment test during our fourth quarter.
Changes in the judgments and estimates underlying our analysis
of goodwill for possible impairment, including the expected
future operating cash flows and discount rate, could reduce our
estimated fair value in the future and result in an impairment of
goodwill. There was no goodwill impairment loss recognized in
fiscal 2020.
The nature and impact of recent accounting pronouncements is discussed in Note 3 to our consolidated financial statements and
incorporated herein by reference.
15
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The table below presents a summary of our results of operations for fiscal 2020 and fiscal 2019. See Part II, Item 7 of our Annual Report
on Form 10-K for the fiscal year ended September 28, 2019, filed with the SEC on October 25, 2019, for Management’s Discussion
and Analysis of Financial Condition and Results of Operations for the fiscal year ended September 29, 2018.
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
Restructuring charges, net
Acquisition costs
Other income, net
Interest expense
Interest income
Effective income tax rate
Net earnings
$
$
$
Year Ended
October 3, 2020
Change
September 28, 2019
472,618
3.7 % $
55,787
85.6 %
11.8 %
455,713
30,061
6.6 %
31,348
27.9 % $
24,504
6.6 %
1,695
100.0 % $
195
100.0 %
(1,254)
106
(473)
21.4 %
(29.3%)
(36.9%)
61.4 %
$
19,009
239.6 % $
5.4 %
—
—
(1,773)
168
(293)
24.9 %
5,598
2020 Compared with 2019
Net Sales
Net sales increased 3.7% to $472.6 million in 2020 from
$455.7 million in 2019, reflecting a 17.3% increase in shipments
offset by an 11.5% decrease in average selling prices. The increase
in shipments was primarily due to improved market conditions, the
additional business provided by the STM Acquisition, the extra
week in 2020 based on our fiscal calendar and strengthening
demand for our products relative to the prior year, which was
unfavorably impacted by unusually wet weather across many
of our markets. The decrease in average selling prices was
driven primarily by competitive pricing pressures resulting from
an increase in low-priced import competition. Shipments for
the current year were not materially impacted by the COVID-19
pandemic.
Gross Profit
Gross profit increased 85.6% to $55.8 million, or 11.8% of
net sales, in 2020 from $30.1 million, or 6.6% of net sales, in
2019. The year over year increase was primarily due to higher
spreads between average selling prices and raw material costs
($20.3 million) and the increase in shipments ($5.4 million). The
increase in spreads was driven by lower raw material costs
($83.6 million) and freight expense ($691,000) partially offset by
lower average selling prices ($64.0 million).
Selling, General and Administrative Expense
Selling, general and administrative expense (“SG&A expense”)
increased 27.9% to $31.3 million, or 6.6% of net sales, in 2020
from $24.5 million, or 5.4% of net sales, in 2019 primarily due to
higher compensation ($3.2 million), earnout ($1.4 million), legal
($1.4 million) and employee benefit ($196,000) expense. The
increase in compensation expense was largely driven by higher
incentive plan expense due to our improved financial results in
the current year. The increase in earnout expense was due to a
revaluation of a contingent earnout liability. The increase in legal
expense was primarily related to costs associated with trade
matters.
Restructuring Charges, Net
Net restructuring charges of $1.7 million were incurred in
2020 related to the closure of the Summerville, South Carolina
facility, which had been acquired through the STM Acquisition.
Restructuring charges included facility closure costs ($806,000),
equipment relocation costs ($482,000), impairment charges
related to the decommissioning of equipment ($343,000) and
employee separation costs ($182,000). These charges were
partially offset by a $119,000 gain from the sale of equipment
associated with the Summerville facility.
16
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Acquisition Costs
Income Taxes
Acquisition costs of $195,000 were incurred in 2020 for legal,
accounting and other professional fees related to the STM
Acquisition.
Other Income, Net
Other income was $1.3 million for 2020 compared with $1.8 million
in 2019. Other income for the current year was primarily related to
a gain from the disposition of assets held for sale. Other income
in the prior year was primarily related to gains from property
insurance ($1.2 million) and the disposition of property, plant and
equipment ($497,000).
Our effective income tax rate for 2020 decreased to 21.4% from
24.9% in 2019 due to lower state tax expense resulting from
the utilization of net operating losses and a tax benefit that was
recorded in connection with the net operating loss carryback
provisions of the Coronvirus Aid, Relief and Economic Security
Act, which was enacted in March 2020.
Net Earnings
Net earnings increased to $19.0 million ($0.98 per diluted share) in
2020 from $5.6 million ($0.29 per share) in 2019 primarily due to
the increase in gross profit partially offset by higher SG&A expense
and restructuring charges associated with the consolidation of
our PC strand operations.
Liquidity and Capital Resources
SELECTED FINANCIAL DATA
(Dollars in thousands)
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Cash and cash equivalents
Net working capital
Total debt
Percentage of total capital
Shareholders' equity
Percentage of total capital
Total capital (total debt + shareholders' equity)
Year Ended
October 3, 2020
September 28, 2019
$
56,224
$
(23,174)
(2,543)
68,688
143,360
—
—
$
$
264,803
100%
264,803
$
$
6,608
(9,556)
(2,812)
38,181
132,171
—
—
246,017
100%
246,017
Operating Activities
Operating activities provided $56.2 million of cash in 2020 primarily
from net earnings adjusted for non-cash items together with an
increase in working capital. Working capital provided $19.4 million
of cash due to a $20.2 million increase in accounts payable and
accrued expenses and a $5.1 million decrease in inventories
partially offset by a $5.8 million increase in accounts receivable.
The increase in accounts payable and accrued expenses was
primarily related to higher raw material purchases near the end
of the year together with increases in accrued salaries, wages
and related expenses, earnout liability and income taxes. The
decrease in inventories was primarily driven by lower unit costs
partially offset by higher raw material purchases. The increase in
accounts receivable was primarily related to higher shipments
partially offset by lower average selling prices.
Operating activities provided $6.6 million of cash in 2019 primarily
from net earnings adjusted for non-cash items partially offset by
an increase in working capital. Working capital used $12.0 million
of cash due to a $42.6 million decrease in accounts payable and
accrued expenses partially offset by a $23.3 million decrease in
inventories and a $7.3 million decrease in accounts receivable.
The reductions in accounts payable and accrued expenses were
primarily related to lower raw material purchases near the end of
the year relative to the elevated level at the beginning of the year
together with a decrease in accrued salaries, wages and related
expenses. The reduction in inventories was primarily driven by
lower raw material purchases and unit costs. The reduction in
accounts receivable was primarily related to lower selling prices
and a decrease in days sales outstanding.
We may elect to adjust our operating activities as there are
changes in the conditions in our construction end-markets, which
could materially impact our cash requirements. While a downturn
in the level of construction activity affects sales to our customers,
it generally reduces our working capital requirements.
17
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Investing Activities
Investing activities used $23.2 million of cash in 2020 primarily due
to the STM Acquisition ($18.4 million) and capital expenditures
($7.1 million) partially offset by the receipt of proceeds from the
sale of assets held for sale ($2.2 million). Investing activities
used $9.6 million in 2019 primarily due to $10.5 million of capital
expenditures offset by $1.2 million of insurance proceeds related
to an insurance claim at our Dayton, Texas facility. Capital
expenditures for both years focused on cost and productivity
improvement initiatives in addition to recurring maintenance
requirements. Our investing activities are largely discretionary,
providing us with the ability to significantly curtail outlays should
future business conditions warrant that such actions be taken.
Financing Activities
Financing activities used $2.5 million of cash in 2020 and $2.8 million of cash in 2019. In 2020, $2.3 million of cash was used for
dividend payments. In 2019, $2.3 million of cash was used for dividend payments and $263,000 for financing costs associated with
the amendment of our revolving credit facility.
Cash Management
Our cash is principally concentrated at one financial institution, which at times exceeds federally insured limits. We invest excess cash
primarily in money market funds, which are highly liquid securities that bear minimal risk.
Credit Facility
We have a $100.0 million revolving credit facility (the “Credit Facility”)
that is used to supplement our operating cash flow and fund
our working capital, capital expenditure, general corporate and
growth requirements. In May 2019, we entered into a new credit
agreement, which amended and restated in its entirety the previous
agreement pertaining to the revolving credit facility that had been in
effect since June 2010. The new credit agreement, among other
changes, extended the maturity date of the Credit Facility from May
13, 2020 to May 15, 2024 and provided for an accordion feature
whereby its size may be increased by up to $50.0 million, subject to
our lender’s approval. Advances under the Credit Facility are limited
to the lesser of the revolving loan commitment amount (currently
$100.0 million) or a borrowing base amount that is calculated
based upon a percentage of eligible receivables and inventories.
As of October 3, 2020, no borrowings were outstanding on the
Credit Facility, $90.0 million of borrowing capacity was available
and outstanding letters of credit totaled $1.5 million (see Note 8 to
the consolidated financial statements). As of September 28, 2019,
there were no borrowings outstanding on the Credit Facility.
We believe that, in the absence of significant unanticipated
cash demands, cash and cash equivalents, cash generated
Impact of Inflation
We are subject to inflationary risks arising from fluctuations in
the market prices for our primary raw material, hot-rolled carbon
steel wire rod, and, to a much lesser extent, freight, energy and
other consumables that are used in our manufacturing processes.
We have generally been able to adjust our selling prices to pass
through increases in these costs or offset them through various
cost reduction and productivity improvement initiatives. However,
our ability to raise our selling prices depends on market conditions
and competitive dynamics, and there may be periods during
which we are unable to fully recover increases in our costs.
18
by operating activities and the borrowing availability provided
under the Credit Facility will be sufficient to satisfy our expected
requirements for working capital, capital expenditures, dividends
and share repurchases, if any. We also expect to have access
to the amounts available under our Credit Facility as required.
However, should we experience future reductions in our operating
cash flows due to weakening conditions in our construction end-
markets and reduced demand from our customers, we may need
to curtail capital and operating expenditures, delay or restrict
share repurchases, cease dividend payments and/or realign our
working capital requirements.
Should we determine, at any time, that we require additional
short-term liquidity, we would evaluate the alternative sources of
financing that were potentially available to provide such funding.
There can be no assurance that any such financing, if pursued,
would be obtained, or if obtained, would be adequate or on terms
acceptable to us. However, we believe that our strong balance
sheet, flexible capital structure and borrowing capacity available
to us under our Credit Facility position us to meet our anticipated
liquidity requirements for the foreseeable future.
In 2020, selling prices for our products declined in response to
low-priced import competition, which negatively impacted our
financial results. During 2019, the year-over-year escalation in
our raw material costs exceeded the increase in our selling prices
due to competitive pricing pressures. The timing and magnitude
of any future increases in raw material costs and the impact on
selling prices for our products is uncertain at this time.
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Off-Balance Sheet Arrangements
We do not have any material transactions, arrangements,
obligations (including contingent obligations), or other relationships
with unconsolidated entities or other persons, as defined by
Item 303(a)(4) of Regulation S-K of the SEC, that have or are
reasonably likely to have a material current or future impact on
our financial condition, results of operations, liquidity, capital
expenditures, capital resources or significant components of
revenues or expenses.
Contractual Obligations
Our contractual obligations and commitments at October 3, 2020 are as follows:
PAYMENTS DUE BY PERIOD
(In thousands)
Contractual obligations:
Total
Less Than
1 Year
1 – 3 Years
3 – 5 Years
More Than
5 Years
Raw material purchase commitments(1)
$
32,762 $
32,762 $
— $
— $
—
Supplemental employee retirement plan obligations
Trade letters of credit
Commitment fee on unused portion of credit facility
Other unconditional purchase obligations(2)
19,191
1,506
826
9,736
255
1,506
225
9,736
1,139
1,422
16,375
—
450
—
—
151
—
—
—
—
TOTAL
$ 64,021 $
44,484 $
1,589 $
1,573 $
16,375
(1) Non-cancelable purchase commitments for raw materials.
(2) Contractual commitments for capital expenditures.
Outlook
Looking ahead to 2021, the impact of COVID-19 on the strength
and direction of the U.S. economic recovery remains a primary
risk to our business. As a result, we expect our financial results will
remain vulnerable to uncertain market conditions for our products.
While recent third-party forecasts for non-residential construction
spending indicate a bottoming or modest improvement from
trends earlier in the year, the sustainability of those trends into 2021
remains unclear. The impact on public infrastructure spending has
varied by state and region, and the prospect of future funding
support or constraints cannot be accurately predicted at this time.
In response to this lingering uncertainty, we will continue to
focus on those factors within our control: closely managing and
controlling our expenses, aligning our production schedules
with demand in a proactive manner to minimize cash operating
costs; pursuing further improvements in the productivity and
effectiveness of our manufacturing activities; and managing the
risk to our employees and operations.
Despite the economic uncertainties, we remain optimistic about
our key initiatives to drive growth in the business. Our success in
the ESM market in fiscal 2020 should position us for continued
growth in 2021. Additionally, the trade cases filed in 2020 alleging
illegal activity by importers in certain of our markets, which are
expected to be resolved in fiscal 2021, have progressed favorably
and we believe the facts supporting the cases are strong.
Finally, we will continue to pursue acquisitions opportunistically
in our existing businesses, much like our acquisition of STM in
March 2020, that expand our penetration of markets we currently
serve or expand our footprint.
The statements contained in this section are forward-looking
statements. See “Cautionary Note Regarding Forward-Looking
Statements” and “Risk Factors”.
19
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 7A Quantitative and Qualitative Disclosures About
Market Risk
Our cash flows and earnings are subject to fluctuations resulting
from changes in commodity prices, interest rates and foreign
exchange rates. We manage our exposure to these market risks
through internally established policies and procedures and, when
appropriate, through the use of derivative financial instruments.
We do not use financial instruments for trading purposes and
are not a party to any leveraged derivatives. We monitor our
underlying market risk exposures on an ongoing basis and believe
we can modify or adapt our hedging strategies as necessary.
Commodity Prices
We are subject to significant fluctuations in the cost and availability
of our primary raw material, hot-rolled carbon steel wire rod,
which we purchase from both domestic and foreign suppliers.
We negotiate quantities and pricing for both domestic and foreign
wire rod purchases for varying periods (most recently monthly
for domestic suppliers), depending upon market conditions, to
manage our exposure to price fluctuations and to ensure adequate
availability of material consistent with our requirements. We do not
use derivative commodity instruments to hedge our exposure to
changes in prices as such instruments are not currently available
for wire rod. Our ability to acquire wire rod from foreign sources
on favorable terms is impacted by fluctuations in foreign currency
exchange rates, foreign taxes, duties, tariffs, quotas and other
Interest Rates
trade actions. Although changes in our wire rod costs and selling
prices tend to be correlated, in weaker market environments, we
may be unable to fully recover increased wire rod costs, which
would reduce our earnings and cash flows. Additionally, when
raw material costs decline, our financial results may be negatively
impacted if the selling prices for our products decrease to an
even greater extent and if we are consuming higher cost material
from inventory. Based on our 2020 shipments and average wire
rod cost reflected in cost of sales, a 10% increase in the price of
wire rod would have resulted in a $28.3 million decrease in our
annual pre-tax earnings (assuming there was not a corresponding
change in our selling prices).
Although we did not have any balances outstanding on our Credit Facility as of October 3, 2020, future borrowings under the facility
are subject to a variable rate of interest and are sensitive to changes in interest rates.
Foreign Exchange Exposure
We have not typically hedged foreign currency exposures related
to transactions denominated in currencies other than U.S. dollars,
as such transactions have not been material historically. We will
occasionally hedge firm commitments for certain equipment
purchases that are denominated in foreign currencies. The
decision to hedge any such transactions is made by us on a
case-by-case basis. There were no forward contracts outstanding
as of October 3, 2020. During 2020, a 10% increase or decrease
in the value of the U.S. dollar relative to foreign currencies to which
we are typically exposed would not have had a material impact on
our financial position, results of operations or cash flows.
20
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART II
Item 8
Financial Statements and Supplementary Data
Item 8 Financial Statements and Supplementary Data
PART II
(a) Financial Statements
Consolidated Statements of Operations for the years ended October 3, 2020,
September 28, 2019 and September 29, 2018
Consolidated Statements of Comprehensive Income for the years ended October 3, 2020,
September 28, 2019 and September 29, 2018
Consolidated Balance Sheets as of October 3, 2020 and September 28, 2019
Consolidated Statements of Shareholders’ Equity for the years ended October 3, 2020,
September 28, 2019 and September 29, 2018
Consolidated Statements of Cash Flows for the years ended October 3, 2020,
September 28, 2019 and September 29, 2018
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts for the years ended October 3, 2020,
September 28, 2019 and September 29, 2018
(b) Supplementary Data
Selected quarterly financial data for 2020 and 2019 is as follows:
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
22
23
24
25
26
27
44
45
(In thousands, except per share amounts)
December 28
March 28
June 27
October 3
Quarter Ended
2020
Operating results:
Net sales
Gross profit
Net earnings
Net earnings per share:
Basic
Diluted
2019
Operating results:
Net sales
Gross profit
Net earnings (loss)
Net earnings (loss) per share:
Basic
Diluted
$
97,569
$
114,859
$
121,959
$
138,231
6,237
555
0.03
0.03
15,283
4,364
0.23
0.23
14,805
6,664
0.35
0.34
19,462
7,426
0.38
0.38
December 29
March 30
June 29
September 28
Quarter Ended
$
104,110
$
111,948
$
126,252
$
113,403
10,976
4,126
0.21
0.21
7,021
1,049
0.05
0.05
8,236
2,190
0.11
0.11
3,828
(1,767)
(0.09)
(0.09)
21
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Insteel Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
October 3, 2020 September 28, 2019 September 29, 2018
Year Ended
Net sales
Cost of sales
Gross profit
Selling, general and administrative expense
Restructuring charges, net
Acquisition costs
Other expense (income), net
Interest expense
Interest income
Earnings before income taxes
Income taxes
NET EARNINGS
Net earnings per share:
Basic
Diluted
Cash dividends declared
Weighted average shares outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
$
472,618 $
455,713 $
416,831
55,787
31,348
1,695
195
(1,254)
106
(473)
24,170
5,161
425,652
30,061
24,504
—
—
(1,773)
168
(293)
7,455
1,857
$
$
19,009 $
5,598 $
0.99 $
0.98
0.12
0.29 $
0.29
0.12
19,278
19,383
19,243
19,340
453,217
382,410
70,807
28,304
—
—
274
114
(515)
42,630
6,364
36,266
1.90
1.88
1.12
19,079
19,277
22
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com
Item 8 Financial Statements and Supplementary Data
PART II
Insteel Industries, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
Net earnings
Adjustment to defined benefit plan liability, net of
income taxes of ($93), $239 and ($44), respectively
Other comprehensive (loss) income
COMPREHENSIVE INCOME
See accompanying notes to consolidated financial statements.
$
$
Year Ended
October 3, 2020 September 28, 2019
September 29, 2018
19,009 $
5,598 $
36,266
292
292
(754)
(754)
139
139
19,301 $
4,844 $
36,405
23
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Insteel Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share amounts)
October 3, 2020
September 28, 2019
ASSETS:
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Intangibles, net
Goodwill
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable
Accrued expenses
Total current liabilities
Other liabilities
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value
Authorized shares: 1,000
None issued
Common stock, $1 stated value
Authorized shares: 50,000
Issued and outstanding shares: 2020, 19,304; 2019, 19,261
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
$
68,688
$
53,817
68,963
5,570
197,038
101,392
8,567
9,745
21,160
337,902 $
38,961
$
14,717
53,678
19,421
$
$
38,181
44,182
70,851
7,370
160,584
104,960
8,610
8,293
10,562
293,009
21,595
6,818
28,413
18,579
—
—
19,304
19,261
76,387
171,068
(1,956)
264,803
74,632
154,372
(2,248)
246,017
293,009
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
337,902 $
See accompanying notes to consolidated financial statements.
24
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 8 Financial Statements and Supplementary Data
PART II
Insteel Industries, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
Total
Shareholders’
Equity
223,376
36,266
139
2,081
—
2,078
(In thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
69,817 $ 135,851 $
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)(1)
139
(942)
(300)
36,266
19,223
19,223
72,852
(1,333) $
143
39
143
39
19,041 $ 19,041 $
1,938
(39)
2,078
300
(21,333)
151,084
5,598
Balance at September 30, 2017
Net earnings
Other comprehensive income(1)
Stock options exercised
Vesting of restricted stock units
Compensation expense associated with
stock-based plans
Restricted stock units and stock options
surrendered for withholding taxes payable
Reclassification of stranded tax effects
Cash dividends declared
Balance at September 29, 2018
Net earnings
Other comprehensive loss(1)
Vesting of restricted stock units
Compensation expense associated with
stock-based plans
Restricted stock units and stock options
surrendered for withholding taxes payable
Cash dividends declared
Balance at September 28, 2019
Net earnings
Other comprehensive income(1)
Vesting of restricted stock units
Compensation expense associated with
stock-based plans
Restricted stock units and stock options
surrendered for withholding taxes payable
Cash dividends declared
BALANCE AT OCTOBER 3, 2020
(1) Activity within accumulated other comprehensive income (loss) is reported net of related income taxes: 2018 ($44), 2019 $239 and 2020 ($93).
See accompanying notes to consolidated financial statements.
19,304 $ 19,304 $ 76,387 $ 171,068 $
(2,310)
154,372
19,009
(43)
2,028
(38)
2,057
(1,956) $
19,261
74,632
19,261
(2,248)
(1,494)
(2,313)
(230)
(239)
292
(754)
38
43
38
43
(942)
—
(21,333)
241,665
5,598
(754)
—
2,057
(239)
(2,310)
246,017
19,009
292
—
2,028
(230)
(2,313)
264,803
25
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Insteel Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
October 3, 2020
September 28, 2019
September 29, 2018
Year Ended
$
19,009 $
5,598 $
36,266
(In thousands)
Cash Flows From Operating Activities:
Net earnings
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization
Amortization of capitalized financing costs
Stock-based compensation expense
Deferred income taxes
Asset impairment charges
Loss (gain) on sale and disposition of property, plant
and equipment
Increase in cash surrender value of life insurance
policies over premiums paid
Gain from life insurance proceeds
Net changes in assets and liabilities (net of assets and
liabilities acquired):
Accounts receivable, net
Inventories
Accounts payable and accrued expenses
Other changes
Total adjustments
NET CASH PROVIDED BY OPERATING ACTIVITIES
Cash Flows From Investing Activities:
Acquisition of business
Capital expenditures
Proceeds from property insurance
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 sale of assets held for sale
Proceeds from life insurance claims
NET CASH USED FOR INVESTING ACTIVITIES
Cash Flows From Financing Activities:
Proceeds from long-term debt
Principal payments on long-term debt
Cash dividends paid
Cash received from exercise of stock options
Payment of employee tax withholdings related to net
share transactions
Financing costs
NET CASH USED FOR FINANCING ACTIVITIES
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
CASH AND CASH EQUIVALENTS AT END OF PERIOD $
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest
Income taxes, net
$
Non-cash investing and financing activities:
Purchases of property, plant and equipment in
accounts payable
Restricted stock units and stock options surrendered
for withholding taxes payable
Payable related to holdback for business acquired
See accompanying notes to consolidated financial statements.
26
14,255
66
2,028
(424)
343
(1,114)
(243)
(200)
(5,806)
5,060
20,159
3,091
37,215
56,224
(18,356)
(7,114)
—
40
260
(390)
2,186
200
(23,174)
322
(322)
(2,313)
—
(230)
—
(2,543)
30,507
38,181
68,688 $
— $
1,919
769
230
1,000
13,553
65
2,057
1,798
—
(1,688)
(187)
—
7,302
23,306
(42,592)
(2,604)
1,010
6,608
—
(10,512)
1,192
19
67
(322)
—
—
(9,556)
44,333
(44,333)
(2,310)
—
(239)
(263)
(2,812)
(5,760)
43,941
38,181 $
49 $
1,743
377
239
—
12,818
65
2,078
(2,807)
—
381
(553)
—
(11,200)
(12,304)
28,234
991
17,703
53,969
(3,300)
(18,449)
—
—
165
(355)
—
—
(21,939)
372
(372)
(21,333)
2,081
(942)
—
(20,194)
11,836
32,105
43,941
—
7,777
967
942
—
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 8 Financial Statements and Supplementary Data
PART II
Insteel Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended October 3, 2020, September 28, 2019 and September 29, 2018
Note 1 Description of Business
Insteel Industries, Inc. (“we,” “us,” “our,” “Insteel” or “the
Company”) is the nation’s largest manufacturer of steel wire
reinforcing products for concrete construction applications. Insteel
is the parent holding company for two wholly-owned subsidiaries,
Insteel Wire Products Company (“IWP”), an operating subsidiary,
and Intercontinental Metals Corporation, an inactive subsidiary.
We manufacture and market prestressed concrete strand (“PC
strand”) and welded wire reinforcement (“WWR”), including
engineered structural mesh, concrete pipe reinforcement and
standard welded wire reinforcement. Our products are primarily
sold to manufacturers of concrete products and, to a lesser
extent, distributors, rebar fabricators and contractors. We sell
our products nationwide across the U.S. and, to a much lesser
extent, into Canada, Mexico, and Central and South America.
On March 16, 2020, we, through our wholly-owned subsidiary,
IWP, purchased substantially all of the assets of Strand-Tech
Manufacturing, Inc. (“STM”) (see Note 5 to the consolidated
financial statements).
We have evaluated all subsequent events that occurred after the
balance sheet date through the time of filing this Annual Report on
Form 10-K and concluded there were no events or transactions
during this period that required additional recognition or disclosure
in our consolidated financial statements.
Note 2 Summary of Significant Accounting Policies
Fiscal year
Concentration of credit risk
Our fiscal year is the 52 or 53 weeks ending on the Saturday
closest to September 30. Fiscal year 2020 was a 53-week
period, and fiscal years 2019 and 2018 were 52-week periods.
All references to years relate to fiscal years rather than calendar
years.
Principles of consolidation
The consolidated financial statements include the accounts
of Insteel and our subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(“U.S.” and such accounting principles, “GAAP”) requires us
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
There is no assurance that actual results will not differ from these
estimates.
Cash equivalents
We consider all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Financial instruments that subject us to concentrations of credit
risk consist principally of cash and cash equivalents and trade
accounts receivable. Our cash is principally concentrated at one
financial institution, which at times exceeds federally insured limits.
We are exposed to credit risk in the event of default by institutions
in which our cash and cash equivalents are held and by customers
to the extent of the amounts recorded on the balance sheet. We
invest excess cash primarily in money market funds, which are
highly liquid securities.
The majority of our accounts receivable are due from customers
that are located in the U.S. and are generally not secured by
collateral depending upon the creditworthiness of the account.
We provide an allowance for doubtful accounts based upon our
assessment of the credit risk of specific customers, historical
trends and other information. We write off accounts receivable
when they become uncollectible. There is no disproportionate
concentration of credit risk.
Stock-based compensation
We account for stock-based compensation in accordance with
the fair value recognition provisions of Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 718, Compensation – Stock Compensation, which
requires stock-based compensation expense to be recognized in
net earnings based on the fair value of the award on the date of
the grant. We account for forfeitures as they occur. We determine
27
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
the fair value of stock options issued by using a Monte Carlo
valuation model at the grant date, which considers a range of
assumptions including the expected term, volatility, dividend yield
and risk-free interest rate.
Employee benefit plan
We account for our supplemental retirement benefit agreements
(each, a “SRBA”) in accordance with ASC Topic 715,
Compensation - Retirement Benefits. Under the provisions of ASC
Topic 715, we recognize net periodic pension cost and value
liabilities based on certain actuarial assumptions, principally the
assumed discount rate.
The discount rate we utilize for determining net periodic pension
cost and the related benefit obligation for the SRBAs is based,
in part, on current interest rates earned on long-term bonds that
receive one of the two highest ratings assigned by recognized
rating agencies. Our discount rate assumptions are adjusted
as of each valuation date to reflect current interest rates on
such long-term bonds. The discount rate is used to determine
the actuarial present value of the benefit obligations as of
the valuation date as well as the interest component of the
net periodic pension cost for the following year. We currently
expect net periodic pension cost for 2021 to be $843,000 for
the SRBAs. Cash contributions to the SRBAs during 2021 are
expected to be $255,000.
The assumed discount rate is reevaluated annually. A reduction
in the assumed discount rate generally results in an actuarial
loss, as the actuarially-determined present value of estimated
future benefit payments will increase. Conversely, an increase in
the assumed discount rate generally results in an actuarial gain.
However, any actuarial gains generated in future periods reduce
the negative amortization effect of any cumulative unamortized
actuarial losses, while any actuarial losses generated in future
periods reduce the favorable amortization effect of any cumulative
unamortized actuarial gains.
The projected benefit obligations and net periodic pension
cost for the SRBAs are based in part on expected increases in
future compensation levels. Our assumption for the expected
increase in future compensation levels is based upon our
average historical experience and our intentions regarding future
compensation increases, which generally approximates average
long-term inflation rates. A 0.25% decrease in the assumed
discount rate for our SRBAs would have increased our projected
and accumulated benefit obligations as of October 3, 2020 by
approximately $320,000 and $277,000, respectively, and our
expected net periodic pension cost for 2021 by approximately
$35,000.
Revenue recognition
We recognize revenues when obligations under the terms of a
contract with our customers are satisfied, which generally occurs
when products are shipped and control is transferred. Revenue
is measured as the amount of consideration expected to be
received in exchange for our products.
Inventories
Inventories are valued at the lower of weighted average cost
(which approximates computation on a first-in, first-out basis)
and net realizable value. The valuation of inventory includes the
costs for material, labor and manufacturing overhead.
Property, plant and equipment
Property, plant and equipment are recorded at cost or fair market
value in the case of the assets acquired through acquisitions,
or otherwise at reduced values to the extent there have been
asset impairment write-downs. Expenditures for maintenance
and repairs are charged directly to expense when incurred, while
major improvements are capitalized. Depreciation is computed
for financial reporting purposes principally by use of the straight-
line method over the following estimated useful lives: machinery
and equipment, 3 - 15 years; buildings, 10 - 30 years; and
land improvements, 5 - 15 years. Depreciation expense was
approximately $13.2 million in 2020, $12.5 million in 2019 and
$11.6 million in 2018 and reflected in cost of sales and selling,
general and administrative expense (“SG&A expense”) in the
consolidated statements of operations. Capitalized software is
amortized over the shorter of the estimated useful life or 5 years
and reflected in SG&A expense. No interest costs were capitalized
in 2020, 2019 and 2018.
Goodwill
Goodwill is the excess of cost over the fair value of net assets
of businesses acquired. Goodwill is not amortized but is tested
annually for impairment and whenever events or circumstances
change that would make it more likely than not that an impairment
may have occurred. We perform our annual impairment analysis
as of the first day of the fourth quarter each year. The evaluation
of impairment involves comparing the current estimated fair value
of the reporting unit to its recorded value, including goodwill.
We perform a qualitative assessment to determine whether it
is more likely than not that the fair value of the reporting unit is
less than its carrying amount. It may be necessary to perform a
quantitative analysis where a discounted cash flow model is used
to determine the current estimated fair value of the reporting unit.
Key assumptions used to determine the fair value of the reporting
unit as part of our annual testing (and any required interim testing)
include: (a) expected cash flows for the five-year period following
the testing date; (b) an estimated terminal value using a terminal
year growth rate based on the growth prospects of the reporting
unit; (c) a discount rate based on our estimated after-tax weighted
average cost of capital; and (d) a probability-weighted scenario
approach by which varying cash flows are assigned to alternative
scenarios based on their likelihood of occurrence. In developing
these assumptions, we consider historical and anticipated
future results, general economic and market conditions, the
impact of planned business and operational strategies and all
available information at the time the fair value of the reporting
unit is estimated. Assumptions in estimating future cash flows are
subject to a high degree of judgment and complexity. Changes in
assumptions and estimates may affect the fair value of goodwill
and could result in impairment charges in future periods. Based
28
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 8 Financial Statements and Supplementary Data
PART II
on the results of our impairment analysis, no goodwill impairment
losses were recognized in the consolidated statements of
operations for 2020. Subsequent to the analysis, there have been
no events or circumstances that indicate any potential impairment
of goodwill.
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.
Long-lived assets
Income taxes
Long-lived assets include property, plant and equipment and
identifiable intangible assets with definite useful lives. Finite-lived
intangible assets are amortized over their estimated useful lives.
Our intangible assets consist of customer relationships, developed
technology and know-how, non-competition agreements and
trade names, and are being amortized on a straight-line basis over
their finite useful lives (see Note 7 to the consolidated financial
statements). We assess the impairment of long-lived assets
whenever events or changes in circumstances indicate that the
carrying value may not be fully recoverable. When we determine
that the carrying value of such assets may not be recoverable,
we measure recoverability based on the undiscounted cash flows
expected to be generated by the related asset or asset group. If
it is determined that an impairment loss has occurred, the loss is
recognized in the period in which it is incurred and is calculated
as the difference between the carrying value and the present value
of estimated future net cash flows or comparable market values.
During 2020, we recorded $0.3 million of impairment charges
related to long-lived assets resulting from the consolidation of
our PC strand operations with the closure of our Summerville,
South Carolina facility (see Note 5 to the consolidated financial
statements). There were no impairment losses in 2019 and 2018.
Income taxes are based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected
tax consequences of temporary differences between the tax bases
of assets and liabilities and their reported amounts. We assess
the need to establish a valuation allowance against deferred
tax assets to the extent we no longer believe it is more likely
than not that the tax assets will be fully realized. We recognize
uncertain tax positions when we have determined it is more likely
than not that a tax position will be sustained upon examination.
However, new information may become available, or applicable
laws or regulations may change, thereby resulting in a favorable
or unfavorable adjustment to amounts recorded.
Earnings per share
Basic earnings per share (“EPS”) are computed by dividing
earnings available to common shareholders by the weighted
average number of shares of common stock outstanding during
the period. Diluted EPS are computed by dividing earnings
available to common shareholders by the weighted average
number of shares of common stock and other dilutive equity
securities outstanding during the period. Securities that have the
effect of increasing EPS are considered to be antidilutive and are
not included in the computation of diluted EPS.
Note 3 Recent Accounting Pronouncements
Current Adoptions
In February 2016, the FASB issued Accounting Standard Update
(“ASU”) No. 2016-02 “Leases (Topic 842),” which requires lessees
to recognize a right-of-use asset and a lease liability on the
balance sheet for leases with terms greater than twelve months.
We adopted the new lease standard in the first quarter of 2020
using the modified retrospective method, which allows for the
recognition of a cumulative effect adjustment to the beginning
balance of retained earnings in the period of adoption without
adjusting the comparative periods prior to adoption. We elected
the package of practical expedients permitted under the new
lease standard, which among other things, allowed us to carry
forward historical lease classification. We also elected the short-
term lease exemption such that the new lease standard was
applied to leases greater than one year in duration. We did not
elect the hindsight practical expedient to determine the lease
term for existing leases. The adoption of the new lease standard
had a material effect on our consolidated financial statements
as it resulted in a $1.9 million increase in total assets and total
liabilities on our consolidated balance sheet as of September 29,
2019. The new lease standard did not have a material impact on
our consolidated earnings or cash flows.
In May 2017, the FASB issued ASU No. 2017-09 “Compensation –
Stock Compensation (Topic 718): Scope of Modification
Accounting.” ASU No. 2017-09 was issued to clarify and reduce
both (i) diversity in practice and (ii) cost and complexity when
applying its guidance to changes in the terms and conditions of a
share-based payment award. ASU No. 2017-09 became effective
for us in the first quarter of 2020. The adoption of this update did
not impact our consolidated financial statements.
Future Adoptions
In June 2016, the FASB issued ASU No. 2016-13 “Credit Losses
- Measurement of Credit Losses on Financial Instruments.” ASU
No. 2016-13 significantly changes how entities will measure credit
losses for most financial assets, including accounts and notes
receivables, by replacing today’s “incurred loss” approach with an
“expected loss” model under which allowances will be recognized
based on expected rather than incurred losses. ASU No. 2016-
13 will become effective for us in the first quarter of 2021. The
adoption of this update will not have a material impact on our
consolidated financial statements.
29
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
In January 2017, the FASB issued ASU No. 2017-04
“Intangibles—Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment,” which simplifies the accounting
for goodwill impairments by eliminating step 2 from the goodwill
impairment test. ASU No. 2017-04 will become effective for us
in the first quarter of 2021 and early adoption is permitted. The
adoption of this update will not have a material impact on our
consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12 “Simplifying
the Accounting for Income Taxes (Topic 740).” ASU No. 2019-12
removes certain exceptions to the general principles in ASC740
and also clarifies and amends existing guidance to provide for
more consistent application. ASU 2019-12 will become effective
for us in the first quarter of 2021. The adoption of this update
will not have a material impact on our consolidated financial
statements.
Note 4 Revenue Recognition
We recognize revenues when performance obligations under
the terms of a contract with our customers are satisfied, which
generally occurs when products are shipped and control is
transferred. We enter into contracts that pertain to products,
which are accounted for as separate performance obligations
and typically one year or less in duration. We do not exercise
significant judgment in determining the timing for the satisfaction
of performance obligations or the transaction price. Revenue
is measured as the amount of consideration expected to be
received in exchange for our products. We have elected to apply
the practical expedient provided for in ASU No. 2014-09 and not
disclose information regarding remaining performance obligations
that have original expected durations of one year or less.
Variable consideration that may affect the total transaction price,
including contractual discounts, rebates, returns and credits are
included in net sales. Estimates for variable consideration are
based on historical experience, anticipated performance and
management’s judgment and are updated as of each reporting
date. Shipping and related expenses associated with outbound
freight are accounted for as fulfillment costs and included in cost
of sales. We do not have significant financing components.
Note 5 Business Combination
On March 16, 2020, we purchased substantially all of the assets
of STM for an adjusted purchase price of $19.4 million, reflecting
certain post-closing adjustments (the “STM Acquisition”), which
included a $1.0 million holdback that is payable one year from
the acquisition date.
STM was a leading manufacturer of PC strand for concrete
construction applications. We acquired, among other assets,
STM’s accounts receivable, inventories, production equipment
Contract assets primarily relate to our rights to consideration for
products that are delivered but not billed as of the reporting date
and are reclassified to receivables when the customer is invoiced.
Contract liabilities primarily relate to performance obligations that
are to be satisfied in the future and arise when we bill the customer
in advance of shipments. Contract costs are not significant and
are recognized as incurred. Contract assets and liabilities were
not material as of October 3, 2020.
Accounts receivable includes amounts billed and currently due
from customers stated at their net estimated realizable value.
Customer payment terms are generally 30 days. We maintain
an allowance for doubtful accounts to provide for the estimated
amount of receivables that will not be collected, which is based
upon our assessment of customer creditworthiness, historical
payment experience and the age of outstanding receivables. Past-
due trade receivable balances are written off when our collection
efforts have been unsuccessful.
See Note 15 for the disaggregation of our net sales by product
line and geography.
and facility located in Summerville, South Carolina, and assumed
certain of its accounts payable and accrued liabilities. The STM
Acquisition serves to strengthen our competitive position as we
contend with increased low-priced import competition.
Following is a summary of our final allocation of the adjusted
purchase price to the fair values of the assets acquired and
liabilities assumed as of the acquisition date:
(In thousands)
Assets acquired:
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Intangibles
TOTAL ASSETS ACQUIRED
30
$
3,829
3,172
178
10,919
970
$
19,068
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com (In thousands)
Liabilities assumed:
Accounts payable
Accrued expenses
TOTAL LIABILITIES ASSUMED
Net assets acquired
Adjusted purchase price
GOODWILL
Item 8 Financial Statements and Supplementary Data
PART II
$
852
312
1,164
17,904
19,356
$
1,452
In connection with the STM Acquisition, we acquired certain
intangible assets including customer relationships, a trade name
and non-competition agreement. Goodwill associated with the
STM Acquisition, which is deductible for tax purposes, consists
largely of the synergies we expect to realize through the integration
of the acquired assets with our operations.
The STM Acquisition was accounted for as a business purchase
pursuant to ASC Topic 805, Business Combinations (“ASC 805”).
Under the provisions of ASC 805, acquisition and integration
costs are recorded as expenses in the period in which such costs
are incurred rather than included as components of consideration
transferred.
Following the STM Acquisition, net sales of the STM facility
in 2020 were approximately $3.0 million. The actual net sales
specifically attributable to the STM Acquisition, however, cannot
be quantified due to our integration efforts which involved the
reassignment of business between the former STM facility and our
existing PC strand facilities. As a result, we have determined that
the presentation of STM’s earnings for 2020 is impractical due to
the integration of STM’s operations following the STM Acquisition.
The following unaudited supplemental pro forma financial
information reflects our combined results of operations had
the STM Acquisition occurred at the beginning of 2019. The
pro forma information reflects certain adjustments related
to the STM Acquisition, including adjusted amortization and
depreciation expense based on the fair values of the assets
acquired. The pro forma information does not reflect any potential
operating efficiencies or cost savings that may result from the
STM Acquisition. Accordingly, this pro forma information is for
illustrative purposes and is not intended to represent the actual
results of operations of the combined company that would have
been achieved had the STM Acquisition occurred at the beginning
of 2019, nor is it intended to indicate future results of operations.
The pro forma combined results of operations for the current and
comparative prior year periods are as follows:
(In thousands)
Net sales
Earnings before income taxes
Net earnings
Restructuring charges
In connection with the STM acquisition, we elected to consolidate
our PC strand operations through the closure of the Summerville
facility and the redeployment of its equipment to our other three
Year Ended
October 3, 2020
September 28, 2019
$
485,121
$
487,467
22,628
16,950
6,085
4,542
PC strand production facilities located in Gallatin, Tennessee;
Houston, Texas; and Sanderson, Florida. Operations at the
Summerville facility ceased during the third quarter of 2020.
Following is a summary of the restructuring activity during 2020:
(In thousands)
2020
Employee
Separation
Costs
Equipment
Relocation
Costs
Facility
Closure
Costs
Asset
Impairments
Loss (Gain)
on Sale of
Equipment
Total
Restructuring charges, net
$
182
$
482
$
806
$
343
$
(118)
$
1,695
Cash payments
Non-cash charges
LIABILITY AS OF OCTOBER 3, 2020
$
(182)
—
—
$
(462)
—
20
(655)
—
—
(343 )
—
118
$
151
$
—
$
—
$
(1,299)
(225)
171
As of October 3, 2020, we recorded a liability of $171,000 for
restructuring liabilities in accrued expenses on our consolidated
balance sheet. We currently expect to incur approximately
$700,000 of additional restructuring charges for equipment
relocation and facility closure costs.
Acquisition costs
During 2020, we recorded $195,000 of acquisition-related costs
associated with the STM Acquisition for accounting, legal and
other professional fees.
31
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Note 6 Fair Value Measurements
Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The authoritative
guidance for fair value measurements establishes a three-level
fair value hierarchy that encourages an entity to maximize the
use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The three levels of inputs used
to measure fair value are as follows:
Level 1 - Quoted prices in active markets for identical assets or
liabilities.
Level 2 - Observable inputs other than quoted prices included
in Level 1, such as quoted prices for similar assets and liabilities
in active markets.
Level 3 - Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the assets
or liabilities, including certain pricing models, discounted cash
flow methodologies and similar techniques that use significant
unobservable inputs.
As of October 3, 2020 and September 28, 2019, we held financial assets that are required to be measured at fair value on a recurring
basis, which are summarized below:
(In thousands)
As of October 3, 2020:
Current assets:
Cash equivalents
Other assets:
Cash surrender value of life insurance policies
TOTAL
As of September 28, 2019:
Current assets:
Cash equivalents
Other assets:
Cash surrender value of life insurance policies
TOTAL
Cash equivalents, which include all highly liquid investments
with original maturities of three months or less, are classified as
Level 1 of the fair value hierarchy. The carrying amount of our
cash equivalents, which consist of investments in money market
funds, approximates fair value due to their short maturities. Cash
surrender value of life insurance policies are classified as Level
2. The fair value of the life insurance policies was determined
by the underwriting insurance company’s valuation models and
represents the guaranteed value we would receive upon surrender
of these policies as of the reporting date.
Quoted Prices
in Active Markets
(Level 1)
Observable
Inputs
(Level 2)
Total
$
$
$
$
72,234 $
72,234 $
—
10,584
—
10,584
82,818 $
72,234 $
10,584
37,826 $
37,826 $
—
10,211
—
10,211
48,037 $
37,826 $
10,211
As of October 3, 2020 and September 28, 2019, we had no
nonfinancial assets that are required to be measured at fair value
on a nonrecurring basis other than the assets and liabilities that
were acquired from STM at fair value in the current year (see Note
5 to the consolidated financial statements). The carrying amounts
of accounts receivable, accounts payable and accrued expenses
approximates fair value due to the short-term maturities of these
financial instruments.
32
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 8 Financial Statements and Supplementary Data
PART II
Note 7
Intangible Assets
The primary components of our intangible assets and the related accumulated amortization are as follows:
(In thousands)
As of October 3, 2020:
Customer relationships
Developed technology and know-how
Non-competition agreements
Trade name
As of September 28, 2019:
Customer relationships
Developed technology and know-how
Non-competition agreements
Trade name
Weighted-
Average Useful
Life (Years)
Gross
Accumulated
Amortization
Net Book
Value
17.1
20.0
5.0
2.7
16.9
20.0
5.0
4.0
$
9,870 $
(2,837)
$
1,800
1,860
250
(551)
(1,663)
(162)
7,033
1,249
197
88
$
$
13,780 $
(5,213)
$
8,567
9,070 $
(2,207)
$
1,800
1,800
140
(461)
(1,466)
(66)
6,863
1,339
334
74
$
12,810 $
(4,200)
$
8,610
Amortization expense for intangibles was $1.0 million in 2020,
$1.1 million in 2019 and $1.3 million in 2018. Amortization expense
for the next five years, assuming no change in the estimated
useful lives of identified intangible assets, is $910,000 in 2021,
$822,000 in 2022, $757,000 in 2023, $751,000 in 2024 and
$744,000 in 2025.
Note 8 Long-Term Debt
Revolving Credit Facility
We have a $100.0 million revolving credit facility (the “Credit
Facility”) that is used to supplement our operating cash flow and
fund our working capital, capital expenditure, general corporate
and growth requirements. In May 2019, we entered into a new
credit agreement, which amended and restated in its entirety the
previous agreement pertaining to the revolving credit facility that
had been in effect since June 2010. The new credit agreement,
among other changes, extended the maturity date of the Credit
Facility from May 13, 2020 to May 15, 2024 and provided for an
accordion feature whereby its size may be increased by up to
$50.0 million, subject to our lender’s approval. Advances under
the Credit Facility are limited to the lesser of the revolving loan
commitment amount (currently $100.0 million) or a borrowing
base amount that is calculated based upon a percentage of
eligible receivables and inventories. As of October 3, 2020, no
borrowings were outstanding on the Credit Facility, $90.0 million
of borrowing capacity was available and outstanding letters of
credit totaled $1.5 million. As of September 28, 2019, there were
no borrowings outstanding on the Credit Facility.
Interest rates on the Credit Facility are based upon (1) an index
rate that is established at the highest of the prime rate, 0.50%
plus the federal funds rate or the LIBOR rate plus the excess
of the then-applicable margin for LIBOR loans over the then-
applicable margin for index rate loans, or (2) at our election, a
LIBOR rate, plus in either case, an applicable interest rate margin.
The applicable interest rate margins are adjusted on a quarterly
basis based upon the amount of excess availability on the Credit
Facility within the range of 0.25% to 0.50% for index rate loans
and 1.25% to 1.50% for LIBOR loans. In addition, the applicable
interest rate margins would be increased by 2.00% upon the
occurrence of certain events of default provided for under the
terms of the Credit Facility. Based on our excess availability as
of October 3, 2020, the applicable interest rate margins on the
Credit Facility were 0.25% for index rate loans and 1.25% for
LIBOR loans.
Our ability to borrow available amounts under the Credit Facility
will be restricted or eliminated in the event of certain covenant
breaches, events of default or if we are unable to make certain
representations and warranties provided for under the terms of the
Credit Facility. We are required to maintain a fixed charge coverage
ratio of not less than 1.0 at the end of each fiscal quarter for the
twelve-month period then ended when the amount of liquidity on
the Credit Facility is less than $10.0 million. In addition, the terms
of the Credit Facility restrict our ability to, among other things:
engage in certain business combinations or divestitures; make
investments in or loans to third parties, unless certain conditions
are met with respect to such investments or loans; pay cash
dividends or repurchase shares of our stock subject to certain
minimum borrowing availability requirements; incur or assume
indebtedness; issue securities; enter into certain transactions
with our affiliates; or permit liens to encumber our property and
assets. The terms of the Credit Facility also provide that an event
of default will occur upon the occurrence of, among other things:
defaults or breaches under the loan documents, subject in certain
33
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
cases to cure periods; defaults or breaches by us or any of our
subsidiaries under any agreement resulting in the acceleration
of amounts above certain thresholds or payment defaults above
certain thresholds; certain events of bankruptcy or insolvency;
certain entries of judgment against us or any of our subsidiaries,
which are not covered by insurance; or a change of control. As of
October 3, 2020, we were in compliance with all of the financial
and negative covenants under the Credit Facility and there have
not been any events of default.
Amortization of capitalized financing costs associated with the
Credit Facility was $66,000 in 2020, and $65,000 in 2019 and
2018. We expect the amortization of capitalized financing costs
to approximate the following amounts for the next five fiscal years:
Fiscal year
In thousands
2021
2022
2023
2024
$
65
65
65
41
Note 9 Stock-Based Compensation
Under our equity incentive plan, employees and directors may be granted stock options, restricted stock, restricted stock units and
performance awards. Effective February 11, 2020, our shareholders approved an amendment to the 2015 Equity Incentive Plan of
Insteel Industries, Inc. (the “2015 Plan”), which authorizes up to an additional 750,000 shares of our common stock for future grants
under the plan and expires on February 17, 2025. As of October 3, 2020, there were 738,000 shares of our common stock available
for future grants under the 2015 Plan, which is our only active equity incentive plan.
Stock option awards
Under our equity incentive plan, employees and directors may be granted options to purchase shares of common stock at the fair
market value on the date of the grant. Options granted under the plan generally vest over three years and expire ten years from the
date of the grant. Compensation expense associated with stock options was $810,000 in 2020, $889,000 in 2019 and $906,000 in
2018. As of October 3, 2020, there was $367,000 of unrecognized compensation cost related to unvested options which is expected
to be recognized over a weighted average period of 1.69 years.
The fair value of each option award granted is estimated on the date of grant using a Monte Carlo valuation model. The weighted-average
estimated fair values of stock options granted during 2020, 2019 and 2018 were $8.05, $7.15 and $12.06 per share, respectively,
based on the following weighted-average assumptions:
Expected term (in years)
Risk-free interest rate
Expected volatility
Expected dividend yield
October 3, 2020
September 28, 2019
September 29, 2018
Year Ended
4.81
2.75%
47.18%
0.59%
4.59
2.03%
42.79%
0.56%
4.79
2.71%
37.32%
0.37%
The assumptions utilized in the Monte Carlo valuation model are evaluated and revised, as necessary, to reflect market conditions
and actual historical experience. The expected term for options was based on the results of a Monte Carlo simulation model, using
the model’s estimated fair value as an input to the Black-Scholes-Merton model, and then solving for the expected term. The risk-free
interest rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of the
grant. The expected volatility was derived using a term structure based on historical volatility and the volatility implied by exchange-
traded options on our common stock. The dividend yield was calculated based on our annual dividend as of the option grant date.
34
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 8 Financial Statements and Supplementary Data
PART II
The following table summarizes stock option activity:
Exercise Price
Per Share
(Share amounts in thousands)
Options
Outstanding
Range
Weighted
Average
Contractual Term -
Weighted Average
Outstanding at September 30, 2017
392
$9.16 - $37.06
$ 23.40
Granted
Exercised
Forfeited
Outstanding at September 29, 2018
Granted
Exercised
Outstanding at September 28, 2019
Granted
Forfeited
77
29.69 - 41.85
(196)
9.16 - 37.06
(9)
23.95 - 37.06
264
129
10.23 - 41.85
18.25 - 21.57
(5)
18.05 - 26.75
388
121
(27)
10.23 - 41.85
19.86 - 22.09
18.05 - 41.85
OUTSTANDING AT OCTOBER 3, 2020
482
10.23 - 41.85
Vested and anticipated to vest in the future at
October 3, 2020
Exercisable at October 3, 2020
477
283
34.84
19.68
29.88
29.25
19.74
23.95
26.16
21.08
25.88
24.90
24.95
6.50 years
6.47 years
26.99
4.69 years
Aggregate
Intrinsic Value
(in thousands)
$
3,866
21
160
159
133
Stock option exercises include “net exercises” for which the optionee received shares of common stock equal to the intrinsic value of
the options (fair market value of common stock on the date of exercise less exercise price) reduced by any applicable withholding taxes.
Restricted stock units
Restricted stock units (“RSUs”) granted under our equity incentive plan are valued based upon the fair market value on the date of
the grant and provide for a dividend equivalent payment which is included in compensation expense. The vesting period for RSUs is
generally one year from the date of the grant for RSUs granted to directors and three years from the date of the grant for RSUs granted
to employees. RSUs do not have voting rights. RSU grants and compensation expense are as follows:
(In thousands)
Restricted stock unit grants:
Units
Market value
Compensation expense
October 3, 2020
September 28, 2019
September 29, 2018
Year Ended
68
61
$
1,444
$
1,225
$
1,218
1,168
35
1,175
1,172
As of October 3, 2020, there was $589,000 of unrecognized compensation cost related to unvested RSUs which is expected to be
recognized over a weighted average period of 1.86 years.
The following table summarizes RSU activity:
(Unit amounts in thousands)
Balance, September 30, 2017
Granted
Forfeited
Released
Balance, September 29, 2018
Granted
Released
Balance, September 28, 2019
Granted
Forfeited
Released
BALANCE, OCTOBER 3, 2020
Restricted
Stock Units
Outstanding
Weighted Average
Grant Date
Fair Value
128
$
35
(3)
(57)
103
61
(49)
115
68
(6)
(55)
122
25.92
33.52
29.60
22.26
30.40
20.18
27.64
26.16
21.29
25.49
27.07
23.07
35
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Note 10 Income Taxes
The components of the provision for income taxes are as follows:
(Dollars in thousands)
Provision for income taxes:
Current:
Federal
State
Deferred:
Federal
State
October 3, 2020
September 28, 2019
September 29, 2018
Year Ended
$
5,056
$
529
5,585
(288)
(136)
(424)
$
(126)
185
59
1,649
149
1,798
8,265
906
9,171
(2,862)
55
(2,807)
6,364
14.9 %
INCOME TAXES
EFFECTIVE INCOME TAX RATE
$
5,161
$
1,857
$
21.4 %
24.9 %
The reconciliation between income taxes computed at the federal statutory rate and the provision for income taxes is as follows:
Year Ended
(Dollars in thousands)
October 3, 2020
September 28, 2019
September 29, 2018
Provision for income taxes at federal statutory rate
$
5,076
21.0% $
1,566
21.0% $
10,444
24.5%
State income taxes, net of federal tax benefit
Stock-based compensation
Net operating loss carryback - CARES Act
Valuation allowance
Federal tax return true-up
Change in federal tax rate - Tax Cuts and Jobs Act
Qualified production activities deduction
Other, net
319
128
(223)
(50)
—
—
—
(89)
1.3
0.5
(0.9)
(0.2)
—
—
—
(0.3)
297
90
—
24
(142)
—
—
22
4.0
1.2
—
0.3
(1.9)
—
—
0.3
739
(634)
—
(18)
(147)
(3,307)
(832)
119
1.7
(1.5)
—
(0.0)
(0.3)
(7.8)
(2.0)
0.3
PROVISION FOR INCOME TAXES
$
5,161
21.4% $
1,857
24.9% $
6,364
14.9%
The components of deferred tax assets and liabilities are as follows:
(In thousands)
Deferred tax assets:
Defined benefit plans
Accrued expenses and asset reserves
Stock-based compensation
Operating lease liability
State net operating loss carryforwards and tax credits
Federal net operating loss carryforward
Valuation allowance
DEFERRED TAX ASSETS
Deferred tax liabilities:
Plant and equipment
Prepaid insurance
Right of use assets
Goodwill
DEFERRED TAX LIABILITIES
NET DEFERRED TAX LIABILITY
36
October 3, 2020
September 28, 2019
$
$
2,727
1,885
1,328
568
92
—
(207)
6,393
(10,766)
(1,217)
(566)
(412)
(12,961)
$
(6,568)
$
2,661
1,207
1,259
—
120
363
(257)
5,353
(10,625)
(1,311)
—
(317)
(12,253)
(6,900)
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 8 Financial Statements and Supplementary Data
PART II
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”)
was enacted, which, among other changes, reduced the federal
statutory corporate tax rate from 35% to 21% effective January
1, 2018. Since our fiscal year ends on the Saturday closest to
September 30 rather than the calendar year, we are subject to
IRS rules relating to transitional income tax rates. Based on these
rules, our federal statutory rate was 24.5% for 2018 and is 21%
for 2019 and beyond. We remeasured our deferred tax assets and
liabilities and adjusted our estimated annual federal income tax rate
to incorporate the lower corporate tax rate provided for under the
Act in our first quarter tax provision for 2018, which resulted in a
$3.3 million reduction in income tax expense for 2018.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security Act (“CARES Act”) was signed into law. The CARES Act
includes several changes impacting business, including, but not
limited to, enhanced business interest deductibility, net operating
loss (“NOL”) carryback provisions, payroll tax deferral provisions
and employee retention tax credits. We recorded a $223,000 tax
benefit in 2020 resulting from the NOL carryback provisions of the
CARES Act.
As of October 3, 2020 and September 28, 2019, we recorded
deferred tax liabilities (net of valuation allowances) of $6.6 million
and $6.9 million, respectively, in other liabilities on our consolidated
balance sheet. We have $2.5 million of state NOLs that begin to
expire in 2022, but principally expire between 2022 and 2035.
The realization of our deferred tax assets is entirely dependent
upon our ability to generate future taxable income in applicable
jurisdictions. GAAP requires that we periodically assess the need
to establish a reserve against our deferred tax assets to the extent
we no longer believe it is more likely than not that they will be fully
realized. As of October 3, 2020, we recorded a valuation allowance
of $207,000 pertaining to various state NOLs that were not expected
to be utilized. The valuation allowance is subject to periodic review
and adjustment based on changes in facts and circumstances
and would be reduced should we utilize the state NOLs and tax
credits against which an allowance had previously been provided or
determine that such utilization was more likely than not. The $50,000
decrease in the valuation allowance during 2020 is primarily due
to the utilization of state NOLs for which an allowance had been
recorded together with the expiration of state tax credits for which
an allowance had been previously recorded.
As of October 3, 2020, we had no material, known tax exposures
that required the establishment of contingency reserves for uncertain
tax positions.
We classify interest and penalties related to unrecognized tax
benefits as part of income tax expense. There were no interest
and penalties related to unrecognized tax benefits incurred during
2020, 2019 and 2018.
We file U.S. federal income tax returns as well as state and local
income tax returns in various jurisdictions. Federal and various state
tax returns filed subsequent to 2015 remain subject to examination.
Note 11 Employee Benefit Plans
Supplemental retirement benefit plan
We have SRBAs with certain of our employees (each, a
“Participant”). Under the SRBAs, if the Participant remains in
continuous service with us for a period of at least 30 years, we
will pay the Participant a supplemental retirement benefit for
the 15-year period following the Participant’s retirement equal
to 50% of the Participant’s highest average annual base salary
for five consecutive years in the 10-year period preceding the
Participant’s retirement. If the Participant retires prior to the later
of age 65 or the completion of 30 years of continuous service with
us, but has completed at least 10 years of continuous service,
the amount of the Participant’s supplemental retirement benefit
will be reduced by 1/360th for each month short of 30 years that
the Participant was employed by us.
The reconciliation of the projected benefit obligation, plan assets, funded status and amounts recognized for the SRBAs in our
consolidated balance sheets is as follows:
(In 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
October 3, 2020
September 28, 2019
September 29, 2018
Year Ended
$
$
$
$
11,278
$
9,749
$
338
334
(91)
(249)
11,610
249
(249)
—
$
$
$
297
384
1,133
(285)
11,278
285
(285)
—
$
$
$
9,389
310
345
(33)
(262)
9,749
262
(262)
—
37
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
(In thousands)
Reconciliation of funded status to net amount
recognized:
Funded status
NET AMOUNT RECOGNIZED
Amounts recognized in accumulated other
comprehensive loss:
Unrecognized net loss
NET AMOUNT RECOGNIZED
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss):
Net loss (gain)
Amortization of net loss
TOTAL RECOGNIZED IN OTHER COMPREHENSIVE
INCOME (LOSS)
October 3, 2020
September 28, 2019
September 29, 2018
Year Ended
$
$
$
$
$
$
(11,610)
(11,610)
2,574
2,574
(91)
(294)
(385)
$
$
$
$
$
$
(11,278)
(11,278)
2,958
2,958
1,133
(140)
993
$
$
$
$
$
$
(9,749)
(9,749)
1,966
1,966
(33)
(150)
(183)
Net periodic pension cost for the SRBAs includes the following components:
(In thousands)
Service cost
Interest cost
Amortization of net loss
NET PERIODIC PENSION COST
Year Ended
October 3, 2020
September 28, 2019
September 29, 2018
$
$
338
334
294
966
$
$
297
384
140
821
$
$
310
345
150
805
The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic pension cost during 2021
is $215,000.
The assumptions used in the valuation of the SRBAs are as follows:
Assumptions at year-end:
Discount rate
Rate of increase in compensation levels
Measurement Date
October 3, 2020 September 28, 2019 September 29, 2018
2.75%
3.00%
3.00%
3.00%
4.00%
3.00%
The assumed discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review
published market indices of high-quality debt securities, adjusted as appropriate for duration, and high-quality bond yield curves
applicable to the expected benefit payments of the SRBAs. The SRBAs expected rate of increase in compensation levels is based on
the anticipated increases in annual compensation.
The projected benefit payments under the SRBAs are as follows:
Fiscal year(s)
2021
2022
2023
2024
2025
2026 - 2030
38
$
In thousands
255
570
570
530
892
4,109
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 8 Financial Statements and Supplementary Data
PART II
Retirement savings plan
In 1996, we adopted the Retirement Savings Plan of Insteel
Industries, Inc. (the “Plan”) to provide retirement benefits and
stock ownership for our employees. The Plan is an amendment
and restatement of our Employee Stock Ownership Plan. As
allowed under Sections 401(a) and 401(k) of the Internal Revenue
Code, the Plan provides for tax-deferred salary deductions for
eligible employees.
The Plan allows for discretionary contributions to be made by
us as determined by the Board of Directors, which are allocated
among eligible participants based on their compensation relative
to the total compensation of all participants. Employees are
permitted to contribute up to 75% of their annual compensation to
the Plan, limited to a maximum annual amount as set periodically
by the Internal Revenue Code. We match employee contributions
up to 100% of the first 1% and 50% of the next 5% of eligible
compensation that is contributed by employees. Our contributions
to the Plan were $1.3 million in 2020, $1.2 million in 2019 and
$1.1 million in 2018.
Voluntary Employee Beneficiary
Associations (“VEBA”)
We have a VEBA which allows both us and our employees to
make contributions to pay for medical costs. Our contributions
to the VEBA were $6.0 million in 2020, $5.8 million in 2019
and $5.1 million in 2018. We are primarily self-insured for our
employee’s healthcare costs, carrying stop-loss insurance
coverage for individual claims in excess of $175,000 per benefit
plan year. Our self-insurance liabilities are based on the total
estimated costs of claims filed and claims incurred but not
reported, less amounts paid against such claims. We review
current and historical claims data in developing our estimates.
Note 12 Commitments and Contingencies
Insurance recoveries
We maintain general liability, business interruption and replacement
cost property insurance coverage on our facilities.
In August 2018, a transformer outage and electrical fire occurred
at our Dayton, Texas manufacturing facility, which resulted in
the temporary curtailment of operations. Alternative power
arrangements for the facility were subsequently made that allowed
operations to continue until permanent repairs were completed
during the first quarter of 2019. We reached a final settlement on the
property damage and business interruption claim with our insurance
carrier in the prior year. During 2019, we received $2.2 million of
insurance proceeds related to the claim that was partially applied
against the beginning receivable balance of $462,000 with the
remainder recorded in other income ($1.1 million), cost of sales
($645,000) and SG&A expense ($48,000) on the consolidated
statements of operations. During 2018, we received $183,000 of
insurance proceeds related to the claim and recorded a $462,000
receivable for the anticipated insurance proceeds associated with
the expenses incurred as of the end of the year.
In August 2017, operations at our manufacturing facility located
in Dayton, Texas were adversely affected by hurricane Harvey. We
reached a final settlement on the property damage and business
interruption claim with our insurance carrier in the first quarter of
2019. During 2019, we received $150,000 of proceeds related
to this claim of which $98,000 was recorded in other income
on the consolidated statements of operations. During 2018, we
received $439,000 of insurance proceeds related to the claim
and recorded a $52,000 receivable for the anticipated insurance
proceeds associated with the expenses that were incurred and
capital outlays required to replace property and equipment
damaged in the storm. The insurance proceeds attributable to
the additional expenses incurred were recorded in cost of sales
($439,000), SG&A expense ($26,000) and other income ($26,000)
on the consolidated statements of operations.
The insurance proceeds attributable to the property and
equipment damaged are reported in cash flows from investing
activities and all other insurance proceeds received are reported
in cash flows from operating activities on the consolidated
statements of cash flows.
Purchase commitments
As of October 3, 2020, we had $32.8 million in non-cancelable
purchase commitments for raw material extending as long
as approximately 100 days and $9.7 million of contractual
commitments for the purchase of certain equipment that had
not been fulfilled and are not reflected in our consolidated financial
statements.
Legal proceedings
We are involved in lawsuits, claims, investigations and proceedings,
including commercial, environmental and employment matters,
which arise in the ordinary course of business. We do not expect
the ultimate outcome or cost to resolve these matters will have
a material adverse effect on our financial position, results of
operations or cash flows.
Severance and change of control
agreements
We have entered into a severance agreement with our Chief
Executive Officer that provides him with certain termination
benefits in the event his employment with us is terminated without
cause. The initial term of the agreement was two years and it
automatically renews for successive one year terms unless we
or our Chief Executive Officer provide notice of termination as
specified in the agreement. In the event of termination of the Chief
Executive Officer’s employment without cause, this agreement
provides that he would receive termination benefits equal to
39
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
one and one-half times his annual base salary in effect on the
termination date and the continuation of health and welfare
benefits for eighteen months. In addition, all of his stock options
and restricted stock would vest immediately, and outplacement
services would be provided.
We have also entered into change in control agreements with
key members of management, including our executive officers,
which specify the terms of separation in the event that termination
of their employment followed a change in control. The initial
term of each agreement is two years and they automatically
renew for successive one year terms unless we or the executive
provide notice of termination as specified in the agreement. The
agreements do not provide assurances of continued employment
or specify the terms of an executive’s termination should one
occur in the absence of a change in control. The compensation
payable under the terms of these agreements differs between
the Chief Executive Officer and the other covered executives. In
the event of termination of the Chief Executive Officer within two
years of a change of control, he would receive severance benefits
equal to 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. In the event of such a termination
of the other key members of management, including our other
three executive officers, within two years of a change of control,
they would receive severance benefits equal to one times base
compensation, one times the average bonus for the prior three
years and the continuation of health and welfare benefits for one
year. In addition, for any covered executive that is terminated
within two years of a change of control, all of their stock options
and restricted stock would vest immediately, and outplacement
services would be provided.
Note 13 Leases
We have operating leases for certain equipment, office space
and vehicles. We determine whether an arrangement is a lease
at its inception if the contract conveys the right to control the
use of an identified asset for a period of time in exchange for
consideration. Leases with an initial term of twelve months or
less are not recorded on our consolidated balance sheet. Lease
expense for operating leases with original terms of more than
twelve months was $1.3 million in 2020, $1.6 million in 2019 and
$1.5 million in 2018.
Most of our leases include options to extend or terminate the
leases which are exercised at our sole discretion. As most of
our leases do not provide an implicit interest rate, we use our
incremental borrowing rate as of the commencement date
in determining the present value of lease payments, which
represents an estimate of the interest rate we would incur at the
lease commencement to borrow an amount equal to the lease
payments on a collateralized basis over the term.
Supplemental cash flow and non-cash information related to leases is as follows:
(In thousands)
Cash paid for operating leases included in operating cash flows
Right-of-use assets obtained in exchange for new lease obligations
Supplemental balance sheet information related to leases is as follows:
(In thousands)
Right-of-use assets:
Other assets
Lease liabilities:
Accrued expenses
Other liabilities
TOTAL OPERATING LEASE LIABILITIES
Year Ended
October 3, 2020
1,301
1,771
October 3, 2020
2,522
1,230
1,300
2,530
$
$
$
40
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com
As of October 3, 2020, our operating leases had a weighted average remaining lease term of 2.3 years and a weighted average
discount rate of 4.4%. Aggregate future operating lease payments as of October 3, 2020 are as follows:
Item 8 Financial Statements and Supplementary Data
PART II
(In thousands)
2021
2022
2023
2024
2025
Thereafter
TOTAL FUTURE OPERATING LEASE PAYMENTS
Less: imputed interest
PRESENT VALUE OF LEASE LIABILITIES
Note 14 Earnings Per Share
$
$
1,290
874
408
59
2
—
2,633
(103)
2,530
The computation of basic and diluted earnings per share attributable to common shareholders is as follows:
(In thousands, except per share amounts)
Net earnings
Basic weighted average shares outstanding
Dilutive effect of stock-based compensation
Diluted weighted average shares outstanding
Net earnings per share:
Basic
Diluted
October 3, 2020 September 28, 2019 September 29, 2018
Year Ended
$
$
19,009
$
5,598
$
19,278
105
19,383
19,243
97
19,340
0.99
$
0.98
0.29
$
0.29
36,266
19,079
198
19,277
1.90
1.88
Options and RSUs that were antidilutive and not included in the diluted EPS calculation amounted to 369,000 shares in 2020, 240,000
shares in 2019 and 83,000 shares in 2018.
Note 15 Business Segment Information
Our operations are entirely focused on the manufacture and marketing of steel wire reinforcing products for concrete construction
applications. Our concrete reinforcing products consist of two product lines: PC strand and WWR. Based on the criteria specified in
ASC Topic 280, Segment Reporting, we have one reportable segment.
Our net sales and long-lived assets (consisting of net property, plant and equipment, assets held for sale, the cash surrender value of
life insurance policies, right of use assets, goodwill and intangible assets) by geographic region are as follows:
(In thousands)
Net sales:
United States
Foreign
TOTAL
Long-lived assets:
United States
Foreign
TOTAL
October 3, 2020 September 28, 2019 September 29, 2018
Year Ended
$
$
$
$
470,420
$
454,373
$
2,198
1,340
451,418
1,799
472,618
$
455,713
$
453,217
140,588
$
132,074
$
133,913
—
—
—
140,588
$
132,074
$
133,913
41
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Our net sales by product line are as follows:
(In thousands)
Net sales:
Welded wire reinforcement
Prestressed concrete strand
TOTAL
October 3, 2020 September 28, 2019 September 29, 2018
Year Ended
$
$
294,129
$
290,423
$
178,489
165,290
472,618
$
455,713
$
273,658
179,559
453,217
There were no customers that accounted for 10% or more of our net sales in 2020, 2019 and 2018.
Note 16 Related Party Transactions
Sales to a company affiliated with one of our former directors amounted to $716,000 in 2019 and $699,000 in 2018. There were no
related party transactions in 2020.
Note 17 Other Financial Data
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 current assets:
Prepaid insurance
Income taxes receivable
Other
TOTAL
Other assets:
Cash surrender value of life insurance policies
Assets held for sale
Right-of-use assets
Capitalized financing costs, net
Other
TOTAL
Property, plant and equipment, net:
Land and land improvements
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
TOTAL
42
October 3, 2020
September 28, 2019
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
54,108
(291)
53,817
31,553
3,813
33,597
68,963
4,096
—
1,474
5,570
10,584
7,778
2,522
170
106
21,160
14,520
52,462
172,617
3,978
243,577
(142,185)
$
101,392
$
44,436
(254)
44,182
27,667
4,885
38,299
70,851
4,545
1,215
1,610
7,370
10,211
—
—
237
114
10,562
14,548
56,404
165,609
5,285
241,846
(136,886)
104,960
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com (In thousands)
Accrued expenses:
Salaries, wages and related expenses
Property taxes
Customer rebates
Operating lease liabilities
Income taxes
Holdback for business acquired
State sales and use taxes
Sales allowance reserves
Other
TOTAL
Other liabilities:
Deferred compensation
Deferred income taxes
Operating lease liabilities
TOTAL
Item 8 Financial Statements and Supplementary Data
PART II
October 3, 2020
September 28, 2019
$
$
$
$
4,971
1,726
1,581
1,230
1,201
1,000
544
—
2,464
14,717
11,553
6,568
1,300
19,421
$
$
$
$
2,463
1,820
1,381
—
—
—
136
544
474
6,818
11,679
6,900
—
18,579
Note 18 Product Warranties
Our products are used in applications which are subject to inherent
risks including performance deficiencies, personal injury, property
damage, environmental contamination or loss of production. We
warrant our products to meet certain specifications, and actual
or claimed deficiencies from these specifications may give rise
to claims. We do not maintain a reserve for warranties as the
historical claims have been immaterial. We maintain product
liability insurance coverage to minimize our exposure to such risks.
Note 19 Share Repurchases
On November 18, 2008, our Board of Directors approved a
share repurchase authorization to buy back up to $25.0 million
of our outstanding common stock (the “Authorization”). Under
the Authorization, repurchases may be made from time to time in
the open market or in privately negotiated transactions subject to
market conditions, applicable legal requirements and other factors.
We are not obligated to acquire any particular amount of common
stock and the program may be commenced or suspended at
any time at our discretion without prior notice. The Authorization
continues in effect until terminated by the Board of Directors. As
of October 3, 2020, there was $24.8 million remaining available
for future share repurchases under this Authorization. There were
no share repurchases during 2020, 2019 and 2018.
43
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Board of Directors and Shareholders
Insteel Industries, Inc.:
Opinion on the financial statements
Basis for opinion
We have audited the accompanying consolidated balance
sheets of Insteel Industries, Inc. (a North Carolina corporation)
and subsidiaries (the “Company”) as of October 3, 2020 and
September 28, 2019, the related consolidated statements of
operations, comprehensive income, changes in shareholders’
equity, and cash flows for each of the three years in the period
ended October 3, 2020, and the related notes and financial
statement schedule included under Item 15(a) (collectively referred
to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial
position of the Company as of October 3, 2020 and September
28, 2019 and the results of its operations and its cash flows for
each of the three years in the period ended of October 3, 2020,
in conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting
as of October 3, 2020, based on criteria established in the 2013
Internal Control— Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(“COSO”), and our report dated October 29, 2020 expressed an
unqualified opinion.
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Grant Thornton LLP
We have served as the Company’s auditor since fiscal 2002.
Charlotte, North Carolina
October 29, 2020
44
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 9A Controls and Procedures
PART II
Schedule II - Valuation and Qualifying Accounts
Years Ended October 3, 2020, September 28, 2019
and September 29, 2018
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In thousands)
Balance, beginning of year
Amounts charged to earnings
Write-offs, net of recoveries
BALANCE, END OF YEAR
Year Ended
October 3, 2020 September 28, 2019 September 29, 2018
$
$
254
$
295
$
65
(28)
(41)
—
291
$
254
$
201
100
(6)
295
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Item 9A Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have conducted an evaluation of the effectiveness of our
disclosure controls and procedures as of October 3, 2020. This
evaluation was conducted under the supervision and with the
participation of management, including our principal executive
officer and our principal financial officer. Based upon that evaluation,
our principal executive officer and our principal financial officer
concluded that our disclosure controls and procedures were
effective to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Commission’s rules
and forms. Furthermore, we concluded that our disclosure controls
and procedures were effective to ensure that such information is
accumulated and communicated to management, including our
principal executive officer and our principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control
over financial reporting is a process to provide reasonable
assurance regarding the reliability of our financial reporting and
the preparation of our financial statements for external purposes
in accordance with generally accepted accounting principles.
Internal control over financial reporting includes: (1) maintaining
records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of assets; (2) providing reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP,
and that receipts and expenditures are made only in accordance
with authorizations of management and directors; and (3)
providing reasonable assurance that unauthorized acquisition,
use or disposition of assets that could have a material effect on
financial statements would be prevented or detected on a timely
basis. Because of its inherent limitations, internal control over
financial reporting can only provide reasonable assurance that
a misstatement of financial statements would be prevented or
detected. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting based on the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway
Commission in the 2013 Internal Control – Integrated Framework.
Based on this assessment, our management concluded that our
internal control over financial reporting was effective as of October
3, 2020. During the quarter ended October 3, 2020, there were no
changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Our independent registered public accounting firm has issued
an audit report on the effectiveness of our internal control over
financial reporting as of October 3, 2020, which appears below.
45
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 9A Controls and Procedures
Report of Independent Registered Public Accounting Firm
Internal Control Over Financial Reporting
Board of Directors and Shareholders
Insteel Industries, Inc.:
Opinion on internal control over financial
reporting
We have audited the internal control over financial reporting
of Insteel Industries, Inc. (a North Carolina corporation) and
subsidiaries (the “Company”) as of October 3, 2020, based
on criteria established in the 2013 Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). In our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of October 3, 2020, based
on criteria established in the 2013 Internal Control—Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company
as of and for the year ended October 3, 2020, and our report
dated October 29, 2020 expressed an unqualified opinion on
those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Reports
on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and limitations of internal control
over financial reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ Grant Thornton LLP
Charlotte, North Carolina
October 29, 2020
46
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 13 Certain Relationships and Related Transactions, and Director Independence
PART III
Item 9B Other Information
None.
PART III
Item 10 Directors, Executive Officers and Corporate
Governance
The information called for by this item and not presented herein appears under the captions “Item Number One: Election of Directors”,
“Security Ownership of Directors and Executive Officers – Delinquent Section 16(a) Reports” and “Corporate Governance Guidelines
and Board Matters” in our Proxy Statement for the 2021 Annual Meeting of Shareholders and is incorporated herein by reference.
Information on executive officers appears under the caption “Executive Officers of the Company” in Part I of this report.
We have adopted a Code of Business Conduct that applies to all directors, officers and employees, which is available on our website
at https://insteelgcs.gcs-web.com/corporate-governance/governance-documents. To the extent permissible under applicable law (the
rules of the SEC or Nasdaq listing standards), we intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting
on our website any amendment or waiver to a provision of our Code of Business Conduct that requires disclosure under applicable
law (the rules of the SEC or Nasdaq listing standards). Our website does not constitute part of this Annual Report on Form 10-K.
Item 11 Executive Compensation
The information called for by this item appears under the captions “Executive Compensation”, “Compensation Committee Interlocks
and Insider Participation” and “Director Compensation” in our Proxy Statement for the 2021 Annual Meeting of Shareholders and is
incorporated herein by reference.
Item 12 Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
The information called for by this item appears under the captions “Security Ownership of Certain Beneficial Owners”, “Security
Ownership of Directors and Executive Officers” and “Equity Compensation Plan Information” in our Proxy Statement for the 2021
Annual Meeting of Shareholders and is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions,
and Director Independence
The information called for by this item appears under the captions “Certain Relationships and Related Person Transactions” and
“Corporate Governance Guidelines and Board Matters” in our Proxy Statement for the 2021 Annual Meeting of Shareholders and is
incorporated herein by reference.
47
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART III
Item 14 Principal Accounting Fees and Services
Item 14 Principal Accounting Fees and Services
The information called for by this item appears under the caption “Item Number Four: Ratification of the Appointment of Grant Thornton
LLP” in our Proxy Statement for the 2021 Annual Meeting of Shareholders and is incorporated herein by reference.
PART IV
Item 15 Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
The financial statements as set forth under Item 8 are filed as part of this report.
(a)(2) Financial Statement Schedules
Supplemental Schedule II - Valuation and Qualifying Accounts appears on page 45 of this report.
All other schedules have been omitted because they are either not required or not applicable.
(a)(3) Exhibits
The list of exhibits filed as part of this annual report is set forth on the Exhibit Index immediately preceding the signatures to this annual
report and is incorporated herein by reference.
(b) Exhibits
See Exhibit Index on pages 49 and 51.
(c) Financial Statement Schedules
See Item 15(a)(2) above.
Item 16 Form 10-K Summary
None.
48
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART IV
Exhibit Index
Exhibit Index
Exhibit
Number
Description
2.1
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6*
10.7*
Asset Purchase Agreement between Insteel Wire Products Company and American Spring Wire Corporation dated
as of August 9, 2014 (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed
on August 11, 2014).
Restated Articles of Incorporation for the Company (incorporated by reference to Exhibit 3.1 of the Company’s
Registration Statement on Form S-1 filed on May 2, 1985).
Articles of Amendment to the Restated Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 of the Company’s Current Report on Form 8-K dated May 3, 1988).
Articles of Amendment to the Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit
3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 1999 filed on May 14, 1999).
Articles of Amendment to the Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit
3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2010 filed on April 26, 2010).
Bylaws of the Company (as last amended December 19, 2016) (incorporated by reference to Exhibit 3.1 of the
Company’s Quarterly Report on Form 10-Q filed on January 19, 2017).
Rights Agreement dated April 27, 1999 by and between the Company and First Union National Bank, as Rights
Agent (incorporated by reference to Exhibit 99.1 of the Company’s Registration Statement on Form 8-A filed on
May 7, 1999).
Amendment No. 1 to the Rights Agreement dated as of April 25, 2009, between the Company and American Stock
Transfer & Trust Company, LLC (as Successor Rights Agent to First Union National Bank) (incorporated by reference
to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on April 27, 2009).
Amendment No. 2 to the Rights Agreement, dated as of November 15, 2018, by and between the Company
and American Stock Transfer & Trust Company, LLC (as Successor Rights Agent to First union National Bank)
(incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on November 19, 2018).
Description of Securities (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K
filed on October 25, 2019).
Second Amended and Restated Credit Agreement dated as of June 2, 2010, among Insteel Wire Products
Company, as Borrower; Insteel Industries, Inc., as a Credit Party; Intercontinental Metals Corporation, as a Credit
Party; and General Electric Capital Corporation, as Agent and Lender (incorporated by reference to Exhibit 10.4 of
the Company's Quarterly Report on Form 10-Q filed on April 26, 2011).
First Amendment to Second Amended and Restated Credit Agreement dated as of February 6, 2012, among Insteel
Wire Products Company, as Borrower; Insteel Industries, Inc. as a Credit Party; Intercontinental Metals Corporation,
as a Credit Party; and General Electric Capital Corporation, as Agent and Lender (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 6, 2012).
Second Amendment to Second Amended and Restated Credit Agreement dated as of May 13, 2015, among Insteel
Wire Products Company, as Borrower; Insteel Industries, Inc., as a Credit Party; Intercontinental Metals Corporation,
as a Credit Party; and General Electric Capital Corporation, as Agent and Lender (incorporated by reference to
Exhibit 10.3 to the Company's Current Report on Form 8-K filed on May 14, 2015).
Third Amended and Restated Credit Agreement dated as of May 15, 2019, among Insteel Wire Products Company,
as Borrower; Insteel Industries, Inc., as a Credit Party; and Wells Fargo Bank, as Agent and Lender (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 16, 2019).
Guaranty and Second Amended and Restated Security Agreement dated as of May 15, 2019, among Insteel
Industries, Inc., Insteel Wire Products Company, Intercontinental Metals Corporation, and Wells Fargo Bank, as
administrative agent (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed
May 16, 2019).
Form of Amended and Restated Change in Control Severance Agreements between the Company and each of H.O.
Woltz III and Michael C. Gazmarian, respectively, each dated November 14, 2006; each agreement is substantially
identical to the form in all material respects (incorporated by reference to Exhibit 99.1 of the Company's Current
Report on Form 8-K filed on November 16, 2006).
Form of Amended and Restated Severance Agreements with H.O. Woltz III and Michael C. Gazmarian dated
November 14, 2006 (each agreement is substantially identical to the form in all material respects) (incorporated by
reference to Exhibit 99.6 of the Company's Current Report on Form 8-K filed on November 16, 2006).
49
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART IV
Exhibit Index
Exhibit
Number
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
21.1
23.1
50
Description
Change in Control Severance Agreement between the Company and James F. Petelle dated November 14, 2006
(incorporated by reference to Exhibit 99.3 of the Company’s Current Report on Form 8-K filed on November 16, 2006).
Amended and Restated Retirement Security Agreement by and between the Company and H.O. Woltz III dated
September 19, 2007 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed
on September 21, 2007).
Form of Retirement Security Agreement between the Company and each of Michael C. Gazmarian, James F. Petelle
and Richard T. Wagner, respectively, dated September 19, 2007; each agreement is substantially identical to the
form in all material respects (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form
8-K filed on September 21, 2007).
Letter of Employment between the Company and James F. Petelle, dated August 23, 2006 (incorporated by
reference to Exhibit 99.7 of the Company’s Current Report on Form 8-K filed on November 16, 2006).
Relocation Proposal between the Company and James F. Petelle, dated August 23, 2006 (incorporated by reference
to Exhibit 10.20.1 of the Company's Annual Report on Form 10-K for the year ended October 3, 2009 filed on
November 9, 2009).
Addendum to Relocation Proposal between the Company and James F. Petelle, dated September 18, 2009
(incorporated by reference to Exhibit 10.20.2 of the Company's Annual Report on Form 10-K for the year ended
October 3, 2009 filed on November 9, 2009).
Amended and Restated Change in Control Severance Agreement between the Company and Richard T. Wagner
dated November 14, 2006 (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K
filed on February 15, 2007).
2005 Equity Incentive Plan of Insteel Industries, Inc., as amended on November 8, 2011 (incorporated by reference
to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 2011 filed on
November 10, 2011).
Summary of amendments to the Insteel Industries, Inc. Director Compensation Plan (incorporated by reference to
exhibit 10.23 of the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008 filed on
November 18, 2008).
Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement (incorporated by reference
to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 23, 2009).
Insteel Industries, Inc. Return on Capital Incentive Compensation Plan (as amended and restated effective August
12, 2008) (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on
February 13, 2009).
Form of Amendment to 2005 Equity Incentive Plan of Insteel Industries, Inc. dated August 20, 2013 (incorporated by
reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K filed on October 29, 2013).
2015 Equity Incentive Plan of Insteel Industries, Inc. (incorporated by reference to Exhibit 99 filed with the Company’s
Registration Statement on Form S-8, filed with the SEC on February 17, 2015 (File No. 333-202128)).
Form of Restricted Stock Unit Agreement under the 2015 Equity Incentive Plan of Insteel Industries, Inc.
(incorporated by reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K filed on October 25,
2019).
Form of Stock Option Agreement under the 2015 Equity Incentive Plan of Insteel Industries, Inc. (incorporated by
reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K filed on October 25, 2019).
2019 Declaration of Amendment to 2015 Equity Incentive Plan of Insteel Industries, Inc. (incorporated by reference
to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 filed on February 28, 2020 (File No. 333-
236744)).
Offer Letter to Mark A. Carano (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed on May 4, 2020).
Change in Control Severance Agreement between Insteel Industries Inc. and Mark A. Carano, dated May 27, 2020
(incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q filed on July 16, 2020).
Insteel Industries Inc. Retirement Security Agreement between Insteel Industries Inc. and Mark A. Carano, dated
May 27, 2020 (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q filed on
July 16, 2020).
List of Subsidiaries of Insteel Industries, Inc. at October 3, 2020.
Consent of Independent Registered Public Accounting Firm.
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART IV
Exhibit Index
Exhibit
Number
Description
31.1
31.2
32.1
32.2
101
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
The following financial information from our Annual Report on Form 10-K for the fiscal year ended October 3,
2020, filed on October 29, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language) includes:
(i) the Consolidated Statements of Operations for the years ended October 3, 2020, September 28, 2019 and
September 29, 2018, (ii) the Consolidated Statements of Comprehensive Income for the years ended October
3, 2020, September 28, 2019 and September 29, 2018, (iii) the Consolidated Balance Sheets as of October 3,
2020 and September 28, 2019, (iv) the Consolidated Statements of Cash Flows for the years ended October 3,
2020, September 28, 2019 and September 29, 2018, (v) the Consolidated Statements of Shareholders’ Equity as
of October 3, 2020, September 28, 2019 and September 29, 2018 and (vi) the Notes to Consolidated Financial
Statements.
104
The cover page from our Annual Report on Form 10-K for the year ended October 3, 2020, filed October 29, 2020,
formatted in iXBRL (included in Exhibit 101).
* Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 1-09929.
51
INSTEEL INDUSTRIES INC. ❘ Form 10-K
PART IV
Signatures
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
INSTEEL INDUSTRIES, INC.
Registrant
By:
/S/ MARK A. CARANO
Mark A. Carano
Senior Vice President, Chief Financial Officer and Treasurer
Date: October 29, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on October 29, 2020 below by the
following persons on behalf of the registrant and in the capacities indicated:
Name and Signature
Position(s)
President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
/s/ H. O. WOLTZ III
H. O. WOLTZ III
/s/ MARK A. CARANO
MARK A. CARANO
/s/ SCOT R. JAFROODI
SCOT R. JAFROODI
/s/ ABNEY S. BOXLEY III
ABNEY S. BOXLEY III
/s/ ANNE H. LLOYD
ANNE H. LLOYD
/s/ W. ALLEN ROGERS II
W. ALLEN ROGERS II
/s/ JON M. RUTH
JON M. RUTH
/s/ JOSEPH A. RUTKOWSKI
JOSEPH A. RUTKOWSKI
/s/ G. KENNEDY THOMPSON
G. KENNEDY THOMPSON
52
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART IV
Signatures
Exhibit 21.1 List of Subsidiaries of Insteel Industries, Inc.
The following is a list of our subsidiaries as of October 3, 2020, each of which is wholly-owned:
Name
Insteel Wire Products Company
Intercontinental Metals Corporation
State or Other Jurisdiction of Incorporation
North Carolina
North Carolina
Exhibit 23.1 Consent of Independent Registered Public Accounting Firm
We have issued our reports dated October 29, 2020 with respect to the consolidated financial statements, schedule, and internal control
over financial reporting included in the Annual Report of Insteel Industries, Inc. on Form 10-K for the year ended October 3, 2020.
We consent to the incorporation by reference of said reports in the Registration Statements of Insteel Industries, Inc. on Forms S-8
(File No. 333-236744, File No. 333-48011, File No. 333-30934, File No. 333-123325, File No. 333-179670 and File No. 333-202128).
/s/ Grant Thornton LLP
Charlotte, North Carolina
October 29, 2020
53
INSTEEL INDUSTRIES INC. ❘ Form 10-K This page intentionally left blank
This page intentionally left blank
This page intentionally left blank
Investor Relations
For information on Insteel, additional
copies of this report or other financial
information, contact Mark A. Carano, Senior
Vice President, Chief Financial Officer and
Treasurer, at our headquarters. You may also
visit the Investors section of our web site at
http://insteelgcs.gcs-web.com.
FORWARD-LOOKING STATEMENTS
Any statements in this 2020 Annual Report
that are not entirely historical in nature
constitute forward-looking statements within
the meaning of the safe harbor provisions of
the Private Securities Litigation Reform Act
of 1995. For important information regarding
forward-looking statements, please read
the “Cautionary Note Regarding Forward-
Looking Statements” on page 4 of Insteel’s
Annual Report on Form 10-K for the year
ended October 3, 2020, which is included as
part of this 2020 Annual Report.
CORPORATE INFORMATION
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Abney S. Boxley, III(2,3)
President, Eastern Region
Summit Materials, Inc.
Anne H. Lloyd(1,2)
Retired Executive Vice President and
Chief Financial Officer
Martin Marietta Materials, Inc.
W. Allen Rogers II(1,3)
Lead Independent Director
Principal
Ewing Capital Partners, LLC
Partner
Peter Browning Partners, LLC
Jon M. Ruth(2,3)
Retired Vice President
Cargill
Joseph A. Rutkowski(2,3)
Principal
Winyah Advisors LLC
G. Kennedy Thompson(1,2)
Retired Partner
Aquiline Capital Partners LLC
H.O. Woltz III
Chairman, 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 Nominating and Governance
Committee
H.O. Woltz III
Chairman, President and
Chief Executive Officer
Mark A. Carano
Senior Vice President,
Chief Financial Officer and Treasurer
Richard T. Wagner
Senior Vice President,
Chief Operating Officer
James F. Petelle
Vice President–Administration,
Secretary and Chief Legal Officer
SHAREHOLDER INFORMATION
Corporate Headquarters
1373 Boggs Drive
Mount Airy, North Carolina 27030
(336) 786-2141
Independent Registered Public
Accounting Firm
Grant Thornton LLP
Charlotte, North Carolina
Annual Meeting
Insteel shareholders are invited to attend
our annual meeting, which will be held on
February 16, 2021 at 9:00 a.m. ET at the
Cross Creek Country Club, 1129 Greenhill
Road, Mount Airy, North Carolina 27030.
Common Stock
Insteel’s common stock trades on the
Nasdaq Global Select Market under the
symbol IIIN. As of October 30, 2020, there
were 519 shareholders of record.
Shareholder Services
For change of name, address or ownership
of stock; to replace lost stock certificates;
or to consolidate accounts, please contact:
AST, LLC
Operations Center
6201 15th Avenue
Brooklyn, New York 11219
(800) 937-5449
www.astfinancial.com
1373 Boggs Drive
Mount Airy, North Carolina 27030
www.insteel.com
252457'-0"2326'-0"2253'-4"2151'-10"2051'-10"1951'-10"18.817'-4"17.939'-6"1746'-10"16.430'-2"151451'-10"1351'-10"111051'-10"951'-10"851'-10"7.476.433'-1"618'-9"5.241'-7"510'-3"451'-10"351'-10"251'-10"153'-4"0.226'-0"0.143'-0"BBAA.2A16'-9"47'-3"26'-0"BCDE56'-10"27'-8"27'-8"27'-8"F27'-8"G27'-8"H27'-8"J27'-8"K27'-8"L27'-8"M27'-8"N27'-8"P27'-8"27'-8"R27'-8"S27'-8"T27'-8"U56'-10"V69'-0"BBAA.2ABCDEFGHJKLMNPQRSTUV1651'-10"21'-8"1251'-10"51'-10"51'-10"QS1S1S1S1S1S1S1S1S1S1S1S1S1S19S2.0(15.25) S1 MATS EA.ROW LAP 16"(12) S1 MATS EA.ROW LAP 16"(24.25) S1 MATS EA.ROW LAP 16"(9) S1 MATS EA.ROW LAP 16"(16) S1 MATS EA.ROW LAP 16"(9) S1 MATS EA.ROW LAP 16"(3) S1 MATS EA.ROW LAP 16"(58) S1 MATS EA.ROW LAP 16"(20) S1 MATS EA.ROW LAP 16"(12.5) S1 MATS EA.ROW LAP 16"9S2.0S1S1S1S1S1S1S19S2.09S2.09S2.0S1S1S1S1S1S1S1S1S1S1S1S19S2.010S2.0ELEVATOR PITVCR PIT11'-1" X 59'-0"VCR PIT11'-1" X 45'-0"ELEVATOR PITSCRUBBERDUMP TRENCH ??VCR PIT11'-1" X 30'-2"S1VCR PIT 11'-1" x 13'-7"51'-10"S3S3S4(42) S3 MATS EA.ROW LAP 16"(42) S4 MATS EA.ROW LAP 16"(42) S3 MATS EA.ROW LAP 16"ROTAET83'-0"S6S5S6ROTAETS5(108) S5 MATS EA.ROW LAP 16"(108) S5 MATS EA.ROW LAP 16"(108) S6 MATS EA.ROW LAP 16"(108) S6 MATS EA.ROW LAP 16"717'-6"84'-11"ROAES7S7S6(72) S7 MATS EA.ROW LAP 16"S6(72) S6 MATS EA.ROW LAP 16"(72) S7 MATS EA.ROW LAP 16"(72) S6 MATS EA.ROW LAP 16"479'-6"S8S9S9(145) S9 MATS EA.ROW LAP 16"(145) S8 MATS EA.ROW LAP 16"(145) S9 MATS EA.ROW LAP 16"966'-558"55'-4"ROTAETTRIM S2 SHEETSAT DOCK PITS (TYP.)TRIM S2 SHEETSAT DOCK PITS (TYP.)S1CCCC(4) 1/2 WIDTH S1 MATSIN BUMP OUTTRIM S2 SHEETSAT DOCK PITS (TYP.)(41) S1 MATS EA.ROW LAP 16"S1(41) S1 MATS EA.ROW LAP 16"(45) S1 MATS EA.ROW LAP 16"S1(45) S1 MATS EA.ROW LAP 16"S1(45) S1 MATS EA.ROW LAP 16"S1(16.5) S1 MATS EA.ROW LAP 16"S1(12.5) S1 MATS EA.ROW LAP 16"S1S1(12) S1 MATS EA.ROW LAP 16"10S2.09S2.011S2.08S2.08S2.012S2.012S2.012S2.013S2.02TT