Annual Report
Insteel Industries is the nation’s largest
manufacturer of steel wire reinforcing
products for concrete construction applications.
Manufacturing Locations
Welded Wire Reinforcement
Prestressed Concrete Strand
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
primarily 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.
Business Overview
61%
Welded
Wire
Reinforcement
Sales
39%
Prestressed
Concrete
Strand
Welded Wire Reinforcement
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
Concrete Pipe
Reinforcement
Standard Welded
Wire Reinforcement
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
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
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
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
1
2021 ANNUAL REPORT | INSTEEL INDUSTRIES| Letter to Shareholders
“
To characterize market conditions
during 2021 as unprecedented
would be an understatement.
”
To characterize market conditions during 2021 as unprecedented would be an understatement. Demand for our reinforcing products was
strong, and strengthened during the year, but we faced severe supply constraints and rapidly rising costs for practically all purchased
products and services, and particularly for steel wire rod, our primary raw material. Accordingly, we shifted our focus to maximize availability
to customers of our most highly strategic products as our supply chain emphasized product availability over other factors. This phenomenon
resulted in expanding margins and was magnified by the first-in first-out accounting convention that matches historical cost with rising
average selling prices and is pronounced during periods of rapidly rising selling prices. This environment resulted in gross margin expansion
of 980 basis points relative to the prior year, and record revenues and net earnings.
The inherent cyclicality of our business was vividly demonstrated by changing conditions over the brief 2019 – 2021 period, which began
with inventory corrections and lackluster demand, adverse weather patterns and substantial volumes of imported PC strand and standard
welded wire reinforcement that suppressed market pricing. 2021, on the other hand, was a year of robust and growing demand for our
products, lower import volumes following our successful trade litigation and more typical weather patterns that resulted in normalized
seasonality. While the volatility in our markets and performance was pronounced, we have come to expect these fluctuations and have
positioned the Company to capitalize on growth opportunities during weak market conditions and to prosper during periods of strong
demand.
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, in 2021, we invested $17.5 million in our
plants and information systems to support cost and productivity improvement initiatives and broaden our manufacturing capabilities. We
project 2022 capital investment of approximately $25 million as we employ new technology through several manufacturing facilities that
will contribute to higher productivity, improved quality and lower cash cost of production. We expect to accomplish these highly strategic
investments while maintaining sufficient financial flexibility to pursue strategic growth opportunities and return capital to shareholders, if
appropriate.
In view of our 2021 financial results and favorable business outlook, the Company declared a special dividend of $2.00 per share payable
on December 17 to shareholders of record on December 2. This is the fifth special dividend of at least $1.00 per share we have declared
since 2016. When evaluating opportunities to return capital to shareholders, our board considers all options, weighing their benefits and
limitations. The payment of a special dividend was the clear preference to accomplish our objective.
2
2021 ANNUAL REPORT | INSTEEL INDUSTRIES| FINANCIAL RESULTS
We reported flat shipments for the year due to constrained raw material supply, but the strong pricing environment resulted in a 25%
increase in net revenue to $590.6 million, gross margin expansion of 980 basis points to 20.6% and an increase in earnings per share
to $3.41 from $0.98. Both revenues and net earnings represent record levels. Operating activities generated $69.9 million compared to
$56.2 million in 2020, while working capital used $12.3 million in the current year compared to providing $19.4 million in the prior year.
We ended the year with $89.9 million of cash with no borrowings outstanding on its credit facility.
LOOKING AHEAD
As we move into 2022, nonresidential construction markets continue to show favorable momentum and the pricing environment
throughout the supply chain remains favorable. While we expect signs of a cyclical downturn in demand to emerge at some point, we
believe sound fiscal conditions at the state and municipal levels together with passage of the Infrastructure Investment and Jobs Act
will materially extend the current robust demand environment for our products.
We expect 2022 to be another strong year for Insteel, but acknowledge risks that could adversely affect our markets, including the unknown
impact of COVID and its variants on our economy and domestic steel markets, which are clearly out of sync with world markets. Regardless
of external circumstances, we will continue to build shareholder value by focusing on our core competencies, improving the effectiveness
of our manufacturing operations and capitalizing on both organic and acquisition related growth opportunities. We are committed to
building 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 initiatives.
We are pleased with the Company’s strategic positioning and look forward to the opportunities that lie ahead. We appreciate the
support of our customers, employees, Board of Directors, and shareholders and will seek to earn their continued trust and confidence.
H.O. Woltz III
Chairman, President and
Chief Executive Officer
3
2021 ANNUAL REPORT | INSTEEL INDUSTRIES| Financial Highlights
(Dollars in thousands, except per share amounts)
2021
2020
2019
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.
$590,601
121,548
$472,618
$455,713
55,787
30,061
20.6 %
11.8%
6.6%
$ 66,610
$ 19,009
$ 5,598
11.3%
4.0%
1.2%
$ 3.44
$ 0.99
$ 0.29
3.41
1.62
23.5%
23.5%
0.98
0.12
0.29
0.12
7.4%
7.4%
2.3%
2.3%
$ 89,884
390,710
-
$ 68,688
337,902
-
$ 38,181
293,009
-
302,038
264,803
246,017
$ 69,878
$ 56,224
$ 6,608
-
17,500
14,521
31,294
18,356
7,114
14,255
2,313
-
10,512
13,553
2,310
Net Sales
(in millions)
FY 2021
FY 2020
FY 2019
$590.6
$472.6
$455.7
Gross Margin
FY 2021
FY 2020
FY 2019
6.6%
11.8%
Net Earnings Per Share
(diluted)
FY 2021
FY 2020
FY 2019
$0.29
$0.98
4
Return on Total Capital
$3.41
FY 2021
FY 2020
7.4%
FY 2019
2.3%
20.6%
23.5%
2021 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 2, 2021
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
Common Stock (No Par Value)
Trading Symbol(s)
IIIN
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark
z if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES
NO
z if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
z 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.
z 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).
z 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
z 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.
z whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley
Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
z whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Emerging growth company
As of April 3, 2021 (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 $491,142,483 based upon the closing sale price as reported on the
New York Stock Exchange. As of October 27, 2021, there were 19,407,980 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 2022 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 Reserved
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
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
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05
05
08
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12
12
12
13
14
14
15
15
20
21
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53
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:
z 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;
z general economic and competitive conditions in the markets
in which we operate;
z changes in the spending levels for nonresidential and residential
construction and the impact on demand for our products;
z 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;
z the cyclical nature of the steel and building material industries;
z credit market conditions and the relative availability of financing
for us, our customers and the construction industry as a whole;
z fluctuations in the cost and availability of our primary raw
material, hot-rolled carbon steel wire rod, from domestic and
foreign suppliers;
z competitive pricing pressures and our ability to raise selling
prices in order to recover increases in raw material or operating
costs;
z changes in U.S. or foreign trade policy affecting imports or
exports of steel wire rod or our products;
z unanticipated changes in customer demand, order patterns
and inventory levels;
z the impact of fluctuations in demand and capacity utilization
levels on our unit manufacturing costs;
z our ability to further develop the market for engineered structural
mesh (“ESM”) and expand our shipments of ESM;
z legal, environmental, economic or regulatory developments that
significantly impact our business or operating costs;
z unanticipated plant outages, equipment failures or labor
difficulties; and
z 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 mainly to
manufacturers of concrete products that are used primarily in
nonresidential construction. For fiscal 2021, 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 2021,
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 2021,
2020 and 2019. 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 2021 will be shipped during the first quarter of fiscal 2022.
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 2021 and 2020 represented
approximately 16% and 7%, respectively, of our total wire rod
purchases. We believe that our substantial wire rod requirements,
desirable mix of sizes and grades, and strong financial condition
represent a competitive advantage by making us a relatively more
attractive customer to our suppliers.
Our ability to source wire rod from overseas suppliers is limited
by domestic content requirements generally referred to as “Buy
America” or “Buy American” laws that exist at both the federal
and state levels. These laws generally prescribe a domestic “melt
and cast” standard for purposes of compliance. Customers
purchasing PC strand and WWR for certain applications require
the Company to certify compliance with Buy America laws.
Selling prices for our products tend to be correlated with changes
in wire rod prices. However, the timing and magnitude of the
relative price changes varies depending upon market conditions
and competitive factors. Ultimately the relative supply - demand
balance in our markets and competitive dynamics determine
whether our margins expand or contract during periods of rising
or falling wire rod prices.
Competition
We are the nation’s largest manufacturer of steel wire reinforcing
products for concrete construction applications. Our markets are
highly competitive based on price, quality and service. Some of
our competitors, such as Nucor Corporation, Liberty Steel USA
(“Liberty”) and Oklahoma Steel and Wire, are vertically integrated
companies that produce both wire rod and concrete reinforcing
products and offer multiple product lines over broad geographic
areas. Other competitors are smaller independent companies
that offer limited competition in certain markets. Our primary
competitors for WWR products are Engineered Wire Products,
Inc. (a subsidiary of Liberty), Wire Mesh Corporation, Concrete
Reinforcements, Inc., National Wire Products, Davis Wire
Corporation and Oklahoma Steel & Wire Co., Inc. Our primary
competitors for PC strand are Sumiden Wire Products Corporation
6
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART I
Item 1 Business
and Wire Mesh Corporation. Import competition is also a significant
factor in certain segments of the PC strand and SWWR markets
that are not subject to “Buy America” requirements.
In response to illegally traded import competition from offshore PC
strand suppliers, we have pursued trade cases, when necessary,
as a means of ensuring that foreign producers were complying
with the applicable trade laws and regulations. In 2003, we joined
together with a coalition of domestic PC strand producers and
filed petitions with the U.S. Department of Commerce (the “DOC”)
alleging that imports of PC strand from Brazil, India, Korea, Mexico
and Thailand were being “dumped” or sold in the U.S. at a price
that was lower than fair value and had injured the domestic PC
strand industry. The DOC ruled in our favor and imposed anti-
dumping duties ranging from 12% up to 119%, which had the
effect of limiting the participation of these countries in the domestic
market. In 2010, we joined together with a coalition of domestic
PC strand producers and filed petitions with the DOC alleging
that imports of PC strand from China were being “dumped” or
sold in the U.S. at a price that was lower than fair value and that
subsidies were being provided to Chinese PC strand producers by
the Chinese government, both of which had injured the domestic
PC strand industry. The DOC ruled in our favor and imposed final
countervailing duty margins ranging from 9% to 46% and anti-
dumping margins ranging from 43% to 194%, which had the effect
of limiting the continued participation of Chinese producers in the
domestic market. In 2020, we joined two other domestic PC strand
producers and filed anti-dumping petitions against Argentina,
Columbia, Egypt, Indonesia, Italy, Malaysia, Netherlands, Saudi
Arabia, South Africa, Spain, Taiwan, Tunisia, Turkey, Ukraine
and the United Arab Emirates. In January 2021, with respect to
8 countries, and in April 2021, with respect to 7 countries, the DOC
ruled in our favor and imposed anti-dumping duties ranging from
4% to 194%, which had the effect of limiting the participation of
these countries in the domestic market. Additionally, in 2020, we
and four other domestic producers of SWWR filed anti-dumping
petitions against Mexico. In July 2021, the DOC ruled in our favor
and imposed final countervailing duty margins ranging from 23% to
110%, which had the effect of limiting the continued participation
of Mexican producers in the domestic market.
Quality and service expectations of customers have risen
substantially over the years and are key factors that impact
their selection of suppliers. Technology has become a critical
competitive factor from the standpoint of manufacturing costs,
quality and customer service capabilities. In view of our strong
market positions, broad product offering and national footprint,
technologically advanced manufacturing facilities, low-cost
production capabilities, sophisticated information systems and
financial strength and flexibility, we believe that we are well-
positioned to compete favorably with other producers of our
concrete reinforcing products.
Human Capital
We value all our employees and their important role in the long-
term success of the company. Our culture is rooted in three core
principles: safety, pay for performance and equal opportunity.
As of October 2, 2021, we had 913 employees, none of which
were represented by labor unions. In the event of production
disruptions, we believe that our contingency plans would enable
us to continue serving our customers, although there can be
no assurances that a work slowdown or stoppage would not
adversely impact our operating costs and financial results.
Safe Operations
Our employees are extensively trained in a formal process of risk
reduction and hazard elimination and empowered with the authority
to stop equipment or tasks until work can be safely accomplished.
“Safe Operations with Zero Harm,” our internal safety philosophy, is
a key part of our ongoing employee training and operations. Zero
Harm is managing risk, so no injuries, illness, or negative impact is
experienced by employees, community, customers, property, the
environment and shareholders. We monitor our safety performance
through a key range of leading and lagging measures of safety.
Leading Indicator Measures:
Lagging Indicator Measures:
z Hazard management process
z Rolling 12-month Incident
training
Recordable Rate
z Leadership engagement
z Lost Time Rate
z Employee involvement
z Severity Rate – Days Away,
Restricted, and Transferred
(DART)
Equitable Compensation
Our production and skilled trades team members earn pay
increases through our “Pay for Skills” program and share in
productivity pay through our “Team Share” incentive program.
Our salaried team members also have a compensation structure
that rewards individual performance in addition to company
performance. We believe a compensation structure, which
rewards both individual initiative and team accomplishments,
leads to higher levels of performance.
Equal Opportunity
Our business depends on talented individuals who bring diverse
skills, experiences, and backgrounds. We believe in a collaborative
workplace that is based on the fundamentals of dignity, respect,
equality and opportunity for all and encourage transparency
and access to leadership through our Open-Door Policy, Code
of Business Conduct (including Whistleblower Hotline), Equal
Opportunity Policy, Harassment Policy, and Mission and Values.
Our performance and succession development process includes
all employees. We have many team members in key leadership
roles who started in entry-level roles and have grown in their
careers by partnering with us in their development plans. In
addition, we are involved in many outreach programs in our
communities to provide opportunities to diverse talent sources that
may otherwise be overlooked or face barriers to equal opportunity.
7
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART I
Item 1A Risk Factors
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 2022.
Our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and any amendments
to these reports, are available at no cost on our website
at https://investors.insteel.com and the SEC’s website at
www.sec.gov as soon as reasonably practicable after we file these
reports with the SEC. The information available on our website
and the SEC’s website is not incorporated into this report or any
of our filings with the SEC.
Item 1A Risk Factors
An investment in our common stock involves risks and
uncertainties. You should carefully consider the following risk
factors, in addition to the other information contained in this annual
report on Form 10-K, before deciding whether an investment in
our common stock is suitable for you. The risk factors described
below are not the only ones we face. There may be other risks
and uncertainties that are currently unknown to us or that we
currently consider to be immaterial that could adversely affect our
business, results of operations, financial condition and cash flows.
Industry Specific Risks
Our business is cyclical and can be negatively
impacted by prolonged economic downturns or
tightening in the financial markets that reduce the
level of construction activity and demand for our
products.
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.
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.
Certain of our products are used in the construction of highways,
bridges and other infrastructure projects that are funded by
federal, state and local governments. Reductions in the amount
of funding for such projects or the period for which it is provided
could have a material adverse impact on our business, results of
operations, financial condition and cash flows.
Foreign competition could adversely impact our
financial results.
Certain of our PC strand and SWWR markets are subject to
foreign import competition on an ongoing basis. If we are
unable to purchase raw materials and achieve manufacturing
costs that are competitive with those of foreign producers, or
if the margin and return requirements of foreign producers are
8
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com substantially lower, our market share and profit margins could
be negatively impacted. In response to illegally traded import
competition from offshore PC strand and SWWR suppliers,
we have pursued trade cases, when necessary, as a means
of ensuring that foreign producers were complying with the
applicable trade laws and regulations. Such actions may be
costly and may not be successful. Trade law enforcement
is critical to our ability to maintain our competitive position
against foreign PC strand and SWWR producers that engage
in unlawful trade practices.
Our financial results can be negatively impacted by
the volatility in the cost and availability of our primary
raw material, hot-rolled carbon steel wire rod.
The primary raw material used to manufacture our products
is hot-rolled carbon steel wire rod, which we purchase from
both domestic and foreign suppliers. We do not use derivative
commodity instruments to hedge our exposure to changes in the
price of wire rod as such instruments are currently unavailable in
the financial markets. Prices for wire rod have become increasingly
volatile in recent years driven by the higher degree of variability in
raw material costs for rod producers, changes in trade policy and
the tightening of domestic supply. In response, wire rod producers
have resorted to increasing the frequency of price adjustments,
typically on a monthly basis as well as unilaterally changing the
terms of prior commitments.
Although changes in our wire rod costs and selling prices tend to
be correlated, we may be unable to fully recover increased rod
costs during weaker market environments, which would reduce
our earnings and cash flows. Additionally, when raw material costs
decline, our financial results would be negatively impacted if the
selling prices for our products decrease to an even greater extent
and if we are consuming higher cost material from inventory.
Operational Risks
Our manufacturing facilities are subject to
unexpected equipment failures, operational
interruptions and casualty losses.
Our manufacturing facilities are subject to risks that may limit
our ability to manufacture and sell our products, including
unexpected equipment failures, operational interruptions and
catastrophic losses due to other unanticipated events such as
fires, explosions, accidents, adverse weather conditions and
transportation interruptions. Any such equipment failures or
events can subject us to plant shutdowns and periods of reduced
production or unexpected downtime. Furthermore, the resolution
of certain operational interruptions may require significant capital
expenditures. Although our insurance coverage could offset the
losses or expenditures relating to some of these events, our
results of operations and cash flows would be negatively impacted
to the extent that such claims were not covered or only partially
covered by our insurance.
PART I
Item 1A Risk Factors
Our financial results can also be significantly impacted if raw
material supplies are inadequate to satisfy our purchasing
requirements. For example, U.S. government trade policies and
trade actions by domestic wire rod producers against other
countries can significantly impact the availability and cost of
imported wire rod. The imposition of tariffs, quotas or anti-dumping
or countervailing duty margins by the U.S. government against
exporting countries can have the effect of reducing or eliminating
their competitiveness and participation in the domestic market.
If we were unable to obtain adequate and timely delivery of our
raw material requirements, we may be unable to manufacture
sufficient quantities of our products or operate our manufacturing
facilities in an efficient manner, which could result in lost sales and
higher operating costs. Because tight market conditions typically
affect the entire industry, during past periods of short raw material
supply, margins and profitability have been favorably impacted
due to curtailed availability of PC strand and WWR that supported
higher average selling prices. There is no assurance that future
short supply conditions in raw material markets would result in
similar outcomes, however.
Demand for our products is highly variable and
difficult to forecast due to our minimal backlog and
unanticipated changes that can occur in customer
order patterns or inventory levels.
Demand for our products is highly variable. The short lead times
for customer orders and minimal backlog that characterize our
business make it difficult to forecast the future level of demand for
our products. In some cases, unanticipated softening in demand
can be exacerbated by inventory rebalancing measures pursued
by our customers, which may cause significant fluctuations in our
sales, profitability and cash flows.
Our financial results could be adversely impacted
by the escalation of our operating costs.
Consistent with the experience of other employers, our labor,
medical and workers’ compensation costs have increased
substantially in recent years and are expected to continue to
rise. If this trend continues, the cost of labor and to provide
healthcare and other benefits to our employees could increase,
adversely impacting profitability. As the labor market recovers
from the effects of the COVID-19 pandemic, competition for
employees has escalated which has increased costs associated
with attracting and retaining employees. We cannot be certain
that we will be able to maintain an adequately skilled labor force
necessary to operate efficiently or that our labor costs will not
increase as a result of a shortage in the availability of skilled
employees. Changes to healthcare regulations involving the
Patient Protection and Affordable Care Act may also increase
the cost of providing such benefits to our employees. We cannot
predict the ultimate content, timing, or effect of any healthcare
reform legislation or the impact of potential legislation or related
9
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART I
Item 1A Risk Factors
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.
Our business and operations are subject to risks
related to climate change.
The long-term effects of global climate change could present
both physical risks and transition risks (such as regulatory or
technology changes), which are expected to be widespread and
unpredictable. These changes could over time affect, for example,
the availability and cost of raw materials, commodities and energy
(including utilities), which in turn may impact our ability to procure
goods or services required for the operation of our business at
the quantities and levels we require. Additionally, we have facilities
located in areas that may be impacted by the physical risks of
climate change, and we face the risk of losses incurred as a
result of physical damage to our facilities and inventory as well
business interruption caused by such events. Furthermore, periods
of extended inclement weather or associated flooding may inhibit
construction activity utilizing our products and delay shipments
of our products to customers. We also use natural gas, diesel
fuel, gasoline and electricity in our operations, all of which could
face increased regulation as a result of climate change or other
environmental concerns. Additionally, we may face increased costs
to respond to future water laws and regulations, and operations in
areas with limited water availability may be impacted if droughts
become more frequent or severe. Any such events could have a
material adverse effect on our costs or results of operations.
Financing Risks
Our operations are subject to seasonal fluctuations that may impact our cash flows.
Our shipments are typically lower in the first and second fiscal quarters due to the unfavorable impact of winter weather on construction
activity during these periods and customer plant shutdowns associated with holidays. As a result, our cash flows may fluctuate from
quarter to quarter due to these seasonal factors.
Our capital resources may not be adequate to provide for our capital investment and maintenance
expenditures if we were to experience a substantial downturn in our financial performance.
Our operations are capital intensive and require substantial recurring expenditures for the routine maintenance of our equipment and
facilities. Although we expect to finance our business requirements through internally generated funds or from borrowings under our
$100.0 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.
Legal and Regulatory Risks
Changes in environmental compliance and remediation requirements could result in substantial increases
in our capital investments and operating costs.
Our business is subject to numerous federal, state and local laws and regulations pertaining to the protection of the environment
that could require substantial increases in capital investments and operating costs. These laws and regulations, which are constantly
evolving, are becoming increasingly stringent, and the ultimate impact of compliance is not always clearly known or determinable
because regulations under some of these laws have not yet been promulgated or are undergoing revision.
10
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com 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 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.
General Risks
Our business, results of operations, financial
condition, cash flows and stock price can be
adversely affected by pandemics, epidemics or
other public health emergencies, such as the
ongoing COVID-19 pandemic.
Our business, results of operations, financial condition, cash flows
and stock price can be adversely affected by pandemics, epidemics
or other public health emergencies, such as the ongoing COVID-19
pandemic. Governments around the world have implemented
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, vaccination
mandates and other measures. These measures, along with further
voluntary measures by businesses and individuals, may impact our
working conditions, productivity and operations, as well as those of
our customers and suppliers. 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 ongoing COVID-19 pandemic and any
preventive or protective actions taken by governmental authorities
may have a material adverse effect on our operations, supply
chain, customers and transportation networks, including business
shutdowns or disruptions. 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, the emergence of additional
virus variants, vaccination rates 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. We continue to closely monitor the impact of the
COVID-19 pandemic on all aspects of our business and the potential
effect on our financial position, results of operations, and cash flows.
The situation remains dynamic and the ultimate duration and impact
on our business are not known at this time.
Our stock price can be volatile, often in connection
with matters beyond our control.
Equity markets in the U.S. have been increasingly volatile in recent
years. During fiscal 2021, our common stock traded as high as
$44.00 and as low as $18.83. 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.
11
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART I
Item 1B Unresolved Staff Comments
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 2,
2021, 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.
12
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART I
Item 4 Mine Safety Disclosures
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
James R. York
Age
65
52
71
62
63
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
Senior Vice President, Sourcing and Logistics
H. O. Woltz III, 65, has served as Chief Executive Officer since
1991, as President since 1989 and has been employed by us
and our subsidiaries in various capacities since 1978. He was
named President and Chief Operating Officer in 1989. He served
as our Vice President from 1988 to 1989 and as President of
Rappahannock Wire Company, formerly a subsidiary of our
Company, from 1981 to 1989. Mr. Woltz has been a Director
since 1986 and also serves as President of Insteel Wire Products
Company. Mr. Woltz served as President of Florida Wire and
Cable, Inc., formerly a subsidiary of our Company, until its merger
with Insteel Wire Products Company in 2002. Mr. Woltz has
served as Chairman of the Board since 2009.
Mark A. Carano, 52, has served as Senior Vice President, Chief
Financial Officer and Treasurer since October 2020 and as Vice
President, Chief Financial Officer and Treasurer from May 2020 to
October 2020. Prior to Insteel, Mr. Carano had been employed by
Big River Steel, a privately-held manufacturer of steel products,
having served as Chief Financial Officer since April 2019. Prior
to Big River Steel, he served in various senior management
finance roles with Babcock & Wilcox Enterprises from June 2013
to October 2018. Mr. Carano also has 14 years of combined
investment banking experience with Bank of America, Merrill
Lynch, Deutsche Bank and First Union Securities.
James F. Petelle, 71, 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, 62, 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.
James R. York, 63, has served as Senior Vice President, Sourcing
and Logistics since October 2020, and as Vice President, Sourcing
and Logistics since joining us in 2018. Prior to Insteel, he served in
various senior management roles with Leggett & Platt, a publicly-
held manufacturer of diversified engineered products, from 2002
to 2018, including Group President-Rod and Wire Products, Unit
President-Wire Products and Unit President-Specialty Products.
Mr. York served in a range of leadership positions at Bekeart
Corporation, a U.S. subsidiary of N.V. Bekeart A.S. of Belgium,
from 1983 to 2002.
13
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 5 Market for Registrant’s Common Equity, Related
Shareholder Matters and Issuer Purchases
of Equity Securities
Since March 17, 2021 our common stock has traded on the New York Stock Exchange (“NYSE”) under the symbol “IIIN”. Before March 17,
2021, our common stock traded on the Nasdaq Global Select Market. As of October 27, 2021, 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 2, 2021. The graph and table assume that $100 was
invested on October 1, 2016 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 5 YEAR CUMULATIVE TOTAL RETURN*
Among Insteel Industries, Inc., the Russell 2000 Index
and the S&P Building Products Index
In $
200
150
100
50
0
10/1/16
9/30/17
9/29/18
9/28/19
10/3/20
10/2/21
Insteel Industries, Inc.
Russell 2000
S&P Building Products
October 1,
2016
September 30,
2017
September 29,
2018
September 28,
2019
October 3,
2020
October 2,
2021
Fiscal Year Ended
Insteel Industries, Inc.
$
Russell 2000
S&P Building Products
100.00
100.00
100.00
$
74.73
$
120.74
105.06
106.77
139.14
95.39
$
61.97
$
57.11
$
126.77
112.47
127.27
130.27
125.63
187.94
188.71
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.
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
Item 6 Reserved
Item 7 Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The matters discussed in this section include forward-looking statements that are subject to numerous risks. You should
carefully read the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this Form 10-K.
Overview
Our operations are entirely focused on the manufacture and
marketing of concrete reinforcing products for the concrete
construction industry. Our business strategy is focused on:
(1) achieving leadership positions in our markets; (2) operating
as the lowest cost producer in our industry; and (3) pursuing
growth opportunities within our core businesses that further our
penetration of the markets we currently serve or expand our
footprint.
On March 16, 2020, we, through our wholly-owned subsidiary,
IWP, purchased substantially all of the assets of STM for an
adjusted purchase price of $19.4 million, which reflects certain
post-closing adjustments. STM was a leading manufacturer of PC
strand for concrete construction applications. We acquired, among
other assets, STM’s accounts receivable, inventories, production
equipment and facility located in Summerville, South Carolina and
assumed certain of its accounts payable and accrued liabilities.
Subsequent to the acquisition, we elected to consolidate our PC
strand operations with the closure of the Summerville facility.
Impact of COVID-19
Despite the significant disruption in the U.S. and global economies,
including supply chain challenges and labor market obstacles,
COVID-19 has had a limited impact on our operations to date. We
have implemented procedures to support the health and safety of
our employees and we are following all U.S. Centers for Disease
Control and Prevention guidelines. While the U.S. economy appears
to be entering a recovery and operating conditions are improving,
we continue to closely monitor the impact of the COVID-19
pandemic on all aspects of our business and the potential effect on
our financial position, results of operations, and cash flows. There
are many uncertainties regarding the future and ultimate impact that
COVID-19 will have on all aspects of our business. We will continue
to assess and make adjustments as necessary.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States. Our discussion and analysis of our financial condition
and results of operations are based on these consolidated
financial statements. The preparation of our consolidated financial
statements requires the application of these accounting principles
in addition to certain estimates and judgments based on 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
Recent Accounting Pronouncements
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.
Accounting estimates are considered critical if both of the
following conditions are met: (1) the nature of the estimates or
assumptions is material because of the levels of subjectivity and
judgment needed to account for matters that are highly uncertain
and susceptible to change and (2) the effect of the estimates and
assumptions is material to the financial statements.
We have reviewed our accounting estimates, and none were deemed
to be considered critical for the accounting periods presented.
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 following discussion and analysis of our financial condition
and results of operations is for the year ended October 2, 2021
compared with the year ended October 3, 2020. Discussions
of our financial condition and results of operations for the year
ended October 3, 2020 compared to September 28, 2019 that
have been omitted under this item can be found in Part II, Item 7
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” included in our Annual Report on Form 10-K
for the fiscal year ended October 3, 2020, which was filed with the
SEC on October 29, 2020.
The table below presents a summary of our results of operations for fiscal 2021 and fiscal 2020.
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 expense (income), net
Interest expense
Interest income
Effective income tax rate
Net earnings
“N/M”= Not meaningful
$
$
$
Year Ended
October 2, 2021
Change
October 3, 2020
590,601
25.0 % $
121,548
117.9%
472,618
55,787
20.6 %
32,388
3.3% $
5.5 %
2,868
69.2% $
—
(100.0%)
N/M
(9.4%)
(95.6%)
114
96
(21)
22.6 %
11.8%
31,348
6.6%
1,695
195
(1,254)
106
(473)
21.4%
$
66,610
250.4% $
19,009
2021 Compared with 2020
Net Sales
Net sales increased 25.0% to $590.6 million in 2021 from
$472.6 million in 2020, reflecting a 25.7% increase in selling prices
partially offset by a 0.6% decrease in shipments. The increase in
average selling prices was driven by price increases implemented
in the current year primarily to recover the escalation in raw
material costs together with strong demand for our products.
Shipments for the prior year benefited from an extra week based
on our fiscal calendar. On a pro forma basis adjusting the prior
year to reflect the same 52-week period as 2021, the year-over-
year shipment increase was 1.6%. The pro forma increase in
shipments was primarily due to improved market conditions,
the additional business provided by the STM Acquisition and
strengthening demand for our products relative to the prior year,
which offset the impact on shipments resulting from sustained
tight supply conditions for raw materials. Shipments for both years
were not materially impacted by the COVID-19 pandemic.
Gross Profit
Gross profit increased 117.9% to $121.5 million, or 20.6% of
net sales, in 2021 from $55.8 million, or 11.8% of net sales, in
2020. The year-over-year increase was primarily due to higher
spreads between average selling prices and raw material costs
($73.2 million) partially offset by higher manufacturing costs
($7.0 million) and a decrease in shipments ($436,000). The
increase in spreads was driven by higher average selling prices
($122.2 million) partially offset by higher raw material costs ($46.7
million) and freight expense ($2.3 million).
Selling, General and Administrative Expense
Selling, general and administrative expense (“SG&A expense”)
increased 3.3% to $32.4 million, or 5.5% of net sales, in 2021
from $31.3 million, or 6.6% of net sales, in 2020 primarily due to
higher compensation ($3.5 million) and legal expense ($392,000)
offset by the relative year-over-year changes in the cash surrender
value of life insurance policies ($1.3 million) and lower earnout
expense ($1.4 million). 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
legal expense was primarily related to costs associated with
trade matters. The decrease in earnout expense was due to the
revaluation of a contingent earnout liability in the prior year.
Restructuring Charges, Net
Net restructuring charges of $2.9 million were incurred in 2021
compared with $1.7 million in the prior year. The net restructuring
charges were related to the closure of the Summerville, South
Carolina facility, which had been acquired through the STM
Acquisition, and consolidation of our PC strand operations. Net
restructuring charges in 2021 included asset impairment charges
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
($1.4 million), facility closure costs ($1.0 million), equipment
relocation costs ($423,000) and employee separation costs
($13,000). The net restructuring charges incurred in the prior year
were for 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 $118,000 gain from the
sale of equipment associated with the Summerville facility.
Income Taxes
Our effective income tax rate for 2021 increased to 22.6% from
21.4% in 2020 due to a discrete tax benefit recorded in the
prior year in connection with the net operating loss carryback
provisions of the Coronavirus Aid, Relief and Economic Security
Act, which was enacted in March 2020.
Net Earnings
Acquisition Costs
Acquisition costs of $195,000 were incurred in 2020 for legal,
accounting and other professional fees related to the STM
Acquisition. There were no acquisition costs incurred in 2021.
Net earnings increased to $66.6 million ($3.41 per diluted share)
in 2021 from $19.0 million ($0.98 per diluted share) in 2020
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.
Other Expense (Income), Net
Other expense was $114,000 for 2021 compared with other
income of $1.3 million in 2020. Other income in the prior year
was primarily related to a gain from the disposition of assets held
for sale.
Liquidity and Capital Resources
Overview
Our sources of liquidity include cash and cash equivalents,
cash generated by operating activities and borrowing availability
provided under our $100.0 million revolving credit facility (the
“Credit Facility”). Our principal capital requirements include
funding working capital, capital expenditures, dividends and any
share repurchases. As of October 2, 2021, our cash and cash
equivalents totaled $89.9 million compared with $68.7 million as
of October 3, 2020.
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)
Operating Activities
Year Ended
October 2, 2021
October 3, 2020
$
69,878
$
(17,805)
(30,877)
89,884
178,057
—
—
$
$
302,038
100%
302,038
$
$
56,224
(23,174)
(2,543)
68,688
143,360
—
—
264,803
100%
264,803
Operating activities provided $69.9 million of cash in 2021 primarily
from net earnings adjusted for non-cash items partially offset by an
increase in working capital. Working capital used $12.3 million of
cash due to a $14.1 million increase in accounts receivable and a
$10.1 million increase in inventories partially offset by an $11.9 million
increase in accounts payable and accrued expenses. The increase
in accounts receivable and inventories were due to the escalation
in raw material costs and average selling prices during 2021. The
17
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
increase in accounts payable and accrued expenses was primarily
related to raw material purchases with higher unit costs near the
end of the period and, to a lesser extent, increases in accrued
salaries, wages and related expenses and income taxes.
Operating activities provided $56.2 million of cash in 2020 primarily
from net earnings adjusted for non-cash items together with
decrease 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.
We may elect to adjust our operating activities as there are
changes in the conditions in our construction end-markets, which
could materially impact our cash requirements. While a downturn
in the level of construction activity affects sales to our customers,
it generally reduces our working capital requirements.
Investing Activities
Investing activities used $17.8 million of cash in 2021 primarily
due to capital expenditures ($17.5 million) and an increase in
the cash surrender value of life insurance policies ($0.4 million).
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). Capital expenditures
for both years focused on cost and productivity improvement
initiatives in addition to recurring maintenance requirements. Capital
expenditures are expected to total up to $25.0 million in 2022,
which include expenditures primarily to advance the growth of
our engineered structural mesh business and to support cost and
productivity improvement initiatives as well as recurring maintenance
requirements. Our investing activities are largely discretionary,
providing us with the ability to significantly curtail outlays should
future business conditions warrant that such actions be taken.
Financing Activities
Financing activities used $30.9 million of cash in 2021 and $2.5 million of cash in 2020. In 2021, $31.3 million of cash was used for dividend
payments (including a special cash dividend of $29.0 million, or $1.50 per share, and regular cash dividends totaling $2.3 million), which was
partially offset by $1.1 million of proceeds from the exercise of stock options. In 2020, $2.3 million of cash was used for dividend payments.
Cash Management
Our cash is principally concentrated at one financial institution, which at times exceeds federally insured limits. We invest excess cash
primarily in money market funds, which are highly liquid securities that bear minimal risk.
Credit Facility
We have a Credit Facility that is used to supplement our operating
cash flow and fund our working capital, capital expenditure, general
corporate and growth requirements. In May 2019, we entered into a
new credit agreement, which amended and restated in its entirety the
previous agreement pertaining to the revolving credit facility that had
been in effect since June 2010. The new credit agreement, among
other changes, extended the maturity date of the Credit Facility from
May 13, 2020 to May 15, 2024 and provided for an accordion feature
whereby its size may be increased by up to $50.0 million, subject to
our lender’s approval. Advances under the Credit Facility are limited
to the lesser of the revolving loan commitment amount (currently
$100.0 million) or a borrowing base amount that is calculated
based upon a percentage of eligible receivables and inventories.
As of October 2, 2021, no borrowings were outstanding on the
Credit Facility, $98.6 million of borrowing capacity was available and
outstanding letters of credit totaled $1.4 million (see Note 8 to the
consolidated financial statements). As of October 3, 2020, there
were no borrowings outstanding on the Credit Facility.
18
We believe that, in the absence of significant unanticipated
cash demands, cash and cash equivalents, cash generated
by operating activities and the borrowing availability provided
under the Credit Facility will be sufficient to satisfy our expected
requirements for working capital, capital expenditures, dividends
and share repurchases, if any. 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.
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
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.
Off-Balance Sheet Arrangements
We do not have any material transactions, arrangements,
obligations (including contingent obligations), or other relationships
with unconsolidated entities or other persons, as defined by
Item 303(a)(4) of Regulation S-K of the SEC, that have or are
reasonably likely to have a material current or future impact on
our financial condition, results of operations, liquidity, capital
expenditures, capital resources or significant components of
revenues or expenses.
Contractual Obligations
In addition to our discussion and analysis surrounding our
liquidity and capital resources, our contractual obligations and
commitments as of October 2, 2021, include:
z Raw Material Purchase Commitments – See Note 12,
“Commitments and Contingencies,” within our consolidated
financial statements for further details concerning our non-
cancelable raw material purchase commitments.
z Supplemental Employee Retirement Plan Obligations – See
Note 11, “Employee Benefit Plans,” within our consolidated
financial statements for further detail of our obligations and the
timing of expected future payments under our supplemental
employee retirement plan.
Impact of Inflation
We are subject to inflationary risks arising from fluctuations in the
market prices for our primary raw material, hot-rolled carbon steel
wire rod, and, to a much lesser extent, labor, freight, energy and
other consumables that are used in our manufacturing processes.
We have generally been able to adjust our selling prices to pass
through increases in these costs or offset them through various
cost reduction and productivity improvement initiatives. However,
our ability to raise our selling prices depends on market conditions
and competitive dynamics, and there may be periods during
which we are unable to fully recover increases in our costs.
Outlook
z Operating Leases – See Note 13, “Leases,” within our
consolidated financial statements for further detail of our
obligations and the timing of expected future payments,
including a five-year maturity schedule.
z Debt Obligations and Interest Payments - See Note 8, “Long-
Term Debt,” within our consolidated financial statements for
further detail of our debt and the timing of expected future
principal and interest payments. As of October 2, 2021, there
were no borrowings outstanding.
z Capital Expenditures – As of October 2, 2021, we had
contractual commitments for capital expenditures of $3.6 million.
During 2021, we were successful in implementing price increases
sufficient to recover the escalation in our raw material costs that
occurred over the course of the year. In 2020, selling prices for our
products declined in response to low-priced import competition,
which negatively impacted our financial results. 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.
Looking ahead to fiscal 2022, we expect continued robust demand
in our construction markets. The economic recovery along with
sustained favorable forecasts from widely monitored leading market
indicators in private non-residential construction and a resilient
public construction market are supporting our optimism in the
demand outlook. We also believe there is a possibility that Congress
and the Administration will successfully negotiate an infrastructure
investment plan that may benefit our markets, although the ultimate
size and timing of any improvements are not possible to project.
The supply shortage and escalating prices for steel wire rod,
our primary raw material, remains a key concern. In addition,
critically tight labor markets are expected to continue to negatively
affect our operations. These challenges may impact our ability
to meet fully our customer demand and result in plant operating
inefficiencies and customer service delays. We expect to continue
passing the rising costs through the supply chain, but we would
anticipate margins returning to more normalized levels once the
raw materials markets stabilize. Additionally, our markets and
operations remain vulnerable to the lingering impact of COVID-19.
19
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Regardless of the market dynamics, we continue to focus on
those factors we control: closely managing and controlling our
expenses; aligning our production schedules with demand in a
proactive manner as there are changes in market conditions to
minimize our operating costs; and pursuing further improvements
in the productivity and effectiveness of all our manufacturing,
selling and administrative activities. We also expect gradually
increasing contributions from the substantial investments we
have made in our facilities in the form of reduced operating costs
and additional capacity to support future growth. Finally, we will
continue to pursue acquisitions opportunistically in our existing
businesses that expand our penetration of markets we currently
serve or expand our footprint.
The statements contained in this section are forward-looking
statements. See “Cautionary Note Regarding Forward-Looking
Statements” and “Risk Factors”.
Item 7A Quantitative and Qualitative Disclosures About
Market Risk
Our cash flows and earnings are subject to fluctuations resulting
from changes in commodity prices, interest rates and foreign
exchange rates. We manage our exposure to these market risks
through internally established policies and procedures and, when
appropriate, through the use of derivative financial instruments.
We do not use financial instruments for trading purposes and
are not a party to any leveraged derivatives. We monitor our
underlying market risk exposures on an ongoing basis and believe
we can modify or adapt our hedging strategies as necessary.
Commodity Prices
We are subject to significant fluctuations in the cost and availability
of our primary raw material, hot-rolled carbon steel wire rod,
which we purchase from both domestic and foreign suppliers.
We negotiate quantities and pricing for both domestic and foreign
wire rod purchases for varying periods (most recently monthly
for domestic suppliers), depending upon market conditions, to
manage our exposure to price fluctuations and to ensure adequate
availability of material consistent with our requirements. We do not
use derivative commodity instruments to hedge our exposure to
changes in prices as such instruments are not currently available
for wire rod. Our ability to acquire wire rod from foreign sources
on favorable terms is impacted by fluctuations in strength of home
markets, foreign currency exchange rates, foreign taxes, duties,
Interest Rates
tariffs, quotas and other trade actions. Although changes in our
wire rod costs and selling prices tend to be correlated, in weaker
market environments, we may be unable to fully recover increased
wire rod costs, which would reduce our earnings and cash flows.
Additionally, when raw material costs decline, our financial results
may be negatively impacted if the selling prices for our products
decrease to an even greater extent and if we are consuming higher
cost material from inventory. Based on our 2021 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 $32.7 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 2, 2021, 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
2, 2021. During 2021, 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
Financial Statements
Consolidated Statements of Operations for the years ended October 2, 2021,
October 3, 2020 and September 28, 2019
Consolidated Statements of Comprehensive Income for the years ended October 2, 2021,
October 3, 2020 and September 28, 2019
Consolidated Balance Sheets as of October 2, 2021 and October 3, 2020
Consolidated Statements of Shareholders’ Equity for the years ended October 2, 2021,
October 3, 2020 and September 28, 2019
Consolidated Statements of Cash Flows for the years ended October 2, 2021,
October 3, 2020 and September 28, 2019
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 2, 2021,
October 3, 2020 and September 28, 2019
22
23
24
25
26
27
44
45
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 2, 2021
October 3, 2020 September 28, 2019
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.
$
590,601 $
472,618 $
469,053
121,548
32,388
2,868
—
114
96
(21)
86,103
19,493
416,831
55,787
31,348
1,695
195
(1,254)
106
(473)
24,170
5,161
$
$
66,610 $
19,009 $
3.44
$
3.41
1.62
0.99 $
0.98
0.12
19,344
19,534
19,278
19,383
455,713
425,652
30,061
24,504
—
—
(1,773)
168
(293)
7,455
1,857
5,598
0.29
0.29
0.12
19,243
19,340
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 $154, ($93) and $239, respectively
Other comprehensive (loss) income
COMPREHENSIVE INCOME
See accompanying notes to consolidated financial statements.
October 2, 2021
October 3, 2020
September 28, 2019
Year Ended
$
$
66,610 $
19,009 $
(486)
(486)
292
292
66,124 $
19,301 $
5,598
(754)
(754)
4,844
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 2, 2021
October 3, 2020
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: 2021, 19,408; 2020, 19,304
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
$
89,884
$
67,917
79,049
10,056
246,906
105,624
7,668
9,745
20,767
390,710 $
49,443
$
19,406
68,849
19,823
$
$
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
—
—
19,408
78,688
206,384
(2,442)
302,038
19,304
76,387
171,068
(1,956)
264,803
337,902
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
390,710 $
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
241,665
5,598
(754)
—
(In thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
72,852 $ 151,084 $
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)(1)
43
38
38
(38)
(754)
(239)
2,057
5,598
(2,248)
74,632
19,261
19,261
(1,494) $
19,223 $ 19,223 $
(2,310)
154,372
19,009
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
Net earnings
Other comprehensive loss(1)
Stock options exercised
Vesting of restricted stock units
Compensation expense associated with
stock-based plans
Restricted stock units and stock options
surrendered for withholding taxes payable
Cash dividends declared
BALANCE AT OCTOBER 2, 2021
(1) Activity within accumulated other comprehensive income (loss) is reported net of related income taxes: 2019 $239, 2020 ($93) and 2021 $154.
See accompanying notes to consolidated financial statements.
(2,313)
171,068
66,610
78,688 $ 206,384 $
19,408 $ 9,408 $
1,008
(30)
(2,442) $
74
30
74
30
(31,294)
76,387
19,304
19,304
(1,956)
2,028
1,988
(486)
(665)
(230)
(43)
43
292
2,057
(239)
(2,310)
246,017
19,009
292
—
2,028
(230)
(2,313)
264,803
66,610
(486)
1,082
—
1,988
(665)
(31,294)
302,038
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 2, 2021
October 3, 2020
September 28, 2019
Year Ended
$
66,610 $
19,009 $
5,598
(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:
14,521
65
1,988
(118)
1,415
125
(1,533)
—
(14,100)
(10,086)
11,891
(900)
3,268
69,878
—
(17,500)
—
—
32
(416)
79
—
(17,805)
297
(297)
(31,294)
1,082
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)
—
(665)
—
(30,877)
21,196
68,688
89,884 $
(230)
—
(2,543)
30,507
38,181
68,688 $
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
$
— $
16,799
— $
1,919
501
665
—
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
—
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 2, 2021, October 3, 2020 and September 28, 2019
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 United States (“U.S.”) and, to a much lesser extent,
into Canada, Mexico, and Central and South America.
On March 16, 2020, we, through our wholly-owned subsidiary,
IWP, purchased substantially all of the assets of Strand-Tech
Manufacturing, Inc. (“STM”) (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 years 2021 and 2019 were
52-week periods and fiscal year 2020 was a 53-week period.
All references to years relate to fiscal years rather than calendar
years.
Principles of consolidation
The consolidated financial statements include the accounts
of Insteel and our subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(“GAAP”) requires us to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. There is no assurance that actual results
will not differ from these estimates.
Cash equivalents
We consider all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Financial instruments that subject us to concentrations of credit
risk consist principally of cash and cash equivalents and trade
accounts receivable. Our cash is principally concentrated at one
financial institution, which at times exceeds federally insured limits.
We are exposed to credit risk in the event of default by institutions
in which our cash and cash equivalents are held and by customers
to the extent of the amounts recorded on the balance sheet. We
invest excess cash primarily in money market funds, which are
highly liquid securities.
The majority of our accounts receivable are due from customers
that are located in the U.S. and are generally not secured by
collateral depending upon the creditworthiness of the account.
We provide an allowance for credit losses based upon our
assessment of the credit risk of specific customers, historical
trends and other information. We write off accounts receivable
when they become uncollectible. There is no disproportionate
concentration of credit risk.
Stock-based compensation
We account for stock-based compensation in accordance with
the fair value recognition provisions of Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 718, “Compensation – Stock Compensation”, which
requires stock-based compensation expense to be recognized in
net earnings based on the fair value of the award on the date of
the grant. We 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 2022 to be $1.0 million for the
SRBAs. Cash contributions to the SRBAs during 2022 are
expected to be $576,000.
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 2, 2021 by
approximately $356,000 and $293,000, respectively, and our
expected net periodic pension cost for 2022 by approximately
$39,000.
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 $13.6 million in 2021, $13.2 million in 2020 and
$12.5 million in 2019 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 2021, 2020 and 2019.
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 2021, 2020 and 2019. 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.
Impairment charges of $1.4 and $0.3 million were recorded in
2021 and 2020, respectively, related to the impairment of long-
lived assets resulting from the consolidation of our PC strand
operations with the closure of our Summerville, South Carolina
facility (see Note 5 to the consolidated financial statements). There
were no impairment losses in 2019.
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 June 2016, the FASB issued Accounting Standard Update
(“ASU”) No. 2016-13 “Credit Losses - Measurement of Credit
Losses on Financial Instruments.” ASU No. 2016-13 significantly
changes how entities measure credit losses for most financial
assets, including accounts and notes receivables, by replacing
the “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 became effective for
us in the first quarter of 2021. The adoption of this update did
not have an impact on our consolidated financial statements.
We estimate our allowance for doubtful accounts based upon
several factors, including customer credit quality and historical
write-off trends. The adoption of this guidance did not significantly
impact our accounting policies or methods utilized to determine
the allowance for doubtful accounts.
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 became effective for us in the first quarter
of 2021. The adoption of this guidance did not have a material
impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14
“Compensation - Retirement Benefits - Defined Benefit
Plans - General (Subtopic 715-20): Disclosure Framework -
Changes to the Disclosure Requirements for Defined Benefit
Plans”, which modifies the disclosure requirements for employers
that sponsor defined benefit pension or other postretirement
benefit plans. The guidance removes disclosures that are no
longer considered cost beneficial and adds new, as well as clarifies
certain other, disclosure requirements. ASU No. 2018-14 became
effective for us in fiscal 2021. The adoption of this guidance did
not have a material impact on our disclosures.
Future Adoptions
In December 2019, the FASB issued ASU No. 2019-12
“Simplifying the Accounting for Income Taxes (Topic 740).” ASU
No. 2019-12 removes certain exceptions to the general principles
in ASC 740 and also clarifies and amends existing guidance to
provide for more consistent application. ASU No. 2019-12 will
become effective for us in the first quarter of fiscal 2022. The
adoption of this guidance 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 March 2020, the FASB issued ASU No. 2020-04, “Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting.” ASU No. 2020-04 provides
optional expedients and exceptions to account for contracts,
hedging relationships and other transactions that reference
LIBOR or another reference rate if certain criteria are met. ASU No.
2020-04 is effective March 12, 2020 through December 31, 2022.
The adoption of this guidance will not have a material impact on
our consolidated financial statements and disclosures.
Note 4 Revenue Recognition
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 was 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 2, 2021 and 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 credit losses 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 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
22,628
16,950
$
487,467
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 2021
and 2020:
(In thousands)
2021
Employee
Separation
Costs
Equipment
Relocation
Costs
Facility
Closure
Costs
Asset
Impairments
Loss (Gain)
on Sale of
Equipment
Total
Liability as of October 3, 2020
$
— $
20
$
151
$
— $
— $
171
Restructuring charges, net
Cash payments
Non-cash charges
LIABILITY AS OF OCTOBER 2, 2021
2020
Restructuring charges, net
Cash payments
Non-cash charges
LIABILITY AS OF OCTOBER 3, 2020
$
$
$
13
(13)
—
—
182
(182)
—
$
$
423
(443)
—
1,017
(1,178)
1,415
—
—
(1,415)
—
—
—
2,868
(1,634)
(1,415)
— $
(10)
$
—
$
—
$
(10)
482
$
806
$
343
$
(118)
$
1,695
(462)
—
(655)
—
—
(343)
—
118
— $
20
$
151
$
— $
— $
(1,299)
(225)
171
31
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
During 2021, we determined the carrying value of the Summerville
facility acquired in the STM Acquisition exceeded its fair value,
less estimated costs to sell, and recorded an impairment of assets
held for sale of $1.4 million within restructuring charges on our
consolidated statements of operations for the year. As of October
2, 2021 and October 3, 2020, we recorded a liability of $10,000
and $171,000, respectively, for restructuring liabilities in accrued
expenses on our consolidated balance sheet. We do not currently
expect to incur any significant restructuring charges during 2022.
Acquisition costs
During 2020, we recorded $195,000 of acquisition-related costs
associated with the STM Acquisition for accounting, legal and
other professional fees.
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 2, 2021 and October 3, 2020, 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 2, 2021:
Current assets:
Cash equivalents
Other assets:
Cash surrender value of life insurance policies
TOTAL
As of October 3, 2020:
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
$
$
$
$
86,395 $
86,395 $
—
12,501
—
12,501
98,896 $
86,395 $
12,501
72,234 $
72,234 $
—
10,584
—
10,584
82,818 $
72,234 $
10,584
As of October 2, 2021 and October 3, 2020, 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 2020 (see Note 5 to the
consolidated financial statements). During 2021, we recognized
$1.4 million of impairment charges related to the Summerville
facility acquired in the STM Acquisition to reflect its fair value
of $6.3 million as of October 2, 2021. The Summerville facility
was classified as assets held for sale in other assets on our
consolidated balance sheet as of October 2, 2021. The carrying
amounts of accounts receivable, accounts payable and accrued
expenses approximate fair value due to the short-term maturities
of these financial instruments.
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 2, 2021:
Customer relationships
Developed technology and know-how
Non-competition agreements
Trade name
As of October 3, 2020:
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
17.1
20.0
5.0
2.7
$
9,870 $
(3,482)
$
1,800
400
250
(639)
(284)
(247)
6,388
1,161
116
3
$
$
12,320 $
(4,652)
$
7,668
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
Amortization expense for intangibles was $899,000 in 2021, $1.0 million in 2020 and $1.1 million in 2019. Amortization expense for
the next five years is $822,000 in 2022, $757,000 in 2023, $751,000 in 2024, $744,000 in 2025 and $752,000 in 2026.
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 2, 2021, no borrowings were
outstanding on the Credit Facility, $98.6 million of borrowing
capacity was available and outstanding letters of credit totaled
$1.4 million. As of October 3, 2020, 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 2, 2021, the applicable interest rate margins on the
Credit Facility were 0.25% for index rate loans and 1.25% for
LIBOR loans.
Our ability to borrow available amounts under the Credit Facility
will be restricted or eliminated in the event of certain covenant
breaches, events of default or if we are unable to make certain
representations and warranties provided for under the terms of the
Credit Facility. We are required to maintain a fixed charge coverage
ratio of not less than 1.0 at the end of each fiscal quarter for the
twelve-month period then ended when the amount of liquidity on
the Credit Facility is less than $10.0 million. In addition, the terms
of the Credit Facility restrict our ability to, among other things:
engage in certain business combinations or divestitures; make
investments in or loans to third parties, unless certain conditions
are met with respect to such investments or loans; pay cash
dividends or repurchase shares of our stock subject to certain
minimum borrowing availability requirements; incur or assume
indebtedness; issue securities; enter into certain transactions
with our affiliates; or permit liens to encumber our property and
assets. The terms of the Credit Facility also provide that an event
of default will occur upon the occurrence of, among other things:
defaults or breaches under the loan documents, subject in certain
cases to cure periods; defaults or breaches by us or any of our
33
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
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 2, 2021, we were in compliance with all of the financial
and negative covenants under the Credit Facility and there have
not been any events of default.
Amortization of capitalized financing costs associated with the
Credit Facility was $65,000 in 2021, $66,000 in 2020 and $65,000
in 2019. We expect the amortization of capitalized financing costs
to approximate the following amounts for the next five fiscal years:
Fiscal year
2022
2023
2024
$
In thousands
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 2, 2021, there were 621,000 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 $860,000 in 2021, $810,000 in 2020 and $889,000 in
2019. As of October 2, 2021, there was $497,000 of unrecognized compensation cost related to unvested options which is expected
to be recognized over a weighted average period of 1.65 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 2021, 2020 and 2019 were $14.47, $8.05 and $7.15 per share, respectively,
based on the following weighted-average assumptions:
Expected term (in years)
Risk-free interest rate
Expected volatility
Expected dividend yield
October 2, 2021
October 3, 2020
September 28, 2019
Year Ended
4.87
0.68%
50.34%
0.42%
4.81
0.95%
47.18%
0.59%
4.59
2.03%
42.79%
0.56%
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 Averag
Outstanding at September 29, 2018
264
$10.23 - $41.85 $ 29.25
Granted
Exercised
Outstanding at September 28, 2019
Granted
Forfeited
Outstanding at October 3, 2020
Granted
Exercised
129
18.25 - 21.57
(5)
18.05 - 26.75
388
121
(27)
482
10.23 - 41.85
19.86 - 22.09
18.05 - 41.85
10.23 - 41.85
74
29.43 - 41.87
(128)
10.23 - 34.49
19.74
23.95
26.16
21.08
25.88
24.90
34.76
21.17
OUTSTANDING AT OCTOBER 2, 2021
428
17.22 - 41.87
27.72
6.48 years
Vested and anticipated to vest in the future at
October 2, 2021
Exercisable at October 2, 2021
416
246
27.70
28.75
6.41 years
4.74 years
Aggregate
Intrinsic Value
(in thousands)
$
21
2,212
5,006
4,867
2,604
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 2, 2021
October 3, 2020
September 28, 2019
Year Ended
43
68
$
1,430
$
1,444
$
1,128
1,218
61
1,225
1,168
As of October 2, 2021, there was $748,000 of unrecognized compensation cost related to unvested RSUs which is expected to be
recognized over a weighted average period of 1.88 years.
The following table summarizes RSU activity:
(Unit amounts in thousands)
Balance, September 29, 2018
Granted
Released
Balance, September 28, 2019
Granted
Forfeited
Released
Balance, October 3, 2020
Granted
Released
BALANCE, OCTOBER 2, 2021
Restricted
Stock Units
Outstanding
Weighted Average
Grant Date
Fair Value
103
$
61
(49)
115
68
(6)
(55)
122
43
(36)
129
30.40
20.18
27.64
26.16
21.29
25.49
27.07
23.07
33.22
29.21
24.73
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
INCOME TAXES
EFFECTIVE INCOME TAX RATE
October 2, 2021
October 3, 2020
September 28, 2019
Year Ended
$
17,904
$
5,056
$
1,707
19,611
(180)
62
(118)
529
5,585
(288)
(136)
(424)
$
19,493
$
5,161
$
(126)
185
59
1,649
149
1,798
1,857
22.6 %
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 2, 2021
October 3, 2020
September 28, 2019
Provision for income taxes at federal statutory rate
$ 18,082
21.0% $
5,076
21.0% $
1,566
21.0%
State income taxes, net of federal tax benefit
Stock-based compensation
Valuation allowance
Net operating loss carryback - CARES Act
Federal tax return true-up
Other, net
1,544
(253)
(134)
—
—
254
1.8
(0.3)
(0.2)
—
—
0.3
319
128
(50)
(223)
—
(89)
1.3
0.5
(0.2)
(0.9)
—
(0.3)
297
90
24
—
(142)
22
4.0
1.2
0.3
—
(1.9)
0.3
PROVISION FOR INCOME TAXES
$ 19,493
22.6% $ 5,161
21.4% $ 1,857
24.9%
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
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 2, 2021
October 3, 2020
$
$
2,921
2,280
1,204
387
54
(73)
6,773
(10,901)
(1,374)
(385)
(409)
(13,069)
$
(6,296)
$
2,727
1,885
1,328
568
92
(207)
6,393
(10,766)
(1,217)
(566)
(412)
(12,961)
(6,568)
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com Item 8 Financial Statements and Supplementary Data
PART II
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 2, 2021 and October 3, 2020, we recorded
deferred tax liabilities (net of valuation allowances) of $6.3 million
and $6.6 million, respectively, in other liabilities on our consolidated
balance sheet. We have $2.1 million of state NOLs that begin to
expire in 2031, but principally expire between 2031 and 2036.
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 2, 2021, we recorded a valuation
allowance of $73,000 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 $134,000 decrease in the valuation allowance during
2021 is primarily due to the utilization of state NOLs for which an
allowance had been recorded together with a reduction in state
apportionment rates.
As of October 2, 2021, 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
2021, 2020 and 2019.
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 2016 remain subject to examination.
Note 11 Employee Benefit Plans
Supplemental retirement benefit plan
We have SRBAs with certain of our key employees (each, a
“Participant”). Under the SRBAs, if the Participant remains in
continuous service with us for a period of at least 30 years, we
will pay the Participant a supplemental retirement benefit for
the 15-year period following the Participant’s retirement equal
to 50% of the Participant’s highest average annual base salary
for 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:
October 2, 2021
October 3, 2020
September 28, 2019
Year Ended
Benefit obligation at beginning of year
$
11,610
$
11,278
$
Service cost
Interest cost
Actuarial loss (gain)
Distributions
BENEFIT OBLIGATION AT END OF YEAR
Change in plan assets:
Actual employer contributions
Actual distributions
PLAN ASSETS AT FAIR VALUE AT END OF YEAR
Reconciliation of funded status to net amount
recognized:
Funded status
NET AMOUNT RECOGNIZED
$
$
$
$
$
312
316
855
(205)
12,888
205
(205)
—
(12,888)
(12,888)
$
$
$
$
$
338
334
(91)
(249)
11,610
249
(249)
—
(11,610)
(11,610)
$
$
$
$
$
9,749
297
384
1,133
(285)
11,278
285
(285)
—
(11,278)
(11,278)
37
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
(In thousands)
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 2, 2021
October 3, 2020
September 28, 2019
Year Ended
$
$
$
$
3,213
3,213
855
(215)
$
$
$
2,574
2,574
$
$
2,958
2,958
(91)
$
(294)
1,133
(140)
640
$
(385)
$
993
In 2021, 2020 and 2019, the actuarial gain (loss) includes amounts resulting from changes in actuarial assumptions utilized to calculate
our benefit plan obligation such as the discount rate, estimated future compensation levels and changes in plan participants.
The accumulated benefit obligation was $11.7 million and $10.8 million as of October 2, 2021 and October 3, 2020, respectively.
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 2, 2021
October 3, 2020
September 28, 2019
$
$
312
316
215
843
$
$
338
334
294
966
$
$
297
384
140
821
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 2, 2021
October 3, 2020 September 28, 2019
2.75%
3.00%
2.75%
3.00%
3.00%
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)
2022
2023
2024
2025
2026
2027 - 2031
38
$
In thousands
576
542
582
893
818
4,443
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 $1.5 million in 2021, $1.3 million in 2020 and
$1.2 million in 2019.
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 $6.4 million in 2021, $6.0 million in 2020
and $5.8 million in 2019. 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 2019 . 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.
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 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.
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 2, 2021, we had $125.3 million in non-cancelable
purchase commitments for raw material extending as long
as approximately 100 days and $3.6 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
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
39
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
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 $1.4 million in 2021, $1.3 million in 2020 and
$1.6 million in 2019.
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
Year Ended
October 2, 2021
October 3, 2020
1,413
$
579
1,301
1,771
October 2, 2021
October 3, 2020
1,717 $
2,522
$
$
1,030
695
1,230
1,300
2,530
TOTAL OPERATING LEASE LIABILITIES
$
1,725 $
The weighted average remaining lease terms and discount rates for operating leases are as follows:
Weighted average lease term
Weighted average discount rate
October 2, 2021
October 3, 2020
1.8 years
4.1%
2.3 years
4.4%
40
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com
Aggregate future operating lease payments as of October 2, 2021 are as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
TOTAL FUTURE OPERATING LEASE PAYMENTS
Less: imputed interest
PRESENT VALUE OF LEASE LIABILITIES
Note 14 Earnings Per Share
Item 8 Financial Statements and Supplementary Data
PART II
$
$
1,075
583
129
2
—
—
1,789
(64)
1,725
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 2, 2021
October 3, 2020 September 28, 2019
Year Ended
$
$
66,610
$
19,009
$
19,344
190
19,534
19,278
105
19,383
3.44
$
3.41
0.99
$
0.98
5,598
19,243
97
19,340
0.29
0.29
Options and RSUs that were antidilutive and not included in the diluted EPS calculation amounted to 142,000 shares in 2021, 369,000
shares in 2020 and 240,000 shares in 2019.
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 by geographic region are as follows:
(In thousands)
Net sales:
United States
Foreign
TOTAL
October 2, 2021
October 3, 2020 September 28, 2019
Year Ended
$
$
583,458
$
470,420
$
7,143
2,198
454,373
1,340
590,601
$
472,618
$
455,713
41
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART II
Item 8 Financial Statements and Supplementary Data
Our sales by product line are as follows:
(In thousands)
Net sales:
Welded wire reinforcement
Prestressed concrete strand
TOTAL
October 2, 2021
October 3, 2020 September 28, 2019
Year Ended
$
$
358,334
$
294,129
$
232,267
178,489
290,423
165,290
590,601
$
472,618
$
455,713
There were no customers that accounted for 10% or more of our net sales in 2021, 2020 and 2019.
Note 16 Related Party Transactions
Sales to a company affiliated with one of our former directors amounted to $716,000 in 2019. There were no related party transactions
in 2021 or 2020.
Note 17 Other Financial Data
Balance sheet information:
(In thousands)
Accounts receivable, net:
Accounts receivable
Less allowance for credit losses
TOTAL
Inventories:
Raw materials
Work in process
Finished goods
TOTAL
Other current assets:
Prepaid insurance
Other
TOTAL
Other assets:
Cash surrender value of life insurance policies
Assets held for sale
Right-of-use assets
Capitalized financing costs, net
Other
TOTAL
Property, plant and equipment, net:
Land and land improvements
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
TOTAL
42
October 2, 2021
October 3, 2020
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
68,274
(357)
67,917
50,459
6,680
21,910
79,049
5,169
4,887
10,056
12,501
6,306
1,717
106
137
20,767
14,554
53,182
180,654
10,191
258,581
(152,957)
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)
$
105,624
$
101,392
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com (In thousands)
Accrued expenses:
Salaries, wages and related expenses
Income taxes
Customer rebates
Property taxes
Operating lease liabilities
Sales allowance reserves
State sales and use taxes
Holdback for business acquired
Other
TOTAL
Other liabilities:
Deferred compensation
Deferred income taxes
Operating lease liabilities
TOTAL
Item 8 Financial Statements and Supplementary Data
PART II
October 2, 2021
October 3, 2020
$
$
$
$
8,229
4,014
2,354
1,575
1,030
991
760
—
453
19,406
12,832
6,296
695
19,823
$
$
$
$
4,971
1,201
1,581
1,726
1,230
—
544
1,000
2,464
14,717
11,553
6,568
1,300
19,421
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 2, 2021, there was $24.8 million remaining available
for future share repurchases under this Authorization. There were
no share repurchases during 2021, 2020 or 2019.
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
We have audited the accompanying consolidated balance
sheets of Insteel Industries, Inc. (a North Carolina corporation)
and subsidiaries (the “Company”) as of October 2, 2021 and
October 3, 2020, 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 2, 2021, 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 2, 2021 and October 3,
2020 and the results of its operations and its cash flows for each
of the three years in the period ended of October 2, 2021, 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 2, 2021, 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 28, 2021 expressed an
unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with 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 supporting the amounts and disclosures
in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical audit matters
Critical audit matters communicated below are matters arising
from the current period audit of the financial statements that
were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. We determined
there are no critical audit matters.
/s/ Grant Thornton LLP
We have served as the Company’s auditor since fiscal 2002.
Charlotte, North Carolina
October 28, 2021
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 2, 2021, October 3, 2020
and September 28, 2019
ALLOWANCE FOR CREDIT LOSSES
(In thousands)
Balance, beginning of year
Amounts charged to earnings
Write-offs, net of recoveries
BALANCE, END OF YEAR
Year Ended
October 2, 2021
October 3, 2020 September 28, 2019
$
$
291
$
254
$
80
(14)
65
(28)
357
$
291
$
295
(41)
—
254
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 2, 2021. 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
2, 2021. During the quarter ended October 2, 2021, 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 2, 2021, 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 2, 2021, 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 2, 2021, 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 2, 2021, and our report
dated October 28, 2021 expressed an unqualified 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 28, 2021
46
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com PART II
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART II
Item 9B Other Information
None.
Item 9C Disclosure Regarding Foreign Jurisdictions that
Prevent Inspections
Not applicable.
47
INSTEEL INDUSTRIES INC. ❘ Form 10-K 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 2022 Annual Meeting of Shareholders and is incorporated herein by reference.
Information on executive officers appears under the caption “Information About Our Executive Officers” in Part I of this report.
We have adopted a Code of Business Conduct that applies to all directors, officers and employees, which is available on our website at
https://investors.insteel.com. To the extent permissible under applicable law (the rules of the SEC or NYSE listing standards), we intend
to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting on our website any amendment or waiver to a provision
of our Code of Business Conduct that requires disclosure under applicable law (the rules of the SEC or NYSE listing standards). Our
website does not constitute part of this Annual Report on Form 10-K.
Item 11 Executive Compensation
The information called for by this item appears under the captions “Executive Compensation”, “Compensation Committee Interlocks
and Insider Participation” and “Director Compensation” in our Proxy Statement for the 2022 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 2022
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 2022 Annual Meeting of Shareholders and is
incorporated herein by reference.
Item 14 Principal Accounting Fees and Services
The information called for by this item appears under the caption “Item Number Three: Ratification of the Appointment of Grant Thornton
LLP” in our Proxy Statement for the 2022 Annual Meeting of Shareholders and is incorporated herein by reference.
48
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com 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 46 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 50 and 51.
(c) Financial Statement Schedules
See Item 15(a)(2) above.
Item 16 Form 10-K Summary
None.
49
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART IV
Exhibit Index
Exhibit Index
Exhibit
Number
Description
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).
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*
50
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com 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*
21.1
23.1
31.1
31.2
32.1
PART IV
Exhibit Index
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).
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 2, 2021.
Consent of Independent Registered Public Accounting Firm.
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.
51
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART IV
Exhibit Index
Exhibit
Number
32.2
101
Description
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 2, 2021,
filed on October 28, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language) includes: (i) the
Consolidated Statements of Operations for the years ended October 2, 2021, October 3, 2020 and September 28,
2019, (ii) the Consolidated Statements of Comprehensive Income for the years ended October 2, 2021, October 3,
2020 and September 28, 2019, (iii) the Consolidated Balance Sheets as of October 2, 2021 and October 3,
2020, (iv) the Consolidated Statements of Cash Flows for the years ended October 2, 2021, October 3, 2020 and
September 28, 2019, (v) the Consolidated Statements of Shareholders’ Equity as of October 2, 2021, October 3,
2020 and September 28, 2019 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 2, 2021, filed October 28, 2021,
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.
52
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com
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 28, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on October 28, 2021 below by the
following persons on behalf of the registrant and in the capacities indicated:
Name and Signature
Position(s)
/s/ H. O. WOLTZ III
H. O. WOLTZ III
/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
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
53
INSTEEL INDUSTRIES INC. ❘ Form 10-K PART IV
Signatures
Exhibit 21.1 List of Subsidiaries of Insteel Industries, Inc.
The following is a list of our subsidiaries as of October 2, 2021, 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 28, 2021 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 2, 2021.
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 28, 2021
54
INSTEEL INDUSTRIES INC. ❘ Form 10-Kwww.insteel.com This page intentionally left blank
This page intentionally left blank
Corporate Information
Board of Directors
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
Executive Officers
H.O. Woltz III
Chairman, President and
Chief Executive Officer
Mark A. Carano
Senior Vice President,
Chief Financial Officer and Treasurer
James F. Petelle
Vice President Administration,
Secretary and Chief Legal Officer
Richard T. Wagner
Senior Vice President,
Chief Operating Officer
James R. York
Senior Vice President,
Sourcing and Logistics
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 15, 2022 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 New York Stock
Exchange under the symbol
IIIN. As of October 28, 2021,
there were 519 shareholders
of record.
IIIN
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
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 2021 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 3 of Insteel’s
Annual Report on Form 10-K for the year
ended October 2, 2021, which is included
as part of this 2021 Annual Report.
1373 Boggs Drive
Mount Airy, North Carolina 27030
www.insteel.com