iiin20220403

iiin20220403_10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 2, 2022

☐	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

(Address of principal executive offices)

27030

(Zip Code)

Registrant’s telephone number, including area code: (336) 786-2141

Securities registered subject to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock (No Par Value)	IIIN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒

No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒

No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐

No ☒

As of April 21, 2022, 19,439,206 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Unaudited Financial Statements
	Consolidated Statements of Operations and Comprehensive Income	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Cash Flows	5
	Consolidated Statements of Shareholders' Equity	6
	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 6.	Exhibits	25

SIGNATURES		26

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Six Months Ended
	April 2,			April 3,			April 2,			April 3,
	2022			2021			2022			2021

Net sales	$	213,209		$	138,999		$	391,668		$	258,604
Cost of sales		156,140			108,771			292,235			208,525
Gross profit		57,069			30,228			99,433			50,079
Selling, general and administrative expense		7,202			10,330			19,483			18,883
Restructuring charges (recoveries), net		(365	)		545			(318	)		1,202
Other expense (income), net		(11	)		75			(16	)		88
Interest expense		23			24			45			49
Interest income		(10	)		(5	)		(24	)		(10	)
Earnings before income taxes		50,230			19,259			80,263			29,867
Income taxes		11,213			4,339			18,117			6,804
Net earnings	$	39,017		$	14,920		$	62,146		$	23,063


Net earnings per share:
Basic	$	2.00		$	0.77		$	3.19		$	1.19
Diluted		1.99			0.76			3.17			1.18

Weighted average shares outstanding:
Basic		19,492			19,328			19,487			19,319
Diluted		19,623			19,517			19,615			19,476

Cash dividends declared per share	$	0.03		$	0.03		$	2.06		$	1.56

Comprehensive income	$	39,017		$	14,920		$	62,146		$	23,063

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

	(Unaudited)
	April 2,			October 2,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	69,725		$	89,884
Accounts receivable, net		80,690			67,917
Inventories		127,049			79,049
Other current assets		5,340			10,056
Total current assets		282,804			246,906
Property, plant and equipment, net		107,159			105,624
Intangibles, net		7,256			7,668
Goodwill		9,745			9,745
Other assets		13,594			20,767
Total assets	$	420,558		$	390,710

Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	58,459		$	49,443
Accrued expenses		15,357			19,406
Total current liabilities		73,816			68,849
Other liabilities		21,595			19,823
Commitments and contingencies
Shareholders' equity:
Common stock		19,439			19,408
Additional paid-in capital		79,613			78,688
Retained earnings		228,537			206,384
Accumulated other comprehensive loss		(2,442	)		(2,442	)
Total shareholders' equity		325,147			302,038
Total liabilities and shareholders' equity	$	420,558		$	390,710

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Six Months Ended
	April 2,			April 3,
	2022			2021
Cash Flows From Operating Activities:
Net earnings	$	62,146		$	23,063
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		7,345			7,200
Amortization of capitalized financing costs		33			32
Stock-based compensation expense		1,102			934
Deferred income taxes		1,116			(466	)
(Gain) loss on sale of property, plant and equipment and assets held for sale		(608	)		115
Gain from life insurance proceeds		(364	)		-
Increase in cash surrender value of life insurance policies over premiums paid		-			(1,168	)
Net changes in assets and liabilities:
Accounts receivable, net		(12,773	)		(4,306	)
Inventories		(48,000	)		340
Accounts payable and accrued expenses		6,805			2,677
Other changes		3,264			818
Total adjustments		(42,080	)		6,176
Net cash provided by operating activities		20,066			29,239

Cash Flows From Investing Activities:
Capital expenditures		(8,617	)		(8,768	)
Decrease (increase) in cash surrender value of life insurance policies		35			(197	)
Proceeds from sale of assets held for sale		6,934			19
Proceeds from life insurance claims		1,456			-
Proceeds from surrender of life insurance policies		106			23
Net cash used for investing activities		(86	)		(8,923	)

Cash Flows From Financing Activities:
Proceeds from long-term debt		133			134
Principal payments on long-term debt		(133	)		(134	)
Cash dividends paid		(39,993	)		(30,131	)
Payment of employee tax withholdings related to net share transactions		(192	)		(110	)
Cash received from exercise of stock options		46			177
Net cash used for financing activities		(40,139	)		(30,064	)

Net decrease in cash and cash equivalents		(20,159	)		(9,748	)
Cash and cash equivalents at beginning of period		89,884			68,688
Cash and cash equivalents at end of period	$	69,725		$	58,940

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net	$	18,053		$	5,812
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable		372			1,357
Restricted stock units and stock options surrendered for withholding taxes payable		192			110

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)

											Accumulated
					Additional						Other			Total
	Common Stock				Paid-In			Retained			Comprehensive			Shareholders'
	Shares		Amount		Capital			Earnings			Loss			Equity
*For the three and six months ended April 2, 2022*

Balance at October 2, 2021		19,408	$	19,408	$	78,688		$	206,384		$	(2,442	)	$	302,038
Net earnings									23,129						23,129
Stock options exercised, net		6		6		40									46
Compensation expense associated with stock-based plans						272									272
Restricted stock units and stock options surrendered for withholding taxes payable						(55	)								(55	)
Cash dividends declared									(39,410	)					(39,410	)
Balance at January 1, 2022		19,414	$	19,414	$	78,945		$	190,103		$	(2,442	)	$	286,020
Net earnings									39,017						39,017
Vesting of restricted stock units		25		25		(25	)								-
Compensation expense associated with stock-based plans						830									830
Restricted stock units and stock options surrendered for withholding taxes payable						(137	)								(137	)
Cash dividends declared									(583	)					(583	)
Balance at April 2, 2022		19,439	$	19,439	$	79,613		$	228,537		$	(2,442	)	$	325,147

*For the three and six months ended April 3, 2021*

Balance at October 3, 2020		19,304	$	19,304	$	76,387		$	171,068		$	(1,956	)	$	264,803
Net earnings									8,143						8,143
Stock options exercised, net		10		10		118									128
Compensation expense associated with stock-based plans						224									224
Restricted stock units and stock options surrendered for withholding taxes payable						(13	)								(13	)
Cash dividends declared									(29,551	)					(29,551	)
Balance at January 2, 2021		19,314		19,314		76,716			149,660			(1,956	)		243,734
Net earnings									14,920						14,920
Stock options exercised, net		2		2		47									49
Vesting of restricted stock units		25		25		(25	)								-
Compensation expense associated with stock-based plans						710									710
Restricted stock units and stock options surrendered for withholding taxes payable						(97	)								(97	)
Cash dividends declared									(580	)					(580	)
Balance at April 3, 2021		19,341	$	19,341	$	77,351		$	164,000		$	(1,956	)	$	258,736

See accompanying notes to consolidated financial statements

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) on a basis consistent with that used in the Annual Report on Form 10-K for the year ended October 2, 2021 (“2021 Form 10-K”) filed by us with the Securities and Exchange Commission (the “SEC”). These statements include all normal recurring adjustments necessary to present fairly the consolidated balance sheets and the statements of operations and comprehensive income, cash flows and shareholders’ equity for the periods indicated. The October 2, 2021 consolidated balance sheet was derived from audited consolidated financial statements but does not include all the disclosures required by GAAP. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2021 Form 10-K. The results of operations for the periods indicated are not necessarily indicative of the results that may be expected for the full fiscal year or any future periods.

(2) Recent Accounting Pronouncements

Current Adoptions

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12 “Simplifying the Accounting for Income Taxes (Topic 740)”. ASU No. 2019-12 removes certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740 and also clarifies and amends existing guidance to provide for more consistent application. We adopted ASU No. 2019-12 in the first quarter. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Future Adoptions

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. ASU No. 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. ASU No. 2020-04 is effective March 12, 2020 through December 31, 2022. The adoption of this guidance will not have a material impact on our consolidated financial statements and disclosures.

(3) Restructuring

On March 16, 2020, we purchased substantially all of the assets of Strand-Tech Manufacturing, Inc. (“STM”) for an adjusted purchase price of $19.4 million, reflecting certain post-closing adjustments (the “STM Acquisition”). STM was a leading manufacturer of prestressed concrete strand (“PC strand”) for concrete construction applications. We acquired, among other assets, STM’s accounts receivable, inventories, production equipment and facility located in Summerville, South Carolina, and assumed certain of its accounts payable and accrued liabilities.

In connection with the STM acquisition, we elected to consolidate our PC strand operations through the closure of the Summerville facility and the redeployment of its equipment to our other three PC strand production facilities located in Gallatin, Tennessee; Houston, Texas; and Sanderson, Florida. Operations at the Summerville facility ceased during the third quarter of fiscal 2020.

Following is a summary of the restructuring activity during the three- and six-month periods ended April 2, 2022 and April 3, 2021:

(In thousands)	Employee Separation		Equipment Relocation		Facility Closure			Asset		Gain on Sale
	Costs		Costs		Costs			Impairments		of Property		Total
*2022*
Liability as of October 2, 2021	$	-	$	-	$	10		$	-	$	-	$	10
Restructuring charges		-		-		47			-		-		47
Cash payments		-		-		(53	)		-		-		(53	)
Non-cash charges		-		-		-			-

SEC Form 10-Q filed by Insteel Industries Inc.