iiin20220702

iiin20220702_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 July 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 July 21, 2022, 19,505,808 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	23

Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

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						Nine Months Ended
	July 2,			July 3,			July 2,			July 3,
	2022			2021			2022			2021

Net sales	$	227,173		$	160,739		$	618,841		$	419,343
Cost of sales		169,091			129,189			461,326			337,714
Gross profit		58,082			31,550			157,515			81,629
Selling, general and administrative expense		8,235			6,184			27,718			25,067
Restructuring charges (recoveries), net		-			1,598			(318	)		2,800
Other expense (income), net		1			35			(15	)		123
Interest expense		23			24			68			73
Interest income		(86	)		(5	)		(110	)		(15	)
Earnings before income taxes		49,909			23,714			130,172			53,581
Income taxes		11,350			5,319			29,467			12,123
Net earnings	$	38,559		$	18,395		$	100,705		$	41,458


Net earnings per share:
Basic	$	1.97		$	0.95		$	5.16		$	2.14
Diluted		1.96			0.94			5.13			2.13

Weighted average shares outstanding:
Basic		19,537			19,352			19,503			19,330
Diluted		19,657			19,573			19,629			19,508

Cash dividends declared per share	$	0.03		$	0.03		$	2.09		$	1.59

Comprehensive income	$	38,559		$	18,395		$	100,705		$	41,458

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

	(Unaudited)
	July 2,			October 2,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	63,045		$	89,884
Accounts receivable, net		81,175			67,917
Inventories		192,447			79,049
Other current assets		6,998			10,056
Total current assets		343,665			246,906
Property, plant and equipment, net		108,265			105,624
Intangibles, net		7,051			7,668
Goodwill		9,745			9,745
Other assets		12,322			20,767
Total assets	$	481,048		$	390,710

Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	77,159		$	49,443
Accrued expenses		17,877			19,406
Total current liabilities		95,036			68,849
Other liabilities		21,088			19,823
Commitments and contingencies
Shareholders' equity:
Common stock		19,506			19,408
Additional paid-in capital		81,349			78,688
Retained earnings		266,511			206,384
Accumulated other comprehensive loss		(2,442	)		(2,442	)
Total shareholders' equity		364,924			302,038
Total liabilities and shareholders' equity	$	481,048		$	390,710

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	July 2,			July 3,
	2022			2021
Cash Flows From Operating Activities:
Net earnings	$	100,705		$	41,458
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		10,977			10,828
Amortization of capitalized financing costs		49			49
Stock-based compensation expense		1,395			1,174
Deferred income taxes		624			(36	)
Asset impairment charges		-			1,415
(Gain) loss on sale of property, plant and equipment and assets held for sale		(595	)		125
Gain from life insurance proceeds		(364	)		-
Increase in cash surrender value of life insurance policies over premiums paid		-			(1,535	)
Net changes in assets and liabilities:
Accounts receivable, net		(13,258	)		(5,532	)
Inventories		(113,398	)		(2,195	)
Accounts payable and accrued expenses		27,197			19,642
Other changes		1,782			69
Total adjustments		(85,591	)		24,004
Net cash provided by operating activities		15,114			65,462

Cash Flows From Investing Activities:
Capital expenditures		(12,251	)		(13,681	)
Decrease (increase) in cash surrender value of life insurance policies		1,012			(309	)
Proceeds from sale of assets held for sale		6,934			79
Proceeds from life insurance claims		1,456			-
Proceeds from surrender of life insurance policies		110			27
Net cash used for investing activities		(2,739	)		(13,884	)

Cash Flows From Financing Activities:
Proceeds from long-term debt		220			230
Principal payments on long-term debt		(220	)		(230	)
Cash dividends paid		(40,578	)		(30,712	)
Payment of employee tax withholdings related to net share transactions		(286	)		(161	)
Cash received from exercise of stock options		1,650			434
Net cash used for financing activities		(39,214	)		(30,439	)

Net (decrease) increase in cash and cash equivalents		(26,839	)		21,139
Cash and cash equivalents at beginning of period		89,884			68,688
Cash and cash equivalents at end of period	$	63,045		$	89,827

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net	$	29,998		$	10,874
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable		1,286			946
Restricted stock units and stock options surrendered for withholding taxes payable		286			161

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 nine months ended July 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
Net earnings									38,559						38,559
Stock options exercised, net		67		67		1,537									1,604
Compensation expense associated with stock-based plans						293									293
Restricted stock units and stock options surrendered for withholding taxes payable						(94	)								(94	)
Cash dividends declared									(585	)					(585