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” and similar expressions are intended to identify forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, they are subject to a number of risks and uncertainties, and we can provide no assurances that such plans, intentions or expectations will be 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 future operations or financial performance; however, they include, but are not limited to, the following:

 

●

general economic and competitive conditions in the markets in which we operate;

 

●

changes in the spending levels for nonresidential and residential construction and the impact on demand for our products;

 

●

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;

 

●

the cyclical nature of the steel and building material industries;

 

●

credit market conditions and the relative availability of financing for us, our customers and the construction industry as a whole;

 

●

fluctuations in the cost and availability of our primary raw material, hot-rolled carbon steel wire rod, from domestic and foreign suppliers;

 

●

competitive pricing pressures and our ability to raise selling prices in order to recover increases in raw material or operating costs;

 

●

changes in U.S. or foreign trade policy affecting imports or exports of steel wire rod or our products;

 

●

unanticipated changes in customer demand, order patterns and inventory levels;

 

●

the impact of fluctuations in demand and capacity utilization levels on our unit manufacturing costs;

 

●

our ability to further develop the market for engineered structural mesh (“ESM”) and expand our shipments of ESM;

 

●

legal, environmental, economic or regulatory developments that significantly impact our operating costs;

 

●

unanticipated plant outages, equipment failures or labor difficulties; and

 

●

the risks and uncertainties discussed herein under the caption “Risk Factors.”

 

 

PART I

 

Item 1. Business

 

General

 

Insteel Industries, Inc. (“we,” “us,” “our,” “the Company” or “Insteel”) is the nation’s largest manufacturer of steel wire reinforcing products for concrete construction applications. We manufacture and market prestressed concrete strand (“PC strand”) and welded wire reinforcement (“WWR”), including ESM, concrete pipe reinforcement (“CPR”) and standard welded wire reinforcement (“SWWR”). Our products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. For fiscal 2018, 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 acquisitions in existing or related markets that leverage our infrastructure and core competencies in the manufacture and marketing of concrete reinforcing products.

 

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. Our net sales and long-lived assets by geographic region are discussed in Note 13 to our consolidated financial statements and incorporated herein by reference.

 

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. For fiscal years 2018, 2017 and 2016, PC strand sales represented 40%, 38% and 39%, respectively, of our net sales.

 

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. For fiscal years 2018, 2017 and 2016, WWR sales represented 60%, 62% and 61%, respectively, of our net sales.

 

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, delivering them primarily by truck, using common or contract carriers. The delivery method selected is dependent upon backhaul opportunities, comparative costs and customer service requirements.

 

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 2018, 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 2018, 2017 and 2016. The loss of a single customer or a few customers would not have a material adverse effect 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 2018 will be shipped during the first quarter of fiscal 2019.

 

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. From a seasonal standpoint, shipments typically reach their highest level of the year 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. From a cyclical standpoint, construction activity and demand for our products is generally correlated with 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. Trade actions initiated by the U.S. government or domestic wire rod producers can significantly impact the pricing and availability of imported wire rod, which during fiscal years 2018 and 2017 represented approximately 14% and 27%, 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. Certain segments of the PC strand market and the majority of our CPR and ESM products are certified to customers to be in compliance with the domestic content regulations.

 

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, Keystone Consolidated Industries, Inc. (“Keystone”), Oklahoma Steel and Wire, and Gerdau Long Products North America, 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 Keystone), 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, Keystone and Wire Mesh Corporation. Import competition is also a significant factor in certain segments of the PC strand market, and, to a lesser extent, the SWWR market that are not subject to “Buy America” requirements.

 

 

In response to irrationally-priced 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.

 

Quality and service expectations of customers have risen substantially over the years and are key factors that impact their selection of suppliers. Technology has become a critical competitive factor from the standpoint of manufacturing costs, quality and customer service capabilities. In view of our strong market positions, broad product offering and national footprint, technologically advanced manufacturing facilities, low-cost production capabilities, sophisticated information systems and financial strength and flexibility, we believe that we are well-positioned to compete favorably with other producers of our concrete reinforcing products.

 

Employees 

 

As of September 29, 2018, we had 810 employees, none of which were represented by labor unions. In the event of production disruptions, we believe that our contingency plans would enable us to continue serving our customers, although there can be no assurances that a work slowdown or stoppage would not adversely impact our operating costs and financial results.

 

Product Warranties

 

Our products are used in applications that are subject to inherent risks, including performance deficiencies, personal injury, property damage, environmental contamination or loss of production. We warrant our products to meet certain specifications. Although actual or claimed deficiencies from these specifications may give rise to claims, we do not maintain a reserve for warranties as the historical claims have been immaterial. We maintain product liability insurance coverage to minimize our exposure to such risks.

 

Environmental Matters

 

We believe that we are in compliance in all material respects with applicable environmental laws and regulations. We have experienced no material difficulties in complying with legislative or regulatory standards and believe that these standards have not materially impacted our financial position or results of operations. Although our future compliance with additional environmental 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 2019.

 

Available Information

 

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, are available at no cost on our web site at https://insteelgcs.gcs-web.com/financial-information/sec-filings and the SEC’s web site at www.sec.gov as soon as reasonably practicable after we file these reports electronically with, or furnish them to, the SEC. The information available on our web site and the SEC’s web site 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.

 

Our business is cyclical and can be negatively impacted by prolonged economic downturns or tightening in the financial markets that reduce the level of construction activity and demand for our products.

 

Demand for our products is cyclical in nature and sensitive to changes in the economy and in the financial markets. Our products are sold primarily to manufacturers of concrete products that are used for a broad range of nonresidential and residential construction applications. Demand for our products is driven by the level of construction activity, which tends to be correlated with conditions in the overall economy as well as other factors beyond our control. Tightening in the financial markets could adversely impact demand for our products by reducing the availability of financing to our customers and the construction industry as a whole and increasing the risk of payment defaults on our accounts receivable. Future prolonged periods of economic weakness or reduced availability of financing could have a material adverse impact on our business, results of operations, financial condition and cash flows.

 

 

Our business can be negatively impacted by reductions in the amount and duration of government funding for infrastructure projects that reduce the level of construction activity and demand for our products.

 

Certain of our products are used in the construction of highways, bridges and other infrastructure projects that are funded by federal, state and local governments. Reductions in the amount of funding for such projects or the period for which it is provided could have a material adverse impact on our business, results of operations, financial condition and cash flows.

 

Our operations are subject to seasonal fluctuations that may impact our cash flows.

 

Our shipments are typically lower in the first and second fiscal quarters due to the unfavorable impact of winter weather on construction activity during these periods and customer plant shutdowns associated with holidays. As a result, our cash flows may fluctuate from quarter to quarter due to these seasonal factors.

 

Demand for our products is highly variable and difficult to forecast due to our minimal backlog and unanticipated changes that can occur in customer order patterns or inventory levels.

 

Demand for our products is highly variable. The short lead times for customer orders and minimal backlog that characterize our business make it difficult to forecast the future level of demand for our products. In some cases, unanticipated softening in demand can be exacerbated by inventory rebalancing measures pursued by our customers, which may cause significant fluctuations in our sales, profitability and cash flows.

 

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. Beginning in fiscal 2004, a tightening of supply in the rod market together with fluctuations in the raw material costs of rod producers resulted in increased price volatility which has continued through fiscal 2018. 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 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.

 

Our financial results can also be significantly impacted if raw material supplies are inadequate to satisfy our purchasing requirements. In addition, trade actions by the U.S. government, such as the imposition of the steel tariffs imposed under Section 232 of the Trade Expansion Act, as amended, or 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, which is of increasing importance in view of the reductions in domestic wire rod production capacity that have occurred in recent years. 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.

 

Foreign competition could adversely impact our financial results.

 

Our PC strand business, and, to a lesser extent, our SWWR business are subject to offshore import competition on an ongoing basis. If we are unable to purchase raw materials and achieve manufacturing costs that are competitive with those of foreign producers, or if the margin and return requirements of foreign producers are substantially lower, our market share and profit margins could be negatively impacted. In response to irrationally-priced import competition from offshore PC strand suppliers, we have pursued trade cases when necessary as a means of ensuring that foreign producers were complying with the applicable trade laws and regulations. These trade cases have resulted in the imposition of duties which have had the effect of limiting the continued participation of certain countries in the domestic market. Trade law enforcement is critical to our ability to maintain our competitive position against foreign PC strand and SWWR producers that engage in unlawful trade practices.

 

 

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. For example, during fiscal 2017, operations at our Texas and Florida plants were temporarily curtailed due to flooding and power outages related to hurricanes Harvey and Irma, and during fiscal 2018, a transformer outage and electrical fire at our Dayton, Texas plant resulted in a temporary interruption of operations. Any such equipment failures or events can subject us to material plant shutdowns, 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 could be negatively impacted to the extent that such claims were not covered or only partially covered by our insurance.

 

We are increasingly dependent on information technology systems that are susceptible to certain risks, including cybersecurity breaches and data leaks, which could adversely impact our business.

 

Our increasing reliance on technology systems and infrastructure heightens our potential vulnerability to system failure and malfunction, breakdowns due to natural disasters, human error, unauthorized access, power loss and other unforeseen events. Data privacy breaches by employees and others with or without authorized access to our systems poses risks that sensitive data may be permanently lost or leaked to the public or other unauthorized persons. With the growing use and rapid evolution of technology, not limited to cloud-based computing and mobile devices, there are additional risks of unintentional data leaks. There is also the risk of the theft of confidential information, intentional vandalism, industrial espionage and a variety of cyber-attacks that could compromise our internal technology system and infrastructure or result in data leaks in-house or at our third-party providers and business partners. Failures of technology or related systems, or an improper release of confidential information, could adversely impact our business or subject us to unexpected liabilities.

 

Our financial results could be adversely impacted by the escalation of our operating costs.

 

Consistent with the experience of other employers, our medical and workers’ compensation costs have increased substantially in recent years and are expected to continue to rise. The Patient Protection and Affordable Care Act (“ACA”) will have a significant impact on employers, health care providers, insurers and others associated with the health care industry and increase our employee health care costs. This legislation requires certain large employers like us to offer health care benefits to full-time employees or face potential annual penalties. To avoid these penalties, employers must offer health benefits providing a minimum level of coverage and limit the amount that employees are charged for the coverage. The Administration and Congress are pursuing legislative and regulatory changes that modify, repeal, replace with new legislation or otherwise invalidate all or certain portions of the ACA. The Tax Cuts and Jobs Act of 2017 effectively eliminated certain provisions of the ACA, including the individual mandate beginning in 2019. It is uncertain whether the other reform proposals being considered by the Administration and Congress will be enacted and potentially alter the full-time employee healthcare coverage requirement and reporting obligations imposed on large employers like us. We cannot predict the ultimate content, timing, or effect of any healthcare reform legislation or the impact of potential legislation or related proposals and policies on our results. Any significant increases in the costs attributable to our self-insured health and workers’ compensation plans could adversely impact our business, results of operations, financial condition and cash flows.

 

In addition, increasing prices for freight, natural gas, electricity, fuel and consumables would adversely affect our manufacturing and distribution costs. For most of our business, we incur the transportation costs associated with the delivery of products to our customers. Although we have previously implemented numerous measures to offset the impact of increases in these costs, there can be no assurance that such actions will be effective. If we are unable to pass these additional costs through by raising our selling prices, our financial results could be adversely impacted.   

 

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 have an adverse effect on our business and financial results.

 

Our capital resources may not be adequate to provide for our capital investment and maintenance expenditures if we were to experience a substantial downturn in our financial performance.

 

Our operations are capital intensive and require substantial recurring expenditures for the routine maintenance of our equipment and facilities. Although we expect to finance our business requirements through internally generated funds or from borrowings under our $100.0 million revolving credit facility, we cannot provide any assurances these resources will be sufficient to support our business. A material adverse change in our operations or financial condition could limit our ability to borrow funds under our credit facility, which could further adversely impact our liquidity and financial condition. Any significant future acquisitions could require additional financing from external sources that may not be available on favorable terms, which could adversely impact our growth, operations, financial condition and results of operations.

 

 

Environmental compliance and remediation could result in substantially increased capital investments and operating costs.

 

Our business is subject to numerous federal, state and local laws and regulations pertaining to the protection of the environment that could require substantial increases in capital investments and operating costs. These laws and regulations, which are constantly evolving, are becoming increasingly stringent, and the ultimate impact of compliance is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated or are undergoing revision.

 

Our stock price can be volatile, often in connection with matters beyond our control.

 

Equity markets in the U.S. have been increasingly volatile in recent years. During fiscal 2018, our common stock traded as high as $43.78 and as low as $24.51. 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.

 

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. At September 29, 2018, 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.

 

We own all of our real estate following the exercise of the purchase option on the previously leased Houston facility in October 2017. 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.

 

Item 3. 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 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.

 

Executive Officers of the Company

 

Our executive officers are as follows:

 

Name		Age		Position
H.O. Woltz III		62		President, Chief Executive Officer and Chairman of the Board
Michael C. Gazmarian		59		Vice President, Chief Financial Officer and Treasurer
James F. Petelle		68		Vice President - Administration and Secretary
Richard T. Wagner		59		Vice President and General Manager of IWP

 

H. O. Woltz III, 62, was elected Chief Executive Officer in 1991 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 serves on the Executive Committee of our Board of Directors and was elected Chairman of the Board in 2009.

 

 

Michael C. Gazmarian, 59, was elected Vice President, Chief Financial Officer and Treasurer in February 2007. He had previously served as Chief Financial Officer and Treasurer since 1994, the year he joined us. Before joining us, Mr. Gazmarian had been employed by Guardian Industries Corp., a privately-held manufacturer of glass, automotive and building products, since 1986, serving in various financial capacities.

 

James F. Petelle, 68, joined us in October 2006. He was elected Vice President and Assistant Secretary on November 14, 2006 and Vice President - Administration and Secretary on January 12, 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, 59, 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. In February 2007, Mr. Wagner was appointed Vice President of the parent company, Insteel Industries, Inc. 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.

 

The executive officers listed above were elected by our Board of Directors at its annual meeting held February 13, 2018 for a term that will expire at the next annual meeting or until their successors are elected and qualify. The next meeting at which officers will be elected is expected to be February 12, 2019.

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

 

Our common stock is listed on the Nasdaq Global Select Market under the symbol “IIIN” and has been trading on Nasdaq since September 28, 2004. As of October 23, 2018, there were 550 shareholders of record. The following table summarizes the high and low sales prices as reported on the Nasdaq Global Select Market and the cash dividends per share declared in fiscal 2018 and 2017:

 

		Fiscal 2018												Fiscal 2017
		High				Low				Cash Dividends				High				Low				Cash Dividends
First Quarter		$	29.65			$	24.51			$	1.03			$	42.81			$	22.50			$	1.28
Second Quarter			34.32				27.00				0.03				39.20				32.22				0.03
Third Quarter			35.60				26.05				0.03				36.94				28.94				0.03
Fourth Quarter			43.78				32.75				0.03				34.00				23.20				0.03

 

In addition to our regular quarterly cash dividend of $0.03 per share, we declared special cash dividends of $1.00 per share in the first quarter of fiscal 2018 and $1.25 per share in the first quarter of fiscal 2017. While we intend to pay regular quarterly cash dividends for the foreseeable future, the declaration and payment of future dividends, if any, are discretionary and will be subject to determination by our Board of Directors after taking into account various factors, including general business conditions and our financial condition, operating results, cash requirements and expansion plans. See Note 7 to the consolidated financial statements for additional discussion with respect to restrictions on our ability to make dividend payments under the terms of our revolving credit facility.

 

 

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 September 29, 2018. The graph and table assume that $100 was invested on September 28, 2013 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.

 

		Fiscal Year Ended
		September 28, 2013				September 27, 2014				October 3, 2015				October 1, 2016				September 30, 2017				September 29, 2018
Insteel Industries, Inc.		$	100.00			$	131.84			$	101.83			$	241.02			$	180.10			$	257.32
Russell 2000			100.00				103.93				105.23				121.50				146.70				169.06
S&P Building Products			100.00				114.90				139.13				180.47				189.61				172.16

 

 

 

Issuer Purchases of Equity Securities

 

Information regarding our share repurchase authorization is discussed in Note 18 to our consolidated financial statements and incorporated herein by reference.

 

Rights Agreement 

 

Information regarding our Rights Agreement is discussed in Note 16 to our consolidated financial statements and incorporated herein by reference.

 

 

Item 6. Selected Financial Data.

 

Financial Highlights

(In thousands, except per share amounts)
 

		Year Ended
		(52 weeks)				(52 weeks)				(52 weeks)				(53 weeks)				(52 weeks)
		September 29,				September 30,				October 1,				October 3,				September 27,
		2018				2017				2016				2015				2014
Net sales		$	453,217			$	388,871			$	418,547			$	447,504			$	408,978
Net earnings			36,266				22,548				37,245				21,710				16,641
Net earnings per share (basic)			1.90				1.19				1.99				1.18				0.91
Net earnings per share (diluted)			1.88				1.17				1.95				1.15				0.89
Cash dividends declared			1.12				1.37				1.12				0.12				0.12
Total assets			329,534				283,073				292,892				260,239				256,795
Total debt			-				-				-				-				-
Shareholders’ equity			241,665				223,376				224,566				200,215				178,883

 

Our August 15, 2014 acquisition of substantially all the assets associated with the PC strand business of American Spring Wire Corporation (the “ASW Acquisition”) may materially affect the comparability of the information reflected in the selected financial data presented in this Item 6.

 

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.

 

Critical Accounting Policies

 

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Our discussion and analysis of our financial condition and results of operations are based on these consolidated financial statements. The preparation of our consolidated financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on current available information, actuarial estimates, historical results and other assumptions believed to be reasonable. Actual results could differ from these estimates.

 

The following critical accounting policies are both important to the depiction of our financial condition and results of operations and require judgments, assumptions and estimates.

 

Revenue recognition. We recognize revenue from product sales when products are shipped and risk of loss and title has passed to the customer. Sales taxes collected from customers are excluded from revenues and recorded on a net basis.

 

Concentration of credit risk. Financial instruments that subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. Our cash is concentrated primarily 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 for accounts receivable on the balance sheet. We invest excess cash primarily in money market funds, which are highly liquid securities that bear minimal risk.

 

Most of our accounts receivable are due from customers that are located in the U.S. and are generally not secured by collateral depending upon the creditworthiness of the account. We provide an allowance for doubtful accounts based upon our assessment of the credit risk of specific customers, historical trends and other information. There is no disproportionate concentration of credit risk.

 

 

Allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments on outstanding balances owed to us. Significant management judgments and estimates are used in establishing the allowances. These judgments and estimates consider such factors as the financial position, cash flows and payment history of our customers as well as current and expected business conditions. It is reasonably likely that actual collections will differ from our estimates, which may result in increases or decreases in the allowances. Adjustments to the allowances may also be required if there are significant changes in the financial condition of our customers.

 

Inventory valuation. We periodically evaluate the carrying value of our inventory. This evaluation includes assessing the adequacy of allowances for losses in the normal course of operations, providing for excess and obsolete inventory, and ensuring that inventory is valued at the lower of cost and estimated net realizable value. Our evaluation considers such factors as the cost of inventory, future demand, our historical experience and market conditions. In assessing the realization of inventory values, we are required to make judgments and estimates regarding future market conditions. Because of the subjective nature of these judgments and estimates, it is reasonably likely that actual outcomes will differ from our estimates. Adjustments to these reserves may be required if actual market conditions are substantially different than the assumptions underlying our estimates.

 

Long-lived assets. We review long-lived assets, which consist principally of property, plant and equipment and finite-lived intangibles, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be fully recoverable. Recoverability of long-lived assets to be held and used is measured based on the future net undiscounted cash flows expected to be generated by the related asset or asset group. If it is determined that an impairment loss has been incurred, the impairment loss is recognized in the period in which it is incurred and is calculated based on the difference between the carrying value and the present value of estimated future net cash flows or comparable market values. Assets to be disposed of by sale are recorded at the lower of carrying value or fair value less selling cost when we have committed to a disposal plan, and are reported separately as assets held for sale on our balance sheet. Unforeseen events and changes in circumstances and market conditions could negatively affect the value of assets and result in an impairment charge.

 

Goodwill. Goodwill is tested annually for impairment and whenever events or circumstances change that would make it more likely than not that an impairment may have occurred. We perform our annual impairment analysis as of the first day of the fourth quarter each fiscal year, which involves comparing the current estimated fair value of the reporting unit to its recorded value, including goodwill.

 

We perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. It may be necessary to perform a quantitative analysis where a discounted cash flow model is used to determine the current estimated fair value of the reporting unit. Key assumptions used to determine the fair value of the reporting unit as part of our annual testing (and any required interim testing) include: (a) expected cash flows for the five-year period following the testing date; (b) an estimated terminal value using a terminal year growth rate based on the growth prospects of the reporting unit; (c) a discount rate based on our estimated after-tax weighted average cost of capital; and (d) a probability-weighted scenario approach by which varying cash flows are assigned to alternative scenarios based on their likelihood of occurrence. In developing these assumptions, we consider historical and anticipated future results, general economic and market conditions, the impact of planned business and operational strategies and all available information at the time the fair value of the reporting unit is estimated.

 

We monitor our operating results throughout the year to determine if events or changes in circumstances warrant any interim impairment testing. Otherwise, goodwill will be subject to the required annual impairment test during our fourth quarter. Changes in the judgments and estimates underlying our analysis of goodwill for possible impairment, including the expected future operating cash flows and discount rate, could reduce our estimated fair value in the future and result in an impairment of goodwill. There was no goodwill impairment loss recognized in fiscal 2018.

 

Self-insurance. We are self-insured for certain losses relating to medical and workers’ compensation claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon our estimates of the discounted ultimate cost for uninsured claims incurred using actuarial assumptions followed by the insurance industry and historical experience. These estimates are subject to a high degree of variability based upon future inflation rates, litigation trends, changes in benefit levels and claim settlement patterns. Because of uncertainties related to these factors as well as the possibility of changes in the underlying facts and circumstances, future adjustments to these reserves may be required.

 

Litigation. We are involved in claims, lawsuits and other proceedings, which arise in the ordinary course of business. The eventual outcome of such matters and the potential losses that we may ultimately incur are subject to a high degree of uncertainty. We record expenses for litigation when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We estimate the probability of such losses based on the advice of legal counsel, the outcome of similar litigation, the status of the lawsuits and other factors. Due to the numerous factors that enter into these judgments and assumptions, it is reasonably likely that actual outcomes will differ from our estimates. We monitor our potential exposure to these contingencies on a regular basis and may adjust our estimates as additional information becomes available or as there are significant developments.

 

 

Stock-based compensation. We account for stock-based compensation arrangements, including stock option grants and restricted stock units, in accordance with the provisions of ASC Topic 718, Compensation - Stock Compensation. Under these provisions, compensation cost is recognized based on the fair value of equity awards on the date of grant and amortized on a straight-line basis over the vesting period. We use the Monte Carlo valuation model to determine the fair value of stock options at the date of grant, which requires us to make assumptions for the expected term, volatility, dividend yield, risk-free interest rate and forfeiture rates. These assumptions are based on historical information and judgment regarding market factors and trends. If actual results differ from our assumptions and judgments used in estimating these factors, future adjustments to these estimates may be required.

 

Assumptions for employee benefit plan. We account for our supplemental employee retirement plans (each, a “SERP”) 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 SERPs 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. The discount rate for the SERPs was 4.00% for fiscal 2018 and 3.75% for fiscal years 2017 and 2016.

 

The assumed discount rate is reevaluated annually. Changes in this assumption can result in the recognition of a materially different pension cost over different periods and a materially different liability amount in our consolidated financial statements. 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 SERPs 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.

  

We currently expect net periodic pension cost for fiscal 2019 to be $821,000 for the SERPs. Cash contributions to the SERPs during fiscal 2019 are expected to be $325,000.

 

 A 0.25% decrease in the assumed discount rate for our SERPs would have increased our projected and accumulated benefit obligations as of September 29, 2018 by approximately $281,000 and $228,000, respectively, and our expected net periodic pension cost for fiscal 2019 by approximately $33,000.

 

See Note 10 to our consolidated financial statements for the related accounting and disclosures surrounding our terminated pension plan, the Insteel Wire Products Company Retirement Income Plan for Hourly Employees, Wilmington, Delaware (the “Delaware Plan”).

 

Recent Accounting Pronouncements.

 

The nature and impact of recent accounting pronouncements is discussed in Note 3 to our consolidated financial statements and incorporated herein by reference.

 

 

Results of Operations

 

Statements of Operations – Selected Data

(Dollars in thousands)

 

		Year Ended
		September 29,								September 30,								October 1,
		2018				Change				2017				Change				2016
Net sales		$	453,217				16.5	%		$	388,871				(7.1	%)		$	418,547
Gross profit			70,807				18.4	%			59,781				(29.8	%)			85,188
Percentage of net sales			15.6	%							15.4	%							20.4	%
Selling, general and administrative expense		$	28,304				11.0	%		$	25,508				(2.2	%)		$	26,069
Percentage of net sales			6.2	%							6.6	%							6.2	%
Pension plan settlement loss		$	-				-			$	-				(100.0	%)		$	2,539
Restructuring charges, net			-				(100.0	%)			164				42.6	%			115
Other expense, net			274				417.0	%			53				(71.0	%)			183
Interest expense			114				(16.2	%)			136				(13.9	%)			158
Interest income			(515	)			107.7	%			(248	)			49.4	%			(166	)
Effective income tax rate			14.9	%							34.0	%							33.8	%
Net earnings		$	36,266				60.8	%		$	22,548				(39.5	%)		$	37,245

 

2018 Compared with 2017

 

Net Sales

 

Net sales increased 16.5% to $453.2 million in 2018 from $388.9 million in 2017, reflecting a 4.6% increase in shipments and an 11.5% increase in average selling prices. The increase in shipments was primarily due to improved market conditions and strengthening demand for our products relative to the prior year. The increase in average selling prices was driven by price increases that were implemented in the current year to recover the escalation in raw material costs.

 

Gross Profit

 

Gross profit increased 18.4% to $70.8 million, or 15.6% of net sales, in 2018 from $59.8 million, or 15.4% of net sales, in 2017 primarily due to higher spreads between average selling prices and raw material costs ($6.2 million), higher shipments ($2.8 million) and lower manufacturing costs ($1.1 million). The increase in spreads was driven by higher average selling prices ($46.2 million) partially offset by higher raw material costs ($38.7 million) and freight expense ($1.3 million).

 

Selling, General and Administrative Expense

 

Selling, general and administrative expense (“SG&A expense”) increased 11.0% to $28.3 million, or 6.2% of net sales, in 2018 from $25.5 million, or 6.6% of net sales, in 2017 primarily due to higher compensation ($1.7 million) and employee benefit costs ($566,000) partially offset by a smaller increase in the cash surrender value of life insurance policies ($259,000). The increase in compensation expense was largely driven by additional staffing to support the growth of our ESM product line and higher incentive plan expense due to our improved financial results. The increase in employee benefit costs was primarily related to higher employee health insurance costs. The cash surrender value of life insurance policies increased $553,000 in 2018 compared with $812,000 in the prior year due to the changes in the value of the underlying investments.

 

Restructuring Charges, Net

 

Net restructuring charges of $164,000 were incurred in 2017 for equipment relocation costs related to the consolidation of our PC strand facilities.

 

Other Expense, Net

 

Other expense for 2018 was $274,000 compared with $53,000 in 2017 primarily due to losses on the disposition of property, plant and equipment.

 

 

Income Taxes

 

Our effective income tax rate for 2018 decreased to 14.9% from 34.0% in 2017. The effective rate for 2018 reflects a $3.3 million gain on the remeasurement of deferred tax assets and liabilities related to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act in December 2017. Excluding the deferred tax gain, our effective rate decreased to 22.7% from 34.0% in the prior year period reflecting the reduction in the federal statutory rate to 21% from 35% for three quarters of fiscal 2018.

 

Net Earnings

 

Net earnings increased to $36.3 million ($1.88 per diluted share) in 2018 from $22.5 million ($1.17 per diluted share) in 2017 primarily due to the increase in gross profit together with the deferred tax gain and reduction in our effective tax rate related to the enactment of the Tax Cuts and Jobs Act, partially offset by higher SG&A expense.

 

 

2017 Compared with 2016

 

Net Sales

 

Net sales decreased 7.1% to $388.9 million in 2017 from $418.5 million in 2016 due to lower shipments as average selling prices were essentially unchanged. Shipments in 2017 were unfavorably impacted by adverse weather conditions during the second half of the year including the effect from hurricanes Harvey and Irma on our Texas and Florida facilities together with a reduction in new project activity and competitive pricing pressures.

 

Gross Profit

 

Gross profit decreased 29.8% to $59.8 million, or 15.4% of net sales, in 2017 from $85.2 million, or 20.4% of net sales, in 2016. The year-over-year decrease was primarily due to lower spreads between average selling prices and raw material costs ($16.8 million), the decrease in shipments ($6.4 million) and higher manufacturing costs ($3.4 million). The decrease in spreads was driven by higher raw material costs ($16.2 million) and freight expense ($0.7 million) partially offset by higher average selling prices ($0.1 million).

 

Selling, General and Administrative Expense

 

SG&A expense decreased 2.2% to $25.5 million, or 6.6% of net sales, in 2017 from $26.1 million, or 6.2% of net sales, in 2016 primarily due to lower compensation expense ($762,000) together with the relative year-over-year change in the cash surrender value of life insurance policies ($332,000), which was partially offset by higher bad debt ($186,000), travel ($163,000) and employee benefit expense ($160,000). The decrease in compensation expense was largely driven by lower incentive plan expense based on our weaker results in 2017. The cash surrender value of life insurance policies increased $812,000 in 2017 compared with $480,000 in 2016 due to the changes in the value of the underlying investments. The increase in bad debt expense was due to an adjustment in 2016 that reduced the allowance for doubtful accounts based on our favorable collections experience. The increase in employee benefit costs was primarily due to higher employee supplemental retirement plan expense.

 

Pension Plan Settlement Loss

 

A pension plan settlement loss of $2.5 million was incurred in 2016 related to the termination of the Delaware Plan.

 

Restructuring Charges, Net

 

Net restructuring charges of $164,000 were incurred in 2017 for equipment relocation costs related to the consolidation of our PC strand facilities. Net restructuring charges of $115,000 were incurred in 2016, which included equipment relocation costs ($186,000), facility closure costs ($89,000) and impairment charges related to the decommissioning of equipment ($20,000) partially offset by a gain on the sale of equipment previously associated with the Newnan, Georgia PC strand facility ($180,000).

 

Income Taxes

 

Our effective income tax rate for 2017 increased slightly to 34.0% from 33.8% in 2016 due to changes in permanent book versus tax differences.

 

Net Earnings

 

Net earnings decreased to $22.5 million ($1.17 per diluted share) in 2017 from $37.2 million ($1.95 per diluted share) in 2016 primarily due to the decrease in gross profit partially offset by lower SG&A expense and the pension plan settlement loss incurred in 2016.

 

 

Liquidity and Capital Resources

 

Selected Financial Data

(Dollars in thousands)

 

		Year Ended
		September 29,				September 30,				October 1,
		2018				2017				2016
Net cash provided by operating activities		$	53,969			$	20,840			$	56,253
Net cash used for investing activities			(21,939	)			(20,880	)			(12,972	)
Net cash used for financing activities			(20,194	)			(26,728	)			(17,666	)
Cash and cash equivalents			43,941				32,105				58,873
Net working capital			123,489				117,873				126,704
Total debt			-				-				-
Percentage of total capital			-				-				-
Shareholders' equity		$	241,665			$	223,376			$	224,566
Percentage of total capital			100	%			100	%			100	%
Total capital (total debt + shareholders' equity)		$	241,665			$	223,376			$	224,566

 

Operating Activities

 

Operating activities provided $54.0 million of cash in 2018 primarily from net earnings adjusted for non-cash items and a reduction in the net working capital components of accounts receivable, inventories and accounts payable and accrued expenses. Net working capital provided $4.7 million of cash due to a $28.2 million increase in accounts payable and accrued expenses partially offset by a $12.3 million increase in inventories and an $11.2 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 period and, to a lesser extent, increases in accrued salaries, wages and related expenses. The increases in inventories and accounts receivable were due to the escalation in raw material costs and average selling prices during 2018.

 

Operating activities provided $20.8 million of cash in 2017 primarily from net earnings adjusted for non-cash items partially offset by an increase in the net working capital components of accounts receivable, inventories and accounts payable and accrued expenses. Net working capital used $15.5 million of cash due to an $11.9 million decrease in accounts payable and accrued expenses and a $10.7 million increase in inventories partially offset by a $7.1 million decrease in accounts receivable. The decrease in accounts payable and accrued expenses was primarily related to lower raw material purchases near the end of the period along with a decrease in accrued salaries, wages and related expenses. The increase in inventories was due to higher raw material costs and, to a lesser extent, quantities on-hand. The decrease in accounts receivable was primarily due to the lower sales in 2017.

 

Operating activities provided $56.3 million of cash in 2016 primarily from net earnings adjusted for non-cash items and a reduction in the net working capital components of accounts receivable, inventories and accounts payable and accrued expenses. Net working capital provided $3.2 million of cash due to a $9.0 million increase in accounts payable and accrued expenses partially offset by a $5.2 million increase in inventories and a $0.6 million increase in accounts receivable. The increases in accounts payable and accrued expenses and inventories were largely related to higher raw material purchases near the end of 2016. The increase in accounts receivable was primarily due to an increase in days sales outstanding 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 $21.9 million of cash in 2018 primarily due to $18.4 million of capital expenditures and $3.3 million for the acquisition of a business. The capital expenditures were largely related to additional investments in ESM manufacturing capabilities, the purchase of the leased Houston facility and further upgrades of production technology and information systems. Investing activities used $20.9 million of cash in 2017 primarily due to $20.6 million of capital expenditures largely related to the expansion of the Houston, Texas PC strand facility and the addition of a new ESM production line at the St. Joseph, Missouri facility. Investing activities used $13.0 million of cash in 2016 primarily due to capital expenditures largely related to the expansion of the Houston facility. 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 $20.1 million of cash in 2018, $26.7 million in 2017 and $17.7 million in 2016. In 2018, $21.3 million of cash was used for dividend payments (including a special cash dividend of $19.0 million, or $1.00 per share, and regular cash dividends totaling $2.3 million), which was partially offset by $2.1 million of proceeds from the exercise of stock options. In 2017, $26.0 million of cash was used for dividend payments (including a special cash dividend of $23.7 million, or $1.25 per share, and regular cash dividends totaling $2.3 million). In 2016, $20.9 million of cash was used for dividend payments (including a special cash dividend of $18.6 million, or $1.00 per share, and regular cash dividends totaling $2.3 million), which was partially offset by $5.1 million of proceeds from the exercise of stock options.

 

Cash Management

 

Our cash is principally concentrated at one financial institution, which at times exceeds federally insured limits. We invest excess cash primarily in money market funds, which are highly liquid securities that bear minimal risk.

 

Credit Facility

 

We have a $100.0 million revolving credit facility (the “Credit Facility”) that is used to supplement our operating cash flow and fund our working capital, capital expenditure, general corporate and growth requirements. In May 2015, we amended the Credit Facility to, among other changes, extend its maturity date from June 2, 2016 to May 13, 2020. 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 September 29, 2018, no borrowings were outstanding on the Credit Facility, $98.2 million of borrowing capacity was available and outstanding letters of credit totaled $1.8 million (see Note 7 to the consolidated financial statements). As of September 30, 2017, there were no borrowings outstanding on the Credit Facility.

 

We believe that, in the absence of significant unanticipated cash demands, cash and cash equivalents, cash generated by operating activities and the borrowing availability provided under the Credit Facility will be sufficient to satisfy our expected requirements for working capital, capital expenditures, dividends and share repurchases, if any. We also expect to have access to the amounts available under our Credit Facility as required. However, should we experience future reductions in our operating cash flows due to weakening conditions in our construction end-markets and reduced demand from our customers, we may need to curtail capital and operating expenditures, delay or restrict share repurchases, cease dividend payments and/or realign our working capital requirements.

 

Should we determine, at any time, that we require additional short-term liquidity, we would evaluate the alternative sources of financing that were potentially available to provide such funding. There can be no assurance that any such financing, if pursued, would be obtained, or if obtained, would be adequate or on terms acceptable to us. However, we believe that our strong balance sheet, flexible capital structure and borrowing capacity available to us under our Credit Facility position us to meet our anticipated liquidity requirements for the foreseeable future.

 

Impact of Inflation

 

We are subject to inflationary risks arising from fluctuations in the market prices for our primary raw material, hot-rolled carbon steel wire rod, and, to a much lesser extent, freight, energy and other consumables that are used in our manufacturing processes. We have generally been able to adjust our selling prices to pass through increases in these costs or offset them through various cost reduction and productivity improvement initiatives. However, our ability to raise our selling prices depends on market conditions and competitive dynamics, and there may be periods during which we are unable to fully recover increases in our costs.

 

During 2018, 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 2017, we were unable to fully recover the increase in our raw material costs due to the weakening in demand and competitive pricing pressures. During 2016, our raw material costs rose over most of the period, which we were generally able to recover through price increases. 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.

 

Off-Balance Sheet Arrangements

 

We do not have any material transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons, as defined by Item 303(a)(4) of Regulation S-K of the SEC, that have or are reasonably likely to have a material current or future impact on our financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.

 

 

Contractual Obligations 

 

Our contractual obligations and commitments at September 29, 2018 are as follows:

 

Payments Due by Period

(In thousands)

 

						Less Than												More Than
Contractual obligations:		Total				1 Year				1 - 3 Years				3 – 5 Years				5 Years
Raw material purchase commitments(1)		$	75,116			$	75,116			$	-			$	-			$	-
Supplemental employee retirement plan obligations			19,904				325				523				1,107				17,949
Operating leases			1,799				1,034				728				37				-
Trade letters of credit			1,789				1,789				-				-				-
Commitment fee on unused portion of credit facility			615				368				247				-				-
Other unconditional purchase obligations(2)			9,565				9,565				-				-				-
Total		$	108,788			$	88,197			$	1,498			$	1,144			$	17,949

 

(1)Non-cancelable purchase commitments for raw materials.

(2)Contractual commitments for capital expenditures.

 

Outlook

 

Looking ahead to 2019, we expect our financial results will be favorably impacted by continued growth in our construction end-markets. The infrastructure-related portion of our business should benefit from increased federal funding through the FAST Act and supplementary measures together with higher state and local spending in many of our markets supported by various initiatives such as fuel tax increases, bond issuances and other ballot measures. The leading indicators and industry forecasts for nonresidential construction remain positive, and the housing recovery is expected to continue driven by favorable employment and demographic trends.       

 

Business conditions are likely to remain challenging, however, in view of the escalation in our raw material costs resulting from the Administration’s Section 232 imported steel tariff program. Considering that the tariffs do not apply to imports of downstream products such as welded wire reinforcement and PC strand, we expect a surge in low-priced import competition that results in market share erosion and margin compression for domestic producers. We are engaged with the Administration and Congress to arrive at a solution that addresses the unsustainable competitive environment resulting from the tariff program.

 

We will continue to maintain our focus on the operational fundamentals of our business: 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 cash operating costs; and pursuing further improvements in the productivity and effectiveness of all of 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. In addition, we will continue to pursue further acquisitions 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 foreign currency exchange rates, foreign taxes, duties, 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 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 2018 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 $26.6 million decrease in our annual pre-tax earnings (assuming there was not a corresponding change in our selling prices).

 

Interest Rates

 

Although we did not have any balances outstanding on our Credit Facility as of September 29, 2018, 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 September 29, 2018. During 2018, 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.

 

 

Item 8. Financial Statements and Supplementary Data.

 

(a)   Financial Statements

 

Consolidated Statements of Operations for the years ended September 29, 2018, September 30, 2017 and October 1, 2016	22
Consolidated Statements of Comprehensive Income for the years ended September 29, 2018, September 30, 2017 and October 1, 2016	23
Consolidated Balance Sheets as of September 29, 2018 and September 30, 2017	24
Consolidated Statements of Shareholders’ Equity for the years ended September 29, 2018, September 30, 2017 and October 1, 2016	25
Consolidated Statements of Cash Flows for the years ended September 29, 2018, September 30, 2017 and October 1, 2016	26
Notes to Consolidated Financial Statements	27
Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements	45
Schedule II – Valuation and Qualifying Accounts for the years ended September 29, 2018, September 30, 2017 and October 1, 2016	46

 

 

(b) Supplementary Data

 

Selected quarterly financial data for 2018 and 2017 is as follows:

 

Financial Information by Quarter (Unaudited)

(In thousands, except per share amounts)

 

		Quarter Ended
		December 30				March 31				June 30				September 29
2018
Operating results:
Net sales		$	97,741			$	107,417			$	126,688			$	121,371
Gross profit			11,661				15,416				24,186				19,544
Net earnings			8,111				5,879				12,868				9,408
Net earnings per share:
Basic			0.43				0.31				0.67				0.49
Diluted			0.42				0.31				0.67				0.49

 

		Quarter Ended
		December 31				April 1				July 1				September 30
2017
Operating results:
Net sales		$	93,888			$	101,159			$	96,938			$	96,886
Gross profit			13,010				18,294				16,676				11,801
Net earnings			4,460				7,420				6,869				3,799
Net earnings per share:
Basic			0.24				0.39				0.36				0.20
Diluted			0.23				0.39				0.36				0.20

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 

 

See accompanying notes to consolidated financial statements.

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

 

See accompanying notes to consolidated financial statements.

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

 

See accompanying notes to consolidated financial statements.

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

 

 

(1)Activity within accumulated other comprehensive income (loss) is reported net of related income taxes: 2016 ($370), 2017 ($127) and 2018 ($44).

 

See accompanying notes to consolidated financial statements.

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

See accompanying notes to consolidated financial statements.

 

 

INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 29, 2018, SEPTEMBER 30, 2017 AND OCTOBER 1, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 29, 2018 and September 30, 2017, 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 September 29, 2018, 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 September 29, 2018 and September 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended September 29, 2018, 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 September 29, 2018, 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 26, 2018 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 the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence 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.

 

 

/s/ Grant Thornton LLP

 

We have served as the Company’s auditor since fiscal 2002.

 

Charlotte, North Carolina

October 26, 2018

 

 

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 September 29, 2018. 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 September 29, 2018. During the quarter ended September 29, 2018, 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 September 29, 2018, which appears below.

 

 

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 September 29, 2018, 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 September 29, 2018, 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 September 29, 2018, and our report dated October 26, 2018 expressed an unqualified opinion on those financial statements.

 

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report 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 26, 2018

 

 

Item 9B. Other Information.

 

None.

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The information called for by this item and not presented herein appears under the captions “Item Number One: Election of Directors”, “Security Ownership of Directors and Executive Officers – Section 16(a) Beneficial Reporting Compliance” and “Corporate Governance Guidelines and Board Matters” in our Proxy Statement for the 2019 Annual Meeting of Shareholders and is incorporated herein by reference. Information on executive officers appears under the caption “Executive Officers of the Company” in Part I of this report.

 

We have adopted a Code of Business Conduct that applies to all directors, officers and employees, which is available on our website at https://insteelgcs.gcs-web.com/corporate-governance/governance-documents. To the extent permissible under applicable law (the rules of the SEC or Nasdaq listing standards), we intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting on our website any amendment or waiver to a provision of our Code of Business Conduct that requires disclosure under applicable law (the rules of the SEC or Nasdaq listing standards). Our website does not constitute part of this Annual Report on Form 10-K.

 

Item 11. Executive Compensation.

 

The information called for by this item appears under the captions “Executive Compensation”, “Compensation Committee Interlocks and Insider Participation” and “Director Compensation” in our Proxy Statement for the 2019 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 2019 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 2019 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 2019 Annual Meeting of Shareholders and is incorporated herein by reference.

 

PART IV

Item 15. Exhibits, Financial Statement Schedules.

 

(a)(1) Financial Statements

 

The financial statements as set forth under Item 8 are filed as part of this report.

 

(a)(2) Financial Statement Schedules

 

Supplemental Schedule II - Valuation and Qualifying Accounts appears on page 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 51 and 52.

 

(c) Financial Statement Schedules

 

See Item 15(a)(2) above.

Item 16. Form 10-K Summary

 

None.

 

 

EXHIBIT INDEX

 

Exhibit Number	Description
2.1	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).
3.1	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).
3.2	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).
3.3	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).
3.4	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).
3.5	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).
4.1	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).
4.2	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).
10.1	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).
10.2	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).
10.3	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).
10.4*	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).
10.5*	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).
10.6*	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).
10.7*	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).
10.8*	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).

 

 

EXHIBIT INDEX

 

Exhibit Number	Description
10.9*	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).
10.10*	Relocation Proposal between the Company and James F. Petelle, dated August 23, 2006 (incorporated by reference to Exhibit 10.20.1 of the Company's Annual Report on Form 10-K for the year ended October 3, 2009 filed on November 9, 2009).
10.11*	Addendum to Relocation Proposal between the Company and James F. Petelle, dated September 18, 2009 (incorporated by reference to Exhibit 10.20.2 of the Company's Annual Report on Form 10-K for the year ended October 3, 2009 filed on November 9, 2009).
10.12*	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).
10.13*	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).
10.14*	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).
10.15*	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).
10.16*	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).
10.17*	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).
10.18*	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)).
21.1	List of Subsidiaries of Insteel Industries, Inc. at September 29, 2018.
23.1	Consent of Independent Registered Public Accounting Firm.
31.1	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.
31.2	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.
32.1	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.
32.2	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.
101	The following financial information from our Annual Report on Form 10-K for the fiscal year ended September 29, 2018, filed on October 26, 2018, formatted in XBRL (eXtensible Business Reporting Language) includes: (i) the Consolidated Statements of Operations for the years ended September 29, 2018, September 30, 2017 and October 1, 2016, (ii) the Consolidated Statements of Comprehensive Income for the years ended September 29, 2018, September 30, 2017 and October 1, 2016, (iii) the Consolidated Balance Sheets as of September 29, 2018 and September 30, 2017, (iv) the Consolidated Statements of Cash Flows for the years ended September 29, 2018, September 30, 2017 and October 1, 2016, (v) the Consolidated Statements of Shareholders’ Equity as of September 29, 2018, September 30, 2017 and October 1, 2016 and (vi) the Notes to Consolidated Financial Statements.
*	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.

 

 

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

 

Date: October 26, 2018		By:	/s/ Michael C. Gazmarian
			Michael C. Gazmarian
			Vice President, Chief Financial Officer and Treasurer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on October 26, 2018 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		President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)
/s/ MICHAEL C. GAZMARIAN      MICHAEL C. GAZMARIAN		Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
/s/ SCOT R. JAFROODI      SCOT R. JAFROODI		Chief Accounting Officer and Corporate Controller (Principal Accounting Officer)
/s/ ABNEY S. BOXLEY III      ABNEY S. BOXLEY III		Director
/s/ CHARLES B. NEWSOME      CHARLES B. NEWSOME		Director
/s/ W. ALLEN ROGERS II      W. ALLEN ROGERS II		Director
/s/ JON M. RUTH       JON M. RUTH		Director
/s/ JOSEPH A. RUTKOWSKI       JOSEPH A. RUTKOWSKI		Director
/s/ G. KENNEDY THOMPSON       G. KENNEDY THOMPSON		Director

 

53