Insteel(IIIN) - 2019 Q4 - Annual Report

Cautionary Note Regarding Forward-Looking Statements This section outlines the inherent uncertainties and risks associated with forward-looking statements within the report, emphasizing that future events may differ materially from expectations Forward-Looking Statements Disclaimer The report contains forward-looking statements subject to various risks and uncertainties, which the company does not commit to update unless legally required - The report contains forward-looking statements identified by words like 'believes,' 'anticipates,' 'expects,' 'estimates,' 'plans,' 'intends,' 'may,' 'should,' 'could,' and similar expressions[10] - The company does not assure that plans, intentions, or expectations will be implemented or achieved, as they are subject to risks and uncertainties discussed in the 'Risk Factors' section[10] - The company does not undertake any obligation to publicly release revisions to forward-looking statements to reflect future events or circumstances, except as required by law[11] Key Risks and Uncertainties The company's future operations and financial performance are exposed to various risks, including economic conditions, construction spending, transportation funding, industry cyclicality, and raw material cost volatility - Risks include general economic and competitive conditions, changes in nonresidential and residential construction spending, and fluctuations in transportation funding[12] - The cyclical nature of the steel and building material industries, credit market conditions, and volatility in hot-rolled carbon steel wire rod costs and availability are significant risks[12] - Other risks involve competitive pricing pressures, changes in U.S. or foreign trade policy (e.g., Section 232 tariff), unanticipated changes in customer demand, and legal/environmental developments[12] PART I Item 1. Business Insteel Industries, Inc. is the largest U.S. manufacturer of steel wire reinforcing products for concrete construction, focusing on PC strand and WWR, with a strategy centered on market leadership, low-cost production, and growth - Insteel is the nation's largest manufacturer of steel wire reinforcing products for concrete construction, including prestressed concrete strand (PC strand) and welded wire reinforcement (WWR)[14] - The company's business strategy focuses on achieving market leadership, operating as the lowest cost producer, and pursuing growth opportunities within its core businesses[16] Fiscal 2019 Sales by Construction Type | Construction Type | Estimated Sales Percentage | | :---------------- | :------------------------- | | Nonresidential | 85% | | Residential | 15% | - The primary raw material is hot-rolled carbon steel wire rod, with prices fluctuating based on scrap and metallic prices, domestic/global market conditions, and U.S. government trade policies like the Section 232 tariff[25][26] - The company operates in a highly competitive market, with competitors ranging from vertically integrated companies to smaller independents, and faces significant import competition, particularly in PC strand and SWWR markets[29] Item 1A. Risk Factors Insteel faces various risks, including cyclical demand tied to construction, sensitivity to government funding, raw material cost volatility, foreign competition, and operational issues - Demand for products is cyclical and sensitive to economic changes and financial market conditions, with prolonged downturns or reduced financing availability potentially having a material adverse impact[38] - Reductions in government funding for infrastructure projects (highways, bridges) could negatively impact demand for certain products[39] - The volatility in the cost and availability of hot-rolled carbon steel wire rod, the primary raw material, can significantly impact financial results, especially if increased costs cannot be fully recovered through selling prices[42][43] - The Section 232 tariff on imported steel has negatively impacted financial results and cash flows by providing offshore competitors with a cost advantage, leading to a surge in low-priced imports in certain markets[46] - Operational risks include unexpected equipment failures, operational interruptions, and casualty losses at manufacturing facilities, which can lead to plant shutdowns or reduced production[47] - Increasing operating costs, such as medical, workers' compensation, freight, natural gas, electricity, and fuel, could adversely impact financial results if not offset by price increases or cost reduction initiatives[49][50] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - The company reported no unresolved staff comments[55] Item 2. Properties Insteel's corporate headquarters are in Mount Airy, North Carolina, and it operates ten owned manufacturing facilities across the U.S., all in good condition with adequate capacity - Corporate headquarters and sales/administrative offices are located in Mount Airy, North Carolina[56] - The company operates ten manufacturing facilities located in various U.S. states, including Texas, Tennessee, Pennsylvania, Kentucky, Florida, Arizona, Missouri, and North Carolina[56] - All real estate properties are owned, are in good operating condition, and have capacities adequate to satisfy current and projected demand[57] Item 3. Legal Proceedings The company is involved in routine lawsuits and claims arising in the ordinary course of business, which are not expected to materially impact its financial position - Insteel is involved in lawsuits, claims, investigations, and proceedings that arise in the ordinary course of business[58] - The ultimate cost to resolve these legal matters is not anticipated to have a material adverse effect on the company's financial position, results of operations, or cash flows[58] Item 4. Mine Safety Disclosures This item is not applicable to Insteel Industries, Inc - The disclosure item regarding mine safety is not applicable to the registrant[59] Executive Officers of the Company The executive officers of Insteel Industries, Inc. include H.O. Woltz III (President, CEO, Chairman), Michael C. Gazmarian (VP, CFO, Treasurer), James F. Petelle (VP - Administration, Secretary), and Richard T. Wagner (VP, General Manager of IWP) Executive Officers of Insteel Industries, Inc. | Name | Age | Position | | :---------------- | :-- | :------------------------------------------ | | H.O. Woltz III | 63 | President, Chief Executive Officer and Chairman of the Board | | Michael C. Gazmarian | 60 | Vice President, Chief Financial Officer and Treasurer | | James F. Petelle | 69 | Vice President - Administration and Secretary | | Richard T. Wagner | 60 | Vice President and General Manager of IWP | - H. O. Woltz III has served as CEO since 1991 and Chairman since 2009, with employment at the company and its subsidiaries since 1978[60] - Michael C. Gazmarian has been VP, CFO, and Treasurer since February 2007, having joined the company in 1994 as CFO and Treasurer[61] PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Insteel's common stock trades on the Nasdaq Global Select Market under 'IIIN', with a five-year performance graph and $24.8 million remaining for share repurchases, though none occurred in fiscal years 2017-2019 - The company's common stock is listed on the Nasdaq Global Select Market under the symbol 'IIIN'[66] Cumulative Total Shareholder Return (Indexed to $100) | Fiscal Year Ended | September 27, 2014 | October 3, 2015 | October 1, 2016 | September 30, 2017 | September 29, 2018 | September 28, 2019 | | :---------------- | :----------------- | :-------------- | :-------------- | :----------------- | :----------------- | :----------------- | | Insteel Industries, Inc. | $100.00 | $77.24 | $182.81 | $136.61 | $195.18 | $113.29 | | Russell 2000 | $100.00 | $101.25 | $116.91 | $141.15 | $162.66 | $148.20 | | S&P Building Products | $100.00 | $121.09 | $157.07 | $165.02 | $149.83 | $176.67 | - As of September 28, 2019, $24.8 million remained available for future share repurchases under an authorization approved in November 2008, with no share repurchases made in fiscal years 2019, 2018, and 2017[218] Item 6. Selected Financial Data This section provides a five-year summary of key financial highlights, revealing a significant decline in net earnings and EPS in fiscal 2019 despite stable net sales Selected Financial Highlights (Fiscal Years 2015-2019) | Metric (in thousands, except per share) | 2019 (52 weeks) | 2018 (52 weeks) | 2017 (52 weeks) | 2016 (52 weeks) | 2015 (53 weeks) | | :-------------------------------------- | :-------------- | :-------------- | :-------------- | :-------------- | :-------------- | | Net sales | $455,713 | $453,217 | $388,871 | $418,547 | $447,504 | | Net earnings | $5,598 | $36,266 | $22,548 | $37,245 | $21,710 | | Net earnings per share (basic) | $0.29 | $1.90 | $1.19 | $1.99 | $1.18 | | Net earnings per share (diluted) | $0.29 | $1.88 | $1.17 | $1.95 | $1.15 | | Cash dividends declared | $0.12 | $1.12 | $1.37 | $1.12 | $0.12 | | Total assets | $293,009 | $329,534 | $283,073 | $292,892 | $260,239 | | Total debt | $- | $- | $- | $- | $- | | Shareholders' equity | $246,017 | $241,665 | $223,376 | $224,566 | $200,215 | - Net earnings significantly decreased by 84.6% from $36.3 million in 2018 to $5.6 million in 2019[71][95] - Basic EPS decreased from $1.90 in 2018 to $0.29 in 2019[71][130] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Insteel's financial performance, noting a significant decline in fiscal 2019 net earnings and gross profit due to lower spreads and increased costs, while maintaining strong liquidity with no outstanding debt Overview Insteel's operations are entirely focused on manufacturing and marketing concrete reinforcing products, with a core strategy emphasizing market leadership, cost efficiency, and growth within its existing businesses - Operations are entirely focused on manufacturing and marketing concrete reinforcing products for the concrete construction industry[73] - Business strategy centers on achieving leadership positions, operating as the lowest cost producer, and pursuing growth opportunities within core businesses[73] Critical Accounting Policies The company's financial statements rely on significant estimates and judgments for policies including revenue recognition, allowance for doubtful accounts, inventory valuation, goodwill impairment, self-insurance, litigation reserves, stock-based compensation, and employee benefit plan liabilities - Revenue is recognized when products are shipped and control is transferred to customers[75] - Allowances for doubtful accounts are based on assessments of customer credit risk, historical trends, and business conditions[78] - Inventories are valued at the lower of weighted average cost and estimated net realizable value, considering future demand and market conditions[79] - Goodwill is tested annually for impairment using a qualitative assessment, potentially followed by a quantitative analysis involving discounted cash flow models and key assumptions like expected cash flows and discount rates[81][82] - Self-insurance for medical and workers' compensation claims is accrued based on actuarial estimates, while litigation expenses are recorded when probable and estimable[84][85] - Stock-based compensation is recognized based on the fair value of awards using a Monte Carlo valuation model, and supplemental employee retirement plans (SERPs) are valued using actuarial assumptions, primarily the discount rate[86][87] Results of Operations (2019 Compared with 2018) In fiscal 2019, net sales slightly increased by 0.6% to $455.7 million, but gross profit significantly declined by 57.5% to $30.1 million, leading to an 84.6% drop in net earnings to $5.6 million due to lower spreads and higher costs Key Financial Performance (2019 vs. 2018) (in thousands) | Metric (in thousands) | 2019 | 2018 | Change (%) | | :-------------------- | :---------- | :---------- | :--------- | | Net sales | $455,713 | $453,217 | 0.6% | | Gross profit | $30,061 | $70,807 | (57.5%) | | Gross profit % of net sales | 6.6% | 15.6% | -9.0 pp | | Selling, general and administrative expense | $24,504 | $28,304 | (13.4%) | | Other expense (income), net | $(1,773) | $274 | N/M | | Effective income tax rate | 24.9% | 14.9% | +10.0 pp | | Net earnings | $5,598 | $36,266 | (84.6%) | - Net sales increased slightly by 0.6% due to an 8.1% increase in average selling prices, largely offset by a 7.1% decrease in shipments, which were unfavorably impacted by low-priced import competition and unusually wet weather[96] - Gross profit decreased by 57.5% primarily due to lower spreads between average selling prices and raw material costs ($29.7 million), higher manufacturing costs ($5.8 million), and lower shipments ($5.1 million)[97] - Net earnings decreased significantly from $36.3 million in 2018 to $5.6 million in 2019, primarily driven by the decrease in gross profit[101] Liquidity and Capital Resources Insteel's cash from operating activities significantly decreased in 2019 to $6.6 million from $54.0 million in 2018 due to increased working capital, while investing and financing activities used less cash, and the company maintains strong liquidity with no outstanding debt on its $100 million revolving credit facility Selected Cash Flow Data (in thousands) | Metric | 2019 | 2018 | | :------------------------------------ | :---------- | :---------- | | Net cash provided by operating activities | $6,608 | $53,969 |\n| Net cash used for investing activities | $(9,556) | $(21,939) |\n| Net cash used for financing activities | $(2,812) | $(20,194) |\n| Cash and cash equivalents | $38,181 | $43,941 |\n| Net working capital | $132,171 | $123,489 |\n| Total debt | $- | $- |\n| Shareholders' equity | $246,017 | $241,665 | - Operating activities provided $6.6 million of cash in 2019, a significant decrease from $54.0 million in 2018, primarily due to a $12.0 million increase in working capital[103] - Investing activities used $9.6 million of cash in 2019, mainly for $10.5 million in capital expenditures, partially offset by $1.2 million in insurance proceeds[106] - Financing activities used $2.8 million of cash in 2019, primarily for dividend payments ($2.3 million) and financing costs[107] - The company has a $100.0 million revolving credit facility with no outstanding borrowings as of September 28, 2019, and $82.9 million of borrowing capacity available[109] Impact of Inflation Insteel is exposed to inflationary risks from fluctuating raw material, freight, and energy costs, with competitive pressures in 2019 preventing full recovery of raw material cost escalation through selling prices - The company is subject to inflationary risks from fluctuations in the market prices for hot-rolled carbon steel wire rod, freight, energy, and other consumables[113] - In 2019, the year-over-year escalation in raw material costs exceeded the increase in selling prices due to competitive pricing pressures, impacting financial results[114] Off-Balance Sheet Arrangements Insteel does not have any material off-balance sheet arrangements that would significantly impact its financial condition, results of operations, or liquidity - The company does not have any material off-balance sheet transactions, arrangements, obligations, or relationships with unconsolidated entities[115] Contractual Obligations As of September 28, 2019, Insteel's total contractual obligations amounted to $50.6 million, with the majority ($29.7 million) due within one year, primarily comprising raw material purchase commitments and employee retirement plan obligations Contractual Obligations and Commitments (as of September 28, 2019, in thousands) | Contractual obligations: | Total (in thousands) | Less Than 1 Year (in thousands) | 1 - 3 Years (in thousands) | 3 – 5 Years (in thousands) | More Than 5 Years (in thousands) | | :------------------------------------ | :------ | :--------------- | :---------- | :---------- | :---------------- | | Raw material purchase commitments | $23,763 | $23,763 | $- | $- | $- | | Supplemental employee retirement plan obligations | $19,426 | $283 | $812 | $1,086 | $17,245 | | Operating leases | $2,058 | $1,028 | $922 | $108 | $- | | Trade letters of credit | $1,633 | $1,633 | $- | $- | $- | | Commitment fee on unused portion of credit facility | $967 | $207 | $414 | $346 | $- | | Other unconditional purchase obligations | $2,787 | $2,787 | $- | $- | $- | | Total | $50,634 | $29,701 | $2,148 | $1,540 | $17,245 | Outlook For fiscal 2020, Insteel anticipates favorable impacts from continued construction market growth and deferred business, but expects challenging conditions due to low-priced imports, focusing on operational fundamentals and strategic acquisitions - Financial results for 2020 are expected to be favorably impacted by continued growth in construction end-markets and weather-related deferral of business from the prior year[118] - Infrastructure-related business should benefit from higher state and local spending, supported by various initiatives and increased federal funding[118] - Business conditions are expected to remain challenging due to the surge of low-priced imports following the Section 232 tariff on hot-rolled steel wire rod[119] - The company will focus on operational fundamentals, including managing expenses, aligning production with demand, improving productivity, and pursuing further acquisitions[119] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Insteel's financial performance is exposed to market risks from commodity prices, interest rates, and foreign exchange rates, with hot-rolled carbon steel wire rod price fluctuations posing the most significant commodity risk - Cash flows and earnings are subject to fluctuations from changes in commodity prices, interest rates, and foreign exchange rates[122] - The company does not use derivative commodity instruments to hedge exposure to wire rod price changes, as such instruments are not currently available[123] - A 10% increase in the price of wire rod would have resulted in a $31.1 million decrease in annual pre-tax earnings, assuming no corresponding change in selling prices[123] - Interest rate risk is limited as there were no outstanding balances on the Credit Facility as of September 28, 2019[124] - Foreign currency exposures have not been material historically, and a 10% fluctuation in the U.S. dollar's value would not have materially impacted financial results in 2019[125] Item 8. Financial Statements and Supplementary Data This section presents Insteel's audited consolidated financial statements for fiscal years 2017-2019, including statements of operations, comprehensive income, balance sheets, shareholders' equity, and cash flows, along with detailed notes and the independent auditor's report Consolidated Statements of Operations The Consolidated Statements of Operations show a significant decline in net earnings for fiscal 2019 to $5.6 million, down from $36.3 million in 2018, primarily driven by a sharp decrease in gross profit despite a slight increase in net sales Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 2019 (in thousands, except per share) | 2018 (in thousands, except per share) | 2017 (in thousands, except per share) | | :---------------------- | :---------- | :---------- | :---------- | | Net sales | $455,713 | $453,217 | $388,871 | | Cost of sales | $425,652 | $382,410 | $329,090 | | Gross profit | $30,061 | $70,807 | $59,781 | | SG&A expense | $24,504 | $28,304 | $25,508 | | Earnings before income taxes | $7,455 | $42,630 | $34,168 | | Income taxes | $1,857 | $6,364 | $11,620 | | Net earnings | $5,598 | $36,266 | $22,548 | | Basic EPS | $0.29 | $1.90 | $1.19 | | Diluted EPS | $0.29 | $1.88 | $1.17 | - Net earnings decreased by 84.6% from $36.3 million in 2018 to $5.6 million in 2019[130] - Gross profit declined by 57.5% from $70.8 million in 2018 to $30.1 million in 2019[130] Consolidated Statements of Comprehensive Income The Consolidated Statements of Comprehensive Income show a decrease in comprehensive income for fiscal 2019 to $4.8 million, down from $36.4 million in 2018, primarily due to lower net earnings and an adjustment to the defined benefit plan liability Consolidated Statements of Comprehensive Income (in thousands) | Metric | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | | :-------------------------- | :-------- | :-------- | :-------- | | Net earnings | $5,598 | $36,266 | $22,548 | | Adjustment to defined benefit plan liability, net of income taxes | $(754) | $139 | $208 | | Other comprehensive (loss) income | $(754) | $139 | $208 | | Comprehensive income | $4,844 | $36,405 | $22,756 | - Comprehensive income decreased significantly from $36.4 million in 2018 to $4.8 million in 2019[133] - An adjustment to the defined benefit plan liability resulted in a $754 thousand loss in other comprehensive income for 2019, compared to gains in prior years[133] Consolidated Balance Sheets The Consolidated Balance Sheets show a decrease in total assets from $329.5 million in 2018 to $293.0 million in 2019, driven by reductions in current assets and accounts payable, while shareholders' equity slightly increased to $246.0 million Consolidated Balance Sheets (in thousands) | Metric | September 28, 2019 (in thousands) | September 29, 2018 (in thousands) | | :-------------------------- | :----------------- | :----------------- | | Cash and cash equivalents | $38,181 | $43,941 | | Accounts receivable, net | $44,182 | $51,484 | | Inventories | $70,851 | $94,157 | | Total current assets | $160,584 | $195,477 | | Property, plant and equipment, net | $104,960 | $106,148 | | Total assets | $293,009 | $329,534 | | Accounts payable | $21,595 | $60,059 | | Accrued expenses | $6,818 | $11,929 | | Total current liabilities | $28,413 | $71,988 | | Total shareholders' equity | $246,017 | $241,665 | - Total assets decreased by 11.2% from $329.5 million in 2018 to $293.0 million in 2019[136] - Inventories decreased by 24.7% from $94.2 million in 2018 to $70.9 million in 2019, and accounts payable decreased by 64.0% from $60.1 million to $21.6 million[136] Consolidated Statements of Shareholders' Equity The Consolidated Statements of Shareholders' Equity show an increase in total shareholders' equity from $241.7 million in 2018 to $246.0 million in 2019, driven by net earnings and stock-based compensation, partially offset by dividends and other comprehensive loss Consolidated Statements of Shareholders' Equity (in thousands) | Metric | September 28, 2019 (in thousands) | September 29, 2018 (in thousands) | September 30, 2017 (in thousands) | | :-------------------------- | :----------------- | :----------------- | :----------------- | | Total Shareholders' Equity (End of Period) | $246,017 | $241,665 | $223,376 | | Net earnings | $5,598 | $36,266 | $22,548 | | Other comprehensive (loss) income | $(754) | $139 | $208 | | Stock-based compensation expense | $2,057 | $2,078 | $2,245 | | Cash dividends declared | $(2,310) | $(21,333) | $(26,011) | - Total shareholders' equity increased by $4.3 million from $241.7 million in 2018 to $246.0 million in 2019[139] - Cash dividends declared decreased significantly from $21.3 million in 2018 (which included a special dividend) to $2.3 million in 2019[139] Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows show a substantial decrease in net cash provided by operating activities in 2019 to $6.6 million from $54.0 million in 2018, primarily due to changes in working capital, while cash used for investing and financing activities also decreased Consolidated Statements of Cash Flows (in thousands) | Metric | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | | :------------------------------------ | :-------- | :-------- | :-------- | | Net cash provided by operating activities | $6,608 | $53,969 | $20,840 | | Net cash used for investing activities | $(9,556) | $(21,939) | $(20,880) | | Net cash used for financing activities | $(2,812) | $(20,194) | $(26,728) | | Net increase (decrease) in cash and cash equivalents | $(5,760) | $11,836 | $(26,768) | | Cash and cash equivalents at end of period | $38,181 | $43,941 | $32,105 | - Net cash provided by operating activities decreased significantly by 87.7% from $54.0 million in 2018 to $6.6 million in 2019, mainly due to a $42.6 million decrease in accounts payable and accrued expenses, partially offset by reductions in inventories and accounts receivable[103][142] - Net cash used for investing activities decreased by 56.4% from $21.9 million in 2018 to $9.6 million in 2019, driven by lower capital expenditures and proceeds from property insurance[106][142] - Net cash used for financing activities decreased by 86.1% from $20.2 million in 2018 to $2.8 million in 2019, primarily due to lower cash dividends paid[107][142] Notes to Consolidated Financial Statements The notes provide detailed disclosures on Insteel's business, significant accounting policies, and financial statement components, including revenue recognition, recent accounting pronouncements, intangible assets, debt, equity, employee benefits, and disaggregated net sales by product line and geography - The company adopted ASU 2014-09 (Revenue from Contracts with Customers) in the first quarter of fiscal 2019, which did not materially impact its consolidated financial statements[161] - ASU 2016-02 (Leases) will become effective in the first quarter of fiscal 2020, expected to increase lease liability and right-of-use assets by approximately $1.9 million with no material impact on the consolidated statements of operations[164] Intangible Assets (as of September 28, 2019, in thousands) | Intangible Asset | Weighted Average Useful Life (Years) | Gross (in thousands) | Accumulated Amortization (in thousands) | Net Book Value (in thousands) | | :-------------------------- | :----------------------------------- | :------ | :----------------------- | :------------- | | Customer relationships | 16.9 | $9,070 | $(2,207) | $6,863 | | Developed technology and know-how | 20.0 | $1,800 | $(461) | $1,339 | | Non-competition agreements | 5.0 | $1,800 | $(1,466) | $334 | | Trade name | 4.0 | $140 | $(66) | $74 | | Total | | $12,810 | $(4,200) | $8,610 | - The $100.0 million revolving credit facility's maturity date was extended from May 2020 to May 2024, with no outstanding borrowings as of September 28, 2019[177] - The effective income tax rate for 2019 increased to 24.9% from 14.9% in 2018, with the 2018 rate benefiting from a $3.3 million reduction due to the Tax Cuts and Jobs Act[100][188] Net Sales by Product Line (in thousands) | Product Line | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | | :------------------------ | :---------- | :---------- | :---------- | | Welded wire reinforcement | $290,423 | $273,658 | $239,522 | | Prestressed concrete strand | $165,290 | $179,559 | $149,349 | | Total | $455,713 | $453,217 | $388,871 | Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements Grant Thornton LLP issued an unqualified opinion on Insteel's consolidated financial statements for the period ended September 28, 2019, affirming their fair presentation in conformity with GAAP - Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements for the period ended September 28, 2019[220] - The financial statements are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America[220] Schedule II – Valuation and Qualifying Accounts Schedule II details changes in the allowance for doubtful accounts for fiscal years 2017-2019, showing a balance of $254 thousand at the end of fiscal 2019, a decrease from $295 thousand in 2018 Allowance for Doubtful Accounts (in thousands) | Metric | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | | :------------------------ | :---- | :---- | :---- | | Balance, beginning of year | $295 | $201 | $291 | | Amounts charged to earnings | $(41) | $100 | $(57) | | Write-offs, net of recoveries | $- | $(6) | $(33) | | Balance, end of year | $254 | $295 | $201 | - The allowance for doubtful accounts decreased from $295 thousand at the end of 2018 to $254 thousand at the end of 2019[226] Selected Quarterly Financial Data Selected unaudited quarterly financial data for 2019 and 2018 reveals typical seasonality, but 2019 experienced a significant decline in gross profit and net earnings across all quarters compared to 2018, culminating in a net loss in Q4 2019 Selected Quarterly Financial Data (in thousands, except per share amounts) | 2019 Operating Results | Dec 29 (in thousands, except per share) | Mar 30 (in thousands, except per share) | Jun 29 (in thousands, except per share) | Sep 28 (in thousands, except per share) | | :--------------------- | :----- | :----- | :----- | :----- | | Net sales | $104,110 | $111,948 | $126,252 | $113,403 | | Gross profit | $10,976 | $7,021 | $8,236 | $3,828 | | Net earnings (loss) | $4,126 | $1,049 | $2,190 | $(1,767) | | Basic EPS | $0.21 | $0.05 | $0.11 | $(0.09) | | Diluted EPS | $0.21 | $0.05 | $0.11 | $(0.09) | | 2018 Operating Results | Dec 30 (in thousands, except per share) | Mar 31 (in thousands, except per share) | Jun 30 (in thousands, except per share) | Sep 29 (in thousands, except per share) | | :--------------------- | :----- | :----- | :----- | :----- | | 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 | | Basic EPS | $0.43 | $0.31 | $0.67 | $0.49 | | Diluted EPS | $0.42 | $0.31 | $0.67 | $0.49 | - Net earnings in Q4 2019 turned into a loss of $(1,767) thousand, compared to a profit of $9,408 thousand in Q4 2018[128] - Gross profit in Q4 2019 was $3,828 thousand, significantly lower than $19,544 thousand in Q4 2018[128] PART III Item 10. Directors, Executive Officers and Corporate Governance This section incorporates by reference information on directors, executive officers, and corporate governance from the 2020 Annual Meeting of Shareholders Proxy Statement, including the company's Code of Business Conduct - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Annual Meeting of Shareholders Proxy Statement[242] - The company has adopted a Code of Business Conduct for all directors, officers, and employees, available on its website[243] Item 11. Executive Compensation Details on executive compensation, compensation committee interlocks, insider participation, and director compensation are incorporated by reference from the company's 2020 Annual Meeting of Shareholders Proxy Statement - Information on executive compensation, compensation committee interlocks, insider participation, and director compensation is incorporated by reference from the 2020 Annual Meeting of Shareholders Proxy Statement[244] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners, management, and equity compensation plan details is incorporated by reference from the company's 2020 Annual Meeting of Shareholders Proxy Statement - Details on security ownership of certain beneficial owners and management, as well as equity compensation plan information, are incorporated by reference from the 2020 Annual Meeting of Shareholders Proxy Statement[245] Item 13. Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related person transactions, and director independence is incorporated by reference from the company's 2020 Annual Meeting of Shareholders Proxy Statement - Information on certain relationships, related person transactions, and director independence is incorporated by reference from the 2020 Annual Meeting of Shareholders Proxy Statement[246] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2020 Annual Meeting of Shareholders Proxy Statement - Details on principal accounting fees and services are incorporated by reference from the 2020 Annual Meeting of Shareholders Proxy Statement[247] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements and schedules filed as part of the report, including the consolidated financial statements under Item 8 and Schedule II – Valuation and Qualifying Accounts, and references the Exhibit Index for a comprehensive list of exhibits - The financial statements as set forth under Item 8 are filed as part of this report[249] - Supplemental Schedule II - Valuation and Qualifying Accounts appears on page 42 of this report[250] - A list of exhibits filed as part of this annual report is set forth on the Exhibit Index[252] Item 16. Form 10-K Summary The company has not provided a summary for Form 10-K in this report - No Form 10-K Summary is provided in this report[255]