Insteel(IIIN) - 2022 Q4 - Annual Report

Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements, particularly in key sections, with actual results potentially differing due to various risks and uncertainties - The report contains forward-looking statements, particularly in the 'Business,' 'Risk Factors,' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations' sections, identified by words like 'believes,' 'anticipates,' 'expects,' and 'estimates'[10] - Actual results may differ materially from forward-looking statements due to various risks and uncertainties, many of which are discussed in the 'Risk Factors' section[10] - Key risks include general economic and competitive conditions, changes in construction spending, transportation funding, steel and building material industry cyclicality, credit market conditions, raw material cost fluctuations, competitive pricing, trade policy changes, demand variability, plant outages, COVID-19 impact, 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 market leadership and low-cost production - Insteel Industries, Inc. is the nation's largest manufacturer of steel wire reinforcing products for concrete construction applications[14] - Approximately 85% of sales in fiscal 2022 were related to nonresidential construction and 15% to residential construction[14] - The company's business strategy focuses on achieving market leadership, operating as the lowest cost producer, and pursuing growth opportunities within core businesses[16] - Products include prestressed concrete strand (PC strand) and welded wire reinforcement (WWR), which encompasses engineered structural mesh (ESM), concrete pipe reinforcement (CPR), and standard welded wire reinforcement (SWWR)[18][19][20] - The primary raw material is hot-rolled carbon steel wire rod, purchased from both domestic and foreign suppliers, with prices fluctuating based on scrap prices and market conditions[26][27] - Demand is seasonal and cyclical, typically higher in the third and fourth fiscal quarters due to favorable weather for construction[25] - The company employs 964 individuals as of October 1, 2022, none of whom are represented by labor unions, and emphasizes 'Safe Operations with Zero Harm' as a core safety philosophy[34][35] Item 1A. Risk Factors The company faces risks from cyclical demand, government funding, raw material cost volatility, operational issues, and cybersecurity threats - Demand for products is cyclical and sensitive to economic conditions and financial markets, with prolonged downturns or tightening credit adversely impacting sales[44] - Reductions in government funding for infrastructure projects could negatively impact demand for certain products[45] - Volatility in the cost and availability of hot-rolled carbon steel wire rod, the primary raw material, can significantly impact financial results, as the company does not use derivative instruments to hedge this exposure[47][116] - Operational risks include unexpected equipment failures, operational interruptions, and casualty losses at manufacturing facilities[51] - Escalation of operating costs, including labor, medical, workers' compensation, freight, natural gas, electricity, and fuel, could adversely impact profitability if not offset by price increases or cost reductions[52][53] - The company is increasingly dependent on information technology systems, making it susceptible to cybersecurity breaches and data leaks[61] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments[63] Item 2. Properties Insteel operates ten owned manufacturing facilities across the U.S., with corporate headquarters in Mount Airy, North Carolina - Corporate headquarters and IWP's sales and administrative offices are located in Mount Airy, North Carolina[64] - As of October 1, 2022, the company operated ten manufacturing facilities in various U.S. states[64] - All real estate is owned, except for the leased office in Sugarloaf, Pennsylvania[65] Item 3. Legal Proceedings The company is involved in routine legal matters, with no anticipated material adverse effect on its financial position - Involved in routine lawsuits, claims, investigations, and proceedings[66] - Ultimate cost to resolve these matters is not anticipated to have a material adverse effect on financial position, results of operations, or cash flows[66] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[67] Information About Our Executive Officers This section lists the company's executive officers, including their ages and key roles Executive Officers | Name | Age | Position | | :------------- | :-- | :-------------------------------------------- | | H. O. Woltz III | 66 | President, Chief Executive Officer and Chairman of the Board | | Mark A. Carano | 53 | Senior Vice President, Chief Financial Officer and Treasurer | | James F. Petelle | 72 | Vice President Administration, Secretary and Chief Legal Officer | | Richard T. Wagner | 63 | Senior Vice President and Chief Operating Officer | | James R. York | 64 | Senior Vice President, Sourcing and Logistics | - H. O. Woltz III has served as CEO since 1991 and Chairman since 2009, with extensive experience in the company and its subsidiaries since 1978[69] - Mark A. Carano joined in 2020, bringing prior experience as CFO of Big River Steel and various finance roles at Babcock & Wilcox Enterprises, along with investment banking experience[70] 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 NYSE, with regular dividends and recent share repurchases, and a detailed shareholder return comparison - Common stock is listed on the NYSE under the symbol 'IIIN'[75] - As of October 26, 2022, there were 467 shareholders of record[75] - The company pays regular quarterly cash dividends and paid a one-time special cash dividend of $2.00 per share on December 17, 2021[76] Issuer Purchases of Equity Securities (Quarter Ended October 1, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plan or Program (in thousands) | | :--------------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------------------- | | July 3, 2022 - August 6, 2022 | - | - | - | $24,756 (1) | | August 7, 2022 - September 3, 2022 | 25,763 | $29.26 | 25,763 | $24,002 (1) | | September 4, 2022 - October 1, 2022 | 15,943 | $28.20 | 15,943 | $23,552 (1) | | Total | 41,706 | | 41,706 | | Cumulative Total Shareholder Return (Five Years Ended October 1, 2022) | Fiscal Year Ended | Sep 30, 2017 | Sep 29, 2018 | Sep 28, 2019 | Oct 3, 2020 | Oct 2, 2021 | Oct 1, 2022 | | :---------------- | :----------- | :----------- | :----------- | :---------- | :---------- | :---------- | | Insteel Industries, Inc. | $100.00 | $142.87 | $82.93 | $76.42 | $168.12 | $120.44 | | Russell 2000 | $100.00 | $115.24 | $104.99 | $105.40 | $155.66 | $119.08 | | S&P Building Products | $100.00 | $90.79 | $107.05 | $123.99 | $179.62 | $135.57 | Item 6. Reserved This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations MD&A reviews Insteel's strategy, financial performance for fiscal 2022 (showing increased sales and earnings), liquidity, and an optimistic outlook for nonresidential construction - Operations are entirely focused on the manufacture and marketing of concrete reinforcing products, with a strategy centered on market leadership, low-cost production, and growth[82] - COVID-19 has had a limited impact on operations despite supply chain and labor challenges[84] Statements of Operations – Selected Data (Fiscal 2022 vs. 2021) | Metric | Year Ended October 1, 2022 (in thousands) | Change (%) | Year Ended October 2, 2021 (in thousands) | | :-------------------------------------- | :---------------------------------------- | :--------- | :---------------------------------------- | | Net sales | $826,832 | 40.0% | $590,601 | | Gross profit | $197,310 | 62.3% | $121,548 | | Percentage of net sales | 23.9% | | 20.6% | | Selling, general and administrative expense | $36,048 | 11.3% | $32,388 | | Percentage of net sales | 4.4% | | 5.5% | | Restructuring (recoveries) charges, net | $(318) | (111.1%) | $2,868 | | Effective income tax rate | 22.7% | | 22.6% | | Net earnings | $125,011 | 87.7% | $66,610 | - Net sales increased 40.0% in 2022, driven by a 51.9% increase in selling prices, partially offset by a 7.8% decrease in shipments due to raw material supply issues and customer inventory management[92] - Gross profit increased 62.3% to $197.3 million, with the gross margin improving from 20.6% to 23.9%, primarily due to higher spreads between selling prices and raw material costs[93] - Net earnings increased 87.7% to $125.0 million ($6.37 per diluted share) in 2022 from $66.6 million ($3.41 per diluted share) in 2021[97] Selected Liquidity and Capital Resources Data (Fiscal 2022 vs. 2021) | Metric | Year Ended October 1, 2022 (in thousands) | Year Ended October 2, 2021 (in thousands) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $5,670 | $69,878 | | Net cash used for investing activities | $(6,039) | $(17,805) | | Net cash used for financing activities | $(41,199) | $(30,877) | | Cash and cash equivalents | $48,316 | $89,884 | | Net working capital | $272,736 | $178,057 | | Total debt | - | - | | Shareholders' equity | $389,744 | $302,038 | - Operating activities provided $5.7 million of cash in 2022, a significant decrease from $69.9 million in 2021, primarily due to a $134.3 million increase in working capital, driven by higher inventories and accounts receivable[102][103] - Capital expenditures are expected to total up to approximately $30.0 million in 2023, focusing on engineered structural mesh growth, cost/productivity improvements, and maintenance[105] - Financing activities used $41.2 million in 2022, mainly for dividend payments ($41.2 million, including a $38.8 million special dividend) and common stock repurchases ($1.2 million)[106] - The company has a $100.0 million revolving credit facility with $98.6 million available as of October 1, 2022, and no outstanding borrowings[108] - Outlook for fiscal 2023 is optimistic for private and public nonresidential construction markets, benefiting from solid backlogs and the Infrastructure Investment and Jobs Act[112] 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, managed without derivative instruments for commodities - Cash flows and earnings are subject to fluctuations from changes in commodity prices (hot-rolled carbon steel wire rod), interest rates, and foreign exchange rates[115] - The company does not use derivative commodity instruments to hedge exposure to wire rod price changes, as such instruments are not currently available[116] - A 10% increase in wire rod price would have resulted in a $48.5 million decrease in annual pre-tax earnings in 2022, assuming no corresponding change in selling prices[116] - Future borrowings under the Credit Facility are subject to a variable interest rate, making them sensitive to interest rate changes, though no balances were outstanding as of October 1, 2022[117] - Foreign currency exposures have not been material historically, and a 10% change in the U.S. dollar's value in 2022 would not have materially impacted financial results[118] Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements for fiscal years 2020-2022, including detailed notes and an unqualified audit opinion Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :-------------------------------------- | :------------------------- | :------------------------- | :------------------------- | | Net sales | $826,832 | $590,601 | $472,618 | | Cost of sales | $629,522 | $469,053 | $416,831 | | Gross profit | $197,310 | $121,548 | $55,787 | | Selling, general and administrative expense | $36,048 | $32,388 | $31,348 | | Restructuring (recoveries) charges, net | $(318) | $2,868 | $1,695 | | Earnings before income taxes | $161,727 | $86,103 | $24,170 | | Income taxes | $36,716 | $19,493 | $5,161 | | Net earnings | $125,011 | $66,610 | $19,009 | | Net earnings per share: Basic | $6.41 | $3.44 | $0.99 | | Net earnings per share: Diluted | $6.37 | $3.41 | $0.98 | | Cash dividends declared | $2.12 | $1.62 | $0.12 | Consolidated Balance Sheets (in thousands) | Asset/Liability/Equity | October 1, 2022 | October 2, 2021 | | :---------------------------------- | :-------------- | :-------------- | | Cash and cash equivalents | $48,316 | $89,884 | | Accounts receivable, net | $81,646 | $67,917 | | Inventories | $197,654 | $79,049 | | Total current assets | $335,332 | $246,906 | | Property, plant and equipment, net | $108,156 | $105,624 | | Goodwill | $9,745 | $9,745 | | Total assets | $471,745 | $390,710 | | Accounts payable | $46,796 | $49,443 | | Accrued expenses | $15,800 | $19,406 | | Total current liabilities | $62,596 | $68,849 | | Total shareholders' equity | $389,744 | $302,038 | | Total liabilities and shareholders' equity | $471,745 | $390,710 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :---------------------------------- | :------------------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $5,670 | $69,878 | $56,224 | | Net cash used for investing activities | $(6,039) | $(17,805) | $(23,174) | | Net cash used for financing activities | $(41,199) | $(30,877) | $(2,543) | | Net (decrease) increase in cash and cash equivalents | $(41,568) | $21,196 | $30,507 | | Cash and cash equivalents at end of period | $48,316 | $89,884 | $68,688 | Notes to Consolidated Financial Statements (1) Description of Business Insteel is the largest U.S. manufacturer of steel wire reinforcing products, including PC strand and WWR, primarily for concrete construction - Insteel is the nation's largest manufacturer of steel wire reinforcing products for concrete construction applications[138] - Products include prestressed concrete strand (PC strand) and welded wire reinforcement (WWR)[138] - On March 16, 2020, Insteel acquired substantially all assets of Strand-Tech Manufacturing, Inc. (STM) for $19.4 million[139][166] (2) Summary of Significant Accounting Policies This note details Insteel's accounting policies, including fiscal year, consolidation, estimates, stock-based compensation, goodwill, and inventory valuation - Fiscal years 2022 and 2021 were 52-week periods, and fiscal year 2020 was a 53-week period, ending on the Saturday closest to September 30[140] - The company accounts for stock-based compensation based on the fair value of the award at the grant date, using a Monte Carlo valuation model for stock options[145] - Goodwill is tested annually for impairment, or more frequently if indicators arise, using a qualitative assessment or a quantitative discounted cash flow model[153] - Inventories are valued at the lower of weighted average cost and net realizable value, including material, labor, and manufacturing overhead[151] (3) Recent Accounting Pronouncements The company adopted ASU No. 2019-12 in Q1 2022 with no material impact, and ASU No. 2020-04 is not expected to be material - Adopted ASU No. 2019-12 'Simplifying the Accounting for Income Taxes' in Q1 2022, with no material impact[158] - ASU No. 2020-04 'Reference Rate Reform' is effective through December 31, 2022, and is not expected to have a material impact[159] (4) Revenue Recognition Revenue is recognized upon product shipment and control transfer, measured net of variable consideration, with immaterial contract assets/liabilities - Revenue is recognized when performance obligations are satisfied, generally upon product shipment and transfer of control[160] - Revenue is measured net of sales tax and variable consideration like contractual discounts, rebates, returns, and credits[160][161] - Contract assets and liabilities were not material as of October 1, 2022, and October 2, 2021[163] (5) Restructuring Following the STM acquisition, Insteel consolidated PC strand operations by closing its Summerville facility, resulting in net restructuring recoveries in 2022 - In connection with the STM acquisition, Insteel consolidated PC strand operations by closing the Summerville, South Carolina facility[167] - The Summerville facility was sold in 2022, and the consolidation of PC strand operations was completed in 2022[167] Restructuring Activity (in thousands) | Category | 2022 | 2021 | 2020 | | :----------------------- | :---- | :---- | :---- | | Restructuring (recoveries) charges, net | $(318) | $2,868 | $1,695 | (6) Fair Value Measurements Fair value measurements are categorized into a three-level hierarchy, with cash equivalents as Level 1 and life insurance policies as Level 2 - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[168][169][171] Financial Assets Measured at Fair Value (in thousands) | Category | October 1, 2022 Total | October 1, 2022 Level 1 | October 1, 2022 Level 2 | October 2, 2021 Total | October 2, 2021 Level 1 | October 2, 2021 Level 2 | | :-------------------------------------- | :-------------------- | :---------------------- | :---------------------- | :-------------------- | :---------------------- | :---------------------- | | Cash equivalents | $48,045 | $48,045 | - | $86,395 | $86,395 | - | | Cash surrender value of life insurance policies | $9,938 | - | $9,938 | $12,501 | - | $12,501 | | Total | $57,983 | $48,045 | $9,938 | $98,896 | $86,395 | $12,501 | - In 2021, $1.4 million of impairment charges were recognized related to the Summerville facility to reflect its fair value[172] (7) Intangible Assets Intangible assets, primarily customer relationships and technology, are amortized over their useful lives, with a net book value of $6.8 million in 2022 Intangible Assets (in thousands) | Category | Weighted Average Useful Life (Years) | Gross (Oct 1, 2022) | Accumulated Amortization (Oct 1, 2022) | Net Book Value (Oct 1, 2022) | Gross (Oct 2, 2021) | Accumulated Amortization (Oct 2, 2021) | Net Book Value (Oct 2, 2021) | | :------------------------------ | :----------------------------------- | :------------------ | :------------------------------------- | :--------------------------- | :------------------ | :------------------------------------- | :--------------------------- | | Customer relationships | 17.1 | $9,870 | $(4,130) | $5,740 | $9,870 | $(3,482) | $6,388 | | Developed technology and know-how | 20.0 | $1,800 | $(729) | $1,071 | $1,800 | $(639) | $1,161 | | Non-competition agreements | 5.0 | $400 | $(364) | $36 | $400 | $(284) | $116 | | Trade name | 2.7 | | | | $250 | $(247) | $3 | | Total | | $12,070 | $(5,223) | $6,847 | $12,320 | $(4,652) | $7,668 | - Amortization expense for intangibles was $821,000 in 2022, $899,000 in 2021, and $1.0 million in 2020[173] (8) Long-Term Debt Insteel maintains a $100.0 million revolving credit facility with no outstanding borrowings and compliance with all covenants as of October 1, 2022 - The company has a $100.0 million revolving credit facility (Credit Facility) with a maturity date of May 15, 2024[174] - As of October 1, 2022, no borrowings were outstanding, $98.6 million of borrowing capacity was available, and outstanding letters of credit totaled $1.4 million[174] - Interest rates are variable, based on an index rate or LIBOR, plus an applicable interest rate margin adjusted quarterly[175] - The company was in compliance with all financial and negative covenants under the Credit Facility as of October 1, 2022[176] (9) Stock-Based Compensation The equity incentive plan allows for various grants, with 555,000 shares available for future grants and compensation expenses for options and RSUs - The 2015 Equity Incentive Plan authorizes grants of stock options, restricted stock, restricted stock units, and performance awards[179] - As of October 1, 2022, 555,000 shares of common stock were available for future grants under the 2015 Plan[179] Stock Option Compensation Expense and Fair Value | Metric | 2022 | 2021 | 2020 | | :------------------------------------ | :---------- | :---------- | :---------- | | Compensation expense (in thousands) | $1,100 | $860 | $810 | | Weighted-average estimated fair value per share | $14.67 | $14.47 | $8.05 | Restricted Stock Unit (RSU) Grants and Compensation Expense (in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------------------ | :---------- | :---------- | :---------- | | Units granted | 43 | 43 | 68 | | Market value of grants | $1,563 | $1,430 | $1,444 | | Compensation expense | $1,365 | $1,128 | $1,218 | (10) Income Taxes The provision for income taxes was $36.7 million in 2022, with a 22.7% effective tax rate and a net deferred tax liability of $7.1 million Provision for Income Taxes (in thousands) | Category | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :---------------- | :------------------------- | :------------------------- | :------------------------- | | Current: Federal | $33,377 | $17,904 | $5,056 | | Current: State | $3,012 | $1,707 | $529 | | Deferred: Federal | $627 | $(180) | $(288) | | Deferred: State | $(300) | $62 | $(136) | | Income taxes | $36,716 | $19,493 | $5,161 | | Effective income tax rate | 22.7% | 22.6% | 21.4% | Net Deferred Tax Liability (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :---------------------- | :-------------- | :-------------- | | Deferred tax assets | $6,686 | $6,773 | | Deferred tax liabilities | $(13,772) | $(13,069) | | Net deferred tax liability | $(7,086) | $(6,296) | - The company has $5.6 million of state NOLs that begin to expire in 2031, principally between 2031 and 2037[188] - A valuation allowance of $32,000 was recorded as of October 1, 2022, pertaining to state NOLs not expected to be utilized[189] (11) Employee Benefit Plans Insteel maintains SRBAs for key employees, a 401k plan, and a VEBA for medical costs, with significant contributions to these plans - The projected benefit obligation for SRBAs was $11.8 million as of October 1, 2022, down from $12.9 million in 2021[193] Net Periodic Pension Cost for SRBAs (in thousands) | Component | 2022 | 2021 | 2020 | | :-------------------- | :---- | :---- | :---- | | Service cost | $399 | $312 | $338 | | Interest cost | $347 | $316 | $334 | | Amortization of net loss | $278 | $215 | $294 | | Net periodic pension cost | $1,024 | $843 | $966 | - Cash contributions to SRBAs during 2023 are expected to be $560,000[147] - Company contributions to the Retirement Savings Plan (401k) were $1.7 million in 2022, $1.5 million in 2021, and $1.3 million in 2020[198] - Contributions to the Voluntary Employee Beneficiary Associations (VEBA) were $5.4 million in 2022, $6.4 million in 2021, and $6.0 million in 2020[199] (12) Commitments and Contingencies The company has significant raw material and equipment purchase commitments, routine legal proceedings, and severance agreements for key management - As of October 1, 2022, the company had $57.1 million in non-cancelable raw material purchase commitments (extending ~30 days) and $31.9 million in contractual commitments for equipment[200] - Routine legal proceedings are not expected to have a material adverse effect on financial position, results of operations, or cash flows[201] - Severance agreements for the CEO provide termination benefits equal to 1.5 times annual base salary and 18 months of health/welfare benefits if terminated without cause[202] - Change in control agreements for key management provide severance benefits (2x base/bonus for CEO, 1x for other executives) and immediate vesting of stock options/RSUs if terminated within two years of a change of control[203] (13) Leases Insteel has operating leases for equipment, office space, and vehicles, with a weighted average remaining lease term of 1.7 years and total future payments of $1.6 million - Lease expense for operating leases with original terms over twelve months was $1.4 million in 2022, $1.4 million in 2021, and $1.3 million in 2020[204] Supplemental Balance Sheet Information Related to Leases (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :---------------------- | :-------------- | :-------------- | | Right-of-use assets | $1,565 | $1,717 | | Total operating lease liabilities | $1,569 | $1,725 | Weighted Average Lease Terms and Discount Rates | Metric | October 1, 2022 | October 2, 2021 | | :-------------------------- | :-------------- | :-------------- | | Weighted average lease term (in years) | 1.7 | 1.8 | | Weighted average discount rate | 3.7% | 4.1% | Aggregate Future Operating Lease Payments (in thousands) | Fiscal year(s) | Amount | | :------------- | :----- | | 2023 | $1,034 | | 2024 | $512 | | 2025 | $69 | | 2026 | $2 | | 2027 | $1 | | Total future operating lease payments | $1,618 | | Less: imputed interest | $(49) | | Present value of lease liabilities | $1,569 | (14) Earnings Per Share Basic EPS for 2022 was $6.41 and diluted EPS was $6.37, reflecting an increase from 2021, with dilutive effects from stock-based compensation Earnings Per Share (in thousands, except per share amounts) | Metric | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :------------------------------------ | :------------------------- | :------------------------- | :------------------------- | | Net earnings | $125,011 | $66,610 | $19,009 | | Basic weighted average shares outstanding | 19,517 | 19,344 | 19,278 | | Dilutive effect of stock-based compensation | 112 | 190 | 105 | | Diluted weighted average shares outstanding | 19,629 | 19,534 | 19,383 | | Net earnings per share: Basic | $6.41 | $3.44 | $0.99 | | Net earnings per share: Diluted | $6.37 | $3.41 | $0.98 | - Options and RSUs that were antidilutive and not included in diluted EPS amounted to 49,000 shares in 2022[209] (15) Business Segment Information Insteel operates as a single segment, with most sales from the U.S., and detailed breakdowns by product line (WWR and PC strand) - The company has one reportable segment, focused on steel wire reinforcing products[210] Net Sales by Geographic Region (in thousands) | Geographic Region | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :---------------- | :------------------------- | :------------------------- | :------------------------- | | United States | $820,641 | $583,458 | $470,420 | | Foreign | $6,191 | $7,143 | $2,198 | | Total | $826,832 | $590,601 | $472,618 | Net Sales by Product Line (in thousands) | Product Line | Year Ended October 1, 2022 | Year Ended October 2, 2021 | Year Ended October 3, 2020 | | :-------------------------- | :------------------------- | :------------------------- | :------------------------- | | Welded wire reinforcement | $495,401 | $358,334 | $294,129 | | Prestressed concrete strand | $331,431 | $232,267 | $178,489 | | Total | $826,832 | $590,601 | $472,618 | (16) Other Financial Data This note provides detailed breakdowns of balance sheet accounts, including accounts receivable, inventories, and property, plant, and equipment Accounts Receivable, Net (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :------------------------ | :-------------- | :-------------- | | Accounts receivable | $82,043 | $68,274 | | Less allowance for credit losses | $(397) | $(357) | | Total | $81,646 | $67,917 | Inventories (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :-------------- | :-------------- | :-------------- | | Raw materials | $108,894 | $50,459 | | Work in process | $8,817 | $6,680 | | Finished goods | $79,943 | $21,910 | | Total | $197,654 | $79,049 | Property, Plant and Equipment, Net (in thousands) | Category | October 1, 2022 | October 2, 2021 | | :------------------------ | :-------------- | :-------------- | | Land and land improvements | $14,947 | $14,554 | | Buildings | $55,044 | $53,182 | | Machinery and equipment | $191,790 | $180,654 | | Construction in progress | $11,745 | $10,191 | | Less accumulated depreciation | $(165,370) | $(152,957) | | Total | $108,156 | $105,624 | (17) Product Warranties Insteel warrants product specifications but does not maintain a warranty reserve due to immaterial historical claims, relying on product liability insurance - Products are warranted to meet certain specifications, with inherent risks in applications[215] - No reserve for warranties is maintained due to immaterial historical claims[215] - Product liability insurance coverage is maintained to minimize exposure to risks[215] (18) Share Repurchases The company repurchased 41,706 shares for $1.2 million in 2022 under a $25.0 million authorization, with $23.6 million remaining - A $25.0 million share repurchase authorization was approved on November 18, 2008, and remains in effect[216] - During 2022, the company repurchased 41,706 shares of common stock for $1.2 million[216] - As of October 1, 2022, $23.6 million remained available for future share repurchases[216] - No share repurchases occurred during 2021 or 2020[216] Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements Grant Thornton LLP issued an unqualified opinion on Insteel's consolidated financial statements and internal control over financial reporting as of October 1, 2022 - Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements for the period ended October 1, 2022[219] - An unqualified opinion was also expressed on the effectiveness of the company's internal control over financial reporting as of October 1, 2022[220] - No critical audit matters were determined[223] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[225] Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of October 1, 2022, ensuring timely and accurate reporting - Disclosure controls and procedures were evaluated as effective as of October 1, 2022[226] - The evaluation confirmed that information for SEC reports is recorded, processed, summarized, and reported timely[226] Management's Report on Internal Control over Financial Reporting Management assessed and concluded that internal control over financial reporting was effective as of October 1, 2022, with no material changes during the quarter - Management is responsible for establishing and maintaining adequate internal control over financial reporting[227] - Management assessed the effectiveness of internal control over financial reporting based on the 2013 COSO framework and concluded it was effective as of October 1, 2022[228] - No material changes in internal control over financial reporting occurred during the quarter ended October 1, 2022[228] Report of Independent Registered Public Accounting Firm – Internal Control Over Financial Reporting Grant Thornton LLP issued an unqualified opinion on the effectiveness of Insteel's internal control over financial reporting as of October 1, 2022 - Grant Thornton LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting as of October 1, 2022[232] - The audit was conducted in accordance with PCAOB standards[235] Item 9B. Other Information No other information is reported under this item - No other information is reported under this item[239] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - This item is not applicable[239] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement, including the Code of Business Conduct - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[241] - A Code of Business Conduct applies to all directors, officers, and employees, available on the company's website[242] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[243] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details on security ownership of beneficial owners and management are incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[244] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related person transactions, and director independence is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[245] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[246] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists filed financial statements, notes the omission of other schedules, and provides a comprehensive exhibit index - Financial statements as set forth under Item 8 are filed as part of this report[248] - All other financial statement schedules have been omitted because they are either not required or not applicable[249] - A list of exhibits filed as part of this annual report is provided in the Exhibit Index[250][251] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[253]