iiin20241228

iiin20241228_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 28, 2024.

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to .

Commission File Number: 1-09929

Insteel Industries Inc.

(Exact name of registrant as specified in its charter)

North Carolina	56-0674867
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1373 Boggs Drive, Mount Airy, North Carolina	27030
(Address of principal executive offices)	(Zip code)

(336) 786-2141

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock (No Par Value)		IIIN		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer ☐		Accelerated filer ☒
Non-Accelerated filer ☐		Smaller reporting company ☐
Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Common Stock (No Par Value)	19,430,632
Title of Class	Number of Shares Outstanding as of January 15, 2025

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

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

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

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

Item 5.	Other Information	25

Item 6.	Exhibits	25

SIGNATURES		26

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	December 28,			December 30,
	2024			2023

Net sales	$	129,720		$	121,725
Cost of sales		120,191			115,455
Gross profit		9,529			6,270
Selling, general and administrative expense		7,887			6,367
Restructuring charges, net		696			-
Acquisition costs		271			-
Other income, net		(14	)		(22	)
Interest expense		13			29
Interest income		(786	)		(1,659	)
Earnings before income taxes		1,462			1,555
Income taxes		381			423
Net earnings	$	1,081		$	1,132


Net earnings per share:
Basic	$	0.06		$	0.06
Diluted		0.06			0.06

Weighted average shares outstanding:
Basic		19,497			19,497
Diluted		19,550			19,573

Cash dividends declared per share	$	1.03		$	2.53

Comprehensive income	$	1,081		$	1,132

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

	(Unaudited)
	December 28,			September 28,
	2024			2024
Assets
Current assets:
Cash and cash equivalents	$	35,951		$	111,538
Accounts receivable, net		49,442			58,308
Inventories		98,670			88,840
Other current assets		8,422			8,608
Total current assets		192,485			267,294
Property, plant and equipment, net		136,379			125,540
Intangibles, net		17,998			5,341
Goodwill		35,641			9,745
Other assets		22,196			14,632
Total assets	$	404,699		$	422,552

Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	36,724		$	37,487
Accrued expenses		10,360			9,547
Total current liabilities		47,084			47,034
Other liabilities		25,965			24,663
Commitments and contingencies
Shareholders' equity:
Common stock		19,431			19,452
Additional paid-in capital		86,919			86,671
Retained earnings		225,908			245,340
Accumulated other comprehensive loss		(608	)		(608	)
Total shareholders' equity		331,650			350,855
Total liabilities and shareholders' equity	$	404,699		$	422,552

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	December 28,			December 30,
	2024			2023
Cash Flows From Operating Activities:
Net earnings	$	1,081		$	1,132
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		4,429			3,709
Amortization of capitalized financing costs		13			13
Stock-based compensation expense		345			398
Deferred income taxes		777			3,348
Asset impairment charges		273			-
Loss on sale and disposition of property, plant and equipment		3			-
Increase in cash surrender value of life insurance policies over premiums paid		-			(675	)
Net changes in assets and liabilities (net of assets and liabilities acquired):
Accounts receivable, net		8,866			20,070
Inventories		2,640			9,164
Accounts payable and accrued expenses		754			(12,921	)
Other changes		(198	)		(2,404	)
Total adjustments		17,902			20,702
Net cash provided by operating activities		18,983			21,834

Cash Flows From Investing Activities:
Acquisition of businesses		(71,456	)		-
Capital expenditures		(2,667	)		(12,268	)
Decrease (Increase) in cash surrender value of life insurance policies		184			(122	)
Proceeds from sale of property, plant and equipment		-			3
Proceeds from surrender of life insurance policies		-			5
Net cash used for investing activities		(73,939	)		(12,382	)

Cash Flows From Financing Activities:
Proceeds from long-term debt		69			67
Principal payments on long-term debt		(69	)		(67	)
Cash dividends paid		(20,014	)		(49,191	)
Payment of employee tax withholdings related to net share transactions		-			(20	)
Cash received from exercise of stock options		-			243
Repurchases of common stock		(617	)		(539	)
Net cash used for financing activities		(20,631	)		(49,507	)

Net decrease in cash and cash equivalents		(75,587	)		(40,055	)
Cash and cash equivalents at beginning of period		111,538			125,670
Cash and cash equivalents at end of period	$	35,951		$	85,615

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes, net	$	40		$	8
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable		1,352			1,846
Restricted stock units and stock options surrendered for withholding taxes payable		-			20
Accrued liability related to holdback for business acquired		657			-

See accompanying notes to consolidated financial statements.

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)

													Accumulated
							Additional						Other			Total
	Common Stock						Paid-In			Retained			Comprehensive			Shareholders'
	Shares			Amount			Capital			Earnings			Loss			Equity
*For the three months ended December 28, 2024*

Balance at September 28, 2024		19,452		$	19,452		$	86,671		$	245,340		$	(608	)	$	350,855
Net earnings											1,081						1,081
Compensation expense associated with stock-based plans								345									345
Repurchases of common stock		(21	)		(21	)		(97	)		(499	)					(617	)
Cash dividends declared											(20,014	)					(20,014	)
Balance at December 28, 2024		19,431		$	19,431		$	86,919		$	225,908		$	(608	)	$	331,650

*For the three months ended December 30, 2023*

Balance at September 30, 2023		19,454		$	19,454		$	83,832		$	278,502		$	(283	)	$	381,505
Net earnings											1,132						1,132
Stock options exercised, net		13			13			297									310
Compensation expense associated with stock-based plans								398									398
Repurchases of common stock		(19	)		(19	)		(82	)		(438	)					(539	)
Restricted stock units and stock options surrendered for withholding taxes payable								(20	)								(20	)
Cash dividends declared											(49,191	)					(49,191	)
Balance at December 30, 2023		19,448		$	19,448		$	84,425		$	230,005		$	(283	)	$	333,595

See accompanying notes to consolidated financial statements

INSTEEL INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) on a basis consistent with that used in the Annual Report on Form 10-K for the year ended September 28, 2024 (“2024 Form 10-K”) filed by us with the Securities and Exchange Commission. These statements include all normal recurring adjustments necessary to present fairly the consolidated balance sheets and the statements of operations and comprehensive income, cash flows and shareholders’ equity for the periods indicated. The September 28, 2024 consolidated balance sheet was derived from audited consolidated financial statements but does not include all the disclosures required by GAAP. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2024 Form 10-K. The results of operations for the periods indicated are not necessarily indicative of the results that may be expected for the full fiscal year or any future periods.

On October 21, 2024, we, through our wholly-owned subsidiary, Insteel Wire Products Company (“IWP”), purchased substantially all of the assets, other than cash and accounts receivable, of Engineered Wire Products, Inc. (“EWP”) and certain related assets of Liberty Steel Georgetown, Inc. (“LSG”). See Note 3 to the consolidated financial statements for additional information.

On November 26, 2024, we, through our wholly-owned subsidiary IWP, purchased certain assets of O’Brien Wire Products of Texas, Inc. (“OWP”). See Note 3 to the consolidated financial statements for additional information.

(2) Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. ASU No. 2023-07 requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU requires all annual disclosures currently required by Topic 280 to be included in interim periods and is applicable to entities with a single reportable segment. ASU No. 2023-07 will be effective for us in fiscal 2025 for annual reporting and in the first quarter of fiscal 2026 for interim reporting. Retrospective application is required for all prior periods presented in the financial statements. The adoption of this update will not have a material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. ASU No. 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income tax paid. ASU No. 2023-09 will become effective for us in fiscal 2026. We are currently evaluating the impact of the ASU on our income tax disclosures within the consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”. ASU No. 2024-03 does not change or remove existing expense disclosure requirements but requires disaggregated disclosures about certain expense categories and captions, including but not limited to, purchases of inventory, employee compensation, depreciation, amortization and selling expenses. ASU No. 2024-03 will become effective for us in fiscal 2028 and in the first quarter of fiscal 2029 for interim reporting. Retrospective application is permitted. We are currently evaluating the impact of the ASU on our disclosures within the consolidated financial statements.

(3) Business Combination

Acquisitions have been accounted for as business purchases pursuant to FASB Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).

Engineered Wire Products, Inc.

On October 21, 2024, we purchased substantially all of the assets, other than cash and accounts receivable, of EWP and certain related assets of LSG (the “EWP Acquisition”) for an adjusted purchase price of $67.0 million, which included a $1.5 million holdback payable by us one year from the acquisition date. Subsequent to the acquisition date, certain of the adjustments to the purchase price totaling $0.8 million were applied to the holdback amount, reducing the holdback to $0.7 million.

EWP was a leading manufacturer of welded wire reinforcement (“WWR”) products for use in nonresidential and residential construction. Under the terms of the EWP Acquisition, Insteel acquired EWP’s inventories, production equipment and production facilities located in Upper Sandusky, Ohio and Warren, Ohio. Insteel also acquired certain equipment from LSG located in Georgetown, South Carolina, but the Georgetown facility was excluded from the acquisition. EWP retained its accounts receivable and accounts payable. The EWP Acquisition was funded with cash on hand. The EWP Acquisition will expand our geographic footprint and is expected to strengthen our competitive position within the Midwest market.

Following is a summary of our preliminary allocation of the purchase price to the fair values of the assets acquired and liabilities assumed as of the acquisition date:

(In thousands)
Assets acquired:
Inventories	$	12,066
Other current assets		171
Property, plant and equipment		17,958
Intangible assets:
Customer relationships		10,800
Non-competition agreement		900
Trade name		350
Patent		200
Right-of-use assets		459
Total assets acquired	$	42,904

Liabilities assumed:
Accrued expenses	$	89
Current operating lease liabilities		128
Non-current operating lease liabilities		331
Total liabilities assumed		548
Net assets acquired		42,356
Adjusted purchase price		67,030
Goodwill	$	24,674

In connection with the EWP Acquisition, we acquired certain intangible assets that will be amortized based on their estimated useful lives of 20.0 years for customer relationships, 4.0 years for a non-competition agreement, 1.0 year for a trade name and 7.0 years for a patent. As we are in the process of finalizing internal and third-party valuations, the provisional estimates of inventories, other current assets, intangible assets, fixed assets, goodwill and certain accrued liabilities are subject to adjustment. We expect to finalize these amounts as soon as practical and no later than one year from the acquisition date. Goodwill associated with the EWP Acquisition, which is deductible for tax purposes, consists largely of the synergies we expect to realize through the integration of the acquired assets with our operations.

Following the EWP Acquisition, net sales of the former EWP facilities were approximately $7.6 million for the three-month period ended December 28, 2024. The actual net sales specifically attributable to the EWP Acquisition, however, cannot be quantified due to our integration efforts which involved the reassignment of business between the former EWP facilities and our existing WWR facilities. As a result, we have determined that the presentation of EWP’s earnings for the three months ended December 28, 2024 is impracticable due to the integration of EWP’s operations following the EWP Acquisition.

The following unaudited supplemental pro forma financial information reflects our combined results of operations had the EWP Acquisition occurred at the beginning of fiscal 2024. The pro forma information reflects certain adjustments related to the EWP Acquisition, including adjusted amortization and depreciation expense based on the fair values of the assets acquired and adjustments to interest income. The pro forma information does not reflect any potential operating efficiencies or cost savings that may result from the EWP Acquisition. Accordingly, this pro forma information is for illustrative purposes and is not intended to represent the actual results of operations of the combined company that would have been achieved had the EWP Acquisition occurred at the beginning of fiscal 2024, nor is it intended to indicate future results of operations. The pro forma combined results of operations for the three-month periods ending December 28, 2024 and December 30, 2023 are as follows:

	December 28,		December 30,
(In thousands)	2024		2023
Net sales	$	134,926	$	141,752
Earnings (loss) before income taxes		1,542		(1,249	)
Net earnings (loss)		1,140		(909	)

Restructuring charges. In connection with the EWP acquisition, we elected to consolidate our WWR operations through the closure of the Warren facility and through the redeployment of equipment to our other WWR production facilities. Production at the Warren facility ceased in November 2024 and its orders were distributed to our remaining WWR facilities. We plan to sell the acquired Warren facility, including certain machinery and equipment, totaling $6.1 million within one year. These items have been classified as assets held for sale within other assets on our consolidated balance sheet. Following is a summary of the restructuring activity during the three-month period ended December 28, 2024:

	Employee			Facility			Asset
	Separation Costs			Closure Costs			Impairments			Total
(In thousands)
Restructuring charges, net	$	192		$	212		$	270		$	674
Cash payments		(138	)		(137	)		-			(275	)
Non-cash charges		-			-			(270	)		(270	)
Liability as of December 28, 2024	$	54		$	75		$	-		$	129

As of December 28, 2024, we recorded a liability of $129,000 for restructuring liabilities in accrued expenses on our consolidated balance sheet. We currently expect to incur approximately $1.2 million of additional restructuring charges for equipment relocation, employee separation and facility closure costs through fiscal 2025.

Acquisition costs. Under the provisions of ASC 805, acquisition and integration costs are recorded as expenses in the period in which such costs are incurred rather than included as components of consideration transferred. During the three-month period ended December 28, 2024, we recorded $226,000 of acquisition-related costs associated with the EWP Acquisition for accounting, legal and other professional fees.

O’Brien Wire Products of Texas, Inc.

On November 26, 2024, we purchased certain assets of OWP for a purchase price of $5.1 million (the “OWP Acquisition”). OWP was a manufacturer of WWR products for use in nonresidential and residential construction. Under the terms of the OWP Acquisition, Insteel acquired certain of OWP’s inventories and all of the production equipment. The OWP Acquisition was funded with cash on hand. The OWP Acquisition serves to strengthen our competitive position within the Texas market.

Following is a summary of our preliminary allocation of the purchase price to the fair values of the assets acquired and liabilities assumed as of the acquisition date:

(In thousands)
Assets acquired:
Inventories	$	404
Property, plant and equipment		2,675
Intangible assets:
Customer relationships		785
Non-competition agreement		30
Total assets acquired	$	3,894

Liabilities assumed:
Total liabilities assumed	$	-
Net assets acquired		3,894
Purchase price		5,116
Goodwill	$	1,222

In connection with the OWP Acquisition, we acquired certain intangible assets that will be amortized based on their estimated useful lives of 20.0 years for customer relationships and 5.0 years for a non-competition agreement. As we are in the process of finalizing internal and third-party valuations, the provisional estimates of inventories, intangible assets, fixed assets and goodwill are subject to adjustment. We expect to finalize these amounts as soon as practical and no later than one year from the acquisition date. Goodwill, which is deductible for tax purposes, consists largely of the synergies we expect to realize through the integration of the acquired assets with our operations.

Following the OWP acquisition, the net sales resulting from this acquisition were managed through our existing WWR facilities and cannot be quantified separately because of our ongoing integration efforts. Additionally, we are unable to prepare pro forma financial information due to the unavailability of certain historical financial data. Disclosing this information is considered impractical, and it would not significantly differ from the results presented in our consolidated financial statements for the three-month periods ending December 28, 2024, and December 30, 2023.

Restructuring charges. In connection with the OWP Acquisition, we elected to consolidate our WWR operations through the redeployment of OWPs equipment and inventory to our other facilities. We plan to sell certain acquired machinery and equipment totaling $1.0 million within one year. These items are classified as assets held for sale within other assets on our consolidated balance sheet. Following is a summary of the restructuring activity during the three-month period ended December 28, 2024:

	Facility			Asset
	Closure Costs			Impairments			Total
(In thousands)
Restructuring charges, net	$	19		$	3		$	22
Cash payments		(8	)		-			(8	)
Non-cash charges		-			(3	)		(3	)
Liability as of December 28, 2024	$	11		$	-		$	11

As of December 28, 2024, we recorded a liability of $11,000 for restructuring liabilities in accrued expenses on our consolidated balance sheet. We currently expect to incur approximately $0.6 million of additional restructuring charges for equipment relocation and facility closure costs through fiscal 2025.

Acquisition costs. During the three-month period ended December 28, 2024, we recorded $45,000 of acquisition-related costs associated with the OWP Acquisition for accounting, legal and other professional fees.

(4) Revenue Recognition

We recognize revenues when performance obligations under the terms of a contract with our customers are satisfied, which generally occurs when products are shipped and control is transferred. We enter into contracts that pertain to products, which are accounted for as separate performance obligations and typically one year or less in duration. We do not exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. We present revenue net of amounts collected from customers for sales tax.

Variable consideration that may affect the total transaction price, including contractual discounts, rebates, returns and credits, are included in net sales. Estimates for variable consideration are based on historical experience, anticipated performance and management's judgment and are updated as of each reporting date. Shipping and related expenses associated with outbound freight are accounted for as fulfillment costs and included in cost of sales. We do not have significant financing components. Contract costs are not significant and are recognized as incurred.

Our net sales by product line are as follows:

	Three Months Ended
	December 28,		December 30,
(In thousands)	2024		2023
Welded wire reinforcement	$	82,454	$	68,802
Prestressed concrete strand		47,266		52,923
Total	$	129,720	$	121,725

Contract assets primarily relate to our rights to consideration for products that are delivered but not billed as of the reporting date and are reclassified to receivables when the customer is invoiced. Contract liabilities primarily relate to performance obligations that are to be satisfied in the future and arise when we collect from the customer in advance of shipments. Contract assets and liabilities were not material as of December 28, 2024, and September 28, 2024.

Accounts receivable includes amounts billed and currently due from customers stated at their net estimated realizable value. Customer payment terms are generally 30 days. We maintain an allowance for credit losses to provide for the estimated receivables that will not be collected, which is based upon our assessment of customer creditworthiness, historical payment experience and the age of outstanding receivables. Past-due trade receivable balances are written off when our collection efforts have been unsuccessful.

(5) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-level fair value hierarchy that encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of December 28, 2024, and September 28, 2024, we held financial assets that are required to be measured at fair value on a recurring basis, which are summarized below:

(In thousands)	Total		Quoted Prices in Active Markets (Level 1)		Observable Inputs (Level 2)
As of December 28, 2024:
Current assets:
Cash equivalents	$	35,818	$	35,818	$	-
Other assets:
Cash surrender value of life insurance policies		12,426		-		12,426
Total	$	48,244	$	35,818	$	12,426

As of September 28, 2024:
Current assets:
Cash equivalents	$	111,146	$	111,146	$	-
Other assets:
Cash surrender value of life insurance policies		12,610		-		12,610
Total	$	123,756	$	111,146	$	12,610

Cash equivalents, which include all highly liquid investments with original maturities of three months or less, are classified as Level 1 of the fair value hierarchy. The carrying amount of our cash equivalents, which consist of investments in money market funds, approximates fair value due to their short maturities. Cash surrender value of life insurance policies are classified as Level 2. The fair value of the life insurance policies was determined by the underwriting insurance company’s valuation models and represents the guaranteed value we would receive upon surrender of these policies as of the reporting date.

As of December 28, 2024, and September 28, 2024, we had no nonfinancial assets that were required to be measured at fair value on a nonrecurring basis other than the assets that were acquired from EWP, OWP and assets classified as held for sale during the three-month period ended December 28, 2024 (see Note 3 to the consolidated financial statements). The carrying amounts of accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturities of these financial instruments.

(6) Intangible Assets

The primary components of our intangible assets and the related accumulated amortization are as follows:

(In thousands)	Weighted-Average Useful Life (Years)		Gross		Accumulated Amortization			Net Book Value
As of December 28, 2024:
Customer relationships		18.7	$	21,455	$	(5,695	)	$	15,760
Developed technology and know-how		20.0		1,800		(930	)		870
Non-competition agreements		4.1		990		(101	)		889
Trade Name		1.0		350		(66	)		284
Patents		7.0		200		(5	)		195
			$	24,795	$	(6,797	)	$	17,998

As of September 28, 2024:
Customer relationships		17.1	$	9,870	$	(5,427	)	$	4,443
Developed technology and know-how		20.0		1,800		(908	)		892
Non-competition agreements		5.0		60		(54	)		6
			$	11,730	$	(6,389	)	$	5,341

Amortization expense for intangibles was $408,000 and $187,000 for the three-month periods ended December 28, 2024, and December 30, 2023, respectively. Amortization expense for the next five years is $1.4 million in 2025, $1.6 million in 2026, $1.3 million in 2027, $1.3 million in 2028, $1.1 million in 2029 and $11.3 million thereafter.

(7) Stock-Based Compensation

Under our equity incentive plan, employees and directors may be granted stock options, restricted stock, restricted stock units and performance awards. Effective February 11, 2020, our shareholders approved an amendment to the 2015 Equity Incentive Plan of Insteel Industries Inc. (the “2015 Plan”), which authorizes up to an additional 750,000 shares of our common stock for future grants under the plan and expires on February 17, 2025. As of December 28, 2024, there were 285,000 shares of our common stock available for future grants under the 2015 Plan, which is our only active equity incentive plan.

Stock option awards. Under our equity incentive plan, employees and directors may be granted options to purchase shares of common stock at the fair market value on the date of the grant. Options granted under these plans generally vest over three years and expire ten years from the date of the grant. Compensation expense associated with stock options was $127,000 and $153,000 for the three-month periods ended December 28, 2024, and December 30, 2023 respectively. As of December 28, 2024, there was $583,000 of unrecognized compensation cost related to unvested options which is expected to be recognized over a weighted average period of 2.00 years.

The following table summarizes stock option activity:

					Contractual		Aggregate
	Options		Weighted		Term - Weighted		Intrinsic
	Outstanding		Average		Average		Value
	(in thousands)		Exercise Price		(in years)		(in thousands)
Outstanding at September 28, 2024		466	$	31.03
Exercised		-		-
Outstanding at December 28, 2024		466		31.03		6.77	$	683

Vested and anticipated to vest in the future at December 28, 2024		456		31.00		6.71		683

Exercisable at December 28, 2024		283		30.00		5.42		683

Stock option exercises include “net exercises” for which the optionee received shares of common stock equal to the intrinsic value of the options (fair market value of common stock on the date of exercise less exercise price) reduced by any applicable withholding taxes.

Restricted stock units. Restricted stock units (“RSUs”) granted under our equity incentive plan are valued based upon the fair market value on the date of the grant and provide for a dividend equivalent payment which is included in compensation expense. The vesting period for RSUs is generally one year from the date of the grant for RSUs granted to directors and three years from the date of the grant for RSUs granted to employees. RSUs do not have voting rights. Compensation expense associated with RSUs was $218,000 and $245,000 for the three-month periods ended December 28, 2024, and December 30, 2023, respectively.

As of December 28, 2024, there was $924,000 of unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average period of 1.66 years.

The following table summarizes RSU activity:

			Weighted
	Restricted		Average
	Stock Units		Grant Date
(Unit amounts in thousands)	Outstanding		Fair Value
Balance, September 28, 2024		119	$	32.96
Vested		-		-
Balance, December 28, 2024		119		32.96

(8) Income Taxes

Effective income tax rate. Our effective income tax rate was 26.1% for the three-month period ended December 28, 2024, compared with 27.2% for the three-month period ended December 30, 2023. The effective income tax rates for both periods were based upon the estimated rate applicable for the entire fiscal year adjusted to reflect any significant or discrete items related specifically to interim periods. The decrease in the effective rate for the three-month period ended December 28, 2024, is primarily attributed to the calculation of state deferred tax balances, which were treated as discrete in the current period.

Deferred income taxes. As of December 28, 2024, and September 28, 2024, we recorded a deferred tax liability (net of valuation allowance) of $12.4 million and $11.6 million, respectively, in other liabilities on our consolidated balance sheets. We have $2.2 million of state net operating loss carryforwards (“NOLs”) that expire between 2031 and 2040.

The realization of our deferred tax assets is entirely dependent upon our ability to generate future taxable income in applicable jurisdictions. GAAP requires that we periodically assess the need to establish a reserve against our deferred tax assets to the extent we no longer believe it is more likely than not that they will be fully realized. As of December 28, 2024, and September 28, 2024, we recorded a valuation allowance of $149,000 pertaining to deferred tax assets that were not expected to be utilized. The valuation allowance is subject to periodic review and adjustment based on changes in facts and circumstances.

Uncertainty in income taxes. We establish contingency reserves for material, known tax exposures based on our assessment of the estimated liability that would be incurred in connection with the settlement of such matters. As of December 28, 2024, we had no material, known tax exposures that required the establishment of contingency reserves for uncertain tax positions.

We file U.S. federal, state and local income tax returns in various jurisdictions. Federal and various state tax returns filed subsequent to 2019 remain subject to examination.

(9) Employee Benefit Plans

Supplemental retirement benefit plan. We have Supplemental Retirement Benefit Agreements (each, a “SRBA”) with certain of our employees (each, a “Participant”). Under the SRBAs, if the Participant remains in continuous service with us for a period of at least 30 years, we will pay the Participant a supplemental retirement benefit for the 15-year period following the Participant’s retirement equal to 50% of the Participant’s highest average annual base salary for five consecutive years in the 10-year period preceding the Participant’s retirement. If the Participant retires prior to the later of age 65 or the completion of 30 years of continuous service with us but has completed at least 10 years of continuous service, the amount of the Participant’s supplemental retirement benefit will be reduced by 1/360^th for each month short of 30 years that the Participant was employed by us.

Net periodic pension cost for the SRBAs consists of the following components included in selling, general and administrative expense:

	Three Months Ended
	December 28,		December 30,
(In thousands)	2024		2023
Interest cost	$	151	$	147
Service cost		69		63
Net periodic pension cost	$	220	$	210

(10) Long-Term Debt

Revolving 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 March 2023, we amended our credit agreement to extend the maturity date of the Credit Facility from May 15, 2024, to March 15, 2028, and replaced the London Inter-Bank Offered Rate with the Secured Overnight Financing Rate (“SOFR”). The Credit Facility provides for an accordion feature whereby its size may be increased by up to $50.0 million, subject to our lender’s approval. 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 December 28, 2024, no borrowings were outstanding on the Credit Facility, $98.5 million of borrowing capacity was available and outstanding letters of credit totaled $1.5 million.

Interest rates on the Credit Facility are based upon (1) an index rate that is established at the highest of the prime rate, 0.50% plus the federal funds rate or the SOFR rate plus 1.00% or (2) at our election, a SOFR rate including a credit adjustment of 0.10% plus, in either case, an applicable interest rate margin. The applicable interest rate margins are adjusted on a quarterly basis based upon the amount of excess availability on the Credit Facility within the range of 0.25% to 0.50% for index rate loans and 1.25% to 1.50% for SOFR-based loans. In addition, the applicable interest rate margins would be increased by 2.00% upon the occurrence of certain events of default provided for under the terms of the Credit Facility. Based on our excess availability as of December 28, 2024, the applicable interest rate margins on the Credit Facility were 0.25% for index rate loans and 1.25% for SOFR-based loans.

Our ability to borrow available amounts under the Credit Facility will be restricted or eliminated in the event of certain covenant breaches, events of default or if we are unable to make certain representations and warranties provided for under the terms of the Credit Facility. We are required to maintain a fixed charge coverage ratio of not less than 1.0 at the end of each fiscal quarter for the twelve-month period then ended when the amount of liquidity on the Credit Facility is less than $10.0 million. In addition, the terms of the Credit Facility restrict our ability to, among other things: engage in certain business combinations or divestitures; make investments in or loans to third parties, unless certain conditions are met with respect to such investments or loans; pay cash dividends or repurchase shares of our stock subject to certain minimum borrowing availability requirements; incur or assume indebtedness; issue securities; enter into certain transactions with our affiliates; or permit liens to encumber our property and assets. The terms of the Credit Facility also provide that an event of default will occur upon the occurrence of, among other things: defaults or breaches under the loan documents, subject in certain cases to cure periods; defaults or breaches by us or any of our subsidiaries under any agreement resulting in the acceleration of amounts above certain thresholds or payment defaults above certain thresholds; certain events of bankruptcy or insolvency; certain entries of judgment against us or any of our subsidiaries, which are not covered by insurance; or a change of control. As of December 28, 2024, we were in compliance with all of the financial and negative covenants under the Credit Facility, and there have not been any events of default.

Amortization of capitalized financing costs associated with the Credit Facility was $13,000 for each of the three-month periods ended December 28, 2024, and December 30, 2023.

(11) Earnings Per Share

The computation of basic and diluted earnings per share attributable to common shareholders is as follows:

	Three Months Ended
	December 28,		December 30,
(In thousands, except per share amounts)	2024		2023
Net earnings	$	1,081	$	1,132

Basic weighted average shares outstanding		19,497		19,497
Dilutive effect of stock-based compensation		53		76
Diluted weighted average shares outstanding		19,550		19,573

Net earnings per share:
Basic	$	0.06	$	0.06
Diluted	$	0.06	$	0.06

Options and RSUs that were antidilutive and not included in the dilutive earnings per share calculation amounted to 82,000 and 39,000 shares for the three-month periods ended December 28, 2024, and December 30, 2023, respectively.

SEC Form 10-Q filed by Insteel Industries Inc.