INSTEEL INDUSTRIES, INC. The matters discussed in this section include forward-looking statements that are subject to numerous risks. You should carefully read the "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in this Form 10-K.
Overview
Our operations are entirely focused on the manufacture and marketing of concrete reinforcing products for the concrete construction industry. Our business strategy is focused on: (1) achieving leadership positions in our markets; (2) operating as the lowest cost producer in our industry; and (3) pursuing growth opportunities within our core businesses that further our penetration of the markets we currently serve or expand our footprint.
13
--------------------------------------------------------------------------------
On
Impact of COVID-19
Despite the significant disruption in the
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in
Accounting estimates are considered critical if both of the following conditions are met: (1) the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change and (2) the effect of the estimates and assumptions is material to the financial statements.
We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented.
Recent Accounting Pronouncements.
The nature and impact of recent accounting pronouncements is discussed in Note 3 to our consolidated financial statements and incorporated herein by reference.
Results of Operations
The following discussion and analysis of our financial condition and results of
operations is for the year ended
14
--------------------------------------------------------------------------------
The table below presents a summary of our results of operations for fiscal 2022 and fiscal 2021.
Statements of Operations - Selected Data
(Dollars in thousands)
Year Ended
October 1, October 2,
2022 Change 2021
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
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
2022 Compared with 2021
Net Sales
Net sales increased 40.0% to
Gross Profit
Gross profit increased 62.3% to
Selling, General and Administrative Expense
Selling, general and administrative expense ("SG&A expense") increased 11.3% to
Restructuring (Recoveries) Charges, Net
Net restructuring recoveries of
Income Taxes
Our effective income tax rate for 2022 increased to 22.7% from 22.6% in 2021 due to changes in book versus tax differences.
15
--------------------------------------------------------------------------------
Net Earnings
Net earnings increased to
Liquidity and Capital Resources
Overview
Our sources of liquidity include cash and cash equivalents, cash generated by
operating activities and borrowing availability provided under our
We believe that, in the absence of significant unanticipated cash demands, cash and cash equivalents, cash generated by operating activities and the borrowing availability provided under the Credit Facility will be sufficient to satisfy our expected requirements for working capital, capital expenditures, dividends and share repurchases, if any, in both the short- and long-term. We also expect to have access to the amounts available under our Credit Facility as required. However, should we experience future reductions in our operating cash flows due to weakening conditions in our construction end-markets and reduced demand from our customers, we may need to curtail capital and operating expenditures, delay or restrict share repurchases, cease dividend payments and/or realign our working capital requirements.
Should we determine, at any time, that we require additional short-term liquidity, we would evaluate the alternative sources of financing that were potentially available to provide such funding. There can be no assurance that any such financing, if pursued, would be obtained, or if obtained, would be adequate or on terms acceptable to us. However, we believe that our strong balance sheet, flexible capital structure and borrowing capacity available to us under our Credit Facility position us to meet our anticipated liquidity requirements for the foreseeable future.
Selected Liquidity and Capital Resources Data
(Dollars in thousands)
Year Ended
October 1, October 2,
2022 2021
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 - -
Percentage of total capital - -
Shareholders' equity $ 389,744 $ 302,038
Percentage of total capital 100 % 100 %
Total capital (total debt + shareholders' equity)
Operating Activities
Operating activities provided
16
--------------------------------------------------------------------------------
Operating activities provided
We may elect to adjust our operating activities as there are changes in the conditions in our construction end-markets, which could materially impact our cash requirements. While a downturn in the level of construction activity affects sales to our customers, it generally reduces our working capital requirements.
Investing Activities
Investing activities used
Financing Activities
Financing activities used
Cash Management
Our cash is principally concentrated at one financial institution, which at times exceeds federally insured limits. We invest excess cash primarily in money market funds, which are highly liquid securities that bear minimal risk.
Credit Facility
We have a Credit Facility that is used to supplement our operating cash flow and
fund our working capital, capital expenditure, general corporate and growth
requirements. In
Off-Balance Sheet Arrangements
We do not have any material transactions, arrangements, obligations (including
contingent obligations), or other relationships with unconsolidated entities or
other persons, as defined by Item 303(a)(4) of Regulation S-K of the
17
--------------------------------------------------------------------------------
Contractual Obligations
In addition to our discussion and analysis surrounding our liquidity and capital
resources, our contractual obligations and commitments as of
? Raw Material Purchase Commitments - See Note 12, "Commitments and
Contingencies," within our consolidated financial statements for further
details concerning our non-cancelable raw material purchase commitments.
? Supplemental Employee Retirement Plan Obligations - See Note 11, "Employee
Benefit Plans," within our consolidated financial statements for further
detail of our obligations and the timing of expected future payments under our
supplemental employee retirement plan.
? Operating Leases - See Note 13, "Leases," within our consolidated financial
statements for further detail of our obligations and the timing of expected
future payments, including a five-year maturity schedule.
? Debt Obligations and Interest Payments - See Note 8, "Long-Term Debt," within
our consolidated financial statements for further detail of our debt and the
timing of expected future principal and interest payments. As of October 1,
2022 , there were no borrowings outstanding.
? Capital Expenditures - As of October 1, 2022 , we had contractual commitments
for capital expenditures of $31.9 million .
Impact of Inflation
We are subject to inflationary risks arising from fluctuations in the market prices for our primary raw material, hot-rolled carbon steel wire rod, and, to a much lesser extent, labor, freight, energy and other consumables that are used in our manufacturing processes. We have generally been able to adjust our selling prices to pass through increases in these costs or offset them through various cost reduction and productivity improvement initiatives. However, our ability to raise our selling prices depends on market conditions and competitive dynamics, and there may be periods during which we are unable to fully recover increases in our costs.
During 2022 and 2021, we were successful in implementing price increases sufficient to recover the escalation in our raw material costs that occurred over the course of each year. The timing and magnitude of any future increases in raw material costs and the impact on selling prices for our products is uncertain at this time.
Outlook
Looking ahead to fiscal 2023, we are optimistic about demand in both our private
and public nonresidential construction markets. Backlogs across our customer
base remain solid and widely monitored leading market indicators in private
nonresidential construction point to continued expansion. Public nonresidential
construction markets should benefit from incremental demand from both the strong
financial position of state budgets and funding by the
Regardless of the market dynamics, we continue to focus on those factors we control: closely managing and controlling our expenses; aligning our production schedules with demand in a proactive manner as there are changes in market conditions to minimize our operating costs; pursuing further improvements in the productivity and effectiveness of all our manufacturing, selling and administrative activities: and furthering our human capital strategy. We also expect gradually increasing contributions from the substantial investments we have made in our facilities in the form of reduced operating costs and additional capacity to support future growth. Finally, we will continue to pursue acquisitions opportunistically in our existing businesses that expand our penetration of markets we currently serve or expand our footprint.
The statements contained in this section are forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors".
© Edgar Online, source
