INSTEEL INDUSTRIES INC

Previous wording

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Our discussion and analysis of our financial condition and results of operations are based on these consolidated financial statements. The preparation of our consolidated financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on currently available information, actuarial estimates, historical results and other assumptions believed to be reasonable. These estimates, assumptions and judgments are affected by our application of accounting policies, which are discussed in Note 2, "Summary of Significant** Accounting **Policies", and elsewhere in the accompanying consolidated financial statements. Estimates are used for, but not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities. Actual results could differ from these estimates.

Current wording

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Our discussion and analysis of our financial condition and results of operations are based on these consolidated financial statements. The preparation of our consolidated financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on currently available information, actuarial estimates, historical results and other assumptions believed to be reasonable. These estimates, assumptions and judgments are affected by our application of accounting policies, which are discussed in Note 2, "Summary of Significant** Accounting **Policies", and elsewhere in the accompanying consolidated financial statements. Estimates are used for, but not limited to, determining the net carrying value of trade accounts receivable, inventories, recording self-insurance liabilities and other accrued liabilities. Estimates are also used in establishing opening balances in relation to purchase accounting. Actual results could differ from these estimates.

Previous wording

Gross profit decreased 24.1% to $49.6 million, or 9.4% of net sales, in 2024 from $65.4 million, or 10.1% of net sales, in 2023. The year-over-year decrease was primarily due to lower spreads between average selling prices and raw material costs ($16.6 million) partially offset by lower manufacturing costs ($782,000). The decrease in spreads was driven by lower average selling prices ($119.7 million) partially offset by lower raw material costs ($102.8 million) and a decrease in freight expense ($291,000).

Current wording

Gross profit increased 88.3% to $93.4 million, or 14.4% of net sales, in 2025 from $49.6 million, or 9.4% of net sales, in 2024. The year-over-year increase was primarily due to higher spreads between average selling prices and raw material costs ($36.1 million), higher shipments ($7.8 million) and other material costs and adjustments ($2.8 million), partially offset by higher manufacturing costs ($2.9 million). The increase in spreads was driven by higher average selling prices ($36.3 million) and lower raw material costs ($1.3 million) partially offset by an increase in freight expense ($1.5 million).

Previous wording

Selling, general and administrative expense (“SG&A expense”) decreased 3.6% to $29.6 million, or 5.6% of net sales, in 2024 from $30.7 million, or 4.7% of net sales, in 2023 primarily due to lower compensation expense ($1.4 million) and the relative year-over-year changes in the cash surrender value of life insurance policies ($1.0 million) partially offset by higher depreciation ($569,000) and bad debt ($350,000) expense. The decrease in compensation expense was largely driven by lower incentive plan expense due to a decline in financial results in the current year. The cash surrender value of life insurance policies increased $1.5 million in the current year compared with $531,000 in the prior year due to the corresponding changes in the value of the underlying investments. The increase in depreciation expense was attributed to higher capital expenditures during the current year. The higher bad debt expense resulted from adjustments to customer credit reserves.

Current wording

Selling, general and administrative expense (“SG&A expense”) increased 31.8% to $39.0 million, or 6.0% of net sales, in 2025 from $29.6 million, or 5.6% of net sales, in 2024 primarily due to higher compensation expense ($6.4 million), an increase in amortization expense associated with intangible assets ($1.1 million), the relative year-over-year changes in the cash surrender value of life insurance policies ($1.0 million) and an increase in employee benefit expense ($511,000). The increase in compensation expense was largely driven by higher incentive plan expense due to our improved financial results in the current year. The cash surrender value of life insurance policies increased $452,000 in the current year compared with $1.5 million in the prior year due to the corresponding changes in the value of the underlying investments. The increase in amortization expense was primarily attributed to the intangible assets that were acquired in connection with our first quarter acquisitions. The increase in employee benefit expense was primarily related to higher employee health insurance expense in the current year.

Previous wording

Interest income increased $1.7 million due to higher average cash balances and interest rates.

Current wording

Interest income decreased $3.4 million due to lower average cash balances and interest rates.

Previous wording

Net earnings decreased to $19.3 million ($0.99 per share) in 2024 from $32.4 million ($1.66 per share) in 2023, primarily due to the decrease in gross profit and other income partially offset by lower SG&A expense and increased interest income.

Current wording

Net earnings increased to $41.0 million ($2.10 per diluted share) in 2025 from $19.3 million ($0.99 per share) in 2024 primarily due to the increase in gross profit partially offset by higher SG&A expense, lower interest income, restructuring charges and acquisitions costs.

Previous wording

Our sources of liquidity include cash and cash equivalents, cash generated by operating activities and borrowing availability provided under our $100.0 million revolving credit facility (the “Credit Facility”). Our principal capital requirements include funding working capital, capital expenditures, dividends and any share repurchases. As of September 28, 2024, our cash and cash equivalents totaled $111.5 million compared with $125.7 million as of September 30, 2023.

Current wording

Our sources of liquidity include cash and cash equivalents, cash generated by operating activities and borrowing availability provided under our $100.0 million revolving credit facility (the “Credit Facility”). Our principal capital requirements include funding working capital, capital expenditures, dividends and any share repurchases. As of September 27, 2025, our cash and cash equivalents totaled $38.6 million compared with $111.5 million as of September 28, 2024.

Previous wording

Operating activities provided $142.2 million of cash in 2023 primarily from net earnings adjusted for non-cash items together with a net decrease in working capital. Working capital provided $95.6 million of cash due to a $94.3 million decrease in inventories and an $18.2 million reduction in accounts receivable partially offset by a $16.9 million decrease in accounts payable and accrued expenses. The decrease in inventories was primarily due to lower raw material purchases along with lower average unit costs. The decrease in accounts receivable was largely driven by lower average selling prices. The decrease in accounts payable and accrued expenses was largely due to lower raw material purchases, lower unit costs and a reduction in accrued incentive plan expense.

Current wording

Operating activities provided $27.2 million of cash in 2025 primarily from net earnings adjusted for non-cash items partially offset by a net increase in working capital. Working capital used $37.6 million of cash due to a $36.5 million increase in inventories and a $20.4 million increase in accounts receivable partially offset by a $19.3 million increase in accounts payable and accrued expenses. The increase in inventories was the result of higher average unit costs along with higher raw material purchases during 2025. The increase in accounts receivable was largely driven by higher average selling prices combined with an increase in shipments. The increase in accounts payable and accrued expenses was related to higher raw material purchases near the end of the period, higher unit costs, the timing of payments related to raw material purchases and an increase in accrued salaries, wages and related expenses.

Previous wording

Investing activities used $19.6 million of cash in 2024 primarily due to capital expenditures ($19.1 million) and an increase in the cash surrender value of life insurance policies ($517,000). Investing activities used $20.9 million of cash in 2023 primarily due to capital expenditures ($30.7 million) partially offset by the receipt of proceeds from the sale of property, plant and equipment ($9.9 million). Capital expenditures for both years focused on cost and productivity improvement initiatives in addition to recurring maintenance requirements. Capital expenditures are expected to total up to approximately $22.0 million in 2025, including expenditures to support costs and productivity initiatives, as well as recurring maintenance requirements. Our investing activities are largely discretionary, providing us with the ability to significantly curtail outlays should future business conditions warrant that such actions be taken.

Current wording

Investing activities used $75.7 million of cash in 2025, primarily due to the EWP Acquisition ($67.0 million), the OWP Acquisition ($5.1 million) and capital expenditures ($8.2 million) partially offset by the receipt of proceeds from the sale of assets held for sale ($5.0 million). Investing activities used $19.6 million of cash in 2024 primarily due to capital expenditures ($19.1 million) and an increase in the cash surrender value of life insurance policies ($517,000). Capital expenditures for both years focused on cost and productivity improvement initiatives in addition to recurring maintenance requirements. Capital expenditures are expected to total up to approximately $20.0 million in 2026, including expenditures to support cost and productivity initiatives, as well as recurring maintenance requirements. Our investing activities are largely discretionary, providing us with the ability to significantly curtail outlays should future business conditions warrant that such actions be taken.

Previous wording

Financing activities used $52.7 million of cash in 2024 and $44.0 million of cash in 2023. In 2024, $50.9 million of cash was used for dividend payments (including a special cash dividend of $48.6 million, or $2.50 per share, and regular cash dividends totaling $2.3 million) and $1.8 million for the repurchase of common stock. In 2023, $41.3 million of cash was used for dividend payments (including a special cash dividend of $38.9 million, or $2.00 per share, and regular cash dividends totaling $2.4 million) and $2.3 million for the repurchase of common stock.

Current wording

Financing activities used $24.4 million of cash in 2025 and $52.7 million of cash in 2024. In 2025, $21.8 million of cash was used for dividend payments (including a special cash dividend of $19.4 million, or $1.00 per share, and regular cash dividends totaling $2.4 million) and $2.3 million for the repurchase of common stock. In 2024, $50.9 million of cash was used for dividend payments (including a special cash dividend of $48.6 million, or $2.50 per share, and regular cash dividends totaling $2.3 million) and $1.8 million for the repurchase of common stock.

Previous wording

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 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. 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 September 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 (see Note 8 to the consolidated financial statements). As of September 30, 2023, there were no borrowings outstanding on the Credit Facility.

Current wording

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 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. 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 September 27, 2025, no borrowings were outstanding on the Credit Facility, $98.7 million of borrowing capacity was available and outstanding letters of credit totaled $1.3 million (see Note 8 to the consolidated financial statements). As of September 28, 2024, there were no borrowings outstanding on the Credit Facility.

Previous wording

After initially rising in the first half of 2024, wire rod prices declined during the latter part of the year due to reductions in the cost of steel scrap for wire rod producers and weakening demand. Selling prices for our products declined during 2024 in response to weak demand, competitive pricing pressures and the impact of low-priced PC strand imports, which negatively impacted our financial results. During 2023, we experienced a decline in wire rod prices primarily due to reductions in the cost of scrap for wire producers and a concurrent weakening in demand. Selling prices for our products fell in response to the softening demand and competitive pricing pressure. Consequently, our financial results were adversely affected as we consumed higher cost inventory that was purchased in prior periods. 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.

Current wording

During 2025, we were successful in implementing price increases sufficient to recover the escalation in our raw material costs that occurred over the course of the year. In 2024, wire rod prices increased during the first half of the year but declined in the latter half, primarily due to lower steel scrap costs for wire rod producers and softening demand. Selling prices for our products also decreased throughout 2024, driven by weak market demand, competitive pricing pressures and the impact of low-priced PC strand imports. These factors collectively had a negative impact on our financial performance. The timing and magnitude of any future increases in raw material costs and the impact on selling prices for our products are uncertain at this time.

Previous wording

Regardless of the market dynamics, we continue to focus on those factors we control, including 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 increasing contributions from the substantial investments we have made in our facilities in recent years and expect to continue to make in the form of reduced operating costs and additional capacity to support future growth. Finally, we will continue to pursue acquisitions opportunistically to expand our penetration of markets we currently serve or expand our footprint.

Current wording

Regardless of the market dynamics, we remain focused on the factors within our control. This includes disciplined expense management, capturing synergies from recent acquisitions and proactively aligning production schedules with evolving demand to optimize operating efficiency. We are also driving continuous improvements across our manufacturing, sales and administrative functions to enhance productivity and effectiveness. We expect increasing contributions from the substantial investments we have made in our facilities in recent years and expect to continue to make in the form of reduced operating costs and additional capacity to support future growth. Looking ahead, we will continue to evaluate acquisition opportunities that enhance our presence in markets we currently serve or expand our geographic footprint.