Note 3 - Business Combinations

9 Months Ended

Jun. 28, 2025

Notes to Financial Statements

Business Combination [Text Block]

(3) Business Combinations

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. Subsequent to the acquisition date, purchase price adjustments totaling $0.8 million were applied to the holdback amount, reducing it to $0.7 million. The final holdback amount was settled during the quarter ended June 28, 2025.

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 final 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		16,708
Intangible assets:
Customer relationships		10,800
Non-competition agreement		900
Trade name		350
Patent		200
Right-of-use assets		459
Total assets acquired	$	41,654
Liabilities assumed:
Accrued expenses	$	89
Current operating lease liabilities		128
Non-current operating lease liabilities		331
Total liabilities assumed		548
Net assets acquired		41,106
Adjusted purchase price		67,030
Goodwill	$	25,924

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. Certain measurement period adjustments were recorded in the nine-month period ended June 28, 2025, due to the receipt of additional information, regarding the facts and circumstances that existed as of the acquisition date, reducing the purchase price allocation to property, plant, and equipment and increasing goodwill by $1.3 million. This adjustment did not have a material impact on net earnings. 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 for the three- and nine-month periods ended June 28, 2025 were approximately $17.4 million and $39.4 million, respectively. 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- and nine-month periods ended June 28, 2025 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- and nine-month periods ending June 28, 2025, and June 29, 2024 are as follows:

	Three Months Ended				Nine Months Ended
	June 28,		June 29,		June 28,		June 29,
(In thousands)	2025		2024		2025		2024
Net sales	$	179,886	$	172,476	$	475,468	$	463,721
Earnings before income taxes		19,769		8,258		34,636		15,851
Net earnings		15,159		6,217		26,529		12,162

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. During the three months ended June 28, 2025, we agreed to sell the Warren facility for net consideration of $4.9 million. As a result, we determined the carrying value of the Warren facility recorded in assets held for sale exceeded its fair value, less estimated costs to sell, as of June 28, 2025, and recorded an impairment of $0.5 million within restructuring charges for the three- and nine-month periods ended June 28, 2025. The facility is 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- and nine-month periods ended June 28, 2025:

	Employee			Equipment			Facility
	Separation Costs			Relocation Costs			Closure Costs			Asset 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
Restructuring charges, net		59			45			123			217			444
Cash payments		(103	)		(17	)		(143	)		-			(263	)
Non-cash charges		-			-			-			(217	)		(217	)
Liability as of March 29, 2025		10			28			55			-			93
Restructuring charges, net		-			268			105			408			781
Cash payments		-			(222	)		(93	)		-			(315	)
Non-cash charges		-			-			-			(408	)		(408	)
Liability as of June 28, 2025	$	10		$	74		$	67		$	-		$	151

As of June 28, 2025, we recorded a liability of $151,000 for restructuring liabilities in accrued expenses on our consolidated balance sheet. We currently expect to incur approximately $0.4 million of additional restructuring charges for equipment relocation and facility closure costs through the first fiscal quarter of 2026.

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- and nine-month periods ended June 28, 2025, we recorded $27,000 and $279,000, respectively, 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 final 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		1,812
Intangible assets:
Customer relationships		785
Non-competition agreement		30
Total assets acquired	$	3,031
Liabilities assumed:
Total liabilities assumed	$	-
Net assets acquired		3,031
Purchase price		5,116
Goodwill	$	2,085

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. Certain measurement period adjustments were recorded in the nine-month period ended June 28, 2025, due to the receipt of additional information, regarding the facts and circumstances that existed as of the acquisition date, reducing the purchase price allocation to property, plant, and equipment and increasing goodwill by $0.9 million. This adjustment did not have a material impact on net earnings. 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 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- and nine-month periods ending June 28, 2025, and June 29, 2024.

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. Following is a summary of the restructuring activity during the three- and nine-month periods ended June 28, 2025:

	Equipment			Facility			Asset
	Relocation Costs			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
Restructuring charges, net		33			82			103			218
Cash payments		(11	)		(80	)		-			(91	)
Non-cash charges		-			-			(103	)		(103	)
Liability as of March 29, 2025		22			13			-			35
Restructuring charges, net		(1	)		63			-			62
Cash payments		(21	)		(52	)		-			(73	)
Non-cash charges		-			-			-			-
Liability as of June 28, 2025	$	-		$	24		$	-		$	24

As of June 28, 2025, we recorded a liability of $24,000 for restructuring liabilities in accrued expenses on our consolidated balance sheet. We currently expect to incur approximately $0.2 million of additional restructuring charges for equipment relocation and facility closure costs through the first fiscal quarter of 2026.

Acquisition costs. There were no acquisition-related costs recorded during the three-month period ended June 28, 2025. During the nine-month period ended June 28, 2025, we recorded $46,000 of acquisition-related costs associated with the OWP Acquisition for accounting, legal and other professional fees.