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Note 3 - Business Combination | 3 Months Ended
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Dec. 28, 2024
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | (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.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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