##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended October 2, 2010
 OR
 o
    
    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 1-9929
 INSTEEL INDUSTRIES, INC.
  North Carolina
(State or other jurisdiction of 
incorporation or organization)
    
    56-0674867
(I.R.S. Employer
Identification No.)
 1373 Boggs Drive, Mount Airy, North Carolina 27030
 (336) 786-2141
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock (No Par Value)(Preferred Share Purchase 
Rights are attached to and trade with the Common Stock)
    
    The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 Preferred Share Purchase Rights (attached to and trade with the Common Stock)
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 Cautionary Note Regarding Forward-Looking Statements
    
    
    3PART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    7Item 1B. Unresolved Staff Comments
    
    
    10Item 2. Properties
    
    
    10Item 3. Legal Proceedings
    
    
    11Item 4. (Removed and Reserved)
    
    
    11PART IIItem 5. Market for the Registrants Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities
    
    
    11Item 6. Selected Financial Data
    
    
    13Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 8. Financial Statements and Supplementary Data
    
    
    22Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    51Item 9A. Controls and Procedures
    
    
    51Item 9B. Other Information
    
    
    53PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    53Item 11. Executive Compensation
    
    
    53Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    53Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    53Item 14. Principal Accounting Fees and Services
    
    
    54PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    54SIGNATURES
    
    
    55EXHIBIT INDEX
    
    
    56EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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Cautionary Note Regarding Forward-Looking Statements
    
    
    general economic and competitive conditions in the markets in which we operate;
    
    credit market conditions and the relative availability of financing for us, our
customers and the construction industry as a whole;
    
    the continuation of reduced spending for nonresidential construction, particularly
commercial construction, and the impact on demand for our products;
    
    the timing of the resolution of a new multi-year federal transportation funding
authorization and the magnitude of the infrastructure-related funding provided for that
requires the use of our products;
    
    the severity and duration of the downturn in residential construction and the impact on
those portions of our business that are correlated with the housing sector;
    
    Our ability to integrate acquired assets or entities, including the risk that we may not
realize the expected synergies;
    
    the cyclical nature of the steel and building material industries;
    
    fluctuations in the cost and availability of our primary raw material, hot-rolled steel
wire rod, from domestic and foreign suppliers;
    
    competitive pricing pressures and our ability to raise selling prices in order to
recover increases in wire rod costs;
    
    changes in United States (U.S.) or foreign trade policy affecting imports or exports
of steel wire rod or our products;
    
    unanticipated changes in customer demand, order patterns or inventory levels;
    
    the impact of weak demand and reduced capacity utilization levels on our unit
manufacturing costs;
    
    our ability to further develop the market for engineered structural mesh (ESM) and
expand our shipments of ESM;
    
    legal, environmental or regulatory developments that significantly impact our operating
costs;
    
    unanticipated plant outages, equipment failures or labor difficulties;
    
    continued escalation in certain of our operating costs; and
    
    the risks and uncertainties discussed herein under the caption Risk Factors.
 3




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PART I
 
 Item 1. Business
 General
      Internet Access to Company Information
 http://investor.insteel.com/sec.cfm www.sec.gov
 Products
  PC strand
 WWR
 4




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Marketing and Distribution
  Customers
  Backlog
  Product Warranties
  Seasonality and Cyclicality
  Raw Materials
    5




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.
   Competition
 .
  Employees
  6




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Financial Information
  Environmental Matters
  Executive Officers of the Company
  Name
    
    Age
    
    PositionH.O. Woltz III
    
    
    54
    
    
    President, Chief Executive Officer and Chairman of the BoardMichael C. Gazmarian
    
    
    51
    
    
    Vice President, Chief Financial Officer and TreasurerJames F. Petelle
    
    
    60
    
    
    Vice President  Administration and SecretaryRichard T. Wagner
    
    
    51
    
    
    Vice President and General Manager of IWP
   ,
   
 Item 1A. Risk Factors
  7




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Our business is cyclical and can be negatively impacted by prolonged economic downturns or
tightening in the credit markets that reduce the level of construction activity and demand for our
products.
  Our operations are subject to seasonal fluctuations that may impact our cash flow.
  Demand for our products is highly variable and difficult to forecast due to our minimal backlog and
the unanticipated changes that can occur in customer order patterns or inventory levels.
  Our customers may be adversely affected by the continued negative macroeconomic conditions and
tightening in the credit markets.
  Demand for our products could be significantly impacted by the timing in resolving a new federal
transportation funding authorization and the magnitude of the infrastructure-related funding that
is provided for requiring the use of our products.
  Our financial results can be negatively impacted by the volatility in the cost and availability of
our primary raw material, hot-rolled carbon steel wire rod.
   8




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We may not be successful in integrating the business acquired in the Ivy Transaction, which could
have a negative impact on our financial results.
  
    
    potential loss of key employees or customers;
    
    possible inconsistencies in standards, controls, procedures and policies between the
businesses and the need to implement company-wide financial, accounting, information and
other systems;
    
    failure to maintain the quality of service and products that we or Ivy have historically
provided;
    
    costs associated with employee redeployment, relocation or severance;
    
    costs associated with reorganizing or closing facilities, or relocating or disposing of
excess equipment;
    
    the diversion of managements attention from our day-to-day business and broader
business strategy as a result of the need to address delays, disruptions and other
challenges and the potential need to add management resources to do so;
    
    commitment of resources that are needed in other parts of our business; and
    
    unanticipated costs or liabilities associated with the Ivy Transaction.
  Foreign competition could adversely impact our financial results.
    Our manufacturing facilities are subject to unexpected equipment failures, operational
interruptions and casualty losses.
  9




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Our financial results could be adversely impacted by the continued escalation in certain of
our operating costs.
   Our capital resources may not be adequate to provide for our capital investment and maintenance
expenditures if we were to
experience a substantial downturn in our financial performance.
  Environmental compliance and remediation could result in substantially increased capital
investments and operating costs.
  Our production and earnings could be reduced by strikes or work stoppages by our unionized
employees.
  Our stock price can be volatile, often in connection with matters beyond our control.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  10




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Item 3. Legal Proceedings.
     
 Item 4. (Removed and Reserved)
 
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity
Securities.
  11




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Fiscal 2010
    
    Fiscal 2009Cash
    
    
    
    
    
    
    
    
    
    CashHigh
    
    Low
    
    Dividends
    
    High
    
    Low
    
    DividendsFirst Quarter
    
    $
    13.63
    
    
    $
    10.34
    
    
    $
    0.03
    
    
    $
    14.72
    
    
    $
    7.00
    
    
    $
    0.03Second Quarter
    
    
    13.36
    
    
    
    9.26
    
    
    
    0.03
    
    
    
    12.47
    
    
    
    4.76
    
    
    
    0.03Third Quarter
    
    
    13.05
    
    
    
    10.55
    
    
    
    0.03
    
    
    
    9.26
    
    
    
    6.24
    
    
    
    0.03Fourth Quarter
    
    
    12.29
    
    
    
    7.73
    
    
    
    0.03
    
    
    
    12.58
    
    
    
    7.53
    
    
    
    0.03
   Total Number ofShares Purchased as
    
    Maximum Number (or ApproximatePart of Publicly
    
    Dollar Value) of Shares That May YetTotal Number of
    
    Average Price
    
    Announced Plan or
    
    Be Purchased Under the Plan or(In thousands except share and per share amounts)
    
    Shares Purchased
    
    Paid per Share
    
    Program
    
    ProgramJuly 4, 2010 - August 7, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,925
    (1)August 8, 2010 - September 4, 2010 (2)
    
    
    3,261
    
    
    $
    8.49
    
    
    
    3,261
    
    
    
    24,897
    (1)September 5, 2010 - October 2, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,897
    (1)3,261
    
    
    
    
    
    
    
    3,261
 
 (1)
    
    Under the $25.0 million share repurchase authorization announced on November 18, 2008,
which continues in effect until terminated by the Board of Directors.(2)
    
    Represents 3,261 shares surrendered by employees to satisfy tax withholding obligations
upon the vesting of restricted stock awards.   12




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Item 6. Selected Financial Data.
 Financial Highlights
(In thousands, except per share amounts)
 Year Ended(52 weeks)
    
    (53 weeks)
    
    (52 weeks)
    
    (52 weeks)
    
    (52 weeks)October 2,
    
    October 3,
    
    September 27,
    
    September 29,
    
    September 30,2010
    
    2009
    
    2008
    
    2007
    
    2006Net sales
    
    $
    211,586
    
    
    $
    230,236
    
    
    $
    353,862
    
    
    $
    297,806
    
    
    $
    329,507Earnings (loss) from continuing operations
    
    
    458
    
    
    
    (20,940
    )
    
    
    43,717
    
    
    
    24,284
    
    
    
    34,377Net earnings (loss)
    
    
    473
    
    
    
    (22,086
    )
    
    
    43,752
    
    
    
    24,162
    
    
    
    33,040Earnings (loss) per share from continuing operations (basic)
    
    
    0.03
    
    
    
    (1.20
    )
    
    
    2.47
    
    
    
    1.33
    
    
    
    1.87Earnings (loss) per share from continuing operations (diluted)
    
    
    0.03
    
    
    
    (1.20
    )
    
    
    2.44
    
    
    
    1.32
    
    
    
    1.85Net earnings (loss) per share (basic)
    
    
    0.03
    
    
    
    (1.27
    )
    
    
    2.47
    
    
    
    1.32
    
    
    
    1.79Net earnings (loss) per share (diluted)
    
    
    0.03
    
    
    
    (1.27
    )
    
    
    2.44
    
    
    
    1.31
    
    
    
    1.78Cash dividends declared
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.62
    
    
    
    0.12
    
    
    
    0.12Total assets
    
    
    182,505
    
    
    
    182,117
    
    
    
    228,220
    
    
    
    173,529
    
    
    
    166,596Total long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shareholders equity
    
    
    147,876
    
    
    
    147,070
    
    
    
    169,847
    
    
    
    143,850
    
    
    
    122,438
  2009
    
    2008
    
    2007
    
    2006Basic
    
    Diluted
    
    Basic
    
    Diluted
    
    Basic
    
    Diluted
    
    Basic
    
    DilutedContinuing operations
    
    
    
    
    
    
    
    
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 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
  Recent Developments
  Critical Accounting Policies
   13




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Revenue recognition.
 Concentration of credit risk.
  Allowance for doubtful accounts.
 Inventory valuation.
 Self-insurance.
 Litigation .
 Stock-based
compensation
 Assumptions for employee benefit plans.
 14




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Recent Accounting Pronouncements
 Current Adoptions
   Results of Operations
 Statements of Operations  Selected Data
(Dollars in thousands)
 Year EndedOctober 2,
    
    
    
    
    
    October 3,
    
    
    
    
    
    September 27,2010
    
    Change
    
    2009
    
    Change
    
    2008Net sales
    
    $
    211,586
    
    
    
    (8.1
    %)
    
    $
    230,236
    
    
    
    (34.9
    %)
    
    $
    353,862Gross profit (loss)
    
    
    17,991
    
    
    
    219.2
    %
    
    
    (15,093
    )
    
    
    (117.4
    %)
    
    
    86,755Percentage of net sales
    
    
    8.5
    %
    
    
    
    
    
    
    (6.6
    %)
    
    
    
    
    
    
    24.5
    %Selling, general and
administrative expense
    
    $
    16,024
    
    
    
    (7.1
    %)
    
    $
    17,243
    
    
    
    (7.4
    %)
    
    $
    18,623Percentage of net sales
    
    
    7.6
    %
    
    
    
    
    
    
    7.5
    %
    
    
    
    
    
    
    5.3
    %Other expense (income), net
    
    $
    (291
    )
    
    
    N/M
    
    
    $
    (135
    )
    
    
    N/M
    
    
    $
    85Legal settlement
    
    
    1,487
    
    
    
    N/M
    
    
    
    
    
    
    
    N/M
    
    
    
    Interest expense
    
    
    453
    
    
    
    (29.3
    %)
    
    
    641
    
    
    
    7.9
    %
    
    
    594Interest income
    
    
    (102
    )
    
    
    (29.2
    %)
    
    
    (144
    )
    
    
    (80.0
    %)
    
    
    (721
    )Effective income tax rate
    
    
    (9.0
    %)
    
    
    
    
    
    
    36.0
    %
    
    
    
    
    
    
    35.9
    %Earnings (loss) from
continuing operations
    
    $
    458
    
    
    
    102.2
    %
    
    $
    (20,940
    )
    
    
    (147.9
    %)
    
    $
    43,717Earnings (loss) from
discontinued operations
    
    
    15
    
    
    
    N/M
    
    
    
    (1,146
    )
    
    
    N/M
    
    
    
    35Net earnings (loss)
    
    
    473
    
    
    
    102.1
    %
    
    
    (22,086
    )
    
    
    (150.5
    %)
    
    
    43,752
 2010 Compared with 2009
 Net Sales
  Gross Profit (Loss)
  16




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Selling, General and Administrative Expense
  Legal Settlement
  Interest Expense
  Interest Income
  Income Taxes
  Earnings (Loss) From Continuing Operations
  Earnings (Loss) From Discontinued Operations
  Net Earnings (Loss)
  17




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2009 Compared with 2008
 Net Sales
  Gross Profit (Loss)
  Selling, General and Administrative Expense
  Interest Expense
  Interest Income
  Income Taxes
  Earnings (Loss) From Continuing Operations
  Earnings (Loss) From Discontinued Operations
  18




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Net Earnings (Loss)
  Liquidity and Capital Resources
 Selected Financial Data
(Dollars in thousands)
 Year EndedOctober 2,
    
    October 3,
    
    September 27,2010
    
    2009
    
    2008Net cash provided by operating activities of continuing operations
    
    $
    13,037
    
    
    $
    22,092
    
    
    $
    36,808Net cash used for investing activities of continuing operations
    
    
    (1,938
    )
    
    
    (2,166
    )
    
    
    (8,249
    )Net cash used for financing activities of continuing operations
    
    
    (2,466
    )
    
    
    (11,347
    )
    
    
    (10,710
    )Net cash provided by (used for) operating activities of
discontinued operations
    
    
    (158
    )
    
    
    30
    
    
    
    (59
    )Net cash provided by investing activities of discontinued operations
    
    
    2,358
    
    
    
    
    
    
    
    Cash and cash equivalents
    
    
    45,935
    
    
    
    35,102
    
    
    
    26,493Working capital
    
    
    91,927
    
    
    
    82,252
    
    
    
    97,566Total long-term debt
    
    
    
    
    
    
    
    
    
    
    Percentage of total capital
    
    
    
    
    
    
    
    
    
    
    Shareholders equity
    
    $
    147,876
    
    
    $
    147,070
    
    
    $
    169,847Percentage of total capital
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Total capital (total long-term debt + shareholders equity)
    
    $
    147,876
    
    
    $
    147,070
    
    
    $
    169,847
 Cash Flow Analysis
   19




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Cash Management
  Credit Facility
    Impact of Inflation
  Off-Balance Sheet Arrangements
  Contractual Obligations
  20




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Payments Due by Period
(In thousands)
 Less Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1 - 3 Years
    
    
    3 - 5 Years
    
    
    5 YearsContractual obligations:Raw material purchase commitments(1)
    
    $
    27,994
    
    
    $
    27,994
    
    
    $
    
    
    
    $
    
    
    
    $
    Supplemental employee retirement plan obligations
    
    
    18,627
    
    
    
    244
    
    
    
    487
    
    
    
    487
    
    
    
    17,409Pension benefit obligations
    
    
    6,840
    
    
    
    299
    
    
    
    462
    
    
    
    396
    
    
    
    5,683Commitment fee on unused portion of credit facility
    
    
    1,884
    
    
    
    397
    
    
    
    794
    
    
    
    693
    
    
    
    Operating leases
    
    
    1,718
    
    
    
    676
    
    
    
    518
    
    
    
    145
    
    
    
    379Trade letters of credit
    
    
    919
    
    
    
    919
    
    
    
    
    
    
    
    
    
    
    
    Unrecognized tax benefit obligations
    
    
    762
    
    
    
    728
    
    
    
    34Other unconditional purchase obligations(2)
    
    
    180
    
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    58,924
    
    
    $
    31,437
    
    
    $
    2,295
    
    
    $
    1,721
    
    
    $
    23,471
 
 (1)
    
    Non-cancelable fixed price purchase commitments for raw materials.(2)
    
    Contractual commitments for capital expenditures. Outlook
    
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  Commodity Prices
  21




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Interest Rates
  Foreign Exchange Exposure
  
 Item 8. Financial Statements and Supplementary Data.
 (a) Financial Statements
 Consolidated Statements of Operations for the years ended October 2, 2010, October 3, 2009 and September 27, 2008
    
    
    24Consolidated Balance Sheets as of October 2, 2010 and October 3, 2009
    
    
    25Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss) for the years ended October 2, 2010,
October 3, 2009 and September 27, 2008
    
    
    26Consolidated Statements of Cash Flows for the years ended October 2, 2010, October 3, 2009 and September 27, 2008
    
    
    27Notes to Consolidated Financial Statements
    
    
    28Report of Independent Registered Public Accounting Firm  Consolidated Financial Statements
    
    
    49Schedule II
 Valuation and Qualifying Accounts for the years ended
October 2, 2010, October 3, 2009 and September 27, 2008
    
    
    50Report of Independent Registered Public Accounting Firm  Internal Control Over Financial Reporting
    
    
    52
 22




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(b) Supplementary Data
  Financial Information by Quarter (Unaudited)
(In thousands, except for per share and price data)
 Quarter EndedJanuary 2
    
    April 3
    
    July 3
    
    October 22010Operating ResultsNet sales
    
    $
    41,201
    
    
    $
    52,268
    
    
    $
    61,956
    
    
    $
    56,161Gross profit
    
    
    1,742
    
    
    
    6,219
    
    
    
    7,690
    
    
    
    2,340Earnings (loss) from continuing operations
    
    
    (1,123
    )
    
    
    1,644
    
    
    
    1,624
    
    
    
    (1,687
    )Earnings (loss) from discontinued operations
    
    
    (13
    )
    
    
    (10
    )
    
    
    (19
    )
    
    
    57Net earnings (loss)
    
    
    (1,136
    )
    
    
    1,634
    
    
    
    1,605
    
    
    
    (1,630
    )Per share data:Basic:Earnings (loss) from continuing operations
    
    
    (0.07
    )
    
    
    0.09
    
    
    
    0.09
    
    
    
    (0.09
    )Earnings (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    
    (0.07
    )
    
    
    0.09
    
    
    
    0.09
    
    
    
    (0.09
    )Diluted:Earnings (loss) from continuing operations
    
    
    (0.07
    )
    
    
    0.09
    
    
    
    0.09
    
    
    
    (0.09
    )Earnings (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    
    (0.07
    )
    
    
    0.09
    
    
    
    0.09
    
    
    
    (0.09
    )Quarter EndedDecember 27
    
    March 28
    
    June 27
    
    October 32009Operating ResultsNet sales
    
    $
    61,799
    
    
    $
    50,404
    
    
    $
    56,963
    
    
    $
    61,070Gross profit (loss)
    
    
    (4,276
    )
    
    
    (21,040
    )
    
    
    1,176
    
    
    
    9,047Earnings (loss) from continuing operations
    
    
    (5,599
    )
    
    
    (16,382
    )
    
    
    (1,737
    )
    
    
    2,778Loss from discontinued operations
    
    
    (36
    )
    
    
    (13
    )
    
    
    (12
    )
    
    
    (1,085
    )Net earnings (loss)
    
    
    (5,635
    )
    
    
    (16,395
    )
    
    
    (1,749
    )
    
    
    1,693Per share data:Basic:Earnings (loss) from continuing operations
    
    
    (0.33
    )
    
    
    (0.94
    )
    
    
    (0.10
    )
    
    
    0.16Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.06
    )Net earnings (loss)
    
    
    (0.33
    )
    
    
    (0.94
    )
    
    
    (0.10
    )
    
    
    0.10Diluted:Earnings (loss) from continuing operations
    
    
    (0.33
    )
    
    
    (0.94
    )
    
    
    (0.10
    )
    
    
    0.16Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.06
    )Net earnings (loss)
    
    
    (0.33
    )
    
    
    (0.94
    )
    
    
    (0.10
    )
    
    
    0.10
 23




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##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
 Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,2010
    
    
    2009
    
    
    2008Net sales
    
    $
    211,586
    
    
    $
    230,236
    
    
    $
    353,862Cost of sales
    
    
    191,262
    
    
    
    219,388
    
    
    
    267,107Inventory write-downs
    
    
    2,333
    
    
    
    25,941
    
    
    
    Gross profit (loss)
    
    
    17,991
    
    
    
    (15,093
    )
    
    
    86,755Selling, general and administrative expense
    
    
    16,024
    
    
    
    17,243
    
    
    
    18,623Other expense (income), net
    
    
    (291
    )
    
    
    (135
    )
    
    
    85Legal settlement
    
    
    1,487
    
    
    
    
    
    
    
    Interest expense
    
    
    453
    
    
    
    641
    
    
    
    594Interest income
    
    
    (102
    )
    
    
    (144
    )
    
    
    (721
    )Earnings (loss) from continuing
operations before
income taxes
    
    
    420
    
    
    
    (32,698
    )
    
    
    68,174Income taxes
    
    
    (38
    )
    
    
    (11,758
    )
    
    
    24,457Earnings (loss) from continuing operations
    
    
    458
    
    
    
    (20,940
    )
    
    
    43,717Earnings (loss) from discontinued operations
net of
of income taxes of $217, ($729) and $23
    
    
    15
    
    
    
    (1,146
    )
    
    
    35Net earnings (loss)
    
    $
    473
    
    
    $
    (22,086
    )
    
    $
    43,752Per share amounts:Basic:Earnings (loss) from continuing
operations
    
    $
    0.03
    
    
    $
    (1.20
    )
    
    $
    2.47Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (0.07
    )
    
    
    Net earnings (loss)
    
    $
    0.03
    
    
    $
    (1.27
    )
    
    $
    2.47Diluted:Earnings (loss) from continuing
operations
    
    $
    0.03
    
    
    $
    (1.20
    )
    
    $
    2.44Earnings (loss) from discontinued
operations
    
    
    
    
    
    
    (0.07
    )
    
    
    Net earnings (loss)
    
    $
    0.03
    
    
    $
    (1.27
    )
    
    $
    2.44Cash dividends declared
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.62Weighted shares outstanding:Basic
    
    
    17,466
    
    
    
    17,380
    
    
    
    17,547Diluted
    
    
    17,564
    
    
    
    17,380
    
    
    
    17,712
 See accompanying notes to consolidated financial statements.
 24




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##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for per share amounts)
 October 2,
    
    
    October 3,2010
    
    
    2009Assets:Current assets:Cash and cash equivalents
    
    $
    45,935
    
    
    $
    35,102Accounts receivable, net
    
    
    24,970
    
    
    
    21,283Inventories, net
    
    
    43,919
    
    
    
    38,542Prepaid expenses and other
    
    
    3,931
    
    
    
    16,724Total current assets
    
    
    118,755
    
    
    
    111,651Property, plant and equipment, net
    
    
    58,653
    
    
    
    64,204Other assets
    
    
    5,097
    
    
    
    4,382Non-current assets of discontinued operations
    
    
    
    
    
    
    1,880Total assets
    
    $
    182,505
    
    
    $
    182,117Liabilities and shareholders equity:Current liabilities:Accounts payable
    
    $
    20,689
    
    
    $
    23,965Accrued expenses
    
    
    5,929
    
    
    
    5,215Current liabilities of discontinued operations
    
    
    210
    
    
    
    219Total current liabilities
    
    
    26,828
    
    
    
    29,399Other liabilities
    
    
    7,521
    
    
    
    5,465Long-term liabilities of discontinued operations
    
    
    280
    
    
    
    183Commitments and contingenciesShareholders equity:Preferred stock, no par valueAuthorized shares: 1,000None issued
    
    
    
    
    
    
    Common stock, $1 stated valueAuthorized shares: 50,000Issued and outstanding shares: 2010, 17,579; 2009, 17,525
    
    
    17,579
    
    
    
    17,525Additional paid-in capital
    
    
    45,950
    
    
    
    43,774Retained earnings
    
    
    86,656
    
    
    
    88,291Accumulated other comprehensive loss
    
    
    (2,309
    )
    
    
    (2,520
    )Total shareholders equity
    
    
    147,876
    
    
    
    147,070Total liabilities and shareholders equity
    
    $
    182,505
    
    
    $
    182,117
 See accompanying notes to consolidated financial statements.
 25




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##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)(1)
    
    
    EquityBalance at September 29, 2007
    
    
    18,303
    
    
    $
    18,303
    
    
    $
    47,807
    
    
    $
    79,859
    
    
    $
    (2,119
    )
    
    $
    143,850Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,752
    
    
    
    
    
    
    
    43,752Adjustment to defined benefit
plan liability(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    234
    
    
    
    234Comprehensive income(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,986Stock options exercised
    
    
    24
    
    
    
    24
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    120Restricted stock granted
    
    
    93
    
    
    
    93
    
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    1,759
    
    
    
    
    
    
    
    
    
    
    
    1,759Adjustment to adopt certain provisions of
ASC Topic 740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (256
    )
    
    
    
    
    
    
    (256
    )Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Repurchases of common stock
    
    
    (906
    )
    
    
    (906
    )
    
    
    (7,785
    )
    
    
    
    
    
    
    
    
    
    
    (8,691
    )Restricted stock surrendered for
withholding taxes payable
    
    
    (7
    )
    
    
    (7
    )
    
    
    (69
    )
    
    
    
    
    
    
    
    
    
    
    (76
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,876
    )
    
    
    
    
    
    
    (10,876
    )Balance at September 27, 2008
    
    
    17,507
    
    
    $
    17,507
    
    
    $
    41,746
    
    
    $
    112,479
    
    
    $
    (1,885
    )
    
    $
    169,847Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,086
    )
    
    
    
    
    
    
    (22,086
    )Adjustment to defined benefit
plan liability(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (635
    )
    
    
    (635
    )Comprehensive loss(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,721
    )Stock options exercised
    
    
    20
    
    
    
    20
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    66Compensation expense associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    2,036
    
    
    
    
    
    
    
    
    
    
    
    2,036Excess tax deficiencies from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    (32
    )Restricted stock surrendered for
withholding taxes payable
    
    
    (2
    )
    
    
    (2
    )
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    (24
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,102
    )
    
    
    
    
    
    
    (2,102
    )Balance at October 3, 2009
    
    
    17,525
    
    
    $
    17,525
    
    
    $
    43,774
    
    
    $
    88,291
    
    
    $
    (2,520
    )
    
    $
    147,070Comprehensive loss:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    473
    
    
    
    
    
    
    
    473Adjustment to defined benefit
plan liability(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211
    
    
    
    211Comprehensive loss(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    684Stock options exercised
    
    
    26
    
    
    
    26
    
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    140Vesting of restricted stock units
    
    
    37
    
    
    
    37
    
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    2,258
    
    
    
    
    
    
    
    
    
    
    
    2,258Excess tax deficiencies from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (89
    )
    
    
    
    
    
    
    
    
    
    
    (89
    )Restricted stock surrendered for
withholding taxes payable
    
    
    (9
    )
    
    
    (9
    )
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    (79
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,108
    )
    
    
    
    
    
    
    (2,108
    )Balance at October 2, 2010
    
    
    17,579
    
    
    $
    17,579
    
    
    $
    45,950
    
    
    $
    86,656
    
    
    $
    (2,309
    )
    
    $
    147,876
 
 (1)
    
    Activity within accumulated other comprehensive income (loss)
is reported net of related income taxes: 2008 ($143), 2009 $389, 2010
($130). See accompanying notes to consolidated financial statements.
 26




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##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,2010
    
    
    2009
    
    
    2008Cash Flows From Operating Activities:Net earnings (loss)
    
    $
    473
    
    
    $
    (22,086
    )
    
    $
    43,752Loss (earnings) from discontinued operations
    
    
    (15
    )
    
    
    1,146
    
    
    
    (35
    )Earnings (loss) from continuing operations
    
    
    458
    
    
    
    (20,940
    )
    
    
    43,717Adjustments to reconcile earnings (loss) from continuing operations to net cash
provided by operating activities of continuing operations:Depreciation and amortization
    
    
    7,009
    
    
    
    7,377
    
    
    
    7,271Amortization of capitalized financing costs
    
    
    363
    
    
    
    508
    
    
    
    498Stock-based compensation expense
    
    
    2,258
    
    
    
    2,036
    
    
    
    1,759Excess tax deficiencies (benefits) from stock-based compensation
    
    
    89
    
    
    
    32
    
    
    
    (31
    )Inventory write-downs
    
    
    2,333
    
    
    
    25,941
    
    
    
    Loss on sale of property, plant and equipment
    
    
    39
    
    
    
    24
    
    
    
    289Deferred income taxes
    
    
    (1,121
    )
    
    
    997
    
    
    
    484Gain from life insurance proceeds
    
    
    
    
    
    
    
    
    
    
    (661
    )Increase in cash surrender value of life insurance over premiums paid
    
    
    (330
    )
    
    
    
    
    
    
    Net changes in assets and liabilities:Accounts receivable, net
    
    
    (3,687
    )
    
    
    28,298
    
    
    
    (15,063
    )Inventories
    
    
    (7,710
    )
    
    
    6,737
    
    
    
    (23,819
    )Accounts payable and accrued expenses
    
    
    (2,489
    )
    
    
    (14,761
    )
    
    
    18,699Other changes
    
    
    15,825
    
    
    
    (14,157
    )
    
    
    3,665Total adjustments
    
    
    12,579
    
    
    
    43,032
    
    
    
    (6,909
    )Net cash provided by operating activities  continuing operations
    
    
    13,037
    
    
    
    22,092
    
    
    
    36,808Net cash provided by (used for) operating activities  discontinued operations
    
    
    (158
    )
    
    
    30
    
    
    
    (59
    )Net cash provided by operating activities
    
    
    12,879
    
    
    
    22,122
    
    
    
    36,749Cash Flows From Investing Activities:Capital expenditures
    
    
    (1,493
    )
    
    
    (2,377
    )
    
    
    (9,456
    )Proceeds from sale of property, plant and equipment
    
    
    11
    
    
    
    13
    
    
    
    116Proceeds from surrender of life insurance policies
    
    
    
    
    
    
    413
    
    
    
    170Increase in cash surrender value of life insurance policies
    
    
    (456
    )
    
    
    (215
    )
    
    
    (190
    )Proceeds from life insurance claims
    
    
    
    
    
    
    
    
    
    
    1,111Net cash used for investing activities  continuing operations
    
    
    (1,938
    )
    
    
    (2,166
    )
    
    
    (8,249
    )Net cash provided by investing activities  discontinued operations
    
    
    2,358
    
    
    
    
    
    
    
    Net cash provided by (used for) investing activities
    
    
    420
    
    
    
    (2,166
    )
    
    
    (8,249
    )Cash Flows From Financing Activities:Proceeds from long-term debt
    
    
    338
    
    
    
    22,920
    
    
    
    951Principal payments on long-term debt
    
    
    (338
    )
    
    
    (22,920
    )
    
    
    (951
    )Financing costs
    
    
    (409
    )
    
    
    
    
    
    
    Cash received from exercise of stock options
    
    
    140
    
    
    
    66
    
    
    
    120Excess tax benefits (deficiencies) from stock-based compensation
    
    
    (89
    )
    
    
    (32
    )
    
    
    31Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    (8,691
    )Cash dividends paid
    
    
    (2,108
    )
    
    
    (11,381
    )
    
    
    (2,141
    )Other
    
    
    
    
    
    
    
    
    
    
    (29
    )Net cash used for financing activities  continuing operations
    
    
    (2,466
    )
    
    
    (11,347
    )
    
    
    (10,710
    )Net cash used for financing activities
    
    
    (2,466
    )
    
    
    (11,347
    )
    
    
    (10,710
    )Net increase in cash and cash equivalents
    
    
    10,833
    
    
    
    8,609
    
    
    
    17,790Cash and cash equivalents at beginning of period
    
    
    35,102
    
    
    
    26,493
    
    
    
    8,703Cash and cash equivalents at end of period
    
    $
    45,935
    
    
    $
    35,102
    
    
    $
    26,493Supplemental Disclosures of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    90
    
    
    $
    133
    
    
    $
    95Income taxes
    
    
    189
    
    
    
    11,454
    
    
    
    11,563Non-cash financing activity:Purchases of property, plant and equipment in accounts payable
    
    
    15
    
    
    
    136
    
    
    
    178Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    1,185Declaration of cash dividends to be paid
    
    
    
    
    
    
    
    
    
    
    9,279Restricted stock surrendered for withholding taxes payable
    
    
    79
    
    
    
    24
    
    
    
    76
 See accompanying notes to consolidated financial statements.
 27




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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 2, 2010, OCTOBER 3, 2009 AND SEPTEMBER 27, 2008
 (1) Description of Business
    (2) Summary of Significant Accounting Policies
 Fiscal year.
 Principles of consolidation
 Use of estimates.
 Cash equivalents
 Concentration of credit risk.
  Stock-based compensation.
 Revenue recognition .
 28




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Shipping and handling costs .
 Inventories .
 Property, plant and equipment.
 Other assets.
 Long-lived assets .
 Fair value of financial instruments.
 Income taxes.
 Earnings per share.
 (3) Recent Accounting Pronouncements
 Current Adoptions
  29




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   (4) Fair Value Measurements
       Quoted Pricesin Active
    
    
    ObservableMarkets
    
    
    Inputs(In thousands)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)Current assets:Cash equivalents
    
    $
    46,157
    
    
    $
    46,157
    
    
    $
    Other assets:Cash surrender value of life insurance policies
    
    
    4,525
    
    
    
    
    
    
    
    4,525Total
    
    $
    50,682
    
    
    $
    46,157
    
    
    $
    4,525
   (5) Credit Facility
  30




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
    Financial Covenants
  Negative Covenants
  Events of Default
   31




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Fiscal year
    
    In thousands2011
    
    $
    822012
    
    
    822013
    
    
    822014
    
    
    822015
    
    
    55
 (6) Stock-Based Compensation
  Stock option awards .
 Year EndedOctober 2,
    
    October 3,
    
    September 27,(In thousands)
    
    2010
    
    2009
    
    2008Stock options:Compensation expense
    
    $
    958
    
    
    $
    937
    
    
    $
    898Excess tax deficiencies (benefits)
    
    
    89
    
    
    
    32
    
    
    
    (31
    )
   Year EndedOctober 2,
    
    October 3,
    
    September 27,2010
    
    2009
    
    2008Expected term (in years)
    
    
    5.74
    
    
    
    4.92
    
    
    
    4.03Risk-free interest rate
    
    
    2.28
    %
    
    
    2.64
    %
    
    
    2.65
    %Expected volatility
    
    
    61.12
    %
    
    
    74.53
    %
    
    
    66.62
    %Expected dividend yield
    
    
    1.31
    %
    
    
    1.31
    %
    
    
    1.01
    %
  32




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Exercise Price
    
    
    Contractual
    
    AggregatePer Share
    
    
    Term -
    
    IntrinsicOptions
    
    
    
    
    
    
    Weighted
    
    
    Weighted
    
    Value(Share amounts in thousands)
    
    Outstanding
    
    
    Range
    
    
    Average
    
    
    Average
    
    (in thousands)Outstanding at September 29, 2007
    
    
    336
    
    
    $
    0.18  $20.27
    
    
    $
    9.95Granted
    
    
    219
    
    
    
    11.15  16.69
    
    
    
    12.37Exercised
    
    
    (24
    )
    
    
    3.19  9.12
    
    
    
    4.96
    
    
    
    
    
    
    $
    148Outstanding at September 27, 2008
    
    
    531
    
    
    
    0.18  20.27
    
    
    
    11.17Granted
    
    
    171
    
    
    
    7.55  11.60
    
    
    
    9.27Exercised
    
    
    (20
    )
    
    
    3.28  3.28
    
    
    
    3.28
    
    
    
    
    
    
    
    120Forfeited
    
    
    (9
    )
    
    
    15.64  20.27
    
    
    
    18.07Outstanding at October 3, 2009
    
    
    673
    
    
    
    0.18  20.27
    
    
    
    10.83Granted
    
    
    200
    
    
    
    9.16  9.39
    
    
    
    9.27Exercised
    
    
    (26
    )
    
    
    4.19  11.15
    
    
    
    5.41
    
    
    
    
    
    
    
    146Outstanding at October 2, 2010
    
    
    847
    
    
    
    0.18  20.27
    
    
    
    10.63
    
    
    
    7.34 years
    
    692Vested and anticipated to vest in
future at October 2, 2010
    
    
    828
    
    
    
    
    
    
    
    10.64
    
    
    
    7.31 years
    
    687Exercisable at October 2, 2010
    
    
    461
    
    
    
    
    
    
    
    11.28
    
    
    
    6.03 years
    
    601
 Restricted Stock Awards.
 Year EndedOctober 2,
    
    October 3,
    
    September 27,(In thousands)
    
    2010
    
    2009
    
    2008Restricted stock grants:Shares
    
    
    
    
    
    
    
    
    
    
    93Market value
    
    $
    
    
    
    $
    
    
    
    $
    1,185Amortization expense
    
    
    470
    
    
    
    756
    
    
    
    861
    Restricted
    
    
    Weighted AverageStock Awards
    
    
    Grant Date(Share amounts in thousands)
    
    Outstanding
    
    
    Fair ValueBalance, September 29, 2007
    
    
    142
    
    
    $
    15.00Granted
    
    
    93
    
    
    
    12.77Released
    
    
    (70
    )
    
    
    11.68Balance, September 27, 2008
    
    
    165
    
    
    
    15.16Granted
    
    
    
    
    
    
    Released
    
    
    (50
    )
    
    
    14.40Balance, October 3, 2009
    
    
    115
    
    
    
    15.50Granted
    
    
    
    
    
    
    Released
    
    
    (48
    )
    
    
    18.53Balance, October 2, 2010
    
    
    67
    
    
    
    13.37
 33




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Restricted stock units.
 Year EndedOctober 2,
    
    October 3,
    
    September 27,(In thousands)
    
    2010
    
    2009
    
    2008Restricted stock unit grants:Units
    
    
    140
    
    
    
    136
    
    
    
    Market value
    
    $
    1,298
    
    
    $
    1,185
    
    
    $
    Amortization expense
    
    
    830
    
    
    
    343
    
    
    
    
   WeightedRestricted
    
    
    AverageStock Units
    
    
    Grant Date(Unit amounts in thousands)
    
    Outstanding
    
    
    Fair ValueBalance, September 29, 2007
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    Released
    
    
    
    
    
    
    Balance, September 27, 2008
    
    
    
    
    
    
    Granted
    
    
    136
    
    
    $
    8.71Released
    
    
    
    
    
    
    Balance, October 3, 2009
    
    
    136
    
    
    
    8.71Granted
    
    
    140
    
    
    
    9.29Released
    
    
    (37
    )
    
    
    7.55Balance, October 2, 2010
    
    
    239
    
    
    
    9.23
 (7) Income Taxes
  Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2008Provision for income taxes:Current:Federal
    
    $
    668
    
    
    $
    (12,708
    )
    
    $
    21,720State
    
    
    415
    
    
    
    (47
    )
    
    
    2,2531,083
    
    
    
    (12,755
    )
    
    
    23,973Deferred:Federal
    
    
    (880
    )
    
    
    1,686
    
    
    
    440State
    
    
    (241
    )
    
    
    (689
    )
    
    
    44(1,121
    )
    
    
    997
    
    
    
    484Income taxes
    
    $
    (38
    )
    
    $
    (11,758
    )
    
    $
    24,457Effective income tax rate
    
    
    (9.0
    %)
    
    
    36.0
    %
    
    
    35.9
    %
  34




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Year Ended(Dollars in thousands)
    
    October 2, 2010
    
    
    October 3, 2009
    
    
    September 27, 2008Provision for income taxes at federal statutory rate
    
    $
    147
    
    
    
    35.0
    %
    
    $
    (11,444
    )
    
    
    35.0
    %
    
    $
    23,861
    
    
    
    35.0
    %State income taxes, net of federal tax benefit
    
    
    38
    
    
    
    9.0
    
    
    
    (479
    )
    
    
    1.5
    
    
    
    1,886
    
    
    
    2.8Qualified production activities deduction
    
    
    (30
    )
    
    
    (7.1
    )
    
    
    
    
    
    
    
    
    
    
    (1,322
    )
    
    
    (1.9
    )Additional refund due to tax law change
    
    
    (502
    )
    
    
    (119.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock option expense benefit
    
    
    180
    
    
    
    42.9
    
    
    
    203
    
    
    
    (0.6
    )
    
    
    240
    
    
    
    0.3Revisions to estimates based on filing of final tax return
    
    
    (24
    )
    
    
    (5.7
    )
    
    
    33
    
    
    
    (0.1
    )
    
    
    293
    
    
    
    0.4Other, net
    
    
    153
    
    
    
    36.4
    
    
    
    (71
    )
    
    
    0.2
    
    
    
    (501
    )
    
    
    (0.7
    )Provision for income taxes
    
    $
    (38
    )
    
    
    (9.0
    %)
    
    $
    (11,758
    )
    
    
    36.0
    %
    
    $
    24,457
    
    
    
    35.9
    %
  October 2,
    
    
    October 3,(In thousands)
    
    2010
    
    
    2009Deferred tax assets:Accrued expenses, asset reserves and state tax credits
    
    $
    4,005
    
    
    $
    3,048Goodwill, amortizable for tax purposes
    
    
    1,963
    
    
    
    1,690Defined benefit plans
    
    
    1,415
    
    
    
    1,545State net operating loss carryforwards
    
    
    1,336
    
    
    
    1,419Stock-based compensation
    
    
    628
    
    
    
    465Valuation allowance
    
    
    (461
    )
    
    
    (602
    )Gross deferred tax assets
    
    
    8,886
    
    
    
    7,565Deferred tax liabilities:Plant and equipment
    
    
    (7,769
    )
    
    
    (5,161
    )Other reserves
    
    
    (283
    )
    
    
    (361
    )Gross deferred tax liabilities
    
    
    (8,052
    )
    
    
    (5,522
    )Net deferred tax asset
    
    $
    834
    
    
    $
    2,043
    35




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   (Dollars in thousands)
    
    2010
    
    
    2009Balance at beginning of year
    
    $
    
    
    
    $
    48Increase in tax positions of prior years
    
    
    760
    
    
    
    Increase in tax position for current year
    
    
    2
    
    
    
    Lapse of statute of limitations
    
    
    
    
    
    
    (48
    )Balance at end of year
    
    $
    762
    
    
    $
    
   (8) Discontinued Operations
     Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Earnings (loss) before income taxes
    
    $
    232
    
    
    $
    (1,875
    )
    
    $
    58Income taxes
    
    
    (217
    )
    
    
    729
    
    
    
    (23
    )Net earnings (loss)
    
    $
    15
    
    
    $
    (1,146
    )
    
    $
    35
 36




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  October 2,
    
    
    October 3,(In thousands)
    
    2010
    
    
    2009Assets:Other assets
    
    $
    
    
    
    $
    1,880Total assets
    
    $
    
    
    
    $
    1,880Liabilities:Current liabilities:Accounts payable
    
    $
    
    
    
    $
    2Accrued expenses
    
    
    210
    
    
    
    217Total current liabilities
    
    
    210
    
    
    
    219Other liabilities
    
    
    280
    
    
    
    183Total liabilities
    
    $
    490
    
    
    $
    402
  (9) Employee Benefit Plans
 Retirement plans . .
  37




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    4,289
    
    
    $
    4,377
    
    
    $
    4,435Service cost
    
    
    
    
    
    
    
    
    
    
    65Interest cost
    
    
    211
    
    
    
    250
    
    
    
    257Actuarial loss (gain)
    
    
    182
    
    
    
    150
    
    
    
    (171
    )Distributions
    
    
    (402
    )
    
    
    (488
    )
    
    
    (209
    )Benefit obligation at end of year
    
    $
    4,280
    
    
    $
    4,289
    
    
    $
    4,377Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    3,053
    
    
    $
    3,764
    
    
    $
    4,421Actual return on plan assets
    
    
    366
    
    
    
    (223
    )
    
    
    (448
    )Distributions
    
    
    (402
    )
    
    
    (488
    )
    
    
    (209
    )Fair value of plan assets at end of year
    
    $
    3,017
    
    
    $
    3,053
    
    
    $
    3,764Reconciliation of funded status to net amount recognized:Funded status
    
    $
    (1,263
    )
    
    $
    (1,236
    )
    
    $
    (613
    )Net amount recognized
    
    $
    (1,263
    )
    
    $
    (1,236
    )
    
    $
    (613
    )Amounts recognized in the consolidated balance sheet:Accrued benefit liability
    
    $
    (1,263
    )
    
    $
    (1,236
    )
    
    $
    (613
    )Accumulated other comprehensive loss (net of
tax)
    
    
    1,225
    
    
    
    1,336
    
    
    
    1,091Net amount recognized
    
    $
    (38
    )
    
    $
    100
    
    
    $
    478Amounts recognized in accumulated other comprehensive loss:Unrecognized net loss
    
    $
    1,975
    
    
    $
    2,155
    
    
    $
    1,759Net amount recognized
    
    $
    1,975
    
    
    $
    2,155
    
    
    $
    1,759Other changes in plan assets and benefit
obligations recognized in other comprehensive income
(loss):Net loss
    
    $
    16
    
    
    $
    509
    
    
    $
    493Amortization of net loss
    
    
    (195
    )
    
    
    (113
    )
    
    
    (67
    )Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (1
    )Total recognized in other comprehensive
income (loss)
    
    $
    (179
    )
    
    $
    396
    
    
    $
    425
  Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Service cost
    
    $
    
    
    
    $
    
    
    
    $
    65Interest cost
    
    
    211
    
    
    
    250
    
    
    
    257Expected return on plan assets
    
    
    (200
    )
    
    
    (262
    )
    
    
    (325
    )Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    1Recognized net actuarial loss
    
    
    195
    
    
    
    113
    
    
    
    67Net periodic pension cost
    
    $
    206
    
    
    $
    101
    
    
    $
    65
   38




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Fiscal year(s)
    
    In thousands2011
    
    $
    2992012
    
    
    1932013
    
    
    2692014
    
    
    1972015
    
    
    1992016 - 2020
    
    
    1,520
  Measurement DateOctober 2,
    
    October 3,
    
    September 27,2010
    
    2009
    
    2008Assumptions at year-end:Discount rate
    
    
    5.25
    %
    
    
    5.50
    %
    
    
    7.00
    %Rate of increase in compensation levels
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AExpected long-term rate of return on assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %
    Target Allocation
    
    Percentage of Plan Assets at Measurement DateOctober 2,
    
    October 2,
    
    October 3,
    
    September 27,2010
    
    2010
    
    2009
    
    2008Large-cap equities
    
    
    40.0
    %
    
    
    26.1
    %
    
    
    26.1
    %
    
    
    27.7
    %Mid-cap equities
    
    
    10.0
    %
    
    
    9.0
    %
    
    
    10.3
    %
    
    
    10.4
    %Small-cap equities
    
    
    10.0
    %
    
    
    8.7
    %
    
    
    8.5
    %
    
    
    10.7
    %International equities
    
    
    10.0
    %
    
    
    16.8
    %
    
    
    16.8
    %
    
    
    15.0
    %Fixed income securities
    
    
    30.0
    %
    
    
    38.1
    %
    
    
    38.3
    %
    
    
    35.4
    %Cash and cash equivalents
    
    
    0.0
    %
    
    
    1.3
    %
    
    
    0.0
    %
    
    
    0.8
    %
  39




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Quoted Pricesin Active
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs (Level(In thousands)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    3)Large-cap equities
    
    $
    790
    
    
    $
    790
    
    
    $
    
    
    
    $
    Mid-cap equities
    
    
    271
    
    
    
    271
    
    
    
    
    
    
    
    Small-cap equities
    
    
    262
    
    
    
    262
    
    
    
    
    
    
    
    International equities
    
    
    508
    
    
    
    508
    
    
    
    
    
    
    
    Fixed income securities
    
    
    1,151
    
    
    
    
    
    
    
    1,151
    
    
    
    Cash and cash equivalents
    
    
    35
    
    
    
    35
    
    
    $
    
    
    
    $
    Total
    
    $
    3,017
    
    
    $
    1,866
    
    
    $
    1,151
    
    
    $
    
 Equity securities.
 Fixed income securities.
 Cash and cash equivalents.
 Supplemental employee retirement plan.
  40




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    5,218
    
    
    $
    4,121
    
    
    $
    4,192Service cost
    
    
    165
    
    
    
    123
    
    
    
    155Interest cost
    
    
    278
    
    
    
    279
    
    
    
    266Actuarial loss (gain)
    
    
    95
    
    
    
    855
    
    
    
    (352
    )Distributions
    
    
    (166
    )
    
    
    (160
    )
    
    
    (140
    )Benefit obligation at end of year
    
    $
    5,590
    
    
    $
    5,218
    
    
    $
    4,121Change in plan assets:Actual employer contributions
    
    $
    166
    
    
    $
    160
    
    
    $
    140Actual distributions
    
    
    (166
    )
    
    
    (160
    )
    
    
    (140
    )Plan assets at fair value at end of year
    
    $
    
    
    
    $
    
    
    
    $
    Reconciliation of funded status to net amount
recognized:Funded status
    
    $
    (5,590
    )
    
    $
    (5,218
    )
    
    $
    (4,121
    )Net amount recognized
    
    $
    (5,590
    )
    
    $
    (5,218
    )
    
    $
    (4,121
    )Amounts recognized in accumulated other
comprehensive loss:Unrecognized net loss
    
    $
    1,067
    
    
    $
    1,002
    
    
    $
    147Unrecognized prior service cost
    
    
    681
    
    
    
    908
    
    
    
    1,135Net amount recognized
    
    $
    1,748
    
    
    $
    1,910
    
    
    $
    1,282Other changes in plan assets and benefit
obligations recognized in other comprehensive income
(loss):Net loss (gain)
    
    $
    95
    
    
    $
    855
    
    
    $
    (363
    )Prior service costs
    
    $
    (227
    )
    
    $
    (227
    )
    
    $
    (438
    )Amortization of net loss
    
    
    (30
    )
    
    
    
    
    
    
    Total recognized in other comprehensive
income (loss)
    
    $
    (162
    )
    
    $
    628
    
    
    $
    (801
    )
  Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Service cost
    
    $
    165
    
    
    $
    123
    
    
    $
    154Interest cost
    
    
    278
    
    
    
    278
    
    
    
    266Prior service cost
    
    
    227
    
    
    
    227
    
    
    
    227Amortization of net loss
    
    
    31
    
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    
    
    
    
    
    
    
    
    12Net periodic pension cost
    
    $
    701
    
    
    $
    628
    
    
    $
    659
   41




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Measurement DateOctober 2,
    
    October 3,
    
    September 27,2010
    
    2009
    
    2008Assumptions at year-end:Discount rate
    
    
    5.25
    %
    
    
    5.50
    %
    
    
    7.00
    %Rate of increase in compensation levels
    
    
    3.00
    %
    
    
    3.00
    %
    
    
    3.00
    %
   Fiscal year(s)
    
    (In thousands)2011
    
    $
    2442012
    
    
    2442013
    
    
    2442014
    
    
    2442015
    
    
    2442016 - 2020
    
    
    1,443
  Retirement savings plan.
 .
 Voluntary Employee Beneficiary Associations (VEBA)
 (10) Commitments and Contingencies
 Leases and purchase commitments
 42




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Legal proceedings
   Severance and change of control agreements.
  43




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (11) Earnings Per Share
   Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(In thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2008Earnings (loss) from continuing operations
    
    $
    458
    
    
    $
    (20,940
    )
    
    $
    43,717Less allocation to participating securities
    
    
    (2
    )
    
    
    
    
    
    
    (469
    )Available to Insteel common shareholders
    
    $
    456
    
    
    $
    (20,940
    )
    
    $
    43,248Earnings (loss) from discontinued operations net of income taxes
    
    $
    15
    
    
    $
    (1,146
    )
    
    $
    35Less allocation to participating securities
    
    
    
    
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    15
    
    
    $
    (1,146
    )
    
    $
    35Net earnings (loss)
    
    $
    473
    
    
    $
    (22,086
    )
    
    $
    43,752Less allocation to participating securities
    
    
    (2
    )
    
    
    
    
    
    
    (469
    )Available to Insteel common shareholders
    
    $
    471
    
    
    $
    (22,086
    )
    
    $
    43,283Basic weighted average shares outstanding
    
    
    17,466
    
    
    
    17,380
    
    
    
    17,547Dilutive effect of stock-based compensation
    
    
    98
    
    
    
    
    
    
    
    165Diluted weighted average shares outstanding
    
    
    17,564
    
    
    
    17,380
    
    
    
    17,712Per share basic:Earnings (loss) from continuing operations
    
    $
    0.03
    
    
    $
    (1.20
    )
    
    $
    2.47Loss from discontinued operations
    
    
    
    
    
    
    (0.07
    )
    
    
    Net earnings (loss)
    
    $
    0.03
    
    
    $
    (1.27
    )
    
    $
    2.47Per share diluted:Earnings (loss) from continuing operations
    
    $
    0.03
    
    
    $
    (1.20
    )
    
    $
    2.44Loss from discontinued operations
    
    
    
    
    
    
    (0.07
    )
    
    
    Net earnings (loss)
    
    $
    0.03
    
    
    $
    (1.27
    )
    
    $
    2.44
  (12) Business Segment Information
   44




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Net sales:United States
    
    $
    205,444
    
    
    $
    225,286
    
    
    $
    337,801Foreign
    
    
    6,142
    
    
    
    4,950
    
    
    
    16,061Total
    
    $
    211,586
    
    
    $
    230,236
    
    
    $
    353,862Long-lived assets:United States
    
    $
    63,178
    
    
    $
    67,943
    
    
    $
    73,043Foreign
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    63,178
    
    
    $
    67,943
    
    
    $
    73,043
  Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Net sales:Welded wire reinforcement
    
    $
    109,551
    
    
    $
    122,942
    
    
    $
    193,307PC strand
    
    
    102,035
    
    
    
    107,294
    
    
    
    160,555Total
    
    $
    211,586
    
    
    $
    230,236
    
    
    $
    353,862
  (13) Related Party Transactions
  (14) Comprehensive Loss
  Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Adjustment to defined benefit plan liability
    
    $
    (2,309
    )
    
    $
    (2,520
    )
    
    $
    (1,885
    )Total accumulated other comprehensive loss
    
    $
    (2,309
    )
    
    $
    (2,520
    )
    
    $
    (1,885
    )
 45




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (15) Other Financial Data
  October 2,
    
    
    October 3,(In thousands)
    
    2010
    
    
    2009Accounts receivable, net:Accounts receivable
    
    $
    27,266
    
    
    $
    22,340Less allowance for doubtful accounts
    
    
    (2,296
    )
    
    
    (1,057
    )Total
    
    $
    24,970
    
    
    $
    21,283Inventories, net:Raw materials
    
    $
    23,817
    
    
    $
    17,649Work in process
    
    
    1,899
    
    
    
    1,780Finished goods
    
    
    18,203
    
    
    
    19,113Total
    
    $
    43,919
    
    
    $
    38,542Prepaid expenses and other:Current deferred tax asset
    
    $
    2,612
    
    
    $
    1,668Income taxes receivable
    
    
    547
    
    
    
    13,049Capitalized financing costs, net
    
    
    82
    
    
    
    336Other
    
    
    690
    
    
    
    1,671Total
    
    $
    3,931
    
    
    $
    16,724Other assets:Cash surrender value of life insurance policies, net
of loans $505 and $443
    
    $
    4,525
    
    
    $
    3,739Capitalized financing costs, net
    
    
    300
    
    
    
    Non-current deferred tax assets
    
    
    
    
    
    
    375Other
    
    
    272
    
    
    
    268Total
    
    $
    5,097
    
    
    $
    4,382Property, plant and equipment, net:Land and land improvements
    
    $
    5,571
    
    
    $
    5,571Buildings
    
    
    32,433
    
    
    
    32,437Machinery and equipment
    
    
    97,813
    
    
    
    96,411Construction in progress
    
    
    239
    
    
    
    695136,056
    
    
    
    135,114Less accumulated depreciation
    
    
    (77,403
    )
    
    
    (70,910
    )Total
    
    $
    58,653
    
    
    $
    64,204Accrued expenses:Pension plan
    
    $
    1,263
    
    
    $
    1,236Salaries, wages and related expenses
    
    
    1,210
    
    
    
    1,228Property taxes
    
    
    846
    
    
    
    1,023Workers compensation
    
    
    683
    
    
    
    378Legal settlement
    
    
    600
    
    
    
    Customer rebates
    
    
    506
    
    
    
    752Deferred revenues
    
    
    321
    
    
    
    Sales allowance reserves
    
    
    
    
    
    
    236Other
    
    
    500
    
    
    
    362Total
    
    $
    5,929
    
    
    $
    5,215Other liabilities:Deferred compensation
    
    $
    5,688
    
    
    $
    5,465Deferred income taxes
    
    
    1,778
    
    
    
    Other
    
    
    55
    
    
    
    Total
    
    $
    7,521
    
    
    $
    5,465
 46




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (16) Rights Agreement
      (17) Product Warranties
  (18) Share Repurchases
  47




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  (19) Subsequent Event
  48




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
 
     Internal ControlIntegrated
Framework
  
 49




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED OCTOBER 2, 2010, OCTOBER 3, 2009 and SEPTEMBER 27, 2008
 ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In thousands)
 Year EndedOctober 2,
    
    
    October 3,
    
    
    September 27,2010
    
    
    2009
    
    
    2008Balance, beginning of year
    
    $
    1,057
    
    
    $
    906
    
    
    $
    610Amounts charged to earnings
    
    
    1,239
    
    
    
    151
    
    
    
    296Balance, end of year
    
    $
    2,296
    
    
    $
    1,057
    
    
    $
    906
 50




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting.
    51




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 Internal
ControlIntegrated Framework Managements Report on Internal Control over Financial Reporting
    Internal ControlIntegrated Framework
   
 52




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##### Table of Contents



Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  http://investor.insteel.com/documents.com
 
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  Equity Compensation Plan Information
October 2, 2010
(In thousands, except exercise price amount)
 (c)Number of Securities(a)
    
    
    (b)
    
    
    Remaining Available forNumber of Securities to be
    
    
    Weighted-Average Exercise
    
    
    Future Issuance UnderIssued Upon Exercise of
    
    
    Price of Outstanding
    
    
    Equity Compensation PlansOutstanding Options,
    
    
    Options, Warrants and
    
    
    (Excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    
    Rights
    
    
    Reflected in Column (a))Equity compensation
plans approved by
security holders
    
    
    847
    
    
    $
    10.63
    
    
    
    409(1)
 
 (1)
    
    In addition to being available for future issuance upon the exercise of stock options that may be granted after October 2, 2010, the securities shown are available for future issuance in the form of restricted stock, restricted stock units and other stock-based awards made under our 2005 Equity Incentive Plan, as amended.  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  53




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##### Table of Contents



Item 14. Principal Accounting Fees and Services.
  
 PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
 (a)(1) Financial Statements
  (a)(2) Financial Statement Schedules
   (a)(3) Exhibits
  (b) Exhibits
  (c) Financial Statement Schedules
  54




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##### Table of Contents



SIGNATURES
  INSTEEL INDUSTRIES, INC.

Registrant
 Date: November 30, 2010
    By:
    /s/ Michael C. GazmarianMichael C. GazmarianVice President, Chief Financial Officer
and Treasurer  Name and Signature
    
    Position(s)/s/ H. O. WOLTZ III

     H. O. WOLTZ III
    
    President, Chief Executive Officer and Chairman of
the Board  
(Principal Executive Officer)/s/ MICHAEL C. GAZMARIAN

     MICHAEL C. GAZMARIAN
    
    Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)/s/ SCOT R. JAFROODI

     SCOT R. JAFROODI
    
    Chief Accounting Officer and Corporate Controller

(Principal Accounting Officer)/s/ LOUIS E. HANNEN

     LOUIS E. HANNEN
    
    Director/s/ CHARLES B. NEWSOME

     CHARLES B. NEWSOME
    
    Director/s/ GARY L. PECHOTA

     GARY L. PECHOTA
    
    Director/s/ W. ALLEN ROGERS II

     W. ALLEN ROGERS II
    
    Director/s/ C. RICHARD VAUGHN

     C. RICHARD VAUGHN
    
    Director/s/ HOWARD O. WOLTZ, JR.

     HOWARD O. WOLTZ, JR
    
    Director
 55




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##### Table of Contents



EXHIBIT
INDEX
to
Annual Report on Form 10-K of Insteel Industries, Inc. for Year Ended October 2, 2010
 ExhibitNumber
    
    Description3.1
    
    Restated Articles of Incorporation for the Company (incorporated
by reference to Exhibit 3.1 of the Companys Registration Statement on Form
S-1 filed on May 2, 1985).3.2
    
    Articles of Amendment to the Restated Articles of Incorporation
of the Company (incorporated by reference to Exhibit 3.1 of the Companys
Current Report on Form 8-K dated May 3, 1988).3.3
    
    Articles of Amendment to the Restated Articles of Incorporation
of the Company (incorporated by reference to Exhibit 3.1 of the Companys
Quarterly Report on Form 10-Q for the quarter ended April 3, 1999 filed on
May 14, 1999).3.4
    
    Articles of Amendment to the Restated Articles of Incorporation
of the Company (incorporated by reference to Exhibit 3.1 of the Companys
Quarterly Report on Form 10-Q for the quarter ended April 3, 2010 filed on
April 26, 2010).3.5
    
    Bylaws of the Company (as last amended April 21, 2009) (incorporated by
reference to Exhibit 3.1 of the Companys Current Report
on Form 8-K filed on April 27, 2009).4.1
    
    Rights Agreement dated April 27, 1999 by and between the Company
and First Union National Bank, as Rights Agent (incorporated by reference
to Exhibit 99.1 of the Companys Registration Statement on Form 8-A filed
on May 7, 1999).4.2
    
    Amendment No. 1 to the Rights Agreement dated as of April 25, 2009,
between the Company and American Stock Transfer & Trust Company, LLC (as
Successor Rights Agent to First Union National Bank) (incorporated by
reference to Exhibit 4.2 of the Companys
Current Report on Form 8-K filed on April 27, 2009).10.4
    
    Second Amended and Restated Credit Agreement dated as of June 2, 2010,
among Insteel Wire Products Company, as Borrower; Insteel Industries, Inc.,
as a Credit Party; Intercontinental Metals Corporation, as a Credit Party;
and General Electric Capital Corporation, as Agent and Lender (incorporated
by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
filed on
June 4, 2010).10.5*
    
    1994 Employee Stock Option Plan of Insteel Industries, Inc. (as
amended and restated effective February 1, 2000) (incorporated by reference
to Exhibit 99 of the Companys Registration Statement on Form S-8 filed on
February 23, 2000).10.9*
    
    1994 Director Stock Option Plan of the Company (as Amended and
Restated Effective as of April 28, 1998) (incorporated by reference to
Exhibit 10.12 of the Companys Annual Report on Form 10-K for the year ended
October 3, 1998 filed on December 3, 1998).10.11*
    
    Insteel Industries, Inc. Return on Capital Incentive Compensation Plan (as
amended effective September 18, 2007) (incorporated by reference to Exhibit
10.1 of the Companys Current Report on Form 8-K filed on September 21,
2007).10.12*
    
    Form of Amended and Restated Change in Control Severance Agreements
between the Company and each of H.O. Woltz III and Michael C. Gazmarian,
respectively, each dated November 14, 2006; each agreement is substantially
identical to the form in all material respects (incorporated by reference to
Exhibit 99.1 of the Companys Current Report on Form 8-K filed on November
16, 2006).10.13*
    
    Form of Amended and Restated Severance Agreements with H.O. Woltz III and
Michael C. Gazmarian dated November 14, 2006 (each agreement is
substantially identical to the form in all material respects) (incorporated
by reference to Exhibit 99.6 of the Companys Current Report on Form 8-K
filed on November 16, 2006).10.14*
    
    Change in Control Severance Agreement between the Company and James F.
Petelle dated November 14, 2006 (incorporated by reference to Exhibit 99.3
of the Companys Current Report on Form 8-K filed on November 16, 2006).10.15*
    
    Insteel Industries, Inc. Director Compensation Plan (incorporated by
reference to Exhibit 10.30 of the Companys Annual Report on Form 10-K for
the year ended September 30, 1997 filed on December 10, 1997).10.16*
    
    Amended and Restated Retirement Security Agreement by and between the
Company and H.O. Woltz III dated September 19, 2007 (incorporated by
reference to Exhibit 10.2 of the Companys Current Report on Form 8-K filed
on September 21, 2007).10.17*
    
    Form of Retirement Security Agreement between the Company and each of
Michael C. Gazmarian, James F. Petelle and Richard T. Wagner, respectively,
dated September 19, 2007; each agreement is substantially identical to the
form in all material respects (incorporated by reference to Exhibit 10.3 of
the Companys Current Report on Form 8-K filed on September 21, 2007).10.20*
    
    Letter of Employment between the Company and James F. Petelle, dated
August 23, 2006 (incorporated by reference to Exhibit 99.7 of the Companys
Current Report on Form 8-K filed on November 16, 2006).10.20.1*
    
    Relocation Proposal between the Company and James F. Petelle, dated
August 23, 2006 (incorporated by reference to Exhibit 10.20.1 of the
Companys Annual Report on Form 10-K for the year ended October 3, 2009 filed
on November 9, 2009).10.20.2*
    
    Addendum to Relocation Proposal between the Company and James F.
Petelle, dated September 18, 2009 (incorporated by reference to Exhibit
10.20.2 of the Companys Annual Report on Form 10-K for the year ended
October 3, 2009 filed on November 9, 2009).10.21*
    
    Amended and Restated Change in Control Severance Agreement between the
Company and Richard T. Wagner dated November 14, 2006 (incorporated by
reference to Exhibit 99.1 of the Companys Current Report on Form 8-K filed
on February 15, 2007).10.22*
    
    2005 Equity Incentive Plan of Insteel Industries, Inc. as most
recently amended on August 12, 2008 (incorporated by reference to Exhibit
10.22 of the Companys Annual Report on Form 10-K for the fiscal year ended
September 27, 2008 filed on November 18, 2008).10.23*
    
    Summary of Amendments to the Insteel Industries, Inc. Director
Compensation Plan (incorporated by reference to Exhibit 10.23 of the
Companys Annual Report on Form 10-K for the fiscal year ended September 27,
2008 filed on November 18, 2008).
 56




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##### Table of Contents



EXHIBIT INDEX
to
Annual Report on Form 10-K of Insteel Industries, Inc. for Year Ended October 2, 2010
 ExhibitNumber
    
    Description10.24*
    
    Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement (incorporated by reference to
Exhibit 10.1 of
the Companys Current Report on Form 8-K filed on January 23, 2009).10.25*
    
    Insteel Industries, Inc. Return on Capital Incentive Compensation Plan (as amended and restated effective August 12, 2008)
(incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed on February 13, 2009).10.26
    
    Asset Purchase Agreement between Insteel Wire Products Company
and Ivy Steel & Wire, Inc. dated as of November 19, 2010 (incorporated
by reference to Exhibit 10.1 of the Companys Current Report on Form
8-K filed on November 22, 2010).10.27
    
    Secured Term Note dated as of November 19, 2010, made and
delivered by Insteel Wire Products Company in favor of Ivy Steel & Wire,
Inc. (incorporated by reference to Exhibit 10.2 of the Companys Current
Report on Form 8-K filed on November 22, 2010).21.1
    
    List of Subsidiaries of Insteel Industries, Inc. at October 2, 2010.23.1
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contracts or compensation plans or arrangements in which
directors or executive officers are eligible to participate. 57