##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 27, 2009
 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
    
    56-0674867(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1373 Boggs Drive, Mount Airy, North Carolina
    
    27030(Address of principal executive offices)
    
    (Zip Code)
 336) 786-2141
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




---



##### 



TABLE OF CONTENTS
 PART IItem 1. Financial StatementsConsolidated Statements of Operations
    
    
    3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Consolidated Statements of Shareholders Equity
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26PART IIItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 6. Exhibits
    
    
    27SIGNATURES
    
    
    28EXHIBIT INDEX
    
    
    29EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
   Three Months Ended
    
    
    Nine Months EndedJune 27,
    
    
    June 28,
    
    
    June 27,
    
    
    June 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    56,963
    
    
    $
    104,332
    
    
    $
    169,166
    
    
    $
    247,572Cost of sales
    
    
    52,889
    
    
    
    73,447
    
    
    
    167,453
    
    
    
    190,280Inventory write-downs
    
    
    2,898
    
    
    
    
    
    
    
    25,853
    
    
    
    Gross profit (loss)
    
    
    1,176
    
    
    
    30,885
    
    
    
    (24,140
    )
    
    
    57,292Selling, general and administrative expense
    
    
    4,016
    
    
    
    4,496
    
    
    
    13,117
    
    
    
    13,748Other income, net
    
    
    (1
    )
    
    
    (12
    )
    
    
    (50
    )
    
    
    (88
    )Interest expense
    
    
    147
    
    
    
    150
    
    
    
    484
    
    
    
    460Interest income
    
    
    (16
    )
    
    
    (125
    )
    
    
    (118
    )
    
    
    (568
    )Earnings (loss) from continuing operations
before income taxes
    
    
    (2,970
    )
    
    
    26,376
    
    
    
    (37,573
    )
    
    
    43,740Income taxes
    
    
    (1,233
    )
    
    
    9,428
    
    
    
    (13,855
    )
    
    
    15,669Earnings (loss) from continuing operations
    
    
    (1,737
    )
    
    
    16,948
    
    
    
    (23,718
    )
    
    
    28,071Loss from discontinued operations net of
income taxes of ($6), ($12), $37 and $-
    
    
    (12
    )
    
    
    (21
    )
    
    
    (61
    )
    
    
    (2
    )Net earnings (loss)
    
    $
    (1,749
    )
    
    $
    16,927
    
    
    $
    (23,779
    )
    
    $
    28,069Per share amounts:Basic:Earnings (loss) from continuing operations
    
    $
    (0.10
    )
    
    $
    0.98
    
    
    $
    (1.37
    )
    
    $
    1.59Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (0.10
    )
    
    $
    0.98
    
    
    $
    (1.37
    )
    
    $
    1.59Diluted:Earnings (loss) from continuing operations
    
    $
    (0.10
    )
    
    $
    0.97
    
    
    $
    (1.37
    )
    
    $
    1.58Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (0.10
    )
    
    $
    0.97
    
    
    $
    (1.37
    )
    
    $
    1.58Cash dividends declared
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.09Weighted average shares outstanding:Basic
    
    
    17,392
    
    
    
    17,330
    
    
    
    17,364
    
    
    
    17,618Diluted
    
    
    17,392
    
    
    
    17,482
    
    
    
    17,364
    
    
    
    17,773
 See accompanying notes to consolidated financial statements.
 3




---



##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)June 27,
    
    
    September 27,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    21,569
    
    
    $
    26,493Accounts receivable, net
    
    
    24,635
    
    
    
    49,581Inventories
    
    
    35,169
    
    
    
    71,220Prepaid expenses and other
    
    
    18,284
    
    
    
    3,122Total current assets
    
    
    99,657
    
    
    
    150,416Property, plant and equipment, net
    
    
    65,396
    
    
    
    69,105Other assets
    
    
    3,722
    
    
    
    5,064Non-current assets of discontinued operations
    
    
    3,635
    
    
    
    3,635Total assets
    
    $
    172,410
    
    
    $
    228,220Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    16,346
    
    
    $
    23,581Accrued expenses
    
    
    4,434
    
    
    
    29,081Current liabilities of discontinued operations
    
    
    217
    
    
    
    188Total current liabilities
    
    
    20,997
    
    
    
    52,850Long-term debt
    
    
    
    
    
    
    Other liabilities
    
    
    5,245
    
    
    
    5,306Long-term liabilities of discontinued operations
    
    
    191
    
    
    
    217Shareholders equity:Common stock
    
    
    17,526
    
    
    
    17,507Additional paid-in capital
    
    
    44,640
    
    
    
    43,202Deferred stock compensation
    
    
    (1,427
    )
    
    
    (1,456
    )Retained earnings
    
    
    87,123
    
    
    
    112,479Accumulated other comprehensive loss
    
    
    (1,885
    )
    
    
    (1,885
    )Total shareholders equity
    
    
    145,977
    
    
    
    169,847Total liabilities and shareholders equity
    
    $
    172,410
    
    
    $
    228,220
 See accompanying notes to consolidated financial statements.
 4




---



##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine Months EndedJune 27,
    
    
    June 28,2009
    
    
    2008Cash Flows From Operating Activities:Net earnings (loss)
    
    $
    (23,779
    )
    
    $
    28,069Loss from discontinued operations
    
    
    61
    
    
    
    2Earnings (loss) from continuing operations
    
    
    (23,718
    )
    
    
    28,071Adjustments to reconcile earnings (loss) from continuing operations to net cash
provided by operating activities of continuing operations:Depreciation and amortization
    
    
    5,395
    
    
    
    5,337Amortization of capitalized financing costs
    
    
    374
    
    
    
    374Stock-based compensation expense
    
    
    1,426
    
    
    
    1,282Excess tax benefits from stock-based compensation
    
    
    (3
    )
    
    
    (27
    )Inventory write-downs
    
    
    25,853
    
    
    
    Loss on sale of property, plant and equipment
    
    
    24
    
    
    
    55Deferred income taxes
    
    
    81
    
    
    
    702Gain from life insurance proceeds
    
    
    
    
    
    
    (661
    )Net changes in assets and liabilities:Accounts receivable, net
    
    
    24,946
    
    
    
    (11,139
    )Inventories
    
    
    10,198
    
    
    
    (25,595
    )Accounts payable and accrued expenses
    
    
    (23,138
    )
    
    
    25,208Other changes
    
    
    (14,842
    )
    
    
    3,006Total adjustments
    
    
    30,314
    
    
    
    (1,458
    )Net cash provided by operating activities  continuing operations
    
    
    6,596
    
    
    
    26,613Net cash used for operating activities  discontinued operations
    
    
    (58
    )
    
    
    (93
    )Net cash provided by operating activities
    
    
    6,538
    
    
    
    26,520Cash Flows From Investing Activities:Capital expenditures
    
    
    (1,684
    )
    
    
    (8,397
    )Proceeds from sale of property, plant and equipment
    
    
    13
    
    
    
    93Decrease (increase) in cash surrender value of life insurance policies
    
    
    85
    
    
    
    (365
    )Proceeds from surrender of life insurance policies
    
    
    413
    
    
    
    Proceeds from life insurance claims
    
    
    
    
    
    
    1,111Net cash used for investing activities  continuing operations
    
    
    (1,173
    )
    
    
    (7,558
    )Net cash used for investing activities
    
    
    (1,173
    )
    
    
    (7,558
    )Cash Flows From Financing Activities:Proceeds from long-term debt
    
    
    22,796
    
    
    
    877Principal payments on long-term debt
    
    
    (22,796
    )
    
    
    (877
    )Cash received from exercise of stock options
    
    
    66
    
    
    
    120Excess tax benefits from stock-based compensation
    
    
    3
    
    
    
    27Repurchases of common stock
    
    
    
    
    
    
    (8,691
    )Cash dividends paid
    
    
    (10,330
    )
    
    
    (1,616
    )Other
    
    
    (28
    )
    
    
    (33
    )Net cash used for financing activities  continuing operations
    
    
    (10,289
    )
    
    
    (10,193
    )Net cash used for financing activities
    
    
    (10,289
    )
    
    
    (10,193
    )Net increase (decrease) in cash and cash equivalents
    
    
    (4,924
    )
    
    
    8,769Cash and cash equivalents at beginning of period
    
    
    26,493
    
    
    
    8,703Cash and cash equivalents at end of period
    
    $
    21,569
    
    
    $
    17,472Supplemental Disclosures of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    110
    
    
    $
    86Income taxes
    
    
    11,442
    
    
    
    6,877Non-cash investing and financing activities:Purchases of property, plant and equipment in accounts payable
    
    
    39
    
    
    
    272Issuance of restricted stock
    
    
    
    
    
    
    733Declaration of cash dividends to be paid
    
    
    526
    
    
    
    524Restricted stock surrendered for withholding taxes payable
    
    
    9
    
    
    
    76
 See accompanying notes to consolidated financial statements.
 5




---



##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
   AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance at September 27, 2008
    
    
    17,507
    
    
    $
    17,507
    
    
    $
    43,202
    
    
    $
    (1,456
    )
    
    $
    112,479
    
    
    $
    (1,885
    )
    
    $
    169,847Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,779
    )
    
    
    
    
    
    
    (23,779
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,779
    )Stock options exercised
    
    
    20
    
    
    
    20
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66Restricted stock units
    
    
    
    
    
    
    
    
    
    
    732
    
    
    
    (732
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    665
    
    
    
    761
    
    
    
    
    
    
    
    
    
    
    
    1,426Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Restricted stock surrendered for
withholding taxes payable
    
    
    (1
    )
    
    
    (1
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,577
    )
    
    
    
    
    
    
    (1,577
    )Balance at June 27, 2009
    
    
    17,526
    
    
    $
    17,526
    
    
    $
    44,640
    
    
    $
    (1,427
    )
    
    $
    87,123
    
    
    $
    (1,885
    )
    
    $
    145,977
 See accompanying notes to consolidated financial statements.
 6




---



##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (1) Basis of Presentation
   (2) Recent Accounting Pronouncements
 Current Adoptions
   Future Adoptions
   7




---



##### Table of Contents



(3) Fair Value Measurements
       Quoted Pricesin Active
    
    
    ObservableMarkets
    
    
    Inputs(In thousands)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)Current assets:Cash equivalents
    
    $
    21,025
    
    
    $
    21,025
    
    
    $
    Other assets:Cash surrender value of life insurance policies
    
    
    3,440
    
    
    
    
    
    
    
    3,440Total
    
    $
    24,465
    
    
    $
    21,025
    
    
    $
    3,440
  8




---



##### Table of Contents



(4) Discontinued Operations
    June 27,
    
    
    September 27,(In thousands)
    
    2009
    
    
    2008Assets:Other assets
    
    $
    3,635
    
    
    $
    3,635Total assets
    
    $
    3,635
    
    
    $
    3,635Liabilities:Current liabilities:Accounts payable
    
    $
    1
    
    
    $
    1Accrued expenses
    
    
    216
    
    
    
    187Total current liabilities
    
    
    217
    
    
    
    188Other liabilities
    
    
    191
    
    
    
    217Total liabilities
    
    $
    408
    
    
    $
    405
  (5) Stock-Based Compensation
  Stock option awards
 Three Months Ended
    
    Nine Months EndedJune 27,
    
    June 28,
    
    June 27,
    
    June 28,(In thousands)
    
    2009
    
    2008
    
    2009
    
    2008Stock options:Compensation expense
    
    $
    200
    
    
    $
    182
    
    
    $
    665
    
    
    $
    665Excess tax benefits
    
    
    1
    
    
    
    12
    
    
    
    3
    
    
    
    27
   9




---



##### Table of Contents



Nine Months EndedJune 27,
    
    June 28,2009
    
    2008Risk-free interest rate
    
    
    2.36
    %
    
    
    2.52
    %Dividend yield
    
    
    1.51
    %
    
    
    1.09
    %Expected volatility
    
    
    79.30
    %
    
    
    66.77
    %Expected term (in years)
    
    
    4.85
    
    
    
    3.87
  Contractual
    
    AggregateOptions
    
    Exercise Price Per Share
    
    Term -
    
    IntrinsicOutstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    Weighted
    
    Value(in thousands)
    
    Range
    
    Average
    
    Average
    
    (in thousands)Outstanding at September 27, 2008
    
    
    531
    
    
    $
    0.18
    
    
    
    
    
    
    $
    20.27
    
    
    $
    11.17Granted
    
    
    98
    
    
    
    7.55
    
    
    
    
    
    
    
    7.55
    
    
    
    7.55Expired
    
    
    (9
    )
    
    
    15.64
    
    
    
    
    
    
    
    20.27
    
    
    
    18.07Exercised
    
    
    (20
    )
    
    
    3.28
    
    
    
    
    
    
    
    3.28
    
    
    
    3.28
    
    
    
    
    
    
    $
    120Outstanding at June 27, 2009
    
    
    600
    
    
    
    0.18
    
    
    
    
    
    
    
    20.27
    
    
    
    10.74
    
    
    7.41 years
    
    
    743Vested and anticipated to vest in
future at June 27, 2009
    
    
    581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.69
    
    
    7.36 years
    
    
    736Exercisable at June 27, 2009
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.46
    
    
    5.86 years
    
    
    627
 Restricted stock awards.
 Three Months Ended
    
    Nine Months EndedJune 27,
    
    June 28,
    
    June 27,
    
    June 28,(In thousands)
    
    2009
    
    2008
    
    2009
    
    2008Restricted stock grants:Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66Market value
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    733Amortization expense
    
    
    142
    
    
    
    191
    
    
    
    583
    
    
    
    617
   10




---



##### Table of Contents



WeightedRestricted
    
    AverageStock Awards
    
    Grant Date(Share amounts in thousands)
    
    Outstanding
    
    Fair ValueBalance, September 27, 2008
    
    
    165
    
    
    $
    15.16Granted
    
    
    
    
    
    
    Released
    
    
    (39
    )
    
    
    12.77Balance, June 27, 2009
    
    
    126
    
    
    
    15.91
 Restricted stock units.
 Three Months Ended
    
    Nine Months EndedJune 27,
    
    June 28,
    
    June 27,
    
    June 28,(In thousands)
    
    2009
    
    2008
    
    2009
    
    2008Restricted stock unit grants:Units
    
    
    
    
    
    
    
    
    
    
    97
    
    
    
    Market value
    
    $
    
    
    
    $
    
    
    
    $
    732
    
    
    $
    Amortization expense
    
    
    99
    
    
    
    
    
    
    
    178
    
    
    
    
   WeightedRestricted
    
    AverageStock Units
    
    Grant Date(Unit amounts in thousands)
    
    Outstanding
    
    Fair ValueBalance, September 27, 2008
    
    
    
    
    
    $
    Granted
    
    
    97
    
    
    
    7.55Released
    
    
    
    
    
    
    Balance, June 27, 2009
    
    
    97
    
    
    $
    7.55
 (6) Income Taxes
   11




---



##### Table of Contents



(7) Employee Benefit Plans
 Retirement plans.
   Three Months Ended
    
    
    Nine Months EndedJune 27,
    
    
    June 28,
    
    
    June 27,
    
    
    June 28,(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    
    
    
    $
    16
    
    
    $
    
    
    
    $
    48Interest cost
    
    
    55
    
    
    
    64
    
    
    
    184
    
    
    
    192Expected return on plan assets
    
    
    (61
    )
    
    
    (81
    )
    
    
    (193
    )
    
    
    (243
    )Recognized net actuarial loss
    
    
    23
    
    
    
    17
    
    
    
    84
    
    
    
    51Net periodic pension cost
    
    
    17
    
    
    
    16
    
    
    
    75
    
    
    
    48Settlement loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109Total pension cost
    
    $
    17
    
    
    $
    16
    
    
    $
    75
    
    
    $
    157
  Supplemental employee retirement plan .
 12




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedJune 27,
    
    
    June 28,
    
    
    June 27,
    
    
    June 28,(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    30
    
    
    $
    39
    
    
    $
    90
    
    
    $
    117Interest cost
    
    
    68
    
    
    
    66
    
    
    
    204
    
    
    
    198Amortization of prior service cost
    
    
    56
    
    
    
    57
    
    
    
    168
    
    
    
    171Recognized net actuarial loss
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    9Net periodic benefit cost
    
    $
    154
    
    
    $
    165
    
    
    $
    462
    
    
    $
    495
 (8) Credit Facilities
    Financial Covenants
  Negative Covenants
  Events of Default
  13




---



##### Table of Contents



(9) Earnings (Loss) Per Share
  Three Months Ended
    
    
    Nine Months EndedJune 27,
    
    
    June 28,
    
    
    June 27,
    
    
    June 28,(In thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Earnings (loss) from continuing operations
    
    $
    (1,737
    )
    
    $
    16,948
    
    
    $
    (23,718
    )
    
    $
    28,071Loss from discontinued operations
    
    
    (12
    )
    
    
    (21
    )
    
    
    (61
    )
    
    
    (2
    )Net earnings (loss)
    
    $
    (1,749
    )
    
    $
    16,927
    
    
    $
    (23,779
    )
    
    $
    28,069Weighted average shares outstanding:Weighted average shares outstanding (basic)
    
    
    17,392
    
    
    
    17,330
    
    
    
    17,364
    
    
    
    17,618Dilutive effect of stock-based compensation
    
    
    
    
    
    
    152
    
    
    
    
    
    
    
    155Weighted average shares outstanding (diluted)
    
    
    17,392
    
    
    
    17,482
    
    
    
    17,364
    
    
    
    17,773Per share (basic):Earnings (loss) from continuing operations
    
    $
    (0.10
    )
    
    $
    0.98
    
    
    $
    (1.37
    )
    
    $
    1.59Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (0.10
    )
    
    $
    0.98
    
    
    $
    (1.37
    )
    
    $
    1.59Per share (diluted):Earnings (loss) from continuing operations
    
    $
    (0.10
    )
    
    $
    0.97
    
    
    $
    (1.37
    )
    
    $
    1.58Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (0.10
    )
    
    $
    0.97
    
    
    $
    (1.37
    )
    
    $
    1.58
  (10) Share Repurchases
  14




---



##### Table of Contents



(11) Other Financial Data
  June 27,
    
    
    September 27,(In thousands)
    
    2009
    
    
    2008Accounts receivable, net:Accounts receivable
    
    $
    25,833
    
    
    $
    50,487Less allowance for doubtful accounts
    
    
    (1,198
    )
    
    
    (906
    )Total
    
    $
    24,635
    
    
    $
    49,581Inventories:Raw materials
    
    $
    16,440
    
    
    $
    30,793Work in process
    
    
    2,035
    
    
    
    3,161Finished goods
    
    
    16,694
    
    
    
    37,266Total
    
    $
    35,169
    
    
    $
    71,220Prepaid expenses and other:Income taxes receivable
    
    $
    14,547
    
    
    $
    Current deferred tax asset
    
    
    2,514
    
    
    
    2,513Capitalized financing costs, net
    
    
    469
    
    
    
    Other
    
    
    754
    
    
    
    609Total
    
    $
    18,284
    
    
    $
    3,122Other assets:Cash surrender value of life insurance policies
    
    $
    3,440
    
    
    $
    3,938Capitalized financing costs, net
    
    
    
    
    
    
    844Other
    
    
    282
    
    
    
    282Total
    
    $
    3,722
    
    
    $
    5,064Property, plant and equipment, net:Land and land improvements
    
    $
    5,571
    
    
    $
    5,631Buildings
    
    
    32,447
    
    
    
    31,819Machinery and equipment
    
    
    96,426
    
    
    
    96,638Construction in progress
    
    
    260
    
    
    
    2,195134,704
    
    
    
    136,283Less accumulated depreciation
    
    
    (69,308
    )
    
    
    (67,178
    )Total
    
    $
    65,396
    
    
    $
    69,105Accrued expenses:Salaries, wages and related expenses
    
    $
    1,142
    
    
    $
    4,128Property taxes
    
    
    643
    
    
    
    794Cash dividends
    
    
    526
    
    
    
    9,279Customer rebates
    
    
    459
    
    
    
    840Workers compensation
    
    
    357
    
    
    
    673Sales allowance reserves
    
    
    236
    
    
    
    1,493Income taxes
    
    
    
    
    
    
    10,861Other
    
    
    1,071
    
    
    
    1,013Total
    
    $
    4,434
    
    
    $
    29,081Other liabilities:Deferred compensation
    
    $
    4,728
    
    
    $
    4,476Deferred income taxes
    
    
    517
    
    
    
    435Deferred revenues
    
    
    
    
    
    
    395Total
    
    $
    5,245
    
    
    $
    5,306
 15




---



##### Table of Contents



(12) Business Segment Information
  (13) Contingencies
 Legal proceedings
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Note Regarding Forward-Looking Statements
    
    
    general economic and competitive conditions in the markets in which we operate;
    
    credit market conditions and the impact of the measures that have been taken by the
federal government on the
 16




---



##### Table of Contents



relative availability of financing for us, our customers and the
construction industry as a whole;
    
    the timing and magnitude of impact of the additional federal infrastructure-related
funding provided for under the American Recovery and Reinvestment Act;
    
    the anticipated reduction in spending for nonresidential construction, particularly
commercial construction, and the impact on demand for our concrete reinforcing products;
    
    the severity and duration of the downturn in residential construction activity and the
impact on those portions of our business that are correlated with the housing sector;
    
    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;
    
    our ability to raise selling prices in order to recover increases in wire rod costs;
    
    changes in U.S. or foreign trade policy affecting imports or exports of steel wire rod
or our products, including the outcome of the trade cases that have been filed by domestic
producers of prestressed concrete strand (PC strand) regarding imports of PC strand from
China;
    
    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;
    
    the actual net proceeds realized and closure costs incurred in connection with our exit
from the industrial wire business;
    
    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 Risk Factors discussed in our Annual Report on Form 10-K for the year ended
September 27, 2008.
 Overview
   17




---



##### Table of Contents



Results of Operations
 Statements of Operations  Selected Data
 Three Months Ended
    
    Nine Months EndedJune 27,
    
    
    
    
    
    June 28,
    
    June 27,
    
    
    
    
    
    June 28,2009
    
    Change
    
    2008
    
    2009
    
    Change
    
    2008Net sales
    
    $
    56,963
    
    
    
    (45.4
    %)
    
    $
    104,332
    
    
    $
    169,166
    
    
    
    (31.7
    %)
    
    $
    247,572Gross profit (loss)
    
    
    1,176
    
    
    
    (96.2
    %)
    
    
    30,885
    
    
    
    (24,140
    )
    
    
    (142.1
    %)
    
    
    57,292Percentage of net sales
    
    
    2.1
    %
    
    
    
    
    
    
    29.6
    %
    
    
    (14.3
    %)
    
    
    
    
    
    
    23.1
    %Selling, general and administrative expense
    
    $
    4,016
    
    
    
    (10.7
    %)
    
    $
    4,496
    
    
    $
    13,117
    
    
    
    (4.6
    %)
    
    $
    13,748Percentage of net sales
    
    
    7.1
    %
    
    
    
    
    
    
    4.3
    %
    
    
    7.8
    %
    
    
    
    
    
    
    5.6
    %Interest expense
    
    $
    147
    
    
    
    (2.0
    %)
    
    $
    150
    
    
    $
    484
    
    
    
    5.2
    %
    
    $
    460Interest income
    
    
    (16
    )
    
    
    (87.2
    %)
    
    
    (125
    )
    
    
    (118
    )
    
    
    (79.2
    %)
    
    
    (568
    )Effective income tax rate
    
    
    41.5
    %
    
    
    
    
    
    
    35.7
    %
    
    
    36.9
    %
    
    
    
    
    
    
    35.8
    %Earnings (loss) from continuing operations
    
    $
    (1,737
    )
    
    
    (110.2
    %)
    
    $
    16,948
    
    
    $
    (23,718
    )
    
    
    (184.5
    %)
    
    $
    28,071Loss from discontinued operations
    
    
    (12
    )
    
    
    (42.9
    %)
    
    
    (21
    )
    
    
    (61
    )
    
    
    2,950.0
    %
    
    
    (2
    )Net earnings (loss)
    
    
    (1,749
    )
    
    
    (110.3
    %)
    
    
    16,927
    
    
    
    (23,779
    )
    
    
    (184.7
    %)
    
    
    28,069
 N/M = not meaningful
 Third Quarter of Fiscal 2009 Compared to Third Quarter of Fiscal 2008
 Net Sales
  Gross Profit
  Selling, General and Administrative Expense
  Interest Expense
  18




---



##### Table of Contents



Income Taxes
  Earnings (Loss) From Continuing Operations
  Loss From Discontinued Operations
  Net Earnings (Loss)
  First Nine Months of Fiscal 2009 Compared to First Nine Months of Fiscal 2008
 Net Sales
  Gross Profit (Loss)
  Selling, General and Administrative Expense
  Interest Expense
  19




---



##### Table of Contents



Income Taxes
  Earnings (Loss) From Continuing Operations
  Loss From Discontinued Operations
  Net Earnings (Loss)
  Liquidity and Capital Resources
 Selected Financial Data
 Nine Months EndedJune 27,
    
    June 28,2009
    
    2008Net cash provided by operating activities
    
    $
    6,596
    
    
    $
    26,613Net cash used for investing activities
    
    
    (1,173
    )
    
    
    (7,558
    )Net cash used for financing activities
    
    
    (10,289
    )
    
    
    (10,193
    )Working capital
    
    
    78,660
    
    
    
    87,999Total long-term debt
    
    
    
    
    
    
    Percentage of total capital
    
    
    
    
    
    
    Shareholders equity
    
    $
    145,977
    
    
    $
    162,917Percentage of total capital
    
    
    100.0
    %
    
    
    100.0
    %Total capital (total long-term debt + shareholders equity)
    
    $
    145,977
    
    
    $
    162,917
 Cash Flow Analysis
  20




---



##### Table of Contents



Credit Facilities
    Impact of Inflation
  Off-Balance Sheet Arrangements
  21




---



##### Table of Contents



Contractual Obligations
  Critical Accounting Policies
   Revenue recognition.
 Concentration of credit risk.
  Allowance for doubtful accounts .
 Inventory valuation.
 Self insurance .
 Litigation .
 22




---



##### Table of Contents



Assumptions for employee benefit plans. Employers Accounting for
Pensions,
       23




---



##### Table of Contents



Recent Accounting Pronouncements
 Current Adoptions
   Future Adoptions
     24




---



##### Table of Contents



Outlook
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Prices
  25




---



##### Table of Contents



Interest Rates
  Foreign Exchange Exposure
  
 Item 4. Controls and Procedures
   
 Part II  Other Information
 
 Item 1. Legal Proceedings
    26




---



##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 6. Exhibits
 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.
 27




---



##### Table of Contents



SIGNATURES
  INSTEEL INDUSTRIES, INC.

Registrant
 Date: July 20, 2009
    
    By:
    
    /s/ Michael C. Gazmarian

     Michael C. GazmarianVice President, Chief Financial Officer and Treasurer(Duly Authorized Officer and Principal Financial Officer)
 28




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14a 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.
 29