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 April 2, 2011
 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
  Yes þ
    
    No o
  Yes o
    
    No
o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  Yes o
    
    No þ




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##### 



TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONItem 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
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6. Exhibits
    
    
    30SIGNATURES
    
    
    31EXHIBIT INDEX
    
    
    32
 2




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##### 



PART
I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
   Three Months Ended
    
    
    Six Months EndedApril 2,
    
    
    April 3,
    
    
    April 2,
    
    
    April 3,2011
    
    
    2010
    
    
    2011
    
    
    2010Net sales
    
    $
    86,933
    
    
    $
    52,268
    
    
    $
    139,239
    
    
    $
    93,469Cost of sales
    
    
    75,330
    
    
    
    46,049
    
    
    
    127,771
    
    
    
    83,575Inventory write-downs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,933Gross profit
    
    
    11,603
    
    
    
    6,219
    
    
    
    11,468
    
    
    
    7,961Selling, general and administrative expense
    
    
    4,523
    
    
    
    4,182
    
    
    
    8,691
    
    
    
    7,924Restructuring charges
    
    
    2,213
    
    
    
    
    
    
    
    6,603
    
    
    
    Acquisition costs
    
    
    768
    
    
    
    
    
    
    
    3,518
    
    
    
    Bargain purchase gain
    
    
    (500
    )
    
    
    
    
    
    
    (500
    )
    
    
    Other income, net
    
    
    (56
    )
    
    
    (97
    )
    
    
    (69
    )
    
    
    (250
    )Interest expense
    
    
    253
    
    
    
    147
    
    
    
    404
    
    
    
    295Interest income
    
    
    (6
    )
    
    
    (14
    )
    
    
    (19
    )
    
    
    (26
    )Earnings
(loss) from continuing operations before income taxes
    
    
    4,408
    
    
    
    2,001
    
    
    
    (7,160
    )
    
    
    18Income taxes
    
    
    1,789
    
    
    
    357
    
    
    
    (2,151
    )
    
    
    (503
    )Earnings (loss) from continuing operations
    
    
    2,619
    
    
    
    1,644
    
    
    
    (5,009
    )
    
    
    521Loss from discontinued operations net of income
taxes of $ - , ($6), $ - and ($14)
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (23
    )Net earnings (loss)
    
    $
    2,619
    
    
    $
    1,634
    
    
    $
    (5,009
    )
    
    $
    498Per share amounts:Basic:Earnings (loss) from continuing operations
    
    $
    0.15
    
    
    $
    0.09
    
    
    $
    (0.29
    )
    
    $
    0.03Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.15
    
    
    $
    0.09
    
    
    $
    (0.29
    )
    
    $
    0.03Diluted:Earnings (loss) from continuing operations
    
    $
    0.15
    
    
    $
    0.09
    
    
    $
    (0.29
    )
    
    $
    0.03Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.15
    
    
    $
    0.09
    
    
    $
    (0.29
    )
    
    $
    0.03Cash dividends declared
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.06Weighted average shares outstandingBasic
    
    
    17,551
    
    
    
    17,458
    
    
    
    17,531
    
    
    
    17,434Diluted
    
    
    17,802
    
    
    
    17,647
    
    
    
    17,531
    
    
    
    17,643
 See accompanying notes to consolidated financial statements.
 3




---



##### 



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)April 2,
    
    
    October 2,2011
    
    
    2010AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,893
    
    
    $
    45,935Accounts receivable, net
    
    
    37,418
    
    
    
    24,970Inventories, net
    
    
    61,717
    
    
    
    43,919Other current assets
    
    
    4,930
    
    
    
    3,931Total current assets
    
    
    107,958
    
    
    
    118,755Property, plant and equipment, net
    
    
    93,169
    
    
    
    58,653Other assets
    
    
    5,770
    
    
    
    5,097Total assets
    
    $
    206,897
    
    
    $
    182,505Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    35,870
    
    
    $
    20,689Accrued expenses
    
    
    8,555
    
    
    
    5,929Current portion of long-term debt
    
    
    675
    
    
    
    Current liabilities of discontinued operations
    
    
    
    
    
    
    210Total current liabilities
    
    
    45,100
    
    
    
    26,828Long-term debt
    
    
    12,825
    
    
    
    Other liabilities
    
    
    5,970
    
    
    
    7,521Long-term liabilities of discontinued operations
    
    
    
    
    
    
    280Commitments and contingenciesShareholders equity:Common stock
    
    
    17,614
    
    
    
    17,579Additional paid-in capital
    
    
    47,105
    
    
    
    45,950Retained earnings
    
    
    80,592
    
    
    
    86,656Accumulated other comprehensive loss
    
    
    (2,309
    )
    
    
    (2,309
    )Total shareholders equity
    
    
    143,002
    
    
    
    147,876Total liabilities and shareholders equity
    
    $
    206,897
    
    
    $
    182,505
 See accompanying notes to consolidated financial statements.
 4




---



##### 



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Six Months EndedApril 2,
    
    
    April 3,2011
    
    
    2010Cash Flows From Operating Activities:Net earnings (loss)
    
    $
    (5,009
    )
    
    $
    498Loss from discontinued operations
    
    
    
    
    
    
    23Earnings (loss) from continuing operations
    
    
    (5,009
    )
    
    
    521Adjustments to reconcile earnings (loss) from continuing operations to net cash
provided by operating activities of continuing operations:Depreciation and amortization
    
    
    4,553
    
    
    
    3,458Amortization of capitalized financing costs
    
    
    40
    
    
    
    249Stock-based compensation expense
    
    
    1,182
    
    
    
    1,103Asset impairment charges
    
    
    3,451
    
    
    
    Inventory write-downs
    
    
    
    
    
    
    1,933Excess tax benefits from stock-based compensation
    
    
    (81
    )
    
    
    (3
    )Loss on sale of property, plant and equipment
    
    
    16
    
    
    
    11Deferred income taxes
    
    
    (2,276
    )
    
    
    (217
    )Gain from life insurance proceeds
    
    
    (357
    )
    
    
    Increase in cash surrender value of life insurance policies over premiums paid
    
    
    (298
    )
    
    
    (284
    )Net changes in assets and liabilities (net of assets and liabilities acquired):Accounts receivable, net
    
    
    (12,448
    )
    
    
    (1,922
    )Inventories
    
    
    2,787
    
    
    
    4,449Accounts payable and accrued expenses
    
    
    9,360
    
    
    
    (4,076
    )Other changes
    
    
    (878
    )
    
    
    14,258Total adjustments
    
    
    5,051
    
    
    
    18,959Net cash provided by operating activities  continuing operations
    
    
    42
    
    
    
    19,480Net cash used for operating activities  discontinued operations
    
    
    
    
    
    
    (40
    )Net cash provided by operating activities
    
    
    42
    
    
    
    19,440Cash Flows From Investing Activities:Acquisition of business
    
    
    (37,308
    )
    
    
    Capital expenditures
    
    
    (4,902
    )
    
    
    (902
    )Proceeds from life insurance claims
    
    
    1,063
    
    
    
    Proceeds from sale of property, plant and equiment
    
    
    18
    
    
    
    Increase in cash surrender value of life insurance policies
    
    
    (425
    )
    
    
    (410
    )Net cash used for investing activities  continuing operations
    
    
    (41,554
    )
    
    
    (1,312
    )Net cash used for investing activities
    
    
    (41,554
    )
    
    
    (1,312
    )Cash Flows From Financing Activities:Proceeds from long-term debt
    
    
    5,908
    
    
    
    150Principal payments on long-term debt
    
    
    (5,908
    )
    
    
    (150
    )Cash received from exercise of stock options
    
    
    13
    
    
    
    84Excess tax benefits from stock-based compensation
    
    
    81
    
    
    
    3Cash dividends paid
    
    
    (527
    )
    
    
    (1,053
    )Other
    
    
    (97
    )
    
    
    (1
    )Net cash used for financing activities  continuing operations
    
    
    (530
    )
    
    
    (967
    )Net cash used for financing activities
    
    
    (530
    )
    
    
    (967
    )Net increase (decrease) in cash and cash equivalents
    
    
    (42,042
    )
    
    
    17,161Cash and cash equivalents at beginning of period
    
    
    45,935
    
    
    
    35,102Cash and cash equivalents at end of period
    
    $
    3,893
    
    
    $
    52,263Supplemental Disclosures of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    66
    
    
    $
    46Income taxes
    
    
    760
    
    
    
    2Non-cash investing and financing activities:Purchases of property, plant and equipment in accounts payable
    
    
    441
    
    
    
    98Declaration of cash dividends to be paid
    
    
    527
    
    
    
    Restricted stock surrendered for withholding taxes payable
    
    
    86
    
    
    
    52Note payable issued as consideration for business acquired
    
    
    13,500
    
    
    
    Post-closing purchase price adjustment for business acquired
    
    
    500
    
    
    
    
 See accompanying notes to consolidated financial statements.
 5




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##### 



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
   AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance at October 2, 2010
    
    
    17,579
    
    
    $
    17,579
    
    
    $
    45,950
    
    
    $
    86,656
    
    
    $
    (2,309
    )
    
    $
    147,876Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,009
    )
    
    
    
    
    
    
    (5,009
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,009
    )Stock options exercised
    
    
    12
    
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    13Vesting of restricted stock units
    
    
    30
    
    
    
    30
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    1,182
    
    
    
    
    
    
    
    
    
    
    
    1,182Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    81Restricted stock surrendered for
withholding taxes payable
    
    
    (7
    )
    
    
    (7
    )
    
    
    (79
    )
    
    
    
    
    
    
    
    
    
    
    (86
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,055
    )
    
    
    
    
    
    
    (1,055
    )Balance at April 2, 2011
    
    
    17,614
    
    
    $
    17,614
    
    
    $
    47,105
    
    
    $
    80,592
    
    
    $
    (2,309
    )
    
    $
    143,002
 See accompanying notes to consolidated financial statements.
 6




---



##### 



INSTEEL
INDUSTRIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (Unaudited)
 (1) Basis of Presentation
    .
 (2) Recent Accounting Pronouncements
 Business
Combinations
 (3) Business Combination
    7




---



##### 



(In thousands)Assets acquired:Inventories
    
    $
    20,585Property, plant and equipment
    
    
    37,211Total assets acquired
    
    $
    57,796Liabilities assumed:Accounts payable
    
    $
    6,263Accrued expenses
    
    
    725Total liabilities assumed
    
    
    6,988Net assets acquired
    
    
    50,808Purchase price
    
    
    50,308Bargain purchase gain
    
    $
    500
  Business Combinations
   Three Months Ended
    
    
    Six Months EndedApril 2,
    
    
    April 3,
    
    
    April 2,
    
    
    April 3,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Net sales
    
    $
    86,933
    
    
    $
    75,023
    
    
    $
    155,950
    
    
    $
    135,378Earnings (loss) from continuing operations
before income taxes
    
    
    4,671
    
    
    
    (2,848
    )
    
    
    (6,400
    )
    
    
    (13,452
    )Net earnings (loss)
    
    
    2,775
    
    
    
    (1,886
    )
    
    
    (4,436
    )
    
    
    (8,366
    )
 (4) Restructuring Charges and Acquisition Costs
 Restructuring charges.
 8




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##### 



Severanceand other
    
    
    Asset
    
    
    Facility
    
    
    Equipment(In thousands)
    
    employee costs
    
    
    impairment
    
    
    closure costs
    
    
    relocation
    
    
    TotalRestructuring charges
    
    $
    979
    
    
    $
    2,868
    
    
    $
    533
    
    
    $
    10
    
    
    $
    4,390Cash payments
    
    
    (310
    )
    
    
    
    
    
    
    (75
    )
    
    
    (10
    )
    
    
    (395
    )Non-cash charges
    
    
    
    
    
    
    (2,868
    )
    
    
    
    
    
    
    
    
    
    
    (2,868
    )Liability as of January 1, 2011
    
    $
    669
    
    
    $
    
    
    
    $
    458
    
    
    $
    
    
    
    $
    1,127Restructuring charges
    
    
    1,176
    
    
    
    584
    
    
    
    224
    
    
    
    229
    
    
    
    2,213Cash payments
    
    
    (1,486
    )
    
    
    
    
    
    
    (367
    )
    
    
    (145
    )
    
    
    (1,998
    )Non-cash charges
    
    
    
    
    
    
    (584
    )
    
    
    
    
    
    
    
    
    
    
    (584
    )Liability as of April 2, 2011
    
    $
    359
    
    
    $
    
    
    
    $
    315
    
    
    $
    84
    
    
    $
    758
  Acquisition costs.
 (5) Fair Value Measurements
      Quoted Pricesin Active
    
    
    ObservableMarkets
    
    
    Inputs(In thousands)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)Current assets:Cash equivalents
    
    $
    3,621
    
    
    $
    3,621
    
    
    $
    Other assets:Cash surrender value of life insurance policies
    
    
    4,634
    
    
    
    
    
    
    
    4,634Total
    
    $
    8,255
    
    
    $
    3,621
    
    
    $
    4,634
 9




---



##### 



(6) Discontinued Operations
   October 2,(In thousands)
    
    2010Liabilities:Current liabilities:Accrued expenses
    
    $
    210Total current liabilities
    
    
    210Other liabilities
    
    
    280Total liabilities
    
    $
    490
 (7) Stock-Based Compensation
  Stock option awards .
 Three Months Ended
    
    
    Six Months EndedApril 2,
    
    
    April 3,
    
    
    April 2,
    
    
    April 3,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Stock options:Compensation expense
    
    $
    280
    
    
    $
    268
    
    
    $
    507
    
    
    $
    481Excess tax deficiencies (benefits)
    
    
    (81
    )
    
    
    8
    
    
    
    (81
    )
    
    
    (3
    )
   10




---



##### 



Six Months EndedApril 2,
    
    
    April 3,2011
    
    
    2010Risk-free interest rate
    
    
    2.40
    %
    
    
    2.69
    %Dividend yield
    
    
    0.97
    %
    
    
    1.29
    %Expected volatility
    
    
    56.49
    %
    
    
    60.68
    %Expected term (in years)
    
    
    5.11
    
    
    
    5.71
  Contractual
    
    
    AggregateOptions
    
    
    Exercise Price Per Share
    
    
    Term -
    
    
    IntrinsicOutstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    Weighted
    
    
    Value(in thousands)
    
    
    Range
    
    
    Average
    
    
    Average
    
    
    (in thousands)Outstanding at October 2, 2010
    
    
    847
    
    
    $
    0.18
    
    
    
    -
    
    
    $
    20.27
    
    
    $
    10.63Granted
    
    
    77
    
    
    
    12.43
    
    
    
    -
    
    
    
    12.43
    
    
    
    12.43Expired
    
    
    
    
    
    
    
    
    
    
    -
    
    
    
    
    
    
    
    Exercised
    
    
    (12
    )
    
    
    1.06
    
    
    
    -
    
    
    
    1.06
    
    
    
    1.06Outstanding at April 2, 2011
    
    
    912
    
    
    
    0.18
    
    
    
    -
    
    
    
    20.27
    
    
    
    10.91
    
    
    7.19 years
    
    
    $
    3,737Vested and anticipated to vest in the
future at April 2, 2011
    
    
    894
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.91
    
    
    7.16 years
    
    
    
    3,665Exercisable at April 2, 2011
    
    
    571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.16
    
    
    6.11 years
    
    
    
    2,372
 Restricted stock awards.
 Three Months Ended
    
    
    Six Months EndedApril 2,
    
    
    April 3,
    
    
    April 2,
    
    
    April 3,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Amortization expense
    
    $
    50
    
    
    $
    139
    
    
    $
    116
    
    
    $
    269
    11




---



##### 



WeightedRestricted
    
    
    AverageStock Awards
    
    
    Grant Date(Share amounts in thousands)
    
    Outstanding
    
    
    Fair ValueBalance, October 2, 2010
    
    
    67
    
    
    $
    13.37Granted
    
    
    
    
    
    
    Released
    
    
    (40
    )
    
    
    11.15Balance, April 2, 2011
    
    
    27
    
    
    $
    16.69
 Restricted stock units.
 Three Months Ended
    
    
    Six Months EndedApril 2,
    
    
    April 3,
    
    
    April 2,
    
    
    April 3,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Restricted stock unit grants:Units
    
    
    52
    
    
    
    78
    
    
    
    52
    
    
    
    78Market value
    
    $
    652
    
    
    $
    732
    
    
    $
    652
    
    
    $
    732Amortization expense
    
    
    313
    
    
    
    209
    
    
    
    559
    
    
    
    353
   WeightedRestricted
    
    
    AverageStock Units
    
    
    Grant Date(Unit amounts in thousands)
    
    Outstanding
    
    
    Fair ValueBalance, October 2, 2010
    
    
    239
    
    
    $
    9.23Granted
    
    
    52
    
    
    
    12.43Released
    
    
    (30
    )
    
    
    9.39Balance, April 2, 2011
    
    
    261
    
    
    $
    9.85
 (8) Income Taxes
   12




---



##### 



(9) Employee Benefit Plans
 Retirement plans.
   Three Months Ended
    
    
    Six Months EndedApril 2,
    
    
    April 3,
    
    
    April 2,
    
    
    April 3,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Interest cost
    
    $
    48
    
    
    $
    52
    
    
    $
    96
    
    
    $
    104Expected return on plan assets
    
    
    (52
    )
    
    
    (50
    )
    
    
    (104
    )
    
    
    (100
    )Recognized net actuarial loss
    
    
    58
    
    
    
    49
    
    
    
    116
    
    
    
    98Net periodic pension cost
    
    $
    54
    
    
    $
    51
    
    
    $
    108
    
    
    $
    102
 Supplemental employee retirement plan.
 13




---



##### 



Three Months Ended
    
    
    Six Months EndedApril 2,
    
    
    April 3,
    
    
    April 2,
    
    
    April 3,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Service cost
    
    $
    44
    
    
    $
    41
    
    
    $
    88
    
    
    $
    82Interest cost
    
    
    71
    
    
    
    70
    
    
    
    142
    
    
    
    140Amortization of prior service cost
    
    
    65
    
    
    
    64
    
    
    
    130
    
    
    
    128Net periodic benefit cost
    
    $
    180
    
    
    $
    175
    
    
    $
    360
    
    
    $
    350
 (10) Long-Term Debt
 Revolving Credit Facility.
   Financial Covenants
  Negative Covenants
  Events of Default
  14




---



##### 



Subordinated Note.
  Fiscal years(s)
    
    (In thousands)2012
    
    $
    6752013
    
    
    6752014
    
    
    6752015
    
    
    5,7372016
    
    
    5,738Total future maturities
    
    $
    13,500Less: Current portion
    
    
    (675
    )$
    12,825
  (11) Earnings (Loss) Per Share
 Earnings
Per Share
  15




---



##### 



Three Months Ended
    
    
    Six Months EndedApril 2,
    
    
    April 3,
    
    
    April 2,
    
    
    April 3,(In thousands except per share amounts)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Earnings (loss) from continuing operations
    
    $
    2,619
    
    
    $
    1,644
    
    
    $
    (5,009
    )
    
    $
    521Less allocation to participating securities
    
    
    (7
    )
    
    
    (8
    )
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    2,612
    
    
    $
    1,636
    
    
    $
    (5,009
    )
    
    $
    521Loss from discontinued operations net of income taxes
    
    $
    
    
    
    $
    (10
    )
    
    $
    
    
    
    $
    (23
    )Less allocation to participating securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    
    
    
    $
    (10
    )
    
    $
    
    
    
    $
    (23
    )Net earnings (loss)
    
    $
    2,619
    
    
    $
    1,634
    
    
    $
    (5,009
    )
    
    $
    498Less allocation to participating securities
    
    
    (7
    )
    
    
    (8
    )
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    2,612
    
    
    $
    1,626
    
    
    $
    (5,009
    )
    
    $
    498Basic weighted average shares outstanding
    
    
    17,551
    
    
    
    17,458
    
    
    
    17,531
    
    
    
    17,434Dilutive effect of stock-based compensation
    
    
    251
    
    
    
    189
    
    
    
    
    
    
    
    209Diluted weighted average shares outstanding
    
    
    17,802
    
    
    
    17,647
    
    
    
    17,531
    
    
    
    17,643Per share basic:Earnings (loss) from continuing operations
    
    $
    0.15
    
    
    $
    0.09
    
    
    $
    (0.29
    )
    
    $
    0.03Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.15
    
    
    $
    0.09
    
    
    $
    (0.29
    )
    
    $
    0.03Per share diluted:Earnings (loss) from continuing operations
    
    $
    0.15
    
    
    $
    0.09
    
    
    $
    (0.29
    )
    
    $
    0.03Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.15
    
    
    $
    0.09
    
    
    $
    (0.29
    )
    
    $
    0.03
  (12) Share Repurchases
  16




---



##### 



(13) Other Financial Data
  April 2,
    
    
    October 2,(In thousands)
    
    2011
    
    
    2010Accounts receivable, net:Accounts receivable
    
    $
    38,244
    
    
    $
    27,266Less allowance for doubtful accounts
    
    
    (826
    )
    
    
    (2,296
    )Total
    
    $
    37,418
    
    
    $
    24,970Inventories, net:Raw materials
    
    $
    30,951
    
    
    $
    23,817Work in process
    
    
    4,170
    
    
    
    1,899Finished goods
    
    
    26,596
    
    
    
    18,203Total
    
    $
    61,717
    
    
    $
    43,919Other current assets:Current deferred tax asset
    
    $
    2,603
    
    
    $
    2,612Income taxes receivable
    
    
    1,369
    
    
    
    547Capitalized financing costs, net
    
    
    82
    
    
    
    82Other
    
    
    876
    
    
    
    690Total
    
    $
    4,930
    
    
    $
    3,931Other assets:Cash surrender value of life insurance
policies, net of loans $542 and $505
    
    $
    4,634
    
    
    $
    4,525Non-current deferred tax assets
    
    
    507
    
    
    
    Capitalized financing costs, net
    
    
    259
    
    
    
    300Other
    
    
    370
    
    
    
    272Total
    
    $
    5,770
    
    
    $
    5,097Property, plant and equipment, net:Land and land improvements
    
    $
    9,507
    
    
    $
    5,571Buildings
    
    
    43,166
    
    
    
    32,433Machinery and equipment
    
    
    117,606
    
    
    
    97,813Construction in progress
    
    
    4,276
    
    
    
    239174,555
    
    
    
    136,056Less accumulated depreciation
    
    
    (81,386
    )
    
    
    (77,403
    )Total
    
    $
    93,169
    
    
    $
    58,653Accrued expenses:Salaries, wages and related expenses
    
    $
    2,113
    
    
    $
    1,210Pension plan
    
    
    1,266
    
    
    
    1,263Deferred revenues
    
    
    1,164
    
    
    
    321Restructuring
    
    
    674
    
    
    
    Dividends payable
    
    
    527
    
    
    
    Customer rebates
    
    
    524
    
    
    
    506Workers compensation
    
    
    490
    
    
    
    683Property taxes
    
    
    434
    
    
    
    846Interest
    
    
    297
    
    
    
    Legal settlement
    
    
    
    
    
    
    600Other
    
    
    1,066
    
    
    
    500Total
    
    $
    8,555
    
    
    $
    5,929Other liabilities:Deferred compensation
    
    $
    5,915
    
    
    $
    5,688Deferred income taxes
    
    
    
    
    
    
    1,778Other
    
    
    55
    
    
    
    55Total
    
    $
    5,970
    
    
    $
    7,521
 17




---



##### 



(14) Business Segment Information
 Segment Reporting
 (15) Contingencies
 Legal proceedings .
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Note Regarding Forward-Looking Statements
   18




---



##### 




    
    potential difficulties that may be encountered in integrating the Ivy Acquisition into
our existing business;
    
    potential difficulties in realizing synergies, including reduced operating costs, with
respect to the Ivy Acquisition and the cessation of operations at the Wilmington, Delaware
facility;
    
    competitive and customer responses to our expanded business following the Ivy
Acquisition;
    
    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 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;
    
    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 and 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, economic 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
October 2, 2010 and in other filings that we make with the SEC.
 Overview
   19




---



##### 



Results of Operations
 Statements of Operations  Selected Data
 Three Months Ended
    
    
    Six Months EndedApril 2,
    
    
    
    
    
    
    April 3,
    
    
    April 2,
    
    
    
    
    
    
    April 3,2011
    
    
    Change
    
    
    2010
    
    
    2011
    
    
    Change
    
    
    2010Net sales
    
    $
    86,933
    
    
    
    66.3
    %
    
    $
    52,268
    
    
    $
    139,239
    
    
    
    49.0
    %
    
    $
    93,469Gross profit
    
    
    11,603
    
    
    
    86.6
    %
    
    
    6,219
    
    
    
    11,468
    
    
    
    44.1
    %
    
    
    7,961Percentage of net sales
    
    
    13.3
    %
    
    
    
    
    
    
    11.9
    %
    
    
    8.2
    %
    
    
    
    
    
    
    8.5
    %Selling, general and
administrative expense
    
    $
    4,523
    
    
    
    8.2
    %
    
    $
    4,182
    
    
    $
    8,691
    
    
    
    9.7
    %
    
    $
    7,924Percentage of net sales
    
    
    5.2
    %
    
    
    
    
    
    
    8.0
    %
    
    
    6.2
    %
    
    
    
    
    
    
    8.5
    %Restructuring charges
    
    $
    2,213
    
    
    
    N/M
    
    
    $
    
    
    
    $
    6,603
    
    
    
    N/M
    
    
    $
    Acquisition costs
    
    
    768
    
    
    
    N/M
    
    
    
    
    
    
    
    3,518
    
    
    
    N/M
    
    
    
    Bargain purchase gain
    
    
    (500
    )
    
    
    N/M
    
    
    
    
    
    
    
    (500
    )
    
    
    N/M
    
    
    
    Interest expense
    
    
    253
    
    
    
    72.1
    %
    
    
    147
    
    
    
    404
    
    
    
    36.9
    %
    
    
    295Interest income
    
    
    (6
    )
    
    
    (57.1
    %)
    
    
    (14
    )
    
    
    (19
    )
    
    
    (26.9
    %)
    
    
    (26
    )Effective income tax rate
    
    
    40.6
    %
    
    
    
    
    
    
    17.8
    %
    
    
    30.0
    %
    
    
    
    
    
    
    N/MEarnings (loss) from continuing
operations
    
    $
    2,619
    
    
    
    59.3
    %
    
    $
    1,644
    
    
    $
    (5,009
    )
    
    
    N/M
    
    
    $
    521Loss from discontinued operations
    
    
    
    
    
    
    N/M
    
    
    
    (10
    )
    
    
    
    
    
    
    N/M
    
    
    
    (23
    )Net earnings (loss)
    
    
    2,619
    
    
    
    60.3
    %
    
    
    1,634
    
    
    
    (5,009
    )
    
    
    N/M
    
    
    
    498
 
 N/M = not meaningful Second Quarter of Fiscal 2011 Compared to Second Quarter of Fiscal 2010
 Net Sales
  Gross Profit
  Selling, General and Administrative Expense
  20




---



##### 



Restructuring Charges
  Acquisition Costs
  Bargain Purchase Gain
  Interest Expense
  Income Taxes
  Earnings From Continuing Operations
  Loss From Discontinued Operations
  Net Earnings
  21




---



##### 



First Half of Fiscal 2011 Compared to First Half of Fiscal 2010
 Net Sales
  Gross Profit
  Selling, General and Administrative Expense
  Restructuring Charges
  Acquisition Costs
  Bargain Purchase Gain
  Interest Expense
  22




---



##### 



Income Taxes
  Earnings (Loss) From Continuing Operations
  Loss From Discontinued Operations
  Net Earnings (Loss)
  Liquidity and Capital Resources
 Selected Financial Data
 Cash Flow Analysis
 Six Months EndedApril 2,
    
    
    April 3,2011
    
    
    2010Net cash provided by operating activities of continuing operations
    
    $
    42
    
    
    $
    19,480Net cash used for investing activities
    
    
    (41,554
    )
    
    
    (1,312
    )Net cash used for financing activities
    
    
    (530
    )
    
    
    (967
    )Net cash used for operating activities of discontinued operations
    
    
    
    
    
    
    (40
    )Working capital
    
    
    62,858
    
    
    
    84,614Long-term debt
    
    
    12,825
    
    
    
    Percentage of total capital
    
    
    8.2
    %
    
    
    Shareholders equity
    
    $
    143,002
    
    
    $
    147,647Percentage of total capital
    
    
    91.8
    %
    
    
    100.0
    %Total capital (total long-term debt + shareholders equity)
    
    $
    155,827
    
    
    $
    147,647
  23




---



##### 



Credit Facilities
     Seasonality and Cyclicality
  24




---



##### 



Impact of Inflation
  Off-Balance Sheet Arrangements
  Contractual Obligations
  Critical Accounting Policies
   Revenue recognition.
 Concentration of credit risk.
  Allowance for doubtful accounts.
 25




---



##### 



Inventory valuation.
 Self insurance.
 Litigation.
 Assumptions for employee benefit plans.
      26




---



##### 



Recent Accounting Pronouncements
 Business
Combinations
 Outlook
    27




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Prices
  Interest Rates
  Foreign Exchange Exposure
  
 Item 4. Controls and Procedures
   28




---



##### 



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
    
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  29




---



##### 



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 per share amounts)
    
    Shares Purchased
    
    
    Paid per Share
    
    
    Program
    
    
    ProgramJanuary 2, 2011 - February 5, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,897
    (1)February 6, 2011 - March 5, 2011 (2)
    
    
    6,757
    
    
    $
    12.60
    
    
    
    6,757
    
    
    
    24,812
    (1)March 6, 2011 - April 2, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,812
    (1)Total
    
    
    6,757
    
    
    
    
    
    
    
    6,757
    
    
    
    24,812
    (1)
 
 (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 6,757 shares surrendered by employees to satisfy tax withholding obligations
upon the vesting of restricted stock awards. 
 Item 6. Exhibits
 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.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.
 30




---



##### 



SIGNATURES
  INSTEEL INDUSTRIES, INC.
RegistrantDate: April 26, 2011
    By:
    /s/ Michael C. GazmarianMichael C. GazmarianVice President, Chief Financial Officer and
Treasurer
(Duly Authorized Officer and Principal
Financial            Officer) 31




---



##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.4
    
    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.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.
 32