##### 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 January 1, 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
    
    
    26Item 4. Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29EXHIBIT INDEX
    
    
    30EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 
 INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedJanuary 1,
    
    
    January 2,2011
    
    
    2010Net sales
    
    $
    52,306
    
    
    $
    41,201Cost of sales
    
    
    52,441
    
    
    
    37,526Inventory write-downs
    
    
    
    
    
    
    1,933Gross profit (loss)
    
    
    (135
    )
    
    
    1,742Selling, general and administrative expense
    
    
    4,168
    
    
    
    3,742Acquisition costs
    
    
    2,750
    
    
    
    Restructuring charges
    
    
    4,390
    
    
    
    Other income, net
    
    
    (13
    )
    
    
    (153
    )Interest expense
    
    
    151
    
    
    
    148Interest income
    
    
    (13
    )
    
    
    (12
    )Loss from continuing operations before
income taxes
    
    
    (11,568
    )
    
    
    (1,983
    )Income taxes
    
    
    (3,940
    )
    
    
    (860
    )Loss from continuing operations
    
    
    (7,628
    )
    
    
    (1,123
    )Loss from discontinued operations net of
income taxes of $ - and ($8)
    
    
    
    
    
    
    (13
    )Net loss
    
    $
    (7,628
    )
    
    $
    (1,136
    )Per share amounts:Basic:Loss from continuing operations
    
    $
    (0.44
    )
    
    $
    (0.07
    )Loss from discontinued operations
    
    
    
    
    
    
    Net loss
    
    $
    (0.44
    )
    
    $
    (0.07
    )Diluted:Loss from continuing operations
    
    $
    (0.44
    )
    
    $
    (0.07
    )Loss from discontinued operations
    
    
    
    
    
    
    Net loss
    
    $
    (0.44
    )
    
    $
    (0.07
    )Cash dividends declared
    
    $
    0.03
    
    
    $
    0.03Weighted average shares outstandingBasic
    
    
    17,511
    
    
    
    17,410Diluted
    
    
    17,511
    
    
    
    17,410
 See accompanying notes to consolidated financial statements.
 3




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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 (Unaudited)January 1,
    
    
    October 2,2011
    
    
    2010AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,787
    
    
    $
    45,935Accounts receivable, net
    
    
    22,356
    
    
    
    24,970Inventories, net
    
    
    61,062
    
    
    
    43,919Prepaid expenses and other
    
    
    4,961
    
    
    
    3,931Total current assets
    
    
    91,166
    
    
    
    118,755Property, plant and equipment, net
    
    
    91,521
    
    
    
    58,653Other assets
    
    
    7,583
    
    
    
    5,097Total assets
    
    $
    190,270
    
    
    $
    182,505Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    22,342
    
    
    $
    20,689Accrued expenses
    
    
    8,316
    
    
    
    5,929Current portion of long-term debt
    
    
    675
    
    
    
    Current liabilities of discontinued
operations
    
    
    
    
    
    
    210Total current liabilities
    
    
    31,333
    
    
    
    26,828Long-term debt
    
    
    12,825
    
    
    
    Other liabilities
    
    
    5,852
    
    
    
    7,521Long-term liabilities of discontinued
operations
    
    
    
    
    
    
    280Commitments and contingenciesShareholders equity:Common stock
    
    
    17,579
    
    
    
    17,579Additional paid-in capital
    
    
    46,489
    
    
    
    45,950Retained earnings
    
    
    78,501
    
    
    
    86,656Accumulated other comprehensive loss
    
    
    (2,309
    )
    
    
    (2,309
    )Total shareholders equity
    
    
    140,260
    
    
    
    147,876Total liabilities and
shareholders equity
    
    $
    190,270
    
    
    $
    182,505
 See accompanying notes to consolidated financial statements.
 4




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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedJanuary 1,
    
    
    January 2,2011
    
    
    2010Cash Flows From Operating Activities:Net loss
    
    $
    (7,628
    )
    
    $
    (1,136
    )Loss from discontinued operations
    
    
    
    
    
    
    13Loss from continuing operations
    
    
    (7,628
    )
    
    
    (1,123
    )Adjustments to reconcile loss from continuing operations to net cash used for operating 
activities of continuing operations:Depreciation and amortization
    
    
    2,054
    
    
    
    1,715Amortization of capitalized financing costs
    
    
    20
    
    
    
    125Stock-based compensation expense
    
    
    539
    
    
    
    487Asset impairment charges
    
    
    2,868Inventory write-downs
    
    
    
    
    
    
    1,933Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    (11
    )Loss on sale of property, plant and equipment
    
    
    
    
    
    
    11Deferred income taxes
    
    
    (3,969
    )
    
    
    (345
    )Increase in cash surrender value of life insurance over premiums paid
    
    
    (248
    )
    
    
    Net changes in assets and liabilities (net of assets and liabilities acquired):Accounts receivable, net
    
    
    2,614
    
    
    
    3,513Inventories
    
    
    3,442
    
    
    
    (1,840
    )Accounts payable and accrued expenses
    
    
    (4,038
    )
    
    
    (14,525
    )Other changes
    
    
    (745
    )
    
    
    289Total adjustments
    
    
    2,537
    
    
    
    (8,648
    )Net cash used for operating activities  continuing operations
    
    
    (5,091
    )
    
    
    (9,771
    )Net cash used for operating activities  discontinued operations
    
    
    
    
    
    
    (29
    )Net cash used for operating activities
    
    
    (5,091
    )
    
    
    (9,800
    )Cash Flows From Investing Activities:Acquisition of business
    
    
    (37,588
    )
    
    
    Capital expenditures
    
    
    (506
    )
    
    
    (327
    )Increase in cash surrender value of life insurance policies
    
    
    
    
    
    
    (111
    )Net cash used for investing activities  continuing operations
    
    
    (38,094
    )
    
    
    (438
    )Net cash used for investing activities
    
    
    (38,094
    )
    
    
    (438
    )Cash Flows From Financing Activities:Proceeds from long-term debt
    
    
    109
    
    
    
    52Principal payments on long-term debt
    
    
    (109
    )
    
    
    (52
    )Cash received from exercise of stock options
    
    
    
    
    
    
    17Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    11Cash dividends paid
    
    
    
    
    
    
    (526
    )Other
    
    
    37
    
    
    
    (32
    )Net cash provided by (used for) financing activities  continuing
operations
    
    
    37
    
    
    
    (530
    )Net cash provided by (used for) financing activities
    
    
    37
    
    
    
    (530
    )Net decrease in cash and cash equivalents
    
    
    (43,148
    )
    
    
    (10,768
    )Cash and cash equivalents at beginning of period
    
    
    45,935
    
    
    
    35,102Cash and cash equivalents at end of period
    
    $
    2,787
    
    
    $
    24,334Supplemental Disclosures of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    36
    
    
    $
    24Income taxes
    
    
    709
    
    
    
    Non-cash investing and financing activities:Purchases of property, plant and equipment in accounts payable
    
    
    73
    
    
    
    92Declaration of cash dividends to be paid
    
    
    527
    
    
    
    Restricted stock surrendered for withholding taxes payable
    
    
    
    
    
    
    7Note payable issued as consideration for business acquired
    
    
    13,500
    
    
    
    
 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,628
    )
    
    
    
    
    
    
    (7,628
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,628
    )Compensation expense
associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    539
    
    
    
    
    
    
    
    
    
    
    
    539Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (527
    )
    
    
    
    
    
    
    (527
    )Balance at January 1, 2011
    
    
    17,579
    
    
    $
    17,579
    
    
    $
    46,489
    
    
    $
    78,501
    
    
    $
    (2,309
    )
    
    $
    140,260
 See accompanying notes to consolidated financial statements.
 6




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




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Quoted Pricesin Active
    
    
    ObservableMarkets
    
    
    Inputs(In thousands)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)Current assets:Cash equivalents
    
    $
    3,732
    
    
    $
    3,732
    
    
    $
    Other assets:Cash surrender value of
life insurance policies
    
    
    4,736
    
    
    
    
    
    
    
    4,736Total
    
    $
    8,468
    
    
    $
    3,732
    
    
    $
    4,736
   (4) Discontinued Operations
   January 1,
    
    
    October 2,(In thousands)
    
    2011
    
    
    2010Liabilities:Current liabilities:Accrued expenses
    
    $
    
    
    
    $
    210Total current liabilities
    
    
    
    
    
    
    210Other liabilities
    
    
    
    
    
    
    280Total liabilities
    
    $
    
    
    
    $
    490
 (5) Stock-Based Compensation
  8




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Stock option awards .
 Three Months EndedJanuary 1,
    
    
    January 2,(in thousands)
    
    2011
    
    
    2010Stock options:Compensation expense
    
    $
    227
    
    
    $
    213Excess tax benefits
    
    
    
    
    
    
    11
    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
    
    
    
    
    
    
    
    -
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    -
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    -
    
    
    
    
    
    
    Outstanding at January 1, 2011
    
    
    847
    
    
    
    0.18
    -
    
    
    20.27
    
    
    
    10.63
    
    
    7.09 years
    
    $
    2,797Vested and anticipated to
vest in the
future at January 1, 2011
    
    
    828
    
    
    
    
    
    
    
    
    
    
    
    10.64
    
    
    7.06 years
    
    
    2,734Exercisable at January 1, 2011
    
    
    461
    
    
    
    
    
    
    
    
    
    
    
    11.28
    
    
    5.78 years
    
    
    1,530
 Restricted stock awards.
 Three Months EndedJanuary 1,
    
    
    January 2,(In thousands)
    
    2011
    
    
    2010Amortization expense
    
    $
    66
    
    
    $
    130
  9




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WeightedRestricted
    
    
    AverageStock Awards
    
    
    Grant Date(Share amounts in thousands)
    
    Outstanding
    
    
    Fair ValueBalance, October 2, 2010
    
    
    67
    
    
    $
    13.37Granted
    
    
    
    
    
    
    Released
    
    
    
    
    
    
    Balance, January 1, 2011
    
    
    67
    
    
    $
    13.37
 Restricted stock units.
 Three Months EndedJanuary 1,
    
    
    January 2,(In thousands)
    
    2011
    
    
    2010Amortization expense
    
    $
    246
    
    
    $
    144
   WeightedRestricted
    
    
    AverageStock Units
    
    
    Grant Date(Unit amounts in thousands)
    
    Outstanding
    
    
    Fair ValueBalance, October 2, 2010
    
    
    239
    
    
    $
    9.23Granted
    
    
    
    
    
    
    Released
    
    
    
    
    
    
    Balance, January 1, 2011
    
    
    239
    
    
    $
    9.23
 (6) Income Taxes
   10




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(7) Employee Benefit Plans
 Retirement plans.
  Three Months EndedJanuary 1,
    
    
    January 2,(In thousands)
    
    2011
    
    
    2010Interest cost
    
    $
    48
    
    
    $
    52Expected return on plan assets
    
    
    (52
    )
    
    
    (50
    )Recognized net actuarial loss
    
    
    58
    
    
    
    49Net periodic pension cost
    
    $
    54
    
    
    $
    51
 Supplemental employee retirement plan.
 11




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Three Months EndedJanuary 1,
    
    
    January 2,(In thousands)
    
    2011
    
    
    2010Service cost
    
    $
    44
    
    
    $
    41Interest cost
    
    
    71
    
    
    
    70Amortization of prior service cost
    
    
    65
    
    
    
    64Net periodic benefit cost
    
    $
    180
    
    
    $
    175
 (8) Long-Term Debt
 Revolving
Credit Facility.
   Financial Covenants
  Negative Covenants
  Events of Default
  12




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




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Three Months EndedJanuary 1,
    
    
    January 2,(In thousands except per share amounts)
    
    2011
    
    
    2010Loss from continuing operations
    
    $
    (7,628
    )
    
    $
    (1,123
    )Less allocation to participating securities
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    (7,628
    )
    
    $
    (1,123
    )Loss from discontinued operations net of
income taxes
    
    $
    
    
    
    $
    (13
    )Less allocation to participating securities
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    
    
    
    $
    (13
    )Net loss
    
    $
    (7,628
    )
    
    $
    (1,136
    )Less allocation to participating securities
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    (7,628
    )
    
    $
    (1,136
    )Basic weighted average shares outstanding
    
    
    17,511
    
    
    
    17,410Dilutive effect of stock-based compensation
    
    
    
    
    
    
    Diluted weighted average shares outstanding
    
    
    17,511
    
    
    
    17,410Per share basic:Loss from continuing operations
    
    $
    (0.44
    )
    
    $
    (0.07
    )Loss from discontinued operations
    
    
    
    
    
    
    Net loss
    
    $
    (0.44
    )
    
    $
    (0.07
    )Per share diluted:Loss from continuing operations
    
    $
    (0.44
    )
    
    $
    (0.07
    )Loss from discontinued operations
    
    
    
    
    
    
    Net loss
    
    $
    (0.44
    )
    
    $
    (0.07
    )
  (10) Share Repurchases
  14




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(11) Other Financial Data
  January 1,
    
    
    October 2,(In thousands)
    
    2011
    
    
    2010Accounts receivable, net:Accounts receivable
    
    $
    24,484
    
    
    $
    27,266Less allowance for doubtful accounts
    
    
    (2,128
    )
    
    
    (2,296
    )Total
    
    $
    22,356
    
    
    $
    24,970Inventories, net:Raw materials
    
    $
    35,062
    
    
    $
    23,817Work in process
    
    
    4,347
    
    
    
    1,899Finished goods
    
    
    21,653
    
    
    
    18,203Total
    
    $
    61,062
    
    
    $
    43,919Prepaid expenses and other:Current deferred tax asset
    
    $
    2,603
    
    
    $
    2,612Income taxes receivable
    
    
    1,336
    
    
    
    547Capitalized financing costs, net
    
    
    82
    
    
    
    82Other
    
    
    940
    
    
    
    690Total
    
    $
    4,961
    
    
    $
    3,931Other assets:Cash surrender value of life insurance
policies, net
of loans $542 and $505
    
    $
    4,736
    
    
    $
    4,525Non-current deferred tax assets
    
    
    2,199
    
    
    
    Capitalized financing costs, net
    
    
    280
    
    
    
    300Other
    
    
    368
    
    
    
    272Total
    
    $
    7,583
    
    
    $
    5,097Property, plant and equipment, net:Land and land improvements
    
    $
    9,496
    
    
    $
    5,571Buildings
    
    
    42,793
    
    
    
    32,433Machinery and equipment
    
    
    118,004
    
    
    
    97,813Construction in progress
    
    
    682
    
    
    
    239170,975
    
    
    
    136,056Less accumulated depreciation
    
    
    (79,454
    )
    
    
    (77,403
    )Total
    
    $
    91,521
    
    
    $
    58,653Accrued expenses:Salaries, wages and related expenses
    
    $
    2,037
    
    
    $
    1,210Pension plan
    
    
    1,249
    
    
    
    1,263Property taxes
    
    
    906
    
    
    
    846Restructuring
    
    
    662
    
    
    
    Customer rebates
    
    
    631
    
    
    
    506Legal settlement
    
    
    600
    
    
    
    600Dividends payable
    
    
    527
    
    
    
    Workers compensation
    
    
    524
    
    
    
    683Interest
    
    
    95
    
    
    
    Deferred revenues
    
    
    
    
    
    
    321Other
    
    
    1,085
    
    
    
    500Total
    
    $
    8,316
    
    
    $
    5,929Other liabilities:Deferred compensation
    
    $
    5,798
    
    
    $
    5,688Deferred income taxes
    
    
    
    
    
    
    1,778Other
    
    
    54
    
    
    
    55Total
    
    $
    5,852
    
    
    $
    7,521
 15




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(12) Business Segment Information
 Segment Reporting
 (13) Contingencies
 Legal proceedings .
   (14) Business Combination
   16




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##### Table of Contents



(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
    
    $
    50,808
 Business Combinations
   Three Months EndedJanuary 1,
    
    
    January 2,(In thousands)
    
    2011
    
    
    2010Net sales
    
    $
    69,017
    
    
    $
    60,355Loss from continuing operations before income
taxes
    
    
    11,071
    
    
    
    10,604Net loss
    
    
    7,211
    
    
    
    6,480
 (15) Restructuring Charges and Acquisition Costs
 Restructuring charges.
   17




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##### Table of Contents



Severanceand other
    
    
    Asset
    
    
    Lease
    
    
    Other(In thousands)
    
    employee costs
    
    
    impairment
    
    
    termination
    
    
    costs
    
    
    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
    
    
    $
    
    
    
    $
    1,127
  Acquisition costs.
 
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Note Regarding Forward-Looking Statements
    
    
    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 Houston, Texas and
Wilmington, Delaware facilities;
    
    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;
 18




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##### Table of Contents




    
    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




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##### Table of Contents



Results of Operations
 Statements of Operations  Selected Data
 Three Months EndedJanuary 1,
    
    
    
    
    
    
    January 2,2011
    
    
    Change
    
    
    2010Net sales
    
    $
    52,306
    
    
    
    27.0
    %
    
    $
    41,201Gross profit (loss)
    
    
    (135
    )
    
    
    N/M
    
    
    
    1,742Percentage of net sales
    
    
    (0.3
    %)
    
    
    
    
    
    
    4.2
    %Selling, general and
administrative expense
    
    $
    4,168
    
    
    
    11.4
    %
    
    $
    3,742Percentage of net sales
    
    
    8.0
    %
    
    
    
    
    
    
    9.1
    %Acquisition costs
    
    $
    2,750
    
    
    
    N/M
    
    
    $
    Restructuring charges
    
    
    4,390
    
    
    
    N/M
    
    
    
    Interest expense
    
    
    151
    
    
    
    2.0
    %
    
    
    148Interest income
    
    
    (13
    )
    
    
    N/M
    
    
    
    (12
    )Effective income tax rate
    
    
    34.1
    %
    
    
    
    
    
    
    43.4
    %Loss from continuing operations
    
    $
    (7,628
    )
    
    
    N/M
    
    
    $
    (1,123
    )Loss from discontinued operations
    
    
    
    
    
    
    N/M
    
    
    
    (13
    )Net loss
    
    
    (7,628
    )
    
    
    N/M
    
    
    
    (1,136
    )
 
 N/M = not meaningful
 First Quarter of Fiscal 2011 Compared to First Quarter of Fiscal 2010
 Net Sales
  Gross Profit (Loss)
  Selling, General and Administrative Expense
  Acquisition Costs
  20




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Restructuring Charges
  Interest Expense
  Income Taxes
  Loss From Continuing Operations
  Loss From Discontinued Operations
  Net Loss
  21




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##### Table of Contents



Liquidity and Capital Resources
 Selected Financial Data
 Cash Flow Analysis
 Three Months EndedJanuary 1,
    
    
    January 2,2011
    
    
    2010Net cash used for operating activities of continuing operations
    
    $
    (5,091
    )
    
    $
    (9,771
    )Net cash used for investing activities
    
    
    (38,094
    )
    
    
    (438
    )Net cash provided by (used for) financing activities
    
    
    37
    
    
    
    (530
    )Net cash used for operating activities of discontinued
operations
    
    
    
    
    
    
    (29
    )Working capital
    
    
    59,833
    
    
    
    82,101Long-term debt
    
    
    12,825
    
    
    
    Percentage of total capital
    
    
    8.4
    %
    
    
    Shareholders equity
    
    $
    140,260
    
    
    $
    145,894Percentage of total capital
    
    
    91.6
    %
    
    
    100.0
    %Total capital (total long-term debt + shareholders equity)
    
    $
    153,085
    
    
    $
    145,894
    Credit Facilities
  th
 22




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##### Table of Contents



Seasonality and Cyclicality
  Impact of Inflation
  Off-Balance Sheet Arrangements
  Contractual Obligations
  Critical Accounting Policies
  23




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##### Table of Contents



Revenue recognition.
 Concentration of credit risk.
  Allowance for doubtful accounts.
 Inventory valuation.
 Self insurance.
 Litigation.
 Assumptions for employee benefit plans.
 24




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##### Table of Contents



Recent Accounting Pronouncements
 Business
Combinations
 25




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##### Table of Contents



Outlook
    
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  Commodity Prices
  Interest Rates
  26




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##### Table of Contents



Foreign Exchange Exposure
  
 Item 4.
    
    Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
    
 Item 1A.
    
    Risk Factors
  27




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##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 6.
    
    Exhibits
 10.1
    
    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 to the Companys Current Report on Form 8-K
filed on November 22, 2010).10.2
    
    Subordinated 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 to the
Companys Current Report on Form 8-K filed on November 22, 2010).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.
 28




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##### Table of Contents



SIGNATURES
  INSTEEL INDUSTRIES, INC.
RegistrantDate: February 8, 2011
    By:
    /s/ Michael C. GazmarianMichael C. GazmarianVice President, Chief Financial Officer and Treasurer
(Duly Authorized Officer and 
Principal Financial Officer) 29




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    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 to the Companys Current Report on
Form 8-K filed on November 22, 2010).10.2
    
    Subordinated 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 to
the Companys Current Report on Form 8-K filed on November 22,
2010).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