##### 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 April 3, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to
 Commission File Number 1-9929
 Insteel Industries, Inc.
  North Carolina
    
    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 þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o  o 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
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 5.
    
    Other Information
    
    
    29Item 6.
    
    Exhibits
    
    
    29SIGNATURES
    
    
    30EXHIBIT INDEX
    
    
    31EX-3.1EX-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 Ended
    
    
    Six Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    52,268
    
    
    $
    50,404
    
    
    $
    93,469
    
    
    $
    112,203Cost of sales
    
    
    46,049
    
    
    
    55,323
    
    
    
    83,575
    
    
    
    114,564Inventory write-downs
    
    
    
    
    
    
    16,121
    
    
    
    1,933
    
    
    
    22,955Gross profit (loss)
    
    
    6,219
    
    
    
    (21,040
    )
    
    
    7,961
    
    
    
    (25,316
    )Selling, general and administrative expense
    
    
    4,182
    
    
    
    4,368
    
    
    
    7,924
    
    
    
    9,101Other income, net
    
    
    (97
    )
    
    
    (58
    )
    
    
    (250
    )
    
    
    (49
    )Interest expense
    
    
    147
    
    
    
    189
    
    
    
    295
    
    
    
    337Interest income
    
    
    (14
    )
    
    
    (7
    )
    
    
    (26
    )
    
    
    (102
    )Earnings (loss) from continuing operations
before income taxes
    
    
    2,001
    
    
    
    (25,532
    )
    
    
    18
    
    
    
    (34,603
    )Income taxes
    
    
    357
    
    
    
    (9,150
    )
    
    
    (503
    )
    
    
    (12,622
    )Earnings (loss) from continuing operations
    
    
    1,644
    
    
    
    (16,382
    )
    
    
    521
    
    
    
    (21,981
    )Loss from discontinued operations net of
income taxes of ($6), ($8), ($14) and ($31)
    
    
    (10
    )
    
    
    (13
    )
    
    
    (23
    )
    
    
    (49
    )Net earnings (loss)
    
    $
    1,634
    
    
    $
    (16,395
    )
    
    $
    498
    
    
    $
    (22,030
    )Per share amounts:Basic:Earnings (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.94
    )
    
    $
    0.03
    
    
    $
    (1.27
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.09
    
    
    $
    (0.94
    )
    
    $
    0.03
    
    
    $
    (1.27
    )Diluted:Earnings (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.94
    )
    
    $
    0.03
    
    
    $
    (1.27
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.09
    
    
    $
    (0.94
    )
    
    $
    0.03
    
    
    $
    (1.27
    )Cash dividends declared
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.06Weighted average shares outstanding:Basic
    
    
    17,458
    
    
    
    17,365
    
    
    
    17,434
    
    
    
    17,350Diluted
    
    
    17,647
    
    
    
    17,365
    
    
    
    17,643
    
    
    
    17,350
 See accompanying notes to consolidated financial statements.
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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS
 (Unaudited)April 3,
    
    
    October 3,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    52,263
    
    
    $
    35,102Accounts receivable, net
    
    
    23,205
    
    
    
    21,283Inventories
    
    
    32,160
    
    
    
    38,542Prepaid expenses and other
    
    
    2,413
    
    
    
    16,724Total current assets
    
    
    110,041
    
    
    
    111,651Property, plant and equipment, net
    
    
    61,735
    
    
    
    64,204Other assets
    
    
    5,343
    
    
    
    4,382Non-current assets of discontinued operations
    
    
    1,880
    
    
    
    1,880Total assets
    
    $
    178,999
    
    
    $
    182,117Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    19,368
    
    
    $
    23,965Accrued expenses
    
    
    5,837
    
    
    
    5,215Current liabilities of discontinued operations
    
    
    222
    
    
    
    219Total current liabilities
    
    
    25,427
    
    
    
    29,399Other liabilities
    
    
    5,760
    
    
    
    5,465Long-term liabilities of discontinued operations
    
    
    165
    
    
    
    183Shareholders equity:Common stock
    
    
    17,576
    
    
    
    17,525Additional paid-in capital
    
    
    44,855
    
    
    
    43,774Retained earnings
    
    
    87,736
    
    
    
    88,291Accumulated other comprehensive loss
    
    
    (2,520
    )
    
    
    (2,520
    )Total shareholders equity
    
    
    147,647
    
    
    
    147,070Total liabilities and shareholders equity
    
    $
    178,999
    
    
    $
    182,117
 See accompanying notes to consolidated financial
statements.
 4




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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedApril 3,
    
    
    March 28,2010
    
    
    2009Cash Flows From Operating Activities:Net earnings (loss)
    
    $
    498
    
    
    $
    (22,030
    )Loss from discontinued operations
    
    
    23
    
    
    
    49Earnings (loss) from continuing operations
    
    
    521
    
    
    
    (21,981
    )Adjustments to reconcile earnings (loss) from continuing operations to net cash
provided by (used for) operating activities of continuing operations:Depreciation and amortization
    
    
    3,458
    
    
    
    3,569Amortization of capitalized financing costs
    
    
    249
    
    
    
    249Stock-based compensation expense
    
    
    1,103
    
    
    
    985Excess tax benefits from stock-based compensation
    
    
    (3
    )
    
    
    (2
    )Inventory write-downs
    
    
    1,933
    
    
    
    22,955Loss on sale of property, plant and equipment
    
    
    11
    
    
    
    20Deferred income taxes
    
    
    (217
    )
    
    
    339Increase in cash surrender value of life insurance over premiums paid
    
    
    (284
    )
    
    
    Net changes in assets and liabilities:Accounts receivable, net
    
    
    (1,922
    )
    
    
    26,228Inventories
    
    
    4,449
    
    
    
    (6,808
    )Accounts payable and accrued expenses
    
    
    (4,076
    )
    
    
    (28,162
    )Other changes
    
    
    14,258
    
    
    
    (13,883
    )Total adjustments
    
    
    18,959
    
    
    
    5,490Net cash provided by (used for) operating activities 
continuing operations
    
    
    19,480
    
    
    
    (16,491
    )Net cash used for operating activities  discontinued operations
    
    
    (40
    )
    
    
    (28
    )Net cash provided by (used for) operating activities
    
    
    19,440
    
    
    
    (16,519
    )Cash Flows From Investing Activities:Capital expenditures
    
    
    (902
    )
    
    
    (1,382
    )Decrease (increase) in cash surrender value of life insurance policies
    
    
    (410
    )
    
    
    354Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    13Proceeds from surrender of life insurance policies
    
    
    
    
    
    
    413Net cash used for investing activities  continuing operations
    
    
    (1,312
    )
    
    
    (602
    )Net cash used for investing activities
    
    
    (1,312
    )
    
    
    (602
    )Cash Flows From Financing Activities:Proceeds from long-term debt
    
    
    150
    
    
    
    20,474Principal payments on long-term debt
    
    
    (150
    )
    
    
    (20,074
    )Cash received from exercise of stock options
    
    
    84
    
    
    
    66Excess tax benefits from stock-based compensation
    
    
    3
    
    
    
    2Cash dividends paid
    
    
    (1,053
    )
    
    
    (9,804
    )Other
    
    
    (1
    )
    
    
    (28
    )Net cash used for financing activities  continuing operations
    
    
    (967
    )
    
    
    (9,364
    )Net cash used for financing activities
    
    
    (967
    )
    
    
    (9,364
    )Net increase (decrease) in cash and cash equivalents
    
    
    17,161
    
    
    
    (26,485
    )Cash and cash equivalents at beginning of period
    
    
    35,102
    
    
    
    26,493Cash and cash equivalents at end of period
    
    $
    52,263
    
    
    $
    8Supplemental Disclosures of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    46
    
    
    $
    88Income taxes
    
    
    2
    
    
    
    11,333Non-cash investing and financing activities:Purchases of property, plant and equipment in accounts payable
    
    
    98
    
    
    
    170Declaration of cash dividends to be paid
    
    
    
    
    
    
    526Restricted stock surrendered for withholding taxes payable
    
    
    52
    
    
    
    9
 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 3, 2009
    
    
    17,525
    
    
    $
    17,525
    
    
    $
    43,774
    
    
    $
    88,291
    
    
    $
    (2,520
    )
    
    $
    147,070Comprehensive loss:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498
    
    
    
    
    
    
    
    498Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498Stock options exercised
    
    
    20
    
    
    
    20
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    84Vesting of restricted stock units
    
    
    37
    
    
    
    37
    
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    1,103
    
    
    
    
    
    
    
    
    
    
    
    1,103Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )Restricted stock surrendered for
withholding taxes payable
    
    
    (6
    )
    
    
    (6
    )
    
    
    (46
    )
    
    
    
    
    
    
    
    
    
    
    (52
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,053
    )
    
    
    
    
    
    
    (1,053
    )Balance at April 3, 2010
    
    
    17,576
    
    
    $
    17,576
    
    
    $
    44,855
    
    
    $
    87,736
    
    
    $
    (2,520
    )
    
    $
    147,647
 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
 Current Adoptions
   Future Adoptions
  (3) Fair Value Measurements
  7




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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
      Quoted Pricesin Active
    
    
    ObservableMarkets
    
    
    Inputs(In thousands)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)Current assets:Cash equivalents
    
    $
    51,340
    
    
    $
    51,340
    
    
    $
    Other assets:Cash surrender value of life insurance policies
    
    
    4,434
    
    
    
    
    
    
    
    4,434Total
    
    $
    55,774
    
    
    $
    51,340
    
    
    $
    4,434
   Unobservable(In thousands)
    
    Total
    
    
    Inputs (Level 3)Other assets:Long-lived assets held for sale
    
    $
    1,880
    
    
    $
    1,880
  8




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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 (4) Discontinued Operations
    April 3,
    
    
    October 3,(In thousands)
    
    2010
    
    
    2009Assets:Other assets
    
    $
    1,880
    
    
    $
    1,880Total assets
    
    $
    1,880
    
    
    $
    1,880Liabilities:Current liabilities:Accounts payable
    
    $
    
    
    
    $
    2Accrued expenses
    
    
    222
    
    
    
    217Total current liabilities
    
    
    222
    
    
    
    219Other liabilities
    
    
    165
    
    
    
    183Total liabilities
    
    $
    387
    
    
    $
    402
  (5) Stock-Based Compensation
  Stock option awards
 Three Months Ended
    
    Six Months EndedApril 3,
    
    March 28,
    
    April 3,
    
    March 28,(In thousands)
    
    2010
    
    2009
    
    2010
    
    2009Stock options:Compensation expense
    
    $
    268
    
    
    $
    256
    
    
    $
    481
    
    
    $
    465Excess tax deficiencies (benefits)
    
    
    8
    
    
    
    43
    
    
    
    (3
    )
    
    
    (2
    )
   9




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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
   April 3,
    
    March 28,2010
    
    2009Risk-free interest rate
    
    
    2.69
    %
    
    
    2.36
    %Dividend yield
    
    
    1.29
    %
    
    
    1.51
    %Expected volatility
    
    
    60.68
    %
    
    
    79.30
    %Expected term (in years)
    
    
    5.71
    
    
    
    4.85
  Contractual
    
    AggregateOptions
    
    Exercise Price Per Share
    
    Term 
    
    IntrinsicOutstanding
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    Weighted
    
    Value(in thousands)
    
    Range
    
    Average
    
    Average
    
    (in thousands)Outstanding at October 3, 2009
    
    
    673
    
    
    $
    0.18
    
    -
    
    $
    20.27
    
    
    $
    10.83Granted
    
    
    98
    
    
    
    9.39
    
    -
    
    
    9.39
    
    
    
    9.39Expired
    
    
    
    
    
    
    
    
    -
    
    
    
    
    
    
    Exercised
    
    
    (20
    )
    
    
    4.19
    
    -
    
    
    4.19
    
    
    
    4.19
    
    
    
    
    
    
    $
    133Outstanding at April 3, 2010
    
    
    751
    
    
    
    0.18
    
    -
    
    
    20.27
    
    
    
    10.82
    
    
    7.50 years
    
    
    1,221Vested and
anticipated to vest in the future at April 3, 2010
    
    
    739
    
    
    
    
    
    
    
    
    
    
    
    
    10.81
    
    
    7.49 years
    
    
    1,210Exercisable at April 3, 2010
    
    
    415
    
    
    
    
    
    
    
    
    
    
    
    
    10.79
    
    
    6.29 years
    
    
    896
 Restricted stock awards.
 Three Months Ended
    
    Six Months EndedApril 3,
    
    March 28,
    
    April 3,
    
    March 28,(In thousands)
    
    2010
    
    2009
    
    2010
    
    2009Amortization expense
    
    $
    139
    
    
    $
    216
    
    
    $
    269
    
    
    $
    441
   10




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
  WeightedRestricted
    
    AverageStock Awards
    
    Grant Date(Share amounts in thousands)
    
    Outstanding
    
    Fair ValueBalance, October 3, 2009
    
    
    115
    
    
    $
    15.50Granted
    
    
    
    
    
    
    Released
    
    
    (27
    )
    
    
    17.16Balance, April 3, 2010
    
    
    88
    
    
    
    15.00
 Restricted stock units.
 Three Months Ended
    
    Six Months EndedApril 3,
    
    March 28,
    
    April 3,
    
    March 28,(In thousands)
    
    2010
    
    2009
    
    2010
    
    2009Restricted stock
unit grants:Units
    
    
    78
    
    
    
    97
    
    
    
    78
    
    
    
    97Market value
    
    $
    732
    
    
    $
    732
    
    
    $
    732
    
    
    $
    732Amortization expense
    
    
    209
    
    
    
    79
    
    
    
    353
    
    
    
    79
   WeightedRestricted
    
    AverageStock Units
    
    Grant Date(Unit amounts in thousands)
    
    Outstanding
    
    Fair ValueBalance, October 3, 2009
    
    
    136
    
    
    $
    8.71Granted
    
    
    78
    
    
    
    9.39Released
    
    
    (37
    )
    
    
    7.55Balance, April 3, 2010
    
    
    177
    
    
    $
    9.25
 (6) Income Taxes
   11




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
     (7) Employee Benefit Plans
 Retirement plans.
  Three Months Ended
    
    
    Six Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Interest cost
    
    $
    52
    
    
    $
    58
    
    
    $
    104
    
    
    $
    129Expected return on plan assets
    
    
    (50
    )
    
    
    (63
    )
    
    
    (100
    )
    
    
    (132
    )Recognized net actuarial loss
    
    
    49
    
    
    
    26
    
    
    
    98
    
    
    
    61Net periodic pension cost
    
    $
    51
    
    
    $
    21
    
    
    $
    102
    
    
    $
    58
 Supplemental employee retirement plan .
 12




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    $
    41
    
    
    $
    30
    
    
    $
    82
    
    
    $
    60Interest cost
    
    
    70
    
    
    
    68
    
    
    
    140
    
    
    
    136Amortization of prior service cost
    
    
    64
    
    
    
    56
    
    
    
    128
    
    
    
    112Net periodic benefit cost
    
    $
    175
    
    
    $
    154
    
    
    $
    350
    
    
    $
    308
 (8) Credit Facilities
    Financial Covenants
  Negative Covenants
  Events of Default
  13




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
   (9) Earnings (Loss) Per Share
   Three Months Ended
    
    
    Six Months EndedApril 3,
    
    
    March 28,
    
    
    April 3,
    
    
    March 28,(In thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Earnings (loss) from continuing operations
    
    $
    1,644
    
    
    $
    (16,382
    )
    
    $
    521
    
    
    $
    (21,981
    )Less allocation to participating securities
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    1,636
    
    
    $
    (16,382
    )
    
    $
    521
    
    
    $
    (21,981
    )Loss from discontinued operations
    
    $
    (10
    )
    
    $
    (13
    )
    
    $
    (23
    )
    
    $
    (49
    )Less allocation to participating securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    (10
    )
    
    $
    (13
    )
    
    $
    (23
    )
    
    $
    (49
    )Net earnings (loss)
    
    $
    1,634
    
    
    $
    (16,395
    )
    
    $
    498
    
    
    $
    (22,030
    )Less allocation to participating securities
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    1,626
    
    
    $
    (16,395
    )
    
    $
    498
    
    
    $
    (22,030
    )Basic weighted average shares outstanding
    
    
    17,458
    
    
    
    17,365
    
    
    
    17,434
    
    
    
    17,350Dilutive effect of stock-based compensation
    
    
    189
    
    
    
    
    
    
    
    209
    
    
    
    Diluted weighted average shares outstanding
    
    
    17,647
    
    
    
    17,365
    
    
    
    17,643
    
    
    
    17,350Per share basic:Earnings (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.94
    )
    
    $
    0.03
    
    
    $
    (1.27
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.09
    
    
    $
    (0.94
    )
    
    $
    0.03
    
    
    $
    (1.27
    )Per share diluted:Earnings (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.94
    )
    
    $
    0.03
    
    
    $
    (1.27
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.09
    
    
    $
    (0.94
    )
    
    $
    0.03
    
    
    $
    (1.27
    )
  14




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 (10) Share Repurchases
  15




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 (11) Other Financial Data
  April 3,
    
    
    October 3,(In thousands)
    
    2010
    
    
    2009Accounts receivable, net:Accounts receivable
    
    $
    24,458
    
    
    $
    22,340Less allowance for doubtful accounts
    
    
    (1,253
    )
    
    
    (1,057
    )Total
    
    $
    23,205
    
    
    $
    21,283Inventories:Raw materials
    
    $
    12,634
    
    
    $
    17,649Work in process
    
    
    1,678
    
    
    
    1,780Finished goods
    
    
    17,848
    
    
    
    19,113Total
    
    $
    32,160
    
    
    $
    38,542Prepaid expenses and other:Income taxes receivable
    
    $
    
    
    
    $
    13,049Current deferred tax asset
    
    
    1,668
    
    
    
    1,668Capitalized financing costs, net
    
    
    86
    
    
    
    336Other
    
    
    659
    
    
    
    1,671Total
    
    $
    2,413
    
    
    $
    16,724Other assets:Cash surrender value of life insurance policies
    
    $
    4,434
    
    
    $
    3,739Non-current deferred tax assets
    
    
    636
    
    
    
    375Other
    
    
    273
    
    
    
    268Total
    
    $
    5,343
    
    
    $
    4,382Property, plant and equipment, net:Land and land improvements
    
    $
    5,570
    
    
    $
    5,571Buildings
    
    
    32,441
    
    
    
    32,437Machinery and equipment
    
    
    97,284
    
    
    
    96,411Construction in progress
    
    
    409
    
    
    
    695135,704
    
    
    
    135,114Less accumulated depreciation
    
    
    (73,969
    )
    
    
    (70,910
    )Total
    
    $
    61,735
    
    
    $
    64,204Accrued expenses:Pension plan
    
    $
    1,339
    
    
    $
    1,236Salaries, wages and related expenses
    
    
    1,280
    
    
    
    1,228Workers compensation
    
    
    1,171
    
    
    
    378Customer rebates
    
    
    601
    
    
    
    752Deferred revenues
    
    
    453
    
    
    
    Property taxes
    
    
    289
    
    
    
    1,023Sales allowance reserves
    
    
    236
    
    
    
    236Other
    
    
    468
    
    
    
    362Total
    
    $
    5,837
    
    
    $
    5,215Other liabilities:Deferred compensation
    
    $
    5,709
    
    
    $
    5,465Reserve for uncertain tax positions
    
    
    51
    
    
    
    Total
    
    $
    5,760
    
    
    $
    5,465
 16




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 (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;
 17




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##### Table of Contents




    
    credit market conditions and the relative availability of financing for us, our
customers and the construction industry as a whole;
    
    the timing and magnitude of the impact of the additional federal infrastructure-related
funding provided for under the American Recovery and Reinvestment Act and the anticipated
resolution of a new multi-year federal transportation funding authorization;
    
    the reduced level of 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 United States (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 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;
    
    the actual net proceeds realized and closure costs incurred in connection with our exit
from the industrial wire business;
    
    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 3, 2009 and in other filings that we make with the SEC.
 Overview
   18




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##### Table of Contents



Results of Operations
 Statements of Operations  Selected Data
 Three Months Ended
    
    Six Months EndedApril 3,
    
    
    
    
    
    March 28,
    
    April 3,
    
    
    
    
    
    March 28,2010
    
    Change
    
    2009
    
    2010
    
    Change
    
    2009Net sales
    
    $
    52,268
    
    
    
    3.7
    %
    
    $
    50,404
    
    
    $
    93,469
    
    
    
    (16.7
    %)
    
    $
    112,203Gross profit (loss)
    
    
    6,219
    
    
    
    129.6
    %
    
    
    (21,040
    )
    
    
    7,961
    
    
    
    (131.4
    %)
    
    
    (25,316
    )Percentage of net sales
    
    
    11.9
    %
    
    
    
    
    
    
    (41.7
    %)
    
    
    8.5
    %
    
    
    
    
    
    
    (22.6
    %)Selling, general and administrative expense
    
    $
    4,182
    
    
    
    (4.3
    %)
    
    $
    4,368
    
    
    $
    7,924
    
    
    
    (12.9
    %)
    
    $
    9,101Percentage of net sales
    
    
    8.0
    %
    
    
    
    
    
    
    8.7
    %
    
    
    8.5
    %
    
    
    
    
    
    
    8.1
    %Interest expense
    
    $
    147
    
    
    
    
    
    
    $
    189
    
    
    $
    295
    
    
    
    
    
    
    $
    337Interest income
    
    
    (14
    )
    
    
    (100.0
    %)
    
    
    (7
    )
    
    
    (26
    )
    
    
    74.5
    %
    
    
    (102
    )Effective income tax rate
    
    
    17.8
    %
    
    
    
    
    
    
    35.8
    %
    
    
    N/M
    
    
    
    
    
    
    
    36.5
    %Earnings (loss) from continuing operations
    
    $
    1,644
    
    
    
    110.0
    %
    
    $
    (16,382
    )
    
    $
    521
    
    
    
    (102.4
    %)
    
    $
    (21,981
    )Loss from discontinued operations
    
    
    (10
    )
    
    
    23.1
    %
    
    
    (13
    )
    
    
    (23
    )
    
    
    (53.1
    %)
    
    
    (49
    )Net earnings (loss)
    
    
    1,634
    
    
    
    110.0
    %
    
    
    (16,395
    )
    
    
    498
    
    
    
    (102.3
    %)
    
    
    (22,030
    )
 
 N/M
    
    = not meaningful Second Quarter of Fiscal 2010 Compared to Second Quarter of Fiscal 2009
 Net Sales
  Gross Profit (Loss)
  Selling, General and Administrative Expense
  19




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##### Table of Contents



Interest Expense
  Income Taxes
  Earnings (Loss) From Continuing Operations
  Loss From Discontinued Operations
  Net Earnings (Loss)
  First Half of Fiscal 2010 Compared to First Half of Fiscal 2009
 Net Sales
  Gross Profit (Loss)
  Selling, General and Administrative Expense
  20




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##### Table of Contents



Interest Expense
  Income Taxes
  Earnings (Loss) From Continuing Operations
  Loss From Discontinued Operations
  Net Earnings (Loss)
  21




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##### Table of Contents



Liquidity and Capital Resources
 Selected Financial Data
 Cash Flow Analysis
 Six Months EndedApril 3,
    
    March 28,2010
    
    2009Net cash provided by (used for) operating activities of continuing operations
    
    $
    19,480
    
    
    $
    (16,491
    )Net cash used for investing activities of continuing operations
    
    
    (1,312
    )
    
    
    (602
    )Net cash used for financing activities of continuing operations
    
    
    (967
    )
    
    
    (9,364
    )Net cash used for operating activities of discontinued operations
    
    
    (40
    )
    
    
    (28
    )Working capital
    
    
    84,614
    
    
    
    79,095Total long-term debt
    
    
    
    
    
    
    400Percentage of total capital
    
    
    
    
    
    
    0.3
    %Shareholders equity
    
    $
    147,647
    
    
    $
    147,810Percentage of total capital
    
    
    100.0
    %
    
    
    99.7
    %Total capital (total long-term debt + shareholders equity)
    
    $
    147,647
    
    
    $
    148,210
    22




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##### Table of Contents



Credit Facilities
    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




---



##### Table of Contents



Recent Accounting Pronouncements
 Current Adoptions
  25




---



##### Table of Contents



Future Adoptions
  Outlook
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Prices
  26




---



##### Table of Contents



Interest Rates
  Foreign Exchange Exposure
  
 Item 4. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  27




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   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 3, 2010 - February 6, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,970
    (1)February 7, 2010 - March 6, 2010 (2)
    
    
    4,673
    
    
    $
    9.56
    
    
    
    4,673
    
    
    
    24,925
    (1)March 7, 2010 - April 3, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,925
    (1)Total
    
    
    4,673
    
    
    
    
    
    
    
    4,673
    
    
    
    24,925
    (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 4,673 shares surrendered by employees to satisfy tax withholding obligations
upon the vesting of restricted stock awards. 28




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##### Table of Contents



Item 5. Other Information
  Proposal 1
 Number of SharesNominee
    
    For
    
    Withheld
    
    Broker Non-VotesLouis E. Hannen
    
    
    8,269,537
    
    
    
    6,200,057
    
    
    
    1,404,811Howard O. Woltz, Jr.
    
    
    8,268,427
    
    
    
    6,201,167
    
    
    
    1,404,811C. Richard Vaughn
    
    
    8,258,827
    
    
    
    6,210,767
    
    
    
    1,404,811
 Proposal 2
 Number of SharesFor
    
    Against
    
    Abstain10,902,754
    
    
    4,939,305
    
    
    
    32,341
 Proposal 3
 Number of SharesFor
    
    Against
    
    Abstain15,556,880
    
    
    303,284
    
    
    
    14,242
 
 Item 6. Exhibits
 3.1
    
    Articles of Amendment to Restated Articles of Incorporation of Insteel Industries, Inc.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.
 29




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##### Table of Contents



SIGNATURES
  INSTEEL INDUSTRIES, INC.
RegistrantDate: April 26, 2010
    By:
    /s/ Michael C. GazmarianMichael C. GazmarianVice President, Chief Financial Officer and Treasurer
(Duly Authorized Officer and Principal Financial Officer) 30




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Articles of Amendment to Restated Articles of Incorporation of Insteel Industries, Inc.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.
 31