##### 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 2, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to
 Commission File Number 1-9929
 Insteel Industries, Inc.
  North Carolina
    
    56-0674867(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1373 Boggs Drive, Mount Airy, North Carolina
    
    27030(Address of principal executive offices)
    
    (Zip Code)
 336) 786-2141
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



TABLE OF CONTENTS
 PART IItem 1. Financial StatementsConsolidated Statements of Operations
    
    
    3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Consolidated Statements of Shareholders Equity
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART IIItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    25Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27EXHIBIT INDEX
    
    
    28EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedJanuary 2,
    
    
    December 27,2010
    
    
    2008Net sales
    
    $
    41,201
    
    
    $
    61,799Cost of sales
    
    
    37,526
    
    
    
    59,241Inventory write-downs
    
    
    1,933
    
    
    
    6,834Gross profit (loss)
    
    
    1,742
    
    
    
    (4,276
    )Selling, general and administrative expense
    
    
    3,742
    
    
    
    4,733Other expense (income), net
    
    
    (153
    )
    
    
    9Interest expense
    
    
    148
    
    
    
    148Interest income
    
    
    (12
    )
    
    
    (95
    )Loss from continuing operations before
income taxes
    
    
    (1,983
    )
    
    
    (9,071
    )Income taxes
    
    
    (860
    )
    
    
    (3,472
    )Loss from continuing operations
    
    
    (1,123
    )
    
    
    (5,599
    )Loss from discontinued operations net of
income taxes of ($8) and ($23)
    
    
    (13
    )
    
    
    (36
    )Net loss
    
    $
    (1,136
    )
    
    $
    (5,635
    )Per share amounts:Basic:Loss from continuing operations
    
    $
    (0.07
    )
    
    $
    (0.33
    )Loss from discontinued operations
    
    
    
    
    
    
    Net loss
    
    $
    (0.07
    )
    
    $
    (0.33
    )Diluted:Loss from continuing operations
    
    $
    (0.07
    )
    
    $
    (0.33
    )Loss from discontinued operations
    
    
    
    
    
    
    Net loss
    
    $
    (0.07
    )
    
    $
    (0.33
    )Cash dividends declared
    
    $
    0.03
    
    
    $
    0.03Weighted average shares outstanding:Basic
    
    
    17,410
    
    
    
    17,335Diluted
    
    
    17,410
    
    
    
    17,335
 See accompanying notes to consolidated financial statements.
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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 (Unaudited)January 2,
    
    
    October 3,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    24,334
    
    
    $
    35,102Accounts receivable, net
    
    
    17,770
    
    
    
    21,283Inventories
    
    
    38,449
    
    
    
    38,542Prepaid expenses and other
    
    
    16,489
    
    
    
    16,724Total current assets
    
    
    97,042
    
    
    
    111,651Property, plant and equipment, net
    
    
    62,897
    
    
    
    64,204Other assets
    
    
    4,833
    
    
    
    4,382Non-current assets of discontinued operations
    
    
    1,880
    
    
    
    1,880Total assets
    
    $
    166,652
    
    
    $
    182,117Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    8,822
    
    
    $
    23,965Accrued expenses
    
    
    5,906
    
    
    
    5,215Current liabilities of discontinued operations
    
    
    213
    
    
    
    219Total current liabilities
    
    
    14,941
    
    
    
    29,399Other liabilities
    
    
    5,643
    
    
    
    5,465Long-term liabilities of discontinued operations
    
    
    174
    
    
    
    183Shareholders equity:Common stock
    
    
    17,528
    
    
    
    17,525Additional paid-in capital
    
    
    44,257
    
    
    
    43,774Retained earnings
    
    
    86,629
    
    
    
    88,291Accumulated other comprehensive loss
    
    
    (2,520
    )
    
    
    (2,520
    )Total shareholders equity
    
    
    145,894
    
    
    
    147,070Total liabilities and shareholders equity
    
    $
    166,652
    
    
    $
    182,117
 See accompanying notes to consolidated financial statements.
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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedJanuary 2,
    
    
    December 27,2010
    
    
    2008Cash Flows From Operating Activities:Net loss
    
    $
    (1,136
    )
    
    $
    (5,635
    )Loss from discontinued operations
    
    
    13
    
    
    
    36Loss from continuing operations
    
    
    (1,123
    )
    
    
    (5,599
    )Adjustments to reconcile loss from continuing operations to net cash
used for operating activities of continuing operations:Depreciation and amortization
    
    
    1,715
    
    
    
    1,761Amortization of capitalized financing costs
    
    
    125
    
    
    
    125Stock-based compensation expense
    
    
    487
    
    
    
    434Inventory write-downs
    
    
    1,933
    
    
    
    6,834Excess tax benefits from stock-based compensation
    
    
    (11
    )
    
    
    (45
    )Loss on sale of property, plant and equipment
    
    
    11
    
    
    
    20Deferred income taxes
    
    
    (345
    )
    
    
    454Net changes in assets and liabilities:Accounts receivable, net
    
    
    3,513
    
    
    
    24,022Inventories
    
    
    (1,840
    )
    
    
    (17,779
    )Accounts payable and accrued expenses
    
    
    (14,525
    )
    
    
    (21,780
    )Other changes
    
    
    289
    
    
    
    (4,261
    )Total adjustments
    
    
    (8,648
    )
    
    
    (10,215
    )Net cash used for operating activities  continuing operations
    
    
    (9,771
    )
    
    
    (15,814
    )Net cash used for operating activities  discontinued operations
    
    
    (29
    )
    
    
    (17
    )Net cash used for operating activities
    
    
    (9,800
    )
    
    
    (15,831
    )Cash Flows From Investing Activities:Capital expenditures
    
    
    (327
    )
    
    
    (899
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    13Decrease (increase) in cash surrender value of life insurance policies
    
    
    (111
    )
    
    
    718Net cash used for investing activities  continuing operations
    
    
    (438
    )
    
    
    (168
    )Net cash used for investing activities
    
    
    (438
    )
    
    
    (168
    )Cash Flows From Financing Activities:Proceeds from long-term debt
    
    
    52
    
    
    
    974Principal payments on long-term debt
    
    
    (52
    )
    
    
    (974
    )Cash received from exercise of stock options
    
    
    17
    
    
    
    13Excess tax benefits from stock-based compensation
    
    
    11
    
    
    
    45Cash dividends paid
    
    
    (526
    )
    
    
    (9,279
    )Other
    
    
    (32
    )
    
    
    (29
    )Net cash used for financing activities  continuing operations
    
    
    (530
    )
    
    
    (9,250
    )Net cash used for financing activities
    
    
    (530
    )
    
    
    (9,250
    )Net decrease in cash and cash equivalents
    
    
    (10,768
    )
    
    
    (25,249
    )Cash and cash equivalents at beginning of period
    
    
    35,102
    
    
    
    26,493Cash and cash equivalents at end of period
    
    $
    24,334
    
    
    $
    1,244Supplemental Disclosures of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    24
    
    
    $
    24Income taxes
    
    
    
    
    
    
    10,906Non-cash investing and financing activities:Purchases of property, plant and equipment in accounts payable
    
    
    92
    
    
    
    200Declaration of cash dividends to be paid
    
    
    
    
    
    
    525Restricted stock surrendered for withholding taxes payable
    
    
    7
    
    
    
    
 See accompanying notes to consolidated financial statements.
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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 loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,136
    )
    
    
    
    
    
    
    (1,136
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,136
    )Stock options exercised
    
    
    4
    
    
    
    4
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    17Compensation expense associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    487Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (11
    )Restricted stock surrendered for
withholding taxes payable
    
    
    (1
    )
    
    
    (1
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (7
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (526
    )
    
    
    
    
    
    
    (526
    )Balance at January 2, 2010
    
    
    17,528
    
    
    $
    17,528
    
    
    $
    44,257
    
    
    $
    86,629
    
    
    $
    (2,520
    )
    
    $
    145,894
 See accompanying notes to consolidated financial statements.
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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
    
    $
    25,062
    
    
    $
    25,062
    
    
    $
    Other assets:Cash surrender value of life
insurance policies
    
    
    3,851
    
    
    
    
    
    
    
    3,851Total
    
    $
    28,913
    
    
    $
    25,062
    
    
    $
    3,851
   Unobservable(In thousands)
    

Total
    
    
    Inputs (Level 3)Other assets:Long-lived assets held for sale
    
    $
    1,880
    
    
    $
    1,880
  (4) Discontinued Operations
  8




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
   January 2,
    
    
    October 3,(In thousands)
    
    2010
    
    
    2009Assets:Other assets
    
    $
    1,880
    
    
    $
    1,880Total assets
    
    $
    1,880
    
    
    $
    1,880Liabilities:Current liabilities:Accounts payable
    
    $
    1
    
    
    $
    2Accrued expenses
    
    
    212
    
    
    
    217Total current liabilities
    
    
    213
    
    
    
    219Other liabilities
    
    
    174
    
    
    
    183Total liabilities
    
    $
    387
    
    
    $
    402
  (5) Stock-Based Compensation
  Stock option awards
 Three Months EndedJanuary 2,
    
    December 27,(In thousands)
    
    2010
    
    2008Stock options:Compensation expense
    
    $
    213
    
    
    $
    209Excess tax benefits
    
    
    11
    
    
    
    45
   9




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
  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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (4
    )
    
    
    4.19
    
    
    
    
    
    
    
    4.19
    
    
    
    4.19
    
    
    
    
    
    
    $
    37Outstanding at January 2, 2010
    
    
    669
    
    
    
    0.18
    
    
    
    
    
    
    
    20.27
    
    
    
    10.87
    
    
    7.22 years
    
    
    2,225Vested and
anticipated to vest in the future at January 2, 2010
    
    
    653
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.85
    
    
    7.19 years
    
    
    2,187Exercisable at January 2, 2010
    
    
    327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.46
    
    
    5.67 years
    
    
    1,376
 Restricted stock awards.
 Three Months EndedJanuary 2,
    
    December 27,(In thousands)
    
    2010
    
    2008Amortization expense
    
    $
    130
    
    
    $
    225
    WeightedRestricted
    
    AverageStock Awards
    
    Grant Date(Share amounts in thousands)
    
    Outstanding
    
    Fair ValueBalance, October 3, 2009
    
    
    115
    
    
    $
    15.50Granted
    
    
    
    
    
    
    Released
    
    
    (2
    )
    
    
    17.83Balance, January 2, 2010
    
    
    113
    
    
    
    15.46
 Restricted stock units.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 Three Months EndedJanuary 2,
    
    December 27,(In thousands)
    
    2010
    
    2008Amortization expense
    
    $
    144
    
    
    $
    
  The following table summarizes RSU activity during the three-month period ended January 2,
2010:
 WeightedRestricted
    
    AverageStock Units
    
    Grant Date(Unit amounts in thousands)
    
    Outstanding
    
    Fair ValueBalance, October 3, 2009
    
    
    136
    
    
    $
    8.71Granted
    
    
    
    
    
    
    Released
    
    
    
    
    
    
    Balance, January 2, 2010
    
    
    136
    
    
    $
    8.71
 (6)
    
    Income Taxes      (7) Employee Benefit Plans
 Retirement plans.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
   Three Months EndedJanuary 2,
    
    
    December 27,(In thousands)
    
    2010
    
    
    2008Interest cost
    
    $
    52
    
    
    $
    71Expected return on plan assets
    
    
    (50
    )
    
    
    (69
    )Recognized net actuarial loss
    
    
    49
    
    
    
    35Net periodic pension cost
    
    $
    51
    
    
    $
    37
 Supplemental employee retirement plan .
 Three Months EndedJanuary 2,
    
    
    December 27,(In thousands)
    
    2010
    
    
    2008Service cost
    
    $
    41
    
    
    $
    30Interest cost
    
    
    70
    
    
    
    68Amortization of prior service cost
    
    
    64
    
    
    
    56Net periodic benefit cost
    
    $
    175
    
    
    $
    154
 (8) Credit Facilities
    12




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 Financial Covenants
  Negative Covenants
  Events of Default
   (9) Earnings (Loss) Per Share
   13




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 Three Months EndedJanuary 2,
    
    
    December 27,(In thousands, except per share amounts)
    
    2010
    
    
    2008Loss from continuing operations
    
    $
    (1,123
    )
    
    $
    (5,599
    )Loss from discontinued operations
    
    
    (13
    )
    
    
    (36
    )Net loss
    
    $
    (1,136
    )
    
    $
    (5,635
    )Weighted average shares outstanding:Weighted average shares outstanding (basic)
    
    
    17,410
    
    
    
    17,335Dilutive effect of stock-based compensation
    
    
    
    
    
    
    Weighted average shares outstanding (diluted)
    
    
    17,410
    
    
    
    17,335Per share (basic):Loss from continuing operations
    
    $
    (0.07
    )
    
    $
    (0.33
    )Loss from discontinued operations
    
    
    
    
    
    
    Net loss
    
    $
    (0.07
    )
    
    $
    (0.33
    )Per share (diluted):Loss from continuing operations
    
    $
    (0.07
    )
    
    $
    (0.33
    )Loss from discontinued operations
    
    
    
    
    
    
    Net loss
    
    $
    (0.07
    )
    
    $
    (0.33
    )
  (10) Share Repurchases
  14




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 (11) Other Financial Data
  January 2,
    
    
    October 3,(In thousands)
    
    2010
    
    
    2009Accounts receivable, net:Accounts receivable
    
    $
    18,846
    
    
    $
    22,340Less allowance for doubtful accounts
    
    
    (1,076
    )
    
    
    (1,057
    )Total
    
    $
    17,770
    
    
    $
    21,283Inventories:Raw materials
    
    $
    21,006
    
    
    $
    17,649Work in process
    
    
    1,569
    
    
    
    1,780Finished goods
    
    
    15,874
    
    
    
    19,113Total
    
    $
    38,449
    
    
    $
    38,542Prepaid expenses and other:Income taxes receivable
    
    $
    13,599
    
    
    $
    13,049Current deferred tax asset
    
    
    1,668
    
    
    
    1,668Capitalized financing costs, net
    
    
    211
    
    
    
    336Other
    
    
    1,011
    
    
    
    1,671Total
    
    $
    16,489
    
    
    $
    16,724Other assets:Cash surrender value of life insurance policies
    
    $
    3,851
    
    
    $
    3,739Non-current deferred tax assets
    
    
    717
    
    
    
    375Other
    
    
    265
    
    
    
    268Total
    
    $
    4,833
    
    
    $
    4,382Property, plant and equipment, net:Land and land improvements
    
    $
    5,571
    
    
    $
    5,571Buildings
    
    
    32,418
    
    
    
    32,437Machinery and equipment
    
    
    96,221
    
    
    
    96,411Construction in progress
    
    
    951
    
    
    
    695135,161
    
    
    
    135,114Less accumulated depreciation
    
    
    (72,264
    )
    
    
    (70,910
    )Total
    
    $
    62,897
    
    
    $
    64,204Accrued expenses:Pension plan
    
    $
    1,288
    
    
    $
    1,236Salaries, wages and related expenses
    
    
    1,162
    
    
    
    1,228Property taxes
    
    
    1,022
    
    
    
    1,023Customer rebates
    
    
    946
    
    
    
    752Workers compensation
    
    
    767
    
    
    
    378Sales allowance reserves
    
    
    236
    
    
    
    236Other
    
    
    485
    
    
    
    362Total
    
    $
    5,906
    
    
    $
    5,215Other liabilities:Deferred compensation
    
    $
    5,592
    
    
    $
    5,465Reserve for uncertain tax positions
    
    
    51
    
    
    
    Total
    
    $
    5,643
    
    
    $
    5,465
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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;
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
    
    credit market conditions and the impact of the measures that have been taken by the
federal government on 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 any additional
stimulus measures that may be enacted;
    
    the reduction in spending for nonresidential construction, particularly commercial
construction, and the impact on demand for our concrete reinforcing products;
    
    the severity and duration of the downturn in residential construction activity and the
impact on those portions of our business that are correlated with the housing sector;
    
    the cyclical nature of the steel and building material industries;
    
    fluctuations in the cost and availability of our primary raw material, hot-rolled steel
wire rod, from domestic and foreign suppliers;
    
    our ability to raise selling prices in order to recover increases in wire rod costs;
    
    changes in 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 or inventory levels;
    
    the impact of weak demand and reduced capacity utilization levels on our unit
manufacturing costs;
    
    our ability to further develop the market for engineered structural mesh (ESM) and
expand our shipments of ESM;
    
    the actual net proceeds realized and closure costs incurred in connection with our exit
from the industrial wire business;
    
    legal, environmental or regulatory developments that significantly impact our operating
costs;
    
    unanticipated plant outages, equipment failures or labor difficulties;
    
    continued escalation in certain of our operating costs; and
    
    the Risk Factors discussed in our Annual Report on Form 10-K for the year ended
October 3, 2009.
 Overview
   17




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##### Table of Contents



Results of Operations
 Statements of Operations  Selected Data
 Three Months EndedJanuary 2,
    
    
    
    
    
    December 27,2010
    
    Change
    
    2008Net sales
    
    $
    41,201
    
    
    
    (33.3
    %)
    
    $
    61,799Gross profit (loss)
    
    
    1,742
    
    
    
    N/M
    
    
    
    (4,276
    )Percentage of net sales
    
    
    4.2
    %
    
    
    
    
    
    
    (6.9
    %)Selling, general and administrative expense
    
    $
    3,742
    
    
    
    (20.9
    %)
    
    $
    4,733Percentage of net sales
    
    
    9.1
    %
    
    
    
    
    
    
    7.7
    %Interest expense
    
    $
    148
    
    
    
    
    
    
    $
    148Interest income
    
    
    (12
    )
    
    
    87.4
    %
    
    
    (95
    )Effective income tax rate
    
    
    43.4
    %
    
    
    
    
    
    
    38.3
    %Loss from continuing operations
    
    $
    (1,123
    )
    
    
    N/M
    
    
    $
    (5,599
    )Loss from discontinued operations
    
    
    (13
    )
    
    
    N/M
    
    
    
    (36
    )Net loss
    
    
    (1,136
    )
    
    
    N/M
    
    
    
    (5,635
    )
 
 N/M = not meaningful First Quarter of Fiscal 2010 Compared to First Quarter of Fiscal 2009
 Net Sales
  Gross Profit (Loss)
  Selling, General and Administrative Expense
  18




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##### Table of Contents



Interest Expense
  Income Taxes
  Loss From Continuing Operations
  Loss From Discontinued Operations
  Net Loss
  Liquidity and Capital Resources
 Selected Financial Data
 Cash Flow Analysis
 Three Months EndedJanuary 2,
    
    December 27,2010
    
    2008Net cash used for operating activities of continuing operations
    
    $
    9,771
    
    
    $
    15,814Net cash used for investing activities of continuing operations
    
    
    438
    
    
    
    168Net cash used for financing activities of continuing operations
    
    
    530
    
    
    
    9,250Net cash used for operating activities of discontinued operations
    
    
    29
    
    
    
    17Working capital
    
    
    82,101
    
    
    
    93,636Total long-term debt
    
    
    
    
    
    
    Percentage of total capital
    
    
    
    
    
    
    Shareholders equity
    
    $
    145,894
    
    
    $
    164,179Percentage of total capital
    
    
    100.0
    %
    
    
    100.0
    %Total capital (total long-term debt + shareholders equity)
    
    $
    145,894
    
    
    $
    164,179
  19




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##### Table of Contents



Credit Facilities
    Impact of Inflation
  20




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##### Table of Contents



Off-Balance Sheet Arrangements
  Contractual Obligations
  Critical Accounting Policies
   Revenue recognition.
 Concentration of credit risk.
  Allowance for doubtful accounts.
 Inventory valuation.
 21




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##### Table of Contents



Self insurance.
 Litigation.
 Assumptions for employee benefit plans.
      22




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##### Table of Contents



Recent Accounting Pronouncements
 Current Adoptions
  Future Adoptions
  Outlook
    23




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Prices
  Interest Rates
  Foreign Exchange Exposure
  
 Item 4. Controls and Procedures
   24




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##### Table of Contents



Part II  Other Information
 
 Item 1. Legal Proceedings
    
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  25




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##### Table of Contents



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
    
    ProgramOctober 4, 2009 - November 7, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,976
    (1)November 8, 2009 - December 5, 2009 (2)
    
    
    552
    
    
    $
    11.64
    
    
    
    552
    
    
    
    24,970
    (1)December 6, 2009 - January 2, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,970
    (1)552
    
    
    
    
    
    
    
    552
 
 (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 552 shares surrendered by employees to satisfy tax withholding obligations
upon the vesting of restricted stock awards. 
 Item 6. Exhibits
 31.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 26




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##### Table of Contents



SIGNATURES
  INSTEEL INDUSTRIES, INC.RegistrantDate: January 25, 2010
    
    By:
    
    /s/ Michael C. GazmarianMichael
C. GazmarianVice President, Chief Financial Officer
and Treasurer
(Duly Authorized Officer and Principal
Financial Officer)
 27




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EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14a of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 28