##### 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 March 28, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Transition Period From _________ to _________
 Commission File Number 1-9929
 Insteel Industries, Inc.
  North Carolina
    
    56-0674867(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1373 Boggs Drive, Mount Airy, North Carolina
    
    27030(Address of principal executive offices)
    
    (Zip Code)
 336) 786-2141
  þ o
  o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated
filer o(Do not check if a smaller reporting company)
Smaller reporting company o  o þ




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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
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25PART IIItem 1.
    
    Legal
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27Item 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 Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    50,404
    
    
    $
    77,260
    
    
    $
    112,203
    
    
    $
    143,240Cost of sales
    
    
    55,323
    
    
    
    61,473
    
    
    
    114,564
    
    
    
    116,833Inventory write-downs
    
    
    16,121
    
    
    
    
    
    
    
    22,955
    
    
    
    Gross profit (loss)
    
    
    (21,040
    )
    
    
    15,787
    
    
    
    (25,316
    )
    
    
    26,407Selling, general and administrative expense
    
    
    4,368
    
    
    
    5,165
    
    
    
    9,101
    
    
    
    9,252Other income, net
    
    
    (58
    )
    
    
    (57
    )
    
    
    (49
    )
    
    
    (76
    )Interest expense
    
    
    189
    
    
    
    152
    
    
    
    337
    
    
    
    310Interest income
    
    
    (7
    )
    
    
    (236
    )
    
    
    (102
    )
    
    
    (443
    )Earnings (loss) from continuing operations
before income taxes
    
    
    (25,532
    )
    
    
    10,763
    
    
    
    (34,603
    )
    
    
    17,364Income taxes
    
    
    (9,150
    )
    
    
    3,871
    
    
    
    (12,622
    )
    
    
    6,241Earnings (loss) from continuing operations
    
    
    (16,382
    )
    
    
    6,892
    
    
    
    (21,981
    )
    
    
    11,123Earnings (loss) from discontinued operations net of
income taxes of ($8), $16, ($31) and $12
    
    
    (13
    )
    
    
    26
    
    
    
    (49
    )
    
    
    19Net earnings (loss)
    
    $
    (16,395
    )
    
    $
    6,918
    
    
    $
    (22,030
    )
    
    $
    11,142Per share amounts:Basic:Earnings (loss) from continuing operations
    
    $
    (0.94
    )
    
    $
    0.40
    
    
    $
    (1.27
    )
    
    $
    0.63Earnings (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (0.94
    )
    
    $
    0.40
    
    
    $
    (1.27
    )
    
    $
    0.63Diluted:Earnings (loss) from continuing operations
    
    $
    (0.94
    )
    
    $
    0.39
    
    
    $
    (1.27
    )
    
    $
    0.62Earnings (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (0.94
    )
    
    $
    0.39
    
    
    $
    (1.27
    )
    
    $
    0.62Cash dividends declared
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.06Weighted average shares outstanding:Basic
    
    
    17,365
    
    
    
    17,503
    
    
    
    17,350
    
    
    
    17,762Diluted
    
    
    17,365
    
    
    
    17,647
    
    
    
    17,350
    
    
    
    17,918
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 (Unaudited)March 28,
    
    
    September 27,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    8
    
    
    $
    26,493Accounts receivable, net
    
    
    23,353
    
    
    
    49,581Inventories
    
    
    55,073
    
    
    
    71,220Prepaid expenses and other
    
    
    16,774
    
    
    
    3,122Total current assets
    
    
    95,208
    
    
    
    150,416Property, plant and equipment, net
    
    
    67,056
    
    
    
    69,105Other assets
    
    
    4,046
    
    
    
    5,064Non-current assets of discontinued operations
    
    
    3,635
    
    
    
    3,635Total assets
    
    $
    169,945
    
    
    $
    228,220Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    11,094
    
    
    $
    23,581Accrued expenses
    
    
    4,794
    
    
    
    29,081Current liabilities of discontinued operations
    
    
    225
    
    
    
    188Total current liabilities
    
    
    16,113
    
    
    
    52,850Long-term debt
    
    
    400
    
    
    
    Other liabilities
    
    
    5,422
    
    
    
    5,306Long-term liabilities of discontinued operations
    
    
    200
    
    
    
    217Shareholders equity:Common stock
    
    
    17,526
    
    
    
    17,507Additional paid-in capital
    
    
    44,439
    
    
    
    43,202Deferred stock compensation
    
    
    (1,668
    )
    
    
    (1,456
    )Retained earnings
    
    
    89,398
    
    
    
    112,479Accumulated other comprehensive loss
    
    
    (1,885
    )
    
    
    (1,885
    )Total shareholders equity
    
    
    147,810
    
    
    
    169,847Total liabilities and shareholders equity
    
    $
    169,945
    
    
    $
    228,220
 See accompanying notes to consolidated financial statements.
 4




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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedMarch 28,
    
    
    March 29,2009
    
    
    2008Cash Flows From Operating Activities:Net earnings (loss)
    
    $
    (22,030
    )
    
    $
    11,142Loss (earnings) from discontinued operations
    
    
    49
    
    
    
    (19
    )Earnings (loss) from continuing operations
    
    
    (21,981
    )
    
    
    11,123Adjustments to reconcile earnings (loss) from continuing operations to net cash
provided by (used for) operating activities of continuing operations:Depreciation and amortization
    
    
    3,569
    
    
    
    3,473Amortization of capitalized financing costs
    
    
    249
    
    
    
    249Stock-based compensation expense
    
    
    985
    
    
    
    910Excess tax benefits from stock-based compensation
    
    
    (2
    )
    
    
    (15
    )Inventory write-downs
    
    
    22,955
    
    
    
    Loss on sale of property, plant and equipment
    
    
    20
    
    
    
    56Deferred income taxes
    
    
    339
    
    
    
    653Gain from life insurance proceeds
    
    
    
    
    
    
    (661
    )Net changes in assets and liabilities:Accounts receivable
    
    
    26,228
    
    
    
    1,107Inventories
    
    
    (6,808
    )
    
    
    (7,907
    )Accounts payable and accrued expenses
    
    
    (28,162
    )
    
    
    12,554Other changes
    
    
    (13,883
    )
    
    
    2,512Total adjustments
    
    
    5,490
    
    
    
    12,931Net cash provided by (used for) operating activities  continuing operations
    
    
    (16,491
    )
    
    
    24,054Net cash used for operating activities  discontinued operations
    
    
    (28
    )
    
    
    (65
    )Net cash provided by (used for) operating activities
    
    
    (16,519
    )
    
    
    23,989Cash Flows From Investing Activities:Capital expenditures
    
    
    (1,382
    )
    
    
    (6,159
    )Proceeds from sale of property, plant and equipment
    
    
    13
    
    
    
    83Decrease (increase) in cash surrender value of life insurance policies
    
    
    354
    
    
    
    (382
    )Proceeds from surrender of life insurance policies
    
    
    413
    
    
    
    Proceeds from life insurance claims
    
    
    
    
    
    
    1,111Net cash used for investing activities  continuing operations
    
    
    (602
    )
    
    
    (5,347
    )Net cash used for investing activities
    
    
    (602
    )
    
    
    (5,347
    )Cash Flows From Financing Activities:Proceeds from long-term debt
    
    
    20,474
    
    
    
    772Principal payments on long-term debt
    
    
    (20,074
    )
    
    
    (772
    )Cash received from exercise of stock options
    
    
    66
    
    
    
    38Excess tax benefits from stock-based compensation
    
    
    2
    
    
    
    15Repurchases of common stock
    
    
    
    
    
    
    (8,691
    )Cash dividends paid
    
    
    (9,804
    )
    
    
    (1,092
    )Other
    
    
    (28
    )
    
    
    37Net cash used for financing activities  continuing operations
    
    
    (9,364
    )
    
    
    (9,693
    )Net cash used for financing activities
    
    
    (9,364
    )
    
    
    (9,693
    )Net increase (decrease) in cash and cash equivalents
    
    
    (26,485
    )
    
    
    8,949Cash and cash equivalents at beginning of period
    
    
    26,493
    
    
    
    8,703Cash and cash equivalents at end of period
    
    $
    8
    
    
    $
    17,652Supplemental Disclosures of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    88
    
    
    $
    61Income taxes
    
    
    11,333
    
    
    
    2,557Non-cash investing and financing activities:Purchases of property, plant and equipment in accounts payable
    
    
    170
    
    
    
    650Issuance of restricted stock
    
    
    
    
    
    
    733Declaration of cash dividends to be paid
    
    
    526
    
    
    
    524Restricted stock surrendered for withholding taxes payable
    
    
    9
    
    
    
    76
 See accompanying notes to consolidated financial statements.
 5




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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Deferred
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance at September 27, 2008
    
    
    17,507
    
    
    $
    17,507
    
    
    $
    43,202
    
    
    $
    (1,456
    )
    
    $
    112,479
    
    
    $
    (1,885
    )
    
    $
    169,847Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,030
    )
    
    
    
    
    
    
    (22,030
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,030
    )Stock options exercised
    
    
    20
    
    
    
    20
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66Restricted stock units granted
    
    
    
    
    
    
    
    
    
    
    732
    
    
    
    (732
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    465
    
    
    
    520
    
    
    
    
    
    
    
    
    
    
    
    985Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Restricted stock surrendered for
withholding taxes payable
    
    
    (1
    )
    
    
    (1
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,051
    )
    
    
    
    
    
    
    (1,051
    )Balance at March 28, 2009
    
    
    17,526
    
    
    $
    17,526
    
    
    $
    44,439
    
    
    $
    (1,668
    )
    
    $
    89,398
    
    
    $
    (1,885
    )
    
    $
    147,810
 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
     (3) Fair Value Measurements
  7




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Quoted Prices inActive Markets
    
    
    Observable Inputs(In thousands)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)Current assets:Cash equivalents
    
    $
    37
    
    
    $
    37
    
    
    $
    Other assets:Cash surrender
value of life
insurance
policies
    
    
    3,170
    
    
    
    
    
    
    
    3,170Total
    
    $
    3,207
    
    
    $
    37
    
    
    $
    3,170
  (4) Discontinued Operations
    8




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March 28,
    
    
    September 27,(In thousands)
    
    2009
    
    
    2008Assets:Other assets
    
    $
    3,635
    
    
    $
    3,635Total assets
    
    $
    3,635
    
    
    $
    3,635Liabilities:Current liabilities:Accounts payable
    
    $
    2
    
    
    $
    1Accrued expenses
    
    
    223
    
    
    
    187Total current liabilities
    
    
    225
    
    
    
    188Other liabilities
    
    
    200
    
    
    
    217Total liabilities
    
    $
    425
    
    
    $
    405
  (5) Stock-Based Compensation
  Stock option awards
 Three Months Ended
    
    Six Months EndedMarch 28,
    
    March 29,
    
    March 28,
    
    March 29,(In thousands)
    
    2009
    
    2008
    
    2009
    
    2008Stock options:Compensation expense
    
    $
    256
    
    
    $
    356
    
    
    $
    465
    
    
    $
    484Excess tax deficiencies (benefits)
    
    
    43
    
    
    
    (30
    )
    
    
    (2
    )
    
    
    (15
    )
    9




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Six Months EndedMarch 28,
    
    March 29,2009
    
    2008Risk-free interest rate
    
    
    2.36
    %
    
    
    2.52
    %Dividend yield
    
    
    1.51
    %
    
    
    1.09
    %Expected volatility
    
    
    79.30
    %
    
    
    66.77
    %Expected term (in years)
    
    
    4.85
    
    
    
    3.87
  Contractual
    
    AggregateExercise Price Per Share
    
    Term -
    
    IntrinsicOptions
    
    
    
    
    
    Weighted
    
    Weighted
    
    Value(Share amounts in thousands)
    
    Outstanding
    
    Range
    
    Average
    
    Average
    
    (in thousands)Outstanding at September 27, 2008
    
    
    531
    
    
    $
    0.18 - $20.27
    
    
    $
    11.17Granted
    
    
    98
    
    
    
    7.55 - 7.55
    
    
    
    7.55Expired
    
    
    (9
    )
    
    
    15.64 - 20.27
    
    
    
    18.07Exercised
    
    
    (20
    )
    
    
    3.28 -3.28
    
    
    
    3.28
    
    
    
    
    
    
    $
    120Outstanding at March 28, 2009
    
    
    600
    
    
    
    0.18 -20.27
    
    
    
    10.74
    
    
    7.65 years
    
    
    546Vested and anticipated to vest in
future at March 28, 2009
    
    
    590
    
    
    
    
    
    
    
    10.73
    
    
    7.62 years
    
    
    544Exercisable at March 28, 2009
    
    
    298
    
    
    
    
    
    
    
    9.46
    
    
    6.10 years
    
    
    517
 Restricted stock awards.
 Three Months Ended
    
    Six Months EndedMarch 28,
    
    March 29,
    
    March 28,
    
    March 29,(In thousands)
    
    2009
    
    2008
    
    2009
    
    2008Restricted stock grants:Shares
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    66Market value
    
    $
    
    
    
    $
    733
    
    
    $
    
    
    
    $
    733Amortization expense
    
    
    216
    
    
    
    226
    
    
    
    441
    
    
    
    426
    WeightedRestricted
    
    AverageStock Awards
    
    Grant Date(Share amounts in thousands)
    
    Outstanding
    
    Fair ValueBalance, September 27, 2008
    
    
    165
    
    
    $
    15.16Granted
    
    
    
    
    
    
    Released
    
    
    (39
    )
    
    
    12.77Balance, March 28, 2009
    
    
    126
    
    
    
    15.91
 10




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Restricted stock units.
 Three Months Ended
    
    Six Months EndedMarch 28,
    
    March 29,
    
    March 28,
    
    March 29,(In thousands)
    
    2009
    
    2008
    
    2009
    
    2008Restricted stock
unit grants:Units
    
    
    97
    
    
    
    
    
    
    
    97
    
    
    
    Market value
    
    $
    732
    
    
    $
    
    
    
    $
    732
    
    
    $
    Amortization expense
    
    
    79
    
    
    
    
    
    
    
    79
    
    
    
    
   WeightedRestricted
    
    AverageStock Units
    
    Grant Date(Unit amounts in thousands)
    
    Outstanding
    
    Fair ValueBalance, September 27, 2008
    
    
    
    
    
    $
    Granted
    
    
    97
    
    
    
    7.55Released
    
    
    
    
    
    
    Balance, March 28, 2009
    
    
    97
    
    
    $
    7.55
 (6) Income Taxes
      11




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##### Table of Contents



(7) Employee Benefit Plans
 Retirement plans.
   Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    
    
    
    $
    16
    
    
    $
    
    
    
    $
    32Interest cost
    
    
    58
    
    
    
    64
    
    
    
    129
    
    
    
    128Expected return on plan assets
    
    
    (63
    )
    
    
    (81
    )
    
    
    (132
    )
    
    
    (162
    )Recognized net actuarial loss
    
    
    26
    
    
    
    17
    
    
    
    61
    
    
    
    34Net periodic pension cost
    
    
    21
    
    
    
    16
    
    
    
    58
    
    
    
    32Settlement loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109Total pension cost
    
    $
    21
    
    
    $
    16
    
    
    $
    58
    
    
    $
    141
  Supplemental employee retirement plan .
 Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    30
    
    
    $
    39
    
    
    $
    60
    
    
    $
    78Interest cost
    
    
    68
    
    
    
    66
    
    
    
    136
    
    
    
    132Amortization of prior service cost
    
    
    56
    
    
    
    57
    
    
    
    112
    
    
    
    114Recognized net actuarial loss
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    6Net periodic benefit cost
    
    $
    154
    
    
    $
    165
    
    
    $
    308
    
    
    $
    330
 (8) Credit Facilities
   12




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Financial Covenants
  Negative Covenants
  Events of Default
   13




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##### Table of Contents



(9) Earnings (Loss) Per Share
  Three Months Ended
    
    
    Six Months EndedMarch 28,
    
    
    March 29,
    
    
    March 28,
    
    
    March 29,(In thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Earnings (loss) from continuing operations
    
    $
    (16,382
    )
    
    $
    6,892
    
    
    $
    (21,981
    )
    
    $
    11,123Earnings (loss) from discontinued operations
    
    
    (13
    )
    
    
    26
    
    
    
    (49
    )
    
    
    19Net earnings (loss)
    
    $
    (16,395
    )
    
    $
    6,918
    
    
    $
    (22,030
    )
    
    $
    11,142Weighted average shares outstanding:Weighted average shares outstanding (basic)
    
    
    17,365
    
    
    
    17,503
    
    
    
    17,350
    
    
    
    17,762Dilutive effect of stock-based compensation
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    156Weighted average shares outstanding (diluted)
    
    
    17,365
    
    
    
    17,647
    
    
    
    17,350
    
    
    
    17,918Per share (basic):Earnings (loss) from continuing operations
    
    $
    (0.94
    )
    
    $
    0.40
    
    
    $
    (1.27
    )
    
    $
    0.63Earnings (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (0.94
    )
    
    $
    0.40
    
    
    $
    (1.27
    )
    
    $
    0.63Per share (diluted):Earnings (loss) from continuing operations
    
    $
    (0.94
    )
    
    $
    0.39
    
    
    $
    (1.27
    )
    
    $
    0.62Earnings (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (0.94
    )
    
    $
    0.39
    
    
    $
    (1.27
    )
    
    $
    0.62
  (10) Share Repurchases
  14




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##### Table of Contents



(11) Other Financial Data
  March 28,
    
    
    September 27,(In thousands)
    
    2009
    
    
    2008Accounts receivable, net:Accounts receivable
    
    $
    24,429
    
    
    $
    50,487Less allowance for doubtful accounts
    
    
    (1,076
    )
    
    
    (906
    )Total
    
    $
    23,353
    
    
    $
    49,581Inventories:Raw materials
    
    $
    24,903
    
    
    $
    30,793Work in process
    
    
    1,709
    
    
    
    3,161Finished goods
    
    
    28,461
    
    
    
    37,266Total
    
    $
    55,073
    
    
    $
    71,220Prepaid expenses and other:Income taxes receivable
    
    $
    13,455
    
    
    $
    Current deferred tax asset
    
    
    2,514
    
    
    
    2,513Other
    
    
    805
    
    
    
    609Total
    
    $
    16,774
    
    
    $
    3,122Other assets:Cash surrender value of life insurance policies
    
    $
    3,170
    
    
    $
    3,938Capitalized financing costs, net
    
    
    594
    
    
    
    844Other
    
    
    282
    
    
    
    282Total
    
    $
    4,046
    
    
    $
    5,064Property, plant and equipment, net:Land and land improvements
    
    $
    5,571
    
    
    $
    5,631Buildings
    
    
    32,219
    
    
    
    31,819Machinery and equipment
    
    
    95,905
    
    
    
    96,638Construction in progress
    
    
    874
    
    
    
    2,195134,569
    
    
    
    136,283Less accumulated depreciation
    
    
    (67,513
    )
    
    
    (67,178
    )Total
    
    $
    67,056
    
    
    $
    69,105Accrued expenses:Salaries, wages and related expenses
    
    $
    1,346
    
    
    $
    4,128Customer rebates
    
    
    647
    
    
    
    840Workers compensation
    
    
    642
    
    
    
    673Cash dividends
    
    
    526
    
    
    
    9,279Property taxes
    
    
    321
    
    
    
    794Sales allowance reserves
    
    
    251
    
    
    
    1,493Income taxes
    
    
    
    
    
    
    10,861Other
    
    
    1,061
    
    
    
    1,013Total
    
    $
    4,794
    
    
    $
    29,081Other liabilities:Deferred compensation
    
    $
    4,637
    
    
    $
    4,476Deferred income taxes
    
    
    774
    
    
    
    435Deferred revenues
    
    
    11
    
    
    
    395Total
    
    $
    5,422
    
    
    $
    5,306
 15




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##### Table of Contents



(12) Business Segment Information
  (13) Contingencies
 Legal proceedings
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Note Regarding Forward-Looking Statements
    
    
    general economic and competitive conditions in the markets in which we operate;
 16




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##### Table of Contents




    
    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 impact of the additional federal infrastructure-related
funding provided for under the American Recovery and Reinvestment Act;
    
    the anticipated reduction in spending for nonresidential construction, particularly
commercial construction, and the impact on demand for our concrete reinforcing products;
    
    the severity and duration of the downturn in residential construction activity and the
impact on those portions of our business that are correlated with the housing sector;
    
    the cyclical nature of the steel and building material industries;
    
    fluctuations in the cost and availability of our primary raw material, hot-rolled steel
wire rod, from domestic and foreign suppliers;
    
    our ability to raise selling prices in order to recover increases in wire rod costs;
    
    changes in U.S. or foreign trade policy affecting imports or exports of steel wire rod
or our products;
    
    the impact of increased imports of prestressed concrete strand (PC strand);
    
    unanticipated changes in customer demand, order patterns or inventory levels;
    
    the impact of weak demand and reduced capacity utilization levels on our unit
manufacturing costs;
    
    our ability to further develop the market for engineered structural mesh (ESM) and
expand our shipments of ESM;
    
    the actual net proceeds realized and closure costs incurred in connection with our exit
from the industrial wire business;
    
    legal, environmental or regulatory developments that significantly impact our operating
costs;
    
    unanticipated plant outages, equipment failures or labor difficulties;
    
    continued escalation in certain of our operating costs; and
    
    the Risk Factors discussed in our Annual Report on Form 10-K for the year ended
September 27, 2008.
 Overview
   17




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##### Table of Contents



Results of Operations
 Statements of Operations  Selected Data
 Three Months Ended
    
    Six Months EndedMarch 28,
    
    
    
    
    
    March 29,
    
    March 28,
    
    
    
    
    
    March 29,2009
    
    Change
    
    2008
    
    2009
    
    Change
    
    2008Net sales
    
    $
    50,404
    
    
    
    (34.8
    %)
    
    $
    77,260
    
    
    $
    112,203
    
    
    
    (21.7
    %)
    
    $
    143,240Gross profit (loss)
    
    
    (21,040
    )
    
    
    N/M
    
    
    
    15,787
    
    
    
    (25,316
    )
    
    
    N/M
    
    
    
    26,407Percentage of net sales
    
    
    (41.7
    %)
    
    
    
    
    
    
    20.4
    %
    
    
    (22.6
    %)
    
    
    
    
    
    
    18.4
    %Selling, general and administrative expense
    
    $
    4,368
    
    
    
    (15.4
    %)
    
    $
    5,165
    
    
    $
    9,101
    
    
    
    (1.6
    %)
    
    $
    9,252Percentage of net sales
    
    
    8.7
    %
    
    
    
    
    
    
    6.7
    %
    
    
    8.1
    %
    
    
    
    
    
    
    6.5
    %Interest expense
    
    $
    189
    
    
    
    24.3
    %
    
    $
    152
    
    
    $
    337
    
    
    
    8.7
    %
    
    $
    310Interest income
    
    
    (7
    )
    
    
    (97.0
    %)
    
    
    (236
    )
    
    
    (102
    )
    
    
    (77.0
    %)
    
    
    (443
    )Effective income tax rate
    
    
    35.8
    %
    
    
    
    
    
    
    36.0
    %
    
    
    36.5
    %
    
    
    
    
    
    
    35.9
    %Earnings (loss) from continuing operations
    
    $
    (16,382
    )
    
    
    N/M
    
    
    $
    6,892
    
    
    $
    (21,981
    )
    
    
    N/M
    
    
    $
    11,123Earnings (loss) from discontinued operations
    
    
    (13
    )
    
    
    N/M
    
    
    
    26
    
    
    
    (49
    )
    
    
    N/M
    
    
    
    19Net earnings (loss)
    
    
    (16,395
    )
    
    
    N/M
    
    
    
    6,918
    
    
    
    (22,030
    )
    
    
    N/M
    
    
    
    11,142
 
 N/M
    =
    not meaningful Second Quarter of Fiscal 2009 Compared to Second Quarter of Fiscal 2008
 Net Sales
  Gross Profit (Loss)
  Selling, General and Administrative Expense
  Interest Expense
  18




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##### Table of Contents



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




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##### Table of Contents



Income Taxes
  Earnings (Loss) From Continuing Operations
  Earnings (Loss) From Discontinued Operations
  Net Earnings (Loss)
  Liquidity and Capital Resources
 Selected Financial Data
 Six Months EndedMarch 28,
    
    March 29,2009
    
    2008Net cash provided by (used for) operating activities
    
    $
    (16,519
    )
    
    $
    23,989Net cash used for investing activities
    
    
    (602
    )
    
    
    (5,347
    )Net cash used for financing activities
    
    
    (9,364
    )
    
    
    (9,693
    )Working capital
    
    
    79,095
    
    
    
    70,852Total long-term debt
    
    
    400
    
    
    
    Percentage of total capital
    
    
    0.3
    %
    
    
    Shareholders equity
    
    $
    147,810
    
    
    $
    146,057Percentage of total capital
    
    
    99.7
    %
    
    
    100.0
    %Total capital (total long-term debt + shareholders equity)
    
    $
    148,210
    
    
    $
    146,057
 Cash Flow Analysis
  20




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##### Table of Contents



Credit Facilities
    Impact of Inflation
  Off-Balance Sheet Arrangements
  21




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



Recent Accounting Pronouncements
     Outlook
     24




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##### Table of Contents



Item 3. Qualitative and Quantitative Disclosures About Market Risk
  Commodity Prices
  Interest Rates
  Foreign Exchange Exposure
  
 Item 4. Controls and Procedures
   25




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##### Table of Contents



Part II  Other Information
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
 ,
 Our customers may be adversely affected by the continued negative macroeconomic conditions and
tightening in the credit markets.
  Although the additional federal infrastructure-related funding provided for under the American
Recovery and Reinvestment Act (ARRA) is expected to have a favorable impact on demand for our
products, the timing and magnitude of the impact are uncertain.
  26




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##### Table of Contents



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 YetPeriod
    
    Total 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
    
    ProgramDecember 28, 2008  January 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,000February 1, 2009  February 28, 2009
    
    
    1,120
    
    
    $
    7.87
    
    
    
    1,120
    
    
    $
    24,991
    (1)March 1, 2009  March 28, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,9911,120
    
    
    $
    7.87
    
    
    
    1,120
    
    
    $
    24,991
 
 (1)
    
    Represents 1,120 shares surrendered by employees to satisfy tax withholding
obligations upon the vesting of restricted stock awards. 
 Item 4. Submission of Matters to a Vote of Security Holders
  Proposal 1
 Number of SharesNominee
    
    For
    
    WithheldCharles B. Newsome
    
    
    15,114,166
    
    
    
    1,324,193H. O. Woltz III
    
    
    11,540,072
    
    
    
    4,898,287
 Proposal 2
 Number of SharesBrokerFor
    
    Against
    
    Abstain
    
    Non-Votes13,501,213
    
    
    451,980
    
    
    
    30,576
    
    
    
    2,454,590
 Proposal 3
 Number of SharesFor
    
    Against
    
    Abstain16,166,149
    
    
    18,598
    
    
    
    253,609
 27




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##### Table of Contents



Item 6. Exhibits
 10.1
    
    Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit
Agreement (incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed on January 23, 2009).10.2
    
    Insteel Industries, Inc. Return on Capital Incentive Compensation
Plan (As Amended and Restated Effective August 12, 2008)
(incorporated by reference to Exhibit 10.1 of the Companys Current
Report on Form 8-K filed on February 13, 2009).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: May 5, 2009
    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
    
    Form of Notice of Grant of Restricted Stock Units and Restricted
Stock Unit Agreement (incorporated by reference to Exhibit 10.1 of
the Companys Current Report on Form 8-K filed on January 23,
2009).10.2
    
    Insteel Industries, Inc. Return on Capital Incentive Compensation
Plan (As Amended and Restated Effective August 12, 2008)
(incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed on February 13, 2009).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