##### 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 July 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
    
    (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
  Yes þ
    
    No o
  Yes o
    
    No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  Yes o
    
    No þ




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##### 



TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Operations
    
    
    3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Consolidated Statements of Shareholders Equity
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 6. Exhibit Index
    
    
    27SIGNATURES
    
    
    28EXHIBIT INDEX
    
    
    29EX-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
    
    
    Nine Months EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    61,956
    
    
    $
    56,963
    
    
    $
    155,425
    
    
    $
    169,166Cost of sales
    
    
    54,266
    
    
    
    52,889
    
    
    
    137,841
    
    
    
    167,453Inventory write-downs
    
    
    
    
    
    
    2,898
    
    
    
    1,933
    
    
    
    25,853Gross profit (loss)
    
    
    7,690
    
    
    
    1,176
    
    
    
    15,651
    
    
    
    (24,140
    )Selling, general and administrative expense
    
    
    4,317
    
    
    
    4,016
    
    
    
    12,241
    
    
    
    13,117Other income, net
    
    
    (2
    )
    
    
    (1
    )
    
    
    (252
    )
    
    
    (50
    )Interest expense
    
    
    116
    
    
    
    147
    
    
    
    411
    
    
    
    484Interest income
    
    
    (45
    )
    
    
    (16
    )
    
    
    (71
    )
    
    
    (118
    )Earnings (loss) from continuing operations
before income taxes
    
    
    3,304
    
    
    
    (2,970
    )
    
    
    3,322
    
    
    
    (37,573
    )Income taxes
    
    
    1,680
    
    
    
    (1,233
    )
    
    
    1,177
    
    
    
    (13,855
    )Earnings (loss) from continuing operations
    
    
    1,624
    
    
    
    (1,737
    )
    
    
    2,145
    
    
    
    (23,718
    )Loss from discontinued operations net of
income taxes of ($12), ($6), ($26) and ($37)
    
    
    (19
    )
    
    
    (12
    )
    
    
    (42
    )
    
    
    (61
    )Net earnings (loss)
    
    $
    1,605
    
    
    $
    (1,749
    )
    
    $
    2,103
    
    
    $
    (23,779
    )Per share amounts:Basic:Earnings (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (1.37
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.09
    
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (1.37
    )Diluted:Earnings (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (1.37
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.09
    
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (1.37
    )Cash dividends declared
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.09Weighted average shares outstanding:Basic
    
    
    17,492
    
    
    
    17,392
    
    
    
    17,454
    
    
    
    17,364Diluted
    
    
    17,695
    
    
    
    17,392
    
    
    
    17,661
    
    
    
    17,364
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)July 3,
    
    
    October 3,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    44,170
    
    
    $
    35,102Accounts receivable, net
    
    
    28,450
    
    
    
    21,283Inventories
    
    
    41,815
    
    
    
    38,542Prepaid expenses and other
    
    
    2,604
    
    
    
    16,724Total current assets
    
    
    117,039
    
    
    
    111,651Property, plant and equipment, net
    
    
    60,407
    
    
    
    64,204Other assets
    
    
    5,649
    
    
    
    4,382Non-current assets of discontinued operations
    
    
    1,880
    
    
    
    1,880Total assets
    
    $
    184,975
    
    
    $
    182,117Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    21,458
    
    
    $
    23,965Accrued expenses
    
    
    7,969
    
    
    
    5,215Current liabilities of discontinued operations
    
    
    214
    
    
    
    219Total current liabilities
    
    
    29,641
    
    
    
    29,399Other liabilities
    
    
    5,889
    
    
    
    5,465Long-term liabilities of discontinued operations
    
    
    157
    
    
    
    183Shareholders equity:Common stock
    
    
    17,582
    
    
    
    17,525Additional paid-in capital
    
    
    45,412
    
    
    
    43,774Retained earnings
    
    
    88,814
    
    
    
    88,291Accumulated other comprehensive loss
    
    
    (2,520
    )
    
    
    (2,520
    )Total shareholders equity
    
    
    149,288
    
    
    
    147,070Total liabilities and shareholders equity
    
    $
    184,975
    
    
    $
    182,117
 See accompanying notes to consolidated financial statements.
 4




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##### Table of Contents



INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine Months EndedJuly 3,
    
    
    June 27,2010
    
    
    2009Cash Flows From Operating Activities:Net earnings (loss)
    
    $
    2,103
    
    
    $
    (23,779
    )Loss from discontinued operations
    
    
    42
    
    
    
    61Earnings (loss) from continuing operations
    
    
    2,145
    
    
    
    (23,718
    )Adjustments to reconcile earnings (loss) from continuing operations to net cash
provided by operating activities of continuing operations:Depreciation and amortization
    
    
    5,230
    
    
    
    5,395Amortization of capitalized financing costs
    
    
    342
    
    
    
    374Stock-based compensation expense
    
    
    1,604
    
    
    
    1,426Excess tax benefits from stock-based compensation
    
    
    (3
    )
    
    
    (3
    )Inventory write-downs
    
    
    1,933
    
    
    
    25,853Loss on sale of property, plant and equipment
    
    
    13
    
    
    
    24Deferred income taxes
    
    
    (439
    )
    
    
    81Increase in cash surrender value of life insurance over premiums paid
    
    
    (10
    )
    
    
    Net changes in assets and liabilities:Accounts receivable, net
    
    
    (7,167
    )
    
    
    24,946Inventories
    
    
    (5,206
    )
    
    
    10,198Accounts payable and accrued expenses
    
    
    83
    
    
    
    (23,138
    )Other changes
    
    
    14,167
    
    
    
    (14,842
    )Total adjustments
    
    
    10,547
    
    
    
    30,314Net cash provided by operating activities  continuing operations
    
    
    12,692
    
    
    
    6,596Net cash used for operating activities  discontinued operations
    
    
    (73
    )
    
    
    (58
    )Net cash provided by operating activities
    
    
    12,619
    
    
    
    6,538Cash Flows From Investing Activities:Capital expenditures
    
    
    (1,249
    )
    
    
    (1,684
    )Decrease (increase) in cash surrender value of life insurance policies
    
    
    (440
    )
    
    
    85Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    13Proceeds from surrender of life insurance policies
    
    
    
    
    
    
    413Net cash used for investing activities  continuing operations
    
    
    (1,689
    )
    
    
    (1,173
    )Net cash used for investing activities
    
    
    (1,689
    )
    
    
    (1,173
    )Cash Flows From Financing Activities:Proceeds from long-term debt
    
    
    231
    
    
    
    22,796Principal payments on long-term debt
    
    
    (231
    )
    
    
    (22,796
    )Financing costs
    
    
    (395
    )
    
    
    Cash received from exercise of stock options
    
    
    140
    
    
    
    66Excess tax benefits from stock-based compensation
    
    
    3
    
    
    
    3Cash dividends paid
    
    
    (1,580
    )
    
    
    (10,330
    )Other
    
    
    (30
    )
    
    
    (28
    )Net cash used for financing activities  continuing operations
    
    
    (1,862
    )
    
    
    (10,289
    )Net cash used for financing activities
    
    
    (1,862
    )
    
    
    (10,289
    )Net increase (decrease) in cash and cash equivalents
    
    
    9,068
    
    
    
    (4,924
    )Cash and cash equivalents at beginning of period
    
    
    35,102
    
    
    
    26,493Cash and cash equivalents at end of period
    
    $
    44,170
    
    
    $
    21,569Supplemental Disclosures of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    69
    
    
    $
    110Income taxes
    
    
    186
    
    
    
    11,442Non-cash investing and financing activities:Purchases of property, plant and equipment in accounts payable
    
    
    197
    
    
    
    39Declaration 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,103
    
    
    
    
    
    
    
    2,103Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,103Stock options exercised
    
    
    26
    
    
    
    26
    
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    140Vesting of restricted stock units
    
    
    37
    
    
    
    37
    
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense associated with
stock-based plans
    
    
    
    
    
    
    
    
    
    
    1,604
    
    
    
    
    
    
    
    
    
    
    
    1,604Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Restricted stock surrendered for
withholding taxes payable
    
    
    (6
    )
    
    
    (6
    )
    
    
    (46
    )
    
    
    
    
    
    
    
    
    
    
    (52
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,580
    )
    
    
    
    
    
    
    (1,580
    )Balance at July 3, 2010
    
    
    17,582
    
    
    $
    17,582
    
    
    $
    45,412
    
    
    $
    88,814
    
    
    $
    (2,520
    )
    
    $
    149,288
 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
    
    $
    44,452
    
    
    $
    44,452
    
    
    $
    Other assets:Cash surrender value of life insurance policies
    
    
    4,190
    
    
    
    
    
    
    
    4,190Total
    
    $
    48,642
    
    
    $
    44,452
    
    
    $
    4,190
   Unobservable Inputs(In thousands)
    
    Total
    
    
    (Level 3)Non-current assets of discontinued operations:Long-lived assets held for sale
    
    $
    1,880
    
    
    $
    1,880
  (4) Discontinued Operations
   8




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##### Table of Contents



July 3,
    
    
    October 3,(In thousands)
    
    2010
    
    
    2009Assets:Other assets
    
    $
    1,880
    
    
    $
    1,880Total assets
    
    $
    1,880
    
    
    $
    1,880Liabilities:Current liabilities:Accounts payable
    
    $
    1
    
    
    $
    2Accrued expenses
    
    
    213
    
    
    
    217Total current liabilities
    
    
    214
    
    
    
    219Other liabilities
    
    
    157
    
    
    
    183Total liabilities
    
    $
    371
    
    
    $
    402
  (5) Stock-Based Compensation
  Stock option awards
 Three Months Ended
    
    
    Nine Months EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Stock options:Compensation expense
    
    $
    214
    
    
    $
    200
    
    
    $
    695
    
    
    $
    665Excess tax benefits
    
    
    6
    
    
    
    1
    
    
    
    3
    
    
    
    3
   9




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##### Table of Contents



Nine Months EndedJuly 3,
    
    
    June 27,2010
    
    
    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
    
    
    (26
    )
    
    
    4.19
    
    -

    
    
    11.15
    
    
    
    5.41
    
    
    
    
    
    
    $
    146Outstanding at July 3, 2010
    
    
    745
    
    
    
    0.18
    
    -

    
    
    20.27
    
    
    
    10.82
    
    
    7.25 years
    
    
    1,512Vested and anticipated to vest in the
future at July 3, 2010
    
    
    733
    
    
    
    
    
    
    
    
    
    
    
    
    10.82
    
    
    7.23 years
    
    
    1,498Exercisable at July 3, 2010
    
    
    409
    
    
    
    
    
    
    
    
    
    
    
    
    10.80
    
    
    6.02 years
    
    
    1,049
 Restricted stock awards.
 Three Months Ended
    
    
    Nine Months EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Amortization expense
    
    $
    96
    
    
    $
    142
    
    
    $
    364
    
    
    $
    583
    WeightedRestricted
    
    
    AverageStock Awards
    
    
    Grant Date(Share amounts in thousands)
    
    Outstanding
    
    
    Fair ValueBalance, October 3, 2009
    
    
    115
    
    
    $
    15.50Granted
    
    
    
    
    
    
    Released
    
    
    (27
    )
    
    
    17.16Balance, July 3, 2010
    
    
    88
    
    
    
    15.00
 10




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##### Table of Contents



Restricted stock units.
 Three Months Ended
    
    
    Nine Months EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Restricted stock unit grants:Units
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    97Market value
    
    $
    
    
    
    $
    
    
    
    $
    732
    
    
    $
    732Amortization expense
    
    
    193
    
    
    
    99
    
    
    
    545
    
    
    
    178
  The following table summarizes RSU activity during the nine-month period ended July 3, 2010:
 WeightedRestricted
    
    
    AverageStock Units
    
    
    Grant Date(Unit amounts in thousands)
    
    Outstanding
    
    
    Fair ValueBalance, October 3, 2009
    
    
    136
    
    
    $
    8.71Granted
    
    
    78
    
    
    
    9.39Released
    
    
    (37
    )
    
    
    7.55Balance, July 3, 2010
    
    
    177
    
    
    
    9.25
 (6) Income Taxes
    11




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##### Table of Contents



(7) Employee Benefit Plans
 Retirement plans.
  Three Months Ended
    
    
    Nine Months EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Interest cost
    
    $
    52
    
    
    $
    55
    
    
    $
    156
    
    
    $
    184Expected return on plan assets
    
    
    (50
    )
    
    
    (61
    )
    
    
    (150
    )
    
    
    (193
    )Recognized net actuarial loss
    
    
    49
    
    
    
    23
    
    
    
    147
    
    
    
    84Net periodic pension cost
    
    $
    51
    
    
    $
    17
    
    
    $
    153
    
    
    $
    75
 Supplemental employee retirement plan .
 Three Months Ended
    
    
    Nine Months EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    $
    41
    
    
    $
    30
    
    
    $
    123
    
    
    $
    90Interest cost
    
    
    70
    
    
    
    68
    
    
    
    210
    
    
    
    204Amortization of prior service cost
    
    
    64
    
    
    
    56
    
    
    
    192
    
    
    
    168Net periodic benefit cost
    
    $
    175
    
    
    $
    154
    
    
    $
    525
    
    
    $
    462
 (8) Credit Facilities
  12




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Financial Covenants
  Negative Covenants
  Events of Default
   (9) Earnings (Loss) Per Share
  13




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,(In thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Earnings (loss) from continuing operations
    
    $
    1,624
    
    
    $
    (1,737
    )
    
    $
    2,145
    
    
    $
    (23,718
    )Less allocation to participating securities
    
    
    (8
    )
    
    
    
    
    
    
    (12
    )
    
    
    Available to Insteel common shareholders
    
    $
    1,616
    
    
    $
    (1,737
    )
    
    $
    2,133
    
    
    $
    (23,718
    )Loss from discontinued operations net of income taxes
    
    $
    (19
    )
    
    $
    (12
    )
    
    $
    (42
    )
    
    $
    (61
    )Less allocation to participating securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Available to Insteel common shareholders
    
    $
    (19
    )
    
    $
    (12
    )
    
    $
    (42
    )
    
    $
    (61
    )Net earnings (loss)
    
    $
    1,605
    
    
    $
    (1,749
    )
    
    $
    2,103
    
    
    $
    (23,779
    )Less allocation to participating securities
    
    
    (8
    )
    
    
    
    
    
    
    (12
    )
    
    
    Available to Insteel common shareholders
    
    $
    1,597
    
    
    $
    (1,749
    )
    
    $
    2,091
    
    
    $
    (23,779
    )Basic weighted average shares outstanding
    
    
    17,492
    
    
    
    17,392
    
    
    
    17,454
    
    
    
    17,364Dilutive effect of stock-based compensation
    
    
    203
    
    
    
    
    
    
    
    207
    
    
    
    Diluted weighted average shares outstanding
    
    
    17,695
    
    
    
    17,392
    
    
    
    17,661
    
    
    
    17,364Per share basic:Earnings (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (1.37
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.09
    
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (1.37
    )Per share diluted:Earnings (loss) from continuing operations
    
    $
    0.09
    
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (1.37
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    0.09
    
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (1.37
    )
  (10) Share Repurchases
  14




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##### Table of Contents



(11) Other Financial Data
  July 3,
    
    
    October 3,(In thousands)
    
    2010
    
    
    2009Accounts receivable, net:Accounts receivable
    
    $
    29,679
    
    
    $
    22,340Less allowance for doubtful accounts
    
    
    (1,229
    )
    
    
    (1,057
    )Total
    
    $
    28,450
    
    
    $
    21,283Inventories:Raw materials
    
    $
    21,965
    
    
    $
    17,649Work in process
    
    
    2,107
    
    
    
    1,780Finished goods
    
    
    17,743
    
    
    
    19,113Total
    
    $
    41,815
    
    
    $
    38,542Prepaid expenses and other:Current deferred tax asset
    
    $
    1,712
    
    
    $
    1,668Capitalized financing costs, net
    
    
    79
    
    
    
    336Other
    
    
    813
    
    
    
    1,671Income taxes receivable
    
    
    
    
    
    
    13,049Total
    
    $
    2,604
    
    
    $
    16,724Other assets:Cash
surrender value of life insurance policies
    
    $
    4,190
    
    
    $
    3,739Non-current deferred tax assets
    
    
    877
    
    
    
    375Capitalized financing costs, net
    
    
    309
    
    
    
    Other
    
    
    273
    
    
    
    268Total
    
    $
    5,649
    
    
    $
    4,382Property, plant and equipment, net:Land and land improvements
    
    $
    5,571
    
    
    $
    5,571Buildings
    
    
    32,433
    
    
    
    32,437Machinery and equipment
    
    
    97,786
    
    
    
    96,411Construction in progress
    
    
    299
    
    
    
    695136,089
    
    
    
    135,114Less accumulated depreciation
    
    
    (75,682
    )
    
    
    (70,910
    )Total
    
    $
    60,407
    
    
    $
    64,204Accrued expenses:Accrued income taxes
    
    $
    1,980
    
    
    $
    Pension plan
    
    
    1,391
    
    
    
    1,236Salaries, wages and related expenses
    
    
    1,327
    
    
    
    1,228Workers compensation
    
    
    1,124
    
    
    
    378Property taxes
    
    
    576
    
    
    
    1,023Deferred revenues
    
    
    453
    
    
    
    Customer rebates
    
    
    371
    
    
    
    752Sales allowance reserves
    
    
    360
    
    
    
    236Other
    
    
    387
    
    
    
    362Total
    
    $
    7,969
    
    
    $
    5,215Other liabilities:Deferred compensation
    
    $
    5,834
    
    
    $
    5,465Reserve for uncertain tax positions
    
    
    55
    
    
    
    Total
    
    $
    5,889
    
    
    $
    5,465
 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;
    
    credit market conditions and the relative availability of financing for us, our
customers and the construction industry as a whole;
 16




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##### Table of Contents




    
    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;
    
    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
   17




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##### Table of Contents



Results of Operations
 Statements of Operations  Selected Data
 Three Months Ended
    
    
    Nine Months EndedJuly 3,
    
    
    
    
    
    
    June 27,
    
    
    July 3,
    
    
    
    
    
    
    June 27,2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009Net sales
    
    $
    61,956
    
    
    
    8.8
    %
    
    $
    56,963
    
    
    $
    155,425
    
    
    
    (8.1
    )%
    
    $
    169,166Gross profit (loss)
    
    
    7,690
    
    
    
    N/M
    
    
    
    1,176
    
    
    
    15,651
    
    
    
    N/M
    
    
    
    (24,140
    )Percentage of net sales
    
    
    12.4
    %
    
    
    
    
    
    
    2.1
    %
    
    
    10.1
    %
    
    
    
    
    
    
    (14.3
    )%Selling, general and administrative expense
    
    $
    4,317
    
    
    
    7.5
    %
    
    $
    4,016
    
    
    $
    12,241
    
    
    
    (6.7
    )%
    
    $
    13,117Percentage of net sales
    
    
    7.0
    %
    
    
    
    
    
    
    7.1
    %
    
    
    7.9
    %
    
    
    
    
    
    
    7.8
    %Interest expense
    
    $
    116
    
    
    
    21.1
    %
    
    $
    147
    
    
    $
    411
    
    
    
    15.1
    %
    
    $
    484Interest income
    
    
    (45
    )
    
    
    N/M
    
    
    
    (16
    )
    
    
    (71
    )
    
    
    N/M
    
    
    
    (118
    )Effective income tax rate
    
    
    50.8
    %
    
    
    
    
    
    
    41.5
    %
    
    
    35.4
    %
    
    
    
    
    
    
    36.9
    %Earnings (loss) from continuing operations
    
    $
    1,624
    
    
    
    N/M
    
    
    $
    (1,737
    )
    
    $
    2,145
    
    
    
    N/M
    
    
    $
    (23,718
    )Loss from discontinued operations
    
    
    (19
    )
    
    
    N/M
    
    
    
    (12
    )
    
    
    (42
    )
    
    
    N/M
    
    
    
    (61
    )Net earnings (loss)
    
    
    1,605
    
    
    
    N/M
    
    
    
    (1,749
    )
    
    
    2,103
    
    
    
    N/M
    
    
    
    (23,779
    )
 
 N/M = not meaningful
 Third Quarter of Fiscal 2010 Compared to Third Quarter of Fiscal 2009
 Net Sales
  Gross Profit
  Selling, General and Administrative Expense
  Interest Expense
  18




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##### Table of Contents



Income Taxes
  Earnings (Loss) From Continuing Operations
  Loss From Discontinued Operations
  Net Earnings (Loss)
  First Nine Months of Fiscal 2010 Compared to First Nine Months 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)
  20




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##### Table of Contents



Liquidity and Capital Resources
 Selected Financial Data
 Cash Flow Analysis
 Nine Months EndedJuly 3,
    
    
    June 27,2010
    
    
    2009Net cash provided by operating activities of continuing operations
    
    $
    12,692
    
    
    $
    6,596Net cash used for investing activities of continuing operations
    
    
    (1,689
    )
    
    
    (1,173
    )Net cash used for financing activities of continuing operations
    
    
    (1,862
    )
    
    
    (10,289
    )Net cash used for operating activities of discontinued operations
    
    
    (73
    )
    
    
    (58
    )Working capital
    
    
    87,398
    
    
    
    78,660Total long-term debt
    
    
    
    
    
    
    Percentage of total capital
    
    
    
    
    
    
    Shareholders equity
    
    $
    149,288
    
    
    $
    145,977Percentage of total capital
    
    
    100.0
    %
    
    
    100.0
    %Total capital (total long-term debt + shareholders equity)
    
    $
    149,288
    
    
    $
    145,977
    Credit Facilities
  21




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##### Table of Contents



Impact of Inflation
  Off-Balance Sheet Arrangements
  Contractual Obligations
  Critical Accounting Policies
   Revenue recognition.
 22




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##### Table of Contents



Concentration of credit risk.
  Allowance for doubtful accounts.
 Inventory valuation.
 Self insurance.
 Litigation.
 Assumptions for employee benefit plans.
   23




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##### Table of Contents



Recent Accounting Pronouncements
  Outlook
  24




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##### Table of Contents



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




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##### Table of Contents



Item 4. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
    
 Item 1A. Risk Factors
  26




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 6. Exhibits
 10.1
    
    Second Amended and Restated Credit Agreement dated as of June 2,
2010, among Insteel Wire Products Company, as Borrower; Insteel
Industries, Inc., as a Credit Party; Intercontinental Metals
Corporation, as a Credit Party; and General Electric Capital
Corporation, as Agent and Lender (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K filed on
June 4, 2010).31.1
    
    Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 27




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##### Table of Contents



SIGNATURES
  INSTEEL INDUSTRIES, INC.
RegistrantDate: July 26, 2010
    By:
    /s/ Michael C. GazmarianMichael C. GazmarianVice President, Chief Financial Officer and
Treasurer
(Duly Authorized Officer and
Principal Financial Officer) 28




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Second Amended and Restated Credit Agreement dated as of June 2,
2010, among Insteel Wire Products Company, as Borrower; Insteel
Industries, Inc., as a Credit Party; Intercontinental Metals
Corporation, as a Credit Party; and General Electric Capital
Corporation, as Agent and Lender (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K filed on
June 4, 2010).31.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 29