Insteel Industries (IIIN) 8-K Insteel Industries Reports Fourth-quarter and Fiscal Year 2006 Financial Results

Exhibit 99.1

NEWS RELEASE

FOR IMMEDIATE RELEASE	Contact:	Michael C. Gazmarian
		Chief Financial Officer and Treasurer
		Insteel Industries, Inc.
		336-786-2141, Ext. 3020

INSTEEL INDUSTRIES REPORTS FOURTH-QUARTER AND FISCAL YEAR 2006
FINANCIAL RESULTS

• Diluted EPS from continuing operations increase 53% from prior year to $0.52

• Cash position increases $8.0 million during the quarter to $10.7 million

• Continued upturn in nonresidential and infrastructure construction expected to offset weakness in housing-related demand

MOUNT AIRY, N.C., October 20, 2006 — Insteel Industries, Inc. (Nasdaq: IIIN) today announced its financial results for the fourth quarter and fiscal year ended September 30, 2006. Diluted earnings per share from continuing operations for the quarter increased 53% to $0.52 compared with $0.34 for the same period last year. Earnings from continuing operations increased 47% to $9.5 million from $6.4 million a year ago. Including the results of discontinued operations, net earnings were $10.1 million, or $0.55 per diluted share compared with $6.4 million, or $0.34 per diluted share in the prior year. Sales from continuing operations decreased 5% to $82.5 million from $86.6 million last year. Shipments decreased 8% while average selling prices increased 4%.

For the year ended September 30, 2006, diluted earnings per share from continuing operations increased 44% to $1.86 compared with $1.29 for the prior year. Earnings from continuing operations increased 40% to $34.4 million from $24.5 million a year ago. Including the results of discontinued operations, net earnings were $33.0 million, or $1.79 per diluted share compared with $25.0 million, or $1.32 per diluted share in the prior year. Sales from continuing operations increased 7% to $329.5 million from $309.3 million last year. Shipments increased 11% while average selling prices decreased 4%.

Gross profit from continuing operations for the fourth quarter increased 20% to $18.3 million, or 22.2% of net sales from $15.2 million, or 17.6% of net sales in the prior year due to improved spreads between average selling prices and raw material costs which offset the reduction in shipments. For the year, gross profit increased 22% to $70.9 million, or 21.5% of net sales from $57.9 million, or 18.7% of net sales in the prior year due to the higher shipments and improved spreads.

“Considering the impact of the weakening housing sector on shipments during the period, we are pleased with Insteel’s fourth-quarter financial results,” said H.O. Woltz III, Insteel’s president and chief executive officer. “Although only about 20% of Insteel’s revenues are driven by residential construction, it appears that the impact of the downturn in the housing market was compounded by aggressive inventory reduction measures pursued by customers in this sector. Offsetting the impact of lower shipments, gross margins improved by 200 basis points from the third quarter due to higher spreads for certain product lines.”

Exit from Industrial Wire Business

As previously reported, in July the Company completed the sale of the equipment associated with its

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1373 BOGGS DRIVE / MOUNT AIRY, NORTH CAROLINA 27030 / 336-786-2141/ FAX 336-786-2144

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industrial wire business for $6.0 million and recorded a pre-tax gain of $1.3 million from discontinued operations in the fourth quarter which was partially offset by $0.2 million of closure-related costs. The Company had exited the industrial wire business in June following the closure of its Fredericksburg, Virginia facility and is currently in the process of liquidating the remaining assets of the business. The amounts recorded in connection with the sale of the assets and closure of the plant are subject to future adjustment based upon the net proceeds realized from the liquidation of the remaining assets and the actual closure costs incurred. At this time, the Company does not expect that such adjustments will result in significant charges or losses from discontinued operations.

Operating Cash Flow

Cash provided by operating activities of continuing operations for the fourth quarter decreased to $9.7 million compared with $13.5 million for the year-ago period primarily due to the inventory reduction measures that were pursued in the prior year. The Company’s cash position increased $8.0 million during the quarter to $10.7 million as a result of the strong operating cash flow and proceeds from the sale of the industrial wire equipment which were partially offset by $7.3 million of capital expenditures. For the year, net cash provided by operating activities of continuing operations increased to $42.7 million from $41.8 million in the prior year.

Growth Initiatives

Capital expenditures for the year were $19.0 million and are currently expected to total $18.0 million in 2007 with the largest outlays earmarked for the expansions of the Company’s prestressed concrete strand (“PC strand”) and engineered structural mesh (“ESM”) operations. The actual timing of these expenditures as well as the amounts are subject to change based on adjustments in the project timelines, future market conditions and Insteel’s financial performance.

“Our capital investment plan remains on schedule,” commented Woltz. “The first phase of our Tennessee PC strand expansion will be coming on line this month. We expect the ESM expansion in our North Carolina plant to commence operations in January 2007 and an additional ESM production line to start up at our Texas plant in the third fiscal quarter of 2007. Following completion of the projects that are planned or underway, we believe that maintenance capital expenditures will fall to $3.0 to $5.0 million per year beginning in 2008.”

Outlook

Commenting on the business prospects for fiscal 2007, Woltz said, “As we enter 2007, the outlook for our primary demand drivers, nonresidential and infrastructure construction, remains strong and should serve to mitigate the weakness in those portions of our business that are correlated with residential construction activity. We also expect gradually increasing contributions from our PC strand and ESM expansion initiatives in the form of reduced operating costs and additional volume as we progress through the year.

At the same time, we expect business conditions during the first half of 2007 to be less hospitable than in the prior year due to the downturn in housing-related markets and higher cost raw material purchase commitments that may be difficult to recover depending on competitive pricing pressures.

Despite these near-term challenges, in view of the favorable overall market outlook for our business, the cost competitiveness of our facilities and our strong market positions, we are optimistic about the

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prospects for 2007 and our ability to continue generating attractive returns for our shareholders.”

Stock Repurchase Program

Insteel did not repurchase any shares of its outstanding common stock during the fourth quarter under its previously announced stock repurchase program. As of September 30, 2006, the Company was authorized to buy back up to an additional $6.5 million of its shares over the remaining term of the program, which runs through January 12, 2007. As previously indicated, repurchases may be made from time to time in the open market or in privately negotiated transactions subject to market conditions, applicable legal requirements and other factors. Insteel is not obligated to acquire any particular amount of common stock and the program may be suspended at any time at the Company’s discretion.

Conference Call

Insteel will hold a conference call at 10:00 a.m. ET today to discuss the Company’s fourth-quarter financial results. A live webcast of this call can be accessed on the Company’s website at http://investor.insteel.com/ and will be archived for replay.

About Insteel

Insteel Industries is one of the nation’s largest manufacturers of steel wire reinforcing products for concrete construction applications. The Company manufactures and markets prestressed concrete strand and welded wire reinforcement, including concrete pipe reinforcement, engineered structural mesh and standard welded wire reinforcement. Insteel’s products are sold primarily to manufacturers of concrete products for the nonresidential and infrastructure construction industries. Headquartered in Mount Airy, North Carolina, Insteel operates six manufacturing facilities located in the United States.

Cautionary Note Regarding Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, particularly under the “Growth Initiatives” and “Outlook” sections above. When used in this news release, the words “believes,” “anticipates,” “expects,” “plans” and similar expressions are intended to identify forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, such forward-looking statements are subject to a number of risks and uncertainties, and the Company can provide no assurances that such plans, intentions or expectations will be achieved. Many of these risks are discussed in detail in the Company’s periodic reports, in particular in its report on Form 10-K for the year ended October 1, 2005, filed with the U.S. Securities and Exchange Commission. You should carefully read these risk factors.

All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. All forward-looking statements speak only to the respective dates on which such statements are made and the Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

It is not possible to anticipate and list all risks and uncertainties that may affect the future operations or financial performance of the Company; however, they include, but are not limited to, the following:

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general economic and competitive conditions in the markets in which the Company operates; the continuation of favorable demand trends for the Company’s concrete reinforcing products resulting from increases in spending for nonresidential and infrastructure construction together with post-hurricane reconstruction requirements in the Gulf region of the United States; the severity and duration of the downturn in residential construction activity and the impact on those portions of the Company’s 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 the Company’s primary raw material, hot-rolled steel wire rod from domestic and foreign suppliers; the Company’s ability to raise selling prices in order to recover increases in wire rod prices; changes in U.S. or foreign trade policy affecting imports or exports of steel wire rod or the Company’s products; unanticipated changes in customer demand, order patterns and inventory levels; the Company’s ability to further develop the market for ESM and expand its shipments; the timely and successful completion of the expansions of the Company’s ESM and PC strand operations; the actual net proceeds realized and closure costs incurred in connection with the Company’s exit from the industrial wire business; legal, environmental or regulatory developments that significantly impact the Company’s operating costs; unanticipated plant outages, equipment failures or labor difficulties; continued escalation in medical costs that affect employee benefit expenses; and the “Risk Factors” discussed in the Company’s Form 10-K for the year ended October 1, 2005.

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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for per share data)

	Three Months Ended						Year Ended
	(Unaudited)			(Unaudited)			(Unaudited)
	September 30,			October 1,			September 30,			October 1,
	2006			2005			2006			2005
Net sales	$	82,483		$	86,596		$	329,507		$	309,320
Cost of sales		64,190			71,396			258,636			251,422
Gross profit		18,293			15,200			70,871			57,898
Selling, general and administrative expense		4,458			4,485			16,996			16,175
Other income, net		(197	)		(87	)		(446	)		(73	)
Interest expense		137			414			669			3,427
Interest income		(147	)		—			(255	)		—
Earnings from continuing operations before income taxes		14,042			10,388			53,907			38,369
Income taxes		4,589			3,973			19,530			13,870
Earnings from continuing operations		9,453			6,415			34,377			24,499
Earnings (loss) from discontinued operations net of income taxes of $419, ($20), ($851) and $330		626			(29	)		(1,337	)		546
Net earnings	$	10,079		$	6,386		$	33,040		$	25,045
Per share amounts:
Basic:
Earnings from continuing operations	$	0.52		$	0.34		$	1.88		$	1.31
Earnings (loss) from discontinued operations		0.04			—			(0.08	)		0.03
Net earnings	$	0.56		$	0.34		$	1.80		$	1.34
Diluted:
Earnings from continuing operations	$	0.52		$	0.34		$	1.86		$	1.29
Earnings (loss) from discontinued operations		0.03			—			(0.07	)		0.03
Net earnings	$	0.55		$	0.34		$	1.79		$	1.32
Cash dividends declared	$	0.03		$	0.03		$	0.12		$	0.06
Weighted average shares outstanding
Basic		18,083			18,880			18,307			18,656
Diluted		18,267			19,026			18,473			18,954

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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

	(Unaudited)
	September 30,			October 1,
	2006			2005
Assets
Current assets:
Cash and cash equivalents	$	10,689		$	1,371
Accounts receivable, net		37,519			38,601
Inventories		46,797			31,569
Prepaid expenses and other		2,675			3,647
Current assets of discontinued operations		411			5,829
Total current assets		98,091			81,017
Property, plant and equipment, net		55,217			40,970
Other assets		9,653			7,325
Non-current assets of discontinued operations		3,635			8,964
Total assets	$	166,596		$	138,276
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	30,691		$	15,449
Accrued expenses		9,819			9,283
Current portion of long-term debt		—			2,376
Current liabilities of discontinued operations		643			2,247
Total current liabilities		41,153			29,355
Long-term debt		—			9,484
Other liabilities		2,713			2,401
Long-term liabilities of discontinued operations		292			—
Shareholders’ equity:
Common stock		18,213			18,861
Additional paid-in capital		47,005			45,003
Deferred stock compensation		(662	)		(508	)
Retained earnings		57,882			34,772
Accumulated other comprehensive loss		—			(1,092	)
Total shareholders’ equity		122,438			97,036
Total liabilities and shareholders’ equity	$	166,596		$	138,276

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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Year Ended
	(Unaudited)
	September 30,			October 1,
	2006			2005
Cash Flows From Operating Activities:
Net earnings	$	33,040		$	25,045
Loss (earnings) from discontinued operations		1,337			(546	)
Earnings from continuing operations		34,377			24,499
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities of continuing operations:
Depreciation and amortization		4,578			4,139
Amortization of capitalized financing costs		529			651
Amortization of unrealized loss on financial instruments		—			837
Stock-based compensation expense		1,173			805
Excess tax benefits from exercise of stock options		(459	)		—
Loss on sale of property, plant and equipment		82			63
Deferred income taxes		(1,627	)		2,004
Increase in cash surrender value of life insurance over premiums paid		(193	)		—
Net changes in assets and liabilities:
Accounts receivable, net		1,082			481
Inventories		(15,228	)		6,753
Accounts payable and accrued expenses		18,456			640
Other changes		(120	)		958
Total adjustments		8,273			17,331
Net cash provided by operating activities — continuing operations		42,650			41,830
Net cash provided by operating activities — discontinued operations		2,185			2,630
Net cash provided by operating activities		44,835			44,460
Cash Flows From Investing Activities:
Capital expenditures		(18,959	)		(6,302	)
Proceeds from sale of assets held for sale		—			904
Proceeds from sale of property, plant and equipment		52			27
Increase in cash surrender value of life insurance policies		(565	)		(665	)
Net cash used for investing activities — continuing operations		(19,472	)		(6,036	)
Net cash provided by investing activities — discontinued operations		5,963			2,120
Net cash used for investing activities		(13,509	)		(3,916	)
Cash Flows From Financing Activities:
Proceeds from long-term debt		135,219			329,562
Principal payments on long-term debt		(147,079	)		(370,070	)
Financing costs		(307	)		(23	)
Cash received from exercise of stock options		360			175
Excess tax benefits from exercise of stock options		459			—
Repurchase of common stock		(8,529	)		—
Cash dividends paid		(2,222	)		(566	)
Other		91			(9	)
Net cash used for financing activities — continuing operations		(22,008	)		(40,931	)
Net cash used for financing activities — discontinued operations		—			(560	)
Net cash used for financing activities		(22,008	)		(41,491	)
Net increase (decrease) in cash and cash equivalents		9,318			(947	)
Cash and cash equivalents at beginning of period		1,371			2,318
Cash and cash equivalents at end of period	$	10,689		$	1,371
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	202		$	3,531
Income taxes		17,489			12,001
Non-cash financing activity:
Cashless exercise of stock options		—			338
Issuance of restricted stock		792			742
Declaration of cash dividends to be paid		543			565
Other		—			105

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Insteel Industries, Inc.