Insteel Industries (IIIN) 10-Q 2007 Q2 Quarterly report

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 31, 2007

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.

(Exact name of registrant as specified in its charter)

North Carolina
(State or other jurisdiction of incorporation or organization) 56-0674867
(I.R.S. Employer Identification No.)

1373 Boggs Drive, Mount Airy, North Carolina
(Address of principal executive offices) 27030
(Zip Code)

Registrant’s telephone number, including area code: (336) 786-2141

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ  Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filero Accelerated filerþ Non-accelerated filero

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yeso Noþ

     The number of shares outstanding of the registrant’s common stock as of May 1, 2007 was 18,281,257.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Qualitative and Quantitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II — Other Information
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits
SIGNATURES
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

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

	(Unaudited)
	March 31,			September 30,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	9		$	10,689
Accounts receivable, net		36,121			37,519
Inventories		51,300			46,797
Prepaid expenses and other		3,354			2,675
Current assets of discontinued operations		198			411
Total current assets		90,982			98,091
Property, plant and equipment, net		61,586			55,217
Other assets		9,681			9,653
Non-current assets of discontinued operations		3,635			3,635
Total assets	$	165,884		$	166,596
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	19,300		$	30,691
Accrued expenses		6,323			9,819
Current liabilities of discontinued operations		271			643
Total current liabilities		25,894			41,153
Long-term debt		4,300			—
Other liabilities		2,658			2,713
Long-term liabilities of discontinued operations		269			292
Shareholders’ equity:
Common stock		18,270			18,213
Additional paid-in capital		48,091			47,005
Deferred stock compensation		(1,077	)		(662	)
Retained earnings		67,479			57,882
Total shareholders’ equity		132,763			122,438
Total liabilities and shareholders’ equity	$	165,884		$	166,596

See accompanying notes to consolidated financial statements.

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

	Three Months Ended						Six Months Ended
	March 31,			April 1,			March 31,			April 1,
	2007			2006			2007			2006
Net sales	$	74,766		$	79,776		$	144,482		$	155,380
Cost of sales		62,408			62,797			118,500			121,288
Gross profit		12,358			16,979			25,982			34,092
Selling, general and administrative expense		4,593			4,452			8,836			8,573
Other income, net		(32	)		(23	)		(50	)		(229	)
Interest expense		154			151			296			384
Interest income		(70	)		(31	)		(260	)		(83	)
Earnings from continuing operations before income taxes		7,713			12,430			17,160			25,447
Income taxes		2,769			4,585			6,285			9,589
Earnings from continuing operations		4,944			7,845			10,875			15,858
Loss from discontinued operations net of income taxes of ($20), ($282), ($116) and ($496)		(31	)		(444	)		(183	)		(779	)
Net earnings	$	4,913		$	7,401		$	10,692		$	15,079
Per share amounts:(1)
Basic:
Earnings from continuing operations	$	0.27		$	0.43		$	0.60		$	0.85
Loss from discontinued operations		—			(0.02	)		(0.01	)		(0.04	)
Net earnings	$	0.27		$	0.41		$	0.59		$	0.81
Diluted:
Earnings from continuing operations	$	0.27		$	0.42		$	0.59		$	0.85
Loss from discontinued operations		—			(0.02	)		(0.01	)		(0.04	)
Net earnings	$	0.27		$	0.40		$	0.58		$	0.81
Cash dividends declared	$	0.03		$	0.03		$	0.06		$	0.06
Weighted average shares outstanding:(1)
Basic		18,136			18,286			18,125			18,532
Diluted		18,299			18,464			18,293			18,680

⁽¹⁾ Amounts have been adjusted to reflect the two-for-one stock split that was distributed on June 16, 2006.

See accompanying notes to consolidated financial statements.

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

	Six Months Ended
	March 31,			April 1,
	2007			2006
Cash Flows From Operating Activities:
Net earnings	$	10,692		$	15,079
Loss from discontinued operations		183			779
Earnings from continuing operations		10,875			15,858
Adjustments to reconcile earnings from continuing operations to net cash provided by (used for) operating activities of continuing operations:
Depreciation and amortization		2,614			2,194
Amortization of capitalized financing costs		249			294
Stock-based compensation expense		606			650
Excess tax benefits from exercise of stock options		(59	)		(314	)
Deferred income taxes		186			(427	)
Increase in cash surrender value of life insurance over premiums paid		(59	)		—
Net changes in assets and liabilities:
Accounts receivable, net		1,398			1,803
Inventories		(4,503	)		(13,559	)
Accounts payable and accrued expenses		(16,464	)		15,600
Other changes		(590	)		801
Total adjustments		(16,622	)		7,042
Net cash provided by (used for) operating activities — continuing operations		(5,747	)		22,900
Net cash provided by (used for) operating activities — discontinued operations		(365	)		1,693
Net cash provided by (used for) operating activities		(6,112	)		24,593
Cash Flows From Investing Activities:
Capital expenditures		(7,499	)		(8,067	)
Increase in cash surrender value of life insurance policies		(585	)		(716	)
Net cash used for investing activities — continuing operations		(8,084	)		(8,783	)
Net cash used for investing activities — discontinued operations		—			(18	)
Net cash used for investing activities		(8,084	)		(8,801	)
Cash Flows From Financing Activities:
Proceeds from long-term debt		11,873			127,718
Principal payments on long-term debt		(7,573	)		(135,778	)
Financing costs		—			(294	)
Cash received from exercise of stock options		55			167
Excess tax benefits from exercise of stock options		59			314
Repurchase of common stock		—			(8,529	)
Cash dividends paid		(1,087	)		(1,132	)
Other		189			371
Net cash provided by (used for) financing activities — continuing operations		3,516			(17,163	)
Net cash provided by (used for) financing activities		3,516			(17,163	)
Net decrease in cash and cash equivalents		(10,680	)		(1,371	)
Cash and cash equivalents at beginning of period		10,689			1,371
Cash and cash equivalents at end of period	$	9		$	—
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	28		$	125
Income taxes		9,060			9,528
Non-cash investing and financing activities:
Purchases of property, plant and equipment in accounts payable		1,489			—
Issuance of restricted stock		763			526
Declaration of cash dividends to be paid		547			545

See accompanying notes to consolidated financial statements.

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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)

					Additional								Total
	Common Stock				Paid-In		Deferred			Retained			Shareholders'
	Shares		Amount		Capital		Compensation			Earnings			Equity
Balance at September 30, 2006		18,213	$	18,213	$	47,005	$	(662	)	$	57,882		$	122,438
Net earnings											10,692			10,692
Stock options exercised		12		12		43								55
Restricted stock granted		45		45		718		(763	)					—
Restricted stock shares from dividend						8								8
Compensation expense associated with stock-based plans						258		348						606
Excess tax benefits from exercise of stock options						59								59
Cash dividends declared											(1,095	)		(1,095	)
Balance at March 31, 2007		18,270	$	18,270	$	48,091	$	(1,077	)	$	67,479		$	132,763

See accompanying notes to consolidated financial statements.

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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

     The accompanying unaudited interim consolidated financial statements of Insteel Industries, Inc. (“we,” “us,” “our,” “the Company” or “Insteel”) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These financial statements should therefore be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended September 30, 2006 included in the Company’s Annual Report on Form 10-K filed with the SEC.

     The accompanying unaudited interim consolidated financial statements included herein reflect all adjustments of a normal recurring nature that the Company considers necessary for a fair presentation of results for these interim periods. The results of operations for the three- and six-month periods ended March 31, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending September 29, 2007 or future periods.

(2) Discontinued Operations

     In April 2006, the Company decided to exit the industrial wire business with the closure of its Fredericksburg, Virginia facility which manufactured tire bead wire and other industrial wire for commercial and industrial applications. The Company’s decision was based on the weakening in the business outlook for the facility and the expected continuation of difficult market conditions and reduced operating levels. Manufacturing activities at the Virginia facility ceased in June 2006 and the Company is currently in the process of liquidating the remaining assets of the business.

     The Company has determined that the exit from the industrial wire business meets the criteria of a discontinued operation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the results of operations and related non-recurring closure costs associated with the industrial wire business have been reported as discontinued operations for all periods presented. Additionally, the assets and liabilities of the discontinued operations have been segregated in the accompanying consolidated balance sheets.

     The following table summarizes the results of discontinued operations for the three- and six-month periods ended March 31, 2007 and April 1, 2006:

	(Unaudited)						(Unaudited)
	Three Months Ended						Six Months Ended
	March 31,			April 1,			March 31,			April 1,
(In thousands)	2007			2006			2007			2006
Net sales	$	—		$	9,203		$	—		$	17,133
Loss before income taxes		(51	)		(726	)		(299	)		(1,275	)
Income taxes		(20	)		(282	)		(116	)		(496	)
Net loss		(31	)		(444	)		(183	)		(779	)

     Included within results from discontinued operations is an allocation of interest expense which was calculated based on the net assets of the industrial wire business relative to the consolidated net assets of the Company. Interest expense allocated to discontinued operations was $19,000 and $47,000 for the three- and six-month periods ended April 1, 2006, respectively.

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     Assets and liabilities of discontinued operations as of March 31, 2007 and September 30, 2006 are as follows:

	(Unaudited)
	March 31,		September 30,
(In thousands)	2007		2006
Assets:
Current assets:
Accounts receivable, net	$	196	$	407
Prepaid expenses and other		2		4
Total current assets		198		411
Other assets		3,635		3,635
Total assets	$	3,833	$	4,046
Liabilities:
Current liabilities:
Accounts payable	$	30	$	25
Accrued expenses		241		618
Total current liabilities		271		643
Other liabilities		269		292
Total liabilities	$	540	$	935

     As of March 31, 2007 and September 30, 2006 there was approximately $301,000 and $618,000, respectively, of accrued expenses and other liabilities related to ongoing lease obligations and closure-related liabilities incurred as a result of the Company’s exit from the industrial wire business.

(3) Stock Split

     On May 16, 2006, the Board of Directors approved a two-for-one split of the Company’s common stock payable in the form of a stock dividend. The stock split entitled each shareholder of record on June 2, 2006 to receive one share of common stock for every outstanding share of common stock held on that date and was distributed on June 16, 2006. Unless otherwise indicated, the capital stock accounts and all share and earnings per share amounts in this report give effect to the stock split, applied retroactively, to all periods presented.

(4) Stock-Based Compensation

     Effective October 2, 2005, the Company began recording compensation expense associated with stock options and other forms of equity compensation in accordance with SFAS No. 123R, “Share-Based Payment” as interpreted by SEC Staff Accounting Bulletin No. 107. Previously the Company had accounted for stock options according to the provisions of Accounting Principals Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and therefore no related compensation expense was recorded for awards granted with no intrinsic value. The Company adopted the modified prospective transition method provided for under SFAS No. 123R and consequently has not retroactively adjusted results from prior periods. Under this transition method, (1) stock compensation expense associated with options granted on or after October 2, 2005 is recorded in accordance with the provisions of SFAS 123R; and (2) stock compensation expense associated with the remaining unvested portion of options granted prior to October 2, 2005 is recorded based on their grant date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.”

     The Company recorded $163,000 and $258,000 of compensation expense for stock options within selling, general and administrative expense for the three- and six- month periods ended March 31, 2007. In the prior year, the Company recorded $83,000 and $303,000 of compensation expense for the three- and six- month periods ended April 1, 2006.

     Prior to the adoption of SFAS No. 123R, the benefit of tax deductions in excess of recognized stock compensation expense was reported as a reduction of taxes paid within operating cash flow. SFAS No. 123R requires that such benefits be recorded as a financing cash flow. The Company recognized $59,000 and $314,000 of excess tax benefits for the six-month periods ended March 31, 2007 and April 1, 2006, respectively.

     Under the Company’s stock option plans, employees and directors may be granted options to purchase shares of common stock at the fair market value on the date of the grant. Options granted under these plans generally vest over three

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years and expire ten years from the date of the grant. The fair value of each option award granted prior to October 1, 2005 was estimated on the date of grant using a Black-Scholes option-pricing model. With the adoption of SFAS 123R, the Company determined that it would use a Monte Carlo valuation model for options granted subsequent to October 1, 2005. The weighted average estimated fair value of stock options granted during the six months ended March 31, 2007 and April 1, 2006 was $8.21 and $7.58, respectively, based on the following weighted average assumptions:

	Six Months Ended			Six Months Ended
	March 31, 2007			April 1, 2006
Risk-free interest rate		4.88	%		4.80	%
Dividend yield		0.70	%		0.77	%
Expected volatility		68.96	%		70.47	%
Expected term (in years)		2.93			3.55

     The assumptions utilized in the valuation model are evaluated and revised, as necessary, to reflect market conditions and actual historical experience. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield is calculated based on the Company’s annual dividend as of the option grant date. The expected volatility is derived using a term structure based on historical volatility and the volatility implied by exchange-traded options on the Company’s stock. The expected term for options is based on the results of a Monte Carlo simulation model, using the model’s estimated fair value as an input to the Black-Scholes-Merton model, and then solving for the expected term.

     As of March 31, 2007, there were 1,396,000 shares available for future grants under the Company’s equity incentive plans. The following table summarizes stock option activity for the six-month period ended March 31, 2007:

										Contractual	Aggregate
			Exercise Price Per Share							Term -	Intrinsic
	Options							Weighted		Weighted	Value
(Share amounts in thousands)	Outstanding		Range					Average		Average	(in thousands)
Outstanding at September 30, 2006		282	$	0.18	—	$	20.26	$	7.37
Granted		43		17.11	—		17.11		17.11
Exercised		12		4.56	—		4.56		4.56			—
Outstanding at March 31, 2007		313		0.18	—		20.26		8.83	6.55 years	$	2,582
Vested and anticipated to vest in future at March 31, 2007		308							8.74	6.51 years		2,566
Exercisable at March 31, 2007		191							5.18	4.93 years		2,228

     As of March 31, 2007, there were $541,000 of unrecognized compensation costs remaining related to unvested awards, which are expected to be recognized over a weighted average period of 1.37 years. The total fair value of shares vested during the three-month period ended March 31, 2007 was $424,000.

     Restricted Stock Awards.During the six-month period ended March 31, 2007, the Company granted 44,508 shares of restricted stock to key employees which had a total market value of approximately $763,000 as of the grant date. The following table summarizes restricted stock activity during the six-month period ended March 31, 2007:

	Restricted			Weighted Average
	Stock Awards			Grant Date
(Share amounts in thousands)	Outstanding			Fair Value
Balance, September 30, 2006		103		$	12.27
Granted		45			17.14
Released		(28	)		12.51
Balance, March 31, 2007		120			13.99

     The Company recorded amortization expense of $224,000 and $102,000 pertaining to the restricted stock for the three-month periods ended March 31, 2007 and April 1, 2006, respectively. For the six-month periods ended March 31, 2007 and April 1, 2006, the Company recorded $348,000 and $347,000 of amortization expense for restricted stock, respectively. The Company will continue to amortize the remaining unamortized balance over the vesting period of one to three years.

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(5) Income Taxes

     The Company has recorded the following amounts for deferred income tax assets and accrued income taxes on its consolidated balance sheet as of March 31, 2007: a current deferred income tax asset of $1.4 million (net of valuation allowance) in prepaid expenses and other, a non-current deferred income tax asset of $1.8 million (net of valuation allowance) in other assets, accrued state income taxes payable of $661,000 in accrued expenses and $1.0 million of prepaid federal income taxes within prepaid expenses and other. The Company has $9.6 million of gross state operating loss carryforwards (“NOLs”) as of March 31, 2007 that begin to expire in six years, but principally expire in 13 — 17 years.

     The realization of the Company’s deferred income tax assets is entirely dependent upon the Company’s ability to generate future taxable income in applicable jurisdictions. Generally accepted accounting principles (“GAAP”) require that the Company periodically assess the need to establish a valuation allowance against its deferred income tax assets to the extent the Company no longer believes it is more likely than not that they will be fully utilized. As of March 31, 2007, the Company had recorded a valuation allowance of $601,000 pertaining to various state NOLs that were not anticipated to be utilized. The valuation allowance established by the Company is subject to periodic review and adjustment based on changes in facts and circumstances and would be reduced should the Company utilize the state NOLs against which an allowance had been provided or determine that such utilization is more likely than not.

     In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”) which clarifies the criteria for the recognition and measurement of uncertain tax positions in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 is effective for the Company in fiscal 2008 and requires that the cumulative effect of applying its provisions be disclosed separately as a one-time, non-cash charge against the opening balance of retained earnings in the year of adoption. At this time, the Company has not determined what effect, if any, the adoption of FIN No. 48 will have on its financial position or results of operations.

(6) Employee Benefit Plans

     Retirement plans.The Company has one defined benefit pension plan, the Insteel Wire Products Company Retirement Income Plan for Hourly Employees, Wilmington, Delaware (the “Delaware Plan”). The Delaware Plan provides benefits for eligible employees based primarily upon years of service and compensation levels. The Company’s funding policy is to contribute amounts at least equal to those required by law. No contributions were made to the Delaware Plan during the three- and six-month periods ended March 31, 2007 and no contributions are expected to be made during the fiscal year ending September 29, 2007. The net periodic pension costs and related components for the Delaware Plan for the three- and six-month periods ended March 31, 2007 and April 1, 2006, respectively, are as follows:

	(Unaudited)						(Unaudited)
	Three Months Ended						Six Months Ended
	March 31,			April 1,			March 31,			April 1,
(In thousands)	2007			2006			2007			2006
Service cost	$	—		$	19		$	20		$	38
Interest cost		65			66			130			132
Expected return on plan assets		(83	)		(60	)		(166	)		(120	)
Recognized net actuarial loss		28			32			56			64
Net periodic pension cost	$	10		$	57		$	40		$	114
Curtailment loss		2			—			2			—
Total pension cost	$	12		$	57		$	42		$	114

     In connection with the collective bargaining agreement that was reached between the Company and the labor union at the Delaware facility in November 2004, the Delaware Plan was frozen whereby there will be no new plan participants. During the three months ended March 31, 2007, benefits under the Delaware plan were frozen in connection with the expiration of the previous collective bargaining agreement in November 2006 whereby participants will no longer earn additional benefits after January 1, 2007. Accordingly, a curtailment loss of $2,000 was recorded for the three-month period ended March 31, 2007.

     In September 2006, the FASB issued SFAS No. 158, “Employers Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS No. 158 requires that an employer recognize the overfunded or underfunded status of a defined benefit postretirement plan in its statement of financial position and changes in the funded status in the year in which the changes occur through other comprehensive income. SFAS No. 158 also requires the measurement of defined benefit

9

plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective for the Company beginning in fiscal 2007. The requirement to measure plan assets and benefit obligations as of the date of the fiscal year-end balance sheet is effective for the Company beginning in fiscal 2009. At this time, the Company is evaluating the impact, if any, the adoption of SFAS No. 158 will have on its financial position or results of operations.

(7) Credit Facilities

     As of March 31, 2007, the Company had a $100.0 million revolving credit facility in place to supplement its operating cash flow in funding its working capital, capital expenditure and general corporate requirements. As of March 31, 2007, approximately $4.3 million was outstanding on the revolving credit facility, $53.8 million of additional borrowing capacity was available and outstanding letters of credit totaled $1.7 million.

     Advances under the credit facility are limited to the lesser of the revolving credit commitment or a borrowing base amount that is calculated based upon a percentage of eligible receivables and inventories plus, upon the Company’s request and subject to certain conditions, a percentage of eligible equipment and real estate. Interest rates on the revolver are based upon (1) a base rate that is established at the higher of the prime rate or 0.50% plus the federal funds rate, or (2) at the election of the Company, a LIBOR rate, plus in either case, an applicable interest rate margin. The applicable interest rate margins are adjusted on a quarterly basis based upon the amount of excess availability on the revolver within the range of 0.00% — 0.50% for the base rate and 1.25% — 2.00% for the LIBOR rate. In addition, the applicable interest rate margins would be adjusted to the highest percentage indicated for each range upon the occurrence of certain events of default provided for under the credit facility. Based on the Company’s excess availability as of March 31, 2007, the applicable interest rate margins were 0.00% for the base rate and 1.25% for the LIBOR rate on the revolver.

     The Company’s ability to borrow available amounts under the revolving credit facility will be restricted or eliminated in the event of certain covenant breaches, events of default or if the Company is unable to make certain representations and warranties provided for in the credit agreement.

     Financial Covenants

     The terms of the credit facility require the Company to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than: (1) 1.10 at the end of each fiscal quarter for the twelve-month period then ended when the amount of excess availability on the revolving credit facility is less than $10.0 million and the applicable borrowing base only includes eligible receivables and inventories; or (2) 1.15 at the end of each fiscal quarter for the twelve-month period then ended when the amount of excess availability on the revolving credit facility is less than $10.0 million and the applicable borrowing base includes eligible receivables, inventories, equipment and real estate. As of March 31, 2007, the Company was in compliance with all of the financial covenants under the credit facility.

     Negative Covenants

     In addition, the terms of the credit facility restrict the Company’s ability to, among other things: engage in certain business combinations or divestitures; make investments in or loans to third parties, unless certain conditions are met with respect to such investments or loans; pay cash dividends or repurchase shares of the Company’s stock subject to certain minimum borrowing availability requirements; incur or assume indebtedness; issue securities; enter into certain transactions with affiliates of the Company; or permit liens to encumber the Company’s property and assets. As of March 31, 2007, the Company was in compliance with all of the negative covenants under the credit facility.

     Events of Default

     Under the terms of the credit facility, an event of default will occur with respect to the Company upon the occurrence of, among other things: a default or breach by the Company or any of its subsidiaries under any agreement resulting in the acceleration of amounts due in excess of $500,000 under such agreement; certain payment defaults by the Company or any of its subsidiaries in excess of $500,000; certain events of bankruptcy or insolvency with respect to the Company; an entry of judgment against the Company or any of its subsidiaries for greater than $500,000, which amount is not covered by insurance; or a change of control of the Company.

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(8) Earnings Per Share

     The reconciliation of basic and diluted earnings per share (“EPS”) for the three- and six-month periods ended March 31, 2007 and April 1, 2006, respectively, are as follows:

	(Unaudited)					(Unaudited)
	Three Months Ended					Six Months Ended
	March 31,		April 1,			March 31,			April 1,
(In thousands, except per share amounts)	2007		2006			2007			2006
Net earnings	$	4,913	$	7,401		$	10,692		$	15,079
Weighted average shares outstanding:
Weighted average shares outstanding (basic)		18,136		18,286			18,125			18,532
Dilutive effect of stock-based compensation		163		178			168			148
Weighted average shares outstanding (diluted)		18,299		18,464			18,293			18,680
Per share (basic):
Earnings from continuing operations	$	0.27	$	0.43		$	0.60		$	0.85
Loss from discontinued operations		—		(0.02	)		(0.01	)		(0.04	)
Net earnings	$	0.27	$	0.41		$	0.59		$	0.81
Per share (diluted):
Earnings from continuing operations	$	0.27	$	0.42		$	0.59		$	0.85
Loss from discontinued operations		—		(0.02	)		(0.01	)		(0.04	)
Net earnings	$	0.27	$	0.40		$	0.58		$	0.81

     Options to purchase 66,000 shares and 55,000 shares for the three- and six-month periods ended March 31, 2007, respectively, were antidilutive and were not included in the diluted EPS calculation. Options to purchase 16,000 shares and 56,000 shares for the three- and six-month periods ended April 1, 2006, respectively, were antidilutive and were not included in the diluted EPS computations.

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(9) Other Financial Data

     Balance sheet information:

	(Unaudited)
	March 31,			September 30,
(In thousands)	2007			2006
Accounts receivable, net:
Accounts receivable	$	36,776		$	38,183
Less allowance for doubtful accounts		(655	)		(664	)
Total	$	36,121		$	37,519
Inventories:
Raw materials	$	29,672		$	27,160
Work in process		2,242			1,657
Finished goods		19,386			17,980
Total	$	51,300		$	46,797
Other assets:
Cash surrender value of life insurance policies	$	4,183		$	3,500
Non-current deferred tax assets		1,810			2,176
Capitalized financing costs, net		1,591			1,841
Prepaid pension cost		1,200			1,242
Assets held for sale		583			583
Other		314			311
Total	$	9,681		$	9,653
Property, plant and equipment, net:
Land and land improvements	$	5,511		$	5,345
Buildings		31,689			28,473
Machinery and equipment		70,815			60,090
Construction in progress		11,802			18,013
		119,817			111,921
Less accumulated depreciation		(58,231	)		(56,704	)
Total	$	61,586		$	55,217
Accrued expenses:
Salaries, wages and related expenses	$	2,975		$	4,084
Income taxes		661			2,805
Worker’s compensation		654			119
Customer rebates		650			758
Cash dividends		547			543
Property taxes		258			641
Sales allowance reserve		236			236
Other		342			633
Total	$	6,323		$	9,819

(10) Business Segment Information

     Following the Company’s exit from the industrial wire business (see Note 2 to the consolidated financial statements), the Company’s operations are entirely focused on the manufacture and marketing of concrete reinforcing products, including welded wire reinforcement and prestressed concrete strand (“PC strand”), for the concrete construction industry. Based on the criteria specified in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company has one reportable segment. The results of operations for the industrial wire products business have been reported as discontinued operations for all periods presented.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

          This report contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, particularly under the caption “Outlook” below. When used in this report, the words “believes,” “anticipates,” “expects,” “estimates,” “intends,” “may,” “should” and similar expressions are intended to identify forward-looking statements. Although we believe that our 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 we can provide no assurances that such plans, intentions or expectations will be implemented or achieved. All forward-looking statements are based on information that is current as of the date of this report. Many of these risks and uncertainties are discussed in detail, and where appropriate, updated in our periodic reports, in particular under the caption “Risk Factors” in our report on Form 10-K for the year ended September 30, 2006, filed with the U.S. Securities and Exchange Commission. You should read these risk factors carefully.

          All forward-looking statements attributable to us or persons acting on our 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 we do not undertake and specifically decline 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 our future operations or financial performance; however, they would include, but are not limited to, the following:

• general economic and competitive conditions in the markets in which we operate;

• the continuation of favorable demand trends for our concrete reinforcing products resulting from increases in spending for nonresidential construction;

• 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 PC strand;

• unanticipated changes in customer demand, order patterns and inventory levels;

• our ability to further develop the market for engineered structural mesh (“ESM”) and expand our shipments of ESM;

• the timely and successful completion of the expansions of our ESM and prestressed concrete strand (“PC strand”) operations;

• 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 Form 10-K for the year ended September 30, 2006.

Overview

     Following our exit from the industrial wire business (see Note 2 to the consolidated financial statements), our operations are entirely focused on the manufacture and marketing of concrete reinforcing products, including PC strand and

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welded wire reinforcement for the concrete construction industry. The results of operations for the industrial wire products business have been reported as discontinued operations for all periods presented. Unless specifically indicated otherwise, all amounts and percentages presented in the management’s discussion and analysis are exclusive of discontinued operations.

Results of Operations

Statements of Operations – Selected Data
(Dollars in thousands)

	Three Months Ended									Six Months Ended
	March 31,						April 1,			March 31,						April 1,
	2007			Change			2006			2007			Change			2006
Net sales	$	74,766			(6.3	%)	$	79,776		$	144,482			(7.0	%)	$	155,380
Gross profit		12,358			(27.2	%)		16,979			25,982			(23.8	%)		34,092
Percentage of net sales		16.5	%					21.3	%		18.0	%					21.9	%
Selling, general and administrative expense	$	4,593			3.2	%	$	4,452		$	8,836			3.1	%	$	8,573
Percentage of net sales		6.1	%					5.6	%		6.1	%					5.5	%
Interest expense	$	154			2.0	%	$	151		$	296			(22.9	%)	$	384
Effective income tax rate		35.9	%					36.9	%		36.6	%					37.7	%
Earnings from continuing operations	$	4,944			(37.0	%)	$	7,845		$	10,875			(31.4	%)	$	15,858
Loss from discontinued operations		(31	)		N/M			(444	)		(183	)		N/M			(779	)
Net earnings		4,913			(33.6	%)		7,401			10,692			(29.1	%)		15,079

“N/M” = not meaningful

Second Quarter of Fiscal 2007 Compared to Second Quarter of Fiscal 2006

Net Sales

          Net sales for the second quarter of 2007 decreased 6.3% to $74.8 million from $79.8 million in the same year-ago period. Shipments for the quarter decreased 6.4% while average selling prices rose 0.2% from the prior year levels. The decrease in shipments was due to the continued weakness in demand from customers impacted by the reduction in residential construction activity and adverse winter weather conditions in certain of our markets during the quarter.

Gross Profit

          Gross profit for the second quarter of 2007 decreased 27.2% to $12.4 million, or 16.5% of net sales from $17.0 million, or 21.3% of net sales in the same year-ago period. The decrease in gross profit was due to the reduction in shipments, higher raw material costs and higher unit manufacturing costs resulting from reduced operating schedules.

Selling, General and Administrative Expense

          Selling, general and administrative expense for the second quarter of 2007 increased 3.2% to $4.6 million, or 6.1% of net sales from $4.5 million, or 5.6% of net sales in the same year-ago period. The increase was primarily due to higher compensation expense ($417,000) which was partially offset by lower consulting ($203,000), and employee benefit costs ($179,000).

Interest Expense

          Interest expense for the second quarter of 2007 was relatively flat at $154,000 compared with $151,000 in the same year-ago period.

Income Taxes

          Our effective income tax rate for the second quarter of 2007 decreased to 35.9% from 36.9% in the same year-ago period. The reduction was primarily due to a higher permanent difference in the prior year for nondeductible stock option expense and a lower effective state tax rate within the current period.

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Earnings From Continuing Operations

     Earnings from continuing operations for the second quarter of 2007 decreased 37.0% to $4.9 million, or $0.27 per diluted share from $7.8 million, or $0.42 per diluted share in the same year-ago period primarily due to the lower sales and gross profit.

Loss From Discontinued Operations

     The loss from discontinued operations for the second quarter of fiscal 2007 decreased to $31,000 or $0.00 per diluted share from $444,000, or $0.02 per diluted share in the same year-ago period. The current year loss was related to the non-recurring closure costs associated with our exit from the industrial wire business and closure of our Fredericksburg, Virginia manufacturing facility. The prior year loss reflects the operating losses incurred by the industrial wire business.

Net Earnings

     Net earnings for the second quarter of 2007 decreased 33.6% to $4.9 million, or $0.27 per diluted share from $7.4 million, or $0.40 per diluted share in the same year-ago period primarily due to the lower sales and gross profit.

First Half of Fiscal 2007 Compared to First Half of Fiscal 2006

Net Sales

     Net sales for the first half of 2007 decreased 7.0% to $144.5 million from $155.4 million in the same year-ago period. Shipments for the first half of 2007 decreased 7.4% while average selling prices rose 0.4% from the prior year levels. The decrease in shipments was due to the continued weakness in demand from customers impacted by the reduction in residential construction activity and adverse winter weather conditions in certain of our markets during the period.

Gross Profit

     Gross profit for the first half of 2007 decreased 23.8% to $26.0 million, or 18.0% of net sales from $34.1 million, or 21.9% of net sales in the same year-ago period. The decrease in gross profit was due to the reduction in shipments, higher raw material costs and higher unit manufacturing costs resulting from reduced operating schedules.

Selling, General and Administrative Expense

     Selling, general and administrative expense for the first half of 2007 increased 3.1% to $8.8 million, or 6.1% of net sales from $8.6 million, or 5.5% of net sales in the same year-ago period. The increase was primarily due to higher compensation expense ($519,000) which was partially offset by lower employee benefit costs ($303,000).

Other Income

     Other income for the first half of 2007 decreased to $50,000 from $229,000 in the same year-ago period. The income for the prior year was primarily comprised of $128,000 of duties related to the dumping and countervailing duty cases that were filed by a coalition of domestic PC strand producers which included us.

Interest Expense

     Interest expense for the first half of 2007 decreased $88,000, or 22.9%, to $296,000 from $384,000 in the same year-ago period. The decrease was due to lower average outstanding balances on the revolving credit facility in the current period together with lower amortization expense associated with capitalized financing costs.

Income Taxes

     Our effective income tax rate for the first half of 2007 decreased to 36.6% from 37.7% in the same year-ago period. The reduction was primarily due to a higher permanent difference in the prior year for nondeductible stock option expense and a lower effective state tax rate within the current period.

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Earnings From Continuing Operations

     Earnings from continuing operations for the first half of 2007 decreased 31.4% to $10.9 million, or $0.59 per diluted share from $15.9 million, or $0.85 per diluted share in the same year-ago period primarily due to the lower sales and gross profit.

Loss From Discontinued Operations

     The loss from discontinued operations for the first half of fiscal 2007 decreased to $183,000 or $0.01 per diluted share from $779,000 or $0.04 per diluted share in the same year-ago period. The current year loss was related to the non-recurring closure costs associated with our exit from the industrial wire business and closure of our Fredericksburg, Virginia manufacturing facility. The prior year loss reflects the operating losses incurred by the industrial wire business.

Net Earnings

     Net earnings for the first half of 2007 decreased 29.1% to $10.7 million, or $0.58 per diluted share from $15.1 million, or $0.81 per diluted share in the same year-ago period primarily due to the lower sales and gross profit.

Liquidity and Capital Resources

Selected Financial Data
(Dollars in thousands)

	Six Months Ended
	March 31,			April 1,
	2007			2006
Net cash provided by (used for) operating activities of continuing operations	$	(5,747	)	$	22,900
Net cash used for investing activities of continuing operations		(8,084	)		(8,783	)
Net cash provided by (used for) financing activities of continuing operations		3,516			(17,163	)
Net cash provided by (used for) operating activities of discontinued operations		(365	)		1,693
Net cash used for investing activities of discontinued operations		—			(18	)
Working capital		65,088			46,018
Total long-term debt		4,300			3,800
Percentage of total capital		3.1	%		3.5	%
Shareholders’ equity	$	132,763		$	103,610
Percentage of total capital		96.9	%		96.5	%
Total capital (total long-term debt + shareholders’ equity)	$	137,063		$	107,410

Cash Flow Analysis

     Operating activities of continuing operations used $5.7 million of cash for the first half of 2007 while providing $22.9 million in the same year-ago period. The decrease was largely due to a $23.4 million reduction in cash provided by the net change in the working capital components of receivables, inventories, and accounts payable and accrued liabilities together with a $5.0 million decrease in earnings from continuing operations. Net working capital used $19.6 million in the current year while providing $3.8 million in the prior year largely due to the $16.5 million decrease in accounts payable and accrued expenses in the current year together with the $4.5 million reduction in inventories. The decrease in accounts payable and accrued expenses resulted from payments related to higher raw material purchases made in the first quarter and early in the second quarter in anticipation of future price increases followed by a significant reduction in purchases later in the period. In comparison, accounts payable and accrued expenses increased by $15.6 million during the prior year primarily related to the $13.6 million increase in inventories.

     Investing activities of continuing operations used $8.1 million of cash for the first half of 2007 compared to $8.8 million in the same year-ago period. Capital expenditures amounted to $7.5 million for the current year largely due to capital outlays associated with our ESM and PC strand expansions, various upgrades to our Florida PC strand operation and Delaware welded wire reinforcing facility, and recurring maintenance requirements. Capital expenditures are expected to total $18.0 million for 2007 and decline to a maintenance range of $3.0 to $5.0 million beginning in 2008. The actual timing

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of these expenditures as well as the amounts are subject to change based on adjustments in project timelines, future market conditions, our financial performance and additional growth opportunities that may arise.

     Financing activities of continuing operations provided $3.5 million of cash for the first half of 2007 while using $17.2 million in the same year-ago period. The year-to-year change was largely due to the $11.9 million reduction in long-term debt and the $8.5 million of share repurchases in the prior year. Cash provided by financing activities in the current year resulted from borrowings on the revolving credit facility to fund operating activities, capital expenditures and cash dividends.

Credit Facilities

     As of March 31, 2007, we had a $100.0 million revolving credit facility in place to supplement our operating cash flow in funding our working capital, capital expenditure and general corporate requirements. As of March 31, 2007, approximately $4.3 million was outstanding on the revolving credit facility, $53.8 million of additional borrowing capacity was available and outstanding letters of credit totaled $1.7 million.

     Our total debt-to-capital ratio decreased slightly to 3.1% at March 31, 2007 from 3.5% at April 1, 2006. We believe that, in the absence of significant unanticipated cash demands, net cash generated by operating activities and amounts available under our revolving credit facility will be sufficient to satisfy our expected requirements for working capital, capital expenditures, dividends and share repurchases, if any.

Off Balance Sheet Arrangements

     We do not have any material transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons, as defined by Item 303(a)(4) of Regulation S-K of the SEC, that have or are reasonably likely to have a material current or future impact on our financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.

Contractual Obligations

     Our contractual obligations and commitments have not materially changed since September 30, 2006.

Critical Accounting Policies

     Our financial statements have been prepared in accordance with accounting policies generally accepted in the United States. Our discussion and analysis of our financial condition and results of operations are based on these financial statements. The preparation of our financial statements requires the application of these accounting policies in addition to certain estimates and judgments based on current available information, actuarial estimates, historical results and other assumptions believed to be reasonable. Actual results could differ from these estimates.

     The following critical accounting policies are used in the preparation of the financial statements:

     Revenue recognition and credit risk.We recognize revenue from product sales in accordance with Staff Accounting Bulletin (“SAB”) No. 104 when products are shipped and risk of loss and title has passed to the customer. Substantially all of our accounts receivable are due from customers that are located in the United States and we generally require no collateral depending upon the creditworthiness of the account. We provide an allowance for doubtful accounts based upon our assessment of the credit risk of specific customers, historical trends and other information. There is no disproportionate concentration of credit risk.

     Allowance for doubtful accounts.We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to change significantly, adjustments to the allowances may be required. While we believe our recorded trade receivables will be collected, in the event of default in payment of a trade receivable, we would follow normal collection procedures.

     Excess and obsolete inventory reserves.We write down the carrying value of our inventory for estimated obsolescence to reflect the lower of the cost of the inventory or its estimated net realizable value based upon assumptions about future demand and market conditions. If actual market conditions for our products are substantially different than our projections, adjustments to these reserves may be required.

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     Accruals for self-insured liabilities and litigation. We accrue estimates of the probable costs related to self-insured medical and workers’ compensation claims and legal matters. These estimates have been developed in consultation with actuaries, our legal counsel and other advisors and are based on our current understanding of the underlying facts and circumstances. Because of uncertainties related to the ultimate outcome of these issues as well as the possibility of changes in the underlying facts and circumstances, adjustments to these reserves may be required in the future.

Outlook

     We expect that the favorable demand trend for nonresidential construction, which drives an estimated 80% of our sales, will continue through the remainder of 2007 and be augmented by: (1) higher government spending for infrastructure-related construction associated with the recent enactment of the transportation funding authorization at the federal level together with the improved fiscal positions of most states and (2) the post-hurricane reconstruction that will be required in the Gulf region of the U.S.

     At the same time, the downturn in housing-related markets, which represents an estimated 20% of our sales, significantly reduced shipments during the first half of the year and is now expected to continue through the remainder of 2007. In addition, increasing imports of PC strand and continued escalation in raw material costs could compress margins depending upon the strength of future demand and our ability to recover these additional costs in our markets.

     Despite these near-term challenges, we expect that business conditions will improve as we move into the second half of 2007 and support the maintenance of gross margins and spreads at attractive levels. We recently announced price increases across all of our product lines which should favorably impact our third-quarter results. We also expect gradually increasing contributions from our expansion initiatives in the form of reduced operating costs and additional volume as we progress through 2007 in view of the start-ups of our Tennessee PC strand and North Carolina ESM expansions during the first quarter followed by the expected start-up of our Texas ESM expansion during the fourth quarter. In addition to these organic growth initiatives, we are continually evaluating potential acquisitions in existing or related products that further our penetration in current markets served or expand our geographic presence. We anticipate that these actions, together with the positive overall outlook for our markets, should have a favorable impact on our financial performance through the remainder of 2007 (see “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”).

Item 3. Qualitative and Quantitative Disclosures About Market Risk

     Our cash flows and earnings are subject to fluctuations resulting from changes in commodity prices, interest rates and foreign exchange rates. We manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. We do not use financial instruments for trading purposes and we are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as necessary.

Commodity Prices

     We do not generally use derivative commodity instruments to hedge our exposures to changes in commodity prices. Our principal commodity price exposure is hot-rolled carbon steel wire rod, our primary raw material, which we purchase from both domestic and foreign suppliers and is denominated in U.S. dollars. We negotiate quantities and pricing for both domestic and foreign steel wire rod purchases for varying periods (most recently monthly for domestic suppliers), depending upon market conditions, to manage our exposure to price fluctuations and to ensure adequate availability of material consistent with our requirements. Our ability to acquire steel wire rod from foreign sources on favorable terms is impacted by fluctuations in foreign currency exchange rates, foreign taxes, duties, tariffs and other trade actions. Although changes in wire rod costs and our selling prices may be correlated over extended periods of time, depending upon market conditions, there may be periods during which we are unable to fully recover increased rod costs through higher selling prices, which reduces our gross profit and cash flow from operations.

Interest Rates

     We have debt obligations that are sensitive to changes in interest rates under our senior secured credit facility. However, at March 31, 2007, the outstanding balance on the credit facility was $4.3 million and, accordingly, changes in interest rates are not expected to materially impact us unless our borrowings were to materially increase.

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Foreign Exchange Exposure

     We have not typically hedged foreign currency exposures related to transactions denominated in currencies other than U.S. dollars, as such transactions have not been material in the past. We will occasionally hedge firm commitments for certain equipment purchases that are denominated in foreign currencies. The decision to hedge any such transactions is made by us on a case-by-case basis. There were no forward contracts outstanding as of March 31, 2007.

Item 4. Controls and Procedures

     We have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2007, the end of the period covered by this report. This evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, we have concluded that these disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports filed by us and submitted under the Securities Exchange Act of 1934, as amended (“the Exchange Act”) is recorded, processed, summarized and reported as and when required. Further we concluded that our disclosure controls and procedures have been designed to ensure that information required to be disclosed in reports filed by us under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner to allow timely decisions regarding the required disclosure.

     There has been no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 1A. Risk Factors

     There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in our Form 10-K for the fiscal year ended September 30, 2006. You should carefully consider these factors in addition to the other information set forth in this report which could materially affect our business, financial condition or future results. The risks described in this report and in our Form 10-K for the year ended September 30, 2006 are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     On January 10, 2007, our Board of Directors authorized the repurchase of up to $25.0 million of our outstanding common stock over a period of up to twelve months ending January 5, 2008. During the six months ended March 31, 2007, we did not repurchase any of our common stock under the repurchase program or otherwise.

     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. We are not obligated to acquire any particular amount of common stock and the program may be suspended at any time at our discretion.

Item 4. Submission of Matters to a Vote of Security Holders

     The Company held its 2007 Annual Meeting of Shareholders on February 13, 2007. The Company’s shareholders elected three directors to serve three-year terms ending in 2010. Voting results were as follows:

	Votes
Nominee	For		Withheld
Louis E. Hannen		16,703,876		504,182
C. Richard Vaughn		11,207,823		6,000,235
Howard O. Woltz, Jr.		13,013,537		4,194,521

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Item 6. Exhibits

a. Exhibits:

31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		INSTEEL INDUSTRIES, INC.
		Registrant
Date: May 1, 2007	By:	/s/ H.O. Woltz III
		H.O. Woltz III
		President and Chief Executive Officer
Date: May 1, 2007	By:	/s/ Michael C. Gazmarian
		Michael C. Gazmarian
		Vice President, Chief Financial Officer and Treasurer

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