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Insteel Industries, Inc.

February 22, 2005

Via EDGAR

Mr. Rufus Decker

Accounting Branch Chief

Division of Corporation Finance

United States Securities and Exchange Commission

Washington, D.C. 20549-0510

    RE:

    Insteel Industries, Inc. (“Insteel” or the “Company”)

    Form 10-K for the fiscal year ended October 2, 2004

    File 1-9929

Dear Mr. Decker:

Following is our response to the letter of the staff of the Division of Corporation Finance (the
“Staff”) dated January 18, 2005 concerning Insteel’s Form 10-K for the fiscal year ended October 2,
2004. We have repeated the Staff’s comments from the January 18, 2005 letter and reflected our
response immediately following each item. Please note the numbering of the items corresponds to the
numbering of the comments in the Staff’s January 18, 2005 letter.

General

    1.
    Where a comment below requests additional disclosures or other revisions to be made, please
show us in your supplemental response what the revisions will look like. These revisions
should be included in your future filings.

Company Response

We acknowledge your comment and have provided the requested disclosure or other revisions to the
Staff’s comments in our response below, as applicable, and will include such additional disclosures
or other revisions in our future filings. In addition, due to the necessity to restate the
Company’s Form 10-K for the fiscal year ended October 2, 2004, we have provided for the additional
changes in the amended filing as indicated in our response to the comments below.

Management’s Discussion and Analysis

Results of Operations, page 13

    2.
    Rather than disclosing and discussing amounts and percentages in your MD&A that exclude
various items, such as revenues from discontinued product lines on page 14 and restructuring
charge and the gain on an insurance settlement on page 15, please instead quantify and discuss
each item as a part of your explaining the business reasons for the change in the overall GAAP
line item. Please also revise your MD&A to better quantify the incremental impact of each
business reason mentioned on the overall change in that line item. Please show us what your
revised MD&A will look like for 2004 as compared to 2003, which will still appear in your next
Form 10-K.

1373 BOGGS DRIVE / MOUNT
AIRY, NORTH CAROLINA 27030 / 336-786-2141/ FAX 336-786-9463

Company Response

Following is the revised MD&A for 2004 vs. 2003:

2004 Compared with 2003

Net Sales

     Net sales increased 57% to $332.6 million in 2004 from $212.1 million in 2003 primarily due to
higher selling prices for the Company’s products largely driven by escalating raw material costs
that the Company was able to pass through to its customers. Average selling prices for the year
increased 48% while shipments rose 6% from the prior year levels. Sales of the Company’s concrete
reinforcing products (welded wire fabric and PC strand) increased 62% to $298.7 million, or 90% of
consolidated sales in 2004 from $184.9 million, or 87% of consolidated sales in 2003. Sales of
industrial wire products (tire bead wire and other industrial wire) rose 24% to $33.9 million, or
10% of consolidated sales in 2004 from $27.2 million, or 13% of consolidated sales in 2003. The
changes in product mix were primarily due to reduced shipments for industrial wire products and
lower price increases relative to the average price increases for the Company’s concrete
reinforcing products. Based on the Company’s fiscal calendar, sales for the current year benefited
from reflecting one additional week than the prior year (2004 was a 53-week fiscal year versus 52
weeks in the prior fiscal year).

Gross Profit

     Gross profit rose to $81.3 million, or 24.5% of net sales in 2004 from $21.3 million, or 10.0%
of net sales in 2003. The increase in gross profit was largely driven by higher spreads between
average selling prices and raw material costs resulting from the Company’s efforts to recover
rapidly escalating raw material costs and improve its gross margins together with increased
shipments. In addition, gross profit for the current year benefited from the sale of lower cost
inventory in view of the increases in raw material costs and average selling prices that occurred
over the course of the year.

Selling, General and Administrative Expense

     Selling, general and administrative expense (“SG&A expense”) increased 89% to $21.4 million,
or 6.4% of net sales in 2004 from $11.3 million, or 5.3% of net sales in 2003. The increase in SG&A
expense was primarily due to compensation expense associated with the Company’s stock option plans
that are accounted for as variable awards resulting from the appreciation in the price of the
Company’s stock ($6.2 million), higher incentive plan expense driven by the improved financial
performance of the Company ($2.2 million), higher employee medical insurance costs ($752,000), an
increase in the allowance for doubtful accounts ($213,000) and legal fees related to the dumping
and countervailing duty cases that were filed by a coalition of domestic PC strand producers,
including the Company, against certain countries exporting into the U.S. market ($93,000).

Other Expense (Income)

     Other income was $1.6 million in 2004 compared with other expense of $7,000 in 2003. The
income for the current year was primarily comprised of an $830,000 gain resulting from the
settlement of the litigation related to a supply agreement with a vendor and $572,000 of profit
from the sale of raw material to a vendor.

Insteel Industries, Inc.

Earnings Before Interest, Income Taxes and Accounting Change

     The Company’s earnings before interest, income taxes and accounting change increased to $61.6
million in 2004 compared with $9.9 million in 2003 primarily due to the higher sales and gross
profit in the current year partially offset by higher SG&A expense.

Interest Expense

     Interest expense decreased $1.1 million, or 11%, to $9.0 million in 2004 from $10.1 million in
2003. The decrease was primarily due to reductions in the average borrowing levels on the Company’s
senior secured credit facility ($1.5 million) and average interest rates ($890,000), partially
offset by higher amortization expense associated with the unrealized loss on the terminated
interest rate swaps and capitalized financing costs ($1.3 million).

Income Taxes

     The Company’s effective income tax rate was 40.2% in 2004. In 2003, the effective income tax
rate was impacted by a reduction in the valuation allowance on deferred income tax assets from $7.5
million to $1.3 million combined with the near break-even pre-tax earnings (a pre-tax loss of
$112,000). In 2004, the valuation allowance was further reduced to $864,000 based upon the
Company’s utilization of state net operating loss carryforwards against which an allowance had
previously been established. However, the reduction in the valuation allowance did not
significantly impact the effective tax rate in view of the magnitude of the Company’s pre-tax
earnings in 2004.

Net Earnings

     The Company’s net earnings for 2004 increased to $31.5 million, or $3.51 per diluted share,
compared to $6.7 million, or $0.78 per diluted share, in 2003 primarily due to the higher sales and
gross profit together with the other income and reduction in interest expense in the current year
partially offset by higher SG&A expense.

     Beginning with the amended Form 10-K for the year ended October 2, 2004, we will quantify the
incremental impact of each business reason provided for changes in line item amounts, to the extent
possible, and will not reference non-GAAP amounts that exclude various items.

Insteel Industries, Inc.

Liquidity and Capital Resources

Financial Covenants, page 17

    3.
    Please disclose in tabular form how the fixed charge coverage ratio is computed for each
period it is presented. See Item 10(e) of Regulation S-X.

Company Response

     As of October 2, 2004, the Company’s Fixed Charge Coverage Ratio (as defined in the Credit
Agreement) was 1.90, as calculated below, and it was in compliance with all of the financial
covenants under the credit facility.

Fixed Charge Coverage Ratio

For the four-month period ended October 2, 2004

    ($ amounts in thousands)

    EBITDA

    $
    30,436

    Less Unfunded Capital Expenditures

    (1,505
    )

    28,931

    Fixed Charges

    15,245

    Fixed Charge Coverage Ratio

    1.90

    Net earnings

    $
    12,019

    Cash pension contributions

    (213
    )

    Income tax provision

    8,815

    Interest expense

    2,236

    Depreciation and amortization (net)

    1,792

    Pension expense

    254

    Expense associated with option grants

    5,515

    Net non-cash losses recorded as other
expenses

    18

    EBITDA

    $
    30,436

The Company’s credit facility includes financial covenants that are derived from
non-GAAP financial measures, particularly, earnings before interest, taxes,
depreciation and amortization (“EBITDA”). These covenants include a Fixed Charge
Coverage Ratio, as defined above. The Company’s management uses EBITDA and the debt
covenant ratios to measure compliance with its debt covenants and evaluate the
operations of the Company. Management believes this presentation is appropriate and
enables investors to (i) evaluate the Company’s compliance with the financial
covenants of its credit facility and (ii) assess the Company’s performance over the
periods presented. EBITDA and the debt covenant ratio as presented here may not be
comparable to similarly titled measures used by other companies. EBITDA and the debt
covenant ratio (i) should not be considered as an alternative to net earnings
(determined in accordance with GAAP) as an indicator of the Company’s financial
performance, (ii) is not an alternative to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company’s liquidity, and
(iii) is not indicative of funds available to fund the Company’s cash needs because of
needed capital replacement or expansion, debt service obligations, or other cash
commitments and uncertainties.

Beginning with the amended Form 10-K for the year ended October 2, 2004, we will provide a
similar supporting schedule of the applicable financial covenant calculations as defined under the
terms of the Credit Agreement.

Insteel Industries, Inc.

Aggregate Contractual Obligations, page 18

    4.
    Please revise your table of contractual obligations to include the following:

    •
    Estimated interest payments on your debt;

    •
    Estimated payments under interest rate swap agreements; and

    •
    Planned funding of pension and other postretirement benefit obligations.

Because the table is aimed at increasing transparency of cash flow, we believe these
payments should be included in the table. Please also disclose any assumptions you made to
derive these amounts.

Company Response

Following is the revised table of contractual obligations reflecting the additions of the estimated
interest payments on debt and planned funding of pension benefit obligations. As the interest rate
swap agreements were terminated in May 2004, there were no future payment obligations outstanding
as of October 2, 2004 pertaining to these instruments.

Payments Due by Period

(in thousands)

    Less Than

    More Than

    Total

    1 Year

    1 - 3 Years

    3 - 5 Years

    5 Years

    Contractual Obligations:

    Long-term debt obligations

    $
    52,928

    $
    3,960

    $
    48,968

    $
    —

    $
    —

    Operating lease obligations

    1,503

    497

    562

    25

    419

    Pension benefit obligations

    3,805

    385

    1,180

    515

    1,725

    Interest expense obligations (1)

    9,504

    2,860

    6,644

    —

    —

    Total

    $
    67,740

    $
    7,702

    $
    57,354

    $
    540

    $
    2,144

    (1)

    Reflects future interest payments through scheduled maturity dates based upon average borrowing rates, outstanding debt
balances and scheduled principal payments as of October 2, 2004.

Beginning with the amended Form 10-K for the year ended October 2, 2004, we will provide a
similar expanded schedule of the future contractual obligations that are in effect at that point in
time.

Insteel Industries, Inc.

Financial Statements

Statements of Operations, page 22

    5.
    Operating income would appear between paragraphs 6 and 7 of Rule 5-03(b) of Regulation S- X.
The presentation of a subtotal between the operating income subtotal and the subtotal
described in paragraph 10 is not appropriate. If the earnings before interest, income taxes
and accounting change subtotal represents operating income under US GAAP, please consider
retitling this subtotal accordingly. If it does not represent operating income under US GAAP,
please tell us your basis for presenting this subtotal in your US GAAP financial statements.

Company Response

Although U.S. GAAP indicates that certain income or expense line items should be classified as
operating or non-operating on the income statement, it is only in the context of when operating
income is presented as a subtotal. We do not believe that operating income is defined or required
as a separate line item under U.S. GAAP. Additionally, it does not appear that operating income is
specifically defined or required to be presented as a separate line item under Regulation S-X which
is also the case for the gross profit subtotal that is frequently presented on the income
statement. Finally, for those financial statement users that prefer the presentation of an
operating income measure, the Company provides an explanation of the significant components of the
other expense (income) line item in its MD&A which facilitates the interpretation of the earnings
before interest and income taxes subtotal as reported or the derivation of an operating income
measure.

Insteel Industries, Inc.

Statements of Cash Flows, page 24

    6.
    Please tell us how you determined the cash you paid as a result of your termination of
interest rate swaps should be appropriately classified as a financing activity, as opposed to
an operating activity. See footnote 12b. to paragraph 45A of SFAS 133, as amended by SFAS
149.

Company Response

As required under the terms of its previous credit facility, in April 2000, the Company entered
into at-the-money plain-vanilla interest rate swap agreements in order to protect its lenders
against the negative impact on the Company’s financial condition that would result from an increase
in the cost of the Company’s variable rate indebtedness. In May 2004, the swap agreements were
terminated in connection with the refinancing of the Company’s credit facility which was completed
in June 2004. Although Footnote 12b to paragraph 45A of SFAS 133 indicates that such swap
agreements involving no payments between the parties at inception are not considered to have a
financing element present at inception, it does not specifically prescribe how the associated
payments should be classified on the cash flow statement. Based on the specific facts and
circumstances, the Company classified the payments that were made to terminate the interest rate
swaps as a financing activity since the terminations were required by its previous lenders that
were counterparties to the swaps as a condition for the completion of the refinancing and their
willingness to waive certain fees which would have otherwise been payable by the Company. From the
reader’s perspective, the Company believes that classification of the termination payments as a
financing activity is a more appropriate presentation in view of the underlying factors that were
responsible for the termination of the swap agreements prior to their scheduled maturity dates.

Insteel Industries, Inc.

    7.
    Please tell us what