Note 9 - Stock-based Compensation

12 Months Ended

Oct. 03, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

(9) Stock-Based Compensation

Under our equity incentive plan, employees and directors may be granted stock options, restricted stock, restricted stock units and performance awards. Effective February 11, 2020, our shareholders approved an amendment to the 2015 Equity Incentive Plan of Insteel Industries, Inc. (the “2015 Plan”), which authorizes up to an additional 750,000 shares of our common stock for future grants under the plan and expires on February 17, 2025. As of October 3, 2020, there were 738,000 shares of our common stock available for future grants under the 2015 Plan, which is our only active equity incentive plan.

Stock option awards. Under our equity incentive plan, 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 the plan generally vest over three years and expire ten years from the date of the grant. Compensation expense associated with stock options was $810,000 in 2020, $889,000 in 2019 and $906,000 in 2018. As of October 3, 2020, there was $367,000 of unrecognized compensation cost related to unvested options which is expected to be recognized over a weighted average period of 1.69 years.

The fair value of each option award granted is estimated on the date of grant using a Monte Carlo valuation model. The weighted-average estimated fair values of stock options granted during 2020, 2019 and 2018 were $8.05, $7.15 and $12.06 per share, respectively, based on the following weighted-average assumptions:

	Year Ended
	October 3,			September 28,			September 29,
	2020			2019			2018
Expected term (in years)		4.81			4.59			4.79
Risk-free interest rate		2.75	%		2.03	%		2.71	%
Expected volatility		47.18	%		42.79	%		37.32	%
Expected dividend yield		0.59	%		0.56	%		0.37	%

The assumptions utilized in the Monte Carlo valuation model are evaluated and revised, as necessary, to reflect market conditions and actual historical experience. The expected term for options was 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. The risk-free interest rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was derived using a term structure based on historical volatility and the volatility implied by exchange-traded options on our common stock. The dividend yield was calculated based on our annual dividend as of the option grant date.

The following table summarizes stock option activity:

									Contractual
				Exercise Price					Term -		Aggregate
				Per Share					Weighted		Intrinsic
	Options						Weighted		Average		Value
(Share amounts in thousands)	Outstanding			Range			Average		(in years)		(in thousands)
Outstanding at September 30, 2017		392		$9.16	-	$37.06	$	23.40
Granted		77		29.69	-	41.85		34.84
Exercised		(196	)	9.16	-	37.06		19.68			$	3,866
Forfeited		(9	)	23.95	-	37.06		29.88
Outstanding at September 29, 2018		264		10.23	-	41.85		29.25
Granted		129		18.25	-	21.57		19.74
Exercised		(5	)	18.05	-	26.75		23.95				21
Outstanding at September 28, 2019		388		10.23	-	41.85		26.16
Granted		121		19.86	-	22.09		21.08
Forfeited		(27	)	18.05	-	41.85		25.88
Outstanding at October 3, 2020		482		10.23	-	41.85		24.90		6.50		160
Vested and anticipated to vest in the future at October 3, 2020		477						24.95		6.47		159
Exercisable at October 3, 2020		283						26.99		4.69		133

Stock option exercises include “net exercises” for which the optionee received shares of common stock equal to the intrinsic value of the options (fair market value of common stock on the date of exercise less exercise price) reduced by any applicable withholding taxes.

Restricted stock units. Restricted stock units (“RSUs”) granted under our equity incentive plan are valued based upon the fair market value on the date of the grant and provide for a dividend equivalent payment which is included in compensation expense. The vesting period for RSUs is generally one year from the date of the grant for RSUs granted to directors and three years from the date of the grant for RSUs granted to employees. RSUs do not have voting rights. RSU grants and compensation expense are as follows:

	Year Ended
	October 3,		September 28,		September 29,
(In thousands)	2020		2019		2018
Restricted stock unit grants:
Units		68		61		35
Market value	$	1,444	$	1,225	$	1,175
Compensation expense		1,218		1,168		1,172

As of October 3, 2020, there was $589,000 of unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average period of 1.86 years.

The following table summarizes RSU activity:

				Weighted
	Restricted			Average
	Stock Units			Grant Date
(Unit amounts in thousands)	Outstanding			Fair Value
Balance, September 30, 2017		128		$	25.92
Granted		35			33.52
Forfeited		(3	)		29.60
Released		(57	)		22.26
Balance, September 29, 2018		103			30.40
Granted		61			20.18
Released		(49	)		27.64
Balance, September 28, 2019		115			26.16
Granted		68			21.29
Forfeited		(6	)		25.49
Released		(55	)		27.07
Balance, October 3, 2020		122			23.07