(6) Stock-Based Compensation

Under the Company’s equity incentive plans, employees and directors may be granted stock options, restricted stock, restricted stock units and performance awards. Effective February 17, 2015, the shareholders of the Company approved the 2015 Equity Incentive Plan of Insteel Industries, Inc. (the “2015 Plan”), which authorizes up to 900,000 shares of Company common stock for future grants under the plan. The 2015 Plan, which expires on February 17, 2025, replaces the 2005 Equity Incentive Plan of Insteel Industries, Inc., which expired on February 15, 2015. As of June 27, 2015, there were 801,000 shares of Company common stock available for future grants under the 2015 Plan, which is the Company’s only active equity incentive plan.

Stock

ptions

Under the Company’s equity incentive plans, employees and directors may be granted options to purchase shares of the Company’s common stock at the fair market value on the date of the grant. Options granted under these plans generally vest over three years and expire ten years from the date of the grant. Compensation expense and excess tax benefits associated with stock options for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 are as follows:

	Three Months Ended						Nine Months Ended
	June 27,			June 28,			June 27,			June 28,
(In thousands)	2015			2014			2015			2014
Stock options:
Compensation expense	$	78		$	221		$	633		$	744
Excess tax benefits		(3	)		(31	)		(150	)		(222	)

As of June 27, 2015, the remaining unamortized compensation cost related to unvested stock option awards was $287,000, which is expected to be recognized over a weighted average period of 1.46 years.

The fair value of each option award granted is estimated on the date of grant using a Monte Carlo valuation model. The estimated fair values of stock options granted during the nine-month periods ended June 27, 2015 and June 28, 2014 were $7.75 and $6.93 per share, respectively, based on the following assumptions:

	Nine Months Ended
	June 27,			June 28,
	2015			2014
Risk-free interest rate		1.77	%		1.56	%
Dividend yield		0.55	%		0.62	%
Expected volatility		37.39	%		41.46	%
Expected term (in years)		5.67			4.94

The assumptions utilized in the Monte Carlo 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 was based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield was calculated based on the Company’s annual dividend as of the option grant date. The expected volatility was derived using a term structure based on historical volatility and the volatility implied by exchange-traded options on the Company’s common stock. 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 following table summarizes stock option activity for the nine-month period ended June 27, 2015:

											Contractual
											Term -		Aggregate
	Options			Exercise Price Per Share							Weighted		Intrinsic
	Outstanding								Weighted		Average		Value
	(in thousands)			Range					Average		(years)		(in thousands)
Outstanding at September 27, 2014		871		$	6.89	-	$	20.50	$	14.23
Granted		63			21.96	-		21.96		21.96
Exercised		(27	)		6.89	-		11.15		9.17			$	328
Outstanding at June 27, 2015		907			7.55	-		21.96		14.92		6.02		4,499

Vested and anticipated to vest in the future at June 27, 2015		903								14.91		6.01		4,491

Exercisable at June 27, 2015		633								13.35		4.87		4,005

Stock option exercises include “net exercises,” pursuant to 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 uni

Restricted stock units (“RSUs”) granted under the Company’s equity incentive plans 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 for the three- and nine-month periods ended June 27, 2015 and June 28, 2014 are as follows:

	Three Months Ended				Nine Months Ended
	June 27,		June 28,		June 27,		June 28,
(In thousands)	2015		2014		2015		2014
Restricted stock unit grants:
Units		-		-		36		40
Market value	$	-	$	-	$	790	$	763
Compensation expense		151		328		869		1,033

As of June 27, 2015, the remaining unrecognized compensation cost related to unvested RSUs was $621,000, which is expected to be recognized over a weighted average vesting period of 1.44 years.

The following table summarizes RSU activity during the nine-month period ended June 27, 2015:

				Weighted
	Restricted			Average
	Stock Units			Grant Date
(Unit amounts in thousands)	Outstanding			Fair Value
Balance, September 27, 2014		197		$	15.68
Granted		36			21.96
Released		(50	)		14.99
Balance, June 27, 2015		183			17.09