(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 April 2, 2016, there were 612,000 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 associated with stock options for the three- and six-month periods ended April 2, 2016 and March 28, 2015 is as follows:

	Three Months Ended				Six Months Ended
(in thousands)	April 2, 2016		March 28, 2015		April 2, 2016		March 28, 2015
Stock options:
Compensation expense	$	383	$	382	$	466	$	555

As of April 2, 2016, the remaining unamortized compensation cost related to unvested stock option awards was $374,000, which is expected to be recognized over a weighted average period of 1.44 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 three- and six-month periods ended April 2, 2016 and March 28, 2015 was $8.69 and $7.75 per share, respectively, based on the following assumptions:

	Six Months Ended
	April 2, 2016			March 28, 2015
Risk-free interest rate		1.39	%		1.77	%
Dividend yield		0.53	%		0.55	%
Expected volatility		39.23	%		37.39	%
Expected term (in years)		5.75			5.67

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 six-month period ended April 2, 2016:

	Options			Exercise Price Per Share					Contractual Term -		Aggregate Intrinsic
	Outstanding (in thousands)			Range			Weighted Average		Weighted Average (in years)		Value (in thousands)
Outstanding at October 3, 2015		923		$7.55	-	$21.96	$	15.14
Granted		56		23.95	-	23.95		23.95
Exercised		(343	)	7.55	-	20.50		11.96			$	4,404
Outstanding at April 2, 2016		636		7.55	-	23.95		17.63		6.89		7,230

Vested and anticipated to vest in the future at April 2, 2016		630						17.60		6.87		7,173

Exercisable at April 2, 2016		384						15.79		5.55		5,068

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 six-month periods ended April 2, 2016 and March 28, 2015 are as follows:

	Three Months Ended				Six Months Ended
(In thousands)	April 2, 2016		March 28, 2015		April 2, 2016		March 28, 2015
Restricted stock unit grants:
Units		43		36		43		36
Market value	$	1,027	$	790	$	1,027	$	790
Compensation expense		664		449		810		718

As of April 2, 2016, the remaining unrecognized compensation cost related to unvested RSUs was $773,000, which is expected to be recognized over a weighted average vesting period of 1.65 years.

The following table summarizes RSU activity during the six-month period ended April 2, 2016:

(Unit amounts in thousands)	Restricted Stock Units Outstanding			Weighted Average Grant Date Fair Value
Balance, October 3, 2015		157		$	18.96
Granted		43			23.95
Released		(38	)		18.50
Balance, April 2, 2016		162			20.39