Note 9 - Stock-based Compensation

12 Months Ended

Sep. 30, 2023

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 September 30, 2023, there were 430,000 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 $1.0 million in 2023, $1.1 million in 2022 and $860,000 in 2021. As of September 30, 2023, there was $731,000 of unrecognized compensation cost related to unvested options which is expected to be recognized over a weighted average period of 2.13 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 2023, 2022 and 2021 were $13.27, $14.67 and $14.47 per share, respectively, based on the following weighted-average assumptions:

	Year Ended
	September 30,			October 1,			October 2,
	2023			2022			2021
Expected term (in years)		4.35			4.61			4.87
Risk-free interest rate		4.27	%		3.03	%		0.68	%
Expected volatility		49.61	%		49.63	%		50.34	%
Expected dividend yield		0.40	%		0.34	%		0.42	%

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		Aggregate
	Options			Weighted		Term - Weighted		Intrinsic
	Outstanding			Average		Average		Value
	(in thousands)			Exercise Price		(in years)		(in thousands)
Outstanding at October 3, 2020		482		$	24.90
Granted		74			34.76
Exercised		(128	)		21.17			$	2,212
Outstanding at October 2, 2021		428			27.72
Granted		82			35.32
Exercised		(85	)		24.23				1,615
Forfeited		(60	)		29.29
Outstanding at October 1, 2022		365			30.00
Granted		97			30.63
Exercised		(32	)		21.29				350
Forfeited		(19	)		33.22
Outstanding at September 30, 2023		411			30.68		6.59		1,561
Vested and anticipated to vest in the future at September 30, 2023		403			30.66		6.54		1,551
Exercisable at September 30, 2023		258			29.63		5.09		1,364

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
	September 30,		October 1,		October 2,
(In thousands)	2023		2022		2021
Restricted stock unit grants:
Units		57		43		43
Market value	$	1,738	$	1,563	$	1,430
Compensation expense		1,392		1,365		1,128

As of September 30, 2023, there was $1.1 million of unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average period of 1.71 years.

The following table summarizes RSU activity:

				Weighted		Aggregate
	Restricted			Average		Intrinsic
	Stock Units			Grant Date		Value
(Unit amounts in thousands)	Outstanding			Fair Value		(in thousands)
Balance, October 3, 2020		122		$	23.07
Granted		43			33.22
Vested		(36	)		29.21	$	1,191
Balance, October 2, 2021		129			24.73
Granted		43			35.93
Forfeited		(3	)		22.09
Vested		(49	)		22.17		1,773
Balance, October 1, 2022		120			29.88
Granted		57			30.53
Forfeited		(10	)		30.36
Vested		(62	)		25.71		1,911
Balance, September 30, 2023		105			35.07