INSTEEL INDUSTRIES INC Stock Compensation Disclosure

(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, 2025, the shareholders of the Company approved the 2025 Equity Incentive Plan of Insteel Industries Inc. (the “2025 Plan”), which authorizes the issuance of up to 800,000 shares of our common stock, plus any shares remaining available for grant under the 2015 Equity Incentive Plan of Insteel Industries Inc. (as amended, the “2015 Plan”) as of the effective date of the 2025 Plan and any shares subject to an award granted under the 2015 Plan which are forfeited, cancelled, terminated, lapsed or expired without the issuance of shares. The 2025 Plan, which expires on February 10, 2035, replaces the 2015 Plan, which expired on February 17, 2025. As of September 27, 2025, there were 905,000 shares of our common stock available for future grants under the 2025 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 $1.4 million in 2025, $1.4 million in 2024 and $1.0 million in 2023. As of September 27, 2025, there was $712,000 of unrecognized compensation cost related to unvested options which is expected to be recognized over a weighted average period of 2.20 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 2025, 2024 and 2023 were $12.70, $13.01 and $13.27 per share, respectively, based on the following weighted-average assumptions:

 

		Year Ended
		September 27,				September 28,				September 30,
		2025				2024				2023
Expected term (in years)			4.62				4.20				4.35
Risk-free interest rate			4.29	%			4.12	%			4.27	%
Expected volatility			39.32	%			44.83	%			49.61	%
Expected dividend yield			0.38	%			0.36	%			0.40	%

 

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 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
Granted			101				33.22
Exercised			(38	)			30.79								194
Forfeited			(8	)			41.86
Outstanding at September 28, 2024			466				31.03
Granted			112				33.63
Exercised			(54	)			26.95								568
Outstanding at September 27, 2025			524				32.01				6.89				3,549
Vested and anticipated to vest in the future at September 27, 2025			512				31.98				6.84				3,490
Exercisable at September 27, 2025			314				31.30				5.46				2,409

 

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 27,				September 28,				September 30,
(In thousands)		2025				2024				2023
Restricted stock unit grants:
Units			68				52				57
Market value		$	2,230			$	1,769			$	1,738
Compensation expense			2,070				1,730				1,392

 

As of September 27, 2025, there was $1.3 million of unrecognized compensation cost related to unvested RSUs which is expected to be recognized over a weighted average period of 1.59 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 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
Granted			52				33.56
Vested			(38	)			33.02				1,322
Balance, September 28, 2024			119				32.96
Granted			68				32.77
Vested			(40	)			35.05				1,323
Balance, September 27, 2025			147				32.31