Stock-Based Compensation

9 Months Ended

Jun. 30, 2013

Stock-Based Compensation

Stock-Based Compensation

Note 18.  Stock-based compensation

Stock options

Woodward’s 2006 Omnibus Incentive Plan (the “2006 Plan”), which has been approved by Woodward’s stockholders, provides for the grant of up to 7,410 stock options to its employees and directors.  Woodward believes that these awards align the interests of its employees and directors with those of its stockholders.  Stock option awards are granted with an exercise price equal to the market price of Woodward’s stock at the date of grant, a  ten-year term, and a four-year vesting schedule at a rate of 25% per year.

The fair value of options granted was estimated on the date of grant using the Black-Scholes-Merton option-valuation model using the assumptions in the following table.  Woodward calculates the expected term, which represents the period of time that stock options granted are expected to be outstanding, based upon historical experience of plan participants.  Expected volatility is based on historical volatility using daily stock price observations.  The estimated dividend yield is based upon Woodward’s historical dividend practice and the market value of its common stock.  The risk-free rate is based on the U.S. treasury yield curve, for periods within the contractual life of the stock option, at the time of grant.

	Three-Months Ended				Nine-Months Ended
	June 30,				June 30,
	2013		2012		2013				2012
Expected term		5.8 years		5.9 years		5.8	-	8.6 years		5.9	-	8.5 years
Estimated volatility		54.4%		55.5%		48.7%	-	54.9%		48.9%	-	55.6%
Estimated dividend yield		0.9%		0.7%		0.8%	-	1.0%		0.7%	-	1.1%
Risk-free interest rate		0.9%		1.3%		0.8%	-	1.3%		1.0%	-	1.6%

The following is a summary of the activity for stock option awards during the three and nine-months ended June 30, 2013:

	Three-Months Ended				Nine-Months Ended
	June 30, 2013				June 30, 2013
	Number of options		Weighted-Average Exercise Price per Share		Number of options		Weighted-Average Exercise Price per Share
Options, beginning balance		4,535	$	24.90		4,556	$	21.79
Options granted		3		36.00		693		33.72
Options exercised		(57)		15.89		(750)		13.32
Options forfeited		(10)		29.93		(28)		29.07
Options, ending balance		4,471		25.01		4,471		25.01

Changes in non-vested stock options during the three and nine-months ended June 30, 2013 were as follows:

	Three-Months Ended				Nine-Months Ended
	June 30, 2013				June 30, 2013
	Number of options		Weighted-Average Exercise Price per Share		Number of options		Weighted-Average Exercise Price per Share
Options, beginning balance		1,758	$	29.97		1,670	$	27.07
Options granted		3		36.00		693		33.72
Options vested		(10)		30.31		(594)		26.22
Options forfeited		(10)		29.93		(28)		29.07
Options, ending balance		1,741		29.98		1,741		29.98

As of June 30, 2013, there was approximately $13,514 of total unrecognized compensation cost, which assumes a weighted-average forfeiture rate of 5.8%, related to non-vested stock-based compensation arrangements granted under the 2002 Stock Option Plan (for which no further grants will be made) and the 2006 Plan.  The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 2.2 years.

Information about stock options that have vested, or are expected to vest, and are exercisable at June 30, 2013 was as follows:

	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		4,471	$	25.01		5.9	$	67,103
Options vested and exercisable		2,730		21.84		4.4		49,592
Options vested and expected to vest		4,368		24.87		5.8		66,167