Note 19. Stockholders’ equity

Stock repurchase program

In the first quarter of fiscal year 2017, Woodward’s Board of Directors terminated the Company’s prior stock repurchase program (the “Prior Repurchase Program”) and replaced it with a new program for the repurchase of up to $500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that will end in 2019 (the “2016 Authorization”). Under the 2016 Authorization, in the first nine-months of fiscal year 2017, Woodward purchased 886 shares of its common stock for $61,229, of which 350 shares were purchased pursuant to a 10b5-1 plan and 536 shares were purchased pursuant to a 10b-18 plan.

Under the Prior Repurchase Program, in the first quarter of fiscal year 2016, Woodward executed a 10b5-1 plan to repurchase up to $125,000 of its common stock for a period that ended on April 20, 2016. During the first nine-months of fiscal year 2016, Woodward purchased 2,635 shares of its common stock for $125,000.

Stock-based compensation

Provisions governing outstanding stock option awards are included in the 2006 Omnibus Incentive Plan (the “2006 Plan”) and the 2002 Stock Option Plan (the “2002 Plan”). The 2002 Plan provided that no further grants would be made after December 31, 2006. The 2006 Plan, which was approved by Woodward’s stockholders and became effective January 25, 2006, expired in fiscal year 2016, therefore, no further grants will be made under the 2006 Plan.

Woodward has reserved a total of 2,000 shares of Woodward’s common stock for issuance under the 2017 Omnibus Incentive Plan (the “2017 Plan”), which was approved by Woodward’s stockholders in January 2017 and is a successor plan to the 2006 Plan. As of September 14, 2016, the effective date of the 2017 Plan, Woodward’s Board of Directors delegated authority to administer the 2017 Plan to the compensation committee of the board (the “Committee”), including, but not limited to, the power to determine the recipients of awards and the terms of those awards. The Committee approved issuance of options under the 2017 Plan, with an award date of October 3, 2016 conditional and subject to approval of the 2017 Plan by the stockholders. The stock options conditionally awarded under the 2017 Plan were not granted or outstanding for accounting purposes prior to stockholder approval of the 2017 Plan, and as such no stock-based compensation expense was recognized on these stock options during the three-months ended December 31, 2016. Stock-based compensation expense recognized on these stock options for the six-months ended June 30, 2017 includes recognition of the elapsed service period of these stock options from October 3, 2016 through June 30, 2017.

Stock options

To date equity awards under the 2017 Plan have consisted of grants of stock options to Woodward’s employees and directors. Woodward believes that these stock options align the interests of its employees and directors with the interests of its stockholders. Stock option awards are granted with an exercise price equal to the market price of Woodward’s stock at the date the grants are awarded, a ten-year term, and generally a four-year vesting schedule at a rate of 25% per year.

The date of grant for stock options is the date when the grants become unconditionally awarded and an employer and grantee reach a mutual understanding of the key terms and conditions of the grant. Stock options awarded as of October 3, 2016 were conditional and subject to the approval of the 2017 Plan by the stockholders. As such, those awards have a date of grant for accounting purposes of January 25, 2017, the date the 2017 Plan was approved by stockholders. The fair value of options granted is estimated as of that same date using the Black-Scholes-Merton option-valuation model using the assumptions in the following table. Woodward calculates the expected term, which represents the average 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,
	2017		2016		2017				2016
Weighted-average exercise price per share		n/a		n/a	$	62.64			$	40.26
Weighted-average grant date market value of Woodward stock		n/a		n/a	$	69.45			$	40.26
Expected term (years)		n/a		n/a		6.0	-	8.7		6.3	-	8.7
Estimated volatility		n/a		n/a		31.5%	-	33.7%		34.5%	-	35.1%
Estimated dividend yield		n/a		n/a		0.7%				1.0%
Risk-free interest rate		n/a		n/a		2.2%	-	2.5%		1.7%	-	2.0%

The following is a summary of the activity for stock option awards during the three and nine-months ended June 30, 2017:



	Three-Months Ended				Nine-Months Ended
	June 30, 2017				June 30, 2017
	Number of options		Weighted-Average Exercise Price per Share		Number of options		Weighted-Average Exercise Price per Share
Options, beginning balance		5,331	$	39.43		4,944	$	35.35
Options granted		-		n/a		780		62.64
Options exercised		(41)		33.08		(416)		33.74
Options forfeited		(10)		44.85		(28)		43.27
Options, ending balance		5,280		39.47		5,280		39.47

Changes in non-vested stock options during the three and nine-months ended June 30, 2017 were as follows:



	Three-Months Ended				Nine-Months Ended
	June 30, 2017				June 30, 2017
	Number of options		Weighted-Average Grant Date Fair Value per Share		Number of options		Weighted-Average Grant Date Fair Value Per Share
Options outstanding, beginning balance		2,076	$	18.58		2,075	$	14.90
Options granted		-		n/a		780		25.05
Options vested		(1)		16.62		(762)		15.26
Options forfeited		(11)		15.74		(29)		14.99
Options outstanding, ending balance		2,064		18.60		2,064		18.60

Information about stock options that have vested, or are expected to vest, and are exercisable at June 30, 2017 was as follows:



	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		5,280	$	39.47		6.1	$	148,468
Options vested and exercisable		3,216		32.81		4.7		111,835
Options vested and expected to vest		5,192		39.25		6.1		147,107

Restricted Stock

In the first quarter of fiscal year 2014, Woodward granted an award of 24 shares of restricted stock under the 2006 Plan to its Chief Executive Officer and President, Thomas A. Gendron, pursuant to a form restricted stock agreement approved by Woodward’s Compensation Committee of the Board of Directors. Subject to Mr. Gendron’s continued employment by the Company, 100% of these shares of restricted stock would vest following the end of the Company’s fiscal year 2017 if a specified cumulative earnings per share (“EPS”) target is met or exceeded for fiscal years 2014 through 2017. If this EPS target is not met for that period, all shares of restricted stock will be forfeited by Mr. Gendron. During the second quarter of fiscal year 2017, Woodward determined it is not probable that the restricted shares will vest.

A summary of the activity for restricted stock awards in the three and nine-months ended June 30, 2017 follows:



	Three-Months Ended				Nine-Months Ended
	June 30, 2017				June 30, 2017
		Number		Fair Value per Share		Number		Fair Value per Share
Beginning balance		24	$	39.43		24	$	39.43
Shares granted		-		n/a		-		n/a
Shares vested		-		n/a		-		n/a
Shares forfeited		-		n/a		-		n/a
Ending balance		24		39.43		24		39.43

Stock-based compensation cost

Woodward recognizes stock-based compensation expense on a straight-line basis over the requisite service period. Pursuant to form stock option agreements used by the Company, with terms approved by the administrator of the applicable plan, the requisite service period can be less than the four-year vesting period based on grantee’s retirement eligibility. As such, the recognition of stock-based compensation expense associated with some stock option grants can be accelerated to a period of less than four years, including immediate recognition of stock-based compensation expense on the date of grant.

At June 30, 2017, there was approximately $11,047 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements, both stock options and restricted stock awards, granted under the 2006 Plan (for which no further grants will be made) and stock options granted under the 2017 Plan. The pre-vesting forfeiture rates for purposes of determining stock-based compensation expense recognized were estimated to be 0% for members of Woodward’s board of directors and 9% for all others. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 2.1 years.