Note 18. Stockholders’ equity

Common Stock

Holders of Woodward’s common stock are entitled to receive dividends when and as declared by Woodward’s Board of Directors and have the right to one vote per share on all matters requiring stockholder approval.

Dividends declared and paid during the 2017, 2016 and 2015 fiscal years were:



	Year Ended September 30,
	2017		2016		2015
Dividends declared and paid	$	29,745	$	26,606	$	24,646
Dividend per share amount		0.485		0.430		0.380

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 fiscal year 2017, Woodward purchased 1,027 shares of its common stock for $71,197, of which 491 shares were purchased pursuant to 10b5-1 plans and 536 shares were purchased pursuant to a 10b-18 plan.

In the third quarter of fiscal year 2015, Woodward entered into an ASR Agreement with Goldman under which Woodward repurchased shares of its common stock for an aggregate purchase price of $125,000. A total of 2,506 shares of common stock were repurchased pursuant to the ASR Agreement under the Prior Repurchase Program.

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 fiscal year 2016, Woodward purchased 2,635 shares of its common stock for $125,000.

Stock-based compensation

Non-qualified stock option awards and restricted stock awards are granted to key management members and directors of the Company. The grant date for these awards is used for the measurement date. Vesting would be accelerated in the event of retirement, disability, or death of a participant, or change in control of the Company, as defined in the individual stock option agreements. These awards are valued as of the measurement date and are amortized on a straight-line basis over the requisite vesting period for all awards, including awards with graded vesting. Stock for exercised stock options and for restricted stock awards is issued from treasury stock shares.

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.

The 2017 Omnibus Incentive Plan (the “2017 Plan”) 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 nine-months ended September 30, 2017 includes recognition of the elapsed service period of these stock options from October 3, 2016 through September 30, 2017.

Stock-based compensation expense recognized was as follows:



	Year Ended September 30,
	2017		2016		2015
Employee stock-based compensation expense	$	17,282	$	15,122	$	14,255

Stock options

Woodward’s 2017 Plan, which was approved by Woodward’s stockholders, provides for the grant of up to 2,000 shares of Woodward’s common stock, including in the form of stock options to its employees and directors. To date, equity awards under the 2017 Plan have consisted of grants of stock options to Woodward employees and directors. Woodward believes that these stock options 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 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 the grant 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.



	Year Ended September 30,
	2017				2016			2015
Weighted-average exercise price per share		62.74			40.26			46.55
Weighted-average grant date market value of Woodward stock		69.45			40.26			46.55
Expected term (years)		6.0	-	8.7	6.3	-	8.7	6.2	-	8.8
Estimated volatility		30.6%	-	33.7%	34.5%		35.1%	36.5%
Estimated dividend yield		0.7%			1.0%			0.7%
Risk-free interest rate		2.0%	-	2.5%	1.7%	-	2.0%	2.0%	-	2.3%

The weighted average grant date fair value of options granted follows:



	Year Ended September 30,
	2017		2016		2015
Weighted-average grant date fair value of options	$	24.98	$	13.39	$	17.02

The following is a summary of the activity for stock option awards during the fiscal year ended September 30, 2017:



	Number		Weighted-Average Exercise Price Per Share
Balance at September 30, 2016		4,944	$	35.35
Options granted		791		62.74
Options exercised		(466)		33.65
Options forfeited		(33)		44.21
Balance at September 30, 2017		5,236		39.58

Exercise prices of stock options outstanding as of September 30, 2017 range from $18.67 to $70.39.

Changes in non-vested stock options during the fiscal year ended September 30, 2017 were as follows:



	Number		Weighted-Average Grant Date Fair Value Per Share
Balance at September 30, 2016		2,075	$	14.90
Options granted		791		24.98
Options vested		(763)		15.26
Options forfeited		(31)		15.40
Balance at September 30, 2017		2,072		18.61

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



	Number		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		5,236	$	39.58		5.9	$	199,098
Options vested and exercisable		3,164		32.80		4.5		141,785
Options vested and expected to vest		5,164		39.39		5.9		197,348

Other information follows:



	Year Ended September 30,
	2017		2016		2015
Total fair value of stock options vested	$	11,639	$	10,374	$	9,656
Total intrinsic value of options exercised		16,416		23,178		18,876
Cash received from exercises of stock options		14,196		15,892		8,400
Excess tax benefit realized from exercise of stock options		4,383		6,472		6,959

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 have vested following the end of the Company’s fiscal year 2017 if a specified cumulative earnings per share (“EPS”) target was met or exceeded for fiscal years 2014 through 2017. The cumulative EPS target for fiscal years 2014 through 2017 was not met, and therefore the restricted stock was forfeited by Mr. Gendron as of September 30, 2017.

A summary of the activity for restricted stock awards in the fiscal year ended September 30, 2017 follows:



	Number		Fair Value per Share
Balance at September 30, 2016		24	$	39.43
Shares granted		-		n/a
Shares vested		-		n/a
Shares forfeited		(24)		39.43
Balance at September 30, 2017		-		n/a

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 the 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 September 30, 2017, there was approximately $8,823 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 years.