Stock-Based Compensation

9 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

Note 17. Stock-based compensation

Stock options

Woodward's 2006 Omnibus Incentive Plan (the "2006 Plan"), which is stockholder-approved, provides for the grant of up to 7,410 stock options to its members and directors. Woodward believes that such awards better align the interest of its members 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, and generally with a four-year vesting schedule at a vesting rate of 25% per year and a term of 10 years.

The fair value of each stock option award is estimated on the date of grant using a lattice-based option valuation model that uses the assumptions in the following table. Because the lattice-based option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on implied volatilities from historical volatility of Woodward's stock, and other factors. Woodward uses historical data to estimate stock option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of stock options granted is derived from the output of the option valuation model and represents the period of time that stock options granted are expected to be outstanding; the range given below results from certain participating groups exhibiting different behavior. The risk-free rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant.

	Three-Months Ending		Nine-Months Ending
	June 30,		June 30,
	2011	2010	2011	2010
Expected term	5.8 years	6.5 years	5.8– 8.7 years	6.5 years
Estimated volatility	53.7%	51.0%	48.0% – 54.0%	51.0%
Estimated dividend yield	1.0%	1.4%	1.0% – 1.3%	1.4%
Risk-free interest rate	1.8%	2.4%	1.8% – 2.6%	3.4%
Forfeiture rate	10.6%	10.8%	0% – 10.6%	8.1%

The following is a summary of the activity for stock option awards during the three and nine-months ending June 30, 2011:

	Three-Months Ending					Nine-Months Ending
	June 30, 2011					June 30, 2011
				Weighted-					Weighted-
				Average					Average
	Number of			Exercise Price		Number of			Exercise Price
	options			per Share		options			per Share
Options, beginning balance		4,418		$	19.65		4,011		$	16.87
Options granted		28			33.04		710			32.10
Options exercised		(49	)		15.74		(310	)		10.14
Options expired unexercised		(2	)		32.73		(2	)		32.73
Options forfeited		(6	)		26.68		(20	)		26.61
Options, ending balance		4,389		$	19.76		4,389		$	19.76

As of June 30, 2011, there was $11,254 of total unrecognized compensation cost 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 2.7 years.

Restricted stock

In connection with Woodward's acquisition of MPC Products, restricted stock awards were granted with a two-year graded vesting schedule. The restricted stock shares participated in dividends during the vesting period. On October 1, 2010, the remaining 70 outstanding restricted stock awards vested and there were no outstanding restricted stock awards as of June 30, 2011.