Note 18. Stockholders’ equity

Stock repurchase program

In the second quarter of fiscal year 2015, Woodward’s Board of Directors terminated Woodward’s prior stock repurchase program and replaced it with a new program for the repurchase of up to $300,000 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 2018 (the “2015 Authorization”).

In the third quarter of fiscal year 2015, Woodward entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Goldman, Sachs & Co. (“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 under the ASR Agreement under the 2015 Authorization.

In the first quarter of fiscal year 2016, Woodward executed a 10b5-1 plan, which is cancellable, to repurchase up to $125,000 of its common stock for a period that will end on April 20, 2016. During the first quarter of fiscal year 2016, Woodward purchased 624 shares of its common stock for $30,712 under the 10b5-1 plan under the 2015 Authorization.

Stock options

Woodward has reserved a total of 7,410 shares of Woodward’s common stock for issuance under the 2006 Omnibus Incentive Plan (the “2006 Plan”), which has been approved by Woodward’s stockholders. Equity awards under the 2006 Plan include grants of stock options to its 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 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
	December 31,
	2015				2014
Expected term (years)		6.3	-	8.7		6.2	-	8.8
Estimated volatility		34.5%	-	35.1%		36.5%
Estimated dividend yield		1.0%				0.7%
Risk-free interest rate		1.7%	-	2.0%		2.0%	-	2.3%

The following is a summary of the activity for stock option awards during the three-months ended December 31, 2015:



	Three-Months Ended
	December 31, 2015
	Number of options		Weighted-Average Exercise Price per Share
Options outstanding, beginning balance		4,641	$	32.28
Options granted		1,055		40.26
Options exercised		(49)		25.79
Options forfeited		(11)		43.49
Options outstanding, ending balance		5,636		33.81

Changes in non-vested stock options during the three-months ended December 31, 2015 were as follows:



	Three-Months Ended
	December 31, 2015
	Number of options		Weighted-Average Exercise Price per Share
Options, beginning balance		1,724	$	40.54
Options granted		1,055		40.26
Options vested		(674)		36.93
Options forfeited		(11)		43.54
Options, ending balance		2,094		41.54

Information about stock options that have vested, or are expected to vest, and are exercisable at December 31, 2015 was as follows:



	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		5,636	$	33.81		6.2	$	89,364
Options vested and exercisable		3,543		29.23		4.6		72,368
Options vested and expected to vest		5,479		33.58		6.2		88,107

Restricted Stock

In the first quarter of fiscal year 2014, Woodward granted an award of 24 shares of restricted stock to its Chief Executive Officer and President, Thomas A. Gendron. Subject to Mr. Gendron’s continued employment by the Company, these shares of restricted stock will vest 100% 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, all shares of restricted stock will be forfeited by Mr. Gendron. The shares of restricted stock were awarded to Mr. Gendron pursuant to a form restricted stock agreement approved by Woodward’s Compensation Committee.

Woodward recognizes stock compensation expense on a straight-line basis over the requisite service period.

A summary of the activity for restricted stock awards in the three-months ended December 31, 2015 follows:



	Three-Months Ended
	December 31, 2015
		Number		Fair Value per Share
Beginning balance		24	$	39.43
Shares granted		-		n/a
Shares vested		-		n/a
Shares forfeited		-		n/a
Ending balance		24		39.43

Stock-based compensation cost

At December 31, 2015, there was approximately $13,869 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, both stock options and restricted stock awards, granted under the 2002 Plan (for which no further grants will be made) and the 2006 Plan. The pre-vesting forfeiture rates for purposes of determining stock-based compensation cost 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 1.8 years.