Note 19. 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 was cancellable, 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 under the 10b5-1 plan under the 2015 Authorization.

Stock options

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 stockholders and became effective January 25, 2006, expired in fiscal year 2016. No further grants will be made under either the 2002 Plan or the 2006 Plan. A proposal for a successor plan to the 2006 Plan will be submitted by the Company for stockholder approval at the January 2017 Annual Stockholder Meeting.

Equity awards in October 2015 under the 2006 Plan include 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 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,
	2016		2015		2016				2015
Expected term (years)		n/a		n/a		6.3	-	8.7		6.2	-	8.8
Estimated volatility		n/a		n/a		34.5%	-	35.1%		36.5%
Estimated dividend yield		n/a		n/a		1.0%				0.7%
Risk-free interest rate		n/a		n/a		1.7%	-	2.0%		2.0%	-	2.3%

The following is a summary of the activity for stock option awards during the three and nine-months ended June 30, 2016:



	Three-Months Ended				Nine-Months Ended
	June 30, 2016				June 30, 2016
	Number of options		Weighted-Average Exercise Price per Share		Number of options		Weighted-Average Exercise Price per Share
Options, beginning balance		5,429	$	34.22		4,641	$	32.28
Options granted		-		n/a		1,055		40.26
Options exercised		(351)		20.99		(605)		21.95
Options forfeited		(4)		42.16		(17)		42.81
Options, ending balance		5,074		35.13		5,074		35.13

Changes in non-vested stock options during the three and nine-months ended June 30, 2016 were as follows:



	Three-Months Ended				Nine-Months Ended
	June 30, 2016				June 30, 2016
	Number of options		Weighted-Average Exercise Price per Share		Number of options		Weighted-Average Exercise Price per Share
Options outstanding, beginning balance		2,086	$	41.54		1,724	$	40.54
Options granted		-		n/a		1,055		40.26
Options vested		(2)		40.63		(682)		36.98
Options forfeited		(4)		42.16		(17)		42.81
Options outstanding, ending balance		2,080		41.54		2,080		41.54

Information about stock options that have vested, or are expected to vest, and are exercisable at June 30, 2016 was as follows:



	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		5,074	$	35.13		6.3	$	114,200
Options vested and exercisable		2,994		30.68		4.7		80,712
Options vested and expected to vest		4,964		34.99		6.2		112,451

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 of the Board of Directors.

A summary of the activity for restricted stock awards in the three and nine-months ended June 30, 2016 follows:



	Three-Months Ended				Nine-Months Ended
	June 30, 2016				June 30, 2016
		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 compensation expense on a straight-line basis over the requisite service period. At June 30, 2016, there was approximately $9,654 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 and the 2006 Plan (for which no further grants will be made under either 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 2.1 years.