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 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 November 2019 (the “2017 Authorization”). In the first half of fiscal year 2017, Woodward purchased, under the 2017 Authorization, 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. Woodward repurchased no common stock under a stock repurchase program in the first half of fiscal year 2018.

Stock-based compensation

Provisions governing outstanding stock option awards are included in the 2017 Omnibus Incentive Plan (the “2017 Plan”), 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. No further grants will be made under the 2006 Plan, which expired in fiscal year 2016.

Woodward has reserved a total of 2,000 shares of Woodward’s common stock for issuance under the 2017 Plan, which was approved by Woodward’s stockholders in January 2017 and is a successor plan to the 2006 Plan.

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 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.



	Three-Months Ended								Six-Months Ended
	March 31,								March 31,
	2018				2017				2018				2017
Weighted-average exercise price per share	$	72.01			$	62.64			$	78.91			$	62.64
Weighted-average grant date market value of Woodward stock	$	72.01			$	69.45			$	78.91			$	69.45
Expected term (years)		6.4				6.0	-	8.7		6.4	-	8.7		6.0	-	8.7
Estimated volatility		29.1%				31.5%	-	33.7%		29.1%	-	32.7%		31.5%	-	33.7%
Estimated dividend yield		0.8%				0.7%				0.6%	-	0.8%		0.7%
Risk-free interest rate		2.7%	-	2.8%		2.2%	-	2.5%		2.1%	-	2.8%		2.2%	-	2.5%

The following is a summary of the activity for stock option awards during the three and six-months ended March 31, 2018:



	Three-Months Ended				Six-Months Ended
	March 31, 2018				March 31, 2018
	Number of options		Weighted-Average Exercise Price per Share		Number of options		Weighted-Average Exercise Price per Share
Options, beginning balance		5,937	$	44.48		5,236	$	39.58
Options granted		6		72.01		750		78.91
Options exercised		(63)		34.54		(97)		36.84
Options forfeited		-		-		(9)		55.61
Options, ending balance		5,880		44.62		5,880		44.62

Changes in non-vested stock options during the three and six-months ended March 31, 2018 were as follows:



	Three-Months Ended				Six-Months Ended
	March 31, 2018				March 31, 2018
	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		2,020	$	21.63		2,072	$	18.61
Options granted		6		22.82		750		25.66
Options vested		(4)		23.10		(791)		17.57
Options forfeited		-		-		(9)		19.82
Options outstanding, ending balance		2,022		21.63		2,022		21.63

Information about stock options that have vested, or are expected to vest, and are exercisable at March 31, 2018 was as follows:



	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		5,880	$	44.62		5.9	$	155,908
Options vested and exercisable		3,858		35.68		4.6		132,401
Options vested and expected to vest		5,782		44.25		5.9		155,118

Stock-based compensation expense

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.

Upon approving the 2017 Plan, Woodward’s board of directors delegated authority to administer the 2017 Plan to the compensation committee of the board, including, but not limited to, the power to determine the recipients of awards and the terms of those awards. The compensation committee approved issuance of options in the first quarter of fiscal year 2017 under the 2017 Plan, with an award date of October 3, 2016 conditional upon 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 related to such awards was recognized on these stock options, during the three-months ended December 31, 2016, but rather the expense was recognized in the three-months ended March 31, 2017. Options granted in the three-months ended December 31, 2017 were not conditionally granted and, therefore, stock-based compensation expense related to those awards was recognized during the three-months ended December 31, 2017. Total stock-based compensation expense was $2,011 for the three-months and $14,434 for the six-months ended March 31, 2018, and $12,502 for the three-months and $13,763 for the six-months ended March 31, 2017.

At March 31, 2018, there was approximately $12,695 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements. 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 2.2 years.