Note 19. 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 2018, 2017 and 2016 fiscal years were:



	Year Ended September 30,
	2018		2017		2016
Dividends declared and paid	$	34,003	$	29,745	$	26,606
Dividend per share amount		0.5525		0.4850		0.4300

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 November 2019 (the “2017 Authorization”). In fiscal year 2017, Woodward purchased, under the 2017 Authorization, 1,027 shares of its common stock for $71,197, of which 491 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 the 2017 Authorization in fiscal year 2018.

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 2017 Omnibus Incentive Plan, as amended from time to time (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.

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. Under the 2017 Plan, there were approximately 1,300 shares of Woodward’s common stock available for future grants as of September 30, 2018.

Stock options

Woodward believes that 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.



	Year Ended September 30,
	2018					2017				2016
Weighted-average exercise price per share	$	78.91			$	62.74			$	40.26
Weighted-average grant date market value of Woodward stock	$	78.91			$	69.45			$	40.26
Expected term (years)		6.4	-	8.7		6.0	-	8.7		6.3	-	8.7
Estimated volatility		29.1%	-	32.7%		30.6%	-	33.7%		34.5%	-	35.1%
Estimated dividend yield		0.6%	-	0.8%		0.7%				1.0%
Risk-free interest rate		2.1%	-	2.8%		2.0%	-	2.5%		1.7%	-	2.0%

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



	Year Ended September 30,
	2018		2017		2016
Weighted-average grant date fair value of options	$	25.66	$	24.98	$	13.39

The following is a summary of the activity for stock option awards during the fiscal year ended September 30, 2018:



	Number		Weighted-Average Exercise Price Per Share
Balance at September 30, 2017		5,236	$	39.58
Options granted		750		78.91
Options exercised		(334)		27.34
Options forfeited		(41)		59.64
Balance at September 30, 2018		5,611		45.42

Exercise prices of stock options outstanding as of September 30, 2018 range from $18.67 to $78.97.

Changes in non-vested stock options during the fiscal year ended September 30, 2018 were as follows:



	Number		Weighted-Average Grant Date Fair Value Per Share
Balance at September 30, 2017		2,072	$	18.61
Options granted		750		25.66
Options vested		(793)		17.58
Options forfeited		(41)		20.80
Balance at September 30, 2018		1,988		21.64

Information about stock options that have vested, or are expected to vest, and are exercisable at September 30, 2018 was as follows:



	Number		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		5,611	$	45.42		5.6	$	198,843
Options vested and exercisable		3,623		36.50		4.3		160,703
Options vested and expected to vest		5,551		45.17		5.6		198,108

Other information follows:



	Year Ended September 30,
	2018		2017		2016
Total fair value of stock options vested	$	13,944	$	11,639	$	10,374
Total intrinsic value of options exercised		16,690		16,416		23,178
Cash received from exercises of stock options		9,132		14,196		15,892
Excess tax benefit realized from exercise of stock options		3,524		4,383		6,472

Restricted stock

In connection with Woodward’s acquisition of L’Orange, restricted stock units were granted to certain employees of L’Orange and other current members in key management positions. Each restricted stock unit entitles the holder to one share of the Company’s common stock upon vesting. The restricted stock units were granted with a two-year vesting schedule and vest on the one and two year anniversaries of the grant date at a rate of 50% per year. The restricted stock units do not participate in dividends during the vesting period. The fair value of restricted stock units granted were estimated using the closing price of Woodward common stock on the grant date.

A summary of the activity for restricted stock units in fiscal year ended September 30, 2018:

Changes in the restricted stock units during the fiscal year ending September 30, 2018 were as follows:

	Number		Fair Value per Share
Balance at September 30, 2017		-		n/a
Shares granted		10		82.71
Shares vested		-		n/a
Shares forfeited		-		n/a
Balance at September 30, 2018		10		82.71

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.

Stock-based compensation expense recognized was as follows:



	Year Ended September 30,
	2018		2017		2016
Employee stock-based compensation expense	$	18,229	$	17,282	$	15,122

At September 30, 2018, there was approximately $9,887 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements, including both stock options and restricted stock awards. 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 1.8 years.