Stock-Based Compensation

6 Months Ended

Mar. 31, 2012

Stock-Based Compensation

Stock-Based Compensation

Note 18. Stock-based compensation

Stock options

Woodward's 2006 Omnibus Incentive Plan (the "2006 Plan"), which has been approved by Woodward's stockholders, provides for the grant of up to 7,410 stock options to its employees and directors. Woodward believes that these awards align the interest of its employees 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 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 based upon historical experience of plan participants and it represents the period of time that stock options granted are expected to be outstanding. 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 Ending		Six-Months Ending
	March 31,		March 31,
	2012	2011	2012	2011
Expected term	5.9 years	5.8 years	5.9 - 8.5 years	5.8 - 8.7 years
Estimated volatility	55.5% - 55.6%	54.0%	48.9% - 55.6%	48.0% - 54.0%
Estimated dividend yield	0.7%	1.1%	0.7% - 1.1%	1.1% - 1.3%
Risk-free interest rate	1.0% - 1.3%	2.6%	1.0% - 1.6%	1.9% - 2.6%

The following is a summary of the activity for stock option awards during the three and six-months ending March 31, 2012:

	Three-Months Ending					Six-Months Ending
	March 31, 2012					March 31, 2012
	Number of options			Weighted- Average Exercise Price per Share		Number of options			Weighted- Average Exercise Price per Share
Options, beginning balance		4,858		$	21.34		4,228		$	20.12
Options granted		20			43.27		845			26.00
Options exercised		(205	)		13.90		(390	)		12.86
Options forfeited		—			n/a		(10	)		26.83
Options, ending balance		4,673		$	21.76		4,673		$	21.76

Changes in nonvested stock options during the three and six-months ending March 31, 2012 were as follows:

	Three-Months Ending					Six-Months Ending
	March 31, 2012					March 31, 2012
	Number of options			Weighted- Average Exercise Price per Share		Number of options			Weighted- Average Exercise Price per Share
Options, beginning balance		1,713		$	26.80		1,368		$	27.71
Options granted		20			43.27		845			26.00
Options vested		(4	)		29.00		(476	)		27.41
Options forfeited		—			n/a		(8	)		26.83
Options, ending balance		1,729		$	26.99		1,729		$	26.99

As of March 31, 2012, there was approximately $13,000 of total unrecognized compensation cost, which assumes a weighted-average forfeiture rate of 6.4%, 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 2.8 years.

Information about stock options that have vested, or are expected to vest, and are exercisable at March 31, 2012 were as follows:

	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		4,673	$	21.76		6.1	$	98,471
Options vested and exercisable		2,944		18.69		4.5		71,059
Options vested and expected to vest		4,505		21.55		5.9		95,871