Note 18. 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 2016, 2015 and 2014 fiscal years were:



	Year Ended September 30,
	2016		2015		2014
Dividends declared and paid	$	26,606	$	24,646	$	21,263
Dividend per share amount		0.43		0.38		0.32

Stock repurchase program

In the second quarter of fiscal year 2015, 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 $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 ASR Agreement with 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 pursuant to the ASR Agreement under the 2015 Authorization.

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 pursuant to the 10b5-1 plan under the 2015 Authorization.

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 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 25, 2017 Annual Stockholder Meeting.

Stock-based compensation expense recognized was as follows:



	Year Ended September 30,
	2016		2015		2014
Employee stock-based compensation expense	$	15,122	$	14,255	$	11,241

Stock options

Woodward’s 2006 Plan, which was approved by Woodward’s stockholders, provided for the grant of up to 7,410 shares of Woodward’s common stock, including in the form of stock options to its employees and directors. Equity awards 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.



	Year Ended September 30,
	2016				2015			2014
Expected term (years)		6.3	-	8.7	6.2	-	8.8	5.8	-	8.6
Estimated volatility		34.5%	-	35.1%	36.5%			38.5%
Estimated dividend yield		1.0%			0.7%			0.8%
Risk-free interest rate		1.7%	-	2.0%	2.0%	-	2.3%	1.7%	-	2.5%

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



	Year Ended September 30,
	2016		2015		2014
Weighted-average grant date fair value of options	$	13.39	$	17.02	$	15.63

The following is a summary of the activity for stock option awards during the fiscal year ended September 30, 2016:



	Number		Weighted-Average Exercise Price
Balance at September 30, 2015		4,641	$	32.28
Options granted		1,055		40.26
Options exercised		(732)		22.74
Options forfeited		(20)		42.75
Balance at September 30, 2016		4,944		35.35

Exercise prices of stock options outstanding as of September 30, 2016 range from $18.49 to $46.55.

Changes in non-vested stock options during the fiscal year ended September 30, 2016 were as follows:



	Number		Weighted-Average Grant Date Fair Value
Balance at September 30, 2015		1,724	$	15.92
Options granted		1,055		13.39
Options vested		(684)		15.15
Options forfeited		(20)		15.08
Balance at September 30, 2016		2,075		14.90

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



	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		4,944	$	35.35		6.1	$	134,129
Options vested and exercisable		2,869		30.87		4.6		90,702
Options vested and expected to vest		4,856		35.23		6.0		132,321

Other information follows:



	Year Ended September 30,
	2016		2015		2014
Total fair value of stock options vested	$	10,374	$	9,656	$	9,459
Total intrinsic value of options exercised		23,178		18,876		14,549
Cash received from exercises of stock options		15,892		8,400		9,772
Excess tax benefit realized from exercise of stock options		6,472		6,959		3,751

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 (the “Committee”) of the Board of Directors. The restricted stock agreement generally provides that: if the recipient of a restricted stock award is terminated from the Company for any reason other than death or disability during the restricted period, all shares of restricted stock will be immediately forfeited; if the recipient dies or becomes permanently disabled prior to the recipient’s termination and during the restricted period, all restrictions will lapse and the shares of restricted stock will fully vest immediately; similarly, in the event of a Change in Control (as defined in the form of restricted stock agreement) of the Company during the restricted period and prior to the recipient’s termination for any reason, all restrictions will lapse and the shares of restricted stock will fully vest immediately; during the restricted period, a recipient may exercise full voting rights with respect to the shares of restricted stock; dividends on the shares of restricted stock will accrue, but will not be paid, during the restricted period; and all dividends accrued during the restricted period will be paid upon any vesting of the shares of restricted stock, without payment of interest, provided that if the shares of restricted stock are forfeited for any reason, all accrued dividends will likewise be forfeited. The form of restricted stock agreement also includes adjustment provisions in the event the Company engages in certain recapitalization or similar transactions or in the event of a change of law or regulation. Upon vesting, shares become freely transferrable.

A summary of the activity for restricted stock awards in the fiscal year ended September 30, 2016 follows:



	Number		Fair Value per Share
Balance at September 30, 2015		24	$	39.43
Shares granted		-		n/a
Shares vested		-		n/a
Shares forfeited		-		n/a
Balance at September 30, 2016		24		39.43

Woodward recognizes stock compensation expense on a straight-line basis over the requisite service period. Pursuant to the form stock option agreements, the requisite service period can be less than the four-year vesting period due to 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 on the date of grant.

At September 30, 2016, there was approximately $8,067 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.