Note 20. 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 (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”). Woodward repurchased no common stock under the 2017 Authorization in the first quarter of fiscal years 2019 or 2018.

Stock-based compensation

Provisions governing outstanding stock option awards are included in the 2017 Omnibus Incentive Plan, as amended from time to time (the “2017 Plan”) and the 2006 Omnibus Incentive Plan (the “2006 Plan”), as applicable.

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 608 shares of Woodward’s common stock available for future grants as of December 31, 2018. On January 30, 2019, Woodward’s stockholders approved an additional 1,400 shares of Woodward’s common stock to be made available for future grants.

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.



	Three-Months Ended
	December 31,
	2018				2017
Weighted-average exercise price per share		79.79				78.97
Weighted-average grant date market value of Woodward stock		79.79				78.97
Expected term (years)		6.5	-	8.7		6.4	-	8.7
Estimated volatility		25.7%	-	31.0%		30.3%	-	32.7%
Estimated dividend yield		0.7%	-	0.8%		0.6%
Risk-free interest rate		2.7%	-	3.1%		2.1%	-	2.3%

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



	Three-Months Ended
	December 31, 2018
	Number of options		Weighted-Average Exercise Price per Share
Options, beginning balance		5,611	$	45.42
Options granted		674		79.79
Options exercised		(107)		31.48
Options forfeited		(5)		70.65
Options, ending balance		6,173		49.40

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



	Three-Months Ended
	December 31, 2018
	Number of options		Weighted-Average Grant Date Fair Value per Share
Non-vested options outstanding, beginning balance		1,988	$	21.64
Options granted		674		24.59
Options vested		(795)		19.78
Options forfeited		(5)		23.87
Non-vested options outstanding, ending balance		1,862		23.50

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



	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		6,173	$	49.40		5.8	$	160,762
Options vested and exercisable		4,310		40.19		4.6		147,826
Options vested and expected to vest		6,074		48.99		5.8		160,384

Restricted stock

In connection with Woodward’s acquisition of L’Orange, restricted stock units were granted to certain employees of L’Orange (at acquisition) and other current Woodward 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 for the three-months ended December 31, 2018:



	Three-Months Ended
	December 31, 2018
		Number		Fair Value per Share
Beginning balance		10	$	82.71
Shares granted		-		n/a
Shares vested		-		n/a
Shares forfeited		-		n/a
Ending balance		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.

At December 31, 2018, there was approximately $14,466 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 2.2 years.