10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2005
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file number 0-8408

Woodward Governor Company

(Exact name of registrant as specified in its charter)

Delaware	36-1984010
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5001 North Second Street, Rockford, Illinois (Address of principal executive offices)	61125-7001

(815) 877-7441

(Registrant’s telephone number, including area code)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.      Yes þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).      Yes þ          No o

      As of July 22, 2005, 11,465,639 shares of common stock with a par value of $.00875 cents per share were outstanding.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements		2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4.	Controls and Procedures		24
PART II — OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 6.	Exhibits		25
Signatures			26

1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Statements of Consolidated Earnings

Woodward Governor Company and Subsidiaries

			Three Months Ended
			June 30,
			2005			2004
			(Unaudited)
			(In thousands except per
			share amounts)
Net sales			$	210,252		$	180,496
Costs and expenses:
	Cost of goods sold			158,867			135,428
	Selling, general, and administrative expenses			19,427			19,311
	Research and development costs			12,811			10,515
	Amortization of intangible assets			1,770			1,713
	Curtailment gain			(7,825	)		—
	Interest expense			1,461			1,372
	Interest income			(478	)		(135	)
	Other income			(1,947	)		(968	)
	Other expense			678			42
		Total costs and expenses		184,764			167,278
Earnings before income taxes				25,488			13,218
Income taxes				5,742			5,005
Net earnings			$	19,746		$	8,213
Earnings per share:
Basic			$	1.73		$	0.73
Diluted				1.68			0.71
Weighted-average number of shares outstanding:
Basic				11,423			11,299
Diluted				11,730			11,608
Cash dividends per share			$	0.25		$	0.24

See accompanying Notes to Consolidated Financial Statements.

2

Statements of Consolidated Earnings

Woodward Governor Company and Subsidiaries

			Nine Months Ended
			June 30,
			2005			2004
			(Unaudited)
			(In thousands except per
			share amounts)
Net sales			$	610,196		$	512,420
Costs and expenses:
	Cost of goods sold			459,660			383,180
	Selling, general, and administrative expenses			57,683			54,221
	Research and development costs			35,106			29,310
	Amortization of intangible assets			5,326			5,143
	Curtailment gain			(7,825	)		—
	Interest expense			4,355			4,067
	Interest income			(1,515	)		(921	)
	Other income			(8,318	)		(2,827	)
	Other expense			906			419
		Total costs and expenses		545,378			472,592
Earnings before income taxes				64,818			39,828
Income taxes				20,098			15,117
Net earnings			$	44,720		$	24,711
Earnings per share:
Basic			$	3.93		$	2.19
Diluted				3.83			2.14
Weighted-average number of shares outstanding:
Basic				11,380			11,279
Diluted				11,686			11,543
Cash dividends per share			$	0.74		$	0.72

See accompanying Notes to Consolidated Financial Statements.

3

Consolidated Balance Sheets

Woodward Governor Company and Subsidiaries

			At		At
			June 30,		September 30,
			2005		2004
			(Unaudited)
			(In thousands except
			per share amounts)
ASSETS
Current assets:
	Cash and cash equivalents		$	74,671	$	48,895
	Accounts receivable, less allowance for losses of $2,183 for June and $2,836 for September			94,812		99,277
	Inventories			155,423		138,708
	Income taxes receivable			3,811		—
	Deferred income taxes			19,239		16,852
	Other current assets			4,455		5,064
		Total current assets		352,411		308,796
Property, plant, and equipment — net				111,345		117,310
Goodwill				131,341		131,542
Other intangibles — net				80,348		85,711
Deferred income taxes				—		4,318
Other assets				10,196		6,617
Total assets			$	685,641	$	654,294
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Short-term borrowings		$	6,291	$	5,833
	Current portion of long-term debt			14,435		956
	Accounts payable			34,421		35,207
	Accrued liabilities			59,585		65,573
	Income taxes payable			—		3,703
		Total current liabilities		114,732		111,272
Long-term debt, less current portion				73,985		88,452
Other liabilities				68,064		68,709
Deferred income taxes				1,301		—
Commitments and contingencies
Shareholders’ equity represented by:
	Preferred stock, par value $.003 per share, authorized 10,000 shares, no shares issued			—		—
	Common stock, par value $.00875 per share, authorized 50,000 shares, issued 12,160 shares			106		106
	Additional paid-in capital			24,892		15,878
	Accumulated other comprehensive earnings			12,101		12,038
	Deferred compensation			5,369		4,461
	Retained earnings			417,759		381,458
				460,227		413,941
Less: Treasury stock, at cost, 709 shares for June and 844 shares for September				27,299		23,619
Treasury stock held for deferred compensation				5,369		4,461
		Total shareholders’ equity		427,559		385,861
Total liabilities and shareholders’ equity			$	685,641	$	654,294

See accompanying Notes to Consolidated Financial Statements.

4

Statements of Consolidated Cash Flows

Woodward Governor Company and Subsidiaries

			Nine Months
			Ended
			June 30,
			2005			2004
			(Unaudited)
			(In thousands)
Cash flows from operating activities:
Net earnings			$	44,720		$	24,711
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization				24,286			24,923
Curtailment gain				(7,825	)		—
Net loss (gain) on sale of property, plant, and equipment				(595	)		97
Deferred income taxes				3,322			150
Reclassification of unrealized losses on derivatives to earnings				240			223
Changes in operating assets and liabilities:
	Accounts receivable			3,894			(3,020	)
	Inventories			(16,718	)		(13,576	)
	Accounts payable and accrued liabilities			(5,717	)		9,910
	Income taxes payable			(7,786	)		8,890
	Other — net			7,792			5,719
		Total adjustments		893			33,316
Net cash provided by operating activities				45,613			58,027
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment				(16,325	)		(14,015	)
Proceeds from sale of property, plant, and equipment				3,246			253
Business acquisitions, net of cash acquired				—			(2,310	)
Receipts associated with business acquisitions				—			389
Net cash used in investing activities				(13,079	)		(15,683	)
Cash flows from financing activities:
Cash dividends paid				(8,419	)		(8,120	)
Proceeds from sales of treasury stock				5,633			2,225
Purchases of treasury stock				(3,791	)		(1,547	)
Net proceeds (payments) from borrowings under revolving lines				609			(30,640	)
Net cash used in financing activities				(5,968	)		(38,082	)
Effect of exchange rate changes on cash				(790	)		(459	)
Net change in cash and cash equivalents				25,776			3,803
Cash and cash equivalents, beginning of year				48,895			24,058
Cash and cash equivalents, end of period			$	74,671		$	27,861
Supplemental cash flow information:
Interest expense paid			$	5,411		$	5,639
Income taxes paid				22,122			10,761
Noncash investing:
Liabilities assumed in business acquisition				—			338

See accompanying Notes to Consolidated Financial Statements.

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Overview:

      The consolidated balance sheet as of June 30, 2005, the statements of consolidated earnings for the three and nine-month periods ended June 30, 2005 and 2004, and the statements of consolidated cash flows for the nine-month periods ended June 30, 2005 and 2004, were prepared by the company without audit. The September 30, 2004, consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Information in this 10-Q report is based in part on estimates and is subject to year-end adjustments and audit. In our opinion, the figures reflect all adjustments necessary to present fairly the company’s financial position as of June 30, 2005, the results of its operations for the three and nine-month periods ended June 30, 2005 and 2004, and its cash flows for the nine-month periods ended June 30, 2005 and 2004. All such adjustments were of a normal and recurring nature. The statements were prepared following the accounting policies described in the company’s 2004 annual report on Form 10-K/A Amendment No. 1 and should be read with the Notes to Consolidated Financial Statements on pages 38-58 of the 2004 annual report to shareholders. The statements of consolidated earnings for the three and nine-month periods ended June 30, 2005, are not necessarily indicative of the results to be expected for other interim periods or for the full year.

(2) Stock-based compensation policy:

      We use the intrinsic value method to account for stock-based employee compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and therefore we do not recognize compensation expense in association with options granted at or above the market price of our common stock at the date of grant. The following table presents a reconciliation of reported net earnings and per share information to pro forma net earnings and per share information that would have been reported if the fair value method had been used to account for stock-based employee compensation:

		Three Months						Nine Months
		Ended						Ended
		June 30,						June 30,
		2005			2004			2005			2004
		(In thousands except per share amounts)
Reported net earnings		$	19,746		$	8,213		$	44,720		$	24,711
Stock-based compensation expense using the fair value method, net of income tax			(377	)		(355	)		(1,080	)		(1,044	)
Pro forma net earnings		$	19,369		$	7,858		$	43,640		$	23,667
Reported net earnings per share amounts:
	Basic	$	1.73		$	0.73		$	3.93		$	2.19
	Diluted		1.68			0.71			3.83			2.14
Pro forma net earnings per share amounts:
	Basic	$	1.70		$	0.70		$	3.83		$	2.10
	Diluted		1.66			0.68			3.75			2.06

(3) Revenue recognition:

      We recognize sales when delivery of product has occurred or services have been rendered and there is persuasive evidence of a sales arrangement, selling prices are fixed or determinable, and collectibility from the customer is reasonably assured. We consider product delivery to have occurred when the customer has taken title and assumed the risks and rewards of ownership of the products. Most of our sales are made directly to customers that use our products, although we also sell products to distributors, dealers, and independent service facilities. Sales terms for distributors, dealers, and independent service facilities are identical to our sales terms for direct customers. We account for payments made to customers as a reduction of revenue unless

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

they are made in exchange for identifiable goods or services with fair values that can be reasonably estimated. These reductions in revenues are recognized immediately to the extent that the payments cannot be attributed to expected future sales, and are recognized in future periods to the extent that the payments relate to future sales, based on the specific facts and circumstances underlying each payment.

(4) New Accounting Standards:

      In November 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151, “Inventory Costs.” The Statement clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current-period charges. This Statement also requires that allocations of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Statement becomes effective for our fiscal year beginning October 1, 2005. We currently do not expect that application of this Statement will have any material effect on our financial statements.

      In December 2004, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting Standards No. 123, “Share-Based Payment.” Among its provisions, the revised Statement will require us to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize the cost over the requisite service period. In accordance with a Securities and Exchange Commission rule issued in April 2005, this revised Statement becomes effective for our fiscal year beginning October 1, 2005, although early adoption is allowed. As described in Note 2 to these financial statements, we currently use the intrinsic value method to account for stock-based employee compensation. As a result, adoption of this revised Statement is expected to reduce our net earnings in interim and annual periods after adoption. We believe the best indication of the approximate immediate net earnings effect of adopting the provisions of this revised Statement may be determined by reviewing Note 2 to these financial statements and Note 1 to Consolidated Financial Statements on page 39 of the 2004 annual report to shareholders, which was filed with our Form 10-K/A Amendment No. 1 for the year ended September 30, 2004. These notes show that net earnings would have decreased by $0.02 per diluted share for the quarter ended June 30, 2005, $0.08 per diluted share for the nine months ended June 30, 2005, and $0.11 per diluted share for the year ended September 30, 2004. We expect to adopt this revised Statement effective with our fiscal year beginning October 1, 2005.

(5) Income taxes:

      Income taxes in the three months and nine months ended June 30, 2005, were affected by changes in estimates of income taxes for previous periods. The changes in estimates resulted from increases in the amount of certain credits claimed or expected to be claimed, and changes in the amount of certain deductions taken or expected to be taken. A reconciliation of our effective income tax rate for the year ended September 30, 2004, to the effective income tax rates for the three months and nine months ended June 30, 2005, follows:

	Three Months			Nine Months
	Ended June 30,			Ended June 30,
(Percent of pretax earnings)	2005			2005
Effective rate for the year ended September 30, 2004		36.3			36.3
Change in estimates of taxes for previous periods		(11.5	)		(3.0	)
Change in expected tax rate applicable for current periods		(2.3	)		(2.3	)
Effective rate		22.5			31.0

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(6)     Earnings per share:

		Three Months				Nine Months
		Ended June 30,				Ended June 30,
		2005		2004		2005		2004
		(In thousands, except per share amounts)
Net earnings(A)		$	19,746	$	8,213	$	44,720	$	24,711
Determination of shares:
	Weighted-average shares of common stock outstanding(B)		11,423		11,299		11,380		11,279
	Assumed exercise of stock options		307		309		306		264
	Weighted-average shares of common stock outstanding assuming dilution(C)		11,730		11,608		11,686		11,543
Earnings before cumulative effect of accounting change:
	Basic per share amount (A/ B)	$	1.73	$	0.73	$	3.93	$	2.19
	Diluted per share amount (A/ C)	$	1.68	$	0.71	$	3.83	$	2.14

      The following stock options were outstanding during the three and nine months ended June 30, 2005 and 2004, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares during the respective periods:

	Three Months				Nine Months
	Ended June 30,				Ended June 30,
	2005		2004		2005		2004
Options		—		11,660		102,300		15,391
Weighted-average exercise price			$	70.37	$	71.48	$	67.75

(7)     Inventories:

	At		At
	June 30,		September 30,
	2005		2004
	(In thousands)
Raw materials	$	4,783	$	3,304
Component parts		98,271		88,760
Work in process		31,375		30,237
Finished goods		20,994		16,407
	$	155,423	$	138,708

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(8)     Property, plant, and equipment:

	At		At
	June 30,		September 30,
	2005		2004
	(In thousands)
Land	$	9,976	$	10,380
Buildings and equipment		150,915		149,361
Machinery and equipment		241,888		237,677
Construction in progress		4,238		2,044
		407,017		399,462
Less accumulated depreciation		295,672		282,152
Property, plant, and equipment — net	$	111,345	$	117,310

	Three Months				Nine Months
	Ended				Ended
	June 30,				June 30,
	2005		2004		2005		2004
	(In thousands)
Depreciation expense	$	5,794	$	6,196	$	18,960	$	19,780

(9)     Goodwill:

		(In thousands)
Industrial Controls:
	Balance at September 30, 2004	$	69,420
	Foreign currency exchange rate changes		(201	)
	Balance at June 30, 2005	$	69,219
Aircraft Engine Systems:
	Balance at September 30, 2004 and June 30, 2005	$	62,122
Consolidated:
	Balance at September 30, 2004	$	131,542
	Foreign currency exchange rate changes		(201	)
	Balance at June 30, 2005	$	131,341

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(10)     Other intangibles — net:

			At			At
			June 30,			September 30,
			2005			2004
			(In thousands)
Industrial Controls:
	Customer relationships:
		Amount acquired	$	37,387		$	37,387
		Accumulated amortization		(8,164	)		(6,215	)
				29,223			31,172
	Other:
		Amount acquired		31,347			31,502
		Accumulated amortization		(9,587	)		(7,490	)
				21,760			24,012
	Total		$	50,983		$	55,184
Aircraft Engine Systems:
	Customer relationships:
		Amount acquired	$	28,547		$	28,547
		Accumulated amortization		(6,741	)		(6,027	)
				21,806			22,520
	Other:
		Amount acquired		11,785			11,785
		Accumulated amortization		(4,226	)		(3,778	)
				7,559			8,007
	Total		$	29,365		$	30,527
Consolidated:
	Customer relationships:
		Amount acquired	$	65,934		$	65,934
		Accumulated amortization		(14,905	)		(12,242	)
				51,029			53,692
	Other:
		Amount acquired		43,132			43,287
		Accumulated amortization		(13,813	)		(11,268	)
				29,319			32,019
	Total		$	80,348		$	85,711

      Amortization expense associated with current intangibles is expected to be approximately $7,100,000 for 2005, $7,000,000 for 2006, $6,600,000 in 2007, $5,900,000 for 2008, and $5,500,000 for 2009.

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(11)     Accrued liabilities:

	At		At
	June 30,		September 30,
	2005		2004
	(In thousands)
Salaries and other member benefits	$	35,054	$	41,236
Warranties		5,680		6,401
Taxes, other than on income		3,588		4,214
Deferred compensation		2,350		2,278
Other items — net		12,913		11,444
	$	59,585	$	65,573

      Salaries and other member benefits include accrued termination benefits totaling $6,527,000 at June 30, 2005 and $12,000,000 at September 30, 2004. These accrued termination benefits were for the Industrial Controls segment. Changes in accrued termination benefits for the nine months ended June 30, 2005 were as follows:

			(In thousands)
Industrial Controls:
	Balance at September 30, 2004		$	12,000
	Expense:
		Cost of goods sold		1,294
		Selling, general, and administrative expenses		53
	Payments			(4,674	)
	Accrual adjustments			(2,204	)
	Foreign currency exchange rate changes			58
	Balance at June 30, 2005		$	6,527

      The amounts expensed during the nine-month period were for termination benefits earned by members over the period and are primarily related to the consolidation of two European manufacturing operations with existing operations. This action is being taken to streamline the organization by eliminating redundant manufacturing operations and is expected to be substantially complete by March 31, 2006. The total expense for this action is currently estimated to be approximately $15,400,000, of which $13,969,000 was recognized through June 30, 2005. The remaining estimated amount of $1,431,000 is for termination benefits that will be earned by members over their remaining service period and for other costs primarily associated with moving equipment and inventory to other locations. The accrual adjustments reflected in the preceding table were made as a result of changes in estimates for termination benefits payable. These estimates changed because of voluntary member resignations, the currently expected transfer of members to a third-party distributor, and more members electing early retirement options at a lower cost.

      Provisions of our sales agreements include product warranties customary to such agreements. We establish accruals for specifically identified warranty issues that are probable to result in future costs. We also accrue for warranty costs on a non-specific basis whenever past experience indicates a normal and predictable

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

pattern exists. A reconciliation of accrued product warranties from September 30, 2004, to June 30, 2005, follows:

	(In thousands)
Balance at September 30, 2004	$	6,401
Accruals related to warranties issued during the period		3,900
Accruals related to pre-existing warranties		(1,073	)
Settlements of amounts accrued		(3,529	)
Foreign currency exchange rate changes		(19	)
Balance at June 30, 2005	$	5,680

(12) Retirement benefits:

      We provide various benefits to eligible members of our company, including pension benefits associated with defined benefit plans and retirement healthcare benefits. Components of net periodic benefit cost and company contributions for these plans were as follows:

		Three Months						Nine Months
		Ended						Ended
		June 30,						June 30,
		2005			2004			2005			2004
		(In thousands)
Retirement pension benefits — United States:
Components of net periodic benefit cost:
	Interest cost	$	270		$	220		$	810		$	802
	Expected return on plan assets		(272	)		(407	)		(816	)		(707	)
	Recognized losses		37			10			111			128
Net periodic benefit cost		$	35		$	(177	)	$	105		$	223
Contributions by the company		$	—		$	—		$	—		$	—
Retirement pension benefits — other countries:
Components of net periodic benefit cost:
	Service cost	$	471		$	427		$	1,480		$	1,264
	Interest cost		506			464			1,581			1,367
	Expected return on plan assets		(498	)		(415	)		(1,556	)		(1,222	)
	Amortization of unrecognized transition obligation		23			24			74			73
	Recognized losses		132			136			414			397
	Recognized prior service costs		(2	)		(2	)		(6	)		(7	)
Net periodic benefit cost		$	632		$	634		$	1,987		$	1,872
Contributions by the company		$	324		$	312		$	1,029		$	874

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(12) Retirement benefits (continued):

		For the						For the
		Three Months						Nine Months
		Ended						Ended
		June 30,						June 30,
		2005			2004			2005			2004
		(In thousands)
Retirement healthcare benefits:
Components of net periodic benefit cost:
	Service cost	$	285		$	472		$	1,611		$	1,670
	Interest cost		845			901			3,054			3,179
	Recognized losses		407			222			1,107			1,022
	Recognized prior service costs		(461	)		(127	)		(715	)		(381	)
	Curtailment gain		(7,825	)		—			(7,825	)		—
Net periodic benefit cost		$	(6,749	)	$	1,468		$	(2,768	)	$	5,490
Contributions by the company		$	677		$	666		$	1,598		$	1,820

      The curtailment gain reflected above is related to amendments of one of our retirement healthcare benefit plans reducing the number of individuals who will qualify for benefits in future periods. These amendments will also reduce our future net periodic benefit cost over amounts that would have been recognized prior to the amendments. We currently expect the net periodic benefit cost associated with our retirement healthcare benefits to be approximately $620,000 over the remainder of 2005.

(13) Accumulated other comprehensive earnings:

      Accumulated other comprehensive earnings, which totaled $12,101,000 at June 30, 2005, consisted of the following items:

		At or for the
		Nine Months
		Ended
		June 30, 2005
		(In thousands)
Accumulated foreign currency translation adjustments:
	Balance at beginning of year	$	14,239
	Translation adjustments		(146	)
	Taxes associated with translation adjustments		56
	Balance at end of period	$	14,149
Accumulated unrealized derivative losses:
	Balance at beginning of year	$	(861	)
	Reclassification to interest expense		240
	Taxes associated with interest reclassification		(91	)
	Balance at end of period	$	(712	)
Accumulated minimum pension liability adjustments:
	Balance at beginning of year	$	(1,340	)
	Minimum pension liability adjustment		7
	Taxes associated with minimum pension liability adjustments		(3	)
	Balance at end of period	$	(1,336	)

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(14) Total comprehensive earnings:

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2005			2004			2005			2004
		(In thousands)
Net earnings		$	19,746		$	8,213		$	44,720		$	24,711
Other comprehensive earnings:
	Foreign currency translation adjustments		(2,133	)		(860	)		(90	)		2,304
	Reclassification of unrealized losses on derivatives to earnings		51			48			149			139
	Minimum pension liability adjustment		—			—			4			—
Total comprehensive earnings		$	17,664		$	7,401		$	44,783		$	27,154

(15)     Contingencies:

      We are currently involved in pending or threatened litigation or other legal proceedings regarding employment, product liability, and contractual matters arising from the normal course of business. We accrued for individual matters that we believe are likely to result in a loss when ultimately resolved using estimates of the most likely amount of loss. There are also individual matters that we believe the likelihood of a loss when ultimately resolved is less than likely but more than remote, which were not accrued. While it is possible that there could be additional losses that have not been accrued, we currently believe the possible additional loss in the event of an unfavorable resolution of each matter is less than $5,000,000 in the aggregate.

      We also file income tax returns in various jurisdictions worldwide, which are subject to audit. We have accrued for our estimate of the most likely amount of expenses that we believe will result from income tax audit adjustments.

      We do not recognize contingencies that might result in a gain until such contingencies are resolved and the revenues are realized.

      In the event of a change in control of the company, we may be required to pay termination benefits to certain executive officers.

(16)     Segment information:

		Three Months Ended				Nine Months Ended
		June 30,				June 30,
		2005		2004		2005		2004
		(In thousands)
Industrial Controls:
	External net sales	$	136,592	$	113,130	$	394,978	$	314,781
	Intersegment sales		317		273		787		585
	Segment earnings		9,469		2,692		24,619		12,657
Aircraft Engine Systems:
	External net sales	$	73,660	$	67,366	$	215,218	$	197,639
	Intersegment sales		609		1,102		2,421		1,711
	Segment earnings		14,321		15,162		48,555		40,262

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The difference between the total of segment earnings and the statements of consolidated earnings follows:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
	(In thousands)
Total segment earnings	$	23,790		$	17,854		$	73,174		$	52,919
Unallocated corporate expenses		(5,144	)		(3,399	)		(13,341	)		(9,945	)
Curtailment gain		7,825			—			7,825			—
Interest expense and income		(983	)		(1,237	)		(2,840	)		(3,146	)
Consolidated earnings before income taxes	$	25,488		$	13,218		$	64,818		$	39,828

      Segment assets were as follows:

	At		At
	June 30,		September 30,
	2005		2004
	(In thousands)
Industrial Controls	$	367,215	$	364,584
Aircraft Engine Systems		203,778		205,580

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations. This discussion should be read with the consolidated financial statements.

Overview

      Our business is focused on the design, manufacture, and servicing of energy control systems and components for aircraft and industrial engines, turbines, and other power equipment. We use technologies in the areas of fuel systems, combustion control, electronic controls and software, and systems integration to develop components and integrated systems that we sell to OEMs (original equipment manufacturers) for use in power equipment for the power generation, process industries, transportation, and aerospace markets.

      We have two operating segments — Industrial Controls and Aircraft Engine Systems. Industrial Controls provides energy control systems and components primarily to OEMs of industrial engines, turbines, and other power equipment. Aircraft Engine Systems provides energy control systems and components primarily to OEMs of aircraft turbines. We use segment information internally to assess the performance of each segment and to make decisions on the allocation of resources.

      In recent years there has been volatility in the markets we serve and our results reflect that volatility. We have seen improved market conditions that began in the second half of 2004, which largely offset the declines that began in 2002. Our third quarter and first nine months of 2005 reflected improved market conditions over the corresponding periods a year ago.

      The changes in our markets have affected our decisions in managing our workforce. We are implementing actions in 2005 and the first half of 2006 to consolidate certain manufacturing operations in The Netherlands, United Kingdom, and Japan with existing operations in the United States, Germany, and China. Once fully implemented, we expect these actions will generate annual savings of $9 million to $11 million on a pretax basis. The related cost for the actions is currently estimated at $15.4 million. We recognized approximately $14.0 million of this cost through the third fiscal quarter of 2005.

      Our effective income tax rate for the three and nine months ended June 30, 2004, is below the rate that we expect will apply to the full year as a result of changes in estimates of income taxes provided for previous periods. The changes in estimates resulted from increases in the amount of certain credits claimed or expected to be claimed, and changes in the amount of certain deductions taken or expected to be taken. For the three-month period, the changes in estimates reduced reported income tax expense by $2.9 million, or the equivalent of 11.5% of pretax earnings. For the nine-month period, the changes in estimates reduced reported income tax expense by $1.9 million, or the equivalent of 3.0% of pretax earnings. We anticipate the applicable tax rate for our fourth quarter will be 34.0%.

      In the sections that follow, we are providing information to help you better understand factors that may affect our future results, our critical accounting policies and market risks, our results of operations and financial condition, and the effects of recent accounting pronouncements.

Factors That May Affect Future Results

      This Form 10-Q contains forward-looking statements, including:

•  Projections of sales, earnings, cash flows, or other financial items;

•  Descriptions of our plans and objectives for future operations;

•  Forecasts of future economic performance; and

•  Descriptions of assumptions underlying the above items.

      Forward-looking statements do not reflect historical facts. Rather, they are statements about future events and conditions and often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,”

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“plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or similar expressions. Such statements reflect our expectations about the future only as of the date they are made. We are not obligated to, and we might not, update our forward-looking statements to reflect changes that occur after the date they are made. Furthermore, actual results could differ materially from projections or any other forward-looking statement regardless of when they are made.

      Important factors that could individually, or together with one or more other factors, affect our business, results of operations and/or financial condition are discussed more fully in the Management Discussion and Analysis on pages 15-16 of our 2004 annual report to shareholders, which was filed with our Form 10-K/ A Amendment No. 1 for the year ended September 30, 2004.

Critical Accounting Policies

      We consider the accounting policies used in preparing our financial statements to be critical accounting policies when they are both important to the portrayal of our financial condition and results of operation, and require us to make difficult, subjective, or complex judgments. Critical accounting policies normally result from the need to make estimates about the effect of matters that are inherently uncertain. Management has discussed the development and selection of our critical accounting policies with the audit committee of the company’s Board of Directors. In each of the areas that were identified as critical accounting policies, our judgments, estimates, and assumptions are impacted by conditions that change over time. As a result, in the future there could be changes in our assets and liabilities, increases or decreases in our expenses, and additional losses or gains that are material to our financial condition and results of operations. Our critical accounting policies are discussed more fully in the Management Discussion and Analysis on pages 16-19 of our 2004 annual report to shareholders, which was filed with our Form 10-K/ A Amendment No. 1 for the year ended September 30, 2004.

Market Risks

      Our long-term debt is sensitive to changes in interest rates. Also, assets, liabilities, and commitments that are to be settled in cash and are denominated in foreign currencies for transaction purposes are sensitive to changes in currency exchange rates. These market risks are discussed more fully in the Management Discussion and Analysis on page 19 of our 2004 annual report to shareholders, which was filed with our Form 10-K/ A Amendment No. 1 for the year ended September 30, 2004. However, we currently do not have any existing interest rate swap agreements.

Results of Operations

		Three Months Ended				Nine Months Ended
		June 30,				June 30,
		2005		2004		2005		2004
		(In thousands)
Sales
External net sales:
	Industrial Controls	$	136,592	$	113,130	$	394,978	$	314,781
	Aircraft Engine Systems		73,660		67,366		215,218		197,639
Consolidated net sales		$	210,252	$	180,496	$	610,196	$	512,420

      Consolidated net sales increased in both the three months and nine months ended June 30, 2005, as compared to the same periods a year ago. Industrial Controls benefited from a broad industrial recovery that encompassed power generation and transportation, including the mobile industrial and marine markets. In particular, we have experienced higher demand for large gas turbine combustion products — the area affected most by the severe market declines of 2002 and 2003 — in the first nine months this year as compared to last year. The highest levels of increased demand have occurred in Asia and Eastern Europe, which was driven by infrastructure improvement projects in those regions.

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      Aircraft Engine Systems’ improvements reflect the favorable trends in commercial aviation. We experienced modest growth in commercial OEM sales, as Boeing and Airbus ramped up their production levels for narrow and wide body aircraft. Also, there has been increased demand for commercial aftermarket spare parts and repair and overhaul services.

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
	(In thousands)
Costs and Expenses
Cost of goods sold	$	158,867		$	135,428		$	459,660		$	383,180
Sales, general, and administrative expenses		19,427			19,311			57,683			54,221
Research and development costs		12,811			10,515			35,106			29,310
Curtailment gain		(7,825	)		—			(7,825	)		—
All other expense items		3,909			3,127			10,587			9,629
Interest and other income		(2,425	)		(1,103	)		(9,833	)		(3,748	)
Consolidated costs and expenses	$	184,764		$	167,278		$	545,378		$	472,592

      Cost of goods sold increased in both the three months and nine months ended June 30, 2005, compared to the same periods last year, primarily as a result of increased sales. For the quarter, cost of goods sold represented 75.6% of sales this year and 75.0% last year. For the nine months, cost of goods sold represented 75.3% of sales this year and 74.8% last year. As a percent of sales, Industrial Controls’ cost of goods sold are higher than Aircraft Engine Systems and, for both the three-month and nine-month periods, Industrial Controls sales increased at a greater rate than Aircraft Engine Systems.

      Research and development increased in both the three months and nine months ended June 30, 2005, as compared to the same periods last year. An increase in the level of research and development activities began in the last half of fiscal 2004. We continue to work closely with our customers and actively pursue opportunities that require development of new components and systems for future engines and turbines.

      Curtailment gain refers to the amount recognized in this year’s third quarter to account for the immediate effects of amendments to one of our retirement healthcare benefit plans. The amendment eliminated retirement healthcare benefits for members that will not attain age 55 and 10 years of service by January 1, 2006. In addition to the immediate recognition of a curtailment gain, our future net periodic benefit costs will be reduced from amounts that would have been recognized prior to the amendments. For the fourth quarter of fiscal 2005, we expect the reduction to be approximately $1.4 million.

      Interest and other income increased in both the three months and nine months ended June 30, 2005, compared to the same periods last year. The three-month increase was primarily related to gains on the sale of equipment and higher interest income due to increased cash balances. These factors affected the nine-month period as well. In addition, this year’s nine-month period was affected by the sale of rights to our aircraft propeller synchronizer product line to an unrelated third party, which resulted in a pre-tax gain of $3.8 million. Prior to the sale, the product line generated annual sales of approximately $2.0 million.

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
	(In thousands)
Workforce Management Actions
Member termination benefits — Industrial Controls	$	469		$	—		$	1,341		$	151
Related costs of facility consolidation — Industrial Controls		943			—			943			—
Member termination benefits adjustments — Industrial Controls		(83	)		(348	)		(2,198	)		(431	)
Total workforce management costs	$	1,329		$	(348	)	$	86		$	(280	)

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      Workforce management costs in the three months and nine months ended June 30, 2005, are primarily related to the consolidation of manufacturing operations in The Netherlands and United Kingdom with existing operations in the United States and Germany. We are also consolidating a small manufacturing operation in Japan with an existing operation in China and are making sales force reductions in The  Netherlands. These actions are discussed more fully in the Management Discussion and Analysis on pages 24-25 of our 2004 annual report to shareholders, which was filed with our Form 10-K/ A Amendment No. 1 for the year ended September 30, 2004.

      The amounts reflected in the preceding table for fiscal 2005 include costs for termination benefits earned by members during the three and nine-month service periods ended June 30, 2005, and for adjustments of amounts previously accrued for these actions. The accrual adjustments were made as a result of changes in estimates for termination benefits payable. These estimates changed because of voluntary member resignations, the transfer of members to a third-party distributor, and more members electing early retirement options at a lower cost. The related costs of facility consolidation consist of such items as moving and installing equipment, moving inventory, and travel for those members being trained in the transferred manufacturing processes.

      The total expense for these current actions is currently estimated to be approximately $15.4 million, of which $14.0 million has been recognized through June 30, 2005. By fiscal year, we recognized $13.8 million of expense in 2004 and $0.2 million of expense in the first nine months of 2005. The remaining estimated amount of $1.4 million is for termination benefits that will be earned by members over their remaining service period and for other costs primarily associated with moving inventory and equipment to other locations. We expect to expense the $1.4 million over the next three quarters.

      Our cash expenses for the 2004 actions are expected to total $13.6 million, and have been or will be paid from available cash balances in 2005 and 2006 without the need for additional borrowings. The remaining $1.8 million was for non-cash contractual pension termination benefits, which was recognized in last fiscal year’s fourth quarter.

      Once fully implemented, our annual savings are expected to range from $9.0 million to $11.0 million as compared to amounts that would have been incurred prior to the actions. These savings are primarily related to reduced personnel costs, although we anticipate some savings in travel and other costs due to the reduced headcount. Of the total savings, approximately 90% is expected to affect cost of goods sold and 10% selling, general, and administrative expenses. Although some savings have occurred in the third quarter of fiscal 2005, increased savings will begin to be recognized in the fourth quarter of 2005, increasing gradually through the end of the second quarter of 2006 when we expect to begin realizing the full savings level.

      We currently plan to continue to use the facilities and equipment located in The Netherlands, United Kingdom, and Japan after the actions are completed. We own all three facilities, and each of them will have ongoing sales and service activities. In addition, the facility in the United Kingdom will remain a key development site for diesel fuel injection products. We expect to move manufacturing equipment used by the three locations to other facilities.

      The amounts reflected in the preceding table for the three and nine months ended June 30, 2004, were related to actions initiated in fiscal 2003, discussed more fully in the Management Discussion and Analysis on pages 24-25 of our 2004 annual report to shareholders, which was filed with our Form 10-K/ A Amendment No. 1 for the year ended September 30, 2004. We attributed last year’s accrual reduction to increased production levels and the decision to retain certain members to meet increased demand.

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		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2005			2004			2005			2004
		(In thousands)
Earnings
Segment earnings:
	Industrial Controls	$	9,469		$	2,692		$	24,619		$	12,657
	Aircraft Engine Systems		14,321			15,162			48,555			40,262
Total segment earnings			23,790			17,854			73,174			52,919
Nonsegment expenses			(5,144	)		(3,399	)		(13,341	)		(9,945	)
Curtailment gain			7,825			—			7,825			—
Interest expense and income			(983	)		(1,237	)		(2,840	)		(3,146	)
Consolidated earnings before income taxes			25,488			13,218			64,818			39,828
Income taxes			5,742			5,005			20,098			15,117
Consolidated net earnings		$	19,746		$	8,213		$	44,720		$	24,711

      Industrial Controls’ segment earnings increased in both the three months and nine months ended June 30, 2005, as compared to the same periods last year. The effects of higher sales were partially offset by higher research and development expenses for both the three and nine-month periods this year as compared to last year. In addition, selling, general, and administrative expenses were lower for this year’s three-month period.

      Industrial Controls’ gross margin (external net sales less external cost of goods sold) increased by approximately $6.2 million in this year’s third quarter as compared to the same quarter last year. For the first nine months, the increase was $15.4 million over last year. For both periods, the higher gross margins were due to the year-over-year increase in sales.

      Industrial Controls’ research and development costs increased approximately $1.4 million in this year’s third quarter and $4.1 million in this year’s first nine months as compared to the same periods a year ago, reflecting higher development activity and normal variations in the timing of project expenditures.

      Industrial Controls’ selling, general, and administrative expenses decreased approximately $1.5 million in this year’s third quarter and increased $0.3 million in this year’s first nine months as compared to the same periods a year ago. These changes are primarily attributable to normal variations in legal and other professional services and gains and losses related to transactions denominated in foreign currencies. As a percent of sales, these expenses were 8.0% in this year’s third quarter, down from 11.0% from the third quarter last year, and 8.8% in this year’s first nine months, down from 11.0% in last year’s first nine months.

      Industrial Controls’ workforce management actions resulted in $1.3 million of expense in this year’s third quarter. Because of adjustments made in the second quarter, the actions resulted in only $0.1 million of expense in the nine months ended June 30, 2005. These actions are discussed more fully in a separate section of this management’s discussion and analysis.

      Aircraft Engine Systems’ segment earnings decreased in the three months ended June 30, 2005. The effects of higher sales were offset by quarterly variations in sales mix, which resulted in lower comparative gross margins as a percent of sales, and increased product development activity. Segment earnings increased in the nine months ended June 30, 2005, as compared to the same period last year. The increase was due to higher sales and a gain on the sale of certain product line rights, which more than offset the costs of increased product development activity.

      Aircraft Engine Systems sold the rights to its propeller synchronizer product line in the first quarter this year, generating a gain of $3.8 million. Prior to the sale, the product line generated annual sales of approximately $2.0 million.

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      Aircraft Engine Systems’ research and development increased approximately $0.9 million in this year’s third quarter and $1.7 million in this year’s first nine months as compared to the same periods a year ago, reflecting higher development activity and normal variations in the timing of project expenditures.

      Nonsegment expenses increased in both the three months and nine months ended June 30, 2005, as compared to the same periods a year ago. The most significant reasons for the increases are due to the assessment and audit of internal controls over financial reporting, which is required by the Sarbanes-Oxley Act of 2002, and higher variable compensation expense.

      Curtailment gain was discussed in another section of this management’s discussion and analysis.

      Income taxes in the three months and nine months ended June 30, 2005, were affected by changes in estimates of income taxes for previous periods. The changes in estimates resulted from increases in the amounts of certain credits claimed or expected to be claimed, and changes in the amounts of certain deductions taken or expected to be taken. These changes reduced reported income tax expense by 11.5% of pretax earnings, or $2,923,000, in the three months ended June 30, 2005, and by 3.0% of pretax earnings, or $1,940,000, in the nine months ended June 30, 2005. A reconciliation of our effective income tax rate for the year ended September 30, 2004, to the effective income tax rates for the three months and nine months ended June 30, 2005, follows:

	Three Months Ended			Nine Months Ended
(Percent of pretax earnings)	June 30, 2005			June 30, 2005
Effective rate for the year ended September 30, 2004		36.3			36.3
Change in estimates of taxes for previous periods		(11.5	)		(3.0	)
Change in expected tax rate applicable for current periods		(2.3	)		(2.3	)
Effective rate		22.5			31.0

      We anticipate the applicable rate for our fourth quarter will be 34.0%.

      Outlook: Over the past two years, our industrial and aircraft engine markets have experienced impressive recoveries in demand, which helped us increase revenues and improve earnings. Indications suggest that the strength will continue in both markets. However, some of our industrial customers are experiencing production capacity limitations and supply constraints from other suppliers. Although we are well positioned for increased capacity, these constraints may moderate the rate of sales growth we have seen over the past two years, which would influence our revenue growth.

      We currently estimate that our earnings for fiscal year 2005 will be in the range of $4.70 to $4.85 per share. This represents an increase from the previous estimate included in our Form 10-Q last quarter. The increase was largely driven by the effects of the pretax curtailment gain of $7.8 million and the change in estimates of income taxes of $1.9 million that were recognized in the third quarter. The effect of the pretax gain on the sale of product line rights of $3.8 million that was recognized in the first quarter was included in both our previous estimate and our current estimate.

Financial Condition

	June 30,		September 30,
	2005		2004
	(In thousands)
Assets
Industrial Controls	$	367,215	$	364,584
Aircraft Engine Systems		203,778		205,580
Nonsegment assets		114,648		84,130
Consolidated total assets	$	685,641	$	654,294

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      Nonsegment assets increased in the nine months ended June 30, 2005, primarily because of an increase in cash and cash equivalents. Net cash flows provided by operations during the period exceeded net cash used in investing and financing activities.

	June 30,		September 30,
	2005		2004
	(In thousands)
Other Balance Sheet Measures
Working capital	$	237,679	$	197,524
Long-term debt, less current portion		73,985		88,452
Other liabilities		68,064		68,709
Shareholders’ equity		427,559		385,861

      Working capital (current assets less current liabilities) increased in the nine months ended June 30, 2005, primarily as a result of increases in cash and cash equivalents and inventories, which were partially offset by increases in the current portion of long-term debt. Changes in cash and cash equivalents are directly observable in our statements of consolidated cash flows and are discussed in another section of this management’s discussion and analysis. Inventories have increased in anticipation of future sales. The increase in the current portion of long-term debt reflects changes due to the timing of the future payments. The first payments of the senior notes payable are due in October 2005. The related liability for these payments was classified as non-current at September 30, 2004, and as current at June 30, 2005.

      Long-term debt decreased in the nine months ended June 30, 2005, as a result of the timing of future payments, as noted in the preceding paragraph. Required future principal payments of long-term debt and commitments under operating leases were as follows:

			2006/		2008/
In thousands for the year(s) ended September 30,	2005		2007		2009		Thereafter
Long-term debt	$	956	$	29,072	$	25,251	$	32,143
Operating leases		3,600		6,000		3,400		6,900

      We currently have a revolving line of credit facility with a syndicate of U.S. banks totaling $100 million, with an option to increase the amount of the line to $175 million if we desire. The line of credit facility is set to expire on March 11, 2010. In addition, we have other lines of credit facilities, which totaled $26.4 million at September 30, 2004, that are generally reviewed annually for renewal.

      Provisions of debt agreements include covenants customary to such agreements that require us to maintain specified minimum or maximum financial measures and place limitations on various investing and financing activities. The agreements also permit the lenders to accelerate repayment requirements in the event of a material adverse event. Our most restrictive covenants require us to maintain a minimum consolidated net worth, a maximum consolidated debt to consolidated operating cash flow, and a maximum consolidated debt to EBITDA, as defined in the agreements. We were in compliance with all covenants at June 30, 2005.

      Commitments and contingencies at June 30, 2005, include various matters arising from the normal course of business. We are currently involved in pending or threatened litigation or other legal proceedings regarding employment, product liability and contractual matters. We accrued for individual matters that we believe are likely to result in a loss when ultimately resolved using estimates of the most likely amount of loss. There are also individual matters that we believe the likelihood of a loss when ultimately resolved is less than likely but more than remote, which were not accrued. While it is possible that there could be additional losses that have not been accrued, we currently believe the possible additional loss in the event of an unfavorable resolution of each matter is less than $5 million in the aggregate. In addition, consistent with generally accepted accounting principles, we do not recognize contingencies, which may result in gains.

      We file income tax returns in various jurisdictions worldwide, which are subject to audit. We have accrued for our estimate of the most likely amount of expenses that we believe will result from income tax audit adjustments.

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      We do not recognize contingencies that might result in a gain until such contingencies are resolved and the revenues are realized.

      In the event of a change in control of the company, we may be required to pay termination benefits to certain executive officers.

      Shareholders’ equity increased in the nine months ended June 30, 2005, primarily as a result of net earnings for the first nine months. Dividend payments and repurchases of stock were mostly offset by the sale of treasury stock and the tax benefit applicable to stock options.

      On January 26, 2005, the Board of Directors authorized the repurchase of up to $30 million of our outstanding shares of common stock on the open market and private transactions over a three-year period. We repurchased 49,909 shares at a cost of $3.8 million in the three months and nine months ended June 30, 2005, under this authorization.

      Also, on July 27, 2005, the Board of Directors declared a cash dividend of $0.30 per share payable September 1, 2005, to shareholders of record at August 18, 2005. Cash dividends were $0.25 per share in each of the previous two quarters.

	Nine Months Ended
	June 30,
	2005			2004
	(In thousands)
Cash Flows
Net cash provided by operating activities	$	45,613		$	58,027
Net cash used in investing activities		(13,079	)		(15,683	)
Net cash used in financing activities		(5,968	)		(38,082	)

      Net cash flows provided by operating activities decreased in the first nine months this year as compared to the first nine months last year. Both operating cash receipts and disbursements increased in the nine-month period this year compared to last year due to higher sales volume. However, cash paid to employees and suppliers increased at a greater rate than cash collected from customers, reflecting normal variations in payment and collection patterns. In addition, our income tax payments were higher in the nine-month period this year as compared to the same period last year.

      Net cash flows used in investing activities decreased $2.6 million in the first nine months of fiscal 2005 compared to the same period last year. We completed a business acquisition in last year’s nine-month period for cash of $2.3 million. Also, proceeds from the sale of property, plant, and equipment were $3.0 million higher this year than a year ago, which was partially offset by an increase in capital expenditures of $2.3 million.

      Net cash flows used in financing activities decreased $32.1 million in the first nine months this year compared to the first nine months last year. Our borrowings remained relatively stable in this year’s nine-month period compared to a reduction of $30.6 million in last year’s nine-month period.

      Outlook: Future cash flows from operations and available revolving lines of credit are expected to be adequate to meet our cash requirements over the next twelve months. Payments of $64.3 million of senior notes are not due until the 2007-2012 timeframe. Also, we have a $100 million line of credit facility that includes an option to increase the amount of the line up to $175 million that does not expire until March 11, 2010. Despite these factors, it is possible business acquisitions could be made in the future that would require amendments to existing debt agreements and the need to obtain additional financing.

Recent Accounting Pronouncements

      In November 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151, “Inventory Costs.” The Statement clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current-period charges. This

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Statement also requires that allocations of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Statement becomes effective for our fiscal year beginning October 1, 2005. We currently do not expect that application of this Statement will have any material effect on our financial statements.

      In December 2004, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting Standards No. 123, “Share-Based Payment.” Among its provisions, the revised Statement will require us to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize the cost over the requisite service period.

      In accordance with a Securities and Exchange Commission rule issued in April 2005, this revised Statement becomes effective for our fiscal year beginning October 1, 2005, although early adoption is allowed. As described in Note 2 to these financial statements, we currently use the intrinsic value method to account for stock-based employee compensation. As a result, adoption of this revised Statement is expected to reduce our net earnings in interim and annual periods after adoption. We believe the best indication of the approximate immediate net earnings effect of adopting the provisions of this revised Statement may be determined by reviewing Note 2 to these financial statements and Note 1 to Consolidated Financial Statements on page 39 of the 2004 annual report to shareholders, which was filed with our Form 10-K/ A Amendment No. 1 for the year ended September 30, 2004. These notes show that net earnings would have decreased by $0.02 per diluted share for the quarter ended June 30, 2005, $0.08 per diluted share for the nine months ended June 30, 2005, and $0.11 per diluted share for the year ended September 30, 2004. We expect to adopt this revised Statement effective with our fiscal year beginning October 1, 2005.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

      Our long-term debt is sensitive to changes in interest rates. Also, assets, liabilities and commitments that are to be settled in cash and are denominated in foreign currencies for transactional purposes are sensitive to changes in currency exchange rates. These market risks are discussed more fully in the Management Discussion and Analysis on page 19 of our 2004 annual report to shareholders, which was filed with our Form 10-K/ A Amendment No. 1 for the year ended September 30, 2004. However, we currently do not have any existing interest rate swap agreements.

Item 4.     Controls and Procedures

      We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management, including our principal executive officer (Thomas A. Gendron, president and chief executive officer) and principal financial officer (Stephen P. Carter, executive vice president, chief financial officer and treasurer), as appropriate to allow timely decisions regarding required disclosures.

      Thomas A. Gendron, our president and chief executive officer, and Stephen P. Carter, our executive vice president, chief financial officer and treasurer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on their evaluation, they concluded that our disclosure controls and procedures were effective in achieving the objectives for which they were designed as described in the preceding paragraph.

      Furthermore, there have been no changes in our internal control over financial reporting during the fiscal quarter covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

							(d)
					(c)		Approximate
					Total number		dollar value
					of shares		of shares that
	(a)		(b)		purchased as part		may yet be
	Total number		Average		of publicly		purchased
	of shares		price paid		announced		under the
Period	purchased		per share		plans or programs		plans or programs
April 1, 2005 through April 30, 2005		—				—	$	30,000,000
May 1, 2005 through May 31, 2005		45,909	$	75.71		45,909	$	26,524,360
June 1, 2005 through June 30, 2005		4,443	$	75.98		4,000	$	26,208,982

      Included in June are 443 shares purchased on the open market related to the reinvestment of dividends for treasury shares held for deferred compensation.

      On January 26, 2005, the Board of Directors authorized the repurchase of up to $30 million of our outstanding shares of common stock on the open market and in private transactions over a three-year period. There have been no terminations or expirations since the approval date.

      Sales of common stock issued from treasury to one of the company’s directors during the nine months ended June 30, 2005, consisted of the following:

	Total number
	of shares		Consideration
Date	purchased		received
December 1, 2004		82	$	5,934
January 31, 2005		57		4,054
April 29, 2005		87		5,952

      The securities were sold in reliance upon the exemption contained in Section 4(2) of the Securities Act of 1933.

Item 6.     Exhibits

      (a) Exhibits Filed as Part of this Report:

       (3) (ii) Bylaws

      (31) (i)  Certification of Thomas A. Gendron, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

              (ii) Certification of Stephen P. Carter, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

      (32) (i)  Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Woodward Governor Company
Date: August 1, 2005	/s/ Thomas A. Gendron
	Thomas A. Gendron, President and Chief Executive Officer
Date: August 1, 2005	/s/ Stephen P. Carter
	Stephen P. Carter, Executive Vice President, Chief Financial Officer and Treasurer

26 EX-3.(II) 2 c97168exv3wxiiy.htm BYLAWS

EXHIBIT 3(ii)

BYLAWS

OF

WOODWARD GOVERNOR COMPANY

as amended through July 1, 2005

ARTICLE I: OFFICES

     Section 1.1. Registered Office. The registered office shall be established and maintained as prescribed in the Certificate of Incorporation of the Corporation.

     Section 1.2. Other Offices. The corporation may have other offices, either within or outside of the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the corporation may require.

ARTICLE II: MEETINGS OF STOCKHOLDERS

     Section 2.1. Place of Meetings. All meetings of the stockholders for the election of directors shall be held in the City of Rockford, State of Illinois, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Illinois as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Illinois, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.

     Section 2.2. Annual Meeting of Stockholders. The annual meeting of stockholders for the election of directors and for such other business as may be stated in the notice of the meeting shall be held, in each year, commencing in 1999, by the third Wednesday following January 2 at 10:00 A.M., local time, or such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting.

     Section 2.3. Voting. Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these bylaws shall, except as otherwise provided by the Certificate of Incorporation, be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period.

     Section 2.4. List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

     Section 2.5. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

     Section 2.6. Special Meetings. Special meetings of the stockholders for any proper purpose or purposes may be called by the Board of Directors or by the Chairman of the Board of Directors, and shall be called upon a request in writing therefore stating the purpose or purposes thereof signed by the holders of two-thirds of the outstanding shares of Common Stock of the Corporation.

     Section 2.7. Notice of Meetings. Except as otherwise provided by law, written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation either personally or by mail, not less than ten nor more than sixty days before the date of the meeting. If mailed, such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat.

     Section 2.8. Nominations for Director. Nominations for election to the Board of Directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Nominations other than those made by the Board of Directors shall be made by notice in writing, delivered or mailed by registered or certified United States mail, return receipt requested, postage prepaid, to the Secretary of the Corporation, not less than 20 days nor more than 50 days prior to any meeting of stockholders called for the election of directors; provided, however, if less than 21 days’ notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, not later than the close of business on the seventh day following the day on which the notice of meeting was mailed to the stockholders. Each such written notice shall contain the following information: (a) The name and residence address of the stockholder making the nomination; (b) Such information regarding each nominee as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated by the Board of Directors; and (c) The signed consent of each nominee to serve as a member of the Board of Directors if elected, and the signed agreement of each nominee that if elected he or she will be guided by the philosophy and concepts of human and industrial association of the Corporation as expressed in its Constitution in connection with the nominee’s service as a member of the Board of Directors.

     Unless otherwise determined by the Chairman of the Board of Directors or by a majority of the directors then in office, any nomination which is not made in accordance with the foregoing procedure shall be defective, and any votes which may be cast for the defective nominee shall be disregarded.

ARTICLE III : DIRECTORS

     Section 3.1. General Powers. The business and affairs of the corporation shall be managed by or under the direction of its Board of Directors. The Board of Directors shall exercise all of the powers of the corporation except such as are by law, or by the Certificate of Incorporation of the corporation or by these bylaws conferred upon or reserved to the stockholders.

     Section 3.2. Number and Term. The Board of Directors shall be divided into three classes, Class I, Class II and Class III, which shall be as nearly equal in number as possible. The number of directors which shall constitute the whole Board of Directors shall be not less than six, the exact number of directors and the exact number of directors in each class to be determined from time to time by the Board of Directors. Except as provided in Section 3.4 hereof, each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which such director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders next ensuing, each initial director in Class II shall hold office until the annual meeting of stockholders one year thereafter, and each initial director in Class III shall hold office until the annual meeting of stockholders two years thereafter. If the number of directors is changed, any increase or decrease shall be apportioned among the three classes so as to maintain the number of directors in each class as nearly equal as possible. In no case will a decrease in the number of directors shorten the term of any incumbent director.

     Section 3.3. Vacancies. Vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors shall be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Except as provided in Section 3.4 hereof, any director elected to fill a vacancy shall hold office for the remaining term of the class in which the vacancy shall have occurred or shall have been created.

     Section 3.4. Qualifications. Unless otherwise determined by the Board of Directors, the term of any director shall end on September 30th next following said director’s seventieth birthday. No person may serve as a director unless such person agrees in writing that in connection with such service he or she will be guided by the philosophy and concepts of human and industrial association of the corporation as expressed in its Constitution.

     Section 3.5. Director Emeritus. Any director who requests that he be appointed a director emeritus and any director who is not re-elected by the stockholders may, with the approval of the Board of Directors, be a director emeritus until the next annual meeting of the Board of Directors. A director emeritus may attend directors’ meetings and counsel the directors but will not be a member of the Board of Directors and will not have the voting rights of a director.

     Section 3.6. Increase or Decrease of Number. The number of directors may be increased or decreased from time to time by resolution of the Board of Directors.

     Section 3.7. Removal. Any director or the entire Board of Directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of two-thirds of the outstanding shares of Common Stock of the Corporation.

     Section 3.8. Regular Meetings. The first regular meeting of each newly elected Board of Directors shall be held immediately after, and at the same place as, the Annual Meeting of Stockholders. Thereafter regular meetings of the Board of Directors shall be held at such times as the Board of Directors may from time to time establish. Regular meetings shall be held at the corporate office at 5001 North Second Street, Rockford, Illinois unless otherwise noted by prior written notice. Regular meetings of the Board of Directors will be held without other notice than this bylaw. Any such regular meeting other than the first regular meeting may be cancelled by the person or persons authorized to call special meetings of the Board of Directors. Any such cancellation shall be accomplished by giving notice in accordance with Section 3.11 of these bylaws.

     Section 3.9. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board of Directors or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix the place of any meeting called by such person or persons.

     Section 3.10. Minimum Schedule of Meetings. During each calendar quarter, the Board of Directors shall conduct at least one meeting. Each regular meeting and each special meeting shall be regarded as one meeting. For the purposes of this Section 3.10, action without meeting pursuant to Section 3.15 of these bylaws shall not be regarded as a meeting.

     Section 3.11. Notice. Notice of any special meeting or the cancellation of any regular meeting shall be given to each director by letter delivered at least two days before the meeting, or by telegram delivered at least one day before the meeting, or by such shorter telephone or other notice as the person or persons calling or canceling the meeting may deem appropriate in the circumstances. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Neither the business to be transacted at nor the purpose of any special meeting need be specified in the notice thereof.

     Section 3.12. Presiding Officer. Meetings of the stockholders and the Board of Directors shall be presided over by the Chairman of the Board of Directors, or if he is not present, by the Vice Chairman of the Board of Directors, or if he is not present, by the President, or if he is not present, by a Vice President, or if neither the Chairman of the Board of Directors, nor the Vice Chairman of the Board of Directors, nor the President, nor a Vice President is present, then by a presiding officer to be chosen by a majority of the directors present.

     Section 3.13. Quorum. A majority of the directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute. If at any meeting of the board there shall be less than a quorum present, a majority of these present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned.

     Section 3.14. Compensation. The Board of Directors shall have authority to fix the compensation of all directors and directors emeritus. By resolution of the Board of Directors expenses of attendance, if any, may be allowed for attendance by each director and director emeritus at each regular or special meeting of the Board of Directors. Nothing herein shall be construed to preclude any director or director emeritus from serving the corporation in any other capacity and receiving compensation therefor.

     Section 3.15. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, may be taken without a meeting if all members of the board consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board.

     Section 3.16. Meetings by Conference Telephone. Members of the Board of Directors may participate in a meeting of such board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such meetings shall constitute presence in person at such meeting.

ARTICLE IV: COMMITTEES OF THE BOARD OF DIRECTORS

     Section 4.1. Committees of the Board of Directors. The Board of Directors shall designate an Executive Committee, an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, and a Management Operations Committee, each of which shall have and may exercise the powers and authority of the Board of Directors to the extent hereinafter provided. The Board of Directors may designate one or more additional committees of the Board of Directors with such powers and authority and shall be specified in the resolution of the Board of Directors. Each committee shall consist of such number of directors as shall be determined from time to time by resolution of the Board of Directors. The Chairman of the Board of Directors shall be ex-officio a member of all committees of the Board of Directors other than the Audit Committee and the Compensation Committee, and he shall be chairman of the Executive Committee. All actions of the Board of Directors designating committees, or electing or removing members of such committees, shall be taken by a resolution passed by a majority of the whole Board of Directors. Each committee shall keep a written record of all action taken by it. All action taken by a committee shall be reported to the Board of Directors at its meeting next succeeding such action and shall be subject to approval and revision by the Board of Directors, provided that no legal rights of third parties shall be affected by such revisions and in no event shall the Board of Directors take any action with respect to the Compensation Committee which would cause the 1996 Long Term Incentive Compensation Plan as amended from time to time (the “Long Term Incentive Plan”) to fail to comply with Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or cause the members of the Compensation Committee not to qualify as “disinterested persons” under said Rule 16b-3.

     Section 4.2. Election of Committee Members. The members of each committee shall be elected by the Board of Directors and shall serve until the first meeting of the Board of Directors after the annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. The Board of Directors may designate the chairman of each committee other than the Executive Committee and may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member and all alternate members who may serve in the place and stead of such member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

     Section 4.3. Committee Rules and Procedures. The Chairman of the Board of Directors, the chairman of any committee, or a majority of the members of any committee, may call a meeting of that committee. Unless the Board of Directors otherwise provides, each committee may make, alter and repeal rules and procedures for the conduct of its business. In the absence of such rules and procedures, each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these bylaws.

     Section 4.4. Executive Committee. During the intervals between meetings of the Board of Directors, the Executive Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation upon any matter which in the opinion of the Chairman of the Board of Directors should not be postponed until the next previously scheduled meeting of the Board of Directors. The Executive Committee shall have the power and authority to declare cash dividends. Notwithstanding the foregoing, as provided by law the Executive Committee shall not have power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending these bylaws.

     Section 4.5. Audit Committee. The Audit Committee shall have the power to recommend to the Board of Directors the selection and engagement of independent accountants to audit the books and accounts of the corporation and the discharge of the independent accountants. The Audit Committee shall review the scope and approach of the annual audit as recommended by the independent accountants, the scope and approach of internal audits of the corporation, the system of internal accounting controls of the corporation, and shall review the reports to the Audit Committee of the independent accountants and the internal auditors.

     Section 4.6. Compensation Committee The Compensation Committee shall have the power to recommend to the Board of Directors the compensation of the officers and key personnel of the corporation, to administer the Corporation’s Long Term Incentive Plan in accordance with the terms of the Long Term Incentive Plan, and to make all determinations and to take all such actions in connection therewith or in relation thereto as it deems necessary or advisable, including the granting of all incentives to eligible worker members in accordance with the terms of the Long Term Incentive Plan.

     Section 4.7. Nominating and Governance Committee. The Nominating and Governance Committee shall have the power to recommend to the Board of Directors candidates for election to the Board of Directors.

     Section 4.8. Management Operations Committee. The Management Operations Committee shall have the power to authorize and approve such routine matters arising in the ordinary course of business of the corporation as the Board of Directors shall establish from time to time by resolution. The Management Operations Committee shall have no power or authority to declare cash dividends and shall have no power denied to the Executive Committee in Section 4.4 hereof.

ARTICLE V: OFFICERS

     Section 5.1. Officers. The officers of the corporation shall be a Chairman of the Board of Directors, a President, one or more Vice Presidents (the number thereof to be determined by the Board of Directors), a Treasurer and a Secretary, all of whom shall be elected by the Board of Directors. In addition, the Board of Directors may elect a Vice Chairman of the Board of Directors and one or more Assistant Treasurers and Assistant Secretaries.

     Section 5.2. Other Officers and Agents. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board.

     Section 5.3. Qualifications. Except for the Chairman of the Board of Directors, and unless otherwise determined by the Board of Directors, each officer of the corporation shall be under the age of 65 at the time of election. None of the officers of the corporation, except the Chairman of the Board of Directors and the Vice Chairman of the Board of Directors, need be a Director.

     Section 5.4. Election and Term of Office. The officers of the corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.

     Section 5.5. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.

     Section 5.6. Chairman. The Chairman of the Board of Directors shall be elected from among the members of the Board of Directors. He shall have such duties and powers as shall be assigned to him by the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and all meetings of the Board of Directors and shall advise and consult with the President and Chief Executive Officer concerning the management of the business and affairs of the corporation.

     Section 5.7. Vice Chairman. The Board of Directors may from time to time elect a Vice Chairman of the Board of Directors. Such Vice Chairman shall be a director and shall serve as Vice Chairman until his term of office as director concludes, or until his successor as Vice Chairman shall have been elected and qualified, whichever event shall first occur. The Vice Chairman shall perform the duties and exercise all the powers of the Chairman of the Board of Directors, when, and for so long as the Chairman of the Board of Directors so directs in writing. The Vice Chairman shall perform such other duties as may from time to time be assigned to him by the Board of Directors.

     Section 5.8. President. The President shall be the chief executive officer of the corporation and shall have general supervision of the business affairs and property of the corporation and over its several officers, subject, however, to the control of the Board of Directors. He shall, subject to the direction and control of the Board of Directors, be its representative and medium of communication; he shall, to the best of his ability, see that the acts of the officers conform to the policies of the corporation as determined by the Board of Directors, and shall perform such duties as may from time to time be assigned to him by the Board of Directors.

     Section 5.9. Vice Presidents. Each Vice President shall have such duties and powers as shall be assigned to him or her by the President or by the Board of Directors.

     Section 5.10. Treasurer. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such monies in the name of the corporation in such banks, trust companies, or other depositories as shall be selected by the Board of Directors; and (b) in general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors.

     Section 5.11. Secretary. The Secretary shall: (a) keep the minutes of the meetings of the stockholders and of the Board of Directors in one or more books provided for the purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all certificates for shares prior to the issue thereof and to all documents, the execution of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these bylaws; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) sign with the Chairman or Vice Chairman of the Board of Directors, the President, or a Vice President, certificates for shares of the corporation, the issue of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors.

     Section 5.12. Assistant Treasurers and Assistant Secretaries. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries, as thereunto authorized by the Board of Directors, may sign with the Chairman or Vice Chairman of the Board of Directors, the President or a Vice President certificates for shares of the corporation, the issue of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers and Assistant Secretaries, in general, shall perform such duties as shall be assigned to them by the Treasurer or the Secretary respectively, or by the President or the Board of Directors.

     Section 5.13. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation.

ARTICLE VI: STOCK

     Section 6.1. Certificates of Stock. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation, by the Chairman or the Vice Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. Any of or all the signatures on the certificate and the seal of the corporation if one be used may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

     Section 6.2. Transfer of Stock. Transfer of shares of the corporation shall be made only on the books of the corporation by the registered holder thereof, by his attorney thereunto authorized, by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares properly endorsed and with all taxes thereon paid. The person in whose name shares stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. However, if any transfer of shares is made only for the purpose of furnishing collateral security and such fact is made known to the Secretary of the corporation, or to the corporation’s transfer clerk or transfer agent, the entry of the transfer shall record such fact.

     Section 6.3. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents and registrars, and thereafter it may require all stock certificates to bear the signature of a transfer agent and a registrar or a facsimile thereof.

     Section 6.4. Rules of Transfer. The Board of Directors shall have the power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for the shares of the corporation.

     Section 6.5. Lost Certificate. Any person claiming a certificate for shares of the corporation to have been lost, stolen, or destroyed shall make an affidavit of the fact and lodge such affidavit with the Secretary of the corporation, accompanied by a signed application for a new certificate. Any such person shall give the corporation a bond of indemnity with one or more sureties satisfactory to the Board of Directors and in an amount which in its judgment, shall be sufficient to save the corporation from loss, and thereupon, the proper officers may cause to be issued a new certificate of like tenor with the one alleged to have been lost, stolen, or destroyed, but the Board of Directors may refuse the issuance of such new certificate.

     Section 6.6. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor, at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when it deems expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the corporation.

ARTICLE VII : INDEMNIFICATION

     Section 7.1.

     (a) The corporation shall indemnify, subject to the requirements of subsection (d) of this Section, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines, penalties, taxes and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

     (b) The corporation shall indemnify, subject to the requirements of subsection (d) of this Section, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper.

     (c) To the extent that a director, officer, employee or agent of the corporation, or a director, officer, employee, fiduciary or agent of any other enterprise serving at the request of the corporation, has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this Section, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

     (d) Any indemnification under subsections (a) and (b) of this Section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, fiduciary or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of this Section. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.

     (e) Expenses (including attorney’s fees) incurred by a director, officer, employee, fiduciary or agent in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee, fiduciary or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Section.

     (f) The indemnification and advancement of expenses provided by, or granted pursuant to the other subsections of this Section shall not limit the corporation from providing any other indemnification permitted by law nor shall it be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

     (g) The provisions of this Section shall be applicable to all actions, suits or proceedings pending at the time or commenced after the adoption of this Section, whether arising from acts or omissions to act occurring, or based on claims asserted, before or after the adoption of this Section. A finding that any provision of this Section is invalid or of limited application shall not affect any other provision of this Section nor shall a finding that any portion of any provision of this Section is invalid or of limited application affect the balance of such provision. The adoption of this Section shall not impair the rights any person may have had under Article XII of the bylaws of Woodward Governor Company, an Illinois corporation, so that if such person is not entitled to the benefit of the provisions of this Section with respect to any action, suit or proceeding, he shall continue to be entitled to the benefit of the provisions of Article XII of the bylaws of Woodward Governor Company, an Illinois corporation, with respect to such action, suit or proceeding.

     (h) The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Section.

     (i) For the purposes of this Section, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

     (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

ARTICLE VIII: CONTRACTS, LOANS, CHECKS, AND DEPOSITS

     Section 8.1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.

     Section 8.2. Loans. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

     Section 8.3. Checks. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

     Section 8.4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the Board of Directors may select.

ARTICLE IX: GENERAL PROVISIONS

     Section 9.1. Seal. The corporate seal of the corporation shall be circular in form and shall contain the name of the corporation and the words: “Rockford, Illinois. Incorporated June 1902.” Said seal may be used by causing it or a facsimile thereof to be impressed, affixed, or reproduced.

     Section 9.2. Fiscal Year. The fiscal year of the corporation shall commence on the first day of October and shall end of the thirtieth day of September in each year.

     Section 9.3. Resignations. Any director or officer may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, or the Secretary. The acceptance of a resignation shall not be necessary to make it effective.

     Section 9.4. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these bylaws, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice.

ARTICLE X : AMENDMENTS

     Section 10.1. Bylaw Amendments. The Board of Directors shall have concurrent power with the stockholders to adopt, amend or repeal these bylaws; provided, however, that (i) these bylaws shall not be adopted, amended or repealed by the stockholders except by the affirmative vote of the holders of two-thirds of the outstanding shares of Common Stock of the Corporation, and (ii) no bylaw may be adopted by the stockholders which shall impair or impede the power of the Board of Directors under paragraph A of Article SEVENTH of the Certificate of Incorporation of the Corporation.

EX-3.(II)

exv3wxiiy

EX-31.(I)

Exhibit 31(i)

Woodward Governor Company

Certification of Thomas A. Gendron, pursuant to Section 302 of

the Sarbanes-Oxley Act of 2002

CERTIFICATIONS

I, Thomas A. Gendron, certify that:

      1. I have reviewed this quarterly report on Form 10-Q of Woodward Governor Company;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d,ho -15(e)) for the registrant and have:

      a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

      a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ THOMAS A. GENDRON

Thomas A. Gendron

President and Chief Executive Officer

Date: August 1, 2005

      A signed original of this written statement required by Section 302, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 302, has been provided to Woodward and will be retained by Woodward and furnished to the Securities and Exchange Commission or its staff upon request.

27 EX-31.(II) 4 c97168exv31wxiiy.htm CERTIFICATION PURSUANT TO SECTION 302

Exhibit 31(ii)

Woodward Governor Company

Certification of Stephen P. Carter, pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

CERTIFICATIONS

I, Stephen P. Carter, certify that:

      1. I have reviewed this quarterly report on Form 10-Q of Woodward Governor Company;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

      a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

      a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

/s/ STEPHEN P. CARTER

Stephen P. Carter

Executive Vice President,

Chief Financial Officer and Treasurer

Date: August 1, 2005

      A signed original of this written statement required by Section 302, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 302, has been provided to Woodward and will be retained by Woodward and furnished to the Securities and Exchange Commission or this staff upon request.

28 EX-32.(I) 5 c97168exv32wxiy.htm CERTIFICATION PURSUANT TO SECTION 906

Exhibit 32(i)

Woodward Governor Company

Certification pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

      We hereby certify that the accompanying Report of Woodward Governor Company on Form 10-Q for the three months and nine months ended June 30, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of Woodward Governor Company.

/s/ Thomas A. Gendron Thomas A. Gendron	President and Chief Executive Officer	August 1, 2005
/s/ Stephen P. Carter Stephen P. Carter	Executive Vice President, Chief Financial Officer and Treasurer	August 1, 2005

      A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Woodward and will be retained by Woodward and furnished to the Securities and Exchange Commission or its staff upon request.

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EX-31.(II)

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EX-32.(I)

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