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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2002

OR

For the transition period from                              to                             

Commission file number 0-8408

WOODWARD GOVERNOR COMPANY
(Exact name of registrant as specified in its charter)

5001 North Second Street, Rockford, Illinois 61125-7001
(Address of principal executive offices)

(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 ý    No o

        As of August 1, 2002, 11,328,146 shares of common stock with a par value of $.00875 cents per share were outstanding.

TABLE OF CONTENTS

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Part I

Item 1.    Financial Statements

Statements of Consolidated Earnings
Woodward Governor Company and Subsidiaries

See accompanying Notes to Consolidated Financial Statements.

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Statements of Consolidated Earnings
Woodward Governor Company and Subsidiaries

Statements of consolidated earnings continued on next page.

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Statements of Consolidated Earnings
Woodward Governor Company and Subsidiaries

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Balance Sheets
Woodward Governor Company and Subsidiaries

See accompanying Notes to Consolidated Financial Statements.

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Statements of Consolidated Cash Flows
Woodward Governor Company and Subsidiaries

See accompanying Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

        (1)  The consolidated balance sheet as of June 30, 2002, the statements of consolidated earnings for the three and nine-month periods ended June 30, 2002 and 2001, and the statements of consolidated cash flows for the nine-month periods ended June 30, 2002 and 2001, were prepared by the company without audit. The September 30, 2001, 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, 2002, the results of its operations for the three and nine-month periods ended June 30, 2002 and 2001, and its cash flows for the nine-month periods ended June 30, 2002 and 2001. All such adjustments were of a normal and recurring nature. The statements were prepared following the accounting policies described in the company's 2001 annual report on Form 10-K (except as noted below in Note 2) and should be read with the Notes to Consolidated Financial Statements on pages 26-33 of the 2001 annual report to shareholders. The statements of consolidated earnings for the three and nine-month periods ended June 30, 2002, are not necessarily indicative of the results to be expected for other interim periods or for the full year.

        Certain reclassifications were made to the statement of consolidated cash flows for the nine months ended June 30, 2001, to conform to the current presentation.

        (2)  In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." Statement No. 141 primarily impacts accounting for transactions initiated or completed after June 30, 2001. However, Statement No. 141 also contains transition provisions that may result in the reclassification of carrying values among existing goodwill and other intangibles. We adopted Statement No. 142 and the transition provisions of Statement No. 141 on October 1, 2001.

        As a result of adopting these new standards, our accounting policies for goodwill and other intangibles changed on October 1, 2001, as described below:

        Goodwill:    We recognize the excess of the cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed as goodwill. Goodwill is tested for impairment on an annual basis and between annual tests in certain circumstances. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value. Prior to October 1, 2001, goodwill was amortized over periods of up to 30 years. Beginning October 1, 2001, goodwill is no longer amortized.

        Other Intangibles: We recognize an acquired intangible apart from goodwill whenever the asset arises from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset, or liability. However, we would not recognize an assembled workforce as an intangible apart from goodwill. An intangible other than goodwill is amortized over its estimated useful life unless that life is determined to be indefinite. Currently, all of our intangibles have an estimated useful life and are being amortized. Impairment losses are recognized if the carrying amount of an intangible subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value.

        Also as a result of adopting these new standards, we completed the transitional goodwill impairment reviews required by the new standards and recognized an aftertax loss of $2,489,000 as a cumulative effect of an accounting change. In performing our impairment reviews, we estimated the fair values of the various reporting units using a present value method that discounted future cash flows as we expect marketplace participants would, and we further assessed the reasonableness of the estimates by using valuation methods based on market multiples. The impairment loss related to an Industrial Controls reporting unit.

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        Other than the cumulative effect of the accounting change, adoption of the new accounting standards resulted in an increase in goodwill and a decrease in other intangibles of $4,425,000 on October 1, 2001, and, based on goodwill existing at October 1, 2001, is expected to result in a decrease in amortization expense of $4,874,000 for 2002.

        (3)  We acquired the capital stock of Leonhard-Reglerbau Dr.-Ing. Adolf Leonhard GmbH and acquired certain assets and assumed certain liabilities of Nolff's Carburetion, Inc. in the second quarter of the year ending September 30, 2002. Leonhard-Reglerbau specializes in the design, manufacture, and sales of control, protection, and monitoring devices for power generation equipment. Nolff's Carburetion manufactures and sells natural gas and propane fuel systems for small industrial engines. Our cost for these acquisitions totaled $25,292,000.

        The current amount of goodwill recognized for the acquisitions totaled $22,843,000, of which $12,545,000 is expected to be fully deductible for income tax purposes. However, we have not yet completed a final allocation of the purchase price. As a result, the amounts recorded for the acquisitions are subject to adjustment, but we do not expect any adjustments to be significant. Goodwill for these acquisitions is accounted for in the Industrial Controls' segment.

        Pro forma information of our consolidated results of operations as if the acquisitions had been completed at the beginning of fiscal year 2002 are not included as the resulting pro forma data would not be materially different from the results reported.

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(4)

Earnings per share:

        The following stock options were outstanding during the three months and nine months ended June 30, 2002 and 2001, 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.

(5)

Inventories:

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(6)

Goodwill: