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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission file number 0-8408

Woodward Governor Company

(815) 877-7441

          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 January 23, 2004, 11,146,758 shares of common stock with a par value of $.00875 cents per share were outstanding.

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PART I — FINANCIAL INFORMATION

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

See accompanying Notes to Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)     Overview:

      The consolidated balance sheet as of December 31, 2003, the statements of consolidated earnings for the three-month periods ended December 31, 2003 and 2002, and the statements of consolidated cash flows for the three-month periods ended December 31, 2003 and 2002, were prepared by the company without audit. The September 30, 2003, 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 December 31, 2003, the results of its operations for the three-month periods ended December 31, 2003 and 2002, and its cash flows for the three-month periods ended December 31, 2003 and 2002. All such adjustments were of a normal and recurring nature. The statements were prepared following the accounting policies described in the company’s 2003 annual report on Form 10-K and should be read with the Notes to Consolidated Financial Statements on pages 34-46 of the 2003 annual report to shareholders. The statement of consolidated earnings for the three-month period ended December 31, 2003, is 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:

(3)     New Accounting Standards:

      In December 2003, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” The revised Statement requires additional disclosures to those in the original Statement No. 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The interim-period disclosure requirements of the revised Statement are effective beginning this quarter, and our disclosures may be found in note 10 to the consolidated financial statements.

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The remaining disclosure requirements of the revised Statement are effective for our year ending September 30, 2004.

(4)     Earnings per share:

      The following stock options were outstanding during the three months ended December 31, 2003 and 2002, 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)     Property, plant, and equipment:

(7)     Goodwill:

      In August 2003 we acquired assets and assumed certain liabilities of Barber-Colman Dyna Products, a division of Invensys Building Systems, Inc. The cost for this acquisition and the related allocation of the acquisition cost is subject to change. The purchase price for the assets acquired may increase or decrease based on a purchase price adjustment procedure customary to asset purchase agreements. Also, we are in the process of finalizing valuations of other intangibles and estimates of liabilities associated with an existing Barber-Colman facility. We expect settlement of the purchase price adjustment and the final purchase price allocation will be completed before the end of March 2004.

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(8)     Other intangibles — net:

      Amortization expense associated with current intangibles is expected to be approximately $6,400,000 for each year 2004-2006, approximately $6,000,000 in 2007, and approximately $5,400,000 in 2008.

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(9)     Accrued liabilities:

      Salaries and other member benefits include accrued termination benefits totaling $1,981 at December 31, 2003 and $2,199 at September 30, 2003. Changes in accrued termination benefits for the three months ended December 31, 2003 were as follows:

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      Termination benefits accrued by Industrial Controls impacted manufacturing, selling, and administrative expenses and reflect adjustments to stay bonuses to be paid out in future periods. Accrual adjustments in Industrial Controls reflect retention of certain members due to increased production levels. We expect all terminations to be completed by the end of March 2004 and all associated payments to be completed by the end of September 2004.

      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 pattern exists. A reconciliation of accrued product warranties from September 30, 2003, to December 31, 2003, follows:

(10)     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:

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(11)     Accumulated other comprehensive earnings:

      Accumulated other comprehensive earnings, which totaled $12,530,000 at December 31, 2003, consisted of the following items:

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(12)     Total comprehensive earnings:

(13)     Contingencies:

      We are currently involved in pending or threatened litigation regarding employment, environmental, and product liability matters, and arbitration proceedings regarding contractual matters arising from the normal course of business. We have accrued approximately $500,000 at December 31, 2003 in accrued expenses for these matters, which represent our estimate of the most likely amount of losses that we believe will be incurred.

      We also file income tax returns in various jurisdictions worldwide, which are subject to audit. Our income taxes receivable/ payable include our estimate of the most likely amount of expenses that we believe will result from income tax audit adjustments.

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

      It is our opinion, after consultation with legal counsel, that additional liabilities, if any, resulting from these matters are not expected to have a material adverse effect on our financial condition, although such matters could have a material effect on our quarterly or annual operating results and cash flows when resolved in a future period.

(14)     Segment information: