Forward Looking Statements

This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are statements that are deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of management. Words such as "anticipate," "believe," "estimate," "seek," "goal," "expect," "forecasts," "intend," "continue," "outlook," "plan," "project," "target," "can," "could," "may," "should," "will," "would," variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characteristics of future events or circumstances are forward-looking statements. Forward-looking statements may include, among others, statements relating to:

• future sales, earnings, cash flow, uses of cash and other measures of financial performance;

• descriptions of our plans and expectations for future operations;

• the effect of economic downturns or growth in particular regions;

• the effect of changes in the level of activity in particular industries or markets;

• the availability and cost of materials, components, services, and supplies;

• the scope, nature, or impact of acquisition activity and integration into our businesses;

• the development, production, and support of advanced technologies and new products and services;

• new business opportunities;

• restructuring costs and savings;

• our plans, objectives, expectations and intentions with respect to recent acquisitions and expected business opportunities that may be available to us;

• the outcome of contingencies;

• future repurchases of common stock;

• future levels of indebtedness and capital spending; and

• pension plan assumptions and future contributions.

Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including:

• a decline in business with or financial distress of our significant customers;

• the long sales cycle, customer evaluation process, and implementation period of our products and services;

• our ability to implement, and realize the intended effects of, our restructuring efforts;

• the recent instability of the credit markets and other adverse economic and industry conditions;

• fines, other sanctions, continued suspensions or debarment related to the recent notice of suspension from the U.S. Department of Defense (the "DOD") or otherwise resulting from the outcome of the related investigation by the U.S. Department of Justice (the "DOJ") regarding certain pricing practices of MPC Products Corporation, one of our wholly owned subsidiaries ("MPC Products"), prior to June 2005;

• our ability to successfully manage competitive factors, including prices, promotional incentives, industry consolidation, and commodity and other input cost increases;

• our ability to reduce our expenses in proportion to any sales shortfalls;

• the ability of our suppliers to provide us with materials of sufficient quality or quantity required to meet our production needs at favorable prices or at all;

• the success of or expenses associated with our product development activities;

• our ability to integrate acquisitions and costs related thereto;

• our substantial debt and debt service requirements and our ability to operate our business and pursue business strategies in the light of certain restrictive covenants in our outstanding debt documents;

• future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets;

• changes in domestic or international tax statutes and future subsidiary results;

• environmental liabilities related to manufacturing activities;

• the geographical location of a portion of our business is in California, which historically has been susceptible to certain natural disasters;

• our continued access to a stable workforce and favorable labor relations with our employees;

• our ability to successfully manage regulatory, tax and legal matters (including government contracting, product liability, patent and intellectual property matters);

• risks from operating internationally, including the impact on reported earnings from fluctuations in foreign currency exchange rates; and

• certain provisions of our charter documents and Delaware law that could discourage or prevent others from acquiring our company.

These factors are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed or forecast in our forward-looking statements. Other factors are discussed under "Risk Factors" in our SEC filings and are incorporated by reference.

Therefore, actual results could differ materially and adversely from those expressed in any forward-looking statements. For additional information regarding factors that may affect our actual financial condition and results of operations, see the information under the caption "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year ended September 30, 2008 and in Part II, Item 1A in our Quarterly Report on Form 10-Q for the period ended March 31, 2009. We undertake no obligation to revise or update any forward-looking statements for any reason.

Unless we have indicated otherwise or the context otherwise requires, references in this Quarterly Report on Form 10-Q to "Woodward," "the Company," "we," "us," and "our" refer to Woodward Governor Company and its consolidated subsidiaries.

OVERVIEW

We are an independent designer, manufacturer, and service provider of energy control and optimization solutions for commercial and military aircraft and ground vehicles, turbines, reciprocating engines, and electrical power system equipment. Our innovative fluid energy, combustion control, electrical energy, and motion control systems help customers offer cleaner, more reliable and more cost-effective equipment. Leading original equipment manufacturers ("OEMs") use our products and services in aerospace, power and process industries, and transportation.

Our strategic focuses are energy control and optimization solutions. The control of energy, including fluid energy, combustion, electrical energy and motion, is a growing requirement in the markets we serve. Our customers

look to us to optimize the efficiency, emissions, and operations of power equipment. Our core technologies leverage well across our markets and customer applications, enabling us to develop and integrate cost-effective and state-of-the-art fuel, combustion, fluid, actuation, and electronic systems. We focus primarily on OEMs and equipment packagers, partnering with them to bring superior component and system solutions to their demanding applications.

We have four operating business segments - Turbine Systems, Airframe Systems, Electrical Power Systems and Engine Systems.

• Turbine Systems develops and manufactures systems and components that provide energy control and optimization solutions for the aircraft and industrial gas turbine markets.

• Airframe Systems develops and manufactures high-performance cockpit, electromechanical and hydraulic motion control systems, and mission-critical actuation systems and controls for weapons, aircraft, turbine engines, and combat vehicles, primarily for aerospace and military applications.

Airframe Systems was formed on October 1, 2008 when we acquired all of the outstanding stock of Techni-Core, Inc. ("Techni-Core") and all of the outstanding stock of MPC Products Corporation not owned by Techni-Core ("MPC Products" and, together with Techni-Core, "MPC") for approximately $370,435.

MPC is an industry leader in the manufacture of high-performance electromechanical motion control systems, primarily for aerospace applications. MPC's main product lines include high performance electric motors and sensors, analog and digital control electronics, rotary and linear actuation systems, and flight deck and fly-by-wire systems for commercial and military aerospace programs. Through an improved focus on aerospace energy control solutions, MPC complements Woodward's energy and motion control technologies and is expected to enhance Woodward's system offerings. MPC formed the basis of the fourth Woodward business segment, Airframe Systems.

On April 3, 2009, we acquired all of the outstanding capital stock of HR Textron Inc. from Textron Inc., its parent company, and the United Kingdom assets and certain liabilities related to HR Textron Inc.'s business (collectively "HRT") for approximately $380,749.

HRT is an industry leader in the advanced technology, engineering development, and manufacturing of mission-critical actuation systems and controls for weapons, aircraft, turbine engines, and combat vehicles. It is recognized for hydraulic and electric primary flight control actuation products, including electro-mechanical actuation systems for unmanned combat air vehicles and weapons, such as the Joint Direct Attack Munitions (JDAM) and the AIM-9X Sidewinder; hydraulic and electric flight controls for fixed and rotor wing aircraft; servovalves for global aerospace; turret controls and stabilization systems for the U.S. M1 Abrams Main Battle Tank and other armored vehicles worldwide; and fuel and pneumatics valves for aircraft and helicopters.

HR Textron Inc. became a wholly owned subsidiary of Woodward following the completion of the acquisition, and was renamed Woodward HRT, Inc. HRT is expected to complement the MPC business and is being integrated into Woodward's Airframe Systems business segment. Additional information about HRT and the acquisition is included in Note 3 to the Condensed Consolidated Financial Statements, "Business acquisitions" in "Item 1 - Financial Statements."

• Electrical Power Systems develops and manufactures systems and components that provide power sensing and energy control systems that improve the security, quality, reliability and availability of electrical power networks for industrial markets, which include the power generation, power distribution and power conversion industries.

• Engine Systems develops and manufactures systems and components that provide energy control and optimization solutions for the industrial engine and steam turbine markets, which include the power generation, transportation, and process industries.

We use segment information internally to assess the performance of each segment and to make decisions on the allocation of resources.

This discussion should be read together with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended September 30, 2008, and the Condensed Consolidated Financial Statements and Notes included in this report. Dollar amounts contained in this discussion and elsewhere in this Quarterly Report on Form 10-Q are in thousands, except per share amounts.

Financial information for the acquired MPC and HRT businesses are reflected in our financial statements from each acquisition date, October 1, 2008 and April 3, 2009. As a result of these acquisitions, a comparison of results for the three and nine months ended June 30, 2009 to the three and nine months ended June 30, 2008 may not be particularly meaningful. References to "organic" sales or earnings refer to financial information of Woodward businesses excluding the businesses acquired in the MPC and HRT acquisitions that are being integrated into the Airframe Systems business segment.

Quarterly Highlights

Net sales for the third quarter were $386,193, including net sales of $106,873 related to Airframe Systems, an increase of 17.1% from $329,847 for the third quarter of the prior year. Without the effects of Foreign exchange rates, net sales for the quarter would have been 3% higher.

Net earnings for the third quarter of 2009 were $24,997, or $0.36 per share, compared to $32,414, or $0.47 per share, for the three months ended June 30, 2008. Net earnings for the quarter included the special items set forth in the table below. Foreign exchange rates had a negative impact on earnings in the quarter of approximately $0.02 per share.

Items that (increased) decreased net earnings in 2009:

                                                          Three Months Ended                Nine Months Ended
                                                            June 30, 2009                     June 30, 2009
                                                                       Per Share                        Per Share

Purchase accounting - inventory basis step-up        $    12,500                       $   12,500
Less: income tax impact                                   (4,500 )                         (4,500 )

After income tax impact                              $     8,000      $      0.12      $    8,000      $      0.12


Workforce management and other charges               $         -                       $   16,605
Less: income tax impact                                        -                           (6,310 )

After income tax impact                              $         -      $         -      $   10,295      $      0.16


Favorable resolution of prior year tax issues        $    (4,992 )    $     (0.07 )    $   (4,992 )    $     (0.07 )

The results for the quarter ended June 30, 2009 reflect our continued focus on generating cash from both operations and working capital, which allowed us to reduce debt after the MPC and HRT acquisitions. Net cash provided by operating activities for the quarter was $63,332 compared to $56,160 for the prior year quarter. During the quarter ended June 30, 2009, we acquired HRT and, in connection with the acquisition, added $220,000 of long-term debt and $105,000 of short-term borrowings under our revolving credit facility. Cash flows from operating activities allowed us to pay down approximately $64,000 of debt during the quarter.

Both the MPC and HRT businesses are performing in line with our operational expectations and we believe that we have begun to realize some of the identified synergies.

Year to Date Highlights

Net sales for the nine months ended June 30, 2009 were $1,065,598, an increase of 17.4% over $907,663 for the same period of the prior year. Foreign exchange rates had a negative impact on net sales of approximately 3%.

Year to date net earnings were $70,535, or $1.02 per share, which included the special items noted in the above table, compared to $87,453, or $1.26 per share, in the same period last year. Foreign exchange rates had a negative impact on 2009 year to date earnings per share of approximately $0.09.

We implemented a number of projects aimed at improving our earnings through cost reduction and efficiency enhancements. Savings from these initiatives are expected to primarily impact manufacturing overhead expenses and selling, general, and administrative expenses.

Cash flows from operating activities for the nine months ended June 30, 2009 was $115,158 compared to $85,351 for the same period last year.

At June 30, 2009, our total assets were $1,757,888, including $67,556 in cash and cash equivalents, and our total debt was $692,904. As of June 30, 2009, we had liquidity available under our revolving credit facility of approximately $180,000. We believe liquidity and cash generation will be critical to funding our ongoing operating needs. We also believe that the restructuring and other cost reduction actions we have implemented will generate improved cash flow from operations and that this level of cash generation, together with our existing current assets and available borrowing capacity, will adequately support our operations and the strategic initiatives we have identified.

Results of Operations

Net Sales

The following table presents the breakdown of consolidated net sales by segment:


                                                     Three Months Ended June 30,                               Nine Months Ended June 30,
                                                  2009                        2008                         2009                          2008
                                                       % of Net                    % of Net                      % of Net                      % of Net
                                                       External                    External                      External                      External
Segment net sales                                        Sales                       Sales                         Sales                         Sales

Turbine Systems                          $ 148,188            38 %   $ 153,684            47 %   $   450,745            42 %   $   431,931            48 %
Airframe Systems                           107,676            28             -             -         211,604            20               -             -
Electrical Power Systems                    69,065            18        77,181            23         189,428            18         199,546            22
Engine Systems                              83,979            22       130,917            40         290,678            27         370,779            41

Total segment net sales                    408,908           106       361,782           110       1,142,445           107       1,002,256           111

Less intersegment net sales
Turbine Systems                             (3,114 )          (1 )      (5,062 )          (2 )       (11,123 )          (1 )       (13,229 )          (1 )
Airframe Systems                              (803 )           -             -             -          (2,162 )           -               -             -
Electrical Power Systems                   (11,745 )          (3 )     (17,178 )          (5 )       (38,970 )          (4 )       (49,585 )          (6 )
Engine Systems                              (7,053 )          (2 )      (9,695 )          (3 )       (24,592 )          (2 )       (31,779 )          (4 )

Consolidated net sales                   $ 386,193           100 %   $ 329,847           100 %   $ 1,065,598           100 %   $   907,663           100 %

Consolidated net sales for the three and nine months ended June 30, 2009 increased 17.1% and 17.4% compared to the same periods in fiscal 2008. Total organic sales were down 15.3% (approximately 11% excluding the effects of foreign exchange rates), largely reflecting the economic impact of decreased net sales in our Engine Systems business segment. Total organic net sales for the nine months ended June 30, 2009 were down 5.7% (approximately 2% excluding the effects of foreign exchange) compared to the same period last year. We expect our end markets to be mixed, with a slight overall decline in 2010.

Turbine Systems' segment net sales (including intersegment sales) decreased 3.6% in the three months ended June 30, 2009 and increased 4.4% in the nine months ended June 30, 2009 compared to the same periods a year ago. Net sales for the quarter reflected slowing deliveries of new aerospace equipment and aftermarket sales, partially offset by continued strength in industrial offerings this quarter. The year to date net sales increase was driven by higher demand for industrial gas turbine products partially offset by a decline in the business jet portion of the market. Year to date, our aftermarket business has been flat compared to the same period last year. Aircraft containing Woodward product has grown, increasing our installed base. In addition, there was a favorable mix of aircraft still in service, offset by the negative impact of revenue passenger miles and cargo service in 2009 compared to 2008 and airline withdrawals of some older aircraft from service.

Airframe Systems' segment net sales (including intersegment sales) were $107,676 and $211,604 for the three and nine month periods ended June 30, 2009. On April 3, 2009, we acquired HRT and have been integrating this business into our Airframe Systems business segment. Our defense business remains stable, and commercial airframe sales are showing weakness.

Electrical Power Systems' segment net sales (including intersegment sales) decreased 10.5% and 5.1% in the three and nine month periods ended June 30, 2009, compared to the same periods a year ago. Foreign exchange rates had a negative impact of approximately 10% on segment net sales for both the three and nine month periods ended June 30, 2009. Excluding the effects of foreign exchange rates, net segment sales are essentially flat for the quarter. Year to date, excluding the effects of foreign exchange rates, segment sales were up approximately 5% largely driven by increased wind turbine converter sales. This increase was partially offset by declines in other products for the power generation and distribution markets.

Engine Systems' segment net sales (including intersegment sales) decreased 35.9% and 21.6% for the three and nine months ended June 30, 2009 compared to the same periods a year ago. The lower sales levels were attributable to broad declines across the transportation and power generation markets. Foreign exchange rates had a negative impact on segment net sales of approximately $3,054 (2.3%) and $9,474 (2.6%) for the three and nine months ended June 30, 2009.

Costs and Expenses

The following table presents costs and expenses:


                                                      Three Months Ended June 30,                                    Nine Months Ended June 30,
                                                       % of Net                       % of Net                         % of Net                       % of Net
                                                       External                       External                         External                       External
                                          2009          Sales            2008          Sales             2009           Sales            2008          Sales

Consolidated net external sales         $ 386,193          100.0 %     $ 329,847          100.0 %     $ 1,065,598          100.0 %     $ 907,663          100.0 %

Cost of goods sold                      $ 287,094           74.3 %     $ 231,955           70.3 %     $   766,919           72.0 %     $ 633,162           69.7 %
Selling, general, and administrative
expenses                                   33,182            8.6          28,434            8.6            94,735            8.9          86,081            9.5
Research and development costs             20,676            5.4          18,994            5.8            58,556            5.5          53,401            5.9
Amortization of intangible assets           8,286            2.1           1,654            0.5            18,169            1.7           5,259            0.6
Restructuring and other charges                 -              -               -              -            15,159            1.4               -              -
Interest expense                           10,886            2.8           1,027            0.3            24,130            2.3           2,969            0.3
Interest income                               (19 )            -            (470 )         (0.1 )            (902 )         (0.1 )        (1,470 )         (0.2 )
Other, net                                   (605 )         (0.2 )          (843 )         (0.3 )            (787 )         (0.1 )        (2,971 )         (0.3 )

Consolidated costs and expenses         $ 359,500           93.1 %     $ 280,751           85.1 %     $   975,979           91.6 %     $ 776,431           85.5 %

Cost of goods sold for the three and nine months ended June 30, 2009 increased to 74.3% and 72.0% from 70.3% and 69.7% in the same periods last year. Correspondingly, gross margins (as measured by net sales less cost of goods sold) decreased to 25.7% and 28.0% for the three and nine months ended June 30, 2009, compared to 29.7% and 30.3% for the same periods last year. The decrease in gross profit margin was attributable to the $12,500 charge related to purchase accounting for HRT, decreases in sales volume and the addition of the MPC and HRT businesses, which generally have lower gross margins than our other businesses.

Selling, general, and administrative expenses as a percent of sales were 8.6% and 8.9% for the three and nine months ended June 30, 2009 as compared to 8.6% and 9.5% for the same periods last year. Selling, general, and administrative expenses for the three and nine months ended June 30, 2009 increased 16.7% and 10.1% compared with the same period in the prior year, primarily due to the addition of the related expenses of the MPC and HRT business activity, offset by reductions in variable compensation accruals and the favorable effects of foreign exchange rates. Accruals of variable compensation are affected by projections of company-wide performance-based factors for the entire fiscal year.

Research and development costs as a percent of sales were 5.4% and 5.5% for the three and nine month periods in fiscal 2009 as compared to 5.8% and 5.9% in fiscal 2008. Research and development costs increased

8.9% and 9.7% for the three and nine months ended June 30, 2009 compared to the same periods in fiscal 2008. The change reflects research and development added as a result of the acquisitions of MPC, MotoTron and HRT, offset by lower levels of development activity during the quarter for our other business segments. We continue to invest in next-generation technologies and products in all of our businesses. While the pace of research is expected to be tempered, our current level of spending is consistent with our expectations and longer-term requirements, although some quarterly variability is expected to continue.

We believe that the result of our investments within Turbine Systems contributed to the selection of our integrated fuel system by GE Aviation for its GEnx turbofan engine, powering the Boeing 787 Dreamliner and Boeing 747-8 airliner, and our fuel and combustion components for the Pratt & Whitney F135 and GE Rolls-Royce F136 engines, powering the Lockheed-Martin Joint Strike Fighter. We have expanded our collaboration with key customers by signing joint technology demonstration or production contracts with GE Aviation and Pratt & Whitney for . . .