WOODWARD GOVERNOR CO (Form: 10-K, Received: 12/09/2002 13:15:06)

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

FORM 10-K

(Mark One)

ý	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 2002
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 specified in its charter)

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

Registrant's telephone number, including area code (815) 877-7441

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, par value $.00875 per share

(Title of Class)

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. ý Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

There were 11,334,146 shares of common stock with a par value of $.00875 per share outstanding at November 19, 2002. The aggregate market value of the voting stock held by non-affiliates was approximately $365,289,894 at November 20, 2002 (such aggregate market value does not include voting stock beneficially owned by directors, officers, the Woodward Governor Company Profit Sharing Trust, or the Woodward Governor Company Charitable Trust).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our annual report to shareholders for the fiscal year ended September 30, 2002 (2002 Annual Report), are incorporated by reference into Parts I, II and IV of this filing, to the extent indicated.

Portions of our proxy statement dated December 6, 2002, are incorporated by reference into Part III of this filing, to the extent indicated.

TABLE OF CONTENTS

			Page
Part I	Item 1.	Business	1
	Item 2.	Properties	3
	Item 3.	Legal Proceedings	3
	Item 4.	Submission of Matters to a Vote of Shareholders	3
Part II	Item 5.	Market for the Registrant's Common Stock and Related Shareholder Matters	4
	Item 6.	Selected Financial Data	4
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	4
	Item 8.	Financial Statements and Supplementary Data	4
	Item 9.	Changes in and Disagreements with Accountants On Accounting and Financial Disclosure	4
Part III	Item 10.	Directors and Executive Officers of the Registrant	5
	Item 11.	Executive Compensation	5
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5
	Item 13.	Certain Relationships and Related Transactions	6
	Item 14	Controls and Procedures	6
Part IV	Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	7
Signatures			10
Certifications			12

Part I

Item 1. Business

Woodward Governor Company was established in 1870 and incorporated in 1902. Headquartered in Rockford, Illinois and serving global markets from locations worldwide, we design, manufacture, and service energy control systems and components for aircraft and industrial engines, turbines, and other power equipment. Leading OEMs (original equipment manufacturers) throughout the world use our products and services in the power generation, process industries, transportation, and aerospace markets.

Our operations are organized based on the nature of products and related services provided and consist of two reportable 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 engines.

Information about our operations in 2002 and outlook for the future, including certain segment information, is included in "Management's Discussion and Analysis" on pages 18 through 27 of our 2002 Annual Report, incorporated here by reference. Additional segment information and certain geographical information is included in Note S to the Consolidated Financial Statements, on pages 42 through 43 of our 2002 Annual Report, incorporated here by reference. Other information about our business follows.

Industrial Controls

We provide energy control systems and components through Industrial Controls, primarily to OEMs of industrial engines, turbines, and other power equipment. We also sell components as spares or replacements, and provide other related services to these customers and other customers. In 2002, our largest customer was General Electric Company, accounting for about 35% of Industrial Controls' sales.

We generally sell Industrial Controls' products and services directly to our customers, although we also generate sales through distributors, dealers, and independent service facilities. We carry certain finished goods and component parts inventory to meet rapid delivery requirements of customers, primarily for aftermarket needs. We do not believe Industrial Controls' sales are subject to significant seasonal variation.

During 2002, we acquired Leonard-Reglerbau Dr.-Ing. Adolf Leonhard GmbH and Nolff's Carburetion, Inc. to enhance our capabilities using technologies that can be leveraged to existing systems, power equipment, and market applications.

We believe Industrial Controls has a significant competitive position within the market for energy control systems and components for industrial engines, turbines, and other power equipment. We compete with as many as 10 other independent manufacturers and with the in-house control operations of OEMs. While published information is not available in sufficient detail to enable an accurate assessment, we believe we hold a strong position among the independent manufacturers for power generation, transportation, and process industries markets. Companies compete principally on price, quality, and customer service. We also see increasing demand for products that result in lower environmental emissions, particularly in gas turbine applications. In our opinion, our prices are generally competitive and our quality, customer service, and technology used in products to reduce emissions are favorable competitive factors.

Industrial Controls' backlog orders were approximately $74 million at October 31, 2002, approximately 94% of which we expect to fill by September 30, 2003. Last year, Industrial Controls'

backlog orders were $96 million at October 31, 2001, approximately 95% of which we expected to fill by September 30, 2002. Backlog orders are not necessarily an indicator of future billing levels because of variations in lead times.

Industrial Controls' products make use of several patents and trademarks of various durations that we believe are collectively important. However, we do not consider our business dependent upon any one patent or trademark. Our products consist of mechanical, electronic, and electromagnetic components. Mechanical components are machined primarily from aluminum, iron, and steel. Generally there are numerous sources for the raw materials and components used in our products, and they are believed to be sufficiently available to meet all Industrial Controls' requirements.

Aircraft Engine Systems

We provide energy control systems and components through Aircraft Engine Systems, primarily to OEMs of aircraft engines for use in those engines. We also sell components as spares or replacements, and provide repair and overhaul services to these customers and other customers. In 2002, our largest customer was General Electric Company, accounting for about 26% of Aircraft Engine Systems' sales.

We generally sell Aircraft Engine Systems' products and services directly to our customers, although we also generate aftermarket sales through distributors, dealers, and independent service facilities. We carry certain finished goods and component parts inventory to meet rapid delivery requirements of customers, primarily for aftermarket needs. We do not believe Aircraft Engine Systems' sales are subject to significant seasonal variation.

We believe Aircraft Engine Systems has a significant competitive position within the market for energy control systems and components for aircraft engines. We compete with several other manufacturers, including divisions of OEMs of aircraft engines. While published information is not available in sufficient detail to enable an accurate assessment, we do not believe any company holds a dominant competitive position. Companies compete principally on price, quality and customer service. In our opinion, our prices are generally competitive, and our quality and customer service are favorable competitive factors.

Aircraft Engine Systems' backlog orders were $136 million at October 31, 2002, approximately 81% of which we expect to fill by September 30, 2003. Last year, Aircraft Engine Systems' backlog orders were $177 million at October 31, 2001, approximately 77% of which we expected to fill by September 30, 2002. Backlog orders are not necessarily an indicator of future billing levels because of variations in lead times.

Aircraft Engine Systems' products make use of several patents and trademarks of various durations that we believe are collectively important. However, we do not consider our business dependent upon any one patent or trademark. Our products consist of mechanical, electronic, and electromagnetic components. Mechanical components are machined primarily from aluminum, iron, and steel. Generally there are numerous sources for the raw materials and components used in our products, and they are believed to be sufficiently available to meet all Aircraft Engine Systems' requirements.

Other Matters

We spent approximately $36.7 million for company-sponsored research and development activities in 2002, $30.4 million in 2001, and $29.1 million in 2000. These expenses were incurred by both Industrial Controls and Aircraft Engine Systems.

We are currently involved in matters of litigation arising from the normal course of business, including certain environmental matters. These matters are discussed in Note Q to the Consolidated Financial Statements on page 41 of our 2002 Annual Report, incorporated here by reference. We do not believe that compliance with provisions regulating the discharge of materials into the environment,

or otherwise relating to the protection of the environment, will have any material effect on our financial condition and competitive position, although such matters could have a material effect on our quarterly or annual operating results and cash flows (including capital expenditures) in a future period. We are not aware of any material capital expenditures that we will make for environmental control facilities through September 30, 2003.

We employed about 3,329 people at October 31, 2002.

This report and the 2002 Annual Report, sections of which have been incorporated by reference, contain forward-looking statements and should be read with the "Cautionary Statement" on page 46 of the 2002 Annual Report, incorporated here by reference.

Item 2. Properties

Our principal plants are as follows:

United States

Fort Collins, Colorado—Industrial Controls manufacturing
Loveland, Colorado—Industrial Controls manufacturing and partially leased to a third party
Rockford, Illinois—Aircraft Engine Systems manufacturing and corporate offices
Rockton, Illinois—Aircraft Engine Systems manufacturing and repair and overhaul
Memphis, Michigan (leased)—Industrial Controls manufacturing
Zeeland, Michigan—Aircraft Engine Systems manufacturing
Buffalo, New York—Aircraft Engine Systems manufacturing
Greenville, South Carolina (leased)—Industrial Controls manufacturing

Other Countries

Aken, Germany (leased)—Industrial Controls manufacturing
Stuttgart, Germany (leased)—Industrial Controls manufacturing
Tomisato, Chiba, Japan—Industrial Controls manufacturing
Hoofddorp, The Netherlands—Industrial Controls manufacturing
Cheltenham, England, United Kingdom—Industrial Controls manufacturing
Prestwick, Scotland, United Kingdom (leased)—Aircraft Engine Systems repair and overhaul

Our principal plants are suitable and adequate for the manufacturing and other activities performed at those plants, and we believe our utilization levels are generally high. With continuing advancements in manufacturing technology and operational improvements, we believe we can continue to increase production without additional plants.

In addition to the principal plants listed above, we lease several facilities in locations worldwide, used primarily for sales and service activities.

Item 3. Legal Proceedings

We are currently involved in environmental litigation. These matters are discussed in Note Q to the Consolidated Financial Statements on page 41 of our 2002 Annual Report, incorporated here by reference.

Item 4. Submission of Matters to a Vote of Shareholders

There were no matters submitted to a vote of shareholders during the fourth quarter of the year ended September 30, 2002.

Part II

Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters

Our common stock is listed on the Nasdaq National Market and at November 19, 2002, there were 1,538 holders of record. Cash dividends were declared quarterly during 2002 and 2001. The amount of cash dividends per share and the high and low sales price per share for our common stock for each fiscal quarter in 2002 and 2001 are included in the "Selected Quarterly Financial Data" on page 46 of the 2002 Annual Report, incorporated here by reference.

Item 6. Selected Financial Data

"Selected Financial Data" is included on pages 44 through 45 of our 2002 Annual Report, incorporated here by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

"Management's Discussion and Analysis" is included on pages 18 through 27 of our 2002 Annual Report, incorporated here by reference. This discussion should be read with the consolidated financial statements on pages 28 through 43 of our 2002 Annual Report and the "Cautionary Statement" on page 46 of our 2002 Annual Report, both incorporated here by reference.

Item 7.A. Quantitative and Qualitative Disclosures About Market Risk

Disclosures about market risk are included under the captions "Other Matters—Market Risks" on pages 26 through 27 of our 2002 Annual Report, incorporated here by reference.

Item 8. Financial Statements and Supplementary Data

Consolidated financial statements and schedules, as listed in Item 15(a) and excluding the two items listed under the caption "Other Financial Statement Schedules", are incorporated here by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There have been no changes in or disagreements on accounting principles and financial disclosure. PricewaterhouseCoopers LLP, or its predecessors, have been our independent accountants since 1940.

Part III

Item 10. Directors and Executive Officers of the Registrant

Executive Officers:

John A. Halbrook, age 57—chairman and chief executive officer since January 1995; chief executive officer and president November 1993 through January 1995; president November 1991 through November 1993.

Thomas A. Gendron, age 41—president and chief operating officer since September 2002; vice president and general manager of Industrial Controls June 2001 through September 2002; vice president of Industrial Controls April 2000 through May 2001; director of global marketing and Industrial Controls' business development February 1999 through March 2000; and marketing and product support manager of Aircraft Engine Systems November 1990 through January 1999.

Stephen P. Carter, age 51—vice president, chief financial officer and treasurer since January 1997; vice president and treasurer September 1996 through January 1997; and assistant treasurer January 1994 through September 1996.

Ronald E. Fulkrod, age 58—vice president of the company since June 2001, vice president of Industrial Controls April 2000 through May 2001; vice president of Industrial Controls' operations January 1997 through March 2000; and vice president of the company January 1993 through December 1996.

C. Phillip Turner, age 61—vice president and general manager of Aircraft Engine Systems since 1988.

Carol J. Manning, age 52—secretary since June 1991.

With the exception of Mr. Gendron all executive officers were elected to their current positions at the January 23, 2002, Board of Directors meeting to serve until the January 22, 2003, Board of Directors meeting, or until their successors have been elected. Mr. Gendron was elected to his current position at the September 25, 2002, Board of Directors meeting to serve until the January 22, 2003, Board of Directors meeting.

Other information regarding our directors and executive officers is under the captions "Board of Directors" on pages 7 through 9 and "Share Ownership of Management—Section 16(a) Beneficial Ownership Reporting Compliance" on page 11 of our proxy statement dated December 6, 2002, incorporated here by reference.

Item 11. Executive Compensation

Executive compensation is under the captions "Board Meetings and Committees—Director Compensation" on page 10, "Executive Compensation" on pages 14 through 15, "Stock Options" on page 16, and "Long-Term Management Incentive Compensation Plan Awards" on page 17 of our proxy statement dated December 6, 2002, incorporated here by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security ownership of certain beneficial owners and management and related stockholder matters is under the tables captioned "Share Ownership of Management" on page 11, "Persons Owning More than Five Percent of Woodward Stock" on page 12 and "Stock Options—Equity Compensation Plan Information" on page 16 of our proxy statement dated December 6, 2002, incorporated here by reference.

Item 13. Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions is under the caption "Board Meetings and Committees—Director Compensation" on page 10 of our proxy statement dated December 6, 2002, incorporated here by reference.

Item 14. 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 are recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. John A. Halbrook, our chairman of the board and chief executive officer, and Stephen P. Carter, our vice president, chief financial officer and treasurer, evaluated the effectiveness of our disclosure controls and procedures as of October 30, 2002. Based on their evaluation, they concluded that our disclosure controls and procedures were effective in achieving the objectives for which they were designed. Since their evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect these controls.

Part IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Index to Consolidated Financial Statements and Schedules

		Reference
		Form 10-K Annual Report Page	Annual Report to Shareholders Page
Annual report to shareholders for the fiscal year ended September 30, 2002, filed as Exhibit 13 to this Form 10-K and incorporated by reference:
	Management's Responsibility for Financial Statements		17
	Statements of Consolidated Earnings for the years ended September 30, 2002, 2001, and 2000		28-29
	Consolidated Balance Sheets at September 30, 2002 and 2001		30
	Statements of Consolidated Shareholders' Equity for the years ended September 30, 2002, 2001, and 2000		31
	Statements of Consolidated Cash Flows for the years ended September 30, 2002, 2001, and 2000		32
	Notes to Consolidated Financial Statements		33-43
	Report of Independent Accountants		43
	Selected Quarterly Financial Data		46
Other Financial Statement Schedules, included with this filing:
	Report of Independent Accountants	S-1
	Valuation and Qualifying Accounts	S-2

Financial statements and schedules other than those listed above are omitted for the reason that they are not applicable, are not required, or the information is included in the financial statements or the footnotes.

With the exception of the consolidated financial statements and the reports of independent accountants listed in the above index, and the information referred to in Items 1, 3, 5, 6, 7, 7a, and 8, all of which is included in the 2002 Annual Report to Shareholders of Woodward Governor Company and incorporated by reference into this Form 10-K Annual Report, the 2002 Annual Report to Shareholders is not to be deemed "filed" as part of this report.

(b) Reports Filed on Form 8-K During the Fourth Quarter of the Fiscal Year Ended September 30, 2002. None

(c) Exhibits Filed as Part of This Report

(3)	(i)	Articles of Incorporation	Filed as Exhibit 3(i) to Form 10-K for the year ended September 30, 1999, incorporated here by reference.
	(ii)	By-laws	Filed as an exhibit
(4)	Instruments defining the rights of security holders, including indentures		(a) Note Purchase Agreement dated October 15, 2001, filed as an exhibit to Form 10-Q for the quarter ended December 31, 2001, incorporated here by reference.

		(b) Instruments with respect to the ESOP debt guarantee are not being filed, as it does not exceed 10 percent of our assets. We agree to furnish a copy of each instrument to the Commission upon request.
(10)	Material contracts	(a) A $250,000,000 credit agreement dated June 15, 1998, filed as Exhibit 4 to Form 10-Q for the quarter ended June 30, 1998, incorporated here by reference.
		(b) 1996 Long-Term Incentive Compensation Plan filed on August 21, 1996 as Exhibit 4.1 to our Registration Statement on Form S-8 (File No. 333-10409) and incorporated here by reference.
		(c) Long-Term Management Incentive Compensation Plan, filed as Exhibit 10(c) to Form 10-K for the year ended September 30, 2000, incorporated here by reference.
		(d) Annual Management Incentive Compensation Plan, filed as Exhibit 10(d) to Form 10-K for the year ended September 30, 2000, incorporated here by reference.
		(e) Executive Benefit Plan (non-qualified deferred compensation plan), filed as an exhibit.
		(f) Form of Transitional Compensation Agreement with John A. Halbrook, C. Phillip Turner, and Stephen P. Carter, filed as Exhibit 10(f) to Form 10-K for the year ended September 30, 2000, incorporated here by reference.
		(g) Form of Outside Director Stock Purchase Agreement with Michael H. Joyce and Rodney O'Neal, and filed as Exhibit 10(g) to Form 10-K for the year ended September 30, 2000, incorporated here by reference.
		(h) Form of Outside Director Stock Purchase Agreement with Paul Donovan, filed as Exhibit 10(h) to Form 10-K for the year ended September 30, 2001, incorporated here by reference.
		(i) 2002 Stock Option Plan, effective January 1, 2002 filed as Exhibit 10 (iii) to Form 10-Q for the quarter ended March 31, 2002, incorporated here by reference
		(j) Form of Outside Director Stock Purchase Agreement with James L. Rulseh, filed as an exhibit.
(11)	Statement on computation of earnings per share	Included in Note E of Notes to Consolidated Financial Statements, included in 2002 Annual Report, incorporated here by reference.

(13)	Annual report to shareholders for the fiscal year ended September 30, 2002		Except as specifically incorporated by reference, report is furnished solely for the information of the Commission and is not deemed "filed" as part of this report.
(21)	Subsidiaries		Filed as an exhibit.
(23)	Consents of Independent Accountants		Filed as an exhibit.
(99)	(i)	Additional exhibit—description of annual report graphs	Filed as an exhibit.
	(ii)	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed as an exhibit.

SIGNATURES

This report has been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and the financial statements referenced have been prepared in accordance with such rules and regulations and with generally accepted accounting principles, by officers and members of Woodward Governor Company. This has been done under the general supervision of Stephen P. Carter, vice president, chief financial officer and treasurer. The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, as indicated in their report in the annual report to shareholders for the fiscal year ended September 30, 2002.

This report contains much detailed information of which the various signatories cannot and do not have independent personal knowledge. The signatories believe, however, that the preparation and review processes summarized above are such as to afford reasonable assurance of compliance with applicable requirements.

Pursuant to the requirements of Section 13 or 15(d) 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
		/s/ JOHN A. HALBROOK John A. Halbrook Director, Chairman of the Board and Chief Executive Officer
Date: December 2, 2002
		/s/ STEPHEN P CARTER Stephen P. Carter Vice President, Chief Financial Officer and Treasurer
Date November 27, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ J. GRANT BEADLE J. Grant Beadle	Director	December 2, 2002
/s/ JOHN D. COHN John D. Cohn	Director	December 2, 2002
/s/ PAUL DONOVAN Paul Donovan	Director	December 2, 2002

Lawrence E. Gloyd	Director
/s/ J. PETER JEFFREY J. Peter Jeffrey	Director	November 29, 2002
/s/ MICHAEL H. JOYCE Michael H. Joyce	Director	December 3, 2002
/s/ RODNEY O'NEAL Rodney O'Neal	Director	December 3, 2002
/s/ MARY L. PETROVICH Mary L. Petrovich	Director	November 29, 2002
/s/ JAMES R. RULSEH James R. Rulseh	Director	December 2, 2002
/s/ MICHAEL T. YONKER Michael T. Yonker	Director	December 2, 2002

CERTIFICATIONS

I, John A. Halbrook, certify that:

1.: I have reviewed this annual report on Form 10-K of Woodward Governor Company;
2.: Based on my knowledge, this annual 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 annual report;
3.: Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and have:

a): designed such disclosure controls and procedures 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 annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.: The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; 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; and

6.: The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: December 2, 2002

/s/ JOHN A. HALBROOK
John A. Halbrook Director, Chairman of the Board and Chief Executive Officer

I, Stephen P. Carter, certify that:

1.: I have reviewed this annual report on Form 10-K of Woodward Governor Company;
2.: Based on my knowledge, this annual 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 annual report;
3.: Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and have:

a): designed such disclosure controls and procedures 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 annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.: The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; 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; and

6.: The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 27, 2002

/s/ STEPHEN P. CARTER
Stephen P. Carter Vice President, Chief Financial Officer and Treasurer

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Woodward Governor Company

Our audits of the consolidated financial statements referred to in our report dated October 31, 2002 appearing in the 2002 Annual Report to Shareholders of Woodward Governor Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a) of this Form 10-K. In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP
Chicago, Illinois
October 31, 2002

S-1

WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
for the years ended September 30, 2002, 2001, and 2000
(In thousands of dollars)

Col. A		Col. B		Col. C						Col. D		Col. E
				Additions
DESCRIPTION		Balance at Beginning of Year		Charged to Costs and Expenses			Charged to Other Accounts (B)			Deductions (A)		Balance at End of Year
2002:
	Allowance for doubtful accounts	$	4,720	$	(1,535	)	$	27		$	496	$	2,716

2001:
	Allowance for doubtful accounts	$	4,452	$	2,780		$	(28	)	$	2,540	$	4,720

2000:
	Allowance for doubtful accounts	$	4,417	$	2,348		$	73		$	2,386	$	4,452

NOTE:

(A): Represents accounts written off during the year and also overseas currency translation adjustments that decreased the deduction from reserves by $28 in 2001 and increased the reserve by $53 in 2002 and $366 in 2000.
(B): Recovery of accounts previously written-off.

S-2

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TABLE OF CONTENTS
Part I

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Shareholders

Part II

Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7.A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Part III

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions

Item 14. Controls and Procedures

Part IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

SIGNATURES
CERTIFICATIONS
REPORT OF INDEPENDENT ACCOUNTANTS
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS for the years ended September 30, 2002, 2001, and 2000 (In thousands of dollars)

Exhibit 3 (ii)
Woodward Governor Company

By-laws

[WOODWARD(TM) LOGO]

BYLAWS

WOODWARD GOVERNOR COMPANY

as amended through September 25, 2002

BYLAWS OF
WOODWARD GOVERNOR COMPANY

Page 1 of 12

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

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during the whole time thereof, and may be inspected by any stockholder who is present.

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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

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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.

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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 eleven, consisting of four Class I directors, three Class II directors, and four Class III 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

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The number of directors may be increased or decreased from time to time by amendment of these bylaws.

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.

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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.

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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.

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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 Moninating 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 not less than two 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 idisinterested personsi 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

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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, except that a quorum of the Management Operations Committee for the transaction of business shall consist of one member so long as such committee consists of two members.

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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

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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.

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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 be the chief executive officer of the corporation, and he 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 5.7. 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 operating officer of the corporation.

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

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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.

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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

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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.

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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.

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(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.

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(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

BYLAWS OF
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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

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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.

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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.

EXHIBIT 10(e)
WOODWARD GOVERNOR COMPANY
EXECUTIVE BENEFIT PLAN

WOODWARD GOVERNOR COMPANY
EXECUTIVE BENEFIT PLAN

EFFECTIVE JANUARY 1, 2001
(CONFORMED TO INCLUDE THE FIRST, SECOND, AND THIRD AMENDMENTS)

WOODWARD GOVERNOR COMPANY
EXECUTIVE BENEFIT PLAN

I. PURPOSE AND EFFECTIVE DATE.

1.1. PURPOSE. The Woodward Governor Company Executive Benefit Plan ("the Plan") has been established by Woodward Governor Company to attract and retain certain key members by:

(a) providing a tax-deferred capital accumulation vehicle to supplement such members' individual retirement contributions, thereby encouraging savings for retirement, and

(b) supplementing such members' retirement income, available under the Woodward Governor Company Retirement Income Plan (the "RIP") and the Woodward Governor Company Member Investment and Stock Ownership Plan (the "MISOP"), which is otherwise limited pursuant to the rules and regulations of the Internal Revenue Code of 1986, as amended.

1.2. EFFECTIVE DATE. The Plan shall be effective January 1, 2001 and shall remain in effect until terminated in accordance with Article X.

1.3. CONTINUATION AND COMBINATION OF TWO PRIOR PLANS. The Plan is intended to be:

(a) an amendment, restatement and continuation of the Woodward Governor Company Amended and Restated Unfunded Deferred Compensation Plan No.1 (the "DC Plan No. 1"),

(b) an amendment, restatement and continuation of the Woodward Governor Company Unfunded Deferred Compensation Plan No. 2 (the "DC Plan No. 2), and

(c) the merger and combination of the DC Plan No. 1 and the DC Plan No. 2 into this single plan for ease in the Company's administration.

II. DEFINITIONS

When used in the Plan and initially capitalized, the following words and phrases shall have the meanings indicated:

2.1. "ACCOUNT" means the recordkeeping account established for each Participant in the Plan for purposes of accounting for the amount of the Participant's:

(a) Deferral Contribution Amounts deferred and credited in accordance with Article IV each year, if any,

(b) Supplemental Benefit Amounts determined and credited in accordance with Article V each year, if any, and

(c) account balance, if any, under the prior DC Plan No. 1 and/or prior DC Plan No. 2 on the day immediately preceding the effective date of this Plan,

all adjusted periodically to reflect the hypothetical investment return on such amounts in accordance with Article VI.

2.2. "ADMINISTRATOR" means the Compensation Committee or such other individual or committee appointed and delegated by the Board to administer the Plan in accordance with Article IX. To the extent so delegated, the term "Administrator" hereunder shall be deemed to refer to such individual or committee. The Compensation Committee shall take such actions it deems necessary or desirable to ensure that such individual or committee has sufficient and appropriate authority for carrying out the intent and purpose of the Plan.

2.3. "AFFILIATE" means:

(a) any corporation, partnership, joint venture, trust, association or other business enterprise which is a member of the same controlled group of corporations, trades or businesses as the Company within the meaning of Code
Section 414, and

(b) any other entity that is designated as an Affiliate by the Board.

2.4. "BASE SALARY" means a Participant's base salary in effect for a given year as reflected in the personnel records of the Company.

2.5. "BENEFICIARY" means the person or entity designated by the Participant to receive the Participant's Plan benefits in the event of the Participant's death. If the Participant does not designate a Beneficiary, or if the Participant's designated Beneficiary predeceases the Participant, the

Participant's estate shall be the Beneficiary under the Plan.

2.6. "BOARD" means the Board of Directors of the Company.

2.7. "BONUS" means any incentive compensation awarded to a Participant for a given year under the Woodward Governor Company Annual Incentive Compensation Plan, the Woodward Governor Company Long-Term Incentive Compensation Plan, the Woodward Governor Company Retention Incentive Agreement for FST Executives, and/or any other bonus or incentive compensation plan designated by the Administrator from time to time for inclusion within this definition for deferral purposes.

2.8. "CHANGE IN CONTROL" shall be deemed to have occurred if:

(a) any "person" (as defined in Section 13(d) and 14(d) of the Exchange Act) (excluding for this purpose the Company or any subsidiary of the Company, or any employee benefit plan of the Company or any subsidiary of the Company, or any person or entity organized, appointed or established by the Company for or pursuant to the terms of such plan which acquires beneficial ownership of voting securities of the Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company's then outstanding securities; provided, however, that no Change in Control shall be deemed to have occurred:

(i) as the result of an acquisition of securities of the Company by the Company which, by reducing the number of voting securities outstanding, increases the direct or indirect beneficial ownership interest of any person to fifteen percent (15%) or more of the combined voting power of the Company's then outstanding securities, but any subsequent increase in the direct or indirect beneficial ownership interest of such a person in the Company shall be deemed a Change in Control; or

(ii) as a result of the acquisition directly from the Company of securities of the Company representing less than fifty percent (50%) of the voting power of the Company; or

(iii) if the Board determines in good faith that a person who has become the beneficial owner directly or indirectly of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company's then outstanding securities has inadvertently reached that level of ownership interest, and if such person divests as promptly as practicable a sufficient amount of securities of the Company so that the person no longer has a direct or indirect beneficial ownership interest in fifteen percent (15%) or more of the combined voting power of the Company's then outstanding securities; or

(b) during any period of two (2) consecutive years (not including any period prior to the effective date (as set forth in Section 1.2 above) of the Plan), individuals who at the beginning of such two-year period constitute the Board and any new director or directors (except for any director designated by a person who has entered into an agreement with the Company to effect a transaction described in subparagraph (a) above or subparagraph (c) below) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote or at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board (such individuals and any such new directors being referred to as the "Incumbent Board"); or

(d) consummation of:

(i) an agreement for the sale or disposition of the Company or all or substantially all of the Company's assets,

(ii) a plan of merger or consolidation of the Company with any other corporation, or

(iii) a similar transaction or series of transactions involving the Company (any transaction described in subparagraphs (i) and (ii) or this paragraph (d) being referred to as a "Business

Combination"), in each case unless after such a Business Combination:

(a) the shareholders of the Company immediately prior to the Business Combination continue to own, directly or indirectly, more than fifty-one percent (51%) of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the new (or continued) entity (including, but not by way of limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's former assets either directly or through one or more subsidiaries) immediately after such Business Combination, in substantially the same proportion as their ownership in the Company immediately prior to such Business Combination, and

(b) at least a majority of the members of the board of directors of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination.

2.9. "CODE" means the Internal Revenue Code of 1986, as amended.

2.10. "COMPANY" means Woodward Governor Company and any successor thereto.

2.11. "DEFERRAL CONTRIBUTION AMOUNTS" means the amounts of Base Salary and Bonus deferred by a Participant, if any, and credited to his or her Account in accordance with Article IV but such amounts specifically and expressly do not include any Prior Account Balance of such Participant.

2.12. "DEFERRAL ELECTION" means the written election made by an Eligible Member to defer such Eligible Member's Base Salary and/or Bonus for any given year in accordance with Article IV.

2.13. "DISABILITY" means Disability as defined in the Woodward Governor Company Long-Term Disability Plan.

2.14. "DISTRIBUTION ELECTION" means the written election made by a Participant regarding the form of payment distribution of his or her Account in accordance with Article VII.

2.15. "EARLY RETIREMENT DATE" means the date on which any Plan Participant retires from active employment with the Company or any Affiliate on or after he has attained age 55 but before he has attained age 65.

2.16. "ELECTION PERIOD" means the period specified by the Administrator during which a Deferral Election may be made with respect to a Participant's Base Salary and/or Bonus payable for a Plan Year.

2.17. "ELIGIBLE MEMBER" means a member of the Company or an Affiliate who has been selected by the Administrator to participate in the Plan in accordance with Article III.

2.18. "EXCHANGE ACT" means the Securities and Exchange Act of 1934.

2.19. "FICA" means the employment tax imposed on a member's income under the Federal Insurance Contributions Act (Chapter 21 of the Code) which is comprised of Old-Age, Survivors and Disability Insurance and Hospital Insurance

2.20. "INVESTMENT FUND OR FUNDS" means the investment funds designated by the Administrator as the basis for determining the hypothetical investment return to be credited in accordance with Article VI to Participants' Accounts. Initially, the Investment Funds shall mirror the available investment funds under the MISOP, as set forth on the attached Exhibit A. Thereafter, the Administrator may change the Investment Funds at such times as it deems appropriate.

2.21. "NORMAL RETIREMENT DATE" means the date on which any Plan Participant retires from active employment with the Company or any Affiliate on or after he has attained age 65.

2.22. "PARTICIPANT" means an Eligible Member who has:

(a) been notified by the Administrator of his eligibility to participate in the Plan, and

(b) either:

(i) completed and submitted a Deferral Election in accordance with Section 4.2, or

(ii) had credited to his Account, by the Company, Supplemental Benefit Amounts in accordance with Article V, or

(iii) had an account balance under the prior DC Plan No. 1 and/or the prior DC Plan No. 2 on the day immediately preceding the effective date of this Plan.

2.23. "PLAN" means the Woodward Governor Company Executive Benefits Plan, as amended from time to time.

2.24. "PLAN YEAR" means the 12 consecutive month period beginning each January 1.

2.25. "PRIOR ACCOUNT BALANCE" means an Eligible Member's account balance(s), if any, under the prior DC Plan No. 1 and/or prior DC Plan No. 2 which were transferred to this Plan by the Company and credited to his Account pursuant to Section 3.1(B)(3).

2.26. "RETIREMENT" means termination of employment by a Participant by reason of retiring from active employment with the Company or any Affiliate on his Early Retirement Date or Normal Retirement Date.

2.27. "SUPPLEMENTAL BENEFIT AMOUNTS" means the amounts computed on behalf of the Participant, if any, and credited to his or her Account in accordance with Article V which represents the sum of the Participant's Supplemental MISOP Amounts and Supplemental RIP Amounts.

2.28. "SUPPLEMENTAL MISOP AMOUNT" means that portion of the Supplemental Benefit Amounts computed under Section 5.1(b) of the Plan specifically pertaining to the MISOP and credited to the Participant's Account in accordance with Article V.

2.29. "SUPPLEMENTAL RIP AMOUNT" means that portion of the Supplemental Benefit Amounts computed under Section 5.1(a) of the Plan specifically pertaining to the RIP and credited to the Participant's Account in accordance with Article V.

2.30. "VALUATION DATE" means a date on which the Investment Funds are valued and the Participant's Account is adjusted for any resulting gains or losses. The Administrator shall determine the Valuation Date and such date shall be at least once every calendar year.

III. PARTICIPATION.

3.1. PARTICIPATION. The Administrator shall select those members eligible to participate in the Plan. In selecting Eligible Members, the Administrator shall take into consideration such factors as it deems relevant in connection with accomplishing the purposes of the Plan. An Eligible Member shall become a Participant in the Plan when (A) he is notified in writing by the Administrator that he is eligible to participate in the Plan, and (B) he has either (1) completed and submitted a Deferral Election to the Administrator in accordance with Article IV, or (2) had credited to his Account, by the Company, Supplemental Benefit Amounts in accordance with Article V, or (3) had credited to his Account, by the Company, his account balance, if any, under the prior DC Plan No. 1 and/or the prior DC Plan No. 2 on the day immediately preceding the effective date of this Plan.

3.2. ERISA EXEMPTION. It is the intent of the Company that the Plan be exempt from Parts 2, 3 and 4 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), as an unfunded plan that is maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management of highly compensated employees (the "ERISA Exemption"). Notwithstanding anything to the contrary in
Section 3.1 or in any other provision of the Plan, the Administrator may in its sole discretion exclude any one or more members from eligibility to participate or from participation in the Plan, may exclude any Participant from continued participation in the Plan, and may take any further action (including the immediate payment of the Participant's entire interest under the Plan in a lump-sum) it considers necessary or appropriate if the Administrator reasonably determines in good faith that such exclusion or further action is necessary in order for the Plan to qualify for, or to continue to qualify for, the ERISA Exemption.

IV. DEFERRAL CONTRIBUTION AMOUNTS.

4.1. PERMISSIBLE DEFERRALS UNDER THE PLAN. An Eligible Member may elect to defer:

(a) DEFERRAL OF BASE SALARY: up to 50% of his or her Base Salary for a Plan Year, in increments of 1%, provided, however, that any election to defer over 30% of Base Salary must be approved in advance by the Administrator, and

(b) DEFERRAL OF BONUS: up to 100% of his or her Bonus for a Plan Year, in increments of 25%,

by filing a Deferral Election in accordance with Section 4.2 below.

4.2. DEFERRAL ELECTIONS. A Participant's Deferral Election shall be in writing, and shall be filed with the Administrator at such time and in such manner as the Administrator shall provide, subject to the following:

(a) A Deferral Election pertaining to Base Salary and/or Bonus shall be made during the election period established by the Administrator which shall end no later than December 31 preceding the first day of the Plan Year in which such Base Salary and/or Bonus would otherwise be payable.

(b) At the discretion of the Administrator, a Deferral Election may be made by

(i) newly-hired Eligible Members for the Plan Year in which they commence employment,

(ii) a member who becomes an Eligible Member after the beginning of a Plan Year for the Plan Year in which they become an Eligible Member.

Notwithstanding the preceding sentence, such Deferral Elections must be made within thirty (30) days of their date of hire or the date the member becomes an Eligible Member, whichever applies. However, such Deferral Elections shall be prospective and shall apply only to Base Salary and/or Bonus that would otherwise be paid to the Eligible Member after the Deferral Election is made.

(c) Deferral Elections shall be expressed as a percentage of Base Salary or Bonus, within the limits provided under the Plan.

Once made, a Deferral Election for:

(A) Base Salary shall remain in effect for all
subsequent Plan Years unless changed or revoked by
the Participant in accordance with rules established
by the Administrator, and

(B) Bonus shall remain in effect only for the Plan Year for which such Bonus Deferral Election was made.

Any such modification or revocation with respect to Base Salary shall be effective for the Plan Year following the Plan Year in which it is made. Notwithstanding anything to the contrary, any revocation for Base Salary and/or Bonus shall become effective as soon as practicable in the event it is made because of the Participant's Disability or if the Administrator, in its sole discretion, determines that the Participant has suffered a severe financial hardship or a bona fide administrative mistake was made. If a Deferral Election is revoked in accordance with any of the foregoing, the Participant may not make a new Deferral Election until the election period established by the Administrator for making deferrals for the next Plan Year.

4.3. CREDITING OF DEFERRAL ELECTIONS. The amount of Base Salary and Bonus that a Participant elects to defer under the Plan shall be credited by the Company to the Participant's Account as Deferral Contribution Amounts as of the date such Base Salary or such Bonus would have been paid to the Participant absent the Deferral Election.

4.4. VESTING. A Participant's Deferral Contribution Amounts for each Plan Year shall be fully vested at the time credited to such Participant's Account.

4.5. DEFERRED CONTRIBUTION AMOUNTS SUBJECT TO FICA AT TIME OF DEFERRAL. A Participant's Deferred Contribution Amounts are subject to FICA at the time the amounts are contributed to the Plan for deferral. The gross amount of the Participant's Base Salary deferral and Bonus deferral will be contributed to the Participant's Account and the corresponding FICA tax due will be deducted from that portion of the Participant's Base Salary or Bonus not deferred, as the case may be. Notwithstanding the foregoing, if a Participant has elected to defer a percentage of his or her Bonus such that contribution of the gross amount of the Bonus deferred would leave insufficient funds to remit the applicable FICA tax to the government, then the applicable Bonus amount contributed to the Participant's Account shall be made net of the smallest amount of FICA tax needed to satisfy such liability which cannot be covered from the portion of Bonus not deferred.

V. SUPPLEMENTAL BENEFIT AMOUNTS.

5.1. COMPUTATION OF SUPPLEMENTAL BENEFIT AMOUNTS. An Eligible Member designated by the Administrator for participation under the Plan shall be entitled to a Supplemental Benefit Amount for each Plan Year that he is an Eligible Member which is equal to the sum of:

(a) SUPPLEMENTAL BENEFIT RELATING TO THE RIP: the excess, if any, of:

(i) the benefit the Participant otherwise would have been entitled to have credited to a separate account for his benefit under the RIP for a given year if such benefit was calculated without regard to the following:

(A) Code Section 415,

(B) Code Section 401(a)(17), and

(ii) the accrued benefit which the Participant is entitled to have credited to a separate account for his benefit for such given year under the RIP, PLUS

(b) SUPPLEMENTAL BENEFIT RELATING TO THE MISOP: the excess, if any, of:

(i) the benefit the Participant otherwise would have been entitled to have credited to a separate account for his benefit under the MISOP for a given year if such benefit was calculated without regard to the following:

(A) Code Section 415,

(B) Code Section 401(a)(17),

(D) Code Section 401(m)(2), and

(E) Code Section 402(g), OVER

(ii) the actual benefit which the Participant is entitled to have credited to a separate account

for his benefit for such given year under the MISOP.

5.2. VESTING. A Participant's Supplemental Benefit Amounts calculated by the Company for each Plan Year shall be fully vested at the time credited to such Participant's Account.

5.3. CREDITING OF SUPPLEMENTAL BENEFIT AMOUNTS. The Supplemental Benefit Amounts computed in Section 5.1 above for each Plan Year shall be credited by the Company to the Participant's Account as soon as reasonably practicable.

VI. ACCOUNTS AND INVESTMENTS.

6.1. VALUATION OF ACCOUNTS. The Administrator shall establish an Account for each Participant who:

(a) has filed a Deferral Election to defer Base Salary and/or Bonus, or

(b) has been credited with a Supplemental Benefit Amount, or

Such Account shall be credited with a Participant's Deferral Contribution Amounts and Supplemental Benefit Amounts as set forth in Sections 4.3 and 5.3, respectively, and with the Participant's Prior Account Balance, if any. As of each Valuation Date, the Participant's Account shall be adjusted upward or downward to reflect:

(i) the investment return to be credited as of such Valuation Date pursuant to Section 6.3 below,

(ii) the amount of distributions, if any, to be debited as of that Valuation Date under Article VII, and

(iii) the amount of forfeitures, if any, to be debited under
Section 7.4(a).

6.2. HYPOTHETICAL INVESTMENT FUNDS. Each Participant generally may direct the manner in which his or her Deferral Contribution Amounts, Supplemental MISOP Amounts, if any, and/or Prior Account Balance, if any, shall be deemed invested in and among the Investment Funds; provided, however, that each investment election made by a Participant shall, notwithstanding anything to the contrary in the Plan, be strictly subject to the consent of the

Administrator which, in its sole discretion, may elect to honor the Participant's request or have the Account deemed invested in another manner. Such deemed investment election shall be made in accordance with such procedures as the Administrator shall establish and any such election shall be made in whole percentages. The investment authority shall remain at all times with the Administrator. The selection of Investment Funds by a Participant shall be for the sole purpose of determining the rate of return to be credited to his or her Account and shall not be treated or interpreted in any manner whatsoever as a requirement or direction to actually invest assets in any Investment Fund or any other investment media.

6.3. CREDITING OF INVESTMENT RETURN. Each Participant's Account shall be credited on each Valuation Date with his or her allocable share of investment gains or losses of each Investment Fund in which his or her Deferral Contribution Amounts, Supplemental MISOP Amounts, if any, and/or Prior Account Balance, if any, are hypothetically invested. The Administrator shall adopt a protocol for allocating the deemed investment gains and losses similar to that used in the MISOP. Notwithstanding anything to the contrary, if a Participant elects to invest in the hypothetical Investment Fund for Woodward Governor Company Common Stock, such Participant's Account shall also be credited with any deemed dividends paid during the period beginning with the immediately preceding Valuation Date and ending with the current Valuation Date.

6.4. CHANGING INVESTMENT FUND OPTIONS. Subject to any exceptions set forth on Exhibit A, a Participant may, on a daily basis, make a new election with respect to the hypothetical Investments Funds in which his or her Deferral Contribution Amounts, Supplemental MISOP Amounts, if any, and/or Prior Account Balance, if any, shall be deemed invested in the future. Any such election shall be made in the form specified by the Administrator.

6.5. INVESTMENT ALTERNATIVES AFTER DEATH. For periods after the Valuation Date coincident with or following a Participant's death and pursuant to procedures established by the Administrator, the Participant's Account balance pertaining to Deferral Contribution Amounts, Supplemental MISOP Amounts, if any, and/or Prior Account Balance, if any, shall be reallocated and reinvested among the Investment Funds in accordance with the Beneficiary's hypothetical investment direction.

VII. PAYMENT OF BENEFITS.

7.1. DISTRIBUTION AT SPECIFIC FUTURE DATE. At the time an Eligible Member is notified by the Administrator of his or her eligibility to participate in the Plan, the Eligible Member may elect one or more future Valuation Dates as of which all or a portion of his or her Deferral Contribution Amounts and earnings thereon shall be determined for payment. Any distribution as of a specific future date made to an Eligible Member pursuant to his election shall be paid in a single lump-sum payment. Any such future date shall be a Valuation Date in a specific future year which is at least five Plan Years after the Plan Year for which the initial Deferral Contribution Amounts were credited to such Participant's Account; provided, however, that only one distribution per Plan Year may be elected under this Section 7.1; provided, further that, if the Participant elects a distribution at one or more specific future dates and has a termination of employment prior to any such date, distribution shall commence pursuant to Sections 7.2, 7.3, 8.1 or 8.2, as applicable. A distribution election under this Section 7.1 may be revoked or extended to a Valuation Date in a future Plan Year by filing a one-time revocation or extension election with the Administrator at least 12 months prior to the first day of the Plan Year in which such distribution was scheduled to take place. Notwithstanding the foregoing, any amounts distributable under this Section 7.1 shall be paid as soon as practicable following such relevant Valuation Date.

7.2. DISTRIBUTION UPON RETIREMENT OR DISABILITY. If a Participant terminates employment with the Company and/or Affiliates by reason of Retirement or Disability, distribution of the Participant's Account shall be made by or commence on the Valuation Date coincident with or next following such Participant's termination of employment. Distribution under this Section 7.2 shall be made:

(a) in a lump sum, or

(b) in substantially equal annual, quarterly or monthly installments for a period up to but not exceeding 10 years

as elected by the Participant on his or her Distribution Election. A Participant may revoke or change his or her Distribution Election under this Section 7.2 by filing a new Distribution Election with the Administrator; provided, however, that any Distribution Election that has not been on file with the Administrator at least 12 months prior to the first day of the Plan Year in which the Participant's termination of employment occurs shall be void and

disregarded. A Participant cannot alter or change his Distribution Election once he has begun to receive payments under the Plan. Notwithstanding the foregoing, a Participant (or his legal representative) whose termination of employment occurs by reason of Disability may request that the Administrator distribute the Participant's Account in another payment form following such termination of employment for Disability or defer distribution of the Participant's Account until such Participant is no longer eligible for coverage under the Woodward Governor Company Long-Term Disability Plan, in which case the Administrator, in its sole discretion, shall determine whether to make payment in another form or defer such distributions after taking into consideration all factors which it deems relevant. If the Participant does not have a valid Distribution Election on file with the Administrator at the time of Retirement or Disability, the Participant's Account shall be paid in a single sum under paragraph (a) above.

7.3. DISTRIBUTION ON OTHER TERMINATION OF EMPLOYMENT. If a Participant's employment with the Company or Affiliates terminates for any reason other than Retirement, Disability or death, the Participant's Account shall be paid in a lump sum payment as of the Valuation Date coincident with or next following such termination of employment.

7.4. UNSCHEDULED WITHDRAWAL. A Participant may request a withdrawal of all or a portion of his or her Deferral Contribution Amounts and earnings thereon by filing a Distribution Election with the Administrator specifying the amount of the Deferral Contribution Amounts to be withdrawn. Payment of such amount, adjusted by the amount forfeited as set forth in Subsection (a) below, shall be made as of the first Valuation Date administratively practicable after such request is received, and shall be subject to the following:

(a) An amount equal to 10% of the withdrawal requested shall be debited to the Participant's Account and permanently forfeited.

(b) Any Deferral Election in effect at the time of such withdrawal shall be void for periods after such withdrawal.

(c) The Participant shall not be eligible to file a new Deferral Election until the election period for the Plan Year commencing at least 12 months after such withdrawal.

7.5. UNFORESEEABLE EMERGENCY. Prior to the date otherwise scheduled for payment under the Plan, upon showing an unforeseeable emergency, a Participant may request that the Administrator accelerate payment of all or a portion of his or her Deferral Contribution Amounts and earnings thereon in an amount not exceeding the amount necessary to meet the unforeseeable emergency. For purposes of the Plan, an unforeseeable emergency means an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial or medical hardship to the Participant if early withdrawal were not permitted. Severe financial or medical hardship shall be deemed to exist in the event of the Participant's long and serious illness, impending bankruptcy or other similar extraordinary circumstances. The determination of an unforeseeable emergency shall be made by the Administrator in its sole discretion, based on such information as the Administrator shall deem to be necessary and relevant and such decision shall be final and binding on all parties.

7.6. TIME AND FORM OF ELECTIONS. All Distribution Elections under this Article VII shall be made at the time and in the form established by the Administrator and shall be subject to such other rules and limitations that the Administrator, in its sole discretion, may establish.

7.7. FORM OF PAYMENT AND WITHHOLDING. All payments under the Plan shall be made in cash and are subject to the withholding of all applicable federal, state and local and foreign governmental taxes; provided, however, any payment under the Plan that is attributable to the portion of a Participant's Account deemed invested in Company common stock shall be made in whole shares of Company common stock, with fractional shares paid in cash.

VIII. DEATH BENEFITS.

8.1. DEATH PRIOR TO COMMENCEMENT OF BENEFITS. If a Participant dies prior to commencement of payment of his or her Account, the Participant's Beneficiary shall receive a survivor benefit in an amount equal to the Participant's Account balance to be paid in a single lump sum as soon as practicable following the Participant's death.

8.2. DEATH AFTER COMMENCEMENT OF BENEFITS. If a Participant terminates employment due to Retirement or Disability, and dies prior to the time his or her Account balance has been fully distributed, the Participant's Beneficiary shall receive the remaining portion of the Participant's Account

at the regularly-scheduled date of payment for any remaining installment payments of the Participant's Account.

8.3. ADMINISTRATOR DISCRETION REGARDING FORM. Notwithstanding the foregoing provisions of this Article VIII, a Beneficiary may request that the Administrator approve an alternate form of payment of survivor benefits under this Article VIII which request may be granted in the sole discretion of the Administrator.

IX. ADMINISTRATION.

9.1. AUTHORITY OF ADMINISTRATOR. The Administrator shall have full power and authority to carry out the terms of the Plan. The Administrator may establish such rules and regulations as it may consider necessary or desirable for the effective and efficient administration of the Plan. The Administrator's interpretation, construction and administration of the Plan, including any adjustment of the amount or recipient of the payments to be made, shall be binding and conclusive on all persons for all purposes. Neither the Company, including its officers, members or directors, nor the Administrator or the Board or any member thereof, shall be liable to any person for any action taken or omitted in connection with the interpretation, construction and administration of the Plan.

9.2. PARTICIPANT'S DUTY TO FURNISH INFORMATION. Each Participant shall furnish to the Administrator such information as it may from time to time request for the purpose of the proper administration of this Plan.

9.3. INTERESTED MEMBER OF ADMINISTRATOR. If a member of the Administrator is also a Participant in the Plan, he or she may not decide or determine any matter or question concerning his or her benefits unless such decision or determination could be made by him or her under the Plan if he or she were not a member of the Administrator.

9.4. INDEMNIFICATION. No person (including any present or former member of the Administrator, and any present or former officer or member of the Company or any Affiliate) shall be personally liable for any act done or omitted to be done in good faith in the administration of the Plan. Each present or former officer or member of the Company or any Affiliate to whom the Administrator has delegated any portion of its responsibilities under the Plan and each present or former member of the Administrator shall be indemnified and saved harmless by the Company (to the extent not indemnified or saved harmless under any liability insurance or other indemnification arrangement with respect to the Plan) from and against any an all claims of liability to which they are subjected by reason of any act done or omitted to be done in good faith in connection with the administration of the Plan, including all expenses reasonably incurred in their defense if the Company fails to provide such defense. No member of the Administrator shall be liable for any act or omission of any other member of the Administrator, nor for any act or

omission upon his own part, excepting his own willful misconduct or gross neglect.

9.5. CLAIMS PROCEDURE. If a Participant or Beneficiary ("Claimant") is denied all or a portion of an expected benefit under this Plan for any reason, he or she may file a claim with the Administrator. The Administrator shall notify the Claimant within 90 days of allowance or denial of the claim, unless the Claimant receives written notice from the Administrator prior to the end of the 90-day period stating that special circumstances require an extension (of up to 90 additional days) of the time for decision. The notice of the decision shall be in writing, sent by mail to Claimant's last known address, and if a denial of the claim, shall contain the following information: (a) the specific reasons for the denial; (b) specific reference to pertinent provisions of the Plan on which the denial is based; and (c) if applicable, a description of any additional information or material necessary to perfect the claim, an explanation of why such information or material is necessary, and an explanation of the claims review procedure. A Claimant is entitled to request a review of any denial of his or her claim by the Board. The request for review must be submitted within 60 days of mailing of notice of the denial. Absent a request for review within the 60-day period, the claim shall be deemed to be conclusively denied. The Claimant or his or her representatives shall be entitled to review all pertinent documents, and to submit issues and comments orally and in writing. The Board shall render a review decision in writing within 60 days after receipt of a request for a review, provided that, in special circumstances the Board may extend the time for decision by not more than 60 days upon written notice to the Claimant. The Claimant shall receive written notice of the Board's review decision, together with specific reasons for the decision and reference to the pertinent provisions of the Plan.

X. AMENDMENT AND TERMINATION.

The Board may amend or terminate the Plan at any time; provided, however, that no such amendment or termination shall have a material adverse effect on any Participant's rights under the Plan accrued as of the date of such amendment or termination without such Participant's written consent. Upon termination of the Plan, the Board may cause a lump-sum payment of all benefits for all Participants at substantially the same time.

XI. MISCELLANEOUS.

11.1. NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE. Neither the establishment of the Plan nor any amendment thereof shall be construed as giving any Participant, Beneficiary or any other person, individually or as a member of a group, any legal or equitable right unless such right shall be specifically provided for in the Plan or conferred by specific action of the Board or the Administrator in accordance with the terms and provisions of the Plan. Except as expressly provided in this Plan, neither the Company nor any of its Affiliates shall be required or be liable to make any payment under the Plan.

11.2. NO EMPLOYMENT RIGHTS. Nothing herein shall constitute a contract of employment or of continuing service or in any manner obligate the Company or any Affiliate to continue the services of any Participant, or obligate any Participant to continue in the service of the Company or Affiliates, or as a limitation of the right of the Company or Affiliates to discharge any of their members, with or without cause.

11.3. NATURE OF THE PLAN.

(a) UNFUNDED PLAN. Nothing herein contained shall require or be deemed to require the Company to segregate, earmark or otherwise set aside any funds or other assets to provide for any payments made hereunder. Benefits hereunder shall be paid from assets which shall continue, for all purposes, to be part of the general, unrestricted assets of the Company and its Affiliates. The obligations of the Company hereunder shall be an unfunded and unsecured promise to pay money in the future. However, the Company may establish one or more trusts to assist in meeting its obligations under the Plan, the assets of which shall be subject to the claims of the Company's general creditors. No current or former Participant, Beneficiary or other person, individually or as a member of a group, shall have any right, title or interest in any account, fund, grantor trust, or any asset that may be acquired by the Company in respect of its obligations under the Plan (other than as a general creditor of the Company with an unsecured claim against its general assets).

(b) EXCEPTION FOR CHANGE IN CONTROL. Notwithstanding the provisions of paragraph (a) of this Section 11.3, the Company shall create a rabbi trust to hold funds to be used in payment of the obligations of the Company under the Plan, which trust shall not be funded except

as provided in the following sentence. In the event of a Change in Control (or prior thereto in the sole discretion of the Company), the Company shall fund such trust in an amount equal to not less than the total value of the Participants' Accounts under the Plan as of the Valuation Date immediately preceding the Change in Control, provided that any funds contained therein shall remain subject to the claims of the Company's general creditors. In addition, upon a Change in Control, the trust by its terms shall become irrevocable.

11.4. NONTRANSFERABILITY. Prior to payment thereof, no benefit under the Plan shall be assignable or subject to any manner of alienation, sale, transfer, claims of creditors, pledge, attachment or encumbrances of any kind, except pursuant to a domestic relations order awarding benefits to an "alternate payee" (within the meaning of Code Section 414(p)(8)) that the Administrator determines satisfies the criteria set forth in paragraphs (1), (2) and (3) of Code Section 414(p) (a "DRO"). Notwithstanding any provision of the Plan to the contrary, the Plan benefits awarded to an alternate payee under a DRO shall be paid in a single lump sum to the alternate payee on the Valuation Date as soon as administratively practicable following the date the Administrator determines the order is a DRO, and such amounts, as adjusted for earnings, gains and losses, will be deducted from the Participant's Account as of such Valuation Date.

11.5. SUCCESSORS AND ASSIGNS. The rights, privileges, benefits and obligations under the Plan are intended to be, and shall be treated as legal obligations of and binding upon the Company, its successors and assigns, including successors by merger, consolidation, reorganization or otherwise.

11.6. PAYMENT WITH RESPECT TO INCAPACITATED PERSONS. Any amounts payable hereunder to any person who is a minor or under a legal disability, as determined under applicable state law, or who is unable to manage properly his or her financial affairs may be paid
(a) to the legal representative of such person, (b) to anyone acting as the person's agent under a durable power of attorney,
(c) to an adult relative or friend of the person or (d) to anyone with whom the person is residing. Any payment of a benefit made in accordance with the provisions of this section shall be a complete discharge of any liability for the making of such payment under the Plan. The Administrator's reliance on the written power of attorney or other instrument of agency

governing a relationship between the person entitled to benefit the person to whom the Administrator directs payment of the benefit shall be fully protected at least to the same extent as though the Administrator had dealt directly with the person entitled to the benefit as a fully competent person. In the absence of actual knowledge to the contrary, the Administrator may assume that the instrument of agency was validly executed, that the person was competent at the time of execution and that at the time of reliance, the agency had not been terminated or amended.

11.7. ARBITRATION. Any controversy or claim arising out of or relating to this Plan, or breach hereof, shall be settled by arbitration in the City of Chicago in accordance with the laws of the State of Illinois with an arbitrator appointed by the Company. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of an arbitrator. The arbitrator's determination shall be final and binding upon all parties and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

11.8. GENDER AND NUMBER. Except when otherwise indicated by the context, words in the masculine gender shall include the feminine and neuter genders, the plural shall include the singular, and the singular shall include the plural.

11.9. HEADINGS. The headings of the various Articles and Sections in the Plan are solely for convenience and shall not be relied upon in construing any provisions hereof. Any reference to a Section shall refer to a Section of the Plan unless specified otherwise.

11.10. SEVERABILITY. Whenever possible, each provision of the Plan shall be interpreted in such manner as to be effective and valid under applicable law, but it any provision of the Plan is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, and the Plan shall be reformed, construed and enforced in such jurisdiction so as to best give effect to the intent of the Company under the Plan.

11.11. EFFECT ON OTHER EMPLOYEE BENEFIT PLANS. Any benefit paid or payable under this Plan shall not be included in a Participant's compensation for purposes of computing benefits under any employee benefit plan maintained or contributed by the Company or any Affiliate except as may

otherwise be required under the specific terms of such employee benefit plan.

11.12. NON-U.S. PARTICIPANTS. With respect to any Affiliate which employs Participants who reside outside the United States, and notwithstanding anything herein to the contrary, the Administrator may, in its sole discretion, amend the terms of the Plan in order to conform such terms with the requirements of local law or to meet the objectives of the Plan, and may, where appropriate, establish one or more sub-plans to reflect such amended provisions.

11.13. APPLICABLE LAW. This Plan is established under and will be construed according to the laws of the State of Illinois, to the extent not preempted by the laws of the United States.

11.14. CHANGES IN LAW AFFECTING TAXABILITY.

(a) OPERATION. This Section 11.14 shall become operative upon the enactment of any change in applicable statutory law or the promulgation by the Internal Revenue Service of a final regulation or other pronouncement having the force of law, which statutory law, as changed, or final regulation or pronouncement, as promulgated, would cause any Participant to include in his or her federal gross income amounts accrued by the Participant under the Plan on a date (an "Early Taxation Event") prior to the date on which such amounts are made available to him or her hereunder.

(b) AFFECTED RIGHT OR FEATURE NULLIFIED. Notwithstanding any other provision of the Plan to the contrary, but subject to subsection (c), below, as of an Early Taxation Event, the feature or features of this Plan that would cause the Early Taxation Event shall be null and void, to the extent, and only to the extent, required to prevent the Participant from being required to include in his or her federal gross income amounts accrued by the Participant under the Plan prior to the date on which such amounts are made available to him or her hereunder. If only a portion of a Participant's Account is impacted by the change in the law, then only such portion shall be subject to this Section, with the remainder of the Account not so affected being subject to such rights and features as if the law were not changed. If the law only impacts Participants who have a certain status with respect to the Company, then only such Participants shall be subject to this Section 11.14.

(c) TAX DISTRIBUTION. If an Early Taxation Event is earlier than the date on which the statute, regulation or pronouncement giving rise to the Early Taxation Event is enacted or promulgated, as applicable (i.e., if the change in the law is retroactive), there shall be distributed to each Participant, as soon as practicable following such date of enactment or promulgation, the amounts that became taxable on the Early Taxation Event." * * *

IN WITNESS WHEREOF, the undersigned has caused this Plan to be executed this ______ day of _________________, 2000.

WOODWARD GOVERNOR COMPANY

By:

EXHIBIT A( TC )

INVESTMENT FUNDS
UNDER
THE WOODWARD GOVERNOR COMPANY EXECUTIVE BENEFIT PLAN( TC )

The Investment Funds designated by the Administrator, in its sole discretion and from time to time, as the basis for determining the hypothetical investment return to be credited to Participants' Accounts in accordance with Article VI of the Woodward Governor Company Executive Benefit Plan (the "Plan"), if applicable, are currently as follows:

1. Vanguard Treasury Money Market Fund,
2. Vanguard Short-Term Corporate Fund,
3. Vanguard Total Bond Market Index Fund,
4. Vanguard Wellington Fund,
5. Vanguard 500 Index Fund,
6. Vanguard Windsor II Fund,
7. Vanguard U.S. Growth Fund,
8. Vanguard International Growth Fund,
9. Vanguard Explorer Fund, and
10. Woodward Governor Company Common Stock, but only if the Participant's investment election for this Investment Fund is approved in advance for such Participant by the Board of Directors of Woodward Governor Company (the "Board"). Notwithstanding any provision of the Plan or this Exhibit A to the contrary, if a Participant is granted permission to elect this Investment Fund, such Participant may only revoke such Investment Fund election with the prior approval of the Board. Any such revocation shall only be effective with respect to future deferrals and credits. Any portion of the Participant's Account deemed invested in the Company's Common Stock shall continue to be deemed to be invested in Common Stock and may not be transferred to any other hypothetical Investment Fund. The applicable value of the common stock as of any Valuation Date shall be equal to the closing price of such common stock on NASDAQ quoted by the Wall Street Journal for the applicable Valuation Date. The Participant's Account shall also be credited with deemed dividends, if any, on such common stock.

TABLE OF CONTENTS

                                                                                             PAGE
I.       PURPOSE AND EFFECTIVE DATE............................................................1
     1.1.     Purpose..........................................................................1
     1.2.     Effective Date...................................................................1
     1.3.     Continuation and Combination of Two Prior Plan...................................1
II.      DEFINITIONS...........................................................................1
     2.1.     "Account"........................................................................1
     2.2.     "Administrator"..................................................................2
     2.3.     "Affiliate"......................................................................2
     2.4.     "Base Salary"....................................................................2
     2.5.     "Beneficiary"....................................................................2
     2.6.     "Board"..........................................................................2
     2.7.     "Bonus"..........................................................................2
     2.8.     "Change in Control"..............................................................2
     2.9.     "Code"...........................................................................4
     2.10.    "Company"........................................................................4
     2.11.    "Deferral Contribution Amounts"..................................................5
     2.12.    "Deferral Election"..............................................................5
     2.13.    "Disability".....................................................................5
     2.14.    "Distribution Election"..........................................................5
     2.15.    "Early Retirement Date"..........................................................5
     2.16.    "Election Period"................................................................5
     2.17.    "Eligible Member"................................................................5
     2.18.    "Exchange Act"...................................................................5
     2.19.    "FICA"...........................................................................5
     2.20.    "Investment Fund or Funds".......................................................5
     2.21.    "Normal Retirement Date".........................................................5
     2.22.    "Participant"....................................................................5
     2.23.    "Plan"...........................................................................6
     2.24.    "Plan Year"......................................................................6
     2.25.    "Prior Account Balance"..........................................................6
     2.26.    "Retirement".....................................................................6
     2.27.    "Supplemental Benefit Amounts"...................................................6
     2.28.    "Supplemental MISOP Amount"......................................................6
     2.29.    "Supplemental RIP Amount"........................................................6
     2.30.    "Valuation Date".................................................................6
III.     PARTICIPATION.........................................................................7
     3.1.     Participation....................................................................7
     3.2.     ERISA Exemption..................................................................7
IV.      DEFERRAL CONTRIBUTION AMOUNTS.........................................................7
     4.1.     Permissible Deferrals under the Plan.............................................7
     4.2.     Deferral Elections...............................................................8
     4.3.     Crediting of Deferral Elections..................................................9
     4.4.     Vesting..........................................................................9
     4.5.     Deferred Contribution Amounts Subject to FICA at Time of Deferral................9
V.       SUPPLEMENTAL BENEFIT AMOUNTS..........................................................9
     5.1.     Computation of Supplemental Benefit Amounts......................................9
     5.2.     Vesting.........................................................................10

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TABLE OF CONTENTS
(CONTINUED)

                                                                                             PAGE
     5.3.     Crediting of Supplemental Benefit Amounts.......................................10
VI.      ACCOUNTS AND INVESTMENTS.............................................................10
     6.1.     Valuation of Accounts...........................................................10
     6.2.     Hypothetical Investment Funds...................................................11
     6.3.     Crediting of Investment Return..................................................11
     6.4.     Changing Investment Fund Options................................................11
     6.5.     Investment Alternatives After Death.............................................12
VII.     PAYMENT OF BENEFITS..................................................................12
     7.1.     Distribution at Specific Future Date............................................12
     7.2.     Distribution Upon Retirement or Disability......................................12
     7.3.     Distribution On Other Termination of Employment.................................13
     7.4.     Unscheduled Withdrawal..........................................................13
     7.5.     Unforeseeable Emergency.........................................................13
     7.6.     Time and Form of Elections......................................................14
     7.7.     Form of Payment and Withholding.................................................14
VIII.    DEATH BENEFITS.......................................................................14
     8.1.     Death Prior to Commencement of Benefits.........................................14
     8.2.     Death After Commencement of Benefits............................................14
     8.3.     Administrator Discretion Regarding Form.........................................14
IX.      ADMINISTRATION.......................................................................15
     9.1.     Authority of Administrator......................................................15
     9.2.     Participant's Duty to Furnish Information.......................................15
     9.3.     Interested Member of Administrator..............................................15
     9.4.     Indemnification.................................................................15
     9.5.     Claims Procedure................................................................15
X.       AMENDMENT AND TERMINATION............................................................16
XI.      MISCELLANEOUS........................................................................16
     11.1.    No Implied Rights; Rights on Termination of Service.............................16
     11.2.    No Employment Rights............................................................16
     11.3.    Nature of the Plan..............................................................17
     11.4.    Nontransferability..............................................................17
     11.5.    Successors and Assigns..........................................................17
     11.6.    Payment with Respect to Incapacitated Persons...................................18
     11.7.    Arbitration.....................................................................18
     11.8.    Gender and Number...............................................................18
     11.9.    Headings........................................................................18
     11.10.   Severability....................................................................18
     11.11.   Effect on Other Employee Benefit Plans..........................................19
     11.12.   Non-U.S. Participants...........................................................19
     11.13.   Applicable Law..................................................................19
Exhibit A.....................................................................................20
              INVESTMENT FUNDS UNDER THE WOODWARD GOVERNOR COMPANY EXECUTIVE BENEFIT PLAN.....20

-ii-

Exhibit 10 (j)
Outside Director Stock Purchase Agreement

WOODWARD GOVERNOR COMPANY

OUTSIDE DIRECTOR STOCK PURCHASE AGREEMENT

Dated as of
April 24, 2002

WOODWARD GOVERNOR COMPANY
Attention: Mr. John Halbrook, President 5001 North Second Street
Rockford, IL 61111

Dear Mr. Halbrook:

The undersigned, James R. Rulseh, understands that you, Woodward Governor Company, a Delaware corporation (the "Company") is authorized to issue 60,000,000 shares, designated Common Stock of the par value of $0.00875 per share (the "Company Stock"), of which as of April 24, 2002, (i) 11,324,954 shares were issued and outstanding, and (ii) 835,046 shares were issued but are not outstanding and are owned and held by the Company as treasury shares.

In accordance with the Company's Director Share Ownership Guideline, the Company is authorized to sell treasury shares of the Company Stock to each of its directors who are not officers, members or employees of the Company (the "Outside Directors"). The aggregate purchase price to me for the shares of Company Stock I purchase will be One Hundred Twenty Thousand Dollars ($120,000.00) (the "Purchase Price"). The price per share shall be equal to the Fair Market Value of such stock as quoted on the Nasdaq National Market at the close of business on the date of this agreement. The shares of the company Stock to be purchased by me hereunder shall be the number of whole shares of Company Stock which may be acquired for the Purchase Price based upon the Fair Market Value per share as of the Purchase Date (the "Shares").

I confirm my agreement with the Company as follows in connection with my purchase of the Shares. Accordingly, the company confirms its agreement with me.

(1) PURCHASE OF SHARES. Subject to the terms and conditions herein set forth, I agree to purchase from the Company, and the Company agrees to sell to me, the number of Shares which may be purchased for the Purchase Price at a price per share equal to the Fair Market Value per share as of the Purchase Date.

(2) PAYMENT OF PURCHASE PRICE. In payment of the Purchase Price, I agree to deliver to the Company within 10 days following the Purchase Date a Non-Interest Bearing Installment Note from me in the amount of the Purchase Price dated the Purchase Date and payable to your order, expressed to mature in 60 monthly

installments as follows: $2,000.00 on the 20th day of May 2002, and $2,000.00 on the same day of each and every succeeding month thereafter to and including a final installment on the 20th day of April 2007, such note to be in the form of the Non-Interest Installment Note from me which is attached hereto as Exhibit A and hereby made a part hereof (the "Installment Note"). The remaining balance on the Installment Note will be accelerated in the event I cease to be an Outside Director of the Company for any reason and shall be payable 90 days thereafter.

(3) PURCHASE DATE. The purchase and sale provided for herein shall be consummated and closed at the office of the Company, 5001 North Second Street, Rockford, Illinois 61111, commencing at 11:00 a.m., Rockford local time, on April 25, 2002.

(4) ASSIGNMENT OF RETAINER FEES. I agree that commencing as of the Purchase Date, and on each of the next 60 payment dates thereafter, the Company may withhold and retain the monthly retainer fees due me from the company for my service as a member of the Board of Directors of the Company (the "Retainer Fees") in satisfaction of the payment of the Purchase Price for the Shares under the Installment Note. I hereby sell, assign, convey and transfer to the Company all my right, title and interest to any and all payments due me as Retainer Fees, including any and all increases thereof. The assignment of Retainer Fees shall be effective as of the Purchase Date until the Installment Note is paid and satisfied in full.

(5) PREPAYMENT. The unpaid monthly installments of the Purchase Price for Shares to be purchased by me hereunder may be prepaid by me in whole or in part at any time. In case of any prepayment of the Purchase Price in part, such prepayment shall be applied to the installments hereof in the inverse order of their respective maturities. Any monthly Retainer Fees in excess of $2,000.00 shall be applied by the Company as a prepayment hereunder.

(6) ISSUANCE OF STOCK CERTIFICATE. On the Purchase Date, the Company shall issue to me a stock certificate evidencing the number of Shares purchased by me hereunder.

(7) TRANSFERABILITY AND CONTINUING OBLIGATION. The rights granted me hereunder may not be sold, pledged, assigned, transferred or otherwise disposed of in any manner whatsoever. Only I shall have the right to purchase Shares hereunder. Furthermore, except as mutually agreed otherwise by the parties hereto, I understand and agree that my obligation under the Installment Note and this Agreement are with recourse and binding on me individually until satisfied in full, including without limitation, in the event (i) of my death, or (ii) that I am no longer an Outside Director for any reason.

(8) FINANCIAL RISKS. I acknowledge that I have received all information which I deem necessary and appropriate to evaluate the financial risks inherent in my purchase of Shares hereunder, and I acknowledge that I have satisfactory and complete

information concerning the business, operations, and finances of the Company in response to all my inquiries in respect thereof.

(9) INVESTMENT REPRESENTATION. I represent and warrant that the Shares acquired by me pursuant to this agreement (i) will be acquired by me for my own account, (ii) will be acquired by me for investment and not with a view to, or for sale in connection with, any distribution thereof,
(iii) will be acquired by me with no present intention of selling or distributing such shares. I agree that I will not dispose of the Shares purchased by me hereunder in such a manner as will violate the Securities Act of 1933, as amended, or any applicable rules and regulations thereunder and until and unless the Company shall have been furnished with an opinion of counsel satisfactory to it to the effect that any proposed disposition of such shares may be effected without such violation. I agree that all certificates evidencing the Shares acquired by me hereunder will be marked with a legend as follows:

"The shares evidenced by this Certificate have not been registered under the Securities Act of 1933, as amended. The shares evidenced hereby may not be sold, transferred, pledged or hypothecated in the absence of an effective registration statement for the shares under the Securities Act of 1933, as amended, or an opinion of counsel satisfactory to the Corporation prior to the proposed transaction that registration is not required under said Act."

I represent that I have been informed by the Company and understand that the Shares acquired by me hereunder will not be registered under the Securities Act of 1933, as amended, and that the Company does not contemplate and is not legally required to file any such registration. Accordingly, in connection with any future resale of the Shares acquired by me hereunder I acknowledge that my attention has been directed to Rule 144 under the Securities Act of 1933, as amended, and that I have been advised that the Shares acquired by me hereunder must be held indefinitely unless they are subsequently registered under the Securities Act of 1933, as amended, or an exemption from such registration is available.

(10) NOTICES. All notices, requests, demands and other communication hereunder shall be in writing and shall be deemed to have been duly given when delivered personally or when deposited in the United States mail, registered or certified, return receipt requested, postage prepaid, addressed as follows:

(a) if to me, to:

Mr. James R. Rulseh
6125 10th Street
Kenosha, Wisconsin 53144

(b) if to you, to:

Woodward Governor Company 5001 North Second Street Rockford, Illinois 61111 Attention: Stephen P. Carter, Vice President, Chief Financial Officer And Treasurer

or to such other address or addresses as you or I may communicate in writing to the other by notice given pursuant to the provisions of this paragraph (10). Written notice given by any other method shall be deemed effective only when actually received by the party to whom given.

(11) MISCELLANEOUS. This Agreement (i) constitutes the entire agreement between you and me with respect to the subject matter hereof, (ii) shall not be assigned or transferred by your or me, (iii) shall be governed in all respects by the laws of the State of Illinois, and (iv) may be executed in two or more counterparts which together shall constitute a single instrument.

If the foregoing is in accordance with your understanding of our agreement, please sign and return to me the enclosed copy of this Outside Director Stock Purchase Agreement whereupon it shall become a binding agreement between us.

Very truly yours,

James R. Rulseh

The foregoing is hereby confirmed
and agreed to as of the 24th day of
April, 2002.

WOODWARD GOVERNOR COMPANY

John A. Halbrook, Chairman and CEO

EXHIBIT 13

Business Description

Woodward designs, manufactures, and services energy control systems and components for aircraft and industrial engines, turbines, and other power equipment. Leading OEMs (original equipment manufacturers) throughout the world use our products and services in the power generation, process industries, transportation, and aerospace markets.

Contents

Financial Highlights                    1
To Our Shareholders                     2
Board of Directors                      5
Market Drivers Shape Our Strategy       6
Financial Review                       17

Officers and Investor Information      47

Financial Highlights

Fiscal year ended September 30,                                            2002          2001          2000
----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND OTHER YEAR-END DATA)

Operating Results
  Net sales                                                             $  679,991    $  678,791    $  597,385
  Adjusted earnings before cumulative effect of accounting change*          45,170        55,943        49,636**
     Basic per share amount*                                                  3.99          4.94          4.41**
     Diluted per share amount*                                                3.90          4.84          4.39**
  Cash dividends per share                                                     .93           .93           .93
Year-end Financial Position
  Working capital                                                          152,312       123,744       100,836
  Total assets                                                             582,395       584,628       533,723
  Long-term debt, less current portion                                      78,192        77,000        74,500
  Shareholders' equity                                                     354,901       318,862       275,624
Other Year-end Data
  Shareholders' equity per diluted share                                     30.66         27.58         24.35
  Worker members                                                             3,337         3,709         3,302
  Registered shareholder members                                             1,592         1,652         1,742
================================================================================================================

* Adjusted earnings before cumulative effect of accounting change reflects the elimination of goodwill-related amortization and associated income taxes from amounts reported in the financial statements.

** In 2000, adjusted earnings includes a gain from the sale of business, net of tax, of $17,082 or $1.52 per basic share and $1.51 per diluted share. Without this item, adjusted earnings would have been $32,554 or $2.89 per basic share and $2.88 per diluted share.

To Our Shareholders

Tough years can provide an opportunity for those who have the insight and resilience to advance with thoughtful strategies. The game of chess is an appropriate symbol of Woodward's ability to respond to challenges and achieve its long-term goals.

In 2002, two of our largest markets, power generation and aerospace, faced major slowdowns and the industrial markets generally were impacted by a weakened economy. Despite these adverse conditions, we remained committed to our underlying strategy of making solid moves to build profitable market share. The strength of these moves will be evident when the growth of the economy resumes.

Increasing market share

Woodward continues to increase its market share by developing new products, acquiring complementary technologies, and building customer loyalty. We debuted 70 new products in Industrial Controls in fiscal year 2002 that expand our core technology platforms into new applications and systems, and we intend to maintain that development pace.

Our engineering capabilities have provided our customers with innovative, practical, and cost-effective systems solutions and have resulted in a full pipeline of projects for new products and applications, many of which are direct requests from our customers. No other supplier of energy control components can provide the complete range of technologies that Woodward offers.

We are working toward balance in three primary global markets--the United States, Europe, and Asia. Over the past year, we increased our global presence with an acquisition of a company in Europe that provides us with power management control system capability. We are also initiating a presence in China to repair and overhaul aircraft engine components.

In March, we acquired Nolff's Carburetion and formed a joint venture with MotoTron to become a major supplier of energy control technology products to engine manufacturers for small mobile industrial equipment. The true driver for our success in this $300 million market is our ability to help our customers cost effectively meet anticipated emissions standards while maintaining high standards of system performance.

Customer satisfaction builds loyalty and is a key measurement of our success. In June, our Rockton, Illinois, facility became the 24th out of more than 3,000 suppliers to achieve Platinumsm supplier status with American Airlines. The Department of Defense recognized Aircraft Engine Systems with a Quality and Delivery Performance Award. In addition, Pratt & Whitney Canada presented Woodward with their Externals, Controls, and Nacelles Supplier of the Year Award. Because we provide them with the cost-effective quality products they need, delivered on time, our customers increasingly turn to Woodward as a single source for energy control solutions.

Strategic wins

While the sales volume in our industrial markets declined in 2002, Woodward gained share in a number of areas.

Content we provide on large industrial gas turbines has increased over the past few years from nothing to an array of fuel nozzles, valves, and actuators that are placed on almost every new turbine developed, from the 5 megawatt GE-5 to the 150 megawatt GE Frame 9. The value of our products on these large turbines today ranges from $500,000 to over $1 million.

On smaller gas engines for power generation, we now provide the throttle body, bypass and waste gate valves (including actuators), gas-metering valves, and ignition systems.

In our aircraft engine markets, we executed multi-year extensions on contracts with most of our key original equipment manufacturer customers, including GE Aircraft Engines, and in several instances, expanded the content we provide on each engine with manifolds and actuators. These agreements enable Woodward to team with our customers at the planning stage of new engines and proactively offer customized solutions for fuel-efficient, cost-effective, and reliable engine systems.

The aftermarket, repair, and overhaul portion of our aircraft engine business has been stronger than anticipated, as Woodward has more engine content on the newer aircraft that remain flying even with decreased commercial activity. On the military side, we have been included on both the F135 and F136 engines for the Joint Strike Fighter program, and military repair, overhaul, and spare parts sales have been strong this year.

Board and Senior Management

Woodward pursues excellence in its evolving board and management teams. Three new members have joined the board in 2002 to build the skills and strength required in today's business environment. John Cohn, Mary Petrovich, and James Rulseh have outstanding experience in industrial manufacturing and exemplify the qualities of integrity and commitment we seek in our board members.

Vern Cassens and Tom Heenan retired from the Board of Directors on September 30, 2002, and we appreciate their many years of diligent service.

In September, Tom Gendron, who has served 12 years with Woodward in both Industrial Controls and Aircraft Engine Systems, was promoted to president and chief operating officer. This change was part of our shift to integrate all our technologies across the organization to ensure a more global approach to the range of markets we serve.

Phil Turner, a key player on my management team with more than four decades of service, will help integrate Aircraft Engine Systems into the global business

structure and plans to retire as the process nears completion. I would like to thank Phil for his countless contributions, including his effective management of the aircraft engine business in the months following September 11, 2001.

Ron Fulkrod, a vice president who served in many valuable roles since 1961, will retire at the end of calendar 2002. I want to thank him for his tireless efforts and sincere commitment to the company.

All public companies were challenged to demonstrate their standards of corporate governance in the wake of malfeasance by a few high-profile companies. The Sarbanes-Oxley Act of 2002 imposed a number of regulations designed to protect shareholders through improved governance, accountability, and disclosure.

Woodward has always fostered a culture of integrity and has conducted its financial business in an open and understandable manner. We are easily reaching compliance with all the new standards, many of which were already our typical practices. It is our longstanding belief that our shareholders, customers, and members deserve honesty and respect, along with excellent performance.

Financial performance

Our total company sales for fiscal 2002 rose slightly to $679,991,000. Earnings fell, however, to $45,170,000 or $3.90 per diluted share, before the cumulative effect of accounting change, from $53,943,000, or $4.84 per share in fiscal year 2001, as adjusted to eliminate goodwill-related amortization.

Adverse external events impacted almost all businesses this year. The effects of the attacks of September 2001 sent an already weakened commercial aircraft industry into severe decline. We reacted swiftly by accelerating planned cost-cutting measures early in the year and maintained strong earnings despite the drop in sales.

Turbulence in the domestic wholesale electricity market slowed spending for new power generation equipment, including a notable increase in project cancellations as the year progressed. In addition, macroeconomic uncertainties and a subdued outlook contributed to a decline in orders across all our industrial markets.

In late fiscal year 2002, we implemented cost-cutting measures designed to stabilize margins, while preserving an infrastructure that will allow us to continue to serve customers well, even in tough times, and resume growth quickly as conditions improve.

Executing the strategy

Market conditions will remain challenging through 2003. We are confident in our ability to face those challenges head-on and succeed. We will stay focused on building the long-term value of our business through winning an increased share of a growing number of profitable niche markets.

Our plans call for careful cost management and continuous improvement initiatives that should allow fiscal year 2003 earnings to approximate those of fiscal 2002, despite lower sales.

Industrial Controls is improving its cost base through productivity gains and global purchasing initiatives that allow us to consolidate our supplier base. While sales will likely be down from fiscal year 2002, we believe these activities, as well as more favorable product mix, should help improve earnings in 2003.

Aircraft Engine Systems achieved a number of long-term contract wins that allow us to supply additional content on multiple engine platforms for a number of years to come.

We believe sales for this segment in fiscal year 2003 will be below 2002 levels. But, our proven ability to manage costs and increase productivity should partially offset the effect of lower sales and will also be beneficial when the aerospace markets begin to normalize and our growth resumes.

We will continue to make the right moves to ensure our success. We have a very talented and highly motivated workforce, advanced technologies, and the financial resources to effectively execute our strategy, capture market share, and position ourselves well for the future.

John A. Halbrook
Chairman of the Board
and Chief Executive Officer

December 6, 2002

Implementing customer-focused plans for strategic growth

Chess is the ultimate competition between two minds. To skillfully use the sixteen chessmen to win the game, players must execute their moves with planning and foresight. In business, leaders of companies must demonstrate the same skills applied by tournament-level chess players.

As in chess, Woodward never underestimates its rivals. Our goal is to always be several moves ahead of the competition. To do this, we rely on our thorough understanding of the aircraft engine and industrial power equipment markets. We develop and use strategies that are focused and aligned to meet the needs of our customers. Moreover, we adapt our plans, when necessary, to fit the ever-changing market environment.

Our market drivers

Our customers are faced with meeting new, stringent air quality standards to reduce air pollution. Internationally, the Kyoto Protocol mandates that industrialized countries reduce their emissions of greenhouse gasses, while clean air acts adopted in North America, Europe, and Asia direct other emissions reductions over the next five years. These air quality standards will drive the increased use of natural gas and high-efficiency engines and turbines.

Meanwhile, pressures have increased on engine and turbine manufacturers to lower their cost structures. Additionally, customers are demanding continuous quality and reliability improvements for their power equipment.

Finally, global sourcing influences how Woodward works with its original equipment manufacturer (OEM) customers, who produce products in multiple manufacturing facilities around the world. These customers need their supply chain to be located near their plants to help reduce costs, achieve faster turn-around times, and access product support locally.

Meeting market demands with systems and components

Woodward uses its sophisticated technologies to develop and produce an extensive line of components. Often, we integrate the components into complete engine fuel control and combustion systems.

The systems approach simplifies our customers' supply chain and system testing activities, decreases development engineering resource requirements, and consolidates component testing. Our customized solutions address the critical needs of our customers--emissions, reliability, cost, and global sourcing.

The Pratt & Whitney PW600 engine family program represents the most comprehensive aircraft engine application of Woodward's Energy Control Technologies strategy. While maintaining system level responsibility, Woodward teamed with Hispano-Suiza to develop and integrate the electronic engine control. Additionally, Woodward is combining other electrical products with its core fuel system products to provide a fully integrated engine control system.

The systems approach, demonstrated in the PW600 program, applies throughout our business. We had great success this year with sales of our OH1 comprehensive engine control system for on-highway vehicles powered by compressed natural gas. Similar Woodward solutions are being designed into our customers' newest and most advanced engines and turbines.

Emissions regulations make an engine or turbine control system more complicated by necessity. Woodward's smart network approach enables its customers to meet these tough standards in the simplest and most cost-effective way possible, with the reliability and durability required in today's marketplace.

Woodward's strategies at the component level correspond with our systems approach. The GS16 valve demonstrates our networked control strategies in action. The valve is designed to precisely control gas fuel flow on aeroderivative and industrial gas turbines for GE, Rolls-Royce, Pratt & Whitney, and other OEMs.

The electrically actuated valve with integral driver electronics reduces our customers' total installed costs by eliminating the need for separate hydraulic or electrical driver systems. The GS16 networks easily with the turbine control system to minimize installation and start-up costs.

Another of our all-electric solutions for turbine control, the EML100 linear actuator, provides accurate, closed-loop position control of steam and fuel valves. When paired with Woodward's 3151A water valve, the unit meters water flow into the turbine combustion chamber to reduce emissions and increase power output.

Our low-cost ProAct(TM) ITB throttle valve is simple for OEM customers to install and set up. It is a key element in a total controls solution for two of the most advanced natural gas engines under development in Europe and the United States. With only one moving part, it provides the dependability and durability demanded in today's marketplace.

In fiscal year 2002, Woodward signed a developmental agreement with GE Aircraft Engines (GEAE) to design, engineer, and manufacture the fuel manifold ring for the LV100 gas turbine, which will power the U.S. Army's M2 Abrams main battle tank. Developing and acquiring key technologies over the past five years has been instrumental in giving Woodward the flexibility to offer a variety of products that meet the fuel delivery system needs of our customers.

To increase our aerospace aftermarket offerings and engine content, Woodward expanded its scope beyond those products normally provided to the OEM market. For example, we won a competitive bid in fiscal year 2002 to provide the F100 flameholder for the U.S. Air Force.

The flameholder controls air flow through an augmentor to ensure proper afterburner combustion. Although we do not provide the original equipment, the manufacturing and quality requirements are well within the core competencies of our combustion product activities. The flameholder adds to the products and services Woodward provides to support F-15 and F-16 fighter aircraft.

Meeting market demands with exceptional performance

Growth is directly tied to customer satisfaction. We know that through continuous improvements, we will retain our existing customers, attract new ones, and increase market share.

By emphasizing lean manufacturing principles and practicing Six Sigma methodologies, we have laid the foundation to consistently improve and aggressively manage costs. Within the confines of a data-driven Six Sigma environment, we view our business and our suppliers' businesses as a system of processes that must first be understood then controlled.

Our metrics demonstrate positive results: dramatic on-time delivery improvements, reduced quality defects from suppliers, significant productivity improvements, shortened lead times, and improvements in our quality.

Woodward is committed to providing a level of quality, delivery, cost, and responsiveness that is unsurpassed in our industries, and we are being recognized for achieving these goals. In fiscal year 2002, Woodward achieved

Platinumsm supplier status from American Airlines as a top performing supplier. Only 24 of their 3,000 suppliers have achieved this status.

Additionally, this year the U.S. Government honored Woodward with a quality and delivery performance award. Woodward supplies various products and services to the Department of Defense and other government agencies, including the repair and overhaul of fuel flow governors, main engine controls, and fuel injectors.

Meeting market demands through business development activities

Acquisitions, alliances, and partnerships remain vital strategies to help Woodward meet its growth objectives. We use these strategic business development activities to acquire key technologies and to enter new, growing markets.

After working together for a year with great success under a product sales agreement, Woodward acquired Leonhard-Reglerbau in fiscal year 2002. It is operating as Woodward's center for power management control systems. Now, we are positioned to pursue a much wider cross-section of the power management controls market. The integrated generator set controls, generator voltage regulators, and protective relay technologies are critical to the expansion of the distributed generation market.

In March 2002, Woodward acquired Nolff's Carburetion, Inc. and formed a joint venture with MotoTron Corporation, a subsidiary of Brunswick Corp. These transactions were key to accelerating Woodward's strategy to develop and provide integrated control systems for an almost $300 million mobile industrial equipment market. With this capability, Woodward is strongly positioned as a major supplier to small gas and diesel engine manufacturers and packagers for lift trucks, aerial lift platforms, aircraft cargo tractors, and other mobile equipment.

While focusing on market drivers, Woodward concentrates on developing strong relationships with its foundation OEM customers. This fiscal year, Woodward signed a long-term agreement with GE Aircraft Engines, its largest aerospace customer, for all non-combustion products we supply to them. The agreement was expanded to include fuel metering units on the GP7200 engine, which will power the newly developed Airbus A380. GEAE and Pratt & Whitney are jointly producing the engine for this superjumbo jet.

A key Woodward strategy is to align its technology plans with those of its customers. We are developing control and combustion system technologies to support the special reliability and performance requirements of the single engine F-35 Joint Strike Fighter (JSF) aircraft. The U.S. Navy, Air Force, and Marines, the United Kingdom Royal Air Force and Royal Navy, and U.S. allies will use the JSF, the next generation strike fighter.

Woodward will be the supplier of the augmentor spray bar manifold assembly, the fuel nozzle assemblies, and the pilot burner fuel nozzle for Pratt & Whitney's F135 engine for the JSF. Deliveries to support the engine development program are slated for 2003. Woodward will supply Rolls-Royce Corporation with fuel

injectors for the GE/Rolls-Royce F136 engine, the alternate engine that will power the JSF.

Sustaining our growth

Expanding our focus from prime mover controls and governors to energy control technologies is the key to our increased market share. As we continue to develop closer relationships with our foundation customers earlier in the product development cycle, we can offer better, more cost-effective networked solutions that increase our content on engines and turbines.

Woodward will keep executing its strategies by offering systems solutions to aircraft and industrial engine, turbine and power equipment manufacturers. We will gain new technologies and expand into new markets through our development activities and through acquisitions, alliances, and partnerships. Also, we will continue to introduce upgrades and new services for our aftermarket customers. Most importantly, we will not relent in our vision to improve customer satisfaction levels in all aspects of our business.

Like a well-played game of chess, winning at business depends on successful plans. Strategies must be executed with great precision. Woodward will set itself apart from its competitors by developing and delivering integrated systems and components that meet our customers' demands and anticipate their future needs.

Contents

Management's Discussion and Analysis   18

Consolidated Financial Statements      28

Report of Independent Accountants      43

Selected Financial Data                44

Selected Quarterly Financial Data      46

Cautionary Statement                   46

Management's Responsibility for Financial Statements

Management is responsible for the accompanying financial statements and believes that the financial statements accurately and consistently present the financial position, results of operations, and cash flows of the company in accordance with accounting principles generally accepted in the United States.

Management makes what it believes to be reasonable and prudent judgments and estimates where necessary, and has a system of internal accounting controls designed to provide reasonable assurance that its financial records are accurate, assets are safeguarded, and transactions are executed in accordance with management's authorizations. Self-monitoring of the internal accounting control system, along with selective testing, is a part of our control environment. Corrective actions are taken whenever deficiencies in our internal accounting control system are identified.

PricewaterhouseCoopers LLP, the company's independent accountants, audit the company's financial statements in accordance with generally accepted auditing standards. Their report on these financial statements follows the notes to consolidated financial statements.

The audit committee of the company's Board of Directors, which consists of directors who are not officers or employees of the company, meets with management and PricewaterhouseCoopers LLP to review and discuss the audited financial statements, along with other matters.

John A. Halbrook
Chairman and
Chief Executive Officer

Stephen P. Carter
Vice President,
Chief Financial Officer and Treasurer

Management's Discussion and Analysis

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

Results of Operations

Our results of operations are discussed and analyzed by segment. We have two operating segments--Industrial Controls and Aircraft Engine Systems. Industrial Controls provides energy control systems and components primarily to OEMs (original equipment manufacturers) of industrial engines, turbines, and other power equipment. Aircraft Engine Systems provides energy control systems and components primarily to OEMs of aircraft engines.

We use segment earnings internally to assess the performance of each segment and to make decisions on the allocation of resources. Total segment earnings do not reflect all expenses and gains of the company, and are before the cumulative effect of an accounting change. Nonsegment expenses and gains, including income taxes, and the accounting change are separately discussed and analyzed.

Among the effects of the accounting change is that goodwill is no longer amortized after September 30, 2001. Therefore, to provide the most meaningful comparison of earnings and income tax expense between periods, various earnings measures and income tax expense are analyzed and discussed on an adjusted basis. Any amount in this discussion and analysis labeled "adjusted" reflects the elimination of goodwill-related amortization and associated income taxes from amounts reported in the financial statements.

Industrial Controls

IN THOUSANDS FOR THE YEAR
ENDED SEPTEMBER 30,               2002          2001          2000
---------------------------------------------------------------------
External net sales             $  408,665    $  384,145    $  330,962
Adjusted segment earnings          33,294        59,601        42,983
=====================================================================

2002 Compared to 2001 and Outlook

External net sales of Industrial Controls increased 6% in 2002 over 2001. Businesses acquired in 2001 and 2002 accounted for about $24 million of the increase. Without these acquisitions, our external net sales in 2002 would have been about the same as in 2001.

- Virtually all of our OEM customers had lower shipment volumes in 2002 as compared to 2001. These decreases were most evident among customers shipping large gas turbines, particularly aeroderivative turbines, which are used in power generation. As a result, despite increases in market share across most of our product lines, sales of our core manufactured products decreased.

- Decreases in sales among our core manufactured products were largely offset by a series of shipments that included lower-profit purchased components. These shipments were completed substantially in our second and third quarters.

- Price changes from 2001 levels reduced sales in 2002 by approximately 1%. Changes in foreign currency exchange rates did not have a significant impact on sales.

In 2002, we acquired the capital stock of Leonhard-Reglerbau Dr.-Ing. Adolf Leonhard GmbH and certain net assets of Nolff's Carburetion, Inc. These acquisitions enhanced our capabilities using technologies that can be leveraged to existing systems, power equipment, and market applications.
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.

Industrial Controls' segment earnings, as adjusted to eliminate goodwill-related amortization, decreased 44% in 2002 from 2001. This earnings decrease was the result of reduced segment earnings margins, which more than offset the effect of higher sales.

- Changes in our sales mix reduced our average gross margins (which we measure as net sales less cost of goods sold as a percent of net sales) in 2002 as compared to 2001. Reduced sales of our core manufactured products, the series of shipments that included lower- profit purchased components, and the lower average margins from the businesses we acquired in 2002 and 2001 all contributed to this decline.

- Reductions in our workforce in 2002, resulting in total expense of $4.0 million, were made to align staffing levels with expected demand. These reductions occurred throughout the year, but slightly more than half of them occurred toward the end of the fourth quarter.

- Product development activities increased in 2002 over 2001. We continued to actively pursue opportunities to gain market share, often working in conjunction with our customers' own development programs.

- A charge of $3.0 million was recognized in the fourth quarter of 2002 to reduce the carrying value of certain manufacturing equipment to its estimated fair value. This equipment is no longer in service and is to be disposed of.

- Amortization expense, as adjusted to eliminate goodwill-related amortization from 2001, increased from $1.0 million to $2.2 million. This increase is directly related to the business acquisitions that were completed in 2001 and 2002. Among the assets acquired were intangible assets other than goodwill that are being amortized over periods ranging from five to eight years.

OUTLOOK: While it remains difficult to project the timing of economic recovery, we believe Industrial Controls' net sales will decrease in 2003 as compared to 2002, with growing volume in the second half of the year. Despite this decrease, we believe the actions we have taken to reduce our costs and increase productivity, along with a more favorable sales mix, should result in improved Industrial Controls segment earnings in 2003.

2001 Compared to 2000

External net sales of Industrial Controls increased 16% in 2001 over 2000. Increases in sales volumes more than offset the impact of the sale of our turbine control retrofit business and negative foreign currency translation effects.

- Strong demand for turbine and engine control products throughout the world, as well as new product introductions and market share gains, accounted for most of our volume increase. We benefited from continued strength in key end-markets, particularly power generation. Prices averaged about 1% higher.

- Businesses acquired in November 2000 and June 2001 accounted for approximately $9 million of our volume increase.

- The sale of our turbine control retrofit business four months prior to our fiscal year-end in 2000 reduced our sales by an undetermined amount. We believe this business had annual sales approaching $50 million.

- The strengthening of the dollar against most foreign currencies reduced our sales by 3%.

Several key actions in 2001 broadened the functionality and scope of our integrated energy control systems.

- We acquired the Bryce diesel fuel injection business of Delphi Automotive Systems, which extended and complemented our existing products for the important medium-speed diesel market.

- We acquired Hoeflich Controls, Inc. and entered into a licensing agreement with Adrenaline Research to add to our ignition systems technology for gas engines.

- We formed an alliance with Leonhard-Reglerbau for networked system solutions targeting distributed power and centrally generated power applications, ranging from a few kilowatts to 300 megawatts.

- We formed an alliance with Edward King AG of Switzerland, to design, develop, supply, and service integrated fuel skids for gas turbines.

Industrial Controls' segment earnings, as adjusted to eliminate goodwill-related amortization, increased 39% in 2001 from 2000. In 2000, expenses of approximately $4.2 million that we associate with the decision to sell our turbine control retrofit business reduced segment earnings. These expenses primarily involved the relocation of certain ongoing business activities. Without these expenses, our segment earnings would have been $47.2 million in 2000, and our increase in 2001 over 2000 would have been 26%. This earnings increase was the result of higher sales and improved segment earnings margins.

- Exclusive of the impact of the sale of our turbine control retrofit business, our selling, general, and administrative expenses are relatively independent of changes in sales volumes.

- The sale of our turbine control retrofit business four months prior to our fiscal year-end in 2000 impacted our segment earnings margin by an undetermined amount. While the retrofit business generated higher gross margins than our remaining business, it also incurred more selling, general, and administrative expenses as a percent of sales.

Aircraft Engine Systems

IN THOUSANDS FOR THE YEAR
ENDED SEPTEMBER 30,               2002          2001          2000
---------------------------------------------------------------------
External net sales             $  271,326    $  294,646    $  266,423
Adjusted segment earnings          57,226        56,172        40,662
=====================================================================

2002 Compared to 2001 and Outlook

External net sales of Aircraft Engine Systems decreased 8% in 2002 from 2001. The decrease in sales is attributed to the effects of reduced commercial airline traffic since September 2001 on both OEM and aftermarket sales, although demand for our aftermarket services has been better than we expected. Also, increased military sales have partially offset sales declines in our commercial markets. While most of our sales are to OEMs, we estimate that about 36% of our sales resulted from the aftermarket in 2002 compared to 39% in 2001. The impact of changes in selling prices and changes in foreign currency exchange rates was insignificant.

Aircraft Engine Systems' segment earnings, as adjusted to eliminate goodwill-related amortization, increased 2% in 2002 over 2001. This earnings increase was the result of improved segment earnings margins.

- Aggressive productivity enhancements and cost-control measures were initiated in our first quarter in response to decreased sales volumes, benefiting both cost of goods sold and selling, general, and administrative expenses.

- Reductions in our workforce in 2002, resulting in total expense of $4.0 million, were made to align staffing levels with expected demand. These reductions occurred predominantly in the first quarter.

- Expenses for accounts receivable collection losses decreased in 2002. In 2001, we recognized additional expense due to increased uncertainty about receivable collections following the September 2001 terrorist attacks. While we are continuing to maintain allowances for losses higher than we would have immediately preceding those events, our allowances at September 30, 2002, are below those of September 30, 2001.

OUTLOOK: With continued weakness in commercial markets due to reduced airline traffic, we believe Aircraft Engine Systems' net sales will remain at volumes that are relatively consistent with the second half of 2002, resulting in a full-year decrease in 2003 as compared to 2002. Proportionately, Aircraft Engine Systems' segment earnings are likely to decrease slightly more than sales due to a less favorable sales mix. However, we are continuing to pursue greater efficiencies and productivity improvements to minimize the impact on margins.

2001 Compared to 2000

External net sales of Aircraft Engine Systems increased 11% in 2001 over 2000. In addition to solid orders for products used in regional and narrow-body commercial jets, sales growth was driven by increased demand for some OEM products, aeroderivative engine nozzles and controls for power generation applications, military spare parts, and commercial aftermarket sales. While most of our sales are to OEMs, we estimate that about 39% of our sales resulted from the aftermarket in 2001 compared to 42% in 2000. The impact of changes in selling prices and changes in foreign currency exchange rates was insignificant.

Aircraft Engine Systems' segment earnings, as adjusted to eliminate goodwill-related amortization, increased 38% in 2001 over 2000. In 2000, segment earnings were impacted by expenses totaling $5.1 million associated with a workforce management program to align staffing levels with expected demand. Without these expenses, adjusted segment earnings would have been $45.8 million in 2000, and our increase in 2001 over 2000 would have been 23%. This earnings increase was the result of higher sales and improved segment earnings margins.

- Cost of goods sold was relatively high in the first half of 2000. Near the end of the second quarter, we implemented our workforce management program to align staffing levels with expected demand. Our cost of goods sold in 2001, as a percent of sales, was relatively close to the comparable percent in the last half of 2000.

- Selling, general, and administrative activities are relatively independent of changes in sales volumes and did not increase proportionally with sales.

- Partially offsetting the items above, in 2001, we recognized additional expense due to increased uncertainty about receivable collections following the September 2001 terrorist attacks, and we had higher losses on disposals of equipment. In 2000, we reduced certain acquisition-related accruals and recognized insurance proceeds that settled certain matters from previous years as a reduction in expense.

Nonsegment Expenses and Gain

IN THOUSANDS FOR THE YEAR
ENDED SEPTEMBER 30,             2002           2001           2000
----------------------------------------------------------------------
Interest expense             $    5,109     $    7,554     $   10,897
Interest income                    (635)          (967)          (770)
Corporate expenses               15,366         18,753         20,689
Gain on sale of business             --             --        (25,500)
======================================================================

2002 Compared to 2001

Interest expense decreased in 2002 from 2001 primarily because average interest rates were lower in 2002 as compared to 2001. Our average outstanding debt was also lower.

Corporate expenses decreased in 2002 from 2001 primarily because of reductions in variable compensation expense, due to a decline in overall financial performance of the company.

2001 Compared to 2000

Interest expense decreased in 2001 from 2000 primarily because we had lower levels of average outstanding debt in 2001 as compared to 2000. Average interest rates were also lower.

Corporate expenses were 3% of consolidated net sales in both 2001 and 2000.

The gain on the sale of business in 2000 relates to a sale on May 31, 2000, of certain assets associated with our turbine control retrofit business for cash, with the buyer assuming certain liabilities. The resulting gain was reported separately in the statements of consolidated earnings.

The net sales and earnings of the turbine control retrofit business were included as part of Industrial Controls and could not be separately identified. However, we believe annual sales of this business were approaching $50 million at the time of the sale.

Consolidated Earnings

IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS, FOR THE YEAR
ENDED SEPTEMBER 30,                          2002           2001          2000
---------------------------------------------------------------------------------
Adjusted earnings before
  income taxes and cumulative
  effect of accounting change             $   70,680     $   90,433    $   78,329
Adjusted income taxes                         25,510         34,490        28,693
---------------------------------------------------------------------------------
Adjusted earnings before
  cumulative effect of
  accounting change                           45,170         55,943        49,636
Cumulative effect of
  accounting change,
  net of income taxes                         (2,489)            --            --
---------------------------------------------------------------------------------
Adjusted net earnings                     $   42,681     $   55,943    $   49,636
=================================================================================
Basic earnings per share amounts:
  Adjusted earnings before
   cumulative effect of
   accounting change                      $     3.99     $     4.94    $     4.41
  Adjusted net earnings                         3.77           4.94          4.41
=================================================================================
Diluted earnings per share amounts:
  Adjusted earnings before
   cumulative effect of
   accounting change                      $     3.90     $     4.84    $     4.39
  Adjusted net earnings                         3.69           4.84          4.39
=================================================================================

2002 Compared to 2001 and Outlook

Earnings before the cumulative effect of accounting change and net earnings, as adjusted to eliminate goodwill-related amortization and associated income taxes, decreased in 2002 from 2001. Income taxes were provided at an effective rate on adjusted earnings before income taxes of 36.1% in 2002 compared to 38.1% in 2001. The most significant reason for the lower rate in 2002 was related to a transfer of our interest in a joint venture, which allowed us to reduce valuation allowances provided on deferred tax assets associated with a capital loss carryback.

The cumulative effect of accounting change is related to our October 1, 2001, adoption of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." We completed the transitional goodwill impairment reviews required by the new standard and determined that one of our Industrial Controls' reporting units had a goodwill carrying value that exceeded its estimated implied fair value. The cumulative effect of accounting change reflects the write-down of the goodwill, net of income taxes, to its implied fair value. In performing our impairment reviews, we estimated the fair value 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.

OUTLOOK: We believe our sales volume will begin to recover from the relatively low level we experienced in our fourth quarter 2002, but we expect consolidated net sales for the full year will be lower in 2003 as compared to 2002. Benefits from actions taken in late 2002 to reduce costs, as well as continued productivity gains and an improved sales mix, should improve margins. As a result, we believe that consolidated earnings in 2003 will approximate earnings of 2002, as measured before the cumulative effect of the accounting change made in 2002.

2001 Compared to 2000

Earnings before the cumulative effect of accounting change and net earnings, as adjusted to eliminate goodwill-related amortization and associated income taxes, increased in 2001 over 2000. Income taxes were provided at an effective rate on adjusted earnings before income taxes of 38.1% in 2001 compared to 36.6% in 2000. The most significant reason for the lower rate in 2000 was related to the sale of our turbine control retrofit business, which allowed us to use capital loss carryforwards for which we previously provided valuation allowances. The spread between basic and diluted earnings per share increased in 2001 as compared to 2000, primarily because of increases in the price for our common stock during 2001.

Results for 2000 included a gain on sale of the turbine control retrofit business, net of tax, of $17.1 million or $1.52 per basic share and $1.51 per diluted share. Without this gain, adjusted net earnings would have been $32.6 million or $2.89 per basic share and $2.88 per diluted share for 2000. Our results in 2000 also included costs to streamline operations after the sale, costs associated with reductions in our workforce, and certain other costs not indicative of normal operations which totaled, net of tax, $6.7 million or $0.60 per basic share and $0.59 per diluted share.

Financial Condition

Our discussion and analysis of financial condition is presented by segment for assets. We also separately discuss and analyze other balance sheet measures and cash flows. Together, this discussion and analysis will help you assess our liquidity and capital resources, as well as understand changes in our financial condition.

Assets

IN THOUSANDS AT SEPTEMBER 30,       2002          2001          2000
-----------------------------------------------------------------------
Segment assets:
  Industrial Controls            $  286,302    $  283,072    $  214,935
  Aircraft Engine Systems           219,480       241,002       260,712
Nonsegment assets                    76,613        60,554        58,076
-----------------------------------------------------------------------
Total assets                     $  582,395    $  584,628    $  533,723
=======================================================================

2002 Compared to 2001

Industrial Controls' segment assets at September 30, 2002, were near last year's levels. Increases in goodwill and other intangibles, attributable to business acquisitions, were largely offset by reductions in accounts receivable. The reductions in accounts receivable were primarily related to changes in the level of sales activity immediately prior to the end of the year. Industrial Controls' sales were 11% lower in the fourth quarter 2002 than in the fourth quarter 2001.

Aircraft Engine Systems' segment assets at September 30, 2002, were 9% lower than a year earlier. Reductions in accounts receivable and inventories, both attributable to changes in the level of business activity, account for most of the decrease. Aircraft Engine Systems' sales were 16% lower in the fourth quarter 2002 than in the fourth quarter 2001.

Nonsegment assets at September 30, 2002, increased over the prior year primarily because of higher cash balances.

2001 Compared to 2000

Industrial Controls' segment assets at September 30, 2001, were 32% higher than a year earlier. Business acquisitions accounted for about half of the increase. The remaining increase resulted from changes in accounts receivable, inventories, and property, plant, and equipment associated with the level of business activity. Industrial Controls' sales were 23% higher in the fourth quarter 2001 than in the fourth quarter 2000 and we anticipated higher sales volumes in following quarters. Goodwill and other intangibles decreased by the amount of amortization for the year.

Aircraft Engine Systems' segment assets at September 30, 2001, were 8% lower than a year earlier. This decrease primarily resulted from negotiating accelerated pay agreements with several of our customers and better collection experience generally, reducing accounts receivable. Also affecting receivables, Aircraft Engine Systems' sales were 3% lower in the fourth quarter 2001 than in the fourth quarter 2000 and we increased our allowance for losses by $1.5 million following the terrorist attacks in September 2001. Other contributing factors to the decrease in segment assets are that goodwill and other intangibles decreased by the amount of amortization for the year and capital expenditures were below depreciation levels. Increases in inventories made in anticipation of first quarter 2002 sales partially offset these decreases.

Other Balance Sheet Measures

IN THOUSANDS AT SEPTEMBER 30,         2002          2001          2000
-------------------------------------------------------------------------
Working capital                    $  152,312    $  123,744    $  100,836
Long-term debt, less
  current portion                      78,192        77,000        74,500
Other liabilities                      52,928        51,042        50,142
Commitments and contingencies              --            --            --
Shareholders' equity                  354,901       318,862       275,624
=========================================================================

2002 Compared to 2001

Working capital (current assets less current liabilities) at September 30, 2002, increased over the prior year primarily as a result of financing activities that provided $75 million of new long-term debt in 2002, none of which is current. Principal of this new debt is payable in seven equal annual installments beginning in 2006. As a result, our cash and cash equivalents exceeded our current debt by $11.6 million at September 30, 2002, whereas last year our current debt exceeded our cash and cash equivalents by $17.5 million.

At September 30, 2002, required future principal payments of long-term debt and commitments under operating leases were as follows:

IN THOUSANDS FOR THE YEAR(S)                     2004/         2006/
ENDING SEPTEMBER 30,               2003          2005          2007       Thereafter
------------------------------------------------------------------------------------
Long-term debt                  $    2,000    $       --    $   21,428    $   53,572
Operating leases                     3,235         4,037         2,721         2,348
====================================================================================

We currently have a revolving line of credit facility with a syndicate of U.S. banks totaling $150 million that expires on June 15, 2003. In addition, we have other lines of credit facilities, which totaled $56.4 million at September 30, 2002, 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 and a maximum consolidated debt to consolidated operating cash flow, as defined in the agreements. At September 30, 2002, we had the ability to pay dividends and purchase the company's common stock up to $109.2 million.

We are currently involved in matters of litigation arising from the normal course of business, including certain environmental and product liability matters. Further discussion of these matters is in Note Q in the notes to consolidated financial statements.

Shareholders' equity increased 11%, resulting primarily from 2002 net earnings in excess of cash dividend payments.

2001 Compared to 2000

Increases in working capital were most significantly attributed to increases in Industrial Controls' inventories in anticipation of higher sales volumes in upcoming quarters and to reductions in short-term borrowings made possible by the excess of operating cash flows over our investing cash flows. Shareholders' equity increased 16%, resulting primarily from 2001 net earnings in excess of cash dividend payments.

Cash Flows

IN THOUSANDS FOR THE YEAR
ENDED SEPTEMBER 30,                    2002           2001           2000
-----------------------------------------------------------------------------
Net cash provided by
  operating activities              $   91,394     $   87,293     $   55,717
Net cash provided by (used in)
  investing activities                 (48,211)       (61,699)        15,736
Net cash used in
  financing activities                 (24,514)       (23,521)       (71,299)
=============================================================================

2002 Compared to 2001 and Outlook

Net cash flows provided by operations increased by 5% in 2002 over 2001. This improvement is predominantly due to relative changes in cash flows associated with accounts receivable and inventories, which more than offset relative changes in cash flows associated with income tax payments and other accruals. While net earnings for 2002 were lower than 2001, the 2002 measure included additional non-cash charges for the cumulative effect of an accounting change and an equipment impairment loss, reducing the cash flow impact of the decline.

Net cash flows used for investing activities decreased by $13.5 million in 2002 as compared to 2001. This change primarily resulted from business acquisition and divestiture activities of Industrial Controls. We made payments associated with Industrial Controls' acquisitions and divestitures totaling $25.8 million in 2002 compared to $35.2 million in 2001. We also reduced Aircraft Engine Systems' capital expenditures by $2.7 million.

Net cash flows used in financing activities were approximately the same in 2002 as in 2001. As previously indicated, we received proceeds from long-term debt totaling $75 million in 2002, which we principally used to repay debt that was due in 2002 and 2003. Under the terms of the new senior notes, the new debt is payable in seven equal annual installments beginning in 2006.

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. Our financing activities in 2002 have enhanced our liquidity for several years by delaying principal payment requirements for $60 million of debt from the 2002-2003 timeframe to the 2006-2012 timeframe, and by adding an additional $15 million of debt to the extended timeframe. We also expect to replace the current $150 million revolving line of credit facility, none of which was outstanding at September 30, 2002, with a new facility prior to its expiration on June 15, 2003. 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.

2001 Compared to 2000

Net cash flows provided by operations increased by 58% in 2001 over 2000. This improvement is predominantly due to increased net earnings, exclusive of the pretax gain from the sale of our turbine control retrofit business in 2000. For purposes of preparing the statement of consolidated cash flows, the proceeds from the sale of the retrofit business were not considered an operating activity, but the associated income tax payments were.

Net cash flows for investing activities changed by $77.4 million in 2001 as compared to 2000. This change resulted from Industrial Controls' business acquisition and divestiture

activities. In 2001, we made payments associated with two acquisitions totaling $31.2 million and made payments associated with the prior year's sale of our turbine control retrofit business of $4.0 million. In 2000, we received proceeds from the sale of our retrofit business of $41.7 million.

Net cash flows used in financing activities decreased by $47.8 million in 2001 from 2000. This decrease is primarily associated with lower levels of debt reductions due to two business acquisitions, despite higher levels of operating cash flows. In 2000, we also used proceeds received from the sale of the turbine control retrofit business to reduce debt.

Other Matters

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. Our most critical accounting policies are related to our accounting for goodwill, other long-lived assets, deferred tax asset valuation allowances, and retirement healthcare benefits.

We test goodwill for impairment on an annual basis and more often if circumstances require. Estimates and assumptions, the most important of which are used to estimate the fair value of reporting units within the company, impact our test results. To estimate the fair value of reporting units, we estimate future cash flows, discount rates, and transaction multiples that we believe a marketplace participant would use in an arm's length transaction.

We test other long-lived assets, including property, plant, and equipment and other intangibles, for recoverability whenever events or changes in circumstances indicate that the carrying values may not be recoverable. The carrying value of a long-lived asset is reduced to its fair value whenever estimates of future cash flows are insufficient to indicate the carrying value is recoverable. To account for long-lived assets, we form judgments as to whether recoverability should be assessed, we estimate future cash flows, and we estimate fair value. Fair value estimates are most often based on estimated future cash flows and assumed discount rates.

We establish valuation allowances to reflect the estimated amount of deferred tax assets that might not be realized. Our current valuation allowances are generally for deferred tax assets associated with state and foreign net operating loss carryforward limitations. We consider both positive and negative evidence in forming our judgment as to whether a valuation allowance is appropriate.

We recognize the cost of retirement healthcare benefits over employee service periods using an actuarial-based attribution approach. To determine our net periodic benefit cost and net accrued benefit, we form judgments about the best estimate for each assumption used in the actuarial computation. The two most important assumptions that impact the computation are the healthcare cost trend rate and the discount rate.

Our judgments, estimates, and assumptions for goodwill, other long-lived assets, deferred tax asset valuation allowances, and retirement healthcare benefits are impacted by conditions that change over time. As a result, in the future we could incur impairment charges, changes to our deferred tax asset valuation allowances, or changes in our retirement healthcare benefit costs and accruals that are material to our financial condition and results of operations.

Market Risks

Our long-term debt and interest rate swap agreements are sensitive to changes in interest rates. We monitor trends in interest rates as a basis for determining whether to enter into fixed rate or variable rate debt agreements, the duration of such agreements, and whether to use hedging strategies. Our primary objective is to minimize our long-term costs of borrowing. At September 30, 2002, all long-term debt was denominated in United States dollars and consisted of fixed rate agreements. However, to effectively offset our exposure to

changes in the fair value of a portion of our long-term debt, we have entered into interest rate swap agreements. Under these agreements, we are swapping fixed rate interest payments for interest payments at rates that vary with LIBOR. As measured at September 30, 2002, a hypothetical 1% immediate increase in interest rates would adversely affect our 2003 net earnings and cash flows by approximately $0.3 million and reduce the combined fair value of our long-term debt and interest rate swap agreements by approximately $4.2 million. Last year, a hypothetical 1% immediate increase in interest rates would have adversely affected our 2002 net earnings and cash flows by approximately $0.4 million and reduced the fair value of our long-term debt by approximately $0.5 million.

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. We monitor trends in foreign currency exchange rates and our exposure to changes in those rates as a basis for determining whether to use hedging strategies. Our primary exposures are to the European Monetary Union euro and the Japanese yen. We do not have any derivative instruments associated with foreign currency exchange rates. A hypothetical 10% immediate increase in the value of the United States dollar relative to all other currencies, when applied to September 30, 2002, balances, would adversely affect our expected 2003 net earnings and cash flows by approximately $1.1 million. Last year, a hypothetical 10% immediate increase in the value of the United States dollar relative to all other currencies would have adversely affected our expected 2002 net earnings and cash flows by $1.9 million.

Recent Accounting Pronouncements

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 acquisitions 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 began applying the provisions of Statement No. 142 and the transition provisions of Statement No. 141 on October 1, 2001. Had we not elected early adoption of these standards at that date, we would have been required to adopt these standards on October 1, 2002. Adoption of these new accounting standards had the following effects on our consolidated financial statements:

- We recognized an increase in goodwill and a decrease in other intangibles of $4.4 million on October 1, 2001. This reclassification resulted from the transition provisions of Statement No. 141, which, among its other provisions, prohibited the recognition of an assembled workforce as an intangible asset apart from goodwill.

- Based on goodwill existing at October 1, 2001, amortization expense decreased by $4.9 million in 2002, which increased net earnings in 2002 by approximately $3.1 million. Upon adoption, Statement No. 142 prohibits amortization of goodwill.

- We recognized a cumulative effect of an accounting change, which reduced 2002 net earnings by $2.5 million. This item resulted from a goodwill impairment charge, net of income taxes, for an Industrial Controls reporting unit.

- Disclosures are made in the consolidated financial statements that adjust certain amounts reported in prior periods to eliminate goodwill-related amortization and associated income taxes. Had the new accounting standards for goodwill and other intangibles been adopted at the beginning of 2000, net earnings would have been $2.9 million higher in 2001 and $2.7 million higher in 2000.

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which established a single accounting model to be used to account for the impairment of long-lived assets to be disposed of by sale and which broadened the presentation of discontinued operations to include more disposal transactions. The standard also resolved various implementation issues related to Statement No. 121, which it superseded. We began applying the provisions of Statement No. 144 in 2002, and it had no impact on our financial statements. Had we not elected early adoption, we would have been required to adopt the standard at the beginning of 2003.

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal

Activities." Under this new standard, a liability for a cost associated with an exit or disposal activity is to be recognized at its fair value when the liability is incurred. We began applying the provisions of Statement No. 146 in 2002, and it had no material impact on our financial statements. Had we not elected early adoption, we would have been required to adopt the standard for exit or disposal activities initiated after December 31, 2002.

Statements of Consolidated Earnings
Woodward Governor Company and Subsidiaries

                                                                           Year Ended September 30,
----------------------------------------------------------------------------------------------------------
(In thousands except per share amounts)                               2002           2001           2000
----------------------------------------------------------------------------------------------------------
Net sales                                                          $  679,991     $  678,791     $  597,385
-----------------------------------------------------------------------------------------------------------
Costs and expenses:
     Cost of goods sold                                               539,130        511,027        453,538
     Selling, general, and administrative expenses                     58,765         67,437         77,463
     Amortization of intangible assets                                  3,748          7,055          6,418
     Interest expense                                                   5,109          7,554         10,897
     Interest income                                                     (635)          (967)          (770)
     Other expense--net                                                 3,194            730          1,247
Gain on sale of business                                                   --             --        (25,500)
-----------------------------------------------------------------------------------------------------------
      Total costs and expenses, net of gain                           609,311        592,836        523,293
-----------------------------------------------------------------------------------------------------------

Earnings before income taxes and
     cumulative effect of accounting change                            70,680         85,955         74,092
Income taxes                                                           25,510         32,887         27,116
-----------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of accounting change                 45,170         53,068         46,976
Cumulative effect of accounting change, net of income taxes            (2,489)            --             --
-----------------------------------------------------------------------------------------------------------
Net earnings                                                       $   42,681     $   53,068     $   46,976
===========================================================================================================
Reconciliation of reported to adjusted earnings:

Reported earnings before cumulative effect of accounting change    $   45,170     $   53,068     $   46,976
Goodwill-related amortization, net of income taxes                         --          2,875          2,660
-----------------------------------------------------------------------------------------------------------
Adjusted earnings before cumulative effect of accounting change    $   45,170     $   55,943     $   49,636
===========================================================================================================
Reported net earnings                                              $   42,681     $   53,068     $   46,976
Goodwill-related amortization, net of income taxes                         --          2,875          2,660
-----------------------------------------------------------------------------------------------------------
Adjusted net earnings                                              $   42,681     $   55,943     $   49,636
===========================================================================================================
                                                                           Year Ended September 30,
-----------------------------------------------------------------------------------------------------------
(In thousands except per share amounts)                               2002           2001           2000
-----------------------------------------------------------------------------------------------------------
BASIC PER SHARE AMOUNTS:
Reported earnings before cumulative effect of accounting change    $     3.99     $     4.69     $     4.17

Goodwill-related amortization, net of income taxes                         --            .25            .24
-----------------------------------------------------------------------------------------------------------
Adjusted earnings before cumulative effect of accounting change    $     3.99     $     4.94     $     4.41
===========================================================================================================
Reported earnings before cumulative effect of accounting change    $     3.99     $     4.69     $     4.17
Cumulative effect of accounting change, net of income taxes              (.22)            --             --
-----------------------------------------------------------------------------------------------------------
Reported net earnings                                                    3.77           4.69           4.17
Goodwill-related amortization, net of income taxes                         --            .25            .24
-----------------------------------------------------------------------------------------------------------
Adjusted net earnings                                              $     3.77     $     4.94     $     4.41
===========================================================================================================
DILUTED PER SHARE AMOUNTS:

Reported earnings before cumulative effect of accounting change    $     3.90     $     4.59     $     4.15
Goodwill-related amortization, net of income taxes                         --            .25            .24
-----------------------------------------------------------------------------------------------------------
Adjusted earnings before cumulative effect of accounting change    $     3.90     $     4.84     $     4.39
===========================================================================================================

Reported earnings before cumulative effect of accounting change    $     3.90     $     4.59     $     4.15
Cumulative effect of accounting change, net of income taxes              (.21)            --             --
-----------------------------------------------------------------------------------------------------------
Reported net earnings                                                    3.69           4.59           4.15
Goodwill-related amortization, net of income taxes                         --            .25            .24
-----------------------------------------------------------------------------------------------------------
Adjusted net earnings                                              $     3.69     $     4.84     $     4.39
===========================================================================================================
Weighted-average number of basic shares outstanding                    11,325         11,318         11,263
Weighted-average number of diluted shares outstanding                  11,577         11,561         11,318

See accompanying Notes to Consolidated Financial Statements.

Consolidated Balance Sheets
Woodward Governor Company and Subsidiaries

                                                                        At September 30,
---------------------------------------------------------------------------------------------
(In thousands except per share amounts)                                2002           2001
---------------------------------------------------------------------------------------------
Assets
    Current assets:
        Cash and cash equivalents                                   $   29,828     $   10,542
        Accounts receivable, less allowance for losses
             of $2,717 for 2002 and $4,720 for 2001                     76,406        102,008
        Inventories                                                    127,112        131,160
        Deferred income taxes                                           15,340         17,758
---------------------------------------------------------------------------------------------
             Total current assets                                      248,686        261,468
---------------------------------------------------------------------------------------------

    Property, plant, and equipment, at cost:
        Land                                                             8,046          7,966
        Buildings and improvements                                     136,771        131,761
        Machinery and equipment                                        242,487        242,266
        Construction in progress                                         3,312          4,762
---------------------------------------------------------------------------------------------
                                                                       390,616        386,755
        Less accumulated depreciation                                  266,994        256,179
---------------------------------------------------------------------------------------------
    Property, plant, and equipment--net                                123,622        130,576
    Goodwill                                                           115,265         95,704
    Other intangibles--net                                              66,762         69,131
    Other assets                                                        10,175         11,571
    Deferred income taxes                                               17,885         16,178
---------------------------------------------------------------------------------------------
TOTAL ASSETS                                                        $  582,395     $  584,628
=============================================================================================

Liabilities and shareholders' equity

    Current liabilities:
        Short-term borrowings                                       $   16,185     $    5,561
        Current portion of long-term debt                                2,000         22,500
        Accounts payable and accrued expenses                           74,995         91,180
        Income taxes payable                                             3,194         18,483
---------------------------------------------------------------------------------------------
             Total current liabilities                                  96,374        137,724
---------------------------------------------------------------------------------------------
    Long-term debt, less current portion                                78,192         77,000
    Other liabilities                                                   52,928         51,042
    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                                      13,542         13,440
        Unearned ESOP compensation                                      (1,418)        (3,297)

        Accumulated other comprehensive earnings                         2,823          1,046
        Retained earnings                                              359,556        327,276
---------------------------------------------------------------------------------------------
                                                                       374,609        338,571
        Less treasury stock, at cost                                    19,708         19,709
---------------------------------------------------------------------------------------------
             Total shareholders' equity                                354,901        318,862
---------------------------------------------------------------------------------------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $  582,395     $  584,628
=============================================================================================

See accompanying Notes to Consolidated Financial Statements.

Statements of Consolidated Shareholders' Equity Woodward Governor Company and Subsidiaries

                                                                             Additional        Unearned       Accumulated Other
                                                                 Common       Paid-in            ESOP            Comprehensive
(In thousands except per share amounts)                           Stock       Capital        Compensation          Earnings
--------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999                                    $   106      $ 13,300         $ (7,450)            $    9,351
  Net earnings                                                        --            --               --                     --
  Other comprehensive earnings--
   Foreign currency translation adjustments                           --            --               --                 (6,306)
------------------------------------------------------------------------------------------------------------------------------
  Total comprehensive earnings
  Purchases of treasury stock                                         --            --               --                     --
  Sales of treasury stock                                             --           (12)              --                     --
  Issuance of stock to ESOP                                           --             7               --                     --
  ESOP compensation expense                                           --            --            2,142                     --
  Cash dividends--$.93 per common share                               --            --               --                     --
  Tax benefit applicable to ESOP dividend and stock options           --            --               --                     --
------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000                                        106        13,295           (5,308)                 3,045
  Net earnings                                                        --            --               --                     --
  Other comprehensive earnings:
   Foreign currency translation adjustments,
        net of reclassification to earnings                           --            --               --                   (625)
   Unrealized losses on derivatives                                   --            --               --                 (1,374)
------------------------------------------------------------------------------------------------------------------------------
  Total comprehensive earnings
  Sales of treasury stock                                             --           145               --                     --
  ESOP compensation expense                                           --            --            2,011                     --
  Cash dividends--$.93 per common share                               --            --               --                     --
  Tax benefit applicable to ESOP dividend and stock options           --            --               --                     --
------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2001                                        106        13,440           (3,297)                 1,046
  Net earnings                                                        --            --               --                     --
  Other comprehensive earnings:
   Foreign currency translation adjustments                           --            --               --                  2,823
   Reclassification of unrealized losses on
        derivatives to earnings                                       --            --               --                    154
   Minimum pension liability adjustment                               --            --               --                 (1,200)
------------------------------------------------------------------------------------------------------------------------------
  Total comprehensive earnings
  Purchases of treasury stock                                         --            --               --                     --
  Sales of treasury stock                                             --           102               --                     --
  ESOP compensation expense                                           --            --            1,879                     --
  Cash dividends--$.93 per common share                               --            --               --                     --
  Cash dividend paid by subsidiary to minority shareholder            --            --               --                     --
  Tax benefit applicable to ESOP dividend and stock options           --            --               --                     --
------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2002                                    $   106    $     13,542     $     (1,418)    $          2,823
==============================================================================================================================

                                                                  Retained                                  Total
(In thousands except per share amounts)                           Earnings       Shares        Amount       Amount
-------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999                                   $ 247,420           890     $ (20,735)    $ 241,992
  Net earnings                                                     46,976            --            --        46,976
  Other comprehensive earnings--
   Foreign currency translation adjustments                            --            --            --        (6,306)
-------------------------------------------------------------------------------------------------------------------
  Total comprehensive earnings                                                                               40,670
  Purchases of treasury stock                                          --            64        (1,762)       (1,762)
  Sales of treasury stock                                              --          (101)        2,423         2,411
  Issuance of stock to ESOP                                            --            (5)          129           136
  ESOP compensation expense                                            --            --            --         2,142
  Cash dividends--$.93 per common share                           (10,472)           --            --       (10,472)
  Tax benefit applicable to ESOP dividend and stock options           507            --            --           507
-------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000                                     284,431           848       (19,945)      275,624
  Net earnings                                                     53,068            --            --        53,068
  Other comprehensive earnings:
   Foreign currency translation adjustments,
        net of reclassification to earnings                            --            --            --          (625)
   Unrealized losses on derivatives                                    --            --            --        (1,374)
-------------------------------------------------------------------------------------------------------------------
  Total comprehensive earnings                                                                               51,069
  Sales of treasury stock                                              --           (10)          236           381
  ESOP compensation expense                                            --            --            --         2,011
  Cash dividends--$.93 per common share                           (10,526)           --            --       (10,526)
  Tax benefit applicable to ESOP dividend and stock options           303            --            --           303
-------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2001                                     327,276           838       (19,709)      318,862
  Net earnings                                                     42,681            --            --        42,681
  Other comprehensive earnings:
   Foreign currency translation adjustments                            --            --            --         2,823
   Reclassification of unrealized losses on
        derivatives to earnings                                        --            --            --           154
   Minimum pension liability adjustment                                --            --            --        (1,200)
-------------------------------------------------------------------------------------------------------------------
  Total comprehensive earnings                                                                               44,458
  Purchases of treasury stock                                          --             4          (286)         (286)
  Sales of treasury stock                                              --           (10)          287           389
  ESOP compensation expense                                            --            --            --         1,879
  Cash dividends--$.93 per common share                            (10,533)           --            --      (10,533)
  Cash dividend paid by subsidiary to minority shareholder            (198)           --            --         (198)
  Tax benefit applicable to ESOP dividend and stock options            330            --            --          330

--------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2002                                    $ 359,556           832     $ (19,708)   $ 354,901
====================================================================================================================

See accompanying Notes to Consolidated Financial Statements.

Statements of Consolidated Cash Flows
Woodward Governor Company and Subsidiaries

                                                                                     Year Ended September 30,
----------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                   2002           2001           2000
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                                                  $   42,681     $   53,068     $   46,976
----------------------------------------------------------------------------------------------------------------------

Adjustments to reconcile net earnings to net cash provided by operating
  activities:
Cumulative effect of accounting change, net of income taxes                        2,489             --             --
Depreciation and amortization                                                     32,088         32,732         30,419
Impairment loss on equipment                                                       3,000             --             --
Net loss on sale of property, plant, and equipment                                   354          1,445            411
ESOP compensation expense                                                          1,879          2,011          2,142
Deferred income taxes                                                              1,243          1,303             (9)
Unrealized losses on derivatives                                                      --         (1,374)            --
Reclassification of unrealized losses on derivatives to earnings                     154             --             --
Equity in loss of unconsolidated affiliate                                            --             --            271
Gain on sale of business                                                              --             --        (25,500)
Changes in operating assets and liabilities,
  net of business acquisitions and sale:
   Accounts receivable                                                            29,287          3,096         (3,997)
   Inventories                                                                     9,028        (25,126)        (3,746)
   Accounts payable and accrued expenses                                         (20,635)        12,219          3,994
   Income taxes payable                                                          (14,563)        10,271          4,305
   Other--net                                                                      4,389         (2,352)           451
----------------------------------------------------------------------------------------------------------------------
     Total adjustments                                                            48,713         34,225          8,741
----------------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                                         91,394         87,293         55,717
----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, plant, and equipment                          (22,898)       (26,903)       (27,416)
Proceeds from sale of property, plant, and equipment                                 439            404          1,700
Proceeds from sale of business--net of direct costs                                   --             --         41,742
Payments associated with sale of business                                             --         (3,985)            --
Investment in unconsolidated affiliate                                                --             --           (290)
Business acquisitions, net of cash acquired                                      (25,752)       (31,215)            --
----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                              (48,211)       (61,699)        15,736
----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid                                                              (10,731)       (10,526)       (10,472)
Proceeds from sales of treasury stock                                                389            381          2,411
Purchases of treasury stock                                                         (286)            --         (1,762)
Net proceeds (payments) from borrowings under revolving lines                    (25,149)         9,124        (39,826)
Proceeds from long-term debt                                                      75,000             --             --
Payments of long-term debt                                                       (63,737)       (22,500)       (21,650)
----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                            (24,514)       (23,521)       (71,299)
----------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                              617           (846)        (1,288)
----------------------------------------------------------------------------------------------------------------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                           19,286          1,227         (1,134)

Cash and cash equivalents, beginning of year                                      10,542          9,315         10,449
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                        $   29,828     $   10,542     $    9,315
======================================================================================================================

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest expense paid                                                         $    2,982     $    8,058     $   11,854
Income taxes paid                                                                 38,140         19,769         22,656

NONCASH INVESTING:
Liabilities assumed in business acquisitions (sale)--net                           5,040            501         (1,430)
======================================================================================================================

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements
(In thousands of dollars except per share amounts)

A. Significant accounting policies:

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the company and its majority-owned subsidiaries. Transactions within and between these companies are eliminated. Results of joint ventures in which the company does not have a controlling financial interest are included in the financial statements using the equity method of accounting.

USE OF ESTIMATES: Financial statements prepared in conformity with accounting principles generally accepted in the United States require the use of estimates and assumptions that affect amounts reported. Actual results could differ materially from our estimates.

FOREIGN CURRENCY TRANSLATION: The assets and liabilities of substantially all subsidiaries outside the United States are translated at year-end rates of exchange, and earnings and cash flow statements are translated at weighted-average rates of exchange. Translation adjustments are accumulated with other comprehensive earnings as a separate component of shareholders' equity and are presented net of tax in the statements of consolidated shareholders' equity.

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.

RESEARCH AND DEVELOPMENT COSTS: Expenditures related to new product development are charged to expense when incurred and totaled approximately $36,700 in 2002, $30,400 in 2001, and $29,100 in 2000.

INCOME TAXES: Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the company's assets and liabilities. We provide for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the United States, except for those earnings that we consider to be permanently reinvested.

CASH EQUIVALENTS: Highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.

INVENTORIES: Inventories are valued at the lower of cost or market, with cost being determined on a first-in, first-out basis.

PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment are recorded at cost and are depreciated over the estimated useful lives of the assets, ranging from 5 to 45 years for buildings and improvements and 3 to 15 years for machinery and equipment. Assets placed in service after September 30, 1998, are depreciated using the straight-line method and assets placed in service as of and prior to September 30, 1998, are depreciated principally using accelerated methods. Assets are tested for recoverability whenever events or circumstances occur that indicate the carrying value is not recoverable.

GOODWILL: Goodwill represents the excess of the cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is tested for impairment on an annual basis and more often if circumstances require. 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 not amortized.

OTHER INTANGIBLES: Other intangibles are recognized apart from goodwill whenever an acquired intangible 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. 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.

DERIVATIVES: We recognize derivatives, which are used to hedge risks associated with interest rates, as assets or liabilities at fair value. These derivatives are designated as hedges of our exposure to changes in the fair value of long-term debt or as hedges of our exposure to variable cash flows of future interest payments. The gain or loss in the value of a derivative designated as a fair value hedge is recognized in earnings in the period of change together with an offsetting loss or gain on long-term debt. The effective portion of a

gain or loss in the value of a derivative designated as a cash flow hedge is initially reported as a component of other comprehensive earnings and is subsequently reclassified into earnings when the future interest payments affect earnings. The ineffective portion of the gain or loss in the value of a derivative designated as a cash flow hedge is reported in earnings immediately.

RECLASSIFICATIONS: Certain reclassifications were made to the 2000 and 2001 financial statements to conform to the 2002 presentation.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE: We adopted Statement No. 142, "Goodwill and Other Intangible Assets," and the transition provisions of Statement No. 141, "Business Combinations," on October 1, 2001. 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 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 resulting loss, which was related to an Industrial Controls' reporting unit, was incurred to reduce goodwill to its implied fair value.

Adoption of these new standards also resulted in the reclassification of $4,426 from other intangibles to goodwill on October 1, 2001. This amount was related to an assembled workforce. Based on goodwill that existed at September 30, 2001, these new standards reduced amortization expense in 2002 by approximately $4,900.

NEW ACCOUNTING STANDARDS: In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which established a single accounting model to be used to account for the impairment of long-lived assets to be disposed of by sale and which broadened the presentation of discontinued operations to include more disposal transactions. The standard also resolved various implementation issues related to Statement No. 121, which it superseded. We began applying the provisions of Statement No. 144 in 2002, and it had no impact on our financial statements. Had we not elected early adoption, we would have been required to adopt the standard at the beginning of 2003.

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Under this new standard, a liability for a cost associated with an exit or disposal activity is to be recognized at its fair value when the liability is incurred. We began applying the provisions of Statement No. 146 in 2002, and it had no material impact on our financial statements. Had we not elected early adoption, we would have been required to adopt the standard for exit or disposal activities initiated after December 31, 2002.

B. Business acquisitions and sale:

In January 2002, we acquired the capital stock of Leonhard-Reglerbau Dr.-Ing. Adolf Leonhard GmbH, and in March 2002, we acquired certain assets and assumed certain liabilities of Nolff's Carburetion, Inc. Leonhard-Reglerbau specializes in the design, manufacture, and sale of control, protection, and monitoring devices for power generation equipment. Nolff's manufactures and sells natural gas and propane fuel systems for small industrial engines. Our cost for these acquisitions totaled $25,313, of which $17,484 was recognized as goodwill, $1,000 was recognized as customer relationships, and $4,227 was recognized as other intangibles, all in the Industrial Controls segment. We are using weighted-average amortization periods of five years for customer relationships, six years for other intangibles, and six years in the aggregate. The amount of goodwill expected to be fully deductible for income tax purposes is $11,391. If we had completed the acquisitions on October 1, 2001, net sales and net earnings for 2002 would not have been materially different from amounts reported in the statements of consolidated earnings.

In November 2000, we acquired the stock of Hoeflich Controls, Inc., a manufacturer of ignition systems, and certain related assets, and in June 2001, we acquired certain assets and assumed certain liabilities of the Bryce diesel fuel injection business of Delphi Automotive Systems. These acquisitions, which cost a total of $31,844, were accounted for using the purchase method of accounting. In 2001, acquired goodwill was amortized based on an amortization period of 15 years. Beginning October 1, 2001, goodwill is no longer amortized. Under terms of the Hoeflich purchase agreement, we could be required to make an additional payment of up to $1,200 in fiscal year 2004, contingent upon attaining certain investment and sales volumes, as defined by the agreement. If we had completed the acquisitions on October 1, 1999, net sales and net earnings for 2001 and 2000 would not have been materially different from amounts reported in the statements of consolidated earnings.

At the time of our acquisition from Delphi, one of our directors was an executive vice president with Delphi Automotive Systems and served as president in a sector other than the one containing diesel fuel injection businesses.

C. Impairment loss on equipment:

In 2002, we reduced the carrying value of certain Industrial Controls manufacturing equipment to its estimated fair value. This equipment is no longer in service and is to be disposed of. The resulting loss, which totaled $3,000, was recognized as other expense in the statement of consolidated earnings. A present value technique involving multiple cash flow scenarios was used to estimate the fair value of the equipment.

D. Income taxes:

Income taxes consisted of the following:

YEAR ENDED SEPTEMBER 30,     2002         2001           2000
----------------------------------------------------------------
Current:
  Federal                 $   16,784   $   23,884     $   17,947
  State                        2,288        3,064          2,202
  Foreign                      5,125        6,603          5,456
Deferred                       1,313         (664)         1,511
----------------------------------------------------------------
                          $   25,510   $   32,887     $   27,116
================================================================

Deferred income taxes presented in the consolidated balance sheets are related to the following:

AT SEPTEMBER 30,                          2002           2001
----------------------------------------------------------------
Deferred tax assets:
  Postretirement and
   early retirement benefits           $   17,933     $   17,853
  Foreign net operating loss
   and state tax credits                   11,943          9,796
  Inventory                                 7,219          6,105
  Other                                    26,899         24,961
  Valuation allowance                     (12,033)       (10,936)
----------------------------------------------------------------
  Total deferred tax assets,
    net of valuation allowance             51,961         47,779
----------------------------------------------------------------

Deferred tax liabilities:
   Intangibles--net                       (11,401)        (8,084)
   Other                                   (7,335)        (5,759)
----------------------------------------------------------------
   Total deferred tax liabilities         (18,736)       (13,843)
----------------------------------------------------------------
Net deferred tax assets                $   33,225     $   33,936
================================================================

We have not provided for taxes on $11,595 of undistributed foreign earnings that we consider permanently reinvested. These earnings could become subject to income taxes if they are remitted as dividends, are loaned to the company, or if we sell our stock in the subsidiaries. However, we believe that foreign tax credits would largely offset any income tax that might otherwise be due.

We recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized primarily due to foreign net operating loss carryforward limitations. Remaining deferred tax assets are expected to be realized through future earnings. The changes in the valuation allowance were as follows:

YEAR ENDED SEPTEMBER 30,                                 2002          2001
------------------------------------------------------------------------------
Beginning balance                                    $  (10,936)    $  (11,168)
Foreign net operating loss carryforward                  (2,137)            25
State net operating loss carryforward                       (10)           177
Capital loss carryback utilization                        1,050             30
------------------------------------------------------------------------------
Ending balance                                       $  (12,033)    $  (10,936)
==============================================================================

The reasons for the differences between our effective income tax rate and the United States statutory federal income tax rate were as follows:

PERCENT OF PRETAX EARNINGS,
YEAR ENDED SEPTEMBER 30,             2002           2001           2000
-----------------------------------------------------------------------
Statutory rate                       35.0           35.0           35.0
State income taxes, net
  of federal tax benefit              2.6            2.2            2.1
Foreign loss effect                   2.2            1.5            2.4
Foreign tax rate differences         (1.1)           0.1            0.1
Foreign sales benefits               (1.6)          (1.1)          (1.6)
Other items, net                      0.5            0.6            0.2
Capital loss utilization             (1.5)            --           (1.6)
-----------------------------------------------------------------------
Effective rate                       36.1           38.3           36.6
=======================================================================

E. Earnings per share:

YEAR ENDED SEPTEMBER 30,                     2002          2001          2000
--------------------------------------------------------------------------------
Earnings before cumulative
  effect of accounting
  change(A)                               $   45,170    $   53,068    $   46,976
--------------------------------------------------------------------------------
Determination of shares,
 in thousands:
  Weighted-average shares
   of common stock
   outstanding(B)                             11,325        11,318        11,263
  Assumed exercise of
   stock options                                 252           243            55
--------------------------------------------------------------------------------
  Weighted-average shares of
   common stock outstanding
   assuming dilution,
   in thousands(C)                            11,577        11,561        11,318
--------------------------------------------------------------------------------

Earnings before cumulative
   effect of accounting change:
Basic per share amount(A/B)               $     3.99    $     4.69    $     4.17
Diluted per share amount(A/C)                   3.90          4.59          4.15
================================================================================

The following stock options were outstanding during 2002, 2001, and 2000 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:

YEAR ENDED SEPTEMBER 30,                2002            2001            2000
-------------------------------------------------------------------------------
Options                                   12,543           4,884         203,429
Weighted-average exercise price     $      70.28    $      69.73    $      32.22
================================================================================

F. Inventories:

AT SEPTEMBER 30,      2002          2001
-------------------------------------------
Raw materials      $    5,499    $    4,638
Component parts        77,004        74,595
Work in process        27,095        33,472
Finished goods         17,514        18,455
-------------------------------------------
                   $  127,112    $  131,160
===========================================

G. Goodwill:

AT SEPTEMBER 30,                                      2002           2001
----------------------------------------------------------------------------
INDUSTRIAL CONTROLS:
  Beginning balance                                $   37,849     $   31,008
  Goodwill acquired                                    17,784          8,382
  Reclassification of assembled workforce                 159             --
  Cumulative effect of accounting change               (4,015)            --
  Foreign currency exchange rate changes                1,366            343
  Amortization expense                                     --         (1,884)
----------------------------------------------------------------------------
  Ending balance                                   $   53,143     $   37,849
============================================================================

AIRCRAFT ENGINE SYSTEMS:

  Beginning balance                                $   57,855     $   60,245
  Reclassification of assembled workforce               4,267             --
  Amortization expense                                     --         (2,390)
----------------------------------------------------------------------------
  Ending balance                                   $   62,122     $   57,855
============================================================================

CONSOLIDATED:

  Beginning balance                                $   95,704     $   91,253
  Goodwill acquired                                    17,784          8,382
  Reclassification of assembled workforce               4,426             --
  Cumulative effect of accounting change               (4,015)            --
  Foreign currency exchange rate changes                1,366            343
  Amortization expense                                     --         (4,274)
----------------------------------------------------------------------------
  Ending balance                                   $  115,265     $   95,704
============================================================================

Consolidated amortization expense associated with assembled workforce totaled $204 in 2001, consisting of $7 for Industrial Controls and $197 for Aircraft Engine Systems.

H. Other intangibles--net:

AT SEPTEMBER 30,                  2002           2001
--------------------------------------------------------
INDUSTRIAL CONTROLS:
  Customer relationships:
   Amount acquired             $   16,780     $   15,780
   Accumulated amortization        (2,379)        (1,753)
--------------------------------------------------------
                                   14,401         14,027
--------------------------------------------------------

  Other:
   Amount acquired                 20,487         16,444
   Accumulated amortization        (1,749)          (778)
--------------------------------------------------------
                                   18,738         15,666
--------------------------------------------------------
  Total                        $   33,139     $   29,693
========================================================
AIRCRAFT ENGINE SYSTEMS:
  Customer relationships:
   Amount acquired             $   28,547     $   28,547
   Accumulated amortization        (4,124)        (3,172)
--------------------------------------------------------
                                   24,423         25,375
--------------------------------------------------------

  Other:
   Amount acquired                 11,785         16,708
   Accumulated amortization        (2,585)        (2,645)
--------------------------------------------------------
                                    9,200         14,063
--------------------------------------------------------
  Total                        $   33,623     $   39,438
========================================================

CONSOLIDATED:
  Customer relationships:
   Amount acquired             $   45,327     $   44,327

   Accumulated amortization        (6,503)        (4,925)
--------------------------------------------------------
                                   38,824         39,402
--------------------------------------------------------

  Other:
   Amount acquired                 32,272         33,152
   Accumulated amortization        (4,334)        (3,423)
--------------------------------------------------------
                                   27,938         29,729
--------------------------------------------------------
   Total                       $   66,762     $   69,131
========================================================

Amortization expense associated with current intangibles is expected to be approximately $4,100 for each year 2003-2006 and approximately $3,900 in 2007.

I. Short-term borrowings:

Short-term borrowings reflect borrowings under certain bank lines of credit. The total amount available under these lines of credit, including outstanding borrowings, totaled $56,432 at September 30, 2002, and $43,483 at September 30, 2001. Interest on borrowings under the lines of credit is based on various short-term rates. Several of the lines require compensating balances or commitment fees. The lines, generally reviewed annually for renewal, are subject to the usual terms and conditions applied by the banks. The weighted-average interest rate for outstanding borrowings was 4.1% at September 30, 2002, 4.8% at September 30, 2001, and 6.5% at September 30, 2000.

J. Long-term debt:

AT SEPTEMBER 30,                               2002          2001
--------------------------------------------------------------------
Senior notes--6.39%                         $   75,000    $       --
ESOP debt guarantee--8.01%                       2,000         4,500
Term note                                           --        60,000
Revolving line of credit facility                   --        35,000
Fair value hedge adjustments:
  Interest rate swap agreements                  1,334            --
  Unrecognized discontinued hedge gains          1,858            --
--------------------------------------------------------------------
                                                80,192        99,500
Less current portion                             2,000        22,500
--------------------------------------------------------------------
                                            $   78,192    $   77,000
====================================================================

The senior notes, which are held by multiple institutions, are uncollateralized.

In June 1992, the company's Member Investment and Stock Ownership Plan (a qualified employee stock ownership plan) borrowed $25,000 for a term of eleven years and used the proceeds to buy 1,027,224 shares of common stock from the company. We guaranteed the payment of the loan and agreed to make future contributions to the plan sufficient to repay the loan. Accordingly, the original amount of the loan was recorded as long-term debt and unearned ESOP compensation. The consolidated balance sheets reflect the outstanding balance of the loan in long-term debt and the remaining unearned ESOP compensation as a component of shareholders' equity. Unearned ESOP compensation has been reduced using the shares allocated method for shares allocated to plan participants. The unallocated shares were 58,276 at September 30, 2002; 135,472 at September 30, 2001; and 218,076 at September 30, 2000.

Required future principal payments of the senior notes and ESOP debt guarantee at September 30, 2002, are $2,000 in 2003, $10,714 in 2006, $10,714 in 2007, and $53,572 thereafter.

We have effectively offset our exposure to changes in the fair value of a portion of the senior notes by entering into interest rate swap agreements. Under these agreements, we are swapping interest payments related to a notional amount of $50,000 at a fixed rate of 6.39% for rates that vary with LIBOR. The timing of these payments corresponds directly with interest payments due under the senior notes and we have assessed the swaps as having no hedge ineffectiveness. As a result, the fair value of these swap agreements is shown as an adjustment of long-term debt.

We also discontinued certain interest rate swaps that were previously designated as fair value hedges of long-term debt. This action resulted in a gain that will be recognized as a reduction of interest expense over the term of the associated hedged debt using the interest rate method of amortization. The unrecognized portion of the gain is presented as an adjustment to long-term debt.

The revolving line of credit facility involves uncollateralized financing arrangements with a syndicate of U.S. banks. A maximum amount of $150,000 is available under the revolving line of credit facility, which expires June 15, 2003. Interest rates on borrowings under the line vary with LIBOR, the money market rate, or the prime rate. Similar financing arrangements were associated with the term note, which was repaid in 2002.

Provisions of the 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 and a maximum consolidated debt to consolidated operating cash flow ratio, as defined in the agreements. At September 30, 2002, we had the ability to pay dividends and purchase the company's common stock up to $109,220.

K. Accounts payable and accrued expenses:

AT SEPTEMBER 30,                         2002          2001
--------------------------------------------------------------
Accounts payable                      $   22,739    $   27,613
Salaries and other member benefits        19,846        31,872
Deferred compensation                      7,701         7,481
Taxes, other than on income                4,058         4,586
Other items--net                          20,651        19,628
--------------------------------------------------------------
                                      $   74,995    $   91,180
==============================================================

Included in salaries and other member benefits are accrued termination benefits for 36 members totaling $1,389 at September 30, 2002. Termination benefits were provided in connection with workforce management programs to better align our workforce with expected demand. Expenses for these termination benefits totaled $8,045 in 2002, of which Industrial Controls incurred $4,032 for 233 members and Aircraft Engine Systems incurred $4,013 for 202 members. Both cost of goods sold and selling, general, and administrative expense were affected. We paid $6,656 of these expenses in 2002, and the remaining accrual is expected to be paid predominantly in the first quarter of 2003.

Certain key management members may elect to defer the payment of a portion of their compensation to future periods. These deferrals are recorded as deferred compensation, and individual member balances are increased or decreased as if they were held in specified investments, including common stock of the company. Deferred compensation balances are payable upon the retirement or other termination of a participating member, or as otherwise specified by plan documents.

L. Retirement benefits:

We provide various benefits to eligible members of our company, including contributions to various defined contribution plans, pension benefits associated with defined benefit plans, and retirement healthcare benefits. The amount of expense associated with defined contribution plans totaled $11,927 in 2002, $11,239 in 2001, and $11,062 in 2000. Information regarding our retirement pension benefits and retirement healthcare benefits are provided in the tables that follow.

Among the changes in the retirement pension benefit obligation and plan assets are increases due to a business acquisition that occurred in 2001. In the table that follows, these increases are reflected in 2002, which is the year the amounts were determined. Plan amendments to retirement healthcare benefits in 2002 relate to changes in cost-sharing provisions.

For retirement healthcare benefits, we assumed net healthcare cost trend rates of 10.00% in 2003, decreasing gradually to 4.50% in 2008, and remaining at 4.50% thereafter. A 1.00% increase in assumed healthcare cost trend rates would have increased the total of the service and interest cost components by $1,137 and increased the benefit obligation at the end of the year by $9,862 in 2002. Likewise, a 1.00% decrease in the assumed rates would have decreased the total of service and interest cost components by $863 and decreased the benefit obligation by $8,522 in 2002.

                                                               Retirement Pension Benefits                    Retirement
                                                         United States            Other Countries         Healthcare Benefits
AT OR FOR THE YEAR ENDED SEPTEMBER 30,                 2002         2001         2002         2001         2002         2001
------------------------------------------------------------------------------------------------------------------------------
Changes in benefit obligation:
   Benefit obligation at beginning of year           $ 14,369     $ 12,907     $ 15,424     $ 16,386    $  49,996    $  39,631
   Service cost                                            --           --        1,301          698        1,208          894
   Interest cost                                        1,035          995        1,378          370        3,443        3,019
   Contribution by plan participants                       --           --          172           --        3,150        3,082
   Net actuarial losses (gains)                         2,117          724        2,990         (353)      17,458        9,931
   Foreign currency exchange rate changes                  --           --        1,323       (1,568)         117           --
   Benefits paid                                         (315)        (257)      (2,371)        (109)      (7,122)      (6,561)
   Plan amendments                                          9           --           --           --       (9,396)          --
   Business acquisition                                    --           --       14,971           --           --           --
   Curtailment loss                                        --           --          357           --           --           --
   Settlement gains                                        --           --           --           --         (304)          --
------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year                      17,215       14,369       35,545       15,424       58,550       49,996
------------------------------------------------------------------------------------------------------------------------------

Changes in plan assets:
   Fair value of plan assets at beginning of year       9,839       11,488       12,372       16,114           --           --
   Actual return on plan assets                          (872)      (1,392)      (4,304)      (2,721)          --           --
   Foreign currency exchange rate changes                  --           --        1,305       (1,525)          --           --
   Contributions by the company                           400           --        1,339          613        3,972        3,479
   Contributions by plan participants                      --           --          172           --        3,150        3,082
   Benefits paid                                         (315)        (257)      (2,371)        (109)      (6,818)      (6,561)
   Business acquisition                                    --           --       14,971           --           --           --
   Settlements                                             --           --           --           --         (304)          --
------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year defined        9,052        9,839       23,484       12,372           --           --
------------------------------------------------------------------------------------------------------------------------------

Funded status                                          (8,163)      (4,530)     (12,061)      (3,052)     (58,550)     (49,996)
Unamortized prior service cost                              8           --          (92)        (103)          --           --
Unrecognized net losses                                 5,211        1,421       10,965        2,305       10,802        2,769
Unamortized transition obligation                          --           --          691          798           --           --
Accumulated other comprehensive income                 (1,088)          --         (848)          --           --           --
------------------------------------------------------------------------------------------------------------------------------
Net accrued benefit                                  $ (4,032)    $ (3,109)    $ (1,345)    $    (52)   $ (47,748)   $ (47,227)
==============================================================================================================================

                                                                             Retirement Pension Benefits
                                                                  United States                         Other Countries
YEAR ENDED SEPTEMBER 30,                                 2002         2001         2000         2002         2001         2000
--------------------------------------------------------------------------------------------------------------------------------
Components of net periodic benefit cost:
  Service cost                                          $    --      $    --      $    --      $ 1,301      $   698      $   781
  Interest cost                                           1,035          995          956        1,378          370          396
  Expected return on plan assets                           (801)        (943)        (893)      (1,318)        (363)        (337)
  Amortization of unrecognized transition obligation         --           --           --           85           89          100
  Recognized losses (gains)                                   1          (23)          --           --           --            9
  Recognized prior service costs                             --           --           --           (8)          (8)          (9)
  Settlement or curtailment losses (gains)                   --           --           --          357           --           --
--------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                               $   235      $    29      $    63      $ 1,795      $   786      $   940
================================================================================================================================

                                                                   Retirement
                                                               Healthcare Benefits
YEAR ENDED SEPTEMBER 30,                                 2002         2001         2000
-----------------------------------------------------------------------------------------
Components of net periodic benefit cost:
  Service cost                                          $ 1,208      $   894      $ 1,051
  Interest cost                                           3,443        3,019        2,758
  Expected return on plan assets                             --           --           --
  Amortization of unrecognized transition obligation         --           --           --
  Recognized losses (gains)                                  22          (69)        (142)
  Recognized prior service costs                             --           --           --
  Settlement or curtailment losses (gains)                 (304)          --         (964)
-----------------------------------------------------------------------------------------
Net periodic benefit cost                               $ 4,369      $ 3,844      $ 2,703
=========================================================================================

Increase in minimum pension liability adjustment
  included in other comprehensive earnings               $ 1,088      $    --      $    --      $   848      $    --       $   --
=================================================================================================================================
Applicable weighted-average assumptions:
  Discount rate                                             6.50%        7.25%        7.75%        4.29%        2.50%        2.50%
  Rate compensation                                         5.00%        5.00%        5.00%        5.98%        3.50%        3.50%
  Expected long-term rate of return on plan assets          8.25%        8.25%        8.25%        3.22%        2.50%        2.50%
=================================================================================================================================

Increase in minimum pension liability adjustment
  included in other comprehensive earnings               $    --      $    --      $    --
==========================================================================================
Applicable weighted-average assumptions:
  Discount rate                                             6.75%        7.25%        7.75%
  Rate compensation
  Expected long-term rate of return on plan assets
===========================================================================================

M. Stock option plan:

We have a stock option plan covering key management members and directors of the company. Options granted under the plan generally have a term of 10 years and vest evenly at the end of each year over four years from the date of grant. There were 2,100,000 shares of common stock authorized for issuance under the plan at September 30, 2002. We account for options in accordance with 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. As required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the following table presents pro forma net earnings and per share information that has been prepared as if compensation for these options was recognized:

YEAR ENDED SEPTEMBER 30,         2002          2001          2000
--------------------------------------------------------------------
Net earnings                  $   41,771    $   52,420    $   46,850
Basic earnings per share            3.69          4.63          4.16
Diluted earnings per share          3.61          4.53          4.14
====================================================================

The determination of compensation expense for this pro forma information was based upon the estimated fair value of the options granted on the date of their grant. The weighted-average estimated fair value of options granted was $16.03 in 2002, $16.05 in 2001, and $6.82 in 2000. These estimates were determined using the Black-Scholes option pricing model and the following weighted-average assumptions by grant year:

YEAR ENDED SEPTEMBER 30,      2002       2001       2000
---------------------------------------------------------
Risk-free interest rate         4.5%       5.8%       6.9%
Expected life               7 years    7 years    7 years
Expected volatility            35.0%      30.0%      26.4%
Expected dividend yield         2.8%       1.7%       3.7%
=========================================================

Changes in outstanding stock options were as follows:

                                                Weighted-
                                                 Average
                                                 Exercise
                                    Number        Price
---------------------------------------------------------
Balance at September 30, 1999       641,415     $  25.33
  Options granted                   145,100        24.75
  Options exercised                (100,990)       23.38
  Options canceled                  (55,353)       30.46
--------------------------------------------------------
Balance at September 30, 2000       630,172        25.06
  Options granted                   162,979        44.08
  Options exercised                  (5,533)       28.68
  Options canceled                   (6,800)       29.77
--------------------------------------------------------
Balance at September 30, 2001       780,818        28.96
  Options granted                   178,500        49.42
  Options exercised                  (9,100)       29.50

  Options canceled                  (14,000)       43.38
--------------------------------------------------------
Balance at September 30, 2002       936,218     $  32.64
========================================================

Stock options outstanding at September 30, 2002, consisted of the following:

                                       Options Outstanding               Options Exercisable
                                    Weighted-     Weighted-                   Weighted-
    Exercise                         Average       Average                     Average
      Price                          Exercise      Remaining                    Exercise
      Range                Number      Price     Life In Years      Number       Price
--------------------------------------------------------------------------------------------
$ 16.625 - $ 24.750       446,600     $ 22.41         5.3          390,200         $  22.06
$ 30.594 - $ 41.813       304,139     $ 36.63         6.5          199,889         $  33.92
$ 49.000 - $ 73.700       185,479     $ 50.75         8.9           13,979         $  67.28
--------------------------------------------------------------------------------------------
                          936,218     $ 32.64         6.4          604,068         $  27.08
============================================================================================

There were 541,043 stock options exercisable at September 30, 2001, and 501,972 at September 30, 2000.

N. Shareholder rights plan:

We have a shareholder rights plan to protect shareholders against unsolicited attempts to acquire control of the company that do not offer what the Board of Directors believes to be an adequate price to all shareholders. In connection with this plan, a dividend of one preferred stock purchase right for each outstanding share of common stock was paid to shareholders in February 1996. Each right entitles its holder to purchase from the company one-four hundredth of a share of Series A Preferred Stock, par value $.003 per share, at a price of $75.00 (subject to adjustment, and restated for the January 1997 stock split). The rights may not be exercised or transferred apart from the company's common stock until 10 days after it is announced that a person or group has acquired 15% or more of the outstanding common stock or 15 business days after it is announced that there is an offer (or an intent to make an offer) by a person or group to acquire 15% or more of the outstanding common stock. The Board of Directors may extend the 15 business day period referred to above and may redeem the rights in whole (but not in part) at a redemption price of $.003 per right at any time prior to an acquisition of 15% or more of the outstanding common stock by a person or group. The rights expire on January 17, 2006.

O. Accumulated other comprehensive earnings:

Accumulated other comprehensive earnings, which totaled $2,823 at September 30, 2002, and $1,046 at September 30, 2001, consisted of the following items:

AT OR FOR THE YEAR ENDED SEPTEMBER 30,                      2002           2001
----------------------------------------------------------------------------------
Accumulated foreign currency translation adjustments:
  Balance at beginning of year                           $    2,420     $    3,045
  Translation adjustments                                     4,553            358
  Reclassification adjustment for
   substantial liquidation of subsidiary                         --            500
  Taxes associated with translation
   adjustments                                               (1,730)        (1,483)
----------------------------------------------------------------------------------
  Balance at end of year                                 $    5,243     $    2,420
==================================================================================
Accumulated unrealized derivative losses:
  Balance at beginning of year                           $   (1,374)    $       --
  Unrealized losses on derivatives                               --         (2,217)
  Taxes associated with unrealized losses                        --            843
  Reclassification to interest expense                          248             --

  Taxes associated with interest reclassification            (94)            --
-------------------------------------------------------------------------------
  Balance at end of year                              $   (1,220)    $   (1,374)
===============================================================================
Accumulated minimum pension liability adjustments:
  Balance at beginning of year                        $       --     $       --
  Minimum pension liability adjustment                    (1,936)            --
  Taxes associated with minimum
   pension liability adjustments                             736             --
-------------------------------------------------------------------------------
  Balance at end of year                              $   (1,200)    $       --
===============================================================================

P. Leases:

We have entered into operating leases for certain facilities and equipment with terms in excess of one year. Future minimum rental payments required under these leases are: $3,235 in 2003, $2,242 in 2004, $1,795 in 2005, $1,489 in 2006, $1,232 in 2007, and $2,348 thereafter. Rent expense for all operating leases totaled $4,507 in 2002, $4,430 in 2001, and $4,845 in 2000.

Q. Contingencies:

We are currently involved in matters of litigation arising from the normal course of business, including certain environmental and product liability matters. We have accruals of approximately $1,000 at September 30, 2002 and 2001, related to such matters. These accruals are based on our current estimate of the most likely amount of losses that we believe will be incurred. These amounts have been included in accounts payable and accrued expenses.

We have been designated a "de minimis potentially responsible party" with respect to the cost of investigation and environmental cleanup of certain third-party sites. Our current accrual for these matters is based on costs incurred to date that we have been allocated and our estimate of the most likely future investigation and cleanup costs. There is, as in the case of most environmental litigation, the possibility that under joint and several liability we could be required to pay more than our allocated share of costs.

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.

R. Financial instruments:

The estimated fair values of our financial instruments were as follows:

AT SEPTEMBER 30,                                2002           2001
----------------------------------------------------------------------
Cash and cash equivalents                    $   29,828     $   10,542
Interest rate swap agreements                     1,334             --
Short-term borrowings                           (16,185)        (5,561)
Long-term debt, including current portion       (83,897)       (99,637)
======================================================================

The fair value of cash and cash equivalents, short-term borrowings, and long-term debt at variable interest rates were assumed to be equal to their carrying amounts. Cash and cash equivalents have short-term maturities, short-term borrowings have short-term maturities and market interest rates, and long-term debt at variable interest rates is repriced frequently at market rates of interest. Interest rate swap agreements are carried at their fair value, which is estimated based on proprietary models used by financial institutions that rely on assumptions regarding past, present, and future market conditions. The fair value of long-term debt at fixed interest rates was estimated based on a model that discounted future principal and interest payments at interest rates available to the company at the end of the year for similar debt of the same maturity.

S. Segment information:

Our operations are organized based on the nature of products and related services provided and consist of 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 engines.

The accounting policies of the segments are the same as those described in Note
A. Intersegment sales and transfers are made at established intersegment selling prices generally intended to approximate selling prices to unrelated parties. Our determination of segment earnings does not reflect gain on sale of business and allocations of corporate expenses, and is before interest expense, interest income, income taxes, and the cumulative effect of accounting change. Segment assets consist of accounts receivable, inventories, property, plant, and equipment--net, goodwill, and other intangibles--net. Summarized financial information for our segments follows:

AT OR FOR THE
YEAR ENDED SEPTEMBER 30,              2002          2001          2000
-------------------------------------------------------------------------
INDUSTRIAL CONTROLS:
  External net sales               $  408,665    $  384,145    $  330,962
  Intersegment sales                      842           808           700
  Segment earnings                     33,294        57,710        41,258
  Goodwill-related amortization            --         1,891         1,725
-------------------------------------------------------------------------
  Adjusted segment earnings            33,294        59,601        42,983
-------------------------------------------------------------------------
  Segment assets                      286,302       283,072       214,935
  Depreciation and amortization        16,657        14,850        13,322
  Capital expenditures                 15,536        15,582        14,631
-------------------------------------------------------------------------
AIRCRAFT ENGINE SYSTEMS:
  External net sales               $  271,326    $  294,646    $  266,423
  Intersegment sales                    2,752         2,919         2,010
  Segment earnings                     57,226        53,585        38,150
  Goodwill-related amortization            --         2,587         2,512
-------------------------------------------------------------------------
  Adjusted segment earnings            57,226        56,172        40,662
-------------------------------------------------------------------------
  Segment assets                      219,480       241,002       260,712
  Depreciation and amortization        13,076        15,704        15,318
  Capital expenditures                  7,038         9,711        10,071
=========================================================================

The differences between the total of segment amounts and the consolidated financial statements were as follows:

YEAR ENDED SEPTEMBER 30,             2002           2001           2000
--------------------------------------------------------------------------
Total segment net sales
  and intersegment sales          $  683,585     $  682,518     $  600,095
Elimination of
  intersegment sales                  (3,594)        (3,727)        (2,710)
--------------------------------------------------------------------------
Consolidated net sales            $  679,991     $  678,791     $  597,385
==========================================================================
Total segment earnings            $   90,520     $  111,295     $   79,408
Unallocated corporate expenses       (15,366)       (18,753)       (20,689)
Gain on sale of business                  --             --         25,500
Interest expense and income           (4,474)        (6,587)       (10,127)
--------------------------------------------------------------------------
Consolidated earnings
  before income taxes and
  cumulative effect of
  accounting change               $   70,680     $   85,955     $   74,092
==========================================================================

AT SEPTEMBER 30,                        2002          2001          2000
---------------------------------------------------------------------------
Total segment assets                 $  505,782    $  524,074    $  475,647
Unallocated corporate property,
  plant, and equipment--net               3,385         4,505         5,072
Other unallocated assets                 73,228        56,049        53,004
---------------------------------------------------------------------------
Consolidated total assets            $  582,395    $  584,628    $  533,723
===========================================================================

Differences between total depreciation and amortization and capital expenditures of our segments and the corresponding consolidated amounts reported in the statements of consolidated cash flows are due to unallocated corporate amounts.

One customer accounted for more than 10% of consolidated net sales, impacting both the Industrial Controls and Aircraft Engine Systems segments totaling approximately $212,000 in 2002, $219,000 in 2001, and $147,000 in 2000.

External net sales by geographical area, as determined by the location of the customer invoiced, were as follows:

YEAR ENDED SEPTEMBER 30,      2002          2001          2000
-----------------------------------------------------------------
United States              $  403,864    $  429,020    $  372,773
Other countries               276,127       249,771       224,612
-----------------------------------------------------------------
                           $  679,991    $  678,791    $  597,385
=================================================================

Property, plant, and equipment--net by geographical area, as determined by the physical location of the assets, were as follows:

AT SEPTEMBER 30,              2002          2001
---------------------------------------------------
United States              $   97,137    $  105,945
Other countries                26,485        24,631
---------------------------------------------------
                           $  123,622    $  130,576
===================================================

REPORT OF INDEPENDENT ACCOUNTANTS

To Board of Directors and Shareholders
Woodward Governor Company

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, cash flows, and shareholders' equity present fairly, in all material respects, the financial position of Woodward Governor Company and its subsidiaries at September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note A to the consolidated financial statements, effective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142).

PricewaterhouseCoopers LLP
Chicago, Illinois
October 31, 2002

Selected Financial Data
(In thousands of dollars except per share amounts)

FOR THE YEAR ENDED SEPTEMBER 30,                                                2002         2001        2000        1999
-------------------------------------------------------------------------------------------------------------------------
Net sales                                                                    $  679,991  $  678,791  $  597,385   596,904
Earnings (loss) before cumulative effect of accounting change                    45,170      53,068      46,976*   30,829
Goodwill-related amortization, net of income taxes                                   --       2,875       2,660     2,770
-------------------------------------------------------------------------------------------------------------------------
Adjusted earnings (loss) before cumulative effect of accounting change           45,170      55,943      49,636    33,599
-------------------------------------------------------------------------------------------------------------------------

Basic per share amounts:
   Earnings (loss) before cumulative effect of accounting change                   3.99        4.69        4.17*     2.74
   Goodwill-related amortization, net of income taxes                                --        0.25        0.24      0.24
-------------------------------------------------------------------------------------------------------------------------
   Adjusted earnings (loss) before cumulative effect of accounting change          3.99        4.94        4.41      2.98
-------------------------------------------------------------------------------------------------------------------------
Diluted per share amounts:
   Earnings (loss) before cumulative effect of accounting change                   3.90        4.59        4.15*     2.73
   Goodwill-related amortization, net of income taxes                                --        0.25        0.24      0.25
-------------------------------------------------------------------------------------------------------------------------
   Adjusted earnings (loss) before cumulative effect of accounting change          3.90        4.84        4.39      2.98
-------------------------------------------------------------------------------------------------------------------------

Cash dividends per share                                                           0.93        0.93        0.93      0.93
Depreciation expense                                                             28,340      25,677      24,001    25,267
Amortization expense                                                              3,748       7,055       6,418     6,769
EBITDA**                                                                        107,242     125,274     114,638*   95,174
Capital expenditures                                                             22,898      26,903      27,416    22,789
Effective income tax rate                                                          36.1%       38.3%       36.6%     39.8%
Adjusted earnings (loss) as percent of sales                                        6.6%        8.2%        8.3%      5.6%
Adjusted earnings (loss) as percent of beginning shareholders' equity              14.2%       20.3%       20.5%     15.3
Weighted-average basic shares outstanding in thousands                           11,325      11,318      11,263    11,272
Weighted-average diluted shares outstanding in thousands                         11,577      11,561      11,318    11,292

AT SEPTEMBER 30,
-------------------------------------------------------------------------------------------------------------------------
Working capital                                                              $  152,312  $  123,744  $  100,836  $124,392
Total assets                                                                    582,395     584,628     533,723   550,664
Long-term debt, less current portion                                             78,192      77,000      74,500   139,000
Total debt                                                                       96,377     105,061     118,284   180,953
Shareholders' equity                                                            354,901     318,862     275,624   241,992
Shareholders' equity per diluted share                                            30.66       27.58       24.35     21.43
Percent of debt to debt-equity                                                     21.4%       24.8%       30.0%     42.8%
Worker members                                                                    3,337       3,709       3,302     3,791
Registered shareholder members                                                    1,592       1,652       1,742     1,866
=========================================================================================================================

FOR THE YEAR ENDED SEPTEMBER 30,                                                  1998       1997       1996
---------------------------------------------------------------------------------------------------------------
Net sales                                                                    $  490,476  $  442,216  $  417,290
Earnings (loss) before cumulative effect of accounting change                    21,592      18,140      22,178
Goodwill-related amortization, net of income taxes                                1,293         578         346
---------------------------------------------------------------------------------------------------------------
Adjusted earnings (loss) before cumulative effect of accounting change           22,885      18,718      22,524
---------------------------------------------------------------------------------------------------------------

Basic per share amounts:
   Earnings (loss) before cumulative effect of accounting change                   1.90        1.58        1.92
   Goodwill-related amortization, net of income taxes                              0.12        0.05        0.03
---------------------------------------------------------------------------------------------------------------
   Adjusted earnings (loss) before cumulative effect of accounting change          2.02        1.63        1.95
---------------------------------------------------------------------------------------------------------------
Diluted per share amounts:
   Earnings (loss) before cumulative effect of accounting change                   1.90        1.57        1.92
   Goodwill-related amortization, net of income taxes                              0.11        0.05        0.03
---------------------------------------------------------------------------------------------------------------
   Adjusted earnings (loss) before cumulative effect of accounting change          2.01        1.62        1.95
---------------------------------------------------------------------------------------------------------------

Cash dividends per share                                                           0.93        0.93        0.93
Depreciation expense                                                             23,715      21,854      22,786
Amortization expense                                                              2,927         983         608
EBITDA**                                                                         67,699      55,884      61,075
Capital expenditures                                                             20,862      21,152      21,163
Effective income tax rate                                                          40.5%       38.6%       37.0%
Adjusted earnings (loss) as percent of sales                                        4.7%        4.2%        5.4%
Adjusted earnings (loss) as percent of beginning shareholders' equity              10.9%        9.0%       11.4%
Weighted-average basic shares outstanding in thousands                           11,340      11,482      11,570
Weighted-average diluted shares outstanding in thousands                         11,379      11,525      11,570

AT SEPTEMBER 30,
---------------------------------------------------------------------------------------------------------------
Working capital                                                              $  119,506  $  124,827  $  121,103
Total assets                                                                    563,435     348,110     348,798
Long-term debt, less current portion                                            175,685      17,717      22,696
Total debt                                                                      213,645      30,604      42,868
Shareholders' equity                                                            220,102     210,614     207,995
Shareholders' equity per diluted share                                            19.34       18.27       18.01
Percent of debt to debt-equity                                                     49.3%       12.7%       17.1%
Worker members                                                                    3,994       3,246       3,211
Registered shareholder members                                                    1,907       1,994       2,029
===============================================================================================================

FOR THE YEAR ENDED SEPTEMBER 30,                                                  1995       1994           1993       1992
------------------------------------------------------------------------------------------------------------------------------
Net sales                                                                    $  379,376   $ 333,207     $  331,156  $  374,173
Earnings (loss) before cumulative effect of accounting change                    11,936      (3,273)        13,389      20,212
Goodwill-related amortization, net of income taxes                                  245         307            204         216
------------------------------------------------------------------------------------------------------------------------------
Adjusted earnings (loss) before cumulative effect of accounting change           12,181      (2,966)        13,593      20,428
------------------------------------------------------------------------------------------------------------------------------

Basic per share amounts:
   Earnings (loss) before cumulative effect of accounting change                   1.03       (0.28)         (0.28)       1.81
   Goodwill-related amortization, net of income taxes                              0.02        0.03           0.03        0.02
------------------------------------------------------------------------------------------------------------------------------
   Adjusted earnings (loss) before cumulative effect of accounting change          1.05       (0.25)         (0.25)       1.83
------------------------------------------------------------------------------------------------------------------------------
Diluted per share amounts:
   Earnings (loss) before cumulative effect of accounting change                   1.03       (0.28)          1.13        1.81
   Goodwill-related amortization, net of income taxes                              0.02        0.03           0.01        0.02
------------------------------------------------------------------------------------------------------------------------------
   Adjusted earnings (loss) before cumulative effect of accounting change          1.05       (0.25)          1.14        1.83
------------------------------------------------------------------------------------------------------------------------------

Cash dividends per share                                                           0.93        0.93            0.93       0.92
Depreciation expense                                                             23,334      26,114          24,837     22,241
Amortization expense                                                                452         500             419        392
EBITDA**                                                                         47,239      24,652          50,314     57,652
Capital expenditures                                                             18,988      16,515          18,335     52,684
Effective income tax rate                                                          40.9%       37.0%           42.0%      38.7%
Adjusted earnings (loss) as percent of sales                                        3.2%      (0.9)%            4.1%       5.5%
Adjusted earnings (loss) as percent of beginning shareholders' equity               6.3%      (1.4)%            6.2%       9.8%
Weighted-average basic shares outstanding in thousands                           11,623      11,765          11,889     11,179
Weighted-average diluted shares outstanding in thousands                         11,623      11,765          11,889     11,179

AT SEPTEMBER 30,
-------------------------------------------------------------------------------------------------------------------------------
Working capital                                                              $  116,364   $ 113,751      $  107,809  $  103,818
Total assets                                                                    349,599     323,318         332,461     331,653
Long-term debt, less current portion                                             27,796      32,665          36,246      40,135
Total debt                                                                       62,960      61,591          58,258      64,375
Shareholders' equity                                                            197,903     193,846         206,222     219,690
Shareholders' equity per diluted share                                            17.05       16.57           17.36       18.48
Percent of debt to debt-equity                                                     24.1%       24.1%           22.0%       22.7%
Worker members                                                                    3,071       3,439           3,264       3,632
Registered shareholder members                                                    2,179       2,256           2,301       2,301
===============================================================================================================================

* Earnings before cumulative effect of accounting change and EBITDA for 2000 include a gain from the sale of business of $25,500 before income taxes and $17,082 after income taxes, or $1.52 per basic share and $1.51 per diluted share.

** EBITDA represents earnings before interest (expense and income), income taxes, depreciation, and amortization, and before cumulative effect of accounting change. Although EBITDA is a common financial measure, it is not a measure that is reported in financial statements prepared in accordance with accounting principles generally accepted in the United States.

Selected Quarterly Financial Data
(Unaudited)

                                                             2002 FISCAL QUARTERS
(In thousands except per share data)       FIRST            SECOND           THIRD           FOURTH
-------------------------------------------------------------------------------------------------------
Net sales                              $     180,653    $     174,864    $     171,888    $     152,586
Gross profit*                                 39,285           38,570           38,246           24,760

Reported earnings before cumulative
  effect of accounting change                 13,719           13,623           14,611            3,217
Goodwill-related amortization,
  net of income taxes                             --               --               --               --
-------------------------------------------------------------------------------------------------------
Adjusted earnings before cumulative
  effect of accounting change          $      13,719    $      13,623    $      14,611    $       3,217
=======================================================================================================

BASIC PER SHARE AMOUNTS:

Reported earnings before cumulative
  effect of accounting change          $        1.21    $        1.20    $        1.29    $        0.28
Goodwill-related amortization,
  net of income taxes                             --               --               --               --
-------------------------------------------------------------------------------------------------------
Adjusted earnings before cumulative
  effect of accounting change          $        1.21    $        1.20    $        1.29    $        0.28
=======================================================================================================

DILUTED PER SHARE AMOUNTS:

Reported earnings before cumulative
  effect of accounting change          $        1.19    $        1.18    $        1.26    $        0.28
Goodwill-related amortization,
  net of income taxes                             --               --               --               --
-------------------------------------------------------------------------------------------------------
Adjusted earnings before cumulative
  effect of accounting change          $        1.19    $        1.18    $        1.26    $        0.28
=======================================================================================================

Cash dividends per share               $      0.2325    $      0.2325    $      0.2325    $      0.2325
Common stock price per share
  High                                         60.10            72.77            74.65            60.22
  Low                                          46.50            53.50            54.40            44.85
  Close                                        58.25            68.80            59.12            47.40
=======================================================================================================

                                                             2001 FISCAL QUARTERS
                                           FIRST           SECOND            THIRD            FOURTH
-------------------------------------------------------------------------------------------------------
Net sales                              $     150,730    $     170,176    $     182,508    $     175,377
Gross profit*                                 37,329           41,591           44,806           44,038

Reported earnings before cumulative
  effect of accounting change                 10,908           12,672           13,728           15,760
Goodwill-related amortization,
  net of income taxes                            681              694              698              802
-------------------------------------------------------------------------------------------------------
Adjusted earnings before cumulative
  effect of accounting change          $      11,589    $      13,366    $      14,426    $      16,562
=======================================================================================================

BASIC PER SHARE AMOUNTS:

Reported earnings before cumulative
  effect of accounting change          $        0.96    $        1.12    $        1.21    $        1.39
Goodwill-related amortization,
  net of income taxes                           0.06             0.06             0.06             0.07
-------------------------------------------------------------------------------------------------------
Adjusted earnings before cumulative
  effect of accounting change          $        1.02    $        1.18    $        1.27    $        1.46
=======================================================================================================

DILUTED PER SHARE AMOUNTS:

Reported earnings before cumulative
  effect of accounting change          $        0.95    $        1.10    $        1.18    $        1.36
Goodwill-related amortization,
  net of income taxes                           0.06             0.06             0.06             0.07
-------------------------------------------------------------------------------------------------------
Adjusted earnings before cumulative
  effect of accounting change          $        1.01    $        1.16    $        1.24    $        1.43
=======================================================================================================

Cash dividends per share               $      0.2325    $      0.2325    $      0.2325    $      0.2325
Common stock price per share
  High                                         49.00            57.73            91.00            86.85
  Low                                          35.75            40.00            49.00            42.06
  Close                                        44.75            51.38            84.35            48.45
=======================================================================================================

* Gross profit represents net sales less cost of goods sold as reported in our statements of consolidated earnings.

Cautionary Statement

This annual report contains forward-looking statements, including financial projections, our plans and objectives for future operations, expectations of future economic performance, and various other assumptions relating to the future. While such statements reflect our current expectations, all such statements involve risks and uncertainties. Actual results could differ materially from projections or any other forward-looking statement, and we have no obligation to update our forward-looking statements. Important factors that could cause results to differ materially from those projected or otherwise stated include the following: unanticipated global or regional economic developments, particularly in, but not limited to, Asia, Europe, and the United States; political risks, military actions, or trade embargoes affecting customers' markets, including the possibility of a war in Iraq; other changes in business cycles of particular industries served by our company, primarily OEMs of aircraft engines, both commercial and military, and industrial engines, turbines, and other power equipment, particularly in power generation, transportation, and process industries markets; fluctuations in currency exchange rates of U.S. and foreign countries, primarily those located in Europe and Asia; fluctuations in interest rates, primarily LIBOR, which affect the cost of borrowings; timing and acceptance of new products and product enhancements, including, but not limited to, products that integrate energy control technologies of recently-acquired companies; competitor actions that adversely impact our orders or pricing, including, but not limited to, aftermarket sales; reliability of customer forecasts of their sales volumes and purchase requirements; adverse changes in the business acquisition climate; effects of any business acquisitions or divestitures; changes in U.S. and other country laws and regulations involving acquisitions, the environment, and taxes; relative success of quality and productivity initiatives, such as the Six Sigma initiative and supplier designation levels with key customers; and unusual or extraordinary events or developments involving litigation or other potential liabilities.

EXHIBIT 21
WOODWARD GOVERNOR COMPANY
SUBSIDIARIES OF THE REGISTRANT

Baker Electrical Products, Inc.
Delaware, USA

Woodward FST, Inc.
Delaware, USA

Woodward Foreign Sales Corporation
St. Thomas, U.S. Virgin Islands

Woodward HSC, Inc.
New York, USA

Woodward International, Inc.
Delaware, USA

Woodward Tianjin Controls Company Limited
Tianjin, China

Woodward Governor de Mexico S.A. de C.V.
Mexico City, Mexico

Woodward Governor Asia/Pacific PTE. LTD.
Singapore, Republic of Singapore

Woodward Governor France S.A.R.L.
Venissieux, France

Woodward Governor Germany GmbH
Aken, Germany

Woodward Governor GmbH
Lucerne, Switzerland

Woodward Governor India PTE. LTD.
New Delhi, India

Woodward Governor Nederland B.V.
The Netherlands

Woodward Governor Poland, Limited
Warsaw, Poland

Woodward Governor (Japan) Ltd.
Japan

Woodward Governor (Quebec) Inc.
Quebec, Canada

Woodward Governor (Reguladores) Limitada
Brazil

Woodward Governor (U.K.) Limited
United Kingdom

Woodward Governor Company Leonhard-Reglerbau GmbH Stuttgart, Germany

Exhibit 23

Consent of Independent Accountants

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-10409) of Woodward Governor Company of our report dated October 31, 2002 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated October 31, 2002 relating to the financial statement schedule, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Chicago, Illinois
December 6, 2002

EXHIBIT 99(i)
WOODWARD GOVERNOR COMPANY
ADDITIONAL EXHIBIT - DESCRIPTION OF
ANNUAL REPORT GRAPHS

Below is a description of the graphs appearing under "Financial Highlights" on page 1 of our 2002 Annual Report.

NET SALES:
This bar graph shows consolidated net sales in millions of dollars for the fiscal years ended 1998 through 2002. Plot points are $490, $597, $597, $679, and $680 with the first plot point for 1998.

ADJUSTED EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
The bar graph for consolidated adjusted earnings before cumulative of accounting change is in millions of dollars for fiscal years 1998 through 2002. Plot points are $23, $34, $50, $56, and $45 with the first plot point for 1998.

ADJUSTED EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE AND CASH DIVIDENDS PER SHARE:
The bar graph for consolidated net earnings and cash dividends per diluted share is for fiscal years ended 1998 through 2002. Plot points for net earnings per diluted share are $2.01, $2.98 $4.39, $4.84, and $3.90 with the first plot point for 1998. Plot points for cash dividends per diluted share, beginning with 1998, are $.93 for all years.

Adjusted earnings before cumulative effect of accounting change reflects the elimination of goodwill-related amortization and associated income taxes from amounts reported in the financial statements.

Exhibit 99(ii)
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-K for the year ended September 30, 2002 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/ John A. Halbrook                     /s/ Stephen P. Carter
---------------------------              --------------------------
   John A. Halbrook                         Stephen P. Carter
   President and Chief                      Vice President, Chief
   Executive Officer                        Financial Officer and Treasurer