SECURITIES AND EXCHANGE COMMISSION 	Washington, D.C. 20549 	FORM 10-Q { X }	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 	OF THE SECURITIES EXCHANGE ACT OF 1934 	For the quarter ended December 31, 1995 Commission File #0-8408 	OR { }	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE 	SECURITIES EXCHANGE ACT OF 1934 	 WOODWARD GOVERNOR COMPANY 	(Exact name of registrant as specified in its charter) Delaware 36-1984010 (State or other jurisdiction of I.R.S. Employer identification No.) incorporation or organization) 	5001 North Second Street, Rockford, Illinois 61125-7001 	(Address of principal executive offices) 	Registrant's telephone number - (815) 877-7441 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. 				Yes X No As of January 31, 1996, 2,893,180 shares of common stock with a par value of 6.25 cents per share were outstanding. 	WOODWARD GOVERNOR COMPANY 	FORM 10-Q 	For the Quarter Ended December 31, 1995 	INDEX Description				 Part I.	Financial Information 	Item 1.	Financial Statements 			Statements of Consolidated Earnings for the	 			Three Months Ended December 31, 1995 and 1994 			Consolidated Balance Sheets as of	 			December 31, 1995 and September 30, 1995 			Statements of Consolidated Cash Flows for the Three	 			Months Ended December 31, 1995 and 1994 	 			Notes to Consolidated Financial Statements	 	Item 2.	Management's Discussion and Analysis of Financial	 			Condition and Results of Operations Part II. Other Information		 Signatures				 WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED EARNINGS FOR THE THREE MONTHS ENDED DECEMBER 31,1995 AND 1994 (in thousands except per share amounts) (Unaudited) 1995 1994 Net billings for products and services $88,142 $90,429 Costs and expenses: Cost of goods sold 64,757 64,524 Sales, service and administrative expenses 15,025 15,402 Restructuring expense $- $2,359 Interest expense 929 $858 Interest (income) (135) (122) Miscellaneous expense, net 607 1,401 1,947 5,042 Total costs and expenses 81,183 84,968 Earnings before income taxes 6,959 5,461 Income taxes 2,784 2,239 Net earnings $4,175 $3,222 Net earnings per share 		 $1.44 $1.10 Average shares outstanding 		 2,903 2,923 Cash dividends per share 		 $0.93 $0.93 See accompanying notes to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands of dollars) 		DECEMBER SEPTEMBER 		31,1995 30,1995 (Unaudited) Assets 		 Current assets: Cash and cash equivalents $12,146 $12,451 Accounts receivable, less allowance for losses of $4,615 for December and $4,605 for September 69,497 81,880 Inventories 95,372 92,831 Deferred income taxes 21,853 21,853 Total current assets 198,868 209,015 Property, plant and equipment, at cost: Land 6,638 6,674 Buildings and improvements 122,113 121,870 Machinery and equipment 177,836 175,455 Construction in progress 1,344 985 307,931 304,984 Less allowance for depreciation 192,291 186,918 Property, plant and equipment, net 115,640 118,066 Intangibles and other assets 4,297 4,741 Deferred income taxes 17,770 17,777 Total assets $336,575 $349,599 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $29,031 $30,297 Current portion of long-term debt 4,867 4,867 Accounts payable and accrued expenses 39,622 50,765 Taxes on income 4,565 6,722 Total current liabilities 78,085 92,651 Long-term debt, less current portion 27,728 27,796 Other liabilities 31,249 31,249 Commitments and contingencies - - Shareholders' equity represented by: Preferred stock - - Common stock 190 190 Additional paid-in capital 13,198 13,560 Unearned stock plan compensation (17,291) (17,333) Currency translation adjustment 16,315 16,802 Retained earnings 197,193 195,598 209,605 208,817 Less treasury stock, at cost 10,092 10,914 199,513 197,903 Total liabilities and shareholder $336,575 $349,599 See accompanying notes to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 (in thousands of dollars) (Unaudited) 1995 1994 												 Cash flows from operating activities: Net earnings (loss) $4,175 $3,222 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation 5,729 6,109 Deferred income taxes, noncurrent 8 5 Stock plan compensation expense 42 129 Changes in assets and liabilities: Accounts receivable 13,352 (239) Inventories (2,785) (4,712) Current liabilities, other than short-term borrowings and current portion of long-term debt (10,289) 9,714 Other, net (845) 25 Total adjustments 5,212 11,031 Net cash provided by operating activities 9,387 14,253 Cash flows from investing activities: Payments for purchase of property, plant and equipment (3,706) (3,717) Other 290 (29) Net cash (used) in investing activities (3,416) (3,746) Cash flows from financing activities: Cash dividends paid (2,673) (2,720) Proceeds from sale of treasury stock 435 - Purchase of treasury stock - (389) Payments of long-term debt (69) (82) Short-term borrowings proceeds (payments) (1,258) (9,046) Tax benefit applicable to ESOP dividends 92 100 Net cash (used) in financing activities (3,473) (12,137) Effect of exchange rate changes on cash (2,803) 67 Net change in cash and cash equivalents (305) (1,563) Cash and cash equivalents, beginning of year 12,451 10,272 Cash and cash equivalents, end of quarter $12,146 $8,709 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid (net of amount capitalized) $602 $322 Income taxes paid $5,183 $1,876 See accompanying notes to consolidated financial statements. 					 	WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES 	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of December 31, 1995, and the statements of consolidated earnings and cash flows for the three month periods ended December 31, 1995 and 1994, have been prepared by the Company, without audit. The September 30, 1995 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Information furnished in this 10-Q report is based in part on approximations and is subject to year-end adjustment and audit. The figures do reflect all adjustments necessary, in the opinion of management, to present fairly the Company's financial position as of December 31, 1995, and the results of its operations for the three months ended December 31, 1995 and 1994, and cash flows for the three months then ended. All such adjustments are of a normal and recurring nature. The statements have been prepared in accordance with accounting policies set forth in the Company's 1995 annual report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements therein. The statement of consolidated earnings for the three month period ended December 31, 1995 is not necessarily indicative of the results to be expected for other interim periods or for the full year. Shareholder Rights Plan: On January 17, 1996, the Company adopted a shareholder rights plan and has made a dividend distribution of one Preferred Share Purchase Right with respect to each outstanding share of common stock to all common shareholders of record on February 2, 1996. Separate Rights Certificates will not be distributed as the Rights will automatically trade with the common stock currently outstanding. Each Right would entitle the holder to purchase one one-hundredth of a share of a new series of preferred stock at an exercise price of $300. The Rights are not currently exercisable but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 15 percent or more of the outstanding shares of common stock. The Rights expire on January 17, 2006. Long-Term Incentive Compensation Plan: At the annual meeting on January 10, 1996, a long-term compensation plan was approved. The Company has not yet determined what method of accounting it will adopt for the option plan. 	PART I - ITEM 2 	WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES 	MANAGEMENT'S DISCUSSION AND ANALYSIS OF 	FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net billings for products and services delivered to customers in the first quarter ending December 31, 1995, decreased slightly to $88,142,000 from $90,429,000 last year. Costs and expenses for the first quarter decreased over 4% from $84,968,000 in fiscal year 1995 to $81,183,000 this year. Net earnings increased almost $1,000,000 or 30% from $3,222,000 last year to $4,175,000. Earnings per share are $1.44 for the first quarter this year compared to $1.10 last year. Ongoing Operations When comparing ongoing operations (excluding Bauer Aerospace) for the two years, it is important to keep in mind certain unique items. Last year included over $7,000,000 in net billings for reimbursement of non-recurring engineering charges that were incurred in previous years. Without this, last year's shipments would have been over $81,000,000, 6% less than this year's total of almost $86,000,000. Included in costs and expenses for the first quarter last year were $2,800,000 for an early retirement program at domestic plants and costs related to the move of the Hydraulic Turbine Controls business unit. Without these items, costs and expenses last year would have been almost $81,000,000, compared to this year's costs and expenses from ongoing operations of almost $79,000,000. The effort to control costs and improve profitability is continuous and results are being reflected in the first quarter. Worker membership at December 31, 1995 for ongoing operations was 3,073 compared to 3,278 at December 31, 1994. Shipments from the ongoing operations of the Aircraft Controls group were $35,096,000 for the first quarter of fiscal 1996. Last year's shipments were also just over $35,000,000 after excluding the non-recurring engineering charges. This reflects what we expected to see in the aircraft market, a flat to slight growth scenario. Industrial Controls' shipments were up almost 10% from last year, $50,865,000 this year compared to $46,364,000 last year. The trend of last year has continued into the first quarter of this year as shipments at the domestic locations are down slightly and overseas shipments are up substantially. While there is some positive impact on shipments due to foreign currency exchange rate fluctuations, the bulk of the increase is due to volume increases. Balance Sheet Cash and cash equivalents decreased to $12,146,000 at December 31, 1995 from $12,451,000 at September 30, 1995. Accounts receivable decreased from $81,880,000 at September 30, 1995 to $69,497,000 at December 31, 1995, due to the high shipment level in the last two months of the fiscal year. Inventories increased from $92,831,000 at September 30, 1995 to $95,372,000 at December 31, 1995. Property, plant and equipment-net has decreased due to depreciation being greater than capital expenditures. Short-term borrowings have been reduced from $30,297,000 at September 30, 1995 to $29,031,000 at December 31, 1995. Accounts payable and accrued expenses decreased from $50,765,000 at September 30, 1995 to $39,622,000 due in part to reductions in accounts payable, payments for accrued early retirement programs and member benefit accounts. Currency translation adjustment decreased from September 30, 1995 as a result of fluctuations in exchange rates. The Company's effective tax rate for the three months ended December 31, 1995 and 1994 was 40.0% and 41.0% respectively. The effective tax rate for the fiscal year ended September 30, 1995 was 40.9%. On January 17, 1996 the Company adopted a shareholder rights plan. No changes in shareholder equity have occurred. At the annual meeting on January 10, 1996, a long-term incentive compensation plan was approved for certain managers and officers. The Company has not yet determined what method of accounting it will adopt for the option plan. 	 	PART II - OTHER INFORMATION Item 4 At the January 10, 1996 annual meeting of the shareholders, two items were submitted to a vote. (1) was the re-election of three directors whose terms expired this year. The results of the voting were as follows: Number of Number of Shares Number of Director Shares For Against/Withheld Abstentions John A. Halbrook 2,615,973	 45,038	 None Mark Leum 2,595,906 65,105 None Michael T. Yonker 2,613,868 47,143 None In addition, broker non-votes totaled 129,000. (2) Long-Term Incentive Compensation Plan. The results of the voting on this item were as follows: For Against Abstain 1,875,053 160,589 358,277 Item 6(b) Form 8-K was electronically filed on January 19, 1996, with respect to Woodward Governor Company's press release dated January 17, 1996 announcing adoption of a shareholder rights plan. 	SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 	WOODWARD GOVERNOR COMPANY February 14, 1995 /s/ John A. Halbrook John A. Halbrook, Chairman, Chief Executive Officer and President February 14, 1995 /s/ Vern H. Cassens Vern H. Cassens, Senior Vice President, Treasurer, and Chief Financial Officer