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 March 31, 1996 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 April 30, 1996, 2,889,482 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 March 31, 1996 INDEX Description				 Part I.	Financial Information 	Item 1.	Financial Statements 			Statements of Consolidated Earnings for the	 			 Three Months Ended March 31, 1996 and 1995 			 Statements of Consolidated Earnings for the Six	 			 Months Ended March 31, 1996 and 1995 			 Consolidated Balance Sheets as of	 			 March 31, 1996 and September 30, 1995 			 Statements of Consolidated Cash Flows for the Six	 			 Months Ended March 31, 1996 and 1995 	 			 Note 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 March 31,1996 and 1995 (in thousands except per share amounts) (Unaudited) 1996 1995 Net billings for products and services $106,785 $89,798 Costs and expenses: Cost of goods sold 80,343 67,201 Sales, service and administrative expenses 16,419 15,573 Restructuring expense - $1,201 Interest expense $879 968 Interest (income) (206) (84) Miscellaneous expense, net 1,767 2,440 829 2,914 Total costs and expenses 99,202 85,688 Earnings before income taxes 7,583 4,110 Income taxes 3,033 1,685 Net earnings $4,550 $2,425 Net earnings per share $1.57 $0.84 Average shares outstanding 2,889 2,918 Cash dividends per share $0.93 $0.93 See accompanying note to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED EARNINGS for the six months ended March 31, 1996 and 1995 (in thousands except per share amounts) (Unaudited) 1996 1995 Net billings for products and services $194,927 $180,228 Costs and expenses: Cost of goods sold 145,100 131,725 Sales, service and administrative expenses 31,444 30,975 Restructuring expense - $4,737 Interest expense $1,808 1,826 Interest (income) (341) (206) Miscellaneous expense, net 2,374 3,841 1,599 7,956 Total costs and expenses 180,385 170,656 Earnings before income taxes 14,542 9,572 Income taxes 5,817 3,924 Net earnings $8,725 $5,648 Net earnings per share $3.01 $1.94 Average shares outstanding 2,889 2,918 Cash dividends per share $1.86 $1.86 See accompanying note to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands of dollars) MARCH SEPTEMBER 31, 1996 30, 1995 (Unaudited) Assets Current assets: Cash and cash equivalents $13,754 $12,451 Accounts receivable, less allowance for losses of $4,762 for March and $4,605 for September 72,042 81,880 Inventories 95,168 92,831 Deferred income taxes 21,853 21,853 Total current assets 202,817 209,015 Property, plant and equipment, at cost: Land 6,436 6,674 Buildings and improvements 120,999 121,870 Machinery and equipment 180,206 175,455 Construction in progress 1,590 985 309,231 304,984 Less allowance for depreciation 194,267 186,918 Property, plant and equipment - net 114,964 118,066 Intangibles and other assets 5,379 4,741 Deferred income taxes 17,734 17,777 Total assets $340,894 $349,599 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $25,722 $30,297 Current portion of long-term debt 4,867 4,867 Accounts payable and accrued expenses 46,953 50,765 Taxes on income 5,701 6,722 Total current liabilities 83,243 92,651 Long-term debt, less current portion 27,658 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 13,178 13,560 Unearned stock plan compensation (17,249) (17,333) Currency translation adjustment 15,035 16,802 Retained earnings 199,106 195,598 210,260 208,817 Less treasury stock, at cost 11,516 10,914 198,744 197,903 Total liabilities and shareholders' equity $340,894 $349,599 See accompanying note to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS For the six months ended March 31, 1996 AND 1995 (in thousands of dollars) (Unaudited) 1996 1995 Cash flows from operating activities: Net earnings $8,725 $5,648 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation and amortization 11,496 12,291 Deferred income taxes, noncurrent 42 13 Stock plan compensation expense 83 222 Changes in assets and liabilities: Accounts receivable 9,321 4,722 Inventories (2,718) (10,506) Current liabilities, other than short-term borrowings and current portion of long-term debt (3,854) 16,078 Other, net (601) 235 Total adjustments 13,769 23,055 Net cash provided by operating activities 22,494 28,703 Cash flows from investing activities: Payments for purchase of property, plant and equipment (9,614) (8,100) Other 573 (340) Net cash (used) in investing activities (9,041) (8,440) Cash flows from financing activities: Cash dividends paid (5,401) (5,434) Proceeds from sale of treasury stock 436 - Purchase of treasury stock (1,479) (1,872) Payments of long-term debt (138) (132) Short-term borrowings proceeds (payments) (4,568) (13,528) Tax benefit applicable to ESOP dividend 184 196 Net cash (used) in financing activities (10,966) (20,770) Effect of exchange rate changes on cash (1,184) (191) Net change in cash and cash equivalents 1,303 (698) Cash and cash equivalents, beginning of year 12,451 10,272 Cash and cash equivalents, end of quarter $13,754 $9,574 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid (net of amount capitalized) $1,833 $1,837 Income taxes paid $6,652 $3,168 See accompanying note to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES NOTE TO CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of March 31, 1996, and the statements of consolidated earnings and cash flows for the three and six month periods ended March 31, 1996 and 1995, 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 March 31, 1996, and the results of its operations for the three and six month periods ended March 31, 1996 and 1995, and cash flows for the six 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 statements of consolidated earnings for the three and six month periods ended March 31, 1996 are not necessarily indicative of the results to be expected for other interim periods or for the full year. 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 during the second quarter ended March 31, 1996, increased almost 19% to $106,785,000 from $89,798,000 last year. Costs and expenses for the second quarter increased 16% from $85,688,000 in fiscal year 1995 to $99,202,000 this year. Net earnings for the quarter increased more than $2,100,000 or 88% from $2,425,000 last year to $4,550,000 this year. Earnings per share are $1.57 for the second quarter this year compared to $.84 last year. Year-to-date shipments for fiscal 1996 of $194,927,000 were $14,699,000 or 8% more than shipments for the same period of 1995. Total costs and expenses for the six month period were $180,385,000, an increase of $9,729,000 or almost 6% from last year's total of $170,656,000. Net earnings were up over 54% from last year and total $8,725,000, compared to $5,648,000. Earnings per share increased from $1.94 in 1995 to $3.01 in 1996. Ongoing Operations When comparing the six month ongoing operations (excluding Bauer Aerospace) for both years, it is important to keep in mind certain unique items. Last year included over $7,000,000 in net billings for reimbursement of nonrecurring engineering charges that were incurred in previous years. Without this, last year's shipments would have been $171,040,000, 12% less than this year's total of $192,315,000. This increase is due principally to additional volume, as price increases are difficult to achieve in these competitive markets. Included in costs and expenses for the first six months of fiscal 1995 were $9,100,000 for an early retirement program at domestic plants, costs related to the move of the Hydraulic Turbine Controls business unit and the ongoing restructuring and consolidation of the Aircraft Controls group. Without these items, costs and expenses for the first six months of 1996 have increased more than 11% to $177,305,000 from $159,500,000 in 1995. The increase in costs and expenses is also mainly due to additional volume as was the increase in shipments. Shipments from the ongoing operations of the Aircraft Controls group have increased 14% to $81,701,000 for the first six months of fiscal 1996 compared to fiscal 1995 shipments of $71,804,000, excluding the nonrecurring engineering charges. The increase in shipments reflects the stabilization and a slightly higher level of demand in the commercial aircraft markets, particularly aftermarket spares and overhauls. Industrial Controls shipments were up more than 11% from last year, $110,614,000 this year compared to $99,196,000 last year. Domestic shipments have increased slightly over last year while 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 additional volume. Bauer Aerospace Status As noted in previous reports, attempts continue to divest ourselves of Bauer Aerospace. Shipments for the first six months of fiscal 1996 were $2,612,000, compared to $1,588,000 last year. Costs and expenses were $3,080,000 for this year and $2,064,000 last year. There were 32 members at Bauer on March 31, 1996 compared to 45 on March 31, 1995. Balance Sheet Accounts receivable have decreased from $81,880,000 at September 30, 1995 to $72,042,000 at March 31, 1996 due to the higher level of shipments in the last two months of last fiscal year. Inventories have increased to $95,168,000 at March 31, 1996 from $92,831,000 at September 30, 1995. Property, plant and equipment-net has decreased from September 30, 1995 due to capital expenditures being less than depreciation. Short term borrowings decreased from $30,297,000 at September 30, 1995 to $25,722,000 at March 31, 1996. Accounts payable and accrued expenses have decreased to $46,953,000 at March 31, 1996 from $50,765,000 at September 30, 1995 due in part to accounts payable and payments for the accrued early retirement programs and member benefit accounts. The company's effective tax rate for the six months ended March 31, 1996 and 1995 was 40.0% and 41.0%, respectively. The effective tax rate for the fiscal year ended September 30, 1995 was 40.9%. Other On January 17, 1996, the Company adopted a shareholder rights plan and a dividend distribution of one Preferred Share Right with respect to each outstanding share of common stock was made to all common shareholders of record on February 2, 1996. All shareholders received separate notice and information regarding this action. This step was taken to safeguard the value of the shareholder investment in the Company. PART II - OTHER INFORMATION 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 May 14, 1996 /s/ John A. Halbrook John A. Halbrook, President and Chief Executive Officer May 14, 1996 /s/ Vern H. Cassens Vern H. Cassens, Senior Vice President, Treasurer, and Chief Financial Officer