PART I

Forward Looking Statements

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

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

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description of our plans and expectations for future operations;

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the effect of economic downturns or growth in particular regions;

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

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

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

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

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new business opportunities;

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restructuring costs and savings;

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

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the outcome of contingencies;

	•		future repurchases of common stock;

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future levels of indebtedness and capital spending; and

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pension plan assumptions and future contributions.

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

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

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the instability in the financial markets and prolonged unfavorable economic and other industry conditions;

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our ability to obtain financing, on acceptable terms or at all, to implement our business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to business pressures;

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

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

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

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our ability to manage our expenses and product mix while responding to sales increases or decreases;

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the ability of our subcontractors to perform contractual obligations and our suppliers to provide us with materials of sufficient quality or quantity required to meet our production needs at favorable prices or at all;

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

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our debt obligations, our debt service requirements, and our ability to operate our business, pursue business strategies and incur additional debt in light of covenants contained in our outstanding debt agreements;

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risks related to our U. S. Government contracting activities;

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

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

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environmental liabilities related to manufacturing activities;

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

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the geographical location of a ~~significant~~ portion of our ~~Airframe Systems~~Aerospace business is in California, which historically has been susceptible to natural disasters;

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

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liabilities resulting from legal and regulatory proceedings, inquiries, or investigations by private or U.S. Government persons or entities;

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risks from operating internationally, including the impact on reported earnings from fluctuations in foreign currency exchange rates, and changes in the legal and regulatory environments of countries in which we operate;

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fair value of defined benefit plan assets and assumptions used in determining our retirement pension and other postretirement benefit obligations and related expenses including, among others, discount rates and investment return on pension assets; and

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

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

Therefore, actual results could differ materially and adversely from those expressed in any forward-looking statements. For additional information regarding factors that may affect our actual financial condition and results of operations, see the information under the caption “Risk Factors” in Item 1A in this Annual Report onForm 10-K for the fiscal year ~~ended~~ending September 30, ~~2010~~2011 (this “~~Form 10-K~~”“Form 10-K”). We undertake no obligation to revise or update any forward-looking statements for any reason.

Unless we have indicated otherwise or the context otherwise requires, references in this Form 10-K to “Woodward,” “the Company,” “we,” “us,” and “our” refer to Woodward, ~~Governor Company~~Inc. and its consolidated subsidiaries.

Amounts presented in thisForm 10-K are in thousands except per share amounts.


Item 1.		Business

General

We are an independent designer, manufacturer, and service provider of energy control and optimization solutions. We design, produce and service reliable, efficient, low-emission, and high-performance energy control products for diverse applications in challenging environments. We have significant production and assembly facilities in the United States, Europe and Asia, and promote our products and services through our worldwide locations.

Our strategic focus is providing energy control solutions for the aerospace and ~~optimization solutions.~~energy markets. The precise and efficient control of energy, including fluid and electrical energy, combustion, and motion, is a growing requirement in the markets we serve. Our customers look to us to optimize the efficiency, emissions and operation of power equipment in both commercial and military operations. Our core technologies leverage well across our markets and customer applications, enabling us to develop and integrate cost-effective and state-of-the-art fuel, combustion, fluid, actuation and electronic systems. We focus primarily on original equipment manufacturers (“OEMs”) and equipment packagers, partnering with them to bring superior component and system solutions to their demanding applications. We also provide aftermarket repair, replacement and other service support for our installed products.

Our components and integrated systems optimize performance of commercial aircraft, military aircraft, ground vehicles and other equipment, gas and steam turbines, wind turbines, including converters and power grid related equipment, industrial diesel, gas and alternative fuel reciprocating engines, and electrical power systems. Our innovative fluid energy, combustion control, electrical energy, and motion control systems help our customers offer more cost-effective, cleaner, and more reliable equipment. Our customers include leading OEMs and the end users of their products.

During the third quarter of fiscal year 2011, Woodward acquired all of the outstanding stock of Integral Drive Systems AG and its European companies, including their respective holding companies (“IDS”) and the assets of IDS’ business in China (together the “IDS Acquisition”). IDS is a developer and manufacturer of innovative power electronic systems predominantly in utility scale wind turbines and photovoltaic power plants. Additionally, IDS offers key products in power distribution and marine propulsion systems. IDS’ products are used in offshore oil and gas platforms, energy storage and distribution systems and a variety of industrial applications, in addition to wind turbines and photovoltaic plants. Woodward believes the IDS Acquisition expands its presence in wind converter offerings and reduces its time to market with expansion of solar energy, energy storage and marine drives. IDS is being integrated into Woodward’s Energy segment.

We were established in 1870, incorporated in 1902, and are headquartered in Fort Collins, Colorado. The mailing address of our world headquarters is 1000 East Drake Road, Fort Collins, Colorado 80525. Our telephone number at that location is (970) 482-5811, and our website iswww.woodward.com.

~~Products, Services~~Markets and Principal Lines of Business

We serve two primary markets — aerospace and energy.

Within the aerospace market, we provide systems, components and solutions for both commercial and military applications. Our key focus areas within this market are:

Propulsion system control solutions for turbine powered aircraft; and

Actuation systems and motion control solutions.

Within the energy market, our key focus areas are:

Control solutions for equipment that produce electricity using conventional or renewable energy sources;

Solutions for the control of power quality, distribution and storage on the electrical grid; and

Control solutions for power equipment used in the extraction, distribution, and conversion of renewable and fossil fuels in marine, locomotive, and industrial equipment applications.

Our customers demand technological solutions to meet their needs for performance, efficiency and reliability. Our systems and products are ~~a global leader in energy control~~designed to improve fuel efficiency and operating performance, and reduce emissions and costs of operation.

As of September 30, 2011, we reorganized our reportable segments to better align with our markets. We now have two reportable segments — Aerospace and Energy. Both of our reportable segments are comprised of multiple business groups, which focus on particular applications within the aerospace ~~& defense~~ and energy ~~markets that we serve. We design, produce and service components and integrated systems that manage and control~~markets. Our Aerospace segment combines the ~~energy~~aircraft propulsion portion of fluid movement, motion, combustion and electricity. Our prices, technology, quality, and customer service allow us to compete effectively within dozens of unique aerospace, defense and energy market niches and against various other manufacturers, including the in-house operations of certain OEMs. Examples of our market niches include motors for moving aircraft flight surfaces, fuel pumps for large diesel engines, and fuel nozzles for industrial gas turbines. We believe we have a significant position in the markets for fuel systems for aircraft and inverters for wind turbines.

~~We serve two significant markets — the aerospace & defense market and the energy market — through our four operating business segments:~~former Turbine Systems business group, which we now refer to as the Aircraft Turbine Systems business group, with our Airframe Systems business group. Our Energy segment combines the industrial turbine portion of the former Turbine Systems business group, which we now refer to as the Industrial Turbomachinery Systems business group, with our Engine Systems and Electrical Power Systems ~~and Engine Systems.~~business groups.

All information in this Annual Report on Form 10-K, including comparative financial information, has been retrospectively revised to reflect the realignment of our reportable segments. We use segment information internally to manage our business, including the assessment of business segment performance and ~~making~~ decisions onfor the allocation of resources between segments.

~~Turbine Systems~~

Our Turbine Systems segment develops and manufactures systems and components that provide energy control and optimization solutions for commercial and military aircraft propulsion applications, including fuel and combustion systems for turbine engines in our aerospace & defense markets, and for the industrial gas and steam turbines in our energy markets.

We provide integrated fuel control and combustion systems comprised of components such as electronic controls, fuel pumps, metering units, actuators, valves and fuel nozzles. Our OEM customers manufacture turbines for use in aerospace propulsion and both gas and steam turbines for power generation, industrial process, and large marine propulsion applications. Our customers also include end users of those applications and third party repair facilities.

Turbine Systems revenues from the aerospace & defense markets are generated primarily from the sale of components and integrated systems directly to OEMs and through aftermarket sales of components as provisioning spares or replacements. We also provide aftermarket repair, overhaul and other services to commercial airlines, turbine OEM repair facilities, military depots, third party repair shops, and end users. We have content on some of the world’s most popular and newest commercial and business jet airframes, including the Airbus A320, the Boeing 777, and the Boeing 787.

Turbine Systems’ revenues in the energy market are generated primarily from the sale of industrial products directly to OEM manufacturers, although we also generate some aftermarket sales through distributors, dealers and independent service facilities.

~~Airframe Systems~~

Our Airframe Systems segment develops and manufactures high-performance cockpit, electromechanical and hydraulic motion control systems, and mission-critical actuation systems and controls, including actuators, hydraulic motors, gears and sensors. These systems and controls are used in commercial and military fixed wing and rotary aircraft, combat vehicles and weapons systems, including guided weapons, and electro-optical targeting and motion suppression systems programs for combat vehicles, including the M1A1 Abrams tank.

Airframe Systems revenues from the aerospace & defense markets are generated primarily by sales to OEMs and tier-one prime contractors. We also generate some aftermarket sales through distributors, dealers and independent service facilities.

Airframe Systems was formed in fiscal year 2009 when we acquired MPC Products Corporation (“MPC”) and also includes our subsequent acquisition of HR Textron Inc. (“HRT”). Additional information about the acquisitions of MPC and HRT is included in Note 4,~~Business acquisitions and dispositions~~~~, to the Consolidated Financial Statements, in “Item 8 — Financial Statements and Supplementary Data.”~~

~~Electrical Power Systems~~

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

We design, produce and service power converters for wind turbines, and integrated control systems and electronic control devices that measure, communicate and protect energy flows for low and medium voltage distribution systems through the Electrical Power Systems segment. Power converters are a critical component for delivering stable, high-quality power to the grid by controlling the voltage and power from the wind turbine generator, so that distributed voltage and frequency are constant and independent of the variable rotation speed of the wind turbine.

Electrical Power Systems revenues from the energy market are generated primarily from sales to OEMs that manufacture diesel or gas powered power stations, generator sets, wind turbines, and switchgear equipment. We also sell components as aftermarket spares or replacements, and provide other related services to these OEMs and, in some cases, directly to end users or other distributors. We also provide repair, overhaul and other services to end customers, OEM customers, and equipment operators as part of the wind power and power station side of our business.

~~Our customers demand technological solutions to meet their needs for security, quality, reliability and availability of electrical power networks.~~

~~Engine Systems~~

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

Engine Systems provides integrated control systems and control components, such as electronics, governors, actuators, valves, pumps, injectors, solenoids and ignition systems through the Engine Systems segment primarily to OEMs that manufacture diesel, gas and alternative fuel reciprocating engines. Engine Systems also sells to distributors for resale into power generation, transportation and process applications. Our products are used in end products ranging from forklifts to heavy industrial mining vehicles, as well as large marine engines and industrial power generators.

~~Engine Systems also sells components as spares or replacements and provide repair, overhaul and other services to OEM customers and equipment operators.~~

To support our OEMs’ customers and end users, Engine Systems sells components and services through our global channel partners (distributors, independent service facilities, and control system retrofit partners).

~~Markets~~

~~We serve the aerospace & defense and energy markets through our four business segments.~~

Our aerospace & defense products are primarily used to provide energy and motion control in both commercial and military fixed wing and rotary aircraft and in various other defense platforms, including guided weapon systems and combat vehicles.

~~Our energy products are used in global power generation and distribution, and to control energy in industrial, mobile and marine equipment.~~

Products, Services and Applications

Aerospace

Our Aerospace segment designs, produces and services systems and products for the management of fuel, air, combustion and motion. These products include pumps, valves, fuel nozzles, metering units, cockpit controls, actuators, motors, and sensors. These products are used on commercial, business and military aircraft, as well as weapons and defense systems. We also have significant content on a wide variety of commercial aircraft, rotorcraft and business jet platforms, including the Airbus A320, Boeing 787, Bell 429 and the Gulfstream G650. We also have significant content on military applications, such as the Blackhawk helicopter, F-35 fighter jet, M1A1 Abrams Tank and guided tactical weapons, such as the Direct Attack Guided Rocket (“DAGR”).

Revenues from the Aerospace segment are generated primarily by sales to OEMs and tier-one prime contractors, and through aftermarket sales of components as provisioning spares or replacements. We also provide aftermarket repair, overhaul and other services to commercial airlines, turbine OEM repair facilities, military depots, third party repair shops, and end users.

Energy

Our Energy segment designs, produces and services systems and products for the management of fuel, air, fluids, gases, electricity and motion. These products include power converters, actuators, valves, pumps, injectors, solenoids, ignition systems, governors, electronics and devices that measure, communicate and protect low and medium voltage electrical distribution systems. Our products are used on industrial gas turbines, aeroderivative turbines, reciprocating engines, electrical grids, wind turbines and compressors. The equipment on which our products are found is used to extract and distribute fossil fuels, generate, distribute or store electricity, and to convert fuel to work in marine, locomotive and industrial equipment applications.

Revenues from the Energy segment are generated primarily by sales to OEMs and tier-one prime contractors, through aftermarket sales or replacements, and by providing other related services to our OEM customers and, in some cases, directly to end users or distributors.

Sales Order Backlog

Our backlog of unshipped sales orders as of October 31, ~~2010~~2011 and ~~2009~~2010 by segment was as follows:

% Expected to be
October 31, filled by
September 30, October 31,
2010 2011 2009

Turbine Systems $ 184,438 90 % $ 175,053
Airframe Systems 387,639 67 424,823
Electrical Power Systems 84,198 58 56,943
Engine Systems 81,420 94 70,283

$ 737,695 74 % $ 727,102


			% Expected to be
	October 31,		filled by September 30,			October 31,
	2011		2012			2010

Aerospace	$	492,263		81	%	$	493,419
Energy		266,827		88			244,276

	$	759,090		84	%	$	737,695

Our current estimate of the sales order backlog is based on unshipped sales orders that are open in our order entry systems. Unshipped orders are not necessarily an indicator of future sales levels because of variations in lead times and customer production demand pull systems.

Seasonality

We do not believe that our sales, in total or in ~~any~~either business segment, are subject to significant seasonal variation. However, our sales have generally been lower in the first quarter of our fiscal year ~~and higher in~~as compared to the ~~final three quarters of our fiscal year. The first fiscal~~immediately preceding quarter ~~of each year includes~~due to fewer working days ~~due to~~resulting from the observance of various holidays and scheduled plant ~~shut-downs~~shutdowns for annual maintenance.

Sales to ~~one of~~ our ~~customers,~~largest customer, General Electric, accounted for approximately ~~15%~~14%, ~~17%~~15%, and 17% of consolidated net sales in each of the fiscal years ~~ended~~ending September 30, 2011, 2010 and 2009, ~~and 2008,~~ respectively. Sales to another customer, Caterpillar, accounted for approximately 5%, 5%, and 10% of consolidated net sales in each of the fiscal years ended September 30, 2010, 2009 and 2008, respectively. No other customers represented 10% or more of our sales in fiscal year 2010, fiscal year 2009 or fiscal year 2008.

Our accounts receivable from General Electric represented approximately ~~14%~~11% of total accounts receivable as of September 30, ~~2010~~2011 and ~~15%~~14% as of September 30, ~~2009.~~2010. We believe General Electric and our other significant customers are creditworthy and will be able to satisfy their credit obligations to us.

The customers who account for approximately 10% or more of sales to each of our business segments for the fiscal year ~~ended~~ending September 30, ~~2010~~2011 follow:


		Customer

~~Turbine Systems~~Aerospace		United Technologies; Boeing; General Electric
Energy		General Electric; ~~United Technologies~~
~~Airframe Systems~~		~~Boeing; General Dynamics~~
~~Electrical Power Systems~~		~~REpower Systems; Nordex Energy~~
~~Engine Systems~~		~~Caterpillar; Cummins~~Caterpillar

Government Contracts and Regulation

Portions of our ~~businesses,~~business, particularly in our ~~Turbine Systems and Airframe Systems segments,~~Aerospace segment, are heavily regulated. We contract with numerous U.S. Government agencies and entities, including all of the branches of the U.S. military, the National Aeronautics and Space Administration (“NASA”), and the ~~Department~~Departments of Defense, Homeland Security, and Transportation. We contract with similar government authorities outside the United States with respect to our international efforts.

The U.S. Government, and other governments, may terminate any of our government contracts (and, in general, subcontracts) at their convenience, as well as for default based on specified performance measurements. If any of our government contracts were to be terminated for convenience, we generally would be entitled to receive payment for work completed and allowable termination or cancellation costs. If any of our government contracts were to be terminated for our default, the U.S. Government generally would pay only for the work accepted, and could require us to pay the difference between the original contract price and the cost to re-procure the contract items, net of the work accepted from the original contract. The U.S. Government could also hold us liable for damages resulting from the default.

We must comply with, and are affected by, laws and regulations relating to the formation, administration and performance of U.S. Government contracts. These laws and regulations, among other things:

require accurate, complete and current disclosure and certification of cost and pricing data in connection with certain contracts;

impose specific and unique cost accounting practices that may differ from accounting principles generally accepted in the United States (“U.S. GAAP”), and therefore require reconciliation;

impose ~~acquisition~~ regulations that define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. Government contracts;

impose ~~manufacture,~~manufacturing, specifications and other quality standards that may be ~~further~~more restrictive than for non-government business activities; and

restrict the use and dissemination of information classified for national security purposes and with respect to both the U.S. ~~Government~~Government’s and the governments of foreign ~~countries~~countries’ regulations pertaining to the export of certain products and technical data.

Sales made directly to U.S. Government agencies and entities, or indirectly through third party manufacturers utilizing Woodward parts and subassemblies, collectively represent 19% of our sales for fiscal year 2011, 23% of our ~~sales.~~sales for fiscal year 2010 and 20% of our sales for fiscal year 2009. The level of U.S. spending for defense, alternative energy, and other programs is subject to periodic congressional appropriation actions, ~~which are~~and is subject to change at any time, including the mix of programs to which such funding is allocated.

U.S. government related sales ~~for~~from our business segments for fiscal year ~~2010~~2011 and fiscal year ~~2009~~2010 follows:

Direct U.S. Indirect U.S.
Government Government Commercial
Sales Sales Sales Total

Fiscal year ended September 30, 2010

Turbine Systems $ 49,589 $ 49,996 $ 501,791 $ 601,376
Airframe Systems 15,175 212,588 148,419 376,182
Electrical Power Systems 248 66 186,477 186,791
Engine Systems 630 359 291,692 292,681

Total net external sales $ 65,642 $ 263,009 $ 1,128,379 $ 1,457,030

Percentage of total net sales 5 % 18 % 77 % 100 %

Fiscal year ended September 30, 2009

Turbine Systems $ 51,770 $ 48,588 $ 517,592 $ 617,950
Airframe Systems 20,684 159,084 139,241 319,009
Electrical Power Systems 105 180 194,715 195,000
Engine Systems 1,725 1,106 295,335 298,166

Total net external sales $ 74,284 $ 208,958 $ 1,146,883 $ 1,430,125

Percentage of total net sales 5 % 15 % 80 % 100 %


	Direct U.S.			Indirect U.S.
	Government			Government			Commercial
	Sales			Sales			Sales			Total

Fiscal year ending September 30, 2011
Aerospace	$	67,116		$	252,462		$	523,454		$	843,032
Energy		3,448			7,530			857,692			868,670


Total net external sales	$	70,564		$	259,992		$	1,381,146		$	1,711,702


Percentage of total net sales		4	%		15	%		81	%		100	%


Fiscal year ending September 30, 2010
Aerospace	$	62,287		$	257,715		$	449,377		$	769,379
Energy		3,355			5,294			679,002			687,651


Total net external sales	$	65,642		$	263,009		$	1,128,379		$	1,457,030


Percentage of total net sales		5	%		18	%		77	%		100	%

Manufacturing

We operate manufacturing and assembly plants in the United States, Europe and Asia. Our products consist of mechanical, electronic and electromagnetic systems and components.

Aluminum, iron and steel are ~~the~~ primary raw materials used to produce our mechanical components. Other commodities, such as gold, copper and nickel, are also used in the ~~production~~manufacture of our products, although in much smaller quantities. We purchase various goods, including component parts and services used in production, logistics and product development processes from third parties. Generally there are numerous sources for the raw materials and components used in our products, which we believe are sufficiently available to meet current requirements.

We maintain global strategic sourcing models to meet our global facilities’ production needs while building long-term supplier relationships and efficiently managing our overall supply costs. We expect our suppliers to maintain adequate levels of quality raw materials and component parts, and to deliver such parts on a timely basis to support production of our various products. We use a variety of agreements with suppliers intended to protect our intellectual property and processes and to monitor and mitigate risks of disruption in our supply base that could cause a business disruption to our production schedules or to our customers. The risks monitored include supplier financial viability, business continuity, quality, delivery and ~~delivery.~~protection of our intellectual property and processes.

Our customers expect us to maintain adequate levels of certain finished goods and certain component parts to support our warranty commitments and sales to our aftermarket customers, and to deliver such parts on a timely basis to support our customers’ standard and customary needs. We carry certain finished goods and component parts in inventory to meet these rapid delivery requirements of our customers.

Research and Development

We conduct research and development activities primarily with our own independent research and development funds, and also in some cases through customer funding. Our research and development costs include basic research, applied research, development, systems and other concept formulation studies. We also conduct ~~internal~~ research and development activities aimed at improving our manufacturing processes.

Company-sponsored independent research and development costs are charged to expenses when incurred. Costs related to specific customer development programs are sometimes inventoried and charged to costs depending on the specifics of the contractual arrangements. Under certain arrangements in which a customer shares in product development costs, our portion of the unreimbursed costs is expensed as incurred. Across all our segments, total research and development costs totaled $115,633 in fiscal year 2011, $82,560 in fiscal year 2010, and $78,536 in fiscal year 2009. Research and development costs were 6.8% of consolidated net sales in fiscal year 2011 compared to 5.7% in fiscal year 2010 and 5.5% in fiscal year 2009. See “Research and development costs” in Note 1,Operations and summary of significant accounting policies,to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data.”

Other development programs result in nearer-term commercial launches associated with new OEM offerings, product upgrades, or product replacements on existing turbine programs. These nearer-term programs frequently provide opportunities for us to advance our technological capabilities as we provide technologies to assist customers in satisfying increasingly stringent turbine requirements for both aircraft and industrial markets. Our development efforts support technology for a wide range ofof:

aerospace turbine applications, including ~~both~~ commercial, business and military engines of various thrust ~~classes in the aircraft market~~classes;

electromechanical and industrial turbine power plants, oil and gas production facilities, and military marine applications. As a result of these investments, our products are represented in many of the world’s significant recent turbine launches and high-profile turbine development programs.

~~Airframe Systems~~~~is developing highly integrated and advanced cockpit control and~~hydraulic actuation systems for cockpit-to-flight surface control of fixed wing aircraft and rotorcraft applications, as well as weapon systems applications; and

motion control components for ~~motion control and sensing in the aerospace, weapons and defense markets.~~ integration into comprehensive actuation systems.

The aerospace industry ~~has moved~~is moving toward more ~~electric~~electronic (“fly-by-wire”), lighter weight aircraft, while demanding increased reliability and redundancy. Airframe Systems invests in development programs to address the anticipated requirements of the industry and our customers. These development programs include integrated electromechanical sensor and actuation solutions to support the more electric aircraft effort, technology to use composites for weight reductions in large hydraulic actuation systems, and technologies to provide fault tolerant capabilities for component, sensor and actuation systems. In ~~addition, Airframe Systems is~~response, we are developing an expanded family of intelligent cockpit control products (including throttle and rudder controls) with both conventional and fly-by-wire ~~technology.~~technology as well as motor driven actuation systems.

We collaborate closely with our customers in the early stages as they develop their new product concepts. We believe this collaboration allows us to develop technology that is aligned with our customers’ needs and therefore, increases the likelihood that our systems and components will be selected for inclusion in the platforms developed by our customers. We believe our close collaboration with our customers during preliminary design stages allows us to provide products that deliver the component and system performance necessary for a successful launch of our customers’ product.

Some technology development programs begin years before an expected entry to service, such as those for the next-generation commercial aircraft engines. Other development programs result in nearer-term product launches associated with new OEM offerings, product upgrades, or product replacements on existing programs.

~~Electrical Power Systems~~Energyis developing power converters for multi-megawatt (“MW”) class wind turbines in the power range of 1 MW to 6MW, both for on-shore and off-shore-applications for wind power turbines. Modular product platforms are being extended to various customer applications and world regions. New research and development projects are focusingfocused on full-scale converters for applications with permanent magnet generators. The power generation division is focusing on extending the product portfolio of distributed generator system (“Genset”) controls for the parallel and non-parallel market and switchgear controls. Various product derivatives have been launched in an effort to meet customer needs in the different world regions. Electrical Power Systems is also finalizing the new generation of protection and control relays for medium-voltage applications and is modernizing the self powered protection relay line.

~~Engine Systems~~~~develops~~developing more efficient, cleaner technologies, including integrated control systems and system components that we believe will allow our OEM customers to cost-effectively meet mandated ~~exhaust~~ emissions regulations ~~ever increasing~~and fuel efficiency demands, ~~maximize~~allow for usage of a wider range of fuel ~~flexibility, and~~sources, support global infrastructure ~~requirements.~~ requirements, and safely distribute and store power on the electrical grid. Our development efforts support technology for a wide range of:

power converters for multi-megawatt (where megawatt is referred to as “MW”) class wind turbines in the power range of 1MW to 6MW, both for on-shore and off-shore-applications;

distributed generator system (“Genset”) controls;

controls for switchgear;

new generation of protection and control relays for medium-voltage applications;

modernization of the self powered protection relay lines;

industrial gas and steam turbines;

industrial compressors;

engines and turbines driving pumps, generators and compressors; and

engines and turbines used for propulsion of locomotive, marine and industrial equipment.

Our clean technology development efforts include controls for diesel, natural gas and alternative fuel ~~engines.~~engines, and full-scale converters. Major development projects, including diesel common rail systems, air and gaseous fuel systems, and automated diesel particulate regeneration systems are targeted for future global emissions regulations for the year 2015 and beyond.

We believe that our technologies make marine and industrial power generation and distribution, and alternative fueled bus, truck and ship engines operate cleaner, more efficiently, and more reliably.

Company-sponsored independent research and development costs are charged to expenses when incurred. Costs related to specific customer development programs are potentially inventoried and charged to costs depending on the specifics of the contractual arrangements. Under certain arrangements in which a customer shares in product development costs, our portion of the unreimbursed costs is generally expensed as incurred. Across all our segments, total research and development costs totaled $82,560 in fiscal year 2010, $78,536 in fiscal year 2009, and $73,414 in fiscal year 2008. Research and development costs were 5.7% of consolidated net sales in fiscal year 2010 compared to 5.5% in fiscal year 2009 and 5.8% in fiscal year 2008. See “Research and development costs” in Note 1,~~Operations and summary of significant accounting policies,~~~~to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data.”~~

Competitive Environment

Our products and product support services are sold worldwide into a variety of competitive markets. In all markets, we compete on the basis of differentiated technology and design, product performance and conformity with customer specifications, customer service and support, including on-time delivery and customer partnering, product quality, price, reputation and local presence. Each of our segments operates in a uniquely competitive environment.

We believe that new competitors face significant barriers to entry into many of our markets, including various government mandated certification requirements to compete in the aerospace ~~& defense~~ markets in which we participate.

Our competitors offer a broad range of turbine engine control and combustion management technologies, including actuators, electronic controls, fuel injection equipment, and engine emissions controls. We compete in part by establishing relationships with our customers’ engineering organizations, and by offering innovative solutions to their market problems.

Industrial turbine competitors include Young and Franklyn, Whittaker, PECC, Parker Hannifin, Goodrich Aerospace, Triconex, Compress Controls Corporation, Allen Bradley and Rexroth. OEMs with internal capabilities for similar products include Caterpillar, and Cummins. Aircraft turbine competitors include Goodrich Aerospace, Parker Hannifin, Honeywell Aerospace, and Hamilton Sundstrand (a division of United Technology Corporation). Service competition is addressed with responsiveness, short turn times, and geographical presence.

~~Airframe Systems~~operates in the aerospace and defense industry. The aerospace and defense industry requires suppliers to comply with significant product certification requirements, which forms a basis for competition as well as a barrier to entry. While the industry competes on the basis of all of these factors, technological innovation and design, product performance and conformity with customer specifications, and product quality are of significant importance in the aerospace and defense industry.

Our customers include airframe OEM manufacturers, and suppliers to these manufacturers. We supply these customers with technologically innovative components and system solutions. We align our technology roadmaps with our customers, and focus on responding to needs for cost, weight, and reliability improvements. We believe we have developed efficient manufacturing and assembly processes. Our products achieve high levels of field reliability, which we believe offers an advantage in life-cycle cost. Our competitors in ~~aerospace and defense~~Aerospace include divisions of Goodrich, Hamilton Sundstrand, Honeywell, Moog and Parker Hannifin. We address competition in aftermarket service through responsiveness to our customers needs providing short turnaround times and geographical presence.

~~In both the Turbine Systems and Airframe Systems segments, several~~Several competitors are also customers for our products, such as Hamilton Sundstrand, Parker Hannifin, and Honeywell. Some of our customers are affiliated with our competitors through ownership or joint venture agreements. We compete in part by establishing relationships with our customers’ engineering organizations, and by offering innovative solutions to their market problems.

~~Electrical Power Systems~~Energy~~is a leading OEM supplier offering components~~operates in the global markets for ~~the~~industrial turbine engines, industrial reciprocating engine combustion and management systems, including emissions control, fuel and air management, combustion, electronic control products, power generation and distribution ~~industry with~~(through a global network of sales and support ~~services. Our power generation~~services), and distribution competitors range from many small to medium sized regional companies to global competitors such as GE Multilin, ABB, Siemens, Schweitzer Electric, and Areva. We are developing new platforms that meet customer regional requirements and are intended to provide optimum balance between price and performance. On a global scale, we are a leader in providing products that we believe meet the increasing complexities of the market while maintaining superior quality, competitive price, and reliable support.

~~In the power conversion business, we are a leader in developing~~ converter technology for on-shore and off-shore wind turbines ranging in capacity from 1MW to 6MW. Our wind turbine inverter business has competition from both wind turbine OEMs with converter capabilities and from independent converter manufacturers. Independent converter manufacturing competitors include ABB, Converteam and Ingeteam. We believe we are a market leader in providing our customers advanced technology and superior product performance at a competitive price. Our electrical power systems segment assists in the development of, and provides contract manufacturing for, our other segments.

The global market for renewable wind energy technology is immature and changing rapidly. Delays in wind turbine installation caused by the recent economic downturn have led to over-capacity with manufacturers within the wind turbine industry. Management believes it is likely that market consolidation may lead to price becoming more important within the wind turbine converter market.

~~Engine Systems~~~~operates in the global markets for industrial engine management systems, including emissions control, fuel and air management, combustion, and electronic control products.~~

We compete with numerous companies who specialize in various engine management products, and our OEM customers are often capable of developing and manufacturing some of these same products internally. Many of our OEM customers are large global OEMs that require suppliers to be able to support them around the world and meet increasingly higher requirements in terms of quality, delivery, reliability and cost improvements.

Competitors include Heinzmann GmbH & Co., Robert Bosch AG, L’Orange GmbH, Hoerbiger, GE Multilin, ABB, Siemens, Schweitzer Electric, Areva and ~~Hoerbiger.~~Ingeteam. OEM customers with internal capabilities for similar products include General Electric, Caterpillar, Wartsila and Cummins.

~~Engine Systems strongly focuses~~We believe we are a market leader in providing our customers advanced technology and superior product performance at a competitive price. We focus on close relationships with ~~its~~our OEM customers’ engineering teams. Competitive success is based on the development of innovative components and systems that are aligned with the ~~OEM’s engine~~OEMs’ technology roadmaps to achieve future ~~engine~~ emission, efficiency, and fuel flexibility targets.

The ~~major OEMs are large~~ global ~~players requiring suppliers~~market for renewable wind energy technology is immature and changing rapidly. Delays in wind turbine installation caused by continued tight global credit availability and uncertainty, with respect to ~~be able~~incentives and overall economic environment, have led to ~~support them around~~over-capacity with manufacturers within the ~~globe~~wind turbine industry. Market consolidation has begun to occur and ~~to meet increasingly higher requirements in terms of quality, delivery, reliability and cost improvements.~~price has become an important factor within the wind turbine converter market.

Patents, Intellectual Property, and Licensing

We own numerous patents and have licenses for the use of patents owned by others, which relate to our products and their manufacture. In addition to owning a large portfolio of intellectual property, we also license intellectual property to and from third parties. For example, the U.S. Government has certain rights in our patents that are developed in performance of certain government contracts, and it may use or authorize others to use the inventions covered by such patents for government purposes as allowed by law. Unpatented process technology, including research, development and engineering technical skills and know-how, as well as unpatented production software and other intellectual property rights, are important to our overall business and to the operations of each of our business segments. While our intellectual property rights ~~in the aggregate~~taken together are important, we do not believe our business or ~~any~~either of our business segments would be materially affected by the expiration of any particular intellectual property rights or termination of any particular intellectual property patent license agreements.

As of September 30, ~~2010,~~2011, our Consolidated Balance Sheet includes ~~$292,149~~$268,897 of net intangible assets. This value represents the carrying values; net of amortization, of certain assets acquired in various business acquisitions and does not purport to represent the fair value of our intellectual property as of September 30, ~~2010.~~2011.

U.S. GAAP requires that research and development costs be expensed as incurred; therefore, as we develop new intellectual property in the normal course of business, the costs of developing such assets are expensed as incurred, with no corresponding intangible asset recorded.

Environmental Matters and Climate Change

The Company is regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions. Compliance with these existing laws has not had a material impact on our capital expenditures, earnings or global competitive position.

We are engaged in remedial activities, generally in coordination with other companies, pursuant to federal and state laws. When it is reasonably probable we will pay remedial costs at a site, and those costs can be reasonably estimated, we accrue a liability for such future costs with a related charge against our earnings. In formulating that estimate and recognizing those costs, we do not consider amounts expected to be recovered from insurance companies or others, until such recovery is assured. Our accrued liability for environmental remediation costs is not significant and is included in the line item “Accrued liabilities” in the Consolidated Balance Sheets in “Item 8 — Financial Statements and Supplementary Data.”

We generally cannot reasonably estimate costs at sites in the very early stages of remediation. Currently, we have one site in the later stages of remediation, and there is no more than a remote chance that a material amount of costs for remedial activities at any individual site, or at all sites in the aggregate, will be required.

Our manufacturing facilities generally do not produce significant volumes or quantities of byproducts, including greenhouse gases, that would be considered hazardous waste or otherwise harmful to the environment. We do not expect legislation currently pending or expected in the next several years to ~~significantly negatively~~have a significant negative impact on our operations in any of our segments.

Domestic and foreign legislative initiatives on emissions control, renewable energy, and climate change tend to favorably impact the sale of our energy control products. For example, our ~~Electrical Power Systems business~~Energy segment produces inverters for wind turbines and ~~our Engine Systems and Turbine Systems produce~~ energy control products that help our customers maximize engine efficiency and minimize wasteful emissions, including greenhouse gases.

Martin V. Glass, Age ~~55.~~56. President, Airframe Systems since April 2011; President, Turbine Systems ~~since~~ October ~~2009;~~2009 through April 2011; Group Vice President, Turbine Systems September 2007 through September 2009; Vice President of the Aircraft Engine Systems Customer Business Segment December 2002 through August 2007; Director of Sales, Marketing, and Engineering February 2000 through December 2002.

~~Dennis M. Benning~~, Age 69. President, Airframe Systems since October 2009; Group Vice President, Airframe Systems October 2008 through September 2009; Group Vice President, Engine Systems September 2007 through September 2008; Vice President, Center of Excellence Industrial Controls December 2002 through August 2007; General Manager, Center of Excellence Industrial Controls July 2002 through November 2002; Director of Operations, Aircraft Engine Systems January 2002 through June 2002.

Gerhard Lauffer, Age ~~49.~~50. President, Electrical Power Systems since October 2009; Group Vice President, Electrical Power Systems September 2007 through September 2009; Vice President and General Manager Electronic Controls March 2002 through August 2007; Managing Director Leonhard-Reglerbau GmbH 1991 through March 2002 when it was acquired by Woodward.

Sagar Patel, Age 45. President, Aircraft Turbine Systems since June 2011. Prior to this role, Mr. Patel was employed at General Electric for 18 years, most recently serving as President, Mechanical Systems, GE Aviation, from March 2009 through June 2010. He served as President, Aerostructures, GE Aviation from July 2008 through July 2009 and as President and General Manager, MRS Systems, Inc., BE Aircraft Engines, from October 2005 through June 2008.

Chad R. Preiss, Age ~~45.~~46. President, Engine Systems since October 2009; Group Vice President, Engine Systems October 2008 through September 2009; Vice President, Sales, Service, and Marketing, Engine Systems December 2007 through September 2008; and Vice President, Industrial Controls September 2004 through December 2007. Prior to this role, Mr. Preiss served in a variety of engineering and marketing/sales management roles, including Director of Business Development, since joining Woodward in 1988.

James D. Rudolph, Age 50. President, Industrial Turbomachinery since April 2011; Corporate Vice President, Global Sourcing October 2009 through April 2011; Vice President, Global Sourcing April 2009 through October 2009; Director of Global Sourcing April 2005 through April 2009; Director of Engineering for Industrial Controls March 2000 through April 2005. Prior to March 2000, Mr. Rudolph served in a variety of engineering, operations and sales roles since joining the company in 1984.

A. Christopher Fawzy,Age ~~41.~~42. Corporate Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer since October 2009; Vice President, General Counsel, and Corporate Secretary June 2007 through September 2009. Mr. Fawzy became the Company’s Chief Compliance Officer in August 2009. Prior to joining Woodward, Mr. Fawzy was employed by Mentor Corporation, a global medical device company. He joined Mentor in 2001 and served as Corporate Counsel, then General Counsel in 2003, and was appointed Vice President, General Counsel and Secretary in 2004.

~~Other Corporate Officers of the Registrant~~

Information about our other corporate officers is provided below. There are no family relationships between any of the corporate officers listed below or between any of the corporate officers listed below and the aforementioned executive officers.

~~Harlan G. Barkley~~, Age 57. Corporate Vice President, Information Technology since October, 2009; Vice President, Information Technology April 2009 through September 2009; Director, Global Information Technology from November 2002 through March 2009; Prior to joining Woodward in October 1999, Mr. Barkley was employed by Sundstrand Corporation/Hamilton Sundstrand for 19 years in a variety of leadership roles in information technology.

~~Steven J. Meyer~~, Age 50. Corporate Vice President, Human Resources since October 2009; Vice President, Human Resources from November 2006 through September 2009; Director, Global Human Resources from November 2002 Through October 2006; Director, Human Resources for Industrial Controls from July 1997 through October 2002. Prior to joining Woodward, Mr. Meyer was employed by PG&E Corporation and Nortel in a variety of roles in human resources.

~~James D. Rudolph~~, Age 49. Corporate Vice President, Global Sourcing since October 2009; Vice President, Global Sourcing from April 2009 through October 2009; Director of Global Sourcing from April 2005 through April 2009; Director of Engineering for Industrial Controls from March 2000 through April 2005. Prior to this role Mr. Rudolph served in a variety of engineering, operations and sales roles since joining the company in 1984.


Item 1A.		Risk Factors

Investment in our securities involves risk. An investor or potential investor should consider the risks summarized in this section when making investment decisions regarding our securities.

Important factors that could individually, or together with one or more other factors, affect our business, results of operations, financial condition, and/or cash flows include, but are not limited to, the following:

Company Risks

A decline in business with, or financial distress of, our significant customers could decrease our consolidated net sales or impair our ability to collect amounts due and payable and have a material adverse effect on our business, financial condition, results of operations and cash flows.

We have fewer customers than many companies with similar sales volumes. For the fiscal year ~~ended~~ending September 30, ~~2010,~~2011, approximately ~~39%~~34% of our consolidated net sales were made to our five largest customers. Sales to these same five largest customers represented approximately ~~38%~~39% of our consolidated net sales for the fiscal year ~~ended~~ending September 30, ~~2009.~~2010. Sales to General Electric accounted for approximately ~~15%~~14%, ~~17%~~15%, and 17% of consolidated net sales in each of the fiscal years ~~ended~~ending September 30, 2011, 2010, ~~2009,~~ and ~~2008,~~2009, respectively, and accounts receivable from General Electric represented approximately ~~14%~~11% and ~~15%~~14% of accounts receivable at September 30, ~~2010~~2011 and ~~2009,~~2010, respectively. Sales to ~~Caterpillar~~our next largest customer accounted for approximately 5%6%, 5%8%, and ~~10%~~7% of consolidated net sales in each of the fiscal years ~~ended~~ending September 30, 2011, 2010, ~~2009,~~ and ~~2008,~~2009, respectively. If any of our significant customers were to change suppliers, in-source production, institute significant restructuring or cost-cutting measures, or experience financial distress, including that which is a result of the prolonged unfavorable economic conditions and continued instability in the financial markets, these significant customers may substantially reduce or otherwise be unable to pay for purchases from us. Accordingly, our consolidated net sales could decrease significantly or we may experience difficulty collecting or be unable to collect amounts due and payable, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

The continued instability in the financial markets, sovereign credit rating downgrades and uncertainty surrounding European sovereign and other debt defaults, and prolonged unfavorable economic conditions could have a material adverse effect on the ability of our customers to perform their obligations to us and on their demand for our products and services.

There has been widespread concern over the continued instability in the financial markets and their influence on the global economy. As a result of the extreme volatility in the credit and capital markets, sovereign credit rating downgrades and uncertainty surrounding European sovereign and other debt defaults, and other prolonged economic challenges currently affecting the global economy, our current or potential customers may experience cash flow problems and, as a result, may modify, delay or cancel plans to purchase our products. Additionally, if customers are not successful in generating sufficient revenue or are precluded from securing necessary financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us. Any inability of current or potential customers to pay us for our products may adversely affect our earnings and cash flows.

In addition, the general economic environment significantly affects demand for our products and services. During periods of slowing economic activity, such as the prolonged unfavorable economic conditions we have recently experienced, a global slowdown in spending on infrastructure development may occur in the markets in which we operate, and customers may reduce their purchases of our products and services. In addition, unfavorable economic conditions ~~and public perceptions~~ regarding the use of business jets have reduced demand for systems and components for new business jet aircraft ~~and have resulted~~ in ~~the withdrawal from service of~~ some ~~commercial aircraft.~~markets. Any ~~further~~ reduction in aircraft order flow or withdrawal from service of business jet and commercial aircraft could further reduce demand for some of our products and services.

There can be no assurance that the prolonged unfavorable economic and market conditions in the United States and internationally will not have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We may not be able to obtain financing, on acceptable terms or at all, to implement our business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to competitive pressures.

Global financial markets and economic conditions have been, and continue to be, disrupted and volatile. The credit and debt and equity capital markets have been distressed. These issues, along with significant write-offs in the financial services sector, the re-pricing of credit risk, sovereign credit rating downgrades and uncertainty surrounding European sovereign and other debt defaults, and the prolonged ~~weak~~ economic ~~conditions~~challenges, have made, and will likely continue to make, it difficult to obtain financing. In addition, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets has generally increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at maturity either at all or on terms similar to existing debt, and reduced and, in some cases, ceased to provide financing to borrowers. Due to these factors, we cannot be certain that financing, to the extent needed, will be available on acceptable terms or at all. If financing is not available when needed, or is available only on unacceptable terms, we may be unable to implement our business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We have engaged in restructuring activities and may need to implement further restructurings in the future, and there can be no assurance that our restructuring efforts will have the intended effects.

From time to time, we have responded to changes in our industry and the markets we serve by restructuring our operations. WeOur restructuring activities have ~~previously disclosed non-acquisition related restructuring charges recorded primarily as a result of~~included workforce management and other restructuring charges related to our recently acquired businesses, including, among others, changes associated with integrating similar operations, managing our workforce, vacating or consolidating certain facilities and cancelling certain contracts. Restructuring activities can create unanticipated consequences, and we cannot be sure that any or all of these restructuring efforts will be successful. There can be no assurance that the reductions in sites, workforce management and other cost-cutting measures will have the effect currently expected by our management or that they will not harm our future business operations and prospects. A variety of risks could cause us not to realize the expected cost savings, including, among others, the following:

higher than expected severance costs related to staff reductions;

higher than expected retention costs for employees that will be retained;

higher than expected stand-alone overhead expenses;

delays in the anticipated timing of activities related to our cost-saving plan; and

other unexpected costs associated with operating the business.

We also cannot be certain that we will not be required to implement further restructuring activities or make additions, reductions or other changes to our management or workforce based on other cost reduction measures or changes in the industry and markets in which we compete. If we are unable to structure our operations in the light of our recently acquired businesses and evolving market conditions, it could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Suppliers may be unable to provide us with materials of sufficient quality or quantity required to meet our production needs at favorable prices or at all.

We are dependent upon suppliers for parts and raw materials used in the manufacture of components that we sell to our ~~customers.~~customers, and our raw material costs are subject to commodity market fluctuations. We may experience an increase in costs for parts or raw materials that we source from our suppliers, or we may experience a shortage of parts or raw materials for various reasons, such as the loss of a significant supplier, high overall demand creating shortages in parts and supplies we use, financial distress, work stoppages, natural disasters, fluctuations in commodity prices, or production difficulties that may affect one or more of our suppliers. In particular, ~~the prolonged~~ global economic ~~downturn~~uncertainty may affect our key suppliers in terms of their operating cash flow and access to financing. This may in turn affect their ability to perform their obligations to us. Our customers rely on us to provide on-time delivery and have certain rights if our delivery standards are not maintained. A significant increase in our supply costs, including for raw materials that are subject to commodity price fluctuations, or a protracted interruption of supplies for any reason, could result in the delay of one or more of our customer contracts or could damage our reputation and relationships with customers. Any of these events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our profitability may suffer if we are unable to manage our expenses ~~while responding to~~or if we experience change in product mix as a result of sales increases or decreases.

Some of our expenses are relatively fixed in relation to changes in sales volume and are difficult to adjust in the short term. Expenses such as depreciation or amortization, which are the result of past capital expenditures or business acquisitions, or expenses driven by business activity other than sales level, such as manufacturing overhead, may be difficult to reduce in a timely manner in response to a reduction in sales. ~~Additionally, due~~Due to the nature of our sales cycle, in periods of sales increases it may be difficult to rapidly increase our production of finished goods, particularly if such sales increases are unanticipated. An increase in the production of our finished goods requires ~~an increase~~increases in both the purchases of raw materials and components and in the size of our workforce. If a sudden, unanticipated need for raw materials, components and labor should arise in order to meet unexpected sales demand, we could experience difficulties in sourcing raw materials, components and labor at a favorable cost or to meet our production needs. These factors could result in delays in fulfilling customer sales contracts, damage to our reputation and relationships with our customers, an inability to meet the demands of the market which could prevent us from taking advantage of business opportunities or responding to competitive pressures, and an increase in variable and fixed costs leading to a decrease in net earnings or even net losses. In addition, we sell products that have varying profit margins, and increases or decreases in sales of our various products may change the mix of products that we sell during any period. Any of these events could have ana material adverse effect on our business, financial condition, results of operations, and cash flows.

Subcontractors may fail to perform contractual obligations.

We frequently subcontract portions of work due under contracts with our customers and are dependent on the continued availability and satisfactory performance by these subcontractors. Nonperformance or underperformance by subcontractors could materially impact our ability to perform obligations to our customers. A subcontractor’s failure to perform could result in a customer terminating our contract for default, expose us to liability, substantially impair our ability to compete for future contracts and orders, and limit our ability to enforce fully all of our rights under these agreements, including any rights to indemnification. Any of these events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our product development activities may not be successful or may be more costly than currently anticipated.

Our business involves a significant level of product development activities, generally in connection with our customers’ development activities. Industry standards, customer expectations, or other products may emerge that could render one or more of our products or services less desirable or obsolete. Maintaining our market position ~~will require~~requires continued investment in research and development. During an economic downturn or a subsequent recovery, we may need to maintain our investment in research and development, which may limit our ability to reduce these expenses in proportion to a sales shortfall. If these activities are not as successful as currently anticipated, or if they are more costly than currently anticipated, future sales and/or earnings could be lower than expected, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Activities necessary to integrate acquisitions may result in costs in excess of current expectations or be less successful than anticipated.

InWe recently completed the acquisition of IDS and completed three acquisitions in fiscal year 2009, ~~we completed two significant acquisitions~~ and we may acquire other businesses in the future. The success of these transactions will depend on, among other things, our ability to integrate assets and personnel acquired in these transactions and to apply our internal controls process to these acquired businesses. The integration of these acquisitions may require significant attention from our management, and the diversion of management’s attention and resources could have a material adverse effect on our ability to manage our business. Furthermore, we may not realize the degree or timing of benefits we anticipated when we first enter into these transactions. If actual integration costs are higher than amounts assumed, if we are unable to integrate the assets and personnel acquired in an acquisition as anticipated, or if we are unable to fully benefit from anticipated synergies, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

Our debt obligations and the restrictive covenants in the agreements governing our debt could limit our ability to operate our business or pursue our business strategies, and could adversely affect our business, financial condition, results of operations, and cash flows.

As of September 30, ~~2010,~~2011, our total long-term debt, ~~excluding~~was $425,249. We did not have any short-term borrowings outstanding as of ~~$22,099 was $443,673.~~September 30, 2011. Our debt obligations could require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development efforts and mergers and acquisitions. We are contractually obligated under the agreements governing our long-term debt to make principal payments of ~~$18,425 in fiscal year 2011, $18,373~~$18,371 in fiscal year 2012, $7,500 in fiscal year 2013, $149,375 in fiscal year 2014, $0 in fiscal year 2015, and $250,000 in ~~years after 2015.~~fiscal year 2016 and thereafter. Our debt obligations could make us more vulnerable to general adverse economic and industry conditions and could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, thereby placing us at a disadvantage to our competitors that have less indebtedness.

These agreements contain certain customary events of default, including certain cross-default provisions related to other outstanding debt arrangements. Any breach of the covenants under these agreements or other event of default could cause a default under these agreements and/or a cross-default under our other debt arrangements, which could restrict our ability to borrow under our revolving credit facility. If there were an event of default under certain provisions of our debt arrangements that was not cured or waived, the holders of the defaulted debt may be able to cause all amounts outstanding with respect to the debt instrument to be due and payable immediately. Our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. If we are unable to repay, refinance, or restructure our indebtedness as required, or amend the covenants contained in these agreements, the lenders or note holders may be entitled to obtain a lien or institute foreclosure proceedings against our assets. Any of these events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

~~At September 30, 2010, we were in compliance with all covenants under our existing long-term debt agreements and revolving credit facility.~~

Our business may be affected by government contracting risks.

Sales made directly to U.S. Government agencies and entities were 5%4% of total net sales during fiscal year 2011, 5% during fiscal year 2010, and 5% during fiscal year 2009, ~~and 5% during fiscal year 2008,~~ primarily in the aerospace ~~& defense markets.~~market. Sales made directly to U.S. Government agencies and entities, or indirectly through third party manufacturers utilizing Woodward parts and subassemblies, accounted for approximately ~~23%~~19% of total sales in fiscal year 2011, 23% in fiscal year 2010, and 20% in fiscal year ~~2009, and 14% in fiscal year 2008.~~2009. Our contracts with the U.S. Government are subject to the following unique risks, some of which are beyond our control, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

The level of U.S. defense spending is subject to periodic congressional appropriation actions, which is subject to change at any time. The mix of programs to which such funding is allocated is also uncertain, and we can provide no assurance that an increase in defense spending will be allocated to programs that would benefit our business. If the amount of spending were to decrease, or there were a shift from certain aerospace and defense programs to other programs, our sales could decrease.

Our U.S. Government contracts and the U.S. Government contracts of our customers are subject to modification, curtailment or termination by the government, either for the convenience of the government or for default as a result of our failure to perform under the applicable contract. If any of our contracts are terminated by the U.S. Government, our backlog would be reduced, in accordance with contract terms, by the expected value of the remaining work under such contracts. In addition, we are not the prime contractor on most of our contracts for supply to the U.S. Government, and the U.S. Government could terminate a prime contract under which we are a subcontractor, irrespective of the quality of our products and services as a subcontractor.

We must comply with procurement laws and regulations relating to the formation, administration and performance of our U.S. Government contracts. The U.S. Government may change procurement laws and regulations from time to time. A violation of U.S. Government procurement laws or regulations, a change in U.S. Government procurement laws and regulations, or a termination arising out of our default could expose us to liability, disbarment, or suspension and could have an adverse effect on our ability to compete for future contracts and orders.

Changes in the estimates of fair value of reporting units or of long-lived assets may result in future impairment charges, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Over time, the fair values of long-lived assets change. At September 30, ~~2010,~~2011, we had ~~$438,594~~$462,282 of goodwill, representing ~~26.4%~~26% of our total assets. We test goodwill for impairment on the reporting unit level on an annual basis and more often if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Future goodwill impairment charges may occur if estimates of fair values decrease, which would reduce future earnings. We also test property, plant, and equipment and other intangibles for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Future asset impairment charges may occur if asset utilization declines, if customer demand decreases, or for a number of other reasons, which would reduce future earnings. Any such impairment charges could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We completed our annual goodwill impairment test during the quarter ended ~~March 31, 2010.~~September 30, 2011. The results of ~~our~~Woodward’s fiscal year ~~2010~~2011 annual goodwill impairment test performed as of ~~March~~July 31, ~~2010~~2011 indicated ~~that~~ the estimated fair value of each ~~of our~~ reporting ~~units~~unit was in excess of itits carrying value, and ~~that~~accordingly, no ~~goodwill~~ impairment existed. At ~~March~~July 31, ~~2010~~2011 the ~~reporting unit with the closest ratio of estimated fair value to carrying value was our recently acquired~~goodwill impairment test for Woodward’s Airframe Systems reporting unit, which has a significant concentration of business in the ~~presently depressed~~commercial, business jet and regional jet markets that have lagged in the economic recovery, indicated the narrowest excess of fair market ~~segments. Our March 31, 2010 analysis indicated a premium of over 30%~~value as compared to ~~this reporting unit’s~~ carrying value. ~~We are~~Each of Woodward’s remaining reporting units had resulting fair values significantly in excess of their carrying values. Increasing the discount rate by 20%, decreasing the growth rate by 20%, or decreasing forecasted cash flow by 20%, as it relates to the Airframe Systems reporting unit, would not ~~aware of any facts, circumstances, or triggering events that~~ have ~~arisen since March 31, 2010 indicating that goodwill has been impaired or that the premium of over 30% has changed significantly.~~ resulted in an impairment charge.

As part of our ongoing monitoring efforts, we will continue to consider the global economic environment and its potential impact on our businesses, as well as other factors, in assessing goodwill recoverability.

Future subsidiary results or changes in domestic or international tax statutes may change the amount of valuation allowances provided for deferred income tax assets.

During fiscal year ~~2010, 45.2%~~2011, 49% of our external net sales were made outside the United States. We establish valuation allowances to reflect the estimated amount of deferred tax assets that might not be realized. The underlying analysis is performed for individual tax jurisdictions, generally at a subsidiary level. Future subsidiary results, actual or forecasted, as well as changes to the relevant tax statutes, could change the outcome of our analysis and change the amount of valuation allowances provided for deferred income tax assets, which could have a material adverse effect on our financial condition, results of operations, and cash flows.

Manufacturing activities may result in future environmental costs or liabilities.

We use hazardous materials and/or regulated materials in our manufacturing operations. We also own and operate and may acquire facilities that were formerly owned and operated by others that used such materials. The risk that a significant release of regulated materials has occurred in the past or will occur in the future cannot be completely eliminated or prevented. As a result, we are subject to a substantial number of costly regulations. In particular, we are required to comply with increasingly stringent requirements of federal, state, and local environmental, occupational health and safety laws and regulations in the United States, the European Union, and other territories, including those governing emissions to air, discharges to water, noise and odor emissions, the generation, handling, storage, transportation, treatment and disposal of waste materials, and the cleanup of contaminated properties and human health and safety. Compliance with these laws and regulations results in ongoing costs. We cannot be certain that we have been, or will at all times be, in complete compliance with all environmental requirements, or that we will not incur additional material costs or liabilities in connection with these requirements. As a result, we may incur material costs or liabilities or be required to undertake future environmental remediation activities that could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our performance depends on continued access to a stable workforce and on favorable labor relations with our employees.

Certain of our operations in the United States and ~~overseas~~internationally involve different employee/employer relationships and the existence of works’ councils. In addition, a portion of our workforce is unionized and is expected to remain unionized for the foreseeable future. Competition for technical personnel in the industry in which we compete is intense. Our future success depends in part on our continued ability to hire, train, assimilate, and retain qualified personnel. There is no assurance that we will continue to be successful in recruiting qualified employees in the future. Any significant increases in labor costs, deterioration of employee relations, including any conflicts with works’ councils or unions, or slowdowns or work stoppages at any of our locations, whether due to employee turnover, changes in availability of qualified technical personnel, or otherwise, could have a material adverse effect on our business, our relationships with customers, and our financial condition, results of operations, and cash flows.

A natural disaster could have a material adverse effect on our business, financial condition, results of operations and cash flows.

~~A substantial portion~~Certain of our ~~Airframe Systems business is~~Aerospace segment operations are located in California. Historically, California has been susceptible to natural disasters, such as earthquakes, floods and wildfires. These natural disasters could harm the California operations of our ~~Airframe Systems business~~Aerospace segment through interference with communications, including the interruption or loss of its computer systems and the destruction of our facilities or our operational, financial and management information systems, which could prevent or impede us from processing and controlling the flow of business. Accordingly, any such natural disaster could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our intellectual property rights may not be sufficient to protect all our products or technologies.

Our success depends in part on our ability to obtain patents or rights to patents, protect trade secrets and know-how, and prevent others from infringing on our patents, trademarks, and other intellectual property rights. Some of our intellectual property is not covered by any patent or patent application and includes trade secrets and other know-how that is not patentable or for which we have elected not to obtain a patent, including intellectual property relating to our manufacturing processes and engineering ~~design.~~designs. We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that it is covered by valid and enforceable patents, trademarks, or licenses. Patent protection generally involves complex legal and factual questions and, therefore, enforceability of patent rights cannot be predicted with certainty; thus, any patents that we own or license from others may not provide us with adequate protection against competitors. Moreover, the laws of certain foreign countries do not recognize intellectual property rights or protect them to the same extent as do the laws of the United States. Additionally, our commercial success depends significantly on our ability to operate without infringing upon the patent and other proprietary rights of others. Our current or future technologies may, regardless of our intent, infringe upon the patents or violate other proprietary rights of third parties. In the event of such infringement or violation, we may face expensive litigation or indemnification obligations and may be prevented from selling existing products and pursuing product development or commercialization. If we are unable to sufficiently protect our patent and other proprietary rights or if we infringe on the patent or proprietary rights of others, ~~or,~~ our business, financial condition, results of operations, and cash flows could be materially adversely affected.

Product liability claims, product recalls or other liabilities associated with the products and services we provide may force us to pay substantial damage awards and other expenses that could exceed our accruals and insurance coverage.

The manufacture and sale of our products and the services we provide expose us to risk of product liability and other tort claims. Both currently and in the past, we have had ~~a number of~~ product liability claims relating to our products, and we will likely be subject to additional product liability claims in the future for both past and current products, some of which may have a material adverse effect on our business, financial condition, results of operations and cash flows. We also provide certain services to our customers and are subject to claims with respect to the services provided. In providing such services, we may rely on subcontractors to perform all or a portion of the contracted services. It is possible that we could be liable to our customers for work performed by a subcontractor. While we believe that we have appropriate insurance coverage available to us related to any such claims, our insurance may not cover all liabilities or be available in the future at a cost acceptable to us. If a product liability or other claim or series of claims, including class action claims, is brought against us for liabilities that are not covered by insurance or for which indemnification or other recovery is not available, such claim could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Amounts accrued for contingencies may be inadequate to cover the amount of loss when the matters are ultimately resolved.

In addition to intellectual property and product liability matters, we are currently involved or may become involved in claims, pending or threatened litigation or other legal proceedings, investigations or regulatory proceedings regarding employment or other regulatory, legal, or contractual matters arising in the ordinary course of business. There is no certainty that the results of these matters will be favorable to the Company. We accrue for known individual matters that we believe are likely to result in a loss when ultimately resolved using estimates of the most likely amount of loss. There may be additional losses that have not been accrued, or liabilities may exceed our estimates, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Legal and regulatory proceedings, inquiries or investigations of our business practices by the U.S. Government are unpredictable and an adverse decision in any such matter, or an adverse decision resulting in a loss that exceeds our best estimates, could have a material adverse impact on our business, ~~liquidity,~~ financial condition, results of operations, and cash flows.

We are sometimes subject to government inquiries, audits and investigations of our business due to our business relationships with the U.S. Government and the heavily regulated industries in which we do business. Any such inquiry or investigation could potentially result in an adverse ruling against the Company, which could have a material adverse impact on our business, ~~liquidity,~~ financial condition, results of operations, and cash flows. In October 2009, MPC Products, one of our ~~recently~~ acquired subsidiaries, ~~reached an~~entered into a three-year administrative agreement with the U.S. Department of ~~Justice~~Defense (“~~DOJ”~~DOD”) ~~to resolve the criminal and civil claims related to the investigation of~~in connection with certain of its government contract pricing practices prior to June 2005, and related administrative actions by the U.S. Department of Defense (“DOD”). In connection with the settlement of the criminal claims, on November 4, 2009, MPC Products pled guilty to one count of wire fraud related to its pre-June 2005 government contract pricing practices. Pursuant to the plea agreement, MPC Products was placed on probation for two years, concluding the DOJ’s investigation of these matters. If MPC Products fails to comply with the terms of the civil settlement or plea agreement or the conditions of probation, it could be subject to additional fines, sanctions, suspensions or debarment. Woodward and MPC Products also entered into a three-year administrative agreement with the DOD on October 7, 2009.2005. The administrative agreement ~~required,~~requires, among other things, that Woodward and its affiliates, including MPC Products, implement certain enhancements to existing ethics and compliance programs, which ~~are substantially complete,~~have been completed, and make periodic reports to the DOD. If Woodward and MPC Products fail to ~~complete the implementation~~maintain these enhancements to their ethics and compliance programs or fail to otherwise adhere to the terms of the administrative agreement, the DOD could suspend or debar Woodward or MPC Products from doing business with U.S. Government agencies and entities.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws and regulations.

The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws and regulations in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. government officials for the purpose of obtaining or retaining business or securing an improper business advantage. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world and sell to industries that have experienced corruption to some degree. If we are found to be liable for FCPA or other similar anti-bribery law or regulatory violations, whether due to our or others’ actions or inadvertence, we could be subject to civil and criminal penalties or other sanctions that could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Changes in the legal and regulatory environments of the countries in which we operate may affect future sales and expenses.

We operate in a number of countries and are affected by a variety of laws and regulations governing various matters, including foreign investment, employment, import, export, business acquisitions, environmental and taxation matters, land use rights, property, and other matters. Our ability to operate in these countries may be materially adversely affected by unexpected changes in such laws and regulations which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We must also comply with restrictions on exports imposed under the U.S. Export Control Laws and Sanctions Programs. These laws and regulations change from time to time and may restrict foreign sales.

Operations and suppliers may be subject to physical and other risks that could disrupt production.

Our operations include principal facilities in the United States, China, Germany, and Poland. In addition, we operate sales and service facilities in Brazil, Bulgaria, India, Japan, the Netherlands, Peru, the Republic of Korea, Russia, Switzerland and the United Kingdom. We also have suppliers for materials and parts inside and outside the United States. Our operations and sources of supply could be disrupted by a natural disaster, war, political unrest, terrorist activity, public health concerns, or other unforeseen events, which could cause significant delays in the shipment of products and the provision of services and could cause the loss of sales and customers. Accordingly, disruption of our operations or the operations of a significant supplier could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We have significant investments outside the United States and significant sales and purchases in foreign denominated currencies, creating exposure to foreign currency exchange rate fluctuations.

We have significant investments outside the United States. Further, we have sales and purchases of raw materials and finished goods in foreign denominated currencies. Accordingly, we have exposure to fluctuations in foreign currency exchange rates relative to the U.S. dollar. These exposures may change over time as our business and business practices evolve, and they could have a material adverse effect on our financial results and cash flows. An increase in the value of the U.S. dollar could increase the real cost to our customers of our products in those markets outside the United States where we sell in U.S. dollars, and a weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials to the extent that we must purchase components in foreign currencies. Foreign currency exchange rate risk is reduced through several means, including the maintenance of local production facilities in the markets served, invoicing of customers in the same currency as the source of the products, prompt settlement of inter-company balances utilizing a global netting system, and limited use of foreign currency denominated debt. Despite these measures, continued instability in the worldwide financial markets, sovereign credit rating downgrades and uncertainty surrounding European sovereign and other debt defaults, could impact our ability to manage effectively our foreign currency exchange rate fluctuation risk, which could have a material adverse effect on our international operations or on our business, financial condition, results of operations, and cash ~~flows~~.flows.

Our net postretirement benefit obligation liabilities may grow, and the fair value of our pension plan assets may decrease, which could require us to make additional and/or unexpected cash contributions to our pension plans, increase the amount of postretirement benefit expenses, affect our liquidity or affect our ability to comply with the terms of our outstanding debt arrangements.

Accounting for retirement pension and postretirement benefit obligations and related expense requires the use of assumptions, including a weighted-average discount rate, an expected long-term rate of return on assets, and a net healthcare cost trend rate, among others. Benefit obligations and benefit costs are sensitive to changes in these assumptions. As a result, assumption changes could result in increases in our obligation amounts and expenses. If interest rates decline, the present value of our postretirement benefit plan liabilities may increase faster than the value of plan assets, resulting in significantly higher unfunded positions in some of our pension plans. As of September 30, ~~2010,~~2011, we had ~~$128,667~~$138,347 in invested pension plan assets. Investment losses may result in decreases to our pension plan assets.

In addition, our existing term loan facility, revolving credit facility, and note purchase agreements contain continuing covenants and events of default regarding our pension plans, including provisions regarding the unfunded liabilities related to those pension plans. See the discussion above concerning “Our debt obligations and the restrictive covenants in the agreements governing our debt could limit our ability to operate our business or pursue our business strategies, and could adversely affect our business, financial condition, results of operations, and cash flows.”

To the extent that the present values of benefits incurred for pension obligations are greater than values of the assets supporting those obligations or if we are required to make additional or unexpected contributions to our pension plans for any reason, our ability to comply with the terms of our outstanding debt arrangements, and our business, financial condition, results of operations, and cash flows may be adversely affected.

Industry Risks

Competitors may develop breakthrough technologies that are adopted by our customers.

The markets in which we operate experience rapidly changing technologies and frequent introductions of new products and services. The technological expertise we have developed and maintained could become less valuable if a competitor were to develop a breakthrough technology that would allow it to match or exceed the performance of existing technologies at a lower cost. If we are unable to develop competitive technologies, future sales or earnings could be lower than expected, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Industry consolidation trends could reduce our sales opportunities, decrease sales prices, and drive down demand for our product.

There has been consolidation and there may be further consolidation in the aerospace, power, and process industries. The consolidation in these industries has resulted in customers with vertically integrated operations, including increased in-sourcing capabilities, which may result in economies of scale for those companies. If our customers continue to seek to control more aspects of vertically integrated projects, cost pressures resulting in further integration or industry consolidation could reduce our sales opportunities, decrease sales prices, and drive down demand for our products, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We operate in a highly competitive industry.

We face intense competition from a number of established competitors in the United States and abroad, some of which are larger in size or are divisions of large diversified companies with substantially greater financial resources. Companies compete on the basis of providing products that meet the needs of customers, as well as on the basis of price, quality, and customer service. Changes in competitive conditions, including the availability of new products and services, the introduction of new channels of distribution, and changes in OEM and aftermarket pricing, could adversely affect future sales, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Unforeseen events may occur that significantly reduce commercial aviation.

A significant portion of our business is related to commercial aviation. The ~~prolonged~~recent global economic downturn and uncertainty in the marketplace led to a general reduction in demand for air ~~travel, and passenger miles and cargo service declined. In addition,~~transportation services, leading some airlines ~~withdrew~~to withdraw aircraft from service, which ~~further exposed~~negatively impacted sales of our ~~Turbine Systems~~aerospace components and ~~Airframe Systems segments to sales volume declines. Prevailing~~services. These economic conditions ~~have also negatively affected~~similarly impacted our sales of systems and components for new business jet aircraft. ~~Any further deterioration~~Although the operating environment currently faced by commercial airlines has shown signs of improvement, uncertainty continues to exist. The commercial airline industry tends to be cyclical and capital spending by airlines and aircraft manufacturers may be influenced by a variety of factors, including current and future traffic levels, aircraft fuel pricing, labor issues, competition, the retirement of older aircraft, regulatory changes, terrorism and related safety concerns, general economic conditions, ~~globally could lead to additional reductions in air traffic. Market~~worldwide airline profits and backlog levels. In the event these or other economic indicators stagnate or worsen, market demand for our components and systems ~~including market demand in our aftermarket channels,~~ could be ~~materially adversely~~negatively affected by ~~such~~renewed reductions in ~~commercial airline travel and~~demand for air transportation services or commercial airlines’ financial difficulties, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Natural gas prices may increase significantly and disproportionately to other sources of fuels used for power generation.

Commercial producers of electricity use many of our components and systems, most predominately in their power plants that use natural gas as their fuel source. Commercial producers of electricity are often in a position to manage the use of different power plant facilities and make decisions based on operating costs. Compared to other sources of fuels used for power generation, natural gas prices have increased slower than fuel oil, but about the same as coal. This increase in natural gas prices and any future increases could decrease the use of our components and systems, which could have a material adverse affect on our business, financial condition, results of operations, and cash flows.

Investment Risks

The historic market price of our common stock may not be indicative of future market prices.

The market price of our common stock changes over time. Stock markets in general have experienced extreme price and volume volatility particularly over the past ~~year.~~few years. The trading price of our common stock ranged from a high of ~~$35.21~~$39.52 per share to a low of ~~$22.49~~$24.39 per share during the twelve months ~~ended~~ending September 30, ~~2010.~~2011. The following factors, among others, could cause the price of our common stock in the public market to fluctuate significantly:

general economic conditions, particularly in the aerospace, power generation and process and transportation industries;

variations in our quarterly results of operation;

a change in sentiment in the market regarding our operations or business prospects;

the addition or departure of key personnel; and

announcements by us or our competitors of new business, acquisitions or joint ventures.

Fluctuations in our stock price often occur without regard to specific operating performance. The price of our common stock could fluctuate based upon the above factors or other factors, including those that have little to do with our company, and these fluctuations could be material.

The typical trading volume of our common stock may affect an investor’s ability to sell significant stock holdings in the future without negatively affecting stock price.

As of September 30, ~~2010,~~2011, we had 72,960 shares of common stock issued, of which ~~4,223~~4,070 shares were held as treasury shares. In addition, ~~4,011~~4,228 shares were reserved for issuance upon exercise of outstanding stock option awards. While the level of trading activity will vary each day, the typical trading level represents only a small percentage of total shares of stock outstanding. As a result, a stockholder who sells a significant number of shares of stock in a short period of time could negatively affect our share price.

Certain anti-takeover provisions of our charter documents and under Delaware law could discourage or prevent others from acquiring our company.

While the Company believes that these provisions are in the best ~~interests~~interest of its stockholders, our certificate of incorporation and bylaws do contain provisions that:

	•		~~provide for a classified board;~~

	•		~~provide that directors may be removed only for cause by holders of at least two-thirds of the outstanding shares of common stock;~~

	•		~~authorize our board of directors to fill vacant directorships or to increase the size of our board of directors;~~

	•		permit us to issue, without stockholder approval, up to 10,000 shares of preferred stock, in one or more series and, with respect to each series, to fix the designation, powers, preferences and rights of the shares of the series;

	•		~~require special meetings of stockholders to be called by holders of at least two-thirds of the outstanding shares of common stock;~~

	•		~~prohibit stockholders from acting by written consent;~~

	•		~~require advance notice for stockholder proposals and nominations for election to the board of directors to be acted upon at meetings of stockholders; and~~

	•		require the affirmative vote of two-thirds of the outstanding shares of our common stock for amendments to our certificate of incorporation and certain business combinations, including mergers, consolidations, sales of all or substantially all of our assets or dissolution.

provide for a classified board;

provide that directors may be removed only for cause by holders of at least two-thirds of the outstanding shares of common stock;

authorize our board of directors to fill vacant directorships or to increase the size of our board of directors;

permit us to issue, without stockholder approval, up to 10,000 shares of preferred stock, in one or more series and, with respect to each series, to fix the designation, powers, preferences and rights of the shares of the series;

require special meetings of stockholders to be called by holders of at least two-thirds of the outstanding shares of common stock;

prohibit stockholders from acting by written consent;

require advance notice for stockholder proposals and nominations for election to the board of directors to be acted upon at meetings of stockholders; and

require the affirmative vote of two-thirds of the outstanding shares of our common stock for amendments to our certificate of incorporation and certain business combinations, including mergers, consolidations, sales of all or substantially all of our assets or dissolution.

In addition, Section 203 of the Delaware General Corporation Law limits business combinations with owners of more than 15% of our stock that have not been approved by the board of directors. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation. Our board of directors could choose not to negotiate a potential acquisition that it did not believe to be in our strategic interest. Accordingly, the potential acquirer could be discouraged from offering to acquire us or prevented from successfully completing a hostile acquisition by the anti-takeover measures.

Pacoima, California (leased) — ~~Airframe Systems~~Aerospace segment manufacturing and engineering

Rockford, Illinois — ~~Turbine Systems~~Aerospace segment manufacturing and engineering

Santa Clarita, California — ~~Airframe Systems~~Aerospace segment manufacturing and engineering

Skokie, Illinois (leased) — ~~Airframe Systems~~Aerospace segment manufacturing and ~~Airframe Systems~~Aerospace and ~~Engine Systems~~Energy segments engineering

Zeeland, Michigan — ~~Turbine Systems~~Aerospace segment manufacturing and engineering

Other Countries

Aken, Germany (leased) — ~~Engine Systems~~Energy segment manufacturing and engineering

Kempen, Germany — ~~Electrical Power Systems~~Energy segment manufacturing and engineering

Krakow, Poland — ~~Electrical Power Systems~~Energy segment manufacturing and engineering

Stuttgart, Germany (leased) — ~~Electrical Power Systems~~Energy segment manufacturing and engineering

Tianjin, Peoples’ Republic of China (leased) — ~~Engine Systems~~Energy segment assembly

Sofia, Bulgaria — Energy segment manufacturing and ~~Electrical Power Systems assembly~~engineering

Zurich, Switzerland — Energy segment engineering

In addition to the principal plants listed above, we own or lease other facilities used primarily for sales and service activities in Brazil, China, India, Japan, the Netherlands, Peru, the Republic of Korea, Russia, and the United Kingdom.

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. However, with continuing advancements in manufacturing technology and operational improvements, we believe we can continue to increase production without significant capital expenditures for expansion, retooling, or acquisition of additional plants.

~~Construction has begun on~~During fiscal year 2010, Woodward began construction of a new 48,000 square foot system test facility ~~at our~~in Rockford, ~~Illinois campus.~~Illinois. The facility, which will house numerous environmental system test cells and a vibration lab, will support, ~~Turbine Systems’~~among other development ~~opportunities.~~projects, aerospace development efforts of next generation fuel systems for aircraft turbines. The test facility is expected to be completed and placed into service in early fiscal year 2012.


Item 3.		Legal Proceedings

Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, ~~workers’~~workman’s compensation claims, regulatory, legal or contractual disputes, product warranty claims and alleged violations of various environmental laws. We have accrued for individual matters that we believe are likely to result in a loss when ultimately resolved using estimates of the most likely amount of loss.

While the outcome of pending claims, legal proceedings, investigations and regulatory proceedings cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will not have a material adverse effect on our ~~liquidity,~~business, financial condition, or results of ~~operations.~~operations, or cash flows.

PART II


Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on The NASDAQ Global Select Market and atis traded under the symbol “WWD.” At November ~~8, 2010,~~11, 2011, there were approximately ~~1,300~~68,902,457 holders of record. ~~Cash dividends were declared quarterly during 2010 and 2009.~~

The ~~amount of cash dividends per share and~~following table sets forth the high and low sales ~~price per share for~~prices of our common stock and dividends paid for ~~each fiscal quarter in 2010 and 2009 are included in Note 21,~~~~Supplemental quarterly financial data (Unaudited),~~to the ~~Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data.”~~periods indicated.


	Fiscal Year Ending September 30,
	2011						2010
					Cash						Cash
	High		Low		Dividends		High		Low		Dividends

First quarter	$	39.52	$	30.01	$	0.06	$	26.82	$	22.49	$	0.06
Second quarter		39.31		30.46		0.07		32.47		24.59		0.06
Third quarter		37.57		30.93		0.07		35.21		25.52		0.06
Fourth quarter		37.20		24.39		0.07		33.18		24.44		0.06

The information required by this item relating to securities authorized for issuance under equity plans is included under the caption “Executive Compensation — Equity Compensation Plan Information” in our Proxy Statement for the ~~2010~~2011 Annual Meeting of Stockholders to be held January ~~26, 2011~~25, 2012 and is incorporated herein by reference.

Performance Graph

The following graph compares the cumulative 5-year total return to stockholders on our common stock relative to the cumulative total returns of the S&P Midcap 400 index and the S&P Industrial Machinery index. The graph shows total stockholder return assuming an investment of $100 (with reinvestment of all dividends) was made on September 30, ~~2005~~2006 in our common stock and in each of the two indexes and tracks relative performance through September 30, ~~2010.~~2011.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
~~Among Woodward Governor Company, the S&P Midcap 400 Index~~
~~and the S&P Industrial Machinery Index~~


	9/06		9/07		9/08		9/09		9/10		9/11

Woodward, Inc.		100.00		187.76		213.44		148.49		200.20		170.58
S&P Midcap 400		100.00		118.76		98.95		95.87		112.92		111.47
S&P Industrial Machinery		100.00		132.90		98.09		96.62		123.65		108.58


*		~~$100 invested on September 30, 2005 in our common stock or index, including reinvestment of dividends.~~ ~~Fiscal year ending September 30.~~

Recent Sales of Unregistered Securities

Sales of common stock issued from treasury during the fourth quarter of fiscal ~~2010~~2011 consisted of the following:

Total Shares Consideration
Sold (2) Received

July 1, 2010 through July 31, 2010 — $ —
August 1, 2010 through August 31, 2010 (1) 296 9
September 1, 2010 through September 30, 2010 — —


	Total Shares		Consideration
	Sold (2)		Received

July 1, 2011 through July 31, 2011 (1)		398	$	14
August 1, 2011 through August 31, 2011		—		—
September 1, 2011 through September 30, 2011		—		—


(1)		On ~~August 2, 2010,~~July 28, 2011, one of our directors ~~purchased 296~~received 398 shares of common stock from treasury ~~for personal investment.~~in lieu of cash payment of Board of Director retainer fees. The securities were ~~sold~~issued by Woodward in reliance upon the exemption contained in Section 4(2) of the Securities Act of 1933.

(2)		Actual number of shares (not in thousands).

Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

Total
Number of Maximum Number
Shares (or Approximate
Purchased Dollar Value) of
Total as Part of Shares that may
Number of Publicly yet be Purchased
Shares Average Announced under the Plans or
Purchased Price Paid Plans or Programs at Period
(4) Per Share Programs (1) End (1)

July 1, 2010 through July 31, 2010 — $ — — $ 200,000
August 1, 2010 through August 31, 2010 (2) 55,999 26.88 55,999 198,495
September 1, 2010 through September 30, 2010 (2)(3) 52,753 28.75 52,100 196,999

Total

Number of

Maximum Number

(or Approximate

Purchased

Dollar Value) of

Total

as Part of

Shares that may

Number of

Weighted

Publicly

yet be Purchased

Average

Announced

under the Plans or

Purchased

Price Paid

Plans or

Programs at Period

(4)

Per Share

Programs (1)

End (1)

July 1, 2011 through July 31, 2011

—

190,162

August 1, 2011 through August 31, 2011

—

190,162

September 1, 2011 through September 30, 2011 (2) (3)

59,538

29.58

—

190,162


(1)		~~During September 2007,~~In July 2010, our Board of Directors authorized a stock repurchase program of up to $200,000 of our outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period (the “2007 Authorization”). On July 27, 2010 our Board of Directors terminated the 2007 Authorization and approved a new stock purchase plan that authorizes the repurchase of up to $200,000 of our outstanding shares of common stock on the open market or in privately negotiated transations over a three-year period that will end in July 2013. ~~The total repurchases made under the 2007 Authorization were $33,441.~~

(2)		~~Does not include~~Includes 58,744 shares ~~acquired as part of~~previously held by an optionee for at least six months and delivered to the ~~cashless exercise of stock options. In August 2010, 42,856 shares were acquired~~Company in September 2011 at an average price of ~~$29.09~~$29.61 per share to pay exercise price and tax obligations related to such stock options. Excludes shares withheld by the Company in ~~September 2010, 70,200 shares were acquired at an average price~~connection with the net exercise of ~~$29.57 per share~~.stock options.

(3)		The Woodward Governor Company Executive Benefit Plan, which is a separate legal entity, aquired ~~653~~794 shares of common stock on the open market related to the reinvestment of dividends for shares of treasury stock held for deferred compensation in September ~~2010.~~2011.

(4)		Actual number of shares (not in thousands).

2625


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

OVERVIEW

We are ~~a global leader in~~an independent designer, manufacturer, and service provider of energy control ~~within the aerospace & defense~~ and ~~energy markets that we serve.~~optimization solutions. We design, produce and service reliable, efficient, low-emission, and high-performance energy control products for diverse applications in challenging environments. We have significant production and assembly facilities in the United States, Europe and Asia, and promote our products and services through our worldwide locations.

Our strategic focus is providing control solutions for the aerospace and energy markets. The precise and efficient control of energy, including fluid and electrical energy, combustion, and motion, is a growing requirement in the markets we serve. Our customers look to us to optimize the efficiency, emissions and operation of power equipment in both commercial and military operations. Our core technologies leverage well across our markets and customer applications, enabling us to develop and integrate cost-effective and state-of-the-art fuel, combustion, fluid, actuation and electronic systems. We focus primarily on OEMs and equipment packagers, partnering with them to bring superior component and system solutions to their demanding applications. We also provide aftermarket repair, replacement and other service support for our installed products.

Our components and integrated systems ~~that manage and control the energy~~optimize performance of fluid movement, motion, combustion and electricity. Our prices, technology, quality, and customer service allow us to compete effectively within dozens of unique aerospace & defense and energy market niches and against various other manufacturers, including the in-house operations of certain OEMs. Examples of our market niches include motors for movingcommercial aircraft, flight surfaces, fuel pumps for large diesel engines, and fuel nozzles for industrial gas turbines. We believe we have a significant position in the markets for fuel systems for aircraft and inverters for wind turbines.

We serve two significant markets — the aerospace & defense market and the energy market — served by our four operating business segments: Turbine Systems, Airframe Systems, Electrical Power Systems, and Engine Systems. We use segment information internally to manage our business, including the assessment of business segment performance and making decisions on the allocation of resources between segments.

~~Turbine Systems~~ ~~— Our Turbine Systems segment develops and manufactures systems and components that provide energy control and optimization solutions for commercial and~~ military aircraft, ~~propulsion applications, including fuel~~ground vehicles and ~~combustion systems for turbine engines in our aerospace & defense markets, and for the industrial~~other equipment, gas and steam turbines, ~~in our~~wind turbines, including converters and power grid related equipment, industrial diesel, gas and alternative fuel reciprocating engines, and electrical power systems. Our innovative fluid energy, ~~markets.~~

~~Airframe Systems~~ ~~— Our Airframe Systems segment develops~~combustion control, electrical energy, and ~~manufactures high-performance cockpit, electromechanical and hydraulic~~ motion control systems help our customers offer more cost-effective, cleaner, and ~~mission-critical actuation systems~~more reliable equipment. Our customers include leading OEMs and ~~controls, including actuators, hydraulic motors, gears~~the end users of their products.

As of September 30, 2011, we reorganized our reportable segments to better align with our markets. We now have two reportable segments — Aerospace and ~~sensors. These systems~~Energy. Both of our reportable segments are comprised of multiple business groups, which focus on particular applications within the aerospace and ~~controls~~energy markets. Our Aerospace segment combines the aircraft propulsion portion of the former Turbine Systems business group, which we now refer to as the Aircraft Turbine Systems business group, with our Airframe Systems business group. Our Energy segment combines the industrial turbine portion of the former Turbine Systems business group, which we now refer to as the Industrial Turbomachinery Systems business group, with our Engine Systems and Electrical Power Systems business groups. Our aerospace products are primarily used to provide energy and motion control in both commercial and military fixed wing and rotary aircraft ~~combat vehicles~~ and ~~weapons systems,~~in various other defense platforms, including guided ~~weapons, and electro-optical targeting and motion suppression systems programs for combat vehicles.~~

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

~~Engine Systems~~ — Our Engine Systems segment develops and manufactures systems and components that provide energy control and optimization solutions for the industrial reciprocating engine markets, which include power generation, transportation and process industries.

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

Management’s discussion and analysis should be read together with the Consolidated Financial Statements and Notes included in this report. Dollar and number of share amounts contained in this discussion and elsewhere in this Annual Report on Form 10-K are in thousands, except per share amounts.

On October 1, 2009, Woodward adopted authoritative guidance which requires, among other things, a noncontrolling interest in a subsidiary to be reported in the Consolidated Balance Sheets within stockholders’ equity, but separate from the parent’s stockholders’ equity. As required by the authoritative guidance, the presentation and disclosure requirements must be applied retrospectively for all periods presented. Accordingly, certain financial data included in this Management’s Discussion and Analysis for the fiscal years ended September 30, 2009 and September 30, 2008 has been recast from amounts previously reported. Further discussion of the authoritative guidance adopted by Woodward on October 1, 2009 can be found in Note 2,~~New accounting standards,~~ ~~in the notes to the Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplemental Data”, of this Form 10-K.~~

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 1,Operations and summary of significant accounting policies,to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The ~~accounting positions~~estimates and assumptions described below are ~~significantly~~those that we consider to be most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. All of these estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their effects based on information available as of the date of these financial statements. As estimates are updated or actual amounts are known, our critical accounting estimates are revised, and operating results may be affected by ~~critical accounting~~the revised estimates. ~~Such accounting positions require significant judgments,~~Actual results may differ from these estimates under different assumptions and estimates to be used in the preparation of the Consolidated Financial Statements, and actual results could differ materially from the amounts reported based on variability in factors affecting these estimates.or conditions.

Woodward provides certain development services to customers under fully funded and partially funded long and short-term development contracts. Revenue for such contracts is recognized using the percentage-of-completion, milestone ~~method~~ or completed contract ~~method.~~methods. Funded development contracts may be fixed price or cost-reimbursable contracts. Anticipated losses on fully funded contracts, if any, are recognized in the period in which the losses become probable and estimable. Revenue recognition under the percentage-of-completion method requires accurate estimation of total costs to complete the development project, which requires judgment and is subject to revision. Revenue recognition under the milestone method requires identification of meaningful milestones with economic substance consistent with the revenue recognition criteria.

Purchase accounting

Woodward consummated one acquisition during fiscal year 2011 for a total cost of $47,161, which included the acquisition of $8,463 in marketable securities, and three acquisitions during fiscal year 2009 for a total cost of $768,423. In addition, we sold the ~~Fuel and Pneumatics (“~~F~~&P”)~~&P product line, which was acquired as part of the ~~HRT acquisition~~2009 acquisitions, for net proceeds of approximately $48,000. Significant assumptions and estimates, including projections of future cash flows, affect the carrying value of acquired assets and assumed liabilities, including inventories and other tangible and intangible assets. Changes in the carrying amounts of acquired assets and assumed liabilities may change the carrying value of goodwill, which is not amortized for accounting purposes. Changes in the carrying amount of acquired assets and assumed liabilities may also impact future costs and may subject the Company to risk of future impairment of the recorded fair values of assets acquired, including goodwill.

Inventory

Inventories are valued at the lower of cost or market, with cost being determined using methods that approximate a first-in, first-out basis. ~~Cost of HRT and MPC inventories are determined on a standard cost and average cost basis, respectively, which approximates the first-in, first-out basis.~~

Customer-specific information and contractual terms are considered when evaluating lower of cost or market considerations. The carrying value of inventory as of September 30, ~~2010~~2011 was ~~$295,034.~~$381,555. If economic conditions, customer product mix ~~decisions~~ or other factors significantly reduce future customer demand for our products from forecast levels, then future adjustments to the carrying value of inventory may become necessary. We attempt to maintain inventory quantities at levels considered necessary to fill expected orders in a reasonable time frame, which we believe mitigates our exposure to future inventory carrying cost adjustments.

Postretirement benefits

The Company provides various benefits to certain employees through defined benefit plans and other postretirement benefit plans. For financial reporting purposes, net periodic benefits expense and related obligations are calculated using a number of significant actuarial assumptions, including anticipated discount rates, rates of compensation increases, long-term return on defined benefit plan investments, and anticipated healthcare cost increases. Based on these actuarial assumptions, at September 30, ~~2010~~2011 our recorded liabilities include ~~$25,776~~$25,349 for underfunded defined benefit pension plans and ~~$37,222~~$32,923 for unfunded other postretirement benefit plans. Changes in net periodic expense or the amounts of recorded liabilities may occur in the future due to changes in these assumptions.

Estimates of the value of postretirement benefit obligations, and related net periodic benefits expense, are dependent on actuarial assumptions including future interest rates, compensation rates, healthcare cost trends, and returns on defined benefit plan investments. Variances from our fiscal year end estimates for these variables could materially affect our recognized postretirement benefit obligation liabilities. On a near-term basis, such changes are unlikely to have a material impact on reported earnings, since such adjustments are recorded to other comprehensive income and recognized into expense over a number of years. Significant changes in estimates could, however, materially affect the carrying amounts of benefit obligation liabilities, including accumulated benefit obligations, which could affect compliance with the provisions of our debt arrangements and future borrowing capacity.

~~We completed our~~

In the fourth quarter of fiscal year 2011, the Company prospectively changed its goodwill testing date from March 31 to July 31 to better align its impairment testing procedures with the completion of its annual financial and strategic planning process as discussed in Note 10,Goodwill, to the Consolidated Financial Statements. As a result, during fiscal year 2011, Woodward tested its goodwill for impairment as of March 31, 2011 and July 31, 2011 and concluded that there was no impairment of the carrying value of the goodwill. The change in accounting principle related to changing the annual goodwill impairment ~~test during the quarter ended~~testing date did not accelerate, delay, avoid, or cause an impairment charge.

As of March 31 ~~2010.~~ and July 31, 2011, Woodward determined its Turbine Systems, Airframe Systems and Engine Systems operating segments represented individual reporting units. Woodward determined that its Electrical Power Systems operating segment included three components that represented reporting units as of March 31, 2011 and four components that represented reporting units as of July 31, 2011 due to the acquisition of IDS.

The fair value of ~~the~~each of Woodward’s reporting units was determined using a discounted cash flow method. This method represents a Level 3 input and incorporates various estimates and assumptions, the most significant being projected revenue growth rates, operating earnings margins, and forecasted cash flows based on the discount rate and terminal growth rate. Management projects revenue growth rates, operating earnings margins and cash flows based on each reporting ~~unit level cash flow forecasts that were updated~~unit’s current operational results, expected performance and operational strategies over a five or ten-year period. These projections are adjusted to reflect current ~~global~~ economic conditions ~~including anticipated weakening of global~~and demand for certain ~~products.~~ products, and require considerable management judgment.

Forecasted cash flows for the July 31, 2011 impairment testing were discounted using ~~an 11.3%~~ weighted average cost of capital ~~assumption.~~assumptions from 10.0% to 10.2%. The terminal ~~value~~values of the forecasted cash flows were calculated using the Gordon Growth Model and assumed an annual compound growth rate after five or ten years of ~~4.5%~~4.3%. Forecasted cash flows for the March 31, 2011 impairment testing were discounted using weighted average cost of capital assumption of 11.3% and an annual compound growth rate after five years of 4.4%. These inputs, which are unobservable in the market, represent management’s estimate of what market participants would use in determining the present value of the Company’s forecasted cash flows. Changes in these estimates and ~~was calculated using~~assumptions can have a significant impact on the ~~Gordon Growth Model.~~fair value of forecasted cash flows. Woodward evaluated the reasonableness of the reporting units resulting fair values utilizing a market multiple method.

The results of ~~our fiscal year 2010~~Woodward’s annual goodwill impairment test performed as of ~~March~~July 31, ~~2010~~2011, indicated ~~that no goodwill impairment existed. The~~the estimated fair value of each ~~of our~~ reporting ~~units~~unit was substantially in excess of its carrying ~~value.~~

~~At March~~value, and accordingly, no impairment existed. Increasing the discount rate by 20%, decreasing the growth rate by 20%, or decreasing forecasted cash flow by 20%, would not have resulted in an impairment charge at July 31, ~~2010, the reporting unit with the closest ratio of estimated fair value to carrying value was our recently acquired Airframe Systems reporting unit, which has a significant concentration of business~~2011. See Note 21,Segment information, in the presently depressed business jet and regional jet market segments. Our March 31, 2010 analysis indicated a premium of over 30% compared to this reporting unit’s carrying value. We are not aware of any facts, circumstances or triggering events that have arisen since March 31, 2010 indicating that goodwill has been impaired or that the premium of over 30% has changed significantly since our March 31, 2010 analysis. The carrying value of our Airframe Systems segment goodwill was $294,558 as of September 30, 2010.Consolidated Financial Statements.

As part of the Company’s ongoing monitoring efforts, Woodward will continue to consider the global economic environment and its potential impact on Woodward’s business in assessing goodwill recoverability. There can be no assurance that Woodward’s estimates and assumptions regarding forecasted cash flows of certain reporting units, ~~or the duration of the current economic downturn, or~~ the period or strength of the current economic recovery, ~~made for purposes~~or the other inputs used in forecasting the present value of ~~the annual goodwill impairment test performed during the second fiscal quarter of 2010,~~forecasted cash flows will prove to be accurate ~~predictions~~projections of ~~the future. If Woodward’s assumptions are not realized, it is possible that an impairment charge may need to be recorded in~~ future ~~periods.~~performance.

Income taxes

We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes.

During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. The reserves are established when we believe that certain positions are likely to be challenged and may not be fully sustained on review by tax authorities. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or refinement of an estimate. Although we believe our reserves are reasonable, no assurance can be given that the final outcome of these matters will ~~not~~ be consistent with what is reflected in our historical income tax provisions and accruals. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. As of September 30, ~~2010,~~2011, unrecognized gross tax benefits for which recognition has been deferred was ~~$10,586.~~$16,931.

BUSINESS ENVIRONMENT AND TRENDS

We serve the aerospace ~~& defense~~ and energy ~~markets through our four business segments.~~

~~The global economic downturn impacted all of our markets in 2009, but these markets began strengthening in early fiscal year 2010.~~markets.

Aerospace ~~& Defense~~ Markets

Our aerospace ~~& defense~~ products are primarily used to provide energy and motion control in both commercial and military fixed wing and rotary aircraft and in various other defense platforms, including guided weapon systems and combat vehicles.

Commercial and Civil Aircraft—- In the commercial aerospace markets, ~~which are mainly served by our Turbine Systems and Airframe Systems business segments,~~ global air traffic ~~is estimated~~continued to ~~have returned~~improve in ~~2010 to pre-recession levels and both wide-body and single aisle commercial jet~~fiscal year 2011. Commercial aircraft production has ~~stabilized.~~increased as aircraft operators continue to take delivery of more fuel efficient aircraft and retire older, less efficient aircraft. This trend toward more fuel efficient aircraft favors our product offerings because we generally have more content on the new generation of aircraft. While relatively long development cycles mean the impacts are several years delayed, we ~~are exploring~~have recently been awarded content on the Boeing 737 MAX, 787 and 747-8, Airbus A320neo, Bombardier CSeries, COMAC 919, Bell 429 and a variety of business jet platforms. We continue to explore opportunities on new engine and aircraft programs ~~which~~that are under consideration or have been recently announced.

Defense— In the defense markets, ~~which are mainly served by our Turbine Systems and Airframe Systems business segments,~~ overall spending ~~increased~~decreased modestly in ~~2010. Key~~2011. Our involvement with a wide variety of military programs in fixed wing aircraft, rotorcraft and weapons systems ~~have~~has provided relative stability ~~in the~~for our defense markets ~~during this uncertain economic environment.~~sales. Key programs that have been stable or growing include the F/A-18 E/F, the F-35 (Joint Strike Fighter), and the ~~Blackhawk~~Black Hawk and Apache helicopter programs. In fiscal year 2011, we were awarded motion control system content for the fueling boom on the KC-46 tanker program. Military aftermarket, tied to the support of ongoing U.S. war efforts, has been ~~consistent~~steady throughout this cycle.

We continue to explore opportunities on next generation smart weapon systems, including enhanced guided bomb and guided rocket ~~programs.~~programs, turret controls and remote weapon stations. Weapon programs for which we have significant sales include the JDAM guided tactical weapon system and the M1A1 Abrams tank turret control system.

Energy Markets

Our energy products are used in global power generation and distribution, and to control energy in industrial, mobile and marine equipment.

Industrial Turbines and Compressors— ~~The~~In fiscal year 2011, the industrial turbine market ~~which is mainly served by our Turbine Systems business segment, was impacted by~~began to recover from the economic downturn ~~in relation to credit market availability, large capital project constraints and decreased demand for global energy. OEM build rates have begun to recover~~that began in fiscal year ~~2010, particularly in developing economies, as the global economic recovery is starting~~2009. In addition to ~~drive~~ increased ~~power demand.~~production rates by our OEM customers, we gained content on a newer generation of turbines that deliver improved fuel efficiency and lower emissions. In addition, we increased market share by successfully adding customers for our product offerings. We anticipate that long-term power needs in developed and developing regions, as well as backup power for renewable resource generators such as wind turbines, should cause industrial ~~turbines~~turbine demand to continue to ~~return to more favorable growth rates.~~improve. The aftermarket segment of the industry has been favorably impacted by service needs related to turbine installations early in the preceding decade.

As power generation demand ~~growth returns,~~continues to improve, turbines are expected to provide a ~~strong~~compelling solution due to their inherent low emissions and fast permitting and construction times, along with the abundant availability of ~~lower cost~~reasonably priced natural gas. Further, gas turbines are expected to serve a critical market need in supporting renewable assets in providing fast start and load acceptance during times when renewable sources fluctuate. OEM turbine manufacturers appear to be investing in new technologies focused on emissions, part load operation, start times, and fuel flexibility.

In the oil and ~~gas/~~gas process industry, demand for industrial gas, ~~and~~ steam turbines and compressors is expected to grow, ~~fueled by the~~primarily due to increased demand for oil and natural gas products. Exploration, production, distribution and ~~distribution~~processing of oil and gas products utilize both gas and steam turbines, ~~in process and power generation applications.~~as well as compressors. Increased construction of floating production storage &and offloading, and gas to liquids facilities ~~will~~is expected to drive demand in aeroderivative, ~~and~~ steam turbine and compressor applications.

Demand for large gas and diesel engines ~~began to stabilize during~~stabilized in fiscal year 2010, ~~but more slowly than for small gas~~ and ~~diesel engines.~~we began to recover in these markets in fiscal year 2011. We believe that ~~increasing~~broad commodity ~~prices are~~demand is driving ~~renewed~~continued investments in engine-powered mining, ~~and~~ oil ~~production equipment, although investments have been somewhat dampened by depressed prices for~~and natural gas ~~due to high supply levels. However, demand~~production equipment. Demand for ~~higher margin~~ large engine marine applications ~~has remained weak~~stabilized and showed some improvement in fiscal year ~~2010.~~2011.

Longer term, ~~new mandated~~government issued emissions requirements across many regions and engine applications is driving demand for higher-technology control systems, as is customer demand for improved engine efficiencies. Energy policies in some countries encourage the use of natural gas and other alternative fuels over carbon-rich petroleum fuels, thereby increasing demand for ~~a variety of~~our alternative fuel clean engine control technologies.

Wind Energy- The wind energy industry remains challenged as a result of concerns regarding government support, competitive pricing, and capacity and availability in the credit markets. In the longer term, we anticipate improvement in the market as demand for low emission power sources increases and technology advancements allow renewable energy to be more competitive with conventional sources. In fiscal year 2011, we increased market share with existing wind customers and added new wind customers. Also in fiscal year 2011, we added solar capabilities through our IDS Acquisition.

Electrical Power Generation and Distribution—- The electrical power generation and distribution markets ~~which are mainly served by our Electrical Power Systems, Engine Systems, and Turbine Systems business segments, were impacted negatively~~began to recover in fiscal ~~years 2009~~year 2011 as credit markets and ~~2010 by tight credit, lower levels of~~ global energy demand improved despite a continued tight global credit market and uncertainty over government stimulus packages.

~~Our Electrical Power Systems segment develops and manufactures systems and components that provide~~We are seeing improving demand for our power sensing and ~~energy~~ control ~~management. These systems and components improve~~equipment in line with the security, quality, reliability, and availability of power generation and electrical power networks for industrial markets, which include the power generation, power distribution, and power conversion industries.

~~Our Turbine Systems segment develops and manufactures systems and components that provide energy control and optimization solutions for the industrial gas and steam turbines~~global recovery in ~~our energy~~these markets.

The global economic recovery, especially in developing economies, is beginning to drive increased global power demand. Also, increased global natural gas supply, combined with lower natural gas prices, is expected to support increased demand for industrial gas turbines and reciprocating engines used in power generation applications.

~~Wind Energy~~~~— The renewable wind industry, which is mainly served by our Electrical Power Systems business segment, was affected by the global economic recession more severely and later than was~~After a strong fiscal year 2010, we experienced ~~by most industries. Current and near-term wind turbine installations have decreased as~~ a ~~result of tight credit markets and governmental delay~~modest decline in the ~~provision~~level of stimulus funding and clarification of tax credit availability. We believe the continued support of wind energy technology, however, through the United States’ stimulus package, the European Union’s Renewable Energy Directive, and China’s initiative to achieve significant renewable energy targets by 2012, favors long-term growth for this market.our project engineering services.

The market for renewable wind energy technology is immature and changing rapidly. Also, delays in wind turbine installation caused by the recent economic downturn have led to over-capacity with manufacturers. Management believes it is likely that market consolidation may lead to price becoming more important within the wind turbine converter market.

RESULTS OF OPERATIONS

~~2010 Highlights~~

Net sales for fiscal year 2010 were $1,457,030, an increase of 1.9% from $1,430,125 for fiscal year 2009. Fiscal year 2010 sales included $117,329 of HRT external sales for the six months from October 2009 to March 2010 that were not present in fiscal year 2009.

Net earnings attributable to Woodward for fiscal year 2010 were $110,844, or $1.59 per diluted share, an increase of 17.5% from $94,352, or $1.37 per diluted share, in fiscal year 2009. Net earnings for fiscal year 2010 and fiscal year 2009 included the special items described in the tables below.

Non-U.S. GAAP Financial Measures

EBIT, EBITDA and free cash flow

Earnings before interest and taxes (“EBIT”), earnings before interest, taxes, depreciation and amortization (“EBITDA”) and free cash flow are financial measures not prepared and presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements may not fluctuate with operating results. Management uses EBITDA in evaluating Woodward’s operating performance, making business decisions, including developing budgets, managing expenditures and forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Management uses free cash flow, which is ~~derived from~~defined as net cash flows provided by operating activities less capital expenditures, in reviewing the financial performance of Woodward’s various business ~~segments~~groups and evaluating cash levels. Securities analysts, investors, and others frequently use EBIT, EBITDA and free cash flow in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization. The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. As EBIT and EBITDA exclude certain financial information compared with net earnings, the most comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Our calculations of EBIT, EBITDA and free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.

Liquidity Highlights

Net cash provided by operating activities for fiscal year 2011 were $114,623 compared to $184,572 for fiscal year 2010, reflecting the increase in working capital utilization primarily associated with increased inventory levels necessary to support future sales growth.

Free cash flow for fiscal year 2011 was $66,368 compared to $156,468 for fiscal year 2010.

EBITDA increased by $28,458 to $287,825 for fiscal year 2011 from $259,367 for fiscal year 2010.

At September 30, 2011, we held $74,539 in cash and cash equivalents, and had total outstanding debt of $425,249. At September 30, 2011, under our $225,000 revolving credit facility, we had additional borrowing availability of $220,118, net of outstanding letters of credit, and had additional borrowing availability of $22,811 under various foreign credit facilities.

The following table sets forth selected consolidated statement of earnings data as a percentage of net sales for each period indicated:


	Year Ending September 30,
	2011						2010						2009
				% of						% of						% of
				Net						Net						Net
				Sales						Sales						Sales
Net sales	$	1,711,702			100.0	%	$	1,457,030			100.0	%	$	1,430,125			100.0	%

Cost of goods sold		1,198,153			70.0			1,021,516			70.1			1,029,095			72.0
Selling, general, and administrative expenses		148,903			8.7			135,880			9.3			128,682			9.0
Research and development costs		115,633			6.8			82,560			5.7			78,536			5.5
Amortization of intangible assets		34,993			2.0			35,114			2.4			26,120			1.8
Restructuring and other charges		—			—			—			—			15,159			1.1
Interest expense		25,399			1.5			29,385			2.0			33,629			2.4
Interest income		(534	)		(0.0	)		(509	)		(0.0	)		(1,131	)		(0.1	)
Other (income) expense, net		1,588			0.1			(1,791	)		(0.1	)		(2,441	)		(0.2	)

Consolidated costs and expenses		1,524,135			89.0			1,302,155			89.4			1,307,649			91.4

Earnings before income taxes		187,567			11.0			154,875			10.6			122,476			8.6
Income tax expense		55,332			3.2			43,713			3.0			28,060			2.0

Net earnings		132,235			7.7			111,162			7.6			94,416			6.6
Net earnings attributable to noncontrolling interest, net		—			—			(318	)		(0.0	)		(64	)		(0.0	)

Net earnings attributable to Woodward	$	132,235			7.7	%	$	110,844			7.6	%	$	94,352			6.6	%

2011 RESULTS OF OPERATIONS

2011 Sales Compared to 2010

Consolidated net external sales increased 17.5% from $1,457,030 in fiscal year 2010 to $1,711,702 in fiscal year 2011 primarily due to volume increases in nearly all of the markets we serve.

Details of the changes in consolidated net external sales are as follows:


Consolidated net external sales at September 30, 2010	$	1,457,030
Aerospace volume changes		70,869
Aerospace customer funded development		(9,990	)
Energy volume changes		165,242
Price changes and sales mix		10,553
Effects of changes in foreign currency		17,998

Consolidated net external sales at September 30, 2011	$	1,711,702

The increase in net external sales in fiscal year 2011 was attributable to sales volume increases across both of our segments. Customer funded development decreased slightly in the Aerospace segment. Net external sales for fiscal year 2011 were also impacted by favorable price changes and foreign currency exchange rates.

Sales for fiscal year 2011 continued the growth trend we began to experience in the second half of fiscal year 2010. In addition, the global supply chain has begun to recover some from capacity constraints introduced as the global economy struggled in the past several years. We remain focused on meeting customer demand on a timely basis, managing our inventory levels, and coordinating with vendors.

Price changes:Increases in selling prices across several products were partially offset by decreases in selling prices for some wind related products. Selling price changes are in response to prevailing market conditions.

Foreign currency exchange rates:Our worldwide sales activities are primarily denominated in U.S. dollars (“USD”), European Monetary Units (the “Euro”), Great Britain pounds (“GBP”), Japanese yen (“JPY”), Chinese yuan (“CNY”) and Swiss Francs (“CHF”). As the USD, Euro, GBP, JPY, CNY, and CHF fluctuate against each other and other currencies, we are exposed to gains or losses on sales transactions. If the CNY, which the Chinese government has not historically allowed to fluctuate significantly against USD, is allowed to fluctuate against USD in the future, we would be exposed to gains or losses on sales transactions denominated in CNY.

During the fiscal year ended September 30, 2011, our net sales were positively impacted by approximately $17,998 due to changes in foreign currency exchange rates, compared to the same period of fiscal year 2010.

2011 Costs and Expenses Compared to 2010

Variable compensation expense, which is tied to relative financial and operating performance, can vary significantly from fiscal year-to-year. During fiscal year 2011, variable compensation expense increased $25,962 as compared to fiscal year 2010 and has impacted cost of goods sold, selling general and administrative, and research and development expenses.

Cost of goods soldincreased by $176,637 to $1,198,153, or 70.0% of net sales, for fiscal year 2011 from $1,021,516, or 70.1% of net sales, for fiscal year 2010. Correspondingly, gross margins (as measured by net sales less cost of goods sold, divided by net sales) remained relatively flat at 30.0% for fiscal year 2011 as compared to 29.9% for the same period of the prior fiscal year.

Selling, general, and administrative expensesincreased by $13,023, or 9.6%, to $148,903 for fiscal year 2011 as compared to $135,880 for fiscal year 2010 primarily as a result of increased variable compensation. Selling, general and administrative expenses decreased as a percentage of net sales to 8.7% for fiscal year 2011 as compared to 9.3% for fiscal year 2010. Included in selling, general and administrative expense for fiscal year 2011 is approximately $2,396, related to the acquisition of IDS.

Research and development costsincreased by $33,073, or 40.1%, to $115,633 for fiscal year 2011 as compared to $82,560 for the same period of fiscal year 2010. Research and development costs increased as a percentage of net sales to 6.8% for fiscal year 2011 as compared to 5.7% for fiscal year 2010. Our research and development activities extend across nearly our entire customer base. The increase in research and development costs is primarily due to our investment in new product platforms that have been awarded and development of next generation technology. Research and development costs in fiscal year 2011 were also impacted by increased variable compensation.

Amortization of intangible assetsdecreased slightly to $34,993 for fiscal year 2011 compared to $35,114 for fiscal year 2010. As a percentage of net sales, amortization of intangible assets decreased to 2.0% for fiscal year 2011 as compared to 2.4% for the prior year.

Interest expensedecreased to $25,399, or 1.5% of net sales, for fiscal year 2011 compared to $29,385, or 2.0% of net sales, for the prior fiscal year. The decrease in interest expense is due to related debt reductions.

Income taxeswere provided at an effective rate on earnings before income taxes of 29.5% for fiscal year 2011 compared to 28.2% for fiscal year 2010. The change in the effective tax rate (as a percentage of earnings before income taxes) was attributable to the following:


Effective tax rate at September 30, 2010	28.2	%
Retroactive extension of research credit recorded in fiscal 2011	(2.1	)
Research credit in fiscal 2011 as compared to fiscal 2010	(2.2	)
Adjustment of prior period tax issues recorded in the period ending September 30, 2011	(0.3	)
Adjustment of prior period tax issues recorded in the period ending September 30, 2010	5.9
Domestic production activities deduction	(1.2	)
Foreign tax rate differences	1.1
Other changes, net	0.1

Effective tax rate at September 30, 2011	29.5	%

During the year ending September 30, 2010, the Internal Revenue Service concluded an examination of our U.S. Federal income tax returns for fiscal years 2007 and 2008. During the year ending September 30, 2010, we completed certain internal revaluation assessments and certain statues of limitations expired. As a result, we reduced our liability for unrecognized tax benefits by a net favorable amount of $6,416 for the period ended June 30, 2010.

On December 17, 2010, legislation was enacted that retroactively extended the U.S. research tax credit, which had expired as of December 31, 2009. As a result of this extension, fiscal year 2011 includes the effect of recognizing a tax benefit of $3,088 related to recognition of the retroactive impact to the prior year. The credit is scheduled to expire again on December 31, 2011. This expiration will result in a higher effective tax rate in fiscal year 2012 unless legislation is enacted to extend the credit.

In January 2011, the State of Illinois increased its corporate income tax rate from 7.3% to 9.5% effective January 1, 2011. This tax rate increase has not had a material impact on Woodward’s Consolidated Financial Statements and is not expected to have a material impact in the future.

The total amount of the gross liability for worldwide unrecognized tax benefits reported in other liabilities in the Consolidated Balance Sheet was $16,931 at September 30, 2011, and $10,586 at September 30, 2010. At September 30, 2011, the amount of unrecognized tax benefits that would impact Woodward’s effective tax rate, if recognized, was $14,078. At this time, we estimate it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $600 in the next twelve months due primarily to the expiration of certain statutes of limitations. We recognize interest and penalties related to unrecognized tax benefits in tax expense. Woodward had accrued interest and penalties of $1,989 as of September 30, 2011 and $1,431 as of September 30, 2010.

Woodward’s tax returns are audited by U.S., state, and foreign tax authorities, and these audits are at various stages of completion at any given time. Fiscal years remaining open to examination in significant foreign jurisdictions include 2003 and forward. Woodward has been subject to U.S. Federal income tax examinations for fiscal years through 2008. Woodward is subject to U.S. state income tax examinations for fiscal years 2007 and forward.

SEGMENT RESULTS

The following table presents sales by segment:


	Year Ending September 30,
	2011				2010				2009
External net sales:
Aerospace	$	843,032	49	%	$	769,379	53	%	$	704,771	49	%
Energy		868,670	51			687,651	47			725,354	51

Consolidated net sales	$	1,711,702	100	%	$	1,457,030	100	%	$	1,430,125	100	%

~~Sales~~The following table presents earnings by segment:


	Year Ending September 30,
	2011			2010			2009
Aerospace	$	129,502		$	112,171		$	104,550
Energy		113,872			94,014			96,938

Total segment earnings		243,374			206,185			201,488
Nonsegment expenses		(30,942	)		(22,434	)		(46,514	)
Interest expense, net		(24,865	)		(28,876	)		(32,498	)

Consolidated earnings before income taxes		187,567			154,875			122,476
Income tax expense		55,332			43,713			28,060

Consolidated net earnings	$	132,235		$	111,162		$	94,416

The following table presents earnings by segment as a percent of segment net sales:


	Year Ending September 30,
	2011			2010			2009
Aerospace		15.4	%		14.6	%		14.8	%
Energy		13.1			13.7			13.4

2011 Segment Results Compared to 2010

Aerospace

Aerospace segment net salesincreased $73,653, or 9.5%, to $843,032 for fiscal year 2011 from $769,379 for fiscal year 2010. Sales during fiscal year 2011 were higher in nearly all markets we serve. Sales for the ~~breakdown~~aerospace aftermarket continued to benefit from increased passenger and cargo air traffic, and the introduction of ~~consolidated net external~~new aircraft platforms on which Aerospace products are used.

We believe the fleet dynamics of commercial aircraft platforms on which we have content, such as the Airbus A320, the Boeing 777, the Embraer and the Bombardier 70- to 90-seat regional jets, allowed our aftermarket business to be somewhat less negatively impacted by the effects of the recent economic down-cycle than some of our competitors and have supported sales growth as a result of the more recent rebound in air traffic. Commercial OEM aircraft deliveries of narrow-body and wide-body aircraft have increased based on improved airline demand and new product introduction. The increase in sales continues to reflect recovering demand for business and regional jets and rotorcraft, partially offset by ~~segment:~~a slight decline in military sales and reduced levels of customer funded development revenue.

Year Ended September 30,
2010 2009 2008
Segment net sales:

Turbine Systems $ 610,833 42 % $ 632,222 44 % $ 634,658 50 %
Airframe Systems 379,284 26 321,956 23 — —
Electrical Power Systems 230,331 16 243,146 17 289,294 23
Engine Systems 326,668 22 340,995 24 469,432 37

Total segment net sales 1,547,116 106 1,538,319 108 1,393,384 111
Less intersegment net sales:

Turbine Systems (9,457 ) (1 ) (14,272 ) (1 ) (18,470 ) (1 )
Airframe Systems (3,102 ) (0 ) (2,947 ) (0 ) — —
Electrical Power Systems (43,540 ) (3 ) (48,146 ) (3 ) (66,571 ) (5 )
Engine Systems (33,987 ) (2 ) (42,829 ) (3 ) (50,139 ) (4 )

Consolidated net external sales
$ 1,457,030 100 % $ 1,430,125 100 % $ 1,258,204 100 %

~~Consolidated net external sales~~Aerospace segment earningsincreased $17,331, or 15.5%, for the fiscal year ~~ended September 30, 2010 increased 1.9%~~2011 compared to fiscal year ~~2009. Consolidated net external~~2010 due to the following:


Earnings at September 30, 2010	$	112,171
Sales volume changes		26,485
Selling price and mix		17,542
Customer funded development		(9,990	)
Investments in engineering and research and development		(5,328	)
Changes in variable compensation		(12,307	)
Workman’s compensation		(2,983	)
Effects of changes in foreign currency rates		336
Other, net		3,576

Earnings at September 30, 2011	$	129,502

The increase in Aerospace segment earnings in fiscal year 2011 compared to fiscal year 2010 were primarily the result of sales volume increases, a more favorable price and sales mix due to increased levels of aftermarket sales, partially offset by increased variable compensation and costs associated with new product development, including a reduction in customer funded development. The sales mix during fiscal year 2011 continued to include a higher proportion of aftermarket sales than in fiscal year 2010 as a result of increased air traffic. Earnings as a percentage of sales increased ~~approximately 1.5%, excluding the approximately $5,200 increase~~to 15.4% in ~~sales attributable~~fiscal year 2011 compared to ~~the effects of foreign currency exchange rates.~~

Intersegment sales primarily reflect contract-manufacturing activity across business segments. As part of their system offerings, Turbine Systems and Engine Systems sell electronic controls manufactured by Electrical Power Systems. Engine Systems also manufactures certain components of larger systems ultimately sold by Turbine Systems. These intersegment activities have historically increased growth in our Turbine Systems, Electrical Power Systems and Engine Systems segments. Further integration of our Airframe Systems segment is also expected to result in the manufacture of additional electronic controls by Electrical Power Systems.14.6% for fiscal year 2010.

Energy

Energy segment net salesincreased $181,019, or 26.3% to $868,670 for fiscal year 2011 from $687,651 for fiscal year 2010. Sales for fiscal year 2011 increased in all of our markets and includes $13,545 in net sales associated with the IDS Acquisition. Sales were particularly strong in the large and small engine markets utilizing diesel, gas, including natural gas, and other special fuel sources, which serve primarily construction, agricultural, and on-highway natural gas vehicles.

In addition, we continued to see growth in our industrial steam turbine market, as well as increased deliveries of wind turbine power converters. Although wind turbine converter sales increased in fiscal year 2011 as compared to fiscal year 2010, wind converter demand continues to be impacted by tight lender requirements for project financing and uncertainty regarding government stimulus programs due to a lack of clear policy direction in the U.S. and elsewhere.

Energy segment earningsincreased by $19,858, or 21.1%, for fiscal year 2011 as compared to fiscal year 2010 due to the following:


Earnings at September 30, 2010	$	94,014
Sales volume changes		60,412
Selling price and mix		(7,089	)
Investments in engineering and research and development		(13,906	)
Changes in variable compensation		(11,415	)
Increase in global expansion efforts		(3,625	)
Increased costs to support sales growth		(3,222	)
Freight and duty costs		(1,512	)
Effects of changes in foreign currency rates		3,923
Other, net		(3,708	)

Earnings at September 30, 2011	$	113,872

The increase in the Energy segment earnings for fiscal year 2011 as compared to the prior fiscal year was driven primarily by increased volume, offset partially by increases in research and development, variable compensation and unfavorable selling price and product mix.

Non-segment expenses

Non-segment expensesfor fiscal year 2011 increased to $30,942, or 1.8% of net sales, compared to $22,434, or 1.5% of net sales, for fiscal year 2010. The increase in non-segment expenses for fiscal year 2011 is primarily due to increased variable compensation and costs associated with the acquisition of IDS.

2010 RESULTS OF OPERATIONS

2010 Sales Compared to 2009

Consolidated net external sales increased 1.9% from $1,430,125 in fiscal year 2009 to $1,457,030 in fiscal year 2010 primarily due to the inclusion of a full fiscal year of HRT sales in fiscal year 2010 compared to only six months of HRT sales in fiscal year 2009, partially offset by sales volume declines in all of our ~~segments.~~markets.

The continuing impact of the global recession has temporarily resulted in excess supplies of electricity in certain markets, which has contributed to reduced sales volumes of industrial gas and steam turbines. Also, uncertainty caused by the delay in issuance of new emissions policies and standards in the U.S. continues to dampen customer demand for industrial turbines.

Our Turbine Systems segment net sales in the fourth quarter of fiscal year 2010 were the highest since the fourth quarter of fiscal year 2008. Business jet markets, primarily the large cabin and long-range markets in which Turbine Systems products are well represented, have continued to recover in fiscal year 2010, as evidenced by higher deliveries of product for business jet engines in the second half of fiscal year 2010 compared to the same period of fiscal year 2009. Likewise, the global economic recovery, especially in developing economies, is beginning to drive increased global power demand. Increased global natural gas supply, combined with lower natural gas prices, supported increasing demand for industrial gas turbines used in power generation and process applications. Increased power demand and increased air traffic use also favorably impacted our aftermarket sales levels.

~~During the fiscal year ended September 30, 2010, our net sales were positively impacted by approximately $1,500 due to changes in foreign currency exchange rates compared to fiscal year 2009.~~

~~Airframe Systems’ segment net sales~~~~(including intersegment sales)~~~~were $379,284 for the fiscal year ended September 30, 2010 compared to $321,956 for fiscal year 2009.~~

On April 3, 2009, we acquired HRT and we have subsequently integrated this business into Woodward, and more specifically into our Airframe Systems segment. Fiscal year 2010 sales included $117,329 of HRT external sales for the six months from October 2009 to March 2010 that were not present in fiscal year 2009.

In August 2009, we sold the F&P product line, which had been acquired as part of the HRT acquisition. Fiscal year 2009 sales included $9,620 of F&P product line sales from April 2009 to September 2009 that were not present in fiscal year 2010.

Excluding changes due to the acquisition of HRT and the sale of the F&P product line, sales changes for the annual period were primarily due to production softness in the global commercial business and regional jet OEM and aftermarket segments, coupled with reduced utilization of various platforms supplied by Airframe Systems. The sales change was also impacted by reduced demand on various military applications, particularly fixed wing and electro-optical targeting programs, which are markets in which we have a significant presence. Aftermarket sales have experienced slight declines, primarily due to passenger and cargo carriers removing planes from service.

Airframe Systems’ segment net sales were higher in the fourth quarter of fiscal year 2010 compared to each of the first three quarters of fiscal year 2010, supported by stable demand for military applications, commercial aircraft, and regional aircraft.

~~During the fiscal year ended September 30, 2010, foreign currency exchange rates had no appreciable impact on net sales compared to the same period of fiscal year 2009.~~

~~Electrical Power Systems’ segment net sales~~~~(including intersegment sales)~~were $230,331 for the fiscal year ended September 30, 2010, compared to $243,146 for fiscal year 2009. Decreased sales of wind turbine converters were partially offset by increases in non-wind related power generation and distribution equipment. Intersegment sales were $43,540 in fiscal year 2010 compared to $48,146 in fiscal year 2009. The intersegment sales declines reflect weakness in demand for industrial gas turbine and reciprocating engine controls used in power generation applications.

Wind converter sales declined in the fiscal year ended September 30, 2010, as compared to the same period of fiscal year 2009. Wind converter demand continues to be impacted by tight lender requirements for project financing, and uncertainty regarding government stimulus programs due to a lack of clear policy direction in the U.S. and elsewhere. Continued global weakness in wind converter deliveries was the primary contributor to Electrical Power Systems’ segment net sales declines for the fiscal year ended September 30, 2010 compared to the same period in fiscal year 2009.

Electrical Power Systems saw a significant decrease in demand during the last quarter of fiscal year 2009, which continued during the first nine months of fiscal year 2010. During the last three months of fiscal year 2010, Electrical Power Systems’ segment net sales increased to $71,721 from $53,718 in the last three months of fiscal year 2009, reflecting improved demand from our wind converter customers and our non-wind power generation and distribution customers. During the second half of fiscal year 2009, demand for our non-wind power generation and distribution equipment and services declined driven by stock reduction programs and postponement of projects on customer side. Demand for these products increased slightly in the fiscal year ended September 30, 2010 compared to the same period of fiscal year 2009. Electrical Power Systems’ segment net sales for the fourth fiscal quarter of fiscal year 2010 were 36% higher than the average segment net sales of the first three quarters of fiscal year 2010.

During the fiscal year ended September 30, 2010, segment net sales were positively impacted by approximately $1,600 due to changes in foreign currency exchange rates, compared to the same period of fiscal year 2009.

~~Engine Systems’ segment net sales~~~~(including intersegment sales)~~~~were $326,668 for the fiscal year ended September 30, 2010 compared to $340,995 for fiscal year 2009.~~

Lower fiscal year-over-year sales levels for the fiscal year ended September 30, 2010 compared to the same period in fiscal year 2009 were primarily attributable to declines in sales of controls used in large engine applications that serve the power generation, marine and process markets. Sales of controls used in small engine applications that support the construction, agricultural, and alternative-fuel vehicle markets were higher for the fiscal year ended September 30, 2010 compared to the same period in fiscal year 2009.

~~Engine Systems showed sequential quarter over quarter growth in the second, third and fourth quarters of fiscal year 2010.~~

During the fiscal year ended September 30, 2010, segment net sales were positively impacted by approximately $2,100 due to changes in foreign currency exchange rates, compared to the same period of fiscal year 2009.

Price changes and sales mix:Selling price increases across several products ~~in Turbine Systems and Engine Systems~~ were in response to prevailing market conditions, partially offset by price decreases and changes in sales mix by ~~customer in Electrical Power Systems.~~customer.

Foreign currency exchange rates:Our worldwide sales activities are primarily denominated in U.S. dollars (“USD”), European Monetary Units (the “Euro”), Great Britain pounds (“GBP”), Japanese yen (“JPY”) and Chinese Yuan (“CNY”). As the USD, Euro, GBP, and JPY fluctuate against each other and other currencies, we are exposed to gains or losses on sales transactions. If CNY, which the Chinese government has not allowed to fluctuate significantly against USD in 2009 or 2010, is allowed to fluctuate against USD in the future, we would be exposed to gains or losses on sales transactions denominated in CNY.

During ~~the~~ fiscal year ~~ended September 30,~~ 2010, our net sales were positively impacted by approximately ~~$5,200~~$5,184 due to changes in foreign currency exchange rates, compared to ~~the same period of~~ fiscal year 2009.

~~Costs and Expenses~~

~~The following table presents costs and expenses:~~

Year Ended September 30,
2010 2009 2008
% of Net % of Net % of Net
Sales Sales Sales
Net sales $ 1,457,030 100.0 % $ 1,430,125 100.0 % $ 1,258,204 100.0 %

Cost of goods sold $ 1,021,516 70.1 % $ 1,029,095 72.0 % $ 882,996 70.2 %
Selling, general, and administrative expenses 135,880 9.3 128,682 9.0 115,399 9.2
Research and development costs 82,560 5.7 78,536 5.5 73,414 5.8
Amortization of intangible assets 35,114 2.4 26,120 1.8 6,830 0.5
Restructuring and other charges — — 15,159 1.1 — —
Interest and other income (2,513 ) (0.2 ) (4,212 ) (0.3 ) (6,992 ) (0.6 )
Interest and other expenses 29,598 2.0 34,269 2.4 3,972 0.3

Consolidated costs and expenses $ 1,302,155 89.4 % $ 1,307,649 91.4 % $ 1,075,619 85.5 %

2010 Costs and Expenses Compared to 2009

Recent economic events have caused variable compensation expense, which is tied to relative financial performance, to vary significantly from fiscal year-to-year. Increases in variable compensation expense of $6,695 in fiscal year 2010 as compared to fiscal year 2009 impacted cost of goods sold, selling general and ~~adminsitrative,~~administrative, and research and development expenses.

Cost of goods solddecreased by $7,579 ~~or 0.7%,~~ to $1,021,516 or 70.1% of net sales, in ~~the~~ fiscal year ~~ended September 30,~~ 2010, from $1,029,095 or 72.0% of net sales in fiscal year 2009. Excluding the ~~$12,500~~$15,400 charge for the step-up in basis of inventory related to the HRT ~~acquisition,~~and MPC acquisitions in fiscal year 2009, cost of goods sold increased by ~~$4,921~~$7,821 during fiscal year 2010.

Correspondingly, gross margins, measured as net sales less cost of goods sold divided by net sales, were 29.9% for ~~the~~ fiscal year ~~ended September 30,~~ 2010 compared to 28.0% for the fiscal year ~~ended September 30,~~ 2009. The increase in gross margins iswas largely a result from our focus on cost reductions and the impact of purchase accounting inventory step-up adjustments recorded ~~on the~~in fiscal year ~~ended September 30,~~ 2009 of $12,500 related to HRT and $2,900 related to MPC. Excluding the ~~$12,500~~$15,400 inventory step-up adjustments, gross margins in fiscal year 2009 were 29.1% compared to 29.9% in fiscal year 2010.

Cost of goods sold decreased in the fiscal year ended September 30, 2010 primarily because of decreased sales levels in fiscal year 2010 compared to fiscal year 2009 and as a result of our focus on cost control, changes in pricing on some products and changes in sales mix, partially offset by increases in variable compensation.

Selling, ~~General~~general and ~~Administrative~~administrative (“SG&A”)expenses increased by $7,198 or 5.6% to $135,880 for ~~the~~ fiscal year ~~ended September 30,~~ 2010 from $128,682 for ~~the~~ fiscal year ~~ended September 30,~~ 2009. Selling, general, and administrative expenses increased as a percent of sales to 9.3% in fiscal year 2010 from 9.0% in fiscal year 2009. The increase iswas primarily the result of additional expenses ofassociated with the recently acquired HRT business and higher levels of variable compensation, partially offset by the impact of cost reduction efforts taken during fiscal year 2009.

Amortization of intangible assetsincreased by $8,994 to $35,114 for fiscal year 2010 as compared to $26,120 for fiscal year 2009. The increase in amortization reflects the effect of $128,400 in purchased intangibles in connection with the HRT acquisition in April 2009. Amortization of intangible assets as a percent of sales was 2.4% for the fiscal year ~~ended~~ending September 30, 2010, as compared to 1.8% for the ~~same period last~~ fiscal year ~~primarily reflecting increased amortization expense related to $128,400 of intangible assets acquired in the HRT acquisition in April~~ended 2009.

Restructuring and other chargesof $15,159 were recognized in fiscal year 2009. No restructuring costs were recognized in fiscal year 2010. The 2009 charges resulted from a number of initiatives we implemented to maintain our margins through cost reduction and efficiency improvements. The program savings were primarily related to indirect expenses, selling, general, and administrative expenses, material productivity and facility rationalization.

Interest ~~and other expenses~~expensedecreased by $4,244 to $29,385 for the fiscal year 2010 as compared to $33,629 for fiscal year 2009. Interest expense as a percent of sales was 2.0% for the fiscal year ~~ended~~ending September 30, 2010, as compared to 2.4% for the ~~same period last~~ fiscal ~~year.~~year ended 2009. Interest expense decreased for the fiscal year ~~ended~~ending September 30, 2010 because of interest savings related to debt reductions.

Since the issuance of $400,000 of long-term debt in October 2008, which was used primarily to finance the acquisitions of MPC and MotoTron, and $220,000 of long-term debt issued in April 2009, which was used primarily to finance the acquisition of HRT, we have made unscheduled prepayments of $167,000 on our outstanding long-term debt. ~~Since~~After the acquisition of HRT on April 3, 2009, we reduced our total debt, ~~by $291,017,~~ including short-term borrowings, by $291,017, from $756,859 as of September 30, 2009 to $465,842 as of September 30, 2010.

~~2010 Earnings Compared to 2009~~

~~Turbine Systems’ segment earnings~~~~increased $6,873 or 5.0% for the fiscal year ended September 30, 2010, as compared to the same period last fiscal year due to the following:~~

Earnings at September 30, 2009 $ 136,120
Sales volume changes (11,939 )
Selling price changes 7,685
Sales mix 9,630
Savings related to workforce management 4,900
Changes in variable compensation (3,831 )
Effects of changes in foreign currency 440
Other, net (12 )

Earnings at September 30, 2010 $ 142,993

Turbine Systems’ segment earnings increased in the fiscal year ended September 30, 2010 compared to the same period of fiscal year 2009 primarily as a result of more favorable sales mix, selling price changes, and workforce management savings, partially offset by decreases in sales volume and higher levels of variable compensation. Earnings as a percentage of sales increased to 23.4% in the fiscal year ended September 30, 2010 compared to 21.5% for the same period of fiscal year 2009.

~~Airframe Systems’ segment earnings~~~~increased to $11,578 in fiscal year ended September 30, 2010 from $11,023 in the comparable period ended September 30, 2009, due to the following:~~

Earnings at September 30, 2009 $ 11,023
Purchase accounting inventory basis step-up charge in 2009 12,500
HRT earnings from October 2009 to March 2010 14,397
F&P product line earnings from April 2009 to August 2009 (3,897 )
Sales volume changes (25,253 )
Sales mix (1,807 )
Depreciation & intangible amortization (4,342 )
Investments in business development opportunities (3,896 )
Savings related to workforce management 17,530
Changes in variable compensation (1,515 )
Other, net (3,162 )

Earnings at September 30, 2010 $ 11,578

HRT was acquired on April 3, 2009; therefore HRT’s results are included in Airframe Systems segment results for the six months ended September 30, 2009 and for the twelve months ended September 30, 2010. Likewise, the F&P product line was acquired as part of the HRT acquisition on April 3, 2009 and disposed of in August 2009; therefore, F&P business results from April to August of 2009 are included in Airframe Systems segment earnings for the fiscal year ended September 30, 2009, but no F&P results are included in Airframe Systems segment results for the fiscal year ended September 30, 2010. The April 3, 2009 HRT acquisition contributed $14,397 to Airframe Systems segment earnings for the fiscal year ended September 30, 2010. The F&P product line, which was acquired as part of the HRT acquisition in April 2009 and sold in August 2009, contributed $3,897 to the fiscal year ended September 30, 2009 and did not contribute in fiscal year 2010. Segment earnings for the fiscal year ended September 30, 2009 also included a $12,500 charge related to a purchase accounting step-up in basis of HRT inventory.

Earnings were also impacted by significant sales volume declines and sales mix, increased investments in business development opportunities, higher levels of variable compensation and higher levels of intangible amortization, partially offset by restructuring savings.

Because of the 2009 acquisitions of MPC and HRT, and the related adjustments made in purchase accounting to assign values to various intangible assets, the Airframe Systems business segment absorbs more amortization expense than our other business segments. Non-cash intangible amortization expense was $28,567 for the fiscal year ended September 30, 2010 and $19,551 for the fiscal year ended September 30, 2009.

Integration of our Airframe Systems business is expected to contribute to improved profitability, broader control system content, and better aftermarket presence and support. Airframe Systems has begun to realize previously anticipated benefits from cost reduction efforts taken at both MPC and HRT, and the operational integration of the MPC and HRT businesses is proceeding consistent with our expectations. Additional expense control initiatives that are expected to occur during fiscal year 2011 relate primarily to the planned closing of the Pacoima, California facility as part of a decision to consolidate HRT’s production facilities. Most of the costs of these additional expense control initiatives were included in accrued restructuring costs recorded in connection with the HRT acquisition.

~~Electrical Power Systems’ segment earnings~~~~decreased $11,623 or 32.4% for the fiscal year ended September 30, 2010 as compared to the fiscal year ended September 30, 2009, due to the following:~~

Earnings at September 30, 2009 $ 35,891
Sales volume changes (4,576 )
Selling price changes (1,671 )
Sales mix (846 )
Costs associated with global expansion (2,457 )
Savings related to workforce management 1,328
Changes in variable compensation (2,039 )
Effects of changes in foreign currency (122 )
Other, net (1,240 )

Earnings at September 30, 2010 $ 24,268

The decrease in earnings in the fiscal year ended September 30, 2010 compared to the same period of fiscal year 2009 was driven mainly by the decrease in sales volumes, which was primarily due to reduced current market demand for wind turbines, partially offset by increased sales of non-wind related power generation and distribution equipment. Also contributing were pricing pressures, sales mix changes, increased costs associated with global expansion of Electrical Power Systems and higher variable compensation costs, partially offset by savings realized as a result of workforce management actions taken during fiscal year 2009 in response to declining sales.

~~Engine Systems’ segment earnings~~~~increased $8,892, or 48.2% for the fiscal year ended September 30, 2010 due to the following:~~

Earnings at September 30, 2009 $ 18,454
Sales volume changes (6,248 )
Selling price changes 2,205
Sales mix (883 )
Decreased infrastructure and overhead related expenses 2,481
Savings related to workforce management 9,746
Changes in variable compensation (2,556 )
Effects of changes in foreign currency 1,336
Other, net 2,811

Earnings at September 30, 2010 $ 27,346

For the fiscal year ended September 30, 2010, price changes, cost savings related to workforce management activities, reduced infrastructure and overhead spending, changes in foreign currency exchange rates, and other factors favorably impacted earnings, but were partially offset by lower sales volumes and increases in variable compensation costs compared to fiscal year 2009. The infrastructure savings were related to consolidation of facilities and operations.

~~Nonsegment expenses~~~~for the fiscal year ended September 30, 2010 decreased to $22,434, or 1.5% of sales compared to $46,514 and 3.3% of sales for the fiscal year ended September 30, 2009.~~

In fiscal year 2009, we recorded $16,605 in special charges to properly size our business for the economic environment related to the global recession. Without these special charges, nonsegment expenses for the fiscal year ended September 30, 2009 were $29,909, or 2.1% of net sales.

Excluding the impact of the $16,605 special charges, fiscal year-over-year nonsegment expenses declined in fiscal year 2010 compared to fiscal year 2009, resulting primarily from cost reduction efforts and lower intercompany profit eliminations.

Income taxeswere provided at an effective rate on earnings before income taxes of 28.2% in fiscal year 2010 compared to 22.9% in fiscal year 2009. For a reconciliation of our effective tax rate to the U.S. statutory tax rate see Note 5,17,Income taxes, to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data.” The change in the effective tax rate (as a percentage of earnings before income taxes) was attributable to the following:


Effective tax rate at September 30, 2009	22.9	%
Retroactive extension of research credit recorded in fiscal 2009	1.7
Research credit in fiscal 2010 as compared to fiscal 2009	2.6
Adjustment of tax issues recorded in the period ended September 30, 2009	6.6
Adjustment of tax issues recorded in the period ended September 30, 2010	(5.9	)
State income taxes, net of federal tax benefit	0.9
Foreign tax rate differences	0.7
Other changes, net	(1.3	)

Effective tax rate at September 30, 2010	28.2	%

The total amount of the gross liability for worldwide unrecognized tax benefits reported in other liabilities in the Consolidated Balance Sheet was $10,586 at September 30, 2010, and $19,783 at September 30, 2009. At September 30, 2010, the amount of unrecognized tax benefits that would impact Woodward’s effective tax rate, if recognized, was $8,720. At this time, we ~~estimates~~estimate that it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $1,304 in the next twelve months due primarily to the expiration of certain statutes of limitations. We recognize interest and penalties related to unrecognized tax benefits in tax expense. Woodward had accrued interest and penalties of $1,431 as of September 30, 2010 and $3,804 as of September 30, 2009.

Woodward’s tax returns are audited by U.S., state, and foreign tax authorities, and these audits are at various stages of completion at any given time. Fiscal years remaining open to examination in significant foreign jurisdictions include 2003 and forward. Woodward has been subject to U.S. Federal income tax examinations for fiscal years through 2008; however, certain subsidiaries have open tax years back to 2007, which pre-dates the inclusion of these subsidiaries in the Woodward consolidated return filing group. Woodward is subject to U.S. state income tax examinations for fiscal years 2005 and forward.

2010 Segment Results Compared to 2009 ~~RESULTS OF OPERATIONS~~

~~2009 Sales Compared to 2008~~Aerospace

~~Consolidated~~Aerospace segment net saleswere $769,379 for fiscal year 2010 compared to $704,771 for fiscal year 2009. Fiscal year 2010 sales included $117,329 of HRT external net sales ~~increased 13.7%~~for the six months from ~~$1,258,204~~October 2009 to March 2010 that were not present in fiscal year ~~2008 to $1,430,125~~2009. Fiscal year 2009 sales included $9,620 of F&P product line sales, which was acquired as part of the HRT acquisition in April 2009 and then sold in September 2009, that were not present in fiscal year 2010. Excluding the effect of these sales, Aerospace segment net sales declined $43,102.

From a broad market perspective, the fiscal year-over-year sales decline from 2009 ~~primarily related~~ to 2010 was driven by lower sales in the ~~acquisitions of MPC~~commercial aircraft markets, including aftermarket spares and ~~HRT, partially offset by~~repair services. The Aerospace segment experienced declines in ~~sales volume~~each of the ~~Engine Systems segment and the impacts of changes in foreign currency exchange rates. Details of the changes in consolidated net external sales are as follows:~~

Consolidated net external sales at September 30, 2008 $ 1,258,204
External Sales from acquisition of MPC and HRT (Airframe Systems) 319,009
External Sales from the acquisition of Mototron 7,229
Turbine Systems volume changes (777 )
Electrical Power Systems volume changes (5,843 )
Engine Systems volume changes (119,334 )
Price changes 7,125
Effects of changes in foreign currency (38,322 )
Other 2,834

Consolidated net external sales at September 30, 2009 $ 1,430,125

~~Turbine Systems’ segment net sales~~~~(including intersegment sales)~~~~reflected growth in the~~ first ~~half~~three quarters of fiscal year ~~2009 and declines in the second half of fiscal year 2009 as~~2010, compared to the same periods in fiscal year ~~2008. We~~2009. Sales in the defense markets were slightly higher in 2010 than in 2009.

While we believe ~~this overall trend~~our experience is largely consistent with underlying economic market trends, ~~during~~we also believe the ~~period,~~fleet dynamics of commercial aircraft platforms on which we have ~~been driven~~content, such as the Airbus A320, the Boeing 777 and the Embraer and the Bombardier 70- to 90-seat Regional Jets, have allowed us to be somewhat less negatively impacted by ~~slowing~~the effects of the recent economic down-cycle than some of our competitors in the aftermarket segment. Commercial OEM aircraft deliveries of ~~new~~narrow-body and wide-body as well as military aircraft sales have remained relatively stable, although order patterns have fluctuated, such that our overall sales volume has remained less affected, despite larger fluctuations from quarter to quarter. Sales in the aerospace ~~equipment~~turbine markets were higher in the fourth quarter of fiscal year 2010 compared to both the third quarter of fiscal year 2010 and the fourth quarter of fiscal year 2009. In addition, increased air traffic use favorably affected our aftermarket sales levels. Business jet markets, primarily the large cabin and long-range markets for which our aircraft turbine products are well represented, continued to recover in fiscal year 2010, as evidenced by higher deliveries of product for business jet engines in the second half of fiscal year 2010 compared to the same period of fiscal year 2009. Aerospace net sales were also impacted by reduced ~~commercial airline~~demand on various military applications, particularly fixed wing and electro-optical targeting programs, which are markets in which we have a significant presence. Aftermarket sales experienced slight declines, primarily due to passenger and cargo flight miles. In particular, deliveries of business jets have slowed significantly as companies have reduced their levels of capital investment. We did, however, experience increases in sales in the industrial gas turbine market. While the overall market was generally flat, we benefitedcarriers removing planes from ~~higher demand~~service.

Aerospace segment earningsincreased $7,621 or 7.3% for the production of new industrial gas turbines which included more significant Woodward content for both heavy frame and aeroderivative turbines. We also benefited from increases in related aftermarket salesfiscal year 2010, as compared to ~~last~~ fiscal year ~~related~~2009 due to the ~~timing~~following:


Earnings at September 30, 2009	$	104,550
Purchase accounting inventory basis step-up charge in 2009		12,500
HRT earnings from October 2009 to March 2010		14,397
F&P product line earnings from April 2009 to August 2009		(3,897	)
Sales volume changes		(27,978	)
Selling price and mix		7,680
Depreciation & intangible amortization		(4,342	)
Investments in business development opportunities		(3,896	)
Savings related to workforce management		21,205
Changes in variable compensation		(4,334	)
Effects of changes in foreign currency		(192	)
Other, net		(3,522	)

Earnings at September 30, 2010	$	112,171

Aerospace segment earnings increased in fiscal year 2010 compared to fiscal year 2009, primarily as a result of ~~repair~~more favorable sales mix, selling price changes, and ~~overhaul activities~~workforce management savings, offset by decreases in sales volume and higher levels of variable compensation. Earnings as a percentage of sales decreased to 14.6% in the fiscal year ending September 30, 2010 compared to 14.8% for the same period of fiscal year 2009.

HRT was acquired on ~~equipment installed.~~

~~Airframe Systems’ segment net sales~~~~(including intersegment sales)~~~~reflected the acquisitions of MPC and HRT. On October 1, 2008, we acquired MPC and formed the Airframe Systems segment. On~~ April 3, ~~2009, we acquired HRT and added this business to our Airframe Systems segment. On August 10, 2009, we sold the~~2009. The F&P product line, which was acquired as part of the HRT ~~acquisition. Airframe Systems’ net sales~~acquisition was sold in September 2009. Therefore, HRT’s results are included in Aerospace segment results for the six months ended September 30, 2009 and for the twelve months ending September 30, 2010. Likewise, the F&P business results from April to August of 2009 are only included in Aerospace segment earnings for the fiscal year ~~2009 included $9,620 for the F&P product line. A full year of sales for MPC and six months of sales for HRT where included in net external sales as of~~ending September 30, 2009. ~~Post-acquisition~~The HRT acquisition contributed $14,397 to the Aerospace segment earnings for the fiscal year ending September 30, 2010. The F&P product line contributed $3,897 to the fiscal year ending September 30, 2009. Segment earnings for the fiscal year ending September 30, 2009 also included a $12,500 charge related to a purchase accounting step-up in basis of HRT inventory.

Fiscal year 2010 earnings were also impacted by significant sales volume declines, increased investments in business development opportunities, higher levels of variable compensation and higher levels of intangible amortization compared to fiscal year 2009. Because of the 2009 acquisitions of MPC and HRT, and the related adjustments made in purchase accounting to assign values to various intangible assets, the Aerospace segment absorbs more amortization expense than our Energy segment. Non-cash intangible amortization expense for the Aerospace segment was $29,810 for the fiscal year ending September 30, 2010 and $20,792 for the fiscal year ending September 30, 2009.

Energy

Energy segment net saleswere $687,651 for fiscal year 2010, compared to $725,354 for fiscal year 2009. As a result of the recent economic down-cycle, we experienced declines in all of our energy markets except small gas and diesel engine applications that support the construction, agricultural, and alternative-fuel vehicle markets.

The continuing impact of the global recession has temporarily resulted in excess supplies of electricity in certain markets, which has contributed to reduced sales volumes of industrial gas and steam turbines as well as controls used in large engine applications that serve the power generation, marine and process markets. In addition, uncertainty caused by the delay in issuance of new emissions policies and standards in the U.S. continues to dampen customer demand for industrial turbines.

Wind turbine converter sales also decreased and were partially offset by increases in non-wind related power generation and distribution equipment compared to fiscal year 2009. Wind converter sales declined in the fiscal year ending September 30, 2010, as compared to the ~~historical pre-acquisition sales for the~~ same periods. The decline was driven mainly by expected significant reductions in the sales of control actuation systems for the Joint Direct Attack Munition (“JDAM”) and sales to business jet customers, consistent with the change in overall market volumes. These decreases in sales volume were offset by gains in our rotorcraft, military aircraft, and other markets. Aftermarket net sales experienced slight declines due to passenger and cargo carriers taking older aircraft out of service offset by moderate increases in the military aftermarket.

~~Electrical Power Systems’ segment net sales~~~~(including intersegment sales)~~~~experienced strong growth in demand for wind converters during the first three quarters~~period of fiscal year 2009 as demand continued to be impacted by tight lender requirements for project financing, and uncertainty regarding government stimulus programs due to a ~~significant decline during~~lack of clear policy direction in the U.S. and elsewhere. While sales were down for fiscal year 2010 as compared to fiscal year 2009, sales were higher in the fourth quarter of fiscal year ~~2009 as~~2010 compared to both the ~~same periods in~~third quarter of fiscal year ~~2008. The increase in power conversion sales was partially offset by declines in sales of demand for small~~2010 and ~~medium-sized GenSets (less than 10 megawatt) as compared to the same periods last fiscal year.~~

~~Engine Systems’ segment net sales~~~~(including intersegment sales)~~~~decreased due to the broad declines across the transportation and power generation markets for industrial engines compared to fiscal year 2008. During~~ the fourth quarter of fiscal year ~~2009, MotoTron was fully integrated~~2009.

Certain developing economies are in ~~Engine Systems. MotoTron’s net~~early stages of economic recovery, and as a result, are beginning to drive increased power demand in their regions. Increased global natural gas supply, combined with lower natural gas prices, supported an increasing demand for industrial gas turbines used in power generation and process applications. Increased power demand use also favorably affected our aftermarket sales ~~have been adversely impacted by the current economic environment.~~levels.

~~Price changes:~~~~Selling price increases across most products in Turbine Systems and Engine Systems were in response to prevailing market conditions.~~

~~Foreign currency exchange rates:~~Our worldwide sales activities are primarily denominated in U.S. dollar (“USD”), European Monetary Unit (the “Euro”), and Great Britain pound (“GBP”). As these currencies fluctuate against each other and other currencies, we are exposed to gains or losses on sales transactions. During fiscal year ~~2009,~~2010, segment net sales were ~~negatively~~positively impacted by approximately ~~$38,000~~$5,200 due to changes in foreign currency exchange ~~rates.~~rates, compared to fiscal year 2009.

Energy segment earningsdecreased $2,924 or 3.0% for fiscal year 2010 as compared to fiscal year 2009, due to the following:


Earnings at September 30, 2009	$	96,938
Sales volume changes		(20,038	)
Selling price and mix		6,633
Savings related to workforce management		12,299
Costs associated with global expansion		(2,457	)
Decreased infrastructure and overhead related expenses		2,481
Changes in variable compensation		(5,607	)
Effects of changes in foreign currency		1,846
Other, net		1,919

Earnings at September 30, 2010	$	94,014

4742

~~2009 Costs and Expenses Compared to 2008~~

~~Cost of goods sold~~increased by $146,099 or 16.5% primarily as a result of the acquisitions of MPC and HRT, partially offset by decreases in sales volumes and the effects of changes in foreign currency. Details of changes in cost of goods sold are as follows:

Cost of goods sold for the year ended September 30, 2008 $ 882,996
MPC and HRT cost of goods sold (Airframe Systems) 248,681
MotoTron cost of goods sold 9,788
Decrease in volume changes (95,376 )
Effects of changes in foreign currency (25,605 )
Changes in product mix 6,185
Other, net 2,426

Cost of goods sold for the year ended September 30, 2009 $ 1,029,095

Gross margins, calculated as net sales less cost of goods sold divided by net sales, decreased to 28.0% for the fiscal year ended September 30, 2009 compared to 29.8% for the fiscal year ended September 30, 2008. The decrease in gross margins reflects charges related to purchase accounting inventory step-up adjustments of $12,500 related to HRT and $2,900 related to MPC, change in product mix, and the addition of MPC and HRT businesses, which generally have lower gross margins than our other businesses.

~~Selling, general, and administrative (“SG&A”) expenses~~~~increased by $13,283 or 11.5%, attributable to the following:~~

SG&A for the year ended September 30, 2008 $ 115,399
MPC and HRT SG&A(Airframe Systems) 33,369
Variable compensation (6,791 )
Effects of changes in foreign currency (5,537 )
Savings related to workforce management (2,655 )
Other, net (5,103 )

$ 128,682

Selling, general, and administrative expenses decreased as a percent of sales to 9.0% in fiscal year 2009 from 9.2% in fiscal year 2008. Selling, general, and administrative expenses increased primarily from the addition of MPC and HRT, offset by decreases in foreign currency exchange rates and decreases in variable compensation, which is based on companywide performance factors for the entire fiscal year. Savings related to workforce management reflect the impact of the reduced workforce.

~~Research and development costs~~~~increased by $5,122 or 7.0%, attributable to the following:~~

Research and devlopment for the year ended September 30, 2008 $ 73,414
MPC and HRT research and development (Airframe Systems) 9,036
Effects of changes in foreign currency (931 )
Savings related to workforce management (1,350 )
Variable compensation (5,824 )
Other, net 4,191

Research and development for the year ended September 30, 2009 $ 78,536

Research and development costs decreased as a percent of sales to 5.5% in fiscal year 2009 from 5.8% in fiscal year 2008. Research and development costs increased in the fiscal year ended September 30, 2009, as compared to the fiscal year ended September 30, 2008, reflecting the addition of MPC and HRT, partially offset by a decrease in variable compensation, which is based on companywide performance factors. Savings related to workforce management reflect the impact of the reduced workforce. Our current level of spending is consistent with our strategy of continuing to invest in future technologies.

~~Amortization of intangible assets~~as a percent of sales was 1.8% for the fiscal year ended September 30, 2009, as compared to 0.5% for the same period last fiscal year reflecting increased amortization expense related to $300,371 of intangible assets acquired in the MPC, MotoTron and HRT acquisitions, and the disposition of $13,044 of intangible assets sold with the F&P product line.

~~Interest and others expense~~as a percent of sales was 2.4% for the fiscal year ended September 30, 2009, and 0.3% for the same period last fiscal year reflecting $400,000 of long-term debt issued in October 2008, which was used primarily to finance the acquisitions of MPC and MotoTron, and $220,000 of long-term debt issued in April 2009 and $105,000 of borrowings from the revolving credit facility incurred in April 2009, which was used primarily to finance the HRT acquisition.

~~2009 Earnings Compared to 2008~~

~~Turbine Systems segment earnings~~~~increased $7,190 or 5.6% for the fiscal year ended September 30, 2009, as compared to the fiscal year ended September 30, 2008, attributable to the following:~~

Earnings at September 30, 2008 $ 128,930
Sales volume changes (361 )
Selling price changes 6,379
Sales mix (7,551 )
Changes in variable compensation 13,559
Cost inflation (3,930 )
Effects of changes in foreign currency (1,770 )
Savings related to workforce management 4,230
Other, net (3,366 )

Earnings at September 30, 2009 $ 136,120

Turbine Systems’ segment earnings increased in the first half of fiscal year 2009 and decreased in the second half of fiscal year 2009 as compared to the same periods in fiscal year 2008. Sales of systems and components for aircraft turbine markets followed this pattern, which was somewhat softened by higher sales in industrial gas turbine markets throughout the fiscal year. This change in the sales mix reduced earnings, as our gross margins are generally higher for sales in the aerospace market as compared to the industrial markets. We reduced our headcount and implemented other initiatives during 2009 to ensure that our cost structure was aligned with the lower level of sales during the second half of the fiscal year. Selling price changes, which were made in response to prevailing market conditions at the time, offset material cost inflation for the fiscal year. Variable compensation expense, which is based on companywide performance factors, was lower in fiscal year 2009 than in fiscal year 2008.

~~Airframe Systems’ segment earnings~~totaled $11,023 for the fiscal year ended September 30, 2009. The segment earnings for the fiscal year reflect the impact of purchase accounting inventory step-up adjustments of $2,900 related to MPC and $12,500 related to HRT, and $19,551 in amortization of intangibles related to the MPC and HRT acquisitions, all of which are non-cash charges.

~~Electrical Power Systems segment earnings~~~~decreased $6,412 or 15.2%, attributable to the following:~~

Earnings at September 30, 2008 $ 42,303
Sales volume changes (4,732 )
Selling price changes (651 )
Sales mix 1,580
Changes in variable compensation 3,535
Effects of changes in foreign currency (4,205 )
Increase labor costs (2,834 )
Savings related to workforce management 1,641
Other, net (746 )

Earnings at September 30, 2009 $ 35,891

Wind converter sales showed modest growth during the fiscal year ended September 30, 2009 as compared to the fiscal year ended September 30, 2008, excluding the effects of foreign currency exchange rates. This growth was offset by declines in sales of products related to power generation and distribution. A change in sales mix and changes in the external market put pressure on margins. Segment earnings were favorably affected by previously taken actions to manage costs, partially offset by unfavorable effects of foreign currency exchange rates. During fiscal year 2009, the unfavorable changes in the Euro exchange rate resulted in a 12% net decrease in earnings. During the first two quarters of fiscal year 2009, labor costs increased to support the sales growth. Electrical Power Systems was slower to feel the impact of the restructuring activities due to the employment laws in the affected countries of operation.

~~Engine Systems segment earnings~~~~decreased $25,283 or 57.8%, attributable to the following:~~

Earnings at September 30, 2008 $ 43,737
Sales volume changes (54,215 )
Selling price changes 1,397
Sales mix 1,408
Changes in variable compensation 10,000
Effects of changes in foreign currency (1,254 )
Decreased infrastructure and overhead related expenses 2,933
Decrease in freight and duty 5,157
Savings related to workforce management 9,500
Other, net (209 )

Earnings at September 30, 2009 $ 18,454

The decrease in earnings in ~~Engine Systems was~~ the result of lower sales volumes attributable to broad declines across the major end markets for industrial engines. Expense reductions from restructuring, reduced infrastructure and overhead spending, variable compensation changes, and lower freight and duty expenses due to lower volumes and lower global fuel costs, all provided a partial offsetfiscal year ending September 30, 2010 compared to the ~~volume driven earnings decline. During~~same period of fiscal year 2009 was driven mainly by the ~~changes in foreign currency exchange rates resulted in a 7% net~~ decrease in ~~earnings. Global fuel~~sales volumes, which was primarily due to reduced market demand. Also contributing were increased variable compensation and costs ~~have declined significantly since~~associated with expanding our global footprint to better accommodate customer demands. These negative effects were partially offset by savings realized because of workforce management actions taken during fiscal year 2009 in response to declining sales and favorable selling price and sales mix.

Non-segment expenses

Non-segment expensesfor fiscal year 2010 decreased to $22,434, or 1.5% of sales compared to $46,514 and 3.3% of sales for fiscal year 2009.

In fiscal year 2009, we recorded $16,605 in special charges associated with properly sizing our business for the economic environment related to the global recession. Without these special charges, non-segment expenses for the fiscal year ending September 30, ~~2008. Future volatility~~2009 were $29,909, or 2.1% of net sales.

Excluding the impact of the $16,605 in ~~fuel costs may impact future earnings results.~~

~~Nonsegment~~special charges, non-segment expenses~~increased 15,843 or 51.7%~~ declined in fiscal year ~~2009 as~~2010 compared to fiscal year ~~2008, attributable to the following:~~

Nonsegment expenses for the year ended September 30, 2008 $ 30,671
Restructuring and other charges 15,159
Variable compensation (2,552 )
Other 3,236

Non segment expenses for the year ended September 30, 2009 $ 46,514

Excluding the effect of the $15,159 of restructuring and other charges, nonsegment expenses increased to $31,355, or 2.2% of current fiscal year net sales, compared to 2.4% of net sales in fiscal year 2008. Variable compensation expense, which is based on company-wide performance factors, was lower in 2009, ~~than in 2008.~~resulting primarily from cost reduction efforts.

~~Income taxes~~were provided at an effective rate on earnings before income taxes of 22.9% in fiscal year 2009 compared to 32.9% in fiscal year 2008. The change in the effective tax rate was attributable to the following (as a percent of earnings before income taxes):


~~Effective tax rate at September 30, 2008~~	~~32.9~~	%
~~Adjustments of the beginning of the year balance of valuation allowance for deferred tax assets~~	~~1.5~~
~~Change in estimate for previous periods and settlements with tax authorities~~	~~(5.4~~	)
~~Research credit in fiscal 2009 as compared to fiscal 2008~~	~~(2.8~~	)
~~Retroactive extension of research credit~~	~~(1.7~~	)
~~Foreign earnings mix~~	~~(2.1~~	)
~~Other changes, net~~	~~0.5~~


~~Effective tax rate at September 30, 2009~~	~~22.9~~	%

Income taxes for both fiscal year 2009 and fiscal year 2008 were affected by changes in estimates of income taxes for previous fiscal years. In both years, the changes were primarily related to settlements and resolutions of income tax matters. These changes reduced the effective tax rate for fiscal year 2009 by approximately 7% of pretax earnings.

The effective tax rate comparison between fiscal year 2009 and fiscal year 2008 was also affected by the retroactive extension of the tax credit for increasing research activities available in fiscal year 2009 but not in fiscal year 2008. Among the other changes in our effective tax rate were the effects of changes in the relative mix of earnings by tax jurisdiction.

~~FINANCIAL CONDITION,~~ LIQUIDITY AND CAPITAL RESOURCES

We believe liquidity and cash generation are important to our strategy of self-funding our ongoing operating needs. We also believe that the restructuring actions we implemented in fiscal year 2009 have generated, and will continue to generate, improved cash flows from operations and that this level of cash generation, together with our existing cash and available borrowings, will adequately support our on-going operations.

Historically, we have been able to ~~finance the ongoing business,~~satisfy our working capital needs, including capital expenditures, ~~and~~ product development and other liquidity requirements associated with our operations, with cash flow provided by operating activities. In coordination with our customers, and when we consider the terms to be favorable to us, we sometimes transfer ownership in our accounts receivable to third parties in exchange for cash in order to accelerate collection of amounts due to us for outstanding accounts receivable. If such transfer of ownership is with recourse, then a short-term liability is recorded until the obligation transferred is settled. We expect that cash generated from our operating activities will ~~continue~~be sufficient to fund our continuing operating needs.

Our aggregate cash and cash equivalents were $74,539 and $105,579 and our working capital was $536,936 and $456,577 at September 30, 2011 and September 30, 2010, respectively. Of the $74,539 of cash and cash equivalents held at September 30, 2011, $61,885 is held in foreign subsidiaries. We are not presently aware of any restrictions on the repatriation of these funds, although a portion is considered permanently invested in these foreign subsidiaries. If these funds were needed to fund our operations or satisfy obligations in the U.S., they could be repatriated and their repatriation into the U.S. may cause us to incur additional U.S. income taxes on foreign withholding taxes. Any additional taxes could be offset, in part or in whole, by foreign tax credits. The amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time these amounts are repatriated.

In the event we are unable to generate sufficient cash flows from operating activities, we have a revolving credit facility comprised of unsecured financing arrangements with a syndicate of U.S. banks totaling $225,000. ~~This~~Under the revolving credit facility, ~~has~~we have an option to increase ~~the amount~~our available borrowings by $125,000 to $350,000, subject to the lenders’ participation. In addition, we have various foreign lines of credit, some of which are tied to net amounts on deposit at certain foreign financial ~~institutions, which~~institutions: these are generally reviewed annually for renewal. Historically, we have used borrowings under these foreign lines of credit to finance certain local ~~operations.~~operations on a periodic basis.

At September 30, 2011, we had no borrowings outstanding under our revolving credit facility or our foreign short-term lines of credit. The maximum daily balance during the period occurred in connection with the IDS Acquisition. Short-term borrowing activity during the fiscal year ending September 30, 2011 follows:


Maximum daily balance during the period	$	69,000
Average daily balance during the period		32,762
Weighted average interest rate on average daily balance		0.97	%

At September 30, 2011, we had total outstanding debt of $425,249 with additional borrowing availability of $220,118 under our $225,000 revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $22,811 under various foreign credit facilities.

We were in compliance with all covenants under our revolving credit facility and long-term debt agreements during the fiscal year ending September 30, 2011.

In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate additional strategic uses of our funds, including the repurchase of our stock, payment of dividends, and consideration of strategic acquisitions and other potential uses of cash.

We believe we have adequate access to several sources of contractually committed borrowings and other available credit facilities. However, we could be adversely affected if the banks supplying our short-term borrowing requirements refuse to honor their contractual commitments, cease lending, or declare bankruptcy. While we believe the lending institutions participating in our credit arrangements are financially capable, recent events in the global credit markets, including the failure, takeover or rescue by various government entities of major financial institutions, have created uncertainty with respect to credit availability.

Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements and to fund working capital, capital expenditures and product development efforts will depend on our ability to generate cash from operating activities which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control.

At September 30, 2010, we had borrowings of $20,401 outstanding under our revolving credit facility and other foreign short-term borrowings outstanding of $1,698. Short-term borrowing activity during fiscal year 2010 follows:

Foreign short-
Revolving credit term
facility borrowings
Maximum daily balance during the period $ 39,000 $ 21,840
Average daily balance during the period 11,022 1,216
Weighted average interest rate on average daily balance 0.98 % 3.96 %

During fiscal year 2009 we incurred $620,000 of long-term debt in connection with our fiscal year 2009 acquisitions. Since April 2009, we have made non-scheduled principal prepayments of $167,000, including $98,000 during fiscal year ended September 30, 2010. In fiscal year 2010, we made total principal payments on our outstanding debt of $128,420.

~~At September 30, 2010, we were in compliance with all covenants under our existing long-term debt agreements and revolving credit facility.~~

We believe we have adequate access to several sources of contractually committed borrowings and other available credit facilities. However, we could be adversely affected if our banks supplying our short-term borrowing requirements refuse to honor their contract commitments, cease lending, or declare bankruptcy. While we believe the lending institutions participating in our credit arrangements are financially capable, events in the global credit markets during fiscal years 2008, 2009 and 2010, including the failure, takeover or rescue by various government entities of major financial institutions, have created uncertainty of credit availability.

~~Assets~~

September 30,
2010 2009
Turbine Systems $ 347,188 $ 344,789
Airframe Systems 748,297 801,300
Electrical Power Systems 156,788 135,808
Engine Systems 204,495 200,226

Total segment assets 1,456,768 1,482,123
Nonsegment assets 206,465 214,299

Consolidated total assets $ 1,663,233 $ 1,696,422

~~Turbine Systems’ segment assets~~increased $2,399 to $347,188 during fiscal year 2010, reflecting higher levels of accounts receivable and slightly higher inventories, offset by lower net carrying cost of property, plant and equipment and intangibles. The increases in accounts receivables and inventories was due to higher levels of sales and demand in late fiscal year 2010 compared to the same period in fiscal year 2009. The decrease in property, plant and equipment was due to depreciation expense outpacing capital expenditures. The decrease in intangible assets was due to amortization expense.

Construction began in fiscal year 2010 on a new 48,000 square-foot system test facility in Rockford, Illinois. The facility, which will house numerous environmental system test cells and a vibration lab, will support Turbine Systems’ development opportunities. The test facility is expected to be completed and placed into service in fiscal year 2012.

~~Airframe Systems’ segment assets~~decreased $53,003 to $748,297 during fiscal year 2010 as a result of lower accounts receivable, inventories, intangible assets, and property, plant and equipment. The decrease in accounts receivable and inventories is primarily due to lower sales volume and management’s focus on rationalizing inventory levels relative to anticipated sales activity. The decrease in intangible assets was due to amortization expense. The decrease in property, plant and equipment was due to depreciation expense outpacing capital expenditures.

Work began in fiscal year 2010 on the reimplementation of the ERP systems supporting our Airframe Systems business segment. The first phase of the reimplementation project is expected to be completed and placed into service in fiscal year 2012.

~~Electrical Power Systems’ segment assets~~increased $20,980 to $156,788 during fiscal year primarily due to higher levels of accounts receivables, inventories, property, and plant and equipment, partially offset by lower levels of goodwill and intangible assets. The increases in accounts receivables and inventories were due to higher levels of sales and demand in late fiscal year 2010 compared to the same period in fiscal year 2009.

The effects of foreign currency fluctuations decreased Electrical Power Systems’ segment assets by approximately $6,900 during fiscal year 2010. The value of the Euro in relation to the U.S. dollar dropped approximately 10% during the fiscal year.

~~Engine Systems’ segment assets~~increased by $4,269 to $204,495 during fiscal year 2010 due primarily to increases in accounts receivable, partially offset by lower levels of inventories, property, plant and equipment and intangible assets. Accounts receivable increased due to higher levels of sales during the three month period ended September 30, 2010 compared to the three months ended September 30, 2009. Inventories decreased primarily due to increased sales volumes compared to the last three months of fiscal year 2009 and continuing focus on rationalizing inventory levels. Property, plant and equipment decreased due to depreciation expense exceeding capital expenditures. Intangible assets decreased due to amortization expense recognized during fiscal year 2010. The effects of foreign currency exchange rate fluctuations decreased Engine Systems’ segment assets by approximately $1,396 during fiscal year 2010.

~~Nonsegment assets~~~~decreased $7,834 from September 30, 2009 to September 30, 2010. Nonsegment assets include cash, income tax assets, unallocated corporate property, plant and equipment and other unallocated assets.~~

~~Other Balance Sheet Measures~~

September 30,
2010 2009
Working capital $ 456,577 $ 434,166
Short-term borrowings 22,099 —
Total debt 465,842 572,340
Other liabilities 83,975 110,010
Total Stockholders’ equity 803,194 711,515

~~Working capital~~(current assets less current liabilities) increased by $22,411 as of September 30, 2010 compared to September 30, 2009. The increase primarily related to higher levels of accounts receivable, lower current portion of long-term debt and lower accrued liabilities, partially offset by higher levels of short-term borrowings and accounts payable.

In coordination with our customers, and when we consider the terms to be favorable to us, we sometimes transfer ownership in our accounts receivable to third parties in exchange for cash in order to accelerate collection of amounts due to us for outstanding accounts receivable, which allows us to convert working capital to cash more quickly. If such transfer of ownership is with recourse, then a short-term liability is recorded until the obligation transferred is settled.

~~We believe that our existing working capital and anticipated cash flows from operations will adequately support our ongoing operations.~~

~~Short-term borrowings:~~We have a $225,000 revolving credit facility that includes an option to increase the amount to $350,000, subject to the lenders’ participation. In addition, we have further short-term borrowing capabilities under various foreign credit facilities. We use these facilities to meet short-term funding requirements. As of September 30, 2010, we had borrowing availability of $200,685 under our $225,000 revolving credit facility, net of outstanding letters of credit, and availability of $29,774 under our foreign credit facilities. Outstanding short-term borrowings as of September 30, 2010 were used to fund short-term liquidity needs of certain of our foreign operations.

Provisions of our short-term and long-term debt agreements include covenants customary to such agreements, including certain cross-default provisions, which 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 certain defined material adverse events. Our most restrictive covenants require us to maintain a minimum consolidated net worth, a maximum consolidated debt to consolidated operating cash flow ratio, and a maximum ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation and amortization, plus any unusual non-cash charges to the extent deducted in computing net income, minus any unusual non-cash gains to the extent added in computing net income (“Debt Covenant EBITDA”). See additional discussion in Notes 11,~~Long-term debt,~~~~and 12,~~~~Credit facilities and short-term borrowings,~~~~to the Consolidated Financial Statements in “Item 8 — Financial Statements and Supplementary Data.”~~

~~Total debt, including short-term debt, and current and long-term debt~~decreased in the fiscal year ended September 30, 2010 due primarily to scheduled and unscheduled debt prepayments made during the fiscal year. Long-term debt of $98,000 was prepaid during the fiscal year ended September 30, 2010 and long-term debt of $69,000 was prepaid in the fiscal year ended September 30, 2009. Long-term debt of $18,425 is scheduled to be repaid in fiscal year 2011.

~~Other liabilities~~at September 30, 2010 include $25,776 for postretirement pension plans and $37,222 for other postretirement benefit plans. During fiscal year 2011, we expect our contributions to fund our various pension plans to be $6,629 and Company contributions, excluding participant contributions, to fund our other postretirement benefit plans to be $2,770.

~~Stockholders’ equity~~increased by $91,679 in the fiscal year ended September 30, 2010, primarily due to an increase in net earnings during the fiscal year, which was partially offset by $16,430 of cash payments for dividends to stockholders, a $8,120 payment to acquire the 26% noncontrolling interest in Woodward Governor India Limited, as discussed fully at Note 1,~~Operations and summary of significant accounting policies,~~~~of the notes to the Consolidated Financial Statements included at “Item 8 — Financial Statements and Supplementary Data”, of this Form 10-K, and acquisitions of treasury stock of $8,703.~~

In 2007, the Board of Directors authorized the repurchase of up to $200,000 of our outstanding shares of common stock on the open market or in privately negotiated transactions over a three year period ending in September 2010 (the “2007 Authorization”). On July 27, 2010, Woodward’s Board of Directors approved a new stock repurchase plan, which authorizes the repurchase by Woodward of up to $200,000 of its outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that will end on July 27, 2013 (the “2010 Authorization”). Concurrent with this authorization, the Board of Directors cancelled the 2007 Authorization.

In the fiscal year ending September 30, 2010, 163 shares were repurchased under the 2007 and 2010 Authorizations for $4,513. As of September 30, 2010, $196,999 remains for stock repurchase under the 2010 Authorization.

~~Commitments, contingencies and guarantees~~at September 30, 2010 include claims, pending or threatened litigation or other legal proceedings, investigations or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, workers’ compensation claims, regulatory, legal or contractual disputes, product warranty claims and alleged violations of various environmental laws. We have accrued for individual matters that we believe are likely to result in a loss when ultimately resolved using estimates of the most likely amount of loss.

Woodward is partially self-insured in the U.S. for healthcare and workers’ compensation up to predetermined amounts, above which third party insurance applies. Management regularly reviews the probable outcome of these claims and proceedings, the expenses expected to be incurred, the availability and limits of the insurance coverage, and the established accruals for liabilities.

While the outcome of pending claims, legal proceedings, investigations and regulatory proceedings cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will not have a material adverse effect on our liquidity, financial condition, or results of operations.

~~In the event of a change in control of Woodward, as defined in change-in-control agreements with our current corporate officers, we may be required to pay termination benefits to such officers.~~

~~Item 7A.~~


Item 7A.		Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, we have exposures to interest rate risk from our long-term and short-term debt, and our postretirement benefit plans, and foreign currency exchange rate risk related to our foreign operations and foreign currency transactions.

Interest Rate Risk

Derivative instruments utilized by us are viewed as risk management tools, involve little complexity, and are not used for trading or speculative purposes. To manage interest rate risk related to the $400,000 of long-term debt issued in October 2008, we used a treasury lock which locked in interest rates on the then future debt. The treasury lock agreement was designated as a cash flow hedge against interest rate risk on a portion of the debt issued in October 2008. Similarly, we used a LIBOR lock agreement with a notional amount of $50,000 which hedged the risk of variability in cash flows over a seven-year period related to future interest payments of a portion of the anticipated long-term debt issued in April of 2009 in connection with the acquisition of HRT.

A portion of our long and short-term debt is sensitive to changes in interest rates. As of September 30, ~~2010,~~2011, our term loan of ~~$71,875~~$64,375 and advances on our revolving credit facility of ~~$20,401~~$0 include interest rates that fluctuate with market rates. A hypothetical 1% increase in the assumed effective interest rates that apply to the variable rate ~~loans~~loan outstanding on September 30, ~~2010~~2011 and the average borrowings on our revolving credit facility in fiscal year 2011 would cause our annual interest expense to increase approximately ~~$923.~~$924. A hypothetical ~~0.60%~~0.23% decrease in interest rates that apply to our variable ~~loans~~loan outstanding on September 30, ~~2010,~~2011 and the average borrowings on our revolving credit facility, which would effectively reduce the variable component of the applicable interest rates to 0%, would decrease our annual interest expense by approximately ~~$302.~~$217.

The discount rate and future return on plan asset assumptions used to calculate the funding status of our retirement benefit plans are also sensitive to changes in interest rates. The discount rate assumption used to value the defined benefit pension plans as of September 30, ~~2010~~2011 was ~~5.9%~~5.6% in the U.S., ~~4.9%~~5.1% in the United Kingdom, 1.5% in Japan and ~~1.3%~~2.5% in ~~other countries.~~Switzerland. The discount rate assumption used to value the other postretirement benefit plans was ~~5.8%~~5.5%.

From time to time, we will enter into a foreign currency exchange rate ~~contracts~~contract to hedge against changes in foreign currency exchange rates on liabilities expected to be settled at a future date. Market risk arises from the potential adverse effects on the value of derivative instruments that result from a change in foreign currency exchange rates. ~~Woodward minimizes~~We minimize this market risk by establishing and monitoring parameters that limit the types of, and degree ofto which we enter into, derivative instruments. ~~Woodward enters~~We enter into derivative instruments for risk management purposes only. ~~Woodward~~We do not ~~does~~ enter into or issue derivatives for trading or speculative purposes.

Our reported financial results of operations, including the reported value of our assets and liabilities, are also impacted by changes in foreign currency exchange rates. The assets and liabilities of substantially all of our subsidiaries outside the U.S. are translated at period end rates of exchange for each reporting period. Earnings and cash flow statements are translated at weighted-average rates of exchange. Although these translation changes have no immediate cash impact, the translation changes may impact future borrowing capacity, debt covenants, and overall value of our net assets.

Currency exchange rates vary daily and often one currency strengthens against the USD while another currency weakens. Because of the complex interrelationship of the worldwide supply chains and distribution channels, it is difficult to quantify the impact of a particular change in exchange rates. We estimate that a 10% decrease in the purchasing power of the USD against all other currencies for one full fiscal year would increase both net sales and pretax earnings by approximately 3%. We estimate that a 10% increase in the purchasing power of the USD against all other currencies for one full fiscal year would decrease sales by approximately 3% and decrease pre-tax earnings by approximately 11%.

6047


Item 8.		Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Woodward, ~~Governor Company~~Inc.
Fort Collins, Colorado

We have audited the accompanying consolidated balance sheets of Woodward, ~~Governor Company~~Inc. and subsidiaries (the “Company”) as of September 30, ~~2010~~2011 and ~~2009,~~2010, and the related consolidated statements of earnings, comprehensive earnings, stockholders’ equity, and cash flows ~~and stockholders’ equity~~ for each of the three years in the period ended September 30, ~~2010.~~2011. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Woodward, ~~Governor Company~~Inc. and subsidiaries as of September 30, ~~2010~~2011 and ~~2009,~~2010, and the results of their operations and their cash flows for each of the three years in the period ended September 30, ~~2010,~~2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 21 to the consolidated financial statements, the Company changed its method of accounting for the non-controlling interest in a subsidiary on October 1, 2009 in accordance with Financial Accounting Standard Board codification standard ASC 810, Consolidation. As discussed in Note 5 to the consolidated financial statements, the Company changed its method of accounting for uncertain tax positions on October 1, 2007 in accordance with Financial Accounting Standard Board codification standard ASC 740, Income Taxes.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of September 30, ~~2010,~~2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November ~~18, 2010~~16, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Denver, Colorado
November ~~18, 2010~~16, 2011

6148

WOODWARD, ~~GOVERNOR COMPANY~~INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share amounts)


	Year Ended September 30,
	2010			2009			2008			Year Ending September 30,
				(as recast, Note 2)			(as recast, Note 2)			2011			2010			2009

Net sales	$	1,457,030		$	1,430,125		$	1,258,204		$	1,711,702		$	1,457,030		$	1,430,125
Costs and expenses:
Cost of goods sold		1,021,516			1,029,095			882,996			1,198,153			1,021,516			1,029,095
Selling, general and administrative expenses		135,880			128,682			115,399			148,903			135,880			128,682
Research and development costs		82,560			78,536			73,414			115,633			82,560			78,536
Amortization of intangible assets		35,114			26,120			6,830			34,993			35,114			26,120
Restructuring and other charges		—			15,159			—			—			—			15,159
Interest expense		29,385			33,629			3,834			25,399			29,385			33,629
Interest income		(509	)		(1,131	)		(2,120	)		(534	)		(509	)		(1,131	)
Other income		(2,004	)		(3,081	)		(4,872	)
Other expense		213			640			138
Other (income) expense, net											1,588			(1,791	)		(2,441	)

Total costs and expenses		1,302,155			1,307,649			1,075,619			1,524,135			1,302,155			1,307,649


Earnings before income taxes		154,875			122,476			182,585			187,567			154,875			122,476
Income taxes		(43,713	)		(28,060	)		(60,030	)

Income tax expense											55,332			43,713			28,060

Net earnings		111,162			94,416			122,555			132,235			111,162			94,416
Earnings attributable to noncontrolling interests, net of taxes		(318	)		(64	)		(675	)		—			(318	)		(64	)


Net earnings attributable to Woodward	$	110,844		$	94,352		$	121,880		$	132,235		$	110,844		$	94,352


Comprehensive Earnings:
Comprehensive earnings attributable to Woodward	$	107,057		$	83,996		$	119,473
Comprehensive earnings attributable to noncontrolling interests		423			9			391


Comprehensive earnings	$	107,480		$	84,005		$	119,864

Earnings per share (Note 6):
Earnings per share (Note 3):
Basic earnings per share attributable to Woodward	$	1.62		$	1.39		$	1.80		$	1.92		$	1.62		$	1.39
Diluted earnings per share attributable to Woodward	$	1.59		$	1.37		$	1.75		$	1.89		$	1.59		$	1.37

Weighted Average Common Shares Outstanding (Note 6):
Weighted Average Common Shares Outstanding (Note 3):
Basic		68,472			67,891			67,564			68,797			68,472			67,891
Diluted		69,864			69,103			69,560			70,140			69,864			69,103
Cash dividends per share paid to Woodward common stockholders	$	0.240		$	0.240		$	0.235		$	0.27		$	0.24		$	0.24

WOODWARD, ~~GOVERNOR COMPANY~~INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(in thousands, except per share amounts)


	Year Ended September 30,
	2010			2009			2008			Year Ending September 30,
				(as recast, Note 2)			(as recast, Note 2)			2011			2010			2009

Comprehensive earnings attributable to Woodward:
Net earnings attributable to Woodward	$	110,844		$	94,352		$	121,880		$	132,235		$	110,844		$	94,352
Other comprehensive earnings:
Foreign currency translation adjustments		(8,718	)		6,098			(5,689	)		(2,653	)		(8,718	)		6,098
Reclassification of unrealized losses on derivatives to earnings		282			237			204
(Payments for) proceeds from cash flow hedge		—			(1,308	)		108
Minimum retirement benefit liability adjustment		4,409			(26,790	)		3,125
Taxes on changes in other comprehensive earnings		240			11,407			(155	)
Tax changes on foreign currency translation adjustments											1,604			2,406			(343	)

											(1,049	)		(6,312	)		5,755

Reclassification of realized losses on derivatives to earnings											229			282			237
Realized loss on cash flow hedge											—			—			(1,308	)
Tax changes on derivative transactions											(86	)		(108	)		407

											143			174			(664	)

Minimum retirement benefit liability adjustments:
Prior service (cost) benefit arising during the period											—			(3,963	)		1,427
Net (loss) gain arising during the period											(3,088	)		7,873			(25,311	)
Loss due to settlement arising during the period											—			345			246
Amortizaiton of:
Prior service benefit											(805	)		(1,517	)		(3,499	)
Net loss											1,339			1,525			574
Transition obligation asset											—			86			84
Foreign currency exchange rate changes											(376	)		60			(311	)
Tax changes on minimum retirement benefit liability adjustments											1,120			(2,058	)		11,343

											(1,810	)		2,351			(15,447	)

Comprehensive earnings attributable to Woodward		107,057			83,996			119,473			129,519			107,057			83,996


Comprehensive earnings attributable to noncontrolling interest:
Net earnings attributable to noncontrolling interests		318			64			675			—			318			64
Foreign currency translation adjustments,net of tax		105			(55	)		(284	)
Foreign currency translation adjustments											—			163			(87	)
Tax changes on foreign currency translation adjustments											—			(58	)		32


Comprehensive earnings attributable to noncontrolling interests		423			9			391			—			423			9


Total Comprehensive earnings	$	107,480		$	84,005		$	119,864
Total comprehensive earnings										$	129,519		$	107,480		$	84,005

WOODWARD, ~~GOVERNOR COMPANY~~INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)


	At September 30,						At September 30,
	2010			2009			2011			2010
				(as recast, Note 2)
ASSETS
Current assets:
Cash and cash equivalents	$	105,579		$	100,863		$	74,539		$	105,579
Accounts receivable, less allowance for losses of $2,228 and $2,660, respectively		248,513			209,626
Accounts receivable, less allowance for losses of $2,322 and $2,228, respectively								297,614			248,513
Inventories		295,034			302,339			381,555			295,034
Income taxes receivable		18,170			16,302			2,456			18,170
Deferred income tax assets		33,689			45,413			38,270			33,689
Other current assets		18,157			21,701			23,359			18,157


Total current assets		719,142			696,244			817,793			719,142
Property, plant and equipment, net		193,524			208,885			206,725			193,524
Goodwill		438,594			442,802			462,282			438,594
Intangible assets, net		292,149			327,773			268,897			292,149
Deferred income tax assets		8,623			8,200			10,466			8,623
Other assets		11,201			12,518			15,271			11,201


Total assets	$	1,663,233		$	1,696,422		$	1,781,434		$	1,663,233


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	22,099		$	—		$	—		$	22,099
Current portion of long-term debt		18,493			45,569			18,374			18,493
Accounts payable		107,468			81,108			123,453			107,468
Income taxes payable		5,453			8,084			5,440			5,453
Deferred income tax liability								74			—
Accrued liabilities		109,052			127,317			133,516			109,052


Total current liabilities		262,565			262,078			280,857			262,565
Long-term debt, less current portion		425,250			526,771			406,875			425,250
Deferred income tax liabilities		88,249			86,048			85,911			88,249
Other liabilities		83,975			110,010			88,694			83,975


Total liabilities		860,039			984,907			862,337			860,039


Commitments and contingencies (Note 18)
Commitments and contingencies (Note 20)
Stockholders’ equity:
Preferred stock, par value $0.003 per share, 10,000 shares authorized, no shares issued		—			—			—			—
Common stock, par value $0.001455 per share, 150,000 shares authorized, 72,960 shares issued		106			106			106			106
Additional paid-in capital		73,915			73,197			81,453			73,915
Accumulated other comprehensive earnings		6,342			10,129			3,626			6,342
Deferred compensation		4,888			4,904			4,581			4,888
Retained earnings		835,919			741,505			949,573			835,919


		921,170			829,841			1,039,339			921,170
Treasury stock at cost, 4,223 shares and 4,621 shares, respectively		(113,088	)		(115,478	)
Treasury stock held for deferred compensation, at cost, 356 shares and 389 shares, respectively		(4,888	)		(4,904	)


Total Woodward stockholders’ equity		803,194			709,459

Noncontrolling interest in consolidated subsidiary (Note 2)		—			2,056
Treasury stock at cost, 4,070 shares and 4,223 shares, respectively								(115,661	)		(113,088	)
Treasury stock held for deferred compensation, at cost, 315 shares and 356 shares, respectively								(4,581	)		(4,888	)


Total stockholders’ equity		803,194			711,515			919,097			803,194


Total liabilities and stockholders’ equity	$	1,663,233		$	1,696,422		$	1,781,434		$	1,663,233

WOODWARD, ~~GOVERNOR COMPANY~~INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year Ended September 30,									Year Ending September 30,
	2010			2009			2008			2011			2010			2009
				(as recast, Note 2)			(as recast, Note 2)
Cash flows from operating activities
Cash flows from operating activities:
Net earnings	$	111,162		$	94,416		$	122,555		$	132,235		$	111,162		$	94,416
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		75,616			63,948			35,450			75,393			75,616			63,948
Net (gain) loss on sales of assets		(131	)		(188	)		1,229
Net loss (gain) on sales of assets											644			(131	)		(188	)
Stock-based compensation		6,686			5,499			4,588			6,590			6,686			5,499
Excess tax benefits from stock-based compensation		(5,115	)		(2,695	)		(15,355	)		(3,558	)		(5,115	)		(2,695	)
Deferred income taxes		16,358			17,233			10,960			(10,321	)		16,358			17,233
Reclassification of unrealized losses on derivatives to earnings		282			237			204
Loss on derivatives reclassified from accumulated comprehensive earnings into earnings											229			282			237
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(40,688	)		37,760			(26,470	)		(49,393	)		(40,688	)		37,760
Inventories		5,896			52,586			(36,661	)		(76,643	)		5,896			52,586
Accounts payable and accrued liabilities		34,426			(44,834	)		6,078			27,679			34,426			(44,834	)
Current income taxes		998			(4,034	)		27,089			19,064			998			(4,034	)
Retirement benefit obligations		(13,672	)		(3,343	)		(5,146	)		(8,322	)		(13,672	)		(3,343	)
Other		(7,246	)		2,642			1,502			1,026			(7,246	)		2,642


Net cash provided by operating activities		184,572			219,227			126,023			114,623			184,572			219,227


Cash flows from investing activities:
Payments for purchases of property, plant and equipment		(28,104	)		(28,947	)		(37,516	)
Proceeds from the sale of other assets		312			16,637			1,607
Business acquisitions, net of cash acquired		(25,000	)		(749,820	)		—
Payments for purchase of property, plant, and equipment											(48,255	)		(28,104	)		(28,947	)
Proceeds from sale of assets											59			312			16,637
Business acquisition, net of cash and marketable securities acquired											(38,698	)		(25,000	)		(749,820	)
Business acquisition, marketable securities acquired											(8,463	)		—			—
Proceeds from sale of marketable securities											8,217			—			—
Proceeds from disposal of Fuel & Pneumatics product line		660			48,000			—			—			660			48,000


Net cash used in investing activities		(52,132	)		(714,130	)		(35,909	)		(87,140	)		(52,132	)		(714,130	)


Cash flows from financing activities:
Cash dividends paid		(17,085	)		(16,864	)		(16,541	)		(18,581	)		(17,085	)		(16,864	)
Proceeds from sales of treasury stock		1,999			4,631			9,440			2,482			1,999			4,631
Payments for repurchases of common stock		(4,513	)		(866	)		(39,801	)		(6,837	)		(4,513	)		(866	)
Excess tax benefits from stock compensation		5,115			2,695			15,355			3,558			5,115			2,695
Purchase of noncontrolling interest		(8,120	)		—			—			—			(8,120	)		—
Proceeds from issuance of long-term debt		—			620,000			—
Net proceeds from issuance of debt											—			—			620,000
Borrowings on revolving lines of credit and short-term borrowings		106,019			145,702			45,791			164,557			106,019			145,702
Payments on revolving lines of credit and short-term borrowings		(83,980	)		(149,731	)		(47,256	)		(182,728	)		(83,980	)		(149,731	)
Payments of long-term debt		(128,420	)		(92,392	)		(16,257	)		(18,430	)		(128,420	)		(92,392	)
Payments of long-term debt assumed in MPC acquisition		—			(18,610	)		—			—			—			(18,610	)
Proceeds from (payment for) cash flow hedge		—			(1,308	)		108
Debt issuance costs		—			(5,892	)		(412	)
Payments for cash flow hedge											—			—			(1,308	)
Debt financing costs											—			—			(5,892	)


Net cash provided by (used in) financing activities		(128,985	)		487,365			(49,573	)
Net cash (used in) provided by financing activities											(55,979	)		(128,985	)		487,365


Effect of exchange rate changes on cash and cash equivalents		1,261			(1,432	)		(2,343	)		(2,544	)		1,261			(1,432	)


Net change in cash and cash equivalents		4,716			(8,970	)		38,198			(31,040	)		4,716			(8,970	)

Cash and cash equivalents at beginning of period		100,863			109,833			71,635			105,579			100,863			109,833


Cash and cash equivalents at end of period	$	105,579		$	100,863		$	109,833		$	74,539		$	105,579		$	100,863

WOODWARD, ~~GOVERNOR COMPANY~~INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)


	Number of shares										Stockholders’ equity																																			Number of shares										Stockholders’ equity
																Accumulated other comprehensive earnings																																													Accumulated other comprehensive earnings
																									Total																																													Total
								Treasury								Foreign			Unrealized			Minimum			accumulated												Treasury			Noncontrolling													Treasury								Foreign						Minimum			accumulated												Treasury			Noncontrolling
								stock held for					Additional			currency			derivative			retirement			other									Treasury			stock held for			interest in			Total										stock held for					Additional			currency			Unrealized			retirement			other									Treasury			stock held for			interest in			Total
	Preferred		Common		Treasury			deferred			Common		paid-in			translation			gains			benefit liability			comprehensive			Deferred			Retained			stock at			deferred			consolidated			stockholders’			Preferred		Common		Treasury			deferred			Common		paid-in			translation			derivative			benefit liability			comprehensive			Deferred			Retained			stock at			deferred			consolidated			stockholders’
	stock		stock		stock			compensation			stock		capital			adjustments			(losses)			adjustments			earnings			compensaton			earnings			cost			compensation			subsidiary			equity			stock		stock		stock			compensation			stock		capital			adjustments			losses			adjustments			earnings			compensaton			earnings			cost			compensation			subsidiary			equity

Balances as of October 1, 2007		—		72,960		(5,231	)		(430	)	$	106	$	48,641		$	27,496		$	(331	)	$	(4,273	)	$	22,892		$	4,752		$	565,136		$	(92,462	)	$	(4,752	)	$	2,900		$	547,213
Balances as of October 1, 2008																																															—		72,960		(5,261	)		(404	)	$	106	$	68,520		$	23,709		$	(137	)	$	(3,087	)	$	20,485		$	5,283		$	663,442		$	(122,759	)	$	(5,283	)	$	2,622		$	632,416
Net earnings		—		—		—			—			—		—			—			—			—			—			—			121,880			—			—			675			122,555			—		—		—			—			—		—			—			—			—			—			—			94,352			—			—			64			94,416
Cash dividends paid		—		—		—			—			—		—			—			—			—			—			—			(15,872	)		—			—			(669	)		(16,541	)		—		—		—			—			—		—			—			—			—			—			—			(16,289	)		—			—			(575	)		(16,864	)
Impact of implementing authoritative guidance on uncertain tax positions		—		—		—			—			—		—			—			—			—			—			—			(7,702	)		—			—			—			(7,702	)
Purchases of Treasury Stock		—		—		(1,384	)		—			—		—			—			—			—			—			—			—			(39,801	)		—			—			(39,801	)
Sale of Treasury Stock		—		—		1,330			—			—		(628	)		—			—			—			—			—			—			9,323			—			—			8,695
Purchases of treasury stock																																															—		—		(42	)		—			—		—			—			—			—			—			—			—			(866	)		—			—			(866	)
Sale of treasury stock																																															—		—		647			—			—		(3,821	)		—			—			—			—			—			—			7,778			—			—			3,957
Tax benefit attributable to exercise of stock options		—		—		—			—			—		15,355			—			—			—			—			—			—			—			—			—			15,355			—		—		—			—			—		2,695			—			—			—			—			—			—			—			—			—			2,695
Stock-based compensation		—		—		—			—			—		4,588			—			—			—			—			—			—			—			—			—			4,588			—		—		—			—			—		5,499			—			—			—			—			—			—			—			—			—			5,499
Purchase of stock by deferred compensation plan		—		—		24			(27	)		—		564			—			—			—			—			841			—			181			(841	)		—			745			—		—		35			(38	)		—		304			—			—			—			—			96			—			369			(96	)		—			673
Distribution of stock from deferred compensation plan		—		—		—			53			—		—			—			—			—			—			(310	)		—			—			310			—			—			—		—		—			53			—		—			—			—			—			—			(475	)		—			—			475			—			—
Foreign currency translation adjustments		—		—		—			—			—		—			(5,689	)		—			—			(5,689	)		—			—			—			—			(446	)		(6,135	)		—		—		—			—			—		—			6,098			—			—			6,098			—			—			—			—			(87	)		6,011
Reclassification of unrecognized derivative losses (gains) to earnings		—		—		—			—			—		—			—			204			—			204			—			—			—			—			—			204
Realized gain on cash flow hedge		—		—		—			—			—		—			—			108			—			108			—			—			—			—			—			108
Minimum retirement benefits liability adjustments		—		—		—			—			—		—			—			—			3,125			3,125			—			—			—			—			—			3,125
Taxes on changes in accumulated other comprehensive earnings		—		—		—			—			—		—			1,902			(118	)		(1,939	)		(155	)		—			—			—			—			162			7

Balances as of September 30, 2008		—		72,960		(5,261	)		(404	)		106		68,520			23,709			(137	)		(3,087	)		20,485			5,283			663,442			(122,759	)		(5,283	)		2,622			632,416

Net earnings		—		—		—			—			—		—			—			—			—			—			—			94,352			—			—			64			94,416
Cash dividends paid		—		—		—			—			—		—			—			—			—			—			—			(16,289	)		—			—			(575	)		(16,864	)
Purchases of Treasury Stock		—		—		(42	)		—			—		—			—			—			—			—			—			—			(866	)		—			—			(866	)
Sale of Treasury Stock		—		—		647			—			—		(3,821	)		—			—			—			—			—			—			7,778			—			—			3,957
Tax benefit attributable to exercise of stock options		—		—		—			—			—		2,695			—			—			—			—			—			—			—			—			—			2,695
Stock-based compensation		—		—		—			—			—		5,499			—			—			—			—			—			—			—			—			—			5,499
Purchase of stock by deferred compensation plan		—		—		35			(38	)		—		304			—			—			—			—			96			—			369			(96	)		—			673
Distribution of stock from deferred compensation plan		—		—		—			53			—		—			—			—			—			—			(475	)		—			—			475			—			—
Foreign currency translation adjustments		—		—		—			—			—		—			6,098			—			—			6,098			—			—			—			—			(87	)		6,011
Reclassification of unrecognized losses (gains) to earnings		—		—		—			—			—		—			—			237			—			237			—			—			—			—			—			237
Reclassification of unrecognized derivative losses to earnings																																															—		—		—			—			—		—			—			237			—			237			—			—			—			—			—			237
Realized loss on cash flow hedge		—		—		—			—			—		—			—			(1,308	)		—			(1,308	)		—			—			—			—			—			(1,308	)		—		—		—			—			—		—			—			(1,308	)		—			(1,308	)		—			—			—			—			—			(1,308	)
Minimum retirement benefits liability adjustments		—		—		—			—			—		—			—			—			(26,790	)		(26,790	)		—			—			—			—			—			(26,790	)		—		—		—			—			—		—			—			—			(26,790	)		(26,790	)		—			—			—			—			—			(26,790	)
Taxes on changes in accumulated other comprehensive earnings		—		—		—			—			—		—			(343	)		407			11,343			11,407			—			—			—			—			32			11,439			—		—		—			—			—		—			(343	)		407			11,343			11,407			—			—			—			—			32			11,439

Balances as of September 30, 2009		—		72,960		(4,621	)		(389	)		106		73,197			29,464			(801	)		(18,534	)		10,129			4,904			741,505			(115,478	)		(4,904	)		2,056			711,515			—		72,960		(4,621	)		(389	)		106		73,197			29,464			(801	)		(18,534	)		10,129			4,904			741,505			(115,478	)		(4,904	)		2,056			711,515

Net earnings		—		—		—			—			—		—			—			—			—			—			—			110,844			—			—			318			111,162			—		—		—			—			—		—			—			—			—			—			—			110,844			—			—			318			111,162
Cash dividends paid		—		—		—			—			—		—			—			—			—			—			—			(16,430	)		—			—			(655	)		(17,085	)		—		—		—			—			—		—			—			—			—			—			—			(16,430	)		—			—			(655	)		(17,085	)
Purchases of Treasury Stock		—		—		(307	)		—			—		—			—			—			—			—			—			—			(8,703	)		—			—			(8,703	)
Sale of Treasury Stock		—		—		702			—			—		(4,929	)		—			—			—			—			—			—			11,049			—			—			6,120
Purchases of treasury stock																																															—		—		(307	)		—			—		—			—			—			—			—			—			—			(8,703	)		—			—			(8,703	)
Sale of treasury stock																																															—		—		702			—			—		(4,929	)		—			—			—			—			—			—			11,049			—			—			6,120
Purchase of noncontrolling interest		—		—		—			—			—		(6,180	)		(116	)		—			—			(116	)		—			—			—			—			(1,824	)		(8,120	)		—		—		—			—			—		(6,180	)		(116	)		—			—			(116	)		—			—			—			—			(1,824	)		(8,120	)
Tax benefit attributable to exercise of stock options		—		—		—			—			—		5,115			—			—			—			—			—			—			—			—			—			5,115			—		—		—			—			—		5,115			—			—			—			—			—			—			—			—			—			5,115
Stock-based compensation		—		—		—			—			—		6,686			—			—			—			—			—			—			—			—			—			6,686			—		—		—			—			—		6,686			—			—			—			—			—			—			—			—			—			6,686
Purchase of stock by deferred compensation plan		—		—		3			(3	)		—		26			—			—			—			—			169			—			44			(169	)		—			70			—		—		3			(3	)		—		26			—			—			—			—			169			—			44			(169	)		—			70
Distribution of stock from deferred compensation plan		—		—		—			36			—		—			—			—			—			—			(185	)		—			—			185			—			—			—		—		—			36			—		—			—			—			—			—			(185	)		—			—			185			—			—
Foreign currency translation adjustments		—		—		—			—			—		—			(8,602	)		—			—			(8,602	)		—			—			—			—			163			(8,439	)		—		—		—			—			—		—			(8,602	)		—			—			(8,602	)		—			—			—			—			163			(8,439	)
Reclassification of unrecognized losses (gains) to earnings		—		—		—			—			—		—			—			282			—			282			—			—			—			—			—			282
Reclassification of unrecognized derivative losses to earnings																																															—		—		—			—			—		—			—			282			—			282			—			—			—			—			—			282
Minimum retirement benefits liability adjustments		—		—		—			—			—		—			—			—			4,409			4,409			—			—			—			—			—			4,409			—		—		—			—			—		—			—			—			4,409			4,409			—			—			—			—			—			4,409
Taxes on changes in accumulated other comprehensive earnings		—		—		—			—			—		—			2,406			(108	)		(2,058	)		240			—			—			—			—			(58	)		182			—		—		—			—			—		—			2,406			(108	)		(2,058	)		240			—			—			—			—			(58	)		182

Balances as of September 30, 2010		—		72,960		(4,223	)		(356	)	$	106	$	73,915		$	23,152		$	(627	)	$	(16,183	)	$	6,342		$	4,888		$	835,919		$	(113,088	)	$	(4,888	)	$	—		$	803,194			—		72,960		(4,223	)		(356	)		106		73,915			23,152			(627	)		(16,183	)		6,342			4,888			835,919			(113,088	)		(4,888	)		—			803,194

Net earnings																																															—		—		—			—			—		—			—			—			—			—			—			132,235			—			—			—			132,235
Cash dividends paid																																															—		—		—			—			—		—			—			—			—			—			—			(18,581	)		—			—			—			(18,581	)
Purchases of treasury stock																																															—		—		(301	)		—			—		—			—			—			—			—			—			—			(9,700	)		—			—			(9,700	)
Sale of treasury stock																																															—		—		452			—			—		(2,643	)		—			—			—			—			—			—			7,127			—			—			4,484
Tax benefit attributable to exercise of stock options																																															—		—		—			—			—		3,558			—			—			—			—			—			—			—			—			—			3,558
Stock-based compensation																																															—		—		—			—			—		6,590			—			—			—			—			—			—			—			—			—			6,590
Purchase of stock by deferred compensation plan																																															—		—		2			(5	)		—		33			—			—			—			—			149			—			—			(149	)		—			33
Distribution of stock from deferred compensation plan																																															—		—		—			46			—		—			—			—			—			—			(456	)		—			—			456			—			—
Foreign currency translation adjustments																																															—		—		—			—			—		—			(2,653	)		—			—			(2,653	)		—			—			—			—			—			(2,653	)
Reclassification of unrecognized derivative losses to earnings																																															—		—		—			—			—		—			—			229			—			229			—			—			—			—			—			229
Minimum retirement benefits liability adjustments																																															—		—		—			—			—		—			—			—			(2,930	)		(2,930	)		—			—			—			—			—			(2,930	)
Taxes on changes in accumulated other comprehensive earnings																																															—		—		—			—			—		—			1,604			(86	)		1,120			2,638			—			—			—			—			—			2,638

Balances as of September 30, 2011																																															—		72,960		(4,070	)		(315	)	$	106	$	81,453		$	22,103		$	(484	)	$	(17,993	)	$	3,626		$	4,581		$	949,573		$	(115,661	)	$	(4,581	)	$	—		$	919,097

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements~~

~~(amounts in thousands, except per share)~~

Note 1. Operations and summary of significant accounting policies

Basis of presentation

The Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of Woodward, ~~Governor Company~~Inc. and its subsidiaries (collectively “Woodward”, or “the Company”). The Consolidated Balance Sheet as of September 30, 2009 and the related Consolidated Statements of Earnings and Comprehensive Earnings, Stockholders’ Equity, and Cash Flows for each of the two fiscal years in the period ended September 30, 2009 were adjusted to reflect the October 1, 2009 adoption of authoritative guidance relative to accounting and reporting standards for the noncontrolling interest in a subsidiary and authoritative guidance relative to inclusion of participating securities in the calculation of earnings per share, as discussed in Note 2,~~New accounting standards~~.Dollar amounts contained in these Consolidated Financial Statements are in thousands, except per share amounts.

Nature of operations

Woodward is ~~a global leader in~~an independent designer, manufacturer, and service provider of energy control ~~within the aerospace & defense~~ and ~~energy markets that it serves.~~optimization solutions. Woodward designs, produces and services reliable, efficient, low-emission, and high-performance energy control products for diverse applications in challenging environments. Woodward has significant production and assembly facilities in the United States, Europe and Asia, and promotes its products and services through its worldwide locations.

Woodward’s strategic focus is providing energy control solutions for the aerospace and energy markets. The precise and efficient control of energy, including fluid and electrical energy, combustion, and motion, is a growing requirement in the markets it serves. Woodward’s customers look to it to optimize the efficiency, emissions and operation of power equipment in both commercial and military operations. Woodward’s core technologies leverage well across its markets and customer applications, enabling it to develop and integrate cost-effective and state-of-the-art fuel, combustion, fluid, actuation and electronic systems. Woodward focuses primarily on original equipment manufacturers (“OEMs”) and equipment packagers, partnering with them to bring superior component and system solutions to their demanding applications. Woodward also provides aftermarket repair, replacement and other service support for its installed products.

Woodward’s components and integrated systems ~~that manage~~optimize performance of commercial aircraft, military aircraft, ground vehicles and ~~control the energy of fluid movement, motion, combustion~~other equipment, gas and ~~electricity. The Company’s prices, technology, quality,~~steam turbines, wind turbines, including converters and ~~customer service allow it to compete effectively within dozens of unique aerospace~~power grid related equipment, industrial diesel, gas and ~~energy market niches and against various other manufacturers, including the in-house operations of certain OEMs. Examples of our market niches include motors for moving aircraft flight surfaces,~~alternative fuel ~~pumps for large diesel~~reciprocating engines, and ~~fuel nozzles for industrial gas turbines.~~electrical power systems. Woodward’s innovative fluid energy, combustion control, electrical energy, and motion control systems help its customers offer more cost-effective, cleaner, and more reliable equipment. Woodward’s customers include leading OEMs and the end users of their products.

Woodward serves two significant markets — the aerospace ~~& defense~~ market and the energy ~~market — served by~~market. In order to better serve these markets, Woodward completed a realignment of its ~~four operating business~~reportable segments in September 2011 and now reports its financial results through two reportable segments — Aerospace and Energy. The Aerospace segment combines the aircraft propulsion portion of the former Turbine Systems business group, now referred to as the Aircraft Turbine Systems business group, with the Airframe Systems business group. The Energy segment combines the industrial turbine portion of the former Turbine Systems business group, now referred to as the Industrial Turbomachinery Systems business group, with the Engine Systems and Electrical Power Systems ~~and Engine Systems.~~ business groups.

Woodward uses reportable segment information internally to manage ~~our~~its business, including the assessment of business segment performance and making decisions on the allocation of resources between segments.

~~Turbine Systems~~ — The Turbine Systems segment develops and manufactures systems and components that provide energy control and optimization solutions for commercial and military aircraft propulsion applications, including fuel and combustion systems for turbine engines in our aerospace markets, and for the industrial gas and steam turbines in our energy markets.

~~Airframe Systems~~ — The Airframe Systems segment develops and manufactures high-performance cockpit, electromechanical and hydraulic motion control systems, and mission-critical actuation systems and controls, including actuators, hydraulic motors, gears and sensors. These systems and controls are used in commercial and military fixed wing and rotary aircraft, combat vehicles and weapons systems, including guided weapons, and electro-optical targeting and motion suppression systems programs for combat vehicles.

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

~~Engine Systems~~ — The Engine Systems segment develops and manufactures systems and components that provide energy control and optimization solutions for the industrial reciprocating engine markets, which include power generation, transportation, and process industries.

On October 1, 2008, Woodward completed the acquisition of MPC Products Corporation (“MPC Products”), and Techni-Core, Inc. (“Techni-Core” and, together with MPC Products, “MPC”), which formed the basis for the Airframe Systems business segment.

On April 3, 2009, Woodward acquired all of the outstanding capital stock of HR Textron Inc. from Textron Inc., its parent company, and the United Kingdom assets and certain liabilities related to HR Textron Inc.’s business (collectively “HRT”). HR Textron Inc. became a wholly owned subsidiary of Woodward and was renamed Woodward HRT, Inc. following the consummation of the acquisition. HRTPrior period information has been ~~integrated into Woodward’s Airframe Systems~~revised to be consistent with the Company’s current reportable segment structure, which is based upon how it managed its business ~~segment.~~

Foreign currency exchange rates:The assets and liabilities of substantially all subsidiaries outside the U.S. are translated at fiscal 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 stockholders’ equity and are presented net of tax effects in the Consolidated Statements of Stockholders’ Equity. The effects of changes in foreign currency exchange rates on loans between consolidated subsidiaries, that are ~~not expected to be repaid~~considered permanent in ~~the foreseeable future~~nature, are also accumulated with other comprehensive earnings, net of tax.

The Company is exposed to market risks related to fluctuations in foreign currency exchange rates because some sales transactions, and certain of the assets and liabilities of its domestic and foreign subsidiaries, are denominated in foreign currencies. Selling, general, and administrative expenses include net foreign currency transaction gains of $575 in 2011, $425 in 2010, and $251 in ~~2009 and net foreign currency transaction losses of $1,454 in 2008.~~2009.

Revenue recognition:Woodward recognizes revenue upon shipment or delivery of tangible products for sale. Delivery is upon completion of manufacturing, customer acceptance, and the transfer of the risks and rewards of ownership. In countries whose laws provide for retention of some form of title by sellers, enabling recovery of goods in the event of customer default on payment, product delivery is considered to have occurred when the customer has assumed the risks and rewards of ownership of the products.

Occasionally, Woodward transfers title of product to customers, but retains substantive performance obligations such as completion of product testing, customer acceptance or in some instances regulatory acceptance. Revenue is deferred until the performance obligations are satisfied.

Woodward provides certain development services to customers under fully funded, partially funded and unfunded long and short-term development contracts. Revenue for such contracts is recognized using the percentage-of-completion, milestone ~~method~~ or completed contract ~~method.~~methods. Funded development contracts may be fixed price or cost-reimbursable contracts. Anticipated losses on fully funded contracts, if any, are recognized in the period in which the losses become probable and estimable.

Certain Woodward products include incidental software or firmware essential to the performance of the product as designed which are treated as units of accounting associated with the related tangible product with which the software is included. Woodward does not sell software on a standalone basis, although software upgrades, if any, are generally paid for by the customer.

Customer payments:Woodward occasionally agrees to make payments to certain customers in order to participate in anticipated sales activity. Payments made to customers are accounted for as a reduction of revenue unless they are made in exchange for identifiable goods or services with fair values that can be reasonably estimated. ~~These reductions~~Reductions in ~~revenues~~revenue associated with these customer payments are recognized immediately to the extent that the payments cannot be attributed to anticipated future sales, and are recognized in future periods to the extent that the payments relate to anticipated future ~~sales,~~sales. Such determinations are based on the ~~specific~~ facts and circumstances underlying each payment.

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

Stock-based compensation:Compensation cost relating to stock-based payment awards made to employees and directors is recognized in the financial statements using a fair value method. Non-qualified stock option awards and restricted stock awards are issued under Woodward’s stock-based compensation plans. Woodward measures for the cost of such awards, measured at the grant date, based on the estimated fair value of the award.

Forfeitures are estimated at the time of each grant in order to estimate the portion of the award that will ultimately vest. The estimate is based on Woodward’s historical rates of forfeitures and is updated periodically. The portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods, which is generally the vesting period of the awards.

~~Shipping and handling costs:~~~~Product freight costs are included in cost of goods sold. Freight costs charged to customers are included in net sales.~~

~~Advertising costs~~~~: Woodward expenses all advertising costs as incurred and they are classified within selling, general, and administrative expenses. Advertising costs were not material for all fiscal years presented.~~

Research and development costs:Expenditures related to new product development activities in excess of fully and partially funded development contract amounts, if applicable, are expensed when incurred and are separately reported in the Consolidated Statements of ~~Earnings and Comprehensive~~ Earnings.

Restructuring and other charges:Restructuring charges related to workforce management were recognized as expense in March 2009. Non-cash charges for impairment of a vacated facility were recognized as expense in fiscal year 2009. Restructuring charges related to 2009 business acquisitions, including items such as costs associated with integrating similar operations, workforce management, vacating certain facilities, and the cancellation of certain contracts, ~~are~~were recognized as a liability as of the acquisition date. Adjustments to the initial estimate determined within the allocation period, which is generally not more than one year, are treated as an adjustment to the liabilities recorded in the acquisitions. Adjustments to the initial estimate determined after the allocation period are included in the determination of net earnings in the period in which the adjustment is identified.

Under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, the acquirer in a business combination can generally only recognize liabilities for plans to exit an activity, involuntarily terminate employees, or relocate employees of an acquiree, if the acquiree, as of the acquisition date, has a current plan in place and certain criteria are satisfied. This differs from the accounting requirements under FASB Statement 141, “Business Combinations” in which the acquirer could recognize liabilities as of the acquisition date for plans to exit an activity, involuntarily terminate employees, or relocate employees of an acquiree, if the criteria were met in Emerging Issues Task Force (“EITF”) Issue No. 95-3, “Recognition of Liabilities in Connection With a Purchase Business Combination.”

A summary of the activity in accrued restructuring charges during the fiscal years ~~ended~~ending September 30, ~~2010~~2011 and ~~2009~~2010 can be found at Note 14,Accrued Liabilities.

Income taxes:Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of Woodward’s assets, liabilities, and certain unrecognized gains and losses recorded in accumulated other comprehensive earnings. Woodward provides for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the U.S., except for those earnings that it considers 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.

Cash and cash equivalents are maintained with multiple financial institutions. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. Woodward holds cash and cash equivalents at financial institutions in excess of amounts covered by the Federal Depository Insurance Corporation (the “FDIC”) and sometimes invests excess cash in money market funds not insured by the FDIC.

Accounts receivable:Almost all Woodward’s sales are made on credit and result in accounts receivable, which are recorded at the amount invoiced. In the normal course of business, not all accounts receivable are collected and, therefore, an allowance for losses of accounts receivable is provided equal to the amount that Woodward believes ultimately will not be collected. Customer-specific information is considered related to delinquent accounts, past loss experience, and current economic conditions in establishing the amount of its allowance. Accounts receivable losses are deducted from the allowance and the related accounts receivable balances are written off when the receivables are deemed uncollectible. Recoveries of accounts receivable previously written off are recognized when received.

In coordination with its customers and when terms are considered favorable to Woodward, Woodward sometimes transfers ownership to collect amounts due to Woodward for outstanding accounts receivable to third parties in exchange for cash. If such transfer of ownership is with recourse, then a short-term liability is recorded ~~until~~and is reflected in Woodward’s Cash Flow Statement as a financing source. The settlement of the transferred obligation ~~transferred~~ is ~~settled.~~reflected in Woodward’s Cash Flow Statement as both cash flow from operations due to the collection of accounts receivable and cash used in financing as the prior recourse obligation is extinguished.

Inventories:Inventories are valued at the lower of cost or market, with cost generally being determined using methods that approximate a first-in, first-out basis. ~~Cost of HRT and MPC inventories are determined on a standard cost and average cost basis, respectively, which approximates the first-in, first-out basis.~~

Estimated lives over which fixed assets are generally depreciated at September 30, ~~2010~~2011 were as follows:


Buildings and improvements		2-40 years
~~5-40~~Leasehold improvements		1-40 years
Machinery and production equipment		2-15 years
~~3-15~~Computer equipment and software		3-10 years
Other		2-20 years

Purchase accounting:Business combinations are accounted for using the purchase method of accounting. Under the purchase method, assets and liabilities, including intangible assets, are recorded at their fair values as of the acquisition date. Acquisition costs in excess of amounts assigned to assets acquired and liabilities assumed are recorded as goodwill.

Goodwill:Woodward tests goodwill for impairment at the reporting unit level on an annual basis and more often if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment tests consist of comparing the implied fair value of reporting units ~~determined using discounted cash flows,~~ with its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its implied fair value, Woodward compares the implied fair value of goodwill with ~~its~~the recorded carrying ~~amount.~~amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss would be recognized to reduce the carrying amount to its implied fair value. ~~There was no~~As discussed in Note 10,Goodwill, Woodward changed the annual testing date for its goodwill impairment ~~charge recorded~~test from March 31 to July 31. As a result, during 2011, Woodward performed goodwill impairment tests as of March 31, 2011 and July 31, 2011. In addition, as of September 30, 2011, as part of its segment realignment, Woodward created two new reporting units, Aircraft Turbine Systems and Industrial Turbomachinery Systems that were previously included in ~~fiscal year 2010, fiscal year 2009, or fiscal year 2008.~~the Turbine Systems reporting unit. See Note 21,Segment informationfor a discussion of the segment realignment that occurred.

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. All of Woodward’s intangibles have an estimated useful life and are being amortized using patterns that reflect the periods over which the economic benefits of the assets are expected to be realized. Impairment losses are recognized if the carrying amount of an intangible is both not recoverable and exceeds its fair value.

Estimated lives over which intangible assets are amortized at September 30, ~~2010~~2011 were as follows:


Customer relationships	~~10-30~~	9-30 years
Intellectual property	10-17	years
Process technology	8-30	years
Other	~~2-15~~	1-15 years

Impairment of long-lived assets:Woodward reviews the carrying value of its long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group using appropriate valuation methodologies which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value. There was no impairment charge recorded in fiscal year ~~2010,~~2011, fiscal year ~~2009,~~2010, or fiscal year ~~2008.~~2009.

Investment in marketable equity securities:Woodward holds marketable equity securities related to its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in earnings. The trading securities are included in “Other current assets.” The associated obligation to provide benefits is included in “Other liabilities.”

7057

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

Investments in unconsolidated subsidiaries:Investments in and operating results of entities in which Woodward does not have a controlling financial interest or the ability to exercise significant influence over the operations are included in the financial statements using the cost method of accounting. Investments and operating results of entities in which Woodward does not have a controlling interest but does have the ability to exercise significant influence over operations are included in the financial statements using the equity method of accounting.

Noncontrolling ~~interests~~interests::On October 1, 2009, the Company adopted new guidance which requires, among other things, noncontrolling financial interests be accounted for as a separate component of equity and that all transactions between the Company and the noncontrolling interest be accounted for as equity transactions. ~~The adoption of this authoritative guidance is discussed in Note 2,~~~~New accounting standards~~.

In April 2010, the Company purchased the remaining 26% noncontrolling interest in Woodward Governor India Limited, a Woodward consolidated subsidiary, for $8,120. As a result of this transaction, Woodward now owns 100% of Woodward Governor India Limited and there are no other noncontrolling interests in ~~Woodward~~Woodward’s consolidated subsidiaries.

The following is a summary of the effects of Woodward’s purchase of the remaining 26% noncontrolling interest in Woodward Governor India Limited on Woodward’s stockholders’ equity:


								Year Ending September 30,
	Year Ended September 30,							2011		2010			2009
	2010			2009		2008
Net earnings attributable to Woodward	$	110,844		$	94,352	$	121,880	$	132,235	$	110,844		$	94,352
Decrease in Woodward’s additional paid-in capital related to purchase of noncontrolling interest		(6,180	)		—		—		—		(6,180	)		—

Change from net earnings attributable to Woodward and transfers to noncontrolling interest	$	104,664		$	94,352	$	121,880	$	132,235	$	104,664		$	94,352

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

The Company has recorded the 2010 Foreign Currency Hedge and the 2009 Foreign Currency Hedge on the balance sheet at fair value as of September 30, 2010 and 2009, respectively. An unrealized gain on the 2010 Foreign Currency Hedge of approximately $579 was recorded to other income for the fiscal year ended September 30, 2010. The unrealized loss on the 2009 Foreign Currency Hedge of approximately $173 was recorded to other expense for the fiscal year ended September 30, 2009. A loss of $71 was realized on the 2009 Foreign Currency Hedge in October 2010.

Postretirement benefits:The Company provides various benefits to certain current and former employees through defined benefit ~~plans~~pension and postretirement ~~medical benefit~~ plans. For financial reporting purposes, net periodic benefits expense and related obligations are calculated using a number of significant actuarial assumptions. Changes in net periodic expense and funding status may occur in the future due to changes in these assumptions. The funded status of defined pension and postretirement plans recognized in the statement of financial position is measured as the difference between the fair market value of the plan assets and the benefit obligation. For a defined benefit pension plan, the benefit obligation is the projected benefit obligation; for any other defined benefit postretirement plan, such as a retiree health care plan, the benefit obligation is the accumulated benefit obligation. Any over-funded status is recognized as an asset and any underfunded status is recognized as a liability.

Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the plan benefit formula to employee service rendered before the measurement date using assumptions as to future compensation levels if the plan benefit formula is based on those future compensation levels. Accumulated benefit obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to employee service rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date. Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future compensation levels.

~~Stockholders’ equity:~~In September 2007, the Board of Directors authorized the repurchase of up to $200,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period ending in September 2010 (the “2007 Authorization”). Woodward purchased a total of $1,515, $0 and $31,925 of its common stock under the 2007 Authorization in fiscal year 2010, fiscal year 2009 and fiscal year 2008, respectively.

In July 2010, the Board of Directors cancelled the 2007 Authorization and approved a new stock repurchase plan which authorizes the repurchase of up to $200,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that will end in July 2013 (the “2010 Authorization”). Woodward purchased a total of $2,998 of its common stock under the 2010 Authorization in fiscal year 2010.

~~Reclassifications:~~~~The fiscal year 2009 and fiscal year 2008 statements of cash flows have been adjusted to conform to the fiscal year 2010 presentation.~~

Note 2. New accounting standards

From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, Woodward believes that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Consolidated Financial Statements upon adoption.

~~Accounting changes and recently adopted accounting standards~~

~~In December 2007, the FASB issued FASB Statement No. 141(R), “~~~~Business Combinations~~~~,” which has been codified into ASC 805, “~~~~Business Combinations.”~~ASC 805 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This guidance also requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred. This guidance must be applied prospectively to business combinations that are consummated on or after the adoption date. Woodward adopted this guidance on October 1, 2009. Accordingly, Woodward will record and disclose business combinations under the revised guidance for any transactions consummated on or after October 1, 2009.

In addition, ASC 805 requires that adjustments of certain income tax balances related to acquired tax assets and assumed tax liabilities, including those acquired prior to the adoption of ASC 805, be reported as an increase or decrease to income tax expense. Accordingly, Woodward has recorded adjustments of certain income tax balances under the revised authoritative guidance beginning October 1, 2009. These adjustments were not significant.

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

~~In December 2007, the FASB issued FASB Statement No. 160, “~~~~Noncontrolling Interests in Consolidated Financial Statements~~~~,” which has been codified into ASC 810, “~~~~Consolidation.~~” The guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Among other requirements, this guidance clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is to be reported in the Consolidated Balance Sheets within stockholders’ equity, but separate from the parent’s stockholders’ equity. This guidance also requires consolidated net earnings and comprehensive earnings to include the amounts attributable to both the parent and the noncontrolling interest. Woodward adopted this guidance effective October 1, 2009. Woodward was required to apply this guidance prospectively for fiscal years and interim periods within those fiscal years beginning in fiscal year 2010, except for the presentation and disclosure requirements, which have been applied retrospectively for all periods presented. Accordingly, the following have been retrospectively adjusted: the Consolidated Statement of Earnings and Statement of Comprehensive Earnings for the fiscal years ended September 30, 2009 and September 30, 2008, the Consolidated Balance Sheet as of September 30, 2009, the Consolidated Statement of Cash Flows for the fiscal years ended September 30, 2009 and September 30, 2008, the Consolidated Statement of Stockholders’ Equity for the fiscal years ended September 30, 2009 and September 30, 2008, pro forma results for the fiscal year ended September 30, 2009 as presented in Note 4,~~Business acquisitions and dispositions~~, earnings before income taxes by geographical area for the fiscal years ended September 30, 2009 and September 30, 2008 and the effective tax rate for the fiscal year ended September 30, 2009 as presented in Note 5,~~Income Taxes~~~~, segment information at and for the fiscal year ended September 30, 2009 and September 30, 2008 as presented in Note 20,~~~~Segment information~~~~, and supplementary unaudited quarterly financial data and quarterly segment information for the 2009 fiscal quarters as presented at Note 21,~~~~Supplementary financial data (Unaudited)~~~~. In accordance with the authoritative guidance, Woodward’s Consolidated Financial Statements have been recast from amounts previously reported as follows:~~

As of September 30,
2009 2008
As previously As previously
reported As recast reported As recast
Balance sheet:

Total assets $ 1,696,422 $ 1,696,422 $ 927,017 $ 927,017

Total liabilities $ 987,184 $ 984,907 $ 297,389 $ 294,601
Total stockholders’ equity 709,238 711,515 629,628 632,416

Total liabilities and stockholders’ equity $ 1,696,422 $ 1,696,422 $ 927,017 $ 927,017

Statements of stockholders’ equity:

Preferred stock $ — $ — $ — $ —
Common stock 106 106 106 106
Additional paid-in capital 73,197 73,197 68,520 68,520
Accumulated other comprehensive earnings 9,908 10,129 20,319 20,485
Deferred compensation 4,904 4,904 5,283 5,283
Retained earnings 741,505 741,505 663,442 663,442
Treasury Stock (120,382 ) (120,382 ) (128,042 ) (128,042 )

Total Woodward stockholders’ equity 709,238 709,459 629,628 629,794
Noncontrolling interest in consolidated subsidiary — 2,056 — 2,622

Total stockholders’ equity $ 709,238 $ 711,515 $ 629,628 $ 632,416

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

For the year ended September 30,
2009 2008
As previously As previously
reported As recast reported As recast
Statements of earnings and comprehensive earnings:

Net sales $ 1,430,125 $ 1,430,125 $ 1,258,204 $ 1,258,204
Total costs and expenses 1,307,713 1,307,649 1,076,294 1,075,619

Earnings before income taxes 122,412 122,476 181,910 182,585
Income taxes (28,060 ) (28,060 ) (60,030 ) (60,030 )

Net earnings 94,352 94,416 121,880 122,555
Net earnings attributable to noncontrolling interests — (64 ) — (675 )

Net earnings attributable to Woodward $ 94,352 $ 94,352 $ 121,880 $ 121,880

Comprehensive earnings attributable to Woodward $ 83,941 $ 83,996 $ 119,189 $ 119,473
Comp. earnings attributable to noncontrolling interests — 9 — 391

Comprehensive earnings $ 83,941 $ 84,005 $ 119,189 $ 119,864

Earnings per share attributable to Woodward:
Basic $ 1.39 $ 1.39 $ 1.80 $ 1.80
Diluted $ 1.37 $ 1.37 $ 1.75 $ 1.75

Statements of cash flows:

Cash flows provided by operating activities $ 218,652 $ 219,227 $ 125,354 $ 126,023
Cash used in investing activities (714,130 ) (714,130 ) (35,909 ) (35,909 )
Cash provided by (used in) financing activities 487,940 487,365 (48,904 ) (49,573 )
Effect of exchange rate changes on cash and cash equivalents (1,432 ) (1,432 ) (2,343 ) (2,343 )

Net change in cash and cash equivalents $ (8,970 ) $ (8,970 ) $ 38,198 $ 38,198

In April 2010, Woodward purchased the remaining 26% noncontrolling interest in Woodward Governor India Limited, a Woodward consolidated subsidiary, for $8,120. As of September 30, 2010, Woodward now owns 100% of Woodward Governor India Limited. Woodward has no other noncontrolling interests.

In June 2008, the FASB issued FASB Staff Position (“FSP”) No. EITF 03-6-1 (“FSP EITF 03-6-1”), which has been codified into ASC 260, “Earnings per Share.” This guidance addresses whether securities granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two class method. This guidance became effective for Woodward on October 1, 2009. Upon the adoption of this guidance, all outstanding shares of restricted stock, which are participating securities, are considered in the calculation of both the basic and fully diluted earnings per share calculations in these Consolidated Financial Statements. Because the effects of this change are required to be applied retrospectively, the historical earnings per share presented in the Consolidated Statements of Earnings and Comprehensive Earnings and in Note 6, Earnings per share have been recast to reflect the retrospective application of this guidance. The earnings per share calculations were impacted by the inclusion of 70 shares of restricted stock outstanding as of September 30, 2009.

~~In December 2008, the FASB issued FSP FAS 132(R)-1, “~~~~Employers’ Disclosures about Postretirement Benefit Plan Assets,”~~~~which has been codified into ASC 715, “~~~~Compensation — Retirement Benefits.”~~~~This guidance requires employers to provide additional disclosures. This guidance became effective for Woodward on October 1, 2009. The required disclosures have been presented in Note 16,~~~~Retirement benefits~~, of Woodward’s Consolidated Financial Statements for the fiscal year ended September 30, 2010. Upon initial application, this guidance was not required to be applied to earlier periods presented for comparative purposes.

In October 2009, the FASB issued ASU 2009-13, “~~Multiple-Deliverable~~“Multiple-Deliverable Revenue ~~Arrangements~~”Arrangements” and ASU 2009-14, “~~Certain~~“Certain Revenue Arrangements That Include Software Elements.” ASU 2009-13 and ASU 2009-14 are required to be adopted concurrently in fiscal years beginning on or after June 15, 2010 (fiscal year 2011 for Woodward).

ASU 2009-13 changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available.

ASU 2009-14 excludes software that is contained on a tangible product from the scope of software revenue guidance if the software is essential to the tangible product’s functionality.

ASU 2009-13 and ASU 2009-14 were adopted by Woodward on October 1, 2010. The adoption did not impact the identification of or the accounting for separate units of accounting, including the pattern and timing of revenue recognition, and is not expected to have a significant impact on Woodward’s financial position, results of operations or cash flows in future periods. Woodward does not generally sell its products and services through arrangements that include multiple-deliverable arrangements, and the Company had no significant multiple-deliverable arrangements as of September 30, 2011.

In April 2010, the FASB issued ASU 2010-17, “~~Milestone~~“Milestone Method of Revenue Recognition.” ASU 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions, and requires certain disclosures regarding the use of the milestone method. ~~The required disclosures must be provided for fiscal years beginning on or after June 15, 2010 and for interim periods within those fiscal years (fiscal year 2011 for Woodward).~~

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

ASU ~~2009-13, ASU 2009-14 and ASU~~ 2010-17 ~~were~~was adopted by Woodward on October 1, ~~2010~~2010. The adoption did not impact the pattern or timing of revenue recognition and ~~did~~is not expected to have a significant impact on Woodward’s financial position, results of operations or cash flows in future periods. For certain development services provided to customers pursuant to funded long and short-term development contracts, Woodward recognizes revenue based on completion of substantive milestones determined based on the individual facts and circumstances of each arrangement. Total revenues recognized by Woodward based upon completion of substantive milestones as proscribed by ASU 2010-17 was $3,181 for the year ending September 30, 2011.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income.” ASU 2011-05 amends ASC Topic 220, Comprehensive Income, to require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, and it eliminates the option to present components of other comprehensive income as a part of the statement of changes in stockholders’ equity. In addition, ASU 2011-05 requires an entity to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. These amendments are to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (fiscal 2013 for Woodward), early adoption is permitted. Woodward adopted ASU 2011-05 in the fourth quarter of fiscal year 2011. The adoption had no impact on Woodward’s Consolidated Financial Statements.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment.” ASU 2011-08 allows companies to perform a “qualitative” assessment to determine whether or not the current two-step quantitative testing method, in which Woodward compares the fair value of reporting units to its carrying amount including goodwill, must be followed. If a qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, then the quantitative impairment test is not required. A company may choose to use the qualitative assessment on none, some, or all if its reporting units or to bypass the qualitative assessment and proceed directly to the two-step quantitative testing method. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011; however, early adoption is allowed. Woodward does not anticipate that the adoption of ASU 2011-08 will have a material impact on Woodward’s Consolidated Financial Statements.

Note 3. ~~Supplemental statement of cash flows information~~Earnings per share

~~Supplemental cash flow information follows:~~

Year Ended September 30,
2010 2009 2008
Interest paid $ 28,317 $ 20,479 $ 4,216
Income taxes paid 41,533 21,875 33,735
Income tax refunds received 10,867 2,825 13,579

Non-cash investing and financing activities:

Long-term debt assumed in business acquisition — 18,610 —
Purchases of property, plant and equipment on account 2,270 3,880 3,583
Sales of assets on account — 760 433
Equity investment funded by transfer of property, plant and equipment — 165 —
Cashless exercise of stock options 4,190 — —

~~MPC Products, one of Woodward’s subsidiaries acquired in fiscal year 2009, was previously subject~~Basic earnings per share attributable to ~~an investigation~~Woodward is computed by dividing net earnings available to common stockholders by the ~~Department~~weighted average number of ~~Justice (“DOJ”) regarding certain~~shares of ~~its government contract pricing practices prior~~common stock outstanding for the period.

Diluted earnings per share attributable to ~~June 2005. In fiscal year 2010, MPC Products settled~~Woodward reflects the ~~criminal and civil claims related to the DOJ’s investigation and paid $25,000 in compensation and fines. The purchase price Woodward paid in connection with the acquisition~~weighted-average number of ~~MPC Products was reduced by $25,000 at the time~~shares outstanding after consideration of the ~~acquisition, which represents the amounts discussed above. Payment~~dilutive effect of ~~this amount~~stock options.

The following is a reconciliation of net earnings attributable to Woodward to basic earnings per share attributable to Woodward and diluted earnings per share attributable to Woodward:


	Year Ending September 30,
	2011		2010		2009
Numerator:
Net earnings attributable to Woodward	$	132,235	$	110,844	$	94,352

Denominator:
Basic shares outstanding		68,797		68,472		67,891
Dilutive effect of employee stock options		1,343		1,392		1,212


Diluted shares outstanding		70,140		69,864		69,103

Income per common share:
Basic earnings per share attributable to Woodward	$	1.92	$	1.62	$	1.39

Diluted earnings per share attributable to Woodward	$	1.89	$	1.59	$	1.37

The following stock option grants were outstanding during the fiscal ~~year ended~~years ending September 30, 2011, 2010 ~~is reflected as an investing activity in~~and 2009, but were excluded from the ~~Consolidated Statement~~computation of ~~Cash Flows.~~diluted earnings per share because their inclusion would have been anti-dilutive:


	Year Ended September 30,
	2011		2010		2009
Options		684		1,106		739

Weighted-average option price	$	32.04	$	26.94	$	27.30

The weighted-average shares of common stock outstanding for basic and diluted earnings per share included the weighted-average treasury stock shares held for deferred compensation obligations of the following:


	Year Ending September 30,
	2011		2010		2009
Weighted-average treasury stock shares held for deferred compensation obligation		335		371		409

Note 4. Business acquisitions and dispositions

Woodward has recorded the acquisitions described below using the purchase method of accounting and, accordingly, has included the results of operations of the acquired businesses in its consolidated results as of the date of each acquisition. In accordance with authoritative accounting guidance for business combinations, ~~in effect during Woodward’s fiscal year 2009,~~ the respective purchase prices for these acquisitions are allocated to the tangible assets, liabilities, and intangible assets acquired based on their estimated fair values. The excess purchase price over the respective fair values of assets is recorded as goodwill. Goodwill is not amortized under U.S. GAAP but is tested for impairment at least annually (See Note 9.10,Goodwill). ~~The goodwill resulting from~~

IDS Acquisition

During the ~~MPC~~third quarter of fiscal year 2011, Woodward acquired all of the outstanding stock of Integral Drive Systems AG and ~~MotoTron Corporation~~its European companies, including their respective holding companies (“~~MotoTron”~~IDS”), and the assets of IDS’ business in China (together the “IDS Acquisition”) ~~acquisitions is not tax deductible, while the goodwill resulting from the HRT acquisition is tax deductible.~~for an aggregate purchase price of approximately $48,412. The purchase price remains subject to certain customary post-closing adjustments. The estimated purchase price is included in “Cash flows from investing activities” in the Consolidated Statement of Cash Flows.

IDS is a developer and manufacturer of innovative power electronic systems predominantly in utility scale wind turbines and photovoltaic power plants. Additionally, IDS offers key products in power distribution and marine propulsion systems. In addition to wind turbines and photovoltaic plants, its products are used in offshore oil and gas platforms, energy storage and distribution systems, and a variety of industrial applications. IDS is being integrated into Woodward’s Energy segment.

The Company believes the IDS Acquisition expands its presence in wind converter offerings and reduces its time to market with expansion of solar energy, energy storage, and marine drives. Goodwill recorded in connection with the IDS Acquisition, which is not deductible for income tax purposes, represents the estimated value of such future opportunities, the value of potential expansion with new customers and the opportunity to further develop sales opportunities with new and acquired IDS customers, and anticipated synergies expected to be achieved through the integration of IDS into Woodward’s Energy segment.

Woodward has completed finalizing the valuations of current assets, property, plant and equipment (including estimated useful lives), intangible assets (including estimated useful lives), other current liabilities, postretirement benefits obligations, deferred tax liabilities, and other noncurrent liabilities.

As of September 30, 2011, $8,149 paid in connection with the IDS purchase was deposited into escrow accounts to secure Woodward’s ability to recover any amounts owed to Woodward by the seller as a result of customary indemnities related to representations and warranties made by the seller. Funds held in escrow will only be released to the seller as specified in the related purchase agreements. If Woodward were to receive funds from the escrow account in the future, the purchase price of IDS might be adjusted. The final purchase price is subject to normal closing balance sheet net asset adjustments typical in such transactions.

The preliminary purchase price of the IDS Acquisition is as follows:


Cash paid to seller	$	48,412
Less cash acquired		(1,251	)

Total estimated purchase price		47,161
Less marketable securities acquired		(8,463	)

Estimated price paid for business assets	$	38,698

The allocation ~~period has closed~~of the purchase price for ~~MPC, MotoTron~~the IDS Acquisition was accounted for under the purchase method of accounting in accordance with ASC Topic 805, Business Combinations. Assets acquired and ~~HRT.~~liabilities assumed in the transaction were recorded at their acquisition date fair values, while transaction costs associated with the acquisition were expensed as incurred. The Company’s allocation was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of the IDS Acquisition:


Current assets	$	14,627
Investments in marketable securities		8,463
Property, plant, and equipment		1,954
Goodwill		24,188
Intangible assets		11,882


Total assets acquired		61,114


Other current liabilities		5,505
Warranty accrual		2,250
Postretirement benefits		434
Deferred tax liabilities		2,472
Other tax — noncurrent		3,292


Total liabilities assumed		13,953


Net assets acquired	$	47,161

There were no changes to the values of assets acquired and liabilities assumed during the six-months ending September 30, 2011. The fair value of warranty liabilities assumed represents the estimated costs to provide service for contractual warranty obligations on products sold by IDS prior to April 15, 2011. The fair value of “Other tax — noncurrent” represents the estimated value of gross unrecognized tax benefits assumed.

In connection with the IDS Acquisition, Woodward acquired various marketable securities, which are not classified as cash equivalents under U.S. GAAP. These marketable securities were sold during the fiscal quarter ended June 30, 2011 and reinvested into cash and cash equivalents consistent with Woodward’s internal investment and risk management policies. Losses on the sale of marketable securities were included in “Other (income) expense, net” in the Consolidated Statements of Earnings.

Also, in connection with the IDS Acquisition, Woodward assumed the net postretirement benefit obligations of several Swiss statutory retirement plans which are considered to be defined benefit plans under U.S. GAAP.

A summary of the intangible assets acquired, weighted average useful lives and amortization methods follows:

Weighted

Average Useful

Amortization

Amount

Life

Method

Customer relationships

3,452

9 years

Straight-line

Process technology

7,752

8.5 years

Straight-line

Other

678

2.5 years

Straight-line

Total

11,882

8 years

The operating results of the IDS Acquisition are included in Woodward’s Consolidated Statements of Earnings and Comprehensive Earnings as of April 15, 2011. Pro forma financial disclosures have not been presented as the IDS Acquisition was not material to Woodward’s financial position or results of operations. The Company incurred transaction costs of $2,396 for the year ending September 30, 2011, which are included in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings.

MPC ~~acquisition~~Acquisition

On October 1, 2008, Woodward acquired all of the outstanding stock of Techni-Core, Inc. (“Techni-Core”) and all of the outstanding stock of MPC Products Corporation (“MPC Products” and, together with Techni-Core, “MPC”) not owned by Techni-Core for approximately $370,437. The purchase price, less approximately $18,610 of assumed outstanding debt, is included in “Cash flows from investing activities” in the Consolidated Statement of Cash Flows. ~~Woodward paid cash at closing of approximately $334,702, a portion of which was used to repay outstanding debt of~~The goodwill resulting from the MPC ~~in an aggregate amount equal to approximately $18,610. In addition, contractual change of control payments~~acquisition totaling $32,175 were made to certain MPC employees during October 2008 as a result of employment agreements in place prior to the acquisition. Direct transaction costs include investment banking, legal, and accounting fees and other external costs directly related to the acquisition.$174,893 is not tax deductible. The purchase price allocation period has closed for MPC.

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts~~group, which is included in ~~thousands, except per share)~~

~~The purchase price of the MPC acquisition is as follows:~~

Cash paid to owners $ 316,092
Long-term debt repaid 18,610
Contractual change in control obligations 32,175
Direct transaction costs 3,560

Total purchase price $ 370,437

its Aerospace segment.

At the time of the acquisition of MPC, MPC Products was subject to an investigation by the U.S. Department of Justice (the “DOJ”) regarding certain of its pre-2005 government contract pricing practices and related administrative actions by the U.S. Department of Defense (the “DOD”). In October 2009, MPC ~~Products~~ reached an agreement with the DOJ to resolve the criminal and civil claims, whereby MPC ~~Products~~ paid $25,000 in compensation and fines. Payments associated with this pre-acquisition contingency were incremental to the estimated MPC purchase ~~price above.~~price. The purchase price paid by Woodward in connection with the MPC acquisition ~~as shown above,~~ was reduced by $25,000 at closing to reflect this contingency.

~~The following table summarizes estimated fair values of the assets acquired and liabilities assumed at the date of the MPC acquisition, including accrued restructuring charges:~~

Current assets $ 112,116
Property, plant, and equipment 21,855
Goodwill 174,893
Intangible assets 164,200
Deferred income tax assets 23,939
Other assets 1,513

Total assets acquired 498,516

Other current liabilities 23,950
Department of Justice Matter 25,000
Accrued restructuring charges 10,106
Deferred tax liabilities 65,009
Other tax — noncurrent 4,014

Total liabilities assumed 128,079

Net assets acquired $ 370,437

~~A summary of the intangible assets acquired, weighted average useful lives and amortization methods follows:~~

Weighted Average
Useful Amortization
Amount Life Method
Customer relationships $ 114,200 16 years Accelerated
Process technology 25,600 15 years Accelerated
Product software 6,200 13 years Accelerated
Backlog 13,500 3 years Accelerated
Trade name 3,700 5 years Accelerated
Non-compete agreements 1,000 2 years Straight Line

Total $ 164,200 14 years

~~Accelerated amortization is calculated based on the pattern of estimated future economic benefits of the related intangible asset.~~

The results of MPC’s operations are included in Woodward’s Consolidated Statements of Earnings and Comprehensive Earnings beginning October 1, 2008.

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

MotoTron ~~acquisition~~Acquisition

On October 6, 2008, Woodward acquired MotoTron Corporation (“MotoTron”) and the intellectual property assets owned by its parent company, Brunswick Corporation, which were used in connection with the MotoTron business for approximately $17,237. The purchase price is included in “Cash flows from investing activities” in the Consolidated Statement of Cash Flows. The ~~Company paid cash at closing of $17,000. In January 2009, Woodward received $29 related to working capital adjustments typical in such transactions.~~goodwill resulting from the MotoTron acquisition totaling $6,396 is not tax deductible. The ~~working capital adjustment amount is included in “Cash flows from investing activities” in the Consolidated Statement of Cash Flows.~~purchase price allocation period has closed for MotoTron.

MotoTron specializes in software tools and processes used to rapidly develop control systems for marine, power generation, industrial, and other engine equipment applications. MotoTron has been fully integrated into Woodward’s Engine Systems business group, which is included in its Energy segment.

MotoTron has been an important supplier and partner to Woodward since 2002 and has helped Woodward to better position itself in electronic control technologies for the alternative-fueled bus and mobile equipment markets. The acquisition of MotoTron further ~~strengthens~~strengthened Woodward’s ability to serve the transportation and power generation markets.

The results of MotoTron’s operations are included in Woodward’s Consolidated Statements of Earnings and Comprehensive Earnings as of October 6, 2008. If the MotoTron acquisition had been completed on October 1, 2008, Woodward’s net sales and net earnings for the fiscal year ~~ended~~ending September 30, 2009 would not have been materially different from amounts reported in the Consolidated Statements of Earnings and Comprehensive Earnings.

HRT ~~acquisition~~Acquisition

On April 3, 2009, Woodward acquired all of the outstanding stock of HR Textron Inc. from Textron Inc., its parent company, and the United Kingdom assets and certain liabilities related to HR Textron Inc.’s business (collectively “HRT”) for approximately $380,749. The ~~estimated~~ purchase price is included in “Cash flows from investing activities” in the Consolidated Statement of Cash Flows. The goodwill resulting from the HRT acquisition totaling $142,699 is tax deductible. The purchase price allocation period has closed for HRT.

Woodward ~~paid cash~~made a 338(h)(10) election with the U.S. Internal Revenue Service, which allows the HRT acquisition to be treated as an asset purchase for income tax purposes. Accordingly, any deferred tax assets and liabilities recorded by Textron Inc. at ~~closing of approximately $377,660.~~the acquisition date are not available to Woodward.

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

~~The purchase price of the HRT acquisition is as follows:~~

Cash paid to owners $ 377,660
Cash acquired (11 )
Direct transaction costs 3,100

Total purchase price $ 380,749

During the first six months of fiscal year 2010, the estimated fair values of the acquired current assets were increased by $1,234, the accrued restructuring charges were increased by $1,834, and other current liabilities were decreased by $2,660 to reflect updated estimates of fair values of assets acquired and liabilities assumed as of April 3, 2009.

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

The allocation of the purchase price to the assets acquired and liabilities assumed was finalized as of March 31, 2010. The following table summarizes estimated fair values of the assets acquired and liabilities assumed on April 3, 2009, the date of the HRT acquisition, including accrued restructuring charges:

Current assets $ 115,707
Property, plant, and equipment 41,926
Goodwill 142,699
Intangible assets 128,400
Other assets 13

Total assets acquired 428,745

Other current liabilities 19,515
Accrued restructuring charges 9,334
Postretirement benefits 13,077
Other noncurrent liabilities 6,070

Total liabilities assumed 47,996

Net assets acquired $ 380,749

~~A summary of the intangible assets acquired, weighted average useful lives and amortization methods follows:~~

Weighted
Average Useful Amortization
Amount Life Method
Customer relationships $ 70,900 15 years Accelerated
Process technology 29,000 15 years Accelerated
Product software 4,200 20 years Accelerated
Backlog 21,900 5 years Accelerated
Favorable lease contracts 1,400 7 years Straight Line
Non-compete agreements 1,000 3 years Straight Line

Total $ 128,400 13 years

~~Accelerated amortization is calculated based on the pattern of estimated future economic benefits of the related intangible asset.~~

~~HRT’s favorable lease contracts relate to a facility that Woodward has determined will be vacated in calendar year 2011, when the unamortized cost of the asset is expected to be $1,050. This amount~~group, which is included in ~~the accrued restructuring charges assumed in connection with the HRT acquisition.~~

Woodward made a 338(h)(10) election with the U.S. Internal Revenue Service, which allows the HRT acquisition to be treated as an asset purchase for income tax purposes. Accordingly, any deferred tax assets and liabilities recorded by Textron Inc. at the acquisition date are not available to Woodward because the election causes the HRT acquisition to be treated, for income tax purposes, as though Woodward did not purchase an ongoing business.

~~In connection with the HRT acquisition, Woodward assumed certain defined benefit pension obligations contingent upon transfer of related pension plan assets (See Note 16,~~~~Retirement benefits~~). In September 2009, the trustee of the related Textron-sponsored defined benefit plan transferred $46,788 to the Woodward HRT Plan. An additional $1,019 was transferred by the Textron-sponsored defined benefit plan to the Woodward HRT Plan in October 2009 and was recorded as a Woodward HRT Plan receivable as of September 30, 2009.its Aerospace segment.

The results of HRT’s operations are included in Woodward’s Consolidated Statements of Earnings and Comprehensive Earnings as of April 3, 2009.

On August 10, 2009, Woodward HRT sold the Fuel & Pnuematics (“F&P&P) product line, for $48,000. During 2010, Woodward received an additional $660 related to working capital adjustments typical in such transactions. The working capital adjustment amount is included in “Cash flows from investing activities” in the Consolidated Statement of Cash Flows. The F&P product line provided a variety of off-turbine fuel management and pneumatic actuation components to producers of military and commercial aircraft and helicopters, as well as their suppliers. Woodward’s 2009 results of operations include approximately $9,620 of sales and $3,897 of pre-tax earnings from the F&P product line for the period April 3, 2009 to August 10, 2009. There was no gain or loss on disposal of the F&P product line.

7863

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

Pro forma results for Woodward giving effect to the HRT ~~acquisitions~~acquisition

The following unaudited pro forma financial information presents the combined results of operations of Woodward and HRT as if the acquisition had occurred as of the beginning of fiscal year 2009. No pro forma adjustments have been made for MPC as it was acquired by Woodward on October 1, 2008 and the results of MPC’s operations are included in Woodward’s Consolidated Statements of Earnings ~~and Comprehensive Earnings~~ beginning October 1, 2008. No pro forma adjustment have been made for MotoTron as it was acquired on October 6, 2008 and the results of MotoTron’s operations are included in Woodward’s Consolidated Statements of Earnings ~~and Comprehensive Earnings~~ as of October 6, 2008. If the MotoTron acquisition had been completed on October 1, 2008, Woodward’s net sales and net earnings for the fiscal year ~~ended~~ending September 30, 2009 would not have been materially different from the amounts reported in the Consolidated Statements of Earnings ~~and Comprehensive Earnings~~ for the fiscal year ~~ended~~ending September 30, 2009. The pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the HRT acquisition and related borrowings had taken place at the beginning of the fiscal year 2009. The unaudited pro forma financial information for the fiscal year ended September 30, 2009 includes the historical results of Woodward, including the post-acquisition results of HRT since April 3, 2009 and the historical results of HRT for the approximately six months ended April 2, 2009. No pro forma financial information is provided for the fiscal ~~year ended~~years ending September 30, 2011 and September 30, 2010 as a full fiscal ~~year~~years of post-acquisition results of operations of MPC, MotoTron and HRT were included in Woodward’s Consolidated Statements of ~~Earnings and Comprehensive~~ Earnings.

Prior to the HRT acquisition by Woodward, HRT was a wholly owned subsidiary of Textron Inc. and as such was not a stand-alone entity. Accordingly, the historical operating results of HRT may not be indicative of the results that might have been achieved, historically or in the future, if HRT had been a stand-alone entity. The unaudited pro forma results for all periods presented include amortization charges for acquired intangible assets, eliminations of intercompany transactions, adjustments for stock options and restricted stock issued, adjustments for depreciation expense for property, plant, and equipment, adjustments to interest expense, adjustments for estimated general and administrative costs for HRT’s historical management and administrative structure and functions, disposal of the F&P product line, and related tax effects.

The unaudited pro forma results follow for the fiscal year ~~ended~~ending September 30, 2009:


	As reported		Pro forma		Year Ending September 30, 2009
					As reported		Pro froma
Revenue	$	1,430,125	$	1,532,181

Net sales					$	1,430,125	$	1,532,181

Net earnings attributable to Woodward		94,352		93,144		94,352		93,144
Earnings per share:
Basic earnings per share attributable to Woodward	$	1.39	$	1.37	$	1.39	$	1.37
Diluted earnings per share attributable to Woodward		1.37		1.35		1.37		1.35

Investments related to the deferred compensation program used to provide deferred compensation benefits to certain employees are carried at market value.

The fair values of short-term borrowings at variable interest rates are assumed to be equal to their carrying amounts because such borrowings are expected to be repaid or settled for their carrying amounts within a short period of time.

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 ~~following:~~period for similar debt of the same maturity. The weighted-average interest rates used to estimate the fair value of long-term debt at fixed interest rates were as follows:

Year Ended September 30,
2010 2009 2008
Current:
Federal $ 9,818 $ (8,006 ) $ 26,689
State 5,600 2,042 4,080
Foreign 13,112 18,441 17,583
Deferred
Federal 13,789 16,436 7,039
State 1,681 848 298
Foreign (287 ) (1,701 ) 4,341

$ 43,713 $ 28,060 $ 60,030


	At September 30,
	2011			2010
Weighted-average interest rate used to estimate fair value		2.6	%		2.9	%

Financial assets and liabilities recorded at fair value in the Consolidated Balance Sheet are categorized based upon a fair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the following levels:

Level 1: Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.

Level 2: Quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.

Level 3: Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

The table below presents information about Woodward’s financial assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such fair value. Woodward had no financial liabilities required to be measured at fair value on a recurring basis as of September 30, 2011 or September 30, 2010.


	At September 30, 2011								At September 30, 2010
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial assets:
Investments in money market funds	$	10,823	$	—	$	—	$	10,823	$	50,360	$	—	$	—	$	50,360
Equity securities		5,855		—		—		5,855		5,633		—		—		5,633
Foreign exchange forward contract		—		—		—		—		—		579		—		579


Total financial assets	$	16,678	$	—	$	—	$	16,678	$	55,993	$	579	$	—	$	56,572

Investments in money market funds:Woodward sometimes invests excess cash in money market funds not insured by the FDIC. Woodward believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid. The investments in money market funds are reported at fair value, with realized gains from interest income realized in earnings and are included in “Cash and cash equivalents.” The fair values of Woodward’s investments in money market funds are based on the quoted market prices for the net asset value of the various money market funds.

Equity securities:Woodward holds marketable equity securities, through investments in various mutual funds, related to its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in earnings. The trading securities are included in “Other current assets.” The fair values of Woodward’s trading securities are based on the quoted market prices for the net asset value of the various mutual funds.

Forward contracts:As of September 30, 2010, Woodward was a party to a forward contract. The fair value of the derivative instrument was derived from published foreign currency exchange rates as of September 30, 2010. The forward contract was settled in December 2010, resulting in a realized loss of $1,033.

7965

~~WOODWARD GOVERNOR COMPANY~~Note 6. Derivative instruments and hedging activities

~~Notes~~Woodward is exposed to ~~Consolidated Financial Statements — Continued~~global market risks, including the effect of changes in interest rates, foreign currency exchange rates, changes in certain commodity prices and fluctuations in various producer indices. From time to time, Woodward enters into derivative instruments for risk management purposes only, including derivatives designated as accounting hedges and/or those utilized as economic hedges. Woodward uses interest rate related derivative instruments to manage its exposure to fluctuations of interest rates. Woodward not does enter into or issue derivatives for trading or speculative purposes.

~~(amounts in thousands, except per share)~~

~~Earnings before income taxes by geographical area consisted~~By using derivative and/or hedging instruments to manage its risk exposure, Woodward is subject, from time to time, to credit risk and market risk on those derivative instruments. Credit risk arises from the potential failure of the ~~following:~~counterparty to perform under the terms of the derivative and/or hedging instrument. When the fair value of a derivative contract is positive, the counterparty owes Woodward, which creates credit risk for Woodward. Woodward minimizes this credit risk by entering into transactions with only high quality counterparties. Market risk arises from the potential adverse effects on the value of derivative and/or hedging instruments that result from a change in interest rates, commodity prices, or foreign currency exchange rates. Woodward minimizes this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

Year Ended September 30,
2010 2009 2008
United States $ 103,771 $ 62,766 $ 96,934
Germany 27,920 33,396 46,239
Other countries 23,184 26,314 39,412

$ 154,875 $ 122,476 $ 182,585

As of September 30, 2010, Woodward was a party to the forward foreign currency exchange rate contract described below. As of September 30, 2011, all previous derivative instruments into which Woodward had entered into were settled or terminated.

~~Deferred income taxes~~Derivatives in fair value hedging relationships

In 2002, Woodward entered into certain interest rate swaps that were designated as fair value hedges of its long-term debt consisting of senior notes due in October 2011. The discontinuance of these interest rate swaps resulted in gains that are recognized as a reduction of interest expense over the term of the associated debt (10 years) using the effective interest method. The unrecognized portion of the gain is presented as an adjustment to long-term debt.

Derivatives in cash flow hedging relationships

In 2001, Woodward entered into treasury lock agreements that were designated as cash flow hedges of its long-term debt. The objective of these derivatives was to hedge the risk of variability in cash flows related to future interest payments of a portion of the anticipated future debt issuances attributable to changes in the ~~Consolidated Balance Sheets~~designated benchmark interest rate associated with the expected issuance of the senior notes due in October 2011. The discontinuance of these treasury lock agreements resulted in losses that are recognized as an increase of interest expense over the term of the associated debt (10 years) using the effective interest method. The unrecognized portion of the loss is recorded in accumulated other comprehensive earnings.

In September 2008, the Company entered into treasury lock agreements that qualified as cash flow hedges under authoritative guidance for derivatives and hedging. The objective of this derivative instrument was to hedge the risk of variability in cash flows related to future interest payments of a portion of the ~~following:~~anticipated future debt issuances attributable to changes in the designated benchmark interest rate associated with the expected issuance of long-term debt to acquire MPC. The discontinuance of these treasury lock agreements resulted in a gain that is being recognized as a reduction of interest expense over a seven-year period on the hedged Series C and D Notes, which were issued on October 1, 2008, using the effective interest method. The unrecognized portion of the gain is recorded in accumulated other comprehensive earnings, net of tax.

At September 30,
2010 2009
Deferred tax assets:

Retirement healthcare and early retirement benefits $ 13,176 $ 15,249
Foreign operating loss carryforwards 2,245 2,969
Inventory 13,425 15,531
Purchase accounting reserves — 13,234
Deferred compensation 12,293 10,289
Defined benefit pension 2,943 7,300
Other 27,581 20,798
Valuation allowance (96 ) (132 )

Total deferred tax assets, net of valuation allowance 71,567 85,238

Deferred tax liabilities:

Goodwill and intangibles — net (96,267 ) (95,885 )
Other (21,237 ) (21,788 )

Total deferred tax liabilities (117,504 ) (117,673 )

Net deferred tax liabilities $ (45,937 ) $ (32,435 )

In March 2009, Woodward entered into LIBOR lock agreements that qualified as cash flow hedges under authoritative guidance for derivatives and hedging. The objective of this derivative instrument was to hedge the risk of variability in cash flows over a seven-year period related to future interest payments of a portion of anticipated future debt issuances attributable to changes in the designated benchmark interest rate associated with the then expected issuance of long-term debt to acquire HRT. The discontinuance of the LIBOR lock agreements resulted in a loss that is being recognized as an increase of interest expense over a seven-year period on the hedged Series E and F Notes, which were issued on April 3, 2009, using the effective interest method. The unrecognized portion of the loss is recorded in accumulated other comprehensive earnings, net of tax.

~~The~~Derivatives in foreign ~~net operating loss carryforwards~~currency relationships

In September 2010, Woodward entered into a foreign currency exchange rate contract to purchase €39,000 for approximately $52,549 in early December 2010. An unrealized gain of $579 on this derivative was carried at fair market value in “Other current assets” as of September 30, 2010. In December 2010, ~~may be~~a loss of $1,033 was recorded on the settlement of this forward contract and was recorded in “Other (income) expense, net.” In September 2009, Woodward entered into a foreign currency exchange rate contract to purchase €7,900 for approximately $11,662 in early October 2009. An unrealized loss of $173 on this derivative instrument was carried at fair market value in “Accrued liabilities” as of September 30, 2009. In October 2009, a loss of $71 was realized on the settlement of this forward ~~indefinitely.~~contract was recorded in “Other (income) expense, net.”

Year Ending September 30, 2009

Amount of

(Income)

(Gain) Loss

Expense

Recognized

Reclassified

Recognized

from

in Earnings

Accumulated

Location of (Gain) Loss

OCI on

OCI into

Derivatives in:

Recognized in Earnings

Derivative

Earnings

Fair value hedging relationships

Interest expense

(184

)

—

Cash flow hedging relationships

Interest expense

237

1,199

237

Foreign currency relationships

Other (income) expense, net

173

—

226

1,199

237

Based on the carrying value of the unrecognized gains and losses on terminated derivative instruments designated as cash flow hedges as of September 30, 2011, Woodward expects to reclassify $173 of net unrecognized losses on terminated derivative instruments from accumulated other comprehensive income to earnings during the next twelve months.

Note 7. Supplemental statement of cash flows information


	Year Ending September 30,
	2011		2010		2009

Interest paid, net of amounts capitalized	$	26,140	$	28,317	$	20,479
Income taxes paid		50,360		41,533		21,875
Income tax refunds received		9,496		10,867		2,825

Non-cash activities:
Long-term debt assumed in business acquisition		—		—		18,610
Purchases of property, plant and equipment on account		6,333		2,270		3,880
Sales of assets on account		—		—		760
Equity investment funded by transfer of property, plant and equipment		—		—		165
Cashless exercise of stock options		1,982		4,190		—
Settlement of receivable through purchase of treasury shares in connection with the cashless exercise of stock options		881		—		—
Reduction of accounts receivable and short-term borrowing due to the settlement of accounts receivable previously sold with recourse		3,228		—		—
Reduction of accounts payable due to the assignment of accounts receivable with recourse		570		—		—
Reduction to goodwill due to favorable resolution of lease termination recorded in restructuring reserve		103		—		—
Payment of director fees through issuance of treasury stock		52		—		—

MPC Products, one of Woodward’s subsidiaries acquired in fiscal year 2009, was previously subject to an investigation by the DOJ regarding certain of its government contract pricing practices prior to June 2005. In the three-months ending December 31, 2009, MPC settled the criminal and civil claims related to the DOJ’s investigation and paid $25,000 in compensation and fines. The purchase price Woodward paid in connection with the acquisition of MPC was reduced by $25,000 at the time of the acquisition, which represents the amounts discussed above. Payment of this amount during the year ending September 30, 2010 ~~Woodward has not provided for taxes on undistributed foreign earnings of $77,767 that it considers permanently reinvested. These earnings could become subject to income taxes if they are remitted~~is reflected as ~~dividends, are loaned to Woodward, or if it sells its stock~~an investing activity in the ~~subsidiaries. However, the Company believes that foreign tax credits would largely offset any income tax that might otherwise be due.~~

~~The changes in the valuation allowance were as follows:~~

Year Ended September 30,
2010 2009 2008
Beginning balance $ (132 ) $ (129 ) $ (2,596 )
Change in valuation allowance that existed at the beginning of the year — — 2,689
Current activity related to deferred items 36 (3 ) (222 )
Foreign net operating loss carryforward — — —

Ending balance $ (96 ) $ (132 ) $ (129 )

~~Deferred tax assets are reduced by a valuation allowance if, based on the weight~~accompanying Consolidated Statement of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence are considered in forming Woodward’s judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in circumstances that may cause a change in judgment. In fiscal year 2008, additional objective evidence became available regarding earnings in tax jurisdictions that had unexpired net operating loss carryforwards that affected Woodward’s judgment about the valuation allowance that existed at the beginning of the fiscal year.Cash Flows.

8068

~~WOODWARD GOVERNOR COMPANY~~Note 8. Inventories


	September 30,		September 30,
	2011		2010

Raw materials	$	43,172	$	19,457
Work in progress		108,718		86,438
Component parts and finished goods		229,665		189,139


	$	381,555	$	295,034

~~Notes~~Note 9. Property, plant, and equipment


	At September 30,
	2011			2010

Land	$	14,823		$	11,372
Buildings and improvements		177,637			171,257
Leasehold improvements		18,765			17,884
Machinery and production equipment		265,898			270,126
Computer equipment and software		66,149			57,518
Other		25,191			22,854
Construction in progress		44,975			13,125

		613,438			564,136
Less accumulated depreciation		(406,713	)		(370,612	)


Property, plant and equipment, net	$	206,725		$	193,524


	Year Ending September 30,
	2011		2010		2009

Depreciation expense	$	40,400	$	40,502	$	37,828

During fiscal year 2010, Woodward began construction of a new 48,000 square foot system test facility in Rockford, Illinois. The facility, which will house numerous environmental system test cells and a vibration lab, will support, among other development projects, Aerospace segment development efforts of next generation fuel systems for aircraft turbines. The test facility is expected to ~~Consolidated Financial Statements — Continued~~

~~(amounts~~be completed and placed into service in ~~thousands, except per share)~~

~~The foreign net operating loss carryforward amount~~early fiscal year 2012. Included in ~~the preceding table includes the translation effects of changes~~construction in ~~foreign currency exchange rates.~~

~~The reasons for the differences between Woodward’s effective income tax rate~~progress at September 30, 2011 and ~~the United States statutory federal income tax rate were as follows:~~

Year Ended September 30,
Percent of pretax earnings 2010 2009 2008
Statutory tax rate 35.0 % 35.0 % 35.0 %
Adjustments of the beginning-of-year balance of valuation allowances for deferred tax assets — — (1.5 )
State income taxes, net of federal tax benefit 2.4 1.5 1.5
Foreign tax rate differences (1.4 ) (2.1 ) —
Dividends on stock shares allocated to retirement savings plans (0.4 ) (0.5 ) (0.4 )
Research credit (0.5 ) (3.1 ) (0.3 )
Retroactive extension of research credit — (1.7 ) —
Adjustment of tax issues for previous periods and audit settlements (5.9 ) (6.6 ) (1.2 )
Other items, net (1.0 ) 0.4 (0.2 )

Effective tax rate 28.2 % 22.9 % 32.9 %

The changes in estimate of taxes for previous periods are primarily related to the favorable resolution of certain tax matters. There were favorable resolutions of tax matters of $4,667, $6,846 and $2,472 in the fiscal years ended September 30, 2010 are $20,090 and $4,836, respectively, of costs associated with the construction of the test facility, including $1,087 and $165, respectively, of capitalized interest.

In addition at September 30, ~~2009~~2011 and ~~September 30, 2008.~~

During the fiscal year ended September 30, 2010, the Internal Revenue Service concluded an examination of Woodward’s U.S. Federal income tax returns for fiscal years 2007 and 2008. Also during the fiscal year ended September 30, 2010, Woodward ~~completed certain internal revaluation assessments~~recognized as construction in progress, $11,827 and ~~certain statutes~~$1,604, respectively, of ~~limitations expired. As~~costs associated with the development of a ~~result, Woodward reduced~~new Enterprise Resource Planning (“ERP”) system for its ~~liability for unrecognized tax benefits during~~Airframe Systems group, including capitalized interest of $432 and $24, respectively.

For the fiscal ~~year ended~~years ending September 30, 2011, 2010 ~~by a net favorable amount of $6,784.~~

~~A reconciliation~~and 2009, Woodward had capitalized interest that would have otherwise been included in interest expense of the ~~beginning and ending amounts of gross unrecognized tax benefits as of September 30, 2010 is as follows:~~following:

Balance, September 30, 2007 $ 20,509
Tax positions related to the current year 5,819
Tax positions related to prior years (74 )
Lapse of applicable statute of limitations (3,678 )

Balance, September 30, 2008 22,576
Tax positions related to the current year 1,431
Tax positions related to prior years (556 )
Lapse of applicable statute of limitations (3,668 )

Balance, September 30, 2009 19,783
Tax positions related to the current year 1,734
Tax positions related to prior years (7,320 )
Lapse of applicable statute of limitations (3,611 )

Balance, September 30, 2010 $ 10,586

The amounts of unrecognized tax benefits that would impact Woodward’s effective tax rate if recognized, net of expected offsetting adjustments, were $8,720 at September 30, 2010 and $15,550 at September 30, 2009. At this time, Woodward estimates that it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $1,304 in the next twelve months due primarily to the expiration of certain statutes of limitations. Woodward recognizes interest and penalties related to unrecognized tax benefits in tax expense. Woodward had accrued interest and penalties of $1,431 as of September 30, 2010 and $3,804 as of September 30, 2009.


	Year Ending September 30,
	2011		2010		2009

Capitalized interest	$	1,354	$	150	$	31

8169

~~WOODWARD GOVERNOR COMPANY~~Note 10. Goodwill

~~Notes to Consolidated Financial Statements — Continued~~


								Effects of
	September 30,							Currency			September 30,
	2010		Additions		Adjustments			Translation			2011

Aerospace	$	356,680	$	—	$	(103	)	$	(52	)	$	356,525
Energy		81,914		24,188		—			(345	)		105,757


Consolidated	$	438,594	$	24,188	$	(103	)	$	(397	)	$	462,282

~~(amounts in thousands, except per share)~~


								Effects of
	September 30,							Currency			September 30,
	2009		Additions		Adjustments			Translation			2010

Aerospace	$	359,534	$	—	$	(2,722	)	$	(132	)	$	356,680
Energy		83,268		—		—			(1,354	)		81,914


Consolidated	$	442,802	$	—	$	(2,722	)	$	(1,486	)	$	438,594

Woodward’s tax returns are audited by U.S., state, and foreign tax authorities and these audits are at various stages of completion at any given time. Fiscal years remaining open to examination in significant foreign jurisdictions include 2003 and forward. Woodward has been subject to U.S. Federal income tax examinations for fiscal years through 2008; however, certain subsidiaries have open tax years back to 2007, which pre-dates the inclusion of these subsidiaries in the Woodward consolidated return filing group. Woodward is subject to U.S. state income tax examinations for fiscal years 2005 and forward.

In June 2006, the FASB issued the authoritative guidance for uncertain tax positions. These provisions offer guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax positions taken or expected to be taken in a tax return. The guidance addresses the determination of whether tax benefits, either permanent or temporary, should be recorded in the financial statements. For those tax benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by the taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Woodward adopted the authoritative guidance related to uncertain tax positions on October 1, 2007, as required. The change in measurement criteria caused Woodward to recognize a decrease in the retained earnings component of stockholders’ equity of $7,702.

~~Note 6. Earnings per share~~

Basic earnings per share attributable to Woodward is computed by dividing net earnings available to common stockholders by the weighted average number of shares of common stock outstanding for the period.

~~Diluted earnings per share attributable to Woodward~~above table reflects the ~~weighted average number of shares outstanding after consideration of~~segment realignment that occurred during September 2011 for which the ~~dilutive effect of stock options.~~

In November 2008, the FASB issued authoritative guidance addressing whether securities granted in share-based payment transactions are participating securities prior to vesting and, thus, need to be included in the earnings allocation in computing earnings per share under the two class method. This guidance became effective for Woodward on October 1, 2009 and is required to be applied retrospectively. Upon the adoption of this guidance, shares of restricted stock, which are participating securities, are considered in the calculation of both the basic and fully diluted earnings per share calculations. The September 30, 2009 historical earnings per share amounts presented belowabove goodwill balances have been ~~recast~~retrospectively reclassified to reflect the ~~retrospective application~~new reportable segments. See Note 21,Segment informationfor a discussion of ~~this guidance for 70 shares~~the segment realignment that took place in September 2011. The Company has no historical goodwill impairment losses in periods prior to those presented in the above table.

During the third quarter of ~~restricted stock outstanding as~~fiscal year 2011, Woodward completed the IDS Acquisition (Note 4,Business acquisitions and dispositions), which resulted in the recognition of ~~September 30, 2009.~~$24,188 in goodwill. The ~~September 30, 2008 historical earnings per share amounts presented below have not been recast from those~~operations of the IDS Acquisition are being integrated into Woodward’s Energy reportable segment.

During the first quarter of fiscal year 2011, Woodward negotiated a lease settlement that was favorable in comparison to the previously reported as there were no restricted stock shares outstanding as of September 30, 2008. The inclusion of this participating security did not impact previously reported basic and diluted earnings per share forrecorded restructuring accrual established in purchase accounting in connection with the fiscal ~~years ended September 30,~~year 2009 ~~and 2008.~~acquisition of MPC. The resulting benefit of $103 was recorded as a reduction to goodwill.

~~The following is a reconciliation of net earnings attributable to Woodward to basic earnings per share attributable to Woodward and diluted earnings per share attributable to Woodward:~~

Year Ended September 30,
2010 2009 2008
Numerator:

Net earnings attributable to Woodward $ 110,844 $ 94,352 $ 121,880

Denominator:

Basic 68,472 67,891 67,564
Assumed exercise of dilutive stock options 1,392 1,212 1,996

Diluted 69,864 69,103 69,560

Income per common share:

Basic earnings per share attributable to Woodward $ 1.62 $ 1.39 $ 1.80

Diluted earnings per share attributable to Woodward $ 1.59 $ 1.37 $ 1.75

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

~~Note 9. Goodwill~~

September 30, Additions / Translation September 30,
2009 Adjustments Adjustments 2010

Turbine Systems $ 86,565 $ — $ — $ 86,565
Airframe Systems 297,412 (2,722 ) (133 ) 294,557
Electrical Power Systems 17,733 — (1,199 ) 16,534
Engine Systems 41,092 — (154 ) 40,938

Consolidated $ 442,802 $ (2,722 ) $ (1,486 ) $ 438,594

September 30, Additions / Translation September 30,
2008 Adjustments Adjustments 2009

Turbine Systems $ 86,565 $ — $ — $ 86,565
Airframe Systems — 296,605 807 297,412
Electrical Power Systems 17,381 (273 ) 625 17,733
Engine Systems 35,631 6,403 (942 ) 41,092

Consolidated $ 139,577 $ 302,735 $ 490 $ 442,802

~~Additions and adjustments recorded~~ represent changes in the estimated values of assets acquired and liabilities assumed in purchase accounting, ~~as described in~~related to the acquisition of HRT (see Note 4,Business acquisitions and ~~dispositions.~~dispositions~~In addition,~~).

Woodward tests goodwill for impairment at the reporting unit level on ~~August 10, 2009, Woodward HRT sold~~an annual basis and more often if an event occurs or circumstances change that would more likely than not reduce the ~~F&P product line for $48,000. In 2010, Woodward received an additional $660 related to working capital adjustments related to~~fair value of a reporting unit below its carrying amount. The impairment tests consist of comparing the ~~sale~~implied fair value of each identified reporting unit with its carrying amount including goodwill. If the carrying amount of the ~~F&P product line, which reduced~~reporting unit exceeds its implied fair value, Woodward compares the implied fair value of goodwill with the recorded carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss would be recognized to reduce the carrying amount to its implied fair value. There was no impairment charge recorded in fiscal years 2011, 2010, or 2009.

In ~~January 2009,~~the fourth quarter of fiscal year 2011, Woodward ~~received an additional $29~~changed its goodwill testing date for all of its reporting units from March 31 to July 31. The change in ~~working capital adjustments~~the goodwill impairment test date is preferable as it better aligns the impairment testing procedures with the completion of the annual financial and strategic planning process. As a result, during fiscal year 2011, Woodward tested its goodwill for impairment as of March 31, 2011 and July 31, 2011 and concluded that there was no impairment of the carrying value of the goodwill. This change in accounting principle did not accelerate, delay, avoid, or cause a goodwill impairment charge. Due to significant judgments and estimates that are utilized in a goodwill impairment analysis, Woodward determined it was impracticable to objectively determine projected cash flows and related valuation estimates as of each July 31 for periods prior to July 31, 2011. As such, Woodward has prospectively applied the ~~purchase of MotoTron, which increased goodwill.~~

~~Woodward completed its~~change in the annual goodwill impairment ~~test during the quarter ended~~testing date from July 31, 2011.

As of March 31 ~~2010.~~and July 31, 2011, Woodward ~~considered the~~determined its Turbine Systems, Airframe Systems and Engine Systems operating segments ~~to be~~represented individual reporting units. Woodward ~~evaluated goodwill for the~~determined its Electrical Power Systems operating segment ~~through~~included three ~~identified~~components that represented reporting units ~~within~~as of March 31, 2011 and four components that represented reporting units as of July 31, 2011 due to the ~~operating segment.~~ acquisition of IDS.

The fair value of each of Woodward’s ~~six~~ reporting units was determined using a discounted cash flow method. This method represents a Level 3 input and incorporates various estimates and assumptions, the most significant being projected revenue growth rates, operating earnings margins, and forecasted cash flows based on the discount rate and terminal growth rate. Management projects revenue growth rates, operating earnings margins and cash ~~flow forecasts which have been updated~~flows based on each reporting unit’s current operational results, expected performance and operational strategies over a five or ten-year period. These projections are adjusted to reflect current ~~global~~ economic conditions ~~including anticipated weakening of global~~and the demand for certain products and ~~forecasts of demand increases anticipated as a result of the economic recovery.~~ require considerable management judgment.

Forecasted cash flows used in the July 31, 2011 impairment test were discounted using ~~an 11.3%~~ weighted average cost of capital ~~assumption.~~assumptions from 10.0% to 10.2%. The terminal ~~value~~values of the forecasted cash flows were calculated using the Gordon Growth Model and assumed an annual compound growth rate after five or ten years of 4.3%. Forecasted cash flows used in the March 31, 2011 impairment test were discounted using weighted average cost of capital assumptions of 11.3% and an annual compound growth rate after five years of ~~4.5%~~4.4%. These inputs, which are unobservable in the market, represent management’s best estimate of what market participants would use in determining the present value of the Company’s forecasted cash flows. Changes in these estimates and ~~was calculated using~~assumptions can have a significant impact on the ~~Gordon Growth Model.~~fair value of forecasted cash flows. Woodward evaluated the reasonableness of the reporting units resulting fair values utilizing a market multiple method.

The results of Woodward’s ~~fiscal year 2010 annual~~ goodwill impairment ~~test~~tests performed as of ~~March~~July 31, ~~2010~~2011 indicated ~~that no goodwill impairment existed. The~~the estimated fair value of each reporting unit was substantially in excess of its carrying ~~value. At March 31, 2010 the reporting unit with the closest ratio of estimated fair~~ value, ~~to carrying value was Woodward’s recently acquired Airframe Systems reporting unit, which has a significant concentration of business in the presently depressed business jet~~ and regional jet market segments. Our March 31, 2010 analysis indicated an estimated fair value premium of over 30% compared to this reporting unit’s carrying value. Woodward is not aware of any facts, circumstances, or triggering events that have arisen since March 31, 2010 indicating that goodwill has been impaired.accordingly, no impairment existed.

~~Woodward has recorded no impairment losses against the recorded balances of goodwill.~~Note 11. Other intangibles—net


	September 30, 2011							September 30, 2010
	Gross							Gross
	Carrying		Accumulated			Net Carrying		Carrying		Accumulated			Net Carrying
	Value		Amortization			Amount		Value		Amortization			Amount
Customer relationships:
Aerospace	$	205,171	$	(41,652	)	$	163,519	$	205,181	$	(24,898	)	$	180,283
Energy		41,991		(23,696	)		18,295		38,611		(20,908	)		17,703


Total	$	247,162	$	(65,348	)	$	181,814	$	243,792	$	(45,806	)	$	197,986


Intellectual property:
Aerospace	$	—	$	—		$	—	$	—	$	—		$	—
Energy		20,162		(11,918	)		8,244		20,215		(10,555	)		9,660


Total	$	20,162	$	(11,918	)	$	8,244	$	20,215	$	(10,555	)	$	9,660


Process technology:
Aerospace	$	71,691	$	(15,380	)	$	56,311	$	71,696	$	(10,386	)	$	61,310
Energy		23,451		(7,657	)		15,794		15,805		(6,107	)		9,698


Total	$	95,142	$	(23,037	)	$	72,105	$	87,501	$	(16,493	)	$	71,008


Other intangibles:
Aerospace	$	39,635	$	(34,655	)	$	4,980	$	39,638	$	(27,595	)	$	12,043
Energy		2,621		(867	)		1,754		1,970		(518	)		1,452


Total	$	42,256	$	(35,522	)	$	6,734	$	41,608	$	(28,113	)	$	13,495


Total intangibles:
Aerospace	$	316,497	$	(91,687	)	$	224,810	$	316,515	$	(62,879	)	$	253,636
Energy		88,225		(44,138	)		44,087		76,601		(38,088	)		38,513


Consolidated Total	$	404,722	$	(135,825	)	$	268,897	$	393,116	$	(100,967	)	$	292,149


	Year Ending September 30,
	2011		2010		2009
Amortization expense	$	34,993	$	35,114	$	26,120

8471

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

~~Note 10. Other intangibles—net~~

September 30, 2010 September 30, 2009
Gross Gross
Carrying Accumulated Net Carrying Carrying Accumulated Net Carrying
Value Amortization Amount Value Amortization Amount
Customer relationships:

Turbine Systems $ 44,327 $ (18,223 ) $ 26,104 $ 44,327 $ (16,746 ) $ 27,581
Airframe Systems 176,634 (13,162 ) 163,472 176,661 (2,068 ) 174,593
Electrical Power Systems 2,156 (844 ) 1,312 2,319 (676 ) 1,643
Engine Systems 20,675 (13,577 ) 7,098 20,675 (11,718 ) 8,957

Total $ 243,792 $ (45,806 ) $ 197,986 $ 243,982 $ (31,208 ) $ 212,774

Intellectual property:

Turbine Systems $ — $ — $ — $ — $ — $ —
Airframe Systems — — — — — —
Electrical Power Systems 7,616 (3,567 ) 4,049 7,941 (3,073 ) 4,868
Engine Systems 12,599 (6,988 ) 5,611 12,613 (6,180 ) 6,433

Total $ 20,215 $ (10,555 ) $ 9,660 $ 20,554 $ (9,253 ) $ 11,301

Process technology:

Turbine Systems $ 11,941 $ (4,909 ) $ 7,032 $ 11,941 $ (4,511 ) $ 7,430
Airframe Systems 62,967 (6,797 ) 56,170 62,981 (2,590 ) 60,391
Electrical Power Systems — — — 1,390 (1,346 ) 44
Engine Systems 12,593 (4,787 ) 7,806 12,593 (3,797 ) 8,796

Total $ 87,501 $ (16,493 ) $ 71,008 $ 88,905 $ (12,244 ) $ 76,661

Other intangibles:

Turbine Systems $ — $ — $ — $ — $ — $ —
Airframe Systems 39,638 (27,595 ) 12,043 39,646 (14,325 ) 25,321
Electrical Power Systems 1,510 (389 ) 1,121 1,623 (316 ) 1,307
Engine Systems 460 (129 ) 331 460 (51 ) 409

Total $ 41,608 $ (28,113 ) $ 13,495 $ 41,729 $ (14,692 ) $ 27,037

Consolidated $ 393,116 $ (100,967 ) $ 292,149 $ 395,170 $ (67,397 ) $ 327,773

At September 30,
2010 2009 2008
Amortization expense $ 35,114 $ 26,120 $ 6,830

Future amortization expense associated with intangibles is expected to be:


Year Ending September 30:
2011	$	34,155

2012		31,349	$	32,872
2013		29,106		30,521
2014		23,576		27,370
2015		26,009		24,861
2016				23,060
Thereafter		147,954		130,213


	$	292,149	$	268,897

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

2008 ~~and 2009~~ Term ~~Loans~~Loan

In October 2008, Woodward entered into a term loan credit agreement (the “2008 Term Loan Credit Agreement”), by and among Woodward; the institutions from time to time parties thereto as lenders; and JPMorgan Chase Bank, National Association as administrative agent; which provides for an initial $150,000 unsecured term loan facility, and may, from time to time, be expanded by up to $50,000 of additional indebtedness, subject to the Company’s compliance with certain conditions and the lenders’ participation. The 2008 Term Loan Credit Agreement bears interest at LIBOR plus 1.00% to 2.25%, requires quarterly principal payments of $1,875, and can be prepaid, or prepaid and terminated, without penalty.

The 2008 Term Loan Credit Agreement contains customary terms and conditions, including, among others, covenants that place limits on the Company’s ability to incur liens on assets, incur additional debt (including a leverage or coverage based maintenance test), transfer or sell the Company’s assets, merge or consolidate with other persons, make certain investments, make certain restricted payments, and enter into material transactions with affiliates. The 2008 Term Loan Credit Agreement contains financial covenants requiring that (a) the Company’s ratio of consolidated net debt to Debt Covenant EBITDA, not exceed a ratio of ~~3.5 to~~ 3.5:1.0 and (b) the Company have a minimum consolidated net worth of $400,000, plus 50% of net income for any fiscal year and 50% of the net proceeds of certain issuances of capital stock, in each case on a rolling four quarter basis. The 2008 Term Loan Credit Agreement also contains customary events of default, including certain cross-default provisions related to Woodward’s other outstanding debt arrangements in excess of $15,000, the occurrence of which would permit the lenders to accelerate the amounts due thereunder.

In April 2009, Woodward entered into a term loan credit agreement (the “2009 Term Loan Credit Agreement”). The outstanding indebtedness under the 2009 Term Loan Credit Agreement, which generally bore interest at LIBOR plus 2.50% to 3.50%, was paid-off and terminated, without penalty, during the fiscal year ended September 30, 2010.

Series B, C, D, E and F Notes

In October 2008, Woodward entered into a note purchase agreement (the “2008 Note Purchase Agreement”) relating to the Series B, C, and D Notes. In April 2009, Woodward entered into a note purchase agreement (the “2009 Note Purchase Agreement” and, together with the 2008 Note Purchase Agreement, the “Note Purchase Agreements”) relating to the Series E and F Notes.

The Notes have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Holders of the Notes do not have any registration rights.

Woodward’s obligations under the Notes rank equal in right of payment with all of Woodward’s other unsecured unsubordinated debt, including its outstanding debt under the 2008 Term Loan Credit Agreement, revolving credit facility (see Note 12,Credit facilities and short-term borrowings)and note purchase agreement relating to the senior notes due October 2011.

The Note Purchase Agreements contain customary restrictive covenants, including, among other things, covenants that place limits on Woodward’s ability to incur liens on assets, incur additional debt (including a leverage or coverage based maintenance test), transfer or sell Woodward’s assets, merge or consolidate with other persons, and enter into material transactions with affiliates. The Note Purchase Agreements also contain customary events of default, including certain cross-default provisions related to Woodward’s other outstanding debt arrangements in excess of $25,000 with respect to the 2008 Note Purchase Agreement and $30,000 with respect to the 2009 Note Purchase Agreement, the occurrence of which would permit the holders of the respective Notes to accelerate the amounts due.

The 2008 Note Purchase Agreement contains financial covenants requiring that Woodward’s (a) ratio of consolidated net debt to consolidated Debt Covenant EBITDA not exceed a ratio of ~~4.0 to~~ 4.0:1.0 during any material acquisition period, or a ratio of ~~3.5 to~~ 3.5:1.0 at any other time on a rolling four quarter basis and (b) consolidated net worth at any time equal or exceed $425,000 plus 50% of consolidated net earnings for each fiscal year beginning with the fiscal year ~~ended~~ending September 30, 2008. Additionally, under the 2008 Note Purchase Agreement, Woodward may not permit the aggregate amount of priority debt to at any time exceed 20% of its consolidated net worth at the end of the then most recently ended fiscal quarter. Priority debt generally refers to certain unsecured debt of Woodward’s subsidiaries and all debt of Woodward and its subsidiaries secured by liens other than certain permitted liens.

The 2009 Note Purchase Agreement contains financial covenants requiring that Woodward’s (a) ratio of consolidated net debt to consolidated Debt Covenant EBITDA not exceed a ratio of ~~3.5 to~~ 3.5:1.0 at any time on a rolling four quarter basis, and (b) consolidated net worth at all times equal or exceed $485,940 plus 50% of consolidated net earnings for each fiscal year beginning with the fiscal year ending September 30, 2009. Additionally, under the 2009 Note Purchase Agreement, Woodward may not permit the aggregate amount of priority debt to at any time exceed 20% of its consolidated net worth at the end of the then most recently ended fiscal quarter. Priority debt generally refers to certain unsecured debt of Woodward’s subsidiaries and all debt of Woodward and its subsidiaries secured by liens other than certain permitted liens.

Debt Issuance Costs

During the fiscal year ~~ended~~ending September 30, 2009, Woodward incurred $5,892 of debt issuance costs, which are being amortized using the effective interest method or patterns that approximate the effective interest method, over the term of the debt to which the costs relate. The related amortization is recognized as interest expense. Recognition of interest expense on the debt issuance costs associated with the 2009 term loan, which was paid-off in full and terminated in 2010, were accelerated and the remaining unamortized amount of debt issuance costs associated with the 2009 term loan were recognized in 2010. Amounts recognized as interest expense from the amortization of debt issuance costs were $764 in fiscal year 2011, $1,515 in fiscal year 2010, and $2,031 in ~~2009, including $236~~fiscal year 2009. Woodward had $2,153 of unamortized debt issuance costs ~~for which recognition was accelerated in connection with prepayments~~as of ~~debt. Woodward had~~September 30, 2011 and $2,917 of unamortized debt issuance costs as of September 30, ~~2010 and $4,432 of unamortized debt issuance costs as of September 30, 2009.~~2010. Amortization of debt issuance costs is included in operating activities in the ~~statement of cash flows.~~

~~Note 12. Credit facilities and short-term borrowings~~

~~As of September 30, 2010, Woodward’s short-term borrowings and availability under its various short-term credit facilities follows:~~

Outstanding
letters of
Total credit and Outstanding Remaining
availability guarantees borrowings availability

Revolving credit facility $ 225,000 $ (3,914 ) $ (20,401 ) $ 200,685
Foreign lines of credit and overdraft facilities 7,099 (34 ) — 7,065
Foreign performance guarantee facilities 9,822 (3,852 ) — 5,970
Foreign pooling arrangement facility 16,739 — — 16,739
Other foreign short-term borrowings 1,698 — (1,698 ) —

$ 260,358 $ (7,800 ) $ (22,099 ) $ 230,459

Woodward has a $225,000 revolving credit facility related to unsecured financing arrangements with a syndicate of U.S. banks. The revolving credit facility agreement provides for an option to increase available borrowings to $350,000, subject to the lenders’ participation, and has an expiration date of October 2012. The interest rate on borrowings under the revolving credit facility agreement varies with LIBOR, the federal funds rate, or the prime rate. The revolving credit facility agreement contains certain covenants customary with such agreements, which are generally consistent with the covenants applicable to Woodward’s long-term debt agreements, and contains customary events of default including certain cross default provisions related to Woodward’s other outstanding debt arrangements in excess of $15,000, the occurrence of which would permit the lenders to accelerate the amounts due thereunder. Management believes that Woodward was in compliance with all its debt covenants at September 30, 2010.

Woodward also has various foreign lines of credit and foreign overdraft facilities at various financial institutions, which are generally reviewed annually for renewal and are subject to the usual terms and conditions applied by the financial institutions. Pursuant to the terms of the related facility agreements, Woodward’s foreign performance guarantee facilities are limited in use to providing performance guarantees to third parties. Pursuant to the terms of the related facility agreement, Woodward participates in a pooling arrangement whereby Woodward cash on deposit at certain foreign banks may serve as collateral for borrowings by other Woodward subsidiaries up to the total amounts deposited in the pool.

Other foreign short-term borrowings of $1,698 at September 30, 2010 relate to trade receivables which were sold by one of Woodward’s foreign subsidiaries to a local financial institution, with recourse. The trade receivables were each sold on a one-time basis at a discounted amount. Since the receivables were sold with full recourse, the Company has recorded a liability for the amount of receivables sold that remain unpaid by the customer as of September 30, 2010.

~~Short-term borrowings of $22,099 were outstanding as of September 30, 2010. There were no short term borrowings outstanding as of September 30, 2009.~~

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

~~Note 13. Derivative instruments and hedging activities~~

Woodward is exposed to global market risks, including the effect of changes in interest rates, foreign currency exchange rates, changes in certain commodity prices and fluctuations in various producer indices. From time to time, Woodward enters into derivative instruments for risk management purposes only, including derivatives designated as accounting hedges and/or those utilized as economic hedges. Woodward uses interest rate related derivative instruments to manage its exposure to fluctuations of interest rates. Woodward not does enter into or issue derivatives for trading or speculative purposes.

By using derivative and/or hedging instruments to manage its risk exposure, Woodward is subject, from time to time, to credit risk and market risk on those derivative instruments. Credit risk arises from the potential failure of the counterparty to perform under the terms of the derivative and/or hedging instrument. When the fair value of a derivative contract is positive, the counterparty owes Woodward, which creates credit risk for Woodward. Woodward minimizes this credit risk by entering into transactions with only high quality counterparties. Market risk arises from the potential adverse effects on the value of derivative and/or hedging instruments that result from a change in interest rates, commodity prices, or foreign currency exchange rates. Woodward minimizes this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

~~As of September 30, 2010 and 2009, Woodward was a party to the forward foreign currency exchange rate contracts described below.~~

~~Derivatives in fair value hedging relationships~~

~~Derivatives in cash flow hedging relationships~~

In 2001, Woodward entered into treasury lock agreements that were designated as cash flow hedges of its long-term debt. The objective of these derivatives was to hedge the risk of variability in cash flows related to future interest payments of a portion of the anticipated future debt issuances attributable to changes in the designated benchmark interest rate associated with the expected issuance of the senior notes due in October 2011. The discontinuance of these treasury lock agreements resulted in losses that are recognized as an increase of interest expense over the term of the associated debt (10 years) using the effective interest method. The unrecognized portion of the loss is recorded in accumulated other comprehensive earnings.

In September 2008, the Company entered into treasury lock agreements with a notional amount totaling $100,000 that qualified as cash flow hedges under authoritative guidance for derivatives and hedging. The objective of this derivative instrument was to hedge the risk of variability in cash flows related to future interest payments of a portion of the anticipated future debt issuances attributable to changes in the designated benchmark interest rate associated with the expected issuance of long-term debt to acquire MPC. The hedges were terminated prior to September 30, 2008, resulting in a realized gain of approximately $108, and the gain was recorded in accumulated other comprehensive earnings as of September 30, 2008, net of tax. The realized gain on the termination of the treasury lock agreements is being recognized as a reduction of interest expense over a seven-year period on the hedged Series C and D Notes, which were issued on October 1, 2008, using the effective interest method.

In March 2009, Woodward entered into LIBOR lock agreements with a total notional amount of $50,000 that qualified as cash flow hedges under authoritative guidance for derivatives and hedging. The objective of this derivative instrument was to hedge the risk of variability in cash flows over a seven-year period related to future interest payments of a portion of anticipated future debt issuances attributable to changes in the designated benchmark interest rate associated with the then expected issuance of long-term debt to acquire HRT. The hedges were terminated in March 2009, resulting in a loss of $1,308. The realized loss was recorded in accumulated other comprehensive earnings, net of tax. The realized loss on the terminated LIBOR lock agreements is being recognized as an increase of interest expense over a seven-year period on the hedged Series E and F Notes, which were issued on April 3, 2009, using the effective interest method.

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

~~The following tables disclose the impact of derivative instruments on Woodward’s~~ Consolidated Statements of ~~Earnings and Comprehensive Earnings:~~

Year ended September 30, 2010
Amount of Amount of Amount of
Income Gain (Loss) Gain (Loss)
(Expense) Recognized Reclassified
Location of Recognized in from
Gain (Loss) in Earnings Accumulated Accumulated
Recognized in on OCI on OCI into
Derivatives in: Earnings Derivative Derivative Earnings

Fair value hedging relationships Interest expense $ 127 $ — $ —
Cash flow hedging relationships Interest expense (282 ) — (282 )
Foreign currency relationships Other income 681 — —

$ 526 $ — $ (282 )

Year ended September 30, 2009
Amount of Amount of Amount of
Income Gain (Loss) Gain (Loss)
(Expense) Recognized Reclassified
Location of Recognized in from
Gain (Loss) in Earnings Accumulated Accumulated
Recognized in on OCI on OCI into
Derivatives in: Earnings Derivative Derivative Earnings

Fair value hedging relationships Interest expense $ 184 $ — $ —
Cash flow hedging relationships Interest expense (236 ) (1,199 ) (236 )
Foreign currency relationships Other expense (173 ) — —

$ (225 ) $ (1,199 ) $ (236 )

Year ended September 30, 2008
Amount of Amount of Amount of
Income Gain (Loss) Gain (Loss)
(Expense) Recognized Reclassified
Location of Recognized in from
Gain (Loss) in Earnings Accumulated Accumulated
Recognized in on OCI on OCI into
Derivatives in: Earnings Derivative Derivative Earnings

Fair value hedging relationships Interest expense $ 236 $ — $ —
Cash flow hedging relationships Interest expense (204 ) — (204 )

$ 32 $ — $ (204 )

Based on the carrying value of the unrecognized gains and losses on terminated derivative instruments designated as cash flow hedges as of September 30, 2010, Woodward expects to reclassify $229 of net unrecognized losses on terminated derivative instruments from accumulated other comprehensive income to earnings during the next twelve months.

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~Cash Flows.

Note 14. Accrued liabilities

~~Accrued liabilities consist of the following:~~

At September 30,
2010 2009
Salaries and other member benefits $ 43,598 $ 32,135
Department of Justice matter (see Note 18) — 25,000
Current portion of restructuring and other charges 4,862 11,619
Warranties 10,851 10,005
Interest payable 11,925 12,376
Accrued retirement benefits 2,748 2,734
Deferred revenues 12,376 1,314
Taxes, other than income 4,618 5,910
Other 18,074 26,224

$ 109,052 $ 127,317

~~Deferred revenues increased at September 30, 2010 compared to September 30, 2009 due primarily to a customer prepayment which is expected to be fully earned within one year.~~


	At September 30,
	2011		2010

Salaries and other member benefits	$	70,965	$	43,598
Current portion of restructuring and other charges		2,489		4,862
Warranties		14,083		10,851
Interest payable		11,611		11,925
Accrued retirement benefits		2,560		2,748
Deferred revenues		8,160		12,376
Taxes, other than income		5,097		4,618
Other		18,551		18,074

	$	133,516	$	109,052

Warranties

Provisions of Woodward’s sales agreements include product warranties customary to these types of agreements. Accruals are established for specifically identified warranty issues that are probable to result in future costs. Warranty costs are accrued on a non-specific basis whenever past experience indicates a normal and predictable pattern exists. Changes in accrued product warranties for the fiscal years ~~ended~~ending September 30, 2011 and September 30, 2010 ~~September 30, 2009 and September 30, 2008~~ were as follows:


Warranties, October 1, 2007	$	5,675
				At September 30,
				2011			2010

Warranties, beginning of period				$	10,851		$	10,005
Increases to accruals related to warranties during the period		7,477			5,402			5,555
Increases due to acquisition of IDS					2,250			—
Settlements of amounts accrued		(5,800	)		(4,403	)		(4,494	)
Foreign currency exchange rate changes		(120	)		(17	)		(215	)

Warranties, September 30, 2008		7,232
Increases to accruals related to warranties during the period		5,386
Increases due to acquisitions of MPC, MotoTron and HRT		3,042
Decreases due to F&P disposal		(126	)
Settlements of amounts accrued		(5,683	)
Foreign currency exchange rate changes		154
Warranties, end of period				$	14,083		$	10,851

Warranties, September 30, 2009		10,005
Increases to accruals related to warranties during the period		5,555
Settlements of amounts accrued		(4,494	)
Foreign currency exchange rate changes		(215	)

Warranties, September 30, 2010	$	10,851

Deferred income taxes presented in the Consolidated Balance Sheets are related to the following:


	At September 30,
	2011			2010
Deferred tax assets:
Retirement healthcare and early retirement benefits	$	12,417		$	13,176
Foreign net operating loss carryforwards		4,276			2,245
Inventory		18,194			13,425
Deferred compensation		14,223			12,293
Defined benefit pension		7,681			2,943
Other		21,054			27,581
Valuation allowance		(3,201	)		(96	)

Total deferred tax assets, net of valuation allowance		74,644			71,567

Deferred tax liabilities:
Goodwill and intangibles — net		(103,393	)		(96,267	)
Other		(8,500	)		(21,237	)

Total deferred tax liabilities		(111,893	)		(117,504	)

Net deferred tax liabilities	$	(37,249	)	$	(45,937	)

Woodward has recorded a deferred tax asset of $4,276 as of September 30, 2011, reflecting the benefit of $25,024 in foreign net operating loss carryforwards. Of these carryforwards, $16,789 will expire by 2018 and is currently offset by a 100% valuation allowance; the net may be carried forward indefinitely.

At September 30, 2011, Woodward has not provided for taxes on undistributed foreign earnings of $113,788 that it considers indefinitely reinvested. These earnings could become subject to income taxes if they are remitted as dividends, are loaned to Woodward or any of Woodward’s subsidiaries located in the United States, or if Woodward sells its stock in the foreign subsidiaries. However, the Company believes that foreign tax credits would largely offset any income tax that might otherwise be due.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence are considered in forming Woodward’s judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in circumstances that may cause a change in judgment.

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


	Year Ending September 30,
Percent of pretax earnings	2011			2010			2009
Statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		2.3			2.4			1.5
Foreign tax rate differences		(0.3	)		(1.4	)		(2.1	)
Dividends on stock shares allocated to retirement savings plans		(0.3	)		(0.4	)		(0.5	)
Research credit		(2.7	)		(0.5	)		(3.1	)
Retroactive extension of research credit		(2.1	)		—			(1.7	)
Domestic production activities deduction		(2.1	)		(0.9	)		(0.3	)
Adjustment of tax issues for previous periods and audit settlements		(0.2	)		(5.9	)		(6.6	)
Other items, net		(0.1	)		(0.1	)		0.7

Effective tax rate		29.5	%		28.2	%		22.9	%

The changes in estimate of taxes for previous periods are primarily related to the favorable resolution of certain tax matters. There were favorable resolutions of tax matters of $2,148, $4,667 and $6,846 in the fiscal years ending September 30, 2011, September 30, 2010 and September 30, 2009.

Income taxes for the fiscal year ending September 30, 2011 included an expense reduction of $3,908 related to the retroactive extension of the U.S. research and experimentation tax credit.

During the fiscal year ending September 30, 2010, the Internal Revenue Service concluded an examination of Woodward’s U.S. Federal income tax returns for fiscal years 2007 and 2008. Also during the fiscal year ending September 30, 2010, Woodward completed certain internal revaluation assessments and certain statutes of limitations expired. As a result, Woodward reduced its liability for unrecognized tax benefits during the fiscal year ending September 30, 2010 by a net favorable amount of $6,784.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:


Balance, September 30, 2008	$	22,576
Tax positions related to the current year		1,431
Tax positions related to prior years		(556	)
Lapse of applicable statute of limitations		(3,668	)

Balance, September 30, 2009		19,783
Tax positions related to the current year		1,734
Tax positions related to prior years		(7,320	)
Lapse of applicable statute of limitations		(3,611	)

Balance, September 30, 2010		10,586
Tax positions related to the current year		4,264
Tax positions related to prior years		3,160
Lapse of applicable statute of limitations		(1,079	)

Balance, September 30, 2011	$	16,931

Worldwide unrecognized tax benefits included $3,517 recorded in connection with the IDS Acquisition.

The amounts of unrecognized tax benefits that would impact Woodward’s effective tax rate if recognized, net of expected offsetting adjustments, were $14,078 at September 30, 2011 and $8,720 at September 30, 2010. At this time, Woodward estimates it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $600 in the next twelve months due to the completion of reviews by tax authorities and the expiration of certain statutes of limitations.

Woodward recognizes interest and penalties related to unrecognized tax benefits in tax expense. Woodward had accrued interest and penalties of the following:


	At September 30,
	2011		2010

Accrued interest and penalties	$	1,989	$	1,431

Woodward’s tax returns are audited by U.S., state, and foreign tax authorities and these audits are at various stages of completion at any given time. Fiscal years remaining open to examination in significant foreign jurisdictions include 2003 and forward. Woodward has been subject to U.S. Federal income tax examinations for fiscal years through 2008. Woodward is subject to U.S. state income tax examinations for fiscal years 2007 and forward.

Note ~~16.~~18. Retirement benefits

Woodward provides various benefits to eligible members of the Company, including contributions to various defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and postretirement life insurance benefits. Eligibility requirements and benefit levels vary depending on employee location.

Defined contribution plans

Substantially all U.S. employees are eligible to participate in the U.S. defined contribution plan. The U.S. defined contribution plan allows employees to defer part of their annual income for income tax purposes into their personal 401(k) accounts. The Company makes contributions to eligible employee accounts, which are also deferred for employee personal income tax purposes. Certain foreign employees are also ~~are~~ eligible to participate in foreign plans.

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~2009.

Defined benefit plans

Woodward has defined benefit plans which provide pension benefits for certain retired employees in the U.S., the United Kingdom, Japan and ~~Japan.~~Switzerland. Approximately 1,000 current employees may receive future benefits under the plans and approximately ~~500~~550 retired employees are eligible to receive future benefits or are currently receiving benefits. A September 30 measurement date is utilized to value plan assets and obligations for all of Woodward’s defined benefit pension plans.

In connection with the acquisition of IDS in the third quarter of fiscal year 2011 (see Note 4,Business acquisitions and dispositions), Woodward assumed pension benefit obligations that contributed to increases in recognized expenses for the fiscal year ending September 30, 2011 compared to the fiscal year ending September 30, 2010. In addition, in connection with the acquisition of HRT ~~on April 3,~~in the third quarter of fiscal year 2009 (see Note 4,Business acquisitions and dispositions), Woodward assumed pension benefit obligations that contributed to increases in recognized expenses for the fiscal year ~~ended~~ending September 30, 2010 compared to the fiscal year ~~ended~~ending September 30, 2009.

Effective January 1, 2010, the HRT pension plan was amended so that non-bargained HRT employees hired on or after January 1, 2010 will not participate in the plan. Effective April 19, 2010, the HRT pension plan was amended so that bargained HRT employees hired after on or after April 19, 2010 will not participate in the plan. The April 19, 2010 amendment also included certain modifications to the calculation of postretirement plan benefit payments to bargained employees which resulted in an increase to projected benefit obligations of the plan of $3,962.

Excluding the Woodward HRT Plan, the defined benefit plans in the U.S. were frozen in fiscal year 2007 and no additional employees may participate in the U.S. plans and no additional service costs will be incurred.

The actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of retirement pension benefits were as follows:


	United States									United Kingdom									Japan									2011			2010			2009
	2010			2009			2008			2010			2009			2008			2010			2009			2008
United States:
Weighted-average assumptions to determine benefit obligation at September 30:
Discount rate		5.9	%		5.5	%		6.5	%		4.9	%		5.4	%		5.7	%		1.3	%		1.8	%		1.9	%		5.55	%		5.85	%		5.50	%
Rate of compensation increase		4.0			4.0			N/A			4.3			4.1			4.3			2.0			2.5			2.0			4.00			4.00			4.00

Weighted-average assumptions to determine periodic benefit costs for years ended September 30:
Weighted-average assumptions to determine periodic benefit costs for years ending September 30:
Discount rate		5.5			6.5			6.1			5.4			6.9			6.9			1.8			1.9			2.1			5.85			5.50			6.50
Rate of compensation increase		4.0			N/A			N/A			4.1			4.7			4.3			2.5			2.0			1.8			4.00			4.00			n/a
Long-term rate of return on plan assets		7.5			7.5			7.5			6.5			6.5			6.5			3.3			3.1			3.0			7.90			7.50			7.50

United Kingdom:
Weighted-average assumptions to determine benefit obligation at September 30:
Discount rate																													5.10	%		4.90	%		5.40	%
Rate of compensation increase																													4.30			4.30			4.10

Weighted-average assumptions to determine periodic benefit costs for years ending September 30:
Discount rate																													4.90			5.40			6.90
Rate of compensation increase																													4.30			4.10			4.70
Long-term rate of return on plan assets																													6.00			6.50			6.50

Japan:
Weighted-average assumptions to determine benefit obligation at September 30:
Discount rate																													1.50	%		1.25	%		1.75	%
Rate of compensation increase																													2.00			2.00			2.50

Weighted-average assumptions to determine periodic benefit costs for years ending September 30:
Discount rate																													1.25			1.75			1.90
Rate of compensation increase																													2.00			2.50			2.00
Long-term rate of return on plan assets																													3.00			3.30			3.11

Switzerland:
Weighted-average assumptions to determine benefit obligation at September 30:
Discount rate																													2.50	%		n/a	%		n/a	%
Rate of compensation increase																													2.00			n/a			n/a

Weighted-average assumptions to determine periodic benefit costs for years ending September 30:
Discount rate																													3.00			n/a			n/a
Rate of compensation increase																													2.00			n/a			n/a
Long-term rate of return on plan assets																													3.00			n/a			n/a

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

The following ~~table provides~~tables provide a reconciliation of the changes in the projected benefit obligation and fair value of assets for the defined benefit pension plans:


	At or for the Year Ended September 30,																		At or for the Year Ending September 30,
	United States						United Kingdom						Japan						United States						Other Countries						Total
	2010			2009			2010			2009			2010			2009			2011			2010			2011			2010			2011			2010
Changes in projected benefit obligation:
Projected benefit obligation at beginning of year	$	89,551		$	17,956		$	39,326		$	33,127		$	14,124		$	12,515		$	97,786		$	89,551		$	56,657		$	53,450		$	154,443		$	143,001
Obligation assumed in HRT acquisition		—			50,952			—			—			—
Obligation assumed in IDS Acquisition																				—			—			2,038			—			2,038			—
Service cost		3,647			1,301			389			333			395			383			3,433			3,647			992			784			4,425			4,431
Interest cost		4,890			2,962			2,020			1,917			241			258			5,646			4,890			2,284			2,261			7,930			7,151
Net actuarial (gains) losses																				1,686			(2,877	)		(3,498	)		2,902			(1,812	)		25
Contribution by participants		—			—			25			32			—			—			—			—			122			25			122			25
Net actuarial losses (gains)		(2,877	)		17,063			2,719			8,778			183			355
Foreign currency exchange rate changes		—			—			(636	)		(3,008	)		1,010			1,951
Benefits paid		(1,552	)		(683	)		(1,508	)		(1,853	)		(1,631	)		(1,338	)		(2,210	)		(1,552	)		(2,090	)		(3,139	)		(4,300	)		(4,691	)
Amounts paid by Company for Pension Protection Fund levy																				—			—			(67	)		—			(67	)		—
Curtailment loss		165			—			—			—			—						—			165			—			—			—			165
Plan amendments		3,962			—			—			—			—						—			3,962			—			—			—			3,962

Foreign currency exchange rate changes																				—			—			917			374			917			374

Projected benefit obligation at end of year	$	97,786		$	89,551		$	42,335		$	39,326		$	14,322		$	14,124		$	106,341		$	97,786		$	57,355		$	56,657		$	163,696		$	154,443


Changes in fair value of plan assets:
Fair value of plan assets at beginning of year	$	64,102		$	15,346		$	33,441		$	33,989		$	7,285		$	7,845		$	85,128		$	64,102		$	43,539		$	40,726		$	128,667		$	104,828
Plant assets received in connection with HRT acquisition		—			40,126			—			—			—			—
Plan assets received in connection with IDS Acquisition																				—			—			1,604			—			1,604			—
Actual return on plan assets		7,998			9,313			3,358			2,814			(149	)		(730	)		482			7,998			708			3,209			1,190			11,207
Foreign currency exchange rate changes		—			—			(534	)		(3,333	)		459			1,127
Contributions by the company		14,580			—			1,878			1,792			915			381			6,580			14,580			4,151			2,793			10,731			17,373
Contributions by plan participants		—			—			25			32			—			—			—			—			122			25			122			25
Settlements		—			—			—			—			—			��
Benefits paid		(1,552	)		(683	)		(1,508	)		(1,853	)		(1,631	)		(1,338	)		(2,210	)		(1,552	)		(2,090	)		(3,139	)		(4,300	)		(4,691	)

Foreign currency exchange rate changes																				—			—			333			(75	)		333			(75	)

Fair value of plan assets at end of year	$	85,128		$	64,102		$	36,660		$	33,441		$	6,879		$	7,285		$	89,980		$	85,128		$	48,367		$	43,539		$	138,347		$	128,667


Underfunded status at end of year	$	(12,658	)	$	(25,449	)	$	(5,675	)	$	(5,885	)	$	(7,443	)	$	(6,839	)	$	(16,361	)	$	(12,658	)	$	(8,988	)	$	(13,118	)	$	(25,349	)	$	(25,776	)


Amounts recognized in statement of financial position consist of:
Other non-current liabilities		(12,658	)		(25,449	)		(5,675	)		(5,885	)		(7,443	)		(6,839	)


Underfunded status at end of year	$	(12,658	)	$	(25,449	)	$	(5,675	)	$	(5,885	)	$	(7,443	)	$	(6,839	)


Amounts recognized in accumulated other comprehensive income consist of:
Unrecognized prior service cost (benefit)	$	1,593		$	(2,630	)	$	—		$	—		$	(30	)	$	(38	)
Unrecognized net losses		9,183			15,948			11,243			10,462			4,720			4,366
Unrecognized transition obligation (asset)		—			—			—			—			—			86


Total amounts recognized		10,776			13,318			11,243			10,462			4,690			4,414
Deferred taxes		(4,095	)		(5,061	)		(3,935	)		(3,662	)		(1,650	)		(1,874	)


Amounts recognized in accumulated other comprehensive income	$	6,681		$	8,257		$	7,308		$	6,800		$	3,040		$	2,540

The Company’s defined benefit pension plans in the United Kingdom, Japan and Switzerland represented $39,677, $15,140 and $2,538, respectively, of the total projected benefit obligation at September 30, 2011 and $37,546, $8,947 and $1,874, respectively, of the total fair value of plan assets at September 30, 2011.

Woodward makes periodic cash contributions to its defined pension plans based on applicable regulations in jurisdictions that oversee its various pension plans, if any, and other factors. Contributions in fiscal year 2010 included a $10,000 discretionary contribution to the U.S. plans.

The following tables provide the amounts recognized in the statement of financial position and accumulated comprehensive income for the defined benefit pension plans:


	At or for the Year Ending September 30,
	United States						Other Countries						Total
	2011			2010			2011			2010			2011			2010
Amounts recognized in statement of financial position consist of:
Other non-current liabilities	$	(16,361	)	$	(12,658	)	$	(8,988	)	$	(13,118	)	$	(25,349	)	$	(25,776	)

Underfunded status at end of year	$	(16,361	)	$	(12,658	)	$	(8,988	)	$	(13,118	)	$	(25,349	)	$	(25,776	)


Amounts recognized in accumulated other comprehensive income consist of:
Unrecognized net prior service (benefit) cost	$	1,517		$	1,593		$	(24	)	$	(30	)	$	1,493		$	1,563
Unrecognized net (gains) losses		16,769			9,183			13,779			15,963			30,548			25,146

Total amounts recognized		18,286			10,776			13,755			15,933			32,041			26,709
Deferred taxes		(6,949	)		(4,095	)		(4,763	)		(5,585	)		(11,712	)		(9,680	)

Amounts recognized in accumulated other comprehensive income	$	11,337		$	6,681		$	8,992		$	10,348		$	20,329		$	17,029

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were as ~~follow, at or for the fiscal year ended September 30:~~follows:

United States United Kingdom Japan
2010 2009 2010 2009 2010 2009
Projected benefit obligation $ (97,786 ) $ (89,551 ) $ (42,335 ) $ (39,326 ) $ (14,322 ) $ (14,124 )
Accumulated benefit obligation (86,260 ) (78,982 ) (41,289 ) (38,406 ) (12,850 ) (12,630 )
Fair value of plan assets 85,128 64,102 36,660 33,441 6,879 7,285

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~


	At or for the Year Ending September 30,
	United States						Other Countries						Total
	2011			2010			2011			2010			2011			2010

Projected benefit obligation	$	(106,341	)	$	(97,786	)	$	(57,355	)	$	(56,657	)	$	(163,696	)	$	(154,443	)
Accumulated benefit obligation		(96,630	)		(86,260	)		(54,304	)		(54,139	)		(150,934	)		(140,399	)
Fair value of plan assets		89,980			85,128			48,367			43,539			138,347			128,667

Other changes in plan assets and benefit obligations recognized in other comprehensive income ~~for the fiscal year ended September 30, 2010~~were as follows:

United States United Kingdom Japan
2010 2009 2010 2009 2010 2009
Net loss (gain) $ (6,182 ) $ 10,443 $ 1,311 $ 7,878 $ 922 $ 1,689
Prior service cost (credit) 3,963 — — — — —
Amortization of net loss (gain) (583 ) (337 ) (530 ) — (223 ) (140 )
Amortization of transition (obligation) asset — — — — (86 ) (84 )
Amortization of prior service credit (cost) 260 260 — — 8 7
Settlement gain (loss) — — — — (345 ) (246 )

Total recognized in accumulated other comprehensive income $ (2,542 ) $ 10,366 $ 781 $ 7,878 $ 276 $ 1,226


	Year Ending September 30,
	United States						Other Countries						Total
	2011			2010			2011			2010			2011			2010

Net (gain) loss	$	7,897		$	(6,182	)	$	(1,664	)	$	2,233		$	6,233		$	(3,949	)
Prior service (benefit) cost		—			3,963			—			—			—			3,963
Amortization of net gains (losses)		(312	)		(583	)		(899	)		(753	)		(1,211	)		(1,336	)
Amortization of transition obligation asset		—			—			—			(86	)		—			(86	)
Amortization of prior service benefit (cost)		(75	)		260			9			8			(66	)		268
Settlement loss		—			—			—			(345	)		—			(345	)
Foreign currency exchange rate changes		—			—			376			(60	)		376			(60	)

Total recognized in accumulated other comprehensive income	$	7,510		$	(2,542	)	$	(2,178	)	$	997		$	5,332		$	(1,545	)

The amounts expected to be amortized from Accumulated Other Comprehensive Income and reported as a component of net periodic benefit cost during fiscal year ~~2011~~2012 is as follows:

United United
States Kingdom Japan
Net transition obligation $ — $ — $ —
Prior service cost (benefit) 75 — (8 )
Net actuarial losses 312 637 242


	United		Other
	States		Countries			Total
Prior service (benefit) cost	$	75	$	(9	)	$	66
Net actuarial (gains) losses		524		667			1,191

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~


																					At September 30, 2011
	Level 1						Level 2						Level 3								Level 1				Level 2				Level 3				Total
	United		United				United		United				United		United						United		Other		United		Other		United		Other
	States		Kingdom		Japan		States		Kingdom		Japan		States		Kingdom		Japan		Total		States		Countries		States		Countries		States		Countries
Asset Category:
Cash and cash equivalents	$	187	$	156	$	115	$	—	$	—	$	—	$	—	$	—	$	—	$	458	$	198	$	125	$	—	$	—	$	—	$	—	$	323
Mutual funds:
U.S. corporate bond fund		42,587		—		—		—		—		—		—		—		—		42,587		36,958		—		—		—		—		—		36,958
U.S. equity large cap fund		31,770		—		—		—		—		—		—		—		—		31,770		29,169		—		—		—		—		—		29,169
International equity large cap growth fund		10,584		—		—		—		—		—		—		—		—		10,584		23,655		—		—		—		—		—		23,655
Pooled funds:
Japanese equity securities		—		—		—		—		—		2,342		—		—		—		2,342		—		—		—		1,921		—		—		1,921
International equity securities		—		—		—		—		—		1,455		—		—		—		1,455		—		—		—		1,652		—		—		1,652
Japanese fixed income securities		—		—		—		—		—		2,082		—		—		—		2,082		—		—		—		3,958		—		—		3,958
International fixed income securities		—		—		—		—		—		885		—		—		—		885		—		—		—		1,336		—		—		1,336
Index linked U.K. equity fund		—		—		—		—		7,762		—		—		—		—		7,762		—		—		—		7,098		—		—		7,098
Index linked international equity fund		—		—		—		—		7,161		—		—		—		—		7,161		—		—		—		7,062		—		—		7,062
Index linked U.K. corporate bonds fund		—		—		—		—		12,923		—		—		—		—		12,923		—		—		—		13,255		—		—		13,255
Index linked U.K. government securities fund		—		—		—		—		2,951		—		—		—		—		2,951		—		—		—		3,646		—		—		3,646
Index linked U.K. long-term government securities fund		—		—		—		—		5,707		—		—		—		—		5,707		—		—		—		6,440		—		—		6,440
Insurance backed assets:
Insurance backed assets																						—		—		—		—		—		1,874		1,874

Total assets	$	85,128	$	156	$	115	$	—	$	36,504	$	6,764	$	—	$	—	$	—	$	128,667	$	89,980	$	125	$	—	$	46,368	$	—	$	1,874	$	138,347

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~


	Year Ending September 30,
	2011			2010			2009

Service cost	$	92		$	120		$	169
Interest cost		1,974			2,081			2,330
Amortization of:
Net (gains) losses		128			189			97
Net prior service (benefit) cost		(871	)		(1,249	)		(3,232	)


Net periodic (benefit) cost	$	1,323		$	1,141		$	(636	)

The following table provides a reconciliation of the changes in the accumulated postretirement benefit obligation and fair value of assets for the postretirement benefits for the fiscal years ~~ended~~ending September 30:

2010 2009
Changes in projected benefit obligation:

Benefit obligation at beginning of year $ 42,427 $ 37,501
Assumption of HRT acquisition benefit obligation — 2,251
Service cost 120 169
Interest cost 2,081 2,330
Premiums paid by participants 2,274 2,006
Net actuarial (gain) loss (3,932 ) 5,324
Foreign currency exchange rate changes (10 ) (59 )
Medical benefits paid (5,738 ) (5,399 )
Prescription drug benefits paid — (830 )
Plan amendments — (1,427 )
Part D Medicare reimbursement — 561

Benefit obligation at end of year $ 37,222 $ 42,427

Changes in fair value of plan assets:

Fair value of plan assets at beginning of year $ — $ —
Contributions by the company 3,464 4,223
Premiums paid by participants 2,274 2,006
Benefits paid (5,738 ) (6,229 )

Fair value of plan assets at end of year $ — $ —

Funded status at end of year $ (37,222 ) $ (42,427 )

Amounts recognized in statement of financial position consist of:

Accrued liabilities $ (2,693 ) $ (2,696 )
Other non-current liabilities (34,529 ) (39,731 )

Funded status at end of year $ (37,222 ) $ (42,427 )

Amounts recognized in accumulated other comprehensive income consist of:

Prior service credit $ (2,372 ) $ (3,621 )
Net loss 1,001 5,114

Total amounts recognized (1,371 ) 1,493
Deferred taxes 530 (557 )

Amounts recognized in accumulated other comprehensive income $ (841 ) $ 936


	Year Ending September 30,
	2011			2010
Changes in projected benefit obligation:
Projected benefit obligation at beginning of year	$	37,222		$	42,427
Service cost		92			120
Interest cost		1,974			2,081
Premiums paid by plan participants		2,133			2,274
Net actuarial (gains) losses		(3,146	)		(3,932	)
Benefits paid		(5,349	)		(5,738	)
Foreign currency exchange rate changes		(3	)		(10	)


Projected benefit obligation at end of year	$	32,923		$	37,222

Changes in fair value of plan assets:
Fair value of plan assets at beginning of year	$	—		$	—
Contributions by the company		3,216			3,464
Premiums paid by plan participants		2,133			2,274
Benefits paid		(5,349	)		(5,738	)


Fair value of plan assets at end of year	$	—		$	—


Funded status at end of year	$	(32,923	)	$	(37,222	)

The Company’s postretirement medical plan in the United Kingdom represents ~~$563~~$509 of the total benefit obligation at September 30, ~~2010.~~2011. The Company paid ~~$44~~$46 in medical benefits to participants of the ~~U.K.~~United Kingdom postretirement medical plan in fiscal year ~~2010.~~2011.

During 2009, as part of Woodward’s postretirement medical benefits, Woodward provided a prescription drug benefit in the U.S. that was at least actuarially equivalent to Medicare Part D. As a result, Woodward was entitled to a federal subsidy that was introduced by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. On January 1, 2009, Woodward converted its prescription drug benefit to a fully insured plan that was no longer eligible for additional federal subsidies.

~~101~~88

~~WOODWARD GOVERNOR COMPANY~~The following tables provide the amounts recognized in the statement of financial position and accumulated comprehensive income for the postretirement plans:

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~


	Year Ending September 30,
	2011			2010
Amounts recognized in statement of financial position consist of:
Accrued liabilities	$	(2,503	)	$	(2,693	)
Other non-current liabilities		(30,420	)		(34,529	)


Funded status at end of year	$	(32,923	)	$	(37,222	)


Amounts recognized in accumulated other comprehensive income consist of:
Unrecognized net prior service (benefit) cost	$	(1,501	)	$	(2,372	)
Unrecognized net (gains) losses		(2,272	)		1,001


Total amounts recognized		(3,773	)		(1,371	)
Deferred taxes		1,437			530


Amounts recognized in accumulated other comprehensive income	$	(2,336	)	$	(841	)

Woodward pays plan benefits from its general funds; therefore, there are no segregated plan assets as of September 30, ~~2009~~2011 or September 30, ~~2008.~~2010.

The accumulated benefit obligation was as follows:

Year Ended
September 30
2010 2009
Accumulated postretirement benefit obligation $ (37,222 ) $ (42,427 )


	Year Ending
	September 30,
	2011			2010

Accumulated postretirement benefit obligation	$	(32,923	)	$	(37,222	)

Other changes in plan assets and benefit obligations recognized in other comprehensive income were as follows:

Year Ended
September 30
2010 2009
Net loss (gain) $ (3,924 ) $ 5,301
Prior service cost (credit) — (1,427 )
Amortization of net loss (gain) (189 ) (97 )
Amortization of prior service credit (cost) 1,249 3,232

Total recognized in accumulated other comprehensive income $ (2,864 ) $ 7,009


	Year Ending
	September 30
	2011			2010

Net (gain) loss	$	(3,145	)	$	(3,924	)
Amortization of net (gains) losses		(128	)		(189	)
Amortization of prior service benefit (cost)		871			1,249

Total recognized in accumulated other comprehensive income	$	(2,402	)	$	(2,864	)

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

In connection with the sale of the F&P product line during fiscal year 2009, Woodward assigned to a subsidiary of the purchaser its rights and responsibilities related to certain contracts with the U.S. Government. Woodward provided to the U.S. Government a customary guarantee of the purchaser’s subsidiary’s obligations under the contracts. The purchaser and its affiliates have agreed to indemnify Woodward for any liability incurred with respect to the guarantee.

In the event of a change in control of Woodward, as defined in change-in-control agreements with its current corporate officers, Woodward may be required to pay termination benefits to such officers.

Note ~~19. Financial instruments and fair value measurements~~

~~The estimated fair values of Woodward’s financial instruments were as follows:~~

At September 30, 2010 At September 30, 2009
Estimated Carrying Estimated Carrying
Fair Value Cost Fair Value Cost
Cash and cash equivalents $ 105,579 $ 105,579 $ 100,863 $ 100,863
Investments in deferred compensation program 5,633 5,633 5,331 5,331
Short-term borrowings (22,099 ) (22,099 ) — —
Long-term debt, including current portion (506,120 ) (443,673 ) (588,229 ) (572,142 )

The fair values of cash and cash equivalents, which include investments in money market funds, are assumed to be equal to their carrying amounts. Cash and cash equivalents have short-term maturities and market interest rates. Woodward’s cash and cash equivalents include funds deposited or invested in the U.S. and overseas that are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Woodward believes that its deposited and invested funds are held by or invested with credit worthy financial institutions or counterparties and that the funds are highly liquid.

Investments related to the deferred compensation program used to provide deferred compensation benefits to certain employees are assumed to be equal to their carrying amounts because the assets are marked to market value each reporting period.

The fair values of short-term borrowings at variable interest rates are assumed to be equal to their carrying amounts because such borrowings are expected to be repaid or settled within a short time-frame, for the carrying amount of the obligation.

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 period for similar debt of the same maturity. The weighted-average interest rates used to estimate the fair value of long-term debt at fixed interest rates were 2.9% at September 30, 2010 and 4.8% at September 30, 2009.

~~Level 1: Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.~~

~~106~~

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

The following table presents information about Woodward’s financial assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such fair value:

At September 30, 2010 At September 30, 2009
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial assets:
Investments in money market funds $ 50,360 $ — $ — $ 50,360 $ 20,130 $ — $ — $ 20,130
Trading securities 5,633 — — 5,633 5,331 — — 5,331
Foreign exchange forward contract — 579 — 579 — — — —

Total financial assets $ 55,993 $ 579 $ — $ 56,572 $ 25,461 $ — $ — $ 25,461

Financial liabilities:
Foreign exchange forward contract $ — $ — $ — $ — $ — $ 173 $ — $ 173

Total financial liabilities $ — $ — $ — $ — $ — $ 173 $ — $ 173

~~Investments in money market funds:~~Woodward sometimes invests excess cash in money market funds not insured by the FDIC. Woodward believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid. The investments in money market funds are reported at fair value, with realized gains from interest income realized in earnings and are included in “Cash and cash equivalents.” The fair values of Woodward’s investments in money market funds are based on the quoted market prices for the net asset value of the various money market funds.

~~Trading securities:~~Woodward holds marketable equity securities, through investments in various mutual funds, related to its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in earnings. The trading securities are included in “Other current assets.” The fair values of Woodward’s trading securities are based on the quoted market prices for the net asset value of the various mutual funds.

~~Forward contracts:~~As of September 30, 2010 and 2009, Woodward was a party to separate forward contracts. The fair value of both derivative instruments was derived from published foreign currency exchange rates as of September 30, 2010 and 2009, respectively.

~~Note 20.~~21. Segment information

Effective with the Company’s September 30, 2011 financial reporting, Woodward ~~has four operating business~~completed a realignment of its reportable segments to correspond with senior management’s global strategic focus on the markets Woodward serves — the aerospace market and the energy market. Woodward serves these markets through its two reportable segments — ~~Turbine Systems, Airframe Systems, Electrical Power Systems,~~Aerospace and ~~Engine Systems.~~Energy. All information in this Annual Report on Form 10-K, including comparative financial information, has been retrospectively revised to reflect the realignment of the reportable segments. Woodward uses reportable segment information internally to manage ~~our~~its business, including the assessment of business segment performance and ~~making~~ decisions onfor the allocation of resources between segments.

~~Turbine Systems~~ ~~— The~~Woodward’s Aerospace segment combines the aircraft propulsion portion of the former Turbine Systems business group, now referred to as the Aircraft Turbine Systems business group, with the Airframe Systems business group. Woodward’s Energy segment develops and manufactures systems and components that provide energy control and optimization solutions for commercial and military aircraft propulsion applications, including fuel and combustion systems for turbine engines in our aerospace markets, and forcombines the industrial ~~gas~~turbine portion of the former Turbine Systems business group, now referred to as the Industrial Turbomachinery Systems business group, with the Engine Systems and ~~steam turbines in our energy markets.~~

~~Electrical Power Systems~~ ~~— The~~ Electrical Power Systems business groups.

Woodward evaluates segment develops and manufactures systems and components that provide power sensing and energy control management. These systems and components improve the security, quality, reliability, and availability of power generation and electrical power networks for industrial markets, which include the power generation, power distribution, and power conversion industries.

~~107~~

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

A summary of total segment net sales and consolidated earnings before income taxes follows:

Year Ended September 30,
2010 2009 2008
Segment net sales:

Turbine Systems

External net sales $ 601,376 $ 617,950 $ 616,188
Intersegment sales 9,457 14,272 18,470

Total segment net sales 610,833 632,222 634,658
Airframe Systems

External net sales 376,182 319,009 —
Intersegment sales 3,102 2,947 —

Total segment net sales 379,284 321,956 —
Electrical Power Systems

External net sales 186,791 195,000 222,723
Intersegment sales 43,540 48,146 66,571

Total segment net sales 230,331 243,146 289,294
Engine Systems

External net sales 292,681 298,166 419,293
Intersegment sales 33,987 42,829 50,139

Total segment net sales 326,668 340,995 469,432
Consolidated

External net sales 1,457,030 1,430,125 1,258,204
Intersegment sales 90,086 108,194 135,180

Total segment net sales $ 1,547,116 $ 1,538,319 $ 1,393,384

Segment earnings:

Turbine Systems $ 142,993 $ 136,120 $ 128,930
Airframe Systems 11,578 11,023 —
Electrical Power Systems 24,268 35,891 42,303
Engine Systems 27,346 18,454 43,737

Total segment earnings 206,185 201,488 214,970
Nonsegment expenses (22,434 ) (46,514 ) (30,671 )
Interest expense and income, net (28,876 ) (32,498 ) (1,714 )

Consolidated earnings before income taxes $ 154,875 $ 122,476 $ 182,585


	Year Ending September 30,
	2011			2010			2009
Segment external net sales:
Aerospace	$	843,032		$	769,379		$	704,771
Energy		868,670			687,651			725,354


Total consolidated net sales	$	1,711,702		$	1,457,030		$	1,430,125


Segment earnings:
Aerospace	$	129,502		$	112,171		$	104,550
Energy		113,872			94,014			96,938


Total segment earnings		243,374			206,185			201,488
Nonsegment expenses		(30,942	)		(22,434	)		(46,514	)
Interest expense, net		(24,865	)		(28,876	)		(32,498	)


Consolidated earnings before income taxes	$	187,567		$	154,875		$	122,476

~~109~~94

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

Segment assets consist of accounts receivable, inventories, property, plant, and equipment — net, goodwill, and other intangibles — net. A summary of consolidated total assets, consolidated depreciation and amortization and consolidated capital expenditures follows:


	At or for the year ended September 30,						At or for the year ending September 30,
	2010		2009		2008		2011		2010		2009
Segment assets:
Turbine Systems	$	347,188	$	344,789	$	378,021
Airframe Systems		748,297		801,300		—
Electrical Power Systems		156,788		135,808		133,928
Engine Systems		204,495		200,226		235,604
Aerospace							$	1,036,797	$	994,868	$	1,042,956
Energy								569,929		461,900		439,167


Total segment assets		1,456,768		1,482,123		747,553		1,606,726		1,456,768		1,482,123
Unallocated corporate property, plant and equipment, net		6,111		6,857		13,226		8,556		6,111		6,857
Other unallocated assets		200,354		207,442		166,238		166,152		200,354		207,442


Consolidated total assets	$	1,663,233	$	1,696,422	$	927,017	$	1,781,434	$	1,663,233	$	1,696,422


Segment depreciation and amortization:
Turbine Systems	$	12,890	$	13,861	$	14,586
Airframe Systems		40,199		27,489		—
Electrical Power Systems		5,581		5,505		6,002
Engine Systems		13,106		14,240		13,034
Aerospace							$	50,167	$	50,611	$	38,643
Energy								21,691		21,165		22,452


Total segment depreciation and amortization		71,776		61,095		33,622		71,858		71,776		61,095
Unallocated corporate amounts		3,840		2,853		1,828		3,535		3,840		2,853


Consolidated depreciation and amortization	$	75,616	$	63,948	$	35,450	$	75,393	$	75,616	$	63,948


Segment capital expenditures:
Turbine Systems	$	8,678	$	5,301	$	17,710
Airframe Systems		5,745		6,828		—
Electrical Power Systems		7,218		11,227		4,531
Engine Systems		3,681		3,414		14,817
Aerospace							$	34,007	$	13,744	$	11,612
Energy								14,168		11,578		15,158


Total segment capital expenditures		25,322		26,770		37,058		48,175		25,322		26,770
Unallocated corporate amounts		2,782		2,177		458		80		2,782		2,177


Consolidated capital expenditures	$	28,104	$	28,947	$	37,516	$	48,255	$	28,104	$	28,947

~~WOODWARD GOVERNOR COMPANY~~

~~Notes to Consolidated Financial Statements — Continued~~

~~(amounts in thousands, except per share)~~

Quarterly results by segment ~~recast to reflect the realigned segment structure,~~ for the fiscal years ~~ended~~ending September 30, 2011 and September 30, 2010 ~~and September 30, 2009~~ follow:

2010 Fiscal Quarters
First Second Third Fourth
Total segment net sales:

Turbine Systems $ 142,416 $ 147,113 $ 151,168 $ 170,136
Airframe Systems 91,727 90,873 94,127 102,557
Electrical Power Systems 56,803 54,527 47,280 71,721
Engine Systems 67,879 78,223 86,066 94,500

Total $ 358,825 $ 370,736 $ 378,641 $ 438,914

Intersegment sales:

Turbine Systems $ 2,330 $ 2,269 $ 2,545 $ 2,313
Airframe Systems 678 613 609 1,202
Electrical Power Systems 7,922 10,863 11,133 13,622
Engine Systems 8,587 7,639 7,987 9,774

Total $ 19,517 $ 21,384 $ 22,274 $ 26,911

External net sales:

Turbine Systems $ 140,086 $ 144,844 $ 148,623 $ 167,823
Airframe Systems 91,049 90,260 93,518 101,355
Electrical Power Systems 48,881 43,664 36,147 58,099
Engine Systems 59,292 70,584 78,079 84,726

Total $ 339,308 $ 349,352 $ 356,367 $ 412,003

Segment earnings:

Turbine Systems $ 32,074 $ 32,355 $ 35,934 $ 42,630
Airframe Systems 2,409 4,976 2,852 1,341
Electrical Power Systems 7,323 4,859 3,072 9,014
Engine Systems 3,235 6,147 9,131 8,833

Total $ 45,041 $ 48,337 $ 50,989 $ 61,818

Earnings reconciliation:

Total segment earnings $ 45,041 $ 48,337 $ 50,989 $ 61,818
Nonsegment expenses (5,410 ) (5,315 ) (6,085 ) (5,624 )
Interest expense and income, net (8,141 ) (7,204 ) (6,852 ) (6,679 )

Consolidated earnings before income taxes $ 31,490 $ 35,818 $ 38,052 $ 49,515


	2011 Fiscal Quarters
	First			Second			Third			Fourth
External net sales:
Aerospace	$	181,144		$	204,945		$	215,242		$	241,701
Energy		183,931			213,921			223,225			247,593


Total	$	365,075		$	418,866		$	438,467		$	489,294


Segment earnings:
Aerospace	$	19,914		$	33,241		$	35,402		$	40,945
Energy		24,503			26,941			29,251			33,177


Total	$	44,417		$	60,182		$	64,653		$	74,122


Earnings reconciliation:
Total segment earnings	$	44,417		$	60,182		$	64,653		$	74,122
Nonsegment expenses		(6,564	)		(7,481	)		(7,554	)		(9,343	)
Interest expense, net		(6,378	)		(6,214	)		(6,244	)		(6,029	)


Consolidated earnings before income taxes	$	31,475		$	46,487		$	50,855		$	58,750


	2010 Fiscal Quarters
	First			Second			Third			Fourth
External net sales:
Aerospace	$	180,384		$	185,196		$	191,150		$	212,649
Energy		158,924			164,156			165,217			199,354


Total	$	339,308		$	349,352		$	356,367		$	412,003


Segment earnings:
Aerospace	$	26,204		$	26,678		$	28,564		$	30,725
Energy		18,837			21,659			22,425			31,093


Total	$	45,041		$	48,337		$	50,989		$	61,818


Earnings reconciliation:
Total segment earnings	$	45,041		$	48,337		$	50,989		$	61,818
Nonsegment expenses		(5,410	)		(5,315	)		(6,085	)		(5,624	)
Interest expense, net		(8,141	)		(7,204	)		(6,852	)		(6,679	)


Consolidated earnings before income taxes	$	31,490		$	35,818		$	38,052		$	49,515

~~113~~


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

There have been no disagreements or any reportable events requiring disclosure under Item 304(b) of Regulation S-K.


Item 9A.		Controls and Procedures

Evaluation of Disclosure 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 is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management, including our Principal Executive Officer (Thomas A. Gendron, Chief Executive Officer and President) and Principal Financial Officer (Robert F. Weber, Jr., Vice Chairman, Chief Financial Officer and Treasurer), as appropriate, to allow timely decisions regarding required disclosures.

Thomas A. Gendron and Robert F. Weber, Jr., evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. Based on their evaluations, they concluded that our disclosure controls and procedures were effective as of September 30, ~~2010.~~2011.

Furthermore, there have been no changes in our internal control over financial reporting during the fourth fiscal quarter ended September 30, ~~2010~~2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting for the Company. We have evaluated the effectiveness of internal control over financial reporting using the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and, based on that evaluation, have concluded that the Company’s internal control over financial reporting was effective as of September 30, ~~2010,~~2011, the end of the Company’s most recent fiscal year.

Deloitte & Touche, LLP, an independent registered public accounting firm, conducted an audit of Woodward’s internal control over financial reporting as of September 30, ~~2010,~~2011, as stated in their report included in “Item 9a — Controls and Procedures.”

Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Woodward, ~~Governor Company~~Inc.
Fort Collins, Colorado

We have audited the internal control over financial reporting of Woodward, ~~Governor Company~~Inc. and subsidiaries (the “Company”) as of September 30, ~~2010,~~2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Integral Drive Systems AG (“IDS”), which was acquired during the third quarter of fiscal year 2011. The financial statements of IDS constitute 3% of total assets and 1% of total net sales of the consolidated financial statement amounts as of and for the year ended September 30, 2011. Accordingly, our audit did not include the internal control over financial reporting at IDS. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, ~~2010,~~2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended September 30, ~~2010~~2011 of the Company and our report dated November ~~18, 2010~~16, 2011 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding the Company’s adoption of new accounting standards.

/s/ DELOITTE & TOUCHE LLP

Denver, Colorado
November ~~18, 2010~~16, 2011

~~116~~100


~~Item 9B.~~		~~Other Information~~

On September 23, 2010, the Compensation Committee of the Board of Directors of the Company selected the performance metrics and target payouts for annual short-term incentive awards to be made to the Company’s named executive officers under the Company’s existing Management Incentive Plan (the “MIP”). A summary description of the MIP is filed as Exhibit 10.2 to this Annual Report on Form 10-K.

~~In accordance with the terms of the MIP, the performance metrics for fiscal 2011 were selected by the Compensation Committee to be the following.~~

~~For the Company’s chief executive officer and chief financial officer:~~

~~Earnings per Share of the Company on a consolidated basis (70% weight); and~~

~~Free Cash Flow generated by the Company on a consolidated basis (30% weight).~~

~~For the Company’s other named executive officers, each of whom are business segment presidents:~~

~~The Company’s consolidated Earnings per Share (50% weight);~~

~~Free Cash Flow generated by the applicable business segment (16.67% weight);~~

~~On time delivery to customer request of the applicable business segment (16.67% weight); and~~

~~Product life cycle on-time to customer deliverables for the applicable business segment (16.66% weight).~~

The Compensation Committee will establish the specific threshold, target and stretch performance criteria at its November 2010 meeting in accordance with and pursuant to the terms of the MIP. Depending on the determination of and achievement of these performance criteria, payout at target for the MIP awards for 2011 would be as follows:


	~~2011 Target Payout~~
~~Named Executive Officer~~	~~(% of Base Salary)~~
~~Thomas A. Gendron~~		~~100~~	%
~~Robert F. Weber, Jr.~~		70	%
~~Dennis Benning~~		60	%
~~Martin Glass~~		60	%
~~Gerhard Lauffer~~		60	%

In addition, on November 17, 2010, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) approved certain amendments (the “Amendment”) to the Company’s agreement with one of its named executive officers, Dennis Benning, President, Airframe Systems. The Compensation Committee determined that as a result of the acquisition of HR Textron, Inc. (now Woodward HRT, Inc.), which was not contemplated at the time of the original agreement with Mr. Benning, that the Amendment was appropriate to take into consideration Mr. Benning’s oversight of the Company’s entire Airframe Systems business segment, including both Woodward MPC, Inc., and Woodward HRT, Inc.

The Amendment clarifies that the duration of Mr. Benning’s assignment with the Company will continue until such time as a successor has been duly appointed by the Company. In addition, the performance bonus amount Mr. Benning will be eligible to receive upon successful completion of his assignment was increased to $250,000, less applicable withholdings. A copy of the confirmation of the Amendment (assignment extension letter between the Company and Mr. Benning) is filed as Exhibit 10.28 to this Annual Report on Form 10-K.

~~Part~~PART III


Item 10.		Directors, Executive Officers and Corporate Governance

The information required by this item relating to our directors and nominees, regarding compliance with Section 16(a) of the Securities Act of 1934, and regarding our Audit Committee is included under the captions “Board of Directors,” “Board Meetings and Committees — Audit Committee” (including information with respect to audit committee financial experts), “Stock Ownership of Management,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement related to the Annual Meeting of Stockholders to be held January ~~26, 2011~~25, 2012 and is incorporated herein by reference.

The information required by this item relating to our executive officers and other corporate officers is included under the caption “Executive Officers of the Registrant” in Item 1 of this report.

We have adopted a code of ethics that applies to all of our employees, including our principal executive officer and our principal financial and accounting officer. This code of ethics is posted on our Website. The Internet address for our Website is www.woodward.com, and the code of ethics may be found from our main Web page by clicking first on ~~“Investor Information”~~“Investors” and then on “Corporate Governance,” and then on “Woodward Codes of Business Conduct and Ethics.”

~~117~~

We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information to our Website, at the address and location specified above.


Item 11.		Executive Compensation

Information regarding executive compensation is under the captions “Board Meetings and Committees — Director Compensation,” “Board Meetings and Committees — Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report on Compensation Discussion and Analysis,” and “Executive Compensation” in our Proxy Statement for the Annual Meeting of Stockholders to be held January ~~26, 2011,~~25, 2012, and is incorporated herein by reference, except the section captioned “Compensation Committee Report on Compensation Discussion and Analysis” is hereby “furnished” and not “filed” with this annual report on Form 10-K.


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

Information regarding security ownership of certain beneficial owners and management and related stockholder matters is under the tables captioned “Stock Ownership of Management,” “Persons Owning More Than Five Percent of Woodward Stock,” and “Executive Compensation — Equity Compensation Plan ~~Information (as of September 30, 2010),”~~Information” in our Proxy Statement for the Annual Meeting of Stockholders to be held January ~~26, 2011,~~25, 2012, and is incorporated herein by reference.


Item 13.		Certain Relationships and Related Transactions, and Director Independence

The information set forth under “Board Meetings and Committees — Related Person Transaction Policies and Procedures,” “Board of Directors” and “Audit Committee Report to Stockholders” in our Proxy Statement for the Annual Meeting of the Stockholders to be held January ~~26, 2011~~25, 2012 is incorporated herein by reference except the section captioned “Audit Committee Report” is hereby “furnished” and not “filed” with this annual report on Form 10-K.


Item 14.		Principal Accountant Fees and Services

Information regarding principal accountant fees and services is under the captions “Audit Committee Report to Stockholders — Audit Committee’s Policy on Pre-Approval of Services Provided by Independent Registered Public Accounting Firm” and “Audit Committee Report to Stockholders — Fees Paid to Independent Registered Public Accounting Firm” in our Proxy Statement for the Annual Meeting of Stockholders to be held January ~~26, 2011,~~25, 2012, and is incorporated herein by reference.

~~118~~101

~~Part~~PART IV


Item 15.		Exhibits and Financial Statement Schedules


	Page Number in
	Form 10-K

(a) (1) Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm		6148

Consolidated Statements of Earnings for the fiscal years ~~ended~~ending September 30, 2011, 2010, ~~2009,~~ and ~~2008~~2009		6249

Consolidated Statements of Comprehensive Earnings for the fiscal years ~~ended~~ending September 30, 2011, 2010, ~~2009,~~ and ~~2008~~2009		6350

Consolidated Balance Sheets at September 30, ~~2010~~2011 and ~~2009~~2010		6451

Consolidated Statements of Cash Flows for the fiscal years ~~ended~~ending September 30, 2011, 2010, ~~2009,~~ and ~~2008~~2009		6552

Consolidated Statements of Stockholders’ Equity for the fiscal years ~~ended~~ending September 30, 2011, 2010, ~~2009,~~ and ~~2008~~2009		6653

Notes to Consolidated Financial Statements		6754

(a) (2) Consolidated Financial Statement Schedules —

Valuation and Qualifying Accounts		~~123~~107

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.

~~(a) (3)~~ ~~Exhibits Filed as Part of This Report:~~


(a) (3)	Exhibits Filed as Part of This Report:

	2.1	Stock Purchase Agreement, dated August 19, 2008, by and among Woodward Governor Company, MPC Products Corporation, Techni-Core, Inc., The Successor Trustees of the Joseph M. Roberti Revocable Trust dated December 29, 1992, Maribeth Gentry, as Successor Trustee of the Vincent V. Roberti Revocable Trust dated April 4, 1991 and the individuals and entities named in Schedule I thereto, filed as Exhibit 10.1 to Current Report on Form 8-K filed August 21, 2008 and incorporated herein by reference

	2.2	Amendment No. 1, dated October 1, 2008, to the Stock Purchase Agreement, dated August 19, 2008, by and among Woodward Governor Company, MPC Products Corporation, Techni-Core, Inc., The Successor Trustees of the Joseph M. Roberti Revocable Trust dated December 29, 1992, Maribeth Gentry, as Successor Trustee of the Vincent V. Roberti Revocable Trust dated April 4, 1991 and the individuals and entities named in Schedule I thereto, filed as Exhibit 10.6 to Current Report on Form 8-K filed October 7, 2008 and incorporated herein by reference

	2.3	Purchase and Sale Agreement, dated February 27, 2009, by and among Textron Inc., Textron Limited, Woodward Governor Company and Woodward (U.K.) Limited, filed as Exhibit 10.1 to Current Report on Form 8-K filed March 4, 2009 and incorporated herein by reference

	2.4	Letter dated June 5, 2009 amending the Purchase and Sale Agreement, dated February 27, 2009, by and among Textron Inc., Textron Limited, Woodward Governor Company and Woodward (U.K.) Limited, filed as Exhibit 2.1 to Quarterly Report on Form 10-Q filed July 24, 2009 and incorporated herein by reference

	3.1	Restated Certificate of Incorporation, as amended October 3, 2007, filed as Exhibit 3(i)(a) to Annual Report on Form 10-K filed November 20, 2008 and incorporated herein by reference

	3.2	Certificate of Amendment of Certificate of Incorporation, dated January 23, 2008, filed as Exhibit 3(i)(b) to Annual Report on Form 10-K filed November 20, 2008 and incorporated herein by reference

~~119~~102


	3.3		~~Amended and~~Certificate of Amendment of the Restated ~~Bylaws,~~Certificate of Incorporation, dated January 26, 2011, filed as Exhibit 3.1 to Current Report on Form 8-K filed January ~~29, 2008~~28, 2011 and incorporated herein by reference

	3.4		Bylaws of Woodward, Inc., as amended and restated on January 26, 2011, filed as Exhibit 3.2 to Current Report on Form 8-K filed January 28, 2011 and incorporated herein by reference

^† 10.1			Long-Term Management Incentive Compensation Plan, filed as Exhibit 10(c) to Annual Report on Form 10-K filed December 22, 2000 (File No. 000-08408) and incorporated herein by reference

		*^† 10.2		Summary Description of Management Incentive Plan, filed as ~~an exhibit.~~Exhibit 10.2 to Annual Report on Form 10-K filed November 18, 2010 and incorporated by reference.

	10.3		Note Purchase Agreement dated October 15, 2001, filed as Exhibit 4 to Quarterly Report on Form 10-Q filed February 8, 2002 (File No. 000-08408) and incorporated herein by reference

		^† 10.4		2002 Stock Option Plan, effective January 1, 2002, filed as Exhibit 10(iii) to Quarterly Report on Form 10-Q filed May 9, 2002 (File No. 000-08408) and incorporated herein by reference

	^† 10.5			Form of Outside Director Stock Purchase Agreement with James L. Rulseh, filed as Exhibit 10(j) to Annual Report on Form 10-K filed December 9, 2002 (File No. 000-08408) and incorporated herein by reference

		^† 10.6		Summary of Non-Employee Director Meeting Fees and Compensation, filed as Exhibit 10.7 to Annual Report on Form 10-K filed November 20, 2008 and incorporated herein by reference

		^† 10.7		Material Definitive Agreement with Thomas A. Gendron, filed as Exhibit 10.9 to Annual Report on Form 10-K filed November 20, 2009 and incorporated herein by reference

	^† 10.8			Material Definitive Agreement with Robert F. Weber, Jr., filed as Exhibit 10.10 to Annual Report on Form 10-K filed November 20, 2009 and incorporated herein by reference

	^† 10.9			2006 Omnibus Incentive Plan, effective January 25, 2006, filed as Exhibit 4.1 to Registration Statement on Form S-8 filed April 28, 2006 (File No. 333-133640) and incorporated herein by reference

*^† 10.10			Amendment No. 1 to the Woodward Governor Company 2006 Omnibus Incentive Plan, effective as of January 26, 2011, filed as an exhibit

^† ~~10.10~~10.11			Material Definitive Agreement with A. Christopher Fawzy, filed as Exhibit 10.12 to Quarterly Report on Form 10-Q filed July 25, 2007 and incorporated herein by reference

		^† ~~10.11~~10.12		Form of Non-Qualified Stock Option Agreement, filed as Exhibit 99.2 to Current Report on Form 8-K filed November 21, 2007 and incorporated herein by reference

	~~10.12~~10.13		Second Amended and Restated Credit Agreement, filed as Exhibit 99.1 to Current Report on Form 8-K filed October 31, 2007 and incorporated herein by reference

		^† ~~10.13~~10.14		Summary of Executive Officer Compensation, filed as Exhibit 10.16 to Annual Report on Form 10-K filed November 20, 2008 and incorporated herein by reference

		^† ~~10.14~~10.15		Dennis Benning Post Retirement Relocation Agreement, filed as Exhibit 10.17 to Annual Report on Form 10-K filed November 29, 2007 and incorporated herein by reference

		^† ~~10.15~~10.16		Dennis Benning Promotion Letter dated October 1, 2008, filed as Exhibit 10.18 to Annual Report on Form 10-K filed November 20, 2008 and incorporated herein by reference

		^† ~~10.16~~10.17		Chad Preiss Promotion Letter dated October 1, 2008, filed as Exhibit 10.19 to Annual Report on Form 10-K filed November 20, 2008 and incorporated herein by reference

	~~10.17~~10.18		Term Loan Credit Agreement, dated October 1, 2008, by and among Woodward Governor Company, the institutions from time to time parties thereto as lenders and JPMorgan Chase Bank, National Association, as administrative agent, filed as Exhibit 10.1 to Current Report on Form 8-K filed October 7, 2008 and incorporated herein by reference

	~~10.18~~10.19		Note Purchase Agreement, dated October 1, 2008, by and among Woodward Governor Company and the purchasers named therein, filed as Exhibit 10.2 to Current Report on Form 8-K filed October 7, 2008 and incorporated herein by reference

	~~10.19~~10.20		Amendment No. 1, dated October 1, 2008, to the Note Purchase Agreement, dated as of October 15, 2001 by and among Woodward Governor Company and the purchasers named therein, filed as Exhibit 10.3 to Current Report on Form 8-K filed October 7, 2008 and incorporated herein by reference

~~120~~103


	~~10.20~~10.21		Amendment No. 2 and Consent, dated October 1, 2008, to the Second Amended and Restated Credit Agreement, dated as of October 25, 2007, by and among Woodward Governor Company, certain foreign subsidiary borrowers of Woodward Governor Company from time to time parties thereto, the institutions from time to time parties thereto, as lenders, JPMorgan Chase Bank, National Association, as administrative agent, Wachovia Bank N.A. and Wells Fargo Bank N.A., as syndication agents, and Deutsche Bank Securities Inc., as documentation agent, filed as Exhibit 10.4 to Current Report on Form 8-K filed October 7, 2008 and incorporated herein by reference

	~~10.21~~10.22		Amendment No. 3 to Second Amended and Restated Credit Agreement, dated as of March 30, 2009, by and among Woodward Governor Company, the financial institutions party to the credit agreement referenced therein, and JPMorgan Chase Bank, National Association, as administrative agent, filed as Exhibit 10.1 to Quarterly Report on Form 10-Q filed April 23, 2009 and incorporated herein by reference

	~~10.22~~10.23		Amendment No. 1 to Term Loan Credit Agreement, dated as of March 30, 2009, by and among Woodward Governor Company, the financial institutions party to credit agreement referenced therein, and JPMorgan Chase Bank, National Association, as administrative agent, filed as Exhibit 10.2 to Quarterly Report on Form 10-Q filed April 23, 2009 and incorporated herein by reference

	~~10.23~~10.24		Term Loan Credit Agreement, dated April 3, 2009, by and among Woodward Governor Company, the institutions from time to time parties thereto, as lenders, and JPMorgan Chase Bank, National Association, as administrative agent, filed as Exhibit 10.1 to Current Report on Form 8-K filed April 8, 2009 and incorporated herein by reference

	~~10.24~~10.25		Note Purchase Agreement, dated April 3, 2009, by and among Woodward Governor Company and the purchasers named therein, filed as Exhibit 10.2 to Current Report on Form 8-K filed April 8, 2009 and incorporated herein by reference

		^† ~~10.25~~10.26		Form of Change in Control Agreement for the Company’s principal executive officer and principal financial officer, filed as Exhibit 10.1 to Current Report on Form 8-K filed on December 18, 2009 and incorporated herein by reference

		^† ~~10.26~~10.27		Form of Change in Control Agreement for the Company’s named executive officers other than the Company’s principal executive officer and principal financial officer, filed as Exhibit 10.2 to Current Report on Form 8-K filed on December 18, 2009 and incorporated herein by reference

		*^† ~~10.27~~10.28		Executive Benefit Plan, as amended and restated, filed as ~~an exhibit~~Exhibit 10.27 to Annual Report on Form 10-K filed November 18, 2010 (File No. 000-08408) and incorporated herein by reference

		*^† ~~10.28~~10.29		Dennis Benning Confirmation of Assignment Extension Letter dated November 17, 2010, filed as an exhibit 10.28 to Annual Report on Form 10-K filed November 18, 2010 (Filed No. 000-08408) and incorporated herein by reference

^† 10.30			James D. Rudolph Promotion Letter, dated February 10, 2011, filed as Exhibit 10.1 to Quarterly Report on Form 10-Q filed April 27, 2011 and incorporated herein by reference

^† 10.31			Mr. Martin V. Glass employment letter, dated April 27, 2011, filed as Exhibit 10.1 to Quarterly Report on Form 10-Q filed July 26, 2011 and incorporated herein by reference

^† 10.32			Sagar Patel employment letter, dated June 17, 2011, filed as Exhibit 10.2 to Quarterly Report on Form 10-Q filed July 26, 2011 and incorporated herein by reference

	14.1		Code of Ethics, filed as Exhibit 14 to Annual Report on Form 10-K filed on December 10, 2003 and incorporated herein by reference

	* 18.1		Preference Letter issued by current Independent Registered Public Accounting Firm, filed as an exhibit

	* 21.1		Subsidiaries, filed as an exhibit

	* 23.1		Consent of current Independent Registered Public Accounting Firm, filed as an exhibit

	* 31.1		Rule 13a-14(a)/15d-14(a) certification of Thomas A. Gendron, filed as an exhibit

	* 31.2		Rule 13a-14(a)/15d-14(a) certification of Robert F. Weber, Jr., filed as an exhibit

	* 32.1		Section 1350 certifications, filed as an exhibit

104


Delaware		36-1984010

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1000 East Drake Road, Fort Collins, Colorado		80525

(Address of principal executive offices)		(Zip Code)


Title of each class:		Name of each exchange on which registered:

Common stock, par value $.001455 per share		NASDAQ Global Select Market


Large accelerated filerþ		Accelerated filero		Non-accelerated filero		Smaller reporting companyo


	Page

PART I

Forward Looking Statements		3

Item 1. Business		4

Item 1A. Risk Factors		1512

Item 1B. Unresolved Staff Comments		2322

Item 2. Properties		2322

Item 3. Legal Proceedings		2422

Item 4. ~~Removed~~(Removed and ~~Reserved~~Reserved)		2423

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		2524

Item 6. Selected Financial Data		2726

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2927

Item 7A. Quantitative and Qualitative Disclosures About Market Risk		5946

Item 8. Financial Statements and Supplementary Data		6148

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		~~115~~98

Item 9A. Controls and Procedures		~~115~~98

~~Item 9B. Other Information~~PART III		~~117~~

~~PART III~~

Item 10. Directors, Executive Officers and Corporate Governance		~~117~~101

Item 11. Executive Compensation		~~118~~101

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		~~118~~101

Item 13. Certain Relationships and Related Transactions, and Director Independence		~~118~~101

Item 14. Principal Accountant Fees and Services		~~118~~101

PART IV

Item 15. Exhibits and Financial Statement Schedules		~~119~~102

~~SIGNATURES~~Signatures		~~122~~106

~~Exhibit 10.2~~Ex-10.10
~~Exhibit 10.27~~EX-18.1
~~Exhibit 10.28~~EX-21.1
~~Exhibit 21.1~~EX-23.1
~~Exhibit 23.1~~EX-31.1
~~Exhibit 31.1~~EX-31.2
~~Exhibit 31.2~~
~~Exhibit 32.1~~EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


	9/05		9/06		9/07		9/08		9/09		9/10

Woodward Governor Company	$	100.00	$	119.62	$	224.60	$	255.32	$	177.63	$	239.48

S&P Midcap 400		100.00		106.56		126.55		105.44		102.16		120.33

S&P Industrial Machinery		100.00		111.36		148.00		109.23		107.59		137.70


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934


	Aerospace
	& Defense			Energy			Total
Fiscal year ended September 30, 2010
Turbine Systems	$	381,556		$	219,820		$	601,376
Airframe Systems		376,182			—			376,182
Electrical Power Systems		248			186,543			186,791
Engine Systems		631			292,050			292,681


Total net external sales	$	758,617		$	698,413		$	1,457,030


Percentage of total net sales		52	%		48	%		100	%


Fiscal year ended September 30, 2009
Turbine Systems	$	377,157		$	240,793		$	617,950
Airframe Systems		319,009			—			319,009
Electrical Power Systems		105			194,895			195,000
Engine Systems		1,725			296,441			298,166


Total net external sales	$	697,996		$	732,129		$	1,430,125


Percentage of total net sales		49	%		51	%		100	%


			% Expected to be
	October 31,		filled by September 30,			October 31,
	2010		2011			2009

Turbine Systems	$	184,438		90	%	$	175,053
Airframe Systems		387,639		67			424,823
Electrical Power Systems		84,198		58			56,943
Engine Systems		81,420		94			70,283


	$	737,695		74	%	$	727,102


Notes:

1.		On April 14, 2011, Woodward acquired Integral Drive Systems AG and its European companies, including their respective holding companies (“IDS”), and the assets of IDS’ business in China. On October 3, 2008, Woodward acquired ~~MPC.~~MPC Products and Techni-Core. On April 3, 2009, Woodward acquired ~~HRT,~~HR Textron Inc. from Textron Inc., its parent company, and the United Kingdome assets and certain liabilities related to HR Textron Inc.’s business (collectively “HRT”), including its Fuel & Pneumatics (“F&P&P”) product line. The F&P product line was sold on August 10, 2009.

2.		In March 2009, Woodward recorded restructuring and other charges totaling $15,159 before taxes related to restructuring our businesses to adjust to the current economic environment.

3.		~~Net earnings for fiscal year 2006 included a deferred tax asset valuation allowance change that increased net earnings by $13,710, or $0.20 per basic share and $0.19 per diluted share.~~

4.		Net earnings for fiscal year 2007 included two tax adjustments, a favorable resolution of issues with tax authorities resulting in a reduction of net tax expense of $13,300 and a reduction in deferred tax assets resulting in a tax expense of $3,000 due to a decrease in the German statutory income tax rate. These adjustments increased net earnings by $10,300, or $0.15 per basic share and $0.15 per diluted share.


5.4.		Woodward recognized $6,416 of benefit related to favorable resolutions of prior year tax matters and the completion of certain internal revaluation assessments in the third quarter of fiscal year 2010. In the third quarter of fiscal year 2009, Woodward recognized $4,992 of benefit related to favorable resolutions of prior year tax matters. These special benefits increased net earnings by $0.09 per basic and diluted shares and $0.07 per basic and diluted shares in fiscal years 2010 and 2009, respectively.

6.5.		Woodward recognized $12,500 of pre-tax charges through cost of goods sold during the third quarter of fiscal year 2009 related to the purchase accounting basis step-up of inventory acquired as part of the HRT acquisition. This was a non-cash charge which decreased earnings, net of tax, by $8,000 or $0.12 per basic and diluted share.

7.6.		Per share amounts have been updated from amounts reported prior to February 1, 2008 to reflect the effect of a two-for-one stock split.

8.		Selected financial data for the fiscal years ended September 30, 2009, 2008, 2007 and 2006 have been retrospectively recast to reflect authoritative guidance adopted by Woodward on October 1, 2009 which requires, among other things, a noncontrolling interest in a subsidiary is to be reported in the Consolidated Balance Sheets within stockholders’ equity, but separate from the parent’s stockholders’ equity. Further discussion of the authoritative guidance adopted by Woodward on October 1, 2009 can be found at Note 2, New accounting standards, in the notes to the Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”


	Year Ended
	September 30, 2010
			Per Share
Favorable resolutions of prior year tax matters and completion of certain internal revaluation assessments	$	6,416	$	0.09


	Year Ended						Year Ending
	September 30, 2009						September 30, 2009
				Per Share						Per Share
Purchase accounting — inventory basis step-up charge	$	(12,500	)				$	(12,500	)
Less: income tax benefit		4,500						4,500

Net after income tax benefit	$	(8,000	)	$	(0.12	)
Net after income tax beneift							$	(8,000	)	$	(0.12	)


Workforce management and other charges	$	(16,605	)				$	(16,605	)
Less: income tax benefit		5,762						5,762

Net after income tax benefit	$	(10,843	)	$	(0.16	)	$	(10,843	)	$	(0.16	)


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


Total special (charges) benefits	$	(13,851	)	$	(0.21	)	$	(13,851	)	$	(0.21	)


Earnings at September 30, 2009	$	136,120
Sales volume changes		(11,939	)
Selling price changes		7,685
Sales mix		9,630
Savings related to workforce management		4,900
Changes in variable compensation		(3,831	)
Effects of changes in foreign currency		440
Other, net		(12	)

Earnings at September 30, 2010	$	142,993


Earnings at September 30, 2009	$	11,023
Purchase accounting inventory basis step-up charge in 2009		12,500
HRT earnings from October 2009 to March 2010		14,397
F&P product line earnings from April 2009 to August 2009		(3,897	)
Sales volume changes		(25,253	)
Sales mix		(1,807	)
Depreciation & intangible amortization		(4,342	)
Investments in business development opportunities		(3,896	)
Savings related to workforce management		17,530
Changes in variable compensation		(1,515	)
Other, net		(3,162	)

Earnings at September 30, 2010	$	11,578


Earnings at September 30, 2009	$	35,891
Sales volume changes		(4,576	)
Selling price changes		(1,671	)
Sales mix		(846	)
Costs associated with global expansion		(2,457	)
Savings related to workforce management		1,328
Changes in variable compensation		(2,039	)
Effects of changes in foreign currency		(122	)
Other, net		(1,240	)

Earnings at September 30, 2010	$	24,268


Earnings at September 30, 2009	$	18,454
Sales volume changes		(6,248	)
Selling price changes		2,205
Sales mix		(883	)
Decreased infrastructure and overhead related expenses		2,481
Savings related to workforce management		9,746
Changes in variable compensation		(2,556	)
Effects of changes in foreign currency		1,336
Other, net		2,811

Earnings at September 30, 2010	$	27,346


Consolidated net external sales at September 30, 2008	$	1,258,204
External Sales from acquisition of MPC and HRT (Airframe Systems)		319,009
External Sales from the acquisition of Mototron		7,229
Turbine Systems volume changes		(777	)
Electrical Power Systems volume changes		(5,843	)
Engine Systems volume changes		(119,334	)
Price changes		7,125
Effects of changes in foreign currency		(38,322	)
Other		2,834

Consolidated net external sales at September 30, 2009	$	1,430,125


Cost of goods sold for the year ended September 30, 2008	$	882,996
MPC and HRT cost of goods sold (Airframe Systems)		248,681
MotoTron cost of goods sold		9,788
Decrease in volume changes		(95,376	)
Effects of changes in foreign currency		(25,605	)
Changes in product mix		6,185
Other, net		2,426

Cost of goods sold for the year ended September 30, 2009	$	1,029,095


SG&A for the year ended September 30, 2008	$	115,399
MPC and HRT SG&A(Airframe Systems)		33,369
Variable compensation		(6,791	)
Effects of changes in foreign currency		(5,537	)
Savings related to workforce management		(2,655	)
Other, net		(5,103	)

	$	128,682


Research and devlopment for the year ended September 30, 2008	$	73,414
MPC and HRT research and development (Airframe Systems)		9,036
Effects of changes in foreign currency		(931	)
Savings related to workforce management		(1,350	)
Variable compensation		(5,824	)
Other, net		4,191

Research and development for the year ended September 30, 2009	$	78,536


Earnings at September 30, 2008	$	128,930
Sales volume changes		(361	)
Selling price changes		6,379
Sales mix		(7,551	)
Changes in variable compensation		13,559
Cost inflation		(3,930	)
Effects of changes in foreign currency		(1,770	)
Savings related to workforce management		4,230
Other, net		(3,366	)

Earnings at September 30, 2009	$	136,120


Earnings at September 30, 2008	$	42,303
Sales volume changes		(4,732	)
Selling price changes		(651	)
Sales mix		1,580
Changes in variable compensation		3,535
Effects of changes in foreign currency		(4,205	)
Increase labor costs		(2,834	)
Savings related to workforce management		1,641
Other, net		(746	)

Earnings at September 30, 2009	$	35,891


Earnings at September 30, 2008	$	43,737
Sales volume changes		(54,215	)
Selling price changes		1,397
Sales mix		1,408
Changes in variable compensation		10,000
Effects of changes in foreign currency		(1,254	)
Decreased infrastructure and overhead related expenses		2,933
Decrease in freight and duty		5,157
Savings related to workforce management		9,500
Other, net		(209	)

Earnings at September 30, 2009	$	18,454


Nonsegment expenses for the year ended September 30, 2008	$	30,671
Restructuring and other charges		15,159
Variable compensation		(2,552	)
Other		3,236

Non segment expenses for the year ended September 30, 2009	$	46,514


				Foreign short-
	Revolving credit			term
	facility			borrowings
Maximum daily balance during the period	$	39,000		$	21,840
Average daily balance during the period		11,022			1,216
Weighted average interest rate on average daily balance		0.98	%		3.96	%


		Increase/(Decrease) In										Increase/(Decrease) In
					2011			Post Retirement							2012			Post Retirement
		2011 Net			Projected			Benefit				2012 Net			Projected			Benefit
		Periodic			Service and			Obligation as of				Periodic			Service and			Obligation as of
Assumption	Change	Benefit Cost			Interest Costs			Sept. 30, 2010			Change	Benefit Cost			Interest Costs			Sept. 30, 2011
Defined benefit pension benefits:
Change in discount rate	1% increase	$	(1,330	)	$	(441	)	$	(21,180	)	1% increase	$	(1,327	)	$	(443	)	$	(21,575	)
	1% decrease		2,063			405			26,125		1% decrease		2,358			403			26,480

Other postretirement benefits:
Change in discount rate	1% increase		(332	)		143			(2,985	)	1% increase		(116	)		140			(2,584	)
	1% decrease		(134	)		(177	)		3,471		1% decrease		(10	)		(172	)		2,998


	As of September 30,
	2009						2008
	As previously						As previously
	reported			As recast			reported			As recast
Balance sheet:
Total assets	$	1,696,422		$	1,696,422		$	927,017		$	927,017

Total liabilities	$	987,184		$	984,907		$	297,389		$	294,601
Total stockholders’ equity		709,238			711,515			629,628			632,416

Total liabilities and stockholders’ equity	$	1,696,422		$	1,696,422		$	927,017		$	927,017


Statements of stockholders’ equity:
Preferred stock	$	—		$	—		$	—		$	—
Common stock		106			106			106			106
Additional paid-in capital		73,197			73,197			68,520			68,520
Accumulated other comprehensive earnings		9,908			10,129			20,319			20,485
Deferred compensation		4,904			4,904			5,283			5,283
Retained earnings		741,505			741,505			663,442			663,442
Treasury Stock		(120,382	)		(120,382	)		(128,042	)		(128,042	)

Total Woodward stockholders’ equity		709,238			709,459			629,628			629,794
Noncontrolling interest in consolidated subsidiary		—			2,056			—			2,622

Total stockholders’ equity	$	709,238		$	711,515		$	629,628		$	632,416


	For the year ended September 30,
	2009						2008
	As previously						As previously
	reported			As recast			reported			As recast
Statements of earnings and comprehensive earnings:
Net sales	$	1,430,125		$	1,430,125		$	1,258,204		$	1,258,204
Total costs and expenses		1,307,713			1,307,649			1,076,294			1,075,619

Earnings before income taxes		122,412			122,476			181,910			182,585
Income taxes		(28,060	)		(28,060	)		(60,030	)		(60,030	)

Net earnings		94,352			94,416			121,880			122,555
Net earnings attributable to noncontrolling interests		—			(64	)		—			(675	)

Net earnings attributable to Woodward	$	94,352		$	94,352		$	121,880		$	121,880


Comprehensive earnings attributable to Woodward	$	83,941		$	83,996		$	119,189		$	119,473
Comp. earnings attributable to noncontrolling interests		—			9			—			391

Comprehensive earnings	$	83,941		$	84,005		$	119,189		$	119,864


Earnings per share attributable to Woodward:
Basic	$	1.39		$	1.39		$	1.80		$	1.80
Diluted	$	1.37		$	1.37		$	1.75		$	1.75

Statements of cash flows:
Cash flows provided by operating activities	$	218,652		$	219,227		$	125,354		$	126,023
Cash used in investing activities		(714,130	)		(714,130	)		(35,909	)		(35,909	)
Cash provided by (used in) financing activities		487,940			487,365			(48,904	)		(49,573	)
Effect of exchange rate changes on cash and cash equivalents		(1,432	)		(1,432	)		(2,343	)		(2,343	)

Net change in cash and cash equivalents	$	(8,970	)	$	(8,970	)	$	38,198		$	38,198


Cash paid to owners	$	316,092
Long-term debt repaid		18,610
Contractual change in control obligations		32,175
Direct transaction costs		3,560

Total purchase price	$	370,437


Current assets	$	112,116
Property, plant, and equipment		21,855
Goodwill		174,893
Intangible assets		164,200
Deferred income tax assets		23,939
Other assets		1,513

Total assets acquired		498,516

Other current liabilities		23,950
Department of Justice Matter		25,000
Accrued restructuring charges		10,106
Deferred tax liabilities		65,009
Other tax — noncurrent		4,014

Total liabilities assumed		128,079

Net assets acquired	$	370,437


Cash paid to owners	$	377,660
Cash acquired		(11	)
Direct transaction costs		3,100

Total purchase price	$	380,749


Current assets	$	115,707
Property, plant, and equipment		41,926
Goodwill		142,699
Intangible assets		128,400
Other assets		13

Total assets acquired		428,745

Other current liabilities		19,515
Accrued restructuring charges		9,334
Postretirement benefits		13,077
Other noncurrent liabilities		6,070

Total liabilities assumed		47,996

Net assets acquired	$	380,749


	At September 30, 2011						At September 30, 2010
		Estimated Fair					Estimated Fair
	Value			Carrying Cost			Value			Carrying Cost

Cash and cash equivalents	$	74,539		$	74,539		$	105,579		$	105,579
Investments in deferred compensation program		5,855			5,855			5,633			5,633
Short-term borrowings		—			—			(22,099	)		(22,099	)
Long-term debt, including current portion		(482,776	)		(425,246	)		(506,120	)		(443,673	)


		Year Ending September 30, 2010
		Amount of			Amount of		Amount of
		(Income)			(Gain) Loss		(Gain) Loss
		Expense			Recognized		Reclassified
		Recognized			in		from
		in Earnings			Accumulated		Accumulated
	Location of (Gain) Loss	on			OCI on		OCI into
Derivatives in:	Recognized in Earnings	Derivative			Derivative		Earnings

Fair value hedging relationships	Interest expense	$	(127	)	$	—	$	—
Cash flow hedging relationships	Interest expense		282			—		282
Foreign currency relationships	Other (income) expense, net		(681	)		—		—

		$	(526	)	$	—	$	282