UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

GOODRICH CORPORATION

New York		34-0252680
(State of Incorporation)		(I.R.S. Employer Identification No.)
Four Coliseum Centre
2730 West Tyvola Road
Charlotte, North Carolina		28217
(Address of Principal Executive Offices)		(Zip Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

At March 31, 2009, there were 123,855,808 shares of common stock outstanding (excluding 14,000,000 shares held by a wholly owned subsidiary). There is only one class of common stock.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk			54
Item 4. Controls and Procedures			54
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			55
Item 1A. Risk Factors			55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 6. Exhibits			57
SIGNATURE			58
EXHIBIT INDEX			59
EX-15
EX-31.1
EX-31.2
EX-32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have reviewed the condensed consolidated balance sheet of Goodrich Corporation as of March 31, 2009, and the related condensed consolidated statement of income for the three-month periods ended March 31, 2009 and 2008, and the condensed consolidated statement of cash flows for the three-month period ended March 31, 2009 and 2008. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Goodrich Corporation as of December 31, 2008, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, not presented herein; and in our report dated February 16, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Charlotte, North Carolina
April 22, 2009

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

		Three Months Ended March 31,
		2009				2008
		(Dollars in millions,
		except per share amounts)
Sales		$	1,695.9			$	1,745.0
Operating costs and expenses:
Cost of sales			1,180.1				1,213.4
Selling and administrative costs			248.0				257.1
			1,428.1				1,470.5
Operating Income			267.8				274.5
Interest expense			(28.8	)			(30.8	)
Interest income			0.6				3.1
Other income (expense) — net			(4.4	)			(9.8	)
Income from continuing operations before income taxes			235.2				237.0
Income tax expense			(61.9	)			(78.9	)
Income From Continuing Operations			173.3				158.1
Income from discontinued operations — net of income taxes			0.5				4.3
Consolidated Net Income			173.8				162.4
Net income attributable to noncontrolling interests			(4.0	)			(4.5	)
Net Income Attributable to Goodrich		$	169.8			$	157.9
Amounts attributable to Goodrich:
Income from continuing operations		$	169.3			$	153.6
Income from discontinued operations — net of income taxes			0.5				4.3
Net Income Attributable to Goodrich		$	169.8			$	157.9
Earnings per common share attributable to Goodrich:
Basic Earnings Per Share
Continuing operations		$	1.35			$	1.21
Discontinued operations			—				0.03
Net Income Attributable to Goodrich		$	1.35			$	1.24
Diluted Earnings Per Share
Continuing operations		$	1.35			$	1.20
Discontinued operations			—				0.03
Net Income Attributable to Goodrich		$	1.35			$	1.23
Dividends Declared Per Common Share		$	0.25			$	0.225

See Notes to Condensed Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

		March 31,				December 31,
		2009				2008
		(Dollars in millions,
		except share amounts)
Current Assets
Cash and cash equivalents		$	665.1			$	370.3
Accounts and notes receivable, less allowances for doubtful receivables ($17.8 at March 31, 2009 and $17.2 at December 31, 2008)			1,140.7				1,048.9
Inventories — net			2,048.2				1,974.7
Deferred income taxes			150.1				153.5
Prepaid expenses and other assets			40.8				47.2
Income taxes receivable			43.7				73.7
Total Current Assets			4,088.6				3,668.3
Property, plant and equipment — net			1,368.4				1,391.4
Prepaid pension			0.6				0.6
Goodwill			1,379.7				1,390.2
Identifiable intangible assets — net			390.6				402.8
Deferred income taxes			91.3				92.0
Other assets			542.5				537.6
Total Assets		$	7,861.7			$	7,482.9
Current Liabilities
Short-term debt		$	35.7			$	37.7
Accounts payable			679.1				646.4
Accrued expenses			919.9				1,005.3
Income taxes payable			26.2				5.6
Deferred income taxes			24.9				25.0
Current maturities of long-term debt and capital lease obligations			120.7				121.3
Total Current Liabilities			1,806.5				1,841.3
Long-term debt and capital lease obligations			1,707.6				1,410.4
Pension obligations			989.1				973.9
Postretirement benefits other than pensions			304.8				309.4
Long-term income taxes payable			172.3				172.3
Deferred income taxes			27.7				62.3
Other non-current liabilities			568.7				561.1
Shareholders’ Equity
Common stock — $5 par value
Authorized 200,000,000 shares; issued 144,431,823 shares at March 31, 2009 and 143,611,254 shares at December 31, 2008 (excluding 14,000,000 shares held by a wholly owned subsidiary)			722.2				718.1
Additional paid-in capital			1,542.6				1,525.3
Income retained in the business			1,757.6				1,619.2
Accumulated other comprehensive income (loss)			(996.2	)			(978.1	)
Common stock held in treasury, at cost (20,576,015 shares at March 31, 2009 and 20,410,556 shares at December 31, 2008)			(799.6	)			(793.2	)
Total Shareholders’ Equity			2,226.6				2,091.3
Noncontrolling interests			58.4				60.9
Total Equity			2,285.0				2,152.2
Total Liabilities And Equity		$	7,861.7			$	7,482.9

See Notes to Condensed Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

		Three Months Ended
		March 31,
		2009				2008
		(Dollars in millions)
Operating Activities
Net income attributable to Goodrich		$	169.8			$	157.9
Adjustments to reconcile net income attributable to Goodrich to net cash provided by operating activities:
Income from discontinued operations			(0.5	)			(4.3	)
Net income attributable to noncontrolling interests			4.0				4.5
Pension and postretirement benefits:
Expenses			51.6				25.7
Contributions and benefit payments			(17.7	)			(15.3	)
Depreciation and amortization			60.0				64.1
Excess tax benefits related to share-based payment arrangements			(0.6	)			(5.3	)
Share-based compensation expense			13.4				7.8
Deferred income taxes			6.2				(1.0	)
Change in assets and liabilities, net of effects of acquisitions and divestitures:
Receivables			(100.1	)			(114.1	)
Inventories, net of pre-production and excess-over-average			(61.2	)			(60.0	)
Pre-production and excess-over-average inventories			(27.5	)			(29.7	)
Other current assets			(1.8	)			0.6
Accounts payable			41.5				130.4
Accrued expenses			(102.0	)			(82.8	)
Income taxes payable/receivable			52.8				98.8
Other non-current assets and liabilities			(21.3	)			(26.4	)
Net Cash Provided By Operating Activities			66.6				150.9
Investing Activities
Purchases of property, plant and equipment			(34.2	)			(54.4	)
Proceeds from sale of property, plant and equipment			0.8				—
Payments made for acquisitions, net of cash acquired			—				(9.5	)
Investments in and advances to equity investees			(0.5	)			—
Net Cash Used In Investing Activities			(33.9	)			(63.9	)
Financing Activities
Decrease in short-term debt, net			(1.8	)			(12.0	)
Proceeds (repayments) of long-term debt and capital lease obligations			297.6				(0.5	)
Proceeds from issuance of common stock			11.5				13.7
Purchases of treasury stock			(6.5	)			(16.8	)
Dividends paid			(31.2	)			(28.5	)
Excess tax benefits related to share-based payment arrangements			0.6				5.3
Distributions to noncontrolling interests			(6.5	)			(5.5	)
Net Cash Provided By (Used In) Financing Activities			263.7				(44.3	)
Discontinued Operations
Net cash provided by (used in) operating activities			0.5				(2.6	)
Net cash provided by (used in) investing activities			—				16.0
Net cash provided by (used in) financing activities			—				—
Net cash provided by discontinued operations			0.5				13.4
Effect of exchange rate changes on cash and cash equivalents			(2.1	)			1.1
Net increase in cash and cash equivalents			294.8				57.2
Cash and cash equivalents at beginning of period			370.3				406.0
Cash and cash equivalents at end of period		$	665.1			$	463.2

See Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Basis of Interim Financial Statement Preparation and Use of Estimates

The accompanying unaudited condensed consolidated financial statements of Goodrich Corporation and its subsidiaries have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Goodrich” or “Company” refer to Goodrich Corporation and its subsidiaries. The Company believes that all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts in prior year financial statements have been reclassified to conform to the current year presentation. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be achieved for the twelve months ending December 31, 2009. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Unless otherwise noted, disclosures pertain to the Company’s continuing operations. Income from discontinued operations for the three months ended March 31, 2009 and 2008 was $0.5 million and $4.3 million, net of tax expense of $0.3 million and $0.4 million, respectively. During the three months ended March 31, 2008, the Company sold a previously discontinued business for a gain of $6.1 million.

The preparation of financial statements requires management to make estimates and assumptions that affect amounts recognized. Estimates and assumptions are reviewed and updated regularly as new information becomes available. During the three months ended March 31, 2009 and 2008, the Company changed its estimates of revenues and costs on certain long-term contracts primarily in its aerostructures and aircraft wheels and brakes businesses. The changes in estimates increased income from continuing operations before income taxes during the three months ended March 31, 2009 and 2008 by $5.2 million and $40.1 million, respectively ($3.3 million and $24.6 million after tax, respectively).

Note 2. New Accounting Standards

Fair Value Measurements

The Company adopted Financial Accounting Standards Board (FASB) Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2) on January 1, 2009, which delayed the effective date of Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (SFAS 157) for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis (at least annually). This standard did not have a material impact on the Company’s financial condition and results of operations. See Note 7, “Fair Value Measurements”.

The Company adopted FASB Staff Position No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP 132(R)-1) on January 1, 2009, which requires additional disclosures about assets held in an employer’s defined benefit pension or other postretirement plan. Since FSP 132(R)-1 requires only additional disclosures about the Company’s pension and other postretirement plan assets, the adoption of FSP 132(R)-1 will not affect the Company’s financial condition or results of operations.

Two-class Method of Computing Earnings Per Share

The Company adopted FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP 03-6-1). In FSP 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be included in the two-class method of computing earnings per share (EPS). This standard did not have a material impact on the Company’s disclosure of EPS. See Note 6, “Earnings Per Share”.

Disclosures about Derivative Instruments and Hedging Activities

The Company adopted FASB No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). SFAS 161 requires entities to provide greater transparency through additional disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. See Note 17, “Derivatives and Hedging Activities”.

Business Combinations and Noncontrolling Interests

The Company adopted FASB No. 160, “Accounting and Reporting of Noncontrolling Interests in consolidated financial statements, an amendment of ARB No. 51” (SFAS 160). The Company changed the presentation of its noncontrolling (minority) interests in compliance with this standard. See Note 13, “Noncontrolling Interests”.

The Company adopted FASB No. 141(R), “Business Combinations” (SFAS 141(R)) which significantly changed the accounting for and reporting of business combination transactions. This standard was effective for the Company for business combination transactions for which the acquisition date was on or after January 1, 2009. No business combination transactions occurred during the three months ended March 31, 2009.

Note 3. Business Segment Information

The Company’s three business segments are as follows:

	•		The Actuation and Landing Systems segment provides systems, components and related services pertaining to aircraft taxi, take-off, flight control, landing and stopping, and engine components, including fuel delivery systems and rotating assemblies.
	•		The Nacelles and Interior Systems segment produces products and provides maintenance, repair and overhaul services associated with aircraft engines, including thrust reversers, cowlings, nozzles and their components, and aircraft interior products, including slides, seats, cargo and lighting systems.

•

The Electronic Systems segment produces a wide array of systems and components that provide flight performance measurements, flight management, fuel controls, electrical systems, and control and safety data, and reconnaissance and surveillance systems.

The Company measures each reporting segment’s profit based upon operating income. Accordingly, the Company does not allocate net interest expense, other income (expense) — net and income taxes to its reporting segments. The company-wide Enterprise Resource Planning (ERP) implementation costs that are not directly associated with a specific business were not allocated to the segments. The accounting policies of the reportable segments are the same as those for the Company’s condensed consolidated financial statements.

		Three Months Ended
		March 31,
		2009				2008
		(Dollars in millions)
Sales:
Actuation and Landing Systems		$	612.7			$	682.1
Nacelles and Interior Systems			632.2				620.5
Electronic Systems			451.0				442.4
		$	1,695.9			$	1,745.0
Intersegment sales:
Actuation and Landing Systems		$	6.9			$	8.6
Nacelles and Interior Systems			1.7				4.2
Electronic Systems			6.7				6.1
		$	15.3			$	18.9
Operating income:
Actuation and Landing Systems		$	76.1			$	74.1
Nacelles and Interior Systems			148.7				178.8
Electronic Systems			67.1				48.9
			291.9				301.8
Corporate general and administrative expenses			(20.0	)			(22.5	)
ERP implementation costs			(4.1	)			(4.8	)
Total operating income		$	267.8			$	274.5

Note 4. Other Income (Expense) — net

Other Income (Expense) — net consisted of the following:

		Three Months Ended
		March 31,
		2009				2008
		(Dollars in millions)
Retiree health care expenses related to previously owned businesses		$	(3.4	)		$	(7.8	)
Expenses related to previously owned businesses			(0.9	)			(2.5	)
Equity in affiliated companies			0.3				0.8
Other — net			(0.4	)			(0.3	)
Other income (expense) — net		$	(4.4	)		$	(9.8	)

Note 5. Share-Based Compensation

During the three months ended March 31, 2009 and 2008, the Company expensed share-based compensation awards under the Goodrich Equity Compensation Plan and the Goodrich Corporation Employee Stock Purchase Plan for employees and under the Outside Director Deferral and Outside Director Phantom Share plans for non-employee directors. A detailed description of the awards under these plans is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Share-Based Compensation Expense

The compensation cost recorded for all of the Company’s share-based compensation plans during the three months ended March 31, 2009 and 2008 was as follows:

		Three Months Ended
		March 31,
		2009				2008
		(In millions, except per
		share amounts)
Compensation cost before taxes		$	13.4			$	7.8
Compensation cost after taxes		$	8.8			$	5.1
Compensation cost per diluted share		$	0.07			$	0.04

Grants

A summary of the Company’s grants during the three months ended March 31, 2009 and the weighted-average fair value per share are as follows:

Stock Options						Restricted Stock Units								Performance Units
		Weighted Average								Weighted Average								Weighted Average
Shares		Fair Value Per Share				Shares				Fair Value Per Share				Shares				Fair Value Per Share
897,800		$	9.67				531,650			$	38.37				142,450			$	42.64

The grant date fair value for the stock options with the three-year service condition was estimated under the Black-Scholes-Merton formula using the following weighted-average assumptions:

		2009				2008
Risk-free interest rate (%)			1.8				3.3
Expected dividend yield (%)			2.6				1.3
Historical volatility factor (%)			33.3				31.2
Weighted-average expected life of the options (years)			5.6				5.6

Employee Stock Purchase Plan Shares Issued

Approximately 345,850 and 229,570 shares of common stock were issued during the three months ended March 31, 2009 and 2008, respectively. Employee contributions of $10.4 million and $8.9 million during the years ended December 31, 2008 and 2007, respectively, were used to purchase the Company’s stock during the three months ended March 31, 2009 and 2008, respectively.

Note 6. Earnings Per Share

The computation of basic and diluted earnings per common share for income from continuing operations is as follows:

		Three Months Ended
		March 31,
		2009				2008
		(In millions, except per share amounts)
Numerator
Numerator for basic and diluted earnings per common share — income from continuing operations attributable to Goodrich		$	169.3			$	153.6
Less: dividends declared — common shares and unvested restricted share units			(31.4	)			(28.6	)
Undistributed earnings			137.9				125.0
Percentage allocated to common shareholders (1)			98.6	%			98.6	%
			135.9				123.2
Add: dividends declared — common shares			31.0				28.1
Numerator for basic and diluted earnings per common share		$	166.9			$	151.3
Denominator
Denominator for basic earnings per common share — weighted-average shares			123.8				125.0
Effect of dilutive securities:
Stock options and employee stock purchase plan			0.5				1.4
Other deferred compensation shares			0.1				0.1
			0.6				1.5
Denominator for diluted earnings per common share — adjusted weighted-average shares and assumed conversion			124.4				126.5
Per common share income from continuing operations
Basic		$	1.35			$	1.21
Diluted		$	1.35			$	1.20
(1) Basic weighted-average common shares outstanding			123.8				125.0
Basic weighted-average common shares outstanding and unvested restricted share units expected to vest			125.6				126.8
Percentage allocated to common shareholders			98.6	%			98.6	%

As described in Note 2, “New Accounting Standards”, the Company adopted FSP 03-6-1 on January 1, 2009. The Company’s unvested restricted share units contain rights to receive nonforfeitable dividends, and thus, are participating securities requiring the two-class method of computing EPS. The calculation of earnings per share for common stock shown above excludes the income attributable to the unvested restricted share units from the numerator and excludes the dilutive impact of those units from the denominator.

At March 31, 2009 and 2008, the Company had 5.4 million and 5 million of outstanding stock options, respectively. Stock options are included in the diluted earnings per share calculation using the treasury stock method, unless the effect of including the stock options would be anti-dilutive. For the three months ended March 31, 2009 and 2008, 3.5 million and 908,000 anti-dilutive stock options, respectively, were excluded from the diluted earnings per share calculation.

During the three months ended March 31, 2009 and 2008, the Company issued 0.8 million and 0.7 million, respectively, of shares of common stock pursuant to stock option exercises and other share-based compensation plans.

During the three months ended March 31, 2008, the Company repurchased 0.1 million shares under its share repurchase program that was initially approved by the Board of Directors on October 24, 2006 and increased by the Board of Directors on February 19, 2008, for $600 million in total. There were no share repurchases during the three months ended March 31, 2009. As of March 31, 2009, the Company has repurchased 6.4 million shares to date for approximately $354 million under its share repurchase program.

Note 7. Fair Value Measurements

SFAS 157 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also describes three levels of inputs that may be used to measure fair value:

Level 1 —		quoted prices in active markets for identical assets and liabilities.
Level 2 —		observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 —		unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The Company’s financial assets and (liabilities) measured at fair value on a recurring basis were as follows:

		Balance																Balance
		March 31,																December 31,
		2009				Level 1				Level 2				Level 3				2008				Level 1				Level 2				Level 3
		(Dollars in millions)
Cash Equivalents (1)		$	466.1			$	466.1				—			$	—			$	291.5			$	291.5			$	—			$	—
Derivative Financial Instruments (2)
Cash Flow Hedges			(185.8	)			—				(185.8	)			—				(156.1	)			—				(156.1	)			—
Other Forward Contracts			0.9				—				0.9				—				—				—				—				—
Rabbi Trust Assets (3)			33.0				33.0				—				—				41.9				41.9				—				—

Note 8. Inventories

Inventories consist of the following:

		March 31,				December 31,
		2009				2008
		(Dollars in millions)
FIFO or average cost (which approximates current costs):
Finished products		$	230.6			$	225.2
In-process			1,290.9				1,253.6
Raw materials and supplies			622.7				595.7
			2,144.2				2,074.5
Less:
Reserve to reduce certain inventories to LIFO basis			(56.9	)			(56.2	)
Progress payments and advances			(39.1	)			(43.6	)
Total		$	2,048.2			$	1,974.7

In-process inventory included $659 million and $633.1 million at March 31, 2009 and December 31, 2008, respectively, for the following: (1) pre-production and excess-over-average inventory accounted for under long-term contract accounting; and (2) engineering costs guaranteed of recovery under long-term contractual arrangements. The March 31, 2009 balance of $659 million included $406.3 million related to Boeing 787 contracts.

The Company uses the last-in, first-out (LIFO) method of valuing inventory for certain of the Company’s legacy aerospace manufacturing businesses, primarily the aircraft wheels and brakes business unit in the Actuation and Landing Systems segment. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time.

Note 9. Goodwill

The changes in the carrying amount of goodwill by segment were as follows:

		Balance								Foreign				Balance
		December 31,				Business				Currency				March 31,
		2008				Combinations (1)				Translation				2009
		(Dollars in millions)
Actuation and Landing Systems		$	289.6			$	—			$	(3.8	)		$	285.8
Nacelles and Interior Systems			439.8				—				(5.3	)			434.5
Electronic Systems			660.8				(0.1	)			(1.3	)			659.4
		$	1,390.2			$	(0.1	)		$	(10.4	)		$	1,379.7

Note 10. Financing Arrangements

The Company has a $500 million committed global syndicated revolving credit facility, which expires in May 2012. Interest rates under this facility vary depending upon:

	•		The amount borrowed;
	•		The Company’s public debt rating by Standard & Poor’s, Moody’s and Fitch; and
	•		At the Company’s option, rates tied to the agent bank’s prime rate or, for U.S. Dollar and Great Britain Pounds Sterling borrowings, the London Interbank Offered Rate and for Euro Dollar borrowings, the Euro Interbank Offered Rate.

At March 31, 2009, there were no borrowings and $42.7 million in letters of credit outstanding under the facility. At December 31, 2008, there were no borrowings and $35.6 million in letters of credit outstanding under the facility. The level of unused borrowing capacity varies from time to time depending, in part, upon the Company’s compliance with financial and other covenants set forth in the related agreement, including the consolidated net worth requirement and maximum leverage ratio. The Company is currently in compliance with all such covenants. Under the most restrictive of these covenants, $716.5 million of income retained in the business and additional paid-in capital was free from such limitations at March 31, 2009. At March 31, 2009, the Company had borrowing capacity under this facility of $457.3 million, after reductions for borrowings and letters of credit outstanding under the facility.

At March 31, 2009, the Company had letters of credit and bank guarantees of $81.2 million, inclusive of $42.7 million in letters of credit outstanding under the Company’s syndicated revolving credit facility, as discussed above.

At March 31, 2009, the Company also maintained $75 million of uncommitted domestic money market facilities and $145.8 million of uncommitted and committed foreign working capital facilities with various banks to meet short-term borrowing requirements. At March 31, 2009 and December 31, 2008, there were $35.7 million and $37.7 million, respectively, in borrowings outstanding under these facilities. These credit facilities are provided by a small number of commercial banks that also provide the Company with committed credit through the syndicated revolving credit facility described above and with various cash management, trust and other services.

In February 2009, the Company issued $300 million principal amount of 6.125% senior notes due 2019, which were issued below par. The discount will be amortized over the life of the senior notes. The Company deferred approximately $2 million of transaction costs during the three months ended March 31, 2009. These costs will be amortized over the life of the 6.125% senior notes.

Lease Commitments

The Company leases certain of its office and manufacturing facilities as well as machinery and equipment, including corporate aircraft, under various committed lease arrangements provided by financial institutions.

Certain of these arrangements allow the Company, rather than the lessor, to claim a deduction for tax depreciation on the assets and allow the Company to lease corporate aircraft and equipment having a maximum unamortized value of $205 million at March 31, 2009. These leases are priced at a spread over LIBOR and certain of these leases are extended periodically through the end of the lease terms, unless notice is provided. At March 31, 2009, future payments under these leases were $6.4 million. At March 31, 2009, the Company had guarantees of residual values on lease obligations of $24.8 million. The Company is obligated to either purchase or remarket the leased assets at the end of the lease term.

Future minimum lease payments under standard operating leases were $181.9 million at March 31, 2009.

Note 11. Pensions and Postretirement Benefits Other Than Pensions

The following table sets forth the components of net periodic benefit cost. The net periodic benefit cost for divested or discontinued operations retained by the Company are included in the amounts below:

		U.S. Plans								U.K. Plans								Other Plans
		Three Months Ended								Three Months Ended								Three Months Ended
		March 31,								March 31,								March 31,
		2009				2008				2009				2008				2009				2008
		(Dollars in millions)
Service cost		$	9.5			$	10.3			$	4.3			$	7.2			$	0.9			$	1.2
Interest cost			42.9				41.4				8.3				11.0				1.4				1.7
Expected return on plan assets			(41.8	)			(50.0	)			(9.7	)			(16.9	)			(1.1	)			(1.8	)
Amortization of prior service cost			1.8				1.5				(0.1	)			(0.2	)			—				—
Amortization of actuarial loss			28.3				11.8				1.3				—				0.3				0.3
Gross periodic benefit cost			40.7				15.0				4.1				1.1				1.5				1.4
Settlement (gain) loss			—				—				—				—				(0.4	)			—
Net periodic benefit cost		$	40.7			$	15.0			$	4.1			$	1.1			$	1.1			$	1.4
The following table provides the weighted-average assumptions used to determine the net periodic benefit cost.
		U.S. Plans								U.K. Plans								Other Plans
		2009				2008				2009				2008				2009				2008
Discount rate		6.47%				6.30%				5.88%				5.50%				6.17%				5.28%
Expected long-term rate of return on assets		8.75%				9.00%				8.50%				8.50%				8.12%				8.24%
Rate of compensation increase		4.10%				4.10%				3.75%				3.75%				3.31%				3.38%

Post Retirement Benefits Other Than Pensions

The following table sets forth the components of net periodic postretirement benefit cost. Other postretirement benefits (OPEB) related to the divested and discontinued operations retained by the Company are included in the amounts below.

		Three Months Ended
		March 31,
		2009				2008
		(Dollars in millions)
Service cost		$	0.4			$	0.5
Interest cost			5.3				5.9
Amortization of prior service cost			—				(0.1	)
Amortization of actuarial (gain) loss			—				1.9
Net periodic benefit cost		$	5.7			$	8.2

The following table provides the assumptions used to determine the net periodic postretirement benefit cost.

		Three Months Ended March 31,
		2009				2008
Discount rate			6.38	%			6.12	%
Healthcare trend rate		7.8% in 2009 to 5% in 2015				8.3% in 2008 to 5% in 2015

Note 12. Comprehensive Income (Loss)

Total comprehensive income (loss) consisted of the following:

		Three Months Ended
		March 31,
		2009				2008
		(Dollars in millions)
Net income attributable to Goodrich		$	169.8			$	157.9
Other comprehensive income (loss):
Unrealized foreign currency translation gains (losses) during period			(49.3	)			25.6
Pension/OPEB liability adjustments during the period, net of tax for the three months ended March 31, 2009 and 2008 of $30.9 and ($8.3), respectively			51.3				8.5
Gain (loss) on cash flow hedges, net of tax for the three months ended March 31, 2009 and 2008 of $6.5 and $5.8, respectively			(20.1	)			(11.0	)
Less: Other comprehensive income (loss) attributable to noncontrolling interests			—				—
Total comprehensive income (loss)		$	151.7			$	181.0

Accumulated other comprehensive income (loss) consisted of the following:

		March 31,				December 31,
		2009				2008
		(Dollars in millions)
Cumulative unrealized foreign currency translation gains		$	2.3			$	51.6
Pension/OPEB liability adjustments, net of deferred taxes of $517.8 and $486.9, respectively			(854.2	)			(905.5	)
Accumulated gains (losses) on cash flow hedges, net of deferred taxes of $72.3 and $65.8, respectively			(144.3	)			(124.2	)
Total accumulated other comprehensive income (loss)		$	(996.2	)		$	(978.1	)

No income taxes are provided on unrealized foreign currency translation gains as foreign earnings are considered permanently invested.

Note 13. Noncontrolling Interests

As described in Note 2, “New Accounting Standards”, the Company adopted SFAS 160 on January 1, 2009. The changes in the Company’s noncontrolling interests were as follows:

		Three months ended March 31,
		2009				2008
		(Dollars in millions)
Balance at January 1		$	60.9			$	52.5
Distributions to noncontrolling interests			(6.5	)			(5.5	)
Comprehensive income:
Net income attributable to noncontrolling interests			4.0				4.5
Other comprehensive income, net of tax			—				—
Comprehensive income			4.0				4.5
Balance at March 31		$	58.4			$	51.5

Note 14. Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2009 was 26%. Significant items that impacted the Company’s effective tax rate as compared to the U.S. federal statutory rate of 35% included a benefit from an adjustment to state tax reserves which reduced the effective tax rate by approximately 6 percentage points, foreign and domestic tax credits which reduced the effective tax rate by approximately 3 percentage points, earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate which reduced the effective tax rate by approximately 3 percentage points, deemed repatriation of non-U.S. earnings which increased the effective tax rate by approximately 2 percentage points, adjustments to reserves for tax contingencies, including interest thereon (net of related tax benefit), which increased the effective tax rate by approximately 2 percentage points and state income taxes (net of related tax benefit) which increased the effective tax rate by approximately 2 percentage points.

The Company’s effective tax rate for the three months ended March 31, 2008 was 33%. Significant items that impacted the Company’s effective tax rate as compared to the U.S. federal statutory rate of 35% included a benefit from interest related to the 2000 to 2004 tax years under the look-back method for completed long-term contracts which reduced the effective tax rate by approximately 3 percentage points, foreign and domestic tax credits which reduced the effective tax rate by approximately 2 percentage points, earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate which reduced the effective tax rate by approximately 3 percentage points, deemed repatriation of non-U.S. earnings which increased the effective tax rate by approximately 2 percentage points, adjustments to reserves for tax contingencies, including interest thereon (net of related tax benefit), which increased the effective tax rate by approximately 2 percentage points and state income taxes (net of related tax benefit) which increased the effective tax rate by approximately 3 percentage points.

At March 31, 2009, the Company had a $271.5 million liability recorded for unrecognized tax benefits, which included interest and penalties of $139.6 million. The total amount of unrecognized benefits that, if recognized, would have affected the effective tax rate was $199.9 million. At December 31, 2008, the Company had a $289.4 million liability recorded for unrecognized tax benefits, which included interest and penalties of $158.1 million. The total amount of unrecognized benefits that, if recognized, would have affected the effective tax rate was $212.1 million. The Company reported interest and penalties related to unrecognized tax benefits in income tax expense.

Note 15. Contingencies

General

There are various pending or threatened claims, lawsuits and administrative proceedings against the Company or its subsidiaries, arising from the ordinary course of business which seek remedies or damages. Although no assurance can be given with respect to the ultimate outcome of these matters, the Company believes that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on its consolidated financial position, results of operations or cash flows. Legal costs are expensed as incurred.

Environmental

The Company is subject to environmental laws and regulations which may require that the Company investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. At certain sites, the Company has been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under applicable laws.

Estimates of the Company’s environmental liabilities are based on current facts, laws, regulations and technology. These estimates take into consideration the Company’s prior experience and professional judgment of the Company’s environmental specialists. Estimates of the Company’s environmental liabilities are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and cost estimates, the extent of corrective actions that may be required and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation.

Accordingly, as investigation and remediation proceed, it is likely that adjustments in the Company’s accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company’s results of operations or cash flows in a given period. Based on currently available information, however, the Company does not believe that future environmental costs in excess of those accrued with respect to sites for which the Company has been identified as a potentially responsible party are likely to have a material adverse effect on the Company’s financial condition.

Environmental liabilities are recorded when the liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when the Company has recommended a remedy or has committed to an appropriate plan of action. The liabilities are reviewed periodically and, as investigation and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation and anticipated expenditures are not discounted to their present value. The liabilities are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites, third party indemnity obligations, and an assessment of the likelihood that such parties will fulfill their obligations at such sites.

The Company’s condensed consolidated balance sheet included an accrued liability for environmental remediation obligations of $62.5 million and $62.3 million at March 31, 2009 and December 31, 2008, respectively. At March 31, 2009 and December 31, 2008, $20.4 million and $20.9 million, respectively, of the accrued liability for environmental remediation were included in current liabilities as accrued expenses. At March 31, 2009 and December 31, 2008, $24.2 million and $24 million, respectively, was associated with ongoing operations and $38.3 million for both periods was associated with previously owned businesses.

The Company expects that it will expend present accruals over many years, and will generally complete remediation in less than 30 years at sites for which it has been identified as a potentially responsible party. This period includes operation and monitoring costs that are generally incurred over 15 to 25 years. Recently, certain states in the U.S. and countries globally are promulgating or proposing new or more demanding regulations or legislation impacting the use of various chemical substances by all companies. The Company is currently evaluating the potential impact, if any, of complying with such regulations and legislation.

On January 4, 2007, the Company received a judgment against Commercial Union Insurance Company, currently known as One Beacon America Insurance Company, and nine London Market Insurance Companies for reimbursement of past remediation costs at an environmental site, attorney fees and interest in the amount of approximately $58 million and coverage of certain unquantified future costs. On June 30, 2008, the Ohio Court of Appeals upheld the judgment. On December 31, 2008, the Ohio Supreme Court denied the insurers’ request for further appeal. On January 12, 2009, the insurers sought rehearing in the Ohio Supreme Court, which was denied on March 4, 2009. On April 15, 2009, the Company received a partial payment of $39.8 million from Commercial Union; however, certain issues remain unresolved and a former subsidiary of the Company has a claim to a portion of the judgment amount. Accordingly, no amounts have been recorded in the Company’s condensed consolidated financial statements as of March 31, 2009.

Asbestos

The Company and some of its subsidiaries have been named as defendants in various actions by plaintiffs alleging damages as a result of exposure to asbestos fibers in products or at its facilities. A number of these cases involve maritime claims, which have been and are expected to continue to be administratively dismissed by the court. The Company believes that pending and reasonably anticipated future actions are not likely to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. There can be no assurance, however, that future legislative or other developments will not have a material adverse effect on the Company’s results of operations and cash flows in a given period.

Insurance Coverage

The Company maintains a comprehensive portfolio of insurance policies, including aviation products liability insurance which covers most of its products. The aviation products liability insurance provides first dollar coverage for defense and indemnity of third party claims.

A portion of the Company’s primary and excess layers of pre-1986 insurance coverage for third party claims was provided by certain insurance carriers who are either insolvent, undergoing solvent schemes of arrangement or in run-off. The Company has entered into settlement agreements with a number of these insurers pursuant to which the Company agreed to give up its rights with respect to certain insurance policies in exchange for negotiated payments. These settlements represent negotiated payments for the Company’s loss of insurance coverage, as it no longer has this insurance available for claims that may have qualified for coverage. A portion of these settlements was recorded as income for reimbursement of past claim payments under the settled insurance policies and a portion was recorded as a deferred settlement credit for future claim payments.

At March 31, 2009 and December 31, 2008, the deferred settlement credit was $47.9 million and $49.4 million, respectively, for which $6.4 million for both periods was reported in accrued expenses and $41.5 million and $43 million, respectively, was reported in other non-current liabilities. The proceeds from such insurance settlements were reported as a component of net cash provided by operating activities in the period payments were received.

Liabilities of Divested Businesses

Asbestos

In May 2002, the Company completed the tax-free spin-off of its Engineered Industrial Products (EIP) segment, which at the time of the spin-off included EnPro Industries, Inc. (EnPro) and Coltec Industries Inc (Coltec). At that time, two subsidiaries of Coltec were defendants in a significant number of personal injury claims relating to alleged asbestos-containing products sold by those subsidiaries prior to the Company’s ownership. It is possible that asbestos-related claims might be asserted against the Company on the theory that it has some responsibility for the asbestos-related liabilities of EnPro, Coltec or its subsidiaries. A limited number of asbestos-related claims have been asserted against the Company as “successor” to Coltec or one of its subsidiaries. The Company believes that it has substantial legal defenses against these and other such claims. In addition, the agreement between EnPro and the Company that was used to effectuate the spin-off provides the Company with an indemnification from EnPro covering, among other things, these liabilities. The Company

believes that such claims would not have a material adverse effect on its financial condition, but could have a material adverse effect on its results of operations and cash flows in a particular period.

Other

In connection with the divestiture of the Company’s tire, vinyl and other businesses, the Company has received contractual rights of indemnification from third parties for environmental and other claims arising out of the divested businesses. Failure of these third parties to honor their indemnification obligations could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

Aerostructures Long-term Contracts

The Company’s aerostructures business in the Nacelles and Interior Systems segment has several long-term contracts in the pre-production phase including the Boeing 787 and Airbus A350 XWB, and in the early production phase including the Airbus A380. These contracts are accounted for in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (SOP 81-1).

The pre-production phase includes design of the product to meet customer specifications as well as design of the processes to manufacture the product. Also involved in this phase is securing the supply of material and subcomponents produced by third party suppliers that are generally accomplished through long-term supply agreements.

Contracts in the early production phase include excess-over-average inventories, which represent the excess of current manufactured cost over the estimated average manufactured cost during the life of the contract.

Cost estimates over the lives of contracts are affected by estimates of future cost reductions including learning curve efficiencies. Because these contracts cover manufacturing periods of up to 20 years or more, there is risk associated with the estimates of future costs made during the pre-production and early production phases. These estimates may be different from actual costs due to the following:

	•		Ability to recover costs incurred for change orders and claims;
	•		Costs, including material and labor costs and related escalation;
	•		Labor improvements due to the learning curve experience;
	•		Anticipated cost productivity improvements related to new manufacturing methods and processes;
	•		Supplier pricing, including escalation where applicable, supplier claims (see “Boeing 787 Contract” below), and the supplier’s ability to perform;
	•		The cost impact of product design changes that frequently occur during the flight test and certification phases of a program; and

•

Effect of foreign currency exchange fluctuations.

Additionally, total contract revenue is based on estimates of future units to be delivered to the customer, the ability to recover costs incurred for change orders and claims and sales price escalation, where applicable. There is a risk that there could be differences between the actual units delivered and the estimated total units to be delivered under the contract and differences in actual sales price escalation compared to estimates. Changes in estimates could have a material impact on the Company’s results of operations and cash flows.

Provisions for estimated losses on uncompleted contracts are recorded in the period such losses are determined to the extent total estimated costs exceed total estimated contract revenues.

Boeing 787 Contract

During 2004, the Company’s aerostructures business entered into a long-term supply contract with Boeing on the 787 program. The Company’s latest outlook projects approximately $5 billion of original equipment sales for this program. Aftermarket sales associated with this program are not accounted for using the percentage-of-completion method of accounting.

The Boeing 787 program has experienced delays in its development schedule and Boeing has requested numerous changes in the design of the Company’s product and scope of its work. Under the terms of the Company’s contract, it is entitled to reimbursement of certain costs and equitable price adjustments under certain circumstances. Discussions with Boeing are ongoing. If the Company is unable to reach a fair and equitable resolution with Boeing or if any of the actual costs or revenues differ from the estimates, it could have a material adverse effect on the Company’s financial position, results of operations and/or cash flows in a given period.

On July 21, 2008, Alenia Aermacchi, S.p.A. (AAeM) filed a Demand for Arbitration with the American Arbitration Association against Rohr, Inc. (Rohr), a wholly-owned subsidiary of the Company (its aerostructures business), in connection with a contract for the supply of fan cowls used in the nacelles that Rohr provides to Boeing on the 787 program. According to its Statement of Claims filed on August 15, 2008, AAeM seeks declaratory relief, rescission of the supply contract and monetary damages, based upon allegations of commercial impracticability, lack of compensation for costs associated with design changes and Rohr’s mismanagement of the program. On September 22, 2008, Rohr filed its answer, seeking to uphold the contract and denying liability, and instituted a counterclaim against AAeM, seeking damages for breach of contract and breach of covenant of good faith and fair dealing. On October 31, 2008, AAeM filed its answer generally denying the allegations made against it in Rohr’s counterclaims. On December 17, 2008, the Company amended its counterclaim to seek declaratory relief regarding ownership of certain intellectual property. The Company believes that it has substantial legal and factual defenses to AAeM’s claims, and intends to defend its interests and pursue its counterclaims vigorously. Given the nature and status of this proceeding, the Company cannot yet determine the amount or a reasonable range of potential loss, if any. The parties have agreed not to take any formal action in the arbitration proceeding through April 30, 2009 while they continue to explore a potential settlement. If the Company is unable to adequately resolve the dispute with AAeM, it could have a material adverse effect on the Company’s financial position, results of operations and/or cash flows in a given period.

Tax

The Company is continuously undergoing examination by the IRS as well as various state and foreign jurisdictions. The IRS and other taxing authorities routinely challenge certain deductions and credits reported by the Company on its income tax returns. The Company establishes reserves for tax contingencies in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109) and FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). See Note 14 “Income Taxes”, for additional detail.

Tax Years 2000 to 2004

During 2007, the IRS and the Company reached agreement on substantially all of the issues raised with respect to the examination of taxable years 2000 to 2004. The Company submitted a protest to the Appeals Division of the IRS with respect to the remaining unresolved issues. The Company believes the amount of the estimated tax liability if the IRS were to prevail is fully reserved. The Company cannot predict the timing or ultimate outcome of a final resolution of the remaining unresolved issues.

Tax Years Prior to 2000

The previous examination cycle included the consolidated income tax groups for the audit periods identified below:

Coltec Industries Inc. and Subsidiaries		December, 1997 — July, 1999 (through date of acquisition)
Goodrich Corporation and Subsidiaries		1998 — 1999 (including Rohr and Coltec)

The IRS and the Company previously reached final settlement on all but one of the issues raised in this examination cycle. The Company received statutory notices of deficiency dated June 14, 2007 related to the remaining unresolved issue which involves the proper timing of certain deductions. The Company filed a petition with the U.S. Tax Court in September 2007 to contest the notices of deficiency. The Company believes the amount of the estimated tax liability if the IRS were to prevail is fully reserved. Although it is reasonably possible that this matter could be resolved during the next 12 months, the timing or ultimate outcome is uncertain.

Rohr was examined by the State of California for the tax years ended July 31, 1985, 1986 and 1987. The State of California disallowed certain expenses incurred by one of Rohr’s subsidiaries in connection with the lease of certain tangible property. California’s Franchise Tax Board held that the deductions associated with the leased equipment were non-business deductions. The additional tax associated with the Franchise Tax Board’s position is $4.5 million. The amount of accrued interest associated with the additional tax is approximately $28 million at March 31, 2009. In addition, the State of California enacted an amnesty provision that imposes nondeductible penalty interest equal to 50% of the unpaid interest amounts relating to taxable years ended before 2003. The penalty interest is approximately $14 million at March 31, 2009. The tax and interest amounts continue to be contested by Rohr. No payment has been made for the $28 million of interest or $14 million of penalty interest.

In March 2009, the Superior Court of California issued a tentative ruling, which it finalized on April 1, 2009, granting the Company’s motion for summary judgment. The State of California has 60 days from entry of the judgment to appeal the ruling. The Company expects the entry of judgment to occur in April 2009. Once the State’s appeals have been exhausted, if the Superior Court’s decision is not overturned, the Company will be entitled to a refund of the $4.5 million of tax it paid for the years ending July 31 1985, 1986 and 1987, together with interest from the date of payment. The Company has adjusted the reserve related to this issue during the first quarter 2009.

Note 16. Guarantees

The Company extends financial and product performance guarantees to third parties. At March 31, 2009, the following environmental remediation and other indemnifications and financial guarantees were outstanding, in millions:

		Maximum				Carrying
		Potential				Amount of
		Payment				Liability
Environmental remediation and other indemnifications (Note 15, “Contingencies”)		No limit				$	18.7
Guarantees of residual value on leases (Note 10, “Financing Arrangements”)		$ 24.8				$	—
Guarantees of JV debt and other financial instruments		$ 18.6				$	—

The Company is guarantor on a revolving credit agreement totaling £20 million between Rolls-Royce Goodrich Engine Control Systems Limited (JV) and a financial institution. In addition, the Company guarantees the JV’s foreign exchange credit line and is indemnified by Rolls-Royce for 50%.

Service and Product Warranties

The Company provides service and warranty policies on certain of its products. The Company accrues liabilities under service and warranty policies based upon specific claims and a review of historical warranty and service claim experience in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies”. Adjustments are made to accruals as claim data and historical experience change. In addition, the Company incurs discretionary costs to service its products in connection with product performance issues.

The changes in the carrying amount of service and product warranties for the three months ended March 31, 2009, in millions, are as follows:

Balance at December 31, 2008		$	139.2
Net provisions for warranties issued during the period			12.6
Net provisions for warranties existing at the beginning of the year			1.7
Payments			(9.4	)
Foreign currency translation			(2.3	)
Balance at March 31, 2009		$	141.8

The current and long-term portions of service and product warranties were as follows:

		March 31,				December 31,
		2009				2008
		(Dollars in millions)
Accrued expenses		$	70.4			$	66.4
Other non-current liabilities			71.4				72.8
Total		$	141.8			$	139.2

Note 17. Derivatives and Hedging Activities

Cash Flow Hedges

The Company has subsidiaries that conduct a substantial portion of their business in Euros, Great Britain Pounds Sterling, Canadian Dollars and Polish Zlotys but have significant sales contracts that are denominated in U.S. Dollars. Periodically, the Company enters into forward contracts to exchange U.S. Dollars for Euros, Great Britain Pounds Sterling, Canadian Dollars and Polish Zlotys to hedge a portion of the Company’s exposure from U.S. Dollar sales.

The forward contracts described above are used to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates that impact the Company’s U.S. Dollar sales for certain foreign operations. The forward contracts are accounted for as cash flow hedges and are recorded in the Company’s condensed consolidated balance sheet at fair value, with the offset reflected in accumulated other comprehensive income (loss) (AOCI), net of deferred taxes. The gain or loss on the forward contracts is reported as a component of other comprehensive income (loss) (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The notional value of the forward contracts at March 31, 2009 and December 31, 2008 was $1,976.7 million and $1,897.2 million, respectively. At March 31, 2009 and December 31, 2008, the total fair value before taxes of the Company’s forward contracts and the accounts in the condensed consolidated balance sheet in which the fair value amounts are included are shown below:

		March 31,				December 31,
		2009				2008
		(Dollars in millions)
Prepaid expenses and other assets		$	2.1			$	9.8
Other assets			5.2				6.2
Accrued expenses			80.0				70.0
Other non-current liabilities			113.1				102.1

The amounts recognized in OCI and reclassified from AOCI into sales are shown below:

		Three months ended March 31,
		2009				2008
		(Dollars in millions)
Amount of gain/(loss) recognized in OCI, net of tax of $6.5 and $5.8, respectively		$	(20.1	)		$	(11.0	)
Amount of gain/(loss) reclassified from AOCI into sales		$	(24.3	)		$	20.3

The total fair value of the Company’s forward contracts of a $185.8 million liability (before deferred taxes of $72.3 million) at March 31, 2009, combined with $28.9 million of losses on previously matured hedges of intercompany sales and gains from forward contracts terminated prior to the original maturity dates, is recorded in AOCI and will be reflected in income as earnings are affected by the hedged items. As of March 31, 2009, the portion of the $185.8 million that would be reclassified into earnings as an increase in sales to offset the effect of the hedged item in the next 12 months is a loss of $77.9 million. These forward contracts mature on a monthly basis with maturity dates that range from January 2009 to December 2013. There was a de minimis amount of both ineffectiveness and hedge components excluded from the assessment of effectiveness during the three-months ended March 31, 2009 and 2008.

Fair Value Hedges

The Company enters into interest rate swaps to increase the Company’s exposure to variable interest rates. The settlement and maturity dates on each swap are the same as those on the referenced notes. In accordance with SFAS 133, the interest rate swaps are accounted for as fair value hedges and the carrying value of the notes are adjusted to reflect the fair values of the interest rate swaps. At March 31, 2009 and December 31, 2008, the Company had no outstanding interest rate swaps. For the three months ended March 31, 2009 and 2008, net gains of $0.8 and $0.2, after tax of $0.5 and $0.2, respectively, were recorded as a reduction to interest expense. These amounts include previously terminated swaps which are amortized over the life of the underlying debt.

Other Forward Contracts

As a supplement to the foreign exchange cash flow hedging program, the Company enters into other forward contracts to manage its foreign currency risk related to the translation of monetary assets and liabilities denominated in currencies other than the relevant functional currency. These contracts generally mature monthly and the notional amounts are adjusted periodically to reflect changes in net monetary asset balances. Since these contracts are not designated as hedges, the gains or losses on these contracts are recorded in cost of sales. These contracts are utilized to mitigate the earnings impact of the translation of net monetary assets and liabilities. Under this program, as of March 31, 2009, the Company had contracts outstanding with a notional value of $35.7 million and a fair value asset of $0.9 million. As of December 31, 2008, the Company had no such contracts outstanding.

During the three months ended March 31, 2009, the Company recorded a transaction gain on its monetary assets of approximately $15 million, which was partially offset by losses on the other forward contracts described above of approximately $9 million. During the three months ended March 31, 2008, the Company recorded a transaction loss on its monetary assets of approximately $13 million, which was partially offset by gains on the other forward contracts described above of approximately $8 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH OUR UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF THIS DOCUMENT.

THIS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS. SEE “FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY” FOR A DISCUSSION OF CERTAIN OF THE UNCERTAINTIES, RISKS AND ASSUMPTIONS ASSOCIATED WITH THESE STATEMENTS.

UNLESS OTHERWISE NOTED HEREIN, DISCLOSURES PERTAIN ONLY TO OUR CONTINUING OPERATIONS.

OVERVIEW

We are one of the largest worldwide suppliers of aerospace components, systems and services to the commercial and general aviation airplane markets. We are also a leading supplier of systems and products to the global defense and space markets. Our business is conducted globally with manufacturing, service and sales undertaken in various locations throughout the world. Our products and services are principally sold to customers in North America, Europe and Asia.

Key Market Channels for Products and Services, Growth Drivers and Industry and our Highlights

We participate in three key market channels: commercial, regional, business and general aviation airplane original equipment (OE); commercial, regional, business and general aviation airplane aftermarket; and defense and space.

Commercial, Regional, Business and General Aviation Airplane OE

Commercial, regional, business and general aviation airplane OE includes sales of products and services for new airplanes produced by Airbus and Boeing, and regional, business and small airplane manufacturers.

The key growth drivers in this market channel include the number of orders for new airplanes, which will be delivered to the manufacturers’ customers over a period of several years, OE manufacturer production and delivery rates and introductions of new airplane models such as the Boeing 787 and 747-8, the Airbus A380 and A350 XWB, the Embraer 190, and engine types such as the Pratt and Whitney PurePowerä PW1000G.

We have significant sales content on most of the airplanes manufactured in this market channel. Over the last few years, we have benefited from increased production rates and deliveries of Airbus and Boeing airplanes and from our substantial content on many of the regional and general aviation airplanes. Delivery of new commercial, regional, business, and general aviation aircraft in 2009 and beyond, however, may be negatively impacted by the current economic conditions which may influence customers’ willingness and/or ability to purchase new aircraft.

Commercial, Regional, Business and General Aviation Airplane Aftermarket

The commercial, regional, business and general aviation airplane aftermarket channel includes sales of products and services for existing commercial and general aviation airplanes, primarily to airlines and package carriers around the world.

The key growth drivers in this channel include worldwide passenger capacity growth measured by Available Seat Miles (ASM) and the size, type and activity levels of the worldwide airplane fleet. Other important factors affecting growth in this market channel are the age and types of the airplanes in the fleet, fuel prices, Gross Domestic Product (GDP) trends in countries and regions around the world and domestic and international air freight activity.

Capacity in the global airline system, as measured by ASMs, is expected to decrease 5% to 8% in 2009. ASM growth could deteriorate further if airlines choose to fly their in-service airplanes less frequently due to high fuel prices, decreased demand and other factors including the downturn of the global economy.

While we have significant product content on most of the airplane models that are currently in service, we enjoy the benefit of having excellent positions on the newer, more fuel-efficient airplanes currently in service. Even though many airlines have announced that they will remove some of their older airplanes from their fleets, we do not expect these removals to have a significant impact on our results in 2009.

Defense and Space

Worldwide defense and space sales include sales to prime contractors such as Boeing, Northrop Grumman, Lockheed Martin, the U.S. Government and foreign companies and governments.

The key growth drivers in this channel include the level of defense spending by the U.S. and foreign governments, the number of new platform starts, the level of military flight operations and the level of upgrade, overhaul and maintenance activities associated with existing platforms.

The market for our defense and space products is global, and is not dependent on any single program, platform or customer. We anticipate fewer new fighter and transport aircraft platform starts over the next several years. We also anticipate that the introduction of the F-35 Lightning II and new helicopter platforms, along with upgrades on existing defense and space platforms, will provide long-term growth opportunities in this market channel. Additionally, we are participating in, and developing new products for, the rapidly expanding homeland security and intelligence, surveillance and reconnaissance sectors, which should further strengthen our position in this market channel.

Long-term Sustainable Growth

We believe that we are well positioned to continue to grow overall sales due to:

	•		Awards for key products on important new and expected programs, including the Airbus A380 and A350 XWB, the Boeing 787 and 747-8, the Embraer 190, the Pratt & Whitney PurePowerä PW1000G, the Dassault Falcon 7X and the Lockheed Martin F-35 Lightning II;
	•		The large installed base of commercial airplanes and our strong positions on newer, more fuel-efficient airplanes, which should fuel sustained aftermarket strength;
	•		Balance in the large commercial airplane market, with strong sales to both Airbus and Boeing;
	•		Aging of the existing large commercial and regional airplane fleets, which should result in increased aftermarket support;
	•		Increased number of long-term agreements for product sales on new and existing commercial airplanes;
	•		Increased opportunities for aftermarket growth due to airline outsourcing;
	•		Growth in global maintenance, repair and overhaul (MRO) opportunities for our systems and components, particularly in Europe, Asia and the Middle East, where we have expanded our capacity; and
	•		Expansion of our product offerings in support of high growth areas in the defense and space market channel, such as helicopter products and systems and intelligence, surveillance and reconnaissance products.

First Quarter 2009 Sales Content by Market Channel

During the first quarter 2009, approximately 94% of our sales were from our three primary market channels described above. Following is a summary of the percentage of sales by market channel:

Airbus Commercial OE			17	%
Boeing Commercial OE			8	%
Regional, Business and General Aviation Airplane OE			8	%
Total Commercial, Regional, Business and General Aviation Airplane OE			33	%
Large Commercial Airplane Aftermarket			28	%
Regional, Business and General Aviation Airplane Aftermarket			6	%
Total Commercial, Regional, Business and General Aviation Airplane Aftermarket			34	%
Total Defense and Space			27	%
Other			6	%
Total			100	%

Results of Operations — First Quarter 2009 as Compared to First Quarter 2008

		First Quarter								$				%
		2009				2008				Change				Change
		(Dollars in millions, except diluted EPS)
Sales		$	1,695.9			$	1,745.0			$	(49.1	)			2.8
Segment operating income (1)		$	291.9			$	301.8			$	(9.9	)			3.3
Corporate general and administrative costs			(24.1	)			(27.3	)			3.2				11.7
Total operating income			267.8				274.5				(6.7	)			2.4
Net interest expense			(28.2	)			(27.7	)			(0.5	)			1.8
Other income (expense) — net			(4.4	)			(9.8	)			5.4				55.1
Income from continuing operations before income taxes			235.2				237.0				(1.8	)			0.8
Income tax expense			(61.9	)			(78.9	)			17.0				21.5
Income from continuing operations			173.3				158.1				15.2				9.6
Income from discontinued operations			0.5				4.3				(3.8	)			88.4
Consolidated net income			173.8				162.4				11.4				7.0
Net income attributable to noncontrolling interests (2)			(4.0	)			(4.5	)			0.5				11.1
Net income attributable to Goodrich		$	169.8			$	157.9			$	11.9				7.5
Effective tax rate			26.3	%			33.3	%
Diluted EPS: (3)
Continuing operations		$	1.35			$	1.20			$	0.15				12.5
Net income attributable to Goodrich		$	1.35			$	1.23			$	0.12				9.8

Sales

The sales decrease in the first quarter 2009 as compared to the first quarter 2008 was driven by changes in each of our major market channels as follows:

	•		Large commercial airplane original equipment sales decreased by approximately 7%;
	•		Regional, business and general aviation airplane original equipment sales decreased by approximately 2%; and
	•		Large commercial, regional, business and general aviation airplane aftermarket sales decreased by approximately 8%; partially offset by
	•		Defense and space sales of both original equipment and aftermarket products and services increased by approximately 11%.

Segment operating income

See discussion in the “Business Segment Performance” section.

Corporate general and administrative costs

Corporate general and administrative costs decreased primarily due to reductions in discretionary spending and favorable foreign exchange partially offset by higher share-based compensation.

Other income (expense) — net

Other income (expense) — net decreased for the first quarter 2009 as compared to the first quarter 2008, primarily as a result of lower expenses for retiree health expenses for previously owned businesses of approximately $4 million.

Income from continuing operations

In addition to the items described above, income from continuing operations during the first quarter 2009 as compared to the first quarter 2008 was also impacted by the following items:

		Increase (Decrease)
		Before				After				Diluted
		Tax				Tax				EPS
		(Dollars in millions, except diluted EPS)
Lower effective tax rate		$	—			$	16.5			$	0.13
Higher pension expense		$	(28.4	)		$	(18.0	)		$	(0.15	)
Changes in estimates on long-term contracts		$	(34.9	)		$	(21.3	)		$	(0.16	)

Lower effective tax rate

For the first quarter of 2009 we reported an effective tax rate of 26.3% as compared to 33.3% in the first quarter of 2008. The decrease in the effective tax rate was primarily due to a favorable adjustment to state tax reserves (see “Contingencies” section).

Higher pension expense

The increase in pension expense was primarily due to the investment losses of our plan assets in 2008 partially offset by a higher discount rate.

Changes in estimates on long-term contracts

During the first quarter 2009 and 2008, we revised estimates on certain of our long-term contracts, primarily in our aerostructures and aircraft wheels and brakes business units. These changes in estimates resulted in lower income of approximately $35 million in the first quarter of 2009 compared to the first quarter of 2008.

Income from discontinued operations

On March 3, 2008, we sold a previously discontinued business for a gain of $6.1 million.

2009 OUTLOOK

We expect the following approximate results for the years ending December 31, 2009:

		2009 Outlook
Sales		$6.9 billion
Diluted EPS — Net Income		$4.50 to $4.75 per share
Capital Expenditures		$220 to $240 million
Operating Cash Flow minus Capital Expenditures		Exceed 75% of net income

Full year 2009 sales expectations are approximately $6.9 billion, compared with prior expectations of $7.1 to $7.2 billion reported in our 2008 Annual Report on Form 10-K. Net income per diluted share is expected to be in a range of $4.50 to $4.75, compared with prior expectations of $4.50 to $4.90. These expectations reflect our updated sales expectations, improved performance from cost containment initiatives, a lower effective tax rate and the expected resolution of certain non-operating items.

Our 2009 outlook assumes, among other factors:

	•		A full-year effective tax rate of 30% to 31%; and
	•		Higher pre-tax pension expense of $103 million compared to 2008, or $0.52 per diluted share. The higher pension expense incorporates our return on U.S. plan assets of approximately negative 19% in 2008 and the lowering of the long-term U.S. rate of return on assets to 8.75% for 2009 partially offset by a 2009 U.S. discount rate of approximately 6.5% compared to a rate of 6.3% for 2008.

Sales

Our current market assumptions, for each of our major market channels, for the full year 2009 outlook, compared with the full year 2008, include the following:

	•		Large commercial airplane OE sales are expected to be approximately flat, based on the latest 2009 delivery estimates by Boeing and Airbus and including any impact of the recent 2010 production rate adjustments announced by Boeing;
	•		Regional, business and general aviation airplane OE sales are expected to decrease by slightly more than 20%;
	•		Large commercial, regional, business and general aviation airplane aftermarket sales are expected to decrease by 5% to 8%. This outlook includes double-digit decreases in sales in support of freighters and regional, business and general aviation airplanes. This outlook also assumes that worldwide ASMs will decrease by approximately 5% to 8%; and
	•		Defense and space sales of both OE and aftermarket products and services are expected to increase by approximately 8%.

Cash Flow

We continue to expect net cash provided by operating activities, minus capital expenditures to exceed 75% of net income. Our outlook reflects a continuation of investments to support the current schedule for the Boeing 787 Dreamliner and Airbus A350 XWB airplane programs, and low cost country manufacturing and productivity initiatives that are expected to enhance margins over the near and long-term. We now expect capital expenditures for 2009 to be in a range of $220 million to $240 million, compared to the prior outlook of $230 million to $270 million.

BUSINESS SEGMENT PERFORMANCE

Our three business segments are as follows:

	•		The Actuation and Landing Systems segment provides systems, components and related services pertaining to aircraft taxi, take-off, flight control, landing and stopping, and engine components, including fuel delivery systems and rotating assemblies.
	•		The Nacelles and Interior Systems segment produces products and provides maintenance, repair and overhaul services associated with aircraft engines, including thrust reversers, cowlings, nozzles and their components, and aircraft interior products, including slides, seats, cargo and lighting systems.
	•		The Electronic Systems segment produces a broad array of systems and components that provide flight performance measurements, flight management information, engine controls, fuel controls, electrical power systems, safety data, and reconnaissance and surveillance systems.

We measure each reporting segment’s profit based upon operating income. Accordingly, we do not allocate net interest expense, other income (expense) — net and income taxes to the reporting segments. The company-wide ERP implementation costs that were not directly associated with a specific business were not allocated to the segments. The accounting policies of the reportable segments are the same as those for our condensed consolidated financial statements. For a reconciliation of total segment operating income to total operating income, see Note 3, “Business Segment Information” to our condensed consolidated financial statements.

First Quarter 2009 Compared with First Quarter 2008

		First Quarter																% of Sales
										Increase/				%
		2009				2008				(Decrease)				Change				2009				2008
		(Dollars in millions)
NET CUSTOMER SALES
Actuation and Landing Systems		$	612.7			$	682.1			$	(69.4	)			10.2
Nacelles and Interior Systems			632.2				620.5				11.7				1.9
Electronic Systems			451.0				442.4				8.6				1.9
		$	1,695.9			$	1,745.0			$	(49.1	)			2.8
SEGMENT OPERATING INCOME
Actuation and Landing Systems		$	76.1			$	74.1			$	2.0				2.7				12.4				10.9
Nacelles and Interior Systems			148.7				178.8				(30.1	)			16.8				23.5				28.8
Electronic Systems			67.1				48.9				18.2				37.2				14.9				11.1
		$	291.9			$	301.8			$	(9.9	)			3.3				17.2				17.3

Actuation and Landing Systems: Actuation and Landing Systems segment sales for the first quarter 2009 decreased from the first quarter 2008 primarily due to the following:

	•		Lower large commercial airplane OE sales of approximately $42 million, primarily due to the residual impact of the Boeing machinists’ strike in late 2008 on our landing gear business;
	•		Lower regional, business and general aviation airplane aftermarket sales of approximately $21 million, primarily due to changes in estimates on certain long-term contracts in our aircraft wheels and brakes business that were more favorable in 2008; and
	•		Lower defense and space OE and aftermarket sales of approximately $5 million, primarily in our aircraft wheels and brakes business.

Actuation and Landing Systems segment operating income for the first quarter 2009 increased from the first quarter 2008 primarily as a result of the following:

	•		Reduced operating costs and higher pricing across all businesses, which resulted in higher income of approximately $21 million; and
	•		Favorable foreign exchange of approximately $4 million; partially offset by
	•		Lower income of approximately $14 million related to changes in estimates for certain long-term contracts in our wheels and brakes business that were more favorable in 2008; and
	•		Lower sales volume across most businesses resulting in lower income of approximately $9 million.

Nacelles and Interior Systems: Nacelles and Interior Systems segment sales for the first quarter 2009 increased from the first quarter 2008 primarily due to the following:

	•		Higher large commercial airplane OE sales of approximately $21 million, primarily in our aerostructures and interiors businesses;
	•		Higher defense and space OE and aftermarket sales of approximately $8 million, primarily in our aerostructures business; and
	•		Higher regional, business, and general aviation airplane OE sales of approximately $4 million, primarily in our interiors business; partially offset by
	•		Lower large commercial airplane aftermarket sales of approximately $21 million, primarily in our aerostructures and interiors businesses.

Nacelles and Interior Systems segment operating income for the first quarter 2009 decreased from the first quarter 2008 primarily due to the following:

	•		Lower income of approximately $22 million related to changes in estimates for certain long-term contracts at our aerostructures business that were more favorable in 2008; and
	•		Lower sales volume and unfavorable product mix, primarily in our interiors and aerostructures businesses, which resulted in lower income of approximately $15 million; partially offset by
	•		Favorable foreign exchange of approximately $5 million; and
	•		Favorable pricing partially offset by higher operating costs, across all of our businesses, which resulted in higher income of approximately $2 million.

Electronic Systems: Electronic Systems segment sales for the first quarter 2009 increased from the first quarter 2008 primarily due to the following:

	•		Higher defense and space OE and aftermarket sales of approximately $45 million, across all of our businesses, including sales of approximately $20 million associated with the 2008 acquisitions of TEAC Aerospace Holdings, Inc. (TEAC) and Recon/Optical, Inc. (ROI), which occurred subsequent to the first quarter of 2008; partially offset by
	•		Lower engine controls sales of approximately $24 million which are no longer being reported by us. Sales in 2009 will be recorded by the engine controls joint venture (JV) with Rolls-Royce that was formed in the fourth quarter of 2008;
	•		Lower regional, business and general aviation airplane aftermarket sales of approximately $8 million, primarily in our sensors and integrated systems and engine control and electrical power businesses; and
	•		Lower regional, business and general aviation airplane OE sales of approximately $5 million, primarily in our engine control and electrical power business.

Electronic Systems segment operating income for the first quarter 2009 increased from the first quarter 2008 primarily due to the following:

	•		Higher sales volume and favorable product mix which resulted in higher income of approximately $16 million, primarily in our sensors and integrated systems and intelligence, surveillance and reconnaissance businesses; and
	•		Lower manufacturing, engineering and general and administrative costs of approximately $6 million, which are recorded by the JV in 2009. We will record our portion of the JV’s 2009 results in other income (expense) — net; partially offset by
	•		Higher operating costs of approximately $3 million, primarily in our intelligence, surveillance and reconnaissance and sensors and integrated systems businesses.

LIQUIDITY AND CAPITAL RESOURCES

We currently expect to fund expenditures for capital requirements and other liquidity needs from a combination of cash, internally generated funds and financing arrangements. We believe that our internal liquidity, together with access to external capital resources, will be sufficient to satisfy existing plans and commitments, including our stock repurchase program, and also provide adequate financial flexibility. The current economic conditions, including the turmoil in the banking sector and credit markets, are expected to be manageable due to our strong balance sheet, lack of any large near-term funding requirements and a strong banking group with a multi-year committed credit facility.

The following events have affected our liquidity and capital resources during 2009:

	•		We paid quarterly dividends of $0.25 per share on January 2 and April 1; and
	•		We issued $300 million in senior notes which mature on March 1, 2019.

Cash

At March 31, 2009, we had cash and cash equivalents of $665.1 million, as compared to $370.3 million at December 31, 2008.

Credit Facilities

We have the following amounts available under our credit facilities:

	•		$500 million committed global revolving credit facility that expires in May 2012, of which $457.3 million was available at March 31, 2009; and
	•		$75 million of uncommitted domestic money market facilities and $145.8 million of uncommitted and committed foreign working capital facilities with various banks to meet short-term borrowing requirements, of which $185.1 million was available at March 31, 2009.

Off-Balance Sheet Arrangements

Lease Commitments

We lease certain of our office and manufacturing facilities as well as machinery and equipment, including corporate aircraft, under various committed lease arrangements provided by financial institutions.

Certain of these arrangements allow us, rather than the lessor, to claim a deduction for tax depreciation on the assets and allow us to lease corporate aircraft and equipment having a maximum unamortized value of $205 million at March 31, 2009. These leases are priced at a spread over LIBOR and certain of these leases are extended periodically through the end of the lease terms, unless notice is provided. At March 31, 2009, future payments under these leases were $6.4 million through the end of the lease terms. At March 31, 2009, we had guarantees of residual values on lease obligations of $24.8 million. We are obligated to either purchase or remarket the leased assets at the end of the lease term.

Future minimum lease payments under standard operating leases were $181.9 million at March 31, 2009.

Derivatives

We utilize certain derivative financial instruments to enhance our ability to manage risk, including foreign currency and interest rate exposures that exist as part of ongoing business operations as follows:

	•		Foreign Currency Contracts Designated as Cash Flow Hedges: At March 31, 2009, our contracts had a notional amount of $1,976.7 million, fair value of a $185.8 million net liability and maturity dates ranging from April 2009 to December 2013. The amount of accumulated other comprehensive income that would be reclassified into earnings in the next 12 months is a loss of $77.9 million. During the first quarter of 2009 and 2008, we realized net losses of $24.3 million and net gains of $20.3 million, respectively, related to contracts that settled.
	•		Foreign Currency Contracts not Designated as Hedges: At March 31, 2009, our contracts had a notional amount of $35.7 million and a fair value asset of $0.9 million. At December 31, 2008, there were no such contracts outstanding. During the first quarter of 2009 and 2008, we realized a net loss of $9 million and a net gain of $8.3 million, respectively for contracts entered into and settled during those periods.

Estimates of the fair value of our derivative financial instruments represent our best estimates based on our valuation models, which incorporate industry data and trends and relevant market rates and transactions. Counterparties to these financial instruments expose us to credit loss in the event of nonperformance; however, we do not expect any of the counterparties to fail to meet their obligations. Counterparties, in most cases, are large commercial banks that also provide us with our committed credit facilities. To manage this credit risk, we select counterparties based on credit ratings, limit our exposure to any single counterparty and monitor our market position with each counterparty.

Contractual Obligations and Other Commercial Commitments

There have been no material changes, other than the $300 million of 6.125% senior notes due in 2019 issued during the first quarter of 2009, to the table presented in our Annual Report on Form 10-K for the year ended December 31, 2008. The table excludes our liability for unrecognized tax benefits, which was $271.5 million at March 31, 2009, since we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities.

CASH FLOW

The following table summarizes our cash flow activity for the three months ended March 31, 2009 and 2008:

		2009				2008				Change
		(Dollars in millions)
Operating activities of continuing operations		$	66.6			$	150.9			$	(84.3	)
Investing activities of continuing operations		$	(33.9	)		$	(63.9	)		$	30.0
Financing activities of continuing operations		$	263.7			$	(44.3	)		$	308.0
Discontinued operations		$	0.5			$	13.4			$	(12.9	)

Operating Activities of Continuing Operations

The decrease in net cash provided by operating activities for the three months ended March 31, 2009 from the three months ended March 31, 2008 primarily consisted of increased net tax payments and lower increases in accounts payable.

Investing Activities of Continuing Operations

Net cash used by investing activities for the three months ended March 31, 2009 and 2008 included capital expenditures of $34.2 million and $54.4 million, respectively. During the three months ended March 31, 2008, we completed the acquisition of Skyline Industries, Inc. for $9.5 million in cash.

Financing Activities of Continuing Operations

The increase in net cash provided by (used in) financing activities for the three months ended March 31, 2009 from the three months ended March 31, 2008 consisted primarily of the proceeds from issuance of senior notes.

Discontinued Operations

Net cash provided by discontinued operations in the three months ended March 31, 2008 consisted of the finalization of the purchase price for Goodrich Aviation Technical Services, Inc. (ATS) which was sold during 2007 and proceeds from the sale of a previously discontinued operation.

CONTINGENCIES

General

There are various pending or threatened claims, lawsuits and administrative proceedings against us or our subsidiaries, arising in the ordinary course of business which seek remedies or damages. Although no assurance can be given with respect to the ultimate outcome of these matters, we believe that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on our consolidated financial position, results of operations or cash flows. Legal costs are expensed when incurred.

Environmental

We are subject to environmental laws and regulations which may require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. At certain sites we have been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. We are currently involved in the investigation and remediation of a number of sites under applicable laws.

Estimates of our environmental liabilities are based on current facts, laws, regulations and technology. These estimates take into consideration our prior experience and professional judgment of our environmental specialists. Estimates of our environmental liabilities are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and cost estimates, the extent of corrective actions that may be required and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation.

Accordingly, as investigation and remediation proceed, it is likely that adjustments in our accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on our results of operations or cash flows in a given period. Based on currently available information, however, we do not believe that future environmental costs in excess of those accrued with respect to sites for which we have been identified as a potentially responsible party are likely to have a material adverse effect on our financial condition.

Environmental liabilities are recorded when the liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when we have recommended a remedy or have committed to an appropriate plan of action. The liabilities are reviewed periodically and, as investigation and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation and anticipated expenditures are not discounted to their present value. The liabilities are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites, third party indemnity obligations, and an assessment of the likelihood that such parties will fulfill their obligations at such sites.

Our condensed consolidated balance sheet included an accrued liability for environmental remediation obligations of $62.5 million and $62.3 million at March 31, 2009 and December 31, 2008, respectively. At March 31, 2009 and December 31, 2008, $20.4 million and $20.9 million, respectively, of the accrued liability for environmental remediation were included in current liabilities as accrued expenses. At March 31, 2009 and December 31, 2008, $24.2 million and $24 million, respectively, was associated with ongoing operations and $38.3 million for both periods associated with previously owned businesses.

We expect that we will expend present accruals over many years, and will generally complete remediation in less than 30 years at sites for which we have been identified as a potentially responsible party. This period includes operation and monitoring costs that are generally incurred over 15 to 25 years.

Certain states in the U.S. and countries globally are promulgating or proposing new or more demanding regulations or legislation impacting the use of various chemical substances by all companies. We are currently evaluating the potential impact, if any, of complying with such regulations and legislation.

On January 4, 2007, we received a judgment against Commercial Union Insurance Company, currently known as One Beacon America Insurance Company, and nine London Market Insurance Companies for reimbursement of past remediation costs at an environmental site, attorney fees and interest in the amount of approximately $58 million and coverage of certain unquantified future costs. On June 30, 2008, the Ohio Court of Appeals upheld the judgment. On December 31, 2008, the Ohio Supreme Court denied the insurers’ request for further appeal. On January 12, 2009, the insurers sought rehearing in the Ohio Supreme Court, which was denied on March 4, 2009. On April 15, 2009, we received a partial payment of $39.8 million from Commercial Union; however, certain issues remain unresolved and a former subsidiary of ours has a claim to a portion of the judgment amount. Accordingly, no amounts have been recorded in our condensed consolidated financial statements as of March 31, 2009.

Asbestos

We and some of our subsidiaries have been named as defendants in various actions by plaintiffs alleging damages as a result of exposure to asbestos fibers in products or at our facilities. A number of these cases involve maritime claims, which have been and are expected to continue to be administratively dismissed by the court. We believe that pending and reasonably anticipated future actions are not likely to have a material adverse effect on our financial condition, results of operations or cash flows. There can be no assurance, however, that future legislative or other developments will not have a material adverse effect on our results of operations or cash flows in a given period.

Insurance Coverage

We maintain a comprehensive portfolio of insurance policies, including aviation products liability insurance which covers most of our products. The aviation products liability insurance provides first dollar coverage for defense and indemnity of third party claims.

A portion of our historical primary and excess layers of pre-1986 insurance coverage for third party claims was provided by certain insurance carriers who are either insolvent, undergoing solvent schemes of arrangement or in run-off. We have entered into settlement agreements with a number of these insurers pursuant to which we agreed to give up our rights with respect to certain insurance policies in exchange for negotiated payments. These settlements represent negotiated payments for our loss of insurance coverage, as we no longer have this insurance available for claims that may have qualified for coverage. A portion of these settlements was recorded as income for reimbursement of past claim payments under the settled insurance policies and a portion was recorded as a deferred settlement credit for future claim payments.

At March 31, 2009 and December 31, 2008, the deferred settlement credit was $47.9 million and $49.4 million, respectively, for which $6.4 million for both periods was reported in accrued expenses and approximately $41.5 million and $43 million, respectively, was reported in other non-current liabilities. The proceeds from such insurance settlements were reported as a component of net cash provided by operating activities in the period payments were received.

Liabilities of Divested Businesses

Asbestos

In May 2002, we completed the tax-free spin-off of our Engineered Industrial Products (EIP) segment, which at the time of the spin-off included EnPro Industries, Inc. (EnPro) and Coltec Industries Inc (Coltec). At that time, two subsidiaries of Coltec were defendants in a significant number of personal injury claims relating to alleged asbestos-containing products sold by those subsidiaries prior to our ownership. It is possible that asbestos-related claims might be asserted against us on the theory that we have some responsibility for the asbestos-related liabilities of EnPro, Coltec or its subsidiaries. A limited number of asbestos-related claims have been asserted against us as “successor” to Coltec or one of its subsidiaries. We believe that we have substantial legal defenses against these and other such claims. In addition, the agreement between EnPro and us that was used to effectuate the spin-off provides us with an indemnification from EnPro covering, among other things, these liabilities. We believe that such claims would not have a material adverse effect on our financial condition, but could have a material adverse effect on our results of operations and cash flows in a particular period.

Other

In connection with the divestiture of our tire, vinyl and other businesses, we have received contractual rights of indemnification from third parties for environmental and other claims arising out of the divested businesses. Failure of these third parties to honor their indemnification obligations could have a material adverse effect on our financial condition, results of operations and cash flows.

Guarantees

At March 31, 2009, we had letters of credit and bank guarantees of $81.2 million and residual value guarantees of lease obligations of $24.8 million. See Note 10, “Financing Arrangements” to our condensed consolidated financial statements. We are guarantor on a revolving credit agreement totaling £20 million between Rolls-Royce Goodrich Engine Control Systems Limited (JV) and a financial institution. In addition, we guarantee the JV’s foreign exchange credit line and we are indemnified by Rolls-Royce for 50%.

Aerostructures Long-term Contracts

Our aerostructures business in the Nacelles and Interior Systems segment has several long-term contracts in the pre-production phase including the Boeing 787 and Airbus A350 XWB, and in the early production phase including the Airbus A380. These contracts are accounted for in accordance with the provisions of the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (SOP 81-1).

The pre-production phase includes design of the product to meet customer specifications as well as design of the processes to manufacture the product. Also involved in this phase is securing the supply of material and subcomponents produced by third party suppliers that are generally accomplished through long-term supply agreements.

Contracts in the early production phase include excess-over-average inventories, which represent the excess of current manufactured cost over the estimated average manufactured cost during the life of the contract.

Cost estimates over the lives of contracts are affected by estimates of future cost reductions including learning curve efficiencies. Because these contracts cover manufacturing periods of up to 20 years or more, there is risk associated with the estimates of future costs made during the pre-production and early production phases. These estimates may be different from actual costs due to the following:

	•		Ability to recover costs incurred for change orders and claims;
	•		Costs, including material and labor costs and related escalation;
	•		Labor improvements due to the learning curve experience;
	•		Anticipated cost productivity improvements related to new manufacturing methods and processes;
	•		Supplier pricing including escalation where applicable, supplier claims (see “Boeing 787 Contract” below) and the supplier’s ability to perform;
	•		The cost impact of product design changes that frequently occur during the flight test and certification phases of a program; and
	•		Effect of foreign currency exchange fluctuations.

Additionally, total contract revenue is based on estimates of future units to be delivered to the customer, the ability to recover costs incurred for change orders and claims and sales price escalation, where applicable. There is a risk that there could be differences between the actual units delivered and the estimated total units to be delivered under the contract and differences in actual sales escalation compared to estimates. Changes in estimates could have a material impact on our results of operations and cash flows.

Provisions for estimated losses on uncompleted contracts are recorded in the period such losses are determined to the extent total estimated costs exceed total estimated contract revenues.

Boeing 787 Contract

During 2004, our aerostructures business entered into a long-term supply contract with Boeing on the 787 program. Our latest outlook projects approximately $5 billion of original equipment sales for this program. Aftermarket sales associated with this program are not accounted for using the percentage-of-completion method of accounting.

The Boeing 787 program has experienced delays in its development schedule and Boeing has requested numerous changes in the design of our product and scope of our work. Under the terms of our contract, we are entitled to reimbursement of certain costs and equitable price adjustments under certain circumstances. Discussions with Boeing are ongoing. If we are unable to reach a fair and equitable resolution with Boeing or if any of the actual costs or revenues differ from the estimates, it could have a material adverse effect on our financial position, results of operations and/or cash flows in a given period.

On July 21, 2008, Alenia Aermacchi, S.p.A. (AAeM) filed a Demand for Arbitration with the American Arbitration Association against Rohr, Inc. (Rohr), a wholly-owned subsidiary of ours (our aerostructures business), in connection with a contract for the supply of fan cowls used in the nacelles that Rohr provides to Boeing on the 787 program. According to its Statement of Claims filed on August 15, 2008, AAeM seeks declaratory relief, rescission of the supply contract and monetary damages, based upon allegations of commercial impracticability, lack of compensation for costs associated with design changes and Rohr’s mismanagement of the program. On September 22, 2008, Rohr filed its answer, seeking to uphold the contract and denying liability, and instituted a counterclaim against AAeM, seeking damages for breach of contract and breach of covenant of good faith and fair dealing. On October 31, 2008, AAeM filed its answer generally denying the allegations made against it in Rohr’s counterclaims. On December 17, 2008, we amended our counterclaim to seek declaratory relief regarding ownership of certain intellectual property. We believe that we have substantial legal and factual defenses to AAeM’s claims, and we intend to defend our interests and pursue our counterclaims vigorously. Given the nature and status of this proceeding, we cannot yet determine the amount or a reasonable range of potential loss, if any. The parties have agreed not to take any formal action in the arbitration proceedings through April 30, 2009 while they continue to explore a potential settlement. If we are unable to adequately resolve the dispute with AAeM, it could have a material adverse effect on our financial position, results of operations and/or cash flows in a given period.

Tax

We are continuously undergoing examination by the IRS, as well as various state and foreign jurisdictions. The IRS and other taxing authorities routinely challenge certain deductions and credits reported by us on our income tax returns.

Tax Years 2000 to 2004

During 2007, we reached agreement with the IRS on substantially all of the issues raised with respect to the examination of taxable years 2000 to 2004. We submitted a protest to the Appeals Division of the IRS with respect to the remaining unresolved issues. We believe the amount of the estimated tax liability if the IRS were to prevail is fully reserved. We cannot predict the timing or ultimate outcome of a final resolution of the remaining unresolved issues.

Tax Years Prior to 2000

The previous examination cycle included the consolidated income tax groups for the audit periods identified below:

Coltec Industries Inc. and Subsidiaries		December, 1997 — July, 1999 (through date of acquisition)
Goodrich Corporation and Subsidiaries		1998 — 1999 (including Rohr and Coltec)