UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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


For the
quarterly period ended September 30, 2009.


or


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


For the
transition period from _________ to __________.





Commission
file number: 000-24293





LMI
AEROSPACE, INC.


(Exact
name of registrant as specified in its charter)





Missouri
              (State
      or other jurisdiction of
              incorporation
      or organization)
            43-1309065
              (I.R.S.
      Employer
              Identification
      No.)411
      Fountain Lakes Blvd.
              St.
      Charles, Missouri
              (Address
      of principal executive offices)
            63301
              (Zip
      Code)





(636)
946-6525


(Registrant’s
telephone number, including area 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 ý                      No
 ̈





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 (§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  ̈                      No
 ̈





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.





Large
accelerated
filer                                                     ̈                      Accelerated
filer                                          ý


Non-accelerated
filer                                                       ̈                      Smaller reporting
company                         ̈


(Do not
check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes  ̈                      No
ý





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





On
October 31, 2009, there were 11,641,552 shares of our common stock, par value
$0.02 per share, outstanding.





LMI AEROSPACE,
INC.




QUARTERLY
REPORT ON FORM 10-Q


FOR
THE FISCAL QUARTER ENDING SEPTEMBER 30, 2009





PART I.  FINANCIAL
      INFORMATIONPage
      No.Item 1.
            Financial Statements.Condensed Consolidated Balance Sheets as of
      September 30, 2009 and December 31, 2008.
            2Condensed Consolidated Statements of
      Operations for the three months and nine months ended September 30, 2009
      and 2008.
            3Condensed Consolidated Statements of Cash
      Flows for the nine months ended September 30, 2009 and
      2008.
            4Notes to Condensed Consolidated Financial
      Statements.
            5Item 2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.
            15Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk.
            23Item 4.
            Controls and Procedures.
            24PART II.  OTHER INFORMATIONItem 1.
            Legal Proceedings.
            25Item 1A.
            Risk Factors.
            25Item 2.
            Unregistered Sales of Equity Securities and Use
      of Proceeds.
            25Item 3.
            Defaults Upon Senior Securities.
            25Item 4.
            Submission of Matters to a Vote of Security
      Holders.
            25Item 5.
            Other Information.
            25Item 6.
            Exhibits.
            25SIGNATURE PAGE
            26EXHIBIT INDEX
            27





1


PART I


FINANCIAL
INFORMATION


Item 1.  Financial
Statements.


LMI
      Aerospace, Inc.Condensed Consolidated Balance
    Sheets(Amounts
      in thousands, except share and per share data)(Unaudited)September
      30, 2009
            
            
            December
      31, 2008AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            2,479
            
            
            $
            29Trade
      accounts receivable, net of allowance of $284 atSeptember
      30, 2009 and $304 at December 31, 2008
            
            
            37,500
            
            
            
            26,887Inventories,
      net
            
            
            51,008
            
            
            
            62,393Prepaid
      expenses and other current assets
            
            
            2,087
            
            
            
            2,137Income
      taxes receivable
            
            
            472
            
            
            
            364Deferred
      income taxes
            
            
            3,120
            
            
            
            3,519Total current assets
            
            
            96,666
            
            
            
            95,329Property,
      plant and equipment, net
            
            
            19,414
            
            
            
            20,103Goodwill
            
            
            53,404
            
            
            
            46,258Intangible
      assets, net
            
            
            22,102
            
            
            
            17,861Other
      assets
            
            
            1,082
            
            
            
            1,167Total
      assets
            
            $
            192,668
            
            
            $
            180,718Liabilities
      and shareholders’ equityCurrent
      liabilities:Accounts
      payable
            
            $
            5,285
            
            
            $
            12,363Accrued
      expenses
            
            
            10,708
            
            
            
            9,936Short-term
      deferred gain on sale of real estate
            
            
            233
            
            
            
            233Current
      installments of long-term debt and capital lease
    obligations
            
            
            388
            
            
            
            498Total current liabilities
            
            
            16,614
            
            
            
            23,030Long-term
      deferred gain on sale of real estate
            
            
            3,365
            
            
            
            3,540Long-term
      debt and capital lease obligations, less current
    installments
            
            
            30,272
            
            
            
            25,536Deferred
      income taxes
            
            
            7,942
            
            
            
            5,812Other
      long-term liabilities
            
            
            1,235
            
            
            
            -Total long-term liabilities
            
            
            42,814
            
            
            
            34,888Shareholders’
      equity:Common
      stock, $0.02 par value per share; authorized 28,000,000shares;
      issued 12,002,240 shares and 11,926,309 shares atSeptember
      30, 2009 and December 31, 2008, respectively
            
            
            240
            
            
            
            239Preferred
      stock, $0.02 par value per share; authorized 2,000,000shares;
      none issued at either date
            
            
            -
            
            
            
            -Additional
      paid-in capital
            
            
            70,927
            
            
            
            69,855Treasury
      stock, at cost, 360,688 shares at September 30, 2009and
      364,088 shares at December 31, 2008
            
            
            (1,711
            )
            
            
            (1,727
            )Retained
      earnings
            
            
            63,784
            
            
            
            54,433Total shareholders’ equity
            
            
            133,240
            
            
            
            122,800Total
      liabilities and shareholders’ equity
            
            $
            192,668
            
            
            $
            180,718See
      accompanying notes to condensed consolidated financial
      statements.


2


LMI
Aerospace, Inc.


Condensed Consolidated Statements of
Operations


(Amounts
in thousands, except share and per share data)


(Unaudited)





Three
      Months Ended
            
            Nine
      Months EndedSeptember
      30,
            
            September
      30,2009
            
            
            
            2008
            
            
            
            2009
            
            
            
            2008Sales
      and service revenuesProduct sales
            
            
            $
            38,212
            
            
            
            $
            38,975
            
            
            
            $
            120,789
            
            
            
            $
            116,931Service revenues
            
            
            
            20,537
            
            
            
            
            22,966
            
            
            
            
            64,791
            
            
            
            
            70,331Net sales
            
            
            
            58,749
            
            
            
            
            61,941
            
            
            
            
            185,580
            
            
            
            
            187,262Cost
      of sales and service revenuesCost of product sales
            
            
            
            30,055
            
            
            
            
            26,919
            
            
            
            
            92,556
            
            
            
            
            81,486Cost of service revenues
            
            
            
            16,386
            
            
            
            
            18,139
            
            
            
            
            52,747
            
            
            
            
            56,599Cost of sales
            
            
            
            46,441
            
            
            
            
            45,058
            
            
            
            
            145,303
            
            
            
            
            138,085Gross
      Profit
            
            
            
            12,308
            
            
            
            
            16,883
            
            
            
            
            40,277
            
            
            
            
            49,177Selling,
      general and administrative expenses
            
            
            
            7,515
            
            
            
            
            8,329
            
            
            
            
            23,927
            
            
            
            
            24,714Severance
      and restructuring
            
            
            
            (50
            )
            
            
            
            -
            
            
            
            
            312
            
            
            
            
            -Income
      from operations
            
            
            
            4,843
            
            
            
            
            8,554
            
            
            
            
            16,038
            
            
            
            
            24,463Other
      income (expenses):Interest expenses, net
            
            
            
            (443
            )
            
            
            
            (407
            )
            
            
            
            (1,278
            )
            
            
            
            (1,366
            )Other, net
            
            
            
            (3
            )
            
            
            
            3
            
            
            
            
            (27
            )
            
            
            
            (5
            )Total
      other income (expense)
            
            
            
            (446
            )
            
            
            
            (404
            )
            
            
            
            (1,305
            )
            
            
            
            (1,371
            )Income
      before income taxes
            
            
            
            4,397
            
            
            
            
            8,150
            
            
            
            
            14,733
            
            
            
            
            23,092Provision
      for income taxes
            
            
            
            1,609
            
            
            
            
            2,970
            
            
            
            
            5,382
            
            
            
            
            8,409Net
      income
            
            
            $
            2,788
            
            
            
            $
            5,180
            
            
            
            $
            9,351
            
            
            
            $
            14,683Amounts
      per common share:Net
      income per common share
            
            
            $
            0.25
            
            
            
            $
            0.46
            
            
            
            $
            0.83
            
            
            
            $
            1.31Net
      income per common share assuming dilution
            
            
            $
            0.25
            
            
            
            $
            0.46
            
            
            
            $
            0.83
            
            
            
            $
            1.30Weighted
      average common shares outstanding
            
            
            
            11,320,527
            
            
            
            
            11,196,861
            
            
            
            
            11,296,544
            
            
            
            
            11,227,970Weighted
      average dilutive common sharesoutstanding
            
            
            
            11,348,333
            
            
            
            
            11,326,771
            
            
            
            
            11,324,697
            
            
            
            
            11,350,022


See
      accompanying notes to condensed consolidated financial
      statements.


3


LMI
Aerospace, Inc.


Condensed Consolidated Statements of Cash
Flows


(Amounts
in thousands)


(Unaudited)





Nine
      Months Ended September 30,2009
            
            
            2008Operating
      activities:Net
      income
            
            $
            9,351
            
            
            $
            14,683Adjustments
      to reconcile net income tonet
      cash provided by operating activities:Depreciation
      and amortization
            
            
            5,567
            
            
            
            4,950Charges
      for inventory obsolescence and valuation
            
            
            1,521
            
            
            
            814Restricted
      stock compensation
            
            
            1,290
            
            
            
            1,736Other
      noncash items
            
            
            603
            
            
            
            316Changes
      in operating assets and liabilities, net ofacquired
      businesses:Trade accounts receivable
            
            
            (10,018
            )
            
            
            (157
            )Inventories
            
            
            10,151
            
            
            
            (13,105
            )Prepaid expenses and other assets
            
            
            180
            
            
            
            45Current income taxes
            
            
            1,039
            
            
            
            954Accounts payable
            
            
            (7,261
            )
            
            
            (1,578
            )Accrued expenses
            
            
            (1,487
            )
            
            
            956Net
      cash provided by operating activities
            
            
            10,936
            
            
            
            9,614Investing
      activities:Additions
      to property, plant and equipment
            
            
            (2,648
            )
            
            
            (6,061
            )Acquisitions,
      net of cash acquired
            
            
            (10,047
            )
            
            
            -Other,
      net
            
            
            (285
            )
            
            
            (28
            )Net
      cash used by investing activities
            
            
            (12,980
            )
            
            
            (6,089
            )Financing
      activities:Proceeds
      from issuance of debt
            
            
            -
            
            
            
            73Principal
      payments on long-term debt and notes payable
            
            
            (374
            )
            
            
            (628
            )Advances
      on revolving lines of credit
            
            
            43,819
            
            
            
            33,520Payments
      on revolving lines of credit
            
            
            (38,819
            )
            
            
            (36,439
            )Other,
      net
            
            
            (132
            )
            
            
            89Net
      cash provided (used) by financing activities
            
            
            4,494
            
            
            
            (3,385
            )Net
      increase in cash and cash equivalents
            
            
            2,450
            
            
            
            140Cash
      and cash equivalents, beginning of year
            
            
            29
            
            
            
            82Cash
      and cash equivalents, end of quarter
            
            $
            2,479
            
            
            $
            222See
      accompanying notes to condensed consolidated financial
      statements.




4


LMI
Aerospace, Inc.


Notes to Condensed Consolidated Financial Statements


(Dollar
amounts in thousands, except share and per share data)


(Unaudited)


September
30, 2009





1.  Summary
of Significant Accounting Policies







Basis
of Presentation





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements.  In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
representation have been included.  We have evaluated subsequent
events through November 6, 2009, which is the date that these financial
statements were issued. Operating results for the three months and nine months
ended September 30, 2009 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2009.  These financial
statements should be read in conjunction with the consolidated financial
statements and accompanying footnotes included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008, as filed with the Securities and
Exchange Commission.





Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions. These estimates and assumptions affect the
reported amounts in the financial statements and accompanying notes. Actual
results could differ from these estimates.





Reclassifications





Certain reclassifications have been
made to prior period financial statements related to presentation of deferred
tax balances in order to conform to current period presentation.  The
reclassifications did not impact either our Statements of Operations or
Statements of Cash Flows for any of the periods presented.





New
Accounting Standards





In
October 2009, an update was made by the Financial Accounting Standards Board
(the “FASB”) in revenue arrangements with multiple deliverables.  It
provides amendments to the criteria for separating consideration in
multiple-deliverable arrangements.  This standard establishes a
selling price hierarchy for determining the selling price of a
deliverable.  The selling price used for each deliverable will be
based on vendor-specific objective evidence if available, third-party evidence
if vendor-specific objective evidence is not available, or the estimated selling
price if neither vendor-specific objective evidence nor third-party evidence is
available.  This standard also replaces the term fair value in the revenue
allocation guidance with selling price to clarify that
the allocation of revenue is based on entity-specific assumptions of a market
participant.  It also eliminates the residual method of allocation and
requires that the arrangement consideration be allocated at the inception of the
arrangements to all deliverables using the relative selling price
method.  This standard will be effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010.  Early adoption is permitted.  We are
currently assessing the potential impact of adoption of this standard on our
consolidated financial statements.





5


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 September
30, 2009





In June
2009, the FASB issued the FASB Accounting Standards Codification (“the
Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with generally accepted accounting principles
(“GAAP”).  Rules and interpretative releases of the Securities and
Exchange Commission are also sources of authoritative GAAP for SEC
registrants.  As a result of the Codification, all changes to GAAP
originating from the FASB will now be issued in Accounting Standards
Updates.  These changes and the Codification do not change
GAAP.  The Company adopted the changes resulting from the
Codification, effective September 30, 2009.  Other than the manner in
which new accounting guidance is referenced, the adoption of these changes had
no impact on the Company’s consolidated financial statements.





In May
2009, the FASB issued new accounting and disclosure guidance for recognized and
non-recognized subsequent events that occur after the balance sheet date but
before financial statements are issued.  The new guidance also
requires disclosure of the date through which an entity has evaluated subsequent
events and the basis for that date.  The new accounting guidance was
effective for our Quarterly Report on Form 10-Q for the three and six months
ended June 30, 2009, and is being applied prospectively.  This change
in accounting policy had no impact on our consolidated financial
statements.





In April
2009, the FASB issued changes to fair value disclosures of financial
instruments.  These changes require disclosure about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements.  The Company adopted the
interim disclosure requirements effective June 30, 2009; however, this adoption
did not have a significant impact on the Company’s financial
statements.





In March
2008, the FASB amended existing disclosure requirements related to derivative
and hedging activities.  The amendment became effective for the
Company on January 1, 2009 and is being applied prospectively.  As a
result of the amended disclosure requirements, the Company is required to
provide expanded qualitative and quantitative disclosures about derivatives and
hedging activities in each interim and annual period.  The adoption of
the new disclosure requirements had no impact on our consolidated financial
statements.





In
December 2007, the FASB amended its guidance on accounting for business
combinations.  The new accounting guidance resulted in a change in our
accounting policy effective January 1, 2009 and is being applied prospectively
to all business combinations subsequent to the effective date.  Among
other things, the new guidance amends the principles and requirements regarding
how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling
interest in the acquired company and the goodwill acquired.  It also
established new disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination.  The adoption of
this new accounting policy did not have a significant impact on our consolidated
financial statements.





6


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 September
30, 2009


2.  Acquisition
of Integrated Technologies, Inc.





On
January 16, 2009, the Company acquired all of the shares of capital stock of
Integrated Technologies, Inc. (“Intec”), an Everett, Washington-based provider
of advanced materials testing, manufacturing and design services to the
aerospace, defense and transportation industries.  Intec’s primary
business is designed to support composite testing, manufacturing and research by
analyzing new and existing materials, including organic matrix composites,
ceramics, metal matrix composites and metal.  The acquisition was
funded by the Company’s existing credit facility and was accounted for in
accordance with the new guidance related to business combinations that was
effective January, 1, 2009.  Operating results of Intec have been
included in the Company’s Aerostructures segment from the date of acquisition,
and acquisition related costs were expensed.  The pro-forma operating
results, as if the Company had completed the acquisition at the beginning of the
periods presented, are not significant to the Company’s operations and are not
presented.




Management
believes the acquisition of Intec, together with other initiatives, will provide
significant composite assembly and component production capabilities to the
Company, which will allow the Company to broaden its customer offerings and to
use Intec’s skilled workforce in both the Aerostructures and Engineering
Services segments to expand into the production of non-metallic
products.  As such, significant synergies are expected to result from
the acquisition.  The Company performed a valuation analysis to
determine amounts allocated to the acquired assets and assumed liabilities,
including various intangible assets.





The
following table summarizes the preliminary purchase price allocation for Intec
at the date of acquisition:





Current
      assets, excluding cash acquired
            
            $
            852Fixed
      assets
            
            
            812Intangible
      assets
            
            
            5,639Goodwill
            
            
            7,146Current
      liabilities assumed
            
            
            (1,036
            )Long-term
      liabilities assumed
            
            
            (3,366
            )Cost
      of acquisition, net of cash acquired
            
            $
            10,047


The
anticipated synergies from the transaction have resulted in the goodwill
recorded above.  Of the $5,639 acquired intangible assets, $4,904 was
assigned to customer relations with an original estimated useful life of 15
years.  The remaining $735 acquired intangible assets consist of
trademarks, non-compete agreements and proprietary technology and have a
weighted average useful life of 5.6 years.  The fair value of the
customer relationships and non-compete agreements was determined using the
discounted cash flow method.  The fair value of the trademarks and
proprietary technology was determined using the relief from royalty
method.  Included in long-term liabilities assumed was $1,235 of
contingent consideration, representing the fair value of the amount payable to
former Intec shareholders if certain sales targets are achieved by Intec for the
two-year period ending December 31, 2010.  The amount of contingent
consideration is limited to $1,500.




7


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 September
30, 2009


3.  Inventories





Inventories
consist of the following:





September
      30, 2009
            
            
            December
      31, 2008Raw
      materials
            
            $
            8,099
            
            
            $
            9,078Work
      in progress
            
            
            7,460
            
            
            
            12,765Manufactured
      and purchased components
            
            
            14,359
            
            
            
            16,437Finished
      goods
            
            
            21,090
            
            
            
            24,113Total
      inventories
            
            $
            51,008
            
            
            $
            62,393





These
amounts include reserves for obsolete and slow-moving inventory of $2,730 and
$2,058 and a reserve for lower of cost or market of $319 and $135 at September
30, 2009 and December 31, 2008, respectively. Included in work in progress was
$1,890 and $1,572 deferred costs at September 30, 2009 and December 31, 2008,
respectively, consisting of pre-production costs as well as actual costs
incurred during production in excess of estimated cost per ship-set for units
delivered on certain programs. Inventoried costs include amounts relating to
programs and contracts with long-term production cycles, a portion of which is
not expected to be realized within one year. The Company believes these amounts
will be fully recovered.





4.  Goodwill
and Intangible Assets





Goodwill




Goodwill
balance at September 30, 2009 consisted of $7,146 from the acquisition of Intec
in January 2009, $42,908 from the acquisition of D3 Technologies, Inc. (“D3
Technologies”) in July 2007, and $3,350 from the acquisition of Tempco
Engineering, Inc. (“Tempco”) in 2001. Goodwill balance at December 31, 2008
consisted of $42,908 from the acquisition of D3 Technologies and $3,350 from the
acquisition of Tempco.  Goodwill recorded as a result of the Intec and
D3 Technologies acquisitions is not deductible for tax
purposes.  Goodwill recorded as a result of the Tempco acquisition is
tax deductible.




The carrying value of
goodwill and intangible assets with indefinite lives is assessed at least
annually, during the fourth quarter, and an impairment charge is recorded if
appropriate.The Company
continues to monitor the performance of the Tempco reporting unit, which is part
of the Aerostructures segment, whose performance in fiscal 2008 resulted in a
$2,303 goodwill impairment charge.  Although Tempco's operating results for
fiscal 2009 have been below budget, to date management has concluded that no
significant changes constituting a triggering event have occurred through
September 30, 2009.  A “triggering event” would require the Company to
perform a goodwill impairment analysis at an interim date. Management is
currently in the process of performing the annual goodwill impairment assessment
as of October 1, 2009. If market conditions of the Tempco reporting unit do
not improve or if the Company is not successful in improving the Tempco
reporting unit's operating results, the remaining goodwill of $3,350 related to
Tempco may be impaired and result in future impairment charges.




8


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 September
30, 2009


Additionally,
management is currently evaluating strategies to improve operating results,
including plant consolidations and workforce reductions, which may result in
future restructuring charges.




Intangible
Assets




Intangible
assets primarily consist of trademarks and customer intangibles resulting from
the acquisitions of Intec, D3 Technologies and Versaform Corporation. The
trademark of $4,222 that resulted from the acquisition of D3 Technologies was
determined to have an indefinite life. Customer intangibles have an original
estimated useful life of 15 years.  The carrying values were as
follows:




September
      30, 2009
            
            
            December
      31, 2008Trademarks
            
            $
            4,582
            
            
            $
            4,222Customer
      intangible assets
            
            
            21,515
            
            
            
            16,610Other
            
            
            582
            
            
            
            160Accumulated
      amortization
            
            
            (4,577
            )
            
            
            (3,131
            )Intangible
      assets, net
            
            $
            22,102
            
            
            $
            17,861












Intangibles
amortization expense was $482 and $360 for the three months ended September 30,
2009 and 2008, respectively, and $1,446 and $1,079 for the nine months ended
September 30, 2009 and 2008, respectively.   Estimated annual
amortization expense for the balance of 2009 and the next five years is as
follows:




Year
      ending December 31,2009
      (1)
            
            $
            4842010
            
            
            1,9902011
            
            
            1,9862012
            
            
            1,9752013
            
            
            1,8912014
            
            
            1,773Thereafter
            
            
            7,781$
            17,880(1)
      Represents amortization expense for the remainder of 2009.





5.  Long-Term
Debt and Capital Lease Obligations





Long-term
debt and capital lease obligations consist of the following:





September
      30, 2009
            
            December
      31, 2008Capital
      lease obligations
            
            $
            271
            
            
            $
            347Revolving
      line of credit
            
            
            30,000
            
            
            
            25,000Notes
      payable, principal and interest payable monthly,at
      fixed rates, ranging from 1.67% to 10.70%at
      September 30, 2009 and December 31, 2008
            
            
            389
            
            
            
            687Total debt
            
            $
            30,660
            
            
            $
            26,034Less
      current installments
            
            
            388
            
            
            
            498Total
            
            $
            30,272
            
            
            $
            25,536





9


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 September
30, 2009


The
Company has entered into a senior secured revolving credit facility in an
aggregate principal amount of up to $80,000 of which $30,000 was utilized at
September 30, 2009.  Borrowings under the credit facility are secured
by substantially all of the Company’s assets and bear interest at either (a) the
“base rate” (the higher of the federal funds rate plus one-half of one percent
or the prime commercial lending rate) plus the applicable interest margin
ranging from 0.125% to 1.0%, depending upon the Company’s total leverage ratio
at the end of each quarter, or (b) the LIBOR rate plus an applicable interest
margin ranging from 1.125% to 2.0%, depending upon the Company’s total leverage
ratio at the end of each quarter.  If the Company elects to borrow
under the LIBOR rate, interest periods range from one to twelve months. The
maturity date of the credit facility, which is subject to acceleration upon
breach of the financial covenants (consisting of a maximum total leverage ratio
and a minimum fixed charge coverage ratio) and other customary non-financial
covenants contained in the credit agreement, is July 31, 2012. As of September
30, the Company was in compliance with all its financial and non-financial
covenants. In addition, the Company entered into a line of credit agreement
providing a revolving credit facility in the amount of up to $1,000 at the base
rate plus 1.125%, of which none was utilized at September 30,
2009.  At September 30, 2009, the “base rate” was 3.25%, and the
applicable margin was 0.375%.  The LIBOR rate ranged from 1.20% to
2.07% for various notes the Company carried, and the applicable margin was
1.375%.  As these borroweings are at variable interst rates, the fair
value of these borrowings approximate book value.





The
Company has also entered into various notes payable and capital lease agreements
for the purchase of certain equipment and software. The notes are secured by
certain equipment and software and payable in monthly installments including
interest, with rates ranging from 1.67% to 10.70%, through January 2012. The
capital lease agreements expire between October 2010 and March
2012.





6.  Earnings
Per Common Share





Basic net
income per common share is based upon the weighted average number of common
shares outstanding.  Diluted net income per common share is based upon
the weighted average number of common shares outstanding, including the dilutive
effect of stock options and restricted stock, using the treasury stock and
if-converted methods.  The number of dilutive shares for the three and
nine months ended September 30, 2009 was 27,806 and 28,153,
respectively.  A weighted average of 326,677 and 321,740 shares for
the three and nine months ended September 30, 2009, respectively, was excluded
from the computation of 2009 diluted net income per common share because of
an anti-dilutive effect on earnings per share.  The number of dilutive
shares for the three and nine months ended September 30, 2008 was 129,909 and
122,052, respectively.  There were no antidilutive shars for the three and
nine months ended September 30, 2008 that were excluded from the computation of
2008 diluted net income per common share.





7.  Stock-Based
Compensation





On July
7, 2005, the Company’s shareholders approved the LMI Aerospace, Inc. 2005
Long-term Incentive Plan (the “Plan”). The Plan is the Company’s only
compensation plan under which shares of the Company’s common stock are
authorized for issuance to employees or directors. The Plan provides for the
grant of non-qualified stock options, incentive stock options, shares of
restricted stock, restricted stock units, stock appreciation rights, performance
awards and other share-based grants and cash bonus awards.





10


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 September
30, 2009







The
Company did not make any share-based grants or awards, except for restricted
stock awards as disclosed below, for the three and nine months ended September
30, 2009 and 2008, respectively.  A summary of stock option activity
under the Company’s share-based compensation plan for the nine months ended
September 30, 2009 is presented below:





Stock
      Options
            
            Shares
            
            
            Weighted
              Average
      Exercise PriceOutstanding
      at January 1, 2009
            
            
            63,890
            
            
            $
            2.81Granted
            
            
            -
            
            
            
            -Exercised
            
            
            (20,755
            )
            
            
            2.78Forfeited
      or expired
            
            
            (1,100
            )
            
            
            4.75Outstanding
      at September 30, 2009
            
            
            42,035
            
            
            $
            2.78





All
outstanding stock options were exercisable at September 30, 2009.  The
aggregate intrinsic value of vested stock options was $305 at September 30,
2009, which options had a weighted average remaining life of 0.7 years at
September 30, 2009.  The aggregate intrinsic value of options
exercised during the nine months ended September 30, 2009 and 2008, based upon
the market price on the exercise date, was approximately $72 and $400,
respectively.





The
following table summarizes information about stock options outstanding at
September 30, 2009:





Range
      of
              Exercise
      Prices
            Number
      of
              Outstanding
              Options
            Weighted
      Average
              Remaining
              Contractual
      Life
            Weighted
              Average
              Exercise
      Price$1.96
      - $2.90
            39,335
            0.57
            $
            2.57$2.91
      - $4.35
            200
            0.17
            
            3.13$4.36
      - $6.06
            2,500
            2.62
            
            6.06Total
            42,035
            0.69
            $
            2.78





A summary
of the activity for non-vested restricted stock awards as of September 30, 2009
and changes during the nine-month period is presented below:





Restricted
      Stock Awards
            Shares
            
            Weighted
              Average
      Grant
              Date
      Fair
              ValueOutstanding
      at January 1, 2009
            294,774
            
            $
            22.78Granted
            87,782
            
            
            10.51Vested
            (47,880)
            
            
            20.64Forfeited
            (22,240)
            
            
            24.83Outstanding
      at September 30, 2009
            312,436
            
            $
            19.51





Common
stock compensation expense related to restricted stock awards granted under the
Plan was $367 and $528 for the three months ended September 30, 2009 and 2008,
respectively, and $1,290 and $1,736 for the nine months ended September 30, 2009
and 2008, respectively.





11


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 September
30, 2009


Total
unrecognized compensation costs related to non-vested share-based compensation
awards granted or awarded under the Plan were $3,106 and $3,972 at September 30,
2009 and December 31, 2008, respectively. These costs are expected to be
recognized over a weighted average period of 2.0 years and 2.2 years,
respectively.





8.  Business
Segment Information





The
Company is organized into two reportable segments: the Aerostructures segment
and the Engineering Services segment.  The Aerostructures segment, comprised of all of the
Company’s operations other than those of D3 Technologies, primarily
assembles, kits, fabricates, machines,
finishes and integrates formed, close-tolerance aluminum and specialty alloy
components and sheet metal products primarily for use by the aerospace,
semiconductor and medical technology products industries. Since January
2009, the operating results of Intec have also been included in the operating
results of the Aerostructures segment. The Engineering Services segment, comprised of the
operations of D3 Technologies, provides a complete range of design,
engineering and program management services supporting aircraft lifecycles from
conceptual design, analysis and certification through production support, fleet
support and service life extensions via a complete turnkey engineering
solution.





Corporate
assets, liabilities and expenses related to the Company’s corporate offices,
except for interest expense and income taxes, primarily support the
Aerostructures segment. The table below presents information about reported
segments on the basis used internally to evaluate segment
performance:




12


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 September
30, 2009


Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      sales:Aerostructures
      (1)
            
            $
            39,837
            
            
            $
            39,411
            
            
            $
            123,413
            
            
            $
            118,202Engineering
      Services
            
            
            20,241
            
            
            
            22,852
            
            
            
            63,664
            
            
            
            70,147Eliminations
            
            
            (1,329
            )
            
            
            (322
            )
            
            
            (1,497
            )
            
            
            (1,087
            )$
            58,749
            
            
            $
            61,941
            
            
            $
            185,580
            
            
            $
            187,262(1)
      Includes sales from the Engineering Services segment to the Aerostructures
      segment for the new design-build program in 2009 and other support
      services. These amounts are eliminated in
    consolidation.Income
      (loss) from operations:Aerostructures
            
            $
            2,760
            
            
            $
            5,923
            
            
            $
            9,813
            
            
            $
            16,684Engineering
      Services
            
            
            2,309
            
            
            
            2,638
            
            
            
            6,365
            
            
            
            7,872Eliminations
            
            
            (226
            )
            
            
            (7
            )
            
            
            (140
            )
            
            
            (93
            )$
            4,843
            
            
            $
            8,554
            
            
            $
            16,038
            
            
            $
            24,463Depreciation
      and amortization:Aerostructures
            
            $
            1,136
            
            
            $
            1,058
            
            
            $
            3,481
            
            
            $
            3,124Engineering
      Services
            
            
            641
            
            
            
            620
            
            
            
            2,086
            
            
            
            1,826$
            1,777
            
            
            $
            1,678
            
            
            $
            5,567
            
            
            $
            4,950Interest
      income (expense):Aerostructures
            
            $
            (2
            )
            
            $
            -
            
            
            $
            (5
            )
            
            $
            -Engineering
      Services
            
            
            (4
            )
            
            
            (5
            )
            
            
            (11
            )
            
            
            (24
            )Corporate
            
            
            (437
            )
            
            
            (402
            )
            
            
            (1,262
            )
            
            
            (1,342
            )$
            (443
            )
            
            $
            (407
            )
            
            $
            (1,278
            )
            
            $
            (1,366
            )Capital
      expenditures:Aerostructures
            
            $
            1,302
            
            
            $
            2,448
            
            
            $
            2,097
            
            
            $
            4,772Engineering
      Services
            
            
            133
            
            
            
            336
            
            
            
            551
            
            
            
            1,289$
            1,435
            
            
            $
            2,784
            
            
            $
            2,648
            
            
            $
            6,061





September
      30, 2009
            
            
            December
      31, 2008Goodwill:Aerostructures
            
            $
            10,496
            
            
            $
            3,350Engineering
            
            
            42,908
            
            
            
            42,908$
            53,404
            
            
            $
            46,258Total
      assets:Aerostructures
            
            $
            120,846
            
            
            $
            108,852Engineering
            
            
            71,822
            
            
            
            71,866$
            192,668
            
            
            $
            180,718




13


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 September
30, 2009


9.  Customer
Concentration





Direct
sales, through both of its business segments, to the Company’s largest customer
accounted for 20.8% and 22.1% of the Company’s total revenues for the three
months ended September 30, 2009 and 2008, respectively. Direct sales to the
Company’s largest customer accounted for 22.9% and 22.6% of the Company’s total
revenues for the nine months ended September 30, 2009 and 2008,
respectively.  Accounts receivable balances related to the largest
customer based on direct sales were 20.3% and 25.7% of the accounts receivable
balance at September 30, 2009 and December 31, 2008, respectively.




Direct
sales, through both of its business segments, to the Company’s second largest
customer accounted for 15.9% and 18.7% of the Company’s total revenues for the
three months ended September 30, 2009 and 2008, respectively. Direct sales to
the Company’s second largest customer accounted for 16.3% and 19.5% of the
Company’s total revenues for the nine months ended September 30, 2009 and 2008,
respectively.  Accounts receivable balances related to the second
largest customer based on direct sales were 7.8% and 15.3% of the accounts
receivable balance at September 30, 2009 and December 31, 2008,
respectively.




Direct
sales, through both of its business segments, to the Company’s third largest
customer accounted for 12.7% and 18.5% of the Company’s total revenues for the
three months ended September 30, 2009 and 2008, respectively. Direct sales to
the Company’s third largest customer accounted for 13.4% and 18.6% of the
Company’s total revenues for the nine months ended September 30, 2009 and 2008,
respectively.  Accounts receivable balances related to the third
largest customer based on direct sales were 9.7% and 9.2% of the accounts
receivable balance at September 30, 2009 and December 31, 2008,
respectively.




Direct
sales, through both of its business segments, to the Company’s fourth largest
customer accounted for 11.0% and 10.7% of the Company’s total revenues for the
three and nine months ended September 30, 2009, respectively.  Direct
sales to the Company’s fourth largest customer were less than 10% of the
Company's total revenues for the three and nine month periods ended September
30, 2008.  Accounts receivable balances related to the fourth largest
customer based on direct sales were 8.2% and 0.0% of the accounts receivable
balance at September 30, 2009 and December 31, 2008, respectively.




14


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





The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward-looking statements. The Company makes forward-looking statements in the
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” section of this Quarterly Report on Form 10-Q, which represent the
Company’s expectations or beliefs about future events and financial performance.
When used in this report, the words “expect,” “believe,” “anticipate,” “goal,”
“plan,” “intend,” “estimate,” “may,” “will” or similar words are intended to
identify forward-looking statements. These forward-looking statements are based
on estimates, projections, beliefs and assumptions and are not guarantees of
future events or results.  Such statements are subject to known and
unknown risks, uncertainties and assumptions, including those referred to under
“Risk Factors” in the Company’s Annual Report on Form 10-K and otherwise
described in the Company’s periodic filings and current reports filed with the
Securities and Exchange Commission.




In light
of these risks, uncertainties and assumptions, the forward-looking events
discussed may not occur.  In addition, actual results could differ
materially from those suggested by the forward-looking
statements.  Accordingly, investors are cautioned not to place undue
reliance on the forward-looking statements.  Except as required by
law, the Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.  Investors should, however, review additional
disclosures made by the Company from time to time in its periodic filings with
the Securities and Exchange Commission.




This
Quarterly Report on Form 10-Q should be read completely, in conjunction with our
Annual Report on Form 10-K, filed on March 16, 2009, and with the understanding
that the Company’s actual future results may be materially different from what
the Company expects.  All forward-looking statements made by the
Company in this Quarterly Report on Form 10-Q and in the Company’s other filings
with the Securities and Exchange Commission are qualified by these cautionary
statements.





The
condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require the Company to make estimates and assumptions. (See Note 1 of the
Condensed Consolidated Financial Statements included as part of this Quarterly
Report on Form 10-Q.)





The
Company believes that certain significant accounting estimates have the
potential to have a more significant impact on the financial statements either
because of the significance of the financial statements to which they relate or
because they involve a higher degree of judgment and complexity.  A
summary of such critical accounting estimates can be found in the section
entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” contained in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008.




Overview





We are a
leading provider of design engineering services, structural components,
assemblies and kits to the aerospace, defense and technology industries. We
primarily sell our products and services to the large commercial aircraft,
military, corporate and regional aircraft, and technology
markets.  Historically, our business was primarily dependent on the
large commercial aircraft market, specifically with one principal customer. In
order to diversify our product and customer base, we implemented an acquisition
and marketing strategy in the late 1990s that has broadened the number of
industries to which we sell our products and services and, within the aerospace
industry, diversified our customer base to reduce our dependence on any one
principal customer. Our acquisition of D3 Technologies, Inc. in 2007 was in
furtherance of our growth strategy of increasing the array of value-added
services and solutions that we offer to our customers.  We believe
that OEM and Tier 1 aerospace companies will continue the trend of selecting
their suppliers based upon the breadth of more complex and sophisticated design
and manufacturing capabilities and value-added services as well as the ability
of their suppliers to manage large production programs.





15





In
January 2009, the Company acquired Integrated Technologies, Inc. (“Intec”), an
Everett, Washington-based provider of advanced materials testing, manufacturing
and design services to the aerospace, defense and transportation
industries.  Intec’s primary business is designed to support composite
testing, manufacturing and research, by analyzing new and existing materials,
including organic matrix composites, ceramics, metal matrix composites and
metal.  We believe the acquisition of Intec, together with other
initiatives, will provide significant composite assembly and component
production capabilities, which will allow us to broaden our customer offerings
and to use our skilled workforce in both the Aerostructures and Engineering
Services segments to expand into production of non-metallic
products.




Recent
Development




We
continue to monitor the performance of our Tempco reporting unit, which is part
of our Aerostructures segment, whose performance in fiscal 2008 resulted in a
$2.3 million goodwill impairment charge.  Although Tempco's operating
results for fiscal 2009 have been below budget, to date we have concluded that
no significant changes constituting a triggering event have occurred through
September 30, 2009.  A “triggering event” would require the Company to
perform a goodwill impairment analysis at an interim date. We are currently in
the process of performing the annual goodwill impairment assessment as of
October 1, 2009. If market conditions of the Tempco reporting unit do not
improve or if we are not successful in improving the Tempco reporting unit's
operating results, the remaining goodwill of $3.4 million related to Tempco may
be impaired and result in future impairment charges.




Additionally,
we are currently evaluating strategies to improve operating results including
plant consolidations and workforce reductions which may result in future
restructuring charges.




Results
of Operations




Three
months ended September 30, 2009 compared to September 30, 2008





The
following table is a summary of our operating results for the three months ended
September 30, 2009 and 2008, respectively:





Three
      Months EndedSeptember
      30, 2009($
      in millions)Aerostructures
            
            
            Engineering
              Services
            
            
            Eliminations
            
            
            TotalNet
      sales
            
            $
            39.8
            
            
            $
            20.2
            
            
            $
            (1.3
            )
            
            $
            58.7Cost
      of sales
            
            
            31.3
            
            
            
            16.2
            
            
            
            (1.1
            )
            
            
            46.4Gross
      profit
            
            
            8.5
            
            
            
            4.0
            
            
            
            (0.2
            )
            
            
            12.3S,G
      & A
            
            
            5.8
            
            
            
            1.7
            
            
            
            -
            
            
            
            7.5Income
      from operations
            
            $
            2.7
            
            
            $
            2.3
            
            
            $
            (0.2
            )
            
            $
            4.8Three
      Months EndedSeptember
      30, 2008($
      in millions)Aerostructures
            
            
            Engineering
              Services
            
            
            Eliminations
            
            
            TotalNet
      sales
            
            $
            39.4
            
            
            $
            22.8
            
            
            $
            (0.3
            )
            
            $
            61.9Cost
      of sales
            
            
            27.6
            
            
            
            17.7
            
            
            
            (0.3
            )
            
            
            45.0Gross
      profit
            
            
            11.8
            
            
            
            5.1
            
            
            
            -
            
            
            
            16.9S,G
      & A
            
            
            5.8
            
            
            
            2.5
            
            
            
            -
            
            
            
            8.3Income
      from operations
            
            $
            6.0
            
            
            $
            2.6
            
            
            $
            -
            
            
            $
            8.6




16





Aerostructures
Segment





Net Sales.  The
following table specifies the amount of the Aerostructures segment’s net sales
by category for the third quarter of 2009 and 2008 and the percentage of total
net sales for each period represented by each category.





Three
      Months Ended September 30,Category
            
            2009
            
            
            %
      of Total
            
            
            2008
            
            
            %
      of Total($
      in millions)Corporate
      and regional aircraft
            
            $
            10.5
            
            
            
            26.4
            %
            
            $
            13.9
            
            
            
            35.3
            %Large
      commercial aircraft
            
            
            18.6
            
            
            
            46.7
            
            
            
            11.3
            
            
            
            28.7Military
            
            
            9.5
            
            
            
            23.9
            
            
            
            10.8
            
            
            
            27.4Technology
            
            
            0.4
            
            
            
            1.0
            
            
            
            1.9
            
            
            
            4.8Other
      (1)
            
            
            0.8
            
            
            
            2.0
            
            
            
            1.5
            
            
            
            3.8Total
            
            $
            39.8
            
            
            
            100.0
            %
            
            $
            39.4
            
            
            
            100.0
            %


(1) Primarily consists of
testing and processing services in 2009 and consulting services and various
aerospace products in 2008.





Sales
from the Engineering Services segment to the Aerostructures segment for the new
design-build program and other support were $1.3 million for the three months
ended September 30, 2009.  These amounts are included in the table above
but were eliminated in consolidation. Net sales for the third quarter of
2009 were $39.8 million, up 1.0% from $39.4 million in the third quarter of
2008.  An increase in net sales occurred in the large commercial
aircraft sector. This increase was offset by a decrease in the corporate and
regional aircraft, military and technology sectors.





Net sales
of components for corporate and regional aircraft were $10.5 million for the
third quarter of 2009 compared to $13.9 million for the third quarter of 2008, a
decrease of $3.4 million, or 24.5%.  The decrease in sales in this
sector was primarily attributable to a decrease in sales of large cabin
components for Gulfstream due to production rate cuts announced by Gulfstream in
March 2009 and the resulting inventory adjustments implemented in connection
with these production cuts. Additionally, Gulfstream’s manufacturing operations
were closed for four weeks in July 2009, which further limited demand for our
products. The decline in production was offset by a design-build project in
collaboration with our Engineering Services segment that contributed $1.2
million of sales in the current quarter.





Net sales
of products used in large commercial aircraft were $18.6 million for the third
quarter of 2009 compared to $11.3 million for the third quarter of 2008, an
increase of $7.3 million, or 64.6%.  The increase in net sales to this
market was driven by aftermarket support for the 767 wing modification and
winglet program, which began full production in 2009 and generated $6.9 million
of sales in the third quarter of 2009 compared to $0.5 million in the third
quarter of 2008, an increase of $6.4 million.  In addition, sales
related to the 737 and 747 programs increased $0.6 million and $0.4 million,
respectively, from $5.6 million and $3.2 million, respectively, in the third
quarter of 2008 to $6.2 million and $3.6 million, respectively, in the third
quarter of 2009. Sales related to the 787 slightly decreased from $0.2 million
in the third quarter of 2008 to $0.1 million in the third quarter of
2009.





Military
products generated $9.5 million of net sales in the third quarter of 2009
compared to $10.8 million in the third quarter of 2008, a decrease of $1.3
million, or 12.0%.  This decrease partially resulted from a decline of
$0.9 million in sales for the Apache Helicopter program from $1.5 million in the
third quarter of 2008 to $0.6 million in the third quarter of 2009, primarily
due to changes made in the customer’s inventory management
process.  In addition, Blackhawk sales declined by $0.6 million from
$8.4 million in the third quarter of 2008 to $7.8 million in the third quarter
of 2009, primarily due to continued inventory destocking by our
customers.





Technology
products net sales declined by $1.5 million, or 78.9%, in the third quarter of
2009 to $0.4 million from $1.9 million in the third quarter of 2008. This
decrease was due to lower demand in semiconductor equipment.





17





Gross Profit.  Gross
profit for the third quarter of 2009 was $8.5 million (21.4% of net sales)
compared to $11.8 million (29.9% of net sales) in the third quarter of
2008.  During the third quarter, the Company reduced raw material and
finished goods inventories by $1.3 million and $6.3 million, respectively, and
experienced lower sales volume which resulted in lower production
levels.  This lower production resulted in inefficiencies and an
inability to cover fixed costs effectively. An increase in obsolescence costs
and health insurance costs also contributed to the decline in gross profit.
Additionally, although the 767 wing modification kit is expected to provide a
lower gross profit margin than other Aerostructures products, the program did
operate above expectations in the quarter.





Selling, General and Administrative
Expenses.Selling, general and administrative expenses were
$5.8 million (14.6% of net sales) for the third quarter of 2009 compared to $5.8
million (14.7% of net sales) for the third quarter of 2008.  Declines
in personnel costs, as a result of staff reductions, were offset by increases in
computer, depreciation and amortization expenses.





Engineering Services
Segment





Net
Sales.The following
table specifies the amount of the Engineering Services segment’s net sales by
category for the third quarter of 2009 and 2008 and the percentage of the
segment’s total net sales represented by each category.





Three
      Months Ended September 30,Category
            
            2009
            
            
            %
      of Total
            
            
            2008
            
            
            %
      of Total($
      in millions)Corporate
      and regional aircraft
            
            $
            4.5
            
            
            
            22.3
            %
            
            $
            7.6
            
            
            
            33.3
            %Large
      commercial aircraft
            
            
            7.9
            
            
            
            39.1
            
            
            
            11.0
            
            
            
            48.2Military
            
            
            7.4
            
            
            
            36.6
            
            
            
            3.4
            
            
            
            14.9Tooling
            
            
            0.4
            
            
            
            2.0
            
            
            
            0.8
            
            
            
            3.6Total
            
            $
            20.2
            
            
            
            100.0
            %
            
            $
            22.8
            
            
            
            100.0
            %





Net sales
for the Engineering Services segment were $20.2 million for the third quarter of
2009 compared to $22.8 million for the third quarter of 2008, a decrease of $2.6
million, or 11.4%. This decrease resulted from lower demand for services
in 2009 compared to 2008.  Approximately $18.8 million, or 93.1% of
the segment’s revenues, were recorded under reimbursement type contracts for
engineering services for the third quarter of 2009 compared to $22.3 million,
or 97.8% of the segment’s revenues, for the third quarter of 2008, a decrease of
$3.5 million or 15.7%. These revenues are generated from labor hours
incurred at varying, pre-negotiated rates and other direct costs plus an
administrative fee.  Net sales under these reimbursement contracts are
primarily for commercial, corporate and military markets.





Net sales
for services supporting corporate and regional aircraft, the majority of which
relate to the development of new and redesigned aircraft, were $4.5 millionin the third quarter of
2009 compared to $7.6 million for the third quarter of 2008, a decrease of $3.1
million, or 40.8%. The majority of the 2008 revenue was due to the
development of the Gulfstream G650.  In 2009, the decrease in services
required on the Gulfstream G650 was partially offset by our support on
Bombardier’s Learjet 85, a design-build project in collaboration with our
Aerostructures segment, and services provided on other re-designed
aircraft.





Net sales
for services for large commercial aircraft were $7.9 millionin the third quarter of
2009, down $3.1 million, or 28.2%, from $11.0 million in the third quarter of
2008. These revenues are primarily from design programs supporting
Boeing’s 747-8, 767 and 787 platforms.  In addition to decreases in
overtime requirements, large commercial aircraft revenue declined due to the
completion of some of the related engineering tasks.





18





Net sales
of services for military programs were $7.4 million in the third quarter of
2009, up $4.0 million, or 117.6%, from $3.4 million in the third quarter of
2008. These military revenues were derived from support provided on
multiple Navy programs, including the CH-53 helicopter, as well as the F-35 and
various other programs.  The increased sales of services for military
programs are consistent with management’s strategy for growth and have helped
offset the decreases of sales experienced in other major
categories.





Sales
related to the design and delivery of tooling on various programs supporting
commercial aircraft were $0.4 million for the third quarter of
2009 compared to $0.8 million in the third quarter of
2008.  The $0.4 million, or 50.0%, decrease resulted from the
lower demand for tooling design support.





Gross Profit.  Gross
profit for the third
quarter of 2009 was $4.0 million (19.8% of net sales) compared to $5.1 million
(22.4% of net sales) in the third quarter of 2008.  The
decrease in gross profit during the third quarter of 2009 is due to a number of
factors, including higher overhead rates resulting from fewer billable hours,
lower sales volume and an increase in non-billable hours.





Selling, General and Administrative
Expenses.  Selling, general and administrative expenses for the third quarter of
2009 were $1.7 million (8.4% of net sales) compared to $2.5 million
(11.0% of net sales) in the third quarter of 2008. The decrease was
primarily due to a reduction in personnel costs.





Non-segment
Expenses





Interest Income (Expense),
net.  Net interest expense was $0.4 million for the third
quarter of 2009 and 2008. The decreases in interest rates in the third quarter
of 2009 compared to the third quarter of 2008 were offset by increased
borrowings as a result of the purchase of Intec in January 2009.





Income Tax
Expense.  During the third quarter of 2009, we recorded income
tax expense of $1.6 million compared to $3.0 million in the third quarter of
2008.  We applied an effective tax rate of 36.5% for the third quarter
of 2009 and 2008.





Nine
months ended September 30, 2009 compared to September 30, 2008





The
following table is a summary of our operating results for the nine months ended
September 30, 2009 and 2008, respectively:




Nine
      Months EndedSeptember
      30, 2009($
      in millions)Aerostructures
            
            
            Engineering
              Services
            
            
            Eliminations
            
            
            TotalNet
      sales
            
            $
            123.4
            
            
            $
            63.7
            
            
            $
            (1.5
            )
            
            $
            185.6Cost
      of sales
            
            
            95.0
            
            
            
            51.7
            
            
            
            (1.4
            )
            
            
            145.3Gross
      profit
            
            
            28.4
            
            
            
            12.0
            
            
            
            (0.1
            )
            
            
            40.3S,G
      & A
            
            
            18.6
            
            
            
            5.6
            
            
            
            0.1
            
            
            
            24.3Income
      from operations
            
            $
            9.8
            
            
            $
            6.4
            
            
            $
            (0.2
            )
            
            $
            16.0Nine
      Months EndedSeptember
      30, 2008($
      in millions)Aerostructures
            
            
            Engineering
              Services
            
            
            Eliminations
            
            
            TotalNet
      sales
            
            $
            118.2
            
            
            $
            70.1
            
            
            $
            (1.0
            )
            
            $
            187.3Cost
      of sales
            
            
            83.7
            
            
            
            55.4
            
            
            
            (1.0
            )
            
            
            138.1Gross
      profit
            
            
            34.5
            
            
            
            14.7
            
            
            
            -
            
            
            
            49.2S,G
      & A
            
            
            17.8
            
            
            
            6.9
            
            
            
            -
            
            
            
            24.7Income
      from operations
            
            $
            16.7
            
            
            $
            7.8
            
            
            $
            -
            
            
            $
            24.5




19





Aerostructures
Segment





Net Sales.  The
following table specifies the amount of the Aerostructures segment’s net sales
by category for the nine months ended September 30, 2009 and 2008 and the
percentage of total net sales for each period represented by each
category.





Nine
      Months Ended September 30,Category
            
            2009
            
            
            %
      of Total
            
            
            2008
            
            
            %
      of Total($
      in millions)Corporate
      and regional aircraft
            
            $
            38.1
            
            
            
            31.0
            %
            
            $
            41.5
            
            
            
            35.1
            %Large
      commercial aircraft
            
            
            51.5
            
            
            
            41.7
            
            
            
            34.4
            
            
            
            29.1Military
            
            
            29.3
            
            
            
            23.7
            
            
            
            32.4
            
            
            
            27.4Technology
            
            
            1.0
            
            
            
            0.8
            
            
            
            6.3
            
            
            
            5.3Other
      (1)
            
            
            3.5
            
            
            
            2.8
            
            
            
            3.6
            
            
            
            3.1Total
            
            $
            123.4
            
            
            
            100.0
            %
            
            $
            118.2
            
            
            
            100.0
            %


(1) Primarily consists of
testing and processing services in 2009 and consulting services and various
aerospace products in 2008.





Sales
from the Engineering Services segment to the Aerostructures segment for the new
design-build program and other support were $1.5 million for the nine months
ended September 30, 2009.  These amounts are included in the table above
but were eliminated in consolidation. Net sales for the first nine months of
2009 were $123.4 million, up $5.2 million, or 4.4%, from $118.2 million in the
first nine months of 2008.  The increase in net sales occurred
primarily in the large commercial aircraft sector.





Net sales
of components for corporate and regional aircraft were $38.1 million for the
first nine months of 2009 compared to $41.5 million for the first nine months of
2008, a decrease of $3.4 million, or 8.2%.  The decrease in sales in
this sector was primarily attributable to a $10.6 million decrease in sales of
large cabin components for Gulfstream offset by $7.0 million in tooling
sales.  This reduction is primarily a result of production rate cuts
announced by Gulfstream in March 2009 and the resulting inventory adjustments
implemented in connection with these rate cuts. The decline in production was
offset by a
design-build project in collaboration with our Engineering Services segment that
contributed $1.2 million of sales in the current year.





Net sales
of products used in large commercial aircraft were $51.5 million for the first
nine months of 2009 compared to $34.4 million for the first nine months of 2008,
an increase of $17.1 million, or 49.7%.  The increase in net sales to
this market was driven by aftermarket support for the 767 wing modification and
winglet program, which bagan full production in 2009 and generated $19.5 million
of sales in the first nine months of 2009 compared to $1.7 million in the first
nine months of 2008.    We also increased net sales for the
Boeing 747 by $1.6 million to $8.8 million in the first nine months of 2009 from
$7.2 million in the first nine months of 2008. These increases were partially
offset by a $2.5 million decrease in sales for the Boeing 737 from $19.5 million
in the first nine months of 2008 to $17.0 million in the first nine months of
2009 and a $1.3 million decrease in sales for the 787 program from $1.4 million
in the first nine months of 2008 to $0.1 million in the first nine months of
2009.





Military
products generated $29.3 million of net sales in the first nine months of 2009
compared to $32.4 million in the first nine months of 2008, a decrease of $3.1
million, or 9.6%.  This decrease primarily resulted from declines in
net sales for the Sikorsky Blackhawk and Apache programs. The Blackhawk program
generated $22.6 million of net sales in the first nine months of 2009 compared
to $24.3 million in the first nine months of 2008 primarily due to continued
inventory destocking by our customers. The Apache program generated $3.4 million
of net sales in the first nine months of 2009 compared to $4.4 million in the
first nine months of 2008.





20





Technology
products net sales declined by $5.3 million, or 84.1%, in the first nine months
of 2009 to $1.0 million from $6.3 million for the first nine months of
2008.  This decrease was due to lower demand in semiconductor
equipment.





The
backlog was $228 million at September 30, 2009 compared to $210 million at
September 30, 2008.





Gross Profit.  Gross
profit for the first nine months of 2009 was $28.4 million (23.0% of net sales)
compared to $34.5 million (29.2% of net sales) in the first nine months of
2008.  An increase in obsolescence costs and health insurance costs,
as well as inefficiencies resulting from lower production levels during the
third quarter of 2009, contributed to the decline in gross
profit.  Additionally, although the 767 wing modification kit is
expected to provide a lower gross profit margin than other Aerostructures
products, the program did operate above expectations in the
quarter.





Selling, General and Administrative
Expenses.Selling, general and administrative expenses,
including $0.3 million of severance and restructuring costs were $18.6 million
(15.1% of net sales) for the first nine months of 2009 compared to $17.8 million
(15.1% of net sales) for the first nine months of 2008.  In addition
to the severance and restructuring costs during the first nine months of 2009,
we incurred $0.3 million of acquisition costs expense relating to the Intec
acquisition. Intec also added $1.1 million of expense for the 2009 period
subsequent to its acquisition.





Engineering Services
Segment





Net
Sales.The following
table specifies the amount of the Engineering Services segment’s net sales by
category for the nine months ended September 30, 2009 and 2008 and the
percentage of the segment’s total net sales represented by each
category.





Nine
      Months Ended September 30,Category
            
            2009
            
            
            %
      of Total
            
            
            2008
            
            
            %
      of Total($
      in millions)Corporate
      and regional aircraft
            
            $
            14.2
            
            
            
            22.3
            %
            
            $
            23.1
            
            
            
            33.0
            %Large
      commercial aircraft
            
            
            27.5
            
            
            
            43.2
            
            
            
            33.2
            
            
            
            47.4Military
            
            
            20.3
            
            
            
            31.9
            
            
            
            9.8
            
            
            
            14.0Tooling
            
            
            1.7
            
            
            
            2.6
            
            
            
            4.0
            
            
            
            5.6Total
            
            $
            63.7
            
            
            
            100.0
            %
            
            $
            70.1
            
            
            
            100.0
            %





Net sales
for the Engineering Services segment were $63.7 million for the first nine months
of 2009 compared to $70.1 million for the first nine months of 2008, a decrease
of $6.4 million, or 9.1%. This decrease resulted from lower demand for
services in the first nine months of 2009 compared to the first nine months of
2008 as well as declines in tooling revenue in 2009 compared to
2008.  Approximately $61.4 million, or 96.4% of the segment’s
revenues, were recorded under reimbursement type contracts for engineering
services for the first nine months of 2009, compared to $66.9 million,
or 95.4%, for the first nine months of 2008, a decrease of $5.5 million, or
8.2%. These revenues are generated from labor hours incurred at varying,
pre-negotiated rates and other direct costs plus an administrative
fee.  Net sales under these reimbursement contracts are primarily for
commercial, corporate and military markets.





Net sales
for services supporting corporate and regional aircraft, the majority of which
relate to the development of new and redesigned aircraft, were $14.2
millionin the first
nine months of 2009 compared to $23.1 million for the first nine months of 2008,
a decrease of $8.9 million, or 38.5%. The majority of the corporate
aircraft revenues in 2008 were generated from the development of the Gulfstream
G650. In 2009, design maturation on the G650 lowered demand for services while
demand was increased by support on Bombardier’s Learjet 85, a design-build
project in collaboration with our Aerostructures segment, and services provided
on other re-designed aircraft.





21





Net sales
for services for large commercial aircraft were $27.5 millionin the first nine months
of 2009, down $5.7 million, or 17.2%, from $33.2 million in the first nine
months of 2008. These revenues are primarily from design programs
supporting Boeing’s 747-8, 767, 777-Freighter and 787 platforms.  In
addition to the factors discussed above, these decreases resulted from the
winding down of certain programs.





Net sales
of services for military programs were $20.3 million in the first nine months
of 2009, up $10.5 million, or 107.1%, from $9.8 million in the first nine months
of 2008. These military revenues were derived from support provided on
multiple Navy programs including the CH-53 helicopter, as well as the F-35 and
various other programs.  The increased sales of services for military
programs are consistent with management’s strategy for growth and have helped
offset the decreases of sales experienced in other major
categories.





Sales related to
design and delivery of tooling on various programs supporting commercial
aircraft were $1.7 million for the first nine months
of 2009 compared to $4.0 million
for the first nine months of 2008.  This $2.3 million, or
57.5%, decrease is due to lower demand for tooling design support during
2009.





Gross Profit.  Gross
profit for the first
nine months of 2009 was $12.0 million (18.8% of net sales) compared to $14.7 million
(21.0% of net sales) in the first nine months of 2008.  The
decrease in gross profit during the first nine months of 2009 is due to a number
of factors, including higher overhead rates resulting from fewer billable hours,
lower sales volume and an increase in non-billable hours.





Selling, General and Administrative
Expenses.  Selling, general and administrative expenses for the first nine months
of 2009 were $5.6 million (8.8% of net sales) compared to $6.9 million
(9.8% of net sales) for the first nine months of 2008. The decrease was
primarily due to a reduction in personnel costs.





Non-segment
Expenses





Interest Income (Expense),
net.  Net interest expense for the first nine months of 2009
was $1.3 million compared to $1.4 million for the first nine months of 2008. The
decline was due to decreases in interest rates in the first nine months of 2009
compared to 2008 offset by an increase in borrowings as a result of the purchase
of Intec.





Income Tax
Expense.  During the first nine months of 2009, we recorded
income tax expense of $5.4 million compared to $8.4 million in the first nine
months of 2008.  We applied an effective tax rate of 36.5% for the
first nine months of 2009 compared to 36.4% for the first nine months of
2008.





Liquidity
and Capital Resources





During
the first nine months of 2009 and 2008, we generated $10.9 million and $9.6
million, respectively, in cash from our operating activities.Net cash provided by
operating activities for the first nine months of 2009 was favorably impacted by
decreases in inventory of $11.7 million, including changes in related inventory
reserves but excluding inventory acquired from Intec.  These
changes in inventory resulted from our concerted effort to reduce inventory
levels, which had grown during the Boeing strike and as customers elected to
destock their inventories. Cash generated from operating activities was
negatively impacted by an increase in accounts receivable of $10.0 million and
decreases in accounts payable of $7.3 million.  The increase in
accounts receivable was caused by an unusually low balance at December 31, 2008,
resulting primarily from the Boeing strike and lower than expected deliveries of
Blackhawk product.  Additionally, extended payment terms have been
negotiated with certain customers and on certain products.  The
current quarter also includes unbilled receivables of $1.2 million related to
the new design-build program.  Prior year cash from operations was
impacted from growth in inventory levels throughout 2008.





22





Net cash used in investing
activities was $13.0 million for the first nine months of 2009 compared to $6.1
million for the first nine months of 2008. In the first nine months of
2009, cash was primarily used to acquire Intec, manufacturing equipment and
computer equipment and software. Total capital expenditures were $2.6 million
for the first nine months of 2009 compared with $6.1 million for the first nine
months of 2008, consistent with the Company’s plan to limit capital expenditures
to $5.0 million or less in 2009.




Cash
provided by financing activities was $4.5 million for the first nine months of
2009 compared to $3.4 million used for the first nine months of 2008. Funds
provided in 2009 and used in 2008 represent net cash advances from and payments
on our revolving credit facility, respectively. Funds provided in 2009 were
primarily used to fund the acquisition of Intec.




We
continue to assess the potential impact of recent trends in the global economic
environment on our liquidity and overall financial condition, particularly with
respect to the availability of, terms of and access to credit.  Our
inventory reduction plan announced earlier this year, as well as reduced capital
expenditures, are expected to lead to our free cash flow, defined as cash flow
from operations less capital expenditures, goal for 2009 of between $15 million
and $20 million.  Despite a general tightening in the credit markets,
we expect to meet our ongoing working capital, acquisition, debt obligations,
and capital expenditure needs presently and for the next twelve months from a
combination of our cash on hand, cash flow from operating activities, including
the impact of our planned inventory reduction initiatives, and cash obtained by
drawing down our credit facility. As of September 30, 2009, $50 million of our
revolving credit facility was available, and we were in compliance with all of
its financial and non-financial covenants.  We expect to remain in
compliance with all our financial and non-financial covenants for the remainder
of 2009.




Contractual
Obligations and Commitments





For
information concerning contractual obligations, see the caption “Contractual
Obligations and Commitments” in “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results” in our Annual Report on Form 10-K for the year
ended December 31, 2008.





Item 3.  Quantitative and Qualitative Disclosures About
Market Risk.




We are
exposed to market risk primarily due to fluctuations in interest
rates.  Our outstanding credit facility carries a fluctuating interest
rate that varies based on changes in the prime lending rate of our lender.
Accordingly, we are subject to potential fluctuations in our debt service. Based
on the amount of our outstanding debt as of September 30, 2009, a hypothetical
1% change in the interest rate of our outstanding credit facility would result
in a change in our annual interest expense of approximately $0.3 million during
the next 12-month period. However, we have the ability to fix the interest rate
under LIBOR for a period not to exceed one year (see Note 5 to Condensed
Consolidated Financial Statements).  While not eliminating interest
rate risk, this allows us to moderate the impact of changes in the prime lending
rate.




23





Item 4.  Controls and Procedures.




Disclosure
Controls and Procedures




Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined by Rules 13a-15(e) and 15d-15(c) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30,
2009.  Based upon and as of the date of this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that such
disclosure controls and procedures were effective to ensure that the information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act (a) is recorded, processed, summarized and reported
within the time period specified in the Securities and Exchange Commission’s
rules and forms and (b) is accumulated and communicated to the Company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required
disclosure.





Changes
in Internal Control Over Financial Reporting





No change
in our internal control over financial reporting occurred during the period
covered by this report that has materially affected, or is reasonable likely to
materially affect, our internal control over financial reporting.





24


PART II





OTHER
INFORMATION





Item 1.  Legal Proceedings.





We are
not a party to any legal proceedings, other than routine claims and lawsuits
arising in the ordinary course of our business. We do not believe such claims
and lawsuits, individually or in the aggregate, will have a material adverse
effect on our business.





Item 1A.  Risk Factors.





There
have been no material changes to the risk factors as previously disclosed in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed
with the Securities and Exchange Commission on March 16, 2009.





Item 2.  Unregistered Sales of Equity
Securities and Use of Proceeds.





None.





Item 3.  Defaults Upon Senior
Securities.





None.





Item 4.  Submission of Matters to a Vote of Security
Holders.





None.





Item 5.  Other Information.





None.





Item 6.  Exhibits.





See
Exhibit Index.


25








SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of St. Charles and State of Missouri on the 6th
day of November, 2009.









LMI
      AEROSPACE, INC./s/
      Ronald S. SaksRonald
      S. Saks,
              Chief
      Executive Officer
              (Principal
      Executive Officer)/s/
      Lawrence E. DickinsonLawrence
      E. Dickinson
              Vice
      President, Chief Financial Officer and Secretary
              (Principal
      Financial and Principal Accounting
              Officer)







26




EXHIBIT INDEX









Exhibit No.
            Description3.1
            Restated
      Articles of Incorporation of the Registrant previously filed as Exhibit
      3.1 to the Registrant’s Form S-1 (File No. 333-51357) filed on April 29,
      1998 (the “Form S-1”) and incorporated herein by reference.3.2
            Amendment
      to Restated Articles of Incorporation dated as of July 9, 2001 filed as
      Exhibit 3.3 to the Registrant’s Form 10-K for the fiscal year ended
      December 31, 2001 and filed April 1, 2002 and incorporated herein by
      reference.3.3
            Amended
      and Restated By-Laws of the Registrant previously filed as Exhibit 3.2 to
      the Form S-1 and incorporated herein by reference.3.4
            Amendment
      No. 1 to Amended and Restated By-Laws of the Registrant previously filed
      as Exhibit 3.1 to the Registrant’s Form 8-K filed June 26, 2009 and
      incorporated herein by reference.4.1
            Form
      of the Registrant’s Common Stock Certificate previously filed as Exhibit
      4.1 to the Form S-1 and incorporated herein by reference.31.1
            Rule
      13a-14(a) Certification of Ronald S. Saks, Chief Executive
      Officer.31.2
            Rule
      13a-14(a) Certification of Lawrence E. Dickinson, Vice President, Chief
      Financial Officer and Secretary.32
            Certification
      pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of
      Sarbanes-Oxley Act of 2002.






27