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 June 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 July
31, 2009, there were 12,016,498 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 JUNE 30, 2009





PART I.  FINANCIAL INFORMATIONPage
      No.Item 1.
              Financial Statements.Condensed Consolidated Balance Sheets
      as of June 30, 2009 and December 31, 2008.
              2Condensed Consolidated Statements of
      Operations for the three months and six months ended June 30, 2009 and
      2008.
              3Condensed Consolidated Statements of Cash
      Flows for the six months ended June 30, 2009 and 2008.
              4Notes to Condensed Consolidated Financial
      Statements.
              5Item 2.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.
              14Item 3.
              Quantitative and Qualitative Disclosures About Market
      Risk.
              22Item 4.
              Controls and Procedures.
              22PART II.  OTHER INFORMATIONItem 1.
              Legal Proceedings.
              23Item 1A.
              Risk Factors.
              23Item 2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds.
              23Item 3.
              Defaults Upon Senior Securities.
              23Item 4.
              Submission of Matters to a Vote of Security
      Holders.
              23Item 5.
              Other Information.
              24Item 6.
              Exhibits.
              24SIGNATURE PAGE
              25EXHIBIT INDEX
              26








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)June
      30, 2009
                    
                    
                    December
      31, 2008AssetsCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    128
                    
                    
                    $
                    29Trade
      accounts receivable, net of allowance of $336 atJune
      30, 2009 and $304 at December 31, 2008
                    
                    
                    38,251
                    
                    
                    
                    26,887Inventories,
      net
                    
                    
                    58,111
                    
                    
                    
                    62,393Prepaid
      expenses and other current assets
                    
                    
                    2,298
                    
                    
                    
                    2,137Income
      taxes receivable
                    
                    
                    151
                    
                    
                    
                    364Deferred
      income taxes
                    
                    
                    3,373
                    
                    
                    
                    3,519Total
      current assets
                    
                    
                    102,312
                    
                    
                    
                    95,329Property,
      plant and equipment, net
                    
                    
                    19,259
                    
                    
                    
                    20,103Goodwill
                    
                    
                    53,559
                    
                    
                    
                    46,258Intangible
      assets, net
                    
                    
                    22,584
                    
                    
                    
                    17,861Other
      assets
                    
                    
                    1,075
                    
                    
                    
                    1,167Total
      assets
                    
                    $
                    198,789
                    
                    
                    $
                    180,718Liabilities
      and shareholders’ equityCurrent
      liabilities:Accounts
      payable
                    
                    $
                    6,984
                    
                    
                    $
                    12,363Accrued
      expenses
                    
                    
                    10,934
                    
                    
                    
                    9,936Short-term
      deferred gain on sale of real estate
                    
                    
                    233
                    
                    
                    
                    233Current
      installments of long-term debt and capital lease
    obligations
                    
                    
                    440
                    
                    
                    
                    498Total
      current liabilities
                    
                    
                    18,591
                    
                    
                    
                    23,030Long-term
      deferred gain on sale of real estate
                    
                    
                    3,413
                    
                    
                    
                    3,540Long-term
      debt and capital lease obligations, less current
    installments
                    
                    
                    37,335
                    
                    
                    
                    25,536Deferred
      income taxes
                    
                    
                    7,942
                    
                    
                    
                    5,812Other
      long-term liabilities
                    
                    
                    1,235
                    
                    
                    
                    -Total
      long-term liabilities
                    
                    
                    49,925
                    
                    
                    
                    34,888Shareholders’
      equity:Common
      stock, $0.02 par value per share; authorized 28,000,000shares;
      issued 11,997,541 shares and 11,926,309 shares atJune
      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
                    
                    
                    70,760
                    
                    
                    
                    69,855Treasury
      stock, at cost, 363,188 shares at June 30, 2009and
      364,088 shares at December 31, 2008
                    
                    
                    (1,723
                    )
                    
                    
                    (1,727
                    )Retained
      earnings
                    
                    
                    60,996
                    
                    
                    
                    54,433Total
      shareholders’ equity
                    
                    
                    130,273
                    
                    
                    
                    122,800Total
      liabilities and shareholders’ equity
                    
                    $
                    198,789
                    
                    
                    $
                    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
                                      
                                      
                                      Six
      Months EndedJune
      30,
                                      
                                      
                                      June
      30,2009
                                      
                                      
                                      2008
                                      
                                      
                                      2009
                                      
                                      
                                      2008Sales
      and service revenuesProduct
      sales
                                      
                                      $
                                      39,843
                                      
                                      
                                      $
                                      41,230
                                      
                                      
                                      $
                                      82,577
                                      
                                      
                                      $
                                      77,956Service
      revenues
                                      
                                      
                                      22,986
                                      
                                      
                                      
                                      23,674
                                      
                                      
                                      
                                      44,254
                                      
                                      
                                      
                                      47,365Net
      sales
                                      
                                      
                                      62,829
                                      
                                      
                                      
                                      64,904
                                      
                                      
                                      
                                      126,831
                                      
                                      
                                      
                                      125,321Cost
      of sales and service revenuesCost
      of product sales
                                      
                                      
                                      30,935
                                      
                                      
                                      
                                      28,681
                                      
                                      
                                      
                                      62,501
                                      
                                      
                                      
                                      54,568Cost
      of service revenues
                                      
                                      
                                      18,511
                                      
                                      
                                      
                                      19,552
                                      
                                      
                                      
                                      36,361
                                      
                                      
                                      
                                      38,459Cost
      of sales
                                      
                                      
                                      49,446
                                      
                                      
                                      
                                      48,233
                                      
                                      
                                      
                                      98,862
                                      
                                      
                                      
                                      93,027Gross
      profit
                                      
                                      
                                      13,383
                                      
                                      
                                      
                                      16,671
                                      
                                      
                                      
                                      27,969
                                      
                                      
                                      
                                      32,294Selling,
      general and administrative expenses
                                      
                                      
                                      7,939
                                      
                                      
                                      
                                      8,328
                                      
                                      
                                      
                                      16,412
                                      
                                      
                                      
                                      16,384Severance
      and restructuring
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      362
                                      
                                      
                                      
                                      -Income
      from operations
                                      
                                      
                                      5,444
                                      
                                      
                                      
                                      8,343
                                      
                                      
                                      
                                      11,195
                                      
                                      
                                      
                                      15,910Other
      income (expense):Interest
      expense, net
                                      
                                      
                                      (413
                                      )
                                      
                                      
                                      (416
                                      )
                                      
                                      
                                      (835
                                      )
                                      
                                      
                                      (959
                                      )Other,
      net
                                      
                                      
                                      17
                                      
                                      
                                      
                                      (6
                                      )
                                      
                                      
                                      (24
                                      )
                                      
                                      
                                      (9
                                      )Total
      other income (expense)
                                      
                                      
                                      (396
                                      )
                                      
                                      
                                      (422
                                      )
                                      
                                      
                                      (859
                                      )
                                      
                                      
                                      (968
                                      )Income
      before income taxes
                                      
                                      
                                      5,048
                                      
                                      
                                      
                                      7,921
                                      
                                      
                                      
                                      10,336
                                      
                                      
                                      
                                      14,942Provision
      for income taxes
                                      
                                      
                                      1,839
                                      
                                      
                                      
                                      2,894
                                      
                                      
                                      
                                      3,773
                                      
                                      
                                      
                                      5,439Net
      income
                                      
                                      $
                                      3,209
                                      
                                      
                                      $
                                      5,027
                                      
                                      
                                      $
                                      6,563
                                      
                                      
                                      $
                                      9,503Amounts
      per common share:Net
      income per common share
                                      
                                      $
                                      0.28
                                      
                                      
                                      $
                                      0.45
                                      
                                      
                                      $
                                      0.58
                                      
                                      
                                      $
                                      0.85Net
      income per common share assuming dilution
                                      
                                      $
                                      0.28
                                      
                                      
                                      $
                                      0.45
                                      
                                      
                                      $
                                      0.58
                                      
                                      
                                      $
                                      0.84Weighted
      average common shares outstanding
                                      
                                      
                                      11,291,492
                                      
                                      
                                      
                                      11,179,613
                                      
                                      
                                      
                                      11,284,678
                                      
                                      
                                      
                                      11,191,977Weighted
      average dilutive common sharesoutstanding
                                      
                                      
                                      11,319,521
                                      
                                      
                                      
                                      11,296,567
                                      
                                      
                                      
                                      11,313,004
                                      
                                      
                                      
                                      11,310,101See accompanying notes to
      condensed consolidated financial
  statements.









LMI
      Aerospace, Inc.Condensed Consolidated Statements of Cash
      Flows(Amounts
      in thousands)(Unaudited)Six
      Months Ended June 30,2009
                        
                        
                        2008Operating
      activities:Net
      income
                        
                        $
                        6,563
                        
                        
                        $
                        9,503Adjustments
      to reconcile net income tonet
      cash (used) provided by operating activities:Depreciation
      and amortization
                        
                        
                        3,790
                        
                        
                        
                        3,270Charges
      for inventory obsolescence and valuation
                        
                        
                        920
                        
                        
                        
                        450Restricted
      stock compensation
                        
                        
                        923
                        
                        
                        
                        1,248Deferred
      tax provision
                        
                        
                        146
                        
                        
                        
                        -Other
      noncash items
                        
                        
                        116
                        
                        
                        
                        14Changes
      in operating assets and liabilities, net ofacquired
      businesses:Trade
      accounts receivable
                        
                        
                        (10,833
                        )
                        
                        
                        (4,338
                        )Inventories
                        
                        
                        3,649
                        
                        
                        
                        (8,662
                        )Prepaid
      expenses and other assets
                        
                        
                        (90
                        )
                        
                        
                        9Current
      income taxes
                        
                        
                        770
                        
                        
                        
                        997Accounts
      payable
                        
                        
                        (5,562
                        )
                        
                        
                        (527
                        )Accrued
      expenses
                        
                        
                        (632
                        )
                        
                        
                        1,064Net
      cash (used) provided by operating activities
                        
                        
                        (240
                        )
                        
                        
                        3,028Investing
      activities:Additions
      to property, plant and equipment
                        
                        
                        (1,213
                        )
                        
                        
                        (3,277
                        )Acquisitions,
      net of cash acquired
                        
                        
                        (10,047
                        )
                        
                        
                        -Other,
      net
                        
                        
                        (156
                        )
                        
                        
                        31Net
      cash used by investing activities
                        
                        
                        (11,416
                        )
                        
                        
                        (3,246
                        )Financing
      activities:Proceeds
      from issuance of debt
                        
                        
                        -
                        
                        
                        
                        73Principal
      payments on long-term debt and notes payable
                        
                        
                        (259
                        )
                        
                        
                        (416
                        )Advances
      on revolving lines of credit
                        
                        
                        41,464
                        
                        
                        
                        25,423Payments
      on revolving lines of credit
                        
                        
                        (29,464
                        )
                        
                        
                        (24,957
                        )Other,
      net
                        
                        
                        14
                        
                        
                        
                        41Net
      cash provided by financing activities
                        
                        
                        11,755
                        
                        
                        
                        164Net
      increase (decrease) in cash and cash equivalents
                        
                        
                        99
                        
                        
                        
                        (54
                        )Cash
      and cash equivalents, beginning of year
                        
                        
                        29
                        
                        
                        
                        82Cash
      and cash equivalents, end of quarter
                        
                        $
                        128
                        
                        
                        $
                        28See
      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)
 June 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 August 10, 2009, which is the date that these financial
statements were issued. Operating results for the three months and six months
ended June 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
January 2009, the Company adopted SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141(R)”), which continues the evolution toward
fair value reporting and significantly changes the accounting for acquisitions
that closed beginning in 2009, both at the acquisition date and in subsequent
periods. SFAS No. 141(R) introduces new accounting concepts and valuation
complexities, and many of the changes have the potential to generate greater
earnings volatility after an acquisition. The adoption of SFAS No. 141(R)
did not have a material effect on the Company’s financial
statements.





The
Company adopted the remaining provisions of SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”), in January 2009, which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. The adoption of SFAS No. 157 did not have a
material effect on the Company’s financial statements.




5


LMI
Aerospace, Inc.


Notes
to Condensed Consolidated Financial Statements


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


(Unaudited)


June 30,
2009


In
January 2009, the Company adopted SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(“SFAS No. 161”).  SFAS No. 161 requires, among other things, enhanced
disclosure about the volume and nature of derivative and hedging activities and
a tabular summary showing the fair value of derivative instruments included in
the statement of financial position and statement of operations.  SFAS
No. 161 also requires expanded disclosure of contingencies included in
derivative instruments related to credit risk.  The adoption of SFAS
No. 161 did not have a material effect on the Company’s financial
statements.




In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments.” This FSP expands to interim periods the
existing annual requirement to disclose the fair value of financial instruments
that are not reflected on the balance sheet at fair value. The FSP is effective
for interim periods ending after June 15, 2009 and did not have a significant
impact on the Company’s financial statements.




In April
2009, the FASB issued Staff Position No. FAS 157-4, “Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (“FSP No. 157-4”).
This FSP provides additional guidance for estimating fair value in accordance
with FASB Statement No.157, “Fair Value Measurements” (“SFAS No. 157”), when the
volume and level of activity for the asset or liability have significantly
decreased. The FSP also includes guidance on identifying circumstances that
indicate a transaction is not orderly. In those cases, further analysis of
transactions or quoted prices is required, and a significant adjustment may be
necessary to estimate fair value in accordance with SFAS No. 157. FSP No. 157-4
also amends SFAS No. 157 to require disclosure in interim and annual periods of
the inputs and valuation techniques used to measure fair value and a discussion
of changes in valuation techniques and related inputs, if any, during the
period. FSP No. 157-4 is effective for interim and annual reporting periods
ending after June 15, 2009 and does not require disclosures for earlier periods
presented for comparative purposes at initial adoption. The Company adopted the
provisions of FSP No. 157-4 beginning the second fiscal quarter of 2009. The
adoption of FSP No. 157-4 did not have a significant impact on the Company’s
financial statements.




In May
2009, the FASB issued statement No. 165, “Subsequent Events” (“SFAS No.
165”).  SFAS No. 165 modifies the definition of what qualifies as a
subsequent event – those events or transactions that occur following the balance
sheet date, but before the financial statements are issued, or are available to
be issued – and requires companies to disclose the date through which it has
evaluated subsequent events and the basis for determining that
date.  The Company adopted the provisions of SFAS No. 165 for the
second quarter of 2009, in accordance with the effective date.  See
“Basis of Presentation” above.




In June
2009, the FASB issued statement No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS No. 167”).  Among other items, SFAS No. 167 responds to
concerns about the application of certain key provisions of FIN No. 46(R),
including those regarding the transparency of the involvement with variable
interest entities.  SFAS No. 167 will be effective for the Company
beginning on January 1, 2010.  The Company does not expect this
standard to have a material impact on its financial statements.




In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
CodificationÔ and the
Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB
Statement No. 162” (“SFAS No. 168”).  The FASB Accounting Standards
Codification (the “Codification”) will become the source of authoritative U.S.
generally accepted accounting principles (“U.S. GAAP”).  The
Codification, which changes the referencing of financial standards, is effective
for interim or annual financial periods ending after September 15,
2009.  The Codification is not expected to have a significant impact
on the Company’s financial statements.




6


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




2.  Acquisition
of Integrated Technologies, Inc.





In
January 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 SFAS No. 141(R).  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 transition to production of non-metallic
products.  As such, significant synergies are expected to result from
the acquisition.  The Company engaged an outside expert to help
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
                          
                          $
                          1,805Fixed
      assets
                          
                          
                          812Intangible
      assets
                          
                          
                          5,639Goodwill
                          
                          
                          7,301Current
      liabilities assumed
                          
                          
                          (1,191
                          )Long-term
      liabilities assumed
                          
                          
                          (3,366
                          )Cost
      of acquisition, net of cash acquired
                          
                          $
                          11,000





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 were determined using the
discounted cash flow method.  The fair value of the trademarks and
proprietary technology were determined using the relief from royalty
method.  Included in long-term liabilities assumed was $1,235
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.




3.  Inventories





Inventories
consist of the following:




7


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








June
      30, 2009
                      
                      December
      31, 2008Raw
      materials
                      $
                      9,433
                      
                      $
                      9,078Work
      in progress
                      
                      6,955
                      
                      
                      12,765Manufactured
      and purchased components
                      
                      17,610
                      
                      
                      16,437Finished
      goods
                      
                      24,113
                      
                      
                      24,113Total
      inventories
                      $
                      58,111
                      
                      $
                      62,393





These
amounts include reserves for obsolete and slow-moving inventory of $2,524 and
$2,058 and a reserve for lower of cost or market of $227 and $135 at June 30,
2009 and December 31, 2008, respectively. Included in work in progress was
$1,491 and $1,572 deferred costs at June 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. The Company believes these amounts will be fully
recovered.





4.  Goodwill
and Intangible Assets





Goodwill




Goodwill
balance at June 30, 2009 consisted of $7,301 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
Company accounts for goodwill and intangible assets in accordance with Statement
of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets” (“SFAS No. 142”). The carrying value of goodwill and intangible
assets with indefinite lives is assessed at least annually, 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 June 30, 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.
 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 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:




8


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


June
      30, 2009
                        
                        
                        December
      31, 2008Trademarks
                        
                        $
                        4,582
                        
                        
                        $
                        4,222Customer
      intangible assets
                        
                        
                        21,515
                        
                        
                        
                        16,610Other
                        
                        
                        582
                        
                        
                        
                        160Accumulated
      amortization
                        
                        
                        (4,095
                        )
                        
                        
                        (3,131
                        )Intangible
      assets, net
                        
                        $
                        22,584
                        
                        
                        $
                        17,861




Intangibles
amortization expense was $482 and $360 for the three months ended June 30, 2009
and 2008, and $964 and $719 for the six months ended June 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)
                                $
                                9672010
                                
                                1,9902011
                                
                                1,9862012
                                
                                1,9752013
                                
                                1,8912014
                                
                                1,773Thereafter
                                
                                7,780$
                                18,362(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:





June
      30, 2009
                              
                              
                              December
      31, 2008Capital
      lease obligations
                              
                              $
                              289
                              
                              
                              $
                              347Revolving
      line of credit
                              
                              
                              37,000
                              
                              
                              
                              25,000Notes
      payable, principal and interest payableat
      fixed rates, ranging from 1.67% to 10.70%at
      June 30, 2009 and December 31, 2008
                              
                              
                              486
                              
                              
                              
                              687Total
      debt
                              
                              $
                              37,775
                              
                              
                              $
                              26,034Less
      current installments
                              
                              
                              440
                              
                              
                              
                              498Total
                              
                              $
                              37,335
                              
                              
                              $
                              25,536




9


LMI
Aerospace, Inc.
 Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 June 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 $37,000 was utilized at
June 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 June 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 June 30, 2009.  At
June 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%.





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 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
six months ended June 30, 2009 attributable to stock options was 28,029 and
28,326, respectively.  A weighted average of 319,231 and
327,153  shares, respectively, relating to non-vested restricted stock
under the Company’s share-based compensation plan was excluded from the
computation of 2009 diluted net income per common share because the grant date
fair value was greater than the average market price of the common shares for
the three and six months ended June 30, 2009, causing such shares to have an
anti-dilutive effect on earnings per share.  The number of dilutive
shares for the three and six months ended June 30, 2008 attributable to stock
options and restricted shares were 116,954 and 118,124,
respectively.





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.





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




10


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


Stock
      Options
                      Shares
                      
                      Weighted
                        Average
                        Exercise PriceOutstanding
      at January 1, 2009
                      63,890
                      
                      $
                      2.81Granted
                      -
                      
                      
                      -Exercised
                      (18,255)
                      
                      
                      2.86Forfeited
      or expired
                      (1,100)
                      
                      
                      4.75Outstanding
      at June 30, 2009
                      44,535
                      
                      $
                      2.74





All
outstanding stock options were exercisable at June 30, 2009.  The
aggregate intrinsic value of vested stock options was $328 at June 30, 2009,
which options had a weighted average remaining life of 1.1 years at June 30,
2009.  The aggregate intrinsic value of options exercised during the
six months ended June 30, 2009 and 2008, based upon the market price on the
exercise date, was approximately $51 and $100, respectively.





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




Range
      of
                            Exercise
      Prices
                          Number
      of
                            Outstanding
                            Options
                          Weighted
      Average
                            Remaining
                            Contractual
      Life
                          
                          Weighted
                            Average
                            Exercise
      Price$1.96
      - $2.90
                          41,835
                          0.98
                          $
                          2.54$2.91
      - $4.35
                          200
                          0.42
                          
                          3.13$4.36
      - $6.06
                          2,500
                          2.88
                          
                          6.06Total
                          44,535
                          1.09
                          $
                          2.74





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




Restricted
      Stock Awards
                        Shares
                        
                        Weighted
      Average Grant Date Fair
                          ValueOutstanding
      at January 1, 2009
                        294,774
                        
                        $
                        22.78Granted
                        68,825
                        
                        
                        10.80Vested
                        (18,220)
                        
                        
                        16.69Forfeited
                        (12,531)
                        
                        
                        21.71Outstanding
      at June 30, 2009
                        332,848
                        
                        $
                        20.67





Common
stock compensation expense related to restricted stock awards granted under the
Plan was $397 and $605 for the three months ended June 30, 2009 and 2008,
respectively, and $923 and $1,208 for the six months ended June 30, 2009 and
2008, respectively.





Total
unrecognized compensation costs related to non-vested share-based compensation
awards granted or awarded under the Plan were $3,518 and $3,972 at June 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





11


LMI
Aerospace, Inc.


Notes
to Condensed Consolidated Financial Statements
 (Dollar
amounts in thousands, except share and per share data)
 (Unaudited)
 June 30,
2009
  , comprised of all of the
Company’s operations other than those of D3 Technologies, 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 ,
comprised of the operations of D3 Technologies,





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:




Three
      Months Ended June 30,
                                                                                                        
                                                                                                        
                                                                                                        Six
      Months Ended June 30,2009
                                                                                                        
                                                                                                        
                                                                                                        2008
                                                                                                        
                                                                                                        
                                                                                                        2009
                                                                                                        
                                                                                                        
                                                                                                        2008Net
      sales:Aerostructures
                                                                                                        
                                                                                                        $
                                                                                                        40,250
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        41,666
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        83,576
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        78,792Engineering
      Services
                                                                                                        
                                                                                                        
                                                                                                        22,584
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        23,988
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        43,423
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        47,295Eliminations
                                                                                                        
                                                                                                        
                                                                                                        (5
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (750
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (168
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (766
                                                                                                        )$
                                                                                                        62,829
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        64,904
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        126,831
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        125,321Income
      (loss) from operations:Aerostructures
                                                                                                        
                                                                                                        $
                                                                                                        2,923
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        5,847
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        7,052
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        10,761Engineering
      Services
                                                                                                        
                                                                                                        
                                                                                                        2,521
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        2,571
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        4,056
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        5,234Eliminations
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (75
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        87
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (85
                                                                                                        )$
                                                                                                        5,444
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        8,343
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        11,195
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        15,910Depreciation
      and amortization:Aerostructures
                                                                                                        
                                                                                                        $
                                                                                                        1,154
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        1,050
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        2,345
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        2,066Engineering
      Services
                                                                                                        
                                                                                                        
                                                                                                        681
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        617
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,445
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,204$
                                                                                                        1,835
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        1,667
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        3,790
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        3,270Interest
      expense:Aerostructures
                                                                                                        
                                                                                                        $
                                                                                                        (3
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (3
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        -Engineering
      Services
                                                                                                        
                                                                                                        
                                                                                                        (3
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (9
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (6
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (20
                                                                                                        )Corporate
                                                                                                        
                                                                                                        
                                                                                                        (407
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (407
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (826
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (939
                                                                                                        )$
                                                                                                        (413
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        (416
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        (835
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        (959
                                                                                                        )Capital
      expenditures:Aerostructures
                                                                                                        
                                                                                                        $
                                                                                                        258
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        1,022
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        795
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        2,324Engineering
      Services
                                                                                                        
                                                                                                        
                                                                                                        80
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        720
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        418
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        953$
                                                                                                        338
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        1,742
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        1,213
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        3,277




12


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


June
      30, 2009
                                    
                                    
                                    December
      31, 2008Goodwill:Aerostructures
                                    
                                    $
                                    10,651
                                    
                                    
                                    $
                                    3,350Engineering
                                    
                                    
                                    42,908
                                    
                                    
                                    
                                    42,908$
                                    53,559
                                    
                                    
                                    $
                                    46,258Total
      assets:Aerostructures
                                    
                                    $
                                    126,576
                                    
                                    
                                    $
                                    108,852Engineering
                                    
                                    
                                    72,213
                                    
                                    
                                    
                                    71,866$
                                    198,789
                                    
                                    
                                    $
                                    180,718




9.  Customer
Concentration





Direct
sales, through both of its business segments, to the Company’s largest customer
accounted for 23.8% and 23.2% of the Company’s total revenues for the three
months ended June 30, 2009 and 2008, respectively. Direct sales to the Company’s
largest customer accounted for 23.8% and 22.8% of the Company’s total revenues
for the six months ended June 30, 2009 and 2008,
respectively.  Accounts receivable balances related to the largest
customer based on direct sales were 24.2% and 25.7% of the accounts receivable
balance at June 30, 2009 and December 31, 2008, respectively.




Direct
sales, through both of its business segments, to the Company’s second largest
customer accounted for 17.1% and 19.3% of the Company’s total revenues for the
three months ended June 30, 2009 and 2008, respectively. Direct sales to the
Company’s second largest customer accounted for 16.4% and 19.8% of the Company’s
total revenues for the six months ended June 30, 2009 and 2008,
respectively.  Accounts receivable balances related to the second
largest customer based on direct sales were 9.2% and 15.3% of the accounts
receivable balance at June 30, 2009 and December 31, 2008,
respectively.




Direct
sales, through both of its business segments, to the Company’s third largest
customer accounted for 13.5% and 18.3% of the Company’s total revenues for the
three months ended June 30, 2009 and 2008, respectively. Direct sales to the
Company’s third largest customer accounted for 13.7% and 18.7% of the Company’s
total revenues for the six months ended June 30, 2009 and 2008,
respectively.  Accounts receivable balances related to the third
largest customer based on direct sales were 13.0% and 9.2% of the accounts
receivable balance at June 30, 2009 and December 31, 2008,
respectively.




Direct
sales, through both of its business segments, to the Company’s fourth largest
customer accounted for 12.9% and 1.0% of the Company’s total revenues for the
three months ended June 30, 2009 and 2008, respectively. Direct sales to the
Company’s fourth largest customer accounted for 10.5% and 0.4% of the Company’s
total revenues for the six months ended June 30, 2009 and 2008,
respectively.  Accounts receivable balances related to the fourth
largest customer based on direct sales were 15.1% and 0.0% of the accounts
receivable balance at June 30, 2009 and December 31, 2008,
respectively.




13


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 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 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 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.
  14





In
January 2009, the Company acquired 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 transition to 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
June 30, 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 June 30, 2009 compared to June 30, 2008





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





Three
      Months EndedJune
      30, 2009($
      in millions)Aerostructures
                                                          
                                                          
                                                          Engineering
      Services
                                                          
                                                          
                                                          Eliminations
                                                          
                                                          
                                                          TotalNet
      sales
                                                          
                                                          $
                                                          40.2
                                                          
                                                          
                                                          $
                                                          22.6
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          62.8Cost
      of sales
                                                          
                                                          
                                                          31.2
                                                          
                                                          
                                                          
                                                          18.2
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          49.4Gross
      profit
                                                          
                                                          
                                                          9.0
                                                          
                                                          
                                                          
                                                          4.4
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          13.4S,G
      & A
                                                          
                                                          
                                                          6.1
                                                          
                                                          
                                                          
                                                          1.9
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          8.0Income from
      operations
                                                          
                                                          $
                                                          2.9
                                                          
                                                          
                                                          $
                                                          2.5
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          5.4Three
      Months EndedJune
      30, 2008($
      in millions)Aerostructures
                                                          
                                                          
                                                          Engineering
      Services
                                                          
                                                          
                                                          Eliminations
                                                          
                                                          
                                                          TotalNet
      sales
                                                          
                                                          $
                                                          41.6
                                                          
                                                          
                                                          $
                                                          24.0
                                                          
                                                          
                                                          $
                                                          (0.7
                                                          )
                                                          
                                                          $
                                                          64.9Cost
      of sales
                                                          
                                                          
                                                          29.8
                                                          
                                                          
                                                          
                                                          19.1
                                                          
                                                          
                                                          
                                                          (0.7
                                                          )
                                                          
                                                          
                                                          48.2Gross
      profit
                                                          
                                                          
                                                          11.8
                                                          
                                                          
                                                          
                                                          4.9
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          16.7S,G
      & A
                                                          
                                                          
                                                          6.0
                                                          
                                                          
                                                          
                                                          2.3
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          8.3Income
      from operations
                                                          
                                                          $
                                                          5.8
                                                          
                                                          
                                                          $
                                                          2.6
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          $
                                                          8.4




15




Aerostructures
Segment





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





Three
      Months Ended June 30,Category
                              
                              2009
                              
                              
                              %
      of Total
                              
                              
                              2008
                              
                              
                              %
      of Total($
      in millions)Corporate
      and regional aircraft
                              
                              $
                              11.8
                              
                              
                              
                              29.4
                              %
                              
                              $
                              14.1
                              
                              
                              
                              33.9
                              %Large
      commercial aircraft
                              
                              
                              18.2
                              
                              
                              
                              45.3
                              
                              
                              
                              12.4
                              
                              
                              
                              29.8Military
                              
                              
                              8.7
                              
                              
                              
                              21.6
                              
                              
                              
                              11.7
                              
                              
                              
                              28.1Technology
                              
                              
                              0.4
                              
                              
                              
                              1.0
                              
                              
                              
                              2.2
                              
                              
                              
                              5.3Other
      (1)
                              
                              
                              1.1
                              
                              
                              
                              2.7
                              
                              
                              
                              1.2
                              
                              
                              
                              2.9Total
                              
                              $
                              40.2
                              
                              
                              
                              100.0
                              %
                              
                              $
                              41.6
                              
                              
                              
                              100.0
                              %


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





Net sales
for the second quarter of 2009 were $40.2 million, down 3.4% from $41.6 million
in the second quarter of 2008.  A decrease in net sales occurred in
the corporate and regional aircraft, military and technology sectors. This
decrease was offset by an increase in the large commercial aircraft
sector.





Net sales
of components for corporate and regional aircraft were $11.8 million for the
second quarter of 2009 compared to $14.1 million for the second quarter of 2008,
a decrease of $2.3 million, or 16.3%.  This decrease 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.  The decline in production was offset by $1.6 million in tooling
sales.





Net sales
of products used in large commercial aircraft were $18.2 million for the second
quarter of 2009 compared to $12.4 million for the second quarter of 2008, an
increase of $5.8 million, or 46.8%.  The increase in net sales to this
market was driven by support for the 767 wing modification and winglet program,
which generated $7.6 million of sales.    This increase was
partially offset by a $1.0 million decrease in sales for the Boeing 737 from
$7.1 million in the second quarter of 2008 to $6.1 million in the second quarter
of 2009 due to inventory adjustments at a Tier 1 customer, and a $0.8 million
decrease in sales for the 787 program primarily resulting from continued delay
in the program.





Military
products generated $8.7 million of net sales in the second quarter of 2009
compared to $11.7 million in the second quarter of 2008, a decrease of $3.0
million, or 25.6%.  This decrease resulted from net sales for the
Sikorsky Blackhawk program, which generated $6.2 million of net sales in the
second quarter of 2009 compared to $9.0 million in the second quarter of 2008,
primarily due to changes made in the customer’s inventory management
process.





Technology
products net sales declined by $1.8 million, or 81.8%, in the
second quarter of 2009 to $0.4 million from $2.2 million for the second quarter
of 2008.  This decrease was due to lower demand in semiconductor
equipment.





Gross Profit.  Gross profit for the
second quarter of 2009 was $9.0 million (22.4% of net sales) compared to $11.8
million (28.4% of net sales) in the second quarter of 2008.  An increase in
obsolescence costs, start-up costs on the G250 and CRJ-1000, and continued
operational issues at the Company's Sun Valley, California facility contributed
to the decline in gross profit.  Additionally, although operating above the
Company's expectations, the 767 wing modification kit provides a lower gross
profit margin.




16


Selling, General and Administrative
Expenses.Selling, general and administrative expenses were
$6.1 million (15.2% of net sales) for the second quarter of 2009 compared to
$6.0 million (14.4% of net sales) for the second quarter of 2008.  We
experienced an increase in depreciation and amortization expense in the second
quarter of 2009 as a result of the acquisition of Intec.  This
increase was offset by a decline in stock awards and travel
expense.





Engineering Services
Segment





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




Three
      Months Ended June 30,Category
                        
                        2009
                        
                        
                        %
      of Total
                        
                        
                        2008
                        
                        
                        %
      of Total($
      in millions)Corporate
      and regional aircraft
                        
                        $
                        4.6
                        
                        
                        
                        20.4
                        %
                        
                        $
                        8.4
                        
                        
                        
                        35.0
                        %Large
      commercial aircraft
                        
                        
                        10.2
                        
                        
                        
                        45.1
                        
                        
                        
                        11.2
                        
                        
                        
                        46.7Military
                        
                        
                        7.1
                        
                        
                        
                        31.4
                        
                        
                        
                        3.0
                        
                        
                        
                        12.5Tooling
                        
                        
                        0.7
                        
                        
                        
                        3.1
                        
                        
                        
                        1.4
                        
                        
                        
                        5.8Total
                        
                        $
                        22.6
                        
                        
                        
                        100.0
                        %
                        
                        $
                        24.0
                        
                        
                        
                        100.0
                        %





Net sales
for the Engineering Services segment were $22.6 million for the second quarter of
2009 compared to $24.0 million for the second quarter of 2008, a decrease of
$1.4 million, or 5.8%. This decrease resulted from lower client overtime
requirements in 2009 compared to 2008.  Approximately $22.0 million,
or 97.3% of the segment’s revenues, were recorded under reimbursement type
contracts for engineering services compared to $23.4 million,
or 97.5% of the segment’s revenues, for the second quarter of 2008, a decrease
of $1.4 million or 6.0%. 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 $4.6 millionin the second quarter of
2009 compared to $8.4 million for the second quarter of 2008, a decrease of $3.8
million, or 45.2%. 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.





Net sales
for services for large commercial aircraft were $10.2 millionin the second quarter of
2009, down $1.0 million, or 8.9%, from $11.2 million in the second quarter of
2008. These revenues are primarily from design programs supporting
Boeing’s 747-8, 777-Freighter 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.





Net sales
of services for military programs were $7.1 million in the second quarter of
2009, up $4.1 million, or 136.7%, from $3.0 million in the second quarter of
2008. These military revenues were derived from support provided on
multiple Navy programs, as well as the F-35, the CH-53 helicopter and 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 $0.7 million for the second quarter of
2009 compared to $1.4 million in the second quarter of
2008.  This $0.7 million, or 50.0%, decrease resulted from the
lower demand for tooling design support.




17




Gross Profit.  Gross
profit for the
second quarter of 2009 was $4.4 million (19.5% of net sales) compared to $4.9 million
(20.4% of net sales) in the second quarter of 2008.  The
decrease in gross profit during the second quarter of 2009 is due to a number of
factors, including higher overhead rates resulting from fewer work days, lower
sales volume and an increase in non-billable hours.





Selling, General and Administrative
Expenses.  Selling, general and administrative expenses for the second quarter of
2009 were $1.9 million (8.4% of net sales) compared to $2.3 million
(9.6% of net sales) in the second 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 second
quarter of 2009 and 2008. The decreases in interest rates in the second quarter
of 2009 compared to the second quarter of 2008 were offset by increased
borrowings as a result of the purchase of Intec in January 2009.





Income Tax
Expense.  During the second quarter of 2009, we recorded income
tax expense of $1.8 million compared to $2.9 million in the second quarter of
2008.  We applied an effective tax rate of 36.4% for the second
quarter of 2009 and 36.5% for the second quarter of 2008.








Six
months ended June 30, 2009 compared to June 30, 2008





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





Six
      Months EndedJune
      30, 2009($
      in millions)Aerostructures
                                                          
                                                          
                                                          Engineering
      Services
                                                          
                                                          
                                                          Eliminations
                                                          
                                                          
                                                          TotalNet
      sales
                                                          
                                                          $
                                                          83.5
                                                          
                                                          
                                                          $
                                                          43.4
                                                          
                                                          
                                                          $
                                                          (0.1
                                                          )
                                                          
                                                          $
                                                          126.8Cost
      of sales
                                                          
                                                          
                                                          63.5
                                                          
                                                          
                                                          
                                                          35.5
                                                          
                                                          
                                                          
                                                          (0.2
                                                          )
                                                          
                                                          
                                                          98.8Gross
      profit
                                                          
                                                          
                                                          20.0
                                                          
                                                          
                                                          
                                                          7.9
                                                          
                                                          
                                                          
                                                          0.1
                                                          
                                                          
                                                          
                                                          28.0S,G
      & A
                                                          
                                                          
                                                          12.9
                                                          
                                                          
                                                          
                                                          3.9
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          16.8Income
      from operations
                                                          
                                                          $
                                                          7.1
                                                          
                                                          
                                                          $
                                                          4.0
                                                          
                                                          
                                                          $
                                                          0.1
                                                          
                                                          
                                                          $
                                                          11.2Six
      Months EndedJune
      30, 2008($
      in millions)Aerostructures
                                                          
                                                          
                                                          Engineering
      Services
                                                          
                                                          
                                                          Eliminations
                                                          
                                                          
                                                          TotalNet
      sales
                                                          
                                                          $
                                                          78.8
                                                          
                                                          
                                                          $
                                                          47.3
                                                          
                                                          
                                                          $
                                                          (0.8
                                                          )
                                                          
                                                          $
                                                          125.3Cost
      of sales
                                                          
                                                          
                                                          56.0
                                                          
                                                          
                                                          
                                                          37.7
                                                          
                                                          
                                                          
                                                          (0.7
                                                          )
                                                          
                                                          
                                                          93.0Gross
      profit
                                                          
                                                          
                                                          22.8
                                                          
                                                          
                                                          
                                                          9.6
                                                          
                                                          
                                                          
                                                          (0.1
                                                          )
                                                          
                                                          
                                                          32.3S,G
      & A
                                                          
                                                          
                                                          12.0
                                                          
                                                          
                                                          
                                                          4.4
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          16.4Income
      from operations
                                                          
                                                          $
                                                          10.8
                                                          
                                                          
                                                          $
                                                          5.2
                                                          
                                                          
                                                          $
                                                          (0.1
                                                          )
                                                          
                                                          $
                                                          15.9




18


Aerostructures
Segment





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




Six
      Months Ended June 30,Category
                        
                        2009
                        
                        
                        %
      of Total
                        
                        
                        2008
                        
                        
                        %
      of Total($
      in millions)Corporate
      and regional aircraft
                        
                        $
                        27.6
                        
                        
                        
                        33.1
                        %
                        
                        $
                        27.5
                        
                        
                        
                        34.9
                        %Large
      commercial aircraft
                        
                        
                        32.8
                        
                        
                        
                        39.3
                        
                        
                        
                        23.1
                        
                        
                        
                        29.3Military
                        
                        
                        19.8
                        
                        
                        
                        23.7
                        
                        
                        
                        21.6
                        
                        
                        
                        27.4Technology
                        
                        
                        0.6
                        
                        
                        
                        0.7
                        
                        
                        
                        4.4
                        
                        
                        
                        5.6Other
      (1)
                        
                        
                        2.7
                        
                        
                        
                        3.2
                        
                        
                        
                        2.2
                        
                        
                        
                        2.8Total
                        
                        $
                        83.5
                        
                        
                        
                        100.0
                        %
                        
                        $
                        78.8
                        
                        
                        
                        100.0
                        %


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





Net sales
for the first six months of 2009 were $83.5 million, up 6.0% from $78.8 million
in the first six 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 $27.6 million for the
first six months of 2009 compared to $27.5 million for the first six months of
2008, an increase of $0.1 million, or 0.4%.  This increase was
primarily attributable to $6.3 million in tooling sales, which are not expected
to be sustained at that rate through the remainder of the year, offset by a $6.4
million decrease in sales of large cabin components for
Gulfstream.  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.





Net sales
of products used in large commercial aircraft were $32.8 million for the first
six months of 2009 compared to $23.1 million for the first six months of 2008,
an increase of $9.7 million, or 42.0%.  The increase in net sales to
this market was driven by support for the 767 wing modification and winglet
program, which generated $12.6 million of sales in the first six months of 2009
compared to $1.2 million in the first six months of
2008.    We also increased net sales for the Boeing 747 by
$1.1 million to $5.1 million in the first six months of 2009 from $4.0 million
in the first six months of 2008. These increases were partially offset by a $3.1
million decrease in sales for the Boeing 737 from $13.9 million in the first six
months of 2008 to $10.8 million in the first six months of 2009 and a $1.0
million decrease in other large commercial aircraft products from $4.0 million
in the first six months of 2008 to $3.0 million in the first six months of 2009,
primarily as a residual impact of the Boeing strike in the fourth quarter of
2008.





Military
products generated $19.8 million of net sales in the first six months of 2009
compared to $21.6 million in the first six months of 2008, a decrease of $1.8
million, or 8.3%.  This decrease primarily resulted from net sales for
the Sikorsky Blackhawk program, which generated $14.8 million of net sales in
the first six months of 2009 compared to $16.0 million in the first six months
of 2008.





Technology
products net sales declined by $3.8 million, or 86.4%, in the first six months
of 2009 to $0.6 million from $4.4 million for the first six months of
2008.  This decrease was due to lower demand in semiconductor
equipment.





The
backlog was $238 million and $163 million at June 30, 2009 and 2008,
respectively.




19


Gross Profit.  Gross
profit for the first six months of 2009 was $20.0 million (24.0% of net sales)
compared to $22.8 million (28.9% of net sales) in the first six months of
2008.  An increase in obsolescence costs, start-up costs on the G250
and CRJ-1000, and continued operational issues at the Company's Sun Valley,
California facility contributed to the decline in gross profit. 
Additionally, although operating above the Company's expectations, the 767 wing
modification kit provides a lower gross profit margin.


Selling, General and Administrative
Expenses.Selling, general and administrative expenses,
including $0.4 million of severance and restructuring costs were $12.9 million
(15.4% of net sales) for the first six months of 2009 compared to $12.0 million
(15.2% of net sales) for the first six months of 2008.  In addition to
the severance and restructuring costs during the first six months of 2009, we
incurred $0.3 million of acquisition costs expensed under FAS No. 141(R)
relating to the Intec acquisition. Intec also added $0.7 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 six months ended June 30, 2009 and 2008 and the percentage of
the segment’s total net sales represented by each category.




Six
      Months Ended June 30,Category
                        
                        2009
                        
                        
                        %
      of Total
                        
                        
                        2008
                        
                        
                        %
      of Total($
      in millions)Corporate
      and regional aircraft
                        
                        $
                        9.5
                        
                        
                        
                        21.9
                        %
                        
                        $
                        15.6
                        
                        
                        
                        33.0
                        %Large
      commercial aircraft
                        
                        
                        19.8
                        
                        
                        
                        45.6
                        
                        
                        
                        22.3
                        
                        
                        
                        47.2Military
                        
                        
                        12.9
                        
                        
                        
                        29.7
                        
                        
                        
                        6.5
                        
                        
                        
                        13.7Tooling
                        
                        
                        1.2
                        
                        
                        
                        2.8
                        
                        
                        
                        2.9
                        
                        
                        
                        6.1Total
                        
                        $
                        43.4
                        
                        
                        
                        100.0
                        %
                        
                        $
                        47.3
                        
                        
                        
                        100.0
                        %





Net sales
for the Engineering Services segment were $43.4 million for the first six months
of 2009 compared to $47.3 million for the first six months of 2008, a decrease
of $3.9 million, or 8.2%. This decrease resulted from three fewer work
days in the first six months of 2009 compared to the first six months of 2008 as
well as lower client overtime requirements in 2009 compared to
2008.  Approximately $42.6 million, or 98.1% of the segment’s
revenues, were recorded under reimbursement type contracts for engineering
services compared to
$45.6 million for the first six months of 2008, a decrease of $3.0 million, or
6.6%. 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 $9.5 millionin the first six months
of 2009 compared to $15.6 million for the first six months of 2008, a decrease
of $6.1 million, or 39.1%. The majority of the corporate aircraft
revenues in 2008 were generated from the development of the Gulfstream G650. In
2009, the lowered demand for services on the development of the Gulfstream G650
was supplemented by support on Bombardier’s Learjet 85.





Net sales
for services for large commercial aircraft were $19.8 millionin the first six months
of 2009, down $2.5 million, or 11.2%, from $22.3 million in the first six months
of 2008. These revenues are primarily from design programs supporting
Boeing’s 747-8, 777-Freighter and 787 platforms.  In addition to the
factors discussed above, these decreases resulted from the winding down of
certain programs.




20


Net sales
of services for military programs were $12.9 million in the first six months of
2009, up $6.4 million, or 98.5%, from $6.5 million in the first six months of
2008. These military revenues were derived from support provided on
multiple Navy programs as well as the F-35, the CH-53 helicopter and 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 $1.2 million for the first six months
of 2009 compared to $2.9 million
in the first six months of 2008.  This $1.7 million, or 58.6%,
decrease is due to lower demand for tooling design support during
2009.





Gross Profit.  Gross
profit for the first
six months of 2009 was $7.9 million (18.2% of net sales) compared to $9.6 million
(20.3% of net sales) in the first six months of 2008.  The
decrease in gross profit during the first six months of 2009 is due to a number
of factors, including higher overhead rates resulting from fewer work days,
lower sales volume and an increase in non-billable hours.





Selling, General and Administrative
Expenses.  Selling, general and administrative expenses for the first six months
of 2009 were $3.9 million (9.0% of net sales) compared to $4.4 million
(9.3% of net sales) in the first six 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 six months of 2009 was
$0.8 million compared to $1.0 million for the first six months of 2008. The
decline was due to decreases in interest rates in the first six 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 six months of 2009, we recorded
income tax expense of $3.8 million compared to $5.4 million in the first six
months of 2008.  We applied an effective tax rate of 36.5% for the
first six months of 2009 compared to 36.4% for the first six months of
2008.





Liquidity
and Capital Resources





During
the first six months of 2009, we used $0.2 million in cash in our operating
activities, whereas in the first six months of 2008 we generated $3.0 million.
The decrease in cash available from operations was primarily due to an increase
in accounts receivable, a decrease in accounts payable and a decrease in
customer sales.  This decrease was offset by a concerted effort to
decrease inventory levels.





Net cash used in investing
activities was $11.4 million for the first half of 2009 compared to $3.2 million
for the first half of 2008. In the first six months of 2009, cash was
primarily used to acquire Intec, manufacturing equipment and computer equipment
and software. In the first six months of 2008, we spent $3.3 million on capital
expenditures primarily for equipment in order to meet customer
demand.




Cash
provided by financing activities was $11.8 million for the first six months of
2009 compared to $0.2 million for the first six months of 2008. Funds provided
in 2009 and 2008 represent net cash advances from our revolving credit facility,
primarily to fund the acquisition of Intec.




21




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 goal for 2009 of more
than $20 million.  Our capital budget for 2009 anticipates capital
expenditures of approximately $5.0 million.  Despite a general
tightening in the credit markets, we expect to meet our ongoing working capital,
acquisition 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 June 30, 2009,
$43.0 million of our revolving credit facility remained available and we expect
to be 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 Wachovia Bank,
National Association. Accordingly, we are subject to potential fluctuations in
our debt service. Based on the amount of our outstanding debt as of June 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 $0.4 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.




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 June 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.


22


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.





(a)
            The
      annual meeting of the shareholders of the Company was held on June 23,
      2009.  Of the 11,617,429 shares entitled to vote at such
      meeting, 11,114,160 shares were present at the meeting in person or by
      proxy.





(b)
            The
      individuals listed below were elected as Class II Directors of the Company
      at the meeting, and the number of shares voted for, against and withheld
      were as follows:





Number
      of Shares VotedName
                        
                        For
                        
                        
                        WithheldThomas
      G Unger
                        
                        
                        11,003,894
                        
                        
                        
                        110,265John
      M. Roeder
                        
                        
                        11,004,894
                        
                        
                        
                        109,265





The
individuals listed below are Directors whose term of office continued after the
meeting:





Ronald S.
Saks


Joseph
Burstein


Sanford
S. Neuman


John S.
Eulich


Judith W.
Northup





(c)
            In
      addition to the election of Class II Directors, the shareholders ratified
      the appointment of BDO Seidman, LLP as the Company’s independent auditor
      for the fiscal year ending December 31, 2009.  The number of
      shares voted for, against and withheld were as
  follows:





Number
      of Shares VotedFor
              Against
              Abstain11,100,224
              4,390
              None






23









(d)
            None.


Item 5.  Other Information.





None.





Item 6.  Exhibits.





See
Exhibit Index.


24




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 10th
day of August, 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)







25




EXHIBIT INDEX









Exhibit No.
                      Description2.1
                      Stock
      Purchase Agreement dated as of June 17, 2007 between John J. Bogan,
      Trustee of the John Bogan Separate Property Trust Dated October 5, 1999,
      William A. Huston, and LMI Aerospace, Inc. previously filed as Exhibit 2.1
      to the Registrant’s Form 8-K filed June 18, 2007 and incorporated herein
      by reference.3.1
                      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 reference3.4
                      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.10.1
                      Amendment
      to Employment Agreement between the Registrant and Ronald S. Saks dated
      July 1, 2009.10.2
                      Credit
      Agreement between the Registrant, Wachovia Bank, National Association (as
      Administrative Agent, Swingline Lender and Issuing Lender), Wells Fargo
      Bank, National Association (as Syndication Agent) and the other lender
      parties thereto dated July 31, 2007, previously filed as Exhibit 4.1 to
      the Registrant’s Form 8-K filed August 6, 2007.10.3
                      Employment
      Agreement between the Registrant and James McQueeny dated June 22, 2009,
      previously filed as Exhibit 10.1 to the Registrant's Form 8-K filed June
      26, 2009 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.




26