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.

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 acquistion 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 product.

Results of Operations

Three months ended March 31, 2009 compared to March 31, 2008

The following table is a summary of our operating results for the three months
ended March 31, 2009 and 2008, respectively:

                                                          Three Months Ended
                                                            March 31, 2009
                                                            ($ in millions)
                                                         Engineering
                                    Aerostructures        Services         Eliminations        Total
Net sales                          $           43.3     $        20.8     $         (0.1 )   $    64.0
Cost of sales                                  32.3              17.3               (0.2 )        49.4
Gross profit                                   11.0               3.5                0.1          14.6
S,G & A                                         6.4               2.0                  -           8.4
Severance and restructuring                     0.4                 -                  -           0.4
Income from operations             $            4.2     $         1.5     $          0.1     $     5.8


                                                          Three Months Ended
                                                            March 31, 2008
                                                            ($ in millions)
                                                         Engineering
                                    Aerostructures        Services         Eliminations        Total
Net sales                          $           37.1     $        23.3     $            -     $    60.4
Cost of sales                                  26.3              18.5                  -          44.8
Gross profit                                   10.8               4.8                  -          15.6
S,G & A                                         6.0               2.1                  -           8.1
Income from operations             $            4.8     $         2.7     $            -     $     7.5

Aerostructures Segment

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

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                                                             Three Months Ended
Category                            March 31, 2009       % of Total       March 31, 2008       % of Total
                                                               ($ in millions)
Corporate and regional aircraft    $           15.8             36.5 %   $           13.4             36.1 %
Large commercial aircraft                      14.7             33.9                 10.7             28.8
Military                                       11.1             25.6                  9.9             26.7
Technology                                      0.2              0.5                  2.2              6.0
Other (1)                                       1.5              3.5                  0.9              2.4
Total                              $           43.3            100.0 %   $           37.1            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 quarter of 2009 were $43.3 million, up 16.7% from $37.1 million in the first quarter of 2008. The increase in net sales occurred in the corporate and regional aircraft, large commercial aircraft and military sectors. The increase was due, in part, to $5.3 million in tooling sales in the first quarter of 2009, including tooling sales of $2.8 million on the G250, $1.1 million on the CRJ-1000, $0.9 million on the G650 and $0.4 million on the 747-8.

Net sales of components for corporate and regional aircraft were $15.8 million for the first quarter of 2009 compared to $13.4 million for the first quarter of 2008, an increase of $2.4 million or 17.9%. This increase was primarily attributable to $4.7 million in tooling sales, which are not expected to be sustained at that rate through the remainder of the year, offset by a $2.8 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 $14.7 million for the first quarter of 2009 compared to $10.7 million for the first quarter of 2008, an increase of $4.0 million or 37.4%. The increase in net sales to this market was driven by support for the 767 wing modification and winglet program, which generated $5.0 million of sales. We also increased net sales for the Boeing 747 by $1.4 million to $3.1 million in the first quarter of 2009 from $1.7 million in the first quarter of 2008. These increases were partially offset by a $2.0 million decrease in sales for the Boeing 737 from $6.7 million in the first quarter of 2008 to $4.7 million in the first quarter of 2009 and a $0.5 million decrease in other large commercial aircraft products from $1.7 million in the first quarter of 2008 to $1.2 million in the first quarter of 2009, primarily as a residual impact of the Boeing strike in the fourth quarter of 2008 and a late March inventory assessment by a Tier 1 customer that deferred March sales of $0.5 million into April 2009.

Military products generated $11.1 million of net sales in the first quarter of 2009 compared to $9.9 million in the first quarter of 2008, an increase of $1.2 million or 12.1%. This increase resulted from net sales for the Sikorsky Blackhawk program which generated $8.6 million of net sales in the first quarter of 2009 compared to $7.0 million in the first quarter of 2008. An increase also resulted from net sales for the Boeing Apache helicopter of $1.9 million in the first quarter of 2009 compared to $1.3 million in the first quarter of 2008. These increases were offset by a slight decline in other military products from $1.5 million in the first quarter of 2008 to $0.7 million in the first quarter of 2009.

Technology products net sales declined by 90.9% in the first quarter of 2009 to $0.2 million from $2.2 million for the first quarter of 2008. This decrease was due to lower demand in semiconductor equipment.

The backlog at March 31, 2009 was $236 million, of which $179 million is due in the next twelve months. The backlog at March 31, 2008 was $157 million.

Gross Profit. Gross profit for the first quarter of 2009 was $11.0 million (25.4% of net sales) compared to $10.8 million (29.1% of net sales) in the first quarter of 2008. Gross profit was negatively impacted by lower margins on both the 767 wing modification program and tooling sales.

Selling, General and Administrative Expenses. Selling, general and administrative expenses, including severance and restructuring costs, for the first quarter of 2009 were $6.8 million (15.7% of net sales) compared to $6.0 million (16.2% of net sales) in the first quarter of 2008. The increase was primarily due to severance and restructuring costs of $0.4 million and the acquisition costs expensed under FAS 141(R) relating to the Intec Acquisition of $0.3 million. In addition, Intec added $0.4 million of expense for the 2009 quarter 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 first quarter of 2009 and 2008 and the
percentage of the segment's total net sales represented by each category.

                                                             Three Months Ended
Category                           March 31, 2009        % of Total       March 31, 2008       % of Total
                                                               ($ in millions)
Corporate and regional aircraft      $          4.9             23.6 %   $            7.2             30.9 %
Large commercial aircraft                       9.6             46.1                 11.1             47.7
Military                                        5.8             27.9                  3.5             15.0
Tooling                                         0.5              2.4                  1.5              6.4
Total                                $         20.8            100.0 %   $           23.3            100.0 %

Net sales for the Engineering Services segment were $20.8 million for the first quarter of 2009 compared to $23.3 million for the first quarter of 2008, a decrease of $2.5 million or 10.7%. This decrease resulted from three fewer work days in the first quarter of 2009 compared to the first quarter of 2008 as well as lower client overtime requirements in 2009 compared to 2008. Approximately $20.6 million, or 99.0% of the segment's revenues, were recorded under reimbursement type contracts for engineering services compared to $22.2 million for the first quarter of 2008, a decrease of 7.2%. These revenues are generated from labor hours incurred at varying, pre-negotiated rates and other direct costs plus an administrative fee. Net sales under these reimbursement contracts are primarily for commercial, corporate and military markets.

Net sales for services supporting corporate and regional aircraft, the majority of which relate to the development of new and redesigned aircraft, were approximately $4.9 million in the first quarter of 2009 compared to $7.2 million for the first quarter of 2008, a decrease of $2.3 million or 31.9%. Net sales for services for large commercial aircraft were approximately $9.6 million in the first quarter of 2009, down $1.5 million, or 13.5%, from $11.1 million in the first quarter of 2008. These revenues are primarily from design programs supporting Boeing's 747-8 and 787 platforms. In addition to the factors discussed above, these decreases resulted from the winding down of certain programs, including the 777 Freighter and G650. Net sales of services for military programs were $5.8 million in the first quarter of 2009, up $2.3 million or 65.7% from $3.5 million in the first 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.

Approximately $0.5 million, or 2.4% of net sales, for the first quarter of 2009, was primarily related to design and delivery of tooling on various programs supporting commercial aircraft, compared to $1.5 million, or 6.4% of net sales, in the first quarter of 2008. This $1.0 million decrease, or 66.7%, resulted from the decrease in work days discussed above and the completion of some of the engineering requirements that generated sales during 2008.

Gross Profit. Gross profit for the first quarter of 2009 was $3.5 million (16.8% of net sales) compared to $4.8 million (20.6% of net sales) in the first quarter of 2008. The decrease in gross profit during the first 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 first quarter of 2009 were $2.0 million (9.6% of net sales) compared to $2.1 million (9.0% of net sales) in the first quarter of 2008. These costs primarily include salaries, wages and benefits costs of approximately $1.4 million, $0.3 million of stock based compensation, and amortization of intangibles of $0.3 million valued in connection with the acquisition of D3 Technologies.

Non-segment Expenses

Interest Income (Expense), net. Net interest expense for the first quarter of 2009 was $0.4 million compared to $0.5 million for the first quarter of 2008. The decline was due to decreases in interest rates in the first quarter of 2009 compared to the first quarter of 2008.

Income Tax Expense. During the first quarter of 2009, we recorded income tax expense of $1.9 million compared to $2.5 million in the first quarter of 2008. We applied an effective tax rate of 36.50% to income for the first quarter of 2009 compared to 36.25% for the first quarter of 2008. Our 2009 effective tax rate was negatively impacted by a higher effective state income tax rate.

Liquidity and Capital Resources

During the first quarter of 2009, we used $8.0 million of cash in operating activities, compared to $4.0 million in the first quarter of 2008. An increase in accounts receivable used $12.4 million of cash in the first quarter of 2009 as sales for tooling and 767 wing modification kits of approximately $10 million were predominately billed in March. Accrued liabilities decreased by $2.1 million in the first quarter of 2009. We used cash for payments for various bonus plans, 401(k) and profit sharing contributions for 2008, and customer rebate programs. Decrease in accounts payable also used cash of $1.6 million.

Net cash used in investing activities was $11.0 million for the first quarter of 2009 compared to $1.5 million for the first quarter of 2008. In the first quarter of 2009, cash was primarily used to acquire Intec, manufacturing equipment and computer equipment and software. In the first quarter of 2008, we spent $1.5 million on capital expenditures primarily for equipment in order to meet current and expected customer demand.

Cash provided by financing activities was $19.3 million for the first quarter of 2009 compared to $5.5 million for the first quarter of 2008. Funds provided in 2009 and 2008 represent net cash advances from our revolving credit facility.

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 and collections of the unusually high accounts receivable at the end of March, 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.

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.