OVERVIEW

Please refer to the Overview found in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. This Overview sets forth key management objectives and key performance indicators used by management as well as key industry and economic data tracked by management.

In the fourth quarter of 2008, the Company changed its organizational structure by aligning its strategic business units with a focus on core functional and delivery capabilities. This realignment resulted in two new reportable business segments: Logistics and Manufacturing Services, and Precision Components.

In the fourth quarter of 2008, the Company exited certain non-core businesses within its Logistics and Manufacturing Services segment in the United Kingdom. These actions included selling certain assets of the operation and exiting the businesses. The results of these businesses in prior periods have been segregated and treated as discontinued operations.

Effective January 1, 2009, the Company retroactively adopted the provisions of FSP APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)." See Note 9 of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q for further discussion of the impact of adoption.

All previously reported financial information has been adjusted on a retrospective basis to reflect the segment realignment, the discontinued operations and the change in the accounting for convertible debt for all periods presented.

Second Quarter 2009 Highlights

In the second quarter of 2009, deteriorating worldwide economic conditions continued to cause significant volatility in virtually all of the markets served by the Company which adversely affected the business. The Logistics and Manufacturing Services segment was negatively affected by lower demand across the end-markets of its distribution business and by deferred maintenance in its aerospace aftermarket business. Precision Components' industrial manufacturing business was impacted by the severe declines in end-markets it serves, including the transportation-related market, while its aerospace OEM business was affected by reduced customer inventory and production levels. As a result of this volatility, second quarter sales decreased 32.6% from the second quarter of 2008 to $255.2 million.

The actions taken by the Company in the fourth quarter of 2008 in anticipation of the economic downturn improved the Company's cost structure and its manufacturing footprint, and strengthened its global competitive position, partially offsetting the negative impact on profitability from the lower sales volumes in the second quarter of 2009. The Company took further actions in the second quarter of 2009 in response to continuing distress. These actions included further workforce reductions which resulted in severance charges of $2.7 million, primarily at Precision Components.

During the second quarter of 2009, the Company also continued to focus its efforts on cash generation and working capital management. Particular attention on collecting receivables, reducing inventory and managing payment terms with vendors contributed to the generation of $47.9 million of cash from operating activities in the first half of 2009. The additional cash generation was used in part to fund a $9.5 million cash contribution to the Company's pension plans and to reduce overall debt levels.

Two large automotive customers of the Company, Chrysler and General Motors, declared bankruptcy in the second quarter of 2009. The Company has determined that substantially all balances due from these customers have been or will be collected and no significant write-offs are required.

RESULTS OF OPERATIONS

Sales



                                                Three months ended June 30,                          Six months ended June 30,
(in millions)                           2009         2008              Change               2009         2008              Change
Logistics and Manufacturing Services   $ 136.6      $ 186.4      $  (49.9 )    (26.8 )%    $ 279.2      $ 377.0      $  (97.8 )    (25.9 )%
Precision Components                     120.3        195.7         (75.3 )    (38.5 )%      241.5        392.8        (151.3 )    (38.5 )%
Intersegment sales                        (1.7 )       (3.2 )         1.5       47.3 %        (3.4 )       (6.9 )         3.5       50.8 %

Total                                  $ 255.2      $ 378.9      $ (123.7 )    (32.6 )%    $ 517.4      $ 762.9      $ (245.6 )    (32.2 )%

The Company reported net sales of $255.2 million in the second quarter of 2009, a decrease of $123.7 million or 32.6% from the second quarter of 2008. The sales decrease reflected $113.4 million of organic sales declines which included $43.5 million at Logistics and Manufacturing Services and $71.4 million at Precision Components. The strengthening of the U.S. dollar against foreign currencies, primarily in Europe and Canada, decreased net sales by approximately $10.3 million in the second quarter of 2009.

Sales for the six-month period ended June 30, 2009 were $517.4 million, a decrease of $245.6 million or 32.2% from the six-month period ended June 30, 2008. The sales decrease reflected $220.0 million of organic sales declines which included $83.1 million at Logistics and Manufacturing Services and $140.5 million at Precision Components. Additionally, the sale of Spectrum Plastics in 2008 resulted in a reduction in sales of $1.3 million as compared to 2008. The strengthening of the U.S. dollar against foreign currencies, primarily in Europe and Canada, decreased net sales by approximately $24.2 million in the first half of 2009.

Expenses and Operating Income



                                              Three months ended June 30,                          Six months ended June 30,
(in millions)                          2009         2008              Change              2009         2008              Change
Cost of sales                         $ 165.7      $ 232.3      $ (66.6 )    (28.7 )%    $ 332.9      $ 469.6      $ (136.7 )    (29.1 )%
% of sales                               64.9 %       61.3 %                                64.3 %       61.5 %

Gross profit                             89.5        146.6        (57.1 )    (39.0 )%      184.5        293.4        (108.9 )    (37.1 )%
% of sales                               35.1 %       38.7 %                                35.7 %       38.5 %

Selling and administrative expenses      75.3         95.6        (20.3 )    (21.2 )%      149.9        190.8         (40.9 )    (21.4 )%
% of sales                               29.5 %       25.2 %                                29.0 %       25.0 %

Operating income                         14.1         51.0        (36.9 )    (72.3 )%       34.6        102.6         (68.0 )    (66.3 )%
% of sales                                5.5 %       13.5 %                                 6.7 %       13.4 %

Cost of sales in the second quarter of 2009 decreased 28.7% from the 2009 period. The decrease in cost of sales was less than the decrease in sales resulting in a reduction in gross profit margin of 3.6 percentage points to 35.1%. Selling and administrative expenses in the second quarter of 2009 decreased 21.2% from the second quarter of 2008. The decreases in cost of sales and selling and administrative expenses resulted primarily from the significantly lower sales volumes in each of the businesses of Logistics and Manufacturing Services and Precision Components as well as the benefits of the discrete 2008 cost reduction actions, lower incentive compensation and lower severance expenses. As a result, operating income in the second quarter of 2009 decreased 72.3% from the second quarter of 2008 and operating margin declined from 13.5% to 5.5%.

Cost of sales in the first half of 2009 decreased 29.1% from the 2009 period. The decrease in cost of sales was lower than the decrease in sales resulting in a reduction in gross profit margin of 2.8 percentage points to 35.7%. Selling and administrative expenses in the first half of 2009 decreased 21.4% from the first half of 2008. The decreases in cost of sales and selling and administrative expenses resulted primarily from the significantly lower sales volumes in each of the businesses of Logistics and Manufacturing Services and Precision Components and, to a lesser extent, the impact of the discrete 2008 cost reduction actions. As a result, operating income in the first half of 2009 decreased 66.3% from the first half of 2009 and operating margin declined from 13.4% to 6.7%.

Other Income/Expense

Other income, net of other expenses, increased $2.0 million in the second quarter of 2009 compared to the same period of 2008 primarily as a result of a $2.3 million gain on the purchase of certain convertible notes (see Note 9 of the Notes to the Consolidated Financial Statements). Interest expense decreased $0.8 million in the second quarter of 2009 as a result of lower interest rates.

For the six-month period ended June 30, 2009, other income, net of other expenses, increased $3.3 million compared to the first six months of 2008 primarily as a result of the $2.3 million gain on the repurchase of convertible notes and the $1.2 million loss on the sale of Spectrum Plastics recorded in 2008.

Income Taxes

The Company's effective tax rate from continuing operations for the first half of 2009 was 8.9% as compared to the first quarter 2009 rate of 18.7%. This decrease in the effective tax rate combined with discrete items resulted in a net benefit of $0.5 million for the second quarter of 2009. In 2008, the Company's effective tax rate was 20.6% in the first half of the year and 22.1% for the full year. The decrease in the effective tax rate from the full year 2008 and first quarter 2009 rates was primarily driven by the projected change in the mix of income to lower taxing jurisdictions.

In connection with an Internal Revenue Service audit for the tax years 2000 through 2002, the IRS proposed adjustments to these tax years of approximately $16.5 million, plus a potential penalty of 20% of the tax assessment plus interest. The adjustment relates to the federal taxation of foreign income of certain foreign subsidiaries. The Company filed an administrative protest of these adjustments and is currently engaged with the Appeals Office of the IRS. The Company believes its tax position on the issues raised by the IRS is correct and, therefore, the Company will continue to vigorously defend its position. The Company believes it will prevail on this issue. Any additional impact on the Company's liability for income taxes cannot presently be determined, but the Company believes it is adequately provided for and the outcome will not have a material impact on its results of operations, financial position or cash flows.

Net Income and Net Income per Share



(in millions, except per share              Three months ended June 30,                    Six months ended June 30,
data)                                  2009     2008             Change              2009     2008             Change
Income from continuing operations     $ 10.4   $ 35.3      $ (24.8 )    (70.4 )%    $ 21.9   $ 69.0      $ (47.1 )    (68.2 )%

Net income                              10.4     33.5        (23.1 )    (68.8 )%      21.9     65.9        (44.0 )    (66.8 )%

Per common share:
Basic:
Income from continuing operations        .20      .65         (.45 )    (69.2 )%       .41     1.28         (.87 )    (68.0 )%
Loss from discontinued operations,
net of tax                                -      (.03 )        .03      100.0 %         -      (.06 )        .06      100.0 %

Net income                            $  .20   $  .62      $  (.42 )    (67.7 )%    $  .41   $ 1.22      $  (.81 )    (66.4 )%

Diluted:
Income from continuing operations        .19      .61         (.42 )    (68.9 )%       .41     1.21         (.80 )    (66.1 )%
Loss from discontinued operations,
net of tax                                -      (.03 )        .03      100.0 %         -      (.05 )        .05      100.0 %

Net income                            $  .19   $  .58      $  (.39 )    (67.2 )%    $  .41   $ 1.16      $  (.75 )    (64.7 )%

Weighted average common shares
outstanding:
Basic                                   53.4     54.3         (0.9 )     (1.7 )%      53.1     54.2         (1.2 )     (2.1 )%
Diluted                                 53.6     57.4         (3.7 )     (6.5 )%      53.3     56.7         (3.4 )     (6.1 )%

In the second quarter of 2009, basic and diluted income from continuing operations per share decreased 69.2% and 68.9%, respectively, as compared to the second quarter of 2008, and in the first half of 2009 decreased 68.0% and 66.1%, respectively, as compared to the first half of 2008. The decrease in basic and diluted shares outstanding reduced the percentage decrease in income from continuing operations per share as compared to the percentage decrease in income from continuing operations. Basic average shares outstanding decreased primarily as a result of the impact of stock repurchases primarily in the fourth quarter of 2008 offset in part by 737,463 shares of treasury stock contributed to its pension plans in April 2009. Diluted average shares outstanding decreased as a result of the decrease in basic average shares outstanding and the decrease in the dilutive effect of potentially issuable shares under the employee stock plans and the convertible notes which was driven by the decline in the Company's stock price.

Financial Performance by Business Segment

Logistics and Manufacturing Services



                                         Three months ended June 30,                         Six months ended June 30,
(in millions)                     2009         2008              Change              2009         2008              Change
Sales                            $ 136.6      $ 186.4      $ (49.9 )    (26.8 )%    $ 279.2      $ 377.0      $ (97.8 )    (25.9 )%
Operating profit                    12.5         24.6        (12.2 )    (49.5 )%       26.9         50.2        (23.3 )    (46.4 )%
Operating margin                     9.1 %       13.2 %                                 9.6 %       13.3 %

Logistics and Manufacturing Services recorded sales of $136.6 million in the second quarter of 2009, a 26.8% decrease from the second quarter of 2008, and $279.2 million in the first half of 2009, a 25.9% decrease from the first half of 2008. The decreases in the second quarter and first half of 2009 were primarily a result of a reduction in organic sales in all businesses of $43.5 million and $83.1 million, respectively. Most significantly, lower organic sales in 2009 were driven by the distribution businesses in North America and Europe primarily as a result of softness in the transportation-related and industrial markets as well as a reduced sales force compared to 2008. The negative impact of foreign currency translation decreased sales by approximately $6.3 million in the second quarter of 2009 and $14.7 million in the first half of 2009 as the U.S. dollar strengthened against foreign currencies primarily in Europe and Canada.

Operating profit at Logistics and Manufacturing Services in the second quarter of 2009 decreased 49.5% from the second quarter of 2008 to $12.5 million and operating profit in the first half of 2009 decreased 46.4% to $26.9 million. The decline in both periods was driven by the profit impact of the lower sales volumes in each of its businesses as a result of the impact of current economic conditions on the end-markets served. Partially offsetting these declines was the positive impact of operational and productivity initiatives, including the lower operating costs resulting from the discrete 2008 actions to address deteriorating market conditions and geographical complexities.

Outlook:

Organic sales levels in the distribution businesses of the Logistics and Manufacturing Services segment are largely dependent upon the economy in the regions served, the retention of its customers and continuation of sales volumes to such customers. The challenging economic conditions are expected to continue to negatively affect these businesses as their customers continue to reduce costs and inventory levels. Management believes future sales growth will result from improvements in economic and end-market conditions, further market penetration and sales force productivity initiatives. Management believes its aerospace aftermarket business is favorably positioned based on strong customer relationships, including long-term maintenance and repair contracts in the overhaul and repair business, and expected demand in the spare parts manufacturing business. Sales growth in the aerospace aftermarket business has been and is expected to continue to be impacted by deferred maintenance activities and lower capacity usage within the industry.

Operating profit is expected to be negatively impacted by sales volume declines and pricing pressures, partially offset by the lower costs resulting from discrete fourth quarter 2008 actions, structural changes made in the distribution businesses and cost control efforts. Management will continue to evaluate additional initiatives needed to align the cost structures of its businesses with the expected sales volumes. The aftermarket Revenue Sharing Programs ("RSP") will continue to be impacted by the management fees payable to its customer which generally increase in the fourth or later years of each program. These and other similar fees are deducted from sales and temper aftermarket RSP sales growth and operating margin.

Precision Components



                                         Three months ended June 30,                          Six months ended June 30,
(in millions)                     2009         2008              Change              2009         2008              Change
Sales                            $ 120.3      $ 195.7      $ (75.3 )    (38.5 )%    $ 241.5      $ 392.8      $ (151.3 )    (38.5 )%
Operating profit                     1.7         26.4        (24.7 )    (93.6 )%        7.7         52.3         (44.6 )    (85.3 )%
Operating margin                     1.4 %       13.5 %                                 3.2 %       13.3 %

Sales at Precision Components were $120.3 million in the second quarter of 2009, a 38.5% decrease from the second quarter of 2009, and $241.5 million in the first half of 2009, a 38.5% decrease from the first half of 2008. The lower sales levels were primarily a result of weaker global economic conditions. The industrial manufacturing businesses in North America and Europe reported significant sales declines primarily resulting from the overall global recession and were most impacted by the recession's effect on the transportation industry, most notably automotive. Additionally, sales decreased in the aerospace OEM business as customers reduced inventory and lowered production levels. The negative impact of foreign currency translation decreased sales $4.0 million and $9.5 million in the second quarter and first half of 2009, respectively. The sale of Spectrum Plastics in 2008 resulted in a reduction in sales of $1.3 million in the six-month period ended June 30, 2009.

Operating profit in the second quarter of 2009 at Precision Components was $1.7 million, a decrease of 93.6% from the 2008 second quarter, and $7.7 million in the first half of 2009, a decrease of 85.3% from the first half of 2008. Operating profit in both 2009 periods was positively impacted by lower costs resulting from the discrete actions taken in late 2008 to address deteriorating market conditions including personnel reductions and plant consolidations, initiatives focused on cost savings and cost containment, and lower incentive compensation. The favorable impact of these initiatives, however, only partially offset the profit impact of substantially lower sales levels in 2009 and a severance charge of $2.5 million in the second quarter of 2009.

Outlook:

In the industrial manufacturing businesses, management is focused on generating organic sales growth by leveraging the benefits of the diversified products and industrial end markets in which its businesses have a global presence. Near-term economic conditions are negatively impacting sales growth across the global markets served by these businesses; however, these conditions may also result in the opportunity for these businesses to gain market share. Sales in the aerospace OEM business are driven by its commercial engine order backlog through its participation in certain strategic engine programs. Backlog in this business was $338.4 million at June 30, 2009, of which approximately 63% is expected to be shipped in the next 12 months. The aerospace OEM business may be further impacted by downward adjustments of customer inventory levels, production schedule delays or reductions of specific engine programs, and general softness in the aerospace market driven by the current worldwide economic recession. However, management believes that strong long-term aerospace industry fundamentals remain which, together with new programs, will drive future sales growth in this business.

Operating profit is expected to be negatively affected by lower sales volumes within all businesses of the segment, the impact of which is expected to be partially offset by the benefits of the cost actions taken in these businesses and other cost-saving and cost-containment initiatives. Management continues to focus on improving profitability through organic sales growth, pricing initiatives and productivity and process improvements.

LIQUIDITY AND CAPITAL RESOURCES

Management assesses the Company's liquidity in terms of its overall ability to generate cash to fund its operating and investing activities. Of particular importance in the management of liquidity are cash flows generated from operating activities, capital expenditure levels, dividends, capital stock transactions, effective utilization of surplus cash positions overseas and adequate lines of credit.

The Company's ability to generate cash from operations in excess of its internal operating needs is one of its financial strengths. During 2009, management has focused and will continue to focus on cash flow and working capital management, and anticipates that operating activities in 2009 will generate adequate cash. In light of current economic events, the Company is closely monitoring its cash generation, usage and preservation with particular emphasis placed on managing working capital to generate cash.

Management expects lower levels of cash usage in 2009 particularly with respect to capital expenditures, RSP payments and scheduled debt payments. Management has limited its capital spending and expects discretionary capital spending to be in the range of $30 - $35 million in 2009, down from $51.9 million in 2008. Participation fee payments related to the RSPs were $57.5 million in 2008; however, no payments are anticipated in 2009. Additionally, of the Company's long-term debt portfolio, only $15.2 million is due and payable in each of 2009 and 2010.

Recent distress in the financial markets has had an adverse impact on, among other things, security prices and investment valuations. The Company's pension plans have been impacted by losses in the global equity markets and, together with the requirements set forth by the Federal Pension Protection Act, the Company's 2009 funding requirements have increased. Additionally, if the Company experiences a negative return on its pension plan assets again in 2009, both its future funding requirements and its pension expense in 2010 may increase, and its 2009 balance sheet will be impacted due to the recognition of the funded status of the plans. However, the Company took specific actions in the second quarter of 2009 to increase the funded status of the plans, to meet the 2009 funding requirements and to mitigate potential required contributions beyond 2009 by making a cash contribution of $9.5 million and an incremental stock contribution of $9.8 million to its pension plans.

Operating cash flow may be supplemented with external borrowings to meet near-term organic business expansion needs and the Company's current financial commitments. The credit markets are presenting companies with significant challenges in maintaining or expanding credit facilities. The Company has assessed its credit facilities and currently expects that its bank syndicate, comprised of 15 banks, will continue to support these facilities. At June 30, 2009, the Company has $143.5 million in borrowing availability under its committed credit facilities which mature in September 2012 of which $87.8 million would have been allowed under the covenants. Additionally, in July 2009, the Company entered into a $35.0 million unsecured credit agreement with Wells Fargo Bank, N.A. which can be used for working capital, capital expenditures and general corporate purposes. The Company believes its credit facilities, coupled with cash generated from operations, are adequate for its anticipated future requirements.

Current credit lines are closely monitored to ensure compliance with the Company's various debt covenants. The Company's most restrictive borrowing capacity covenant requires the Company to maintain a ratio of Consolidated Total Debt to Adjusted earnings before interest expense, income taxes, and depreciation and amortization ("EBITDA") as defined in the amended and restated revolving credit agreement. Because the Company's sales and profits declined significantly in the second half of 2008 and the first half of 2009 as a result of recent economic conditions, the Company's Adjusted EBITDA has also declined significantly. Without improvements in sales and profits and/or a reduction in debt levels, the Company's Consolidated Total Debt to Adjusted EBITDA ratio may increase such that it violates this covenant. Any breach of covenant would result in a technical default under the revolving credit agreement, the consequences of which are that the Company's debt becomes callable and other obligations, including the convertible notes, which are subject to the cross-default provisions of the revolving credit agreement, could also be accelerated to become immediately due and payable. The Company has taken and continues to take actions to sustain compliance with the debt covenants through strategies to increase Adjusted EBITDA and reduce debt. If these efforts are not successful, the Company intends to renegotiate bank terms prior to any breach of covenant. Such renegotiations, if successful, could potentially result in modification to existing covenants and an increase in the cost of borrowing funds.

We may from time to time seek to retire or repurchase our outstanding debt through cash purchases and / or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity . . .