YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH OUR UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF THIS DOCUMENT.
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY" FOR A DISCUSSION OF CERTAIN OF THE UNCERTAINTIES, RISKS AND ASSUMPTIONS ASSOCIATED WITH THESE STATEMENTS. UNLESS OTHERWISE NOTED HEREIN, DISCLOSURES PERTAIN ONLY TO OUR CONTINUING OPERATIONS.
OVERVIEW
We are one of the largest worldwide suppliers of aerospace components, systems and services to the commercial and general aviation airplane markets. We are also a leading supplier of systems and products to the global defense and space markets. Our business is conducted globally with manufacturing, service and sales undertaken in various locations throughout the world. Our products and services are principally sold to customers in North America, Europe and Asia. Key Market Channels for Products and Services, Growth Drivers and Industry and our Highlights
We participate in three key market channels: commercial, regional, business and general aviation airplane original equipment (OE); commercial, regional, business and general aviation airplane aftermarket; and defense and space. Commercial, Regional, Business and General Aviation Airplane OE Commercial, regional, business and general aviation airplane OE includes sales of products and services for new airplanes produced by Airbus and Boeing, and regional, business and small airplane manufacturers.
The key growth drivers in this market channel include the number of orders for their airplanes, which will be delivered to the manufacturers' customers over a period of several years, OE manufacturer production and delivery rates for in-service airplanes such as the Airbus A320 and Boeing 737NG, and introductions of new airplane models such as the Boeing 787 and 747-8, and the Airbus A350 XWB, and engine types such as the Pratt and Whitney PurePower™ PW1000G. We have significant sales content on most of the airplanes manufactured in this market channel. Over the last few years, we have benefited from increased production rates and deliveries of Airbus and Boeing airplanes and from our substantial content on many of the regional and general aviation airplanes. Delivery of new commercial, regional, business, and general aviation aircraft in 2009 and beyond, however, may be negatively impacted by the current economic conditions which may influence customers' willingness and/or ability to purchase new aircraft.
Based on Boeing's revised schedule, announced on August 27, 2009, we continue to expect 787 deliveries to commence during 2010. Based on the information available to us, we do not expect the most recent delay to have a material impact on our results of operations and cash flows.

Commercial, Regional, Business and General Aviation Airplane Aftermarket The commercial, regional, business and general aviation airplane aftermarket channel includes sales of products and services for existing commercial and general aviation airplanes, primarily to airlines and package carriers around the world.
The key growth drivers in this channel include worldwide passenger capacity growth measured by Available Seat Miles (ASM) and the size, type and activity levels of the worldwide airplane fleet. Other important factors affecting growth in this market channel are the age and types of the airplanes in the fleet, fuel prices, airline maintenance practices, Gross Domestic Product (GDP) trends in countries and regions around the world and domestic and international air freight activity.
Capacity in the global airline system, as measured by ASMs, is expected to decrease in 2009 and grow slightly in 2010. ASM expectations could be adversely affected if airlines choose to fly their in-service airplanes less frequently, or temporarily ground airplanes due to decreased demand, high fuel prices and other factors including the downturn of the global economy.
While we have significant product content on most of the airplane models that are currently in service, we enjoy the benefit of having excellent positions on the newer, more fuel-efficient airplanes currently in service. Even though many airlines have announced that they will remove some of their older airplanes, such as Boeing MD-80 and 737 Classic airplanes, from their fleets, we do not expect these removals to have a significant impact on our results in 2009 or 2010.
Defense and Space
Worldwide defense and space sales include sales to prime contractors such as Boeing, Northrop Grumman, Lockheed Martin, the U.S. Government and foreign companies and governments.
The key growth drivers in this channel include the level of defense spending by the U.S. and foreign governments, the number of new platform starts, the level of military flight operations, the level of upgrade, overhaul and maintenance activities associated with existing platforms and demand for optical surveillance and reconnaissance systems.
The market for our defense and space products is global, and is not dependent on any single program, platform or customer. We anticipate fewer new fighter and transport aircraft platform starts over the next several years. We also anticipate that the introduction of the F-35 Lightning II and new helicopter platforms, along with upgrades on existing defense and space platforms, will provide long-term growth opportunities in this market channel. Additionally, we are participating in, and developing new products for, the rapidly expanding homeland security and intelligence, surveillance and reconnaissance sectors, which should further strengthen our position in this market channel.

Long-term Sustainable Growth
We believe that we are well positioned to grow our sales over the long-term due to:
• Awards for key products on important new and expected programs, including the Airbus A350 XWB, the Boeing 787 and 747-8, the Pratt & Whitney PurePower™ PW1000G and the Lockheed Martin F-35 Lightning II;

• The large installed base of commercial airplanes and our strong positions on newer, more fuel-efficient airplanes, which should fuel sustained long-term aftermarket strength;

• Balance in the large commercial airplane market, with strong sales to both Airbus and Boeing;

• Aging of the existing large commercial and regional airplane fleets, which should result in increased aftermarket support;

• Increased number of long-term agreements for product and service sales on new and existing commercial airplanes;

• Increased opportunities for aftermarket growth due to airline outsourcing;

• Growth in global maintenance, repair and overhaul (MRO) opportunities for our systems and components, particularly in Europe, Asia and the Middle East, where we have expanded our capacity; and

• Expansion of our product offerings in support of high growth areas in the defense and space market channel, such as helicopter products and systems and intelligence, surveillance and reconnaissance products.

Third Quarter 2009 Sales Content by Market Channel
During the third quarter 2009, approximately 95% of our sales were from our
three primary market channels described above. Following is a summary of the
percentage of sales by market channel:

Airbus Commercial OE                                                                   16 %
Boeing Commercial OE                                                                   11 %
Regional, Business and General Aviation Airplane OE                                     5 %

Total Commercial, Regional, Business and General Aviation Airplane OE                  32 %

Large Commercial Airplane Aftermarket                                                  27 %
Regional, Business and General Aviation Airplane Aftermarket                            5 %

Total Commercial, Regional, Business and General Aviation Airplane Aftermarket         32 %

Total Defense and Space                                                                31 %

Other                                                                                   5 %

Total                                                                                 100 %

Results of Operations - Third Quarter 2009 as Compared to Third Quarter 2008

                                                          Third Quarter                                        %
                                                   2009                   2008               Change          Change
                                                    (Dollars in millions, except diluted EPS)
Sales                                         $      1,647.7         $      1,772.3         $ (124.6 )           7.0

Segment operating income (1)                  $        260.9         $        321.7         $  (60.8 )          18.9
Corporate general and administrative
costs                                                  (32.0 )                (24.9 )           (7.1 )          28.5

Total operating income                                 228.9                  296.8            (67.9 )          22.9
Net interest expense                                   (30.4 )                (25.3 )           (5.1 )          20.2
Other income (expense) - net                            (7.9 )                 (5.6 )           (2.3 )          41.1

Income from continuing operations before
income taxes                                           190.6                  265.9            (75.3 )          28.3
Income tax expense                                     (45.7 )                (94.1 )           48.4            51.4

Income from continuing operations                      144.9                  171.8            (26.9 )          15.7
Income from discontinued operations                      3.3                    0.2              3.1          1550.0

Consolidated net income                                148.2                  172.0            (23.8 )          13.8
Net income attributable to
noncontrolling interests                                (2.8 )                 (4.0 )            1.2            30.0

Net income attributable to Goodrich           $        145.4         $        168.0         $  (22.6 )          13.5


Effective tax rate                                      24.0 %                 35.4 %


Diluted EPS:
Continuing operations                         $         1.12         $         1.32         $  (0.20 )          15.2

Net income attributable to Goodrich           $         1.14         $         1.32         $  (0.18 )          13.6

(1) We measure each reporting segment's profit based upon operating income. Accordingly, we do not allocate net interest expense, other income (expense) - net and income taxes to our reporting segments. The company-wide Enterprise Resource Planning (ERP) implementation costs that were not directly associated with a specific business were not allocated to the segments. For a reconciliation of total segment operating income to total operating income, see Note 3, "Business Segment Information" to our condensed consolidated financial statements.

Sales
The sales decrease in the third quarter 2009 as compared to the third quarter 2008 was driven by changes in our major market channels as follows:
• Regional, business and general aviation airplane original equipment sales decreased by approximately $69 million, or 45%; and

• Large commercial, regional, business and general aviation airplane aftermarket sales decreased by approximately $122 million, or 19%; partially offset by

• Large commercial airplane original equipment sales increased by approximately $37 million, or 9%; and

• Defense and space sales of both original equipment and aftermarket products and services increased by approximately $40 million, or 9%.

Segment operating income
See discussion in the "Business Segment Performance" section. Corporate general and administrative costs Corporate general and administrative costs increased primarily due to unfavorable foreign exchange, as discussed below, and higher share-based compensation due to an increased share price, partially offset by reductions in discretionary spending.
Net interest expense
Net interest expense increased primarily as a result of higher net borrowings partially offset by favorable interest rates. Other income (expense) - net
Other income (expense) - net increased primarily as a result of lower income from equity in affiliated companies of approximately $5 million, primarily due to our share of the operating results of the engine controls joint venture (JV) with Rolls-Royce that was formed at the end of 2008. This increase was partially offset by lower expenses related to previously owned businesses of approximately $2 million.
Income from continuing operations
In addition to the items described above, income from continuing operations during the third quarter 2009 as compared to the third quarter 2008 was also affected by the following items:

                                                                          Increase (Decrease)
                                                           Before               After                Diluted
                                                            Tax                  Tax                   EPS
                                                               (Dollars in millions, except diluted EPS)
Lower effective tax rate                                $          -         $       21.8         $         0.17

Higher pension expense                                  $      (26.6 )       $      (16.8 )       $        (0.13 )

Changes in estimates on long-term contracts             $      (26.1 )       $      (15.8 )       $        (0.13 )

Foreign exchange, including net monetary asset
remeasurement                                           $      (19.7 )       $      (12.1 )       $        (0.09 )

Higher restructuring costs                              $       (7.1 )       $       (4.5 )       $        (0.04 )

Lower effective tax rate
For the three months ending September 30, 2009, we reported an effective tax rate of 24%, as compared to 35.4% for the three months ending September 30, 2008. The decrease in effective tax rate was primarily attributable to foreign and domestic tax credits and earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate. See Note 16, "Income Taxes" to our condensed consolidated financial statements.

Higher pension expense
The increase in pension expense was primarily due to the investment losses of our plan assets in 2008 partially offset by the effect of a higher discount rate.
Changes in estimates on long-term contracts During the three months ended September 30, 2009 and 2008, we revised estimates on certain of our long-term contracts, primarily in our aerostructures and aircraft wheels and brakes businesses, which resulted in before tax income of $12.6 million and $38.7 million, respectively. These revisions were primarily related to favorable cost and operational performance, changes in volume expectations and to some extent, sales pricing improvements on follow-on contracts.
Foreign exchange
The net unfavorable foreign exchange was due to the following:
• Approximately $38 million of decreased net transaction gains relating to re-measuring monetary assets/liabilities into the local functional currency, partially offset by approximately $21 million of higher net gains on forward contracts we entered into to offset the impact of net monetary asset gains/losses; and

• Approximately $21 million of lower net gains on cash flow hedges settled during 2009, partially offset by approximately $18 million of favorable foreign currency translation of net costs in currencies other than the U.S. Dollar.

Higher restructuring costs
The increase in restructuring costs was primarily due to severance costs in the third quarter of 2009. See Note 4, "Restructuring" to our condensed consolidated financial statements.

Results of Operations - Nine Months Ended September 30, 2009 as Compared to Nine

Months Ended September 30, 2008

                                                        Nine Months Ended
                                                          September 30,                        $               %
                                                   2009                   2008               Change         Change
                                                    (Dollars in millions, except diluted EPS)
Sales                                         $      5,043.3         $      5,366.6         $ (323.3 )          6.0

Segment operating income (1)                  $        824.7         $        940.3         $ (115.6 )         12.3
Corporate general and administrative
costs                                                  (86.6 )                (80.5 )           (6.1 )          7.6

Total operating income                                 738.1                  859.8           (121.7 )         14.2
Net interest expense                                   (89.2 )                (80.1 )           (9.1 )         11.4
Other income (expense) - net                           (18.7 )                (18.4 )           (0.3 )          1.6

Income from continuing operations before
income taxes                                           630.2                  761.3           (131.1 )         17.2
Income tax expense                                    (162.4 )               (242.5 )           80.1           33.0

Income from continuing operations                      467.8                  518.8            (51.0 )          9.8
Income from discontinued operations                     35.0                    7.5             27.5          366.7

Consolidated net income                                502.8                  526.3            (23.5 )          4.5
Net income attributable to
noncontrolling interests                               (10.5 )                (13.8 )            3.3           23.9

Net income attributable to Goodrich           $        492.3         $        512.5         $  (20.2 )          3.9


Effective tax rate                                      25.8 %                 31.9 %


Diluted EPS:
Continuing operations                         $         3.61         $         3.95         $  (0.34 )          8.6

Net income attributable to Goodrich           $         3.88         $         4.01         $  (0.13 )          3.2

(1) We measure each reporting segment's profit based upon operating income. Accordingly, we do not allocate net interest expense, other income (expense) - net and income taxes to our reporting segments. The company-wide Enterprise Resource Planning (ERP) implementation costs that were not directly associated with a specific business were not allocated to the segments. For a reconciliation of total segment operating income to total operating income, see Note 3, "Business Segment Information" to our condensed consolidated financial statements.

Sales
The sales decrease in the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008 was driven by changes in our major market channels as follows:
• Large commercial airplane original equipment sales decreased by approximately $31 million, or 2%;

• Regional, business and general aviation airplane original equipment sales decreased by approximately $124 million, or 27%; and

• Large commercial, regional, business and general aviation airplane aftermarket sales decreased by approximately $276 million, or 14%; partially offset by

• Defense and space sales of both original equipment and aftermarket products and services increased by approximately $134 million, or 10%.

Segment operating income
See discussion in the "Business Segment Performance" section. Corporate general and administrative costs Corporate general and administrative costs increased primarily due to unfavorable foreign exchange and higher share-based compensation, as discussed below, partially offset by reductions in discretionary spending. Net interest expense
Net interest expense increased primarily as a result of higher net borrowings partially offset by favorable interest rates. Other income (expense) - net
Other income (expense) - net increased slightly primarily as a result of lower expenses related to previously owned businesses of approximately $8 million, offset by lower income from equity in affiliated companies of approximately $8 million, primarily due to our share of the operating results of the JV that was formed at the end of 2008.
Income from continuing operations
In addition to the items described above, income from continuing operations during the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008 was also affected by the following items:

                                                                          Increase (Decrease)
                                                           Before               After                Diluted
                                                            Tax                  Tax                   EPS
                                                               (Dollars in millions, except diluted EPS)
Lower effective tax rate                                $          -         $       38.3         $         0.31

Higher pension expense                                  $      (76.3 )       $      (48.5 )       $        (0.39 )

Changes in estimates on long-term contracts             $      (61.3 )       $      (37.3 )       $        (0.29 )

Higher share-based compensation                         $      (19.6 )       $      (12.6 )       $        (0.11 )

Higher restructuring costs                              $      (14.3 )       $       (9.0 )       $        (0.07 )

Foreign exchange, including net monetary asset
remeasurement                                           $      (13.6 )       $       (7.9 )       $        (0.06 )

Lower effective tax rate
For the nine months ended September 30, 2009, we reported an effective tax rate of 25.8% as compared to 31.9% for the nine months ended September 30, 2008. The decrease in the effective tax rate was primarily due to foreign and domestic tax credits and benefits from an adjustment to state tax reserves. See Note 16, "Income Taxes" to our condensed consolidated financial statements. Higher pension expense
The increase in pension expense was primarily due to the investment losses of our plan assets in 2008 partially offset by the effect of a higher discount rate.

Changes in estimates on long-term contracts During the nine months ended September 30, 2009 and 2008, we revised estimates on certain of our long-term contracts, primarily in our aerostructures and aircraft wheels and brakes businesses, which resulted in before tax income of $26.1 million and $87.4 million, respectively. These revisions were primarily related to favorable cost and operational performance, changes in volume expectations and to some extent, sales pricing improvements on follow-on contracts.
Higher share-based compensation
The increase in share-based compensation was primarily due to the increase in our share price.
Higher restructuring costs
The increase in restructuring costs was primarily due to severance costs during the nine months ended September 30, 2009. See Note 4, "Restructuring" to our condensed consolidated financial statements. Foreign exchange
The net unfavorable foreign exchange was due to the following:
• Approximately $102 million of lower net gains on cash flow hedges settled during 2009, partially offset by approximately $94 million of favorable foreign currency translation of net costs in currencies other than the U.S. Dollar; and

• Approximately $32 million of decreased net transaction gains relating to re-measuring monetary assets/liabilities into the local functional currency, partially offset by approximately $26 million of higher net gains on forward contracts we entered into to offset the impact of net monetary asset gains/losses.

Income from discontinued operations
Income from discontinued operations increased primarily due to the favorable resolution of a past environmental claim partially offset by a gain on the sale of a previously discontinued business in March 2008 that did not recur in 2009.

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

                                                        2009 Outlook
 Sales                                       $6.7 billion
 Diluted EPS - Income From Continuing        $4.33 to $4.48 per share
 Operations
 Diluted EPS - Net Income                    $4.60 to $4.75 per share
 Capital Expenditures                        $190 to $200 million
 Operating Cash Flow minus Capital           Exceed 75% of net income from
 Expenditures                               continuing operations

Full year 2009 sales expectations are approximately $6.7 billion, compared to the prior outlook of $6.9 billion, representing an expected sales decrease of about 5 percent compared to 2008. The 2009 sales expectations, compared to 2008, include unfavorable sales impacts of approximately $154 million, or approximately 2 percent of sales, related to foreign currency exchange rate fluctuations and lower sales of approximately $125 million, or approximately 2 percent of sales, related to the formation of the engine controls JV that was formed in the fourth quarter of 2008.
Our 2009 outlook assumes, among other factors:
• Higher pre-tax pension expense of $102 million, or $0.51 per diluted share, compared to 2008;

• Restructuring charges totaling about $0.10 to $0.15 per diluted share. About $0.08 per diluted share of the expected charges were incurred during the first nine months of 2009; and

• A full year 2009 effective tax rate of 26% to 27%.

Sales
Our current market assumptions, for each of our major market channels, for the full year 2009 outlook, compared with the full year 2008, include the following:
• Large commercial airplane original equipment sales are expected to increase slightly;

. . .