UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

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

OR

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

For the transition period from                      to                     

GOODRICH CORPORATION

New York		34-0252680
(State of Incorporation)		(I.R.S. Employer Identification No.)
Four Coliseum Centre
2730 West Tyvola Road
Charlotte, North Carolina		28217
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (704) 423-7000

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 þ No o

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 (Section 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 þ No o

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. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(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 o No þ

At September 30, 2010, there were 125,375,457 shares of common stock outstanding (excluding 14,000,000 shares held by a wholly owned subsidiary). There is only one class of common stock.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			63
Item 4. Controls and Procedures			63
PART II. OTHER INFORMATION			64
Item 1. Legal Proceedings			64
Item 1A. Risk Factors			64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			65
Item 6. Exhibits			66
SIGNATURE			67
EXHIBIT INDEX			68
EX-15
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have reviewed the condensed consolidated balance sheet of Goodrich Corporation as of September 30, 2010, and the related condensed consolidated statements of income for the three and nine-month periods ended September 30, 2010 and 2009, and the condensed consolidated statements of cash flows for the nine-month period ended September 30, 2010 and 2009. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Goodrich Corporation as of December 31, 2009, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, not presented herein; and in our report dated February 16, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Charlotte, North Carolina
October 21, 2010

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(Dollars in millions, except per share amounts)
Sales		$	1,748.0			$	1,647.7			$	5,160.7			$	5,043.3
Operating costs and expenses:
Cost of sales			1,206.9				1,169.2				3,584.1				3,553.2
Selling and administrative costs			280.0				249.6				819.2				752.0
			1,486.9				1,418.8				4,403.3				4,305.2
Operating Income			261.1				228.9				757.4				738.1
Interest expense			(34.9	)			(30.7	)			(102.0	)			(90.2	)
Interest income			0.4				0.3				0.8				1.0
Other income (expense) — net			(3.6	)			(7.9	)			(14.4	)			(18.7	)
Income from continuing operations before income taxes			223.0				190.6				641.8				630.2
Income tax expense			(61.7	)			(45.7	)			(206.6	)			(162.4	)
Income From Continuing Operations			161.3				144.9				435.2				467.8
Income from discontinued operations — net of income taxes			0.1				3.3				1.4				35.0
Consolidated Net Income			161.4				148.2				436.6				502.8
Net income attributable to noncontrolling interests			(1.2	)			(2.8	)			(6.2	)			(10.5	)
Net Income Attributable to Goodrich		$	160.2			$	145.4			$	430.4			$	492.3
Amounts Attributable to Goodrich:
Income from continuing operations		$	160.1			$	142.1			$	429.0			$	457.3
Income from discontinued operations — net of income taxes			0.1				3.3				1.4				35.0
Net Income Attributable to Goodrich		$	160.2			$	145.4			$	430.4			$	492.3
Earnings per common share attributable to Goodrich:
Basic Earnings Per Share
Continuing operations		$	1.26			$	1.13			$	3.38			$	3.64
Discontinued operations			—				0.02				0.01				0.28
Net Income Attributable to Goodrich		$	1.26			$	1.15			$	3.39			$	3.92
Diluted Earnings Per Share
Continuing operations		$	1.25			$	1.12			$	3.35			$	3.61
Discontinued operations			—				0.02				0.01				0.27
Net Income Attributable to Goodrich		$	1.25			$	1.14			$	3.36			$	3.88
Dividends Declared Per Common Share		$	0.27			$	0.25			$	0.81			$	0.75

See Notes to Condensed Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

		September 30,				December 31,
		2010				2009
		(Dollars in millions,
		except share amounts)
Current Assets
Cash and cash equivalents		$	1,351.3			$	811.0
Accounts and notes receivable, less allowances for doubtful receivables ($18.2 at September 30, 2010 and $18 at December 31, 2009)			1,195.9				1,073.2
Inventories — net			2,358.3				2,290.4
Deferred income taxes			167.8				165.2
Prepaid expenses and other assets			55.6				59.6
Income taxes receivable			—				15.0
Total Current Assets			5,128.9				4,414.4
Property, plant and equipment — net			1,437.6				1,451.2
Prepaid pension			1.0				0.8
Goodwill			1,763.0				1,587.0
Identifiable intangible assets — net			689.4				633.2
Deferred income taxes			17.1				16.7
Other assets			627.0				638.1
Total Assets		$	9,664.0			$	8,741.4
Current Liabilities
Short-term debt		$	12.0			$	3.1
Accounts payable			581.2				547.8
Accrued expenses			977.7				1,037.4
Income taxes payable			48.2				0.5
Deferred income taxes			24.1				23.8
Current maturities of long-term debt and capital lease obligations			262.1				0.5
Total Current Liabilities			1,905.3				1,613.1
Long-term debt and capital lease obligations			2,353.0				2,008.1
Pension obligations			801.5				908.7
Postretirement benefits other than pensions			291.1				301.1
Long-term income taxes payable			171.1				171.1
Deferred income taxes			296.2				257.2
Other non-current liabilities			501.4				514.5
Shareholders’ Equity
Common stock — $5 par value
Authorized 200,000,000 shares; issued 147,530,374 shares at September 30, 2010 and 145,241,995 shares at December 31, 2009 (excluding 14,000,000 shares held by a wholly owned subsidiary)			737.7				726.2
Additional paid-in capital			1,705.9				1,597.0
Income retained in the business			2,415.6				2,088.0
Accumulated other comprehensive income (loss)			(651.9	)			(673.2	)
Common stock held in treasury, at cost (22,154,917 shares at September 30, 2010 and 20,854,137 shares at December 31, 2009)			(903.8	)			(817.0	)
Total Shareholders’ Equity			3,303.5				2,921.0
Noncontrolling interests			40.9				46.6
Total Equity			3,344.4				2,967.6
Total Liabilities And Equity		$	9,664.0			$	8,741.4

See Notes to Condensed Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

		Nine Months Ended
		September 30,
		2010				2009
		(Dollars in millions)
Operating Activities
Consolidated net income		$	436.6			$	502.8
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Income from discontinued operations			(1.4	)			(35.0	)
Pension and postretirement benefits:
Expenses			135.2				149.1
Contributions and benefit payments			(151.2	)			(200.1	)
Depreciation and amortization			205.1				185.1
Excess tax benefits related to share-based payment arrangements			(15.5	)			(3.3	)
Share-based compensation expense			54.2				45.1
Deferred income taxes			(2.0	)			12.1
Change in assets and liabilities, net of effects of acquisitions and divestitures:
Receivables			(108.9	)			(44.1	)
Inventories, net of pre-production and excess-over-average			(12.9	)			(28.0	)
Pre-production and excess-over-average inventories			(73.3	)			(124.9	)
Other current assets			(3.4	)			1.0
Accounts payable			40.7				(99.8	)
Accrued expenses			9.2				(53.9	)
Income taxes payable/receivable			78.0				135.7
Other assets and liabilities			(85.0	)			(14.8	)
Net Cash Provided By Operating Activities			505.4				427.0
Investing Activities
Purchases of property, plant and equipment			(99.6	)			(115.0	)
Proceeds from sale of property, plant and equipment			0.9				1.3
Payments made for acquisitions, net of cash acquired			(342.6	)			(29.9	)
Investments in and advances to equity investees			(1.5	)			(1.5	)
Net Cash Used In Investing Activities			(442.8	)			(145.1	)
Financing Activities
Increase (decrease) in short-term debt, net			8.9				(1.5	)
Proceeds (repayments) of long-term debt and capital lease obligations			598.2				177.4
Proceeds from issuance of common stock			64.9				26.4
Purchases of treasury stock			(86.8	)			(7.8	)
Dividends paid			(102.6	)			(94.1	)
Excess tax benefits related to share-based payment arrangements			15.5				3.3
Distributions to noncontrolling interests			(11.9	)			(7.8	)
Net Cash Provided By (Used In) Financing Activities			486.2				95.9
Discontinued Operations
Net cash (used in) provided by operating activities			(0.6	)			34.2
Net cash (used in) provided by investing activities			—				—
Net cash (used in) provided by financing activities			—				—
Net cash (used in) provided by discontinued operations			(0.6	)			34.2
Effect of exchange rate changes on cash and cash equivalents			(7.9	)			7.3
Net increase (decrease) in cash and cash equivalents			540.3				419.3
Cash and cash equivalents at beginning of period			811.0				370.3
Cash and cash equivalents at end of period		$	1,351.3			$	789.6

See Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Basis of Interim Financial Statement Preparation and Use of Estimates

The accompanying unaudited condensed consolidated financial statements of Goodrich Corporation and its subsidiaries have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Goodrich” or “Company” refer to Goodrich Corporation and its subsidiaries. The Company believes that all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts in prior year financial statements have been reclassified to conform to the current year presentation. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be achieved for the twelve months ending December 31, 2010. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Discontinued Operations. Net income from discontinued operations was $0.1 million and $1.4 million for the three and nine months ended September 30, 2010, respectively. Income from discontinued operations was $3.3 million (net of income taxes of $1.9 million) and $35 million (net of income taxes of $20.8 million) for the three and nine months ended September 30, 2009, respectively. The income in the three and nine month periods of 2009 related primarily to the resolution of litigation for an environmental matter at a divested business that had been previously reported as a discontinued operation and favorable resolution of other divestiture liabilities.

Use of Estimates. The preparation of financial statements requires management to make estimates and assumptions that affect amounts recognized. Estimates and assumptions are reviewed and updated regularly as new information becomes available. During the three and nine months ended September 30, 2010 and 2009, the Company changed its estimates of revenues and costs on certain long-term contracts primarily in its aerostructures and aircraft wheels and brakes businesses. The changes in estimates increased income from continuing operations before income taxes during the three months ended September 30, 2010 and 2009 by $22.2 million and $12.6 million, respectively ($13.9 million and $7.9 million after tax, or $0.11 and $0.06 per diluted share, respectively). The changes in estimates increased income from continuing operations before income taxes during the nine months ended September 30, 2010 and 2009 by $71 million and $26.1 million, respectively ($44.5 million and $16.3 million after tax, or $0.35 and $0.13 per diluted share, respectively). These revisions were primarily related to favorable cost and operational performance, changes in volume expectations and sales pricing improvements and finalization of contract terms on current and/or follow-on contracts.

Note 2. New Accounting Standards Adopted in 2010

Variable Interest Entities

On January 1, 2010, the Company adopted new accounting guidance that is included in Accounting Standards Codification (ASC) Topic 810, “Consolidation”. This guidance amends the consolidation guidance applicable to variable interest entities. This standard did not have a material impact on the Company’s financial condition and results of operations.

Fair Value Measurements

On January 1, 2010, the Company adopted new accounting guidance that is included in ASC Topic 820, “Fair Value Measurements and Disclosures”. This guidance requires the Company to disclose the amount of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers and the reasons for any transfers in or out of Level 3 of the fair value hierarchy. In addition, the guidance clarifies certain existing disclosure requirements. This standard did not have a material impact on the Company’s disclosures in its condensed consolidated financial statements. See Note 7, “Fair Value Measurements”.

Note 3. Business Segment Information

The Company’s business segments are as follows:

	•		The Actuation and Landing Systems segment provides systems, components and related services pertaining to aircraft taxi, take-off, flight control, landing and stopping, and engine components, including fuel delivery systems and rotating assemblies.
	•		The Nacelles and Interior Systems segment produces products and provides maintenance, repair and overhaul services associated with aircraft engines, including thrust reversers, cowlings, nozzles and their components, and aircraft interior products, including slides, seats, cargo and lighting systems.
	•		The Electronic Systems segment produces a wide array of systems and components that provide flight performance measurements, flight management, fuel controls, electrical systems, control and safety data, reconnaissance and surveillance systems and precision guidance systems.

The Company measures each reporting segment’s profit based upon operating income. Accordingly, the Company does not allocate net interest expense, other income (expense) — net and income taxes to its reporting segments. The company-wide Enterprise Resource Planning (ERP) costs that are not directly associated with a specific business were not allocated to the segments. The accounting policies of the reportable segments are the same as those for the Company’s condensed consolidated financial statements.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(Dollars in millions)
Sales:
Actuation and Landing Systems		$	631.1			$	629.3			$	1,852.3			$	1,879.2
Nacelles and Interior Systems			582.7				561.8				1,715.9				1,789.2
Electronic Systems			534.2				456.6				1,592.5				1,374.9
		$	1,748.0			$	1,647.7			$	5,160.7			$	5,043.3
Intersegment sales:
Actuation and Landing Systems		$	8.1			$	6.7			$	22.9			$	20.4
Nacelles and Interior Systems			2.5				2.6				7.2				6.6
Electronic Systems			8.0				8.1				20.7				24.0
		$	18.6			$	17.4			$	50.8			$	51.0
Operating income:
Actuation and Landing Systems		$	79.5			$	59.7			$	209.4			$	198.6
Nacelles and Interior Systems			136.8				130.8				407.0				414.7
Electronic Systems			86.3				70.4				252.2				211.4
			302.6				260.9				868.6				824.7
Corporate general and administrative expenses			(37.9	)			(28.0	)			(99.5	)			(75.2	)
ERP costs			(3.6	)			(4.0	)			(11.7	)			(11.4	)
Total operating income		$	261.1			$	228.9			$	757.4			$	738.1

Note 4. Other Income (Expense) — Net

Other Income (Expense) — Net consisted of the following:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(Dollars in millions)
Retiree health care expenses related to previously owned businesses		$	(2.6	)		$	(3.0	)		$	(7.9	)		$	(9.1	)
Expenses related to previously owned businesses			(0.9	)			(1.2	)			(5.2	)			(3.4	)
Equity in affiliated companies			(0.4	)			(4.3	)			(1.2	)			(6.3	)
Other — net			0.3				0.6				(0.1	)			0.1
Other income (expense) — net		$	(3.6	)		$	(7.9	)		$	(14.4	)		$	(18.7	)

Note 5. Share-Based Compensation

During the three and nine months ended September 30, 2010 and 2009, the Company expensed share-based compensation awards under the Goodrich Equity Compensation Plan and the Goodrich Corporation 2008 Global Employee Stock Purchase Plan for employees and under the Outside Director Deferral and Outside Director Phantom Share plans for non-employee directors. A detailed description of the awards under these plans is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

The compensation cost recorded for share-based compensation plans during the three months ended September 30, 2010 and 2009 was $21 million and $13.5 million, respectively. The increase from 2009 to 2010 was primarily due to changes in the Company’s share price for the Performance Units and Outside Director Phantom Share plans and a higher grant date fair value for the Restricted Stock Units and Stock Option plans. The compensation cost recorded for share-based compensation plans during the nine months ended September 30, 2010 and 2009 was $54.2 million and $45.1 million, respectively. The increase from 2009 to 2010 was primarily due to a higher grant date fair value for the Restricted Stock Units and Stock Option plans, partially offset by changes in the Company’s share price for the Performance Units and Outside Director Phantom Share plans.

Note 6. Earnings Per Share

The computation of basic and diluted earnings per share (EPS) for income from continuing operations is as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(In millions, except per share amounts)
Numerator
Numerator for basic and diluted earnings per common share — income from continuing operations attributable to Goodrich		$	160.1			$	142.1			$	429.0			$	457.3
Percentage allocated to common shareholders (1)			98.6	%			98.6	%			98.6	%			98.6	%
Numerator for basic and diluted earnings per common share		$	157.8			$	140.0			$	423.0			$	450.8
Denominator
Denominator for basic earnings per common share — weighted-average shares			125.3				124.1				125.2				124.0
Effect of dilutive securities:
Stock options, employee stock purchase plan and other deferred compensation shares			1.1				1.4				1.2				1.0
Denominator for diluted earnings per common share — adjusted weighted-average shares and assumed conversion			126.4				125.5				126.4				125.0
Per common share income from continuing operations
Basic		$	1.26			$	1.13			$	3.38			$	3.64
Diluted		$	1.25			$	1.12			$	3.35			$	3.61
(1) Basic weighted-average common shares outstanding			125.3				124.1				125.2				124.0
Basic weighted-average common shares outstanding and unvested restricted share units expected to vest			127.1				125.9				127.0				125.7
Percentage allocated to common shareholders			98.6	%			98.6	%			98.6	%			98.6	%

The Company’s unvested restricted share units contain rights to receive nonforfeitable dividend equivalents, and thus, are participating securities requiring the two-class method of computing EPS. The calculation of EPS for common stock shown above excludes the income attributable to the unvested restricted share units from the numerator and excludes the dilutive impact of those units from the denominator.

At September 30, 2010 and 2009, the Company had 3.9 million and 4.9 million, respectively, of outstanding stock options. Outstanding stock options are included in the diluted earnings per share calculation using the treasury stock method, unless the effect of including the stock options would be anti-dilutive. For the nine months ended September 30, 2010 and 2009, 0.7 million and 0.9 million anti-dilutive stock options, respectively, were excluded from the diluted EPS calculation.

During the nine months ended September 30, 2010 and 2009, the Company issued 2.3 million and 1.3 million, respectively, of shares of common stock pursuant to stock option exercises and other share-based compensation plans.

The Company’s share repurchase program was initially approved by the Board of Directors on October 24, 2006 and increased by the Board of Directors on February 19, 2008, for $600 million in total. During the nine months ended September 30, 2010, the Company repurchased 1.1 million shares. During the nine months ended September 30, 2009, there were no share repurchases. From inception of the program through September 30, 2010, the Company has repurchased 7.8 million shares for $444.4 million under its share repurchase program.

Note 7. Fair Value Measurements

The Company defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following three levels of inputs are used to measure fair value:

Level 1 —		quoted prices in active markets for identical assets and liabilities.
Level 2 —		observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 —		unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The Company’s financial assets and (liabilities) measured at fair value on a recurring basis were, in millions, as follows:

		Fair Value																Fair Value
		September 30,																December 31,
		2010				Level 1				Level 2				Level 3				2009				Level 1				Level 2				Level 3
		(Dollars in millions)
Cash Equivalents (1)		$	1,161.9			$	1,161.9			$	—			$	—			$	470.1			$	470.1			$	—			$	—
Derivative Financial Instruments (2)
Cash Flow Hedges			29.5				—				29.5				—				56.8				—				56.8				—
Other Forward Contracts			(0.8	)			—				(0.8	)			—				(2.5	)			—				(2.5	)			—
Rabbi Trust Assets (3)			50.9				50.9				—				—				45.0				45.0				—				—
Long-term debt (4)			(2,999.3	)			—				(2,999.3	)			—				(2,144.0	)			—				(2,144.0	)			—

Note 8. Inventories

Inventories consist of the following:

		September 30,				December 31,
		2010				2009
		(Dollars in millions)
Average or actual cost (which approximates current costs):
Finished products		$	220.0			$	225.6
In-process			1,754.5				1,485.6
Raw materials and supplies			699.0				667.6
			2,673.5				2,378.8
Less:
Reserve to reduce certain inventories to LIFO basis			(53.0	)			(51.5	)
Progress payments and advances			(262.2	)			(36.9	)
Total		$	2,358.3			$	2,290.4

In-process inventory included $1,045.8 million and $827.7 million at September 30, 2010 and December 31, 2009, respectively, for the following: (1) pre-production and excess-over-average inventory accounted for under long-term contract accounting; and (2) engineering costs with a guaranteed right of recovery. The September 30, 2010 balance of $1,045.8 million included $517.7 million related to the Boeing 787 and $211.8 million related to the Airbus A350 XWB programs and $121.8 million related to the Pratt and Whitney PurePower™ PW 1000G engine contracts.

Progress payments and advances represent non-refundable payments for work-in-process and cash received from government customers where the government has legal title to the work-in-process.

The Company uses the last-in, first-out (LIFO) method of valuing inventory for certain of the Company’s legacy aerospace manufacturing businesses, primarily the aircraft wheels and brakes business in the Actuation and Landing Systems segment. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time.

Note 9. Goodwill

The changes in the carrying amount of goodwill by segment were as follows:

										Foreign
		Balance								Currency				Balance
		December 31,				Business				Translation/				September 30,
		2009				Combinations				Other				2010
		(Dollars in millions)
Actuation and Landing Systems(1)		$	302.6			$	30.6			$	(3.8	)		$	329.4
Nacelles and Interior Systems(2)			441.2				153.1				(2.4	)			591.9
Electronic Systems(3)			843.2				—				(1.5	)			841.7
		$	1,587.0			$	183.7			$	(7.7	)		$	1,763.0

Note 10. Financing Arrangements

The Company has a $500 million committed global syndicated revolving credit facility, which expires in May 2012. Interest rates under this facility vary depending upon:

	•		The amount borrowed;
	•		The Company’s public debt rating by Standard & Poor’s, Moody’s and Fitch; and
	•		At the Company’s option, rates tied to the agent bank’s prime rate or, for U.S. Dollar and Great Britain Pounds Sterling borrowings, the London Interbank Offered Rate and for Euro Dollar borrowings, the Euro Interbank Offered Rate.

At September 30, 2010, there were no borrowings and $66.6 million in letters of credit outstanding under the facility. At December 31, 2009, there were no borrowings and $68 million in letters of credit outstanding under the facility. The level of unused borrowing capacity varies from time to time depending, in part, upon the Company’s compliance with financial and other covenants set forth in the related agreement, including the consolidated net worth requirement and maximum leverage ratio. The Company is currently in compliance with all such covenants. Under the most restrictive of these covenants, $2,084.7 million of income retained in the business and additional paid-in capital was free from such limitations at September 30, 2010. At September 30, 2010, the Company had borrowing capacity under this facility of $433.4 million, after reductions for letters of credit outstanding under the facility.

At September 30, 2010, the Company had letters of credit and bank guarantees of $120.2 million, inclusive of $66.6 million in letters of credit outstanding under the Company’s syndicated revolving credit facility, as discussed above.

At September 30, 2010, the Company also maintained $75 million of uncommitted U.S. money market facilities and $157.5 million of uncommitted and committed foreign working capital facilities with various banks to meet short-term borrowing requirements. At September 30, 2010 and December 31, 2009, there were $12 million and $3.1 million, respectively, in borrowings and $20.5 million and $0.3 million, respectively, in letters of credit and bank guarantees outstanding under these facilities. These credit facilities are provided by a small number of commercial banks that also provide the Company with committed credit through the syndicated revolving credit facility described above and with various cash management, trust and other services.

In September 2010, the Company issued $600 million principal amount of 3.6% senior notes due in 2021, which were issued at a discount below par value of $1.3 million. The Company entered into $600 million of hedges to offset changes in the issue price of the senior notes due to movements in treasury rates prior to the issuance. The Company paid $1.8 million in cash to settle the hedges, and the amount was recorded in accumulated other comprehensive income (loss) (AOCI) during the three months ended September 30, 2010. In addition, the Company deferred approximately $5 million of transaction costs. The discount, the amount paid to settle the hedges and the deferred transactions costs will be amortized over the life of the senior notes.

Debt Redemption

In September 2010, the Company called for redemption all of its outstanding $257,460,000 principal amount 7.625% senior notes due 2012 and the senior notes were redeemed on October 12, 2010. The Company will recognize a loss of $34.9 million, including a premium of $37.4 million and a gain of $2.5 million for terminated interest rate swaps net of the recognition of unamortized costs related to the notes, in the fourth quarter of 2010.

Lease Commitments

The Company leases certain of its office and manufacturing facilities, machinery and equipment and corporate aircraft under various committed lease arrangements provided by financial institutions. Future minimum lease payments under operating leases were $182.6 million at September 30, 2010.

One of these arrangements allows the Company, rather than the lessor, to claim a deduction for tax depreciation on the asset and allows the Company to lease a corporate aircraft with a total commitment amount of $43.8 million. For accounting purposes, the Company was deemed to be the owner of the aircraft during the construction period and recorded an asset with an offsetting lease obligation of approximately $32 million. This lease will qualify for sales-leaseback treatment upon lease commencement in 2011 and will be priced at a spread over LIBOR.

Note 11. Pensions and Postretirement Benefits Other Than Pensions

The following table sets forth the components of net periodic benefit cost and the weighted-average assumptions used to determine the net periodic benefit cost. The net periodic benefit cost for divested or discontinued operations retained by the Company is included in the amounts below:

		U.S. Plans								U.K. Plans								Other Plans
		Three Months Ended								Three Months Ended								Three Months Ended
		September 30,								September 30,								September 30,
		2010				2009				2010				2009				2010				2009
		(Dollars in millions)
Service cost		$	11.6			$	10.8			$	3.9			$	4.2			$	1.2			$	1.1
Interest cost			42.1				43.0				9.7				9.7				1.8				1.7
Expected return on plan assets			(46.9	)			(43.6	)			(13.2	)			(11.2	)			(1.7	)			(1.3	)
Amortization of prior service cost			1.8				1.8				(0.1	)			(0.1	)			—				0.2
Amortization of actuarial loss			29.2				26.3				0.7				1.9				0.3				0.3
Net periodic benefit cost			37.8				38.3				1.0				4.5				1.6				2.0
Settlement (gain) loss			—				—				—				—				—				—
Special termination benefit charge			—				—				0.1				1.0				—				—
Total benefit cost		$	37.8			$	38.3			$	1.1			$	5.5			$	1.6			$	2.0

		U.S. Plans								U.K. Plans								Other Plans
		Nine Months Ended								Nine Months Ended								Nine Months Ended
		September 30,								September 30,								September 30,
		2010				2009				2010				2009				2010				2009
		(Dollars in millions)
Service cost		$	34.7			$	32.2			$	11.6			$	11.8			$	3.6			$	2.9
Interest cost			126.4				128.9				29.0				27.5				5.3				4.9
Expected return on plan assets			(140.7	)			(130.7	)			(39.1	)			(31.5	)			(5.2	)			(3.8	)
Amortization of prior service cost			5.3				5.5				(0.4	)			(0.4	)			0.1				0.6
Amortization of actuarial loss			87.6				78.9				2.0				5.4				1.1				0.9
Net periodic benefit cost			113.3				114.8				3.1				12.8				4.9				5.5
Settlement (gain) loss			—				—				—				—				—				(0.4	)
Special termination benefit charge			—				—				0.1				1.0				—				—
Total benefit cost		$	113.3			$	114.8			$	3.2			$	13.8			$	4.9			$	5.1

The following table provides the weighted-average assumptions used to determine the net periodic benefit cost.

		U.S. Plans								U.K. Plans								Other Plans
		Three and Nine Months								Three and Nine Months								Three and Nine Months
		Ended September 30,								Ended September 30,								Ended September 30,
		2010				2009				2010				2009				2010				2009
Discount rate			5.90	%			6.47	%			5.88	%			5.88	%			5.75	%			6.17	%
Expected long-term rate of return on assets			8.75	%			8.75	%			8.50	%			8.50	%			8.32	%			8.12	%
Rate of compensation increase			4.10	%			4.10	%			3.75	%			3.75	%			3.38	%			3.31	%

As of September 30, 2010, the Company contributed $131 million to its worldwide qualified and non-qualified pension plans. The Company now expects to contribute a total of approximately $450 million to these plans in 2010.

Postretirement Benefits Other Than Pensions

The following table sets forth the components of net periodic postretirement benefit cost. Other postretirement benefits (OPEB) related to the divested and discontinued operations retained by the Company are included in the amounts below.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(Dollars in millions)
Service cost		$	0.2			$	0.4			$	0.8			$	1.1
Interest cost			4.4				4.8				13.1				14.5
Amortization of prior service cost			—				(0.1	)			(0.1	)			(0.2	)
Amortization of actuarial (gain) loss			—				—				—				—
Net periodic benefit cost		$	4.6			$	5.1			$	13.8			$	15.4

The following table provides the assumptions used to determine the net periodic postretirement benefit cost.

		Three and Nine Months Ended September 30,
		2010				2009
Discount rate			5.55	%			6.38	%
Healthcare trend rate		7.3% in 2010 to 5% in 2015				7.8% in 2009 to 5% in 2015

Note 12. Comprehensive Income (Loss)

Total comprehensive income (loss) consisted of the following:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(Dollars in millions)
Net income attributable to Goodrich		$	160.2			$	145.4			$	430.4			$	492.3
Other comprehensive income (loss):
Unrealized foreign currency translation gains (losses) during period			97.2				33.0				(30.8	)			117.0
Pension/OPEB liability adjustments during the period, net of tax for the three and nine months ended September 30, 2010 of ($11.7) and ($37.5), respectively; net of tax for the three and nine months ended September 30, 2009 of ($12.5) and $10, respectively			19.7				20.4				64.7				80.7
Gain (loss) on cash flow hedges, net of tax for the three and nine months ended September 30, 2010 of ($37.7) and $6.6, respectively; net of tax for the three and nine months ended September 30, 2009 of ($18.4) and ($72.9), respectively			75.9				40.0				(12.6	)			141.6
Total comprehensive income (loss)		$	353.0			$	238.8			$	451.7			$	831.6

Accumulated other comprehensive income (loss) consisted of the following:

		September 30,				December 31,
		2010				2009
		(Dollars in millions)
Cumulative unrealized foreign currency translation gains (losses)		$	140.0			$	170.8
Pension/OPEB liability adjustments, net of deferred taxes of $486.7 and $524.2, respectively			(803.6	)			(868.3	)
Accumulated gains (losses) on cash flow hedges, net of deferred taxes of ($4) and ($10.6), respectively			11.7				24.3
Total accumulated other comprehensive income (loss)		$	(651.9	)		$	(673.2	)

During 2009, $1.9 million of deferred tax liabilities were established for earnings that are expected to be repatriated to the U.S. No other income taxes are provided on foreign currency translation gains (losses) for comprehensive income (loss) and accumulated other comprehensive income (loss) as foreign earnings are considered permanently invested.

Note 13. Noncontrolling Interests

The changes in the Company’s noncontrolling interests were as follows:

		Nine months ended
		September 30,
		2010				2009
		(Dollars in millions)
Balance at January 1		$	46.6			$	60.9
Distributions to noncontrolling interests			(11.9	)			(7.8	)
Comprehensive income:
Net income attributable to noncontrolling interests			6.2				10.5
Other comprehensive income, net of tax			—				—
Comprehensive income			6.2				10.5
Balance at September 30		$	40.9			$	63.6

Note 14. Income Taxes

The Company’s effective tax rate for the three months ended September 30, 2010 was 27.7%. Significant items that impacted the Company’s effective tax rate as compared to the U.S. federal statutory rate of 35% included a tax benefit related to the favorable resolution of U.S. federal tax legislation uncertainties existing at the acquisition date of CTG which reduced the effective tax rate by approximately 4 percentage points, earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate which reduced the effective tax rate by approximately 3 percentage points, foreign and domestic tax credits and benefits related to domestic manufacturing which reduced the effective tax rate by approximately 5 percentage points, deemed repatriation of non-U.S. earnings which increased the effective tax rate by approximately 1 percentage point, state income taxes (net of related federal tax benefit) which increased the effective tax rate by approximately 1 percentage point and adjustments to reserves for tax contingencies, including interest thereon (net of related tax benefit), which increased the effective tax rate by approximately 2 percentage points.

The Company’s effective tax rate for the three months ended September 30, 2009 was 24%. Significant items that impacted the Company’s effective tax rate as compared to the U.S. federal statutory rate of 35% included foreign and domestic tax credits which reduced the effective tax rate by approximately 8 percentage points, earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate which reduced the effective tax rate by approximately 4 percentage points and state income taxes (net of related federal tax benefit) which increased the effective tax rate by approximately 2 percentage points.

For the nine months ended September 30, 2010, the Company reported an effective tax rate of 32.2%, including a charge of approximately $10 million due to the enactment of health care reform legislation in the U.S., which increased the effective tax rate by approximately 2 percentage points and domestic tax credits and benefits related to domestic manufacturing which reduced the effective tax rate by approximately 3 percentage points. For the nine months ended September 30, 2009, the Company reported an effective tax rate of 25.8%, including domestic tax credits which reduced the effective tax rate by approximately 5 percentage points and benefits from an adjustment to state taxes which reduced the effective tax rate by approximately 2 percentage points.

At September 30, 2010, the Company had a $308.9 million liability recorded for unrecognized tax benefits, which included interest and penalties of $153.2 million. The total amount of unrecognized benefits that, if recognized, would have affected the effective tax rate was $233 million. At December 31, 2009, the Company had a $286.6 million liability recorded for unrecognized tax benefits, which included interest and penalties of $148.6 million. The total amount of unrecognized benefits that, if recognized, would have affected the effective tax rate was $210.3 million. The Company reported interest and penalties related to unrecognized tax benefits in income tax expense.

Note 15. Contingencies

General

There are various pending or threatened claims, lawsuits and administrative proceedings against the Company or its subsidiaries, arising from the ordinary course of business, which seek remedies or damages. Although no assurance can be given with respect to the ultimate outcome of these matters, the Company believes that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on its consolidated financial position, results of operations or cash flows. Legal costs are expensed as incurred.

Environmental

The Company is subject to environmental laws and regulations which may require that the Company investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. At certain sites, the Company has been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under applicable laws.

Estimates of the Company’s environmental liabilities are based on current facts, laws, regulations and technology. These estimates take into consideration the Company’s prior experience and professional judgment of the Company’s environmental specialists. Estimates of the Company’s environmental liabilities are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and cost estimates, the extent of corrective actions that may be required and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation.

Accordingly, as investigation and remediation proceed, it is likely that adjustments in the Company’s accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company’s results of operations or cash flows in a given period. Based on currently available information, however, the Company does not believe that future environmental costs in excess of those accrued with respect to sites for which the Company has been identified as a potentially responsible party are likely to have a material adverse effect on the Company’s financial condition.

Environmental liabilities are recorded when the liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when the Company has recommended a remedy or has committed to an appropriate plan of action. The liabilities are reviewed periodically and, as investigation and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation and anticipated expenditures are not discounted to their present value. The liabilities are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites, third party indemnity obligations, and an assessment of the likelihood that such parties will fulfill their obligations at such sites.

The Company’s condensed consolidated balance sheet included an accrued liability for environmental remediation obligations of $69.1 million and $66.1 million at September 30, 2010 and December 31, 2009, respectively. At September 30, 2010 and December 31, 2009, $15.7 million and $11.3 million, respectively, of the accrued liability for environmental remediation were included as accrued expenses. At September 30, 2010 and December 31, 2009, $28.4 million and $25.3 million, respectively, was associated with ongoing operations and $40.7 million and $40.8 million, respectively, was associated with previously owned businesses.

The Company expects that it will expend present accruals over many years, and will generally complete remediation in less than 30 years at sites for which it has been identified as a potentially responsible party. This period includes operation and monitoring costs that are generally incurred over 15 to 25 years. Recently, certain states in the U.S. and countries globally are promulgating or proposing new or more demanding regulations or legislation impacting the use of various chemical substances by all companies. The Company is currently evaluating the potential impact, if any, of complying with such regulations and legislation.

Asbestos

The Company and some of its subsidiaries have been named as defendants in various actions by plaintiffs alleging damages as a result of exposure to asbestos fibers in products or at its facilities. A number of these cases involve maritime claims, which have been and are expected to continue to be administratively dismissed by the court. The Company believes that pending and reasonably anticipated future actions are not likely to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. There can be no assurance, however, that future legislative or other developments will not have a material adverse effect on the Company’s results of operations and cash flows in a given period.

Insurance Coverage

The Company maintains a comprehensive portfolio of insurance policies, including aviation products liability insurance which covers most of its products. The aviation products liability insurance typically provides first dollar coverage for defense and indemnity of third party claims.

A portion of the Company’s primary and excess layers of pre-1986 insurance coverage for third party claims was provided by certain insurance carriers who are either insolvent, undergoing solvent schemes of arrangement or in run-off. The Company has entered into settlement agreements with a number of these insurers pursuant to which the Company agreed to give up its rights with respect to certain insurance policies in exchange for negotiated payments. These settlements represent negotiated payments for the Company’s loss of insurance coverage, as it no longer has this insurance available for claims that may have qualified for coverage. A portion of these settlements was recorded as income for reimbursement of past claim payments under the settled insurance policies and a portion was recorded as a deferred settlement credit for future claim payments.

At September 30, 2010 and December 31, 2009, the deferred settlement credit was $46.7 million and $45 million, respectively, for which $6 million and $6.1 million, respectively, was reported in accrued expenses and $40.7 million and $38.9 million, respectively, was reported in other non-current liabilities. The proceeds from such insurance settlements were reported as a component of net cash provided by operating activities in the period payments were received.

Liabilities of Divested Businesses

In connection with the divestitures of the Company’s tire, vinyl, engineered industrial products and other businesses, the Company has received contractual rights of indemnification from third parties for environmental, asbestos and other claims arising out of the divested businesses. Failure of these third parties to honor their indemnification obligations could have a material adverse effect on the Company’s results of operations and cash flows.

Aerostructures Long-term Contracts

The Company’s aerostructures business in the Nacelles and Interior Systems segment has several long-term contracts in the pre-production phase including the Airbus A350 XWB and the Pratt and Whitney PurePower™ PW 1000G engine contracts and the early production phase including the Boeing 787. These contracts are accounted for in accordance with long-term construction contract accounting.

The pre-production phase includes design of the product to meet customer specifications as well as design of the processes to manufacture the product. Also involved in this phase is securing the supply of material and subcomponents produced by third party suppliers that are generally accomplished through long-term supply agreements.

Contracts in the early production phase include excess-over-average inventories, which represent the excess of current manufactured cost over the estimated average manufactured cost during the life of the contract.

Cost estimates over the lives of contracts are affected by estimates of future cost reductions including learning curve efficiencies. Because these contracts cover manufacturing periods of up to 20 years or more, there is risk associated with the estimates of future costs made during the pre-production and early production phases. These estimates may be different from actual costs due to various factors, including the following:

	•		Ability to recover costs incurred for change orders and claims;
	•		Costs, including material and labor costs and related escalation;
	•		Labor improvements due to the learning curve experience;
	•		Anticipated cost productivity improvements related to new manufacturing methods and processes;

	•		Supplier pricing, including escalation where applicable, potential supplier claims, the supplier’s financial viability and the supplier’s ability to perform;
	•		The cost impact of product design changes that frequently occur during the flight test and certification phases of a program; and
	•		Effect of foreign currency exchange fluctuations.

Additionally, total contract revenue is based on estimates of future units to be delivered to the customer, the ability to recover costs incurred for change orders and claims and sales price escalation, where applicable. There is a risk that there could be differences between the actual units delivered and the estimated total units to be delivered under the contract and differences in actual revenues compared to estimates. Changes in estimates could have a material impact on the Company’s results of operations and cash flows.

Provisions for estimated losses on uncompleted contracts are recorded in the period such losses are determined to the extent total estimated costs exceed total estimated contract revenues.

Aerostructures 787 Contract with Boeing

During 2004, the Company’s aerostructures business entered into a long-term contract with Boeing on the 787 program. The Company’s latest outlook estimates original equipment sales in excess of $5 billion for this contract. Aftermarket sales associated with this program are not accounted for using the percentage-of-completion method of accounting.

The Boeing 787 program experienced delays in its development schedule. Boeing requested changes and enhancements in the design of the Company’s product. Under the terms of the Company’s contract, the Company was entitled to equitable adjustments. In accordance with these provisions, the Company asserted adjustments that were material. During 2010, the Company and Boeing finalized an agreement that resolved the assertions. The financial terms of the agreement were consistent with the Company’s outlook and did not have a material effect on the Company’s financial position, results of operations and/or cash flows.

JSTARS Program

In 2002, Seven Q Seven, Ltd. (7Q7) was selected by Northrop Grumman Corporation to provide propulsion pods for the re-engine program for the JT3D engines used by the U.S. Air Force. The Company was selected by 7Q7 as a supplier for the inlet, thrust reverser, exhaust, EBU, strut systems and wing interface systems. As of September 30, 2010, the Company has $29.4 million of pre-production costs reported as in-process inventory related to this program.

Funding for the JSTARS program for the 2010 budget cycle was approved. Future funding remains uncertain. While the Company believes that program funding will continue and is included in the preliminary fiscal 2011 budget submitted, there can be no assurances of such funding. If the program were to be cancelled, the Company would recognize an impairment of its pre-production costs.

U.S. Health Care Reform Legislation

In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Act of 2010 (the Act) was enacted. The primary focus of the Act is to significantly reform health care in the U.S. The financial impact on the Company was the elimination of a portion of the tax deduction available to companies that provide prescription drug coverage to retirees which was recorded in the three months ended March 31, 2010. See Note 14, “Income Taxes”. The Company is currently evaluating other prospective effects of the Act.

Tax

The Company is continuously undergoing examination by the IRS as well as various state and foreign jurisdictions. The IRS and other taxing authorities routinely challenge certain deductions and credits reported by the Company on its income tax returns. See Note 14, “Income Taxes”, for additional detail.

Tax Years 2005 and 2006

During 2009, the IRS issued a Revenue Agent’s Report for the tax years 2005 and 2006. In July 2009, the Company submitted a protest to the Appeals Division of the IRS with respect to certain unresolved issues which involve the proper timing of deductions. Although it is reasonably possible that these matters could be resolved during the next 12 months, the timing or ultimate outcome is uncertain.

Tax Years 2000 to 2004

During 2007, the IRS and the Company reached agreement on substantially all of the issues raised with respect to the examination of taxable years 2000 to 2004. The Company submitted a protest to the Appeals Division of the IRS with respect to the remaining unresolved issues which involve the proper timing of certain deductions. The Company and the IRS were unable to reach agreement on the remaining issues. In December 2009, the Company filed a petition to the U.S. Tax Court and in March 2010 the Company also filed a complaint in District Court. The Company believes the amount of the estimated tax liability if the IRS were to prevail is fully reserved. The Company cannot predict the timing or ultimate outcome of a final resolution of the remaining unresolved issues.

Tax Years Prior to 2000

The previous examination cycle included the consolidated income tax groups for the audit periods identified below:

Coltec Industries Inc. and Subsidiaries		December, 1997 — July, 1999 (through date of acquisition)
Goodrich Corporation and Subsidiaries		1998 — 1999 (including Rohr, Inc. (Rohr) and Coltec)

The IRS and the Company previously reached final settlement on all but one of the issues raised in this examination cycle. The Company received statutory notices of deficiency dated June 14, 2007 related to the remaining unresolved issue which involves the proper timing of certain deductions. The Company filed a petition with the U.S. Tax Court in September 2007 to contest the notices of deficiency. The Company believes the amount of the estimated tax liability if the IRS were to prevail is fully reserved. Although it is reasonably possible that this matter could be resolved during the next 12 months, the timing or ultimate outcome is uncertain.

Rohr was examined by the State of California for the tax years ended July 31, 1985, 1986 and 1987. The State of California disallowed certain expenses incurred by one of Rohr’s subsidiaries in connection with the lease of certain tangible property. California’s Franchise Tax Board held that the deductions associated with the leased equipment were non-business deductions. The additional tax associated with the Franchise Tax Board’s position is $4.5 million. The amount of accrued interest associated with the additional tax is approximately $30 million at September 30, 2010. In addition, the State of California enacted an amnesty provision that imposes nondeductible penalty interest equal to 50% of the unpaid interest amounts relating to taxable years ended before 2003. The penalty interest is approximately $15 million at September 30, 2010. The tax and interest amounts continue to be contested by Rohr. No payment has been made for the $30 million of interest or $15 million of penalty interest. In April 2009, the Superior Court of California issued a ruling granting the Company’s motion for summary judgment. In August 2009 the State of California appealed the ruling.

Following settlement of the U.S. Tax Court for Rohr’s tax years 1986 to 1997, California audited the Company’s amended tax returns and issued an assessment based on numerous issues including proper timing of deductions and allowance of tax credits. The Company submitted a protest of the assessment to the California Franchise Tax Board in November 2008.

The Company and the California Franchise Tax Board reached a comprehensive settlement on October 14, 2010 addressing all issues related to the Company and Rohr for all tax years through 2001. The Company expects to recognize a tax benefit of approximately $23 million in the fourth quarter of 2010.

Note 16. Guarantees

The Company extends financial and product performance guarantees to third parties. At September 30, 2010, the following environmental remediation and indemnification and financial guarantees were outstanding:

		Maximum				Carrying
		Potential				Amount of
		Payment				Liability
		(Dollars in millions)
Environmental remediation and other indemnifications (Note 15, “Contingencies”)		No Limit				$	21.2
Guarantees of residual value on leases		$	11.0			$	—
Guarantees of JV debt and other financial instruments		$	36.1			$	—

The Company has guarantees of residual values on certain lease obligations in which the Company is obligated to either purchase or remarket the assets at the end of the lease term.

The Company is guarantor on a revolving credit agreement totaling £30 million between Rolls-Royce Goodrich Engine Control Systems Limited (JV) and a financial institution. In addition, the Company guarantees the JV’s foreign exchange credit line with a notional amount of $138 million at September 30, 2010. The Company is indemnified by Rolls-Royce for 50% of the gains/losses resulting from the foreign exchange hedges.

Service and Product Warranties

The Company provides service and warranty policies on certain of its products. The Company accrues liabilities under service and warranty policies based upon specific claims and a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience change. In addition, the Company incurs discretionary costs to service its products in connection with product performance issues.

The changes in the carrying amount of service and product warranties for the nine months ended September 30, 2010, in millions, were as follows:

Balance at December 31, 2009		$	147.6
Net provisions for warranties issued during the period			38.6
Net provisions (return to earnings) for warranties existing at the beginning of the year			(4.8	)
Payments			(30.4	)
Foreign currency translation			(1.7	)
Balance at September 30, 2010		$	149.3

The current and long-term portions of service and product warranties were as follows:

		September 30,				December 31,
		2010				2009
		(Dollars in millions)
Accrued expenses		$	87.7			$	88.2
Other non-current liabilities			61.6				59.4
Total		$	149.3			$	147.6

Note 17. Derivatives and Hedging Activities

Cash Flow Hedges

The Company has subsidiaries that conduct a substantial portion of their business in Euros, Great Britain Pounds Sterling, Canadian Dollars and Polish Zlotys but have significant sales contracts that are denominated primarily in U.S. Dollars. Periodically, the Company enters into forward contracts to exchange U.S. Dollars for Euros, Great Britain Pounds Sterling, Canadian Dollars and Polish Zlotys to primarily hedge a portion of the Company’s exposure from U.S. Dollar sales.

The forward contracts described above are used to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates that impact the Company’s U.S. Dollar sales for certain foreign operations. The forward contracts are accounted for as cash flow hedges and are recorded in the Company’s condensed consolidated balance sheet at fair value, with the offset reflected in AOCI, net of deferred taxes. The gain or loss on the forward contracts is reported as a component of other comprehensive income (loss) (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The notional value of the forward contracts at September 30, 2010 and December 31, 2009 was $1,927.8 million and $1,888 million, respectively. As of September 30, 2010 and December 31, 2009, the total fair value before taxes of the Company’s forward contracts and the accounts in the condensed consolidated balance sheet in which the fair value amounts are included are shown below:

		September 30,				December 31,
		2010				2009
		(Dollars in millions)
Prepaid expenses and other assets		$	17.2			$	25.5
Other assets			44.2				70.9
Accrued expenses			20.5				22.6
Other non-current liabilities			11.4				17.0

The amounts recognized in OCI and reclassified from AOCI into earnings are shown below:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(Dollars in millions)
Amount of gain/(loss) recognized in OCI, net of tax for the three and nine months ended September 30, 2010 of $(37.7) and $6.6, respectively; net of tax for the three and nine months ended September 30, 2009 of $(18.4) and $(72.9), respectively		$	75.9			$	40.0			$	(12.6	)		$	141.6
Amount of gain/(loss) reclassified from AOCI into earnings		$	(9.9	)		$	(6.8	)		$	(26.8	)		$	(46.5	)

The total fair value of the Company’s forward contracts of a $29.5 million asset (before deferred taxes of $5.9 million) at September 30, 2010, combined with $8.7 million of losses on previously matured hedges of intercompany sales and gains from forward contracts terminated prior to the original maturity dates, is recorded in AOCI and will be reflected in income as earnings are affected by the hedged items. As of September 30, 2010, the portion of the net $29.5 million asset that would be reclassified into earnings to offset the effect of the hedged item in the next 12 months is a loss of $3.3 million. These forward contracts mature on a monthly basis with maturity dates that range from October 2010 to December 2015. There was a de minimis amount of both ineffectiveness and hedge components excluded from the assessment of effectiveness during the three and nine months ended September 30, 2010 and 2009.

Fair Value Hedges

The Company enters into interest rate swaps to increase the Company’s exposure to variable interest rates. The settlement and maturity dates on each swap are the same as those on the referenced notes. The interest rate swaps are accounted for as fair value hedges and the carrying value of the notes is adjusted to reflect the fair values of the interest rate swaps. At September 30, 2010 and December 31, 2009, the Company had no outstanding interest rate swaps. For the three months ended September 30, 2010 and 2009, net gains of $0.5 million (after tax of $0.3 million), were recorded as a reduction to interest expense. For the nine months ended September 30, 2010 and 2009, net gains of $1.5 million and $1.9 million, (after tax of $0.9 million and $1.2 million, respectively), were recorded as a reduction to interest expense. These amounts represent previously terminated swaps which are amortized over the life of the underlying debt.

Other Forward Contracts

As a supplement to the foreign exchange cash flow hedging program, the Company enters into forward contracts to manage its foreign currency risk related to the translation of monetary assets and liabilities denominated in currencies other than the relevant functional currency. These forward contracts generally mature monthly and the notional amounts are adjusted periodically to reflect changes in net monetary asset balances. Since these contracts are not designated as hedges, the gains or losses on these forward contracts are recorded in selling and administrative costs or cost of sales, as appropriate. These contracts are utilized to mitigate the earnings impact of the translation of net monetary assets and liabilities.

During the three months ended September 30, 2010, the Company recorded a transaction loss on its monetary assets of $23.6 million, which was partially offset by gains on the other forward contracts described above of $16 million. During the three months ended September 30, 2009, the Company recorded a transaction loss on its monetary assets of approximately $11.5 million, which was partially offset by gains on the other forward contracts described above of approximately $2.9 million.

During the nine months ended September 30, 2010, the Company recorded a transaction gain on its monetary assets of $15.7 million, which was partially offset by losses on the other forward contracts described above of $16.5 million. During the nine months ended September 30, 2009, the Company recorded a transaction loss on its monetary assets of $18.7 million, which was partially offset by gains on the other forward contracts described above of $15.9 million.

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

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 the historically high 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 are expected to be about the same in 2010 as they were in 2009. Boeing and Airbus have announced production rate increases for 2011 and beyond. However, production rates are always subject to change, and may be impacted by economic conditions which may influence customers’ willingness and/or ability to purchase new aircraft.

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.

We have significant product content on most of the airplane models that are currently in service and we enjoy the benefit of having excellent positions on the newer, more fuel-efficient airplanes currently in service. The key growth drivers in this channel include worldwide passenger capacity growth measured by Available Seat Miles (ASM) and the size, type and utilization 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 grow in 2010 as compared to 2009 due in large part to the expected global economic recovery. ASMs are expected to increase approximately 4% to 6% in 2011. 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 weaker than expected global economic recovery.

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 expanding intelligence, surveillance and reconnaissance sector, 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, organically and through acquisitions, 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 engine 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 commercial airplane market, with strong sales to Airbus, Boeing and the regional and business jet airplane manufacturers;
	•		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, intelligence, surveillance and reconnaissance products and precision guidance systems for munitions.

Third Quarter 2010 Sales Content by Market Channel

During the third quarter 2010, approximately 95% of our sales were from our three key market channels described above. Following is a summary of the percentage of sales by market channel:

Airbus Commercial OE			15	%
Boeing Commercial OE			11	%
Regional, Business and General Aviation Airplane OE			6	%
Total Large Commercial, Regional, Business and General Aviation Airplane OE			32	%
Large Commercial Airplane Aftermarket			25	%
Regional, Business and General Aviation Airplane Aftermarket			6	%
Total Large Commercial, Regional, Business and General Aviation Airplane Aftermarket			31	%
Total Defense and Space			32	%
Other			5	%
Total			100	%

Results of Operations — Third Quarter 2010 as Compared to Third Quarter 2009

		Third Quarter								Favorable \ (Unfavorable)
		2010				2009				$ Change				% Change
		(Dollars in millions, except diluted EPS)
Sales		$	1,748.0			$	1,647.7			$	100.3				6.1
Segment operating income (1)		$	302.6			$	260.9			$	41.7				16.0
Corporate general and administrative costs			(41.5	)			(32.0	)			(9.5	)			(29.7	)
Total operating income			261.1				228.9				32.2				14.1
Net interest expense			(34.5	)			(30.4	)			(4.1	)			(13.5	)
Other income (expense) — net			(3.6	)			(7.9	)			4.3				54.4
Income from continuing operations before income taxes			223.0				190.6				32.4				17.0
Income tax expense			(61.7	)			(45.7	)			(16.0	)			(35.0	)
Income from continuing operations			161.3				144.9				16.4				11.3
Income from discontinued operations			0.1				3.3				(3.2	)			(97.0	)
Consolidated net income			161.4				148.2				13.2				8.9
Net income attributable to noncontrolling interests			(1.2	)			(2.8	)			1.6				57.1
Net income attributable to Goodrich		$	160.2			$	145.4			$	14.8				10.2
Effective tax rate			27.7	%			24.0	%
Diluted EPS:
Continuing operations		$	1.25			$	1.12			$	0.13				11.6
Net income attributable to Goodrich		$	1.25			$	1.14			$	0.11				9.6

Sales

The sales increase in the third quarter 2010 as compared to the third quarter 2009 was driven by changes in each of our major market channels as follows:

	•		Defense and space sales of both original equipment and aftermarket products and services increased by approximately $58 million, or 12%, including organic growth of approximately 4%;
	•		Regional, business and general aviation airplane original equipment sales increased by approximately $18 million, or 21%, including sales associated with the recent acquisition of DeCrane Holdings Co. (DeCrane). Organic growth in this market channel was approximately 15%;
	•		Large commercial, regional, business and general aviation airplane aftermarket sales increased by approximately $13 million, or 3%; and
	•		Large commercial airplane original equipment sales increased by approximately $9 million, or 2%.

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 higher incentive compensation expense and higher medical costs.

Net interest expense

Net interest expense increased primarily as a result of higher debt levels in the third quarter 2010 as compared to the third quarter 2009.

Other income (expense) — net

Other income (expense) — net decreased for the third quarter 2010 as compared to the third quarter 2009, primarily as a result of lower net losses of approximately $4 million from equity in affiliated companies.

Income from continuing operations

In addition to the items described above, income from continuing operations during the third quarter 2010 as compared to the third quarter 2009 also was affected by the following items:

		Increase (Decrease)
		Before				After				Diluted
		Tax				Tax				EPS
		(Dollars in millions, except diluted EPS)
Changes in estimates on long-term contracts		$	9.6			$	6.0			$	0.05
Higher effective tax rate		$	—			$	(8.3	)		$	(0.06	)