##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 25, 2006
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from          to
 Commission File Number 333-112528
 Vought Aircraft Industries, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    75-2884072(State of Incorporation)
9314 West Jefferson Boulevard M/S 2-01
    
    (I.R.S. Employer Identification Number)Dallas, TX
    
    75211(Address of Principal executive offices)
    
    (Zip Code)
 (972)-946-2011
(Registrants telephone number, including area code)
 þ o
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of June 25, 2006 (unaudited) and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the three months and six months ended June 25, 2006 and June 26, 2005 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 25, 2006, and June 26, 2005 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 6.
    
    Exhibits
    
    
    30Signatures
    
    
    
    
    31Separation Agreement - Vern BroomallCertification of Chief Executive Officer - Section 302Certification of Principal Financial and Accouting Officer - Section 302Certification of Chief Executive Officer - Section 906Certification of Principal Financial and Accouting Officer - Section 906
  2




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##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Vought Aircraft Industries, Inc.
 
 Condensed Consolidated Balance Sheets
 ($ in millions)
 June 25,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    49.9
    
    
    $
    10.1Accounts receivable
    
    
    127.2
    
    
    
    90.8Inventories
    
    
    374.7
    
    
    
    340.1Other current assets
    
    
    10.0
    
    
    
    7.4Total current assets
    
    
    561.8
    
    
    
    448.4Property, plant and equipment, net
    
    
    528.8
    
    
    
    485.1Goodwill, net
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    73.7
    
    
    
    79.1Debt origination costs, net and other assets
    
    
    16.5
    
    
    
    21.5Total assets
    
    $
    1,708.5
    
    
    $
    1,561.8Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    149.1
    
    
    $
    121.9Accrued and other liabilities
    
    
    68.9
    
    
    
    69.0Accrued payroll and employee benefits
    
    
    32.4
    
    
    
    35.5Accrued post-retirement benefits-current
    
    
    54.6
    
    
    
    53.4Accrued pension-current
    
    
    55.6
    
    
    
    36.8Current portion of long-term bank debt
    
    
    4.0
    
    
    
    4.0Capital lease obligation
    
    
    0.9
    
    
    
    0.8Accrued contract liabilities
    
    
    329.2
    
    
    
    216.0Total current liabilities
    
    
    694.7
    
    
    
    537.4Long-term liabilities:Accrued post-retirement benefits
    
    
    485.3
    
    
    
    496.5Accrued pension
    
    
    440.0
    
    
    
    441.2Long-term bank debt, net of current portion
    
    
    416.0
    
    
    
    417.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Long-term capital lease obligation
    
    
    0.6
    
    
    
    1.2Other non-current liabilities
    
    
    191.5
    
    
    
    171.5Total liabilities
    
    
    2,498.1
    
    
    
    2,334.8Stockholders equity (deficit):Common stock, par value $.01; 50,000,000 shares
authorized, 24,738,665 and 24,711,373 issued and
outstanding in 2006 and 2005
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    411.7
    
    
    
    411.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    (1.1
    )Accumulated deficit
    
    
    (621.6
    )
    
    
    (604.6
    )Accumulated other comprehensive loss
    
    
    (577.4
    )
    
    
    (577.4
    )Total stockholders equity (deficit)
    
    $
    (789.6
    )
    
    $
    (773.0
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,708.5
    
    
    $
    1,561.8
 See accompanying notes
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Vought Aircraft Industries, Inc.
 
 Condensed Consolidated Statements of Operations
 ($ in millions) (Unaudited)
 For the Three Months
    
    
    For the Six MonthsEnded
    
    
    EndedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    456.1
    
    
    $
    357.0
    
    
    $
    778.9
    
    
    $
    626.8Costs and expensesCost of sales
    
    
    330.3
    
    
    
    369.8
    
    
    
    614.8
    
    
    
    610.4Selling, general and administrative expenses
    
    
    65.2
    
    
    
    77.8
    
    
    
    138.6
    
    
    
    145.3Impairment charge
    
    
    8.5
    
    
    
    5.9
    
    
    
    8.5
    
    
    
    5.9Total costs and expenses
    
    
    404.0
    
    
    
    453.5
    
    
    
    761.9
    
    
    
    761.6Operating income (loss)
    
    
    52.1
    
    
    
    (96.5
    )
    
    
    17.0
    
    
    
    (134.8
    )Other income (expense)Interest income
    
    
    0.2
    
    
    
    0.9
    
    
    
    0.5
    
    
    
    1.6Other income (loss)
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (1.5
    )
    
    
    (0.7
    )
    
    
    (3.2
    )
    
    
    (0.8
    )Interest expense
    
    
    (16.2
    )
    
    
    (12.7
    )
    
    
    (31.2
    )
    
    
    (24.8
    )Income (loss) before income taxes
    
    
    34.5
    
    
    
    (109.1
    )
    
    
    (17.0
    )
    
    
    (158.9
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    34.5
    
    
    $
    (109.1
    )
    
    $
    (17.0
    )
    
    $
    (158.9
    )
 See accompanying notes
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Vought Aircraft Industries, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 ($ in millions) (Unaudited)
 For the Six Months EndedJune 25,
    
    
    June 26,2006
    
    
    2005Operating activitiesNet income (loss)
    
    $
    (17.0
    )
    
    $
    (158.9
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    29.2
    
    
    
    36.8Impairment charge
    
    
    8.5
    
    
    
    5.9Equity in losses of joint venture
    
    
    3.2
    
    
    
    0.8Loss from asset sales
    
    
    0.3
    
    
    
    4.3Changes in current assets and liabilities:Accounts receivable
    
    
    (36.4
    )
    
    
    (9.5
    )Inventories, net of advances and progress billings
    
    
    (34.6
    )
    
    
    (32.7
    )Other current assets
    
    
    (1.2
    )
    
    
    1.3Accounts payable, trade
    
    
    27.2
    
    
    
    (5.0
    )Accrued payroll and employee benefits
    
    
    (3.1
    )
    
    
    (4.6
    )Accrued and other liabilities
    
    
    18.2
    
    
    
    (0.6
    )Accrued contract liabilities
    
    
    113.2
    
    
    
    98.0Other assets and liabilitieslong-term
    
    
    (8.0
    )
    
    
    27.1Net cash provided by (used in) operating activities
    
    
    99.5
    
    
    
    (37.1
    )Investing activitiesCapital expenditures
    
    
    (75.0
    )
    
    
    (46.7
    )Proceeds from sale of assets
    
    
    0.3
    
    
    
    Investment in joint venture
    
    
    
    
    
    
    (2.5
    )Net cash used in investing activities
    
    
    (74.7
    )
    
    
    (49.2
    )Financing activitiesProceeds from short-term bank debt
    
    
    155.0
    
    
    
    Payments on short-term bank debt
    
    
    (155.0
    )
    
    
    Payments on long-term bank debt
    
    
    (1.0
    )
    
    
    (1.0
    )Payments on capital leases
    
    
    (0.5
    )
    
    
    (0.5
    )Proceeds from sale of common stock
    
    
    0.3
    
    
    
    0.1Proceeds from repayment of stockholder
loans
    
    
    0.1
    
    
    
    Proceeds from governmental grants
    
    
    16.1
    
    
    
    15.5Net cash provided by financing activities
    
    
    15.0
    
    
    
    14.1Net increase (decrease) in cash and cash equivalents
    
    
    39.8
    
    
    
    (72.2
    )Cash and cash equivalents at beginning of period
    
    
    10.1
    
    
    
    128.9Cash and cash equivalents at end of period
    
    $
    49.9
    
    
    $
    56.7
 See accompanying notes
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VOUGHT AIRCRAFT INDUSTRIES, INC.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 June 25, 2006
 Note 1  Organization and Basis of Presentation
     Note 2  New Accounting Pronouncements
 Accounting
Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 6




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Share-based Payments Accounting for Stock-Based Compensation
 Inventory Costs Inventory Pricing
 Note 3  Stock-Based Compensation
    7




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Accounting for Stock Based
Compensation
 Three months ended
    
    
    Six months endedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,2006
    
    
    2005
    
    
    2006
    
    
    2005($ in millions)
    
    
    ($ in millions)Reported net income (loss)
    
    $
    34.5
    
    
    $
    (109.1
    )
    
    $
    (17.0
    )
    
    $
    (158.9
    )Add: Stock-based employee
compensation expense
included in reported net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct: Total stock-based
employee compensation
expense determined under
fair value based methods
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (1.0
    )Pro forma net income (loss)
    
    $
    34.5
    
    
    $
    (109.6
    )
    
    $
    (17.0
    )
    
    $
    (159.9
    )
   2005Expected dividend yield
    
    
    0
    %Risk free interest rate
    
    
    3.9%-4.3
    %Expected life of options
    
    6 years
  WeightedAverageExerciseOptions
    
    
    PriceOptions outstanding at December 31, 2005
    
    
    1,507,129
    
    
    $
    13.17Options granted
    
    
    
    
    
    
    Options
forfeited/expired
    
    
    (326,970
    )
    
    $
    12.89Options exercised
    
    
    (27,292
    )
    
    $
    10.00Options outstanding at June 25, 2006
    
    
    1,152,867
    
    
    $
    12.94Options exercisable at June 25, 2006
    
    
    1,060,817
    
    
    $
    12.53Weighted average remaining contractual life at
June 25, 2006
    
    3.82 years
 8




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Stock Repurchase Program
  Note 4  Restructuring
    9




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AccruedRestructuringReserve  Stuart andNashville Sites($ in millions)Balance December 31, 2004
    
    $
    7.3Restructuring liabilities recognized
    
    
    2.1Restructuring liabilities reversed
    
    
    (5.6
    )Expenditures
    
    
    (1.1
    )Balance December 31, 2005
    
    $
    2.7Restructuring liabilities reversed
    
    
    (2.0
    )Expenditures
    
    
    (0.2
    )Balance June 25, 2006
    
    $
    0.5
 Pension and Other Post-Retirement Benefits
    10




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Accrued RestructuringReserve - Perry Site($ in millions)Balance December 31, 2003
    
    $
    9.5Cash expenditures
    
    
    (1.9
    )Balance December 31, 2004
    
    $
    7.6Cash expenditures
    
    
    (1.9
    )Balance December 31, 2005
    
    $
    5.7Cash expenditures
    
    
    (0.9
    )Balance June 25, 2006
    
    $
    4.8
 Note 5  Inventories
  June 25,
    
    
    December 31,2006
    
    
    2005($ in millions)Production costs of contracts in process
    
    $
    559.8
    
    
    $
    529.8Finished goods
    
    
    7.4
    
    
    
    22.8Less: unliquidated progress payments
    
    
    (192.5
    )
    
    
    (212.5
    )Total inventories
    
    $
    374.7
    
    
    $
    340.1
  11




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Note 6  Goodwill and Intangible Assets
 Goodwill and Other Intangible Assets
  June 25,
    
    
    December 31,2006
    
    
    2005($ in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Pension asset
    
    
    19.1
    
    
    
    19.1Less: accumulated amortization
    
    
    (82.7
    )
    
    
    (77.3
    )Identifiable intangible assets, net
    
    $
    73.7
    
    
    $
    79.1
  ($ in millions)2006
    
    $
    5.42007
    
    
    10.02008
    
    
    8.92009
    
    
    8.92010
    
    
    6.0Thereafter
    
    
    15.4$
    54.6
 Note 7  Pension and Other Post-retirement Benefits
  Three
    
    
    Three
    
    
    Six
    
    
    SixMonths
    
    
    Months
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,Pension Benefits
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005($ in millions)Components of net periodic benefit cost (income):Service cost
    
    $
    6.3
    
    
    $
    8.2
    
    
    $
    12.5
    
    
    $
    16.0Interest cost
    
    
    26.3
    
    
    
    25.8
    
    
    
    52.5
    
    
    
    51.6Expected return on plan assets
    
    
    (28.9
    )
    
    
    (29.1
    )
    
    
    (57.7
    )
    
    
    (58.4
    )Amortization of net (gain)/ loss
    
    
    13.8
    
    
    
    13.2
    
    
    
    28.1
    
    
    
    27.0Prior service cost recognized
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )
    
    
    Amortization of prior service cost
    
    
    1.2
    
    
    
    0.9
    
    
    
    2.0
    
    
    
    1.6Plan curtailment (gain)/loss
    
    
    1.1
    
    
    
    
    
    
    
    1.1
    
    
    
    Special termination benefits
    
    
    0.9
    
    
    
    
    
    
    
    0.9
    
    
    
    Net periodic benefit cost
    
    $
    20.3
    
    
    $
    19.0
    
    
    $
    39.0
    
    
    $
    37.8Defined contribution plan cost
    
    $
    1.7
    
    
    $
    1.8
    
    
    $
    3.5
    
    
    $
    3.5
 12




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Three
    
    
    Three
    
    
    Six
    
    
    SixMonths
    
    
    Months
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,Other Post-retirement Benefits
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005($ in millions)Components of net periodic benefit cost (income):Service cost
    
    $
    1.5
    
    
    $
    1.9
    
    
    $
    3.0
    
    
    $
    3.7Interest cost
    
    
    8.4
    
    
    
    9.7
    
    
    
    16.9
    
    
    
    19.4Expected return on plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net (gain)/loss
    
    
    3.5
    
    
    
    2.7
    
    
    
    7.0
    
    
    
    5.4Prior service cost recognized
    
    
    (8.5
    )
    
    
    
    
    
    
    (8.5
    )
    
    
    Amortization of prior service cost
    
    
    (2.5
    )
    
    
    0.6
    
    
    
    (5.0
    )
    
    
    1.2Plan curtailment (gain)/loss
    
    
    (3.1
    )
    
    
    
    
    
    
    (3.1
    )
    
    
    Special termination benefits
    
    
    0.7
    
    
    
    
    
    
    
    0.7
    
    
    
    Net periodic benefit cost
    
    $
    
    
    
    $
    14.9
    
    
    $
    11.0
    
    
    $
    29.7
    Note 8  Commitments
 Warranty Reserves.
 13




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WarrantyReserve($ in millions)Balance at December 31, 2004
    
    
    10.2Warranty costs incurred
    
    
    (0.5
    )Additions charged to cost of sales:Warranties issued
    
    
    0.3Charges related to pre-existing warranties
    
    
    (2.0
    )Balance at December 31, 2005
    
    $
    8.0Warranty costs incurred
    
    
    Additions charged to cost of sales:Warranties issued
    
    
    0.7Charges related to pre-existing warranties
    
    
    (1.5
    )Balance at June 25, 2006
    
    $
    7.2
 Note 9  Environmental Contingencies
    14




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EnvironmentalLiability($ in millions)Balance at December 31, 2004
    
    $
    5.8Environmental costs incurred
    
    
    (1.5
    )Balance at December 31, 2005
    
    
    4.3Environmental costs incurred
    
    
    (0.1
    )Balance at June 25, 2006
    
    $
    4.2
 Note 10  Other Non-Current Liabilities
  June 25,
    
    
    December 31,2006
    
    
    2005($ in millions)Deferred income from the sale of Hawthorne facility
    
    $
    52.6
    
    
    $
    52.6State of South Carolina grant monies (a)
    
    
    68.3
    
    
    
    52.2State of Texas grant monies
    
    
    35.0
    
    
    
    35.0Deferred workers compensation
    
    
    24.9
    
    
    
    19.5Accrued warranties
    
    
    6.9
    
    
    
    7.5Other
    
    
    3.8
    
    
    
    4.7Total other non-current liabilities
    
    $
    191.5
    
    
    $
    171.5
 
  Note 11  Related Party Transactions
  Note 12  Guarantor Subsidiaries
  15




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Consolidating Balance Sheet
June 25, 2006
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    49.8
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    49.9Accounts receivable
    
    
    120.3
    
    
    
    6.9
    
    
    
    
    
    
    
    127.2Intercompany receivable
    
    
    14.9
    
    
    
    7.4
    
    
    
    (22.3
    )
    
    
    Inventories
    
    
    360.7
    
    
    
    14.0
    
    
    
    
    
    
    
    374.7Other current assets
    
    
    9.7
    
    
    
    0.3
    
    
    
    
    
    
    
    10.0Total current assets
    
    
    555.4
    
    
    
    28.7
    
    
    
    (22.3
    )
    
    
    561.8Property, plant and equipment, net
    
    
    519.5
    
    
    
    9.3
    
    
    
    
    
    
    
    528.8Goodwill, net
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    73.7
    
    
    
    
    
    
    
    
    
    
    
    73.7Investment in affiliated company
    
    
    79.3
    
    
    
    
    
    
    
    (79.3
    )
    
    
    Debt origination costs, net and other assets
    
    
    16.4
    
    
    
    0.1
    
    
    
    
    
    
    
    16.5Total assets
    
    $
    1,708.3
    
    
    $
    101.8
    
    
    $
    (101.6
    )
    
    $
    1,708.5Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    144.7
    
    
    $
    4.4
    
    
    $
    
    
    
    $
    149.1Intercompany payable
    
    
    7.4
    
    
    
    14.9
    
    
    
    (22.3
    )
    
    
    Accrued and other liabilities
    
    
    68.3
    
    
    
    0.6
    
    
    
    
    
    
    
    68.9Accrued payroll and employee benefits
    
    
    31.3
    
    
    
    1.1
    
    
    
    
    
    
    
    32.4Accrued post-retirement benefits  current
    
    
    54.6
    
    
    
    
    
    
    
    
    
    
    
    54.6Accrued pension  current
    
    
    55.6
    
    
    
    
    
    
    
    
    
    
    
    55.6Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9Accrued contract liabilities
    
    
    329.2
    
    
    
    
    
    
    
    
    
    
    
    329.2Total current liabilities
    
    
    695.1
    
    
    
    21.9
    
    
    
    (22.3
    )
    
    
    694.7Long-term liabilities:Accrued post-retirement benefits
    
    
    485.3
    
    
    
    
    
    
    
    
    
    
    
    485.3Accrued pension
    
    
    440.0
    
    
    
    
    
    
    
    
    
    
    
    440.0Long-term bank debt, net of current portion
    
    
    416.0
    
    
    
    
    
    
    
    
    
    
    
    416.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Long-term capital lease obligation
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    0.6Other non-current liabilities
    
    
    191.5
    
    
    
    
    
    
    
    
    
    
    
    191.5Total liabilities
    
    
    2,497.9
    
    
    
    22.5
    
    
    
    (22.3
    )
    
    
    2,498.1Stockholders equity (deficit):Common stock, par value $0.01; 50,000,000 shares
authorized, 24,738,665 issued and outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    411.7
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    411.7Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Accumulated deficit
    
    
    (621.6
    )
    
    
    (1.0
    )
    
    
    1.0
    
    
    
    (621.6
    )Accumulated other comprehensive loss
    
    
    (577.4
    )
    
    
    
    
    
    
    
    
    
    
    (577.4
    )Total stockholders equity (deficit)
    
    
    (789.6
    )
    
    
    79.3
    
    
    
    (79.3
    )
    
    
    (789.6
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,708.3
    
    
    $
    101.8
    
    
    $
    (101.6
    )
    
    $
    1,708.5
 16




---



##### Table of Contents



Consolidating Balance Sheet
December 31, 2005
($ in millions)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    9.9
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    10.1Accounts receivable
    
    
    84.5
    
    
    
    6.3
    
    
    
    
    
    
    
    90.8Intercompany receivable
    
    
    12.1
    
    
    
    5.8
    
    
    
    (17.9
    )
    
    
    Inventories
    
    
    327.9
    
    
    
    12.2
    
    
    
    
    
    
    
    340.1Other current assets
    
    
    6.9
    
    
    
    0.5
    
    
    
    
    
    
    
    7.4Total current assets
    
    
    441.3
    
    
    
    25.0
    
    
    
    (17.9
    )
    
    
    448.4Property, plant and equipment, net
    
    
    474.9
    
    
    
    10.2
    
    
    
    
    
    
    
    485.1Goodwill, net
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    79.1
    
    
    
    
    
    
    
    
    
    
    
    79.1Investment in affiliated company
    
    
    79.3
    
    
    
    
    
    
    
    (79.3
    )
    
    
    Debt origination costs, net and other assets
    
    
    21.5
    
    
    
    
    
    
    
    
    
    
    
    21.5Total assets
    
    $
    1,560.1
    
    
    $
    98.9
    
    
    $
    (97.2
    )
    
    $
    1,561.8Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    117.8
    
    
    $
    4.1
    
    
    $
    
    
    
    $
    121.9Intercompany payable
    
    
    5.8
    
    
    
    12.1
    
    
    
    (17.9
    )
    
    
    0.0Accrued and other liabilities
    
    
    68.5
    
    
    
    0.5
    
    
    
    
    
    
    
    69.0Accrued payroll and employee benefits
    
    
    34.6
    
    
    
    0.9
    
    
    
    
    
    
    
    35.5Accrued post-retirement benefits  current
    
    
    53.4
    
    
    
    
    
    
    
    
    
    
    
    53.4Accrued pension  current
    
    
    36.8
    
    
    
    
    
    
    
    
    
    
    
    36.8Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8Accrued contract liabilities
    
    
    216.0
    
    
    
    
    
    
    
    
    
    
    
    216.0Total current liabilities
    
    
    536.9
    
    
    
    18.4
    
    
    
    (17.9
    )
    
    
    537.4Long-term liabilities:Accrued post-retirement benefits
    
    
    496.5
    
    
    
    
    
    
    
    
    
    
    
    496.5Accrued pension
    
    
    441.2
    
    
    
    
    
    
    
    
    
    
    
    441.2Long-term bank debt, net of current portion
    
    
    417.0
    
    
    
    
    
    
    
    
    
    
    
    417.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Long-term capital lease obligation
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    1.2Other non-current liabilities
    
    
    171.5
    
    
    
    
    
    
    
    
    
    
    
    171.5Total liabilities
    
    
    2,333.1
    
    
    
    19.6
    
    
    
    (17.9
    )
    
    
    2,334.8Stockholders equity (deficit):Common stock, par value $0.01; 50,000,000 shares
authorized, 24,711,373 issued and outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    411.4
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    411.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Accumulated deficit
    
    
    (604.6
    )
    
    
    (1.0
    )
    
    
    1.0
    
    
    
    (604.6
    )Accumulated other comprehensive loss
    
    
    (577.4
    )
    
    
    
    
    
    
    
    
    
    
    (577.4
    )Total stockholders equity (deficit)
    
    
    (773.0
    )
    
    
    79.3
    
    
    
    (79.3
    )
    
    
    (773.0
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,560.1
    
    
    $
    98.9
    
    
    $
    (97.2
    )
    
    $
    1,561.8
 17




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##### Table of Contents



Consolidating Statement of Operations
Three Months Ended June 25, 2006
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    443.7
    
    
    $
    15.0
    
    
    $
    (2.6
    )
    
    $
    456.1Costs and expensesCost of sales
    
    
    319.2
    
    
    
    13.7
    
    
    
    (2.6
    )
    
    
    330.3Selling, general and administrative expenses
    
    
    64.1
    
    
    
    1.1
    
    
    
    
    
    
    
    65.2Impairment charge
    
    
    8.5
    
    
    
    
    
    
    
    
    
    
    
    8.5Total costs and expenses
    
    
    391.8
    
    
    
    14.8
    
    
    
    (2.6
    )
    
    
    404.0Operating income (loss)
    
    
    51.9
    
    
    
    0.2
    
    
    
    
    
    
    
    52.1Other income (expense)Interest income
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Other income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (1.5
    )Interest expense
    
    
    (16.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (16.2
    )Equity in income of consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    34.5
    
    
    
    0.0
    
    
    
    
    
    
    
    34.5Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    34.5
    
    
    $
    0.0
    
    
    $
    
    
    
    $
    34.5
 Consolidating Statement of Operations
Three Months Ended June 26, 2005
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    340.3
    
    
    $
    19.4
    
    
    $
    (2.7
    )
    
    $
    357.0Costs and expensesCost of sales
    
    
    355.8
    
    
    
    16.7
    
    
    
    (2.7
    )
    
    
    369.8Selling, general and administrative expenses
    
    
    77.2
    
    
    
    0.6
    
    
    
    
    
    
    
    77.8Impairment charge
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Total costs and expenses
    
    
    438.9
    
    
    
    17.3
    
    
    
    (2.7
    )
    
    
    453.5Operating income (loss)
    
    
    (98.6
    )
    
    
    2.1
    
    
    
    
    
    
    
    (96.5
    )Other income (expense)Interest income
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Other income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Interest expense
    
    
    (12.6
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (12.7
    )Equity in income of consolidated subsidiaries
    
    
    1.9
    
    
    
    
    
    
    
    (1.9
    )
    
    
    Income (loss) before income taxes
    
    
    (109.1
    )
    
    
    1.9
    
    
    
    (1.9
    )
    
    
    (109.1
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (109.1
    )
    
    $
    1.9
    
    
    $
    (1.9
    )
    
    $
    (109.1
    )
 18




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##### Table of Contents



Consolidating Statement of Operations
Six Months Ended June 25, 2006
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    758.4
    
    
    $
    25.5
    
    
    $
    (5.0
    )
    
    $
    778.9Costs and expensesCost of sales
    
    
    596.3
    
    
    
    23.5
    
    
    
    (5.0
    )
    
    
    614.8Selling, general and administrative expenses
    
    
    136.8
    
    
    
    1.8
    
    
    
    
    
    
    
    138.6Impairment charge
    
    
    8.5
    
    
    
    
    
    
    
    
    
    
    
    8.5Total costs and expenses
    
    
    741.6
    
    
    
    25.3
    
    
    
    (5.0
    )
    
    
    761.9Operating income (loss)
    
    
    16.8
    
    
    
    0.2
    
    
    
    
    
    
    
    17.0Other income (expense)Interest income
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.5Other income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (3.2
    )
    
    
    
    
    
    
    
    
    
    
    (3.2
    )Interest expense
    
    
    (31.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (31.2
    )Equity in income of consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    (17.0
    )
    
    
    (0.0
    )
    
    
    
    
    
    
    (17.0
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (17.0
    )
    
    $
    (0.0
    )
    
    $
    
    
    
    $
    (17.0
    )
 Consolidating Statement of Operations
Six Months Ended June 26, 2005
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    593.2
    
    
    $
    38.7
    
    
    $
    (5.1
    )
    
    $
    626.8Costs and expensesCost of sales
    
    
    582.2
    
    
    
    33.3
    
    
    
    (5.1
    )
    
    
    610.4Selling, general and administrative expenses
    
    
    143.8
    
    
    
    1.5
    
    
    
    
    
    
    
    145.3Impairment
charge
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Total costs and expenses
    
    
    731.9
    
    
    
    34.8
    
    
    
    (5.1
    )
    
    
    761.6Operating income (loss)
    
    
    (138.7
    )
    
    
    3.9
    
    
    
    
    
    
    
    (134.8
    )Other income (expense)Interest income
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    1.6Other income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Interest expense
    
    
    (24.7
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (24.8
    )Equity in income of consolidated subsidiaries
    
    
    3.7
    
    
    
    
    
    
    
    (3.7
    )
    
    
    Income (loss) before income taxes
    
    
    (158.9
    )
    
    
    3.7
    
    
    
    (3.7
    )
    
    
    (158.9
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (158.9
    )
    
    $
    3.7
    
    
    $
    (3.7
    )
    
    $
    (158.9
    )
 19




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##### Table of Contents



Consolidating Statement of Cash Flows
Six Months Ended June 25, 2006
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    (17.0
    )
    
    $
    
    
    
    $
    
    
    
    $
    (17.0
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in)operating activities:Depreciation & amortization
    
    
    27.8
    
    
    
    1.4
    
    
    
    
    
    
    
    29.2Impairment Charge
    
    
    8.5
    
    
    
    
    
    
    
    
    
    
    
    8.5Equity in losses of joint venture
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    3.2Loss from asset sales
    
    
    0.2
    
    
    
    0.1
    
    
    
    
    
    
    
    0.3Income from investments in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in current assets and liabilities:Accounts receivable
    
    
    (35.8
    )
    
    
    (0.6
    )
    
    
    
    
    
    
    (36.4
    )Intercompany accounts receivable
    
    
    (2.8
    )
    
    
    (1.6
    )
    
    
    4.4
    
    
    
    Inventories, net of advance and progress billings
    
    
    (32.8
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    (34.6
    )Other current assets
    
    
    (1.4
    )
    
    
    0.2
    
    
    
    
    
    
    
    (1.2
    )Accounts payable, trade
    
    
    26.9
    
    
    
    0.3
    
    
    
    
    
    
    
    27.2Intercompany accounts payable
    
    
    1.6
    
    
    
    2.8
    
    
    
    (4.4
    )
    
    
    Accrued payroll and employee benefits
    
    
    (3.3
    )
    
    
    0.2
    
    
    
    
    
    
    
    (3.1
    )Accrued and other liabilities
    
    
    18.1
    
    
    
    0.1
    
    
    
    
    
    
    
    18.2Accrued contract liabilities
    
    
    113.2
    
    
    
    
    
    
    
    
    
    
    
    113.2Other assets and liabilities  long-term
    
    
    (8.1
    )
    
    
    0.1
    
    
    
    
    
    
    
    (8.0
    )Net cash provided by (used in) operating activities
    
    
    98.3
    
    
    
    1.2
    
    
    
    
    
    
    
    99.5Investing activitiesCapital Expenditures
    
    
    (74.2
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (75.0
    )Proceeds from sale of assets
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Net cash used in investing activities
    
    
    (73.9
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (74.7
    )Financing activitiesProceeds from short-term bank debt
    
    
    155.0
    
    
    
    
    
    
    
    
    
    
    
    155.0Payments on short-term bank debt
    
    
    (155.0
    )
    
    
    
    
    
    
    
    
    
    
    (155.0
    )Payments on long-term bank debt
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Payments on capital leases
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )Proceeds from sale of common stock
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Proceeds from repayment of stockholder loans
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Proceeds from governmental grants
    
    
    16.1
    
    
    
    
    
    
    
    
    
    
    
    16.1Net cash provided by (used in) financing activities
    
    
    15.5
    
    
    
    (0.5
    )
    
    
    
    
    
    
    15.0Net increase (decrease) in cash and cash equivalents
    
    
    39.9
    
    
    
    (0.1
    )
    
    
    
    
    
    
    39.8Cash and cash equivalents at beginning of period
    
    
    9.9
    
    
    
    0.2
    
    
    
    
    
    
    
    10.1Cash and cash equivalents at end of period
    
    $
    49.8
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    49.9
 20




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##### Table of Contents



Consolidating Statement of Cash Flows
Six Months Ended June 26, 2005
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    (158.9
    )
    
    $
    3.7
    
    
    $
    (3.7
    )
    
    $
    (158.9
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in)operating activities:Depreciation & amortization
    
    
    34.8
    
    
    
    2.0
    
    
    
    
    
    
    
    36.8Impairment charge
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Equity in losses of joint venture
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Loss from asset sales
    
    
    4.2
    
    
    
    0.1
    
    
    
    
    
    
    
    4.3Income from investment in consolidated subsidiaries
    
    
    (3.7
    )
    
    
    
    
    
    
    3.7
    
    
    
    Changes in current assets and liabilities:Accounts receivable
    
    
    (6.2
    )
    
    
    (3.3
    )
    
    
    
    
    
    
    (9.5
    )Intercompany accounts receivable
    
    
    2.4
    
    
    
    1.3
    
    
    
    (3.7
    )
    
    
    Inventories, net of advance and progress billings
    
    
    (32.4
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (32.7
    )Other current assets
    
    
    1.1
    
    
    
    0.2
    
    
    
    
    
    
    
    1.3Accounts payable, trade
    
    
    (5.8
    )
    
    
    0.8
    
    
    
    
    
    
    
    (5.0
    )Intercompany accounts payable
    
    
    (1.3
    )
    
    
    (2.4
    )
    
    
    3.7
    
    
    
    Accrued payroll and employee benefits
    
    
    (4.6
    )
    
    
    
    
    
    
    
    
    
    
    (4.6
    )Accrued and other liabilities
    
    
    0.2
    
    
    
    (0.8
    )
    
    
    
    
    
    
    (0.6
    )Accrued contract liabilities
    
    
    98.0
    
    
    
    
    
    
    
    
    
    
    
    98.0Other assets and liabilities  long-term
    
    
    27.2
    
    
    
    (0.1
    )
    
    
    
    
    
    
    27.1Net cash provided by (used in) operating activities
    
    
    (38.3
    )
    
    
    1.2
    
    
    
    
    
    
    
    (37.1
    )Investing activitiesCapital expenditures
    
    
    (46.4
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (46.7
    )Investment in joint venture
    
    
    (2.5
    )
    
    
    
    
    
    
    
    
    
    
    (2.5
    )Net cash used in investing activities
    
    
    (48.9
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (49.2
    )Financing activitiesPayments on long-term bank debt
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Payments on capital leases
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )Proceeds from sale of common stock
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Proceeds from governmental grants
    
    
    15.5
    
    
    
    
    
    
    
    
    
    
    
    15.5Net cash provided by (used in) financing activities
    
    
    14.6
    
    
    
    (0.5
    )
    
    
    
    
    
    
    14.1Net increase (decrease) in cash and cash equivalents
    
    
    (72.6
    )
    
    
    0.4
    
    
    
    
    
    
    
    (72.2
    )Cash and cash equivalents at beginning of period
    
    
    128.6
    
    
    
    0.3
    
    
    
    
    
    
    
    128.9Cash and cash equivalents at end of period
    
    $
    56.0
    
    
    $
    0.7
    
    
    $
    
    
    
    $
    56.7
 21




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following section may include forward-looking statements that involve inherent risks and
uncertainties. A number of important factors could cause actual results to differ materially from
those in the forward-looking statements. These factors include (i) reduced demand for new
commercial aircraft due to reduction in airline traffic, (ii) business risks inherent to the
airline industry including armed conflict, terrorism, global health warnings, government
regulation, rising fuel and labor costs, lower than expected profitability, and general economic
conditions, and (iii) reduced demand for military aircraft due to reductions in defense spending,
cancellation or modification of military aircraft programs and changes to government export
controls. Managements discussion and analysis of financial condition and results of operations
should be read in conjunction with the financial statements of Vought and the accompanying notes
contained therein.
 22




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##### Table of Contents



Results of Operations
 Three Months
    
    
    Percentage
    
    
    Three Months
    
    
    Six Months
    
    
    Percentage
    
    
    Six MonthsEnded June 25,
    
    
    Change to
    
    
    Ended June 26,
    
    
    Ended June 25,
    
    
    Change to
    
    
    Ended June 26,2006
    
    
    Prior Year
    
    
    2005
    
    
    2006
    
    
    Prior Year
    
    
    2005($ in millions)
    
    
    ($ in millions)Net sales:Commercial
    
    $
    230.9
    
    
    
    26
    %
    
    $
    183.9
    
    
    $
    369.1
    
    
    
    16
    %
    
    $
    318.0Military
    
    
    130.8
    
    
    
    13
    %
    
    
    115.3
    
    
    
    259.5
    
    
    
    27
    %
    
    
    205.1Business jets
    
    
    94.4
    
    
    
    63
    %
    
    
    57.8
    
    
    
    150.3
    
    
    
    45
    %
    
    
    103.7Total net sales
    
    $
    456.1
    
    
    
    28
    %
    
    $
    357.0
    
    
    $
    778.9
    
    
    
    24
    %
    
    $
    626.8Costs and expenses:Cost of sales
    
    
    330.3
    
    
    
    -11
    %
    
    
    369.8
    
    
    
    614.8
    
    
    
    1
    %
    
    
    610.4Selling, general and administrative
    
    
    65.2
    
    
    
    -16
    %
    
    
    77.8
    
    
    
    138.6
    
    
    
    -5
    %
    
    
    145.3Impairment charge
    
    
    8.5
    
    
    
    44
    %
    
    
    5.9
    
    
    
    8.5
    
    
    
    44
    %
    
    
    5.9Total costs and expenses
    
    $
    404.0
    
    
    
    -11
    %
    
    $
    453.5
    
    
    $
    761.9
    
    
    
    0
    %
    
    $
    761.6Operating income (loss)
    
    
    52.1
    
    
    
    -154
    %
    
    
    (96.5
    )
    
    
    17.0
    
    
    
    -113
    %
    
    
    (134.8
    )Other income (loss)
    
    
    (0.1
    )
    
    
    0
    %
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    0
    %
    
    
    (0.1
    )Equity in (loss) of joint venture
    
    
    (1.5
    )
    
    
    114
    %
    
    
    (0.7
    )
    
    
    (3.2
    )
    
    
    300
    %
    
    
    (0.8
    )Interest expense, net
    
    
    (16.0
    )
    
    
    36
    %
    
    
    (11.8
    )
    
    
    (30.7
    )
    
    
    32
    %
    
    
    (23.2
    )Net income (loss)
    
    $
    34.5
    
    
    
    -132
    %
    
    $
    (109.1
    )
    
    $
    (17.0
    )
    
    
    -89
    %
    
    $
    (158.9
    )
 Comparison of Results of Operations for the Three Months Ended June 25, 2006 and June 26, 2005
 Net sales
 
    
    Commercial net sales increased by approximately $47.0 million or 26%, primarily due
to recognition of approximately $70.5 million in sales related to a customer settlement
which was finalized in the second quarter, offset by a reduction of
approximately $29.2 million in deliveries of the Boeing 747
fuselage due to an unusually high number of deliveries in the second
quarter of 2005.
    
    Military net sales increased approximately $15.5 million or 13%, primarily as a
result of an increase in the number of deliveries on the Global Hawk program, which
increased sales by $25.6 million, partially offset by a decrease in the number of
deliveries on the V-22 program, which decreased sales by $4.5 million.
    
    Business Jet net sales increased by approximately $36.6 million or 63%,
substantially due to a customer settlement that was finalized in the second quarter.
 Cost of sales
 Selling, general and administrative expenses
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##### Table of Contents



Operating income (loss)
 Interest expense, net
 Comparison of Results of Operations for the Six Months Ended June 25, 2006 and June 26, 2005
 Net sales
 
    
    Commercial net sales increased by approximately $ 51.1 million or 16%, primarily due
to the recognition of approximately $70.5 million in sales related to a customer
settlement that was finalized in 2006, offset by a reduction of
approximately $23.6 million in deliveries of the Boeing 747
fuselage due to an unusually high number of deliveries in the second
quarter of 2005.
    
    Military net sales increased approximately $54.4 million or 27%, primarily as a
result of an increase in the number of deliveries on the Global Hawk program, which
contributed $32.8 million of sales, as well as $26.7 million related to initial
deliveries on the C-5 program that began in 2006. These increases were partially
offset by a decrease of $3.9 million due to reduced deliveries on the V-22 program.
    
    Business Jet net sales increased by approximately $46.6 million or 45%,
substantially due to a customer settlement that was finalized in 2006 and due to
increased deliveries.
 Cost of sales
 Selling, general and administrative expenses
 Operating income (loss)
 24




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##### Table of Contents



Interest expense, net
 Critical Accounting Policies
 Share-based Payments Accounting for Stock-Based Compensation Accounting for
Stock Issued to Employees
 Liquidity and Capital Resources
  25




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Debt Covenants.
 Cash Flow
    Off-Balance Sheet Arrangements
  26




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      Interest Rate Risks
   27




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##### Table of Contents



Utility Price Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
     28




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FORWARD-LOOKING STATEMENTS
  29




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
 (a) Exhibits
 (10.1)*
    
    Separation Agreement between Vought and Vern Broomall.(31.1)*
    
    Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.(31.2)*
    
    Certification of Principal Financial and
Accounting Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002.(32.1)*
    
    Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.(32.2)*
    
    Certification of Principal Financial and
Accounting Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 30




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SIGNATURES
  Vought Aircraft Industries, Inc.(Registrant)August 9, 2006
    
    /s/ Wendy Hargus(Date)
    
    Wendy HargusInterim Principal Financial and AccountingOfficer and Authorized Officer
 31