##### 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 September 30, 2007
 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)
    
    (I.R.S. Employer Identification Number)201 East John Carpenter Freeway, Tower 1, Suite 900Irving, Texas
    
    75062(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 INFORMATION
    
    
    4ITEM 1. FINANCIAL STATEMENTS
    
    
    4Consolidated Balance Sheets
    
    
    4Consolidated Statements of Operations
    
    
    5Consolidated Statements of Cash Flows
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    23ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
    
    
    35ITEM 4. CONTROLS AND PROCEDURES
    
    
    35PART II. OTHER INFORMATION
    
    
    35ITEM 1. LEGAL PROCEEDINGS
    
    
    35ITEM 1A. RISK FACTORS
    
    
    35ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    35ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    35ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    35ITEM 5. OTHER INFORMATION
    
    
    35ITEM 6. EXHIBITS
    
    
    35SIGNATURES
    
    
    36Employment Agreement - Steve DavisEmployment Agreement - Dennis OrzelCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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FORWARD-LOOKING STATEMENTS
  3




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Part 1. Financial Information
 
 Item 1. Financial Statements
 Vought Aircraft Industries, Inc.
 
 Consolidated Balance Sheets
 ($ in millions, except per share amounts)
 September 30,2007
    
    
    December 31,(unaudited)
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    39.9
    
    
    $
    93.4Accounts receivable
    
    
    125.6
    
    
    
    82.1Inventories
    
    
    332.9
    
    
    
    337.8Other current assets
    
    
    6.6
    
    
    
    7.3Total current assets
    
    
    505.0
    
    
    
    520.6Property, plant and equipment, net
    
    
    505.5
    
    
    
    530.4Goodwill
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    58.0
    
    
    
    64.9Investment in joint venture
    
    
    10.0
    
    
    
    Debt origination costs, net and other assets
    
    
    12.5
    
    
    
    15.1Total assets
    
    $
    1,618.7
    
    
    $
    1,658.7Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    115.6
    
    
    $
    118.4Accrued and other liabilities
    
    
    65.8
    
    
    
    76.2Accrued payroll and employee benefits
    
    
    33.3
    
    
    
    40.8Accrued post-retirement benefits-current
    
    
    48.0
    
    
    
    51.3Accrued pension-current
    
    
    94.3
    
    
    
    25.6Current portion of long-term bank debt
    
    
    4.0
    
    
    
    4.0Capital lease obligation
    
    
    0.5
    
    
    
    1.3Accrued contract liabilities
    
    
    296.1
    
    
    
    333.7Total current liabilities
    
    
    657.6
    
    
    
    651.3Long-term liabilities:Accrued post-retirement benefits
    
    
    471.5
    
    
    
    478.8Accrued pension
    
    
    268.0
    
    
    
    352.0Long-term bank debt, net of current portion
    
    
    410.0
    
    
    
    413.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Other non-current liabilities
    
    
    183.5
    
    
    
    186.9Total liabilities
    
    
    2,260.6
    
    
    
    2,352.0Stockholders equity (deficit):Common stock, par value $.01 per share; 50,000,000
shares authorized,
24,776,578 and 24,755,248 issued and outstanding at
September 30, 2007
and December 31, 2006, respectively
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    416.6
    
    
    
    414.8Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    (1.0
    )Accumulated deficit
    
    
    (598.1
    )
    
    
    (641.3
    )Accumulated other comprehensive loss
    
    
    (458.1
    )
    
    
    (464.5
    )Total stockholders equity (deficit)
    
    $
    (641.9
    )
    
    $
    (693.3
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,618.7
    
    
    $
    1,658.7
 See accompanying notes
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Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Operations
 ($ in millions)
 (unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 24,
    
    
    September 30,
    
    
    September 24,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    422.3
    
    
    $
    354.4
    
    
    $
    1,230.6
    
    
    $
    1,133.3Costs and expensesCost of sales
    
    
    353.2
    
    
    
    294.6
    
    
    
    971.5
    
    
    
    939.6Selling, general and administrative expenses
    
    
    54.8
    
    
    
    56.7
    
    
    
    168.5
    
    
    
    165.1Impairment charge
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    8.1Total costs and expenses
    
    
    408.0
    
    
    
    350.9
    
    
    
    1,140.0
    
    
    
    1,112.8Operating income
    
    
    14.3
    
    
    
    3.5
    
    
    
    90.6
    
    
    
    20.5Other income (expense)Interest income
    
    
    0.9
    
    
    
    0.6
    
    
    
    3.1
    
    
    
    1.1Other income (loss)
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (1.7
    )
    
    
    (1.5
    )
    
    
    (2.4
    )
    
    
    (4.7
    )Interest expense
    
    
    (15.7
    )
    
    
    (16.0
    )
    
    
    (47.3
    )
    
    
    (47.2
    )Income (loss) before income taxes
    
    
    (2.2
    )
    
    
    (13.4
    )
    
    
    43.9
    
    
    
    (30.4
    )Income taxes
    
    
    0.1
    
    
    
    
    
    
    
    (0.7
    )
    
    
    Net income (loss)
    
    $
    (2.1
    )
    
    $
    (13.4
    )
    
    $
    43.2
    
    
    $
    (30.4
    )
 See accompanying notes
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Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Cash Flows
 ($ in millions) (Unaudited)
 Nine Months EndedSeptember 30,
    
    
    September 24,2007
    
    
    2006Operating activitiesNet income (loss)
    
    $
    43.2
    
    
    $
    (30.4
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    47.8
    
    
    
    44.2Impairment charge
    
    
    
    
    
    
    8.1Non-cash stock compensation expense
    
    
    1.8
    
    
    
    Equity in losses of joint venture
    
    
    2.4
    
    
    
    4.7Loss from asset sales
    
    
    0.7
    
    
    
    0.9Changes in current assets and liabilities:Accounts receivable
    
    
    (43.5
    )
    
    
    (5.9
    )Inventories, net of advances and progress billings
    
    
    4.9
    
    
    
    (49.7
    )Other current assets
    
    
    0.7
    
    
    
    0.3Accounts payable, trade
    
    
    (2.8
    )
    
    
    (2.4
    )Accrued payroll and employee benefits
    
    
    (7.5
    )
    
    
    (4.6
    )Accrued and other liabilities
    
    
    54.9
    
    
    
    19.1Accrued contract liabilities
    
    
    (37.6
    )
    
    
    96.1Other assets and liabilitieslong-term
    
    
    (81.4
    )
    
    
    (6.3
    )Net cash provided by (used in) operating activities
    
    
    (16.4
    )
    
    
    74.1Investing activitiesCapital expenditures
    
    
    (39.9
    )
    
    
    (91.9
    )Proceeds from sale of assets
    
    
    23.1
    
    
    
    0.3Investment in joint venture
    
    
    (16.5
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (33.3
    )
    
    
    (91.6
    )Financing activitiesProceeds from short-term bank debt
    
    
    
    
    
    
    155.0Payments on short-term bank debt
    
    
    
    
    
    
    (155.0
    )Payments on long-term bank debt
    
    
    (3.0
    )
    
    
    (2.0
    )Payments on capital leases
    
    
    (0.8
    )
    
    
    (0.6
    )Proceeds from sale of common stock
    
    
    
    
    
    
    0.4Proceeds from repayment of stockholder loans
    
    
    
    
    
    
    0.1Proceeds from governmental grants
    
    
    
    
    
    
    17.4Net cash provided by (used in) financing activities
    
    
    (3.8
    )
    
    
    15.3Net increase (decrease) in cash and cash equivalents
    
    
    (53.5
    )
    
    
    (2.2
    )Cash and cash equivalents at beginning of period
    
    
    93.4
    
    
    
    10.1Cash and cash equivalents at end of period
    
    $
    39.9
    
    
    $
    7.9
 See accompanying notes
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Vought Aircraft Industries, Inc.
Notes to Condensed Consolidated Financial Statements  Period Ending September 30, 2007
 Note 1  Organization and Basis of Presentation
     7




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Note 2  Recent Accounting Pronouncements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106 and 132(R)
 Fair Value Measurements
 Note 3  Inventories
   September 30,
    
    
    December 31,2007
    
    
    2006($ in millions)Production costs of contracts in process
    
    $
    590.7
    
    
    $
    539.3Finished goods
    
    
    2.8
    
    
    
    3.1Less: unliquidated progress payments
    
    
    (260.6
    )
    
    
    (204.6
    )Total inventories
    
    $
    332.9
    
    
    $
    337.8
 Note 4  Goodwill and Intangible Assets
 SFAS 142 Goodwill and Other Intangible Assets (SFAS 142) SFAS 142
  8




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September 30,
    
    
    December 31,2007
    
    
    2006($ in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Pension asset
    
    
    15.6
    
    
    
    15.7Less: accumulated amortization
    
    
    (94.9
    )
    
    
    (88.1
    )Identifiable intangible assets, net
    
    $
    58.0
    
    
    $
    64.9
  ($ in millions)2007
    
    $
    2.32008
    
    
    9.22009
    
    
    9.22010
    
    
    6.22011
    
    
    2.1Thereafter
    
    
    13.4$
    42.4
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Note 5  Pension and Other Post-retirement Benefits
  Pension BenefitsThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 24,
    
    
    September 30,
    
    
    September 24,2007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic benefit cost
(income):Service cost
    
    $
    5.1
    
    
    $
    5.6
    
    
    $
    14.5
    
    
    $
    18.1Interest cost
    
    
    26.5
    
    
    
    27.1
    
    
    
    77.6
    
    
    
    79.6Expected return on plan assets
    
    
    (29.2
    )
    
    
    (28.2
    )
    
    
    (87.7
    )
    
    
    (85.9
    )Amortization of net loss
    
    
    10.6
    
    
    
    10.6
    
    
    
    29.0
    
    
    
    38.7Prior service cost recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Amortization of prior service cost
    
    
    1.1
    
    
    
    1.0
    
    
    
    3.1
    
    
    
    3.0Plan curtailment(gain)/loss
    
    
    2.1
    
    
    
    
    
    
    
    2.1
    
    
    
    1.1Special termination benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Settlement charge
    
    
    0.6
    
    
    
    
    
    
    
    6.5
    
    
    
    Net periodic benefit cost
    
    $
    16.8
    
    
    $
    16.1
    
    
    $
    45.1
    
    
    $
    55.1Defined contribution plan cost
    
    $
    2.0
    
    
    $
    1.6
    
    
    $
    5.7
    
    
    $
    5.1
 Other Post-retirement BenefitsThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 24,
    
    
    September 30,
    
    
    September 24,2007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic benefit cost
(income):Service cost
    
    $
    1.4
    
    
    $
    1.5
    
    
    $
    4.2
    
    
    $
    4.5Interest cost
    
    
    7.5
    
    
    
    9.0
    
    
    
    23.9
    
    
    
    25.9Expected return on plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net loss
    
    
    0.7
    
    
    
    1.7
    
    
    
    3.7
    
    
    
    8.7Prior service cost recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.5
    )Amortization of prior service cost
    
    
    (2.3
    )
    
    
    (2.1
    )
    
    
    (7.0
    )
    
    
    (7.1
    )Plan curtailment(gain)/loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.1
    )Special termination benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7Settlement charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    7.3
    
    
    $
    10.1
    
    
    $
    24.8
    
    
    $
    21.1
 10




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Note 6- Commitments
 Warranty Reserves.
 :
 WarrantyReserve($ in millions)Beginning Balance at December 31, 2005
    
    $
    8.0Warranty costs incurred
    
    
    (0.2
    )Additions charged to cost of sales:Warranties issued
    
    
    1.3Charges related to pre-existing warranties
    
    
    (2.3
    )Beginning Balance at December 31, 2006
    
    $
    6.8Warranty costs incurred
    
    
    (0.3
    )Additions charged to cost of sales:Warranties issued
    
    
    0.8Charges related to pre-existing warranties
    
    
    Ending Balance at September 30, 2007
    
    $
    7.3
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Note 7- Environmental Contingencies
     EnvironmentalLiability($ in millions)Balance at December 31, 2005
    
    $
    4.3Environmental costs incurred
    
    
    (0.2
    )Balance at December 31, 2006
    
    
    4.1Environmental costs incurred
    
    
    (0.2
    )Balance at September 30, 2007
    
    $
    3.9
 12




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Note 8- Other Non-Current Liabilities
  September 30,
    
    
    December 31,2007
    
    
    2006($ in millions)Deferred income from the sale of Hawthorne facility
    
    $
    52.6
    
    
    $
    52.6State of South Carolina grant monies (a)
    
    
    64.9
    
    
    
    67.2State of Texas grant monies
    
    
    35.0
    
    
    
    35.0Deferred workers compensation
    
    
    21.6
    
    
    
    18.5Accrued warranties
    
    
    5.8
    
    
    
    5.5Investment in joint venture
    
    
    
    
    
    
    4.2Other
    
    
    3.6
    
    
    
    3.9Total other non-current liabilities
    
    $
    183.5
    
    
    $
    186.9
 
 
 Note 9- Income Taxes
 Accounting for Uncertainty
in Income Taxes
     13




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Note 10  Stock-Based Compensation
   Stock Options
 SFAS 123R Share-based Payment
 Expected dividend yield
    
    
    0
    %Risk free interest rate
    
    
    3.9% - 4.4
    %Expected term
    
    6 years
   RemainingExercise
    
    Contractual
    
    AggregatePrice Per
    
    Term (*)
    
    IntrinsicShares
    
    Share (*)
    
    (in years)
    
    ValueOutstanding at December 31, 2006
    
    
    850,587
    
    
    $
    13.59Granted
    
    
    
    
    
    $
    Exercised
    
    
    
    
    
    $
    Forfeited or expired
    
    
    (132,888
    )
    
    $
    10.22Outstanding at September 30, 2007
    
    
    717,699
    
    
    $
    14.21
    
    
    
    3.7
    
    
    $
    Vested or expected to vest (1)
    
    
    717,699
    
    
    $
    14.21
    
    
    
    3.7
    
    
    $
    Exercisable at September 30, 2007
    
    
    645,249
    
    
    $
    13.63
    
    
    
    3.7
    
    
    $
    
 
 (*)     Weighted-average(1)
    
    Represents outstanding options reduced by expected forfeitures. Expected forfeitures assumed
under SFAS 123 were zero. 14




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Stock Appreciation Rights (SARs)
   September 30,2007Stock price
    
    $
    8.79Strike price
    
    $
    10.00Expected term
    
    6.25 yearsRisk-free interest rate
    
    
    4.76 - 5.02
    %Expected Volatility
    
    
    53% - 54
    %Dividend Rate
    
    
    0
    %
  RemainingExercise
    
    Contractual
    
    AggregatePrice Per
    
    Term (*)
    
    IntrinsicShares
    
    Share (*)
    
    (in years)
    
    ValueOutstanding at December 31, 2006
    
    
    797,270
    
    
    $
    10.00Granted
    
    
    259,380
    
    
    $
    10.00Exercised
    
    
    
    
    
    $
    Forfeited or expired
    
    
    (72,650
    )
    
    $
    10.00Outstanding at September 30, 2007
    
    
    984,000
    
    
    $
    10.00
    
    
    
    9.2
    
    
    $
    Vested or expected to vest (1)
    
    
    815,910
    
    
    $
    10.00
    
    
    
    9.2
    
    
    $
    Exercisable at September 30, 2007
    
    
    194,494
    
    
    $
    10.00
    
    
    
    9.2
    
    
    $
    
 
 (*)
    
    Weighted-average(1)
    
    Represents outstanding SARRs reduced by expected forfeitures. Restricted Stock Units (RSUs)
 SFAS 123
 15




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Grant DateUnits
    
    
    Fair ValueRestricted
Stock Units Outstanding at December 31, 2006
    
    
    395,140
    
    
    $
    8.79Restricted Stock Units Granted
    
    
    197,906
    
    
    $
    8.79Restricted Stock Units Forfeited
    
    
    (23,900
    )
    
    $
    8.79Restricted Stock Units Exercised
    
    
    
    
    
    $
    Restricted
Stock Units Outstanding at September 30, 2007
    
    
    569,146
    
    
    $
    8.79Vested or expected to vest (1)
    
    
    509,247
 
 (1)
    
    Represents outstanding RSUs reduced by expected forfeitures. Restricted Shares
  Note 11- Related Party Transactions
   Note 12- Guarantor Subsidiaries
  16




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Consolidating Balance Sheet
September 30, 2007
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    39.9
    
    
    $
    
    
    
    $
    
    
    
    $
    39.9Accounts receivable
    
    
    118.8
    
    
    
    6.8
    
    
    
    
    
    
    
    125.6Intercompany receivable
    
    
    23.3
    
    
    
    7.5
    
    
    
    (30.8
    )
    
    
    Inventories
    
    
    318.4
    
    
    
    14.5
    
    
    
    
    
    
    
    332.9Other current assets
    
    
    6.0
    
    
    
    0.6
    
    
    
    
    
    
    
    6.6Total current assets
    
    
    506.4
    
    
    
    29.4
    
    
    
    (30.8
    )
    
    
    505.0Property, plant and equipment, net
    
    
    497.1
    
    
    
    8.4
    
    
    
    
    
    
    
    505.5Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    58.0
    
    
    
    
    
    
    
    
    
    
    
    58.0Investment in affiliated company
    
    
    71.5
    
    
    
    
    
    
    
    (71.5
    )
    
    
    Investment in joint venture
    
    
    10.0
    
    
    
    
    
    
    
    
    
    
    
    10.0Debt origination costs, net and other assets
    
    
    12.4
    
    
    
    0.1
    
    
    
    
    
    
    
    12.5Total assets
    
    $
    1,619.4
    
    
    $
    101.6
    
    
    $
    (102.3
    )
    
    $
    1,618.7Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    110.4
    
    
    $
    5.2
    
    
    $
    
    
    
    $
    115.6Intercompany payable
    
    
    7.5
    
    
    
    23.3
    
    
    
    (30.8
    )
    
    
    Accrued and other liabilities
    
    
    65.7
    
    
    
    0.1
    
    
    
    
    
    
    
    65.8Accrued payroll and employee benefits
    
    
    32.3
    
    
    
    1.0
    
    
    
    
    
    
    
    33.3Accrued post-retirement benefits  current
    
    
    48.0
    
    
    
    
    
    
    
    
    
    
    
    48.0Accrued pension  current
    
    
    94.3
    
    
    
    
    
    
    
    
    
    
    
    94.3Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5Accrued contract liabilities
    
    
    296.1
    
    
    
    
    
    
    
    
    
    
    
    296.1Total current liabilities
    
    
    658.3
    
    
    
    30.1
    
    
    
    (30.8
    )
    
    
    657.6Long-term liabilities:Accrued post-retirement benefits
    
    
    471.5
    
    
    
    
    
    
    
    
    
    
    
    471.5Accrued pension
    
    
    268.0
    
    
    
    
    
    
    
    
    
    
    
    268.0Long-term bank debt, net of current portion
    
    
    410.0
    
    
    
    
    
    
    
    
    
    
    
    410.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current liabilities
    
    
    183.5
    
    
    
    
    
    
    
    
    
    
    
    183.5Total liabilities
    
    
    2,261.3
    
    
    
    30.1
    
    
    
    (30.8
    )
    
    
    2,260.6Stockholders equity (deficit):Common stock, par value $0.01; 50,000,000 shares
authorized, 24,776,578 issued and outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    416.6
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    416.6Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Accumulated deficit
    
    
    (598.1
    )
    
    
    (8.8
    )
    
    
    8.8
    
    
    
    (598.1
    )Accumulated other comprehensive loss
    
    
    (458.1
    )
    
    
    
    
    
    
    
    
    
    
    (458.1
    )Total stockholders equity (deficit)
    
    
    (641.9
    )
    
    
    71.5
    
    
    
    (71.5
    )
    
    
    (641.9
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,619.4
    
    
    $
    101.6
    
    
    $
    (102.3
    )
    
    $
    1,618.7
 17




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##### Table of Contents



Consolidating
Balance Sheet
December 31, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    92.5
    
    
    $
    0.9
    
    
    $
    
    
    
    $
    93.4Accounts receivable
    
    
    78.1
    
    
    
    4.0
    
    
    
    
    
    
    
    82.1Intercompany receivable
    
    
    18.1
    
    
    
    6.2
    
    
    
    (24.3
    )
    
    
    Inventories
    
    
    324.5
    
    
    
    13.3
    
    
    
    
    
    
    
    337.8Other current assets
    
    
    6.9
    
    
    
    0.4
    
    
    
    
    
    
    
    7.3Total current assets
    
    
    520.1
    
    
    
    24.8
    
    
    
    (24.3
    )
    
    
    520.6Property, plant and equipment, net
    
    
    520.6
    
    
    
    9.8
    
    
    
    
    
    
    
    530.4Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    64.9
    
    
    
    
    
    
    
    
    
    
    
    64.9Investment in affiliated company
    
    
    74.1
    
    
    
    
    
    
    
    (74.1
    )
    
    
    Debt origination costs, net and other assets
    
    
    15.0
    
    
    
    0.1
    
    
    
    
    
    
    
    15.1Total assets
    
    $
    1,658.7
    
    
    $
    98.4
    
    
    $
    (98.4
    )
    
    $
    1,658.7Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    114.7
    
    
    $
    3.7
    
    
    $
    
    
    
    $
    118.4Intercompany payable
    
    
    6.2
    
    
    
    18.1
    
    
    
    (24.3
    )
    
    
    Accrued and other liabilities
    
    
    75.6
    
    
    
    0.6
    
    
    
    
    
    
    
    76.2Accrued payroll and employee benefits
    
    
    39.9
    
    
    
    0.9
    
    
    
    
    
    
    
    40.8Accrued post-retirement benefits  current
    
    
    51.3
    
    
    
    
    
    
    
    
    
    
    
    51.3Accrued pension  current
    
    
    25.6
    
    
    
    
    
    
    
    
    
    
    
    25.6Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    0.3
    
    
    
    1.0
    
    
    
    
    
    
    
    1.3Accrued contract liabilities
    
    
    333.7
    
    
    
    
    
    
    
    
    
    
    
    333.7Total current liabilities
    
    
    651.3
    
    
    
    24.3
    
    
    
    (24.3
    )
    
    
    651.3Long-term liabilities:Accrued post-retirement benefits
    
    
    478.8
    
    
    
    
    
    
    
    
    
    
    
    478.8Accrued pension
    
    
    352.0
    
    
    
    
    
    
    
    
    
    
    
    352.0Long-term bank debt, net of current portion
    
    
    413.0
    
    
    
    
    
    
    
    
    
    
    
    413.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current liabilities
    
    
    186.9
    
    
    
    
    
    
    
    
    
    
    
    186.9Total liabilities
    
    
    2,352.0
    
    
    
    24.3
    
    
    
    (24.3
    )
    
    
    2,352.0Stockholders equity (deficit):Common stock, par value $0.01; 50,000,000 shares
authorized, 24,755,248 issued and outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    414.8
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    414.8Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Accumulated deficit
    
    
    (641.3
    )
    
    
    (6.2
    )
    
    
    6.2
    
    
    
    (641.3
    )Accumulated other comprehensive loss
    
    
    (464.5
    )
    
    
    
    
    
    
    
    
    
    
    (464.5
    )Total stockholders equity (deficit)
    
    
    (693.3
    )
    
    
    74.1
    
    
    
    (74.1
    )
    
    
    (693.3
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,658.7
    
    
    $
    98.4
    
    
    $
    (98.4
    )
    
    $
    1,658.7
 18




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##### Table of Contents



Consolidating Statement of Operations
Three Months Ended September 30, 2007
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    410.2
    
    
    $
    16.2
    
    
    $
    (4.1
    )
    
    $
    422.3Costs and expensesCost of sales
    
    
    342.3
    
    
    
    15.0
    
    
    
    (4.1
    )
    
    
    353.2Selling, general and administrative expenses
    
    
    53.6
    
    
    
    1.2
    
    
    
    
    
    
    
    54.8Total costs and expenses
    
    
    395.9
    
    
    
    16.2
    
    
    
    (4.1
    )
    
    
    408.0Operating income (loss)
    
    
    14.3
    
    
    
    
    
    
    
    
    
    
    
    14.3Other income (expense)Interest income
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Other income (loss)
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    
    
    
    
    Equity in earnings (loss) of joint venture
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (1.7
    )Interest expense
    
    
    (15.7
    )
    
    
    
    
    
    
    
    
    
    
    (15.7
    )Equity in income of consolidated subsidiaries
    
    
    (0.1
    )
    
    
    
    
    
    
    0.1
    
    
    
    Income (loss) before income taxes
    
    
    (2.2
    )
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    (2.2
    )Income taxes
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Net income (loss)
    
    $
    (2.1
    )
    
    $
    (0.1
    )
    
    $
    0.1
    
    
    $
    (2.1
    )
 Consolidating Statement of Operations
Three Months Ended September 24, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    344.2
    
    
    $
    9.7
    
    
    $
    0.5
    
    
    $
    354.4Costs and expensesCost of sales
    
    
    281.5
    
    
    
    12.6
    
    
    
    0.5
    
    
    
    294.6Selling, general and administrative expenses
    
    
    55.8
    
    
    
    0.9
    
    
    
    
    
    
    
    56.7Impairment charge
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Total costs and expenses
    
    
    336.9
    
    
    
    13.5
    
    
    
    0.5
    
    
    
    350.9Operating income (loss)
    
    
    7.3
    
    
    
    (3.8
    )
    
    
    
    
    
    
    3.5Other income (expense)Interest income
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6Other income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings (loss) of joint venture
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (1.5
    )Interest expense
    
    
    (16.0
    )
    
    
    
    
    
    
    
    
    
    
    (16.0
    )Equity in income of consolidated subsidiaries
    
    
    (3.8
    )
    
    
    
    
    
    
    3.8
    
    
    
    Income (loss) before income taxes
    
    
    (13.4
    )
    
    
    (3.8
    )
    
    
    3.8
    
    
    
    (13.4
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (13.4
    )
    
    $
    (3.8
    )
    
    $
    3.8
    
    
    $
    (13.4
    )
 19




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##### Table of Contents



Consolidating Statement of Operations
Nine Months Ended September 30, 2007
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    1,193.6
    
    
    $
    45.2
    
    
    $
    (8.2
    )
    
    $
    1,230.6Costs and expensesCost of sales
    
    
    935.7
    
    
    
    44.0
    
    
    
    (8.2
    )
    
    
    971.5Selling, general and administrative expenses
    
    
    164.8
    
    
    
    3.7
    
    
    
    
    
    
    
    168.5Total costs and expenses
    
    
    1,100.5
    
    
    
    47.7
    
    
    
    (8.2
    )
    
    
    1,140.0Operating income (loss)
    
    
    93.1
    
    
    
    (2.5
    )
    
    
    
    
    
    
    90.6Other income (expense)Interest income
    
    
    3.1
    
    
    
    
    
    
    
    
    
    
    
    3.1Other income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (2.4
    )
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Interest expense
    
    
    (47.3
    )
    
    
    
    
    
    
    
    
    
    
    (47.3
    )Equity in income of consolidated subsidiaries
    
    
    (2.6
    )
    
    
    
    
    
    
    2.6
    
    
    
    Income (loss) before income taxes
    
    
    43.9
    
    
    
    (2.6
    )
    
    
    2.6
    
    
    
    43.9Income taxes
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Net income (loss)
    
    $
    43.2
    
    
    $
    (2.6
    )
    
    $
    2.6
    
    
    $
    43.2
 Consolidating Statement of Operations
Nine Months Ended September 24, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    1,102.6
    
    
    $
    35.2
    
    
    $
    (4.5
    )
    
    $
    1,133.3Costs and expensesCost of sales
    
    
    908.0
    
    
    
    36.1
    
    
    
    (4.5
    )
    
    
    939.6Selling, general and administrative expenses
    
    
    162.4
    
    
    
    2.7
    
    
    
    
    
    
    
    165.1Impairment Charge
    
    
    8.1
    
    
    
    
    
    
    
    
    
    
    
    8.1Total costs and expenses
    
    
    1,078.5
    
    
    
    38.8
    
    
    
    (4.5
    )
    
    
    1,112.8Operating income (loss)
    
    
    24.1
    
    
    
    (3.6
    )
    
    
    
    
    
    
    20.5Other income (expense)Interest income
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    1.1Other income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (4.7
    )
    
    
    
    
    
    
    
    
    
    
    (4.7
    )Interest expense
    
    
    (47.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (47.2
    )Equity in income of consolidated subsidiaries
    
    
    (3.8
    )
    
    
    
    
    
    
    3.8
    
    
    
    Income (loss) before income taxes
    
    
    (30.4
    )
    
    
    (3.8
    )
    
    
    3.8
    
    
    
    (30.4
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (30.4
    )
    
    $
    (3.8
    )
    
    $
    3.8
    
    
    $
    (30.4
    )
 20




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##### Table of Contents



Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2007
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    43.2
    
    
    $
    (2.6
    )
    
    $
    2.6
    
    
    $
    43.2Adjustments to reconcile net income (loss) to net cash
provided by (used in ) operating activities:Depreciation and amortization
    
    
    46.6
    
    
    
    1.2
    
    
    
    
    
    
    
    47.8Non-cash stock compensation expense
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    1.8Equity in losses of joint venture
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    2.4Loss from asset sales
    
    
    0.6
    
    
    
    0.1
    
    
    
    
    
    
    
    0.7Income from investments in consolidated subsidiaries
    
    
    2.6
    
    
    
    
    
    
    
    (2.6
    )
    
    
    Changes in current assets and liabilities:Accounts receivable
    
    
    (40.7
    )
    
    
    (2.8
    )
    
    
    
    
    
    
    (43.5
    )Intercompany accounts receivable
    
    
    (6.2
    )
    
    
    (0.3
    )
    
    
    6.5
    
    
    
    Inventories, net of advance and progress billings
    
    
    6.1
    
    
    
    (1.2
    )
    
    
    
    
    
    
    4.9Other current assets
    
    
    0.9
    
    
    
    (0.2
    )
    
    
    
    
    
    
    0.7Accounts payable, trade
    
    
    (4.3
    )
    
    
    1.5
    
    
    
    
    
    
    
    (2.8
    )Intercompany accounts payable
    
    
    1.3
    
    
    
    5.2
    
    
    
    (6.5
    )
    
    
    Accrued payroll and employee benefits
    
    
    (7.6
    )
    
    
    0.1
    
    
    
    
    
    
    
    (7.5
    )Accrued and other liabilities
    
    
    55.4
    
    
    
    (0.5
    )
    
    
    
    
    
    
    54.9Accrued contract liabilities
    
    
    (37.6
    )
    
    
    
    
    
    
    
    
    
    
    (37.6
    )Other assets and liabilities  long-term
    
    
    (81.4
    )
    
    
    
    
    
    
    
    
    
    
    (81.4
    )Net cash provided by (used in) operating activities
    
    
    (16.9
    )
    
    
    0.5
    
    
    
    
    
    
    
    (16.4
    )Investing activitiesCapital expenditures
    
    
    (39.0
    )
    
    
    (0.9
    )
    
    
    
    
    
    
    (39.9
    )Proceeds from sale of assets
    
    
    23.1
    
    
    
    
    
    
    
    
    
    
    
    23.1Investment in joint venture
    
    
    (16.5
    )
    
    
    
    
    
    
    
    
    
    
    (16.5
    )Net cash provided by (used in) investing activities
    
    
    (32.4
    )
    
    
    (0.9
    )
    
    
    
    
    
    
    (33.3
    )Financing activitiesPayments on long-term bank debt
    
    
    (3.0
    )
    
    
    
    
    
    
    
    
    
    
    (3.0
    )Payments on capital leases
    
    
    (0.3
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.8
    )Net cash provided by (used in) financing activities
    
    
    (3.3
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (3.8
    )Net increase (decrease) in cash and cash equivalents
    
    
    (52.6
    )
    
    
    (0.9
    )
    
    
    
    
    
    
    (53.5
    )Cash and cash equivalents at beginning of period
    
    
    92.5
    
    
    
    0.9
    
    
    
    
    
    
    
    93.4Cash and cash equivalents at end of period
    
    $
    39.9
    
    
    $
    
    
    
    $
    
    
    
    $
    39.9
 21




---



##### Table of Contents



Consolidating Statement of Cash Flows
Nine Months Ended September 24, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    (30.4
    )
    
    $
    (3.8
    )
    
    $
    3.8
    
    
    $
    (30.4
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in ) operating activities:Depreciation and amortization
    
    
    42.3
    
    
    
    1.9
    
    
    
    
    
    
    
    44.2Impairment Charge
    
    
    8.1
    
    
    
    
    
    
    
    
    
    
    
    8.1Equity in losses of joint venture
    
    
    4.7
    
    
    
    
    
    
    
    
    
    
    
    4.7Loss from asset sales
    
    
    0.8
    
    
    
    0.1
    
    
    
    
    
    
    
    0.9Income from investments in consolidated subsidiaries
    
    
    3.8
    
    
    
    
    
    
    
    (3.8
    )
    
    
    Changes in current assets and liabilities:Accounts receivable
    
    
    (7.5
    )
    
    
    1.6
    
    
    
    
    
    
    
    (5.9
    )Intercompany accounts receivable
    
    
    (3.8
    )
    
    
    
    
    
    
    3.8
    
    
    
    Inventories, net of advance and progress billings
    
    
    (48.2
    )
    
    
    (1.5
    )
    
    
    
    
    
    
    (49.7
    )Other current assets
    
    
    0.2
    
    
    
    0.1
    
    
    
    
    
    
    
    0.3Accounts payable, trade
    
    
    (2.0
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    (2.4
    )Intercompany accounts payable
    
    
    
    
    
    
    3.8
    
    
    
    (3.8
    )
    
    
    Accrued payroll and employee benefits
    
    
    (4.6
    )
    
    
    
    
    
    
    
    
    
    
    (4.6
    )Accrued and other liabilities
    
    
    18.6
    
    
    
    0.5
    
    
    
    
    
    
    
    19.1Accrued contract liabilities
    
    
    96.1
    
    
    
    
    
    
    
    
    
    
    
    96.1Other assets and liabilities  long-term
    
    
    (6.5
    )
    
    
    0.2
    
    
    
    
    
    
    
    (6.3
    )Net cash provided by (used in) operating activities
    
    
    71.6
    
    
    
    2.5
    
    
    
    
    
    
    
    74.1Investing activitiesCapital expenditures
    
    
    (89.8
    )
    
    
    (2.1
    )
    
    
    
    
    
    
    (91.9
    )Proceeds from sale of assets
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Net cash provided by (used in) investing activities
    
    
    (89.5
    )
    
    
    (2.1
    )
    
    
    
    
    
    
    (91.6
    )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
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    (2.0
    )Payments on capital leases
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.6
    )Proceeds from sale of common stock
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Proceeds from repayment of stockholder loans
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Proceeds from governmental grants
    
    
    17.4
    
    
    
    
    
    
    
    
    
    
    
    17.4Net cash provided by (used in) financing activities
    
    
    15.9
    
    
    
    (0.6
    )
    
    
    
    
    
    
    15.3Net increase (decrease) in cash and cash equivalents
    
    
    (2.0
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (2.2
    )Cash and cash equivalents at beginning of period
    
    
    9.9
    
    
    
    0.2
    
    
    
    
    
    
    
    10.1Cash and cash equivalents at end of period
    
    $
    7.9
    
    
    $
    0.0
    
    
    $
    
    
    
    $
    7.9
 22




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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 reductions 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 the Company and the accompanying
notes contained therein.
 Overview
  Recent Events
   23




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##### Table of Contents



Results of Operations
 Three Months
    
    
    Three Months
    
    
    
    
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    
    
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 24,
    
    
    
    
    
    
    September 30,
    
    
    September 24,2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeNet sales:Commercial
    
    $
    205.1
    
    
    $
    156.1
    
    
    $
    49.0
    
    
    $
    609.1
    
    
    $
    525.2
    
    
    $
    83.9Military
    
    
    142.2
    
    
    
    133.6
    
    
    
    8.6
    
    
    
    398.5
    
    
    
    393.1
    
    
    
    5.4Business Jets
    
    
    75.0
    
    
    
    64.7
    
    
    
    10.3
    
    
    
    223.0
    
    
    
    215.0
    
    
    
    8.0Total net sales
    
    $
    422.3
    
    
    $
    354.4
    
    
    $
    67.9
    
    
    $
    1,230.6
    
    
    $
    1,133.3
    
    
    $
    97.3Costs and expenses:Cost of sales (1)
    
    
    353.2
    
    
    
    294.6
    
    
    
    58.6
    
    
    
    971.5
    
    
    
    939.6
    
    
    
    31.9Selling, general and administrative (1)
    
    
    54.8
    
    
    
    56.7
    
    
    
    (1.9
    )
    
    
    168.5
    
    
    
    165.1
    
    
    
    3.4Impairment change
    
    
    
    
    
    
    (0.4
    )
    
    
    0.4
    
    
    
    
    
    
    
    8.1
    
    
    
    (8.1
    )Total costs and expenses
    
    $
    408.0
    
    
    $
    350.9
    
    
    $
    57.1
    
    
    $
    1,140.0
    
    
    $
    1,112.8
    
    
    $
    27.2Operating income (loss)
    
    
    14.3
    
    
    
    3.5
    
    
    
    10.8
    
    
    
    90.6
    
    
    
    20.5
    
    
    
    70.1Interest expense, net
    
    
    (14.8
    )
    
    
    (15.4
    )
    
    
    0.6
    
    
    
    (44.2
    )
    
    
    (46.1
    )
    
    
    1.9Other (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    Equity in (loss) of joint venture
    
    
    (1.7
    )
    
    
    (1.5
    )
    
    
    (0.2
    )
    
    
    (2.4
    )
    
    
    (4.7
    )
    
    
    2.3Income taxes
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    (0.7
    )
    
    
    
    
    
    
    (0.7
    )Net Income (loss)
    
    $
    (2.1
    )
    
    $
    (13.4
    )
    
    $
    11.3
    
    
    $
    43.2
    
    
    $
    (30.4
    )
    
    $
    73.6
 
 (1)
    
    We reclassified prior year
costs related to information technology from general and
administrative expenses to cost of sales because information
technology directly supports manufacturing and engineering
activities. Comparison of Results of Operations for the Three Months Ended September 30, 2007 and September 24,
2006
 Net sales
 
    
    Commercial net sales
increased $49.0 million or 31%, primarily due to price adjustments and
increased delivery rates. Sales increased $31.5 million for the Boeing programs and $17.5
million for the Airbus programs.
    
    Military net sales increased $8.6 million or 6%, primarily due to $16.5 million of increased sales on the C-17 and H-60 programs partially offset by a decrease of $9.1
million relating to the C-5 program for non-recurring effort recorded in 2006. The
sales increase for the C-17 was due to timing of deliveries and the H-60 increase was
due to increased delivery rates.
    
    Business Jet net sales increased by $10.3 million or 16% primarily due to
increased delivery rates and price adjustments.
 Cost of sales
 24




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##### Table of Contents



Selling, general and administrative expenses
 Operating income (loss)
 Interest expense, net
 Comparison of Results of Operations for the Nine Months Ended September 30, 2007 and September 24,
2006
 Net sales
 
    
    Commercial net sales increased $83.9 million or 16%, primarily due to price
adjustments and increased delivery rates. Boeing program sales increased $111.3
million and the Airbus program sales increased $43.1 million. These increases were
partially offset by the $70.5 million of customer settlements recorded in the nine
months ended September 24, 2006 with no corresponding contributions to net sales in
the nine months ended September 30, 2007.
    
    Military net sales increased $5.4 million or 1%, primarily due to sales increases
of $56.9 million for the H-60 and C-17 programs. The increases
were due to increased
delivery rates for the H-60 program and timing of deliveries for the C-17 program,
partially offset by a decrease of $49.9 million of non-recurring sales for the C-5 and
Global Hawk programs recognized during the nine months ended
September 24, 2006.
    
    Business Jet net sales increased $8.0 million or 4% primarily due to increased
delivery rates and price adjustments of $37.0 million which were partially offset by
$29.0 million of customer settlements recorded in the nine months ended September 24,
2006 with no corresponding contributions to net sales in the nine months ended
September 30, 2007.
 Cost of sales
 Selling, general and administrative expenses
 Operating income (loss)
 25




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##### Table of Contents



Interest expense, net
 Critical Accounting Policies
  Revenue Recognition
 Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
  September 30,
    
    
    December 31,2007
    
    
    2006($ in millions)Advances and progress billings
    
    $
    259.9
    
    
    $
    258.9Forward Loss
    
    
    11.4
    
    
    
    34.4Purchase accounting adjustment
    
    
    19.5
    
    
    
    24.1Accrued vendor payments
    
    
    4.7
    
    
    
    10.3Other
    
    
    0.6
    
    
    
    6.0Total accrued contract liability
    
    $
    296.1
    
    
    $
    333.7
  26




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##### Table of Contents



Goodwill
 SFAS 142 SFAS 142
   Recent Accounting Pronouncements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106 and 132(R)
  Liquidity and Capital Resources
   27




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##### Table of Contents



SOP 81-1 paragraph 79
     Credit Agreements and Debt Covenants.
 28




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##### Table of Contents



Non-GAAP Financial Measures.
 29




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##### Table of Contents



Vought Aircraft Industries, Inc.
Reconciliation of Non-GAAP Measures
Adjusted EBITDA
(Unaudited)
($ in millions)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 24,
    
    
    September 30,
    
    
    September 24,2007
    
    
    2006
    
    
    2007
    
    
    2006Net cash provided by (used in) operating activities
    
    $
    (18.1
    )
    
    $
    (25.4
    )
    
    $
    (16.4
    )
    
    $
    74.1Interest expense, net
    
    
    14.8
    
    
    
    15.4
    
    
    
    44.2
    
    
    
    46.1Income tax
    
    
    (0.1
    )
    
    
    
    
    
    
    0.7
    
    
    
    Stock compensation expense
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.8
    )
    
    
    Equity in losses of joint venture
    
    
    (1.7
    )
    
    
    (1.5
    )
    
    
    (2.4
    )
    
    
    (4.7
    )Loss from asset sales
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    (9.0
    )Debt amortization costs
    
    
    (0.9
    )
    
    
    (0.8
    )
    
    
    (2.3
    )
    
    
    (2.3
    )Changes in operating assets and liabilities
    
    
    35.3
    
    
    
    28.7
    
    
    
    112.3
    
    
    
    (46.6
    )EBITDA
    
    
    29.1
    
    
    
    16.2
    
    
    
    133.6
    
    
    
    57.6Non-recurring investment in Boeing 787 (a)
    
    
    20.3
    
    
    
    21.1
    
    
    
    70.0
    
    
    
    59.9Unusual charges  Plant consolidation & other non-recurring
program costs (b)
    
    
    
    
    
    
    1.3
    
    
    
    0.1
    
    
    
    (0.3
    )Loss on disposal of property, plant and equipment (c)
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.7
    
    
    
    9.0Pension & OPEB curtailment and non-cash expense (d)
    
    
    
    
    
    
    (3.8
    )
    
    
    
    
    
    
    (1.3
    )Other (e)
    
    
    0.4
    
    
    
    
    
    
    
    3.1
    
    
    
    1.1Adjusted EBITDA
    
    $
    49.9
    
    
    $
    35.0
    
    
    $
    207.5
    
    
    $
    126.0
 
 (a)
    
    Non recurring investment in Boeing 787The Boeing 787 program, described elsewhere in
our periodic reports, is a significant new program for our operations, and has required
substantial start-up costs in recent periods as we built a new facility in South Carolina and
invested in new manufacturing technologies dedicated to the program. These start-up
investment costs are recognized in our financial statements over several periods due to their
magnitude and timing. We expect that our current start-up costs in the Boeing 787 program
will continue to decline significantly as the start-up phase of the program and our current
related contractual commitments will be substantially completed during the next few months.
In the future, subject to potential program modifications by our customer, including
development of derivatives and delivery rate increases, we could have additional start-up
costs required. Our credit agreement excludes our significant start-up investment in the
Boeing 787 program because it represents an unusual significant investment in a major new
program that is not indicative of ongoing core operations, and accordingly the investment
that has been expensed during the period is added back to Adjusted
EBITDA.(b)
    
    Consolidation and restructuring initiativeIn 2004 we launched a facilities
consolidation and restructuring initiative, which has been more fully described in our
previous public reports. The initiative was a distinct project designed to create
efficiencies in managing our plant and labor resources. During 2004 and 2005, we
recorded expenses and related disruption charges in an aggregate amount of approximately
$215.2 million, which were included as an adjustment in the calculation of Adjusted
EBITDA. The site consolidation plan was discontinued in early 2006, with additional
charges in 2006 of approximately $8.0 million. We do not expect to incur any additional
significant charges related to this plan. 30




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##### Table of Contents



Our credit agreement excludes the consolidation and restructuring initiative because it
represents an unusual event in the Companys operations that is not indicative of ongoing
core operating performance, and accordingly the charges that have been expensed during the
period are added back to Adjusted EBITDA. For the nine months ended September 24, 2006, we
incurred $6.4 million of consolidation and restructuring costs.Other non-recurring program costs  During the three months ended September 24, 2006, we
recorded no non-recurring program costs.For the nine months ended September 24, 2006, $31.6 million of customer settlement income was
offset by $24.9 million of unusual expenses related to the H-60
program and the $6.4 million consolidation expense described
above. The net, $0.3
million, of these unusual items was deducted from Adjusted EBITDA in
accordance with the terms of our credit agreement.(c)
    
    Loss on disposal of property, plant and equipment (PP&E) On occasion, where the
asset is no longer needed for our business and ceases to offer sufficient value or utility to
justify our retention of the asset, we choose to sell PP&E at a loss. These losses reduce our
results of operations for the period in which the asset was sold. Our credit agreement
provides that those losses are reflected as an adjustment in calculating Adjusted EBITDA.(d)
    
    Pension and other post-employment benefits curtailment and non-cash expense related to
FAS 87 and FAS 106Our credit agreement allows us to remove non-cash benefit expenses, so to
the extent that the recorded expense exceeds the cash contributions to the plan, it is
reflected as an adjustment in calculating Adjusted EBITDA.(e)
    
    OtherIncludes non-cash stock expense and related party management fees. Our
credit agreement provides that these expenses are reflected as an adjustment in calculating
Adjusted EBITDA.   
    
    our operating performance across periods on a consistent basis;
    
    our ongoing ability to meet our obligations and manage our levels of indebtedness;
and
    
    our liquidity and covenant compliance to evaluate the relative risk of an investment
in our securities.
   31




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##### Table of Contents




    
    it does not reflect our cash expenditures, or future requirements, for all
contractual commitments;
    
    it does not reflect our significant interest expense, or the cash requirements
necessary to service our indebtedness;
    
    it does not reflect cash requirements for the payment of income taxes when due;
    
    although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future and Adjusted
EBITDA does not reflect any cash requirements for such replacements; and
    
    it does not reflect the impact of earnings or charges resulting from matters we
consider not to be indicative of our ongoing operations, but may nonetheless have a
material impact on our results of operations.
 Cash Flow Summary
 Nine Months EndedSeptember 30,
    
    
    September 24,2007
    
    
    2006
    
    
    Change($ in millions)Net income (loss)
    
    $
    43.2
    
    
    $
    (30.4
    )
    
    $
    73.6Non-cash items
    
    
    52.7
    
    
    
    57.9
    
    
    
    (5.2
    )Changes in working capital
    
    
    (112.3
    )
    
    
    46.6
    
    
    
    (158.9
    )Net cash provided by (used in) operating activities
    
    
    (16.4
    )
    
    
    74.1
    
    
    
    (90.5
    )Net cash provided by (used in) investing activities
    
    
    (33.3
    )
    
    
    (91.6
    )
    
    
    58.3Net cash provided by (used in) financing activities
    
    
    (3.8
    )
    
    
    15.3
    
    
    
    (19.1
    )Net increase (decrease) in cash and cash equivalents
    
    
    (53.5
    )
    
    
    (2.2
    )
    
    
    (51.3
    )Cash and cash equivalents at beginning of period
    
    
    93.4
    
    
    
    10.1
    
    
    
    83.3Cash and cash equivalents at end of period
    
    $
    39.9
    
    
    $
    7.9
    
    
    $
    32.0
    32




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##### Table of Contents



Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    Commodity Price Risks
  Interest Rate Risks
   33




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##### Table of Contents



Utility Price Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
 Effectiveness of Our Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  34




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 (a) Exhibits
 (10.1)*
    
    Employment agreement between Vought and Steve Davis(10.2)*
    
    Employment agreement between Vought and Dennis Orzel(31.1)*
    
    Certification of Chief Executive Officer pursuant to Section 302
of Sarbanes-Oxley Act of 2002.(31.2)*
    
    Certification of Chief Financial 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 Chief Financial Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 35




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##### Table of Contents



SIGNATURES
 
 Vought Aircraft Industries, Inc.(Registrant)November 9, 2007
(Date)
    
    
    
    /s/ KEITH HOWE

Vice President and Chief Financial OfficerNovember 9, 2007
(Date)
    
    
    
    /s/ WENDY HARGUS

Interim Principal Accounting Officer
 36