##### 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 28, 2008
 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 900
Irving, Texas
    
    75062(Address of Principal executive offices)
    
    (Zip Code)
 (972) 946-2011
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I 
FINANCIAL INFORMATIONItem 1
    
    Interim Unaudited
Condensed Consolidated Financial Statements
    
    4Consolidated Balance Sheets
    
    4Consolidated Statements of Operations
    
    5Consolidated Statements of Cash Flows
    
    6Notes to the Interim Unaudited Condensed Consolidated Financial Statements
    
    7Item 2
    
    Managements Discussion And Analysis Of Financial Condition And  Results Of Operations
    
    29Item 3
    
    Quantitative And Qualitative Disclosures About Market Risk
    
    45Item 4
    
    Controls And Procedures
    
    47PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    47Item 1A
    
    Risk Factors
    
    47Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    50Item 3
    
    Defaults Upon Senior Securities
    
    50Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    50Item 5
    
    Other Information
    
    50Item 6
    
    Exhibits
    
    51Signatures
    
    52EX-31.1EX-31.2EX-32.1EX-32.2
  2




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Cautionary Statement Regarding Forward Looking Statements
   
    
    significant considerations and risks discussed in this report, our Quarterly
Reports on Form 10-Q for the periods ended March 30, 2008 and June 29, 2008 and
our Annual Report on Form 10-K for the year ended December 31, 2007;
    
    global and domestic financial market conditions and the results of financing
efforts;
    
    competition;
    
    operating risks and the amounts and timing of revenues and expenses;
    
    project delays or cancellations;
    
    global and domestic market or business conditions and fluctuations in demand
for our products and services;
    
    the impact of recent and future federal and state regulatory proceedings and
changes, including changes in environmental and other laws and regulations to
which we are subject, as well as changes in the application of existing laws and
regulations;
    
    political, legal, regulatory, governmental, administrative and economic
conditions and developments in the United States and internationally;
    
    the effect of and changes in economic conditions in the areas in which we
operate;
    
    returns on pension assets and impacts of future discount rate changes on
pension obligations;
    
    environmental constraints on operations and environmental liabilities arising
out of past or present operations;
    
    current and future litigation;
    
    the direct or indirect impact on our companys business resulting from
terrorist incidents or responses to such incidents, including the effect on the
availability of and premiums on insurance; and
    
    weather and other natural phenomena.
 3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 ITEM 1.
INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Vought Aircraft Industries, Inc.
 
 Consolidated Balance Sheets
 (dollars in millions, except par value per share)
 September 28,2008
    
    
    December 31,(unaudited)
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    124.6
    
    
    $
    75.6Trade and other receivables
    
    
    163.0
    
    
    
    81.4Inventories
    
    
    395.0
    
    
    
    362.8Other current assets
    
    
    6.0
    
    
    
    6.4Total current assets
    
    
    688.6
    
    
    
    526.2Property, plant and equipment, net
    
    
    470.0
    
    
    
    507.0Goodwill
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    29.5
    
    
    
    40.1Debt origination costs , net and other assets
    
    
    15.3
    
    
    
    11.5Investment in joint venture
    
    
    
    
    
    
    8.4Total assets
    
    $
    1,731.1
    
    
    $
    1,620.9Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    141.9
    
    
    $
    178.7Accrued and other liabilities
    
    
    67.1
    
    
    
    74.1Accrued payroll and employee benefits
    
    
    47.8
    
    
    
    48.2Accrued post-retirement benefits-current
    
    
    44.6
    
    
    
    47.2Accrued pension-current
    
    
    0.3
    
    
    
    0.7Current portion of long-term bank debt
    
    
    5.9
    
    
    
    4.0Accrued contract liabilities
    
    
    197.4
    
    
    
    230.4Total current liabilities
    
    
    505.0
    
    
    
    583.3Long-term liabilities:Accrued post-retirement benefits
    
    
    435.7
    
    
    
    482.0Accrued pension
    
    
    272.1
    
    
    
    361.2Long-term bank debt, net of current portion
    
    
    596.3
    
    
    
    409.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Other non-current liabilities
    
    
    143.0
    
    
    
    181.2Total liabilities
    
    
    2,222.1
    
    
    
    2,286.7Stockholders equity (deficit):Common stock, par value $.01 per share; 50,000,000 shares
authorized, 24,798,382 and 24,768,991 issued and outstanding at
September 28, 2008 and December 31, 2007, respectively
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    419.7
    
    
    
    417.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    (1.6
    )Accumulated deficit
    
    
    (471.4
    )
    
    
    (595.0
    )Accumulated other comprehensive loss
    
    
    (438.0
    )
    
    
    (486.9
    )Total stockholders equity (deficit)
    
    $
    (491.0
    )
    
    $
    (665.8
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,731.1
    
    
    $
    1,620.9
 See accompanying notes
 4




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Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Operations
 (unaudited, in millions)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    477.3
    
    
    $
    422.3
    
    
    $
    1,383.4
    
    
    $
    1,230.6Costs and expensesCost of sales
    
    
    407.1
    
    
    
    353.2
    
    
    
    1,110.5
    
    
    
    971.5Selling, general and administrative expenses
    
    
    39.9
    
    
    
    54.8
    
    
    
    149.9
    
    
    
    168.5Total costs and expenses
    
    
    447.0
    
    
    
    408.0
    
    
    
    1,260.4
    
    
    
    1,140.0Operating income
    
    
    30.3
    
    
    
    14.3
    
    
    
    123.0
    
    
    
    90.6Other income (expense)Interest income
    
    
    1.3
    
    
    
    0.9
    
    
    
    2.3
    
    
    
    3.1Other gain (loss)
    
    
    1.6
    
    
    
    
    
    
    
    48.7
    
    
    
    (0.1
    )Equity in loss of joint venture
    
    
    
    
    
    
    (1.7
    )
    
    
    (0.6
    )
    
    
    (2.4
    )Interest expense
    
    
    (17.4
    )
    
    
    (15.7
    )
    
    
    (49.6
    )
    
    
    (47.3
    )Income before income taxes
    
    
    15.8
    
    
    
    (2.2
    )
    
    
    123.8
    
    
    
    43.9Income tax expense
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    0.7Net income
    
    $
    15.6
    
    
    $
    (2.1
    )
    
    $
    123.6
    
    
    $
    43.2
 See accompanying notes
 5




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Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Cash Flows
(unaudited, in millions)
 Nine Months EndedSeptember 28,
    
    
    September 30,2008
    
    
    2007Operating activitiesNet income
    
    $
    123.6
    
    
    $
    43.2Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    50.1
    
    
    
    47.8Stock compensation expense
    
    
    2.2
    
    
    
    1.8Equity in losses of joint venture
    
    
    0.6
    
    
    
    2.4(Gain) Loss from asset disposals
    
    
    (50.1
    )
    
    
    0.7Changes in current assets and liabilities:Trade and other receivables
    
    
    (81.6
    )
    
    
    (43.5
    )Inventories
    
    
    (32.2
    )
    
    
    4.9Other current assets
    
    
    0.4
    
    
    
    0.7Accounts payable, trade
    
    
    (36.8
    )
    
    
    (2.8
    )Accrued payroll and employee benefits
    
    
    (0.4
    )
    
    
    (7.5
    )Accrued and other liabilities
    
    
    (10.0
    )
    
    
    54.9Accrued contract liabilities
    
    
    (33.0
    )
    
    
    (37.6
    )Other assets and liabilitieslong-term
    
    
    (79.8
    )
    
    
    (81.4
    )Net cash provided by (used in) operating activities
    
    
    (147.0
    )
    
    
    (16.4
    )Investing activitiesCapital expenditures
    
    
    (41.7
    )
    
    
    (39.9
    )Proceeds from sale of assets
    
    
    
    
    
    
    23.1Proceeds from sale of joint venture
    
    
    55.0
    
    
    
    Investment in joint venture
    
    
    
    
    
    
    (16.5
    )Net cash provided by (used in) investing activities
    
    
    13.3
    
    
    
    (33.3
    )Financing activitiesProceeds from short-term bank debt
    
    
    153.0
    
    
    
    Payments on short-term bank debt
    
    
    (153.0
    )
    
    
    Proceeds from Incremental Facility
    
    
    184.6
    
    
    
    Payments on long-term bank debt
    
    
    (2.0
    )
    
    
    (3.0
    )Payments on capital leases
    
    
    
    
    
    
    (0.8
    )Proceeds from sale of common stock
    
    
    0.1
    
    
    
    Net cash provided by (used in) financing activities
    
    
    182.7
    
    
    
    (3.8
    )Net increase (decrease) in cash and cash equivalents
    
    
    49.0
    
    
    
    (53.5
    )Cash and cash equivalents at beginning of period
    
    
    75.6
    
    
    
    93.4Cash and cash equivalents at end of period
    
    $
    124.6
    
    
    $
    39.9
 See accompanying notes
 6




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Vought Aircraft Industries, Inc.
 
 Notes to the Interim Unaudited Condensed Consolidated Financial Statements
 Period Ending September 28, 2008
 Note 1  Organization and Basis of Presentation
      7




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Note 2-Recent Accounting Pronouncements
  Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.
 8




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Note 3  Inventories
   September 28,
    
    
    December 31,2008
    
    
    2007(in millions)Production costs of contracts in process
    
    $
    903.9
    
    
    $
    727.7Finished goods
    
    
    3.0
    
    
    
    2.0Less: unliquidated progress payments
    
    
    (511.9
    )
    
    
    (366.9
    )Total inventories
    
    $
    395.0
    
    
    $
    362.8
 Note 4 
Goodwill and Intangible Assets
  Note 4  Goodwill and Intangible Assets
 SFAS 142 Goodwill and Other Intangible Assets
   9




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September 28,
    
    
    December 31,2008
    
    
    2007(in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Less: accumulated amortization
    
    
    (107.8
    )
    
    
    (97.2
    )Identifiable intangible assets, net
    
    $
    29.5
    
    
    $
    40.1
  (in millions)2008
    
    $
    2.42009
    
    
    6.82010
    
    
    4.82011
    
    
    2.12012
    
    
    2.1Thereafter
    
    
    11.3Total remaining amortization of identifiable intangible assets
    
    $
    29.5
 10




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Note 5  Pension and Other Post-retirement Benefits
  Pension BenefitsThree Months Ended
    
    
    Nine Months EndedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in millions)Components of net periodic benefit
cost (income):Service cost
    
    $
    4.1
    
    
    $
    5.1
    
    
    $
    13.6
    
    
    $
    14.5Interest cost
    
    
    29.0
    
    
    
    26.5
    
    
    
    83.8
    
    
    
    77.6Expected return on plan assets
    
    
    (31.0
    )
    
    
    (29.2
    )
    
    
    (93.1
    )
    
    
    (87.7
    )Amortization of net (gain) loss
    
    
    10.4
    
    
    
    10.6
    
    
    
    24.2
    
    
    
    29.0Amortization of prior service
cost
    
    
    3.0
    
    
    
    1.1
    
    
    
    8.9
    
    
    
    3.1Plan settlement or curtailment
(gain) loss (a)
    
    
    0.2
    
    
    
    2.7
    
    
    
    0.2
    
    
    
    8.6Net periodic benefit cost
    
    $
    15.7
    
    
    $
    16.8
    
    
    $
    37.6
    
    
    $
    45.1Defined contribution plans cost
    
    $
    4.5
    
    
    $
    2.0
    
    
    $
    13.8
    
    
    $
    5.7
 Other Post-retirement BenefitsThree Months Ended
    
    
    Nine Months EndedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in millions)Components of net periodic benefit
cost (income):Service cost
    
    $
    1.3
    
    
    $
    1.4
    
    
    $
    3.8
    
    
    $
    4.2Interest cost
    
    
    7.2
    
    
    
    7.5
    
    
    
    22.1
    
    
    
    23.9Amortization of net (gain) loss
    
    
    (1.2
    )
    
    
    0.7
    
    
    
    1.5
    
    
    
    3.7Amortization of prior service
cost
    
    
    (5.9
    )
    
    
    (2.3
    )
    
    
    (15.1
    )
    
    
    (7.0
    )Net periodic benefit cost
    
    $
    1.4
    
    
    $
    7.3
    
    
    $
    12.3
    
    
    $
    24.8
 
 (a)
    
    As a result of lump sum payments made under provisions of our non-qualified (excess)
pension plan, we recorded pension settlement charges of $0.2 million as part of net
periodic benefit cost and other comprehensive loss during the three and nine month periods
ended September 28, 2008. During the three and nine month periods ended September 30,
2007, we recorded pension settlement charges of $0.6 million and $6.5 million,
respectively, under the provisions of our excess pension plan. 11




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
    
    On September 30, 2007, our largest union-represented group of production and
maintenance employees ratified the terms of a new three-year collective bargaining
agreement. The new agreement provided for, among other things, a freeze in pension benefit
accruals for employees who, as of December 31, 2007, had less than 16 years of bargaining
unit seniority. Employees subject to the pension freeze, and any employees hired on or
after October 1, 2007, now receive a new defined contribution benefit. As a result of
these changes, a curtailment charge of $2.1 million was recognized as part of net periodic
pension benefit cost for the quarter ending September 30, 2007. The new agreement also
provided for certain modifications to the retiree medical benefits for bargaining unit
retirees and eliminates retiree medical coverage for any bargaining unit employees hired
after October 1, 2007.
    
    During February and April of 2008, two of our union represented groups ratified new
collective bargaining agreements. Those agreements each provide for a freeze in pension
benefit accruals, effective December 31, 2008, for bargaining unit employees who, as of
December 31, 2007, had less than 16 years of bargaining unit seniority. Employees subject
to the pension freeze, and any employees hired on or after March 1, 2008 for the first
group and April 1, 2008 for the second group, will receive a defined contribution benefit.
The agreements provided for a one-time retirement incentive program offered to eligible
employees during 2008. The agreements also provided for certain modifications to the
retiree medical benefits for bargaining unit retirees and eliminated retiree medical
coverage for any bargaining unit employees hired on or after January 1, 2008.
    
    Also, during the nine months ended September 28, 2008, we announced amendments to
medical plans for two groups of non-represented, current retirees. Effective January 1,
2008, medical coverage for participants in those two groups will be eliminated at age 65
and replaced with a fixed monthly stipend.
    
    The aforementioned 2008 changes led to remeasurement of affected plans assets and
obligations as of March 31, 2008, which resulted in a $14.9 million increase in unfunded liability for pension
plans and a $44.1 million decrease in liability for the OPEB plans remeasured.
 Note 6- Commitments
 Warranty Reserve.
 12




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:
 WarrantyReserve(in millions)Balance at December 31, 2006
    
    $
    6.8Warranty costs incurred
    
    
    (0.4
    )Provisions for warranties
    
    
    0.8Balance at December 31, 2007
    
    $
    7.2Warranty costs incurred
    
    
    (0.4
    )Provisions for warranties
    
    
    6.4Balance at September 28, 2008
    
    $
    13.2
 Note 7- Environmental Contingencies
    13




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EnvironmentalLiability(in millions)Balance at January 1, 2007
    
    $
    4.1Environmental costs incurred
    
    
    (0.3
    )Balance at December 31, 2007
    
    
    3.8Environmental costs incurred
    
    
    (0.6
    )Balance at September 28, 2008
    
    $
    3.2
 Note 8- Other Non-Current Liabilities
  September 28,
    
    
    December 31,2008
    
    
    2007(in millions)Deferred income from the sale of Hawthorne facility (a)
    
    $
    11.6
    
    
    $
    52.6State of South Carolina grant monies (b)
    
    
    61.8
    
    
    
    66.7State of Texas grant monies
    
    
    35.0
    
    
    
    35.0Deferred workers compensation
    
    
    16.8
    
    
    
    15.6Accrued warranties
    
    
    12.7
    
    
    
    6.6Other
    
    
    5.1
    
    
    
    4.7Total other non-current liabilities
    
    $
    143.0
    
    
    $
    181.2
 
 (a)
    
    In July 2005, we sold our Hawthorne facility and concurrently signed an agreement
to lease back a certain portion of the facility from July 2005 to December 2010, with
two additional five-year renewal options. Due to certain contractual obligations, which
required our continuing involvement in the facility, this transaction was initially
recorded as a financing transaction and not as a sale. The cash received in July 2005 of
$52.6 million was recorded as a deferred liability on our balance sheet in other
non-current liabilities.During the three months ended September 28, 2008, we increased the deferred liability
balance for a $3.0 million refund from escrow. Additionally, we determined that certain
contractual obligations related to the portion of the facility, which we have vacated,
were completed and we recognized $44.0 million of the deferred income balance. We also
wrote off the related fixed assets for this facility resulting in a $1.6 million gain
that is recorded in our Consolidated Statement of Operations. The $11.6 million
liability related to the portion of the Hawthorne facility that we still lease will
remain on our balance sheet until the related contractual obligations are fulfilled or
the obligations expire.(b)
    
    With the activation of the South Carolina plant in June 2006, we began
recognizing a portion of the State of South Carolina grant monies as a reduction of
depreciation expense, which amounted to $2.5 million and $2.3 million for the nine
months ended September 28, 2008 and September 30, 2007, respectively. Additionally,
during the nine month period ended September 28, 2008, we made a required distribution
of state grant proceeds of $2.4 million to our former joint venture, Global Aeronautica.
See Note 12  Investment in Joint Venture. 14




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Note 9- Income Taxes
 Accounting for Uncertainty
in Income Taxes
     Note 10  Stockholders Equity
  2001/2003 Stock Option Plans
   15




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WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    ContractualExercise
    
    
    TermOptions
    
    
    Price
    
    
    (in years)Outstanding at December 31, 2007
    
    
    661,479
    
    
    $
    14.57Granted
    
    
    
    
    
    
    Forfeited or expired
    
    
    (106,999
    )
    
    
    10.99Exercised
    
    
    
    
    
    
    Outstanding at September 28, 2008
    
    
    554,480
    
    
    $
    15.27
    
    
    
    3.5Vested or expected to vest
    
    
    554,480
    
    
    
    15.27
    
    
    
    3.5Exercisable at September 28, 2008
    
    
    486,090
    
    
    $
    14.64
    
    
    
    3.5
 Shares Held in Rabbi Trust
  2006 Incentive Plan
  16




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Stock Appreciation Rights (SARs)
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    ContractualExercise
    
    
    TermSARs
    
    
    Price
    
    

(in years)Outstanding at December 31, 2007
    
    
    972,750
    
    
    $
    10.00
    
    
    
    8.9Granted
    
    
    
    
    
    
    Forfeited or expired
    
    
    (42,525
    )
    
    
    10.00Exercised
    
    
    (21,775
    )
    
    
    10.00Outstanding at September 28, 2008
    
    
    908,450
    
    
    $
    10.00
    
    
    
    8.2Vested or expected to vest (a)
    
    
    760,003
    
    
    
    10.00
    
    
    
    8.2Exercisable at September 28, 2008
    
    
    403,311
    
    
    $
    10.00
    
    
    
    8.2
 
 (a)
    
    Represents outstanding SARs reduced by expected forfeitures.  Restricted Stock Units (RSUs)
   Grant-dateRSUs
    
    
    Fair-ValueOutstanding at December 31, 2007
    
    
    574,421
    
    
    $
    9.12Granted
    
    
    76,340
    
    
    
    23.85Forfeited or expired
    
    
    (20,000
    )
    
    
    12.56Converted
    
    
    
    
    
    
    Outstanding at September 28, 2008
    
    
    630,761
    
    
    $
    10.79Vested or expected to vest (a)
    
    
    554,842Vested at September 28, 2008
    
    
    107,583
    
    
    $
    9.36
 
 (a)
    
    Represents outstanding RSUs reduced by expected forfeitures. 17




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##### Table of Contents



Restricted Shares
  Note 11  Stock-Based Compensation
  Stock Compensation ExpenseThree Months Ended
    
    
    Nine Months EndedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in millions)Stock Options
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Stock appreciation rights (SARs)
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    0.8Restricted stock units (RSUs)
    
    
    0.5
    
    
    
    0.1
    
    
    
    1.4
    
    
    
    0.9Restricted shares
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1Total stock compensation expense
    
    $
    0.8
    
    
    $
    0.1
    
    
    $
    2.2
    
    
    $
    1.8
  Stock Options
 SFAS 123(R) Share-based Payment
 Expected dividend yield
    
    
    0%Risk free interest rate
    
    
    3.9% - 4.4%Expected term
    
    6 years
  18




---



##### Table of Contents



SARs
   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
    %
  RSUs
  Restricted Shares
  19




---



##### Table of Contents



Note 12  Investment in Joint Venture
   Note 13  Long-Term Debt
       20




---



##### Table of Contents



Note 14- Related Party Transactions
      Note 15- Guarantor Subsidiaries
  21




---



##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Balance Sheet September 28, 2008
(dollars in millions, except par value per share) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    124.5
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    124.6Trade and other receivables
    
    
    156.7
    
    
    
    6.3
    
    
    
    
    
    
    
    163.0Intercompany receivable
    
    
    23.3
    
    
    
    8.5
    
    
    
    (31.8
    )
    
    
    Inventories
    
    
    379.4
    
    
    
    15.6
    
    
    
    
    
    
    
    395.0Other current assets
    
    
    5.4
    
    
    
    0.6
    
    
    
    
    
    
    
    6.0Total current assets
    
    
    689.3
    
    
    
    31.1
    
    
    
    (31.8
    )
    
    
    688.6Property, plant and equipment, net
    
    
    461.7
    
    
    
    8.3
    
    
    
    
    
    
    
    470.0Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    29.5
    
    
    
    
    
    
    
    
    
    
    
    29.5Debt origination costs, net and other assets
    
    
    15.3
    
    
    
    
    
    
    
    
    
    
    
    15.3Investment in affiliated company
    
    
    74.6
    
    
    
    
    
    
    
    (74.6
    )
    
    
    Total assets
    
    $
    1,734.4
    
    
    $
    103.1
    
    
    $
    (106.4
    )
    
    $
    1,731.1Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    138.1
    
    
    $
    3.8
    
    
    $
    
    
    
    $
    141.9Intercompany payable
    
    
    8.5
    
    
    
    23.3
    
    
    
    (31.8
    )
    
    
    Accrued and other
liabilities
    
    
    67.1
    
    
    
    
    
    
    
    
    
    
    
    67.1Accrued payroll and employee benefits
    
    
    46.4
    
    
    
    1.4
    
    
    
    
    
    
    
    47.8Accrued post-retirement benefits-current
    
    
    44.6
    
    
    
    
    
    
    
    
    
    
    
    44.6Accrued pension-current
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Current portion of long-term bank debt
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Accrued contract liabilities
    
    
    197.4
    
    
    
    
    
    
    
    
    
    
    
    197.4Total current liabilities
    
    
    508.3
    
    
    
    28.5
    
    
    
    (31.8
    )
    
    
    505.0Long-term liabilities:Accrued post-retirement benefits
    
    
    435.7
    
    
    
    
    
    
    
    
    
    
    
    435.7Accrued pension
    
    
    272.1
    
    
    
    
    
    
    
    
    
    
    
    272.1Long-term bank debt, net of current portion
    
    
    596.3
    
    
    
    
    
    
    
    
    
    
    
    596.3Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current liabilities
    
    
    143.0
    
    
    
    
    
    
    
    
    
    
    
    143.0Total liabilities
    
    
    2,225.4
    
    
    
    28.5
    
    
    
    (31.8
    )
    
    
    2,222.1Stockholders equity (deficit):Common
stock, par value $.01 per share; 50,000,000
shares authorized, 24,798,382 issued and outstanding at
September 28, 2008
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    419.7
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    419.7Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Accumulated deficit
    
    
    (471.4
    )
    
    
    (5.7
    )
    
    
    5.7
    
    
    
    (471.4
    )Accumulated other comprehensive loss
    
    
    (438.0
    )
    
    
    
    
    
    
    
    
    
    
    (438.0
    )Total stockholders equity (deficit)
    
    $
    (491.0
    )
    
    $
    74.6
    
    
    $
    (74.6
    )
    
    $
    (491.0
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,734.4
    
    
    $
    103.1
    
    
    $
    (106.4
    )
    
    $
    1,731.1
 22




---



##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Balance Sheet
December 31, 2007
(dollars in millions, except par value per share)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    75.1
    
    
    $
    0.5
    
    
    $
    
    
    
    $
    75.6Trade and other receivables
    
    
    75.3
    
    
    
    6.1
    
    
    
    
    
    
    
    81.4Intercompany receivable
    
    
    24.1
    
    
    
    7.3
    
    
    
    (31.4
    )
    
    
    Inventories
    
    
    347.0
    
    
    
    15.8
    
    
    
    
    
    
    
    362.8Other current assets
    
    
    5.9
    
    
    
    0.5
    
    
    
    
    
    
    
    6.4Total current assets
    
    
    527.4
    
    
    
    30.2
    
    
    
    (31.4
    )
    
    
    526.2Property, plant and equipment, net
    
    
    498.7
    
    
    
    8.3
    
    
    
    
    
    
    
    507.0Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    40.1
    
    
    
    
    
    
    
    
    
    
    
    40.1Debt origination costs, net and
other assets
    
    
    11.5
    
    
    
    
    
    
    
    
    
    
    
    11.5Investment in affiliated company
    
    
    72.5
    
    
    
    
    
    
    
    (72.5
    )
    
    
    Investment in joint venture
    
    
    8.4
    
    
    
    
    
    
    
    
    
    
    
    8.4Total assets
    
    $
    1,622.6
    
    
    $
    102.2
    
    
    $
    (103.9
    )
    
    $
    1,620.9Liabilities and stockholders equity
(deficit)Current liabilities:Accounts payable, trade
    
    $
    174.3
    
    
    $
    4.4
    
    
    $
    
    
    
    $
    178.7Intercompany payable
    
    
    7.3
    
    
    
    24.1
    
    
    
    (31.4
    )
    
    
    Accrued and other liabilities
    
    
    73.9
    
    
    
    0.2
    
    
    
    
    
    
    
    74.1Accrued payroll and employee
benefits
    
    
    47.2
    
    
    
    1.0
    
    
    
    
    
    
    
    48.2Accrued post-retirement
benefits-current
    
    
    47.2
    
    
    
    
    
    
    
    
    
    
    
    47.2Accrued pension-current
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Current portion of long-term bank
debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Accrued contract liabilities
    
    
    230.4
    
    
    
    
    
    
    
    
    
    
    
    230.4Total current liabilities
    
    
    585.0
    
    
    
    29.7
    
    
    
    (31.4
    )
    
    
    583.3Long-term liabilities:Accrued post-retirement benefits
    
    
    482.0
    
    
    
    
    
    
    
    
    
    
    
    482.0Accrued pension
    
    
    361.2
    
    
    
    
    
    
    
    
    
    
    
    361.2Long-term bank debt, net of
current portion
    
    
    409.0
    
    
    
    
    
    
    
    
    
    
    
    409.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current liabilities
    
    
    181.2
    
    
    
    
    
    
    
    
    
    
    
    181.2Total liabilities
    
    
    2,288.4
    
    
    
    29.7
    
    
    
    (31.4
    )
    
    
    2,286.7Stockholders equity (deficit):Common stock, par value $.01 per
share; 50,000,000 shares authorized,
24,768,991 issued
and outstanding at December 31,
2007
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    417.4
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    417.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Accumulated deficit
    
    
    (595.0
    )
    
    
    (7.8
    )
    
    
    7.8
    
    
    
    (595.0
    )Accumulated other comprehensive
loss
    
    
    (486.9
    )
    
    
    
    
    
    
    
    
    
    
    (486.9
    )Total stockholders equity
(deficit)
    
    $
    (665.8
    )
    
    $
    72.5
    
    
    $
    (72.5
    )
    
    $
    (665.8
    )Total liabilities and stockholders
equity (deficit)
    
    $
    1,622.6
    
    
    $
    102.2
    
    
    $
    (103.9
    )
    
    $
    1,620.9
 23




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##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended September 28, 2008
(in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    466.7
    
    
    $
    15.4
    
    
    $
    (4.8
    )
    
    $
    477.3Costs and expensesCost of sales
    
    
    398.1
    
    
    
    13.8
    
    
    
    (4.8
    )
    
    
    407.1Selling, general and administrative expenses
    
    
    38.5
    
    
    
    1.4
    
    
    
    
    
    
    
    39.9Total costs and expenses
    
    
    436.6
    
    
    
    15.2
    
    
    
    (4.8
    )
    
    
    447.0Operating income
    
    
    30.1
    
    
    
    0.2
    
    
    
    
    
    
    
    30.3Other income (expense)Interest income
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    1.3Other gain
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    1.6Interest expense
    
    
    (17.4
    )
    
    
    
    
    
    
    
    
    
    
    (17.4
    )Equity in income (loss) of consolidated
subsidiaries
    
    
    0.2
    
    
    
    
    
    
    
    (0.2
    )
    
    
    Income (loss) before income taxes
    
    
    15.8
    
    
    
    0.2
    
    
    
    (0.2
    )
    
    
    15.8Income tax expense
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Net income (loss)
    
    $
    15.6
    
    
    $
    0.2
    
    
    $
    (0.2
    )
    
    $
    15.6
 Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended September 30, 2007
(in millions) (Unaudited)
 Vought
    
    
    Guarantor
    
    
    Intercompany
    
    
    TotalsRevenue
    
    $
    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 gain (loss)
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    
    
    
    
    Equity in loss of joint venture
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (1.7
    )Interest expense
    
    
    (15.7
    )
    
    
    
    
    
    
    
    
    
    
    (15.7
    )Equity in income (loss) of consolidated
subsidiaries
    
    
    (0.1
    )
    
    
    
    
    
    
    0.1
    
    
    
    Income (loss) before income taxes
    
    
    (2.2
    )
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    (2.2
    )Income taxes
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Net income (loss)
    
    $
    (2.1
    )
    
    $
    (0.1
    )
    
    $
    0.1
    
    
    $
    (2.1
    )
 24




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##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Nine Months Ended September 28, 2008
(in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    1,346.8
    
    
    $
    52.5
    
    
    $
    (15.9
    )
    
    $
    1,383.4Costs and expensesCost of sales
    
    
    1,080.3
    
    
    
    46.1
    
    
    
    (15.9
    )
    
    
    1,110.5Selling, general and administrative expenses
    
    
    145.6
    
    
    
    4.3
    
    
    
    
    
    
    
    149.9Total costs and expenses
    
    
    1,225.9
    
    
    
    50.4
    
    
    
    (15.9
    )
    
    
    1,260.4Operating income
    
    
    120.9
    
    
    
    2.1
    
    
    
    
    
    
    
    123.0Other income (expense)Interest income
    
    
    2.3
    
    
    
    
    
    
    
    
    
    
    
    2.3Other gain
    
    
    48.7
    
    
    
    
    
    
    
    
    
    
    
    48.7Equity in loss of joint venture
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Interest expense
    
    
    (49.6
    )
    
    
    
    
    
    
    
    
    
    
    (49.6
    )Equity in income (loss) of consolidated
subsidiaries
    
    
    2.1
    
    
    
    
    
    
    
    (2.1
    )
    
    
    Income (loss) before income taxes
    
    
    123.8
    
    
    
    2.1
    
    
    
    (2.1
    )
    
    
    123.8Income tax expense
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Net income (loss)
    
    $
    123.6
    
    
    $
    2.1
    
    
    $
    (2.1
    )
    
    $
    123.6
 Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Nine Months Ended September 30, 2007
(in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    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 loss
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in loss of joint venture
    
    
    (2.4
    )
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Interest expense
    
    
    (47.3
    )
    
    
    
    
    
    
    
    
    
    
    (47.3
    )Equity in income (loss) of consolidated
subsidiaries
    
    
    (2.6
    )
    
    
    
    
    
    
    2.6
    
    
    
    Income (loss) before income taxes
    
    
    43.9
    
    
    
    (2.6
    )
    
    
    2.6
    
    
    
    43.9Income taxes
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Net income (loss)
    
    $
    43.2
    
    
    $
    (2.6
    )
    
    $
    2.6
    
    
    $
    43.2
 25




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##### Table of Contents



Vought Aircraft Industries , Inc.
Consolidating Cash Flow Statement
Nine Months Ended September 28, 2008
(in millions ) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    123.6
    
    
    $
    2.1
    
    
    $
    (2.1
    )
    
    $
    123.6Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    48.9
    
    
    
    1.2
    
    
    
    
    
    
    
    50.1Stock compensation expense
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.2Equity in losses of joint venture
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6(Gain)/Loss from asset disposals
    
    
    (50.1
    )
    
    
    
    
    
    
    
    
    
    
    (50.1
    )Income from investments in consolidated subsidiaries
    
    
    (2.1
    )
    
    
    
    
    
    
    2.1
    
    
    
    Changes in current assets and liabilities:Trade and other receivables
    
    
    (81.4
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (81.6
    )Intercompany accounts receivable
    
    
    0.8
    
    
    
    (1.2
    )
    
    
    0.4
    
    
    
    Inventories
    
    
    (32.4
    )
    
    
    0.2
    
    
    
    
    
    
    
    (32.2
    )Other current assets
    
    
    0.5
    
    
    
    (0.1
    )
    
    
    
    
    
    
    0.4Accounts payable, trade
    
    
    (36.2
    )
    
    
    (0.6
    )
    
    
    
    
    
    
    (36.8
    )Intercompany accounts payable
    
    
    1.2
    
    
    
    (0.8
    )
    
    
    (0.4
    )
    
    
    Accrued payroll and employee benefits
    
    
    (0.8
    )
    
    
    0.4
    
    
    
    
    
    
    
    (0.4
    )Accrued and other liabilities
    
    
    (9.8
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (10.0
    )Accrued contract liabilities
    
    
    (33.0
    )
    
    
    
    
    
    
    
    
    
    
    (33.0
    )Other assets and liabilitieslong-term
    
    
    (79.8
    )
    
    
    
    
    
    
    
    
    
    
    (79.8
    )Net cash provided by (used in) operating activities
    
    
    (147.8
    )
    
    
    0.8
    
    
    
    
    
    
    
    (147.0
    )Investing activitiesCapital expenditures
    
    
    (40.5
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    (41.7
    )Proceeds from sale of joint venture
    
    
    55.0
    
    
    
    
    
    
    
    
    
    
    
    55.0Net cash provided by (used in) investing activities
    
    
    14.5
    
    
    
    (1.2
    )
    
    
    
    
    
    
    13.3Financing activitiesProceeds from short-term bank debt
    
    
    153.0
    
    
    
    
    
    
    
    
    
    
    
    153.0Payments on short-term bank debt
    
    
    (153.0
    )
    
    
    
    
    
    
    
    
    
    
    (153.0
    )Proceeds from Incremental Facility
    
    
    184.6
    
    
    
    
    
    
    
    
    
    
    
    184.6Payments on long-term bank debt
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    (2.0
    )Proceeds from sale of common stock
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Net cash provided by (used in) financing activities
    
    
    182.7
    
    
    
    
    
    
    
    
    
    
    
    182.7Net decrease in cash and cash equivalents
    
    
    49.4
    
    
    
    (0.4
    )
    
    
    
    
    
    
    49.0Cash and cash equivalents at beginning of period
    
    
    75.1
    
    
    
    0.5
    
    
    
    
    
    
    
    75.6Cash and cash equivalents at end of period
    
    $
    124.5
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    124.6
 26




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##### Table of Contents



Vought Aircraft Industries , Inc.
Consolidating Cash Flow Statement
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
    
    
    
    
    
    
    
    47.8Stock compensation expense
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    1.8Equity in losses of joint venture
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    2.4Loss from asset disposals
    
    
    0.6
    
    
    
    0.1
    
    
    
    
    
    
    
    0.7Income from investments in consolidated subsidiaries
    
    
    2.6
    
    
    
    
    
    
    
    (2.6
    )
    
    
    Changes in current assets and liabilities:Trade and other receivables
    
    
    (40.7
    )
    
    
    (2.8
    )
    
    
    
    
    
    
    (43.5
    )Intercompany accounts receivable
    
    
    (6.2
    )
    
    
    (0.3
    )
    
    
    6.5
    
    
    
    Inventories
    
    
    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 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 used in financing activities
    
    
    (3.3
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (3.8
    )Net 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
 27




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Note 16- Fair Value Measurements
  
    
    Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for
identical assets or liabilities.
    
    Level 2: Inputs, other than quoted prices that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active.
    
    Level 3: Unobservable inputs that reflect the reporting entitys own assumptions.
   Note 17- Comprehensive Income (Loss)
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in millions)Net income (loss)
    
    $
    15.6
    
    
    $
    (2.1
    )
    
    $
    123.6
    
    
    $
    43.2Comprehensive income (loss), net of taxPension
    
    
    13.6
    
    
    
    0.6
    
    
    
    18.4
    
    
    
    6.5OPEB
    
    
    (7.1
    )
    
    
    
    
    
    
    30.5
    
    
    
    Total comprehensive income (loss)
    
    $
    22.1
    
    
    $
    (1.5
    )
    
    $
    172.5
    
    
    $
    49.7
  28




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion and analysis of our results of operations, financial
condition and liquidity in conjunction with our interim unaudited condensed consolidated financial
statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q . Some of
the information contained in this discussion and analysis including information with respect to our
plans and strategies for our business, statements regarding the industry outlook, our expectations
regarding the future performance of our business, and the other non-historical statements contained
herein are forward-looking statements. See Cautionary Statement Regarding Forward-Looking
Statements. You should also review the Risk Factors section of this Quarterly Report on Form
10-Q, our Quarterly Reports on Form 10-Q for the periods ended March 30, 2008 and June 29, 2008 and
our Annual Report on Form 10-K for the year ended December 31, 2007 for a discussion of important
factors that could cause actual results to differ materially from the results described herein or
implied by such forward-looking statements.
 Overview
       29




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Commercial Aircraft.
 Military Aircraft.
 Business Jet Aircraft.
 Recent Developments
  30




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##### Table of Contents



Basis of Presentation
  Revenue and Profit Recognition.
 
    
    Under the cost-to-cost method, progress toward completion is measured as the ratio of
total costs incurred to our estimate of total costs at completion. We recognize costs as
incurred. Profit is determined based on our estimated profit margin on the contract
multiplied by our progress toward completion. Revenue represents the sum of our costs and
profit on the contract for the period.
    
    Under the units-of-delivery method, revenue on a contract is recorded as the units are
delivered and accepted during the period at an amount equal to the contractual selling
price of those units. The costs recorded on a contract under the units-of-delivery method
are equal to the total costs at completion divided by the total units to be delivered. As
our contracts can span multiple years, we often segment the contracts into production lots
for the purposes of accumulating and allocating cost. Profit is recognized as the
difference between revenue for the units delivered and the estimated costs for the units
delivered.
  31




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##### Table of Contents



Cost of sales.
 Selling, general and administrative expenses.
 Interest expense, net.
 Other gain (loss).
 Equity in loss of joint venture.
 Income Tax Expense.
 32




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##### Table of Contents



Results of Operations
 Three Months
    
    
    Three Months
    
    
    
    
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    
    
    
    
    Ended
    
    
    EndedSeptember 28, 2008
    
    
    September 30, 2007
    
    
    $ Change
    
    
    September 28, 2008
    
    
    September 30, 2007
    
    
    $ Change(in millions)Revenue:Commercial
    
    $
    248.7
    
    
    $
    205.1
    
    
    $
    43.6
    
    
    $
    701.3
    
    
    $
    609.1
    
    
    $
    92.2Military
    
    
    144.8
    
    
    
    142.2
    
    
    
    2.6
    
    
    
    440.2
    
    
    
    398.5
    
    
    
    41.7Business Jet
    
    
    83.8
    
    
    
    75.0
    
    
    
    8.8
    
    
    
    241.9
    
    
    
    223.0
    
    
    
    18.9Total revenue
    
    $
    477.3
    
    
    $
    422.3
    
    
    $
    55.0
    
    
    $
    1,383.4
    
    
    $
    1,230.6
    
    
    $
    152.8Costs and expenses:Cost of sales
    
    
    407.1
    
    
    
    353.2
    
    
    
    53.9
    
    
    
    1,110.5
    
    
    
    971.5
    
    
    
    139.0Selling, general and administrative
    
    
    39.9
    
    
    
    54.8
    
    
    
    (14.9
    )
    
    
    149.9
    
    
    
    168.5
    
    
    
    (18.6
    )Total costs and expenses
    
    $
    447.0
    
    
    $
    408.0
    
    
    $
    39.0
    
    
    $
    1,260.4
    
    
    $
    1,140.0
    
    
    $
    120.4Operating income
    
    
    30.3
    
    
    
    14.3
    
    
    
    16.0
    
    
    
    123.0
    
    
    
    90.6
    
    
    
    32.4Interest expense, net
    
    
    (16.1
    )
    
    
    (14.8
    )
    
    
    (1.3
    )
    
    
    (47.3
    )
    
    
    (44.2
    )
    
    
    (3.1
    )Other gain/(loss)
    
    
    1.6
    
    
    
    
    
    
    
    1.6
    
    
    
    48.7
    
    
    
    (0.1
    )
    
    
    48.8Equity in loss of joint venture
    
    
    
    
    
    
    (1.7
    )
    
    
    1.7
    
    
    
    (0.6
    )
    
    
    (2.4
    )
    
    
    1.8Income tax expense
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    0.5Net Income
    
    $
    15.6
    
    
    $
    (2.1
    )
    
    $
    17.7
    
    
    $
    123.6
    
    
    $
    43.2
    
    
    $
    80.4
 Comparison of Results of Operations for the Three Months Ended September 28, 2008 and September 30,
2007
 Revenues
 
    
    Commercial revenue increased $43.6 million, or 21% primarily due to increased
non-recurring sales for the 747-8 program.
    
    Military revenue increased $2.6 million, or 2%, primarily due to higher delivery
rates on the H-60 program.
    
    Business Jet revenue increased $8.8 million, or 12%, primarily due to increased
deliveries on Gulfstream products.
 Operating income
 Interest expense, net
 Other gain (loss)
 33




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##### Table of Contents



Comparison of Results of Operations for the Nine Months Ended September 28, 2008 and September 30,
2007
 Revenues
 
    
    Commercial revenue increased $92.2 million, or 15%. Revenue for our Boeing
programs increased $72.8 million primarily due to increased non-recurring sales for
the 747-8 program and initial deliveries on the 787 program. In addition, revenue for
our Airbus programs increased $19.4 million primarily due to
higher deliveries.
    
    Military revenue increased $41.7 million, or 10%, primarily due to higher delivery
rates on the H-60 and the V-22 programs, as well as price increases on the H-60
program.
    
    Business Jet revenue increased $18.9 million, or 8%, primarily due to increased
deliveries on Gulfstream products.
 Operating income
 Interest expense, net
 Other gain (loss)
 Critical Accounting Policies
  34




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##### Table of Contents



Revenue Recognition
 Accounting for Performance of
Construction-Type and Certain Production-Type Contracts
 
    
    Under the cost-to-cost method, progress toward completion is measured as the ratio of
total costs incurred to our estimate of total costs at completion. We recognize costs as
incurred. Profit is determined based on our estimated profit margin on the contract
multiplied by our progress toward completion. Revenue represents the sum of our costs and
profit on the contract for the period.
    
    Under the units-of-delivery method, revenue on a contract is recorded as the units are
delivered and accepted during the period at an amount equal to the contractual selling
price of those units. The costs recorded on a contract under the units-of-delivery method
are equal to the total costs at completion divided by the total units to be delivered.
Profit is recognized as the difference between revenue for the units delivered and the
estimated costs for the units delivered.
    September 28,
    
    
    December 31,2008
    
    
    2007(in millions)Advances and progress billings
    
    $
    177.5
    
    
    $
    182.9Forward loss
    
    
    15.0
    
    
    
    18.3Other
    
    
    4.9
    
    
    
    29.2Total accrued contract liabilities
    
    $
    197.4
    
    
    $
    230.4
 35




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##### Table of Contents



Goodwill
 SFAS 142 SFAS 142
   Post-Retirement Plans
     36




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##### Table of Contents



Employers Accounting for Defined Benefit Pension and Other
Postretirement Plansan Amendment of FASB Statements No. 87, 88, 106 and 132(R)
 Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 37




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##### Table of Contents



The Hierarchy of Generally Accepted Accounting
Principles The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting Principles.
 Liquidity and Capital Resources
     38




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39




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##### Table of Contents



Credit Agreements and Debt Covenants
    40




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Non-GAAP Financial Measures.
 41




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For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net cash provided by (used in) operating activities
    
    $
    (109.3
    )
    
    $
    (18.1
    )
    
    $
    (147.0
    )
    
    $
    (16.4
    )Interest expense, net
    
    
    16.1
    
    
    
    14.8
    
    
    
    47.3
    
    
    
    44.2Income tax expense (benefit)
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    0.7Stock compensation expense
    
    
    (0.8
    )
    
    
    (0.1
    )
    
    
    (2.2
    )
    
    
    (1.8
    )Equity in losses of joint venture
    
    
    
    
    
    
    (1.7
    )
    
    
    (0.6
    )
    
    
    (2.4
    )(Gain) Loss from asset sales and other losses
    
    
    1.6
    
    
    
    (0.1
    )
    
    
    50.1
    
    
    
    (0.7
    )Non-cash interest expense
    
    
    (1.8
    )
    
    
    (0.9
    )
    
    
    (4.1
    )
    
    
    (2.3
    )787 tooling amortization
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    Changes in operating assets and liabilities
    
    
    141.4
    
    
    
    35.3
    
    
    
    273.4
    
    
    
    112.3EBITDA
    
    $
    47.4
    
    
    $
    29.1
    
    
    $
    217.9
    
    
    $
    133.6Non-recurring investment in Boeing 787 (1)
    
    
    6.0
    
    
    
    20.3
    
    
    
    28.0
    
    
    
    70.0Unusual charges & other non-recurring program costs (2)
    
    
    1.7
    
    
    
    
    
    
    
    5.7
    
    
    
    0.1(Gain) Loss on disposal of property, plant and equipment (3)
    
    
    (1.5
    )
    
    
    0.1
    
    
    
    (50.1
    )
    
    
    0.7Other (4)
    
    
    1.3
    
    
    
    0.4
    
    
    
    3.7
    
    
    
    3.1Adjusted EBITDA
    
    $
    54.9
    
    
    $
    49.9
    
    
    $
    205.2
    
    
    $
    207.5
 
 (1)
    
    Non recurring investment in Boeing 787The Boeing 787 program, described elsewhere in
this quarterly report, 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 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. Also included is our loss in our joint
venture with Global Aeronautica. Our share of Global Aeronauticas net loss was $0.6 million
and $2.4 million for the nine month periods ended September 28, 2008 and September 30, 2007,
respectively. On June 10, 2008, we sold our entire equity interest in Global Aeronautica to
Boeing and as a result, recorded a $47.1 million gain on the sale during the nine month
period ended September 28, 2008. In future periods, our adjusted EBITDA calculation will not
be impacted by this joint venture. For more information, please refer to Note 12 -
Investment in Joint Venture to our interim unaudited condensed consolidated financial
statements.(2)
    
    Unusual charges and other non-recurring program costsOur senior secured credit agreement
excludes our expenses for unusual events in our operations and non-recurring costs that are
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 three month period ended September 28, 2008, we incurred $1.7 million of
non-recurring costs primarily related to a facilities rationalization initiative.For the nine month periods ended September 28, 2008 and September 30, 2007, we incurred $5.7
million and $0.1 million, respectively, of non-recurring costs primarily related to a
facilities rationalization initiative. 42




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(3)
    
    (Gain) Loss on disposal of property, plant and equipment (PP&E) and other assets  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.
Similarly, in some cases, we sell assets at an amount in excess of book value. For example,
during the nine month period ended September 28, 2008, we recorded a $47.1 million gain on
the sale of our equity interest in Global Aeronautica to Boeing and a $1.6 million gain
resulting from the recognition of the deferred income from the sale of the Hawthorne
facility. Our credit agreement provides that those gains and losses are reflected as an
adjustment in calculating Adjusted EBITDA.(4)
    
    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.   
    
    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;
    
    it does not reflect working capital requirements;
    
    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.
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Contractual Obligations.
 Cash Flow Summary
 For the Nine Months EndedSeptember 28,
    
    
    September 30,2008
    
    
    2007
    
    
    Change(in millions)Net income (loss)
    
    $
    123.6
    
    
    $
    43.2
    
    
    $
    80.4Non-cash items
    
    
    2.8
    
    
    
    52.7
    
    
    
    (49.9
    )Changes in working capital
    
    
    (273.4
    )
    
    
    (112.3
    )
    
    
    (161.1
    )Net cash provided by (used in) operating activities
    
    
    (147.0
    )
    
    
    (16.4
    )
    
    
    (130.6
    )Net cash provided by (used in) investing activities
    
    
    13.3
    
    
    
    (33.3
    )
    
    
    46.6Net cash provided by (used in) financing activities
    
    
    182.7
    
    
    
    (3.8
    )
    
    
    186.5Net increase (decrease) in cash and cash equivalents
    
    
    49.0
    
    
    
    (53.5
    )
    
    
    102.5Cash and cash equivalents at beginning of period
    
    
    75.6
    
    
    
    93.4
    
    
    
    (17.8
    )Cash and cash equivalents at end of period
    
    $
    124.6
    
    
    $
    39.9
    
    
    $
    84.7
    Off-Balance Sheet Arrangements
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       Interest Rate Risks
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Foreign Currency Risks
  Utility Price Risks
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ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Our Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  Our substantial indebtedness could prevent us from fulfilling our obligations under our outstanding
senior notes and our senior secured credit facilities.
  
    
    make it more difficult for us to satisfy our obligations with respect to our
outstanding debt;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations
to payments on our indebtedness, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures, research and development
efforts and other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate;
    
    restrict us from making strategic acquisitions or exploiting business
opportunities;
    
    place us at a competitive disadvantage compared to our competitors that have
less debt; and
    
    limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds, dispose
of assets or pay cash dividends.
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Our commercial business is cyclical and sensitive to the profitability of the commercial airline
and cargo industries. Our business is, in turn, affected by general economic conditions and world
safety considerations.
   
    
    Global economic growth, which is a primary factor that both Boeing and Airbus use to
forecast future production requirements. In particular, we may face significant
challenges if conditions in the financial markets were to continue or worsen, which could
adversely impact overall demand for aircraft and air travel, which could have a negative
effect on our revenues.
    
    Ability of the industry to finance new aircraft  While this is generally tied to
industry profitability and load factors, the conditions of the credit market can adversely
affect the cost and availability of financing of aircraft.
    
    Air cargo requirements and airline load factors, which are driven by world economy and
international trade volume.
    
    Age and efficiency of the world fleet of active and stored fleet aircraft.
    
    General public attitudes towards air travel  Events such as the September 11, 2001
terrorist attacks and later, the SARS outbreak in Asia, tend to dramatically and quickly
influence the market.
    
    Higher fuel prices, which may impact the airline and cargo industrys short-term
profitability, may drive more rapid fleet renewal to take advantage of newer, more
efficient aircraft technologies.
    
    Increased global demand for air travel.
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Current market conditions could impact our ability to access new capital to meet our liquidity
needs.
   We may be subject to work stoppages at our facilities or those of our principal customers, which
could seriously impact the profitability of our business.
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Our pension plans are subject to certain risks and have been impacted by the current credit crisis
and market volatility.
  
 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
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ITEM 6. EXHIBITS
 (a) Exhibits
 (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 51




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SIGNATURES
 
 Vought Aircraft Industries, Inc.

(Registrant)November 10, 2008
    
    /s/ KEITH HOWE(Date)
    
    Vice President and Chief Financial OfficerNovember 10, 2008
    
    /s/ WENDY HARGUS(Date)
    
    Interim Principal Accounting Officer
 52