##### 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 24, 2006
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from       to
 Commission File Number 333-112528
 Vought Aircraft Industries, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    75-2884072(State of Incorporation)
    
    (I.R.S. Employer Identification Number)
 9314 West Jefferson Boulevard M/S 2-01Dallas, TX
    
    75211(Address of Principal executive offices)
    
    (Zip Code)
 (972)-946-2011
(Registrants telephone number, including area code)
 þ o
  o o þ
 o þ




---



##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 24, 2006 (unaudited) and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the three months and nine months ended September 24, 2006 and September 25, 2005 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 24, 2006, and September 25, 2005 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    35PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    382006 Incentive Award PlanForm of Stock Appreciation Rights AgreementForm of Restricted Stock Unit Award AgreementRestricted Stock Unit Award Agreement with Elmer DotyCertification of Chief Executive Officer Pursuant to Section 302Certification of Principal Financial and Accounting Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Principal Financial and Accounting Officer Pursuant to Section 906
  2




---



##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Vought Aircraft Industries, Inc.
 
 Condensed Consolidated Balance Sheets
 ($ in millions, except per share amounts)
 (Unaudited)September 24,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    7.9
    
    
    $
    10.1Accounts receivable
    
    
    96.7
    
    
    
    90.8Inventories
    
    
    389.8
    
    
    
    340.1Other current assets
    
    
    8.4
    
    
    
    7.4Total current assets
    
    
    502.8
    
    
    
    448.4Property, plant and equipment, net
    
    
    532.5
    
    
    
    485.1Goodwill
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    71.2
    
    
    
    79.1Debt origination costs, net and other assets
    
    
    16.3
    
    
    
    21.5Total assets
    
    $
    1,650.5
    
    
    $
    1,561.8Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    120.7
    
    
    $
    121.9Accrued and other liabilities
    
    
    69.9
    
    
    
    69.0Accrued payroll and employee benefits
    
    
    30.9
    
    
    
    35.5Accrued post-retirement benefits-current
    
    
    56.1
    
    
    
    53.4Accrued pension-current
    
    
    52.3
    
    
    
    36.8Current portion of long-term bank debt
    
    
    4.0
    
    
    
    4.0Capital lease obligation
    
    
    0.9
    
    
    
    0.8Accrued contract liabilities
    
    
    312.1
    
    
    
    216.0Total current liabilities
    
    
    646.9
    
    
    
    537.4Long-term liabilities:Accrued post-retirement benefits
    
    
    482.1
    
    
    
    496.5Accrued pension
    
    
    344.3
    
    
    
    441.2Long-term bank debt, net of current portion
    
    
    415.0
    
    
    
    417.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Long-term capital lease obligation
    
    
    0.5
    
    
    
    1.2Other non-current liabilities
    
    
    203.1
    
    
    
    171.5Total liabilities
    
    
    2,361.9
    
    
    
    2,334.8Stockholders equity (deficit):Common stock, par value $.01 per share; 50,000,000
shares authorized, 24,750,305 and 24,711,373
issued and outstanding in 2006 and 2005,
respectively
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    411.8
    
    
    
    411.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    (1.1
    )Accumulated deficit
    
    
    (635.0
    )
    
    
    (604.6
    )Accumulated other comprehensive loss
    
    
    (485.9
    )
    
    
    (577.4
    )Total stockholders equity (deficit)
    
    $
    (711.4
    )
    
    $
    (773.0
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,650.5
    
    
    $
    1,561.8
 See accompanying notes
 3




---



##### Table of Contents



Vought Aircraft Industries, Inc.
 
 Condensed Consolidated Statements of Operations
 ($ in millions) (Unaudited)
 For the Three Months
    
    
    For the Nine MonthsEnded
    
    
    EndedSeptember 24,
    
    
    September 25,
    
    
    September 24,
    
    
    September 25,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    354.4
    
    
    $
    310.4
    
    
    $
    1,133.3
    
    
    $
    937.2Costs and expensesCost of sales
    
    
    282.8
    
    
    
    274.3
    
    
    
    897.6
    
    
    
    884.7Selling, general and administrative expenses
    
    
    68.5
    
    
    
    77.1
    
    
    
    207.1
    
    
    
    222.4Asset impairment
    
    
    (0.4
    )
    
    
    
    
    
    
    8.1
    
    
    
    5.9Total costs and expenses
    
    
    350.9
    
    
    
    351.4
    
    
    
    1,112.8
    
    
    
    1,113.0Operating income (loss)
    
    
    3.5
    
    
    
    (41.0
    )
    
    
    20.5
    
    
    
    (175.8
    )Other income (expense)Interest income
    
    
    0.6
    
    
    
    1.2
    
    
    
    1.1
    
    
    
    2.8Other income (loss)
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    (0.4
    )Equity in earnings (loss) of joint venture
    
    
    (1.5
    )
    
    
    (1.0
    )
    
    
    (4.7
    )
    
    
    (1.8
    )Interest expense
    
    
    (16.0
    )
    
    
    (14.1
    )
    
    
    (47.2
    )
    
    
    (38.9
    )Income (loss) before income taxes
    
    
    (13.4
    )
    
    
    (55.2
    )
    
    
    (30.4
    )
    
    
    (214.1
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (13.4
    )
    
    $
    (55.2
    )
    
    $
    (30.4
    )
    
    $
    (214.1
    )
 See accompanying notes
 4




---



##### Table of Contents



Vought Aircraft Industries, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 ($ in millions) (Unaudited)
 For the Nine Months EndedSeptember 24,
    
    
    September 25,2006
    
    
    2005Operating activitiesNet loss
    
    $
    (30.4
    )
    
    $
    (214.1
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    44.2
    
    
    
    54.7Asset impairment
    
    
    8.1
    
    
    
    5.9Equity in losses of joint venture
    
    
    4.7
    
    
    
    1.8Loss from asset sales
    
    
    0.9
    
    
    
    4.7Changes in current assets and liabilities:Accounts receivable
    
    
    (5.9
    )
    
    
    31.0Inventories, net of advances and progress billings
    
    
    (49.7
    )
    
    
    (50.7
    )Other current assets
    
    
    0.3
    
    
    
    (0.4
    )Accounts payable, trade
    
    
    (2.4
    )
    
    
    3.8Accrued payroll and employee benefits
    
    
    (4.6
    )
    
    
    (4.1
    )Accrued and other liabilities
    
    
    19.1
    
    
    
    (4.6
    )Accrued contract liabilities
    
    
    96.1
    
    
    
    134.7Other assets and liabilitieslong-term
    
    
    (6.3
    )
    
    
    39.3Net cash provided by operating activities
    
    
    74.1
    
    
    
    2.0Investing activitiesCapital expenditures
    
    
    (91.9
    )
    
    
    (84.0
    )Proceeds
from sale of assets
    
    
    0.3Investment in joint venture
    
    
    
    
    
    
    (5.0
    )Net cash used in investing activities
    
    
    (91.6
    )
    
    
    (89.0
    )Financing activitiesProceeds from short-term bank debt
    
    
    155.0
    
    
    
    Payments on short-term bank debt
    
    
    (155.0
    )
    
    
    Payments on long-term bank debt
    
    
    (2.0
    )
    
    
    (2.0
    )Payments on capital leases
    
    
    (0.6
    )
    
    
    (0.6
    )Proceeds from Hawthorne
    
    
    
    
    
    
    52.6Proceeds from governmental grants
    
    
    17.4
    
    
    
    25.3Proceeds from sale of common stock
    
    
    0.4
    
    
    
    0.1Proceeds from repayment of stockholder loans
    
    
    0.1
    
    
    
    0.1Retirement of common stock
    
    
    
    
    
    
    (0.3
    )Net cash provided by financing activities
    
    
    15.3
    
    
    
    75.2Net increase (decrease) in cash and cash equivalents
    
    
    (2.2
    )
    
    
    (11.8
    )Cash and cash equivalents at beginning of period
    
    
    10.1
    
    
    
    128.9Cash and cash equivalents at end of period
    
    $
    7.9
    
    
    $
    117.1
 See accompanying notes
 5




---



##### Table of Contents



VOUGHT AIRCRAFT INDUSTRIES, INC.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 September 24, 2006
 Note 1
 Organization and Basis of Presentation
   6




---



##### Table of Contents



Note 2
 New Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an
interpretation of SFAS No. 109"
 Fair
Value Measurements (SFAS 157)
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an Amendment of
FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158)
 7




---



##### Table of Contents



Note 3
 Stock-Based Compensation
    Accounting for Stock Based Compensation
 Three Months Ending
    
    
    Nine Months EndingSeptember 24,
    
    
    September 25,
    
    
    September 24,
    
    
    September 25,2006
    
    
    2005
    
    
    2006
    
    
    2005($ in millions)Reported net loss
    
    $
    (13.4
    )
    
    $
    (55.2
    )
    
    $
    (30.4
    )
    
    $
    (214.1
    )Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.4
    )
    
    
    (55.2
    )
    
    
    (30.4
    )
    
    
    (214.1
    )Compensation expense per SFAS No. 123
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (1.5
    )Pro forma net loss for SFAS No. 123
    
    $
    (13.4
    )
    
    $
    (55.7
    )
    
    $
    (30.4
    )
    
    
    (215.6
    )
  8




---



##### Table of Contents



2005Expected dividend yield
    
    
    0
    %Risk free interest rate
    
    
    3.9%-4.3
    %Expected life of options
    
    6 years
  AverageExerciseOptions
    
    
    PriceOptions outstanding at December 31, 2005
    
    
    1,507,129
    
    
    $
    13.17Options granted
    
    
    
    
    
    $
    Options forfeited/expired
    
    
    (483,260
    )
    
    $
    12.58Options exercised
    
    
    (28,282
    )
    
    $
    10Options outstanding at September 24, 2006
    
    
    995,587
    
    
    $
    11.38Options exercisable at September 24, 2006
    
    
    905,147
    
    
    $
    12.64Weighted average remaining contractual life
at September 24, 2006
    
    
    3.75
    9




---



##### Table of Contents



Stock Repurchase Program
  Note 4
 Restructuring
  Accrued RestructuringReserve - Stuart andNashville Sites($ in millions)Balance December 31, 2004
    
    $
    7.3Restructuring liabilities recognized
    
    
    2.1Restructuring liabilities reversed
    
    
    (5.6
    )Expenditures
    
    
    (1.1
    )Balance December 31, 2005
    
    
    2.7Restructuring liabilities reversed
    
    
    (2.0
    )Expenditures
    
    
    (0.2
    )Balance September 24, 2006
    
    $
    0.5
 Pension and Other Post-Retirement Benefits
  10




---



##### Table of Contents



Accrued RestructuringReserve Perry Site($ in millions)Balance December 31, 2003
    
    $
    9.5Cash expenditures
    
    
    (1.9
    )Balance December 31, 2004
    
    $
    7.6Cash expenditures
    
    
    (1.9
    )Balance December 31, 2005
    
    
    5.7Cash expenditures for the nine months ended September 24, 2006
    
    
    (1.7
    )Balance September 24, 2006
    
    $
    4.0
 11




---



##### Table of Contents



Note 5
 Inventories
  September 24,
    
    
    December 31,2006
    
    
    2005($ in millions)Production costs of contracts in process
    
    $
    576.2
    
    
    $
    529.8Finished goods
    
    
    3.2
    
    
    
    22.8Less: unliquidated progress payments
    
    
    (189.6
    )
    
    
    (212.5
    )Total inventories
    
    $
    389.8
    
    
    $
    340.1
  Note 6
 Goodwill and Intangible Assets
 Goodwill and Other Intangible Assets
  September 24,
    
    
    December 31,2006
    
    
    2005($ in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Pension asset
    
    
    19.2
    
    
    
    19.1Less: accumulated amortization
    
    
    (85.3
    )
    
    
    (77.3
    )Identifiable intangible assets, net
    
    $
    71.2
    
    
    $
    79.1
  ($ in millions)2006
    
    $
    2.72007
    
    
    10.02008
    
    
    8.92009
    
    
    8.92010
    
    
    6.0Thereafter
    
    
    15.5$
    52.0
 12




---



##### Table of Contents



Note 7
 Pension and Other Post-retirement Benefits
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 24,
    
    
    September 25,
    
    
    September 24,
    
    
    September 25,Pension Benefits
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005($ in millions)Components of net periodic
benefit cost (income):Service cost
    
    $
    5.6
    
    
    $
    8.0
    
    
    $
    18.1
    
    
    $
    24.0Interest cost
    
    
    27.1
    
    
    
    25.9
    
    
    
    79.6
    
    
    
    77.5Expected return on plan assets
    
    
    (28.2
    )
    
    
    (29.2
    )
    
    
    (85.9
    )
    
    
    (87.6
    )Amortization of (gains) or losses
    
    
    10.6
    
    
    
    13.4
    
    
    
    38.7
    
    
    
    40.4Prior service cost recognized
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    Amortization of prior service cost
    
    
    1.0
    
    
    
    0.8
    
    
    
    3.0
    
    
    
    2.4Plan curtailment (gain)/loss
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    Special termination benefits
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    Net periodic benefit cost
    
    $
    16.1
    
    
    $
    18.9
    
    
    $
    55.1
    
    
    $
    56.7Defined contribution plan cost
    
    $
    1.6
    
    
    $
    1.7
    
    
    $
    5.1
    
    
    $
    5.2
 Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 24,
    
    
    September 25,
    
    
    September 24,
    
    

    September 25,Other Post-retirement Benefits
    
    2006
    
    
    2005
    
    
    2006
    
    

    2005($ in millions)Components of net periodic benefit cost (income):Service cost
    
    $
    1.5
    
    
    $
    1.8
    
    
    $
    4.5
    
    
    $
    5.5Interest cost
    
    
    9.0
    
    
    
    9.6
    
    
    
    25.9
    
    
    
    29.0Expected return on plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net (gain)/loss
    
    
    1.7
    
    
    
    2.7
    
    
    
    8.7
    
    
    
    8.1Prior service cost recognized
    
    
    
    
    
    
    
    
    
    
    (8.5
    )
    
    
    Amortization of prior service cost
    
    
    (2.1
    )
    
    
    0.7
    
    
    
    (7.1
    )
    
    
    1.9Plan curtailment (gain)/loss
    
    
    
    
    
    
    
    
    
    
    (3.1
    )
    
    
    Special termination benefits
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    Net periodic benefit cost
    
    $
    10.1
    
    
    $
    14.8
    
    
    $
    21.1
    
    
    $
    44.5
 13




---



##### Table of Contents



Note 8
 Commitments
 Warranty Reserves.
 14




---



##### Table of Contents



WarrantyReserve($ in millions)Balance at December 31, 2004
    
    
    10.2Warranty costs incurred
    
    
    (0.5
    )Additions charged to cost of sales:Warranties issued
    
    
    0.3Charges related to pre-existing warranties
    
    
    (2.0
    )Balance at December 31, 2005
    
    $
    8.0Warranty costs incurred
    
    
    Additions charged to cost of sales:Warranties issued
    
    
    0.8Charges related to pre-existing warranties
    
    
    (1.7
    )Balance at September 24, 2006
    
    $
    7.1
 Note 9
 Environmental Contingencies
    15




---



##### Table of Contents



EnvironmentalLiability($ in millions)Balance at December 31, 2004
    
    $
    5.8Environmental costs incurred
    
    
    (1.5
    )Balance at December 31, 2005
    
    
    4.3Environmental costs incurred
    
    
    (0.1
    )Balance at September 24, 2006
    
    $
    4.2
 Note
10  Other Non-Current Liabilities
  September 24,
    
    
    December 31,2006
    
    
    2005($ in millions)Deferred income from the sale of Hawthorne facility
    
    $
    52.6
    
    
    $
    52.6State of South Carolina grant monies (a)
    
    
    68.6
    
    
    
    52.2State of Texas grant monies
    
    
    35.0
    
    
    
    35.0Advance for South Carolina Taxiway Project (b)
    
    
    7.8
    
    
    
    Deferred workers compensation
    
    
    26.3
    
    
    
    19.5Accrued warranties
    
    
    6.9
    
    
    
    7.5Deficit in joint venture
    
    
    2.1
    
    
    
    Other
    
    
    3.8
    
    
    
    4.7Total other non-current liabilities
    
    $
    203.1
    
    
    $
    171.5
 
 (a)
    
    With the activation of the South Carolina plant in June 2006, we have begun
recognizing a portion of the State of South Carolina grant monies as a reduction in
expense.(b)
    
    On July, 25 2006, we entered into an agreement with The Boeing Company
(Boeing) to design and construct the Charleston, South Carolina site taxiway. The
total estimated cost of the taxiway is approximately $13.4 million. Vought has received
$2.0 million in grant funding from the State of South Carolina for the project. The
remaining $11.4 million of cost will be funded by Boeing. We have received $7.8 million
from Boeing as an advance for future design and construction costs. Note
11  Related Party Transactions
  16




---



##### Table of Contents



Note
12  Guarantor Subsidiaries
  17




---



##### Table of Contents



Consolidating Balance Sheet
September 24, 2006
($ in millions, except per share amounts)
(Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    7.9
    
    
    $
    
    
    
    $
    
    
    
    $
    7.9Accounts receivable
    
    
    92.0
    
    
    
    4.7
    
    
    
    
    
    
    
    96.7Intercompany receivable
    
    
    23.0
    
    
    
    5.8
    
    
    
    (28.8
    )
    
    
    Inventories
    
    
    376.1
    
    
    
    13.7
    
    
    
    
    
    
    
    389.8Other current assets
    
    
    8.0
    
    
    
    0.4
    
    
    
    
    
    
    
    8.4Total current assets
    
    
    507.0
    
    
    
    24.6
    
    
    
    (28.8
    )
    
    
    502.8Property, plant and equipment, net
    
    
    515.3
    
    
    
    17.2
    
    
    
    
    
    
    
    532.5Goodwill, net
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    71.2
    
    
    
    
    
    
    
    
    
    
    
    71.2Investment in affiliated company
    
    
    75.5
    
    
    
    
    
    
    
    (75.5
    )
    
    
    Debt origination costs, net and other assets
    
    
    16.3
    
    
    
    
    
    
    
    
    
    
    
    16.3Total assets
    
    $
    1,649.3
    
    
    $
    105.5
    
    
    $
    (104.3
    )
    
    $
    1,650.5Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    117.0
    
    
    $
    3.7
    
    
    $
    
    
    
    $
    120.7Intercompany payable
    
    
    5.8
    
    
    
    23.0
    
    
    
    (28.8
    )
    
    
    Accrued and other liabilities
    
    
    68.9
    
    
    
    1.0
    
    
    
    
    
    
    
    69.9Accrued payroll and employee benefits
    
    
    30.0
    
    
    
    0.9
    
    
    
    
    
    
    
    30.9Accrued post-retirement benefits  current
    
    
    56.1
    
    
    
    
    
    
    
    
    
    
    
    56.1Accrued pension  current
    
    
    52.3
    
    
    
    
    
    
    
    
    
    
    
    52.3Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9Accrued contract liabilities
    
    
    312.1
    
    
    
    
    
    
    
    
    
    
    
    312.1Total current liabilities
    
    
    646.2
    
    
    
    29.5
    
    
    
    (28.8
    )
    
    
    646.9Long-term liabilities:Accrued post-retirement benefits
    
    
    482.1
    
    
    
    
    
    
    
    
    
    
    
    482.1Accrued pension
    
    
    344.3
    
    
    
    
    
    
    
    
    
    
    
    344.3Long-term bank debt, net of current portion
    
    
    415.0
    
    
    
    
    
    
    
    
    
    
    
    415.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Long-term capital lease obligation
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5Other non-current liabilities
    
    
    203.1
    
    
    
    
    
    
    
    
    
    
    
    203.1Total liabilities
    
    
    2,360.7
    
    
    
    30.0
    
    
    
    (28.8
    )
    
    
    2,361.9Stockholders equity (deficit):Common stock, par value $0.01 per share;
50,000,000 shares
authorized, 24,711,373 issued and outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    411.8
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    411.8Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Accumulated deficit
    
    
    (635.0
    )
    
    
    (4.8
    )
    
    
    4.8
    
    
    
    (635.0
    )Accumulated other comprehensive loss
    
    
    (485.9
    )
    
    
    
    
    
    
    
    
    
    
    (485.9
    )Total stockholders equity (deficit)
    
    
    (711.4
    )
    
    
    75.5
    
    
    
    (75.5
    )
    
    
    (711.4
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,649.3
    
    
    $
    105.5
    
    
    $
    (104.3
    )
    
    $
    1,650.5
 18




---



##### Table of Contents



Consolidating Balance Sheet
December 31, 2005
($ in millions, except per share amounts)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    9.9
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    10.1Accounts receivable
    
    
    84.5
    
    
    
    6.3
    
    
    
    
    
    
    
    90.8Intercompany receivable
    
    
    12.1
    
    
    
    5.8
    
    
    
    (17.9
    )
    
    
    Inventories
    
    
    327.9
    
    
    
    12.2
    
    
    
    
    
    
    
    340.1Other current assets
    
    
    6.9
    
    
    
    0.5
    
    
    
    
    
    
    
    7.4Total current assets
    
    
    441.3
    
    
    
    25.0
    
    
    
    (17.9
    )
    
    
    448.4Property, plant and equipment, net
    
    
    474.9
    
    
    
    10.2
    
    
    
    
    
    
    
    485.1Goodwill, net
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    79.1
    
    
    
    
    
    
    
    
    
    
    
    79.1Investment in affiliated company
    
    
    79.3
    
    
    
    
    
    
    
    (79.3
    )
    
    
    Debt origination costs, net and other assets
    
    
    21.5
    
    
    
    
    
    
    
    
    
    
    
    21.5Total assets
    
    $
    1,560.1
    
    
    $
    98.9
    
    
    $
    (97.2
    )
    
    $
    1,561.8Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    117.8
    
    
    $
    4.1
    
    
    $
    
    
    
    $
    121.9Intercompany payable
    
    
    5.8
    
    
    
    12.1
    
    
    
    (17.9
    )
    
    
    0.0Accrued and other liabilities
    
    
    68.5
    
    
    
    0.5
    
    
    
    
    
    
    
    69.0Accrued payroll and employee benefits
    
    
    34.6
    
    
    
    0.9
    
    
    
    
    
    
    
    35.5Accrued post-retirement benefits  current
    
    
    53.4
    
    
    
    
    
    
    
    
    
    
    
    53.4Accrued pension  current
    
    
    36.8
    
    
    
    
    
    
    
    
    
    
    
    36.8Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8Accrued contract liabilities
    
    
    216.0
    
    
    
    
    
    
    
    
    
    
    
    216.0Total current liabilities
    
    
    536.9
    
    
    
    18.4
    
    
    
    (17.9
    )
    
    
    537.4Long-term liabilities:Accrued post-retirement benefits
    
    
    496.5
    
    
    
    
    
    
    
    
    
    
    
    496.5Accrued pension
    
    
    441.2
    
    
    
    
    
    
    
    
    
    
    
    441.2Long-term bank debt, net of current portion
    
    
    417.0
    
    
    
    
    
    
    
    
    
    
    
    417.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Long-term capital lease obligation
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    1.2Other non-current liabilities
    
    
    171.5
    
    
    
    
    
    
    
    
    
    
    
    171.5Total liabilities
    
    
    2,333.1
    
    
    
    19.6
    
    
    
    (17.9
    )
    
    
    2,334.8Stockholders equity (deficit):Common stock, par value $0.01per
share; 50,000,000 shares
authorized, 24,711,373 issued and outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    411.4
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    411.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Accumulated deficit
    
    
    (604.6
    )
    
    
    (1.0
    )
    
    
    1.0
    
    
    
    (604.6
    )Accumulated other comprehensive loss
    
    
    (577.4
    )
    
    
    
    
    
    
    
    
    
    
    (577.4
    )Total stockholders equity (deficit)
    
    
    (773.0
    )
    
    
    79.3
    
    
    
    (79.3
    )
    
    
    (773.0
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,560.1
    
    
    $
    98.9
    
    
    $
    (97.2
    )
    
    $
    1,561.8
 19




---



##### Table of Contents



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
    
    
    269.7
    
    
    
    12.6
    
    
    
    0.5
    
    
    
    282.8Selling, general and administrative expenses
    
    
    67.6
    
    
    
    0.9
    
    
    
    
    
    
    
    68.5Impairment 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
    )
 20




---



##### Table of Contents



Consolidating Statement of Operations
Three Months Ended September 25, 2005
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    295.9
    
    
    $
    17.4
    
    
    $
    (2.9
    )
    
    $
    310.4Costs and expensesCost of sales
    
    
    261.8
    
    
    
    15.4
    
    
    
    (2.9
    )
    
    
    274.3Selling, general and administrative expenses
    
    
    76.2
    
    
    
    0.9
    
    
    
    
    
    
    
    77.1Asset impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    338.0
    
    
    
    16.3
    
    
    
    (2.9
    )
    
    
    351.4Operating income (loss)
    
    
    (42.1
    )
    
    
    1.1
    
    
    
    
    
    
    
    (41.0
    )Other income (expense)Interest income
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Other income (loss)
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.3
    )Equity in earnings (loss) of joint venture
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Interest expense
    
    
    (14.1
    )
    
    
    
    
    
    
    
    
    
    
    (14.1
    )Equity in income of consolidated subsidiaries
    
    
    0.8
    
    
    
    
    
    
    
    (0.8
    )
    
    
    Income (loss) before income taxes
    
    
    (55.2
    )
    
    
    0.8
    
    
    
    (0.8
    )
    
    
    (55.2
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (55.2
    )
    
    $
    0.8
    
    
    $
    (0.8
    )
    
    $
    (55.2
    )
 21




---



##### Table of Contents



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
    
    
    866.0
    
    
    
    36.1
    
    
    
    (4.5
    )
    
    
    897.6Selling, general and administrative expenses
    
    
    204.4
    
    
    
    2.7
    
    
    
    
    
    
    
    207.1Impairment 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
    )
 22




---



##### Table of Contents



Consolidating Statement of Operations
Nine Months Ended September 25, 2005
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    889.1
    
    
    $
    56.1
    
    
    $
    (8.0
    )
    
    $
    937.2Costs and expensesCost of sales
    
    
    844.0
    
    
    
    48.7
    
    
    
    (8.0
    )
    
    
    884.7Selling, general and administrative expenses
    
    
    220.0
    
    
    
    2.4
    
    
    
    
    
    
    
    222.4Asset impairment
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Total costs and expenses
    
    
    1,069.9
    
    
    
    51.1
    
    
    
    (8.0
    )
    
    
    1,113.0Operating income (loss)
    
    
    (180.8
    )
    
    
    5.0
    
    
    
    
    
    
    
    (175.8
    )Other income (expense)Interest income
    
    
    2.8
    
    
    
    
    
    
    
    
    
    
    
    2.8Other income (loss)
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )Equity in earnings (loss) of joint venture
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    (1.8
    )Interest expense
    
    
    (38.8
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (38.9
    )Equity in income of consolidated subsidiaries
    
    
    4.5
    
    
    
    
    
    
    
    (4.5
    )
    
    
    Income (loss) before income taxes
    
    
    (214.1
    )
    
    
    4.5
    
    
    
    (4.5
    )
    
    
    (214.1
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (214.1
    )
    
    $
    4.5
    
    
    $
    (4.5
    )
    
    $
    (214.1
    )
 23




---



##### 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 & 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 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
 24




---



##### Table of Contents



Consolidating Statement of Cash Flows
Nine Months Ended September 25, 2005
($ in millions)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    (214.1
    )
    
    $
    4.5
    
    
    $
    (4.5
    )
    
    $
    (214.1
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in ) operating activities:Depreciation & amortization
    
    
    52.0
    
    
    
    2.7
    
    
    
    
    
    
    
    54.7Impairment charge
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Loss from asset sales
    
    
    4.3
    
    
    
    0.4
    
    
    
    
    
    
    
    4.7Income from investments in consolidated subsidiaries
    
    
    (4.5
    )
    
    
    
    
    
    
    4.5
    
    
    
    Equity in losses in joint venture
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    1.8Changes in current assets and liabilities:Accounts receivable
    
    
    31.1
    
    
    
    (0.1
    )
    
    
    
    
    
    
    31.0Intercompany accounts receivable
    
    
    6.6
    
    
    
    0.7
    
    
    
    (7.3
    )
    
    
    Inventories, net of advance and progress billings
    
    
    (50.9
    )
    
    
    0.2
    
    
    
    
    
    
    
    (50.7
    )Other current assets
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Accounts payable, trade
    
    
    3.0
    
    
    
    0.8
    
    
    
    
    
    
    
    3.8Intercompany accounts payable
    
    
    (0.7
    )
    
    
    (6.6
    )
    
    
    7.3
    
    
    
    Accrued payroll and employee benefits
    
    
    (3.9
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (4.1
    )Accrued and other liabilities
    
    
    (3.3
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    (4.6
    )Accrued contract liabilities
    
    
    134.7
    
    
    
    
    
    
    
    
    
    
    
    134.7Other assets and liabilities  long-term
    
    
    39.3
    
    
    
    
    
    
    
    
    
    
    
    39.3Net cash provided by operating activities
    
    
    0.9
    
    
    
    1.1
    
    
    
    
    
    
    
    2.0Investing activitiesCapital Expenditures
    
    
    (83.5
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (84.0
    )Investment in joint venture
    
    
    (5.0
    )
    
    
    
    
    
    
    
    
    
    
    (5.0
    )Net cash used in investing activities
    
    
    (88.5
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (89.0
    )Financing activitiesProceeds from short-term bank debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments on short-term bank debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments on long-term bank debt
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    (2.0
    )Payments on capital leases
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.6
    )Proceeds from Hawthorne
    
    
    52.6
    
    
    
    
    
    
    
    
    
    
    
    52.6Proceeds from governmental grants
    
    
    25.3
    
    
    
    
    
    
    
    
    
    
    
    25.3Retirement of common stock
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Proceeds from sale of common stock
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Decrease on stockholder loans
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Net cash provided by (used in) financing activities
    
    
    75.8
    
    
    
    (0.6
    )
    
    
    
    
    
    
    75.2Net decrease in cash and cash equivalents
    
    
    (11.8
    )
    
    
    0.0
    
    
    
    
    
    
    
    (11.8
    )Cash and cash equivalents at beginning of period
    
    
    128.6
    
    
    
    0.3
    
    
    
    
    
    
    
    128.9Cash and cash equivalents at end of period
    
    $
    116.8
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    117.1
 25




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following section may include forward-looking statements that involve inherent risks and
uncertainties. A number of important factors could cause actual results to differ materially from
those in the forward-looking statements. These factors include (i) reduced demand for new
commercial aircraft due to reduction in airline traffic, (ii) business risks inherent to the
airline industry including armed conflict, terrorism, global health warnings, government
regulation, rising fuel and labor costs, lower than expected profitability, and general economic
conditions, and (iii) reduced demand for military aircraft due to reductions in defense spending,
cancellation or modification of military aircraft programs and changes to government export
controls. Managements discussion and analysis of financial condition and results of operations
should be read in conjunction with the financial statements of Vought and the accompanying notes
contained therein.
 CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND JUDGMENTS
  Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
  26




---



##### Table of Contents



Accounting for Performance of Construction-Type and Certain Production type contracts
  September 24,
    
    
    December 31,2006
    
    
    2005($ in millions)Advances and Progress Billings
    
    $
    218.6
    
    
    $
    125.9Forward Loss
    
    
    53.8
    
    
    
    70.2Other
    
    
    39.7
    
    
    
    19.9Total accrued contract liabilities
    
    $
    312.1
    
    
    $
    216.0
 Subsequent Events
 Adoption of Vought Aircraft Industries, Inc. 2006 Incentive Award Plan
     27




---



##### Table of Contents



Compensation of the President and CEO
  28




---



##### Table of Contents



Results of Operations
 Three Months
    
    
    Three Months
    
    
    
    
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Percentage
    
    
    Ended
    
    
    Ended
    
    
    PercentageSeptember 24,
    
    
    September 25,
    
    
    Change to
    
    
    September 24,
    
    
    September 25,
    
    
    Change to2006
    
    
    2005
    
    
    Prior Year
    
    
    2006
    
    
    2005
    
    
    Prior Year($ in millions)
    
    
    
    
    
    
    ($ in millions)Net sales:Commercial
    
    $
    156.1
    
    
    $
    146.4
    
    
    
    7
    %
    
    $
    525.2
    
    
    $
    464.4
    
    
    
    13
    %Military
    
    
    133.6
    
    
    
    113.4
    
    
    
    18
    %
    
    
    393.1
    
    
    
    318.5
    
    
    
    23
    %Business jets
    
    
    64.7
    
    
    
    50.6
    
    
    
    28
    %
    
    
    215.0
    
    
    
    154.3
    
    
    
    39
    %Total net sales
    
    $
    354.4
    
    
    $
    310.4
    
    
    
    14
    %
    
    $
    1,133.3
    
    
    $
    937.2
    
    
    
    21
    %Costs and expenses:Cost of sales
    
    
    282.8
    
    
    
    274.3
    
    
    
    3
    %
    
    
    897.6
    
    
    
    884.7
    
    
    
    1
    %Selling, general and
administrative
    
    
    68.5
    
    
    
    77.1
    
    
    
    -11
    %
    
    
    207.1
    
    
    
    222.4
    
    
    
    -7
    %Asset impairment charge
    
    
    (0.4
    )
    
    
    
    
    
    
    100
    %
    
    
    8.1
    
    
    
    5.9
    
    
    
    37
    %Total costs and expenses
    
    $
    350.9
    
    
    $
    351.4
    
    
    
    0
    %
    
    $
    1,112.8
    
    
    $
    1,113.0
    
    
    
    0
    %Operating income (loss)
    
    
    3.5
    
    
    
    (41.0
    )
    
    
    -109
    %
    
    
    20.5
    
    
    
    (175.8
    )
    
    
    -112
    %Other income (loss)
    
    
    
    
    
    
    (0.3
    )
    
    
    -100
    %
    
    
    (0.1
    )
    
    
    (0.4
    )
    
    
    -75
    %Equity in (loss) of
joint venture
    
    
    (1.5
    )
    
    
    (1.0
    )
    
    
    50
    %
    
    
    (4.7
    )
    
    
    (1.8
    )
    
    
    161
    %Interest expense, net
    
    
    (15.4
    )
    
    
    (12.9
    )
    
    
    19
    %
    
    
    (46.1
    )
    
    
    (36.1
    )
    
    
    28
    %Net income (loss)
    
    $
    (13.4
    )
    
    $
    (55.2
    )
    
    
    -76
    %
    
    $
    (30.4
    )
    
    $
    (214.1
    )
    
    
    -86
    %
 Comparison of Results of Operations for the Three Months Ended September 24, 2006 and September 25,
2005
 Net sales
 
    
    Commercial net sales increased by approximately $9.7 million or 7%, for the three
months ending September 24, 2006 compared to the comparable period in 2005. The
increase is primarily due to $7.8 million from increased Boeing 747 program deliveries
and $8.3 million from increased Boeing 777 deliveries, offset in part by a reduction in
Airbus deliveries.
    
    Military net sales increased approximately $20.2 million or 18%, primarily as a
result of increased production in 2006. The C-5, Global Hawk and UH-60 programs
increased sales by $27.0 million. This increase was partially offset by the completion
of several programs in 2005 that were not included in our 2006 sales.
 29




---



##### Table of Contents




    
    Business Jet net sales increased by approximately $14.1 million or 28%
primarily due to deliveries of our Gulfstream program.
 Cost of sales
 Selling, general and administrative expenses
 Operating income (loss)
 Interest expense, net
 Comparison of Results of Operations for the Nine Months Ended September 24, 2006 and September 25,
2005
 Net sales
 
    
    Commercial net sales increased by approximately $ 60.8 million or 13%, primarily due
to the recognition of approximately $70.5 million in sales related to customer
settlements that were finalized in second quarter of 2006 and an increase of $14.3
million from increased deliveries for the Boeing 777 program. The increases were
partially offset by a reduction of approximately $27.5 million of sales due to lower
deliveries for the Boeing 747 program and various Airbus
programs.
    
    Military net sales increased approximately $74.6 million or 23%, primarily as a
result of increased production in 2006 in three new programs: The C-5, Global Hawk and
UH-60 programs increased sales by $95.2 million partially offset by the completion
of the F-22, A10 and EA-6B programs in 2005 that were not in
production in 2006.
    
    Business Jet net sales increased by approximately $60.7 million or 39%,
substantially due to a customer settlements finalized in the second quarter of 2006 and
due to increased deliveries for the Gulfstream programs.
 Cost of sales
 30




---



##### Table of Contents



Selling, general and administrative expenses
 Operating income (loss)
 Interest expense, net
 New Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of SFAS No.
109"
 Fair
Value Measurements
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an Amendment of
FASB Statements No. 87, 88, 106 and 132(R)
 31




---



##### Table of Contents



Liquidity and Capital Resources
     Debt Covenants.
 32




---



##### Table of Contents



Cash Flow
    Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      33




---



##### Table of Contents



Interest Rate Risks
     Utility Price Risks
  34




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
      35




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
  36




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
 (a) Exhibits
 (10.1)*
    
    2006 Incentive Award Plan(10.2)*
    
    Form of Stock Appreciation Rights
Agreement(10.3)*
    
    Form of Restricted Stock Unit Award
Agreement(10.4)*
    
    Restricted Stock Unit Award
Agreement with Elmer Doty(31.1)*
    
    Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.(31.2)*
    
    Certification of Principal Financial and
Accounting Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002.(32.1)*
    
    Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.(32.2)*
    
    Certification of Principal Financial and
Accounting Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith (b) Reports on form 8K
   37




---



##### Table of Contents



SIGNATURES
  Vought Aircraft Industries, Inc.(Registrant)November 8, 2006
    
    /s/ Wendy Hargus(Date)
    
    Wendy HargusInterim Principal Financial and Accounting Officer andAuthorized Officer
 38