##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 29, 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



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
    
    
    28Item 3
    
    Quantitative And Qualitative Disclosures About Market Risk
    
    
    42Item 4
    
    Controls And Procedures
    
    
    44PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    44Item 1A
    
    Risk Factors
    
    
    44Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3
    
    Defaults Upon Senior Securities
    
    
    46Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    46Item 5
    
    Other Information
    
    
    46Item 6
    
    Exhibits
    
    
    47Signatures
    
    
    48Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




---



##### Table of Contents



Cautionary Statement Regarding Forward Looking Statements
   
    
    significant considerations and risks discussed in this report, our Quarterly
Report on Form 10-Q for the period ended March 30, 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;
    
    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;
    
    the effect of and changes in economic conditions in the areas in which we
operate;
    
    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




---



##### Table of Contents



Vought Aircraft Industries, Inc.
 
 Consolidated Balance Sheets
 (dollars in millions, except par value per share )
 June 29,2008
    
    
    December 31,(unaudited)
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    243.8
    
    
    $
    75.6Trade and other receivables
    
    
    121.2
    
    
    
    81.4Inventories
    
    
    336.4
    
    
    
    362.8Other current assets
    
    
    9.5
    
    
    
    6.4Total current assets
    
    
    710.9
    
    
    
    526.2Property, plant and equipment, net
    
    
    516.1
    
    
    
    507.0Goodwill
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    33.0
    
    
    
    40.1Debt origination costs, net and other assets
    
    
    15.6
    
    
    
    11.5Investment in joint venture
    
    
    
    
    
    
    8.4Total assets
    
    $
    1,803.3
    
    
    $
    1,620.9Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    140.6
    
    
    $
    178.7Accrued and other liabilities
    
    
    68.9
    
    
    
    74.1Accrued payroll and employee benefits
    
    
    44.9
    
    
    
    48.2Accrued post-retirement benefits-current
    
    
    47.2
    
    
    
    47.2Accrued pension-current
    
    
    0.3
    
    
    
    0.7Current portion of long-term bank debt
    
    
    5.9
    
    
    
    4.0Accrued contract liabilities
    
    
    185.2
    
    
    
    230.4Total current liabilities
    
    
    493.0
    
    
    
    583.3Long-term liabilities:Accrued post-retirement benefits
    
    
    435.2
    
    
    
    482.0Accrued pension
    
    
    345.2
    
    
    
    361.2Long-term bank debt, net of current portion
    
    
    596.6
    
    
    
    409.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Other non-current liabilities
    
    
    177.2
    
    
    
    181.2Total liabilities
    
    
    2,317.2
    
    
    
    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
June 29, 2008 and December 31, 2007, respectively
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    418.9
    
    
    
    417.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    (1.6
    )Accumulated deficit
    
    
    (487.0
    )
    
    
    (595.0
    )Accumulated other comprehensive loss
    
    
    (444.5
    )
    
    
    (486.9
    )Total stockholders equity (deficit)
    
    $
    (513.9
    )
    
    $
    (665.8
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,803.3
    
    
    $
    1,620.9
 See accompanying notes
 4




---



##### Table of Contents



Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Operations
 (unaudited, in millions)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 29,
    
    
    July 1,
    
    
    June 29,
    
    
    July 1,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    480.7
    
    
    $
    427.6
    
    
    $
    906.1
    
    
    $
    808.3Costs and expensesCost of sales
    
    
    377.1
    
    
    
    325.8
    
    
    
    703.4
    
    
    
    618.3Selling, general and
administrative expenses
    
    
    55.7
    
    
    
    59.7
    
    
    
    110.0
    
    
    
    113.7Total costs and expenses
    
    
    432.8
    
    
    
    385.5
    
    
    
    813.4
    
    
    
    732.0Operating income
    
    
    47.9
    
    
    
    42.1
    
    
    
    92.7
    
    
    
    76.3Other income (expense)Interest income
    
    
    0.9
    
    
    
    0.9
    
    
    
    1.0
    
    
    
    2.2Other gain (loss)
    
    
    47.1
    
    
    
    
    
    
    
    47.1
    
    
    
    (0.1
    )Equity in loss of joint venture
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (0.6
    )
    
    
    (0.7
    )Interest expense
    
    
    (16.4
    )
    
    
    (15.7
    )
    
    
    (32.2
    )
    
    
    (31.6
    )Income before income taxes
    
    
    79.3
    
    
    
    26.9
    
    
    
    108.0
    
    
    
    46.1Income tax expense
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8Net income
    
    $
    79.3
    
    
    $
    26.1
    
    
    $
    108.0
    
    
    $
    45.3
 See accompanying notes
 5




---



##### Table of Contents



Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Cash Flows
 (unaudited, in millions)
 Six Months EndedJune 29,
    
    
    July 1,2008
    
    
    2007Operating activitiesNet income
    
    $
    108.0
    
    
    $
    45.3Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    32.8
    
    
    
    30.4Stock compensation expense
    
    
    1.4
    
    
    
    1.8Equity in losses of joint venture
    
    
    0.6
    
    
    
    0.7(Gain) Loss from asset disposals
    
    
    (48.5
    )
    
    
    0.6Changes in current assets and liabilities:Trade and other receivables
    
    
    (39.8
    )
    
    
    (32.9
    )Inventories
    
    
    26.4
    
    
    
    (13.7
    )Other current assets
    
    
    (3.1
    )
    
    
    (1.4
    )Accounts payable, trade
    
    
    (38.1
    )
    
    
    (7.2
    )Accrued payroll and employee benefits
    
    
    (3.3
    )
    
    
    (9.5
    )Accrued and other liabilities
    
    
    (5.6
    )
    
    
    13.1Accrued contract liabilities
    
    
    (45.2
    )
    
    
    1.4Other assets and liabilitieslong-term
    
    
    (23.3
    )
    
    
    (26.9
    )Net cash provided by (used in) operating activities
    
    
    (37.7
    )
    
    
    1.7Investing activitiesCapital expenditures
    
    
    (32.8
    )
    
    
    (31.0
    )Proceeds from sale of assets
    
    
    
    
    
    
    23.1Proceeds from sale of joint venture
    
    
    55.0
    
    
    
    Investment in joint venture
    
    
    
    
    
    
    (14.0
    )Net cash provided by (used in) investing activities
    
    
    22.2
    
    
    
    (21.9
    )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
    
    
    (1.0
    )
    
    
    (2.0
    )Payments on capital leases
    
    
    
    
    
    
    (0.6
    )Proceeds from sale of common stock
    
    
    0.1
    
    
    
    Net cash provided by (used in) financing activities
    
    
    183.7
    
    
    
    (2.6
    )Net increase (decrease) in cash and cash equivalents
    
    
    168.2
    
    
    
    (22.8
    )Cash and cash equivalents at beginning of period
    
    
    75.6
    
    
    
    93.4Cash and cash equivalents at end of period
    
    $
    243.8
    
    
    $
    70.6
 See accompanying notes
 6




---



##### Table of Contents



Vought Aircraft Industries, Inc.
 
 Notes to the Interim Unaudited Condensed Consolidated Financial Statemen
 Period Ending June 29, 2008
 Note 1  Organization and Basis of Presentation
      7




---



##### Table of Contents



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




---



##### Table of Contents



Note 3  Inventories
   June 29,
    
    
    December 31,2008
    
    
    2007(in millions)Production costs of contracts in process
    
    $
    856.9
    
    
    $
    727.7Finished goods
    
    
    2.1
    
    
    
    2.0Less: unliquidated progress payments
    
    
    (522.6
    )
    
    
    (366.9
    )Total inventories
    
    $
    336.4
    
    
    $
    362.8
 Note 4  Goodwill and
Intangible Assets
 Note 4  Goodwill and Intangible Assets
 SFAS 142 Goodwill and Other Intangible Assets
   9




---



##### Table of Contents



June 29,
    
    
    December 31,2008
    
    
    2007(in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Less: accumulated amortization
    
    
    (104.3
    )
    
    
    (97.2
    )Identifiable intangible assets, net
    
    $
    33.0
    
    
    $
    40.1
  (in millions)2008
    
    $
    5.92009
    
    
    6.82010
    
    
    4.82011
    
    
    2.12012
    
    
    2.1Thereafter
    
    
    11.3Total remaining amortization of identifiable intangible assets
    
    $
    33.0
 10




---



##### Table of Contents



Note 5  Pension and Other Post-retirement Benefits
  Pension Benefits
    
    
    Other Post-retirement BenefitsThree Months Ended
    
    
    Six Months Ended
    
    
    Three Months Ended
    
    
    Six Months EndedJune 29,
    
    
    July 1,
    
    
    June 29,
    
    
    July 1,
    
    
    June 29,
    
    
    July 1,
    
    
    June 29,
    
    
    July 1,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(in millions)Components of net periodic benefit
cost (income):Service cost
    
    $
    4.7
    
    
    $
    4.7
    
    
    $
    9.5
    
    
    $
    9.4
    
    
    $
    1.2
    
    
    $
    1.4
    
    
    $
    2.5
    
    
    $
    2.8Interest cost
    
    
    27.5
    
    
    
    25.6
    
    
    
    54.8
    
    
    
    51.1
    
    
    
    7.2
    
    
    
    8.2
    
    
    
    14.9
    
    
    
    16.4Expected return on plan assets
    
    
    (31.0
    )
    
    
    (29.1
    )
    
    
    (62.1
    )
    
    
    (58.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net (gain) loss
    
    
    6.9
    
    
    
    9.2
    
    
    
    13.8
    
    
    
    18.4
    
    
    
    1.4
    
    
    
    1.5
    
    
    
    2.7
    
    
    
    3.0Amortization of prior service
cost
    
    
    2.9
    
    
    
    1.0
    
    
    
    5.9
    
    
    
    2.0
    
    
    
    (5.4
    )
    
    
    (2.4
    )
    
    
    (9.2
    )
    
    
    (4.7
    )Plan settlement or curtailment
(gain) loss (a)
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    11.0
    
    
    $
    12.7
    
    
    $
    21.9
    
    
    $
    28.3
    
    
    $
    4.4
    
    
    $
    8.7
    
    
    $
    10.9
    
    
    $
    17.5Defined contribution plans cost
    
    $
    4.6
    
    
    $
    1.7
    
    
    $
    9.3
    
    
    $
    3.7
 
 (a)
    
    As a result of lump sum payments made under provisions of our non-qualified (excess) pension
plan, we recorded pension settlement charges of $4.6 million and $1.3 million as part of net
periodic benefit cost and other comprehensive loss during the first and second quarters of 2007,
respectively.  
    
    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 provide for a one-time retirement incentive program to be 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 six months ended June 29, 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, 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.
 11




---



##### Table of Contents



Note 6  Commitments
 Warranty Reserve.
 :
 WarrantyReserve(in millions)Balance at December 31, 2006
    
    $
    6.8Warranty costs incurred
    
    
    (0.4
    )Warranties issued
    
    
    0.8Balance at December 31, 2007
    
    $
    7.2Warranty costs incurred
    
    
    (0.3
    )Warranties issued
    
    
    0.9Balance at June 29, 2008
    
    $
    7.8
 Note 7  Environmental Contingencies
    12




---



##### Table of Contents



EnvironmentalLiability(in millions)Balance at January 1, 2007
    
    $
    4.1Environmental costs incurred
    
    
    (0.3
    )Balance at December 31, 2007
    
    
    3.8Environmental costs incurred
    
    
    (0.3
    )Balance at June 29, 2008
    
    $
    3.5
 Note 8  Other Non-Current Liabilities
  June 29,
    
    
    December 31,2008
    
    
    2007(in millions)Deferred income from the sale of Hawthorne facility (a)
    
    $
    52.6
    
    
    $
    52.6State of South Carolina grant monies (b)
    
    
    62.6
    
    
    
    66.7State of Texas grant monies
    
    
    35.0
    
    
    
    35.0Deferred workers compensation
    
    
    15.2
    
    
    
    15.6Accrued warranties
    
    
    7.2
    
    
    
    6.6Other
    
    
    4.6
    
    
    
    4.7Total other non-current liabilities
    
    $
    177.2
    
    
    $
    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
require our continuing involvement in the facility, this transaction has been 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. This liability 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 $1.7 million and $1.6 million for the six months
ended June 29, 2008 and July 1, 2007, respectively. Additionally, during the six month
period ended June 29, 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. Note 9  Income Taxes
 Accounting for Uncertainty
in Income Taxes
 13




---



##### Table of Contents



Note 10  Stockholders Equity
  2001/2003 Stock Option Plans
   14




---



##### Table of Contents



WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    ContractualExercise
    
    
    TermOptions
    
    
    Price
    
    

(in years)Outstanding at December 31, 2007
    
    
    661,479
    
    
    $
    14.57Granted
    
    
    
    
    
    
    Forfeited or expired
    
    
    (98,989
    )
    
    
    11.07Exercised
    
    
    
    
    
    
    Outstanding at June 29, 2008
    
    
    562,490
    
    
    $
    15.19
    
    
    
    3.7Vested or expected to vest (a)
    
    
    562,490
    
    
    
    15.19
    
    
    
    3.7Exercisable at June 29, 2008
    
    
    493,470
    
    
    $
    14.57
    
    
    
    3.7
 
 (a)
    
    Represents outstanding options reduced by expected forfeitures. Expected forfeitures assumed
under SFAS 123 were zero. Shares Held in Rabbi Trust
  2006 Incentive Plan
  15




---



##### Table of Contents



Stock Appreciation Rights (SARs)
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    ConractualExercise
    
    
    TermSARs
    
    
    Price
    
    

(in years)Outstanding at December 31, 2007
    
    
    972,750
    
    
    $
    10.00
    
    
    
    8.9Granted
    
    
    
    
    
    
    Forfeited or expired
    
    
    (23,400
    )
    
    
    10.00Exercised
    
    
    (21,775
    )
    
    
    10.00Outstanding at June 29, 2008
    
    
    927,575
    
    
    $
    10.00
    
    
    
    8.4Vested or expected to vest (a)
    
    
    774,156
    
    
    
    10.00
    
    
    
    8.4Exercisable at June 29, 2008
    
    
    413,686
    
    
    $
    10.00
    
    
    
    8.4
 
 (a)
    
    Represents outstanding SARs reduced by expected forfeitures.  Restricted Stock Units (RSUs)
   Grant-dateRSUs
    
    
    Fair-ValueOutstanding at December 31, 2007
    
    
    574,421
    
    
    $
    9.12Granted
    
    
    58,840
    
    
    
    23.85Forfeited or expired
    
    
    (12,500
    )
    
    
    8.79Converted
    
    
    
    
    
    
    Outstanding at June 29, 2008
    
    
    620,761
    
    
    $
    10.52Vested or expected to vest (a)
    
    
    496,092Vested at June 29, 2008
    
    
    107,583
    
    
    $
    9.36
 
 (a)
    
    Represents outstanding RSUs reduced by expected forfeitures. 16




---



##### Table of Contents



Restricted Shares
  Note 11  Stock-Based Compensation
  Stock Compensation ExpenseThree Months Ended
    
    
    Six Months EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007(in millions)Stock Options
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Stock appreciation rights (SARs)
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.9Restricted stock units (RSUs)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.9
    
    
    
    0.8Restricted shares
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Total stock compensation expense
    
    $
    0.8
    
    
    $
    1.0
    
    
    $
    1.4
    
    
    $
    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
  17




---



##### 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
  Note 12  Investment in Joint Venture
  18




---



##### Table of Contents



Note 13  Long-Term Debt
    Note 14  Related Party Transactions
    19




---



##### Table of Contents



Note 15  Guarantor Subsidiaries
  20




---



##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Balance
Sheet
 June 29, 2008
(dollars in millions, except par value per share) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    243.6
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    243.8Trade and other receivables
    
    
    114.6
    
    
    
    6.6
    
    
    
    
    
    
    
    121.2Intercompany receivable
    
    
    22.8
    
    
    
    9.0
    
    
    
    (31.8
    )
    
    
    Inventories
    
    
    321.5
    
    
    
    14.9
    
    
    
    
    
    
    
    336.4Other current assets
    
    
    9.2
    
    
    
    0.3
    
    
    
    
    
    
    
    9.5Total current assets
    
    
    711.7
    
    
    
    31.0
    
    
    
    (31.8
    )
    
    
    710.9Property, plant and equipment, net
    
    
    507.5
    
    
    
    8.6
    
    
    
    
    
    
    
    516.1Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    33.0
    
    
    
    
    
    
    
    
    
    
    
    33.0Debt origination costs, net and  other assets
    
    
    15.6
    
    
    
    
    
    
    
    
    
    
    
    15.6Investment in affiliated company
    
    
    74.4
    
    
    
    
    
    
    
    (74.4
    )
    
    
    Total assets
    
    $
    1,806.2
    
    
    $
    103.3
    
    
    $
    (106.2
    )
    
    $
    1,803.3Liabilities and stockholders
equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    135.9
    
    
    $
    4.7
    
    
    $
    
    
    
    $
    140.6Intercompany payable
    
    
    9.0
    
    
    
    22.8
    
    
    
    (31.8
    )
    
    
    Accrued and other liabilities
    
    
    68.8
    
    
    
    0.1
    
    
    
    
    
    
    
    68.9Accrued payroll and employee
benefits
    
    
    43.6
    
    
    
    1.3
    
    
    
    
    
    
    
    44.9Accrued post-retirement
benefits-current
    
    
    47.2
    
    
    
    
    
    
    
    
    
    
    
    47.2Accrued pension-current
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Current portion of long-term bank
debt
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    5.9Accrued contract liabilities
    
    
    185.2
    
    
    
    
    
    
    
    
    
    
    
    185.2Total current liabilities
    
    
    495.9
    
    
    
    28.9
    
    
    
    (31.8
    )
    
    
    493.0Long-term liabilities:Accrued post-retirement benefits
    
    
    435.2
    
    
    
    
    
    
    
    
    
    
    
    435.2Accrued pension
    
    
    345.2
    
    
    
    
    
    
    
    
    
    
    
    345.2Long-term bank debt, net of
current portion
    
    
    596.6
    
    
    
    
    
    
    
    
    
    
    
    596.6Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current liabilities
    
    
    177.2
    
    
    
    
    
    
    
    
    
    
    
    177.2Total liabilities
    
    
    2,320.1
    
    
    
    28.9
    
    
    
    (31.8
    )
    
    
    2,317.2Stockholders equity (deficit):Common stock, par value $.01 per
share;
50,000,000 shares authorized,
24,798,382 issued
and outstanding at June 29, 2008
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    418.9
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    418.9Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Accumulated deficit
    
    
    (487.0
    )
    
    
    (5.9
    )
    
    
    5.9
    
    
    
    (487.0
    )Accumulated other comprehensive
loss
    
    
    (444.5
    )
    
    
    
    
    
    
    
    
    
    
    (444.5
    )Total stockholders equity
(deficit)
    
    $
    (513.9
    )
    
    $
    74.4
    
    
    $
    (74.4
    )
    
    $
    (513.9
    )Total liabilities and stockholders
equity (deficit)
    
    $
    1,806.2
    
    
    $
    103.3
    
    
    $
    (106.2
    )
    
    $
    1,803.3
 21




---



##### 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
 22




---



##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended June 29, 2008
(in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    467.1
    
    
    $
    19.6
    
    
    $
    (6.0
    )
    
    $
    480.7Costs and expensesCost of sales
    
    
    366.6
    
    
    
    16.5
    
    
    
    (6.0
    )
    
    
    377.1Selling, general and administrative expenses
    
    
    54.0
    
    
    
    1.7
    
    
    
    
    
    
    
    55.7Total costs and expenses
    
    
    420.6
    
    
    
    18.2
    
    
    
    (6.0
    )
    
    
    432.8Operating income
    
    
    46.5
    
    
    
    1.4
    
    
    
    
    
    
    
    47.9Other income (expense)Interest income
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Other gain
    
    
    47.1
    
    
    
    
    
    
    
    
    
    
    
    47.1Equity in loss of joint venture
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Interest expense
    
    
    (16.4
    )
    
    
    
    
    
    
    
    
    
    
    (16.4
    )Equity in income (loss) of consolidated
subsidiaries
    
    
    1.4
    
    
    
    
    
    
    
    (1.4
    )
    
    
    Income (loss) before income taxes
    
    
    79.3
    
    
    
    1.4
    
    
    
    (1.4
    )
    
    
    79.3Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    79.3
    
    
    $
    1.4
    
    
    $
    (1.4
    )
    
    $
    79.3
 Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended July 1, 2007
(in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    415.2
    
    
    $
    14.4
    
    
    $
    (2.0
    )
    
    $
    427.6Costs and expensesCost of sales
    
    
    314.7
    
    
    
    13.1
    
    
    
    (2.0
    )
    
    
    325.8Selling, general and administrative expenses
    
    
    58.4
    
    
    
    1.3
    
    
    
    
    
    
    
    59.7Total costs and expenses
    
    
    373.1
    
    
    
    14.4
    
    
    
    (2.0
    )
    
    
    385.5Operating income (loss)
    
    
    42.1
    
    
    
    
    
    
    
    
    
    
    
    42.1Other income (expense)Interest income
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Other gain (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in loss of joint venture
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Interest expense
    
    
    (15.7
    )
    
    
    
    
    
    
    
    
    
    
    (15.7
    )Equity in income (loss) of consolidated
subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    26.9
    
    
    
    
    
    
    
    
    
    
    
    26.9Income taxes
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Net income (loss)
    
    $
    26.1
    
    
    $
    
    
    
    $
    
    
    
    $
    26.1
 23




---



##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Six Months Ended June 29, 2008
(in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    880.1
    
    
    $
    37.1
    
    
    $
    (11.1
    )
    
    $
    906.1Costs and expensesCost of sales
    
    
    682.2
    
    
    
    32.3
    
    
    
    (11.1
    )
    
    
    703.4Selling, general and administrative
expenses
    
    
    107.1
    
    
    
    2.9
    
    
    
    
    
    
    
    110.0Total costs and expenses
    
    
    789.3
    
    
    
    35.2
    
    
    
    (11.1
    )
    
    
    813.4Operating income
    
    
    90.8
    
    
    
    1.9
    
    
    
    
    
    
    
    92.7Other income (expense)Interest income
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Other gain
    
    
    47.1
    
    
    
    
    
    
    
    
    
    
    
    47.1Equity in loss of joint venture
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Interest expense
    
    
    (32.2
    )
    
    
    
    
    
    
    
    
    
    
    (32.2
    )Equity in income (loss) of consolidated
subsidiaries
    
    
    1.9
    
    
    
    
    
    
    
    (1.9
    )
    
    
    Income (loss) before income taxes
    
    
    108.0
    
    
    
    1.9
    
    
    
    (1.9
    )
    
    
    108.0Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    108.0
    
    
    $
    1.9
    
    
    $
    (1.9
    )
    
    $
    108.0
 Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Six Months Ended July 1, 2007
(in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    783.4
    
    
    $
    29.0
    
    
    $
    (4.1
    )
    
    $
    808.3Costs and expensesCost of sales
    
    
    593.4
    
    
    
    29.0
    
    
    
    (4.1
    )
    
    
    618.3Selling, general and administrative
expenses
    
    
    111.2
    
    
    
    2.5
    
    
    
    
    
    
    
    113.7Total costs and expenses
    
    
    704.6
    
    
    
    31.5
    
    
    
    (4.1
    )
    
    
    732.0Operating income (loss)
    
    
    78.8
    
    
    
    (2.5
    )
    
    
    
    
    
    
    76.3Other income (expense)Interest income
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.2Other loss
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Equity in loss of joint venture
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Interest expense
    
    
    (31.6
    )
    
    
    
    
    
    
    
    
    
    
    (31.6
    )Equity in income (loss) of consolidated
subsidiaries
    
    
    (2.5
    )
    
    
    
    
    
    
    2.5
    
    
    
    Income (loss) before income taxes
    
    
    46.1
    
    
    
    (2.5
    )
    
    
    2.5
    
    
    
    46.1Income taxes
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Net income (loss)
    
    $
    45.3
    
    
    $
    (2.5
    )
    
    $
    2.5
    
    
    $
    45.3
 24




---



##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Cash Flow Statement
Six Months Ended June 29, 2008
(in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    108.0
    
    
    $
    1.9
    
    
    $
    (1.9
    )
    
    $
    108.0Adjustments to reconcile net income (loss) to net cash
provided
by (used in) operating activities:Depreciation and amortization
    
    
    32.1
    
    
    
    0.7
    
    
    
    
    
    
    
    32.8Stock compensation expense
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Equity in losses of joint venture
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6(Gain)/Loss from asset disposals
    
    
    (48.5
    )
    
    
    
    
    
    
    
    
    
    
    (48.5
    )Income from investments in consolidated subsidiaries
    
    
    (1.9
    )
    
    
    
    
    
    
    1.9
    
    
    
    Changes in current assets and liabilities:Trade and other receivables
    
    
    (39.3
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (39.8
    )Intercompany accounts receivable
    
    
    1.3
    
    
    
    (1.7
    )
    
    
    0.4
    
    
    
    Inventories
    
    
    25.5
    
    
    
    0.9
    
    
    
    
    
    
    
    26.4Other current assets
    
    
    (3.3
    )
    
    
    0.2
    
    
    
    
    
    
    
    (3.1
    )Accounts payable, trade
    
    
    (38.4
    )
    
    
    0.3
    
    
    
    
    
    
    
    (38.1
    )Intercompany accounts payable
    
    
    1.7
    
    
    
    (1.3
    )
    
    
    (0.4
    )
    
    
    Accrued payroll and employee benefits
    
    
    (3.6
    )
    
    
    0.3
    
    
    
    
    
    
    
    (3.3
    )Accrued and other liabilities
    
    
    (5.5
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (5.6
    )Accrued contract liabilities
    
    
    (45.2
    )
    
    
    
    
    
    
    
    
    
    
    (45.2
    )Other assets and liabilitieslong-term
    
    
    (23.3
    )
    
    
    
    
    
    
    
    
    
    
    (23.3
    )Net cash provided by (used in) operating activities
    
    
    (38.4
    )
    
    
    0.7
    
    
    
    
    
    
    
    (37.7
    )Investing activitiesCapital expenditures
    
    
    (31.8
    )
    
    
    (1.0
    )
    
    
    
    
    
    
    (32.8
    )Proceeds from sale of joint venture
    
    
    55.0
    
    
    
    
    
    
    
    
    
    
    
    55.0Net cash provided by (used in) investing activities
    
    
    23.2
    
    
    
    (1.0
    )
    
    
    
    
    
    
    22.2Financing 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
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Proceeds from sale of common stock
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Net cash provided by (used in) financing activities
    
    
    183.7
    
    
    
    
    
    
    
    
    
    
    
    183.7Net decrease in cash and cash equivalents
    
    
    168.5
    
    
    
    (0.3
    )
    
    
    
    
    
    
    168.2Cash and cash equivalents at beginning of period
    
    
    75.1
    
    
    
    0.5
    
    
    
    
    
    
    
    75.6Cash and cash equivalents at end of period
    
    $
    243.6
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    243.8
 25




---



##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Cash Flow Statement
Six Months Ended July 1, 2007
(in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    45.3
    
    
    $
    (2.5
    )
    
    $
    2.5
    
    
    $
    45.3Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    29.6
    
    
    
    0.8
    
    
    
    
    
    
    
    30.4Stock compensation expense
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    1.8Equity in losses of joint venture
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Loss from asset disposals
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    0.6Income from investments in consolidated subsidiaries
    
    
    2.5
    
    
    
    
    
    
    
    (2.5
    )
    
    
    Changes in current assets and liabilities:Trade and other receivables
    
    
    (29.9
    )
    
    
    (3.0
    )
    
    
    
    
    
    
    (32.9
    )Intercompany accounts receivable
    
    
    (2.5
    )
    
    
    (0.3
    )
    
    
    2.8
    
    
    
    Inventories
    
    
    (13.0
    )
    
    
    (0.7
    )
    
    
    
    
    
    
    (13.7
    )Other current assets
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    (1.4
    )Accounts payable, trade
    
    
    (10.4
    )
    
    
    3.2
    
    
    
    
    
    
    
    (7.2
    )Intercompany accounts payable
    
    
    0.3
    
    
    
    2.5
    
    
    
    (2.8
    )
    
    
    Accrued payroll and employee benefits
    
    
    (9.7
    )
    
    
    0.2
    
    
    
    
    
    
    
    (9.5
    )Accrued and other liabilities
    
    
    13.7
    
    
    
    (0.6
    )
    
    
    
    
    
    
    13.1Accrued contract liabilities
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Other assets and liabilitieslong-term
    
    
    (27.0
    )
    
    
    0.1
    
    
    
    
    
    
    
    (26.9
    )Net cash provided by (used in) operating activities
    
    
    1.9
    
    
    
    (0.2
    )
    
    
    
    
    
    
    1.7Investing activitiesCapital expenditures
    
    
    (30.7
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (31.0
    )Proceeds from sale of assets
    
    
    23.1
    
    
    
    
    
    
    
    
    
    
    
    23.1Investment in joint venture
    
    
    (14.0
    )
    
    
    
    
    
    
    
    
    
    
    (14.0
    )Net cash used in investing activities
    
    
    (21.6
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (21.9
    )Financing activitiesPayments on long-term bank debt
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    (2.0
    )Payments on capital leases
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.6
    )Net cash used in financing activities
    
    
    (2.3
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (2.6
    )Net decrease in cash and cash equivalents
    
    
    (22.0
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (22.8
    )Cash and cash equivalents at beginning of period
    
    
    92.5
    
    
    
    0.9
    
    
    
    
    
    
    
    93.4Cash and cash equivalents at end of period
    
    $
    70.5
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    70.6
 26




---



##### Table of Contents



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
  For the Three Months Ended
    
    
    For the Six Months EndedJune 29,
    
    
    July 1,
    
    
    June 29,
    
    
    July 1,2008
    
    
    2007
    
    
    2008
    
    
    2007(in millions)Net income
    
    $
    79.3
    
    
    $
    26.1
    
    
    $
    108.0
    
    
    $
    45.3Comprehensive income (loss), net of taxPension
    
    
    (5.1
    )
    
    
    1.3
    
    
    
    4.8
    
    
    
    5.9OPEB
    
    
    40.1
    
    
    
    
    
    
    
    37.6
    
    
    
    Total comprehensive income
    
    $
    114.3
    
    
    $
    27.4
    
    
    $
    150.4
    
    
    $
    51.2
  27




---



##### 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 Report on Form 10-Q for the
three month period ended March 30, 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
       28




---



##### Table of Contents



Commercial Aircraft.
 Military Aircraft.
 Business Jet Aircraft.
 Recent Developments
   29




---



##### Table of Contents



Basis of Presentation
  Revenue and Profit Recognition.
    Cost of sales.
 Selling, general and administrative expenses.
 Interest expense, net.
 30




---



##### Table of Contents



Other gain (loss).
 Equity in loss of joint venture.
 Income
Tax Expense.
 Results of Operations
 Three Months
    
    
    Three Months
    
    
    
    
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    
    
    
    
    Ended
    
    
    EndedJune 29, 2008
    
    
    July 1, 2007
    
    
    $ Change
    
    
    June 29, 2008
    
    
    July 1, 2007
    
    
    $ Change(in millions)Revenue:Commercial
    
    $
    237.4
    
    
    $
    210.2
    
    
    $
    27.2
    
    
    $
    452.6
    
    
    $
    404.0
    
    
    $
    48.6Military
    
    
    157.5
    
    
    
    141.8
    
    
    
    15.7
    
    
    
    295.4
    
    
    
    256.3
    
    
    
    39.1Business Jet
    
    
    85.8
    
    
    
    75.6
    
    
    
    10.2
    
    
    
    158.1
    
    
    
    148.0
    
    
    
    10.1Total revenue
    
    $
    480.7
    
    
    $
    427.6
    
    
    $
    53.1
    
    
    $
    906.1
    
    
    $
    808.3
    
    
    $
    97.8Costs and expenses:Cost of sales
    
    
    377.1
    
    
    
    325.8
    
    
    
    51.3
    
    
    
    703.4
    
    
    
    618.3
    
    
    
    85.1Selling, general and
administrative
    
    
    55.7
    
    
    
    59.7
    
    
    
    (4.0
    )
    
    
    110.0
    
    
    
    113.7
    
    
    
    (3.7
    )Total costs and expenses
    
    $
    432.8
    
    
    $
    385.5
    
    
    $
    47.3
    
    
    $
    813.4
    
    
    $
    732.0
    
    
    $
    81.4Operating income
    
    
    47.9
    
    
    
    42.1
    
    
    
    5.8
    
    
    
    92.7
    
    
    
    76.3
    
    
    
    16.4Interest expense, net
    
    
    (15.5
    )
    
    
    (14.8
    )
    
    
    (0.7
    )
    
    
    (31.2
    )
    
    
    (29.4
    )
    
    
    (1.8
    )Other gain/(loss)
    
    
    47.1
    
    
    
    
    
    
    
    47.1
    
    
    
    47.1
    
    
    
    (0.1
    )
    
    
    47.2Equity in loss of joint venture
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    0.2
    
    
    
    (0.6
    )
    
    
    (0.7
    )
    
    
    0.1Income tax expense
    
    
    
    
    
    
    (0.8
    )
    
    
    0.8
    
    
    
    
    
    
    
    (0.8
    )
    
    
    0.8Net Income
    
    $
    79.3
    
    
    $
    26.1
    
    
    $
    53.2
    
    
    $
    108.0
    
    
    $
    45.3
    
    
    $
    62.7
 Comparison of Results of Operations for the Three Months Ended June 29, 2008 and July 1, 2007
 Revenues
 
    
    Commercial revenue increased $27.2 million, or 13%. Revenue for our Boeing
programs increased $21.0 million primarily due to non-recurring sales for the 747-8
program and increased deliveries on the 787 program. In addition, revenue for our
Airbus programs increased $6.2 million primarily due to higher deliveries.
    
    Military revenue increased $15.7 million, or 11%, 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 $10.2 million, or 13%, primarily due to increased
deliveries on Gulfstream products.
 31




---



##### Table of Contents



Cost of sales
 Selling, general and administrative expenses
 Other gain (loss)
 Interest expense, net
 Comparison of Results of Operations for the Six Months Ended June 29, 2008 and July 1, 2007
 Revenues
 
    
    Commercial revenue increased $48.6 million, or 12%. Revenue for our Boeing
programs increased $32.1 million primarily due to non-recurring sales for the 747-8
program and initial deliveries on the 787 program. In addition, revenue for our
Airbus programs increased $16.5 million primarily due to higher deliveries.
    
    Military revenue increased $39.1 million, or 15%, 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 $10.1 million, or 7%, primarily due to increased
deliveries on Gulfstream products.
 Cost of sales
 Selling,
general and administrative expenses
 Interest expense, net
 32




---



##### Table of Contents



Other gain (loss)
 Critical Accounting Policies
  Revenue Recognition
 Accounting for Performance of
Construction-Type and Certain Production-Type Contracts
    June 29,
    
    
    December 31,2008
    
    
    2007(in millions)Advances and progress billings
    
    $
    159.8
    
    
    $
    182.9Forward loss
    
    
    20.8
    
    
    
    18.3Other
    
    
    4.6
    
    
    
    29.2Total accrued contract liabilities
    
    $
    185.2
    
    
    $
    230.4
 33




---



##### Table of Contents



Goodwill
 SFAS 142 SFAS 142
   Post-Retirement Plans.
     34




---



##### 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
 35




---



##### 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
     36




---



##### Table of Contents



Credit Agreements and Debt Covenants
  37




---



##### Table of Contents



Non-GAAP Financial Measures.
 38




---



##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedJune 29,
    
    
    July 1,
    
    
    June 29,
    
    
    July 1,2008
    
    
    2007
    
    
    2008
    
    
    2007Net cash provided by (used in) operating activities
    
    $
    (22.5
    )
    
    $
    (18.1
    )
    
    $
    (37.7
    )
    
    $
    1.7Interest expense, net
    
    
    15.5
    
    
    
    14.8
    
    
    
    31.2
    
    
    
    29.4Income tax expense (benefit)
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8Stock compensation expense
    
    
    (0.8
    )
    
    
    (1.0
    )
    
    
    (1.4
    )
    
    
    (1.8
    )Equity in losses of joint venture
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (0.6
    )
    
    
    (0.7
    )(Gain) Loss from asset sales and other losses
    
    
    48.8
    
    
    
    (0.2
    )
    
    
    48.5
    
    
    
    (0.6
    )Non-cash interest expense
    
    
    (1.5
    )
    
    
    (0.6
    )
    
    
    (2.3
    )
    
    
    (1.4
    )787 tooling amortization
    
    
    0.8
    
    
    
    
    
    
    
    0.8
    
    
    
    Changes in operating assets and liabilities
    
    
    70.8
    
    
    
    61.1
    
    
    
    132.0
    
    
    
    77.1EBITDA
    
    $
    110.9
    
    
    $
    56.4
    
    
    $
    170.5
    
    
    $
    104.5Non-recurring investment in Boeing 787 (1)
    
    
    5.5
    
    
    
    25.9
    
    
    
    22.0
    
    
    
    49.7Unusual charges & other non-recurring program
costs (2)
    
    
    2.1
    
    
    
    (0.6
    )
    
    
    4.0
    
    
    
    0.1(Gain) Loss on disposal of property, plant and
equipment (3)
    
    
    (48.9
    )
    
    
    0.2
    
    
    
    (48.6
    )
    
    
    0.6Other (4)
    
    
    1.4
    
    
    
    1.5
    
    
    
    2.4
    
    
    
    2.7Adjusted EBITDA
    
    $
    71.0
    
    
    $
    83.4
    
    
    $
    150.3
    
    
    $
    157.6
 
 (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 $0.2 million
and $0.4 million for the three month periods ended June 29, 2008 and July 1, 2007,
respectively, and $0.6 million and $0.7 million for the six month periods ended June 29, 2008
and July 1, 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 three and six month periods ended June 29, 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. 39




---



##### Table of Contents



(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 periods ended June 29, 2008 and July 1, 2007, we incurred $2.1 million
and $(0.6) million, respectively, of non-recurring costs primarily related to a facilities
rationalization initiative.For the six month periods ended June 29, 2008 and July 1, 2007, we incurred $4.0 million and
$0.1 million, respectively, of non-recurring costs primarily related to a facilities
rationalization initiative.(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 three and six month periods ended June 29, 2008, we recorded a $47.1 million gain
on the sale of our equity interest in Global Aeronautica to Boeing. 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.
 40




---



##### Table of Contents



Cash Flow Summary
 For the Six Months EndedJune 29,
    
    
    July 1,2008
    
    
    2007
    
    
    Change(in millions)Net income (loss)
    
    $
    108.0
    
    
    $
    45.3
    
    
    $
    62.7Non-cash items
    
    
    (13.7
    )
    
    
    33.5
    
    
    
    (47.2
    )Changes in working capital
    
    
    (132.0
    )
    
    
    (77.1
    )
    
    
    (54.9
    )Net cash provided by (used in) operating activities
    
    
    (37.7
    )
    
    
    1.7
    
    
    
    (39.4
    )Net cash provided by (used in) investing activities
    
    
    22.2
    
    
    
    (21.9
    )
    
    
    44.1Net cash provided by (used in) financing activities
    
    
    183.7
    
    
    
    (2.6
    )
    
    
    186.3Net increase (decrease) in cash and cash equivalents
    
    
    168.2
    
    
    
    (22.8
    )
    
    
    191.0Cash and cash equivalents at beginning of period
    
    
    75.6
    
    
    
    93.4
    
    
    
    (17.8
    )Cash and cash equivalents at end of period
    
    $
    243.8
    
    
    $
    70.6
    
    
    $
    173.2
    Off-Balance Sheet Arrangements
  41




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       Interest Rate Risks
   42




---



##### Table of Contents



Foreign Currency Risks
  Utility Price Risks
  43




---



##### Table of Contents



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.
 44




---



##### Table of Contents



We may be adversely affected if we are unable to maintain effective internal controls that ensure
timely and reliable external financial reporting.
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   45




---



##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  46




---



##### Table of Contents



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 47




---



##### Table of Contents



SIGNATURES
 
 Vought Aircraft Industries, Inc.(Registrant)August 11, 2008
    
    /s/ KEITH HOWE(Date)
    
    Vice President and Chief Financial OfficerAugust 11, 2008
    
    /s/ WENDY HARGUS(Date)
    
    Interim Principal Accounting Officer
 48