##### 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 July 1, 2007
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from            to
 Commission File Number 333-112528
 Vought Aircraft Industries, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    75-2884072(State of Incorporation)
    
    (I.R.S. Employer Identification Number)201 East John Carpenter Freeway, Tower 1, Suite 900Irving, Texas
    
    75062(Address of Principal executive offices)
    
    (Zip Code)
 (972)-946-2011
(Registrants telephone number, including area code)
 þ o
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3Consolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Cash Flows
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    21ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
    
    
    30ITEM 4. CONTROLS AND PROCEDURES
    
    
    32PART II. OTHER INFORMATION
    
    
    32ITEM 1. LEGAL PROCEEDINGS
    
    
    32ITEM 1A. RISK FACTORS
    
    
    32ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    33ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    33ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    33ITEM 5. OTHER INFORMATION
    
    
    33ITEM 6. EXHIBITS
    
    
    34SIGNATURESCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



Part 1. Financial Information
 
 Item 1. Financial Statements
 Vought Aircraft Industries, Inc.
 
 Consolidated Balance Sheets
($ in millions, except per share amounts)
 July 1,2007
    
    
    December 31,(unaudited)
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    70.6
    
    
    $
    93.4Accounts receivable
    
    
    115.0
    
    
    
    82.1Inventories
    
    
    351.5
    
    
    
    337.8Other current assets
    
    
    8.7
    
    
    
    7.3Total current assets
    
    
    545.8
    
    
    
    520.6Property, plant and equipment, net
    
    
    511.8
    
    
    
    530.4Goodwill
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    60.3
    
    
    
    64.9Investment in joint venture
    
    
    9.2
    
    
    
    Debt origination costs, net and other assets
    
    
    13.4
    
    
    
    15.1Total assets
    
    $
    1,668.2
    
    
    $
    1,658.7Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    111.2
    
    
    $
    118.4Accrued and other liabilities
    
    
    73.0
    
    
    
    76.2Accrued payroll and employee benefits
    
    
    31.3
    
    
    
    40.8Accrued post-retirement benefits-current
    
    
    51.3
    
    
    
    51.3Accrued pension-current
    
    
    41.9
    
    
    
    25.6Current portion of long-term bank debt
    
    
    4.0
    
    
    
    4.0Capital lease obligation
    
    
    0.7
    
    
    
    1.3Accrued contract liabilities
    
    
    335.1
    
    
    
    333.7Total current liabilities
    
    
    648.5
    
    
    
    651.3Long-term liabilities:Accrued post-retirement benefits
    
    
    473.1
    
    
    
    478.8Accrued pension
    
    
    321.7
    
    
    
    352.0Long-term bank debt, net of current portion
    
    
    411.0
    
    
    
    413.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Other non-current liabilities
    
    
    184.2
    
    
    
    186.9Total liabilities
    
    
    2,308.5
    
    
    
    2,352.0Stockholders equity (deficit):Common stock, par value $.01 per share; 50,000,000 shares authorized,
24,776,578 and 24,755,248 issued and outstanding at July 1, 2007 and
December 31, 2006, respectively
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    416.6
    
    
    
    414.8Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    (1.0
    )Accumulated deficit
    
    
    (596.0
    )
    
    
    (641.3
    )Accumulated other comprehensive loss
    
    
    (458.6
    )
    
    
    (464.5
    )Total stockholders equity (deficit)
    
    $
    (640.3
    )
    
    $
    (693.3
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,668.2
    
    
    $
    1,658.7
 See accompanying notes
 3




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Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Operations
($ in millions)
(unaudited)
 For the Three Months Ended
    
    
    For the Six Months EndedJuly 1,
    
    
    June 25,
    
    
    July 1,
    
    
    June 25,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    427.6
    
    
    $
    456.1
    
    
    $
    808.3
    
    
    $
    778.9Costs and expensesCost of sales
    
    
    325.8
    
    
    
    345.2
    
    
    
    618.3
    
    
    
    645.1Selling, general and administrative expenses
    
    
    59.7
    
    
    
    50.3
    
    
    
    113.7
    
    
    
    108.3Impairment charge
    
    
    
    
    
    
    8.5
    
    
    
    
    
    
    
    8.5Total costs and expenses
    
    
    385.5
    
    
    
    404.0
    
    
    
    732.0
    
    
    
    761.9Operating income
    
    
    42.1
    
    
    
    52.1
    
    
    
    76.3
    
    
    
    17.0Other income (expense)Interest income
    
    
    0.9
    
    
    
    0.2
    
    
    
    2.2
    
    
    
    0.5Other income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (0.4
    )
    
    
    (1.5
    )
    
    
    (0.7
    )
    
    
    (3.2
    )Interest expense
    
    
    (15.7
    )
    
    
    (16.2
    )
    
    
    (31.6
    )
    
    
    (31.2
    )Income (loss) before income taxes
    
    
    26.9
    
    
    
    34.5
    
    
    
    46.1
    
    
    
    (17.0
    )Income taxes
    
    
    (0.8
    )
    
    
    
    
    
    
    (0.8
    )
    
    
    Net income (loss)
    
    $
    26.1
    
    
    $
    34.5
    
    
    $
    45.3
    
    
    $
    (17.0
    )
 See accompanying notes
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Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Cash Flows
($ in millions) (Unaudited)
 Six Months EndedJuly 1,
    
    
    June 25,2007
    
    
    2006Operating activitiesNet income (loss)
    
    $
    45.3
    
    
    $
    (17.0
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    30.4
    
    
    
    29.2Impairment charge
    
    
    
    
    
    
    8.5Non-cash stock compensation (income) expense
    
    
    1.8
    
    
    
    Equity in losses of joint venture
    
    
    0.7
    
    
    
    3.2Loss from asset sales
    
    
    0.6
    
    
    
    0.3Changes in current assets and liabilities:Accounts receivable
    
    
    (32.9
    )
    
    
    (36.4
    )Inventories, net of advances and progress billings
    
    
    (13.7
    )
    
    
    (34.6
    )Other current assets
    
    
    (1.4
    )
    
    
    (1.2
    )Accounts payable, trade
    
    
    (7.2
    )
    
    
    27.2Accrued payroll and employee benefits
    
    
    (9.5
    )
    
    
    (3.1
    )Accrued and other liabilities
    
    
    13.1
    
    
    
    18.2Accrued contract liabilities
    
    
    1.4
    
    
    
    113.2Other assets and liabilitieslong-term
    
    
    (26.9
    )
    
    
    (8.0
    )Net cash provided by (used in) operating activities
    
    
    1.7
    
    
    
    99.5Investing activitiesCapital expenditures
    
    
    (31.0
    )
    
    
    (75.0
    )Proceeds from sale of assets
    
    
    23.1
    
    
    
    0.3Investment in joint venture
    
    
    (14.0
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (21.9
    )
    
    
    (74.7
    )Financing activitiesProceeds from short-term bank debt
    
    
    
    
    
    
    155.0Payments on short-term bank debt
    
    
    
    
    
    
    (155.0
    )Payments on long-term bank debt
    
    
    (2.0
    )
    
    
    (1.0
    )Payments on capital leases
    
    
    (0.6
    )
    
    
    (0.5
    )Proceeds from sale of common stock
    
    
    
    
    
    
    0.3Proceeds from repayment of stockholder loans
    
    
    
    
    
    
    0.1Proceeds from governmental grants
    
    
    
    
    
    
    16.1Net cash provided by (used in) financing activities
    
    
    (2.6
    )
    
    
    15.0Net increase (decrease) in cash and cash equivalents
    
    
    (22.8
    )
    
    
    39.8Cash and cash equivalents at beginning of period
    
    
    93.4
    
    
    
    10.1Cash and cash equivalents at end of period
    
    $
    70.6
    
    
    $
    49.9
 See accompanying notes
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Vought Aircraft Industries, Inc.
 Notes to Condensed Consolidated Financial Statemen  Period Ending July 1, 2007
 Note 1  Organization and Basis of Presentation
     6




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Note 2-Recent Accounting Pronouncements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106 and 132(R)
 Fair Value Measurements
 Note 3  Inventories
   July 1,
    
    
    December 31,2007
    
    
    2006($ in millions)Production costs of contracts in process
    
    $
    573.7
    
    
    $
    539.3Finished goods
    
    
    2.9
    
    
    
    3.1Less: unliquidated progress payments
    
    
    (225.1
    )
    
    
    (204.6
    )Total inventories
    
    $
    351.5
    
    
    $
    337.8
 Note 4- Assets Held for Sale
 SFAS 144 Accounting for the Impairment or Disposal
of Long-Lived Assets.
 Note 5  Goodwill and Intangible Assets
 SFAS 142 Goodwill and Other Intangible Assets (SFAS 142) SFAS 142
 7




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##### Table of Contents



July 1,
    
    
    December 31,2007
    
    
    2006($ in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Pension asset
    
    
    15.7
    
    
    
    15.7Less: accumulated amortization
    
    
    (92.7
    )
    
    
    (88.1
    )Identifiable intangible assets, net
    
    $
    60.3
    
    
    $
    64.9
  ($ in millions)2007
    
    $
    5.42008
    
    
    8.92009
    
    
    8.92010
    
    
    6.02011
    
    
    2.1Thereafter
    
    
    13.3$
    44.6
 8




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Note 6  Pension and Other Post-retirement Benefits
  Pension Benefits
    
    
    Other Post-retirement BenefitsThree Months Ended
    
    
    Six Months Ended
    
    
    Three Months Ended
    
    
    Six Months EndedJuly 1,
    
    
    June 25,
    
    
    July 1,
    
    
    June 25,
    
    
    July 1,
    
    
    June 25,
    
    
    July 1,
    
    
    June 25,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic benefit
cost (income):Service cost
    
    $
    4.7
    
    
    $
    6.3
    
    
    $
    9.4
    
    
    $
    12.5
    
    
    $
    1.4
    
    
    $
    1.5
    
    
    $
    2.8
    
    
    $
    3.0Interest cost
    
    
    25.6
    
    
    
    26.3
    
    
    
    51.1
    
    
    
    52.5
    
    
    
    8.2
    
    
    
    8.4
    
    
    
    16.4
    
    
    
    16.9Expected return on plan assets
    
    
    (29.1
    )
    
    
    (28.9
    )
    
    
    (58.5
    )
    
    
    (57.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of net loss
    
    
    9.2
    
    
    
    13.8
    
    
    
    18.4
    
    
    
    28.1
    
    
    
    1.5
    
    
    
    3.5
    
    
    
    3.0
    
    
    
    7.0Prior service cost recognized
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (8.5
    )
    
    
    
    
    
    
    (8.5
    )Amortization of prior service cost
    
    
    1.0
    
    
    
    1.2
    
    
    
    2.0
    
    
    
    2.0
    
    
    
    (2.4
    )
    
    
    (2.5
    )
    
    
    (4.7
    )
    
    
    (5.0
    )Plan curtailment(gain)/loss
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    (3.1
    )
    
    
    
    
    
    
    (3.1
    )Special termination benefits
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    0.7Settlement charge
    
    
    1.3
    
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    12.7
    
    
    $
    20.3
    
    
    $
    28.3
    
    
    $
    39.0
    
    
    $
    8.7
    
    
    $
    0.0
    
    
    $
    17.5
    
    
    $
    11.0Defined contribution plan cost
    
    $
    1.7
    
    
    $
    1.7
    
    
    $
    3.7
    
    
    $
    3.5
  Note 7  Perry Site Closure
   Note 8- Commitments
 Warranty Reserves.
 9




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##### Table of Contents



:
 WarrantyReserve($ in millions)Beginning Balance at December 31, 2005
    
    $
    8.0Warranty costs incurred
    
    
    (0.2
    )Additions charged to cost of sales:Warranties issued
    
    
    1.3Charges related to pre-existing warranties
    
    
    (2.3
    )Beginning Balance at December 31, 2006
    
    $
    6.8Warranty costs incurred
    
    
    (0.3
    )Additions charged to cost of sales:Warranties issued
    
    
    0.4Charges related to pre-existing warranties
    
    
    Ending Balance at July 1, 2007
    
    $
    6.9
 Note 9- Environmental Contingencies
    10




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EnvironmentalLiability($ in millions)Balance at December 31, 2005
    
    $
    4.3Environmental costs incurred
    
    
    (0.2
    )Balance at December 31, 2006
    
    
    4.1Environmental costs incurred
    
    
    (0.1
    )Balance at July 1, 2007
    
    $
    4.0
 Note 10- Other Non-Current Liabilities
  July 1,
    
    
    December 31,2007
    
    
    2006($ in millions)Deferred income from the sale of Hawthorne facility
    
    $
    52.6
    
    
    $
    52.6State of South Carolina grant monies (a)
    
    
    66.2
    
    
    
    67.2State of Texas grant monies
    
    
    35.0
    
    
    
    35.0Deferred workers compensation
    
    
    21.0
    
    
    
    18.5Accrued warranties
    
    
    5.5
    
    
    
    5.5Investment in joint venture
    
    
    
    
    
    
    4.2Other
    
    
    3.9
    
    
    
    3.9Total other non-current liabilities
    
    $
    184.2
    
    
    $
    186.9
  Note 11- Income Taxes
 Accounting for Uncertainty
in Income Taxes
  11




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Note 12  Stock-Based Compensation
   Stock Options
 SFAS 123R Share-based Payment
 Expected dividend yield
    
    
    0
    %Risk free interest rate
    
    
    3.9% - 4.4
    %Expected term
    
    6 years
   RemainingExercise
    
    Contractual
    
    AggregatePrice Per
    
    Term (*)
    
    IntrinsicShares
    
    Share (*)
    
    (in years)
    
    ValueOutstanding at December 31, 2006
    
    
    850,587
    
    
    $
    13.59Granted
    
    
    
    
    
    $
    Exercised
    
    
    
    
    
    $
    Forfeited or expired
    
    
    (80,196
    )
    
    $
    10.38Outstanding at July 1, 2007
    
    
    770,391
    
    
    $
    13.92
    
    
    
    4.0
    
    
    $
    Vested or expected to vest (1)
    
    
    770,391
    
    
    $
    13.92
    
    
    
    4.0
    
    
    $
    Exercisable at July 1, 2007
    
    
    697,941
    
    
    $
    13.36
    
    
    
    4.0
    
    
    $
    
 
 (*)
    
    Weighted-average(1)
    
    Represents outstanding options reduced by expected forfeitures. Expected forfeitures assumed under SFAS 123 were zero. 12




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Stock Appreciation Rights (SARs)
   July 1,2007Stock price
    
    $
    8.79Strike price
    
    $
    10.00Expected term
    
    6.25 yearsRisk-free interest rate
    
    
    4.76 - 5.02
    %Expected Volatility
    
    
    53% - 54
    %Dividend Rate
    
    
    0
    %
  RemainingExercise
    
    Contractual
    
    AggregatePrice Per
    
    Term (*)
    
    IntrinsicShares
    
    Share (*)
    
    (in years)
    
    ValueOutstanding at December 31, 2006
    
    
    797,270
    
    
    $
    10.00Granted
    
    
    259,380
    
    
    $
    10.00Exercised
    
    
    
    
    
    $
    Forfeited or expired
    
    
    (72,650
    )
    
    $
    10.00Outstanding at July 1, 2007
    
    
    984,000
    
    
    $
    10.00
    
    
    
    9.4
    
    
    $
    Vested or expected to vest (1)
    
    
    903,260
    
    
    $
    10.00
    
    
    
    9.4
    
    
    $
    Exercisable at July 1, 2007
    
    
    194,494
    
    
    $
    10.00
    
    
    
    9.4
    
    
    $
    
 
 (*)
    
    Weighted-average(1)
    
    Represents outstanding SARs reduced by expected forfeitures. Restricted Stock Units (RSUs)
 SFAS 123
 13




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##### Table of Contents



Grant DateUnits
    
    Fair ValueOutstanding at December 31, 2006
    
    
    395,140
    
    
    $
    8.79Granted
    
    
    188,906
    
    
    $
    8.79Exercised
    
    
    
    
    
    $
    Forfeited or expired
    
    
    (23,900
    )
    
    $
    8.79Outstanding at July 1, 2007
    
    
    560,146
    
    
    $
    8.79Vested or expected to vest (1)
    
    
    520,530
    
    
    $
    8.79
 
 (1)
    
    Represents outstanding RSUs reduced by expected forfeitures. Restricted Shares
  Note 13- Related Party Transactions
   Note 14- Guarantor Subsidiaries
  14




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Consolidating Balance Sheet
July 1, 2007
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    70.5
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    70.6Accounts receivable
    
    
    108.0
    
    
    
    7.0
    
    
    
    
    
    
    
    115.0Intercompany receivable
    
    
    19.6
    
    
    
    6.5
    
    
    
    (26.1
    )
    
    
    Inventories
    
    
    337.5
    
    
    
    14.0
    
    
    
    
    
    
    
    351.5Other current assets
    
    
    8.3
    
    
    
    0.4
    
    
    
    
    
    
    
    8.7Total current assets
    
    
    543.9
    
    
    
    28.0
    
    
    
    (26.1
    )
    
    
    545.8Property, plant and equipment, net
    
    
    503.6
    
    
    
    8.2
    
    
    
    
    
    
    
    511.8Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    60.3
    
    
    
    
    
    
    
    
    
    
    
    60.3Investment in affiliated company
    
    
    71.6
    
    
    
    
    
    
    
    (71.6
    )
    
    
    Investment in joint venture
    
    
    9.2
    
    
    
    
    
    
    
    
    
    
    
    9.2Debt origination costs, net and
other assets
    
    
    13.4
    
    
    
    
    
    
    
    
    
    
    
    13.4Total assets
    
    $
    1,666.0
    
    
    $
    99.9
    
    
    $
    (97.7
    )
    
    $
    1,668.2Liabilities and stockholders
equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    104.3
    
    
    $
    6.9
    
    
    $
    
    
    
    $
    111.2Intercompany payable
    
    
    6.5
    
    
    
    19.6
    
    
    
    (26.1
    )
    
    
    Accrued and other liabilities
    
    
    73.0
    
    
    
    
    
    
    
    
    
    
    
    73.0Accrued payroll and employee
benefits
    
    
    30.2
    
    
    
    1.1
    
    
    
    
    
    
    
    31.3Accrued post-retirement benefits -
current
    
    
    51.3
    
    
    
    
    
    
    
    
    
    
    
    51.3Accrued pension  current
    
    
    41.9
    
    
    
    
    
    
    
    
    
    
    
    41.9Current portion of long-term bank
debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    0.7Accrued contract liabilities
    
    
    335.1
    
    
    
    
    
    
    
    
    
    
    
    335.1Total current liabilities
    
    
    646.3
    
    
    
    28.3
    
    
    
    (26.1
    )
    
    
    648.5Long-term liabilities:Accrued post-retirement benefits
    
    
    473.1
    
    
    
    
    
    
    
    
    
    
    
    473.1Accrued pension
    
    
    321.7
    
    
    
    
    
    
    
    
    
    
    
    321.7Long-term bank debt, net of
current portion
    
    
    411.0
    
    
    
    
    
    
    
    
    
    
    
    411.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current liabilities
    
    
    184.2
    
    
    
    
    
    
    
    
    
    
    
    184.2Total liabilities
    
    
    2,306.3
    
    
    
    28.3
    
    
    
    (26.1
    )
    
    
    2,308.5Stockholders equity (deficit):Common stock, par value $0.01;
50,000,000 shares
authorized, 24,776,578 issued and
outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    416.6
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    416.6Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Accumulated deficit
    
    
    (596.0
    )
    
    
    (8.7
    )
    
    
    8.7
    
    
    
    (596.0
    )Accumulated other comprehensive
loss
    
    
    (458.6
    )
    
    
    
    
    
    
    
    
    
    
    (458.6
    )Total stockholders equity
(deficit)
    
    
    (640.3
    )
    
    
    71.6
    
    
    
    (71.6
    )
    
    
    (640.3
    )Total liabilities and
stockholders equity (deficit)
    
    $
    1,666.0
    
    
    $
    99.9
    
    
    $
    (97.7
    )
    
    $
    1,668.2
 15




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##### Table of Contents



Consolidating Balance Sheet
December 31, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    92.5
    
    
    $
    0.9
    
    
    $
    
    
    
    $
    93.4Accounts receivable
    
    
    78.1
    
    
    
    4.0
    
    
    
    
    
    
    
    82.1Intercompany receivable
    
    
    18.1
    
    
    
    6.2
    
    
    
    (24.3
    )
    
    
    Inventories
    
    
    324.5
    
    
    
    13.3
    
    
    
    
    
    
    
    337.8Other current assets
    
    
    6.9
    
    
    
    0.4
    
    
    
    
    
    
    
    7.3Total current assets
    
    
    520.1
    
    
    
    24.8
    
    
    
    (24.3
    )
    
    
    520.6Property, plant and equipment, net
    
    
    520.6
    
    
    
    9.8
    
    
    
    
    
    
    
    530.4Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    64.9
    
    
    
    
    
    
    
    
    
    
    
    64.9Investment in affiliated company
    
    
    74.1
    
    
    
    
    
    
    
    (74.1
    )
    
    
    Debt origination costs, net and other assets
    
    
    15.0
    
    
    
    0.1
    
    
    
    
    
    
    
    15.1Total assets
    
    $
    1,658.7
    
    
    $
    98.4
    
    
    $
    (98.4
    )
    
    $
    1,658.7Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    114.7
    
    
    $
    3.7
    
    
    $
    
    
    
    $
    118.4Intercompany payable
    
    
    6.2
    
    
    
    18.1
    
    
    
    (24.3
    )
    
    
    Accrued and other liabilities
    
    
    75.6
    
    
    
    0.6
    
    
    
    
    
    
    
    76.2Accrued payroll and employee benefits
    
    
    39.9
    
    
    
    0.9
    
    
    
    
    
    
    
    40.8Accrued post-retirement benefits  current
    
    
    51.3
    
    
    
    
    
    
    
    
    
    
    
    51.3Accrued pension  current
    
    
    25.6
    
    
    
    
    
    
    
    
    
    
    
    25.6Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    0.3
    
    
    
    1.0
    
    
    
    
    
    
    
    1.3Accrued contract liabilities
    
    
    333.7
    
    
    
    
    
    
    
    
    
    
    
    333.7Total current liabilities
    
    
    651.3
    
    
    
    24.3
    
    
    
    (24.3
    )
    
    
    651.3Long-term liabilities:Accrued post-retirement benefits
    
    
    478.8
    
    
    
    
    
    
    
    
    
    
    
    478.8Accrued pension
    
    
    352.0
    
    
    
    
    
    
    
    
    
    
    
    352.0Long-term bank debt, net of current portion
    
    
    413.0
    
    
    
    
    
    
    
    
    
    
    
    413.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current liabilities
    
    
    186.9
    
    
    
    
    
    
    
    
    
    
    
    186.9Total liabilities
    
    
    2,352.0
    
    
    
    24.3
    
    
    
    (24.3
    )
    
    
    2,352.0Stockholders equity (deficit):Common stock, par value $0.01; 50,000,000 shares
authorized, 24,755,248 issued and outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    414.8
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    414.8Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Accumulated deficit
    
    
    (641.3
    )
    
    
    (6.2
    )
    
    
    6.2
    
    
    
    (641.3
    )Accumulated other comprehensive loss
    
    
    (464.5
    )
    
    
    
    
    
    
    
    
    
    
    (464.5
    )Total stockholders equity (deficit)
    
    
    (693.3
    )
    
    
    74.1
    
    
    
    (74.1
    )
    
    
    (693.3
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,658.7
    
    
    $
    98.4
    
    
    $
    (98.4
    )
    
    $
    1,658.7
 16




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##### Table of Contents



Consolidating Statement of Operations
Three Months Ended July 1, 2007
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    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 income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings (loss) of joint venture
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Interest expense
    
    
    (15.7
    )
    
    
    
    
    
    
    
    
    
    
    (15.7
    )Income (loss) before income taxes
    
    
    26.9
    
    
    
    
    
    
    
    
    
    
    
    26.9Income taxes
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Net income (loss)
    
    $
    26.1
    
    
    $
    
    
    
    $
    
    
    
    $
    26.1
 Consolidating Statement of Operations
Three Months Ended June 25, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    443.7
    
    
    $
    15.0
    
    
    $
    (2.6
    )
    
    $
    456.1Costs and expensesCost of sales
    
    
    334.1
    
    
    
    13.7
    
    
    
    (2.6
    )
    
    
    345.2Selling, general and administrative expenses
    
    
    49.2
    
    
    
    1.1
    
    
    
    
    
    
    
    50.3Impairment charge
    
    
    8.5
    
    
    
    
    
    
    
    
    
    
    
    8.5Total costs and expenses
    
    
    391.8
    
    
    
    14.8
    
    
    
    (2.6
    )
    
    
    404.0Operating income (loss)
    
    
    51.9
    
    
    
    0.2
    
    
    
    
    
    
    
    52.1Other income (expense)Interest income
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Other income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (1.5
    )Interest expense
    
    
    (16.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (16.2
    )Equity in income of consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    34.5
    
    
    
    0.0
    
    
    
    
    
    
    
    34.5Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    34.5
    
    
    $
    0.0
    
    
    $
    
    
    
    $
    34.5
 17




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##### Table of Contents



Consolidating Statement of Operations
Six Months Ended July 1, 2007
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    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 income (loss)
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Interest expense
    
    
    (31.6
    )
    
    
    
    
    
    
    
    
    
    
    (31.6
    )Equity in income of consolidated subsidiaries
    
    
    (2.5
    )
    
    
    
    
    
    
    2.5
    
    
    
    Income (loss) before income taxes
    
    
    46.1
    
    
    
    (2.5
    )
    
    
    2.5
    
    
    
    46.1Income taxes
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Net income (loss)
    
    $
    45.3
    
    
    $
    (2.5
    )
    
    $
    2.5
    
    
    $
    45.3
 Consolidating Statement of Operations
Six Months Ended June 25, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    758.4
    
    
    $
    25.5
    
    
    $
    (5.0
    )
    
    $
    778.9Costs and expensesCost of sales
    
    
    626.6
    
    
    
    23.5
    
    
    
    (5.0
    )
    
    
    645.1Selling, general and administrative expenses
    
    
    106.5
    
    
    
    1.8
    
    
    
    
    
    
    
    108.3Impairment Charge
    
    
    8.5
    
    
    
    
    
    
    
    
    
    
    
    8.5Total costs and expenses
    
    
    741.6
    
    
    
    25.3
    
    
    
    (5.0
    )
    
    
    761.9Operating income (loss)
    
    
    16.8
    
    
    
    0.2
    
    
    
    
    
    
    
    17.0Other income (expense)Interest income
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.5Other income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (3.2
    )
    
    
    
    
    
    
    
    
    
    
    (3.2
    )Interest expense
    
    
    (31.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (31.2
    )Income (loss) before income taxes
    
    
    (17.0
    )
    
    
    (0.0
    )
    
    
    
    
    
    
    (17.0
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (17.0
    )
    
    $
    (0.0
    )
    
    $
    
    
    
    $
    (17.0
    )
 18




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##### Table of Contents



Consolidating Statement of Cash Flows
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
    
    
    
    
    
    
    
    30.4Non-cash stock compensation expense
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    1.8Equity in losses of joint venture
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Loss from asset sales
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    0.6Income from investments in consolidated subsidiaries
    
    
    2.5
    
    
    
    
    
    
    
    (2.5
    )
    
    
    Changes in current assets and liabilities:Accounts receivable
    
    
    (29.9
    )
    
    
    (3.0
    )
    
    
    
    
    
    
    (32.9
    )Intercompany accounts receivable
    
    
    (2.5
    )
    
    
    (0.3
    )
    
    
    2.8
    
    
    
    Inventories, net of advance and progress billings
    
    
    (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 provided by (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 provided by (used in) financing activities
    
    
    (2.3
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (2.6
    )Net increase (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
 19




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##### Table of Contents



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




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##### Table of Contents



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.
 Overview
   Results of Operations
 Three Months
    
    
    Three Months
    
    
    
    
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    
    
    
    
    Ended
    
    
    EndedJuly 1,
    
    
    June 25,
    
    
    
    
    
    
    July 1,
    
    
    June 25,2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeNet sales:Commercial
    
    $
    210.2
    
    
    $
    230.9
    
    
    $
    (20.7
    )
    
    $
    404.0
    
    
    $
    369.1
    
    
    $
    34.9Military
    
    
    141.8
    
    
    
    130.8
    
    
    
    11.0
    
    
    
    256.3
    
    
    
    259.5
    
    
    
    (3.2
    )Business Jets
    
    
    75.6
    
    
    
    94.4
    
    
    
    (18.8
    )
    
    
    148.0
    
    
    
    150.3
    
    
    
    (2.3
    )Total net sales
    
    $
    427.6
    
    
    $
    456.1
    
    
    $
    (28.5
    )
    
    $
    808.3
    
    
    $
    778.9
    
    
    $
    29.4Costs and expenses:Cost of sales (1)
    
    
    325.8
    
    
    
    345.2
    
    
    
    (19.4
    )
    
    
    618.3
    
    
    
    645.1
    
    
    
    (26.8
    )Selling, general and administrative (1)
    
    
    59.7
    
    
    
    50.3
    
    
    
    9.4
    
    
    
    113.7
    
    
    
    108.3
    
    
    
    5.4Impairment change
    
    
    
    
    
    
    8.5
    
    
    
    (8.5
    )
    
    
    
    
    
    
    8.5
    
    
    
    (8.5
    )Total costs and expenses
    
    $
    385.5
    
    
    $
    404.0
    
    
    $
    (18.5
    )
    
    $
    732.0
    
    
    $
    761.9
    
    
    $
    (29.9
    )Operating income (loss)
    
    
    42.1
    
    
    
    52.1
    
    
    
    (10.0
    )
    
    
    76.3
    
    
    
    17.0
    
    
    
    59.3Interest expense, net
    
    
    (14.8
    )
    
    
    (16.0
    )
    
    
    1.2
    
    
    
    (29.4
    )
    
    
    (30.7
    )
    
    
    1.3Other (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    Equity in (loss) of joint venture
    
    
    (0.4
    )
    
    
    (1.5
    )
    
    
    1.1
    
    
    
    (0.7
    )
    
    
    (3.2
    )
    
    
    2.5Income taxes
    
    
    (0.8
    )
    
    
    
    
    
    
    (0.8
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (0.8
    )Net Income (loss)
    
    $
    26.1
    
    
    $
    34.5
    
    
    $
    (8.4
    )
    
    $
    45.3
    
    
    $
    (17.0
    )
    
    $
    63.9
 
 (1)
    
    We reclassified prior year costs related to information technology from general and administrative expenses to cost of sales
because information and technology directly supports manufacturing and engineering activities. 21




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##### Table of Contents



Comparison of Results of Operations for the Three Months Ended July 1, 2007 and June 25, 2006
 Net sales
 
    
    Commercial net sales decreased by approximately $20.7 million or 9%, primarily due
to the customer settlements of $70.5 million recorded in the second quarter of 2006
with no corresponding contribution to net sales in the second quarter of 2007. This
was partially offset by sales increases for the Boeing programs of approximately $29.9
million resulting from increased rates and timing of deliveries for those programs.
Sales for our Airbus programs also increased $19.9 million due to pricing increases
and increased delivery rates.
    
    Military net sales increased approximately $11.0 million or 8%, primarily as a
result of $20.2 million from the C-17 and H-60 programs. The sales increase
for the C-17 was due to timing of deliveries and the H-60 increase was due to
increased deliveries. These increases were partially offset by a decrease of
approximately $9.0 million due to non-recurring efforts for the Global
Hawk program in 2006.
    
    Business Jet net sales decreased by approximately $18.8 million or 20% primarily
due the $29.0 million customer settlements received in the second quarter of 2006 with
no corresponding contribution to net sales in the second quarter of 2007. The decrease
was partially offset by a $6.5 million increase in Gulfstream sales due to increased
delivery rates and pricing increases.
 Cost of sales
 Selling, general and administrative expenses
 Operating income (loss)
 Interest expense, net
 22




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##### Table of Contents



Comparison of Results of Operations for the Six Months Ended July 1, 2007 and June 25, 2006
 Net sales
 
    
    Commercial net sales increased by approximately $34.9 million or 9%, primarily due
to increased sales for the Boeing programs of $79.8 million as well as $25.6 million
increase in our Airbus programs. The Boeing program increases were primarily due to
timing of deliveries, while the Airbus increases were due to both price and delivery
increases. These increases were partially offset by the $70.5 million of customer
settlements recorded in the six months ended June 25, 2006 with no corresponding
contributions to net sales in the six months ended July 1, 2007.
    
    Military net sales decreased approximately $3.2 million or 1%, primarily due to
$37.5 million of non-recurring sales for the C-5 and Global Hawk programs recognized
during the six months ended June 25, 2006. We also experienced small decreases in
sales for several of our other military programs during the six months ended July 1,
2007 due to delivery decreases. These decreases in sales were partially offset by a
$40.5 million increase due to increased deliveries from the H-60 program and timing of
deliveries for the C-17 program.
    
    Business Jet net sales decreased by approximately $2.3 million or 2% primarily due
to the $29.0 million in customer settlements recorded in the six months ended June 25,
2006 with no corresponding contributions to net sales in the six months ended July 1,
2007. The decrease was partially offset by a $20.5 million increase in Gulfstream
sales due to increased delivery rates and pricing increases. Other business programs
increased by $6.2 million due to increased deliveries.
 Cost of sales
 Selling, general and administrative expenses
 Operating income (loss)
 Interest expense, net
 23




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##### Table of Contents



Critical Accounting Policies
  Revenue Recognition
 Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
  July 1,
    
    
    December 31,2007
    
    
    2006($ in millions)Advances and progress billings
    
    $
    273.5
    
    
    $
    258.9Forward Loss
    
    
    6.3
    
    
    
    34.4Purchase accounting adjustment
    
    
    20.0
    
    
    
    24.1Accrued vendor payments
    
    
    34.1
    
    
    
    10.3Other
    
    
    1.2
    
    
    
    6.0Total accrued contract liability
    
    $
    335.1
    
    
    $
    333.7
  Goodwill
 SFAS 142 SFAS 142
 24




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##### Table of Contents



Recent Accounting Pronouncements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106 and 132(R)
  Liquidity and Capital Resources
    25




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##### Table of Contents



SOP 81-1 paragraph 79
     Credit Agreements and Debt Covenants.
  26




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##### Table of Contents



Non-GAAP Financial Measures.
 27




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For the Three Months Ended
    
    
    For the Six Months EndedJuly 1,
    
    
    June 25,
    
    
    July 1,
    
    
    June 25,2007
    
    
    2006
    
    
    2007
    
    
    2006Net cash provided by (used in) operating activities
    
    $
    (18.1
    )
    
    $
    70.6
    
    
    $
    1.7
    
    
    $
    99.5Interest expense, net
    
    
    14.8
    
    
    
    16.0
    
    
    
    29.4
    
    
    
    30.7Income tax
    
    
    0.8
    
    
    
    
    
    
    
    0.8
    
    
    
    Stock compensation expense
    
    
    (1.0
    )
    
    
    
    
    
    
    (1.8
    )
    
    
    Equity in losses of joint venture
    
    
    (0.4
    )
    
    
    (1.5
    )
    
    
    (0.7
    )
    
    
    (3.2
    )Loss from asset sales
    
    
    (0.2
    )
    
    
    (8.7
    )
    
    
    (0.6
    )
    
    
    (8.8
    )Debt amortization costs
    
    
    (0.6
    )
    
    
    (0.7
    )
    
    
    (1.4
    )
    
    
    (1.5
    )Changes in operating assets and liabilities
    
    
    61.1
    
    
    
    (11.0
    )
    
    
    77.1
    
    
    
    (75.3
    )EBITDA
    
    
    56.4
    
    
    
    64.7
    
    
    
    104.5
    
    
    
    41.4Non-recurring investment in Boeing 787 (a)
    
    
    25.9
    
    
    
    17.7
    
    
    
    49.7
    
    
    
    38.8Unusual charges  Plant consolidation & other
non-recurring
program costs (b)
    
    
    (0.6
    )
    
    
    (31.4
    )
    
    
    0.1
    
    
    
    (1.6
    )Loss on disposal of property, plant and
equipment (c)
    
    
    0.2
    
    
    
    8.7
    
    
    
    0.6
    
    
    
    8.8Pension & OPEB curtailment and non-cash expense
(d)
    
    
    
    
    
    
    (5.5
    )
    
    
    
    
    
    
    2.5Other (e)
    
    
    1.5
    
    
    
    0.5
    
    
    
    2.7
    
    
    
    1.1Adjusted EBITDA
    
    $
    83.4
    
    
    $
    54.7
    
    
    $
    157.6
    
    
    $
    91.0
 
 (a)
    
    Non recurring investment in Boeing 787the Boeing 787 program, described elsewhere
in our periodic reports, is a particularly significant new program for our operations, and
has required substantial start-up costs in recent periods as we built a new facility in South
Carolina and invested in new manufacturing technologies dedicated to the program. These
start-up investment costs are recognized in our financial statements over several periods due
to their magnitude and timing. We expect that our current start-up costs in the Boeing 787
program will continue to decline significantly as the start-up phase of the program and our
current related contractual commitments will be substantially completed during the next
twelve months. In the future, subject to potential program modifications by our customer,
including development of derivatives and delivery rate increases, we could have additional
start-up costs required. Our credit agreement excludes our significant start-up investment
in the Boeing 787 program because it represents an unusual significant investment in a major
new program that is not indicative of ongoing core operations, and accordingly the investment
that has been expensed during the period is added back to Adjusted EBITDA.(b)
    
    Consolidation and restructuring initiative In 2004 we launched a facilities
consolidation and restructuring initiative, which has been more fully described in our
previous public reports. The initiative was a distinct project designed to create
efficiencies in managing our plant and labor resources. During 2004 and 2005, we
recorded expenses and related disruption charges in an aggregate amount of approximately
$215.2 million, which were included as an adjustment in the calculation of Adjusted
EBITDA. The site consolidation plan was discontinued in early 2006, with additional
charges in the first six months of 2006 of $5.1 million. We do not expect to incur any additional
significant charges related to this plan. Our credit agreement excludes the
consolidation and restructuring initiative because it represents an unusual event in the
companys operations that is not indicative of ongoing core operating performance, and
accordingly the charges that have been recorded during the period are added back to
Adjusted EBITDA.Other non-recurring program costs  During the three months ended June 25, 2006, we recorded
unusual customer settlements that increased income by $31.6 million. Our credit agreement
requires us to exclude unusual income or expense that is not indicative of ongoing core
operations; therefore, the $31.6 million income from the customers settlements was deducted
from Adjusted EBITDA.For the six months ended June 25, 2006, the $31.6 million customer settlement income was
offset by $24.9 million of unusual expenses related to the H-60 program recorded in the first
quarter 2006 and the $5.1 million consolidation expense
described above. The net, of $1.6
million, of these unusual items was deducted from Adjusted EBITDA. 28




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##### Table of Contents



(c)
    
    Loss on disposal of property, plant and equipment (PP&E) On occasion, where the
asset is no longer needed for our business and ceases to offer sufficient value or utility to
justify our retention of the asset, we choose to sell PP&E at a loss. These losses reduce our
results of operations for the period in which the asset was sold. Our credit agreement
provides that those losses are included in calculating Adjusted EBITDA.(d)
    
    Pension and other post-employment benefits curtailment and non-cash expense related to
FAS 87 and FAS 106The credit agreement allows us to remove non-cash benefit expenses, so to
the extent that the recorded expense exceeds the cash contributions to the plan it is
reflected as an adjustment in calculating Adjusted EBITDA.(e)
    
    Other Includes non-cash stock expense and related party management fees. Our
credit agreement provides that these expenses are included in calculating Adjusted EBITDA.   
    
    our operating performance across periods on a consistent basis;
    
    our ongoing ability to meet our obligations and manage our levels of indebtedness; and
    
    our liquidity and covenant compliance to evaluate the relative risk of an investment
in our securities.
   
    
    it does not reflect our cash expenditures, or future requirements, for all
contractual commitments;
    
    it does not reflect our significant interest expense, or the cash requirements
necessary to service our indebtedness;
    
    it does not reflect cash requirements for the payment of income taxes when due;
    
    although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future and Adjusted
EBITDA does not reflect any cash requirements for such replacements; and
    
    it does not reflect the impact of earnings or charges resulting from matters we
consider not to be indicative of our ongoing operations but may nonetheless have a
material impact on our results of operations.
 29




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##### Table of Contents



Cash Flow Summary
    
    Six Months EndedJuly 1,
    
    
    June 25,2007
    
    
    2006
    
    
    Change($ in millions)Net income (loss)
    
    $
    45.3
    
    
    $
    (17.0
    )
    
    $
    62.3Non-cash items
    
    
    33.5
    
    
    
    41.2
    
    
    
    (7.7
    )Changes in working capital
    
    
    (77.1
    )
    
    
    75.3
    
    
    
    (152.4
    )Net cash provided by (used in) operating activities
    
    
    1.7
    
    
    
    99.5
    
    
    
    (97.8
    )Net cash provided by (used in) investing activities
    
    
    (21.9
    )
    
    
    (74.7
    )
    
    
    52.8Net cash provided by (used in) financing activities
    
    
    (2.6
    )
    
    
    15.0
    
    
    
    (17.6
    )Net increase (decrease) in cash and cash equivalents
    
    
    (22.8
    )
    
    
    39.8
    
    
    
    (62.6
    )Cash and cash equivalents at beginning of period
    
    
    93.4
    
    
    
    10.1
    
    
    
    83.3Cash and cash equivalents at end of period
    
    $
    70.6
    
    
    $
    49.9
    
    
    $
    20.7
    Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   30




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Interest Rate Risks
    Utility Price Risks
  31




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
  FORWARD-LOOKING STATEMENTS
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  32




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  33




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##### 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 34




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SIGNATURES
  Vought Aircraft Industries, Inc.(Registrant)August 14, 2007
    
    
    
    /s/ KEITH HOWE(Date)
    
    
    
    Vice President and Chief Financial OfficerAugust 14, 2007
    
    
    
    /s/ WENDY HARGUS(Date)
    
    
    
    Interim Principal Accounting Officer
 35