e10vq

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 28, 2009


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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer þ
(Do not check if a smaller reporting company)

Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s common stock, $0.01 par value per share, at August 11, 2009 was 24,818,806.

Cautionary Statement Regarding Forward Looking Statements

Some of the statements made in this Quarterly Report on Form 10-Q are forward-looking statements. These forward looking statements are based upon our current expectations and projections about future events. When used in this quarterly report, the words “believe,” “anticipate,” “intend,” “estimate,” “expect,” “should,” “may” and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this quarterly report are primarily located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this quarterly report completely and with the understanding that actual future results may be materially different from what we expect. We will not update forward-looking statements even though our situation may change in the future.

Specific factors that might cause actual results to differ from our expectations include, but are not limited to:

	•		global and domestic financial market conditions and the results of financing efforts;

	•		market risks related to the refinancing of our indebtedness;

	•		competition;

	•		operating risks and the amounts and timing of revenues and expenses;

	•		project delays or cancellations;

	•		product liability claims;

	•		global and domestic market or business conditions and fluctuations in demand for our products and services;

	•		the impact of recent and future federal and state regulatory proceedings and changes, including changes in environmental and other laws and regulations to which we are subject, as well as changes in the application of existing laws and regulations;

	•		political, legal, regulatory, governmental, administrative and economic conditions and developments in the United States and internationally;

	•		the effect of and changes in economic conditions in the areas in which we operate;

	•		returns on pension assets and impacts of future discount rate changes on pension obligations;

	•		environmental constraints on operations and environmental liabilities arising out of past or present operations;

	•		current and future litigation;

	•		the direct or indirect impact on our company’s business resulting from terrorist incidents or responses to such incidents, including the effect on the availability of and premiums on insurance; and

	•		weather and other natural phenomena.

PART I — FINANCIAL INFORMATION

ITEM 1. INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Vought Aircraft Industries, Inc.
Consolidated Balance Sheets
(dollars in millions, except par value per share )


	June 28,
	2009			December 31,
	(unaudited)			2008
Assets
Current assets:
Cash and cash equivalents	$	124.8		$	86.7
Trade and other receivables		160.0			138.6
Inventories		544.9			444.4
Other current assets		6.5			4.7

Total current assets		836.2			674.4

Property, plant and equipment, net		477.7			484.3
Goodwill		527.7			527.7
Identifiable intangible assets, net		23.8			27.2
Debt origination costs, net and other assets		10.5			14.0

Total assets	$	1,875.9		$	1,727.6

Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable, trade	$	156.0		$	177.0
Accrued and other liabilities		78.8			63.7
Accrued payroll and employee benefits		46.2			48.7
Accrued post-retirement benefits-current		42.2			42.0
Accrued pension-current		0.6			0.3
Current portion of long-term bank debt		140.9			5.9
Accrued contract liabilities		176.1			201.4

Total current liabilities		640.8			539.0
Long-term liabilities:
Accrued post-retirement benefits		371.2			405.3
Accrued pension		682.4			710.7
Long-term bank debt, net of current portion		618.9			594.0
Long-term bond debt		270.0			270.0
Other non-current liabilities		136.7			142.7

Total liabilities		2,720.0			2,661.7

Stockholders’ equity (deficit):
Common stock, par value $.01 per share; 50,000,000 shares authorized, 24,818,806 and 24,798,382 issued and outstanding at June 28, 2009 and December 31, 2008, respectively		0.3			0.3
Additional paid-in capital		421.7			420.5
Shares held in rabbi trust		(1.6	)		(1.6	)
Accumulated deficit		(459.3	)		(501.3	)
Accumulated other comprehensive loss		(805.2	)		(852.0	)

Total stockholders’ equity (deficit)	$	(844.1	)	$	(934.1	)

Total liabilities and stockholders’ equity (deficit)	$	1,875.9		$	1,727.6

See accompanying notes

Vought Aircraft Industries, Inc.
Consolidated Statements of Cash Flows
(unaudited, in millions)


	Six Months Ended
	June 28,			June 29,
	2009			2008
Operating activities
Net income	$	42.0		$	108.0
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		35.5			32.8
Stock compensation expense		0.7			1.4
Equity in losses of joint venture		—			0.6
(Gain) Loss from asset disposals		1.9			(48.5	)
Changes in current assets and liabilities:
Trade and other receivables		(21.4	)		(39.8	)
Inventories		(100.5	)		26.4
Other current assets		(1.8	)		(3.1	)
Accounts payable, trade		(21.0	)		(38.1	)
Accrued payroll and employee benefits		(2.5	)		(3.3	)
Accrued and other liabilities		16.1			(5.6	)
Accrued contract liabilities		(25.3	)		(45.2	)
Other assets and liabilities—long-term		(18.8	)		(23.3	)

Net cash provided by (used in) operating activities		(95.1	)		(37.7	)
Investing activities
Capital expenditures		(25.3	)		(32.8	)
Proceeds from sale of joint venture		—			55.0

Net cash provided by (used in) investing activities		(25.3	)		22.2
Financing activities
Proceeds from short-term bank debt		135.0			153.0
Payments on short-term bank debt		—			(153.0	)
Proceeds from long-term bank debt		25.0			184.6
Payments on long-term bank debt		(1.5	)		(1.0	)
Proceeds from sale of common stock		—			0.1

Net cash provided by (used in) financing activities		158.5			183.7

Net increase (decrease) in cash and cash equivalents		38.1			168.2
Cash and cash equivalents at beginning of period		86.7			75.6

Cash and cash equivalents at end of period	$	124.8		$	243.8

See accompanying notes

Vought Aircraft Industries, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
Period Ending June 28, 2009

Note 1 — Organization and Basis of Presentation

Vought Aircraft Industries, Inc. (“Vought”) and its wholly owned subsidiaries, VAC Industries, Inc., Vought Commercial Aircraft Company and Contour Aerospace Corporation (“Contour”) are herein referred to collectively as “we” or the “Company.” We are a leading global manufacturer of aerostructure products for commercial, military and business jet aircraft. We have a long history of developing and manufacturing a wide range of complex aerostructures such as fuselages, wing and tail assemblies, engine nacelles, flight control surfaces, as well as helicopter cabins. Our diverse and long-standing customer base consists of leading aerospace original equipment manufacturers, or OEMs, including Airbus, Bell Helicopter, Boeing, Cessna, Gulfstream, Hawker Beechcraft, Lockheed Martin, Northrop Grumman and Sikorsky, as well as the U.S. Air Force.

Our heritage as an aircraft manufacturer extends to the company founded in 1917 by aviation pioneer Chance Milton Vought. From 1994 to 2000, we operated as Northrop Grumman’s commercial aircraft division. Vought was formed in 2000 in connection with The Carlyle Group’s acquisition of Northrop Grumman’s aerostructures business. In July 2003, we purchased The Aerostructures Corp, with manufacturing sites in Nashville, Tennessee; Brea, California; and Everett, Washington. We are a Delaware corporation with our principal executive offices located at 201 East John Carpenter Freeway, Tower 1, Suite 900, Irving, TX 75062, and we perform production work at sites throughout the United States, including California, Texas, Georgia, Tennessee, Florida, South Carolina and Washington.

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, the accompanying interim unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations for interim periods. The results of operations for the three and six month periods ended June 28, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 13, 2009.

It is our practice to close our books and records based on a thirteen-week quarter, which can lead to different period end dates for comparative purposes. The interim financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods, as our fiscal year ends on December 31.

The consolidated balance sheet at December 31, 2008 presented herein has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Note 2 — Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)), which replaces SFAS No. 141. SFAS No. 141(R) provides revised guidance on how acquirors recognize and measure the consideration transferred, identifiable assets acquired, liabilities assumed, noncontrolling interests, and goodwill acquired in a business combination. SFAS No. 141R also expands required disclosures surrounding the nature and financial effects of business combinations. We adopted SFAS No. 141(R) on January 1, 2009. However, it did not have an impact on our financial statements because we have not been involved in any business combinations since our adoption.

In December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (FSP 132(R)-1). FSP 132(R)-1 requires enhanced disclosures about the plan assets of a company’s defined benefit pension and other postretirement plans. The enhanced disclosures required by FSP 132(R)-1 are intended to provide users of financial statements with a greater understanding of: (1) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (2) the major categories of plan assets; (3) the inputs and valuation techniques used to measure the fair value of plan assets; (4) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (5) significant concentrations of risk within plan assets. We adopted FSP 132(R)-1 on January 1, 2009 and will provide the required enhanced disclosures for our pension plan assets in our 2009 annual report on Form 10-K.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165). We adopted SFAS No. 165 for our fiscal period ending June 28, 2009. SFAS No. 165 requires an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet. For nonrecognized subsequent events that must be disclosed to keep the financial statements from being misleading, an entity is required to disclose the nature of the event as well as an estimate of its financial effect, or a statement that such an estimate cannot be made. In addition, SFAS No. 165 requires an entity to disclose the date through which subsequent events have been evaluated. We have evaluated subsequent events through the date of issuance of our interim, unaudited, condensed consolidated financial statements on August 11, 2009. No material subsequent events have occurred except as discussed in Note 19 — Subsequent Events.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (SFAS No. 168). The FASB Accounting Standards Codification (the Codification) will become the source of authoritative U.S. generally accepted accounting principles (US GAAP). The Codification changes the referencing of financial standards and is effective for interim or annual financial periods ending after September 15, 2009. The Codification is not intended to change or alter existing U.S. GAAP. We believe SFAS No. 168 will only change the references that are included in our annual and quarterly reports.

Note 3 — Inventories

Costs included in inventory consist of all direct production costs, manufacturing and engineering overhead, production tooling costs and certain general and administrative expenses.

Inventories consisted of the following:


	June 28,			December 31,
	2009			2008
	(in millions)
Production costs of contracts in process	$	1,179.3		$	998.1
Finished goods		2.8			2.9
Less: unliquidated progress payments		(637.2	)		(556.6	)

Total inventories	$	544.9		$	444.4

As of June 28, 2009, the inventory balance for the 787 program was $136.7 million, net of unliquidated progress payments of $364.5 million. Following the end of that fiscal period, the inventory balance was sold to a subsidiary of Boeing in connection with the agreement to sell our 787 business (discussed in Note 19 — Subsequent Events) entered into on July 6, 2009.

Our inventory balance as of December 31, 2008 was impacted by the release of purchase accounting reserves of $22.6 million for the Boeing 747 program during the six month period ended June 29, 2008, to reflect the completion of the deliveries for the 747-400 model. They were released from inventory and accrued contract liabilities to income through the Cost of Sales caption in our Consolidated Statement of Operations, increasing our reported income for the period. Additionally, we accelerated the useful life of an intangible asset associated with the 747 program for the same reason. Refer to Note 4 — Goodwill and Intangible Assets for disclosure of the impact of the change in useful life.

Note 4 — Goodwill and Intangible Assets

Goodwill is tested for impairment, at least annually, in accordance with the provisions of SFAS 142 Goodwill and Other Intangible Assets (SFAS No. 142). Under SFAS No. 142, the first step of the goodwill impairment test used to identify potential impairment compares the fair value of a reporting unit with its carrying value. We have concluded that the Company is a single reporting unit. Accordingly, all assets and liabilities are used to determine our carrying value. In connection with the sale of our 787 business that occurred subsequent to the end of the period (discussed in Note 19 — Subsequent Events), a portion of our goodwill balance will be allocated to that business based on the relative fair value of its assets. We will also perform an interim impairment test of our remaining Goodwill balance. However, because we will continue to have an accumulated deficit, we do not anticipate recognizing any impairment charges.

We use an independent valuation firm to assist in the estimation of enterprise fair value using standard valuation techniques such as discounted cash flow, market multiples and comparable transactions. The discounted cash flow fair value estimates are based on management’s projected future cash flows and the estimated weighted average cost of capital. The estimated weighted average cost of capital is based on the risk-free interest rate and other factors such as equity risk premiums and the ratio of total debt and equity capital.

We must make assumptions regarding estimated future cash flows and other factors used by the independent valuation firm to determine the fair value. If these estimates or the related assumptions change, we may be required to record non-cash impairment charges for goodwill in the future.

Identifiable intangible assets consisted of the following:


	June 28,			December 31,
	2009			2008
	(in millions)
Programs and contracts	$	137.3		$	137.3
Less: accumulated amortization		(113.5	)		(110.1	)

Identifiable intangible assets, net	$	23.8		$	27.2

During the six month period ended June 29, 2008, we made a change to the estimated useful life of an intangible asset associated with our 747 program to reflect a change in the estimated period during which the remaining deliveries of the 747-400 model would be made. This change in estimate resulted in an additional $1.2 million recorded to selling, general and administrative expenses during the six month period ended June 29, 2008. Including this change, scheduled remaining amortization of identifiable intangible assets as of June 28, 2009 is as follows:


	(in millions)
2009	$	3.4
2010		4.8
2011		2.1
2012		2.1
2013		2.1
Thereafter		9.3

Total remaining amortization of identifiable intangible assets	$	23.8

Note 5 — Pension and Other Post-retirement Benefits

The components of net periodic benefit cost for our pension plans and other post-retirement benefit plans were as follows:


	Pension Benefits												Other Post-retirement Benefits
	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 28,			June 29,			June 28,			June 29,			June 28,			June 29,			June 28,			June 29,
	2009			2008			2009			2008			2009			2008			2009			2008
	(in millions)
Components of net periodic benefit cost (income):
Service cost	$	4.7		$	4.7		$	8.7		$	9.5		$	0.9		$	1.2		$	1.9		$	2.5
Interest cost		29.2			27.5			57.4			54.8			6.3			7.2			12.7			14.9
Expected return on plan assets		(31.3	)		(31.0	)		(62.7	)		(62.1	)		—			—			—			—
Amortization of net (gain) loss		11.4			6.9			21.2			13.8			0.3			1.4			0.7			2.7
Amortization of prior service cost		3.1			2.9			6.2			5.9			(6.4	)		(5.4	)		(12.5	)		(9.2	)
Prior service costs recognized — curtailment		—			—			1.8			—			—			—			(0.2	)		—
Plan settlement or curtailment (gain) loss (a)		—			—			4.6			—			—			—			3.4			—

Net periodic benefit cost	$	17.1		$	11.0		$	37.2		$	21.9		$	1.1		$	4.4		$	6.0		$	10.9


Defined contribution plans cost	$	5.0		$	4.6		$	9.6		$	9.3

We periodically experience events or take actions that affect our benefit plans. Some of these events or actions require remeasurements and result in special charges. The following summarizes the key events that affect our net periodic benefit cost and obligations:

	•		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, receive a defined contribution benefit. The agreements provided for a one-time retirement incentive program offered to eligible employees during 2008. The agreements also provide 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 is eliminated at age 65 and replaced with a fixed monthly stipend.

	•		The aforementioned changes in 2008 led to remeasurement of affected plans’ assets and obligations as of March 31, 2008, which resulted in a $14.9 million increase in unfunded liability for the affected pension plans and a $44.1 million decrease in liability for the affected OPEB plans. These impacts were recorded in the three month period ended June 29, 2008.

•

During January of 2009, the IAM-represented employees at our Nashville facility ratified a new collective bargaining agreement. That agreement provides for certain benefit changes, including a freeze in pension benefit accruals, effective June 30, 2009, for bargaining unit employees who, as of that date, have less than 16 years of bargaining unit seniority. Employees subject to the pension freeze, and any bargaining unit employees hired on or after September 29, 2008, will receive a defined contribution benefit. The agreement provides for a one-time company paid retirement incentive program offered to eligible employees during 2009 and certain modifications to retiree medical benefits for bargaining unit retirees. These changes led to a remeasurement of the affected plans’ assets and obligations as of January 31, 2009, which increased our unfunded liability for the pension plan by $1.5 million, decreased our liability for the OPEB plan by $32.7 million and led to the immediate recognition of $9.6 million of net non-recurring charges due to a curtailment.

Due to the recent actions by the U.S. Treasury Department expanding the permissible yield curves that can be used for the discount rate, our projected required pension contributions for the fiscal year ended December 31, 2009 are now $82.2 million, as compared to $84.7 million, as disclosed in our 2008 annual report on Form 10-K.

Note 6 — Commitments

Warranty Reserve. We have established a reserve to provide for the estimated future cost of warranties on our delivered products. We periodically review the reserve and adjustments are made accordingly. A provision for warranties on products delivered is made on the basis of our historical experience and specific warranty issues. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship. The majority of our agreements include a three-year warranty, although certain programs have warranties up to 20 years.

During the year ended December 31, 2008, we increased our provisions for warranty by $9.5 million. Of that increase, $8.2 million was attributable to specific warranty issues identified during 2008. The following table is a roll-forward of amounts accrued for warranty reserve included in Current and Long-term liabilities:


	Warranty
	Reserve
	($ in millions)
Balance at December 31, 2007	$	7.2
Warranty costs incurred		(0.6	)
Provisions for warranties		9.5

Balance at December 31, 2008	$	16.1

Warranty costs incurred		(1.2	)
Provisions for warranties		0.3

Balance at June 28, 2009	$	15.2


Consolidated Balance Sheet classification
Accrued and other liabilities		1.5
Other non-current liabilities		13.7

Note 7 — Environmental Contingencies

We accrue environmental liabilities when we determine we are responsible for remediation costs, it is probable that a liability has been incurred and such liability amounts are reasonably estimable. When only a range of amounts is estimated and no amount within the range is more probable than another, the minimum amount in the range is recorded in other current and non-current liabilities.

The acquisition agreement between Northrop Grumman Corporation and Vought transferred certain pre-existing (as of July 24, 2000) environmental liabilities to us. We are liable for the first $7.5 million and 20% of the amount between $7.5 million and $30.0 million for environmental costs incurred relating to pre-existing matters as of July 24, 2000. Pre-existing environmental liabilities exceeding our $12.0 million liability limit remain the responsibility of Northrop Grumman Corporation under the terms of the acquisition agreement, to the extent they are identified within 10 years from the acquisition date. Thereafter, to the extent environmental remediation is required for hazardous materials including asbestos, urea formaldehyde foam insulation or lead-based paints, used as construction materials in, on, or otherwise affixed to structures or improvements on property acquired from Northrop Grumman Corporation, we would be responsible. We have no material outstanding or unasserted asbestos, urea formaldehyde foam insulation or lead-based paint liabilities, including on property acquired from Northrop Grumman Corporation.

We acquired the Nashville, Tennessee facility from Textron Inc. in 1996. In connection with that acquisition, Textron agreed to indemnify us for up to $60.0 million against any pre-closing environmental liabilities with regard to claims made within ten years of the date on which the facility was acquired, including with respect to a solid waste landfill located onsite that was closed pursuant to a plan approved by the Tennessee Division of Solid Waste Management. Although that indemnity was originally scheduled to expire in August 2006, we believe that the agreement may continue to provide indemnification for certain pre-closing environmental liabilities incurred beyond that expiration date. While there are no currently pending environmental claims relating to the Nashville facility, there is no assurance that environmental claims will not arise in the future, or that such claims will be subject to indemnification.

The following is a roll-forward of amounts accrued for environmental liabilities included in Current and Long-term liabilities:


	Environmental
	Liability
	($ in millions)
Balance at December 31, 2007	$	3.8
Environmental costs incurred		(0.6	)

Balance at December 31, 2008		3.2
Environmental costs incurred		(0.3	)

Balance at June 28, 2009	$	2.9


Consolidated Balance Sheet classification
Accrued and other liabilities		0.6
Other non-current liabilities		2.3

Note 8 — Other Non-Current Liabilities

Other non-current liabilities consisted of the following:


	June 28,		December 31,
	2009		2008
	(in millions)
Deferred income from the sale of Hawthorne facility (a)	$	11.6	$	11.6
State of South Carolina grant monies (b)		59.5		61.0
State of Texas grant monies ( c)		32.9		35.0
Accrued worker’s compensation		14.6		14.9
Accrued warranties		13.7		15.6
Other		4.4		4.6

Total other non-current liabilities	$	136.7	$	142.7


(a)		In July 2005, we sold our Hawthorne facility and concurrently signed an agreement to lease back a certain portion of the facility from July 2005 to December 2010, with two additional five-year renewal options. Due to certain contractual obligations, which required our continuing involvement in the facility, this transaction was initially recorded as a financing transaction and not as a sale. The cash received in July 2005 of $52.6 million was recorded as a deferred liability on our balance sheet in other non-current liabilities.

		During the fiscal year ended December 31, 2008, we increased the deferred liability balance for a $3.0 million refund from escrow. Additionally, we determined that certain contractual obligations related to the portion of the facility which we have vacated were completed and we recognized $44.0 million of the deferred income balance. We also wrote off the fixed assets related to this portion of the facility resulting in a $1.6 million gain that was recorded in our Consolidated Statement of Operations for the three month period ended September 28, 2008. The $11.6 million liability related to the portion of the Hawthorne facility that we continue to lease will remain on our balance sheet until the related contractual obligations are fulfilled or the obligations expire.

(b)		With the activation of the South Carolina plant in June 2006, we began recognizing a portion of the State of South Carolina grant monies as a reduction of depreciation expense, which amounted to $1.6 million and $1.7 million for the six months ended June 28, 2009 and June 29, 2008, 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. Our liability under this grant was assumed by a subsidiary of Boeing in connection with the agreement to sell our 787 business (discussed in Note 19 — Subsequent Events) entered into on July 6, 2009.

(c)		We reclassified $2.1 million related to the Texas grant to the Accrued and Other Liabilities caption in our Consolidated Balance Sheet due to a potential repayment of grant funds in 2010 based on the agreement. The liability reclass is an estimate as no payments are due as of June 28, 2009.

Note 9 — Income Taxes

FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. This interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. Our unrecognized tax benefit position as of December 31, 2008 was $8.2 million and there has not been a material change to that position during the six months ended June 28, 2009.

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are subject to examination by the Internal Revenue Service in the U.S. federal tax jurisdiction for the 2000-2008 tax years. We are also subject to examination in various state jurisdictions for the 2000-2008 tax years, none of which were individually material. State tax liabilities will be adjusted to account for changes in federal taxable income, as well as any adjustments in subsequent years, as those years are ultimately resolved with the IRS.

Note 10 — Stockholders’ Equity

As of June 28, 2009, we maintained a stock option plan and an incentive award plan under which we have issued share-based awards to our employees and our directors.

2001 Stock Option Plan

During 2001, we adopted the Amended and Restated 2001 Stock Option Plan of Vought Aircraft Industries, Inc., under which 1,500,000 shares of common stock were reserved for issuance for the purpose of providing incentives to employees and directors (the “2001 Stock Option Plan”). Options granted under the plan generally vest within 10 years, but were subject to accelerated vesting based on the ability to meet company performance targets. The incentive options granted to our employees are intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code. At June 28, 2009, options granted and outstanding from the 2001 Stock Option Plan to employees and directors amounted to 537,900 shares of which 472,030 are vested and exercisable.

A summary of stock option activity for the three month period ended June 28, 2009 is as follows:


						Weighted
						Average
				Weighted		Remaining
				Average		Contractual
				Exercise		Term
	Options			Price		(in Years)

Outstanding at December 31, 2008		547,100		$	15.35
Granted		—			—
Forfeited or expired		(9,200	)		10.00
Exercised		—			—

Outstanding at June 28, 2009		537,900		$	15.44		3.1

Vested or expected to vest (a)		537,900		$	15.44		3.1

Exercisable at June 28, 2009		472,030		$	14.79		3.1


(a)		Represents outstanding options reduced by expected forfeitures. Expected forfeitures assumed under SFAS 123 were zero.

Shares Held in Rabbi Trust

A rabbi trust is a grantor trust, typically established to fund deferred compensation for management. In 2000, we established a rabbi trust in connection with certain income deferrals made at that time by a number of our then-executives. Shares of company stock were contributed to the rabbi trust in order to fund the obligations to those executives in connection with those deferrals. Our stock held in the trust is recorded at historical cost, and the corresponding deferred compensation liability is recorded at the current fair value of our common stock. Common stock held in the rabbi trust is classified in equity as “Shares held in rabbi trust.” During the three month period ended June 28, 2009, no activity occurred in the rabbi trust account and 158,322 shares remain held in the rabbi trust.

2006 Incentive Plan

During 2006, we adopted the Vought Aircraft Industries, Inc. 2006 Incentive Award Plan (the “2006 Incentive Plan”), under which 2,000,000 shares of common stock are reserved for issuance for the purposes of providing awards to employees and directors. Since inception, these awards have been issued in the form of stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and restricted shares.

Stock Appreciation Rights (SARs)

A summary of SARs activity for the six month period ended June 28, 2009 is as follows:


						Weighted
						Average
				Weighted		Remaining
				Average		Contractual
				Exercise		Term
	SARs			Price		(in Years)

Outstanding at December 31, 2008		908,450		$	10.00		7.9
Granted		—			—
Forfeited or expired		(7,687	)		10.00
Exercised		(15,563	)		10.00

Outstanding at June 28, 2009		885,200		$	10.00		7.5


Vested or expected to vest (a)		764,706			10.00

Exercisable at June 28, 2009		613,582			10.00		7.4


(a)		Represents outstanding SARs reduced by expected forfeitures.

During the six month period ended June 28, 2009, the exercise of SARs resulted in the issuance of 1,614 shares of common stock.

Restricted Stock Units (RSUs)

RSUs are awards of stock units that can be converted into common stock. In general, the awards are eligible to vest over a four-year period if certain performance goals are met. No RSUs will vest if the performance goals are not met. Certain awards, granted to the CEO and CFO, vest on the first occurrence of a change in control or a date specified by the agreement.

A summary of RSUs activity for the six months ended June 28, 2009 is as follows:


				Grant-date
	RSUs			Fair-Value

Outstanding at December 31, 2008		622,925		$	10.65
Granted		7,500			9.76
Forfeited or expired		(10,937	)		14.38
Exercised		—			—

Outstanding at June 28, 2009		619,488		$	10.57

Vested or expected to vest (a)		557,729

Vested at June 28, 2009		176,384		$	10.65


(a)		Represents outstanding RSUs reduced by expected forfeitures.

Restricted Shares

During the six month period ended June 28, 2009, we granted 18,810 restricted shares to outside directors as compensation for their services. These restricted shares are scheduled to vest during 2009. The restricted shares were valued based on the estimated fair value of our common stock on the date of issuance.

Note 11 — Stock-Based Compensation

As described in Note 10 — Stockholders’ Equity, we maintain a stock option plan and an incentive award plan under which we have issued equity-based awards to our employees and our directors. During 2009 and 2008, in accordance with SFAS 123(R), we recognized total compensation expense for all awards as follows:


	Stock Compensation Expense
	Three Months Ended					Six Months Ended
	June 28, 2009			June 29, 2008		June 28, 2009			June 29, 2008
				(in millions)
Stock Options	$	—		$	—	$	—		$	—
Rabbi Trust		(0.5	)		—		(0.5	)		—
Stock appreciation rights (SARs)		0.1			0.2		0.2			0.4
Restricted stock units (RSUs)		0.3			0.5		0.6			0.9
Restricted shares		—			0.1		0.1			0.1

Stock compensation expense, gross		(0.1	)		0.8		0.4			1.4

Change in forfeiture estimate		0.3			—		0.3			—

Stock compensation expense, net	$	0.2		$	0.8	$	0.7		$	1.4

The terms and assumptions used in calculating stock compensation expense for each category of equity-based awards are included below.

Stock Options

Stock options have been granted for a fixed number of shares to employees and directors with an exercise price equal to no less than the fair value of the shares at the date of grant. We have adopted SFAS 123(R) Share-based Payment (SFAS 123(R)) and elected to apply the “modified prospective” method. SFAS 123(R) requires us to value stock options granted prior to its adoption under the fair value method and expense these amounts over the stock options’ remaining vesting period. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. No additional stock options have been granted since our adoption of SFAS 123(R). The amount of stock compensation expense recorded for stock options during the three and six month periods ended June 28, 2009 and June 29, 2008 was immaterial.

Shares Held in Rabbi Trust

During the three month period ended June 28, 2009, we reversed previously recorded stock compensation expense, included in general and administrative expense, to reflect the impact of an estimated decrease in the fair value of our common stock. This decrease in value resulted in an increase to our accrued payroll and employee benefits line item on our balance sheet.

SARs

The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model and based on a number of assumptions including expected term, volatility and interest rates. Because we do not have publicly traded equity or reliable historical data to estimate the expected term of the SARs, in compliance with SAB 107, we used a temporary “simplified method” to estimate our expected term. Based on the guidance of SFAS 123(R), expected volatility was derived from an index of historical volatilities from several companies that conduct business in the aerospace industry. The risk free interest rate is based on the U.S. treasury yield curve on the date of grant for the expected term of the option. Our estimated forfeiture rate was 26% as of June 29, 2008 but was adjusted to 22% during the three month period ended June 28, 2009.

During the six month periods ended June 28, 2009 and June 29, 2008, no SARs were granted. As of June 28, 2009, we had $0.2 million of unrecognized compensation expense remaining.

RSUs

The value of each RSU awarded is based on the estimated fair value of our common stock on the date of issuance in accordance with SFAS 123(R). Because we do not have publicly traded equity, we use an independent third party valuation firm to compute the fair market value of our common stock. Our estimated forfeiture rate was 26% as of June 29, 2008 but was adjusted to 22% during the three month period ended June 28, 2009. However, no forfeiture rate was used in our calculation of the grants to the CEO and CFO that vest upon the first occurrence of a change in control or a date specified in the agreement, due to our assumption that they will remain employed until the vesting of these awards. As of June 28, 2009, we had $1.3 million of unrecognized compensation expense remaining.

Restricted Shares

The restricted shares granted during the six month period ended June 28, 2009 are scheduled to vest during 2009. Those shares were valued based on the estimated fair value of our common stock on the date of issuance.

Note 12 — Investment in Joint Venture

In April 2005, we entered into a joint venture agreement with Alenia North America (“Alenia”), a subsidiary of Finmeccanica SpA, to form a limited liability company called Global Aeronautica, LLC (“Global Aeronautica”), which integrates major components of the fuselage and performs related testing activities for the Boeing 787 program. We and Alenia, each had a 50% interest in Global Aeronautica.

On June 10, 2008, we sold our entire equity interest in Global Aeronautica to Boeing for $55.0 million in cash and as a result, recorded a $47.1 million gain on the sale during the fiscal year ended December 31, 2008. Our results of operations are no longer impacted by this joint venture.

Note 13 — Long-Term Debt

Our total outstanding long-term debt as of June 28, 2009 was $1,036.6 million which included $759.8 million incurred under our senior credit facilities and $270.0 million of 8% Senior Notes due 2011 (“Senior Notes”). The $759.8 million balance under our senior credit facilities reflected on the Consolidated Balance Sheet includes $631.6 million in outstanding term loans, net of $6.8 million of unamortized original issue discount associated with the Incremental Facility and outstanding borrowings of $135.0 million on our revolver. Additionally, we had $48.5 million in outstanding letters of credit under the $50.0 million synthetic letter of credit facility. The revolver was classified as a current liability as we had the intent and ability to repay it within 12 months. The following paragraphs include further details on the components of the Long-term debt balances in our Consolidated Balance Sheet.

On July 2, 2003, we issued $270.0 million of Senior Notes with interest payable on January 15 and July 15 of each year, beginning January 15, 2004. We may redeem the notes in full or in part by paying premiums specified in the indenture governing our outstanding Senior Notes. The notes are senior unsecured obligations guaranteed by all of our existing and future domestic subsidiaries. The fair value of our Senior Notes was approximately $172.8 million and $183.6 million as of June 28, 2009 and December 31, 2008, respectively, based on quoted market prices.

We entered into $650.0 million of senior credit facilities pursuant to a credit agreement dated December 22, 2004 (“Credit Agreement”). Upon issuance, our senior credit facilities were comprised of a $150.0 million six year revolving loan (“Revolver”), a $75.0 million synthetic letter of credit facility and a $425.0 million seven year term loan B. Initially, the seven year term loan B amortized at $1.0 million per quarter with a final payment at the maturity date of December 22, 2011.

On May 6, 2008, we borrowed an additional $200.0 million of term loans pursuant to our existing senior credit facilities (the “Incremental Facility”). We received net proceeds of approximately $184.6 million from the Incremental Facility net of a $10.0 million original issue discount and $5.4 million of debt origination costs, to be used for general corporate purposes. The interest rates per annum applicable to the Incremental Facility were, at our option, the ABR or Eurodollar Base Rate plus, in each case, an applicable margin equal to 3.00% for ABR loans and 4.00% for Eurodollar Base Rate loans, subject to a Eurodollar Base Rate floor of 3.50%. Our effective interest rates on the Incremental Facility for the three and six month periods ended June 28, 2009 were 10.3% and 10.2%, respectively.

Except for amortization and interest rate, the terms of the Incremental Facility, upon issuance, including mandatory prepayments, representations and warranties, covenants and events of default, were the same as those applicable to the existing term loans under our senior credit facilities and all references to our senior credit facilities included the Incremental Facility. The term loans under the Incremental Facility were initially repayable in equal quarterly installments of $470,000, with the balance due on December 22, 2011.

On January 31, 2009, under the terms of our credit agreement, we exercised our option to convert $25.0 million of the synthetic letter of credit facility to a term loan. The $25.0 million term loan is subject to the same terms and conditions as the outstanding term loans made as of December 2004. As a result, our current limit under the synthetic letter of credit facility was $50.0 million.

On July 30, 2009 we entered into an Amendment to our Credit Agreement (“Amendment”) which modifies the Credit Agreement to allow, among other things, the sale of our 787 business (discussed in Note 19 — Subsequent Events) and provides for use of cash proceeds from the transaction to pay down $355.0 million of term loans outstanding. The Amendment also converts the synthetic letter of credit portion of the current agreement into additional term loan of $50.0 million all of which will be used as cash collateral for previously issued letters of credit for so long as those letters of credit remain outstanding. In addition, we are reducing the revolving commitments under the agreement to $100.0 million and are using a portion of the proceeds to repay the outstanding revolver amounts of $135.0 million. Following this transaction and a $1.5 million payment on June 30, 2009, our total long-term debt outstanding is $595.1 million including $270.0 million of Senior Notes and $325.1 million of term loans related to this agreement. Also included in the amendment was an agreement to increase the interest rate on all loans to LIBOR plus a margin of 4.00%, with a minimum LIBOR floor of 3.50%.

Note 14 — Related Party Transactions

A management agreement between us and our controlling stockholder, The Carlyle Group, requires us to pay an annual fee of $2.0 million for various management services. We incurred fees of $0.5 million and $1.0 million for the three and six month periods ended June 28, 2009 and June 29, 2008, respectively. The Carlyle Group also serves, in return for additional fees, as our financial advisor or investment banker for mergers, acquisitions, dispositions and other strategic and financial activities. In connection with the sale of our 787 business (discussed in Note 19 — Subsequent Events), we have paid approximately $3.0 million to The Carlyle Group subsequent to the end of the period.

Since 2002, we have had an ongoing commercial relationship with Wesco Aircraft Hardware Corp. (“Wesco”), a distributor of aerospace hardware and provider of inventory management services. Wesco currently provides aerospace hardware to us pursuant to long-term contracts. The most recent of these agreements was entered into on December 19, 2007 in connection with the expiration of one of our pre-existing long-term contracts with Wesco, and following a competitive re-procurement of that work package. On September 29, 2006, The Carlyle Group acquired a majority stake in Wesco, and as a result, we are both now under common control of The Carlyle Group through its affiliated funds. In addition, four of our directors, Messrs. Squier, Clare, Palmer and Jumper, also serve on the board of directors of Wesco. The Carlyle Group may indirectly benefit from their economic interest in Wesco from its contractual relationships with us. The total amount paid to Wesco pursuant to our contracts with Wesco for the three month periods ended June 28, 2009 and June 29, 2008 was approximately $5.7 million and $8.1 million, respectively. Approximately, $11.8 million and $15.1 million was paid to Wesco pursuant to our contracts with Wesco for the six month periods ended June 28, 2009 and June 29, 2008.

Additionally, as the result of a competitive procurement, in October 2008, we reached an agreement with Wesco to amend one of the existing long-term contracts with Wesco to include hardware requirements for the Global Hawk program through February 2010. The estimated contract value of that award is approximately $2.5 million through that period.

In connection with the sale of our 787 business (discussed in Note 19 — Subsequent Events), two of our agreements with Wesco were assigned to a subsidiary of Boeing. Approximately $2.5 million was paid to Wesco under those agreements for each of the six month periods ending June 28, 2009 and June 29, 2008, respectively.

We also have an ongoing commercial relationship with Gardner Group Ltd (“Gardner Group”), a supplier of metallic aerostructure details, equipment and engine components to the global aviation industry. Gardner Group currently provides aerospace parts to us. The most recent agreement with the Gardner Group was entered into on November 5, 2007. On November 3, 2008, The Carlyle Group acquired a majority equity interest in the Gardner Group, and as a result, the Gardner Group and our company are both now under common control of The Carlyle Group through its affiliated funds. The Carlyle Group may indirectly benefit from their economic interest in Gardner Group from its contractual relationships with us. The total amount paid to Gardner Group pursuant to our contracts with Gardner Group for the three and six month periods ended June 28, 2009 was $0.2 million and $0.4 million, respectively.

Vought Aircraft Industries, Inc.
Consolidating Balance Sheet
June 28, 2009
(dollars in millions, except par value per share) (Unaudited)


				Guarantor			Intercompany
	Vought			Subsidiaries			Eliminations			Total
Assets
Current assets:
Cash and cash equivalents	$	124.5		$	0.3		$	—		$	124.8
Trade and other receivables		152.7			7.3			—			160.0
Intercompany receivable		19.9			8.3			(28.2	)		—
Inventories		528.8			16.1			—			544.9
Other current assets		6.0			0.5			—			6.5

Total current assets		831.9			32.5			(28.2	)		836.2

Property, plant and equipment, net		468.4			9.3			—			477.7
Goodwill		464.0			63.7			—			527.7
Identifiable intangible assets, net		23.8			—			—			23.8
Debt origination costs, net and other assets		10.5			—			—			10.5
Investment in affiliated company		77.3			—			(77.3	)		—


Total assets	$	1,875.9		$	105.5		$	(105.5	)	$	1,875.9


Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable, trade	$	149.9		$	6.1		$	—		$	156.0
Intercompany payable		8.3			19.9			(28.2	)		—
Accrued and other liabilities		77.8			1.0			—			78.8
Accrued payroll and employee benefits		45.0			1.2			—			46.2
Accrued post-retirement benefits-current		42.2			—			—			42.2
Accrued pension-current		0.6			—			—			0.6
Current portion of long-term bank debt		140.9			—			—			140.9
Accrued contract liabilities		176.1			—			—			176.1


Total current liabilities		640.8			28.2			(28.2	)		640.8
Long-term liabilities:
Accrued post-retirement benefits		371.2			—			—			371.2
Accrued pension		682.4			—			—			682.4
Long-term bank debt, net of current portion		618.9			—			—			618.9
Long-term bond debt		270.0			—			—			270.0
Other non-current liabilities		136.7			—			—			136.7

Total liabilities		2,720.0			28.2			(28.2	)		2,720.0

Stockholders’ equity (deficit):
Common stock, par value $.01 per share; 50,000,000 shares authorized, 24,818,806 issued and outstanding at June 28, 2009		0.3			—			—			0.3
Additional paid-in capital		421.7			80.3			(80.3	)		421.7
Shares held in rabbi trust		(1.6	)		—			—			(1.6	)
Accumulated deficit		(459.3	)		(3.0	)		3.0			(459.3	)
Accumulated other comprehensive loss		(805.2	)		—			—			(805.2	)

Total stockholders’ equity (deficit)	$	(844.1	)	$	77.3		$	(77.3	)	$	(844.1	)

Total liabilities and stockholders’ equity (deficit)	$	1,875.9		$	105.5		$	(105.5	)	$	1,875.9

Vought Aircraft Industries, Inc.
Consolidating Balance Sheet
December 31, 2008
($ in millions, except share amounts)


				Guarantor			Intercompany
	Vought			Subsidiaries			Eliminations			Total
Assets
Current assets:
Cash and cash equivalents	$	86.6		$	0.1		$	—		$	86.7
Trade and other receivables		131.2			7.4			—			138.6
Intercompany receivable		21.1			8.3			(29.4	)		—
Inventories		430.3			14.1			—			444.4
Other current assets		4.2			0.5			—			4.7

Total current assets		673.4			30.4			(29.4	)		674.4

Property, plant and equipment, net		476.3			8.0			—			484.3
Goodwill		464.0			63.7			—			527.7
Identifiable intangible assets, net		27.2			—			—			27.2
Debt origination costs, net and other assets		12.9			1.1			—			14.0
Investment in affiliated company		76.4			—			(76.4	)		—


Total assets	$	1,730.2		$	103.2		$	(105.8	)	$	1,727.6


Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable, trade	$	173.0		$	4.0		$	—		$	177.0
Intercompany payable		8.3			21.1			(29.4	)		—
Accrued and other liabilities		63.6			0.1			—			63.7
Accrued payroll and employee benefits		47.1			1.6			—			48.7
Accrued post-retirement benefits-current		42.0			—			—			42.0
Accrued pension-current		0.3			—			—			0.3
Current portion of long-term bank debt		5.9			—			—			5.9
Accrued contract liabilities		201.4			—			—			201.4


Total current liabilities		541.6			26.8			(29.4	)		539.0

Long-term liabilities:
Accrued post-retirement benefits		405.3			—			—			405.3
Accrued pension		710.7			—			—			710.7
Long-term bank debt, net of current portion		594.0			—			—			594.0
Long-term bond debt		270.0			—			—			270.0
Other non-current liabilities		142.7			—			—			142.7

Total liabilities		2,664.3			26.8			(29.4	)		2,661.7

Stockholders’ equity (deficit):

Common stock, par value $.01 per share; 50,000,000 shares authorized, 24,798,382 issued and outstanding at December 31, 2008		0.3			—			—			0.3
Additional paid-in capital		420.5			80.3			(80.3	)		420.5
Shares held in rabbi trust		(1.6	)		—			—			(1.6	)
Accumulated deficit		(501.3	)		(3.9	)		3.9			(501.3	)
Accumulated other comprehensive loss		(852.0	)		—			—			(852.0	)

Total stockholders’ equity (deficit)	$	(934.1	)	$	76.4		$	(76.4	)	$	(934.1	)

Total liabilities and stockholders’ equity (deficit)	$	1,730.2		$	103.2		$	(105.8	)	$	1,727.6

Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended June 28, 2009
(in millions) (Unaudited)


				Guarantor		Intercompany
	Vought			Subsidiaries		Eliminations			Totals
Revenue	$	476.7		$	18.6	$	(3.8	)	$	491.5

Costs and expenses
Cost of sales		409.0			17.0		(3.8	)		422.2
Selling, general and administrative expenses		35.3			1.3		—			36.6

Total costs and expenses		444.3			18.3		(3.8	)		458.8


Operating income		32.4			0.3		—			32.7

Other income (expense)
Interest income		0.2			—		—			0.2
Other gain		—			—		—			—
Interest expense		(8.8	)		—		—			(8.8	)
Equity in income (loss) of consolidated subsidiaries		0.3			—		(0.3	)		—

Income (loss) before income taxes		24.1			0.3		(0.3	)		24.1
Income tax expense		—			—		—			—

Net income (loss)	$	24.1		$	0.3	$	(0.3	)	$	24.1

Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended June 29, 2008
(in millions) (Unaudited)


				Guarantor		Intercompany
	Vought			Subsidiaries		Eliminations			Totals
Revenue	$	467.1		$	19.6	$	(6.0	)	$	480.7

Costs and expenses
Cost of sales		366.6			16.5		(6.0	)		377.1
Selling, general and administrative expenses		54.0			1.7		—			55.7

Total costs and expenses		420.6			18.2		(6.0	)		432.8


Operating income (loss)		46.5			1.4		—			47.9

Other income (expense)
Interest income		0.9			—		—			0.9
Other gain (loss)		47.1			—		—			47.1
Equity 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	)		79.3
Income taxes		—			—		—			—

Net income (loss)	$	79.3		$	1.4	$	(1.4	)	$	79.3

Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Six Months Ended June 28, 2009
(in millions) (Unaudited)


				Guarantor		Intercompany
	Vought			Subsidiaries		Eliminations			Totals
Revenue	$	866.0		$	35.6	$	(7.5	)	$	894.1

Costs and expenses
Cost of sales		729.9			32.2		(7.5	)		754.6
Selling, general and administrative expenses		71.6			2.5		—			74.1

Total costs and expenses		801.5			34.7		(7.5	)		828.7


Operating income		64.5			0.9		—			65.4

Other income (expense)
Interest income		0.4			—		—			0.4
Other gain		—			—		—			—
Interest expense		(23.8	)		—		—			(23.8	)
Equity in income (loss) of consolidated subsidiaries		0.9			—		(0.9	)		—

Income (loss) before income taxes		42.0			0.9		(0.9	)		42.0
Income tax expense		—			—		—			—

Net income (loss)	$	42.0		$	0.9	$	(0.9	)	$	42.0

Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Six Months Ended June 29, 2008
(in millions) (Unaudited)


				Guarantor		Intercompany
	Vought			Subsidiaries		Eliminations			Totals
Revenue	$	880.1		$	37.1	$	(11.1	)	$	906.1

Costs and expenses
Cost of sales		682.2			32.3		(11.1	)		703.4
Selling, general and administrative expenses		107.1			2.9					110.0

Total costs and expenses		789.3			35.2		(11.1	)		813.4


Operating income (loss)		90.8			1.9		—			92.7

Other income (expense)
Interest income		1.0			—		—			1.0
Other loss		47.1			—		—			47.1
Equity 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	)		108.0
Income taxes		—			—		—			—

Net income (loss)	$	108.0		$	1.9	$	(1.9	)	$	108.0

Vought Aircraft Industries, Inc.
Consolidating Cash Flow Statement
Six Months Ended June 28, 2009
(in millions) (Unaudited)


				Guarantor			Intercompany
	Vought			Subsidiaries			Eliminations			Total
Operating activities
Net income (loss)	$	42.0		$	0.9		$	(0.9	)	$	42.0
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		34.8			0.7			—			35.5
Stock compensation expense		0.7			—			—			0.7
(Gain)/Loss from asset disposals		1.9			—			—			1.9
Income from investments in consolidated subsidiaries		(0.9	)		—			0.9			—
Changes in current assets and liabilities:
Trade and other receivables		(21.5	)		0.1			—			(21.4	)
Intercompany accounts receivable		1.2			—			(1.2	)		—
Inventories		(98.5	)		(2.0	)		—			(100.5	)
Other current assets		(1.8	)		—			—			(1.8	)
Accounts payable, trade		(23.1	)		2.1			—			(21.0	)
Intercompany accounts payable		—			(1.2	)		1.2			—
Accrued payroll and employee benefits		(2.1	)		(0.4	)		—			(2.5	)
Accrued and other liabilities		15.2			0.9			—			16.1
Accrued contract liabilities		(25.3	)		—			—			(25.3	)
Other assets and liabilities—long-term		(19.9	)		1.1			—			(18.8	)

Net cash provided by (used in) operating activities		(97.3	)		2.2			—			(95.1	)
Investing activities
Capital expenditures		(23.3	)		(2.0	)		—			(25.3	)

Net cash provided by (used in) investing activities		(23.3	)		(2.0	)		—			(25.3	)
Financing activities
Proceeds from short-term bank debt		135.0			—			—			135.0
Proceeds from long-term bank debt		25.0			—			—			25.0
Payments on long-term bank debt		(1.5	)		—			—			(1.5	)

Net cash provided by (used in) financing activities		158.5			—			—			158.5

Net decrease in cash and cash equivalents		37.9			0.2			—			38.1
Cash and cash equivalents at beginning of period		86.6			0.1			—			86.7

Cash and cash equivalents at end of period	$	124.5		$	0.3		$	—		$	124.8

Vought Aircraft Industries, Inc.
Consolidating Cash Flow Statement
Six Months Ended June 29, 2008
(in millions) (Unaudited)


				Guarantor			Intercompany
	Vought			Subsidiaries			Eliminations			Total
Operating activities
Net income (loss)	$	108.0		$	1.9		$	(1.9	)	$	108.0
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		32.1			0.7			—			32.8
Stock compensation expense		1.4			—			—			1.4
Equity 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			—			26.4
Other 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 activities
Capital expenditures		(31.8	)		(1.0	)		—			(32.8	)
Proceeds from sale of joint venture		55.0			—			—			55.0

Net cash provided by (used in) investing activities		23.2			(1.0	)		—			22.2
Financing activities
Proceeds from short-term bank debt		153.0			—			—			153.0
Payments on short-term bank debt		(153.0	)		—			—			(153.0	)
Proceeds from Incremental Facility		184.6			—			—			184.6
Payments on long-term bank debt		(1.0	)		—			—			(1.0	)
Proceeds from sale of common stock		0.1			—			—			0.1

Net cash provided by (used in) financing activities		183.7			—			—			183.7
Net decrease in cash and cash equivalents		168.5			(0.3	)		—			168.2
Cash and cash equivalents at beginning of period		75.1			0.5			—			75.6

Cash and cash equivalents at end of period	$	243.6		$	0.2		$	—		$	243.8

Note 16 — Fair Value Measurements

We adopted SFAS 157, “Fair Value Measurements” on January 1, 2008, for our financial assets and financial liabilities. SFAS 157 defines fair value, provides guidance for measuring fair value and requires certain disclosures. The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

	•		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.

As of June 28, 2009, we had $124.3 million of short term investments, primarily money market funds, reflected at cost, which approximates fair value, in our cash and cash equivalents balance on our Consolidated Balance Sheet. The fair value determination of this asset involves Level 1 inputs.

Our deferred compensation liability to former executives is based on the most recently obtained fair value of our common stock. As of June 28, 2009, the fair value determination of the $1.4 million deferred compensation liability involves Level 3 inputs. We believe the value of this liability has declined by $0.5 million since December 31, 2008.

Note 17 — Comprehensive Income (Loss)

Comprehensive income (loss) consisted of the following:


	For the Three Months Ended						For the Six Months Ended
	June 28,			June 29,			June 28,		June 29,
	2009			2008			2009		2008
				(in millions)
Net income	$	24.1		$	79.3		$	42.0	$	108.0
Comprehensive income (loss), net of tax
Pension		14.5			(5.1	)		25.9		4.8
OPEB		(6.1	)		40.1			20.9		37.6

Total comprehensive income	$	32.5		$	114.3		$	88.8	$	150.4

Note 18 — Fixed Assets

During the six month period ended June 28, 2009, we capitalized approximately $5.3 million of interest costs related to our assets-under-construction balance that were expensed in fiscal periods prior to 2009 in error. We also recorded a corresponding $2.8 million adjustment to increase depreciation expense, which was recorded to cost of sales during the period. The total impact on net income from these adjustments was approximately $2.5 million. The capitalization also increased our Fixed Assets, net balance as of June 28, 2009 by $2.5 million. Additionally, during the six month period ended June 28, 2009, we have capitalized interest costs of $0.9 million related to our current assets-under-construction balance.

Note 19 — Subsequent Events

On July 6, 2009, we entered into an agreement to sell the assets and operations of our 787 business conducted at North Charleston, South Carolina to Boeing Commercial Airplanes Charleston South Carolina, Inc., a wholly owned subsidiary of The Boeing Company. The transaction was completed on July 30, 2009. Concurrent with the transaction, we entered into an agreement terminating the existing 787 supply agreement releasing claims and resolving rights and obligations, including obligations incurred or created as a result of ordinary course performance of the 787 Supply agreement. We also will provide certain transition and engineering services to Boeing pursuant to a transition services agreement and an engineering services agreement, respectively, and perform new work scope for Boeing’s 737, 777 and 787 aircraft programs pursuant to a long-term supply agreement.

We received total cash proceeds of $591.5 million as consideration for the transaction, of which approximately $9.0 million will be used to pay costs associated with the transaction. The cash proceeds will be allocated to the settlement of contractual matters for the 787 program and the sale of the business based on the relative fair value of each component of the transaction. Based on our preliminary analysis, and prior to the allocation of goodwill to the transaction, the proceeds in excess of the net book value of the related assets and liabilities are approximately $370.0 million. The finalized results of the transaction will be presented as discontinued operations during the three month period ended September 27, 2009.

On July 30, 2009 we entered into an Amendment to our Credit Agreement (“Amendment”) which modifies the Credit Agreement to allow, among other things, the sale of our 787 business and provides for use of cash proceeds from the transaction to pay down $355.0 million of term loans outstanding. The Amendment also converts the synthetic letter of credit portion of the current agreement into additional term loan of $50.0 million all of which will be used as cash collateral for previously issued letters of credit for so long as those letters of credit remain outstanding. In addition, we are reducing the revolving commitments under the agreement to $100.0 million and are using a portion of the proceeds to repay the outstanding revolver amounts of $135.0 million. Following this transaction and a $1.5 million payment on June 30, 2009, our total long-term debt outstanding is $595.1 million including $270.0 million of Senior Notes and $325.1 million of term loans related to this agreement. Also included in the amendment was an agreement to increase the interest rate on all loans to LIBOR plus a margin of 4.00%, with a minimum LIBOR floor of 3.50%.

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 and our Annual Report on Form 10-K for the year ended December 31, 2008 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

We are a leading global manufacturer and developer of aerostructures serving commercial, military and business jet aircraft. Our products are used on many of the largest and longest running programs in the aerospace industry. We are also a key supplier on newer platforms with high growth potential. We generate approximately 50% of our revenues from the commercial aircraft market but are also diversified across the military and business jet markets, which provide the balance of our revenues.

Our customer base consists of leading aerospace original equipment manufacturers or OEMs, including Airbus, Boeing, Cessna, Gulfstream, Hawker Beechcraft, Lockheed Martin, Northrop Grumman and Sikorsky, as well as the U.S. Air Force. We generate over 80% of our revenues from our three largest customers, Airbus, Boeing and Gulfstream.

Although the majority of our revenues are generated by sales in the U.S. market, we generate approximately 12% of our revenue from sales outside of the United States.

Most of our revenues are generated under long-term contracts. Our customers typically place orders well in advance of required deliveries, which gives us considerable visibility with respect to our future revenues. These advance orders also generally create a significant backlog for us, which was approximately $3.7 billion at June 28, 2009. A portion of this backlog was related to the 787 program which was eliminated as part of the asset purchase agreement for our 787 operations entered into on July 6, 2009. Excluding this program, the backlog at June 28, 2009 was approximately $2.4 billion. Our calculation of backlog includes only firm orders for commercial and business jet programs and funded orders for government programs, which causes our backlog to be substantially lower than the estimated aggregate dollar value of our contracts and may not be comparable to others in the industry.

For our commercial and business jet programs, changes in the economic environment and the financial condition of airlines may cause our customers to increase or decrease deliveries, adjusting firm orders that would affect our backlog. We have received updated delivery schedules from several of our customers who are slowing production rates in 2009 and beyond. Also, to the extent the current global financial crisis continues or worsens, overall demand for our commercial and business aircraft products could continue to decline notwithstanding the growth over the past three years. For our military aircraft programs, the Department of Defense and other government agencies have the right to terminate both our contracts and/or our customers’ contracts either for default or, if the government deems it to be in its best interest, for convenience.

The market for our commercial, military and business jet programs has historically been cyclical. While the commercial, military and business jet markets experienced a period of increased production over the past few years, as discussed below, unprecedented global market and economic conditions have been challenging with tighter credit conditions and recessions in most major economies expected to continue throughout 2009. The cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. These factors have led to a decrease in spending by businesses and consumers alike, and could continue to have an adverse affect on the demand for our aerostructures by both our commercial customers and the U.S. government. Additionally, continued turbulence in the U.S. and international markets and economies and prolonged declines in business and consumer spending could adversely affect our liquidity and financial condition, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs and the liquidity and financial condition of our customers.

Commercial Aircraft. Sales to the commercial aircraft market are affected by the financial health of the commercial airline industry, passenger and cargo air traffic, the introduction of new aircraft models, and the availability and profile of used aircraft. During the past three years, we have benefited from increased demand for our commercial aircraft products, although our OEMs have reduced delivery rates beginning in 2009 in response to macro-economic conditions.

Military Aircraft. U.S. national defense spending and procurement funding decisions, global geopolitical conditions, and current operational use of the existing military aircraft fleet drive sales in the military aircraft market. Due to the current and anticipated pace of military operations and the U.S. military’s need to more rapidly repair or replace its existing fleet of equipment, we expect that the demand for our military products should remain strong for the next several years. We believe that this will result in continued growth of our rotorcraft programs which are some of the key equipment being used in military operations. Historically, the majority of our military revenues and a significant portion of our total revenue have been generated from our C-17 program. We currently have a contract from Boeing for the procurement that would support C-17 production through April 2011. The President’s proposed 2010 budget does not include funding for the procurement of new C-17 aircraft. If the Legislature does not choose to add funding for additional C-17 aircraft, our business could be adversely impacted.

Business Jet Aircraft. Sales to the business jet aircraft market are driven by long-term economic expansion, the increasing inconvenience of commercial airline travel, growing international acceptance and demand for business jet travel, fractional ownership of business jets and the introduction of new business jet models. During the past three years, we have benefited from increased demand for our business jet products although our OEMs have reduced delivery rates beginning in 2009 in response to macro-economic conditions. As a major supplier to the top-selling G350, G450, G500 and G550 and Citation X, we believe we are well positioned to operate in key segments of the business jet market. Nevertheless, the business jet industry is subject to many of the same risks as the commercial aircraft industry and our business has been adversely affected by the current economic turmoil in the U.S. and global economy as demonstrated by recent schedule changes from our business jet customers and the suspension of the Cessna Citation Columbus — Model 850 program.

Recent Developments

Basis of Presentation

The following provides a brief description of some of the items that appear in our financial statements and general factors that impact these items. It is our practice to close our books and records based on a thirteen-week quarter, which can lead to different period end dates for comparative purposes. The interim financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods, as our fiscal years end on December 31.

Revenue and Profit Recognition. We record revenue and profit for our long-term contracts using a percentage of completion method with, depending on the contract, either cost-to-cost or units-of-delivery as our basis to measure progress toward completing the contract.

	•		Under the cost-to-cost method, progress toward completion is measured as the ratio of total costs incurred to our estimate of total costs at completion. We recognize costs as incurred. Profit is determined based on our estimated profit margin on the contract multiplied by our progress toward completion. Revenue represents the sum of our costs and profit on the contract for the period.

	•		Under the units-of-delivery method, revenue on a contract is recorded as the units are delivered and accepted during the period at an amount equal to the contractual selling price of those units. The costs recorded on a contract under the units-of-delivery method are equal to the total costs at completion divided by the total units to be delivered. As our contracts can span multiple years, we often segment the contracts into production lots for the purposes of accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and the estimated costs for the units delivered.

Amounts representing contract change orders or claims are only included in revenue when such change orders or claims have been settled with our customer and to the extent that units have been delivered. Additionally, some of our contracts may contain terms or provisions, such as price re-determination, requests for equitable adjustments or price escalation, which are included in our estimate of contract value when the amounts can be reliably estimated and their realization is reasonably assured.

The impact of revisions in estimates is recognized on the cumulative catch-up basis in the period in which such revisions are made. Changes in our estimates of contract value or profit can impact revenue and/or cost of sales. For example, in the case of a customer settlement of a pending change order or claim, we may recognize additional revenue and/or margin depending on the production lot’s stage of completion. Provisions for anticipated losses on contracts are recorded in the period in which they become evident (“forward losses”).

For a further discussion of our revenue recognition policy, see “— Critical Accounting Policies and Estimates — Revenue and Profit Recognition.”

Cost of sales. Cost of sales includes direct production costs such as labor (including fringe benefits), material costs, manufacturing and engineering overhead and production tooling costs. Examples of costs included in overhead are costs related to quality assurance, information technology, indirect labor and fringe benefits, depreciation and amortization and other support costs such as supplies and utilities.

Selling, general and administrative expenses. Selling, general and administrative expenses include expenses for executive management, program management, business management, human resources, accounting, treasury, and legal. The major cost elements of selling, general and administrative expenses include salary and wages, fringe benefits, stock compensation expense, travel and supplies. In addition, these expenses include period expenses for non-recurring program development, such as the 787 start up costs, research and development, and other non-recurring activities, as well as costs that are not reimbursed under U.S. Government contract terms.

Interest expense, net. Interest expense, net reflects interest income and expense, and includes the amortization of capitalized debt origination costs and the amortization of the original issue discount on an additional $200.0 million of term loans we borrowed pursuant to our existing senior credit facilities (“Incremental Facility”).

Other income (loss). Other income (loss) represents miscellaneous items unrelated to our core operations.

Equity in loss of joint venture. Equity in loss of joint venture reflected our share of the loss from Global Aeronautica, a joint venture in which we formerly participated. As a result of the sale of our equity interest in Global Aeronautica in 2008, our results of operations are no longer impacted by this joint venture.

Income tax benefit (expense). Income tax benefit (expense) represents federal income tax provided on our net book income. State income tax is included as part of Selling, general and administrative expenses. For a further discussion of our income tax provision, please see Note 9 — Income Taxes.

Results of Operations


	Three Months			Three Months						Six Months			Six Months
	Ended			Ended						Ended			Ended
	June 28, 2009			June 29, 2008			$ Change			June 28, 2009			June 29, 2008			$ Change
	(in millions)
Revenue:
Commercial	$	253.9		$	237.4		$	16.5		$	434.7		$	452.6		$	(17.9	)
Military		161.6			157.5			4.1			307.8			295.4			12.4
Business Jet		76.0			85.8			(9.8	)		151.6			158.1			(6.5	)

Total revenue	$	491.5		$	480.7		$	10.8		$	894.1		$	906.1		$	(12.0	)
Costs and expenses:
Cost of sales		422.2			377.1			45.1			754.6			703.4			51.2
Selling, general and administrative		36.6			55.7			(19.1	)		74.1			110.0			(35.9	)

Total costs and expenses	$	458.8		$	432.8		$	26.0		$	828.7		$	813.4		$	15.3

Operating income		32.7			47.9			(15.2	)		65.4			92.7			(27.3	)
Interest expense, net		(8.6	)		(15.5	)		6.9			(23.4	)		(31.2	)		7.8
Other gain/(loss)		—			47.1			(47.1	)		—			47.1			(47.1	)
Equity in loss of joint venture		—			(0.2	)		0.2			—			(0.6	)		0.6
Income tax expense		—			—			—			—			—			—

Net Income	$	24.1		$	79.3		$	(55.2	)	$	42.0		$	108.0		$	(66.0	)

Comparison of Results of Operations for the Three Months Ended June 28, 2009 and June 29, 2008

Revenues. Revenue for the three months ended June 28, 2009 was $491.5 million, an increase of $10.8 million, or 2%, compared with the same period in the prior year. When comparing the second quarter of 2009 with the same period in the prior year:

	•		Commercial revenue increased $16.5 million, or 7%, due to a $37.8 million increase in sales on Boeing programs largely due to increased non-recurring sales associated with the transition to the new 747-8 model. Offsetting this increase was a $21.3 million decrease in sales on Airbus programs primarily due to the completion of one of their contracts during the period.

	•		Military revenue was consistent with the comparable period in the prior year.

	•		Business Jet revenue decreased $9.8 million, or 11%, primarily due to reduced delivery rates directed by our customers.

Operating income. Operating income for the three months ended June 28, 2009 was $32.7 million, a decrease of $15.2 million, or 32%, compared with $47.9 million for the comparable period in the prior year. This decrease was primarily due to lower overall program margins largely resulting from cost pressures including higher pension and material costs, as well as labor inefficiencies related to delivery rate slowdowns on several of our programs and the ramp up of other programs. In addition, we are recognizing lower margins on non-recurring sales. These pressures were partially offset by the performance of programs at our Nashville, Tennessee facility as the work stoppage at that location concluded during the three month period ended March 29, 2009 and production recovery continued ahead of expectations.

Interest expense, net. Interest expense, net for the three month period ended June 28, 2009 was $8.6 million, a decrease of $6.9 million, or 45%, compared with $15.5 million for the same period in the prior year. Interest expense decreased primarily due to the adjustment during the period to capitalize approximately $5.3 million of interest costs to appropriately reflect the book value of Property, Plant and Equipment included in our assets-under-construction balance in fiscal periods prior to 2009. The remainder of the decrease resulted from a reduction in the effective interest rate on our variable rate indebtedness partially offset by higher borrowings and related costs under the Incremental Facility.

Other gain (loss). Other gain (loss) for the three month period ended June 29, 2008 reflected the $47.1 million gain from the sale of our entire equity interest in our Global Aeronautica joint venture. We did not have a similar transaction during the three month period ended June 28, 2009.

Comparison of Results of Operations for the Six Months Ended June 28, 2009 and June 29, 2008

Revenues. Revenue for the six months ended June 28, 2009 was $894.1 million, a decrease of $12.0 million, or 1%, compared with the same period in the prior year. When comparing the six months ended June 28, 2009 with the same period in the prior year:

	•		Commercial revenue decreased $17.9 million, or 4%, primarily due to a $25.1 million decrease in sales for Airbus programs reflecting the completion of one of their contracts during the period. This decrease was partially offset by a $7.2 million increase in sales for Boeing programs resulting from increased non-recurring sales associated with the transition to the new 747-8 model.

	•		Military revenue increased $12.4 million, or 4%, primarily due to increased deliveries on the V-22 program and spares deliveries for the C-17 program.

	•		Business Jet revenue decreased $6.5 million, or 4%, primarily due to reduced delivery rates directed by our customers.

Operating income. Operating income for the six months ended June 28, 2009 was $65.4 million, a decrease of $27.3 million, or 29%, compared with $92.7 million for the same period in the prior year. There were several unusual items that contributed to the decrease including the absence in 2009 of the one-time release of $22.6 million of purchase accounting reserves for the 747 program reflecting the updated timeline for the completion of the deliveries for the 747-400 model. Also, non-recurring costs of $9.6 million were recorded during the period reflecting the impact of the pension and other post-retirement benefits curtailment resulting from the 2009 collective bargaining agreement with the International Association of Machinists at our Nashville, Tennessee facility. These items were partially offset by an $18.9 million reduction in non-recurring 787 program expenses. In addition to these items, overall program margins were lower due to the cost pressures mentioned above as well as lower margins recognized on non-recurring sales.

Interest expense, net. Interest expense, net for the six month period ended June 28, 2009 was $23.4 million, a decrease of $7.8 million, or 25%, compared with $31.2 million for the same period in the prior year. Interest expense decreased primarily due to the adjustment during the period to capitalize approximately $5.3 million of interest costs to appropriately reflect the book value of Property, Plant and Equipment included in our assets-under-construction balance in fiscal periods prior to 2009. The remainder of the decrease resulted from a reduction in the effective interest rate on our variable rate indebtedness partially offset by higher borrowings and related costs under the Incremental Facility.

Other gain (loss). Other gain (loss) for the six month period ended June 29, 2008 reflected the $47.1 million gain from the sale of our entire equity interest in our Global Aeronautica joint venture. We did not have a similar transaction during the six month period ended June 28, 2009.

Critical Accounting Policies

Our financial statements have been prepared in conformity with US GAAP. The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the basis of the most current and best available information. Actual results could differ materially from those estimates.

Revenue Recognition

The majority of our sales are made pursuant to written contractual arrangements or ''contracts’’ to design, develop and manufacture aerostructures to the specifications of the customer under firm fixed price contracts. These contracts are within the scope of the American Institute of Certified Public Accountants Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, (SOP 81-1) and revenue and costs on contracts are recognized using percentage-of-completion methods of accounting. Accounting for the revenue and profit on a contract requires estimates of (1) the contract value or total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract’s scope of work and (3) the measurement of progress towards completion. Depending on the contract, we measure progress toward completion using either the cost-to-cost method or the units-of-delivery method.

	•		Under the cost-to-cost method, progress toward completion is measured as the ratio of total costs incurred to our estimate of total costs at completion. We recognize costs as incurred. Profit is determined based on our estimated profit margin on the contract multiplied by our progress toward completion. Revenue represents the sum of our costs and profit on the contract for the period.

	•		Under the units-of-delivery method, revenue on a contract is recorded as the units are delivered and accepted during the period at an amount equal to the contractual selling price of those units. The costs recorded on a contract under the units-of-delivery method are equal to the total costs at completion divided by the total units to be delivered. As our contracts can span multiple years, we often segment the contracts into production lots for the purposes of accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and the estimated costs for the units delivered.

Adjustments to original estimates for a contract’s revenues, estimated costs at completion and estimated total profit are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. These estimates are also sensitive to the assumed rate of production. Generally, the longer it takes to complete the contract quantity, the more relative overhead that contract will absorb. The impact of revisions in cost estimates is recognized on a cumulative catch-up basis in the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period in which they become evident (''forward losses’’) and are first offset against costs that are included in inventory, with any remaining amount reflected in accrued contract liabilities in accordance with SOP 81-1. Revisions in contract estimates, if significant, can materially affect our results of operations and cash flows, as well as our valuation of inventory. Furthermore, certain contracts are combined or segmented for revenue recognition in accordance with SOP 81-1.

Advance payments and progress payments received on contracts-in-process are first offset against related contract costs that are included in inventory, with any remaining amount reflected in current liabilities.

Accrued contract liabilities consisted of the following:


	June 28,		December 31,
	2009		2008
	(in millions)
Advances and progress billings	$	150.7	$	187.1
Forward loss		10.2		6.4
Other		15.2		7.9

Total accrued contract liabilities	$	176.1	$	201.4

Goodwill

Goodwill by reporting unit is tested for impairment at least annually in accordance with the provisions of SFAS 142. Under SFAS 142, the first step of the goodwill impairment test used to identify potential impairment compares the fair value of a reporting unit with its carrying value. We have concluded that we are a single reporting unit. Accordingly, all assets and liabilities are used to determine our carrying value. Since we currently have an accumulated deficit, there have been no impairment charges recognized for the six month periods ended June 28, 2009 and June 29, 2008. In connection with the sale of our 787 business that occurred subsequent to the end of the period (discussed in Note 19 — Subsequent Events), a portion of our goodwill balance will be allocated to that business based on the relative fair value of its assets. We will also perform an interim impairment test of our remaining Goodwill balance. However, because we will continue to have an accumulated deficit, we do not anticipate recognizing any impairment charges.

For this testing we use an independent valuation firm to assist in the estimation of enterprise fair value using standard valuation techniques such as discounted cash flow, market multiples and comparable transactions. The discounted cash flow fair value estimates are based on management’s projected future cash flows and the estimated weighted average cost of capital. The estimated weighted average cost of capital is based on the risk-free interest rate and other factors such as equity risk premiums and the ratio of total debt and equity capital.

Post-Retirement Plans

The liabilities and net periodic cost of our pension and other post-retirement plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate, the expected long-term rate of asset return, the assumed average rate of compensation increase and rate of growth for medical costs. The actuarial assumptions used to calculate these costs are reviewed annually or when a remeasurement is necessary. Assumptions are based upon management’s best estimates, after consulting with outside investment advisors and actuaries, as of the measurement date.

The assumed discount rate utilized is based on a point in time estimate as of our December 31 annual measurement date or as of remeasurement dates as needed. This rate is determined based upon on a review of yield rates associated with long-term, high quality corporate bonds as of the measurement date and use of models that discount projected benefit payments using the spot rates developed from the yields on selected long-term, high quality corporate bonds.

The assumed expected long-term rate of return on assets is the weighted average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation (''PBO’’). The expected average long-term rate of return on assets is based principally on the counsel of our outside investment advisors and was projected at 8.5%. This rate is based on actual historical returns and anticipated long-term performance of individual asset classes with consideration given to the related investment strategy. This rate is utilized principally in calculating the expected return on plan assets component of the annual pension expense. To the extent the actual rate of return on assets realized over the course of a year differs from the assumed rate, that year’s annual pension expense is not affected. The gain or loss reduces or increases future pension expense over the average remaining service period of active plan participants expected to receive benefits.

The assumed average rate of compensation increase represents the average annual compensation increase expected over the remaining employment periods for the participating employees. This rate is estimated to be 4% and is utilized principally in calculating the PBO and annual pension expense. In addition to our defined benefit pension plans, we provide certain healthcare and life insurance benefits for certain eligible retired employees. Such benefits were unfunded as of December 31, 2008 and June 28, 2009. Employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet specified age and years of service requirements. Election to participate for some employees must be made at the date of retirement. Qualifying dependents at the date of retirement are also eligible for medical coverage. Current plan documents reserve our right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees.

From time to time, we have made changes to the benefits provided to various groups of plan participants. Premiums charged to most retirees for medical coverage prior to age 65 are based on years of service and are adjusted annually for changes in the cost of the plans as determined by an independent actuary. In addition to this medical inflation cost-sharing feature, the plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, schedules of reasonable fees, preferred provider networks, coordination of benefits with other plans, and a Medicare carve-out.

In accordance with SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an Amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS No. 158) we recognized the funded status of our benefit obligation in our statement of financial position as of December 31, 2008. This funded status was remeasured for some plans as of January 31, 2009. The funded status was measured as the difference between the fair value of the plan’s assets and the PBO or accumulated postretirement benefit obligation of the plan. For more information on the impact of this remeasurement, see Note 5 — Pension and Other Post-retirement Benefits.

Recent Accounting Pronouncements

Liquidity and Capital Resources

Liquidity is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. The primary sources of our liquidity include cash flow from operations, borrowing capacity through our credit facility and the long-term capital markets and negotiated advances and progress payments from our customers. Our liquidity requirements and working capital needs depend on a number of factors, including the level of delivery rates under our contracts, the level of developmental expenditures related to new programs, growth and contractions in the business cycles, contributions to our pension plans as well as interest and debt payments. Our liquidity requirements fluctuate from period to period as a result of changes in the rate and amount of our investments in our programs, changes in delivery rates under existing contracts and production associated with new contracts.

For certain aircraft programs, milestone or advance payments from customers finance working capital, which helps to improve our liquidity. In addition, we may, in the ordinary course of business, settle outstanding claims or other contractual matters with customers or suppliers or we may receive payments for change orders not previously negotiated. Settlement of such matters can have a significant impact on our results of operations and cash flows.

We believe that cash flow from operations and cash and cash equivalents on hand will provide adequate funds for our ongoing working capital expenditures, pension contributions and near term debt service obligations allowing us to meet our current contractual commitments for at least the next twelve months.

Our pension plan funding obligations also impact our liquidity and capital resources. In our annual report on Form 10-K for the fiscal year ended December 31, 2008, we provided estimates of our pension plan contributions for 2009 — 2013. Our future pension contributions are primarily driven by the funded level of our plans as of December 31 of each fiscal year. One of the primary factors used in determining our liability under our plans for the purpose of those funding requirements is the discount rate. Due to the actions earlier this year by the U.S. Treasury Department expanding the permissible yield curves that can be used for the discount rate, our projected required pension contributions are now expected to be lower than we reported in our 2008 annual report on Form 10-K.

The table below includes our previous projected pension funding requirements disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2008 and our updated expected future pension funding requirements, reflecting the U.S. Treasury Department’s changes.


			Updated to
	As previously		reflect Treasury
	reported in the		Department
	10-K		changes
	(in Millions)
Projected contributions
2009		84.7		82.2
2010		165.8		98.1
2011		191.7		217.1
2012		174.7		166.8
2013		151.6		153.8

Total 2009-2013	$	768.5	$	718.0

Current macro-economic conditions, the current corporate bond rates and the fluctuations in the fair value of our plan assets as a result of the current volatility in global financial markets will continue to impact our required contributions in future periods.

Our ability to refinance our indebtedness or obtain additional sources of financing will be affected by economic conditions and financial, business and other factors, some of which are beyond our control.

As of June 28, 2009, our total outstanding long-term debt was approximately $1,036.6 million. This amount includes $270.0 million of 8% Senior Notes due 2011 (“Senior Notes”) and $631.6 million of term loans and $135.0 million of revolver borrowings outstanding under our senior credit facilities. Additionally, we had $48.5 million in outstanding letters of credit under the $50.0 million synthetic letter of credit facility.

Our outstanding term loans, including amounts under the Incremental Facility, are repayable in equal quarterly installments of approximately $1.5 million with the balance due on December 22, 2011. We are also obligated to pay an annual commitment fee on the unused portion of our revolver of 0.5% or less, based on our leverage ratio.

Under the terms of the senior credit facility, we are required to prepay or refinance any amounts outstanding of our $270.0 million Senior Notes by the last business day of 2010 or we must repay the aggregate amount of loans outstanding at that time under the senior credit facility. We may not be able to refinance the Senior Notes on commercially reasonable terms or at all. This risk could impair our ability to fund our operations, limit our ability to expand our business or increase our interest expense, which could have a material adverse effect on our financial results.

In October 2008, Lehman Commercial Paper, Inc. (LCPI), the administrative and collateral agent under our existing senior credit facilities, filed for bankruptcy. The Amendment discussed above provides for the resignation of LCPI as administrative and collateral agent and for Barclay’s to assume that role going forward. Additionally, the Amendment removes LCPI as a lender under our Revolver.

Credit Agreements and Debt Covenants. The indenture governing our Senior Notes and our credit agreement contain customary affirmative and negative covenants for facilities of this type, including limitations on our indebtedness, liens, investments, distributions, mergers and acquisitions, dispositions of assets, subordinated debt and transactions with affiliates. The credit agreement also requires that we maintain certain financial covenants including a leverage ratio, the requirement to maintain minimum interest coverage ratios, as defined in the agreement, and a limitation on our capital spending levels. The indenture governing our Senior Notes also contains various restrictive covenants, including the incurrence of additional indebtedness unless the debt is otherwise permitted under the indenture. As of June 28, 2009, we were in compliance with the covenants in the indenture and our credit agreement.

Our senior credit facilities (including our Incremental Facility) are material to our financial condition and results of operations because those facilities are our primary source of liquidity for working capital. The indenture governing our outstanding Senior Notes is material to our financial condition because it governs a significant portion of our long-term capitalization while restricting our ability to conduct our business.

Our senior credit facilities use Adjusted EBITDA to determine our compliance with two financial maintenance covenants. See “Non-GAAP Financial Measures” below for a discussion of Adjusted EBITDA and reconciliation of that non-GAAP financial measure to net cash provided by (used in) operating activities. We are required not to permit our consolidated total leverage ratio, or the ratio of funded indebtedness (net of cash) at the end of each quarter to Adjusted EBITDA for the twelve months ending on the last day of that quarter, to exceed 4.00:1.00 for fiscal periods ending during 2009, 3.75:1.00 for fiscal 2010 and 3.50:1.00 thereafter. We also are required not to permit our consolidated net interest coverage ratio, or the ratio of Adjusted EBITDA for the twelve months ending on the last day of a quarter to our consolidated net interest expense for the twelve months ending on the same day, to be less than 3.50:1.00 for fiscal periods ending during 2009 and thereafter. Each of these covenants is tested quarterly, and our failure to comply could result in a default and, potentially, an event of default under our senior credit facilities. If not cured or waived, an event of default could result in acceleration of this indebtedness. Our credit facilities also use Adjusted EBITDA to determine the interest rates on our borrowings, which are based on the consolidated total leverage ratio described above. Changes in our leverage ratio may result in increases or decreases in the interest rate margin applicable to loans under our senior credit facilities. Accordingly, a change in our Adjusted EBITDA could increase or decrease our cost of funds. The actual results of the total leverage ratio and net interest coverage ratio for the six month period ended June 28, 2009 were 3.77:1.00 and 4.53:1.00, respectively.

The indenture governing our outstanding Senior Notes contains a covenant that restricts our ability to incur additional indebtedness unless, among other things, we can comply with a fixed charge coverage ratio. We may incur additional indebtedness only if, after giving pro forma effect to that incurrence, our ratio of Adjusted EBITDA to total consolidated debt less cash on hand for the four fiscal quarters ending as of the most recent date for which internal financial statements are available meet certain levels or we have availability to incur such indebtedness under certain baskets in the indenture. Accordingly, Adjusted EBITDA is a key factor in determining how much additional indebtedness we may be able to incur from time to time to operate our business.

Non-GAAP Financial Measures. Periodically we disclose to investors Adjusted EBITDA, which is a non-GAAP financial measure that our management uses to assess our compliance with the covenants in our senior credit agreement, our ongoing ability to meet our obligations and manage our levels of indebtedness. Adjusted EBITDA is calculated in accordance with our senior credit agreement and includes adjustments that are material to our operations but that our management does not consider reflective of our ongoing core operations. Pursuant to our senior credit agreement, Adjusted EBITDA is calculated by making adjustments to our net income (loss) to eliminate the effect of our (1) income tax expense, (2) net interest expense, (3) any amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with indebtedness, (4) depreciation and amortization expense, (5) any extraordinary, unusual or non-recurring expenses or gains/losses (including gains/losses on sales of assets outside of the ordinary course of business, non-recurring expenses associated with the 787 program and certain expenses associated with our facilities consolidation efforts) net of any extraordinary, unusual or non-recurring income or gains, (6) any other non-cash charges, expenses or losses, restructuring and integration costs, (7) stock-option based compensation expenses and (8) all fees and expenses paid pursuant to our Management Agreement with Carlyle. See Note 14 — Related Party Transactions.

Reconciliation of Non-GAAP Measure — Adjusted EBITDA

Adjusted EBITDA for the three month period ended June 28, 2009 was $58.3 million, a decrease of $12.7 million from the same period in the prior year. Adjusted EBITDA for the six month period ended June 28, 2009 was $126.5 million, a decrease of $23.8 million from the same period in the prior year. The following table is a reconciliation of the non-GAAP measure from our cash flows from operations:


	For the Three Months Ended						For the Six Months Ended
	June 28,			June 29,			June 28,			June 29,
	2009			2008			2009			2008
Net cash provided by (used in) operating activities	$	(22.1	)	$	(22.5	)	$	(95.1	)	$	(37.7	)
Interest expense, net		8.6			15.5			23.4			31.2
Income tax expense (benefit)		—			—			—			—
Stock compensation expense		(0.2	)		(0.8	)		(0.7	)		(1.4	)
Equity in losses of joint venture		—			(0.2	)		—			(0.6	)
(Gain) Loss from asset sales and other losses		(1.9	)		48.8			(1.9	)		48.5
Non-cash interest expense		(1.9	)		(1.5	)		(3.7	)		(2.3	)
787 tooling amortization		0.3			0.8			0.8			0.8
Changes in operating assets and liabilities		67.9			70.8			175.2			132.0

EBITDA	$	50.7		$	110.9		$	98.0		$	170.5

Non-recurring investment in Boeing 787 (1)		—			5.5			3.1			22.0
Unusual charges & other non-recurring program costs (2)		3.4			2.1			10.6			4.0
(Gain) Loss on disposal of property, plant and equipment (3)		1.9			(48.9	)		1.9			(48.6	)
Pension & OPEB curtailment and non-cash expense (4)		—			—			9.6			—
Other (5)		2.3			1.4			3.3			2.4

Adjusted EBITDA	$	58.3		$	71.0		$	126.5		$	150.3


(1)		Non recurring investment in Boeing 787—The Boeing 787 program, described elsewhere in this quarterly report, required substantial start-up costs in prior 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 were expensed in our financial statements over several periods due to their magnitude and timing. As a result of the conclusion of start-up activities for the Boeing 787 program and the sale of this business to Boeing on July 6, 2009, these costs will no longer impact our results of operations. Our credit agreement excludes our significant start-up investment in the Boeing 787 program because in the past, it represented an unusual significant investment in a major new program that was not indicative of ongoing core operations, and accordingly the investment that was been expensed during the period was 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 $0.6 million for the three and six month periods ended June 29, 2008, respectively. On June 10, 2008, we sold our entire equity interest in Global Aeronautica to Boeing and as a result our adjusted EBITDA calculation for the three and six month periods ended June 28, 2009 was not impacted by this joint venture. For more information, please refer to Note 12 — Investment in Joint Venture to our interim unaudited condensed consolidated financial statements.

(2)		Unusual charges and other non-recurring program costs—Our senior 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 28, 2009 and June 29, 2008, we incurred $3.8 million and $2.1 million, respectively, of non-recurring costs primarily related to a facilities rationalization initiative. For the six month periods ended June 28, 2009 and June 29, 2008, we incurred $6.9 million and $4.0 million, respectively, of non-recurring costs primarily related to a facilities rationalization initiative.


		Additionally, for the three and six month periods ended June 28, 2009, we reversed $(4.3) million and $(0.5) million, respectively, in non-recurring program costs related to the strike at our Nashville, Tennessee facility because the actual strike-related costs incurred on those programs were lower than the original estimates. We also recognized $2.1 million and $2.4 million, respectively related to Information Systems implementation costs.

		Also, during the three and six month periods ended June 28, 2009, we recognized $1.8 million of costs related to the suspension of the Cessna Citation Columbus — Model 850 business jet program.

(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. Our credit agreement provides that those gains and losses are reflected as an adjustment in calculating Adjusted EBITDA.

(4)		Pension and other post-retirement 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. During the six month period ended June 28, 2009, we recognized $9.6 million curtailment resulting from the new IAM collective bargaining agreement. For more information, please refer to Note 5 — Pension and Other Post-Retirement Benefits to our interim unaudited condensed consolidated financial statements.

(5)		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.

We believe that each of the adjustments made in order to calculate Adjusted EBITDA is meaningful to investors because it gives them the ability to assess our compliance with the covenants in our senior credit agreement, our ongoing ability to meet our obligations and manage our levels of indebtedness.

The use of Adjusted EBITDA as an analytical tool has limitations and you should not consider it in isolation, or as a substitute for analysis of our results of operations as reported in accordance with US GAAP. Some of these limitations are:

	•		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.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as an alternative to net income or cash flow from operations determined in accordance with US GAAP. Management compensates for these limitations by not viewing Adjusted EBITDA in isolation, and specifically by using other US GAAP measures, such as cash flow provided by (used in) operating activities and capital expenditures, to measure our liquidity. Our calculation of Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

Cash Flow Summary


	For the Six Months Ended
	June 28,			June 29,
	2009			2008			Change
	(in millions)
Net income (loss)	$	42.0		$	108.0		$	(66.0	)
Non-cash items		38.1			(13.7	)		51.8
Changes in working capital		(175.2	)		(132.0	)		(43.2	)

Net cash provided by (used in) operating activities		(95.1	)		(37.7	)		(57.4	)
Net cash provided by (used in) investing activities		(25.3	)		22.2			(47.5	)
Net cash provided by (used in) financing activities		158.5			183.7			(25.2	)

Net increase (decrease) in cash and cash equivalents		38.1			168.2			(130.1	)
Cash and cash equivalents at beginning of period		86.7			75.6			11.1

Cash and cash equivalents at end of period	$	124.8		$	243.8		$	(119.0	)

Net cash used in operating activities for the six month period ended June 28, 2009 was $95.1 million, a change of $57.4 million compared to cash used of $37.7 million for the same period in 2008. The change primarily resulted from increased cash requirements for the 747-8 program.

Net cash used in investing activities for the six months ended June 28, 2009 was $25.3 million, a change of $47.5 million compared to net cash provided by investing activities of $22.2 million for the same period in 2008. The change is primarily due to the absence of the $55.0 million of proceeds from the sale of our entire equity interest in Global Aeronautica to Boeing in 2009 and fewer capital expenditures during 2009.

Net cash provided by financing activities for the six months ended June 28, 2009 was $158.5 million, a decrease of $25.2 million from the same period in 2008. This decrease primarily resulted from difference between our $184.6 million in net proceeds from the Incremental Facility in 2008 offset by $135.0 million in outstanding borrowings under our revolver and the exercise of our option to convert $25.0 million of the synthetic letter of credit facility to a term loan in 2009.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements as of June 28, 2009.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of our operating and financing activities, we are exposed to various market risks that may affect our consolidated results of operations and financial position. These market risks include fluctuations in interest rates, which impacts the amount of interest we must pay on our variable-rate debt and our calculation of our liability for our defined benefit plans. Other than the interest rate swaps described below, financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash investments and trade accounts receivable.

Trade accounts receivable include amounts billed and currently due from customers, amounts currently due but, not yet billed, certain estimated contract changes, claims in negotiation that are probable of recovery, and amounts retained by the customer pending contract completion. We continuously monitor collections and payments from customers. Based upon experience and any specific customer collection issues that have been identified, we record a provision for estimated credit losses, as deemed appropriate.

While such credit losses have historically been within our expectations, we cannot guarantee that we will continue to experience the same credit loss rates in the future.

We maintain cash and cash equivalents with various financial institutions and perform periodic evaluations of the relative credit standing of those financial institutions. We have not experienced any losses in such accounts and believe that we are not exposed to any significant credit risk on cash and cash equivalents.

Some raw materials and operating supplies are subject to price and supply fluctuations caused by market dynamics. Our strategic sourcing initiatives seek to find ways of mitigating the inflationary pressures of the marketplace. In recent years, these inflationary pressures have affected the market for raw materials. However, we believe that raw material prices will remain stable during 2009 and experience increases that are in line with inflation as the global economy recovers.

Over the past few years, we have experienced price increases due to increased infrastructure demand in China and Russia as well as the growing economy generally. Although, the current global economic crisis has lessened that pressure, price increases may resume in 2010 and beyond as economic conditions improve. Additionally, we generally do not employ forward contracts or other financial instruments to hedge commodity price risk.

Our suppliers’ failure to provide acceptable raw materials, components, kits and subassemblies could adversely affect our production schedules and contract profitability. We maintain an extensive qualification and performance surveillance system to control risk associated with such supply base reliance. We utilize a range of long-term agreements and strategic aggregated sourcing to optimize procurement expense and supply risk related to our raw materials.

Interest Rate Risks

From time to time, we may enter into interest rate swap agreements or other financial instruments in the normal course of business for purposes other than trading. These financial instruments are used to mitigate interest rate or other risks, although to some extent they expose us to market risks and credit risks.

We control the credit risks associated with these instruments through the evaluation of the creditworthiness of the counter parties. In the event that a counter party fails to meet the terms of a contract or agreement then our exposure is limited to the current value, at that time, of the interest rate differential, not the full notional or contract amount. We have no such agreements currently outstanding. In the past, we have entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt. Under these agreements, we exchanged floating rate interest payments for fixed rate payments periodically over the term of the swap agreements. We currently have no such agreements outstanding; however, in the future we may choose to manage market risk with respect to interest rates by entering into new hedge agreements.

Management performs a sensitivity analysis to determine how market interest rate changes will affect the fair value of any market risk sensitive hedge positions and all other debt that we will bear. Such an analysis is inherently limited in that it represents a singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions. Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market interest rate movements. We are exposed to cash flow risk due to changes in interest rates with respect to the entire $631.6 million of long-term, variable rate debt outstanding under our senior credit facilities at June 28, 2009. A one-percentage point increase in interest rates on our long-term variable-rate indebtedness would decrease our annual pre-tax income by approximately $6.3 million for the year ending December 31, 2009. Additionally, the $135.0 million outstanding under our revolving credit facility is subject to the same type of variable rate risks. All of our remaining debt is at fixed rates; therefore, changes in market interest rates under these instruments would not significantly impact our cash flows or results of operations.

Foreign Currency Risks

We are subject to limited risks associated with foreign currency exchange rates due to our contracted business with foreign customers and suppliers. As purchase prices and payment terms under the relevant contracts are denominated in U.S. dollars, our exposure to losses directly associated with changes in foreign currency exchange rates is not material. However, if the value of the U.S. dollar declines in relation to foreign currencies, our foreign suppliers would experience exchange-rate related losses and seek to renegotiate the terms of their respective contracts, which could have a significant impact to our margins and results of operations.

Utility Price Risks

We have exposure to utility price risks as a result of volatility in the cost and supply of energy and in natural gas prices. To minimize this risk, we have entered into fixed price contracts at certain of our manufacturing locations for a portion of their energy usage for periods of up to three years. Although these contracts would reduce the risk to us during the contract period, future volatility in the supply and pricing of energy and natural gas could have an impact on our consolidated results of operations. A 1% increase (decrease) in our monthly average utility costs would increase (decrease) our cost of sales by approximately $0.3 million for the year.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Our Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 28, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are party to various lawsuits, legal proceedings and claims arising out of our business. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of these proceedings, even if determined adversely, would not have a material adverse effect on our business, financial condition or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the six month period ended June 28, 2009, we issued an aggregate of 18,810 shares of our common stock or less than 1% of the aggregate amount of common stock outstanding, to our members of our Board of Directors in reliance on Section 4(2) of the Securities Act.

During the six month period ended June 28, 2009, we issued an aggregate of 1,614 shares of our common stock in connection with the exercise of SARs originally granted to our employees in accordance with Rule 701 of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.


		Page
	PART I — FINANCIAL INFORMATION

Item 1	Interim Unaudited Condensed Consolidated Financial Statements		4
	Consolidated Balance Sheets		4
	Consolidated Statements of Operations		5
	Consolidated Statements of Cash Flows		6
	Notes to the Interim Unaudited Condensed Consolidated Financial Statements		7

Item 2	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations		30

Item 3	Quantitative And Qualitative Disclosures About Market Risk		45

Item 4	Controls And Procedures		47

	PART II — OTHER INFORMATION

Item 1.	Legal Proceedings		48

Item 1A	Risk Factors		48

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		48

Item 3	Defaults Upon Senior Securities		48

Item 4	Submission of Matters to a Vote of Security Holders		48

Item 5	Other Information		48

Item 6	Exhibits		49

	Signatures		50
EX-31.1
EX-31.2
EX-32.1
EX-32.2


(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.


		Vought Aircraft Industries, Inc.
		(Registrant)

August 11, 2009		/s/ KEITH HOWE

(Date)		Vice President and Chief Financial Officer

August 11, 2009		/s/ MARK JOLLY

(Date)		Principal Accounting Officer