UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2007

For the transition period from                      to                     

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes þ No o

     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 check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. þ

      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):

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

     As of March 13, 2008, there were 24,778,423 shares of common stock outstanding.

 

     This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “assumption” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined in Item 1A. Risk Factors in this report. Those risks and other factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this annual report.

Overview

     Vought Aircraft Industries, Inc. and its wholly owned subsidiaries, VAC Industries, Inc., Vought Commercial Aircraft Corporation and Contour Aerospace Corporation (“Contour”) are herein referred to as the “Company” or “Vought.” We are one of the largest independent manufacturers of aerostructures for commercial, military and business jet aircraft in the world. We develop and manufacture fuselages, wings and wing assemblies, empennages (tail assemblies comprised of horizontal and vertical stabilizers, elevators and rudders), aircraft doors, nacelle components (the structures around engines) and control surfaces (such as rudders, spoilers, ailerons and flaps) as well as rotorcraft cabins and substructures. These aerostructures are subsequently integrated by our Original Equipment Manufacturer (OEM) customers into a wide range of commercial, military and business jet aircraft. Additionally, we can provide customers with testing, engineering and Federal Aviation Administration (“FAA”) authorized maintenance, repair and overhaul (MRO) of some of our products. Our customers include the leading prime aerospace manufacturers, including Airbus S.A.S. (“Airbus”), Bell Helicopter Textron, Inc. (“Bell Helicopter”), The Boeing Company (“Boeing”), Gulfstream Aerospace Corp., a General Dynamics Company (“Gulfstream”), Lockheed Martin Corporation (“Lockheed Martin”), Northrop Grumman Corporation (“Northrop Grumman”), Sikorsky Aircraft Corporation, a United Technologies Company (“Sikorsky”) and the U.S. Air Force (“Air Force”). We generated revenue of $1.6 billion for the year ended December 31, 2007. Our Corporate office is in Irving, Texas, and production work is performed at sites in Hawthorne, California; Dallas and Grand Prairie, Texas; Milledgeville, Georgia; Nashville, Tennessee; Stuart, Florida and North Charleston, South Carolina. Through Contour, we operate sites in Brea, California, and Everett, Washington.

     Vought’s heritage as an aircraft manufacturer extends to the company founded in 1917 by aviation pioneer Chance Milton Vought. In more recent history, our business was acquired by The Carlyle Group (“Carlyle”) and Northrop Grumman in 1992, and we were the Commercial Aircraft Division of Northrop Grumman from 1994 to 2000. The Carlyle Group repurchased the business when we acquired our assets and operations from Northrop Grumman in July 2000. Subsequently, Vought acquired The Aerostructures Corporation in July 2003.

     We operate within the aerospace industry as a manufacturer of aerostructures for commercial, military and business jet aircraft. Market and economic trends that impact the rates of growth of these markets affect the sales of our products. The competitive outlook for each of our markets is discussed below:

     Commercial Aircraft Market. The commercial aircraft market can be categorized by aircraft size and seating as follows:

     General economic activity, airline profitability, passenger and cargo traffic rates and aircraft retirements have always been considered the primary drivers of demand for new commercial aircraft and our revenue. In addition, the continuing escalation of fuel prices is driving more fuel efficient aircraft into the world fleet at a faster rate than previously forecasted. The latest forecasts from both Boeing and Airbus indicate that the world wide fleet will more than double over the next 20 years.

     While Boeing and Airbus generally agree in the magnitude of the growth in the market, the manufacturers differ in their projections of numbers of aircraft and in their views of the size and type of aircraft that will be delivered over that timeframe. The long-term growth projections used in their latest forecasts are:

     However, forecasters have been unable to predict the peaks and troughs of the aviation cycle, including the significant downturn in production volumes post-2001 and the dramatic increase in orders for commercial aircraft since 2005.

Military Aircraft Market. The military aircraft market can be categorized as follows:

     The U.S. national defense budget, procurement funding decisions, geopolitical conditions worldwide and operational use drive demand for new military aircraft. In February 2008, President Bush proposed a $183.8 billion Fiscal Year (FY) 2009 procurement defense budget (not including emergency supplemental appropriations). This procurement budget reflects an increase of approximately 4.7% from the FY 2008 procurement request of $175.5 billion which was an increase of approximately 2% from FY 2007. The ground wars in Iraq and Afghanistan have put significant pressure on the defense budget due to the rapid deterioration of land-based transport and rotorcraft and increased personnel costs.

     Business Jet Aircraft Market. This market includes personal, business and executive aircraft. While this class may include the large commercial transports sold as business jets, the market is generally considered those aircraft that seat from 4 to 18 passengers. Micro-jets range from 4 to 7 passengers and the larger business jets range from 8 to 18 passengers. The primary business jet aircraft manufacturers are Bombardier, Cessna, Dassault Aviation, Gulfstream and Hawker Beechcraft.

     General economic activity and corporate profitability continue to drive demand for new business jet aircraft. In addition, business jet aircraft have increasingly been used as an alternative to commercial aircraft transportation due to security concerns and convenience. As the popularity of business jet aircraft has grown over the past decade, several companies are offering fractional jet ownership. The Air Force also operates a fleet of business jet aircraft for use by the executive and legislative branches of government as well as the U.S. joint command leadership. In addition, many foreign governments provide business jet aircraft to high-ranking officials.

     We design, manufacture and supply both metal and composite aerospace structural assemblies including the following:

     We have a diverse base of contracts in each of the significant aerospace markets described above. The following chart summarizes our revenue by market for the years ended December 31, 2007, 2006 and 2005:

     Commercial Aircraft Products. We produce a wide range of commercial aircraft products and participate in a number of major commercial programs for a variety of customers.

     We are one of the largest independent manufacturers of aerostructures for Boeing Commercial Airplanes (“Boeing Commercial”). We have more than 40 years of commercial aircraft experience with Boeing Commercial, and we have maintained a formal strategic alliance with Boeing Commercial since 1994.

     We are also one of the largest U.S. manufacturers of aerostructures for Airbus and have almost 20 years of commercial aircraft experience with the various Airbus entities.

     The following table summarizes the major commercial programs that we currently have under long-term contract by customer and product, indicating in each case whether we are a sole-source provider and the date on which the program commenced. For purposes of the table, the year of commencement of a program is the year a contract was signed with the OEM.

     Military Aircraft Products. We produce a broad array of products for military organizations both in the United States and around the world. In the United States, we provide aerostructures for a variety of military platforms, including transport, rotorcraft and unmanned aircraft utilized by all four branches of the U.S. military. The following table summarizes the major military programs that we currently have under long-term contract by customer and product, indicating in each case whether we are a sole-source provider and the date on which the program commenced. For purposes of the table, the year of commencement of a program is the year a contract was signed with the OEM.

     Business Jet Aircraft Products. Our customers in this market include primary business jet aircraft manufacturers such as Cessna, Gulfstream, and Hawker Beechcraft. We believe we are the largest aerostructures supplier to Gulfstream for their G300, G350, G400, G450, G500, and G550 models.

     The following table summarizes the major business jet aircraft programs that we currently have under long-term contract by customer and product, indicating in each case whether we are a sole-source provider and the date on which the program commenced. For purposes of the table, the year of commencement of a program is the year a contract was signed with the OEM.

     We generate a large proportion of our revenues from three large customers. The following table reports the total revenue from these customers relative to our total revenue.

     Our products are sold for a broad range of end uses. Although the majority of our customers are in the U.S., we also have international customers. The following chart illustrates the split between domestic and foreign revenue:

     Industry Leader. We are one of the largest independent manufacturers of integrated structural assemblies for commercial, military and business jet aircraft in the world. We enjoy long-term relationships with our customers, which have been earned by delivering the quality aerostructures they demand. We have earned the trust of our customers and normally produce our products and provide our services under long-term, sole-source contracts. In fact, we are one of the largest independent suppliers to Boeing, Airbus, and Gulfstream.

     High Barriers to Entry. The dynamics of the aircraft industry make it extremely challenging for new competitors to enter the market. It is difficult and expensive for new entrants to compete for new program awards due to the substantial up-front, non-recurring investment associated with new programs, the sophisticated manufacturing capability necessary to compete in our market, and the experience-based industry knowledge required. Our established relationships with our customers, particularly Boeing and Airbus, make it less likely that an existing program could be lost to a new competitor. In addition, new entrants to the industry must have extensive certifications and approvals from customers and government regulators, such as the Defense Contract Management Agency and the FAA.

     Advanced Manufacturing and Technological Capabilities. We are able to manufacture large complex composite aircraft structures and some of the largest parts and assemblies for aircraft of all types in the world. Our capabilities include precision assembly techniques as well as automated assembly processes. We have large bed machining capability and the ability to make large composite fiber reinforced parts. We also have one of the largest stretch forming processes for aerodynamic surface metallic skins.

     In addition, we traditionally have been a partner in the manufacturing and development of large composite aircraft structures. As a program partner on the Boeing 787 program, we have enhanced our capability in the design, manufacturing, and integration of complex composite structures.

     Our system integration capability and ability to support challenging new aircraft launch schedules, with cost effective design and manufacturing solutions, makes us a preferred partner participating from initial concept development of new aircraft. We operate one of the few structural test laboratories in the world capable of full-scale carrier landing simulation.

     Well Positioned in the Military Aircraft Market. We serve a broad spectrum of the military aircraft market, with particular strength in fixed-wing transport and rotor aircraft. Currently, we provide aerostructures for many military transport programs, including the Boeing C-17 Globemaster III, as well as the important rotorcraft military segment, with Bell/Boeing V-22 Osprey tilt rotor transport and the H-60 helicopter.

     Continue as a Strategic Partner to our Customers. We strengthen customer relationships and expand market opportunities by partnering with customers on their business endeavors. We want to be our customer’s most valued supplier. We provide prime contractors with development and, when requested, engineering to ensure our participation on their current and future programs.

     Integrate Quality Throughout the Enterprise. We emphasize quality in the design and production of cost-competitive, fully integrated major aircraft assemblies as a support partner to the world’s leading aerospace companies.

     Increase Productivity and Profitability. In our effort to improve profitability, we have introduced Lean and Six Sigma into our production areas and have undertaken organizational restructuring to improve accountability and control.

     Leverage our Global Supply Chain. We have a global network of suppliers focused on strategic cost reduction and manufacturing flexibility to maximize production and cost efficiency, while supporting our customers’ need for strategic work placement.

     We depend on the availability of materials, parts and subassemblies from our suppliers and subcontractors. Our suppliers’ ability to provide timely and quality raw materials, components, kits and subassemblies affects our production schedules and contract profitability. We maintain an extensive qualification and performance surveillance system to control risk associated with this reliance on the supply chain.

     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. We forecast that in the short term, the raw material price increases experienced in recent years will slow considerably through 2008. However, we expect that in 2009 and beyond, due to demand pressure as OEM’s deliver on the recently accumulated order backlogs, price increases may again escalate. The weakening dollar is also causing our supply chain, specifically in Europe, to feel abnormal cost pressures. These factors may force us to renegotiate with our suppliers and customers to avoid a significant impact to our margins and results of operations.

     These macro-economic pressures may increase our operating costs with consequential risk to our cash flow and profitability. As a rule, we don’t employ forward contracts or other financial instruments to hedge commodity price risk, although we continuously explore supply chain risk mitigation strategies.

     We are exposed to fluctuations in prices of utilities and services (electricity, natural gas, chemical processing and freight). We seek to minimize these risks through use of long term agreements and aggregated sourcing.

     We also depend on third parties for most of our information technology requirements necessary to run our business.

     Our scientists, engineers and other personnel have capabilities and expertise in structural design, stress analysis, fatigue and damage tolerance, testing, systems engineering, factory support, product support, tool design, inspection and systems installation design. The costs incurred relating to independent research and development for the years ended December 31, 2007, 2006 and 2005, were $4.4 million, $3.4 million and $4.4 million, respectively, recorded in selling, general, and administrative expenses in our income statement. We work jointly with our customers and the supply base to insure that our investments complement the needs of our industry, rather than duplicate what our stakeholders are developing.

     We have a number of patents related to our processes and products. While in the aggregate our patents are of material importance to our business, we believe that no single patent or group of patents is of material importance to our business as a whole. We also rely on trade secrets, confidentiality agreements, unpatented knowledge, creative product development and continuing technological advancement to maintain our competitive position.

     In the production and sale of aerospace structural assemblies, we compete with numerous U.S. and international companies on a worldwide basis. Primary competition comes from internal work completed by the operating units of OEMs including Airbus, Boeing, Gulfstream, Lockheed Martin, Northrop Grumman, Sikorsky and Raytheon. We also face competition from independent aerostructures suppliers in the U.S. and overseas who, like us, provide services and products to the OEMs. Our principal competitors among independent aerostructures suppliers include: Alenia Aeronautica, Stork Aerospace, Fuji Heavy Industries, Mitsubishi Heavy Industries, GKN Westland Aerospace (U.K.), Kawasaki Heavy Industries, Goodrich Corp., and Spirit AeroSystems.

     OEMs may choose not to outsource production of aerostructures due to, among other things, their own direct labor and overhead considerations, capacity utilization at their own facilities and desire to retain critical or core skills. Consequently, traditional factors affecting competition, such as price and quality of service, may not be significant determinants when OEMs decide whether to produce a part in-house or to outsource.

     However, when OEMs choose to outsource, they typically do so for one or more of the following reasons:

     Our ability to compete for large structural assembly contracts depends upon:

     As of December 31, 2007, we employed 6,571 people. Of those employed at year-end, 3,332 or 51%, are represented by five separate unions.

     We believe we have constructive working relationships with our unions and have been successful in negotiating collective bargaining agreements in the past. We have not suffered an interruption of business as a result of a labor dispute since 1989, which occurred at the Nashville facility. However, there can be no assurance that in the future we will reach an agreement on a timely basis or that we will not experience a work stoppage or labor disruption that could significantly adversely affect our operations.

     From time to time, unions have sought and may continue to seek to organize employees at some of our facilities. We cannot predict the impact of any additional unionization of our workforce.

     We measure backlog for commercial and business jet programs as firm orders, and backlog for military programs as funded orders or authorizations to proceed, in each case for products that have not yet been shipped to our customer. This methodology results in a number that is substantially less than the estimated aggregate dollar value of our contracts. Using our measure of backlog, we estimate that at December 31, 2007, our funded backlog was approximately $3.4 billion. Our backlog may fluctuate at any given time depending on whether we have received significant new firm orders, funded orders or authorizations to proceed before the date of measurement. For example, our military funded orders or authorizations to proceed generally are awarded when the Department of Defense budget for the relevant year has been approved, resulting in a significant increase in backlog at that time.

     The following factors should be considered when evaluating our backlog. For our commercial and business jet aircraft programs, changes in the economic environment and the financial condition of airlines may cause our aerospace-manufacturing customers to increase or decrease deliveries, adjusting firm orders that would affect our backlog. 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.

     Our manufacturing operations are subject to various federal, state and local environmental laws and regulations, including those related to pollution, air emissions and the protection of human health and the environment. We routinely assess compliance and continuously monitor our obligations with respect to these requirements. Based upon these assessments and other available information, we believe that our manufacturing facilities are in substantial compliance with all applicable existing federal, state and local environmental laws and regulations and we do not expect environmental costs to have a material adverse effect on us. The operation of manufacturing plants entails risk in these areas and there can be no assurance that we will not incur material costs or liabilities in the future that could adversely affect us. For example, such costs or liabilities could arise due to changes in the existing law or its interpretations, or newly discovered contamination.

     Under federal and state environmental laws, owners and operators of contaminated properties can be held responsible for up to 100% of the costs to remediate contamination, regardless of whether they caused such contamination. Our facilities have been previously owned and operated by other entities and remediation is currently taking place at several facilities in connection with contamination that occurred prior to our ownership. In particular, we acquired several of our facilities from Northrop Grumman in July of 2000, including the Hawthorne, California facility, the Stuart, Florida facility, the Milledgeville, Georgia facility and two Texas facilities. Of those facilities, remediation projects are underway in Hawthorne, Stuart, Milledgeville and Dallas.

     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 million for environmental costs incurred relating to pre-existing matters as of July 24, 2000. Pre-existing environmental liabilities exceeding our $12 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 currently have no material outstanding or unasserted asbestos, urea formaldehyde foam insulation or lead-based paints 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 up to $60 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 for indemnification for certain pre-closing environmental liabilities incurred beyond that expiration date. While there are no currently pending environmental claims related to the Nashville facility, there is no assurance that environmental claims will not arise in the future or that we will receive any indemnity from Textron.

     As of December 31, 2007, our balance sheet included an accrued liability of $3.8 million for accrued environmental liabilities.

     The commercial and business jet aerospace industry is highly regulated in the United States by the FAA and by similar organizations in other markets. As a producer of major aerostructures for commercial and business jet aircraft, our production activities are performed under the auspices of the applicable FAA type certificate held by the prime manufacturer for which we produce product. In addition to qualifying our production and quality systems to our customer’s requirements, we are also certified in Stuart, Florida by the FAA to repair and overhaul damaged parts for delivery and reinstallation on commercial and business jet aircraft.

     Our Quality Management System (QMS) is fully compliant to AS9100, and we hold an industry registration certificate to that standard through an accredited registrar. Our special production processes are certified in compliance to industry manufacturing, quality and processing requirements, as defined and controlled by the PRI/Nadcap accreditation program.

     The military aerospace industry is highly regulated by the U.S. Department of Defense. The Defense Contract Management Agency has certified us to provide products to the U.S. military. We are subject to review by the Defense Contract Management Agency whether we contract directly with the U.S. Government or provide aerostructures to an OEM that contracts directly with the U.S. Government. The U.S. Government contracts held by us and our customers are subject to unique procurement and administrative rules based on laws and regulations. U.S. Government contracts are, by their terms, subject to termination by the U.S. Government either for its convenience or default by the contractor. In addition, U.S. Government contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a yearly basis, even though contract performance may take many years. Consequently, at the outset of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future years.

     In addition, use of foreign suppliers and sale to foreign customers, such as Airbus, and foreign governments may subject us to the requirements of the U.S. Export Administration Regulations and the International Trafficking in Arms Regulations.

     Our principal executive offices are located at 201 East John Carpenter Freeway, Tower I, Suite 900, Irving, TX 75062. Our telephone number is (972) 946-2011.

     The Public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room A4 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that, like us, file electronically with the SEC: <http://www.sec.gov>.

     More information on our Company may be found at our website: <http://www.voughtaircraft.com>.

Our commercial business is cyclical and sensitive to the profitability of the commercial airline and cargo industries. Our business is, in turn, affected by general economic conditions and world safety considerations.

     We compete in the aerostructures sector of the aerospace industry. While our direct customers are aircraft manufacturers, such as Boeing and Airbus, our business is indirectly affected by the financial condition of the commercial airlines and airfreight companies and other economic factors that affect the demand for air transportation. Specifically, our commercial business is dependent on the demand from passenger airlines and airfreight companies for the production of new aircraft by our customers.

     This demand for aircraft is dependent on and influenced by a number of factors including:

Our substantial indebtedness could prevent us from fulfilling our obligations under the senior notes.

     We have a significant amount of indebtedness. As of December 31, 2007, our total indebtedness was $683 million, excluding unused commitments under the revolving credit facility in our amended senior secured credit facilities. Our substantial indebtedness could have important consequences for us and investors in our securities. For example, it could:

     Our outstanding senior notes and our amended senior secured credit facilities contain other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our amended senior secured credit facilities also contain financial maintenance covenants that require us to meet specified metrics related to our cash flows, indebtedness and interest expense on a quarterly basis. Our failure to comply with those covenants could result in an event of default, which, if not cured or waived, could result in the acceleration of our debts.

     In addition, a substantial portion of our debt bears interest at variable rates. If market interest rates increase, variable-rate indebtedness will create higher debt service requirements and it may become necessary for us to dedicate a larger portion of cash flow to service such indebtedness. To the extent we have not entered into hedging arrangements, we are exposed to cash flow risk due to changes in interest rates with respect to the entire $413.0 million of variable-rate indebtedness under our amended senior secured credit facilities.

     As of December 31, 2007, a one-percentage point increase in interest rates on our variable-rate indebtedness would decrease our annual pre-tax income by approximately $4.1 million.

We will require a significant amount of cash to service our indebtedness. Our ability to generate cash depends on many factors beyond our control.

     Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

     Our business may not generate sufficient cash flow from operations or future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. Depending on prevailing economic and financial conditions, competition and other factors, we may not be able to refinance any of our indebtedness, including our amended senior secured credit facilities and our outstanding senior notes, on commercially reasonable terms or at all.

Despite our current indebtedness levels, we may still be able to incur substantially more debt, which would further increase the risks associated with our substantial leverage described above.

     We may incur substantial additional indebtedness in the future. The terms of our senior notes indenture do not fully prohibit us, including our subsidiaries, from incurring additional indebtedness. As of December 31, 2007, our amended senior secured credit facilities permitted additional borrowings of up to $200 million. If new indebtedness is added to our current indebtedness levels, the related risks that we face would be magnified.

Restrictive covenants in the amended senior secured credit facilities and the senior notes may restrict our ability to pursue our business strategies.

     The indenture governing our senior notes and the credit agreement governing our amended senior secured credit facilities limit our ability, among other things, to:

     The restrictive covenants mentioned above may restrict our ability to pursue our business strategies.

Financial ratios and tests in the amended senior secured credit facilities may further increase the risks associated with the restrictive covenants described above.

     In addition to the covenants described above, our amended senior secured credit facilities require us to maintain certain financial ratios and tests. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Events beyond our control can affect our ability to meet these financial ratios and tests. Our failure to comply with these obligations could cause an event of default under our amended senior secured credit facilities. If an event of default occurs, our lenders could elect to declare all amounts outstanding and accrued and unpaid interest under our amended senior secured credit facilities to be immediately due and the lenders thereafter could foreclose upon the assets securing the amended senior secured credit facilities. In that event, we may not have sufficient assets to repay all of our obligations, including our senior notes. We may incur additional indebtedness in the future that may contain financial or other covenants more restrictive than those applicable to our amended senior secured credit facilities or our senior notes.

Current market conditions could impact our ability to access new capital to meet our liquidity needs.

     The capital markets are currently experiencing disruptions, which may have an adverse impact on our ability to access to new capital. Current conditions in the debt and equity capital markets include reduced liquidity and increased credit risk premiums for market participants. These conditions increase the cost and reduce the availability of capital and may continue or worsen in the future. Our need for additional working capital is highly dependent on the future requirements of the 787 program. We expect to need additional funding from Boeing or other third party sources to participate in future derivatives of the 787 or additional contract modifications requested by Boeing. There can be no assurance that we will be able to obtain this additional funding.

Financial market conditions may adversely affect our benefit plan assets and materially impact our statement of financial position.

     Our benefit plan assets are invested in a diversified portfolio of investments in both the equity and debt categories, as well as limited investments in real estate and other alternative investments. The current market value of all of these investment categories may be adversely affected by external events and the movements and volatility in the financial markets including such events as the current credit and real estate market conditions. In December 2007, we adopted the recognition and disclosure provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R). This standard requires employers that sponsor defined benefit plans to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur. The funded status is measured as the difference between the fair value of the plan’s assets and the projected benefit obligation (PBO) or accumulated postretirement benefit obligation (APBO) of the plan. A dramatic decrease in the fair value of our plan assets resulting from movements in the financial markets may increase the under-funded status of our plans recorded in our statement of financial position and result in additional cash funding requirements to meet the minimum required funding levels.

     Competition in the aerostructures segment of the aerospace industry is intense and concentrated. We face substantial competition from the operating units of some of our largest customers, including Airbus, Boeing, Gulfstream, Lockheed Martin, Northrop Grumman and Raytheon. These OEMs may choose not to outsource production of aerostructures due to, among other things, their own direct labor and overhead considerations, capacity utilization at their own facilities and desire to retain critical or core skills. Consequently, traditional factors affecting competition, such as price and quality of service, may not be significant determinants when OEMs decide whether to produce a part in-house or to outsource.

     We also face competition from non-OEM suppliers in each of our product areas. Our principal competitors among aerostructures suppliers include Alenia Aeronautica, Stork Aerospace, Fuji Heavy Industries, Mitsubishi Heavy Industries, GKN Westland Aerospace (U.K.), Kawasaki Heavy Industries, Goodrich Corp., and Spirit AeroSystems. Some of our competitors have greater resources than us, and therefore may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or devote greater resources to the promotion and sale of their products than we can. Providers of aerostructures have traditionally competed on the basis of cost, technology, quality and service. We believe that developing and maintaining a competitive advantage will require continued investment in product development, engineering, supply chain management and sales and marketing, and we may not have enough resources to make the necessary investments to do so. For these reasons, we may not be able to compete successfully in this market or against such competitors. See Item 1. “Business—Competition.”

     For the years ended December 31, 2007, 2006 and 2005, approximately 70%, 65% and 70% of our revenue, respectively, were made to Airbus and Boeing for commercial and military programs. Accordingly, any significant reduction in purchases by Airbus or Boeing would have a material adverse effect on our financial condition, results of operations and cash flows.

     Further, our significant customers have in the past and may attempt in the future to use their position to negotiate a reduction in price of a particular product regardless of the terms of an existing contract. We have generally been successful in resisting such reductions and, where we have taken reductions, we have attempted to maintain profitability by decreasing costs.

The U.S. Government is a significant customer of our largest customers and we and they are subject to specific U.S. Government contracting rules and regulations.

     We are a significant provider of aerostructures to military aircraft manufacturers. The military aircraft manufacturers’ business, and by extension, our business, is affected by the U.S. Government’s continued commitment to programs under contract with our customers. The terms of defense contracts with the U.S. Government generally permit the government to terminate contracts partially or completely, with or without cause, at any time. Sales to the U.S. Government are also subject to changes in the government’s procurement policies in advance of design completion. An unexpected termination of a significant government contract, a reduction in expenditures by the U.S. Government for aircraft using our products, lower margins resulting from increasingly competitive procurement policies, a reduction in the volume of contracts awarded to us, or substantial cost overruns could materially reduce our cash flow and results of operations. We bear the potential risk that the U.S. Government may unilaterally suspend our customers or us from new contracts pending the resolution of alleged violations of procurement laws or regulations.

A decline in the U.S. defense budget or change of funding priorities may reduce demand for our customers’ military aircraft and reduce our sales of products used on military aircraft.

     The U.S. defense budget has fluctuated in recent years, at times resulting in reduced demand for new aircraft and, to a lesser extent, spare parts. In addition, foreign military sales are affected by U.S. Government regulations, foreign government regulations and political uncertainties in the United States and abroad. The U.S. defense budget may continue to fluctuate, and sales of defense related items to foreign governments may decrease. A decline in defense spending could reduce demand for our customers’ military aircraft, and thereby reduce sales of our products used on military aircraft.

     There is risk that the C-17 program could be completed in 2009 after the end of the current contract as identified in the President’s FY 2007 Recommended Budget is completed in 2009. No new funding is identified for this program in the President’s FY 2008 Recommended Budget. However, the FY 2008 Defense Authorization bill includes $2.3 billion to procure 8 aircraft. The Senate and House Defense Appropriations Subcommittees have yet to act on the remaining unmarked $126 billion balance of the President’s $196 billion emergency supplemental funding request but both chairmen have stated that funding for additional C-17s will be a major priority. We are taking steps now to realign ourselves in recognition of the possible loss of the program after 2009. For 2007, the C-17 program provided a significant portion of our military revenues.

     We provide most of our products and services through fixed-price contracts. For the year ended December 31, 2007, over 95% of our revenues were derived from fixed-price contracts.

     Although our fixed-price contracts generally permit us to keep unexpected profits if costs are less than projected, we bear the risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on the contract. In a fixed-price contract, we must fully absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of sales that we may achieve. Our failure to anticipate technical problems, estimate delivery reductions, estimate costs accurately or control costs during performance of a fixed-price contract may reduce the profitability of a fixed-price contract or cause significant losses.

     On occasion we may enter into agreements with our customers modifying the terms of those fixed price contracts; however, there are no assurances that we will be able to do so in the future.

     Although we believe that we have recorded adequate provisions in our consolidated financial statements for losses on our fixed-price contracts, as required under accounting principles generally accepted in the United States, our contract loss provisions may not be adequate to cover all actual future losses, which may have a material adverse affect on our financial condition, results of operations and cash flows.

     New programs, such as Boeing 787 and 747-8, with new technologies typically carry risks associated with design responsibility, development of new production tools, hiring and training of qualified personnel, increased capital and funding commitments, delays in the program schedule, failure of other suppliers to our customer to perform and meet their obligations, ability to meet customer specifications, delivery schedules and unique contractual requirements, supplier performance, ability of the customer to meet its contractual obligations to us, delays in negotiations of certain contractual matters and our ability to accurately estimate costs associated with such programs which may have a material adverse affect on our financial condition, results of operations and cash flows.

     Programs new to Vought including work moved from other companies, such as Sikorsky H-60, carry risks associated with the following:

     The success of our business will depend, in large part, on the success of our new programs, such as those mentioned above. We have made and will continue to make significant investments in new programs. However, if there is not sufficient demand for those new aerostructures, or if there are technological problems or significant delays in the regulatory certification or manufacturing and delivery schedule for such aircraft similar to the recent 787 program delay, our business, financial condition and results of operations may be materially adversely affected.

Failure to or delays in renegotiation with our customers to finalize or update contract terms or pricing could materially impact our operations.

     Our level of success as an aerostructure supplier is largely dependent on our ability to negotiate favorable contract terms with our customers. Typically, we enter fixed-price contracts with pricing that is determined based on an estimate of our costs and margin. However, the actual costs incurred for some projects exceed the amount estimated (“loss contracts”). If we are unable to quickly identify loss contracts and renegotiate the pricing or contract terms in a timely manner, our level of profitability could be significantly impacted.

Our business depends, in large part, on the future sales of the Boeing 787 program and further delays in the delivery schedule and renegotiation of contract terms for the 787 program could materially impact our liquidity and results of operations.

     On January 16, 2008, Boeing rescheduled the initial deliveries of the 787 program for early 2009 rather than 2008. Currently, Boeing has not changed their delivery requirements from us and as a result we believe this delay will not have a material impact on Vought’s working capital requirements. Any additional significant changes that Boeing makes to our delivery schedule could negatively impact our revenue and cash flows. If we are unable to work with our suppliers or Boeing to mitigate the adverse impacts of any such schedule changes, our financial performance and liquidity could be materially adversely impacted.

     In addition, we are in negotiations with Boeing regarding settlement of certain contractual matters related to the 787. If we are unable to reach an acceptable agreement with Boeing, in a timely manner, our ability to participate in future derivatives of the 787 or additional contract modifications requested by Boeing and our liquidity, profitability and financial position could be significantly impacted.

Any significant disruption in our supply from key suppliers could delay production and decrease revenue.

     We are highly dependent on the availability of essential materials and purchased engineered components from our suppliers, some of which may be available only from single customer specified sources. Moreover, we are dependent upon the ability of our suppliers to provide raw material and components that meets specifications, quality standards and delivery schedules. Our suppliers’ failure to provide expected raw materials, such as carbon fiber, aluminum and titanium, or component parts could adversely affect production schedules and contract profitability.

     We have from time to time experienced limited interruptions of supply, and we may experience a significant interruption in the future. Our continued supply of materials is subject to a number of risks including:

     In addition, some contracts with our suppliers for raw materials and other goods are short-term contracts, which are subject to termination on a relatively short-term basis. These suppliers may discontinue provision of products to us at attractive prices or at all, and we may not be able to obtain such products in the future from these or other providers on the scale and within the time periods we require. Furthermore, substitute raw materials or component parts may not meet the strict specifications and quality standards we, our customers, and the U.S. Government impose. If we are not able to obtain key products on a timely basis and at an affordable cost, or we experience significant delays or interruptions of their supply, revenues from sales of products that use these supplies will decrease.

     We are also dependent upon third party suppliers, including Northrop Grumman Information Technology and Perot Systems, to supply us with the majority of the information technology services used to operate our facilities. If these suppliers could no longer supply us with information technology services and we are required to secure another supplier, we might not be able to do so on terms as favorable as our current terms, or at all.

Any future business combinations, acquisitions or mergers expose us to risks, including the risk that we may not be able to successfully integrate these businesses or achieve expected operating synergies.

     We periodically consider strategic transactions. We evaluate acquisitions, joint ventures, alliances or co-production programs as opportunities arise and we may be engaged in varying levels of negotiations with potential competitors at any time. We may not be able to effect transactions with strategic alliance, acquisition or co-production program candidates on commercially reasonable terms, or at all. If we enter into these transactions, we also may not realize the benefits we anticipate. In addition, we may not be able to obtain additional financing for these transactions. The integration of companies that have previously been operated separately involves a number of risks. Consummating any acquisitions, joint ventures, alliances or co-production programs could result in the incurrence of additional debt and related interest expense, as well as unforeseen contingent liabilities.

We may be subject to work stoppages at our facilities or those of our principal customers, which could seriously impact the profitability of our business.

     District Lodge 96 of the International Association of Machinists and Aerospace Workers was recently certified as the representative for approximately 200 production and maintenance employees located in North Charleston, South Carolina. Negotiations for their initial contract began on January 24, 2008. Moreover, the collective bargaining agreements with two of our unions, covering approximately 1,000 employees in the aggregate, are due to expire in 2008.

     We last experienced a labor strike at our Nashville, Tennessee plant in 1989 and a work interruption at our Dallas, Texas plant in 1985. We believe we have constructive working relationships with our unions and have been successful in negotiating collective bargaining agreements in the past. However, there can be no assurance that we will reach an agreement on a timely basis. If our unionized workers were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant adverse disruption of our operations and we may be prevented from completing production of our aircraft structures. See Item 1. “Business—Employees.”

     Many aircraft manufacturers, airlines and aerospace suppliers have unionized work forces. Strikes, work stoppages or slowdowns experienced by aircraft manufacturers, airlines or aerospace suppliers could reduce our customers’ demand for additional aircraft structures or prevent us from completing production of our aircraft structures. In turn, this may have a material adverse affect on our financial condition, results of operations and cash flows.

We depend on key personnel and may not be able to retain those employees or recruit additional qualified personnel.

     We believe that our future success will be due, in part, to the services of our key employees such as engineers and other skilled professionals. Competition for such employees has intensified in recent years and may become even more intense in the future. Our ability to implement our business plan is dependent on our ability to hire and retain technically skilled workers. Our failure to recruit and retain qualified employees could prevent us from implementing our business plan and may impair our ability to obtain future contracts.

Our operations depend on our manufacturing facilities throughout the U.S. which are subject to physical and other risks that could disrupt production.

     Our manufacturing facilities could be damaged or disrupted by a natural disaster, war, or terrorist activity. Although we have obtained property damage and business interruption insurance, a major catastrophe, such as an earthquake, hurricane, flood, tornado or other natural disaster at any of our sites, or war or terrorist activities in any of the areas where we conduct operations could result in a prolonged interruption of our business. Any disruption resulting from these events could cause significant delays in shipments of products and the loss of sales and customers and we may not have insurance to adequately compensate us for any of these events.

We are subject to environmental regulation and our ongoing operations may expose us to environmental liabilities.

     Our operations, like those of other companies engaged in similar businesses, are subject to federal, state and local environmental, health and safety laws and regulations. We may be subject to potentially significant fines or penalties, including criminal sanctions, if we fail to comply with these requirements. We have made, and will continue to make, capital and other expenditures in order to comply with these laws and regulations. Although we believe that we are currently in substantial compliance with these laws and regulations, the aggregate amount of future clean-up costs and other environmental liabilities could become material.

     Pursuant to certain environmental laws, a current or previous owner or operator of a contaminated site may be held liable for the entire cost of investigation, removal or remediation of hazardous materials at such property, whether or not the owner or operator knew of, or was responsible for, the presence of any hazardous materials. Persons who arrange for the disposal or treatment of hazardous materials may also be held liable for such costs at a disposal or treatment site, regardless of whether the affected site is owned or operated by them. Contaminants have been detected at some of our present and former sites, principally in connection with historical operations, and investigations and/or clean-ups have been undertaken by us or by former owners of the sites. We also receive inquiries and notices of potential liability with respect to offsite disposal facilities from time to time. Although we are not aware of any sites for which material obligations exist, the discovery of additional contaminants or the imposition of additional clean-up obligations could result in significant liability. See Item 1 “Business—Environmental Matters.”

Any product liability claims in excess of insurance may require us to dedicate cash flow from operations to pay such claims and damage our reputation impacting our ability to obtain future business.

     Our operations expose us to potential liability for personal injury or death as a result of the failure of aerostructures designed or manufactured by us or our suppliers. While we believe that our liability insurance is adequate to protect us from these liabilities, our insurance may not cover all liabilities. Additionally, insurance coverage may not be available in the future at a cost acceptable to us. Any material liability not covered by insurance or for which third-party indemnification is not available could require us to dedicate a substantial portion of our cash flows to make payments on these liabilities. No such product liability claim is pending or has been threatened against us; however, there is a potential risk that product liability claims could be filed against us in the future.

     An accident caused by a component designed or manufactured by us or one of our suppliers could also damage our reputation for quality products. We believe our customers consider safety and reliability as key criteria in selecting a provider of aerostructures. If an accident were caused by one of our components, or if our satisfactory record of safety and reliability were compromised, our ability to retain and attract customers could be materially adversely affected. Furthermore, our results of operations, financial position, and cash flow from operations could be significantly impacted.

The construction of aircraft is heavily regulated and failure to comply with applicable laws could reduce our sales or require us to incur additional costs to achieve compliance, which could reduce our results of operations.

     The FAA prescribes standards and qualification requirements for aerostructures, including virtually all commercial airline and general aviation products, and licenses component repair stations within the U.S. Comparable agencies regulate these matters in other countries. We are subject to both the FAA regulations and the regulations of the foreign countries in which we conduct business. If we fail to qualify for or obtain a required license for one of our products or services or lose a qualification or license previously granted, the sale of the subject product or service would be prohibited by law until such license is obtained or renewed. In addition, designing new products to meet existing regulatory requirements and retrofitting installed products to comply with new regulatory requirements can be expensive and time consuming.

     From time to time, the FAA or comparable agencies in other countries propose new regulations or changes to existing regulations. These new changes or regulations generally cause an increase in costs of compliance. To the extent the FAA, or comparable agencies in other countries implement regulatory changes, we may incur significant additional costs to achieve compliance.

We are subject to regulation of our technical data and goods exports.

     Use of foreign suppliers and sale to foreign customers may subject us to the requirements of the U.S. Export Administration Regulations and the International Trafficking in Arms Regulations. Failure to comply with these regulations may result in significant fines and loss of the right to export goods. In addition, restrictions may be placed on the export of technical data and goods in the future as a result of changing geo-political conditions.

We may be unable to satisfy commitments related to grants received.

     We have received grants from state governments associated with the construction of our 787 facility in South Carolina and the employment level in our Texas facilities. These grants require that we satisfy certain requirements related to levels of expenditures and employment levels. Our failure to satisfy any of these commitments could result in the incurrence of penalties or in the requirement to repay all or part of the grants.

Private equity investment funds affiliated with Carlyle own a significant majority of our equity, and their interests may not be aligned with debt holders.

     Private equity investment funds affiliated with Carlyle own approximately 90% of our fully diluted equity. These private equity investment funds have the power, subject to specific exceptions, to direct our affairs and policies. Certain members of our Board of Directors have been designated by these private equity investment funds. Through such representation on the Board of Directors, they are able to substantially influence the appointment of management, the entering into of mergers and sales of substantially all of our assets and other extraordinary transactions. The directors so elected have authority, subject to the terms of our debt, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions about our capital stock.

     The interests of Carlyle and its affiliates could conflict with the interests of debt holders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of Carlyle as equity holder might conflict with the interests of a debt holder. Affiliates of Carlyle may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, although such transactions might involve risks to debt holders. In addition, Carlyle or its affiliates may in the future own businesses that directly compete with ours.

We may be adversely affected if we are unable to maintain effective internal controls that ensure timely and reliable external financial reporting.

     We are required to provide a report from management to our shareholders on our internal control over financial reporting that includes an assessment of the effectiveness of these controls commencing with our current annual report. Additionally, we have delivered an attestation report from an independent registered public accounting firm on their assessment of the operating effectiveness of our internal controls. Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. Because of these inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud. If we cannot maintain and execute adequate internal control over financial reporting or implement required new or improved controls that provide reasonable assurance of the reliability of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, fail to meet our public reporting requirements on a timely basis, or be unable to properly report on our business and the results of our operations.

     Not applicable.

     Our corporate offices and principal corporate support activities are located in Irving and Dallas, Texas. We own and lease manufacturing facilities located throughout the United States. We currently have manufacturing facilities in Texas, California, Tennessee, Georgia, Washington, Florida and South Carolina. General information about our principal manufacturing facilities is presented in the chart below.

     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.

     We operate in a highly regulated industry that subjects us to various audits, reviews and investigations by several U.S. governmental entities. Currently, we are not aware of any significant on-going audits, reviews or investigations which we believe would materially impact our results of operations or financial condition.

     None.

     Our common equity consists of common stock, par value $0.01 per share. There is currently no established public trading market for our common stock.

     As of March 13, 2008, there were 83 stockholders of record of our common stock.

     We have not declared a dividend on shares of common stock since inception in our current corporate form in 2000. Any payment of cash dividends on our common stock in the future will be at the discretion of our board of directors and will also depend upon such factors as compliance with debt covenants, earnings levels, capital requirements, our financial condition and other factors deemed relevant by our board of directors.

     During 2006 and 2007, we issued an aggregate of 10,650 and 21,854 shares of our common stock, respectively, or less than 1% of the aggregate amount of common stock outstanding, to members of our board of directors in reliance on Section 4(2) of the Securities Act.

     During 2006, we issued an aggregate of 33,225 shares of our common stock in connection with the exercise of stock options originally granted in accordance with Rule 701 of the Securities Act. The aggregate proceeds to Vought as a result of these transactions were approximately $0.4 million. No shares were issued in connection with the exercise of stock options in 2007.

Item 6. Selected Financial Data

     The following selected consolidated financial data are derived from our consolidated financial statements included elsewhere in this annual report. The information set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and their related notes included elsewhere in this annual report. The historical results presented are not necessarily indicative of future results.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     We are one of the largest independent manufacturers of aerostructures for commercial, military and business jet aircraft in the world. We develop and manufacture fuselages, wings and wing assemblies, empennages (tail assemblies comprised of horizontal and vertical stabilizers, elevators and rudders), aircraft doors, nacelle components (the structures around engines) and control surfaces (such as rudders, spoilers, ailerons and flaps) as well as rotorcraft cabins and substructures. These aerostructures are subsequently integrated by our Original Equipment Manufacturer (OEM) customers into a wide range of commercial, military and business jet aircraft. Additionally, we can provide customers with testing, engineering and Federal Aviation Administration (“FAA”) authorized maintenance, repair and overhaul (MRO) of some of our products. Currently we perform production at nine sites throughout the United States.

     The financial health of the commercial airline industry has a direct and significant effect on our commercial aircraft programs. Following the declining trends after 2001, the industry has experienced record numbers of orders for new aircraft in recent years. The market for business jets was also impacted by the economic downturn, but generally recovered in 2005 and continued to grow in 2006 and 2007. The military market has also seen growth in recent years, due in part to the wars in Iraq and Afghanistan. However, with the addition of the 787 program and the potential reduction or completion of the C-17 production over the next few years, we expect the portion of our business represented by our commercial business to increase as a percentage of sales over the next few years.

     In 2007, revenue grew by 5% to $1.6 billion and operating income increased 245%. These increases were driven by growth in sales to our largest customers, Airbus and Boeing, of 27% and 8%, respectively, and continuance of cost reduction measures. We continued spending on new programs such as Boeing 787, Boeing 747-8 and Blackhawk in an effort to grow revenue and income. We generated operating cash flow of $34.2 million driven by operating and working capital performance. Over the next five years, our projected contributions for the pension and other post-retirement benefit plans are $598.1 million. Our backlog grew 3% to $3.4 billion primarily due to increased orders for the C-17 and Airbus programs.

     On January 16, 2008, Boeing rescheduled the initial deliveries of the 787 program for early 2009 rather than 2008. Currently, Boeing has not changed their delivery requirements from us and as a result we believe this delay will not have a material impact on Vought’s working capital requirements. We are also currently in negotiations with Boeing regarding settlement of certain contractual matters. We continue to focus on the positive resolution of these items, but we are disappointed in the time it is taking, and if we are unable to reach an acceptable agreement in a timely manner, our liquidity, profitability and financial position could be significantly impacted.

     On January 22, 2008, we signed a five-year contract with Sikorsky Aircraft Corp. to manufacture cabin structures for three variants of Blackhawk helicopters. The estimated contract value is approximately $600 million for deliveries through 2012.

     On March 3, 2008, the U.S. Air Force announced that the Northrop Grumman/EADS KC-30 Tanker was selected for the KC-135 Replacement Program and that the modernization will be based on a modified version of the Airbus A330 Airframe. Boeing has filed a protest regarding the failure of the Air Force to select the Boeing entry in that competition which is based on a modified version of the Boeing 767 airframe. We currently produce structure on both the A330 and Boeing aircraft.

     Revenue. Revenue for the year ended December 31, 2007 was $1,625.5 million, an increase of $74.6 million or 5% compared with revenue of $1,550.9 million for the prior year. When comparing the current and prior year:

     Cost of Sales. Cost of sales for the year ended December 31, 2007 was only 78% of revenue compared to 82% of revenue for the comparable period in the prior year despite the impact of the $99.0 million of customer settlements recorded in 2006. Excluding the 2006 settlements, cost of sales as a percentage of revenue in 2006 were 88%. The improvement is primarily due to margin improvements from price adjustments and cost reductions, partially offset by losses primarily due to increased costs for the H-60 program.

     Selling, general and administrative expenses. Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2007 were $246.7 million, an increase of $10.7 million or 5% compared with SG&A expenses of $236 million in the prior year. The increase is primarily due to higher 787 program period costs of $15.6 million offset by $4.9 million of decreased labor, fringe and other general and administrative costs.

     Operating income (loss). Operating income for the year ended December 31, 2007 was $109.5 million, compared to $31.7 million in the prior year. The increase in operating income of $77.8 million or 245% is primarily related to an increase in revenue and improved margins discussed above, partially offset by investment in the Boeing 787 program and the losses recorded the H-60 program.

     Interest expense, net. Interest expense, net for the year ended December 31, 2007 was $59.0 million, a decrease of $4.1 million or 6% compared with $63.1 million for the same period in the prior year. Interest expense decreased due to the lower borrowings under our short-term revolver partially offset by a higher variable interest rate on our outstanding long-term bank debt.

     Revenue. Revenue for the year ended December 31, 2006 were $1,550.9 million, an increase of $253.7 million or 20% compared with revenue of $1,297.2 million for the prior year. When comparing the current and prior year:

     Cost of Sales. Cost of sales as a percentage of revenue was 82% for the year ended December 31, 2006, compared with 95% for the same period in the prior year. The decrease in the cost of sales percentage was caused primarily by the absence of one-time facility consolidation and disruption expenses of $158.4 million recorded in 2005 that were not incurred in 2006, partially offset by costs recognized related to customer settlements and losses recorded on the Airbus and H-60 programs in 2006.

     Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended December 31, 2006 were $236.0 million, an increase of $1.8 million or 1% compared with selling, general and administrative expenses of $234.2 million for the prior year. The increase in expenses was primarily due to increases of $19.0 million in Boeing 787 investment and $9.0 million in stock compensation expense, offset by decreases of $13.0 million in headcount reductions and $12.0 million in net periodic costs associated with our pension and other-post retirement benefit plans.

     Asset Impairment Charge. The asset impairment charge increased $3.1 million or 53% compared to the prior period due to an impairment charge of $9.0 million on certain fixed assets that were originally acquired as part of the consolidation effort.

     Operating income (loss). Operating income for the year ended December 31, 2006 was $31.7 million, compared to an operating loss of ($174.7) million for the same period in the prior year. The positive change in operating income of $206.4 million is primarily due to the absence of facility consolidation expenses of $158.4 million recorded in 2005 that were not incurred in 2006, favorable customer settlements and increased revenue combined with our cost reduction efforts and reduced benefit costs. These favorable changes were partially offset by losses on the Airbus and H-60 programs.

     Interest expense, net. Interest expense, net for the year ended December 31, 2006 was $63.1 million, an increase of $11.8 million or 23% compared with $51.3 million for the prior year. Interest expense, net, increased primarily due to the increase in our borrowing levels under the revolving credit agreement, combined with higher variable interest rates than in the prior year.

     Liquidity, or access to cash, 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 and borrowing capacity through our credit facility and long-term capital markets. 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.

     Working capital requirements fluctuate between periods as a result of changes in delivery rates under existing contracts and production associated with new contracts. For some aircraft programs, milestone or advance payments finance working capital, which helps to improve liquidity. In addition, we may, in the ordinary course of business, settle outstanding claims with customers or suppliers or we may receive payments for previously unnegotiated change orders. Settlement of pending claims can have a significant impact on our results of operations and cash flows. Our liquidity requirements are highly dependent on the future requirements of the 787 program.

     We believe that cash flow from operations, cash and cash equivalents on hand, and funds available under the revolving portion of our credit facility will provide adequate funds for our ongoing working capital and capital expenditure needs and near term debt service obligations to allow us to meet our current contractual commitments for at least the next twelve months. However, we expect to need additional funding from the customer or other third party sources to participate in the future derivatives of the 787 or other 787 contract modifications requested by Boeing. 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. Management has implemented and continues to implement cost savings initiatives that we expect should have a positive impact on the future cash flows needed to satisfy our long-term cash requirements

     On July 2, 2003, we issued $270.0 million of 8% Senior Notes due 2011 (“Senior Notes”) with interest payable on January 15 and July 15 of each year, beginning January 15, 2004. As of July 15, 2007, we may redeem the notes in full or in part by paying premiums specified in the indenture. The notes are senior unsecured obligations guaranteed by all of our existing and future domestic subsidiaries.

     We entered into $650 million of senior secured credit facilities pursuant to a credit agreement dated December 22, 2004. The senior secured credit facilities are comprised of a $150 million six year revolving loan (“Revolver”), a $75 million synthetic letter of credit facility and a $425 million seven year term loan B. The term loan amortizes at $1.0 million per quarter with a final payment at the maturity date of December 22, 2011.

     Under the credit agreement, we have the option to solicit up to $200 million in additional term loans from existing or new lenders, subject to substantially the same terms and conditions as the outstanding term loans though pricing may be separately negotiated at that time. Additionally, we also have the option to convert up to $25 million of the letter of credit facility to outstanding term loans, which would also be subject to the same terms and conditions as the outstanding term loans made as of December 2004. We are obligated to pay an annual commitment fee on the unused portion of the senior secured credit facilities of 0.5% or less, based on our leverage ratio.

     As of December 31, 2007, we had no borrowings outstanding under the Revolver, although we borrowed and repaid $20 million during the year. We had long-term debt of approximately $683.0 million, which included $413.0 million incurred under our senior secured credit facilities and $270.0 million of Senior Notes. In addition, we had $46.2 million in outstanding letters of credit under the $75 million synthetic facility.

     Credit Agreements and Debt Covenants. The agreements governing our debt 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 Senior Notes indenture also contains various restrictive covenants, including the incurrence of additional indebtedness unless the debt is otherwise permitted under the indenture. As of December 31, 2007, we were in compliance with the covenants in the indenture governing our notes and credit facilities.

     Our $650 million senior secured credit facilities 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 $270 million of 8% Senior Notes due 2011 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 secured 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 4.25:1.00 for fiscal periods ending during 2008, to 4.00:1.00 for fiscal 2009, to 3.75:1.00 for fiscal 2010 and to 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 periods ending during 2008 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 secured credit facilities. If not cured or waived, an event of default could result in acceleration of this indebtedness. Our senior secured 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 secured 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 year ended December 31, 2007 were 2.19:1.00 and 5.18:1.00, respectively.

     The indenture governing our 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 used by our management in assessing our operations. We disclose this measure in order to provide investors with the same information and perspective used by our management, as well as to enable them to assess our compliance with the financial maintenance covenants in our credit agreement. We disclose Adjusted EBITDA as calculated in accordance with our credit agreement, and this measure includes adjustments that eliminate items that management does not consider reflective of our ongoing core operating performance. From time to time individual adjustments in computing Adjusted EBITDA may be material to our operations. During the period presented in this report, we made adjustments in computing Adjusted EBITDA based on events that we believe are material to our operating results but which management does not consider to be reflective of our ongoing core operating performance. Those adjustments and their significance are discussed in the notes to the table below.

     Adjusted EBITDA for the years ended December 31, 2007, 2006 and 2005 was $277.4 million, $184.5 million and $180.1 million, respectively. The following table is a reconciliation of the non-GAAP measure from our cash flows from operations:

     We believe each of the adjustments discussed above are meaningful to investors because they provide insight into specific events or conditions in our operations that impact our results of operations but that management does not consider reflective of our core operating performance. Moreover, these adjustments represent important components of Adjusted EBITDA, which is a non-GAAP financial measure used by our management in assessing our operations and determining our ability to comply with the covenants contained in our credit agreement. Accordingly, we provide investors Adjusted EBITDA and the discussion of its components so that they have the same perspective that our management has in evaluating our business and results of operations.

     We also believe that the inclusion of Adjusted EBITDA is appropriate to provide additional information to investors because securities analysts, bondholders, and other investors use this non-GAAP financial measure as an important measure of assessing:

     Because not all companies use identical calculations, the presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

     Adjusted EBITDA has limitations as an analytical tool and such measure should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations of this non-GAAP financial measure are:

Cash Flow Summary

     Net cash provided by operating activities for the year ended December 31, 2007 was $34.2 million, a decrease of $138.6 million or 80% compared to net cash provided by operating activities of $172.8 million for the prior year. The decrease compared to the prior year was primarily due to cash received from customer settlements and advances during 2006 partially offset by improved operating results in 2007.

     The decrease in cash related to changes in working capital is due mainly to large customer settlements and advances received in 2006. The non-cash items decreased slightly primarily due to the $9.0 million impairment charge incurred during 2006 but not during 2007, partially offset by the $4.3 million increase in depreciation and amortization expense.

     Cash used in investing activities generally has been used for capital expenditures. Net cash used for capital expenditures for the year ended December 31, 2007 was $57.4 million, a decrease of $58.0 million or 50% compared to $115.4 million for the prior year. The decrease reflects lower capital spending for the 787 program and the related construction for the South Carolina site compared to 2006 investment levels.

     Cash used in financing activities for the year ended December 31, 2007 was $2.4 million, a decrease of $15.6 million compared to net cash provided by financing activities of $13.2 million for the prior year. The decrease was primarily due to $17.4 million of cash received in 2006 for government grants related to our North Charleston, South Carolina facility whereas only $2.1 million was received in 2007. As of December 31, 2007, there were no outstanding borrowings under our Revolver, leaving borrowing capacity of $150.0 million available.

     Net cash provided by operating activities for the year ended December 31, 2006 was $172.8 million, an increase of $237.8 million compared to net cash used by operating activities of $65.0 million for the prior year. The increase compared to the prior year was primarily due to cash received from customer settlements and advances during 2006 in addition to improved operating results.

     The increase in cash related to changes in working capital is due mainly to large customer settlements and advances received throughout the year. The non-cash items were relatively unchanged from the prior period as depreciation expense decreased from December 31, 2006 compared to December 31, 2005 partially offset by an increase in the equity loss in our joint venture and increased stock compensation expense of $9.4 million.

     Cash used in investing activities generally has been for capital expenditures. Net cash used for capital expenditures for the year ended December 31, 2006 was $115.4 million, a decrease of $31.7 million or 22% compared to $147.1 million for the prior year. The decrease reflects decreases in capital spending for the 787 program and the related construction for the South Carolina site compared to 2005 investment levels.

     Cash provided by financing activities for the year ended December 31, 2006 was $13.2 million, a decrease of $85.1 million or 87% compared to net cash provided by financing activities of $98.3 million for the prior year. The decrease was primarily due to the 2005 receipt of $52.6 million from the Hawthorne facility sale, as well as the decrease in cash received from governmental grants of $34.8 million. As of December 31, 2006, there were no outstanding borrowings under our Revolver, leaving borrowing capacity of $150.0 million available.

     The following table summarizes the scheduled maturities of financial obligations and expiration dates of commitments as of December 31, 2007:

     In addition to the financial obligations detailed in the table above, we also had obligations related to our benefit plans at December 31, 2007 as detailed in the following table. Our other post-retirement benefits are not required to be funded in advance, so benefit payments are paid as they are incurred. Our expected net contributions and payments are included in the table below:

     Current plan documents reserve our right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees.

     None.

     A majority of our sales are conducted pursuant to long-term contracts that set fixed unit prices and some of which provide for price adjustment through escalation clauses. The effect of inflation on our sales and earnings is minimal because the selling prices of those contracts, established for deliveries in the future, generally reflect estimated costs to be incurred in these future periods. Our estimated costs take into account the anticipated rate of inflation for the duration of the relevant contract.

     Our supply base contracts are conducted on a fixed price basis in U.S. Dollars. In some cases our supplier arrangements contain escalation adjustment provisions based on accepted industry indices, with appropriate forecasting incorporated in program financial estimates. Raw materials price escalation has been mitigated through existing long-term agreements, which remain in place for several more years. Our expectations are that the continued demand for these materials will continue to put additional pressures on pricing for the foreseeable future. Strategic cost reduction plans will continue to focus on mitigating the affects of this demand curve on our operations.

     Our discussion and analysis of our financial position and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses. Although we evaluate our estimates, which are based on the most current and best available information and on various other assumptions that are believed to be reasonable under the circumstances, on an ongoing basis, actual results may differ from these estimates under different assumptions or conditions. We believe the following items are the critical accounting policies and most significant estimates and assumptions used in the preparation of our financial statements. These accounting policies conform to the accounting policies contained in the consolidated financial statements included in this annual report.

     Accounting Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes and, in particular, estimates of contract costs and revenues used in the earnings recognition process. We have recorded all estimated contract losses that are reasonably estimable and probable. To enhance reliability in our estimates, we employ a rigorous estimating process that is reviewed and updated at least on a quarterly basis. However, actual results could differ from those estimates.

     Revenue and Profit 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 profits on contracts are recognized using percentage-of-completion methods of accounting. Revenue and profits are recognized on production contracts as units are delivered and accepted by the customer (the “units-of-delivery” method). Under the percentage-of-completion method of accounting, a single estimated total profit margin is used to recognize profit for each contract over its entire period of performance, which can exceed one year. Amounts representing contract change orders or claims are included in revenue only when they are received.

     Additionally, some contracts contain provisions, price re-determination or cost and/or performance incentives. Such amounts or incentives are included in revenue when the amounts can be reliably estimated and their realization is reasonably assured. The impact of revisions in profit 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 Vought’s results of operations and cash flows, as well as Vought’s 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:

     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. The estimated profit or loss on a contract is equal to the difference between the total contract value and the estimated total costs at completion. Under the units-of-delivery percentage of completion 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 profit recorded on a contract under the units-of-delivery method is equal to the estimated total profit margin for the contract stated as a percentage of contract revenue multiplied by the revenue recorded on the contract during the period. 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.

     Although fixed-price contracts, which may extend several years into the future, generally permit us to keep unexpected profits if costs are less than projected, we also bear the risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on the contract. In a fixed-price contract, we must fully absorb cost overruns, not withstanding the difficulty of estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of revenue that may otherwise be achieved. Our failure to anticipate technical problems, estimate delivery reductions, estimate costs accurately or control costs during performance of a fixed price contract may reduce the profitability of a fixed price contract or cause a loss. We believe we have recorded adequate provisions in the financial statements for expected losses on fixed-price contracts, but we cannot be certain that the contract loss provisions will be adequate to cover all actual future losses.

     As mentioned above, the vast majority of our revenue is related to the sale of manufactured end item products and spare parts. Any revenue related to the provision of services is accounted for separately and is not material to our results of operations.

     Inventories. Inventoried costs primarily relate to work in process and represent accumulated contract costs less the portion of such costs allocated to delivered items. Accumulated contract costs include direct production costs, manufacturing and engineering overhead, production tooling costs, and certain general and administration expenses.

     In accordance with industry practice, inventoried costs are classified as a current asset and include amounts related to contracts having production cycles longer than one year; therefore, a portion thereof will not be realized within one year.

     Goodwill. Goodwill is tested for impairment at least annually, by reporting unit 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 in 2007, 2006 or 2005.

     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.

     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.

     Post-retirement Plans. The liabilities and net periodic cost of our pension and other postretirement 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. Assumptions are based upon management’s best estimates, after consulting with outside investment advisors and actuaries, as of the annual measurement date.

     The assumed discount rate utilized is based on a point in time estimate as of our December 31 annual measurement date. 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 effect of changing the discount rate 25 basis points is shown in Note 14 to the Consolidated Financial Statements in Item 8.

     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 has been projected at 8.5% in 2007, 2006 and 2005. 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 are unfunded as of December 31, 2007. 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. A one-percentage point shift in the medical trend rate would have the effect shown in Note 14 to the Consolidated Financial Statements in Item 8.

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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 158”). SFAS 158 requires an employer that is a business entity and sponsors one or more single employer benefit plans to recognize the funded status of the benefit obligation in its statement of financial position. The funded status is measured as the difference between the fair value of the plan’s assets and the projected benefit obligation (PBO) or accumulated postretirement benefit obligation (APBO) of the plan. We have implemented SFAS 158 in our financial statements for the year ending December 31, 2007. In order to recognize the funded status, we determined the fair value of the plan assets. The majority of our plan assets are publicly traded investments which were valued based on the December 31, 2007 market price. Investments that are not publicly traded, were valued them based on the most current version of available financial statements and due diligence was performed to ensure the valuation process and results were reasonable.

     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 impact the amount of interest we must pay on our variable-rate debt. 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 unbilled, 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 historical 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 are focused on mitigating the impact of commodity price risk. We have long-term supply agreements with a number of our major suppliers. We, as well as our supply base, are experiencing delays in the receipt of and price increases on metallic raw materials. Through 2008, we forecast that these raw material price increases will slow considerably. However, based upon market shift conditions and industry analysis we expect price increases to return in 2009 and beyond due to increased infrastructure demand in China and Russia, and increased aluminum and titanium usage in an ever wider range of global products. We generally do not employ forward contracts or other financial instruments to hedge commodity price risk, however, we are reviewing a full range of business options focused on strategic risk management for all raw material commodities.

     Our suppliers’ failure to provide acceptable raw materials, components, kits and subassemblies would 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 are dependent on third parties for all information technology services. To a lesser extent, we also are exposed to fluctuations in the prices of certain utilities and services, such as electricity, natural gas, chemical processing and freight. We utilize a range of long-term agreements and strategic aggregated sourcing to optimize procurement expense and supply risk in these categories.

     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. Management believes that such contracts and agreements have been executed with creditworthy financial institutions. As such, we consider the risk of nonperformance to be remote.

     Management has performed sensitivity analyses to determine how market rate changes will affect the fair value of the 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 rate movements. We are exposed to cash flow risk due to changes in interest rates with respect to the entire $413.0 million of variable rate debt under our senior secured credit facilities. A one-percentage point increase in interest rates on our variable rate debt as of December 31, 2007 would decrease our annual pre-tax income by approximately $4.1 million. While there was no debt outstanding under our revolving credit facility at December 31, 2007, any future borrowings would be 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.

     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 may continue to manage market risk with respect to interest rates by entering into hedge agreements, as we have done in the past.

     We are subject to foreign currency exchange rate risk 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 has been minimized. However, as the strength of the US Dollar continues to decline, we may be forced to renegotiate with our suppliers and customers to avoid a significant impact to our margins and results of operations

     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.

     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) requires an acquirer to recognize the assets acquired, the liabilities assumed, any non-controlling interest in the acquiree, and any goodwill acquired to be measured at their fair value at the acquisition date. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for acquisitions occurring in fiscal years beginning after December 15, 2008. The adoption of SFAS No. 141(R) will have an impact on accounting for business combinations that occur after the adoption date.

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 expands the use of fair value measurement by permitting entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective beginning the first fiscal year that begins after November 15, 2007. We adopted SFAS No. 159 on January 1, 2008 and it has not materially affected our financial statements.

     In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements. SFAS 157 is effective for our fiscal year beginning January 1, 2008. The adoption of SFAS 157 has not materially affected our financial statements.

The Board of Directors
Vought Aircraft Industries, Inc.

We have audited the accompanying consolidated balance sheets of Vought Aircraft Industries and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vought Aircraft Industries, Inc. and subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for Share-Based Payments in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004) on January 1, 2006. As discussed in Note 14 to the consolidated financial statements, the Company changed its method of accounting for its defined-benefit pension and other postretirement plans in accordance with Statement of Financial Accounting Standards No. 158 on December 31, 2007. As discussed in Note 15 to the consolidated financial statements, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) on January 1, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Vought Aircraft Industries, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2008 expressed an unqualified opinion thereon.

Fort Worth, Texas
March 13, 2008