UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2008~~ 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to ________to __________

Commission File No. 333-112528

Vought Aircraft Industries, Inc.

(Exact name of registrant as specified in its charter)


Delaware		75-2884072
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

201 East John Carpenter Freeway, Tower 1, Suite 900 Irving, Texas 75062 ~~(Address of principal executive offices including zip code)~~

(~~972) 946-2011 (Registrant’s~~Address ~~telephone~~of ~~number~~principal ~~and~~executive ~~area~~offices including zip code) (972) 946-2011

(Registrant’s telephone number and area code) Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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~~checkmark ~~mark~~ whether the registrant ishas asubmitted ~~large~~electronically ~~accelerated~~and ~~filer,~~posted anon ~~accelerated~~its corporate ~~filer~~website, aif ~~non-accelerated filer~~any, orevery aInteractive ~~smaller~~Data ~~reporting~~File ~~company.~~required ~~See~~to ~~the~~be ~~definitions~~submitted and posted pursuant to Rule 405 of ~~“large~~Regulation S-T ~~accelerated~~(§232.405 ~~filer,”~~of ~~“accelerated~~this ~~filer”~~chapter) ~~and~~during ~~“smaller~~the ~~reporting~~preceding ~~company”~~12 months (or infor ~~Rule~~such ~~12b-2~~shorter ofperiod that the ~~Exchange~~registrant ~~Act.~~was ~~(Check~~required ~~one~~to submit and post such files):. Yes o No o

~~Large~~ Indicate ~~accelerated~~by ~~filer~~check omark ~~Accelerated~~whether ~~filer~~the oregistrant ~~Non-~~is a large accelerated filer, ~~þ(Do~~an ~~not~~accelerated filer, ~~check~~a ifnon-accelerated filer, or a ~~smaller~~small reporting company). ~~Smaller~~See ~~reporting~~definitions ~~company~~in oRule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Small reporting company o
		(Do not check if a smaller reporting company)

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 1325, ~~2009~~2010, there were 24,818,~~806~~900 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

		Page
~~PART I~~	PART I
Item 1.	Business		1
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		2524
Item 2.	Properties		2625
Item 3.	Legal Proceedings		2725
Item 4.	~~Submission of Matters to a Vote of Security Holders~~[Reserved]		27
~~PART II~~	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		2827
Item 6.	Selected Financial Data		2928
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3029
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		4543
Item 8.	Financial Statements and Supplementary Data		4847
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		9295
Item 9A.	Controls and Procedures		9295
Item 9B.	Other Information		9497
~~PART III~~	PART III
Item 10.	Directors, Executive Officers and Corporate Governance		9598
Item 11.	Executive Compensation		99102
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		~~112~~118
Item 13.	Certain Relationships, Related Transactions and Director Independence		~~114~~120
Item 14.	Principal Accountant Fees and Services		~~116~~122
~~PART IV~~	PART IV
Item 15.	Exhibits and Financial Statement Schedules		~~117~~124
EX-10.4
EX-2.5
EX-10.5
EX-10.14
EX-10.7
EX-10.9
EX-10.11
EX-10.12
EX-10.13
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Certain Definitions

Unless the context requires otherwise, all references in this report to “Vought”, “Company”, “our company”, “we”, “our”, “us” and similar terms refer to Vought Aircraft Industries, Inc. and its wholly owned subsidiaries, VAC Industries, Inc., Vought Commercial Aircraft ~~Corporation~~Company and ~~Contour~~ Contour Aerospace Corporation ~~(“Contour”)~~.

Cautionary Statement Regarding Forward Looking Statements

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward looking statements are based upon our current expectations and projections about future events. When used in this annual report on Form 10-K, the words “‘‘believe,” “‘‘anticipate,” “‘‘intend,” “‘‘estimate,” “‘‘expect,” “‘‘should,” “‘‘may” and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this annual report are primarily located in the material set forth under the headings “‘‘Business,” “‘‘Risk Factors” and “‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations” but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this annual report completely and with the understanding that actual future results may be materially different from what we expect. We will not update forward-looking statements even though our situation may change in the future.

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

• ~~significant considerations and risks discussed in this report; •~~ global and domestic financial market ~~conditions~~ and the results of financing efforts; • market risks related to the refinancing of our indebtedness; • competition; • operating risks and the amounts and timing of revenues and expenses; • project delays or cancellations; • product liability claims; • global and domestic market or business conditions and fluctuations in demand for our products and services; • the impact of recent and future federal and state regulatory proceedings and changes, including changes in environmental and other laws and regulations to which we are subject, as well as changes in the application of existing laws and regulations; • political, legal, regulatory, governmental, administrative and economic conditions ~~and developments in the United States and internationally~~; • the effect of and changes in economic conditions in the areas in which we operate; • returns on pension assets and impacts of future discount rate changes on pension obligations; • environmental constraints on operations and environmental liabilities arising out of past or present operations; • current and future litigation; • the direct or indirect impact on our company’s business resulting from terrorist incidents or responses to such incidents, including the effect on the availability of and premiums on insurance; and • weather and other natural phenomena.

•

market risks related to the refinancing of our indebtedness;

•

competition;

•

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

•

project delays or cancellations;

•

product liability claims;

•

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

•

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

•

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

•

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

•

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

•

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

•

current and future litigation;

•

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

•

weather and other natural phenomena.

PART I

Item 1. Business

Overview

We are a leading global manufacturer of aerostructure products for commercial, military and business jet aircraft. We develop and manufacture a wide range of complex aerostructures such as fuselages, wing and tail assemblies, engine nacelles, flight control surfaces as well as helicopter cabins. Our diverse and long-standing customer base consists of the leading aerospace original equipment manufacturers, or OEMs, including Airbus, Boeing, Cessna, Gulfstream, Hawker Beechcraft, Lockheed Martin, Northrop Grumman and Sikorsky, as well as the U.S. Air Force. We believe that our new product and program development expertise, engineering and composite capabilities, the importance of the products we supply and the advanced manufacturing capabilities we offer make us a critical partner to our customers. We collaborate with our customers and use the latest technologies to address their needs for complex, highly engineered aerostructure components and subsystems. Our products are used on many of the largest and longest running programs in the aerospace industry, including the Airbus 330/340, Boeing ~~747~~737, 767, 777 and C-17 Globemaster III, Lockheed Martin C-130, Sikorsky H-60, Gulfstream G350, G450, G500 and G550, as well as significant ~~derivative~~ derivative aircraft programs such as the 747-8. We are also a key supplier to our customers on ~~newer~~ newer platforms, which we believe have high growth potential, such as the ~~Boeing~~Northrop ~~787~~Grumman ~~Dreamliner,~~ Global Hawk unmanned aerial vehicle, ~~V-22~~Boeing ~~Osprey~~787 and HBoeing V-6022 ~~series of helicopters, which we refer to as Black Hawk~~Osprey. We generated revenue of approximately $1.89 billion for the year ended December 31, ~~2008~~ 2009. See our consolidated statement of operations in Item 8 of this report.

On March 23, 2010, we entered into a merger agreement with Triumph Group, Inc. (“Triumph”) pursuant to which we will be acquired by Triumph. It is anticipated that in connection with that transaction all of our currently outstanding material indebtedness will be repaid in full. Triumph is a public company listed on the NYSE under the ticker symbol “TGI,” and is a designer, engineer, manufacturer, repairer and over hauler of aircraft components and accessories. For more information regarding this transaction, see Item 9B of this Form 10-K.

Markets

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. Demand for the aerostructures we produce is largely driven by aircraft build rates, which are, in turn, driven by demand for new aircraft. ~~This~~ ~~demand is influenced by market and economic trends within the commercial, military and business jet markets.~~ The competitive outlook and major growth drivers 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:

• Large wide-body aircraft with twin aisles (more than 200 seats). This category includes the Boeing 747-8, 767, 777 and 787 and the Airbus A330/340 and A380, as well as the A350XWB, planned for entry into service in 2013. • Smaller narrow-body aircraft with single aisles (excluding regional aircraft) (100 to 200 seats). This category includes the Boeing 737 and the Airbus A320 family (A318/319/320/321). • Regional jets (approximately 40 to 110 seats). This category includes the Bombardier CRJ Series and the Embraer ERJ 135, 140 and 145 aircraft. Embraer also produces larger (70-108 seats) regional aircraft such as the ERJ 170/175 and ERJ 190/195.

•

Smaller narrow-body aircraft with single aisles (excluding regional aircraft) (100 to 200 seats). This category includes the Boeing 737, the Bombadier C series and the Airbus A320 family (A318/319/320/321).

•

Regional jets (approximately 40 to 110 seats). This category includes the Bombardier CRJ Series and the Embraer ERJ 135, 140 and 145 aircraft. Embraer also produces larger (70-108 seats) regional aircraft such as the ERJ 170/175 and ERJ 190/195.

Demand for new commercial aircraft is driven by many factors, including general economic conditions, passenger and cargo air traffic, airline profitability, the introduction of new aircraft models, and the availability and profile of used aircraft. The primary manufacturers of large commercial aircraft are Airbus and Boeing, both of which have projected significant growth in the number of commercial and freighter aircraft in service over the next 20 years.

While Boeing and Airbus generally agree inon the magnitude of the growth in the commercial 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~~ growth projections for the commercial aircraft market used in their latest market forecasts are:

	Annual Passenger Revenue Growth	Annual ~~Passenger~~Cargo Revenue Growth			~~Annual Cargo Revenue Growth~~
Airbus	4.7%	5.2%	~~4.9~~	%		~~5.8~~	%
Boeing	4.9%	5.4%	~~5.0~~	%		~~5.8~~	%

However, forecasters have been unable to predict the peaks and troughs of the aviation cycle, including the significant downturn in production volumes post-2001, or the dramatic increase in ~~orders~~ orders for commercial aircraft from 2005-2008 or the current downturn in production volumes. We believe that ~~any~~the ~~future~~current reductions in delivery rates will ~~be,~~continue through at least inthe ~~part,~~end ~~due~~of 2010. toHowever, ~~recent~~as economic ~~market~~ conditions improve, we anticipate that delivery rates will increase in line with the long-term forecast for commercial aircraft.

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

• Transport Aircraft or Cargo Aircraft —This aircraft category is characterized by the capability to transport troops, equipment and humanitarian aid including aircraft with the capability to operate from short and roughly prepared airfields or to perform airdrops of troops and equipment when landing is not an option. There are generally three classes of cargo aircraft: large cargo aircraft, such as the C-17 Globemaster III, C-5 Galaxy and AN124; medium cargo aircraft, such as the C-130J Hercules and the Airbus A400M, which is under development; and small cargo aircraft, such as the C-2327J ~~Sherpa and the C-27~~ Spartan. ~~• Unmanned Air Vehicles (“UAVs”) — Currently this class of aircraft is generally used for observation~~ and ~~command~~EADS ~~and~~CASA control. Increasingly important in the U.S. military strategy, the use of this class of aircraft is broadening into weapons delivery and air combat. Examples include Global Hawk, the Predator and the Hunter. • Rotorcraft — The missions of the rotorcraft fleet are broad and varied and are critical to the war efforts in Iraq and Afghanistan. The critical missions that rotorcraft serve include intraC-~~theatre cargo delivery, troop transport and rapid insertion, observation and patrol, ground attack and search and rescue~~295. All models are seeing heavy use in Iraq and Afghanistan and, as a result, the delivery rates are increasing on most models due to the wear and damage the aircraft are experiencing. Examples include the H-60, sometimes referred to as Black Hawk, V-22 Osprey, CH-47 Chinook and the AH-64 Apache. • Fighter and Attack Aircraft — Fighter aircraft are used in air-to-air combat and provide air superiority over the battle space. This role enables other friendly aircraft to perform their missions. Attack aircraft are used to support ground troops in close air support roles and penetrating attacks. This category includes the F-22 Raptor, F-15E Eagle, A-10 Thunderbolt II, the F/A-18 Super Hornet and the F-35 Lightning II, which is expected to enter service in 2010. • Aerial Tanker Aircraft — Tankers used to deliver fuel to other aircraft while airborne are essential to the effective use of combat and support aircraft. Previously, the Air Force planned to replace the KC-135 with the KC-45A tanker based on modified versions of either the Airbus A330 or the Boeing 767 commercial airframe. We provide aerostructures for both of these aircraft and as a result we do not expect our results of operations to be materially affected by the selection. We expect that the Air Force will recommence procurement activities to replace the KC-135 during this administration.

~~Demand~~• ~~for~~Unmanned ~~new~~Air ~~military~~Vehicles ~~aircraft~~(“UAVs”) in— ~~the~~Currently ~~U.S.~~this isclass ~~driven~~of byaircraft ~~the~~is ~~national~~generally ~~defense~~used ~~budget, procurement~~for ~~funding~~observation ~~decisions,~~and ~~geopolitical~~command ~~conditions worldwide~~ and ~~current operational use of the existing fleet~~control. ~~President~~Increasingly ~~Obama’s~~important ~~defense~~in ~~leadership team is expected to release~~ the ~~FY 2010 procurement defense budget in April 2009~~U.S. ~~We expect that demand for our~~ military ~~products~~strategy, ~~should remain strong for~~ the ~~next~~use ~~several~~of ~~years~~this ~~due~~class toof ~~the~~aircraft ~~continuing~~is ~~and~~broadening ~~anticipated~~into ~~pace~~weapons ofdelivery ~~military operations~~ and ~~the~~air Ucombat.S. ~~military’s~~Examples ~~need~~include toGlobal ~~more~~Hawk, ~~rapidly~~the ~~repair~~Predator orand ~~replace~~the ~~its existing fleet of equipment~~Hunter.

•

Rotorcraft — The missions of the rotorcraft fleet are broad and varied and are critical to the war efforts in Iraq and Afghanistan. The critical missions that rotorcraft serve include intra-theatre cargo delivery, troop transport and rapid insertion, observation and patrol, ground attack and search and rescue and Special Operations. All models are seeing heavy use in Iraq and Afghanistan and, as a result, the delivery rates are increasing on most models due to the wear and damage the aircraft are experiencing. Examples include the H-60, sometimes referred to as Black Hawk, V-22 Osprey, CH-47 Chinook and the AH-64 Apache.

•

Fighter and Attack Aircraft — Fighter aircraft are used in air-to-air combat and provide air superiority over the battle space. This role enables other friendly aircraft to perform their missions. Attack aircraft are used to support ground troops in close air support roles and penetrating attacks. This category includes the F-22 Raptor, F-15E Eagle, A-10 Thunderbolt II, the F/A-18 Super Hornet and the F-35 Lightning II.

•

Aerial Tanker Aircraft — Tankers used to deliver fuel to other aircraft while airborne are essential to the effective use of combat and support aircraft. The Air Force issued a RFP to replace the KC-135 with the KC-X tanker. Boeing has indicated that it plans to base its entrant on a modified version of the 767 commercial airframe and we provide aerostructures for that aircraft.

Demand for new military aircraft in the U.S. is driven by the national defense budget, procurement funding decisions, geopolitical conditions worldwide and current operational use of the existing fleet. We expect that demand for our military products should remain strong for the next several years due to the continuing and anticipated pace of military operations and the U.S. military’s need to more rapidly repair or replace its existing fleet of equipment.

Business Jet Aircraft Market. The business jet market includes personal and business jet aircraft with a worldwide fleet today exceeding 14,000 aircraft. There are currently more than 40 different models of business jets in production or development, ranging from Very Light Jets (VLJ) seating four passengers to transcontinental business jets that carry up to 19 passengers. The business jet market is generally classified into three major segments: Light (which include VLJ, Entry and Light jets with sale prices ranging from approximately $1 million to $10 million per aircraft), Medium (which include Light-Mid, Medium and Super-Mid jets with sale prices ranging from approximately $10 million to $20 million per aircraft), and Heavy (which include Heavy, Long Range and Ultra Long Range jets with sale prices ranging from approximately $20 million to $45 million per aircraft). The primary business jet aircraft manufacturers are Bombardier, Cessna, Dassault Aviation, Embraer, Gulfstream and Hawker Beechcraft.

The U.S. 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.

~~General~~ The business aviation market has been highly cyclical with general economic activity and corporate profitability ~~continue~~driving tothe ~~drive~~ demand for new business jet aircraft. InAs ~~addition,~~a ~~business~~result ~~jet~~of ~~aircraft~~the economic ~~have~~downturn ~~increasingly~~experienced ~~been~~during ~~used~~2008 asand ~~an alternative~~2009, tothe ~~commercial~~business ~~aircraft~~aviation ~~transportation~~segment ~~due~~has suffered tosignificantly. ~~security~~However, ~~concerns~~as ~~and~~the ~~convenience.~~economy Asbegins ~~the~~to ~~popularity~~rebound, ofit ~~business~~is ~~jet~~anticipated ~~aircraft~~that ~~grew~~the ~~over~~business ~~the~~jet ~~past~~aircraft ~~decade,~~market ~~several~~will ~~companies~~experience ~~offered fractional jet ownership~~growth. ~~However~~Additionally, wegrowth ~~believe~~in the ~~recent degradation~~business ofjet ~~these~~segment ~~factors~~is expected ~~and~~to ~~public~~occur ~~sensitivity~~in ~~towards~~emerging ~~corporate~~markets ~~jet~~such ~~ownership~~as ~~are~~Eastern ~~likely~~Europe, ~~to negatively~~Asia ~~impact~~and ~~demand~~the Middle East. As a major supplier to the top-selling Gulfstream G350, G450, G500 and G550 aircraft, and the Citation X program ~~and Citation Columbus — Model 850 program~~, we believe we are well positioned in key segments of the business jet market.

Products and Programs.

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

• fuselage sections (including upper and lower ramp assemblies, skin panels, aft sections, and pressure bulkheads); • complete integrated fuselage barrels; • wings and wing assemblies (including skin panels, spars and leading edges); • empennages (tail assemblies, including horizontal and vertical stabilizers, horizontal and vertical leading edge assemblies, elevators and rudders); • nacelles and nacelle components (the structures around engines, including fan cowls, inlet cowls, pylons and exhaust nozzles); • rotorcraft cabins and substructures; • detail parts (metallic and composite); and • control surfaces (including flaps, ailerons, rudders, spoilers and elevators).

We• ~~have~~wings aand ~~diverse~~wing ~~base~~assemblies of(including ~~contracts~~skin ~~in each of the significant aerospace markets described above. The following chart summarizes our revenue for the years ended December 31~~panels, ~~2008~~spars, ~~2007~~ and ~~2006.~~ ~~See~~leading ~~our consolidated financial statements included in Item 8 of this report for a more detailed description of our historical results of operations.~~ edges);

	Year Ended					Year Ended					Year Ended
	December 31, 2008					December 31, 2007					December 31, 2006
			Percent					Percent					Percent
			of Total					of Total					of Total
	Revenue		Revenue			Revenue		Revenue			Revenue		Revenue
						($ in millions)
Revenue:
Commercial		869.7		48	%		794.5		49	%		699.3		45	%
Military		607.4		34	%		530.0		33	%		560.9		36	%
Business jets		319.5		18	%		301.0		18	%		290.7		19	%
Total revenue	$	1,796.6		100	%	$	1,625.5		100	%	$	1,550.9		100	%

•

empennages (tail assemblies, including horizontal and vertical stabilizers, horizontal and vertical leading edge assemblies, elevators and rudders);

•

nacelles and nacelle components (the structures around engines, including fan cowls, inlet cowls, pylons and exhaust nozzles);

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rotorcraft cabins and substructures;

•

detail parts (metallic and composite); and

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control surfaces (including flaps, ailerons, rudders, spoilers and elevators).

We have a diverse base of contracts in each of the significant aerospace markets described above. The following chart summarizes our revenue for the years ended December 31, 2009, 2008 and 2007. See our consolidated financial statements included in Item 8 of this report for a more detailed description of our historical results of operations.


	Year Ended					Year Ended					Year Ended
	December 31, 2009					December 31, 2008					December 31, 2007
			Percent					Percent					Percent
			of Total					of Total					of Total
	Revenue		Revenue			Revenue		Revenue			Revenue		Revenue
						($ in millions)
Revenue:
Commercial		946.7		50	%		848.1		48	%		782.1		48	%
Military		664.3		35	%		607.4		34	%		530.0		33	%
Business jets		266.8		15	%		319.5		18	%		301.0		19	%

Total revenue	$	1,877.8		100	%	$	1,775.0		100	%	$	1,613.1		100	%

The tables in the following three categories summarize the major 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 year of commencement of the program. For the purposes of the tables, we are considered a sole-source provider if we are currently the only provider of the structures we supply for that program. The year of commencement of a program is the year a contract was signed with the OEM.

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 are also one of the largest U.S. manufacturers of aerostructures for Airbus and have more than 20 years of commercial aircraft experience with the various Airbus entities. Our major commercial programs are summarized as follows:

Commercial Aircraft			Year Program
Customer/Platform	Product	Sole-Source	Commenced
Airbus
A330/340	Upper skin panel assemblies, center spar and midrear spar, mid and outboard leading edge assemblies	ü		1988
A340-500/600	Upper skin panel, stringers, center spar and midrear spar, mid and outboard leading edge assemblies	ü		1998
Boeing
737	Inboard flaps			2009
747	Fuselage panels and empennage (vertical stabilizer, horizontal stabilizer and aft body section)	ü		1966
767	Wing center section, horizontal stabilizer and aft fuselage section	ü		1980
777	1993 — Inboard flaps, spoilers and spare requirements 2009 — outboard flaps and ailerons	ü		1993, 2009
787	~~Composite~~Detail ~~aft~~parts ~~fuselage~~ and ~~integrated~~frame ~~systems~~assembly	ü		2005

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. Our major military programs are summarized as follows:

Military Aircraft			Year Program
Customer/Platform	Product	Sole-Source	Commenced
Bell/Boeing
V-22 Osprey	Fuselage skin panels, empennage (sole-source) and ramp door assemblies			1993
Boeing
C-17 Globemaster III	Empennage and nacelle components	ü		1983
Lockheed Martin
C-130J Hercules	Empennage	ü		1953
Northrop Grumman
E-2	Bond assemblies, detail fabrication and machine parts for outer wing panels and fuselage			2000
Global Hawk	Integrated composite wing	ü		1999
Sikorsky
H-60	Cabin structure			2004
U.S. Air Force
C-5 Galaxy	Flaps, slats, elevators, wing tips and panels			2002

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 G350, G450, G500, and G550 models. ~~Recently,~~ ~~we won a contract for the design and manufacturing of wings for the Cessna Citation Columbus — Model 850.~~ Our major business jet programs are summarized as follows:

Business Jet Aircraft			Year Program
Customer/Platform	Product	Sole-Source	Commenced
Cessna
Citation X	Upper and lower wing skin assemblies	ü		1992
Citation Columbus - Model 850	Wing boxes including slats	ü		2008
Gulfstream
G350 and G450	Nacelle components and wing boxes	ü		1983
G500 and G550	Integrated wings	ü		1993
Hawker Beechcraft
Hawker 800	Nacelle components	ü		1981

Competitive Strengths

Leading, Diversified Position in the Aerostructures Market. We are a leading global manufacturer of aerostructures with a diverse mix of programs serving the commercial, military and business jet markets. Of our $1,~~796~~877.68 million in total revenue for ~~2008~~2009, $~~869~~946.7 million, $~~607~~664.43 million and $~~319~~266.58 million were derived from sales to the commercial, military and business jet markets, respectively. We manufacture aerostructures for Boeing and Airbus, the world’s leading commercial aircraft OEMs. We also provide aerostructures for a variety of military aircraft platforms utilized by all branches of the U.S. military, including transport, tanker, surveillance, rotor aircraft and UAVs. Our business jet customers include some of the largest business jet aircraft manufacturers worldwide such as Cessna and Gulfstream.

Sole-Source Provider on High Volume, Long-Lived Commercial Platforms. We are a market leader on many long-lived commercial programs and are well positioned to capitalize on future growth in these established programs and other new program launches. We have a long history of new program development and have played a key role in the development of many of today’s most important commercial ~~legacy~~ platforms including the 747, 767, 777, 787 and A330/340 since their inceptions ~~in 1966, 1980, 1993 and 1988, respectively~~. The success of these and other legacy programs provides a strong foundation for our business and positions us well for future growth on new programs and ~~derivatives~~ ~~that~~new ~~are currently in development~~derivatives. For example, we have extended our participation in the 747 program with the new 747-8 derivative~~, which is currently under development~~. ~~We also have a~~ ~~significant role in the design and manufacturing of the 787, which is expected to be a long-lived program with multiple derivative models.~~

Strong Incumbent Position on Key Long-Lived Military Programs. We have a long history serving a diverse range of military aircraft programs, with particular strength in fixed-wing transport and rotor aircraft. We are the sole-source provider for several of the structures that we provide under our military programs. We have been a key supplier to the C-130 program since its inception in 1953 and the C-17 Globemaster III since its inception in 1983. We are also a key provider on newer military programs with high growth potential such as the V-22 Osprey, and Global Hawk ~~and H-60~~. Our key customers in the military market are Boeing, Lockheed Martin, Northrop Grumman, Sikorsky and the U.S. Air Force.

Attractive Business Model. Our business model has several attractive features, including:

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Strong, Stable Cash Flow From Legacy Programs. Revenue from legacy aircraft programs, such as the C-17, V-22, Global Hawk, 767, 777 and A330/340 which require only moderate capital expenditures to support current delivery rates, provides us with a source of strong, recurring cash flow.

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Significant Revenue Visibility. Most of our 2009 revenues were generated under long-term contracts and from programs on which we are the sole-source provider. Our customers typically place orders well in advance of required deliveries, which gives us considerable visibility with respect to our future revenues. These advance orders also generally create a significant backlog for us, which was approximately $2.1 billion at December 31, 2009.

~~Attractive~~• ~~Business~~Opportunity ~~Model~~to Participate on Next Generation Aircraft. Our long history with our customers and our engineering, design and technology expertise positions us to be a key aerostructures provider on future derivatives of existing programs, such as Boeing’s 747-8. We believe we are well positioned to compete for new business ~~model~~on ~~has~~next ~~several~~generation ~~attractive~~commercial ~~features~~wide body, ~~including:~~ narrow body, regional jet, business jet and military programs.

• Strong, Stable Cash Flow From Legacy Programs. Revenue from legacy aircraft programs, such as the C-17, 767, 777 and A330/340 which require only moderate capital expenditures to support current delivery rates, provides us with a source of strong, recurring cash flow. • Significant Revenue Visibility. Most of our 2008 revenues were generated under long-term contracts and from programs on which we are the sole-source provider. Our customers typically place orders well in advance of required deliveries, which gives us considerable visibility with respect to our future revenues. These advance orders also generally create a significant backlog for us, which was approximately $3.8 billion at December 31, 2008. • Opportunity to Participate on Next Generation Aircraft. Our long history with our customers and our engineering, design and technology expertise positions us to be a key aerostructures provider for new aircraft, such as the 787 and Cessna Citation Columbus — Model 850 business jet, and to provide aerostructures on future derivatives of existing programs, such as Boeing’s 747-8. We believe we are well positioned to compete for new business on next generation commercial wide body, narrow body, regional jet, business jet and military programs.

Advanced Manufacturing and Technical Capabilities. We are a leading global manufacturer of some of the largest and most technologically advanced parts and assemblies for a diverse range of aircraft. Our capabilities include precision assembly techniques, automated assembly processes and large-bed machining and the fabrication of large composite fiber reinforced parts. As a key program partner on the 787 program, we have enhanced our industry-leading capability in the design, manufacturing and integration of complex composite structures. Our systems integration capabilities and ability to support challenging new aircraft schedules with cost-effective design and manufacturing solutions makes us a preferred partner for our OEM customers. These advanced capabilities are integral to our ability to continue to create innovative products and services for current and next generation aircraft programs.

High Barriers to Entry with High Switching Costs for Customers. It would be challenging for new competitors to enter the aerostructures market due to the significant time and capital expenditures necessary to develop the capabilities to design, manufacture, test and certify aerostructure parts and assemblies. When competing for contract awards, new entrants would be required to make substantial up-front investment as well as develop and demonstrate sophisticated manufacturing expertise and experienced-based industry and aircraft program knowledge. Furthermore, aerostructure manufacturers must have extensive certifications and approvals from customers and government regulators, such as the Defense Contract Management Agency and the FAA. Additionally, due to the risk of serious production delays from switching suppliers and the high cost of additional testing and certification, we believe that OEMs are unlikely to change an aerostructure supplier after initial manufacturing contracts have been awarded.

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~~key military transport programs, including the C-17 Globemaster III, as well as the important rotorcraft military segment, with V-22 Osprey tilt rotor transport and the H-60 helicopter. Additionally, we provide the integrated wing on the highly successful Global Hawk UAV.

Strong and Experienced Management Team. We have an experienced and proven management team with an average of over 21 years of aerospace and defense industry experience. This management team has been responsible for the successful revenue growth and cost reduction initiatives that have driven our increased productivity and profitability over the past several years.

Business Strategy

We intend to capitalize on our position as a leading global aerostructures manufacturer and on the expected long-term growth in the commercial, military and business jet markets. Specifically, we intend to:

Enhance our Position as a Strategic and Valued Partner to our Customers. We will focus on strengthening our customer relationships and expanding our market opportunities by partnering with our OEM customers on their current and future aircraft platforms. We strive to be our customers’ most valued partner through excellence in our product and process technologies and by providing access to modern and efficient production facilities. We expect to continue to improve our manufacturing efficiencies, continually making operational and process upgrades to maintain the highest standards of quality and on-time delivery.

Leverage Our Long History and Expertise Across Our Diverse Markets. We continue to pursue opportunities to increase our sales to new and existing customers across the commercial, military and business jet markets by capitalizing on opportunities both on existing platforms as well as on future derivative and next generation programs. We believe that we are well positioned to win additional business given the breadth of our customer relationships, capabilities and experience, and our quality of service and support.

• Legacy Programs: We believe we are well positioned on our important legacy commercial and business jet programs. We have the ability to accommodate higher production rates from our customers on those legacy programs. We also believe we have the capability to meet the future production needs of our military OEM customers and the U.S. Air Force. • Derivative Programs: We intend to utilize our incumbent position on existing programs to provide aerostructures on future derivative programs such as the Boeing 747-8 and any future derivative programs of the 787. • Next Generation Programs: Next generation aircraft programs will rely to a greater extent on streamlined assembly methods and advances in composite materials. We believe we are well positioned to participate in these programs, which will include next generation versions of the U.S. military tanker, narrow and wide body commercial aircraft and business jets. We believe we have developed certain distinguishing capabilities through our historical and current programs, including the 787, C-17, Global Hawk and V-22, which we intend to leverage in our pursuit of future business.6

ContinueTable to Provide Advanced Products and Technologies. We place a high priority on the ongoing technological development and application of our products and services. Our commitment to innovation is evidenced by the significant investment we have made in new program initiatives such as the investment in our composite fabrication and advanced manufacturing capabilities. We believe this important investment has made us an industry leader in technology and new product development, strengthened our customer relationships and positions us to generate new business on existing and future programs. Contents

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Legacy Programs: We believe we are well positioned on our important legacy commercial and business jet programs. We have the ability to accommodate higher production rates from our customers on those legacy programs when the economy rebounds. We also believe we have the capability to meet the future production needs of our military OEM customers and the U.S. Air Force.

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Derivative Programs: We intend to utilize our incumbent position on existing programs to provide aerostructures on derivative programs such as the Boeing 747-8.

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Next Generation Programs: Next generation aircraft programs will rely to a greater extent on streamlined assembly methods and advances in composite materials. We believe we are well positioned to participate in these programs, which will include next generation versions of the U.S. military tanker, narrow and wide body commercial aircraft and business jets. We believe we have developed certain distinguishing capabilities through our historical and current programs, including the 787, C-17, Global Hawk and V-22, which we intend to leverage in our pursuit of future business.

Continue to Provide Advanced Products and Technologies. We place a high priority on the ongoing technological development and application of our products and services. Our commitment to innovation is evidenced by the significant investment we have made in new program initiatives such as the investment in our composite fabrication and advanced manufacturing capabilities. We believe this important investment has made us an industry leader in technology and new product development, strengthened our customer relationships and positioned us to generate new business on existing and future programs.

Continue Operational Improvements. We will continue to implement the best operational practices that have already resulted in significant operational improvements with respect to safety, quality, schedule performance and productivity, which have contributed to increased profitability over the last two years. These best operational practices are institutionalized as part of what we refer to as the Vought Operating System, which is now implemented in all of our facilities to drive operational improvements.

Globalize Our Production Process. We intend to globalize our production process through initiatives such as global sourcing. We believe that our initiatives will allow us to reduce costs, expand our capabilities and provide strategic benefits to our customers.

Selectively Pursue Acquisitions or Mergers. We intend to selectively pursue acquisition ~~opportunities~~or merger opportunities that fit our business strategy, in particular opportunities that will further enhance and diversify our program portfolio as well as provide further technological differentiation.

Customers

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.

	Year Ended					Year Ended					Year Ended
	December 31, 2008					December 31, 2007					December 31, 2006
	December 31, 2009					December 31, 2008					December 31, 2007
			Percent					Percent					Percent
			of Total					of Total					of Total
Customers	Revenue		Revenue			Revenue		Revenue			Revenue		Revenue
	~~($ in millions)~~					($ in millions)
Airbus	$	~~222~~163.34		129	%	$	~~206~~222.23		13	%	$	~~161~~206.82		1013	%
Boeing		~~998~~1,188.08		5663	%		~~931~~976.4		5755	%		~~868~~919.50		5657	%
Gulfstream		~~275~~244.70		1513	%		~~259~~275.17		1615	%		~~248~~259.41		16	%
Total revenue to large customers		1,~~496~~596.02		8385	%		1,~~396~~474.74		8683	%		1,~~278~~384.73		8286	%
Total revenue	$	1,~~796~~877.68		100	%	$	1,~~625~~775.50		100	%	$	1,~~550~~613.91		100	%

Although the majority of our revenues are generated by sales into the U.S. market, as shown on the following table, a significant portion of our revenues are generated by sales to OEMs located outside of the United States.

	Year Ended					Year Ended					Year Ended
	December 31, 2008					December 31, 2007					December 31, 2006
	December 31, 2009					December 31, 2008					December 31, 2007
			Percent					Percent					Percent
			of Total					of Total					of Total
Revenue Source	Revenue		Revenue			Revenue		Revenue			Revenue		Revenue
	~~($ in millions)~~					($ in millions)
United States	$	1,~~574~~713.39		8891	%	$	1,~~419~~552.37		87	%	$	1,~~387~~406.59		8987	%
International (1)
England		~~153~~149.34		8	%		~~143~~153.03		9	%		~~118~~143.80		89	%
Other		6914.05		41	%		6369.20		4	%		4463.62		34	%
Total International		~~222~~163.39		129	%		~~206~~222.23		13	%		~~163~~206.42		1113	%
Total revenue	$	1,~~796~~877.68		100	%	$	1,~~625~~775.50		100	%	$	1,~~550~~613.91		100	%


(1)		Our primary international customer is Airbus.

Raw Materials, Purchased Parts and Suppliers

We depend on the availability of raw materials, component 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. Additionally, while certain of our current suppliers of raw material and components are the only suppliers used by our company at this time, we believe we can obtain such raw materials and components from other sources of supply, if necessary. However, certain of our contracts require that our suppliers be approved by our customers, which could result in significant delays or expenses in switching suppliers.

Our strategic sourcing initiatives seek to find ways of mitigating the inflationary pressures of the marketplace. In recent years, these inflationary pressures have affected the market for raw materials. However, we believe that raw material prices will remain stable ~~during~~through ~~2009~~the ~~and~~remainder of 2010 and after that, experience increases that are in line with inflation ~~as the global economy recovers~~. Additionally, if ~~the value of the US Dollar in relation to foreign currencies declines,~~ we ~~may face pressure to~~ ~~renegotiate~~generally ~~agreements~~do ~~with~~not ~~our~~employ ~~international~~forward ~~suppliers~~contracts ~~and~~or ~~customers~~other tofinancial ~~avoid~~instruments ~~a significant impact~~ to ~~our~~hedge ~~margins~~commodity ~~and results of operations~~price risk.

These macro-economic pressures may increase our operating costs with consequential risk to our cash flow and profitability. We generally do not employ forward contracts or other financial instruments to hedge commodity price risk, although we continuously explore supply chain risk mitigation strategies.

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

Research and Development and Specialized Engineering Services

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, ~~2008~~2009, ~~2007~~ 2008 and ~~2006~~2007, were $53.52 million, $45.45 million and $34.4 million, respectively, recorded in selling, general and administrative expenses in our income statement. We work jointly with our customers and the supply base to ensure that our investments complement the needs of our industry, rather than duplicate what our stakeholders are developing.

Intellectual Property

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.

Additionally, our business depends on using certain intellectual property and tooling that we have rights to use pursuant to license grants under our contracts with our OEM customers. These contracts contain restrictions on our use of the intellectual property and tooling and may be terminated if we violate certain of these restrictions. Our loss of a contract with an OEM customer and the related license rights to use an OEM’s intellectual property or tooling would materially adversely affect our business.

Competition

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, Fuji Heavy Industries, GKN Westland Aerospace (U.K.), Goodrich Corp., Kawasaki Heavy Industries, Mitsubishi Heavy Industries, Spirit AeroSystems and Stork Aerospace.

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:

• lower cost; • capacity limitations; • a business need or desire to utilize other’s unique engineering and design capabilities; • a desire to share the required upfront investment; • risk sharing; and • strategic reasons in support of sales.

9 • capacity limitations;

~~Table~~• ofa ~~Contents~~business need or desire to utilize other’s unique engineering and design capabilities;

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a desire to share the required upfront investment;

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risk sharing; and

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strategic reasons in support of sales.

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

• our underlying cost structure that enables a competitive price; • the readiness and availability of our facilities, equipment and personnel to undertake and nimbly implement the programs; • our engineering and design capabilities; • our ability to manufacture or rapidly procure both metal and composite structures; • our ability to support our customer’s needs for strategic work placement; and • our ability to finance the upfront costs of new contracts

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the readiness and availability of our facilities, equipment and personnel to undertake and nimbly implement the programs;

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our engineering and design capabilities;

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our ability to manufacture or rapidly procure both metal and composite structures;

•

our ability to support our customer’s needs for strategic work placement; and

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our ability to finance the upfront costs of new contracts

Government Regulation

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 has been certified as compliant with AS9100 (which is the general system standard for aerospace manufacturers, based on and including the requirements of ISO 9001), 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.

Employees

As of December 31, ~~2008~~2009, we employed approximately 65,~~500~~900 people. Of those employed at year-end, approximately 32,~~100~~800, or 4847%, are represented by ~~five~~four separate unions.

• Local 848 of the United Automobile, Aerospace and Agricultural Implement Workers of America represents approximately 2,100 of the employees located in Dallas and Grand Prairie, Texas. This union contract, which covers the majority of our production and maintenance employees at our Dallas and Grand Prairie, Texas facilities, is in effect through October 3, 2010. • Aero Lodge 735 of the International Association of Machinists and Aerospace Workers represents approximately 900 of the employees located in Nashville, Tennessee. This union contract is in effect through January 15, 2012. • Local 220 of the International Brotherhood of Electrical Workers represents 45 employees located in Dallas, Texas. This union contract is in effect through May 3, 2010.

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Aero Lodge 735 of the International Association of Machinists and Aerospace Workers represents approximately 650 of the employees located in Nashville, Tennessee. This union contract is in effect through January 15, 2012.

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Local 220 of the International Brotherhood of Electrical Workers represents 40 employees located in Dallas, Texas. This union contract is in effect through May 3, 2010.

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Local 263 of the Security, Police and Fire Professionals of America (formerly United Plant Guard Workers of America) represents 20 employees located in Dallas, Texas. This union contract is in effect through February 19, 2012.

We believe we have constructive working relationships with our unions and have generally been successful in negotiating collective bargaining agreements in the past. Before the 2008 strike at our Nashville facility by the employees represented by Local 735 of the IAM, we had not suffered an interruption of business as a result of a labor dispute since 1989. 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.

	•		Local 263 of the Security, Police and Fire Professionals of America (formerly United Plant Guard Workers of America) represents 23 employees located in Dallas, Texas. This union contract is in effect through February 19, 2012.
	•		District Lodge 96 of the International Association of Machinists and Aerospace Workers represents employees located in North Charleston, South Carolina. This union contract is in effect through November 7, 2011. As of December 31, 2008, there were only 71 active production and maintenance employees due to the temporary curtailment of our operations at this facility. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for further information on our curtailment.

We believe we have constructive working relationships with our unions and have generally been successful in negotiating collective bargaining agreements in the past. On September 27, 2008, however, employees represented by Local 735 of the IAM voted to commence a strike which continued until the bargaining unit ratified a new collective bargaining agreement on January 15, 2009. Although we were able to continue production during the course of that work stoppage through the use of contract labor and other non-represented personnel, the strike resulted in a $38.3 million cost impact during the year ended December 31, 2008. There can be no assurance that in the future we will reach an agreement with our unions on a timely basis or that we will not experience another work stoppage or labor disruption that could significantly and 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.

Backlog

A significant majority of our revenues are generated through long-term sole-source supply agreements with our OEM customers. Orders under these supply agreements are typically made well in advance of deliveries, which gives us considerable visibility with respect to our future revenues. These advance orders also generally create a significant backlog for us, which was $32.81 billion at December 31, ~~2008~~2009. Our calculation of backlog includes only firm orders for commercial and business jet programs and funded orders for government programs, which causes our backlog to be substantially lower than the estimated aggregate dollar value of our contracts and may not be comparable to others in the industry. 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.

Certain 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 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.

Environmental Matters

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 at the formerly Northrop Grumman Corporation sites 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 have no material outstanding or unasserted asbestos, urea formaldehyde foam insulation or lead-based paints liabilities including on property acquired from Northrop Grumman Corporation.

As of December 31, 2009, our balance sheet included an accrued liability of $2.4 million for accrued environmental liabilities.

The acquisition agreement between Northrop Grumman and us 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 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, 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.

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 currently there are no pending, material environmental claims related to the Nashville, Tennessee 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, 2008, our balance sheet included an accrued liability of $3.2 million for accrued environmental liabilities.

Company Information

Our heritage as an aircraft manufacturer extends to the company founded in 1917 by aviation pioneer Chance Milton Vought. From 1994 to 2000, we operated as Northrop Grumman’s commercial aircraft division. We were formed in 2000 in connection with The Carlyle Group’s acquisition of Northrop Grumman’s aerostructures business. In July 2003, we purchased The Aerostructures Corporation, with manufacturing sites in Nashville, Tennessee; Brea, California; and Everett, Washington.

We are a Delaware corporation with our principal executive offices located at 201 East John Carpenter Freeway, Tower 1, Suite 900, Irving, TX 75062, and we perform production work at sites throughout the United States, including California, Texas, Georgia, Tennessee, Florida, ~~South Carolina~~ and Washington. Our telephone number at our principal executive offices is (972) 946-2011. Our Internet website address is www.voughtaircraft.com. Information contained on our website is not part of this report and is not incorporated in this report by reference.

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings made pursuant to the Securities Exchange Act of 1934, as amended, are available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC. You can also obtain these reports directly from the SEC at their website, www.sec.gov, or you may visit the SEC in person at the SEC’s Public Reference Room at Station Place, 100 F. Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Item 1A. Risk Factors

Risks Relating to Our Business and Our Industry

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:

• global economic growth, which is a primary factor that both Boeing and Airbus use to forecast future production requirements. In particular, we may face ~~significant~~ challenges ifdue to the ~~current~~negative conditions in the financial markets ~~were to continue or worsen~~. These factors could adversely impact overall demand for aircraft and air travel, which could have a negative effect on our revenues; • the ability of the industry to finance new aircraft, which is generally tied to industry profitability and load factors, as well as the conditions of the credit market can adversely affect the cost and availability of financing of aircraft; • air cargo requirements and airline load factors, which are driven by world economy and international trade volume; • age and efficiency of the world fleet of active and stored ~~fleet~~ aircraft; • general public attitudes towards air travel, which have been adversely impacted by events such as the September 11, 2001 terrorist attacks and later, the SARS outbreak in Asia, and tend to dramatically and quickly influence the market; • higher fuel prices, which may impact the airline and cargo industry’s short-term profitability and their ability to afford replacement aircraft which may drive more rapid fleet renewal to take advantage of newer, more efficient aircraft technologies; and • increased global demand for air travel.

If the proposed acquisition of us by Triumph Group, Inc. is not completed, our business will be adversely affected.

On March 23, 2010, we entered into a merger agreement with Triumph Group, Inc. pursuant to which we will be acquired by Triumph. See Item 9B of this Form 10-K. It is anticipated that in connection with that transaction all of our currently outstanding material indebtedness will be repaid in full. The consummation of the acquisition is subject to, among other things, approval of Triumph’s stockholders and other customary closing conditions, which may not be satisfied. Our business will be adversely affected if the acquisition is not completed as a result of several factors, including, but not limited to, the following:

	•		the indebtedness that is expected to be extinguished in connection with the acquisition will remain outstanding and, we will be required to refinance our senior credit facility or our Senior Notes prior to the last business day of 2010.

	•		our customers, prospective customers and investors in general may view this failure as a poor reflection on our business or prospects,

	•		customers or prospective customers may have delayed their purchase commitments until the acquisition was complete or may have chosen not to purchase at all,

	•		certain of our suppliers and business partners may have sought to change or terminate their relationships with us as a result of the proposed acquisition,

	•		certain of our key employees may have sought other employment opportunities, and

	•		our management team may have been distracted from day-to-day operations as a result of the proposed acquisition.

We operate in a highly competitive business environment.

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, Hawker Beechcraft and Sikorsky. 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, Fuji Heavy Industries, GKN Westland Aerospace (U.K.), Goodrich Corp., Kawasaki Heavy Industries, Mitsubishi Heavy Industries, Spirit AeroSystems and Stork Aerospace. 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.”

~~Current~~Financial market conditions could impact our ability to access new capital to meet our liquidity needs and impact our results of operations.

Our sources of capital include, but are not limited to, cash flows from operations, public and private issuances of debt and equity securities, and bank borrowings. Recently, the capital and credit markets have ~~become~~experienced ~~increasingly~~volatility ~~volatile~~ as a result of adverse conditions ~~that have caused the failure and near failure of a number of large financial services companies~~. If the capital and credit markets ~~continue~~again to experience volatility and the availability of funds ~~remains~~becomes limited, we ~~will~~ will incur increased costs associated with issuing commercial paper and/or other debt instruments. In In addition, it is possible that our ability to access the capital and credit markets may be ~~limited~~ limited by these or other factors at a time when we ~~would~~attempt ~~like, or need,~~ to do so, which could have an impact on our ability to refinance maturing debt and/or react to changing economic and business conditions. ~~For example, in October 2008, the administrative and collateral agent under our~~We ~~existing~~may ~~senior~~face ~~credit~~this ~~facilities,~~difficulty ~~Lehman~~during ~~Commercial~~2010 ~~Paper Inc. (''LCPI’’) filed for bankruptcy. In connection with its bankruptcy, we expect that LCPI will resign~~ as ~~administrative~~under ~~and~~the ~~collateral agent~~terms ~~under~~of ~~our~~the senior credit ~~facilities~~facility, ~~and~~ we are ~~currently in the process of working with our~~ ~~lending~~required ~~group~~ to ~~designate~~prepay aor ~~replacement~~refinance ~~administrative~~any ~~and~~amounts ~~collateral~~outstanding ~~agent.~~of ~~Additionally, LCPI is currently a lender under~~ our $~~150~~270.0 million ~~six-year~~Senior ~~revolving~~Notes ~~loan~~by ~~with a commitment of~~the ~~approximately~~last ~~$15 million;~~business ~~however~~day ~~LCPI has not been funding their commitment and we intend to replace LCPI as a lender under our Revolver to the extent we are able to do so given the current condition~~ of ~~the~~2010 ~~global~~or ~~financial~~repay ~~markets. There can be no assurance that further deterioration in~~ the ~~credit~~aggregate ~~markets~~amount ~~and overall economy will not affect the ability~~ of ~~our~~loans ~~lenders~~outstanding under ~~our Revolver, other than LCPI, to meet their funding commitments. Additionally, our lenders have~~ the ~~ability~~ ~~to transfer their commitments to other institutions, and the risk that committed funds may~~senior ~~not~~credit befacility ~~available~~at ~~under distressed market conditions could be exacerbated to the extent~~ that ~~consolidations~~ ~~of the commitments under our facilities or among its lenders were to occur~~time.

The major rating agencies regularly evaluate us and their ratings of our long-term debt are based on a number of factors, including our financial strength, and factors outside our control. In light of the difficulties in the financial markets, there can be no assurance that we will maintain our current ratings at levels that are acceptable to investors. Our failure to maintain current credit ratings could adversely affect the cost and other terms upon which we are able to obtain financing, as well as our access to the capital markets.

~~Our~~ The ~~need~~impact ~~for~~of ~~additional~~adverse ~~working~~market ~~capital~~conditions ~~is highly dependent~~ on ~~the~~businesses ~~future requirements of the 787 program. We are currently pursuing additional funding including compensation for delays~~ and ~~engineering~~ ~~changes~~customers ascould ~~provided~~lead ~~for under our contract with Boeing~~ to ~~ensure~~decreases ~~our continued participation~~ in ~~the 787 program, future derivatives of the program and additional contract~~ ~~modifications~~spending ~~requested~~ by ~~Boeing.~~aircraft ~~There~~manufacturers ~~can~~which, bein noturn, ~~assurance~~could ~~that~~cause ~~we will be able to obtain this additional funding. In addition,~~ our ~~ability~~customers to ~~access the capital markets may be severely~~delay ~~restricted~~delivery atof aorders ~~time when we would like,~~ or ~~need,~~cancel toexisting doorders. ~~so,~~Periods ~~which~~of ~~could~~prolonged ~~have~~declines anin ~~impact~~business ~~on our~~consumer ~~flexibility~~spending tomay ~~react~~adversely toaffect ~~changing~~our ~~economic~~results ~~and~~of ~~business conditions~~operations.

Large customer concentration may negatively impact revenue, results of operations and cash flows.

For the years ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007, approximately 8385%, 8683% and 8286% of our revenue, respectively, resulted from sales to Airbus, Boeing and Gulfstream. Additionally, for the years ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007, sales to these customers accounted for the approximate respective percentages of our revenues indicated: (1) Boeing (5663%, 5755% and 5657%, respectively); (2) Airbus (129%, 13% and 1013%, respectively) and (3) Gulfstream (1513%, 1615% and 16%, respectively). Accordingly, any significant reduction in purchases by Airbus, Boeing or Gulfstream would have a material adverse effect on our financial condition, results of operations and cash flows.

Our fixed-price contracts may commit us to unfavorable terms.

For the year ended December 31, ~~2008~~2009, a significant portion of our revenues were derived from fixed-price contracts under which we have agreed to provide structures for a price determined on the date we entered into the contract. Several factors may cause the costs we incur in fulfilling these contracts to vary substantially from our original estimates, and we bear the risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on these contracts. 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. Because our ability to terminate contracts is generally limited, we may not be able to terminate our performance requirements under these contracts at all or without substantial liability and, therefore, in the event we are sustaining reduced profits or losses, we could continue to sustain these reduced profits or losses for the duration of the contract term. 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.

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 effect on our financial condition, results of operations and cash flows.

generally limited, we may not be able to terminate our performance requirements under these contracts at all or without substantial liability and, therefore, in the event we are sustaining reduced profits or losses, we could continue to sustain these reduced profits or losses for the duration of the contract term. 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.

We incur risk associated with new programs that are critical to our future profitability.

~~Our~~ New ~~recently established~~ programs ~~involving new technologies, such as Boeing 787,~~ 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 effect on our financial condition, results of operations and cash flows. ~~In addition to the foregoing risks, our programs covering work moved to~~ ~~us from other companies, such as Sikorsky H-60, carry risks associated with the transfer of technology, knowledge and tooling.~~

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, insufficient demand for those new aircraft, or technological problems or significant delays in the regulatory certification process or manufacturing and delivery schedule for such aircraft, could have a material adverse effect on our financial condition, results of operations and cash flows.

~~The~~Failure ~~profitability~~to, ofor ~~the~~delays ~~787~~in, ~~program~~negotiations ~~depends~~of ~~significantly~~favorable oncontract ~~the~~terms ~~assumption~~with ~~that~~ our ~~expected~~customers for current ~~recovery~~and ~~value~~follow-on ~~equals~~contract oreffort ~~exceeds~~could ~~our~~materially ~~costs~~impact ~~incurred~~our operations.

~~Due~~ Our tolevel ~~the nature~~ of ~~our~~success ~~work~~as ~~performed~~an ~~related~~aerostructure tosupplier ~~the~~is ~~787~~largely ~~program,~~dependent weon ~~regularly~~our ~~begin~~ability ~~work or~~to ~~incorporate~~negotiate ~~customer~~favorable ~~requested~~contract ~~changes prior to negotiating pricing~~ terms for ~~the~~current ~~engineering~~and ~~work or~~future ~~the~~production ~~product~~with ~~modifications~~our ~~in question~~customers. Typically, Wewe ~~have~~enter ~~the~~fixed-price ~~right~~contracts ~~under~~with ~~our contract to negotiate~~ pricing ~~and~~that ~~receive~~is ~~equitable~~determined ~~adjustment~~based ~~for~~on ~~customer-directed~~an ~~changes.~~estimate ~~Our~~of our ~~financial~~costs ~~statements make~~and ~~certain~~expected ~~assumptions~~margin. ~~regarding~~However, the ~~receipt~~actual ofcosts ~~additional~~incurred ~~revenue~~for orsome ~~cost~~projects ~~reimbursement~~exceed ~~upon~~these ~~finalizing~~estimates. ~~these~~If ~~pricing~~we ~~terms.~~are Anunable ~~estimated~~to ~~recovery~~successfully ~~value~~negotiate ~~has~~favorable ~~been~~contract ~~incorporated~~terms ~~into~~for ~~our~~current ~~787~~and ~~program~~future ~~profitability~~production ~~estimates~~ in ~~applying~~a ~~contract~~timely ~~accounting.~~manner ~~Our~~or ~~inability~~at ~~to recover these estimated values~~all, ~~among~~our ~~other~~level ~~factors, could result in the recognition~~ of aprofitability ~~forward loss on the 787 program which~~ could ~~have~~be ~~a material adverse effect on our results of operations~~significantly impacted.

~~Failure~~We ~~to,~~may orbe ~~delays~~subject ~~in,~~to ~~renegotiation~~work ~~with~~stoppages at our ~~customers~~facilities toor ~~finalize~~those orof ~~update~~our ~~contract~~principal ~~terms~~customers orand ~~pricing~~suppliers, which could ~~materially~~seriously impact the profitability of our ~~operations~~business.

Our ~~level~~unionized workforces and those of ~~success~~our ascustomers anand ~~aerostructure~~suppliers ~~supplier~~may isexperience ~~largely~~work stoppages. ~~dependent~~For onexample, IAM represented employees at our ~~ability~~Nashville, toTennessee plant engaged in a ~~negotiate~~strike ~~favorable~~that ~~contract~~continued ~~terms~~for ~~with~~approximately ~~our~~16 weeks ~~customers.~~during ~~Typically,~~2008 weand ~~enter~~2009. ~~fixed-price~~We ~~contracts~~implemented our ~~with~~contingency ~~pricing~~plan that isallowed ~~determined~~us ~~based~~to oncontinue anproduction ~~estimate~~in ofNashville ~~our~~during ~~costs~~the ~~and~~course ~~expected~~of ~~margin~~that strike. ~~However~~Additionally, ~~the~~ ~~actual~~our ~~costs~~union ~~incurred~~contract ~~for~~with ~~some~~Local ~~projects~~848 ~~exceed~~of ~~these~~UAW ~~estimates~~with employees at our Dallas and Grand Prairie, TX facilities expires on October 3, 2010. If we are unable to ~~quickly identify~~negotiate ~~loss~~a ~~contracts~~new contract ~~and~~with ~~renegotiate~~that ~~the~~workforce, ~~pricing~~our oroperations ~~contract~~may ~~terms~~be inadversely adisrupted ~~timely~~and ~~manner~~we ormay atbe ~~all,~~prevented ~~our~~from ~~level~~completing production and delivery of ~~profitability~~our ~~could~~aircraft bestructures ~~significantly~~which ~~impacted~~would negatively impact our results of operations.

~~Our~~ Many ~~business~~aircraft ~~depends~~manufacturers, inairlines ~~large~~and ~~part~~aerospace suppliers have unionized work forces. Strikes, onwork stoppages or slowdowns experienced by aircraft manufacturers, airlines or aerospace suppliers, such as the ~~future~~recent ~~sales~~strike ofat the Boeing ~~787~~facilities, ~~program~~could ~~and~~reduce ~~further~~our customers’ demand ~~delays~~for inadditional ~~the~~aircraft ~~delivery~~structures ~~schedule~~or ~~and~~prevent ~~renegotiation~~us offrom ~~contract~~completing ~~terms~~production ~~for~~of ~~the~~our ~~787~~aircraft structures. ~~program~~In ~~could~~turn, this may have a material adverse ~~effect~~affect on our financial condition, results of operations and cash flows.

~~The~~Financial ~~Boeing~~market ~~strike~~conditions ~~coupled~~may ~~with~~adversely ~~the~~affect ~~overall~~our ~~787~~benefit ~~program~~plan ~~delays have reduced the expected number of deliveries we will make in the near term. As a result~~assets, weincrease ~~have slowed our production rate,~~funding ~~reduced~~requirements ~~our costs by temporarily suspending our 787 composite bond fabrication operations~~ and ~~redeployed~~ ~~some~~materially ofimpact our ~~assembly~~statement ~~employees at our North Charleston facility. If we are unable to effectively manage our costs and mitigate the impact~~ of ~~the 787 program delays through these operational changes or recover costs from Boeing related to these program delays, our~~ financial ~~condition,~~ ~~results of operations and cash flows could be materially adversely affected~~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 values of all of these investments, as well as our benefit plan liabilities are impacted by the movements and volatility in the financial markets. In accordance with the Compensation — Retirement Benefits topic of the Accounting Standards Codification (ASC), we recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in our balance sheet and we 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. As of December 31, 2009, obligations under our pension plans exceeded the fair value of the assets of the plans by $615.7 million. See Note 14 to our consolidated financial statements in Item 8 of this report. A decrease in the fair value of our plan assets resulting from movements in the financial markets will 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.

In addition, we continue to negotiate with Boeing regarding the settlement of certain contractual matters related to the 787 program including the recovery of compensation for engineering and other program changes and delays as provided for under our contract with Boeing. If we are unable to reach an acceptable agreement with Boeing, in a timely manner, our ability to participate in the 787 program including participation in future derivatives or additional contract modifications requested by Boeing would be limited and our financial condition, results of operations and cash flows could be materially adversely affected.

Difficult global market conditions have adversely affected and could continue to adversely affect our industry.

Recent global market and economic conditions have been unprecedented and challenging with tighter credit conditions and recession in most major economies continuing into 2009. Continued concerns about the systemic impact of potential long-term and wide-spread recession, energy costs, geopolitical issues, the availability and cost of credit, and the global housing and mortgage markets have contributed to increased market volatility and diminished expectations for western and emerging economies. In the second half of 2008, added concerns fueled by bankruptcies and U.S. government intervention in the U.S. financial system lead to increased market uncertainty and instability in both U.S. and international capital and credit markets. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have contributed to volatility of unprecedented levels.

As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. These factors have lead to a decrease in spending by businesses and consumers alike, and a corresponding decrease in global infrastructure spending. In particular, these factors have lead to and could lead to further decreases in spending by aircraft manufacturers which, in turn, could cause our customers to delay delivery of orders or cancel existing orders. Continued turbulence in the U.S. and international markets and economies and prolonged declines in business consumer spending may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs.

Financial market conditions may adversely affect our benefit plan assets, increase funding requirements 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 have been 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 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. As of December 31, 2008, obligations under our pension plans exceeded the fair value of the assets of the plans by $711.0 million. See Note 14 to our consolidated financial statements in Item 8 of this report. A decrease in the fair value of our plan assets resulting from movements in the financial markets will 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.

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.

16 We face the risk that the C-17 program could be completed upon fulfillment of currently outstanding production orders. We currently have a contract from Boeing to support C-17 production through April 2011. The President’s proposed 2010 budget does not include funding for the procurement of new C-17 aircraft although Congress has proposed adding funding for additional aircraft. However, our business could be adversely impacted if the Government does not fund additional C-17 aircraft and Boeing decides not to fund beyond their current commitment. As a result, the loss of the C-17 program and the failure to win additional work to replace the C-17 program could materially reduce our cash flow and results of operations beginning in 2011.

We face the risk that the C-17 program could be completed upon fulfillment of currently outstanding production orders. We currently have a contract from Boeing to support C-17 production through April 2011. However, our business could be adversely impacted if the Government does not fund additional C-17 aircraft and Boeing decides not to fund beyond their current commitment. As a result, the loss of the C-17 program and the failure to win additional work to replace the C-17 program could materially reduce our cash flow and results of operations beginning in 2011.

Any significant disruption from key suppliers of raw materials and key components could delay production and decrease revenue.

We are highly dependent on the availability of essential raw materials such as carbon fiber, aluminum and titanium, and purchased engineered component parts from our suppliers, many of which are available only from single customer-approved sources. Moreover, we are dependent upon the ability of our suppliers to provide raw materials and components that meet our specifications, quality standards and delivery schedules. Our suppliers’ failure to provide expected raw materials or component parts could require us to identify and enter into contracts with alternate suppliers that are acceptable to both us and our customers, which could result in significant delays, expenses, increased costs and management distraction and 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 raw materials and component parts are subject to a number of risks including:

	•		availability of capital to our suppliers;

	•		the destruction of our suppliers’ facilities or their distribution infrastructure;

	•		a work stoppage or strike by our suppliers’ employees;

	•		the failure of our suppliers to provide raw materials or component parts of the requisite quality;

	•		the failure of essential equipment at our suppliers’ plants;

	•		the failure or shortage of supply of raw materials to our suppliers;

	•		contractual amendments and disputes with our suppliers; and

	•		geopolitical conditions in the global supply base.

In addition, some contracts with our suppliers for raw materials, component parts and other goods are short-term contracts, which are subject to termination on a relatively short-term basis. The prices of our raw materials and component parts fluctuate depending on market conditions, and substantial increases in prices could increase our operating costs, which, as a result of our fixed price contracts, we may not be able to recoup through increases in the prices of our products. ~~Although we believe that raw material prices will remain relatively stable during 2009, we do foresee an increase in prices as the global economy recovers.~~

~~Recent~~ Due ~~global~~to ~~market~~economic ~~and~~difficulty, ~~economic~~we ~~conditions~~may ~~have~~face ~~been~~pressure ~~unprecedented~~to ~~and~~renegotiate ~~challenging~~agreements ~~with recessions~~resulting in ~~most~~lower margins. ~~major~~Our ~~economies~~suppliers ~~continuing~~may ~~into~~discontinue ~~2009.~~provision Asof ~~our~~products ~~suppliers~~to ~~face~~us ~~those~~at ~~economic~~attractive prices or at ~~challenges~~all, and we may ~~face~~not ~~pressure~~be able to ~~renegotiate~~obtain ~~agreements~~such ~~resulting~~products in ~~lower~~the ~~margins~~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

~~Our suppliers may discontinue provision of products to us at attractive prices or at all, and~~16 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 and our customers demand, or that the U.S. Government requires. 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.

Wewe ~~are~~and ~~also~~our ~~dependent~~customers ~~upon third party suppliers~~demand, ~~including~~or ~~Northrop~~that ~~Grumman Information Technology and Perot Systems, to supply us with~~ the ~~majority~~U.S. ofGovernment ~~the information technology services used to operate our facilities~~requires. If ~~these~~we ~~suppliers~~are ~~could~~not noable ~~longer~~to obtain ~~supply~~key usproducts ~~with~~on ~~information technology~~a ~~services~~timely basis and weat ~~are~~an ~~required~~affordable ~~to secure another supplier~~cost, or we ~~might~~experience ~~not be able to do so~~significant ondelays ~~comparable~~or ~~terms,~~interruptions orof attheir ~~all~~supply, ~~which~~revenues ~~could~~from ~~adversely~~sales ~~affect~~of ~~production~~products ~~schedules~~that ~~and~~use ~~contract~~these supplies ~~profitability~~will decrease.

We ~~may~~are bealso ~~subject~~dependent upon third party suppliers, such as Northrop Grumman Information Technology, to ~~work~~supply ~~stoppages~~us atwith the majority of the information technology services used to operate our facilities. orIf ~~those~~these ofsuppliers ~~our~~could ~~principal~~no ~~customers~~longer supply us with information technology services and we are required to secure another supplier, ~~which~~we might not be able to do so on comparable terms, or at all, which could ~~seriously~~adversely ~~impact~~affect ~~the~~production ~~profitability~~schedules ofand ~~our~~contract ~~business~~profitability.

~~Our~~We ~~unionized~~are ~~workforces~~exposed ~~and~~to ~~those~~economic ~~of our customers~~ and ~~suppliers~~geo-political ~~may~~risks ~~experience work stoppages. For example, IAM represented employees at our Nashville, Tennessee plant engaged~~ in ~~a strike that continued for approximately 16 weeks until~~ the ~~parties~~countries ~~entered into a new collective bargaining agreement effective January 15, 2009. We implemented our contingency plan that allowed us to continue production~~ in Nashville during the course of the strike. However, strikes, work stoppages or other slowdowns can cause adverse disruption of our operations and we may be prevented from completing production and delivery of our aircraft structures which ~~would negatively impact~~ our ~~results~~suppliers ~~of operations~~are located.

~~Many~~ Our ~~aircraft~~contracted ~~manufacturers,~~business ~~airlines~~with ~~and~~foreign ~~aerospace~~ suppliers ~~have~~subjects ~~unionized~~us ~~work~~to ~~forces.~~risks associated with ~~Strikes,~~fluctuations ~~work~~in ~~stoppages~~foreign orcurrency ~~slowdowns~~exchange ~~experienced~~rates byand ~~aircraft~~interest ~~manufacturers,~~rates ~~airlines~~as orwell ~~aerospace~~as geopolitical risks in the countries where our suppliers, ~~such~~are aslocated. While the ~~recent~~purchase ~~strike~~prices atand ~~the~~payment ~~Boeing~~terms ~~facilities,~~under these ~~could~~contracts ~~reduce~~are ~~our~~denominated ~~customers’~~in ~~demand for~~U.S. ~~additional~~dollars, ~~aircraft~~decline ~~structures~~in orthe ~~prevent~~relative strength of U.S. dollar may force us ~~from~~to ~~completing~~renegotiate ~~production~~contract ofterms with our ~~aircraft structures.~~foreign Insuppliers ~~turn~~to avoid losing these contracts, ~~this~~which ~~may~~could have a material adverse ~~affect~~effect on our ~~financial condition,~~ results of operations, financial position and cash flows.

We are exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation and other economic factors in the countries in which we operate.

Our contracted business with foreign suppliers subjects us to risks associated with fluctuations in foreign currency exchange rates and interest rates in the countries where our suppliers are located. While the purchase prices and payment terms under these contracts are denominated in U.S. dollars, decline in the relative strength of U.S. dollar may force us to renegotiate contract terms with our foreign suppliers to avoid losing these contracts, which could have a material adverse effect on our results of operations, financial position and cash flows.

The price volatility of energy costs may adversely affect our profitability.

Our revenues depend on the margin above fixed and variable expenses, including energy costs, at which we are able to sell our products. We have exposure to utility price risks as a result of the volatility in costs of fuel, principally natural gas, and other utility services, principally electricity, which affect our operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in both local and regional markets. 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, however, these contracts only reduce the risk to us during the contract period, and future volatility in the supply and pricing of energy and natural gas could have a material adverse effect on our results of operations, financial position and cash flows.

Commercial airlines have been and, as a result, we may be materially adversely affected by high fuel prices.

Due to the competitive nature of the airline industry, airlines may be unable to pass on future increases in fuel prices to customers by increasing fares. Fluctuations in the global supply of crude oil and the possibility of changes in government policy on jet fuel production, transportation and marketing make it impossible to predict the future availability of jet fuel. In the event there is an outbreak or escalation of hostilities or other conflicts or significant disruptions in oil production or delivery in oil-producing areas or elsewhere, there could be reductions in the production or importation of crude oil and significant increases in the cost of fuel. If there were major reductions in the availability of jet fuel or significant increases in its cost, commercial airlines will face increased operating costs, which could result in decreases in net income from either lower margins or, if airlines increase ticket fares, less revenue from reduced airline travel.

Decreases in airline profitability could decrease the demand for new commercial aircraft, resulting in delays of or decreases in deliveries of commercial aircraft utilizing our aerostructures and, as a result, our financial condition, results of operations and cash flows could be materially adversely affected.

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, which could have a material adverse effect on our financial condition, results of operations and cash flows.

We are implementing a new Enterprise Resource Planning (ERP) system.

In 2009, we began the planning and design phase of an ERP system which we plan to complete implementation of in 2011. If this implementation is not managed effectively we may be unable to provide accurate financial information in a timely manner or obtain information necessary to manage our business, which could have a material adverse effect on our financial condition and results of operations.

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 comparable agencies in 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.

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. We maintain property damage and business interruption insurance at the levels typical in our industry, however, 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.

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, either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of unrecovered costs incurred or committed, settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. On contracts where the price is based on cost, the U.S. Government may review our costs and performance, as well as our accounting and general business practices. Based on the results of such audits, the U.S. Government may adjust our contract-related costs and fees, including allocated indirect costs. In addition, under U.S. Government purchasing regulations, some of our costs, including most financing costs, portions of research and development costs, and certain marketing expenses may not be subject to reimbursement.

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. 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, or suspension from, 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 have a material adverse effect on our financial condition, results of operations and cash flows.

1918

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

Our success depends in large part on continued employment of senior management and key personnel who can effectively operate our business, including our 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. If any of these employees leave us and we fail to effectively manage a transition to new personnel, or if we fail to attract and retain qualified and experienced professionals, our financial condition, results of operations and cash flows could be materially adversely affected.

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 our results of operations, financial position and cash flows could be materially adversely affected.

2019

Significant consolidation by aerospace industry suppliers could adversely affect our business.

The aerospace industry has recently experienced consolidation among suppliers. Suppliers have consolidated and formed alliances to broaden their product and integrated system offerings and achieve critical mass. This supplier consolidation is in part attributable to aircraft manufacturers more frequently awarding long-term sole-source or preferred supplier contracts to the most capable suppliers, thus reducing the total number of suppliers. When we act as suppliers to the aerospace industry, this consolidation has caused us to compete against certain competitors with greater financial resources, market penetration and purchasing power. When we purchase component parts and services from suppliers to manufacture our products, consolidation reduces price competition between our suppliers, which could diminish incentives for our suppliers to reduce prices. If this consolidation were to continue, our operating costs could increase and it may become more difficult for us to be successful in obtaining new customers.

High switching costs may substantially limit our ability to obtain business that is currently under contract with other suppliers.

Once a contract is awarded by an OEM to an aerostructures supplier, the OEM and the supplier are typically required to spend significant amounts of time and capital on design, manufacture, testing and certification of tooling and other equipment. For an OEM to change suppliers during the life of an aircraft program, further testing and certification would be necessary, and the OEM would be required either to move the tooling and equipment used by the existing supplier for performance under the existing contract, which may be expensive and difficult or impossible, or to manufacture new tooling and equipment. Accordingly, any change of suppliers would likely result in production delays and additional costs to both the OEM and the new supplier. These high switching costs may make it more difficult for us to bid competitively against existing suppliers and less likely that an OEM will be willing to switch suppliers during the life of an aircraft program, which could materially adversely affect our ability to obtain new work on existing aircraft programs.

We are subject to the requirements of the National Industrial Security Program Operating Manual for our facility security clearance, which is a prerequisite for our ability to perform on classified contracts for the U.S. Government.

A Department of Defense, or DoD, facility security clearance is required in order to be awarded and perform on classified contracts for the DoD and certain other agencies of the U.S. Government. We have obtained clearance at appropriate levels that require stringent qualifications, and we may be required to seek higher level clearances in the future. We cannot assure you that we will be able to maintain our security clearance. If for some reason our security clearance is invalidated or terminated, we may not be able to continue to perform our present classified contracts and we would not be able to enter into new classified contracts, which could affect our ability to compete for and capture new business.

We do not own most of the intellectual property and tooling used in our business.

Our business depends on using certain intellectual property and tooling that we have rights to use pursuant to license grants under our contracts with our OEM customers. These contracts contain restrictions on our use of the intellectual property and tooling and may be terminated if we violate certain of these restrictions. Our loss of a contract with an OEM customer and the related license rights to use an OEMs’ intellectual property or tooling would materially adversely affect our business.

In addition, we must honor our contractual commitments to our other customers related to intellectual property and comply with infringement laws in the use of intellectual property. In the event we obtain new business from new or existing customers, we will need to pay particular attention to these contractual commitments and any other restrictions on our use of intellectual property to make sure that we will not be using intellectual property improperly in the performance of such new business. In the event we use any such intellectual property improperly, we could be subject to an infringement claim by the owner or licensee of such intellectual property. In the future, our entry into new markets may require obtaining additional license grants from OEMs and/or from other third parties. If we are unable to negotiate additional license rights on acceptable terms (or at all) from OEMs and/or other third parties as the need arises, our ability to enter new markets may be materially restricted. In addition, we may be subject to restrictions in future licenses granted to us that may materially restrict our use of third party intellectual property.

2120

Future terrorist attacks may have a material adverse impact on our commercial business.

Future acts of terrorism and any allied military response to such acts could result in further acts of terrorism and additional hostilities, including possible retaliatory attacks on sovereign nations, as well as financial, economic and political instability. While the precise effects of any such terrorist attack, military response or instability on our industry and our business is difficult to determine, it could result in reductions in the use of commercial aircraft. For example, following the September 11, 2001 terrorist attacks, passenger traffic on commercial flights was significantly lower than prior to the attacks and many commercial airlines reduced their operating schedules. Overall, those terrorist attacks resulted in billions of dollars in losses to the airline industry. If demand for new aircraft and spare parts decreases, demand for certain of our products would also decrease.

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

We In ~~have~~March 2005 ~~received~~we ~~grants~~were ~~from~~awarded ~~state~~a ~~governments~~$35 million ~~associated~~Texas ~~with~~Enterprise ~~the~~Fund ~~construction~~grant ofto ~~our~~assist ~~787~~in ~~facility~~increasing ~~in South Carolina and the~~ employment ~~level~~levels inat our Texas facilities. ~~These~~This ~~grants~~grant ~~require~~ requires that we ~~satisfy~~maintain certain employment ~~requirements related to~~ levels ofat ~~expenditures~~our ~~and/or~~Texas ~~employment levels~~facilities. ~~Our~~ ~~failure~~As toa ~~satisfy any of these commitments could~~ result ~~in the incurrence~~ of ~~penalties~~our orfailure ~~in the requirement~~ to ~~repay~~maintain ~~all or part of~~ the ~~grants.~~required employment ~~For example~~levels, ~~in March 2005~~ we ~~were~~repaid ~~awarded a~~ $350.9 million to the Texas Enterprise Fund ~~grant to assist~~ in ~~increasing employment levels at our Texas facilities~~2010. ToOur ~~the~~failure ~~extent that we fail~~ to satisfy ~~achieve~~these ~~and~~commitments ~~maintain~~in ~~these~~the ~~employment~~future ~~levels,~~could weresult ~~may~~in ~~be required~~the requirement to repay some or all of the remaining portion of $35 million grant over athe ~~ten-year~~next ~~period~~nine ~~beginning in 2010~~years.

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.

Our financial statements are based on estimates required by GAAP, and actual results may differ materially from those estimated under different assumptions or conditions.

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States. These principles require our management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. For example, estimates are used when accounting for items such as asset valuations, allowances for doubtful accounts, depreciation and amortization, impairment assessments, employee benefits, aircraft product and general liability and contingencies. Additionally, contract accounting requires judgment relative to assessing risks, estimating contract sales and costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total sales and cost at completion is complicated and subject to many variables. While we base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances at the time made, actual results may differ materially from those estimated.

2221

While we believe our control systems are effective, there are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.

We continue to take action to assure compliance with the internal controls, disclosure controls and other requirements of the Sarbanes-Oxley Act of 2002. Our management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls will prevent all possible errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements resulting from error or fraud may occur and may not be detected.

Risks Relating to Our Indebtedness

Market conditions may make it difficult to refinance our indebtedness with favorable terms.

Going concern is defined as an entity’s inability to meet obligations as they become due without substantial disposition of assets outside the ordinary course of business, restructuring of debt or equity, or operational improvements.

As described in Item 9B of this Form 10-K, on March 23, 2010, we entered into a merger agreement with Triumph Group, Inc. pursuant to which we will be acquired by Triumph. It is anticipated that in connection with that transaction all of our currently outstanding material indebtedness will be repaid in full. The consummation of the acquisition is subject to, among other things, approval of Triumph’s stockholders and other customary closing conditions, which may not be satisfied. In the event that the anticipated acquisition is not completed and such indebtedness remains outstanding, we plan to refinance our senior credit facility or the Senior Notes prior to the last business day of 2010. There are no assurances that we will be able to refinance on commercially reasonable terms or at all. This creates an uncertainty about our ability to continue as a going concern. Notwithstanding this, the consolidated financial statements and related notes have been prepared assuming that we will continue as a going concern.

We are progressing in our plans to refinance our senior credit facility or the Senior Notes and although no assurance can be given, we believe that we are well positioned to accomplish this prior to the last business day of 2010.

Our substantial indebtedness could prevent us from fulfilling our obligations under our outstanding senior notes and our senior credit facilities.

We have a significant amount of indebtedness. As of December 31, ~~2008~~2009, our total outstanding indebtedness was $~~878~~592.12 million. ~~On January 31, 2009, we converted $25 million of our synthetic~~ letter of credit facility to a term loan increasing our total outstanding indebtedness to $903.1 million, excluding any outstanding borrowings under our $150 million six-year revolving loan, of which $135.0 million was outstanding as of March 12, 2009.

Our ~~substantial~~ indebtedness could have important consequences for us and investors in our securities. For example, it could:

• make it more difficult for us to satisfy our obligations with respect to our outstanding debt; • increase our vulnerability to general adverse economic and industry conditions; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restrict us from making strategic acquisitions or exploiting business opportunities; • place us at a competitive disadvantage compared to our competitors that have less debt; and • limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds, dispose of assets or pay cash dividends.

~~In addition, a substantial portion of our debt bears interest at variable rates. If market~~22 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 our 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 $633.1 million of variable-rate term loan indebtedness under our senior credit facilities after the exercise of our option to convert $25.0 million of our synthetic letter of credit facility to an outstanding term loan.

A• ~~one-percentage~~limit ~~point~~our ~~increase~~flexibility in ~~interest~~planning ~~rates~~for, onor reacting to, changes in our ~~variable-rate~~business ~~term~~and ~~loan~~the industry in which we operate; • restrict us from making strategic acquisitions or exploiting business opportunities; • place us at a competitive disadvantage compared to our competitors that have less debt; and • limit, along with the financial and other restrictive covenants in our indebtedness ~~would~~, ~~decrease~~among other things, our ~~annual~~ability ~~income~~to ~~before~~borrow ~~income~~additional ~~taxes~~funds, bydispose ~~approximately~~of $6assets or pay cash dividends.~~3 million.~~

In addition, $322.2 million 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 our 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 $322.2 million of variable-rate term loan indebtedness under our senior credit facilities.

A one-percentage point increase in interest rates on our variable-rate term loan indebtedness would decrease our annual income before income taxes by approximately $3.2 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. Our ability to refinance our indebtedness will be driven by the prevailing market conditions at that time.

Market conditions may make it difficult to refinance our indebtedness with favorable terms.

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

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

	•		incur additional indebtedness or contingent obligations;

	•		pay dividends or make distributions to our stockholders;

	•		repurchase or redeem our stock;

	•		make investments;

	•		grant liens;

	•		make capital expenditures;

	•		enter into transactions with our stockholders and affiliates;

	•		engage in sale and leaseback transactions;

	•		sell assets; and

	•		acquire the assets of, or merge or consolidate with, other companies.

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

2423

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

In addition to the covenants described above, our senior 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 senior credit facilities. If an event of default occurs, our lenders could elect to declare all amounts outstanding and accrued and unpaid interest under our senior credit facilities to be immediately due and the lenders thereafter could foreclose upon the assets securing the senior credit facilities. In that event, we may not have sufficient assets to repay all of our obligations, including our outstanding senior notes. We may incur additional indebtedness in the future that may contain financial or other covenants more restrictive than those applicable to our senior credit facilities or our outstanding senior notes.

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

We may incur additional indebtedness in the future. If new indebtedness is added to our current indebtedness levels, the related risks that we face could be magnified.

Item 1B. Unresolved Staff Comments

None.

2524


Item 2. Properties

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~~ Florida. General information about our principal manufacturing facilities is presented in the chart below.

	Square
Site	Square Footage		Ownership	Functions
Site	Footage		Ownership	Functions
Dallas, TX
Jefferson Street		28,878	Owned	High speed wind tunnel.
Jefferson Street		4,~~927~~855,~~292~~293	Leased	Design capabilities; test labs; fabrication of parts and structures; assembly and production of wings, horizontal and vertical tail sections, fuselage, empennage, and cabin structures.
Irving, TX		16,168	Leased	Vought Corporate Office
Grand Prairie, TX		804,456	Leased	Manufacturing of empennage assemblies, skin polishing, automated fastening.
Hawthorne, CA		1,348,659	Leased	Production of fuselage panels and main deck cargo doors; reconfigurable tooling, precision assembly and automated fastening.
Torrance, CA		84,654	Leased	Fuselage panel processing facility.
Nashville, TN		2,198,740	Owned	Design capabilities; wing, wing assembly and control surface manufacturing and assembly facilities.
Stuart, FL		519,690	Leased	Manufacturing of composite and metal aircraft assemblies and manufacturing of commercial aircraft doors.
Brea, CA		90,000	Leased	Manufacturing of wing skins, fuselage panels, bulkheads, floor beams, spars, stringers, landing gear and subassemblies.
Everett, WA		153,000	Leased	Manufacturing of wing skins, fuselage panels, bulkheads, floor beams, spars, stringers, landing gear and subassemblies.
Milledgeville, GA		566,168	Owned	Composite fabrication and component assembly.
North Charleston, SC		384,533	Owned (1)	Fabrication and assembly of composite fuselage structures.

(1) Our facilities at this location are located on land leased from South Carolina Public Railways, a division of the South Carolina Department of Commerce.


Item 3. Legal Proceedings

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

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.

~~Item 4. Submission of Matters to a Vote of Security Holders~~26

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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 1325, ~~2008~~2010, there were 87 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 ~~2007~~2008 and ~~2008~~2009, we issued an aggregate of 2113,~~854~~622 and 1318,~~622~~810 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 2008, we issued an aggregate of (i) 9,470 shares of our common stock in connection with the exercise of stock appreciation rights (“SARs”) originally granted in accordance with Rule 701 of the Securities Act and (ii) 6,299 shares of our common stock in connection with the exercise of stock options originally granted in reliance on ~~section~~ Section 4(2) of the Securities Act. The aggregate proceeds to us as a result of these transactions were less than $0.1 million. ~~No shares were~~ ~~issued in connection with the exercise of SARs or stock options in 2007.~~

28 During 2009, we issued an aggregate of (i) 1,614 shares of our common stock in connection with the exercise of stock appreciation rights (“SARs”) originally granted in accordance with Rule 701 of the Securities Act. The aggregate proceeds to us as a result of these transactions were less than $0.1 million.

Item 6. Selected Financial Data

The following selected consolidated financial data are derived from our consolidated financial statements. 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 report. The historical results presented are not necessarily indicative of future results.

	Year Ended December 31,
	2008			2007			2006			2005			2004
	2009			2008			2007			2006			2005
	(in millions)						~~(in millions)~~
Statement of Operations:
Revenue	$	1,~~796~~877.68		$	1,~~625~~775.50		$	1,~~550~~613.91		$	1,~~297~~550.29		$	1,~~214~~297.72
Cost of sales (1)		1,~~493~~594.48			1,~~269~~492.39			1,~~274~~284.28			1,~~231~~290.8			1,~~078~~242.06
Selling, general & administrative expenses (1)		~~194~~122.6			~~246~~135.73			~~236~~133.03			~~234~~142.26			~~223~~165.15
Impairment charge		—			—			~~9.0~~—			5.9.0			265.09
Operating income (loss)		~~108~~160.64			~~109~~146.58			31195.70			~~(174~~108.75	)		(~~112~~116.48	)
Interest expense, net		6256.83			5962.08			6359.10			5163.31			4251.83
Other (income) loss		(481.73	)		0(48.17	)		0.51			0.35			—0.3
Equity in loss of joint venture		~~0.6~~—			4.0.6			64.70			36.47			—3.4
Income (loss) before income taxes		93105.94			46132.41			~~(38~~131.69	)		~~(229~~38.72	)		(~~155~~171.28	)
Income tax expense (benefit)		0(9.23	)		0.12			(10.91	)		—(1.9	)		~~0.2~~—
Net income (loss) (2)	$	93.7		$	46.3		$	(36.7	)	$	(229.7	)	$	(155.0	)
Income (loss) from continuing operations		114.7			131.9			131.8			40.1			(171.8	)
Income (loss) from discontinued operations, net of tax		213.6			(38.2	)		(85.5	)		(76.8	)		(57.9	)
Net income (loss) (2)	$	328.3		$	93.7		$	46.3		$	(36.7	)	$	(229.7	)
Other Financial Data:
Cash flow provided by (used in) operating activities	$	~~(154~~111.58	)	$	34(154.25	)	$	~~172~~34.82		$	~~(65~~172.08	)	$	(5965.80	)
Cash flow provided by (used in) investing activities		~~(14~~247.2	)		(4914.62	)		(~~102~~49.76	)		(~~152~~102.17	)		(70152.61	)
Cash flow provided by (used in) financing activities		~~179~~(329.87	)		(2179.48	)		~~13.~~(2.4	)		9813.32			~~152~~98.93
Capital expenditures		6942.30			5769.43			~~115~~57.4			~~147~~115.14			69147.61
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	86116.70		$	7586.67		$	9375.46		$	1093.14		$	~~128~~10.91
Trade and other receivables		~~138~~127.69			81138.45			8281.14			9082.81			~~123~~90.28
Inventories		~~444~~511.43			~~362~~311.8			~~337~~362.8			~~340~~337.18			~~279~~340.31
Property, plant and equipment, net		~~484~~275.39			~~507~~279.02			~~530~~295.42			~~485~~342.12			~~407~~368.70
Total assets		1,~~727~~509.69			1,~~620~~727.96			1,~~658~~620.79			1,~~561~~658.87			1,~~589~~561.08
Total debt (3)		~~869~~589.98			~~683~~869.09			~~688~~683.30			~~693~~688.03			~~697~~693.90
Stockholders’ equity (deficit)	$	(~~934~~503.15	)	$	(~~665~~934.81	)	$	(~~693~~665.38	)	$	(~~773~~693.03	)	$	(~~554~~773.50	)

(1)		Certain amounts recorded in 2005~~-2004~~ associated with information technology ~~amounts~~ have been reclassified from general and administrative expenses to cost of sales to conform to the current year presentation.
(2)		Net income (loss) is calculated before other comprehensive income (~~losses~~loss) relating to the following: 1) pension and OPEB related adjustments of $100.0 million and $(365.1) million in 2009 and 2008, respectively, 2) minimum pension liability adjustments and adoption of ~~SFAS~~provisions ~~158~~of the Compensation-Retirement Benefits topic of the ASC adjustments of $(22.4) million in 2007 and 3) minimum pension liability adjustments of $112.9 million, and $16.8 million ~~and $(78.6) million~~ in, 2006, ~~2005~~ and ~~2004~~2005, respectively.
(3)		Total debt as of December 31, 2006, ~~2005~~ and ~~2004~~2005 includes $1.3 million, ~~$2.0 million~~ and $2.90 million, respectively, of capitalized leases. As of December 31, 2009, 2008 and 2007, ~~there~~capital ~~were~~leases norepresented ~~capital~~less ~~leases~~than $0.1 million of our total debt balance. Total debt as of December 31, 2009 and 2008 includes $2.4 million and $8.2 million, respectively, of unamortized discount related to our ~~Incremental~~long-term ~~Loan Facility~~debt.

2928

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

Overview

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

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

Although the majority of our revenues are generated by sales in the U.S. market, we generate approximately 1210% of our revenue from sales outside of the United States.

Most of our revenues are generated under long-term contracts. Our customers typically place orders well in advance of required deliveries, which gives us considerable visibility with respect to our future revenues. These advance orders also generally create a significant backlog for us, which was approximately $32.81 billion at December 31, ~~2008~~2009. Our calculation of backlog includes only firm orders for commercial and business jet programs and funded orders for government programs, which causes our backlog to be substantially lower than the estimated aggregate dollar value of our contracts and may not be comparable to others in the industry.

For our commercial and business jet programs, changes in the economic environment and the financial condition of airlines may cause our customers to increase or decrease deliveries, adjusting firm orders that would affect our backlog. Also, tovolatility ~~the~~in ~~extent~~ the ~~current global~~ financial ~~crisis~~markets ~~continues~~may impact orthe ~~worsens,~~ overall demand for our commercial and business aircraft products. ~~could~~To ~~continue~~the toextent financial market conditions worsen, we could experience decline ~~notwithstanding~~in the ~~growth~~future ~~over~~on ~~the~~demand ~~past~~for ~~three~~our commercial ~~years.~~and business aircraft products For our military aircraft programs, the Department of Defense and other government agencies have the right to terminate both our contracts and/or our customers’ contracts either for default or, if the government deems it to be in its best interest, for convenience.

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

Commercial Aircraft. Sales to the commercial aircraft market are ~~directly and significantly~~ affected by the financial health of the commercial airline industry, passenger and cargo air traffic, the introduction of new aircraft models, and the availability and profile of used aircraft. ~~During~~Production ~~the~~rates ~~past three years we~~ have ~~benefited~~slowed on ~~from~~many ~~increased~~of ~~demand for~~ our commercial aircraft ~~products~~in ~~although~~2009. ~~our~~We ~~OEMs~~expect ~~have~~those ~~begun~~lower rates to ~~indicate~~continue ~~the~~through ~~possibility of future reductions in~~2010 ~~delivery~~with ~~rates~~a inslow ~~response~~recovery ~~to recent macro-economic conditions~~thereafter.

30 Military Aircraft. U.S. national defense spending and procurement funding decisions, global geopolitical conditions, and current operational use of the existing military aircraft fleet drive sales in the military aircraft market. We believe that the demand for our rotorcraft programs, which are some of the key equipment being used in military operations, will experience some pressure during the next several years. Historically, the majority of our military revenues and a significant portion of our total revenue have been generated from our C-17 program. We currently have a contract from Boeing that would support C-17 production through April 2011. However, our businesss could be adversely impacted if the Government does not fund additional C-17 aircraft and Boeing decides not to fund beyond their current commitment.

~~Military~~ Business Jet Aircraft. ~~U.S.~~Sales ~~national~~to ~~defense spending and procurement funding decisions, global geopolitical conditions and current operational use of~~ the ~~existing~~business ~~military~~jet aircraft ~~fleet drive sales in the military aircraft~~ market. ~~Due~~are todriven ~~the~~by ~~current and anticipated pace of military~~long-term ~~operations~~economic ~~and~~expansion, the ~~U.S.~~increasing ~~military’s~~inconvenience ~~need~~of tocommercial ~~more~~airline ~~rapidly~~travel, ~~repair or replace its existing fleet of~~growing ~~equipment,~~international weacceptance ~~expect~~and ~~that the~~ demand for ~~our~~business ~~military~~jet ~~products~~travel, ~~should~~fractional ~~remain~~ownership ~~strong~~of ~~for~~business ~~the next~~jets ~~several~~and ~~years.~~the Weintroduction ~~believe~~of ~~that~~new ~~this~~business ~~will~~jet ~~result~~models. inReflecting ~~continued~~the ~~growth~~pressures in ~~our~~the ~~rotorcraft~~financial ~~programs~~and ~~since~~business ~~they~~markets ~~are~~in ~~some~~2009, ofwe ~~the~~experienced ~~key~~reduced ~~equipment~~production ~~being~~rates ~~used~~on inseveral ~~military operations. Historically, the majority~~ of our ~~military~~programs ~~revenues~~ and were anotified ~~significant~~of ~~portion~~the suspension of ~~our~~the ~~total~~Cessna ~~revenue~~Citation ~~have~~Columbus ~~been generated~~— ~~from~~Model ~~our~~850 ~~C-17~~ program. We ~~currently~~expect those ~~have~~reduced adelivery ~~contract~~rates ~~from~~to ~~Boeing~~continue ~~for~~through the ~~procurement~~end of ~~long-lead~~ ~~material~~2010 ~~that~~with ~~would~~slow ~~support~~recovery ~~C-17~~thereafter. ~~production~~In spite ~~through~~of ~~April 2011.~~these ~~However~~pressures, ~~our~~as ~~business could~~a bemajor ~~adversely~~supplier ~~impacted~~to if the ~~Government~~top-selling ~~does~~G350, ~~not~~G450, ~~fund~~G500 ~~additional~~and ~~C-17~~G550 ~~aircraft~~ and ~~Boeing~~ ~~decides~~Citation ~~not~~X toprograms, ~~fund~~we ~~beyond~~still ~~their~~believe ~~current~~we ~~commitment~~are ~~and~~well ifpositioned ~~the~~to ~~cost~~operate ofin ~~the~~key ~~government’s~~segments ~~economic stimulus~~of ~~package adversely impacts~~ the business ~~level~~jet ofmarket ~~financing~~as ~~available~~macro-economic ~~for~~conditions ~~the~~continue ~~procurement~~to ~~of aircraft~~improve.

~~Business~~ On ~~Jet~~July 30, ~~Aircraft.~~2009, ~~Sales~~we tosold the ~~business~~assets ~~jet~~and ~~aircraft~~operations ~~market~~of ~~are~~our ~~driven~~787 bybusiness ~~long-term economic~~conducted ~~expansion,~~at ~~the increasing inconvenience of commercial airline travel~~North Charleston, ~~growing international~~South ~~acceptance~~Carolina ~~and~~to ~~demand~~a ~~for~~wholly ~~business~~owned ~~jet~~subsidiary ~~travel,~~of ~~increased~~The ~~fractional~~Boeing ~~ownership~~Company. ~~of business~~Concurrent ~~jets~~with ~~and~~ the closing ~~introduction~~ of ~~new business jet models. During~~ the ~~past~~transaction, ~~three years~~ we ~~have benefited~~entered ~~from~~into ~~increased~~an ~~demand~~agreement ~~for~~terminating ~~our~~and ~~business~~resolving ~~jet~~rights ~~products although our OEMs have begun to~~and ~~reduce~~obligations ~~delivery~~under ~~rates~~the inexisting ~~response~~787 tosupply ~~recent~~agreement. ~~macro-economic~~Going ~~conditions.~~forward, Asunder a ~~major~~newly ~~supplier to the~~negotiated ~~top-selling G350~~contract, ~~G450,~~we ~~G500~~will ~~and~~manufacture ~~G550,~~certain ~~Citation~~components Xfor ~~and~~ the ~~recently~~787 ~~announced~~program ~~Citation~~as ~~Columbus~~well ~~— Model~~as ~~850~~provide ~~programs,~~engineering services weto ~~believe~~Boeing wepursuant ~~are well positioned~~ to ~~operate~~an inengineering ~~key~~services ~~segments of the business jet market~~agreement. ~~Nevertheless,~~We ~~the~~also ~~business~~will ~~jet~~provide ~~industry~~certain transition isservices ~~subject~~ to ~~many~~Boeing ofpursuant ~~the~~to ~~same~~a ~~risks~~transition asservices ~~the commercial~~agreement ~~aircraft industry~~ and ~~our~~perform ~~business~~new ~~could~~work scope beon ~~adversely~~the ~~affected~~Boeing by737 ~~the~~and ~~current~~777 ~~economic turmoil~~aircraft inpursuant ~~the~~to ~~U.S.~~a ~~and~~long-term ~~global~~supply ~~economy~~agreement.

~~Recent~~ Under ~~Developments~~the terms of the senior credit facility, we are required to prepay or refinance any amounts outstanding of our $270.0 million Senior Notes by the last business day of 2010 or we must repay the aggregate amount of loans outstanding at that time under the senior credit facility unless a lender waives such prepayment (so long as a majority of our lenders (voting on a class basis) agree to such waiver). Because of the requirement to refinance the Senior Notes, the amounts outstanding under our senior credit facility have been classified as a current liability as of December 31, 2009.

On As ~~January~~described in Item 159B of this Form 10-K, ~~2009~~on March 23, ~~employees~~2010, ~~represented~~we byentered ~~Local~~into ~~735~~a ofmerger agreement ~~the~~with ~~IAM~~Triumph ~~ratified~~Group, aInc. ~~new~~pursuant ~~collective~~to which we will be acquired by Triumph. It is ~~bargaining~~anticipated ~~agreement~~that ~~ending~~in aconnection ~~strike~~with that ~~began~~transaction onall ~~September 27,~~of ~~2008~~our currently outstanding material indebtedness will be repaid in full. ~~Although~~The weconsummation ~~were~~of ~~able~~the acquisition is subject to, among other ~~continue~~things, ~~production~~approval ~~during~~of ~~the~~Triumph’s ~~course~~stockholders ofand ~~that~~other ~~work~~customary ~~stoppage~~closing ~~through~~conditions, which may not be satisfied. In the ~~use~~event ofthat ~~contract~~the ~~labor~~anticipated acquisition is not completed and ~~other~~ ~~non-represented~~such ~~personnel~~indebtedness remains outstanding, we plan to refinance our senior credit facility or the ~~strike~~Senior ~~resulted~~Notes inprior anto the ~~impact~~last ofbusiness ~~approximately~~day ~~$38~~of 2010.~~3 million~~ There are no assurances that we will be able to refinance on commercially reasonable terms or at all. This creates an uncertainty about our ~~results~~ability ofto ~~operations~~continue as ~~during~~a ~~the~~going ~~year~~concern. ~~ended~~Notwithstanding ~~December 31~~this, ~~2008~~the consolidated financial statements and related notes have been prepared assuming that we will continue as a going concern.

~~The~~ We ~~Boeing~~are ~~IAM~~progressing ~~strike~~in ~~coupled~~our ~~with~~plans ~~the~~to ~~overall~~refinance ~~787 program schedule delays have reduced~~ our ~~expected~~ ~~number~~senior ofcredit ~~near~~facility ~~term~~or ~~deliveries under~~ the ~~787~~Senior ~~program.~~Notes and Asalthough ano ~~result,~~assurance acan ~~number~~be ofgiven, ~~actions are~~we ~~being~~believe ~~taken~~that onwe ~~the~~are ~~787~~well ~~program~~positioned ~~at our North Charleston facility~~ to ~~reduce~~accomplish ~~our operating costs~~this ~~during~~prior ~~this~~to ~~time.~~the Welast ~~anticipate~~business ~~production~~day ~~levels~~of ~~will gradually increase during 2009 in order to support Boeing’s required delivery levels~~2010.

As of February 19, 2009, we had borrowed $135.0 million, the total amount available to us under our six year revolving loan portion of our senior credit facility.

On March 5, 2009, Gulfstream announced that as a result of deterioration in their backlog, particularly during the month of February 2009, and continued weak demand, it intended to cut production rates for its large-cabin and mid-size aircraft. These announced production cuts will decrease our anticipated revenue from the Gulfstream G350, G450, G500 and G550 programs during 2009.

Basis of Presentation

The following provides a brief description of some of the items that appear in our financial statements and general factors that impact these items.

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

• Under the cost-to-cost method, progress toward completion is measured as the ratio of total costs incurred to our estimate of total costs at completion. We recognize costs as incurred. Profit is determined based on our estimated profit margin on the contract multiplied by our progress toward completion. Revenue represents the sum of our costs and profit on the contract for the period. • Under the units-of-delivery method, revenue on a contract is recorded as the units are delivered and accepted during the period at an amount equal to the contractual selling price of those units. The costs recorded on a contract under the units-of-delivery method are equal to the total costs at completion divided by the total units to be delivered. As our contracts can span multiple years, we often segment the contracts into production lots for the purposes of accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and the estimated costs for the units delivered.

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

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

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

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

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

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

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

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

Equity in loss of joint venture. Equity in loss of joint venture reflected our share of the loss from Global Aeronautica, a joint venture in which we formerly participated. As a result of the sale of our equity interest in Global Aeronautica in 2008, our results of operations inare ~~future~~no ~~periods~~longer ~~will not be~~ impacted by this joint venture.

Income tax benefit (expense). Income tax benefit (expense) represents federal income tax provided on our net book income. ~~State~~from ~~income~~continuing ~~tax is included as part of Selling, general and administrative expenses~~operations. For a further discussion of our income tax provision, please see Note 15 to ~~our~~— ~~consolidated~~Income ~~financial statements included in Item 8 of this report~~Taxes.

32 Income (loss) from discontinued operations, net of tax. Income (loss) from discontinued operations, net of tax represents the revenue and expenses associated with our 787 business conducted at North Charleston, South Carolina that was sold to Boeing Commercial Airplanes Charleston South Carolina, Inc., a wholly owned subsidiary of The Boeing Company on July 30, 2009 (“Sale of the Charleston 787 business”). Our gain on the sale of this business is also reflected as income (loss) from discontinued operations, net of tax. See Note 3 — Discontinued Operations in the notes to the consolidated financial statements included in Item 8.

Results of Operations

	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2008			2007			2006
	2009			2008			2007
	(in millions)			~~(in millions)~~			~~(in millions)~~
Revenue:
Commercial	$	~~869~~946.7		$	~~794~~848.51		$	~~699~~782.31
Military		~~607~~664.43			~~530~~607.04			~~560~~530.90
Business jets		~~319~~266.58			~~301~~319.05			~~290~~301.70
Total revenue	$	1,~~796~~877.68		$	1,~~625~~775.50		$	1,~~550~~613.91
Costs and expenses:
Cost of sales		1,~~493~~594.48			1,~~269~~492.39			1,~~274~~284.28
Selling, general and administrative		~~194~~122.6			~~246~~135.73			~~236~~133.03
Asset impairment charge		—			—			9.0
Total costs and expenses	$	1,717.4		$	1,628.2		$	1,418.1
Total costs and expenses	$	1,688.0		$	1,516.0		$	1,519.2
Operating income (loss)		160.4			146.8			195.0
Operating income (loss)		108.6			109.5			31.7
Interest expense, net		(56.3	)		(62.8	)		(59.0	)
Interest expense, net		(62.8	)		(59.0	)		(63.1	)
Other income (loss)		1.3			48.7			(0.1	)
Other income (loss)		48.7			(0.1	)		(0.5	)
Equity in loss of joint venture		—			(0.6	)		(4.0	)
Equity in loss of joint venture		(0.6	)		(4.0	)		(6.7	)
Income tax benefit (expense)		9.3			(0.2	)		(0.1	)
Income tax benefit (expense)		(0.2	)		(0.1	)		1.9
Income from continuing operations	$	114.7		$	131.9		$	131.8
Net income (loss)	$	93.7		$	46.3		$	(36.7	)
Income (loss) from discontinued operations, net of tax	$	213.6		$	(38.2	)	$	(85.5	)
Total funded backlog	$	3,756.0		$	3,394.4		$	3,291.0
Net Income	$	328.3		$	93.7		$	46.3
Total funded backlog	$	2,067.3		$	2,451.0		$	2,288.1

Year Ended December 31, ~~2008~~2009 Compared to Year Ended December 31, ~~2007~~2008

Revenue. Revenue for the year ended December 31, ~~2008~~2009 was $1,~~796~~877.68 million, an increase of $~~171~~102.18 million, or 116%, compared with ~~the same period in the prior year~~2008. When comparing the current and the prior year:

• Commercial revenue increased $7598.26 million, or 912%. Revenue for our Boeing programs increased $59157.15 million primarily ~~due~~for tothe ~~increased~~747 ~~non-recurring~~program and the initial sales for the ~~747-8~~engineering ~~program~~ and ~~initial~~transition ~~deliveries~~services onagreements for the 787 program. InPartially ~~addition,~~offsetting these increases was a $58.9 million decrease in revenue for our Airbus programs ~~increased $16.1 million~~ primarily due to ~~higher~~the ~~deliveries~~completion of an Airbus program in the second quarter of 2009. • Military revenue increased $7756.49 million, or 159%, primarily due to ~~higher~~increased ~~delivery~~deliveries ~~rates~~ on the HV-6022 and, C-130 programs as well as increased spare part deliveries for the VC-2217 ~~programs~~program. • Business Jet revenue ~~increased~~decreased $1852.57 million, or 616%, primarily due to ~~increased~~reduced ~~deliveries~~delivery torates ~~Gulfstream~~directed ~~and~~by ~~the~~our ~~initial non-recurring revenue on the Cessna Columbus — Model 850 program~~customers.

~~Cost~~ Operating ofincome ~~sales~~(loss). ~~Cost~~Operating ofincome ~~sales~~ (loss) for the year ended December 31, ~~2008~~2009 was $~~1,493~~160.4 million, an increase of $~~224~~13.16 million, or 9% compared to ~~the~~$146.8 million ~~prior~~in ~~year~~2008. ~~The~~There were several unusual items in 2008 contributing to the 2009 increase ~~primarily~~in ~~resulted~~operating ~~from~~income as compared to ~~increased~~2008. ~~production~~Our ~~levels,~~operating income for 2009 excluded two specific items that affected 2008. Those items were the $38.3 million of costs associated with the strike at our Nashville facility and the $17.3 million of higher future projected pension ~~expense~~expenses ~~charged~~applied to programs. ~~and~~These factors contributed to a reduction in operating income in 2008 as compared to 2009 were partially offset by the ~~increased~~release of $22.6 million of purchase accounting reserves in 2008 reflecting the completion of the 747-400 model deliveries and non-recurring costs of $9.6 million in 2009 reflecting the impact of the ~~associated~~pension and other post-retirement benefits curtailment resulting from the 2009 collective bargaining agreement with the ~~strike~~International Association of Machinists at our Nashville, Tennessee facility.

~~Selling, general and administrative expenses. Selling, general and administrative expenses~~32 for the year ended December 31, 2008 were $194.6 million, a decrease of $52.1 million compared to the prior year. The decrease primarily resulted from a reduction of non-recurring 787 program expenses during 2008.

~~Operating~~ Interest ~~income~~expense, ~~(loss)~~net. ~~Operating~~Interest ~~income~~expense, ~~(loss)~~ net for the year ended December 31, ~~2008~~2009 was $~~108~~56.6 3 million, a ~~slight~~ decrease of $06.95 million compared towith ~~2007~~2008. ~~Although~~Interest ~~overall~~expense ~~operating income~~decreased ~~for~~primarily ~~the~~due ~~year was relatively flat compared~~ to ~~2007, the results include the impact of lower~~ ~~program margins for~~ the ~~year~~adjustment ~~offset~~during by2009 ~~a decrease in non-recurring expenses for the 787 program. During 2008, overall program margins were lower than the prior year primarily due~~ to acapitalize approximately $385.3 6 million ~~impact~~of ~~from~~interest costs ~~associated~~to appropriately ~~with~~reflect the ~~strike~~book atvalue ~~our~~of ~~Nashville~~Property, ~~facility~~Plant and aEquipment ~~$17.3 million impact~~included ~~related~~in toour assets-under-construction ~~higher~~balance ~~future~~in ~~projected~~fiscal ~~pension~~periods ~~expenses~~prior ~~applied~~ to ~~programs~~2009. The ~~remaining difference~~remainder inof ~~program~~the ~~margins~~decrease resulted ~~was~~from ~~primarily~~a ~~due~~reduction toin the ~~absence~~weighted ofaverage ~~favorable~~outstanding ~~contract~~balance ~~changes recorded~~during in2009 ~~2007,~~ partially offset by the ~~release~~acceleration of $227.61 million of ~~purchase~~debt ~~accounting~~origination ~~reserves reflecting~~costs ~~the~~from ~~completion of~~ the ~~747-400~~pay ~~model~~down ~~deliveries. These lower program margins were offset by a decrease~~ of $62355.60 million ~~in non-recurring 787 program expenses as the start-up phase~~ of ~~that program~~term ~~ends~~loans outstanding.

Other income (loss). Other income for the year ended December 31, 2008 primarily reflected the $47.1 million gain from the sale of our equity interest in our Global Aeronautica joint venture. We did not have a similar transaction during 2009.

Income tax benefit (expense). Income tax benefit for the year ended December 31, 2009 primarily reflects a reversal of $9.1 million of income tax expense due to a change in tax legislation. During the fourth quarter, the President signed into law the Workers, Homeownership and Business Assistance Act of 2009. The Law provides for a suspension of certain limitations on Alternative Minimum Tax net operating losses. Prior to the Law being enacted, we had estimated a $9.1 million federal AMT liability incurred in connection with the sale of 787, and had allocated that expense to discontinued operations. The Law has enabled the Company to fully utilize net operating losses and therefore we will not owe AMT for the year. The Income Taxes topic of the ASC requires that tax law changes be allocated to continuing operations; therefore we recorded a $9.1 million benefit to offset the related expense in discontinued operations. We were also able to carryback our 2008 AMT net operating loss to recover $0.4 million of previously paid AMT taxes and recorded a tax benefit in the tax provision.

Income (loss) from discontinued operations, net of tax. Income from discontinued operations, net of tax for the year ended December 31, 2009 was $213.6 million primarily due to the sale of the Charleston 787 business recorded during the period. This transaction included $275.0 million of income recognized for the resolution of 787 contractual matters as well as a $38.3 million loss on the sale of the Charleston 787 business.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenue. Revenue for the year ended December 31, 2008 was $1,775.0 million, an increase of $161.9 million, or 10%, compared with the same period in the prior year. When comparing the current and the prior year:

	•		Commercial revenue increased $66.0 million, or 8%. Revenue for our Boeing programs increased $49.9 million primarily due to increased non-recurring sales for the 747-8 program and initial deliveries on the 787 program. In addition, revenue for our Airbus programs increased $16.1 million primarily due to higher deliveries.

	•		Military revenue increased $77.4 million, or 15%, primarily due to higher delivery rates on the H-60 and the V-22 programs.

	•		Business Jet revenue increased $18.5 million, or 6%, primarily due to increased deliveries to Gulfstream and the initial non-recurring revenue on the Cessna Columbus — Model 850 program.

Operating income (loss). Operating income (loss) for the year ended December 31, 2008 was $146.8 million, a decrease of $48.2 million or 25% compared to 2007. During 2008, overall program margins were lower than the prior year primarily due to a $38.3 million impact from costs associated with the strike at our Nashville facility and a $17.3 million impact related to higher future projected pension expenses applied to programs. The remaining difference in program margins was primarily due to the absence of favorable contract changes recorded in 2007, partially offset by the release of $22.6 million of purchase accounting reserves reflecting the completion of the 747-400 model deliveries.

Interest expense, net. Interest expense, net for the year ended December 31, 2008 was $62.8 million, an increase of $3.8 million compared with the same period in the prior year. Interest expense increased primarily due to higher borrowings and related costs under the Incremental Facility partially offset by a reduction in the effective interest rate on our other variable rate indebtedness.

Other income (loss). Other income (loss) for the year ended December 31, 2008 primarily reflects our $47.1 million gain from the sale of our entire equity interest in Global Aeronautica.

~~Year Ended December 31, 2007 Compared to Year Ended December 31, 2006~~33

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 2007 to 2006:

• Commercial revenue increased by $95.2 million or 14% primarily due to price adjustments and increased delivery rates. Boeing program revenue increased $120.8 million and the Airbus program revenue increased $44.4 million. These increases were partially offset by the $70.0 million of customer settlements recorded for the year ended December 31, 2006 with no corresponding contributions to revenue for the year ended December 31, 2007. • Military revenue decreased $30.9 million or 6%. Increases of $69.1 million primarily due to higher delivery rates for the H-60 program and timing of deliveries for the C-17 program were offset by a decrease of $100.0 million of non-recurring revenue for the C-5, Global Hawk and 767 tanker programs recognized during the year ended December 31, 2006 and the completion of other small military programs. • Business Jet revenue increased by $10.3 million or 4% primarily due to increased delivery rates and price adjustments of $39.3 million which were partially offset by $29.0 million of customer settlements recorded in the year ended December 31, 2006 with no corresponding contributions to revenue in the year ended December 31, 2007.

Cost of Sales. Cost of sales for the year ended December 31, 2007 was $1,269.3 million, a decrease of $4.9 million compared to the prior year. The improvement was primarily due to price adjustments and cost reduction initiatives offsetting our increased production levels.

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 compared to the prior year. The increase is primarily due to higher 787 program period 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 the increase in revenue discussed above and program margin improvements from price adjustments and cost reduction initiatives. Partially offsetting those improvements were increased selling, general and administrative expenses primarily due to investment in the Boeing 787 program of $15.6 and increased losses of $9.5 million on certain programs including the H-60 program.

~~Interest~~ Income ~~expense~~(loss) from discontinued operations, net of tax. ~~Interest~~Loss ~~expense,~~from discontinued operations, net of tax for the year ended December 31, ~~2007~~2008 was $5938.0 2 million, a decrease of $447.13 million ~~or 6%~~ compared with ~~$63~~2007.~~1 million~~ ~~for~~The ~~the~~decrease ~~same~~was ~~period in the prior year. Interest expense decreased~~ due to ~~the~~a ~~lower~~reduction ~~borrowings~~in ~~under our short~~non-~~term~~recurring ~~revolver partially~~787 ~~offset~~program byexpenses aas the ~~higher~~start-up ~~variable~~phase ~~interest~~of ~~rate~~that onprogram ~~our outstanding long-term bank debt~~ended.

Liquidity and Capital Resources

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

We For ~~believe~~certain ~~our~~aircraft ~~787~~programs, ~~program~~milestone ~~will~~or ~~continue~~advance topayments befrom acustomers ~~key~~finance ~~driver of our liquidity and~~ working capital, ~~requirements~~which ashelps weto ~~continue~~improve our ~~investment in, and increase our production rate for that program~~liquidity. ~~The~~In ~~Boeing~~addition, ~~strike coupled with the overall 787 program schedule delays have reduced the expected number of deliveries~~ we ~~will~~may, ~~make~~ in the ~~near~~ordinary ~~term.~~course ~~As a result, a number~~ of ~~actions are~~ ~~being~~business, ~~taken~~settle onoutstanding ~~the~~claims ~~787~~or ~~program~~other atcontractual ~~our~~matters ~~North~~with ~~Charleston~~customers ~~facility~~or tosuppliers ~~improve~~or ~~our liquidity position.~~we Wemay ~~have~~receive ~~currently~~payments ~~fabricated enough barrels to support deliveries~~ for 19change ~~aircraft,~~orders ~~which~~not ~~will support~~previously ~~deliveries~~negotiated. ~~for~~Settlement ~~much~~ of ~~2009.~~such ~~Therefore,~~matters we can have ~~slowed~~a ~~our~~significant ~~production~~impact ~~rate~~on ~~and reduced~~ our ~~costs~~ byresults ~~temporarily~~of ~~suspending our 787 composite bond fabrication~~ operations and ~~redeployed assembly~~cash ~~employees to concentrate on existing fuselages closest to completion~~flows. ~~The production~~ ~~levels will be gradually increased during 2009 in order to support Boeing required delivery levels.~~

~~For~~ We ~~certain~~believe ~~aircraft~~that ~~programs,~~cash ~~milestone~~flow ~~or advance payments~~ from ~~customers finance working capital~~operations, ~~which~~cash ~~helps~~and tocash ~~improve~~equivalents ~~our~~on ~~liquidity.~~hand Inand ~~addition,~~funds wethat will ~~may,~~be inraised ~~the~~as ~~ordinary~~part ~~course~~ of ~~business,~~ ~~settle~~a ~~outstanding~~refinancing ~~claims with customers~~ or ~~suppliers~~restructuring ~~or we may receive payments for change orders not previously negotiated. Settlement~~ of ~~pending~~our ~~claims~~senior ~~can~~credit ~~have~~facility aand ~~significant impact~~Senior onNotes ~~our~~will ~~results~~provide ofadequate ~~operations~~funding ~~and~~for ~~cash~~our ~~flows.~~ongoing Inworking ~~March 2008~~capital expenditures, ~~we reached an interim settlement~~pension ~~regarding~~contributions ~~certain~~and ~~pending~~capital ~~claims~~investments ~~related~~required to meet our ~~787~~current ~~program.~~contractual ~~These~~and ~~claims related to non-recurring~~legal ~~costs~~commitments wefor ~~incurred~~at inleast ~~developing~~ the ~~program~~next astwelve ~~well as increases in our expected production costs due to aircraft design changes~~months. ~~In addition~~However, wethere ~~received~~is ~~advance~~no ~~payments~~assurance ofthat ~~approximately~~we ~~$122.0~~can ~~million~~refinance ~~from~~the ~~Boeing,~~Senior ~~which~~Notes ~~will~~or bethe ~~repaid~~senior ascredit ~~shipments~~facility ~~occur.~~prior Weto ~~are~~the ~~continuing~~last ~~our~~business ~~discussions with~~day ~~Boeing on future pricing and other compensation considerations with an objective~~ of ~~resolving such considerations in a timely manner~~2010.

In Our ~~addition~~pension toplan ~~the~~funding ~~ongoing~~obligations ~~negotiations~~also ~~with~~impact ~~Boeing~~our liquidity and capital resources. Elsewhere in this report, we ~~believe~~provide weestimates ~~will~~of beour ~~able~~pension toplan ~~effectively~~contributions for 2010 through ~~manage~~2014. ~~our~~See ~~costs~~“— ~~and~~Contractual ~~work~~Obligations.” ~~with~~Our ~~our~~future ~~suppliers~~pension tocontributions ~~mitigate~~are primarily driven by the ~~impact~~funded onlevel of our ~~financial~~plans ~~position~~ as ~~a result~~ of ~~the~~December 31 ~~recent~~of ~~787~~each ~~program~~fiscal ~~delays~~year. ~~However,~~Two ~~any~~of ~~significant~~the ~~future~~factors ~~delays~~used ~~could have a~~in ~~material~~determining ~~adverse~~our ~~effect~~liability onunder our ~~financial~~plan ~~condition,~~are ~~results~~the ofdiscount ~~operations~~rate and ~~cash~~the ~~flows~~market value of the plan assets.

We Macro-economic ~~believe that cash flow from operations~~conditions, ~~cash~~the ~~and~~corporate ~~cash~~bond ~~equivalents~~rates ~~on hand~~ and ~~funds available~~the ~~under~~fluctuations in the ~~revolving~~fair ~~portion~~value of our ~~credit~~plan ~~facility~~assets ~~will~~as ~~provide~~a ~~adequate~~result ~~funds~~of ~~for~~the ~~our ongoing~~volatility ~~working~~in ~~capital~~global ~~expenditures,~~financial ~~pension~~markets ~~contributions~~will ~~and~~continue ~~near term debt service obligations allowing us~~ to ~~meet~~ impact our ~~current~~required ~~contractual~~contributions ~~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 787 program including~~ future ~~derivatives or other 787 contract modifications requested by Boeing~~periods.

Our ~~pension~~ability ~~plan~~to ~~funding~~refinance ~~obligations also impact~~ our ~~liquidity~~indebtedness ~~and~~or ~~capital~~obtain ~~resources. Elsewhere~~additional insources ~~this report, we provide estimates~~ of ~~our~~financing ~~pension~~will ~~plan contributions for 2009 through~~be ~~2013.~~affected ~~See “— Contractual Obligations.” Our future pension contributions are primarily driven~~ by ~~the~~ ~~funded~~economic ~~level~~conditions ~~of our plans as of December 31 of each fiscal year. Two of the factors used in determining our liability under our plan are the discount rate~~ and ~~the market value of the plan assets. As of December 31~~financial, ~~2008,~~business ~~due~~and toother ~~current macro-economic conditions~~factors, ~~the~~some ~~current corporate bond rates and the fluctuations in the fair value~~ of ~~our~~which ~~plan~~are ~~assets as a result of the current~~beyond ~~volatility in global financial markets, indicate that~~ our ~~contributions over the next five years may increase significantly from the previously anticipated levels~~control.

As of December 31, 2009, our total outstanding long-term debt was approximately $589.8 million. This amount includes $270.0 million of 8% Senior Notes due 2011 (“Senior Notes”) and $322.2 million of term loans outstanding under our senior credit facilities. Additionally, we had $41.3 million in outstanding letters of credit.

On July 30, 2009 we entered into an Amendment to our Credit Agreement (“Amendment”) which modified the Credit Agreement to allow the sale of the Charleston 787 business (discussed in Note 3 — Discontinued Operations) and provided for use of cash proceeds from the transaction to (i) pay down $355.0 million of term loans outstanding and (ii) repay outstanding amounts on our revolver of $135.0 million and to permanently reduce revolving commitments under the Credit Agreement to $100.0 million. The Amendment converted the synthetic letter of credit facility under the Credit Agreement into additional term loan of $50.0 million, a portion of which is used as cash collateral for letters of credit previously issued under the synthetic letter of credit facility. This term loan is repayable on December 22, 2010. As of December 31, 2009, the cash restricted as collateral for outstanding letters of credit was $43.8 million. The Amendment increased the interest rate on all loans to London Interbank Offering Rate (LIBOR) plus a margin of 4.00%, with a minimum LIBOR floor of 3.50%.

Our outstanding term loans, including amounts under the Incremental Facility, are repayable in equal quarterly installments of approximately $1.5 million with the balance due on December 22, 2011. Our revolving commitments are scheduled to expire on December 22, 2010. The Amendment incorporated an extension provision that allows us to extend our revolving commitments with lenders who agree to such extension to a date to be agreed. We are also obligated to pay an annual commitment fee on the unused portion of our revolver of 0.5% or less, based on our leverage ratio.

Under the terms of the senior credit facility, we are required to prepay or refinance any amounts outstanding of our $270.0 million Senior Notes by the last business day of 2010 or we must repay the aggregate amount of loans outstanding at that time under the senior credit facility unless a lender waives such prepayment (so long as a majority of our lenders (voting on a class basis) agree to such waiver). Because of the requirement to refinance the Senior Notes, the amounts outstanding under our senior credit facility have been classified as a current liability as of December 31, 2009. As described in Item 9B of this Form 10-K, on March 23, 2010, we entered into a merger agreement with Triumph Group, Inc. pursuant to which we will be acquired by Triumph. It is anticipated that in connection with that transaction all of our currently outstanding material indebtedness will be repaid in full. The consummation of the acquisition is subject to, among other things, approval of Triumph’s stockholders and other customary closing conditions, which may not be satisfied. In the event that the anticipated acquisition is not completed and such indebtedness remains outstanding, we plan to refinance our senior credit facility or the Senior Notes prior to the last business day of 2010. There are no assurances that we will be able to refinance on commercially reasonable terms or at all. This creates an uncertainty about our ability to continue as a going concern. Notwithstanding this, the consolidated financial statements and related notes have been prepared assuming that we will continue as a going concern.

Credit Agreements and Debt Covenants. The indenture governing our Senior Notes and our credit agreement contain customary affirmative and negative covenants for facilities of this type, including limitations on our indebtedness, liens, investments, distributions, mergers and acquisitions, dispositions of assets, subordinated debt and transactions with affiliates. The credit agreement also requires that we maintain certain financial covenants including a leverage ratio, the requirement to maintain minimum interest coverage ratios, as defined in the agreement, and a limitation on our capital spending levels. The indenture governing our Senior Notes also contains various restrictive covenants, including the incurrence of additional indebtedness unless the debt is otherwise permitted under the indenture. As of December 31, 2009, we were in compliance with the covenants in the indenture and our credit agreement.

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

Our senior credit facilities use Adjusted EBITDA to determine our compliance with two financial maintenance covenants. See “Non-GAAP Financial Measures” below for a discussion of Adjusted EBITDA and reconciliation of that non-GAAP financial measure to net cash provided by (used in) operating activities. We are required not to permit our consolidated total leverage ratio, or the ratio of funded indebtedness (net of cash) at the end of each quarter to Adjusted EBITDA for the twelve months ending on the last day of that quarter, to exceed 4.00:1.00 for fiscal periods ending during 2009, 3.75:1.00 for fiscal periods during 2010 and 3.50:1.00 for fiscal periods thereafter. We also are required not to permit our consolidated net interest coverage ratio, or the ratio of Adjusted EBITDA for the twelve months ending on the last day of a quarter to our consolidated net interest expense for the twelve months ending on the same day, to be less than 3.50:1.00 for fiscal periods ending during 2009 and for fiscal periods thereafter. Each of these covenants is tested quarterly, and our failure to comply could result in a default and, potentially, an event of default under our senior credit facilities. If not cured or waived, an event of default could result in acceleration of this indebtedness. Our credit facilities also use Adjusted EBITDA to determine the interest rates on our borrowings, which are based on the consolidated total leverage ratio described above. Changes in our leverage ratio may result in increases or decreases in the interest rate margin applicable to loans under our senior credit facilities. Accordingly, a change in our Adjusted EBITDA could increase or decrease our cost of funds. The actual results of the total leverage ratio and net interest coverage ratio for the years ended December 31, 2009 were 1.69:1.00 and 5.28:1.00, respectively.

~~Our~~The indenture governing our outstanding Senior Notes contains a covenant that restricts our ability to ~~refinance~~incur ~~our~~additional indebtedness orunless, ~~obtain~~among ~~additional~~other ~~sources~~things, ofwe ~~financing~~can ~~will~~comply bewith a fixed ~~affected~~charge bycoverage ~~economic~~ratio. ~~conditions~~We ~~and~~may ~~financial~~incur additional indebtedness only if, ~~business~~after ~~and~~giving ~~other~~pro ~~factors~~forma effect to that incurrence, ~~some~~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 ~~are~~internal ~~beyond~~financial statements ~~our~~are ~~control.~~available ~~Management~~meet ~~has~~certain ~~implemented~~levels ~~and~~or ~~continues~~we have availability to ~~implement~~incur ~~cost~~such ~~savings~~indebtedness ~~initiatives~~under ~~that~~certain webaskets ~~expect~~in ~~should~~the ~~have~~indenture. Accordingly, Adjusted EBITDA is a ~~positive~~key ~~impact~~factor onin ~~the~~determining ~~future~~how ~~cash~~much additional ~~flows~~indebtedness ~~needed~~we may be able to ~~satisfy~~incur ~~our~~from ~~long-term cash~~time ~~requirements~~to time to operate our business.

On Non-GAAP ~~July 2~~Financial Measures. Periodically we disclose to investors Adjusted EBITDA, ~~2003~~which is a non-GAAP financial measure that our management uses to assess our compliance with the covenants in our senior credit agreement, weour ~~issued~~ongoing ~~$270~~ability to meet our obligations and manage our levels of indebtedness.~~0 million~~ Adjusted EBITDA is calculated in accordance with our senior credit agreement and includes adjustments that are material to our operations but that our management does not consider reflective of 8%our ~~Senior~~ongoing ~~Notes~~core ~~due~~operations. ~~2011~~Pursuant ~~(“Senior~~to ~~Notes”~~our senior credit agreement, Adjusted EBITDA is calculated by making adjustments to our net income (loss) to ~~with~~eliminate the effect of our (1) ~~interest~~income ~~payable~~tax onexpense, ~~January~~(2) 15net ~~and~~interest ~~July~~expense, (3) 15any amortization or write-off of ~~each~~debt ~~year~~discount and debt issuance costs and commissions, ~~beginning~~discounts ~~January~~and other fees and charges associated with indebtedness, (4) 15depreciation and amortization expense, ~~2004.~~(5) any Weextraordinary, ~~may~~unusual ~~redeem~~or ~~the~~non-recurring ~~notes~~expenses inor ~~full~~gains/losses or(including ingains/losses ~~part~~on bysales ~~paying~~of ~~premiums~~assets ~~specified~~outside inof the ordinary ~~indenture~~course ~~governing~~of business, non-recurring expenses associated with the 787 program and certain expenses associated with our facilities consolidation efforts) net of any extraordinary, unusual or ~~outstanding~~non-recurring ~~Senior~~income ~~Notes.~~or ~~The~~gains, ~~notes~~(6) any ~~are~~other ~~senior~~non-cash ~~unsecured~~charges, ~~obligations~~expenses ~~guaranteed~~or bylosses, restructuring and integration costs, (7) stock-option based compensation expenses and (8) all offees and expenses paid pursuant to our Management Agreement with The Carlyle Group (“Carlyle”). See Note 20 to our ~~existing~~consolidated ~~and~~financial ~~future~~statements ~~domestic~~in ~~subsidiaries~~Item 8 of this report.

We Adjusted ~~entered~~EBITDA ~~into~~for ~~$650 million~~the ofyears ~~senior~~ended ~~credit facilities pursuant to a credit agreement dated~~ December 2231, ~~2004.~~2009, ~~Our~~2008 ~~senior~~and ~~credit~~2007 ~~facilities~~was ~~are comprised of a~~ $~~150~~254.7 million ~~six year revolving loan (“Revolver”)~~, a $75263.9 million ~~synthetic letter of credit facility~~ and a $~~425~~277.4 million, ~~seven year term loan B~~respectively. The ~~term~~following ~~loan~~table ~~amortizes~~is ~~at $1.0 million per quarter with~~ a ~~final~~reconciliation ~~payment at the maturity date~~ of ~~December 22, 2011. We are obligated to pay an annual commitment fee on~~ the ~~unused~~ ~~portion~~non-GAAP ofmeasure from our ~~revolver~~cash offlows ~~0.5%~~from ~~or less, based on our leverage ratio.~~operations:

On May 6, 2008, we borrowed an additional $200.0 million of term loans pursuant to our existing senior credit facilities (the “Incremental Facility”). Except for amortization and interest rate, the terms of the Incremental Facility, including mandatory prepayments, representations and warranties, covenants and events of default, are the same as those applicable to the existing term loans under our senior credit facilities and all references to our senior credit facilities shall include the Incremental Facility. The term loan under the Incremental Facility is repayable in equal quarterly installments of $470,000 with the balance due on December 22, 2011.


	For the Years Ended
	December 31,			December 31,			December 31,
	2009			2008			2007
	(in millions)
Net cash provided by (used in) operating activities	$	111.8		$	(154.5	)	$	34.2
Interest expense, net		56.3			62.8			59.0
Income tax expense (benefit)		(9.3	)		0.2			0.1
Stock compensation expense		(2.5	)		(1.1	)		(5.2	)
Equity in losses of joint venture		—			(0.6	)		(4.0	)
Gain (loss) from asset sales and other losses		(41.2	)		49.8			(1.8	)
Non-cash interest expense		(13.1	)		(5.8	)		(3.1	)
787 tooling amortization		1.1			0.8			—
Changes in operating assets and liabilities		328.3			266.1			86.9

EBITDA	$	431.4		$	217.7		$	166.1

Investment in Boeing 787 and sale of the Charleston 787 business (1)		(213.6	)		33.3			95.9
Unusual charges & other non-recurring program costs (2)		19.3			56.7			6.1
(Gain) loss on disposal of property, plant and equipment and other assets (3)		2.9			(48.2	)		1.9
Pension & OPEB curtailment and non-cash expense (4)		10.3			—			—
Other (5)		4.4			4.4			7.4

Adjusted EBITDA	$	254.7		$	263.9		$	277.4

Our total outstanding long-term debt as of December 31, 2008 was approximately $878.1 million, which included $608.1 million incurred under our senior credit facilities and $270.0 million of Senior Notes. In addition, we had $49.7 million in outstanding letters of credit under the $75 million synthetic facility.

On January 31, 2009, under the terms of our credit agreement, we exercised our option to convert $25 million of the synthetic letter of credit facility to a term loan. The $25 million term loan is subject to the same terms and conditions as the outstanding term loans made as of December 2004. As a result, our current limit under the synthetic letter of credit facility is $50 million.

Although we periodically used the Revolver during 2008 to meet working capital requirements, as of December 31, 2008, we had no borrowings outstanding. However, as of March 12, 2009, we had outstanding borrowings of $135.0 million on our revolver.

In October 2008, LCPI, the administrative and collateral agent under our existing senior credit facilities, filed for bankruptcy. In connection with its bankruptcy, we expect that LCPI will resign as administrative and collateral agent under our senior credit facilities and we are currently in the process of working with our lending group to designate a replacement administrative and collateral agent. Additionally, LCPI is currently a lender under our Revolver with a commitment of approximately $15 million; however LCPI has not been funding their commitment and we intend to replace LCPI as a lender under our Revolver to the extent we are able to do so given the current condition of the global financial markets.

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, 2008, we were in compliance with the covenants in the indenture governing our notes and credit facilities.

Our $850 million senior credit facilities (including our Incremental Facility) are material to our financial condition and results of operations because those facilities are our primary source of liquidity for working capital. The indenture governing our outstanding Senior Notes is material to our financial condition because it governs a significant portion of our long-term capitalization while restricting our ability to conduct our business.


(1)		Investment in Boeing 787 and sale of the Charleston 787 business—The Boeing 787 program, described elsewhere in our periodic reports, required substantial start-up costs in prior periods as we built a new facility in South Carolina and invested in new manufacturing technologies dedicated to the program. These start-up investment costs were expensed in our financial statements over several periods due to their magnitude and timing. As a result of the sale of the Charleston 787 business to Boeing, we settled outstanding contractual matters with Boeing and recognized a loss on the sale of the related assets and liabilities of the business. Our credit agreement excludes all gains or losses recognized on the sale of assets and it excludes our significant start-up investment in the Boeing 787 program because it represented an unusual significant investment in a major new program that was not indicative of ongoing core operations. Accordingly, the impact of the settlement of contractual matters, loss on the sale of the assets and liabilities and the investment that was expensed during the period was excluded from the calculation of Adjusted EBITDA. Also included in this adjustment is our loss in our joint venture with Global Aeronautica. Our net loss was $0.6 million and $4.0 million for the fiscal years 2008 and 2007, respectively. On June 10, 2008, we sold our entire equity interest in Global Aeronautica to Boeing and as a result, in subsequent periods, our adjusted EBITDA calculation is not be impacted by this joint venture. For more information, please refer to Note 8 – Investment in Joint Venture in our consolidated financial statements.

(2)		Unusual charges and other non-recurring program costs— Our senior credit agreement excludes our expenses for unusual events in our operations and non-recurring costs that are not indicative of ongoing core operating performance, and accordingly the charges that have been expensed during the period are added back to Adjusted EBITDA.

		For the year ended December 31, 2008, we recognized an additional $38.3 million in non-recurring program costs related to the strike at our Nashville facility and $1.8 million in non-recurring program costs related to the Boeing strike. However, during the year ended December 31, 2009, we reversed $(0.5) million in non-recurring program costs related to the strike at our Nashville facility because the actual strike-related costs incurred on those programs were lower than the original estimates.

		We incurred $10.0 million, $8.4 million and $6.1 million of non-recurring costs related to a facilities rationalization initiative for the years ended December 31, 2009, 2008 and 2007, respectively, which have been added back to Adjusted EBITDA. Also, during the year ended December 31, 2009, we recognized $1.8 million of non-recurring costs related to the suspension of the Cessna Citation Columbus – Model 850 business jet program and $8.0 million of non-recurring costs related to Information Systems implementation initiatives. We did not incur similar costs in 2008 and 2007. During the year ended December 31, 2008, we recorded $8.2 million of non-recurring specific warranty costs. We did not incur similar costs in 2009 and 2007.

(3)		(Gain) loss on disposal of property, plant and equipment (“PP&E”) and other assets — On occasion, where the asset is no longer needed for our business and ceases to offer sufficient value or utility to justify our retention of the asset, we choose to sell the asset at a gain or loss. Typically, these assets are PP&E. However, in 2008, we sold our entire equity interest in Global Aeronautica to Boeing and as a result, recorded a $47.1 million gain on the sale. Gains and losses resulting from the disposal of assets impact our results of operations for the period in which the asset was sold. Our credit agreement provides that those gains and losses are reflected as an adjustment in calculating Adjusted EBITDA.

(4)		Pension and other post-retirement benefits curtailment and non-cash expense related to the Compensation – Retirement Benefits topic of the ASC—The credit agreement allows us to remove non-cash benefit expenses, so to the extent that the recorded expense exceeds the cash contributions to the plan it is reflected as an adjustment in calculating Adjusted EBITDA. During the year ended December 31, 2009, we recognized $9.6 million curtailment resulting from the new IAM collective bargaining agreement. For more information, please refer to Note 14 – Pension and Other Post-Retirement Benefits in our consolidated financial statements.

(5)		Other—Includes non-cash stock expense, related party management fees and costs associated with the preparation of documents in connection with a planned initial public equity offering. Our credit agreement provides that these expenses are reflected as an adjustment in calculating Adjusted EBITDA.

Our senior credit facilities use Adjusted EBITDA to determine our compliance with two financial maintenance covenants. See “— Non-GAAP Financial Measures” below for a discussion of Adjusted EBITDA and reconciliation of that non-GAAP financial measure to net cash provided by (used in) operating activities. We are required not to permit our consolidated total leverage ratio, or the ratio of funded indebtedness (net of cash) at the end of each quarter to Adjusted EBITDA for the twelve months ending on the last day of that quarter, to exceed 4.25:1.00 for fiscal periods ending during 2008, 4.00:1.00 for fiscal 2009, 3.75:1.00 for fiscal 2010 and 3.50:1.00 thereafter. We also are required not to permit our consolidated net interest coverage ratio, or the ratio of Adjusted EBITDA for the twelve months ending on the last day of a quarter to our consolidated net interest expense for the twelve months ending on the same day, to be less than 3.50:1.00 for 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 credit facilities. If not cured or waived, an event of default could result in acceleration of this indebtedness. Our credit facilities also use Adjusted EBITDA to determine the interest rates on our borrowings, which are based on the consolidated total leverage ratio described above. Changes in our leverage ratio may result in increases or decreases in the interest rate margin applicable to loans under our senior credit facilities. Accordingly, a change in our Adjusted EBITDA could increase or decrease our cost of funds. The actual results of the total leverage ratio and net interest coverage ratio for the year ended December 31, 2008 were 2.97:1.00 and 4.79:1.00, respectively.

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

Non-GAAP Financial Measures. Periodically we disclose to investors Adjusted EBITDA, which is a non-GAAP financial measure that our management uses to assess our compliance with the covenants in our senior credit agreement, our ongoing ability to meet our obligations and manage our levels of indebtedness. Adjusted EBITDA is calculated in accordance with our senior credit agreement and includes adjustments that are material to our operations but that our management does not consider reflective of our ongoing core operations. Pursuant to our senior credit agreement, Adjusted EBITDA is calculated by making adjustments to our net income (loss) to eliminate the effect of our (1) net income tax expense, (2) net interest expense, (3) any amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with indebtedness, (4) depreciation and amortization expense, (5) any extraordinary, unusual or non-recurring expenses or gains/losses (including gains/losses on sales of assets outside of the ordinary course of business, non-recurring expenses associated with the 787 program and certain expenses associated with our facilities consolidation efforts) net of any extraordinary, unusual or non-recurring income or gains, (6) any other non-cash charges, expenses or losses, restructuring and integration costs, (7) stock-option based compensation expenses and (8) all fees and expenses paid pursuant to our Management Agreement with Carlyle. See Note 20 to our consolidated financial statements in Item 8 of this report.

Adjusted EBITDA for the years ended December 31, 2008, 2007 and 2006 was $263.9 million, $277.4 million and $184.5 million, respectively. The following table is a reconciliation of the non-GAAP measure from our cash flows from operations:

	2008			2007			2006
Net cash provided by (used in) operating activities	$	(154.5	)	$	34.2		$	172.8
Interest expense, net		62.8			59.0			63.1
Income tax expense (benefit)		0.2			0.1			(1.9	)
Stock compensation expense		(1.1	)		(5.2	)		(3.0	)
Equity in losses of joint venture		(0.6	)		(4.0	)		(6.7	)
Gain (loss) from asset sales and other losses		49.8			(1.8	)		(11.4	)
Non-cash interest expense		(5.8	)		(3.1	)		(3.1	)
787 tooling amortization		0.8			—			—
Changes in operating assets and liabilities		266.1			86.9			(129.7	)
EBITDA	$	217.7		$	166.1		$	80.1
Non-recurring investment in Boeing 787 (1)		33.3			95.9			90.1
Unusual charges & other non-recurring program costs (2)		56.7			6.1			1.3
(Gain) loss on disposal of property, plant and equipment and other assets (3)		(48.2	)		1.9			10.7
Pension & OPEB curtailment and non-cash expense (4)		—			—			(3.4	)
Other (5)		4.4			7.4			5.7
Adjusted EBITDA	$	263.9		$	277.4		$	184.5

(1)		Non-recurring investment in Boeing 787—The Boeing 787 program, described elsewhere in our periodic reports, is a significant new program for our operations, and has required substantial start-up costs in recent periods as we built a new facility in South Carolina and invested in new manufacturing technologies dedicated to the program. These start-up investment costs are recognized in our financial statements over several periods due to their magnitude and timing. We expect that our current start-up costs in the Boeing 787 program will decline significantly as the start-up phase of the program and our current related contractual commitments will be substantially completed during the next few months. In the future, subject to potential program modifications by our customer, including development of derivatives and delivery rate increases, additional start-up costs may be required. Our credit agreement excludes our start-up investment in the Boeing 787 program because it represents an unusual significant investment in a major new program that is not indicative of ongoing core operations, and accordingly the investment that has been expensed during the period is added back to Adjusted EBITDA. Also included in this adjustment is our loss in our joint venture with Global Aeronautica. Our net loss was $0.6 million, $4.0 million and $6.7 million for the fiscal years 2008, 2007 and 2006 respectively. On June 10, 2008, we sold our entire equity interest in Global Aeronautica to Boeing and as a result, in future periods, our adjusted EBITDA calculation will not be impacted by this joint venture. For more information, please refer to Note 8 — Investment in Joint Venture in our consolidated financial statements.
(2)		Unusual charges and other non-recurring program costs— For the year ended December 31, 2008, we recognized an additional $38.3 million in non-recurring program costs related to the strike at our Nashville facility and $1.8 million in non-recurring program costs related to the Boeing strike. Additionally, we incurred $8.4 million and $6.1 million of non-recurring costs related to a facilities rationalization initiative for the years ended December 31, 2008 and 2007, respectively, which have been added back to Adjusted EBITDA. We did not record any costs related to this initiative during 2006. Additionally, we recorded $8.2 million of non-recurring specific warranty costs during the year ended December 31, 2008.

		For the year ended December 31, 2006, we recorded $24.9 million of unusual expenses related to the H-60 program and $8.0 million of restructuring charges related to a site consolidation initiative partially offset by $31.6 million of customer settlement income. The net, $1.3 million, of these unusual items was deducted from Adjusted EBITDA. Our credit agreement excludes all of these unusual items in our operating results as they are not indicative of ongoing core operating performance and, accordingly, the charges that have been expensed during the period are added back to Adjusted EBITDA.
(3)		(Gain) loss on disposal of property, plant and equipment (“PP&E”) and other assets — On occasion, where the asset is no longer needed for our business and ceases to offer sufficient value or utility to justify our retention of the asset, we choose to sell the asset at a gain or loss. Typically, these assets are PP&E. However, in 2008, we sold our entire equity interest in Global Aeronautica to Boeing and as a result, recorded a $47.1 million gain on the sale. Gains and losses resulting from the disposal of assets impact our results of operations for the period in which the asset was sold. Our credit agreement provides that those gains and losses are reflected as an adjustment in calculating Adjusted EBITDA.
(4)		Pension and other post-employment benefits curtailment and non-cash expense related to FAS 87 and FAS 106—Our credit agreement allows us to remove non-cash benefit expenses, so to the extent that the recorded expense exceeds the cash contributions to the plan, it is reflected as an adjustment in calculating Adjusted EBITDA.
(5)		Other—Includes non-cash stock expense, related party management fees and costs associated with the preparation of documents in connection with a planned initial public equity offering. Our credit agreement provides that these expenses are reflected as an adjustment in calculating Adjusted EBITDA.

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

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

	•		it does not reflect our cash expenditures, or future requirements, for all contractual commitments;

	•		it does not reflect our significant interest expense, or the cash requirements necessary to service our indebtedness;

	•		it does not reflect cash requirements for the payment of income taxes when due;

	•		it does not reflect working capital requirements;

	•		although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and

	•		it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations, but may nonetheless have a material impact on our results of operations.

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


Cash Flow Summary	Year Ended December 31,
	2009			2008			2007
	(in millions)
Net income (loss)	$	328.3		$	93.7		$	46.3
Non-cash items		111.8			17.9			74.8
Changes in working capital		(328.3	)		(266.1	)		(86.9	)

Net cash provided by (used in) operating activities		111.8			(154.5	)		34.2
Net cash provided by (used in) investing activities		247.2			(14.2	)		(49.6	)
Net cash provided by (used in) financing activities		(329.7	)		179.8			(2.4	)

Net increase (decrease) in cash and cash equivalents		29.3			11.1			(17.8	)
Cash and cash equivalents at beginning of year		86.7			75.6			93.4

Cash and cash equivalents at end of year	$	116.0		$	86.7		$	75.6

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Net cash provided by operating activities for the year ended December 31, 2009 was $111.8 million, an increase of $266.3 million compared to net cash used in operating activities of $154.5 million for the prior year. This change primarily resulted from the settlement of contractual matters related to the 787 program partially offset by increased cash requirements for the 747-8 program.

Net cash provided by investing activities for the year ended December 31, 2009 was $247.2 million, an increase of $261.4 million compared to net cash used in investing activities of $14.2 million for the same period in 2008. The change was primarily due to the $289.2 million, net of fees, of proceeds received for the sale of the Charleston 787 business and a $27.3 million decrease in capital expenditures in 2009 offset by the $55.1 million of proceeds from the sale of assets in 2008 including the sale to Boeing of our equity interest in Global Aeronautica.

~~Cash~~ Net ~~Flow~~cash ~~Summary~~used in financing activities for the year ended December 31, 2009 was $329.7 million, a change of $509.5 million compared with cash provided of $179.8 million for 2008. This change primarily resulted from the $184.6 million in net proceeds from the Incremental Facility in 2008, the use of $355.0 million of proceeds from the sale of the Charleston 787 business to pay down outstanding term loans in 2009 and the restriction of $43.8 million as collateral for outstanding letters of credit in 2009, partially offset by the conversion of the $75.0 million of the synthetic letter of credit facility to a term loan in 2009.

	Year Ended December 31,
	2008			2007			2006
	(in millions)
Net income (loss)	$	93.7		$	46.3		$	(36.7	)
Non-cash items		17.9			74.8			79.8
Changes in working capital		(266.1	)		(86.9	)		129.7
Net cash provided by (used in) operating activities		(154.5	)		34.2			172.8
Net cash provided by (used in) investing activities		(14.2	)		(49.6	)		(102.7	)
Net cash provided by (used in) financing activities		179.8			(2.4	)		13.2
Net increase (decrease) in cash and cash equivalents		11.1			(17.8	)		83.3
Cash and cash equivalents at beginning of year		75.6			93.4			10.1
Cash and cash equivalents at end of year	$	86.7		$	75.6		$	93.4

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Net cash used in operating activities for year ended December 31, 2008 was $154.5 million, a change of $188.7 million compared to cash provided by operating activities of $34.2 million for the prior year. The change primarily resulted from the following items: increased cash funding requirements of $59.7 million for our defined benefit pension plans; lower cash from the timing of milestone and advance payments from customers of approximately $67.0 million; as well as $62.0 million of higher working capital requirements in 2008 related to the ramp-up of the 787 program.

Net cash used in investing activities for the year ended December 31, 2008 was $14.2 million, a decrease of $35.4 million compared to net cash used in investing activities of $49.6 million for the prior year. This improvement is due to a $30.8 million increase in proceeds provided by the sale of assets and a $16.5 million decrease in contributions to Global Aeronautica partially offset by an $11.9 million increase in capital expenditures.

Net cash provided by financing activities for the year ended December 31, 2008 was $179.8 million, a change of $182.2 million compared to net cash used in financing activities of $2.4 million for the prior year. The change primarily resulted from the $184.6 million in net proceeds provided by borrowings under the Incremental Facility.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

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 was due mainly to customer settlements of approximately $99 million and an increase in advances and progress payments of approximately $133 million in 2006.

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.

Contractual Obligations

The following table summarizes the scheduled maturities of financial obligations and expiration dates of commitments as of December 31, ~~2008~~2009:

	2009		2010		2011		2012		2013		Thereafter		Total
	2010		2011		2012		2013		2014		Thereafter		Total
	($ in millions)
Senior credit facilities
Term loan B	$	4.0	$	4.0	$	401.0	$	—	$	—	$	—	$	409.0
Term loans	$	236.6	$	—	$	—	$	—	$	—	$	—	$	236.6
Incremental facility		185.96		~~1.9~~—		~~195.3~~—		—		—		—		~~199~~85.16
Total senior credit facilities (1)	$	5322.92	$	~~5.9~~—	$	~~596.3~~—	$	—	$	—	$	—	$	~~608~~322.12
Senior notes		—		—		270.0		—		—		—		270.0
Operating leases		21.7		13.7		9.3		4.9		4.0		3.5		57.1
Operating leases		21.7		19.6		13.3		7.5		5.3		9.5		76.9
Senior notes		—		270.0		—		—		—		—		270.0
Purchase Obligations (2)		~~1,089~~459.3		~~145~~143.7		818.90		212.30		—		—		~~1,246~~633.20
Total	$	~~1,116~~803.92	$	~~171~~427.24	$	~~888~~27.53	$	916.89	$	54.30	$	93.5	$	21,~~201~~282.23

(1)		In addition to the obligations in the table, at December 31, 2008, we had contractual interest payment obligations as follows: (a) variable interest rate payments on $409.0 million outstanding under the term loan B of our senior credit facilities based upon LIBOR plus the applicable margin, which correlated to an interest rate of 3.94% at December 31, 2008, (b) variable interest rate payments on $199.1 million outstanding under the Incremental Facility of our senior credit facilities based upon ABR or Eurodollar Base Rate plus the applicable margin, which correlated to an interest rate of 7.50% at December 31, 2008,and (c) $21.6 million per year on the Senior Notes.
(2)		Includes contractual obligations for which we are committed to purchase goods and services as of December 31, 2008. The most significant of these obligations relate to raw material and parts supply contracts for our manufacturing programs and these amounts are primarily comprised of open purchase order commitments to vendors and subcontractors. Many of these agreements provide us the ability to alter or cancel orders and require our suppliers to mitigate the impact from any changes. Even where purchase orders specify determinable prices, quantities and delivery timeframes, generally the purchase obligations remain subject to frequent modification and therefore are highly variable. As a result, we regularly experience significant fluctuations in the aggregate amount of purchase obligations, and the amount reflected in the table above may not be indicative of our purchase obligations over time. The ultimate liability for these obligations may be reduced based upon modification or termination provisions included in some of our purchase contracts, the costs incurred to date by vendors under these contracts or by recourse under normal termination clauses in firm contracts with our customers.


(1)		In addition to the obligations in the table, at December 31, 2008, we had contractual interest payment obligations as follows: (a) variable interest rate payments on $322.2 million outstanding under our senior credit facilities based upon LIBOR plus a margin of 4.00%, which correlated to an interest rate of 7.50% at December 31, 2009 and (b) $21.6 million per year on the Senior Notes.

4139

In(2) ~~addition~~Includes contractual obligations for which we are committed to ~~the~~purchase ~~financial~~goods and services as of December 31, 2009. The most significant of these obligations ~~detailed~~relate into raw material and parts supply contracts for our manufacturing programs and these amounts are primarily comprised of open purchase order commitments to vendors and subcontractors. Many of these agreements provide us the ~~table~~ability ~~above~~to alter or cancel orders and require our suppliers to mitigate the impact from any changes. Even where purchase orders specify determinable prices, wequantities ~~also~~and ~~had~~delivery timeframes, generally the purchase obligations ~~related~~ remain subject to ~~our~~frequent ~~benefit~~modification ~~plans~~and attherefore ~~December 31~~are highly variable. As a result, ~~2008~~we asregularly ~~detailed~~experience significant fluctuations in the ~~following~~aggregate amount of purchase obligations, and the amount reflected in the table above may not be indicative of our purchase obligations over time. ~~Our~~The ~~other post-retirement~~ultimate ~~benefits~~liability ~~are~~for ~~not~~these ~~required~~obligations tomay be ~~funded~~reduced based upon modification or termination provisions included in ~~advance~~some of our purchase contracts, sothe ~~benefit~~costs ~~payments~~incurred ~~are~~to ~~paid~~date ~~as they~~by ~~are~~vendors ~~incurred.~~under ~~Our~~these ~~expected~~contracts ~~net~~or ~~contributions~~by ~~and~~recourse ~~payments~~under ~~are~~normal ~~included~~termination clauses in ~~the~~firm ~~table~~contracts ~~below:~~ with our customers.

			Other
	Pension		Post-retirement
	Benefits		Benefits
	(in Millions)
Benefit obligation at December 31, 2008	$	1,848.5	$	447.3
Plan assets at December 31, 2008		1,137.5		—
Projected contributions
2009		84.7		43.3
2010		165.8		42.6
2011		191.7		42.1
2012		174.7		41.2
2013		151.6		40.3
Total 2009-2013	$	768.5	$	209.5

In addition to the financial obligations detailed in the table above, we also had obligations related to our benefit plans at December 31, 2009 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:


			Other
	Pension Benefits		Post-retirement Benefits
	(in Millions)
Benefit obligation at December 31, 2009	$	1,958.3	$	402.3
Plan assets at December 31, 2009		1,342.6		—

Projected contributions
2010		102.7		38.4
2011		176.8		38.9
2012		142.1		38.5
2013		123.0		37.9
2014		108.3		37.5

Total 2010-2014	$	652.9	$	191.2

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

Off Balance Sheet Arrangements

None.

Inflation

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~~a ~~anticipated~~projected 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 in the long-term, the demand for these materials will continue to put additional pressures on pricing. Strategic cost reduction plans will continue to focus on mitigating the ~~effects~~affects of this demand curve on our operations.

Critical Accounting Policies

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~~ 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~~ the scope of the ~~American~~Revenue ~~Institute~~— ~~of Certified Public Accountants Statement of Position 81-1, Accounting for Performance of~~ Construction-Type and ~~Certain~~ Production-Type Contracts, ~~(SOP~~topic ~~81-1) and~~of the ASC and revenue and costs on contracts are recognized using percentage-of-completion methods of accounting. Accounting for the revenue and profit on a contract requires estimates of (1) the contract value or total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract’s scope of work and (3) the measurement of progress towards completion. Depending on the contract, we measure progress toward completion using either the cost-to-cost method or the units-of-delivery method.

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

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

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

~~Accrued contract liabilities consisted of the following:~~41

	December 31,		December 31,
	2008		2007
	(in millions)
Advances and progress billings	$	187.1	$	182.9
Forward loss		6.4		18.3
Other		7.9		29.2
Total accrued contract liabilities	$	201.4	$	230.4

Accrued contract liabilities consisted of the following:


	December 31,		December 31,
	2009		2008
	(in millions)
Advances and progress billings	$	59.4	$	126.8
Forward loss		1.7		6.4
Other		13.1		7.9

Total accrued contract liabilities	$	74.2	$	141.1

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

Although fixed-price contracts, which 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 the Company 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 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. See Note 5 to our consolidated financial statements in Item 8 of this report.

Goodwill. Goodwill is tested for impairment, at least annually, byin ~~reporting~~accordance ~~unit~~with inthe ~~accordance~~provisions ~~with~~of the ~~provisions~~Intangibles – Goodwill and Other topic of ~~SFAS~~the ~~142~~ASC. Under ~~SFAS~~this ~~142~~topic, 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 wethe ~~are~~Company is a single reporting unit. Accordingly, all assets and liabilities are used to determine our carrying value. ~~Since~~Based weon ~~currently~~review ~~have~~of anour annual ~~accumulated~~impairment ~~deficit~~tests, ~~there~~we ~~have~~did ~~been~~not norecognize impairment charges ~~recognized~~ in ~~2008~~2009, ~~2007~~2008 or ~~2006~~2007.

~~For~~ Additionally, ~~this~~in ~~testing~~connection wewith ~~use~~the ansale ~~independent~~of ~~valuation~~the ~~firm~~Charleston to787 ~~assist~~business inon ~~the estimation of~~July 30, ~~enterprise~~2009 ~~fair~~(discussed ~~value~~in ~~using~~Note ~~standard~~3 ~~valuation~~– ~~techniques~~Discontinued ~~such as discounted cash flow~~Operations), ~~market multiples and comparable transactions~~$122.9 million ~~The~~of ~~discounted~~our ~~cash~~goodwill ~~flow~~balance ~~fair~~was allocated ~~value~~to ~~estimates~~that ~~are~~business based on ~~management’s~~ ~~projected~~the ~~future~~relative ~~cash~~fair ~~flows~~value ~~and~~of ~~the~~its ~~estimated~~assets ~~weighted~~compared ~~average~~to ~~cost~~the ~~of capital. The~~total ~~estimated~~value ~~weighted~~of ~~average~~the ~~cost~~consolidated ofcompany. ~~capital~~Subsequently, iswe ~~based~~performed onan ~~the~~interim ~~risk-free~~impairment ~~interest~~test ~~rate~~of ~~and other~~our ~~factors~~remaining ~~such~~Goodwill asbalance ~~equity risk premiums~~ and determined the ~~ratio~~balance ofwas ~~total~~not ~~debt and equity capital~~impaired.

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 a 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~~42 post-retirement plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate, the expected long-term rate of asset return, the assumed average rate of compensation increase and rate of growth for medical costs. The actuarial assumptions used to calculate these costs are reviewed annually. 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 or as of remeasurement dates as needed. This rate is determined based upon 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~~ Post-~~term~~retirement ~~rate~~Plans. ofThe ~~return~~liabilities onand ~~assets~~net isperiodic ~~the~~cost ~~weighted average rate~~ of ~~earnings~~ ~~expected~~our onpension ~~the~~and ~~funds~~other post-retirement ~~invested~~plans orare todetermined beusing ~~invested~~methodologies tothat ~~provide~~involve ~~for~~several ~~the benefits included in~~actuarial assumptions, the ~~Projected~~most ~~Benefit~~significant ~~Obligation (“PBO”). The expected average long-term rate~~ of ~~return~~which onare ~~assets is based principally on~~ the ~~counsel~~discount ~~of our outside investment advisors and has been projected at 8.5% in 2008~~rate, ~~2007~~the ~~and~~expected ~~2006. This rate is based on actual historical returns and anticipated~~ long-term ~~performance~~rate of ~~individual~~ asset ~~classes~~return, ~~with consideration given to~~ the ~~related investment~~assumed ~~strategy.~~average ~~This~~ rate ~~is utilized principally in calculating the expected return on plan assets component~~ of ~~the~~compensation ~~annual~~increase ~~pension~~and ~~expense. To the extent the actual~~ rate of ~~return~~growth onfor ~~assets~~medical ~~realized~~costs. ~~over~~The ~~the~~actuarial ~~course~~assumptions ofused ato ~~year~~calculate ~~differs~~these ~~from~~costs ~~the~~are ~~assumed~~reviewed ~~rate,~~annually ~~that~~or ~~year’s~~when ~~annual pension~~a ~~expense~~remeasurement is ~~not affected~~necessary. ~~The~~Assumptions ~~gain~~are orbased ~~loss~~upon ~~reduces~~management’s orbest ~~increases~~estimates, ~~future~~after consulting ~~pension~~with ~~expense~~outside ~~over~~investment ~~the average~~advisors ~~remaining~~and ~~service~~actuaries, ~~period~~as of ~~active~~the ~~plan~~measurement ~~participants expected to receive benefits~~date.

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

The assumed expected long-term rate of return on assets is the weighted average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the Projected Benefit Obligation (“PBO”). The expected average long-term rate of return on assets is based principally on the counsel of our outside investment advisors and has been projected at 8.5% in 2009, 2008 and, 2007. 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~~some ~~eligible~~ retired employees. Such benefits are unfunded as of December 31, ~~2008~~2009. Employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet specified age and years of service requirements. Election to participate for ~~some~~eligible 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 accordance with ~~SFAS~~the ~~No. 158,~~Compensation ~~Employer’s~~– ~~Accounting~~Retirement ~~for~~Benefits ~~Defined~~topic ~~Benefit Pension and Other Postretirement Plans—an Amendment~~ of ~~FASB~~the ~~Statements~~ASC ~~No. 87, 88, 106 and 132(R) (SFAS No. 158)~~ we ~~initially~~ recognized the funded status of our benefit obligation in our statement of financial position as of December 31, ~~2007~~ 2008. This funded status was remeasured for some plans as of ~~March~~ January 31, ~~2008~~2009 and September 27, 2009 due to plan amendments and for all plans as of December 31, ~~2008~~2009, our annual remeasurement date. The funded status is measured as the difference between the fair value of the plan’s assets and the PBO or accumulated postretirement benefit obligation of the plan. 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 market price as of the date of remeasurement. Investments that are not publicly traded were valued based on the estimated fair value of those investments as of December 31, ~~2008~~2009 based on our evaluation of data from fund managers and comparable market data.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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

Trade accounts receivable include amounts billed and currently due from customers, amounts currently due but, not yet billed, certain estimated contract changes, claims in negotiation that are probable of recovery, and amounts retained by the customer pending contract completion. We continuously monitor collections and payments from customers. Based upon 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.

45 Some raw materials and operating supplies are subject to price and supply fluctuations caused by market dynamics. Our strategic sourcing initiatives seek to find ways of mitigating the inflationary pressures of the marketplace. In recent years, these inflationary pressures have affected the market for raw materials. However, we believe that raw material prices will remain stable through the remainder of 2010 and after that, experience increases that are in line with inflation. Additionally, we generally do not employ forward contracts or other financial instruments to hedge commodity price risk.

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

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

Our suppliers’ failure to provide acceptable raw materials, components, kits and subassemblies 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 utilize a range of long-term agreements and strategic aggregated sourcing to optimize procurement expense and supply risk related to our raw materials.

Interest Rate Risks

From time to time, we may enter into interest rate swap agreements or other financial instruments in the normal course of business for purposes other than trading. These financial instruments are used to mitigate interest rate or other risks, although to some extent they expose us to market risks and credit risks. We control the credit risks associated with these instruments through the evaluation of the creditworthiness of the counter parties. In the event that a counter party fails to meet the terms of a contract or agreement then our exposure is limited to the current value, at that time, of the interest rate differential, not the full notional or contract amount. We have no such agreements currently outstanding.

In the past, we have entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt. Under these agreements, we exchanged floating rate interest payments for fixed rate payments periodically over the term of the swap agreements. We currently have no such agreements outstanding; however, in the future we may choose to manage market risk with respect to interest rates by entering into new hedge agreements.

Management performs a sensitivity analysis to determine how market interest rate changes will affect the fair value of any market risk sensitive hedge positions and all other debt that we will bear. Such an analysis is inherently limited in that it represents a singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions. Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market interest rate movements. We are exposed to cash flow risk due to changes in interest rates with respect to the entire $~~633~~322.12 million of variable rate debt outstanding under our senior credit facilities ~~after the exercise of our option to convert $25~~.~~0 million~~ ~~of our letter of credit facility to an outstanding term loan.~~ A one-percentage point increase in interest rates on our variable-rate indebtedness would decrease our annual income (loss) before income taxes by approximately $6.3.2 million. While there was no debt outstanding under our Revolver at December 31, ~~2008~~ 2009, 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.

Foreign Currency Risks

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

Utility Price Risks

We have exposure to utility price risks as a result of volatility in the cost and supply of energy including electricity and natural gas. To minimize this risk, we have entered into fixed price contracts at certain of our manufacturing locations for a portion of their energy usage for periods of up to three years. Although these contracts would reduce the risk to us during the contract period, future volatility in the supply and pricing of energy and natural gas could have an impact on our consolidated results of operations. A 1% increase (decrease) in our monthly average utility costs during ~~2008~~2009 would have increased (decreased) our cost of sales by approximately $0.3 million for the year ended December 31, ~~2008~~2009.

Accounting Changes and Pronouncements

In ~~September~~December ~~2006~~2007, the FASB issued ~~SFAS~~an ~~No. 157,~~accounting ~~Fair~~standard ~~Value~~that ~~Measurements~~provides ~~(SFAS~~revised ~~No. 157).~~guidance ~~SFAS~~on how ~~No. 157~~acquirors ~~defines~~recognize ~~fair~~and ~~value,~~measure ~~establishes~~the aconsideration ~~framework~~transferred, ~~for~~identifiable ~~measuring~~assets ~~fair~~acquired, liabilities ~~value~~assumed, innoncontrolling ~~generally~~interests, ~~accepted accounting principles~~ and ~~expands~~goodwill ~~disclosure~~acquired ~~about~~in ~~fair~~a ~~value~~business ~~measurements~~combination. ~~We adopted SFAS No.~~ ~~157~~This ~~for~~standard ~~our~~also ~~financial~~expands ~~assets~~required ~~and~~disclosures ~~liabilities~~surrounding onthe ~~January 1,~~nature ~~2008~~ and itfinancial ~~has~~effects ~~not materially affected~~of ~~our~~business ~~financial statements~~combinations. ~~The~~We ~~SFAS~~adopted ~~No. 157~~the ~~requirements~~guidance ~~for~~of ~~certain~~this ~~non-financial~~accounting ~~assets~~standard, ~~and liabilities~~currently ~~have~~included ~~been deferred until~~ in the ~~first~~Business ~~quarter~~Combinations Topic of ~~2009~~the ~~in accordance with Financial~~ Accounting Standards ~~Board~~Codification ~~Staff Position~~ (~~FSP~~ASC) ~~157-2.~~on ~~See~~January 1, ~~Note 13 to our consolidated financial~~2009. ~~statements~~We ~~included~~considered inthe ~~Item 8~~provisions of this ~~report~~accounting ~~for~~standard awith ~~summary~~respect ofto the ~~assets~~sale ~~and~~of ~~liabilities~~the ~~that are~~Charleston ~~measured~~787 atbusiness ~~fair~~(as ~~value~~discussed asin ofNote ~~December 31,~~3 ~~2008~~– Discontinued Operations).

In FASB ~~February 2007,~~issued an accounting standard that requires enhanced disclosures about the ~~FASB~~plan ~~issued~~assets ~~SFAS~~of a Nocompany’s defined benefit pension and other postretirement plans. ~~159,~~ The ~~Fair~~enhanced ~~Value~~disclosures ~~Option~~are intended ~~for~~to ~~Financial~~provide ~~Assets~~users ~~and Financial~~of ~~Liabilities~~financial ~~(SFAS~~statements ~~No. 159).~~with ~~SFAS~~a ~~No.~~greater understanding of: (1) ~~159~~how investment ~~expands~~allocation decisions are made, including the ~~use~~factors that are pertinent to an understanding of ~~fair~~investment ~~value~~policies ~~measurement~~and bystrategies; (2) the major categories of plan assets; ~~permitting~~(3) the ~~entities~~inputs toand ~~choose~~valuation techniques used to measure atthe fair value ~~many~~of ~~financial~~plan ~~instruments~~assets; ~~and~~(4) the effect ~~certain~~of ~~other~~fair value measurements using significant unobservable inputs (Level 3) on changes in ~~items~~plan ~~that~~assets ~~are~~for ~~not~~the ~~currently~~period; ~~required~~and to(5) significant beconcentrations ~~measured~~of atrisk ~~fair~~within ~~value~~plan assets. We adopted ~~SFAS~~the ~~No. 159~~provisions of this accounting standard on January 1, ~~2008~~2009 and ~~did~~provided ~~not~~the ~~elect~~required enhanced ~~the~~disclosures ~~fair~~for ~~value~~our ~~option.~~pension ~~Thus,~~plan itassets ~~had~~in noNote ~~impact~~14 on– ~~our~~Pension ~~financial~~and Other Post Retirement ~~statements~~Benefits.

In ~~December~~May ~~2007~~2009, the FASB issued ~~SFAS~~an ~~No. 141(R),~~accounting ~~Business~~standard ~~Combinations~~that ~~(SFAS~~requires ~~No. 141(R)), which~~an ~~replaces~~entity ~~SFAS~~to ~~No. 141.~~recognize ~~SFAS~~in the ~~No. 141(R)~~financial ~~requires~~statements anthe ~~acquirer~~effects toof ~~recognize~~all ~~the~~subsequent ~~assets~~events ~~acquired, the~~that ~~liabilities~~provide ~~assumed,~~additional ~~any~~evidence about ~~non-controlling~~conditions ~~interest~~that inexisted at the ~~acquiree,~~date ~~and~~of ~~any~~the ~~goodwill~~balance ~~acquired~~sheet. toFor nonrecognized subsequent beevents ~~measured~~that atmust ~~their~~be ~~fair~~disclosed ~~value~~to atkeep the ~~acquisition~~financial ~~date.~~statements ~~The~~from ~~Statement~~being ~~also establishes disclosure requirements~~misleading, ~~which~~an ~~will~~entity ~~enable~~is required ~~users~~ to ~~evaluate~~disclose the nature ~~and~~of ~~financial~~the ~~effects~~event as well as an estimate of ~~the~~its ~~business~~financial effect, or ~~combination.~~a ~~SFAS~~statement ~~No. 141(R)~~that issuch ~~effective~~an ~~for~~estimate ~~acquisitions~~cannot ~~occurring~~be inmade. ~~fiscal~~We ~~years~~adopted ~~beginning after~~this ~~December 15,~~accounting ~~2008.~~standard ~~The~~for ~~adoption~~our fiscal ofperiod ~~SFAS~~ending ~~No.~~June ~~141(R)~~28, ~~will~~2009 ~~have~~and anit ~~impact~~has onnot ~~accounting~~had ~~for business~~a ~~combinations~~material ~~that~~effect ~~occur~~on ~~after~~our ~~the~~consolidated financial ~~adoption date~~statements.

In ~~March~~June ~~2008~~2009, the FASB issued ~~SFAS~~an ~~No. 161,~~accounting ~~Disclosures~~standard ~~about~~that ~~Derivative~~establishes ~~Instruments~~the ~~and Hedging Activities, an amendment of~~ FASB ~~Statement No. 133 (SFAS No. 161). SFAS No. 161 requires~~Accounting ~~entities~~Standards toCodificationÔ ~~provide greater transparency through additional disclosures about~~ (~~a) how~~the ~~and why an entity uses derivative instruments, (b~~Codification) ~~how~~ ~~derivative~~as ~~instruments~~the ~~and~~source ~~related~~of ~~hedged~~authoritative ~~items~~U.S. ~~are~~generally ~~accounted~~accepted ~~for~~accounting ~~under~~principles ~~Statement 133 and its related interpretations, and~~ (~~c) how~~US ~~derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows~~GAAP). ~~SFAS~~We ~~No. 161~~adopted isthis ~~effective~~accounting ~~for~~standard ~~financial statements issued~~ for ~~fiscal~~our ~~years and~~fiscal ~~interim~~period ~~periods~~ending ~~beginning after November~~September 1527, ~~2008~~2009. ~~The adoption of SFAS No. 161 is not expected to~~ ~~have a material impact on our financial statements as we currently do not participate in derivative or hedging instruments.~~

In Following ~~December 2008~~the Codification, the FASB ~~issued~~will ~~FSP~~not ~~132(R)-1,~~issue ~~Employers’~~new ~~Disclosures~~standards ~~about~~in ~~Postretirement Benefit Plan Assets (FSP 132(R)-1). FSP 132(R)-1 requires enhanced disclosures about~~ the ~~plan assets~~form of aStatements, FASB ~~company’s~~Staff ~~defined~~Positions ~~benefit~~or ~~pension~~Emerging ~~and~~Issues ~~other~~Task ~~postretirement~~Force ~~plans~~Abstracts. ~~The~~Instead, ~~enhanced disclosures~~it ~~required~~will byissue ~~FSP~~Accounting Standards ~~132~~Updates (RASUs)-1, ~~are~~which ~~intended~~will serve to ~~provide~~update ~~users~~the ofCodification, ~~financial~~provide ~~statements~~background information ~~with~~about ~~a greater~~the ~~understanding~~accounting ~~of:~~guidance ~~(1) how~~and ~~investment~~provide ~~allocation~~the ~~decisions~~basis ~~are~~for ~~made,~~conclusions ~~including~~on the ~~factors~~changes to ~~that~~the ~~are~~Codification. ~~pertinent~~GAAP tois annot ~~understanding~~intended ofto ~~investment~~be ~~policies~~changed ~~and~~as ~~strategies;~~a ~~(2) the~~result ~~major categories~~ of ~~plan assets; (3)~~ the ~~inputs~~Codification, ~~and~~but ~~valuation~~it ~~techniques~~will change ~~used~~the toway ~~measure~~ the ~~fair~~accounting ~~value of~~guidance ~~plan~~is ~~assets;~~organized ~~(4) the~~and ~~effect~~presented. ofAs ~~fair~~a ~~value~~result, ~~measurements~~these ~~using~~changes ~~significant unobservable inputs~~have ~~(Level~~a 3)significant impact on ~~changes~~how inwe ~~plan~~reference ~~assets~~GAAP ~~for~~in ~~the~~our ~~period;~~financial statements and ~~(5) significant~~in ~~concentrations~~our ~~of risk~~accounting ~~within~~policies ~~plan~~for ~~assets.~~financial ~~FSP~~statements ~~132(R)-1~~issued isfor ~~effective~~interim ~~for~~and ~~fiscal~~annual ~~years~~periods ending after ~~December~~September 15, 2009. We ~~are currently evaluating the impact that the adoption of FSP 132(R)-1 will have on our disclosures related to our pension plan assets.~~

4745

In this annual report, the Company has begun the process of implementing the statement by removing references to FASB statement numbers in the footnotes that follow and explaining the adherence to authoritative accounting guidance in plain English, where appropriate.

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	49	48
Consolidated Balance Sheets, December 31, 2008 and 2007	50
Consolidated Balance Sheets, December 31, 2009 and 2008		49
Consolidated Statements of Operations for the three years ended December 31, 2008	51
Consolidated Statements of Operations for the three years ended December 31, 2009		50
Consolidated Statements of Stockholders’ Equity (Deficit) for the three years ended December 31, 2008	52
Consolidated Statements of Stockholders’ Equity (Deficit) for the three years ended December 31, 2009		51
Consolidated Statements of Cash Flows for the three years ended December 31, 2008	53
Consolidated Statements of Cash Flows for the three years ended December 31, 2009		52
Notes to Consolidated Financial Statements	54	53

4847

Report of Independent Registered Public Accounting Firm

The Board of Directors
Vought Aircraft Industries, Inc.

We have audited the accompanying consolidated balance sheets of Vought Aircraft Industries, ~~and~~Inc. and subsidiaries (the Company) as of December 31, ~~2008~~2009 and ~~2007~~2008, 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, ~~2008~~2009. 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~~the ~~Aircraft~~Company ~~Industries, Inc. and subsidiaries~~ at December 31, ~~2008~~2009 and ~~2007~~2008, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2008~~2009, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1412 to the ~~consolidated~~ financial statements, the ~~Company~~requirement, ~~changed~~under ~~its~~the ~~method~~terms of the ~~accounting~~Company’s ~~for~~senior ~~its~~credit ~~defined-benefit~~facility, ~~pension~~that ~~and~~the ~~other~~Company ~~postretirement~~either ~~plans~~prepay inor ~~accordance~~refinance ~~with~~its senior notes ~~Statement~~prior to the last business day of ~~Financial~~2010 ~~Accounting~~or ~~Standards~~repay ~~No. 158~~the onaggregate amount of loans outstanding under the ~~December 31,~~senior ~~2007.~~credit Asfacility ~~discussed~~at inthat ~~Note~~time ~~15,~~ raises substantial doubt about the Company’s ~~adopted~~ability ~~the~~to continue as a ~~provisions~~going ofconcern. ~~FASB~~Management’s ~~Interpretation~~plans Noas to these matters are also described in Note 12. 48 The December 31, ~~Accounting~~2009 ~~for~~financial ~~Uncertainty~~statements indo ~~Income~~not ~~Taxes~~include ~~(FIN~~any ~~48)~~adjustments onthat might result from the outcome of ~~January 1,~~this ~~2007~~uncertainty.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ~~Vought~~the ~~Aircraft Industries, Inc.~~Company’s internal control over financial reporting as of December 31, ~~2008~~ 2009, 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 1225, 2010 ~~2009~~ expressed an unqualified opinion thereon.



	/s/ Ernst & Young LLP

Dallas, Texas March 1225, ~~2009~~2010

Vought Aircraft Industries, Inc.

Consolidated Balance Sheets

(dollars in millions, except par value per share )


	December 31,			December 31,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	116.0		$	86.7
Restricted cash		43.8			—
Trade and other receivables		127.9			138.5
Inventories		511.3			311.8
Assets related to discontinued operations		—			460.7
Other current assets		8.5			9.2

Total current assets		807.5			1,006.9

Property, plant and equipment, net		275.9			279.2
Goodwill		404.8			404.8
Identifiable intangible assets, net		20.4			27.2
Other non-current assets		1.3			9.5

Total assets	$	1,509.9		$	1,727.6

Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable, trade	$	140.9		$	148.5
Accrued and other liabilities		68.3			57.5
Accrued payroll and employee benefits		46.9			48.1
Accrued post-retirement benefits-current		37.4			42.0
Accrued pension-current		3.5			0.3
Current portion of long-term bank debt		319.8			5.9
Liabilities related to discontinued operations		—			156.7
Accrued contract liabilities		74.2			141.1

Total current liabilities		691.0			600.1

Long-term liabilities:
Accrued post-retirement benefits		364.9			405.3
Accrued pension		612.2			710.7
Long-term bank debt, net of current portion		—			594.0
Long-term bond debt		270.0			270.0
Other non-current liabilities		75.3			81.6

Total liabilities		2,013.4			2,661.7

Stockholders’ equity (deficit):
Common stock, par value $.01 per share; 50,000,000 shares authorized, 24,818,806 and 24,798,382 issued and outstanding at December 31, 2009 and 2008, respectively		0.3			0.3
Additional paid-in capital		422.8			420.5
Shares held in rabbi trust		(1.6	)		(1.6	)
Accumulated deficit		(173.0	)		(501.3	)
Accumulated other comprehensive loss		(752.0	)		(852.0	)

Total stockholders’ equity (deficit)	$	(503.5	)	$	(934.1	)

Total liabilities and stockholders’ equity (deficit)	$	1,509.9		$	1,727.6

See accompanying notes

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

	December 31,			December 31,
	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	86.7		$	75.6
Trade and other receivables		138.6			81.4
Inventories		444.4			362.8
Other current assets		4.7			6.4
Total current assets		674.4			526.2
Property, plant and equipment, net		484.3			507.0
Goodwill		527.7			527.7
Identifiable intangible assets, net		27.2			40.1
Debt origination costs, net and other assets		14.0			11.5
Investment in joint venture		—			8.4
Total assets	$	1,727.6		$	1,620.9
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable, trade	$	177.0		$	178.7
Accrued and other liabilities		63.7			74.1
Accrued payroll and employee benefits		48.7			48.2
Accrued post-retirement benefits-current		42.0			47.2
Accrued pension-current		0.3			0.7
Current portion of long-term bank debt		5.9			4.0
Accrued contract liabilities		201.4			230.4
Total current liabilities		539.0			583.3
Long-term liabilities:
Accrued post-retirement benefits		405.3			482.0
Accrued pension		710.7			361.2
Long-term bank debt, net of current portion		594.0			409.0
Long-term bond debt		270.0			270.0
Other non-current liabilities		142.7			181.2
Total liabilities		2,661.7			2,286.7
Stockholders’ equity (deficit):
Common stock, par value $.01 per share; 50,000,000 shares authorized, 24,798,382 and 24,768,991 issued and outstanding at December 31, 2008 and 2007, respectively		0.3			0.3
Additional paid-in capital		420.5			417.4
Shares held in rabbi trust		(1.6	)		(1.6	)
Accumulated deficit		(501.3	)		(595.0	)
Accumulated other comprehensive loss		(852.0	)		(486.9	)
Total stockholders’ equity (deficit)	$	(934.1	)	$	(665.8	)
Total liabilities and stockholders’ equity (deficit)	$	1,727.6		$	1,620.9

Consolidated Statements of Operations
($ in millions)


	Years Ended
	December 31,
	2009			2008			2007
Revenue	$	1,877.8		$	1,775.0		$	1,613.1

Costs and expenses

Cost of sales		1,594.8			1,492.9			1,284.8
Selling, general and administrative expenses		122.6			135.3			133.3

Total costs and expenses		1,717.4			1,628.2			1,418.1

Operating income (loss)		160.4			146.8			195.0

Other income (expense)
Interest income		0.7			4.4			3.6
Other income (loss)		1.3			48.7			(0.1	)
Equity in loss of joint venture		—			(0.6	)		(4.0	)
Interest expense		(57.0	)		(67.2	)		(62.6	)

Income (loss) before income taxes		105.4			132.1			131.9
Income tax expense (benefit)		(9.3	)		0.2			0.1

Income from continuing operations		114.7			131.9			131.8
Income (loss) from discontinued operations, net of tax		213.6			(38.2	)		(85.5	)

Net income	$	328.3		$	93.7		$	46.3

See accompanying notes

Vought Aircraft Industries, Inc. ~~Consolidated Statements of Operations ($ in millions)~~

	Years Ended
	December 31,
	2008			2007			2006
Revenue	$	1,796.6		$	1,625.5		$	1,550.9
Costs and expenses
Cost of sales		1,493.4			1,269.3			1,274.2
Selling, general and administrative expenses		194.6			246.7			236.0
Impairment charge		—			—			9.0
Total costs and expenses		1,688.0			1,516.0			1,519.2
Operating income (loss)		108.6			109.5			31.7
Other income (expense)
Interest income		4.4			3.6			1.4
Other income (loss)		48.7			(0.1	)		(0.5	)
Equity in loss of joint venture		(0.6	)		(4.0	)		(6.7	)
Interest expense		(67.2	)		(62.6	)		(64.5	)
Income (loss) before income taxes		93.9			46.4			(38.6	)
Income tax expense (benefit)		0.2			0.1			(1.9	)
Net income (loss)	$	93.7		$	46.3		$	(36.7	)

Consolidated Statements of Stockholders’ Equity (Deficit)
($ in millions)


															Accumulated			Total
			Additional			Rabbi Trust						Accumulated			Other			Stockholders’
	Common		Paid-In			& CMG			Stockholders’			Income			Comprehensive			Equity
	Stock		Capital			Escrow			Loans			(Deficit)			Income (Loss)			(Deficit)
Balance at December 31, 2006	$	0.3	$	414.8		$	(1.6	)	$	(1.0	)	$	(641.3	)	$	(464.5	)	$	(693.3	)
Net income	$	—	$	—		$	—		$	—		$	46.3		$	—		$	46.3
Minimum pension liability adjustment		—		—			—			—			—			83.0			83.0

Comprehensive income (loss)		—		—			—			—			46.3			83.0			129.3

Adjustment to accumulated other comprehensive income upon adoption of ASC 715 (Pension)		—		—			—			—			—			(90.8	)		(90.8	)
Adjustment to accumulated other comprehensive income upon adoption of ASC 715 (OPEB)		—		—			—			—			—			(14.6	)		(14.6	)
Compensation expense from stock awards		—		2.8			—			—			—			—			2.8
Repayment of stockholder loans				(0.2	)					1.0									0.8

Balance at December 31, 2007	$	0.3	$	417.4		$	(1.6	)	$	—		$	(595.0	)	$	(486.9	)	$	(665.8	)

Net income	$	—	$	—		$	—		$	—		$	93.7		$	—		$	93.7
Amortization of prior service cost		—		—			—			—			—			(8.5	)		(8.5	)
Amortization of actuarial (gain) loss		—		—			—			—			—			35.7			35.7
Increase in unamortized prior service cost		—		—			—			—			—			42.5			42.5
Increase in unrecognized actuarial loss		—		—			—			—			—			(434.8	)		(434.8	)

Comprehensive income (loss)		—		—			—			—			93.7			(365.1	)		(271.4	)

Sale of common stock		—		0.1			—			—			—			—			0.1
Compensation expense from stock awards		—		3.0			—			—			—			—			3.0

Balance at December 31, 2008	$	0.3	$	420.5		$	(1.6	)	$	—		$	(501.3	)	$	(852.0	)	$	(934.1	)

Net income	$	—	$	—		$	—		$	—		$	328.3		$	—		$	328.3
Amortization of prior service cost		—		—			—			—			—			(12.0	)		(12.0	)
Amortization of actuarial (gain) loss		—		—			—			—			—			44.8			44.8
Increase in unamortized prior service cost		—		—			—			—			—			21.9			21.9
Increase in unrecognized actuarial loss		—		—			—			—			—			45.3			45.3

Comprehensive income (loss)		—		—			—			—			328.3			100.0			428.3

Compensation expense from stock awards		—		2.3			—			—			—			—			2.3

Balance at December 31, 2009	$	0.3	$	422.8		$	(1.6	)	$	—		$	(173.0	)	$	(752.0	)	$	(503.5	)

See accompanying notes

Vought Aircraft Industries, Inc. ~~Consolidated Statements of Stockholders’ Equity (Deficit)~~ ~~($ in millions)~~

Consolidated Statements of Cash Flows
($ in millions)

																Accumulated			Total
	December 31,
				Additional			Rabbi Trust						Accumulated			Other			Stockholders’
	2009			2008			2007
	Common			Paid-In			& CMG			Stockholders’			Income			Comprehensive			Equity
Operating activities
	Stock			Capital			Escrow			Loans			(Deficit)			Income (Loss)			(Deficit)
Net income (loss)	$	328.3		$	93.7		$	46.3
Balance at December 31, 2005	$	0.3		$	411.4		$	(1.6	)	$	(1.1	)	$	(604.6	)	$	(577.4	)	$	(773.0	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net loss	$			$			$			$			$	(36.7	)	$			$	(36.7	)
Depreciation and amortization		68.1			66.0			63.7
Minimum pension liability adjustment		—			—			—			—						112.9			112.9
Stock compensation (income) expense		2.5			1.1			5.2
Comprehensive income (loss)		—			—			—			—			(36.7	)		112.9			76.2
Equity in losses of joint venture		—			0.6			4.0
Compensation expense from stock awards		—			3.0			—			—			—			—			3.0
(Gain) loss from asset sales		41.2			(49.8	)		1.9
Other					0.4						0.1									0.5
Changes in current assets and liabilities:
Balance at December 31, 2006	$	0.3		$	414.8		$	(1.6	)	$	(1.0	)	$	(641.3	)	$	(464.5	)	$	(693.3	)
Trade and other receivables		1.0			(57.2	)		0.7
Net income	$	—		$	—		$	—		$	—		$	46.3		$	—		$	46.3
Inventories		(200.4	)		(81.6	)		(25.0	)
Minimum pension liability adjustment		—			—			—			—			—			83.0			83.0
Other current assets		(3.2	)		(2.8	)		(2.2	)
Comprehensive income (loss)		—			—			—			—			46.3			83.0			129.3
Accounts payable, trade		(13.9	)		(1.7	)		60.3
Adjustment to accumulated other comprehensive income upon adoption of SFAS 158 (Pension)		—			—			—			—			—			(90.8	)		(90.8	)
Accrued payroll and employee benefits		(0.6	)		0.5			0.8
Adjustment to accumulated other comprehensive income upon adoption of SFAS 158 (OPEB)		—			—			—			—			—			(14.6	)		(14.6	)
Accrued and other liabilities		8.8			(14.1	)		(26.9	)
Compensation expense from stock awards		—			2.8			—			—			—			—			2.8
Accrued contract liabilities		(79.5	)		(29.0	)		(103.3	)
Repayment of stockholder loans					(0.2	)					1.0									0.8
Other assets and liabilities—long-term		(40.5	)		(80.2	)		8.7
Balance at December 31, 2007	$	0.3		$	417.4		$	(1.6	)	$	—		$	(595.0	)	$	(486.9	)	$	(665.8	)
Net cash provided by (used in) operating activities		111.8			(154.5	)		34.2
Net income	$	—		$	—		$	—		$	—		$	93.7		$	—		$	93.7
Investing activities
Amortization of prior service cost		—			—			—			—			—			(8.5	)		(8.5	)
Capital expenditures		(42.0	)		(69.3	)		(57.4	)
Amortization of actuarial (gain) loss		—			—			—			—			—			35.7			35.7
Proceeds from sale of assets		—			55.1			24.3
Increase in unamortized prior service cost		—			—			—			—			—			42.5			42.5
Proceeds from sale of business		289.2			—			—
Increase in unrecognized actuarial loss		—			—			—			—			—			(434.8	)		(434.8	)
Investment in joint venture		—			—			(16.5	)
Comprehensive income (loss)		—			—			—			—			93.7			(365.1	)		(271.4	)
Net cash used in investing activities		247.2			(14.2	)		(49.6	)
Sale of common stock		—			0.1			—			—			—			—			0.1
Financing activities
Compensation expense from stock awards		—			3.0			—			—			—			—			3.0
Proceeds from short-term bank debt		135.0			153.0			20.0
Balance at December 31, 2008	$	0.3		$	420.5		$	(1.6	)	$	—		$	(501.3	)	$	(852.0	)	$	(934.1	)
Payments on short-term bank debt		(135.0	)		(153.0	)		(20.0	)
Proceeds from long-term bank debt		75.0			184.6			—
Payments on long-term bank debt		(360.9	)		(4.9	)		(4.0	)
Payments on capital leases		—			—			(1.3	)
Proceeds from governmental grants		—			—			2.1
Changes in restricted cash		(43.8	)		—			—
Proceeds from sale of common stock		—			0.1			—
Proceeds from repayment of stockholder loans		—			—			0.8
Net cash provided by (used in) financing activities		(329.7	)		179.8			(2.4	)
Net increase (decrease) in cash and cash equivalents		29.3			11.1			(17.8	)
Cash and cash equivalents at beginning of period		86.7			75.6			93.4
Cash and cash equivalents at end of period	$	116.0		$	86.7		$	75.6

See accompanying notes

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

Notes to Consolidated Financial Statements

	December 31,
	2008			2007			2006
Operating activities
Net income (loss)	$	93.7		$	46.3		$	(36.7	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		66.0			63.7			59.4
Stock compensation (income) expense		1.1			5.2			3.0
Impairment charge		—			—			9.0
Equity in losses of joint venture		0.6			4.0			6.7
(Gain) loss from asset sales		(49.8	)		1.9			1.7
Changes in current assets and liabilities:
Trade and other receivables		(57.2	)		0.7			8.7
Inventories		(81.6	)		(25.0	)		2.3
Other current assets		1.7			0.9			0.5
Accounts payable, trade		(1.7	)		60.3			(4.5	)
Accrued payroll and employee benefits		0.5			0.8			7.2
Accrued and other liabilities		(14.1	)		(26.9	)		(8.0	)
Accrued contract liabilities		(29.0	)		(103.3	)		117.7
Other assets and liabilities—long-term		(84.7	)		5.6			5.8
Net cash provided by (used in) operating activities		(154.5	)		34.2			172.8
Investing activities
Capital expenditures		(69.3	)		(57.4	)		(115.4	)
Proceeds from sale of assets		55.1			24.3			12.7
Investment in joint venture		—			(16.5	)		—
Net cash used in investing activities		(14.2	)		(49.6	)		(102.7	)
Financing activities
Proceeds from short-term bank debt		153.0			20.0			225.0
Payments on short-term bank debt		(153.0	)		(20.0	)		(225.0	)
Proceeds from long-term bank debt		184.6			—			—
Payments on long-term bank debt		(4.9	)		(4.0	)		(4.0	)
Payments on capital leases		—			(1.3	)		(0.7	)
Proceeds from governmental grants		—			2.1			17.4
Proceeds from sale of common stock		0.1			—			0.4
Proceeds from repayment of stockholder loans		—			0.8			0.1
Net cash provided by (used in) financing activities		179.8			(2.4	)		13.2
Net increase (decrease) in cash and cash equivalents		11.1			(17.8	)		83.3
Cash and cash equivalents at beginning of period		75.6			93.4			10.1
Cash and cash equivalents at end of period	$	86.7		$	75.6		$	93.4

See accompanying notes

Vought Aircraft Industries, Inc. Notes to Consolidated Financial Statements

1. BASIS OF PRESENTATION

Organization

Vought Aircraft Industries, Inc. and its wholly owned subsidiaries are herein referred to as the “We,” “Our,” “Us,” “Company” or “Vought.” We are one of the world’s largest independent suppliers of commercial and military aerostructures. The majority of our products are sold to Boeing, Airbus and Gulfstream, and for military contracts, ultimately to the U.S. Government. The Corporate office is in Irving, Texas and production work is performed at sites in Hawthorne and Brea, California; Everett, Washington; Dallas and Grand Prairie, Texas; ~~North Charleston, South Carolina;~~ Milledgeville, Georgia; Nashville, Tennessee; and Stuart, Florida.

We were formed when The Carlyle Group purchased us from Northrop Grumman in July 2000. Subsequently, we acquired The Aerostructures Corporation in July 2003. In addition, we formerly participated in a joint venture called Global Aeronautica, LLC with Alenia North America (“Alenia”), a subsidiary of Finmeccanica SpA. Vought and Alenia each had a 50% stake in the joint venture, which combines 787 program fuselage sections from Alenia and other structures partners and systems from around the world to deliver an integrated product to Boeing. On June 10, 2008, we sold our ~~entire~~50% ~~equity~~ interest in Global Aeronautica to Boeing and as a result, recorded a $47.1 million gain on the sale.

As a result of the sale of the assets and operations of our 787 business conducted at North Charleston, South Carolina on July 30, 2009 (“sale of the Charleston 787 business”), the balances and activities of the Charleston 787 business have been segregated and reported as discontinued operations for all periods presented except with respect to the Consolidated Statements of Cash Flows. For further details, see Note 3 – Discontinued Operations.

Certain prior period amounts presented herein have been reclassified to conform to the current year presentation.

Subsequent Events

On March 23, 2010, we entered into a merger agreement with Triumph Group, Inc. pursuant to which we will be acquired by Triumph. It is anticipated that in connection with that transaction all of our currently outstanding material indebtedness will be repaid in full. Triumph is a public company listed on the NYSE under the ticker symbol “TGI,” and is a designer, engineer, manufacturer, repairer and over hauler of aircraft components and accessories. Subject to the terms and conditions of the Merger Agreement, Triumph will retire approximately $590 million of our outstanding indebtedness and will acquire all outstanding shares of our capital stock for $525 million in cash and approximately 7.5 million shares of Triumph common stock subject to certain adjustments. The consummation of the acquisition is subject to, among other things, approval of Triumph’s stockholders and other customary closing conditions, which may not be satisfied.

In the event of termination of the Merger Agreement under certain circumstances, if either party breaches certain covenants under the Merger Agreement, the breaching party may be required to pay the non-breaching party a termination fee of $75 million.

Going Concern

Going concern is defined as an entity‘s inability to meet obligations as they become due without substantial disposition of assets outside the ordinary course of business, restructuring of debt or equity, or operational improvements.

On March 23, 2010, we entered into a merger agreement with Triumph Group, Inc. pursuant to which we will be acquired by Triumph. It is anticipated that in connection with that transaction all of our currently outstanding material indebtedness will be repaid in full. The consummation of the acquisition is subject to, among other things, approval of Triumph’s stockholders and other customary closing conditions, which may not be satisfied. In the event that the anticipated acquisition is not completed and such indebtedness remains outstanding, we plan to refinance our senior credit facility or the Senior Notes prior to the last business day of 2010. There are no assurances that we will be able to refinance on commercially reasonable terms or at all. This creates an uncertainty about our ability to continue as a going concern. Notwithstanding this, the consolidated financial statements and related notes have been prepared assuming that we will continue as a going concern.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. To enhance reliability in our estimates, we employ aan ~~rigorous~~ estimating process that is ~~reviewed~~ reviewed and updated on a quarterly basis. However, actual results could differ from those estimates.

~~Revenue and Profit Recognition~~53

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

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

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 Revenue - Construction-Type and Production-Type Contracts topic of the ASC and revenue and costs on contracts are recognized using percentage-of-completion methods of accounting. Accounting for the revenue and profit on a contract requires estimates of (1) the contract value or total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract’s scope of work and (3) the measurement of progress towards completion. Depending on the contract, we measure progress toward completion using either the cost-to-cost method or the units-of-delivery method.

•

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

•

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

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

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

Cash and Cash Equivalents

We consider cash on hand, deposits with banks, and other short-term marketable securities with original maturities of three months or less as cash and cash equivalents.

Restricted Cash

Some of our Letter of Credit agreements contain requirements for cash collateral and as of December 31, 2009, the cash restricted as collateral for outstanding letters of credit was $43.8 million.

Trade and Other Receivables

Trade and other receivables includes amounts billed and currently due from customers, amounts currently due but unbilled, certain estimated contract changes and amounts retained by the customer pending contract completion. Unbilled amounts are usually billed and collected within one year. We continuously monitor collections and payments from our 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.

Inventories

Inventoried costs primarily relate to work in process under fixed-price contracts. They 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 administrative expenses. For presentation purposes, all selling, general and administrative costs are shown in a separate line item in the accompanying statements of operations.

Property, Plant and Equipment

Additions to property, plant and equipment are recorded at cost. Depreciation is calculated principally on the straight-line method over the estimated useful lives of the assets. Repairs and maintenance, which are not considered betterments and do not extend the useful life of property and equipment, are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the asset and accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in income.

Principles of Consolidation

The consolidated financial statements include Vought Aircraft Industries, Inc. and its wholly owned subsidiaries, as well as our proportionate share of our investment in Global Aeronautica LLC (“Global”). On June 10, 2008, we sold our entire equity interest in Global Aeronautica to Boeing and as a result, our consolidated financial statements were no longer impacted by Global Aeronautica. Additionally, all significant inter-company accounts and transactions have been eliminated.

Joint Venture

We previously accounted for our investment in Global under the equity method of accounting. On June 10, 2008, we sold our entire equity interest in Global Aeronautica to Boeing and as a result, recorded a $47.1 million gain on the sale. As of December 31, 2008 and 2009, we did not have an ~~investment~~ ~~balance. The~~ investment balance ~~had an asset balance of $8~~.~~4 million as of December 31,~~ ~~2007.~~

Impairment of Long Lived Assets, Identifiable Intangible Assets and Goodwill

We record impairment losses on long-lived assets, including identifiable intangible assets, when events and circumstances indicate that the assets are impaired and the undiscounted projected cash flows associated with those assets are less than the carrying amounts of those assets. In those situations where the undiscounted projected cash flows are less than the carrying amounts of those assets, impairment loss on a long-lived asset is measured based on the excess of the carrying amount of the asset over the asset’s fair value, generally determined based upon discounted projected cash flows. For assets held for sale, impairment losses are recognized based upon the excess of carrying value over the estimated fair value of the assets, less estimated selling costs.

Goodwill is tested for impairment ~~annually~~, asat ofleast ~~the end of the third fiscal quarter~~annually, in accordance with the provisions of ~~SFAS~~the Intangibles ~~142~~– Goodwill and Other ~~Intangible~~topic ~~Assets~~of ~~(“SFAS~~the ~~142”) (further described in Note 7 — Goodwill and Intangible Assets)~~ASC. Under ~~SFAS~~this ~~142~~topic, 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 wethe ~~are~~Company is a single reporting unit. Accordingly, all assets and liabilities are used to determine our carrying value.

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.

Advance Payments and Progress Payments

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 under the Accrued contract liabilities caption. As of December 31, ~~2008~~2009 and ~~2007~~2008, the balance in accrued contract liabilities consisted of the following:

	December 31,		December 31,
	2008		2007
	2009		2008
	(in millions)
Advances and progress billings	$	~~187~~59.14	$	~~182~~126.98
Forward loss		61.47		186.34
Other		713.91		297.29
Total accrued contract liabilities	$	~~201~~74.42	$	~~230~~141.41

Stock-Based Compensation

~~Effective~~ We ~~January 1,~~account ~~2006,~~for westock-based ~~adopted~~compensation ~~the~~in ~~fair~~accordance ~~value~~with ~~recognition~~the ~~provisions~~Compensation-Stock Compensation topic of ~~FASB~~the ~~Statement No~~ASC. ~~123(R),~~ ~~Share-Based~~Under ~~Payment, using~~ the modified prospective-transition method~~. Under that transition method~~, ~~compensation~~we ~~cost~~record ~~recognized in 2006 includes: (a)~~ compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the original grant date fair value. ~~estimated~~We inrecord ~~accordance with the original provisions of Statement 123, and (b)~~ compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of ~~Statement~~the ~~123(R)~~Compensation-Stock Compensation topic of the ASC.

Options granted prior to ~~and~~2006 ~~after the date of adoption of SFAS No. 123(R)~~ continue to be amortized using a graded method.

Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the input of highly subjective assumptions, including the expected life of the stock-based payment awards and stock price volatility. We use the Black-Scholes option-pricing model to value compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. See Note 17 to the Consolidated Financial Statements for a further discussion on stock-based compensation.

Debt Origination Costs and Discount on Long-Term Debt

Debt origination costs are amortized using the effective interest rate method. Debt origination costs consisted of the following as of December 31:

	2008			2007
	2009			2008
	($ in millions)
Debt origination cost	$	27.9		$	2227.59
Accumulated Amortization		(1522.58	)		(1115.5	)
Debt origination cost, net	$	125.41		$	1112.04
Other current assets		4.2			4.5
Other non-current assets		0.9			7.9

~~During the fiscal year ended December 31, 2008, we borrowed an additional $200.0 million of~~56 term loans pursuant to our existing senior credit facilities. We paid $5.4 million of debt origination costs in association with that borrowing and incurred a $10.0 million original issue discount. The discount is classified as a contra-liability under the Long-term bank debt net of current portion caption on our consolidated balance sheet and is amortized using the effective interest rate method. As of December 31, 2008, the balance of the discount was $8.2 million.

During the fiscal year ended December 31, 2009, we accelerated the expense of $3.4 million of debt origination costs as a result of the pay down of $355.0 million of term loans outstanding.

During the fiscal year ended December 31, 2008, we borrowed an additional $200.0 million of term loans pursuant to our existing senior credit facilities. We paid $5.4 million of debt origination costs in association with that borrowing and incurred a $10.0 million original issue discount. The discount is classified as a contra-liability under the Long-term bank debt net of current portion caption on our consolidated balance sheet and is amortized using the effective interest rate method. As of December 31, 2009 and 2008, the balance of the discount was $2.4 million and $8.2 million, respectively. During the fiscal year ended December 31, 2009, we accelerated the expense of $3.7 million of original issue discount as a result of the pay down of $355.0 million of term loans outstanding.

Warranty Reserves

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

During the fiscal year ended December 31, 2008, we increased our provisions for warranty by $9.5 million. $8.2 million of that increase was attributable to a specific warranty issue ~~identified~~ identified during 2008. The following is a rollforward of amounts accrued for warranty reserves and amounts are included in accrued and other liabilities and other non-current liabilities:

	2008			2007
	2009			2008
	($ in millions)
Beginning Balance	$	716.21		$	67.82
Warranty costs incurred		(01.65	)		(0.46	)
Provisions for warranties		9(1.52	)		09.85
Ending Balance	$	1613.14		$	716.21
Consolidated Balance Sheet classification
Accrued and other liabilities		4.5			0.5
Other non-current liabilities		8.9			15.6

Income Taxes

Income taxes are accounted for using the liability method in accordance with ~~SFAS~~the ~~No. 109,~~Income Taxes ~~Accounting~~topic ~~for~~of ~~Income~~the ~~Taxes~~ASC. Deferred income taxes are determined based upon the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial ~~reporting~~ reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Due to the uncertain nature of the ultimate realization of the deferred tax assets, we have established a valuation allowance against these future benefits and will recognize benefits only as ~~reassessment~~ reassessment demonstrates they are more likely than not to be realized.

~~Effective~~ The ~~January 1,~~Income ~~2007,~~Taxes wetopic ~~adopted~~of ~~FIN~~the 48ASC ~~Accounting~~requires ~~for~~use ~~Uncertainty~~of ~~in Income Taxes (FIN 48), which requires~~ a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We adjust the recorded amount of our deferred tax assets and liabilities for the difference between the benefit recognized and measured ~~pursuant to FIN 48~~ and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax position changes, the change in estimate is recorded in the period in which the determination is made. ~~Prior to 2007, we recognized tax~~ ~~contingencies for income tax matters as an adjustment to the recorded amount of net operating losses and related valuation allowance.~~

Recent Accounting Pronouncements

In ~~September~~December ~~2006~~2007, the FASB issued ~~SFAS~~an ~~No. 157,~~accounting ~~Fair~~standard ~~Value~~that ~~Measurements~~provides ~~(SFAS~~revised ~~No. 157).~~guidance ~~SFAS~~on how ~~No. 157~~acquirors ~~defines~~recognize ~~fair~~and ~~value,~~measure ~~establishes~~the aconsideration ~~framework~~transferred, ~~for~~identifiable ~~measuring~~assets ~~fair~~acquired, liabilities ~~value~~assumed, innoncontrolling ~~generally~~interests, ~~accepted accounting principles~~ and ~~expands~~goodwill ~~disclosure~~acquired ~~about~~in ~~fair~~a ~~value~~business ~~measurements~~combination. ~~We adopted SFAS No.~~ ~~157~~This ~~for~~standard ~~our~~also ~~financial~~expands ~~assets~~required ~~and~~disclosures ~~liabilities~~surrounding onthe ~~January 1,~~nature ~~2008~~ and itfinancial ~~has~~effects ~~not materially affected~~of ~~our~~business ~~financial statements~~combinations. ~~The~~We ~~SFAS~~adopted ~~No. 157~~the ~~requirements~~guidance ~~for~~of ~~certain~~this ~~non-financial~~accounting ~~assets~~standard, ~~and liabilities~~currently ~~have~~included ~~been deferred until~~ in the ~~first~~Business ~~quarter~~Combinations Topic of ~~2009~~the ~~in accordance with Financial~~ Accounting Standards ~~Board~~Codification ~~Staff Position~~ (~~FSP~~ASC) ~~157-2~~on January 1, 2009. ~~See~~We ~~Note~~considered 13the —provisions ~~Fair~~of ~~Value~~this ~~Measurements~~accounting ~~for a~~standard ~~summary~~with ofrespect to the sale ~~assets~~of ~~and~~the ~~liabilities~~Charleston ~~that~~787 ~~are~~business ~~measured~~(as atdiscussed ~~fair~~in ~~value~~Note as3 of— ~~December 31,~~Discontinued ~~2008~~Operations).

~~In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and~~57 Financial Liabilities (SFAS No. 159). SFAS No. 159 expands the use of fair value measurement by permitting entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. We adopted SFAS No. 159 on January 1, 2008 and did not elect the fair value option. Thus, it had no impact on our financial statements.

InTable 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. Contents

In FASB ~~March 2008,~~issued ~~the~~an ~~FASB~~accounting ~~issued~~standard ~~SFAS~~that ~~No. 161,~~requires ~~Disclosures~~enhanced disclosures about ~~Derivative~~the ~~Instruments~~plan ~~and~~assets of ~~Hedging~~a ~~Activities,~~company’s andefined ~~amendment~~benefit ofpension ~~FASB~~and ~~Statement~~other ~~No. 133~~postretirement ~~(SFAS No~~plans. ~~161).~~ ~~SFAS~~The ~~No. 161~~enhanced ~~requires~~disclosures are ~~entities~~intended to provide ~~greater~~users ~~transparency~~of ~~through~~financial ~~additional~~statements ~~disclosures~~with ~~about (~~a~~) how~~ ~~and~~greater ~~why~~understanding ~~an entity~~of: ~~uses derivative instruments,~~ (b1) how investment ~~derivative~~allocation ~~instruments~~decisions ~~and~~are ~~related~~made, ~~hedged~~including ~~items~~the ~~are accounted~~factors ~~for~~that ~~under~~are ~~Statement~~pertinent ~~133~~to ~~and~~an understanding ~~its~~of ~~related~~investment ~~interpretations,~~policies and strategies; (c2) ~~how~~the ~~derivative~~major categories of plan assets; (3) ~~instruments~~the inputs and ~~related~~valuation ~~hedged~~techniques ~~items~~used ~~affect~~to anmeasure ~~entity’s~~the ~~financial~~fair ~~position,~~value ~~results~~ of ~~operations,~~plan assets; (4) the effect ~~and~~of ~~cash~~fair ~~flows.~~value ~~SFAS~~measurements ~~No. 161~~using issignificant ~~effective~~unobservable ~~for~~inputs ~~financial~~(Level ~~statements~~3) ~~issued~~on changes in plan assets for ~~fiscal~~the ~~years~~period; and ~~interim~~ ~~periods~~(5) significant ~~beginning~~concentrations ~~after~~of ~~November 15,~~risk ~~2008~~within plan assets. ~~The~~We ~~adoption~~adopted the provisions of ~~SFAS~~this ~~No. 161~~accounting isstandard ~~not~~on ~~expected~~January 1, ~~to have~~2009 aand ~~material~~provided ~~impact~~the onrequired enhanced disclosures for our ~~financial~~pension ~~statements~~plan asassets wein ~~currently~~Note do14 ~~not~~— ~~participate~~Pension inand ~~derivative or~~Other ~~hedging~~Post ~~instruments~~Retirement Benefits.

In ~~December~~May ~~2008~~2009, the FASB issued ~~FSP~~an ~~132(R)-1,~~accounting ~~Employers’~~standard ~~Disclosures~~that ~~about~~requires ~~Postretirement Benefit~~an ~~Plan~~entity ~~Assets~~to ~~(FSP~~recognize ~~132(R)-1).~~in the ~~FSP~~financial ~~132(R)-1~~statements ~~requires enhanced disclosures about~~ the ~~plan assets~~effects of aall ~~Company’s~~subsequent ~~defined~~events ~~benefit~~that ~~pension~~provide ~~and~~additional ~~other postretirement plans. The enhanced~~evidence ~~disclosures~~about ~~required~~conditions bythat ~~this~~existed ~~FSP~~at ~~are~~the ~~intended~~date ~~to provide users~~ of ~~financial~~the ~~statements~~balance ~~with~~sheet. aFor ~~greater~~nonrecognized ~~understanding~~subsequent events ~~of:~~that ~~(1) how~~must ~~investment~~be ~~allocation decisions~~disclosed ~~are~~to ~~made,~~keep ~~including~~ the ~~factors~~financial ~~that~~statements ~~are~~from ~~pertinent~~being tomisleading, an ~~understanding~~entity ~~of investment~~is ~~policies~~required ~~and~~to ~~strategies;~~disclose ~~(2)~~ the ~~major~~nature ~~categories~~ of ~~plan assets; (3)~~ the ~~inputs~~event ~~and~~as ~~valuation techniques~~well ~~used~~as toan ~~measure~~estimate ~~the fair value~~ of ~~plan~~its ~~assets;~~financial ~~(4) the~~ effect, ofor ~~fair~~a statement ~~value~~that ~~measurements using~~such ~~significant~~an ~~unobservable~~estimate ~~inputs~~cannot ~~(Level~~be 3)made. onWe ~~changes~~adopted inthis ~~plan~~accounting ~~assets~~standard for ~~the~~our fiscal period; ~~and~~ending ~~(5) significant~~June 28, ~~concentrations~~2009 ofand ~~risk~~it ~~within~~has ~~plan~~not ~~assets.~~had ~~FSP~~a ~~132(R)-1~~material iseffect ~~effective~~on ~~for~~our ~~fiscal~~consolidated ~~years~~financial ~~ending after December 15, 2009~~statements.

In June 2009, the FASB issued an accounting standard that establishes the FASB Accounting Standards CodificationÔ (the Codification) as the source of authoritative U.S. generally accepted accounting principles (US GAAP). We adopted this accounting standard for our fiscal period ending September 27, 2009.

Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASUs), which will serve to update the Codification, provide background information about the accounting guidance and provide the basis for conclusions on the changes to the Codification. GAAP is not intended to be changed as a result of the Codification, but it will change the way the accounting guidance is organized and presented. As a result, these changes have a significant impact on how we reference GAAP in our financial statements and in our accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009.

3. DISCONTINUED OPERATIONS

On July 30, 2009, we sold the assets and operations of our 787 business conducted at North Charleston, South Carolina to a wholly owned subsidiary of The Boeing Company. Concurrent with the closing of the transaction, we entered into an agreement terminating and resolving rights and obligations under the existing 787 supply agreement. Going forward, under a newly negotiated contract, we will manufacture certain components for the 787 program as well as provide engineering services to Boeing pursuant to an engineering services agreement. We also will provide certain transition services to Boeing pursuant to a transition services agreement. The transition services provided to Boeing are temporary and non-production related and thus not deemed direct cash flows of the Charleston 787 business. The transition services are included as a component of continuing operations and are expected to be completed in the next 9-15 months.

We ~~are~~received ~~currently~~total ~~evaluating~~cash proceeds of approximately $590 million as consideration for the transaction, ~~impact~~of ~~that~~which approximately $9.3 million was used to pay costs associated with the transaction. ~~adoption~~The cash proceeds were allocated based on the estimated relative fair value of ~~FSP~~each ~~132(R)-1~~component ~~will~~of the transaction. As a result of that allocation, we have recorded a $38.3 million loss on ~~our~~the ~~disclosures~~sale of the Charleston 787 business and revenue of $291.4 million related to ~~our~~the settlement ~~pension~~of ~~plan~~contractual matters incurred in the ordinary course of business as income from discontinued operations in the year ended December 31, 2009. The following table represents the assets of the Charleston 787 business as of July 30, 2009 and December 31, 2008. The balances as of December 31, 2008 have been reclassified to the assets related to discontinued operations and liabilities related to discontinued operations captions in our December 31, 2008 Consolidated Balance Sheet.

3. RESTRUCTURING


	July 30,		December 31,
	2009		2008
	($ in millions)
Trade and other receivables	$	9.7	$	0.1
Inventories		133.5		132.6
Property, plant and equipment, net		197.5		205.1
Goodwill (allocated)		122.9		122.9

	$	463.6	$	460.7


Accounts payable		22.2		28.5
Accrued and other liabilities		5.8		6.2
Accrued payroll and employee benefits		1.2		0.6
Accrued contract liabilities		47.7		60.3
Other non-current liabilities		59.2		61.1

	$	136.1	$	156.7

~~During~~ We ~~2001,~~also wereclassified ~~finalized~~the ~~and~~results ~~approved~~of aoperations ~~restructuring~~related ~~plan designed~~ to ~~reduce~~ our ~~infrastructure~~ ~~costs~~Charleston by787 ~~closing~~Business ~~our~~to ~~Perry, Georgia facility and relocating~~ the ~~facility’s~~ ~~production~~income ~~effort to the Stuart, Florida site. At December~~(loss) ~~31,~~from ~~2001,~~discontinued ~~we had accrued $12.6 million related to costs on non-cancelable lease payments~~operations, ~~maintenance~~net ~~and other costs after the anticipated closure date for the Perry facility. The closure~~ of ~~Perry~~tax ~~was~~caption ~~completed~~in atour ~~the beginning~~Consolidated ofStatements ~~the third quarter~~ of ~~2002. Subsequent to the closure, we have recorded $11.0 million~~ ofOperations ~~lease~~for ~~payments and maintenance against the accrual. As of December 31, 2007,~~ all ~~payments related~~periods ~~to the restructuring liability have been completed~~presented. The following table issummarizes ~~a roll-forward of~~ the ~~amounts~~components ~~accrued~~of ~~for~~income (loss) from ~~the~~discontinued ~~Perry~~operations, ~~restructuring~~net ~~liabilities~~of tax:

	Accrued Restructuring
	Years Ended
	Reserve Perry Site
	December 31,
	($ in millions)
	2009			2008			2007
Balance January 1, 2006	$	5.7
	($ in millions)
Cash expenditures		(2.2	)
Revenue	$	316.2		$	21.6		$	12.4
Balance December 31, 2006		3.5
Operating income		269.0			(38.2	)		(85.5	)
Cash expenditures		(1.9	)
Loss on sale of 787 business		(38.3	)		—			—
Amounts recorded to net income		(1.6	)
Income tax expense		(17.1	)		—			—
Balance December 31, 2007	$	—
Income (loss) from discontinued operations, net of tax	$	213.6		$	(38.2	)	$	(85.5	)

4. TRADE AND OTHER RECEIVABLES

Trade and other receivables consisted of the following at December 31:

	2008		2007
	($ in millions)
Due from customers, long-term contracts:
Billed	$	83.4	$	65.5
Unbilled		53.4		11.2
Total due, long-term contracts		136.8		76.7
Trade and other accounts receivable:
Billed		1.5		1.3
Other Receivables		0.3		3.4
Total trade and other receivables	$	138.6	$	81.4

We have determined that an allowance for doubtful accounts was unwarranted as of December 31, 2008 and 2007 due to our historical collection experience. The amounts of trade and other receivables write-offs have been minimal in the past. This is primarily due to the nature of our sales to a limited number of customers and to the credit strength of our customer base (Boeing, Airbus, Gulfstream, Lockheed Martin, Sikorsky, USAF etc.).

The increase in our trade and other receivables balance from 2007 to 2008 primarily relates to an increase in non-recurring sales for our 747-8 program.

4. TRADE AND OTHER RECEIVABLES

Trade and other receivables consisted of the following at December 31:


	2009		2008
	(in millions)
Due from customers, long-term contracts:
Billed	$	78.8	$	83.3
Unbilled		38.1		53.4

Total due, long-term contracts		116.9		136.7

Trade and other accounts receivable:
Billed		—		1.5
Other Receivables		11.0		0.3

Total trade and other receivables	$	127.9	$	138.5

We have determined that an allowance for doubtful accounts was unwarranted as of December 31, 2009 and 2008 due to our historical collection experience. The amounts of trade and other receivables write-offs have been minimal in the past. This is primarily due to the nature of our sales to a limited number of customers and to the credit strength of our customer base (Boeing, Airbus, Gulfstream, Lockheed Martin, Sikorsky, USAF etc.).

5. INVENTORIES

As discussed in Note 2 “Inventories”,” we include in inventory, all direct production costs, manufacturing and engineering overhead, production tooling costs, and certain general and administrative expenses. In 2006, we determined that costs related to information technology, which were previously classified as general and administrative expenses, should be classified within manufacturing and engineering overhead because information and technology directly supports those activities. At December 31, ~~2008~~2009 and ~~2007~~2008, general and administrative expenses included in inventories were approximately $3125.68 million and $3417.18 million, respectively.

Inventories consisted of the following at December 31:

	2008			2007
	2009			2008
	(in millions)
Production costs of contracts in process	$	~~998~~659.1		$	~~727~~553.72
Finished goods		23.91			2.09
Less: unliquidated progress payments		(~~556~~150.69	)		(~~366~~244.93	)
Total inventories	$	~~444~~511.43		$	~~362~~311.8

The increase in our inventory balance from December 31, 2008 to December 31, 2009 primarily relates to our investment to support the ramp-up of 747-8 production.

During the fiscal year ended December 31, 2008, we released purchase accounting reserves of $22.6 million for the Boeing 747 program to reflect the scheduled completion of the deliveries for the 747-400 model. They were released from inventory and accrued contract liabilities to income through the Cost of Sales caption in our Consolidated Statement of Operations, increasing our reported income for the period. Additionally, we accelerated the useful life of an intangible asset associated with the 747 program for the same reason. Refer to Note 7 — Goodwill and Intangible Assets for disclosure of the impact of the change in useful life.

During the fiscal year ended December 31, 2008, we corrected for approximately $5.0 million of costs which had been inappropriately included in our December 31, 2007 inventory balance related to commercial programs. This resulted in an additional $5.0 million recorded to cost of sales during the fiscal year ended December 31, 2008.

According to the provisions of U.S. Government contracts, the customer has title to, or a security interest in, substantially all inventories related to such contracts. The total net inventory on government contracts was $6265.42 million and $5162.14 million at December 31, ~~2008~~2009 and ~~2007~~2008, respectively.

As of December 31, 2008, we have an inventory balance for the 787 program of $132.6 million, net of unliquidated progress payments of $312.8 million. We continue to negotiate with Boeing regarding the settlement of certain contractual matters related to the 787 program including the recovery of compensation for items reflected in this inventory balance including program delays and engineering changes as provided for under our contract with Boeing. If we are unable to reach an agreement with Boeing that includes compensation for our costs incurred to date our financial position and results of operations could be materially impacted.

6. PROPERTY, PLANT AND EQUIPMENT

Major categories of property, plant and equipment, including their depreciable lives, consisted of the following at December 31:

	2008			2007			Lives
	($ in millions)
Land and land improvements	$	20.9		$	20.9		12 years
Buildings		62.8			109.1			12 to 39 years
Machinery and other equipment		623.9			595.6			4 to 18 years
Capitalized software		53.4			52.8		3 years
Leasehold improvements		114.4			111.6		7 years or life of lease
Assets under construction		78.9			53.3
Less: accumulated depreciation and amortization		(470.0	)		(436.3	)
Net property, plant and equipment	$	484.3		$	507.0

During the fiscal year ended December 31, 2008, we determined that certain contractual obligations related to the portion of the Hawthorne facility, which we have vacated, were completed and we recognized $44.0 million of the deferred income balance. We also wrote off the related fixed assets for this facility of $42.4 million resulting in a $1.6 ~~million gain that is recorded in our Consolidated Statement of Operations~~. ~~The change in the cost balance of our buildings from December 31~~PROPERTY, ~~2008~~PLANT toAND ~~December 31, 2007 primarily relates to that write off.~~EQUIPMENT

~~The~~ Major ~~increase~~categories inof ~~our~~property, ~~assets~~plant ~~under~~and ~~construction~~equipment, ~~balance~~including ~~from~~their ~~2007~~depreciable ~~to 2008 primarily relates to~~lives, ~~the~~consisted ~~installation~~ of ~~new~~the ~~machinery~~following ~~and~~at ~~other equipment for our 747-8 program.~~December 31:

During the fiscal year ended December 31, 2006, we recorded an impairment charge of $9.0 million for fixed assets that were acquired as part of our site consolidation initiative.


	2009			2008			Lives
	($ in millions)
Land and land improvements	$	10.0		$	10.0		0 to 12 years
Buildings		60.8			73.7		12 to 39 years
Machinery and other equipment		521.8			488.7		4 to 18 years
Capitalized software		48.0			48.2		3 years
Leasehold improvements		50.5			38.7		7 years or life of lease
Assets under construction		40.0			57.2		N/A
Less: accumulated depreciation and amortization		(455.2	)		(437.3	)

Net property, plant and equipment	$	275.9		$	279.2

During the fiscal year ended December 31, 2009, we capitalized approximately $5.6 million of interest costs related to our assets-under-construction balance that were expensed in fiscal periods prior to 2009 in error. We also recorded a corresponding $1.9 million adjustment to increase depreciation expense, which was recorded to cost of sales during the fiscal year ended December 31, 2009. The total impact on net income from these adjustments was approximately $3.7 million. The capitalization also increased our fixed assets, net balance by $3.7 million. Additionally, during the year ended December 31, 2009, we have capitalized interest costs of $1.5 million related to our current assets-under-construction balance.

During the fiscal year ended December 31, 2008, we determined that certain contractual obligations related to the portion of the Hawthorne facility, which we have vacated, were completed and we recognized $44.0 million of the deferred income balance. We also wrote off the related fixed assets for this facility of $42.4 million resulting in a $1.6 million gain that is recorded in our Consolidated Statement of Operations.

7. GOODWILL AND INTANGIBLE ASSETS

Goodwill is tested for impairment, at least annually, in accordance with the provisions of the ~~SFAS~~Intangibles ~~142~~— Goodwill and Other ~~Intangible~~topic ~~Assets~~of ~~(“SFAS~~the ~~142”)~~ASC. Under ~~SFAS~~this ~~142~~topic, 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. ~~Furthermore, if the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is unnecessary.~~ We have concluded that wethe ~~are~~Company is a single reporting unit. Accordingly, all assets and liabilities are used to determine our carrying value. ~~Therefore, since~~ ~~we have an accumulated deficit, we have negative carrying value as of December 31, 2008 and 2007.~~

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 ~~same valuation firm was used to perform the valuation to determine our stock price as well as our goodwill impairment testing. 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~~ a risk-free interest rate and other factors such as equity risk premiums and ~~the~~our ratio of total debt and equity capital.

A low and high valuation range was calculated using each of the three aforementioned methodologies. In addition, the overall average value was calculated for the low and high ranges from all three valuation methods. This mean of the average low and high ranges of the fair value was used as the enterprise fair value for our testing and was compared to the carrying value of the Company represented by the net book value pursuant to the requirements of ~~SFAS~~the ~~142~~ Goodwill and Other topic ~~Intangible~~of ~~Assets~~the ASC. The three methodologies were all evenly weighted in this calculation since the Company relied on them all equally. The enterprise fair value was greater than the ~~negative~~ carrying ~~amount~~value of the Company and no impairment of goodwill or intangible assets was recognized in ~~2008~~2009, ~~2007~~ or2008 ~~2006~~or 2007. We note that the results of any of the three of the valuation methodologies ~~considered~~ considered separately would have resulted in the same conclusion, that no impairment was necessary.

Identifiable intangible assets primarily consist of profitable programs and contracts acquired and are amortized over periods ranging from 7 to 15 years, computed primarily on a straight-line method. The value assigned to programs and contracts was based on a fair value method using projected discounted future cash flows. On a regular basis, we review the programs for which intangible assets exist to determine if any events or circumstances have occurred that might indicate impairment has occurred. This review consists of analyzing the profitability and expected future performance of these programs and looking for significant changes that might be indicative of impairment.

If this process were to indicate potential impairment, then undiscounted projected cash flows would be compared to the carrying value of the asset(s) in question to determine if impairment had in fact occurred. If this proved to be the case, the assets would be written down to equal the value of the discounted future cash flows.

~~The~~ Additionally, ~~following~~in ~~table~~connection ~~provides~~with the sale of the Charleston 787 business on July 30, 2009 (discussed in Note 3 — Discontinued Operations), a ~~rollforward~~portion of our goodwill ~~and~~balance ~~intangible~~was allocated to that business based on the relative fair value of its assets ~~from~~compared ~~December~~to the total ~~31,~~value ~~2007~~of tothe ~~December 31~~consolidated company. Subsequently, ~~2008~~we performed an interim impairment test of our remaining Goodwill balance and determined the balance was not impaired. The following table represents a summary of the change in the Goodwill balance as a result of the aforementioned allocation:

	2007			Additions			2008
	(in millions)
				(in millions)
Goodwill prior to allocation	$	527.7
Contracts and programs	$	137.3		$	—		$	137.3
Allocation to 787 business		122.9
Accumulated amortization		(97.2	)		(12.9	)		(110.1	)
Goodwill after allocation	$	404.8
Total identifiable intangible assets	$	40.1		$	(12.9	)	$	27.2
Goodwill	$	527.7		$	—		$	527.7

The following table provides a rollforward of our goodwill and intangible assets from December 31, 2008 to December 31, 2009:


	2008			Additions			2009
	(in millions)
Contracts and programs	$	137.3		$	—		$	137.3
Accumulated amortization		(110.1	)		(6.8	)		(116.9	)

Total identifiable intangible assets	$	27.2		$	(6.8	)	$	20.4



Goodwill	$	404.8		$	—		$	404.8

During the fiscal year ended December 31, 2008, we made a change to the estimated useful life of an intangible asset associated with our 747 program to reflect a change in the estimated period during which the remaining deliveries of the 747-400 model would be made. This change in estimate resulted in an additional $1.2 million recorded to selling, general and administrative expenses. Including this change, scheduled remaining amortization of identifiable intangible assets is as follows:

	($ in millions)
2009	$	6.8
2010	$	4.8
2010		4.8
2011		2.1
2012		2.1
2013		2.1
Thereafter		9.3
2014		2.1
	$	27.2
Thereafter		7.2
	$	20.4

8. INVESTMENT IN JOINT VENTURE

In April 2005, Vought Aircraft Industries entered into a joint venture agreement with Alenia North America (“Alenia”), a subsidiary of Finmeccanica SpA to form a Limited Liability Company called Global Aeronautica, LLC. Vought and Alenia had a 50% stake in the joint venture. Global Aeronautica, LLC integrates major components of the fuselage and performs related testing activities for the Boeing 787 Program.

On June 10, 2008, we sold our entire equity interest in Global Aeronautica to Boeing for $55 million in cash and as a result, recorded a $47.1 million gain on the sale during the fiscal year ended December 31, 2008. This gain is reflected in other income (loss) in our Consolidated Statement of Operations. In future periods, our results of operations will not be impacted by this joint venture.

The following table includes the activity in our investment in joint venture account balance for the periods ended December 31:

	2008			2007			2006
				($ in millions)
Beginning balance	$	8.4		$	(4.1	)	$	2.6
Equity contributions		—			16.5			—
Distributions		—			—			—
Earnings (losses)		(0.6	)		(4.0	)		(6.7	)
Disposal upon sale		(7.8	)		—			—
Ending balance	$	—		$	8.4		$	(4.1	)

On June 10, 2008, we sold our entire equity interest in Global Aeronautica to Boeing for $55 million in cash and as a result, recorded a $47.1 million gain on the sale during the fiscal year ended December 31, 2008. This gain is reflected in other income (loss) in our Consolidated Statement of Operations. Our results of operations after 2008 are not impacted by this joint venture.

The following table includes the activity in our investment in joint venture account balance for the periods ended December 31:


	2008			2007
	($ in millions)
Beginning balance	$	8.4		$	(4.1	)
Equity contributions		—			16.5
Distributions		—			—
Earnings (losses)		(0.6	)		(4.0	)
Disposal upon sale		(7.8	)		—

Ending balance	$	—		$	8.4

The following table includes summary financial information for the investment in joint venture as of the period ended December 31:

	2008			2007			~~2006~~
	($ in millions)			~~($ in millions)~~
Current assets	$	—		$	68.8		$	~~33.2~~
Current liabilities		—			(15.6	)		~~(10.1~~	)
Working capital	$	—		$	53.2		$	~~23.1~~
Noncurrent assets	$	—		$	106.0		$	~~74.4~~
Noncurrent liabilities		—			142.3			~~105.8~~
Revenues (1)	$	5.1		$	10.6		$	—
Gross profit (1)		1.3			6.5			—
Net income (loss) (1)	$	(1.1	)	$	(7.9	)	$	(13.4	)
Income (loss) from continuing operations (1)	$	(1.1	)	$	(7.9	)

(1) The 2008 amounts reflected represent ~~the~~our ~~total~~portion of the revenue, gross profit and net loss from Global Aeronautica prior to the sale of our equity interest on June 10, 2008.

We had a $1.5 million and $1.3 million receivable balance from Global Aeronautica as of December 31, 2008 and 2007, respectively. As of December 31, 2009, we did not have a receivable balance from Global Aeronautica.

9. ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities consisted of the following at December 31:

	2008		2007
	2009		2008
	($ in millions)
Workers compensation	$	108.56	$	1110.05
Group medical insurance		97.06		119.0
Property taxes		73.28		64.17
Accrued rent in-kind		67.83		146.08
Interest		10.0		1510.60
Other		2031.20		16.45
Total accrued and other liabilities	$	6368.73	$	7457.15

10. OPERATING AND CAPITAL LEASES

We lease various plants and facilities, office space, and vehicles, under non-cancelable operating and capital leases with an initial term in excess of one year. The largest operating lease is for the Dallas, Texas facility. The Navy owns the 4.9 million square foot facility. In July 2000, we signed a five-year assignment and transfer of rights and duties lease which has since been extended twice with one year amendments with the Navy which allows us to retain the use of the facility with payment terms of $8.0 million per year in the form of rent-in-kind capital maintenance. On October 24, 2007, we signed a new three-year lease with the Navy which allows us to retain the use of the facility with payment terms of $8.0 million per year in the form of Long-Term Capital Maintenance Projects valued at $6.0 million per year and cash rent in the amount of $2.0 million annually.

63 As of December 31, 2009, the future minimum payments required under all operating leases are summarized as follows:


	Operating
	Leases
	($ in millions)
2010	$	21.7
2011		13.7
2012		9.3
2013		4.9
2014		4.0
Thereafter		3.5

Total		57.1
Less: sublease income		0.3

Total	$	56.8

Rental expense was approximately $28.3 million net of sublease income of $0.2 million in 2009, $26.8 million net of sublease income of $0.2 million in 2008 and $25.9 million, net of sublease income of $0.2 million in 2007.

As of December 31, 2009, we do not have any significant capital lease obligations.

During 2007, we entered into a sale and leaseback transaction for equipment at our Nashville facility. The sales price for the transaction was $15.9 million. We have no future financial commitments or obligations other than the future lease payments under the lease agreement. The lease expires on May 31, 2012. As of December 31, 2009, the minimum payments for the next five years for this lease are as follows:


	Sale and
	Leaseback
	Payments
	($ in millions)
2010	$	3.4
2011		3.4
2012		1.4

Total	$	8.2

As of December 31, 2008, the future minimum payments required under all operating leases are summarized as follows:

	Operating
	Leases
	($ in millions)
2009	$	21.7
2010		19.6
2011		13.3
2012		7.5
2013		5.3
Thereafter		9.5
Total		76.9
Less: sublease income		0.2
Total	$	76.7

Rental expense was approximately $27.3 million net of sublease income of $0.2 million in 2008, $26.6 million, net of sublease income of $0.2 million in 2007 and $22.7 million, net of sublease income of $0.2 million in 2006.

As of December 31, 2008, we do not have any significant capital lease obligations.

During 2007, we entered into a sale and leaseback transaction for equipment at our Nashville facility. The sales price for the transaction was $15.9 million. We have no future financial commitments or obligations other than the future lease payments under the lease agreement. The lease expires on May 31, 2012. As of December 31, 2008, the minimum payments for the next five years for this lease are as follows:

	Sale and
	Leaseback
	Payments
	($ in millions)
2009	$	3.4
2010		3.4
2011		3.4
2012		1.4
Total		11.6

11. OTHER NON-CURRENT LIABILITIES

Other non-current liabilities consisted of the following at December 31:

	2008		2007
	2009		2008
	(in millions)
Deferred income from the sale of Hawthorne facility (a)	$	1112.6	$	5211.6
State of South Carolina grant monies (b)		61.0		66.7
State of Texas grant monies (b)		34.1		35.0
State of Texas grant monies		35.0		35.0
Deferred worker’s compensation		16.5		14.9
Deferred worker’s compensation		14.9		15.6
Accrued warranties		8.9		15.6
Accrued warranties		15.6		6.6
Other		3.2		4.5
Other		4.6		4.7
Total other non-current liabilities	$	75.3	$	81.6
Total other non-current liabilities	$	142.7	$	181.2


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

		During the fiscal year ended December 31, 2008, we increased the deferred liability balance for a $3.0 million refund from escrow. Additionally, we determined that certain contractual obligations related to the portion of the facility, which we have vacated, were completed and we recognized $44.0 million of the deferred income balance. We also wrote off the related fixed assets for this facility resulting in a $1.6 million gain that is recorded in our Consolidated Statement of Operations. The $12.6 million liability balance relating to the portion of the Hawthorne facility that we continue to lease will remain on our balance sheet until the related contractual obligations are fulfilled or the obligations expire.

(b)		We reclassified $0.9 million related to the Texas grant to the Accrued and Other Liabilities caption in our Consolidated Balance Sheet due to a repayment of grant funds in 2010 based on the agreement.

~~Table~~12. ~~of Contents~~DEBT

(a)		In July 2005, we sold our Hawthorne facility and concurrently signed an agreement to lease back a certain portion of the facility from July 2005 to December 2010, with two additional five-year renewal options. Due to certain contractual obligations, which required our continuing involvement in the facility, this transaction was initially recorded as a financing transaction and not as a sale. The cash received in July 2005 of $52.6 million was recorded as a deferred liability on our balance sheet in other non-current liabilities.
		During the fiscal year ended December 31, 2008, we increased the deferred liability balance for a $3.0 million refund from escrow. Additionally, we determined that certain contractual obligations related to the portion of the facility, which we have vacated, were completed and we recognized $44.0 million of the deferred income balance. We also wrote off the related fixed assets for this facility resulting in a $1.6 million gain that is recorded in our Consolidated Statement of Operations. The remaining $11.6 million liability balance relating to the portion of the Hawthorne facility that we currently lease will remain on our balance sheet until the related contractual obligations are fulfilled or the obligations expire.
(b)		With the activation of the South Carolina plant in June 2006, we began recognizing a portion of the State of South Carolina grant monies as a reduction of depreciation expense, which amounted to $3.3 million and $3.2 million for the 2008 and 2007 periods, respectively. The grant monies will reduce our depreciation expense over the 15 year life of the lease of the land for the South Carolina plant. Additionally, during the fiscal year ended December 31, 2008, we made a required distribution of state grant proceeds of $2.4 million to our former joint venture, Global Aeronautica. See Note 8 — Investment in Joint Venture.

12. LONG-TERM DEBT

Borrowings under long-term arrangements consisted of the following at December 31:

	2008		2007
	2009		2008
	(in millions)
Term loan B	$	409.0	$	413.0
Term loans	$	236.6	$	409.0
Incremental facility		190.9		—
Incremental facility (a)		83.2		190.9
Senior notes		270.0		270.0
Total long-term bank and bond debt	$	869.9	$	683.0
Total bank and bond debt	$	589.8	$	869.9

~~On July 2, 2003, we issued $270.0 million of 8% Senior Notes due 2011~~ (~~“Senior Notes”~~a) ~~with interest~~This ~~payable~~balance onis ~~January 15~~presented ~~and~~net ~~July 15~~ of ~~each year, beginning January 15, 2004~~$2.4 Wemillion may redeem the notes in full or in part by paying premiums specified in the indenture governing our outstanding Senior Notes. The notes are senior unsecured obligations guaranteed by all of our existing and ~~future domestic subsidiaries~~$8.2 ~~The~~million ~~fair value~~ of ~~our~~unamortized ~~Senior~~original ~~Notes~~issue ~~was~~discount ~~approximately $183.6 million and $259.2 million~~ as of December 31, ~~2008~~2009 and ~~2007~~2008, respectively~~, based on quoted market prices~~.

On ~~December~~July 222, ~~2004~~2003, ~~Vought~~we ~~completed~~issued ~~the~~$270.0 million ~~syndication~~ of a8% ~~$650 million~~Senior ~~senior~~Notes ~~credit facility~~due 2011 (“~~Credit~~Senior ~~Facility~~Notes”) ~~pursuant~~with interest topayable ~~the~~on ~~terms~~January 15 and ~~conditions~~July 15 of aeach ~~Credit~~year, ~~Agreement~~beginning ~~dated December~~January 2215, 2004 ~~(“Credit Agreement”)~~. ~~The~~We ~~Credit~~may ~~Facility~~redeem the isnotes ~~comprised~~in offull aor ~~$150 million six-year~~in ~~revolving~~part ~~credit~~by ~~facility~~paying ~~(“Revolver”),~~premiums aspecified ~~$75 million~~in ~~synthetic~~the ~~letter~~indenture ofgoverning ~~credit facility~~our ~~and~~outstanding aSenior ~~$425 million~~Notes. ~~seven-year~~The ~~term~~notes ~~loan~~are Bsenior ~~(“Term~~unsecured ~~Loan”).~~obligations ~~The~~guaranteed ~~proceeds~~by ~~were~~all ~~used~~of ~~to refinance~~ our ~~previous~~existing ~~credit~~and ~~facility~~future ~~and~~domestic ~~for~~subsidiaries. ~~general~~The ~~corporate~~fair ~~purposes,~~value ~~including~~of ~~investment~~our inSenior ~~the~~Notes ~~Boeing~~was ~~787~~approximately ~~program~~$269.7 million and ~~the execution of the manufacturing facility consolidation and modernization plan~~$183.6 million ~~The Credit~~as ~~Facility is guaranteed by each~~ of ~~our~~December 31, ~~domestic~~2009 ~~subsidiaries~~ and ~~secured~~2008, byrespectively, abased ~~first~~on ~~priority~~quoted ~~security~~market ~~interest in most of our assets~~prices.

The initial pricing of any drawn portion of the Revolver was LIBOR plus a spread of 250 basis points, and the pricing of the Term Loan was LIBOR plus a spread of 250 basis points, in each case subject to a leverage-based pricing grid. The initial pricing for the Letter of Credit Facility was 260 basis points on the full deposit amount. The Term Loan amortizes at $1 million per quarter with a bullet payment at the maturity date of December 22, 2011. Under the Credit Agreement, we had the option to solicit from existing or new lenders up to $200 million in additional term loans subject to substantially the same terms and conditions as the outstanding loan though pricing was subject to negotiation at that time. Additionally, as of December 31, 2008, we had 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.

On We ~~May~~entered into a $650.0 6,million ~~2008,~~senior wecredit ~~exercised~~facility ~~our~~(“Credit ~~option~~Facility”) ~~under~~pursuant ~~the~~to a credit agreement dated December 22, 2004 (“Credit Agreement”). ~~and~~Upon ~~borrowed~~issuance, anthe ~~additional~~Credit Facility was comprised of a $~~200~~150.0 million ofsix ~~term~~year ~~loans~~revolving ~~pursuant~~loan to(“Revolver”), ~~our~~a ~~existing~~$75.0 million ~~senior~~synthetic letter of credit ~~facilities~~facility ~~(“Incremental Facility”)~~and a $425.0 million Weseven ~~received~~year ~~proceeds~~term ofloan ~~approximately~~B. Initially, the seven year term loan B amortized at $~~184~~1.60 million ~~from~~per quarter with a final payment at the ~~Incremental~~maturity ~~Facility~~date ~~net~~of December 22, 2011. The Credit Facility is guaranteed by each of our domestic subsidiaries and secured by a ~~$10~~first priority security interest in most of our assets.~~0 million~~ ~~original~~We ~~issue~~are ~~discount~~obligated ~~and~~to $pay an annual commitment fee on the unused Revolver of 0.5% or less dependent upon the leverage ratio.4 The interest rate on the Term Loan at December ~~million~~31, 2009 was 7.5%, while the interest rate paid on the Letter of ~~debt~~Credit ~~origination~~is ~~costs~~fixed at 2.6%. As of December 31, to2009 beand ~~used~~2008, we believe the carrying ~~for~~value ~~general~~of ~~corporate~~the ~~purposes~~outstanding debt under the senior credit facility approximates the fair value of the outstanding debt.

~~After~~ On ~~the~~May 6, ~~incurrence~~2008, we borrowed an additional $200.0 million of ~~the~~term ~~indebtedness~~loans ~~under~~pursuant to our existing senior credit facilities (the “Incremental Facility,”). We received net proceeds of approximately $~~608~~184.16 million ~~was outstanding~~from asthe ofIncremental ~~December 31,~~Facility ~~2008~~net ~~under~~of ~~our~~a ~~senior~~$10.0 million ~~credit~~original ~~facilities~~issue discount ~~excluding~~and $85.24 million of ~~unamortized~~ ~~original~~debt ~~issue~~origination ~~discount~~costs, ~~associated~~to ~~with~~be ~~the~~used ~~Incremental~~for ~~Facility.~~general corporate purposes. The interest rates per annum applicable to the Incremental Facility ~~are~~were, at our option, the ABR or Eurodollar Base Rate plus, in each case, an applicable margin equal to 3.00% for ABR loans and 4.00% for Eurodollar Base Rate loans, subject to a Eurodollar Base Rate floor of 3.50%. During the fiscal year ended December 31, 2009, we paid down $355.0 million of outstanding term loans including a portion of the Incremental Facility. Additionally, we expensed $2.0 million of debt issuance costs and $3.7 million of original issue discount related to the pay down of the Incremental Facility. Our effective interest ~~rate~~rates on the Incremental Facility for the ~~year~~years ended December 31, 2009 and 2008 ~~was~~were 15.2% and 10.3%, respectively. However, excluding the impact of $5.7 million of debt issuance costs and original issue discount, the effective interest rates were 10.9% and 10.3% for the years ended December 31, 2009 and 2008, respectively.

Except for amortization and interest rate, the terms of the Incremental Facility, ~~including~~upon issuance, including mandatory prepayments, representations and warranties, covenants and events of default, ~~are~~were the same as those applicable to the existing term loans under our senior credit facilities and all references to our senior credit facilities ~~shall~~included ~~include~~ the Incremental Facility. The term loans under the Incremental Facility ~~will~~were beinitially repayable in equal quarterly installments of $470,000 ~~starting on September 30~~, ~~2008,~~ with the balance due on December 22, 2011.

~~Our~~ On ~~total outstanding long-term debt as of December~~January 31, ~~2008 was approximately $878.1 million~~2009, ~~which~~ ~~included~~under ~~$608.1 million~~the ~~incurred~~terms ~~under~~of our ~~senior~~ credit ~~facilities~~agreement, ~~and~~we ~~$270.0 million~~exercised ~~of Senior~~our ~~Notes.~~option ~~The~~to convert $~~599~~25.90 million ~~balance~~of ~~under our senior credit facilities reflected on~~ the ~~Consolidated~~ ~~Balance~~synthetic ~~Sheet~~letter ~~is net~~ of ~~$8.2 million~~credit offacility ~~unamortized~~to ~~original~~a ~~issue~~term ~~discount associated with the Incremental Facility~~loan. InThe ~~addition, we had~~ $4925.70 million ~~in outstanding letters of credit~~ ~~under~~term ~~the~~loan ~~$75 million~~is ~~synthetic~~subject ~~facility. We are obligated~~ to ~~pay an annual commitment fee on~~ the ~~unused~~ ~~Revolver~~same ofterms ~~0.5%~~and orconditions ~~less~~as ~~dependent upon~~ the ~~leverage~~outstanding ~~ratio.~~term ~~The~~loans ~~interest~~made ~~rate~~as ~~on the Term~~of ~~Loan at~~ December ~~31,~~2004. ~~2008~~As ~~was~~a ~~3.94%~~result, ~~while~~our ~~the~~limit ~~interest~~under ~~rate~~the ~~paid~~synthetic onletter ~~the~~of ~~Letter~~credit offacility ~~Credit~~was isreduced ~~fixed~~to ~~at 2~~$50.6%0 million.

On ~~January~~July 3130, 2009, we ~~exercised~~entered into an Amendment to our ~~option~~Credit Agreement (“Amendment”) which modified the Credit Agreement to ~~convert~~allow the sale of the Charleston 787 business (discussed in Note 3 — Discontinued Operations) and provided for use of cash proceeds from the transaction to (i) pay down $25355.0 million of term loans outstanding and (ii) repay outstanding amounts on our ~~Letter~~revolver of ~~Credit~~ ~~Facility~~$135.0 million and to anpermanently ~~outstanding~~reduce ~~term~~revolving ~~loan.~~commitments ~~The~~under ~~terms~~the ~~and~~Credit ~~conditions~~Agreement ofto ~~this~~$100.0 million. ~~term~~The ~~loan~~Amendment ~~are~~converted ~~substantially~~ the ~~same~~synthetic ~~terms~~letter asof credit facility under the ~~December 2004~~Credit Agreement into additional term loan. ~~Also~~of $50.0 million, as a ~~result~~portion of ~~this~~which ~~additional~~is ~~term~~used ~~loan,~~as ~~our~~cash collateral ~~limit~~for letters of credit previously issued under the synthetic letter of credit facility. This term loan is ~~now~~repayable on December 22, 2010. As of December 31, 2009, the cash restricted as collateral for outstanding letters of credit was $5043.8 million. The Amendment increased the interest rate on all loans to London Interbank Offering Rate (LIBOR) plus a margin of 4.00%, with a minimum LIBOR floor of 3.50%.

~~Although~~ Under wethe ~~periodically~~terms ~~used~~of the ~~Revolver~~senior ~~during~~credit ~~2008~~facility, we are required to ~~meet~~prepay ~~working~~or ~~capital~~refinance ~~requirements,~~any asamounts outstanding of ~~December~~our $270.0 ~~31,~~million ~~2008,~~Senior weNotes ~~had~~by nothe ~~borrowings~~last ~~outstanding.~~business ~~However,~~day as of ~~March 12,~~2010 ~~2009,~~or we ~~had~~must repay the aggregate amount of loans outstanding ~~borrowings~~at that time under the senior credit facility unless a lender waives such prepayment (so long as a majority of ~~$135.0 million~~our lenders (voting on a class basis) agree to such waiver). Because of the requirement to refinance the Senior Notes, the amounts outstanding under our ~~revolver~~senior credit facility have been classified as a current liability as of December 31, 2009.

We On ~~collateralized~~March 23, 2010, we entered into a merger agreement with Triumph Group, Inc. pursuant to which we will be acquired by Triumph. It is anticipated that in connection with that transaction all of our ~~credit~~currently ~~facility~~outstanding ~~obligations~~material byindebtedness ~~granting~~will tobe repaid in full. The consummation of the ~~collateral~~acquisition ~~agent~~is subject to, ~~for~~ ~~the~~among ~~benefit~~other things, approval of ~~collateralized~~Triumph’s ~~parties~~stockholders and other customary closing conditions, awhich ~~first~~may ~~priority~~not ~~lien~~be onsatisfied. ~~certain~~In ofthe ~~our~~event ~~assets~~that the anticipated acquisition is not completed and such indebtedness remains outstanding, we plan to refinance our ~~including~~senior acredit ~~pledge~~facility ofor ~~all~~the ofSenior Notes prior to the ~~capital~~last ~~stock~~business day of ~~each~~2010. ofThere ~~our~~are ~~domestic~~no assurances ~~subsidiaries~~that ~~and~~we ~~65%~~will ofbe able to refinance on commercially reasonable terms or at all. This ofcreates ~~the~~an ~~capital~~uncertainty ~~stock~~about ofour ~~each~~ability ofto ~~our~~continue ~~foreign~~as ~~subsidiaries~~a going concern. Notwithstanding this, ifthe consolidated ~~created~~financial instatements ~~future~~and ~~years~~related notes have been prepared assuming that we will continue as a going concern.

The Credit Facility requires us to maintain and report quarterly debt covenant ratios defined in the senior credit agreement, including financial covenants relating to interest coverage ratio, leverage ratio and maximum consolidated capital expenditures. As of December 31, 2008, we were in compliance with the covenants in the indenture governing our notes and senior credit facilities.

Interest expense for both the Credit Facility and $270 million Senior Notes was $61.4 million, $59.5 million and $61.4 million for the years ended December 31, 2008, 2007, and 2006, respectively. Capitalized debt origination costs of $12.4 million, net for the period December 31, 2008, are being amortized over the terms of the related bond debt, Term Loan, Incremental Facility and Revolver. Amortization of debt origination costs was $5.8 million for the year ended December 31, 2008 and $3.1 million for the years ended December 31, 2007 and 2006. Scheduled maturities of debt are as follows at December 31, 2008:

Year ended December 31:	(in millions)
2009	$	5.9
2010		5.9
2011		866.3
Total	$	878.1

We ~~believe~~collateralized ~~that~~all ~~cash~~of ~~flow~~our ~~from~~credit ~~operations,~~facility ~~cash~~obligations ~~and~~by ~~cash~~granting ~~equivalents~~to onthe ~~hand~~collateral ~~and funds~~agent, ~~available~~for ~~under~~ the ~~revolving~~benefit ~~portion~~ of ~~our~~collateralized ~~credit~~parties, ~~facility~~a ~~will~~first ~~provide~~priority ~~adequate~~lien ~~funds~~on ~~for~~certain of our ~~ongoing~~ ~~working capital expenditures~~assets, including ~~pension~~a ~~contributions~~pledge ~~and~~of ~~near~~all ~~term~~of ~~debt~~the ~~service~~capital ~~obligations allowing~~stock usof toeach ~~meet~~of our ~~current~~domestic ~~contractual~~subsidiaries ~~commitments~~and ~~for~~65% atof ~~least~~all of the ~~next~~capital ~~twelve~~stock ~~months. However,~~of weeach ~~expect~~of toour ~~need~~foreign ~~additional~~subsidiaries, ~~funding~~if ~~from~~created ~~the~~in ~~customer~~future oryears. ~~other~~In ~~third~~August 2009, ~~party~~Barclay’s ~~sources~~Bank ~~to participate~~PLC inreplaced ~~the~~Lehman ~~787~~Commercial ~~program~~Paper, ~~including~~Inc. ~~future~~as ~~derivatives~~the oradministrative ~~other~~and collateral ~~787~~agent ~~contract~~under ~~modifications requested~~our byexisting ~~Boeing~~senior credit facilities.

The Credit Facility requires us to maintain and report quarterly debt covenant ratios defined in the senior credit agreement, including financial covenants relating to interest coverage ratio, leverage ratio and maximum consolidated capital expenditures. As of December 31, 2009, we were in compliance with the covenants in the indenture governing our notes and senior credit facilities.

The components of Interest expense were as follows for the fiscal years ended December 31:


	2009			2008		2007
	(in millions)
Interest incurred	$	51.0		$	61.4	$	59.5
Capitalized interest (a)		(7.1	)		—		—
Debt origination costs and debt discount		13.1			5.8		3.1

Interest expense	$	57.0		$	67.2	$	62.6


(a)		During the fiscal year ended December 31, 2009, we capitalized approximately $5.6 million of interest costs related to our assets-under-construction balance that were expensed in fiscal periods prior to 2009 in error. We also recorded a corresponding $1.9 million adjustment to increase depreciation expense, which was recorded to cost of sales during the fiscal year ended December 31, 2009. The total impact on net income from these adjustments was approximately $3.7 million. The capitalization also increased our fixed assets, net balance by $3.7 million. Additionally, during the year ended December 31, 2009, we capitalized interest costs of $1.5 million related to our current assets-under-construction balance.

Scheduled maturities of debt are as follows at December 31, 2009:


Year ended December 31:	(in millions)
2010		322.2
2011		270.0

Total	$	592.2

We believe that cash flow from operations, cash and cash equivalents on hand and funds that will be raised as part of a refinancing or restructuring of our senior credit facility and Senior Notes will provide adequate funding for our ongoing working capital expenditures, pension contributions and capital investments required to meet our current contractual and legal commitments for at least the next twelve months. However, there is no assurance that we can refinance the Senior Notes or the senior credit facility prior to the last business day of 2010.

13. FAIR VALUE MEASUREMENTS

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

• Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. • Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

	•		Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

	•		Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

As of December 31, 2008, we had $86.4 million of short term investments, primarily money market funds, reflected in our cash and cash equivalents balance on our Consolidated Balance Sheet. The fair value determination of this asset involves level 1inputs.

14. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

We sponsor several defined benefit pension plans covering a large percentage of our employees. Certain employee groups are ineligible to participate in the plans or have ceased to accrue additional benefits under the plans based upon their company service or years of service accrued under the plans. Benefits under the defined benefit plans are based on years of service and, for most non-represented employees, on average compensation for certain years. It is our policy to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under U.S. Government regulations, by making payments into a trust separate from us.

We also sponsor defined contribution savings plans for several employee groups. We make contributions for non-represented participants in these plans based on a matching of employee contributions up to 4% of eligible compensation, for the majority of our non-represented employees. We also make additional contributions of at least 3% of eligible compensation for certain employee groups who are not eligible to participate in or accrue additional service under the defined benefit pension plans.

In addition to our defined benefit pension plans and defined contribution savings plan, we provide certain healthcare and life insurance benefits for eligible retired employees. Such benefits are unfunded as of December 31, 2008. Employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet specified age and years of service requirements. Election to participate for some employees must be made at the date of retirement. Qualifying dependents at the date of retirement are also eligible for medical coverage. Current plan documents reserve our right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees. From time to time, we have made changes to the benefits provided to various groups of plan participants. Premiums charged to most retirees for medical coverage prior to age 65 are based on years of service and are adjusted annually for changes in the cost of the plans as determined by an independent actuary. In addition to this medical inflation cost-sharing feature, the plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, schedules of reasonable fees, preferred provider networks, coordination of benefits with other plans and a Medicare carve-out.

In• ~~accordance~~Level ~~with~~3: ~~SFAS~~Unobservable ~~No. 158,~~inputs ~~Employer’s~~that ~~Accounting~~reflect ~~for Defined Benefit Pension and Other Postretirement Plans—an Amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS No. 158) we initially recognized~~ the ~~funded~~reporting status of our benefit obligation in its statement of financial position as of December 31, 2007. This funded status was remeasured for some plans as of March 31, 2008 due to plan amendments and for all plans as of December 31, 2008, our annual remeasurement date. The funded status is measured as the difference between the fair value of the planentity’s ~~assets and~~own ~~the projected benefit obligation (PBO) or accumulated postretirement benefit obligation (APBO) of the plan~~assumptions. 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 market price as of the date of remeasurement. Investments that are not publicly traded were valued based on the estimated fair value of those investments as of December 31, 2008 based on our evaluation of data from fund managers and comparable market data.

~~The~~ As ~~unrecognized~~of ~~amounts~~December 31, ~~recorded~~2009 inand ~~accumulated~~2008, ~~other~~we ~~comprehensive~~had ~~loss will be subsequently recognized as net periodic benefit plan cost consistent with our historical accounting policy for amortizing those amounts~~$115.0 million ~~Included~~and ~~in accumulated other comprehensive loss at December~~$86.4 31million, ~~2008~~respectively, of ~~are~~short ~~the~~term ~~following~~investments, ~~amounts~~primarily ~~that~~money ~~have~~market ~~not~~funds, ~~yet~~reflected ~~been recognized~~ in ~~net~~our ~~periodic~~cash ~~benefit~~and ~~plan~~cash ~~cost:~~equivalents ~~unrecognized~~balance ~~prior~~on ~~service~~our ~~costs~~Consolidated ofBalance ~~$(27~~Sheet.7) ~~million~~The ~~and~~fair ~~unrecognized~~value ~~actuarial~~determination ~~losses~~ of ~~$879.7 million.~~this ~~Prior~~asset ~~service costs and actuarial losses expected to be recognized in net periodic benefit~~involves ~~plan~~Level ~~cost~~2 ~~during 2009 are $(10~~inputs.~~5) million and $41.4 million, respectively.~~

Our deferred compensation liability to former executives is based on the most recently obtained fair value of our common stock. As of December 31, 2007, the fair value determination of the $3.8 million deferred compensation liability involved Level 3 inputs. During 2008, we recorded a $1.9 million reduction in the deferred compensation liability balance due to unrealized losses related to the fair value of our common stock. As a result, the deferred compensation liability was $1.9 million as of December 31, 2008. During 2009, we recorded a $0.2 million increase in the deferred compensation liability balance due to unrealized gains related to the fair value of our common stock. As a result, the deferred compensation liability was $2.1 million as of December 31, 2009.

14. PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

We sponsor several defined benefit pension plans covering some of our employees. Certain employee groups are ineligible to participate in the plans or have ceased to accrue additional benefits under the plans based upon their company service or years of service accrued under the plans. Benefits under the defined benefit plans are based on years of service and, for most non-represented employees, on average compensation for certain years. It is our policy to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under U.S. Government regulations, by making payments into a trust separate from us.

We also sponsor defined contribution savings plans for several employee groups. We make contributions for participants in these plans based on a matching of employee contributions up to 4% of eligible compensation, for the majority of our employees. We also make additional contributions of at least 3% of eligible compensation for certain employee groups who are not eligible to participate in or accrue additional service under the defined benefit pension plans.

In addition to our defined benefit pension plans and defined contribution savings plan, we provide certain healthcare and life insurance benefits for eligible retired employees. Such benefits are unfunded as of December 31, 2009. Employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet specified age and years of service requirements. Election to participate for some employees must be made at the date of retirement. Qualifying dependents at the date of retirement are also eligible for medical coverage. Current plan documents reserve our right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees. From time to time, we have made changes to the benefits provided to various groups of plan participants. Premiums charged to most retirees for medical coverage prior to age 65 are based on years of service and are adjusted annually for changes in the cost of the plans as determined by an independent actuary. In addition to this medical inflation cost-sharing feature, the plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, schedules of reasonable fees, preferred provider networks, coordination of benefits with other plans and a Medicare carve-out.

In accordance with the Compensation — Retirement Benefits topic of the ASC we recognized the funded status of our benefit obligation in our statement of financial position as of December 31, 2008. This funded status was remeasured for some plans as of January 31, 2009 and September 27, 2009 due to plan amendments and for all plans as of December 31, 2009, our annual remeasurement date. The funded status is measured as the difference between the fair value of the plan’s assets and the PBO or accumulated postretirement benefit obligation of the plan. 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 market price as of the date of remeasurement. Investments that are not publicly traded were valued based on the estimated fair value of those investments as of December 31, 2009 based on our evaluation of data from fund managers and comparable market data.

The unrecognized amounts recorded in accumulated other comprehensive loss will be subsequently recognized as net periodic benefit plan cost consistent with our historical accounting policy for amortizing those amounts. Included in accumulated other comprehensive loss at December 31, 2009 are the following amounts that have not yet been recognized in net periodic benefit plan cost: unrecognized prior service costs of $(37.6) million and unrecognized actuarial losses of $789.6 million. Prior service costs and actuarial losses expected to be recognized in net periodic benefit plan cost during 2010 are $(15.7) million and $55.5 million, respectively.

Benefit Plan Obligations and Assets

The following table sets forth the benefit plan obligations, assets, funded status and ~~amounts~~ amounts recorded in the consolidated balance sheet for our defined benefit pension and retiree ~~healthcare~~ healthcare and life insurance plans. Pension plan assets consist primarily of equity securities, fixed income securities, private equity funds, infrastructure funds and real estate funds. Pension benefit data includes the qualified plans as well as an unfunded nonqualified plan that provides benefits to ~~directors,~~ officers and employees either beyond those provided by, or payable under, our main plans. All of the defined benefit pension plans had obligations that exceeded the fair value of their assets. We use December 31 as our measurement date.

	Pension Benefits						Other Post-retirement Benefits
	Years Ended						Years Ended
	December 31,						December 31,
	2008			2007			2008			2007
	2009			2008			2009			2008
	($ in millions)			~~($ in millions)~~
Change in projected benefit obligation:
Beginning balance	$	1,~~813~~848.95		$	1,~~771~~813.49		$	~~529~~447.23		$	~~580~~529.62
Service cost		18.1			1918.71			43.73			5.4.7
Interest cost		~~111~~115.81			~~105~~111.08			2724.81			3127.8
Contributions by plan participants		—			—			5.80			75.18
Actuarial (gains) and losses		2485.58			~~(21~~24.75	)		(327.1	)		(932.81	)
Benefits paid		(~~120~~123.3	)		(~~119~~120.3	)		(4443.85	)		(5344.78	)
Plan amendments		0.8.4			710.78			(4330.34	)		(3243.23	)
Curtailments/Settlements		(05.42	)		(120.94	)		—3.4			—
Special termination benefits		0.15			—0.1			—0.2			—
Projected Benefit obligation at end of period	$	1,~~848~~958.53		$	1,~~813~~848.95		$	~~447~~402.3		$	~~529~~447.23
Accumulated Benefit Obligation at end of Year	$	1,~~792~~891.20		$	1,~~755~~792.12		$	~~447~~402.3		$	~~529~~447.23
Assumptions used to determine Benefit Obligation:
Discount rate		6.2707	%		6.2427	%		65.2660	%		6.0726	%
Rate of compensation increase		4.00	%		4.00	%		N/A			N/A
Change in fair value of plan assets:
Beginning balance	$	1,~~452~~137.05		$	1,~~434~~452.30		$	—		$	—
Actual return on assets		~~(318~~249.76	)		84(318.7	)		—			—
Contributions by plan participants		—			—			5.80			75.18
Contributions by employer		~~124~~78.98			65124.29			3938.05			4639.60
Benefits paid		(~~120~~123.3	)		(~~119~~120.3	)		(4443.85	)		(5344.78	)
Settlements		~~(0.4~~—	)		(120.94	)		—			—
Other		—			—			—			—
Ending balance	$	1,~~137~~342.56		$	1,~~452~~137.05		$	—		$	—
Reconciliation of amounts recognized to the consolidated balance sheet:
Accrued benefit liability—current		(0.3.5	)		(0.73	)		(4237.04	)		(4742.20	)
Accrued benefit liability—long-term		(~~710~~612.72	)		(~~361~~710.27	)		(~~405~~364.39	)		(~~482~~405.03	)
Funded status (deficit)	$	(~~711~~615.07	)	$	(~~361~~711.90	)	$	(~~447~~402.3	)	$	(~~529~~447.23	)
Unrecognized actuarial loss		~~821~~740.4			~~386~~821.84			5849.32			9358.83
Unamortized prior service cost		7468.46			8574.54			(~~102~~106.12	)		(79102.21	)
Accumulated other comprehensive loss	$	~~895~~809.80		$	~~472~~895.38		$	(4357.80	)	$	14(43.68	)

Net Periodic Benefit Plan Costs

The components of net periodic benefit costs, including special charges for our post-retirement benefit plans, are shown in the following table:

	Pension Benefits									Other Post-retirement Benefits
	December 31,									December 31,
	2008			2007			2006			2008			2007			2006
	2009			2008			2007			2009			2008			2007
							(in millions)
Components of net periodic benefit cost (income):
Service cost	$	18.1		$	1918.71		$	2319.97		$	43.73		$	5.4.7		$	65.04
Interest cost		~~111~~115.81			~~105~~111.08			105.80			2724.81			3127.8			3231.98
Expected return on plan assets		(~~124~~125.06	)		(~~117~~124.50	)		(~~114~~117.35	)		—			—			—
Amortization of net (gain) loss		3242.48			3532.64			4835.76			32.30			43.83			64.98
Amortization of prior service cost		1112.94			611.09			46.10			(2026.41	)		(1020.84	)		(910.28	)
Prior service cost recognized — curtailment		—1.9			~~2.1~~—			0.2.1			—(0.2	)		—			~~(8.5~~—	)
Special termination benefits		0.15			—0.1			~~0.9~~—			—0.2			—			~~0.7~~—
Plan settlement or curtailment (gain)/loss		05.2			60.52			(46.15	)		—3.4			—			~~(3.1~~—	)
Net periodic benefit cost	$	5070.54		$	5750.45		$	6557.24		$	156.47		$	3115.24		$	2531.72
Defined contribution plans cost	$	1920.20		$	719.12		$	67.41		$	—		$	—		$	—
Assumptions Used to Determine Net Periodic Benefit Costs:
Weighted Average Discount Rate for Year		6.2734	%		6.0727	%		56.9607	%		6.1449	%		56.9114	%		5.7391	%
Expected long-term rate of return on assets		8.50	%		8.50	%		8.50	%		N/A			N/A			N/A
Rate of compensation increases		4.00	%		4.00	%		4.00	%		N/A			N/A			N/A

We periodically experience events or make changes to our benefit plans that result in special charges. Some require remeasurements. The following summarizes the key events whose effects on our net periodic benefit cost and obligations are included in the tables above:

• The termination of our February 2004 site consolidation plan in April 2006 reduced our benefit obligations by $5.9 million. • The reduction in-force initiative in 2006 increased our pension and other post-retirement benefit obligations by $4.9 million. • The discontinuation of Post 65 medical benefits for certain retirees announced October 2005 reduced our other post-retirement benefit obligation by $86.8 million. • Pension settlement charges of $6.5 million ~~have~~were ~~been~~ recognized in 2007 relating to lump sum payments made under provisions of our non-qualified (“excess”) pension plan. • On September 30, 2007 our largest union-represented group of production and maintenance employees ratified the terms of a new three-year collective bargaining agreement. The new agreement provided for certain benefit changes, including a freeze in pension benefit accruals for employees who, as of December 31, 2007, had less than 16 years of bargaining unit seniority. Employees subject to the pension freeze, and any bargaining unit employees hired on or after October 1, 2007, receive a new defined contribution benefit. As a result of these changes, a curtailment charge of $2.1 million was recognized as part of 2007 net periodic pension benefit cost. The agreement also provides for certain modifications to the retiree medical benefits for bargaining unit retirees and eliminates retiree medical coverage for any bargaining unit employees hired after October 1, 2007. • Also in September 2007, we advised affected employees that the previously announced pension freeze affecting employees covered under the Company’s non-represented defined benefit pension plan would not apply to non-represented employees who, as of December 31, 2007, had at least 16 years vesting service under the terms of those plans. • The collective changes announced in September 2007 resulted in an estimated $39.0 million increase in the Projected Benefit Obligation and Accumulated Post-retirement Benefit Obligation of the affected plans and an estimated $6.0 million increase in annual pension expense.

• The collective changes announced in September 2007 resulted in an estimated $39.0 million increase in the Projected Benefit Obligation and Accumulated Post-retirement Benefit Obligation of the affected plans and an estimated $6.0 million increase in annual pension expense. • During February and April of 2008, two of our union represented groups ratified new collective bargaining agreements. Those agreements each provided for certain benefit changes, including a freeze in pension benefit accruals, effective December 31, 2008, for bargaining unit employees who, as of December 31, 2007, had less than 16 years of bargaining unit seniority. Employees subject to the pension freeze, and any bargaining unit employees hired on or after March 1, 2008 for the first group and April 1, 2008 for the second group, receive a defined contribution benefit. The agreements provided for a one-time retirement incentive program offered to eligible employees during 2008. The agreements also provided for certain modifications to the retiree medical benefits for bargaining unit retirees and eliminated retiree medical coverage for any bargaining unit employees hired on or after January 1, 2008. • Also, during 2008, we announced amendments to medical plans for two groups of non-represented retirees. Effective January 1, 2008, medical coverage for participants in those two groups was eliminated at age 65 and replaced with a fixed monthly stipend. • The aforementioned 2008 changes led to remeasurement of affected plans’ assets and obligations as of March 31, 2008, which resulted in a $14.9 million increase in unfunded liability for pension plans and a $44.1 million decrease in liability for the OPEB plans remeasured. • In late 2008, we announced amendments to the medical plans for certain non-represented retirees at our Nashville facility, effective January 1, 2009, which made changes to the plan design and the contribution methodology that resulted in a reduction to our accumulated post-retirement benefit obligation of $1.2 million. • During January of 2009, ~~our~~the IAM -represented employees at our Nashville facility ratified a new collective bargaining agreement. That agreement provides for certain benefit changes, including a freeze in pension benefit accruals, effective June 30, 2009, for bargaining unit employees who, as of that date, ~~have~~had less than 16 years of bargaining unit seniority. Employees subject to the pension freeze, and any bargaining unit employees hired on or after September 29, 2008, ~~will~~ receive a defined contribution benefit. The agreement provides for a one-time company paid retirement incentive program offered to eligible employees during 2009 and certain modifications to retiree medical benefits for bargaining unit retirees. These changes ~~will~~led beto ~~reflected in~~ a remeasurement of the affected plans’ assets and obligations as of January 31, 2009, which weincreased ~~estimate will decrease~~ our unfunded liability for ~~our~~the pension ~~plans~~plan by $1.85 million, ~~decrease~~decreased our liability for the OPEB ~~plans~~plan by $2932.07 million and ~~lead~~led to the immediate recognition of $9.56 million of net non-recurring charges due to a curtailment. • In September 2009, we announced amendments to medical plans for groups of non-represented, current retirees. Effective January 1, 2010, medical coverage for participants in two groups is eliminated at age 65 and replaced with a fixed monthly stipend. Those changes resulted in a reduction to our accumulated post-retirement benefit obligation for the OPEB plan of $8.9 million. • In December 2009, we announced the termination of our excess pension plan and a one time lump sum payment of accrued benefits to plan participants in December 2010. This change led to the immediate recognition of $0.7 million of non-recurring charges due to a curtailment.

Estimated Future Benefit Payments

The total estimated future benefit payments for the pension plans are expected to be paid from the plan assets and company funds. The other post-retirement plan benefit payments reflect our portion of the funding. Estimated future benefit payments from plan assets and company funds for the next ten years are as follows:

			Other Post-
	Pension		retirement
	Benefits		Benefits *
	($ in millions)
2009	$	126.6	$	43.3
2010	$	128.3	$	38.4
2010		127.8		42.6
2011		129.3		38.9
2011		128.5		42.1
2012		131.2		38.5
2012		130.2		41.2
2013		132.9		37.9
2013		131.5		40.3
2014		134.3		37.5
2014-2018		678.7		190.4
2015-2019		698.2		173.6

* Net of expected Medicare Part D subsidies of $2.64 -— $2.85 million per year. $23.91 million was received in ~~2008~~2009.

~~Asset~~Pension ~~Allocation~~Plan ~~and Investment Policy~~Assets

Pension plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long-term. The investment goals are to exceed the assumed actuarial rate of return over the long-term within reasonable and prudent levels of risk and to preserve the real purchasing power of assets to meet future obligations.

Liability studies are conducted on a regular basis to provide guidance in setting investment goals with an objective to balance risk. In order to balance expected risk and return, allocation targets are established and monitored against acceptable ranges. All investment policies and procedures are designed to ensure that the plans’ investments are in compliance with the Employee Retirement Income Security Act. Guidelines are established defining permitted investments within each asset class. Investment guidelines are specified for each investment manager to ensure that the investments made are within parameters for that asset class. Certain investments are not permitted at any time including investment in employer securities and uncovered short sales.

The actual allocations for the pension assets as of December 31, ~~2008~~2009 and ~~2007~~2008, and target allocations by asset category, are as follows:

	Percentage of Plan
	Assets at
	December 31,						Target
Pension Assets	~~2008~~2009			~~2007~~2008			Allocation
Public Equity Securities		54.2	%		53.6	%		53% - 61	%
Public equity		56.6	%		54.2	%	53% - 61%
Alternate Investment Funds		7.4	%		9.8	%		2% - 12	%
Alternate investment funds		6.8	%		7.4	%	2% - 12%
Fixed Income Securities		32.2	%		30.9	%		28% - 33	%
Fixed income		33.1	%		32.2	%	28% - 34%
Real Estate Funds		6.2	%		5.7	%		3% - 7	%
Real estate funds		3.5	%		6.2	%	3% - 7%
Total		100.0	%		100.0	%

~~Assumptions~~ The ~~and~~pension ~~Sensitivities~~assets are measured at fair value as of December 31, 2009. Fair value is typically determined using quoted market prices or other relevant information from observable market transactions involving comparable assets. When market prices are not readily available, the fair value is estimated based on an evaluation of data provided by fund managers related to the underlying value of fund assets along with a review of other market based comparable data.

The discount rate is determined annually as of each measurement date, based on a review of yield rates associated with long-term, high quality corporate bonds. The calculation separately discounts benefit payments using the spot rates from a long-term, high quality corporate bond yield curve. In 2006, 2007 and 2008, there were interim remeasurements for certain plans. The full year weighted average discount rates for pension and post retirement benefit plans in 2008 are 6.27% and 6.14%, respectively.

The ~~effect~~following oftable apresents 25our ~~basis~~categories ~~point~~of ~~change~~pension inplan ~~discount~~assets ~~rates~~ as of December 31, 2009 ~~2008~~and isthe ~~shown~~related levels of inputs in the fair value hierarchy, as defined in Note 13 — Fair ~~below~~Value Measurements, used to determine the fair value:

				Other
	December 31, 2009
				Post-retirement
	Level 1			Level 2			Level 3		Total
	Pension Benefit			Benefits
	($ in millions)
	($ in millions)
Assets
Increase of 25 basis points
Cash and cash equivalents	$	0.3		$	49.9		$	—	$	50.2
Obligation — December 31, 2008	$	(47.5	)	$	(9.0	)
Equity securities
Net periodic expense — 2009	$	(4.3	)	$	(0.3	)
International		53.3			222.4			—		275.7
Decrease of 25 basis points
US large cap		3.9			156.5			—		160.4
Obligation — December 31, 2008	$	48.7		$	9.1
US small cap		—			88.4			—		88.4
Net periodic expense — 2009	$	4.3		$	0.3
Mutual fund		—			167.1			—		167.1
Fixed income
Corporate bonds		—			9.2			—		9.2
Corporate bonds (S&P rating of A or higher)		—			82.6			—		82.6
Corporate bonds (S&P rating of lower than A)		—			195.9			—		195.9
Government securities		—			161.5			—		161.5
Mortgage backed securities		—			2.2			—		2.2
Other fixed income		—			7.9			—		7.9
Other investments
Futures		—			5.2			—		5.2
Private equity and infrastructure		—			—			94.1		94.1
Real estate		—			—			49.1		49.1
Swaps		—			97.1			—		97.1
Total investments in securities — assets	$	57.5		$	1,245.9		$	143.2	$	1,446.6
Liabilities
Cash and cash equivalents		(1.6	)		(1.5	)		—		(3.1	)
Other investments
Swaps		—			(56.8	)		—		(56.8	)
Total investments in securities — liabilities	$	(1.6	)	$	(58.3	)	$	—	$	(59.9	)
Net investments in securities	$	55.9		$	1,187.6		$	143.2	$	1,386.7
Receivables										21.2
Payables										(65.3	)
Total plan assets									$	1,342.6

Cash equivalents and other short-term investments, which are used to pay benefits, are primarily held in registered money market funds which are valued using a market approach based on the quoted market prices of identical instruments. Other cash equivalent and short-term investments are valued daily by the fund using a market approach with inputs that include quoted market prices for similar instruments.

Equity securities are primarily valued using a market approach based on the quoted market prices of identical or comparable instruments.

Fixed income securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades.

Other investments include the net unrealized gain/loss for our futures, the fair value of the swaps as well as private equity and real estate. Futures are financial contracts obligating us to purchase assets at a predetermined date and time. Swaps are an exchange of one security for another to change the maturity or the quality of the investments. Private equity and real estate values are estimated based on an evaluation of data provided by fund managers including valuations of the underlying investments derived using inputs such as cost, operating results, discounted future cash flows and market based comparable data.

The following table represents a rollforward of the December 31, 2008 balances and December 31, 2009 balances of our pension plan assets that are valued using Level 3 inputs:


						Net Realized		Net Unrealized
	12/31/08		Net Purchases			Appreciation		Appreciation			12/31/09
	Balance		(Sales)			(Depreciation)		(Depreciation)			Balance
	($ in millions)
Private equity funds	$	82.3	$	8.0		$	—	$	3.8		$	94.1
Real estate		69.8		(0.7	)		0.3		(20.3	)		49.1

Total	$	152.1	$	7.3		$	0.3	$	(16.5	)	$	143.2

Assumptions and Sensitivities

The discount rate is determined annually as of each measurement date, based on a review of yield rates associated with long-term, high quality corporate bonds. The calculation separately discounts benefit payments using the spot rates from a long-term, high quality corporate bond yield curve. In 2007, 2008 and 2009, there were interim remeasurements for certain plans. The full year weighted average discount rates for pension and post retirement benefit plans in 2009 are 6.34% and 6.49%, respectively.

The effect of a 25 basis point change in discount rates as of December 31, 2009 is shown below:


				Other
				Post-retirement
	Pension Benefit			Benefits
	($ in millions)
Increase of 25 basis points
Obligation — December 31, 2009	$	(52.2	)	$	(7.4	)
Net periodic expense – 2010	$	(4.6	)	$	(0.1	)

Decrease of 25 basis points
Obligation — December 31, 2009	$	53.7		$	7.6
Net periodic expense – 2010	$	4.4		$	0.1

The long-term rate of return assumption represents the expected average rate of earnings on the funds invested to provide for the benefits included in the benefit obligations. The long-term rate of return assumption is determined based on a number of factors, including historical market index returns, the anticipated long-term asset allocation of the plans, historical plan return data, plan expenses and the potential to outperform market index returns. The expected long-term rate of return on assets was 8.5%.

A significant factor used in estimating future per capita cost of covered healthcare benefits for our retirees and us is the healthcare cost trend rate assumption. The rate used at December 31, ~~2008~~2009 was 8.0% ~~for 2009~~ and is assumed to decrease gradually to 4.5% by ~~2014~~2015 and remain at that ~~level~~ level thereafter. The effect of a one-percentage point change in the healthcare cost trend rate in ~~each~~ each year is shown below:

	Other Post-retirement Benefits
	One Percentage		One Percentage
	Point Increase		Point Decrease
	($ in millions)
Net periodic expense (service and interest cost)	$	10.98	$	(10.7	)
Obligation	$	2611.86	$	(2310.15	)

~~Pension Protection Act of 2006~~74

TheTable Pension Protection Act of 2006 was signed into law on August 17, 2006. The law significantly changed the rules used to determine minimum funding requirements for qualified defined benefit pension plans. The funding target for defined benefit plans contained in the law is 100% of the present value of all benefit liabilities accrued to date. We anticipate that the funded status as of January 1, 2009 will be less than 80%. Certain benefit restrictions will then become effective as of April 1, 2009 for one pension plan. Contents

Pension Plan Funding

We estimate that our total pension plan contributions in ~~2009~~2010 will be approximately $84102.7 million. This amount reflects the effects of ~~the~~relevant ~~recent~~ pension legislation. No plan assets are expected to be returned to us in ~~2009~~2010.

15. INCOME TAXES

In accordance with industry practice, we ~~classify~~classified state and local income and franchise tax provisions as general and administrative expenses in 2008 and 2007. The total amount of taxes included in general and administrative expense was approximately $(196,000), ~~$947,000~~ and $~~422~~947,000 for the years ended December 31, 2008, ~~2007~~ and ~~2006~~2007, respectively. State and local income tax included in these totals was approximately $(310,000), and $350,000, ~~and~~respectively. Beginning in 2009, state income taxes are being provided as part of our tax provision. Non-income taxes of $9331,~~500,~~000 ~~respectively~~were included in general and administrative expense for 2009.

73 During the fourth quarter, the President signed into law the Workers, Homeownership and Business Assistance Act of 2009. The Law provides for a suspension of certain limitations on Alternative Minimum Tax net operating losses. Prior to the Law being enacted, we had estimated a $9.1 million federal AMT liability incurred in connection with the sale of 787, and had allocated that expense to discontinued operations. The Law has enabled the Company to fully utilize net operating losses and therefore we will not owe AMT for the year. The Income Taxes topic of the ASC requires that tax law changes be allocated to continuing operations, therefore we recorded a $9.1 million benefit to offset the related expense in discontinued operations. State income tax of $8.0 million is also being allocated to discontinued operations as part of the tax provision for 2009. State income tax expense of $0.2 million is reflected in the 2009 tax provision for continuing operations.

We were also able to carryback our 2008 AMT net operating loss to recover $0.4 million of previously paid AMT taxes. We have recorded this as a tax benefit in the tax provision.

The provisions for federal and state income taxes beginning in 2009 differs from the U.S. statutory rate as follows:


				Years Ended
	December 31,
	2009			2008			2007
Tax at statutory rate		35.0	%		35.0	%		35.0	%
Medicare Part D Subsidy		(0.4	%)		(1.0	%)		(3.5	%)
Amount of Refund and Other		0.0	%		0.6	%		1.0	%
State taxes		0.2	%		0.0	%		0.0	%
Tax effect of law change		(8.6	%)		0.0	%		0.0	%
Change in valuation allowance		(35.0	%)		(34.6	%)		(32.5	%)

Total		(8.8	%)		0.0	%		0.0	%

The provisions for federal income taxes differ from the U.S. statutory rate as follows:

	Years Ended
	December 31,
	2008			2007			2006
Tax at statutory rate		35.0	%		35.0	%		(35.0	%)
Medicare Part D Subsidy		(1.0	%)		(3.5	%)		(5.6	%)
Amount of Refund and Other		0.6	%		1.0	%		(4.0	%)
Change in valuation allowance		(34.6	%)		(32.5	%)		39.7	%
Total		0.0	%		0.0	%		(4.9	%)

The deferred income taxes consisted of the following at December 31:

	2008			2007
	2009			2008
	($ in millions)
ASSETS:
Accrued contract liabilities	$	5.75		$	205.97
Accrued vacation		5.04			45.40
Pension liability		~~287~~263.13			~~171~~287.01
Other post retirement benefits		~~162~~155.62			~~194~~162.46
Net operating loss carryforwards and credits		205.0			169.4
Federal and State net operating loss carryforwards and credits		65.5			205.0
Other non-deductible expenses		24.16			2024.41
Goodwill and intangibles		920.01			—9.0
Deferred tax assets	$	698.5		$	580.5
Other		0.9			—
Deferred tax assets	$	540.5		$	698.5
LIABILITIES:
Inventory		(3747.28	)		(1337.52	)
Goodwill and intangibles		—			(3.8	)
Property, plant and equipment		(36.1	)		(43.8	)
Property, plant and equipment		(43.8	)		(37.8	)
Other		—			(2.2	)
Other		(2.2	)		(2.5	)
Deferred tax liabilities	$	(83.9	)	$	(83.2	)
Deferred tax liabilities	$	(83.2	)	$	(57.6	)
Net deferred tax assets		456.6			615.3
Net deferred tax assets		615.3			522.9
Valuation allowance		(456.6	)		(615.3	)
Valuation allowance		(615.3	)		(522.9	)
Net deferred tax asset (liability)	$	—		$	—

74 At December 31, 2009, we had the following net operating loss carryforwards for federal income tax purposes:


	Balance at
	December 31,
Year of Expiration	2009
	(in millions)
2025	$	11.2
2026		33.3
2028		125.9

Total	$	170.4

At We ~~December 31,~~have ~~2008,~~a wetax ~~had~~credit ~~the~~carryforward ~~following~~related ~~net~~to ~~operating~~alternative ~~loss~~minimum ~~carryforwards~~taxes ~~for~~of ~~federal~~$0.1 million. ~~income~~This ~~tax~~credit ~~purposes:~~is available to offset future regular taxable income and carries forward indefinitely.

	Balance at
	December 31,
Year of Expiration	2008
	(in millions)
2011	$	2.4
2017		34.0
2018		45.8
2020		10.6
2022		42.5
2024		95.6
2025		219.9
2026		33.4
2028		123.5
Total	$	607.7

We have a tax credit carryforward related to alternative minimum taxes of $0.5 million. This credit is available to offset future regular taxable income and carries forward indefinitely.

Due to the uncertain nature of the ultimate realization of the deferred tax assets, we have established a valuation allowance against these future benefits and will recognize benefits only as reassessment demonstrates they are more likely than not to be realized. The valuation allowance has been recorded in income and equity (for items of comprehensive loss) as appropriate.

~~FIN 48 Adoption~~76

We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. Because we were in a cumulative net operating loss position, there was no material impact to our consolidated financial position at the date of adoption. The cumulative effects of applying this interpretation resulted in an unrecognized tax benefit of $3.6 million which caused a reduction of the net operating losses deferred tax asset and a corresponding reduction in the valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Year Ended December 31,
	2008			2007
	($ in millions)
Beginning balance	$	5.5		$	3.6
Additions based on tax positions related to the current year		3.4			3.4
Additions for tax positions of prior years		0.2			0.2
Reductions for tax positions of prior years		(0.9	)		(1.7	)
Settlements		—			—
Ending balance	$	8.2		$	5.5

Included in the balance at December 31, 2008 are $8.2 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The resolution of the unrecognized tax position would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. We recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in indirect expenses. We have no material amounts of interest and penalties related to unrecognized tax benefits accrued.

WeTax ~~file income tax returns in the U.S. federal jurisdiction and various state jurisdictions.~~Positions As of December 31, 2008, we were subject to examination by the Internal Revenue Service in the U.S. federal tax jurisdiction for the 2000-2008 tax years. We are also subject to examination in various state jurisdictions for the 2000-2008 tax years, none of which were individually material. State tax liabilities will be adjusted to account for changes in federal taxable income, as well as any adjustments in subsequent years, as those years are ultimately resolved with the IRS.

In accordance with the Income Taxes topic of the ASC we recorded an unrecognized tax benefit of $3.6 million which caused a reduction of the net operating losses deferred tax asset and a corresponding reduction in the valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	Year Ended December 31,
	2009			2008
	($ in millions)
Beginning balance	$	8.2		$	5.5
Additions based on tax positions related to the current year		0.1			3.4
Additions for tax positions of prior years		0.1			0.2
Reductions for tax positions of prior years		(6.6	)		(0.9	)

Ending balance	$	1.8		$	8.2

Included in the balance at December 31, 2009 are $1.8 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The resolution of the unrecognized tax position would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. We recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in indirect expenses. We have no material amounts of interest and penalties related to unrecognized tax benefits accrued.

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. As of December 31, 2009, we were subject to examination by the Internal Revenue Service in the U.S. federal tax jurisdiction for the 2000-2009 tax years. We are also subject to examination in various state jurisdictions for the 2000-2009 tax years, none of which were individually material. State tax liabilities will be adjusted to account for changes in federal taxable income, as well as any adjustments in subsequent years, as those years are ultimately resolved with the IRS.

16. STOCKHOLDERS’ EQUITY

As of December 31, ~~2008~~2009, we maintained ~~two~~a stock option ~~plans~~plan and ~~one~~an incentive award plan ~~under~~ under which we have issued equity-based awards to our employees and our directors.

2001~~/2003~~ Stock Option Plans

During 2001, we adopted the Amended and Restated 2001 Stock Option Plan of Vought Aircraft Industries, Inc., under which 1,500,000 shares of common stock were reserved for issuance for the purpose of providing incentives to employees and directors (the “2001 Stock Option Plan”). Options granted under the plan generally vest within 10 years, but were subject to accelerated vesting based on the ability to meet company performance targets. The incentive options granted to our employees are intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code. At December 31, ~~2008~~2009, options granted and outstanding from the 2001 Stock Option Plan to employees and directors amounted to ~~547~~520,~~100~~200 shares of which ~~479~~456,~~410~~360 are vested and exercisable.

~~In connection with the acquisition of Aerostructures in 2003, Vought assumed a similar stock~~77 option plan maintained by Aerostructures (the “2003 Stock Option Plan”). Outstanding options granted under that plan, which had been fully vested pursuant prior to the acquisition, were exchanged for 217,266 of Vought stock options. No new options have been granted under the 2003 Stock Option Plan. As of December 31, 2008, all outstanding options under that plan had expired.

A summary of stock option activity from the 2001 and 2003 Stock Option Plans for the years ended December 31, 2008, 2007 and 2006 follows:

	Year Ended December 31,
	2008					2007					2006
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise Price					Exercise Price					Exercise Price
	Shares			Per Share		Shares			Per Share		Shares			Per Share
Outstanding at beginning of year		661,479		$	14.57		850,587		$	13.59		1,507,129		$	13.17
Granted		—		$	—		—		$	—		—		$	—
Exercised		—		$	—		—		$	—		(33,225	)	$	10.00
Forfeited		(114,379	)	$	10.92		(189,108	)	$	10.14		(623,317	)	$	12.47
Outstanding at end of year		547,100		$	15.35		661,479		$	14.57		850,587		$	13.59
Vested or expected to vest		547,100
Exercisable at end of year		479,410		$	14.72		589,729		$	13.98		767,917		$	13.08
Fair value of options granted				$	—				$	—				$	—
Weighted average remaining contractual life					3.3					3.7					4.2

All stock options exercised during 2006 had no intrinsic value. No stock options were exercised during 2007 or 2008.

~~The~~ A ~~following~~summary ~~table~~of ~~summarizes~~stock ~~information~~option ~~about~~activity ~~stock~~from ~~options~~the ~~outstanding~~2001 asand of2003 Stock Option Plans for the years ended December 31, 2009, 2008 and 2007 follows:

					Options Outstanding							Options Exercisable
							Year Ended December 31,
							Weighted			Weighted					Weighted		Weighted
		2009					2008					2007
					Number of		Average			Average		Number of			Average		Average
					Weighted					Weighted					Weighted
Range of Exercise					Shares		Term			Exercise Price		Shares			Term		Exercise Price
					Average					Average					Average
Price Per Share					Outstanding		(in years)			Per Share		Outstanding			(in years)		Per Share
					Exercise Price					Exercise Price					Exercise Price
$	9.96-$18.86					416,100		3.0		$	10.00		378,160			3.0	$	10.00
		Shares			Per Share		Shares			Per Share		Shares			Per Share
$	18.87-$32.33					131,000		4.2		$	32.33		101,250			4.2	$	32.33
Outstanding at beginning of year			547,100		$	15.35		661,479		$	14.57		850,587		$	13.59
Granted			—		$	—		—		$	—		—		$	—
Exercised			—		$	—		—		$	—		—		$	—
Forfeited			(26,900	)	$	11.16		(114,379	)	$	10.92		(189,108	)	$	10.14
Outstanding at end of year			520,200		$	15.56		547,100		$	15.35		661,479		$	14.57
Vested or expected to vest (1)			520,200
Exercisable at end of year			456,360		$	14.91		479,410		$	14.72		589,729		$	13.98
Fair value of options granted					$	—				$	—				$	—
Weighted average remaining contractual life						2.7

No stock options were exercised during 2007, 2008 or 2009.

Shares Held in Rabbi Trust

A rabbi trust was established in 2000 for key executives. Our stock held in the trust is recorded at historical cost, and the corresponding deferred compensation liability is recorded at the current fair value of our common stock. Common stock held in the rabbi trust is classified in equity as “shares held in rabbi trust.” There were no changes to the share amounts in ~~2008~~2009, ~~2007~~2008 or ~~2006~~2007.

2006 Incentive Plan

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

SARs

A summary of SARs activity for the years ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007 is as follows:

	~~Year Ended December 31,~~					Year Ended December 31,
	2008					2007					2006
	2009					2008					2007
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise Price					Exercise Price					Exercise Price
	Shares			Per Share		Shares			Per Share		Shares			Per Share
Outstanding at beginning of year		~~972~~908,~~750~~450		$	10.00		~~797~~972,~~270~~750		$	10.00		—797,270		$	—10.00
Granted		—125,000		$	—10.00		~~259,380~~—		$	~~10.00~~—		~~797~~259,~~270~~380		$	10.00
Exercised		(2115,~~775~~563	)	$	10.00		—(21,775	)	$	—10.00		—		$	—
Forfeited		(4241,~~525~~047	)	$	10.00		(8342,~~900~~525	)	$	10.00		—(83,900	)	$	—10.00
Outstanding at end of year		~~908~~976,~~450~~840		$	10.00		~~972~~908,~~750~~450		$	10.00		~~797~~972,~~270~~750		$	10.00
Vested or expected to vest (1)		~~760~~863,~~003~~685
Exercisable at end of year		~~630~~801,~~395~~479		$	10.00		~~435~~630,~~461~~395		$	10.00		~~199~~435,~~318~~461		$	10.00
Fair value of options granted				$	—				$	1,227,599				$	3,834,869
Fair value of SARs granted				$	721,250				$	—				$	1,227,599
Weighted average remaining contractual life					7.93					~~8.9~~					~~9.9~~


(1)		Represents SARs reduced by expected forfeitures

During the year ended December 31, ~~2008~~2009, the exercise of SARs resulted in the issuance of 91,~~470~~614 shares of common stock. The total intrinsic value of the SARs exercised was ~~approximately~~ less than $0.3 1 million.

The following table summarizes information about SARs outstanding as of December 31, 2008:

Shares Outstanding

Shares Exercisable

Weighted

Number of

Average

Number of

Average

Exercise

Term

Exercise Price

Term

Exercise Price

Price Per Share

Outstanding

(in years)

Per Share

Outstanding

(in years)

Per Share

908,450

10.00

630,395

10.00

RSUs

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

~~A summary of the total RSU activity for years ended December 31, 2008, 2007 and 2006 is as~~79 ~~follows:~~

	Year Ended December 31,
	2008					2007					2006
				Grant Date					Grant Date				Grant Date
	Shares			Fair Value		Shares			Fair Value		Shares		Fair Value
Outstanding at beginning of year		574,421		$	9.12		395,140		$	8.79		—	$	—
Granted		81,340		$	23.12		210,306		$	9.68		395,140	$	8.79
Exercised		—		$	—		—		$	—		—	$	—
Forfeited		(32,836	)	$	14.68		(31,025	)	$	8.79		—	$	—
Outstanding at end of year		622,925		$	10.65		574,421		$	9.12		395,140	$	8.79
Vested or expected to vest (1)		549,044
Exercisable at end of year		180,758		$	10.61		109,727		$	8.96		98,785	$	8.79

A summary of the total RSU activity for years ended December 31, 2009, 2008 and 2007 are as follows:


						Year Ended December 31,
	2009					2008					2007
				Grant Date					Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Outstanding at beginning of year		622,925		$	10.65		574,421		$	9.12		395,140		$	8.79
Granted		11,000		$	9.41		81,340		$	23.12		210,306		$	9.68
Converted		—		$	—		—		$	—		—		$	—
Forfeited		(16,820	)	$	15.35		(32,836	)	$	14.68		(31,025	)	$	8.79

Outstanding at end of year		617,105		$	10.50		622,925		$	10.65		574,421		$	9.12


Vested or expected to vest (1)		555,870


Convertible at end of year		260,976		$	11.73		180,758		$	10.61		109,727		$	8.96


Weighted average remaining contractual life					7.2


(1)		Represents RSUs reduced by expected forfeitures

The following table summarizes information about RSUs outstanding as of December 31, 2008:

		Shares Outstanding						Shares Exercisable
				Weighted		Weighted				Weighted		Weighted
		Number of		Average		Average		Number of		Average		Average
Exercise		Shares		Term		Exercise Price		Shares		Term		Exercise Price
Price Per Share		Outstanding		(in years)		Per Share		Outstanding		(in years)		Per Share
$	8.79		542,021		10	$	8.79		157,910		10	$	8.79
$	11.96		5,000		10	$	11.96		1,250		10	$	11.96
$	23.85		75,904		10	$	23.85		21,598		10	$	23.85

Restricted Shares

During 2009, 2008 and 2007, we granted 18,810, 9,432 and 21,854 restricted shares, respectively, to outside directors as compensation for their services. These restricted shares vested during the applicable grant year. The restricted shares were valued at the most recently obtained fair value of our common stock prior to the date of issuance.

Employee Stock Purchase Plan

We adopted an Employee Stock Purchase Plan in 2000, which provides certain employees and independent directors the opportunity to purchase shares of our stock at its estimated fair value. Certain employee stock purchases were eligible for financing by the Company through stockholder notes. Those notes provided for loan amounts, including interest at 6.09%, to become due after 7 years, or upon specified events occurring. All stockholder notes issued under the plan were extinguished prior to December 31, 2007. ~~During 2006, 10,650 shares were sold to four outside directors for cash at a price of $8.38 per share pursuant to the plan.~~ No shares were issued under the employee stock purchase plan during ~~the~~ 2007 and 2009. ~~During~~However, during 2008, 4,190 shares were sold pursuant to the plan to two outside directors for cash at a price of $23.85 per share.

17. STOCK COMPENSATION EXPENSE

As described in Note 16 —– Stockholders’ Equity, we maintain ~~two~~a stock option ~~plans~~plan and ~~one~~an incentive award plan under which we have issued equity-based awards to our employees and our directors. In accordance with ~~SFAS~~the ~~123(R)~~Compensation-Stock Compensation topic of the ASC, we recognized total compensation expense for all awards as follows for the years ended December 31~~, 2008, 2007 and 2006 as follows~~:

	Year Ended December 31,
	2008			2007			2006
	2009			2008			2007
	~~($ in millions)~~			($ in millions)
Stock Options	$	0.0		$	0.0		$	0.0
Rabbi Trust		(10.92	)		2(1.59	)		02.05
Stock Appreciation Rights (SARs)		0.74			10.57			1.65
Restricted Stock Units (RSUs)		2.1.2			12.61			1.46
Restricted Shares		0.2			0.2			—0.2
Stock Compensation Expense, gross	$	12.10		$	51.81		$	35.08
Change in Forfeiture Estimate		—0.3			~~(0.6~~—	)		—(0.6	)
Stock Compensation Expense, net	$	1.1		$	5.2		$	3.0
Adjustment to Actual Forfeiture Rate (a)		0.2			—			—
Stock Compensation Expense, net	$	2.5		$	1.1		$	5.2


(a)		In accordance with the Compensation-Stock Compensation topic of the ASC, we changed the estimated forfeiture rate for the grants that became fully vested during 2009 to the actual forfeiture rate. This resulted in $0.2 million of additional stock compensation expense.

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

Stock Options

Stock options have been granted for a fixed number of shares to employees and directors with an exercise price equal to no less than the fair value of the shares at the date of grant. ~~We have~~No ~~adopted~~stock ~~SFAS~~options ~~123(R)~~have ~~Share-based~~been ~~Payment~~granted ~~(“SFAS~~since ~~123(R)”)~~2005. ~~and~~Under ~~elected to apply~~ the “modified prospective” method. ~~SFAS~~of ~~123(R)~~the Compensation ~~requires~~– usStock toCompensation ~~value~~topic ~~stock~~of ~~options~~the ~~granted~~ASC, ~~prior~~we were required to ~~its~~value ~~adoption~~our stock options under the fair value method and expense these amounts over the stock options’ remaining vesting period. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. No additional stock options have been granted since our ~~adoption~~application of ~~SFAS~~the ~~123(R)~~modified prospective method.

Shares Held in Rabbi Trust

During the ~~fourth~~2009, ~~quarter~~2008 ofand ~~2008~~2007, we recorded stock compensation expense, included in general and administrative expense, to reflect the impact of a change in the fair value of our common stock. This ~~decrease~~change inis ~~value~~also ~~resulted~~reflected in ~~a decrease to~~ our accrued payroll and employee benefits line item on our balance sheet.

Stock Appreciation Rights (SARs)

SARs have been granted to employees and directors with an exercise price equal to no less than the fair value of the shares at the date of grant. The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model and based on a number of assumptions including expected term, volatility and interest rates. ~~When~~ ~~our~~Because ~~SARs were issued in 2006 and 2007,~~ we ~~did~~do not have publicly traded equity ~~and~~or ~~our history was short, so we didn’t have~~ reliable historical data to estimate the expected term ~~effectively. Therefore,~~of inthe ~~compliance with SAB 107~~SARs, we used a temporary “simplified method” to estimate our expected term. Based on the guidance of ~~SFAS~~the ~~123(R)~~Compensation – Stock Compensation topic of the ASC, expected volatility was derived from an index of historical volatilities from several companies that conduct business in the aerospace industry. The risk free interest rate is based on the U.S. treasury yield curve on the date of grant for the expected term of the option.

~~The ranges of assumptions used in our calculations of fair value during 2007 and 2006 were as~~81 ~~follows:~~

	2007	2006
Expected dividend yield	0%	0%
Risk free interest rate	4.7% - 5.0%	4.5% - 5.0%
Expected life of options	6.12 years	6.25 years
Expected volatility	53.5%	54.5%

The ranges of assumptions used in our calculations of fair value during 2009 and 2007 were as follows:


	2009			2007
Expected dividend yield		0	%		0	%
Risk free interest rate		2.6	%		4.7% - 5.0	%
Expected life of options	5.63 years			6.12 years
Expected volatility		81.4	%		53.5	%

No SARs were granted during 2008.

The fair value of the SARs granted is amortized to expense using a graded method over the vesting period. Our estimated forfeiture rate was 11% as of ~~December~~January 311, ~~2006~~2007 but was adjusted to 26% during the third quarter of 2007. ~~Our~~This rate was adjusted to 22% in the second quarter of 2009 and has remained unchanged since then. These changes in the estimated forfeiture rate ~~has~~resulted ~~remained~~in ata $0.6 million ~~26%~~reduction ~~through~~of stock compensation expense in 2007 and a $0.3 million increase to stock compensation expense in 2009. As some grants became fully vested in 2009, we changed the ~~fiscal~~estimated forfeiture ~~year~~rate ~~ended~~to ~~December~~the actual forfeiture rates and recorded $0.1 ~~31,~~million ~~2008~~additional stock compensation expense. As of December 31, ~~2008~~2009, we have $0.46 million of unrecognized compensation cost related to the nonvested SARs to be amortized over the remaining vesting period.

Restricted Stock Units (“RSUs”)

The value of each RSU awarded is ~~the~~based ~~same~~on as the estimated fair ~~market~~ value of our common stock aton the date of ~~grant~~issuance in accordance with ~~SFAS~~the ~~123(R).~~Compensation — Stock Compensation topic of the ASC. Because we do not have publicly traded equity, we use an independent third party valuation firm ~~computes~~to compute the fair market value of our common stock. Our estimated forfeiture rate was 11% as of ~~December~~ January 311, ~~2006~~2007 but was adjusted to 26% during the third quarter of 2007. ~~Our~~This ~~estimated~~rate ~~forfeiture~~was ~~rate~~adjusted to 22% in the second quarter of 2009 and has remained atunchanged ~~26%~~since ~~through~~then. These changes in the estimated ~~fiscal~~forfeiture ~~year~~rate ~~ended~~resulted ~~December~~in a $0.6 ~~31,~~million reduction of stock compensation expense in ~~2008~~2007 and a $0.3 million ~~However~~increase to stock compensation expense in 2009. As some grants became fully vested in 2009, nowe changed the estimated forfeiture rate to the actual forfeiture rates and recorded $0.1 million additional stock compensation expense. No forfeiture rate was used in our calculation of the grants to the CEO and CFO that vest upon the first occurrence of a change in control or a date specified in the agreement, due to our assumption that they will remain employed until the vesting of these awards. As of December 31, ~~2008~~2009, we had $10.98 million of unrecognized compensation cost related to all nonvested RSUs to be amortized over the remaining vesting period.

Restricted Shares

The restricted shares granted during 2009, 2008 and 2007 completely vested during the year. ~~Those~~ Those shares were valued at the fair value of our common stock at the date of issuance.

18. ENVIRONMENTAL CONTINGENCIES

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

80 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 at the formerly Northrop Grumman Corporation sites 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 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 have an accrual of $2.4 million and $3.2 million for environmental costs at December 31, 2009 and 2008, respectively.

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 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 indemnification for certain pre-closing environmental liabilities incurred beyond that expiration date. While currently there are no pending material environmental claims related to the Nashville, Tennessee facility, there is no assurance that environmental claims will not arise in the future or that we will receive any indemnity from Textron.

We have an accrual of $3.2 million and $3.8 million for environmental costs at December 31, 2008 and 2007, respectively.

The following is a roll-forward of amounts accrued for environmental liabilities:

	Environmental
	Liability
	(in millions)
Balance at January 1, 2007	$	4.1
Balance at January 1, 2008	$	3.8
Environmental costs incurred		(0.3	)
Balance at December 31, 2007		3.8
Environmental costs incurred		(0.6	)
Balance at December 31, 2008	$	3.2
Environmental costs incurred		(0.8	)
Balance at December 31, 2009	$	2.4
Consolidated Balance Sheet classification
Accrued and other liabilities		0.7
Other non-current liabilities		1.7

19. RISK CONCENTRATIONS

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable.

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

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Filing Compare · VOUGHT AIRCRAFT INDUSTRIES INC