##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 30, 2008
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from               to
 Commission File Number 333-112528
 Vought Aircraft Industries, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    75-2884072(State of Incorporation)
    
    (I.R.S. Employer Identification Number)201 East John Carpenter
Freeway, Tower 1, Suite 900Irving, Texas
    
    75062(Address of Principal executive offices)
    
    (Zip Code)
 (972)-946-2011
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer
o
    
    Non-accelerated filer
þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1 Interim Unaudited Condensed Consolidated Financial Statements
    
    
    4Consolidated Balance Sheets
    
    
    4Consolidated Statements of Operations
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to the Interim Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4 Controls and Procedures
    
    
    44PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    45Item 1A Risk Factors
    
    
    45Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3 Defaults Upon Senior Securities
    
    
    46Item 4 Submission of Matters to a Vote of Security Holders
    
    
    46Item 5 Other Information
    
    
    46Item 6 Exhibits
    
    
    47Signatures
    
    
    48Joinder AgreementCertification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Chief Financial Officer Pursuant to Section 906
  2




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Cautionary Statement Regarding Forward Looking Statements
   
    
    significant considerations and risks discussed in this report and our 10-K;
    
    global and domestic market or business conditions and fluctuations in demand;
    
    competition;
    
    operating risks and the amounts and timing of revenues and expenses;
    
    project delays or cancellations;
    
    global and domestic financial market conditions and the results of financing
efforts;
    
    political, legal, regulatory, governmental, administrative and economic
conditions and developments in the United States;
    
    the effect of and changes in economic conditions in the areas in which we
operate;
    
    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;
    
    weather and other natural phenomena;
    
    environmental constraints on operations and environmental liabilities arising
out of past or present operations;
    
    current and future litigation; and
    
    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.
 3




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Vought Aircraft Industries, Inc.
 
 Consolidated Balance Sheets
($ in millions, except share amounts)
 March 30,2008
    
    
    December 31,(unaudited)
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    41.4
    
    
    $
    75.6Trade and other receivables
    
    
    138.4
    
    
    
    81.4Inventories
    
    
    358.5
    
    
    
    362.8Other current assets
    
    
    10.8
    
    
    
    6.4Total current assets
    
    
    549.1
    
    
    
    526.2Property, plant and equipment, net
    
    
    513.3
    
    
    
    507.0Goodwill
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    36.5
    
    
    
    40.1Debt
origination costs, net and other assets
    
    
    10.6
    
    
    
    11.5Investment in joint venture
    
    
    8.0
    
    
    
    8.4Total assets
    
    $
    1,645.2
    
    
    $
    1,620.9Liabilities and stockholders equity
(deficit)Current liabilities:Accounts payable, trade
    
    $
    177.2
    
    
    $
    178.7Accrued and other liabilities
    
    
    65.2
    
    
    
    74.1Accrued payroll and employee benefits
    
    
    43.3
    
    
    
    48.2Accrued post-retirement
benefits-current
    
    
    47.2
    
    
    
    47.2Accrued pension-current
    
    
    0.7
    
    
    
    0.7Current portion of long-term bank debt
    
    
    4.0
    
    
    
    4.0Accrued contract liabilities
    
    
    250.2
    
    
    
    230.4Total current liabilities
    
    
    587.8
    
    
    
    583.3Long-term liabilities:Accrued post-retirement benefits
    
    
    481.1
    
    
    
    482.0Accrued pension
    
    
    347.1
    
    
    
    361.2Long-term bank debt, net of
current portion
    
    
    409.0
    
    
    
    409.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Other non-current liabilities
    
    
    179.3
    
    
    
    181.2Total liabilities
    
    
    2,274.3
    
    
    
    2,286.7Stockholders equity (deficit):Common stock, par value $.01 per
share; 50,000,000 shares
authorized, 24,783,756 and
24,768,991 issued and outstanding
at March 30, 2008 and December 31,
2007, respectively
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    418.0
    
    
    
    417.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    (1.6
    )Accumulated deficit
    
    
    (566.3
    )
    
    
    (595.0
    )Accumulated other comprehensive loss
    
    
    (479.5
    )
    
    
    (486.9
    )Total stockholders equity (deficit)
    
    $
    (629.1
    )
    
    $
    (665.8
    )Total liabilities and stockholders
equity (deficit)
    
    $
    1,645.2
    
    
    $
    1,620.9
 See accompanying notes
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Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Operations
(unaudited, $ in millions)
 For the Three Months EndedMarch 30,
    
    
    April 1,2008
    
    
    2007Revenue
    
    $
    425.4
    
    
    $
    380.7Costs and expensesCost of sales
    
    
    326.3
    
    
    
    292.5Selling, general and administrative expenses
    
    
    54.3
    
    
    
    54.0Total costs and expenses
    
    
    380.6
    
    
    
    346.5Operating income
    
    
    44.8
    
    
    
    34.2Other income (expense)Interest income
    
    
    0.1
    
    
    
    1.3Other loss
    
    
    
    
    
    
    (0.1
    )Equity in loss of joint venture
    
    
    (0.4
    )
    
    
    (0.3
    )Interest expense
    
    
    (15.8
    )
    
    
    (15.9
    )Income before income taxes
    
    
    28.7
    
    
    
    19.2Income tax expense
    
    
    
    
    
    
    Net income
    
    $
    28.7
    
    
    $
    19.2
 See accompanying notes
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Vought Aircraft Industries, Inc.
 
 Consolidated Statements of Cash Flows
(unaudited, $ in millions)
 Three Months EndedMarch 30,
    
    
    April 1,2008
    
    
    2007Operating activitiesNet income
    
    $
    28.7
    
    
    $
    19.2Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    16.0
    
    
    
    15.1Stock compensation expense
    
    
    0.6
    
    
    
    0.7Equity in losses of joint venture
    
    
    0.4
    
    
    
    0.3Loss from asset disposals
    
    
    0.3
    
    
    
    0.4Changes in current assets and liabilities:Trade and other receivables
    
    
    (57.0
    )
    
    
    (39.3
    )Inventories
    
    
    4.3
    
    
    
    14.1Other current assets
    
    
    (4.4
    )
    
    
    (3.2
    )Accounts payable, trade
    
    
    (1.5
    )
    
    
    (15.0
    )Accrued payroll and employee benefits
    
    
    (4.9
    )
    
    
    (9.7
    )Accrued and other liabilities
    
    
    (8.9
    )
    
    
    Accrued contract liabilities
    
    
    19.8
    
    
    
    50.1Other assets and liabilitieslong-term
    
    
    (8.6
    )
    
    
    (12.9
    )Net cash provided by (used in) operating activities
    
    
    (15.2
    )
    
    
    19.8Investing activitiesCapital expenditures
    
    
    (19.0
    )
    
    
    (17.5
    )Investment in joint venture
    
    
    
    
    
    
    (4.5
    )Net cash used in investing activities
    
    
    (19.0
    )
    
    
    (22.0
    )Financing activitiesProceeds from short-term bank debt
    
    
    138.0
    
    
    
    Payments on short-term bank debt
    
    
    (138.0
    )
    
    
    Payments on long-term bank debt
    
    
    
    
    
    
    (1.0
    )Payments on capital leases
    
    
    
    
    
    
    (0.2
    )Net cash provided by (used in) financing activities
    
    
    
    
    
    
    (1.2
    )Net decrease in cash and cash equivalents
    
    
    (34.2
    )
    
    
    (3.4
    )Cash and cash equivalents at beginning of period
    
    
    75.6
    
    
    
    93.4Cash and cash equivalents at end of period
    
    $
    41.4
    
    
    $
    90.0
 See accompanying notes
 6




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Vought Aircraft Industries, Inc.
 
 Notes to the Interim Unaudited Condensed Consolidated Financial Statements  Period Ended March 30, 2008
 Note 1  Organization and Basis of Presentation
      7




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Note
2  Recent Accounting Pronouncements
 Fair Value Measurements Note 15  Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 8




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Note 3  Inventories
   March 30,
    
    
    December 31,2008
    
    
    2007($ in millions)Production costs of contracts in process
    
    $
    795.2
    
    
    $
    727.7Finished goods
    
    
    1.7
    
    
    
    2.0Less: unliquidated progress payments
    
    
    (438.4
    )
    
    
    (366.9
    )Total inventories
    
    $
    358.5
    
    
    $
    362.8
 Note 4 -
Goodwill and Intangible Assets
 Note 4  Goodwill and Intangible Assets
 SFAS 142 Goodwill and Other Intangible Assets (SFAS 142) SFAS 142
   9




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March 30,
    
    
    December 31,2008
    
    
    2007($ in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Less: accumulated amortization
    
    
    (100.8
    )
    
    
    (97.2
    )Identifiable intangible assets, net
    
    $
    36.5
    
    
    $
    40.1
  ($ in millions)2008
    
    $
    9.42009
    
    
    6.82010
    
    
    4.82011
    
    
    2.12012
    
    
    2.1Thereafter
    
    
    11.3Total
remaining amortization of identifiable intangible assets
    
    $
    36.5
 10




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Note 5  Pension and Other Post-retirement Benefits
  Pension Benefits
    
    
    Other Post-retirement BenefitsThree Months Ended
    
    
    Three Months EndedMarch 30,
    
    
    April 1,
    
    
    March 30,
    
    
    April 1,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in millions)Components of net periodic benefit cost
(income):Service cost
    
    $
    4.8
    
    
    $
    4.7
    
    
    $
    1.3
    
    
    $
    1.4Interest cost
    
    
    27.3
    
    
    
    25.5
    
    
    
    7.7
    
    
    
    8.2Expected return on plan assets
    
    
    (31.1
    )
    
    
    (29.4
    )
    
    
    
    
    
    
    Amortization of net (gain) loss
    
    
    6.9
    
    
    
    9.2
    
    
    
    1.3
    
    
    
    1.5Amortization of prior service cost
    
    
    3.0
    
    
    
    1.0
    
    
    
    (3.8
    )
    
    
    (2.3
    )Plan settlement or curtailment (gain)/loss
    
    
    
    
    
    
    4.6
    (a)
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    10.9
    
    
    $
    15.6
    
    
    $
    6.5
    
    
    $
    8.8Defined contribution plans cost
    
    $
    4.7
    
    
    $
    2.0
 
 (a)
    
    As a result of lump sum payments made under provisions of our non-qualified (excess) pension
plan, we recorded a pension settlement charge of $4.6 million as part of net periodic benefit cost
and other comprehensive loss during the three month period ended April 1, 2007.  
    
    During February and April of 2008, two of our union represented groups ratified new
collective bargaining agreements. Those agreements each provide for a freeze in pension
benefit accruals, effective December 31, 2008, for bargaining unit employees who, as of
December 31, 2007, had less than 16 years of bargaining unit seniority. Employees subject
to the pension freeze, and any employees hired on or after March 1, 2008 for the first
group and April 1, 2008 for the second group, will receive a defined contribution benefit.
The agreements provide for a one-time retirement incentive program to be offered to
eligible employees during 2008. The agreements also provide for certain modifications to
the retiree medical benefits for bargaining unit retirees and eliminates retiree medical
coverage for any bargaining unit employees hired on or after January 1, 2008.
    
    Also, during the three months ended March 30, 2008, we announced amendments to medical
plans for two groups of non-represented, current retirees. Effective January 1, 2008,
medical coverage for participants in those two groups will be eliminated at age 65 and
replaced with a fixed monthly stipend.
    
    The aforementioned 2008 changes require a remeasurement of our obligations which will
be finalized during the second quarter of 2008. We estimate that those changes,
collectively, will not have a material impact on our obligations under our pension and
other post-retirement benefit plans.
 11




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Note
6  Commitments
 Warranty Reserve.
 :
 WarrantyReserve($ in millions)Balance at December 31, 2006
    
    $
    6.8Warranty costs incurred
    
    
    (0.4
    )Warranties issued
    
    
    0.8Balance at December 31, 2007
    
    $
    7.2Warranty costs incurred
    
    
    (0.1
    )Warranties issued
    
    
    0.3Balance at March 30, 2008
    
    $
    7.4
 Note
7  Environmental Contingencies
    12




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EnvironmentalLiability($ in millions)Balance at January 1, 2007
    
    $
    4.1Environmental costs incurred
    
    
    (0.3
    )Balance at December 31, 2007
    
    
    3.8Environmental costs incurred
    
    
    (0.1
    )Balance at March 30, 2008
    
    $
    3.7
 Note
8  Other Non-Current Liabilities
  March 30,
    
    
    December 31,2008
    
    
    2007($ in millions)Deferred income from the sale of Hawthorne facility (a)
    
    $
    52.6
    
    
    $
    52.6State of South Carolina grant monies (b)
    
    
    63.5
    
    
    
    66.7State of Texas grant monies
    
    
    35.0
    
    
    
    35.0Deferred workers compensation
    
    
    16.6
    
    
    
    15.6Accrued warranties
    
    
    6.9
    
    
    
    6.6Other
    
    
    4.7
    
    
    
    4.7Total other non-current liabilities
    
    $
    179.3
    
    
    $
    181.2
 
 (a)
    
    In July 2005, we sold our Hawthorne facility and concurrently signed an agreement
to lease back a certain portion of the facility from July 2005 to December 2010, with
two additional five-year renewal options. Due to certain contractual obligations, which
require our continuing involvement in the facility, this transaction has been recorded
as a financing transaction and not as a sale. The cash received in July 2005 of
$52.6 million was recorded as a deferred liability on our balance sheet in other
non-current liabilities. This liability will remain on our balance sheet until all
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 $0.8 million for the three months ended March
30, 2008 and April 1, 2007. Additionally, during the three month period ended March 30,
2008, we made a required distribution of state grant proceeds of $2.4 million to our
joint venture, Global Aeronautica. 13




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Note
9  Income Taxes
 Accounting for Uncertainty
in Income Taxes
     Note 10  Stockholders Equity
  2001/2003 Stock Option Plans
   14




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WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    ContractualExercise
    
    
    TermOptions
    
    
    Price
    
    
    (in Years)Outstanding at December 31, 2007
    
    
    661,479
    
    
    $
    14.57Granted
    
    
    
    
    
    
    Forfeited or expired
    
    
    (15,009
    )
    
    
    11.03Exercised
    
    
    
    
    
    
    Outstanding at March 30, 2008
    
    
    646,470
    
    
    $
    14.66
    
    
    
    3.5Vested or expected to vest (a)
    
    
    646,470
    
    
    $
    14.66
    
    
    
    3.5Exercisable at March 30, 2008
    
    
    576,330
    
    
    $
    14.07
    
    
    
    3.5
 
 (a)
    
    Represents outstanding options reduced by expected forfeitures. Expected forfeitures assumed
under SFAS 123 were zero. Shares Held in Rabbi Trust
  2006 Incentive Plan
  15




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Stock Appreciation Rights (SARs)
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    ContractualExercise
    
    
    TermSARs
    
    
    Price
    
    
    (in Years)Outstanding at December 31, 2007
    
    
    972,750
    
    
    $
    10.00
    
    
    
    8.9Granted
    
    
    
    
    
    
    Forfeited or expired
    
    
    (13,025
    )
    
    
    10.00Exercised
    
    
    (13,025
    )
    
    
    10.00Outstanding at March 30, 2008
    
    
    946,700
    
    
    $
    10.00
    
    
    
    8.7Vested or expected to vest (a)
    
    
    788,308
    
    
    
    10.00
    
    
    
    8.7Exercisable at March 30, 2008
    
    
    422,436
    
    
    
    10.00
    
    
    
    8.7
 
 (a)
    
    Represents outstanding SARs reduced by expected forfeitures.  Restricted Stock Units (RSUs)
   Grant-dateRSUs
    
    
    Fair-ValueOutstanding at December 31, 2007
    
    
    574,421
    
    
    $
    9.12Granted
    
    
    31,500
    
    
    
    23.85Forfeited or expired
    
    
    (7,500
    )
    
    
    8.79Exercised
    
    
    
    
    
    
    Outstanding at March 30, 2008
    
    
    598,421
    
    
    $
    9.89Vested or expected to vest (a)
    
    
    530,911Exercisable at March 30, 2008
    
    
    105,977
    
    
    $
    8.96
 
 (a)
    
    Represents outstanding RSUs reduced by expected forfeitures. 16




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Restricted Shares
  Note 11  Stock-Based Compensation
  Stock Compensation Expense
    
    
    Stock Compensation ExpenseThree Months Ended
    
    
    Three Months EndedMarch 30, 2008
    
    
    April 1, 2007($ in millions)Stock Options
    
    
    0.0
    
    
    
    0.0Stock Appreciation Rights (SARs)
    
    
    0.2
    
    
    
    0.4Restricted Stock Units (RSUs)
    
    
    0.3
    
    
    
    0.3Restricted Shares
    
    
    0.1
    
    
    
    0.0Stock Compensation Expense
    
    
    0.6
    
    
    
    0.7
  Stock Options
 SFAS 123(R) Share-based Payment
 Expected dividend yield
    
    
    0
    %Risk free interest rate
    
    
    3.9% - 4.4
    %Expected term
    
    6 years
  17




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SARs
   2007Stock price
    
    $
    8.79Strike price
    
    $
    10.00Expected term
    
    6.25 yearsRisk free interest rate
    

    5.02%Expected volatility
    

54%Dividend rate

    
0%
  RSUs
 SFAS 123(R)
 Restricted Shares
  Note 12  Investment in Joint Venture
  18




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Note
13  Related Party Transactions
    Note
14  Guarantor Subsidiaries
  19




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##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Balance Sheet
March 30, 2008
($ in millions, except share amounts) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets :Cash and cash equivalents
    
    $
    41.3
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    41.4Trade and other receivables
    
    
    130.1
    
    
    
    8.3
    
    
    
    
    
    
    
    138.4Intercompany receivable
    
    
    26.8
    
    
    
    8.5
    
    
    
    (35.3
    )
    
    
    Inventories
    
    
    342.7
    
    
    
    15.8
    
    
    
    
    
    
    
    358.5Other current assets
    
    
    10.3
    
    
    
    0.5
    
    
    
    
    
    
    
    10.8Total current assets
    
    
    551.2
    
    
    
    33.2
    
    
    
    (35.3
    )
    
    
    549.1Property, plant and equipment, net
    
    
    504.6
    
    
    
    8.7
    
    
    
    
    
    
    
    513.3Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets , net
    
    
    36.5
    
    
    
    
    
    
    
    
    
    
    
    36.5Debt origination costs, net and other assets
    
    
    10.6
    
    
    
    
    
    
    
    
    
    
    
    10.6Investment in affiliated company
    
    
    73.0
    
    
    
    
    
    
    
    (73.0
    )
    
    
    Investment in joint venture
    
    
    8.0
    
    
    
    
    
    
    
    
    
    
    
    8.0Total assets
    
    $
    1,647.9
    
    
    $
    105.6
    
    
    $
    (108.3
    )
    
    $
    1,645.2Liabilities and stockholders equity (deficit)Current liabilities :Accounts payable, trade
    
    $
    172.7
    
    
    $
    4.5
    
    
    $
    
    
    
    $
    177.2Intercompany payable
    
    
    8.5
    
    
    
    26.8
    
    
    
    (35.3
    )
    
    
    Accrued and other liabilities
    
    
    65.1
    
    
    
    0.1
    
    
    
    
    
    
    
    65.2Accrued payroll and employee benefits
    
    
    42.1
    
    
    
    1.2
    
    
    
    
    
    
    
    43.3Accrued post-retirement benefits -current
    
    
    47.2
    
    
    
    
    
    
    
    
    
    
    
    47.2Accrued pension-current
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Accrued contract liabilities
    
    
    250.2
    
    
    
    
    
    
    
    
    
    
    
    250.2Total current liabilities
    
    
    590.5
    
    
    
    32.6
    
    
    
    (35.3
    )
    
    
    587.8Long-term liabilities :Accrued post-retirement benefits
    
    
    481.1
    
    
    
    
    
    
    
    
    
    
    
    481.1Accrued pension
    
    
    347.1
    
    
    
    
    
    
    
    
    
    
    
    347.1Long-term bank debt, net of current portion
    
    
    409.0
    
    
    
    
    
    
    
    
    
    
    
    409.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current liabilities
    
    
    179.3
    
    
    
    
    
    
    
    
    
    
    
    179.3Total liabilities
    
    
    2,277.0
    
    
    
    32.6
    
    
    
    (35.3
    )
    
    
    2,274.3Stock holders equity (deficit):Common s tock, par value $.01 per share;
50,000,000 shares authorized, 24,783,756 issued
and outstanding at March 30, 2008
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    418.0
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    418.0Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Accumulated deficit
    
    
    (566.3
    )
    
    
    (7.3
    )
    
    
    7.3
    
    
    
    (566.3
    )Accumulated other comprehensive loss
    
    
    (479.5
    )
    
    
    
    
    
    
    
    
    
    
    (479.5
    )Total stockholders equity (deficit)
    
    $
    (629.1
    )
    
    $
    73.0
    
    
    $
    (73.0
    )
    
    $
    (629.1
    )Total liabilities and stockholders equity
(deficit)
    
    $
    1,647.9
    
    
    $
    105.6
    
    
    $
    (108.3
    )
    
    $
    1,645.2
 20




---



##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Balance Sheet
December 31, 2007
($ in millions, except share amounts)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    75.1
    
    
    $
    0.5
    
    
    $
    
    
    
    $
    75.6Trade and other receivables
    
    
    75.3
    
    
    
    6.1
    
    
    
    
    
    
    
    81.4Intercompany receivable
    
    
    24.1
    
    
    
    7.3
    
    
    
    (31.4
    )
    
    
    Inventories
    
    
    347.0
    
    
    
    15.8
    
    
    
    
    
    
    
    362.8Other current assets
    
    
    5.9
    
    
    
    0.5
    
    
    
    
    
    
    
    6.4Total current assets
    
    
    527.4
    
    
    
    30.2
    
    
    
    (31.4
    )
    
    
    526.2Property, plant and equipment, net
    
    
    498.7
    
    
    
    8.3
    
    
    
    
    
    
    
    507.0Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    40.1
    
    
    
    
    
    
    
    
    
    
    
    40.1Debt
origination costs, net and other assets
    
    
    11.5
    
    
    
    
    
    
    
    
    
    
    
    11.5Investment in affiliated company
    
    
    72.5
    
    
    
    
    
    
    
    (72.5
    )
    
    
    Investment in joint venture
    
    
    8.4
    
    
    
    
    
    
    
    
    
    
    
    8.4Total assets
    
    $
    1,622.6
    
    
    $
    102.2
    
    
    $
    (103.9
    )
    
    $
    1,620.9Liabilities and stockholders equity
(deficit)Current liabilities:Accounts payable, trade
    
    $
    174.3
    
    
    $
    4.4
    
    
    $
    
    
    
    $
    178.7Intercompany payable
    
    
    7.3
    
    
    
    24.1
    
    
    
    (31.4
    )
    
    
    Accrued and other liabilities
    
    
    73.9
    
    
    
    0.2
    
    
    
    
    
    
    
    74.1Accrued payroll and employee
benefits
    
    
    47.2
    
    
    
    1.0
    
    
    
    
    
    
    
    48.2Accrued post-retirement
benefits-current
    
    
    47.2
    
    
    
    
    
    
    
    
    
    
    
    47.2Accrued pension-current
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Current portion of long-term bank
debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Accrued contract liabilities
    
    
    230.4
    
    
    
    
    
    
    
    
    
    
    
    230.4Total current liabilities
    
    
    585.0
    
    
    
    29.7
    
    
    
    (31.4
    )
    
    
    583.3Long-term liabilities:Accrued post-retirement benefits
    
    
    482.0
    
    
    
    
    
    
    
    
    
    
    
    482.0Accrued pension
    
    
    361.2
    
    
    
    
    
    
    
    
    
    
    
    361.2Long-term bank debt, net of current
portion
    
    
    409.0
    
    
    
    
    
    
    
    
    
    
    
    409.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current liabilities
    
    
    181.2
    
    
    
    
    
    
    
    
    
    
    
    181.2Total liabilities
    
    
    2,288.4
    
    
    
    29.7
    
    
    
    (31.4
    )
    
    
    2,286.7Stockholders equity (deficit):Common stock, par value $.01 per
share;
50,000,000 shares authorized,
24,768,991 issued
and outstanding at December 31, 2007
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    417.4
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    417.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Accumulated deficit
    
    
    (595.0
    )
    
    
    (7.8
    )
    
    
    7.8
    
    
    
    (595.0
    )Accumulated other comprehensive loss
    
    
    (486.9
    )
    
    
    
    
    
    
    
    
    
    
    (486.9
    )Total stockholders equity (deficit)
    
    $
    (665.8
    )
    
    $
    72.5
    
    
    $
    (72.5
    )
    
    $
    (665.8
    )Total liabilities and stockholders
equity (deficit)
    
    $
    1,622.6
    
    
    $
    102.2
    
    
    $
    (103.9
    )
    
    $
    1,620.9
 21




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##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended March 30, 2008
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    413.0
    
    
    $
    17.5
    
    
    $
    (5.1
    )
    
    $
    425.4Costs and expensesCost of sales
    
    
    315.6
    
    
    
    15.8
    
    
    
    (5.1
    )
    
    
    326.3Selling, general
and administrative
expenses
    
    
    53.1
    
    
    
    1.2
    
    
    
    
    
    
    
    54.3Total costs
and expenses
    
    
    368.7
    
    
    
    17.0
    
    
    
    (5.1
    )
    
    
    380.6Operating income
    
    
    44.3
    
    
    
    0.5
    
    
    
    
    
    
    
    44.8Other income (expense)Interest income
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Equity in loss of
joint venture
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Interest expense
    
    
    (15.8
    )
    
    
    
    
    
    
    
    
    
    
    (15.8
    )Equity in income
(loss) of
consolidated
subsidiaries
    
    
    0.5
    
    
    
    
    
    
    
    (0.5
    )
    
    
    Income (loss) before
income taxes
    
    
    28.7
    
    
    
    0.5
    
    
    
    (0.5
    )
    
    
    28.7Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    28.7
    
    
    $
    0.5
    
    
    $
    (0.5
    )
    
    $
    28.7
 22




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##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended April 1, 2007
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalsRevenue
    
    $
    368.2
    
    
    $
    14.6
    
    
    $
    (2.1
    )
    
    $
    380.7Costs and expensesCost of sales
    
    
    278.8
    
    
    
    15.8
    
    
    
    (2.1
    )
    
    
    292.5Selling, general and administrative expenses
    
    
    52.8
    
    
    
    1.2
    
    
    
    
    
    
    
    54.0Total costs and expenses
    
    
    331.6
    
    
    
    17.0
    
    
    
    (2.1
    )
    
    
    346.5Operating income (loss)
    
    
    36.6
    
    
    
    (2.4
    )
    
    
    
    
    
    
    34.2Other income (expense)Interest income
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    1.3Other loss
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in loss of joint venture
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Interest expense
    
    
    (15.9
    )
    
    
    
    
    
    
    
    
    
    
    (15.9
    )Equity in income (loss) of consolidated
subsidiaries
    
    
    (2.5
    )
    
    
    
    
    
    
    2.5
    
    
    
    Income (loss) before income taxes
    
    
    19.2
    
    
    
    (2.5
    )
    
    
    2.5
    
    
    
    19.2Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    19.2
    
    
    $
    (2.5
    )
    
    $
    2.5
    
    
    $
    19.2
 23




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##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Cash Flow Statement
Three Months Ended March 30, 2008
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    28.7
    
    
    $
    0.5
    
    
    $
    (0.5
    )
    
    $
    28.7Adjustments to reconcile net income
(loss) to net cash provided
by (used in) 
operating activities:Depreciation and amortization
    
    
    15.6
    
    
    
    0.4
    
    
    
    
    
    
    
    16.0Stock compensation expense
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6Equity in losses of joint venture
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Loss from asset disposals
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Income from investments in
consolidated subsidiaries
    
    
    (0.5
    )
    
    
    
    
    
    
    0.5
    
    
    
    Changes in current assets and liabilities:Trade and other receivables
    
    
    (54.8
    )
    
    
    (2.2
    )
    
    
    
    
    
    
    (57.0
    )Intercompany accounts receivable
    
    
    (2.7
    )
    
    
    (1.2
    )
    
    
    3.9
    
    
    
    Inventories
    
    
    4.3
    
    
    
    
    
    
    
    
    
    
    
    4.3Other current assets
    
    
    (4.4
    )
    
    
    
    
    
    
    
    
    
    
    (4.4
    )Accounts payable, trade
    
    
    (1.6
    )
    
    
    0.1
    
    
    
    
    
    
    
    (1.5
    )Intercompany accounts payable
    
    
    1.2
    
    
    
    2.7
    
    
    
    (3.9
    )
    
    
    Accrued payroll and employee benefits
    
    
    (5.1
    )
    
    
    0.2
    
    
    
    
    
    
    
    (4.9
    )Accrued and other liabilities
    
    
    (8.8
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (8.9
    )Accrued contract liabilities
    
    
    19.8
    
    
    
    
    
    
    
    
    
    
    
    19.8Other assets and liabilitieslong-term
    
    
    (8.6
    )
    
    
    
    
    
    
    
    
    
    
    (8.6
    )Net cash provided by (used in) operating
activities
    
    
    (15.6
    )
    
    
    0.4
    
    
    
    
    
    
    
    (15.2
    )Investing activitiesCapital expenditures
    
    
    (18.2
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (19.0
    )Net cash used in investing activities
    
    
    (18.2
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (19.0
    )Financing activitiesProceeds from short-term bank debt
    
    
    138.0
    
    
    
    
    
    
    
    
    
    
    
    138.0Payments on short-term bank debt
    
    
    (138.0
    )
    
    
    
    
    
    
    
    
    
    
    (138.0
    )Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (33.8
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    (34.2
    )Cash and cash equivalents at beginning of
period
    
    
    75.1
    
    
    
    0.5
    
    
    
    
    
    
    
    75.6Cash and cash equivalents at end of period
    
    $
    41.3
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    41.4
 24




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##### Table of Contents



Vought Aircraft Industries, Inc.
Consolidating Cash Flow Statement
Three Months Ended April 1, 2007
($ in millions) (Unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    19.2
    
    
    $
    (2.5
    )
    
    $
    2.5
    
    
    $
    19.2Adjustments to reconcile net income
(loss) to net cash provided
by (used in) 
operating activities:Depreciation and amortization
    
    
    14.7
    
    
    
    0.4
    
    
    
    
    
    
    
    15.1Stock compensation expense
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Equity in losses of joint venture
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Loss from asset disposals
    
    
    0.3
    
    
    
    0.1
    
    
    
    
    
    
    
    0.4Income from investments in
consolidated subsidiaries
    
    
    2.5
    
    
    
    
    
    
    
    (2.5
    )
    
    
    Changes in current assets and liabilities:Trade and other receivables
    
    
    (35.9
    )
    
    
    (3.4
    )
    
    
    
    
    
    
    (39.3
    )Intercompany accounts receivable
    
    
    (3.6
    )
    
    
    (0.3
    )
    
    
    3.9
    
    
    
    Inventories
    
    
    13.8
    
    
    
    0.3
    
    
    
    
    
    
    
    14.1Other current assets
    
    
    (3.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (3.2
    )Accounts payable, trade
    
    
    (16.1
    )
    
    
    1.1
    
    
    
    
    
    
    
    (15.0
    )Intercompany accounts payable
    
    
    0.3
    
    
    
    3.6
    
    
    
    (3.9
    )
    
    
    Accrued payroll and employee benefits
    
    
    (9.8
    )
    
    
    0.1
    
    
    
    
    
    
    
    (9.7
    )Accrued contract liabilities
    
    
    50.1
    
    
    
    
    
    
    
    
    
    
    
    50.1Other assets and liabilitieslong-term
    
    
    (12.9
    )
    
    
    
    
    
    
    
    
    
    
    (12.9
    )Net cash provided by (used in) operating
activities
    
    
    20.5
    
    
    
    (0.7
    )
    
    
    
    
    
    
    19.8Investing activitiesCapital expenditures
    
    
    (17.4
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (17.5
    )Investment in joint venture
    
    
    (4.5
    )
    
    
    
    
    
    
    
    
    
    
    (4.5
    )Net cash used in investing activities
    
    
    (21.9
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (22.0
    )Financing activitiesPayments on long-term bank debt
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Payments on capital leases
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.2
    )Net cash used in financing activities
    
    
    (1.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.2
    )Net decrease in cash and cash equivalents
    
    
    (2.5
    )
    
    
    (0.9
    )
    
    
    
    
    
    
    (3.4
    )Cash and cash equivalents at beginning of
period
    
    
    92.5
    
    
    
    0.9
    
    
    
    
    
    
    
    93.4Cash and cash equivalents at end of period
    
    $
    90.0
    
    
    $
    
    
    
    $
    
    
    
    $
    90.0
 25




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##### Table of Contents



Note
15  Fair Value Measurements
  
    
    Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for
identical assets or liabilities.
    
    Level 2: Inputs, other than quoted prices that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active.
    
    Level 3: Unobservable inputs that reflect the reporting entitys own assumptions.
  Note
16  Comprehensive Income
  For the Three Months EndedMarch 30,
    
    
    April 1,2008
    
    
    2007($ in millions)Net income
    
    $
    28.7
    
    
    $
    19.2Other comprehensive income (loss), net of taxPension
    
    
    9.9
    
    
    
    4.6OPEB
    
    
    (2.5
    )
    
    
    Total other comprehensive income
    
    $
    36.1
    
    
    $
    23.8
 Note
17  Subsequent Events
  26




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##### Table of Contents



27




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following section may include forward-looking statements that involve inherent risks and
uncertainties. A number of important factors could cause actual results to differ materially from
those in the forward-looking statements. These factors include (i) reduced demand for new
commercial aircraft due to reductions in airline traffic, (ii) business risks inherent to the
airline industry including armed conflict, terrorism, global health warnings, government
regulation, rising fuel and labor costs, lower than expected profitability, and general economic
conditions, and (iii) reduced demand for military aircraft due to reductions in defense spending,
cancellation or modification of military aircraft programs and changes to government export
controls. Managements discussion and analysis of financial condition and results of operations
should be read in conjunction with the financial statements of the company and the accompanying
notes contained therein.
 Overview
       28




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




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Basis of Presentation
  Revenue and Profit Recognition.
    Cost of sales.
 30




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Selling, general and administrative expenses.
 Interest expense, net.
 Other loss.
 Equity in loss of joint venture.
 31




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Results of Operations
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 30, 2008
    
    
    April 1, 2007($ in millions)
    
    
    $ Change
    
    
    % ChangeRevenue:Commercial
    
    $
    215.2
    
    
    $
    193.8
    
    
    $
    21.4
    
    
    
    11
    %Military
    
    
    137.9
    
    
    
    114.5
    
    
    
    23.4
    
    
    
    20
    %Business Jet
    
    
    72.3
    
    
    
    72.4
    
    
    
    (0.1
    )
    
    
    0
    %Total revenue
    
    $
    425.4
    
    
    $
    380.7
    
    
    $
    44.7
    
    
    
    12
    %Costs and expenses:Cost of sales
    
    
    326.3
    
    
    
    292.5
    
    
    
    33.8
    
    
    
    12
    %Selling, general and administrative
    
    
    54.3
    
    
    
    54.0
    
    
    
    0.3
    
    
    
    1
    %Total costs and expenses
    
    $
    380.6
    
    
    $
    346.5
    
    
    $
    34.1
    
    
    
    10
    %Operating income
    
    
    44.8
    
    
    
    34.2
    
    
    
    10.6
    
    
    
    31
    %Interest expense, net
    
    
    (15.7
    )
    
    
    (14.6
    )
    
    
    (1.1
    )
    
    
    8
    %Other (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    -100
    %Equity in loss of joint venture
    
    
    (0.4
    )
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    33
    %Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income
    
    $
    28.7
    
    
    $
    19.2
    
    
    $
    9.5
    
    
    
    49
    %
 Comparison of Results of Operations for the Three Months Ended March 30, 2008 and April 1, 2007
 Revenues
 
    
    Commercial revenue increased $21.4 million or 11%. Revenue for our Boeing programs
increased $11.1 million primarily due to non-recurring sales for the 747-8 program and
initial deliveries on the 787 program. In addition, revenue for our Airbus programs
increased $10.3 million primarily due to higher sales for the A330 program.
    
    Military revenue increased $23.4 million or 20%, primarily due to higher delivery
rates on the H-60 program and timing of deliveries for the Global Hawk program.
    
    Business Jet revenue remained flat during the period with immaterial fluctuations
on a program by program basis.
 Cost of sales
 32




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Selling, general and administrative expenses
 Operating income
 Interest expense, net
 Critical Accounting Policies
  Revenue Recognition
 Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
  33




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##### Table of Contents



March 30,
    
    
    December 31,2008
    
    
    2007($ in millions)Advances and progress billings
    
    $
    232.6
    
    
    $
    182.9Forward loss
    
    
    12.6
    
    
    
    18.3Other
    
    
    5.0
    
    
    
    29.2Total accrued contract liabilities
    
    $
    250.2
    
    
    $
    230.4
 Goodwill
 SFAS 142 SFAS 142
   Post-Retirement Plans.
    34




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Employers
Accounting for Defined Benefit Pension and Other Postretirement Plansan Amendment of FASB
Statements No. 87, 88, 106 and 132(R)
 Recent Accounting Pronouncements
 Fair Value Measurements Note 15  Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 35




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Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 Liquidity and Capital Resources
   36




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37




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Credit Agreements and Debt Covenants
    Non-GAAP Financial Measures.
 38




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Vought Aircraft Industries, Inc.
Reconciliation of Non-GAAP Measures
Adjusted EBITDA
(Unaudited)
($ in millions)
 For the Three Months EndedMarch 30,
    
    
    April 1,2008
    
    
    2007Net cash provided by (used in) operating activities
    
    $
    (15.2
    )
    
    $
    19.8Interest expense, net
    
    
    15.7
    
    
    
    14.6Stock compensation expense
    
    
    (0.6
    )
    
    
    (0.7
    )Equity in losses of joint venture
    
    
    (0.4
    )
    
    
    (0.3
    )Loss from asset sales and other losses
    
    
    (0.3
    )
    
    
    (0.4
    )Debt amortization costs
    
    
    (0.8
    )
    
    
    (0.8
    )Changes in operating assets and liabilities
    
    
    61.2
    
    
    
    15.9EBITDA
    
    $
    59.6
    
    
    $
    48.1Non-recurring investment in Boeing 787 (1)
    
    
    16.5
    
    
    
    23.8Unusual charges & other non-recurring program costs (2)
    
    
    1.9
    
    
    
    0.6Loss on disposal of property, plant and equipment (3)
    
    
    0.3
    
    
    
    0.4Other (4)
    
    
    1.0
    
    
    
    1.3Adjusted EBITDA
    
    $
    79.3
    
    
    $
    74.2
 
 (1)
    
    Non recurring investment in Boeing 787The Boeing 787 program, described elsewhere in
this quarterly report, is a significant new program for our operations, and has required
substantial start-up costs in recent periods as we built a new facility in South Carolina and
invested in new manufacturing technologies dedicated to the program. These start-up
investment costs are recognized in our financial statements over several periods due to their
magnitude and timing. We expect that our current start-up costs in the Boeing 787 program
will decline significantly as the start-up phase of the program and our current related
contractual commitments will be substantially completed during the next few months. In the
future, subject to potential program modifications by our customer, including development of
derivatives and delivery rate increases, we could have additional start-up costs required.
Our credit agreement excludes our significant start-up investment in the Boeing 787 program
because it represents an unusual significant investment in a major new program that is not
indicative of ongoing core operations, and accordingly the investment that has been expensed
during the period is added back to Adjusted EBITDA. Also included is our loss in our joint
venture with Global Aeronautica. Our share of Global Aeronauticas net loss was $0.4 million
and $0.3 million for the three month periods ended March 30, 2008 and April 1, 2007,
respectively. On March 26, 2008, we entered into an agreement to sell our equity interest in
Global Aeronautica to Boeing. We expect this transaction will be consummated during 2008.
For more information, please refer to Note 12  Investment in Joint Ventureto our interim
unaudited condensed consolidated financial statements. 39




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

For the three month periods ended March 30, 2008 and April 1, 2007, we incurred $1.9 million
and $0.6 million, respectively, of non-recurring costs related to a facilities
rationalization initiative.(3)
    
    Loss on disposal of property, plant and equipment (PP&E)  On occasion, where the asset
is no longer needed for our business and ceases to offer sufficient value or utility to
justify our retention of the asset, we choose to sell PP&E at a loss. These losses reduce our
results of operations for the period in which the asset was sold. Our credit agreement
provides that those losses are reflected as an adjustment in calculating Adjusted EBITDA.(4)
    
    OtherIncludes non-cash stock expense and related party management fees. Our credit
agreement provides that these expenses are reflected as an adjustment in calculating Adjusted
EBITDA.   
    
    our operating performance across periods on a consistent basis;
 
    
    our ongoing ability to meet our obligations and manage our levels of indebtedness;
and
 
    
    our liquidity and covenant compliance to evaluate the relative risk of an investment
in our securities.
  
    
    it does not reflect our cash expenditures, or future requirements, for all contractual
commitments;
    
    it does not reflect our significant interest expense, or the cash requirements
necessary to service our indebtedness;
    
    it does not reflect cash requirements for the payment of income taxes when due;
    
    it does not reflect working capital requirements;
    
    although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA
does not reflect any cash requirements for such replacements; and
    
    it does not reflect the impact of earnings or charges resulting from matters we
consider not to be indicative of our ongoing operations, but may nonetheless have a
material impact on our results of operations.
 40




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Cash Flow Summary
 For the Three Months EndedMarch 30,
    
    
    April 1,2008
    
    
    2007
    
    
    Change($ in millions)Net income (loss)
    
    $
    28.7
    
    
    $
    19.2
    
    
    $
    9.5Non-cash items
    
    
    17.3
    
    
    
    16.5
    
    
    
    0.8Changes in working capital
    
    
    (61.2
    )
    
    
    (15.9
    )
    
    
    (45.3
    )Net cash provided by (used in) operating activities
    
    
    (15.2
    )
    
    
    19.8
    
    
    
    (35.0
    )Net cash used in investing activities
    
    
    (19.0
    )
    
    
    (22.0
    )
    
    
    3.0Net cash provided by (used in) financing activities
    
    
    
    
    
    
    (1.2
    )
    
    
    1.2Net increase (decrease) in cash and cash equivalents
    
    
    (34.2
    )
    
    
    (3.4
    )
    
    
    (30.8
    )Cash and cash equivalents at beginning of period
    
    
    75.6
    
    
    
    93.4
    
    
    
    (17.8
    )Cash and cash equivalents at end of period
    
    $
    41.4
    
    
    $
    90.0
    
    
    $
    (48.6
    )
    Off-Balance Sheet Arrangements
  41




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




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Foreign Currency Risks
  Utility Price Risks
  43




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ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Material Weakness in Internal Control of Financial Reporting
     Changes in Internal Control over Financial Reporting
  44




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  Our substantial indebtedness could prevent us from fulfilling our obligations under our outstanding
senior notes and our senior credit facilities.
   
    
    make it more difficult for us to satisfy our obligations with respect to our
outstanding debt;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations
to payments on our indebtedness, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures, research and development
efforts and other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate;
    
    restrict us from making strategic acquisitions or exploiting business
opportunities;
    
    place us at a competitive disadvantage compared to our competitors that have
less debt; and
    
    limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds, dispose
of assets or pay cash dividends.
   45




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We may be adversely affected if we are unable to maintain effective internal controls that ensure timely and reliable external financial reporting.
    
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
    46




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ITEM 6. EXHIBITS
 (a) Exhibits
 (10.1)*
    
    Joinder Agreement dated May 6, 2008(31.1)*
    
    Certification of Chief Executive Officer pursuant to Section 302
of Sarbanes-Oxley Act of 2002.(31.2)*
    
    Certification of Chief Financial Officer pursuant to Section 302
of Sarbanes-Oxley Act of 2002.(32.1)*
    
    Certification of Chief Executive Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002.(32.2)*
    
    Certification of Chief Financial Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 47




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SIGNATURES
 
 Vought Aircraft Industries, Inc.(Registrant)May 12, 2008
    
    /s/ KEITH HOWE(Date)
    
    Vice President and Chief Financial OfficerMay 12, 2008
    
    /s/ WENDY HARGUS(Date)
    
    Interim Principal Accounting Officer
 48