##### 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 26, 2006
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from       to
 Commission File Number 333-112528
 Vought Aircraft Industries, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    75-2884072(State of Incorporation)
    
    (I.R.S. Employer Identification Number)9314 West Jefferson Boulevard M/S 2-01Dallas, TX
    
    75211(Address of Principal executive offices)
    
    (Zip Code)
 (972)-946-2011
(Registrants telephone number, including area code)
 þ o
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
  
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of March 26, 2006 (unaudited)
and December 31, 2005
    
    
    2Condensed Consolidated Statements of Operations for the three months ended
March 26, 2006 and March 27, 2005 (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the three months
ended March 26, 2006, and March 27, 2005
(unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements
(unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits ...
    
    
    31Signatures
    
    
    32Separation Agreement - Erich SmithCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  1




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##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Vought Aircraft Industries, Inc.
 
 Condensed Consolidated Balance Sheets
 ($ in millions)
 March 26,
    
    
    December 31,2006
    
    
    2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    14.4
    
    
    $
    10.1Accounts receivable
    
    
    104.8
    
    
    
    90.8Inventories
    
    
    366.9
    
    
    
    340.1Other current assets
    
    
    10.4
    
    
    
    7.4Total current assets
    
    
    496.5
    
    
    
    448.4Property, plant and equipment, net
    
    
    514.8
    
    
    
    485.1Goodwill, net
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    76.4
    
    
    
    79.1Debt origination costs, net and other assets
    
    
    18.8
    
    
    
    21.5Total assets
    
    $
    1,634.2
    
    
    $
    1,561.8Liabilities and stockholders deficitCurrent liabilities:Accounts payable, trade
    
    $
    131.7
    
    
    $
    121.9Accrued and other liabilities
    
    
    64.4
    
    
    
    69.0Accrued payroll and employee benefits
    
    
    34.8
    
    
    
    35.5Accrued post-retirement benefits-current
    
    
    53.4
    
    
    
    53.4Accrued pension-current
    
    
    40.4
    
    
    
    36.8Current portion of long-term bank debt
    
    
    4.0
    
    
    
    4.0Capital lease obligation
    
    
    0.7
    
    
    
    0.8Accrued contract liabilities
    
    
    310.2
    
    
    
    216.0Total current liabilities
    
    
    639.6
    
    
    
    537.4Long-term liabilities:Accrued post-retirement benefits
    
    
    498.1
    
    
    
    496.5Accrued pension
    
    
    444.6
    
    
    
    441.2Long-term bank debt, net of current portion
    
    
    417.0
    
    
    
    417.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Long-term capital lease obligation
    
    
    1.1
    
    
    
    1.2Other non-current liabilities
    
    
    188.3
    
    
    
    171.5Total liabilities
    
    
    2,458.7
    
    
    
    2,334.8Stockholders deficit:Common stock, par value $.01; 50,000,000
shares authorized, 24,711,373 issued and
outstanding in 2006 and 2005
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    411.4
    
    
    
    411.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    (1.6
    )Stockholders loans
    
    
    (1.1
    )
    
    
    (1.1
    )Accumulated deficit
    
    
    (656.1
    )
    
    
    (604.6
    )Accumulated other comprehensive loss
    
    
    (577.4
    )
    
    
    (577.4
    )Total stockholders deficit
    
    $
    (824.5
    )
    
    $
    (773.0
    )Total liabilities and stockholders deficit
    
    $
    1,634.2
    
    
    $
    1,561.8
 See accompanying notes
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Vought Aircraft Industries, Inc.
 
 Condensed Consolidated Statements of Operations
 ($ in millions) (Unaudited)
 For the Three MonthsEndedMarch 26,
    
    
    March 27,2006
    
    
    2005Net sales
    
    $
    322.8
    
    
    $
    269.8Costs and expensesCost of sales
    
    
    284.5
    
    
    
    240.6Selling, general and administrative expenses
    
    
    73.4
    
    
    
    67.5Total costs and expenses
    
    
    357.9
    
    
    
    308.1Operating loss
    
    
    (35.1
    )
    
    
    (38.3
    )Other income (expense)Interest income
    
    
    0.3
    
    
    
    0.7Equity in earnings (loss) of joint venture
    
    
    (1.7
    )
    
    
    (0.1
    )Interest expense
    
    
    (15.0
    )
    
    
    (12.1
    )Loss before income taxes
    
    
    (51.5
    )
    
    
    (49.8
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (51.5
    )
    
    $
    (49.8
    )
 See accompanying notes
 3




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Vought Aircraft Industries, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 ($ in millions) (Unaudited)
 For the Three Months EndedMarch 26,
    
    
    March 27,2006
    
    
    2005Operating activitiesNet loss
    
    $
    (51.5
    )
    
    $
    (49.8
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    14.3
    
    
    
    18.6Equity in losses of joint venture
    
    
    1.7
    
    
    
    0.1Loss from asset sales
    
    
    0.1
    
    
    
    0.5Changes in current assets and liabilities:Accounts receivable
    
    
    (14.0
    )
    
    
    6.8Inventories, net of advances and progress billings
    
    
    (26.6
    )
    
    
    (50.5
    )Other current assets
    
    
    (3.0
    )
    
    
    (0.4
    )Accounts payable, trade
    
    
    9.8
    
    
    
    (21.3
    )Accrued payroll and employee benefits
    
    
    (0.7
    )
    
    
    (3.9
    )Accrued and other liabilities
    
    
    (1.0
    )
    
    
    (9.1
    )Accrued contract liabilities
    
    
    94.2
    
    
    
    105.3Other assets and liabilitieslong-term
    
    
    5.6
    
    
    
    19.9Net cash provided by operating activities
    
    
    28.9
    
    
    
    16.2Investing activitiesCapital expenditures
    
    
    (40.8
    )
    
    
    (6.3
    )Net cash used in investing activities
    
    
    (40.8
    )
    
    
    (6.3
    )Financing activitiesProceeds from short-term bank debt
    
    
    65.0
    
    
    
    Payments on short-term bank debt
    
    
    (65.0
    )Payments on capital leases
    
    
    (0.2
    )
    
    
    (0.2
    )Proceeds from governmental grants
    
    
    16.4
    
    
    
    0.6Net cash provided by (used in) financing activities
    
    
    16.2
    
    
    
    0.4Net increase (decrease) in cash and cash equivalents
    
    
    4.3
    
    
    
    10.3Cash and cash equivalents at beginning of period
    
    
    10.1
    
    
    
    128.9Cash and cash equivalents at end of period
    
    $
    14.4
    
    
    $
    139.2
 See accompanying notes
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VOUGHT AIRCRAFT INDUSTRIES, INC.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 March 26, 2006
 Note 1  Organization and Basis of Presentation
     5




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Note 2  New Accounting Pronouncements
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in
Interim Financial Statements
  Inventory Costs
 Note 3  Stock-Based Compensation
   6




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Accounting for Stock Based Compensation
 Three months endedMarch 26,
    
    
    March 27,2006
    
    
    2005($ in millions)Reported net loss
    
    $
    (51.5
    )
    
    $
    (49.8
    )Add: Stock-based employee compensation
expense included in reported net income
    
    
    
    
    
    
    Deduct: Total stock-based employee
compensation expense determined under fair
value based methods
    
    
    
    
    
    
    (0.5
    )Pro forma net loss
    
    $
    (51.5
    )
    
    $
    (50.3
    )
   2005Expected dividend yield
    
    0%Risk free interest rate
    
    3.9%-4.3%Expected life of options
    
    6 years
 7




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WeightedAverageExerciseOptions
    
    
    PriceOptions outstanding at December 31, 2005
    
    
    1,507,129
    
    
    $
    13.17Options granted
    
    
    
    
    
    
    Options forfeited
    
    
    (79,507
    )
    
    
    10.00Options exercised
    
    
    
    
    
    
    Options outstanding at March 26, 2006
    
    
    1,427,622
    
    
    $
    13.35Options exercisable at March 26, 2006
    
    
    1,254,022
    
    
    $
    12.28Weighted average remaining contractual life at
March 26, 2006
    
    
    5.49 years
     Stock Repurchase Program
  8




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Note 4  Restructuring
     AccruedRestructuringReserve  Stuart andNashville Sites($ in millions)Balance December 31, 2004
    
    $
    7.3Restructuring liabilities recognized
    
    
    2.1Restructuring liabilities reversed
    
    
    (5.6
    )Expenditures
    
    
    (1.1
    )Balance December 31, 2005
    
    $
    2.7Restructuring liabilities recognized for the three
months ended March 26, 2006
    
    
    Expenditures for the three months ended March 26, 2006
    
    
    (0.2
    )Balance March 26, 2006
    
    $
    2.5
 9




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Pension and Other Post-Retirement Benefits
     10




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Accrued RestructuringReserve Perry Site($ in millions)Balance December 31, 2003
    
    $
    9.5Cash expenditures
    
    
    (1.9
    )Balance December 31, 2004
    
    $
    7.6Cash expenditures
    
    
    (1.9
    )Balance December 31, 2005
    
    $
    5.7Cash expenditures for the
three months ended March 26,
2006
    
    
    (0.4
    )Balance March 26, 2006
    
    $
    5.3
 Note 5  Inventories
  March 26,
    
    
    December 31,2006
    
    
    2005($ in millions)Production costs of contracts in process
    
    $
    540.1
    
    
    $
    529.8Finished goods
    
    
    33.7
    
    
    
    22.8Less: unliquidated progress payments
    
    
    (206.9
    )
    
    
    (212.5
    )Total inventories
    
    $
    366.9
    
    
    $
    340.1
  Note 6  Goodwill and Intangible Assets
 Goodwill and Other Intangible Assets
  March 26,
    
    
    December 31,2006
    
    
    2005($ in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Pension asset
    
    
    19.1
    
    
    
    19.1Less: accumulated amortization
    
    
    (80.0
    )
    
    
    (77.3
    )Identifiable intangible assets, net
    
    $
    76.4
    
    
    $
    79.1
 11




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($ in millions)2006
    
    $
    8.12007
    
    
    10.02008
    
    
    8.92009
    
    
    8.92010
    
    
    6.0Thereafter
    
    
    15.4$
    57.3
 Note 7  Pension and Other Post-retirement Benefits
  Three
    
    
    ThreeMonths
    
    
    MonthsEnded
    
    
    EndedMarch 26,
    
    
    March 27,Pension Benefits
    
    2006
    
    
    2005($ in millions)Components of net periodic benefit cost
(income):Service cost
    
    $
    6.2
    
    
    $
    7.8Interest cost
    
    
    26.2
    
    
    
    25.8Expected return on plan assets
    
    
    (28.8
    )
    
    
    (29.3
    )Amortization of (gains) or losses
    
    
    14.3
    
    
    
    13.8Prior service cost recognized
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    0.8
    
    
    
    0.7Net periodic benefit cost
    
    $
    18.7
    
    
    $
    18.8Defined contribution plan cost
    
    $
    1.8
    
    
    $
    1.7
 Three
    
    
    ThreeMonths
    
    
    MonthsEnded
    
    
    EndedMarch 26,
    
    
    March 27,Other Post-retirement Benefits
    
    2006
    
    
    2005($ in millions)Components of net periodic benefit cost (income):Service cost
    
    $
    1.5
    
    
    $
    1.8Interest cost
    
    
    8.5
    
    
    
    9.7Expected return on plan assets
    
    
    
    
    
    
    Prior service cost recognized
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (2.5
    )
    
    
    0.6Amortization of net (gain)/loss
    
    
    3.5
    
    
    
    2.7Net periodic benefit cost
    
    $
    11.0
    
    
    $
    14.8
 12




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Note 8  Commitments
 Warranty Reserves.
 WarrantyReserve($ in millions)Balance at December 31, 2004Warranty costs incurred
    
    
    (0.5
    )Additions charged to cost of sales:Warranties issued
    
    
    0.3Charges related to pre-existing warranties
    
    
    (2.0
    )Balance at December 31, 2005
    
    $
    8.0Warranty costs incurred
    
    
    Additions charged to cost of sales:Warranties issued
    
    
    0.4Charges related to pre-existing warranties
    
    
    (0.9
    )Balance at March 26, 2006
    
    $
    7.5
 13




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Note 9  Environmental Contingencies
     EnvironmentalLiability($ in millions)Balance at December 31, 2004
    
    $
    5.8Environmental costs incurred
    
    
    (1.5
    )Balance at December 31, 2005
    
    
    4.3Environmental costs incurred for the three months ending March 26, 2006
    
    
    (0.1
    )Balance at March 26, 2006
    
    $
    4.2
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Note 10  Other Non-Current Liabilities
  March 26,
    
    
    December 31,2006
    
    
    2005($ in millions)Deferred income from the sale of Hawthorne
    
    $
    52.6
    
    
    $
    52.6State of South Carolina grant monies
    
    
    68.5
    
    
    
    52.2State of Texas grant monies
    
    
    35.0
    
    
    
    35.0Deferred workers compensation
    
    
    22.4
    
    
    
    19.5Accrued warranties
    
    
    7.1
    
    
    
    7.5Other
    
    
    2.7
    
    
    
    4.7Total accrued and other liabilities
    
    $
    188.3
    
    
    $
    171.5
 Note 11  Related Party Transactions
  Note 12  Guarantor Subsidiaries
  15




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Consolidating Balance Sheet
March 26, 2006
($ in millions)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    14.2
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    14.4Accounts receivable
    
    
    99.9
    
    
    
    4.9
    
    
    
    
    
    
    
    104.8Intercompany receivable
    
    
    13.0
    
    
    
    6.5
    
    
    
    (19.5
    )
    
    
    Inventories
    
    
    352.5
    
    
    
    14.4
    
    
    
    
    
    
    
    366.9Other current assets
    
    
    10.0
    
    
    
    0.4
    
    
    
    
    
    
    
    10.4Total current assets
    
    
    489.6
    
    
    
    26.4
    
    
    
    (19.5
    )
    
    
    496.5Property, plant and equipment, net
    
    
    505.1
    
    
    
    9.7
    
    
    
    
    
    
    
    514.8Goodwill, net
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    76.4
    
    
    
    
    
    
    
    
    
    
    
    76.4Investment in affiliated company
    
    
    79.3
    
    
    
    
    
    
    
    (79.3
    )
    
    
    Debt origination costs, net and other assets
    
    
    18.7
    
    
    
    0.1
    
    
    
    
    
    
    
    18.8Total assets
    
    $
    1,633.1
    
    
    $
    99.9
    
    
    $
    (98.8
    )
    
    $
    1,634.2Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    127.6
    
    
    $
    4.1
    
    
    $
    
    
    
    $
    131.7Intercompany payable
    
    
    6.5
    
    
    
    13.0
    
    
    
    (19.5
    )
    
    
    Accrued and other liabilities
    
    
    63.7
    
    
    
    0.7
    
    
    
    
    
    
    
    64.4Accrued payroll and employee benefits
    
    
    33.8
    
    
    
    1.0
    
    
    
    
    
    
    
    34.8Accrued post-retirement benefits  current
    
    
    53.4
    
    
    
    
    
    
    
    
    
    
    
    53.4Accrued pension  current
    
    
    40.4
    
    
    
    
    
    
    
    
    
    
    
    40.4Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    0.7Accrued contract liabilities
    
    
    310.2
    
    
    
    
    
    
    
    
    
    
    
    310.2Total current liabilities
    
    
    639.6
    
    
    
    19.5
    
    
    
    (19.5
    )
    
    
    639.6Long-term liabilities:Accrued post-retirement benefits
    
    
    498.1
    
    
    
    
    
    
    
    
    
    
    
    498.1Accrued pension
    
    
    444.6
    
    
    
    
    
    
    
    
    
    
    
    444.6Long-term bank debt, net of current portion
    
    
    417.0
    
    
    
    
    
    
    
    
    
    
    
    417.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Long-term capital lease obligation
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    1.1Other non-current liabilities
    
    
    188.3
    
    
    
    
    
    
    
    
    
    
    
    188.3Total liabilities
    
    
    2,457.6
    
    
    
    20.6
    
    
    
    (19.5
    )
    
    
    2,458.7Stockholders equity (deficit):Common stock, par value $0.01; 50,000,000 shares
authorized, 24,711,373 issued and outstanding
in 2006
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    411.4
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    411.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Accumulated deficit
    
    
    (656.1
    )
    
    
    (1.0
    )
    
    
    1.0
    
    
    
    (656.1
    )Accumulated other comprehensive loss
    
    
    (577.4
    )
    
    
    
    
    
    
    
    
    
    
    (577.4
    )Total stockholders equity (deficit)
    
    
    (824.5
    )
    
    
    79.3
    
    
    
    (79.3
    )
    
    
    (824.5
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,633.1
    
    
    $
    99.9
    
    
    $
    (98.8
    )
    
    $
    1,634.2
 16




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Consolidating Balance Sheet
December 31, 2005
($ in millions)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    9.9
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    10.1Accounts receivable
    
    
    84.5
    
    
    
    6.3
    
    
    
    
    
    
    
    90.8Intercompany receivable
    
    
    12.1
    
    
    
    5.8
    
    
    
    (17.9
    )
    
    
    Inventories
    
    
    327.9
    
    
    
    12.2
    
    
    
    
    
    
    
    340.1Other current assets
    
    
    6.9
    
    
    
    0.5
    
    
    
    
    
    
    
    7.4Total current assets
    
    
    441.3
    
    
    
    25.0
    
    
    
    (17.9
    )
    
    
    448.4Property, plant and equipment, net
    
    
    474.9
    
    
    
    10.2
    
    
    
    
    
    
    
    485.1Goodwill, net
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    79.1
    
    
    
    
    
    
    
    
    
    
    
    79.1Investment in affiliated company
    
    
    79.3
    
    
    
    
    
    
    
    (79.3
    )
    
    
    Debt origination costs, net and other assets
    
    
    21.5
    
    
    
    
    
    
    
    
    
    
    
    21.5Total assets
    
    $
    1,560.1
    
    
    $
    98.9
    
    
    $
    (97.2
    )
    
    $
    1,561.8Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    117.8
    
    
    $
    4.1
    
    
    $
    
    
    
    $
    121.9Intercompany payable
    
    
    5.8
    
    
    
    12.1
    
    
    
    (17.9
    )
    
    
    Accrued and other liabilities
    
    
    68.5
    
    
    
    0.5
    
    
    
    
    
    
    
    69.0Accrued payroll and employee benefits
    
    
    34.6
    
    
    
    0.9
    
    
    
    
    
    
    
    35.5Accrued post-retirement benefits  current
    
    
    53.4
    
    
    
    
    
    
    
    
    
    
    
    53.4Accrued pension  current
    
    
    36.8
    
    
    
    
    
    
    
    
    
    
    
    36.8Current portion of long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8Accrued contract liabilities
    
    
    216.0
    
    
    
    
    
    
    
    
    
    
    
    216.0Total current liabilities
    
    
    536.9
    
    
    
    18.4
    
    
    
    (17.9
    )
    
    
    537.4Long-term liabilities:Accrued post-retirement benefits
    
    
    496.5
    
    
    
    
    
    
    
    
    
    
    
    496.5Accrued pension
    
    
    441.2
    
    
    
    
    
    
    
    
    
    
    
    441.2Long-term bank debt, net of current portion
    
    
    417.0
    
    
    
    
    
    
    
    
    
    
    
    417.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Long-term capital lease obligation
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    1.2Other non-current liabilities
    
    
    171.5
    
    
    
    
    
    
    
    
    
    
    
    171.5Total liabilities
    
    
    2,333.1
    
    
    
    19.6
    
    
    
    (17.9
    )
    
    
    2,334.8Stockholders equity (deficit):Common stock, par value $0.01; 50,000,000 shares
authorized, 24,711,373 issued and outstanding
in 2005
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    411.4
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    411.4Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Accumulated deficit
    
    
    (604.6
    )
    
    
    (1.0
    )
    
    
    1.0
    
    
    
    (604.6
    )Accumulated other comprehensive loss
    
    
    (577.4
    )
    
    
    
    
    
    
    
    
    
    
    (577.4
    )Total stockholders equity (deficit)
    
    
    (773.0
    )
    
    
    79.3
    
    
    
    (79.3
    )
    
    
    (773.0
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,560.1
    
    
    $
    98.9
    
    
    $
    (97.2
    )
    
    $
    1,561.8
 17




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##### Table of Contents



Consolidating Statement of Operations
Three Months Ended March 26, 2006
($ in millions)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    314.7
    
    
    $
    10.5
    
    
    $
    (2.4
    )
    
    $
    322.8Costs and expensesCost of sales
    
    
    277.1
    
    
    
    9.8
    
    
    
    (2.4
    )
    
    
    284.5Selling, general and administrative expenses
    
    
    72.7
    
    
    
    0.7
    
    
    
    
    
    
    
    73.4Total costs and expenses
    
    
    349.8
    
    
    
    10.5
    
    
    
    (2.4
    )
    
    
    357.9Operating income (loss)
    
    
    (35.1
    )
    
    
    
    
    
    
    
    
    
    
    (35.1
    )Other income (expense)Interest income
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Other income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings (loss) for joint venture
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (1.7
    )Interest expense
    
    
    (15.0
    )
    
    
    
    
    
    
    
    
    
    
    (15.0
    )Equity in income of consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    (51.5
    )
    
    
    
    
    
    
    
    
    
    
    (51.5
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (51.5
    )
    
    $
    
    
    
    $
    
    
    
    $
    (51.5
    )
 Consolidating Statement of Operations
Three Months Ended March 27, 2005
($ in millions)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    252.9
    
    
    $
    19.3
    
    
    $
    (2.4
    )
    
    $
    269.8Costs and expensesCost of sales
    
    
    226.4
    
    
    
    16.6
    
    
    
    (2.4
    )
    
    
    240.6Selling, general and administrative expenses
    
    
    66.6
    
    
    
    0.9
    
    
    
    
    
    
    
    67.5Total costs and expenses
    
    
    293.0
    
    
    
    17.5
    
    
    
    (2.4
    )
    
    
    308.1Operating income (loss)
    
    
    (40.1
    )
    
    
    1.8
    
    
    
    
    
    
    
    (38.3
    )Other income (expense)Interest income
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Equity in earnings (loss) for joint venture
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Interest expense
    
    
    (12.1
    )
    
    
    
    
    
    
    
    
    
    
    (12.1
    )Equity in income of consolidated subsidiaries
    
    
    1.8
    
    
    
    
    
    
    
    (1.8
    )
    
    
    Income (loss) before income taxes
    
    
    (49.8
    )
    
    
    1.8
    
    
    
    (1.8
    )
    
    
    (49.8
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (49.8
    )
    
    $
    1.8
    
    
    $
    (1.8
    )
    
    $
    (49.8
    )
 18




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##### Table of Contents



Consolidating Statement of Cash Flows
Three Months Ended March 26, 2006
($ in millions)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    (51.5
    )
    
    $
    
    
    
    $
    
    
    
    $
    (51.5
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in ) operating activities:Depreciation & amortization
    
    
    13.5
    
    
    
    0.8
    
    
    
    
    
    
    
    14.3Equity in losses of joint venture
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Loss from asset sales
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Changes in current assets and liabilities:Accounts receivable
    
    
    (15.4
    )
    
    
    1.4
    
    
    
    
    
    
    
    (14.0
    )Intercompany accounts receivable
    
    
    (0.9
    )
    
    
    (0.7
    )
    
    
    1.6
    
    
    
    Inventories, net of advance and progress billings
    
    
    (24.4
    )
    
    
    (2.2
    )
    
    
    
    
    
    
    (26.6
    )Other current assets
    
    
    (3.1
    )
    
    
    0.1
    
    
    
    
    
    
    
    (3.0
    )Accounts payable, trade
    
    
    9.8
    
    
    
    
    
    
    
    
    
    
    
    9.8Intercompany accounts payable
    
    
    0.7
    
    
    
    0.9
    
    
    
    (1.6
    )
    
    
    Accrued payroll and employee benefits
    
    
    (0.8
    )
    
    
    0.1
    
    
    
    
    
    
    
    (0.7
    )Accrued and other liabilities
    
    
    (1.2
    )
    
    
    0.2
    
    
    
    
    
    
    
    (1.0
    )Accrued contract liabilities
    
    
    94.2
    
    
    
    
    
    
    
    
    
    
    
    94.2Other assets and liabilities  long-term
    
    
    5.7
    
    
    
    (0.1
    )
    
    
    
    
    
    
    5.6Net cash provided by operating activities
    
    
    28.4
    
    
    
    0.5
    
    
    
    
    
    
    
    28.9Investing activitiesCapital Expenditures
    
    
    (40.5
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (40.8
    )Net cash used in investing activities
    
    
    (40.5
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (40.8
    )Financing activitiesProceeds from short-term bank debt
    
    
    65.0
    
    
    
    
    
    
    
    
    
    
    
    65.0Payments on short-term bank debt
    
    
    (65.0
    )
    
    
    
    
    
    
    
    
    
    
    (65.0
    )Payments on capital leases
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Proceeds from governmental grants
    
    
    16.4
    
    
    
    
    
    
    
    
    
    
    
    16.4Net cash provided by (used in) financing activities
    
    
    16.4
    
    
    
    (0.2
    )
    
    
    
    
    
    
    16.2Net increase (decrease) in cash and cash equivalents
    
    
    4.3
    
    
    
    
    
    
    
    
    
    
    
    4.3Cash and cash equivalents at beginning of period
    
    
    9.9
    
    
    
    0.2
    
    
    
    
    
    
    
    10.1Cash and cash equivalents at end of period
    
    $
    14.2
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    14.4
 19




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##### Table of Contents



Consolidating Statement of Cash Flows
Three Months Ended March 27, 2005
($ in millions)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalOperating activitiesNet income (loss)
    
    $
    (49.8
    )
    
    $
    1.8
    
    
    $
    (1.8
    )
    
    $
    (49.8
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation & amortization
    
    
    17.6
    
    
    
    1.0
    
    
    
    
    
    
    
    18.6Equity in losses of joint venture
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Loss from asset sales
    
    
    0.4
    
    
    
    0.1
    
    
    
    
    
    
    
    0.5Income from investment in consolidated subsidiaries
    
    
    (1.8
    )
    
    
    
    
    
    
    1.8
    
    
    
    Changes in current assets and liabilities:Accounts receivable
    
    
    11.4
    
    
    
    (4.6
    )
    
    
    
    
    
    
    6.8Intercompany accounts receivable
    
    
    1.1
    
    
    
    1.8
    
    
    
    (2.9
    )
    
    
    Inventories, net of advance and progress billings
    
    
    (50.9
    )
    
    
    0.4
    
    
    
    
    
    
    
    (50.5
    )Other current assets
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Accounts payable, trade
    
    
    (22.4
    )
    
    
    1.1
    
    
    
    
    
    
    
    (21.3
    )Intercompany accounts payable
    
    
    (1.8
    )
    
    
    (1.1
    )
    
    
    2.9
    
    
    
    Accrued payroll and employee benefits
    
    
    (3.9
    )
    
    
    
    
    
    
    
    
    
    
    (3.9
    )Accrued and other liabilities
    
    
    (8.6
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (9.1
    )Accrued contract liabilities
    
    
    105.3
    
    
    
    
    
    
    
    
    
    
    
    105.3Other assets and liabilities  long-term
    
    
    19.9
    
    
    
    
    
    
    
    
    
    
    
    19.9Net cash provided by operating activities
    
    
    16.2
    
    
    
    
    
    
    
    
    
    
    
    16.2Investing activitiesCapital expenditures
    
    
    (6.2
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (6.3
    )Net cash used in investing activities
    
    
    (6.2
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (6.3
    )Financing activitiesPayments on capital leases
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Proceeds from governmental grants
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6Net cash provided by (used in) financing activities
    
    
    0.6
    
    
    
    (0.2
    )
    
    
    
    
    
    
    0.4Net increase (decrease) in cash and cash equivalents
    
    
    10.6
    
    
    
    (0.3
    )
    
    
    
    
    
    
    10.3Cash and cash equivalents at beginning of period
    
    
    128.6
    
    
    
    0.3
    
    
    
    
    
    
    
    128.9Cash and cash equivalents at end of period
    
    $
    139.2
    
    
    $
    
    
    
    $
    
    
    
    $
    139.2
 20




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##### Table of Contents



Note 13  Subsequent Events
   21




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following section may include forward-looking statements that involve inherent risks and
uncertainties. A number of important factors could cause actual results to differ materially from
those in the forward-looking statements. These factors include (i) reduced demand for new
commercial aircraft due to reduction in airline traffic, (ii) business risks inherent to the
airline industry including armed conflict, terrorism, global health warnings, government
regulation, rising fuel and labor costs, lower than expected profitability, and general economic
conditions, and (iii) reduced demand for military aircraft due to reductions in defense spending,
cancellation or modification of military aircraft programs and changes to government export
controls. Managements discussion and analysis of financial condition and results of operations
should be read in conjunction with the financial statements of Vought and the accompanying notes
contained therein.
 Recent Events
  Other Information
  22




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##### Table of Contents



Results of Operations
 Three Months
    
    
    Percentage
    
    
    Three MonthsEnded March 26,
    
    
    Change to
    
    
    Ended March 27,2006
    
    
    Prior Year
    
    
    2005($ in millions)Net sales:Commercial
    
    $
    138.2
    
    
    
    3
    %
    
    $
    134.1Military
    
    
    128.7
    
    
    
    43
    %
    
    
    89.8Business Jets
    
    
    55.9
    
    
    
    22
    %
    
    
    45.9Total net sales
    
    $
    322.8
    
    
    
    20
    %
    
    $
    269.8Costs and expenses:Cost of sales
    
    
    284.5
    
    
    
    18
    %
    
    
    240.6Selling, general and
administrative
    
    
    73.4
    
    
    
    9
    %
    
    
    67.5Total costs and expenses
    
    $
    357.9
    
    
    
    16
    %
    
    $
    308.1Operating loss
    
    
    (35.1
    )
    
    
    (8
    )%
    
    
    (38.3
    )Interest expense, net
    
    
    (14.7
    )
    
    
    29
    %
    
    
    (11.4
    )Equity in (loss) of joint venture
    
    
    (1.7
    )
    
    
    1600
    %
    
    
    (0.1
    )Net loss
    
    $
    (51.5
    )
    
    
    3
    %
    
    $
    (49.8
    )
 Comparison of Results of Operations for the Three Months Ended March 26, 2006 and March 27,
2005
 Net sales
 
    
    Commercial net sales increased by approximately $4.1 million or 3%, due to increased
sales of $12.0 million as a result of increased deliveries on Boeing 767, 777, and 747
contracts, partially offset by a decrease in sales of $2.0 million and $5.9 million,
due to decreased deliveries on Airbus programs and the reduction of work on Embraer contracts,
respectively.
    
    Military net sales increased approximately $38.9 million or 43%, as a result of
increased sales of $26.7 million due to initial deliveries on the C-5 program, as well
as an increase of $10.2 million resulting primarily from increased deliveries on the
C-130 and Global Hawk programs.
    
    Business Jet net sales increased by approximately $10.0 million or 22% primarily due
to increased delivery rates on the Gulfstream IV and V programs.
 Cost of sales
 Selling, general and administrative expenses
 23




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##### Table of Contents



Operating income (loss)
 Interest expense, net
 Critical Accounting Policies
  Liquidity and Capital Resources
 Recent Events
  24




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##### Table of Contents



25




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##### Table of Contents



Debt Covenants.
 Cash Flow
    Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   26




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##### Table of Contents



Interest Rate Risks
   27




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##### Table of Contents



Utility Price Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
   Managements Discussion and Analysis of Financial Condition and
Results of Operations
   28




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  29




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 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
  30




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##### Table of Contents



ITEM 6. EXHIBITS
 (a) Exhibits
 (10.1)*
    
    Separation Agreement between Vought and Erich Smith.(31.1)*
    
    Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.(31.2)*
    
    Certification of Principal Financial and
Accounting 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 Principal Financial and Accounting Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 31




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##### Table of Contents



SIGNATURES
  Vought Aircraft Industries, Inc.

(Registrant)May 10, 2006
    
    
    
    /s/ Wendy Hargus(Date)
    
    
    
    Wendy HargusInterim Principal Financial and AccountingOfficer and Authorized Officer
 32