##### 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 April 1, 2007
 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 49R-06Dallas, 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  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Cash FlowsITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESAmendment to 2006 Incentive Award PlanRestricted Stock Unit Award AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  
  
  Vought Aircraft Industries, Inc.
 
 Consolidated Balance Sheets
($ in millions, except per share amounts)
 April 1,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    90.0
    
    
    $
    93.4Accounts receivable
    
    
    121.4
    
    
    
    82.1Inventories
    
    
    323.7
    
    
    
    337.8Other current assets
    
    
    19.2
    
    
    
    7.3Total current assets
    
    
    554.3
    
    
    
    520.6Property, plant and equipment, net
    
    
    526.1
    
    
    
    530.4Goodwill
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    62.6
    
    
    
    64.9Debt origination costs, net and other assets
    
    
    14.2
    
    
    
    15.1Total assets
    
    $
    1,684.9
    
    
    $
    1,658.7Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    103.4
    
    
    $
    118.4Accrued and other liabilities
    
    
    64.9
    
    
    
    76.2Accrued payroll and employee benefits
    
    
    31.1
    
    
    
    40.8Accrued post-retirement benefits-current
    
    
    51.3
    
    
    
    51.3Accrued pension-current
    
    
    37.0
    
    
    
    25.6Current portion of long-term bank debt
    
    
    4.0
    
    
    
    4.0Capital lease obligation
    
    
    1.1
    
    
    
    1.3Accrued contract liabilities
    
    
    383.8
    
    
    
    333.7Total current liabilities
    
    
    676.6
    
    
    
    651.3Long-term liabilities:Accrued post-retirement benefits
    
    
    477.0
    
    
    
    478.8Accrued pension
    
    
    334.6
    
    
    
    352.0Long-term bank debt, net of current portion
    
    
    412.0
    
    
    
    413.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Other non-current liabilities
    
    
    183.5
    
    
    
    186.9Total liabilities
    
    
    2,353.7
    
    
    
    2,352.0Stockholders equity (deficit):Common stock, par value $.01 per share; 50,000,000 shares authorized,
24,772,312 and 24,755,248 issued and outstanding at April 1, 2007 and
December 31, 2006, respectively
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    415.5
    
    
    
    414.8Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    (1.0
    )Accumulated deficit
    
    
    (622.1
    )
    
    
    (641.3
    )Accumulated other comprehensive loss
    
    
    (459.9
    )
    
    
    (464.5
    )Total stockholders equity (deficit)
    
    $
    (668.8
    )
    
    $
    (693.3
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,684.9
    
    
    $
    1,658.7
 See accompanying notes
 2




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Vought
Aircraft Industries, Inc.
 
 Consolidated Statements of Operations
($ in millions)
(unaudited)
 For the Three Months EndedApril 1,
    
    
    March 26,2007
    
    
    2006Net sales
    
    $
    380.7
    
    
    $
    322.8Costs and expensesCost of sales
    
    
    292.5
    
    
    
    299.9Selling, general and administrative expenses
    
    
    54.0
    
    
    
    58.0Total costs and expenses
    
    
    346.5
    
    
    
    357.9Operating income (loss)
    
    
    34.2
    
    
    
    (35.1
    )Other income (expense)Interest income
    
    
    1.3
    
    
    
    0.3Other income (loss)
    
    
    (0.1
    )
    
    
    Equity in earnings (loss) of joint venture
    
    
    (0.3
    )
    
    
    (1.7
    )Interest expense
    
    
    (15.9
    )
    
    
    (15.0
    )Income (loss) before income taxes
    
    
    19.2
    
    
    
    (51.5
    )Income taxes
    
    
    
    
    
    
    Net income (loss)
    
    $
    19.2
    
    
    $
    (51.5
    )
 See accompanying notes
 3




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Vought
Aircraft Industries, Inc.
 
 Consolidated Statements of Cash Flows
($ in millions) (Unaudited)
 Three Months EndedApril 1,
    
    
    March 26,2007
    
    
    2006Operating activitiesNet income (loss)
    
    $
    19.2
    
    
    $
    (51.5
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    15.1
    
    
    
    14.3Stock compensation (income) expense
    
    
    0.7
    
    
    
    Equity in losses of joint venture
    
    
    0.3
    
    
    
    1.7Loss from asset sales
    
    
    0.4
    
    
    
    0.1Changes in current assets and liabilities:Accounts receivable
    
    
    (39.3
    )
    
    
    (14.0
    )Inventories, net of advances and progress billings
    
    
    14.1
    
    
    
    (26.6
    )Other current assets
    
    
    (3.2
    )
    
    
    (3.0
    )Accounts payable, trade
    
    
    (15.0
    )
    
    
    9.8Accrued payroll and employee benefits
    
    
    (9.7
    )
    
    
    (0.7
    )Accrued and other liabilities
    
    
    
    
    
    
    (1.0
    )Accrued contract liabilities
    
    
    50.1
    
    
    
    94.2Other assets and liabilitieslong-term
    
    
    (12.9
    )
    
    
    5.6Net cash provided by (used in) operating activities
    
    
    19.8
    
    
    
    28.9Investing activitiesCapital expenditures
    
    
    (17.5
    )
    
    
    (40.8
    )Investment in joint venture
    
    
    (4.5
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (22.0
    )
    
    
    (40.8
    )Financing activitiesProceeds from short-term bank debt
    
    
    
    
    
    
    65.0Payments on short-term bank debt
    
    
    
    
    
    
    (65.0
    )Payments on long-term bank debt
    
    
    (1.0
    )
    
    
    Payments on capital leases
    
    
    (0.2
    )
    
    
    (0.2
    )Proceeds from governmental grants
    
    
    
    
    
    
    16.4Net cash provided by (used in) financing activities
    
    
    (1.2
    )
    
    
    16.2Net increase (decrease) in cash and cash equivalents
    
    
    (3.4
    )
    
    
    4.3Cash and cash equivalents at beginning of period
    
    
    93.4
    
    
    
    10.1Cash and cash equivalents at end of period
    
    $
    90.0
    
    
    $
    14.4
 See accompanying notes
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Vought Aircraft Industries, Inc.
Notes to Condensed Consolidated Financial Statements  Period Ending April 1, 2007
(Unaudited)
 Note 1  Organization and Basis of Presentation
    Note 2-Recent Accounting Pronouncements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106 and 132(R)
 5




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Fair Value Measurements
 Note 3  Inventories
   April 1,
    
    
    December 31,2007
    
    
    2006($ in millions)Production costs of contracts in process
    
    $
    546.6
    
    
    $
    539.3Finished goods
    
    
    2.2
    
    
    
    3.1Less: unliquidated progress payments
    
    
    (225.1
    )
    
    
    (204.6
    )Total inventories
    
    $
    323.7
    
    
    $
    337.8
 Note 4- Assets Held for Sale
 SFAS 144 Accounting for the Impairment or Disposal
of Long-Lived Assets.
 NetCarryingValue($ in millions)Warehouse
    
    $
    6.3Land
    
    
    2.3Total
    
    $
    8.6
 6




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Note 5  Goodwill and Intangible Assets
 SFAS 142 Goodwill and Other Intangible Assets (SFAS 142) SFAS 142
    April 1,
    
    
    December 31,2007
    
    
    2006($ in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Pension asset
    
    
    15.7
    
    
    
    15.7Less: accumulated amortization
    
    
    (90.4
    )
    
    
    (88.1
    )Identifiable intangible assets, net
    
    $
    62.6
    
    
    $
    64.9
  ($ in millions)2007
    
    $
    7.72008
    
    
    8.92009
    
    
    8.92010
    
    
    6.02011
    
    
    2.1Thereafter
    
    
    13.3$
    46.9
 7




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Note 6  Pension and Other Post-retirement Benefits
  Other Post-retirementPension Benefits
    
    
    BenefitsThree Months Ended
    
    
    Three Months EndedApril 1,
    
    
    March 26,
    
    
    April 1,
    
    
    March 26,2007
    
    
    2006
    
    
    2007
    
    
    2006Components of net periodic benefit cost
(income):Service cost
    
    $
    4.7
    
    
    $
    6.2
    
    
    
    1.4
    
    
    $
    1.5Interest cost
    
    
    25.5
    
    
    
    26.2
    
    
    
    8.2
    
    
    
    8.5Expected return on plan assets
    
    
    (29.4
    )
    
    
    (28.8
    )
    
    
    
    
    
    
    Amortization of net loss
    
    
    9.2
    
    
    
    14.3
    
    
    
    1.5
    
    
    
    3.5Amortization of prior service cost
    
    
    1.0
    
    
    
    0.8
    
    
    
    (2.3
    )
    
    
    (2.5
    )Settlement charge
    
    
    4.6
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    15.6
    
    
    $
    18.7
    
    
    $
    8.8
    
    
    $
    11.0Defined contribution plans cost
    
    $
    2.0
    
    
    $
    1.8
  Note 7  Perry Site Closure
    Accrued RestructuringReserve Perry Site($ in millions)Balance December 31, 2005
    
    $
    5.7Cash expenditures
    
    
    (2.2
    )Balance December 31, 2006
    
    $
    3.5Cash expenditures and adjustment for the three months
ended April 1, 2007
    
    
    (1.5
    )Balance April 1, 2007
    
    $
    2.0
 8




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Note 8- Commitments
 Warranty Reserves.
 :
 WarrantyReserve($ in millions)Beginning Balance at December 31, 2005
    
    $
    8.0Warranty costs incurred
    
    
    (0.2
    )Additions charged to cost of sales:Warranties issued
    
    
    1.3Charges related to pre-existing warranties
    
    
    (2.3
    )Beginning Balance at December 31, 2006
    
    $
    6.8Warranty costs incurred
    
    
    (0.2
    )Additions charged to cost of sales:Warranties issued
    
    
    0.2Charges related to pre-existing warranties
    
    
    Ending Balance at April 1, 2007
    
    $
    6.8
 Note 9- Environmental Contingencies
    9




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EnvironmentalLiability($ in millions)Balance at December 31, 2005
    
    $
    4.3Environmental costs incurred
    
    
    (0.2
    )Balance at December 31, 2006
    
    
    4.1Environmental costs incurred
    
    
    Balance at April 1, 2007
    
    $
    4.1
 Note 10- Other Non-Current Liabilities
  April 1,
    
    
    December 31,2007
    
    
    2006($ in millions)Deferred income from the sale of Hawthorne facility
    
    $
    52.6
    
    
    $
    52.6State of South Carolina grant monies (a)
    
    
    67.0
    
    
    
    67.2State of Texas grant monies
    
    
    35.0
    
    
    
    35.0Deferred workers compensation
    
    
    18.2
    
    
    
    16.9Accrued warranties
    
    
    5.3
    
    
    
    5.5Investment in joint venture
    
    
    
    
    
    
    4.1Other
    
    
    5.4
    
    
    
    5.6Total other non-current liabilities
    
    $
    183.5
    
    
    $
    186.9
 
 (a)
    
    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 both of the three-month periods ended April 1, 2007 and December 31,
2006. No grant monies were recognized as a reduction of depreciation expense during the three-month
period ended March 26, 2006. Note 11- Income Taxes
 Accounting for Uncertainty
in Income Taxes
 10




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Note 12  Stock-Based Compensation
   Stock Options
 SFAS 123R Share-based Payment
 Expected dividend yield
    
    
    0
    %Risk free interest rate
    
    
    3.9%-4.4
    %Expected term
    
    6
    years
  11




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RemainingExercise
    
    Contractual
    
    AggregatePrice Per
    
    Term (*)
    
    IntrinsicShares
    
    Share (*)
    
    (in years)
    
    ValueOutstanding at December 31, 2006
    
    
    850,587
    
    
    $
    13.59Granted
    
    
    
    
    
    $
    Exercised
    
    
    
    
    
    $
    Forfeited or expired
    
    
    (18,997
    )
    
    $
    9.98Outstanding at April 1, 2007
    
    
    831,590
    
    
    $
    13.67
    
    
    
    4.0
    
    
    $
    Vested or expected to vest (1)
    
    
    831,590
    
    
    $
    13.67
    
    
    
    4.0
    
    
    $
    Exercisable at April 1, 2007
    
    
    748,750
    
    
    $
    13.15
    
    
    
    4.0
    
    
    $
    
 
 (*)
    
    Weighted-average(1)
    
    Represents outstanding options reduced by expected forfeitures. Expected forfeitures assumed
under SFAS 123 were zero Stock Appreciation Rights (SARs)
   April 1,2007Stock price
    
    $
    8.79Strike price
    
    $
    10.00Expected term
    
    6.25
    yearsRisk-free interest rate
    
    
    5.02
    %Expected Volatility
    
    
    54
    %Dividend Rate
    
    
    0
    %
  RemainingExercise
    
    
    Contractual
    
    
    AggregatePrice Per
    
    
    Term (*)
    
    
    IntrinsicShares
    
    
    Share (*)
    
    
    (in years)
    
    
    ValueOutstanding at December 31, 2006
    
    
    797,270
    
    
    $
    10.00Granted
    
    
    157,990
    
    
    $
    10.00Exercised
    
    
    
    
    
    $
    Forfeited or expired
    
    
    
    
    
    $
    Outstanding at April 1, 2007
    
    
    955,260
    
    
    $
    10.00
    
    
    
    9.6
    
    
    $
    Vested or expected to vest (1)
    
    
    877,441
    
    
    $
    10.00
    
    
    
    9.6
    
    
    $
    Exercisable at April 1, 2007
    
    
    216,940
    
    
    $
    10.00
    
    
    
    9.6
    
    
    $
    
 
 (*)
    
    Weighted-average(1)
    
    Represents outstanding options reduced by expected forfeitures. 12




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Restricted Stock Units (RSUs)
 SFAS 123
  Grant-dateUnits
    
    Fair-ValueOutstanding at December 31, 2006
    
    
    395,140
    
    
    $
    8.79Granted
    
    
    45,140
    
    
    $
    8.79Exercised
    
    
    
    
    
    $
    Forfeited or expired
    
    
    
    
    
    $
    Outstanding at April 1, 2007
    
    
    440,280
    
    
    $
    8.79Vested or expected to vest (1)
    
    
    413,780
    
    
    $
    8.79
 
 (1)
    
    Represents outstanding options reduced by expected forfeitures. Restricted Shares
  Note 13- Related Party Transactions
    13




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Note 14- Guarantor Subsidiaries
  14




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Consolidating Balance Sheet
April 1, 2007
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    90.0
    
    
    $
    
    
    
    
    
    
    
    $
    90.0Accounts receivable
    
    
    114.1
    
    
    
    7.3
    
    
    
    
    
    
    
    121.4Intercompany receivable
    
    
    20.7
    
    
    
    6.5
    
    
    
    (27.2
    )
    
    
    Inventories
    
    
    310.7
    
    
    
    13.0
    
    
    
    
    
    
    
    323.7Other current assets
    
    
    18.7
    
    
    
    0.5
    
    
    
    
    
    
    
    19.2Total current assets
    
    
    554.2
    
    
    
    27.3
    
    
    
    (27.2
    )
    
    
    554.3Property, plant and
equipment, net
    
    
    517.7
    
    
    
    8.4
    
    
    
    
    
    
    
    526.1Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible
assets, net
    
    
    62.6
    
    
    
    
    
    
    
    
    
    
    
    62.6Investment in affiliated
company
    
    
    71.6
    
    
    
    
    
    
    
    (71.6
    )
    
    
    Debt origination costs,
net and other assets
    
    
    14.1
    
    
    
    0.1
    
    
    
    
    
    
    
    14.2Total assets
    
    $
    1,684.2
    
    
    $
    99.5
    
    
    $
    (98.8
    )
    
    $
    1,684.9Liabilities and
stockholders equity
(deficit)Current liabilities:Accounts payable, trade
    
    $
    98.6
    
    
    $
    4.8
    
    
    
    
    
    
    $
    103.4Intercompany payable
    
    
    6.5
    
    
    
    20.7
    
    
    
    (27.2
    )
    
    
    Accrued and other
liabilities
    
    
    64.3
    
    
    
    0.6
    
    
    
    
    
    
    
    64.9Accrued payroll and
employee benefits
    
    
    30.1
    
    
    
    1.0
    
    
    
    
    
    
    
    31.1Accrued post-retirement
benefits  current
    
    
    51.3
    
    
    
    
    
    
    
    
    
    
    
    51.3Accrued pension  current
    
    
    37.0
    
    
    
    
    
    
    
    
    
    
    
    37.0Current portion of
long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    0.3
    
    
    
    0.8
    
    
    
    
    
    
    
    1.1Accrued contract
liabilities
    
    
    383.8
    
    
    
    
    
    
    
    
    
    
    
    383.8Total current liabilities
    
    
    675.9
    
    
    
    27.9
    
    
    
    (27.2
    )
    
    
    676.6Long-term liabilities:Accrued post-retirement
benefits
    
    
    477.0
    
    
    
    
    
    
    
    
    
    
    
    477.0Accrued pension
    
    
    334.6
    
    
    
    
    
    
    
    
    
    
    
    334.6Long-term bank debt, net
of current portion
    
    
    412.0
    
    
    
    
    
    
    
    
    
    
    
    412.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current
liabilities
    
    
    183.5
    
    
    
    
    
    
    
    
    
    
    
    183.5Total liabilities
    
    
    2,353.0
    
    
    
    27.9
    
    
    
    (27.2
    )
    
    
    2,353.7Stockholders equity
(deficit):Common stock, par value
$0.01;
50,000,000 shares
authorized, 24,772,312
issued and outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in
capital
    
    
    415.5
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    415.5Shares held in rabbi
trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Accumulated deficit
    
    
    (622.1
    )
    
    
    (8.7
    )
    
    
    8.7
    
    
    
    (622.1
    )Accumulated other
comprehensive loss
    
    
    (459.9
    )
    
    
    
    
    
    
    
    
    
    
    (459.9
    )Total stockholders
equity (deficit)
    
    
    (668.8
    )
    
    
    71.6
    
    
    
    (71.6
    )
    
    
    (668.8
    )Total liabilities and
stockholders equity
(deficit)
    
    $
    1,684.2
    
    
    $
    99.5
    
    
    $
    (98.8
    )
    
    $
    1,684.9
 15




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##### Table of Contents



Consolidating Balance Sheet
December 31, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    92.5
    
    
    $
    0.9
    
    
    $
    
    
    
    $
    93.4Accounts receivable
    
    
    78.1
    
    
    
    4.0
    
    
    
    
    
    
    
    82.1Intercompany receivable
    
    
    18.1
    
    
    
    6.2
    
    
    
    (24.3
    )
    
    
    Inventories
    
    
    324.5
    
    
    
    13.3
    
    
    
    
    
    
    
    337.8Other current assets
    
    
    6.9
    
    
    
    0.4
    
    
    
    
    
    
    
    7.3Total current assets
    
    
    520.1
    
    
    
    24.8
    
    
    
    (24.3
    )
    
    
    520.6Property, plant and equipment,
net
    
    
    520.6
    
    
    
    9.8
    
    
    
    
    
    
    
    530.4Goodwill
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets,
net
    
    
    64.9
    
    
    
    
    
    
    
    
    
    
    
    64.9Investment in affiliated company
    
    
    74.1
    
    
    
    
    
    
    
    (74.1
    )
    
    
    Debt origination costs, net and
other assets
    
    
    15.0
    
    
    
    0.1
    
    
    
    
    
    
    
    15.1Total assets
    
    $
    1,658.7
    
    
    $
    98.4
    
    
    $
    (98.4
    )
    
    $
    1,658.7Liabilities and stockholders
equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    114.7
    
    
    $
    3.7
    
    
    $
    
    
    
    $
    118.4Intercompany payable
    
    
    6.2
    
    
    
    18.1
    
    
    
    (24.3
    )
    
    
    Accrued and other
liabilities
    
    
    75.6
    
    
    
    0.6
    
    
    
    
    
    
    
    76.2Accrued payroll and
employee benefits
    
    
    39.9
    
    
    
    0.9
    
    
    
    
    
    
    
    40.8Accrued post-retirement
benefits  current
    
    
    51.3
    
    
    
    
    
    
    
    
    
    
    
    51.3Accrued pension  current
    
    
    25.6
    
    
    
    
    
    
    
    
    
    
    
    25.6Current portion of
long-term bank debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    0.3
    
    
    
    1.0
    
    
    
    
    
    
    
    1.3Accrued contract liabilities
    
    
    333.7
    
    
    
    
    
    
    
    
    
    
    
    333.7Total current liabilities
    
    
    651.3
    
    
    
    24.3
    
    
    
    (24.3
    )
    
    
    651.3Long-term liabilities:Accrued post-retirement
benefits
    
    
    478.8
    
    
    
    
    
    
    
    
    
    
    
    478.8Accrued pension
    
    
    352.0
    
    
    
    
    
    
    
    
    
    
    
    352.0Long-term bank debt, net of
current portion
    
    
    413.0
    
    
    
    
    
    
    
    
    
    
    
    413.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Other non-current
liabilities
    
    
    186.9
    
    
    
    
    
    
    
    
    
    
    
    186.9Total liabilities
    
    
    2,352.0
    
    
    
    24.3
    
    
    
    (24.3
    )
    
    
    2,352.0Stockholders equity (deficit):Common stock, par value $0.01;
50,000,000 shares
authorized, 24,755,248
issued and outstanding
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    414.8
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    414.8Shares held in rabbi trust
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Stockholders loans
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Accumulated deficit
    
    
    (641.3
    )
    
    
    (6.2
    )
    
    
    6.2
    
    
    
    (641.3
    )Accumulated other comprehensive
loss
    
    
    (464.5
    )
    
    
    
    
    
    
    
    
    
    
    (464.5
    )Total stockholders
equity (deficit)
    
    
    (693.3
    )
    
    
    74.1
    
    
    
    (74.1
    )
    
    
    (693.3
    )Total liabilities and
stockholders equity (deficit)
    
    $
    1,658.7
    
    
    $
    98.4
    
    
    $
    (98.4
    )
    
    $
    1,658.7
 16




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##### Table of Contents



Consolidating Statement of Operations
Three Months Ended April 1, 2007
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    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 income (loss)
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in earnings (loss) of joint venture
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Interest expense
    
    
    (15.9
    )
    
    
    
    
    
    
    
    
    
    
    (15.9
    )Equity in income 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
 Consolidating Statement of Operations
Three Months Ended March 26, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    314.7
    
    
    $
    10.5
    
    
    $
    (2.4
    )
    
    $
    322.8Costs and expensesCost of sales
    
    
    292.5
    
    
    
    9.8
    
    
    
    (2.4
    )
    
    
    299.9Selling, general and administrative expenses
    
    
    57.3
    
    
    
    0.7
    
    
    
    
    
    
    
    58.0Total 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) of 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
    )
 17




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##### Table of Contents



Consolidating Statement of Cash Flows
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
    
    
    
    
    
    
    
    15.1Non-cash stock compensation expense
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Equity in losses of joint venture
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Loss from asset sales
    
    
    0.3
    
    
    
    0.1
    
    
    
    
    
    
    
    0.4Income from investments in consolidated subsidiaries
    
    
    2.5
    
    
    
    
    
    
    
    (2.5
    )
    
    
    Changes in current assets and liabilities:Accounts receivable
    
    
    (35.9
    )
    
    
    (3.4
    )
    
    
    
    
    
    
    (39.3
    )Intercompany accounts receivable
    
    
    (3.6
    )
    
    
    (0.3
    )
    
    
    3.9
    
    
    
    Inventories, net of advance and progress billings
    
    
    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 and other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued contract liabilities
    
    
    50.1
    
    
    
    
    
    
    
    
    
    
    
    50.1Other assets and liabilities  long-term
    
    
    (12.9
    )
    
    
    
    
    
    
    
    
    
    
    (12.9
    )Net cash provided by (used in) operating activities
    
    
    20.4
    
    
    
    (0.7
    )
    
    
    
    
    
    
    19.8Investing activitiesCapital expenditures
    
    
    (17.4
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (17.5
    )Investment in joint venture
    
    
    (4.5
    )
    
    
    
    
    
    
    
    
    
    
    (4.5
    )Net cash provided by (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 provided by (used in) financing activities
    
    
    (1.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.2
    )Net increase (decrease) in cash and cash equivalents
    
    
    (2.6
    )
    
    
    (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
    
    $
    89.9
    
    
    $
    0.0
    
    
    $
    
    
    
    $
    90.0
 18




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##### Table of Contents



Consolidating Statement of Cash Flows
Three Months Ended March 26, 2006
($ in millions) (unaudited)
 Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiaries
    
    
    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 and amortization
    
    
    13.5
    
    
    
    0.8
    
    
    
    
    
    
    
    14.3Equity in losses of joint venture
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Loss from asset sales
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Income from investments in consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes 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 (used in) operating activities
    
    
    28.4
    
    
    
    0.5
    
    
    
    
    
    
    
    28.9Investing activitiesCapital expenditures
    
    
    (40.5
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (40.8
    )Net cash provided by (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



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.
 Overview
  Recent Events
   20




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##### Table of Contents



Results of Operations
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedApril 1,
    
    
    March 26,2007
    
    
    2006
    
    
    Change($ in millions)Net sales:Commercial
    
    $
    193.8
    
    
    $
    138.2
    
    
    
    55.6Military
    
    
    114.5
    
    
    
    128.7
    
    
    
    (14.2
    )Business Jets
    
    
    72.4
    
    
    
    55.9
    
    
    
    16.5Total net sales
    
    $
    380.7
    
    
    $
    322.8
    
    
    
    57.9Costs and expenses:Cost of sales (1)
    
    
    292.5
    
    
    
    299.9
    
    
    
    (7.4
    )Selling, general and administrative (1)
    
    
    54.0
    
    
    
    58.0
    
    
    
    (4.0
    )Total costs and expenses
    
    $
    346.5
    
    
    $
    357.9
    
    
    $
    (11.4
    )Operating income (loss)
    
    
    34.2
    
    
    
    (35.1
    )
    
    
    69.3Interest expense, net
    
    
    (14.6
    )
    
    
    (14.7
    )
    
    
    0.1Other (loss)
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Equity in (loss) of joint venture
    
    
    (0.3
    )
    
    
    (1.7
    )
    
    
    1.4Income taxes
    
    
    
    
    
    
    
    
    
    
    Net Income (loss)
    
    $
    19.2
    
    
    $
    (51.5
    )
    
    $
    70.7
 
 (1)
    
    We reclassified prior year costs related to information technology from general and
administrative expenses to cost of sales because information and technology directly
supports manufacturing and engineering activities. Comparison of Results of Operations for the Three-months Ended April 1, 2007 and March 26,
2006
 Net sales
 
    
    Commercial net sales increased by approximately $55.6 million or 40%, primarily due
to increased sales for the Boeing 747 and 777 programs of $34.0 million and $6.2
million, respectively. These increases were primarily due to timing of deliveries for
those programs. The remainder of the total increase was due largely to timing of
deliveries and price adjustments for various other programs.
    
    Military net sales decreased approximately $14.2 million or 11%, primarily as a
result of lower non-recurring sales of $22.8 million for the C-5 program. In the first
quarter of 2006, we had several large first article deliveries for the C-5 program
compared to the normal deliveries in the first quarter 2007. We also experienced a
decrease of approximately $6.5 million due to timing of deliveries for our Global Hawk
program. These decreases were partially offset by increases related to timing of C-17
sales of $10.3 million and higher deliveries for the H-60 program of $10.0 million.
    
    Business Jet net sales increased by approximately $16.5 million or 30% primarily
due to timing of deliveries and price increases on certain programs.
 Cost of sales
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##### Table of Contents



Selling, general and administrative expenses
 Operating income (loss)
 Interest expense, net
 Critical Accounting Policies
  Revenue Recognition
 Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
  April 1,
    
    
    December 31,2007
    
    
    2006($ in millions)Advances and progress billings
    
    $
    329.0
    
    
    $
    258.9Forward Loss
    
    
    9.8
    
    
    
    34.4Purchase accounting adjustment
    
    
    20.4
    
    
    
    24.1Other
    
    
    24.6
    
    
    
    16.3Total accrued contract liability
    
    $
    383.8
    
    
    $
    333.7
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##### Table of Contents



Goodwill
 SFAS 142 SFAS 142
   Recent Accounting Pronouncements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106 and 132(R)
  Liquidity and Capital Resources
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##### Table of Contents



SOP 81-1
     24




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##### Table of Contents



Credit Agreements and Debt Covenants.
    Cash Flow
 Cash Flow Summary
 Three Months EndedApril 1,
    
    
    March 26,2007
    
    
    2006($ in millions)Net income (loss)
    
    $
    19.2
    
    
    $
    (51.5
    )Non-cash items
    
    
    16.5
    
    
    
    16.1Changes in working capital
    
    
    (15.9
    )
    
    
    64.3Net cash provided by (used in) operating activities
    
    
    19.8
    
    
    
    28.9Net cash provided by (used in) investing activities
    
    
    (22.0
    )
    
    
    (40.8
    )Net cash provided by (used in) financing activities
    
    
    (1.2
    )
    
    
    16.2Net increase (decrease) in cash and cash equivalents
    
    
    (3.4
    )
    
    
    4.3Cash and cash equivalents at beginning of year
    
    
    93.4
    
    
    
    10.1Cash and cash equivalents at end of period
    
    $
    90.0
    
    
    $
    14.4
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##### Table of Contents



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




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##### Table of Contents



Interest Rate Risks
    Utility Price Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
  27




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
 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
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##### Table of Contents



ITEM 6. EXHIBITS
 (a) Exhibits
 (10.1)*
    
    Amendment to 2006 Incentive Award Plan dated May 3, 2007.(10.2)*
    
    Restricted Stock Unit Award Agreement with Keith Howe.(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
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##### Table of Contents



SIGNATURES
  Vought Aircraft Industries, Inc.

(Registrant)May 16, 2007

(Date)
    
    /s/ KEITH HOWE

Vice President and Chief Financial OfficerMay 16, 2007

(Date)
    
    /s/ WENDY HARGUS

Interim Principal Accounting Officer
 30