##### 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 27, 2005 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
(State of Incorporation)
    
    75-2884072
(I.R.S. Employer Identification Number)9314 West Jefferson Boulevard M/S 2-01
Dallas, TX
(Address of Principal executive offices)
    
    75211
(Zip Code)
 (972)-946-2011
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of
the Exchange Act). Yes o No þ The number of shares outstanding of the registrants common stock, $0.01 par value per share, at
May 9, 2005 was 25,015,552.




---



TABLE OF CONTENTS PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    1Consolidated Balance Sheets as of March 27, 2005 and December 31, 2004 (unaudited)Consolidated Statements of Operations for the three months ended March 27, 2005 and March 28, 2004 (unaudited)
    
    
    2Consolidated Statements of Cash Flows for the three months ended March 27, 2005, and March 28, 2004 (unaudited)
    
    
    3Notes to Consolidated Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    23PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    25Signatures
    
    
    26Certification 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



PART 1. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS Vought Aircraft Industries, Inc. 
 Consolidated Balance Sheets
 ($ in millions) (Unaudited)
 March 27,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    139.2
    
    
    $
    128.9Accounts receivable
    
    
    116.4
    
    
    
    123.2Inventories
    
    
    329.8
    
    
    
    279.3Other current assets
    
    
    7.6
    
    
    
    7.2Total current assets
    
    
    593.0
    
    
    
    538.6Property, plant and equipment, net
    
    
    398.3
    
    
    
    407.7Goodwill, net
    
    
    527.7
    
    
    
    527.7Identifiable intangible assets, net
    
    
    88.8
    
    
    
    91.5Debt origination costs, net and other assets
    
    
    22.7
    
    
    
    23.5Total assets
    
    $
    1,630.5
    
    
    $
    1,589.0Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    79.4
    
    
    $
    100.7Accrued and other liabilities
    
    
    78.8
    
    
    
    90.0Accrued payroll and employee benefits
    
    
    47.5
    
    
    
    51.4Accrued post-retirement benefits-current
    
    
    57.3
    
    
    
    57.3Accrued pension-current
    
    
    27.2
    
    
    
    27.2Current portion of long-term bank debt
    
    
    4.0
    
    
    
    4.0Capital lease obligation
    
    
    0.9
    
    
    
    0.9Accrued contract liabilities
    
    
    247.3
    
    
    
    142.0Total current liabilities
    
    
    542.4
    
    
    
    473.5Long-term liabilities:Accrued post-retirement benefits
    
    
    491.3
    
    
    
    486.9Accrued pension
    
    
    436.6
    
    
    
    420.7Long-term bank debt, net of current portion
    
    
    421.0
    
    
    
    421.0Long-term bond debt
    
    
    270.0
    
    
    
    270.0Long-term capital lease obligation
    
    
    1.8
    
    
    
    2.0Other non-current liabilities
    
    
    71.7
    
    
    
    69.4Total liabilities
    
    
    2,234.8
    
    
    
    2,143.5Stockholders equity (deficit):Common stock, par value $.01; 50,000,000 shares
authorized, 25,015,552 issued and outstanding in
2005 and 2004, respectively
    
    
    0.3
    
    
    
    0.3Additional paid-in capital
    
    
    418.0
    
    
    
    418.0Shares held in rabbi trust
    
    
    (1.9
    )
    
    
    (1.9
    )Stockholders loans
    
    
    (2.3
    )
    
    
    (2.3
    )Accumulated deficit
    
    
    (424.2
    )
    
    
    (374.4
    )Accumulated other comprehensive loss
    
    
    (594.2
    )
    
    
    (594.2
    )Total stockholders equity (deficit)
    
    $
    (604.3
    )
    
    $
    (554.5
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,630.5
    
    
    $
    1,589.0
 See accompanying notes 1




---



##### Table of Contents



Vought Aircraft Industries, Inc. 
 Consolidated Statements of Operations
 ($ in millions) (Unaudited)
 For the Three MonthsEndedMarch 27,
    
    
    March 28,2005
    
    
    2004Net sales
    
    $
    269.8
    
    
    $
    294.9Costs and expensesCost of sales
    
    
    240.6
    
    
    
    246.7Selling, general and administrative expenses
    
    
    67.5
    
    
    
    62.7Total costs and expenses
    
    
    308.1
    
    
    
    309.4Operating loss
    
    
    (38.3
    )
    
    
    (14.5
    )Other income (expense)Interest income
    
    
    0.7
    
    
    
    0.5Other income (loss)
    
    
    (0.1
    )
    
    
    Interest expense
    
    
    (12.1
    )
    
    
    (9.7
    )Loss before income taxes
    
    
    (49.8
    )
    
    
    (23.7
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (49.8
    )
    
    $
    (23.7
    )
 See accompanying notes 2




---



##### Table of Contents



Vought Aircraft Industries, Inc. 
 Consolidated Statements of Cash Flows
 ($ in millions) (Unaudited)
 For the Three Months EndedMarch 27,
    
    
    March 28,2005
    
    
    2004Operating activitiesNet loss
    
    $
    (49.8
    )
    
    $
    (23.7
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    18.6
    
    
    
    18.5Loss from asset sales
    
    
    0.5
    
    
    
    1.5Changes in current assets and liabilities:Accounts receivable
    
    
    6.8
    
    
    
    0.8Inventories, net of advances and progress billings
    
    
    (50.5
    )
    
    
    (14.0
    )Other current assets
    
    
    (0.4
    )
    
    
    (1.4
    )Accounts payable, trade
    
    
    (21.3
    )
    
    
    25.7Accrued payroll and employee benefits
    
    
    (3.9
    )
    
    
    (6.6
    )Accrued and other liabilities
    
    
    (9.1
    )
    
    
    (16.1
    )Accrued contract liabilities
    
    
    105.3
    
    
    
    98.7Other assets and liabilitieslong-term
    
    
    20.6
    
    
    
    26.2Net cash provided by operating activities
    
    
    16.8
    
    
    
    109.6Investing activitiesCapital expenditures
    
    
    (6.3
    )
    
    
    (8.6
    )Net cash used in investing activities
    
    
    (6.3
    )
    
    
    (8.6
    )Financing activitiesPayments on capital leases
    
    
    (0.2
    )
    
    
    (0.3
    )Net cash used in financing activities
    
    
    (0.2
    )
    
    
    (0.3
    )Net increase in cash and cash equivalents
    
    
    10.3
    
    
    
    100.7Cash and cash equivalents at beginning of period
    
    
    128.9
    
    
    
    106.4Cash and cash equivalents at end of period
    
    $
    139.2
    
    
    $
    207.1
 See accompanying notes 3




---



##### Table of Contents



VOUGHT AIRCRAFT INDUSTRIES, INC. 
 Notes to Consolidated Financial Statements
 (Unaudited) March 27, 2005 Note 1  Organization and Basis of Presentation Vought Aircraft Industries, Inc. and its wholly owned subsidiaries are herein referred to as
the Company or Vought. The Company is one of the worlds largest independent providers of
commercial and military aerostructures. The majority of the Companys products are sold to The
Boeing Company, and for military contracts, ultimately to the U.S. Government. The Corporate office
is in Dallas, Texas and production work is performed at sites in Hawthorne and Brea, California;
Everett, Washington; Dallas and Grand Prairie, Texas; Milledgeville, Georgia; Nashville, Tennessee;
and Stuart, Florida. We broke ground on our Charleston, South Carolina site on February 7, 2005. The accompanying interim unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States for
interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles. In the opinion of management, the accompanying interim unaudited
condensed consolidated financial statements contain all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the results of operations for the
interim periods. The results of operations for the three months ended March 27, 2005 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2005. The consolidated balance sheet at December 31, 2004 has been derived from the audited
consolidated financial statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete financial statements.
These interim unaudited condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in our 2004 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 30, 2005. Note 2  New Accounting Pronouncements On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement
No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123
Accounting for Stock-Based Compensation. Statement 123R supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows.
Statement 123R requires that companies measure and recognize compensation expense at an amount
equal to the fair value of share-based payments granted under compensation arrangements. This
statement is effective for most public companies for annual periods beginning after June 15, 2005.
The Company is currently evaluating the impact of the adoption of Statement 123R; however it is not
expected to have a material impact on the Companys consolidated financial position, results of
operations or cash flows. In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151
Inventory Costs. This Statement amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). In addition, this Statement requires that
allocation of fixed production overhead to the costs of conversion be based on the normal capacity
of the production facilities. The 4




---



##### Table of Contents



provisions of this Statement will be effective for the Company in fiscal 2006. We are currently evaluating the
impact of this new Standard. Note 3  Stock-Based Compensation The Company grants stock options for a fixed number of shares to employees and directors with
an exercise price equal to the fair value of the shares at the date of grant. The Company accounts
for stock option grants using the intrinsic value method. The following schedule reflects the
impact on net loss if the Company had applied the fair value recognition provisions of SFAS No.
123, Accounting for Stock Based Compensation, to stock based employee compensation: Three months endedMarch 27,
    
    
    March 28,2005
    
    
    2004($ in millions)Reported net loss
    
    $
    (49.8
    )
    
    $
    (23.7
    )Stock based compensation
    
    
    
    
    
    
    (49.8
    )
    
    
    (23.7
    )Compensation expense per SFAS No. 123
    
    
    (0.5
    )
    
    
    (0.2
    )Pro forma net loss for SFAS No. 123
    
    $
    (50.3
    )
    
    $
    (23.9
    )
 The effects of applying SFAS No. 123 in the pro forma disclosure may not be indicative of
future amounts as options vest over several years and additional option grants are expected. Note 4  Restructuring On February 26, 2004, we announced plans to consolidate portions of our manufacturing
operations to Dallas and Grand Prairie, Texas. The plans include renovating and modernizing the
Dallas facilities, closing the facilities in Nashville and Stuart and moving their operations to
Dallas and reducing the size of the Hawthorne facility. We received a $35 million grant from the
Texas Enterprise Fund in April 2004 and are in the process of working with the Texas General Land
Office and several other state and local agencies to help us accomplish the consolidation. By
accepting this grant, the Company is obligated to add 3,000 jobs in Texas over the next 6 years
with a prorated penalty (based on any shortfall in our ability to maintain a total of 6,000 jobs in
Texas with the total penalty amount not to exceed the amount of the grant) assessed beginning in
2010 if that goal is not reached. When completed, this project is expected to reduce the Companys
occupied square footage by more than three million square feet, reduce operating costs and increase
productivity. As part of this plan, the Company will incur charges at Nashville and Stuart for
employee termination benefits and relocation costs, certain pension costs, consolidation of excess
facilities and various other closure costs. The final planned completion dates of closing the
Stuart and Nashville facilities are December 31, 2005 and December 31, 2006, respectively.
Management is continually evaluating various options relating to these projects as market dynamics
change our outlook for future production needs. This evaluation may lead to changes in
the timing of these projects and the total amount invested. As a result of the pending closure of the Stuart and Nashville facilities, the Company offered
relocation or termination benefits (voluntary and involuntary) to the approximately 1,300 employees
at these facilities. The Company has recorded a liability in the amount of $5.0 million associated
with the severance termination benefits of which $0.3 million has been paid as of March 27, 2005.
Additionally, the Company estimates total costs of approximately $2.6 million associated with the
non-union employee retention termination benefits and is recognizing this liability ratably over
the employees retention period. At March 27, 2005, a liability for the retention termination
benefits has been recorded in the amount of approximately $1.3 million. 5




---



##### Table of Contents



As part of the restructuring plan, the Company negotiated termination benefit agreements with
union employees at the Nashville location. As a result of the union negotiations, certain retention
termination benefits were agreed to which are estimated to be approximately $4.7 million. In April
2004, the Company began recognizing this liability ratably over the employee retention period. A
liability for retention termination benefits for union employees has been recorded in the amount of
approximately $1.7 million. As of March 27, 2005, $0.2 million has been paid for both union and
non-union retention termination benefits. The following table is a roll-forward of the amounts accrued for the restructuring liabilities
discussed above as of March 27, 2005. Accrued RestructuringReserve  Stuart andNashville Sites($ in millions)Balance December 31, 2003
    
    $
    Restructuring liabilities recognized
    
    
    7.7Expenditures
    
    
    (0.4
    )Balance December 31, 2004
    
    
    7.3Liabilities recognized for the three months ended
March 27, 2005
    
    
    0.3Expenditures for the three months ended March 27, 2005
    
    
    (0.1
    )Balance March 27, 2005
    
    $
    7.5
 See
Note 7 - Pension and Other Post-retirement Benefitsfor further discussion of the effects
of the restructuring on the pension and other post-employment benefits at the Nashville and Stuart
facilities. Approximately 460 out of the 1,300 employees at these locations have elected to relocate to
Dallas. The Company currently estimates that the relocation costs associated with these transfers
will be approximately $11.5 million and will be recognized as incurred over 34 months. During the
first quarter of 2005, the Company incurred approximately $0.6 million of the relocation expense
and a total of $2.2 million since restructuring activities began in fiscal 2004. Since the announcement for the closures of the Stuart and Nashville facilities, the Company
has been evaluating the fixed assets associated with these facilities and developing a plan for
moving these assets to Dallas or for selling or abandoning the assets once the facilities are
vacated. For the Nashville facility, the Company has performed an initial assessment of the
recoverability for those assets that will not be moved and has determined that, at present, no
impairment has taken place. Nonetheless, an impairment charge for these assets could be necessary
in future periods. Related to the shutdown of the Nashville facility, the Company has accelerated
depreciation over the remaining periods of those assets that will not be transferred to Dallas. The
Company estimates that approximately $21.6 million of depreciation will be accelerated over the
remaining life of these assets so that they will be fully depreciated by the end of fiscal 2006
when production has ceased at this facility. As of March 27, 2005, the Company has recognized
accumulated accelerated depreciation for these assets of $16.7 million. Substantially all of the
fixed assets from the Stuart facility are expected to be moved and utilized after the plant closes.
The Company is in the process of evaluating the lease for the Stuart facility and a potential
buyout of the remaining lease term after the facility has been exited. If an agreement is reached,
the Company will record any liability associated with the buyout at the time an agreement is
reached and the liability becomes measurable. The Company currently has $1.4 million in net book
value of leasehold improvements at Stuart, before taking into consideration accelerated
depreciation. As a result of the closure, the Company has accelerated the depreciation on these
items so they will be fully depreciated by the end of 2005. The increased depreciation
for these assets totals $1.3 million as of March 27, 2005. 6




---



##### Table of Contents



The Company is negotiating with a third party regarding the potential sale of the Hawthorne
facility which the Company would lease back through 2005, after which, the Company plans to
significantly reduce the total square footage under the lease, with the lease extending to
approximately 2010. The Dallas facility is currently a Naval Weapons Industrial Reserve Plant, which is owned by
the Navy. As part of the restructure plan, options are being considered that could change the
ownership structure of the plant. The restructuring and other related charges are or will be recorded to contract costs. In
accordance with SOP 81-1, the total additional costs associated with the planned facility closures
for relocation, termination and retention benefits, and pension and other post-employment benefits
(OPEB) were considered in the Companys estimated costs at completion for contracts at each site.
As a result of including the estimated restructuring costs in each facilitys contracts, the
Company recorded a charge to cost of sales in the amount of $2.5 million for the three months ended
March 27, 2005 and a total charge to cost of sales of $56.4 million since restructuring activities
began in fiscal 2004. During 2001, the Company finalized and approved a restructuring plan designed to reduce the
Companys infrastructure costs by closing its Perry, Georgia facility and relocating the facilitys
production effort to the Stuart, Florida site. At December 31, 2001, the Company had accrued $12.6
million related to costs on non-cancelable lease payments and maintenance, after the anticipated
closure date for the Perry facility. The closure of Perry was completed at the beginning of the
third quarter of 2002. Subsequent to the closure, the Company recorded $5.4 million of lease
payments and maintenance against the accrual. The remaining non-cancelable lease payments and
maintenance, extend to 2007. The following is a rollforward of amounts accrued for restructuring
at the Perry site and are included in accrued and other liabilities: Accrued RestructuringReserve Perry Site($ in millions)Balance December 31, 2002
    
    $
    11.6Cash expenditures
    
    
    (2.1
    )Balance December 31, 2003
    
    $
    9.5Cash expenditures
    
    
    (1.9
    )Balance December 31, 2004
    
    $
    7.6Cash expenditures for the three months ending
March 27, 2005
    
    
    (0.4
    )Balance March 27, 2005
    
    $
    7.2
 Note 5  Inventories Inventories consisted of the following: March 27,
    
    
    December 31,2005
    
    
    2004($ in millions)Production costs of contracts in process
    
    $
    515.8
    
    
    $
    434.9Finished goods
    
    
    26.0
    
    
    
    21.4Less: unliquidated progress payments
    
    
    (212.0
    )
    
    
    (177.0
    )Total inventories
    
    $
    329.8
    
    
    $
    279.3
 As
of March 27, 2005 and December 31, 2004, we classified
$120.6 million and $42.0 million,
respectively, of advances and progress payments as accrued contract liabilities on our balance
sheet. 7




---



##### Table of Contents



Note 6  Goodwill and Intangible Assets With
the adoption of SFAS No. 142, amortization of goodwill ceased effective January 1, 2002
and is now subject to annual impairment tests in accordance with the standard. The Company
completed its annual impairment analysis based on the discounted future cash flow method and
determined that there was no impairment to goodwill as of December 31, 2004 and nothing came to the
Companys attention in the first quarter of fiscal 2005 that would cause the Company to change its
assessment of goodwill. Intangible assets consisted of the following: March 27,
    
    
    December 31,2005
    
    
    2004($ in millions)Programs and contracts
    
    $
    137.3
    
    
    $
    137.3Pension asset
    
    
    20.7
    
    
    
    20.7Less: accumulated amortization
    
    
    (69.2
    )
    
    
    (66.5
    )Identifiable intangible assets, net
    
    $
    88.8
    
    
    $
    91.5
 Scheduled remaining amortization of identifiable intangible assets is as follows as of March
27, 2005: ($ in millions)2005
    
    $
    8.12006
    
    
    10.82007
    
    
    10.02008
    
    
    8.92009
    
    
    8.9Thereafter
    
    
    21.4$
    68.1
 Note 7  Pension and Other Post-retirement Benefits The components of net periodic benefit cost for the Companys pension plans and other
post-retirement benefit plans were as follows: 8




---



##### Table of Contents



Three Months
    
    
    Three MonthsEnded
    
    
    EndedPension Benefits
    
    March 27, 2005
    
    
    March 28, 2004($ in millions)Components of net periodic benefit cost (income):Service cost
    
    $
    7.8
    
    
    $
    7.5Interest cost
    
    
    25.8
    
    
    
    25.3Expected return on plan assets
    
    
    (29.3
    )
    
    
    (30.4
    )Amortization of (gains) or losses
    
    
    13.8
    
    
    
    9.0Prior service cost recognized
    
    
    
    
    
    
    9.6Amortization of prior service cost
    
    
    0.7
    
    
    
    Plan curtailment (gain)/loss
    
    
    
    
    
    
    (9.9
    )Special termination benefits
    
    
    
    
    
    
    1.2Net periodic benefit cost
    
    $
    18.8
    
    
    $
    12.3Defined contribution plan cost
    
    $
    1.7
    
    
    $
    1.8
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedOther Post-retirement Benefits
    
    March 27, 2005
    
    
    March 28, 2004($ in millions)Components of net periodic benefit cost (income):Service cost
    
    $
    1.8
    
    
    $
    1.5Interest cost
    
    
    9.7
    
    
    
    9.4Expected return on plan assets
    
    
    
    
    
    
    Prior service cost recognized
    
    
    
    
    
    
    (0.2
    )Amortization of prior service cost
    
    
    0.6
    
    
    
    0.6Amortization of net (gain)/loss
    
    
    2.7
    
    
    
    0.4Plan curtailment (gain)/loss
    
    
    
    
    
    
    11.7Special termination benefits
    
    
    
    
    
    
    0.7Net periodic benefit cost
    
    $
    14.8
    
    
    $
    24.1
 As a result of the Companys announcement on February 26, 2004 of its plans to
consolidate much of its manufacturing operations in Dallas, the Company recorded liabilities for
pension and postretirement benefit plan curtailments and recognition of prior service cost of $11.2
million and special termination benefits of $1.9 million in the first quarter of 2004. The special
termination benefits related to its affected nonrepresented employees that received and accepted
transfer or completion opportunities in March 2004. Represented employees accepted similar offers
through a certified vote on April 20, 2004. As a result of that vote, the Company recorded an
additional liability of $8.6 million in the second quarter of 2004. Note 8  Commitments Warranty Reserves.A reserve has been established to provide for the estimated future cost of
warranties on the Companys delivered products. Management periodically reviews the reserves and
adjustments are made accordingly. A provision for warranty on products delivered is made on the
basis of the Companys historical experience and identified warranty issues. Warranties cover such
factors as non-conformance to specifications and defects in material and workmanship. The
following is a rollforward of amounts accrued for warranty reserves: 9




---



##### Table of Contents



WarrantyReserve($ in millions)Balance at December 31, 2003
    
    $
    10.6Warranty costs incurred
    
    
    (0.3
    )Additions charged to cost of sales:Warranties issued
    
    
    1.5Charges related to pre-existing warranties
    
    
    (1.6
    )Balance at December 31, 2004
    
    $
    10.2Warranty costs incurred
    
    
    (0.1
    )Additions charged to cost of sales:Warranties issued
    
    
    0.3Charges related to pre-existing warranties
    
    
    (0.3
    )Balance at March 27, 2005
    
    $
    10.1
 Note 9  Environmental Costs Environmental liabilities are accrued when the Company determines it is responsible for
remediation costs and such amounts are reasonably estimable. When only a range of amounts is
established and no amount within the range is more accurate than another, the minimum amount in the
range is recorded. Our facilities have been previously owned and operated by other entities and remediation is
currently taking place at several facilities in connection with contamination that occurred prior

to our ownership. In particular, we acquired several of our facilities from Northrop Grumman in
July of 2000, including the Hawthorne and Torrance, California facilities, the Stuart, Florida
facility, the Milledgeville and Perry, Georgia facilities and two Dallas, Texas facilities. Of
those facilities, remediation projects are underway in Hawthorne, Stuart, Milledgeville and Dallas.
Under our asset purchase agreement with Northrop Grumman, we obtained from Northrop Grumman an
indemnity relating to contamination at all sites occurring prior to our ownership (so-called
pre-closing liabilities). The indemnity effectively caps our exposure to such cleanup
liabilities at $12 million, with Northrop Grumman assuming responsibility for all such costs in
excess of $12 million. In accordance with the terms of the environmental indemnity, Northrop
Grumman is managing all environmental remedial projects at the various sites, except with respect
to most of the remediation activities now underway at the Dallas facility. The Dallas facility is a
Naval Weapons Industrial Reserve Plant, which the Navy leases to us. The Navy manages and
finances most of the remediation activities at this site (although Northrop Grumman does manage
other remediation activities at the site). Should the Navy cease to finance and perform remediation
activities at the Dallas site, we would look to Northrop Grumman to manage those activities in
accordance with its indemnity obligations. Although we have no reason to believe that Northrop
Grumman will not satisfy its indemnity obligations, if Northrop Grumman failed to do so, we could
be exposed to environmental cleanup liabilities that could be material. As of March 27, 2005, our
balance sheet included an accrued liability of $5.1 million for accrued environmental liabilities
which is included in accrued and other liabilities and other non-current liabilities. The Nashville, Tennessee facility was acquired by the Aerostructures Corporation from Textron
Inc. in 1996. In connection with that acquisition, Textron agreed to indemnify up to $60 million
against any pre-closing environmental liabilities with regard to claims made within ten years of
the date on which the facility was acquired, including with respect to a solid waste landfill
located onsite that was closed pursuant to a plan approved by the Tennessee Division of Solid Waste
Management. While there are no pending environmental claims relating to the Nashville facility,
there is no assurance that environmental
claims will not arise after the expiration of the Textron indemnity in 2006, or that Textron
will satisfy its indemnity obligations with respect to any environmental claims that are made
before the indemnity expires. 10




---



##### Table of Contents



The following is a rollforward of amounts accrued for environmental liabilities: EnvironmentalLiability($ in millions)Balance at December 31, 2002
    
    $
    10.5Environmental costs incurred
    
    
    (2.0
    )Balance at December 31, 2003
    
    
    8.5Environmental costs incurred
    
    
    (2.7
    )Balance at December 31, 2004
    
    
    5.8Environmental costs incurred for the three months
ending March 27, 2005
    
    
    (0.7
    )Balance at March 27, 2005
    
    $
    5.1
 Note 10  Related Party Transactions In accordance with the management agreement between Vought Aircraft Industries, Inc. and the
Companys principal stockholder, The Carlyle Group (Carlyle), the Company incurred a fee of $0.5
million for various management services provided by Carlyle for each of the three month periods
ended March 27, 2005 and March 28, 2004, respectively. Note 11  Guarantor Subsidiaries The 8% Senior Notes due 2011 are fully and unconditionally and jointly and severally
guaranteed, on a senior unsecured basis, by the Companys 100% owned subsidiaries. Summarized
financial information of the Company and its subsidiaries is presented below: 11




---



##### Table of Contents



Consolidating Balance Sheet
March 27, 2005
($ in millions) Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    139.2
    
    
    $
    
    
    
    $
    
    
    
    $
    139.2Trade and other receivables
    
    
    100.7
    
    
    
    15.7
    
    
    
    
    
    
    
    116.4Intercompany receivable
    
    
    18.5
    
    
    
    1.4
    
    
    
    (19.9
    )
    
    
    Inventories
    
    
    317.5
    
    
    
    12.3
    
    
    
    
    
    
    
    329.8Other current assets
    
    
    7.2
    
    
    
    0.4
    
    
    
    
    
    
    
    7.6Total current assets
    
    
    583.1
    
    
    
    29.8
    
    
    
    (19.9
    )
    
    
    593.0Property, plant and equipment, net
    
    
    387.1
    
    
    
    11.2
    
    
    
    
    
    
    
    398.3Goodwill, net
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    88.8
    
    
    
    
    
    
    
    
    
    
    
    88.8Investment in affiliated company
    
    
    76.7
    
    
    
    
    
    
    
    (76.7
    )
    
    
    Debt origination costs, net and other assets
    
    
    22.6
    
    
    
    0.1
    
    
    
    
    
    
    
    22.7Total assets
    
    $
    1,622.3
    
    
    $
    104.8
    
    
    $
    (96.6
    )
    
    $
    1,630.5Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    75.0
    
    
    $
    4.4
    
    
    
    
    
    
    $
    79.4Accrued and other liabilities
    
    
    77.5
    
    
    
    1.3
    
    
    
    
    
    
    
    78.8Accrued payroll and employee benefits
    
    
    46.3
    
    
    
    1.2
    
    
    
    
    
    
    
    47.5Accrued postemployment benefits  current
    
    
    57.3
    
    
    
    
    
    
    
    
    
    
    
    57.3Accrued pension  current
    
    
    27.2
    
    
    
    
    
    
    
    
    
    
    
    27.2Current portion of long-term debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Intercompany payable
    
    
    1.4
    
    
    
    18.5
    
    
    
    (19.9
    )
    
    
    Capital lease obligations
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9Accrued contract liabilities
    
    
    247.3
    
    
    
    
    
    
    
    
    
    
    
    247.3Total current liabilities
    
    
    536.0
    
    
    
    26.3
    
    
    
    (19.9
    )
    
    
    542.4Long-term liabilities:Accrued postemployment benefits
    
    
    491.3
    
    
    
    
    
    
    
    
    
    
    
    491.3Accrued pension
    
    
    436.6
    
    
    
    
    
    
    
    
    
    
    
    436.6Long-term bank debt, net of current portion
    
    
    421.0
    
    
    
    
    
    
    
    
    
    
    
    421.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Long-term capital lease obligations
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    1.8Other non-current liabilities
    
    
    71.7
    
    
    
    
    
    
    
    
    
    
    
    71.7Total liabilities
    
    
    2,226.6
    
    
    
    28.1
    
    
    
    (19.9
    )
    
    
    2,234.8Stockholders equity (deficit):Common stock, par value $0.01; 50,000,000 shares
authorized, 25,015,552 issued and outstanding
in 2005
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    418.0
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    418.0Shares held in rabbi trust
    
    
    (1.9
    )
    
    
    
    
    
    
    
    
    
    
    (1.9
    )Stockholders loans
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    (2.3
    )Accumulated deficit
    
    
    (424.2
    )
    
    
    (3.6
    )
    
    
    3.6
    
    
    
    (424.2
    )Accumulated other comprehensive loss
    
    
    (594.2
    )
    
    
    
    
    
    
    
    
    
    
    (594.2
    )Total stockholders equity (deficit)
    
    
    (604.3
    )
    
    
    76.7
    
    
    
    (76.7
    )
    
    
    (604.3
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,622.3
    
    
    $
    104.8
    
    
    $
    (96.6
    )
    
    $
    1,630.5
 12




---



##### Table of Contents



Consolidating Balance Sheet
December 31, 2004
($ in millions) Guarantor
    
    
    IntercompanyVought (1)
    
    
    Subsidiary (1)
    
    
    Eliminations
    
    
    TotalAssetsCurrent assets:Cash and cash equivalents
    
    $
    128.6
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    128.9Trade and other receivables
    
    
    112.1
    
    
    
    11.1
    
    
    
    
    
    
    
    123.2Intercompany receivable
    
    
    19.6
    
    
    
    3.2
    
    
    
    (22.8
    )
    
    
    Inventories
    
    
    266.6
    
    
    
    12.7
    
    
    
    
    
    
    
    279.3Other current assets
    
    
    6.8
    
    
    
    0.4
    
    
    
    
    
    
    
    7.2Total current assets
    
    
    533.7
    
    
    
    27.7
    
    
    
    (22.8
    )
    
    
    538.6Property, plant and equipment, net
    
    
    395.7
    
    
    
    12.0
    
    
    
    
    
    
    
    407.7Goodwill, net
    
    
    464.0
    
    
    
    63.7
    
    
    
    
    
    
    
    527.7Identifiable intangible assets, net
    
    
    91.5
    
    
    
    
    
    
    
    
    
    
    
    91.5Investment in affiliated company
    
    
    74.9
    
    
    
    
    
    
    
    (74.9
    )
    
    
    Debt origination costs, net and other assets
    
    
    23.4
    
    
    
    0.1
    
    
    
    
    
    
    
    23.5Total assets
    
    $
    1,583.2
    
    
    $
    103.5
    
    
    $
    (97.7
    )
    
    $
    1,589.0Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable, trade
    
    $
    97.4
    
    
    $
    3.3
    
    
    
    
    
    
    $
    100.7Accrued and other liabilities
    
    
    88.4
    
    
    
    1.6
    
    
    
    
    
    
    
    90.0Accrued payroll and employee benefits
    
    
    50.2
    
    
    
    1.2
    
    
    
    
    
    
    
    51.4Accrued
postemployment benefits - current
    
    
    57.3
    
    
    
    
    
    
    
    
    
    
    
    57.3Accrued
pension - current
    
    
    27.2
    
    
    
    
    
    
    
    
    
    
    
    27.2Current portion of long-term debt
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    4.0Intercompany payable
    
    
    3.2
    
    
    
    19.6
    
    
    
    (22.8
    )
    
    
    Capital lease obligations
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9Accrued contract liabilities
    
    
    142.0
    
    
    
    
    
    
    
    
    
    
    
    142.0Total current liabilities
    
    
    469.7
    
    
    
    26.6
    
    
    
    (22.8
    )
    
    
    473.5Long-term liabilities:Accrued postemployment benefits
    
    
    486.9
    
    
    
    
    
    
    
    
    
    
    
    486.9Accrued pension
    
    
    420.7
    
    
    
    
    
    
    
    
    
    
    
    420.7Long-term bank debt, net of current portion
    
    
    421.0
    
    
    
    
    
    
    
    
    
    
    
    421.0Long-term bond debt
    
    
    270.0
    
    
    
    
    
    
    
    
    
    
    
    270.0Long-term capital lease obligations
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Other non-current liabilities
    
    
    69.4
    
    
    
    
    
    
    
    
    
    
    
    69.4Total liabilities
    
    
    2,137.7
    
    
    
    28.6
    
    
    
    (22.8
    )
    
    
    2,143.5Stockholders equity (deficit):Common stock, par value $0.01; 50,000,000 shares
authorized, 25,015,552 issued and outstanding
in 2004
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Additional paid-in capital
    
    
    418.0
    
    
    
    80.3
    
    
    
    (80.3
    )
    
    
    418.0Shares held in rabbi trust
    
    
    (1.9
    )
    
    
    
    
    
    
    
    
    
    
    (1.9
    )Stockholders loans
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    (2.3
    )Accumulated deficit
    
    
    (374.4
    )
    
    
    (5.4
    )
    
    
    5.4
    
    
    
    (374.4
    )Accumulated other comprehensive loss
    
    
    (594.2
    )
    
    
    
    
    
    
    
    
    
    
    (594.2
    )Total stockholders equity (deficit)
    
    
    (554.5
    )
    
    
    74.9
    
    
    
    (74.9
    )
    
    
    (554.5
    )Total liabilities and stockholders equity (deficit)
    
    $
    1,583.2
    
    
    $
    103.5
    
    
    $
    (97.7
    )
    
    $
    1,589.0
   
 13




---



##### Table of Contents



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
    
    
    
    
    
    
    
    
    
    
    
    0.7Other income (loss)
    
    
    (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
    )
 Consolidating Statement of Operations
Three Months Ended March 28, 2004
($ in millions) Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    281.5
    
    
    $
    15.1
    
    
    $
    (1.7
    )
    
    $
    294.9Costs and expensesCost of sales
    
    
    232.6
    
    
    
    15.8
    
    
    
    (1.7
    )
    
    
    246.7Selling, general and administrative expenses
    
    
    61.5
    
    
    
    1.2
    
    
    
    
    
    
    
    62.7Total costs and expenses
    
    
    294.1
    
    
    
    17.0
    
    
    
    (1.7
    )
    
    
    309.4Operating income (loss)
    
    
    (12.6
    )
    
    
    (1.9
    )
    
    
    
    
    
    
    (14.5
    )Other income (expense)Interest income
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.5Interest expense
    
    
    (9.6
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (9.7
    )Equity in losses of consolidated subsidiaries
    
    
    (2.0
    )
    
    
    
    
    
    
    2.0
    
    
    
    Loss before income taxes
    
    
    (23.7
    )
    
    
    (2.0
    )
    
    
    2.0
    
    
    
    (23.7
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (23.7
    )
    
    $
    (2.0
    )
    
    $
    2.0
    
    
    $
    (23.7
    )
 14




---



##### 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
    
    
    
    
    
    
    
    18.6Loss 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
    
    
    20.6
    
    
    
    
    
    
    
    
    
    
    
    20.6Net cash provided by operating activities
    
    
    16.8
    
    
    
    
    
    
    
    
    
    
    
    16.8Investing 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
    )Net cash used in financing activities
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Net increase 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
 15




---



##### Table of Contents



Consolidating Statement of Cash Flows
Three Months Ended March 28, 2004
($ in millions) Guarantor
    
    
    IntercompanyVought
    
    
    Subsidiary
    
    
    Eliminations
    
    
    TotalOperating activitiesNet loss
    
    $
    (23.7
    )
    
    $
    (2.0
    )
    
    $
    2.0
    
    
    $
    (23.7
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation & amortization
    
    
    17.5
    
    
    
    1.0
    
    
    
    
    
    
    
    18.5Loss from asset sales
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Losses from investment in consolidated subsidiaries
    
    
    2.0
    
    
    
    
    
    
    
    (2.0
    )
    
    
    Changes in current assets and liabilities:Accounts receivable
    
    
    5.5
    
    
    
    (4.7
    )
    
    
    
    
    
    
    0.8Intercompany accounts receivable
    
    
    (4.7
    )
    
    
    (0.3
    )
    
    
    5.0
    
    
    
    Inventories, net of advance and progress billings
    
    
    (13.7
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (14.0
    )Other current assets
    
    
    (1.3
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.4
    )Accounts payable, trade
    
    
    24.3
    
    
    
    1.4
    
    
    
    
    
    
    
    25.7Intercompany accounts payable
    
    
    0.3
    
    
    
    4.7
    
    
    
    (5.0
    )
    
    
    Accrued payroll and employee benefits
    
    
    (6.6
    )
    
    
    
    
    
    
    
    
    
    
    (6.6
    )Accrued and other liabilities
    
    
    (15.8
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (16.1
    )Accrued contract liabilities
    
    
    97.3
    
    
    
    1.4
    
    
    
    
    
    
    
    98.7Other assets
and liabilities - long-term
    
    
    26.2
    
    
    
    
    
    
    
    
    
    
    
    26.2Net cash provided by operating activities
    
    
    108.8
    
    
    
    0.8
    
    
    
    
    
    
    
    109.6Investing activitiesCapital expenditures
    
    
    (8.1
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (8.6
    )Net cash used in investing activities
    
    
    (8.1
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (8.6
    )Financing activitiesPayments on capital leases
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.3
    )Net cash used in financing activities

    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.3
    )Net increase in cash and cash equivalents
    
    
    100.7
    
    
    
    
    
    
    
    
    
    
    
    100.7Cash and cash equivalents at beginning of period
    
    
    106.4
    
    
    
    
    
    
    
    
    
    
    
    106.4Cash and cash equivalents at end of period
    
    $
    207.1
    
    
    $
    
    
    
    $
    
    
    
    $
    207.1
 16




---



##### Table of Contents



Note 12  Subsequent Events On April 13, 2005, Vought finalized an operating agreement for a joint venture called Global
Aeronautica, LLC Operating. Vought and Alenia North America (Alenia), a subsidiary of
Finmeccanica SpA, will each have a 50% stake in the joint venture, which will combine the two
companies respective 787 program fuselage products to deliver an integrated product to Boeing.
Vought will be the sole-source supplier of the aft fuselage for Boeings 787 program under a
contract that currently is under negotiation. 17




---



##### 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. Financial Business Trends We believe there have been no significant changes in our financial and business trends during
the three months ended March 27, 2005, as compared to those we discussed in Managements Discussion
and Analysis of Financial Condition and Results of Operations included in our 2004 Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 30, 2005. Results of Operations Three Months
    
    
    Percentage
    
    
    Three MonthsEnded March
    
    
    Change to
    
    
    Ended March27, 2005
    
    
    Prior Year
    
    
    28, 2004($ in millions)Net sales:Commercial
    
    $
    134.1
    
    
    
    (3
    )%
    
    $
    138.1Military
    
    
    89.8
    
    
    
    (17
    )%
    
    
    107.8Business Jets
    
    
    45.9
    
    
    
    (6
    )%
    
    
    49.0Total net sales
    
    $
    269.8
    
    
    
    (9
    )%
    
    $
    294.9Costs and expenses:Cost of sales
    
    
    240.6
    
    
    
    (2
    )%
    
    
    246.7Selling, general and
administrative
    
    
    67.5
    
    
    
    8
    %
    
    
    62.7Total costs and expenses
    
    $
    308.1
    
    
    
    
    
    
    $
    309.4Operating loss
    
    
    (38.3
    )
    
    
    164
    %
    
    
    (14.5
    )Interest expense, net
    
    
    (11.4
    )
    
    
    24
    %
    
    
    (9.2
    )Other income (loss)
    
    
    (0.1
    )
    
    
    
    
    
    
    Net loss
    
    $
    (49.8
    )
    
    
    110
    %
    
    $
    (23.7
    )
 Comparison of Results of Operations for the Three Months Ended March 27, 2005 and March 28,
2004 Net sales. Net sales for the quarter ended March 27, 2005 were $269.8 million, a decrease of
$25.1 million or 9%, compared with net sales of $294.9 million for the same period in the prior
year. Management believes that total net sales will be in the range of $1.3 billion to $1.4 billion
for fiscal 2005. When comparing the first quarter of 2005 with the same period in the prior year: 18




---



##### Table of Contents




    Commercial net sales decreased by approximately $4.0 million or 3% as a result of a
decline in sales of $17.1 million from Boeing contracts due to lower aircraft delivery
rates and the cancellation of the Boeing 757 program, partially offset by an increase
of $11.0 million resulting from increased delivery rates on our Airbus contracts.
Management has addressed this decline in net sales by reducing labor, material, and
overhead costs in addition to the facility consolidation project;
    Military net sales decreased by approximately $18.0 million or 17% primarily due to
lower selling prices for the C-17 program;
    Business Jet net sales decreased by approximately $3.1 million or 6% due to lower
delivery rates on the Gulfstream IV program and a decrease in sales prices for
Gulfstream V planes. Cost of sales. Cost of sales as a percentage of net sales was 89% for the quarter ended March
27, 2005, compared with 84% for the same period in the prior year.
This increase is primarily attributable
to $28.0 million of program costs related to revised facility consolidation and disruption
estimates partially offset by a decrease of $15.5 million in the charges related to employee
benefits for the planned facility closures. Selling, general and administrative expenses. Selling, general and administrative expenses
for the three months ended March 27, 2005 were $67.5 million, an increase of $4.8 million compared
with selling, general and administrative expenses of $62.7 million for the same period in the prior
year. Selling, general and administrative expenses as a percentage of net sales was 25% and 21%
for the quarters ended March 27, 2005 and March 28, 2004, respectively. The increase was primarily
due to our investment in the Boeing 787 program of $9.6 million partially offset by a decrease of
$1.5 million in amortization of intangible assets. Operating income (loss). Operating loss for the three months ended March 27, 2005 was ($38.3)
million, compared to an operating loss of ($14.5) million for the same period in the prior year.
The increase in loss of $23.8 million is primarily due to the spending related to our investment in
the Boeing 787 program and program costs related to the revised facility consolidation and
disruption, partially offset by the decrease in charges related to the employee benefits for
planned facility closures. Interest expense, net. Interest expense, net for the three months ended March 27, 2005 was
$11.4 million, an increase of $2.2 million or 24% compared with $9.2 million for the same period in
the prior year. Interest expense, net increased primarily due to the increase in Voughts senior
secured credit facilities resulting from the new credit agreement entered into in December 2004,
combined with an increase in interest rates from the same period last year. Critical Accounting Policies We believe there have been no significant changes to our critical accounting policies during
the three months ended March 27, 2005, as compared to those we disclosed in Managements Discussion
and Analysis of Financial Condition and Results of Operations included in our 2004 Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 30, 2005. Liquidity and Capital Resources On February 26, 2004, we announced a major project to consolidate manufacturing to the Dallas
and Grand Prairie, Texas facilities. We are in the process of renovating and modernizing the
Dallas facilities and will complete production at the Nashville and Stuart sites and reduce the
size of the Hawthorne site. Funding to complete the project will come from a combination of the
Texas Enterprise Fund, the Texas General Land Office, sale of facilities which are no longer
required, savings realized as 19




---



##### Table of Contents



we vacate excess plant space, operational cash flow, and the
Revolver. Based upon the Companys restructuring plan, the Company currently estimates that the
benefit to operating earnings and cash flows, annually, will potentially be $50 million, following
the substantial completion of such project. However, due to the scale and nature of estimates
involved with consolidation of facilities of this size, there can be no assurance that the benefit
will be realized in full. On July 2, 2003, Vought issued $270.0 million of 8% Senior Notes due 2011 (Senior Notes)
with interest payable on January 15 and July 15 of each year, beginning January 15, 2004. The
notes may be redeemed in full or in part prior to maturity, by paying specified premiums.
Additionally, prior to July 15, 2006, Vought may redeem up to 35% of the notes from the proceeds of
certain equity offerings. The notes are senior unsecured obligations guaranteed by all of Voughts
existing and future domestic subsidiaries. As of March 27, 2005, we had long-term debt of approximately $692.8 million, which included
$421.0 million incurred under our senior secured credit facilities and $270.0 million of Senior
Notes. In addition, we had $1.8 million of long-term capital lease obligations. We completed the syndication of a $650.0 million senior secured credit facility (Credit
Facility)
pursuant to the terms and conditions of a Credit Agreement dated December 22, 2004 (Credit
Agreement). The Credit Facility is comprised of a $150.0 million six-year revolving credit
facility (Revolver), a $75.0 million synthetic letter of credit facility (Letter of Credit
Facility) and a $425.0 million seven-year term loan B (Term Loan). The proceeds were used to
refinance the Companys existing credit facility and for general corporate purposes, including
investment in the Boeing 787 program and the execution of the ongoing manufacturing facility
consolidation and modernization plan. The Term Loan will amortize at $1 million per quarter with a
bullet payment at the maturity date of December 22, 2011. Under the Credit Agreement, the Company
has the option to solicit from existing or new lenders, up to $200 million in additional term loans
subject to substantially the same terms and conditions as the outstanding term loans though pricing
may be separately negotiated at that time. Additionally, the Company also has the option to
convert up to $25 million of the Letter of Credit Facility to outstanding term loans which would
also be subject to the same terms and conditions as the outstanding term loans made as of the
closing date. The Credit Facility replaces the Companys prior credit facility which consisted of
a $150.0 million revolving credit facility and $295.9 million of term loans maturing in June 2008. As of the March 27, 2005, there are no borrowings under the Revolver, $425.0 million of
borrowings under the Term Loan, and $50.4 million outstanding Letters of Credit under the $75 million
synthetic facility. The Company is obligated to pay an annual commitment fee on the unused
revolving credit facility of 0.5% or less dependent upon the leverage ratio. Net cash provided by operating activities for the three months ended March 27, 2005 was $16.8
million, a decrease of $92.8 million or 85% compared to net cash provided by operating activities
of $109.6 million for the same period in the prior year. This decrease was caused primarily by a
large change in our accounts payable which was driven by the extent of year-end accruals and cash
float. Additional factors include increased spending on the 787 program, and a decrease in C-17
advance payments as compared to the same period in the prior year. Cash used in investing activities generally has been for capital expenditures. Net cash used
for capital expenditures for the three months ended March 27, 2005 was $6.3 million, a decrease of
$2.3 million or 27% compared to $8.6 million for the same period in the prior year. This decrease
is attributable to the timing of expenditures and we anticipate that we will reach our planned
capital expenditures of between $150 million and $200 million by year-end. 20




---



##### Table of Contents



The principal source of liquidity for Vought is cash provided by operations. Voughts
liquidity requirements and working capital needs depend on a number of factors, including the level
of delivery rates under our contracts and working capital needs fluctuations between periods as a
result of changes in delivery rates under existing contracts and production associated with new
contracts. For some military aircraft programs, milestone payments finance working capital, which
helps to improve liquidity. In general, our business generates sufficient cash flow to manage our
general liquidity needs and Vought has not historically needed short-term borrowings to finance
normal operations. There have been no significant changes to our scheduled maturities of financial obligations
and expiration of commitments since those disclosed in the Liquidity and Capital Resources section
of our 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March
30, 2005. We believe that cash flow from operations, cash and cash equivalents on hand, and funds
available under our amended credit facility will provide adequate funds for our working capital
needs, planned capital expenditures, and near term debt service obligations. Our ability to pay
interest and principal on the indebtedness and to satisfy our other obligations will depend upon
future operating performance and the
availability of refinancing indebtedness, which will be affected by prevailing economic
conditions and financial, business and other factors, some of which are beyond our control. Vought has reached a preliminary agreement with the State of South Carolina to develop a new
manufacturing site in Charleston, South Carolina for manufacturing and assembly work for the Boeing
787 Dreamliner commercial aircraft program. Subsequent to the quarter end, on April 13, 2005,
Vought finalized an operating agreement for a joint venture called Global Aeronautica, LLC
Operating. Vought and Alenia North America (Alenia), a subsidiary of Finmeccanica SpA, will
each have a 50% stake in the joint venture, which will combine the two companies respective 787
program fuselage products to deliver an integrated product to Boeing. Vought will be the
sole-source supplier of the aft fuselage for Boeings 787 program under a contract that currently
is under negotiation, but is expected to represent approximately $5 billion in total contract value
through 2021. Voughts funding requirement for the 787 program is expected to be approximately
$140 million for investment and approximately $50 million for working capital, with significant
additional funding to come from other sources. Voughts investment in the 787 program primarily
will be in tooling and capital expenditures, design and engineering, and a cash contribution to the
joint venture of approximately $20 million in total over the next several years. Vought believes
that the 787 program represents the next generation of commercial aircraft, and expects that the
787 program will evolve into a broader family of more efficient and capable commercial aircraft
that will come into production over the next decades. Voughts total investment in the 787 program and its facility consolidation and modernization
plan is expected to be approximately $876 million. The majority of the funding requirement is
expected to be financed by cash currently on hand, proceeds from the new credit facilities,
sale-leaseback and operating lease arrangements, state grants and other sources. The remaining
funding requirements, estimated at $50 to $100 million, are expected to be met by cash flow from
operations. Management is continually evaluating various options relating to these projects as
market dynamics change our outlook for future production needs. This evaluation may lead to
changes in the timing of these projects and the total amount invested. We may continue to manage market risk with respect to interest rates by entering into swap
agreements, as we have done in the past. Our supply base contracting policy manages commodities
price risk by entering into long-term fixed-price contracts in most cases. However, we do not have
any futures hedge with respect to raw materials, such as aluminum, used to build our products, and
therefore we may be subject to price fluctuations for raw materials or utilities over the long
term. Similarly, we do not hedge for foreign currency exchange risk because we have minimal
exposure to this risk. In the case of our substantial sales to Airbus in Europe, purchase prices
and payment terms under the relevant contracts 21




---



##### Table of Contents



are denominated in U.S. dollars. Debt Covenants.There have been no changes to our debt covenants during the three months ended
March 27, 2005, as compared to those we discussed in Managements Discussion and Analysis of
Financial Condition and Results of Operations included in our 2004 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2005. We are currently in compliance with the covenants in the Credit Facility and the Senior Notes. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a result of our operating and financing activities, we are exposed to various market risks
that may affect our consolidated results of operations and financial position. These market risks
include fluctuations in interest rates, which impact the amount of interest we must pay on our
variable-rate debt. Other than the interest rate swaps described below, financial instruments that potentially
subject us
to significant concentrations of credit risk consist principally of cash and cash equivalents
and trade accounts receivable. Accounts receivable include amounts billed and currently due from customers, amounts currently
due but unbilled, particular estimated contract changes, claims in negotiation that are probable of
recovery, and amounts retained by the customer pending contract completion. We continuously monitor
collections and payments from customers and maintain a provision for estimated credit losses as
deemed appropriate as based upon historical experience and any specific customer collection issues
that have been identified. While such credit losses have historically been within our expectations,
we cannot guarantee that we will continue to experience the same credit loss rates in the future. We maintain cash and cash equivalents with various financial institutions and perform periodic
evaluations of the relative credit standing of those financial institutions. We have not
experienced any losses in such accounts and believe that we are not exposed to any significant
credit risk on cash and cash equivalents. We are highly dependent on the availability of essential materials and parts from our
suppliers. We are dependent upon the ability of our suppliers to provide material that meets
specifications, quality standards, delivery schedules and anticipated costs. We are experiencing
delays in the receipt of metallic raw materials common with overall capacity constraints across the
industry. Based upon market conditions and industry analysis we expect these delays to continue
well into 2006 as metallic (aluminum) raw material production capability adjusts to the industry
upturn, increased infrastructure demand in the Peoples Republic of China, and increased aluminum
usage in an ever wider range of consumer products. Although these delays have the potential to
affect cost and production schedules, we do not anticipate these effects will have a material
impact on cash flows or results of operations. The Boeing Company has announced that a decision to proceed with new derivatives or complete
production of the 747 Program is likely to be made mid-year 2005. The future of this program
largely depends upon market acceptance of new derivatives. Due to the uncertainty of the market
acceptance, termination of production is reasonably possible. The Boeing Company has announced that a decision to continue or complete production of the 767
Program is likely to be made mid-year 2005. Due to the uncertainty of the market demand,
termination of production is reasonably possible. 22




---



##### Table of Contents



Boeings decisions regarding production, including the possible decision to terminate these
programs, would require the Company to reevaluate cost estimates associated with these and other
programs that would be affected by the change in base and any modification of infrastructure
requirements. This reevaluation could result in changes in estimates and current margin rates for
these and other programs. Interest Rate Risks From time to time, we may enter into interest rate swap agreements or other financial
instruments in the normal course of business for purposes other than trading. These financial
instruments are used to mitigate interest rate or other risks, although to some extent they expose
us to market risks and credit risks. We control the credit risks associated with these instruments
through the evaluation of the creditworthiness of the counter parties. In the event that a counter
party fails to meet the terms of a contract or agreement then our exposure is limited to the
current value, at that time, of the interest rate differential, not the full notional or contract
amount. Management believes that such contracts and agreements have been executed
with creditworthy financial institutions. As such, we consider the risk of nonperformance to
be remote. Management has performed sensitivity analyses to determine how market rate changes will affect
the fair value of the market risk sensitive hedge positions and all other debt that we will bear.
Such an analysis is inherently limited in that it represents a singular, hypothetical set of
assumptions. Actual market movements may vary significantly from our assumptions. Fair value
sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would
recognize from the assumed market rate movements. We are exposed to cash flow risk due to changes
in interest rates with respect to the entire $425.0 million of variable rate debt under our senior
secured credit facilities. A one-percentage point increase in interest rates on our variable rate
debt as of March 27, 2005 would decrease our annual pre-tax income by approximately $4.3 million.
All of our remaining debt is at fixed rates, therefore, changes in market interest rates under
these instruments would not significantly impact our cash flows or results of operations. Under the Credit Agreement, we have a requirement to hedge 50% of our outstanding debt balance
net of the fixed rate instrument balances for two years. To comply with this requirement, we
entered into an interest rate cap in the first quarter of 2005 whereby $100 million is capped at a
maximum LIBOR rate of 6%. This cap expires on January 1, 2007. We have no current plans to enter into additional interest rate swaps. Utility Price Risks We have exposure to utility price risks as a result of volatility in the cost and supply of
energy and in natural gas prices. To minimize this risk, we have entered into fixed price
contracts at certain of the manufacturing locations for a portion of its energy usage for periods
of up to three years. Although these contracts would reduce the risk to us during the contract
period, future volatility in the supply and pricing of energy and natural gas could have an impact
on our consolidated results of operations. 
 ITEM 4. CONTROLS AND PROCEDURES Under the supervision and with the participation of the Chief Executive Officer and President,
and the Executive Vice President and Chief Financial Officer, the Companys management has
evaluated the effectiveness of the Companys disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and President and the Executive Vice President and Chief
Financial Officer have concluded that these disclosure controls and procedures are effective for
ensuring that information required to be disclosed by the Company in the reports that it files or
submits under the Securities Exchange Act of 23




---



##### Table of Contents



1934 is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms. There were no changes in the
Companys internal control over financial reporting that occurred during the Companys most recent
quarter that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting. In conjunction with its evaluation, management has
communicated its findings to the Audit Committee of the Board of Directors. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements. These statements relate to future
events or our future financial performance, and involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as may, will, should, expects, intends,
plans, anticipates, believes, estimates,
predicts, potential, continue, assumption or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or results may
differ materially. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance or
achievements. We are under no duty to update any of the forward-looking statements after the date
of this report. 
 PART II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS In the normal course of business, we are party to various lawsuits, legal proceedings and
claims arising out of our business. We cannot predict the outcome of these lawsuits, legal
proceedings and claims with certainty. Nevertheless, we believe that the outcome of these
proceedings, even if determined adversely, would not have a material adverse effect on our
business, financial condition or results of operations. 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 
 ITEM 5. OTHER INFORMATION None. 24




---



##### Table of Contents



ITEM 6. EXHIBITS (a) Exhibits (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.
    25




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized. Vought Aircraft Industries, Inc.(Registrant)May 11, 2005
    
    /s/ Lloyd R. Sorenson(Date)
    
    Lloyd R. SorensonExecutive Vice President and Chief Financial Officer(Principal Financial Officer and Authorized Officer)
 26