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

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

Commission File Number 333-112528

Vought Aircraft Industries, Inc.

(Exact name of registrant as specified in its charter)

Delaware		75-2884072
(State of Incorporation)		(I.R.S. Employer Identification Number)

201 East John Carpenter Freeway, Tower 1, Suite 900
Irving, Texas		75062
(Address of Principal executive offices)		(Zip 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 checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

     Indicate by check mark whether the registrant is a shell company (as defined in 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 7, 2010 was 24,818,900.

 

 

TABLE OF CONTENTS

				Page
		PART I — FINANCIAL INFORMATION
Item 1		Interim Unaudited Condensed Consolidated Financial Statements			4
		Consolidated Balance Sheets			4
		Consolidated Statements of Operations			5
		Consolidated Statements of Cash Flows			6
		Notes to the Interim Unaudited Condensed Consolidated Financial Statements			7
Item 2		Management’s Discussion And Analysis Of Financial Condition And Results Of Operations			27
Item 3		Quantitative And Qualitative Disclosures About Market Risk			39
Item 4		Controls And Procedures			41
		PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			42
Item 1A		Risk Factors			42
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3		Defaults Upon Senior Securities			42
Item 5		Other Information			42
Item 6		Exhibits			43
		Signatures			44
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Cautionary Statement Regarding Forward Looking Statements

Some of the statements made in this Quarterly Report on Form 10-Q are forward-looking statements. These forward looking statements are based upon our current expectations and projections about future events. When used in this quarterly report, the words “believe,” “anticipate,” “intend,” “estimate,” “expect,” “should,” “may” and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this quarterly report are primarily located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this quarterly report completely and with the understanding that actual future results may be materially different from what we expect. We will not update forward-looking statements even though our situation may change in the future.

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

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

PART I — FINANCIAL INFORMATION

ITEM 1. INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Vought Aircraft Industries, Inc.
Consolidated Balance Sheets
($ in millions, except share amounts)

		March 28,
		2010				December 31,
		(unaudited)				2009
Assets
Current assets:
Cash and cash equivalents		$	149.7			$	116.0
Restricted cash			43.4				43.8
Trade and other receivables			159.5				127.9
Inventories			453.4				511.3
Other current assets			10.1				8.5
Total current assets			816.1				807.5
Property, plant and equipment, net			273.1				275.9
Goodwill			404.8				404.8
Identifiable intangible assets, net			18.6				20.4
Other non-current assets			0.9				1.3
Total assets		$	1,513.5			$	1,509.9
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable, trade		$	171.1			$	140.9
Accrued and other liabilities			59.8				68.3
Accrued payroll and employee benefits			44.5				46.9
Accrued post-retirement benefits-current			37.5				37.4
Accrued pension-current			3.3				3.5
Current portion of long-term bank debt			320.4				319.8
Accrued contract liabilities			40.0				74.2
Total current liabilities			676.6				691.0
Long-term liabilities:
Accrued post-retirement benefits			363.5				364.9
Accrued pension			595.2				612.2
Long-term bond debt			270.0				270.0
Other non-current liabilities			74.2				75.3
Total liabilities			1,979.5				2,013.4
Stockholders’ equity (deficit):
Common stock, par value $.01 per share; 50,000,000 shares authorized, 24,818,900 and 24,818,806 issued and outstanding at March 28, 2010 and December 31, 2009, respectively			0.3				0.3
Additional paid-in capital			423.2				422.8
Shares held in rabbi trust			(1.6	)			(1.6	)
Accumulated deficit			(146.2	)			(173.0	)
Accumulated other comprehensive loss			(741.7	)			(752.0	)
Total stockholders’ equity (deficit)		$	(466.0	)		$	(503.5	)
Total liabilities and stockholders’ equity (deficit)		$	1,513.5			$	1,509.9

See accompanying notes

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

		For the Three Months Ended
		March 28,				March 29,
		2010				2009
Revenue		$	470.5			$	390.3
Costs and expenses
Cost of sales			391.5				324.8
Selling, general and administrative expenses			39.7				28.5
Total costs and expenses			431.2				353.3
Operating income			39.3				37.0
Other income (expense)
Interest income			0.1				0.2
Interest expense			(12.6	)			(15.0	)
Income before income taxes			26.8				22.2
Income tax expense			—				—
Income (loss) from continuing operations		$	26.8			$	22.2
Income (loss) from discontinued operations			—				(4.3	)
Net Income		$	26.8			$	17.9

See accompanying notes

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

		Three Months Ended
		March 28,				March 29,
		2010				2009
Operating activities
Net income		$	26.8			$	17.9
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			12.9				15.9
Stock compensation expense			2.7				0.5
Changes in current assets and liabilities:
Trade and other receivables			(31.6	)			(9.6	)
Inventories			57.9				(66.1	)
Other current assets			(2.6	)			(3.7	)
Accounts payable, trade			30.2				12.1
Accrued payroll and employee benefits			(2.4	)			(1.7	)
Accrued and other liabilities			(10.9	)			—
Accrued contract liabilities			(34.2	)			(36.7	)
Other assets and liabilities—long-term			(8.8	)			(1.6	)
Net cash provided by (used in) operating activities			40.0				(73.0	)
Investing activities
Capital expenditures			(6.7	)			(8.3	)
Net cash used in investing activities			(6.7	)			(8.3	)
Financing activities
Proceeds from short-term bank debt			—				135.0
Proceeds from long-term bank debt			—				25.0
Changes in restricted cash			0.4				—
Net cash provided by (used in) financing activities			0.4				160.0
Net increase (decrease) in cash and cash equivalents			33.7				78.7
Cash and cash equivalents at beginning of period			116.0				86.7
Cash and cash equivalents at end of period		$	149.7			$	165.4

See accompanying notes

Vought Aircraft Industries, Inc.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
Period Ending March 28, 2010

Note 1 — Organization and Basis of Presentation

     Vought Aircraft Industries, Inc. (“Vought”) and its wholly owned subsidiaries, VAC Industries, Inc., Vought Commercial Aircraft Company and Contour Aerospace Corporation (“Contour”) are herein referred to collectively as “we” or the “Company.” We are a leading global manufacturer of aerostructure products for commercial, military and business jet aircraft. We have a long history of developing and manufacturing a wide range of complex aerostructures such as fuselages, wing and tail assemblies, engine nacelles, flight control surfaces, as well as helicopter cabins. Our diverse and long-standing customer base consists of leading aerospace original equipment manufacturers, or OEMs, including Airbus, Bell Helicopter, Boeing, Cessna, Gulfstream, Hawker Beechcraft, Lockheed Martin, Northrop Grumman and Sikorsky, as well as the U.S. Air Force.

     Our heritage as an aircraft manufacturer extends to the company founded in 1917 by aviation pioneer Chance Milton Vought. From 1994 to 2000, we operated as Northrop Grumman’s commercial aircraft division. Vought was formed in 2000 in connection with The Carlyle Group’s acquisition of Northrop Grumman’s aerostructures business. In July 2003, we purchased The Aerostructures Corporation, with manufacturing sites in Nashville, Tennessee; Brea, California; and Everett, Washington. We are a Delaware corporation with our principal executive offices located at 201 East John Carpenter Freeway, Tower 1, Suite 900, Irving, TX 75062, and we perform production work at sites throughout the United States, including California, Texas, Georgia, Tennessee, Florida and Washington.

     On March 23, 2010, we entered into a merger agreement with Triumph Group, Inc. pursuant to which we will be acquired by Triumph. It is anticipated that in connection with that transaction all of our currently outstanding material indebtedness will be repaid in full. Triumph is a public company listed on the NYSE under the ticker symbol “TGI,” and is a designer, engineer, manufacturer, repairer and over hauler of aircraft components and accessories. The details of this merger agreement are further described in Note 14 — Debt.

     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 interim periods. The results of operations for the three month period ended March 28, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 25, 2010.

     As a result of the sale of the assets and operations of our 787 business conducted at North Charleston, South Carolina (“787 business”) on July 30, 2009, the activities of the 787 business have been segregated and reported as discontinued operations for the three month period ended March 29, 2009 except with respect to the Consolidated Statements of Cash Flows. For further details, see Note 3 — Discontinued Operations.

     It is our practice to close our books and records based on a thirteen-week quarter, which can lead to different period end dates for comparative purposes. The interim financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods, as our fiscal year ends on December 31.

     The consolidated balance sheet at December 31, 2009 presented herein 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.

Note 2 — Recent Accounting Pronouncements

     In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-17, “Consolidations (Topic 810) — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU 2009-17”). ASU 2009-17 changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. ASU 2009-17 requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity is required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASU 2009-17 is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. We adopted ASU 2009-17 as of January 1, 2010, and its application had no impact on our interim, unaudited, condensed, consolidated financial statements.

     In January 2010, the FASB issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), which provides amendments to Fair Value Measurements and Disclosures — Overall subtopic of the ASC. ASU 2010-06 requires additional disclosures and clarifications of existing disclosures for recurring and nonrecurring fair value measurements. We adopted this update for our fiscal year beginning January 1, 2010. ASU 2010-06 did not have a material impact on our interim, unaudited, condensed, consolidated financial statements.

Note 3 — Discontinued Operations

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

     We reclassified the results of operations related to our 787 Business to the income (loss) from discontinued operations, net of tax caption in our Consolidated Statements of Operations for the three month period ended March 29, 2009. The following table summarizes the components of income (loss) from discontinued operations, net of tax:

		March 29,
		2009
		($ in millions)
Revenue		$	12.3
Operating income			(4.3	)
Income (loss) from discontinued operations, net of tax		$	(4.3	)

Note 4 — Inventories

     Costs included in inventory consist of all direct production costs, manufacturing and engineering overhead, production tooling costs and certain general and administrative expenses.

     Inventories consisted of the following:

		March 28,				December 31,
		2010				2009
		($ in millions)
Production costs of contracts in process		$	630.7			$	659.1
Finished goods			2.4				3.1
Less: unliquidated progress payments			(179.7	)			(150.9	)
Total inventories		$	453.4			$	511.3

Note 5 — Goodwill and Intangible Assets

     Goodwill is tested for impairment, at least annually, in accordance with the provisions of the Intangibles — Goodwill and Other topic of the ASC. Under this topic, the first step of the goodwill impairment test used to identify potential impairment compares the fair value of a reporting unit with its carrying value. We have concluded that the Company is a single reporting unit. Accordingly, all assets and liabilities are used to determine our carrying value.

     We use an independent valuation firm to assist in the estimation of enterprise fair value using standard valuation techniques such as discounted cash flow, market multiples and comparable transactions. The discounted cash flow fair value estimates are based on management’s projected future cash flows and the estimated weighted average cost of capital. The estimated weighted average cost of capital is based on the risk-free interest rate and other factors such as equity risk premiums and the ratio of total debt and equity capital.

     We must make assumptions regarding estimated future cash flows and other factors used by the independent valuation firm to determine the fair value. If these estimates or the related assumptions change, we may be required to record non-cash impairment charges for goodwill in the future.

     Identifiable intangible assets consisted of the following:

		March 28,				December 31,
		2010				2009
		($ in millions)
Programs and contracts		$	137.3			$	137.3
Less: accumulated amortization			(118.7	)			(116.9	)
Identifiable intangible assets, net		$	18.6			$	20.4

     The scheduled remaining amortization of identifiable intangible assets as of March 28, 2010 is as follows:

		($ in millions)
2010		$	3.0
2011			2.1
2012			2.1
2013			2.1
2014			2.1
Thereafter			7.2
Total remaining amortization of identifiable intangible assets		$	18.6

Note 6 — Pension and Other Post-retirement Benefits

     The components of net periodic benefit cost for our pension plans and other post-retirement benefit plans were as follows:

		Pension Benefits								Other Post-retirement Benefits
		Three Months Ended								Three Months Ended
		March 28,				March 29,				March 28,				March 29,
		2010				2009				2010				2009
						($ in millions)
Components of net periodic benefit cost (income):
Service cost		$	4.4			$	4.0			$	0.9			$	1.0
Interest cost			28.7				28.2				5.3				6.4
Expected return on plan assets			(31.9	)			(31.4	)			—				—
Amortization of net (gain) loss			13.1				9.8				1.1				0.4
Amortization of prior service cost			3.1				3.1				(7.0	)			(6.1	)
Prior service cost recognized - curtailment			—				1.8				—				(0.2	)
Plan settlement or curtailment (gain)/loss			—				4.6				—				3.4
Net periodic benefit cost		$	17.4			$	20.1			$	0.3			$	4.9
Defined contribution plan cost		$	5.3			$	4.6

We periodically experience events or take actions that affect our benefit plans. Some of these events or actions require remeasurements and result in special charges. The following summarizes the key events that affect our net periodic benefit cost and obligations:

•

During January of 2009, the IAM-represented employees at our Nashville facility ratified a new collective bargaining agreement. That agreement provides for certain benefit changes, including a freeze in pension benefit accruals, effective June 30, 2009, for bargaining unit employees who, as of that date, had less than 16 years of bargaining unit seniority. Employees subject to the pension freeze and any bargaining unit employees hired on or after September 29, 2008, receive a defined contribution benefit. The agreement provides for a one-time company paid retirement incentive program offered to eligible employees during 2009 and certain modifications to retiree medical benefits for bargaining unit retirees. These changes led to a remeasurement of the affected plans’ assets and obligations as of January 31, 2009, which increased our unfunded liability for the pension plan by $1.5 million, decreased our liability for the OPEB plan by $32.7 million and led to the immediate recognition of $9.6 million of net non-recurring charges.

Note 7 — Commitments

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

     The following table is a roll-forward of amounts accrued for warranty reserve included in Current and Long-term liabilities:

		Warranty
		Reserve
		($ in millions)
Balance at December 31, 2008		$	16.1
Warranty costs incurred			(1.5	)
Provisions for warranties			(1.2	)
Balance at December 31, 2009		$	13.4
Warranty costs incurred			(1.0	)
Provisions for warranties			—
Balance at March 28, 2010		$	12.4
Consolidated Balance Sheet classification
Accrued and other liabilities			4.5
Other non-current liabilities			7.9

Note 8- Environmental Contingencies

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

     The acquisition agreement between Northrop Grumman Corporation and Vought transferred certain pre-existing (as of July 24, 2000) environmental liabilities to us. We are liable for the first $7.5 million and 20% of the amount between $7.5 million and $30 million for environmental costs incurred relating to pre-existing matters as of July 24, 2000. Pre-existing environmental liabilities at the formerly Northrop Grumman Corporation sites exceeding our $12 million liability limit remain the responsibility of Northrop Grumman Corporation under the terms of the acquisition agreement, to the extent they are identified within 10 years from the acquisition date. Thereafter, to the extent environmental remediation is required for hazardous materials including asbestos, urea formaldehyde foam insulation or lead-based paints, used as construction materials in, on, or otherwise affixed to structures or improvements on property acquired from Northrop Grumman Corporation, we would be responsible. We have no material outstanding or unasserted asbestos, urea formaldehyde foam insulation or lead-based paints liabilities including on property acquired from Northrop Grumman Corporation.

     The following is a roll-forward of amounts accrued for environmental liabilities included in Current and Long-term liabilities:

		Environmental
		Liability
		($ in millions)
Balance at December 31, 2008		$	3.2
Environmental costs incurred			(0.8	)
Balance at December 31, 2009			2.4
Environmental costs incurred			(0.2	)
Balance at March 28, 2010		$	2.2
Consolidated Balance Sheet classification
Accrued and other liabilities			0.6
Other non-current liabilities			1.6

Note 9 — Other Non-Current Liabilities

     Other non-current liabilities consisted of the following:

		March 28,				December 31,
		2010				2009
		($ in millions)
Deferred income from the sale of Hawthorne facility (a)		$	12.6			$	12.6
State of Texas grant monies			33.1				34.1
Deferred worker’s compensation			17.7				16.5
Accrued warranties			7.9				8.9
Other			2.9				3.2
Total other non-current liabilities		$	74.2			$	75.3

Note 10 — Income Taxes

     The Income Taxes topic of the ASC prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. This interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. Our unrecognized tax benefit position as of December 31, 2009 was $1.8 million and there has not been a material change to that position during the three months ended March 28, 2010.

     On March 23, 2010 the Patient Protection and Affordable Care Act was signed into law, which was amended on March 30, 2010 by the Health Care and Education Reconciliation Act of 2010. These Acts include provisions that eliminate a future tax deduction related to Medicare Part D subsidies received on or after January 1, 2013. This change in tax law did not require an adjustment to tax expense because the Company has recorded a full valuation allowance against the deferred tax asset adjusted by the enacted legislation.

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

Note 11 — Stockholders’ Equity

     As of March 28, 2010, we maintained a stock option plan and an incentive award plan under which we have issued share-based awards to our employees and our directors.

2001 Stock Option Plan

     During 2001, we adopted the Amended and Restated 2001 Stock Option Plan of Vought Aircraft Industries, Inc., under which 1,500,000 shares of common stock were reserved for issuance for the purpose of providing incentives to employees and directors (the “2001 Stock Option Plan”). Options granted under the plan generally vest within 10 years, but were subject to accelerated vesting based on the ability to meet company performance targets. The incentive options granted to our employees are intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code. At March 28, 2010 options granted and outstanding from the 2001 Stock Option Plan to employees and directors amounted to 514,490 shares of which 451,560 are vested and exercisable.

     A summary of stock option activity for the three month period ended March 28, 2010 is as follows:

										Weighted
										Average
						Weighted				Remaining
						Average				Contractual
						Exercise				Term
		Options				Price				(in Years)
Outstanding at December 31, 2009			520,200			$	15.56
Granted			—				—
Forfeited or expired			(5,710	)			10.00
Exercised			—				—
Outstanding at March 28, 2010			514,490			$	15.62				2.4
Vested or expected to vest (a)			514,490			$	15.62
Exercisable at March 28, 2010			451,560			$	14.96				2.4

Shares Held in Rabbi Trust

     A rabbi trust is a grantor trust, typically established to fund deferred compensation for management. In 2000, we established a rabbi trust in connection with certain income deferrals made at that time by a number of our then-executives. Shares of company stock were contributed to the rabbi trust in order to fund the obligations to those executives in connection with those deferrals. Our stock held in the trust is recorded at historical cost, and the corresponding deferred compensation liability is recorded at the current fair value of our common stock. Common stock held in the rabbi trust is classified in equity as “Shares held in rabbi trust.” During the three month period ended March 28, 2010, no activity occurred in the rabbi trust account and 158,322 shares remain held in the rabbi trust.

2006 Incentive Plan

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

Stock Appreciation Rights (SARs)

     A summary of SARs activity for the three month period ended March 28, 2010 is as follows:

										Weighted
										Average
						Weighted				Remaining
						Average				Contractual
						Exercise				Term
		SARs				Price				(in Years)
Outstanding at December 31, 2009			976,840			$	10.00				7.3
Granted			—				—
Forfeited or expired			—				—
Exercised			—				—
Outstanding at March 28, 2010			976,840			$	10.00				7.1
Vested or expected to vest (a)			976,840				10.00
Exercisable at March 28, 2010			801,479				10.00				6.7

     During the year ended December 31, 2009, the exercise of SARs resulted in the issuance of 1,614 shares of common stock. No SARs were exercised during the three month period ended March 28, 2010.

Restricted Stock Units (RSUs)

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

     A summary of RSUs activity for the three months ended March 28, 2010 is as follows:

						Grant-date
		RSUs				Fair-Value
Outstanding at December 31, 2009			617,105			$	10.50
Granted			—				—
Forfeited or expired			—				—
Exercised			—				—
Outstanding at March 28, 2010			617,105			$	10.50
Vested or expected to vest (a)			617,105
Exercisable at March 28, 2010			260,976			$	11.73

Note 12 — Stock-Based Compensation

     As described in Note 11 — Stockholders’ Equity, we maintain a stock option plan and an incentive award plan under which we have issued equity-based awards to our employees and our directors. During 2010 and 2009, in accordance with the Compensation — Stock Compensation topic of the ASC, we recognized total compensation expense for all awards as follows:

		Stock Compensation Expense
		Three Months Ended
		March 28, 2010				March 29, 2009
		($ in millions)
Stock Options		$	—			$	—
Rabbi Trust			2.3				—
Stock appreciation rights (SARs)			0.1				0.1
Restricted stock units (RSUs)			0.1				0.3
Restricted shares			—				0.1
Stock compensation expense, gross		$	2.5			$	0.5
Change in forfeiture estimate			0.2				—
Stock compensation expense, net		$	2.7			$	0.5

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

Stock Options

     Stock options have been granted for a fixed number of shares to employees and directors with an exercise price equal to no less than the fair value of the shares at the date of grant. No stock options have been granted since 2005. Under the “modified prospective” method of the Compensation — Stock Compensation topic of the ASC, we were required to value our stock options under the fair value method and expense these amounts over the stock options’ remaining vesting period. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. No additional stock options have been granted since our application of the modified prospective method. The amount of stock compensation expense recorded for stock options during the three month period ended March 28, 2010 and March 29, 2009 was immaterial.

Shares Held in Rabbi Trust

     During the three month period ended March 28, 2010, we recorded additional stock compensation expense, included in general and administrative expense, to reflect the impact of an estimated increase in the fair value of our common stock. This increase in value resulted in an increase to our accrued payroll and employee benefits line item on our balance sheet.

Stock Appreciation Rights (SARs)

     SARs have been granted to employees and directors with an exercise price equal to no less than the fair value of the shares at the date of grant. The fair value of each SAR is estimated on the date of grant using the Black-Scholes valuation model and based on a number of assumptions including expected term, volatility and interest rates. Because we do not have publicly traded equity or reliable historical data to estimate the expected term of the SARs, we used a temporary “simplified method” to estimate our expected term. Based on the guidance of the Compensation — Stock Compensation topic of the ASC, expected volatility was derived from an index of historical volatilities from several companies that conduct business in the aerospace industry. The risk free interest rate is based on the U.S. treasury yield curve on the date of grant for the expected term of the option. Our estimated forfeiture rate was 26% as of March 29, 2009 but was adjusted to 22% during the three month period ended June 28, 2009. During the three month period ended March 28. 2010, we adjusted the forfeiture rate to assume no further forfeitures. As a result, we recorded $0.1 million of additional stock compensation expense related to SARs.

     No SARs were granted during the three month periods ended March 28, 2010 and March 29, 2009. As of March 28, 2010, we had $0.5 million of unrecognized compensation expense remaining as a result of the grants made in prior years.

Restricted Stock Units (RSUs)

     The value of each RSU awarded is based on the estimated fair value of our common stock on the date of issuance in accordance with the Compensation — Stock Compensation topic of the ASC. Because we do not have publicly traded equity, we use an independent third party valuation firm to compute the fair market value of our common stock. Our estimated forfeiture rate was 26% as of March 29, 2009 but was adjusted to 22% during the three month period ended June 28, 2009. During the three month period ended March 28. 2010, we adjusted the forfeiture rate to assume no further forfeitures. As a result, we recorded $0.1 million additional compensation expense related to RSUs. Additionally, no forfeiture rate was used in our calculation of the grants to the CEO and CFO that vest upon the first occurrence of a change in control or a date specified in the agreement, due to our assumption that they will remain employed until the vesting of these awards. As of March 28, 2010, we had $0.7 million of unrecognized compensation expense remaining.

Note 13- Comprehensive Income

     Comprehensive income consisted of the following:

		For the Three Months Ended
		March 28,				March 29,
		2010				2009
		($ in millions)
Net income		$	26.8			$	17.9
Other comprehensive income (loss), net of tax
Pension			16.2				11.4
OPEB			(5.9	)			27.0
Total other comprehensive income		$	37.1			$	56.3

Note 14 — Debt

     Our total outstanding debt as of March 28, 2010 was $590.4 million which included $320.4 million incurred under our senior credit facilities and $270.0 million of 8% Senior Notes due 2011 (“Senior Notes”). The $320.4 million balance under our senior credit facilities reflected on the Consolidated Balance Sheet includes $322.2 million in outstanding term loans, net of $1.8 million of unamortized original issue discount. The following paragraphs include further details on the components of the Long-term debt balances in our Consolidated Balance Sheet.

     On July 2, 2003, we issued $270.0 million of Senior Notes with interest payable on January 15 and July 15 of each year, beginning January 15, 2004. We may redeem the notes in full or in part as specified in the indenture governing our outstanding Senior Notes. The notes are senior unsecured obligations guaranteed by all of our existing and future domestic subsidiaries. The fair value of our Senior Notes was approximately $271.9 million and $269.7 million as of March 28, 2010 and December 31, 2009, respectively, based on quoted market prices.

     We entered into $650.0 million of senior credit facilities pursuant to a credit agreement dated December 22, 2004 (“Credit Agreement”). Upon issuance, our senior credit facilities were comprised of a $150.0 million six year revolving loan (“Revolver”), a $75.0 million synthetic letter of credit facility and a $425.0 million seven year term loan B. Initially, the seven year term loan B amortized at $1.0 million per quarter with a final payment at the maturity date of December 22, 2011.

     On May 6, 2008, we borrowed an additional $200.0 million of term loans pursuant to our existing senior credit facilities (the “Incremental Facility”). We received net proceeds of approximately $184.6 million from the Incremental Facility net of a $10.0 million original issue discount and $5.4 million of debt origination costs, to be used for general corporate purposes. Our effective interest rate on the Incremental Facility for the three month periods ended March 28, 2010 and March 29, 2009 was 12.0% and 10.1% respectively.

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

     On January 31, 2009, under the terms of our credit agreement, we exercised our option to convert $25.0 million of the synthetic letter of credit facility to a term loan. The $25.0 million term loan is subject to the same terms and conditions as the outstanding term loans made as of December 2004. As a result, our limit under the synthetic letter of credit facility was reduced to $50.0 million.

     On July 30, 2009 we entered into an Amendment to our Credit Agreement (“Amendment”) which modified the Credit Agreement to allow the sale of our 787 business (discussed in Note 3 — Discontinued Operations) and provided for use of cash proceeds from the transaction to (i) pay down $355.0 million of term loans outstanding and (ii) repay outstanding amounts on our revolver of $135.0 million and to permanently reduce revolving commitments under the Credit Agreement to $100.0 million. The Amendment converted the synthetic letter of credit facility under the Credit Agreement into additional term loan of $50.0 million, a portion of which is used as cash collateral for letters of credit previously issued under the synthetic letter of credit facility. As of March 28, 2010, the cash restricted as collateral for outstanding letters of credit was $43.4 million. The Amendment increased the interest rate on all loans to London Interbank Offering Rate (LIBOR) plus a margin of 4.00%, with a minimum LIBOR floor of 3.50%.

     In August 2009, Barclay’s Bank PLC replaced Lehman Commercial Paper, Inc. as the administrative and collateral agent under our existing senior credit facilities.

     Under the terms of the senior credit facility, we are required to prepay or refinance any amounts outstanding of our $270.0 million Senior Notes by the last business day of 2010 or we must repay the aggregate amount of loans outstanding at that time under the senior credit facility unless a lender waives such prepayment (so long as a majority of our lenders (voting on a class basis) agree to such waiver). Because of the requirement to refinance the Senior Notes, the amounts outstanding under our senior credit facility have been classified as a current liability as of March 28, 2010.

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

Note 15- Related Party Transactions

     A management agreement between us and our controlling stockholder, The Carlyle Group, requires us to pay an annual fee of $2.0 million for various management services. We incurred fees of $0.5 million pursuant to this management agreement for the three month periods ended March 28, 2010 and March 29, 2009, respectively. The Carlyle Group also serves, in return for additional fees, as our financial advisor for mergers, acquisitions, dispositions and other strategic and financial activities.

     Since 2002, we have had an ongoing commercial relationship with Wesco Aircraft Hardware Corp. (“Wesco”), a distributor of aerospace hardware and provider of inventory management services. Wesco currently provides aerospace hardware to us pursuant to long-term contracts. On September 29, 2006, The Carlyle Group acquired a majority stake in Wesco, and as a result, we are both now under common control of The Carlyle Group through its affiliated funds. In addition, four of our directors, Messrs. Squier, Clare, Palmer and Jumper, also serve on the board of directors of Wesco. The Carlyle Group may indirectly benefit from their economic interest in Wesco from its contractual relationships with us. The total amount paid to Wesco pursuant to our contracts with Wesco for the three month periods ended March 28, 2010 and March 29, 2009 was approximately $8.1 million and $5.1 million, respectively.

     In connection with the sale of our 787 business (discussed in Note 3 — Discontinued Operations), two of our agreements with Wesco were assigned to a subsidiary of Boeing. Approximately $1.0 million was paid to Wesco under those agreements for the three month period ending March 29, 2009.

     We also have an ongoing commercial relationship with Gardner Group Ltd (“Gardner Group”), a supplier of metallic aerostructure details, equipment and engine components to the global aviation industry. Gardner Group currently provides aerospace parts to us. The most recent agreement with the Gardner Group was entered into on November 5, 2007. During 2008 and most of 2009, The Carlyle Group held a majority equity interest in the Gardner Group. As a result, the Gardner Group and our company were both under common control of The Carlyle Group through its affiliated funds during those periods. The Carlyle Group may have indirectly benefited from their economic interest in Gardner Group from its contractual relationships with us. The total amount paid to Gardner Group pursuant to our contracts with Gardner Group for the three month period ended March 29, 2009 was $0.2 million.

Note 16- Guarantor Subsidiaries

     The 8% Senior Notes due 2011 are fully and unconditionally and jointly and severally guaranteed, on a senior unsecured basis, by our 100% owned subsidiaries. In accordance with criteria established under Rule 3-10(f) of Regulation S-X under the Securities Act of 1933, as amended (the “Securities Act”), summarized financial information of Vought and its guarantor subsidiaries is presented below:

Vought Aircraft Industries, Inc.
Consolidating Balance Sheet
March 28, 2010
($ in millions, except share amounts) (Unaudited)

						Guarantor				Intercompany
		Vought				Subsidiaries				Eliminations				Total
Assets
Current assets:
Cash and cash equivalents		$	149.6			$	0.1			$	—			$	149.7
Restricted cash			43.4				—				—				43.4
Trade and other receivables			152.8				6.7				—				159.5
Intercompany receivable			12.2				8.7				(20.9	)			—
Inventories			439.6				13.8				—				453.4
Other current assets			9.5				0.6				—				10.1
Total current assets			807.1				29.9				(20.9	)			816.1
Property, plant and equipment, net			265.1				8.0				—				273.1
Goodwill			341.1				63.7				—				404.8
Identifiable intangible assets, net			18.6				—				—				18.6
Other non-current assets			0.9				—				—				0.9
Investment in affiliated company			81.4				—				(81.4	)			—
Total assets		$	1,514.2			$	101.6			$	(102.3	)		$	1,513.5
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable, trade		$	165.6			$	5.5			$	—			$	171.1
Intercompany payable			8.7				12.2				(20.9	)			—
Accrued and other liabilities			58.5				1.3				—				59.8
Accrued payroll and employee benefits			43.3				1.2				—				44.5
Accrued post-retirement benefits-current			37.5				—				—				37.5
Accrued pension-current			3.3				—				—				3.3
Current portion of long-term bank debt			320.4				—				—				320.4
Accrued contract liabilities			40.0				—				—				40.0
Total current liabilities			677.3				20.2				(20.9	)			676.6
Long-term liabilities:
Accrued post-retirement benefits			363.5				—				—				363.5
Accrued pension			595.2				—				—				595.2
Long-term bond debt			270.0				—				—				270.0
Other non-current liabilities			74.2				—				—				74.2
Total liabilities			1,980.2				20.2				(20.9	)			1,979.5
Stockholders’ equity (deficit):
Common stock, par value $.01 per share; 50,000,000 shares authorized, 24,818,806 issued and outstanding at March 29, 2009			0.3				—				—				0.3
Additional paid-in capital			423.2				80.3				(80.3	)			423.2
Shares held in rabbi trust			(1.6	)			—				—				(1.6	)
Accumulated equity (deficit)			(146.2	)			1.1				(1.1	)			(146.2	)
Accumulated other comprehensive loss			(741.7	)			—				—				(741.7	)
Total stockholders’ equity (deficit)		$	(466.0	)		$	81.4			$	(81.4	)		$	(466.0	)
Total liabilities and stockholders’ equity (deficit)		$	1,514.2			$	101.6			$	(102.3	)		$	1,513.5

Vought Aircraft Industries, Inc.
Consolidating Balance Sheet
December 31, 2009
($ in millions, except par value per share)

						Guarantor				Intercompany
		Vought				Subsidiaries				Eliminations				Total
Assets
Current assets:
Cash and cash equivalents		$	115.2			$	0.8			$	—			$	116.0
Restricted cash			43.8				—				—				43.8
Trade and other receivables			120.9				7.0				—				127.9
Intercompany receivable			15.7				8.2				(23.9	)			—
Inventories			497.9				13.4				—				511.3
Other current assets			7.9				0.6				—				8.5
Total current assets			801.4				30.0				(23.9	)			807.5
Property, plant and equipment, net			267.5				8.4				—				275.9
Goodwill			341.1				63.7				—				404.8
Identifiable intangible assets, net			20.4				—				—				20.4
Other non-current assets			1.3				—				—				1.3
Investment in affiliated company			79.9				—				(79.9	)			—
Total assets		$	1,511.6			$	102.1			$	(103.8	)		$	1,509.9
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable, trade		$	137.3			$	3.6			$	—			$	140.9
Intercompany payable			8.2				15.7				(23.9	)			—
Accrued and other liabilities			66.8				1.5				—				68.3
Accrued payroll and employee benefits			45.5				1.4				—				46.9
Accrued post-retirement benefits-current			37.4				—				—				37.4
Accrued pension-current			3.5				—				—				3.5
Current portion of long-term bank debt			319.8				—				—				319.8
Accrued contract liabilities			74.2				—				—				74.2
Total current liabilities			692.7				22.2				(23.9	)			691.0
Long-term liabilities:
Accrued post-retirement benefits			364.9				—				—				364.9
Accrued pension			612.2				—				—				612.2
Long-term bond debt			270.0				—				—				270.0
Other non-current liabilities			75.3				—				—				75.3
Total liabilities			2,015.1				22.2				(23.9	)			2,013.4
Stockholders’ equity (deficit):
Common stock, par value $.01 per share; 50,000,000 shares authorized, 24,818,806 issued and outstanding at December 31, 2009			0.3				—				—				0.3
Additional paid-in capital			422.8				80.3				(80.3	)			422.8
Shares held in rabbi trust			(1.6	)			—				—				(1.6	)
Accumulated deficit			(173.0	)			(0.4	)			0.4				(173.0	)
Accumulated other comprehensive loss			(752.0	)			—				—				(752.0	)
Total stockholders’ equity (deficit)		$	(503.5	)		$	79.9			$	(79.9	)		$	(503.5	)
Total liabilities and stockholders’ equity (deficit)		$	1,511.6			$	102.1			$	(103.8	)		$	1,509.9

Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended March 28, 2010
($ in millions) (Unaudited)

						Guarantor				Intercompany
		Vought				Subsidiaries				Eliminations				Totals
Revenue		$	455.7			$	18.5			$	(3.7	)		$	470.5
Costs and expenses
Cost of sales			379.4				15.8				(3.7	)			391.5
Selling, general and administrative expenses			38.5				1.2				—				39.7
Total costs and expenses			417.9				17.0				(3.7	)			431.2
Operating income			37.8				1.5				—				39.3
Other income (expense)
Interest income			0.1				—				—				0.1
Interest expense			(12.6	)			—				—				(12.6	)
Equity in income (loss) of consolidated subsidiaries			1.5				—				(1.5	)			—
Income (loss) before income taxes			26.8				1.5				(1.5	)			26.8
Income tax expense			—				—				—				—
Net income (loss)		$	26.8			$	1.5			$	(1.5	)		$	26.8

Vought Aircraft Industries, Inc.
Consolidating Statement of Operations
Three Months Ended March 29, 2009
($ in millions) (Unaudited)

						Guarantor				Intercompany
		Vought				Subsidiaries				Eliminations				Totals
Revenue		$	377.0			$	17.0			$	(3.7	)		$	390.3
Costs and expenses
Cost of sales			313.4				15.1				(3.7	)			324.8
Selling, general and administrative expenses			27.3				1.2				—				28.5
Total costs and expenses			340.7				16.3				(3.7	)			353.3
Operating income			36.3				0.7				—				37.0
Other income (expense)
Interest income			0.2				—				—				0.2
Interest expense			(15.0	)			—				—				(15.0	)
Equity in income (loss) of consolidated subsidiaries			0.7				—				(0.7	)			—
Income (loss) before income taxes			22.2				0.7				(0.7	)			22.2
Income tax expense			—				—				—				—
Income (loss) from continuing operations			22.2				0.7				(0.7	)			22.2
Income (loss) from discontinued operations, net of tax			(4.3	)			—				—				(4.3	)
Net income (loss)		$	17.9			$	0.7			$	(0.7	)		$	17.9

Vought Aircraft Industries, Inc.
Consolidating Cash Flow Statement
Three Months Ended March 28, 2010
($ in millions) (Unaudited)

						Guarantor				Intercompany
		Vought				Subsidiaries				Eliminations				Total
Operating activities
Net income (loss)		$	26.8			$	1.5			$	(1.5	)		$	26.8
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			12.5				0.4				—				12.9
Stock compensation expense			2.7				—				—				2.7
Income from investments in consolidated subsidiaries			(1.5	)			—				1.5				—
Changes in current assets and liabilities:
Trade and other receivables			(31.9	)			0.3				—				(31.6	)
Intercompany accounts receivable			3.5				(0.5	)			(3.0	)			—
Inventories			58.3				(0.4	)			—				57.9
Other current assets			(2.6	)			—				—				(2.6	)
Accounts payable, trade			28.3				1.9				—				30.2
Intercompany accounts payable			0.5				(3.5	)			3.0				—
Accrued payroll and employee benefits			(2.2	)			(0.2	)			—				(2.4	)
Accrued and other liabilities			(10.7	)			(0.2	)			—				(10.9	)
Accrued contract liabilities			(34.2	)			—				—				(34.2	)
Other assets and liabilities—long-term			(8.8	)			—				—				(8.8	)
Net cash provided by (used in) operating activities			40.7				(0.7	)			—				40.0
Investing activities
Capital expenditures			(6.7	)			—				—				(6.7	)
Net cash used in investing activities			(6.7	)			—				—				(6.7	)
Financing activities
Changes in restricted cash			0.4				—				—				0.4
Net cash provided by (used in) financing activities			0.4				—				—				0.4
Net increase in cash and cash equivalents			34.4				(0.7	)			—				33.7
Cash and cash equivalents at beginning of period			115.2				0.8				—				116.0
Cash and cash equivalents at end of period		$	149.6			$	0.1			$	—			$	149.7