FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
Or
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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 001-33160
Spirit AeroSystems Holdings, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware
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20-2436320 |
| (State of Incorporation)
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(I.R.S. Employer |
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Identification Number) |
3801 South Oliver
Wichita, Kansas 67210
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
(316) 526-9000
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 has submitted electronically and posted on its
corporate Web site, 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
þ 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):
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| Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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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
As of May 2, 2011,
the registrant had outstanding 117,589,410 shares of class A common stock, $0.01 par
value per share, and 25,045,286 shares of class B common stock, $0.01 par value per share.
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
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For the Three |
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For the Three |
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Months Ended |
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Months Ended |
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March 31, 2011 |
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April 1, 2010 |
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($ in millions, except per share data) |
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Net revenues |
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$ |
1,049.6 |
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$ |
1,043.3 |
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Operating costs and expenses |
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Cost of sales |
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928.0 |
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901.1 |
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Selling, general and administrative |
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39.0 |
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39.3 |
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Research and development |
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13.0 |
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9.9 |
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Total operating costs and expenses |
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980.0 |
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950.3 |
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Operating income |
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69.6 |
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93.0 |
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Interest expense and financing fee amortization |
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(20.9 |
) |
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(14.0 |
) |
Interest income |
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0.1 |
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0.1 |
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Other income (expense), net |
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1.5 |
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(5.5 |
) |
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Income before income taxes and equity in net loss of affiliates |
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50.3 |
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73.6 |
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Income tax provision |
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(15.3 |
) |
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(17.8 |
) |
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Income before equity in net loss of affiliates |
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35.0 |
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55.8 |
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Equity in net loss of affiliates |
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(0.4 |
) |
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(0.3 |
) |
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Net income |
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$ |
34.6 |
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$ |
55.5 |
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Earnings per share |
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Basic |
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$ |
0.25 |
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$ |
0.40 |
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Diluted |
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$ |
0.24 |
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$ |
0.40 |
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See notes to condensed consolidated financial statements (unaudited)
3
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
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March 31, |
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December 31, |
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2011 |
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2010 |
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($ in millions) |
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Current assets |
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Cash and cash equivalents |
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$ |
310.9 |
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$ |
481.6 |
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Accounts receivable, net |
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285.4 |
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200.2 |
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Inventory, net |
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2,652.5 |
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2,507.9 |
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Deferred tax asset-current |
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57.5 |
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47.6 |
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Other current assets |
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27.2 |
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57.4 |
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Total current assets |
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3,333.5 |
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3,294.7 |
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Property, plant and equipment, net |
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1,479.8 |
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1,470.0 |
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Pension assets |
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178.2 |
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172.4 |
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Deferred tax asset non-current, net |
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35.5 |
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55.0 |
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Other assets |
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106.1 |
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109.9 |
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Total assets |
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$ |
5,133.1 |
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$ |
5,102.0 |
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Current liabilities |
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Accounts payable |
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$ |
481.5 |
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$ |
443.5 |
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Accrued expenses |
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199.0 |
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190.7 |
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Profit sharing/deferred compensation |
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14.0 |
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29.6 |
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Current portion of long-term debt |
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9.7 |
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9.5 |
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Advance payments, short-term |
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115.9 |
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169.4 |
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Deferred revenue, short-term |
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297.0 |
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302.6 |
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Deferred grant income liability — current |
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5.6 |
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5.1 |
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Other current liabilities |
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11.5 |
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14.4 |
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Total current liabilities |
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1,134.2 |
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1,164.8 |
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Long-term debt |
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1,186.2 |
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1,187.3 |
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Advance payments, long-term |
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671.6 |
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655.2 |
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Pension/OPEB obligation |
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74.5 |
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72.5 |
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Deferred grant income liability — non-current |
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127.8 |
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128.4 |
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Deferred revenue and other deferred credits |
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28.5 |
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29.0 |
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Other liabilities |
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53.4 |
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53.9 |
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Equity |
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Preferred stock, par value $0.01, 10,000,000 shares
authorized, no shares issued |
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— |
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— |
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Common stock, Class A par value $0.01, 200,000,000 shares authorized,
107,589,410 and 107,201,314 shares issued, respectively |
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1.1 |
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1.1 |
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Common stock, Class B par value $0.01, 150,000,000 shares authorized,
34,737,911 and 34,897,388 shares issued, respectively |
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0.4 |
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0.3 |
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Additional paid-in capital |
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986.0 |
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983.6 |
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Accumulated other comprehensive loss |
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(66.4 |
) |
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(75.3 |
) |
Retained earnings |
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935.3 |
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900.7 |
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Total shareholders’ equity |
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1,856.4 |
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1,810.4 |
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Noncontrolling interest |
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0.5 |
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0.5 |
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Total equity |
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1,856.9 |
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1,810.9 |
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Total liabilities and equity |
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$ |
5,133.1 |
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$ |
5,102.0 |
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See notes to condensed consolidated financial statements (unaudited)
4
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
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For the Three |
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For the Three |
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Months Ended |
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Months Ended |
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March 31, 2011 |
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April 1, 2010 |
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($ in millions) |
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Operating activities |
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Net income |
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$ |
34.6 |
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$ |
55.5 |
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Adjustments to reconcile net income to net cash (used in) operating activities |
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Depreciation expense |
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32.0 |
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27.3 |
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Amortization expense |
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1.2 |
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1.2 |
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Amortization of deferred financing fees |
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2.3 |
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1.9 |
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Employee stock compensation expense |
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2.2 |
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2.3 |
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Excess tax benefit of share-based payment arrangements |
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(0.3 |
) |
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— |
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(Gain) from the ineffectiveness of hedge contracts |
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(0.1 |
) |
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— |
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(Gain) loss from foreign currency transactions |
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(0.9 |
) |
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8.1 |
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Deferred taxes |
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6.3 |
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6.0 |
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Long-term tax benefit |
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0.7 |
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(17.6 |
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Pension and other post retirement benefits, net |
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(1.5 |
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(2.3 |
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Grant income |
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(1.3 |
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(0.5 |
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Equity in net loss of affiliates |
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0.4 |
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0.3 |
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Changes in assets and liabilities |
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Accounts receivable |
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(81.5 |
) |
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(78.9 |
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Inventory, net |
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(140.4 |
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(88.1 |
) |
Accounts payable and accrued liabilities |
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46.2 |
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(16.5 |
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Profit sharing/deferred compensation |
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(15.7 |
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4.7 |
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Advance payments |
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(37.0 |
) |
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(38.6 |
) |
Income taxes receivable/payable |
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32.1 |
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51.7 |
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Deferred revenue and other deferred credits |
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(5.9 |
) |
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(24.2 |
) |
Other |
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(1.5 |
) |
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(2.5 |
) |
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Net cash (used in) operating activities |
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(128.1 |
) |
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(110.2 |
) |
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Investing Activities |
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Purchase of property, plant and equipment |
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(41.5 |
) |
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(69.2 |
) |
Proceeds from sale of assets |
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0.3 |
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— |
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Other |
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— |
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(0.8 |
) |
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Net cash (used in) investing activities |
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(41.2 |
) |
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(70.0 |
) |
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Financing Activities |
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Principal payments of debt |
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(2.2 |
) |
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(2.0 |
) |
Excess tax benefit of share-based payment arrangements |
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0.3 |
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— |
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Net cash (used in) financing activities |
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(1.9 |
) |
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(2.0 |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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0.5 |
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(0.2 |
) |
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Net (decrease) in cash and cash equivalents for the period |
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(170.7 |
) |
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(182.4 |
) |
Cash and cash equivalents, beginning of period |
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481.6 |
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369.0 |
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Cash and cash equivalents, end of period |
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$ |
310.9 |
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$ |
186.6 |
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Supplemental information |
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Property acquired through capital leases |
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$ |
— |
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$ |
4.0 |
|
See notes to condensed consolidated financial statements (unaudited)
5
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
1. Organization and Basis of Interim Presentation
Spirit AeroSystems Holdings, Inc. (“Holdings” or the “Company”) was incorporated in the state
of Delaware on February 7, 2005, and commenced operations on June 17, 2005 through the acquisition
of The Boeing Company’s (“Boeing”) operations in Wichita, Kansas, Tulsa, Oklahoma and McAlester,
Oklahoma (the “Boeing Acquisition”). Holdings provides manufacturing and design expertise in a wide
range of products and services for aircraft original equipment manufacturers and operators through
its subsidiary, Spirit AeroSystems, Inc. (“Spirit”). Onex Corporation (“Onex”) of Toronto, Canada
maintains majority voting power of Holdings. In April 2006, Holdings acquired the aerostructures
division of BAE Systems (Operations) Limited (“BAE Aerostructures”), which builds structural
components for Airbus, a division of the European Aeronautic Defense and Space NV (“Airbus”) and
Boeing. Prior to this acquisition, Holdings sold essentially all of its production to Boeing. Since
Spirit’s incorporation, the Company has expanded its customer base to include Sikorsky,
Rolls-Royce, Gulfstream, Bombardier, Mitsubishi Aircraft Corporation, Southwest Airlines, and
Continental Airlines. The Company has its headquarters in Wichita, Kansas, with manufacturing
facilities in Tulsa and McAlester, Oklahoma; Prestwick, Scotland; Wichita, Kansas; Kinston, North
Carolina; and Subang, Malaysia. The Company also recently constructed an assembly plant for the
A350 XWB aircraft in Saint-Nazaire, France, which is expected to begin operations during 2011.
The Company is the majority participant in the Kansas Industrial Energy Supply Company
(“KIESC”), a tenancy-in-common with other Wichita companies established to purchase natural gas.
The Company participates in two joint ventures, Spirit-Progresstech LLC
(“Spirit-Progresstech”) and Taikoo Spirit AeroSystems Composite Co. Ltd. (“TSACCL”), of which
Spirit’s ownership interest is 50.0% and 31.5%, respectively. Spirit-Progresstech provides
aerospace engineering support services and TSACCL was formed to develop and implement a
state-of-the-art composite and metal bond component repair station in the Asia-Pacific region.
The accompanying unaudited interim condensed consolidated financial statements include the
Company’s financial statements and the financial statements of its majority-owned subsidiaries and
have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”) and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Investments in business entities in which the Company does not have control, but has the ability to
exercise influence over operating and financial policies, including Spirit-Progresstech and TSACCL,
are accounted for under the equity method. KIESC is fully consolidated as the Company owns 77.8%
of the entity’s equity. All intercompany balances and transactions have been eliminated in
consolidation. The Company’s U.K. subsidiary uses local currency, the British pound, as its
functional currency. All other foreign subsidiaries use local currency as their functional currency
with the exception of our Malaysian subsidiary, which uses the British pound, and our French
subsidiary, which uses the U.S. dollar.
As part of the monthly consolidation process, the functional currencies of our international
subsidiaries are translated to U.S. dollars using the end-of-month translation rate for balance
sheet accounts and average period currency translation rates for revenue and income accounts.
In the opinion of management, the accompanying unaudited interim 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 31, 2011 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2011. Certain
reclassifications have been made to the prior year financial statements and notes to conform to the
2011 presentation. In connection with the preparation of the condensed consolidated financial
statements, the Company evaluated subsequent events through the date the financial statements were
issued. The interim financial statements should be read in conjunction with the audited
consolidated financial statements, including the notes thereto, included in our 2010 Annual Report
on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 2011.
2. New Accounting Pronouncements
As of March 31, 2011 there have been no material changes in our significant accounting
policies, as compared to the significant accounting policies described in our 2010 Form 10-K.
In April 2010, the FASB issued Accounting Standards Update 2010-17, Revenue Recognition -
Milestone Method (Topic 605) (“FASB ASU 2010-17”), which provides guidance on applying the
milestone method of revenue recognition in arrangements with research and development activities.
The amendments in this Update are effective on a prospective basis for milestones achieved in
fiscal years, and interim periods within those years, beginning on or after June 15, 2010 and thus
was effective for the Company’s fiscal quarter ended March 31, 2011. Adoption of the provisions of
FASB ASU 2010-17 did not have a material impact on the Company’s consolidated financial statements.
6
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
3. Accounts Receivable
Accounts receivable, net consists of the following:
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March 31, |
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December 31, |
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2011 |
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2010 |
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Trade receivables |
|
$ |
272.7 |
|
|
$ |
191.5 |
|
Other |
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|
12.7 |
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|
8.7 |
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Less: allowance for doubtful accounts |
|
|
— |
|
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|
— |
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|
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Accounts receivable, net |
|
$ |
285.4 |
|
|
$ |
200.2 |
|
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|
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The Company recognized $15.5 and $11.3 as unbilled accounts receivable related to its trade
accounts at March 31, 2011 and December 31, 2010, respectively.
4. Inventory
Inventories are summarized as follows:
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March 31, |
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December 31, |
|
| |
|
2011 |
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|
2010 |
|
Raw materials |
|
$ |
216.6 |
|
|
$ |
234.0 |
|
Work-in-process |
|
|
1,876.6 |
|
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|
1,748.5 |
|
Finished goods |
|
|
41.4 |
|
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|
40.9 |
|
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Product inventory |
|
|
2,134.6 |
|
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|
2,023.4 |
|
Capitalized pre-production |
|
|
517.9 |
|
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|
484.5 |
|
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|
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Total inventory, net |
|
$ |
2,652.5 |
|
|
$ |
2,507.9 |
|
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|
Inventories are summarized by platform as follows:
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March 31, |
|
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December 31, |
|
| |
|
2011 |
|
|
2010 |
|
B737 |
|
$ |
272.9 |
|
|
$ |
261.1 |
|
B747 |
|
|
169.0 |
|
|
|
167.7 |
|
B767 |
|
|
25.5 |
|
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|
19.6 |
|
B777 |
|
|
142.3 |
|
|
|
115.9 |
|
B787 |
|
|
1,158.8 |
|
|
|
1,115.1 |
|
Airbus — All platforms |
|
|
180.5 |
|
|
|
134.4 |
|
Gulfstream |
|
|
531.8 |
|
|
|
492.0 |
|
Rolls-Royce |
|
|
79.5 |
|
|
|
73.1 |
|
Aftermarket |
|
|
37.9 |
|
|
|
36.4 |
|
Other in-process inventory related to long-term
contracts and other programs(1) |
|
|
54.3 |
|
|
|
92.6 |
|
|
|
|
|
|
|
|
Total inventory, net |
|
$ |
2,652.5 |
|
|
$ |
2,507.9 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Includes non-program specific inventoriable cost accruals and miscellaneous other
work-in-process. |
7
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
Non-recurring
production costs include design and engineering costs and test
articles.
Non-recurring production costs included in inventory are summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2011 |
|
|
2010 |
|
B737 |
|
$ |
10.9 |
|
|
$ |
7.4 |
|
B747(1) |
|
|
21.1 |
|
|
|
24.6 |
|
B767 |
|
|
0.4 |
|
|
|
— |
|
B777 |
|
|
0.4 |
|
|
|
0.4 |
|
Airbus — All platforms |
|
|
3.0 |
|
|
|
9.8 |
|
Rolls-Royce |
|
|
59.0 |
|
|
|
57.3 |
|
Sikorsky(2) |
|
|
9.9 |
|
|
|
27.3 |
|
Other |
|
|
2.6 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
Total non-recurring inventory, net |
|
$ |
107.3 |
|
|
$ |
130.2 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
B747 inventory non-recurring production costs related to the B747-8 program |
| |
| (2) |
|
Net of $28.2 forward-loss recorded in the first quarter of 2011 |
Capitalized pre-production costs include certain contract costs, including applicable
overhead, incurred before a product is manufactured on a recurring basis. These costs are typically
recovered over a certain number of ship set deliveries and the Company believes these amounts will
be fully recovered.
The following is a roll forward of the capitalized pre-production included in the inventory
balance at March 31, 2011:
| |
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
484.5 |
|
Charges to costs and expenses |
|
|
(3.8 |
) |
Capitalized costs |
|
|
37.2 |
|
|
|
|
|
Balance, March 31, 2011 |
|
$ |
517.9 |
|
|
|
|
|
Capitalized pre-production costs included in inventory are summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2011 |
|
|
2010 |
|
B787 |
|
$ |
219.4 |
|
|
$ |
221.8 |
|
Gulfstream |
|
|
269.2 |
|
|
|
262.7 |
|
A350 |
|
|
29.3 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total capitalized pre-production |
|
$ |
517.9 |
|
|
$ |
484.5 |
|
|
|
|
|
|
|
|
Work-in-process inventory includes deferred production costs for the excess of production
costs over the estimated average cost per ship set, and credit balances for favorable variances on
contracts between actual costs incurred and the estimated average cost per ship set for units
delivered under the current production blocks. Recovery of excess over average deferred production
costs is dependent on the number of ship sets ultimately sold and the ultimate selling prices and
lower production costs associated with future production under these contract blocks. The Company
believes these amounts will be fully recovered.
Sales significantly under estimates or costs significantly over estimates could result in the
realization of losses on these contracts in future periods.
8
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
The following is a roll forward of the deferred production included in the inventory balances
at March 31, 2011:
| |
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
760.0 |
|
Charges to costs and expenses |
|
|
(27.3 |
) |
Capitalized costs (1) |
|
|
83.0 |
|
Exchange rate |
|
|
0.2 |
|
|
|
|
|
Balance, March 31, 2011 |
|
$ |
815.9 |
|
|
|
|
|
|
|
|
| (1) |
|
Approximately $46.2 of deferred production is related to deliveries of six B787 ship sets
for the three months ended March 31, 2011. |
| |
| Deferred production costs and credit balances included in inventory are summarized as follows: |
| |
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2011 |
|
|
2010 |
|
B787 |
|
$ |
685.5 |
|
|
$ |
639.3 |
|
Other |
|
|
147.4 |
|
|
|
145.1 |
|
Credit balances |
|
|
(17.0 |
) |
|
|
(24.4 |
) |
|
|
|
|
|
|
|
Total deferred production |
|
$ |
815.9 |
|
|
$ |
760.0 |
|
|
|
|
|
|
|
|
5. Property, Plant and Equipment
Property, plant and equipment, net consists of the following:
| |
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2011 |
|
|
2010 |
|
Land |
|
$ |
17.5 |
|
|
$ |
17.1 |
|
Buildings (including improvements) |
|
|
423.2 |
|
|
|
419.7 |
|
Machinery and equipment |
|
|
765.5 |
|
|
|
752.9 |
|
Tooling |
|
|
566.9 |
|
|
|
542.0 |
|
Capitalized software |
|
|
106.9 |
|
|
|
103.9 |
|
Construction-in-progress |
|
|
173.4 |
|
|
|
174.3 |
|
|
|
|
|
|
|
|
Total |
|
|
2,053.4 |
|
|
|
2,009.9 |
|
Less: accumulated depreciation |
|
|
(573.6 |
) |
|
|
(539.9 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
1,479.8 |
|
|
$ |
1,470.0 |
|
|
|
|
|
|
|
|
Interest costs associated with construction-in-progress are capitalized until the assets are
completed and ready for use. Capitalized interest was $1.7 and $2.6 for the three months ended
March 31, 2011 and April 1, 2010, respectively. Repair and maintenance costs are expensed as
incurred. The Company recognized $24.2 and $20.6 of repair and maintenance expense for the three
months ended March 31, 2011 and April 1, 2010, respectively.
We capitalize certain costs, such as software coding, installation and testing, that are
incurred to purchase or to create and implement internal use computer software in accordance with
FASB authoritative guidance pertaining to capitalization of costs for internal-use software.
Depreciation expense related to capitalized software was $4.7 and $3.8 for the three months ended
March 31, 2011 and April 1, 2010, respectively.
9
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
6. Other Assets
Other assets are summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2011 |
|
|
2010 |
|
Intangible assets |
|
|
|
|
|
|
|
|
Patents |
|
$ |
2.0 |
|
|
$ |
2.0 |
|
Favorable leasehold interests |
|
|
9.7 |
|
|
|
9.7 |
|
Customer relationships |
|
|
27.8 |
|
|
|
26.8 |
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
39.5 |
|
|
|
38.5 |
|
Less: Accumulated amortization-patents |
|
|
(1.0 |
) |
|
|
(0.9 |
) |
Accumulated amortization-favorable leasehold interest |
|
|
(3.7 |
) |
|
|
(3.6 |
) |
Accumulated amortization-customer relationships |
|
|
(17.4 |
) |
|
|
(15.9 |
) |
|
|
|
|
|
|
|
Intangible assets, net |
|
|
17.4 |
|
|
|
18.1 |
|
| |
Deferred financing costs |
|
|
64.4 |
|
|
|
64.4 |
|
Less: Accumulated amortization-deferred financing costs |
|
|
(31.7 |
) |
|
|
(29.4 |
) |
|
|
|
|
|
|
|
Deferred financing costs, net |
|
|
32.7 |
|
|
|
35.0 |
|
| |
Fair value of derivative instruments |
|
|
0.6 |
|
|
|
1.2 |
|
Goodwill — Europe |
|
|
3.0 |
|
|
|
2.9 |
|
Equity in net assets of affiliates |
|
|
4.0 |
|
|
|
4.3 |
|
Customer supply agreement (1) |
|
|
41.1 |
|
|
|
39.6 |
|
Other |
|
|
7.3 |
|
|
|
8.8 |
|
|
|
|
|
|
|
|
Total |
|
$ |
106.1 |
|
|
$ |
109.9 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Under an agreement with Airbus, certain payments accounted for as consideration given by
a vendor to a customer will be amortized as a reduction to net revenues beginning in the
second half of 2011. |
In 2010, the Company incurred $6.3 of additional deferred financing costs in connection with
the issuance and registration of $300.0 of its 63/4% Senior Notes due
December 15, 2020 and registration of $300.0 of its
71/2% Senior Notes
due October 1, 2017.
The Company recognized $1.0 of amortization expense of intangibles for each of the three month
periods ended March 31, 2011 and April 1, 2010.
The following is a roll forward of the carrying amount of goodwill at March 31, 2011:
| |
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
2.9 |
|
Exchange rate |
|
|
0.1 |
|
|
|
|
|
Balance, March 31, 2011 |
|
$ |
3.0 |
|
|
|
|
|
10
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
7. Advance Payments and Deferred Revenue/Credits
Advance payments. Advance payments are those payments made to Spirit by third parties in
contemplation of the future performance of services, receipt of goods, incurrence of expenditures,
or for other assets to be provided by Spirit on a contract and are repayable if such obligation is
not satisfied. The amount of advance payments to be recovered against units expected to be
delivered within a year is classified as a short-term liability, with the balance of the
unliquidated advance payments classified as a long-term liability.
Deferred revenue/credits. Deferred revenue/credits generally consists of nonrefundable
amounts received in advance of revenue being earned for specific contractual deliverables. These
payments are classified as deferred revenue/credits when received and recognized as revenue as the
production units are delivered. In the fourth quarter of 2010, as part of a memorandum of agreement
with Boeing related to the B787 contract, a payment was recorded as current deferred
revenue/credits as it is potentially refundable if we do not finalize a contract amendment by a
certain date in the second quarter of 2011.
Advance payments and deferred revenue/credits are summarized by platform as follows:
| |
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2011 |
|
|
2010 |
|
B737 |
|
$ |
25.6 |
|
|
$ |
32.5 |
|
B747 |
|
|
0.3 |
|
|
|
0.7 |
|
B787 |
|
|
986.7 |
|
|
|
1,023.3 |
|
Airbus — All platforms |
|
|
56.5 |
|
|
|
54.9 |
|
Gulfstream |
|
|
37.1 |
|
|
|
37.5 |
|
Other |
|
|
6.8 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
Total advance payments and deferred revenue/credits |
|
$ |
1,113.0 |
|
|
$ |
1,156.2 |
|
|
|
|
|
|
|
|
8. Government Grants
As part of our site construction projects in Kinston, North Carolina and Subang, Malaysia, we
have the benefit of grants related to government funding of a portion of these buildings and other
specific capital assets. Deferred grant income is being amortized as a reduction to production
cost. This amortization is based on specific terms associated with the different grants. In North
Carolina, the deferred grant income related to the capital investment criteria, which represents
half of the grant, is being amortized over the lives of the assets purchased to satisfy the capital
investment performance criteria. The other half of the deferred grant income is being amortized
over a ten-year period in a manner consistent with the job performance criteria. In Malaysia, the
deferred grant income is being amortized based on the lives of the eligible assets constructed with
the grant funds as there are no performance criteria. As of March 31, 2011, the value
recorded within property, plant and equipment related to the
use of grant funds in North Carolina and Malaysia was $139.7, prior
to amortization, including foreign exchange rate
changes. For the three months ended April 1, 2010, $3.6 recorded in property, plant and equipment
represents transactions where funds have been paid directly to contractors by an agency of the
Malaysian Government in the case of Malaysia, and by the escrow agent in North Carolina, so they
are not reflected on our Condensed Consolidated Statements of Cash Flows. There were no such
payments for the three months ended March 31, 2011.
Deferred grant income liability, net consists of the following:
| |
|
|
|
|
| |
|
March 31, 2011 |
|
Beginning balance |
|
$ |
133.5 |
|
Grant income recognized |
|
|
(1.3 |
) |
Exchange rate |
|
|
1.2 |
|
|
|
|
|
Total deferred grant income liability |
|
$ |
133.4 |
|
|
|
|
|
11
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
The asset related to the deferred grant income, net consists of the following:
| |
|
|
|
|
| |
|
March 31, 2011 |
|
Beginning balance |
|
$ |
133.4 |
|
Depreciation offset to amortization of grant |
|
|
(1.2 |
) |
Exchange rate |
|
|
1.2 |
|
|
|
|
|
Total asset value related to deferred grant income |
|
$ |
133.4 |
|
|
|
|
|
9. Derivative and Hedging Activities
The Company enters into interest rate swap agreements to reduce its exposure to the variable
rate portion of its long-term debt. The Company also enters into foreign currency hedge contracts
to reduce the risks associated with the changes in foreign exchange rates on sales and cost of
sales denominated in currencies other than the entities’ functional currency. Any gains or losses
on the hedges are included in earnings when the underlying transaction that was hedged occurs. The
Company does not use these contracts for speculative or trading purposes. On the inception date,
the Company designates a derivative contract as either a fair value or cash flow hedge in
accordance with FASB guidance on accounting for derivatives and hedges and links the contract to
either a specific asset or liability on the balance sheet, or to forecasted commitments or
transactions. The Company formally documents the hedging relationship between the hedging
instrument and the hedged item, as well as its risk-management objective and strategy for
undertaking the hedge, the nature of the risk being hedged, how the hedging instrument’s
effectiveness in offsetting the hedged risk will be assessed and a description of the method of
measuring ineffectiveness. The Company also formally assesses, both at the hedge’s inception and on
a quarterly basis, whether the derivative item is effective in offsetting changes in fair value or
cash flows.
Changes in the fair value of derivative instruments considered to be effective hedges are
reported in accumulated other comprehensive income, net of tax. In the case of interest rate swaps,
amounts are subsequently reclassified into interest expense as a yield adjustment of the hedged
interest payments in the same period in which the related interest affects earnings. If the actual
interest rate on the fixed rate portion of debt is less than LIBOR, the monies received are
recorded as an offset to interest expense. Conversely, if the actual interest rate on the fixed
rate portion of debt is greater than LIBOR, then the Company pays the difference, which is recorded
to interest expense. Reclassifications of the amounts related to the foreign currency hedge
contracts are recorded to earnings in the same period in which the underlying transaction occurs.
Any change in the fair value resulting from ineffectiveness is immediately recognized in earnings.
The Company also considers counterparty credit risk and its own credit risk in its
determination of all estimated fair values. The Company has applied these valuation techniques as
of March 31, 2011 and believes it has obtained the most accurate information available for the
types of derivative contracts it holds. The Company attempts to manage exposure to counterparty
credit risk by only entering into agreements with major financial institutions which are expected
to be able to fully perform under the terms of the agreement.
The Company discontinues hedge accounting prospectively when it is determined that the
derivative is no longer effective in offsetting changes in the cash flows of the hedged item; the
derivative expires or is sold, terminated or exercised; the derivative is no longer designated as a
hedging instrument because it is unlikely that a forecasted transaction will occur; or management
determines that the designation of the derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued, the Company continues to carry the derivative instrument on
the balance sheet at its fair value with subsequent changes in fair value included in earnings, and
gains and losses that were accumulated in other comprehensive income are recognized immediately in
earnings to the extent the forecasted transaction is not expected to occur, or when the underlying
transaction settles.
To the extent that derivative instruments do not qualify for hedge accounting treatment, the
changes in fair market value of the instruments are reported in the results of operations for the
current period.
The Company enters into master netting arrangements for its derivatives to mitigate the credit
risk of financial instruments.
The Company’s hedge agreements do not include provisions requiring collateral. The Company has
certain derivative instruments covered by master netting arrangements whereby, in the event of a
default as defined by the senior secured credit facility or termination event, the non-defaulting
party has the right to offset any amounts payable against any obligation of the defaulting party
under the same counterparty agreement.
12
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
The entire asset classes of the Company, including hedges, are pledged as collateral for both
the term loan and the revolving credit facility under the Company’s senior secured credit facility
(see Note 12, Debt).
Interest Rate Swaps
We enter into floating-to-fixed interest rate swap agreements periodically. As of March 31,
2011, the interest rate swap agreements had notional amounts totaling $400.0.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
Fair Value, |
|
| Notional Amount |
|
Expires |
|
|
Variable Rate |
|
|
Fixed Rate (1) |
|
|
Fixed Rate(2) |
|
|
March 31, 2011 |
|
$100 |
|
July 2011 |
|
LIBOR |
|
|
4.27% |
|
|
|
7.17% |
|
|
$ |
(1.9 |
) |
$300 |
|
July 2011 |
|
LIBOR |
|
|
3.23% |
|
|
|
6.13% |
|
|
$ |
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
(6.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
The fixed rate represents the rate at which interest is paid by the Company pursuant to
the terms of its interest rate swap agreements. |
| |
| (2) |
|
The effective Term B fixed interest rate represents the fixed rate of the derivative
instrument plus the 175 basis-point margin on the pro rata share of
Term B-1 and 325 basis-point margin on the pro rata share of Term B-2 above the variable LIBOR borrowing rate we
pay on the Term B loan. |
The purpose of entering into these swaps was to reduce the Company’s exposure to variable
interest rates. The interest rate swaps settle on a quarterly basis when interest payments are
made. These settlements occur through the maturity date. The interest rate swaps are being
accounted for as cash flow hedges in accordance with FASB authoritative guidance. The fair value of
the interest rate swaps was a liability (unrealized loss) of ($6.2)
and ($9.3) at March 31, 2011
and December 31, 2010, respectively.
Foreign Currency Forward Contracts
Spirit’s wholly-owned subsidiary Spirit AeroSystems (Europe) Limited (“Spirit Europe”) has
certain sales, expenses, assets and liabilities that are denominated in British pounds sterling.
However, certain sales of Spirit Europe’s products and some procurement costs are denominated in
U.S. dollars and Euros. As a consequence, movements in exchange rates could cause net sales and our
expenses to fluctuate, affecting our profitability and cash flows. In addition, even when revenues
and expenses are matched, we must translate British pound sterling denominated results of
operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our consolidated
financial statements. Consequently, increases and decreases in the value of the U.S. dollar as
compared to the British pound sterling will affect our reported results of operations and the value
of our assets and liabilities on our consolidated balance sheet, even if our results of operations
or the value of those assets and liabilities has not changed in its original currency. These
transactions could significantly affect the comparability of our results between financial periods
and/or result in significant changes to the carrying value of our assets, liabilities and
shareholders’ equity.
We use foreign currency hedge contracts to reduce our exposure to currency exchange rate
fluctuations, which include hedging contracts to hedge U.S. dollar revenue from certain customers.
The objective of these contracts is to minimize the impact of currency exchange rate movements on
our operating results. The hedges are being accounted for as cash flow hedges in accordance with
FASB authoritative guidance. Gains and losses from these cash flow hedges are recorded to other
comprehensive income until the underlying transaction for which the hedge was placed occurs and
then the value in other comprehensive income is reclassified to earnings. The exception to the aforementioned treatment of realized gains/losses involves certain cash
payments to Airbus. These payments to Airbus, payable in British pounds sterling were hedged, and this amount in Other Comprehensive
Income was reclassified into Other Assets when the underlying transaction occurred and will be
amortized over the first A350 contract block. The amount of unamortized loss reclassified out of
Other Comprehensive Income into Other Assets for the three months
ended March 31, 2011 was ($1.1) before tax, or ($0.7) after tax.
The fair value of the forward contracts was a net liability of ($0.4) as of March 31, 2011.
13
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
Notional Amount
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
| |
|
|
|
|
|
Foreign |
|
|
|
|
|
|
Foreign |
|
| |
|
USD |
|
|
Currency |
|
|
USD |
|
|
Currency |
|
| Year |
|
Buy/(Sell)(1) |
|
|
Buy/(Sell)(1) |
|
|
Buy/(Sell)(1) |
|
|
Buy/(Sell)(1) |
|
2011 |
|
$ |
(17.5 |
) |
|
£ |
10.8 |
|
|
$ |
(44.1 |
) |
|
£ |
27.3 |
|
2012 |
|
|
(9.0 |
) |
|
|
5.6 |
|
|
|
(8.9 |
) |
|
|
5.7 |
|
2013 |
|
|
— |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(26.5 |
) |
|
£ |
16.3 |
|
|
$ |
(53.0 |
) |
|
£ |
32.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Includes foreign currency hedge contracts for 2011 through 2013 novated to Spirit Europe as a
result of the acquisition of BAE
Aerostructures on April 1, 2006, which had no underlying contractual
transactions at the inception date of the contracts and, therefore, are classified as net debt
securities which are not subject to hedge accounting. The mark-to-market values of these net debt
securities are recorded through the Condensed Consolidated Statement of Operations on a monthly
basis in accordance with FASB authoritative guidance on investments — debt and equity securities
disclosures. |
The following table summarizes the Company’s fair value of outstanding derivatives at March 31,
2011 and December 31, 2010:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Values of Derivative Instruments |
|
| |
|
Other Asset Derivatives |
|
|
Other Liability Derivatives |
|
| |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6.2 |
|
|
$ |
9.3 |
|
Foreign currency hedge contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.5 |
|
|
|
1.3 |
|
Non-current |
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging
instruments |
|
|
0.4 |
|
|
|
0.1 |
|
|
|
6.7 |
|
|
|
10.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedge contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
0.4 |
|
|
|
0.7 |
|
|
|
0.6 |
|
|
|
0.7 |
|
Non-current |
|
|
0.5 |
|
|
|
1.2 |
|
|
|
0.6 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging
instruments |
|
|
0.9 |
|
|
|
1.9 |
|
|
|
1.2 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
$ |
1.3 |
|
|
$ |
2.0 |
|
|
$ |
7.9 |
|
|
$ |
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
The impact on other comprehensive income (“OCI”) and earnings from cash flow hedges for the
three months ended March 31, 2011 and April 1, 2010 was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
|
|
|
|
|
Location of (Gain) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
(Gain) or Loss |
|
|
|
|
|
|
|
|
|
|
or Loss Recognized |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Reclassified |
|
|
|
|
|
|
|
|
|
|
in Income on |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
from |
|
|
|
|
|
|
|
|
|
|
Derivative |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
(Ineffective Portion |
|
|
|
|
| Derivatives in |
|
|
|
|
|
|
|
|
|
OCI into |
|
|
|
|
|
|
|
|
|
|
and Amount |
|
|
|
|
| Cash Flow |
|
Amount of Gain or (Loss) Recognized |
|
|
Income |
|
|
Amount of Loss Reclassified from |
|
|
Excluded from |
|
|
Amount of Loss Recognized in Income on |
|
| Hedging |
|
in OCI, net of tax, on Derivative |
|
|
(Effective |
|
|
Accumulated OCI into Income |
|
|
Effectiveness |
|
|
Derivative (Ineffective Portion and Amount |
|
| Relationships |
|
(Effective Portion) |
|
|
Portion) |
|
|
(Effective Portion) |
|
|
Testing) |
|
|
Excluded from Effectiveness Testing) |
|
|
|
For the Three Months Ended |
|
|
|
|
|
For the Three Months Ended |
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
| |
|
2011 |
|
|
April 1, 2010 |
|
|
|
|
|
2011 |
|
|
April 1, 2010 |
|
|
|
|
|
2011 |
|
|
April 1, 2010 |
|
Interest rate
swaps |
|
$ |
(0.1 |
) |
|
$ |
(1.7 |
) |
|
Interest expense |
|
$ |
3.2 |
|
|
$ |
4.3 |
|
|
Other (income)/expense |
|
$ |
— |
|
|
$ |
— |
|
Foreign currency
hedge contracts |
|
|
0.6 |
|
|
|
(1.9 |
) |
|
Sales/Revenue |
|
|
0.1 |
|
|
|
0.3 |
|
|
Other (income)/expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
0.5 |
|
|
$ |
(3.6 |
) |
|
|
|
|
|
$ |
3.3 |
|
|
$ |
4.6 |
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact on earnings from foreign currency hedge contracts that do not qualify as cash
flow hedges was not material for the three months ended March 31, 2011 and April 1, 2010.
Gains and losses accumulated in OCI for interest rate swaps are reclassified into earnings as
each interest rate period is reset. During the next twelve months, the Company estimates that a
loss of ($3.9) will be reclassified from OCI, net of tax, as a charge to earnings from interest
rate swaps. Interest rate swaps are placed for a period of time not to exceed the maturity of the
Company’s senior secured term loan. None of the gains or losses reclassified to earnings were
attributable to the discontinuance of cash flow hedges.
Gains and losses accumulated in OCI for foreign currency hedge contracts are reclassified into
earnings as the underlying transactions for which the contracts were entered into are realized.
During the next twelve months, the Company estimates that a loss of ($0.2) will be reclassified
from OCI, net of tax. None of the gains or losses reclassified to earnings are attributable to the
discontinuance of cash flow hedges.
10. Fair Value Measurements
FASB’s authoritative guidance on fair value measurements defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. It also establishes a fair value hierarchy, which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The guidance discloses three levels of inputs that may be used to
measure fair value:
| |
|
|
|
Level 1
|
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level
1 assets and liabilities include debt and equity securities and derivative contracts that are
traded in an active exchange market. |
|
|
|
Level 2
|
|
Observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities. Level 2 assets and liabilities include debt securities with
quoted prices that are traded less frequently than exchange-traded instruments and derivative
contracts whose value is determined using a pricing model with inputs that are observable in
the market or can be derived principally from or corroborated by observable market data.
Observable inputs, such as current and forward interest rates and foreign exchange rates, are
used in determining the fair value of our interest rate swaps and foreign currency hedge
contracts. |
15
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
| |
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of assets and liabilities. Level 3 assets and liabilities
include financial instruments whose value is determined using pricing models, discounted cash
flow methodologies, or similar techniques, as well as instruments for which the determination
of fair value requires significant management judgment or estimation. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements |
| |
|
March 31, 2011 |
|
At March 31, 2011 using |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
Other |
|
|
| |
|
Total Carrying |
|
Assets |
|
Liabilities |
|
for Identical |
|
Observable |
|
Significant |
| |
|
Amount in |
|
Measured at |
|
Measured at Fair |
|
Assets |
|
Inputs |
|
Unobservable Inputs |
| Description |
|
Balance Sheet |
|
Fair Value |
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Money Market Fund |
|
$ |
212.2 |
|
|
$ |
212.2 |
|
|
$ |
— |
|
|
$ |
212.2 |
|
|
$ |
— |
|
|
$ |
— |
|
Government and Corporate Debt Securities |
|
$ |
3.5 |
|
|
$ |
3.5 |
|
|
$ |
— |
|
|
$ |
3.5 |
|
|
$ |
— |
|
|
$ |
— |
|
Interest Rate Swaps |
|
$ |
(6.2 |
) |
|
$ |
— |
|
|
$ |
(6.2 |
) |
|
$ |
— |
|
|
$ |
(6.2 |
) |
|
$ |
— |
|
Foreign Currency Hedge Contracts |
|
$ |
(0.4 |
) |
|
$ |
1.3 |
|
|
$ |
(1.7 |
) |
|
$ |
— |
|
|
$ |
(0.4 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements |
| |
|
December 31, 2010 |
|
At December 31, 2010 using |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
Other |
|
|
| |
|
Total Carrying |
|
Assets |
|
Liabilities |
|
for Identical |
|
Observable |
|
Significant |
| |
|
Amount in |
|
Measured at |
|
Measured at Fair |
|
Assets |
|
Inputs |
|
Unobservable Inputs |
| Description |
|
Balance Sheet |
|
Fair Value |
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Money Market Fund |
|
$ |
372.1 |
|
|
$ |
372.1 |
|
|
$ |
— |
|
|
$ |
372.1 |
|
|
$ |
— |
|
|
$ |
— |
|
Government and Corporate Debt Securities |
|
$ |
3.5 |
|
|
$ |
3.5 |
|
|
$ |
— |
|
|
$ |
3.5 |
|
|
$ |
— |
|
|
$ |
— |
|
Interest Rate Swaps |
|
$ |
(9.3 |
) |
|
$ |
— |
|
|
$ |
(9.3 |
) |
|
$ |
— |
|
|
$ |
(9.3 |
) |
|
$ |
— |
|
Foreign Currency Hedge Contracts |
|
$ |
(1.6 |
) |
|
$ |
2.0 |
|
|
$ |
(3.6 |
) |
|
$ |
— |
|
|
$ |
(1.6 |
) |
|
$ |
— |
|
The fair value of the interest rate swaps and foreign currency hedge contracts are
determined by using mark-to-market reports generated for each derivative and evaluated for
counterparty risk. In the case of the interest rate swaps, the Company evaluated its counterparty
risk using credit default swaps, historical default rates and credit spreads.
16
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
The Company’s long-term debt consists of senior secured term loan and senior unsecured notes.
The estimated fair value of our debt obligations is based on the quoted market prices for such
obligations. The following table presents the carrying amount and estimated fair value of
long-term debt in accordance with FASB authoritative guidance on fair value measurements related to
disclosures of financial instruments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
| |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
| |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Senior secured term loan (including current portion) |
|
$ |
564.7 |
|
|
$ |
566.4 |
|
|
$ |
566.2 |
|
|
$ |
568.3 |
|
Senior unsecured notes due 2017 |
|
|
294.4 |
|
|
|
324.4 |
|
|
|
294.2 |
|
|
|
315.0 |
|
Senior unsecured notes due 2020 |
|
|
300.0 |
|
|
|
309.0 |
|
|
|
300.0 |
|
|
|
300.4 |
|
Malaysian loan |
|
|
18.4 |
|
|
|
18.1 |
|
|
|
18.2 |
|
|
|
17.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,177.5 |
|
|
$ |
1,217.9 |
|
|
$ |
1,178.6 |
|
|
$ |
1,201.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Investments
The amortized cost and approximate fair value of held-to-maturity securities are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
| |
|
Current |
|
|
Noncurrent |
|
|
Current |
|
|
Noncurrent |
|
Government and
Corporate Debt
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
1.0 |
|
|
$ |
2.5 |
|
|
$ |
0.9 |
|
|
$ |
2.6 |
|
Unrealized gains |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unrealized losses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
$ |
1.0 |
|
|
$ |
2.5 |
|
|
$ |
0.9 |
|
|
$ |
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of held-to-maturity securities at March 31, 2011 are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Amortized |
|
|
Approximate |
|
| |
|
Cost |
|
|
Fair Value |
|
Within One Year |
|
$ |
1.0 |
|
|
$ |
1.0 |
|
One to Five Years |
|
|
2.1 |
|
|
|
2.2 |
|
Five to Ten Years |
|
|
— |
|
|
|
— |
|
After Ten Years |
|
|
0.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
$ |
3.5 |
|
|
$ |
3.5 |
|
|
|
|
|
|
|
|
At March 31, 2011 and December 31, 2010, the fair value of certain investments in debt and
marketable securities are less than their historical cost. Total fair value of these investments
at March 31, 2011 and December 31, 2010, was $0.8 and $1.2, respectively, which is approximately
21.4% and 34.0% of the Company’s held-to-maturity investment portfolio. These declines primarily
resulted from decreases in market interest rates and failure of certain investments to maintain
consistent credit quality ratings or meet projected earnings targets.
Based on evaluation of available evidence, including changes in market interest rates, credit
rating information and information obtained from regulatory filings, management believes the
declines in fair value for these securities are temporary.
Should the impairment of any of these securities become other than temporary, the cost basis
of the investment will be reduced and the resulting loss recognized in net income in the period the
permanent impairment is identified.
17
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
12. Debt
Total debt shown on the balance sheet is comprised of the following:
| |
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2011 |
|
|
2010 |
|
Senior secured term loan (short and long-term) |
|
$ |
564.7 |
|
|
$ |
566.1 |
|
Senior notes (due 2017 and 2020) |
|
|
594.4 |
|
|
|
594.2 |
|
Malaysian term loan |
|
|
18.4 |
|
|
|
18.2 |
|
Present value of capital lease obligations |
|
|
17.7 |
|
|
|
17.2 |
|
Other |
|
|
0.7 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,195.9 |
|
|
$ |
1,196.8 |
|
|
|
|
|
|
|
|
Senior Secured Term Loan
We are a party to a credit agreement that consists of a senior secured term loan and a senior
secured revolving line of credit. On October 15, 2010, we entered into Amendment No. 3 to the
credit agreement. As a result of the amendment, among other things, the revolving credit
commitment was increased from $408.8 to $650.0 and the maturity date of the revolving credit
commitment was extended to September 30, 2014. The credit agreement amendment also extended the
maturity date for $437.4 of the outstanding term loan to September 30, 2016. The maturity date for
the $130.2 balance of the outstanding term loan remained at September 30, 2013. Substantially all
of Spirit’s assets, including inventory and property, plant and equipment are pledged as collateral
for both the term loan and the revolving credit facility. As of March 31, 2011 and December 31,
2010, the outstanding balance of the term loan was $564.7 and $566.1, respectively. Amounts
outstanding under the revolving credit facility were zero at March 31, 2011 and December 31, 2010.
As of March 31, 2011, there were $20.4 of letters of credit outstanding under the revolving credit
agreement.
Revolving credit borrowings bear interest at a rate equal to, at Spirit’s option, (a) a base
rate determined by reference to the highest of (1) the prime rate of our administrative agent
(currently Bank of America, N.A.), (2) the federal funds rate plus 1/2 of 1.0% and (3) LIBOR for an
interest period of one month commencing on such date plus 1.0%, in each case plus an applicable
margin, or (b) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits
for the interest period relevant to such borrowing adjusted for certain additional costs, plus an
applicable margin. As of the issue date, the applicable margin with respect to base rate borrowings
under this portion of the revolving credit facility is 2.50% and the applicable margin with respect
to LIBOR rate borrowings under this portion of the revolving credit facility is 3.50%. The
applicable margin for borrowings under this portion of the revolving credit facility are subject to
adjustment based on our Consolidated Total Leverage, and may range from 2.00% to 3.00% with respect
to base rate borrowings and from 3.00% to 4.00% with respect to LIBOR rate borrowings. At March 31,
2011, the Company’s total leverage ratio was 2.47:1.0 resulting in applicable margins of 3.5% per
annum on LIBOR borrowings on Extending Revolving Loans and margins of 2.5% per annum on alternative
base rate borrowings on Extending Revolving Loans.
In addition to paying interest on outstanding principal under the senior secured credit
facility, Spirit is required to pay an unused line fee of 75 basis points on the unused portion of
the commitments under the revolving credit facility. Spirit is required to pay participation fees
equal to the applicable margin for LIBOR rate revolving credit borrowings with respect to letters
of credit issued under the revolving credit facility. Spirit is also required to pay to the
issuing banks under its senior secured credit facility letter of credit fronting fees in respect of
letters of credit equal to 25 basis points per year, and to the administrative agent thereunder
customary administrative fees.
The credit agreement contains customary affirmative and negative covenants, including
restrictions on indebtedness, liens, type of business, acquisitions, investments, sales or
transfers of assets, payments of dividends, transactions with affiliates, change in control and
other matters customarily restricted in such agreements. The credit agreement also contains
Covenant Leverage Ratio, Interest Coverage Ratio and Total Leverage Ratio financial covenants. The
Covenant Leverage Ratio covenant (as defined in the credit agreement) provides that the Covenant
Leverage Ratio shall not exceed 2.5:1 through the final maturity date of the credit agreement. The
Interest Coverage Ratio covenant (as defined in the credit agreement) provides that the Interest
Coverage Ratio shall not be less than 4:1 through the final maturity date of the credit agreement.
The Total Leverage Ratio covenant (as defined in the credit agreement) provides that the Total
Leverage Ratio shall not exceed 3.5:1.0 through the final maturity date of the credit agreement.
The Financial Covenant ratios are calculated as of the last day of each fiscal
18
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
quarter. Failure to
meet these financial covenants would be an event of default under the credit agreement. As of March 31, 2011, we were and expect to
remain in full compliance with all covenants contained within our credit agreement.
Senior Notes
On
November 18, 2010, we issued $300.0 aggregate of 63/4% Senior Notes due
December 15, 2020 (the “2020 Notes”), with interest payable, in cash in arrears, on June 15 and
December 15 of each year, beginning June 15, 2011. The 2020 Notes are fully and unconditionally
guaranteed, jointly and severally, on a senior unsecured basis by the Company and Spirit’s existing
and future domestic subsidiaries that guarantee Spirit’s obligations under Spirit’s senior secured
credit facility. The Company used the proceeds to repay borrowings under its existing senior
secured revolving credit facility without any reduction of the lenders’ commitment thereunder, for
general corporate purposes and to pay fees and expenses incurred in connection with the offering.
The carrying value of the 2020 Notes was $300.0 as of March 31, 2011.
On
September 30, 2009, we issued $300.0 of
71/2% Senior Notes due October 1, 2017 (the “2017
Notes”), with interest payable, in cash in arrears, on April 1 and October 1 of each year,
beginning April 1, 2010. The 2017 Notes are fully and unconditionally guaranteed, jointly and
severally, on a senior unsecured basis by the Company and Spirit’s existing and future domestic
subsidiaries that guarantee Spirit’s obligations under Spirit’s senior secured credit facility. The
carrying value of the 2017 Notes was $294.4 as of March 31, 2011.
As of March 31, 2011, we were and expect to remain in full compliance with all covenants
contained in the indentures governing the 2020 Notes and the 2017 Notes.
Malaysian Term Loan
On June 2, 2008, the Company’s wholly-owned subsidiary, Spirit AeroSystems Malaysia SDN BHD
entered into a Facility Agreement (“Facility Agreement”) for a term loan facility for Ringgit
Malaysia RM69.2 (approximately USD $20.0 equivalent) (the “Malaysia Facility”), with the Malaysian
Export-Import Bank. The facility requires quarterly principal repayments of RM3.3 (USD $1.0) from
September 2011 through May 2017 and quarterly interest payments payable at a fixed interest rate of
3.5% per annum. The Malaysia Facility loan balance as of March 31, 2011 was $18.4.
France Factory
On July 17, 2009, the Company’s indirect wholly-owned subsidiary, Spirit AeroSystems France
SARL (“Spirit France”) entered into a capital lease agreement for €9.0 (approximately USD $13.1
equivalent) with a subsidiary of BNP Paribas Bank to be used towards the construction of an
aerospace-related component assembly plant in Saint-Nazaire, France (the “Saint-Nazaire Project”).
The Saint-Nazaire Project was completed in the fourth quarter of 2010 and is expected to be
operational during 2011. Lease payments are variable, subject to the
three month Euribor rate plus
2.2%. Lease payments are due quarterly through April 2025. As of March 31, 2011, the Saint-Nazaire
capital lease balance was $13.0.
13. Pension and Other Post-Retirement Benefits
| |
|
|
|
|
|
|
|
|
| |
|
Defined Benefit Plans |
|
| |
|
Three Months |
|
|
Three Months |
|
| |
|
Ended |
|
|
Ended |
|
| Components of Net Periodic Pension Income |
|
March 31, 2011 |
|
|
April 1, 2010 |
|
Service cost |
|
$ |
1.4 |
|
|
$ |
1.6 |
|
Interest cost |
|
|
11.2 |
|
|
|
10.4 |
|
Expected return on plan assets |
|
|
(16.6 |
) |
|
|
(15.9 |
) |
Amortization of net (gain)/loss |
|
|
0.4 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
Net periodic pension income |
|
$ |
(3.6 |
) |
|
$ |
(4.0 |
) |
|
|
|
|
|
|
|
19
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
| |
|
|
|
|
|
|
|
|
| |
|
Other Benefits |
|
| |
|
Three Months |
|
|
Three Months |
|
| |
|
Ended |
|
|
Ended |
|
| Components of Other Benefit Expense |
|
March 31, 2011 |
|
|
April 1, 2010 |
|
Service cost |
|
$ |
0.8 |
|
|
$ |
0.7 |
|
Interest cost |
|
|
1.0 |
|
|
|
0.9 |
|
Amortization of net (gain)/loss |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
Net periodic other benefit expense |
|
$ |
2.1 |
|
|
$ |
1.8 |
|
|
|
|
|
|
|
|
Employer Contributions
We expect to contribute zero dollars to the U.S. qualified pension plan and
less than $0.4 to both the Supplemental Executive Retirement Plan (SERP) and post-retirement
medical plans in 2011. Our projected contributions to the U.K. pension plan for 2011 are $8.0, of
which $2.0 was contributed by the end of the first quarter of 2011. We anticipate contributing the
additional $6.0 to the U.K. pension plan during the remainder of 2011. The entire amount
contributed and the projected contributions can vary based on exchange rate fluctuations.
14. Stock Compensation
Holdings has established various stock compensation plans which include restricted share
grants and stock purchase plans. Compensation values are based on the value of Holdings’ common
stock at the grant date. The common stock value is added to equity and charged to period expense or
included in inventory and cost of sales.
For the three months ended March 31, 2011, Holdings recognized a net total of $2.2 of stock
compensation expense, which is net of $0.3 resulting from stock forfeitures, as compared to $2.3 of
stock compensation expense, net of forfeitures, for the three months ended April 1, 2010. Of the
total $2.2 of net stock compensation expense recorded as of March 31, 2011, less than $0.1 was
charged directly to cost of sales, $2.1 was recorded as selling, general and administrative
expense, while the remainder was capitalized in inventory and is recognized through cost of sales
in accordance with FASB authoritative guidance. Of the $2.3 of stock compensation expense recorded
for the three months ended April 1, 2010, $2.2 was recorded as selling, general and administrative
expense while the remaining $0.1 was capitalized in inventory.
In February 2011, 185,153 shares of Class A common stock with grant date fair value of $4.7
were granted under the Company’s Short-Term Incentive Plan and such shares will vest on the
one-year anniversary of the grant date. Additionally, 27,699 shares of Class B common stock with a
grant date fair value of $0.8 granted under the Company’s Long-Term Incentive Plan vested.
During the first quarter of 2011, certain participants in the Company’s Executive Incentive
Plan, as a result of meeting the five-year anniversary of their grant dates, acquired an
incremental 20% interest in the shares granted to them under the plan, such that their total
cumulative interest in the shares granted to them would be 100%. The total number of additional
shares in which an interest was acquired in the first quarter of 2011 was 71,306. The participants
have a nonforfeitable interest in those shares; however, as per the plan document, the shares
remain restricted until the earlier of a liquidity event or June 16, 2015. Participants do not
have the unrestricted rights of stockholders as long as the shares remain restricted. See Note 22
— Subsequent Events for discussion on recent stock offering activity.
15. Income Taxes
The process for calculating our income tax expense involves estimating actual current taxes
due plus assessing temporary differences arising from differing treatment for tax and accounting
purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are
periodically evaluated to determine their recoverability. The total net deferred tax assets as of
March 31, 2011 and December 31, 2010 were $85.4 and $94.5, respectively.
We file income tax returns in all jurisdictions in which we operate. We established reserves
to provide for additional income taxes that may be due in future years as these previously filed
tax returns are audited. These reserves have been established based on management’s assessment as
to the potential exposure attributable to permanent differences and associated interest. All tax
reserves are analyzed quarterly and adjustments made as events occur that warrant modification.
20
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
In general, the Company records income tax expense each quarter based on its best estimate as
to the full year’s effective tax rate. Certain items, however, are given discrete period treatment
and the tax effects for such items are therefore reported in the quarter that an event
arises. Events or items that give rise to discrete recognition include finalizing amounts in income
tax returns filed, finalizing audit examinations for open tax years, and an expiring statute of
limitations.
The 30.4% effective tax rate for the three months ended March 31, 2011 differs from the 24.2%
effective tax rate for the same period in 2010 primarily due to favorably settling the 2005 and
2006 U.S. Federal examinations last year, partially offset by the U.S. Research Tax Credit
(“Research Credit”) reinstated on December 17, 2010.
The Company’s 2008 and 2009 U.S. federal income tax returns are currently being examined by
the Internal Revenue Service. While a change could result from the ongoing examination, the
Company expects no material change in its recorded unrecognized tax benefit liability in the next
12 months.
16. Equity
Earnings per Share Calculation
Basic earnings per share represents the income available to common shareholders divided by the
weighted average number of common shares outstanding during the measurement period. Diluted
earnings per share represents the income available to common shareholders divided by the weighted
average number of common shares outstanding during the measurement period while also giving effect
to all potentially dilutive common shares that were outstanding during the period.
Subject to preferences that may apply to shares of preferred stock outstanding at the time,
holders of the Company’s outstanding common stock are entitled to any dividend declared by the
Board of Directors out of funds legally available for this purpose. No dividend may be declared on
the class A or class B common stock unless at the same time an equal dividend is paid on every
share of class A and class B common stock. Dividends paid in shares of the Company’s common stock
must be paid, with respect to a particular class of common stock, in shares of that class. The
Company does not intend to pay cash dividends on its common stock. In addition, the terms of the
Company’s current financing agreements preclude it from paying any cash dividends on its common
stock.
The following table sets forth the computation of basic and diluted earnings per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, 2011 |
|
|
April 1, 2010 |
|
| |
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
Per |
|
| |
|
|
|
|
|
|
|
|
|
Share |
|
|
|
|
|
|
|
|
|
|
Share |
|
| |
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
shareholders |
|
$ |
34.0 |
|
|
|
138.6 |
|
|
$ |
0.25 |
|
|
$ |
54.9 |
|
|
|
137.3 |
|
|
$ |
0.40 |
|
Income allocated to
participating securities |
|
|
0.6 |
|
|
|
2.7 |
|
|
|
|
|
|
|
0.6 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
34.6 |
|
|
|
|
|
|
|
|
|
|
$ |
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted potential common shares |
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
34.6 |
|
|
|
142.1 |
|
|
$ |
0.24 |
|
|
$ |
55.5 |
|
|
|
140.4 |
|
|
$ |
0.40 |
|
The balance of outstanding common shares presented in the consolidated statement of
shareholders’ equity was 142.3 million and 140.7 million at March 31, 2011 and April 1, 2010,
respectively. Included in the outstanding common shares were 2.9 million and 3.0 million of issued
but unvested shares at March 31, 2011 and April 1, 2010, respectively, which are excluded from the
basic EPS calculation.
21
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
Comprehensive Income
Components of comprehensive income, net of tax, consist of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Three Months Ended March 31, 2011 |
|
| |
|
Before Tax |
|
|
Tax (Expense) |
|
|
Net-of Tax |
|
| |
|
Amount |
|
|
or Benefit |
|
|
Amount |
|
Net income |
|
$ |
49.9 |
|
|
$ |
(15.3 |
) |
|
$ |
34.6 |
|
Unrealized gain (loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on interest rate swaps |
|
|
(0.2 |
) |
|
|
0.1 |
|
|
|
(0.1 |
) |
Less: reclassification adjustment for (gain) loss realized in net
income |
|
|
3.2 |
|
|
|
(1.2 |
) |
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on interest rate swaps |
|
|
3.0 |
|
|
|
(1.1 |
) |
|
|
1.9 |
|
Unrealized gain (loss) on foreign currency hedge contracts |
|
|
0.8 |
|
|
|
(0.2 |
) |
|
|
0.6 |
|
Less: reclassification adjustment for (gain) loss realized in net
income |
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
Less:
reclassification adjustment for (gain) loss realized in other
assets |
|
|
1.1 |
|
|
|
(0.4 |
) |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on foreign currency hedge contracts |
|
|
2.0 |
|
|
|
(0.6 |
) |
|
|
1.4 |
|
Pension, SERP, and Retiree Medical adjustments |
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
Unrealized gain (loss) on intercompany loan |
|
|
2.2 |
|
|
|
(0.6 |
) |
|
|
1.6 |
|
Foreign currency translation adjustments |
|
|
4.0 |
|
|
|
— |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
$ |
61.2 |
|
|
$ |
(17.6 |
) |
|
$ |
43.6 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Three Months Ended April 1, 2010 |
|
| |
|
Before Tax |
|
|
Tax (Expense) |
|
|
Net-of Tax |
|
| |
|
Amount |
|
|
or Benefit |
|
|
Amount |
|
Net income |
|
$ |
73.3 |
|
|
$ |
(17.8 |
) |
|
$ |
55.5 |
|
Unrealized gain (loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on interest rate swaps |
|
|
(2.7 |
) |
|
|
1.0 |
|
|
|
(1.7 |
) |
Less: reclassification adjustment for (gain) loss realized in net
income |
|
|
4.3 |
|
|
|
(1.6 |
) |
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on interest rate swaps |
|
|
1.6 |
|
|
|
(0.6 |
) |
|
|
1.0 |
|
Unrealized gain (loss) on foreign currency hedge contracts |
|
|
(2.8 |
) |
|
|
0.9 |
|
|
|
(1.9 |
) |
Less: reclassification adjustment for (gain) loss realized in net
income |
|
|
0.3 |
|
|
|
(0.1 |
) |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on foreign currency hedge contracts |
|
|
(2.5 |
) |
|
|
0.8 |
|
|
|
(1.7 |
) |
Pension, SERP, and Retiree Medical adjustments |
|
|
(0.1 |
) |
|
|
— |
|
|
|
(0.1 |
) |
Unrealized gain (loss) on intercompany loan |
|
|
(4.0 |
) |
|
|
1.1 |
|
|
|
(2.9 |
) |
Foreign currency translation adjustments |
|
|
(5.8 |
) |
|
|
— |
|
|
|
(5.8 |
) |
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
$ |
62.5 |
|
|
$ |
(16.5 |
) |
|
$ |
46.0 |
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest
Noncontrolling interest at March 31, 2011 remained unchanged from the prior year at $0.5.
17. Related Party Transactions
On March 26, 2007, Hawker Beechcraft, Inc. (“Hawker”), of which Onex Partners II LP (an
affiliate of Onex) owns approximately a 49% interest, acquired Raytheon Aircraft Acquisition
Company and substantially all of the assets of Raytheon Aircraft Services Limited. The Company’s
Prestwick facility provides wing components for the Hawker 800 Series manufactured by Hawker. For
the three months ended March 31, 2011 and April 1, 2010, sales to Hawker were $2.2 and $1.2,
respectively. Receivables due from Hawker were $3.5 as of March 31, 2011.
22
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
A former member of Holdings’ Board of Directors, who was also a member
of the Board of Directors of Hawker, resigned from his position effective October 26, 2010, in order to accept an appointment as the Chief of Staff to the
Prime Minister of Canada.
A member of Holdings’ Board of Directors served as Chairman, President, and Chief Executive
Officer of Aviall, Inc., the parent company of one of our customers, Aviall Services, Inc. and a
wholly-owned subsidiary of Boeing until his retirement in February 2010. On September 18, 2006,
Spirit entered into a distribution agreement with Aviall Services, Inc. that extends until
September 18, 2011 and automatically renews on an annual basis unless terminated by either party.
Net revenues under the distribution agreement were $0.9 for the three months ended April 1, 2010.
The Company paid less than $0.1 to a subsidiary of Onex for services rendered for each of the
three month periods ended March 31, 2011, and April 1, 2010. Management believes the amounts
charged were reasonable in relation to the services provided.
Boeing owned and operated significant information technology systems utilized by the Company
and, as required under the acquisition agreement for the Boeing Acquisition, was providing those
systems and support services to Spirit under a Transition Services Agreement. The services covered
by the Transition Services Agreement have now been established by the Company, and the agreement
terminated. Under the Transition Services Agreement, the Company incurred fees of less than $0.1
and $1.1 for the three months ended March 31, 2011 and April 1, 2010, respectively. The amounts
owed to Boeing and recorded as accrued liabilities were less than $0.1 and $1.3 at March 31, 2011
and April 1, 2010, respectively.
The spouse of one of the Company’s executives is a special counsel at a law firm utilized by
the Company and at which the executive was previously employed. The Company paid fees of $0.2, and
$0.3 to the firm for the three month periods ended March 31, 2011 and April 1, 2010, respectively.
An executive of the Company is a member of the Board of Directors of a Wichita, Kansas bank
that provides banking services to Spirit. In connection with the banking services provided to
Spirit, the Company pays fees consistent with commercial terms that would be available to unrelated
third parties. Such fees are not material to Spirit.
18. Commitments, Contingencies and Guarantees
Litigation
From time to time we are subject to, and are presently involved in, litigation or other legal
proceedings arising in the ordinary course of business. While the final outcome of these matters
cannot be predicted with certainty, considering, among other things, the meritorious legal defenses
available, it is the opinion of the Company that none of these items, when finally resolved, will
have a material adverse effect on the Company’s long-term financial position or liquidity.
Consistent with the requirements of authoritative guidance on accounting for contingencies, we had
no accruals at March 31, 2011 or December 31, 2010 for loss contingencies. However, an unexpected
adverse resolution of one or more of these items could have a material adverse effect on the
results of operations in a particular quarter or fiscal year.
From time to time, in the ordinary course of business and like others in the industry, we
receive requests for information from government agencies in connection with their regulatory or
investigational authority. Such requests can include subpoenas or demand letters for documents to
assist the government in audits or investigations. We review such requests and notices and take
appropriate action. We have been subject to certain requests for information and investigations in
the past and could be subject to such requests for information and investigations in the future.
Additionally, we are subject to federal and state requirements for protection of the environment,
including those for disposal of hazardous waste and remediation of contaminated sites. As a result,
we are required to participate in certain government investigations regarding environmental
remediation actions.
In December 2005, a lawsuit was filed against Spirit, Onex, and Boeing alleging age
discrimination in the hiring of employees by Spirit when Boeing sold its Wichita commercial
division to Onex. The complaint was filed in U.S. District Court in Wichita, Kansas and seeks
class-action status, an unspecified amount of compensatory damages and more than $1.5 billion in
punitive damages. The asset purchase agreement from the Boeing Acquisition requires Spirit to
indemnify Boeing for damages resulting from the employment decisions that were made by us with
respect to former employees of Boeing Wichita, which relate or allegedly relate to the involvement
of, or consultation with, employees of Boeing in such employment decisions. On June 30, 2010, the
U.S. District Court granted defendants’ dispositive motions, finding that the case should not be
allowed to proceed as a class action. The plaintiffs asked the
District Court to reconsider its ruling and on March 28, 2011, the
23
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
District Court refused to do so. Some of the plaintiffs could possibly pursue individual claims or, could decide to appeal the District Court’s decision to
the United States Court of Appeals for the Tenth Circuit, which could reverse the District Court’s
June 30, 2010 ruling. The Company intends to continue to vigorously defend itself in this matter.
Management believes the resolution of this matter will not materially affect the Company’s
financial position, results of operations or liquidity.
In December 2005, a federal grand jury sitting in Topeka, Kansas issued subpoenas regarding
the vapor degreasing equipment at our Wichita, Kansas facility. The government’s investigation
appeared to focus on whether the degreasers were operating within permit parameters and whether
chemical wastes from the degreasers were disposed of properly. The subpoenas covered a time period
both before and after our purchase of the Wichita, Kansas facility. Subpoenas were issued to
Boeing, Spirit and individuals who were employed by Boeing prior to the Boeing Acquisition, but are
now employed by Spirit. The Company responded to the subpoena and provided additional information
to the government as requested. On March 25, 2008, the U.S. Attorney’s Office informed the Company
that it was closing its criminal file on the investigation. A civil investigation into this matter
is ongoing. Management believes the resolution of this matter will not materially affect the
Company’s financial position, results of operations or liquidity.
On February 16, 2007, an action entitled Harkness et al. v. The Boeing Company et al. was
filed in the U.S. District Court for the District of Kansas. The defendants were served in early
July 2007. The defendants include Spirit AeroSystems Holdings, Inc., Spirit AeroSystems, Inc., the
Spirit AeroSystems Holdings Inc. Retirement Plan for the International Brotherhood of Electrical
Workers (IBEW), Wichita Engineering Unit (SPEEA WEU) and Wichita Technical and Professional Unit
(SPEEA WTPU) Employees, and the Spirit AeroSystems Retirement Plan for International Association of
Machinists and Aerospace Workers (IAM) Employees, along with Boeing and Boeing retirement and
health plan entities. The named plaintiffs are twelve former Boeing employees, eight of whom were
or are employees of Spirit. The plaintiffs assert several claims under the Employee Retirement
Income Security Act and general contract law and brought the case as a class action on behalf of
similarly situated individuals. The putative class consists of approximately 2,500 current or
former employees of Spirit. The parties agreed to class certification and are currently in the
discovery process. The sub-class members who have asserted claims against the Spirit entities are
those individuals who, as of June 2005, were employed by Boeing in Wichita, Kansas, were
participants in the Boeing pension plan, had at least 10 years of vesting service in the Boeing
plan, were in jobs represented by a union, were between the ages of 49 and 55, and who went to work
for Spirit on or about June 17, 2005. Although there are many claims in the suit, the plaintiffs’
claims against the Spirit entities, asserted under various theories, are (1) that the Spirit plans
wrongfully failed to determine that certain plaintiffs are entitled to early retirement “bridging
rights” to pension and retiree medical benefits that were allegedly triggered by their separation
from employment by Boeing and (2) that the plaintiffs’ pension benefits were unlawfully transferred
from Boeing to Spirit in that their claimed early retirement “bridging rights” are not being
afforded these individuals as a result of their separation from Boeing, thereby decreasing their
benefits. The plaintiffs seek a declaration that they are entitled to the early retirement pension
benefits and retiree medical benefits, an injunction ordering that the defendants provide the
benefits, damages pursuant to breach of contract claims and attorney fees. Boeing has notified
Spirit that it believes it is entitled to indemnification from Spirit for any “indemnifiable
damages” it may incur in the Harkness litigation, under the terms of the asset purchase agreement
from the Boeing Acquisition. Spirit disputes Boeing’s position on indemnity. Management believes
the resolution of this matter will not materially affect the Company’s financial position, results
of operations or liquidity.
On July 21, 2005, the UAW filed a grievance against Boeing on behalf of certain former Boeing
employees in Tulsa and McAlester, Oklahoma, regarding issues that parallel those asserted in
Harkness et al. v. The Boeing Company et al. Boeing denied the grievance, and the UAW subsequently
filed suit to compel arbitration, which the parties eventually agreed to pursue. The arbitration
was conducted in January 2008. In July 2008, the arbitrator issued an opinion and award in favor of
the UAW. The arbitrator directed Boeing to reinstate the seniority of the employees and “afford
them the benefits appurtenant thereto.” On March 5, 2009, the arbitrator entered an Opinion and
Supplemental Award that directed Boeing to award certain benefits to UAW members upon whose behalf
the grievance was brought, notwithstanding the prior denial of such benefits by the Boeing Plan
Administrator. On April 10, 2009, Boeing filed a complaint in the United States District Court for
the Northern District of Illinois, seeking a ruling that the arbitrator exceeded his authority in
granting the Supplemental Award. On September 16, 2009, the District Court entered an order
affirming the arbitrator’s Supplemental Award. Boeing appealed the District Court’s decision to the
U.S. Seventh Circuit Court of Appeals, which recently affirmed the District Court’s decision.
Boeing previously notified Spirit of its intent to seek indemnification from Spirit for any
“indemnifiable damages” it may incur in the UAW matter, pursuant to the terms of the asset purchase
agreement from the Boeing Acquisition. Spirit disputes Boeing’s position on indemnity. Management
believes the resolution of this matter will not materially affect the Company’s financial position,
results of operations or liquidity.
On May 11, 2009, Spirit filed a lawsuit in the United States District Court for the District
of Kansas against SPS Technologies LLC (“SPS”), and Precision Castparts Corp. Spirit’s claims are
based on the sale by SPS of certain non-conforming nut plate fasteners to Spirit between August
2007 and August 2008. Many of the fasteners were used on assemblies that Spirit sold to a customer.
In the fall
24
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
of 2008, Spirit discovered the non-conformity and notified the customer of the discrepancy.
Subsequently, Spirit and the customer removed and replaced nut plates on various in-process
aircraft assemblies. Spirit’s lawsuit seeks damages, including damages related to these efforts,
under various theories, including breach of contract and breach of implied warranty.
Guarantees
Contingent liabilities in the form of letters of credit, letters of guarantee and performance
bonds have been provided by the Company. These letters of credit reduce the amount of borrowings
available under the revolving credit facility. As of March 31, 2011 and December 31, 2010,
outstanding letters of credit were $20.4 and $18.9, respectively, and outstanding guarantees were
$28.3 and $23.1, respectively.
Indemnification
The
Company has entered into customary indemnification agreements with each of its directors, and some
of its executive employment agreements include indemnification provisions. Under those agreements,
the Company agrees to indemnify each of these individuals against claims arising out of events or
occurrences related to that individual’s service as the Company’s agent or the agent of any of its
subsidiaries to the fullest extent legally permitted.
Service and Product Warranties and Extraordinary Rework
The Company provides service and warranty policies on its products. Liability under service
and warranty policies is based upon specific claims and a review of historical warranty and service
claim experience. Adjustments are made to accruals as claim data and historical experience change.
In addition, the Company incurs discretionary costs to service its products in connection with
product performance or quality issues.
The following is a roll forward of the service warranty balance at March 31, 2011:
| |
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
18.7 |
|
Charges to costs and expenses |
|
|
1.8 |
|
Exchange rate |
|
|
0.1 |
|
|
|
|
|
Balance, March 31, 2011 |
|
$ |
20.6 |
|
|
|
|
|
19. Other Income (Expense), Net
Other income (expense), net, is summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
For the Three |
|
| |
|
Months Ended |
|
| |
|
March 31, |
|
|
April 1, |
|
| |
|
2011 |
|
|
2010 |
|
KDFA bond |
|
$ |
1.1 |
|
|
$ |
1.0 |
|
Rental and miscellaneous income |
|
|
— |
|
|
|
0.2 |
|
Foreign currency gains (losses) |
|
|
0.4 |
|
|
|
(6.7 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
1.5 |
|
|
$ |
(5.5 |
) |
|
|
|
|
|
|
|
Foreign currency gains (losses) are due to the impact of movement in foreign currency exchange
rates on trade and intercompany receivables/payables and other long-term contractual
rights/obligations denominated in a currency other than the entity’s functional currency.
25
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
20. Segment Information
The Company operates in three principal segments: Fuselage Systems, Propulsion Systems and
Wing Systems. Substantially all revenues in the three principal segments are from Boeing, with the
exception of Wing Systems, which includes revenues from Airbus and other customers. Approximately
95% of the Company’s net revenues for the three months ended March 31, 2011 came from our two
largest customers, Boeing and Airbus. All other activities fall within the All Other segment,
principally made up of sundry sales of miscellaneous services, tooling contracts, and sales of
natural gas through a tenancy-in-common with other companies that have operations in Wichita,
Kansas. The Company’s primary profitability measure to review a segment’s operating performance is
segment operating income before unallocated corporate selling, general and administrative expenses,
unallocated research and development and unallocated cost of sales. Unallocated corporate selling,
general and administrative expenses include centralized functions such as accounting, treasury and
human resources that are not specifically related to our operating segments and are not allocated
in measuring the operating segments’ profitability and performance and operating margins.
Unallocated research and development includes research and development efforts that benefit the Company as a whole and
are not unique to a specific segment. All of these unallocated items are not specifically related
to our operating segments and are not allocated in measuring the operating segments’ profitability
and performance and operating margins.
The Company’s Fuselage Systems segment includes development, production and marketing of
forward, mid and rear fuselage sections and systems, primarily to aircraft OEMs (OEM refers to
aircraft original equipment manufacturer), as well as related spares and maintenance, repairs and
overhaul (MRO). The Fuselage Systems segment manufactures products at our facilities in Wichita,
Kansas, and Kinston, North Carolina.
The Company’s Propulsion Systems segment includes development, production and marketing of
struts/pylons, nacelles (including thrust reversers) and related engine structural components
primarily to aircraft or engine OEMs, as well as related spares and MRO services. The Propulsion
Systems segment manufactures products at our facilities in Wichita, Kansas.
The Company’s Wing Systems segment includes development, production and marketing of wings and
wing components (including flight control surfaces) as well as other miscellaneous structural parts
primarily to aircraft OEMs, as well as related spares and MRO services. These activities take place
at the Company’s facilities in Tulsa and McAlester, Oklahoma, Kinston, North Carolina, Prestwick,
Scotland and Subang, Malaysia.
The Company’s segments are consistent with the organization and responsibilities of management
reporting to the chief operating decision-maker for the purpose of assessing performance. The
Company’s definition of segment operating income differs from operating income as presented in its
primary financial statements and a reconciliation of the segment and consolidated results is
provided in the table set forth below. Most selling, general and administrative expenses, and all
interest expense or income, related financing costs and income tax amounts, are not allocated to
the operating segments.
While some working capital accounts are maintained on a segment basis, much of the Company’s
assets are not managed or maintained on a segment basis. Property, plant and equipment, including
tooling, is used in the design and production of products for each of the segments and, therefore,
is not allocated to any individual segment. In addition, cash, prepaid expenses, other assets and
deferred taxes are managed and maintained on a consolidated basis and generally do not pertain to
any particular segment. Raw materials and certain component parts are used in the production of
aerostructures across all segments. Work-in-process inventory is identifiable by segment, but is
managed and evaluated at the program level. As there is no segmentation of the Company’s productive
assets, depreciation expense (included in fixed manufacturing costs and selling, general and
administrative expenses) and capital expenditures, no allocation of these amounts has been made
solely for purposes of segment disclosure requirements.
26
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
The following table shows segment information:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Three Months Ended |
|
| |
|
March 31, |
|
|
April 1, |
|
| |
|
2011 |
|
|
2010 |
|
Segment Revenues |
|
|
|
|
|
|
|
|
Fuselage Systems |
|
$ |
528.0 |
|
|
$ |
516.2 |
|
Propulsion Systems |
|
|
273.0 |
|
|
|
274.4 |
|
Wing Systems |
|
|
244.9 |
|
|
|
248.9 |
|
All Other |
|
|
3.7 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
$ |
1,049.6 |
|
|
$ |
1,043.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income |
|
|
|
|
|
|
|
|
Fuselage Systems(1) |
|
$ |
47.0 |
|
|
$ |
75.9 |
|
Propulsion Systems |
|
|
40.8 |
|
|
|
33.6 |
|
Wing Systems |
|
|
17.4 |
|
|
|
18.9 |
|
All Other |
|
|
— |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
Business Segment Operating Income |
|
|
105.2 |
|
|
|
128.7 |
|
Unallocated corporate SG&A |
|
|
(35.1 |
) |
|
|
(35.0 |
) |
Unallocated research and development |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
Total operating income |
|
$ |
69.6 |
|
|
$ |
93.0 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Net of $28.2 forward-loss recorded in the first quarter of
2011 for the Sikorsky CH-53K
program |
27
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
21. Condensed Consolidating Financial Information
On November 18, 2010, Spirit completed an offering of $300.0 aggregate principal amount of its
2020 Notes. On September 30, 2009, Spirit completed an offering of $300.0 aggregate principal
amount of its 2017 Notes. Both the 2017 Notes and the 2020 Notes were sold to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the
“Securities Act”), and outside the United States only to non-U.S. persons pursuant to Regulation S
promulgated under the Securities Act.
In connection with the initial sale of the 2017 Notes and the 2020 Notes, the Company entered
into Registration Rights Agreements with the initial purchasers of the 2017 Notes and the 2020
Notes, respectively, party thereto, pursuant to which the Company, Spirit and the Subsidiary
Guarantors (as defined below) agreed to file (x) a registration statement with respect to an offer
to exchange original 2017 Notes for a new issue of substantially identical notes registered under
the Securities Act (the “2017 Notes Exchange Offer”) and (y) a registration statement with respect
to an offer to exchange the original 2020 Notes for a new issue of substantially identical notes
registered under the Securities Act (the “2020 Notes Exchange Offer”). The 2017 Notes Exchange
Offer was consummated on May 26, 2010. The 2020 Notes Exchange Offer was consummated on January 31,
2011. The 2017 Notes and 2020 Notes are fully and unconditionally guaranteed on a joint and several
senior unsecured basis by the Company and its wholly-owned domestic subsidiaries (the “Subsidiary
Guarantors”).
The following condensed consolidating financial information, which has been prepared in
accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated
under the Securities Act, presents the condensed consolidating financial information separately
for:
| |
(i) |
|
Spirit, as the subsidiary issuer of the 2017 Notes and the 2020 Notes; |
| |
| |
(ii) |
|
The Subsidiary Guarantors, on a combined basis, as guarantors of the 2017 Notes and
the 2020 Notes; |
| |
| |
(iii) |
|
The Company’s subsidiaries, other than the Subsidiary Guarantors, which will not
be guarantors of the 2017 Notes and the 2020 Notes (the “Subsidiary Non-Guarantors”), on
a combined basis; |
| |
| |
(iv) |
|
Consolidating entries and eliminations representing adjustments to (a) eliminate
intercompany transactions between or among Holdings, the Subsidiary Guarantors and the
Subsidiary Non-Guarantors, (b) eliminate the investments in the Company’s subsidiaries
and (c) record consolidating entries; and |
| |
| |
(v) |
|
Holdings and its subsidiaries on a consolidated basis. |
The Company, which is a guarantor of the 2017 Notes and the 2020 Notes, is excluded from the
tables below as it has no assets or operations independent from its subsidiaries.
28
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
Condensed Consolidating Statements of Operations
For the Three Months Ended March 31, 2011
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
| |
|
Spirit |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net Revenues |
|
$ |
943.3 |
|
|
$ |
0.5 |
|
|
$ |
127.6 |
|
|
$ |
(21.8 |
) |
|
$ |
1,049.6 |
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
830.0 |
|
|
|
(0.1 |
) |
|
|
119.9 |
|
|
|
(21.8 |
) |
|
|
928.0 |
|
Selling, general and administrative |
|
|
33.3 |
|
|
|
0.4 |
|
|
|
5.3 |
|
|
|
— |
|
|
|
39.0 |
|
Research and development |
|
|
13.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
876.3 |
|
|
|
0.3 |
|
|
|
125.2 |
|
|
|
(21.8 |
) |
|
|
980.0 |
|
Operating income |
|
|
67.0 |
|
|
|
0.2 |
|
|
|
2.4 |
|
|
|
— |
|
|
|
69.6 |
|
Interest expense and financing fee amortization |
|
|
(20.6 |
) |
|
|
— |
|
|
|
(1.4 |
) |
|
|
1.1 |
|
|
|
(20.9 |
) |
Interest income |
|
|
1.2 |
|
|
|
— |
|
|
|
— |
|
|
|
(1.1 |
) |
|
|
0.1 |
|
Other income, net |
|
|
1.0 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in net loss of affiliates |
|
|
48.6 |
|
|
|
0.2 |
|
|
|
1.5 |
|
|
|
— |
|
|
|
50.3 |
|
Income tax benefit (provision) |
|
|
(16.0 |
) |
|
|
(0.1 |
) |
|
|
0.8 |
|
|
|
— |
|
|
|
(15.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net loss of affiliates |
|
|
32.6 |
|
|
|
0.1 |
|
|
|
2.3 |
|
|
|
— |
|
|
|
35.0 |
|
Equity in net loss of affiliates |
|
|
— |
|
|
|
— |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
32.6 |
|
|
$ |
0.1 |
|
|
$ |
1.9 |
|
|
$ |
— |
|
|
$ |
34.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Operations
For the Three Months Ended April 1, 2010
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
|
| |
|
Spirit |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net Revenues |
|
$ |
938.7 |
|
|
$ |
0.2 |
|
|
$ |
118.7 |
|
|
$ |
(14.3 |
) |
|
$ |
1,043.3 |
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
806.5 |
|
|
|
0.2 |
|
|
|
108.7 |
|
|
|
(14.3 |
) |
|
|
901.1 |
|
Selling, general and administrative |
|
|
35.0 |
|
|
|
0.5 |
|
|
|
3.8 |
|
|
|
— |
|
|
|
39.3 |
|
Research and development |
|
|
9.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
851.4 |
|
|
|
0.7 |
|
|
|
112.5 |
|
|
|
(14.3 |
) |
|
|
950.3 |
|
Operating income (loss) |
|
|
87.3 |
|
|
|
(0.5 |
) |
|
|
6.2 |
|
|
|
— |
|
|
|
93.0 |
|
Interest expense and financing fee amortization |
|
|
(13.8 |
) |
|
|
— |
|
|
|
(1.0 |
) |
|
|
0.8 |
|
|
|
(14.0 |
) |
Interest income |
|
|
0.9 |
|
|
|
— |
|
|
|
— |
|
|
|
(0.8 |
) |
|
|
0.1 |
|
Other income (expense), net |
|
|
1.0 |
|
|
|
— |
|
|
|
(6.5 |
) |
|
|
— |
|
|
|
(5.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in net loss of affiliates |
|
|
75.4 |
|
|
|
(0.5 |
) |
|
|
(1.3 |
) |
|
|
— |
|
|
|
73.6 |
|
Income tax benefit (provision) |
|
|
(18.8 |
) |
|
|
0.2 |
|
|
|
0.8 |
|
|
|
— |
|
|
|
(17.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net loss of affiliates |
|
|
56.6 |
|
|
|
(0.3 |
) |
|
|
(0.5 |
) |
|
|
— |
|
|
|
55.8 |
|
Equity in net loss of affiliates |
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
— |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
56.6 |
|
|
$ |
(0.3 |
) |
|
$ |
(0.8 |
) |
|
$ |
— |
|
|
$ |
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
Condensed Consolidating Balance Sheet
March 31, 2011
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
| |
|
Spirit |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
272.9 |
|
|
$ |
— |
|
|
$ |
38.0 |
|
|
$ |
— |
|
|
$ |
310.9 |
|
Accounts receivable, net |
|
|
295.8 |
|
|
|
3.3 |
|
|
|
122.9 |
|
|
|
(136.6 |
) |
|
|
285.4 |
|
Inventory, net |
|
|
2,464.4 |
|
|
|
58.5 |
|
|
|
129.6 |
|
|
|
— |
|
|
|
2,652.5 |
|
Deferred tax asset-current |
|
|
57.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57.5 |
|
Other current assets |
|
|
25.0 |
|
|
|
— |
|
|
|
2.2 |
|
|
|
— |
|
|
|
27.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,115.6 |
|
|
|
61.8 |
|
|
|
292.7 |
|
|
|
(136.6 |
) |
|
|
3,333.5 |
|
Property, plant and equipment, net |
|
|
1,012.6 |
|
|
|
311.2 |
|
|
|
156.0 |
|
|
|
— |
|
|
|
1,479.8 |
|
Pension assets |
|
|
174.3 |
|
|
|
— |
|
|
|
3.9 |
|
|
|
— |
|
|
|
178.2 |
|
Investment in subsidiary |
|
|
279.9 |
|
|
|
— |
|
|
|
— |
|
|
|
(279.9 |
) |
|
|
— |
|
Deferred tax asset- non-current, net |
|
|
35.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
35.5 |
|
Other assets |
|
|
283.7 |
|
|
|
80.0 |
|
|
|
33.8 |
|
|
|
(291.4 |
) |
|
|
106.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,901.6 |
|
|
$ |
453.0 |
|
|
$ |
486.4 |
|
|
$ |
(707.9 |
) |
|
$ |
5,133.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
426.3 |
|
|
$ |
63.4 |
|
|
$ |
128.4 |
|
|
$ |
(136.6 |
) |
|
$ |
481.5 |
|
Accrued expenses |
|
|
186.5 |
|
|
|
0.4 |
|
|
|
12.1 |
|
|
|
— |
|
|
|
199.0 |
|
Profit sharing/deferred compensation |
|
|
13.1 |
|
|
|
— |
|
|
|
0.9 |
|
|
|
— |
|
|
|
14.0 |
|
Current portion of long-term debt |
|
|
7.2 |
|
|
|
— |
|
|
|
2.5 |
|
|
|
— |
|
|
|
9.7 |
|
Advance payments, short-term |
|
|
115.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
115.9 |
|
Deferred revenue, short-term |
|
|
289.8 |
|
|
|
— |
|
|
|
7.2 |
|
|
|
— |
|
|
|
297.0 |
|
Deferred grant income liability — current |
|
|
— |
|
|
|
4.3 |
|
|
|
1.3 |
|
|
|
— |
|
|
|
5.6 |
|
Other current liabilities |
|
|
6.2 |
|
|
|
— |
|
|
|
5.3 |
|
|
|
— |
|
|
|
11.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,045.0 |
|
|
|
68.1 |
|
|
|
157.7 |
|
|
|
(136.6 |
) |
|
|
1,134.2 |
|
Long-term debt |
|
|
1,155.5 |
|
|
|
80.0 |
|
|
|
162.1 |
|
|
|
(211.4 |
) |
|
|
1,186.2 |
|
Advance payments, long-term |
|
|
671.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
671.6 |
|
Pension/OPEB obligation |
|
|
74.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74.5 |
|
Deferred grant income liability — non-current |
|
|
— |
|
|
|
92.8 |
|
|
|
35.0 |
|
|
|
— |
|
|
|
127.8 |
|
Deferred revenue and other deferred credits |
|
|
25.8 |
|
|
|
— |
|
|
|
2.7 |
|
|
|
— |
|
|
|
28.5 |
|
Other liabilities |
|
|
117.9 |
|
|
|
— |
|
|
|
15.5 |
|
|
|
(80.0 |
) |
|
|
53.4 |
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01, 10,000,000 shares
authorized, no shares issued |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Common stock, Class A par value $0.01, 200,000,000
shares authorized, 107,589,410 shares issued |
|
|
1.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
Common stock, Class B par value $0.01, 150,000,000
shares authorized, 34,737,911 shares issued |
|
|
0.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
Additional paid-in capital |
|
|
986.0 |
|
|
|
210.7 |
|
|
|
69.2 |
|
|
|
(279.9 |
) |
|
|
986.0 |
|
Accumulated other comprehensive loss |
|
|
(59.4 |
) |
|
|
— |
|
|
|
(7.0 |
) |
|
|
— |
|
|
|
(66.4 |
) |
Retained earnings |
|
|
883.2 |
|
|
|
1.4 |
|
|
|
50.7 |
|
|
|
— |
|
|
|
935.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
1,811.3 |
|
|
|
212.1 |
|
|
|
112.9 |
|
|
|
(279.9 |
) |
|
|
1,856.4 |
|
Noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
1,811.3 |
|
|
|
212.1 |
|
|
|
113.4 |
|
|
|
(279.9 |
) |
|
|
1,856.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
4,901.6 |
|
|
$ |
453.0 |
|
|
$ |
486.4 |
|
|
$ |
(707.9 |
) |
|
$ |
5,133.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
Condensed Consolidating Balance Sheet
December 31, 2010
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
| |
|
Spirit |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
416.1 |
|
|
$ |
— |
|
|
$ |
65.5 |
|
|
$ |
— |
|
|
$ |
481.6 |
|
Accounts receivable, net |
|
|
180.6 |
|
|
|
6.6 |
|
|
|
96.4 |
|
|
|
(83.4 |
) |
|
|
200.2 |
|
Inventory, net |
|
|
2,368.0 |
|
|
|
15.9 |
|
|
|
124.0 |
|
|
|
— |
|
|
|
2,507.9 |
|
Deferred tax asset-current |
|
|
46.7 |
|
|
|
— |
|
|
|
0.9 |
|
|
|
— |
|
|
|
47.6 |
|
Other current assets |
|
|
55.0 |
|
|
|
— |
|
|
|
2.4 |
|
|
|
— |
|
|
|
57.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,066.4 |
|
|
|
22.5 |
|
|
|
289.2 |
|
|
|
(83.4 |
) |
|
|
3,294.7 |
|
Property, plant and equipment, net |
|
|
1,018.0 |
|
|
|
302.0 |
|
|
|
150.0 |
|
|
|
— |
|
|
|
1,470.0 |
|
Pension assets |
|
|
169.5 |
|
|
|
— |
|
|
|
2.9 |
|
|
|
— |
|
|
|
172.4 |
|
Investment in subsidiary |
|
|
279.9 |
|
|
|
— |
|
|
|
— |
|
|
|
(279.9 |
) |
|
|
— |
|
Deferred tax asset- non-current, net |
|
|
55.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55.0 |
|
Other assets |
|
|
285.4 |
|
|
|
80.0 |
|
|
|
34.7 |
|
|
|
(290.2 |
) |
|
|
109.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,874.2 |
|
|
$ |
404.5 |
|
|
$ |
476.8 |
|
|
$ |
(653.5 |
) |
|
$ |
5,102.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
394.1 |
|
|
$ |
14.4 |
|
|
$ |
118.4 |
|
|
$ |
(83.4 |
) |
|
$ |
443.5 |
|
Accrued expenses |
|
|
169.9 |
|
|
|
— |
|
|
|
20.8 |
|
|
|
— |
|
|
|
190.7 |
|
Profit sharing/deferred compensation |
|
|
27.3 |
|
|
|
— |
|
|
|
2.3 |
|
|
|
— |
|
|
|
29.6 |
|
Current portion of long-term debt |
|
|
7.2 |
|
|
|
— |
|
|
|
2.3 |
|
|
|
— |
|
|
|
9.5 |
|
Advance payments, short-term |
|
|
169.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
169.4 |
|
Deferred revenue, short-term |
|
|
295.6 |
|
|
|
— |
|
|
|
7.0 |
|
|
|
— |
|
|
|
302.6 |
|
Deferred grant income liability — current |
|
|
— |
|
|
|
3.9 |
|
|
|
1.2 |
|
|
|
— |
|
|
|
5.1 |
|
Other current liabilities |
|
|
9.7 |
|
|
|
— |
|
|
|
4.7 |
|
|
|
— |
|
|
|
14.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,073.2 |
|
|
|
18.3 |
|
|
|
156.7 |
|
|
|
(83.4 |
) |
|
|
1,164.8 |
|
Long-term debt |
|
|
1,157.3 |
|
|
|
80.0 |
|
|
|
160.2 |
|
|
|
(210.2 |
) |
|
|
1,187.3 |
|
Advance payments, long-term |
|
|
655.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
655.2 |
|
Pension/OPEB obligation |
|
|
72.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
72.5 |
|
Deferred grant income liability — non-current |
|
|
— |
|
|
|
94.2 |
|
|
|
34.2 |
|
|
|
— |
|
|
|
128.4 |
|
Deferred revenue and other deferred credits |
|
|
26.4 |
|
|
|
— |
|
|
|
2.6 |
|
|
|
— |
|
|
|
29.0 |
|
Other liabilities |
|
|
116.1 |
|
|
|
— |
|
|
|
17.8 |
|
|
|
(80.0 |
) |
|
|
53.9 |
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01, 10,000,000 shares
authorized, no shares issued |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Common stock, Class A par value $0.01, 200,000,000
shares authorized, 107,201,314 shares issued |
|
|
1.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
Common stock, Class B par value $0.01, 150,000,000
shares authorized, 34,897,388 shares issued |
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
Additional paid-in capital |
|
|
983.6 |
|
|
|
210.7 |
|
|
|
69.2 |
|
|
|
(279.9 |
) |
|
|
983.6 |
|
Accumulated other comprehensive loss |
|
|
(62.1 |
) |
|
|
— |
|
|
|
(13.2 |
) |
|
|
— |
|
|
|
(75.3 |
) |
Retained earnings |
|
|
850.6 |
|
|
|
1.3 |
|
|
|
48.8 |
|
|
|
— |
|
|
|
900.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
1,773.5 |
|
|
|
212.0 |
|
|
|
104.8 |
|
|
|
(279.9 |
) |
|
|
1,810.4 |
|
Noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
1,773.5 |
|
|
|
212.0 |
|
|
|
105.3 |
|
|
|
(279.9 |
) |
|
|
1,810.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
4,874.2 |
|
|
$ |
404.5 |
|
|
$ |
476.8 |
|
|
$ |
(653.5 |
) |
|
$ |
5,102.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended March 31, 2011
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
| |
|
Spirit |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(118.7 |
) |
|
$ |
12.5 |
|
|
$ |
(21.9 |
) |
|
$ |
— |
|
|
$ |
(128.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(21.6 |
) |
|
|
(12.5 |
) |
|
|
(7.4 |
) |
|
|
— |
|
|
|
(41.5 |
) |
Proceeds from sale of assets |
|
|
0.1 |
|
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
|
(21.5 |
) |
|
|
(12.5 |
) |
|
|
(7.2 |
) |
|
|
— |
|
|
|
(41.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of debt |
|
|
(2.1 |
) |
|
|
— |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
(2.2 |
) |
Collection on (repayment of) intercompany debt |
|
|
(1.2 |
) |
|
|
— |
|
|
|
1.2 |
|
|
|
— |
|
|
|
— |
|
Excess tax benefits from share-based payment arrangements |
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(3.0 |
) |
|
|
— |
|
|
|
1.1 |
|
|
|
— |
|
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) in cash and cash equivalents for
the period |
|
|
(143.2 |
) |
|
|
— |
|
|
|
(27.5 |
) |
|
|
— |
|
|
|
(170.7 |
) |
Cash and cash equivalents, beginning of period |
|
|
416.1 |
|
|
|
— |
|
|
|
65.5 |
|
|
|
— |
|
|
|
481.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
272.9 |
|
|
$ |
— |
|
|
$ |
38.0 |
|
|
$ |
— |
|
|
$ |
310.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended April 1, 2010
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
|
|
| |
|
Spirit |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
(99.6 |
) |
|
$ |
4.4 |
|
|
$ |
(15.0 |
) |
|
$ |
— |
|
|
$ |
(110.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(22.5 |
) |
|
|
(44.6 |
) |
|
|
(2.1 |
) |
|
|
— |
|
|
|
(69.2 |
) |
Investment in subsidiary |
|
|
(41.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
41.6 |
|
|
|
— |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
(0.8 |
) |
|
|
— |
|
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(64.1 |
) |
|
|
(44.6 |
) |
|
|
(2.9 |
) |
|
|
41.6 |
|
|
|
(70.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of debt |
|
|
(1.9 |
) |
|
|
— |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
(2.0 |
) |
Collection on (repayment of) intercompany debt |
|
|
15.0 |
|
|
|
— |
|
|
|
(15.0 |
) |
|
|
— |
|
|
|
— |
|
Proceeds from parent company contribution |
|
|
— |
|
|
|
40.2 |
|
|
|
1.4 |
|
|
|
(41.6 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
13.1 |
|
|
|
40.2 |
|
|
|
(13.7 |
) |
|
|
(41.6 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) in cash and cash equivalents for the
period |
|
|
(150.6 |
) |
|
|
— |
|
|
|
(31.8 |
) |
|
|
— |
|
|
|
(182.4 |
) |
Cash and cash equivalents, beginning of period |
|
|
317.1 |
|
|
|
— |
|
|
|
51.9 |
|
|
|
— |
|
|
|
369.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
166.5 |
|
|
$ |
— |
|
|
$ |
20.1 |
|
|
$ |
— |
|
|
$ |
186.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)
22. Subsequent Events
On April 20, 2011, Rockwell Collins, a supplier utilized by the Company, elected the
Company’s CEO, Jeffrey Turner, to become a member of its Board of Directors. He will fill a
position that is subject to re-election at Rockwell Collins’ annual shareowners meeting in 2013.
On April 7, 2011, Spirit Holdings filed a Registration Statement on Form S-3 (Registration No.
333-173369) with the Securities and Exchange Commission for a secondary offering of Spirit
Holdings’ class A common stock. Morgan Stanley is acting as underwriter for the offering. The
registration statement covered 10,307,375 shares of our class A common stock, and up to an
additional 1,546,106 shares of our class A common stock subject to the underwriters’ over-allotment
option granted by the selling stockholders identified in the registration statement. Associated
with this offering, the Company incurred $0.5 million of pre-tax expense, which was recorded to
selling, general and administrative (SG&A) in the second quarter. The Company received no proceeds
from this offering.
34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations
in conjunction with the unaudited condensed consolidated financial statements and the notes to the
unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report
on form 10-Q (this “Quarterly Report”). The following section may include “forward-looking
statements.” Forward-looking statements generally can be identified by the use of forward-looking
terminology such as “may,” “will,” “expect,” “anticipate,” “intend,” “estimate,” “believe,”
“project,” “continue,” “plan,” “forecast,” or other similar words. These statements reflect
management’s current views with respect to future events and are subject to risks and
uncertainties, both known and unknown, including, but not limited to, those described in the “Risk
Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010
(“2010 Form 10-K”), filed with the SEC on February 22, 2011. See also “Cautionary Statement
Regarding Forward-Looking Statements.” Our actual results may vary materially from those
anticipated in forward-looking statements. We caution investors not to place undue reliance on any
forward-looking statements.
Recent Events
On April 6, 2011, we announced the expected recognition in the first quarter of a pre-tax
charge of approximately $28.2 million associated with the development effort on the Sikorsky CH-53K
helicopter program, resulting from a change in our design and manufacturing approach. The
additional costs associated with this change have resulted in a loss program for Spirit on the
Systems Development and Demonstration (SDD) contract. Spirit won the approximately $150 million
firm fixed-price contract in May 2007 and delivered the first of seven CH-53K test articles in
December 2010.
Overview
We are one of the largest independent non-OEM (original equipment manufacturer) aircraft parts
designers and manufacturers of commercial aerostructures in the world, based on annual revenues, as
well as the largest independent supplier of aerostructures to Boeing. In addition, we are one of
the largest independent suppliers of aerostructures to Airbus. Boeing and Airbus are the two
largest aircraft OEMs in the world. Aerostructures are structural components, such as fuselages,
propulsion systems and wing systems for commercial and military aircraft. For the three months
ended March 31, 2011, we generated net revenues of $1,049.6 million and net income of $34.6
million.
We are organized into three principal reporting segments: (1) Fuselage Systems, which includes
forward, mid and rear fuselage sections, (2) Propulsion Systems, which includes nacelles,
struts/pylons and engine structural components, and (3) Wing Systems, which includes wings, wing
components, flight control surfaces and other miscellaneous structural parts. All other activities
fall within the All Other segment, principally made up of sundry sales of miscellaneous services,
tooling contracts, and sales of natural gas through a tenancy-in-common with other companies that
have operations in Wichita. The Fuselage Systems segment manufactures products at our facilities
in Wichita, Kansas and Kinston, North Carolina. The Propulsion Systems segment manufactures
products at our facilities in Wichita, Kansas. The Wing Systems segment manufactures products at
our facilities in Tulsa and McAlester, Oklahoma, Prestwick, Scotland, Subang, Malaysia and Kinston,
North Carolina. Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented
approximately 50%, 26%, 23% and 1%, respectively, of our net revenues for the three months ended
March 31, 2011.
New Program Performance
We are currently performing work on several new programs, which are in various stages of
development. Several of these programs have entered flight testing, including the Boeing B787,
Boeing 747-8, Gulfstream G250, and Gulfstream G650 (which includes
the Rolls-Royce BR725), and we
have delivered revenue-generating production units for all of these programs. In addition, we
delivered our first revenue-generating test article on the Sikorsky CH-53K program in December
2010.
Certain of these programs continue to pose a risk of additional charges and/or forward-loss
given the low margins that are currently forecasted and cost pressure that has continued through
the first quarter of 2011. In the first quarter of 2011, we recorded a $28.2 million forward-loss
associated with the development effort on the Sikorsky CH-53K helicopter program. The additional
cost on this program is associated with the decision to proceed with a more traditional design and
build approach to manufacture the remaining six test units. We continue to see risk for cost growth
on this program and as a result are working to mitigate further losses. Recognition of an
additional forward-loss on this program continues to be a significant risk and is dependent upon
our ability to successfully implement our revised design and manufacturing approach. We continue
to perform on the G650 program as we progress through the development stage. Our estimated margins
on the initial Rolls-Royce BR725 contract continue to be zero. The G250 program is experiencing
cost growth as we progress through the certification process. We are currently considering the
restructuring of major cost elements on the G250 program in order to
drive cost savings. Recognition of an additional
forward-loss on this program continues to be a significant risk and is dependent upon our ability
to successfully perform under a revised cost structure as we enter into production. We are also
estimating zero margins on a contract related to the wing
35
portion of the B747-8 program.
The B787
contract profitability will depend on our ability to achieve cost reduction opportunities as we
increase production levels in the coming months and years.
We have revised our contract estimates to reflect break-even margins until we are able to
realize these important cost reduction opportunities. Recognition of a forward-loss on this program continues
to be a significant risk until we realize planned cost reductions through performance initiatives.
During the first quarter of 2011, we updated our profitability estimates resulting in an
aggregate unfavorable cumulative catch-up adjustment of $3.1 million, largely driven by an
adjustment of $6.4 million on our A350 wing contract in Spirit Europe primarily related to
additional engineering costs. We continue to see risk of cost growth on this contract, which would
continue to deteriorate margins.
The
next twelve to twenty-four months will be a critical time for these programs as we manufacture the
initial units and establish baseline performance for the recurring cost structure. If we are not
able to achieve anticipated productivity and cost improvements, or if external factors such as
market demand trend unfavorably, additional charges, including forward-loss reserves, may be
recorded in future periods.
36
Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
|
Three Months |
|
|
Percentage |
|
| |
|
Ended |
|
|
Ended |
|
|
Change to Prior |
|
| |
|
March 31, 2011 |
|
|
April 1, 2010 |
|
|
Year |
|
| |
|
($ in millions) |
|
Net revenues |
|
$ |
1,049.6 |
|
|
$ |
1,043.3 |
|
|
|
1 |
% |
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
928.0 |
|
|
|
901.1 |
|
|
|
3 |
% |
Selling, general and administrative expenses |
|
|
39.0 |
|
|
|
39.3 |
|
|
|
(1 |
%) |
Research and development |
|
|
13.0 |
|
|
|
9.9 |
|
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
69.6 |
|
|
|
93.0 |
|
|
|
(25 |
%) |
Interest expense and financing fee amortization |
|
|
(20.9 |
) |
|
|
(14.0 |
) |
|
|
49 |
% |
Interest income |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0 |
% |
Other income (expense), net |
|
|
1.5 |
|
|
|
(5.5 |
) |
|
|
127 |
% |
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in net loss of affiliates |
|
|
50.3 |
|
|
|
73.6 |
|
|
|
(32 |
%) |
Income tax provision |
|
|
(15.3 |
) |
|
|
(17.8 |
) |
|
|
(14 |
%) |
|
|
|
|
|
|
|
|
|
|
Income before equity in net loss of affiliates |
|
|
35.0 |
|
|
|
55.8 |
|
|
|
(37 |
%) |
Equity in net loss of affiliates |
|
|
(0.4 |
) |
|
|
(0.3 |
) |
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
34.6 |
|
|
$ |
55.5 |
|
|
|
(38 |
%) |
|
|
|
|
|
|
|
|
|
|
For purposes of measuring production or ship set deliveries for Boeing aircraft in a given
period, the term “ship set” refers to sets of structural fuselage components produced or delivered
for one aircraft in such period. For purposes of measuring production or ship set deliveries for
Airbus aircraft in a given period, the term “ship set” refers to all structural aircraft components
produced or delivered for one aircraft in such period. For purposes of measuring production or
ship set deliveries for Business/Regional Jet aircraft in a given period, the term “ship set”
refers to all structural aircraft components produced or delivered for one aircraft in such period.
Other components which are part of the same aircraft ship sets could be produced or shipped in
earlier or later accounting periods than the components used to measure production or ship set
deliveries, which may result in slight variations in production or delivery quantities of the
various ship set components in any given period.
Comparative ship set deliveries by model are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
Three Months |
| |
|
Ended |
|
Ended |
| Model |
|
March 31, 2011 |
|
April 1, 2010 |
B737 |
|
|
93 |
|
|
|
94 |
|
B747 |
|
|
4 |
|
|
|
3 |
|
B767 |
|
|
5 |
|
|
|
3 |
|
B777 |
|
|
16 |
|
|
|
21 |
|
B787 |
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Total Boeing |
|
|
124 |
|
|
|
126 |
|
A320 Family |
|
|
103 |
|
|
|
102 |
|
A330/340 |
|
|
18 |
|
|
|
25 |
|
A380 |
|
|
6 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Total Airbus |
|
|
127 |
|
|
|
128 |
|
Business/Regional Jets (1) |
|
|
8 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
259 |
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Previously included Hawker Beechcraft products only. Now includes Spirit deliveries associated with business and regional jets. |
37
Net revenues by prime customer are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
|
Three Months |
|
| |
|
Ended |
|
|
Ended |
|
| Prime Customer |
|
March 31, 2011 |
|
|
April 1, 2010 |
|
| |
|
(Dollars in millions) |
|
Boeing |
|
$ |
881.4 |
|
|
$ |
903.8 |
|
Airbus |
|
|
116.0 |
|
|
|
102.7 |
|
Other |
|
|
52.2 |
|
|
|
36.8 |
|
|
|
|
|
|
|
|
Total net revenues |
|
$ |
1,049.6 |
|
|
$ |
1,043.3 |
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011 as Compared to Three Months Ended April 1, 2010
Net Revenues. Net revenues for the three months ended March 31, 2011, were $1,049.6 million,
an increase of $6.3 million, or 1%, compared with net revenues of $1,043.3 million for the same
period in the prior year. The increase in net revenues was primarily attributable to an increase of
$15.5 million of non-production revenues, partially offset by a $9.2 million decrease in net
revenues largely driven by fewer B777 ship set deliveries. In addition, the
strengthening dollar during the first quarter of 2011 resulted in a $3.6 million increase in the
value of net revenues from Spirit Europe. Deliveries to Boeing decreased by 2% to 124 ship sets
during the three months ended March 31, 2011, compared to 126 ship sets delivered in the same
period of the prior year, primarily due to fewer B777 ship set deliveries driven by customer
delivery schedule, partially offset by a net increase in ship set deliveries for other Boeing
models. Overall deliveries to Airbus remained relatively unchanged, with 127 ship sets delivered
during the three months ended March 31, 2011, compared to 128 ship sets delivered in the same
period of the prior year. A330 deliveries, which are not a significant source of revenue,
decreased year-over-year driven by customer delivery schedule. In total, ship set deliveries
remained unchanged at 259 ship sets for each of the periods ended March 31, 2011 and April 1, 2010.
Approximately 95% of Spirit’s net revenues for the three months ended March 31, 2011 came from our
two largest customers, Boeing and Airbus.
Cost of Sales. Cost of sales as a percentage of net revenues was 88% for the three months
ended March 31, 2011, compared to 86% for the same period in the prior year. The increase in 2011
is primarily due to a $28.2 million forward-loss on our Sikorsky CH-53K contract and an unfavorable
cumulative catch-up adjustment of $3.1 million. The cumulative catch-up adjustment was largely
driven by an adjustment of $6.4 million on our A350 wing contract in Spirit Europe primarily
related to additional engineering costs, partially offset by improved productivity and efficiencies
in the Propulsion segment. In comparison, we recognized an $8.2 million unfavorable cumulative
catch-up adjustment in the first quarter of 2010, driven by a charge on our Hawker Beechcraft 850XP contract related to the decision to exit
the program, and a charge on our Sikorsky CH-53K contract.
SG&A,
Research and Development. Combined SG&A and research and development costs as a
percentage of net revenues were 5% for each of the three month periods ended March 31, 2011 and
April 1, 2010. SG&A expenses decreased by $0.3 million, or 1%, compared to the same period in the
prior year. Research and development expenses for the three months ended March 31, 2011 were up
$3.1 million, or 31%, compared to the same period in the prior year due to additional B787-9
related research and development expenses.
Operating Income. Operating income for the three months ended March 31, 2011, was $69.6
million, a decrease of $23.4 million, or 25%, compared to operating income of $93.0 million for the
same period in the prior year. Operating income decreased in 2011 primarily due to a $28.2 million
forward-loss on our Sikorsky CH-53K contract, the recognition of a $3.1 million unfavorable
cumulative catch-up adjustment, and additional B787-9 related
research and development expenses.
Interest Expense and Financing Fee Amortization. Interest expense and financing fee
amortization for the three months ended March 31, 2011, includes $18.6 million of interest and fees
paid or accrued in connection with our long-term debt and $2.3 million in amortization of deferred
financing costs, compared to $12.1 million of interest and fees paid or accrued in connection with
our long-term debt and $1.9 million in amortization of deferred financing costs for the same period
in the prior year. The increase in interest expense associated with long-term debt in the first
quarter of 2011 was primarily driven by interest accrued on our 2020 Notes and on our term loan as
outlined in the 2010 amended credit facility. The increase in deferred financing costs was related
to the issuance of our 2020 Notes and the amortization of fees related to the amendment of our
credit facility.
Interest Income. Interest income for each of the three months periods ended March 31, 2011
and April 1, 2010 was $0.1 million.
Other
Income (Expense). Other income for the three months ended
March 31, 2011 was $1.5 million due to favorable changes in foreign exchange rates on intercompany
activity and borrowings, compared to expense of $(5.5) million for the same period in the prior year, driven
38
by unfavorable changes in foreign exchange rates on
intercompany activity. These fluctuations are driven primarily by the intercompany payable from
Spirit Europe to Spirit related to our A350 XWB program, as well as trade payables and borrowings.
Provision for Income Taxes. Our reported tax rate includes two principal components: an
expected annual tax rate and discrete items resulting in additional provisions or benefits that are
recorded in the quarter that an event arises. Events or items that give rise to the discrete
recognition include finalizing amounts in income tax returns filed, finalizing audit examinations
for open tax years, and an expiring statute of limitations.
The income tax provision for the three months ended March 31, 2011 includes $16.1 million for federal income taxes and ($0.8) million for foreign taxes. The income tax provision for the three months ended April 1, 2010 includes $19.1 million for federal income taxes, ($0.5) million for state taxes and ($0.8) million for foreign taxes. The effective tax rate for the three months
ended March 31, 2011 was 30.4% as compared to 24.2% for the same period in 2010. The increase in
the effective tax rate recorded for the three months ended March 31, 2011 is related primarily to
favorably settling the 2005 and 2006 U.S. Federal examinations last year, partially offset by the
Research Credit reinstated on December 17, 2010.
Segments. The following table shows segment revenues for the three months ended March 31,
2011, compared to the three months ended April 1, 2010:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Three Months Ended |
|
| |
|
March 31, 2011 |
|
|
April 1, 2010 |
|
| |
|
($ in millions) |
|
Segment Revenues |
|
|
|
|
|
|
|
|
Fuselage
Systems |
|
$ |
528.0 |
|
|
$ |
516.2 |
|
Propulsion Systems |
|
|
273.0 |
|
|
|
274.4 |
|
Wing Systems |
|
|
244.9 |
|
|
|
248.9 |
|
All Other |
|
|
3.7 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
$ |
1,049.6 |
|
|
$ |
1,043.3 |
|
|
|
|
|
|
|
|
Segment Operating Income |
|
|
|
|
|
|
|
|
Fuselage
Systems (1) |
|
$ |
47.0 |
|
|
$ |
75.9 |
|
Propulsion Systems |
|
|
40.8 |
|
|
|
33.6 |
|
Wing Systems |
|
|
17.4 |
|
|
|
18.9 |
|
All Other |
|
|
— |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
105.2 |
|
|
|
128.7 |
|
Unallocated corporate SG&A |
|
|
(35.1 |
) |
|
|
(35.0 |
) |
Unallocated research and development |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
Total operating income |
|
$ |
69.6 |
|
|
$ |
93.0 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Net of $28.2 forward-loss recorded in the first quarter of
2011 for the Sikorsky CH-53K
program. |
Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately
50%, 26%, 23% and 1% respectively, of our net revenues for the three months ended March 31, 2011.
Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately 45%,
39%, 16% and less than 1%, respectively, of our operating income before unallocated corporate
expenses for the three months ended March 31, 2011.
Fuselage Systems. Fuselage Systems segment net revenues for the three months ended March 31,
2011, were $528.0 million, an increase of $11.8 million, or 2%, compared to the same period in the
prior year. This reflects an increase in net revenues due to model mix, which was partially offset
by fewer B777 ship set deliveries in the first quarter of 2011. Fuselage Systems posted segment operating margins of
9% for the first three months of 2011, down from 15% segment operating margins for the same period
in the prior year, primarily due to a $28.2 million forward-loss on our Sikorsky CH-53K contract.
In the first quarter of 2011, the segment realized a favorable cumulative catch-up adjustment of
$0.1, as compared to $4.6 million unfavorable cumulative catch-up adjustment realized in the first
quarter of 2010 driven by a charge on our Sikorsky CH-53K contract.
Propulsion Systems. Propulsion Systems segment net revenues for the three months ended March
31, 2011 were $273.0 million, a decrease of $1.4 million, or 1%, compared to the same period in the
prior year. This reflects lower net revenues due to model mix and fewer B777 ship
39
set deliveries
in the first quarter of 2011. Propulsion Systems posted segment operating margins of 15% for the
first
three months of 2011, up from 12% for the same period in the prior year. In the first quarter
of 2011, the segment realized a favorable cumulative catch-up adjustment of $2.5 million, primarily
driven by productivity and efficiency improvements and additional aftermarket volume, as compared
to no cumulative catch-up adjustment in the same period in 2010.
Wing Systems. Wing Systems segment net revenues for the three months ended March 31, 2011,
were $244.9 million, a decrease of $4.0 million, or 2%, compared to the same period in the prior
year. This reflects lower net revenues due to model mix. Wing Systems posted operating margins of
7% for the first three months of 2011, down from 8% for the same period in the prior year. During
the first quarter of 2011, the segment realized an unfavorable cumulative catch-up adjustment of
$5.7 million, primarily driven by an adjustment of $6.4 million on our A350 wing
contract in Spirit Europe primarily related to additional
engineering costs, partially offset by favorable performance on mature programs. In
comparison, we realized a $3.6 unfavorable cumulative catch-up adjustment in the same period in
2010 driven by a charge on our Hawker Beechcraft 850XP contract related to the decision to exit the
program.
All Other. All Other segment net revenues consist of sundry sales of miscellaneous services,
tooling contracts, and revenues from the Kansas Industrial Energy Supply Company, or KIESC. For the
three months ended March 31, 2011, All Other segment net revenues were $3.7 million, a decrease of
$0.1 million, or 3%, compared to the same period in the prior year. The All Other segment recorded
zero operating margins for the first three months of 2011 down from 8% segment operating margins
for the same period in the prior year.
Liquidity and Capital Resources
The
primary sources of our liquidity include cash flow from operations,
which include cash on hand, advance
payments and receivables from customers, borrowings available under our revolving credit facility
and proceeds from our bond issuances. Our liquidity requirements and working capital needs depend
on a number of factors, including delivery rates and payment terms under our contracts, the level
of research and development expenditures related to new programs, capital expenditures, growth and
contractions in the business cycle, contributions to our union-sponsored benefit plans and interest
and principal payments on our indebtedness.
As
of March 31, 2011, we had $310.9 million of cash and cash equivalents on the balance sheet
and $629.6 million of available borrowing capacity under our revolving credit facility. Based on
our planned levels of operations and our strong liquidity position, we currently expect that our
cash on hand, cash flow from operations and borrowings available under our revolving credit
facility will be sufficient to fund our operations, inventory growth, planned capital investments,
research and development expenditures and scheduled debt service payments for at least the next
twelve months.
Cash Flows
The following table provides a summary of our cash flows for the three months ended March 31, 2011
and April 1, 2010:
| |
|
|
|
|
|
|
|
|
| |
|
For the Three Months Ended |
|
| |
|
March 31, 2011 |
|
|
April 1, 2010 |
|
| |
|
($ in millions) |
|
Net income |
|
$ |
34.6 |
|
|
$ |
55.5 |
|
Adjustments to reconcile net income |
|
|
41.0 |
|
|
|
26.7 |
|
Changes in working capital |
|
|
(203.7 |
) |
|
|
(192.4 |
) |
|
|
|
|
|
|
|
Net cash (used in) operating activities |
|
|
(128.1 |
) |
|
|
(110.2 |
) |
Net cash (used in) investing activities |
|
|
(41.2 |
) |
|
|
(70.0 |
) |
Net cash (used in) financing activities |
|
|
(1.9 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
Effect of exchange rate change on cash and cash equivalents |
|
|
0.5 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents for the period |
|
|
(170.7 |
) |
|
|
(182.4 |
) |
Cash and cash equivalents, beginning of period |
|
|
481.6 |
|
|
|
369.0 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
310.9 |
|
|
$ |
186.6 |
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011 as Compared to Three Months Ended April 1, 2010
Operating Activities. For the three months ended March 31, 2011,
we had a net cash outflow of $128.1 million from operating activities, an increase in outflow of
$17.9 million, compared to a net cash outflow of $110.2 million for the same period in the prior
year. The increase in cash used in operating activities in 2011 was primarily due to new program
inventory growth, partially offset by a deferred revenue payment
received in the first quarter of
2011, timing of liabilities, and favorable tax impacts. Our overall
trend of inventory growth is driven primarily by our contractually required investments in new programs
which include the Boeing B787, Gulfstream G250 and G650, Airbus A350
XWB,
40
Sikorsky CH-53K and Rolls-Royce BR725 programs. The contracts for these new
programs accounted for an increase in inventory for the three months ended March 31, 2011 of
$123.1 million, which includes the reduction in inventory of $28.2 million related to the Sikorsky
CH-53K forward-loss recorded in the first quarter of 2011, as compared to a $114.2 million increase
in inventory in the same period in the prior year. We expect these programs will continue to drive
inventory growth in 2011 as we incur additional up-front costs to produce initial units, which
traditionally have a higher cost. The mature Boeing and Airbus program inventories increased $40.8
million for the three months ended March 31, 2011, compared with a $13.9 million increase for these
contracts in the same period in the prior year. In the first quarter of 2011, inventory balances
on remaining programs decreased $19.4 million, including non-program specific inventory, as
compared to a $48.8 million decrease for the same period in the prior year.
As a component of the increase in inventory, the amount related to the B787 program increased
by $43.8 million in the first quarter of 2011, compared to a $45.7 million increase in the same
period of 2010. Deferred production balances increased by $46.2 million in the first quarter of
2011, compared to an $89.2 million increase in the same period of 2010 as a result of delivery of
six B787 ship sets in 2011 as compared to five ship set deliveries in the same period of 2010.
Deferred production per unit also decreased reflecting the decreasing manufacturing cost per unit.
Deferred production costs represent the deferral of excess-over-average costs over the production
block. The revenue we recognized upon delivery of B787 ship sets in the first quarter of both 2011
and 2010 did not result in cash receipts, resulting instead in the liquidation of customer
advances. This will continue until cash payments for the B787 units resume, which is expected to
occur prior to the delivery of the 50th unit. Additionally, increases in inventory related to the
B787 will continue to consume incremental amounts of cash until the cost to build a ship set falls
below the ship set price recognized at delivery.
Investing Activities. For the three months ended March 31, 2011, we had a
net cash outflow of $41.2 million from investing activities, a decrease in outflow of $28.8
million, as compared to a net cash outflow of $70.0 million for the same period in the prior year.
During the first quarter of 2011, we invested $41.5 million in property, plant and equipment,
software and program tooling, which was $27.7 million lower than during the same period in the
prior year, due to the completion of our facilities in Kinston, North Carolina and Saint-Nazaire,
France in 2010.
Financing Activities. For the three months ended March 31, 2011, we had a
net cash outflow of $1.9 million from financing activities, a decrease in outflow of $0.1 million,
compared to a net cash outflow of $2.0 million for the same period in the prior year. Principal
debt payments were comparable year-over-year.
Future Cash Needs and Capital Spending
Our primary future cash needs will consist of working capital, debt service, research and
development and capital expenditures. We expend significant capital on research and development
during the start-up phase of new programs, to develop new technologies for next generation aircraft
and to improve the manufacturing processes of aircraft already in production. Research and
development expenditures totaled approximately $13.0 million and $9.9 million for the three months
ended March 31, 2011 and April 1, 2010, respectively.
We anticipate reaching maximum capacity for certain programs, and are evaluating various plans
to relieve capacity constraints for the announced customer production rate increases. Capital
expenditures totaled approximately $41.5 million and $69.2 million for the three months ended March
31, 2011 and April 1, 2010, respectively. We expect to fund future capital expenditures from cash
on hand, from operations and borrowings available under our revolving credit facility.
Pension and Other Post — Retirement Benefit Obligations
Our U.S. pension plan remained fully funded at March 31, 2011. Our plan investments are
broadly diversified and we do not anticipate a near-term requirement to make cash contributions to
our U.S. pension plan. We continue to make contributions to our U.K. pension plan. Our projected
contributions to the U.K. pension plan for 2011 are $8.0 million.
Debt and Other Financing Arrangements
Senior Secured Credit Facilities. We are a party to a credit agreement that consists of a
senior secured term loan and a senior secured revolving line of credit. On October 15, 2010, we
entered into Amendment No. 3 to the credit agreement. As a result of the amendment, among other
things, the revolving credit commitment was increased from $408.8 million to $650.0 million and the
maturity date of the revolving credit commitment was extended to September 30, 2014. The credit
agreement amendment also extended the maturity date for $437.4 million of the outstanding term loan
to September 30, 2016. The maturity date for the $130.2 million balance of the outstanding term
loan remained at September 30, 2013. The entire asset classes of Spirit, including inventory and
property, plant and equipment, are pledged as collateral for both the term loan and the revolving
credit facility. As of March 31, 2011, we were and expect to continue to be in full compliance
with all covenants contained within our credit agreement. As of March 31, 2011, approximately
$564.7 million was outstanding under the term loan,
41
no borrowings were outstanding under the
revolving credit facility and $20.4 million of letters of credit were outstanding.
Revolving credit borrowings bear interest at a rate equal to, at Spirit’s option, (a) a base
rate determined by reference to the highest of (1) the prime rate of our administrative agent
(currently Bank of America, N.A.), (2) the federal funds rate plus 1/2 of 1.0%, and (3) LIBOR for
an interest period of one month commencing on such date plus 1.0%, in each case plus an applicable
margin, or (b) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits
for the interest period relevant to such borrowing adjusted for certain additional costs, plus an
applicable margin. As of the issue date, the applicable margin with respect to base rate borrowings
under this portion of the revolving credit facility is 2.50% and the applicable margin with respect
to LIBOR rate borrowings under this portion of the revolving credit facility is 3.50%. The
applicable margin for borrowings under this portion of the revolving credit facility are subject to
adjustment based on our consolidated total leverage, and may range from 2.00% to 3.00% with respect
to base rate borrowings and from 3.00% to 4.00% with respect to LIBOR rate borrowings. At March 31,
2011, the Company’s total leverage ratio was 2.47:1.0 resulting in applicable margins of 3.5% per
annum on LIBOR borrowings on Extending Revolving Loans and margins of 2.5% per annum on alternative
base rate borrowings on Extending Revolving Loans.
In addition to paying interest on outstanding principal under the senior secured credit
facility, Spirit is required to pay an unused line fee of 75 basis points on the unused portion of
the commitments under the revolving credit facility. Spirit is required to pay participation fees
equal to the applicable margin for LIBOR rate revolving credit borrowings with respect to letters
of credit issued under the revolving credit facility. Spirit is also required to pay to the
issuing banks under its senior secured credit facility letter of credit fronting fees in respect of
letters of credit equal to 25 basis points per year, and to the administrative agent thereunder
customary administrative fees.
Senior Notes. On November 18, 2010, we issued $300.0 million aggregate of
63/4% Senior Notes due 2020 (the “2020 Notes”), with interest payable on June
15 and December 15 of each year, beginning June 15, 2011. The 2020 Notes are fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and
Spirit’s existing and future domestic subsidiaries that guarantee Spirit’s obligations under
Spirit’s senior secured credit facility. The Company used the proceeds to repay borrowings under
its existing senior secured revolving credit facility without any reduction of the lenders’
commitment thereunder, for general corporate purposes and to pay fees and expenses incurred in
connection with the offering. The carrying value of the 2020 Notes was $300.0 million as of March
31, 2011.
On September 30, 2009, we issued $300.0 million of 7 1/2% Senior Notes due October 1, 2017
(the “2017 Notes”), with interest payable on April 1 and October 1 of each year, beginning April 1,
2010. The 2017 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior
unsecured basis by the Company and Spirit’s existing and future domestic subsidiaries that
guarantee Spirit’s obligations under Spirit’s senior secured credit facility. The carrying value of
the 2017 Notes was $294.4 million as of March 31, 2011.
As of March 31, 2011, we were and expect to continue to be in full compliance with all
covenants contained in the indentures governing the 2020 Notes and the 2017 Notes.
Advances and Deferred Revenue on the B787 Program. We are required to repay Boeing a 2007
interest free cash advance of $700.0 million made to us under the original B787 Supply Agreement,
in the amount of a $1.4 million offset against the purchase price of each of the first five hundred
B787 ship sets delivered to Boeing. In the event that Boeing does not take delivery of five hundred
B787 ship sets prior to the termination of the aircraft program, any advances not then repaid will
first be applied against any outstanding B787 payments then due by Boeing to us, with any remaining
balance to be repaid at the rate of $84.0 million per year beginning in the year in which we
deliver our final B787 production ship set to Boeing, prorated for the remaining portion of the
year in which we make our final delivery.
On March 26, 2008, Boeing and Spirit amended their existing B787 Supply Agreement to, among
other things, require Boeing to make additional advance payments to Spirit in 2008 in the amount of
$396.0 million for production articles. The additional advances will be applied against the full
purchase price of the ship sets delivered (net of the $1.4 million per ship set applied against the
initial $700.0 million of advances described above) until fully repaid, which is expected to occur
before the delivery of the 50th ship set. In the event that Boeing does not take delivery of a
sufficient number of ship sets to repay the additional advances by the end of the aircraft program,
any additional advances not then repaid will first be applied against any outstanding B787 payments
then due by Boeing to us, with any remaining balance repaid beginning the year in which we deliver
our final B787 production ship set to Boeing, with the full amount to be repaid no later than the
end of the subsequent year.
On June 23, 2009, Boeing and Spirit further amended their existing B787 Supply Agreement to,
among other things, require Boeing to make additional advances to Spirit for certain non-recurring
derivatives and mission improvement (D/MI) work. These additional advances will be paid to Spirit
quarterly for non-recurring work, in amounts determined pursuant to pricing provisions set forth in
the agreement, and will be recovered over future units. In the event that Boeing does not take
delivery of a sufficient number of ship sets to recover these additional
42
advances by the end of
2021, Spirit would be required to repay any outstanding balance in six equal annual installments.
The first D/MI advance payment was made to Spirit in August 2009, with subsequent payments each
quarter thereafter.
In December 2010, Spirit and Boeing entered into a memorandum of agreement and a settlement
agreement. As part of these agreements, Spirit received a payment in December which has been
recorded as deferred revenue (short-term) within the consolidated balance sheet pending
finalization of a contract amendment which would contain the final settlement terms for claims
under the B787 contract between Spirit and Boeing. If the final contract amendment is not agreed
to by the second quarter of 2011, Boeing may require reimbursement or set-off of the payment over a
short or long-term period of time. This final amendment may contain provisions that alter the
current structure of repayment for the advances described in this section.
North Carolina Grant. On May 14, 2008, we entered into an Inducement Agreement, a
Construction Agency Agreement and a Lease Agreement with The North Carolina Global TransPark
Authority (“GTPA”) for the construction and lease of a manufacturing facility in Kinston, North
Carolina (the “NC Facility”). The lease is for an initial term of 22 years, with options for up to
four additional 20-year terms, and provides nominal rental payments. The grand opening of the
facility was held July 1, 2010. Construction was funded from a $100.0 million grant, awarded to
GTPA by the Golden L.E.A.F. (Long-Term Economic Advancement Foundation), Inc. Under the agreements,
Spirit is obligated to make a minimum capital investment of $80.0 million by 2014. Failure to make
the additional required investment or meet certain performance criteria, including creation of
targeted number of jobs, will result in additional payments to GTPA in future periods. As of March
31, 2011, $100.0 million of the grant funding had been disbursed and $100.0 million of Spirit’s
obligated capital investment had been made, and we expect to meet all performance criteria. We
currently manufacture a portion of the fuselage and the Composite Front Spar for the new Airbus
A350 XWB aircraft at the NC Facility.
Malaysian Facility Agreement. On June 2, 2008, Spirit Malaysia entered into a Facility
Agreement (“Facility Agreement”) for a term loan facility for Ringgit Malaysia RM 69.2 million
(approximately USD $20.0 million equivalent) (the “Malaysia Facility”), with the Malaysian
Export-Import Bank. The Malaysia Facility requires quarterly principal repayments of RM 3.3 million
(USD $1.0 million) from September 2011 through May 2017 and quarterly interest payments payable at
a fixed interest rate of 3.5% per annum. The Malaysia Facility loan balance as of March 31, 2011
was $18.4 million.
Saint-Nazaire Project Capital Lease Agreement. On July 17, 2009, the Company’s indirect
wholly-owned subsidiary, Spirit AeroSystems France SARL (“Spirit France”) entered into a capital
lease agreement for €9.0 million (approximately USD $13.1 million equivalent) with a subsidiary of
BNP Paribas Bank to be used towards the construction of an assembly plant in Saint-Nazaire, France
(the “Saint-Nazaire Project”). The Saint-Nazaire Project was completed in the fourth quarter of
2010 and is expected to be operational during 2011. Lease payments are variable, subject to the
three month Euribor rate plus 2.2%. Lease payments under the agreement are due quarterly through
April 2025. As of March 31, 2011, the Saint-Nazaire project capital lease balance was $13.0
million.
Credit Ratings
Our corporate credit ratings at Standard & Poor’s Rating Services and Moody’s Investor Service
remain unchanged at BB and Ba2, respectively.
Our credit ratings are reviewed periodically by the rating agencies listed above.
The credit rating agencies consider many factors when assigning their ratings, such as the
global economic environment and its possible impact on our financial performance, including certain
financial metrics used by the rating agencies in determining our credit ratings. Accordingly, it
is possible the rating agencies could downgrade our credit ratings from their current levels. This
could significantly influence the interest rate of any future debt financings.
A
debt security credit rating is not a recommendation to buy, sell or hold a security. Each
rating is subject to revision or withdrawal at any time by the assigning rating organization. Each
rating agency has its own methodology for assigning ratings. Accordingly, each rating should be
considered independent of other ratings.
43
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain “forward-looking statements” that may involve many
risks and uncertainties. Forward-looking statements reflect our current expectations or forecasts
of future events. Forward-looking statements generally can be identified by the use of
forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “intend,”
“estimate,” “believe,” “project,” “continue,” “plan,” “forecast,” or other similar words, or the
negative thereof, unless the context requires otherwise. These statements reflect management’s
current views with respect to future events and are subject to risks and uncertainties, both known
and unknown. Our actual results may vary materially from those anticipated in forward-looking
statements. We caution investors not to place undue reliance on any forward-looking statements.
Important factors that could cause actual results to differ materially from those reflected in
such forward-looking statements and that should be considered in evaluating our outlook include,
but are not limited to, the following:
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• |
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our ability to continue to grow our business and execute our growth strategy, including
the timing and execution of new programs; |
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• |
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our ability to perform our obligations and manage costs related to our new commercial and
business aircraft development programs and the related recurring production; |
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potential reduction in the build rates of certain Boeing aircraft including, but not
limited to, the B737 program, the B747 program, the B767 program, the B777 program, and build rates of the Airbus A320 and A380 programs, which could be
negatively impacted by continuing weakness in the global economy and economic challenges
facing commercial airlines, and by a lack of business and consumer confidence and the impact
of continuing instability in the global financial and credit markets, including, but not
limited to, sovereign debt concerns in Europe; |
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• |
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the inability to resolve significant claims with Boeing related to non-recurring and
recurring costs on the B787 program; |
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• |
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declining business jet manufacturing rates and customer cancellations or deferrals as a
result of the weakened global economy; |
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the success and timely execution of key milestones such as certification and delivery of
Boeing’s new B787 and Airbus’ new A350 XWB (Xtra Wide-Body) aircraft programs, including
first flight for the Airbus A350 XWB, receipt of necessary regulatory approvals and customer
adherence to their announced schedules; |
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• |
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our ability to enter into supply arrangements with additional customers and the ability
of all parties to satisfy their performance requirements under existing supply contracts
with Boeing and Airbus, our two major customers, and other customers and the risk of
nonpayment by such customers; |
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any adverse impact on Boeing’s and Airbus’ production of aircraft resulting from
cancellations, deferrals or reduced orders by their customers or from labor disputes or acts
of terrorism; |
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any adverse impact on the demand for air travel or our operations from the outbreak of
diseases or epidemic or pandemic outbreaks; |
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returns on pension plan assets and the impact of future discount rate changes on pension
obligations; |
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our ability to borrow additional funds or refinance debt; |
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competition from original equipment manufacturers and other aerostructures suppliers; |
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the effect of governmental laws, such as U.S. export control laws and anti-bribery laws
such as the Foreign Corrupt Practices Act, environmental laws and agency regulations, both
in the U.S. and abroad; |
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the cost and availability of raw materials and purchased components; |
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our ability to successfully extend or renegotiate our primary collective bargaining
contracts with our labor unions; |
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our ability to recruit and retain highly skilled employees and our relationships with the
unions representing many of our employees; |
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spending by the U.S. and other governments on defense; |
44
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the possibility that our cash flows and borrowing facilities may not be adequate for our
additional capital needs or for payment of interest on and principal
of our indebtedness and the possibility that we may be unable to
borrow funds or refinance debt; |
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our exposure under our existing senior secured revolving credit facility to higher
interest payments should interest rates increase substantially; |
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the effectiveness of our interest rate and foreign currency hedging programs; |
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the outcome or impact of ongoing or future litigation and regulatory actions; and |
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our exposure to potential product liability and warranty claims. |
These factors are not exhaustive and it is not possible for us to predict all factors that
could cause actual results to differ materially from those reflected in our forward-looking
statements. These factors speak only as of the date hereof, and new factors may emerge or changes
to the foregoing factors may occur that could impact our business. As with any projection or
forecast, these statements are inherently susceptible to uncertainty and changes in circumstances.
Except to the extent required by law, we undertake no obligation to, and expressly disclaim any
obligation to, publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. You should review carefully the sections captioned “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in our 2010 Form 10-K for a more complete discussion of these and other factors that
may affect our business.
45
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 commodity pricing, interest rates, and foreign currency exchange rates,
which impact the amount of interest we must pay on our variable rate debt. In addition to other
information set forth in this report, you should carefully consider the factors discussed in Item
7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our 2010 Form 10-K, which
could materially affect our business, financial condition or results of operations. There have
been no material changes to our market risk since the filing of our 2010 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our President and Chief Executive Officer and Senior Vice President and Chief Financial
Officer have evaluated our disclosure controls as of March 31, 2011 and have concluded that these
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934) are effective to provide reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time period specified in the Securities and
Exchange Commission rules and forms. These disclosure controls and procedures include, without
limitation, controls and procedures designed to provide reasonable assurance that information
required to be disclosed by us in the reports we file or submit is accumulated and communicated to
management, including the President and Chief Executive Officer and the Senior Vice President and
Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during
the first quarter of 2011 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Part II — OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding any recent material development relating to our legal proceedings since
the filing of our 2010 Form 10-K is included in Note 18 to our condensed consolidated financial
statements included in part I of this Quarterly Report and is incorporated herein by reference.
Item 1A. Risk Factors
In addition to other information set forth in this Quarterly Report, you should carefully
consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our 2010 Form 10-K, which
could materially affect our business, financial condition or results of operations. Other than the
modifications to the risk factors set forth below, there have been no material changes to the
Company’s risk factors previously disclosed in our 2010 Form 10-K.
Because we depend on Boeing and, to a lesser extent, Airbus, as our largest customers, our sales,
cash flows from operations and results of operations will be negatively affected if either Boeing
or Airbus reduces the number of products it purchases from us or if either experiences business
difficulties.
Currently, Boeing is our largest customer and Airbus is our second-largest customer. For
the twelve months ended December 31, 2010, approximately 83% and 11% of our net revenues were
generated from sales to Boeing and Airbus, respectively. Although our strategy, in part, is to
diversify our customer base by entering into supply arrangements with additional customers, we
cannot give any assurance that we will be successful in doing so. Even if we are successful in
obtaining and retaining new customers, we expect that Boeing and, to a lesser extent, Airbus, will
continue to account for a substantial portion of our sales for the foreseeable future. Although we
are a party to various supply contracts with Boeing and Airbus which obligate Boeing and Airbus to
purchase all of their requirements for certain products from us, those agreements generally do not
require specific minimum purchase volumes. In addition, if we breach certain obligations under
these supply agreements and Boeing or Airbus exercises its right to terminate such agreements, our
business will be materially adversely affected. Boeing and Airbus have the contractual right to
cancel their supply agreements with us for convenience, which could include the termination of one
or more aircraft models or programs for which we supply products. Although Boeing and Airbus would
be required to reimburse us for certain expenses, there can be no assurance these payments would
adequately cover our expenses or lost profits resulting from the termination. In addition, we have
agreed to a limitation on recoverable damages if Boeing wrongfully terminates our main supply
agreement with respect to any model or program.
46
If this occurs, we may not be able to recover the
full amount of our actual damages. Furthermore, if Boeing or Airbus (1) experiences a decrease in
requirements for the products which we supply to it; (2) experiences a major disruption in its
business, such as a strike, work stoppage or slowdown,
a supply-chain problem or a decrease in orders from its customers; or (3) files for bankruptcy
protection; our business, financial condition and results of operations could be materially
adversely affected.
Both Boeing and Airbus contract with Japanese suppliers for parts for their commercial
airplanes. In particular, Boeing contracts with Japanese suppliers to produce major aerostructures
for the B787. If, as a result of the effects of the earthquake and tsunami that occurred recently
in Japan, any of Boeing’s or Airbus’ Japanese suppliers are unable to deliver sufficient quantities
of parts in a timely manner, it could result in a slowdown of production of certain Boeing or
Airbus aircraft, which could have a material adverse impact on our results of operations.
Interruptions in deliveries of components or raw materials, or increased prices for components or
raw materials used in our products could delay production and/or materially adversely affect our
financial performance, profitability, margins and revenues.
We are highly dependent on the availability of essential materials and purchased
components from our suppliers, some of which are available only from a sole source or limited
sources. Our dependency upon regular deliveries from particular suppliers of components and raw
materials means that interruptions or stoppages in such deliveries could materially adversely
affect our operations until arrangements with alternate suppliers, to the extent alternate
suppliers exist, could be made. If any of our suppliers were unable or refused to deliver materials
to us for an extended period of time, or if we were unable to negotiate acceptable terms for the
supply of materials with these or alternative suppliers, our business could suffer.
Moreover, we are dependent upon the ability of our suppliers to provide materials and
components that meet specifications, quality standards and delivery schedules. Our suppliers’
failure to provide expected raw materials or component parts that meet our technical specifications
could adversely affect production schedules and contract profitability. We may not be able to find
acceptable alternatives, and any such alternatives could result in increased costs for us and
possible forward losses on certain contracts. Even if acceptable alternatives are found, the
process of locating and securing such alternatives might be disruptive to our business and might
lead to termination of our supply agreements with our customers.
Our continued supply of materials is subject to a number of risks including:
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the destruction of our suppliers’ facilities or their distribution infrastructure; |
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a work stoppage or strike by our suppliers’ employees; |
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the failure of our suppliers to provide materials of the requisite quality or in compliance with specifications; |
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the failure of essential equipment at our suppliers’ plants; |
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the failure of our suppliers to satisfy U.S. and international import and export control laws for goods that we
purchase from such suppliers; |
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the failure of suppliers to meet regulatory standards; |
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the failure, shortage or delays in the delivery of raw materials to our suppliers; |
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contractual amendments and disputes with our suppliers; and |
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inability of suppliers to perform as a result of the weakened global economy or otherwise. |
We contract with a number of suppliers in Japan. As a result of the effects of the
earthquake and tsunami that occurred recently in Japan, our Japanese suppliers may be unable to
deliver sufficient quantities of components or may be unable to deliver components in a timely
manner, which could materially adversely affect our results of operations.
In addition, our profitability is affected by the prices of the components and raw
materials, such as titanium, aluminum and carbon fiber, used in the manufacturing of our products.
These prices may fluctuate based on a number of factors beyond our control, including world oil
prices, changes in supply and demand, general economic conditions, labor costs, competition, import
duties, tariffs, currency exchange rates and, in some cases, government regulation. Although our
supply agreements with Boeing and Airbus allow us to pass on certain unusual increases in component
and raw material costs in limited situations, we may not be fully compensated by the customer for
the entirety of any such increased costs.
47
Item 6. Exhibits
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| Article I. |
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|
| Exhibit |
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|
| Number |
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Section 1.01 Exhibit |
10.33*
|
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Consulting Agreement, effective January 1,
2011, between Spirit AeroSystems, Inc. and
Ronald C. Brunton. |
|
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10.34*
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Spirit AeroSystems Holdings, Inc. Amended and Restated Deferred Compensation Plan, As Amended.
|
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31.1*
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Certification of Chief Executive Officer
pursuant to Section 302 of Sarbanes-Oxley
Act of 2002. |
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31.2*
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Certification of Chief Financial Officer
pursuant to Section 302 of Sarbanes-Oxley
Act of 2002. |
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32.1**
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Certification of Chief Executive Officer
pursuant to Section 906 of Sarbanes-Oxley
Act of 2002. |
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32.2**
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|
Certification of Chief Financial Officer
pursuant to Section 906 of Sarbanes-Oxley
Act of 2002. |
|
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101.INS**
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XBRL Instance Document. |
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101.SCH**
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XBRL Taxonomy Extension Schema Document. |
|
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101.CAL**
|
|
XBRL Taxonomy Extension Calculation Linkbase
Document. |
|
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101.DEF**
|
|
XBRL Taxonomy Extension Definition Linkbase
Document. |
|
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|
101.LAB**
|
|
XBRL Taxonomy Extension Label Linkbase
Document. |
|
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|
101.PRE**
|
|
XBRL Taxonomy Extension Presentation
Linkbase Document. |
|
|
|
| * |
|
Filed herewith |
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| ** |
|
Furnished herewith |
48
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.
| |
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| Signature |
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Title |
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Date |
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/s/ Philip D. Anderson
Philip D. Anderson
|
|
Senior Vice President and Chief
Financial
Officer (Principal
Financial Officer)
|
|
May 6, 2011 |
49