e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2010
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Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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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
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(State of
Incorporation)
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(I.R.S. Employer
Identification Number)
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3801
South Oliver
Wichita, Kansas 67210
(Address
of principal executive offices and zip code)
Registrants
telephone number, including area code:
(316) 526-9000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Class A Common Stock, $0.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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 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)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the closing price of
the class A common stock on July 1, 2010, as reported
on the New York Stock Exchange was approximately $2,022,363,097.
As of February 16, 2011, the registrant had outstanding
107,376,743 shares of class A common stock,
$0.01 par value per share, and 34,781,526 shares of
class B common stock, $0.01 par value per share.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement for the 2011
Annual Meeting of Stockholders to be filed not later than
120 days after the end of the fiscal year covered by this
Report are incorporated herein by reference in Part III of
this Annual Report on
Form 10-K.
CAUTIONARY
STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains 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 managements
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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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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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 the B787
program, and build rates of the Airbus A320, A350 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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our ability to reach a final settlement agreement with Boeing
related to non-recurring and recurring costs on the B787 program;
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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 Boeings new B787 and
Airbus new A350 XWB (Xtra Wide-Body) aircraft programs,
including receipt of necessary regulatory approvals and customer
adherence to their announced schedules;
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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 Boeings 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 leverage, including variable rate debt, and 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, 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;
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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;
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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 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.
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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
Managements Discussion and Analysis of Financial
Condition and Results of Operations in this Annual Report
for a more complete discussion of these and other factors that
may affect our business.
2
PART I
Our
Company
Unless the context otherwise indicates or requires, as used in
this Annual Report, references to we,
us, our or the Company refer
to Spirit AeroSystems Holdings, Inc., its subsidiaries and
predecessors. References to Spirit refer only to our
subsidiary, Spirit AeroSystems, Inc., and references to
Spirit Holdings or Holdings refer only
to Spirit AeroSystems Holdings, Inc. References to
Boeing refer to The Boeing Company and references to
Airbus refer to Airbus S.A.S., a division of
European Aeronautic Defense & Space NV
(Airbus).
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 twelve months ended
December 31, 2010, we generated net revenues of
$4,172.4 million, and had net income of $218.9 million.
Spirit Holdings was formed in February 2005 as a holding company
for Spirit. Spirits operations commenced on June 17,
2005, following the acquisition by an investor group led by Onex
Partners LP and Onex Corporation (Onex), of
Boeings commercial aerostructures manufacturing operations
in Wichita, Kansas and Tulsa and McAlester, Oklahoma, referred
to in this Report as Boeing Wichita. The acquisition
of Boeing Wichita is referred to in this Report as the
Boeing Acquisition. Although Spirit began operations
as a stand-alone company in 2005, its predecessor, Boeing
Wichita (thePredecessor), had 75 years of
operating history and expertise in the commercial and military
aerostructures industry. Spirit Holdings, Spirits parent
company, has had publicly traded shares on the New York Stock
Exchange under the ticker SPR since November 2006.
Onex continues to hold approximately 93% of the class B
shares, which represents approximately 74% of total Spirit
Holdings stockholder voting power.
On April 1, 2006, we became a supplier to Airbus through
our acquisition of the aerostructures division of BAE Systems
(Operations) Limited, referred to in this Report as BAE
Systems. The acquired division of BAE Systems is referred
to as BAE Aerostructures, and the acquisition of BAE
Aerostructures is referred to as the BAE Acquisition.
We manufacture aerostructures for every Boeing commercial
aircraft currently in production, including the majority of the
airframe content for the Boeing B737, the most popular major
commercial aircraft in history. As a result of our unique
capabilities both in process design and composite materials, we
were awarded a contract that makes us the largest aerostructures
content supplier on the Boeing B787, Boeings next
generation twin aisle aircraft. In addition, we are one of the
largest content suppliers of wing systems for the Airbus A320
family, and we are a significant supplier for the Airbus A380,
and will be a significant supplier for the new Airbus A350 XWB
after the development stage of the program. Sales related to the
large commercial aircraft market, some of which may be used in
military applications, represented approximately 94% of our net
revenues for the twelve-month period ended December 31,
2010.
We derive our revenues primarily through long-term supply
agreements with Boeing and Airbus. 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. We are currently the sole-source supplier of 96%
of the products we sell to Boeing and Airbus, as measured by the
dollar value of products sold. We are a critical partner to our
customers due to the broad range of products we currently supply
to them and our leading design and manufacturing capabilities
using both metallic and composite materials. Under our supply
agreements with Boeing and Airbus, we supply products for the
life of the aircraft program (other than the A350 XWB and A380),
including commercial derivative models. For the A350 XWB and
A380, we have long-term requirements contracts with Airbus that
cover a fixed number of product units at established prices.
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Our
History
In December 2004 and February 2005, an investor group led by
Onex formed Spirit and Spirit Holdings, respectively, for the
purpose of acquiring Boeing Wichita. The Boeing Acquisition was
completed on June 16, 2005. Prior to the acquisition,
Boeing Wichita functioned as an internal supplier of parts and
assemblies for Boeings airplane programs and had very few
sales to third parties.
In connection with the Boeing Acquisition, we entered into a
long-term supply agreement under which we are Boeings
exclusive supplier for substantially all of the products and
services provided by Boeing Wichita to Boeing prior to the
Boeing Acquisition. The supply agreement is a requirements
contract covering certain products such as fuselages,
struts/pylons and wing components for Boeing B737, B747, B767
and B777 commercial aircraft programs for the life of these
programs, including any commercial derivative models. Pricing
for existing products on in-production models is contractually
set through May 2013, with average prices decreasing at higher
volume levels and increasing at lower volume levels. We also
entered into a long-term supply agreement for Boeings new
B787 aircraft covering the life of this aircraft program,
including commercial derivatives. Under this contract we are
Boeings exclusive supplier for the forward fuselage, fixed
and moveable leading wing edges and engine pylons for the B787.
Pricing for the initial configuration of the B787-8 model is
generally set through 2021, with prices decreasing as cumulative
production volume levels are achieved. Prices are subject to
adjustment for abnormal inflation (above a specified level in
any year) and for certain production, schedule and other
specific changes, including design changes from the contract
configuration baseline. We have negotiated with Boeing an
amendment to the B787 Supply Agreement on work statement and
pricing for changes relating to future commercial derivatives,
such as the B787-9.
On April 1, 2006, through our wholly-owned subsidiary,
Spirit Europe, we acquired BAE Aerostructures. Spirit Europe
manufactures leading and trailing wing edges and other wing
components for commercial aircraft programs for Airbus and
Boeing. The BAE Acquisition provides us with a foundation to
increase future sales to Airbus, as Spirit Europe is a key
supplier of wing and flight control surfaces for the A320
platform, Airbus core single-aisle program, and of wing
components for the A380 platform, one of Airbus most
important new programs and the worlds largest commercial
passenger aircraft. In July 2008, Spirit Europe was awarded a
contract with Airbus to design and assemble a major wing
structure for the A350 XWB program. Under our supply agreements
with Airbus, we supply most of our products for the life of the
aircraft program (other than the A350 XWB and A380), including
commercial derivative models, with pricing determined through
2015. For the A380 and A350 XWB, we have long-term requirements
contracts with Airbus that cover a fixed number of units.
In November 2006, we issued and sold 10,416,667 shares of
our class A common stock and certain selling stockholders
sold 52,929,167 shares of our class A common stock at
a price of $26.00 per share in our initial public offering. In
May 2007, certain selling stockholders sold
34,340,484 shares of our class A common stock at a
price of $33.50 per share in a secondary offering of our
class A common stock.
Our
Relationship with Boeing
Supply
Agreement with Boeing for B737, B747, B767 and B777
Platforms
Overview. In connection with the Boeing
Acquisition, Spirit entered into long-term supply agreements
under which we are Boeings exclusive supplier for
substantially all of the products and services provided by
Boeing Wichita to Boeing prior to the closing of the Boeing
Acquisition. The main supply contract is primarily comprised of
two separate agreements: (1) the Special Business
Provisions, or Sustaining SBP, which sets forth the specific
terms of the supply arrangement with regard to Boeings
B737, B747, B767 and B777 aircraft and (2) the General
Terms Agreement, or GTA, which sets forth other general
contractual provisions relating to our various supply
arrangements with Boeing, including provisions relating to
termination, events of default, assignment, ordering procedures,
inspections and quality controls. The summary below describes
provisions contained in both the Sustaining SBP and the GTA as
both agreements govern the main supply arrangement. We refer to
the Sustaining SBP, the GTA and any related purchase order or
contract collectively as the Supply Agreement. The
Supply Agreement is a requirements contract which covers certain
products, including fuselages, struts/pylons and nacelles
(including thrust reversers), wings and wing components, as well
as tooling, for Boeing B737, B747, B767 and B777 commercial
aircraft programs for the life of these programs, including any
commercial derivative models.
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During the term of the Supply Agreement and absent default by
Spirit, Boeing is obligated to purchase from Spirit all of its
requirements for products covered by the Sustaining SBP and is
prohibited from manufacturing such products itself. Although
Boeing is not required to maintain a minimum production rate,
Boeing is subject to a maximum production rate above which it
must negotiate with us regarding responsibility for
non-recurring expenditures related to a capacity increase.
Pricing. The Supply Agreement sets forth
established prices for recurring products through May 2013.
Prices are adjusted each year based on a quantity-based price
adjustment formula described in the Supply Agreement whereby
average
per-unit
prices are higher at lower volumes and lower at higher volumes.
Prices are subject to adjustment for abnormal inflation (above a
specified level in any year) and for certain production,
schedule and other changes. See Changes
below.
Two years prior to the expiration of the established pricing
terms, Spirit will propose pricing for the following ten years
or another period to be agreed upon by the parties. Boeing and
Spirit are required to negotiate the pricing for such additional
period in good faith based on then-prevailing U.S. market
conditions for forward fuselages, B737 fuselages and B737/B777
struts and nacelles and based on then-prevailing global market
conditions for all other products. If the parties are unable to
agree upon pricing, then, until such dispute is resolved,
pricing will be determined according to the price as of the
expiration of the initial eight-year period, adjusted using the
then-existing quantity-based price adjustment formula and annual
escalation until such time as future pricing is agreed.
Prices for commercial derivative models are to be negotiated in
good faith by the parties based on then-prevailing market
conditions. If the parties cannot agree on price, then they must
engage in dispute resolution pursuant to
agreed-upon
procedures.
Tooling. Under the Supply Agreement, Boeing
owns all tooling used in production or inspection of products
covered by the Sustaining SBP. Spirit is responsible for
providing all new tooling required for manufacturing and
delivering products under the Supply Agreement, and Boeing
acquires title to such tooling upon completion of the
manufacturing of the tools and payment by Boeing. Because Boeing
owns this tooling, Spirit may not sell, lease, dispose of or
encumber any of it. Spirit does, however, have the option to
procure certain limited tooling needed to manufacture and
deliver both Boeing and non-Boeing parts.
Although Boeing owns the tooling, Spirit has the limited right
to use this tooling without any additional charge to perform its
obligations to Boeing under the Supply Agreement and also to
provide aftermarket services in accordance with the rights
granted to Spirit under other related agreements, including
royalty-bearing license agreements. Boeing is entitled to use
the tooling only under limited circumstances. Spirit is
responsible for maintaining and insuring the tooling.
Spirits rights to use the tooling are subject to the
termination provisions of the Supply Agreement.
Changes. Upon written notification to Spirit,
Boeing has the right to make changes within the general scope of
work performed by Spirit under the Supply Agreement. If any such
change increases or decreases the cost or time required to
perform, Boeing and Spirit must negotiate an equitable
adjustment (based on rates, factors and methodology set forth in
the Supply Agreement) to the price or schedule to reflect the
change, except that Spirit will be responsible for absorbing the
cost of certain changes. The Supply Agreement also provides for
equitable adjustments to product prices if there are order
accelerations or decelerations, depending on lead times
identified in the Supply Agreement. In addition, the Supply
Agreement provides for equitable adjustments to recurring part
prices as well as the price of non-recurring work upon the
satisfaction of certain conditions and upon certain minimum
dollar thresholds being met.
Raw Materials. Spirit is required to procure
from Boeing (or its designated service provider) certain raw
materials used in producing Boeing products, except that Spirit
has the right to procure such raw materials from other sources
if it reasonably believes that Boeing or its designated service
provider cannot support its requirements. Revisions to the raw
material pricing terms set forth in the Supply Agreement may
entitle Spirit to a price adjustment.
Third-Party Pricing. Spirit may be permitted
to purchase supplies or subparts directly from Boeings
subcontractors under the terms of Boeings subcontracts. If
Spirit does so, a majority of any savings achieved as a
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result of purchasing through the subcontracts will be applied
towards price reductions on the applicable Boeing products.
Non-recurring Work Transfer. Following an
event of default as described below or Boeings termination
of an airplane program, the Supply Agreements expiration,
or the parties mutual agreement to terminate the existing
Supply Agreement, Spirit must transfer to Boeing all tooling and
other non-recurring work relating to the affected program. If
the entire Supply Agreement expires or is cancelled, then all
tooling and other non-recurring work covered by the Supply
Agreement must be transferred to Boeing.
Additional Spirit Costs. If Boeing rejects a
product manufactured by Spirit, Boeing is entitled to repair or
rework the product, and Spirit is required to pay all reasonable
costs and expenses incurred by Boeing related thereto. Spirit is
also required to reimburse Boeing for costs expended in
providing Spirit
and/or its
contractors with technical or manufacturing assistance on Spirit
nonperformance issues.
Termination for Convenience. Subject to the
restrictions prohibiting Boeing from manufacturing certain
products supplied by Spirit or purchasing such products from any
other supplier, Boeing may, at any time, terminate all or part
of any order under the Supply Agreement by written notice to
Spirit. If Boeing terminates all or part of an order, Spirit is
entitled to compensation for certain costs.
Termination of Airplane Program. If Boeing
decides not to initiate or continue production of a Boeing
commercial aircraft model B737, B747, B767 or B777 or commercial
derivative because it determines there is insufficient business
basis for proceeding, Boeing may terminate such model or
derivative, including any order therefore, by written notice to
Spirit. In the event of such a termination, Boeing will be
liable to Spirit for any orders issued prior to the date of the
termination notice and may also be liable for certain
termination costs.
Events of Default and Remedies. It is an
event of default under the Supply Agreement if
Spirit:
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(1)
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fails to deliver products as required by the Supply Agreement;
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(2)
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fails to provide certain assurances of performance
required by the Supply Agreement;
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(3)
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breaches the provisions of the Supply Agreement relating to
intellectual property and proprietary information;
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participates in the sale, purchase or manufacture of airplane
parts without the required approval of the Federal Aviation
Administration, or FAA, or appropriate foreign regulatory agency;
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fails under certain requirements to maintain a system of quality
assurance;
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(6)
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fails to comply with other obligations under the Supply
Agreement (which breach continues for more than 10 days
after notice is received from Boeing);
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(7)
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is unable to pay its debts as they become due, dissolves or
declares bankruptcy; or
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(8)
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breaches the assignment provisions of the Supply Agreement
(which breach continues for more than 10 days after notice
is received from Boeing).
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If an event of default occurs, Boeing has the right to exercise
various remedies set forth in the Supply Agreement, including
the right to manufacture or to otherwise obtain substitute
products, cancel any or all outstanding orders under the Supply
Agreement,
and/or
terminate the Supply Agreement. Boeing is limited, however, in
its ability to cancel orders or terminate the Supply Agreement
for the defaults described in items (1), (2) and
(6) above. In such cases, Boeing may not cancel orders
unless the event of default is material and has an operational
or financial impact on Boeing and may not terminate the Supply
Agreement unless there are repeated, material events of default
and certain other criteria are satisfied. Boeing may only
terminate the Supply Agreement with respect to the aircraft
program affected by the event of default. If two or more
programs are affected by the event of default, Boeing may
terminate the entire Supply Agreement. Boeing may also require
Spirit to transfer tooling, raw material,
work-in-process
and other inventory and certain intellectual property to Boeing
in return for reasonable compensation.
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Wrongful Termination. If Boeing wrongfully
terminates an order, Spirit is entitled to recover lost profits,
in addition to any amount Spirit would be entitled to recover
for a Termination for Convenience, as described
above. If Boeing wrongfully cancels or terminates the Sustaining
SBP with respect to a model or program, then Spirit is entitled
to all remedies available at law or in equity, with monetary
damages not to exceed an agreed limit.
Excusable Delay. If delivery of any product is
delayed by circumstances beyond Spirits reasonable
control, and without Spirits or its suppliers or
subcontractors error or negligence (including, without
limitation, acts of God, war, terrorist acts, fires, floods,
epidemics, strikes, unusually severe weather, riots and acts of
government), or by any material act or failure to act by Boeing,
each being an excusable delay, then, subject to
certain exceptions, Spirits delivery obligations will be
extended. If delivery of any product is delayed by an excusable
delay for more than three months, Boeing may cancel all or part
of any order for the delayed products.
If delivery of any product constituting more than 25% of the
ship set value for one or more models of program airplanes is
delayed by an excusable delay for more than five months, Boeing
may cancel the Sustaining SBP as it applies to such models of
program airplanes, and neither party will have any liability to
the other, other than as described in the above paragraph under
the heading Events of Default and Remedies.
Suspension of Work. Boeing may at any time
require Spirit to stop work on any order for up to
120 days. During that time, Boeing may either direct Spirit
to resume work or cancel the work covered by the stop-work
order. If Boeing directs Spirit to resume work or the
120-day
period expires, Spirit must resume work, the delivery schedule
affected by the stop-work order will be extended and Boeing must
compensate Spirit for its reasonable direct costs incurred as a
result of the stop-work order.
Assignment. Spirit may not assign its rights
under the Supply Agreement other than with Boeings
consent, which Boeing may not unreasonably withhold unless the
assignment is to a disqualified person. A disqualified person is
one: (1) whose principal business is as an OEM of
commercial aircraft, space vehicles, satellites or defense
systems; (2) that Boeing reasonably believes will not be
able to perform its obligations under the Supply Agreement;
(3) that, after giving effect to the transaction, would be
a supplier of more than 40% by value of the major structural
components of any Boeing program then in production; or
(4) who is, or is an affiliate of, a commercial airplane
operator or is one of five named corporate groups. Sale of
majority voting power or of all or substantially all of
Spirits assets to a disqualified person is considered an
assignment.
B787
Supply Agreement with Boeing
Overview. Spirit and Boeing also entered into
a long-term supply agreement for Boeings new B787 program,
or the B787 Supply Agreement, which covers the life of the
program and commercial derivatives. The B787 Supply Agreement is
a requirements contract pursuant to which Spirit is
Boeings exclusive supplier for the forward fuselage, fixed
and moveable leading wing edges, engine pylons and related
tooling for the B787. While the B787 Supply Agreement does not
provide for a minimum or maximum production rate, the agreement
acknowledges that Spirit will equip itself for a maximum rate of
seven aircraft per month and will negotiate with Boeing
regarding an equitable price adjustment if additional
expenditures are required to increase the production rate above
that level. Pursuant to the settlement described below, Spirit
has agreed to proceed with the necessary capital and equipment
investments required to produce ten ship sets per month.
Additional capital expenditures would be needed for tooling and
equipment to support a production rate above seven airplanes per
month. Under the B787 Supply Agreement, Spirit also provides
certain support, development and redesign engineering services
to Boeing at an agreed hourly rate.
Pricing. Pricing for the initial configuration
of the B787-8 base model that is currently in production is
generally established through 2021, with prices decreasing as
cumulative volume levels are met over the life of the program.
Prices are subject to adjustment for abnormal inflation (above a
specified level in any year) and for certain production,
schedule and other specific changes, including design changes
from the contract configuration baseline. We are currently in
negotiations with Boeing on pricing for certain changes. The
parties have agreed to negotiate in good faith the prices for
future commercial derivatives such as the B787-9, based on
principles consistent with the B787 Supply Agreement terms as
they relate to the B787-8 model.
7
Advance Payments/Deferred Revenue. We are
required to repay Boeing a 2007 interest free cash advance of
$700.0 million, 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. If Boeing does not take
delivery of five hundred B787 ship sets prior to any 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. If Boeing does not take
delivery of a sufficient number of ship sets to recover these
additional 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.
Accordingly, portions of the advance repayment liability are
included as current and long-term liabilities in our
consolidated balance sheet.
In December 2010, Spirit and Boeing entered into a memorandum of
agreement and a settlement agreement in connection with the B787
Program. 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 value 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 the section captioned Risk
Factors in this Annual Report.
Termination of Airplane Program. If Boeing
decides not to initiate or continue production of the B787
airplane program because it determines, after consultation with
Spirit, that there is an insufficient business basis for
proceeding, Boeing may terminate the B787 airplane program,
including any orders, by written notice to Spirit. In the event
of such a termination, Boeing will be liable to Spirit for costs
incurred in connection with any orders issued prior to the date
of the termination notice and may also be liable for certain
termination costs and for compensation for any tools, raw
materials or
work-in-process
requested by Boeing in connection with the termination.
Events of Default and Remedies. It is an
event of default under the B787 Supply Agreement if
Spirit:
|
|
|
|
(1)
|
fails to deliver products as required by the B787 Supply
Agreement;
|
|
|
(2)
|
breaches the provisions of the B787 Supply Agreement relating to
intellectual property and proprietary information;
|
|
|
(3)
|
participates in the sale, purchase or manufacture of airplane
parts without the required approval of the FAA or appropriate
foreign regulatory agency;
|
|
|
(4)
|
fails under certain requirements to maintain a system of quality
assurance;
|
8
|
|
|
|
(5)
|
fails to comply with other obligations under the B787 Supply
Agreement (which breach continues for more than 15 days
after notice is received from Boeing);
|
|
|
(6)
|
is unable to pay its debts as they become due, dissolves or
declares bankruptcy;
|
|
|
(7)
|
fails to comply with U.S. export control laws; or
|
|
|
(8)
|
breaches the assignment provisions of the B787 Supply Agreement.
|
If an event of default occurs, Boeing has the right to exercise
various remedies set forth in the B787 Supply Agreement,
including the right to manufacture or to otherwise obtain
substitute products, cancel any or all outstanding orders under
the B787 Supply Agreement
and/or
terminate the B787 Supply Agreement. Before terminating any
order or the B787 Supply Agreement, Boeing is required to work
with Spirit to attempt to agree on a satisfactory recovery plan.
Boeing may also require Spirit to transfer tooling, raw
material,
work-in-process
and other inventory and certain intellectual property to Boeing
in return for reasonable compensation.
Assignment. Spirit may not assign its rights
under the B787 Supply Agreement or any related order other than
with Boeings consent, which Boeing may not unreasonably
withhold unless the assignment is to a disqualified person. A
disqualified person is one: (1) whose principal business is
as an OEM of commercial aircraft, space vehicles, satellites or
defense systems; (2) that Boeing reasonably believes will
not be able to perform its obligations under the B787 Supply
Agreement; (3) that, after giving effect to the
transaction, would be a supplier of more than 40% by value of
the major structural components of any Boeing program then in
production; or (4) who is, or is an affiliate of, a
commercial airplane operator or is one of five named corporate
groups. Sale of majority voting power or of all or substantially
all of Spirits assets to a disqualified person is
considered an assignment.
License
of Intellectual Property
Supply Agreement. All technical work product
and works of authorship produced by or for Spirit with respect
to any work performed by or for Spirit pursuant to the Supply
Agreement are the exclusive property of Boeing. All inventions
conceived by or for Spirit with respect to any work performed by
or for Spirit pursuant to the Supply Agreement and any patents
claiming such inventions are the exclusive property of Spirit,
except that Boeing will own any such inventions that Boeing
reasonably believes are applicable to the B787 platform, and
Boeing may seek patent protection for such B787 inventions or
hold them as trade secrets, provided that, if Boeing does not
seek patent protection, Spirit may do so.
Except as Boeing otherwise agrees, Spirit may only use Boeing
proprietary information and materials (such as tangible and
intangible confidential, proprietary
and/or trade
secret information and tooling) in the performance of its
obligations under the Supply Agreement. Spirit is prohibited
from selling products manufactured using Boeing proprietary
information and materials to any person other than Boeing
without Boeings authorization.
Spirit has granted to Boeing a license to Spirit proprietary
information and materials and software and related products for
use in connection with the testing, certification, use, sale or
support of a product covered by the Supply Agreement, or the
manufacture, testing, certification, use, sale or support of any
aircraft including
and/or
utilizing a product covered by the Supply Agreement. Spirit has
also granted to Boeing a license to use Spirit intellectual
property to the extent such intellectual property interferes
with Boeings use of products or intellectual property
belonging to Boeing under the Supply Agreement.
To protect Boeing against Spirits default, Spirit has
granted to Boeing a license, exercisable on such default to
practice
and/or use,
and license for others to practice
and/or use
on Boeings behalf, Spirits intellectual property and
tooling related to the development, production, maintenance or
repair of products in connection with making, using and selling
products. As a part of the foregoing license, Spirit must, at
the written request of and at no additional cost to Boeing,
promptly deliver to Boeing any such licensed property considered
by Boeing to be necessary to exercise Boeings rights under
the license.
B787 Supply Agreement. The B787 Supply
Agreement establishes three classifications for patented
invention and proprietary information: (1) intellectual
property developed by Spirit during activity under the B787
Supply Agreement, or Spirit IP; (2) intellectual property
developed jointly by Boeing and Spirit during that activity,
9
or Joint IP; and (3) all other intellectual property
developed during activity under the B787 Supply Agreement, or
Boeing IP.
Boeing may use Spirit IP for work on the B787 program and Spirit
may license it to third parties for work on such program. Spirit
may also not unreasonably withhold consent to the license of
such intellectual property to third parties for work on other
Boeing programs, provided that it may require a reasonable
royalty to be paid and, with respect to commercial airplane
programs, that Spirit has been offered an opportunity, to the
extent commercially feasible, to work on such programs.
Each party is free to use Joint IP in connection with work on
the B787 and other Boeing programs, but each must obtain the
consent of the other to use it for other purposes. If either
party wishes to license Joint IP to a third party for work on a
Boeing program other than the B787, then the other party may
require a reasonable royalty, but may not unreasonably withhold
its consent, as long as (if the program in question is another
Boeing commercial airplane program) Spirit has been offered an
opportunity, to the extent commercially feasible, to perform
work for the particular program.
Spirit is entitled to use Boeing IP for the B787 program, and
may require Boeing to license it to subcontractors for the same
purpose.
Additional License From Boeing. Boeing has
licensed certain intellectual property rights to Spirit under a
Hardware Material Services General Terms Agreement, or HMSGTA,
and four initial Supplemental License Agreements, or SLAs, under
the HMSGTA. The HMSGTA and the initial SLAs grant Spirit
licenses to use Boeing intellectual property to manufacture
listed parts for the aftermarket and to perform maintenance,
repair and overhaul, or MRO, of aircraft and aircraft components
for customers other than Boeing. These agreements also permit
Spirit to use knowledge obtained by Spirit personnel prior to
the closing of the Boeing Acquisition. Spirit also may obtain
additional SLAs from Boeing and those SLAs will also supersede
the restrictions on Spirits use of Boeings
proprietary information and materials described above.
Intellectual
Property
We have several patents pertaining to our processes and
products. While our patents, in the aggregate, are of material
importance to our business, no individual patent or group of
patents is of material importance. We also rely on trade
secrets, confidentiality agreements, unpatented knowledge,
creative products development and continuing technological
advancement to maintain our competitive position.
Our
Products
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 wing systems and
components, flight control surfaces and other miscellaneous
structural parts. 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, and the Wing Systems
segment manufactures products at our facilities in Tulsa and
McAlester, Oklahoma, Prestwick, Scotland, Subang, Malaysia and
Kinston, North Carolina. We also recently constructed a fuselage
assembly plant for the A350 XWB aircraft in Saint-Nazaire,
France which is expected to begin operations in 2011, which will
receive and assemble center fuselage frame sections designed and
manufactured in our Kinston, North Carolina facility, and
transport the assembled sections to Airbus. Fuselage Systems,
Propulsion Systems and Wing Systems represented approximately
49%, 25%, and 26%, of our net revenues for the twelve months
ended December 31, 2010. All other activities fall within
the All Other segment, representing less than 1% of our net
revenues for the twelve months ended December 31, 2010,
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.
10
Commercial
Aircraft Structures
We principally design, engineer and manufacture commercial
aircraft structures such as fuselages, nacelles (including
thrust reversers), struts/pylons, wings and wing assemblies and
flight control surfaces. We are the largest independent supplier
of aerostructures to Boeing and one of the largest independent
suppliers of aerostructures to Airbus. Sales related to the
commercial aircraft structures market, some of which may be used
in military applications, represented approximately 98% of our
net revenues for the year ended December 31, 2010.
Our structural components, in particular the forward fuselage
and nacelles, are among the most complex and highly engineered
structural components and represent a significant percentage of
the costs of each aircraft. We are currently the sole-source
supplier of 96% of the products we sell to Boeing and Airbus, as
measured by dollar value of products sold. We typically sell a
package of aerostructure components, referred to as a ship set,
to our customers.
The following table summarizes the major commercial (including
derivatives, regional and announced business jets) programs that
we currently have under long-term contract by product and
aircraft platform.
|
|
|
|
|
Product
|
|
Description
|
|
Aircraft Platform
|
|
Fuselage Systems
|
|
|
|
|
Forward Fuselage
|
|
Forward section of fuselage which houses flight deck, passenger
cabin and cargo area
|
|
B737, B747, B767, B777, B787
|
Other Fuselage Sections
|
|
Mid-section and other sections of the fuselage and certain other
structural components, including floor beams
|
|
B737, B747, B777, A350 XWB
|
Propulsion Systems
|
|
|
|
|
Nacelles (including Thrust Reversers)
|
|
Aerodynamic structure surrounding engines
|
|
B737, B747, B767, B777, Rolls Royce BR725 Engine (for Gulfstream
G650)
|
Struts/Pylons
|
|
Structure that connects engine to the wing
|
|
B737, B747, B767, B777, B787, Mitsubishi Regional Jet,
Bombardier CSeries
|
Wing Systems
|
|
|
|
|
Flight Control Surfaces
|
|
Flaps and slats
|
|
B737, B777, A320 family
|
Empennages
|
|
Empennage horizontal stabilizer and vertical fin and spar
assemblies
|
|
B737, Hawker Beechcraft 800 series
|
Wing Structures
|
|
Wing framework which consists mainly of spars, ribs, fixed
leading edge, stringers, trailing edges and flap track beams
|
|
B737, B747, B767, B777, B787, A320 family, A330, A340, A350 XWB,
A380, Gulfstream G650, Gulfstream G250
|
Military
Equipment
In addition to providing aerostructures for commercial aircraft,
we also design, engineer and manufacture structural components
for military aircraft. We have been awarded a significant amount
of work for the 737
P-8A and 737
C40. The 737
P-8A and 737
C40 are commercial aircraft modified for military use. Other
military programs for which we provide products are AWACS
(E-6), the
development of the Sikorsky CH-53K, and various other programs.
11
The following table summarizes the major military programs that
we currently have under long-term contract by product and
military platform. Rotorcraft is part of the Fuselage Systems
segment and low observables, radome and other military are part
of the Wing Systems segment.
|
|
|
|
|
Product
|
|
Description
|
|
Military Platform
|
|
Low Observables
|
|
Radar absorbent and translucent materials
|
|
Various
|
Rotorcraft
|
|
Forward cockpit and cabin
|
|
Sikorsky- CH-53K Development Program
|
Radome
|
|
Radome new builds & refurbishment
|
|
Airborne Warning and Control System (AWACS)
|
Other Military
|
|
Fabrication, bonding, assembly, testing, tooling, processing,
engineering analysis, and training
|
|
Various
|
Aftermarket
We continue to broaden our base for aftermarket support of the
products we design and build. We have developed our global sales
and marketing channel for spare parts, with sales offices in
Singapore, Ireland, China, and the U.S. Our Spirit catalog
has over 14,000 parts that we are selling directly to the
marketplace by virtue of having obtained parts manufacturing
approvals from the FAA. In the area of MRO we have repair
stations in Wichita, Kansas, with FAA and European Aviation
Safety Agency (EASA) certifications, and Prestwick, Scotland,
which is EASA-certified with FAA certification pending. In
addition, in late 2009, we opened an MRO repair station through
a joint venture in Jinjiang, China, Taikoo Spirit AeroSystems
Composite Company, Ltd., which holds Civil Aviation
Administration of China certification and FAA approval.
The following table summarizes our aftermarket products and
services.
|
|
|
|
|
Product
|
|
Description
|
|
Aircraft Platform
|
|
Spares
|
|
Provides replacement parts and components support for:
|
|
|
|
|
In production aircraft
|
|
B737NG, B747, B767, B777, B787, Gulfstream 250 and 650, Hawker
Beechcraft 850XP, A320 family, A330, A340,A380
|
|
|
Out of production aircraft
|
|
B707, B727, B737 Classic, B757
|
Maintenance, Repair and Overhaul
|
|
Certified repair stations that provide complete on-site nacelle
repair and overhaul; maintains global partnerships to support
MRO services
|
|
B737, B747, B757, B767, B777
|
Rotable Assets
|
|
Maintain a pool of rotable assets for exchange and/or lease
|
|
B737, B747, B767, B777
|
Segment
Information
We operate in three principal segments: Fuselage Systems,
Propulsion Systems and Wing Systems. Substantially all revenues
in the three principal segments are with Boeing, with the
exception of Wing Systems, which includes revenues from Airbus
and other customers. We serve customers in addition to Boeing
and Airbus across our three principal segments; however, these
customers currently do not represent a significant portion of
our revenues, and are not expected to in the near future. 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.
Our primary profitability measure to review a segments
operating performance is segment operating income before
unallocated corporate selling, general and administrative
expenses, unallocated research and development, and unallocated
cost of sales.
12
Unallocated corporate selling, general and administrative
expenses include centralized functions such as accounting,
treasury and human resources. Unallocated research and
development includes research and development efforts that
benefit the company as a whole and are not unique to a specific
segment. Unallocated cost of sales is related to the grant of
shares to employees represented by the International Association
of Machinists and Aerospace Workers (IAM) in
connection with the ratification of a new ten-year labor
contract on June 25, 2010, early retirement incentives for
represented members of the IAM who made elections to retire in
2010, and grant of shares to employees represented by the
International Union, United Automobile, Aerospace &
Agricultural Implement Workers of America (UAW) in
connection with the ratification of a new ten-year labor
contract on December 18, 2010. 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 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 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 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 Companys
facilities in Tulsa and McAlester, Oklahoma, Kinston, North
Carolina, Prestwick, Scotland, Subang, Malaysia and Kinston,
North Carolina.
Our segments are consistent with the organization and
responsibilities of management reporting to the chief operating
decision-maker for the purpose of assessing performance. Our
definition of segment operating income differs from operating
income as presented in the 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, most of our 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
our 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.
13
The following table shows segment information (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Segment Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems
|
|
$
|
2,035.1
|
|
|
$
|
2,003.6
|
|
|
$
|
1,758.4
|
|
Propulsion Systems
|
|
|
1,061.8
|
|
|
|
1,030.0
|
|
|
|
1,031.7
|
|
Wing Systems
|
|
|
1,067.4
|
|
|
|
1,024.4
|
|
|
|
955.6
|
|
All Other
|
|
|
8.1
|
|
|
|
20.5
|
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,172.4
|
|
|
$
|
4,078.5
|
|
|
$
|
3,771.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems
|
|
$
|
292.3
|
|
|
$
|
287.6
|
|
|
$
|
287.6
|
|
Propulsion Systems
|
|
|
137.5
|
|
|
|
122.6
|
|
|
|
162.2
|
|
Wing Systems
|
|
|
101.0
|
|
|
|
20.7
|
|
|
|
99.7
|
|
All Other
|
|
|
(1.8
|
)
|
|
|
(1.4
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment Operating Income
|
|
|
529.0
|
|
|
|
429.5
|
|
|
|
549.8
|
|
Unallocated corporate SG&A
|
|
|
(139.7
|
)
|
|
|
(122.7
|
)
|
|
|
(141.7
|
)
|
Unallocated research and development
|
|
|
(3.6
|
)
|
|
|
(3.5
|
)
|
|
|
(2.4
|
)
|
Unallocated cost of sales(1)
|
|
|
(28.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
357.0
|
|
|
$
|
303.3
|
|
|
$
|
405.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unallocated cost of sales for the twelve months ended
December 31, 2010 includes charges related to the grant of
shares to employees represented by the IAM in connection with
the ratification of a new ten-year labor contract on
June 25, 2010, early retirement incentives for members
represented by IAM who made elections to retire in 2010, and
grants of shares to employees represented by the UAW in
connection with the ratification of a new ten-year labor
contract on December 18, 2010. |
Sales and
Marketing
Our established sales and marketing infrastructure supports our
efforts to expand our business with new and existing customers
in three sectors of the aerostructures industry: (1) large
commercial airplanes, (2) business and regional jets and
(3) military/helicopter. The sales directors establish and
maintain relationships with individual customers and are
supported in their campaigns by sales teams within specific
product specialties and a market research team performing
various analyses related to those products and customers. The
comprehensive sales and marketing teams work closely to ensure a
consistent, single message approach with customers.
Although we have long-term contracts with Boeing and Airbus on
programs such as the B737, B787, A320, A350 XWB and A380, and
OEMs generally desire to minimize costs by retaining established
aerostructure suppliers, our sales and marketing team continues
to maintain strong relationships with the OEMs to position us
for future business opportunities. Our marketing team continues
to research and analyze trends in our industry and in new
product development, and our sales team maintains regular
contact with key Boeing and Airbus decision-makers to prepare
for new business opportunities from both companies.
We maintain a customer contact database to maximize our
interactions with existing and potential customers. In the time
that Spirit has existed as an independent company, we have been
successful in building a positive identity and name recognition
for the Company brand through advertising, trade shows,
sponsorships and Spirit customer events. In order to diversify
and win new customers, we market our expertise in the design and
manufacture of major aerostructures and advanced manufacturing
capabilities with both composites and traditional metals
processes.
14
Customers
Our primary customers are aircraft OEMs. Boeing and Airbus are
our two largest customers. We are the largest independent
aerostructures supplier to Boeing and one of the largest
independent suppliers to Airbus. We entered into long-term
supply agreements with our customers to provide aerostructure
products to aircraft programs. As of December 31, 2010,
virtually all of the products we sell are under long-term
contracts and 96% of those products, as measured by dollar value
of products sold, are supplied by us on a sole-sourced basis.
We have good relationships with our customers due to our diverse
product offerings, leading design and manufacturing capabilities
using both metallic and composite materials, and competitive
pricing.
Boeing. For the twelve months ended
December 31, 2010, approximately 83% of our revenues were
from sales to Boeing. We have a strong relationship with Boeing
given our predecessors 75+ year history as a Boeing
division. Many members of our senior management team are former
Boeing executives or managers who have longstanding
relationships with Boeing and continue to work closely with
Boeing. As part of the Boeing Acquisition, we entered into a
long-term supply agreement under which we are Boeings
exclusive supplier for substantially all of the products and
services provided by Boeing Wichita prior to the Boeing
Acquisition for the life of the programs. In addition, Boeing
selected us to be the design leader for the Boeing B787 forward
fuselage based in part on our expertise with composite
technologies.
We believe our relationship with Boeing is unmatched in the
industry and will allow us to continue to be an integral partner
with Boeing in the designing, engineering and manufacturing of
complex aerostructures.
Airbus. For the twelve months ended
December 31, 2010, approximately 11% of our revenues were
from sales to Airbus. As a result of the BAE Acquisition, we
became one of the largest independent aerostructures suppliers
to Airbus, and we have expanded our relationship through new
business wins. Under our supply agreement with Airbus, we supply
products for the life of the aircraft program, including
commercial derivative models, with pricing determined through
2015. For the A350 XWB and A380 programs, we have long-term
requirements contracts with Airbus that cover a fixed number of
units. We believe we can leverage our relationship with Airbus
and our history of delivering high-quality products to further
increase our sales to Airbus and continue to partner with Airbus
on new programs going forward.
In May 2008, Spirit announced that it had signed a contract with
Airbus to design and manufacture major composite fuselage
structures for the A350 XWB program. To accommodate this and
other work, Spirit announced plans to expand its operations with
a new facility in Kinston, North Carolina. Construction of the
new facility began in the fall of 2008 and operations commenced
in the second quarter of 2010. Additionally, in the fall of
2009, we began construction on a new facility in Saint-Nazaire,
France which will receive and assemble center fuselage frame
sections designed and manufactured in our Kinston, North
Carolina facility, and transport the assembled sections to
Airbus. Construction on the France facility was completed in
2010, with operations to begin in 2011.
In July 2008, Spirit Europe announced that it had signed a
contract with Airbus to design and manufacture a major wing
structure for the A350 XWB program. Spirit Europe will design
and assemble the wing leading edge structure primarily at its
facility in Prestwick, Scotland. The composite front spar will
be built at the new facility in Kinston, North Carolina with
sub-assemblies
being manufactured at the Spirit AeroSystems Malaysia facility
in Subang, Malaysia.
Although most of our revenues are obtained from sales inside the
U.S., we generated $498.4 million, $575.9 million, and
$465.4 million in sales to international customers for the
twelve months ended December 31, 2010, December 31,
2009, and December 31, 2008, respectively, primarily to
Airbus.
15
The following chart illustrates the split between domestic and
foreign revenues (dollars in millions):
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Year Ended
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Year Ended
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Year Ended
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December 31, 2010
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December 31, 2009
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December 31, 2008
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Percent of
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Percent of
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Percent of
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Total
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Total
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Total
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Revenue Source(1)
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Net Revenues
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Net Revenues
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Net Revenues
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Net Revenues
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Net Revenues
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Net Revenues
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United States
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$
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3,674.0
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88
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%
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$
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3,502.6
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86
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%
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$
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3,306.4
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88
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%
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International
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United Kingdom
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400.4
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10
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385.7
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9
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413.3
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11
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Other
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98.0
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2
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190.2
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5
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52.1
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1
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Total International
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498.4
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12
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575.9
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14
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465.4
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12
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Total Revenues
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$
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4,172.4
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100
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%
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$
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4,078.5
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100
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%
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$
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3,771.8
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100
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%
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(1) |
|
Revenues are attributable to countries based on the destination
where goods are delivered. |
The international revenue is included primarily in the Wing
Systems segment. All other segment revenues are primarily from
U.S. sales. Approximately 7% of our total assets based on
book value are located in the United Kingdom as part of
Spirit Europe with approximately another 2% of our total assets
located in countries outside the United States and the United
Kingdom.
Expected
Backlog
As of December 31, 2010, our expected backlog associated
with large commercial aircraft, regional jet, business jet, and
military equipment deliveries through 2016, calculated based on
contractual product prices and expected delivery volumes, was
approximately $28.3 billion. This is an increase of
$0.3 billion from our corresponding estimate as of the end
of 2009 reflecting the fact that Airbus and Boeing new orders
exceeded deliveries in 2010. Backlog is calculated based on the
number of units Spirit is under contract to produce on our fixed
quantity contracts, and Boeing and Airbus announced backlog on
our supply agreements. The number of units may be subject to
cancellation or delay by the customer prior to shipment,
depending on contract terms. The level of unfilled orders at any
given date during the year may be materially affected by the
timing of our receipt of firm orders and additional airplane
orders, and the speed with which those orders are filled.
Accordingly, our expected backlog as of December 31, 2010,
may not necessarily represent the actual amount of deliveries or
sales for any future period.
Manufacturing
and Engineering
Manufacturing
Our expertise is in designing, engineering and manufacturing
large-scale, complex aerostructures. We maintain seven
state-of-the-art
manufacturing facilities in Wichita, Kansas; Tulsa, Oklahoma;
McAlester, Oklahoma; Kinston, North Carolina; Prestwick,
Scotland; Saint-Nazaire, France; and Subang, Malaysia.
Our core manufacturing competencies include:
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composites design and manufacturing processes;
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leading mechanized and automated assembly and fastening
techniques;
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large-scale skin fabrication using both metallic and composite
materials;
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chemical etching and metal bonding expertise;
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monolithic structures technology; and
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precision metal forming producing complex contoured shapes in
sheet metal and extruded aluminum.
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Our manufacturing expertise is supported by our
state-of-the-art
equipment. We have over 20,000 major pieces of equipment
installed in our customized manufacturing facilities. For
example, for the manufacture of the B787
16
composite forward fuselage, we installed a 30-foot diameter by
70-foot long autoclave, which is one of the largest autoclaves
in the world. An autoclave is an enclosure device that generates
controlled internal heat and pressure conditions used to cure
and bond certain resins and is used in the manufacture of
composite structures. We installed a comparable autoclave as
well as other specialized machines in Kinston, North Carolina to
support our work on the A350 XWB. We intend to continue to make
the appropriate investments in our facilities to support and
maintain our industry-leading manufacturing expertise.
Engineering
We have approximately 1,700 engineers and technical employees,
including over 70 contract engineers. In addition, we currently
contract the work of more than 610 engineers from engineering
services firms worldwide, including 55 engineers through
Spirit-Progresstech LLC, a joint venture we entered into with
Progresstech LTD of Moscow, Russia in November 2007. We also
employ 24 technical fellows, who are experts in engineering and
keep the Company current with new technology by producing
technical solutions for new and existing products and processes;
12 FAA designated engineering representatives (DER),
experienced engineers appointed by the FAA to approve
engineering data used for certification; and 10 authorized
representatives, who possess the same qualifications and perform
the same certification functions as DERs, but with authority
from the Boeing Certification and Compliance Organization. The
primary purpose of the engineering organization is to provide
continuous support for ongoing design, production and process
improvements. We possess a broad base of engineering skills in
metal and composite fabrication and assembly, chemical
processing and finishing, tooling design and development, and
quality and precision measurement technology, systems and
controls.
Our engineering organization is composed of four primary groups,
including: (1) Structures Design and Drafting, which
focuses on production support, customer introductions,
design-for-manufacturing
and major product derivatives; (2) Structures Technology,
which focuses on overall structural integrity over the lifecycle
of the airframe through stress and durability analysis, damage
tolerance analysis and vibration testing; (3) Manufacturing
Engineering, responsible for applying lean manufacturing
techniques, interpreting design drawings and providing
manufacturing sequence work plans; and (4) Liaison, Lab and
Materials, Processes and Standards, which conducts research into
defects discovered by quality assurance through analytical
chemistry, metallurgical, static and dynamic testing and
full-scale testing.
We believe our leading engineering capabilities are a key
strategic factor differentiating us from some of our competitors.
Research
and Development
We believe that world-class research and development helps to
maintain our position as an advanced partner to our OEM
customers new product development teams. As a result, we
spend significant capital and financial resources on our
research and development, including approximately
$51.5 million during the year ended December 31, 2010,
approximately $56.7 million during the year ended
December 31, 2009, and approximately $48.4 million
during the year ended December 31, 2008. Through our
research, we strive to develop unique intellectual property and
technologies that will improve our OEM customers products
and, at the same time, position us to win work on new products.
Our development effort, which is an ongoing process that helps
us reduce production costs and streamline manufacturing, is
currently focused on preparing for initial production of new
products and improving manufacturing processes on our current
work.
Our research and development is geared toward the architectural
design of our principal products: fuselage systems, propulsion
systems and wing systems. We are currently focused on research
in areas such as advanced metallic joining, low-cost composites,
acoustic attenuation, efficient structures, systems integration,
advanced design and analysis methods, and new material systems.
Other items that are expensed relate to research and development
that is not funded by the customer. We collaborate with
universities, research facilities and technology partners in our
research and development.
17
Suppliers
and Materials
The principal raw materials used in our manufacturing operations
are aluminum, titanium and materials such as carbon fiber used
to manufacture composites. We also use purchased products such
as machined parts, sheet metal parts, non-metallic parts and
assemblies. In addition, we purchase assemblies and
subassemblies from various manufacturers which are used in the
final aerostructure assembly.
Currently we have approximately 1,507 active suppliers with no
one supplier representing more than 4% of our cost of goods
sold. Our strategy is to enter into long-term supply contracts
with our largest suppliers to secure competitive pricing. Our
exposure to rising raw material prices is somewhat limited due
to raw materials purchase contracts which are either based on
fixed pricing or priced at reduced rates through Boeings
or Airbus high-volume purchase contracts for such raw
materials.
Although we believe our material costs are competitive, we
continue to seek ways to further reduce these costs. We have
global sourcing initiatives that increase the amount of material
sourced from low-cost countries in Asia and Central Europe.
Historically, Boeing Wichita and BAE Aerostructures purchased
certain parts from other Boeing or BAE Systems facilities,
respectively, since they operated as divisions of Boeing and BAE
Systems, respectively. We continue to achieve cost savings by
reducing the amount of parts that we purchase from Boeing and
BAE Systems. Following the Boeing divestiture and BAE Systems
acquisition, we have been free to contract with third parties
for, or to produce internally, the parts that Boeing and BAE
Systems historically supplied. We have successfully implemented
the process of moving to internal production with the opening of
our facility in Malaysia enabling further cost reductions in
2010.
Environmental
Matters
Our operations and facilities are subject to various
environmental, health and safety laws and regulations, including
federal, state, local and foreign government requirements,
governing, among other matters, the emission, discharge,
handling and disposal of regulated materials, the investigation
and remediation of contaminated sites, and permits required in
connection with our operations. Our operations are designed,
maintained and operated to promote protection of human health
and the environment. Although we believe that our operations and
facilities are in material compliance with applicable
environmental and worker protection laws and regulations,
management cannot provide assurance that future changes in such
laws or their enforcement, or the nature of our operations will
not require us to make significant additional expenditures to
ensure continued compliance. Further, we could incur substantial
costs, including costs to reduce air emissions,
clean-up
costs, fines and sanctions, and third-party property damage or
personal injury claims as a result of violations of or
liabilities under environmental laws, relevant common law or the
environmental permits required for our operations.
In March 2009, we received a Notice of Violation from the
federal Environmental Protection Agency (the EPA)
alleging violations of the Resource Conservation and Recovery
Act at our Wichita facility based on an inspection in 2006,
including an allegation of operating a hazardous waste storage
facility without a permit. The alleged violations have been
corrected. After informal settlement discussions with the EPA
concluded without a settlement, the EPA filed a formal complaint
to initiate the administrative adjudication process. Spirit
answered the complaint and the parties are pursuing a mediation
opportunity afforded as part of the process. The total proposed
penalty is approximately $240,000.
New regulations or more stringent enforcement of existing
requirements could also result in additional compliance costs.
For example, various governments have enacted or are considering
enactment of laws to reduce emissions of carbon dioxide and
other so-called greenhouse gases (GHG). In
particular, the U.S. EPA has promulgated new regulations
that require certain Spirit facilities to report annual GHG
emissions and will require new operating permits to be issued
for those facilities. In the absence of a national price for
carbon-based air pollutant emissions, new legislation from
Congress, or information relative to additional regulation from
the EPA we are not in a position at this time to estimate the
costs which may result from these or similar actions.
18
United
States
Under some environmental laws in the United States, a current or
previous owner or operator of a contaminated site may be held
liable for the entire cost of investigation, removal or
remediation of regulated materials at such property, whether or
not the owner or operator knew of, or was responsible for, the
presence of such regulated materials. Persons who arrange for
disposal or treatment of hazardous materials also may be liable
for the costs of investigation, removal or remediation of those
substances at a disposal or treatment site, regardless of
whether the affected site is owned or operated by them. Because
we own
and/or
operate a number of facilities that have a history of industrial
or commercial use and because we arrange for the disposal of
regulated materials at many disposal sites, we may and do incur
costs for investigation, removal and remediation.
The Asset Purchase Agreement for the Boeing Acquisition,
referred to herein as the Asset Purchase Agreement,
provides, with limited exceptions, that Boeing is responsible
for environmental liabilities relating to conditions existing at
the Wichita, Kansas and Tulsa and McAlester, Oklahoma facilities
as of the Boeing Acquisition date. For example, Boeing is
subject to an administrative consent order issued by the Kansas
Department of Health and Environment, or KDHE, to contain and
clean up contaminated groundwater, which underlies a majority of
the Wichita site. Pursuant to the KDHE order, Boeing has a
long-term remediation plan in place, and containment and
remediation efforts are underway. We are responsible for any
environmental conditions that we cause at these facilities
following the Boeing Acquisition.
United
Kingdom
In the United Kingdom, remediation of contaminated land may be
compelled by the government in certain situations. If a property
is to be redeveloped, in its planning role, the local authority
may require remediation as a condition to issuing a permit. In
addition, in situations in which the contamination is causing
harm to human health or polluting the environment, the local
authority may use its environmental legislative powers to force
remediation so that the impacted areas are suitable for
use. If contamination is polluting the property of a third
party or causing loss, injury or damage, the third party may
file an action against the owner or operator of the source in
common law based on negligence or nuisance to recover the value
of the loss, injury or damage sustained.
Prestwick Facility. BAE Systems indemnified us,
subject to certain contractual limitations and conditions, for
any clean-up
costs and other losses, liabilities, expenses and claims related
to existing pollution at the Prestwick facility, existing
pollution that migrates from the Prestwick facility to a third
partys property and any pollution that migrates to the
Prestwick facility from the property retained by BAE Systems.
Subject to certain exceptions, the indemnity has an aggregate
liability cap of £40.0 million. As of
December 31, 2010, we do not anticipate reaching the
liability cap.
Other
International Sites
Spirits interests in other international sites are subject
to foreign government environmental laws and regulations. It is
our policy and practice to comply with all requirements, both
domestic and international. We believe that our procedures are
properly designed to prevent unreasonable risk of environmental
damage and resulting financial liability in connection with our
business.
Competition
Although we are one of the largest independent non-OEM
aerostructures suppliers, based on annual revenues, with an
estimated 16% share of the global aerostructures market, this
market remains highly competitive and fragmented. Our primary
competition currently comes from either work performed by
internal divisions of OEMs or third-party aerostructures
suppliers, but direct competition continues to grow.
Our principal competitors among OEMs may include Airbus, Boeing,
Dassault Aviation, Embraer Brazilian Aviation Co., Gulfstream
Aerospace Co., Hawker Beechcraft Corporation, United
Technologies, and Textron Inc. These OEMs may choose not to
outsource production of aerostructures due to their own direct
labor and overhead considerations and capacity utilization at
their own facilities. Consequently, traditional factors
affecting competition, such as price and quality of service, may
not be significant determinants when OEMs decide whether to
19
produce parts in-house or to outsource them. It is also true
that offset requirements from customers of OEMs may drive some
decisions relative to their business model for production.
Our principal competitors among non-OEM aerostructures suppliers
are Aircelle S.A., Alenia Aeronautica, Fuji Heavy Industries,
Ltd., GKN Aerospace, The Goodrich Corporation, Kawasaki Heavy
Industries, Inc., Mitsubishi Heavy Industries, Saab AB, Snecma,
Triumph Group, Inc., Latecoere S.A., Aerolia SAS, Premium
Aerotech GmbH and Nexcelle. Our ability to compete for new
aerostructures contracts depends upon (1) our design,
engineering and manufacturing capabilities, (2) our
underlying cost and pricing structure, (3) our business
relationship with OEMs, and (4) our available manufacturing
capacity.
Employees
As of December 31, 2010, we had approximately
12,589 employees and approximately 185 contract labor
personnel, located in our four U.S. facilities.
Approximately 83% of our U.S. employees are represented by
five unions. Our largest union is the IAM, which represents
approximately 5,704 employees, or 45%, of the
U.S. workforce. We successfully negotiated a new long-term
ten-year contract with this union in 2010, which is in effect
through June 25, 2020. The Society of Professional
Engineering Employees in Aerospace Wichita Technical
and Professional Unit (SPEEA WTPU)
represents approximately 2,302 employees, or 18%, of the
U.S. workforce. This union contract is in effect through
July 11, 2011. The UAW represents approximately
1,449 employees, or 12%, of the U.S. workforce. This
union contract is in effect through November 30, 2020. The
Society of Professional Engineering Employees in
Aerospace Wichita Engineering Unit
(SPEEA WEU) represents approximately
804 employees, or 6%, of the U.S. workforce. We
successfully negotiated a new contract with this union in 2009,
which is in effect through December 1, 2012. The
International Brotherhood of Electrical Workers, or IBEW,
represents approximately 175 employees, or 1%, of the
U.S. workforce. This union contract is in effect through
September 18, 2020.
As of December 31, 2010, we had approximately
919 employees and approximately 49 contract labor personnel
located in our two U.K. facilities. Approximately 655, or 71%,
of our U.K. employees are represented by one union, Unite
(Amicus Section). We have entered into a three year labor
agreement with Unite, the terms of which are generally
negotiated on an annual basis. Wages are typically the primary
subject of our negotiations, while other contract terms
generally remain the same from year to year until both parties
agree to change them (either separately or in the aggregate).
This labor agreement expires January 1, 2012.
As of December 31, 2010, we had approximately
410 employees and approximately 6 contract labor personnel
in our Malaysia facility. None of our Malaysia employees are
represented by a union.
We consider our relationships with our employees to be
satisfactory.
Government
Contracts
Companies engaged in supplying defense-related equipment and
services to U.S. Government agencies, either directly or by
subcontract, are subject to business risks specific to the
defense industry. These risks include the ability of the
U.S. Government to unilaterally: (1) suspend or debar
us from receiving new prime contracts or subcontracts;
(2) terminate existing contracts; (3) reduce the value
of existing contracts; (4) audit our contract-related costs
and fees, including allocated indirect costs; and
(5) control and potentially prohibit the export of our
products.
Most U.S. Government contracts for which we subcontract can
be terminated by the U.S. Government either for its
convenience or if the prime contractor defaults by failing to
perform under the contract. In addition, the prime contractor
typically has the right to terminate our subcontract for its
convenience or if we default by failing to perform under the
subcontract. Termination for convenience provisions generally
provide only for our recovery of costs incurred or committed,
settlement expenses and profit on the work completed prior to
termination. Termination for default provisions generally
provide for the subcontractor to be liable for excess costs
incurred by the prime contractor in procuring undelivered items
from another source.
20
Foreign
Ownership, Control or Influence (FOCI)
Due to the fact that more than 50% of our voting power is
effectively controlled by a
non-U.S. entity
(Onex) we are required to operate in accordance with the terms
and requirements of a Special Security Agreement, or SSA, with
the Department of Defense (DOD). Under the DOD
National Industrial Security Program Operating Manual
(NISPOM), the U.S. Government will not award
contracts to companies determined to be under FOCI, where a DoD
Facility Security Clearance, or FCL, is required, unless certain
mitigation measures are put in place. The purpose of
the FOCI mitigation measures is to protect cleared
U.S. defense contractors against improper FOCI.
We have been cleared to the Secret level under an
SSA, which is one of the recognized FOCI mitigation measures
under the NISPOM. As a cleared entity, we must comply with the
requirements of our SSA, the NISPOM and any other applicable
U.S. Government industrial security regulations. Failure to
follow the requirements of the SSA, the NISPOM or any other
applicable U.S. Government industrial security regulations
could, among other things, result in termination of our FCL,
which in turn would preclude us from being awarded classified
contracts or, under certain circumstances, performing on our
existing classified contracts.
Governmental
Regulations
The commercial aircraft component industry is highly regulated
by both the FAA in the United States, the Joint Aviation
Authority, or JAA, in Europe and other agencies throughout the
world. The military aircraft component industry is governed by
military quality specifications. We, and the components we
manufacture, are required to be certified by one or more of
these entities or agencies, and, in some cases, by individual
OEMs, to engineer and service parts and components used in
specific aircraft models.
We must also satisfy the requirements of our customers,
including OEMs and airlines that are subject to FAA regulations,
and provide these customers with products and services that
comply with the government regulations applicable to commercial
flight operations. In addition, the FAA requires that various
maintenance routines be performed on aircraft components. We
believe that we currently satisfy or exceed these maintenance
standards in our repair and overhaul services. We also maintain
several FAA-approved repair stations.
The technical data and components used in the design and
production of our products, as well as many of the products and
technical data we export, either as individual items or as
components incorporated into aircraft, are subject to compliance
with U.S. export control laws. Collaborative agreements
that we may have with foreign persons, including manufacturers
or suppliers, are also subject to U.S. export control laws.
Our operations are also subject to a variety of worker and
community safety laws. The Occupational Safety and Health Act,
or OSHA, mandates general requirements for safe workplaces for
all employees. In addition, OSHA provides special procedures and
measures for the handling of certain hazardous and toxic
substances. Our management believes that our operations are in
material compliance with OSHAs health and safety
requirements.
Available
Information
Our Internet address is www.spiritaero.com. The content on our
website is available for information purposes only. It should
not be relied upon for investment purposes, nor is it
incorporated by reference into this Annual Report.
We make available through our Internet website under the heading
Investor Relations, our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
Proxy Statements and amendments to those reports after we
electronically files them with the Securities and Exchange
Commission (SEC). Copies of our key corporate
governance documents, including its Corporate Governance
Guidelines, Code of Ethics and Business Conduct, and charters
for our Audit Committee, Compensation Committee and Corporate
Governance and Nominating Committee are also available on our
website.
Our filed Annual and Quarterly Reports, Proxy Statement and
other reports previously filed with the SEC are also available
to the public through the SECs website at
http://www.sec.gov.
Materials we file with the SEC may also be read and copied at
the SECs Public Reference Room at 100 F Street, NE,
Washington D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
21
An investment in our securities involves risk and uncertainties.
The risks and uncertainties set forth below are those that we
currently believe may materially and adversely affect us, our
future business or results of operations, or investments in our
securities. Additional risks and uncertainties that we are
unaware of or that we currently deem immaterial may also
materially and adversely affect us, our future business or
results of operations, or investments in our securities.
Risk
Factors Related to Our Business and Industry
Our
commercial business is cyclical and sensitive to commercial
airlines profitability. The business of commercial
airlines is, in turn, affected by global economic conditions and
geo-political considerations.
We compete in the aerostructures segment of the aerospace
industry. Our customers business, and therefore our own,
is directly affected by the financial condition of commercial
airlines and other economic factors, including global economic
conditions and geo-political considerations that affect the
demand for air transportation. Specifically, our commercial
business is dependent on the demand from passenger airlines and
cargo carriers for the production of new aircraft. Accordingly,
demand for our commercial products is tied to the worldwide
airline industrys ability to finance the purchase of new
aircraft and the industrys forecasted demand for seats,
flights, routes and cargo capacity. Similarly, the size and age
of the worldwide commercial aircraft fleet affects the demand
for new aircraft and, consequently, for our products. Such
factors, in conjunction with evolving economic conditions, cause
the market in which we operate to be cyclical to varying
degrees, thereby affecting our business and operating results.
Near-term challenges to our customers include sovereign debt
default, economic weakness in the airline industry and the
continuing volatility in global credit markets (which
contributed to widespread economic slowdown, restricted
discretionary spending, inability to finance airplane purchases,
and a slowdown in air traffic). Possible exogenous shocks such
as expanding conflicts or political unrest in the Middle East or
Asia, renewed terrorist attacks against the industry, or
pandemic health crises have the potential to cause precipitous
declines in air traffic. Any protracted economic slump,
continued adverse credit market conditions, future terrorist
attacks, war or health concerns could cause airlines to cancel
or delay the purchase of additional new aircraft which could
result in a deterioration of commercial airplane backlogs. If
demand for new aircraft decreases, there would likely be a
decrease in demand for our commercial aircraft products, and our
business, financial condition and results of operations could be
materially adversely affected.
Our
business could be materially adversely affected if one of our
components causes an aircraft accident.
Our operations expose us to potential liabilities for personal
injury or death as a result of the failure of an aircraft
component that has been designed, manufactured or serviced by us
or our suppliers. While we believe that our liability insurance
is adequate to protect us from future product liability claims,
it may not be adequate. Also, we may not be able to maintain
insurance coverage in the future at an acceptable cost. Any such
liability not covered by insurance or for which third-party
indemnification is not available could require us to dedicate a
substantial portion of our cash flows to make payments on such
liability, which could have a material adverse effect on our
business, financial condition and results of operations.
An accident caused by one of our components could also damage
our reputation for quality products. We believe our customers
consider safety and reliability as key criteria in selecting a
provider of aerostructures. If an accident were to be caused by
one of our components, or if we were to otherwise fail to
maintain a satisfactory record of safety and reliability, our
ability to retain and attract customers could be materially
adversely affected.
Our
business could be materially adversely affected by product
warranty obligations.
Our operations expose us to potential liability for warranty
claims made by customers or third parties with respect to
aircraft components that have been designed, manufactured, or
serviced by us or our suppliers. Material product warranty
obligations could have a material adverse effect on our
business, financial condition and results of operations.
22
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. 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.
Our
largest customer, Boeing, operates in a very competitive
business environment.
Boeing operates in a highly competitive industry. Competition
from Airbus, Boeings main competitor, as well as from
regional jet makers, has intensified as these competitors expand
aircraft model offerings and competitively price their products.
As a result of this competitive environment, Boeing continues to
face pressure on product offerings and sale prices. While we do
have supply agreements with Airbus, we currently have
substantially more business with Boeing and thus any adverse
effect on Boeings production of aircraft resulting from
this competitive environment may have a material adverse effect
on our business, financial condition and results of operations.
Our
business depends, in large part, on sales of components for a
single aircraft program, the B737.
For the twelve months ended December 31, 2010,
approximately 54% of our net revenues were generated from sales
of components to Boeing for the B737 aircraft. While we have
entered into long-term supply agreements with Boeing to continue
to provide components for the B737 for the life of the aircraft
program, including commercial and the military
P-8A
Poseidon derivatives, Boeing does not have any obligation to
purchase components from us for any replacement for the B737
that is not a commercial derivative model. Boeing has publicly
announced its intention to develop a next-generation
single-aisle aircraft program to replace the B787. If Boeing
develops a next-generation aircraft program to replace the B737
which is not a commercial derivative, we may not have the
next-generation technology, engineering and manufacturing
capability necessary to obtain significant aerostructures supply
business for the replacement program, may not be able to provide
components for the replacement program at competitive prices or,
for other reasons, may not be engaged by Boeing to the extent of
our involvement in the B737 or at all. If we were unable to
obtain significant aerostructures supply business for any B737
replacement program, our business, financial condition and
results of operations could be materially adversely affected.
The
profitability of the B787 program depends significantly on the
assumptions surrounding a satisfactory settlement of
assertions.
Due to the nature of the work performed related to the B787, we
regularly commence work or incorporate customer requested
changes prior to negotiating pricing terms for the engineering
work or the product which has been modified. We have the legal
right to negotiate pricing for customer directed changes. We
assert to our
23
customers our contractual rights to obtain the additional
revenue or cost reimbursement we expect to receive upon
finalizing pricing terms. An expected recovery value of these
assertions is incorporated into our contract profitability
estimates when applying contract accounting. Our inability to
recover these expected values, among other factors, could result
in the recognition of a forward loss on the B787 program and
could have a material adverse effect on our results of
operations.
Our
business depends, in part, on the success of a new model
aircraft, the B787.
The success of our business will depend, in part, on the success
of Boeings new B787 program. We have entered into supply
agreements with Boeing pursuant to which we are a Tier 1
supplier to the B787 program. We have made and will continue to
make a significant investment in this program before the first
commercial delivery of a B787 jetliner. Following program
delays, on December 15, 2009, Boeing completed the first
flight of the B787 jetliner. This was followed by the completion
of initial airworthiness testing on January 15, 2010. On
November 11, 2010, Boeing announced the postponement of
further flight test activities on the B787, following the
occurrence of an onboard electrical fire on a November 10,
2010 test flight. Boeing developed software system and other
upgrades in response to that occurrence. We anticipate, based on
public announcements by Boeing, that Boeing will commence
commercial deliveries on the B787 in approximately the third
quarter of 2011. We are in the process of evaluating the impact
of the revised schedule on our business. We have temporarily
shifted employees from the B787 program to work on other
programs. Amounts capitalized into inventory represent our
primary working capital exposure to the B787 delays. Given the
low margins we currently project in our first contract
accounting block, if Boeing is unable to meet currently
anticipated production levels or if we are not able to achieve
the cost reductions we expect, successfully implement customer
driven engineering changes, or successfully complete contract
negotiations, including assertions, we could eventually need to
recognize a forward loss in our current contract accounting
block. Any additional delays in the B787 program, including
delays in negotiations of certain contractual matters with
Boeing, could further impact our cash flows from operations and
could materially adversely affect our business, financial
condition and results of operations.
We may
be required to repay Boeing up to approximately
$1,023.3 million of advance payments and deferred revenue
made to us by Boeing related to the B787 Supply Agreement. The
advances may be repaid in the event that Boeing does not take
delivery of a sufficient number of ship sets prior to the
termination of the aircraft program. The deferred revenue may be
repaid if a final contract amendment is not reached during the
first half of 2011.
We are required to repay Boeing a 2007 interest free cash
advance of $700 million, 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 by the end 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 in 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. These additional
advances are paid to Spirit quarterly, 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
24
advances by the end of 2021, Spirit would be required to repay
any outstanding balance in six equal annual installments. The
advance payments have been made to Spirit quarterly since August
2009.
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 risk
factor.
Accordingly, portions of the advance repayment liability are
included as current and long-term liabilities in our
consolidated balance sheet. As of December 31, 2010, the
amount of advance payments and deferred revenue made to us by
Boeing under the B787 Supply Agreement and not yet repaid or
recognized as revenue was approximately $1,023.3 million.
We
incur risk associated with new programs.
New programs with new technologies typically carry risks
associated with design responsibility, development of new
production tools, hiring and training of qualified personnel,
increased capital and funding commitments, ability to meet
customer specifications, delivery schedules and unique
contractual requirements, supplier performance, ability of the
customer to meet its contractual obligations to us, and our
ability to accurately estimate costs associated with such
programs. In addition, any new aircraft program may not generate
sufficient demand or may experience technological problems or
significant delays in the regulatory certification or
manufacturing and delivery schedule. If we were unable to
perform our obligations under new programs to the
customers satisfaction, if we were unable to manufacture
products at our estimated costs, or if a new program in which we
had made a significant investment was terminated or experienced
weak demand, delays or technological problems, our business,
financial condition and results of operations could be
materially adversely affected. This risk includes the potential
for default, quality problems, or inability to meet weight
requirements and could result in low margin or forward loss
contracts, and the risk of having to write-off inventory if it
were deemed to be unrecoverable over the life of the program. In
addition, beginning new work on existing programs also carries
risks associated with the transfer of technology, knowledge and
tooling.
In order to perform on new programs we may be required to
construct or acquire new facilities requiring additional
up-front investment costs. In the case of significant program
delays
and/or
program cancellations, for the costs that are not recoverable,
we could be required to bear the construction and maintenance
costs and incur potential impairment charges for the new
facilities. Also, we may need to expend additional resources to
determine an alternate revenue-generating use for the
facilities. Likewise, significant delays in the construction or
acquisition of a plant site could impact production schedules.
Our
operations depend on our ability to maintain continuing,
uninterrupted production at our manufacturing facilities. Our
production facilities are subject to physical and other risks
that could disrupt production.
Our manufacturing facilities could be damaged or disrupted by a
natural disaster, war, terrorist activity or sustained
mechanical failure. Although we have obtained property damage
and business interruption insurance, a major catastrophe, such
as a fire, flood, tornado or other natural disaster at any of
our sites, war or terrorist activities in any of the areas where
we conduct operations or the sustained mechanical failure of a
key piece of equipment could result in a prolonged interruption
of all or a substantial portion of our business. Any disruption
resulting from these events could cause significant delays in
shipments of products and the loss of sales and customers and we
may not have insurance to adequately compensate us for any of
these events. A large portion of our operations takes place at
one facility in Wichita, Kansas and any significant damage or
disruption to this facility in particular would materially
adversely affect our ability to service our customers.
25
Future
commitments to our customers to increase production rates depend
on our ability to expand production at our manufacturing
facilities.
Boeing and Airbus, our two largest customers, have both
announced planned production rate increases for several of their
major programs. In some cases, in order to meet these increases
in production rates, we will need to make significant capital
expenditures to expand our capacity and improve our performance.
While some of these expenditures will be reimbursed by our
customers, we could be required to bear a significant portion of
the costs. In addition, the increases in production rates could
cause disruptions in our manufacturing lines, which could
materially adversely impact our ability to meet our commitments
to our customers, and have a resulting adverse effect on our
financial condition and results of operations.
We
operate in a very competitive business
environment.
Competition in the aerostructures segment of the aerospace
industry is intense. Although we have entered into supply
agreements with Boeing and Airbus under which we are their
exclusive supplier for certain aircraft parts, we will face
substantial competition from both OEMs and non-OEM
aerostructures suppliers in trying to expand our customer base
and the types of parts we make.
OEMs may choose not to outsource production of aerostructures
due to, among other things, their own direct labor and other
overhead considerations and capacity utilization at their own
facilities. Consequently, traditional factors affecting
competition, such as price and quality of service, may not be
significant determinants when OEMs decide whether to produce a
part in-house or to outsource.
Our principal competitors among aerostructures suppliers are
Aircelle S.A., Alenia Aeronautica, Fuji Heavy Industries, Ltd.,
GKN Aerospace, The Goodrich Corporation, Kawasaki Heavy
Industries, Inc., Mitsubishi Heavy Industries, Saab AB, Snecma,
Triumph Group, Inc., Latecoere S.A., Aerolia SAS, Premium
Aerotech GmbH and Nexcelle. Some of our competitors have greater
resources than we do and, therefore, may be able to adapt more
quickly to new or emerging technologies and changes in customer
requirements, or devote greater resources to the promotion and
sale of their products than we can. Additionally, as part of its
Power 8 restructuring plan, Airbus and its parent company EADS
have formed wholly-owned French (Aerolia) and German (Premium
Aerotech) subsidiaries for potential sale to third parties in
2012. If these facilities are sold, or otherwise attempt to
obtain work from third parties, the facilities could become
competitors of Spirit. Providers of aerostructures have
traditionally competed on the basis of cost, technology, quality
and service. We believe that developing and maintaining a
competitive advantage will require continued investment in
product development, engineering, supply-chain management and
sales and marketing, and we may not have enough resources to
make such investments. For these reasons, we may not be able to
compete successfully in this market or against such competitors,
which could have a material adverse effect on our business,
financial condition and results of operations.
High
switching costs may substantially limit our ability to obtain
business that is currently under contract with other
suppliers.
Once a contract is awarded by an OEM to an aerostructures
supplier, the OEM and the supplier are typically required to
spend significant amounts of time and capital on design,
manufacture, testing and certification of tooling and other
equipment. For an OEM to change suppliers during the life of an
aircraft program, further testing and certification would be
necessary, and the OEM would be required either to move the
tooling and equipment used by the existing supplier for
performance under the existing contract, which may be expensive
and difficult (or impossible), or to manufacture new tooling and
equipment. Accordingly, any change of suppliers would likely
result in production delays and additional costs to both the OEM
and the new supplier. These high switching costs may make it
more difficult for us to bid competitively against existing
suppliers and less likely that an OEM will be willing to switch
suppliers during the life of an aircraft program, which could
materially adversely affect our ability to obtain new work on
existing aircraft programs.
26
Because
of our limited operating history, our historical financial
statements do not reflect the impact of an extended market
downturn on our financial condition and results of
operations.
Our historical financial statements are not indicative of how we
would operate through an extended market downturn. Since the
Boeing Acquisition and until the latter part of 2008, we had
operated in a market experiencing an upturn; however, from the
latter part of 2008 through 2009, we operated during a period of
a deep economic recession. As previously mentioned, net orders
and delivery rates are nearly even for 2010, yielding stable
backlog quantities. In 2005, Boeing and Airbus experienced
record aggregate annual airplane orders, followed in 2006 with
aggregate annual order totals that, at the time, were the second
highest ever. Aggregate annual orders, net of cancellations,
remained strong in 2007 at 2,754. However, aggregate annual
orders, net of cancellations, decreased to 1,439 in 2008 and 413
in 2009. In 2010 orders, net of cancellations, were 1,104. Our
financial results from this limited history provide little
indication of our ability to operate in a market experiencing
significantly lower demand for our products and the products of
our customers. As such, we cannot give any assurance that we
will be able to successfully operate in such a market at
historical profitability levels or at all.
Increases
in labor costs, potential labor disputes and work stoppages at
our facilities or the facilities of our suppliers or customers
could materially adversely affect our financial
performance.
Our financial performance is affected by the availability of
qualified personnel and the cost of labor. A majority of our
workforce is represented by unions. If our workers were to
engage in a strike, work stoppage or other slowdown, we could
experience a significant disruption of our operations, which
could cause us to be unable to deliver products to our customers
on a timely basis and could result in a breach of our supply
agreements. This could result in a loss of business and an
increase in our operating expenses, which could have a material
adverse effect on our business, financial condition and results
of operations. In addition, our non-unionized labor force may
become subject to labor union organizing efforts, which could
cause us to incur additional labor costs and increase the
related risks that we now face.
We have agreed with Boeing to continue to operate substantial
manufacturing operations in Wichita, Kansas until at least
June 16, 2015 and we have other commitments to keep major
programs in Wichita until 2020 in certain circumstances. This
may prevent us from being able to offer our products at prices
that are competitive in the marketplace and could have a
material adverse effect on our ability to generate new business.
In addition, many aircraft manufacturers, airlines and aerospace
suppliers have unionized work forces. Any strikes, work
stoppages or slowdowns experienced by aircraft manufacturers,
airlines or aerospace suppliers could reduce our customers
demand for additional aircraft structures or prevent us from
completing production of our aircraft structures.
While we have successfully negotiated new contracts in 2009 and
2010 with three of the five unions that represent our
U.S. employees, all of which are long-term ten-year
agreements, our collective bargaining agreement with another
union, which represents approximately 18% of our
U.S. workforce, will expire in the third quarter of 2011.
See Business Employees. We cannot give
any assurance that we will be able to negotiate new collective
bargaining agreements with our unions, on commercially
reasonable terms or at all. If we are unable to successfully
negotiate new collective bargaining agreements, or if we enter
into new collective bargaining agreements on terms which are
less favorable to us than our existing agreements, our operating
expenses could increase, which could have a material adverse
effect on our business, financial condition and results of
operations.
Our
business may be materially adversely affected if we lose our
government, regulatory or industry approvals, if more stringent
government regulations are enacted, or if industry oversight is
increased.
The FAA prescribes standards and qualification requirements for
aerostructures, including virtually all commercial airline and
general aviation products, and licenses component repair
stations within the United States. Comparable agencies, such as
the Joint Aviation Authorities (JAA) in Europe,
regulate these matters in other countries. If we fail to qualify
for or obtain a required license for one of our products or
services or lose a qualification or license previously granted,
the sale of the subject product or service would be prohibited
by law until such license is obtained or renewed and our
business, financial condition and results of operations could be
27
materially adversely affected. In addition, designing new
products to meet existing regulatory requirements and
retrofitting installed products to comply with new regulatory
requirements can be expensive and time consuming.
From time to time, the FAA, the JAA or comparable agencies
propose new regulations or changes to existing regulations.
These changes or new regulations generally increase the costs of
compliance. To the extent the FAA, the JAA or comparable
agencies implement regulatory changes, we may incur significant
additional costs to achieve compliance.
In addition, certain aircraft repair activities we intend to
engage in may require the approval of the aircrafts OEM.
Our inability to obtain OEM approval could materially restrict
our ability to perform such aircraft repair activities.
We are
subject to regulation of our technical data and goods under U.S.
export control laws.
As a manufacturer and exporter of defense and dual-use technical
data and commodities, we are subject to U.S. laws and
regulations governing international trade and exports,
including, but not limited to, the International Traffic in Arms
Regulations, administered by the U.S. Department of State,
and the Export Administration Regulations, administered by the
U.S. Department of Commerce. Collaborative agreements that
we may have with foreign persons, including manufacturers and
suppliers, are also subject to U.S. export control laws. In
addition, we are subject to trade sanctions against embargoed
countries, administered by the Office of Foreign Assets Control
within the U.S. Department of the Treasury.
A determination that we have failed to comply with one or more
of these export controls or trade sanctions could result in
civil or criminal penalties, including the imposition of fines
upon us as well as the denial of export privileges and debarment
from participation in U.S. government contracts.
Additionally, restrictions may be placed on the export of
technical data and goods in the future as a result of changing
geopolitical conditions. Any one or more of such sanctions could
have a material adverse effect on our business, financial
condition and results of operations.
Our
business is subject to regulation in the United States and
internationally.
The manufacturing of our products is subject to numerous
federal, state and foreign governmental regulations. The number
of laws and regulations that are being enacted or proposed by
state, federal and international governments and authorities are
increasing. Compliance with these regulations is difficult and
expensive. If we fail to adhere, or are alleged to have failed
to adhere, to any applicable federal, state or foreign laws or
regulations, or if such laws or regulations negatively affect
sales of our products, our business, prospects, results of
operation, financial condition or cash flows may be adversely
affected. In addition, our future results could be adversely
affected by changes in applicable federal, state and foreign
laws and regulations, or the interpretation or enforcement
thereof, including those relating to manufacturing processes,
product liability, trade rules and customs regulations,
intellectual property, consumer laws, privacy laws, as well as
accounting standards and taxation requirements (including
tax-rate changes, new tax laws and revised tax law
interpretations).
We are
subject to environmental, health and safety regulations and our
ongoing operations may expose us to related
liabilities.
Our operations are subject to extensive regulation under
environmental, health and safety laws and regulations in the
United States and other countries in which we operate. We may be
subject to potentially significant fines or penalties, including
criminal sanctions, if we fail to comply with these
requirements. We have made, and will continue to make,
significant capital and other expenditures to comply with these
laws and regulations. We cannot predict with certainty what
environmental legislation will be enacted in the future or how
existing laws will be administered or interpreted. Our
operations involve the use of large amounts of hazardous
substances and regulated materials and generate many types of
wastes, including emissions of hexavalent chromium and volatile
organic compounds, and so-called greenhouse gases such as carbon
dioxide. Spills and releases of these materials may subject us
to clean-up
liability for remediation and claims of alleged personal injury,
property damage and damage to natural resources, and we may
become obligated to reduce our emissions of hexavalent chromium,
volatile
28
organic compounds and/or greenhouse gases. We cannot give any
assurance that the aggregate amount of future remediation costs
and other environmental liabilities will not be material.
Boeing, our predecessor at the Wichita facility, is under an
administrative consent order issued by the Kansas Department of
Health and Environment to contain and remediate contaminated
groundwater which underlies a majority of the site. Pursuant to
this order and its agreements with us, Boeing has a long-term
remediation plan in place, and treatment, containment and
remediation efforts are underway. If Boeing does not comply with
its obligations under the order and these agreements, we may be
required to undertake such efforts and make material
expenditures.
In connection with the BAE Acquisition, we acquired a
manufacturing facility in Prestwick, Scotland that is adjacent
to contaminated property retained by BAE Systems. The
contaminated property may be subject to a regulatory action
requiring remediation of the land. It is also possible that the
contamination may spread into the property we acquired. BAE
Systems has agreed to indemnify us, subject to certain
contractual limitations and conditions, for certain clean up
costs and other losses, liabilities, expenses and claims related
to existing pollution on the acquired property, existing
pollution that migrates from the acquired property to a third
partys property and any pollution that migrates to our
property from property retained by BAE Systems. If BAE Systems
does not comply with its obligations under the agreement, we may
be required to undertake such efforts and make material
expenditures.
In the future, contamination may be discovered at or emanating
from our facilities or at off-site locations where we send
waste. The remediation of such newly discovered contamination,
related claims for personal injury or damages, or the enactment
of new laws or a stricter interpretation of existing laws, may
require us to make additional expenditures, some of which could
be material. See Business Environmental
Matters.
Significant
consolidation in the aerospace industry could make it difficult
for us to obtain new business.
Suppliers in the aerospace industry have consolidated and formed
alliances to broaden their product and integrated system
offerings and achieve critical mass. This supplier consolidation
is in part attributable to aircraft manufacturers more
frequently awarding long-term sole-source or preferred supplier
contracts to the most capable suppliers, thus reducing the total
number of suppliers. If this consolidation were to continue, it
may become more difficult for us to be successful in obtaining
new customers.
We may
be materially adversely affected by high fuel
prices.
Due to the competitive nature of the airline industry, airlines
are often unable to pass on increased fuel prices to customers
by increasing fares. Fluctuations in the global supply of crude
oil and the possibility of changes in government policy on jet
fuel production, transportation and marketing make it difficult
to predict the future availability of jet fuel. In the event
there is an outbreak or escalation of hostilities or other
conflicts, or significant disruptions in oil production or
delivery in oil-producing areas or elsewhere, there could be
reductions in the production or importation of crude oil and
significant increases in the cost of fuel. If there were major
reductions in the availability of jet fuel or significant
increases in its cost, the airline industry and, as a result,
our business, could be materially adversely affected.
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.
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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.
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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.
Our
business will suffer if certain key officers or employees
discontinue employment with us or if we are unable to recruit
and retain highly skilled staff.
The success of our business is highly dependent upon the skills,
experience and efforts of our President and Chief Executive
Officer, Jeffrey Turner, and certain of our other key officers
and employees. As the top executive officer of Boeing Wichita
for almost ten years prior to the Boeing Acquisition,
Mr. Turner gained extensive experience in running our
business and long-standing relationships with many high-level
executives at Boeing, our largest customer. We believe
Mr. Turners reputation in the aerospace industry and
relationship with Boeing are critical elements in maintaining
and expanding our business. The loss of Mr. Turner or other
key personnel could have a material adverse effect on our
business, operating results or financial condition. Our business
also depends on our ability to continue to recruit, train and
retain skilled employees, particularly skilled engineers. The
market for these resources is highly competitive. We may be
unsuccessful in attracting and retaining the engineers we need
and, in such event, our business could be materially adversely
affected. The loss of the services of any skilled key personnel,
or our inability to hire new personnel with the requisite
skills, could impair our ability to provide products to our
customers or manage our business effectively.
We are
subject to the requirements of the National Industrial Security
Program Operating Manual (NISPOM) for our Facility
Security Clearance (FCL), which is a prerequisite
for our ability to perform on classified contracts for the U.S.
Government.
A Department of Defense (DOD) FCL is required for a
company to be awarded and perform on classified contracts for
the DOD and certain other agencies of the U.S. Government.
From time to time we have performed and
30
may perform on classified contracts, although we did not
generate any revenues from classified contracts for the twelve
months ended December 31, 2010. We have obtained an FCL at
the Secret level. Due to the fact that more than 50%
of our voting power is effectively controlled by a
non-U.S. entity
(i.e., Onex), we are required to operate in accordance with the
terms and requirements of our Special Security Agreement
(SSA) with the DOD. If we were to violate the terms
and requirements of our SSA, the NISPOM, or any other applicable
U.S. Government industrial security regulations, we could
lose our FCL. We cannot give any assurance that we will be able
to maintain our FCL. If for some reason our FCL is invalidated
or terminated, we may not be able to continue to perform our
classified contracts in effect at that time, and we would not be
able to enter into new classified contracts, which could
adversely affect our revenues.
We
derive a significant portion of our net revenues from direct and
indirect sales outside the United States and are subject to
the risks of doing business in foreign countries.
We derive a significant portion of our revenues from sales by
Boeing and Airbus to customers outside the United States. In
addition, for the twelve months ended December 31, 2010,
direct sales to our
non-U.S. customers
accounted for approximately 12% of our net revenues. We expect
that our and our customers international sales will
continue to account for a significant portion of our net
revenues for the foreseeable future. As a result, we are subject
to risks of doing business internationally, including:
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changes in regulatory requirements;
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domestic and foreign government policies, including requirements
to expend a portion of program funds locally and governmental
industrial cooperation requirements;
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fluctuations in foreign currency exchange rates;
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the complexity and necessity of using foreign representatives
and consultants;
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uncertainties and restrictions concerning the availability of
funding credit or guarantees;
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imposition of tariffs and embargos, export controls and other
trade restrictions;
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the difficulty of management and operation of an enterprise
spread over various countries;
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compliance with a variety of foreign laws, as well as
U.S. laws affecting the activities of U.S. companies
abroad, including the Foreign Corrupt Practices Act and other
applicable anti-bribery laws; and
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economic and geopolitical developments and conditions, including
international hostilities, acts of terrorism and governmental
reactions, inflation, trade relationships and military and
political alliances.
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While these factors or the effect of these factors are difficult
to predict, adverse developments in one or more of these areas
could materially adversely affect our business, financial
condition and results of operations in the future.
Our
fixed-price contracts may commit us to unfavorable
terms.
We provide most of our products and services through long-term
contracts in which the pricing terms are fixed based on certain
production volumes. Accordingly, we bear the risk that we will
not be able to sustain a cost structure that is consistent with
assumptions used in bidding on contracts. Increased or
unexpected costs may reduce our profit margins or cause us to
sustain losses on these contracts. Other than certain increases
in raw material costs which can be passed on to our customers,
we must fully absorb cost overruns, notwithstanding the
difficulty of estimating all of the costs we will incur in
performing these contracts and in projecting the ultimate level
of sales that we may achieve. Our failure to anticipate
technical problems, estimate delivery reductions, estimate costs
accurately or control costs during performance of a fixed-price
contract may reduce the profitability of a contract or cause a
loss.
This risk particularly applies to products such as the Boeing
B787, for which we had delivered thirty-one production articles
as of December 31, 2010 since the inception of the program,
and in respect of which our profitability at the contracted
price depends on our being able to achieve production cost
reductions as we gain production experience. Pricing for the
initial configuration of the B787-8, the base model currently in
production, is
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generally established through 2021, with prices decreasing as
cumulative volume levels are achieved. Prices are subject to
adjustment for abnormal inflation (above a specified level in
any year) and for certain production, schedule and other
specific changes. When we negotiated the B787-8 pricing, we
assumed that favorable trends in volume, learning curve
efficiencies and future pricing from suppliers would reduce our
production costs over the life of the B787 program, thus
maintaining or improving our margin on each B787 we produced. We
cannot give any assurance that our development of new
technologies or capabilities will be successful or that we will
be able to reduce our B787 production costs over the life of the
program. Our failure to reduce production costs as we have
anticipated could result in decreasing margin on the B787 during
the life of the program and the need to record a forward loss
for the current contract accounting block.
Many of our other production cost estimates also contain pricing
terms which anticipate cost reductions over time. In addition,
although we have entered into these fixed price contracts with
our customers, they may nonetheless seek to re-negotiate pricing
with us in the future. Any such higher costs or re-negotiations
could materially adversely affect our profitability, margins and
revenues.
We
face a
class-action
lawsuit which could potentially result in substantial costs,
diversion of managements attention and resources, and
negative publicity.
A lawsuit has been filed against Spirit, Onex, and Boeing
alleging age discrimination in the hiring of employees by Spirit
when Boeing sold Boeing Wichita 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. 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 could decide to
appeal the district courts decision to the United States
Court of Appeals for the Tenth Circuit, which could reverse the
District Courts June 30 ruling. The Asset Purchase
Agreement between Onex and Boeing relating to the Boeing
Acquisition requires Spirit to indemnify Boeing for its 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. The lawsuit
could result in substantial costs, divert managements
attention and resources from our operations and negatively
affect our public image and reputation. An unfavorable outcome
or prolonged litigation related to these matters could
materially harm our business.
We are
implementing new company-wide software systems, which could
increase our information technology expenditures and cause
unexpected production delays.
We have recently implemented an Enterprise Resource Planning
(ERP) software system in several of our facilities,
and have begun implementation of other system upgrades and
infrastructure changes. We plan to implement the ERP software in
all of our primary facilities by the end of 2011. Our total
expenditures for these systems and upgrades could exceed the
planned budget. In addition, unexpected problems with the
implementation could result in production or other delays.
We do
not own most of the intellectual property and tooling used in
our business.
Our business depends on using certain intellectual property and
tooling that we have rights to use under license grants from
Boeing. These licenses contain restrictions on our use of Boeing
intellectual property and tooling and may be terminated if we
default under certain of these restrictions. Our loss of license
rights to use Boeing intellectual property or tooling would
materially adversely affect our business. In addition, we must
honor our contractual commitments to our other customers related
to intellectual property and comply with infringement laws
governing our use of intellectual property. In the event we
obtain new business from new or existing customers, we will need
to pay particular attention to these contractual commitments and
any other restrictions on our use of intellectual property to
make sure that we will not be using intellectual property
improperly in the performance of such new business. In the event
we use any such intellectual property improperly, we could be
subject to an infringement claim by the owner or licensee of
such intellectual property. See Business Our
Relationship with Boeing License of Intellectual
Property. In addition to the licenses with Boeing, Spirit
licenses some of the
32
intellectual property needed for performance under some of its
supply contracts from its customers under those supply
agreements.
In the future, our entry into new markets may require obtaining
additional license grants from Boeing
and/or from
other third parties. If we are unable to negotiate additional
license rights on acceptable terms (or at all) from Boeing
and/or other
third parties as the need arises, our ability to enter new
markets may be materially restricted. In addition, we may be
subject to restrictions in future licenses granted to us that
may materially restrict our use of third party intellectual
property.
Our
success depends in part on the success of our research and
development initiatives.
We spent approximately $51.5 million on research and
development during the twelve months ended December 31,
2010. Our significant expenditures on our research and
development efforts may not create any new sales opportunities
or increases in productivity that are commensurate with the
level of resources invested.
We are in the process of developing specific technologies and
capabilities in pursuit of new business and in anticipation of
customers going forward with new programs. If any such programs
do not go forward or are not successful, we may be unable to
recover the costs incurred in anticipation of such programs and
our profitability and revenues may be materially adversely
affected.
Any
future business combinations, acquisitions, mergers, or joint
ventures will expose us to risks, including the risk that we may
not be able to successfully integrate these businesses or
achieve expected operating synergies.
We actively consider strategic transactions from time to time.
We evaluate acquisitions, joint ventures, alliances and
co-production programs as opportunities arise, and we may be
engaged in varying levels of negotiations with potential
competitors at any time. We may not be able to effect
transactions with strategic alliance, acquisition or
co-production program candidates on commercially reasonable
terms or at all. If we enter into these transactions, we also
may not realize the benefits we anticipate. In addition, we may
not be able to obtain additional financing for these
transactions. The integration of companies that have previously
been operated separately involves a number of risks, including,
but not limited to:
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demands on management related to the increase in size after the
transaction;
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the diversion of managements attention from the management
of daily operations to the integration of operations;
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difficulties in the assimilation and retention of employees;
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difficulties in the assimilation of different cultures and
practices, as well as in the assimilation of geographically
dispersed operations and personnel, who may speak different
languages;
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difficulties combining operations that use different currencies
or operate under different legal structures;
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difficulties in the integration of departments, systems
(including accounting systems), technologies, books and records
and procedures, as well as in maintaining uniform standards,
controls (including internal accounting controls), procedures
and policies;
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compliance with the Foreign Corrupt Practices Act and other
applicable anti-bribery laws; and
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constraints (contractual or otherwise) limiting our ability to
consolidate, rationalize
and/or
leverage supplier arrangements to achieve integration.
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Consummating any acquisitions, joint ventures, alliances or
co-production programs could result in the incurrence of
additional debt and related interest expense, as well as
unforeseen contingent liabilities.
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We
could be required to make future contributions to our defined
benefit pension and post-retirement benefit plans as a result of
adverse changes in interest rates and the capital
markets.
Our estimates of liabilities and expenses for pensions and other
post-retirement benefits incorporate significant assumptions
including the rate used to discount the future estimated
liability, the long-term rate of return on plan assets and
several assumptions relating to the employee workforce (salary
increases, medical costs, retirement age and mortality). A
dramatic decrease in the fair value of our plan assets resulting
from movements in the financial markets may cause the status of
our plans to go from an over-funded status to an under-funded
status and result in cash funding requirements to meet any
minimum required funding levels. Our results of operations,
liquidity, or shareholders equity in a particular period
could be affected by a decline in the rate of return on plan
assets, the rate used to discount the future estimated
liability, or changes in employee workforce assumptions.
Risk
Factors Related to Our Capital Structure
The
interests of our controlling stockholder may conflict with your
interests.
Onex Partners LP, Onex Corporation and their respective partners
and affiliates that beneficially own our class B common
stock, herein referred to collectively as the Onex
entities, own 32,411,638 shares of our class B
common stock. Our class A common stock has one vote per
share, while our class B common stock has ten votes per
share on all matters to be voted on by our stockholders.
Consequently, the Onex entities control approximately 74% of the
combined voting power of our outstanding common stock.
Accordingly, and for so long as the Onex entities continue to
hold class B common stock that represents at least 10% of
the total number of shares of common stock outstanding, Onex
will exercise a controlling influence over our business and
affairs and will have the power to determine all matters
submitted to a vote of our stockholders, including the election
of directors and approval of significant corporate transactions
such as amendments to our certificate of incorporation, mergers
and the sale of all or substantially all of our assets. Onex
could cause corporate actions to be taken even if the interests
of Onex conflict with the interests of our other stockholders.
This concentration of voting power could have the effect of
deterring or preventing a change in control of Spirit that might
otherwise be beneficial to our stockholders. Gerald W. Schwartz,
the Chairman, President and Chief Executive Officer of Onex
Corporation, owns shares representing a majority of the voting
rights of the shares of Onex Corporation.
Our
substantial debt could adversely affect our financial condition
and our ability to operate our business. The terms of the
indenture governing our long-term bonds and our senior secured
credit facility impose significant operating and financial
restrictions on our company and our subsidiaries, which could
also adversely affect our operating flexibility and put us at a
competitive disadvantage by preventing us from capitalizing on
business opportunities.
As of December 31, 2010, we had total debt of approximately
$1,196.8 million, including approximately
$566.1 million of borrowings under our senior secured
credit facility, $594.2 million of long-term bonds, a
$18.2 million Malaysian loan, approximately
$17.2 million of capital lease obligations, and
$1.1 million in other debt obligations. In addition to our
debt, as of December 31, 2010, we had $42.0 million of
letters of credit and letters of guarantee outstanding.
The terms of the indentures governing our long-term bonds and
our senior secured credit facility impose significant operating
and financial restrictions on us, which limit our ability, among
other things, to:
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incur additional debt or issue preferred stock;
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pay dividends or make distributions to our stockholders;
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repurchase or redeem our capital stock;
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make investments;
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incur liens without granting equal and ratable liens to the
holders of the notes;
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enter into transactions with our stockholders and affiliates;
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sell certain assets;
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acquire the assets of, or merge or consolidate with, other
companies; and
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incur restrictions on the ability of our subsidiaries to make
distributions or transfer assets to us.
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These restrictions could have consequences, including the
following:
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making it more difficult for us to satisfy our obligations with
respect to our debt;
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limiting our ability to obtain additional financing to fund
future working capital, capital expenditures, strategic
acquisitions or other general corporate requirements;
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requiring a substantial portion of our cash flows to be
dedicated to debt service payments instead of other purposes;
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increasing our vulnerability to general adverse economic and
industry conditions;
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limiting our financial flexibility in planning for and reacting
to changes in the industry in which we compete;
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placing us at a disadvantage compared to other, less leveraged
competitors;
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having a material adverse effect on us if we fail to comply with
the covenants in the indenture governing our long-term bonds or
in the instruments governing our other debt; and
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increasing our cost of borrowing.
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Our existing senior secured revolving credit facility, which
matures on September 30, 2014, is a significant source of
liquidity for our business. The failure to extend or renew this
agreement could have a significant effect on our ability to
invest sufficiently in our programs, fund day to day operations,
or pursue strategic opportunities.
We cannot assure you that we will be able to maintain compliance
with the covenants in the agreements governing our indebtedness
in the future or, if we fail to do so, that we will be able to
obtain waivers from the lenders
and/or amend
the covenants.
In addition, despite the restrictions and limitations described
above, subject to the limits contained in the agreements
governing our indebtedness, we may be able to incur additional
debt from time to time to finance working capital, capital
expenditures, investments or acquisitions, or for other
purposes. The terms of any future indebtedness we may incur
could include more restrictive covenants. If we incur additional
debt, the risks related to our high level of debt could
intensify.
In addition, if we are unable to generate sufficient cash flow
to service our debt and meet our other commitments, we may need
to refinance all or a portion of our debt, sell material assets
or operations, or raise additional debt or equity capital. We
cannot provide assurance that we could effect any of these
actions on a timely basis, on commercially reasonable terms or
at all, or that these actions would be sufficient to meet our
capital requirements. In addition, the terms of our existing or
future debt agreements may restrict us from effecting certain or
any of these alternatives.
Global credit markets are still recovering from the 2008
financial crisis, and are subject to numerous risk factors,
including but not limited to concerns over sovereign debt in
Europe and elsewhere; the impact and effectiveness of new
financial legislation and regulation in the United States and
Europe; the impact of those reforms on borrowers, financial
institutions and credit rating agencies; potential systemic risk
resulting from the interrelationship of credit market products
and participants; global governmental and central banking
policies; and conflict and political instability in the Middle
East and Asia. There can be no assurance that access to credit
markets will continue to be available to us.
Any
reduction in our credit ratings could materially and adversely
affect our business or financial condition.
On October 7, 2010, our corporate credit rating at
Standard & Poors Rating Services was affirmed at
BB and our corporate credit rating at Moodys Investor
Services was upgraded to Ba2 from Ba3.
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The ratings reflect the agencies assessment of our ability
to pay interest and principal on our debt securities and credit
agreements. A rating is not a recommendation to purchase, sell
or hold securities. 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
and, accordingly, each rating should be considered independently
of all other ratings. Lower ratings would typically result in
higher interest costs of debt securities when they are sold, and
could make it more difficult to issue future debt securities. In
addition, a downgrade in our fixed or revolving long-term debt
rating could result in an increase in borrowing costs under our
senior secured credit facility. Any downgrade in our credit
ratings could thus have a material adverse effect on our
business or financial condition.
We may
sell more equity and reduce your ownership in Spirit
Holdings.
Our business plan may require the investment of new capital,
which we may raise by issuing additional equity (including
equity interests which may have a preference over shares of our
class A common stock) or additional debt (including debt
securities
and/or bank
loans). However, this capital may not be available at all, or
when needed, or upon terms and conditions favorable to us. The
issuance of additional equity in Spirit Holdings may result in
significant dilution of shares of our class A common stock.
We may issue additional equity in connection with or to finance
acquisitions. Further, our subsidiaries could issue securities
in the future to persons or entities (including our affiliates)
other than us or another subsidiary. This could materially
adversely affect your investment in us because it would dilute
your indirect ownership interest in our subsidiaries.
Spirit
Holdings certificate of incorporation and by-laws and our
supply agreements with Boeing contain provisions that could
discourage another company from acquiring us and may prevent
attempts by our stockholders to replace or remove our current
management.
Provisions of Spirit Holdings certificate of incorporation
and by-laws may discourage, delay or prevent a merger or
acquisition that stockholders may consider favorable, including
transactions in which stockholders might otherwise receive a
premium for their shares. In addition, these provisions may
frustrate or prevent any attempts by our stockholders to replace
or remove our current management by making it more difficult for
stockholders to replace or remove our current board of
directors. These provisions include:
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multi-vote shares of common stock, which are owned by the Onex
entities and management stockholders;
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advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted on
by stockholders at stockholder meetings; and
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the authority of the board of directors to issue, without
stockholder approval, up to 10 million shares of preferred
stock with such terms as the board of directors may determine
and an additional 57,208,192 shares of class A common
stock (net of shares issued but subject to vesting requirements
under our benefit plans and shares reserved for issuance upon
conversion of outstanding shares of class B common stock)
and an additional 114,409,506 shares of class B common
stock (net of shares issued but subject to vesting requirements
under our benefit plans).
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In addition, our supply agreements with Boeing include
provisions giving Boeing the ability to terminate the agreements
in the event any of certain disqualified persons acquire a
majority of Spirits direct or indirect voting power or all
or substantially all of Spirits assets. See
Business Our Relationship with Boeing.
Spirit
Holdings is a controlled company within the meaning
of the New York Stock Exchange rules and, as a result, qualifies
for, and relies on, exemptions from certain corporate governance
requirements.
Because the Onex entities own more than 50% of the combined
voting power of the common stock of Spirit Holdings, Spirit
Holdings is deemed a controlled company under the
rules of the New York Stock Exchange, or NYSE. As a result,
Spirit Holdings qualifies for, and relies upon, the
controlled company exception to the board of
directors and committee composition requirements under the rules
of the NYSE. Pursuant to this exception, Spirit Holdings is
exempt from rules that would otherwise require that Spirit
Holdings board of directors be comprised of a majority of
independent directors (as defined under the rules of
the NYSE), and that Spirit Holdings compensation committee
and corporate governance and nominating committee be comprised
solely of
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independent directors, so long as the Onex entities
continue to own more than 50% of the combined voting power of
the common stock of Spirit Holdings. Spirit Holdings board
of directors consists of ten directors, six of whom qualify as
independent. Spirit Holdings compensation and
corporate governance and nominating committees are not comprised
solely of independent directors. Spirit Holdings
does not currently rely on the exemption related to board
composition, although it may do so in the future. See
Management Executive Officers and
Directors and Committees of the Board of
Directors.
Our
stock price may be volatile.
Price fluctuations in our class A common stock could result
from general market and economic conditions and a variety of
other factors, including:
|
|
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|
|
actual or anticipated fluctuations in our operating results;
|
|
|
|
changes in aerostructures pricing;
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|
our competitors and customers announcements of
significant contracts, acquisitions or strategic investments;
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|
|
changes in our growth rates or our competitors and
customers growth rates;
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|
the timing or results of regulatory submissions or actions with
respect to our business;
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|
our inability to finance or raise additional capital;
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|
|
conditions of the aerostructure industry, in the financial
markets, or economic conditions in general; and
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|
changes in stock market analyst recommendations regarding our
class A common stock, other comparable companies or the
aerospace industry in general.
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|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
37
The location, primary use, approximate square footage and
ownership status of our principal properties as of
December 31, 2010 are set forth below:
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|
|
|
Approximate
|
|
|
Location
|
|
Primary Use
|
|
Square Footage
|
|
Owned/Leased
|
|
United States
|
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|
|
|
|
Wichita, Kansas(1)
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Primary Manufacturing
|
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11.2 million
|
|
Owned/Leased
|
|
|
Facility/Offices/Warehouse
|
|
|
|
|
Tulsa, Oklahoma
|
|
Manufacturing Facility
|
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1.9 million
|
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Leased
|
McAlester, Oklahoma
|
|
Manufacturing Facility
|
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135,000
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Owned
|
Kinston, North Carolina
|
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Primary Manufacturing/Office/Warehouse
|
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638,900
|
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Leased
|
United Kingdom
|
|
|
|
|
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|
Prestwick, Scotland
|
|
Manufacturing Facility
|
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1.1 million
|
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Owned
|
Preston, England
|
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Administrative Offices
|
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16,275
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Leased
|
Malaysia
|
|
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Subang, Malaysia
|
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Manufacturing
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244,000
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Leased
|
France
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Saint-Nazaire, France(2)
|
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Primary Manufacturing/Office
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58,753
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Leased
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Toulouse, France
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Office
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3,391
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Leased
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(1) |
|
94% of the Wichita facility is owned. |
|
(2) |
|
Operations are expected to begin in 2011. |
Our physical assets consist of 15.3 million square feet of
building space located on 1,334 acres in nine facilities.
We produce our fuselage systems and propulsion systems from our
primary manufacturing facility located in Wichita, Kansas and we
produce wing systems in our manufacturing facilities in Tulsa,
Oklahoma, Kinston, North Carolina, Prestwick, Scotland, and
Subang, Malaysia. In addition to these five sites, we have a
facility located in McAlester, Oklahoma primarily dedicated to
supplying the Tulsa facility.
The Wichita facility, including Spirits corporate offices,
is comprised of 640 acres, 6.2 million square feet of
manufacturing space, 1.4 million square feet of offices and
laboratories for the engineering and design group and
3.6 million square feet for support functions and
warehouses. A total of 604,715 square feet is currently
vacant. The Wichita site has access to transportation by rail,
road and air. For air cargo, the Wichita site has access to the
runways of McConnell Air Force Base.
The Tulsa facility consists of 1.9 million square feet of
building space set on 153 acres. The Tulsa plant is located
five miles from an international shipping port (Port of Catoosa)
and is located next to the Tulsa International Airport. The
Tulsa facility includes off site leased space, 1.5 miles
east in the Green Valley Center. The McAlester site, which
manufactures parts and
sub-assemblies
primarily for the Tulsa facility, consists of
135,000 square feet of building space on 92 acres.
The Prestwick facility consists of 1.1 million square feet
of building space, comprised of 0.8 million square feet of
manufacturing space, 0.2 million square feet of office
space, and 0.1 million square feet of support and warehouse
space. This facility is set on 100 acres. The Prestwick
plant is located on the west coast of Scotland, approximately
33 miles south of Glasgow, within close proximity to the
motorway network that provides access between England and
continental Europe. It is also easily accessible by air (at
Prestwick International Airport) or by sea. We lease a portion
of our Prestwick facility to the Regional Aircraft division of
BAE Systems and certain other tenants.
The Malaysian manufacturing plant is located at the Malaysia
International Aerospace Center (MIAC) in Subang. The
244,000 square foot leased facility is set on 45 acres
and is centrally located with easy access to Kuala Lumpur,
Malaysias capital city, as well as nearby ports and
airports. The facility became operational in the first quarter
of 2009 and assembles composite panels for wing components.
38
The Wichita and Tulsa manufacturing facilities have significant
scale to accommodate the very large structures that are
manufactured there, including, in Wichita, entire fuselages.
Three of the U.S. facilities are in close proximity, with
approximately 175 miles between Wichita and Tulsa and
90 miles between Tulsa and McAlester. Currently, these
U.S. facilities utilize approximately 95% of the available
building space. The Prestwick manufacturing facility currently
utilizes only 63% of the space; of the remaining space, 21% is
leased and 16% is vacant. The Preston office space is located in
North Lancashire, England, approximately 200 miles south of
Prestwick.
In September 2008, we broke ground on a 585,000 square foot
facility built on 304 acres in Kinston,
North Carolina. This facility, which supports the
manufacturing of composite panels and wing components, was
completed in 2010. In addition, a 27,500 square foot
office/warehouse is being leased to support receiving needs,
while a 26,400 square foot building is being leased for the
purpose of tooling storage. Both buildings are leased from the
nearby Global TransPark Authority.
In July 2010, Spirit AeroSystems opened a new 58,000 square
foot leased facility in Saint-Nazaire, France built on
6.25 acres. The new facility will receive center fuselage
frame sections for the Airbus A350 XWB from the facility in
Kinston, North Carolina. Sections designed and manufactured in
North Carolina will be shipped across the Atlantic, received in
Saint-Nazaire, and assembled before being transported to Airbus.
Operations in this facility are expected to commence in early
2011. Additionally, a 3,391 square foot office area in
Toulouse, France has been leased since August 2009 for
engineering support.
|
|
Item 3.
|
Legal
Proceedings
|
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
Companys long-term financial position or liquidity.
Consistent with the requirements of authoritative guidance on
accounting for contingencies, we had no accruals at
December 31, 2010 or December 31, 2009 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 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 have asked the Court to reconsider its ruling but the
Court has not yet ruled on that motion. Depending on the nature
of that ruling, some of the plaintiffs could possibly pursue
individual claims or, could decide to appeal the District
Courts decision to the United States Court of Appeals for
the Tenth Circuit, which could reverse the District Courts
June 30 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 Companys
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 governments investigation
appeared to focus on whether
39
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. Attorneys 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 Companys 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 Holdings, Spirit, 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 Boeings position on
indemnity. Management believes the resolution of this matter
will not materially affect the Companys 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 arbitrators Supplemental Award. Boeing
appealed the District Courts decision to the
U.S. Seventh Circuit Court of Appeals, which recently
affirmed the District Courts 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. Spirit disputes Boeings position on indemnity.
Management believes the resolution of this matter will not
materially affect the Companys financial position, results
of operations or liquidity.
40
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. Spirits 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 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. Spirits lawsuit seeks damages, including
damages related to these efforts, under various theories,
including breach of contract and breach of implied warranty.
|
|
Item 4.
|
Removed
and Reserved
|
Executive
Officers of the Registrant
Listed below are the names, ages, positions held, and
biographies of all executive officers of Spirit AeroSystems.
Executive officers hold office until their successors are
elected or appointed at the next annual meeting of the Board of
Directors, or until their death, retirement, resignation, or
removal.
Jeffrey L. Turner, 59. Mr. Turner
has been the President and Chief Executive Officer of Spirit
Holdings since June 2006 and became a director of Spirit
Holdings on November 15, 2006. Since June 16, 2005,
the date of the Boeing Acquisition, he has also served in such
capacities for Spirit. Mr. Turner joined Boeing in 1973 and
was appointed Vice President General Manager in
November 1995. Mr. Turner received his Bachelor of Science
in Mathematics and Computer Science and his M.S. in Engineering
Management Science, both from Wichita State University. He was
selected as a Boeing Sloan Fellow to the Massachusetts Institute
of Technologys (MIT) Sloan School of Management where he
earned a Masters Degree in Management.
Philip Anderson, 46. Mr. Anderson
became the Senior Vice President and Chief Financial Officer of
Spirit Holdings on February 12, 2010. From October 2009
until February 2010, Mr. Anderson served as Vice President
and Interim Chief Financial Officer of Spirit Holdings.
Mr. Anderson also served as Treasurer of Spirit Holdings
from November 2006 to July 2010. From March 2003 until November
2006, Mr. Anderson was the Director of Corporate Finance
and Banking for Boeing. Mr. Anderson began his career at
Boeing in 1989 as a defense program analyst and served in a
variety of finance and manufacturing operations leadership
positions at Boeing Defense Systems and Boeing Commercial
Airplanes. Mr. Anderson received his Bachelor of Arts and
Masters of Business from Wichita State University and holds a
Six Sigma Black Belt certification from the University of
Michigan.
H. David Walker,
59. Mr. Walker became the Senior Vice
President, Chief Technology Officer and Business Development of
Spirit Holdings in July 2009 and served as Senior Vice President
of Sales and Marketing for Spirit Holdings
and/or
Spirit from September 2005 to July 2009. From 2003 through
September 2005, Mr. Walker was a Vice President of Vought
Aircraft Industries. Mr. Walker served as the Vice
President/General Manager/Member of the Board of Directors of
The Aerostructures Corp. from 2002 until 2003 and served as Vice
President of Programs and Marketing from 1997 through 2002.
Mr. Walker received both his Bachelor of Science and
Masters of Science in Mechanical Engineering from Vanderbilt
University.
Gloria Farha Flentje,
67. Ms. Flentje became Senior Vice
President of Corporate Administration and Human Resources of
Spirit Holdings in April 2008 and served as Vice President,
General Counsel and Secretary of Spirit Holdings
and/or
Spirit from the date of the Boeing Acquisition until April 2008.
Prior to the Boeing Acquisition, she worked for Boeing as Chief
Legal Counsel for five years. Prior to joining Boeing, she was a
partner in the Wichita, Kansas law firm of Foulston &
Siefkin, L.L.P., where she represented numerous clients,
including Boeing, on employment and labor matters and school law
issues. Ms. Flentje graduated from the University of Kansas
with a Bachelor of Arts in Mathematics and International
Relations. She received her law degree from Southern Illinois
University.
Samantha J. Marnick,
40. Ms. Marnick became Senior Vice
President of Corporate Administration and Human Resources on
January 1, 2011. From March 2008 until December 2010,
Ms. Marnick served as Vice President Labor
Relations & Workforce Strategy responsible for labor
relations, global human resource project management office,
compensation and benefits, and workforce planning.
Ms. Marnick previously served as Director of Communications
and Employee Engagement from March 2006 to March 2008. Prior to
joining the company, Ms. Marnick was a senior consultant
and Principal for Mercer Human Resource Consulting holding
management positions in both the United Kingdom and in the
United States. Prior to that Ms. Marnick worked for Watson
Wyatt, the UKs Department of Health and Social Security
and The British Wool Marketing Board. Ms. Marnick holds a
Masters Degree from the University of Salford in Corporate
Communication Strategy and Management.
41
John Lewelling, 50. Mr. Lewelling
became the Senior Vice President/General Manager, Wing Systems
Segment for Spirit Holdings in April 2008 and served as the
Senior Vice President, Strategy and Information Technology for
Spirit Holdings from November 2006 through April 2008.
Mr. Lewelling was the Chief Operating Officer of GVW
Holdings from 2004 to 2006. Mr. Lewelling was a Managing
Director with AlixPartners from 2002 to 2003. Prior to that, he
was a Partner with AT Kearney and Booz Allen from 1996 to 2002.
Mr. Lewelling received his Bachelor of Science degree in
Materials and Logistics Management from Michigan State
University.
Richard Buchanan, 60. Mr. Buchanan
became the Senior Vice President & Chief Operations
Officer of Spirit Holdings in July 2009 and served as General
Manager of Fuselage Systems Segment of Spirit Holdings
and/or
Spirit from the date of the Boeing Acquisition to July 2009.
Prior to the Boeing Acquisition, he was employed by Boeing for
more than 25 years, all of which were spent at Boeing
Wichita, except for one and one-half years in Everett,
Washington as Fuselage Leader for the 787. During his tenure
with Boeing, Mr. Buchanan held the positions of Director
for
Sub-Assembly/Lot
Time, Director for Light Structures, and the Director and Leader
of B737 Structures Value Chain. Mr. Buchanan is a graduate
of Friends University with a Bachelor of Science degree in Human
Resource Management.
Michael G. King, 55. Mr. King
became the Senior Vice President/General Manager, Fuselage
Systems Segment of Spirit Holdings in July 2009 and served as
the Senior Vice President/General Manager of Propulsion Systems
Segment of Spirit Holdings
and/or
Spirit from the date of the Boeing Acquisition to July 2009.
Prior to the Boeing Acquisition, Mr. King worked for Boeing
for 25 years, from 1980 until 2005. In 1990, Mr. King
was assigned to the
Sub-Assembly/Lot
Time Manufacturing Business Unit at Boeing, responsible for lot
time production activities. From 1996 until 2002, he worked at
Boeings Machining Fabrication Manufacturing Business Unit
with responsibility for production of complex machined detail
parts and assemblies for all commercial airplane models. In
2002, Mr. King became the Director of the Strut, Nacelle
and Composite Responsibility Center at Boeing. Mr. King
earned an Associate of Arts degree from Butler County Community
College. He completed his Bachelor of Science in Manufacturing
Technology at Southwestern College and received a Mini-MBA from
Wichita State University. Mr. King also completed the Duke
University Executive Management Program in 2002.
John Pilla, 51. Mr. Pilla became
the Senior Vice President/General Manager, Propulsion Systems
Segment of Spirit Holdings in July 2009. From April 2008 to July
2009, Mr. Pilla was Chief Technology Officer of Spirit
Holdings and he served as Vice President/General Manager-787 of
Spirit Holdings
and/or
Spirit, a position he assumed at the date of the Boeing
Acquisition in June 2005 and held until March 2008.
Mr. Pilla began his career at Boeing Commercial Airplanes
in 1981 as a stress engineer and was promoted to Chief Engineer
of Structures and Liaison in 1995. In 1997, Mr. Pilla led
the Next-Generation 737 engineering programs and ultimately led
the Define Team on the
737-900
fuselage and empennage in late 1997 as well as the 777LR
airplane in May 2000. In July 2001, Mr. Pilla became the
Director of Business Operations, a position he held until July
2003 when he accepted an assignment as 787 Director of
Product Definition and Manufacturing. He received his
Masters degree in Aerospace Structures Engineering in 1986
and an MBA in 2002 from Wichita State University.
Michelle A. Russell,
41. Ms. Russell was named Senior Vice
President, General Counsel and Secretary of Spirit Holdings in
June 2010. She joined the Company as Associate General Counsel
in January 2009, providing legal consultation, research and risk
management assessment to assist a wide range of business
operation and strategy initiatives. From 2005 to January 2009
Ms. Russell served as Vice President, Legal and Assistant
General Counsel for YRC Worldwide, where she directed legal
support for the enterprises shared services, operations
and finance organizations as well as domestic and international
acquisitions. Ms. Russell earned her Juris Doctorate from
the University of Kansas. She also holds degrees in Atmospheric
Science and Anthropology from the University of Kansas.
Ms. Russell is a member of the Kansas Bar Association, the
Missouri Bar Association, and the American Corporate Counsel
Association. She is also a full member of the American
Meteorological Society.
Neil McManus, 45. Mr. McManus is
the Vice President and Managing Director of Spirit AeroSystems
(Europe) Limited and has executive responsibility for Spirit
AeroSystems (Malaysia) Sdn. Bhd. Since the date of the BAE
Acquisition, he has served in that capacity for Spirit Europe.
Mr. McManus joined BAE Systems Aerostructures in 1986 and
was appointed Managing Director Aerostructures in
January 2003. Mr. McManus was educated at Loughborough
University of Science and Technology, where he received his
Bachelor of Science Honors Degree in Engineering Manufacturing
and a diploma in Industrial Studies.
42
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our class A common stock has been quoted on the NYSE under
the symbol SPR since November 21, 2006. Prior
to that time, there was no public market for our stock. As of
February 16, 2011, there were approximately 353 holders of
record of class A common stock. However, we believe that
many additional holders of our class A common stock are
unidentified because a substantial number of shares are held of
record by brokers or dealers for their customers in street
names. The closing price on February 16, 2011 was $25.28
per share as reported by the NYSE.
As of February 17, 2011, there were approximately 185
holders of record of class B common stock. Our class B
common stock is neither listed nor publicly traded.
The following table sets forth for the indicated periods the
high and low closing sales price for our class A common
stock on the NYSE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Fiscal Quarter
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1st
|
|
$
|
23.69
|
|
|
$
|
16.50
|
|
|
$
|
14.53
|
|
|
$
|
8.03
|
|
2nd
|
|
$
|
23.88
|
|
|
$
|
17.26
|
|
|
$
|
16.94
|
|
|
$
|
10.68
|
|
3rd
|
|
$
|
21.53
|
|
|
$
|
18.57
|
|
|
$
|
18.69
|
|
|
$
|
12.08
|
|
4th
|
|
$
|
21.75
|
|
|
$
|
18.08
|
|
|
$
|
20.50
|
|
|
$
|
15.79
|
|
Dividend
Policy
We did not pay any cash dividends in 2009 or 2010 and we
currently do not intend to pay cash dividends and, under
conditions in which our cash is below specific levels, are
prohibited from doing so under credit agreements governing our
credit facilities. Our future dividend policy will depend on the
requirements of financing agreements to which we may be a party.
Any future determination to pay dividends will be at the
discretion of our Board of Directors and will depend upon, among
other factors, our results of operations, financial condition,
capital requirements and contractual restrictions.
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table represents restricted shares outstanding
under the Executive Incentive Plan, the Director Stock Plan, and
the Short-Term and Long-Term Incentive Plans as of
December 31, 2010.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of Securities
|
|
|
|
|
|
for Future Issuances
|
|
|
|
to be Issued
|
|
|
Weighted-Average
|
|
|
Under the Equity
|
|
|
|
Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column(a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Restricted Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders(1)(2)
|
|
|
N/A
|
(3)
|
|
$
|
|
|
|
|
11,496,069
|
(4)
|
Equity compensation plans not approved by security holders(2)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Total
|
|
|
N/A
|
(3)
|
|
$
|
|
|
|
|
11,496,069
|
(4)
|
|
|
|
(1) |
|
Approved by previous security holders in place before our
initial public offering. Amendments were approved by
shareholders in 2008. |
43
|
|
|
(2) |
|
Our equity compensation plans provide for the issuance of
incentive awards to officers, directors, employees and
consultants in the form of stock appreciation rights, restricted
stock, restricted stock units and deferred stock, in lieu of
cash compensation. |
|
(3) |
|
There are 1,523,338 class A shares and 2,101,823 class
B shares outstanding under the Executive Incentive Plan,
the Director Stock Plan, and the Short-Term and Long-Term
Incentive Plans as of December 31, 2010. |
|
(4) |
|
As of December 31, 2010, there are 6,340,138, 2,499,731,
1,769,531 and 886,669 securities available for future issuance
under the Executive Incentive Plan, the Director Stock Plan, and
the Short-Term and Long-Term Incentive Plans, respectively. |
44
|
|
Item 6.
|
Selected
Financial Data
|
SELECTED
CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth our selected consolidated
financial data for each of the periods indicated. Financial data
for the twelve month periods ended December 31, 2006,
December 31, 2007, December 31, 2008,
December 31, 2009, and December 31, 2010 are derived
from the audited consolidated financial statements of Spirit
Holdings. The audited consolidated financial statements for the
years ended December 31, 2008, December 31, 2009 and
December 31, 2010 are included in this Annual Report. You
should read the information presented below in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our combined and
consolidated financial statements and related notes contained
elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spirit Holdings
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,172.4
|
|
|
$
|
4,078.5
|
|
|
$
|
3,771.8
|
|
|
$
|
3,860.8
|
|
|
$
|
3,207.7
|
|
Cost of sales(1)
|
|
|
3,607.9
|
|
|
|
3,581.4
|
|
|
|
3,163.2
|
|
|
|
3,197.2
|
|
|
|
2,934.3
|
|
Selling, general and administrative expenses(2)
|
|
|
156.0
|
|
|
|
137.1
|
|
|
|
154.5
|
|
|
|
192.1
|
|
|
|
225.0
|
|
Research and development
|
|
|
51.5
|
|
|
|
56.7
|
|
|
|
48.4
|
|
|
|
52.3
|
|
|
|
104.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
357.0
|
|
|
|
303.3
|
|
|
|
405.7
|
|
|
|
419.2
|
|
|
|
(56.3
|
)
|
Interest expense and financing fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization(3)
|
|
|
(59.1
|
)
|
|
|
(43.6
|
)
|
|
|
(39.2
|
)
|
|
|
(36.8
|
)
|
|
|
(50.1
|
)
|
Interest income
|
|
|
0.3
|
|
|
|
7.0
|
|
|
|
18.6
|
|
|
|
29.0
|
|
|
|
29.0
|
|
Other income (loss), net
|
|
|
(0.4
|
)
|
|
|
6.1
|
|
|
|
(1.2
|
)
|
|
|
8.4
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in net loss of
affiliate
|
|
|
297.8
|
|
|
|
272.8
|
|
|
|
383.9
|
|
|
|
419.8
|
|
|
|
(71.5
|
)
|
Income tax benefit (provision)(4)
|
|
|
(78.2
|
)
|
|
|
(80.9
|
)
|
|
|
(118.5
|
)
|
|
|
(122.9
|
)
|
|
|
88.3
|
|
Equity in net loss of affiliates
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
218.9
|
|
|
$
|
191.7
|
|
|
$
|
265.4
|
|
|
$
|
296.9
|
|
|
$
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per share, basic
|
|
$
|
1.56
|
|
|
$
|
1.39
|
|
|
$
|
1.93
|
|
|
$
|
2.19
|
|
|
$
|
0.15
|
|
Shares used in per share calculation, basic(5)
|
|
|
137.9
|
|
|
|
137.2
|
|
|
|
137.0
|
|
|
|
134.5
|
|
|
|
115.6
|
|
Net income per share, diluted
|
|
$
|
1.55
|
|
|
$
|
1.37
|
|
|
$
|
1.91
|
|
|
$
|
2.13
|
|
|
$
|
0.14
|
|
Shares used in per share calculation, diluted
|
|
|
141.0
|
|
|
|
139.8
|
|
|
|
139.2
|
|
|
|
139.3
|
|
|
|
122.0
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating activities
|
|
$
|
125.1
|
|
|
$
|
(13.9
|
)
|
|
$
|
210.7
|
|
|
$
|
180.1
|
|
|
$
|
273.6
|
|
Cash flow (used in) investing activities
|
|
$
|
(288.4
|
)
|
|
$
|
(112.4
|
)
|
|
$
|
(119.8
|
)
|
|
$
|
(239.1
|
)
|
|
$
|
(473.6
|
)
|
Cash flow provided by financing activities
|
|
$
|
277.4
|
|
|
$
|
276.1
|
|
|
$
|
3.5
|
|
|
$
|
8.3
|
|
|
$
|
140.9
|
|
Capital expenditures
|
|
$
|
(288.1
|
)
|
|
$
|
(228.2
|
)
|
|
$
|
(235.8
|
)
|
|
$
|
(288.2
|
)
|
|
$
|
(343.2
|
)
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spirit Holdings
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
481.6
|
|
|
$
|
369.0
|
|
|
$
|
216.5
|
|
|
$
|
133.4
|
|
|
$
|
184.3
|
|
Accounts receivable, net
|
|
$
|
200.2
|
|
|
$
|
160.4
|
|
|
$
|
149.3
|
|
|
$
|
159.9
|
|
|
$
|
200.2
|
|
Inventories, net
|
|
$
|
2,507.9
|
|
|
$
|
2,206.9
|
|
|
$
|
1,882.0
|
|
|
$
|
1,342.6
|
|
|
$
|
882.2
|
|
Property, plant & equipment, net
|
|
$
|
1,470.0
|
|
|
$
|
1,279.3
|
|
|
$
|
1,068.3
|
|
|
$
|
963.8
|
|
|
$
|
773.8
|
|
Total assets
|
|
$
|
5,102.0
|
|
|
$
|
4,473.8
|
|
|
$
|
3,760.3
|
|
|
$
|
3,339.9
|
|
|
$
|
2,722.2
|
|
Total debt
|
|
$
|
1,196.8
|
|
|
$
|
893.8
|
|
|
$
|
588.0
|
|
|
$
|
595.0
|
|
|
$
|
618.2
|
|
Long-term debt
|
|
$
|
1,187.3
|
|
|
$
|
884.7
|
|
|
$
|
580.9
|
|
|
$
|
579.0
|
|
|
$
|
594.3
|
|
Total equity
|
|
$
|
1,810.9
|
|
|
$
|
1,573.8
|
|
|
$
|
1,297.5
|
|
|
$
|
1,267.1
|
|
|
$
|
859.5
|
|
|
|
|
(1) |
|
Included in 2010 cost of sales are charges of $28.7 million
related to the grant of shares to employees represented by the
IAM in connection with the ratification of a new ten-year labor
contract on June 25, 2010, early retirement incentives for
members represented by IAM who made elections to retire in 2010,
and grants of shares to employees represented by the UAW in
connection with the ratification of a new ten-year labor
contract on December 18, 2010. Included in 2007 and 2006
cost of sales are non-recurring charges of $1.2 million and
$321.9 million, respectively for the Union Equity
Participation Plan. |
|
(2) |
|
Includes non-cash stock compensation expenses of
$7.9 million, $9.7 million, $15.3 million,
$32.6 million, $56.6 million, for the respective
periods starting with the twelve months ended December 31,
2010. Also included in 2007 are $4.9 million of costs
associated with the evaluation of Airbus European
manufacturing sites in 2007. Included in 2006 are
$8.3 million of IPO-related charges. |
|
(3) |
|
Included in 2006 interest expense and financing fee amortization
are expenses related to the IPO of $3.7 million. |
|
(4) |
|
Included in the 2006 income tax benefit is a $40.1 million
federal and a $4.0 million state tax valuation allowance
reversal totaling $44.1 million. |
|
(5) |
|
Under the FASB guidance, unvested share-based payment awards
that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings
per share pursuant to the two-class method. |
46
|
|
Item 7.
|
Managements
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
audited consolidated financial statements, the notes to the
audited consolidated financial statements and the Selected
Consolidated Financial Information and Other Data
appearing elsewhere in this Annual Report. This discussion
contains forward-looking statements that must be understood in
the context of numerous risks and uncertainties, including, but
not limited to, those described in the Risk Factors
section of this Annual Report. See Cautionary Statements
Regarding Forward-Looking Statements. Our results may
differ materially from those anticipated in any forward-looking
statements.
Recent
Events
On January 12, 2011, we announced that we reached an
agreement with The Boeing Company regarding certain claims
associated with the development and production of the
787-8
airplane in December 2010. The agreement provides that the
parties will complete formal amendments in the first half of
2011. The impact of the agreement was included in our fourth
quarter and full year 2010 results. For further discussion see
Item 1, Business Our Relationship with Boeing,
in this Annual Report.
On November 11, 2010, Boeing announced the postponement of
further flight test activities on the B787, following the
occurrence of an onboard electrical fire. On December 23,
2010, Boeing announced that it was resuming test flight
activities on the B787 that day. On January 18, 2011,
Boeing announced that it expects delivery of the first B787 to
take place in the third quarter of 2011.
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 twelve months ended
December 31, 2010, we generated net revenues of
$4,172.4 million and net income of $218.9 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 49%, 25%, 26% and less than 1%
respectively, of our net revenues for the twelve months ended
December 31, 2010.
Market
Trends
The financial health of the commercial airline industry has a
direct and significant effect on our commercial aircraft
programs. The global industrys revenue rebounded sharply
in 2010 for both passenger air traffic and cargo freight, after
significant contraction in 2008 and 2009. One key near-term
variable affecting the industry is fuel costs, which are
expected to rise in 2011, possibly deteriorating the
industrys profit margins. If fuel costs were to rise near
the recent highs of 2008, airlines might respond with canceled
or deferred orders. However, Boeing and Airbus have indicated
that they do not anticipate any near-term erosion to their
backlogs. Both OEMs have announced multiple production
rate increases, commencing in 2011 with the respective
single-aisle programs (Airbus A320 and Boeing B737).
47
Demand for commercial aerostructures is highly correlated to
demand for new aircraft. From 2005 through 2008, Boeing and
Airbus experienced an unprecedented order intake and backlog
growth. In that period, the two manufacturers obtained combined
total gross orders of approximately 8,400 aircraft. Their
aggregate backlog increased from nearly 2,600 to over 7,400
aircraft. An order slowdown in 2009 resulted in a decrease in
aggregate backlog. However, net orders for 2010 rebounded from
the previous year. Commercial net orders were 1,104 in 2010,
resulting in a backlog increase of 132 aircraft. High backlog
levels are expected to continue to drive increasing production
and delivery forecasts in the near to mid-term from both Boeing
and Airbus. The following table sets forth the historical
deliveries of Boeing and Airbus for 2006 through 2010 and
delivery expectations for 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011(1)
|
|
|
Boeing
|
|
|
398
|
|
|
|
441
|
|
|
|
375
|
|
|
|
481
|
|
|
|
462
|
|
|
|
485-500
|
|
Airbus
|
|
|
434
|
|
|
|
453
|
|
|
|
483
|
|
|
|
498
|
|
|
|
510
|
|
|
|
520-530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
832
|
|
|
|
894
|
|
|
|
858
|
|
|
|
979
|
|
|
|
972
|
|
|
|
1,005-1,030
|
|
|
|
|
(1) |
|
Boeing has announced that it expects its 2011 deliveries to be
between
485-500. We
expect Airbus deliveries to be approximately
520-530 in
2011. |
Inventory continues to grow in terms of absolute dollars and
remains stable as a percentage of total assets. Inventory as a
percentage of total assets was 49%, 49% and 50% at
December 31, 2010, 2009, and 2008, respectively. This
overall trend in inventory is driven primarily by our
contractually required investments in new programs which include
the Boeing B787, Gulfstream G250 and G650, Airbus A350 XWB,
Sikorsky CH-53K and Rolls Royce BR725 programs. The contracts
for these new programs accounted for an increase in inventory
from 2009 to 2010 of $385.9 million, which is net of a
$93.0 million forward loss provision recorded in 2009 as a
reduction to inventory on our G250 contract. This increase was
partially offset by a $48.6 million decrease in inventory
from mature Boeing and Airbus programs. The increases in
inventory for new programs in the last few years are a result of
the application of the
percentage-of-completion
method of contract accounting with regard to inventory and
revenue recognition. Under this method, investments in new
contracts, including contractual pre-production costs and
recurring production costs in excess of the projected average
cost to manufacture all units in the contract block, initially
accumulate in inventory for the related contract. Once
production has reached a point where the cost to produce a ship
set falls below such projected average cost, the inventory
balance for such program will begin to decrease. As many of our
new programs are either in the pre-production phase or the early
stages of recurring production, we expect that inventory
balances will continue to increase in 2011. Deferred inventory
costs are evaluated for recoverability through their inclusion
in the total costs used in the calculation of each
contracts estimated profit margin. When the estimated
total contract costs exceed total estimated contract revenues,
an inventory reserve is established.
New
Program Performance
We are currently performing work on several new programs, which
are in various stages of development. Several of these programs
entered flight testing during the fourth quarter of 2009,
including the Boeing B787, Gulfstream G250, and Gulfstream G650
(which includes the Rolls Royce BR725) and we delivered
revenue-generating production units for all of these programs in
2010. In addition, we are working on the new Boeing B747
derivative (the B747-8), which entered flight testing in
February of 2010.
Certain of these programs continue to pose a risk of additional
charges
and/or
forward losses given the low margins that are currently
forecasted and cost pressure that has continued through the
fourth quarter of 2010. In 2010, we recorded a $7.1 million
unfavorable cumulative
catch-up
adjustment related to periods prior to 2010 on our Sikorsky
CH-53K contract as a result of additional costs required to meet
test hardware schedules. We continue to see risk for cost growth
on this program, which has deteriorated current margins on our
contract to break-even. 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 in the process of
restructuring the major cost elements of the G250 program in
order to drive cost savings. A forward loss on this program
continues to be a significant risk and is dependent upon our
ability to successfully perform under the
48
revised reduced cost structure as we enter into production. We
are also estimating zero margins on a contract related to the
wing 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. During the fourth quarter of 2010,
based on a comprehensive analysis of our 787 contract, we
revised our contract estimates to reflect a break-even margin,
which resulted in a cumulative
catch-up
adjustment in the fourth quarter which was a $9.0 million
charge. A forward loss on this program continues to be a
significant risk until planned cost reductions are realized
through performance initiatives.
The next six to twelve 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.
Basis of
Presentation
The financial statements include Spirits 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. Investments in business entities in which we do not
have control, but have the ability to exercise influence over
operating and financial policies, are accounted for by the
equity method. Kansas Industrial Energy Supply Company
(KIESC), a
tenancy-in-common
with other Wichita companies established to purchase natural
gas, is fully consolidated as Spirit owns 77.8% of the
entitys equity. All intercompany balances and transactions
have been eliminated in consolidation. Spirits 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
currency is translated to U.S. dollars using the
end-of-month
currency translation rate for balance sheet accounts and average
period currency translation rates for revenue and income
accounts as defined by FASB authoritative guidance on foreign
currency translation.
Critical
Accounting Policies
The following discussion and analysis of our financial condition
and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance
with U.S. GAAP. The preparation of these financial
statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates,
including those related to inventory, income taxes, financing
obligations, warranties, pensions and other post-retirement
benefits and contingencies and litigation. We base our estimates
on historical experience and on various other assumptions that
we believe to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Management believes that the quality and
reasonableness of our most critical policies enable the fair
presentation of our financial position and results of
operations. However, the sensitivity of financial statements to
these methods, assumptions and estimates could create materially
different results under different conditions or using different
assumptions.
The following are our most critical accounting policies, which
are those that require managements most subjective and
complex judgments, requiring the use of estimates about the
effect of matters that are inherently uncertain and may change
in subsequent periods.
Revenues
and Profit Recognition
A significant portion of the Companys revenues are
recognized under long-term, volume-based pricing contracts,
requiring delivery of products over several years. The Company
recognizes revenue under the contract method of accounting and
records sales and profits on each contract in accordance with
the
percentage-of-completion
method of accounting, primarily using the units of delivery
method. Revenues from non-recurring design work are recognized
based on substantive milestones or use of the
cost-to-cost
method, that are indicative of our progress
49
toward completion depending on facts and circumstances. We
follow the requirements of FASB authoritative guidance on
accounting for the performance of construction-type and certain
production-type contracts (the contract method of accounting),
using the cumulative
catch-up
method in accounting for revisions in estimates. Under the
cumulative
catch-up
method, the impact of revisions in estimates are recognized
immediately when changes in estimated contract profitability
become known.
A profit rate is estimated based on the difference between total
revenues and total costs of a contract. Total revenues at any
given time include actual historical revenues up to that time
plus future estimated revenues. Total costs at any given time
include actual historical costs up to that time plus future
estimated costs. Estimated revenues include negotiated or
expected values for units delivered, estimates of probable
recoveries asserted against the customer for changes in
specifications, price adjustments for contract and volume
changes, and escalation. Costs include the estimated cost of
certain pre-production effort (including non-recurring
engineering and planning subsequent to completion of final
design) plus the estimated cost of manufacturing a specified
number of production units. Estimates take into account
assumptions relative to future labor performance and rates, and
projections relative to material and overhead costs including
expected learning curve cost reductions over the
term of the contract. The specified number of production units
used to establish the profit margin (contract block)
is predicated upon contractual terms and market forecasts. The
assumed timeframe/period covered by the contract block is
generally equal to the period specified in the contract or the
future timeframe for which we can project reasonably dependable
cost estimates. Estimated revenues and costs also take into
account the expected impact of specific contingencies that we
believe are probable.
Estimates of revenues and costs for our contracts span a period
of multiple years and are based on a substantial number of
underlying assumptions. We believe that the underlying
assumptions are sufficiently reliable to provide a reasonable
estimate of the profit to be generated. However, due to the
significant length of time over which revenue streams will be
generated, the variability of the revenue and cost streams can
be significant if the assumptions change.
For revenues not recognized under the contract method of
accounting, the Company recognizes revenues from the sale of
products at the point of passage of title, which is generally at
the time of shipment. Shipping and handling costs are included
in cost of sales. Revenues earned from providing maintenance
services including any contracted research and development are
recognized when the service is complete or other contractual
milestones are attained.
Since Boeing retained title to tooling assets and provides such
tooling to the Company at no cost, the Company treats the
amortization of Boeing-owned tooling as a reduction to revenues
as required by FASB authoritative guidance on consideration
given by a vendor to a customer, including resellers of the
vendors product. These items are netted against gross
revenues in calculating net revenues. The Company expects to
recognize no reductions to net revenues in 2011 for Boeing
tooling, as the tooling became fully amortized in 2010. However,
under an agreement with Airbus, certain payments that are also
accounted for as consideration given by a vendor to a customer
will be amortized as a reduction to net revenues beginning in
2011.
New
Programs
A significant portion of the Companys future revenues is
expected to be derived from new programs, most notably the B787,
on which we may be contracted to provide design and engineering
services, recurring production, or both. There are several risks
inherent to such new programs. In the design and engineering
phase, we may incur costs in excess of our forecasts due to
several factors, including cost overruns, customer directed
change orders and delays in the overall program. We may also
incur higher than expected recurring production costs, which may
be caused by a variety of factors, including the future impact
of engineering changes (or other change orders) or our inability
to secure contracts with our suppliers at projected cost levels.
Our ability to recover these excess costs from the customer will
depend on several factors, including our rights under our
contracts for the new programs. In determining our profits and
losses in accordance with the
percentage-of-completion
method of contract accounting, we are required to make
significant assumptions regarding our future costs, as well as
the estimated number of units to be manufactured under the
contract and other variables. We continually review and update
our assumptions based on market trends and our most recent
experience. If we make material changes to our assumptions, such
as a reduction in the estimated number of units to be produced
under the contract (which could be caused by emerging
50
market trends or other factors), an increase in future
production costs or a change in the recoverability of increased
design or production costs, we may experience negative
cumulative
catch-up
adjustments related to revenues previously recognized. In some
cases, we may recognize forward loss amounts. For a broader
description of the various types of risks we face related to new
programs, see Risk Factors Risk Factors
Related to Our Business and Industry.
Inventory
Raw materials are stated at lower of cost (principally on an
actual or average cost basis) or market. Inventoried costs
attributed to units delivered under long-term contracts are
based on the estimated average cost of all units expected to be
produced and are determined under the learning curve concept
which anticipates a predictable decrease in unit costs as tasks
and production techniques become more efficient through
repetition. This usually results in an increase in inventory
(referred to as
excess-over-average
or deferred production costs) during the early years
of a contract. These costs are deferred only to the extent the
amount of actual or expected
excess-over-average
is reasonably expected to be fully offset by
lower-than-average
costs in future periods of a contract. If in-process inventory
plus estimated costs to complete a specific contract exceed the
anticipated remaining revenues of such contract, such excess is
charged to cost of sales in the period the loss becomes known,
thus reducing inventory to estimated realizable value. Costs in
inventory include amounts relating to contracts with long
production cycles, some of which are not expected to be realized
within one year.
The Company reviews its general stock materials and spare parts
inventory each quarter to identify impaired inventory, including
excess or obsolete inventory, based on historical sales trends
and expected production usage. Impaired inventories are written
off in the period identified.
Finished goods inventory is stated at its estimated average per
unit cost based on all units expected to be produced.
Income
Taxes
Income taxes are accounted for in accordance with FASB
authoritative guidance on accounting for income taxes. Deferred
income tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between the
financial statement carrying amounts for existing assets and
liabilities and their respective tax bases. A valuation
allowance is recorded to reduce deferred income tax assets to an
amount that in managements opinion will ultimately be
realized. Tax rate changes impacting these assets and
liabilities are recognized in the period during which the rate
change occurs.
We record an income tax expense or benefit based on the net
income earned or net loss incurred in each tax jurisdiction and
the tax rate applicable to that income or loss. In the ordinary
course of business, there are transactions for which the
ultimate tax outcome is uncertain. These uncertainties are
accounted for in accordance with FASB authoritative guidance on
accounting for the uncertainty in income taxes. The final tax
outcome for these matters may be different than
managements original estimates made in determining the
income tax provision. A change to these estimates could impact
the effective tax rate and net income or loss in subsequent
periods. We use the flow-through accounting method for tax
credits. Under this method, tax credits reduce income tax
expense.
Pensions
and Other Post-Retirement Benefits
We account for pensions and other post-retirement benefits in
accordance with FASB authoritative guidance on employers
accounting for pensions, post-retirement benefits other than
pensions, defined benefit pension and other post-retirement
plans.
Assumptions used in determining the benefit obligations and the
annual expense for our pension and post-retirement benefits
other than pensions are evaluated and established in conjunction
with an independent actuary.
We set the discount rate assumption annually for each of our
retirement-related benefit plans as of the measurement date,
based on a review of projected cash flows and long-term
high-quality corporate bond yield curves. The discount rate
determined on each measurement date is used to calculate the
benefit obligation as of that date, and is also used to
calculate the net periodic benefit expense/(income) for the
upcoming plan year.
51
We derive assumed expected rate of return on pension assets from
the long-term expected returns based on the investment
allocation by class specified in our investment policy. The
expected return on plan assets determined on each measurement
date is used to calculate the net periodic benefit
expense/(income) for the upcoming plan year.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the post-retirement health care
plans. To determine the health care cost trend rates, we
consider national health trends and adjust for our specific plan
designs and locations.
Stock
Compensation Plans
At inception, we adopted FASB authoritative guidance which
generally requires companies to measure the cost of employee and
non-employee services received in exchange for an award of
equity instruments based on the grant-date fair value and to
recognize this cost over the requisite service period or
immediately if there is no service period or other performance
requirements. Stock-based compensation represents a significant
accounting policy of ours, which is further described in
Note 14 within the notes to our consolidated financial
statements included in this Annual Report.
We have established various stock compensation plans that
include restricted share grants and restricted stock units.
New
Accounting Standards
For a listing of new accounting standards see Note 2,
Summary of Significant Accounting Policies New
Accounting Standards.
Results
of Operations
The following table sets forth, for the periods indicated,
certain of our operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
|
|
|
Twelve
|
|
|
Twelve
|
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions)
|
|
|
Net revenues
|
|
$
|
4,172.4
|
|
|
$
|
4,078.5
|
|
|
$
|
3,771.8
|
|
Cost of sales(1)
|
|
|
3,607.9
|
|
|
|
3,581.4
|
|
|
|
3,163.2
|
|
Selling, general and administrative expenses(2)
|
|
|
156.0
|
|
|
|
137.1
|
|
|
|
154.5
|
|
Research and development
|
|
|
51.5
|
|
|
|
56.7
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
357.0
|
|
|
|
303.3
|
|
|
|
405.7
|
|
Interest expense and financing fee amortization
|
|
|
(59.1
|
)
|
|
|
(43.6
|
)
|
|
|
(39.2
|
)
|
Interest income
|
|
|
0.3
|
|
|
|
7.0
|
|
|
|
18.6
|
|
Other income (expense), net
|
|
|
(0.4
|
)
|
|
|
6.1
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in net loss of affiliate
|
|
|
297.8
|
|
|
|
272.8
|
|
|
|
383.9
|
|
Income tax provision
|
|
|
(78.2
|
)
|
|
|
(80.9
|
)
|
|
|
(118.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in net loss of affiliate
|
|
|
219.6
|
|
|
|
191.9
|
|
|
|
265.4
|
|
Equity in net loss of affiliate
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
218.9
|
|
|
$
|
191.7
|
|
|
$
|
265.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in 2010 cost of sales are charges of $28.7 million
related to the grant of shares to employees represented by the
IAM in connection with the ratification of a new ten-year labor
contract on June 25, 2010, early retirement incentives for
members represented by IAM who made elections to retire in 2010,
and grants of shares to employees represented by the UAW in
connection with the ratification of a new ten-year labor
contract on December 18, 2010. |
|
(2) |
|
Includes non-cash stock compensation expenses of
$7.9 million, $9.7 million and $15.3 million for
the respective periods starting with the twelve months ended
December 31, 2010. |
52
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. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Model
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
B737
|
|
|
372
|
|
|
|
350
|
|
|
|
317
|
|
B747
|
|
|
10
|
|
|
|
11
|
|
|
|
16
|
|
B767
|
|
|
15
|
|
|
|
12
|
|
|
|
10
|
|
B777
|
|
|
67
|
|
|
|
82
|
|
|
|
68
|
|
B787
|
|
|
16
|
|
|
|
11
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Boeing
|
|
|
480
|
|
|
|
466
|
|
|
|
414
|
|
A320 Family
|
|
|
368
|
|
|
|
408
|
|
|
|
367
|
|
A330/340
|
|
|
72
|
|
|
|
100
|
|
|
|
90
|
|
A380
|
|
|
18
|
|
|
|
11
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Airbus
|
|
|
458
|
|
|
|
519
|
|
|
|
473
|
|
Hawker 800 Series
|
|
|
19
|
|
|
|
44
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
957
|
|
|
|
1,029
|
|
|
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues by prime customer are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Prime Customer
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Boeing
|
|
$
|
3,480.8
|
|
|
$
|
3,472.4
|
|
|
$
|
3,219.6
|
|
Airbus
|
|
|
465.4
|
|
|
|
444.1
|
|
|
|
421.1
|
|
Sikorsky
|
|
|
59.6
|
|
|
|
45.2
|
|
|
|
19.9
|
|
Other
|
|
|
166.6
|
|
|
|
116.8
|
|
|
|
111.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
4,172.4
|
|
|
$
|
4,078.5
|
|
|
$
|
3,771.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
G250 Forward Loss Charge
In the second quarter of 2009, we recorded a $93.0 million
forward loss charge for the Gulfstream G250 business jet
program. Under our contract for this program, we have the
exclusive right to design, develop and manufacture wing
components over the life of the program. The contract provides
for fixed prices, which are subject to annual formulaic
adjustments based on changes in certain specified cost indices.
In addition, the G250 contract requires us to fund certain
up-front development expenses. The G250 program charge resulted
from the combination of higher than anticipated non-recurring
costs, increased forecasted costs on recurring production and a
decrease in the estimated number of units to be produced over
which the increased non-recurring costs will be spread. The
increases in costs were driven by several factors, including:
changing technical requirements, overspending on the design and
engineering phase of the program and uncertainty in our ability
to secure long-term contracts with suppliers at projected cost
levels. The decrease in the estimated number of units to be
produced under the contract was due to deterioration in the
global economy and decreasing demand for mid-sized
53
business jets. Further cost increases or an inability to meet
revised recurring cost forecasts on the G250 program may result
in additional forward loss reserves in future periods, while
improvements in future costs compared to current estimates may
result in favorable adjustments if forward loss reserves are no
longer required.
Twelve
Months Ended December 31, 2010 as Compared to Twelve Months
Ended December 31, 2009
Net Revenues. Net revenues for the twelve
months ended December 31, 2010, were $4,172.4 million,
an increase of $93.9 million, or 2%, compared with net
revenues of $4,078.5 million for the prior year. The
increase in net revenues is primarily attributable to an
increase in ship set deliveries in 2010 for the Boeing B737 as
compared to 2009 as the lingering effects of the IAM Strike at
Boeing impacted the first quarter 2009 deliveries. In addition,
2010 deliveries for the Boeing B787 also increased driven by
customer delivery schedule. Non-recurring revenues, which are
derived primarily from engineering and design efforts, were
$297.0 million and $328.0 million for each of the
twelve month periods ended December 31, 2010 and
December 31, 2009, respectively. Favorable volume-based
pricing adjustments of $38.0 million were recorded in 2009
as a result of lower deliveries due to the IAM Strike at Boeing
as compared with $5.2 million of such adjustments recorded
during the same period of 2010. The strengthening dollar during
2010 resulted in an $8.4 million decrease in the value of
net revenues from Spirit Europe. Deliveries to Boeing increased
by 3% to 480 ship sets during 2010 compared to 466 ship sets
delivered in the prior year, mostly due to increases in B737 and
B787 ship set deliveries, partially offset by a decrease in B777
ship set deliveries driven by customer delivery schedule.
Deliveries to Airbus decreased by 12% to 458 ship sets during
2010 compared to 519 ship sets delivered in the prior year due
to a 2010 customer delivery re-phasing at Spirit Europe which
reduced third quarter A320 deliveries. We
re-aligned
with customer A320 delivery levels in the fourth quarter of
2010. In total, ship set deliveries decreased 7% to 957 ship
sets in 2010 compared to 1,029 ship sets for the same period in
the prior year. This was primarily attributable to reduced
deliveries of Hawker, A320 and A330 ship sets, which are not a
significant source of revenue, partially offset by increased
Boeing ship set deliveries. Approximately 94% of Spirits
net revenues for 2010 came from our two largest customers,
Boeing and Airbus.
Cost of Sales. Cost of sales as a percentage
of net revenues was 87% for the twelve months ended
December 31, 2010, as compared to 88% in the prior year.
The decrease in 2010 is primarily due to the absence of unusual
charges recorded in 2009, consisting of $103.9 million
related to a forward loss on our G250 contract and the Cessna
Citation Columbus program termination, as well as an unfavorable
cumulative
catch-up
adjustment of $58.5 million in 2009. During 2010, we
recorded expenses of approximately $18.9 million associated
with the shares granted to eligible IAM-represented employees at
the ratification of a new ten-year agreement on June 25,
2010, $6.5 million in early retirement incentives accepted
by IAM-represented employees in the third quarter of 2010 also
in accordance with the new ten-year contract, and
$3.3 million associated with shares granted to eligible
UAW-represented employees at the ratification of a new ten-year
contract on December 18, 2010. We updated our 2010 contract
profitability estimates resulting in an unfavorable cumulative
catch-up
adjustment of $23.2 million driven by a $5.2 million
charge on our Hawker 850XP contract related to the decision to
exit the program, $7.1 million unfavorable cumulative
catch-up
adjustment related to periods prior to 2010 on our Sikorsky
CH-53K contract as a result of additional costs required to meet
test hardware schedules, and $6.5 million recorded in the
Propulsion segment primarily driven by the fourth quarter of
2010 comprehensive analysis of our 787 contract, during which we
revised our contract estimates to reflect a break even margin,
partially offset by favorable performance trends on mature
programs. We also recorded a $2.8 million forward loss
charge for tooling contracts for the G250 program in 2010. In
addition to these specific charges, we continue to experience
lower profitability on follow-on production blocks that began in
the fourth quarter of 2009.
In January 2010, we adopted a change in accounting estimate
which extended the useful lives of certain assets. The effect of
this change was a decrease in depreciation charges of
$14.6 million to inventory for 2010, which will eventually
flow through cost of sales following the process for contract
accounting.
SG&A, Research and Development. Combined
SG&A and Research and Development costs as a percentage of
net revenues were 5% for both of the twelve month periods ended
December 31, 2010 and December 31, 2009. SG&A
expense increased $18.9 million, or 14%, primarily due to
early retirement incentives offered in 2010, as well as
additional SG&A expenses incurred as we expanded our global
footprint to Malaysia, North Carolina and France. In addition,
we recognized $7.9 million in stock compensation expense in
SG&A during the twelve months ended December 31, 2010,
as compared to $9.7 million during the same period in the
prior year. Research and
54
Development expenses for the twelve months ended
December 31, 2010 were down $5.2 million, or 9%
compared to the same period in the prior year due to the
completion of certain A350 related R&D work in 2009.
Operating Income. Operating income for the
twelve months ended December 31, 2010, was
$357.0 million, an increase of $53.7 million, or 18%,
compared to operating income of $303.3 million for the
prior year. Operating income increased in 2010 primarily due to
the absence of charges similar in nature to those recorded in
the second quarter of 2009, that are discussed above, partially
offset by the decrease in volume-based pricing adjustments
recorded in 2010, the stock award charge recorded in 2010
related to the ratification by IAM-represented employees as the
result of a new ten-year agreement, charges associated with the
early retirement incentives offered in 2010 as part of that
contract, and the stock award charge recorded in 2010 related to
the ratification by UAW-represented employees of a new ten-year
agreement. Operating margins continued to reflect the reduced
profitability on follow-on production blocks as compared with
2009.
Interest Expense and Financing Fee
Amortization. Interest expense and financing fee
amortization for the twelve months ended December 31, 2010,
includes $51.1 million of interest and fees paid or accrued
in connection with long-term debt and $8.0 million in
amortization of deferred financing costs, as compared to
$37.1 million of interest and fees paid or accrued in
connection with long-term debt and $6.5 million in
amortization of deferred financing costs in the prior year. In
June 2009, the Company amended its credit facility which
resulted in an increase in amortized deferred financing costs.
The increase in interest expense in 2010 was primarily driven by
interest on the senior unsecured notes issued at the end of the
third quarter in 2009, partially offset by interest incurred on
the drawn portion of the revolver in 2009. The increase in
deferred financing fees was primarily the result of a full-year
discount amortization in 2010 on the notes issued in the third
quarter of 2009.
Interest Income. Interest income for the
twelve months ended December 31, 2010 was
$0.3 million, as compared to $7.0 million for the same
period in the prior year, which included $6.5 million of
accretion of the discounted long-term receivable from Boeing for
capital expense reimbursement pursuant to the Asset Purchase
Agreement for the Boeing Acquisition. The last of these payments
for capital reimbursement was made by Boeing to the Company in
2009.
Other Income (Expense). Other income (expense)
for 2010 included expense of ($5.0) million due to changes
in foreign exchange rates on intercompany activity and
borrowings, as compared to income of $2.3 million for the
same period in the prior year. The increase in expense was
driven primarily by the intercompany payable from Spirit Europe
to Spirit related to our A350 XWB program, as well as trade
payables and borrowings. Should these balances increase, they
will be more susceptible to changes in exchange rates.
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 discrete recognition could
include finalizing audit examinations for open tax years,
statute of limitations expiration, or a stock acquisition.
The income tax provision for the twelve months ended
December 31, 2010, was $78.2 million compared to
$80.9 million for the prior year. The 2010 effective tax
rate was 26.3% as compared to 29.7% for 2009. The decrease in
the effective tax rate recorded for 2010 is related primarily to
settling the 2005 and 2006 U.S. federal examinations, additional
state income tax credits, and our tax holiday in Malaysia. The
decrease from the U.S. statutory tax rate is attributable
primarily to the U.S. federal research tax credit,
qualified domestic production activities deduction, state income
tax credits, and our tax holiday in Malaysia.
55
Segments. The following table shows segment
revenues for the twelve months ended December 31, 2010,
December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions)
|
|
|
Segment Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems
|
|
$
|
2,035.1
|
|
|
$
|
2,003.6
|
|
|
$
|
1,758.4
|
|
Propulsion Systems
|
|
|
1,061.8
|
|
|
|
1,030.0
|
|
|
|
1,031.7
|
|
Wing Systems
|
|
|
1,067.4
|
|
|
|
1,024.4
|
|
|
|
955.6
|
|
All Other
|
|
|
8.1
|
|
|
|
20.5
|
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,172.4
|
|
|
$
|
4,078.5
|
|
|
$
|
3,771.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems
|
|
$
|
292.3
|
|
|
$
|
287.6
|
|
|
$
|
287.6
|
|
Propulsion Systems
|
|
|
137.5
|
|
|
|
122.6
|
|
|
|
162.2
|
|
Wing Systems
|
|
|
101.0
|
|
|
|
20.7
|
|
|
|
99.7
|
|
All Other
|
|
|
(1.8
|
)
|
|
|
(1.4
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
529.0
|
|
|
|
429.5
|
|
|
|
549.8
|
|
Unallocated corporate SG&A
|
|
|
(139.7
|
)
|
|
|
(122.7
|
)
|
|
|
(141.7
|
)
|
Unallocated research and development
|
|
|
(3.6
|
)
|
|
|
(3.5
|
)
|
|
|
(2.4
|
)
|
Unallocated cost of sales(1)
|
|
|
(28.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
357.0
|
|
|
$
|
303.3
|
|
|
$
|
405.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unallocated cost of sales for the twelve months ended
December 31, 2010 includes charges related to the grant of
shares to employees represented by the IAM in connection with
the ratification of a new ten-year labor contract on
June 25, 2010, early retirement incentives for members
represented by the IAM who made elections to retire in 2010, and
grants of shares to employees represented by the UAW in
connection with the ratification of a new ten-year labor
contract on December 18, 2010. |
Fuselage Systems, Propulsion Systems, Wing Systems and All Other
represented approximately 49%, 25%, 26% and less than 1%
respectively, of our net revenues for the twelve months ended
December 31, 2010. Fuselage Systems, Propulsion Systems,
Wing Systems and All Other represented approximately 55%, 26%,
19% and less than 1%, respectively, of our operating income
before unallocated corporate expenses for the year ended
December 31, 2010.
Fuselage Systems. Fuselage Systems segment net
revenues for the twelve months ended December 31, 2010,
were $2,035.1 million, an increase of $31.5 million,
or 2%, compared to the same period in the prior year. This
reflects an increase in deliveries of B737 and B787 ship sets in
2010, partially offset by a decrease in deliveries of B777 ship
sets in 2010, as compared to the prior year. Fuselage Systems
posted segment operating margins of 14% for each of the twelve
month periods ended December 31, 2010 and December 31,
2009. Lower overall margins on follow-on production blocks
impacted segment operating margins in 2010, while a
$10.9 million charge for the Cessna Citation Columbus
program termination and an unfavorable cumulative
catch-up of
$29.9 million were recorded in 2009 related to periods
prior to 2009. During 2010, the segment realized an unfavorable
cumulative
catch-up
adjustment of $7.2 million related to periods prior to
2010, primarily driven by additional costs required to meet test
hardware schedules on the Sikorsky CH-53K program, partially
offset by favorable performance on mature programs.
Propulsion Systems. Propulsion Systems segment
net revenues for the twelve months ended December 31, 2010
were $1,061.8 million, an increase of $31.8 million,
or 3%, as compared to the same period in the prior year. This
reflects an increase in deliveries of B737 and B787 ship sets in
2010, partially offset by a decrease in deliveries
56
of B777 ship sets in 2010, as compared to the prior year.
Propulsion Systems posted segment operating margins of 13% for
the twelve months ended December 31, 2010 as compared to
12% for the same period in the prior year. Lower overall margins
on follow-on production blocks impacted segment operating margin
in 2010, while an unfavorable cumulative
catch-up
adjustment of $22.4 million was recorded in 2009 related to
periods prior to 2009. During 2010, the segment realized an
unfavorable cumulative
catch-up
adjustment of $6.5 million related to periods prior to
2010, primarily driven by the fourth quarter of 2010
comprehensive analysis of our 787 contract, during which we
revised our contract estimates to reflect a break even margin.
Wing Systems. Wing Systems segment net
revenues for the twelve months ended December 31, 2010,
were $1,067.4 million, an increase of $43.0 million,
or 4%, as compared to the same period in the prior year. This
reflects an increase in revenues related to engineering and
development work on our new programs. Wing Systems posted
operating margins of 10% for 2010, as compared to 2% in the
prior year, primarily due to the $90.5 million forward loss
charge on the G250 contract recorded during 2009 and an
unfavorable cumulative
catch-up
adjustment of $6.2 million recorded in 2009 related to
periods prior to 2009. During 2010, the segment realized an
unfavorable cumulative
catch-up
adjustment of $9.5 million related to periods prior to 2010.
All Other. All Other segment net revenues
consist of sundry sales of miscellaneous services, tooling
contracts, and revenues from KIESC. In the twelve months ended
December 31, 2010, All Other segment net revenues were
$8.1 million, a decrease of $12.4 million, or 60%, as
compared to the same period in the prior year. The decrease in
net revenues was primarily driven by a decrease in third party
tooling sales. The All Other segment recorded negative operating
margins in both years due to an additional forward loss charge
on a tooling contract for the G250 program of $2.5 million
in 2009 and $2.8 million in 2010.
Twelve
Months Ended December 31, 2009 as Compared to Twelve Months
Ended December 31, 2008
Net Revenues. Net revenues for the twelve
months ended December 31, 2009, were $4,078.5 million,
an increase of $306.7 million, or 8%, compared with net
revenues of $3,771.8 million for the prior year. The
increase in net revenues is primarily attributable to an
increase in ship set deliveries for large commercial aircraft
caused in part by the reduction in deliveries in 2008 that
resulted from the IAM Strike at Boeing. Ship set deliveries to
Boeing increased 13% to 466 ship sets during the twelve months
ended December 31, 2009, compared to 414 ship sets in 2008.
Ship set deliveries for Airbus increased 10% to 519 ship sets
during the twelve months ended December 31, 2009, compared
to 473 ship sets in 2008. In total, for the twelve months ended
December 31, 2009, we delivered 1,029 ship sets compared to
978 ship sets delivered in 2008, a 5% increase. Approximately
96% of Spirits net revenues for the twelve months ended
December 31, 2009 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 twelve months ended
December 31, 2009, as compared to 84% the prior year. The
increase in cost of sales in 2009 was due primarily to several
unusual charges recorded in the second quarter, including a
$93.0 million forward loss charge for the Gulfstream G250
business jet program and the $10.9 million impact of the
Cessna Citation Columbus termination. During 2009, Spirit
updated its contract profitability estimates resulting in
aggregate unfavorable cumulative
catch-up
adjustments of $58.5 million related to periods prior to
2009 to reflect, among other things, post-strike production ramp
up as a result of the IAM Strike at Boeing, nutplate rework,
transition to a new enterprise resource planning (ERP) system,
higher than forecasted costs on contract blocks completed in
December 2009 and higher than expected costs on the Sikorsky
CH-53K program. Unfavorable cumulative
catch-up
adjustments totaling $22.6 million were recorded in 2008
related to periods prior to 2008, driven primarily by lower
forecasted pension income and impact of the IAM Strike at Boeing.
SG&A, Research and Development. Combined
SG&A, Research and Development costs as a percentage of net
revenues were 4.8% and 5.4% for the twelve months ended
December 31, 2009 and December 31, 2008, respectively,
despite lower net revenues in 2008 as a result of the IAM Strike
at Boeing. SG&A expenses for the twelve months ended
December 31, 2009, were lower as a percentage of net
revenues due primarily to a reduction in incentive compensation
and lower stock compensation expenses. In 2009, we recognized
$9.7 million in stock compensation expense in SG&A as
compared to $15.3 million in 2008. Research and Development
costs for 2009 were $56.7 million as compared to
$48.4 million in 2008 due to an increase in B787 derivative
activities and A350 tooling activities.
57
Operating Income. Operating income for the
twelve months ended December 31, 2009, was
$303.3 million, a decrease of $102.4 million, or 25%,
compared to operating income of $405.7 million for the
prior year. The decrease is primarily attributable to unusual
charges incurred in the second quarter of 2009, including a
$93.0 million forward loss charge for the Gulfstream G250
business jet program, the $10.9 million impact of the
Cessna Citation Columbus termination, and the realization of
larger unfavorable cumulative
catch-up
adjustments totaling $58.5 million related to periods prior
to 2009, partially offset by increased delivery rates for large
commercial aircraft.
Interest Expense and Financing Fee
Amortization. Interest expense and financing fee
amortization for the twelve months ended December 31, 2009,
includes $37.1 million of interest and fees paid or accrued
in connection with long-term debt and $6.5 million in
amortization of deferred financing costs, as compared to
$34.5 million of interest and fees paid or accrued in
connection with long-term debt and $4.7 million in
amortization of deferred financing costs in the prior year. The
increase in interest expense associated with long-term debt in
2009 was primarily driven by interest related to the senior
unsecured bonds that we issued at the end of the third quarter
of 2009, partially offset by lower LIBOR rates on the floating
portion of our Term B loan. The increase in deferred financing
costs was a result of increased amortized costs associated with
the amendment and restatement of our senior credit facility.
Interest Income. Interest income for the
twelve months ended December 31, 2009, consisted of
$6.5 million of accretion of the discounted long-term
receivable from Boeing for capital expense reimbursement
pursuant to the Asset Purchase Agreement for the Boeing
Acquisition and $0.5 million of interest income compared to
$16.2 million of accretion of the discounted long-term
receivable and $2.4 million of interest income for the
prior year. The decrease of $11.6 million as compared to
the twelve months ended December 31, 2008 was primarily due
to lower accretion income as a result of a lower outstanding
balance on the discounted long-term receivable which was
collected in full in December 2009 and lower interest rates on
interest bearing accounts.
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 discrete recognition could
include finalizing audit examinations for open tax years, a
statute of limitations expiration, or a stock acquisition.
The income tax provision for the twelve months ended
December 31, 2009, was $80.9 million compared to
$118.5 million for the prior year. The 2009 effective tax
rate was 29.7% as compared to 30.9% for 2008. The decrease in
the effective tax rate recorded for 2009 is related primarily to
additional U.S. federal research and experimentation tax
credits. The decrease from the U.S. statutory tax rate is
attributable primarily to the U.S. federal research and
experimentation tax credit and the qualified domestic production
activities deduction.
Segments. Segment operating income before
unallocated expenses for the twelve months ended
December 31, 2009 included several unusual charges,
including a $93.0 million forward-loss charge for the
Gulfstream G250 business jet program, an unfavorable cumulative
catch-up
adjustment of $39.0 million, the $10.9 million impact
of the Cessna Citation Columbus program termination, and
increased R&D spending on new programs. Fuselage Systems,
Propulsion Systems, Wing Systems and All Other represented
approximately 49%, 25%, 25% and 1%, respectively, of our net
revenues for the twelve months ended December 31, 2009.
Revenues attributable to Airbus are recorded within Wing
Systems. Fuselage Systems, Propulsion Systems, Wing Systems and
All Other represented approximately 67%, 28%, 5% and less than
1%, respectively, of our operating income before unallocated
corporate expenses for the year ended December 31, 2009.
Fuselage Systems. Fuselage Systems segment net
revenues for the twelve months ended December 31, 2009,
were $2,003.6 million, an increase of $245.2 million,
or 14%, compared with Fuselage Systems segment net revenues of
$1,758.4 million for the prior year. This reflects an
increase in deliveries for most Boeing large commercial aircraft
programs in 2009 due to the IAM Strike in late 2008 and delivery
of eleven B787 forward fuselage sections in 2009 as compared
with three deliveries in the prior year, partially offset by
fewer deliveries of B747 units. Fuselage Systems recorded
segment operating margins of 14% for the twelve months ended
December 31, 2009, as compared to 16% reported for the
prior year as net unfavorable cumulative
catch-up
adjustments of $29.9 million were realized during 2009
related to periods prior to 2009, primarily driven by
post-strike production
ramp-up as a
result of the IAM Strike in late 2008, nutplate rework,
transition to a new ERP
58
system, higher than forecasted costs on contract blocks
completed in December 2009, and higher than expected costs on
the Sikorsky CH-53K program. In addition, a $10.9 million
charge for the termination of the Cessna Citation Columbus
program was recorded during 2009. Unfavorable cumulative
catch-up
adjustments of $10.7 million were recorded in 2008 related
to periods prior to 2008.
Propulsion Systems. Propulsion Systems segment
net revenues for the twelve months ended December 31, 2009,
were $1,030.0 million, which were essentially flat compared
with Propulsion Systems segment net revenues of
$1,031.7 million for the prior year. This reflects an
increase in deliveries for most Boeing large commercial aircraft
programs in 2009 due to the IAM Strike in late 2008, partially
offset by fewer B747 units. Propulsion Systems recorded
segment operating margins of 12% for the twelve months ended
December 31, 2009, as compared to 16% reported for the
prior year as net unfavorable cumulative
catch-up
adjustments of $22.4 million were realized during 2009
related to periods prior to 2009, primarily driven by disruption
related to the post-strike production
ramp-up as a
result of the IAM Strike in late 2008. In addition, lower
aftermarket sales were realized year over year. Unfavorable
cumulative
catch-up
adjustments of $4.4 million were recorded in 2008 related
to periods prior to 2008.
Wing Systems. Wing Systems segment net
revenues for the twelve months ended December 31, 2009,
were $1,024.4 million, an increase of $68.8 million,
or 7%, compared with Wing Systems segment net revenues of
$955.6 million for the prior year. This reflects increased
non-recurring revenues related to engineering and development
work on our new programs. Wing Systems recorded segment
operating margins of 2% for the twelve months ended
December 31, 2009 as compared to 10% reported for the prior
year due primarily to a $90.5 million forward loss charge
for the Gulfstream G250 business jet program recorded in the
second quarter of 2009, as well as net unfavorable cumulative
catch-up
adjustments of $6.2 million realized in 2009 related to
periods prior to 2009. Unfavorable cumulative
catch-up
adjustments of $7.5 million were recorded in 2008 related
to periods prior to 2008.
All Other. All Other segment net revenues
consist of sundry sales of miscellaneous services, tooling
contracts, and revenues from KIESC. In the twelve months ended
December 31, 2009, All Other segment net revenues were
$20.5 million, a decrease of $5.6 million, or 21%,
compared with $26.1 million for the prior year. The
decrease in net revenues for the twelve months ended
December 31, 2009, was primarily driven by a decrease in
third party tooling sales. The All Other segment recorded
operating margins of (7%) for the twelve months ended
December 31, 2009 as compared to 1% for the prior year. The
decrease in margins was primarily due to a $2.5 million
charge recorded in the second quarter of 2009 related to tooling
for the Gulfstream G250 business jet program.
Liquidity
and Capital Resources
The primary sources of our liquidity include cash flow from
operations, which include 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 December 31, 2010, we had $481.6 million of cash
and cash equivalents on the balance sheet and
$631.1 million of available borrowing capacity under our
revolving credit facility. Based on our planned levels of
operations and our strong liquidity position, we currently
expect that our cash on hand, cash flow from operations and
borrowings available under our revolving credit facility will be
sufficient to fund our operations, inventory growth (as
discussed below), planned capital investments, research and
development expenditures and scheduled debt service payments for
at least the next twelve months.
59
Cash
Flows
The following table provides a summary of our cash flow for the
years ended December 31, 2010, December 31, 2009, and
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
($ in millions)
|
|
|
Net income
|
|
$
|
218.9
|
|
|
$
|
191.7
|
|
|
$
|
265.4
|
|
Adjustments to reconcile net income
|
|
|
184.9
|
|
|
|
162.4
|
|
|
|
108.0
|
|
Changes in working capital
|
|
|
(278.7
|
)
|
|
|
(368.0
|
)
|
|
|
(162.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
125.1
|
|
|
|
(13.9
|
)
|
|
|
210.7
|
|
Net cash (used in) investing activities
|
|
|
(288.4
|
)
|
|
|
(112.4
|
)
|
|
|
(119.8
|
)
|
Net cash provided by financing activities
|
|
|
277.4
|
|
|
|
276.1
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate change on cash and cash equivalents
|
|
|
(1.5
|
)
|
|
|
2.7
|
|
|
|
(11.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents for the period
|
|
|
112.6
|
|
|
|
152.5
|
|
|
|
83.1
|
|
Cash and cash equivalents, beginning of period
|
|
|
369.0
|
|
|
|
216.5
|
|
|
|
133.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
481.6
|
|
|
$
|
369.0
|
|
|
$
|
216.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
Months Ended December 31, 2010 as Compared to Twelve Months
Ended December 31, 2009
Operating Activities. For the twelve months
ended December 31, 2010, we had a net cash inflow of
$125.1 million from operating activities, an increase of
$139.0 million compared to a net cash outflow of
$13.9 million for the same period in the prior year. The
increase in cash provided by operating activities in 2010 was
primarily due to higher net income, the slowing of new program
inventory growth on programs other than B787 (which is ramping
up production), and a payment received in the fourth quarter of
2010 as a result of the memorandum of agreement and settlement
agreement between Spirit and Boeing relating to the B787
contract. This overall improvement was partially offset by a
decrease in advance payments as increased deliveries of the B787
liquidated advances previously received, and a decline in
accounts payable and accrued liabilities in 2010. In 2009, we
benefited from a change in accounts payable terms which occurred
in the first quarter of 2009. 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, Sikorsky CH-53K and
Rolls Royce BR725 programs. The contracts for these new programs
accounted for an increase in inventory in 2010 of
$385.9 million, as compared to an increase of
$317.3 million in 2009. We expect these programs will
continue to drive inventory growth as we incur additional
up-front costs to produce initial units, which traditionally
have a higher cost. The mature Boeing and Airbus program
inventories decreased $48.6 million in 2010 as compared
with a $2.3 million increase for these contracts in 2009.
In 2010, inventory balances decreased $36.3 million on
remaining programs, including non-program specific inventory, as
compared to an increase in inventory balances of
$5.4 million 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 $218.8 million in 2010
compared to an increase of $128.0 million in the same
period of 2009. Deferred production balances increased by
$226.4 million in 2010 compared to $243.5 million in
the same period of 2009 as a result of delivery of sixteen B787
ship sets in 2010 as compared to eleven ship sets in the same
period of 2009. 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 both 2010 and 2009 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
60
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 twelve months
ended December 31, 2010, we had a net cash outflow of
$288.4 million from investing activities, an increase in
outflow of $176.0 million, as compared to a net cash
outflow of $112.4 million for the same period in the prior
year. The primary driver in the increased use of cash between
periods was the final payment of the long-term receivable from
Boeing in December 2009, which resulted in a cash benefit of
$115.4 million in 2009 with no corresponding benefit in
2010. During 2010, we invested $288.1 million in property,
plant and equipment, software and program tooling, which was
$59.9 million higher than during the same period in the
prior year, as the result of
set-up of
our facilities in Kinston, North Carolina and Saint-Nazaire,
France.
Financing Activities. For the twelve months
ended December 31, 2010, we had a net cash inflow of
$277.4 million from financing activities, an increase in
cash flow of $1.3 million, compared to a net cash inflow of
$276.1 million for the same period in the prior year. We
received proceeds of $300.0 million and
$293.4 million, net of the bond discount, from bond
issuances in 2010 and 2009, respectively, partially offset by
additional deferred financing costs associated with the bond
offerings. Spirit repaid $150.0 million and
$200.0 million of borrowings under its senior secure credit
facility using a portion of the bond proceeds in 2010 and 2009,
respectively.
Twelve
Months Ended December 31, 2009 as Compared to Twelve Months
Ended December 31, 2008
Operating Activities. For the twelve months
ended December 31, 2009, we had a net cash outflow of
$13.9 million from operating activities, a decrease of
$224.6 million, as compared to a net cash inflow of
$210.7 million in the prior year. The decrease in cash
provided from operations in 2009 was primarily due to lower net
income and recognition of net customer advances and net deferred
revenue of $(112.3) million as compared to
$435.1 million of customer advances and deferred revenue
received in 2008 related to the B787 and A350 XWB programs.
While the overall change in inventory balance related to the
B787 program increased by $128.0 million in 2009 compared
to an increase of $241.0 million in 2008, deferred
production costs increased by $243.5 million in 2009 and
$132.0 million in 2008 as a result of delivery of eleven
B787 ship sets in 2009 as compared to three in 2008. 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 2009 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, 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. Increased spending on new programs
year-over-year
also had an impact of $189.3 million on inventory.
Investing Activities. For the twelve months
ended December 31, 2009, we had a net cash outflow of
$112.4 million related to investing activities, a
$7.4 million decrease, as compared to a cash outflow of
$119.8 million in the prior year. During 2009, we invested
$228.2 million in property, plant and equipment, software
and program tooling, which was $7.6 million lower than
during the same period in the prior year, partially offset by a
slight decrease in Boeing payments to Spirit attributable to the
acquisition of title of various tooling and other capital
assets. The last of these payments were received in December
2009.
Financing Activities. For the twelve months
ended December 31, 2009, we had a net cash inflow of
$276.1 million related to financing activities, a
$272.6 million increase, as compared to a $3.5 million
cash inflow in the prior year. This was due primarily to the
receipt of $293.4 million in net proceeds received from
Spirits bond offering in the third quarter of 2009,
partially offset by additional deferred financing costs
associated with the bond offering. Spirit repaid
$200.0 million of borrowings under its existing senior
secured revolving credit facility using a portion of the bond
proceeds.
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
61
aircraft already in production. Research and development
expenditures totaled approximately $51.5 million and
$56.7 million for the twelve months ended December 31,
2010 and December 31, 2009, 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 $288.1 million and
$228.2 million for the twelve months ended
December 31, 2010 and December 31, 2009, respectively.
We expect to fund future capital expenditures from cash on hand,
from operations and borrowings available under our revolving
credit facility.
Tax
Payments
Total tax payments, net of refunds, were $34.9 million in
2010, $95.7 million in 2009 and $115.4 million in
2008. Year to year changes are due to changes in legislation and
levels and mix of taxable income.
Pension
and Other Post Retirement Benefit
Obligations
Our U.S. pension plan remained fully funded at year-end
2010. As a result of the plans asset performance during
2010, we now expect a decrease in non-cash pension income in
future periods. 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
$7.3 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 remains 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 December 31, 2010, we
were and expect to continue to be in full compliance with all
covenants contained within our credit agreement. As of
December 31, 2010, approximately $566.1 million was
outstanding under the term loan, no borrowings were outstanding
under the revolving credit facility and $18.9 million of
letters of credit were outstanding.
Revolving credit borrowings bear interest at a rate equal to, at
Spirits 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 December 31, 2010, the Companys total leverage
ratio was 2.37:1.0 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
62
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 Spirits existing and future domestic
subsidiaries that guarantee Spirits obligations under
Spirits 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 December 31, 2010.
On September 30, 2009, we issued $300.0 million of
71/2% 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 Spirits existing and
future domestic subsidiaries that guarantee Spirits
obligations under Spirits senior secured credit facility.
The carrying value of the 2017 Notes was $294.2 million as
of December 31, 2010.
As of December 31, 2010, we were and expect to continue to
be in full compliance with all covenants contained in the
indentures govering 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 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
63
current structure of repayment for the advances described in the
section captioned Risk Factors in this Annual Report.
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 December 31, 2010, $100.0 million of
the grant funding had been disbursed and $100.0 million of
Spirits 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 RM69.2 million (approximately USD
$20.0 million equivalent) (the Malaysia
Facility), with the Malaysian Export-Import Bank. The
Malaysia Facility requires quarterly principal repayments of
RM3.3 million (USD $1.0 million equivalent) 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 December 31, 2010 was
$18.2 million.
French Factory Capital Lease Agreement. On
July 17, 2009, the Companys indirect wholly-owned
subsidiary, Spirit AeroSystems France SARL (Spirit
France) entered into a capital lease agreement for
9.0 million (approximately US $13.1 million
equivalent) with BNP Paribas Bank (BNP) 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 December 31, 2010, the Company
has recorded 9.0 million (approximately US
$12.4 million equivalent) in debt attributable to the
capital lease transaction.
Tax Incentive Bonds. Both Spirit and the
Predecessor utilized City of Wichita issued Industrial Revenue
Bonds (IRBs) to finance self-constructed and purchased real and
personal property at the Wichita site. The bonds issued in 2010,
2009, 2008, 2006, and 2005 mature ten years from issuance while
the bonds issued in 1998 through 2004 mature 25 years after
their issuance. Tax benefits associated with IRBs include
provisions for a ten-year complete property tax abatement and a
Kansas Department of Revenue sales tax exemption on all IRB
funded purchases. Spirit and the Predecessor purchased these
IRBs so they are both bondholders and debtor / lessee
for the property purchased with the IRB proceeds. Therefore, we
offset the amounts invested and obligations for these bonds on a
consolidated basis.
Certain Predecessor property that was subject to Predecessor
owned IRBs continues to be subject to those IRBs. In connection
with the Boeing Acquisition, the Predecessor assigned its
leasehold interest in IRB funded assets and the related bonds to
a special purpose trust beneficially owned by Boeing which
subleases these assets to Spirit. Pursuant to the sublease
terms, the special purpose trust will purchase the assets from
the City of Wichita, terminate the leases between the City and
the Predecessor, redeem the bonds, and transfer the assets to
Spirit when these assets cease to qualify for the ten-year
property tax abatement.
The face value for the bonds subleased from the special purpose
trust is approximately $296.4 million. In addition, Spirit
obtained IRBs in 2005, 2006, 2008, 2009, and 2010 with a
$271.2 million aggregate principal amount. Spirit redeemed
$26.9 million of IRBs issued in 2006 in 2009.
We have an incentive agreement with the Kansas Department of
Commerce, pursuant to which the Kansas Development Finance
Authority issued bonds and provided loans to finance eligible
projects. The programs purpose is to provide us with
incentives to invest in the State of Kansas. To induce this
investment, the Kansas Department of Revenue will rebate certain
payroll taxes until the bonds are redeemed or mature. Pursuant
to offset
64
provisions in the underlying debt instruments, there are no
principal or interest cash payments associated with the bonds.
As debtor, Spirit offsets the amount owed to its wholly-owned
subsidiary, Spirit AeroSystems Finance, Inc., as bondholder.
Therefore, we may offset the amounts invested and obligations
for these bonds on a consolidated basis. The $80.0 million
in debt instruments will expire in December 2025.
Credit
Ratings
On October 7, 2010, our corporate credit rating at Standard
& Poors Rating Services was affirmed at BB and our
Corporate Credit rating at Moodys Investor Service was
upgraded to Ba2 from Ba3.
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 held 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.
Contractual
Obligations
The following table summarizes our contractual cash obligations
as of December 31, 2010:
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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2017 and
|
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Contractual Obligations(1)(2)
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2011
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2012
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|
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2013
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2014
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2015
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|
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2016
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After
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Total
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Principal Payment on Term Loan B
|
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$
|
5.7
|
|
|
$
|
37.3
|
|
|
$
|
100.0
|
|
|
$
|
4.4
|
|
|
$
|
4.4
|
|
|
$
|
414.3
|
|
|
$
|
|
|
|
$
|
566.1
|
|
Interest on Debt(3)
|
|
|
24.6
|
|
|
|
28.2
|
|
|
|
32.4
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|
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32.8
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|
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31.2
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|
|
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24.4
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|
|
|
|
|
|
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173.6
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Long-Term Bonds
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|
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|
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600.0
|
|
|
|
600.0
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Interest on Long-term Bonds
|
|
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44.2
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|
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42.8
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|
|
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42.8
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|
|
|
42.8
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|
|
|
42.8
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|
|
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42.8
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|
|
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90.6
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|
|
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348.8
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Malaysia Loan
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1.7
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3.0
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3.0
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3.0
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3.0
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3.0
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1.5
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18.2
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Interest on Malaysia Loan
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0.8
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0.6
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0.4
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0.3
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|
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0.2
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0.1
|
|
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|
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2.4
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U.K. Pension Obligation
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|
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7.3
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|
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7.3
|
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Non-Cancelable Operating Lease Payments
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|
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13.4
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|
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|
12.2
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|
|
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11.3
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|
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5.4
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|
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4.2
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|
|
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3.2
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|
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13.6
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|
|
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63.3
|
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Non-Cancelable Capital Lease Payments(4)
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2.4
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|
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2.3
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2.0
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1.1
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1.1
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|
1.1
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|
|
|
10.5
|
|
|
|
20.5
|
|
Swaps
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|
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9.6
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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9.6
|
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Other
|
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|
0.8
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|
|
|
0.8
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|
|
0.8
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0.6
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|
|
|
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|
|
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3.0
|
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Purchase Obligations(5)
|
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123.4
|
|
|
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35.8
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|
|
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28.4
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|
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27.5
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|
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4.3
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|
|
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0.2
|
|
|
|
|
|
|
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219.6
|
|
|
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Total
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$
|
233.9
|
|
|
$
|
163.0
|
|
|
$
|
221.1
|
|
|
$
|
117.9
|
|
|
$
|
91.2
|
|
|
$
|
489.1
|
|
|
$
|
716.2
|
|
|
$
|
2,032.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include repayment of B787 advances or deferred revenue
credits to Boeing, which are reflected in our consolidated
balance sheet as short-term and long-term liabilities. |
|
(2) |
|
The $15.2 million of unrecognized tax benefit liability for
uncertain tax positions has been excluded from this table due to
uncertainty involving the ultimate settlement period. See
Note 15, Income Taxes. |
|
(3) |
|
Interest on our Term Loan B was calculated for all years using
the three month LIBOR yield curve as of December 31, 2010
plus applicable margin. |
|
(4) |
|
Treats the financing of software license purchases and direct
financing of system implementation as capital leases. |
|
(5) |
|
Purchase obligations represent computing, tooling costs, and
property, plant and equipment commitments at December 31,
2010. |
65
Off-Balance
Sheet Arrangements
Other than operating leases disclosed in the notes to our
financial statements included in this Annual Report, we have not
entered into any off-balance sheet arrangements as of
December 31, 2010.
Tax
We establish reserves in accordance with FASB authoritative
guidance to provide for additional income taxes that may be due
in future years as these previously filed tax returns are
audited. We recognize the financial statement impact for tax
positions only after determining that based on its technical
merits the relevant tax authority would more likely than not
sustain the position on audit. For tax positions meeting the
more likely than not threshold the amount recognized
in the financial statements is the largest amount that has a
greater than 50% likelihood of being realized upon ultimate
settlement with the relevant tax authority. The reserves are
adjusted quarterly to reflect changes in facts and
circumstances, such as the tax audits progress, case law
developments, and new or emerging legislation. We believe that
with a $14.7 million long-term payable, the tax reserves
are adequate and reflect the most probable outcome for all tax
contingencies known at December 31, 2010. Accordingly, the
tax contingency liability is included as a non-current liability
in our consolidated balance sheet.
Expected
Backlog
As of December 31, 2010, our expected backlog associated
with large commercial aircraft, regional jet, business jet and
military equipment deliveries through 2016, calculated based on
contractual product prices and expected delivery volumes, was
approximately $28.3 billion. This is an increase of
$0.3 billion over our corresponding estimate as of the end
of 2009 reflecting the fact that orders exceeded deliveries in
2010. Backlog is calculated based on the number of units Spirit
is under contract to produce on our fixed quantity contracts,
and Boeing or Airbus announced backlog on our supply agreements.
The number of units may be subject to cancellation or delay by
the customer prior to shipment, depending on contract terms. The
level of unfilled orders at any given date during the year may
be materially affected by the timing of our receipt of firm
orders and additional airplane orders, and the speed with which
those orders are filled. Accordingly, our expected backlog as of
December 31, 2010, may not necessarily represent the actual
amount of deliveries or sales for any future period.
Foreign
Operations
We engage in business in various
non-U.S. markets.
As of December 31, 2010, we have a foreign subsidiary with
one facility in the United Kingdom, which serves as a production
facility, an assembly facility in Malaysia, a worldwide supplier
base, and a repair center for the European and Middle-Eastern
regions. We purchase certain components and materials that we
use in our products from foreign suppliers and a portion of our
products will be sold directly to foreign customers, including
Airbus, or resold to foreign end-users (i.e., foreign airlines
and militaries). In addition, Spirit has built a new assembly
facility in Saint-Nazaire, France to receive and assemble center
fuselage frame sections for the Airbus A350 XWB commercial
aircraft from the facility in Kinston, North Carolina
before they are shipped to Airbus. The new facility is expected
to begin operations in 2011.
Spirit is party to a joint-venture operation with Russian-based
Progresstech LTD. The company, known as Spirit-Progresstech LLC,
which operates primarily from a branch office located in Moscow,
Russia, provides aerospace engineering support services.
Spirit has entered into a joint venture with Hong Kong Aircraft
Engineering Company Limited (HAECO), and its subsidiary, Taikoo
Aircraft Engineering Company Limited (TAECO), Cathay Pacific
Airways Limited, and Cal-Asia to develop and implement a
state-of-the-art
composite and metal bond component repair station in the
Asia-Pacific region. The service center is called Taikoo Spirit
AeroSystems Composite Co. Ltd.
Currency fluctuations, tariffs and similar import limitations,
price controls and labor regulations can affect our foreign
operations. Other potential limitations on our foreign
operations include expropriation, nationalization, restrictions
on foreign investments or their transfers and additional
political and economic risks. In addition, the transfer of funds
from foreign operations could be impaired by any restrictive
regulations that foreign governments could enact.
66
Sales to foreign customers are subject to numerous additional
risks, including the impact of foreign government regulations,
political uncertainties and differences in business practices.
There can be no assurance that foreign governments will not
adopt regulations or take other actions that would have a direct
or indirect adverse impact on our business or market
opportunities with such governments countries.
Furthermore, the political, cultural and economic climate
outside the United States may be unfavorable to our operations
and growth strategy.
For the twelve months ended December 31, 2010, our net
revenues from direct sales to
non-U.S. customers
were approximately $498.4 million, or 12%, of total net
revenues for the same period. For the twelve months ended
December 31, 2009, our net revenues from direct sales to
non-U.S. customers
were approximately $575.9 million, or 14%, of total net
revenues for the same period. For the twelve months ended
December 31, 2008, our net revenues from direct sales to
non-U.S. customers
were approximately $465.4 million, or 12%, of total net
revenues for the same period.
Inflation
A majority of our sales are conducted pursuant to long-term
contracts that set fixed unit prices, some of which provide for
price adjustment for inflation. In addition, we typically
consider expected inflation in determining proposed pricing when
we bid on new work. Although we have attempted to minimize the
effect of inflation on our business through these protections,
sustained or higher than anticipated increases in costs of labor
or materials could have a material adverse effect on our results
of operations.
Spirits contracts with suppliers currently provide for
fixed pricing in U.S. dollars. Spirit Europes supply
contracts are denominated in U.S. dollars, British pounds
sterling and Euros. In some cases, our supplier arrangements
contain inflationary adjustment provisions based on accepted
industry indices, and we typically include an inflation
component in estimating our supply costs. Although the raw
material industry is experiencing a softening in demand, some
specific materials have yet to reflect a corresponding reduction
in price. We expect that raw material market pricing volatility
will remain a factor that may impact our costs, despite
protections in our existing supplier arrangements. We will
continue to focus our strategic cost reduction plans on
mitigating the effects of this potential cost increase on our
operations.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
As a result of our operating and financing activities, we are
exposed to various market risks that may affect our consolidated
results of operations and financial position. These market risks
include fluctuations in interest rates, which impact the amount
of interest we must pay on our variable rate debt.
Other than the interest rate swaps described below, financial
instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash
investments, the funds in which our pension assets are invested,
and trade accounts receivable.
Accounts receivable include amounts billed and currently due
from customers, amounts earned but unbilled, particular
estimated contract changes, claims in negotiation that are
probable of recovery, and amounts retained by the customer
pending contract completion. For the twelve months ended
December 31, 2010, approximately 83% of our net revenues
were from sales to Boeing. We continuously monitor collections
and payments from customers and maintain a provision for
estimated credit losses as deemed appropriate based upon
historical experience and any specific customer collection
issues that have been identified. While such credit losses have
historically not been material, we cannot guarantee that we will
continue to experience the same credit loss rates in the future.
We maintain cash and cash equivalents with various financial
institutions and perform periodic evaluations of the relative
credit standing of those financial institutions and from time to
time we invest excess cash in liquid short-term money market
funds. We have not experienced any losses in such accounts and
believe that we are not exposed to any significant credit risk
on cash and cash equivalents. Additionally, we monitor our
defined benefit pension plan asset investments on a quarterly
basis and we believe that we are not exposed to any significant
credit risk in these investments.
Commodity
Price Risks
Some raw materials and operating supplies are subject to price
and supply fluctuations caused by market dynamics. Our strategic
sourcing initiatives are focused on mitigating the impact of
commodity price risk. We are
67
party to collective raw material sourcing contracts arranged
through Boeing and Airbus. These collective sourcing contracts
allow us to obtain raw materials at pre-negotiated rates and
help insulate us from market volatility across the industry for
certain specialized metallic and composite raw materials used in
the aerospace industry. Although our supply agreements with
Boeing and Airbus allow us to pass on certain unusual increases
in component and raw material costs to Boeing and Airbus in
limited situations, we may not be fully compensated for such
increased costs. We also have long-term supply agreements with a
number of our major parts suppliers. We, as well as our supply
base, are experiencing pricing increases for metallic raw
materials (primarily aluminum and titanium) despite softening
market demand across the industry. Although the demand pressure
has been somewhat eased for certain metallic and composite raw
materials, the specialized nature of the materials used in the
aerospace industry has prevented a corresponding decrease in
prices. We generally do not employ forward contracts or other
financial instruments to hedge commodity price risk, although we
continue to review a full range of business options focused on
strategic risk management for all raw material commodities.
Any failure by our suppliers to provide acceptable raw
materials, components, kits or subassemblies could adversely
affect our production schedules and contract profitability. We
assess qualification of suppliers and continually monitor them
to control risk associated with such supply base reliance.
To a lesser extent, we also are exposed to fluctuations in the
prices of certain utilities and services, such as electricity,
natural gas, chemicals and freight. We utilize a range of
long-term agreements to minimize procurement expense and supply
risk in these areas.
Interest
Rate Risks
After the effect of interest rate swaps, as of December 31,
2010, we had $400.0 million of total fixed rate debt and
$166.1 million of variable rate debt outstanding as
compared to $500.0 million of total fixed rate debt and
$72.0 million of variable rate debt outstanding as of
December 31, 2009. Borrowings under our Senior Secured
Credit Facility bear interest that varies with LIBOR. Interest
rate changes generally do not affect the market value of such
debt, but do impact the amount of our interest payments and,
therefore, our future earnings and cash flows, assuming other
factors are held constant. Assuming other variables remain
constant, including levels of indebtedness, a one percentage
point increase in interest rates on our variable debt would have
an estimated impact on pre-tax earnings and cash flows for the
next twelve months of approximately $1.7 million.
We enter into
floating-to-fixed
interest rate swap agreements periodically. As of
December 31, 2010, the interest swap agreements had
notional amounts totaling $400.0 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
Fair Value,
|
|
|
|
|
|
Variable
|
|
Fixed
|
|
Fixed
|
|
December 31,
|
|
Notional Amount
|
|
Expires
|
|
Rate
|
|
Rate(1)
|
|
Rate(2)
|
|
2010
|
|
|
|
($ in millions)
|
|
|
$100
|
|
July 2011
|
|
LIBOR
|
|
4.27%
|
|
7.18%
|
|
$
|
(2.9
|
)
|
$300
|
|
July 2011
|
|
LIBOR
|
|
3.23%
|
|
4.98%
|
|
$
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(9.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
points 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 our
exposure to variable interest rates. In accordance with FASB
authoritative guidance the interest rate swaps are being
accounted for as cash flow hedges and the fair value of the swap
agreements is reported on the balance sheet as an asset, if
positive, or a liability, if negative. The fair value of the
interest rate swaps was a net liability of approximately
$(9.3) million at December 31, 2010. 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 at year end 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
68
only entering into agreements with major financial institutions
which are expected to be able to fully perform under the terms
of the agreement. We do not use these contracts for speculative
or trading purposes.
Foreign
Exchange Risks
During 2010, the Company entered into foreign currency
transactions with notional amounts of $(19.1) million for
2011 through 2013 to hedge revenue streams and known payments.
The notional amounts of the contracts remaining at
December 31, 2010 was $(53.0) million.
As a result of the BAE Acquisition, we have sales, expenses,
assets and liabilities that are denominated in British pounds
sterling. Spirit Europes functional currency is the
British pound sterling. However, sales of Spirit Europes
products to Boeing 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. We use
foreign currency forward contracts to reduce our exposure to
currency exchange rate fluctuations. The objective of these
contracts is to minimize the impact of currency exchange rate
movements on our operating results. We do not use these
contracts for speculative or trading purposes.
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.
In accordance with FASB authoritative guidance, the foreign
exchange contracts for 2010 are being accounted for as cash flow
hedges. The fair value of the foreign exchange contracts was a
net liability of approximately $(1.6) million with a
notional amount of $(53.0) million at December 31,
2010. At December 31, 2010, a 10% unfavorable exchange rate
movement in our portfolio of foreign currency contracts would
have increased our unrealized losses by $5.3 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Risk From
|
|
|
|
USD
|
|
|
Currency
|
|
|
Contract
|
|
|
Reevaluation
|
|
|
Net Liability
|
|
|
Change in
|
|
Year
|
|
Buy/(Sell)(1)
|
|
|
Buy/(Sell)(1)
|
|
|
Rate
|
|
|
Rate
|
|
|
Fair Value
|
|
|
Reevaluation Rate
|
|
|
|
($ in millions)
|
|
|
2011
|
|
$
|
(44.1
|
)
|
|
|
£27.3
|
|
|
|
1.6100
|
|
|
|
1.5600
|
|
|
$
|
(1.3
|
)
|
|
$
|
2.2
|
|
2012
|
|
|
(8.9
|
)
|
|
|
5.7
|
|
|
|
1.6000
|
|
|
|
1.5500
|
|
|
|
(0.2
|
)
|
|
|
0.9
|
|
2013
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(53.0
|
)
|
|
|
£32.9
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.6
|
)
|
|
$
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes foreign currency hedge contracts for 2011 through 2013
novated to Spirit Europe as a result of the BAE Acquisition (buy
$0.3/sell £0.4), which had no underlying contractual
transactions at the inception date of the contracts and,
therefore, are classified as debt securities which are not
subject to hedge accounting. The
mark-to-market
values of these debt securities are recorded through the
Consolidated Statement of Operations on a monthly basis in
accordance with FASB authoritative guidance on
investments debt and equity securities disclosures. |
In accordance with FASB authoritative guidance, the intercompany
revolving credit facility with Spirit Europe is exposed to
fluctuations in foreign exchange rates. The fluctuation in rates
for 2010 resulted in a loss of $2.5 million reflected in
other income/expense.
Other than the interest rate swaps and foreign exchange
contracts, we have no other derivative financial instruments.
69
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
SPIRIT
AEROSYSTEMS HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Consolidated Financial Statements of Spirit AeroSystems
Holdings, Inc. for the periods ended December 31, 2010,
December 31, 2009 and December 31, 2008
|
|
|
|
|
|
|
|
71
|
|
|
|
|
72
|
|
|
|
|
73
|
|
|
|
|
74
|
|
|
|
|
75
|
|
|
|
|
76
|
|
70
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Spirit AeroSystems Holdings, Inc.
In our opinion, the consolidated financial statements listed in
the accompanying index, present fairly, in all material
respects, the financial position of Spirit AeroSystems Holdings,
Inc. (the Company) at December 31, 2010 and
December 31, 2009, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 2010 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule appearing under
Item 15 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements. Also in our opinion,
the Company maintained, in all material respects, effective
internal control over financial reporting as of
December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in
Managements Annual Report on Internal Control over
Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 22, 2011
71
Spirit
AeroSystems Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve
|
|
|
For the Twelve
|
|
|
For the Twelve
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
($ in millions, except per share data)
|
|
|
Net revenues
|
|
$
|
4,172.4
|
|
|
$
|
4,078.5
|
|
|
$
|
3,771.8
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
3,607.9
|
|
|
|
3,581.4
|
|
|
|
3,163.2
|
|
Selling, general and administrative
|
|
|
156.0
|
|
|
|
137.1
|
|
|
|
154.5
|
|
Research and development
|
|
|
51.5
|
|
|
|
56.7
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
3,815.4
|
|
|
|
3,775.2
|
|
|
|
3,366.1
|
|
Operating income
|
|
|
357.0
|
|
|
|
303.3
|
|
|
|
405.7
|
|
Interest expense and financing fee amortization
|
|
|
(59.1
|
)
|
|
|
(43.6
|
)
|
|
|
(39.2
|
)
|
Interest income
|
|
|
0.3
|
|
|
|
7.0
|
|
|
|
18.6
|
|
Other income (expense), net
|
|
|
(0.4
|
)
|
|
|
6.1
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in net loss of affiliates
|
|
|
297.8
|
|
|
|
272.8
|
|
|
|
383.9
|
|
Income tax provision
|
|
|
(78.2
|
)
|
|
|
(80.9
|
)
|
|
|
(118.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in net loss of affiliates
|
|
|
219.6
|
|
|
|
191.9
|
|
|
|
265.4
|
|
Equity in net loss of affiliates
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
218.9
|
|
|
$
|
191.7
|
|
|
$
|
265.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.56
|
|
|
$
|
1.39
|
|
|
$
|
1.93
|
|
Diluted
|
|
$
|
1.55
|
|
|
$
|
1.37
|
|
|
$
|
1.91
|
|
See notes to consolidated financial statements
72
Spirit
AeroSystems Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
($ in millions)
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
481.6
|
|
|
$
|
369.0
|
|
Accounts receivable, net
|
|
|
200.2
|
|
|
|
160.4
|
|
Inventory, net
|
|
|
2,507.9
|
|
|
|
2,206.9
|
|
Prepaids
|
|
|
9.9
|
|
|
|
14.2
|
|
Income tax receivable
|
|
|
45.9
|
|
|
|
45.5
|
|
Deferred tax asset-current
|
|
|
47.6
|
|
|
|
55.8
|
|
Other current assets
|
|
|
1.6
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,294.7
|
|
|
|
2,852.9
|
|
Property, plant and equipment, net
|
|
|
1,470.0
|
|
|
|
1,279.3
|
|
Pension assets
|
|
|
172.4
|
|
|
|
171.2
|
|
Deferred tax asset non-current, net
|
|
|
55.0
|
|
|
|
95.8
|
|
Other assets
|
|
|
109.9
|
|
|
|
74.6
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,102.0
|
|
|
$
|
4,473.8
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
443.5
|
|
|
$
|
441.3
|
|
Accrued expenses
|
|
|
190.7
|
|
|
|
161.9
|
|
Profit sharing/deferred compensation
|
|
|
29.6
|
|
|
|
3.6
|
|
Current portion of long-term debt
|
|
|
9.5
|
|
|
|
9.1
|
|
Advance payments, short-term
|
|
|
169.4
|
|
|
|
237.4
|
|
Deferred revenue, short-term
|
|
|
302.6
|
|
|
|
107.1
|
|
Deferred grant income liability current
|
|
|
5.1
|
|
|
|
|
|
Income tax payable
|
|
|
3.1
|
|
|
|
3.5
|
|
Other current liabilities
|
|
|
11.3
|
|
|
|
18.3
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,164.8
|
|
|
|
982.2
|
|
Long-term debt
|
|
|
1,187.3
|
|
|
|
884.7
|
|
Advance payments, long-term
|
|
|
655.2
|
|
|
|
727.5
|
|
Pension/OPEB obligation
|
|
|
72.5
|
|
|
|
62.6
|
|
Deferred grant income liability non-current
|
|
|
128.4
|
|
|
|
129.3
|
|
Deferred revenue and other deferred credits
|
|
|
29.0
|
|
|
|
46.0
|
|
Deferred tax liability non-current
|
|
|
8.1
|
|
|
|
15.6
|
|
Other liabilities
|
|
|
45.8
|
|
|
|
52.1
|
|
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 and 105,064,561 shares issued, respectively
|
|
|
1.1
|
|
|
|
1.0
|
|
Common stock, Class B par value $0.01,
150,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
34,897,388 and 35,669,740 shares issued, respectively
|
|
|
0.3
|
|
|
|
0.4
|
|
Additional paid-in capital
|
|
|
983.6
|
|
|
|
949.8
|
|
Accumulated other comprehensive loss
|
|
|
(75.3
|
)
|
|
|
(59.7
|
)
|
Retained earnings
|
|
|
900.7
|
|
|
|
681.8
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,810.4
|
|
|
|
1,573.3
|
|
Noncontrolling interest
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,810.9
|
|
|
|
1,573.8
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
5,102.0
|
|
|
$
|
4,473.8
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Earnings/
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance December 31, 2007
|
|
|
139,519,492
|
|
|
$
|
1.4
|
|
|
$
|
924.6
|
|
|
$
|
117.7
|
|
|
$
|
222.9
|
|
|
$
|
1,266.6
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265.4
|
|
|
|
265.4
|
|
Employee equity awards
|
|
|
497,903
|
|
|
|
|
|
|
|
16.4
|
|
|
|
|
|
|
|
|
|
|
|
16.4
|
|
Stock forfeitures
|
|
|
(128,189
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
SFAS 158, measurement date change, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
1.8
|
|
Excess tax liability from share-based payment arrangements
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
Unrealized loss on cash flow hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.1
|
)
|
|
|
|
|
|
|
(18.1
|
)
|
Unrealized loss on pension, SERP, retiree medical, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(190.8
|
)
|
|
|
|
|
|
|
(190.8
|
)
|
Unrealized loss on currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43.0
|
)
|
|
|
|
|
|
|
(43.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
139,889,206
|
|
|
|
1.4
|
|
|
|
939.7
|
|
|
|
(134.2
|
)
|
|
|
490.1
|
|
|
|
1,297.0
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191.7
|
|
|
|
191.7
|
|
Employee equity awards
|
|
|
1,217,412
|
|
|
|
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
13.4
|
|
Stock forfeitures
|
|
|
(382,817
|
)
|
|
|
|
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.3
|
)
|
SERP shares issued
|
|
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on cash flow hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
(6.7
|
)
|
Realized loss on cash flow hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.0
|
|
|
|
|
|
|
|
12.0
|
|
Unrealized gain on pension, SERP, retiree medical, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55.8
|
|
|
|
|
|
|
|
55.8
|
|
Unrealized gain on currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.4
|
|
|
|
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
|
140,734,301
|
|
|
|
1.4
|
|
|
|
949.8
|
|
|
|
(59.7
|
)
|
|
|
681.8
|
|
|
|
1,573.3
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218.9
|
|
|
|
218.9
|
|
Employee equity awards
|
|
|
1,456,684
|
|
|
|
|
|
|
|
30.0
|
|
|
|
|
|
|
|
|
|
|
|
30.0
|
|
Stock forfeitures
|
|
|
(152,517
|
)
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
SERP shares issued
|
|
|
60,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on cash flow hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
(4.3
|
)
|
Realized loss on cash flow hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
|
|
|
|
|
|
10.2
|
|
Unrealized loss on pension, SERP, retiree medical, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.5
|
)
|
|
|
|
|
|
|
(15.5
|
)
|
Unrealized loss on currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010
|
|
|
142,098,702
|
|
|
$
|
1.4
|
|
|
$
|
983.6
|
|
|
$
|
(75.3
|
)
|
|
$
|
900.7
|
|
|
$
|
1,810.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
74
Spirit
AeroSystems Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve
|
|
|
For the Twelve
|
|
|
For the Twelve
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
218.9
|
|
|
$
|
191.7
|
|
|
$
|
265.4
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
115.3
|
|
|
|
123.0
|
|
|
|
122.4
|
|
Amortization expense
|
|
|
4.7
|
|
|
|
4.3
|
|
|
|
4.7
|
|
Amortization of deferred financing fees
|
|
|
8.0
|
|
|
|
6.7
|
|
|
|
4.7
|
|
Accretion of long-term receivable
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
(16.2
|
)
|
Employee stock compensation expense
|
|
|
28.8
|
|
|
|
10.1
|
|
|
|
15.7
|
|
Excess tax benefit of share-based payment arrangements
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
Loss from the ineffectiveness of hedge contracts
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
(Gain) loss from foreign currency transactions
|
|
|
4.8
|
|
|
|
(4.5
|
)
|
|
|
6.8
|
|
Loss on disposition of assets
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
0.3
|
|
Deferred taxes
|
|
|
48.5
|
|
|
|
28.7
|
|
|
|
(2.8
|
)
|
Long-term tax benefit
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
Pension and other post retirement benefits, net
|
|
|
(8.9
|
)
|
|
|
2.2
|
|
|
|
(28.0
|
)
|
Grant income
|
|
|
(3.1
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
Equity in net loss of affiliates
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(41.6
|
)
|
|
|
(8.2
|
)
|
|
|
15.3
|
|
Inventory, net
|
|
|
(300.3
|
)
|
|
|
(320.7
|
)
|
|
|
(570.0
|
)
|
Accounts payable and accrued liabilities
|
|
|
0.8
|
|
|
|
140.4
|
|
|
|
(37.6
|
)
|
Profit sharing/deferred compensation
|
|
|
26.1
|
|
|
|
(14.7
|
)
|
|
|
(1.0
|
)
|
Advance payments
|
|
|
(140.3
|
)
|
|
|
(97.5
|
)
|
|
|
341.4
|
|
Income taxes receivable/payable
|
|
|
4.3
|
|
|
|
(43.7
|
)
|
|
|
7.0
|
|
Deferred revenue and other deferred credits
|
|
|
181.8
|
|
|
|
(14.8
|
)
|
|
|
93.7
|
|
Other
|
|
|
(9.4
|
)
|
|
|
(8.8
|
)
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
125.1
|
|
|
|
(13.9
|
)
|
|
|
210.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(288.1
|
)
|
|
|
(228.2
|
)
|
|
|
(235.8
|
)
|
Proceeds from sale of assets
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
1.9
|
|
Long-term receivable
|
|
|
|
|
|
|
115.4
|
|
|
|
116.1
|
|
Other
|
|
|
(0.8
|
)
|
|
|
0.2
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(288.4
|
)
|
|
|
(112.4
|
)
|
|
|
(119.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
150.0
|
|
|
|
300.0
|
|
|
|
175.0
|
|
Payments on revolving credit facility
|
|
|
(150.0
|
)
|
|
|
(300.0
|
)
|
|
|
(175.0
|
)
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
6.9
|
|
|
|
10.3
|
|
Proceeds from issuance of bonds
|
|
|
300.0
|
|
|
|
293.4
|
|
|
|
|
|
Proceeds from government grants
|
|
|
|
|
|
|
0.7
|
|
|
|
15.9
|
|
Principal payments of debt
|
|
|
(9.6
|
)
|
|
|
(7.6
|
)
|
|
|
(15.9
|
)
|
Excess tax benefit of share-based payment arrangements
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
Debt issuance and financing costs
|
|
|
(18.0
|
)
|
|
|
(17.3
|
)
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
277.4
|
|
|
|
276.1
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1.5
|
)
|
|
|
2.7
|
|
|
|
(11.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents for the period
|
|
|
112.6
|
|
|
|
152.5
|
|
|
|
83.1
|
|
Cash and cash equivalents, beginning of period
|
|
|
369.0
|
|
|
|
216.5
|
|
|
|
133.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
481.6
|
|
|
$
|
369.0
|
|
|
$
|
216.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
60.7
|
|
|
$
|
35.6
|
|
|
$
|
35.5
|
|
Income taxes paid
|
|
$
|
34.9
|
|
|
$
|
95.7
|
|
|
$
|
115.4
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
$
|
8.5
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Property acquired through capital leases
|
|
$
|
10.7
|
|
|
$
|
10.3
|
|
|
$
|
-
|
|
Property acquired through government grants
|
|
$
|
8.9
|
|
|
$
|
89.2
|
|
|
$
|
37.0
|
|
See notes to consolidated financial statements
75
Spirit
AeroSystems Holdings, Inc.
($,
, £, and RM in millions other than per share
amounts)
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
Companys (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 Spirits
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; and
Subang, Malaysia. In July 2010, the Company opened its new
500,000 square-foot manufacturing facility in Kinston,
North Carolina, which is designed to initially produce
components for the Airbus A350 XWB (Xtra Wide-Body) aircraft.
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 Spirits 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 consolidated financial statements include the
Companys 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-K.
All intercompany balances and transactions have been eliminated
in consolidation. Certain reclassifications have been made to
the prior year financial statements and notes to conform to the
2010 presentation.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accompanying consolidated financial statements include the
Companys financial statements and the financial statements
of its majority-owned subsidiaries and have been prepared in
accordance with GAAP. 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 by
the equity method. KIESC is fully consolidated as the Company
owns 77.8% of the entitys equity. All intercompany
balances and transactions have been eliminated in consolidation.
The Companys 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 the Companys 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.
76
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates and
assumptions.
The results of operations during fiscal 2010 include the
unfavorable impact of cumulative
catch-up
adjustments relating to prior period revenues of $23.2 resulting
from a charge on the Hawker 850 XP contract related to the
decision to exit the program, additional cost requirements to
meet hardware test schedules on the Sikorsky CH-53K program, and
unfavorable cost trends on the B787 program, partially offset by
favorable cost performance trends on mature programs.
The results of operations during fiscal 2009 include the
unfavorable impact of cumulative
catch-up
adjustments relating to prior period revenues of $58.5 resulting
from post-strike production ramp up as a result of the IAM
Strike at Boeing, nutplate rework, transition to a new
enterprise resource planning (ERP) system, higher than
forecasted costs on contract blocks completed in December 2009
and higher than expected costs on the Sikorsky CH-53K program.
The results of operations during fiscal 2008 include an
unfavorable impact of cumulative
catch-up
adjustments relating to prior period revenues of $22.6 driven
primarily by lower forecasted pension income and the impact of
the IAM Strike at Boeing.
Revenue
Recognition
A significant portion of the Companys revenues are
recognized under long-term, volume-based pricing contracts,
requiring delivery of products over several years. The Company
recognizes revenue under the contract method of accounting and
records sales and profits on each contract in accordance with
the
percentage-of-completion
method of accounting, primarily using the units of delivery
method. Revenues from non-recurring design work are recognized
based on substantive milestones or use of the cost to cost
method, that are indicative of our progress toward completion
depending on facts and circumstances. We follow the requirements
of FASB authoritative guidance on accounting for the performance
of construction-type and certain production-type contracts (the
contract method of accounting), using the cumulative
catch-up
method in accounting for revisions in estimates. Under the
cumulative
catch-up
method, the impact of revisions in estimates are recognized
immediately when changes in estimated contract profitability
become known.
A profit rate is estimated based on the difference between total
revenues and total costs of a contract. Total revenues at any
given time include actual historical revenues up to that time
plus future estimated revenues. Total costs at any given time
include actual historical costs up to that time plus future
estimated costs. Estimated revenues include negotiated or
expected values for units delivered, estimates of probable
recoveries asserted against the customer for changes in
specifications, price adjustments for contract and volume
changes, and escalation. Costs include the estimated cost of
certain pre-production effort (including non-recurring
engineering and planning subsequent to completion of final
design) plus the estimated cost of manufacturing a specified
number of production units. Estimates take into account
assumptions relative to future labor performance and rates, and
projections relative to material and overhead costs including
expected learning curve cost reductions over the
term of the contract. The specified number of production units
used to establish the profit margin (contract block)
is predicated upon contractual terms and market forecasts. The
assumed timeframe/period covered by the contract block is
generally equal to the period specified in the contract or the
future timeframe for which we can project reasonably dependable
cost estimates. If the contract is a life of program
contract, then the life of the contract block is usually the
latter of these timeframes. Estimated revenues and costs also
take into account the expected impact of specific contingencies
that we believe are probable.
77
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Estimates of revenues and costs for our contracts span a period
of multiple years and are based on a substantial number of
underlying assumptions. We believe that the underlying
assumptions are sufficiently reliable to provide a reasonable
estimate of the profit to be generated. However, due to the
significant length of time over which revenue streams will be
generated, the variability of the revenue and cost streams can
be significant if the assumptions change.
For revenues not recognized under the contract method of
accounting, the Company recognizes revenues from the sale of
products at the point of passage of title, which is generally at
the time of shipment. Shipping and handling costs are included
in cost of sales. Revenues earned from providing maintenance
services including any contracted research and development are
recognized when the service is complete or other contractual
milestones are attained. Revenues from non-recurring design work
are recognized based on substantive milestones that are
indicative of our progress toward completion. Non-recurring
revenues, which are derived primarily from engineering and
design efforts, were $297.0 and $328.0 for each of the twelve
month periods ending December 31, 2010 and
December 31, 2009, respectively.
Since Boeing retained title to tooling assets and provides such
tooling to the Company at no cost, the Company treats the
amortization of Boeing-owned tooling as a reduction to revenues
as required by FASB authoritative guidance related to accounting
for consideration given by a vendor to a customer. The Company
recognized $1.9, $8.4, and $13.7, as a reduction to net revenues
for the periods ended December 31, 2010, December 31,
2009, and December 31, 2008, respectively. Boeing-owned
tooling became fully amortized in 2010. However, under an
agreement with Airbus, certain payments that are also accounted
for as consideration given by a vendor to a customer will be
amortized as a reduction to revenues beginning in 2011.
New
Programs
A significant portion of the Companys future revenues is
expected to be derived from new programs, most notably the B787,
on which we may be contracted to provide design and engineering
services, recurring production, or both. There are several risks
inherent to such new programs. In the design and engineering
phase, we may incur costs in excess of our forecasts due to
several factors, including cost overruns, customer directed
change orders and delays in the overall program. We may also
incur higher than expected recurring production costs, which may
be caused by a variety of factors, including the future impact
of engineering changes (or other change orders) or our inability
to secure contracts with our suppliers at projected cost levels.
Our ability to recover these excess costs from the customer will
depend on several factors, including our rights under our
contracts for the new programs. In determining our profits and
losses in accordance with the
percentage-of-completion
method of contract accounting, we are required to make
significant assumptions regarding our future costs, as well as
the estimated number of units to be manufactured under the
contract and other variables. We continually review and update
our assumptions based on market trends and our most recent
experience. If we make material changes to our assumptions, such
as a reduction in the estimated number of units to be produced
under the contract (which could be caused by emerging market
trends or other factors), an increase in future production costs
or a change in the recoverability of increased design or
production costs, we may experience negative cumulative catch-up
adjustments related to revenues previously recognized. In some
cases, we may recognize forward loss amounts.
Research
and Development
Research and development includes costs incurred for
experimentation, design and testing and are expensed as incurred
as required under FASB authoritative guidance pertaining to
accounting for research and development costs.
Joint
Venture
The investment resulting in a 50.0% ownership interest in
Spirit-Progresstech LLC totaled $1.3 at December 31, 2010
and is accounted for under the equity method of accounting.
78
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The investment resulting in a 31.5% ownership interest in Taikoo
Spirit AeroSystems Composite Co. Ltd. totaled $3.0 at
December 31, 2010 and is accounted for under the equity
method of accounting.
Cash
and Cash Equivalents
Cash and cash equivalents represent all highly liquid
investments with original maturities of three months or less.
Accounts
Receivable
Accounts receivable are recorded at the invoiced amount and do
not bear interest. The Company determines an allowance for
doubtful accounts based on a review of outstanding receivables.
Account balances are charged off against the allowance after the
potential for recovery is considered remote. The Companys
allowance for doubtful accounts was approximately zero and $0.1
at December 31, 2010 and December 31, 2009,
respectively.
Inventory
Raw materials are stated at lower of cost (principally on an
actual or average cost basis) or market. Inventoried costs
attributed to units delivered under long-term contracts are
based on the estimated average cost of all units expected to be
produced and are determined under the learning curve concept
which anticipates a predictable decrease in unit costs as tasks
and production techniques become more efficient through
repetition. This usually results in an increase in inventory
(referred to as
excess-over-average
or deferred production costs) during the early years
of a contract. These costs are deferred only to the extent the
amount of actual or expected
excess-over-average
is reasonably expected to be fully offset by
lower-than-average
costs in future periods of a contract. If in-process inventory
plus estimated costs to complete a specific contract exceed the
actual plus anticipated remaining sales value of such contract,
such excess is charged to cost of sales in the period the loss
becomes known, thus reducing inventory to estimated realizable
value. Costs in inventory include amounts relating to contracts
with long production cycles, some of which are not expected to
be realized within one year.
The Company reviews its general stock materials and spare parts
inventory each quarter to identify impaired inventory, including
excess or obsolete inventory, based on historical sales trends
and expected production usage. Impaired inventories are written
off to work in process in the period identified.
Finished goods inventory is stated at its estimated average per
unit cost based on all units expected to be produced.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation. Depreciation is applied using a
straight-line method over the useful lives of the respective
assets as described in the following table:
|
|
|
|
|
|
|
Estimated Useful Life
|
|
|
Land improvements
|
|
|
20 years
|
|
Buildings
|
|
|
45 years
|
|
Machinery and equipment
|
|
|
3-20 years
|
|
Tooling Airplane program B787,
Rolls-Royce
|
|
|
5-20 years
|
|
Tooling Airplane program all others
|
|
|
2-10 years
|
|
Capitalized software
|
|
|
3-7 years
|
|
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
79
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
capitalization of cost for internal-use software. Our
capitalization policy includes specifications that the software
must have a service life greater than one year, is legally and
substantially owned by Spirit, and has an acquisition cost of
greater than $0.1.
In January 2010, we adopted a change in accounting estimate
which extended the lives of certain assets. The effect of this
change was $14.6 decrease in depreciation capitalized to
inventory for the twelve month period ended December 31,
2010, which will eventually flow through cost of sales following
the process for contract accounting.
Intangible
Assets and Goodwill
Intangible assets are recorded at estimated fair value and are
comprised of patents, favorable leasehold interests, and
customer relationships that are amortized on a straight-line
basis over their estimated useful lives, ranging from 6 to
16 years for patents, 14 to 24 years for favorable
leasehold interests, and 8 years for customer relationships.
Goodwill resulting from the acquisition of BAE Aerostructures is
not amortized.
Impairment
or Disposal of Long-Lived Assets and Goodwill
Spirit reviews capital and amortizing intangible assets
(long-lived assets) for impairment on an annual basis or
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable in accordance with FASB
authoritative guidance on accounting for the impairment or
disposal of long-lived assets. Under the standard, assets must
be classified as either
held-for-use
or
available-for-sale.
An impairment loss is recognized when the carrying amount of an
asset that is held for use exceeds the projected undiscounted
future net cash flows expected from its use and disposal, and is
measured as the amount by which the carrying amount of the asset
exceeds its fair value, which is measured by discounted cash
flows when quoted market prices are not available. For assets
available-for-sale,
an impairment loss is recognized when the carrying amount
exceeds the fair value less cost to sell. The Company performs
an annual impairment test for goodwill in the fourth quarter of
each year, in accordance with FASB authoritative guidance
pertaining to goodwill and other intangible assets, or more
frequently, if an event occurs or circumstances change that
would more likely than not reduce fair value below current value.
Deferred
Financing Costs
Costs relating to long-term debt are deferred and included in
other long-term assets. These costs are amortized over the term
of the related debt or debt facilities, and are included as a
component of interest expense.
Derivative
Instruments and Hedging Activity
We use derivative financial instruments to manage the economic
impact of fluctuations in currency exchange rates and interest
rates. To account for our derivative financial instruments, we
follow the FASB guidance on accounting for derivatives and
hedges. Derivative financial instruments are recognized on the
Consolidated Balance Sheets as either assets or liabilities and
are measured at fair value. Changes in fair value of derivatives
are recorded each period in earnings or accumulated other
comprehensive income, depending on whether a derivative is
effective as part of a hedge transaction, and if it is, the type
of hedge transaction. Gains and losses on derivative instruments
reported in accumulated other comprehensive income are
subsequently included in earnings in the periods in which
earnings are affected by the hedged item or when the hedge is no
longer effective. We present the cash flows associated with our
derivatives as a component of the investing section of the
Statement of Cash Flows. Our use of derivatives has generally
been limited to interest rate swaps. The Company also enters
into foreign currency forward 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.
80
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Fair
Value of Financial Instruments
Financial instruments are measured in accordance with FASB
authoritative guidance related to fair value measurements. This
guidance clarifies the definition of fair value, prescribes
methods for measuring fair value, establishes a fair value
hierarchy based on the inputs used to measure fair value, and
expands disclosures about fair value measurements. See
Note 10, Fair Value Measurements. The three-tier fair value
hierarchy, which prioritizes the inputs used in the valuation
methodologies, is:
Level 1 Valuations based on quoted
prices for identical assets and liabilities in active markets.
Level 2 Valuations based on observable
inputs other than quoted prices included in Level 1, such as
quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, or other inputs that
are observable or can be corroborated by observable market data.
Level 3 Valuations based on unobservable
inputs reflecting our own assumptions, consistent with
reasonably available assumptions made by other market
participants. These valuations require significant judgment.
The carrying amounts of certain of our financial instruments,
including cash and cash equivalents, accounts receivable and
accounts payable, approximate fair value because of their short
maturities.
Income
Taxes
Income taxes are accounted for in accordance with FASB
authoritative guidance on accounting for income taxes. Deferred
income tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between the
financial statement carrying amounts for existing assets and
liabilities and their respective tax bases. A valuation
allowance is recorded to reduce deferred income tax assets to an
amount that in managements opinion will ultimately be
realized. Tax rate changes impacting these assets and
liabilities are recognized in the period during which the rate
change occurs.
We record an income tax expense or benefit based on the net
income earned or net loss incurred in each tax jurisdiction and
the tax rate applicable to that income or loss. In the ordinary
course of business, there are transactions for which the
ultimate tax outcome is uncertain. These uncertainties are
accounted for in accordance with FASB authoritative guidance on
accounting for the uncertainty in income taxes. The final tax
outcome for these matters may be different than
managements original estimates made in determining the
income tax provision. A change to these estimates could impact
the effective tax rate and net income or loss in subsequent
periods. We use the flow-through accounting method for tax
credits. Under this method, tax credits reduce income tax
expense.
Stock-Based
Compensation and Other Share-Based Payments
Many of the Companys employees are participants in various
stock compensation plans. The Company accounts for stock option
plans, restricted share plans and other stock-based payments in
accordance with FASB authoritative guidance pertaining to
share-based payment. The expense attributable to the
Companys employees is recognized over the period the
amounts are earned and vested, as described in Note 14.
Service
and Product Warranties and Extraordinary Rework
Provisions for estimated expenses related to service and product
warranties and certain extraordinary rework are made at the time
products are sold. These estimates are established using
historical information on the nature, frequency and average cost
of warranty claims.
81
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The following is a roll forward for the warranty and
extraordinary rework provision as of December 31, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance, January 1
|
|
$
|
13.1
|
|
|
$
|
6.5
|
|
Charges to costs and expenses
|
|
|
7.0
|
|
|
|
7.0
|
|
Write-offs, net of recoveries
|
|
|
(1.3
|
)
|
|
|
(0.7
|
)
|
Exchange rate
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
18.7
|
|
|
$
|
13.1
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year End
The Companys fiscal years ended on December 31, 2010,
December 31, 2009, and December 31, 2008. Both the
Companys and Spirits fiscal quarters end on the
Thursday closest to the calendar quarter end.
New
Accounting Standards
In February 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
No. 2010-09,
Subsequent Events (Topic 855) Amendments to
Certain Recognition and Disclosure Requirements, which
stated, among other things, that filers with the SEC are not
required to disclose the date through which an entity has
evaluated subsequent events. The guidance was effective upon
issuance and did not have a material impact on the
Companys consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update
No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value
Instruments (FASB ASU
2010-06),
which, among other things, expands disclosures on recurring fair
value measurements, including activity, transfers and
reconciliation of asset and liability classes, using
Levels 1, 2 and 3 as defined. The guidance also clarifies
existing disclosures on levels of disaggregation between such
classes and input and valuation techniques used to measure
recurring and non-recurring Level 2 or Level 3 fair
value measurements. This guidance was effective for the
Companys fiscal quarter ended April 1, 2010, except
for the requirement related to purchases, sales, issuances, and
settlements in the roll forward activity of Level 3 fair
value measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2010, and for interim
periods within those fiscal years. Adoption of FASB ASU
2010-06 did
not have a material effect on the Companys consolidated
financial statements.
In January 2010, FASB issued Accounting Standards Update
No. 2010-02,
Consolidation (Topic 810) Accounting and
Reporting for Decreases in Ownership of a Subsidiary
A Scope Clarification (FASB ASU
2010-02),
which expands the disclosure requirements about deconsolidation
of a subsidiary or derecognition of a group of assets. The
guidance in this update is effective for periods beginning in
the first interim or annual reporting period ended on or after
December 15, 2009 and thus was effective for the
Companys fiscal quarter ended April 1, 2010. Adoption
of FASB ASU
2010-02 did
not have a material impact on the Companys consolidated
financial statements.
In December 2009, FASB issued Accounting Standards Update
No. 2009-17,
Consolidation (Topic 810) Improvements to
Financial Reporting by Enterprises with Variable Interest
Entities (FASB ASU
2009-17)
to incorporate the changes made by FASB Statement No. 167
into the FASB Codification. The guidance in this update is
effective for periods beginning after November 15, 2009 and
thus has been effective since the Companys first quarter
reporting in 2010. Adoption of FASB ASU
2009-17 did
not have a material impact on the Companys consolidated
financial statements.
82
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
In the third quarter of 2009, the Company adopted the FASB
Accounting Standards Codification (ASC). The
ASC is the single official source of authoritative,
non-governmental GAAP, other than guidance issued by the SEC.
The adoption of the ASC did not have any impact on the financial
statements included herein.
Accounts receivable, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Trade receivables
|
|
$
|
191.5
|
|
|
$
|
151.7
|
|
Other
|
|
|
8.7
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
200.2
|
|
|
|
160.5
|
|
Less: allowance for doubtful accounts
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
200.2
|
|
|
$
|
160.4
|
|
|
|
|
|
|
|
|
|
|
The Company recognized $11.3 and $3.4 as unbilled accounts
receivable related to our trade accounts at December 31,
2010 and December 31, 2009, respectively.
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
234.0
|
|
|
$
|
209.1
|
|
Work-in-process
|
|
|
1,748.5
|
|
|
|
1,526.0
|
|
Finished goods
|
|
|
40.9
|
|
|
|
30.8
|
|
|
|
|
|
|
|
|
|
|
Product inventory
|
|
|
2,023.4
|
|
|
|
1,765.9
|
|
Capitalized pre-production
|
|
|
484.5
|
|
|
|
441.0
|
|
|
|
|
|
|
|
|
|
|
Total inventory, net
|
|
$
|
2,507.9
|
|
|
$
|
2,206.9
|
|
|
|
|
|
|
|
|
|
|
83
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Inventories are summarized by platform as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
B737
|
|
$
|
261.1
|
|
|
$
|
298.4
|
|
B747(1)
|
|
|
167.7
|
|
|
|
140.6
|
|
B767
|
|
|
19.6
|
|
|
|
18.5
|
|
B777
|
|
|
115.9
|
|
|
|
146.3
|
|
B787(2)
|
|
|
1,115.1
|
|
|
|
896.3
|
|
Airbus All platforms
|
|
|
134.4
|
|
|
|
129.9
|
|
Gulfstream(3)
|
|
|
492.0
|
|
|
|
365.8
|
|
Rolls-Royce(4)
|
|
|
73.1
|
|
|
|
55.5
|
|
Cessna Citation Columbus(5)
|
|
|
|
|
|
|
23.0
|
|
Aftermarket
|
|
|
36.4
|
|
|
|
29.3
|
|
Other in-process inventory related to long-term contracts and
other programs(6)(7)
|
|
|
92.6
|
|
|
|
103.3
|
|
|
|
|
|
|
|
|
|
|
Total inventory, net
|
|
$
|
2,507.9
|
|
|
$
|
2,206.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
B747 inventory includes $24.6 and $11.3 in non-recurring
production costs at December 31, 2010 and December 31,
2009, respectively, related to the B747-8 program. |
|
(2) |
|
B787 inventory includes $221.8 and $230.7 in capitalized
pre-production costs at December 31, 2010 and
December 31, 2009, respectively. |
|
(3) |
|
Gulfstream inventory includes $262.7 and $210.3 in capitalized
pre-production costs at December 31, 2010 and
December 31, 2009, respectively. |
|
(4) |
|
Rolls-Royce inventory includes $57.3 and $52.1 in non-recurring
production costs at December 31, 2010 and December 31,
2009, respectively. |
|
(5) |
|
As of December 31, 2009, Cessna inventory included
non-recurring costs incurred on the Cessna Citation Columbus
program that was terminated in July 2009, which were subject to
our termination claim. This claim was settled in the fourth
quarter of 2010. |
|
(6) |
|
Sikorsky inventory includes $27.3 and $17.7 in non-recurring
production costs at December 31, 2010 and December 31,
2009, respectively. |
|
(7) |
|
Includes non-program specific inventoriable cost accruals and
miscellaneous other
work-in-process. |
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 balances at
December 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance, January 1
|
|
$
|
441.0
|
|
|
$
|
417.9
|
|
Charges to costs and expenses
|
|
|
(14.2
|
)
|
|
|
(95.6
|
)
|
Capitalized costs
|
|
|
57.7
|
|
|
|
118.7
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
484.5
|
|
|
$
|
441.0
|
|
|
|
|
|
|
|
|
|
|
84
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
At December 31, 2010,
work-in-process
inventory included $760.0 of deferred production costs, which is
comprised of $639.3 related to the B787, $145.1 on certain other
contracts for the excess of production costs over the estimated
average cost per ship set, and $(24.4) of credit balances for
favorable variances on other contracts between actual costs
incurred and the estimated average cost per ship set for units
delivered under the current production blocks. These balances
were $457.4, including $412.9 related to the B787 and $50.5 for
certain other contracts, and $(6.0) of credit balances for
favorable variances on other contracts between actual costs
incurred and the estimated cost per ship set for units delivered
under the current production blocks, respectively, at
December 31, 2009. 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.
The following is a roll forward of the deferred production
included in the inventory balances at December 31, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance, January 1
|
|
$
|
457.4
|
|
|
$
|
162.0
|
|
Charges to costs and expenses
|
|
|
(179.5
|
)
|
|
|
(189.6
|
)
|
Capitalized costs(1)
|
|
|
483.3
|
|
|
|
482.9
|
|
Exchange rate
|
|
|
(1.2
|
)
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
760.0
|
|
|
$
|
457.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Approximately $226.5 of deferred production is related to
deliveries of sixteen B787 ship sets during 2010. |
|
|
5.
|
Property,
Plant and Equipment
|
Property, plant and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
17.1
|
|
|
$
|
17.7
|
|
Buildings (including improvements)
|
|
|
419.7
|
|
|
|
258.1
|
|
Machinery and equipment
|
|
|
752.9
|
|
|
|
503.6
|
|
Tooling
|
|
|
542.0
|
|
|
|
488.5
|
|
Capitalized software
|
|
|
103.9
|
|
|
|
121.2
|
|
Construction in progress
|
|
|
174.3
|
|
|
|
316.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,009.9
|
|
|
|
1,705.4
|
|
Less: accumulated depreciation
|
|
|
(539.9
|
)
|
|
|
(426.1
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
1,470.0
|
|
|
$
|
1,279.3
|
|
|
|
|
|
|
|
|
|
|
In January 2010, we adopted a change in accounting estimate
which extended the useful lives of certain assets. The effect of
this change was a $14.6 decrease in depreciation capitalized to
inventory for the twelve month period ended December 31,
2010, which will eventually flow through cost of sales following
the process for contract accounting.
Interest costs associated with
construction-in-progress
are capitalized until the assets are completed and ready for
use. Capitalized interest was $10.2 and $7.1 for the twelve
months ended December 31, 2010 and December 31,
85
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
2009, respectively. Repair and maintenance costs are expensed as
incurred. The Company recognized $88.9 and $91.6 of repair and
maintenance expense for the twelve months ended
December 31, 2010 and December 31, 2009, 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 $16.4 and $15.2 for
the twelve months ended December 31, 2010 and
December 31, 2009, respectively.
Other assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
2.0
|
|
|
$
|
2.0
|
|
Favorable leasehold interests
|
|
|
9.7
|
|
|
|
9.7
|
|
Customer relationships
|
|
|
26.8
|
|
|
|
28.1
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
38.5
|
|
|
|
39.8
|
|
Less: Accumulated amortization-patents
|
|
|
(0.9
|
)
|
|
|
(0.7
|
)
|
Accumulated amortization-favorable leasehold interest
|
|
|
(3.6
|
)
|
|
|
(3.1
|
)
|
Accumulated amortization-customer relationships
|
|
|
(15.9
|
)
|
|
|
(13.2
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
18.1
|
|
|
|
22.8
|
|
Deferred financing costs, net
|
|
|
35.0
|
|
|
|
25.0
|
|
Fair value of derivative instruments
|
|
|
1.2
|
|
|
|
1.2
|
|
Goodwill Europe
|
|
|
2.9
|
|
|
|
3.0
|
|
Equity in net assets of affiliates
|
|
|
4.3
|
|
|
|
3.9
|
|
Customer supply agreement(1)
|
|
|
39.6
|
|
|
|
6.7
|
|
Other
|
|
|
8.8
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109.9
|
|
|
$
|
74.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2011. |
Deferred financing costs are recorded net of $29.4 and $21.4 of
accumulated amortization at December 31, 2010 and
December 31, 2009, respectively. In 2009, the Company
incurred $10.2 of additional deferred financing costs in
connection with the amendment to its revolving credit facility
and $7.2 of additional deferred financing costs in connection
with the issuance of its senior notes due 2017. In 2010, the
Company incurred $6.3 of additional deferred financing costs in
connection with the issuance of its senior notes due 2020 and
registration of its senior notes due 2017.
The Company recognized $4.1, $4.1, and $4.7 of amortization
expense of intangibles for the twelve months ended
December 31, 2010, December 31, 2009 and
December 31, 2008, respectively.
86
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Estimated amortization expense associated with the
Companys amortizable intangible assets for each of the
next five years is as follows:
|
|
|
|
|
2011
|
|
$
|
4.1
|
|
2012
|
|
$
|
4.1
|
|
2013
|
|
$
|
4.1
|
|
2014
|
|
$
|
1.6
|
|
2015
|
|
$
|
0.7
|
|
The changes in the carrying amount of goodwill for the years
ended December 31, 2010 and December 31, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance, January 1
|
|
$
|
3.0
|
|
|
$
|
2.7
|
|
Goodwill acquired
|
|
|
|
|
|
|
|
|
Exchange rate
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
2.9
|
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
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
generally consists of nonrefundable amounts received in advance
of revenue being earned for specific contractual deliverables.
These payments are classified as deferred revenue when received
and recognized as revenue as the production units are delivered.
In the fourth quarter of 2010 as part of the memorandum of
agreement with Boeing related to the B787 contract, the payment
was recorded as deferred revenue but 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:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
B737
|
|
$
|
32.5
|
|
|
$
|
59.8
|
|
B747
|
|
|
0.7
|
|
|
|
3.0
|
|
B787
|
|
|
1,023.3
|
|
|
|
924.3
|
|
Airbus All platforms
|
|
|
54.9
|
|
|
|
66.8
|
|
Gulfstream
|
|
|
37.5
|
|
|
|
42.5
|
|
Other
|
|
|
7.3
|
|
|
|
21.6
|
|
|
|
|
|
|
|
|
|
|
Total advance payments and deferred revenue/credits
|
|
$
|
1,156.2
|
|
|
$
|
1,118.0
|
|
|
|
|
|
|
|
|
|
|
87
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
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. Due to the terms of the lease
agreements, we are deemed to own the construction projects.
During the construction phase of the facilities, as amounts
eligible under the terms of the grants were expended, we
recorded that spending as property, plant and equipment
(construction-in-progress)
and deferred grant income liability (less the present value of
any future minimum lease payments). Upon completion of the
facilities, the 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
December 31, 2010, we recorded $138.5 within property,
plant and equipment and deferred grant income liability related
to the use of grant funds in North Carolina and Malaysia. Of
this amount, $134.4 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.
Deferred grant income liability, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Beginning Balance
|
|
$
|
129.3
|
|
|
$
|
38.8
|
|
Grant liability recorded
|
|
|
8.9
|
|
|
|
89.2
|
|
Grant income recognized
|
|
|
(3.1
|
)
|
|
|
(1.9
|
)
|
Exchange rate
|
|
|
(1.6
|
)
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
Total deferred grant income liability
|
|
$
|
133.5
|
|
|
$
|
129.3
|
|
|
|
|
|
|
|
|
|
|
The asset related to the deferred grant income, net consists of
the following:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Beginning Balance
|
|
$
|
129.3
|
|
|
$
|
38.8
|
|
Amount paid by Spirit (reimbursed by third parties)
|
|
|
|
|
|
|
0.7
|
|
Amount paid by agency/escrow agent
|
|
|
8.9
|
|
|
|
88.5
|
|
Depreciation offset to amortization of grant
|
|
|
(3.1
|
)
|
|
|
(1.9
|
)
|
Exchange rate
|
|
|
(1.7
|
)
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
Total asset value related to deferred grant income
|
|
$
|
133.4
|
|
|
$
|
129.3
|
|
|
|
|
|
|
|
|
|
|
|
|
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
88
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
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
instruments 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
hedges 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
December 31, 2010 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 Companys 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.
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 Companys senior secured credit
facility (see Note 11, Debt).
89
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Interest
Rate Swaps
We enter into
floating-to-fixed
interest rate swap agreements periodically. As of
December 31, 2010, the interest swap agreements had
notional amounts totaling $400.0.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
Fair Value,
|
|
|
|
|
|
Variable
|
|
Fixed
|
|
Fixed
|
|
December 31,
|
|
Notional Amount
|
|
Expires
|
|
Rate
|
|
Rate(1)
|
|
Rate(2)
|
|
2010
|
|
|
$100
|
|
July 2011
|
|
LIBOR
|
|
4.27%
|
|
7.18%
|
|
$
|
(2.9
|
)
|
$300
|
|
July 2011
|
|
LIBOR
|
|
3.23%
|
|
4.98%
|
|
$
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(9.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
points 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
Companys 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
$(9.3) and $(20.3) at December 31, 2010 and
December 31, 2009, respectively.
Foreign
Currency Forward Contracts
Spirits 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 Europes
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. During 2010, the Company entered
into foreign currency transactions with notional amounts of
$(19.1) million for 2011 through 2013 to hedge revenue
streams and known payments. The fair value of the forward
contracts was a net liability of $(1.6) as of December 31,
2010.
90
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Notional
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Risk From
|
|
|
|
USD
|
|
|
Currency
|
|
|
Contract
|
|
|
Reevaluation
|
|
|
Net Liability
|
|
|
Change in
|
|
Year
|
|
Buy/(Sell)(1)
|
|
|
Buy/(Sell)(1)
|
|
|
Rate
|
|
|
Rate
|
|
|
Fair Value
|
|
|
Reevaluation Rate
|
|
|
2011
|
|
$
|
(44.1
|
)
|
|
|
£27.3
|
|
|
|
1.6100
|
|
|
|
1.5600
|
|
|
$
|
(1.3
|
)
|
|
$
|
2.2
|
|
2012
|
|
|
(8.9
|
)
|
|
|
5.7
|
|
|
|
1.6000
|
|
|
|
1.5500
|
|
|
|
(0.2
|
)
|
|
|
0.9
|
|
2013
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(53.0
|
)
|
|
|
£32.9
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.6
|
)
|
|
$
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes foreign currency hedge contracts for 2010 through 2013
novated to Spirit Europe as a result of the acquisition of BAE
Aerostructures on April 1, 2006 (buy $0.3/sell £0.4),
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
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 Companys fair value of
outstanding derivatives at December 31, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
Other Asset Derivatives
|
|
|
Other Liability Derivatives
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9.3
|
|
|
$
|
16.9
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
Foreign currency hedge contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
0.1
|
|
|
|
|
|
|
|
1.3
|
|
|
|
0.9
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
0.1
|
|
|
|
|
|
|
|
10.8
|
|
|
|
21.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedge contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
0.7
|
|
|
|
0.4
|
|
|
|
0.7
|
|
|
|
0.5
|
|
Non-current
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
1.9
|
|
|
|
1.6
|
|
|
|
2.1
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
2.0
|
|
|
$
|
1.6
|
|
|
$
|
12.9
|
|
|
$
|
23.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The impact on other comprehensive income (OCI) and
earnings from cash flow hedges for the twelve months ended
December 31, 2010 and December 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
(Gain) or Loss
|
|
|
|
|
|
|
|
|
(Gain) or
|
|
|
|
|
Recognized in
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
Income on
|
|
|
|
|
|
|
|
|
Reclassified
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
(Ineffective
|
|
Amount of Loss
|
|
|
|
|
|
|
Accumulated
|
|
Amount of Loss
|
|
|
Portion and
|
|
Recognized in Income on
|
|
|
|
Amount of Loss
|
|
|
OCI into
|
|
Reclassified from
|
|
|
Amount
|
|
Derivative (Ineffective
|
|
Derivatives in
|
|
Recognized in OCI, net of
|
|
|
Income
|
|
Accumulated OCI into
|
|
|
Excluded from
|
|
Portion and Amount
|
|
Cash Flow Hedging
|
|
tax, on Derivative
|
|
|
(Effective
|
|
Income
|
|
|
Effectiveness
|
|
Excluded from
|
|
Relationships
|
|
(Effective Portion)
|
|
|
Portion)
|
|
(Effective Portion)
|
|
|
Testing)
|
|
Effectiveness Testing)
|
|
|
|
For the Twelve Months Ended
|
|
|
|
|
For the Twelve Months Ended
|
|
|
|
|
For the Twelve Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Interest rate swaps
|
|
$
|
(3.0
|
)
|
|
$
|
(5.7
|
)
|
|
Interest expense
|
|
$
|
15.0
|
|
|
$
|
15.5
|
|
|
Other (income)/
expense
|
|
$
|
|
|
|
$
|
|
|
Foreign currency hedge contracts
|
|
|
(1.3
|
)
|
|
|
(1.0
|
)
|
|
Sales/ Revenue
|
|
|
1.1
|
|
|
|
3.3
|
|
|
Other (income)/
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4.3
|
)
|
|
$
|
(6.7
|
)
|
|
|
|
$
|
16.1
|
|
|
$
|
18.8
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact on earnings from foreign currency hedge contracts
that do not qualify as cash flow hedges was not material for the
twelve months ended December 31, 2010 and December 31,
2009.
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 $(6.0) 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 Companys 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 $(1.3) will be reclassified from OCI, net of tax.
None of the gains or losses reclassified to earnings are
attributable to the discontinuance of cash flow hedges.
|
|
10.
|
Fair
Value Measurements
|
FASBs authoritative guidance on fair value measurements
defines fair value as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants
on the measurement date. It also establishes a fair value
hierarchy, which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs
when measuring fair value. The guidance discloses three levels
of inputs that may be used to measure fair value:
|
|
|
|
Level 1
|
Quoted prices (unadjusted) in active markets for identical
assets or liabilities. Level 1 assets and liabilities include
debt and equity securities and derivative contracts that are
traded in an active exchange market.
|
|
|
Level 2
|
Observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable
or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 2 assets and liabilities include debt securities with
quoted prices that are traded less frequently than
exchange-traded instruments and derivative contracts whose
|
92
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
|
|
|
|
|
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.
|
|
|
|
|
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
|
|
|
|
|
At December 31, 2010
|
|
|
|
|
|
|
|
|
Using
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
Significant
|
|
|
|
|
December 31, 2010
|
|
Active Markets
|
|
Other
|
|
Significant
|
|
|
Total Carrying
|
|
Assets
|
|
Liabilities
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
Amount in
|
|
Measured at
|
|
Measured at
|
|
Assets
|
|
Inputs
|
|
Inputs
|
Description
|
|
Balance Sheet
|
|
Fair Value
|
|
Fair Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Money Market Fund
|
|
$
|
372.1
|
|
|
$
|
372.1
|
|
|
$
|
|
|
|
$
|
372.1
|
|
|
$
|
|
|
|
$
|
|
|
Interest Rate Swaps
|
|
$
|
(9.3
|
)
|
|
$
|
|
|
|
$
|
(9.3
|
)
|
|
$
|
|
|
|
$
|
(9.3
|
)
|
|
$
|
|
|
Foreign Currency Hedge Contracts
|
|
$
|
(1.6
|
)
|
|
$
|
2.0
|
|
|
$
|
(3.6
|
)
|
|
$
|
|
|
|
$
|
(1.6
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
|
Using
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
Significant
|
|
|
|
|
December 31, 2009
|
|
Active Markets
|
|
Other
|
|
Significant
|
|
|
Total Carrying
|
|
Assets
|
|
Liabilities
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
Amount in
|
|
Measured at
|
|
Measured at
|
|
Assets
|
|
Inputs
|
|
Inputs
|
Description
|
|
Balance Sheet
|
|
Fair Value
|
|
Fair Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Money Market Fund
|
|
$
|
240.0
|
|
|
$
|
240.0
|
|
|
$
|
|
|
|
$
|
240.0
|
|
|
$
|
|
|
|
$
|
|
|
Interest Rate Swaps
|
|
$
|
(20.3
|
)
|
|
$
|
|
|
|
$
|
(20.3
|
)
|
|
$
|
|
|
|
$
|
(20.3
|
)
|
|
$
|
|
|
Foreign Currency Hedge Contracts
|
|
$
|
(1.8
|
)
|
|
$
|
1.6
|
|
|
$
|
(3.4
|
)
|
|
$
|
|
|
|
$
|
(1.8
|
)
|
|
$
|
|
|
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.
The Companys long-term debt consists of obligations with
variable interest rates and senior unsecured notes. The
estimated fair value of our debt obligations is based on the
quoted market prices for such obligations. The
93
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Senior secured term loan (including current portion)
|
|
$
|
566.2
|
|
|
$
|
568.3
|
|
|
$
|
572.0
|
|
|
$
|
549.9
|
|
Senior unsecured notes due 2017
|
|
|
294.2
|
|
|
|
315.0
|
|
|
|
293.6
|
|
|
|
289.5
|
|
Senior unsecured notes due 2020
|
|
|
300.0
|
|
|
|
300.4
|
|
|
|
|
|
|
|
|
|
Malaysian loan
|
|
|
18.2
|
|
|
|
17.9
|
|
|
|
16.3
|
|
|
|
16.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,178.6
|
|
|
$
|
1,201.6
|
|
|
$
|
881.9
|
|
|
$
|
855.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt shown on the balance sheet is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Senior secured debt (short and long-term)
|
|
$
|
566.1
|
|
|
$
|
572.0
|
|
Long-term bond debt (due 2017 and 2020)
|
|
|
594.2
|
|
|
|
293.6
|
|
Malaysian term loan
|
|
|
18.2
|
|
|
|
16.3
|
|
Present value of capital lease obligations
|
|
|
17.2
|
|
|
|
10.3
|
|
Other
|
|
|
1.1
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,196.8
|
|
|
$
|
893.8
|
|
|
|
|
|
|
|
|
|
|
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 remains September 30, 2013. Substantially all of
Spirits assets, including inventory and property, plant
and equipment are pledged as collateral for both the term loan
and the revolving credit facility. As of December 31, 2010
and December 31, 2009, the outstanding balance of the term
loan was $566.1 and $572.0, respectively. Amounts outstanding
under the revolving credit facility were zero at
December 31, 2010 and December 31, 2009. As of
December 31, 2010, there were $18.9 of letters of credit
outstanding under the revolving credit agreement.
Revolving credit borrowings bear interest at a rate equal to, at
Spirits option, (a) a base rate determined by
reference to the highest of (1) the prime rate of our
administrative agent (currently Bank of America, N.A.),
(2) the federal funds rate plus 1/2 of 1.0% and
(3) LIBOR for an interest period of one month commencing on
such date plus 1.0%, in each case plus an applicable margin, or
(b) a LIBOR rate determined by reference to the cost of
funds for U.S. dollar deposits for the interest period
relevant to such borrowing adjusted for certain additional
costs, plus an applicable margin. As of the issue date, the
applicable margin with respect to base rate borrowings under
this portion of the revolving credit facility is 2.50% and the
applicable margin with respect to LIBOR rate borrowings under
this portion of the revolving credit facility is 3.50%. The
applicable margin for borrowings under this portion of the
revolving credit facility are subject to adjustment based on our
consolidated total leverage, and may range from 2.00% to 3.00%
with respect to base rate borrowings and from 3.00% to 4.00%
with respect to LIBOR rate
94
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
borrowings. At December 31, 2010, the Companys total
leverage ratio was 2.36:1.0 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
quarter. Failure to meet these financial covenants would be an
event of default under the credit agreement. As of
December 31, 2010, we were and expect to remain in full
compliance with all covenants contained within our credit
agreement.
2017
Notes
On September 30, 2009, Spirit issued $300.0 of
71/2% Senior
Notes due October 1, 2017 (the 2017 Notes). The
2017 Notes bear interest at a rate of
71/2%
per year, payable semi-annually, in cash in arrears, on April 1
and October 1 of each year, commencing April 1, 2010. Prior
to October 1, 2012, Spirit may redeem up to 35% of the
aggregate principal amount of the 2017 Notes with the proceeds
of certain equity offerings at a redemption price of 107.5% of
the principal amount thereof, plus accrued and unpaid interest
and additional interest, if any, to the redemption date. At any
time prior to October 1, 2013, Spirit may redeem the 2017
Notes, in whole or in part, at a redemption price ratio equal to
100% of the principal amount of the 2017 Notes redeemed, plus a
make-whole premium, plus any accrued and unpaid interest and
additional interest, if any, to the redemption date. Spirit may
redeem the 2017 Notes at its option, in whole or in part, at any
time on or after October 1 of the years set forth below, upon
not less than 30 nor more than 60 days notice at the
redemption prices (expressed as percentages of the principal
amount to be redeemed) set forth below, plus any accrued and
unpaid interest and additional interest, if any, to the
redemption date, if redeemed during the 12 month period
beginning October 1 of the years indicated below.
|
|
|
|
|
Year
|
|
Price
|
|
2013
|
|
|
103.750
|
%
|
2014
|
|
|
101.875
|
%
|
2015 and thereafter
|
|
|
100.000
|
%
|
If a change of control of Spirit occurs, each holder of the 2017
Notes shall have the right to require that Spirit repurchase all
or a portion of such holders 2017 Notes at a purchase
price of 101% of the principal amount thereof, plus accrued and
unpaid interest and additional interest, if any, to the date of
repurchase.
95
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The 2017 Notes are Spirits senior unsecured obligations
and rank equal in right of payment with all of Spirits
other existing and future senior indebtedness. The 2017 Notes
are fully and unconditionally guaranteed, jointly and severally,
on a senior unsecured basis by Holdings and Spirits
existing and future domestic subsidiaries that guarantee
Spirits obligations under Spirits senior secured
credit facility. As of December 31, 2010 and
December 31, 2009, the outstanding balance of the 2017
Notes was $294.2 and $293.6, respectively.
The indenture governing the 2017 Notes contains covenants that
limit Spirits, Holdings and certain of Spirits
subsidiaries ability, subject to certain exceptions and
qualifications, to (i) incur additional debt; (ii) pay
dividends, redeem stock or make other distributions,
(iii) repurchase equity securities, prepay subordinated
debt or make certain investments, (iv) make other
restricted payments and investments, (v) issue certain
disqualified stock and preferred stock, (vi) create liens
without granting equal and ratable liens to the holders of the
Notes, (vii) enter into sale and leaseback transactions,
(viii) merge, consolidate or transfer or dispose of
substantially all of their assets, (ix) enter into certain
types of transactions with affiliates and (x) sell assets.
These covenants are subject to a number of qualifications and
limitations. As of December 31, 2010, we were and expect to
remain in full compliance with all covenants contained within
the 2017 Notes indenture.
In addition, the Indenture provides for customary events of
default which include (subject in certain cases to customary
grace and cure periods), among other things: failure to make
payments on the 2017 Notes when due, failure to comply with
covenants under the Indenture, failure to pay certain other
indebtedness or acceleration of maturity of certain other
indebtedness, failure to satisfy or discharge certain final
judgments and occurrence of certain bankruptcy events.
2020
Notes
On November 18, 2010, Spirit issued $300.0 million of
63/4% Senior
Notes due December 15, 2020 (the 2020 Notes),
of which a portion was used to repay $150.0 in borrowings under
the senior secured credit facility. The 2020 Notes were sold at
a price equal to 100% of the principal amount thereof. The 2020
Notes bear interest at a rate of
63/4%
per year, payable semi-annually, in cash in arrears, on June 15
and December 15 of each year, commencing June 15, 2011.
Spirit may redeem the 2020 Notes at its option, in whole or in
part, at any time on or after December 15 of the years set
forth below, upon not less than 30 nor more than
60 days notice at the redemption prices (expressed as
percentages of the principal amount to be redeemed) set forth
below, plus any accrued and unpaid interest and additional
interest, if any, to the redemption date, if redeemed during the
12-month
period beginning on December 15 of the years indicated below.
|
|
|
|
|
Year
|
|
Price
|
|
2015
|
|
|
103.375
|
%
|
2016
|
|
|
102.250
|
%
|
2017
|
|
|
101.125
|
%
|
2018 and thereafter
|
|
|
100.000
|
%
|
If a change of control of Spirit occurs, each holder shall have
the right to require that Spirit repurchase all or a portion of
such holders 2020 Notes at a purchase price of 101% of the
principal amount thereof, plus accrued and unpaid interest and
additional interest, if any, to the date of repurchase.
The 2020 Notes are Spirits senior unsecured obligations
and rank equal in right of payment with all of Spirits
other existing and future senior indebtedness, including the
2017 Notes. The 2020 Notes are to be fully and unconditionally
guaranteed, jointly and severally, on a senior unsecured basis
by the Company and the Companys existing and future
domestic subsidiaries that guarantee Spirits obligations
under Spirits senior secured credit facility. As of
December 31, 2010, the outstanding balance of the 2020
Notes was $300.0.
96
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The indenture governing the 2020 Notes contains covenants that
limit Spirits, the Companys and certain of
Spirits subsidiaries ability, subject to certain
exceptions and qualifications, to (i) incur additional
debt, (ii) pay dividends, redeem stock or make other
distributions, (iii) repurchase equity securities, prepay
subordinated debt or make certain investments, (iv) make
other restricted payments and investments, (v) issue
certain disqualified stock and preferred stock, (vi) create
liens without granting equal and ratable liens to the holders of
the Notes, (vii) enter into sale and leaseback
transactions, (viii) merge, consolidate or transfer or
dispose of substantially all of their assets, (ix) enter
into certain types of transactions with affiliates and
(x) sell assets. These covenants are subject to a number of
qualifications and limitations. In addition, the indenture
limits Spirits, the Companys and the guarantor
subsidiaries ability to engage in businesses other than
businesses in which such companies are engaged on the date of
issuance of the Notes and related businesses. As of
December 31, 2010, we were and expect to remain in full
compliance with all covenants contained within the 2020 Notes
indenture.
In addition, the indenture provides for customary events of
default which include (subject in certain cases to customary
grace and cure periods), among other things: failure to make
payments on the 2020 Notes when due, failure to comply with
covenants under the indenture, failure to pay certain other
indebtedness or acceleration of maturity of certain other
indebtedness, failure to satisfy or discharge certain final
judgments and occurrence of certain bankruptcy events.
Malaysian
Term Loan
On June 2, 2008, the Companys 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 December 31, 2010 was $18.2.
France
Factory
On July 17, 2009, the Companys indirect wholly-owned
subsidiary, Spirit AeroSystems France SARL (Spirit
France) entered into a capital lease agreement for
9.0 (approx. USD$13.1 equivalent) with BNP Paribas Bank
(BNP) 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 December 31, 2010, the Company has recorded 9.0
(approx. USD$12.4 equivalent) of debt attributable to the
capital lease.
|
|
12.
|
Pension
and Other Post-Retirement Benefits
|
Multi-Employer
Pension Plan
In connection with the collective bargaining agreement signed
with the International Association of Machinists and Aerospace
Workers (IAM), the Company contributes to a multi-employer
defined benefit pension plan (IAM National Pension Fund). The
level of contribution, as specified in the bargaining agreement
was $1.35 per hour of employee service for a maximum of
80 hours per bi-weekly pay period through June 30,
2010. Effective July 1, 2010 the contribution per the
collective bargaining agreement is $1.50 per hour of employee
service for a maximum of 80 hours per bi-weekly pay period.
The IAM bargaining agreement provides for a $0.05 increase per
hour in the contribution rate beginning on July 1, 2011,
with an additional $0.05 increase effective July 1 of each year
through 2019.
The collective bargaining agreement with the UAW requires the
Company to contribute a specified amount per hour of service to
a multi-employer defined benefit pension plan (IAM National
Pension Fund). The specified
97
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
amount was $1.30 in 2009 and $1.35 in 2010. Per the newly
negotiated UAW collective bargaining agreement, the pension
contributions will be as follows:
Effective 1/1/2011 $1.45
Effective 1/1/2012 $1.50
Effective 1/1/2014 $1.55
Effective 1/1/2016 $1.60
Effective 1/1/2018 $1.65
Effective 1/1/2019 $1.70
Effective 1/1/2020 $1.75
The Company made contributions of $19.9 and $18.1 to the IAM
National Pension Fund on behalf of IAM and UAW members for the
twelve months ended December 31, 2010 and December 31,
2009, respectively.
Defined
Contribution Plans
The Company contributes to a defined contribution plan available
to all employees, excluding IAM and UAW represented employees.
Under the plan, the Company makes a matching contribution of 75%
of the employee contribution to a maximum 8% of eligible
individual employee compensation. In addition, non-matching
contributions based on an employees age and service are
paid at the end of each calendar year for certain employee
groups.
The Company recorded $36.4 and $35.5 in contributions to these
plans for the twelve months ended December 31, 2010 and
December 31, 2009, respectively.
On April 1, 2006, as part of the acquisition of BAE
Aerostructures, the Company established a defined contribution
pension plan for those employees who are hired after the date of
acquisition. Under the plan, the Company contributes 8% of basic
salary while participating employees are required to contribute
4% of basic salary. The Company recorded $0.9 in contributions
to this plan for the period ended December 31, 2010, and
$0.9 in contributions for the period ended December 31,
2009.
Defined
Benefit Pension Plans
Effective June 17, 2005, pension assets and liabilities
were spun-off from three Boeing qualified plans into four
qualified Spirit AeroSystems plans for each Spirit employee who
did not retire from Boeing by August 1, 2005. Effective
December 31, 2005, all four qualified plans were merged
together. In addition, Spirit has one nonqualified plan
providing supplemental benefits to executives (SERP) who
transferred from a Boeing nonqualified plan to a Spirit
AeroSystems plan and elected to keep their benefits in this
plan. Both plans are frozen as of the date of acquisition (i.e.,
no future service benefits are being earned in these plans). We
intend to fund our qualified pension plan through a trust.
Pension assets are placed in trust solely for the benefit of the
pension plans participants and are structured to maintain
liquidity that is sufficient to pay benefit obligations.
On April 1, 2006, as part of the acquisition of BAE
Aerostructures, the Company established a defined benefit
pension plan for those employees that had pension benefits
remaining in BAE Systems pension plan. The plan is not
open to new participants. The liability to the Company
represents the cost of providing benefits in line with salary
increases to the extent that future salary increases exceed the
inflation adjustments applied to the benefits within the BAE
Systems plan. BAE Systems will provide increases to past service
benefits in line with inflation, subject to a maximum of 5% per
annum compounded, and the Companys plan is responsible for
funding the difference between the BAE Systems increases and
actual salary increases. In addition, this plan provides future
service benefit accruals for covered employees.
98
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Other
Post-Retirement Benefit Plans
We also have post-retirement health care coverage for eligible
U.S. retirees and qualifying dependents prior to
age 65. Eligibility for employer-provided benefits is
limited to those employees who were employed at the date of
acquisition (Spirit) and retire on or after attainment of
age 62 and 10 years of service. Employees who do not
satisfy these eligibility requirements can retire with
post-retirement medical benefits at age 55 and
10 years of service, but they must pay the full cost of
medical benefits provided.
Changes
Required by FASB Authoritative Guidance
As of December 31, 2009, we reflect an asset of $171.2 for
our qualified pension plan, a liability of $0.8 for our
nonqualified pension plan and a liability of $61.9 for our
post-retirement medical plan. For the U.K. plan, we reflect a
liability of $0.1 as of December 31, 2009. The pension and
post-retirement medical plan adjustment to accumulated other
comprehensive income (AOCI) for the fiscal year ended
December 31, 2009 is $(90.9) or $(55.8), net of tax.
Obligations
and Funded Status
The following tables reconcile the funded status of both pension
and post-retirement medical benefits to the balance on the
Consolidated Balance Sheets for the fiscal years 2010 and 2009.
Benefit obligation balances presented in the tables reflect the
projected benefit obligation (PBO) and accumulated benefit
obligation (ABO) for our pension plans, and accumulated
post-retirement benefit obligations (APBO) for our
post-retirement medical plan. We use an end of fiscal year
measurement date of December 31 for our U.S. pension and
post-retirement medical plans as required by FASB authoritative
guidance.
99
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Post-Retirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
Periods Ended December 31,
|
|
|
Periods Ended December 31,
|
|
U.S. Plans
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
645.5
|
|
|
$
|
619.1
|
|
|
$
|
61.9
|
|
|
$
|
44.4
|
|
Service Cost
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
2.0
|
|
Interest Cost
|
|
|
39.5
|
|
|
|
37.5
|
|
|
|
3.9
|
|
|
|
2.8
|
|
Actuarial (gains) and losses
|
|
|
63.2
|
|
|
|
(8.7
|
)
|
|
|
3.4
|
|
|
|
12.7
|
|
Benefits paid
|
|
|
(1.8
|
)
|
|
|
(2.4
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at the end of the period
|
|
$
|
746.4
|
|
|
$
|
645.5
|
|
|
$
|
72.0
|
|
|
$
|
61.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.67
|
%
|
|
|
6.15
|
%
|
|
|
5.33
|
%
|
|
|
5.89
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Medical assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trend assumed for the year
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
9.47
|
%
|
|
|
10.00
|
%
|
Ultimate trend rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
Year that ultimate trend rate is reached
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2030
|
|
|
|
2030
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
815.9
|
|
|
$
|
678.4
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on assets
|
|
|
101.3
|
|
|
|
141.7
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(1.8
|
)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
Expenses paid
|
|
|
(0.4
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
915.0
|
|
|
$
|
815.9
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status to net amounts recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status (deficit)
|
|
$
|
168.6
|
|
|
$
|
170.4
|
|
|
$
|
(72.0
|
)
|
|
$
|
(61.9
|
)
|
Employer contributions between measurement date and fiscal year
end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized
|
|
$
|
168.6
|
|
|
$
|
170.4
|
|
|
$
|
(72.0
|
)
|
|
$
|
(61.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
169.5
|
|
|
$
|
171.2
|
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
Noncurrent liabilities
|
|
|
(0.9
|
)
|
|
|
(0.8
|
)
|
|
|
(71.7
|
)
|
|
|
(61.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized
|
|
$
|
168.6
|
|
|
$
|
170.4
|
|
|
$
|
(72.0
|
)
|
|
$
|
(61.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts not yet reflected in net periodic benefit cost and
included in AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated gain (loss)
|
|
|
(76.2
|
)
|
|
|
(52.9
|
)
|
|
|
(15.8
|
)
|
|
|
(13.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (AOCI)
|
|
$
|
(76.2
|
)
|
|
$
|
(52.9
|
)
|
|
$
|
(15.8
|
)
|
|
$
|
(13.3
|
)
|
Cumulative employer contributions in excess of net periodic
benefit cost
|
|
|
244.8
|
|
|
|
223.3
|
|
|
|
(56.2
|
)
|
|
|
(48.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the balance sheet
|
|
$
|
168.6
|
|
|
$
|
170.4
|
|
|
$
|
(72.0
|
)
|
|
$
|
(61.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information for pension plans with benefit obligations in
excess of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation/APBO
|
|
$
|
0.9
|
|
|
$
|
0.8
|
|
|
$
|
72.0
|
|
|
$
|
61.9
|
|
Accumulated benefit obligation
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
100
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
Benefits
|
|
|
|
Periods Ended December 31,
|
|
U.K. Plans
|
|
2010
|
|
|
2009
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
39.8
|
|
|
$
|
25.3
|
|
Service Cost
|
|
|
5.8
|
|
|
|
5.8
|
|
Interest Cost
|
|
|
2.2
|
|
|
|
1.4
|
|
Employee contributions
|
|
|
0.1
|
|
|
|
0.1
|
|
Actuarial (gains) and losses
|
|
|
(0.5
|
)
|
|
|
3.2
|
|
Benefits paid
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Rebates from U.K. Government
|
|
|
0.8
|
|
|
|
0.9
|
|
Exchange rate changes
|
|
|
(1.7
|
)
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at the end of the period
|
|
$
|
46.4
|
|
|
$
|
39.8
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine benefit obligation:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.30
|
%
|
|
|
5.70
|
%
|
Rate of compensation increase
|
|
|
3.55
|
%
|
|
|
4.20
|
%
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
39.7
|
|
|
$
|
23.2
|
|
Actual return on assets
|
|
|
4.0
|
|
|
|
5.1
|
|
Company contributions
|
|
|
7.3
|
|
|
|
7.6
|
|
Employee contributions
|
|
|
0.1
|
|
|
|
0.1
|
|
Rebates from U.K. Government
|
|
|
0.1
|
|
|
|
0.8
|
|
Benefits paid
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Exchange rate changes
|
|
|
(1.7
|
)
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
49.4
|
|
|
$
|
39.7
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status to net amounts recognized:
|
|
|
|
|
|
|
|
|
Funded status (deficit)
|
|
|
3.0
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Net amounts recognized
|
|
$
|
3.0
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance sheet:
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
3.0
|
|
|
$
|
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Net amounts recognized
|
|
$
|
3.0
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Amounts not yet reflected in net periodic benefit cost and
included in AOCI:
|
|
|
|
|
|
|
|
|
Accumulated gain (loss)
|
|
|
8.3
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (AOCI)
|
|
|
8.3
|
|
|
|
8.0
|
|
Prepaid (unfunded accrued) pension cost
|
|
|
(5.3
|
)
|
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the balance sheet
|
|
$
|
3.0
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Information for pension plans with benefit obligations in
excess of plan assets
|
|
|
|
|
|
|
|
|
Projected benefit obligation/APBO
|
|
$
|
|
|
|
$
|
39.8
|
|
Accumulated benefit obligation
|
|
|
|
|
|
|
25.0
|
|
Fair value of assets
|
|
$
|
|
|
|
$
|
39.7
|
|
101
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Annual
Expense
The components of pension and other post-retirement benefit
plans expense for the U.S. plans and the assumptions used
to determine benefit obligations for 2010, 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Post-Retirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
Periods Ended
|
|
|
Periods Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
U.S. Plans
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Components of net periodic benefit cost (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2.9
|
|
|
$
|
2.0
|
|
|
$
|
1.5
|
|
Interest Cost
|
|
|
39.5
|
|
|
|
37.5
|
|
|
|
36.9
|
|
|
|
3.9
|
|
|
|
2.8
|
|
|
|
2.0
|
|
Expected return on plan assets
|
|
|
(61.0
|
)
|
|
|
(54.1
|
)
|
|
|
(70.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net (gain) loss
|
|
|
|
|
|
|
8.5
|
|
|
|
(5.4
|
)
|
|
|
0.9
|
|
|
|
|
|
|
|
(0.5
|
)
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income)
|
|
|
(21.5
|
)
|
|
|
(8.1
|
)
|
|
|
(38.6
|
)
|
|
|
7.7
|
|
|
|
4.8
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes recognized in OCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in OCI (income) loss
|
|
$
|
23.3
|
|
|
$
|
(103.1
|
)
|
|
$
|
300.5
|
|
|
$
|
2.4
|
|
|
$
|
12.8
|
|
|
$
|
7.6
|
|
Total recognized in net periodic benefit cost and OCI
|
|
$
|
1.8
|
|
|
$
|
(111.2
|
)
|
|
$
|
261.9
|
|
|
$
|
10.1
|
|
|
$
|
17.6
|
|
|
$
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions Used to Determine Net Periodic Benefit Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.15
|
%
|
|
|
6.07
|
%
|
|
|
6.60
|
%
|
|
|
5.89
|
%
|
|
|
6.34
|
%
|
|
|
6.40
|
%
|
Expected return on plan assets
|
|
|
7.50
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Salary increases
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Medical Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trend assumed for the year
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
10.00
|
%
|
|
|
9.00
|
%
|
|
|
10.00
|
%
|
Ultimate trend rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.50
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year that ultimate trend rate is reached
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2030
|
|
|
|
2013
|
|
|
|
2013
|
|
The estimated net gain (loss) that will be amortized from
accumulated other comprehensive income into net periodic benefit
cost over the next fiscal year for Other Post-Retirement
Benefits plans is $0.8.
102
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The components of the pension benefit plan expense for the U.K.
plans and the assumptions used to determine benefit obligations
for 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
Periods Ended December 31,
|
|
U.K. Plans
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Components of net periodic benefit cost (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
5.8
|
|
|
$
|
5.8
|
|
|
$
|
8.0
|
|
Interest cost
|
|
|
2.1
|
|
|
|
1.5
|
|
|
|
1.5
|
|
Expected return on plan assets
|
|
|
(2.7
|
)
|
|
|
(1.7
|
)
|
|
|
(1.6
|
)
|
Amortization of net gain
|
|
|
(0.3
|
)
|
|
|
(0.4
|
)
|
|
|
(0.3
|
)
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
4.9
|
|
|
$
|
5.2
|
|
|
$
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes recognized in OCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income recognized in OCI
|
|
$
|
(1.1
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(0.2
|
)
|
Total recognized in net periodic benefit cost and OCI
|
|
$
|
3.8
|
|
|
$
|
4.6
|
|
|
$
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions Used to Determine Net Periodic Benefit Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.70
|
%
|
|
|
5.40
|
%
|
|
|
5.40
|
%
|
Expected return on plan assets
|
|
|
6.50
|
%
|
|
|
5.74
|
%
|
|
|
6.27
|
%
|
Salary increases
|
|
|
4.20
|
%
|
|
|
3.50
|
%
|
|
|
4.00
|
%
|
The estimated net (gain) loss that will be amortized from
accumulated other comprehensive income into net periodic benefit
cost over the next fiscal year for U.K. plans is $(0.3).
Assumptions
The Company sets the discount rate assumption annually for each
of its retirement-related benefit plans as of the measurement
date, based on a review of projected cash flow and a long-term
high-quality corporate bond yield curve. The discount rate
determined on each measurement date is used to calculate the
benefit obligation as of that date, and is also used to
calculate the net periodic benefit (income)/cost for the
upcoming plan year.
The pension expected return on assets assumption is derived from
the long-term expected returns based on the investment
allocation by class specified in the Companys investment
policy. The expected return on plan assets determined on each
measurement date is used to calculate the net periodic benefit
(income)/cost of the upcoming plan year.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. To determine
the health care cost trend rates the Company considers national
health trends and adjusts for its specific plan design and
locations.
A one-percentage point increase in the initial through ultimate
assumed health care trend rates would have increased the
accumulated post-retirement benefit obligation by $7.3 at
December 31, 2010 and the aggregate service and interest
cost components of non-pension post-retirement benefit expense
for 2010 by $0.7. A one-percentage point decrease would have
decreased the obligation by $6.6 and the aggregate service and
interest cost components of non-pension post-retirement benefit
expense for 2010 by $0.6.
103
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
U.S.
Plans
The Companys investment objective is to achieve long-term
growth of capital, with exposure to risk set at an appropriate
level. This objective shall be accomplished through the
utilization of a diversified asset mix consisting of equities
(domestic and international) and taxable fixed income
securities. The allowable asset allocation range is:
|
|
|
Equities
|
|
20% - 50%
|
Fixed income
|
|
50% - 80%
|
Real estate
|
|
0% - 7%
|
Investment guidelines include that no security, except issues of
the U.S. Government, shall comprise more than 5% of total
Plan assets and further, no individual portfolio shall hold more
than 7% of its assets in the securities of any single entity,
except issues of the U.S. Government. The following
derivative transactions are prohibited leverage,
unrelated speculation and exotic collateralized
mortgage obligations or CMOs. Investments in hedge funds,
private placements, oil and gas and venture capital must be
specifically approved by the Company in advance of their
purchase.
The Companys plans have asset allocations for the U.S., as
of December 31, 2010 and December 31, 2009, as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Asset Category U.S.
|
|
|
|
|
|
|
|
|
Equity securities U.S.
|
|
|
29
|
%
|
|
|
50
|
%
|
Equity securities International
|
|
|
4
|
%
|
|
|
6
|
%
|
Debt securities
|
|
|
65
|
%
|
|
|
40
|
%
|
Real estate
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
U.K.
Plans
The Trustees investment objective is to ensure that they
can meet their obligation to the beneficiaries of the Plan. An
additional objective is, to achieve a return on the total Plan
which is compatible with the level of risk considered
appropriate. The overall benchmark allocation of the Plans
assets is:
The Companys plans have asset allocations for the U.K., as
of December 31, 2010 and December 31, 2009, as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Asset Category U.K.
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
56
|
%
|
|
|
60
|
%
|
Debt securities
|
|
|
39
|
%
|
|
|
38
|
%
|
Other
|
|
|
5
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
104
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Projected
contributions and benefit payments
Required pension contributions under Employee Retirement Income
Security Act (ERISA) regulations are expected to be zero in 2011
and discretionary contributions are not expected in 2011. SERP
and post-retirement medical plan contributions in 2011 are not
expected to exceed $0.4. Expected contributions to the U.K. plan
for 2011 are $7.3.
We monitor our defined benefit pension plan asset investments on
a quarterly basis and we believe that we are not exposed to any
significant credit risk in these investments.
The total benefits expected to be paid over the next ten years
from the plans assets or the assets of the Company, by
country, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
Post-Retirement
|
U.S.
|
|
Pension Plans
|
|
Benefit Plans
|
|
2011
|
|
$
|
6.6
|
|
|
$
|
0.3
|
|
2012
|
|
|
9.1
|
|
|
|
0.5
|
|
2013
|
|
|
12.4
|
|
|
|
1.8
|
|
2014
|
|
|
16.4
|
|
|
|
4.2
|
|
2015
|
|
|
21.1
|
|
|
|
7.5
|
|
2016-2020
|
|
|
192.0
|
|
|
|
53.7
|
|
|
|
|
|
|
U.K.
|
|
Pension Plans
|
|
2011
|
|
$
|
0.3
|
|
2012
|
|
|
0.4
|
|
2013
|
|
|
0.5
|
|
2014
|
|
|
0.6
|
|
2015
|
|
|
0.8
|
|
2016-2020
|
|
|
6.7
|
|
Fair
Value Measurements
The pension plan assets are valued at fair value. A financial
instruments level within the fair value hierarchy is based
on the lowest level of any input that is significant to the fair
value measurement. The following is a description of the
valuation methodologies used for the investments measured at
fair value, including the general classification of such
instruments pursuant to the valuation hierarchy.
Temporary Cash Investments These investments
consist of U.S. dollars and foreign currencies held in
master trust accounts. Foreign currencies held are reported in
terms of U.S. dollars based on currency exchange rates
readily available in active markets. These temporary cash
investments are classified as level 1 investments.
Collective Investment Trusts These
investments are public investment vehicles valued using middle
market prices and performance of the fund. The trust allocates
notional units to the policy holder based on the underlying
notional unit buy (offer) price using the middle market price
plus transaction costs. These investments are classified within
level 3 of the valuation hierarchy.
Commingled Equity and Bond Funds These
investments are valued at the closing price reported by the Plan
Trustee. These investments are not being traded in an active
market, but are backed by various investment securities managed
by the Bank of New York. Fair value is being calculated using
unobservable inputs that rely on the Bank of
105
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
New Yorks own assumptions and are therefore classified
within level 3 of the valuation hierarchy, although these
assumptions are based on underlying investments which are traded
on an active market.
As of December 31, 2010, the pension plan assets measured
at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Temporary cash investments
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
|
|
|
$
|
|
|
Collective Investment Trusts
|
|
$
|
48.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48.8
|
|
Commingled Equity and Bond Funds
|
|
$
|
915.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
915.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
964.4
|
|
|
$
|
0.6
|
|
|
$
|
|
|
|
$
|
963.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth a summary of changes in the fair
value of the Plans level 3 investment assets and
liabilities for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
Maturities,
|
|
|
Exchange
|
|
|
Ending Fair
|
|
Description
|
|
Fair Value
|
|
|
Gain (Loss)
|
|
|
Settlements, Net
|
|
|
rate
|
|
|
Value
|
|
|
Collective Investment Trusts
|
|
$
|
38.9
|
|
|
$
|
4.0
|
|
|
$
|
7.5
|
|
|
$
|
(1.6
|
)
|
|
$
|
48.8
|
|
Commingled Equity and Bond Funds
|
|
$
|
808.0
|
|
|
$
|
104.3
|
|
|
$
|
2.7
|
|
|
$
|
|
|
|
$
|
915.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
846.9
|
|
|
$
|
108.3
|
|
|
$
|
10.2
|
|
|
$
|
(1.6
|
)
|
|
$
|
963.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings has authorized 360,000,000 shares of stock. Of
that, 200,000,000 shares are class A common stock, par
value $0.01 per share, one vote per share,
150,000,000 shares are class B common stock, par value
$0.01 per share, ten votes per share, and 10,000,000 shares
are preferred stock, par value $0.01 per share.
In association with the Boeing Acquisition, Spirit executives
with balances in Boeings Supplemental Executive Retirement
Plan (SERP) were authorized to purchase a fixed number of units
of Holdings phantom stock at $3.33 per unit based on
the present value of their SERP balances. Under this
arrangement, 860,244 phantom units were purchased. Any payment
on account of units may be made in cash
and/or
shares of class B common stock at the sole discretion of
Holdings.
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 fiscal period ended December 31, 2010, Holdings has
recognized a net total of $28.8 of stock compensation expense,
which is net of $1.2 resulting from stock forfeitures. Of the
total $28.8 of net stock compensation expense recorded in 2010,
$20.5 was charged directly to cost of sales, $7.9 was recorded
as selling, general and administrative expense, while the
remaining $0.4 was capitalized in inventory and is recognized
through cost of sales consistent with the accounting methods we
follow in accordance with FASB authoritative guidance. Holdings
recognized a total of $10.1 and $15.7 of stock compensation
expense for the periods ended December 31, 2009 and
December 31, 2008, respectively. The total income tax
benefit recognized in the income
106
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
statement for share based compensation arrangements was $10.8,
$3.8, and $5.9 for 2010, 2009, and 2008, respectively.
Executive
Incentive Plan
The Companys Executive Incentive Plan, or EIP, is designed
to provide participants with the opportunity to acquire an
equity interest in the Company through direct purchase of the
Companys class B common stock shares at prices
established by the Board of Directors or through grants of
class B restricted common stock shares with performance
based vesting. The Company has the sole authority to designate
either stock purchases or grants of restricted shares. The total
number of shares authorized under the EIP is 15,000,000 and the
grant terminates at the end of ten years.
The Company has issued restricted shares as part of the
Companys EIP. The restricted shares have been granted in
groups of four shares. Participants do not have the unrestricted
rights of stockholders until those shares vest. The shares may
vest upon a liquidity event, with the number of shares vested
based upon a participants number of years of service to
the Company, the portion of the investment by Onex and its
affiliates liquidated through the date of the liquidity event
and the return on invested capital by Onex and its affiliates
through the date of the liquidity event. If a specific type of
liquidity event has not occurred by the 10th year, shares
may vest based on a valuation of the Company. The Companys
initial public offering in November 2006 (the IPO)
and secondary offering in May 2007 were considered liquidity
events under the EIP. The Company records expenses equal to the
fair value of the award over a five year vesting period. The
fair value of the award is based on the value of each share at
the time of the grant multiplied by the probability of the share
vesting based on historical performance of Onexs
controlled investments.
The Company expensed $2.0, which was offset by $0.2 expense
reduction resulting from stock forfeitures for the year ended
December 31, 2010. The Company expensed a net total of $2.3
and $9.3 for the periods ended December 31, 2009 and
December 31, 2008, respectively. The Companys
unamortized stock compensation related to these restricted
shares is less than $0.1. The weighted average remaining period
of compensation cost not yet recognized is 0.5 years. The
weighted average remaining period for the vesting of these
shares is 4.5 years. The intrinsic value of the unvested
shares based on the value of the Companys stock at
December 31, 2010 was $43.1, based on the value of the
Companys stock and the number of unvested shares.
Due to the occurrence during 2010 of the four or five-year
anniversaries of the Executive Incentive Plan grant dates for
certain participants in the plan, those participants acquired an
incremental 8.81% or 20% interest, respectively, in the shares
granted to them under the plan, such that their total cumulative
interest in the shares granted to them would be 80% for those
participants reaching their fourth anniversary and 100% for
those reaching their fifth anniversary. The total number of
additional shares in which an interest was acquired during 2010
was 1,249,402. The participants have a non-forfeitable interest
in those shares; however, as per the plan document, the shares
are still restricted until the earlier of a liquidity event or
June 16, 2015. Participants do not have the unrestricted
rights of stockholders until those shares vest. Participants who
have not yet acquired a 100% cumulative interest in their shares
will do so during 2011 provided they continue to be employed by
the Company when they reach their five-year anniversary in 2011.
107
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The following table summarizes the activity of restricted shares
under the EIP for the periods ended December 31, 2008,
December 31, 2009 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Value(1)
|
|
|
|
(Thousands)
|
|
|
|
|
|
Executive Incentive Plan
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
2,469
|
|
|
$
|
28.0
|
|
Forfeited during period
|
|
|
(108
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
2,361
|
|
|
|
27.4
|
|
Forfeited during period
|
|
|
(280
|
)
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
2,081
|
|
|
|
23.6
|
|
Forfeited during period
|
|
|
(8
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2010
|
|
|
2,073
|
|
|
$
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Value represents grant date fair value. |
Board
of Directors Stock Awards
This plan provides non-employee directors the opportunity to
receive grants of restricted shares of class A common
stock, or Restricted Stock Units (RSUs) or a combination of both
common stock and RSUs. The class A common stock grants and
RSU grants vest one year from the grant date. The RSU grants are
payable upon the Directors separation from service. The
Board of Directors or its authorized committee may make
discretionary grants of shares or RSUs from time to time. The
maximum aggregate number of shares that may be granted to
participants is 3,000,000 shares. In April 2008, the
Director Stock Plan was amended such that all issuance of stock
pursuant to the plan after that date would be grants of
class A common stock or RSUs. All shares granted prior to
April 2008 were class B common stock.
For each non-employee Director of the Company, at least one-half
of their annual director compensation is required to be paid in
the form of a grant of class A common stock
and/or RSUs,
as elected by each Director. In addition, each Director may
elect to have all or any portion of the remainder of their
annual director compensation paid in cash or in the form of a
grant of class A stock
and/or RSUs.
If participants cease to serve as Directors within a year of the
grant, the restricted shares
and/or RSUs
are forfeited. In May 2010, the Board of Directors authorized a
grant to its members of 33,002 shares of restricted
class A common stock valued at $0.7 based on the share
price of the Companys common stock at the grant date. The
Company expensed $0.7 for the Board of Directors shares for each
of the periods ended December 31, 2010 and
December 31, 2009, and $0.4 during the period ended
December 31, 2008. The Companys unamortized stock
compensation related to these restricted shares is $0.2 which
will be recognized over a weighted average remaining period of
4 months. The intrinsic value of the unvested shares based
on the value of the Companys stock at December 31,
2010 was $0.7, based on the value of the Companys stock
and the number of unvested shares.
108
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The following table summarizes stock and RSU grants to members
of the Companys Board of Directors for the periods ended
December 31, 2008, December 31, 2009 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Value(1)
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class A
|
|
|
Class B
|
|
|
|
(Thousands)
|
|
|
|
|
|
|
|
|
Board of Directors Stock Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Granted during period
|
|
|
21
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
Vested during period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited during period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
21
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
Granted during period
|
|
|
56
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
Vested during period
|
|
|
(21
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
Forfeited during period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
56
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
Granted during period
|
|
|
33
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
Vested during period
|
|
|
(56
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
Forfeited during period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2010
|
|
|
33
|
|
|
|
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Value represents grant date fair value. |
Short-Term
Incentive Plan
The Amended and Restated Short-Term Incentive Plan (the
Short-Term Incentive Plan) enables eligible
employees to receive incentive benefits in the form of
restricted stock in the Company, cash, or both, as determined by
the Board of Directors or its authorized committee. The stock
portion vests one year from the date of grant. Restricted shares
are forfeited if the employees employment terminates prior
to vesting.
No shares were granted or cash awarded under the Short-Term
Incentive Plan for 2009 performance. As a result, there were no
unvested shares for this plan as of December 31, 2010. In
the first quarter of 2010, the Company recognized $0.4 of
expense related to the shares granted under the Short-Term
Incentive Plan for 2008 performance, which fully vested twelve
months from the 2009 grant date. The Company expensed $3.3 for
the twelve months ended December 31, 2009 for unvested
shares granted prior to that date and $4.3 for the twelve months
ended December 31, 2008 for unvested shares granted prior
to that date. The 2008 cash award of $3.5 was expensed in 2008
and paid in 2009 and the 2007 cash award of $3.9 was expensed in
2007 and paid in 2008.
109
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The following table summarizes the activity of the restricted
shares under the Short-Term Incentive Plan for the twelve months
ended December 31, 2008, December 31, 2009 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Value(1)
|
|
|
|
(Thousands)
|
|
|
|
|
|
Short-Term Incentive Plan
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
232
|
|
|
$
|
7.0
|
|
Granted during period
|
|
|
150
|
|
|
|
4.2
|
|
Vested during period
|
|
|
(231
|
)
|
|
|
(7.0
|
)
|
Forfeited during period
|
|
|
(11
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
140
|
|
|
|
3.9
|
|
Granted during period
|
|
|
309
|
|
|
|
3.5
|
|
Vested during period
|
|
|
(140
|
)
|
|
|
(3.9
|
)
|
Forfeited during period
|
|
|
(31
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
278
|
|
|
|
3.2
|
|
Granted during period
|
|
|
|
|
|
|
|
|
Vested during period
|
|
|
(278
|
)
|
|
|
(3.2
|
)
|
Forfeited during period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Value represents grant date fair value. |
Long-Term
Incentive Plan
The Second Amended and Restated Long-Term Incentive Plan
(LTIP) is designed to encourage retention of key
employees.
For shares granted in 2007, one-half of the granted restricted
shares of class B common stock vested on the second
anniversary of the grant date in February 2009, and the other
one-half will vest on the fourth anniversary of the grant date
in 2011. Restricted shares are forfeited if the
participants employment terminates prior to vesting. In
the first quarter of 2007, 67,391 shares valued at $2.0
were granted. The Company expensed $0.4 for each of the periods
ended December 31, 2010, December 31, 2009 and
December 31, 2008. The Companys unamortized stock
compensation related to these unvested class B shares is
$0.1 which will be recognized over a weighted average remaining
period of 1.5 months. The intrinsic value of the unvested
class B LTIP shares at December 31, 2010 was $0.6,
based on the value of the Companys common stock and the
number of unvested shares.
In May 2010, 560,880 class A shares valued at $12.1 were
granted and will vest annually in three equal installments
beginning on the two-year anniversary of the grant date. In May
2009, 852,294 class A shares valued at $11.0 were granted
and will vest annually in three equal installments beginning on
the two-year anniversary of the grant date. Within the May 2008
LTIP grant there were three groups of awards, each with a unique
vesting schedule. The first group of shares vests equally over
three years, beginning in 2009. The second and third groups also
vest in one-third increments, but vesting begins on the second
and third anniversary of the grant, respectively.
During 2010, 862,800 shares of class A common stock
with a value of $17.6 were granted to members of the IAM union
under the LTIP pursuant to the new ten-year labor contract. Also
during 2010, 144,400 shares of class A common stock
with a value of $3.0 were granted to members of the UAW union
under the LTIP pursuant to the new ten-year labor contract. The
shares vested immediately and the value was charged directly to
cost of sales.
110
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The Company expensed a total of $25.5 for the unvested
class A LTIP shares in the twelve months ended
December 31, 2010, net of $1.0 of forfeited shares. The
Company expensed a net total of $3.5 and $1.3 for class A
LTIP shares for the periods ended December 31, 2009 and
December 31, 2008, respectively.
The Companys unamortized stock compensation related to
these unvested class A shares is $17.1 which will be
recognized over a weighted average remaining period of
2.8 years. The intrinsic value of the unvested class A
LTIP shares at December 31, 2010 was $15.8, based on the
value of the Companys common stock and the number of
unvested shares.
The following table summarizes the activity of the restricted
shares under the LTIP for the periods ended December 31,
2008, December 31, 2009 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Value(1)
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class A
|
|
|
Class B
|
|
|
|
(Thousands)
|
|
|
|
|
|
|
|
|
Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
|
|
|
|
62
|
|
|
$
|
|
|
|
$
|
1.8
|
|
Granted during period
|
|
|
328
|
|
|
|
|
|
|
|
9.4
|
|
|
|
|
|
Vested during period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited during period
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
322
|
|
|
|
58
|
|
|
|
9.2
|
|
|
|
1.7
|
|
Granted during period
|
|
|
852
|
|
|
|
|
|
|
|
11.0
|
|
|
|
|
|
Vested during period
|
|
|
(6
|
)
|
|
|
(29
|
)
|
|
|
(0.1
|
)
|
|
|
(0.9
|
)
|
Forfeited during period
|
|
|
(71
|
)
|
|
|
(1
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
1,097
|
|
|
|
28
|
|
|
|
18.8
|
|
|
|
0.8
|
|
Granted during period
|
|
|
1,568
|
|
|
|
|
|
|
|
32.6
|
|
|
|
|
|
Vested during period
|
|
|
(1,030
|
)
|
|
|
|
|
|
|
(21.1
|
)
|
|
|
|
|
Forfeited during period
|
|
|
(145
|
)
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2010
|
|
|
1,490
|
|
|
|
28
|
|
|
$
|
27.6
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Value represents grant date fair value. |
Dividends
on Restricted Share Grants
Spirit does not currently have plans to pay dividends in the
foreseeable future. However, any dividends declared by
Holdings Board of Directors with respect to common shares
and with respect to any restricted share grants under any of the
Companys compensation plans will be cumulative and paid to
the participants only at the time and to the extent the
participant acquires an interest in, or vests, in any of the
restricted shares.
The following summarizes pretax income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
U.S.
|
|
$
|
276.8
|
|
|
$
|
255.6
|
|
|
$
|
374.4
|
|
International
|
|
|
21.0
|
|
|
|
17.2
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
297.8
|
|
|
$
|
272.8
|
|
|
$
|
383.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The tax provision contains the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
28.4
|
|
|
$
|
47.7
|
|
|
$
|
118.4
|
|
State
|
|
|
1.1
|
|
|
|
2.4
|
|
|
|
0.1
|
|
Foreign
|
|
|
0.6
|
|
|
|
1.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
30.1
|
|
|
$
|
51.4
|
|
|
$
|
118.7
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
54.3
|
|
|
$
|
26.2
|
|
|
$
|
(6.1
|
)
|
State
|
|
|
(8.2
|
)
|
|
|
(0.7
|
)
|
|
|
3.3
|
|
Foreign
|
|
|
2.0
|
|
|
|
4.0
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
48.1
|
|
|
|
29.5
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense
|
|
$
|
78.2
|
|
|
$
|
80.9
|
|
|
$
|
118.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax provision from operations differs from the tax
provision computed at the U.S. federal statutory income tax
rate due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
Tax at U.S. Federal statutory rate
|
|
$
|
104.2
|
|
|
|
35.0
|
%
|
|
$
|
95.5
|
|
|
|
35.0
|
%
|
|
$
|
134.4
|
|
|
|
35.0
|
%
|
State income taxes, net of Federal benefit
|
|
|
(4.6
|
)
|
|
|
(1.5
|
)
|
|
|
1.0
|
|
|
|
0.4
|
|
|
|
2.3
|
|
|
|
0.6
|
|
Foreign rate differences
|
|
|
(4.3
|
)
|
|
|
(1.5
|
)
|
|
|
(1.3
|
)
|
|
|
(0.5
|
)
|
|
|
(1.2
|
)
|
|
|
(0.3
|
)
|
Research and Experimentation Credit
|
|
|
(10.3
|
)
|
|
|
(3.5
|
)
|
|
|
(12.0
|
)
|
|
|
(4.4
|
)
|
|
|
(10.3
|
)
|
|
|
(2.7
|
)
|
Domestic Production Activities Deduction
|
|
|
(4.0
|
)
|
|
|
(1.3
|
)
|
|
|
(3.9
|
)
|
|
|
(1.4
|
)
|
|
|
(8.1
|
)
|
|
|
(2.1
|
)
|
Interest on assessments
|
|
|
(1.2
|
)
|
|
|
(0.4
|
)
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
1.0
|
|
|
|
0.3
|
|
Other
|
|
|
(1.6
|
)
|
|
|
(0.5
|
)
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
78.2
|
|
|
|
26.3
|
%
|
|
$
|
80.9
|
|
|
|
29.7
|
%
|
|
$
|
118.5
|
|
|
|
30.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Significant tax effected temporary differences comprising the
net deferred tax asset are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Long-term contracts
|
|
$
|
70.4
|
|
|
$
|
118.0
|
|
Post-retirement benefits other than pensions
|
|
|
27.3
|
|
|
|
23.5
|
|
Pension and other employee benefit plans
|
|
|
(39.6
|
)
|
|
|
(53.3
|
)
|
Employee compensation accruals
|
|
|
38.3
|
|
|
|
32.7
|
|
Depreciation and amortization
|
|
|
(60.5
|
)
|
|
|
(22.5
|
)
|
Inventory
|
|
|
1.4
|
|
|
|
7.2
|
|
Interest swap contracts
|
|
|
2.5
|
|
|
|
6.3
|
|
State income tax credits
|
|
|
41.0
|
|
|
|
26.3
|
|
Accruals and reserves
|
|
|
11.7
|
|
|
|
4.1
|
|
Deferred production
|
|
|
|
|
|
|
(15.7
|
)
|
Net operating loss carryforward
|
|
|
8.3
|
|
|
|
11.3
|
|
Other
|
|
|
(1.0
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
99.8
|
|
|
|
136.0
|
|
Valuation allowance
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
94.5
|
|
|
$
|
136.0
|
|
|
|
|
|
|
|
|
|
|
Deferred tax detail above is included in the consolidated
balance sheet and supplemental information as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Current deferred tax assets
|
|
$
|
47.6
|
|
|
$
|
55.8
|
|
Current deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
47.6
|
|
|
$
|
55.8
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets
|
|
|
55.0
|
|
|
|
95.8
|
|
Non-current deferred tax liabilities
|
|
|
(8.1
|
)
|
|
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax asset
|
|
$
|
46.9
|
|
|
$
|
80.2
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
$
|
94.5
|
|
|
$
|
136.0
|
|
|
|
|
|
|
|
|
|
|
The decrease in Long-term contracts deferred tax asset and
increase in the depreciation and amortization deferred tax
liability are primarily due to recently enacted bonus
depreciation rules.
We have recognized cumulative book income for our international
operations, but have incurred cumulative taxable losses in the
United Kingdom. The resulting net operating loss carryforward is
primarily due to the manner in which the United Kingdom treats
long-term contract income accounting and capital allowances.
As required under FASB authoritative guidance, $5.0 and zero was
recorded to Additional Paid in Capital, representing the tax
effect associated with the net excess tax pool created during
2010 and 2009, respectively.
In accordance with FASB authoritative guidance relating to
Accounting for Income Taxes, management has maintained a
permanent reinvestment strategy for the Companys foreign
operations. As such, deferred taxes have not been provided on
unremitted earnings for our U.K., Germany, Malaysia, Singapore,
Canada, and France subsidiaries. These unremitted earnings would
have an immaterial impact, if any, on the financial statements,
if repatriated.
113
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The beginning and ending unrecognized tax benefits
reconciliation is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
23.2
|
|
|
$
|
27.7
|
|
|
$
|
26.7
|
|
Gross increases related to current period tax positions
|
|
|
9.4
|
|
|
|
1.9
|
|
|
|
6.6
|
|
Gross decreases related to prior period tax positions
|
|
|
(16.2
|
)
|
|
|
(6.3
|
)
|
|
|
(5.6
|
)
|
Statute of limitations expiration
|
|
|
(1.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
15.2
|
|
|
$
|
23.2
|
|
|
$
|
27.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the December 31, 2010 balance were $4.6 in tax
effected unrecognized tax benefits which, if ultimately
recognized, will reduce the Companys effective tax rate.
Our 2008 and 2009 U.S. federal income tax returns are
currently being examined. While a change could result from the
ongoing examination, we reasonably expect no material change to
our current positions in our recorded unrecognized tax benefit
liability in the next twelve months.
Our U.S. federal income tax returns for the
2007-2010
tax years are subject to examination. We are also subject to
examination in states and foreign jurisdictions for the
2007-2010
tax years.
We report interest and penalties, if any, related to
unrecognized tax benefits in the income tax provision. As of
December 31, 2010 and December 31, 2009, accrued
interest on our unrecognized tax benefit liability included in
the Consolidated Balance Sheets was $0.7 and $2.8, respectively.
The impact of interest on our unrecognized tax benefit liability
during 2010 and 2009 was $(1.2) and $0.8, respectively.
We operate under a tax holiday in Malaysia that is effective
through September 2024, conditional on meeting certain
employment and investment thresholds. This tax holiday decreased
foreign tax by $2.5 and increased net income $0.02 per fully
diluted share in 2010.
At December 31, 2010, we had $30.7 in United Kingdom net
operating loss carryforwards that do not expire and $0.7 in
North Carolina net operating loss carryforwards that expire in
2025.
Included in the deferred tax assets at December 31, 2010
are $27.0 in Kansas High Performance Incentive Program
(HPIP) Credit, $12.8 in Kansas Research &
Development Credit (R&D), and $4.9 in Kansas
Business and Jobs Development Credit totaling $44.7 in Kansas
state income tax credit carryforwards. The HPIP Credit provides
a 10% investment tax credit for qualified business facilities
located in Kansas for which $3.4 expires in 2016, $14.2 expires
in 2017, $5.0 expires in 2018, and the remainder expires in
2019. The R&D Credit provides a credit for qualified
research and development expenditures conducted within Kansas.
This credit can be carried forward indefinitely. The Business
and Jobs Development Credit provides a tax credit for increased
employment in Kansas. This credit can be carried forward
indefinitely. It is managements opinion that all Kansas
state income tax credits carried forward will be utilized before
they expire.
Included in the deferred tax assets at December 31, 2010
are $10.3 in North Carolina Investing in Business Property
Credit, $5.5 in North Carolina Investment in Real Property
Credit, and $2.6 in North Carolina Creating Jobs Credit totaling
$18.4 in North Carolina state income tax credit carryforwards.
The Investing in Business Property Credit provides a 7%
investment tax credit for property located in a North Carolina
development area and the Investment in Real Property Credit
provides a 30% investment tax credit for real property located
in a North Carolina development area. The Creating Jobs
Credit provides a tax credit for increased employment in
North Carolina. These North Carolina state income tax
credits can be carried forward 20 years. It is
managements opinion that $10.2 of these North Carolina
state income tax credits will be utilized before they expire and
an $8.2 gross valuation allowance was recorded.
114
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
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 Companys
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 Companys
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 Companys current financing agreements
preclude it from paying any cash dividends on its common stock.
In June 2008, the FASB issued authoritative guidance determining
whether instruments granted in shared-based payment transactions
are participating securities. Under the FASB guidance, unvested
share-based payment awards that contain non-forfeitable rights
to dividends or dividend equivalents (whether paid or unpaid)
are participating securities and shall be included in the
computation of earnings per share pursuant to the two-class
method. The two-class method is an earnings allocation formula
that treats a participating security as having rights to
undistributed earnings that would otherwise have been available
to common shareholders. The Companys service-based
restricted stock awards contain non-forfeitable rights to
dividends and are considered participating securities. Upon
adoption of this standard, the service-based restricted stock
awards were included in the calculation of earnings per share
using the two-class method for the twelve month periods ended
December 31, 2010, December 31, 2009 and
December 31, 2008.
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
215.8
|
|
|
|
137.9
|
|
|
$
|
1.56
|
|
|
$
|
190.1
|
|
|
|
137.2
|
|
|
$
|
1.39
|
|
|
$
|
263.9
|
|
|
|
137.0
|
|
|
$
|
1.93
|
|
Income allocated to participating securities
|
|
|
3.1
|
|
|
|
2.0
|
|
|
|
|
|
|
|
1.6
|
|
|
|
1.1
|
|
|
|
|
|
|
|
1.5
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
218.9
|
|
|
|
|
|
|
|
|
|
|
$
|
191.7
|
|
|
|
|
|
|
|
|
|
|
$
|
265.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted potential common shares
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
218.9
|
|
|
|
141.0
|
|
|
$
|
1.55
|
|
|
$
|
191.7
|
|
|
|
139.8
|
|
|
$
|
1.37
|
|
|
$
|
265.4
|
|
|
|
139.2
|
|
|
$
|
1.91
|
|
The balance of outstanding common shares presented in the
consolidated statement of shareholders equity was
142.1 million, 140.7 million, and 139.9 million
at December 31, 2010, December 31, 2009 and
December 31, 2008, respectively. Included in the
outstanding common shares were 2.9 million,
3.5 million and 2.9 million of issued but unvested
shares at December 31, 2010, December 31, 2009 and
December 31, 2008, respectively, which are excluded from
the basic EPS calculation.
115
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Comprehensive
Income
Components of comprehensive income, net of tax, consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
218.9
|
|
|
$
|
191.7
|
|
|
$
|
265.4
|
|
Comprehensive Income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on interest rate swaps, net of tax(1)
|
|
|
(3.0
|
)
|
|
|
(5.7
|
)
|
|
|
(14.0
|
)
|
Pension, SERP, and Retiree Medical adjustments, net of tax(2)
|
|
|
(15.5
|
)
|
|
|
55.8
|
|
|
|
(190.8
|
)
|
Unrealized gain (loss) on foreign currency forward contracts,
net of tax(3)
|
|
|
(1.3
|
)
|
|
|
(1.0
|
)
|
|
|
(4.1
|
)
|
Reclassification of realized (gain) loss on hedging instruments
into net income, net of tax(4)
|
|
|
10.2
|
|
|
|
12.0
|
|
|
|
|
|
Unrealized gain (loss) on intercompany loan(5)
|
|
|
(2.0
|
)
|
|
|
5.2
|
|
|
|
(15.6
|
)
|
Foreign currency translation adjustments
|
|
|
(4.0
|
)
|
|
|
8.2
|
|
|
|
(27.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
$
|
203.3
|
|
|
$
|
266.2
|
|
|
$
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of $1.8, $3.5 and $8.6 tax benefit for the twelve months
ended December 31, 2010, December 31, 2009 and
December 31, 2008, respectively. |
|
(2) |
|
Net of $9.5 tax benefit for the twelve months ended
December 31, 2010, $35.1 tax expense for the twelve months
ended December 31, 2009, and $117.1 tax benefit for the
twelve months ended December 31, 2008. |
|
(3) |
|
Net of $0.5, $0.4 and $1.6 tax benefit for the twelve months
ended December 31, 2010, December 31, 2009, and
December 31, 2008, respectively. |
|
(4) |
|
Net of $5.9 and $6.8 tax effect for the twelve months
December 31, 2010, and December 31, 2009, respectively. |
|
(5) |
|
Net of $0.8 tax benefit for the twelve months ended
December 31, 2010, $2.0 tax expense for the twelve months
ended December 31, 2009, and $6.1 tax benefit for the
twelve months ended December 31, 2008, due to the
revaluation of a long-term intercompany loan, which is
denominated in a currency other than the entitys
functional currency. |
Noncontrolling
Interest
Noncontrolling interest at December 31, 2010 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
Companys Prestwick facility provides wing components for
the Hawker 800 Series manufactured by Hawker. For the twelve
months ended December 31, 2010, December 31, 2009, and
December 31, 2008, sales to Hawker were $6.7, $12.0, and
$27.7, respectively.
116
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
A former member of Holdings Board of Directors, who
resigned from such position effective October 26, 2010, was
also a member of the Board of Directors of Hawker.
Prior to his departure from the Company in December 2009, a
former executive of the Company was a member of the Board of
Directors of one of the Companys suppliers, Precision
Castparts Corp. of Portland, Oregon, a manufacturer of complex
metal components and products. For the twelve months ended
December 31, 2009 the Company purchased $48.3 of products
from this supplier.
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 $4.0, $2.8 and
$5.6 for the twelve months ended December 31, 2010,
December 31, 2009 and December 31, 2008, respectively.
Receivables due from Aviall were $1.2 as of December 31,
2010.
The Company paid $0.3, $0.2, and $0.3 to a subsidiary of Onex
for services rendered for each of the twelve month periods ended
December 31, 2010, December 31, 2009, and
December 31, 2008, respectively. 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, $13.7
and $20.3 for the twelve months ended December 31, 2010,
December 31, 2009 and December 31, 2008, respectively.
The amounts owed to Boeing and recorded as accrued liabilities
were less than $0.1 and $7.9 at December 31, 2010 and
December 31, 2009, respectively.
The spouse of one of the Companys 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
$1.3, $1.9, and $2.0 to the firm for the periods ended
December 31, 2010, December 31, 2009, and
December 31, 2008, respectively.
An executive of the Company is a member of the Board of
Directors of a Wichita, Kansas bank that provides banking
services to Spirit. In connection with the banking services
provided to Spirit, the Company pays fees consistent with
commercial terms that would be available to unrelated third
parties. Such fees are not material to Spirit.
|
|
18.
|
Commitments,
Contingencies and Guarantees
|
Litigation
From time to time we are subject to, and are presently involved
in, litigation or other legal proceedings arising in the
ordinary course of business. While the final outcome of these
matters cannot be predicted with certainty, considering, among
other things, the meritorious legal defenses available, it is
the opinion of the Company that none of these items, when
finally resolved, will have a material adverse effect on the
Companys long-term financial position or liquidity.
Consistent with the requirements of authoritative guidance on
accounting for contingencies, we had no accruals at
December 31, 2010 or December 31, 2009 for loss
contingencies. However, an unexpected adverse resolution of one
or more of these items could have a material adverse effect on
the results of operations in a particular quarter or fiscal year.
From time to time, in the ordinary course of business and like
others in the industry, we receive requests for information from
government agencies in connection with their regulatory or
investigational authority. Such requests can include subpoenas
or demand letters for documents to assist the government in
audits or investigations. We review such requests and notices
and take appropriate action. We have been subject to certain
requests for
117
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
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 have asked the Court to
reconsider its ruling but the Court has not yet ruled on that
motion. Depending on the nature of that ruling, some of the
plaintiffs could possibly pursue individual claims or, could
decide to appeal the District Courts decision to the
United States Court of Appeals for the Tenth Circuit, which
could reverse the District Courts June 30 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 Companys 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 governments 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. Attorneys 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
Companys 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.
118
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
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 Boeings position on
indemnity. Management believes the resolution of this matter
will not materially affect the Companys 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 arbitrators Supplemental Award. Boeing
appealed the District Courts decision to the
U.S. Seventh Circuit Court of Appeals, which recently
affirmed the District Courts 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
Boeings position on indemnity. Management believes the
resolution of this matter will not materially affect the
Companys 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. Spirits 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 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. Spirits lawsuit seeks damages, including
damages related to these efforts, under various theories,
including breach of contract and breach of implied warranty.
Commitments
The Company leases equipment and facilities under various
non-cancelable capital and operating leases. The capital leasing
arrangements extend through 2025. Minimum future lease payments
under these leases at December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
Present
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Value
|
|
|
Interest
|
|
|
Total
|
|
|
2011
|
|
$
|
13.4
|
|
|
$
|
1.9
|
|
|
$
|
0.5
|
|
|
$
|
2.4
|
|
2012
|
|
$
|
12.2
|
|
|
$
|
1.9
|
|
|
$
|
0.4
|
|
|
$
|
2.3
|
|
2013
|
|
$
|
11.3
|
|
|
$
|
1.7
|
|
|
$
|
0.3
|
|
|
$
|
2.0
|
|
2014
|
|
$
|
5.4
|
|
|
$
|
0.8
|
|
|
$
|
0.3
|
|
|
$
|
1.1
|
|
2015
|
|
$
|
4.2
|
|
|
$
|
0.8
|
|
|
$
|
0.3
|
|
|
$
|
1.1
|
|
2016 and thereafter
|
|
$
|
16.8
|
|
|
$
|
10.1
|
|
|
$
|
1.5
|
|
|
$
|
11.6
|
|
Spirits aggregate capital commitments totaled $219.6 and
$143.1 at December 31, 2010 and December 31, 2009,
respectively.
The Company paid $0.2 and less than $0.1 in interest expense
related to the capital leases for the periods ending
December 31, 2010 and December 31, 2009, respectively.
119
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
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
service and product warranty/extraordinary rework reserve was
$18.7 and $13.1 at December 31, 2010 and December 31,
2009, respectively.
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
December 31, 2010 and December 31, 2009, outstanding
letters of credit were $18.9 and $16.9, respectively, and
outstanding guarantees were $23.1 and $16.1, respectively.
Indemnification
The Company has entered into 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 individuals service as the Companys
agent or the agent of any of its subsidiaries to the fullest
extent legally permitted.
Bonds
Spirit utilized City of Wichita issued Industrial Revenue Bonds
(IRBs) to finance self constructed and purchased
real and personal property at the Wichita site. Tax benefits
associated with IRBs include provisions for a ten-year complete
property tax abatement and a Kansas Department of Revenue sales
tax exemption on all IRB funded purchases. Spirit and the
Predecessor purchased these IRBs so they are bondholders and
debtor / lessee for the property purchased with the
IRB proceeds.
Spirit recorded the property on its Consolidated Balance Sheet
in accordance with FASB authoritative guidance, along with a
capital lease obligation to repay the IRB proceeds. Therefore,
Spirit and the Predecessor have exercised their right to offset
the amounts invested and obligations for these bonds on a
consolidated basis. At December 31, 2010 and 2009, the
assets and liabilities associated with these IRBs were $271.2
and $263.7, respectively.
Spirit utilized $80.0 in Kansas Development Finance Authority
(KDFA) issued bonds to receive a rebate of payroll
taxes from the Kansas Department of Revenue to KDFA bondholders.
Concurrently, a Spirit subsidiary issued an intercompany note
with identical principal, terms, and conditions to the KDFA
bonds. In accordance with FASB authoritative guidance, the
principal and interest payments on these bonds offset in the
consolidated financial statements.
|
|
19.
|
Other
Income (Expense), Net
|
Other income (expense), net, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve
|
|
|
|
Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
KDFA bond
|
|
$
|
4.0
|
|
|
$
|
3.5
|
|
|
$
|
3.5
|
|
Rental and miscellaneous income
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
0.6
|
|
Foreign currency gains (losses)
|
|
|
(5.0
|
)
|
|
|
2.3
|
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(0.4
|
)
|
|
$
|
6.1
|
|
|
$
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
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 entitys functional currency.
|
|
20.
|
Significant
Concentrations of Risk
|
Economic
Dependence
The Companys largest customer (Boeing) accounted for
approximately 83%, 85%, and 85% of the revenues for the periods
ending December 31, 2010, December 31, 2009, and
December 31, 2008, respectively. Approximately 35% and 40%
of the Companys accounts receivable balance at
December 31, 2010 and December 31, 2009, respectively,
was attributable to Boeing.
The Companys second largest customer (Airbus) accounted
for approximately 11% of the revenues for each of the periods
ending December 31, 2010, December 31, 2009, and
December 31, 2008. Approximately 27% and 39% of the
Companys accounts receivable balance at December 31,
2010 and December 31, 2009, respectively, was attributable
to Airbus.
|
|
21.
|
Supplemental
Balance Sheet Information
|
Accrued expenses and other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accrued expenses
|
|
|
|
|
|
|
|
|
Accrued wages and bonuses
|
|
$
|
31.0
|
|
|
$
|
23.0
|
|
Accrued fringe benefits
|
|
|
96.6
|
|
|
|
94.1
|
|
Accrued interest
|
|
|
12.2
|
|
|
|
8.2
|
|
Workers compensation
|
|
|
6.2
|
|
|
|
5.4
|
|
Property and sales tax
|
|
|
6.4
|
|
|
|
5.8
|
|
Warranty/extraordinary rework reserve current
|
|
|
4.5
|
|
|
|
|
|
Other
|
|
|
33.8
|
|
|
|
25.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
190.7
|
|
|
$
|
161.9
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
Federal income taxes, non-current
|
|
$
|
14.7
|
|
|
$
|
24.4
|
|
Warranty/extraordinary rework reserve non-current
|
|
|
14.2
|
|
|
|
13.1
|
|
Other
|
|
|
16.9
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45.8
|
|
|
$
|
52.1
|
|
|
|
|
|
|
|
|
|
|
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 94% of the
Companys net revenues for the twelve months ended
December 31, 2010 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 Companys primary profitability measure to review a
segments operating performance is
121
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
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
R&D includes research and development efforts that benefit
the company as a whole and are not unique to a specific segment.
Unallocated cost of sales is related to the grant of shares to
employees represented by the IAM in connection with the
ratification of a new ten-year labor contract on June 25,
2010, early retirement incentives for employees represented by
the IAM who made elections to retire in 2010, and grants of
shares to employees represented by the UAW in connection with
the ratification of a new ten-year labor contract on
December 18, 2010. 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 Companys 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 Companys 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 Companys 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
Companys facilities in Tulsa and McAlester, Oklahoma,
Kinston, North Carolina, Prestwick, Scotland, Subang, Malaysia
and Kinston, North Carolina.
The Companys segments are consistent with the organization
and responsibilities of management reporting to the chief
operating decision-maker for the purpose of assessing
performance. The Companys 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 Companys 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 Companys 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.
122
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
The following table shows segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Segment Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems
|
|
$
|
2,035.1
|
|
|
$
|
2,003.6
|
|
|
$
|
1,758.4
|
|
Propulsion Systems
|
|
|
1,061.8
|
|
|
|
1,030.0
|
|
|
|
1,031.7
|
|
Wing Systems
|
|
|
1,067.4
|
|
|
|
1,024.4
|
|
|
|
955.6
|
|
All Other
|
|
|
8.1
|
|
|
|
20.5
|
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,172.4
|
|
|
$
|
4,078.5
|
|
|
$
|
3,771.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems
|
|
$
|
292.3
|
|
|
$
|
287.6
|
|
|
$
|
287.6
|
|
Propulsion Systems
|
|
|
137.5
|
|
|
|
122.6
|
|
|
|
162.2
|
|
Wing Systems
|
|
|
101.0
|
|
|
|
20.7
|
|
|
|
99.7
|
|
All Other
|
|
|
(1.8
|
)
|
|
|
(1.4
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment Operating Income
|
|
|
529.0
|
|
|
|
429.5
|
|
|
|
549.8
|
|
Unallocated corporate SG&A
|
|
|
(139.7
|
)
|
|
|
(122.7
|
)
|
|
|
(141.7
|
)
|
Unallocated research and development
|
|
|
(3.6
|
)
|
|
|
(3.5
|
)
|
|
|
(2.4
|
)
|
Unallocated cost of sales(1)
|
|
|
(28.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
357.0
|
|
|
$
|
303.3
|
|
|
$
|
405.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unallocated cost of sales for the twelve months ended
December 31, 2010 includes charges related to the grant of
shares to employees represented by the IAM in connection with
the ratification of a new ten-year labor contract on
June 25, 2010, early retirement incentives for members
represented by the IAM who made elections to retire in 2010, and
grants of shares to employees represented by the UAW in
connection with the ratification of a new ten-year labor
contract on December 18, 2010. |
Although most of the Companys revenues are obtained from
sales inside the U.S., the Company generated $498.4, $575.9, and
$465.4 in sales to international customers for the twelve months
ended December 31, 2010, December 31, 2009,
December 31, 2008, respectively, primarily to Airbus. The
following chart illustrates the split between domestic and
foreign revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
Revenue Source(1)
|
|
Net Revenues
|
|
|
Net Revenues
|
|
|
Net Revenues
|
|
|
Net Revenues
|
|
|
Net Revenues
|
|
|
Net Revenues
|
|
|
United States
|
|
$
|
3,674.0
|
|
|
|
88
|
%
|
|
$
|
3,502.6
|
|
|
|
86
|
%
|
|
$
|
3,306.4
|
|
|
|
88
|
%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
400.4
|
|
|
|
10
|
|
|
|
385.7
|
|
|
|
9
|
|
|
|
413.3
|
|
|
|
11
|
|
Other
|
|
|
98.0
|
|
|
|
2
|
|
|
|
190.2
|
|
|
|
5
|
|
|
|
52.1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
498.4
|
|
|
|
12
|
|
|
|
575.9
|
|
|
|
14
|
|
|
|
465.4
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
4,172.4
|
|
|
|
100
|
%
|
|
$
|
4,078.5
|
|
|
|
100
|
%
|
|
$
|
3,771.8
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net Revenues are attributable to countries based on destination
where goods are delivered. |
123
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Most of the Companys long-lived assets are located within
the United States. Approximately 6% of our long-lived assets
based on book value are located in the United Kingdom as part of
Spirit Europe with approximately another 4% of our total
long-lived assets located in countries outside the United States
and the United Kingdom. The following chart illustrates the
split between domestic and foreign assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
Asset Location
|
|
Long-Lived Assets
|
|
|
Long-Lived Assets
|
|
|
Long-Lived Assets
|
|
|
Long-Lived Assets
|
|
|
United States
|
|
$
|
1,320.0
|
|
|
|
90
|
%
|
|
$
|
1,144.9
|
|
|
|
90
|
%
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
87.7
|
|
|
|
6
|
|
|
|
79.0
|
|
|
|
6
|
|
Other
|
|
|
62.3
|
|
|
|
4
|
|
|
|
55.4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
150.0
|
|
|
|
10
|
|
|
|
134.4
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Lived Assets
|
|
$
|
1,470.0
|
|
|
|
100
|
%
|
|
$
|
1,279.3
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
|
|
23.
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
December 31,
|
|
September 30,
|
|
July 1,
|
|
April 1,
|
2010
|
|
2010(1)
|
|
2010(2)
|
|
2010(3)
|
|
2010
|
|
Revenues
|
|
$
|
1,071.1
|
|
|
$
|
1,002.0
|
|
|
$
|
1,056.0
|
|
|
$
|
1,043.3
|
|
Operating Income
|
|
$
|
95.9
|
|
|
$
|
82.4
|
|
|
$
|
85.7
|
|
|
$
|
93.0
|
|
Net income
|
|
$
|
62.0
|
|
|
$
|
46.4
|
|
|
$
|
55.1
|
|
|
$
|
55.5
|
|
Earnings per share, basic(7)
|
|
$
|
0.44
|
|
|
$
|
0.33
|
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
Earnings per share, diluted(7)
|
|
$
|
0.44
|
|
|
$
|
0.33
|
|
|
$
|
0.39
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
December 31,
|
|
October 1,
|
|
July 2,
|
|
April 2,
|
2009
|
|
2009(5)
|
|
2009
|
|
2009(5)
|
|
2009(6)
|
|
Revenues
|
|
$
|
1,077.7
|
|
|
$
|
1,053.8
|
|
|
$
|
1,059.6
|
|
|
$
|
887.4
|
|
Operating Income
|
|
$
|
84.9
|
|
|
$
|
131.0
|
|
|
$
|
(10.4
|
)
|
|
$
|
97.8
|
|
Net income (loss)
|
|
$
|
50.0
|
|
|
$
|
87.3
|
|
|
$
|
(8.3
|
)
|
|
$
|
62.7
|
|
Earnings per share, basic(7)
|
|
$
|
0.36
|
|
|
$
|
0.63
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.46
|
|
Earnings per share, diluted(7)
|
|
$
|
0.36
|
|
|
$
|
0.62
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.45
|
|
|
|
|
(1) |
|
Fourth quarter earnings were reduced by $3.3 related to the
award of stock to eligible union employees as part of the new
ten-year agreement with the UAW. |
|
(2) |
|
In the third quarter of 2010, cost of sales included the impact
of a $6.5 charge for the early retirement incentive included in
the ten-year agreement with the IAM. |
|
(3) |
|
Second quarter 2010 earnings included the impact of the $18.9
expense related to the award of stock to eligible union
employees as part of the new ten-year agreement with the IAM. |
|
(4) |
|
In the fourth quarter of 2009, the Company updated contract
profitability estimates resulting in unfavorable cumulative
catch-up
adjustments of $34.5 to reflect, among other things, higher than
forecasted costs on contract blocks completed in December 2009
and higher than expected costs on the Sikorsky CH-53K program. |
|
(5) |
|
The Company incurred unusual charges in the second quarter of
2009, including a $93.0 forward loss charge for the Gulfstream
G250 business jet program, the $10.9 impact of the Cessna
Citation Columbus termination, and the realization of
unfavorable cumulative
catch-up
adjustments totaling $33.0 related to post-strike production
ramp up as a result of the IAM Strike at Boeing, nutplate rework
and transition to a new enterprise resource planning (ERP)
system. |
|
(6) |
|
The post-IAM Strike impact reduced the Companys revenue by
an estimated $256.1 for the first quarter of 2009, as compared
to results consistent with pre-IAM Strike delivery levels, which
negatively impacted our income and cash flows. |
|
(7) |
|
Upon adoption of FASB authoritative guidance determining whether
instruments granted in share-based payment transactions are part
of participating securities, in the first quarter of 2009, the
service-based restricted stock awards were included in the
calculation of earnings per share using the two-class method for
the twelve-month periods ended December 31, 2010 and
December 31, 2009. |
125
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
|
|
24.
|
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). On March 29, 2010, Spirit and the
Subsidiary Guarantors (as defined below) filed Amendment
No. 2 to a registration statement on
Form S-4
(as so amended, the 2017 Registration Statement)
with respect to the 2017 Notes Exchange Offer and on
April 20, 2010, the SEC declared the 2017 Registration
Statement effective. The 2017 Notes Exchange Offer was commenced
on April 21, 2010 and was consummated on May 26, 2010.
On December 10, 2010, Spirit and the Subsidiary Guarantors
filed a registration statement on
Form S-4
(the 2020 Registration Statement) with respect to
the 2020 Notes Exchange Offer and on December 21, 2010, the
SEC declared the 2020 Registration Statement effective. The 2020
Notes Exchange Offer was commenced on December 22, 2010 and
was consummated on January 31, 2011. The 2017 Notes and the
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 Companys 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
Companys 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.
126
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Spirit
AeroSystems Holdings, Inc.
Condensed
Consolidating Statements of Operations
For the
Twelve Months Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Spirit
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net Revenues
|
|
$
|
3,741.1
|
|
|
$
|
10.3
|
|
|
$
|
511.6
|
|
|
$
|
(90.6
|
)
|
|
$
|
4,172.4
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
3,232.8
|
|
|
|
6.2
|
|
|
|
459.5
|
|
|
|
(90.6
|
)
|
|
|
3,607.9
|
|
Selling, general and administrative
|
|
|
133.2
|
|
|
|
3.1
|
|
|
|
19.7
|
|
|
|
|
|
|
|
156.0
|
|
Research and development
|
|
|
49.0
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
51.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
3,415.0
|
|
|
|
9.3
|
|
|
|
481.7
|
|
|
|
(90.6
|
)
|
|
|
3,815.4
|
|
Operating income
|
|
|
326.1
|
|
|
|
1.0
|
|
|
|
29.9
|
|
|
|
|
|
|
|
357.0
|
|
Interest expense and financing fee amortization
|
|
|
(58.3
|
)
|
|
|
|
|
|
|
(4.5
|
)
|
|
|
3.7
|
|
|
|
(59.1
|
)
|
Interest income
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
(3.7
|
)
|
|
|
0.3
|
|
Other income (expense), net
|
|
|
4.0
|
|
|
|
|
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) before income taxes and equity in net loss of
affiliates
|
|
|
275.8
|
|
|
|
1.0
|
|
|
|
21.0
|
|
|
|
|
|
|
|
297.8
|
|
Income tax benefit (provision)
|
|
|
(75.2
|
)
|
|
|
(0.4
|
)
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
(78.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net loss of affiliates
|
|
|
200.6
|
|
|
|
0.6
|
|
|
|
18.4
|
|
|
|
|
|
|
|
219.6
|
|
Equity in net income (loss) of affiliates
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
200.5
|
|
|
$
|
0.6
|
|
|
$
|
17.8
|
|
|
$
|
|
|
|
$
|
218.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Spirit
AeroSystems Holdings, Inc.
Condensed
Consolidating Statements of Operations
For the
Twelve Months Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Spirit
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net Revenues
|
|
$
|
3,609.1
|
|
|
$
|
5.1
|
|
|
$
|
519.7
|
|
|
$
|
(55.4
|
)
|
|
$
|
4,078.5
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
3,150.3
|
|
|
|
4.6
|
|
|
|
482.3
|
|
|
|
(55.8
|
)
|
|
|
3,581.4
|
|
Selling, general and administrative
|
|
|
119.1
|
|
|
|
0.9
|
|
|
|
17.1
|
|
|
|
|
|
|
|
137.1
|
|
Research and development
|
|
|
54.5
|
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
56.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
3,323.9
|
|
|
|
5.5
|
|
|
|
501.6
|
|
|
|
(55.8
|
)
|
|
|
3,775.2
|
|
Operating income (loss)
|
|
|
285.2
|
|
|
|
(0.4
|
)
|
|
|
18.1
|
|
|
|
0.4
|
|
|
|
303.3
|
|
Interest expense and financing fee amortization
|
|
|
(44.8
|
)
|
|
|
1.6
|
|
|
|
(3.5
|
)
|
|
|
3.1
|
|
|
|
(43.6
|
)
|
Interest income
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
7.0
|
|
Other income, net
|
|
|
3.5
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in net loss of affiliates
|
|
|
254.0
|
|
|
|
1.2
|
|
|
|
17.2
|
|
|
|
0.4
|
|
|
|
272.8
|
|
Income tax benefit (provision)
|
|
|
(75.9
|
)
|
|
|
(0.5
|
)
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
(80.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in net loss of affiliates
|
|
|
178.1
|
|
|
|
0.7
|
|
|
|
12.7
|
|
|
|
0.4
|
|
|
|
191.9
|
|
Equity in net income (loss) of affiliates
|
|
|
0.3
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
178.4
|
|
|
$
|
0.7
|
|
|
$
|
12.2
|
|
|
$
|
0.4
|
|
|
$
|
191.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Spirit
AeroSystems Holdings, Inc.
Condensed
Consolidating Statements of Operations
For the
Twelve Months Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Spirit
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Net Revenues
|
|
$
|
3,248.2
|
|
|
$
|
|
|
|
$
|
527.2
|
|
|
$
|
(3.6
|
)
|
|
$
|
3,771.8
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,683.5
|
|
|
|
|
|
|
|
482.8
|
|
|
|
(3.1
|
)
|
|
|
3,163.2
|
|
Selling, general and administrative
|
|
|
132.9
|
|
|
|
0.1
|
|
|
|
21.6
|
|
|
|
(0.1
|
)
|
|
|
154.5
|
|
Research and development
|
|
|
45.6
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,862.0
|
|
|
|
0.1
|
|
|
|
507.2
|
|
|
|
(3.2
|
)
|
|
|
3,366.1
|
|
Operating income (loss)
|
|
|
386.2
|
|
|
|
(0.1
|
)
|
|
|
20.0
|
|
|
|
(0.4
|
)
|
|
|
405.7
|
|
Interest expense and financing fee amortization
|
|
|
(39.0
|
)
|
|
|
|
|
|
|
(5.8
|
)
|
|
|
5.6
|
|
|
|
(39.2
|
)
|
Interest income
|
|
|
23.9
|
|
|
|
|
|
|
|
0.3
|
|
|
|
(5.6
|
)
|
|
|
18.6
|
|
Other income (expense), net
|
|
|
3.6
|
|
|
|
|
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
374.7
|
|
|
|
(0.1
|
)
|
|
|
9.7
|
|
|
|
(0.4
|
)
|
|
|
383.9
|
|
Income tax provision
|
|
|
(115.6
|
)
|
|
|
|
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
(118.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
259.1
|
|
|
$
|
(0.1
|
)
|
|
$
|
6.8
|
|
|
$
|
(0.4
|
)
|
|
$
|
265.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Spirit
AeroSystems Holdings, Inc.
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
|
|
Investment in subsidiary
|
|
|
279.9
|
|
|
|
|
|
|
|
|
|
|
|
(279.9
|
)
|
|
|
|
|
Inventory, net
|
|
|
2,368.0
|
|
|
|
15.9
|
|
|
|
124.0
|
|
|
|
|
|
|
|
2,507.9
|
|
Prepaids
|
|
|
9.1
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
9.9
|
|
Income tax receivable
|
|
|
45.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.9
|
|
Deferred tax asset-current
|
|
|
46.7
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
47.6
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,346.3
|
|
|
|
22.5
|
|
|
|
289.2
|
|
|
|
(363.3
|
)
|
|
|
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
|
|
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
|
|
Income tax payable
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
3.1
|
|
Other current liabilities
|
|
|
9.7
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Deferred tax liability non-current
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
|
|
|
|
8.1
|
|
Other liabilities
|
|
|
116.1
|
|
|
|
|
|
|
|
9.7
|
|
|
|
(80.0
|
)
|
|
|
45.8
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Spirit
AeroSystems Holdings, Inc.
Condensed
Consolidating Balance Sheet
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Spirit
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
317.1
|
|
|
$
|
|
|
|
$
|
51.9
|
|
|
$
|
|
|
|
$
|
369.0
|
|
Accounts receivable, net
|
|
|
132.5
|
|
|
|
5.2
|
|
|
|
92.5
|
|
|
|
(69.8
|
)
|
|
|
160.4
|
|
Investment in subsidiary
|
|
|
136.3
|
|
|
|
|
|
|
|
|
|
|
|
(136.3
|
)
|
|
|
|
|
Inventory, net
|
|
|
2,064.5
|
|
|
|
0.1
|
|
|
|
142.3
|
|
|
|
|
|
|
|
2,206.9
|
|
Prepaids
|
|
|
13.4
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
14.2
|
|
Income tax receivable
|
|
|
45.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.5
|
|
Deferred tax asset-current
|
|
|
46.4
|
|
|
|
|
|
|
|
9.4
|
|
|
|
|
|
|
|
55.8
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,755.7
|
|
|
|
5.3
|
|
|
|
298.0
|
|
|
|
(206.1
|
)
|
|
|
2,852.9
|
|
Property, plant and equipment, net
|
|
|
981.4
|
|
|
|
163.4
|
|
|
|
134.5
|
|
|
|
|
|
|
|
1,279.3
|
|
Pension assets
|
|
|
171.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171.2
|
|
Deferred tax asset non-current, net
|
|
|
95.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95.8
|
|
Other assets
|
|
|
235.7
|
|
|
|
80.0
|
|
|
|
25.9
|
|
|
|
(267.0
|
)
|
|
|
74.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,239.8
|
|
|
$
|
248.7
|
|
|
$
|
458.4
|
|
|
$
|
(473.1
|
)
|
|
$
|
4,473.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
360.9
|
|
|
$
|
10.0
|
|
|
$
|
140.2
|
|
|
$
|
(69.8
|
)
|
|
$
|
441.3
|
|
Accrued expenses
|
|
|
149.8
|
|
|
|
|
|
|
|
12.1
|
|
|
|
|
|
|
|
161.9
|
|
Profit sharing/deferred compensation
|
|
|
2.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
3.6
|
|
Current portion of long-term debt
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.1
|
|
Advance payments, short-term
|
|
|
237.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237.4
|
|
Deferred revenue, short-term
|
|
|
90.7
|
|
|
|
|
|
|
|
16.4
|
|
|
|
|
|
|
|
107.1
|
|
Income tax payable
|
|
|
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
3.4
|
|
Other current liabilities
|
|
|
17.4
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
867.6
|
|
|
|
10.0
|
|
|
|
174.4
|
|
|
|
(69.8
|
)
|
|
|
982.2
|
|
Long-term debt
|
|
|
860.8
|
|
|
|
80.0
|
|
|
|
130.9
|
|
|
|
(187.0
|
)
|
|
|
884.7
|
|
Advance payments, long-term
|
|
|
727.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
727.5
|
|
Pension/OPEB obligation
|
|
|
62.5
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
62.6
|
|
Deferred grant income liability
|
|
|
|
|
|
|
91.1
|
|
|
|
38.2
|
|
|
|
|
|
|
|
129.3
|
|
Deferred revenue and other deferred credits
|
|
|
46.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.0
|
|
Deferred tax liability non-current
|
|
|
|
|
|
|
|
|
|
|
15.6
|
|
|
|
|
|
|
|
15.6
|
|
Other liabilities
|
|
|
125.9
|
|
|
|
|
|
|
|
6.2
|
|
|
|
(80.0
|
)
|
|
|
52.1
|
|
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, 105,064,561 shares issued
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Common stock, Class B par value $0.01, 150,000,000 shares
authorized, 35,669,740 shares issued
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Additional paid-in capital
|
|
|
949.8
|
|
|
|
67.0
|
|
|
|
69.2
|
|
|
|
(136.2
|
)
|
|
|
949.8
|
|
Accumulated other comprehensive loss
|
|
|
(51.9
|
)
|
|
|
|
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
(59.7
|
)
|
Retained earnings
|
|
|
650.2
|
|
|
|
0.6
|
|
|
|
31.1
|
|
|
|
(0.1
|
)
|
|
|
681.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,549.5
|
|
|
|
67.6
|
|
|
|
92.5
|
|
|
|
(136.3
|
)
|
|
|
1,573.3
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,549.5
|
|
|
|
67.6
|
|
|
|
93.0
|
|
|
|
(136.3
|
)
|
|
|
1,573.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
4,239.8
|
|
|
$
|
248.7
|
|
|
$
|
458.4
|
|
|
$
|
(473.1
|
)
|
|
$
|
4,473.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Spirit
AeroSystems Holdings, Inc.
Condensed
Consolidating Statements of Cash Flows
For the
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Spirit
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
124.6
|
|
|
$
|
(8.5
|
)
|
|
$
|
9.0
|
|
|
$
|
|
|
|
$
|
125.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(136.8
|
)
|
|
|
(135.1
|
)
|
|
|
(16.2
|
)
|
|
|
|
|
|
|
(288.1
|
)
|
Proceeds from sale of assets
|
|
|
0.2
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
0.5
|
|
Investment in subsidiary
|
|
|
(143.6
|
)
|
|
|
|
|
|
|
|
|
|
|
143.6
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(280.2
|
)
|
|
|
(135.1
|
)
|
|
|
(16.7
|
)
|
|
|
143.6
|
|
|
|
(288.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
150.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150.0
|
|
Payments on revolving credit facility
|
|
|
(150.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150.0
|
)
|
Proceeds from issuance of debt
|
|
|
300.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300.0
|
|
Proceeds from governmental grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of debt
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(9.6
|
)
|
Collection on (repayment of) intercompany debt
|
|
|
(23.2
|
)
|
|
|
|
|
|
|
23.2
|
|
|
|
|
|
|
|
|
|
Proceeds from parent company contribution
|
|
|
|
|
|
|
143.6
|
|
|
|
|
|
|
|
(143.6
|
)
|
|
|
|
|
Debt issuance and financing costs
|
|
|
(18.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.0
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
254.6
|
|
|
|
143.6
|
|
|
|
22.8
|
|
|
|
(143.6
|
)
|
|
|
277.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents for the period
|
|
|
99.0
|
|
|
|
|
|
|
|
13.6
|
|
|
|
|
|
|
|
112.6
|
|
Cash and cash equivalents, beginning of period
|
|
|
317.1
|
|
|
|
|
|
|
|
51.9
|
|
|
|
|
|
|
|
369.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
416.1
|
|
|
$
|
|
|
|
$
|
65.5
|
|
|
$
|
|
|
|
$
|
481.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Spirit
AeroSystems Holdings, Inc.
Condensed
Consolidating Statements of Cash Flows
For the
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Spirit
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(12.0
|
)
|
|
$
|
4.6
|
|
|
$
|
(6.5
|
)
|
|
$
|
|
|
|
$
|
(13.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(148.1
|
)
|
|
|
(65.8
|
)
|
|
|
(14.3
|
)
|
|
|
|
|
|
|
(228.2
|
)
|
Proceeds from the sale of assets
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Long-term receivable
|
|
|
115.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115.4
|
|
Investment in subsidiary
|
|
|
(61.2
|
)
|
|
|
|
|
|
|
|
|
|
|
61.2
|
|
|
|
|
|
Other
|
|
|
4.0
|
|
|
|
|
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(89.7
|
)
|
|
|
(65.8
|
)
|
|
|
(18.1
|
)
|
|
|
61.2
|
|
|
|
(112.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
300.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300.0
|
|
Payments on revolving credit facility
|
|
|
(300.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300.0
|
)
|
Proceeds from issuance of debt
|
|
|
293.4
|
|
|
|
|
|
|
|
6.9
|
|
|
|
|
|
|
|
300.3
|
|
Proceeds from governmental grants
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
0.7
|
|
Principal payments of debt
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(7.6
|
)
|
Collection on (repayment of) intercompany debt
|
|
|
(28.7
|
)
|
|
|
|
|
|
|
28.7
|
|
|
|
|
|
|
|
|
|
Proceeds from parent company contribution
|
|
|
|
|
|
|
61.2
|
|
|
|
|
|
|
|
(61.2
|
)
|
|
|
|
|
Debt issuance and financing costs
|
|
|
(17.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
239.9
|
|
|
|
61.2
|
|
|
|
36.2
|
|
|
|
(61.2
|
)
|
|
|
276.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents for the period
|
|
|
138.2
|
|
|
|
|
|
|
|
14.3
|
|
|
|
|
|
|
|
152.5
|
|
Cash and cash equivalents, beginning of period
|
|
|
178.9
|
|
|
|
|
|
|
|
37.6
|
|
|
|
|
|
|
|
216.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
317.1
|
|
|
$
|
|
|
|
$
|
51.9
|
|
|
$
|
|
|
|
$
|
369.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133
Spirit
AeroSystems Holdings, Inc.
Notes to
the Consolidated Financial
Statements (Continued)
($,
, £, and RM in millions other than per share
amounts)
Spirit
AeroSystems Holdings, Inc.
Condensed
Consolidating Statements of Cash Flows
For the
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Spirit
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Total
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
171.3
|
|
|
$
|
0.7
|
|
|
$
|
38.7
|
|
|
$
|
|
|
|
$
|
210.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(213.2
|
)
|
|
|
(6.5
|
)
|
|
|
(16.1
|
)
|
|
|
|
|
|
|
(235.8
|
)
|
Proceeds from the sale of assets
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
Long-term receivable
|
|
|
116.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116.1
|
|
Investment in subsidiary
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
Other
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(104.7
|
)
|
|
|
(6.5
|
)
|
|
|
(14.4
|
)
|
|
|
5.8
|
|
|
|
(119.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
175.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175.0
|
|
Payments on revolving credit facility
|
|
|
(175.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(175.0
|
)
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
|
|
|
|
|
|
10.3
|
|
Proceeds from governmental grants
|
|
|
13.7
|
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
15.9
|
|
Principal payments of debt
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.9
|
)
|
Collection on (repayment of) intercompany debt
|
|
|
10.7
|
|
|
|
|
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
|
|
Proceeds from parent company contribution
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
(5.8
|
)
|
|
|
|
|
Debt issuance and financing costs
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1.7
|
|
|
|
5.8
|
|
|
|
1.8
|
|
|
|
(5.8
|
)
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(11.3
|
)
|
|
|
|
|
|
|
(11.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents for the period
|
|
|
68.3
|
|
|
|
|
|
|
|
14.8
|
|
|
|
|
|
|
|
83.1
|
|
Cash and cash equivalents, beginning of period
|
|
|
110.6
|
|
|
|
|
|
|
|
22.8
|
|
|
|
|
|
|
|
133.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
178.9
|
|
|
$
|
|
|
|
$
|
37.6
|
|
|
$
|
|
|
|
$
|
216.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
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 December 31, 2010 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
SEC 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.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as such term
is defined in
Rules 13a-15(f)
and
15d-15(f) of
the Securities Exchange Act of 1934. Internal control over
financial reporting provides reasonable assurance of the
reliability of our financial statements for external purposes in
accordance with generally accepted accounting principles in the
United States of America. Internal control involves maintaining
records that accurately represent our business transactions,
providing reasonable assurance that receipts and expenditures of
company assets are made in accordance with management
authorization, and providing reasonable assurance that
unauthorized acquisition, use or disposition of company assets
that could have a material effect on our financial statements
would be detected or prevented on a timely basis.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatement.
Also, projections of any evaluation of effectiveness to future
periods are subject to risk that controls may become inadequate
because of changes in condition, or that the degree of
compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation under the framework
in Internal Control Integrated Framework, our
management concluded that our internal control over financial
reporting was effective as of December 31, 2010. The
effectiveness of the Companys internal control over
financial reporting as of December 31, 2010, has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm as stated in their report which appears
herein.
Changes
in Internal Controls over Financial Reporting
There were no changes in our internal control over financial
reporting that occurred during the fourth quarter of 2010 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
135
PART III
|
|
Item 10.
|
Director,
Executive Officers and Corporate Governance
|
Information concerning the directors of Spirit Holdings, will be
provided in Spirit Holdings proxy statement for its 2011
annual meeting of stockholders, which will be filed with the SEC
no later than 120 days after the end of the fiscal year,
and that information is hereby incorporated by reference.
Information concerning the executive officers of Spirit is
included in Part I of this Annual Report on
Form 10-K.
Information concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934 will be provided in Spirit
Holdings proxy statement for its 2011 annual meeting of
stockholders which will be filed with the SEC no later than
120 days after the end of the fiscal year, and that
information is hereby incorporated by reference.
Information concerning Corporate Governance and the Board of
Directors of Spirit Holdings will be provided in Spirit
Holdings proxy statement for its 2011 annual meeting of
stockholders which will be filed with the SEC no later than
120 days after the end of the fiscal year, and that
information is hereby incorporated by reference.
The Company has adopted a Code of Ethics that applies to the
Companys Principal Executive Officer, Principal Financial
Officer, Principal Accounting Officer, and persons performing
similar functions. A copy of the Code of Ethics is available on
the Companys website at www.spiritaero.com under the
Investor Relations link, and any waiver from the
Code of Ethics will be timely disclosed on the Companys
website or a Current Report on
Form 8-K,
as will any amendments to the Code of Ethics.
|
|
Item 11.
|
Executive
Compensation
|
Information concerning the compensation of directors and
executive officers of Spirit Holdings, will be provided in
Spirit Holdings proxy statement for its 2011 annual
meeting of stockholders, which will be filed with the SEC no
later than 120 days after the end of the fiscal year, and
that information is hereby incorporated by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information concerning the ownership of Spirit Holdings
equity securities by certain beneficial owners and by management
will be provided in Spirit Holdings proxy statement for
its 2011 annual meeting of stockholders, which will be filed
with the SEC no later than 120 days after the end of the
fiscal year, and that information is hereby incorporated by
reference.
Equity Compensation Plan Information is included in Part II
of this Annual Report.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information concerning certain relationships and related
transactions and director independence will be provided in
Spirit Holdings proxy statement for its 2011 annual
meeting of stockholders, which will be filed with the SEC no
later than 120 days after the end of the fiscal year, and
that information is hereby incorporated by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Information concerning principal accounting fees and services
will be provided in Spirit Holdings proxy statement for
its 2011 annual meeting of stockholders, which will be filed
with the SEC no later than 120 days after the end of the
fiscal year, and that information is hereby incorporated by
reference.
136
Part IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
Article I. Exhibit
|
|
|
|
Reference to the
|
Number
|
|
Section 1.01 Exhibit
|
|
Following Documents
|
|
|
2
|
.1
|
|
Asset Purchase Agreement, dated as of February 22, 2005, between
Spirit AeroSystems, Inc. (f/k/a Mid-Western Aircraft Systems,
Inc.) and The Boeing Company
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 2.1
|
|
2
|
.2
|
|
First Amendment to Asset Purchase Agreement, dated June 15,
2005, between Spirit AeroSystems, Inc. (f/k/a Mid-Western
Aircraft Systems, Inc.) and The Boeing Company
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 2.2
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Spirit
AeroSystems Holdings, Inc.
|
|
Annual Report on
Form 10-K
(File
No. 001-33160),
filed February 20, 2009, Exhibit 3.1
|
|
3
|
.2
|
|
Third Amended and Restated By Laws of Spirit AeroSystems
Holdings, Inc.
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed May 3, 2010, Exhibit 3.1
|
|
4
|
.1
|
|
Form of Class A Common Stock Certificate
|
|
Amendment No. 5 to Registration Statement on
Form S-1/A
(File
No. 333-135486),
filed November 17, 2006, Exhibit 4.1
|
|
4
|
.2
|
|
Form of Class B Common Stock Certificate
|
|
Amendment No. 5 to Registration Statement on
Form S-1/A
(File
No. 333-135486),
filed November 17, 2006, Exhibit 4.2
|
|
4
|
.3
|
|
Investor Stockholders Agreement, dated June 16, 2005, among
Spirit AeroSystems Holdings, Inc. (f/k/a Mid-Western Aircraft
Systems, Inc.), Onex Partners LP and the stockholders listed on
the signature pages thereto
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 4.3
|
|
4
|
.4
|
|
Registration Agreement, dated June 16, 2005, among Spirit
AeroSystems Holdings, Inc. (f/k/a Mid-Western Aircraft Systems,
Inc.) and the persons listed on Schedule A thereto
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 4.4
|
|
4
|
.5
|
|
Indenture dated as of September 30, 2009, governing the
71/2% Senior
Notes due 2017, by and among Spirit AeroSystems, Inc., the
guarantors identified therein and The Bank of New York Mellon
Trust Company, N.A.
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed October 1, 2009, Exhibit 4.1
|
|
4
|
.6
|
|
Form of
71/2% Senior
Note due 2017
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed October 1, 2009, included as Exhibit A to
Exhibit 4.1
|
|
4
|
.7
|
|
Registration Rights Agreement, dated as of September 30, 2009,
among Spirit AeroSystems, Inc., the guarantors identified
therein, Banc of America Securities LLC and the other initial
purchasers of the Notes named therein
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed October 1, 2009, Exhibit 4.3
|
137
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
Article I. Exhibit
|
|
|
|
Reference to the
|
Number
|
|
Section 1.01 Exhibit
|
|
Following Documents
|
|
|
4
|
.8
|
|
Indenture dated as of November 18, 2010, governing the
63/4% Senior
Notes due 2020, by and among Spirit AeroSystems, Inc., the
guarantors identified therein and The Bank of New York Mellon
Trust Company, N.A.
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed November 18, 2010, Exhibit 4.1
|
|
4
|
.9
|
|
Form of
63/4% Senior
Note due 2020
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed November 18, 2010, included as Exhibit A to
Exhibit 4.2
|
|
4
|
.10
|
|
Registration Rights Agreement, dated as of November 18, 2010,
among Spirit AeroSystems, Inc., the guarantors identified
therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated
on behalf of itself and as representative of the several initial
purchasers of the notes named therein
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed November 18, 2010, Exhibit 4.3
|
|
4
|
.11
|
|
Supplemental Indenture, dated as of August 11, 2010
|
|
Quarterly Report on
Form 10-Q
(File
No. 001-33160),
filed November 5, 2010, Exhibit 4.1
|
|
10
|
.1
|
|
Employment Agreement, dated June 16, 2005, between Jeffrey L.
Turner and Spirit AeroSystems, Inc. (f/k/a Mid-Western Aircraft
Systems, Inc.)
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.1
|
|
10
|
.2
|
|
Amendment to Employment Agreement between Spirit AeroSystems,
Inc. and Jeffrey L. Turner, dated December 31, 2008
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed January 6, 2009, Exhibit 10.1.1
|
|
10
|
.3
|
|
Employment Agreement, dated September 13, 2005, between
Spirit AeroSystems, Inc. and H. David Walker
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.3
|
|
10
|
.4
|
|
Employment Agreement, dated December 28, 2005, between
Spirit AeroSystems, Inc. and John Lewelling
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.4
|
|
10
|
.5
|
|
Employment Agreement, dated March 20, 2006, between Spirit
AeroSystems (Europe) Limited and Neil McManus
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.6
|
|
10
|
.6
|
|
Employment Agreement between Spirit AeroSystems, Inc. and Philip
D. Anderson, dated February 12, 2010
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed February 17, 2010, Exhibit 10.1
|
|
10
|
.7
|
|
Spirit AeroSystems Holdings, Inc. Amended and Restated Executive
Incentive Plan
|
|
Quarterly Report on
Form 10-Q
(File
No. 001-33160),
filed October 31, 2008, Exhibit 10.7
|
|
10
|
.8
|
|
Spirit AeroSystems Holdings, Inc. (f/k/a Mid-Western Aircraft
Systems, Inc.) Supplemental Executive Retirement Plan
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.8
|
|
10
|
.9
|
|
Amendment to Spirit AeroSystems Holdings, Inc. Supplemental
Executive Retirement Plan, dated July 30, 2007
|
|
Registration Statement on
Form S-8
(File
No. 333-146112),
filed September 17, 2007, Exhibit 10.2
|
|
10
|
.10
|
|
Spirit AeroSystems Holdings, Inc. Amended and Restated
Short-Term Incentive Plan
|
|
Registration Statement on
Form S-8
(File
No. 333-150401),
filed April 23, 2008, Exhibit 99.1
|
138
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
Article I. Exhibit
|
|
|
|
Reference to the
|
Number
|
|
Section 1.01 Exhibit
|
|
Following Documents
|
|
|
10
|
.11
|
|
Spirit AeroSystems Holdings, Inc. Second Amended and Restated
Long-Term Incentive Plan
|
|
Registration Statement on
Form S-8
(File
No. 333-150401),
filed April 23, 2008, Exhibit 99.2
|
|
10
|
.12
|
|
Spirit AeroSystems Holdings, Inc. Cash Incentive Plan
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.11
|
|
10
|
.13
|
|
Spirit AeroSystems Holdings, Inc. Union Equity Participation
Program
|
|
Amendment No. 2 to Registration Statement on
Form S-1/A
(File
No. 333-135486),
filed October 30, 2006, Exhibit 10.12
|
|
10
|
.14
|
|
Spirit AeroSystems Holdings, Inc. Second Amended and Restated
Director Stock Plan
|
|
Registration Statement on
Form S-8
(File
No. 333-150402),
filed April 23, 2008, Exhibit 10.1
|
|
10
|
.15
|
|
Form of Indemnification Agreement
|
|
Amendment No. 1 to Registration Statement on
Form S-1/A
(File
No. 333-135486),
filed August 29, 2006, Exhibit 10.14
|
|
10
|
.16
|
|
Security Agreement, dated as of June 16, 2005, made by and among
Spirit AeroSystems, Inc. (f/k/a Mid-Western Aircraft Systems,
Inc.), Spirit AeroSystems Holdings, Inc. (f/k/a Mid-Western
Aircraft Systems Holdings, Inc.), Onex Wind Finance LP, 3101447
Nova Scotia Company, Onex Wind Finance LLC and Citicorp
North America, Inc., as collateral agent.
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.20
|
|
10
|
.17
|
|
Security Agreement, dated as of June 16, 2005, made by and among
Spirit AeroSystems, Inc. (f/k/a Mid-Western Aircraft Systems,
Inc.), Spirit AeroSystems Holdings, Inc. (f/k/a Mid-Western
Aircraft Systems Holdings, Inc.), Spirit AeroSystems Finance,
Inc. (f/k/a Mid-Western Aircraft Finance, Inc.), Onex Wind
Finance LP, 3101447 Nova Scotia Company, Onex Wind Finance LLC
and The Boeing Company, as agent.
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.22
|
|
10
|
.18
|
|
Special Business Provisions (Sustaining), dated as of June 16,
2005, between The Boeing Company and Spirit AeroSystems, Inc.
(f/k/a Mid-Western Aircraft Systems, Inc.)
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.23
|
|
10
|
.19
|
|
General Terms Agreement (Sustaining and others), dated as of
June 16, 2005, between The Boeing Company and Spirit
AeroSystems, Inc. (f/k/a Mid-Western Aircraft Systems, Inc.)
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.24
|
|
10
|
.20
|
|
Hardware Material Services General Terms Agreement, dated as of
June 16, 2005, between The Boeing Company and Spirit
AeroSystems, Inc. (f/k/a Mid-Western Aircraft Systems, Inc.)
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.25
|
139
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
Article I. Exhibit
|
|
|
|
Reference to the
|
Number
|
|
Section 1.01 Exhibit
|
|
Following Documents
|
|
|
10
|
.21
|
|
Ancillary Know-How Supplemental License Agreement, dated as of
June 16, 2005, between The Boeing Company and Spirit
AeroSystems, Inc. (f/k/a Mid-Western Aircraft Systems, Inc.)
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.26
|
|
10
|
.22
|
|
Sublease Agreement, dated as of June 16, 2005, among The Boeing
Company, Boeing IRB Asset Trust and Spirit AeroSystems, Inc.
(f/k/a Mid-Western Aircraft Systems, Inc.)
|
|
Registration Statement on
Form S-1
(File
No. 333-135486),
filed June 30, 2006, Exhibit 10.27
|
|
10
|
.23
|
|
Second Amended and Restated Credit Agreement, dated as of
November 27, 2006 by and among Spirit AeroSystems, Inc. (f/k/a
Mid-Western Aircraft Systems, Inc.), the guarantor party
thereto, Citicorp North America, Inc. and the other lenders
party thereto
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed December 1, 2006, Exhibit 10.2
|
|
10
|
.24
|
|
Amendment No. 1 to Second Amended and Restated Credit Agreement,
dated as of March 18, 2008
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed March 19, 2008, Exhibit 10.1
|
|
10
|
.25
|
|
Inducement Agreement between Spirit AeroSystems, Inc. and The
North Carolina Global TransPark Authority, dated May 14, 2008
|
|
Quarterly Report on
Form 10-Q
(File
No. 001-33160),
filed August 1, 2008, Exhibit 10.2
|
|
10
|
.26
|
|
Lease Agreement between Spirit AeroSystems, Inc. and The North
Carolina Global TransPark Authority, dated May 14, 2008.
|
|
Quarterly Report on
Form 10-Q
(File
No. 001-33160),
filed August 1, 2008, Exhibit 10.3
|
|
10
|
.27
|
|
Construction Agency Agreement between Spirit AeroSystems, Inc.
and The North Carolina Global TransPark Authority, dated
May 14, 2008
|
|
Quarterly Report on
Form 10-Q
(File
No. 001-33160),
filed August 1, 2008, Exhibit 10.4
|
|
10
|
.28
|
|
Amendment No. 2, dated June 8, 2009, to Second Amended and
Restated Credit Agreement
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed June 10, 2009, Exhibit 10.1
|
|
10
|
.29
|
|
Amendment No. 3, dated October 15, 2010, to Second Amended and
Restated Credit Agreement
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed October 20, 2010, Exhibit 10.1
|
|
10
|
.30
|
|
Amendment to the Spirit AeroSystems Holdings, Inc. Amended and
Restated Executive Incentive Plan.
|
|
Quarterly Report on
Form 10-Q
(File
No. 001-33160),
filed May 6, 2010, Exhibit 10.1
|
|
10
|
.31
|
|
Employment Agreement between Spirit AeroSystems, Inc. and
Michelle Russell, effective as of June 1, 2010.
|
|
Quarterly Report on
Form 10-Q
(File
No. 001-33160),
filed August 6, 2010, Exhibit 10.1
|
|
10
|
.32
|
|
Amendment No. 3 dated as of October 15, 2010, to the Second
Amended and Restated Credit Agreement, dated as of November 27,
2006, among Spirit AeroSystems, Inc. (f/k/a Mid-Western Aircraft
Systems, Inc.), Spirit AeroSystems Holdings, Inc. (f/k/a
Mid-Western Aircraft Systems Holdings, Inc.), the guarantors
party thereto; Bank of America, N.A. and the other lenders party
thereto.
|
|
Current Report on
Form 8-K
(File
No. 001-33160),
filed October 20, 2010, Exhibit 10.1
|
140
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
Article I. Exhibit
|
|
|
|
Reference to the
|
Number
|
|
Section 1.01 Exhibit
|
|
Following Documents
|
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges
|
|
*
|
|
14
|
.1
|
|
Code of Ethics
|
|
Annual Report on
Form 10-K
(File
No. 001-33160),
filed March 5, 2007, Exhibit 14.1
|
|
|
|
|
(i) Spirit Code of Conduct
|
|
|
|
|
|
|
(ii) Spirit Finance Code of Professional Conduct
|
|
|
|
21
|
.1
|
|
Subsidiaries of Spirit AeroSystems Holdings, Inc.
|
|
*
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
*
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Section 302
of Sarbanes-Oxley Act of 2002.
|
|
*
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Section 302
of Sarbanes-Oxley Act of 2002.
|
|
*
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002.
|
|
**
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002.
|
|
**
|
|
101
|
.INS@
|
|
XBRL Instance Document
|
|
**
|
|
101
|
.SCH@
|
|
XBRL Taxonomy Extension Schema Document.
|
|
**
|
|
101
|
.CAL@
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
**
|
|
101
|
.DEF@
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
**
|
|
101
|
.LAB@
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
**
|
|
101
|
.PRE@
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
**
|
|
|
|
|
|
Indicates management contract or compensation plan or arrangement |
|
* |
|
Filed herewith |
|
** |
|
Furnished herewith |
141
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Wichita, State of
Kansas on February 22, 2011.
SPIRIT AEROSYSTEMS HOLDINGS, INC.
|
|
|
|
By:
|
/s/ Philip
D. Anderson
|
Philip D. Anderson
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed by the following persons in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Jeffrey
L. Turner
Jeffrey
L. Turner
|
|
Director, President and Chief Executive Officer (Principal
Executive Officer)
|
|
February 22, 2011
|
/s/ Philip
D. Anderson
Philip
D. Anderson
|
|
Senior Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
February 22, 2011
|
/s/ James
Steven Sharp
James
Steven Sharp
|
|
Corporate Controller and Treasurer (Principal Accounting Officer)
|
|
February 22, 2011
|
/s/ Ivor
Evans
Ivor
Evans
|
|
Director
|
|
February 22, 2011
|
/s/ Paul
Fulchino
Paul
Fulchino
|
|
Director
|
|
February 22, 2011
|
/s/ Ronald
Kadish
Ronald
Kadish
|
|
Director
|
|
February 22, 2011
|
/s/ Francis
Raborn
Francis
Raborn
|
|
Director
|
|
February 22, 2011
|
/s/ Tawfiq
Popatia
Tawfiq
Popatia
|
|
Director
|
|
February 22, 2011
|
/s/ Charles
Chadwell
Charles
Chadwell
|
|
Director
|
|
February 22, 2011
|
/s/ Richard
Gephardt
Richard
Gephardt
|
|
Director
|
|
February 22, 2011
|
/s/ Robert
Johnson
Robert
Johnson
|
|
Director, Chairman of the Board
|
|
February 22, 2011
|
/s/ James
Welch
James
Welch
|
|
Director
|
|
February 22, 2011
|
142
SCHEDULE II
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts, Warranties and
Extraordinary Rework, and Deferred Tax Asset Valuation
(Deducted from assets to which they apply)
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance, January 1
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
1.3
|
|
Charges to costs and expenses
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Write-offs, net of recoveries
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
Exchange rate
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranties and Extraordinary Rework
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance, January 1
|
|
$
|
13.1
|
|
|
$
|
6.5
|
|
|
$
|
9.9
|
|
Charges to costs and expenses
|
|
|
7.0
|
|
|
|
7.0
|
|
|
|
0.4
|
|
Write-offs, net of recoveries
|
|
|
(1.3
|
)
|
|
|
(0.7
|
)
|
|
|
(2.9
|
)
|
Exchange rate
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
18.7
|
|
|
$
|
13.1
|
|
|
$
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Asset Valuation Allowance
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance, January 1
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Income Tax credits
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
Decreases
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
5.3
|
|
|
$
|
|
|
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$
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II-1