UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
July 2, 2015
Or
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o
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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
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 or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3801 South Oliver
Wichita, Kansas 67210
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
(316) 526-9000
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
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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
x
No
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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.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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As of July 24, 2015, the registrant had outstanding
141,291,919
shares of class A common stock, $0.01 par value per share, and
121
shares of class B common stock, $0.01 par value per share.
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
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For the Three
Months Ended
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For the Six
Months Ended
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July 2,
2015
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July 3,
2014
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July 2,
2015
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July 3,
2014
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($ in millions, except per share data)
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Net revenues
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$
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1,698.7
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$
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1,803.3
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$
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3,440.9
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$
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3,531.8
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Operating costs and expenses
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Cost of sales
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1,407.9
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1,525.9
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2,856.2
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2,993.2
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Selling, general and administrative
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53.8
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54.4
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105.4
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114.9
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Research and development
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6.7
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6.8
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13.7
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13.1
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Total operating costs and expenses
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1,468.4
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1,587.1
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2,975.3
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3,121.2
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Operating income
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230.3
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216.2
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465.6
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410.6
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Interest expense and financing fee amortization
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(12.1
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(20.8
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(30.0
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(56.2
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)
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Other income, net
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8.1
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5.9
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1.7
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7.2
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Income before income taxes and equity in net income of affiliate
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226.3
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201.3
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437.3
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361.6
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Income tax provision
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(71.7
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)
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(58.1
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(101.1
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)
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(65.0
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)
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Income before equity in net income of affiliate
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154.6
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143.2
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336.2
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296.6
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Equity in net income of affiliate
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0.3
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0.2
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0.6
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0.4
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Net income
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$
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154.9
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$
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143.4
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$
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336.8
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$
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297.0
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Earnings per share
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Basic
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$
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1.11
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$
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1.01
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$
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2.42
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$
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2.09
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Diluted
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$
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1.11
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$
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1.01
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$
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2.41
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$
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2.07
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See notes to condensed consolidated financial statements (unaudited)
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
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For the Three
Months Ended
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For the Six
Months Ended
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July 2,
2015
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July 3,
2014
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July 2,
2015
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July 3,
2014
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($ in millions)
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Net income
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$
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154.9
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$
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143.4
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$
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336.8
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$
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297.0
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Changes in other comprehensive income, net of tax:
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Settlement of swap, net of tax effect of zero for each of the three and six months ended, respectively
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—
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—
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1.1
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—
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Pension, SERP, and Retiree medical adjustments, net of tax effect of zero for each of the three and six months ended, respectively
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(1.9
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—
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(1.9
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—
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Unrealized foreign exchange gain on intercompany loan, net of tax effect of ($0.6) and $0.5 for the three months ended and zero and $0.4 for the six months ended, respectively
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2.5
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1.7
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0.1
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1.5
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Foreign currency translation adjustments
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13.8
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8.3
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1.1
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8.7
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Total other comprehensive income
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14.4
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10.0
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0.4
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10.2
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Total comprehensive income
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$
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169.3
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$
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153.4
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$
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337.2
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$
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307.2
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See notes to condensed consolidated financial statements (unaudited)
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
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July 2,
2015
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December 31,
2014
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($ in millions)
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Current assets
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Cash and cash equivalents
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$
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958.7
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$
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377.9
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Accounts receivable, net
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563.2
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605.6
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Inventory, net
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1,757.8
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1,753.0
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Deferred tax asset - current
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33.7
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53.2
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Other current assets
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94.9
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262.4
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Total current assets
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3,408.3
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3,052.1
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Property, plant and equipment, net
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1,827.1
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1,783.6
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Pension assets
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216.9
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203.4
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Other assets
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124.8
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123.6
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Total assets
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$
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5,577.1
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$
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5,162.7
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Current liabilities
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Accounts payable
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$
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677.0
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$
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611.2
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Accrued expenses
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256.8
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329.1
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Profit sharing
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41.7
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111.8
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Current portion of long-term debt
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40.5
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9.4
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Advance payments, short-term
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155.0
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118.6
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Deferred revenue, short-term
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115.6
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23.4
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Deferred grant income liability - current
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10.9
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10.2
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Other current liabilities
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48.3
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45.1
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Total current liabilities
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1,345.8
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1,258.8
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Long-term debt
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1,112.6
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1,144.1
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Advance payments, long-term
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600.8
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680.4
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Pension/OPEB obligation
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75.3
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73.0
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Deferred grant income liability - non-current
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90.5
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96.1
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Deferred revenue and other deferred credits
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119.8
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27.5
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Other liabilities
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271.3
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260.8
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Equity
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Preferred stock, par value $0.01, 10,000,000 shares authorized, no shares issued
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—
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—
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Common stock, Class A par value $0.01, 200,000,000 shares authorized, 141,242,569 and 141,084,378 shares issued, respectively
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1.4
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1.4
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Common stock, Class B par value $0.01, 150,000,000 shares authorized, 121 and 4,745 shares issued, respectively
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—
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—
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Additional paid-in capital
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1,037.4
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1,035.6
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Accumulated other comprehensive loss
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(153.4
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(153.8
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Retained earnings
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1,204.3
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867.5
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Treasury stock, at cost (4,000,000 shares each period, respectively)
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(129.2
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(129.2
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Total shareholders’ equity
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1,960.5
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1,621.5
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Noncontrolling interest
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0.5
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0.5
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Total equity
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1,961.0
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1,622.0
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Total liabilities and equity
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$
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5,577.1
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$
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5,162.7
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See notes to condensed consolidated financial statements (unaudited)
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
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For the Six
Months Ended
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July 2,
2015
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July 3,
2014
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($ in millions)
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Operating activities
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Net income
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$
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336.8
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$
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297.0
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Adjustments to reconcile net income to net cash provided by operating activities
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Depreciation expense
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88.8
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83.5
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Amortization expense
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0.6
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5.7
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Amortization of deferred financing fees
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5.1
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18.7
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Accretion of customer supply agreement
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1.1
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0.5
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Employee stock compensation expense
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11.9
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8.0
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Excess tax benefit of share-based payment arrangements
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(10.1
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(2.3
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)
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Loss (gain) from hedge contracts
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1.6
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(1.3
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)
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Loss (gain) from foreign currency transactions
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2.7
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(5.7
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)
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Loss on disposition of assets
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2.2
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—
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Deferred taxes
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4.4
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1.9
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Pension and other post retirement benefits, net
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(13.1
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)
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(12.8
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Grant income
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(4.8
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(3.9
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Equity in net income of affiliate
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(0.6
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(0.4
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Changes in assets and liabilities
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Accounts receivable
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40.1
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(172.4
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Inventory, net
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(1.3
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)
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(73.6
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)
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Accounts payable and accrued liabilities
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(12.0
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)
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(53.7
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)
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Profit sharing/deferred compensation
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(70.0
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)
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11.9
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Advance payments
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(43.2
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)
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(40.4
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)
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Income taxes receivable/payable
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181.5
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121.8
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Deferred revenue and other deferred credits
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185.7
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6.3
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Other
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21.6
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20.7
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Net cash provided by operating activities
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729.0
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209.5
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Investing activities
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Purchase of property, plant and equipment
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(115.4
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)
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(89.6
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)
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Proceeds from sale of assets
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—
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0.4
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Net cash used in investing activities
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(115.4
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)
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(89.2
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)
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Financing activities
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Proceeds from issuance of debt
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535.0
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—
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Proceeds from issuance of bonds
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—
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300.0
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Principal payments of debt
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(17.4
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)
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(11.9
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Payments on term loan
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(534.9
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)
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—
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Payments on bonds
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—
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(300.0
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)
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Taxes paid related to net share settlement awards
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(20.2
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—
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Excess tax benefit of share-based payment arrangements
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10.1
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2.3
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Debt issuance and financing costs
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(4.7
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(20.8
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Change in restricted cash
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—
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(129.2
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)
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Net cash used in financing activities
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(32.1
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)
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(159.6
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)
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Effect of exchange rate changes on cash and cash equivalents
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(0.7
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)
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0.2
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Net increase (decrease) in cash and cash equivalents for the period
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580.8
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(39.1
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)
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Cash and cash equivalents, beginning of period
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377.9
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420.7
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Cash and cash equivalents, end of period
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$
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958.7
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$
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381.6
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See notes to condensed consolidated financial statements (unaudited)
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
1. Organization and Basis of Interim Presentation
Spirit AeroSystems Holdings, Inc. ("Holdings" or the "Company") was incorporated in the state of Delaware on February 7, 2005, and commenced operations on June 17, 2005 through the acquisition of Boeing's operations in Wichita, Kansas; Tulsa, Oklahoma; and McAlester, Oklahoma (the "Boeing Acquisition") by an investor group led by Onex Partners LP and Onex Corporation (together with its affiliates, "Onex"). Holdings provides manufacturing and design expertise in a wide range of fuselage, propulsion and wing products and services for aircraft original equipment manufacturers ("OEM") and operators through its subsidiary, Spirit AeroSystems, Inc. ("Spirit"). The Company has its headquarters in Wichita, Kansas, with manufacturing facilities in Tulsa and McAlester, Oklahoma; Prestwick, Scotland; Wichita, Kansas; Kinston, North Carolina and Subang, Malaysia. The Company has assembly facilities in Saint-Nazaire, France, and Chanute, Kansas.
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 a joint venture, Taikoo Spirit AeroSystems Composite Co. Ltd. ("TSACCL"), of which Spirit's ownership interest is
31.5%
. TSACCL was formed to develop and implement a state of the art composite and metal bond component repair station in the Asia-Pacific region.
In August 2014, Onex sold its remaining investment in the Company in a secondary offering of the Company's class A common stock.
In December 2014, Spirit divested its G280 and G650 programs, consisting of the design, manufacture and support of structural components for the Gulfstream G280 and G650 aircraft in Spirit’s facilities in Tulsa, Oklahoma, to Triumph Aerostructures - Tulsa, LLC, a wholly-owned subsidiary of Triumph Group Inc. ("Triumph").
The accompanying unaudited interim condensed consolidated financial statements include the Company’s financial statements and the financial statements of its majority-owned or controlled subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the instructions to Form 10-Q and Article 10 of Regulation S-X. The Company's fiscal quarters are 13 weeks in length. Because the Company's fiscal year ends on December 31, the number of days in the Company's first and fourth quarters varies slightly from year to year. The year-end condensed balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. The Company's investment in TSACCL, in which the Company does not have a controlling interest, is accounted for under the equity method. KIESC is fully consolidated as the Company owns
77.8%
of the entity’s equity. All intercompany balances and transactions have been eliminated in consolidation. The Company’s U.K. subsidiary uses local currency, the British pound, as its functional currency; the Malaysian subsidiary uses the British pound and the Singapore subsidiary uses the Singapore dollar. All other foreign subsidiaries and branches use the U.S. dollar as their functional currency.
As part of the monthly consolidation process, the Company's international entities that have functional currencies other than the U.S. dollar are translated to U.S. dollars using the end-of-month translation rate for balance sheet accounts and average period currency translation rates for revenue and income accounts.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations for the interim periods. The results of operations for the six months ended July 2, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. Certain reclassifications have been made to the prior year financial statements and notes to conform to the 2015 presentation.
In connection with the preparation of the condensed consolidated financial statements, the Company evaluated subsequent events through the date the financial statements were issued. The interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company's 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 13, 2015 and subsequently amended on Form 10-K/A filed with the SEC on March 6, 2015 (the "2014 Form 10-K").
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
2. New Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU ") No. 2015-03,
Interest
-
Imputation of Interest,
(FASB ASU 2015-03)
which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance of debt issuance costs are not affected by the amendments in this update. FASB ASU 2015-03 is effective for annual and interim periods beginning after December 15, 2015 and requires the Company to apply the new guidance on a retrospective basis upon adoption. The adoption of FASB ASU 2015-03 is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02,
Consolidation: Amendments to the Consolidation Analysis
(FASB ASU 2015-02). FASB ASU 2015-02 amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. FASB ASU 2015-02 is effective for the annual period ending after December 15, 2015, and for annual periods and interim periods thereafter. The Company has elected, as permitted by the standard, to adopt FASB ASU 2015-02 early, to be effective for the second quarter ended July 2, 2015. The adoption of FASB ASU 2015-02 did not have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which supersedes the revenue recognition requirements in ASC 605,
Revenue Recognition
(FASB ASU 2014-09). This update is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. FASB ASU 2014-09 is effective in annual periods beginning after December 15, 2016 and for interim and annual reporting periods thereafter. Early application is not permitted for public entities. In July 2015, the FASB affirmed its proposal to defer the effective date of the ASU 2014-09 for all entities by one year. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, with an option that would permit companies to adopt the standard as early as the original effective date. Early adoption prior to the original effective date is not permitted. The Company is currently evaluating the new guidance to determine the impact it may have to its consolidated financial statements.
3. Changes in Estimates
The Company has a Company-wide quarterly Estimate at Completion (EAC) process in which management assesses the progress and performance of the Company's contracts. This process requires management to review each program’s progress towards completion by evaluating the program schedule, changes to identified risks and opportunities, changes to estimated contract revenues and estimated contract costs over the current contract block, and any outstanding contract matters. Risks and opportunities include management's judgment about the cost associated with a program’s ability to achieve the schedule, technical requirements (e.g., a newly-developed product versus a mature product), and any other contract requirements. The majority of the Company's fixed priced contracts are life of aircraft program contracts. Due to the span of years it may take to complete a contract block and the scope and nature of the work required to be performed on those contracts, the estimation of total revenue and costs at completion is complicated and subject to many variables and, accordingly, is subject to change. When adjustments in estimated total contract block revenue or estimated total cost are required, any changes from prior estimates for delivered units are recognized in the current period as a cumulative catch-up adjustment for the inception-to-date effect of such changes. Cumulative catch-up adjustments are driven by several factors including improved production efficiencies, assumed rate of production, the rate of overhead absorption, changes to scope of work and contract modifications. When estimates of total costs to be incurred on a contract block exceed estimates of total revenue to be earned, a provision for the entire loss on the contract block is recorded in the period in which the loss is determined. Changes in estimates are summarized below:
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
Changes in Estimates
|
July 2, 2015
|
July 3, 2014
|
|
July 2, 2015
|
July 3, 2014
|
Favorable (Unfavorable) Cumulative Catch-up Adjustment by Segment
|
|
|
|
|
|
Fuselage
|
$
|
10.8
|
|
$
|
2.7
|
|
|
$
|
10.3
|
|
$
|
8.6
|
|
Propulsion
|
6.6
|
|
5.0
|
|
|
14.4
|
|
8.3
|
|
Wing
|
(0.8
|
)
|
11.7
|
|
|
(0.6
|
)
|
13.3
|
|
Total Favorable Cumulative Catch-up Adjustment
|
$
|
16.6
|
|
$
|
19.4
|
|
|
$
|
24.1
|
|
$
|
30.2
|
|
|
|
|
|
|
|
Changes in Estimates on Loss Programs and (Forward Loss)
|
|
|
|
|
|
Fuselage
|
|
|
|
|
|
Boeing - All other platforms
|
$
|
3.5
|
|
$
|
—
|
|
|
$
|
6.4
|
|
$
|
—
|
|
Other Platforms
|
—
|
|
—
|
|
|
—
|
|
(0.9
|
)
|
Total Fuselage Change in Estimate on Loss Programs and (Forward Loss)
|
$
|
3.5
|
|
$
|
—
|
|
|
$
|
6.4
|
|
$
|
(0.9
|
)
|
Propulsion
|
|
|
|
|
|
Boeing - All other platforms
|
$
|
(1.3
|
)
|
$
|
—
|
|
|
$
|
(1.3
|
)
|
$
|
—
|
|
Total Propulsion Forward Loss
|
$
|
(1.3
|
)
|
$
|
—
|
|
|
$
|
(1.3
|
)
|
$
|
—
|
|
Wing
|
|
|
|
|
|
Other Platforms
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
(0.3
|
)
|
Total Wing Forward Loss
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
(0.3
|
)
|
Total Change in Estimate on Loss Programs and (Forward Loss), net
|
$
|
2.2
|
|
$
|
—
|
|
|
$
|
5.1
|
|
$
|
(1.2
|
)
|
|
|
|
|
|
|
Total Change in Estimate
|
$
|
18.8
|
|
$
|
19.4
|
|
|
$
|
29.2
|
|
$
|
29.0
|
|
EPS Impact (diluted per share based upon statutory rates)
|
$
|
0.08
|
|
$
|
0.09
|
|
|
$
|
0.13
|
|
$
|
0.13
|
|
The Company is currently working on several new and maturing programs which are in various stages of development, including the B787, A350 XWB and Rolls-Royce BR725 programs. These programs carry risks associated with design responsibility, development of production tooling, production inefficiencies during the initial phases of production, hiring and training of qualified personnel, increased capital and funding commitments, supplier performance, delivery schedules and unique customer requirements. The Company has previously recorded forward loss charges on these programs. If the risks related to these programs are not mitigated, then the Company could record additional forward loss charges.
4. Accounts Receivable, net
Accounts receivable, net consists of the following:
|
|
|
|
|
|
|
|
|
|
July 2,
2015
|
|
December 31,
2014
|
Trade receivables
(1)(2)
|
$
|
549.9
|
|
|
$
|
598.4
|
|
Other
|
13.7
|
|
|
7.7
|
|
Less: allowance for doubtful accounts
|
(0.4
|
)
|
|
(0.5
|
)
|
Accounts receivable, net
|
$
|
563.2
|
|
|
$
|
605.6
|
|
|
|
(1)
|
Includes unbilled receivables of
$25.9
and
$26.0
as of July 2, 2015 and December 31, 2014, respectively.
|
|
|
(2)
|
Includes
$135.1
held in retainage by a customer at December 31, 2014.
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Accounts receivable, net includes unbilled receivables on long-term aerospace contracts, comprised principally of revenue recognized on contracts for which amounts were earned but not contractually billable as of the balance sheet date, or amounts earned for which the recovery will occur over the term of the contract, which could exceed one year.
5. Inventory
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
July 2,
2015
|
|
December 31,
2014
|
Raw materials
|
$
|
256.7
|
|
|
$
|
254.5
|
|
Work-in-process
|
845.1
|
|
|
885.7
|
|
Finished goods
|
64.1
|
|
|
46.7
|
|
Product inventory
|
1,165.9
|
|
|
1,186.9
|
|
Capitalized pre-production
|
205.4
|
|
|
223.4
|
|
Deferred production
|
1,270.6
|
|
|
1,244.3
|
|
Forward loss provision
|
(884.1
|
)
|
|
(901.6
|
)
|
Total inventory, net
|
$
|
1,757.8
|
|
|
$
|
1,753.0
|
|
Capitalized pre-production costs include certain contract costs, including applicable overhead, incurred before a product is manufactured on a recurring basis. Significant statement of work changes considered not reimbursable by the customer can also cause pre-production costs to be incurred. These costs are typically amortized over a certain number of shipset deliveries.
Deferred production includes costs for the excess of production costs over the estimated average cost per shipset, and credit balances for favorable variances on contracts between actual costs incurred and the estimated average cost per shipset for units delivered under the current production blocks. Recovery of excess-over-average deferred production costs is dependent on the number of shipsets 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 losses on these contracts in future periods.
Provisions for anticipated losses on contract blocks are recorded in the period in which they become evident (“forward losses”) and included in inventory with any remaining amount reflected in accrued contract liabilities.
Non-recurring production costs include design and engineering costs and test articles.
Inventories are summarized by platform and costs below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2015
|
|
Product Inventory
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
Non-Recurring
|
|
Capitalized Pre-
Production
|
|
Deferred
Production
|
|
Forward Loss
Provision
|
|
Total Inventory, net July 2, 2015
|
B787
|
217.0
|
|
|
—
|
|
|
71.3
|
|
|
541.6
|
|
|
(606.0
|
)
|
|
223.9
|
|
Boeing - All other platforms
(1)
|
475.0
|
|
|
18.4
|
|
|
5.9
|
|
|
(19.2
|
)
|
|
(23.6
|
)
|
|
456.5
|
|
A350 XWB
|
154.1
|
|
|
56.2
|
|
|
97.5
|
|
|
646.3
|
|
|
(120.1
|
)
|
|
834.0
|
|
Airbus - All other platforms
|
86.0
|
|
|
—
|
|
|
—
|
|
|
8.8
|
|
|
—
|
|
|
94.8
|
|
Rolls-Royce BR725
(2)
|
14.9
|
|
|
—
|
|
|
30.7
|
|
|
88.8
|
|
|
(134.4
|
)
|
|
—
|
|
Aftermarket
|
53.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53.7
|
|
Other platforms
|
82.4
|
|
|
8.2
|
|
|
—
|
|
|
4.3
|
|
|
—
|
|
|
94.9
|
|
Total
|
$
|
1,083.1
|
|
|
$
|
82.8
|
|
|
$
|
205.4
|
|
|
$
|
1,270.6
|
|
|
$
|
(884.1
|
)
|
|
$
|
1,757.8
|
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
Product Inventory
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
Non-Recurring
|
|
Capitalized Pre-
Production
|
|
Deferred
Production
|
|
Forward Loss
Provision
|
|
Total Inventory,
net December 31,
2014
|
B787
|
227.9
|
|
|
—
|
|
|
102.7
|
|
|
551.6
|
|
|
(606.0
|
)
|
|
276.2
|
|
Boeing - All other platforms
(1)
|
497.4
|
|
|
7.7
|
|
|
7.4
|
|
|
(8.9
|
)
|
|
(38.8
|
)
|
|
464.8
|
|
A350 XWB
|
148.7
|
|
|
35.6
|
|
|
76.4
|
|
|
607.6
|
|
|
(120.1
|
)
|
|
748.2
|
|
Airbus - All other platforms
|
82.1
|
|
|
—
|
|
|
—
|
|
|
5.6
|
|
|
—
|
|
|
87.7
|
|
Rolls-Royce BR725
(2)
|
17.5
|
|
|
—
|
|
|
35.4
|
|
|
83.8
|
|
|
(136.7
|
)
|
|
—
|
|
Aftermarket
|
45.2
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45.4
|
|
Other platforms
|
113.5
|
|
|
11.1
|
|
|
1.5
|
|
|
4.6
|
|
|
—
|
|
|
130.7
|
|
Total
|
$
|
1,132.3
|
|
|
$
|
54.6
|
|
|
$
|
223.4
|
|
|
$
|
1,244.3
|
|
|
$
|
(901.6
|
)
|
|
$
|
1,753.0
|
|
|
|
(1)
|
Forward loss charges recorded in prior periods on a program within Boeing - All other platforms exceeded the total inventory balance. The excess of the charge over program inventory is classified as a contract liability and reported in other current liabilities on the Condensed Consolidated Balance Sheet. The total contract liability was
$1.8
and
$2.1
as of
July 2, 2015
and December 31, 2014, respectively.
|
|
|
(2)
|
Forward loss charges recorded in prior periods on the Rolls-Royce BR725 program exceeded the total inventory balance. The excess of the charge over program inventory is classified as a contract liability and reported in other current liabilities on the Condensed Consolidated Balance Sheet. The total contract liability was
$14.6
and
$12.2
as of
July 2, 2015
and December 31, 2014, respectively.
|
The following is a roll forward of the capitalized pre-production costs included in the inventory balance at
July 2, 2015
:
|
|
|
|
|
Balance, December 31, 2014
|
$
|
223.4
|
|
Charges to costs and expenses
|
(41.7
|
)
|
Capitalized costs
|
23.7
|
|
Balance, July 2, 2015
|
$
|
205.4
|
|
The following is a roll forward of the deferred production costs included in the inventory balance at
July 2, 2015
:
|
|
|
|
|
Balance, December 31, 2014
|
$
|
1,244.3
|
|
Charges to costs and expenses
|
(428.6
|
)
|
Capitalized costs
|
454.4
|
|
Exchange rate
|
0.5
|
|
Balance, July 2, 2015
|
$
|
1,270.6
|
|
Significant amortization of capitalized pre-production and deferred production inventory will occur over the following contract blocks:
|
|
|
|
|
|
|
|
Model
|
|
Contract Block
Quantity
|
|
Orders
(1)
|
B787
|
|
500
|
|
|
803
|
|
A350 XWB
|
|
400
|
|
|
781
|
|
Rolls-Royce BR725
|
|
350
|
|
|
196
|
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
|
|
(1)
|
Orders are from the published firm-order backlogs of Airbus and Boeing. For Rolls-Royce BR725, orders represent purchase orders received from OEMs and are not reflective of OEM sales backlog. Orders reported are total block orders, including delivered units.
|
Current block deliveries are as follows:
|
|
|
|
|
Model
|
|
Current Block
Deliveries
|
B787
|
|
348
|
|
A350 XWB
|
|
42
|
|
Rolls-Royce BR725
|
|
164
|
|
Contract block quantities are projected to fully absorb the balance of deferred production inventory. Capitalized pre-production and deferred production inventories are at risk to the extent that the Company does not achieve the orders in the forecasted blocks or if future actual costs exceed current projected estimates, as those categories of inventory are recoverable over future deliveries. In the case of capitalized pre-production this may be over multiple blocks. Should orders not materialize in future periods to fulfill the block, potential forward loss charges may be necessary to the extent the final delivered quantity does not absorb deferred inventory costs.
6. Property, Plant and Equipment, net
Property, plant and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
July 2,
2015
|
|
December 31,
2014
|
Land
|
$
|
17.1
|
|
|
$
|
17.1
|
|
Buildings (including improvements)
|
573.7
|
|
|
572.9
|
|
Machinery and equipment
|
1,149.8
|
|
|
1,125.5
|
|
Tooling
|
881.8
|
|
|
841.2
|
|
Capitalized software
|
216.1
|
|
|
208.3
|
|
Construction-in-progress
|
196.9
|
|
|
138.3
|
|
Total
|
3,035.4
|
|
|
2,903.3
|
|
Less: accumulated depreciation
|
(1,208.3
|
)
|
|
(1,119.7
|
)
|
Property, plant and equipment, net
|
$
|
1,827.1
|
|
|
$
|
1,783.6
|
|
Interest costs associated with construction-in-progress are capitalized until the assets are completed and ready for use. Capitalized interest was
$1.1
and
$0.8
for the three months ended
July 2, 2015
and
July 3, 2014
, respectively, and
$2.4
and
$1.8
for the six months ended
July 2, 2015
and
July 3, 2014
, respectively. Repair and maintenance costs are expensed as incurred. The Company recognized repair and maintenance costs of
$32.7
and
$27.2
for the three months ended
July 2, 2015
and
July 3, 2014
, respectively, and
$63.0
and
$51.1
for the six months ended
July 2, 2015
and
July 3, 2014
, respectively.
The Company capitalizes certain costs, such as software coding, installation and testing, that are incurred to purchase or to create and implement internal-use computer software. Depreciation expense related to capitalized software was
$4.3
and
$4.5
for the three months ended
July 2, 2015
and
July 3, 2014
, respectively, and
$8.5
and
$8.5
for the six months ended
July 2, 2015
and
July 3, 2014
, respectively.
The Company reviews capital and amortizing intangible assets (long-lived assets) for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company evaluated its long-lived assets at its locations and determined no impairment was necessary as of
July 2, 2015
.
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
7. Other Assets
Other assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
July 2,
2015
|
|
December 31,
2014
|
Intangible assets
|
|
|
|
|
|
Patents
|
$
|
1.9
|
|
|
$
|
1.9
|
|
Favorable leasehold interests
|
6.3
|
|
|
6.3
|
|
Total intangible assets
|
8.2
|
|
|
8.2
|
|
Less: Accumulated amortization - patents
|
(1.6
|
)
|
|
(1.5
|
)
|
Accumulated amortization - favorable leasehold interest
|
(3.6
|
)
|
|
(3.5
|
)
|
Intangible assets, net
|
3.0
|
|
|
3.2
|
|
Deferred financing
|
|
|
|
|
|
Deferred financing costs
|
105.8
|
|
|
101.2
|
|
Less: Accumulated amortization - deferred financing costs
(1)
|
(84.6
|
)
|
|
(79.5
|
)
|
Deferred financing costs, net
|
21.2
|
|
|
21.7
|
|
Other
|
|
|
|
|
|
Goodwill - Europe
|
2.9
|
|
|
2.9
|
|
Equity in net assets of affiliates
|
2.6
|
|
|
1.9
|
|
Customer supply agreement
(2)
|
31.4
|
|
|
34.3
|
|
Restricted Cash
|
19.9
|
|
|
19.9
|
|
Other
|
43.8
|
|
|
39.7
|
|
Total
|
$
|
124.8
|
|
|
$
|
123.6
|
|
|
|
(1)
|
Includes charges related to debt extinguishment of
$3.1
and
$15.1
for the periods ended
July 2, 2015
and December 31, 2014, respectively.
|
|
|
(2)
|
Under an agreement with the Company's customer Airbus, certain payments accounted for as consideration given by the Company to Airbus are being amortized as a reduction to net revenues.
|
8. Advance Payments and Deferred Revenue/Credits
Advance payments.
Advance payments are those payments made to Spirit by customers in contemplation of the future performance of services, receipt of goods, incurrence of expenditures, or for other assets to be provided by Spirit under a contract and are repayable if such obligation is not satisfied. The amount of advance payments to be recovered against production units expected to be delivered within a year is classified as a short-term liability on the Company's consolidated balance sheet, with the balance of the unliquidated advance payments classified as a long-term liability.
On April 8, 2014, the Company signed a memorandum of agreement with Boeing which suspended advance repayments related to the B787 program for a period of twelve months beginning April 1, 2014. Repayment recommenced on April 1, 2015 and any repayments which otherwise would have become due during such twelve-month period will be offset against the purchase price for shipset
1,001
and beyond.
Deferred revenue/credits.
Deferred revenue/credits generally consist of nonrefundable amounts received in advance of revenue being earned for specific contractual deliverables or amounts that could be required to be refunded if certain performance obligations or conditions are not met. These payments are classified as deferred revenue/credits on the Company's Condensed Consolidated Balance Sheet when received and recognized as revenue as the production units are delivered or performance obligations or conditions are met.
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Advance payments and deferred revenue/credits are summarized by platform as follows:
|
|
|
|
|
|
|
|
|
|
July 2,
2015
|
|
December 31,
2014
|
B787
|
$
|
748.5
|
|
|
$
|
581.1
|
|
Boeing — All other platforms
|
15.1
|
|
|
16.4
|
|
A350 XWB
|
211.0
|
|
|
224.3
|
|
Airbus — All other platforms
|
3.6
|
|
|
4.1
|
|
Other
|
13.0
|
|
|
24.0
|
|
Total advance payments and deferred revenue/credits
|
$
|
991.2
|
|
|
$
|
849.9
|
|
9. Government Grants
The Company received grants in the form of government funding for a portion of the site construction and other specific capital asset costs at the Company's Kinston, North Carolina and Subang, Malaysia sites. 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, which began in 2010, in a manner consistent with the job performance criteria. Under the agreement, failure to meet job performance criteria, including creation of a targeted number of jobs, could result in Spirit making incremental rent payments to the North Carolina Global TransPark Authority over the initial term of the lease. The amount of the incremental rent payments would vary depending on Spirit’s level of attainment of these requirements not to exceed a certain dollar threshold. In Malaysia, the deferred grant income is being amortized based on the estimated lives of the eligible assets constructed with the grant funds as there are no performance criteria. The assets related to deferred grant income are consolidated within property, plant and equipment.
Deferred grant income liability, net consists of the following:
|
|
|
|
|
Balance, December 31, 2014
|
$
|
106.3
|
|
Grant liability amortized
|
(1.0
|
)
|
Grant income recognized
|
(3.9
|
)
|
Total liability related to deferred grant income, July 2, 2015
|
$
|
101.4
|
|
The asset related to the deferred grant income consists of the following:
|
|
|
|
|
Balance, December 31, 2014
|
$
|
113.2
|
|
Amortization
|
(2.5
|
)
|
Exchange rate
|
0.1
|
|
Total asset value related to deferred grant income, July 2, 2015
|
$
|
110.8
|
|
10. Fair Value Measurements
FASB’s authoritative guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance discloses three levels of inputs that may be used to measure fair value:
|
|
Level 1
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market.
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Observable inputs, such as current and forward interest rates and foreign exchange rates, are used in determining the fair value of the 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
|
|
July 2, 2015
|
|
At July 2, 2015 using
|
Description
|
Total Carrying
Amount in
Balance Sheet
|
|
Assets
Measured at
Fair Value
|
|
Liabilities
Measured at Fair
Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Money Market Fund
|
$
|
100.1
|
|
|
$
|
100.1
|
|
|
$
|
—
|
|
|
$
|
100.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
December 31, 2014
|
|
At December 31, 2014 using
|
Description
|
Total Carrying
Amount in
Balance Sheet
|
|
Assets
Measured at
Fair Value
|
|
Liabilities
Measured at Fair
Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Money Market Fund
|
$
|
88.3
|
|
|
$
|
88.3
|
|
|
$
|
—
|
|
|
$
|
88.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest Rate Swaps
|
$
|
(1.1
|
)
|
|
$
|
—
|
|
|
$
|
(1.1
|
)
|
|
$
|
—
|
|
|
$
|
(1.1
|
)
|
|
$
|
—
|
|
The fair value of the interest rate swaps is 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 Company’s long-term debt includes a senior secured term loan, senior unsecured notes and the Malaysian term loan. The estimated fair value of the Company's debt obligations is based on the quoted market prices for such obligations or the historical default rate for debt with similar credit ratings. The following table presents the carrying amount and estimated fair value of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2015
|
|
December 31, 2014
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Senior secured term loan A (including current portion)
|
$
|
521.6
|
|
|
$
|
515.4
|
|
(2)
|
$
|
—
|
|
|
$
|
—
|
|
|
Senior secured term loan B (including current portion)
|
—
|
|
|
—
|
|
(1)
|
$
|
534.4
|
|
|
$
|
527.1
|
|
(1)
|
Senior unsecured notes due 2020
|
300.0
|
|
|
314.3
|
|
(1)
|
300.0
|
|
|
320.3
|
|
(1)
|
Senior unsecured notes due 2022
|
299.5
|
|
|
312.2
|
|
(1)
|
299.5
|
|
|
304.7
|
|
(1)
|
Malaysian loan
|
4.9
|
|
|
4.3
|
|
(2)
|
6.7
|
|
|
5.8
|
|
(2)
|
Total
|
$
|
1,126.0
|
|
|
$
|
1,146.2
|
|
|
$
|
1,140.6
|
|
|
$
|
1,157.9
|
|
|
|
|
(1)
|
Level 1 Fair Value hierarchy
|
|
|
(2)
|
Level 2 Fair Value hierarchy
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
11. Derivative and Hedging Activities
The Company has historically entered into interest rate swap agreements to reduce its exposure to the variable rate portion of its long-term debt. On the inception date, the Company designates a derivative contract as either a fair value or cash flow hedge and links the contract to either a specific asset or liability on the balance sheet, or to forecasted commitments or transactions. The Company 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. Any gains or losses on hedges are included in earnings when the underlying transaction that was hedged occurs. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values.
The Company has historically entered into 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. See Note 12, Debt for discussion of the Company's senior secured credit facilities.
Interest Rate Swaps
During the first quarter of 2015, as a result of Amendment No. 5 to its Credit Agreement, the Company unwound its interest rate swap agreements which had a notional amount of
$250.0
. The company recognized a loss of
$0.4
as a result of settling these interest rate swaps. This loss on derivatives not designated as hedging instruments is included in Other Expense on the Consolidated Statement of Operations for the six months ended July 2, 2015. In total, the Company paid
$2.0
as a result of the settlement of the interest rate swap agreements.
As of July 2, 2015, the Company had no outstanding interest rate swap agreements. At December 31, 2014, the fair value of interest rate swaps designated as hedging instruments was a liability of
$1.1
.
The impact on earnings from interest rate swaps that were no longer effective was a loss of
$1.6
and
$0.1
for the six months ended July 2, 2015 and July 3, 2014, respectively. The amount reclassified from accumulated other comprehensive income into income from interest rate swaps that were effective was a loss of
$0.5
and
zero
for the six months ended July 2, 2015 and July 3, 2014, respectively. There were no gains or losses recognized in income from interest rate swaps during the second quarter of 2015 or 2014.
12. Debt
Total debt shown on the balance sheet is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2015
|
|
December 31, 2014
|
|
Current
|
Noncurrent
|
|
Current
|
Noncurrent
|
Senior secured term loan A
|
$
|
26.8
|
|
$
|
494.8
|
|
|
$
|
—
|
|
$
|
—
|
|
Senior secured term loan B
|
—
|
|
—
|
|
|
5.5
|
|
528.9
|
|
Senior notes due 2020
|
—
|
|
300.0
|
|
|
—
|
|
300.0
|
|
Senior notes due 2022
|
—
|
|
299.5
|
|
|
—
|
|
299.5
|
|
Malaysian term loan
|
2.4
|
|
2.5
|
|
|
3.0
|
|
3.7
|
|
Present value of capital lease obligations
|
0.8
|
|
8.8
|
|
|
0.9
|
|
12.0
|
|
Other
|
10.5
|
|
7.0
|
|
|
—
|
|
—
|
|
Total
|
$
|
40.5
|
|
$
|
1,112.6
|
|
|
$
|
9.4
|
|
$
|
1,144.1
|
|
Senior Secured Credit Facilities
On March 18, 2015, Spirit AeroSystems, Inc., as borrower, Spirit AeroSystems Holdings, Inc., as parent guarantor, and certain of its subsidiaries entered into Amendment No. 5 (the “Amendment”) to the Company's senior secured Credit Agreement,
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
dated as of April 18, 2012, as amended by Amendment No. 1, dated as of October 26, 2012, Amendment No. 2, dated as of August 2, 2013, Amendment No. 3, dated as of March 18, 2014 and Amendment No. 4, dated as of June 3, 2014 (the "Credit Agreement"). The Amendment provided for a new
$535.0
senior secured term loan A (the “Term Loan”) with a maturity date of
March 18, 2020
, which replaces the term loan B which had an amount outstanding of approximately
$534.9
(the “Term Loan B”) that was scheduled to mature on
September 15, 2020
. The Term Loan bears interest, at Spirit’s option, at either LIBOR plus
1.75%
or a defined “base rate” plus
0.75%
, subject to adjustment to amounts between and including LIBOR plus
1.75%
and LIBOR plus
2.50%
(or amounts between and including base rate plus
0.75%
and base rate plus
1.50%
, as applicable) based on changes to Spirit’s debt-to-EBITDA ratio. The principal obligations under the Term Loan are to be repaid in equal quarterly installments of
$6.7
, with the remaining balance due at maturity of the Term Loan. The Amendment maintained substantially the same prepayment requirements and covenant structure under the Credit Agreement, and provided the Company with some additional flexibility with respect to certain activities. Spirit used the proceeds of the Term Loan to pay off the Term Loan B and to pay a portion of the fees and expenses payable in connection with the Amendment.
Substantially all of Spirit's assets, including inventory and property, plant and equipment, continue to be pledged as collateral for both the Term Loan and the revolving credit facility. As of July 2, 2015, the outstanding balance of the Term Loan was
$521.6
. As a result of extinguishment of the Term Loan B during the first quarter of 2015, the Company recognized a loss on extinguishment of debt of
$3.6
. Of this total charge,
$3.1
is reflected within amortization of deferred financing fees and
$0.5
is reflected within amortization expense on the Condensed Consolidated Statement of Cash Flows for the six months ended July 2, 2015.
Senior Notes
In November 2010, the Company issued
$300.0
in aggregate principal amount of
6.75%
Senior Notes due
December 15, 2020
(the “2020 Notes”), with interest payable, in cash in arrears, on June 15 and December 15 of each year, beginning June 15, 2011. The 2020 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and Spirit’s existing and future domestic subsidiaries that guarantee Spirit’s obligations under Spirit’s senior secured credit facility. The carrying value of the 2020 Notes was
$300.0
as of
July 2, 2015
.
In March 2014, the Company issued
$300.0
in aggregate principal amount of
5.25%
Senior Notes due
March 15, 2022
(the "2022 Notes") with interest payable, in cash in arrears, on March 15 and September 15 of each year, beginning September 15, 2014. The 2022 Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by the Company and its existing and future domestic subsidiaries that guarantee Spirit's obligations under its amended senior secured credit facility. The carrying value of the 2022 Notes was
$299.5
as of
July 2, 2015
.
Malaysian Facility Agreement
The Company’s wholly-owned subsidiary, Spirit AeroSystems Malaysia SDN BHD is party to a Facility Agreement for a term loan facility with the Malaysian Export-Import Bank for Ringgit Malaysia (“RM”)
69.2
(approximately USD
$20.0
equivalent) (the “Malaysia Facility”). The Malaysia Facility requires quarterly principal repayments of
RM3.3
(approximately USD
$1.0
equivalent) from September 2011 through May 2017 and quarterly interest payments payable at a fixed interest rate of
3.50%
per annum. As of
July 2, 2015
, the Malaysia Facility loan balance was
$4.9
.
French Factory Capital Lease Agreement
The Company’s indirect wholly-owned subsidiary, Spirit AeroSystems France SARL is party to a capital lease agreement for
€9.0
(approximately USD
$13.1
equivalent) with a subsidiary of BNP Paribas Bank. Lease payments under the capital lease agreement are variable, subject to the three-month Euribor rate plus
2.20%
. Lease payments are due quarterly through April 2025. As of
July 2, 2015
, the Saint-Nazaire capital lease balance was
$7.6
.
Nashville Design Center Capital Lease Agreement
During the second quarter of 2015, the Company terminated its capital lease agreement for a portion of an office building in Nashville, Tennessee resulting in the capital lease balance at
July 2, 2015
of zero.
13.
Pension and Other Post-Retirement Benefits
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
For the Three
Months Ended
|
|
For the Six
Months Ended
|
Components of Net Periodic Pension
Income
|
|
July 2,
2015
|
|
July 3,
2014
|
|
July 2,
2015
|
|
July 3,
2014
|
Service cost
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
Interest cost
|
|
11.8
|
|
|
11.9
|
|
|
23.8
|
|
|
24.8
|
|
Expected return on plan assets
|
|
(20.8
|
)
|
|
(18.7
|
)
|
|
(41.5
|
)
|
|
(41.0
|
)
|
Amortization of net loss
|
|
0.9
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
Net periodic pension income
|
|
$
|
(7.9
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
(15.3
|
)
|
|
$
|
(16.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits
|
|
|
For the Three
Months Ended
|
|
For the Six
Months Ended
|
Components of Other Benefit Expense
|
|
July 2,
2015
|
|
July 3,
2014
|
|
July 2,
2015
|
|
July 3,
2014
|
Service cost
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
Interest cost
|
|
0.5
|
|
|
0.7
|
|
|
1.1
|
|
|
1.4
|
|
Special termination benefits
|
|
—
|
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
Net periodic other benefit expense
|
|
$
|
0.9
|
|
|
$
|
2.0
|
|
|
$
|
2.2
|
|
|
$
|
3.4
|
|
Employer Contributions
The Company expects to contribute zero dollars to the U.S. qualified pension plan and a combined total of approximately
$5.7
for the Supplemental Executive Retirement Plan (SERP) and post-retirement medical plans in 2015. The Company's projected contributions to the U.K. pension plan for 2015 are
zero
. The entire amount contributed can vary based on exchange rate fluctuations.
14. Stock Compensation
Holdings has established various stock compensation plans which include restricted share grants and stock purchase plans. Compensation values are based on the value of Holdings' common stock at the grant date. The common stock value is added to equity and charged to period expense or included in inventory and cost of sales.
The Executive Incentive Plan, Short-Term Incentive Plan ("STIP"), Long-Term Incentive Plan ("LTIP") and Director Stock Plan (collectively referred to as "Prior Plans") were replaced by the Omnibus Incentive Plan (the "Omnibus Plan") in 2014. No new awards will be granted under such Prior Plans. Outstanding awards under the Prior Plans will continue to be governed by the terms of such plans until exercised, expired or otherwise terminated or canceled.
The Omnibus Plan provides for a Long-Term Incentive Award ("LTIA") for the 2014 plan year and forward. The LTIAs provide both time and performance based incentives.
|
|
•
|
75%
of the LTIA is service-based restricted stock that will vest in equal installments over a
three
-year period.
|
|
|
•
|
25%
of the LTIA is performance-based restricted stock that will vest in the third year contingent upon total shareholder return ("TSR") compared to the Company’s peers.
|
For the three months ended July 2, 2015, the Company recognized a net total of
$5.0
of stock compensation expense, which is net of stock forfeitures, and includes expense for the Prior Plans and the LTIA under the Omnibus Plan. For the three months ended July 3, 2014, the Company recognized
$4.3
of stock compensation expense, net of forfeitures. The entire stock compensation expense of
$5.0
and
$4.3
, for the three months ended July 2, 2015 and July 3, 2014, respectively, was recorded as selling, general and administrative.
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
For the six months ended July 2, 2015, the Company recognized a net total of
$11.9
of stock compensation expense, which is net of stock forfeitures, and includes expense for the Prior Plans and the LTIA under the Omnibus Plan. For the six months ended July 3, 2014, the Company recognized
$8.0
of stock compensation expense, net of forfeitures. The entire stock compensation expense of
$11.9
and
$8.0
, for the six months ended July 2, 2015 and July 3, 2014, respectively, was recorded as selling, general and administrative.
During the first quarter ended April 2, 2015,
428,758
shares of class A common stock with an aggregate grant date fair value of
$20.9
were granted under the service-based portion of the Company's LTIA. In addition,
93,640
shares of class A common stock with an aggregate grant date fair value of
$6.0
were granted under the performance-based portion of the Company's LTIA under the Omnibus Plan and such shares are eligible to vest on the three-year anniversary of the grant date depending on total shareholder return compared to the Company's peers. Additionally,
12,293
shares of class A common stock with an aggregate grant date fair value of
$0.6
awarded under the Company's LTIP vested during the quarter ended April 2, 2015.
During the second quarter ended July 2, 2015,
17,156
shares of class A common stock with an aggregate grant date fair value of
$0.9
were granted under the service-based portion of the Company's LTIA. In addition,
1,348
shares of class A common stock with an aggregate grant date fair value of
$0.1
were granted under the performance-based portion of the Company's LTIA under the Omnibus Plan and such shares are eligible to vest on the three-year anniversary of the grant date depending on total shareholder return compared to the Company's peers. Additionally,
846,662
shares of class A common stock with an aggregate grant date fair value of
$20.5
awarded under the Company's LTIP vested during the quarter ended July 2, 2015.
In the second quarter ended July 2, 2015,
17,953
shares of class A common stock with an aggregate grant date fair value of
$0.9
were granted as nonemployee director awards under the Omnibus Plan and such shares will vest on the one-year anniversary of the grant date. Additionally,
22,383
shares of class A common stock with an aggregate grant date fair value of
$0.7
awarded under the Director Stock Plan vested during the quarter.
15. Income Taxes
The process for calculating the Company's income tax expense involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability. The total net deferred tax liability at July 2, 2015 and December 31, 2014 were
$9.5
and
$5.0
, respectively. The difference is primarily due to temporary differences reducing taxable income in the United Kingdom (U.K.).
The Company files income tax returns in all jurisdictions in which it operates. The Company establishes reserves to provide for additional income taxes that may be due upon audit. These reserves are established based on management’s assessment as to the potential exposure attributable to permanent tax adjustments and associated interest. All tax reserves are analyzed quarterly and adjustments made as events occur that warrant modification.
In general, the Company records income tax expense each quarter based on its best estimate as to the full year’s effective tax rate. Certain items, however, are given discrete period treatment and the tax effects for such items are therefore reported in the quarter that an event arises. Events or items that give rise to discrete recognition may include finalizing amounts in income tax returns filed, finalizing audit examinations for open tax years, expiration of statutes of limitations and changes in tax law.
However, the Company has determined that a calculation of an annual effective tax rate would not represent a reliable estimate for its U.S. operations due to historical differences between forecasted and actual U.S. pre-tax earnings and the effect of the Company's U.S. deferred tax valuation allowance, which create results with significant variations in the customary relationship between income tax expense and pre-tax income for the interim periods. Under the discrete method, the Company determines tax expense based upon actual results as if the interim period were an annual period. The discrete method was used for the Company's U.S. pre-tax income and an annual effective rate was used for its international pre-tax income.
A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, management assesses all available positive and negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carry-back and carry-forward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. The weight given to the positive and negative evidence is commensurate with the extent the evidence may
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses.
Based on these criteria and the relative weighting of both the positive and negative evidence available, and in particular the activity surrounding the Company's prior earnings history including the forward losses previously recognized in the U.S., management determined that it was necessary to continue to maintain a valuation allowance against nearly all of its net U.S. deferred tax assets as of July 2, 2015. At each reporting date, management considers all available positive and negative evidence, both new and historical, that could impact the future realization of deferred tax assets. Management will consider a release of the valuation allowance once there is sufficient positive evidence that it is more likely than not that the deferred tax assets will be realized, or when it is clearly demonstrated that the underlying deferred tax asset has been realized due to positive taxable income in the period the temporary difference was reversed. Any release of the valuation allowance will be recorded as a tax benefit increasing net income or other comprehensive income.
The net valuation allowance was decreased by
$44.1
for the six months ended July 2, 2015. The reduction reflects the realization of certain deferred tax assets within the Company’s discrete method taxable income calculation and changes in deferred tax assets associated with certain state income tax credits for the three months ended July 2, 2015.
The Company's income tax expense for 2015 does not reflect any benefit of the U.S. Federal Research Tax Credit attributable to 2015 as the legislation has not been extended beyond December, 2014. Should the legislation be extended during the year, the Company may record additional tax benefits for 2015 Research Tax Credit.
The
23.1%
effective tax rate for the six months ended July 2, 2015 differs from the
18.0%
effective tax rate for the same period of 2014 primarily due to the effect of certain non-deductible expenses within the company’s income tax provision in 2015 and the release of the Malaysia tax reserve and deferred tax liabilities in the first quarter of 2014 as a result of formal approval of the tax holiday by the Malaysian tax authorities.
The Company is participating in the Internal Revenue Service’s Compliance Assurance Process (“CAP”) program for its 2014 tax year. Additionally, the Company has been selected for the Compliance Maintenance phase of the CAP program for its 2015 tax year. The CAP program’s objective is to resolve issues in a timely, contemporaneous manner and eliminate the need for a lengthy post-filing examination. The HM Revenue & Customs completed its examination of the Company's 2009-2011 U.K. income tax returns and the statute of limitations has lapsed on the 2012 tax return. The Directorate General of Public Finance is currently examining the Company's 2011-2013 France income tax returns. While a change could result from the ongoing examinations, the Company expects no material change in its recorded unrecognized tax liability in the next 12 months.
16. Equity
Earnings per Share Calculation
Basic net income per share is computed using the weighted-average number of outstanding shares of common stock during the measurement period. Diluted net income per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential outstanding shares of common stock during the measurement period.
Subject to preferences that may apply to shares of preferred stock outstanding at the time, holders of the Company’s outstanding common stock are entitled to any dividend declared by the Board of Directors out of funds legally available for this purpose. The Company did not pay any cash dividends in the six months ended July 2, 2015. The Company's dividend policy is dependent on the requirements of financing agreements to which the Company is party to. Any future determination to pay dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other factors, the Company's results of operations, financial condition, capital requirements and contractual restrictions. The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. As of
July 2, 2015
, no treasury shares have been reissued or retired.
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
July 2, 2015
|
|
July 3, 2014
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
$
|
154.8
|
|
|
139.2
|
|
|
$
|
1.11
|
|
|
$
|
142.6
|
|
|
140.8
|
|
|
$
|
1.01
|
|
Income allocated to participating securities
|
0.1
|
|
|
0.1
|
|
|
|
|
|
0.8
|
|
|
0.8
|
|
|
|
|
Net income
|
$
|
154.9
|
|
|
|
|
|
|
|
|
$
|
143.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted potential common shares
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
154.9
|
|
|
140.1
|
|
|
$
|
1.11
|
|
|
$
|
143.4
|
|
|
142.4
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
July 2, 2015
|
|
July 3, 2014
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
$
|
336.5
|
|
|
139.0
|
|
|
$
|
2.42
|
|
|
$
|
295.0
|
|
|
141.2
|
|
|
$
|
2.09
|
|
Income allocated to participating securities
|
0.3
|
|
|
0.2
|
|
|
|
|
|
2.0
|
|
|
1.0
|
|
|
|
|
Net income
|
$
|
336.8
|
|
|
|
|
|
|
|
|
$
|
297.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted potential common shares
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
336.8
|
|
|
140.0
|
|
|
$
|
2.41
|
|
|
$
|
297.0
|
|
|
143.2
|
|
|
$
|
2.07
|
|
The balance of outstanding common shares presented in the Condensed Consolidated Balance Sheets was
141.2 million
at both
July 2, 2015
and
July 3, 2014
. Included in the outstanding common shares were
1.8 million
and
2.8 million
of issued but unvested shares at
July 2, 2015
and
July 3, 2014
, respectively, which are excluded from the basic EPS calculation.
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss is summarized by component as follows:
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
July 2, 2015
|
|
December 31, 2014
|
Pension
|
$
|
(132.0
|
)
|
|
$
|
(130.0
|
)
|
Interest rate swaps
|
—
|
|
|
(1.1
|
)
|
SERP/Retiree medical
|
2.2
|
|
|
2.1
|
|
Foreign currency impact on long term intercompany loan
|
(5.6
|
)
|
|
(5.7
|
)
|
Currency translation adjustment
|
(18.0
|
)
|
|
(19.1
|
)
|
Total accumulated other comprehensive loss
|
$
|
(153.4
|
)
|
|
$
|
(153.8
|
)
|
Noncontrolling Interest
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
The balance of noncontrolling interest presented in the consolidated balance sheet as of
July 2, 2015
remained unchanged from December 31, 2014 at
$0.5
.
17. Related Party Transactions
In August 2014, in a secondary offering of the Company's class A common stock, Onex sold its remaining shares of the Company's common stock and no longer holds any investment in the Company. For the three and six months ended July 3, 2014, when Onex was a related party, the Company paid
$0.2
and
$0.3
, respectively, to a subsidiary of Onex for services rendered.
In December 2014, Onex acquired approximately
40%
interest in Advanced Integration Technologies (“AIT”), a provider of automation and tooling, maintenance services and aircraft components to the aerospace industry and a supplier to the Company. For the three and six months ended July 2, 2015, sales from AIT to the Company and its subsidiaries were
$4.5
and
$10.4
, respectively. The amounts owed to AIT and recorded as accrued liabilities were
$0.5
and
$3.9
as of July 2, 2015 and December 31, 2014, respectively. Tawfiq Popatia, a former director of Spirit Holdings, is a Managing Director of Onex Corporation.
18. Commitments, Contingencies and Guarantees
Litigation
From time to time the Company is subject to, and is presently involved in, litigation or other legal proceedings arising in the ordinary course of business. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available, it is the opinion of the Company that none of these items, when finally resolved, will have a material adverse effect on the Company’s long-term financial position or liquidity. The Company had outstanding obligations in respect of litigation or other legal proceedings of
$55.5
and
$96.3
as of
July 2, 2015
and December 31, 2014, respectively. However, an unexpected adverse resolution of one or more of these items could have a material adverse effect on the results of operations and cash flows in a particular quarter or fiscal year.
From time to time, in the ordinary course of business and similar to others in the industry, the Company receives 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. The Company reviews such requests and notices and take appropriate action. The Company has 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, the Company is 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, the Company is required to participate in certain government investigations regarding environmental remediation actions.
On December 5, 2014, The Boeing Company (“Boeing”) filed a complaint in Delaware Superior Court, Complex Commercial Litigation Division, entitled The Boeing Co. v. Spirit AeroSystems, Inc., No. N14C-12-055 (EMD). Boeing seeks indemnification from Spirit for (a) damages assessed against Boeing in International Union, United Automobile, Aerospace and Agricultural Workers of America v. Boeing Co., AAA Case No. 54 300 00795 07 (the “UAW Arbitration”), which was brought on behalf of certain former Boeing employees in Tulsa and McAlester, Oklahoma, and (b) claims that Boeing allegedly settled in Society of Professional Engineering Employees in Aerospace v. Boeing Co., Nos. 05-1251-MLB, 07-1043-MLB (D. Kan.) (the “Harkness Class Action”). Spirit Holdings, Spirit and certain Spirit retirement plan entities were parties to the Harkness Class Action, but all claims against the Spirit entities were subsequently dismissed. Boeing’s Complaint asserts that the damages assessed against Boeing in the UAW Arbitration and the claims settled by Boeing in the Harkness Class Action are liabilities that Spirit assumed under an Asset Purchase Agreement between Boeing and Spirit, dated February 22, 2005 (the “APA”). Boeing asserts claims for breach of contract and declaratory judgment regarding its indemnification rights under the APA. Boeing alleges that, under the UAW Arbitration decision, Boeing has paid more than
$13.0
of a liability Boeing estimates to have a net present value of
$39.0
. The amount of Boeing’s settlement of the Harkness Class Action has not yet been publicly disclosed and will require court approval. In addition, Boeing seeks indemnification for more than
$10.0
in attorneys’ fees it alleges it expended to defend the UAW Arbitration and Harkness Class Action. On December 24, 2014, the parties filed a joint stipulation extending Spirit’s deadline to move, answer or otherwise respond to Boeing’s complaint until February 12, 2015. Spirit timely moved to dismiss the complaint. Spirit intends to defend vigorously against the allegations in this lawsuit. Management believes the resolution of this matter will not materially affect the Company’s financial position, results of operations or liquidity.
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
On June 3, 2013, a putative class action lawsuit was commenced against the Company, Jeffrey L. Turner, and Philip D. Anderson in the U.S. District Court for the District of Kansas. The court-appointed lead plaintiffs - two pension funds that claim to represent a class of investors in the Company's stock - filed an amended complaint on April 7, 2014, naming as additional defendants Spirit's Vice President of the B787 Program Terry J. George and former Senior Vice President of Oklahoma Operations Alexander K. Kummant. The amended complaint alleges that defendants engaged in a scheme to artificially inflate the market price of the Company's stock by making false statements and omissions about certain programs' performance and costs. It contends that the alleged scheme was revealed by the Company’s accrual of
$590.0
in forward loss charges on October 25, 2012. The lead plaintiffs seek certification of a class of all persons other than defendants who purchased Holdings securities between May 5, 2011 and October 24, 2012, and seek an unspecified amount of damages on behalf of the putative class. In June 2014, the defendants filed a motion to dismiss the claims set forth in the amended complaint. On May 14, 2015, the District Court granted Spirit's motion to dismiss and dismissed the matter with prejudice. The plaintiffs filed a notice of appeal on June 11, 2015, which is pending. The Company intends to vigorously defend against these allegations, and management believes the resolution of this matter will not materially affect the Company’s financial position, results of operations or liquidity.
Guarantees
Outstanding guarantees were
$20.6
and
$21.6
at
July 2, 2015
and December 31, 2014, respectively.
Restricted Cash
The Company was required to maintain
$19.9
of restricted cash as of both
July 2, 2015
and December 31, 2014 related to certain collateral requirements for obligations under its workers’ compensation programs. These collateral requirements were previously supported by letters of credit that were replaced in October 2014. Restricted cash is included in “Other assets” in the Company's Condensed Consolidated Balance Sheets.
Indemnification
The Company has entered into customary indemnification agreements with each of its Directors, and some of its executive employment agreements include indemnification provisions. Under those agreements, the Company agrees to indemnify each of these individuals against claims arising out of events or occurrences related to that individual’s service as the Company’s agent or the agent of any of its subsidiaries to the fullest extent legally permitted.
Service and Product Warranties and Extraordinary Rework
Provisions for estimated expenses related to service and product warranties and certain extraordinary rework are made at the time products are sold. These costs are accrued at the time of the sale and are recorded to unallocated cost of goods sold. These estimates are established using historical information on the nature, frequency and average cost of warranty claims, including the experience of industry peers. In the case of new development products or new customers, Spirit considers other factors including the experience of other entities in the same business and management judgment, among others. Service warranty and extraordinary work is reported in other liabilities on the Condensed Consolidated Balance Sheet.
The following is a roll forward of the service warranty and extraordinary rework balance at
July 2, 2015
:
|
|
|
|
|
Balance, December 31, 2014
|
$
|
119.9
|
|
Charges to costs and expenses
|
22.9
|
|
Payouts
|
(0.5
|
)
|
Exchange rate
|
—
|
|
Balance, July 2, 2015
|
$
|
142.3
|
|
19. Other Income, Net
Other income, net is summarized as follows:
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
July 2,
2015
|
|
July 3,
2014
|
|
July 2,
2015
|
|
July 3,
2014
|
KDFA bond
|
$
|
0.9
|
|
|
$
|
0.8
|
|
|
$
|
2.1
|
|
|
$
|
1.8
|
|
Rental and miscellaneous income (expense)
(1)
|
—
|
|
|
0.1
|
|
|
(1.9
|
)
|
|
0.1
|
|
Interest income
|
0.5
|
|
|
0.1
|
|
|
0.7
|
|
|
0.2
|
|
Foreign currency gain
|
6.7
|
|
|
4.9
|
|
|
0.8
|
|
|
5.1
|
|
Total
|
$
|
8.1
|
|
|
$
|
5.9
|
|
|
$
|
1.7
|
|
|
$
|
7.2
|
|
|
|
(1)
|
Includes
$2.0
of losses related to the settlement of interest rate swap agreements as further detailed in Note 11, Derivative and Hedging Activities.
|
Foreign currency gain is due to the impact of movement in foreign currency exchange rates on an intercompany revolver and long-term contractual rights/obligations, as well as trade and intercompany receivables/payables which are denominated in a currency other than the entity’s functional currency.
20. Segment Information
The Company operates in
three
principal segments: Fuselage Systems, Propulsion Systems and Wing Systems. Substantially all revenues in the three principal segments are from Boeing, with the exception of Wing Systems, which includes revenues from Airbus and other customers. Approximately
95%
of the Company’s net revenues for the six months ended July 2, 2015 came from the Company's
two
largest customers, Boeing and Airbus. All other activities fall within the All Other segment, principally made up of sundry sales of miscellaneous services, tooling contracts and sales of natural gas through a tenancy-in-common with other companies that have operations in Wichita, Kansas. The Company's primary profitability measure to review a segment’s operating performance is segment operating income before corporate selling, general and administrative expenses, research and development and unallocated cost of sales.
Corporate selling, general and administrative expenses include centralized functions such as accounting, treasury and human resources that are not specifically related to the Company's operating segments and are not allocated in measuring the operating segments’ profitability and performance and net profit margins. 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 includes general costs not directly attributable to segment operations, such as warranty, early retirement and other incentives. All of these items are not specifically related to the Company's operating segments and are not utilized in measuring the operating segments’ profitability and performance.
The Company’s Fuselage Systems segment includes development, production and marketing of forward, mid and rear fuselage sections and systems, primarily to aircraft OEMs (OEM refers to aircraft original equipment manufacturer), as well as related spares and maintenance, repairs and overhaul (MRO) services. The Fuselage Systems segment manufactures products at our facilities in Wichita, Kansas and Kinston, North Carolina. The Fuselage Systems segment also includes an assembly plant for the A350 XWB aircraft in Saint-Nazaire, France.
The Company’s Propulsion Systems segment includes development, production and marketing of struts/pylons, nacelles (including thrust reversers) and related engine structural components primarily to aircraft or engine OEMs, as well as related spares and MRO services. The Propulsion Systems segment manufactures products at our facilities in Wichita and Chanute, Kansas.
The Company’s Wing Systems segment includes development, production and marketing of wings and wing components (including flight control surfaces) as well as other miscellaneous structural parts primarily to aircraft OEMs, as well as related spares and MRO services. These activities take place at the Company’s facilities in Tulsa and McAlester, Oklahoma; Kinston, North Carolina; Prestwick, Scotland; and Subang, Malaysia.
The Company’s segments are consistent with the organization and responsibilities of management reporting to the chief operating decision-maker for the purpose of assessing performance. The Company’s definition of segment operating income differs from net profit margin as presented in its primary financial statements and a reconciliation of the segment and consolidated results is provided in the table set forth below.
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
While some working capital accounts are maintained on a segment basis, much of the Company’s assets are not managed or maintained on a segment basis. Property, plant and equipment, including tooling, is used in the design and production of products for each of the segments and, therefore, is not allocated to any individual segment. In addition, cash, prepaid expenses, other assets and deferred taxes are managed and maintained on a consolidated basis and generally do not pertain to any particular segment. Raw materials and certain component parts are used in the production of aerostructures across all segments. Work-in-process inventory is identifiable by segment, but is managed and evaluated at the program level. As there is no segmentation of the Company’s productive assets, depreciation expense (included in fixed manufacturing costs and selling, general and administrative expenses) and capital expenditures, no allocation of these amounts has been made solely for purposes of segment disclosure requirements.
The following table shows segment revenues and operating income for the three and six months ended
July 2, 2015
and
July 3, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
July 2,
2015
|
|
July 3,
2014
|
|
July 2,
2015
|
|
July 3,
2014
|
Segment Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems
|
$
|
887.6
|
|
|
$
|
905.0
|
|
|
$
|
1,804.4
|
|
|
$
|
1,763.3
|
|
Propulsion Systems
|
440.5
|
|
|
460.5
|
|
|
886.5
|
|
|
910.7
|
|
Wing Systems
(1)
|
367.5
|
|
|
438.3
|
|
|
744.2
|
|
|
852.5
|
|
All Other
|
3.1
|
|
|
(0.5
|
)
|
|
5.8
|
|
|
5.3
|
|
|
$
|
1,698.7
|
|
|
$
|
1,803.3
|
|
|
$
|
3,440.9
|
|
|
$
|
3,531.8
|
|
Segment Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems
|
$
|
168.0
|
|
|
$
|
132.2
|
|
|
$
|
332.5
|
|
|
$
|
274.2
|
|
Propulsion Systems
|
88.2
|
|
|
86.2
|
|
|
183.9
|
|
|
166.4
|
|
Wing Systems
|
50.1
|
|
|
71.0
|
|
|
95.3
|
|
|
121.0
|
|
All Other
|
1.4
|
|
|
0.2
|
|
|
1.1
|
|
|
0.3
|
|
|
307.7
|
|
|
289.6
|
|
|
612.8
|
|
|
561.9
|
|
Corporate SG&A
|
(53.8
|
)
|
|
(54.4
|
)
|
|
(105.4
|
)
|
|
(114.9
|
)
|
Research and development
|
(6.7
|
)
|
|
(6.8
|
)
|
|
(13.7
|
)
|
|
(13.1
|
)
|
Unallocated cost of sales
(2)
|
(16.9
|
)
|
|
(12.2
|
)
|
|
(28.1
|
)
|
|
(23.3
|
)
|
Total operating income
|
$
|
230.3
|
|
|
$
|
216.2
|
|
|
$
|
465.6
|
|
|
$
|
410.6
|
|
|
|
(1)
|
In December 2014, Spirit divested the Gulfstream G280 and G650 wing work packages to Triumph.
|
|
|
(2)
|
Includes
$12.0
and
$11.6
of warranty reserve for the three months ended
July 2, 2015
and
July 3, 2014
, respectively, and
$22.4
and
$22.6
for the six months ended
July 2, 2015
and
July 3, 2014
, respectively.
|
21. Condensed Consolidating Financial Information
The 2020 Notes and the 2022 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the Company and its
100%
owned domestic subsidiaries, other than Spirit (the “Subsidiary Guarantors”).
The following condensed consolidating financial information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the Securities Act, presents the condensed consolidating financial information separately for:
|
|
(i)
|
Holdings, as the parent company and parent guarantor to the Credit Agreement, as further detailed in Note 12, Debt;
|
|
|
(ii)
|
Spirit, as the subsidiary issuer of the 2020 Notes and the 2022 Notes;
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
|
|
(iii)
|
The Subsidiary Guarantors, on a combined basis, as guarantors of the 2020 Notes and the 2022 Notes;
|
|
|
(iv)
|
The Company’s subsidiaries, other than the Subsidiary Guarantors, which are not guarantors of the 2020 Notes and the 2022 Notes (the “Subsidiary Non-Guarantors”), on a combined basis;
|
|
|
(v)
|
Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among Holdings, the Subsidiary Guarantors and the Subsidiary Non-Guarantors, (b) eliminate the investments in the Company’s subsidiaries and (c) record consolidating entries; and
|
|
|
(vi)
|
Holdings and its subsidiaries on a consolidated basis.
|
Condensed Consolidating Statements of Operations
For the Three Months Ended
July 2, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
Spirit
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
Net revenues
|
$
|
—
|
|
|
$
|
1,564.5
|
|
|
$
|
67.3
|
|
|
$
|
187.1
|
|
|
$
|
(120.2
|
)
|
|
$
|
1,698.7
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
1,302.1
|
|
|
65.7
|
|
|
160.3
|
|
|
(120.2
|
)
|
|
1,407.9
|
|
Selling, general and administrative
|
1.9
|
|
|
48.2
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
53.8
|
|
Research and development
|
—
|
|
|
6.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.7
|
|
Total operating costs and expenses
|
1.9
|
|
|
1,357.0
|
|
|
65.7
|
|
|
164.0
|
|
|
(120.2
|
)
|
|
1,468.4
|
|
Operating (loss) income
|
(1.9
|
)
|
|
207.5
|
|
|
1.6
|
|
|
23.1
|
|
|
—
|
|
|
230.3
|
|
Interest expense and financing fee amortization
|
—
|
|
|
(11.9
|
)
|
|
—
|
|
|
(2.0
|
)
|
|
1.8
|
|
|
(12.1
|
)
|
Other income, net
|
—
|
|
|
3.2
|
|
|
(0.1
|
)
|
|
6.8
|
|
|
(1.8
|
)
|
|
8.1
|
|
(Loss) income before income taxes and equity in net income of affiliate and subsidiaries
|
(1.9
|
)
|
|
198.8
|
|
|
1.5
|
|
|
27.9
|
|
|
—
|
|
|
226.3
|
|
Income tax benefit (provision)
|
0.8
|
|
|
(69.5
|
)
|
|
(0.5
|
)
|
|
(2.5
|
)
|
|
—
|
|
|
(71.7
|
)
|
(Loss) income before equity in net income of affiliate and subsidiaries
|
(1.1
|
)
|
|
129.3
|
|
|
1.0
|
|
|
25.4
|
|
|
—
|
|
|
154.6
|
|
Equity in net income of affiliate
|
0.3
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
(0.3
|
)
|
|
0.3
|
|
Equity in net income of subsidiaries
|
155.7
|
|
|
26.5
|
|
|
—
|
|
|
—
|
|
|
(182.2
|
)
|
|
—
|
|
Net income
|
154.9
|
|
|
155.8
|
|
|
1.0
|
|
|
25.7
|
|
|
(182.5
|
)
|
|
154.9
|
|
Other comprehensive income (loss)
|
14.4
|
|
|
(1.9
|
)
|
|
—
|
|
|
16.3
|
|
|
(14.4
|
)
|
|
14.4
|
|
Comprehensive income
|
$
|
169.3
|
|
|
$
|
153.9
|
|
|
$
|
1.0
|
|
|
$
|
42.0
|
|
|
$
|
(196.9
|
)
|
|
$
|
169.3
|
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Condensed Consolidating Statements of Operations
For the Three Months Ended
July 3, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
Spirit
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
Net revenues
|
$
|
—
|
|
|
$
|
1,660.5
|
|
|
$
|
100.0
|
|
|
$
|
209.7
|
|
|
$
|
(166.9
|
)
|
|
$
|
1,803.3
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
1,421.0
|
|
|
97.2
|
|
|
174.6
|
|
|
(166.9
|
)
|
|
1,525.9
|
|
Selling, general and administrative
|
(0.4
|
)
|
|
49.6
|
|
|
0.8
|
|
|
4.4
|
|
|
—
|
|
|
54.4
|
|
Research and development
|
—
|
|
|
6.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.8
|
|
Total operating costs and expenses
|
(0.4
|
)
|
|
1,477.4
|
|
|
98.0
|
|
|
179.0
|
|
|
(166.9
|
)
|
|
1,587.1
|
|
Operating income
|
0.4
|
|
|
183.1
|
|
|
2.0
|
|
|
30.7
|
|
|
—
|
|
|
216.2
|
|
Interest expense and financing fee amortization
|
—
|
|
|
(20.6
|
)
|
|
—
|
|
|
(2.7
|
)
|
|
2.5
|
|
|
(20.8
|
)
|
Other income, net
|
—
|
|
|
3.4
|
|
|
—
|
|
|
5.0
|
|
|
(2.5
|
)
|
|
5.9
|
|
Income before income taxes and equity in net income of affiliate and subsidiaries
|
0.4
|
|
|
165.9
|
|
|
2.0
|
|
|
33.0
|
|
|
—
|
|
|
201.3
|
|
Income tax benefit (provision)
|
0.3
|
|
|
(51.2
|
)
|
|
(0.8
|
)
|
|
(6.4
|
)
|
|
—
|
|
|
(58.1
|
)
|
Income before equity in net income of affiliate and subsidiaries
|
0.7
|
|
|
114.7
|
|
|
1.2
|
|
|
26.6
|
|
|
—
|
|
|
143.2
|
|
Equity in net income of affiliate
|
0.2
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
(0.2
|
)
|
|
0.2
|
|
Equity in net income of subsidiaries
|
142.5
|
|
|
27.8
|
|
|
—
|
|
|
—
|
|
|
(170.3
|
)
|
|
—
|
|
Net income
|
143.4
|
|
|
142.5
|
|
|
1.2
|
|
|
26.8
|
|
|
(170.5
|
)
|
|
143.4
|
|
Other comprehensive income
|
10.0
|
|
|
—
|
|
|
—
|
|
|
10.0
|
|
|
(10.0
|
)
|
|
10.0
|
|
Comprehensive income
|
$
|
153.4
|
|
|
$
|
142.5
|
|
|
$
|
1.2
|
|
|
$
|
36.8
|
|
|
$
|
(180.5
|
)
|
|
$
|
153.4
|
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Condensed Consolidating Statements of Operations
For the Six Months Ended
July 2, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
Spirit
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
Net revenues
|
$
|
—
|
|
|
$
|
3,183.5
|
|
|
$
|
125.4
|
|
|
$
|
373.3
|
|
|
$
|
(241.3
|
)
|
|
$
|
3,440.9
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
2,654.1
|
|
|
120.5
|
|
|
322.9
|
|
|
(241.3
|
)
|
|
2,856.2
|
|
Selling, general and administrative
|
4.5
|
|
|
93.4
|
|
|
1.3
|
|
|
6.2
|
|
|
—
|
|
|
105.4
|
|
Research and development
|
—
|
|
|
13.0
|
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
13.7
|
|
Total operating costs and expenses
|
4.5
|
|
|
2,760.5
|
|
|
121.8
|
|
|
329.8
|
|
|
(241.3
|
)
|
|
2,975.3
|
|
Operating (loss) income
|
(4.5
|
)
|
|
423.0
|
|
|
3.6
|
|
|
43.5
|
|
|
—
|
|
|
465.6
|
|
Interest expense and financing fee amortization
|
—
|
|
|
(29.7
|
)
|
|
—
|
|
|
(4.0
|
)
|
|
3.7
|
|
|
(30.0
|
)
|
Other income, net
|
—
|
|
|
4.6
|
|
|
—
|
|
|
0.8
|
|
|
(3.7
|
)
|
|
1.7
|
|
(Loss) income before income taxes and equity in net income of affiliate and subsidiaries
|
(4.5
|
)
|
|
397.9
|
|
|
3.6
|
|
|
40.3
|
|
|
—
|
|
|
437.3
|
|
Income tax benefit (provision)
|
1.1
|
|
|
(96.6
|
)
|
|
(1.3
|
)
|
|
(4.3
|
)
|
|
—
|
|
|
(101.1
|
)
|
(Loss) income before equity in net income of affiliate and subsidiaries
|
(3.4
|
)
|
|
301.3
|
|
|
2.3
|
|
|
36.0
|
|
|
—
|
|
|
336.2
|
|
Equity in net income of affiliate
|
0.6
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
|
(0.6
|
)
|
|
0.6
|
|
Equity in net income of subsidiaries
|
339.6
|
|
|
38.4
|
|
|
—
|
|
|
—
|
|
|
(378.0
|
)
|
|
—
|
|
Net income
|
336.8
|
|
|
339.7
|
|
|
2.3
|
|
|
36.6
|
|
|
(378.6
|
)
|
|
336.8
|
|
Other comprehensive income (loss)
|
0.4
|
|
|
(0.8
|
)
|
|
—
|
|
|
1.2
|
|
|
(0.4
|
)
|
|
0.4
|
|
Comprehensive income
|
$
|
337.2
|
|
|
$
|
338.9
|
|
|
$
|
2.3
|
|
|
$
|
37.8
|
|
|
$
|
(379.0
|
)
|
|
$
|
337.2
|
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Condensed Consolidating Statements of Operations
For the Six Months Ended
July 3, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
Spirit
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
Net revenues
|
$
|
—
|
|
|
$
|
3,274.1
|
|
|
$
|
187.0
|
|
|
$
|
415.5
|
|
|
$
|
(344.8
|
)
|
|
$
|
3,531.8
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
2,798.8
|
|
|
182.1
|
|
|
357.1
|
|
|
(344.8
|
)
|
|
2,993.2
|
|
Selling, general and administrative
|
1.1
|
|
|
103.5
|
|
|
1.4
|
|
|
8.9
|
|
|
—
|
|
|
114.9
|
|
Research and development
|
—
|
|
|
12.5
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
13.1
|
|
Total operating costs and expenses
|
1.1
|
|
|
2,914.8
|
|
|
183.5
|
|
|
366.6
|
|
|
(344.8
|
)
|
|
3,121.2
|
|
Operating (loss) income
|
(1.1
|
)
|
|
359.3
|
|
|
3.5
|
|
|
48.9
|
|
|
—
|
|
|
410.6
|
|
Interest expense and financing fee amortization
|
—
|
|
|
(55.8
|
)
|
|
—
|
|
|
(5.5
|
)
|
|
5.1
|
|
|
(56.2
|
)
|
Other income, net
|
—
|
|
|
6.9
|
|
|
—
|
|
|
5.4
|
|
|
(5.1
|
)
|
|
7.2
|
|
(Loss) income before income taxes and equity in net income of affiliate and subsidiaries
|
(1.1
|
)
|
|
310.4
|
|
|
3.5
|
|
|
48.8
|
|
|
—
|
|
|
361.6
|
|
Income tax benefit (provision)
|
0.2
|
|
|
(67.8
|
)
|
|
(1.3
|
)
|
|
3.9
|
|
|
—
|
|
|
(65.0
|
)
|
(Loss) income before equity in net income of affiliate and subsidiaries
|
(0.9
|
)
|
|
242.6
|
|
|
2.2
|
|
|
52.7
|
|
|
—
|
|
|
296.6
|
|
Equity in net income of affiliate
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
(0.4
|
)
|
|
0.4
|
|
Equity in net income of subsidiaries
|
297.5
|
|
|
54.8
|
|
|
—
|
|
|
—
|
|
|
(352.3
|
)
|
|
—
|
|
Net income
|
297.0
|
|
|
297.4
|
|
|
2.2
|
|
|
53.1
|
|
|
(352.7
|
)
|
|
297.0
|
|
Other comprehensive income
|
10.2
|
|
|
—
|
|
|
—
|
|
|
10.2
|
|
|
(10.2
|
)
|
|
10.2
|
|
Comprehensive income
|
$
|
307.2
|
|
|
$
|
297.4
|
|
|
$
|
2.2
|
|
|
$
|
63.3
|
|
|
$
|
(362.9
|
)
|
|
$
|
307.2
|
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Condensed Consolidating Balance Sheet
July 2, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
Spirit
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
928.9
|
|
|
$
|
—
|
|
|
$
|
29.8
|
|
|
$
|
—
|
|
|
$
|
958.7
|
|
Accounts receivable, net
|
—
|
|
|
708.9
|
|
|
25.1
|
|
|
199.2
|
|
|
(370.0
|
)
|
|
563.2
|
|
Inventory, net
|
—
|
|
|
1,196.4
|
|
|
184.8
|
|
|
376.6
|
|
|
—
|
|
|
1,757.8
|
|
Deferred tax asset - current
|
—
|
|
|
33.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33.7
|
|
Other current assets
|
—
|
|
|
91.5
|
|
|
—
|
|
|
3.4
|
|
|
—
|
|
|
94.9
|
|
Total current assets
|
—
|
|
|
2,959.4
|
|
|
209.9
|
|
|
609.0
|
|
|
(370.0
|
)
|
|
3,408.3
|
|
Property, plant and equipment, net
|
—
|
|
|
1,302.6
|
|
|
340.9
|
|
|
183.6
|
|
|
—
|
|
|
1,827.1
|
|
Pension assets, net
|
—
|
|
|
200.9
|
|
|
—
|
|
|
16.0
|
|
|
—
|
|
|
216.9
|
|
Investment in subsidiary
|
909.5
|
|
|
281.4
|
|
|
—
|
|
|
—
|
|
|
(1,190.9
|
)
|
|
—
|
|
Equity in net assets of subsidiaries
|
1,051.5
|
|
|
250.5
|
|
|
—
|
|
|
—
|
|
|
(1,302.0
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
338.2
|
|
|
80.0
|
|
|
25.7
|
|
|
(319.1
|
)
|
|
124.8
|
|
Total assets
|
$
|
1,961.0
|
|
|
$
|
5,333.0
|
|
|
$
|
630.8
|
|
|
$
|
834.3
|
|
|
$
|
(3,182.0
|
)
|
|
$
|
5,577.1
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
614.2
|
|
|
$
|
248.5
|
|
|
$
|
184.3
|
|
|
$
|
(370.0
|
)
|
|
$
|
677.0
|
|
Accrued expenses
|
—
|
|
|
230.1
|
|
|
1.3
|
|
|
25.4
|
|
|
—
|
|
|
256.8
|
|
Profit sharing
|
—
|
|
|
40.2
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
|
41.7
|
|
Current portion of long-term debt
|
—
|
|
|
37.3
|
|
|
—
|
|
|
3.2
|
|
|
—
|
|
|
40.5
|
|
Advance payments, short-term
|
—
|
|
|
155.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
155.0
|
|
Deferred revenue, short-term
|
—
|
|
|
114.2
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
115.6
|
|
Deferred grant income liability - current
|
—
|
|
|
—
|
|
|
9.7
|
|
|
1.2
|
|
|
—
|
|
|
10.9
|
|
Other current liabilities
|
—
|
|
|
45.3
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
|
48.3
|
|
Total current liabilities
|
—
|
|
|
1,236.3
|
|
|
259.5
|
|
|
220.0
|
|
|
(370.0
|
)
|
|
1,345.8
|
|
Long-term debt
|
—
|
|
|
1,101.4
|
|
|
—
|
|
|
250.2
|
|
|
(239.0
|
)
|
|
1,112.6
|
|
Advance payments, long-term
|
—
|
|
|
600.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
600.8
|
|
Pension/OPEB obligation
|
—
|
|
|
75.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75.3
|
|
Deferred grant income liability - non-current
|
—
|
|
|
—
|
|
|
61.6
|
|
|
28.9
|
|
|
—
|
|
|
90.5
|
|
Deferred revenue and other deferred credits
|
—
|
|
|
114.2
|
|
|
—
|
|
|
5.6
|
|
|
—
|
|
|
119.8
|
|
Other liabilities
|
—
|
|
|
324.1
|
|
|
—
|
|
|
27.2
|
|
|
(80.0
|
)
|
|
271.3
|
|
Total equity
|
1,961.0
|
|
|
1,880.9
|
|
|
309.7
|
|
|
302.4
|
|
|
(2,493.0
|
)
|
|
1,961.0
|
|
Total liabilities and shareholders’ equity
|
$
|
1,961.0
|
|
|
$
|
5,333.0
|
|
|
$
|
630.8
|
|
|
$
|
834.3
|
|
|
$
|
(3,182.0
|
)
|
|
$
|
5,577.1
|
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Condensed Consolidating Balance Sheet
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
Spirit
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
354.6
|
|
|
$
|
—
|
|
|
$
|
23.3
|
|
|
$
|
—
|
|
|
$
|
377.9
|
|
Accounts receivable, net
|
—
|
|
|
730.6
|
|
|
33.3
|
|
|
211.9
|
|
|
(370.2
|
)
|
|
605.6
|
|
Inventory, net
|
—
|
|
|
1,238.1
|
|
|
168.1
|
|
|
346.8
|
|
|
—
|
|
|
1,753.0
|
|
Deferred tax asset-current
|
—
|
|
|
49.8
|
|
|
—
|
|
|
3.4
|
|
|
—
|
|
|
53.2
|
|
Other current assets
|
—
|
|
|
260.3
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
262.4
|
|
Total current assets
|
—
|
|
|
2,633.4
|
|
|
201.4
|
|
|
587.5
|
|
|
(370.2
|
)
|
|
3,052.1
|
|
Property, plant and equipment, net
|
—
|
|
|
1,263.7
|
|
|
337.9
|
|
|
182.0
|
|
|
—
|
|
|
1,783.6
|
|
Pension assets, net
|
—
|
|
|
187.8
|
|
|
—
|
|
|
15.6
|
|
|
—
|
|
|
203.4
|
|
Investment in subsidiary
|
907.7
|
|
|
281.4
|
|
|
—
|
|
|
—
|
|
|
(1,189.1
|
)
|
|
—
|
|
Equity in net assets of subsidiaries
|
714.3
|
|
|
210.4
|
|
|
—
|
|
|
—
|
|
|
(924.7
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
352.7
|
|
|
80.0
|
|
|
22.9
|
|
|
(332.0
|
)
|
|
123.6
|
|
Total assets
|
$
|
1,622.0
|
|
|
$
|
4,929.4
|
|
|
$
|
619.3
|
|
|
$
|
808.0
|
|
|
$
|
(2,816.0
|
)
|
|
$
|
5,162.7
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
573.4
|
|
|
$
|
235.5
|
|
|
$
|
172.5
|
|
|
$
|
(370.2
|
)
|
|
$
|
611.2
|
|
Accrued expenses
|
—
|
|
|
302.3
|
|
|
0.8
|
|
|
26.0
|
|
|
—
|
|
|
329.1
|
|
Profit sharing
|
—
|
|
|
105.1
|
|
|
—
|
|
|
6.7
|
|
|
—
|
|
|
111.8
|
|
Current portion of long-term debt
|
—
|
|
|
5.7
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
9.4
|
|
Advance payments, short-term
|
—
|
|
|
118.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
118.6
|
|
Deferred revenue, short-term
|
—
|
|
|
21.7
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
23.4
|
|
Deferred grant income liability - current
|
—
|
|
|
—
|
|
|
9.0
|
|
|
1.2
|
|
|
—
|
|
|
10.2
|
|
Other current liabilities
|
—
|
|
|
40.5
|
|
|
—
|
|
|
4.6
|
|
|
—
|
|
|
45.1
|
|
Total current liabilities
|
—
|
|
|
1,167.3
|
|
|
245.3
|
|
|
216.4
|
|
|
(370.2
|
)
|
|
1,258.8
|
|
Long-term debt
|
—
|
|
|
1,130.4
|
|
|
—
|
|
|
265.6
|
|
|
(251.9
|
)
|
|
1,144.1
|
|
Advance payments, long-term
|
—
|
|
|
680.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
680.4
|
|
Pension/OPEB obligation
|
—
|
|
|
73.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73.0
|
|
Deferred grant income liability - non-current
|
—
|
|
|
—
|
|
|
66.7
|
|
|
29.4
|
|
|
—
|
|
|
96.1
|
|
Deferred revenue and other deferred credits
|
—
|
|
|
21.2
|
|
|
—
|
|
|
6.3
|
|
|
—
|
|
|
27.5
|
|
Other liabilities
|
—
|
|
|
315.0
|
|
|
—
|
|
|
25.8
|
|
|
(80.0
|
)
|
|
260.8
|
|
Total equity
|
1,622.0
|
|
|
1,542.1
|
|
|
307.3
|
|
|
264.5
|
|
|
(2,113.9
|
)
|
|
1,622.0
|
|
Total liabilities and shareholders’ equity
|
$
|
1,622.0
|
|
|
$
|
4,929.4
|
|
|
$
|
619.3
|
|
|
$
|
808.0
|
|
|
$
|
(2,816.0
|
)
|
|
$
|
5,162.7
|
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended
July 2, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
Spirit
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
—
|
|
|
$
|
682.0
|
|
|
$
|
17.2
|
|
|
$
|
29.8
|
|
|
$
|
—
|
|
|
$
|
729.0
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
—
|
|
|
(90.2
|
)
|
|
(17.2
|
)
|
|
(8.0
|
)
|
|
—
|
|
|
(115.4
|
)
|
Net cash used in investing activities
|
—
|
|
|
(90.2
|
)
|
|
(17.2
|
)
|
|
(8.0
|
)
|
|
—
|
|
|
(115.4
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
—
|
|
|
535.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
535.0
|
|
Principal payments of debt
|
—
|
|
|
(15.7
|
)
|
|
—
|
|
|
(1.7
|
)
|
|
—
|
|
|
(17.4
|
)
|
Payments on term loan
|
—
|
|
|
(534.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(534.9
|
)
|
Increase (decrease) in intercompany debt
|
—
|
|
|
13.0
|
|
|
—
|
|
|
(13.0
|
)
|
|
—
|
|
|
—
|
|
Excess tax benefits from share-based payment arrangements
|
—
|
|
|
10.0
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
10.1
|
|
Taxes paid related to net shares settlement awards
|
—
|
|
|
(20.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20.2
|
)
|
Debt issuance and financing costs
|
—
|
|
|
(4.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.7
|
)
|
Net cash used in financing activities
|
—
|
|
|
(17.5
|
)
|
|
—
|
|
|
(14.6
|
)
|
|
—
|
|
|
(32.1
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
(0.7
|
)
|
Net increase in cash and cash equivalents for the period
|
—
|
|
|
574.3
|
|
|
—
|
|
|
6.5
|
|
|
—
|
|
|
580.8
|
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
354.6
|
|
|
—
|
|
|
23.3
|
|
|
—
|
|
|
377.9
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
928.9
|
|
|
$
|
—
|
|
|
$
|
29.8
|
|
|
$
|
—
|
|
|
$
|
958.7
|
|
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
($, €, and RM in millions other than per share amounts)
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended
July 3, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
Spirit
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Total
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
—
|
|
|
$
|
215.3
|
|
|
$
|
18.1
|
|
|
$
|
(23.9
|
)
|
|
$
|
—
|
|
|
$
|
209.5
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
—
|
|
|
(68.1
|
)
|
|
(18.1
|
)
|
|
(3.4
|
)
|
|
—
|
|
|
(89.6
|
)
|
Proceeds from the sale of assets
|
—
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Other
|
—
|
|
|
2.3
|
|
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
Net cash used in investing activities
|
—
|
|
|
(65.4
|
)
|
|
(18.1
|
)
|
|
(5.7
|
)
|
|
—
|
|
|
(89.2
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of bonds
|
—
|
|
|
300.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
300.0
|
|
Principal payments of debt
|
—
|
|
|
(10.0
|
)
|
|
—
|
|
|
(1.9
|
)
|
|
—
|
|
|
(11.9
|
)
|
(Decrease) increase in intercompany debt
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
Payments on bonds
|
—
|
|
|
(300.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(300.0
|
)
|
Debt issuance and financing costs
|
—
|
|
|
(20.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20.8
|
)
|
Excess tax benefits from share-based payment arrangements
|
—
|
|
|
2.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.3
|
|
Proceeds (payments) from subsidiary for purchase of treasury stock
|
129.2
|
|
|
(129.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of treasury stock
|
(129.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(129.2
|
)
|
Net cash used in financing activities
|
—
|
|
|
(158.2
|
)
|
|
—
|
|
|
(1.4
|
)
|
|
—
|
|
|
(159.6
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
Net decrease in cash and cash equivalents for the period
|
—
|
|
|
(8.3
|
)
|
|
—
|
|
|
(30.8
|
)
|
|
—
|
|
|
(39.1
|
)
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
359.2
|
|
|
—
|
|
|
61.5
|
|
|
—
|
|
|
420.7
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
350.9
|
|
|
$
|
—
|
|
|
$
|
30.7
|
|
|
$
|
—
|
|
|
$
|
381.6
|
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited condensed consolidated financial statements and the notes to the unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”). The following section may include “forward-looking statements.” Forward-looking statements generally can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “should,” “will,” and other similar words or phrases, or the negative thereof, unless the context requires otherwise. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties, both known and unknown, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the Securities and Exchange Commission ("SEC") on February 13, 2015 as subsequently amended on Form 10-K/A filed with the SEC on March 6, 2015 (our “2014 Form 10-K”) and our Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2015 (our "Q1 2015 Form 10-Q"), filed with the SEC on May 1, 2015. See also “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements.
Recent Events
On July 24, 2015, the Board of Directors of the Company authorized a share repurchase program authorizing the purchase of up to $350.0 million of the Company’s common stock. Repurchases may be made intermittently through December 31, 2017.
On June 8, 2015, Duane Hawkins was named Senior Vice President and General Manager - Boeing, Business and Regional Jet Programs. Mr. Hawkins was previously Senior Vice President of Operations. Ron Rabe was appointed to succeed Mr. Hawkins as Senior Vice President of Operations.
On June 2, 2015, John Pilla, the Senior Vice President/General Manager, Airbus Programs of Spirit, was reassigned to the position of Senior Vice President of Engineering and Chief Technology Officer, effective June 10, 2015. Michelle Lohmeier was appointed to succeed Mr. Pilla in his current position.
On May 12, 2015 Mr. David Coleal notified the Company of his decision to resign from his position as the Executive Vice President and General Manager - Boeing, Business & Regional Jet Programs of the Company. On May 21, 2015, the Company and Spirit entered into a Resignation and Consulting Agreement and General Release with Mr. Coleal.
On May 8, 2015, the Board of Directors of the Company approved an increase in the size of the Board from 9 to 10 members, and elected Irene M. Esteves to fill the newly created vacancy. Ms. Esteves was also named to the Audit Committee and the Risk Committee of the Board.
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 fuselage systems, propulsion systems and wing systems for commercial and military aircraft. For the three months ended July 2, 2015, we generated net revenues of $1,698.7 million and net income of $154.9 million and for the six months ended July 2, 2015, we generated net revenues of $3,440.9 million and net income of $336.8 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, Kansas. The Fuselage Systems segment manufactures products at our facilities in Wichita, Kansas and Kinston, North Carolina, with an assembly plant in Saint-Nazaire, France for the A350 XWB program. The Propulsion Systems segment manufactures products at our facilities in Wichita and Chanute, 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 52%, 26%, 22% and less than 1%, respectively, of our net revenues for the three and six months ended July 2, 2015.
Management’s Focus
The Company’s focus is on ensuring that our quality and operational and cost performance are world class. We have undertaken specific actions that highlight our commitment to define our core business and improve our operational performance results. At the end of 2014, we divested the G280 and G650 wing work packages at Spirit's facility in Tulsa, Oklahoma to Triumph Aerostructures- Tulsa, LLC, a subsidiary of Triumph Group, Inc. ("Triumph"). We continue to intensify our focus on the performance in our core markets of commercial aerospace and defense. We are also committed to reducing internal cost through cost saving initiatives and improving operational efficiency through centralization of functions. Additionally, we continue to add new executive talent and reassigned existing executive talent in an effort to strengthen performance in certain areas of our business.
We have taken additional actions to position the Company for future success by focusing on productivity and preparation for sustained growth. Our key objectives for 2015 include continued focus on improved performance, increased productivity, reduced cost and alignment of our business to what we do best; leveraging of our investments in support of aircraft rate increases ahead; continuation of our progress on the A350 XWB program; greater emphasis on long term growth; and implementation of a capital deployment strategy. During the first half of 2015, we have made significant progress in all of these areas which include an emphasis on reducing cost, increased productivity and operational efficiency across all aspects of the business. We continue to focus on capitalizing to prepare for aircraft rate increases. We also continue to make significant improvement on the A350 program's cost per shipset. With regard to capital deployment, we are following a balanced and disciplined approach such as our recently announced share repurchase program of up to $350.0 million.
New and Maturing Programs
We are currently performing work on several new and maturing programs, which are in various stages of development. These programs carry risks associated with design responsibility, development of production tooling, production inefficiencies during the initial phases of production, hiring and training of qualified personnel, increased capital and funding commitments, supplier performance, delivery schedules and unique contractual requirements. Our success depends on our ability to achieve performance obligations on new and maturing programs to our customers' satisfaction and manufacture products at our estimated cost.
In order to continue to reduce risk on our new and maturing programs, it will be critical that we successfully perform under revised design and manufacturing plans, achieve planned cost reductions as we enter increasing levels of production, meet customer delivery schedules, successfully resolve claims and assertions and negotiate pricing with our customers and suppliers.
A350 XWB
We continue to support the development of the A350 XWB program through two contracts we have with Airbus, a fuselage contract and a wing contract, both of which are segmented into a non-recurring design engineering phase and a recurring production phase. We continue to record sales at zero margins to reflect the identified risk profile on these programs.
We also continue to support the development of the work scope for the design and tooling related to the -1000 derivative of the A350 XWB fuselage and wing contracts. Estimates for the non-recurring design engineering phase of the -1000 fuselage derivative have resulted in previously recorded forward losses on this program. There is a risk of additional forward loss if we do not successfully execute the design and engineering change process as projected.
Our A350 XWB fuselage recurring program has experienced various production inefficiencies in its earlier stages of production which resulted in previously recorded forward losses, mostly driven by early development discovery and engineering change to the aircraft design, as well as higher test and transportation costs.
Estimated revenue for the A350 XWB program includes estimates of probable recoveries asserted against our customer for changes in specifications. Although we continue to project margins on the A350 XWB fuselage and wing contracts to be near or at break-even, there is still a substantial amount of risk similar to what we have experienced on other development programs. Specifically, our ability to successfully negotiate favorable pricing and other terms with Airbus and our suppliers, to manage supplier performance, execute cost reduction strategies, hire and retain skilled production and management personnel, execute quality and manufacturing processes, manage program schedule delays and adjust to higher rate schedules, among other risks, will determine the ultimate performance of this program and these contracts. There continues to be risk of additional forward loss associated with the fuselage recurring contract as we work through production, supply chain and customer issues.
B787 Program
As we move into a higher production rate on this program, our performance at the current contracted price depends on our continued ability to achieve cost reductions in manufacturing and support labor as well as supply chain. Improvement efforts to reduce our cost structure have been ongoing since the beginning of the program and continued as design engineering progressed for each minor model and manufacturing plans were solidified. Near-term cost improvement efforts will focus on efficiency gains within our manufacturing process and execution of sourcing strategies.
Our supply agreement for the B787 program (the "B787 Supply Agreement") provides that initial prices for the B787-9 and B787-10 are to be determined by a procedure set out in the B787 Supply Agreement, and to be documented by amendment once that amendment has been agreed to by the parties. As part of a Memorandum of Agreement that Spirit and Boeing entered into in November 2014 (the "November 2014 MOA"), the parties established near term interim prices for certain B787 shipsets, subject to resolution of recurring prices, future rate increases and other issues across multiple programs in 2015. During this period, while negotiations on these issues are ongoing, Spirit will record appropriate portions of the interim prices on certain 787-8 and 787-9 shipsets as deferred revenue, which will be recognized as revenue only if and when the parties reach resolution on the various issues. We are engaged in discussions with Boeing concerning how to determine the subsequent B787-9 and initial B787-10 prices, and have not yet reached agreement. Our ability to successfully negotiate fair and equitable prices for these models as well as overall B787 delivery volumes and our ability to achieve forecasted cost improvements on all B787 models are key factors in achieving the projected financial performance for this program.
For B787-9 deliveries in our first B787 contract block, we have applied the appropriate accounting guidance for unpriced change orders in estimating revenues which will be updated in the quarter in which final pricing is negotiated. Pending final price negotiations, we have estimated revenue for B787-9 deliveries to include assumptions around design changes from the contract configuration baseline for each B787 model.
Boeing Legacy Programs
On April 8, 2014, we entered into a Memorandum of Agreement with Boeing that established pricing terms for the B737, B747, B767 and B777 programs for the period commencing on April 1, 2014 and ending on December 31, 2015, under the Company's long-term supply contract with Boeing covering products for such programs. The new pricing terms were not applied to the period prior to April 1, 2014. The new prices do not apply to the 737 MAX, for which recurring pricing has not yet been agreed. Until the parties are able to agree upon pricing on the B737, B747, B767 and B777 platforms for the periods beyond 2015, supply agreement pricing will be determined according to then-existing prices, adjusted using a quantity-based price adjustment formula and specified annual escalation. 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.
Divestiture of the Gulfstream G280 and G650 Work Packages
In December 2014, we divested the G280 and G650 wing work packages at Spirit's facility in Tulsa, Oklahoma to Triumph. We continue to supply certain parts and services to Triumph under a supply agreement entered into in connection with the transaction.
Results of Operations
The following table sets forth, for the periods indicated, certain of our operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
July 2,
2015
|
|
July 3,
2014
|
|
Change from Prior Year
|
|
July 2,
2015
|
|
July 3,
2014
|
|
Change from Prior Year
|
|
($ in millions)
|
|
|
|
($ in millions)
|
|
|
Net revenues
|
$
|
1,698.7
|
|
|
$
|
1,803.3
|
|
|
(6
|
)%
|
|
$
|
3,440.9
|
|
|
$
|
3,531.8
|
|
|
(3
|
)%
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
1,407.9
|
|
|
1,525.9
|
|
|
(8
|
)%
|
|
2,856.2
|
|
|
2,993.2
|
|
|
(5
|
)%
|
Selling, general and administrative
|
53.8
|
|
|
54.4
|
|
|
(1
|
)%
|
|
105.4
|
|
|
114.9
|
|
|
(8
|
)%
|
Research and development
|
6.7
|
|
|
6.8
|
|
|
(1
|
)%
|
|
13.7
|
|
|
13.1
|
|
|
5
|
%
|
Operating income
|
230.3
|
|
|
216.2
|
|
|
|
|
|
465.6
|
|
|
410.6
|
|
|
|
Interest expense and financing fee amortization
|
(12.1
|
)
|
|
(20.8
|
)
|
|
(42
|
)%
|
|
(30.0
|
)
|
|
(56.2
|
)
|
|
(47
|
)%
|
Other income, net
|
8.1
|
|
|
5.9
|
|
|
37
|
%
|
|
1.7
|
|
|
7.2
|
|
|
(76
|
)%
|
Income before income taxes and equity in net income of affiliate
|
226.3
|
|
|
201.3
|
|
|
|
|
|
437.3
|
|
|
361.6
|
|
|
|
Income tax provision
|
(71.7
|
)
|
|
(58.1
|
)
|
|
23
|
%
|
|
(101.1
|
)
|
|
(65.0
|
)
|
|
56
|
%
|
Income before equity in net income of affiliate
|
154.6
|
|
|
143.2
|
|
|
|
|
|
336.2
|
|
|
296.6
|
|
|
|
Equity in net income of affiliate
|
0.3
|
|
|
0.2
|
|
|
50
|
%
|
|
0.6
|
|
|
0.4
|
|
|
50
|
%
|
Net income
|
$
|
154.9
|
|
|
$
|
143.4
|
|
|
|
|
|
$
|
336.8
|
|
|
$
|
297.0
|
|
|
|
Comparative shipset deliveries by model are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Model
|
|
July 2,
2015
|
|
July 3,
2014
|
|
July 2,
2015
|
|
July 3,
2014
|
B737
|
|
128
|
|
|
130
|
|
|
262
|
|
|
255
|
|
B747
|
|
4
|
|
|
4
|
|
|
8
|
|
|
9
|
|
B767
|
|
5
|
|
|
3
|
|
|
10
|
|
|
6
|
|
B777
|
|
25
|
|
|
26
|
|
|
51
|
|
|
52
|
|
B787
|
|
34
|
|
|
33
|
|
|
66
|
|
|
64
|
|
Total Boeing
|
|
196
|
|
|
196
|
|
|
397
|
|
|
386
|
|
A320 Family
|
|
120
|
|
|
121
|
|
|
255
|
|
|
249
|
|
A330/340
|
|
19
|
|
|
30
|
|
|
46
|
|
|
60
|
|
A350 XWB
|
|
9
|
|
|
5
|
|
|
15
|
|
|
7
|
|
A380
|
|
6
|
|
|
7
|
|
|
12
|
|
|
14
|
|
Total Airbus
|
|
154
|
|
|
163
|
|
|
328
|
|
|
330
|
|
Business/Regional Jets
(1)
|
|
16
|
|
|
33
|
|
|
33
|
|
|
68
|
|
Total
|
|
366
|
|
|
392
|
|
|
758
|
|
|
784
|
|
|
|
(1)
|
In December 2014, Spirit divested the Gulfstream G280 and G650 wing work packages to Triumph.
|
For purposes of measuring production or shipset deliveries for Boeing aircraft in a given period, the term “shipset” refers to sets of structural fuselage components produced or delivered for one aircraft in such period. For purposes of measuring production or shipset deliveries for Airbus and Business/Regional Jet aircraft in a given period, the term “shipset” refers to all structural aircraft components produced or delivered for one aircraft in such period. For the purposes of measuring wing shipset deliveries, the term "shipset" refers to all wing components produced or delivered for one aircraft in such period. Other components which are part of the same aircraft shipsets could be produced or shipped in earlier or later accounting periods than the components used to measure production or shipset deliveries, which may result in slight variations in production or delivery quantities of the various shipset components in any given period.
Net revenues by prime customer are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Prime Customer
|
|
July 2,
2015
|
|
July 3,
2014
|
|
July 2,
2015
|
|
July 3,
2014
|
|
|
($ in millions)
|
|
($ in millions)
|
Boeing
|
|
$
|
1,426.6
|
|
|
$
|
1,503.7
|
|
|
$
|
2,921.7
|
|
|
$
|
2,976.4
|
|
Airbus
|
|
188.5
|
|
|
190.2
|
|
|
350.7
|
|
|
338.8
|
|
Other
(1)
|
|
83.6
|
|
|
109.4
|
|
|
168.5
|
|
|
216.6
|
|
Total net revenues
|
|
$
|
1,698.7
|
|
|
$
|
1,803.3
|
|
|
$
|
3,440.9
|
|
|
$
|
3,531.8
|
|
|
|
(1)
|
In December 2014, Spirit divested the Gulfstream G280 and G650 wing work packages to Triumph.
|
Changes in Estimates
During the three months ended July 2, 2015, we recognized net favorable changes in estimates on loss programs of $2.2 million which includes favorable changes in estimates on loss programs of $3.5 million on certain Boeing fuselage programs, partially offset by forward loss charges of $1.3 million on certain Boeing propulsion programs. No changes in estimates on loss programs were recognized during the same period in the prior year. Also during the three months ended July 2, 2015, we recognized favorable cumulative catch-up adjustments related to periods prior to the second quarter of 2015 of $16.6 million. In comparison, during same period in the prior year, we recognized favorable cumulative catch-up adjustments related to periods prior to the second quarter of 2014 of $19.4 million.
During the six months ended July 2, 2015, we recognized net favorable changes in estimates on loss programs of $5.1 million which includes favorable changes in estimates on loss programs of $6.4 million on certain Boeing fuselage programs, partially offset by forward loss charges of $1.3 million on certain Boeing propulsion programs. During the same period in the prior year, we recognized forward loss charges of $1.2 million which included forward loss charges of $0.9 million on certain fuselage programs and $0.3 million on certain wing programs. Also during the six months ended July 2, 2015, we recognized favorable cumulative catch-up adjustments related to periods prior to 2015 of $24.1 million. In comparison, during the same period in the prior year, we recognized favorable cumulative catch-up adjustments related to periods prior to 2014 of $30.2 million.
Three Months Ended July 2, 2015 as Compared to Three Months Ended July 3, 2014
Net Revenues.
Net revenues for the three months ended July 2, 2015 were $1,698.7 million, a decrease of $104.6 million, or 6%, compared to net revenues of $1,803.3 million for the same period in the prior year. The decrease in net revenues was primarily due to $85.3 million of lower production revenue driven by lower revenue from Gulfstream due to the divestiture of the G280 and G650 wing work packages in December 2014 and lower net revenues recognized on the B787 program in accordance with pricing terms under the B787 Supply Agreement. These decreases were partially offset by increased revenue on the A350 XWB program due to higher production deliveries. Non-recurring revenue, which includes engineering design and development activities, was lower by $11.5 million compared to the same period in the prior year. Approximately 95% of Spirit’s net revenues for the second quarter of 2015 came from our two largest customers, Boeing and Airbus.
Production deliveries to Boeing remained constant at 196 shipsets during the second quarter of 2015, compared to the same period of the prior year. Production deliveries to Airbus decreased by 6% to 154 shipsets during the second quarter of 2015,
primarily driven by lower production of the A330, compared to 163 shipsets delivered in the same period in the prior year. Production deliveries of business/regional jet wing and wing components decreased by 52% to 16 shipsets during the second quarter of 2015, compared to 33 shipsets delivered in the same period of the prior year primarily due to the divestiture of the G280 and G650 wing work packages in December 2014. In total, production deliveries decreased overall by 7% to 366 shipsets during the second quarter of 2015, compared to 392 shipsets for the same period in the prior year.
Cost of Sales.
Cost of sales as a percentage of net revenues was 83% for the three months ended July 2, 2015, as compared to 85% for the same period in the prior year. The decrease in cost of sales as a percentage of net revenues was primarily driven by favorable labor and material cost performance on mature programs. In the second quarter of 2015, we recorded $16.6 million of favorable cumulative catch-up adjustments related to periods prior to the second quarter of 2015, primarily driven by productivity and efficiency improvements on mature programs, as well as $2.2 million of net favorable changes in estimates on loss programs. In the same period of 2014, we recorded $19.4 million of favorable cumulative catch-up adjustments related to periods prior to the second quarter of 2014.
SG&A and Research and Development.
SG&A expense was $0.6 million lower for the three months ended July 2, 2015, compared to the same period in the prior year, primarily due to lower consulting and legal fees incurred during the second quarter of 2015. Research and development expense was $0.1 million lower for the three months ended July 2, 2015, compared to the same period in the prior year.
Operating Income.
Operating income for the three months ended July 2, 2015 was $230.3 million, an increase of $14.1 million, compared to operating income of $216.2 million for the same period in the prior year, primarily due to favorable labor and material cost performance.
Interest Expense and Financing Fee Amortization.
Interest expense and financing fee amortization for the three months ended July 2, 2015 includes $11.2 million of interest and fees paid or accrued in connection with long-term debt and $0.9 million in amortization of deferred financing costs and original issue discount, compared to $17.8 million of interest and fees paid or accrued in connection with long-term debt and $3.0 million in amortization of deferred financing costs and original issue discount for the same period in the prior year. As a result of Amendment No. 5 to our senior secured credit facility, interest expense for the three months ended July 2, 2015 includes lower interest expense on our term loan compared to the same period in the prior year. During the second quarter of 2014, we recognized an additional charge of $2.0 million for write-down of deferred financing costs, original issue discount, and third party fees related to Amendment No. 3 of our senior secured credit facility and the redemption of our 2017 Notes using proceeds from the issuance of our 2022 Notes. Additionally, on May 1, 2014, Spirit called for redemption of the remaining 2017 Notes outstanding which resulted in a call premium of $2.7 million recorded to interest expense.
Other Income, net.
Other income, net for the three months ended July 2, 2015 was $8.1 million, compared to $5.9 million for the same period in the prior year. Other income was primarily driven by foreign exchange rate fluctuations as the British Pound strengthened against the U.S. Dollar. We recognized foreign currency gains on an intercompany revolver and long-term contractual rights/obligations, as well as trade and intercompany receivables/payables which are denominated in a currency other than the entity’s functional currency.
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 change in tax law.
However, the Company has determined that a calculation of an annual effective tax rate would not represent a reliable estimate for its U.S. operations due to historical differences between forecasted and actual U.S. pre-tax earnings and the effect of the Company's U.S. deferred tax valuation allowance, which create results with significant variations in the customary relationship between income tax expense and pre-tax income for the interim periods. Under the discrete method, the Company determines tax expense based upon actual results as if the interim period were an annual period. The discrete method was used for our U.S. pre-tax income and an annual effective rate was used for our international pre-tax income.
Based on evaluation of both the positive and negative evidence available, management determined that it was necessary to continue to maintain a valuation allowance against nearly all of its net U.S. deferred tax assets as of July 2, 2015. The net valuation allowance was decreased by $2.1 million for the three months ended July 2, 2015. The reduction reflects the realization of certain deferred tax assets within the Company’s discrete method taxable income calculation and changes in deferred tax assets associated with certain state income tax credits for the three months ended July 2, 2015. To the extent that the Company generates positive taxable income and expects, with reasonable certainty, to continue to generate positive income, we may release additional valuation allowance in future periods. Additionally, we anticipate that the Company’s net cumulative recent loss, which is a significant
element of negative evidence, will be eliminated in the second half of 2015. If sustained levels of profitability are maintained and our evaluation and weighting of all positive evidence exceeds any remaining negative evidence, the company may reverse the majority of the remaining valuation allowance as early as the second half of 2015. This release would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period such release is recorded. The release of all or a portion of the valuation allowance may have a significant effect on our tax expense in the period it is released.
The income tax provision for the three months ended July 2, 2015 includes $68.9 million for federal taxes, $0.4 million for state taxes and $2.4 million for foreign taxes. The income tax provision for the three months ended July 3, 2014 includes $50.2 million for federal taxes, $1.5 million for state taxes and $6.4 million for foreign taxes. The effective tax rate for the three months ended July 2, 2015 was 31.7% as compared to 28.8% for 2014. The difference in the effective tax rate recorded for 2015 as compared to 2014 related primarily to the U.S. net deferred tax asset valuation allowance decrease in 2015 and the effect of certain non-deductible expenses within the company’s income tax provision in 2015. The decrease from the U.S. statutory tax rate is attributable primarily to the inclusion of U.S. net deferred tax asset valuation allowance decrease, U.S. qualified domestic production activities deduction and foreign tax rates less than the U.S. rate.
Our income tax expense for 2015 does not reflect any benefit of the Research Tax Credit attributable to 2015 as the legislation has not been extended beyond December 2014. Should the legislation be extended during the year, the Company may record additional tax benefits for 2015 Research Tax Credit.
Segments.
The following table shows segment revenues and operating income for the three months ended July 2, 2015 and July 3, 2014:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
July 2,
2015
|
|
July 3,
2014
|
|
($ in millions)
|
Segment Revenues
|
|
|
|
|
|
Fuselage Systems
|
$
|
887.6
|
|
|
$
|
905.0
|
|
Propulsion Systems
|
440.5
|
|
|
460.5
|
|
Wing Systems
(1)
|
367.5
|
|
|
438.3
|
|
All Other
|
3.1
|
|
|
(0.5
|
)
|
|
$
|
1,698.7
|
|
|
$
|
1,803.3
|
|
Segment Operating Income
|
|
|
|
|
|
Fuselage Systems
|
$
|
168.0
|
|
|
$
|
132.2
|
|
Propulsion Systems
|
88.2
|
|
|
86.2
|
|
Wing Systems
|
50.1
|
|
|
71.0
|
|
All Other
|
1.4
|
|
|
0.2
|
|
|
307.7
|
|
|
289.6
|
|
Corporate SG&A
|
(53.8
|
)
|
|
(54.4
|
)
|
Research and development
|
(6.7
|
)
|
|
(6.8
|
)
|
Unallocated cost of sales
(2)
|
(16.9
|
)
|
|
(12.2
|
)
|
Total operating income
|
$
|
230.3
|
|
|
$
|
216.2
|
|
|
|
(1)
|
In December 2014, Spirit divested the Gulfstream G280 and G650 wing work packages to Triumph.
|
|
|
(2)
|
Includes
$12.0
million and $11.6 million of warranty reserve for the three months ended
July 2, 2015
and
July 3, 2014
, respectively.
|
Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately 52%, 26%, 22% and less than 1%, respectively, of our net revenues for the three months ended July 2, 2015.
Fuselage Systems.
Fuselage Systems segment net revenues for the three months ended July 2, 2015 were $887.6 million, a decrease of $17.4 million, or 2%, compared to the same period in the prior year. The decrease in net revenues was primarily due
to lower net revenues recognized on the B787 program, partially offset by higher production deliveries on the A350 XWB program. Fuselage Systems segment operating margins were 19% for the three months ended July 2, 2015, compared to 15% for the same period in the prior year, with the increase primarily driven by favorable labor and material cost performance on mature programs. In the second quarter of 2015, the segment recorded favorable cumulative catch-up adjustments of $10.8 million driven by productivity and efficiency improvements on mature programs, as well as $3.5 million of favorable change in estimates on loss programs. In comparison, during the second quarter of 2014, the segment recorded favorable cumulative catch-up adjustments of $2.7 million driven by productivity and efficiency improvements on mature programs.
Propulsion Systems.
Propulsion Systems segment net revenues for the three months ended July 2, 2015 were $440.5 million, a decrease of $20.0 million, or 4%, compared to the same period in the prior year. The decrease in net revenues was primarily due to lower non-recurring net revenues and lower aftermarket sales, partially offset by higher production deliveries on the BR725 programs. Propulsion Systems segment operating margins were 20% for the three months ended July 2, 2015, compared to 19% for the same period in the prior year, primarily driven by favorable labor and material cost performance on mature programs. In the second quarter of 2015, the segment recorded favorable cumulative catch-up adjustments of $6.6 million driven by productivity and efficiency improvements on mature programs, offset by $1.3 million of forward loss. In comparison, during the second quarter of 2014, the segment recorded favorable cumulative catch-up adjustments of $5.0 million driven by productivity and efficiency improvements on mature programs.
Wing Systems.
Wing Systems segment net revenues for the three months ended July 2, 2015 were $367.5 million, a decrease of $70.8 million, or 16%, compared to the same period in the prior year. The decrease in net revenues was primarily due to the divestiture of the G280 and G650 wing work packages in December 2014 and lower net revenue on the B787 program, partially offset by higher production deliveries on the A350 XWB program. Wing Systems segment operating margins were 14% for the three months ended July 2, 2015, compared to 16% for the same period in the prior year. In the second quarter of 2015, the segment recorded unfavorable cumulative catch-up adjustments of $0.8 million. In the second quarter of 2014, the segment recorded favorable cumulative catch-up adjustments of $11.7 million driven by productivity and efficiency improvements on mature programs.
All Other.
All Other segment net revenues consist of sundry sales of miscellaneous services, tooling contracts and natural gas revenues from KIESC. In the three months ended July 2, 2015, All Other segment net revenues were $3.1 million, an increase of $3.6 million compared to the same period in the prior year primarily due to higher natural gas and sundry sales. The All Other segment recorded 45% operating margins for the three months ended July 2, 2015, compared to segment operating margins of (40%) for the same period in the prior year. The increase in segment operating margins for the three months ended July 2, 2015 was attributed to higher sundry sales.
Six Months Ended July 2, 2015 as Compared to Six Months Ended July 3, 2014
Net Revenues.
Net revenues for the six months ended July 2, 2015 were $3,440.9 million, a decrease of $90.9 million, or 3%, compared to net revenues of $3,531.8 million for the same period in the prior year. The decrease in net revenues was primarily due to $73.4 million of lower production revenue driven by lower revenue from Gulfstream due to the divestiture of the G280 and G650 wing work packages in December 2014 and lower net revenues recognized on the B787 program in accordance with pricing terms under the B787 Supply Agreement. These decreases were partially offset by increased revenue on the A350 program due to higher production deliveries. Non-recurring revenue, which includes engineering design and development activities, was lower by $5.1 million compared to the same period in the prior year. Approximately 95% of Spirit’s net revenues for the second half of 2015 came from our two largest customers, Boeing and Airbus.
Production deliveries to Boeing increased by 3% to 397 shipsets during the first half of 2015, primarily driven by higher production rates on the B737 and B767 programs, compared to 386 shipsets delivered in the same period of the prior year. Production deliveries to Airbus slightly decreased by 1% to 328 shipsets during the first half of 2015, compared to 330 shipsets delivered in the same period of the prior year. Production deliveries of business/regional jet wing and wing components decreased by 51% to 33 shipsets during the first half of 2015, compared to 68 shipsets delivered in the same period of the prior year, primarily due to the divestiture of the G280 and G650 wing work packages in December 2014. In total, production deliveries decreased overall by 3% to 758 shipsets during the first half of 2015, compared to 784 shipsets for the same period in the prior year.
Cost of Sales.
Cost of sales as a percentage of net revenues was 83% for the six months ended July 2, 2015, as compared to 85% for the same period in the prior year. The decrease in cost of sales as a percentage of net revenues was primarily driven by favorable labor and material cost performance on mature programs, including a favorable impact of fixed overhead absorption as a result of higher production rates. In the first half of 2015, we recorded $24.1 million of favorable cumulative catch-up adjustments related to periods prior to the first half of 2015, primarily driven by productivity and efficiency improvements on mature programs, as well as $5.1 million of net favorable changes in estimates on loss programs. In the same period of 2014, we recorded $30.2
million of favorable cumulative catch-up adjustments related to periods prior to the first half of 2014, partially offset by $1.2 million of forward loss charges.
SG&A and Research and Development.
SG&A expense was $9.5 million lower for the six months ended July 2, 2015, compared to the same period in the prior year, primarily due to lower consulting and legal fees incurred during the first half of 2015. Research and development expense was $0.6 million higher for the six months ended July 2, 2015, compared to the same period in the prior year.
Operating Income.
Operating income for the six months ended July 2, 2015 was $465.6 million, an increase of $55.0 million, compared to operating income of $410.6 million for the same period in the prior year, primarily due to favorable labor and material cost performance, including a favorable impact of fixed overhead absorption as a result of higher production rates, and lower SG&A expenses.
Interest Expense and Financing Fee Amortization.
Interest expense and financing fee amortization for the six months ended July 2, 2015 includes $24.9 million of interest and fees paid or accrued in connection with long-term debt and $5.1 million in amortization of deferred financing costs and original issue discount, compared to $37.5 million of interest and fees paid or accrued in connection with long-term debt and $18.7 million in amortization of deferred financing costs and original issue discount for the same period in the prior year. As a result of Amendment No. 5 to our senior secured credit facility, interest expense for the six months ended July 2, 2015 includes lower interest expense on our term loan compared to the same period in the prior year. During the first half of 2014, we recognized a charge of $22.3 million for the write-down of deferred financing costs, original issue discount, third party fees and the call premium resulting from the financing activities announced during the first half of 2014, which included Amendment No. 3 to our senior secured credit facility and the redemption of our 2017 Notes using proceeds from the issuance of our 2022 Notes.
Other Income, net.
Other income, net for the six months ended July 2, 2015 was $1.7 million, compared to $7.2 million for the same period in the prior year. Other income was primarily driven by foreign exchange rate gains and losses as the British Pound value fluctuated against the U.S. Dollar and the recognition of $2.0 million of losses related to the settlement of our interest rate swap agreements. We recognized foreign currency gains on an intercompany revolver and long-term contractual rights/obligations, as well as trade and intercompany receivables/payables, which are denominated in a currency other than the entity’s functional currency.
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 change in tax law.
However, the Company has determined that a calculation of an annual effective tax rate would not represent a reliable estimate for its U.S. operations due to historical differences between forecasted and actual U.S. pre-tax earnings and the effect of the Company's U.S. deferred tax valuation allowance, which create results with significant variations in the customary relationship between income tax expense and pre-tax income for the interim periods. Under the discrete method, the Company determines tax expense based upon actual results as if the interim period were an annual period. The discrete method was used for our U.S. pre-tax income and an annual effective rate was used for our international pre-tax income.
Based on evaluation of both the positive and negative evidence available, management determined that it was necessary to continue to maintain a valuation allowance against nearly all of its net U.S. deferred tax assets as of July 2, 2015. The net valuation allowance was decreased by $44.1 million for the six months ended July 2, 2015. The reduction reflects the realization of certain deferred tax assets within the Company’s discrete method taxable income calculation and changes in deferred tax assets associated with certain state income tax credits for the six months ended July 2, 2015.
The income tax provision for the six months ended July 2, 2015 includes $96.0 million for federal taxes, $0.8 million for state taxes and $4.3 million for foreign taxes. The income tax provision for the six months ended July 3, 2014 includes $67.3 million for federal taxes, $1.6 million for state taxes and ($3.9) million for foreign taxes. The effective tax rate for the six months ended July 2, 2015 was 23.1% as compared to 18.0% for 2014. The difference in the effective tax rate recorded for 2015 as compared to 2014 related primarily to the effect of certain non-deductible expenses within the company’s income tax provision in 2015 and the release of the Malaysia tax reserve and deferred tax liabilities in the first half of 2014 as a result of formal approval of the tax holiday by the Malaysian tax authorities. The decrease from the U.S. statutory tax rate is attributable primarily to the inclusion of U.S. net deferred tax asset valuation allowance decrease, U.S. qualified domestic production activities deduction and foreign tax rates less than the U.S. rate.
Our income tax expense for 2015 does not reflect any benefit of the Research Tax Credit attributable to 2015 as the legislation has not been extended beyond December 2014. Should the legislation be extended during the year, the Company may record additional tax benefits for 2015 Research Tax Credit.
Segments.
The following table shows segment revenues and operating income for the six months ended July 2, 2015 and July 3, 2014:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
July 2,
2015
|
|
July 3,
2014
|
|
($ in millions)
|
Segment Revenues
|
|
|
|
|
|
Fuselage Systems
|
$
|
1,804.4
|
|
|
$
|
1,763.3
|
|
Propulsion Systems
|
886.5
|
|
|
910.7
|
|
Wing Systems
(1)
|
744.2
|
|
|
852.5
|
|
All Other
|
5.8
|
|
|
5.3
|
|
|
$
|
3,440.9
|
|
|
$
|
3,531.8
|
|
Segment Operating Income
|
|
|
|
|
|
Fuselage Systems
|
$
|
332.5
|
|
|
$
|
274.2
|
|
Propulsion Systems
|
183.9
|
|
|
166.4
|
|
Wing Systems
|
95.3
|
|
|
121.0
|
|
All Other
|
1.1
|
|
|
0.3
|
|
|
612.8
|
|
|
561.9
|
|
Corporate SG&A
|
(105.4
|
)
|
|
(114.9
|
)
|
Research and development
|
(13.7
|
)
|
|
(13.1
|
)
|
Unallocated cost of sales
(2)
|
(28.1
|
)
|
|
(23.3
|
)
|
Total operating income
|
$
|
465.6
|
|
|
$
|
410.6
|
|
|
|
(1)
|
In December 2014, Spirit divested the Gulfstream G280 and G650 wing work packages to Triumph.
|
|
|
(2)
|
Includes
$22.4
million and $22.6 million of warranty reserve for the six months ended
July 2, 2015
and
July 3, 2014
, respectively.
|
Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately 52%, 26%, 22% and less than 1%, respectively, of our net revenues for the six months ended July 2, 2015.
Fuselage Systems.
Fuselage Systems segment net revenues for the six months ended July 2, 2015 were $1,804.4 million, an increase of $41.1 million, or 2%, compared to the same period in the prior year. The increase in net revenues was primarily due to higher production deliveries on the B737 and the A350 XWB programs as well as higher net revenues for non-recurring design and development activities. These increases were partially offset by lower net revenues recognized on the B787 program. Fuselage Systems segment operating margins were 18% for the six months ended July 2, 2015, compared to 16% for the same period in the prior year, with the increase primarily driven by favorable labor and material cost performance on mature programs, including a favorable impact of fixed overhead absorption as a result of higher production rates. In the first half of 2015, the segment recorded favorable cumulative catch-up adjustments of $10.3 million driven by productivity and efficiency improvements on mature programs, as well as $6.4 million of favorable changes in estimates on loss programs. In comparison, during the first half of 2014, the segment recorded favorable cumulative catch-up adjustments of $8.6 million driven by productivity and efficiency improvements on mature programs, partially offset by a forward loss charge of $0.9 million.
Propulsion Systems.
Propulsion Systems segment net revenues for the six months ended July 2, 2015 were $886.5 million, a decrease of $24.2 million, or 3%, compared to the same period in the prior year. The decrease in net revenues was primarily due to lower non-recurring net revenues, partially offset by higher production deliveries on the B737 and BR725 programs. Propulsion Systems segment operating margins were 21% for the six months ended July 2, 2015, compared to 18% for the same period in
the prior year, primarily driven by favorable labor and material cost performance on mature programs, including a favorable impact of fixed overhead absorption as a result of higher production rates. In the first half of 2015, the segment recorded favorable cumulative catch-up adjustments of $14.4 million driven by productivity and efficiency improvements on mature programs, partially offset by a forward loss charge of $1.3 million. In comparison, during the first half of 2014, the segment recorded favorable cumulative catch-up adjustments of $8.3 million driven by productivity and efficiency improvements on mature programs.
Wing Systems.
Wing Systems segment net revenues for the six months ended July 2, 2015 were $744.2 million, a decrease of $108.3 million, or 13%, compared to the same period in the prior year. The decrease in net revenues was primarily due to the divestiture of the G280 and G650 wing work packages in December 2014 and lower net revenue on the B787 program, partially offset by higher production deliveries on the A350 XWB program. Wing Systems segment operating margins were 13% for the six months ended July 2, 2015, compared to 14% for the same period in the prior year. In the first half of 2015, the segment recorded unfavorable cumulative catch-up adjustments of $0.6 million. In the first half of 2014, the segment recorded favorable cumulative catch-up adjustments of $13.3 million driven by productivity and efficiency improvements on mature programs, partially offset by forward loss charges of $0.3 million.
All Other.
All Other segment net revenues consist of sundry sales of miscellaneous services, tooling contracts and natural gas revenues from KIESC. In the six months ended July 2, 2015, All Other segment net revenues were $5.8 million, an increase of $0.5 million compared to the same period in the prior year, primarily due to higher sundry sales. The All Other segment recorded 19% operating margins for the six months ended July 2, 2015, compared to segment operating margins of 6% for the same period in the prior year.
Liquidity and Capital Resources
The primary sources of our liquidity include cash on hand, cash flow from operations, which includes receivables from customers and borrowings available under our revolving credit facility. Additionally, we may receive advance payments from customers and proceeds from asset sales. Our liquidity requirements are driven by our long-cycle business model. Our business model is comprised of four to six year non-recurring investment periods, which include design and development efforts, followed by recurring production through the life of the contract, which could extend beyond twenty years. The non-recurring investment periods require significant outflows of cash as we design the product, build tooling, purchase equipment and build initial production inventories. These activities could be funded partially through customer advances and milestone payments, which are offset against revenue as production units are delivered in the case of customer advances, or recognized as revenue as milestones are achieved in the case of milestone payments. The remaining funds needed to support non-recurring programs come from predictable cash inflows from our mature programs that are in the recurring phase of the production cycle. The non-recurring investment period typically ends concurrently with initial deliveries of completed aircraft by our customers, which indicates that a program has entered into the recurring production phase. When a program reaches steady recurring production, it typically results in long-term generation of cash from operations. As part of our business model, we have continuously added new non-recurring programs, which are supported by mature programs that are in the steady recurring phase of the production cycle to promote growth.
As of July 2, 2015, we had $958.7 million of cash and cash equivalents on the balance sheet and $650.0 million of available borrowing capacity under our revolving credit facility. There were no borrowings or outstanding balances under our revolving credit facility as of July 2, 2015. Based on our planned levels of operations and our strong liquidity position, we currently expect that our cash on hand, cash flow from operations and borrowings available under our revolving credit facility will be sufficient to fund our operations, inventory growth, planned capital investments, research and development expenditures and scheduled debt service payments for at least the next twelve months.
Cash Flows
The following table provides a summary of our cash flows for the six months ended July 2, 2015 and July 3, 2014:
|
|
|
|
|
|
|
|
|
|
For the six months ended
|
|
July 2, 2015
|
|
July 3, 2014
|
|
($ in millions)
|
Net income
|
$
|
336.8
|
|
|
$
|
297.0
|
|
Adjustments to reconcile net income
|
89.8
|
|
|
91.9
|
|
Changes in working capital
|
302.4
|
|
|
(179.4
|
)
|
Net cash provided by operating activities
|
729.0
|
|
|
209.5
|
|
Net cash used in investing activities
|
(115.4
|
)
|
|
(89.2
|
)
|
Net cash used in financing activities
|
(32.1
|
)
|
|
(159.6
|
)
|
Effect of exchange rate change on cash and cash equivalents
|
(0.7
|
)
|
|
0.2
|
|
Net increase (decrease) in cash and cash equivalents for the period
|
580.8
|
|
|
(39.1
|
)
|
Cash and cash equivalents, beginning of period
|
377.9
|
|
|
420.7
|
|
Cash and cash equivalents, end of period
|
$
|
958.7
|
|
|
$
|
381.6
|
|
Six Months Ended July 2, 2015 as Compared to Six Months Ended July 3, 2014
Operating Activities.
For the six months ended July 2, 2015, we had a net cash inflow of $729.0 million from operating activities, an increase of $519.5 million, compared to a net cash inflow of $209.5 million for the same period in the prior year. The increase in net cash provided by operating activities was primarily due to $183.3 million higher cash receipts from customers for production deliveries, including settlement of retainage receivable, $113.3 million higher cash receipts from customers for non-recurring activities, including deferred revenue payments, compared to the same period in the prior year. Cash paid for operating expenses was $180.1 million lower, partially attributed to the divestiture of the G280 and G650 wing work packages in December 2014, compared to the same period in the prior year. Net tax refunds received during the first half of 2015 were $27.3 million higher compared to the same period in the prior year.
Investing Activities.
For the six months ended July 2, 2015, we had a net cash outflow of $115.4 million for investing activities, an increase in outflow of $26.2 million compared to a net cash outflow of $89.2 million for the same period in the prior year. During the first six months of 2015, investing activities consisted primarily of capital expenditures for construction in progress to support increasing production rates. In comparison, during the first six months of 2014, capital expenditures consisted primarily of construction in progress and machinery and equipment to support increasing production rates.
Financing Activities.
For the six months ended July 2, 2015, we had a net cash outflow of $32.1 million for financing activities, a decrease in outflow of $127.5 million, compared to a net cash outflow of $159.6 million for the same period in the prior year. During the six months ended July 2, 2015, we entered into Amendment No. 5 to our senior secured Credit Agreement which resulted in debt issuance costs of $4.7 million. During the six months ended July 3, 2014, we entered into Amendment No. 3 to our senior secured Credit Agreement and redeemed our 2017 Notes using proceeds from the issuance of our 2022 Notes. Debt issuance costs for the six months ended July 3, 2014 totaled $20.8 million and consisted of third party fees and tender and consent fees. In connection with a secondary offering by Onex and certain other stockholders during the first half of 2014, we repurchased 4 million shares of class A common stock for $129.2 million. In the first quarter of 2015, payments on debt other than the financing activity were $17.4 million compared to $11.9 million in the same period in the prior year.
Future Cash Needs and Capital Spending
Our primary future cash needs will consist of working capital, debt service, research and development and capital expenditures, including potential share repurchases, dividend payments, merger and acquisition or disposition activities. We expend significant capital as we undertake new programs, which begin in the non-recurring investment phase of our business model. In addition, we expend significant capital to meet increased production rates on certain mature and maturing programs, including the B737, B787 and the A350 XWB programs. In response to announced customer production rate increases, we are evaluating various plans to
relieve capacity constraints. We also require capital to develop new technologies for the next generation of aircraft, which may not be funded by our customers. Capital expenditures for the six months ended July 2, 2015 totaled $115.4 million, as compared to $89.6 million for the same period in 2014. We plan to fund future capital expenditures and cash requirements from cash on hand, cash generated by operations, customer cash advances, borrowings available under our revolving credit facility and proceeds from asset sales, if any.
The Board of Directors recently authorized a share repurchase program authorizing the purchase of up to $350.0 million of the Company’s common stock. Repurchases may be made intermittently through December 31, 2017. We intend to fund repurchases under the share repurchase program from cash on hand.
Pension and Other Post Retirement Benefit Obligations
Our U.S. pension plan remained fully funded at July 2, 2015 and we anticipate non-cash pension income for 2015 to remain at or near the same level as 2014. 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. See Note 13, Pension and Other Post-Retirement Benefits, for more information on the Company's pension plans.
Debt and Other Financing Arrangements
On March 18, 2015, Spirit AeroSystems, Inc., as borrower, Spirit AeroSystems Holdings, Inc., as parent guarantor, and certain of its subsidiaries entered into Amendment No. 5 (the “Amendment”) to the Company's senior secured Credit Agreement, dated as of April 18, 2012, as amended by Amendment No. 1, dated as of October 26, 2012, Amendment No. 2, dated as of August 2, 2013, Amendment No. 3, dated as of March 18, 2014 and Amendment No. 4, dated as of June 3, 2014 (the "Credit Agreement"). The Amendment provided for a new $535.0 million senior secured term loan A (the “Term Loan”) with a maturity date of March 18, 2020, which replaces the term loan B which had an amount outstanding of approximately $534.9 million (the “Term Loan B”) that was scheduled to mature on September 15, 2020. The Term Loan bears interest, at Spirit’s option, at either LIBOR plus 1.75% or a defined “base rate” plus 0.75%, subject to adjustment to amounts between and including LIBOR plus 1.75% and LIBOR plus 2.50% (or amounts between and including base rate plus 0.75% and base rate plus 1.50%, as applicable) based on changes to Spirit’s debt-to-EBITDA ratio. The principal obligations under the Term Loan are to be repaid in equal quarterly installments of $6.7 million, with the remaining balance due at maturity of the Term Loan. The Amendment maintained substantially the same prepayment requirements and covenant structure under the Credit Agreement, and provided the Company with some additional flexibility with respect to certain activities. Spirit used the proceeds of the Term Loan to pay off the Term Loan B and to pay a portion of the fees and expenses payable in connection with the Amendment.
Substantially all of Spirit's assets, including inventory and property, plant and equipment, continue to be pledged as collateral for both the Term Loan and the revolving credit facility. As of July 2, 2015, the outstanding balance of the Term Loan was
$521.6
million. As a result of extinguishment of the Term Loan B during the first quarter of 2015, the Company recognized a loss on extinguishment of debt of
$3.6
million. Of this total charge,
$3.1
million is reflected within amortization of deferred financing fees and
$0.5
million is reflected within amortization expense on the Condensed Consolidated Statement of Cash Flows for the six months ended
July 2, 2015
.
Senior Notes.
In November 2010, the Company issued $300.0 million in aggregate principal amount of 6.75% Senior Notes due December 15, 2020 (the “2020 Notes”), with interest payable, in cash in arrears, on June 15 and December 15 of each year, beginning June 15, 2011. The 2020 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and Spirit’s existing and future domestic subsidiaries that guarantee Spirit’s obligations under Spirit’s senior secured credit facility. The carrying value of the 2020 Notes was
$300,000,000.0
million as of
July 2, 2015
.
In March 2014, the Company issued
$300.0
million in aggregate principal amount of
5.25%
Senior Notes due
March 15, 2022
(the "2022 Notes") with interest payable, in cash in arrears, on March 15 and September 15 of each year, beginning September 15, 2014. The 2022 Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by the Company and its existing and future domestic subsidiaries that guarantee Spirit's obligations under its amended senior secured credit facility. The carrying value of the 2022 Notes was
$299.5
million as of
July 2, 2015
.
Advances and Deferred Revenue on the B787 Program.
Boeing has made advance payments to Spirit under the B787 Supply Agreement, which advance payments are required to be repaid to Boeing by way of offset against the purchase price for future shipset deliveries. On April 8, 2014, the Company signed a memorandum of agreement with Boeing which suspended advance repayments related to the B787 program for a period of twelve months beginning April 1, 2014. Repayment recommenced on April 1, 2015 and any repayments which otherwise would have become due during such twelve-month period will offset the purchase price for shipset 1,001 and beyond. In the event Boeing does not take delivery of a sufficient number of shipsets to repay
the full amount of advances prior to the termination of the B787 program or the B787 Supply Agreement, any advances not then repaid will be applied against any outstanding payments then due by Boeing to us, and any remaining balance will be repaid in annual installments of $42.0 million due on December 15th of each year until the advance payments have been fully recovered by Boeing. As of
July 2, 2015
, the amount of advance payments and deferred revenue received by us from Boeing under the B787 Supply Agreement and not yet repaid or recognized as revenue was approximately
$748.5 million
.
Advances on the A350 Fuselage Program.
In March 2012, we signed a Memorandum of Agreement with Airbus providing for Airbus to make advance payments to us in 2012. The advance payments are offset against the recurring price of A350 XWB shipsets invoiced by Spirit, at a rate of $1.25 million per shipset. We received $250.0 million in advance payments in 2012 and the balance that had not been repaid as of
July 2, 2015
was
$211.0 million
.
Malaysian Facility Agreement
. The Company’s wholly-owned subsidiary, Spirit AeroSystems Malaysia SDN BHD is party to a Facility Agreement for a term loan facility with the Malaysian Export-Import Bank for Ringgit Malaysia (“RM”) 69.2 million (approximately USD $20.0 million equivalent) (the “Malaysia Facility”). The Malaysia Facility requires quarterly principal repayments of RM 3.3 million (approximately USD $1.0 million equivalent) from September 2011 through May 2017 and quarterly interest payments payable at a fixed interest rate of 3.50% per annum. The Malaysia Facility loan balance as of
July 2, 2015
was
$4.9
million.
French Factory Capital Lease Agreement
. The Company’s indirect wholly-owned subsidiary, Spirit AeroSystems France SARL is party to a capital lease agreement for €9.0 million (approximately USD $13.1 million equivalent) with a subsidiary of BNP Paribas Bank. Lease payments under the capital lease agreement are variable, subject to the three-month Euribor rate plus 2.20%. Lease payments are due quarterly through April 2025. As of
July 2, 2015
, the Saint-Nazaire capital lease balance was
$7.6
million.
Nashville Design Center Capital Lease Agreement.
During the second quarter of 2015, the Company terminated its capital lease agreement for a portion of an office building in Nashville, Tennessee resulting in the capital lease balance at
July 2, 2015
of zero.
Credit Ratings
The Company's credit rating at the end of the second quarter of 2015 was a BB, positive outlook by Standard & Poor's Rating Services and a Ba1, stable outlook by Moody's Investors Services.
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, as well as certain financial metrics. Accordingly, it is possible the rating agencies could downgrade our credit ratings from their current levels. This could significantly influence the interest rate of any future debt financings.
A debt security credit rating is not a recommendation to buy, sell or hold a security. Each rating is subject to revision or withdrawal at any time by the assigning rating organization. Each rating agency has its own methodology for assigning ratings. Accordingly, each rating should be considered independent of other ratings.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain “forward-looking statements” that may involve many risks and uncertainties. Forward-looking statements reflect our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “should,” “will,” and other similar words or phrases, or the negative thereof, unless the context requires otherwise. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties, both known and unknown. Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements.
Important factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook include, but are not limited to, the following:
|
|
•
|
our ability to continue to grow our business and execute our growth strategy, including the timing, execution and profitability of new and maturing programs;
|
|
|
•
|
our ability to perform our obligations and manage costs related to our new and maturing commercial, business aircraft and military development programs and the related recurring production;
|
|
|
•
|
margin pressures and the potential for additional forward losses on new and maturing programs;
|
|
|
•
|
our ability to accommodate, and the cost of accommodating, announced increases in the build rates of certain aircraft;
|
|
|
•
|
the effect on aircraft demand and build rates of changing customer preferences for business aircraft, including the effect of global economic conditions on the business aircraft market and expanding conflicts or political unrest in the Middle East or Asia;
|
|
|
•
|
customer cancellations or deferrals as a result of global economic uncertainty;
|
|
|
•
|
the effect of economic conditions in the industries and markets in which we operate in the U.S. and globally and any changes therein, including fluctuations in foreign currency exchange rates;
|
|
|
•
|
the success and timely execution of key milestones such as receipt of necessary regulatory approvals and customer adherence to their announced schedules;
|
|
|
•
|
our ability to successfully negotiate future pricing under our supply agreements with Boeing, Airbus and our other customers;
|
|
|
•
|
our ability to enter into profitable supply arrangements with additional customers;
|
|
|
•
|
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;
|
|
|
•
|
any adverse impact on Boeing’s and Airbus’ production of aircraft resulting from cancellations, deferrals or reduced orders by their customers or from labor disputes or acts of terrorism;
|
|
|
•
|
any adverse impact on the demand for air travel or our operations from the outbreak of diseases or epidemic or pandemic outbreaks;
|
|
|
•
|
our ability to avoid or recover from cyber-based or other security attacks, information technology failures or other disruptions;
|
|
|
•
|
returns on pension plan assets and the impact of future discount rate changes on pension obligations;
|
|
|
•
|
our ability to borrow additional funds or refinance debt;
|
|
|
•
|
competition from commercial aerospace original equipment manufacturers and other aerostructures suppliers;
|
|
|
•
|
the effect of governmental laws, such as U.S. export control laws and U.S. and foreign anti-bribery laws such as the Foreign Corrupt Practices Act and the United Kingdom Bribery Act, and environmental laws and agency regulations, both in the U.S. and abroad;
|
|
|
•
|
any reduction in our credit ratings;
|
|
|
•
|
our dependence on our suppliers, as well as the cost and availability of raw materials and purchased components;
|
|
|
•
|
our ability to recruit and retain highly-skilled employees and our relationships with the unions representing many of our employees;
|
|
|
•
|
spending by the U.S. and other governments on defense;
|
|
|
•
|
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;
|
|
|
•
|
our exposure under our existing senior secured revolving credit facility to higher interest payments should interest rates increase substantially;
|
|
|
•
|
the effectiveness of any interest rate hedging programs;
|
|
|
•
|
the effectiveness of our internal control over financial reporting;
|
|
|
•
|
the outcome or impact of ongoing or future litigation, claims and regulatory actions; and
|
|
|
•
|
our exposure to potential product liability and warranty claims.
|
These factors are not exhaustive and it is not possible for us to predict all factors that could cause actual results to differ materially from those reflected in our forward-looking statements. These factors speak only as of the date hereof, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. Except to the extent required by law, we undertake no obligation to, and expressly disclaim any obligation to, publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should review carefully the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2014 Form 10-K, our Q1 2015 Form 10-Q and this Quarterly Report on Form 10-Q for a more complete discussion of these and other factors that may affect our business.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
As a result of our operating and financing activities, we are exposed to various market risks that may affect our consolidated results of operations and financial position. These market risks include fluctuations in interest rates, which impact the amount of interest we must pay on our variable rate debt. In addition to other information set forth in this report, you should carefully consider the factors discussed in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our 2014 Form 10-K which could materially affect our business, financial condition or results of operations. There have been no material changes in our market risk since the filing of our 2014 Form 10-K.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer have evaluated our disclosure controls as of
July 2, 2015
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, as amended, is recorded, processed, summarized and reported within the time period specified in the Security and Exchange Commission rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management of the Company, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the second quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1.
Legal Proceedings
Information regarding any recent material development relating to our legal proceedings since the filing of our 2014 Form 10-K is included in Note 18, Commitments, Contingencies and Guarantees to our condensed consolidated financial statements included in Part I of this Quarterly Report and incorporated herein by reference.
Item 1A.
Risk Factors
In addition to other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our 2014 Form 10-K, which could materially affect our business, financial condition or results of operations. There have been no material changes to the Company’s risk factors previously disclosed in our 2014 Form 10-K.
Because we depend on Boeing and, to a lesser extent, Airbus, as our largest customers, our sales, cash flows from operations and results of operations will be negatively affected if either Boeing or Airbus reduces the number of products it purchases from us or if either experiences business difficulties or breaches its obligations to us.
Currently, Boeing is our largest customer and Airbus is our second-largest customer. For the twelve months ended December 31, 2014, approximately 83% and 10% 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. Further, if we are unable to perform our obligations under these supply agreements to the customer's satisfaction, Boeing or Airbus could seek damages from us, which could materially adversely affect our business. Boeing and Airbus also 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; (3) files for bankruptcy protection; or (4) fails to perform its contractual obligations under its agreements with us; our business, financial condition and results of operations could be materially adversely affected.
Item 6.
Exhibits
|
|
|
|
Article I.
Exhibit
Number
|
|
Section 1.01 Exhibit
|
|
|
|
10.1*
|
|
Amendment No. 12 to Special Business Provisions, between The Boeing Company and Spirit AeroSystems, Inc. dated as of April 9, 2015.
|
|
|
|
10.2*
|
|
Amendment No. 14 to Special Business Provisions, between The Boeing Company and Spirit AeroSystems, Inc. dated as of April 21, 2015.
|
|
|
|
10.3*
|
|
Employment Agreement between Spirit AeroSystems, Inc. and Michelle Lohmeier, effective as of June 10, 2015.
|
|
|
|
10.4*
|
|
Employment Agreement between Spirit AeroSystems, Inc. and Ron Rabe, effective as of June 9, 2015.
|
|
|
|
10.5*
|
|
Resignation and Consulting Agreement between Spirit AeroSystems, Inc. and David Coleal, effective as of May 21, 2015.
|
|
|
|
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 that portions of the exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.
|
|
|
|
*
|
|
Filed herewith
|
|
|
|
**
|
|
Furnished herewith
|
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SPIRIT AEROSYSTEMS HOLDINGS, INC.
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Sanjay Kapoor
|
|
Senior Vice President and Chief Financial
|
|
July 31, 2015
|
Sanjay Kapoor
|
|
Officer (Principal Financial Officer)
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Mark J. Suchinski
|
|
Vice President and Corporate Controller (Principal Accounting Officer)
|
|
July 31, 2015
|
Mark J. Suchinski
|
|
|
|
|
EXHIBIT 10.1
Amendment No. 12
To
Special Business Provisi
o
ns SPB MS-65530-0016
Between
The Boeing Company
And
Spirit AeroSystems, Inc.
THIS AMENDMENT to Spec
i
al Bus
i
ness Prov
i
s
i
ons SBP MS
-
6553
0
-
0016
i
s entered into as of Ap
ril
9
,
2015 (
"
Effective Date
"
)
,
by and between The Boeing Company
,
a De
l
aware Corporation ("Boe
i
ng")
,
and Sp
i
rit AeroSystems
,
Inc
,
a
Delaware
corporat
i
on
("
Seller
"
)
.
Here
i
nafter
,
Se
ll
er and B
o
e
i
ng may be referred to joint
l
y as "Parties
"
h
er
eto
.
WHEREAS
,
Boe
i
ng and Selle
r
are part
i
es to the Spec
i
al Bus
i
ness Prov
i
s
i
ons
MS
-
65530
-
0016
,
dated June 16
,
2005 (the
"
SBP
"
)
,
and
the
Genera
l
Terms Agreement BCA
-
65530
-
0016
,
dated June 17
,
2005
(
the
"
GTA
"
) (colle
c
t
i
v
el
y
,
th
e
"
Susta
i
n
i
ng Agreement
"
),
ea
c
h as amended to the
i
r respect
i
ve Effective Dates
.
WHEREAS
,
Boeing and Seller have agreed to change terms w
i
th
i
n SBP Attachment 25 by amendment hereto
.
NOW THEREFORE
,
for good and valuab
l
e conside
r
at
i
on,
the receipt
of wh
i
ch is hereby acknowledged
,
it
i
s her
e
by agreed by and between the Parties
:
|
|
I.
|
Section 3.0 ("RIGHT
TO
BID") of Attachment 25
to
the SBP
is hereby
deleted in
its entirety and replaced
with
the
following:
|
3
.
0
EXCLUSIVE RIGHT
TO
MODIFED INNNER WALL SOW
3
.
1 In the event that Boeing changes the mater
i
al requ
ir
ements of the Tl SOW from t
i
tan
i
um to composite/alum
i
num dense core (here
i
nafter
,
"
Modified
IW SOW
"
)
,
Seller
will have the exclus
i
ve
right
to perform such
Modif
i
ed
IW SOW
,
if
Spirit
has compet
i
tive pricing
and a feas
i
ble technical solution
.
All other
contract
terms
,
including but
not
li
mited to, specific price
,
warranty per
the PSAD
,
and term
,
will be agreed to in
good fa
i
th
by
the
Parties
.
3
.
2
In
the event Boeing
i
mplements the Mod
i
fied IW SOW
,
i
t w
i
ll prov
i
de Seller w
i
th
suffic
i
ent advance notice of the Init
i
al Change
i
n accordance with Section 8
.
0 of SBP
Attachment
27 (737 MAX Non
Recurr
i
ng
Agreement)
to enab
l
e the Part
i
es to implement th
i
s Section 3
.
0
.
IN WITNESS
THEREOF
the Parties hereto have
execu
ted
th
i
s
Amendment as of
the
day and year
first
written above
.
BOEING
THE BOEING
COMPANY
Signature: /s/Kayla Drawsky
Printed Name:Kayla Drawsky
Title: Procurement Agent
Date: 04/23/2015
SELLER
Spirit AeroSystems
,
Inc
.
Signature: /s/ Ryan Ast
Printed Name: Ryan Ast
Title: Contract Administrator
Date: 04/09/2015
SBP·MS-65530-0
0
16
Amendment No
.
14
AMENDMENT 14
TO
SPECIAL BUSINESS PROVISIONS SBP
-
MS
-
65530-0016
BETWEEN
THE BOEING COMPANY
AND
SPIRIT AEROSYSTEMS, INC
.
This Amendment ("Amendment”) to Special Business Provisions SBP-MS-6553
0
-0016 is entered into as of April 21, 2015 between Spirit AeroSystems
,
Inc
.,
a Delaware corporation, with its principal office in Wichita
,
Kansas ("Seller") and The Boeing Company, a Delaware Corporation ("Boeing"). Hereinafter
,
the Seller and Boeing may be referred to jointly as "Parties" hereto
.
All capitalized terms used and not defined herein shall have the meanings assigned thereto in the SBP (as defined below).
Now, therefore
,
in consideration of the mutual covenants set forth herein
,
the Parties agree as follows:
RECITALS
A
.
The Parties have entered into an agreement SBP
-
MS-65530-0016 ("SBP")
,
GTA-BCA-
65530
-0
016 ("GTA") and AA-65530-0016 (AA) (together with all attachments and
amendments thereto, the "Sustaining Contract”) for Seller to provide Products for certain
current model Aircraft.
B
.
Seller currently supplies Products to Boeing under the Sustaining Contract in support of the
737 model aircraft
.
C
.
Boeing is seeking to develop
,
design and manufacture an aircraft currently designated as the 737 MAX to be sold under the 737
-
7
,
737-8 and 737-9 designations (the "737 MAX Program", or "737 MAX'')
,
and in connection therewith, the Parties have entered into a Memorandum of Agreement: 737 MAX Non-Recurring Agreement
,
dated April 7, 2
0
14 (the "737 MAX MOA")
.
D. Pursuant to the 737 MAX MOA, the Parties agreed to the transfer of the Titainium Inner Wall from Seller to Boeing on September 4
,
2014 under the terms of which the Parties added Attachment 25 into the Sustaining Contract at Amendment 9
.
E
.
The Parties desire to modify Seller’s scope of work for the 737 MAX Titanium Inner Wall to add certain responsibility for Seller to perform thermal analysis
,
on the terms and conditions set forth herein
.
737 MAX Ti Inner Wall Amendment 14
Spirit AeroSystems
,
Inc
.
Initials:
1
SBP-MS
-
65530-0016
Amendment No
.
14
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and for other good and valuable consideration, the value
,
receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1.
Amendment of the SBP
.
The SBP is hereby amended to include the following:
a. Section 1.2 is
hereby added to the SSP as follows:
1
.
2
737 MAX Titanium Inner Wall Thermal Analysis
The thermal analysis of the statement of work comprising the Titainium Inner
Wall for the 737 MAX is set forth in Attachment 25 Addendum 1.
b
.
Attachment 25 Addendum 1, attached hereto as Exhibit A
,
is hereby added to the
SBP.
2. This agreement may be changed only in writing by authorized representatives of Seller and
Boeing.
IN WITNESS WHEREOF
,
the duly authorized representatives of the Parties have executed this
Agreement as of the date first set forth above.
|
|
|
|
|
BOEING
|
|
|
SELLER
|
THE BOEING COMPANY
|
|
|
SPIRIT AEROSYSTEMS, INC.
|
|
|
|
|
Signature:
/s/ David Blaylock
|
|
|
Signature:
/s/ Ryan Grant
|
|
|
|
|
Printed Name: David Blaylock
|
|
|
Printed Name: Ryan Grant
|
Title: Procurement Agent
|
|
|
Title: Contract Administrator
|
Date: April 21 2015
|
|
|
Date: April 21, 2015
|
737 MAX Ti Inner Wall Amendment 14
Spirit
AeroSystems
,
Inc.
Initials
.
2
ATTACHMENT 25, ADDENDUM1
UPPER BIFURCATION SOW
UPDATE TO 737 MAX TITANIUM INNER-WALL WORK TRANSFER AGREEMENT
RECITALS
|
|
A
.
|
Whereas, Boeing and Seller entered into Amendment 9 of SBP-MS- 65530-0016 on September 4, 2014, including Attachment 25 thereto, transferring certain responsibility for the design and production of the Titanium Inner-Wall for the 737 MAX from Seller to Boeing;
|
|
|
B
.
|
Whereas, Boeing now wishes Seller to conduct certain statement of work set out in Section 1.2 below
,
which was not previously in Seller's scope of work and was not a part of the agreement referenced in recital A of this addendum;
|
|
|
C.
|
Whereas
,
Seller has elected to agree to contractually add the statement of work in Section 1
.
2 below to the terms of the agreement in reference A subject to the terms, conditions and qualifications set forth in this addendum;
|
|
|
D.
|
In consideration of the mutual covenants set forth herein, the Parties agree as follows:
|
1.0
APPLICABILITY
|
|
1.1
|
Seller agrees to conduct the statement of work set out in 1.2 below as Follow
-
On Work as pertains to the Titanium Inner Wall for the 737 MAX Program, subject to the terms and conditions applicable to Follow
-
On Work in Exhibit A (Attachment 25) to Amendment 9 to the SBP-MS65530-0016
,
dated September 4
,
2014
,
provided that the statement of
|
work set out in 1.2 below shall not be subject to Changes or other statement of work expansion or modification without the express written agreement of the Seller subsequent to execution of this addendum
.
Boeing hereby accepts and agrees to such
terms and the associated conditions set forth in this Section 1.1, and the Parties hereby
agree to incorporate this agreement as an addendum to Attachment 25 of SBP MS65530-0016, with payment provisions as set out in Section 2
.
5 of Attachment 25. Without affecting the applicability of this addendum
,
the Parties agree to conform SBP MS6553
0-
0016 so that this addendum is subsequently reflected in the body of Attachment 25
.
The scope of this addendum pertains solely to the statement of work set out in Section 1.2 directly below
.
This addendum will become effective on the last date of execution of the Parties below. In the event of a conflict between SBP-MS6553
0-
0016 (including the remainder of Attachment 25) and this addendum
,
this addendum will control.
1.2
The statement of work is defined as follows:
Boeing will deliver the modified Left Hand inner wall half only
.
bdf (Bulk Data File) with the new panel version geometry and property cards to Spirit. Upon delivery of the Bulk Data File Spirit will begin integrating this data into the Inner Wall Grounded Finite Element Model (GFEM)
.
This hybrid GFEM will be converted by Spirit into a thermal Finite Element Model (FEM) and delivered to the Spirit thermal analysis group for further conditioning and execution. Spirit will continue to update the structural FEM, create pressure maps
,
load case cards
,
and check runs while the updated thermal input data is being created
.
A. The Spirit thermal analysis group will transform the structural model into the standard format thermal model by converting nodes and elements, assigning material properties, creating thermal conductors, and assigning temperature conductors. Spirit will also conduct Hot day
,
standard day
,
and cold day runs
,
in addition to fan cowl undetected leak runs, and Thrust Reverser undetected leak runs will be processed. Also, Burst Duct and Fire Flight missions will be performed by Spirit for multiple configurations
.
Once complete
,
the Spirit generated thermal input data will be sent back to the Spirit FEM team where it will be mapped onto the structural model. The FEM can then be run and will begin generating output data
.
This analysis is to be completed based upon the loads and boundary conditions received from Boeing as of 12/10/2014
B
.
The Spirit thermal analysis group will deliver a coordination sheet that will include results for normal flight missions
,
burst flight missions and fire flight missions. Color temperature maps for the bifurcation radius area and upper compression pads will be provided in the coordination sheet. A list of the Stress electronic temperature map (.tmpr files) will also be in the Spirit generated coordination sheet. All requested data will be provided by Spirit to Boeing, via Message Courier.
The Spirit structural FEM Group will deliver the completed GFEM.bdf and run files, including the temperature loads files to Boeing
,
along with the results files. These end deliverables provided by Spirit will be considered final and complete. Due to the large amount of data to transfer back to Boeing, both companies will need to come up with an acceptable data transfer solution
.
C This work
,
including all Spirit deliverables, is to be completed by May 18, 2015 or sooner.
|
|
1.
3
|
If additional support is requested, Spirit will consider this work based upon an evaluation of resources and schedule and based upon similar guidelines as those outlined in this addendum
.
|
IN WITNESS WHEREOF
,
the duly authorized representatives of the Parties have executed this Agreement as of the date below.
|
|
|
|
|
BOEING
|
|
|
SELLER
|
THE BOEING COMPANY
|
|
|
SPIRIT AEROSYSTEMS, INC.
|
|
|
|
|
Signature: /s/ David Blaylock
|
|
|
Signature: /s/ Ryan Grant
|
|
|
|
|
Printed Name: David Blaylock
|
|
|
Printed Name: Ryan Grant
|
Title: Procurement Agent
|
|
|
Title: Contract Administrator
|
Date: April 21, 2015
|
|
|
Date: April 21, 2015
|
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (“
Agreement
”) is entered into as of
June 10, 2015
(the “
Effective Date
”) by Spirit AeroSystems, Inc., a Delaware corporation (“
we
,” “
us
,”
“
our
,” and other similar pronouns), and Michelle Lohmeier (“
you
,” “
your
,” “
yours
,” and other similar pronouns). Our parent company is Spirit AeroSystems Holdings, Inc. (“
Holdings
”), and references in this Agreement to “
Spirit
” mean us and Holdings collectively.
Recitals
A.
We are engaged in the manufacture, fabrication, maintenance, repair, overhaul, and modification of aerostructures and aircraft components, and market and sell our products and services to customers throughout the world (together with any other businesses in which Spirit may in the future engage, by acquisition or otherwise, the
“
Business
”).
B.
We have agreed to employ you as our SVP Airbus Programs, and you have agreed to accept such employment in accordance with the terms and conditions of this Agreement.
C.
In the course of performing your duties for us, you are likely to acquire confidential and proprietary information belonging to us, our customers, and our suppliers, develop relationships that are vital to our Business and goodwill, and acquire other important assets in which we have a protectable interest, and you have agreed to the covenants in this Agreement required to protect those assets.
Agreement
In consideration of the foregoing and the representations, warranties and mutual covenants herein, you and we agree as follows:
(a)
Position and Responsibility
We agree to employ you as our SVP Airbus Programs, to perform such duties in and about our Business as are appropriate for a person in such position, which may include serving as an executive officer or member of the board of directors of any other affiliated company at our request. The job title and duties referred to in the preceding sentence may be changed by us in our sole discretion at any time. Your office will be at our headquarters in Wichita, KS, and you agree to relocate to Wichita, KS. You will devote your full time to this employment.
(b)
Employment Period
Your employment will commence on the Effective Date, will continue for a period of two years after the Effective Date (the “
Initial Term
”), and will be automatically extended for successive one-year periods thereafter (each a “
Renewal Term
”), unless either of us provides the other with written notice at least ninety days in advance of the expiration of the Initial Term or the then-current Renewal Term, as applicable, that such period will not be so extended (the Initial Term and any Renewal Term are, collectively, the
“
Employment Period
”). In all cases, your employment is subject to earlier termination as provided in this Agreement.
2.
Performance
You will devote your best efforts and abilities to faithfully preserve and advance our Business, welfare, and best interests. You will strictly comply with all Spirit rules, policies, and procedures in effect and as amended from time to time, including, but not limited to, our Code of Ethical Business Conduct, Insider Trading Policy, Anti-Bribery Policy, Related Person Transaction Policy, Special Security Agreement, and internal and disclosure controls; follow all applicable U.S. and foreign laws and regulations; and be governed by our decisions and instructions consistent with the duties assigned to you.
3.
Compensation
Except as otherwise provided herein, for all services to be performed by you in any capacity, including without limitation any services as an officer, director, member of any committee, or any other duties assigned to you, during the Employment Period we will pay or provide you with the following, and you will accept the same, as compensation for your covenants in and performance of your duties under this Agreement:
(a)
Base Salary
You will be entitled to an annual salary of $450,000 (“
Base Salary
”), which will be paid in accordance with our policies and procedures. The Base Salary may be changed from time to time on a discretionary basis or based upon your and/or our performance or such other factors as the Board or the Board’s compensation committee (“
Committee
”) deems appropriate in its sole discretion, except that the Base Salary will not be decreased (but may be increased) during the Initial Term of this Agreement.
(b)
Sign On Bonus
In consideration of entering into this Agreement, you will receive a cash bonus of $250,000, plus a “gross-up” amount equal to all required tax withholdings with respect to that amount so that, after withholding of required taxes, you will receive a net amount equal to $250,000 (the bonus and the gross-up amount are collectively the “
Signing Bonus
”). The Signing Bonus is payable as soon as administratively practicable after the Effective Date, and payment of the Signing Bonus is conditioned upon you being employed on the date payment is made and remaining employed by us for a period of not less than one year after the date payment is made. If the foregoing condition precedent is not satisfied, the Signing Bonus must be immediately repaid to us, except that you will not be required to repay any amount if you are terminated by us without Cause. In the event of your termination under circumstances that require repayment of the Signing Bonus, we may deduct from your paycheck(s) (or other amounts owed to you) an amount equal to the amount due to be repaid. To the extent such deductions are not sufficient to fully reimburse us, you will remain obligated to pay us in full for such amounts still due and owing.
(c)
Short-Term Incentive Program
You are eligible to participate in the Short-Term Incentive Program established under the OIP, as in effect from time to time (the “
STIP
”), pursuant to and in accordance with the terms and conditions of the OIP and the STIP.
Your STIP award opportunity will be 100% of Base Salary if target performance goals are reached and 200% of Base Salary if outstanding performance goals are reached. If target performance goals are not reached, you will be entitled to such incentive compensation, if any, as is otherwise provided by the STIP and our policies.
In addition to the foregoing, we agree that (i) for the 2015 plan year, your STIP award will be based on the greater of (A) actual 2015 performance, or (B) assumed performance at target levels (i.e., a STIP score of not less than 1.0); and (ii) the amount you are entitled to receive for the 2015 plan year will not be prorated (i.e., it will be a full year award).
(d)
Long-Term Incentive Program
You are eligible to participate in annual awards of restricted stock granted by the Holdings board of directors (the “
Board
”) or the Committee under the Long-Term Incentive Program established under the OIP, as in effect from time to time (the “
LTIP
”), pursuant to and in accordance with the terms and conditions of the OIP and the LTIP. Each year of the Initial Term, your annual LTIP award opportunity will be equal to 170% of Base Salary. Your annual LTIP awards will be granted at the time and on the terms that we grant annual LTIP awards to our other executives.
Notwithstanding the foregoing, subject to approval by the Board, you will receive one-time LTIP award in 2015 worth $1,165,000. The award will be made following approval by the Board and subject to commencement of your employment and will be subject to the same terms and conditions as the awards made to the broad class of LTIP participants for 2015, except that 100% of the award will be a service-based award.
(e)
Nonqualified Deferred Compensation Plan
You are eligible to participate in the Spirit AeroSystems Holdings, Inc. Amended and Restated Deferred Compensation Plan, as amended or restated from time to time (“
DCP
”), subject to and in accordance with the terms and provisions of the DCP
.
You may elect to voluntarily defer compensation under the DCP in accordance with the terms and conditions of the DCP and the plan administrator’s policies and procedures. In addition to any salary-reduction contributions you may timely elect to make under the DCP, on or about December 31 of each year during which you are employed and actively performing services for us, we will make a contribution to the DCP equal to 10% of the base salary paid to you for that year, which amount will be contributed to an employer discretionary contribution account established for you under the DCP and will be held and administered in accordance with the terms and conditions of the DCP, including, but not limited to, the conditions set forth in Article VI thereof.
(f)
Other Benefit Plans
You will also be eligible to participate in other executive benefit plans, policies, practices, and arrangements in which one or more of our senior executives is eligible to participate from time to time, including without limitation (i) any defined benefit or defined contribution retirement plan, excess or supplementary plan, profit-sharing plan, savings plan, health and dental plan, disability plan, survivor-income and life-insurance plan, executive financial planning program, or other arrangement, or any successors thereto; (ii) any perquisite allowance or reimbursement arrangement the Board or Committee may adopt; and (iii) such other benefit plans as we may establish or maintain from time to time (collectively “
Benefit Plans
”). Your entitlement to any other compensation or benefits will be
determined in accordance with the terms and conditions of the Benefit Plans and other applicable programs, practices, and arrangements then in effect.
(g)
Relocation Benefits
You will be entitled to relocation benefits under the terms of our Corporate Domestic Relocation Guide - Level 4 Policy (Senior Vice President and Above).
(h)
Earned Time Off
You will be provided with earned time off and 12 paid holidays each year in accordance with our policies and practices in effect from time to time. Notwithstanding any contrary policy or practice, however, you will be credited with a minimum of 25 days of earned time off per year.
(i)
Fringe Benefits
You will be provided with all other fringe benefits and perquisites awarded by the Board or Committee for your position level from time to time.
(j)
Withholding Taxes
We will have the right to deduct from all payments made to you hereunder any federal, state, local and foreign taxes required by law to be withheld.
(k)
Expenses
During your employment, we will promptly pay or reimburse you for all reasonable out-of-pocket expenses incurred by you in the performance of your duties, in accordance with our policies and procedures then in effect.
The payment or reimbursement of expenses described in this Section 3(k) are not intended to provide for the deferral of compensation within the meaning of Internal Revenue Code (“
Code
”) Section 409A because all such expenses are to be paid or reimbursed currently and/or will be tax-free. To the extent such expenses are deemed to provide for the deferral of compensation within the meaning of Code Section 409A, they are intended to meet the requirements of a specified date or a fixed schedule of payments, and this reimbursement provision will be interpreted and applied in a manner consistent with such requirements. The right to payment of, or reimbursement for, expenses is not subject to liquidation or exchange for any other benefit.
4.
Restrictions
(a)
Acknowledgements
You acknowledge and agree that (i) during the Employment Period, because of the nature of your responsibilities and the resources provided by us, you will acquire and/or develop valuable and confidential skills, information, trade secrets, and relationships with respect to our Business; (ii) you may develop on our behalf a personal relationship with various persons, including but not limited to representatives of customers and suppliers, where you may be a principal or our only contact with such persons, and as a consequence, you will occupy a position of trust and confidence to us; (iii) the Business involves the manufacturing, marketing, and sale of our products and services to customers throughout the world, our competitors, both in the United States and internationally, consist of both domestic and international businesses, and the services to be performed by you involve aspects of both our domestic and international business; and (iv) it would be impossible or impractical for you to
perform your duties without access to our confidential and proprietary information and contact with persons who are valuable to our Business and goodwill.
(b)
Reasonableness
In view of the foregoing and in consideration of the remuneration to be paid to you, you agree that it is reasonable and necessary for the protection of our Business and goodwill that you undertake the covenants in this Section 4 regarding your conduct during and subsequent to your employment by us, and acknowledge we will suffer irreparable injury if you engage in any conduct prohibited by this Section 4.
(c)
Non-Compete
During the Employment Period and for a period of (1) in the case of involuntary termination without Cause, one year after termination of employment, and (2) in the case of termination of employment for any other reason, two years after such termination of employment, neither you nor any individual, corporation, partnership, limited liability company, trust, estate, joint venture, or other organization or association (“
Person
”) with your assistance nor any Person in which you directly or indirectly have any interest of any kind (without limitation) will, anywhere in the world, directly or indirectly own, manage, operate, control, be employed by, serve as an officer or director of, solicit sales for, invest in, participate in, advise, consult with, or be connected with the ownership, management, operation, or control of any business that is engaged, in whole or in part, in the Business, or any business that is competitive with the Business or any portion thereof, except for our exclusive benefit. You will not be deemed to have breached the provisions of this Section 4(c) solely by holding, directly or indirectly, not greater than 2% of the outstanding securities of a company listed on a national securities exchange.
(d)
Non-Solicitation
During the Employment Period and for a period of (1) in the case of involuntary termination without Cause, one year after termination of employment, and (2) in the case of termination of employment for any other reason, two years after such termination of employment, neither you nor any Person with your assistance nor any Person in which you directly or indirectly have an interest of any kind (without limitation) will, directly or indirectly (A) solicit or take any action to induce any employee to quit or terminate their employment with us or our affiliates; or (B) employ as an employee, independent contractor, consultant, or in any other position any person who was an employee of ours or our affiliates during the aforementioned period.
(e)
Confidentiality
(i)
Confidential Information
For purposes of this Agreement, “
Confidential Information
” means any information (whether in written, oral, graphic, schematic, demonstration, or electronic format, whether or not specifically marked or identified as confidential, and whether obtained by you before or after the Effective Date), not otherwise publicly disclosed by Spirit, regarding (without limitation) Spirit, its Business, customers, suppliers, business partners, prospects, contacts, contractual arrangements, discussions, negotiations, evaluations, labor negotiations, bids, proposals, aircraft programs, costs, pricing, financial condition or results, plans, strategies, governmental relations, projections, analyses, methods, processes, models, tooling, know-how, trade secrets, discoveries, research, developments, inventions, engineering, technology, proprietary information, intellectual
property, designs, computer software, intelligence, legal or regulatory compliance, accounting decisions, opportunities, challenges, and any other information of a confidential or proprietary nature. Notwithstanding the foregoing, Confidential Information will not include any information that (A) you are required to disclose by the order of a court or administrative agency, subpoena, or other legal or administrative demand, so long as (1) you give us written notice and an opportunity to contest or seek confidential treatment of such disclosure; and (2) you fully cooperate at our expense with any such contest or confidential treatment request; (B) has been otherwise publicly disclosed or made publicly available by Spirit; or (C) was obtained by you in good faith after your employment with us ended from a source that was under no obligation of confidentiality to Spirit or any customer or supplier.
(ii)
Non-Use and Non-Disclosure
Without our express written consent, you will not at any time (whether during the Employment Period or after any termination of your employment for any reason) use for any purpose (other than for our exclusive benefit) or disclose to any Person (except at our direction) any Confidential Information.
(f)
Effect of Breach
You agree that a breach of this Section 4 cannot adequately be compensated by money damages and, therefore, we will be entitled, in addition to any other right or remedy available to us (including, but not limited, to an action for damages, accounting, or disgorgement of profit), to an injunction restraining such breach or a threatened breach and to specific performance of such provisions, and you consent to the issuance of such injunction and the ordering of specific performance without the requirement for us to post a bond or other security or to prove lack of an adequate remedy at law.
(g)
Other Rights Preserved
Nothing in this Section 4 eliminates or diminishes rights we may have with respect to the subject matter hereof under other agreements, our governing documents or statutes, or provisions of law (including but not limited to common law and the Uniform Trade Secrets Act), equity, or otherwise. Without limiting the foregoing, this Section 4 does not limit any rights we may have under any Spirit policies or any agreements with you regarding Confidential Information.
5.
Termination
Your employment with us will terminate upon the following circumstances:
(a)
Without Cause
At any time at the election of either you or us for any reason or no reason, without Cause, but subject to the provisions of this Agreement. It is expressly understood that your employment is strictly “
at will.
”
(b)
Cause
At any time at our election for Cause.
“
Cause
” for this purpose means (i) your commission of a material breach of this Agreement or acts involving fraud, material and intentional dishonesty, material and intentional unauthorized disclosure of Confidential Information, the commission of a felony or other crime involving moral turpitude, or material violation of Spirit policies; (ii) direct and deliberate acts constituting a material breach of your duty of loyalty to Spirit; (iii) your refusal or material failure (other than by reason of your serious physical or mental illness, injury, or
medical condition) to perform your job duties and responsibilities, including, but not limited to, any duties or responsibilities reasonably assigned to you by the Board, if such refusal or failure is not remedied within 30 days after you receive written notice thereof from the Chief Executive Officer or the Board; (iv) your material underperformance, as reflected in two consecutive written performance reviews provided to you not less than 6 months apart; or (v) your inability to obtain and maintain the appropriate level of United States security clearance.
(c)
Death or Disability
Your death or your inability to perform the services required of you for a period of 180 days during any twelve-month period (“
Disability
”).
6.
Effect of Termination
(a)
General Rule
If your employment terminates for any reason other than as described in Section 6(b) below, we will pay your compensation only through the last day of employment, and, except as otherwise expressly provided in this Agreement or the OIP, the STIP, the LTIP, the DCP, or any Benefit Plan, we will have no further obligation to you.
(b)
Termination Without Cause or For Good Reason
If your employment is terminated by us without Cause during the Initial Term (which will include, but is not limited to, termination due to expiration of the Initial Term without renewal where we have notified you in accordance with Section 1(b) that we do not intend to renew the Agreement) or is terminated by you for Good Reason during the Initial Term, then for so long as you comply with your continuing obligations under Section 4 we will pay or provide you with the following: (1) we will continue to pay your monthly Base Salary in effect immediately before termination of your employment for a period of 12 months (the “
Salary Continuation Period
”), and (2) at our option, either pay the cost of COBRA medical and dental benefits coverage for a period of 6 months or pay you an amount each month for 6 months equal to the cost of providing COBRA medical and dental benefits.
To receive the benefits described in this Section 6(b), you will be required to sign a general release of claims in a form we deem acceptable. The release must be provided, and any revocation period must have expired, not later than 60 days after termination of employment. If the foregoing conditions are satisfied then, except as provided below, payment of salary continuation and other benefits will begin 60 days after termination of employment.
Notwithstanding any contrary provision of this Section 6(b), if you are a Specified Employee at the time employment terminates, the payments described in Section 6(b) will, to the extent such amounts are deferred compensation within the meaning of Code Section 409A, be delayed until the date that is the earlier of (i) six months after your termination of employment, or (ii) the date of your death, and upon reaching that date, all amounts that would have been paid during the six-month delay period, plus interest thereon at the prime rate (as published in the Wall Street Journal) from the date the payment would have been made but for this paragraph to the date of payment, will be paid in a single lump sum, and all remaining amounts will be paid in equal monthly payments for the remainder of the Salary Continuation Period.
Except as otherwise expressly provided in this Agreement or in any Benefit Plan, we will have no further obligation to you
(c)
Disability or Death
If your employment terminates due to Disability or death, we will pay your monthly Base Salary only through the date of termination.
(d)
Definitions
For purposes of this Section 6, the following terms have the following meanings:
(i)
“
Change in Control
” means (A) a transaction pursuant to which any person, or more than one person acting as a group, acquires more than 50% of the total voting power of the stock of us or Holdings (including but not limited to acquisition by merger, consolidation, recapitalization, reorganization, or sale or transfer of our or Holdings’ equity interests); or (B) a transaction that is a sale or transfer of all or substantially all of our or Holdings’ assets to a person, if all or substantially all of the proceeds from such transaction are distributed to Holdings’ stockholders.
(ii)
“
Diminished Position
” means a position of employment with us that reflects any of the following changes or actions, unless you have consented to the change or action in writing: (A) a material diminution in your base compensation; (B) a material diminution in your authority, duties, or responsibilities; (C) a requirement that you report to a corporate officer or employee other than the Chief Executive Officer; (D) the relocation of your principal office with us to a location that is greater than 50 miles from Wichita, KS; or (E) any other action or inaction with respect to the terms and conditions of your employment that constitutes a material breach by us of this Agreement.
(iii)
“
Good Reason
” means a voluntary termination of employment by you within 90 days after the initial existence of any of the following conditions, so long as you have notified us within 30 days after the initial existence of the condition of your intent to terminate due to the condition and within 30 days after receipt of that notice we have not remedied the condition: (A) within two years after the Effective Date, you are assigned to a position that is a Diminished Position; (B) upon a Change in Control, you are not offered continued employment with us or a successor in a position other than a position that is a Diminished Position; or (C) upon a Change in Control, you continue to perform services for us or a successor after the Change in Control but, within 12 months after the Change in Control, you are assigned to a position that is a Diminished Position.
(iv)
“
Salary Continuation Period
” has the meaning set forth in Section 6(b).
(v)
“
Specified Employee
” means that, with respect to a corporation any stock in which is publicly traded on an established securities market or otherwise, you are, or are treated under Code Section 409A as, either (A) an officer having annual compensation greater than $165,000 (as adjusted for cost-of-living increases in accordance with Code Section 416(i)(1)(A) and Code Section 415(d)), (B) a 5% owner, or (C) a 1% owner having annual compensation from the corporation of more than $150,000. For purposes of determining
your percentage ownership, the constructive-ownership rules described in Code Section 416(i)(1)(B) will apply. The determination whether you are a Specified Employee will be made in accordance with regulations issued under Code Section 409A and other available guidance.
(e)
Your Post-Termination Obligations
On termination of employment for any reason, (1) you will resign as of the date of such termination as a director and officer of Spirit and its affiliates and as a fiduciary of any of Spirit’s or its affiliates’ benefit plans, (2) you will promptly execute and deliver upon such termination any document reasonably required by Spirit or an affiliate to evidence the foregoing resignations, (3) you will immediately deliver to us all Confidential Information, all copies and embodiments thereof, and all records, notes, worksheets, schematics, customer lists, supplier lists, memoranda, computer files and storage devices, analyses and derivative works based thereon or which relate in any way thereto, and (4) you will pay to us any amounts due and owing by you as specified in this Agreement.
(f)
Survival of Provisions
Your obligations under 4 through 9 of this Agreement will survive the expiration or termination of your employment for any reason.
7.
Representations and Warranties
You represent and warrant to us that:
(a)
No Conflicts
To the best of your knowledge, you are under no duty (whether contractual, fiduciary or otherwise) that would prevent, restrict or limit you from entering into this Agreement and fully performing all duties and services for us, and the performance of such duties and services will not conflict with any other agreement, policy or obligation by which you are bound.
(b)
No Hardship
Your experience and/or abilities are such that observance of the covenants in this Agreement will not cause you any undue hardship and will not unreasonably interfere with your ability to earn a livelihood.
8.
Clawback Right
You acknowledge that certain amounts paid under this Agreement or the Benefit Plans described herein are subject to any Spirit policy on the recovery of compensation (i.e., a so-called “clawback policy”), as it exists now or as later adopted, and as thereafter amended from time to time.
9.
Mediation
(a)
General Obligation to Mediate
Except as provided in this Agreement, prior to initiating any legal action, the parties agree to submit all unsettled claims, disputes, controversies, and other matters in question between them arising out of or relating to this Agreement (including but not limited to any claim that this Agreement or any of its provisions is invalid, illegal, or otherwise voidable or void) or the dealings or relationship between them (“
Disputes
”) to mediation in Wichita, Kansas, in accordance with the Commercial Mediation Rules of the American Arbitration Association currently in effect. The mediation will be private, confidential, voluntary, and nonbinding. Either party may withdraw from the mediation at any time before signing a settlement agreement by giving written notice to the other party and the
mediator. The mediator will be neutral and impartial. The mediator will be disqualified as a witness, consultant, expert, or counsel for either party with respect to the matters in Dispute and any related matters. Each party will pay its respective attorneys’ fees and other costs associated with the mediation, and each party will equally bear the costs and fees of the mediator. If a Dispute cannot be resolved through mediation within 90 days of its submission to mediation, the parties may proceed with legal action.
(b)
Confidentiality
The parties agree that they will not disclose, or permit those acting on their respective behalf to disclose, any aspect of the proceedings under Section 9(a), including but not limited to the resolution or the existence or amount of any award, to any Person, unless divulged (i) to an agency of the federal or state government; (ii) pursuant to a court or administrative order; (iii) pursuant to a requirement of law; (iv) pursuant to prior written consent of the parties; (v) pursuant to a legal proceeding to enforce a settlement agreement or arbitration award; or (vi) by Spirit, to the extent required under federal securities laws and regulations. This provision does not prohibit the parties’ disclosure of the terms of any settlement to their attorney(s), accountant(s), financial advisor(s), or family members, so long as such persons first agree to comply with the provisions of this Section 9(b).
(c)
Injunctions
Notwithstanding anything to the contrary in this Section, the parties will have the right in a proper case to obtain temporary restraining orders and temporary or preliminary injunctive relief from a court of competent jurisdiction.
10.
General
(a)
Notices
All notices required or permitted under this Agreement must be in writing and may be given by personal delivery, effective on the day of such delivery, or may be mailed by certified mail, return receipt requested, effective three business days after the date of mailing, addressed as follows:
To us:
Spirit AeroSystems, Inc.
Attention: Senior Vice President, General Counsel and Secretary
3801 S. Oliver
P.O. Box 780008, Mail Code K11-60
Wichita, KS 67278-0008
Facsimile: 316.529.4539
Email: jon.d.lammers@spiritaero.com
or such other person or contact information as designated in writing to you.
To you at your last known residence address, email, or facsimile number or to such other contact information as designated in writing to us.
(b)
Successors
Neither this Agreement nor any right or interest herein will be assignable or transferable (whether by pledge, grant of a security interest or otherwise) by you or
your beneficiaries or legal representatives, except by will, the laws of descent and distribution, or inter vivos revocable living grantor trust as your beneficiaries, and any other purported assignment will be void. This Agreement will be binding upon and will inure to the benefit of Spirit, its successors and assigns, and will be binding on you and your heirs, beneficiaries, and legal and personal representatives.
(c)
Waiver, Modification, and Interpretation
No provisions of this Agreement may be modified, waived, or discharged except by written instrument signed by you and an appropriate officer of Spirit empowered to sign the same by our or Holdings’ Board. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time.
(d)
Interpretation
The validity, interpretation, construction, and performance of this Agreement will be governed by the laws of the State of Kansas, except that the corporate law of the State of Delaware will govern issues related to the issuance of common stock. Any action brought to enforce or interpret this Agreement will be maintained exclusively in the state and federal courts located in Wichita, Kansas.
(e)
Headings
The headings in this Agreement are for reference purposes only and will not in any way affect the meaning or interpretation of any provision of this Agreement. No provision of this Agreement will be interpreted for or against either party on the basis that such party was the draftsman of such provision, and no presumption or burden of proof will arise disfavoring or favoring either party by virtue of the authorship of any provision of this Agreement.
(f)
Counterparts
We and you may execute this Agreement in counterparts, each of which will be deemed an original and both of which will constitute a single instrument. In proving this Agreement, it will not be necessary to produce or account for more than one such counterpart.
(g)
Invalidity of Provisions
If a court of competent jurisdiction declares that any provision of this Agreement is invalid, illegal, or unenforceable in any respect, then in lieu of such illegal, invalid, or unenforceable provision the court may add as a part of this Agreement a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as is possible. If such court cannot so substitute or declines to so substitute for such illegal, invalid, or unenforceable provision (i) such provision will be fully severable; (ii) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and (iii) the remaining provisions of this Agreement will continue in full force and effect and not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. The covenants in this Agreement will each be construed to be a separate agreement independent of any other provision of this Agreement, and the existence of any claim or cause of action of yours against us, predicated on this Agreement or otherwise, will not constitute a defense to the enforcement by us of any covenants in this Agreement.
(h)
Entire Agreement
This Agreement (together with the documents expressly referred to herein) constitutes the entire agreement between the parties, supersedes in all respects any prior agreement between you and us, and may not be changed except by written instrument duly executed by you and us in the same manner as this Agreement.
(i)
Compliance with Code Section 409A
The amounts payable to you after separation from service under 6(b) (if any) are intended to be at least partially exempt from the definition of “deferred compensation” for purposes of Code Section 409A as amounts payable only in the event of involuntary termination without Cause or voluntary termination for Good Reason. To the extent any such amounts constitute “deferred compensation” for purposes of Code Section 409A, then those amounts will be paid to you in equal monthly installments, and payment of such amounts may not be accelerated. This Section 10(i) and the terms of this Agreement are intended to comply with, and will be interpreted and construed in accordance with and in a manner that complies with, the requirements of Code Section 409A, to the extent necessary.
(j)
Excess Parachute Payments
If any portion of the payments or benefits under this Agreement, or under any other agreement with you or any plan of ours or our affiliates (in the aggregate “
Total Payments
”), would constitute an “excess parachute payment” and would, but for this paragraph, result in the imposition on you of an excise tax under Code Section 4999 (the “
Excise Tax
”), then the Total Payments to be made to you shall either be (i) delivered in full, or (ii) delivered in such amount so that no portion of such Total Payments would be subject to the Excise Tax, whichever of the foregoing results in the receipt by you of the greatest benefit on an after-tax basis (taking into account the applicable federal, state, and local income taxes and the Excise Tax). The determination required by this paragraph shall be made by us in our reasonable determination and in reliance on our tax advisors.
[Signature page follows.]
IN WITNESS WHEREOF
, this Agreement has been executed by the parties on the date(s) set forth below, to be effective as of the Effective Date.
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SPIRIT AEROSYSTEMS, INC.
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Date:
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7 May 2015
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By:
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/s/ Justin Welner
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Name:
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JUSTIN WELNER
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Title:
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VICE PRESIDENT, HR
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Date:
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7 May 2015
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/s/ Michelle Lohmeier
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Michelle Lohmeier
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (“
Agreement
”) is entered into as of
June 9, 2015
(the “
Effective Date
”) by Spirit AeroSystems, Inc., a Delaware corporation (“
we
,” “
us
,”
“
our
,” and other similar pronouns), and Ron Rabe (“
you
,” “
your
,” “
yours
,” and other similar pronouns). Our parent company is Spirit AeroSystems Holdings, Inc. (“
Holdings
”), and references in this Agreement to “
Spirit
” mean us and Holdings collectively.
Recitals
A.
We are engaged in the manufacture, fabrication, maintenance, repair, overhaul, and modification of aerostructures and aircraft components, and market and sell our products and services to customers throughout the world (together with any other businesses in which Spirit may in the future engage, by acquisition or otherwise, the
“
Business
”).
B.
We have agreed to employ you as our SVP Operations, and you have agreed to accept such employment in accordance with the terms and conditions of this Agreement.
C.
In the course of performing your duties for us, you are likely to acquire confidential and proprietary information belonging to us, our customers, and our suppliers, develop relationships that are vital to our Business and goodwill, and acquire other important assets in which we have a protectable interest, and you have agreed to the covenants in this Agreement required to protect those assets.
Agreement
In consideration of the foregoing and the representations, warranties and mutual covenants herein, you and we agree as follows:
(a)
Position and Responsibility
We agree to employ you as our SVP Operations, to perform such duties in and about our Business as are appropriate for a person in such position, which may include serving as an executive officer or member of the board of directors of any other affiliated company at our request. The job title and duties referred to in the preceding sentence may be changed by us in our sole discretion at any time. Your office will be at our headquarters in Wichita, KS. You will devote your full time to this employment.
(b)
Employment Period
Your employment will commence on the Effective Date, will continue for a period of two years after the Effective Date (the “
Initial Term
”), and will be automatically extended for successive one-year periods thereafter (each a “
Renewal Term
”), unless either of us provides the other with written notice at least ninety days in advance of the expiration of the Initial Term or the then-current Renewal Term, as applicable, that such period will not be so extended (the Initial Term and any Renewal Term are, collectively, the “
Employment Period
”). In all cases, your employment is subject to earlier termination as provided in this Agreement.
2.
Performance
You will devote your best efforts and abilities to faithfully preserve and advance our Business, welfare, and best interests. You will strictly comply with all Spirit rules, policies, and procedures in effect and as amended from time to time, including, but not limited to, our Code of Ethical Business Conduct, Insider Trading Policy, Anti-Bribery Policy, Related Person Transaction Policy, Special Security Agreement, and internal and disclosure controls; follow all applicable U.S. and foreign laws and regulations; and be governed by our decisions and instructions consistent with the duties assigned to you.
3.
Compensation
Except as otherwise provided herein, for all services to be performed by you in any capacity, including without limitation any services as an officer, director, member of any committee, or any other duties assigned to you, during the Employment Period we will pay or provide you with the following, and you will accept the same, as compensation for your covenants in and performance of your duties under this Agreement:
(a)
Base Salary
You will be entitled to an annual salary of $370,000 (“
Base Salary
”), which will be paid in accordance with our policies and procedures. The Base Salary may be changed from time to time on a discretionary basis or based upon your and/or our performance or such other factors as the Board or the Board’s compensation committee (“
Committee
”) deems appropriate in its sole discretion.
(b)
Sign On Bonuses
(i)
Signing Bonus - Cash
In consideration of entering into this Agreement, you will receive a cash bonus of $25,000 (the “
Signing Bonus
”). The Signing Bonus is payable no later than 30 days after the Effective Date, and payment of the Signing Bonus is conditioned upon you being employed on the date payment is made and remaining employed by us for a period of not less than one year after the date payment is made. If the foregoing condition precedent is not satisfied, the Signing Bonus must be immediately repaid to us, except that you will not be required to repay any amount if you are terminated by us without Cause. In the event of your termination under circumstances that require repayment of the Signing Bonus, we may deduct from your paycheck(s) (or other amounts owed to you) an amount equal to the amount due to be repaid. To the extent such deductions are not sufficient to fully reimburse us, you will remain obligated to pay us in full for such amounts still due and owing.
(ii)
Signing Bonus - Restricted Stock
Subject to approval by the Holdings board of directors (the “
Board
”), in consideration of entering into this Agreement, we will grant you a total of $500,000 of restricted stock (the “
Bonus Shares
”) under the Spirit AeroSystems Holdings, Inc. Omnibus Incentive Plan, as amended or restated from time to time or any successor thereto (the “
OIP
”), subject to the terms and provisions of the OIP and this Section 3(b) and conditioned upon you being employed on the date the Bonus Shares are granted
to you (following Board approval). The Bonus Shares will be awarded in two separate grants, one for 2015 and one for 2016, and each grant will be subject to a separate vesting schedule.
2015 Grant
Subject to approval by the Board, $300,000 of the Bonus Shares will be granted as soon as administratively practicable following the 2015 second quarter earnings release (or, if your employment commences after the 2015 second quarter earnings release, as soon as administratively practicable following the 2015 third quarter earnings release) and will be subject to the following vesting schedule:
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If you are continuously employed from the 2015 grant date for a period of . . .
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Your vested percentage in
the Bonus Shares awarded in the 2015 grant will be . . .
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12 months
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50%
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24 months
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100%
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2016 Grant
Subject to approval by the Board, $200,000 of the Bonus Shares will be granted as soon as administratively practicable following the 2016 second quarter earnings release (or, if your employment commences after the 2015 second quarter earnings release, as soon as administratively practicable following the 2016 third quarter earnings release) and will be subject to the following vesting schedule:
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If you are continuously employed from the 2016 grant date for a period of . . .
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Your vested percentage in
the Bonus Shares awarded in the 2016 grant will be . . .
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12 months
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50%
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24 months
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100%
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The number of shares to be awarded in connection with the 2015 grant and the 2016 grant will be determined in accordance with such methods or conventions as are designated by the Board in connection with approval of the award.
(c)
Short-Term Incentive Plan
You are eligible to participate in our Short-Term Incentive Program under the OIP, as modified and in effect from time to time (the “
STIP
”), pursuant to and in accordance with the terms and conditions of the STIP and the OIP. Your STIP award opportunity will be 70% of Base Salary if target performance goals are reached and 140% of Base Salary if outstanding performance goals are reached. If target performance goals are not reached, you will be entitled to such incentive compensation, if any, as is otherwise provided by the STIP and our policies.
In addition to the foregoing, we agree that (i) for the 2015 plan year, if a STIP award is payable your STIP award will be based on the greater of (A) actual 2015 performance, or (B) assumed performance at target levels (i.e., a STIP score of not less than 1.0); and (ii) the amount you are entitled to receive for the 2015 plan year will not be prorated (i.e., it will be a full year award).
(d)
Long-Term Incentive Plan
You are eligible to participate in annual awards under the Long-Term Incentive Program under the OIP, as modified and in effect from time to time (the “
LTIP
”), granted by the Board or the Committee, pursuant to and in accordance with the terms and conditions of the LTIP and the OIP. Each year of the Initial Term, you will receive an annual LTIP award equal to 100% of Base Salary. Your annual LTIP awards will be granted at the time and on the terms that we grant annual LTIP awards to our other executives.
Conditioned upon Board approval and upon actual commencement of your employment with us, you will be entitled to receive a 2015 annual LTIP award with vesting to occur on the same terms and conditions as the 2015 annual LTIP awards made to other LTIP participants for 2015.
(e)
Nonqualified Deferred Compensation Plan
You are eligible to participate in the Spirit AeroSystems Holdings, Inc. Amended and Restated Deferred Compensation Plan, as amended or restated from time to time (“
DCP
”), subject to and in accordance with the terms and provisions of the DCP
.
You may elect to voluntarily defer compensation under the DCP in accordance with the terms and conditions of the DCP and the plan administrator’s policies and procedures.
(f)
Other Benefit Plans
You will also be eligible to participate in other executive benefit plans, policies, practices, and arrangements in which one or more of our senior executives is eligible to participate from time to time, including without limitation (i) any defined benefit or defined contribution retirement plan, excess or supplementary plan, profit-sharing plan, savings plan, health and dental plan, disability plan, survivor-income and life-insurance plan, executive financial planning program, or other arrangement, or any successors thereto; (ii) any perquisite allowance or reimbursement arrangement the Board or Committee may adopt; and (iii) such other benefit plans as we may establish or maintain from time to time (collectively “
Benefit Plans
”). Your entitlement to any other compensation or benefits will be determined in accordance with the terms and conditions of the Benefit Plans and other applicable programs, practices, and arrangements then in effect.
(g)
Earned Time Off
You will be provided with earned time off and 12 paid holidays each year in accordance with our policies and practices in effect from time to time. Notwithstanding any contrary policy or practice, however, 25 days of earned time off will be immediately available to you upon the Effective Date.
(h)
Fringe Benefits and Relocation
You will be provided with all other fringe benefits and perquisites awarded by the Board or Committee for your position level from time to time. You will also be entitled to relocation benefits under the terms of our Corporate Domestic Relocation Guide - Level 4 Policy.
(i)
Withholding Taxes
We will have the right to deduct from all payments made to you hereunder any federal, state, local and foreign taxes required by law to be withheld.
(j)
Expenses
During your employment, we will promptly pay or reimburse you for all reasonable out-of-pocket expenses incurred by you in the performance of your duties, in accordance with our policies and procedures then in effect.
The payment or reimbursement of expenses described in this Section 3(j) are not intended to provide for the deferral of compensation within the meaning of Code Section 409A because all such expenses are to be paid or reimbursed currently and/or will be tax-free. To the extent such expenses are deemed to provide for the deferral of compensation within the meaning of Code Section 409A, they are intended to meet the requirements of a specified date or a fixed schedule of payments, and this reimbursement provision will be interpreted and applied in a manner consistent with such requirements. The right to payment of, or reimbursement for, expenses is not subject to liquidation or exchange for any other benefit.
4.
Restrictions
(a)
Acknowledgements
You acknowledge and agree that (i) during the Employment Period, because of the nature of your responsibilities and the resources provided by us, you will acquire and/or develop valuable and confidential skills, information, trade secrets, and relationships with respect to our Business; (ii) you may develop on our behalf a personal relationship with various persons, including but not limited to representatives of customers and suppliers, where you may be a principal or our only contact with such persons, and as a consequence, you will occupy a position of trust and confidence to us; (iii) the Business involves the manufacturing, marketing, and sale of our products and services to customers throughout the world, our competitors, both in the United States and internationally, consist of both domestic and international businesses, and the services to be performed by you involve aspects of both our domestic and international business; and (iv) it would be impossible or impractical for you to perform your duties without access to our confidential and proprietary information and contact with persons who are valuable to our Business and goodwill.
(b)
Reasonableness
In view of the foregoing and in consideration of the remuneration to be paid to you, you agree that it is reasonable and necessary for the protection of our Business and goodwill that you undertake the covenants in this Section 4 regarding your conduct during and subsequent to your employment by us, and acknowledge we will suffer irreparable injury if you engage in any conduct prohibited by this Section 4.
(c)
Non-Compete
During the Employment Period and for a period of (1) in the case of involuntary termination without Cause, one year after termination of employment, and (2) in the case of termination of employment for any other reason, two years after such termination of employment, neither you nor any individual, corporation, partnership, limited liability company, trust, estate, joint venture, or other organization or association (“
Person
”) with your assistance nor any Person in which you directly or indirectly have any interest of any kind (without limitation) will, anywhere in the world, directly or indirectly own, manage, operate,
control, be employed by, serve as an officer or director of, solicit sales for, invest in, participate in, advise, consult with, or be connected with the ownership, management, operation, or control of any business that is engaged, in whole or in part, in the Business, or any business that is competitive with the Business or any portion thereof, except for our exclusive benefit. You will not be deemed to have breached the provisions of this Section 4(c) solely by holding, directly or indirectly, not greater than 2% of the outstanding securities of a company listed on a national securities exchange.
(d)
Non-Solicitation
During the Employment Period and for a period of (1) in the case of involuntary termination without Cause, one year after termination of employment, and (2) in the case of termination of employment for any other reason, two years after such termination of employment, neither you nor any Person with your assistance nor any Person in which you directly or indirectly have an interest of any kind (without limitation) will, directly or indirectly (A) solicit or take any action to induce any employee to quit or terminate their employment with us or our affiliates; or (B) employ as an employee, independent contractor, consultant, or in any other position any person who was an employee of ours or our affiliates during the aforementioned period.
(e)
Confidentiality
(i)
Confidential Information
For purposes of this Agreement, “
Confidential Information
” means any information (whether in written, oral, graphic, schematic, demonstration, or electronic format, whether or not specifically marked or identified as confidential, and whether obtained by you before or after the Effective Date), not otherwise publicly disclosed by Spirit, regarding (without limitation) Spirit, its Business, customers, suppliers, business partners, prospects, contacts, contractual arrangements, discussions, negotiations, evaluations, labor negotiations, bids, proposals, aircraft programs, costs, pricing, financial condition or results, plans, strategies, governmental relations, projections, analyses, methods, processes, models, tooling, know-how, trade secrets, discoveries, research, developments, inventions, engineering, technology, proprietary information, intellectual property, designs, computer software, intelligence, legal or regulatory compliance, accounting decisions, opportunities, challenges, and any other information of a confidential or proprietary nature. Notwithstanding the foregoing, Confidential Information will not include any information that (A) you are required to disclose by the order of a court or administrative agency, subpoena, or other legal or administrative demand, so long as (1) you give us written notice and an opportunity to contest or seek confidential treatment of such disclosure; and (2) you fully cooperate at our expense with any such contest or confidential treatment request; (B) has been otherwise publicly disclosed or made publicly available by Spirit; or (C) was obtained by you in good faith after your employment with us ended from a source that was under no obligation of confidentiality to Spirit or any customer or supplier.
(ii)
Non-Use and Non-Disclosure
Without our express written consent, you will not at any time (whether during the Employment Period or after any termination of your employment for any reason) use for any purpose (other than for our exclusive benefit) or disclose to any Person (except at our direction) any Confidential Information.
(f)
Effect of Breach
You agree that a breach of this Section 4 cannot adequately be compensated by money damages and, therefore, we will be entitled, in addition to any other right or remedy available to us (including, but not limited, to an action for damages, accounting, or disgorgement of profit), to an injunction restraining such breach or a threatened breach and to specific performance of such provisions, and you consent to the issuance of such injunction and the ordering of specific performance without the requirement for us to post a bond or other security or to prove lack of an adequate remedy at law.
(g)
Other Rights Preserved
Nothing in this Section 4 eliminates or diminishes rights we may have with respect to the subject matter hereof under other agreements, our governing documents or statutes, or provisions of law (including but not limited to common law and the Uniform Trade Secrets Act), equity, or otherwise. Without limiting the foregoing, this Section 4 does not limit any rights we may have under any Spirit policies or any agreements with you regarding Confidential Information.
5.
Termination
Your employment with us will terminate upon the following circumstances:
(a)
Without Cause
At any time at the election of either you or us for any reason or no reason, without Cause, but subject to the provisions of this Agreement. It is expressly understood that your employment is strictly “
at will.
”
(b)
Cause
At any time at our election for Cause.
“
Cause
” for this purpose means (i) your commission of a material breach of this Agreement or acts involving fraud, material and intentional dishonesty, material and intentional unauthorized disclosure of Confidential Information, the commission of a felony or other crime involving moral turpitude, or material violation of Spirit policies; (ii) direct and deliberate acts constituting a material breach of your duty of loyalty to Spirit; (iii) your refusal or material failure (other than by reason of your serious physical or mental illness, injury, or medical condition) to perform your job duties and responsibilities, including, but not limited to, any duties or responsibilities reasonably assigned to you by the Board, if such refusal or failure is not remedied within 30 days after you receive written notice thereof from the Board; (iv) your material underperformance, as reflected in two consecutive written performance reviews provided to you not less than 6 months apart; or (v) your inability to obtain and maintain the appropriate level of United States security clearance.
(c)
Death or Disability
Your death or your inability to perform the services required of you for a period of 180 days during any twelve-month period (“
Disability
”).
6.
Effect of Termination
(a)
General Rule
If your employment terminates for any reason other than as described in Section 6(b) below, we will pay your compensation only through the last day of employment, and, except as otherwise expressly provided in this Agreement or the STIP, the LTIP, the DCP, or any Benefit Plan, we will have no further obligation to you.
(b)
Termination Without Cause
If your employment is terminated by us without Cause at any time during the Initial Term of the Agreement, then for so long as you comply with your continuing obligations under Section 4 we will (1) continue to pay your monthly Base Salary in effect immediately before termination of your employment for a period of one year, and (2) at our option, either pay the cost of COBRA medical and dental benefits coverage for a period of six months or pay you an amount each month for six months equal to the cost of providing COBRA medical and dental benefits.
To receive the benefits described in this Section 6(b), you will be required to sign a general release of claims in a form we deem acceptable. The release must be provided, and any revocation period must have expired, not later than 60 days after termination of employment. If the foregoing conditions are satisfied then, except as provided below, payment of salary continuation and other benefits will begin 60 days after termination of employment.
Notwithstanding any contrary provision of this Section 6(b), if you are a Specified Employee at the time employment terminates, the payments described in Section 6(b) will, to the extent such amounts are deferred compensation within the meaning of Code Section 409A, be delayed until the date that is the earlier of (i) six months after your termination of employment, or (ii) the date of your death, and upon reaching that date, all amounts that would have been paid during the six-month delay period, plus interest thereon at the prime rate (as published in the Wall Street Journal) from the date the payment would have been made but for this paragraph to the date of payment, will be paid in a single lump sum, and all remaining amounts will be paid in equal monthly payments for the remainder of the Salary Continuation Period.
“
Specified Employee
” means that, with respect to a corporation any stock in which is publicly traded on an established securities market or otherwise, you are, or are treated under Code Section 409A as, either (A) an officer having annual compensation greater than $130,000 (as adjusted for cost-of-living increases in accordance with Code Section 416(i)(1)(A) and Code Section 415(d)), (B) a 5% owner, or (C) a 1% owner having annual compensation from the corporation of more than $150,000. For purposes of determining your percentage ownership, the constructive-ownership rules described in Code Section 416(i)(1)(B) will apply. The determination whether you are a Specified Employee will be made in accordance with regulations issued under Code Section 409A and other available guidance.
Except as otherwise expressly provided in this Agreement or in any Benefit Plan, we will have no further obligation to you
(c)
Disability or Death
If your employment terminates due to Disability or death, we will pay your monthly Base Salary only through the date of termination.
(d)
Your Post-Termination Obligations
On termination of employment for any reason, (1) you will resign as of the date of such termination as a director and officer of Spirit and its affiliates and as a fiduciary of any of Spirit’s or its affiliates’ benefit plans, (2) you will promptly execute and deliver upon such termination any document reasonably required by Spirit or an affiliate to evidence the foregoing resignations, (3) you will immediately deliver to
us all Confidential Information, all copies and embodiments thereof, and all records, notes, worksheets, schematics, customer lists, supplier lists, memoranda, computer files and storage devices, analyses and derivative works based thereon or which relate in any way thereto, and (4) you will pay to us any amounts due and owing by you as specified in this Agreement.
(e)
Survival of Provisions
Your obligations under 4 through 9 of this Agreement will survive the expiration or termination of your employment for any reason.
7.
Representations and Warranties
You represent and warrant to us that:
(a)
No Conflicts
To the best of your knowledge, you are under no duty (whether contractual, fiduciary or otherwise) that would prevent, restrict or limit you from entering into this Agreement and fully performing all duties and services for us, and the performance of such duties and services will not conflict with any other agreement, policy or obligation by which you are bound.
(b)
No Hardship
Your experience and/or abilities are such that observance of the covenants in this Agreement will not cause you any undue hardship and will not unreasonably interfere with your ability to earn a livelihood.
8.
Clawback Right
You acknowledge that certain amounts paid under this Agreement or the Benefit Plans described herein are subject to any Spirit policy on the recovery of compensation (i.e., a so-called “clawback policy”), as it exists now or as later adopted, and as thereafter amended from time to time.
9.
Mediation
(a)
General Obligation to Mediate
Except as provided in this Agreement, prior to initiating any legal action, the parties agree to submit all unsettled claims, disputes, controversies, and other matters in question between them arising out of or relating to this Agreement (including but not limited to any claim that this Agreement or any of its provisions is invalid, illegal, or otherwise voidable or void) or the dealings or relationship between them (“
Disputes
”) to mediation in Wichita, Kansas, in accordance with the Commercial Mediation Rules of the American Arbitration Association currently in effect. The mediation will be private, confidential, voluntary, and nonbinding. Either party may withdraw from the mediation at any time before signing a settlement agreement by giving written notice to the other party and the mediator. The mediator will be neutral and impartial. The mediator will be disqualified as a witness, consultant, expert, or counsel for either party with respect to the matters in Dispute and any related matters. Each party will pay its respective attorneys’ fees and other costs associated with the mediation, and each party will equally bear the costs and fees of the mediator. If a Dispute cannot be resolved through mediation within 90 days of its submission to mediation, the parties may proceed with legal action.
(b)
Confidentiality
The parties agree that they will not disclose, or permit those acting on their respective behalf to disclose, any aspect of the proceedings under Section 9(a), including but not limited to the resolution or the existence or amount of any award, to any
Person, unless divulged (i) to an agency of the federal or state government; (ii) pursuant to a court or administrative order; (iii) pursuant to a requirement of law; (iv) pursuant to prior written consent of the parties; (v) pursuant to a legal proceeding to enforce a settlement agreement or arbitration award; or (vi) by Spirit, to the extent required under federal securities laws and regulations. This provision does not prohibit the parties’ disclosure of the terms of any settlement to their attorney(s), accountant(s), financial advisor(s), or family members, so long as such persons first agree to comply with the provisions of this Section 9(b).
(c)
Injunctions
Notwithstanding anything to the contrary in this Section, the parties will have the right in a proper case to obtain temporary restraining orders and temporary or preliminary injunctive relief from a court of competent jurisdiction.
10.
General
(a)
Notices
All notices required or permitted under this Agreement must be in writing and may be given by personal delivery, effective on the day of such delivery, or may be mailed by certified mail, return receipt requested, effective three business days after the date of mailing, addressed as follows:
To us:
Spirit AeroSystems, Inc.
Attention: Senior Vice President, General Counsel and Secretary
3801 S. Oliver
P.O. Box 780008, Mail Code K11-60
Wichita, KS 67278-0008
Facsimile: 316.529.4539
Email: jon.d.lammers@spiritaero.com
or such other person or contact information as designated in writing to you.
To you:
Ron Rabe
at your last known residence address, email, or facsimile number or to such other contact information as designated in writing to us.
(b)
Successors
Neither this Agreement nor any right or interest herein will be assignable or transferable (whether by pledge, grant of a security interest or otherwise) by you or your beneficiaries or legal representatives, except by will, the laws of descent and distribution, or inter vivos revocable living grantor trust as your beneficiaries, and any other purported assignment will be void. This Agreement will be binding upon and will inure to the benefit of Spirit, its successors and assigns, and will be binding on you and your heirs, beneficiaries, and legal and personal representatives.
(c)
Waiver, Modification, and Interpretation
No provisions of this Agreement may be modified, waived, or discharged except by written instrument signed by you and an appropriate officer of Spirit empowered to sign the same by our or Holdings’ Board. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time.
(d)
Interpretation
The validity, interpretation, construction, and performance of this Agreement will be governed by the laws of the State of Kansas, except that the corporate law of the State of Delaware will govern issues related to the issuance of common stock. Any action brought to enforce or interpret this Agreement will be maintained exclusively in the state and federal courts located in Wichita, Kansas.
(e)
Headings
The headings in this Agreement are for reference purposes only and will not in any way affect the meaning or interpretation of any provision of this Agreement. No provision of this Agreement will be interpreted for or against either party on the basis that such party was the draftsman of such provision, and no presumption or burden of proof will arise disfavoring or favoring either party by virtue of the authorship of any provision of this Agreement.
(f)
Counterparts
We and you may execute this Agreement in counterparts, each of which will be deemed an original and both of which will constitute a single instrument. In proving this Agreement, it will not be necessary to produce or account for more than one such counterpart.
(g)
Invalidity of Provisions
If a court of competent jurisdiction declares that any provision of this Agreement is invalid, illegal, or unenforceable in any respect, then in lieu of such illegal, invalid, or unenforceable provision the court may add as a part of this Agreement a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as is possible. If such court cannot so substitute or declines to so substitute for such illegal, invalid, or unenforceable provision (i) such provision will be fully severable; (ii) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and (iii) the remaining provisions of this Agreement will continue in full force and effect and not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. The covenants in this Agreement will each be construed to be a separate agreement independent of any other provision of this Agreement, and the existence of any claim or cause of action of yours against us, predicated on this Agreement or otherwise, will not constitute a defense to the enforcement by us of any covenants in this Agreement.
(h)
Entire Agreement
This Agreement (together with the documents expressly referred to herein) constitutes the entire agreement between the parties, supersedes in all respects any prior agreement between you and us, and may not be changed except by written instrument duly executed by you and us in the same manner as this Agreement.
(i)
Compliance with Code Section 409A
The amounts payable to you after separation from service under 6(b) (if any) are intended to be exempt from the definition of “deferred compensation” for purposes of Code Section 409A as amounts payable only in the event of involuntary termination without Cause. To the extent any such amounts constitute “deferred compensation” for purposes of Code Section 409A, then those amounts will be paid to you in equal monthly installments, and payment of such amounts may not be accelerated. This Section 10(i) and the terms of this Agreement are intended to comply with, and will be interpreted and construed in accordance with and in a manner that complies with, the requirements of Code Section 409A, to the extent necessary.
[Signature page follows.]
IN WITNESS WHEREOF
, this Agreement has been executed by the parties on the date(s) set forth below, to be effective as of the Effective Date.
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SPIRIT AEROSYSTEMS, INC.
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Date:
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June 4, 2015
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By:
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/s/ Justin Welner
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Name:
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JUSTIN WELNER
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Title:
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VP, Human Resources
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Date:
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June 3, 2015
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/s/ Ron Rabe
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Ron Rabe
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RESIGNATION AND CONSULTING
AGREEMENT AND GENERAL RELEASE
THIS RESIGNATION AND CONSULTING AGREEMENT AND GENERAL RELEASE (the "
Agreement
") is made and entered into as of this
21
day of May, 2015, by and between Spirit AeroSystems, Inc. (the "
Company
" or "
Employer
"), Spirit AeroSystems Holdings, Inc., the parent of the Company (the "
Parent
"), and David M. Coleal (the "
Executive
" or "
you
").
FOR YALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1.
Resignation
. Effective as of the close of business on June 11, 2015 (the "
Resignation Date
"), the Executive's employment with the Company will end by virtue of his resignation, and as of the close of business on the Resignation Date, the Executive resigns from his employment with the Company and from any and all other positions he holds as an employee, officer, or director of the Company, the Parent, or any of their subsidiaries or affiliates.
2.
Payments.
(a)
Consulting Services
. For a period of two years following the Resignation Date (the "
Consulting Term
"), the Executive agrees that he shall provide consulting and transition services to the Company at such times as are reasonably directed by the Company. It is the expectation of the Company and the Executive that the level of bona fide services the Executive will perform after the Resignation Date will permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed by the Executive on behalf of the Company, the Parent and their subsidiaries or affiliates over the immediately preceding thirty-six (36) month period and, as such, the Executive shall experience a "separation from service" as defined under Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder on the Resignation Date.
In consideration for the Executive's consulting services and in consideration of both (i) the release of all claims described below in Paragraph 3 (including the reaffirmation thereof through the Resignation Date), and (ii) the Protective Agreement described in Paragraph 7, the Company agrees to compensate the Executive at an annual rate of $150,000 (the "
Consulting Fees
") during the Consulting Term. The Consulting Fees shall be payable in substantially equal installments in accordance with the Company's payroll policies for executive level positions from time to time in effect during the Consulting Term.
The foregoing notwithstanding, the Consulting Term shall earlier terminate upon the Executive's death. Upon the expiration of the Consulting Term as the result of the Executive's death, the Company shall have no further payment obligations hereunder except for Consulting Fees which are earned through the date of the Executive's death.
The Company and the Executive acknowledge and agree that the payments made in this Paragraph 2(a) are "wages" for purposes of FICA, FUTA and income tax withholding and such taxes, if not previously withheld, shall be withheld from the payments made hereunder. One
thousand doll
ars
($1
,
000.00)
of
s
uch payment
s s
hall be
s
pecifically in consideration
of
the
release
of
any
cl
a
im under th
e
Age
Di
sc
riminati
o
n in
E
mployment
Act
of
1967
,
as amended
(“ADEA”),
an
d
as
describ
ed
in
Paragraph 3
h
ereof,
and
the
Execu
tive
ag
ree
s
that
s
uch
consideration
i
s
in
addition
t
o anything
of value
t
o
which
he is already
e
ntitl
ed.
(b)
Other Continuing Rights
. The Company shall continue to pay the Executive his base salary at his annual salary rate currently in effect through the Resignation Date. The Executive agrees that, except for (1) his accrued base salary earned through the Resignation Date, and (2) awards made (if any) and benefits accrued (if any) on or before the Resignation Date under the terms of one or more Company benefit plans, including, but not limited to, the Spirit AeroSystems Holdings, Inc. Omnibus Incentive Plan (“OIP”) (including the Short-Term Incentive Program and Long-Term Incentive Program under the OIP), the Spirit AeroSystems Holdings, Inc. Deferred Compensation Plan ("DCP"), and the Spirit AeroSystems Holdings, Inc. Retirement and Savings Plan ("RSP"), he has been paid (or, as of the Resignation Date, will have been paid) all other compensation due to him, including but not limited to all salary, bonuses, deferred compensation, incentives and all other compensation of any nature whatsoever. Except as set forth above, no other sums (contingent or otherwise) shall be paid to the Executive in respect of his employment by the Company or the Parent, and any such sums (whether or not owed) are hereby expressly waived by the Executive. The foregoing notwithstanding, following the Resignation Date, the Executive (i) may elect to continue his health insurance coverage, as mandated by COBRA, which may continue to the extent required by applicable law, (ii) shall be entitled to receive his account balance under the RSP in accordance with the terms of such plan, and (iii) shall be entitled to reimbursement for reasonable business expenses incurred in performing the consulting services in accordance with the Company's expense reimbursement policies.
(c)
Continuing Entitlement
. The Executive acknowledges that his continuing entitlement to payments under Paragraph 2(a) shall be conditioned upon his continuing compliance with Paragraphs 4, 5, 6, 7, 10(a) and 14 of the Agreement and any material violation of Paragraphs 4, 5, 6, 7, 10(a) or 14 by the Executive shall terminate the Company’s obligation to continue to make payments in accordance with Paragraph 2(a).
3.
General Release.
As a material inducement to the Company and the Parent to enter into this Agreement and in consideration of the payments to be made by the Company and the Parent to the Executive in accordance with Paragraph 2(a) above, the Executive, on behalf of himself, his representatives, agents, estate, heirs, successors and assigns, and with full understanding of the contents and legal effect of this Agreement and having the right and opportunity to consult with his counsel, hereby agrees to release and hold harmless the Company, the Parent, and their respective shareholders, officers, directors, employees, agents, representatives, subsidiaries, affiliates and all employee benefit plans sponsored or contributed to by the Company or the Parent (including any fiduciaries thereof), and all related entities of any kind or nature, and its and their predecessors, successors, heirs, executors, administrators, and assigns (collectively, the
"Released Parties")
from and waive any claim that Executive has presently or may have or have had in the past, known or unknown, against the Released Parties upon or by reason of any matter, cause or thing whatsoever, from the beginning of the world through and including the Resignation Date, including, without limitation, all claims arising from
Executive's employment with, or termination of employment from, the Company or the Parent or otherwise.
This Agreement and general release is valid whether any claim or right arises under any federal, state or local statute, including, without limitation, the ADEA, the 1990 Older Workers Benefit Protection Act, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Equal Pay Act, the Americans with Disabilities Act of 1 990, the Employee Retirement Income Security Act of 1974, the Family and Medical Leave Act of 1993, the Fair Labor .Standards Act, the Worker Adjustment and Retraining Notification Act (WARN), the Lilly Ledbetter Fair Pay Act, all as amended from time to time, and any other Federal, Kansas or other laws, statutes or regulations pertaining in any way to wage payment, employment discrimination, whistleblowing, implied or express contract, or in any other way pertaining to Executive's employment, and all other applicable statutes regulating the terms and conditions of Executive's employment), regulation or ordinance, under the common law or in equity (including any claims for wrongful discharge, slander, libel or otherwise), or under any policy, agreement, understanding or promise, written or oral, formal or informal, between the Company and/or the Parent and Executive, including, without limitation, any claim Executive might have for termination or severance pay pursuant to the Company's severance policies or practices as from time to time in effect, or otherwise.
Executive agrees, represents and warrants that Executive is the sole owner of the claims that are released in this Agreement and that Executive has the full right and power to grant, execute and deliver the releases and promises in this Agreement. The consideration offered in this Agreement (including, without limitation, the payments described in Paragraph 2(a)) is accepted by Executive as being in full accord, satisfaction, compromise and settlement of any and all claims or potential claims, and Executive expressly agrees that Executive is not entitled to and shall not receive any further recovery of any kind from the Company or the Parent, and that in the event of any further proceedings whatsoever based upon any matter released herein , the Company or the Parent shall have no further monetary or other obligation of any kind to Executive, including any obligation for any costs, expenses and attorneys' fees incurred by Executive or on Executive's behalf.
4.
Covenant
Not to Sue.
The
Executive,
for him
s
elf
,
his heirs
,
executors, administrators
,
s
uccessors
and assigns agree
s
not to bring
,
file
,
claim,
sue or cau
s
e
,
assist
,
or
permit to be brought, filed,
or
claimed any
action, cause of
action
,
or
proceeding regarding
or
in any way related to
any of
the
c
l
aims
described in Paragraph
3
above
,
and
further agrees that this Agreement will constitute and may be pleaded
as,
a bar to
any such
claim, action,
cause
of action
or
proceeding. If
the
Executive
files a
charge
or participates in
an
investigative proceeding
of
the
EEOC or another governmenta
l
agency, or
is
otherwise
made a party to
any
proceedings described in Paragraph
3 above,
the
Executive
will not
s
eek and wi
ll
not
accept any
personal
equ
it
able or
monetary relief in connection with
s
u
ch
charge
or
investigative
or othe
r
proceeding.
5
.
Indemnification.
The
Executive w
ill
fully
indemnify the Released
Parties and their
s
hareholders
,
member
s
,
manager
s,
officers
,
director
s,
emp
l
oyees and
independent
contractor
s
against
and will
hold the Released Parties and
their shareholder
s
,
members, managers
,
officers
,
director
s,
emp
lo
yees and
independent contractors harmles
s
from
any and
all
claims
,
costs, damages
,
demands
,
expenses
(including
,
without
limitation
,
reasonable
attorney
s
'
fees)
,
judgments
,
losses
or other
liabilities
of any
kind
or
nature
whatsoever
arising from
or directly or
indirectly related
to any or all of
this Agreement
and the conduct of
the
Executive
hereunder
,
including without limitation
any
material breach
or
willful
failure
to comply with
any or
all
of
the provisions
of this Agreement.
6.
No
Disparaging,
Untrue or Misleading Statements
. The Executive
represents that he has not made
,
and
agrees that he
will
not make, to
any third
party
any
disparaging, untrue,
or
misleading
written or oral statements about or
relating
to
the Released
Parties or their
products
or services
(or
about or
relating
to any officer,
director
,
agent, employee, or other
person acting
on
the Released Partie
s'
behalf).
7.
Confidential
Information, Intellectual Property,
Non-Competition and
Non-
Solicitation.
In
addition
to
any agreement
related to intellectual property rights
,
trade
secrets, confidential
information and
/o
r work products previously
executed
by
the Executive,
including
without
limitation the
Employee
Intellectual Property
and Confidentiality Agreement,
the
Noncompetition and Confidentiality
Agreement
,
and
your Employment
Agreement
,
Executive agrees
that
all
Intellectual
Property (as defined
below)
that Executive, individually or
jointly with
others (in whole or
in part)
,
invent, discover
,
originate, conceive,
design
,
draw
,
develop,
write, prepare, or
participate in
through the
Re
s
ignation Date
,
whether during
working
hour
s o
r
otherwise,
that
arises out of,
relates to
, s
uggested by
,
or
result
s
from the Company
's
trade secrets,
confidential
or
propr
ietary
information,
his
duties for Company
,
Company's
busines
s,
or Company's
anticipated bu
s
ine
ss
development ("Employer
Rights
"
)
is
the sole
property
of
the
Company and a
"wo
rk made for hire
"
and/or "invention for
hire.
"
To the
extent all Employer Rights do not automatically vest
in the
Company by operation of
law
or otherwise, Executive
her
eby
assigns and grants to the Company all of
the
right
,
title
,
and
interest
of every kind and
nature in
any
s
uch
Employer
Rights
,
free and clear
of
liens
,
claims
,
or encumbrances, without additional
compensation
for
doing
so. Executive agrees to assist the Company at
it
s
expense for out-of-pocket expenses
rea
so
nabl
y
incurred in perfecting
the Company's
rights in
the Employer Rights
,
and
hereby
irrevocably appoints
the
Company
his
attorney-in-fact
to
execute and
file
any documents
necessary
or convenient for
that purpose.
Exec
utive hereby
waives any
moral ri
g
hts
to any Employer
Right
s.
For
the purpose
s
of this Agreement,
th
e
term
"
Intellectual Property
"
means
on a worldwide
basi
s,
any and all
n
ow
known
or
hereafter known
tangible and
intangible intellectual
and
industrial property rights
of every kind and
nature
and
however
designated
,
whether arising by operation
of
law
,
contract
,
licen
se,
or otherwise,
including
without
limitation,
trademarks, copyrights,
inventions
,
and
patents
,
and all applications and
regi
s
trations thereof.
Nothing
in thi
s
section
requires the
assignment of any of your rights in
a
ny invention
s
(as that term is
used in
applicable
law)
for which no
equipment
,
supplie
s,
facilities,
o
r
trade secret
inf
o
rmation
of Company is
u
se
d
and which
i
s
developed entirely on
yo
ur
own
time
,
unless
(i) the invention
relate
s
to
th
e
busines
s
of
Co
mpany
or
to
Company's actual or demonstrably anticipated
re
sea
rch
or
devel
o
pment,
or (ii) the
invention results
from any work
performed
by you for Company. By signing your
name below
,
you acknowledge
being been
g
iven
written
notice
of
this
exception.
Exec
utive
further agree that
he
will
not
at any
time divulg
e
to
any other
e
ntity
or
per
s
on any
information
acquired
by him
concerning
the
financial or
legal
affairs of the Company,
it
s
affiliates and
s
ubsidiarie
s,
it
s
officers,
director
s,
employees and/or shareholder or
the
E
mpl
oye
r
's
o
r
the Company
's
business
pr
ocesses
or
methods
or research
,
environmental
health
and safety processes, procedures, or initiatives, development or marketing programs or plans, any other of its trade secrets, any information concerning this Agreement or the terms thereof or any information regarding discussions related to any of the foregoing or make, write, publish, produce or in any way participate in placing into the public domain any statement, opinion or information with respect to any of the foregoing or which reflects adversely upon or would reasonably impair the reputation or best interests of the Company or any of its directors, officers, employees or agents or their respective family members. During the course of Executive’s employment he received and was privy to the Company's attorney-client and work product privileged information. Executive specifically acknowledges and agrees that he does not have the authority to address the company's legal affairs or to waive the Company's attorney-client privilege or work product privilege, and agrees that he will not disclose any such information. Confidential information does not include (i) information which is required to be disclosed by court order, subpoena or other judicial process, subject to provisions of this Agreement (ii) information regarding your job responsibilities during your employment with the Employer to prospective employers in connection with an application for employment, (iii) information regarding the financial terms of this Agreement to Executive's spouse or tax advisor for purposes of obtaining tax advice provided that such persons are made aware of and agree to comply with the confidentiality obligation, or (iv) information which is necessary to be disclosed to Executive's attorney to determine whether he should enter into this Agreement.
In the event that Executive seeks or are sought make disclosure under any agency or law enforcement investigation, court order, subpoena, or other judicial process, Executive will cooperate with the Company and provide the Company with prompt written notice of such request, take all steps requested by the Company to defend against the compulsory disclosure of confidential information, and permit the Company to participate with counsel of its choice in any proceeding relating to the compulsory disclosure. Executive acknowledges that all information, the disclosure of which is prohibited by this Section, is of a confidential and proprietary character and of great value to the Company. Executive also acknowledges that, to the extent he had access to and became acquainted with confidential information of the Company, he shall not use such information for any purpose, including using such information on behalf of himself or any third party.
The foregoing prohibitions shall include, without limitation, directly or indirectly publishing (or causing, participating in, assisting or providing any statement, opinion or information in connection with the publication of) any diary, memoir, letter, story, photograph, interview, article, essay, account or description (whether fictionalized or not) concerning any of the foregoing, publication being deemed to include any presentation or reproduction of any written, verbal or visual material in any communication medium, including any book, magazine, newspaper, theatrical production or movie, or television or radio programming or commercial or any posting on the Internet. In addition to any and all other remedies available to the Company for any violation of this Section, you agree to immediately remit and disgorge to the Company any and all payments paid or payable to you in connection with or as a result of engaging in any of the above acts.
Executive acknowledges and agrees that he remains bound to his non-competition and non-solicitation obligations, as set forth in his Employment Agreement with the Company.
However, in exchange for Executive's execution of this Agreement, the Company agrees that, notwithstanding any contrary language in the Noncompetition Agreements, Executive may be employed as President, Bombardier Business Aircraft immediately following the Resignation Date, provided that Executive's role in that position (or any other position) does not involve the Bombardier's C-Series, or any other commercial aircraft, or aerostructures activities. All other terms and conditions of the Noncompetition Agreements remain in full force and effect, including restrictions against competition with the Company in any position or business activity; the solicitation of Company employees; and the disclosure of confidential information.
8.
Severability.
If any provision of this Agreement shall be found by a court of competent jurisdiction to be invalid or unenforceable, in whole or in part, then such provision shall be construed and/or modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. The parties further agree to seek a lawful substitute for any provision found to be unlawful; provided, that, if the parties are unable to agree upon a lawful substitute, the parties desire and request that a court or other authority called upon to decide the enforceability of this Agreement modify the Agreement so that, once modified, the Agreement will be enforceable to the maximum extent permitted by the law in existence at the time of the requested enforcement.
9.
Waiver
. A waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver or estoppel of any subsequent breach by such breaching party. No waiver shall be valid unless in writing and signed by an authorized officer of the Company or the Executive, as applicable.
10.
Miscellaneous Provisions.
(a)
Non-Disclosure
. Other than as mandated by law, the Executive agrees that he will keep the terms and amounts set forth in this Agreement completely confidential and will not disclose any information concerning this Agreement's terms and amounts to any person other than his attorney, accountant, tax advisor, or immediate family unless and until such time as the terms of the Agreement are publicly filed by the Parent pursuant to the Parent's filing obligations under the Securities Exchange Act of 1934 (a
"Public Filing").
Should the Executive disclose information about this Agreement to his immediate family, his attorney and/or tax and financial advisors prior to a Public Filing, he shall advise such persons that they must maintain the strict confidentiality of such information and must not disclose it unless otherwise required by law.
(b)
Representation.
The Executive represents and certifies that he has carefully read and fully understands all of the provisions and effects of this Agreement, has knowingly and voluntarily entered into this Agreement freely and without coercion, and acknowledges that the Company advised him to consult with an attorney prior to executing this Agreement and further advised him that he had twenty-one (21) days within which to review and consider this Agreement and that, if he signs this Agreement in less time, he has done so voluntarily in order to obtain sooner the benefits under this Agreement. The Executive is
voluntarily entering into this Agreement and neither the
Company
nor its employees,
officers,
directors
,
representatives
,
attorneys
or
other
agents made any representations concerning the terms or
effects of
this
Agreement other
than those contained in the Agreement itself and
the E
x
ecutive is not relying
on
any statement or representation by
the Company or
any
other
Released Parties in
executing
this Agreement.
The Executive
is relying
on
his
own judgment
and
that of
his
attorney
to the extent so retained. The
Executive
also
specifically affirms
that this Agreement clearly expresses his intent to waive fraudulent inducement claims
,
and that he disclaims
any
reliance on representations about any of the
specific
matters
in
dispute.
(c)
Revocation
.
The Executive
acknowledges that he has
seven (7)
days from the date this Agreement is
executed
in which to revoke his acceptance of the ADEA portion
of
this Agreement
,
and
such
portion
of
this Agreement will not be effective or
enforceable
until such
seven (7)
day pe
r
iod has expired. To be effective
,
any
such
revocation must be in writing
and delivered
to the
Company
'
s
principal place of business, to the attention of the Company
'
s
general
counsel
,
on
or
before the
seventh
day after
signing
and must expressly state the
Executive
'
s intention to revoke the ADEA portion
of
this Agreement. If the
Executive
revokes his acceptance
of
the
ADEA
portion
of
the Agreement
,
the remainder of the
Agreement shall
remain in
full
force
and
effect as to
all of
its terms
except
for the release
of
claim
s
under the
ADEA (and
the consideration attributable thereto)
,
and the Company will have three
(3)
business days to rescind the entire Agreement by
so
notifying the
Executive.
(d)
Return
of
Property
. By
signing
this Agreement, the
Executive
affirms that he shall have returned to the
Company
all of
the Company
‘
s
and the Parent's
and
their respective
subsidiaries
property that was in the
Executive's
possession, custody
or
control by
the
Resignation Date
,
including
,
without limitation
,
(i) all key
s,
access
cards,
credit cards,
computer hardware, computer
software
,
data, materials
,
documents, records, policies
,
client
and
customer information
,
marketing information
,
design information,
specifications and
plans, data base information and lists
,
and any
other
property
or
information
of
the
Company
,
the Parent and their
subsidiaries
(whether those materials
are
in paper
or
computer-stored form),
and (ii)
all documents and
other
property containing, summarizing,
or
describing
any Confidential
Information
,
including
all originals and
copies, except for property
which
the
Company
may
otherwise
agree
in writing
that the
Executive
may retain in
order
to perform the
consulting services
hereunder
or otherwise.
Any property
of
the
Company
or the Parent which the
Executive
is permitted to
retain
in connection with the consulting services shall be returned when
such
services terminate. The
Executive
affirms that he will not retain any such property
or
information in
any
form
(except
as permitted in accordance with the preceding provisions
of
this Paragraph 10(d))
,
and
will not give copies
of such
property
or
information
or
disclose their
contents
to any other person
.
The foregoing provisions notwithstanding
,
the Company
will provide to
Executive
the information technology described in paragraph (2)
,
and
at
no cost
or charge
,
the cell phone and tablet computer used by him while
an
employee
of Company
,
provided that
such
devices are made available to the
Company
and that the Company has taken
appropriate and
necessary
steps
to
remove
any proprietary
or confidential
information
from said
devices,
as
needed
.
Executive
acknowledges and agrees that if he discovers
any such
information
on
these devices
,
he
will
immediately notify the
Company so that
additional steps can be taken to
ensure
that
such
information is removed. Nothing in this paragraph in any limits
Executive's obligations or
responsibilities related to the use of the
Company’s
confidential information.
11
.
Complete Agreement.
This
Agreement
sets
forth the entire
agreement
between the parties
,
and
fully
supersedes
any
and
all prior agreements
or
understandings, whether
oral or
written, between the parties pertaining to actual
or
potential claims arising from the
Executive's employment
with
the Company
and the Parent
or
the termination
of
the
Ex
ecutive
'
s
employment with the
Company and
the Parent
,
including
,
but not limited to, the
Employment
Agreement. The
Executive expressly
warrants and
represents
that no promise or agreement which is
not
herein expressed has been made to him in executing this Agreement.
12.
No Pending or Future Lawsuits
. The
Executive
represents that he
has
no lawsuits, claims
or actions
pending in his name
,
or on behalf
of
any
other
person
or
entity
,
against the
Company or
any
of
the Released Parties. The
Executive
also represents that he does not intend to bring any claims
on
his
own
behalf
or on
behalf
of
any
other
person or
entity against
the
Company or any of
the Released Parties.
13.
No Admission
of
Liability.
The Executive
understands
and acknowledges
that this Agreement
constitutes a compromise and
settlement
of
any
and
all
actual or
known disputed claims by the
Executive
.
No
action taken
by the
Company
hereto
,
either
previously
or
in
connection with
this
Agreement, shall
be deemed
or construed
to be
(a) an admission of
the truth
or
falsity
of
any actual or known
claims or (b)
an acknowledgment
or
admission by the
Company of
any
fault or
liability
whatsoever
to the
Executive or any
third party
.
14.
Future
Cooperation.
Upon
request,
Executive agrees
to provide his full
assistance and
cooperation in any matter
or
matters
(including
but not limited to any claim negotiations with
customers or
suppliers
,
law enforcement investigations
or
proceeding
,
mediations
,
arbitrations,
lawsuits
,
or otherwise,
including but not limited to matters relating to
ongoing
Spirit arbitration
or other
litigated matters with customers
or suppliers)
relating to his
expertise or experience
as the
Company
may
reasonably
request
,
including
consulting,
training
,
the
preparation for,
and
I
or attendance at
any hearing
or
proceeding in the Company's defense
or
prosecution
of
any
existing or
future actions
,
arbitrations, claims
or
litigations of which
the Company
identifies
Executive
as potentially having knowledge
,
where deemed
appropriate
by
the Company.
The
Company
will reimburse
Executive for
the reasonable
costs and expenses
in connection therewith, provided however that
such
payments are not intended
to influence in
any
way the
testimony
Executive gives
under oath, and the
Company
expects
Executive
to
testify truthfully.
The
Company's
agreement to reimburse
Executive through
this Agreement is not based
,
conditioned
or
contingent in
any
way
on
the
substance
,
content
or
efficacy
of Executive's testimony, or
the
outcome of
any particular matter. The
Company
is reimbursing
Executive
for the revenue
Executive
loses
while
spending time relating to these issues,
and Executive's
reasonable
expenses
due to the
same.
15.
Amendment.
This
Agreement
may not be
altered, amended, or
modified except in writing
signed
by
both
the
Executive and
the
Company.
16.
Joint Participation
.
The parties hereto participated
jointly
in the negotiation and preparation
of
this
Agreement,
and
each
party has had the
opportunity
to
obtain
the
advice of
legal
counsel and
to review and comment upon the Agreement. Accordingly, it is
agreed
that no rule
of construction shall
apply
against any
party
or
in favor
of any
party. This Agreement shall
be construed as if the parties jointly prepared this Agreement, and any uncertainty
or
ambiguity
shall
not be interpreted against
o
ne
party and in favor of the other.
17.
Applicable Law
. This Release shall
be governed by, and construed
in
accordance with, the
law
s of
the
State of Kansas, and any court action commenced to enforce this Agreement
s
hall
have as its
so
le
and exclusive venue Sedgwick County, Kansas.
In
addition
,
the
Execut
ive
and the
Co
mpany
waive any right he or it may
ot
herwi
se
have
to a trial by jury
in
any action to enforce the terms of this
Relea
se.
18.
Execution of Agreement
. This Agreement may be executed in counterparts, each
of
which shall be considered an
o
rigin
a
l
,
but which when
taken
together,
shall constitute one
Agreement. This Agreement, to the extent
signed
and delivered by means
of a
facsimile machine
o
r
by PDF file
(
portable
document format file),
shall
be treated in all manner and respects as an original agreement
or
instrument
and s
hall
be considered to have the
same
binding
l
egal
effect
as
if it were the
orig
inall
y sig
ned
version
deliver
ed
in person. At the request
of
any party
hereto
,
each other party
sha
ll
re-execute original forms hereof and deliver them to all
other
parties.
[Signature page follows.]
PLEASE
READ THIS
AGREEMENT
AND
CAREFULLY CONSIDER ALL OF
ITS PROVISIONS
BEFOR
E
SIGNING
IT
.
THIS
AGREEMENT CONTAINS A RELEASE OF ALL
KNOWN
AND UNKNOWN CLAIMS
,
INCLUDING
THOSE UNDER THE FEDERAL AGE DISCRIMINATION
IN
E
MPLOYMENT ACT, AND OTHER FEDERAL
,
STATE AND LOCAL
LAWS PROHIBITING
DISCRIMINATION IN EMPLOYMENT.
IN
WITNESS WHEREOF
,
the Executive,
the Company and the
Parent have
voluntarily
s
igned this
Resignation
and Consulting Agreement and General Release
,
effective a
s o
f the first date set forth above
.
SPIRIT A
E
ROSYSTEMS, INC
.
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By:
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/s/ Sam Marnick
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Its:
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CAO\SVP
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/s/ David Coleal
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DAVID COLEAL
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SPIRIT A
E
ROSYSTEMS HOLDINGS, INC
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By:
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/s/ Sam Marnick
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Its:
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CAO\SVP
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EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a/15d OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Larry A. Lawson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Spirit AeroSystems Holdings, Inc. (“registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Larry A. Lawson
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Larry A. Lawson
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President and Chief Executive Officer
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Date:
July 31, 2015
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a/15d OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sanjay Kapoor, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Spirit AeroSystems Holdings, Inc. (“registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Sanjay Kapoor
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Sanjay Kapoor
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Senior Vice President and Chief Financial Officer
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Date:
July 31, 2015
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Spirit AeroSystems Holdings, Inc. (the “Company”) on Form 10-Q for the period ended
July 2, 2015
, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Larry A. Lawson, as President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Larry A. Lawson
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Larry A. Lawson
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President and Chief Executive Officer
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Date:
July 31, 2015
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Spirit AeroSystems Holdings, Inc. (the “Company”) on Form 10-Q for the period ended
July 2, 2015
, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sanjay Kapoor, as Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Sanjay Kapoor
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Sanjay Kapoor
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Senior Vice President and Chief Financial Officer
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Date:
July 31, 2015