e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 1, 2009
Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-33160
Spirit AeroSystems Holdings, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware
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20-2436320 |
| (State of Incorporation)
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(I.R.S. Employer
Identification Number) |
3801 South Oliver
Wichita, Kansas 67210
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
(316) 526-9000
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted to 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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o
(Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As
of November 2, 2009, the registrant had outstanding 104,838,654 shares of class A common
stock, $0.01 par value per share and 36,197,514 shares of class B common stock, $0.01 par value per
share.
PART I- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
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For the Three |
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For the Nine |
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Months Ended |
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Months Ended |
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October 1, 2009 |
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September 25, 2008 |
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October 1, 2009 |
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September 25, 2008 |
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($ in millions, except per share data) |
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Net revenues |
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$ |
1,053.8 |
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$ |
1,027.2 |
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$ |
3,000.8 |
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$ |
3,125.7 |
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Operating costs and expenses |
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Cost of sales |
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878.3 |
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864.3 |
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2,637.2 |
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2,596.1 |
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Selling, general and administrative |
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30.5 |
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39.0 |
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103.6 |
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119.0 |
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Research and development |
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14.0 |
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12.7 |
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41.6 |
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33.1 |
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Total operating costs and expenses |
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922.8 |
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916.0 |
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2,782.4 |
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2,748.2 |
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Operating income |
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131.0 |
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111.2 |
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218.4 |
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377.5 |
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Interest expense and financing fee amortization |
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(10.2 |
) |
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(9.9 |
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(29.1 |
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(29.5 |
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Interest income |
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1.6 |
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4.4 |
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6.2 |
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15.1 |
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Other income (loss), net |
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(0.5 |
) |
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(0.7 |
) |
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5.2 |
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0.9 |
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Income before income taxes and equity in net
loss of affiliate |
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121.9 |
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105.0 |
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200.7 |
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364.0 |
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Income tax provision |
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(34.4 |
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(31.0 |
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(58.8 |
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(118.4 |
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Income before equity in net loss of affiliates |
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87.5 |
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74.0 |
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141.9 |
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245.6 |
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Equity in net loss of affiliate |
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(0.2 |
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— |
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(0.2 |
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— |
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Net income |
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$ |
87.3 |
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$ |
74.0 |
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$ |
141.7 |
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$ |
245.6 |
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Earnings per share |
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Basic |
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$ |
0.63 |
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$ |
0.54 |
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$ |
1.03 |
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$ |
1.79 |
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Diluted |
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$ |
0.62 |
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$ |
0.53 |
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$ |
1.01 |
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$ |
1.76 |
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See notes to condensed consolidated financial statements (unaudited)
3
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
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October 1, |
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December 31, |
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2009 |
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2008 |
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($ in millions) |
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Current assets |
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Cash and cash equivalents |
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$ |
206.7 |
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$ |
216.5 |
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Accounts receivable, net |
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235.8 |
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149.3 |
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Current portion of long-term receivable |
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28.2 |
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108.9 |
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Inventory, net |
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2,204.6 |
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1,882.0 |
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Income tax receivable-current |
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6.6 |
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3.8 |
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Deferred tax asset-current |
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63.2 |
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62.1 |
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Other current assets |
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16.0 |
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10.7 |
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Total current assets |
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2,761.1 |
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2,433.3 |
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Property, plant and equipment, net |
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1,224.0 |
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1,068.3 |
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Pension assets |
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60.0 |
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60.1 |
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Deferred tax asset-non-current |
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167.5 |
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146.0 |
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Other assets |
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71.1 |
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52.6 |
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Total assets |
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$ |
4,283.7 |
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$ |
3,760.3 |
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Current liabilities |
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Accounts payable |
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$ |
421.2 |
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$ |
316.9 |
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Accrued expenses |
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164.1 |
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161.8 |
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Current portion of long-term debt |
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6.7 |
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7.1 |
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Advance payments, short-term |
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194.3 |
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138.9 |
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Deferred revenue, short-term |
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59.3 |
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110.5 |
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Other current liabilities |
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25.8 |
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8.1 |
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Total current liabilities |
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871.4 |
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743.3 |
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Long-term debt |
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583.5 |
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580.9 |
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Bonds payable, long-term |
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293.4 |
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— |
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Advance payments, long-term |
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806.5 |
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923.5 |
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Deferred revenue and other deferred credits |
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54.3 |
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58.6 |
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Pension/OPEB obligation |
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49.1 |
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47.3 |
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Deferred grant income liability |
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117.5 |
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38.8 |
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Other liabilities |
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52.1 |
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70.4 |
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Shareholders’ equity |
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Preferred stock, par value $0.01, 10,000,000 shares authorized, no shares issued and outstanding |
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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, 104,819,957 and
103,209,466 issued and outstanding, respectively |
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1.0 |
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1.0 |
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Common stock, Class B par value $0.01, 150,000,000 shares authorized, 36,216,211 and 36,679,760
shares issued and outstanding, respectively |
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0.4 |
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0.4 |
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Additional paid-in capital |
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946.3 |
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939.7 |
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Noncontrolling interest |
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0.5 |
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0.5 |
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Accumulated other comprehensive loss |
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(124.1 |
) |
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(134.2 |
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Retained earnings |
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631.8 |
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490.1 |
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Total shareholders’ equity |
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1,455.9 |
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1,297.5 |
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Total liabilities and shareholders’ equity |
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$ |
4,283.7 |
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$ |
3,760.3 |
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See notes to condensed consolidated financial statements (unaudited)
4
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
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For the Nine |
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For the Nine |
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Months Ended |
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Months Ended |
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October 1, 2009 |
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September 25, 2008 |
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($ in millions) |
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Operating activities |
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Net income |
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$ |
141.7 |
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$ |
245.6 |
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Adjustments to reconcile net income to net cash provided by (used
in) operating activities |
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Depreciation expense |
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91.9 |
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90.8 |
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Amortization expense |
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7.7 |
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7.1 |
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Accretion of long-term receivable |
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(5.8 |
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(13.0 |
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Employee stock compensation expense |
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6.7 |
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11.6 |
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Loss from the ineffectiveness of hedge contracts |
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— |
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0.4 |
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(Gain) loss from foreign currency transactions |
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(3.9 |
) |
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0.3 |
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(Gain) on disposition of assets |
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— |
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(0.2 |
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Deferred taxes |
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(20.5 |
) |
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0.9 |
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Pension and other post retirement benefits, net |
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1.6 |
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(21.5 |
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Grant income |
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(1.4 |
) |
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— |
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Equity in net income of affiliate |
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0.2 |
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— |
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Changes in assets and liabilities |
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Accounts receivable |
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(84.6 |
) |
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(28.4 |
) |
Inventory, net |
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(319.5 |
) |
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(432.9 |
) |
Accounts payable and accrued liabilities |
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104.9 |
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30.5 |
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Advance payments |
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(61.6 |
) |
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230.4 |
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Deferred revenue and other deferred credits |
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(54.9 |
) |
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16.9 |
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Income taxes receivable/payable |
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(8.7 |
) |
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15.1 |
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Other |
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(5.1 |
) |
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(7.0 |
) |
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Net cash provided by (used in) operating activities |
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(211.3 |
) |
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146.6 |
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Investing Activities |
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Purchase of property, plant and equipment |
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(158.0 |
) |
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(175.2 |
) |
Long-term receivable |
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|
86.5 |
|
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|
87.1 |
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Other |
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0.2 |
|
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(0.7 |
) |
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Net cash (used in) investing activities |
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(71.3 |
) |
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(88.8 |
) |
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Financing Activities |
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|
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Proceeds from revolving credit facility |
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300.0 |
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|
75.0 |
|
Payments on revolving credit facility |
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(300.0 |
) |
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|
(75.0 |
) |
Proceeds from issuance of debt |
|
|
— |
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|
|
8.8 |
|
Proceeds from issuance of bonds |
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|
293.4 |
|
|
|
— |
|
Principal payments of debt |
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(5.8 |
) |
|
|
(11.9 |
) |
Proceeds from governmental grants |
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|
0.7 |
|
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|
1.6 |
|
Debt issuance and financing costs |
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(17.2 |
) |
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(6.8 |
) |
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Net cash provided by (used in) financing activities |
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|
271.1 |
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(8.3 |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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1.7 |
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(5.2 |
) |
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Net increase (decrease) in cash and cash equivalents for the period |
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(9.8 |
) |
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44.3 |
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Cash and cash equivalents, beginning of period |
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|
216.5 |
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|
133.4 |
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Cash and cash equivalents, end of period |
|
$ |
206.7 |
|
|
$ |
177.7 |
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Supplemental Information |
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Change in fair value of financial instruments |
|
$ |
(2.1 |
) |
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|
$ |
3.1 |
|
Property acquired through capital leases |
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$ |
6.0 |
|
|
$ |
— |
|
See notes to condensed consolidated financial statements (unaudited)
5
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
1. Organization and Basis of Interim Presentation
Spirit AeroSystems Holdings, Inc. (“Holdings” or the “Company”) was incorporated in the state
of Delaware on February 7, 2005, and commenced operations on June 17, 2005 through the acquisition
of The Boeing Company’s (“Boeing”) operations in Wichita, Kansas, Tulsa, Oklahoma and McAlester,
Oklahoma (the “Boeing Acquisition”). Holdings provides manufacturing and design expertise in a wide
range of products and services for aircraft original equipment manufacturers and operators through
its subsidiary, Spirit AeroSystems, Inc. (“Spirit”). Onex Corporation (“Onex”) of Toronto, Canada
maintains majority voting power of Holdings. In April 2006, Holdings acquired the aerostructures
division of BAE Systems (Operations) Limited (“BAE Aerostructures”), which builds structural
components for Airbus, Boeing and Hawker Beechcraft Corporation. Prior to this acquisition,
Holdings sold essentially all of its production to Boeing. Since Spirit’s incorporation, the
Company has expanded its customer base to include Sikorsky, Rolls-Royce, Gulfstream, Bombardier,
Mitsubishi Aircraft Corporation, Southwest Airlines, and Continental Airlines. The Company has its
headquarters in Wichita, Kansas, with manufacturing facilities in Tulsa and McAlester, Oklahoma,
Prestwick, Scotland, and in Wichita. Spirit opened a new manufacturing facility in Subang, Malaysia
in early 2009 for the production of composite panels for wing components and expects to open
another manufacturing facility in Kinston, North Carolina in 2010 that will initially produce
components for the Airbus A350 XWB aircraft. Spirit is building an assembly plant for the A350 XWB
aircraft in Saint-Nazaire, France, which is expected to be operational in 2010.
Spirit 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.
Spirit participates in two joint ventures, Spirit-Progresstech LLC (“Spirit-Progresstech”) and
Taikoo Spirit AeroSystems Composite Co. Ltd. (“TSACCL”), of which Spirit’s ownership interest is
50% and 31.5%, respectively. Spirit-Progresstech provides aerospace engineering support services
and TSACCL was formed to develop and implement a state of the art composite and metal bond
component repair station in the Asia-Pacific region.
The accompanying unaudited interim condensed consolidated financial statements include the
Company’s financial statements and the financial statements of its majority-owned subsidiaries and
have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”) and the instructions to Form 10-Q and Article 10 of Regulation S-X. Investments in
business entities in which the Company does not have control, but has the ability to exercise
significant influence over operating and financial policies (generally 20% to 50% ownership),
including Spirit-Progresstech and TSACCL, are accounted for under the equity method. KIESC is
fully consolidated as Spirit owns 77.8% of the entity’s equity. All intercompany balances and
transactions have been eliminated in consolidation. Spirit’s U.K. subsidiary uses local currency,
the British pound, as its functional currency. All other foreign subsidiaries use local currency as
their functional currency with the exception of our Malaysian subsidiary, which uses the British
pound, and our French subsidiary, which uses the U.S. dollar.
As part of the monthly consolidation process, the functional currencies of our international
subsidiaries are translated to U.S. dollars using the end-of-month translation rate for balance
sheet accounts and average period currency translation rates for revenue and income accounts.
In the opinion of management, the accompanying unaudited interim condensed consolidated
financial statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the results of operations for the interim periods.
The results of operations for the nine months ended October 1, 2009, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2009. Certain
reclassifications have been made to the prior year financial statements and notes to conform to the
2009 presentation. The Company adjusted its balance sheet to reflect retrospective presentation of
noncontrolling interests from Other liabilities to the Shareholders’ equity section at October 1,
2009, and December 31, 2008, in accordance with reporting requirements under authoritative guidance
related to the nature and classification of noncontrolling interest in the consolidated statement
of financial position. The adoption of this guidance did not have a material impact on the
Company’s results of operations or statement of cash flows. In connection with the preparation of
the condensed consolidated financial statements and in accordance with the recently issued
authoritative guidance, the Company evaluated subsequent events through November 6, 2009, which is
the date these financial statements were issued. Updated authoritative guidance pertaining to
earnings per share was effective for the Company beginning January 1, 2009. The adoption of this
guidance did not have a material impact on our consolidated financial statements. The interim
financial statements should be read in conjunction with the audited
consolidated financial statements, including the notes thereto, included in our 2008 Annual Report on Form
10-K filed with the Securities and Exchange Commission (“SEC”) on February 20, 2009.
6
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
2. New Accounting Pronouncements
In the third quarter of 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”). The ASC is the single official source of
authoritative, nongovernmental GAAP, other than guidance issued by the SEC. The adoption of the
ASC did not have any impact on the financial statements included herein.
In May 2009, the FASB issued authoritative guidance prescribing the period after the balance
sheet date during which management should evaluate transactions for potential recognition, the
circumstances under which an entity should recognize events or transactions occurring after the
balance sheet date and the required disclosures an entity should make about transactions or events
occurring after the balance sheet date. This statement is effective for interim and annual periods
ending after June 15, 2009. The adoption of this guidance did not have a material impact on the
financial statements of the Company.
In April 2009, the FASB issued authoritative guidance which provides additional guidance for
estimating fair value, when the volume and activity for the asset and liability have significantly
decreased. This guidance also includes assistance on identifying circumstances that indicate a
transaction is not orderly. This guidance is effective for interim and annual reporting periods
ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for
periods ended after March 15, 2009. The Company adopted the provisions of this guidance effective
for the period ended July 2, 2009. The adoption of this guidance did not have a material impact
on the Company’s financial position or results of operations. See Note 10 for the Company’s
disclosures about its derivative and hedging activities.
In April 2009, the FASB issued authoritative guidance which requires disclosures about fair
value of financial instruments for interim periods of publicly traded companies as well as in
annual financial statements. This guidance also amended guidance on interim reporting, to require
those disclosures in summarized financial information for interim reporting periods. The Company
adopted the provisions of this guidance effective for the period ended July 2, 2009. See Note 11
for the Company’s disclosures about its estimated fair value on its financial instruments and
long-term debt.
In November 2008, the FASB issued authoritative guidance which addressed the accounting for
equity method investments as a result of the accounting changes prescribed by previous guidance.
This guidance clarified the accounting for certain transactions and impairment considerations
involving equity method investments. The guidance is effective for fiscal years beginning after
December 15, 2008, with early adoption prohibited. The adoption of this guidance did not have a
material impact on the Company’s financial position or results of operations.
In March 2008, the FASB issued authoritative guidance related to derivatives and hedging,
which requires disclosures of how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for and how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and cash flows. This
guidance is effective for fiscal years beginning after November 15, 2008, with early adoption
permitted. The Company adopted the provisions of the guidance effective January 1, 2009. See Note
10 for the Company’s disclosures about its derivative and hedging activities.
In February 2008, the FASB issued authoritative guidance which partially delayed the adoption
of fair value measurement guidance until January 1, 2009 for non-financial assets and liabilities
that are measured at fair value on a non-recurring basis, such as goodwill and identifiable
intangible assets. The adoption of this guidance did not have a material impact on the Company’s
financial position or results of operations.
In December 2007, the FASB issued authoritative guidance which establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated. The guidance also establishes reporting
requirements that provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. The guidance is effective
for fiscal years beginning after December 15, 2008. As a result of adopting this guidance in first
quarter of 2009, the Company adjusted its balance sheet to reflect retrospective presentation
prescribed by the guidance of noncontrolling interests in the amount of $0.5 from Other liabilities
to the Shareholders’ equity section at April 2, 2009 and December 31, 2008. The Company considered
guidance related to accounting changes and error corrections to ensure this change in accounting
principle is properly accounted for. The adoption of this guidance did not have a material impact
on the Company’s results of operations or statement of cash flows.
7
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
3. Accounts Receivable
Accounts receivable, net consists of the following:
| |
|
|
|
|
|
|
|
|
| |
|
October 1, |
|
|
December 31, |
|
| |
|
2009 |
|
|
2008 |
|
Trade receivables |
|
$ |
218.1 |
|
|
$ |
101.2 |
|
Volume-based pricing accrual |
|
|
8.3 |
|
|
|
29.7 |
|
Employee receivables |
|
|
0.1 |
|
|
|
1.9 |
|
Other |
|
|
9.4 |
|
|
|
16.6 |
|
|
|
|
|
|
|
|
Total |
|
|
235.9 |
|
|
|
149.4 |
|
Less: allowance for doubtful accounts |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
235.8 |
|
|
$ |
149.3 |
|
|
|
|
|
|
|
|
4. Inventory
Inventories are summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
October 1, |
|
|
December 31, |
|
| |
|
2009 |
|
|
2008 |
|
Raw materials |
|
$ |
186.2 |
|
|
$ |
176.3 |
|
Work-in-process |
|
|
1,552.3 |
|
|
|
1,260.3 |
|
Finished goods |
|
|
29.6 |
|
|
|
27.5 |
|
|
|
|
|
|
|
|
Product inventory |
|
|
1,768.1 |
|
|
|
1,464.1 |
|
Capitalized pre-production |
|
|
436.5 |
|
|
|
417.9 |
|
|
|
|
|
|
|
|
Total inventory, net |
|
$ |
2,204.6 |
|
|
$ |
1,882.0 |
|
|
|
|
|
|
|
|
Inventories are summarized by platform as follows:
| |
|
|
|
|
|
|
|
|
| |
|
October 1, |
|
|
December 31, |
|
| |
|
2009 |
|
|
2008 |
|
B737 |
|
$ |
332.8 |
|
|
$ |
309.6 |
|
B747(1) |
|
|
185.7 |
|
|
|
154.2 |
|
B767 |
|
|
20.8 |
|
|
|
16.6 |
|
B777 |
|
|
160.0 |
|
|
|
166.4 |
|
B787(2) |
|
|
888.8 |
|
|
|
768.3 |
|
Airbus — All platforms |
|
|
140.1 |
|
|
|
70.7 |
|
Gulfstream(3) |
|
|
335.7 |
|
|
|
224.7 |
|
Rolls-Royce |
|
|
52.3 |
|
|
|
43.7 |
|
Cessna Citation Columbus(4) |
|
|
22.5 |
|
|
|
20.0 |
|
Aftermarket |
|
|
28.6 |
|
|
|
25.7 |
|
Other in-process inventory related to long-term contracts and other programs(5) |
|
|
37.3 |
|
|
|
82.1 |
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
2,204.6 |
|
|
$ |
1,882.0 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
B747 inventory includes $41.1 and $63.6 in non-recurring production costs at October 1, 2009 and
December 31, 2008, respectively, related to the B747-8 program. Also included is $26.0 of
progress payments for B747-8 tooling received in 2009, which is netted against the B747
inventory. |
| |
| (2) |
|
B787 inventory includes $232.8 and $235.4 in capitalized pre-production costs at October 1, 2009
and December 31, 2008, respectively. |
| |
| (3) |
|
Gulfstream inventory includes $203.4 and $182.5 in capitalized pre-production costs at October 1,
2009 and December 31, 2008, respectively. |
| |
| (4) |
|
Includes non-recurring costs incurred on the Cessna Citation Columbus program that was terminated
in July 2009 and are subject to our termination claim. |
| |
| (5) |
|
Includes non-program specific inventoriable cost accruals and miscellaneous other work-in-process. |
8
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
Capitalized pre-production costs include certain costs, including applicable overhead,
incurred before a product is manufactured on a recurring basis. These costs are typically recovered
over a certain number of ship set deliveries and the Company believes these amounts will be fully
recovered.
At October 1, 2009, work-in-process inventory included $398.1 of deferred production costs,
which is comprised of $314.9 related to B787, $94.7 on certain other contracts for the excess of
production costs over the estimated average cost per ship set, and ($11.5) of credit balances for
favorable variances on other contracts between actual costs incurred and the estimated average cost
per ship set for units delivered under the current production blocks. These balances were $162.0,
including $169.4 related to the B787 and $30.6 for certain other contracts, and ($38.0) of credit
balances for favorable variances on other contracts between actual costs incurred and the estimated
cost per ship set for units delivered under the current production blocks, respectively, at
December 31, 2008. Recovery of excess over average deferred production costs is dependent on the
number of ship sets ultimately sold and the ultimate selling prices and lower production costs
associated with future production under these contract blocks. The Company believes these amounts
will be fully recovered.
Sales significantly under estimates or costs significantly over estimates could result in the
realization of losses on these contracts in future periods.
The following is a roll forward of the inventory obsolescence and surplus reserve included in
the inventory balances at October 1, 2009:
| |
|
|
|
|
Balance-December 31, 2008 |
|
$ |
31.2 |
|
Charges to costs and expenses |
|
|
9.9 |
|
Write-offs, net of recoveries |
|
|
(22.0 |
) |
Exchange rate |
|
|
0.2 |
|
|
|
|
|
Balance-October 1, 2009 |
|
$ |
19.3 |
|
|
|
|
|
5. Property, Plant and Equipment
Property, plant and equipment, net consists of the following:
| |
|
|
|
|
|
|
|
|
| |
|
October 1, |
|
|
December 31, |
|
| |
|
2009 |
|
|
2008 |
|
Land |
|
$ |
16.6 |
|
|
$ |
15.5 |
|
Buildings (including improvements) |
|
|
259.6 |
|
|
|
206.5 |
|
Machinery and equipment |
|
|
596.1 |
|
|
|
512.8 |
|
Tooling |
|
|
478.9 |
|
|
|
428.9 |
|
Construction in progress |
|
|
266.5 |
|
|
|
204.3 |
|
|
|
|
|
|
|
|
Total |
|
|
1,617.7 |
|
|
|
1,368.0 |
|
Less: accumulated depreciation |
|
|
(393.7 |
) |
|
|
(299.7 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
1,224.0 |
|
|
$ |
1,068.3 |
|
|
|
|
|
|
|
|
Interest costs associated with construction-in-progress are capitalized until the assets are
completed and ready for use. Capitalized interest was $2.6 and $1.2 for the three months ended
October 1, 2009 and September 25, 2008, respectively, and $5.1 and $4.3 for the nine months ended
October 1, 2009 and September 25, 2008, respectively. Repair and maintenance costs are expensed as
incurred. The Company recognized $14.3 and $15.1 of repair and maintenance expense for the three
months ended October 1, 2009 and September 25, 2008, respectively, and $58.5 and $64.7 for the nine
months ended October 1, 2009 and September 25, 2008, respectively.
We capitalize certain costs, such as software coding, installation and testing, that are
incurred to purchase or to create and implement internal-use computer software in accordance with
FASB authoritative guidance pertaining to capitalization of cost for internal-use software.
Depreciation expense related to capitalized software was $3.9 and $5.8 for the three months ended
October 1, 2009 and September 25, 2008, respectively, and $11.2 and $17.1 for the nine months ended
October 1, 2009 and September 25, 2008, respectively.
9
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
6. Current Portion of Long-Term Receivable
In connection with the Boeing Acquisition, Boeing is required to make future non-interest
bearing payments to Spirit attributable to the acquisition of title of various tooling and other
capital assets to be determined by Spirit. Spirit will retain usage rights and custody of the
assets for their remaining useful lives without compensation to Boeing. Since Spirit retains the
risks and rewards of ownership to such assets, Spirit recorded such amounts as consideration to be
returned from Boeing. The discounted receivable is accreted as interest income until payments occur
and is recorded as a component of other current assets. The accretion of interest income was $1.3
and $3.7 for the three months ended October 1, 2009 and September 25, 2008, respectively, and $5.8
and $13.0 for the nine months ended October 1, 2009 and September 25, 2008, respectively.
The following is a schedule of future payments from this receivable:
A discount rate of 9.75% was used to record these payments at their estimated present value of
$28.2 and $108.9 at October 1, 2009 and December 31, 2008, respectively. At October 1, 2009, the
remaining discounted balance of this receivable was all current.
7. Other Assets
Other assets are summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
October 1, |
|
|
December 31, |
|
| |
|
2009 |
|
|
2008 |
|
Intangible assets |
|
|
|
|
|
|
|
|
Patents |
|
$ |
2.0 |
|
|
$ |
2.0 |
|
Favorable leasehold interests |
|
|
9.7 |
|
|
|
9.7 |
|
Customer relationships |
|
|
27.6 |
|
|
|
25.3 |
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
39.3 |
|
|
|
37.0 |
|
Less: Accumulated amortization-patents |
|
|
(0.7 |
) |
|
|
(0.6 |
) |
Accumulated amortization-favorable leasehold interest |
|
|
(2.9 |
) |
|
|
(2.5 |
) |
Accumulated amortization-customer relationships |
|
|
(12.1 |
) |
|
|
(8.7 |
) |
|
|
|
|
|
|
|
Intangible assets, net |
|
|
23.6 |
|
|
|
25.2 |
|
|
|
|
|
|
|
|
|
|
Deferred financing costs, net |
|
|
26.9 |
|
|
|
14.3 |
|
Fair value of derivative instruments |
|
|
1.4 |
|
|
|
3.8 |
|
Goodwill |
|
|
3.0 |
|
|
|
2.7 |
|
Equity in net assets of affiliates |
|
|
4.1 |
|
|
|
3.9 |
|
Other |
|
|
12.1 |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
Total |
|
$ |
71.1 |
|
|
$ |
52.6 |
|
|
|
|
|
|
|
|
Deferred financing costs, net are recorded net of $19.3 and $14.7 of accumulated amortization
at October 1, 2009 and December 31, 2008, respectively. During the second quarter of 2009, the
Company incurred $10.2 of additional deferred financing costs in connection with the amendment to
its revolving credit facility on June 8, 2009. During the third quarter of 2009, the Company
incurred $7.0 of additional deferred financing costs in connection with its issuance of long-term
bonds on September 30, 2009.
The Company recognized $1.0 and $1.1 of amortization expense of intangibles for the three
months ended October 1, 2009 and September 25, 2008, respectively, and $3.0 and $3.7 for the nine
months ended October 1, 2009 and September 25, 2008, respectively.
8. Advance Payments and Deferred Revenue/Credits
Advance payments. Advance payments are those payments made to Spirit by third parties in
contemplation of the future performance of services, receipt of goods, incurrence of expenditures,
or for other assets to be provided by Spirit on a contract and are repayable if such obligation is
not satisfied. The amount of advance payments to be recovered against units expected to be
delivered within a year is classified as a short-term liability, with the balance of the
unliquidated advance payments classified as a long-term liability. Progress payments differ from
advance payments in that progress payments are made for work completed prior to receipt of payment.
10
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
Deferred revenue. Deferred revenue consists of nonrefundable amounts received in advance of
revenue being earned for specific contractual deliverables. These payments are classified as
deferred revenue when received, and recognized as revenue as the production units are delivered.
Advance payments and deferred revenue/credits are summarized by platform as follows:
| |
|
|
|
|
|
|
|
|
| |
|
October 1, |
|
|
December 31, |
|
| |
|
2009 |
|
|
2008 |
|
B737 |
|
$ |
66.7 |
|
|
$ |
87.3 |
|
B747 |
|
|
3.0 |
|
|
|
8.0 |
|
B787 |
|
|
960.2 |
|
|
|
1,019.9 |
|
Airbus — All platforms |
|
|
25.7 |
|
|
|
52.6 |
|
Gulfstream |
|
|
42.5 |
|
|
|
42.5 |
|
Other |
|
|
16.3 |
|
|
|
21.2 |
|
|
|
|
|
|
|
|
Total advance payments and deferred revenue/credits |
|
$ |
1,114.4 |
|
|
$ |
1,231.5 |
|
|
|
|
|
|
|
|
9. Government Grants
As part of our site construction projects in Kinston, North Carolina and Subang, Malaysia, we
have the potential benefit of grants related to government funding of a portion of these buildings
and other specific capital assets. Due to the terms of the lease agreements, we are deemed to own
the construction projects. During the construction phase of the facilities, as amounts eligible
under the terms of the grants are expended, we will record that spending as Property, Plant and
Equipment (construction-in-progress) and Deferred Grant Income Liability (less the present value of
any future minimum lease payments). Upon completion of the facilities, the Deferred Grant Income
will be 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, will be amortized over the lives
of the assets purchased to satisfy the capital investment performance criteria. The other half of
the Deferred Grant Income will be amortized over a ten year period in a manner consistent with the
job performance criteria. In Malaysia, the Deferred Grant Income will be amortized based on the
lives of the eligible assets constructed with the grant funds as there are no performance criteria.
As of October 1, 2009, we recorded $117.5 within Property, Plant and Equipment and Deferred Grant
Income Liability related to the use of grant funds in North Carolina and Malaysia. Of this amount,
$113.7 in capital represents transactions where funds have been paid directly to contractors by an
agency of the Malaysian Government in the case of Malaysia, and by the escrow agent in North
Carolina, so they are not reflected on the Statement of Cash Flows.
Deferred grant income liability, net consists of the following:
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
Twelve Months Ended |
|
| |
|
October 1, 2009 |
|
|
December 31, 2008 |
|
Beginning balance |
|
$ |
38.8 |
|
|
$ |
— |
|
Grant liability recorded |
|
|
77.4 |
|
|
|
38.8 |
|
Grant income recognized |
|
|
(1.4 |
) |
|
|
— |
|
Exchange rate |
|
|
2.7 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total deferred grant income liability |
|
$ |
117.5 |
|
|
$ |
38.8 |
|
|
|
|
|
|
|
|
The asset related to the deferred grant income, net consists of the following:
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
Twelve Months Ended |
|
| |
|
October 1, 2009 |
|
|
December 31, 2008 |
|
Beginning balance |
|
$ |
38.8 |
|
|
$ |
— |
|
Amount paid by Spirit (reimbursed by third parties) |
|
|
0.7 |
|
|
|
2.3 |
|
Amount paid by escrow agent |
|
|
76.7 |
|
|
|
37.0 |
|
Depreciation |
|
|
(1.4 |
) |
|
|
— |
|
Exchange rate |
|
|
2.7 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
Total asset value related to deferred grant income |
|
$ |
117.5 |
|
|
$ |
38.8 |
|
|
|
|
|
|
|
|
11
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
10. Derivative and Hedging Activities
Effective for the first quarter of 2009, we adopted FASB’s authoritative guidance on
derivative and hedging disclosures, which expands the quarterly and annual disclosure requirements
about our derivative instruments and hedging activities.
The Company enters into interest rate swap agreements to reduce its exposure to the variable
rate portion of its long-term debt. The Company also enters into foreign currency forward contracts
to reduce the risks associated with the changes in foreign exchange rates on sales and cost of
sales denominated in currencies other than the entities’ functional currency. Any gains or losses
on hedges are included in net revenues or cost of sales. The Company does not use these contracts
for speculative or trading purposes. On the inception date, the Company designates a derivative
contract as either a fair value or cash flow hedge in accordance with FASB guidance on
accounting for derivatives and hedges and links the contract to either a specific asset or
liability on the balance sheet, or to forecasted commitments or transactions. The Company formally
documents the hedging relationship between the hedging instrument and the hedged item as well as
its risk-management objective and strategy for undertaking the hedge, the nature of the risk being
hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed,
and a description of the method of measuring ineffectiveness. The Company also formally assesses,
both at the hedge’s inception and on a quarterly basis, whether the derivative item is effective in
offsetting changes in fair value or cash flows.
Changes in the fair value of derivative instruments considered to be effective hedges are
reported in Accumulated Other Comprehensive Income, net of tax. In the case of interest rate
swaps, amounts are subsequently reclassified into interest expense as a yield adjustment of the
hedged interest payments in the same period in which the related interest affects earnings. If the
actual interest rate on the fixed rate portion of debt is less than LIBOR, the monies received are
recorded as an offset to interest expense. Conversely, if the actual interest rate on the fixed
rate portion of debt is greater than LIBOR, then the Company pays the difference, which is recorded
to interest expense. Reclassifications of the amounts related to the foreign currency forward
contracts are recorded to revenues in the same period in which the contract is settled. Any change
in the fair value resulting from ineffectiveness is immediately recognized in earnings.
The Company also considers counterparty credit risk and its own credit risk in its
determination of all estimated fair values. The Company has applied these valuation techniques and
believes it has obtained the most accurate information available for the types of derivative
contracts it holds. The Company attempts to manage exposure to counterparty credit risk by only
entering into agreements with major financial institutions which are expected to be able to fully
perform under the terms of the agreement.
The Company discontinues hedge accounting prospectively when it is determined that the
derivative is no longer effective in offsetting changes in the cash flows of the hedged item; the
derivative expires or is sold, terminated or exercised; the derivative is no longer designated as a
hedging instrument because it is unlikely that a forecasted transaction will occur; or management
determines
that designation of the derivative as a hedging instrument is no longer appropriate. When
hedge accounting is discontinued, the Company continues to carry the derivative instrument on the
balance sheet at its fair value with subsequent changes in fair value included in earnings, and
gains and losses that were accumulated in Other Comprehensive Income are recognized immediately in
earnings.
To the extent that derivative instruments do not qualify for hedge accounting treatment, the
changes in fair market value of the instruments are reported in the results of operations of the
current period.
The Company’s hedge agreements do not include provisions requiring collateral. The Company has
certain derivative instruments covered by master netting arrangements whereby, in the event of a
default as defined by the senior secured credit facility or termination event, the non-defaulting
party has the right to offset any amounts payable against any obligation of the defaulting party
under the same counterparty agreement.
The entire asset classes of the Company, including hedges, are pledged as collateral for both
the term loan and the revolving credit facility under the Company’s senior secured credit facility
(see Note 12).
The Company enters into master netting arrangements for its derivatives to mitigate the credit
risk of financial instruments.
12
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
Interest Rate Swaps
As required under our senior secured credit facility (see Note 12), we enter into
floating-to-fixed interest rate swap agreements periodically. As of October 1, 2009, the interest
swap agreements had notional amounts totaling $500.0.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
Fair Value, |
|
| Principal Amount |
|
|
|
Expires |
|
|
Variable Rate |
|
|
Fixed Rate |
|
Fixed Rate (1) |
|
October 1, 2009 |
|
| $ |
100 |
|
|
|
|
July 2010 |
|
LIBOR |
|
|
4.37 |
% |
|
|
6.12 |
% |
|
$ |
(3.8 |
) |
| $ |
100 |
|
|
|
|
July 2011 |
|
LIBOR |
|
|
4.27 |
% |
|
|
6.02 |
% |
|
$ |
(6.4 |
) |
| $ |
300 |
|
|
|
|
July 2011 |
|
LIBOR |
|
|
3.23 |
% |
|
|
4.98 |
% |
|
$ |
(13.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(23.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Effective rates include the fixed rates plus 175 basis points. |
The purpose of entering into these swaps was to reduce the Company’s exposure to variable
interest rates. The interest rate swaps settle on a quarterly basis when interest payments are
made. These settlements occur through the maturity date. The fair value of the interest rate swaps
was a liability (unrealized loss) of ($23.3) and ($23.0) at October 1, 2009 and December 31, 2008,
respectively.
Foreign Currency Forward Contracts
Spirit’s wholly owned subsidiary Spirit AeroSystems (Europe) Limited (“Spirit Europe”) has
certain sales, expenses, assets and liabilities that are denominated in British pounds sterling.
However, sales of Spirit Europe’s products to Boeing and some procurement costs are denominated in
U.S. dollars and Euros. As a consequence, movements in exchange rates could cause net sales and our
expenses to fluctuate, affecting our profitability and cash flows. In addition, even when revenues
and expenses are matched, we must translate British pound sterling denominated results of
operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our consolidated
financial statements. Consequently, increases and decreases in the value of the U.S. dollar as
compared to the British pound sterling will affect our reported results of operations and the value
of our assets and liabilities on our consolidated balance sheet, even if our results of operations
or the value of those assets and liabilities has not changed in its original currency. These
transactions could significantly affect the comparability of our results between financial periods
and/or result in significant changes to the carrying value of our assets, liabilities and
shareholders’ equity.
We use foreign currency forward contracts to reduce our exposure to currency exchange rate
fluctuations. The objective of these contracts is to minimize the impact of currency exchange rate
movements on our operating results. The hedges are being accounted for as cash flow hedges in
accordance with authoritative guidance. Gains and losses from these cash flow hedges are recorded
to Other Comprehensive Income until the underlying transaction for which the hedge was placed is
recognized and then the value in Other Comprehensive Income is reclassified to earnings. In the
third quarter of 2009, we entered into new hedging contracts to hedge
the U.S. dollar revenue from certain customers and payments in British pounds sterling. The
fair value of the forward contracts was a net liability of $2.9 and $2.6 as of October 1, 2009 and
December 31, 2008, respectively.
Notional Amount
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
October 1, 2009 |
|
|
December 31, 2008 |
|
| |
|
|
|
|
|
Foreign |
|
|
|
|
|
|
Foreign |
|
| |
|
USD |
|
|
Currency |
|
|
USD |
|
|
Currency |
|
| Year |
|
Buy/(Sell)(1) |
|
|
Buy/(Sell)(1) |
|
|
Buy/(Sell)(1) |
|
|
Buy/(Sell)(1) |
|
2009 |
|
$ |
(12.2 |
) |
|
£ |
7.4 |
|
|
$ |
(18.8 |
) |
|
£ |
11.3 |
|
2010 |
|
|
(37.8 |
) |
|
|
22.8 |
|
|
|
0.3 |
|
|
|
(0.2 |
) |
2011-2013 |
|
|
(19.5 |
) |
|
|
11.5 |
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(69.5 |
) |
|
£ |
41.7 |
|
|
$ |
(18.5 |
) |
|
£ |
10.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Includes foreign currency forward contracts for 2010 through 2013
novated to Spirit Europe as a result of the BAE Acquisition (buy
$0.3/sell £0.4), which had no underlying contractual transactions at
the inception date of the contracts and, therefore, are classified as
debt securities which are not subject to hedge accounting. The
mark-to-market values of these debt securities are recorded through
the Consolidated Statement of Operations on a monthly basis in
accordance with FASB authoritative guidance on investments - debt and
equity securities disclosures. |
13
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
The following table summarizes the Company’s fair value of outstanding derivatives at October
1, 2009 and December 31, 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Values of Derivative Instruments |
|
| |
|
Other Asset Derivatives |
|
|
Other Liability Derivatives |
|
| |
|
October 1, 2009 |
|
|
December 31, 2008 |
|
|
October 1, 2009 |
|
|
December 31, 2008 |
|
Derivatives designated as hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
17.7 |
|
|
$ |
4.0 |
|
Non-current |
|
|
— |
|
|
|
— |
|
|
|
5.6 |
|
|
|
19.0 |
|
Foreign currency forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
|
|
2.4 |
|
Non-current |
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as
hedging instruments |
|
|
— |
|
|
|
— |
|
|
|
25.9 |
|
|
|
25.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-current |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Foreign currency forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
0.5 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
Non-current |
|
|
1.4 |
|
|
|
3.8 |
|
|
|
1.7 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not
designated as hedging instruments |
|
|
1.9 |
|
|
|
3.8 |
|
|
|
2.2 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
$ |
1.9 |
|
|
$ |
3.8 |
|
|
$ |
28.1 |
|
|
$ |
29.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact on Other Comprehensive Income (OCI) and earnings from cash flow hedges for the
three months ended October 1, 2009 and September 25, 2008 was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
(Gain) or |
|
|
|
|
|
|
|
|
|
Location of (Gain) |
|
Amount of (Gain) or Loss |
|
| |
|
|
|
|
|
|
|
|
|
Loss |
|
Amount of (Gain) or Loss |
|
|
or Loss Recognized |
|
Recognized in Income on |
|
| |
|
Amount of Gain or (Loss) |
|
|
Reclassified |
|
Reclassified from |
|
|
in Income on |
|
Derivative (Ineffective |
|
| |
|
Recognized in OCI, net of |
|
|
from |
|
Accumulated OCI into |
|
|
Derivative |
|
Portion and Amount |
|
| |
|
tax, on Derivative |
|
|
Accumulated |
|
Income |
|
|
(Ineffective Portion |
|
Excluded from |
|
| |
|
(Effective Portion) |
|
|
OCI into |
|
(Effective Portion) |
|
|
and Amount |
|
EffectivenessTesting) |
|
| Derivatives in |
|
For the Three Months Ended |
|
|
Income |
|
For the Three Months Ended |
|
|
Excluded from |
|
For the Three Months Ended |
|
| Cash Flow Hedging |
|
October 1, |
|
|
September 25, |
|
|
(Effective |
|
October 1, |
|
|
September |
|
|
Effectiveness |
|
October 1, |
|
|
September 25, |
|
| Relationships |
|
2009 |
|
|
2008 |
|
|
Portion) |
|
2009 |
|
|
25, 2008 |
|
|
Testing) |
|
2009 |
|
|
2008 |
|
Interest rate swaps |
|
$ |
(2.3 |
) |
|
$ |
(0.3 |
) |
|
Interest expense |
|
$ |
4.0 |
|
|
$ |
2.3 |
|
|
Other (income)/ expense |
|
$ |
— |
|
|
$ |
(0.6 |
) |
Foreign currency
forward contracts |
|
|
(1.8 |
) |
|
|
(1.3 |
) |
|
Sales/ Revenue |
|
|
— |
|
|
|
(0.5 |
) |
|
Other (income)/ expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(4.1 |
) |
|
$ |
(1.6 |
) |
|
|
|
$ |
4.0 |
|
|
$ |
1.8 |
|
|
|
|
$ |
— |
|
|
$ |
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact on earnings from foreign currency forward contracts that do not qualify as
cash flow hedges was not material for the three months ended October 1, 2009 and September 25,
2008.
14
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
The impact on Other Comprehensive Income (OCI) and earnings from cash flow hedges for the nine
months ended October 1, 2009 and September 25, 2008 was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
(Gain) or |
|
|
|
|
|
|
|
|
|
Location of (Gain) |
|
Amount of (Gain) or Loss |
|
| |
|
|
|
|
|
|
|
|
|
Loss |
|
Amount of (Gain) or Loss |
|
|
or Loss Recognized |
|
Recognized in Income on |
|
| |
|
Amount of Gain or (Loss) |
|
|
Reclassified |
|
Reclassified from |
|
|
in Income on |
|
Derivative (Ineffective |
|
| |
|
Recognized in OCI, net of |
|
|
from |
|
Accumulated OCI into |
|
|
Derivative |
|
Portion and Amount |
|
| |
|
tax, on Derivative |
|
|
Accumulated |
|
Income |
|
|
(Ineffective Portion |
|
Excluded from |
|
| |
|
(Effective Portion) |
|
|
OCI into |
|
(Effective Portion) |
|
|
and Amount |
|
EffectivenessTesting) |
|
| Derivatives in |
|
For the Nine Months Ended |
|
|
Income |
|
For the Nine Months Ended |
|
|
Excluded from |
|
For the Nine Months Ended |
|
| Cash Flow Hedging |
|
October 1, |
|
|
September 25, |
|
|
(Effective |
|
October 1, |
|
|
September 25, |
|
|
Effectiveness |
|
October 1, |
|
|
September 25, |
|
| Relationships |
|
2009 |
|
|
2008 |
|
|
Portion) |
|
2009 |
|
|
2008 |
|
|
Testing) |
|
2009 |
|
|
2008 |
|
Interest rate swaps |
|
$ |
(5.0 |
) |
|
$ |
(2.9 |
) |
|
Interest expense |
|
$ |
11.3 |
|
|
$ |
3.3 |
|
|
Other (income)/ expense |
|
$ |
— |
|
|
$ |
— |
|
Foreign currency
forward contracts |
|
|
(1.8 |
) |
|
|
(1.5 |
) |
|
Sales/ Revenue |
|
|
3.2 |
|
|
|
(1.9 |
) |
|
Other (income)/ expense |
|
|
(0.1 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(6.8 |
) |
|
$ |
(4.4 |
) |
|
|
|
$ |
14.5 |
|
|
$ |
1.4 |
|
|
|
|
$ |
(0.1 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and losses accumulated in Other Comprehensive Income for interest rate swaps are
reclassified into earnings as each interest rate period is reset. During the next twelve months,
the Company estimates that ($10.9) will be reclassified from Other Comprehensive Income, net of
tax, as a charge to earnings from interest rate swaps. Interest rate swaps are placed for a period
of time not to exceed the maturity of the Company’s senior secured term loan. None of the gains or
losses reclassified to earnings were attributable to the discontinuance of cash flow hedges.
Gains and losses accumulated in Other Comprehensive Income for foreign currency forward
contracts are reclassified into earnings as the underlying transactions for which the contracts
were entered into are realized. During the next twelve months, the Company estimates that ($0.9)
will be reclassified from Other Comprehensive Income, net of tax, as a charge to earnings from
foreign currency forward contracts. None of the gains or losses reclassified to earnings were
attributable to the discontinuance of cash flow hedges.
11. 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 standard discloses three levels of inputs that may be used to
measure fair value:
| Level 1 |
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 1 assets and liabilities include debt and equity securities and derivative contracts
that are traded in an active exchange market. |
| |
| Level 2 |
|
Observable inputs other than Level 1 prices such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities. Level 2 assets and liabilities include debt securities with
quoted prices that are traded less frequently than exchange-traded instruments and
derivative contracts whose value is determined using a pricing model with inputs that are
observable in the market or can be derived principally from or
corroborated by observable market data. Observable inputs, such as current and forward interest rates and
foreign exchange rates, are used in determining the fair value of our interest rate swaps
and foreign currency forward 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. |
15
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At October 1, 2009 |
| |
|
October 1, 2009 |
|
Using |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
| |
|
Total |
|
|
|
|
|
|
|
|
|
Active Markets |
|
Other |
|
Significant |
| |
|
Carrying |
|
Assets |
|
Liabilities |
|
for Identical |
|
Observable |
|
Unobservable |
| |
|
Amount in |
|
Measured at |
|
Measured at |
|
Assets |
|
Inputs |
|
Inputs |
| Description |
|
Balance Sheet |
|
Fair Value |
|
Fair Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Interest Rate Swaps |
|
$ |
(23.3 |
) |
|
$ |
— |
|
|
$ |
(23.3 |
) |
|
$ |
— |
|
|
$ |
(23.3 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
Forward Contracts |
|
$ |
(2.9 |
) |
|
$ |
1.9 |
|
|
$ |
(4.8 |
) |
|
$ |
— |
|
|
$ |
(2.9 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
| |
|
December 31, 2008 |
|
Using |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
| |
|
Total |
|
|
|
|
|
|
|
|
|
Active Markets |
|
Other |
|
Significant |
| |
|
Carrying |
|
Assets |
|
Liabilities |
|
for Identical |
|
Observable |
|
Unobservable |
| |
|
Amount in |
|
Measured at |
|
Measured at |
|
Assets |
|
Inputs |
|
Inputs |
| Description |
|
Balance Sheet |
|
Fair Value |
|
Fair Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Interest Rate Swaps |
|
$ |
(23.0 |
) |
|
$ |
— |
|
|
$ |
(23.0 |
) |
|
$ |
— |
|
|
$ |
(23.0 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
Forward Contracts |
|
$ |
(2.6 |
) |
|
$ |
3.8 |
|
|
$ |
(6.4 |
) |
|
$ |
— |
|
|
$ |
(2.6 |
) |
|
$ |
— |
|
The fair value of the interest rate swaps and foreign currency forward contracts are
determined by using mark-to-market reports generated for each derivative and evaluated for
counterparty risk. In the case of the interest rate swaps, the Company evaluated its counterparty
risk using credit default swaps, historical default rates and credit spreads.
The Company’s long-term debt consists of obligations with variable interest rates and senior
unsecured notes. The estimated fair value of our debt obligations is based on the quoted market
prices for such obligations. The following table presents the carrying amount and estimated fair
value of long-term debt in accordance with FASB authoritative guidance on fair value measurements
related to disclosures of financial instruments:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
October 1, 2009 |
|
|
December 31, 2008 |
|
| |
|
Carrying Amount |
|
|
Fair Value |
|
|
Carrying Amount |
|
|
Fair Value |
|
Senior secured
term loan (including
current portion) |
|
$ |
573.5 |
|
|
$ |
552.0 |
|
|
$ |
577.9 |
|
|
$ |
479.7 |
|
Senior unsecured notes |
|
|
293.4 |
|
|
|
293.4 |
|
|
|
— |
|
|
|
— |
|
Malaysian loan |
|
|
8.8 |
|
|
|
8.8 |
|
|
|
8.9 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
875.7 |
|
|
$ |
854.2 |
|
|
$ |
586.8 |
|
|
$ |
487.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
12. Debt
Credit Agreement
In connection with the Boeing Acquisition, Spirit executed an $875.0 credit agreement that
consisted of a $700.0 senior secured term loan used to fund the acquisition and pay all related
fees and expenses associated with the acquisition and the credit agreement, and a $175.0 senior
secured revolving credit facility. In March 2008, the revolving credit facility was increased to
$650.0. In June 2009, Spirit entered into amendment No. 2 to its senior secured credit facility,
whereby the revolving credit facility was increased from $650.0 to $729.0. The maturity date with
respect to $408.8 of the revolver was extended to June 30, 2012. The maturity date for the
remaining $320.2 of the revolver will continue to be June 30, 2010. Commitment fees associated
with the portion of the revolver that was extended to June 30, 2012 increased from a rate of 50
basis points on the undrawn amount to 75 basis points. Commitment fees associated with the undrawn
portion of the revolver that terminates on June 30, 2010 continue to be 50 basis points. The
applicable margin payable on revolving loans in respect of which the underlying revolving credit
commitment has been extended to June 30, 2012 (“Extending Revolving Loans”) has been increased. The
applicable margin continues to be determined in accordance with a performance grid based on total
leverage ratio and, for Extending Revolving Loans, ranges from 4.00% to 3.00% per annum in the case
of LIBOR advances and from 3.00% to 2.00% per annum in the case of alternate base rate advances.
The applicable margin payable in respect of loans that are not Extending Revolving Loans continues
to range from 2.75% to 2.25% per annum in the case of LIBOR advances and from 1.75% to 1.25% per
annum in the case of alternate base rate advances. As of October 1, 2009 and December 31,
2008, Spirit had no outstanding borrowings under its revolving credit facility. The entire asset
classes of Spirit, including inventory and property, plant and equipment, are pledged as collateral
for both the term loan and the revolving credit facility.
The amended credit agreement contains customary affirmative and negative covenants, including
restrictions on indebtedness, liens, type of business, acquisitions, investments, sales or
transfers of assets, payments of dividends, transactions with affiliates, change in control and
other matters customarily restricted in such agreements. The amended credit agreement contains a
revised Covenant Leverage Ratio and a new Interest Coverage Ratio. The Covenant Leverage Ratio (as
defined in the credit agreement) financial covenant was modified to provide that the maximum
Covenant Leverage Ratio as of the last day of any fiscal quarter through the final maturity date of
the credit agreement shall not exceed 2.5:1 through maturity. The new Interest Coverage Ratio (as
defined in the credit agreement) financial covenant was added to provide that the Interest Coverage
Ratio as of the last day of any fiscal quarter through the final maturity date of the credit
agreement shall not be less than 4:1. The Financial Covenant ratios are calculated each quarter in
accordance with the credit agreement. Failure to meet these financial covenants would be an event
of default under the senior secured credit facility. As of October 1, 2009, we were and expect to
continue to be in full compliance with all covenants contained within our credit agreement.
Malaysian Term Loan
On June 2, 2008, Spirit’s wholly owned subsidiary, Spirit AeroSystems Malaysia SDN BHD
(“Spirit Malaysia”) entered into a Facility Agreement (“Malaysia Facility Agreement”) for a term
loan facility of Ringgit Malaysia (RM) 69.2 (approximately USD $20.0) (the “Malaysia Facility”),
with EXIM Bank to be used towards partial financing of plant and equipment (including the
acquisition of production equipment), materials, inventory and administrative costs associated with
the establishment of an aerospace-related composite component assembly plant, plus potential
additional work packages in Malaysia at the Malaysia International Aerospace Center in Subang,
Selangor, Malaysia (the “Project”). Funds for the Project will be available on a drawdown basis
over a twenty-four month period from the date of the Malaysia Facility Agreement. Spirit Malaysia
is scheduled to make periodic draws against the Malaysia Facility.
The indebtedness repayment requires quarterly principal installments of RM 3.3 (USD $1.0) from
September 2011 through May 2017, or until the entire loan principal has been repaid.
Outstanding amounts drawn under the Malaysia Facility are subject to a fixed interest rate of
3.5% per annum, payable quarterly.
France Factory
On July 17, 2009, Spirit’s indirect wholly owned subsidiary, Spirit AeroSystems
France SARL (“Spirit France”) entered into a capital lease agreement for 9.0 Euros (approximately
USD $13.1), with BNP Paribas Bank (“BNP”) to be used towards the construction of a plant associated
with the establishment of an aerospace-related component assembly plant in Saint Nazaire, France
(the “Project”). Spirit will act as BNP’s construction agent during the construction phase of the
Project and lease payments will begin upon completion of construction, which is expected during the
third quarter of 2010.
17
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
The capital lease repayment is variable based on the three-month Euribor rate and is paid
quarterly. Payments are expected to be approximately 0.2 Euro (USD $0.3) from July 2010 through
April 2025 with a residual amount of 0.9 Euro (USD $1.3) to be paid at the conclusion of the
capital lease agreement.
Outstanding amounts expended by BNP under the capital lease agreement are capitalized as
Construction in Progress on Spirit’s books with a corresponding amount of Construction Debt.
During the third quarter of 2009, Spirit recorded $4.1 in Construction Debt.
Total debt shown on the balance sheet is comprised of the following:
| |
|
|
|
|
|
|
|
|
| |
|
October 1, |
|
|
December 31, |
|
| |
|
2009 |
|
|
2008 |
|
Senior secured debt (short and long-term) |
|
$ |
573.5 |
|
|
$ |
577.9 |
|
Revolving credit facility |
|
|
— |
|
|
|
— |
|
Malaysian term loan |
|
|
8.8 |
|
|
|
8.9 |
|
Present value of capital lease obligations |
|
|
6.0 |
|
|
|
1.2 |
|
Other |
|
|
2.0 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total |
|
$ |
590.3 |
|
|
$ |
588.0 |
|
|
|
|
|
|
|
|
13. Long-Term Bond Debt
On September 30, 2009, Spirit issued $300.0 of 7 1/2% Senior Notes due October 1, 2017 (the
“Notes”), with interest payable semi-annually, in cash in arrears on April 1 and October 1 of each
year, beginning April 1, 2010. Prior to October 1, 2012, Spirit may redeem up to 35% of the
aggregate principal amount of the Notes with the proceeds of certain equity offerings at a
redemption price of 107.5% of the principal amount thereof, plus accrued and unpaid interest and
additional interest, if any, to the redemption date. At any time prior to October 1, of the years
set forth below, Spirit may redeem the Notes, in whole or in part, at a redemption price equal to
100% of the principal amount of the Notes redeemed, plus a make-whole premium, plus any accrued and
unpaid interest and additional interest, if any, to the redemption date. Spirit may redeem the
Notes at its option, in whole or in part, at any time on or after October 1, 2013, upon not less
than 30 nor more than 60 days’ notice at the redemption prices (expressed as percentages of the
principal amount to be redeemed) set forth below, plus any accrued and unpaid interest and
additional interest, if any, to the redemption date.
| |
|
|
|
|
| Year |
|
Price |
|
|
|
|
|
2013 |
|
|
103.750 |
% |
2014 |
|
|
101.875 |
% |
2015 and thereafter |
|
|
100.000 |
% |
If a change of control of Spirit occurs, each holder of the Notes shall have the right to
require that Spirit repurchase all or a portion of such holder’s Notes at a purchase price of 101%
of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any,
to the date of repurchase.
The 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 present value of
the Notes was $293.4 as of October 1, 2009, measured by the bond offering price of 97.804%.
The Notes are Spirit’s senior unsecured obligations and rank equal in right of payment with
all of Spirit’s and the guarantors’ other existing and future senior indebtedness. The Notes are
senior in right of payment to all of Spirit’s and the guarantors’ existing and future indebtedness
that is by its terms expressly subordinated to the Notes and the guarantees. The Notes are
effectively subordinated in right of payment to all of Spirit’s and the guarantors’ secured
indebtedness to the extent of the value of the assets securing such indebtedness, including
obligations under Spirit’s senior secured credit facility, which is secured by substantially all of
the assets of Spirit and the guarantors.
The Indenture contains covenants that limit Spirit’s, and certain of Spirit’s subsidiaries’
ability, subject to certain exceptions and qualifications, to (i) incur additional debt; (ii) pay
dividends, redeem stock or make other distributions, (iii) repurchase equity securities, prepay
subordinated debt or make certain investments, (iv) make other restricted payments and investments,
(v) issue certain disqualified stock and preferred stock, (vi) create liens without granting equal
and ratable liens to the holders of the Notes, (vii) enter into sale and leaseback transactions, (viii) merge, consolidate or transfer or dispose
of substantially all of their assets, (ix) enter into certain types of transactions with affiliates
and (x) sell assets.
18
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
These covenants are subject to a number of qualifications and limitations.
In addition, the Indenture limits Spirit’s, and the guarantor subsidiaries’ ability to engage in
businesses other than businesses in which such companies are engaged on the date of issuance of the
Notes and related businesses.
In addition, the Indenture provides for customary events of default which include (subject in
certain cases to customary grace and cure periods), among other things: failure to make payments on
the Notes when due, failure to comply with covenants under the Indenture, failure to pay certain
other indebtedness or acceleration of maturity of certain other indebtedness, failure to satisfy or
discharge certain final judgments and occurrence of certain bankruptcy events. If an event of
default occurs, the trustee or holders of at least 25% of the aggregate principal amount of the
then outstanding Notes may, among other things, declare the entire outstanding balance of principal
of and interest on all outstanding Notes to be immediately due and payable. If an event of default
involving certain bankruptcy events occurs, payment of principal of and interest on the Notes will
be accelerated without the necessity of notice or any other action on the part of any person.
Spirit repaid $200.0 of borrowings under its existing senior secured revolving credit facility
using a portion of the proceeds of the offering of the Notes, which increased the availability
under the revolving credit facility to $729.0, reduced by $16.9 of outstanding letters of credit.
14. Pension and Other Post-Retirement Benefits
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Defined Benefit Plans |
|
| |
|
For the Three |
|
|
For the Nine |
|
| |
|
Months Ended |
|
|
Months Ended |
|
| |
|
October 1, |
|
|
September 25, |
|
|
October 1, |
|
|
September 25, |
|
| Components of Net Periodic Pension Income |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
1.6 |
|
|
$ |
1.8 |
|
|
$ |
4.5 |
|
|
$ |
5.5 |
|
Interest cost |
|
|
9.8 |
|
|
|
9.6 |
|
|
|
29.2 |
|
|
|
28.9 |
|
Expected return on plan assets |
|
|
(14.1 |
) |
|
|
(17.9 |
) |
|
|
(41.9 |
) |
|
|
(53.8 |
) |
Amortization of prior service cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of net (gain)/loss |
|
|
2.1 |
|
|
|
(1.4 |
) |
|
|
6.2 |
|
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension income |
|
$ |
(0.6 |
) |
|
$ |
(7.9 |
) |
|
$ |
(2.0 |
) |
|
$ |
(23.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Other Benefits |
|
| |
|
For the Three |
|
|
For the Nine |
|
| |
|
Months Ended |
|
|
Months Ended |
|
| |
|
October 1, |
|
|
September 25, |
|
|
October 1, |
|
|
September 25, |
|
| Components of Net Periodic Benefit Cost |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
0.5 |
|
|
$ |
0.3 |
|
|
$ |
1.5 |
|
|
$ |
1.1 |
|
Interest cost |
|
|
0.7 |
|
|
|
0.5 |
|
|
|
2.1 |
|
|
|
1.5 |
|
Expected return on plan assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of prior service cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of net (gain)/loss |
|
|
— |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1.2 |
|
|
$ |
0.7 |
|
|
$ |
3.6 |
|
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions
We expect to contribute zero dollars to the U.S. qualified pension plan and
less than $0.2 to both the Supplemental Executive Retirement Plan (SERP) and post-retirement
medical plans in 2009. Our projected contributions to the U.K. pension plan for 2009 were $7.6, of
which $5.9 was contributed by the end of the third quarter of 2009. We anticipate contributing an
additional $1.7 to the U.K. pension plan during the remainder of 2009. The entire amount
contributed and the projected contributions can vary based on exchange rate fluctuations.
19
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
15. Stock Compensation
The Company has established various stock compensation plans which include restricted share
grants and stock purchase plans. Compensation values are based on the value of the Company’s common
stock at the grant date. The common stock value is added to equity and charged to period expense or
included in inventory and cost of sales.
For the three months ended October 1, 2009, the Company recognized a total of $0.7 of stock
compensation expense, net of forfeitures, as compared to $4.1 of stock compensation expense, net of
forfeitures, recognized for the three months ended September 25, 2008. Of the total $0.7 of stock
compensation expense recorded for the three months ended October 1, 2009, $0.6 was recorded as
expense in Selling, general and administrative expense while the remaining $0.1 was capitalized in
inventory and is recognized through cost of sales consistent with the accounting methods we follow
in accordance with authoritative guidance related to revenue
recognition for construction-type and
production-type contracts. Of the $4.1 of stock compensation expense recorded for the three months
ended September 25, 2008, $4.0 was recorded as expense in Selling, general and administrative
expense while the remaining $0.1 was capitalized in inventory in accordance with the guidance.
For the nine months ended October 1, 2009, the Company recognized a total of $6.7 of stock
compensation expense, net of forfeitures, as compared to $11.6 of stock compensation expense, net
of forfeitures, recognized for the nine months ended September 25, 2008. Of the total $6.7 of stock
compensation expense recorded for the nine months ended October 1, 2009, $6.4 was recorded as
expense in Selling, general and administrative expense while the remaining $0.3 was capitalized in
inventory and is recognized through Cost of sales consistent with the accounting methods we follow
in accordance with authoritative guidance related to revenue recognition for construction-type and
production-type contracts. Of the $11.6 of stock compensation expense recorded for the nine months
ended September 25, 2008, $11.3 was recorded as expense in Selling, general and administrative
expense while the remaining $0.3 was capitalized in inventory in accordance with the guidance.
The fair value of vested class A and class B shares granted under the Company’s stock
compensation plans was $0.4 and $29.2, respectively, at October 1, 2009, based on the market value
of the Company’s common stock on that date.
Due to the occurrence during the third quarter of 2009 of the four-year anniversaries of the
Executive Incentive Plan grant dates for certain participants in the plan, those participants
acquired an incremental 8.81% interest in the shares granted to them under the plan, such that
their total cumulative interest in the shares granted to them would be 80%. The total number of
additional shares in which an interest was acquired in the third quarter of 2009 was 24,849. The
participants have a nonforfeitable interest in those shares; however, as per the plan document, the
shares are still restricted until the earlier of a liquidity event or June 16, 2015. Participants
do not have the unrestricted rights of stockholders until those shares vest. Other participants
will acquire the cumulative 80% interest as they reach the four-year anniversary date of their
grant dates throughout the remainder of 2009 and 2010.
16. Income Taxes
The process for calculating our income tax expense involves estimating actual current taxes
due plus assessing temporary differences arising from differing treatment for tax and accounting
purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are
periodically evaluated to determine their recoverability. The total net deferred tax assets as of
October 1, 2009 and December 31, 2008 were $224.1 and $204.7, respectively.
We file income tax returns in all jurisdictions in which we operate. We established reserves
to provide for additional income taxes that may be due in future years as these previously filed
tax returns are audited. These reserves have been established based on management’s assessment as
to the potential exposure attributable to permanent differences and interest applicable to both
permanent and temporary differences. All tax reserves are analyzed quarterly and adjustments made
as events occur that warrant modification.
In general, the Company records income tax expense each quarter based on its best estimate as
to the full year’s effective tax rate. Certain items, however, are given discrete period treatment
and the tax effects for such items are therefore reported in the quarter that an event
arises. Events or items that give rise to discrete recognition include finalizing amounts in income
tax returns filed, finalizing audit examinations for open tax years, and expiration of a statute of
limitations.
The 28.2% effective tax rate for the three months ended October 1, 2009 differs from the 29.5%
effective tax rate for the same period in 2008 primarily due to reinstating the U.S. Research and
Experimentation Tax Credit (“R&E Tax Credit”) on October 3, 2008. The 29.3% effective tax rate for
the nine months ended October 1, 2009 differs from the 32.5% effective tax rate for the same period
in 2008 primarily due to reinstating the R&E Tax Credit on October 3, 2008.
The Company’s 2005 and 2006 U.S. Federal income tax returns are currently being examined. The
Company expects no material change in its recorded unrecognized tax benefit liability in the next
12 months.
20
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
17. Shareholders’ Equity
Earnings
per Share Calculation
The following table sets forth the computation of basic and diluted earnings per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Three Months Ended |
| |
|
October 1, 2009 |
|
September 25, 2008 |
| |
|
|
|
|
|
Shares |
|
Per Share |
|
|
|
|
|
Shares |
|
Per Share |
| |
|
Income |
|
(in millions) |
|
Amount |
|
Income |
|
(in millions) |
|
Amount |
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders |
|
$ |
87.3 |
|
|
|
138.6 |
|
|
$ |
0.63 |
|
|
$ |
74.0 |
|
|
|
137.0 |
|
|
$ |
0.54 |
|
Diluted potential common shares |
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders + assumed vesting |
|
$ |
87.3 |
|
|
|
140.2 |
|
|
$ |
0.62 |
|
|
$ |
74.0 |
|
|
|
139.1 |
|
|
$ |
0.53 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Nine Months Ended |
| |
|
October 1, 2009 |
|
September 25, 2008 |
| |
|
|
|
|
|
Shares |
|
Per Share |
|
|
|
|
|
Shares |
|
Per Share |
| |
|
Income |
|
(in millions) |
|
Amount |
|
Income |
|
(in millions) |
|
Amount |
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders |
|
$ |
141.7 |
|
|
|
138.2 |
|
|
$ |
1.03 |
|
|
$ |
245.6 |
|
|
|
136.9 |
|
|
$ |
1.79 |
|
Diluted potential common shares |
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders + assumed vesting |
|
$ |
141.7 |
|
|
|
140.0 |
|
|
$ |
1.01 |
|
|
$ |
245.6 |
|
|
|
139.2 |
|
|
$ |
1.76 |
|
Other Comprehensive Income
Components of Other Comprehensive Income, net of tax, consist of the following:
| |
|
|
|
|
|
|
|
|
| |
|
For the Three Months Ended |
|
| |
|
October 1, |
|
|
September 25, |
|
| |
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
87.3 |
|
|
$ |
74.0 |
|
Other Comprehensive Income (loss), net of tax |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investments |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on interest rate swaps, net of tax |
|
|
(2.3 |
) |
|
|
(0.3 |
) |
Pension, SERP, and Retiree Medical adjustments, net of tax |
|
|
(1.2 |
) |
|
|
— |
|
Unrealized (loss) on foreign currency forward contracts, net of tax |
|
|
(1.8 |
) |
|
|
(1.3 |
) |
Reclassification of realized (gain) loss on hedging instruments into net income, net of tax |
|
|
2.5 |
|
|
|
0.7 |
|
Foreign currency translation adjustments |
|
|
(3.7 |
) |
|
|
(11.7 |
) |
|
|
|
|
|
|
|
Total Other Comprehensive Income |
|
$ |
80.8 |
|
|
$ |
61.4 |
|
|
|
|
|
|
|
|
21
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
| |
|
|
|
|
|
|
|
|
| |
|
For the Nine Months Ended |
|
| |
|
October 1, |
|
|
September 25, |
|
| |
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
141.7 |
|
|
$ |
245.6 |
|
Other Comprehensive Income (loss), net of tax |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investments |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on interest rate swaps, net of tax |
|
|
(5.0 |
) |
|
|
(2.9 |
) |
Pension, SERP, and Retiree Medical adjustments, net of tax |
|
|
(3.7 |
) |
|
|
— |
|
Unrealized gain (loss) on foreign currency forward contracts, net of tax |
|
|
(1.8 |
) |
|
|
(1.5 |
) |
Reclassification of realized (gain) loss on hedging instruments into net income, net of tax |
|
|
9.3 |
|
|
|
0.7 |
|
Foreign currency translation adjustments |
|
|
11.3 |
|
|
|
(12.7 |
) |
|
|
|
|
|
|
|
Total Other Comprehensive Income |
|
$ |
151.8 |
|
|
$ |
229.2 |
|
|
|
|
|
|
|
|
18. Related Party Transactions
On March 26, 2007, Hawker Beechcraft, Inc. (“Hawker”), of which Onex Partners II LP (an
affiliate of Onex) owns approximately a 49% interest, acquired Raytheon Aircraft Acquisition
Company and substantially all of the assets of Raytheon Aircraft Services Limited. Spirit’s
Prestwick facility provides wing components for the Hawker 800 Series manufactured by Hawker. For
the three months ended October 1, 2009 and September 25, 2008, sales to Hawker were $2.9 and $7.4,
respectively, and $10.5 and $19.9 for the nine months ended October 1, 2009 and September 25, 2008,
respectively.
A member of the Holdings’ Board of Directors is also a member of the Board of Directors of
Hawker.
Since February 2007, an executive of the Company has been a member of the Board of Directors
of one of the Company’s suppliers, Precision Castparts Corp. of Portland, Oregon, a manufacturer of
complex metal components and products. For the three months ended October 1, 2009 and September
25, 2008, the Company purchased $11.7 and $15.1 of products, respectively, from this supplier. For
the nine months ended October 1, 2009 and September 25, 2008, the Company purchased $35.7 and $48.0
of products, respectively, from this supplier.
A member of Holdings’ Board of Directors is the president and chief executive officer of
Aviall, Inc., the parent company of one of our customers, Aviall Services, Inc. and a wholly owned
subsidiary of Boeing. On September 18, 2006, Spirit entered into a distribution agreement with
Aviall Services, Inc. Net revenues under the distribution agreement were $1.2 and $1.4 for the
three months ended October 1, 2009 and September 25, 2008, respectively, and $4.5 and $4.3 for the
nine months ended October 1, 2009 and September 25, 2008, respectively.
The Company paid $0.1 and less than $0.1 to a subsidiary of Onex for services rendered for each of the three
month periods ended October 1, 2009 and September 25, 2008 respectively, and $0.2 for each of the nine month
periods ended October 1, 2009 and September 25, 2008. Management believes the amounts charged were
reasonable in relation to the services provided.
Boeing owns and operates significant information technology systems utilized by the Company
and, as required under the acquisition agreement for the Boeing Acquisition, is providing those
systems and support services to Spirit under a Transition Services Agreement. A number of services
covered by the Transition Services Agreement have now been established by the Company, and the
Company is scheduled to continue to use the remaining systems and support services it has not yet
established. The Company incurred fees of $2.8 and $5.2 for services performed for the three months
ended October 1, 2009 and September 25, 2008, respectively, and $10.3 and $17.6 for the nine months
ended October 1, 2009 and September 25, 2008, respectively. The amounts owed to Boeing and
recorded as accrued liabilities were $7.0 and $9.5 at October 1, 2009 and December 31, 2008,
respectively.
The spouse of one of the Company’s executives is a special counsel at a law firm utilized by
the Company and at which the executive was previously employed. The Company paid fees of $0.5 to
the firm for each of the three month periods ended October 1, 2009 and September 25, 2008, and $1.4
for each of the nine month periods ended October 1, 2009 and September 25, 2008.
An executive of the Company is a member of the Board of Directors of a Wichita, Kansas bank
that provides banking services to Spirit. In connection with the banking services provided to
Spirit, the Company pays fees consistent with commercial terms that would be available to unrelated
third parties. Such fees are not material to Spirit.
22
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
19. Commitments, Contingencies and Guarantees
Litigation
From time to time we are subject to, and are presently involved in, litigation or other legal
proceedings arising in the ordinary course of business. While the final outcome of these matters
cannot be predicted with certainty, considering, among other things, the meritorious legal defenses
available, it is the opinion of the Company that none of these items, when finally resolved, will
have a material adverse effect on the
Company’s long-term financial position or liquidity. Consistent with the requirements of authoritative guidance on accounting for contingencies, we had
no accruals at October 1, 2009 or December 31, 2008 for loss contingencies. However, an unexpected
adverse resolution of one or more of these items could have a material adverse effect on the
results of operations in a particular quarter or fiscal year.
From time to time, in the ordinary course of business and like others in the industry, we
receive requests for information from government agencies in connection with their regulatory or
investigational authority. Such requests can include subpoenas or demand letters for documents to
assist the government in audits or investigations. We review such requests and notices and take
appropriate action. We have been subject to certain requests for information and investigations in
the past and could be subject to such requests for information and investigations in the future.
Additionally, we are subject to federal and state requirements for protection of the environment,
including those for disposal of hazardous waste and remediation of contaminated sites. As a result,
we are required to participate in certain government investigations regarding environmental
remediation actions.
In December 2005, a lawsuit was filed against Spirit, Onex, and Boeing alleging age
discrimination in the hiring of employees by Spirit when Boeing sold its Wichita commercial
division to Onex. The complaint was filed in U.S. District Court in Wichita, Kansas and seeks
class-action status, an unspecified amount of compensatory damages and more than $1.5 billion in
punitive damages. The Asset Purchase Agreement requires Spirit to indemnify Boeing for damages
resulting from the employment decisions that were made by us with respect to former employees of
Boeing Wichita, which relate or allegedly relate to the involvement of, or consultation with,
employees of Boeing in such employment decisions. The Company intends to vigorously defend itself
in this matter. Management believes the resolution of this matter will not materially affect the
Company’s financial position, results of operations or liquidity.
In December 2005, a federal grand jury sitting in Topeka, Kansas issued subpoenas regarding
the vapor degreasing equipment at our Wichita, Kansas facility. The government’s investigation
appeared to focus on whether the degreasers were operating within permit parameters and whether
chemical wastes from the degreasers were disposed of properly. The subpoenas covered a time period
both before and after our purchase of the Wichita, Kansas facility. Subpoenas were issued to
Boeing, Spirit and individuals who were employed by Boeing prior to the Boeing Acquisition, but are
now employed by us. We responded to the subpoena and provided additional information to the
government as requested. On March 25, 2008, the U.S. Attorney’s Office informed the Company that it
was closing its criminal file on the investigation. A civil investigation into this matter is
ongoing. Management believes the resolution of this matter will not materially affect the Company’s
financial position, results of operations or liquidity.
On February 16, 2007, an action entitled Harkness et al. v. The Boeing Company et al. was
filed in the U.S. District Court for the District of Kansas. The defendants were served in early
July 2007. The defendants include Spirit AeroSystems Holdings, Inc., Spirit AeroSystems, Inc., the
Spirit AeroSystems Holdings Inc. Retirement Plan for the International Brotherhood of Electrical
Workers (IBEW), Wichita Engineering Unit (SPEEA WEU) and Wichita Technical and Professional Unit
(SPEEA WTPU) Employees, and the Spirit AeroSystems Retirement Plan for International Association of
Machinists and Aerospace Workers (IAM) Employees, along with The Boeing Company and Boeing
retirement and health plan entities. The named plaintiffs are twelve former Boeing employees, eight
of whom were or are employees of Spirit. The plaintiffs assert several claims under ERISA and
general contract law and brought the case as a class action on behalf of similarly situated
individuals. The putative class consists of approximately 2,500 current or former employees of
Spirit. The parties agreed to class certification and are currently in the discovery process. The
sub-class members who have asserted claims against the Spirit entities are those individuals who,
as of June 2005, were employed by Boeing in Wichita, Kansas, were participants in the Boeing
pension plan, had at least 10 years of vesting service in the Boeing plan, were in jobs represented
by a union, were between the ages of 49 and 55, and who went to work for Spirit on or about June
17, 2005. Although there are many claims in the suit, the plaintiffs’ claims against the Spirit
entities, asserted under various theories, are (1) that the Spirit plans wrongfully failed to
determine that certain plaintiffs are entitled to early retirement “bridging rights” to pension and
retiree medical benefits that were allegedly triggered by their separation from employment by
Boeing and (2) that the plaintiffs’ pension benefits were unlawfully transferred from Boeing to
Spirit in that their claimed early retirement “bridging rights” are not being afforded these
individuals as a result of their separation from Boeing, thereby decreasing their benefits. The
plaintiffs seek a declaration that they are entitled to the early retirement pension benefits and
retiree medical benefits, an injunction ordering that the defendants provide the benefits, damages
pursuant to breach of contract claims and attorney fees. Boeing has notified Spirit that it
believes it is entitled to indemnification from Spirit for any “indemnifiable damages” it may incur
in the Harkness litigation, under the terms of the Asset Purchase Agreement (“APA”) between Boeing
and Spirit. Management believes the resolution of this matter will not materially affect the
Company’s financial position, results of operations or liquidity.
23
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
On July 21, 2005, the International Union, Automobile, Aerospace and Agricultural Implement
Workers of America (“UAW”) filed a grievance against Boeing on behalf of certain former Boeing
employees in Tulsa and McAlester, Oklahoma, regarding issues that parallel those asserted in
Harkness et al. v. The Boeing Company et al. Boeing denied the grievance, and the UAW subsequently
filed suit to compel arbitration, which the parties eventually agreed to pursue. The arbitration
was conducted in January 2008. In
July 2008, the arbitrator issued an opinion and award in favor of
the UAW. The arbitrator directed Boeing to reinstate the seniority of the employees and “afford
them the benefits appurtenant thereto.” On March 5, 2009, the arbitrator entered an Opinion and
Supplemental Award that directed Boeing to award certain benefits to UAW members upon whose behalf
the grievance was brought, notwithstanding the prior denial of such benefits by the Boeing Plan
Administrator. On April 10, 2009, Boeing filed a Complaint in the United States District Court for
the Northern District of Illinois, seeking a ruling that the Arbitrator exceeded his authority in
granting the Supplemental Award. On September 16, 2009, the District Court entered an order
affirming the arbitrator’s Supplemental Award. Boeing has notified Spirit of its intent to seek
indemnification from Spirit for any “indemnifiable damages” it may incur in the UAW matter,
pursuant to the terms of the APA. Management believes the resolution of this matter will not
materially affect the Company’s financial position, results of operations or liquidity.
On May 11, 2009, Spirit filed a lawsuit in the United States District Court for the District of
Kansas against SPS Technologies (“SPS”), LLC and Precision Castparts Corp. Spirit’s claims are
based on the sale by SPS of certain non-conforming nut plate fasteners to Spirit between August
2007 and August 2008. Many of the fasteners were used on assemblies that Spirit sold to a customer.
In the fall of 2008, Spirit discovered the non-conformity and notified the customer of the
discrepancy. Subsequently, Spirit and the customer removed and replaced nut plates on various
in-process aircraft assemblies. Spirit’s lawsuit seeks damages, including damages related to these
efforts, under various theories, including breach of contract and breach of implied warranty.
Guarantees
Contingent liabilities in the form of letters of credit, letters of guarantee and performance
bonds have been provided by the Company. These letters of credit reduce the amount of borrowings
available under the revolving credit facility. As of October 1, 2009 and December 31, 2008, $33.0
and $14.0 were outstanding in respect of these guarantees, respectively.
Indemnification
The Company has entered into indemnification agreements with each of its directors, and some
of its executive employment agreements include indemnification provisions. Under those agreements,
the Company agrees to indemnify each of these individuals against claims arising out of events or
occurrences related to that individual’s service as the Company’s agent or the agent of any of its
subsidiaries to the fullest extent legally permitted.
Service and Product Warranties and Extraordinary Rework
The Company provides service and warranty policies on its products. Liability under service
and warranty policies is based upon specific claims and a review of historical warranty and service
claim experience. Adjustments are made to accruals as claim data and historical experience change.
In addition, the Company incurs discretionary costs to service its products in connection with
product performance or quality issues.
The following is a roll forward of the service warranty balances at October 1, 2009:
| |
|
|
|
|
Balance-December 31, 2008 |
|
$ |
6.5 |
|
Charges to costs and expenses |
|
|
4.9 |
|
Exchange rate |
|
|
0.2 |
|
|
|
|
|
Balance-October 1, 2009 |
|
$ |
11.6 |
|
|
|
|
|
24
Spirit AeroSystems Holdings, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
($ in millions other than per share data)
20. Segment Information
The Company operates in three principal segments: Fuselage Systems, Propulsion Systems and
Wing Systems. Essentially 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
96% of the Company’s net revenues for the nine months ended October 1, 2009 came from our two
largest customers, Boeing and Airbus. All other activities fall within the All Other segment,
principally made up of sundry sales of miscellaneous services, tooling contracts, and sales of
natural gas through a tenancy-in-common with other companies that have operations in Wichita. The
Company’s primary profitability measure to review a segment’s operating performance is segment
operating income before unallocated corporate selling, general and administrative expenses and
unallocated research and development. Unallocated corporate selling, general and administrative
expenses include centralized functions such as accounting, treasury and human resources that are not specifically related to our operating segments and
are not allocated in measuring the operating segments’ profitability and performance and operating
margins.
The Company’s Fuselage Systems segment includes development, production and marketing of
forward, mid and rear fuselage sections and systems, primarily to aircraft OEMs (OEM refers to
aircraft original equipment manufacturer), as well as related spares and maintenance, repairs and
overhaul (MRO).
The 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 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, Prestwick, Scotland and Subang,
Malaysia.
The Company’s segments are consistent with the organization and responsibilities of management
reporting to the chief operating decision-maker for the purpose of assessing performance. The
Company’s definition of segment operating income differs from operating income as presented in its
primary financial statements and a reconciliation of the segment and consolidated results is
provided in the table set forth below. Most selling, general and administrative expenses, and all
interest expense or income, related financing costs and income tax amounts, are not allocated to
the operating segments.
While some working capital accounts are maintained on a segment basis, much of the Company’s
assets are not managed or maintained on a segment basis. Property, plant and equipment, including
tooling, is used in the design and production of products for each of the segments and, therefore,
is not allocated to any individual segment. In addition, cash, prepaid expenses, other assets and
deferred taxes are managed and maintained on a consolidated basis and generally do not pertain to
any particular segment. Raw materials and certain component parts are used in the production of
aerostructures across all segments. Work-in-process inventory is identifiable by segment, but is
managed and evaluated at the program level. As there is no segmentation of the Company’s productive
assets, depreciation expense (included in fixed manufacturing costs and selling, general and
administrative expenses) and capital expenditures, no allocation of these amounts has been made
solely for purposes of segment disclosure requirements.
The following table shows segment information:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Three |
|
|
For the Nine |
|
| |
|
Months Ended |
|
|
Months Ended |
|
| |
|
October 1, |
|
|
September 25, |
|
|
October 1, |
|
|
September 25, |
|
| |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Segment Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems |
|
$ |
525.9 |
|
|
$ |
484.8 |
|
|
$ |
1,497.6 |
|
|
$ |
1,470.2 |
|
Propulsion Systems |
|
|
266.2 |
|
|
|
291.5 |
|
|
|
772.1 |
|
|
|
863.1 |
|
Wing Systems |
|
|
257.3 |
|
|
|
246.8 |
|
|
|
712.9 |
|
|
|
773.5 |
|
All Other |
|
|
4.4 |
|
|
|
4.1 |
|
|
|
18.2 |
|
|
|
18.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,053.8 |
|
|
$ |
1,027.2 |
|
|
$ |
3,000.8 |
|
|
$ |
3,125.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuselage Systems |
|
$ |
95.2 |
|
|
$ |
73.5 |
|
|
$ |
229.4 |
|
|
$ |
255.0 |
|
Propulsion Systems |
|
|
35.3 |
|
|
|
47.1 |
|
|
|
97.2 |
|
|
|
140.9 |
|
Wing Systems |
|
|
26.6 |
|
|
|
26.9 |
|
|
|
(12.7 |
) |
|
|
92.3 |
|
All Other |
|
|
1.0 |
|
|
|
— |
|
|
|
(1.0 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment Operating Income |
|
|
158.1 |
|
|
|
147.5 |
|
|
|
312.9 |
|
|
|
488.3 |
|
Unallocated corporate SG&A |
|
|
(26.7 |
) |
|
|
(35.6 |
) |
|
|
(92.9 |
) |
|
|
(109.7 |
) |
Unallocated research and development |
|
|
(0.4 |
) |
|
|
(0.7 |
) |
|
|
(1.6 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
131.0 |
|
|
$ |
111.2 |
|
|
$ |
218.4 |
|
|
$ |
377.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following section may include “forward-looking statements.” Forward-looking statements
generally can be identified by the use of forward-looking terminology such as “may,” “will,”
“expect,” “anticipate,” “intend,” “estimate,” “believe,” “project,” “continue,” “plan,” “forecast,”
or other similar words. These statements reflect management’s current views with respect to future
events and are subject to risks and uncertainties, both known and unknown. 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 October 9, 2009, engineers represented by the Society of Professional Engineering Employees
in Aerospace — Wichita Engineering Unit (SPEEA) at Spirit AeroSystems approved a new contract
effective through December 1, 2012.
On September 30, 2009, Spirit completed an offering of $300.0 million aggregate principal
amount of its 71/2% Senior Notes due 2017. The Notes
were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act
of 1933, as amended (the “Securities Act”), and outside the United States only to non-U.S. persons
in accordance with Regulation S under the Securities Act. A portion of the net proceeds of the
offering of the Notes was used to repay $200.0 million in borrowings under Spirit’s existing senior
secured revolving credit facility with the remaining net proceeds
to be used for general corporate
purposes and to pay fees and expenses incurred in connection with the offering.
On August 25, 2009, Ulrich (Rick) Schmidt, our Executive Vice President and Chief Financial
Officer, notified us of his decision to retire. His last working day with us was Friday, October 2,
2009, and he will remain employed by us through early December of 2009. Philip D. Anderson, our
Treasurer and Vice President, Investor Relations, assumed the additional role of Interim Chief
Financial Officer, effective October 3, 2009, pending a search for Mr. Schmidt’s replacement.
On July 9, 2009, Textron Inc., the parent company of Cessna Aircraft Company, filed a Current
Report on Form 8-K with the Securities and Exchange Commission (“SEC”) stating that it had formally
cancelled further development of the Cessna Citation Columbus business jet. Spirit had been
selected as the supplier for the fuselage and empennage on the Cessna Citation Columbus in February
2008. In the second quarter of 2009, we recorded a $10.9 million charge to reflect the estimated
impact of this termination. Spirit has submitted termination claims to Cessna seeking recovery of
costs incurred.
Overview
We are the largest independent non-OEM (OEM refers to aircraft original equipment
manufacturer) aircraft parts designer and manufacturer of commercial aerostructures in the world.
Aerostructures are structural components, such as fuselages, propulsion systems and wing systems
for commercial, military and business jet aircraft. We derive our revenues primarily through
long-term supply agreements with Boeing and requirements contracts with Airbus. For the three
months ended October 1, 2009, we generated net revenues of $1,053.8 million and net income of $87.3
million and for the nine months ended October 1, 2009, we generated net revenues of $3,000.8
million and net income of $141.7 million.
We are organized into three principal reporting segments: (1) Fuselage Systems, which includes
the forward, mid and rear fuselage sections, (2) Propulsion Systems, which includes nacelles,
struts/pylons and engine structural components, and (3) Wing Systems, which includes facilities in
Tulsa and McAlester, Oklahoma, Prestwick, Scotland and Subang, Malaysia that manufacture 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. Fuselage Systems, Propulsion Systems, Wing Systems and
All Other represented approximately 50%, 25%, 24% and 1%, respectively, of our net revenues for the
three months ended October 1, 2009. Fuselage Systems, Propulsion Systems, Wing Systems and All
Other represented approximately 50%, 26%, 24% and less than 1%, respectively, of our net revenues
for the nine months ended October 1, 2009.
26
2009 Outlook
We expect the following results, or ranges of results, for the year ending December 31, 2009:
| |
|
|
|
|
|
|
|
|
| |
|
2009 Outlook |
|
2008 Actuals |
Revenues |
|
$4.1-$4.2 billion |
|
$3.8 billion |
Earnings per share, diluted |
|
$1.45-$1.55 per share |
|
$1.91 per share |
Effective tax rate |
|
|
~30 |
% |
|
|
30.9 |
% |
Cash flow from operations |
|
|
|
|
|
$211 million |
Capital expenditures |
|
(See below) |
|
$236 million |
Capital reimbursement |
|
|
|
|
|
$116 million |
Our 2009 outlook is based on the following assumptions:
| |
• |
|
Our revenue guidance for the full-year 2009 has been updated to reflect movement of
certain forecasted non-recurring contract settlements out of 2009. Revenues are now expected
to be between $4.1 and $4.2 billion based on Boeing’s 2009 delivery guidance of 480-485
aircraft; anticipated B787 deliveries consistent with our expectations following Boeing’s
announcement of the revised B787 schedule on August 27, 2009; 2009 expected Airbus
deliveries of approximately 483 aircraft; internal Spirit forecasts for non-OEM production
activity and non-Boeing and Airbus customers; and foreign exchange rates consistent with
fourth quarter 2008 levels. |
| |
| |
• |
|
We expect our 2009 fully diluted earnings per share guidance to be between $1.45 and
$1.55 per share after the increase in interest expense and fees associated with the recently
issued senior unsecured notes. |
| |
| |
• |
|
We expect our 2009 cash flow from operations less capital expenditures, net of customer
reimbursements, to be no more than a ($150) million use of cash in the aggregate, with
capital expenditures of approximately $225 million. |
| |
| |
• |
|
The guidance assumes the settlement of certain
outstanding non-recurring contract payments associated with our
development programs. To the extent these forecasted payments are not received during the fourth quarter
of 2009, they will represent a shift in revenues, earnings and cash flows from 2009 to 2010. |
Results of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
|
| |
|
Ended |
|
|
Ended |
|
|
Percentage |
|
|
Ended |
|
|
Ended |
|
|
Percentage |
|
| |
|
October 1, |
|
|
September 25, |
|
|
Change from |
|
|
October 1, |
|
|
September 25, |
|
|
Change from |
|
| |
|
2009 |
|
|
2008 |
|
|
Prior Year |
|
|
2009 |
|
|
2008 |
|
|
Prior
Year |
|
| |
|
($ in millions) |
|
Net
revenues |
|
$ |
1,053.8 |
|
|
$ |
1,027.2 |
|
|
|
3% |
|
|
$ |
3,000.8 |
|
|
$ |
3,125.7 |
|
|
|
(4%) |
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
878.3 |
|
|
|
864.3 |
|
|
|
2% |
|
|
|
2,637.2 |
|
|
|
2,596.1 |
|
|
|
2% |
|
Selling, general and administrative |
|
|
30.5 |
|
|
|
39.0 |
|
|
|
(22%) |
|
|
|
103.6 |
|
|
|
119.0 |
|
|
|
(13%) |
|
Research and development |
|
|
14.0 |
|
|
|
12.7 |
|
|
|
10% |
|
|
|
41.6 |
|
|
|
33.1 |
|
|
|
26% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs and expenses |
|
|
922.8 |
|
|
|
916.0 |
|
|
|
1% |
|
|
|
2,782.4 |
|
|
|
2,748.2 |
|
|
|
1% |
|
Operating
income |
|
|
131.0 |
|
|
|
111.2 |
|
|
|
18% |
|
|
|
218.4 |
|
|
|
377.5 |
|
|
|
(42%) |
|
Interest expense and financing fee
amortization |
|
|
(10.2 |
) |
|
|
(9.9) |
|
|
|
3% |
|
|
|
(29.1 |
) |
|
|
(29.5 |
) |
|
|
(1%) |
|
Interest income |
|
|
1.6 |
|
|
|
4.4 |
|
|
|
(64%) |
|
|
|
6.2 |
|
|
|
15.1 |
|
|
|
(59%) |
|
Other income (loss), net |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
(29%) |
|
|
|
5.2 |
|
|
|
0.9 |
|
|
|
478% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes and equity in net loss of affiliate |
|
|
121.9 |
|
|
|
105.0 |
|
|
|
16% |
|
|
|
200.7 |
|
|
|
364.0 |
|
|
|
(45%) |
|
Income tax provision |
|
|
(34.4 |
) |
|
|
(31.0 |
) |
|
|
11% |
|
|
|
(58.8 |
) |
|
|
(118.4 |
) |
|
|
(50%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in net loss
of affiliate |
|
|
87.5 |
|
|
|
74.0 |
|
|
|
18% |
|
|
|
141.9 |
|
|
|
245.6 |
|
|
|
(42%) |
|
Equity in
net loss of affiliate |
|
|
(0.2 |
) |
|
|
— |
|
|
|
N.A. |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
N.A. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
$ |
87.3 |
|
|
$ |
74.0 |
|
|
|
18% |
|
|
$ |
141.7 |
|
|
$ |
245.6 |
|
|
|
(42%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For purposes of measuring production or ship set deliveries for Boeing aircraft in a given
period, the term “ship set” refers to sets of structural fuselage components produced or delivered
for one aircraft in such period. For purposes of measuring production or ship set
27
deliveries for
Airbus aircraft in a given period, the term “ship set” refers to all structural aircraft components
produced or delivered for one aircraft in such period. Other components which are part of the same
aircraft ship sets could be produced or shipped in earlier or later accounting periods than the
components used to measure production or ship set deliveries, which may result in slight variations
in production or delivery quantities of the various ship set components in any given period.
Comparative ship set deliveries by model are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months |
|
Three Months Ended |
|
Nine Months |
|
Nine Months Ended |
| |
|
Ended October 1, |
|
September 25, |
|
Ended October 1, |
|
September 25, |
| Model |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
B737 |
|
|
93 |
|
|
|
87 |
|
|
|
263 |
|
|
|
275 |
|
B747 |
|
|
3 |
|
|
|
4 |
|
|
|
7 |
|
|
|
15 |
|
B767 |
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
9 |
|
B777 |
|
|
21 |
|
|
|
18 |
|
|
|
63 |
|
|
|
60 |
|
B787 |
|
|
2 |
|
|
|
1 |
|
|
|
6 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Boeing |
|
|
122 |
|
|
|
113 |
|
|
|
348 |
|
|
|
362 |
|
A320 Family |
|
|
94 |
|
|
|
90 |
|
|
|
300 |
|
|
|
280 |
|
A330/340 |
|
|
28 |
|
|
|
23 |
|
|
|
77 |
|
|
|
68 |
|
A380 |
|
|
5 |
|
|
|
4 |
|
|
|
7 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Airbus |
|
|
127 |
|
|
|
117 |
|
|
|
384 |
|
|
|
358 |
|
Hawker 800 Series |
|
|
6 |
|
|
|
24 |
|
|
|
37 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
255 |
|
|
|
254 |
|
|
|
769 |
|
|
|
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations for the Three Months Ended October 1, 2009 and September 25, 2008
Net Revenues. Net revenues for the three months ended October 1, 2009 were $1,053.8 million,
an increase of $26.6 million, compared with net revenues of $1,027.2 million for the same period in
the prior year. The increase in net revenues is primarily attributable to a return to full rate
production in 2009, as compared to the reduced production in 2008 caused by strike of Boeing
employees represented by the International Association of Machinists and Aerospace Workers (the
“Boeing IAM Strike”) that commenced in September 2008, resulting in a $29.5 million increase in net
revenues, increased development program net revenues of $34.0 million and increased ship set
deliveries of the B787 and B777 as compared to the same period in the prior year. The revenue increase was
partially offset by fewer B747 ship set deliveries as a result of the transition to the B747-8
model, fewer Hawker 850XP deliveries, and by a $20.0 million decrease in the value of net revenues
from Spirit Europe as a result of the strengthening of the dollar. Deliveries to Boeing increased
by 8% to 122 ship sets during the third quarter of 2009 compared to 113 ship sets delivered for the
same period in the prior year, as unit deliveries to Boeing were at pre-strike levels in the third
quarter of 2009. Approximately 97% of Spirit’s net revenue for the third quarter of 2009 came from
our two largest customers, Boeing and Airbus.
Cost of Sales. Cost of sales as a percentage of net revenues was 83% for the three months
ended October 1, 2009, as compared to 84% for the same period in the prior year. During the third
quarter of 2009, Spirit updated its contract profitability estimates resulting in a favorable
cumulative catch-up adjustment of $1.5 million, as compared to a $12.5 million unfavorable
cumulative catch-up adjustment recognized during the third quarter of 2008, which was largely the
result of the Boeing IAM Strike in late 2008.
Selling, General and Administrative. SG&A as a percentage of net revenues was 3% for the three
months ended October 1, 2009, as compared to 4% for the same period in the prior year, primarily
driven by reduced spending and lower stock compensation expense. During the third quarter of 2009,
we recognized $0.6 million in stock compensation expense, as compared to $4.0 million during the
third quarter of 2008.
Research and Development. R&D costs as a percentage of net revenues was 1% for each of the
three month periods ended October 1, 2009 and September 25, 2008. R&D costs increased $1.3
million, or 10%, primarily due to an increase in R&D spending on new programs in the third quarter
of 2009 compared to the same period in the prior year.
Operating Income. Operating income for the three months ended October 1, 2009 was $131.0
million, an increase of $19.8 million, or 18%, as compared to operating income of $111.2 million
for the same period in the prior year. The 2009 operating income reflects increased ship set
deliveries and the effects of a $1.5 million favorable cumulative catch-up adjustment, as compared
to the $12.5 million unfavorable cumulative catch-up adjustment recorded for the same period in 2008. Improved
operating income also reflects lower SG&A costs for the quarter as compared to the same
period in the prior year.
28
Interest Expense and Financing Fee Amortization. Interest expense and financing fee
amortization for the third quarter of 2009 includes $8.3 million of interest and fees paid or
accrued in connection with long-term debt and $1.9 million in amortization of deferred financing
costs, as compared to $8.6 million of interest and fees paid or accrued in connection with
long-term debt and $1.3 million in amortization of deferred financing costs for the same period in
the prior year. The decrease in interest and fees paid or accrued in connection with long-term
debt in the third quarter of 2009 was primarily driven by lower LIBOR rates on the floating portion
of our Term B loan, partially offset by an increase in interest expense on the drawn portion of the
revolver. The increase in deferred financing costs in the third quarter of 2009 was a result of
increased amortized costs associated with the amendment and restatement of our senior credit
facility.
Interest Income. Interest income for the third quarter of 2009 consisted of $1.3 million of
accretion of the discounted long-term receivable from Boeing for capital expense reimbursement
pursuant to the Asset Purchase Agreement for the Boeing Acquisition and $0.3 million of interest
income, as compared to $3.7 million of accretion and $0.7 million in interest income for the same
period in the prior year. The combined decrease of $2.8 million, as compared to the three months
ended September 25, 2008, was primarily due to lower accretion income as a result of a lower
outstanding balance on the discounted long-term receivable and lower interest rates on interest
bearing accounts.
Provision for Income Taxes. The income tax provision for the third quarter of 2009 consisted
of $34.9 million for federal income taxes, ($0.7) million for state taxes and $0.2 million for
foreign taxes. The income tax provision for the third quarter of 2008 consisted of $31.1 million
for federal income taxes and ($0.1) million for foreign taxes. The 28.2% effective income tax rate
for the three months ended October 1, 2009 differs from the 29.5% effective income tax rate for the
same period in the prior year, primarily due to the reinstatement of the U.S. Research and
Experimentation Credit (“R&E Tax Credit”) on October 3, 2008.
Segments. The following table shows comparable segment operating income before unallocated
corporate expenses for the three months ended October 1, 2009 compared to the three months ended
September 25, 2008:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Three Months Ended |
|
| |
|
October 1, 2009 |
|
|
September 25, 2008 |
|
| |
|
($ in millions) |
|
Segment Revenues |
|
|
|
|
|
|
|
|
Fuselage Systems |
|
$ |
525.9 |
|
|
$ |
484.8 |
|
Propulsion Systems |
|
|
266.2 |
|
|
|
291.5 |
|
Wing Systems |
|
|
257.3 |
|
|
|
246.8 |
|
All Other |
|
|
4.4 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
$ |
1,053.8 |
|
|
$ |
1,027.2 |
|
|
|
|
|
|
|
|
Segment Operating Income |
|
|
|
|
|
|
|
|
Fuselage Systems |
|
$ |
95.2 |
|
|
$ |
73.5 |
|
Propulsion Systems |
|
|
35.3 |
|
|
|
47.1 |
|
Wing Systems |
|
|
26.6 |
|
|
|
26.9 |
|
All Other |
|
|
1.0 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
158.1 |
|
|
|
147.5 |
|
Unallocated corporate SG&A |
|
|
(26.7 |
) |
|
|
(35.6 |
) |
Unallocated research and development |
|
|
(0.4 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
Total operating income |
|
$ |
131.0 |
|
|
$ |
111.2 |
|
|
|
|
|
|
|
|
Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately
50%, 25%, 24% and 1% respectively, of our net revenues for the three months ended October 1, 2009.
Net revenues attributable to Airbus are recorded in the Wing Systems segment.
Fuselage Systems. Fuselage Systems segment net revenues for the third quarter of 2009 were
$525.9 million, an increase of $41.1 million, or 9%, as compared to the same period in the prior
year. The higher net revenues were primarily driven by an increase in ship set deliveries to Boeing
and an increase in development program revenues, partially offset by fewer B747 ship set deliveries
as a result of the transition to the B747-8 model. Fuselage Systems posted segment operating
margins of 18% for the third quarter of 2009, up from 15% for the same period of 2008, as a
favorable cumulative catch-up adjustment of $4.0 million was realized during the third quarter of
2009, primarily driven by favorable cost trends, as compared to a $10.7 million unfavorable
cumulative catch-up adjustment realized in the same period in the prior year, largely driven by
anticipated impacts of the Boeing IAM Strike.
Propulsion Systems. Propulsion Systems segment net revenues for the third quarter of 2009
were $266.2 million, a decrease of $25.3 million, or 9%, as compared to the same period in the
prior year. The lower net revenues were primarily driven by a decrease in
29
B747 ship set deliveries to Boeing and lower aftermarket sales compared to the same period in
2008. Propulsion Systems posted segment operating margins of 13% for the third quarter of 2009,
down from 16% for the same period of 2008, as an unfavorable cumulative catch-up adjustment of $1.5
million was realized during the third quarter of 2009 as compared to a $0.4 million favorable
cumulative catch-up adjustment realized in the same period in the prior year, primarily driven by
higher material costs and decreased labor productivity on some of the Boeing programs.
Wing Systems. Wing Systems segment net revenues for the third quarter of 2009 were $257.3
million, an increase of $10.5 million, or 4%, as compared to the same period in the prior year.
The higher net revenues were primarily driven by an increase in ship set deliveries to Airbus and
Boeing, which more than offset fewer Hawker 850XP deliveries, partially offset by the strengthening
of the dollar, which resulted in a $32.7 million decrease in the value of net revenues from Spirit
Europe. Wing Systems posted segment operating margins of 10% for the third quarter of 2009,
compared to 11% for the same period in the prior year. In addition, an unfavorable cumulative
catch-up of $1.0 million was realized during the third quarter of 2009, as compared to $2.2 million
of unfavorable cumulative catch-up adjustments realized for the same period in the prior year.
All Other. All Other net revenues consist of sundry sales of miscellaneous services, tooling
contracts, and revenues from the Kansas Industrial Energy Supply Company, or KIESC. The increase
in net revenues in the third quarter of 2009, compared to the same period in the prior year, was
driven primarily by an increase in KIESC natural gas revenues.
Results of Operations for the Nine Months Ended October 1, 2009 and September 25, 2008
Net Revenues. Net revenues for the nine months ended October 1, 2009 were $3,000.8 million, a
decrease of $124.9 million, or 4%, compared with net revenues of $3,125.7 million for the same
period in the prior year. The decrease in net revenues is primarily attributable to the decrease in
B737 deliveries, primarily due to the residual impact of the Boeing IAM Strike in the first half of
2009 and fewer B747 deliveries due to the transition to the B747-8 model, resulting in a $175.6
million decrease in net revenues, net of B747-8 non-recurring
revenues, and a $89.2 million
decrease in the value of net revenues from Spirit Europe as a result of the strengthening of the
dollar. The decrease in net revenues was partially offset by increased ship set deliveries of the
B787 as compared to the same period in the prior year, $38.6 million in volume-based pricing
adjustments for the first five months of 2009, increased development program net revenues of $97.0
million, and a $36.2 million increase in net revenues from Airbus primarily as a result of higher
deliveries in the first nine months of 2009 compared to the same period in 2008. Deliveries to
Boeing decreased by 4% to 348 ship sets during the nine months ended October 1, 2009 compared to
362 ship sets delivered for the same period in the prior year, as unit deliveries to Boeing lagged
behind pre-strike levels in the first two quarters of 2009. Deliveries to Airbus increased by 7%
to 384 ship sets during the nine months ended October 1, 2009 compared to 358 ship sets delivered
for the same period in the prior year. Approximately 96% of Spirit’s net revenues for the nine
months ended October 1, 2009 came from our two largest customers, Boeing and Airbus.
Cost of Sales. Cost of sales as a percentage of net revenues was 88% for the nine month
period ended October 1, 2009, as compared to 83% for the same period in the prior year. The
increase in cost of sales in the first nine months of 2009 was due to several unusual charges
recorded in the second quarter, including a $93.0 million forward-loss charge for the Gulfstream
G250 business jet program and the $10.9 million impact of the Cessna Citation Columbus termination.
Also during the first nine months of 2009, Spirit updated its contract profitability estimates
resulting in aggregate unfavorable cumulative catch-up adjustments of $37.7 million driven
primarily by unfavorable performance within the Fuselage Systems and Propulsion Systems segments’
current contract blocks, as compared to $3.6 million of unfavorable cumulative catch-up adjustments
recorded in the first nine months of 2008.
Selling, General and Administrative. SG&A as a percentage of net revenues was 3% for the nine
month period ended October 1, 2009, as compared to 4% for the same period in the prior year. SG&A
expenses decreased $15.4 million, or 13%, primarily due to reduced spending and lower stock
compensation expense. In the first nine months of 2009, we recognized $6.4 million in stock
compensation expense, as compared to $11.3 million during the first nine months of 2008.
Research and Development. R&D costs as a percentage of net revenues were approximately 1% for
each of the nine month periods ended October 1, 2009 and September 25, 2008. R&D costs increased
$8.5 million, or 26%, primarily due to an increase in R&D spending on new programs in the first
nine months of 2009 compared to the first nine months of 2008.
Operating Income. Operating income for the nine months ended October 1, 2009 was $218.4
million, a decrease of $159.1 million, or 42%, as compared to operating income of $377.5 million
for the same period in the prior year. The decrease was driven by the recognition of several
unusual charges recorded in the second quarter, including a $93.0 million forward-loss charge for
the Gulfstream G250 business jet program, the $10.9 million impact of the Cessna Citation Columbus
termination, and the realization of unfavorable cumulative catch-up adjustments totaling $37.7
million during the first nine months of 2009.
30
Interest Expense and Financing Fee Amortization. Interest expense and financing fee
amortization for the nine months ended October 1, 2009 includes $24.5 million of interest expense
associated with long-term debt and $4.6 million in amortization of deferred financing costs, as
compared to $26.1 million of interest expense associated with long-term debt and $3.4 million in
amortization of deferred financing costs for the same period in the prior year. The decrease in
interest expense associated with long-term debt in the first nine months of 2009 was primarily
driven by lower LIBOR rates on the floating portion of our Term B loan, partially offset by an
increase in interest expense on the drawn portion of the revolver. The increase in deferred
financing costs in the third quarter of 2009 was a result of increased amortized costs associated
with the amendment and restatement of our senior credit facility.
Interest Income. Interest income for the nine months ended October 1, 2009 consisted of $5.8
million of accretion of the discounted long-term receivable from Boeing for capital expense
reimbursement pursuant to the Asset Purchase Agreement for the Boeing Acquisition and $0.4 million
in interest income, as compared to $13.0 million of accretion of the discounted long-term
receivable and $2.1 million of interest income for the same period in the prior year. The combined
decrease of $8.9 million, as compared to the nine months ended September 25, 2008, was primarily
due to lower accretion income as a result of a lower outstanding balance on the discounted
long-term receivable and lower interest rates on interest bearing accounts.
Provision for Income Taxes. The income tax provision for the nine months ended October 1,
2009 includes $55.6 million for federal income taxes, $0.6 million for state taxes and $2.6 million
for foreign taxes. The income tax provision for the nine months ended September 25, 2008 included
$112.1 million for federal income taxes, $3.1 million for state taxes, and $3.2 million for foreign
taxes. The 29.3% effective income tax rate for the nine months ended October 1, 2009 differs from
the 32.5% effective income tax rate for the same period in the prior year primarily due to the
reinstatement of the R&E Tax Credit on October 3, 2008.
Segments. The following table shows comparable segment revenues and operating income before
unallocated corporate expenses for the nine months ended October 1, 2009 compared to the nine
months ended September 25, 2008:
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
|
Nine Months Ended |
|
| |
|
October 1, 2009 |
|
|
September 25, 2008 |
|
| |
|
($ in millions) |
|
Segment Net Revenues |
|
|
|
|
|
|
|
|
Fuselage Systems |
|
$ |
1,497.6 |
|
|
$ |
1,470.2 |
|
Propulsion Systems |
|
|
772.1 |
|
|
|
863.1 |
|
Wing Systems |
|
|
712.9 |
|
|
|
773.5 |
|
All Other |
|
|
18.2 |
|
|
|
18.9 |
|
|
|
|
|
|
|
|
|
|
$ |
3,000.8 |
|
|
$ |
3,125.7 |
|
|
|
|
|
|
|
|
Segment Operating Income (Loss) |
|
|
|
|
|
|
|
|
Fuselage Systems |
|
$ |
229.4 |
|
|
$ |
255.0 |
|
Propulsion Systems |
|
|
97.2 |
|
|
|
140.9 |
|
Wing Systems |
|
|
(12.7 |
) |
|
|
92.3 |
|
All Other |
|
|
(1.0 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
312.9 |
|
|
|
488.3 |
|
Unallocated corporate SG&A |
|
|
(92.9 |
) |
|
|
(109.7 |
) |
Unallocated research and development |
|
|
(1.6 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
Total operating income |
|
$ |
218.4 |
|
|
$ |
377.5 |
|
|
|
|
|
|
|
|
Decreases in segment net revenues and operating income before unallocated corporate expenses
for the nine months ended October 1, 2009 compared to the nine months ended September 25, 2008 were
driven by lower deliveries to Boeing, several unusual charges recorded in the second quarter,
including a $93.0 million forward-loss charge for the Gulfstream G250 business jet program,
unusually large unfavorable cumulative catch-up adjustments totaling $37.7 million, primarily
driven by disruption related to the post-strike production ramp-up as a result of the Boeing IAM
Strike in late 2008 and nut plate rework along with the simultaneous transition to a new ERP
system, the $10.9 million impact of the Cessna Citation Columbus termination, and increased R&D
spending on new programs, partially offset by increased ship set deliveries on certain programs,
volume-based pricing adjustments for the first five months of 2009, increased development program
revenues, and lower SG&A. Fuselage Systems, Propulsion Systems, Wing Systems and All Other
represented approximately 50%, 26%, 24% and less than 1%, respectively, of our net revenues for the
nine months ended October 1, 2009.
Fuselage Systems. Fuselage Systems segment net revenues for the nine months ended October 1,
2009 were $1,497.6 million, an increase of $27.4 million, or 2%, from the same period in the prior
year. The increase in net revenues is primarily attributable to increased deliveries on the B787
and an increase in non-recurring revenues, partially offset by fewer B737 deliveries.
31
Fuselage Systems posted segment operating margins of 15% for the nine months ended October 1, 2009, down
from 17% for the same period in the prior year, as unfavorable cumulative catch-up adjustments of
$19.6 million were realized during the first nine months of 2009, primarily driven by disruption
related to the post-strike production ramp-up as a result of the Boeing IAM Strike in late 2008 and
nut plate rework along with the simultaneous transition to a new ERP system. In addition, a $10.9
million charge for the termination of the Cessna Citation Columbus program was recorded during the
first nine months of 2009.
Propulsion Systems. Propulsion Systems segment net revenues for the nine months ended October
1, 2009 were $772.1 million, a decrease of $91.0 million, or 11%, from the same period in the prior
year. The lower net revenues were primarily driven by a decrease in ship set deliveries to Boeing
and lower aftermarket sales compared to the same period in 2008. Propulsion Systems posted segment
operating margins of 13% for the nine month period ended October 1, 2009, down from 16% for the
same period in the prior year, as unfavorable cumulative catch-up adjustments of $15.7 million were
realized during the first nine months of 2009, primarily driven by disruption related to the
post-strike production ramp-up as a result of the Boeing IAM Strike in late 2008 and the
simultaneous transition to a new ERP system.
Wing Systems. Wing Systems segment net revenues for the nine months ended October 1, 2009
were $712.9 million, a decrease of $60.6 million, or 8%, from the same period in the prior year.
The lower net revenues were primarily driven by a decrease in ship set deliveries to Boeing, and
strengthening of the dollar, which resulted in a $102.0 million decrease in the value of net
revenues from Spirit Europe, as compared to the value of net revenues using exchange rates from the
first nine months of 2008, partially offset by increased ship set deliveries to Airbus. Wing
Systems posted segment operating margins of (2%) for the first nine months of 2009 compared to 12%
in same period in the prior year. The 2009 negative margins reflect a $90.5 million forward-loss
charge on the Gulfstream G250 business jet program recorded in the second quarter. In addition,
unfavorable cumulative catch-up adjustments of $2.4 million were realized during the first nine
months of 2009, compared to $1.0 million of unfavorable cumulative catch-up adjustments realized
for the same period in 2008.
All Other. All Other net revenues consist of sundry sales of miscellaneous services, tooling
contracts, and revenues from the Kansas Industrial Energy Supply Company, or KIESC. The $0.7
million decrease in net revenues in the nine months ended October 1, 2009, compared to the nine
months ended September 25, 2008, was primarily driven by a decrease in third party tooling sales.
The decrease in margins was primarily due to a $2.5 million charge recorded in the second quarter
related to tooling for the Gulfstream G250 business jet program.
Cash Flow
Nine Months Ended October 1, 2009 Compared to the Nine Months Ended September 25, 2008
Operating Activities. For the nine months ended October 1, 2009, we had a net cash outflow of
$211.3 million from operating activities, a decrease of $357.9 million, as compared to a net cash
inflow of $146.6 million for the same period in the prior year. The decrease in cash provided from
operations in the first nine months of 2009 was primarily due to lower operating results and fewer
customer advances received of $7.1 million as compared to $300.4 million of customer advances
received in the first nine months of 2008.
Investing Activities. For the nine months ended October 1, 2009, we had a net cash outflow of
$71.3 million from investing activities, a decrease of $17.5 million, or 20%, as compared to a net
cash outflow of $88.8 million for the same period in the prior year. During the first nine months
of 2009, we invested $158.0 million in property, plant and equipment, software and program tooling,
which was $17.2 million less than during the same period in the prior year. These outflows were
partially offset in the first nine months of 2009 by $86.5 million of capital reimbursements
received from Boeing compared to $87.1 million for the same period in the prior year.
Financing Activities. For the nine months ended October 1, 2009, we had a net cash inflow of
$271.1 million from financing activities, an increase of $279.4 million, as compared to a net cash
outflow of $8.3 million for the same period in the prior year. During the first nine months of
2009, we had net proceeds of $293.4 million from Spirit’s bond offering, partially offset by
principal debt payments of $5.8 million compared to $11.9 million in principal debt payments in the
same period in the prior year. We also incurred $17.2 million in debt issuance costs in the first
nine months of 2009 as compared to $6.8 million incurred in 2008.
Liquidity and Capital Resources
Liquidity, or access to cash, is an important factor in determining our financial stability.
The primary sources of our liquidity include cash flow from operations, which may include advance
payments as well as government grants, and borrowing capacity through our credit facilities and bond issuances.
32
Our liquidity requirements and working capital
needs depend on a number of factors, including delivery rates and payment terms under our
contracts, the level of research and development expenditures related to new programs, capital
expenditures, growth and contractions in the business cycle, contributions to our union-sponsored
benefit plans and interest and debt payments.
We ended the third quarter of 2009 with Cash and cash equivalents of $206.7 million, a
decrease of $9.8 million, compared to Cash and cash equivalents of $216.5 million at December 31,
2008. We maintain bank accounts with highly rated financial institutions and our cash investments
have had no direct exposure to any sub-prime asset classes.
Our ability to make scheduled payments of principal of, or to pay the interest on, or to
refinance, our indebtedness, or to fund non-acquisition related capital expenditures and research
and development efforts, will depend on our ability to generate cash in the future. This is
subject, in part, to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. Based on our current levels of operations and absent any
disruptive events, management believes that internally generated funds, advance payments and
receivables from customers, government grants and borrowings available under our revolving credit
facility should provide sufficient resources to finance our operations, non-acquisition related
capital expenditures, research and development efforts and long-term indebtedness obligations
through at least 2010. If we cannot generate sufficient cash flow, we may need to refinance all or
a portion of our indebtedness on or before maturity. Also, to the extent we may have lower than
anticipated sales or increases in expenses, we may need to raise additional capital. In particular,
increased working capital needs occur whenever we consummate acquisitions, invest in new product
development or experience increased demand for our products. We cannot assure you that we will be
able to raise additional capital on commercially reasonable terms or at all.
Our revolving credit facility is a significant source of liquidity for our business. In June
2009, Spirit entered into the second amendment to its senior secured credit facility, whereby the
revolving credit facility was increased from $650.0 million to $729.0 million. The maturity date
with respect to $408.8 million of the revolver was extended to June 30, 2012. The maturity date for
the remaining $320.2 of the revolver will continue to be June 30, 2010. Commitment fees associated
with the portion of the revolver that was extended to June 30, 2012 increased from a rate of 50
basis points on the undrawn amount to 75 basis points. Commitment fees associated with the undrawn
portion of the revolver that terminates on June 30, 2010 continue to be 50 basis points. The
applicable margin payable on revolving loans in respect of which the underlying revolving credit
commitment has been extended to June 30, 2012 (“Extending Revolving Loans”) has been increased. The
applicable margin continues to be determined in accordance with a performance grid based on total
leverage ratio and, for Extending Revolving Loans, ranges from 4.00% to 3.00% per annum in the case
of LIBOR advances and from 3.00% to 2.00% per annum in the case of alternate base rate advances.
The applicable margin payable in respect of loans that are not Extending Revolving Loans continues
to range from 2.75% to 2.25% per annum in the case of LIBOR advances and from 1.75% to 1.25% per
annum in the case of alternate base rate advances. As of October 1, 2009, Spirit had no outstanding
borrowings under the revolving credit facility. The entire asset classes of Spirit, including
inventory and property, plant and equipment, are pledged as collateral for both the term loan and
the revolving credit facility.
The amended credit agreement contains customary affirmative and negative covenants, including
restrictions on indebtedness, liens, type of business, acquisitions, investments, sales or
transfers of assets, payments of dividends, transactions with affiliates, change in control and
other matters customarily restricted in such agreements. The amended credit agreement contains a
revised Covenant Leverage Ratio and a new Interest Coverage Ratio. The Covenant Leverage Ratio (as
defined in the credit agreement) financial covenant was modified to provide that the maximum
Covenant Leverage Ratio as of the last day of any fiscal quarter through the final maturity date of
the credit agreement shall not exceed 2.5:1 through maturity. The new Interest Coverage Ratio (as
defined in the credit agreement) financial covenant was added to provide that the Interest Coverage
Ratio as of the last day of any fiscal quarter through the final maturity date of the credit
agreement shall not be less than 4:1. The Financial Covenant ratios are calculated each quarter in
accordance with the credit agreement. Failure to meet these financial covenants would be an event
of default under the senior secured credit facility. As of October 1, 2009, we were and expect to
continue to be in full compliance with all covenants contained within our credit agreement.
On September 30, 2009, Spirit issued $300.0 million of its 71/2% Senior Notes due October 1,
2017 (the “Notes”), with interest payable on April 1 and October 1 of each year, beginning April 1,
2010. Prior to October 1, 2012, Spirit may redeem up to 35% of the aggregate principal amount of
the Notes with the proceeds of certain equity offerings at a redemption price of 107.5% of the
principal amount thereof, plus accrued and unpaid interest and additional interest, if any, to the
redemption date. At any time prior to October 1 of the years indicated below, Spirit may redeem
the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the
Notes redeemed, plus a make-whole premium, plus any accrued and unpaid interest and additional
interest, if any, to the redemption date. Spirit may redeem the Notes at its option, in whole or
in part, at any time on or after October 1, 2013, upon not less than 30 nor more than 60 days’
notice at the redemption prices (expressed as percentages of the principal amount to be redeemed)
set forth below, plus any accrued and unpaid interest and additional interest, if any, to the
redemption date.
33
| |
|
|
|
|
| Year |
|
Price |
|
|
|
|
|
2013 |
|
|
103.750 |
% |
2014 |
|
|
101.875 |
% |
2015 and thereafter |
|
|
100.000 |
% |
If a change of control of Spirit occurs, each holder of the Notes shall have the right to
require that Spirit repurchase all or a portion of such holder’s Notes at a purchase price of 101%
of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any,
to the date of repurchase.
The 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 present value of
the Notes was $293.4 million as of October 1, 2009, measured by the bond offering price of 97.804%.
The Notes are Spirit’s senior unsecured obligations and rank equal in right of payment with
all of Spirit’s and the guarantors’ other existing and future senior indebtedness. The Notes are
senior in right of payment to all of Spirit’s and the guarantors’ existing and future indebtedness
that is by its terms expressly subordinated to the Notes and the guarantees. The Notes are
effectively subordinated in right of payment to all of Spirit’s and the guarantors’ secured
indebtedness to the extent of the value of the assets securing such indebtedness, including
obligations under Spirit’s senior secured credit facility, which is secured by substantially all of
the assets of Spirit and the guarantors.
The Indenture contains covenants that limit Spirit’s, the Company’s and certain of Spirit’s
subsidiaries’ ability, subject to certain exceptions and qualifications, to (i) incur additional
debt; (ii) pay dividends, redeem stock or make other distributions, (iii) repurchase equity
securities, prepay subordinated debt or make certain investments, (iv) make other restricted
payments and investments, (v) issue certain disqualified stock and preferred stock, (vi) create
liens without granting equal and ratable liens to the holders of the Notes, (vii) enter into sale
and leaseback transactions, (viii) merge, consolidate or transfer or dispose of substantially all
of their assets, (ix) enter into certain types of transactions with affiliates and (x) sell assets.
These covenants are subject to a number of qualifications and limitations. In addition, the
Indenture limits Spirit’s, the Company’s and the guarantor subsidiaries’ ability to engage in
businesses other than businesses in which such companies are engaged on the date of issuance of the
Notes and related businesses.
In addition, the Indenture provides for customary events of default which include (subject in
certain cases to customary grace and cure periods), among other things: failure to make payments on
the Notes when due, failure to comply with covenants under the Indenture, failure to pay certain
other indebtedness or acceleration of maturity of certain other indebtedness, failure to satisfy or
discharge certain final judgments and occurrence of certain bankruptcy events. If an event of
default occurs, the trustee or holders of at least 25% of the aggregate principal amount of the
then outstanding Notes may, among other things, declare the entire outstanding balance of principal
of and interest on all outstanding Notes to be immediately due and payable. If an event of default
involving certain bankruptcy events occurs, payment of principal of and interest on the Notes will
be accelerated without the necessity of notice or any other action on the part of any person.
Spirit repaid $200.0 million of borrowings under its existing senior secured revolving credit
facility using a portion of the proceeds of the offering of the Notes, which increased the
availability under the revolving credit facility to $729.0 million, reduced by $16.9 million of
outstanding letters of credit.
We may pursue strategic acquisitions on an opportunistic basis. Our acquisition strategy may
require substantial capital, and we may not be able to raise any necessary funds on acceptable
terms or at all. If we incur additional debt to finance acquisitions, our total interest expense
will increase.
We believe that the lenders participating in our credit facilities will be willing and able to
provide financing to us in accordance with their legal obligations under the credit facilities.
However, there can be no assurance that the cost or availability of future borrowings, if any, in
the debt markets or our credit facilities will not be impacted by the ongoing credit market
disruptions.
Our corporate credit ratings at Standard & Poor’s Rating Services and Moody’s Investor Service
as of October 1, 2009 were unchanged at BB and Ba3, respectively.
34
Our
U.S. pension plan remained fully funded at October 1,
2009. As a result of the plan’s asset performance during 2008 and the increased pension obligation
resulting from a lower discount rate at the December 31 measurement date, we now expect reduced
non-cash pension income in future periods. Our plan investments are broadly diversified, and
despite the recent downturn, we do not anticipate a near-term requirement to make cash
contributions to our U.S. pension plan.
The carrying amounts of certain of our financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable, approximate fair value because of their
short maturities.
Repayment of B787 Advance Payments
The original B787 Supply Agreement required Boeing to make advance payments to us for
production articles in the aggregate amount of $700.0 million. These advances were received by the
end of 2007. We must repay those advances, without interest, in the amount of a $1.4 million offset
against the purchase price of each of the first five hundred B787 ship sets delivered to Boeing. In
the event that Boeing does not take delivery of five hundred B787 ship sets, any advances not then
repaid will first be applied against any outstanding B787 payments then due by Boeing to us, with
any remaining balance repaid at the rate of $84.0 million per year beginning in the year in which
we deliver our final B787 production ship set to Boeing, prorated for the remaining portion of the
year in which we make our final delivery. Accordingly, portions of the repayment liability are
included as current and long-term liabilities in our consolidated balance sheet.
On March 26, 2008, Boeing and Spirit amended their existing B787 Supply Agreement to, among
other things, provide for revised payment terms for ship set deliveries from Spirit to Boeing. The
Amended B787 Supply Agreement required Boeing to make additional advance payments to Spirit in 2008
in the amount of $396.0 million for production articles, in addition to the $700.0 million received
through 2007. The additional advances will be applied against the full purchase price of the ship
sets delivered (net of the $1.4 million per ship set applied against the initial $700.0 million of
advances described above) until fully repaid, which is expected to occur before the delivery of the
50th ship set. In the event that Boeing does not take delivery of the number of ship
sets for which the additional advance payments have been made, any additional advances not then
repaid will first be applied against any outstanding B787 payments then due by Boeing to us, with
any remaining balance repaid beginning the year in which we deliver our final B787 production ship
set to Boeing, with the full amount to be repaid no later than the end of the subsequent year.
On June 23, 2009, Boeing and Spirit further amended their existing B787 Supply Agreement to,
among other things, require Boeing to make additional advances to Spirit. These additional advances
will be paid to Spirit quarterly in amounts determined pursuant to pricing provisions set forth in
the agreement, and will be recovered over future units. In the event that Boeing does not take
delivery of a sufficient number of ship sets to recover these additional advances by the end of
2021, Spirit would be required to repay any outstanding balance in six equal annual installments.
The first advance payment was made to Spirit in August 2009.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements.
35
Cautionary Statements regarding Forward-Looking Statements
This Quarterly Report contains “forward-looking statements.” Forward-looking statements
reflect our current expectations or forecasts of future events. Forward-looking statements
generally can be identified by the use of forward-looking terminology such as “may,” “will,”
“expect,” “anticipate,” “intend,” “estimate,” “believe,” “project,” “continue,” “plan,” “forecast,”
or other similar words. These statements reflect management’s current views with respect to future
events and are subject to risks and uncertainties, both known and unknown. 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 forward-looking
statements include, but are not limited to:
| |
• |
|
our ability to continue to grow our business and execute our growth strategy; including
the timing and execution of new programs; |
| |
| |
• |
|
our ability to perform our obligations and manage cost related to our new commercial and
business aircraft development programs; |
| |
| |
• |
|
reduction in the build rates of certain Boeing aircraft including, but not limited to,
the B737 program, the B747 program, the B767 program and the B777 program, and build rates
of the Airbus A320 and A380 programs, which could be affected by the impact of a deep
recession on business and consumer confidence and the impact of continuing turmoil in the
global financial and credit markets; |
| |
| |
• |
|
declining business jet manufacturing rates and customer cancellations or deferrals as a
result of the weakened global economy; |
| |
| |
• |
|
the success and timely execution of key milestones such as first flight and delivery of
Boeing’s new B787 and Airbus’ new A350 aircraft programs, including receipt of necessary
regulatory approvals and customer adherence to their announced schedules; |
| |
| |
• |
|
our ability to enter into supply arrangements with additional customers and the ability
of all parties to satisfy their performance requirements under existing supply contracts
with Boeing, Airbus, 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 labor disputes; |
| |
| |
• |
|
any adverse impact on the demand for air travel or our operations from the outbreak of
diseases such as the influenza outbreak caused by the H1N1 virus, avian influenza, severe
acute respiratory syndrome or other epidemic or pandemic outbreaks; |
| |
| |
• |
|
returns on pension plan assets and impact of future discount rate changes on pension
obligations; |
| |
| |
• |
|
our ability to borrow additional funds, or refinance debt; |
| |
| |
• |
|
competition from original equipment manufacturers and other aerostructures suppliers; |
| |
| |
• |
|
the effect of governmental laws, such as U.S. export control laws, the Foreign Corrupt
Practices Act, environmental laws and agency regulations, both in the U.S. and abroad; |
| |
| |
• |
|
the cost and availability of raw materials and purchased components; |
| |
| |
• |
|
our ability to successfully extend or renegotiate our primary collective bargaining
contracts with our labor unions; |
| |
| |
• |
|
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; |
36
| |
• |
|
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 revolving credit facility to higher interest payments should
interest rates increase substantially; |
| |
| |
• |
|
the outcome or impact of ongoing or future litigation and regulatory actions; and |
| |
| |
• |
|
our exposure to potential product liability claims. |
These factors are not exhaustive, and new factors may emerge or changes to the foregoing
factors may occur that could impact our business. Except to the extent required by law, we
undertake no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
37
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a result of our operating and financing activities, we are exposed to various market risks
that may affect our consolidated results of operations and financial position. These market risks
include fluctuations in commodity pricing, interest rates, and foreign currency exchange rates,
which impact the amount of interest we must pay on our variable rate debt. In addition to other
information set forth in this report, you should carefully consider the factors discussed in Item
7A, “Quantitative and Qualitative Disclosures About Market Risk”, in our Annual Report on Form 10-K
for the year ended December 31, 2008, as filed with the SEC on February 20, 2009, which could
materially affect our business, financial condition or results of operations. There have been no
material changes to our market risk since the filing of our Form 10-K for the year ended December
31, 2008.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our President and Chief Executive Officer and Vice President and Interim Chief Financial
Officer have evaluated our disclosure controls as of October 1, 2009, 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 ensure that information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time period specified in the Securities and Exchange
Commission rules and forms. These disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by us in the
reports we file or submit is accumulated and communicated to management, including the President
and Chief Executive Officer and the Vice President and Interim Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
During the third quarter of 2009, we implemented portions of our new ERP system, which
required us to make substantial modifications to our information technology systems and business
processes. This conversion affected certain general ledger functions, and resulted in the use of
new system reports and additional monitoring controls during the final transition from Boeing
legacy systems, which is expected to occur in the fourth quarter of 2009. Other than this item,
there were no other changes in our internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting during the last fiscal quarter.
38
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding any recent material developments relating to our legal proceedings since
the filing of our most recent Annual Report on Form 10-K is included in Note 19 to our unaudited
condensed consolidated financial statements included in Part I of this Quarterly Report on Form
10-Q and is incorporated herein by reference.
Item 1A. Risk Factors
In addition to other information set forth in this report, you should carefully consider the
factors discussed in Part 1, Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the
year ended December 31, 2008, as filed with the SEC on February 20, 2009, which could materially
affect our business, financial condition or results of operations. Other than the modification to
the risk factors set forth below, there have been no material changes to the Company’s risk factors
previously disclosed in our 2008 Annual Report on Form 10-K.
Interruptions in deliveries of components or raw materials or increased prices for components or
raw materials used in our products could delay production and/or materially adversely affect our
financial performance, profitability, margins and revenues.
We are highly dependent on the availability of essential materials and purchased components
from our suppliers, some of which are available only from a sole source or limited sources. Our
dependency upon regular deliveries from particular suppliers of components and raw materials means
that interruptions or stoppages in such deliveries could materially adversely affect our operations
until arrangements with alternate suppliers, to the extent alternate suppliers exist, could be
made. If any of our suppliers were unable or refused to deliver materials to us for an extended
period of time, or if we were unable to negotiate acceptable terms for the supply of materials with
these or alternative suppliers, our business could suffer.
Moreover, we are dependent upon the ability of our suppliers to provide materials and
components that meet specifications, quality standards and delivery schedules. Our suppliers’
failure to provide expected raw materials or component parts that meet our technical specifications
could adversely affect production schedules and contract profitability. We may not be able to find
acceptable alternatives, and any such alternatives could result in increased costs for us and
possible forward losses on certain contracts. Even if acceptable alternatives are found, the
process of locating and securing such alternatives might be disruptive to our business and might
lead to termination of our supply agreements with our customers.
Our continued supply of materials is subject to a number of risks including:
| |
• |
|
the destruction of our suppliers’ facilities or their distribution infrastructure; |
| |
| |
• |
|
a work stoppage or strike by our suppliers’ employees; |
| |
| |
• |
|
the failure of our suppliers to provide materials of the requisite quality or in
compliance with specifications; |
| |
| |
• |
|
the failure of essential equipment at our suppliers’ plants; |
| |
| |
• |
|
the failure of our suppliers to satisfy U.S. and international import and export control
laws for goods that we purchase from such suppliers; |
| |
| |
• |
|
the failure of suppliers to meet regulatory standards; |
| |
| |
• |
|
the failure, shortage or delays in the delivery of raw materials to our suppliers; |
| |
| |
• |
|
contractual amendments and disputes with our suppliers; and |
| |
| |
• |
|
inability of suppliers to perform as a result of the weakened global economy or
otherwise. |
39
In addition, our profitability is affected by the prices of the components and raw materials,
such as titanium, aluminum and carbon fiber, used in the manufacturing of our products. These
prices may fluctuate based on a number of factors beyond our control, including world oil prices,
changes in supply and demand, general economic conditions, labor costs, competition, import duties,
tariffs, currency exchange rates and, in some cases, government regulation. Although our supply
agreements with Boeing and requirements contracts with Airbus allow us to pass on certain unusual
increases in component and raw material costs to Boeing and Airbus in limited situations, we may
not be fully compensated for such increased costs.
We may be required to repay Boeing up to $1.1 billion of advance payments made to us by Boeing
under the B787 Supply Agreement, as amended, in the event that Boeing does not take delivery of a
sufficient number of ship sets prior to the termination of the aircraft program.
We are required to repay Boeing the $700.0 million, without interest, of advance payments made
to us by Boeing through 2007 under the original B787 Supply Agreement, in the amount of a $1.4
million offset against the purchase price of each of the first five hundred B787 ship sets
delivered to Boeing. In the event that Boeing does not take delivery of five hundred B787 ship sets
by the end of the aircraft program, any advances not then repaid will first be applied against any
outstanding B787 payments then due by Boeing to us, with any remaining balance to be repaid at the
rate of $84.0 million per year beginning in the year in which we deliver our final B787 production
ship set to Boeing, prorated for the remaining portion of the year in which we make our final
delivery.
On March 26, 2008, Boeing and Spirit amended their existing B787 Supply Agreement to, among
other things, require Boeing to make additional advance payments to Spirit in 2008 in the amount of
$396.0 million for production articles. The additional advances will be applied against the full
purchase price of the ship sets delivered (net of the $1.4 million per ship set applied against the
initial $700.0 million of advances described above) until fully repaid, which is expected to occur
before the delivery of the 50th ship set. In the event that Boeing does not take
delivery of a sufficient number of ship sets to repay the additional advances by the end of the
aircraft program, any additional advances not then repaid will first be applied against any
outstanding B787 payments then due by Boeing to us, with any remaining balance repaid beginning in
the year in which we deliver our final B787 production ship set to Boeing, with the full amount to
be repaid no later than the end of the subsequent year.
On June 23, 2009, Boeing and Spirit further amended their existing B787 Supply Agreement to,
among other things, require Boeing to make additional advances to Spirit. These additional advances
will be paid to Spirit quarterly in amounts determined pursuant to pricing provisions set forth in
the agreement, and will be recovered over future units. In the event that Boeing does not take
delivery of a sufficient number of ship sets to recover these additional advances by the end of
2021, Spirit would be required to repay any outstanding balance in six equal annual installments.
The first advance payment was made to Spirit in August 2009.
Accordingly, portions of the advance repayment liability are included as current and long-term
liabilities in our consolidated balance sheet.
We incur risk associated with new programs.
New programs with new technologies typically carry risks associated with design
responsibility, development of new production tools, hiring and training of qualified personnel,
increased capital and funding commitments, ability to meet customer specifications, delivery
schedules and unique contractual requirements, supplier performance, ability of the customer to
meet its contractual obligations to us, and our ability to accurately estimate costs associated
with such programs. In addition, any new aircraft program may not generate sufficient demand or may
experience technological problems or significant delays in the regulatory certification or
manufacturing and delivery schedule. If we were unable to perform our obligations under new
programs to the customer’s satisfaction, if we were unable to manufacture products at our estimated
costs, or if a new program in which we had made a significant investment was terminated or
experienced weak demand, delays or technological problems, our business, financial condition and
results of operations could be materially adversely affected. This risk includes the potential for
default, quality problems, or inability to meet weight requirements and could result in low margin
or forward loss contracts, and the risk of having to write-off inventory if it were deemed to be
unrecoverable over the life of the program. In addition, beginning new work on existing programs
also carries risks associated with the transfer of technology, knowledge and tooling.
In order to perform on new programs we may be required to construct or acquire new facilities
requiring additional up-front investment costs. In the case of significant program delays and/or
program cancellations, for the costs that are not recoverable, we could be required to bear the
construction and maintenance costs and incur potential impairment charges for the new facilities.
Also, we may need to expend additional resources to determine an alternate revenue-generating use
for the facilities. Likewise, significant delays in the construction or acquisition of a plant
site could impact production schedules.
40
Increases in labor costs, potential labor disputes and work stoppages at our facilities or the
facilities of our suppliers or customers could materially adversely affect our financial
performance.
Our financial performance is affected by the availability of qualified personnel and the cost
of labor. A majority of our workforce is represented by unions. If our workers were to engage in a
strike, work stoppage or other slowdown, we could experience a significant disruption of our
operations, which could cause us to be unable to deliver products to our customers on a timely
basis and could result in a breach of our supply agreements. This could result in a loss of
business and an increase in our operating expenses, which could have a material adverse effect on
our business, financial condition and results of operations. In addition, our non-unionized labor
force may become subject to labor union organizing efforts, which could cause us to incur
additional labor costs and increase the related risks that we now face.
We have agreed with Boeing to continue to operate substantial manufacturing operations in
Wichita, Kansas until at least June 16, 2015. This may prevent us from being able to offer our
products at prices that are competitive in the marketplace and could have a material adverse effect
on our ability to generate new business.
In addition, many aircraft manufacturers, airlines and aerospace suppliers have unionized work
forces. On September 6, 2008, Boeing employees represented by the International Association of
Machinists and Aerospace Workers (the “IAM”) went on strike following the expiration of their
collective bargaining agreement with Boeing. The IAM Strike, which lasted 58 days, temporarily
halted commercial aircraft production by Boeing and had a significant short-term adverse effect on
our operations. The IAM ratified a new four-year agreement with Boeing on November 2, 2008.
Additional strikes, work stoppages or slowdowns experienced by aircraft manufacturers,
airlines or aerospace suppliers could reduce our customers’ demand for additional aircraft
structures or prevent us from completing production of our aircraft structures.
Our collective bargaining agreements with three of the five unions that represent our U.S.
employees, including the IAM, which represents approximately 46% of our U.S. workforce, expire in
2010. We can not give any assurance that we will be able to negotiate new collective bargaining
agreements with our unions, on commercially reasonable terms or at all. If we are unable to
successfully negotiate new collective bargaining agreements, or if we enter into new collective
bargaining agreements on terms which are less favorable to us than our existing agreements, our
operating expenses could increase which could have a material adverse effect on our business,
financial condition and results of operations.
We are subject to environmental, health and safety regulations and our ongoing operations may
expose us to related liabilities.
Our operations are subject to extensive regulation under environmental, health and safety laws
and regulations in the United States and the United Kingdom. We may be subject to potentially
significant fines or penalties, including criminal sanctions, if we fail to comply with these
requirements. We have made, and will continue to make, significant capital and other expenditures
to comply with these laws and regulations. We cannot predict with certainty what environmental
legislation will be enacted in the future or how existing laws will be administered or interpreted.
Our operations involve the use of large amounts of hazardous substances and regulated materials and
generate many types of wastes, including emissions of hexavalent chromium and volatile organic
compounds, or so-called greenhouse gases such as carbon dioxide. Spills and releases of these
materials may subject us to clean-up liability for remediation and claims of alleged personal
injury, property damage and damage to natural resources, and we may become obligated to reduce our
emissions of hexavalent chromium and volatile organic compounds. We cannot give any assurance that
the aggregate amount of future remediation costs and other environmental liabilities will not be
material.
Boeing, our predecessor at the Wichita facility, is under an administrative consent order
issued by the Kansas Department of Health and Environment to contain and remediate contaminated
groundwater which underlies a majority of the site. Pursuant to this order and its agreements with
us, Boeing has a long-term remediation plan in place, and treatment, containment and remediation
efforts are underway. If Boeing does not comply with its obligations under the order and these
agreements, we may be required to undertake such efforts and make material expenditures.
In connection with our acquisition (“BAE Acquisition”) of the aerostructures division (“BAE
Aerostructures”) of BAE Systems (Operations) Limited (“BAE Systems”), we acquired a manufacturing
facility in Prestwick, Scotland that is adjacent to contaminated property retained by BAE Systems.
The contaminated property may be subject to a regulatory action requiring remediation of the land.
It is also possible that the contamination may spread into the property we acquired.
41
BAE Systems
has agreed to indemnify us, subject to certain contractual limitations and conditions, for certain
clean up costs and other losses, liabilities, expenses and claims related to existing pollution on
the acquired property, existing pollution that migrates from the acquired property to a third
party’s property and any pollution that migrates to our property from property retained by BAE Systems. If
BAE Systems does not comply with its obligations under the agreement, we may be required to
undertake such efforts and make material expenditures.
In the future, contamination may be discovered at or emanating from our facilities or at
off-site locations where we send waste. The remediation of such newly discovered contamination,
related claims for personal injury or damages, or the enactment of new laws or a stricter
interpretation of existing laws, may require us to make additional expenditures, some of which
could be material.
Because we depend on Boeing and, to a lesser extent, Airbus, as our largest customers, our
sales, cash flows from operations and results of operations will be negatively affected if either
Boeing or Airbus reduces the number of products it purchases from us or if either experiences
business difficulties.
Currently, Boeing is our largest customer and Airbus is our second-largest customer. For the
twelve months ended December 31, 2008, approximately 85% and 11% of our 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. In addition, we have agreed to a limitation on recoverable
damages in the event Boeing wrongfully terminates our main supply agreement with it with respect to
any model of airplane program, so if this occurs, we may not be able to recover the full amount of
our actual damages. Furthermore, if Boeing or Airbus (1) experiences a decrease in requirements for
the products which we supply to it; (2) experiences a major disruption in its business, such as a
strike, work stoppage or slowdown, a supply-chain problem or a decrease in orders from its
customers; or (3) files for bankruptcy protection; our business, financial condition and results of
operations could be materially adversely affected.
Our business depends, in part, on the success of a new model aircraft, the B787.
The success of our business will depend, in part, on the success of Boeing’s new B787 program.
We have entered into supply agreements with Boeing pursuant to which we are a Tier 1 supplier to
the B787 program. We have made and will continue to make a significant investment in this program
before the first commercial delivery of a B787 jetliner. On August 27, 2009, Boeing announced an
additional delay of the first flight of the B787 to the end of 2009, pushing the first B787
customer delivery out to the fourth quarter of 2010. Amounts capitalized into inventory represent
our primary working capital exposure to the B787 delays. Given the low margins we currently project
in our first contract accounting block, in the event Boeing is unable to meet currently anticipated
production levels or if we are not able to achieve the cost reductions we expect, successfully
implement customer driven engineering changes, or successfully complete contract negotiations,
including assertions, we could eventually need to recognize a forward loss in our current contract
accounting block. Any additional delays in the B787 program, including delays in negotiations of
certain contractual matters with Boeing, could further impact our cash flows from operations and
could materially adversely affect our business, financial condition and results of operations.
Because of our limited operating history, our historical financial statements do not reflect
the impact of a market downturn on our financial condition and results of operations.
Our historical financial statements are not indicative of how we would operate through a
market downturn. Since the Boeing Acquisition and until the latter part of 2008, we had operated in
a market experiencing an upturn; however since the latter part of 2008, we have been operating
during a period of a deep economic recession. In 2005, Boeing and Airbus experienced record
aggregate annual airplane orders, followed in 2006 with aggregate annual order totals that, at the
time, were the second highest ever. Aggregate annual orders, net of cancellations, remained strong
in 2007 at 2,754. However, aggregate annual orders, net of cancellations, for 2008 decreased to
1,439 and orders, net of cancellations, for the first half of 2009 were 69. Our financial results
from this limited history provide little indication of our ability to operate in a market
experiencing significantly lower demand for our products and the products of our customers. As
such, we cannot give any assurance that we will be able to successfully operate in such a market at
historical profitability levels.
42
We are subject to the requirements of the National Industrial Security Program Operating
Manual (“NISPOM”) for our facility security clearance (“FCL”), which is a prerequisite for our
ability to perform on classified contracts for the U.S. Government.
A Department of Defense (“DoD”) FCL is required for a company to be awarded and perform on
classified contracts for the DoD and certain other agencies of the U.S. Government. From time to
time we have performed and may perform on classified contracts. For the year ended December 31,
2008 we generated less than 1% of our revenues from such classified contracts. We have obtained an
FCL at the “Secret” level. Due to the fact that more than 50% of our voting power is effectively
controlled by a non-U.S. entity (Onex), we are required to operate in accordance with the terms and
requirements of our Special Security Agreement (“SSA”) with the DoD. If we were to violate the
terms and requirements of our SSA, the NISPOM, or any other applicable U.S. Government industrial
security regulations, we could lose our FCL. We cannot give any assurance that we will be able to
maintain our FCL. If for some reason our FCL is invalidated or terminated, we may not be able to
continue to perform our classified contracts in effect at that time, and we would not be able to
enter into new classified contracts, which could adversely affect our revenues.
We are implementing a new Enterprise Resource Planning (“ERP”) software system, which could
increase our information technology expenditures and cause unexpected production delays.
We have recently implemented an ERP software system at our Wichita, Kansas facility and have
begun implementation of such software system in the Tulsa, Oklahoma and the Kinston, North Carolina
facilities. Our total expenditures for this system could exceed the planned budget. In addition,
unexpected problems with the implementation could result in production or other delays.
43
Item 6. Exhibits
| |
|
|
| Exhibit Number |
|
Description of Exhibit |
4.1
|
|
Indenture dated as of September 30, 2009, governing the 71/2% Senior
Notes due 2017, by and among Spirit, the guarantors identified therein and The Bank of New York
Mellon Trust Company, N.A. (1) |
|
|
|
4.2
|
|
Form of 71/2% Senior Note due 2017 (included as Exhibit A to Exhibit 4.1). |
|
|
|
4.3
|
|
Registration Rights Agreement, dated as of September 30, 2009, among Spirit, the guarantors
identified therein, Banc of America Securities LLC and the other initial purchasers of the
Notes named therein. (2) |
|
|
|
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. |
|
|
|
| * |
|
Filed herewith |
| |
| (1) |
|
Incorporated by reference to the Current Report on Form 8-K (File No. 001-33160), filed
with the SEC on October 1, 2009, Exhibit 4.1. |
| |
| (2) |
|
Incorporated by reference to the Current Report on Form 8-K (File No. 001-33160), filed
with the SEC on October 1, 2009, Exhibit 4.3. |
44
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.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
/s/ Philip D. Anderson
|
|
Vice President and Interim Chief Financial Officer
|
|
November 6, 2009 |
| Philip D. Anderson
|
|
(Principal Financial Officer) |
|
|
| |
|
|
|
|
/s/ Daniel R. Davis
|
|
Vice President and Corporate Controller
|
|
November 6, 2009 |
| Daniel R. Davis
|
|
(Principal Accounting Officer) |
|
|
45