UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-Q

(Mark One)

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

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

Commission File Number 001-33160

Spirit AeroSystems Holdings, Inc.

Delaware		20-2436320
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

3801 South Oliver
Wichita, Kansas 67210
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
(316) 526-9000

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     As of November 1, 2011, the registrant had outstanding 118,499,989 shares of class A common stock, $0.01 par value per share, and 24,335,792 shares of class B common stock, $0.01 par value per share.

 

 

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			39
Item 3. Quantitative and Qualitative Disclosures About Market Risk			55
Item 4. Controls and Procedures			55
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			55
Item 1A. Risk Factors			55
Item 5. Other Information			55
Item 6. Exhibits			56
Signatures			57
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Statements of Operations
(unaudited)

		For the Three								For the Nine
		Months Ended								Months Ended
		September 29,				September 30,				September 29,				September 30,
		2011				2010				2011				2010
		($ in millions, except per share data)
Net revenues		$	1,129.7			$	1,002.0			$	3,644.9			$	3,101.3
Operating costs and expenses
Cost of sales			963.0				868.5				3,245.6				2,689.2
Selling, general and administrative			38.4				38.5				118.5				115.9
Research and development			7.8				12.6				27.1				35.1
Total operating costs and expenses			1,009.2				919.6				3,391.2				2,840.2
Operating income			120.5				82.4				253.7				261.1
Interest expense and financing fee amortization			(19.0	)			(12.8	)			(61.6	)			(40.6	)
Interest income			—				—				0.2				0.2
Other income (expense), net			(1.6	)			2.5				—				(0.3	)
Income before income taxes and equity in net loss of affiliates			99.9				72.1				192.3				220.4
Income tax provision			(32.4	)			(25.4	)			(59.6	)			(62.8	)
Income before equity in net loss of affiliates			67.5				46.7				132.7				157.6
Equity in net loss of affiliates			(0.2	)			(0.3	)			(0.7	)			(0.6	)
Net income		$	67.3			$	46.4			$	132.0			$	157.0
Earnings per share
Basic		$	0.48			$	0.33			$	0.93			$	1.13
Diluted		$	0.47			$	0.33			$	0.93			$	1.11

See notes to condensed consolidated financial statements (unaudited)

Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Balance Sheets
(unaudited)

		September 29,				December 31,
		2011				2010
		($ in millions)
Current assets
Cash and cash equivalents		$	138.3			$	481.6
Accounts receivable, net			333.2				200.2
Inventory, net			2,571.9				2,507.9
Deferred tax asset-current			64.6				47.6
Other current assets			33.9				57.4
Total current assets			3,141.9				3,294.7
Property, plant and equipment, net			1,542.4				1,470.0
Pension assets			191.5				172.4
Deferred tax asset non-current, net			18.4				55.0
Other assets			97.6				109.9
Total assets		$	4,991.8			$	5,102.0
Current liabilities
Accounts payable		$	521.7			$	443.5
Accrued expenses			202.8				190.7
Profit sharing			33.2				28.9
Current portion of long-term debt			14.7				9.5
Advance payments, short-term			7.8				169.4
Deferred revenue, short-term			30.9				302.6
Deferred grant income liability — current			5.9				5.1
Other current liabilities			6.5				14.4
Total current liabilities			823.5				1,164.1
Long-term debt			1,189.6				1,187.3
Advance payments, long-term			658.1				655.2
Pension/OPEB obligation			77.6				72.5
Deferred grant income liability — non-current			123.8				128.4
Deferred revenue and other deferred credits			33.8				29.0
Other liabilities			130.0				54.6
Equity
Preferred stock, par value $0.01, 10,000,000 shares authorized, no shares issued			—				—
Common stock, Class A par value $0.01, 200,000,000 shares authorized, 118,507,150 and 107,201,314 shares issued, respectively			1.2				1.1
Common stock, Class B par value $0.01, 150,000,000 shares authorized, 24,371,445 and 34,897,388 shares issued, respectively			0.2				0.3
Additional paid-in capital			993.3				983.6
Accumulated other comprehensive loss			(72.5	)			(75.3	)
Retained earnings			1,032.7				900.7
Total shareholders’ equity			1,954.9				1,810.4
Noncontrolling interest			0.5				0.5
Total equity			1,955.4				1,810.9
Total liabilities and equity		$	4,991.8			$	5,102.0

See notes to condensed consolidated financial statements (unaudited)

Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Statements of Cash Flows
(unaudited)

		For the Nine				For the Nine
		Months Ended				Months Ended
		September 29, 2011				September 30, 2010
		($ in millions)
Operating activities
Net income		$	132.0			$	157.0
Adjustments to reconcile net income to net cash (used in) operating activities
Depreciation expense			97.0				84.5
Amortization expense			3.6				3.5
Amortization of deferred financing fees			7.0				5.7
Employee stock compensation expense			8.6				23.5
Excess tax benefit of share-based payment arrangements			(1.2	)			(4.9	)
Loss from foreign currency transactions			1.2				4.4
Loss on disposition of assets			0.8				—
Deferred taxes			16.0				6.1
Long-term tax (benefit) provision			8.9				(17.6	)
Pension and other post retirement benefits, net			(7.4	)			(6.3	)
Grant income			(4.0	)			(1.9	)
Equity in net loss of affiliates			0.7				0.6
Changes in assets and liabilities
Accounts receivable			(127.9	)			(130.5	)
Inventory, net			(61.1	)			(268.1	)
Accounts payable and accrued liabilities			89.5				(5.7	)
Profit sharing/deferred compensation			4.2				18.4
Advance payments			(158.7	)			(116.6	)
Income taxes receivable/payable			29.2				52.5
Deferred revenue and other deferred credits			(265.1	)			(38.0	)
Other			50.9				(5.6	)
Net cash (used in) operating activities			(175.8	)			(239.0	)
Investing Activities
Purchase of property, plant and equipment			(164.2	)			(183.0	)
Proceeds from sale of assets			0.4				0.3
Other			—				(0.8	)
Net cash (used in) investing activities			(163.8	)			(183.5	)
Financing Activities
Proceeds from revolving credit facility			—				125.0
Principal payments of debt			(5.3	)			(8.0	)
Excess tax benefit of share-based payment arrangements			1.2				4.9
Debt issuance and financing costs			—				(0.2	)
Net cash provided by (used in) financing activities			(4.1	)			121.7
Effect of exchange rate changes on cash and cash equivalents			0.4				(1.9	)
Net (decrease) in cash and cash equivalents for the period			(343.3	)			(302.7	)
Cash and cash equivalents, beginning of period			481.6				369.0
Cash and cash equivalents, end of period		$	138.3			$	66.3
Supplemental information
Property acquired through capital leases		$	—			$	10.6
Purchases of property, plant and equipment, accrued		$	(13.1	)		$	—
Financing obligations		$	12.5			$	—

See notes to condensed consolidated financial statements (unaudited)

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

1. Organization and Basis of Interim Presentation

     Spirit AeroSystems Holdings, Inc. (“Holdings” or the “Company”) was incorporated in the state of Delaware on February 7, 2005, and commenced operations on June 17, 2005 through the acquisition of The Boeing Company’s (“Boeing”) operations in Wichita, Kansas, Tulsa, Oklahoma and McAlester, Oklahoma (the “Boeing Acquisition”). Holdings provides manufacturing and design expertise in a wide range of products and services for aircraft original equipment manufacturers and operators through its subsidiary, Spirit AeroSystems, Inc. (“Spirit”). Onex Corporation (“Onex”) of Toronto, Canada maintains majority voting power of Holdings. In April 2006, Holdings acquired the aerostructures division of BAE Systems (Operations) Limited (“BAE Aerostructures”), which builds structural components for Airbus, a division of the European Aeronautic Defense and Space NV (“Airbus”) and Boeing. Prior to this acquisition, Holdings sold essentially all of its production to Boeing. Since Spirit’s incorporation, the Company has expanded its customer base to include Sikorsky, Rolls-Royce, Gulfstream, Bombardier, Mitsubishi Aircraft Corporation, Southwest Airlines, and Continental Airlines. The Company has its headquarters in Wichita, Kansas, with manufacturing facilities in Tulsa and McAlester, Oklahoma; Prestwick, Scotland; Wichita, Kansas; Kinston, North Carolina; and Subang, Malaysia. The Company also recently constructed an assembly plant for the A350 XWB aircraft in Saint-Nazaire, France, which became operational during the quarter.

     The Company is the majority participant in the Kansas Industrial Energy Supply Company (“KIESC”), a tenancy-in-common with other Wichita companies established to purchase natural gas.

     The Company participates in two joint ventures, Spirit-Progresstech LLC (“Spirit-Progresstech”) and Taikoo Spirit AeroSystems Composite Co. Ltd. (“TSACCL”), of which Spirit’s ownership interest is 50.0% and 31.5%, respectively. Spirit-Progresstech provides aerospace engineering support services and TSACCL was formed to develop and implement a state-of-the-art composite and metal bond component repair station in the Asia-Pacific region.

     The accompanying unaudited interim condensed consolidated financial statements include the Company’s financial statements and the financial statements of its majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the instructions to Form 10-Q and Article 10 of Regulation S-X. Investments in business entities in which the Company does not have control, but has the ability to exercise influence over operating and financial policies, including Spirit-Progresstech and TSACCL, are accounted for under the equity method. KIESC is fully consolidated as the Company owns 77.8% of the entity’s equity. All intercompany balances and transactions have been eliminated in consolidation. The Company’s U.K. subsidiary uses local currency, the British pound, as its functional currency; the Malaysian subsidiary uses the British pound and our Singapore subsidiary uses the Singapore dollar. All other foreign subsidiaries and branches use the U.S. dollar as their functional currency.

     As part of the monthly consolidation process, our international entities that have functional currencies other than the U.S. dollar are translated to U.S. dollars using the end-of-month translation rate for balance sheet accounts and average period currency translation rates for revenue and income accounts.

     In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations for the interim periods. The results of operations for the nine months ended September 29, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Certain reclassifications have been made to the prior year financial statements and notes to conform to the 2011 presentation. In connection with the preparation of the condensed consolidated financial statements, the Company evaluated subsequent events through the date the financial statements were issued. On May 12, 2011, Spirit and Boeing formally amended the B787 Supply Agreement finalizing substantially all of the provisions of the memorandum of agreement (“MOA”) entered into in December 2010 (the “B787 Amendment”). Our financial results for the nine months ended September 29, 2011 incorporate the provisions of the B787 Amendment. The interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in our 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2011 (the “2010 Form 10-K”).

2. New Accounting Pronouncements

     As of September 29, 2011, except as noted below, there have been no material changes in our significant accounting policies, as compared to the significant accounting policies described in our 2010 Form 10-K.

     In September 2011, the FASB issued Accounting Standards Update 2011-08, Intangibles – Goodwill and Other – (Topic 350) Testing Goodwill for Impairment (FASB ASU 2011-08). The amendments in this Update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of the provisions of FASB ASU 2011-08 is not expected to have a material impact on the Company’s consolidated financial statements.

     In September 2011, the FASB issued Accounting Standards Update 2011-09, Compensation – Retirement Benefits – Multiemployer Plans (Subtopic 715-80) Disclosures about an Employer’s Participation in a Multiemployer Plan (FASB ASU 2011-09). The amendments in this update require additional disclosures about an employer’s participation in a multiemployer plan. For public entities, the amendments in this Update are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented. The adoption of the provisions of FASB ASU 2011-08 is not expected to have a material impact on the Company’s consolidated financial statements.

     In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income (“FASB ASU 2011-05”), which gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.

     In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of FASB ASU 2011-05 are effective for interim periods and fiscal years beginning after December 15, 2011. The adoption of the provisions of FASB ASU 2011-05 is not expected to have a material impact on the Company’s consolidated financial statements.

     In April 2010, the FASB issued Accounting Standards Update 2010-17, Revenue Recognition - Milestone Method (Topic 605) (“FASB ASU 2010-17”), which provides guidance on applying the milestone method of revenue recognition in arrangements with research and development activities. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years and interim periods within those years, beginning on or after June 15, 2010 and thus was effective for the Company’s fiscal quarter ended March 31, 2011. Adoption of the provisions of FASB ASU 2010-17 did not have a material impact on the Company’s consolidated financial statements.

3. Accounts Receivable

     Accounts receivable, net consists of the following:

		September 29,				December 31,
		2011				2010
Trade receivables		$	322.6			$	191.5
Other			10.9				8.7
Less: allowance for doubtful accounts			(0.3	)			—
Accounts receivable, net		$	333.2			$	200.2

     Unbilled receivables of $18.0 and $11.3 are included in trade receivables at September 29, 2011 and December 31, 2010, respectively.

4. Inventory

     Inventories are summarized as follows:

		September 29,				December 31,
		2011				2010
Raw materials		$	228.1			$	234.0
Work-in-process			1,803.3				1,748.5
Finished goods			37.7				40.9
Product inventory			2,069.1				2,023.4
Capitalized pre-production			502.8				484.5
Total inventory, net		$	2,571.9			$	2,507.9

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

     Inventories are summarized by platform as follows:

		September 29,				December 31,
		2011				2010
B737		$	280.9			$	261.1
B747			180.9				167.7
B767			32.4				19.6
B777			134.7				115.9
B787(1)			975.1				1,115.1
Airbus — All platforms			245.2				134.4
Gulfstream(2)			572.2				492.0
Rolls-Royce			93.1				73.1
Aftermarket			41.6				36.4
Other in-process inventory related to long-term contracts and other programs(3)(4)			15.8				92.6
Total inventory, net		$	2,571.9			$	2,507.9

     Non-recurring production costs include design and engineering costs and test articles.

     Non-recurring production costs included in inventory are summarized as follows:

		September 29,				December 31,
		2011				2010
B737		$	20.9			$	7.4
B747(1)			14.8				24.6
B767			3.9				—
B777			0.9				0.4
B787			14.7				—
Airbus — All platforms			43.4				9.8
Rolls-Royce			59.6				57.3
Sikorsky(2)			17.0				27.3
Other			2.5				3.4
Total non-recurring production costs in inventory, net		$	177.7			$	130.2

     Capitalized pre-production costs include certain contract costs, including applicable overhead, incurred before a product is manufactured on a recurring basis. Significant unfunded statement of work changes can also cause pre-production costs to be incurred. These costs are typically recovered over a certain number of ship set deliveries and the Company believes these amounts will be fully recovered.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

     The following is a roll forward of the capitalized pre-production costs, net of forward-loss, included in the inventory balance at September 29, 2011:

Balance, December 31, 2010		$	484.5
Charges to costs and expenses			(50.7	)
Capitalized costs			69.0
Balance, September 29, 2011		$	502.8

     Capitalized pre-production costs, net of forward-loss, included in inventory are summarized as follows:

		September 29,				December 31,
		2011				2010
B747		$	10.5			$	—
B777			2.0				—
B787			213.8				221.8
Gulfstream			244.0				262.7
A350			32.5				—
Total capitalized pre-production		$	502.8			$	484.5

     Work-in-process inventory includes deferred production costs for the excess of production costs over the estimated average cost per ship set, and credit balances for favorable variances on contracts between actual costs incurred and the estimated average cost per ship set for units delivered under the current production blocks. Recovery of excess over average deferred production costs is dependent on the number of ship sets ultimately sold and the ultimate selling prices and lower production costs associated with future production under these contract blocks. The Company believes these amounts will be fully recovered.

     Sales significantly under estimates or costs significantly over estimates could result in the realization of losses on these contracts in future periods.

     The following is a roll forward of the deferred production included in the inventory balances at September 29, 2011:

Balance, December 31, 2010		$	760.0
Charges to costs and expenses			(468.8	)
Capitalized costs			406.9
Exchange rate			(0.3	)
Balance, September 29, 2011		$	697.8

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

     Deferred production costs and credit balances included in inventory are summarized as follows:

		September 29,				December 31,
		2011				2010
B787 (1)		$	505.6			$	639.3
Other contracts			209.0				145.1
Credit balances on other contracts			(16.8	)			(24.4	)
Total deferred production		$	697.8			$	760.0

5. Property, Plant and Equipment

     Property, plant and equipment, net consists of the following:

		September 29,				December 31,
		2011				2010
Land		$	17.2			$	17.1
Buildings (including improvements)			425.8				419.7
Machinery and equipment			807.6				751.4
Tooling			640.3				543.5
Capitalized software			115.6				103.9
Construction-in-progress			173.8				174.3
Total			2,180.3				2,009.9
Less: accumulated depreciation			(637.9	)			(539.9	)
Property, plant and equipment, net		$	1,542.4			$	1,470.0

     Interest costs associated with construction-in-progress are capitalized until the assets are completed and ready for use. Capitalized interest was $1.7 and $2.7 for the three months ended September 29, 2011 and September 30, 2010, respectively, and $4.7 and $8.2 for the nine months ended September 29, 2011 and September 30, 2010, respectively. Repair and maintenance costs are expensed as incurred. The Company recognized $26.1 and $21.0 of repair and maintenance expense for the three months ended September 29, 2011 and September 30, 2010, respectively, and $77.1 and $66.1 for the nine months ended September 29, 2011 and September 30, 2010, respectively.

     We capitalize certain costs, such as software coding, installation and testing, that are incurred to purchase or to create and implement internal use computer software in accordance with FASB authoritative guidance pertaining to capitalization of costs for internal-use software. Depreciation expense related to capitalized software was $4.8 and $4.2 for the three months ended September 29, 2011 and September 30, 2010, respectively, and $14.0 and $12.1 for the nine months ended September 29, 2011 and September 30, 2010, respectively.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

6. Other Assets

     Other assets are summarized as follows:

		September 29,				December 31,
		2011				2010
Intangible assets
Patents		$	2.0			$	2.0
Favorable leasehold interests			9.7				9.7
Customer relationships			27.0				26.8
Total intangible assets			38.7				38.5
Less: Accumulated amortization-patents			(1.0	)			(0.9	)
Accumulated amortization-favorable leasehold interest			(4.0	)			(3.6	)
Accumulated amortization-customer relationships			(18.6	)			(15.9	)
Intangible assets, net			15.1				18.1
Deferred financing costs			64.4				64.4
Less: Accumulated amortization-deferred financing costs			(36.4	)			(29.4	)
Deferred financing costs, net			28.0				35.0
Fair value of derivative instruments			0.5				1.2
Goodwill — Europe			2.9				2.9
Equity in net assets of affiliates			4.3				4.3
Customer supply agreement (1)			41.2				39.6
Other			5.6				8.8
Total		$	97.6			$	109.9

     In 2010, the Company incurred $6.3 of additional deferred financing costs in connection with the issuance and registration of $300.0 of its 6³/₄% Senior Notes due December 15, 2020 and registration of $300.0 of its 7¹/₂% Senior Notes due October 1, 2017.

     The Company recognized $1.1 and $1.0 of amortization expense of intangibles for the three months ended September 29, 2011 and September 30, 2010, respectively, and $3.2 and $3.0 for the nine months ended September 29, 2011 and September 30, 2010, respectively.

     The following is a roll forward of the carrying amount of goodwill at September 29, 2011:

Balance, December 31, 2010		$	2.9
Goodwill acquired			—
Exchange rate			—
Balance, September 29, 2011		$	2.9

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

7. Advance Payments and Deferred Revenue/Credits

     Advance payments. Advance payments are those payments made to Spirit by third parties in contemplation of the future performance of services, receipt of goods, incurrence of expenditures, or for other assets to be provided by Spirit on a contract and are repayable if such obligation is not satisfied. The amount of advance payments to be recovered against units expected to be delivered within a year is classified as a short-term liability, with the balance of the unliquidated advance payments classified as a long-term liability.

     Deferred revenue/credits. Deferred revenue/credits generally consists of nonrefundable amounts received in advance of revenue being earned for specific contractual deliverables. These payments are classified as deferred revenue/credits when received and recognized as revenue as the production units are delivered. In the fourth quarter of 2010, as part of a memorandum of agreement with Boeing related to the B787 contract, a payment was recorded as current deferred revenue/credits. This amendment was finalized and the related revenue recognized in the second quarter of 2011.

     Advance payments and deferred revenue/credits are summarized by platform as follows:

		September 29,				December 31,
		2011				2010
B737		$	24.2			$	32.5
B747			0.2				0.7
B787			629.5				1,023.3
Airbus — All platforms			32.0				54.9
Gulfstream			36.4				37.5
Other			8.3				7.3
Total advance payments and deferred revenue/credits		$	730.6			$	1,156.2

8. Government Grants

     We received grants in the form of government funding for a portion of the site construction and other specific capital asset cost at our Kinston, North Carolina and Subang, Malaysia sites. Deferred grant income is being amortized as a reduction to production cost. This amortization is based on specific terms associated with the different grants. In North Carolina, the deferred grant income related to the capital investment criteria, which represents half of the grant, is being amortized over the lives of the assets purchased to satisfy the capital investment performance criteria. The other half of the deferred grant income is being amortized over a ten-year period in a manner consistent with the job performance criteria. In Malaysia, the deferred grant income is being amortized based on the lives of the eligible assets constructed with the grant funds as there are no performance criteria. As of September 29, 2011, the value recorded within property, plant and equipment related to the use of grant funds in North Carolina and Malaysia was $142.3, prior to amortization, including foreign exchange rate changes. For the nine months ended September 30, 2010, $8.9 recorded in property, plant and equipment represented transactions where funds have been paid directly to contractors by an agency of the Malaysian Government in the case of Malaysia, and by the escrow agent in North Carolina, so they are not reflected on our Condensed Consolidated Statements of Cash Flows. There were no such payments for the nine months ended September 29, 2011.

     Deferred grant income liability, net consists of the following:

		September 29, 2011
Balance, December 31, 2010		$	133.5
Grant income recognized			(4.0	)
Exchange rate			0.2
Balance, September 29, 2011		$	129.7

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

     The asset related to the deferred grant income, net consists of the following:

		September 29, 2011
Balance, December 31, 2010		$	133.4
Depreciation offset to amortization of grant			(3.8	)
Exchange rate			0.2
Balance, September 29, 2011		$	129.8

9. Fair Value Measurements

     FASB’s authoritative guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance discloses three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market.

Level 2

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Observable inputs, such as current and forward interest rates and foreign exchange rates, are used in determining the fair value of our interest rate swaps and foreign currency hedge contracts.

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.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

		Fair Value Measurements
		September 29, 2011												At September 29, 2011 using
														Quoted Prices in				Significant
														Active Markets				Other				Significant
		Total Carrying				Assets				Liabilities				for Identical				Observable				Unobservable
		Amount in				Measured at				Measured at Fair				Assets				Inputs				Inputs
Description		Balance Sheet				Fair Value				Value				(Level 1)				(Level 2)				(Level 3)
Money Market Fund		$	70.3			$	70.3			$	—			$	70.3			$	—			$	—
Government and Corporate Debt Securities		$	3.5			$	3.5			$	—			$	3.5			$	—			$	—
Interest Rate Swaps		$	(5.6	)		$	—			$	(5.6	)		$	—			$	(5.6	)		$	—
Foreign Currency Hedge Contracts		$	(0.6	)		$	1.1			$	(1.7	)		$	—			$	(0.6	)		$	—

		Fair Value Measurements
		December 31, 2010												At December 31, 2010 using
														Quoted Prices in				Significant
														Active Markets				Other				Significant
		Total Carrying				Assets				Liabilities				for Identical				Observable				Unobservable
		Amount in				Measured at				Measured at Fair				Assets				Inputs				Inputs
Description		Balance Sheet				Fair Value				Value				(Level 1)				(Level 2)				(Level 3)
Money Market Fund		$	372.1			$	372.1			$	—			$	372.1			$	—			$	—
Government and Corporate Debt Securities		$	3.5			$	3.5			$	—			$	3.5			$	—			$	—
Interest Rate Swaps		$	(9.3	)		$	—			$	(9.3	)		$	—			$	(9.3	)		$	—
Foreign Currency Hedge Contracts		$	(1.6	)		$	2.0			$	(3.6	)		$	—			$	(1.6	)		$	—

     The fair value of the interest rate swaps and foreign currency hedge contracts are determined by using mark-to-market reports generated for each derivative and evaluated for counterparty risk. In the case of the interest rate swaps, the Company evaluated its counterparty risk using credit default swaps, historical default rates and credit spreads.

     The Company’s long-term debt consists of senior secured term loan, senior unsecured notes, and the Malaysia term loan. 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:

		September 29, 2011								December 31, 2010
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
Senior secured term loan (including current portion)		$	563.3			$	556.3			$	566.2			$	568.3
Senior unsecured notes due 2017			294.7				312.0				294.2				315.0
Senior unsecured notes due 2020			300.0				302.0				300.0				300.4
Malaysian loan			17.2				15.1				18.2				17.9
Total		$	1,175.2			$	1,185.4			$	1,178.6			$	1,201.6

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

10. Derivative and Hedging Activities

     The Company enters into interest rate swap agreements to reduce its exposure to the variable rate portion of its long-term debt. The Company also enters into foreign currency hedge contracts to reduce the risks associated with the changes in foreign exchange rates on sales and cost of sales denominated in currencies other than the entities’ functional currency. Any gains or losses on the hedges are included in earnings when the underlying transaction that was hedged occurs. The Company does not use these contracts for speculative or trading purposes. On the inception date, the Company designates a derivative contract as either a fair value or cash flow hedge in accordance with FASB guidance on accounting for derivatives and hedges and links the contract to either a specific asset or liability on the balance sheet, or to forecasted commitments or transactions. The Company formally documents the hedging relationship between the hedging instrument and the hedged item, as well as its risk-management objective and strategy for undertaking the hedge, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge’s inception and on a quarterly basis, whether the derivative item is effective in offsetting changes in fair value or cash flows.

     Changes in the fair value of derivative instruments considered to be effective hedges are reported in accumulated other comprehensive income, net of tax. In the case of interest rate swaps, amounts are subsequently reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings. If the actual interest rate on the fixed rate portion of debt is less than LIBOR, the monies received are recorded as an offset to interest expense. Conversely, if the actual interest rate on the fixed rate portion of debt is greater than LIBOR, then the Company pays the difference, which is recorded to interest expense. Reclassifications of the amounts related to the foreign currency hedge contracts are recorded to earnings in the same period in which the underlying transaction occurs. Any change in the fair value resulting from ineffectiveness is immediately recognized in earnings.

     The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has applied these valuation techniques as of September 29, 2011 and believes it has obtained the most accurate information available for the types of derivative contracts it holds. The Company attempts to manage exposure to counterparty credit risk by only entering into agreements with major financial institutions which are expected to be able to fully perform under the terms of the agreement.

     The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item; the derivative expires or is sold, terminated or exercised; the derivative is no longer designated as a hedging instrument because it is unlikely that a forecasted transaction will occur; or management determines that the designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued, the Company continues to carry the derivative instrument on the balance sheet at its fair value with subsequent changes in fair value included in earnings, and gains and losses that were accumulated in other comprehensive income are recognized immediately in earnings to the extent the forecasted transaction is not expected to occur, or when the underlying transaction settles.

     To the extent that derivative instruments do not qualify for hedge accounting treatment, the changes in fair market value of the instruments are reported in the results of operations for the current period.

     The Company enters into master netting arrangements for its derivatives to mitigate the credit risk of financial instruments.

     The Company’s hedge agreements do not include provisions requiring collateral. The Company has certain derivative instruments covered by master netting arrangements whereby, in the event of a default as defined by the senior secured credit facility or termination event, the non-defaulting party has the right to offset any amounts payable against any obligation of the defaulting party under the same counterparty agreement.

     The entire asset classes of the Company, including hedges, are pledged as collateral for both the term loan and the revolving credit facility under the Company’s senior secured credit facility (see Note 12, Debt).

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

Interest Rate Swaps

     We enter into floating-to-fixed interest rate swap agreements periodically. As of September 29, 2011, the interest rate swap agreements had notional amounts totaling $325.0.

														Effective				Fair Value,
Notional Amount		Expires				Variable Rate				Fixed Rate(1)				Fixed Rate(2)				September 29, 2011
$50		March 2013				1 Month LIBOR					0.72	%			3.62	%		$	(0.2	)
$50		June 2013				1 Month LIBOR					0.84	%			3.74	%		$	(0.4	)
$225		July 2014				1 Month LIBOR					1.37	%			4.27	%		$	(5.0	)
														Total				$	(5.6	)

     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 monthly basis when interest payments are made. These settlements occur through the maturity date. The interest rate swaps are being accounted for as cash flow hedges in accordance with FASB authoritative guidance. The fair value of the interest rate swaps was a liability (unrealized loss) of ($5.6) and ($9.3) at September 29, 2011 and December 31, 2010, respectively.

Foreign Currency Forward Contracts

     Spirit’s wholly-owned subsidiary Spirit AeroSystems (Europe) Limited (“Spirit Europe”) has certain sales, expenses, assets and liabilities that are denominated in British pounds sterling. However, certain sales of Spirit Europe’s products and some procurement costs are denominated in U.S. dollars and Euros. As a consequence, movements in exchange rates could cause net sales and our expenses to fluctuate, affecting our profitability and cash flows. In addition, even when revenues and expenses are matched, we must translate British pound sterling denominated results of operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our consolidated financial statements. Consequently, increases and decreases in the value of the U.S. dollar as compared to the British pound sterling will affect our reported results of operations and the value of our assets and liabilities on our consolidated balance sheet, even if our results of operations or the value of those assets and liabilities has not changed in its original currency. These transactions could significantly affect the comparability of our results between financial periods and/or result in significant changes to the carrying value of our assets, liabilities and shareholders’ equity.

     We use foreign currency hedge contracts to reduce our exposure to currency exchange rate fluctuations, which include hedging contracts to hedge U.S. dollar revenue from certain customers. The objective of these contracts is to minimize the impact of currency exchange rate movements on our operating results. The hedges are being accounted for as cash flow hedges in accordance with FASB authoritative guidance. Gains and losses from these cash flow hedges are recorded to Other Comprehensive Income until the underlying transaction for which the hedge was placed occurs and then the value in other comprehensive income is reclassified to earnings. The exception to the aforementioned treatment of realized gains/losses involves certain cash payments to Airbus, payable in British pounds sterling which were hedged, and this amount in Other Comprehensive Income was reclassified into Other Assets when the underlying transaction occurred and will be amortized over the first A350 contract block. The amount of unamortized loss reclassified out of Other Comprehensive Income into Other Assets for the three months ended September 29, 2011 was zero and for the nine months ended September 29, 2011 was ($1.1) before tax, or ($0.7) after tax. The fair value of the forward contracts was a net liability of ($0.6) as of September 29, 2011.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

Notional Amount

		September 29, 2011								December 31, 2010
						Foreign								Foreign
		USD				Currency				USD				Currency
Year		Buy/(Sell)(1)				Buy/(Sell)(1)				Buy/(Sell)(1)				Buy/(Sell)(1)
2011		$	(5.9	)		£	3.4			$	(44.1	)		£	27.3
2012			(8.9	)			5.7				(8.9	)			5.7
2013			—				(0.1	)			—				(0.1	)
		$	(14.8	)		£	9.0			$	(53.0	)		£	32.9

The following table summarizes the Company’s fair value of outstanding derivatives at September 29, 2011 and December 31, 2010:

		Fair Values of Derivative Instruments
		Other Asset Derivatives								Other Liability Derivatives
		September 29, 2011				December 31, 2010				September 29, 2011				December 31, 2010
Derivatives designated as hedging instruments
Interest rate swaps
Current		$	—			$	—			$	2.7			$	9.3
Non-current			—				—				2.9				—
Foreign currency hedge contracts
Current			0.1				0.1				0.4				1.3
Non-current			—				—				—				0.2
Total derivatives designated as hedging instruments			0.1				0.1				6.0				10.8
Derivatives not designated as hedging instruments
Foreign currency hedge contracts
Current			0.5				0.7				0.6				0.7
Non-current			0.5				1.2				0.7				1.4
Total derivatives not designated as hedging instruments			1.0				1.9				1.3				2.1
Total derivatives		$	1.1			$	2.0			$	7.3			$	12.9

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

The impact on other comprehensive income (“OCI”) and earnings from cash flow hedges three months ended September 29, 2011 and September 30, 2010 was as follows:

										Location of												Location of (Gain)
										(Gain) or Loss												or Loss Recognized
										Reclassified												in Income on
		Amount of Gain or (Loss) Recognized								from				Amount of Loss Reclassified from								Derivative				Amount of Loss Recognized in Income on
		in OCI, net of tax, on Derivative								Accumulated				Accumulated OCI into Income								(Ineffective Portion				Derivative (Ineffective Portion and Amount
Derivatives in		(Effective Portion)								OCI into				(Effective Portion)								and Amount				Excluded from Effectiveness Testing)
Cash Flow		For the Three Months Ended								Income				For the Three Months Ended								Excluded from				For the Three Months Ended
Hedging		September 29,				September				(Effective				September				September 30,				Effectiveness				September 29,				September 30,
Relationships		2011				30, 2010				Portion)				29, 2011				2010				Testing)				2011				2010
Interest rate swaps		$	(2.6	)		$	(0.8	)		Interest expense				$	1.2			$	3.2			Other (income)/ expense				$	—			$	—
Foreign currency hedge contracts			(0.3	)			1.4			Sales/Revenue					—				0.2			Other (income)/expense					—				—
Total		$	(2.9	)		$	0.6							$	1.2			$	3.4							$	—			$	—

The impact on other comprehensive income (“OCI”) and earnings from cash flow hedges for the nine months ended September 29, 2011 and September 30, 2010 was as follows:

										Location of												Location of (Gain)
										(Gain) or Loss												or Loss Recognized
										Reclassified												in Income on
		Amount of Gain or (Loss) Recognized								from				Amount of Loss Reclassified from								Derivative				Amount of Loss Recognized in Income on
		in OCI, net of tax, on Derivative								Accumulated				Accumulated OCI into Income								(Ineffective Portion				Derivative (Ineffective Portion and Amount
Derivatives in		(Effective Portion)								OCI into				(Effective Portion)								and Amount				Excluded from Effectiveness Testing)
Cash Flow		For the Nine Months Ended								Income				For the Nine Months Ended								Excluded from				For the Nine Months Ended
Hedging		September 29,				September 30,				(Effective				September 29,				September 30,				Effectiveness				September 29,				September 30,
Relationships		2011				2010				Portion)				2011				2010				Testing)				2011				2010
Interest rate swaps		$	(4.2	)		$	(2.9	)		Interest expense				$	7.6			$	11.7			Other (income)/ expense				$	—			$	—
Foreign currency hedge contracts			0.5				(1.1	)		Sales/Revenue					0.1				1.0			Other (income)/expense					—				—
Total		$	(3.7	)		$	(4.0	)						$	7.7			$	12.7							$	—			$	—

     The impact on earnings from foreign currency hedge contracts that do not qualify as cash flow hedges was not material for the nine months ended September 29, 2011 and September 30, 2010.

     Gains and losses accumulated in OCI for interest rate swaps are reclassified into earnings as each interest rate period is reset. During the next twelve months, the Company estimates that a loss of ($1.8) will be reclassified from OCI, net of tax, as a charge to earnings from interest rate swaps. Interest rate swaps are placed for a period of time not to exceed the maturity of the Company’s senior secured term loan. None of the gains or losses reclassified to earnings were attributable to the discontinuance of cash flow hedges.

     Gains and losses accumulated in OCI for foreign currency hedge contracts are reclassified into earnings as the underlying transactions for which the contracts were entered into are realized. During the next twelve months, the Company estimates that a loss of ($0.2) will be reclassified from OCI, net of tax. None of the gains or losses reclassified to earnings are attributable to the discontinuance of cash flow hedges.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

     The amortized cost and approximate fair value of held-to-maturity securities are as follows:

		September 29, 2011								December 31, 2010
		Current				Noncurrent				Current				Noncurrent
Government and Corporate Debt Securities
Amortized cost		$	0.3			$	3.2			$	0.9			$	2.6
Unrealized gains			—				0.1				—				—
Unrealized losses			—				(0.1	)			—				—
Fair value		$	0.3			$	3.2			$	0.9			$	2.6

Maturities of held-to-maturity securities at September 29, 2011 are as follows:

		Amortized				Approximate
		Cost				Fair Value
Within One Year		$	0.3			$	0.3
One to Five Years			2.2				2.3
Five to Ten Years			—				—
After Ten Years			1.0				0.9
Total		$	3.5			$	3.5

     At September 29, 2011 and December 31, 2010, the fair value of certain investments in debt and marketable securities are less than their historical cost. Total fair value of these investments at September 29, 2011 and December 31, 2010, was $1.5 and $1.2, respectively, which is approximately 43.7% and 34.0% of the Company’s held-to-maturity investment portfolio. These declines primarily resulted from decreases in market interest rates and failure of certain investments to maintain consistent credit quality ratings or meet projected earnings targets.

     Based on evaluation of available evidence, including changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.

     Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the permanent impairment is identified.

12. Debt

     Total debt shown on the balance sheet is comprised of the following:

		September 29,				December 31,
		2011				2010
Senior secured term loan (short and long-term)		$	563.3			$	566.2
Senior notes (due 2017 and 2020)			594.7				594.2
Malaysian term loan			17.2				18.2
Present value of capital lease obligations			16.2				17.2
Other			12.9				1.0
Total		$	1,204.3			$	1,196.8

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

Senior Secured Term Loan

     We are a party to a credit agreement that consists of a senior secured term loan and a senior secured revolving line of credit. On October 15, 2010, we entered into Amendment No. 3 to the credit agreement. As a result of the amendment, among other things, the revolving credit commitment was increased from $408.8 to $650.0 and the maturity date of the revolving credit commitment was extended to September 30, 2014. The credit agreement amendment also extended the maturity date for $437.4 (Term B-2) of the outstanding term loan to September 30, 2016. The maturity date for the $130.2 (Term B-1) balance of the outstanding term loan remained at September 30, 2013. Substantially all of Spirit’s assets, including inventory and property, plant and equipment are pledged as collateral for both the term loan and the revolving credit facility. As of September 29, 2011 and December 31, 2010, the outstanding balance of the term loan was $563.3 and $566.2, respectively. Amounts outstanding under the revolving credit facility were zero at September 29, 2011 and December 31, 2010. As of September 29, 2011, there were $20.1 of letters of credit outstanding under the revolving credit agreement.

     Revolving credit borrowings bear interest at a rate equal to, at Spirit’s option, (a) a base rate determined by reference to the highest of (1) the prime rate of our administrative agent (currently Bank of America, N.A.), (2) the federal funds rate plus 1/2 of 1.00% and (3) LIBOR for an interest period of one month commencing on such date plus 1.00%, in each case plus an applicable margin, or (b) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, plus an applicable margin. As of the issue date, the applicable margin with respect to base rate borrowings under this portion of the revolving credit facility is 2.50% and the applicable margin with respect to LIBOR rate borrowings under this portion of the revolving credit facility is 3.50%. The applicable margin for borrowings under this portion of the revolving credit facility are subject to adjustment based on our Consolidated Total Leverage, and may range from 2.00% to 3.00% with respect to base rate borrowings and from 3.00% to 4.00% with respect to LIBOR rate borrowings. At September 29, 2011, the Company’s total leverage ratio was 2.47:1.0 resulting in applicable margins of 3.50% per annum on LIBOR borrowings on Extending Revolving Loans and margins of 2.50% per annum on alternative base rate borrowings on Extending Revolving Loans.

     In addition to paying interest on outstanding principal under the senior secured credit facility, Spirit is required to pay an unused line fee of 75 basis points on the unused portion of the commitments under the revolving credit facility. Spirit is required to pay participation fees equal to the applicable margin for LIBOR rate revolving credit borrowings with respect to letters of credit issued under the revolving credit facility. Spirit is also required to pay to the issuing banks under its senior secured credit facility letter of credit fronting fees in respect of letters of credit equal to 25 basis points per year, and to the administrative agent thereunder customary administrative fees.

     The credit agreement contains customary affirmative and negative covenants, including restrictions on indebtedness, liens, type of business, acquisitions, investments, sales or transfers of assets, payments of dividends, transactions with affiliates, change in control and other matters customarily restricted in such agreements. The credit agreement also contains Covenant Leverage Ratio, Interest Coverage Ratio and Total Leverage Ratio financial covenants. The Covenant Leverage Ratio covenant (as defined in the credit agreement) provides that the Covenant Leverage Ratio shall not exceed 2.5:1.0 through the final maturity date of the credit agreement. The Interest Coverage Ratio covenant (as defined in the credit agreement) provides that the Interest Coverage Ratio shall not be less than 4.0:1.0 through the final maturity date of the credit agreement. The Total Leverage Ratio covenant (as defined in the credit agreement) provides that the Total Leverage Ratio shall not exceed 3.5:1.0 through the final maturity date of the credit agreement. The Financial Covenant ratios are calculated as of the last day of each fiscal quarter. Failure to meet these financial covenants would be an event of default under the credit agreement. As of September 29, 2011, we were and expect to remain in full compliance with all covenants contained within our credit agreement.

Senior Notes

     On November 18, 2010, we issued $300.0 aggregate of 6.75% Senior Notes due December 15, 2020 (the “2020 Notes”), with interest payable, in cash in arrears, on June 15 and December 15 of each year, beginning June 15, 2011. The 2020 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and Spirit’s existing and future domestic subsidiaries that guarantee Spirit’s obligations under Spirit’s senior secured credit facility. The Company used the proceeds to repay borrowings under its existing senior secured revolving credit facility without any reduction of the lenders’ commitment thereunder, for general corporate purposes and to pay fees and expenses incurred in connection with the offering. The carrying value of the 2020 Notes was $300.0 as of September 29, 2011.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

     On September 30, 2009, we issued $300.0 of 7.50% Senior Notes due October 1, 2017 (the “2017 Notes”), with interest payable, in cash in arrears, on April 1 and October 1 of each year, beginning April 1, 2010. The 2017 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the Company and Spirit’s existing and future domestic subsidiaries that guarantee Spirit’s obligations under Spirit’s senior secured credit facility. The carrying value of the 2017 Notes was $294.7 as of September 29, 2011.

     As of September 29, 2011, we were and expect to remain in full compliance with all covenants contained in the indentures governing the 2020 Notes and the 2017 Notes.

Malaysian Term Loan

     On June 2, 2008, the Company’s wholly-owned subsidiary, Spirit AeroSystems Malaysia SDN BHD entered into a Facility Agreement (“Facility Agreement”) for a term loan facility for Ringgit Malaysia RM 69.2 (approximately USD $20.0 equivalent) (the “Malaysia Facility”), with the Malaysian Export-Import Bank. The facility requires quarterly principal repayments of RM 3.3 (USD $1.0) from September 2011 through May 2017 and quarterly interest payments payable at a fixed interest rate of 3.50% per annum. The Malaysia Facility loan balance as of September 29, 2011 was $17.2.

France Factory

     On July 17, 2009, the Company’s indirect wholly-owned subsidiary, Spirit AeroSystems France SARL (“Spirit France”) entered into a capital lease agreement for € 9.0 (approximately USD $13.1 equivalent) with a subsidiary of BNP Paribas Bank to be used towards the construction of an aerospace-related component assembly plant in Saint-Nazaire, France (the “Saint-Nazaire Project”). The Saint-Nazaire Project was completed in the fourth quarter of 2010 and became operational during the third quarter of 2011. Lease payments are variable, subject to the three-month Euribor rate plus 2.20%. Lease payments are due quarterly through April 2025. As of September 29, 2011, the Saint-Nazaire capital lease balance was $12.1.

Lease Commitment

     In September 2011, the Company entered into a lease agreement for a building in Kinston, North Carolina. As part of the lease agreement, the Company’s landlord agreed to certain renovations to the facility to convert the space from a warehouse to a manufacturing facility. The Company may be responsible for a portion of the construction costs and has been deemed as the owner of the building during the construction period under ASC 840-40-55 “The Effect of Lessee Involvement in Asset Construction.” A total of $5.6 has been capitalized to record the facility on the Company’s books with an offsetting credit to the lease financing liability.

     At the completion of the construction of the initial renovations in early 2012, the lease will be reviewed for potential sale-leaseback treatment in accordance with ASC 840-40-25. If sale-leaseback treatment is applicable the amount capitalized and the corresponding liability will be reversed. If however, sale-leaseback accounting is not applicable, the building and associated lease financing liability would remain on the Company’s books. The lease financing liability would be amortized over the lease term based on the payments designated in the agreement and the building would be depreciated on a straight line basis over the lease term.

13. Pension and Other Post-Retirement Benefits

		Defined Benefit Plans
		For the Three								For the Nine
		Months Ended								Months Ended
		September 29,				September 30,				September 29,				September 30,
		2011				2010				2011				2010
Components of Net Periodic Pension Income
Service cost		$	1.5			$	1.6			$	4.3			$	4.7
Interest cost			11.1				10.4				33.3				31.2
Expected return on plan assets			(16.8	)			(15.9	)			(50.4	)			(47.8	)
Amortization of net (gain)			(0.1	)			(0.1	)			(0.2	)			(0.2	)
Net periodic pension income		$	(4.3	)		$	(4.0	)		$	(13.0	)		$	(12.1	)

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

		Other Benefits
		For the Three								For the Nine
		Months Ended								Months Ended
		September 29,				September 30,				September 29,				September 30,
		2011				2010				2011				2010
Components of Other Benefit Expense
Service cost		$	0.7			$	0.7			$	2.2			$	2.2
Interest cost			0.9				1.0				2.8				2.9
Amortization of net loss			0.3				0.3				0.6				0.7
Net periodic other benefit expense		$	1.9			$	2.0			$	5.6			$	5.8

Employer Contributions

     We expect to contribute zero dollars to the U.S. qualified pension plan and less than $0.4 to both the Supplemental Executive Retirement Plan (SERP) and post-retirement medical plans in 2011. Our projected contributions to the U.K. pension plan for 2011 are $8.2, of which $6.2 was contributed by the end of the third quarter of 2011. We anticipate contributing the additional $2.0 to the U.K. pension plan during the remainder of 2011. The entire amount contributed and the projected contributions can vary based on exchange rate fluctuations.

14. Stock Compensation

     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 Holdings’ common stock at the grant date. The common stock value is added to equity and charged to period expense or included in inventory and cost of sales.

     For the three months ended September 29, 2011, the Company recognized a total of $3.4 of stock compensation expense, net of forfeitures, as compared to $1.9 of stock compensation expense, net of forfeitures, recognized for the three months ended September 30, 2010. The entire $3.4 of stock compensation expense recorded for the three months ended September 29, 2011 was recorded as expense in selling, general and administrative expense. Of the $1.9 of stock compensation expense recorded for the three months ended September 30, 2010, $0.3 was charged directly to cost of sales, $1.5 was recorded as expense in selling, general and administrative expense, and 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 FASB authoritative guidance related to revenue recognition for construction-type and production-type contracts.

     For the nine months ended September 29, 2011, the Company recognized a total of $8.6 of stock compensation expense, net of forfeitures, as compared to $23.5 of stock compensation expense, net of forfeitures, recognized for the nine months ended September 30, 2010. Of the total $8.6 of stock compensation expense recorded for the nine months ended September 29, 2011, less than $0.1 was charged directly to cost of sales, $8.5 was recorded as expense in selling, general and administrative expense, and the remaining $0.1 was capitalized in inventory and is recognized through cost of sales in accordance with FASB authoritative guidance. Of the $23.5 of stock compensation expense recorded for the nine months ended September 30, 2010, $17.6 was charged directly to cost of sales, $5.6 was recorded as expense in selling, general and administrative expense, and the remaining $0.3 was capitalized in inventory and is recognized through cost of sales in accordance with FASB authoritative guidance.

     In August 2011, shares of Class A common stock were granted under the Company’s Long-Term Incentive Plan. These shares will vest annually at a rate of 33% beginning in May 2013.

     Due to the occurrence during the third quarter of 2011 of the five-year anniversaries of the Executive Incentive Plan grant date for certain participants in the plan, those participants acquired an incremental 20% interest in the shares granted to them under the plan, such that their total cumulative interest in the shares granted to them is now 100%. The total number of additional shares in which an interest was acquired during 2011 was 43,971. The participants have a non-forfeitable interest in those shares; however, as per the plan document, the shares are still restricted until the earlier of a liquidity event (as defined in the plan document) or June 16, 2015. Participants do not have the unrestricted rights of stockholders until those shares vest.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

15. Income Taxes

     The process for calculating our income tax expense involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability. The total net deferred tax assets at September 29, 2011 and December 31, 2010 were $77.2 and $94.5, respectively.

     We file income tax returns in all jurisdictions in which we operate. We established reserves to provide for additional income taxes that may be due in future years as these previously filed tax returns are audited. These reserves have been established based on management’s assessment as to the potential exposure attributable to permanent differences and associated interest. All tax reserves are analyzed quarterly and adjustments made as events occur that warrant modification.

     In general, the Company records income tax expense each quarter based on its best estimate as to the full year’s effective tax rate. Certain items, however, are given discrete period treatment and the tax effects for such items are therefore reported in the quarter that an event arises. Events or items that give rise to discrete recognition include finalizing amounts in income tax returns filed, finalizing audit examinations for open tax years, and an expiring statute of limitations.

     We continue to operate under a tax holiday in Malaysia effective through September 2024. During the current quarter, management established a reserve for potential uncertainty in meeting the tax holiday’s conditional employment and investment thresholds.

     The 31.0% effective tax rate for the nine months ended September 29, 2011 differs from the 28.5% effective tax rate for the same period in 2010 primarily due to favorably settling the 2005 and 2006 U.S. Federal examinations last year and establishing a reserve this year for the prior years’ Malaysia tax holiday benefit, partially offset by the U.S. Research Credit reinstated in the fourth quarter last year.

     The Internal Revenue Service is currently examining the Company’s 2008 and 2009 U.S. Federal income tax returns and we are participating in the Compliance Assurance Process (“CAP”) program for our 2011 tax year. The CAP program’s objective is to resolve issues in a timely, contemporaneous manner and eliminate the need for a lengthy post-filing examination. HM Revenue & Customs is currently examining our 2008 U.K. income tax return. While a change could result from the ongoing examinations, the Company expects no material change in its recorded unrecognized tax benefit liability in the next 12 months.

16. Equity

   Earnings per Share Calculation

     Basic earnings per share represents the income available to common shareholders divided by the weighted average number of common shares outstanding during the measurement period. Diluted earnings per share represents the income available to common shareholders divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period.

     Subject to preferences that may apply to shares of preferred stock outstanding at the time, holders of the Company’s outstanding common stock are entitled to any dividend declared by the Board of Directors out of funds legally available for this purpose. No dividend may be declared on the class A or class B common stock unless at the same time an equal dividend is paid on every share of class A and class B common stock. Dividends paid in shares of the Company’s common stock must be paid, with respect to a particular class of common stock, in shares of that class. The Company does not intend to pay cash dividends on its common stock. In addition, the terms of the Company’s current financing agreements preclude it from paying any cash dividends on its common stock.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements
($, €, £, and RM in millions other than per share amounts)

     The following table sets forth the computation of basic and diluted earnings per share:

		For the Three Months Ended
		September 29, 2011												September 30, 2010
										Per												Per
										Share												Share
		Income				Shares				Amount				Income				Shares				Amount
Basic EPS
Income available to common shareholders		$	66.2				139.4				0.48			$	45.6				138.3			$	0.33
Income allocated to participating securities			1.1				2.3								0.8				2.3
Net Income		$	67.3											$	46.4
Diluted potential common shares							0.5												0.9
Diluted EPS
Net Income		$	67.3				142.2			$	0.47			$	46.4				141.5			$	0.33

		For the Nine Months Ended
		September 29, 2011												September 30, 2010
										Per												Per
										Share												Share
		Income				Shares				Amount				Income				Shares				Amount
Basic EPS
Income available to common shareholders		$	129.7				139.1				0.93			$	155.0				137.4			$	1.13
Income allocated to participating securities			2.3				2.4								2.0				1.8
Net Income		$	132.0											$	157.0
Diluted potential common shares							0.8												1.4
Diluted EPS
Net Income		$	132.0				142.3			$	0.93			$	157.0				140.9			$	1.11