Spirit AeroSystems(SPR) - 2022 Q2 - Quarterly Report

Form 10-Q Filing Information This section provides key filing details for Spirit AeroSystems Holdings, Inc.'s Form 10-Q for the quarter ended June 30, 2022 Registrant Information Spirit AeroSystems Holdings, Inc. filed its Form 10-Q, detailing its corporate structure, NYSE listing under SPR, and status as a large accelerated filer - Spirit AeroSystems Holdings, Inc. is a Delaware corporation with headquarters in Wichita, Kansas[2] Class A Common Stock Listing | Title of each class | Trading symbol | Name of each exchange on which registered | | :------------------ | :------------- | :-------------------------------------- | | Class A common stock, par value $0.01 per share | SPR | New York Stock Exchange | - The registrant is a large accelerated filer and not a shell company[3] - As of July 20, 2022, 105,137,748 shares of Class A common stock were outstanding[3] PART I — FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the company Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the periods ended June 30, 2022 Condensed Consolidated Statements of Operations This statement details the company's revenues, operating costs, and net loss for the three and six months ended June 30, 2022 Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended June 30, 2022 ($ in millions) | Three Months Ended July 1, 2021 ($ in millions) | Six Months Ended June 30, 2022 ($ in millions) | Six Months Ended July 1, 2021 ($ in millions) | | :------------------------------------------ | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenue | 1,257.9 | 1,002.1 | 2,432.6 | 1,902.9 | | Total operating costs and expenses | 1,362.6 | 1,099.8 | 2,579.5 | 2,126.5 | | Operating loss | (104.7) | (97.7) | (146.9) | (223.6) | | Net loss | (122.2) | (135.3) | (175.0) | (306.9) | | Basic Loss per share | (1.17) | (1.30) | (1.67) | (2.95) | | Diluted Loss per share | (1.17) | (1.30) | (1.67) | (2.95) | - Revenue increased by $255.8 million (25.5%) for the three months and $529.7 million (27.8%) for the six months ended June 30, 2022, year-over-year[10] - Net loss improved for both the three-month period (from $135.3 million to $122.2 million) and the six-month period (from $306.9 million to $175.0 million) year-over-year[10] Condensed Consolidated Statements of Comprehensive (Loss) Income This statement presents the net loss and other comprehensive income components, leading to total comprehensive loss Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) | Metric | Three Months Ended June 30, 2022 ($ in millions) | Three Months Ended July 1, 2021 ($ in millions) | Six Months Ended June 30, 2022 ($ in millions) | Six Months Ended July 1, 2021 ($ in millions) | | :------------------------------------------ | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net loss | (122.2) | (135.3) | (175.0) | (306.9) | | Total other comprehensive (loss) gain | (41.7) | (2.1) | (59.3) | 2.0 | | Total comprehensive loss | (163.9) | (137.4) | (234.3) | (304.9) | - Total comprehensive loss for the six months ended June 30, 2022, was $234.3 million, an improvement from $304.9 million in the prior year, despite a larger 'Total other comprehensive loss' in the current period[13] Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity as of June 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets (Unaudited) | Asset/Liability/Equity | June 30, 2022 ($ in millions) | December 31, 2021 ($ in millions) | | :-------------------------------- | :---------------------------- | :-------------------------------- | | Cash and cash equivalents | 770.2 | 1,478.6 | | Total current assets | 3,211.6 | 3,806.0 | | Total assets | 6,989.3 | 7,737.3 | | Total current liabilities | 2,179.9 | 1,876.0 | | Long-term debt | 3,424.8 | 3,742.7 | | Total stockholders' equity | 225.4 | 448.3 | | Total liabilities and equity | 6,989.3 | 7,737.3 | - Cash and cash equivalents decreased significantly from $1,478.6 million at December 31, 2021, to $770.2 million at June 30, 2022[15] - Total stockholders' equity decreased from $448.3 million to $225.4 million, while total current liabilities increased from $1,876.0 million to $2,179.9 million[15] Condensed Consolidated Statements of Changes in Stockholders' Equity This statement details changes in stockholders' equity, including net losses, other comprehensive losses, and employee equity awards Changes in Stockholders' Equity (Unaudited) | Metric | Balance — December 31, 2021 ($ in millions) | Balance — June 30, 2022 ($ in millions) | | :-------------------------------- | :---------------------------------------- | :------------------------------------ | | Total Stockholders' Equity | 448.3 | 225.4 | | Net loss (Q1 2022) | (52.8) | (52.8) | | Net loss (Q2 2022) | (122.2) | (122.2) | | Other comprehensive loss (Q1 2022) | (17.6) | (17.6) | | Other comprehensive loss (Q2 2022) | (41.7) | (41.7) | | Employee equity awards (total) | 18.2 | 18.2 | | Dividends declared (total) | (2.2) | (2.2) | - Total stockholders' equity decreased from $448.3 million at December 31, 2021, to $225.4 million at June 30, 2022, primarily due to net losses and other comprehensive losses[17] - Cash dividends declared per common share were $0.01 for the three months ended June 30, 2022 and July 1, 2021, and $0.02 for the six months ended June 30, 2022 and July 1, 2021[17] Condensed Consolidated Statements of Cash Flows This statement summarizes cash flows from operating, investing, and financing activities for the six months ended June 30, 2022 Condensed Consolidated Statements of Cash Flows (Unaudited) | Activity | Six Months Ended June 30, 2022 ($ in millions) | Six Months Ended July 1, 2021 ($ in millions) | | :-------------------------------- | :--------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | (331.7) | (197.7) | | Net cash used in investing activities | (47.4) | (72.2) | | Net cash used in financing activities | (321.8) | (332.0) | | Net decrease in cash, cash equivalents, and restricted cash | (708.5) | (604.0) | | Cash, cash equivalents, and restricted cash, end of period | 789.9 | 1,289.1 | - Net cash used in operating activities increased to $331.7 million for the six months ended June 30, 2022, from $197.7 million in the prior year, primarily due to working capital growth associated with increased production[20][256] - Net cash used in investing activities decreased to $47.4 million from $72.2 million, mainly due to the prior year acquisition of Applied Aerodynamics[20][257] - Net cash used in financing activities slightly decreased to $321.8 million from $332.0 million, driven by differences in debt repayments[20][258] Notes to the Condensed Consolidated Financial Statements (unaudited) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization, Basis of Interim Presentation and Recent Developments This note details the company's business, interim financial statement basis, and recent developments including COVID-19 impacts and Russia sanctions - The Company provides manufacturing and design expertise for fuselage, propulsion, and wing products for aircraft OEMs and operators[25] - COVID-19 pandemic continues to have a significant negative impact on the aviation industry and the Company's business, with uncertain duration and recovery[31] - B737 MAX deliveries resumed in Q4 2020, with most regulators ungrounding the aircraft; China issued an airworthiness directive in December 2021[33] - Suspension of sanctioned activities relating to Russia resulted in a pre-tax loss of $28.1 million related to asset and liability adjustments in Q2 2022[34] 2. Adoption of New Accounting Standards The company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes, with no material impact on its financial statements - Adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes, as of January 1, 2021, did not have a material impact on financial position or results of operations[35] 3. New Accounting Pronouncements The company is evaluating ASU 2020-04 and preparing for ASU 2021-10, with no significant impact expected from the latter - The Company is evaluating ASU 2020-04, Reference Rate Reform, but has not yet applied its guidance to any contract modifications[36] - The Company is preparing for the initial application of ASU 2021-10, Government Assistance, for annual financial statements ending December 31, 2022, with no significant impact expected[37][39] 4. Changes in Estimates Unfavorable changes in estimates totaled $71.7 million in Q2 2022, driven by forward loss charges and cumulative catch-up adjustments on key programs - Unfavorable changes in estimates totaled $71.7 million for Q2 2022, including $63.7 million in net forward loss charges and $8.0 million in unfavorable cumulative catch-up adjustments[41] - Forward losses in Q2 2022 were primarily due to increased cost estimates for B787 (production rate decreases, supply chain costs), A220 (supplier bankruptcy), and A350 (production schedule changes, labor, NRE/tooling costs)[42] - Unfavorable cumulative catch-up adjustments for Q2 2022 mainly related to B737 (production schedule changes, parts shortages, supply chain costs) and A320 (production cost overruns, material/freight/labor/overhead increases)[43] Changes in Estimates Summary | Changes in Estimates | For the Three Months Ended June 30, 2022 ($ in millions) | For the Three Months Ended July 1, 2021 ($ in millions) | For the Six Months Ended June 30, 2022 ($ in millions) | For the Six Months Ended July 1, 2021 ($ in millions) | | :------------------------------------------------ | :------------------------------------------------------- | :------------------------------------------------------ | :------------------------------------------------------ | :------------------------------------------------------ | | Total (Unfavorable) Favorable Cumulative Catch-up Adjustment | (8.0) | 9.9 | (24.4) | 0.1 | | Total Changes in Estimates (Forward Loss) on Loss Programs | (63.7) | (52.2) | (87.5) | (124.6) | | Total Change in Estimate | (71.7) | (42.3) | (111.9) | (124.5) | | EPS Impact (diluted per share) | (0.63) | (0.42) | (0.98) | (1.22) | 5. Accounts Receivable and Allowance for Credit Losses Accounts receivable, net, increased to $581.3 million, with $1,309.6 million monetized through sales arrangements with major customers Accounts Receivable, net | Metric | June 30, 2022 ($ in millions) | December 31, 2021 ($ in millions) | | :------------------------ | :---------------------------- | :-------------------------------- | | Trade receivables | 565.2 | 412.0 | | Other | 27.0 | 58.1 | | Less: allowance for credit losses | (10.9) | (8.5) | | Accounts receivable, net | 581.3 | 461.6 | - For the six months ended June 30, 2022, $1,309.6 million of accounts receivable were sold via arrangements with Boeing, Airbus, and Rolls-Royce, included in cash from operating activities[50] - The recorded net loss on sale of receivables was $6.5 million for the six months ended June 30, 2022[50] 6. Contract Assets and Contract Liabilities Net contract assets increased to $123.2 million, reflecting higher over-time revenue recognition and decreased deferred revenues Net Contract Assets (Liabilities) | Metric | June 30, 2022 ($ in millions) | December 31, 2021 ($ in millions) | Change ($ in millions) | | :------------------------ | :---------------------------- | :-------------------------------- | :--------------------- | | Contract assets | 483.6 | 443.2 | 40.4 | | Contract liabilities | (360.4) | (387.0) | 26.6 | | Net contract assets (liabilities) | 123.2 | 56.2 | 67.0 | - The increase in contract assets reflects more over-time revenue recognition in relation to billed revenues[54] - The decrease in contract liabilities reflects less deferred revenues recorded in excess of revenue recognized[54] 7. Revenue Disaggregation and Outstanding Performance Obligations Total revenue for the six months was $2,432.6 million, with significant unsatisfied performance obligations for 2022 and beyond Disaggregated Revenue by Satisfaction Method | Revenue Type | For the Three Months Ended June 30, 2022 ($ in millions) | For the Three Months Ended July 1, 2021 ($ in millions) | For the Six Months Ended June 30, 2022 ($ in millions) | For the Six Months Ended July 1, 2021 ($ in millions) | | :------------------------------------------ | :------------------------------------------------------- | :------------------------------------------------------ | :------------------------------------------------------ | :------------------------------------------------------ | | Contracts with performance obligations satisfied over time | 933.0 | 763.2 | 1,762.7 | 1,412.4 | | Contracts with performance obligations satisfied at a point in time | 324.9 | 238.9 | 669.9 | 490.5 | | Total Revenue | 1,257.9 | 1,002.1 | 2,432.6 | 1,902.9 | Disaggregated Revenue by Major Customer | Customer | For the Three Months Ended June 30, 2022 ($ in millions) | For the Three Months Ended July 1, 2021 ($ in millions) | For the Six Months Ended June 30, 2022 ($ in millions) | For the Six Months Ended July 1, 2021 ($ in millions) | | :--------- | :------------------------------------------------------- | :------------------------------------------------------ | :------------------------------------------------------ | :------------------------------------------------------ | | Boeing | 762.2 | 561.8 | 1,409.4 | 1,029.7 | | Airbus | 281.1 | 244.6 | 585.0 | 476.2 | | Other | 214.6 | 195.7 | 438.2 | 397.0 | | Total Revenue | 1,257.9 | 1,002.1 | 2,432.6 | 1,902.9 | Unsatisfied Performance Obligations | Year | Unsatisfied performance obligations ($ in millions) | | :---------------- | :---------------------------------------- | | Remaining in 2022 | 2,119.3 | | 2023 | 4,237.6 | | 2024 | 4,062.5 | | 2025 and After | 708.8 | 8. Inventory Total inventory, net, decreased slightly to $1,345.8 million, with increased valuation reserves partly due to Russia sanctions Inventory, net | Inventory Component | June 30, 2022 ($ in millions) | December 31, 2021 ($ in millions) | | :------------------------ | :---------------------------- | :-------------------------------- | | Raw materials | 323.0 | 301.4 | | Work-in-process | 937.3 | 999.1 | | Finished goods | 60.9 | 56.9 | | Product inventory | 1,321.2 | 1,357.4 | | Capitalized pre-production | 24.6 | 25.2 | | Total inventory, net | 1,345.8 | 1,382.6 | - Product inventory is net of valuation reserves of $87.2 million at June 30, 2022, an increase from $54.9 million at December 31, 2021, partly due to impacts from the suspension of activities in Russia[63] - Cost of sales for the six months ended June 30, 2022, includes $94.7 million for excess capacity production costs and $9.5 million for abnormal costs related to temporary workforce adjustments[64] 9. Property, Plant and Equipment, net Property, plant and equipment, net, decreased to $2,260.9 million, with $71.3 million in repair and maintenance costs incurred Property, Plant and Equipment, net | Asset Category | June 30, 2022 ($ in millions) | December 31, 2021 ($ in millions) | | :-------------------------- | :---------------------------- | :-------------------------------- | | Total | 5,061.2 | 5,040.4 | | Less: accumulated depreciation | (2,800.3) | (2,654.9) | | Property, plant and equipment, net | 2,260.9 | 2,385.5 | - Repair and maintenance costs were $71.3 million for the six months ended June 30, 2022[66] - Depreciation expense related to capitalized software was $11.5 million for the six months ended June 30, 2022[67] 10. Leases The company reported total net lease cost of $26.2 million, with remaining lease liabilities of $81.5 million for operating and $145.4 million for finance leases Components of Lease Expense | Lease Cost Component | For the Six Months Ended June 30, 2022 ($ in millions) | For the Six Months Ended July 1, 2021 ($ in millions) | | :-------------------------- | :------------------------------------------------------- | :------------------------------------------------------ | | Operating lease cost | 6.6 | 5.0 | | Finance lease cost: Amortization of assets | 16.3 | 12.4 | | Finance lease cost: Interest on lease liabilities | 3.3 | 3.5 | | Total net lease cost | 26.2 | 20.9 | - Weighted average remaining lease term as of June 30, 2022, was 35.1 years for operating leases and 4.6 years for finance leases[77] Remaining Maturities of Lease Liabilities (as of June 30, 2022) | Lease Type | Total Lease Payments ($ in millions) | Less: Imputed Interest ($ in millions) | Total Lease Obligations ($ in millions) | | :--------------- | :----------------------------------- | :------------------------------------- | :------------------------------------ | | Operating Leases | 204.0 | (122.5) | 81.5 | | Financing Leases | 161.7 | (16.3) | 145.4 | 11. Other Assets, Goodwill, and Intangible Assets Other current assets decreased to $31.4 million, while goodwill remained stable and intangible assets, net, decreased to $205.0 million Other Current Assets | Asset Category | June 30, 2022 ($ in millions) | December 31, 2021 ($ in millions) | | :-------------------- | :---------------------------- | :-------------------------------- | | Prepaid expenses | 24.6 | 20.7 | | Income tax receivable | 1.0 | 14.0 | | Other assets - short-term | 5.8 | 5.0 | | Total other current assets | 31.4 | 39.7 | Goodwill by Segment (as of June 30, 2022) | Segment | Balance at December 31, 2021 ($ in millions) | Currency Exchange Adjustments/Other ($ in millions) | Balance at June 30, 2022 ($ in millions) | | :-------------- | :----------------------------------------- | :------------------------------------------------ | :--------------------------------------- | | Commercial | 296.8 | (0.3) | 296.5 | | Defense & Space | 5.5 | — | 5.5 | | Aftermarket | 321.4 | — | 321.4 | | Total | 623.7 | (0.3) | 623.4 | Intangible Assets, net | Intangible Asset | June 30, 2022 ($ in millions) | December 31, 2021 ($ in millions) | | :------------------------------------ | :---------------------------- | :-------------------------------- | | Total intangible assets | 232.0 | 232.0 | | Less: Accumulated amortization | (27.0) | (19.7) | | Intangible assets, net | 205.0 | 212.3 | - The weighted average amortization period for intangible assets is 14.8 years as of June 30, 2022[83] 12. Advance Payments Outstanding advance payments from Boeing for B787 and B737 programs totaled $211.2 million and $61.5 million, respectively - Advance payments from Boeing for the B787 program not yet repaid totaled approximately $211.2 million as of June 30, 2022[86] - Advance payments from Boeing for the B737 program not yet repaid totaled $61.5 million as of June 30, 2022, after a $61.5 million repayment during the six-month period[87] - Advance payments, short-term, include $18.9 million related to an Aftermarket segment customer, impacted by sanctions on Russia[88] 13. Fair Value Measurements Long-term debt had a carrying amount of $3,571.7 million and an estimated fair value of $3,205.2 million as of June 30, 2022 Carrying Amount and Estimated Fair Value of Long-Term Debt | Debt Type | June 30, 2022 Carrying Amount ($ in millions) | June 30, 2022 Fair Value ($ in millions) | December 31, 2021 Carrying Amount ($ in millions) | December 31, 2021 Fair Value ($ in millions) | | :------------------------------------ | :------------------------------------------ | :--------------------------------------- | :------------------------------------------ | :--------------------------------------- | | Senior secured term loan B | 592.8 | 578.0 | 595.2 | 595.2 | | Senior notes due 2023 | 299.5 | 281.1 | 299.3 | 303.6 | | Senior secured first lien notes due 2025 | 496.0 | 461.5 | 495.3 | 513.3 | | Senior secured second lien notes due 2025 | 1,189.2 | 1,110.2 | 1,187.5 | 1,252.4 | | Senior notes due 2026 | 298.6 | 255.7 | 298.4 | 307.5 | | Senior notes due 2028 | 695.6 | 518.7 | 695.2 | 697.4 | | Total | 3,571.7 | 3,205.2 | 3,570.9 | 3,669.4 | - Senior notes are classified as Level 1 Fair Value hierarchy, while the senior secured term loan B is Level 2[92] 14. Derivative and Hedging Activities The company uses foreign currency forward contracts as cash flow hedges, recognizing a $17.0 million loss in AOCI for the six months - The Company uses foreign currency forward contracts as cash flow hedges to reduce foreign currency exposure for forecasted British Pound Sterling disbursements through March 2023[96] Gain (Loss) Recognized in AOCI from Hedging Transactions | Metric | Three Months Ended June 30, 2022 ($ in millions) | Three Months Ended July 1, 2021 ($ in millions) | Six Months Ended June 30, 2022 ($ in millions) | Six Months Ended July 1, 2021 ($ in millions) | | :-------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Foreign currency exchange contracts | (13.1) | (0.5) | (17.0) | 0.7 | - Within the next 12 months, the Company expects to recognize a loss of $13.3 million in earnings related to foreign currency forward contracts[98] - For the six months ended June 30, 2022, the Company recorded a net gain of $1.6 million to other income from settled non-hedged foreign currency forward contracts[101] 15. Debt Total debt was $3,772.5 million at June 30, 2022, including a senior secured term loan and various senior notes, with all debt covenants in compliance Total Debt (as of June 30, 2022) | Debt Type | Current ($ in millions) | Noncurrent ($ in millions) | | :-------------------------------- | :---------------------- | :------------------------- | | Senior secured term loan B | 5.9 | 586.9 | | Senior notes due 2023 | 299.5 | — | | Senior secured first lien notes due 2025 | — | 496.0 | | Senior secured second lien notes due 2025 | — | 1,189.2 | | Senior notes due 2026 | — | 298.6 | | Senior notes due 2028 | — | 695.6 | | Present value of finance lease obligations | 40.7 | 104.7 | | Other | 1.6 | 53.8 | | Total | 347.7 | 3,424.8 | - As of June 30, 2022, the outstanding balance of the Credit Agreement (Term Loan B) was $595.5 million, with a carrying value of $592.8 million[105] - The Company was in compliance with all covenants in the Credit Agreement and indentures governing its notes as of June 30, 2022[106][116] 16. Pension and Other Post-Retirement Benefits The company reported net periodic pension income of $39.3 million, with a $70.3 million pension reversion asset recorded after PVP B plan termination Components of Net Periodic Pension Expense (Income) | Metric | For the Six Months Ended June 30, 2022 ($ in millions) | For the Six Months Ended July 1, 2021 ($ in millions) | | :------------------------------------------ | :------------------------------------------------------- | :------------------------------------------------------ | | Service cost | 1.2 | 21.7 | | Interest cost | 29.1 | 27.5 | | Expected return on plan assets | (70.3) | (79.0) | | Amortization of net loss | 2.1 | — | | Settlement loss | (1.4) | (0.1) | | Net periodic pension expense (income) | (39.3) | (29.9) | - A pension reversion asset of $70.3 million is recorded on the Restricted plan assets line item as of June 30, 2022, following the PVP B plan termination[119] - The Company withdrew $34.0 million cash from PVP B as an excess plan assets reversion, resulting in an excise tax of $6.8 million recorded in Other income (expense), net[120] 17. Stock Compensation The company recognized $18.3 million in stock compensation expense for the six months, including various RSU grants - The Company recognized a net total of $18.3 million of stock compensation expense for the six months ended June 30, 2022[124] - During the six months ended June 30, 2022, 500,053 time or service-based RSUs were granted with aggregate fair values of $22.5 million[125] - During the six months ended June 30, 2022, 284,653 performance-based RSUs (PBRSUs) were granted with aggregate grant date fair value of $22.0 million[126] 18. Income Taxes An incremental valuation allowance of $43.5 million was recorded against U.S. deferred tax assets, resulting in a 7.67% effective tax rate - An incremental valuation allowance of $43.5 million was recorded against U.S. deferred tax assets for the six months ended June 30, 2022, with the total net U.S. valuation allowance reaching $339.7 million[133] - Increases in valuation allowances against U.K. deferred tax assets totaled $4.3 million for the six months ended June 30, 2022[134] - The effective tax rate for the six months ended June 30, 2022, was 7.67%, compared to (2.44%) for the same period in 2021, primarily due to the release of valuation allowance on U.K. deferred tax assets for projected U.K. group relief[137][240][241] 19. Equity Basic and diluted loss per share improved to $1.67, while accumulated other comprehensive loss increased to $83.0 million Loss Per Share | Metric | For the Three Months Ended June 30, 2022 | For the Three Months Ended July 1, 2021 | For the Six Months Ended June 30, 2022 | For the Six Months Ended July 1, 2021 | | :-------------------------------- | :--------------------------------------- | :-------------------------------------- | :--------------------------------------- | :-------------------------------------- | | Basic Loss per share | (1.17) | (1.30) | (1.67) | (2.95) | | Diluted Loss per share | (1.17) | (1.30) | (1.67) | (2.95) | - The total authorization amount remaining under the current share repurchase program is approximately $925.0 million, but share repurchases are currently on hold due to Credit Agreement restrictions[144] Accumulated Other Comprehensive Loss | Component | As of June 30, 2022 ($ in millions) | As of December 31, 2021 ($ in millions) | | :------------------------------------ | :---------------------------------- | :------------------------------------ | | Pension | 30.0 | 26.6 | | SERP/Retiree medical | 11.3 | 12.1 | | Derivatives - foreign currency hedge | (13.3) | (2.0) | | Foreign currency impact on long-term intercompany loan | (16.2) | (12.2) | | Currency translation adjustment | (94.8) | (48.2) | | Total accumulated other comprehensive loss | (83.0) | (23.7) | 20. Commitments, Contingencies and Guarantees The company faces ongoing legal proceedings, including appeals of dismissed lawsuits and a $44.8 million liability for a former CEO's ruling - A consolidated securities class action lawsuit and shareholder derivative lawsuits were dismissed by the U.S. District Court on January 7, 2022, but the decision was appealed to the Tenth Circuit Court of Appeals on February 4, 2022[154] - A liability of $44.8 million plus accrued interest has been recognized for a court ruling in favor of a former Chief Executive Officer regarding withheld benefits, which is currently under appeal[155] - The Company cannot reasonably estimate the amount of potential claims related to B787 rework or a new product quality claim received on June 25, 2022, due to uncertainties[159][160] Service Warranty and Extraordinary Rework Balance Roll Forward | Metric | Amount ($ in millions) | | :-------------------------- | :--------------------- | | Balance, December 31, 2021 | 71.3 | | Charges to costs and expenses | 0.8 | | Payouts | (1.7) | | Exchange rate | (0.6) | | Balance, June 30, 2022 | 69.8 | 21. Other Income (Expense), Net Other income, net, increased to $72.3 million, driven by a $20.7 million gain on a repayable investment agreement and foreign currency gains Other Income (Expense), Net | Item | For the Three Months Ended June 30, 2022 ($ in millions) | For the Three Months Ended July 1, 2021 ($ in millions) | For the Six Months Ended June 30, 2022 ($ in millions) | For the Six Months Ended July 1, 2021 ($ in millions) | | :------------------------------------------ | :------------------------------------------------------- | :------------------------------------------------------ | :------------------------------------------------------ | :------------------------------------------------------ | | Kansas Development Finance Authority bond | 0.7 | 0.7 | 1.3 | 1.6 | | Foreign currency (losses) gains | 12.3 | 1.4 | 27.2 | (7.5) | | Loss on foreign currency forward contract | (4.7) | — | (4.0) | — | | Loss on sale of accounts receivable | (4.1) | (1.4) | (6.5) | (3.0) | | Pension income | 17.9 | 26.4 | 41.3 | 52.5 | | Excise tax on pension assets reversion | (6.8) | — | (6.8) | — | | Other | 19.3 | 4.0 | 19.8 | 0.3 | | Total | 34.6 | 31.1 | 72.3 | 43.9 | - The six months ended June 30, 2022, includes a $20.7 million gain related to the full settlement of the repayable investment agreement with the U.K.'s Department for Business, Energy and Industrial Strategy[173] 22. Segment Information Commercial segment revenues increased by 31% to $1,969.5 million, with improved operating loss, while other segments maintained profitability - Approximately 82% of net revenues for the six months ended June 30, 2022, came from Boeing and Airbus[174] Segment Revenues and Operating Income (Loss) | Segment | Three Months Ended June 30, 2022 ($ in millions) | Three Months Ended July 1, 2021 ($ in millions) | Six Months Ended June 30, 2022 ($ in millions) | Six Months Ended July 1, 2021 ($ in millions) | | :---------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Segment Revenues | | | | | | Commercial | 1,031.1 | 803.6 | 1,969.5 | 1,499.7 | | Defense & Space | 146.4 | 141.8 | 304.9 | 295.2 | | Aftermarket | 80.4 | 56.7 | 158.2 | 108.0 | | Segment Operating Income (Loss) | | | | | | Commercial | (45.1) | (44.7) | (48.5) | (127.6) | | Defense & Space | 13.7 | 12.4 | 33.7 | 24.4 | | Aftermarket | 11.8 | 14.8 | 29.8 | 25.6 | | Total operating loss | (104.7) | (97.7) | (146.9) | (223.6) | - Commercial segment operating margins improved from (9%) to (2%) for the six months ended June 30, 2022, driven by lower excess capacity and restructuring costs, and increased B737 program sales[244] - Defense & Space segment operating margins increased from 8% to 11% for the six months ended June 30, 2022, due to lower excess capacity, restructuring costs, and the AMJP grant[246] 23. Restructuring Costs Restructuring costs significantly decreased to $0.2 million for the six months, reflecting reduced cost-alignment activities - Total restructuring costs for the six months ended June 30, 2022, were $0.2 million, included in the Commercial Segment[189] - For the six months ended July 1, 2021, total restructuring costs were $7.3 million, primarily due to site closures[190] 24. Subsequent Events The company plans to terminate Pension Value Plan A, expecting a $74 million non-cash charge and at least $180 million in settlement charges - In July 2022, the Company adopted a plan to terminate its Pension Value Plan A (PVP A)[191] - The Company expects to recognize a non-cash, pre-tax non-operating charge of approximately $74 million for increased periodic benefit costs in Q3 2022[191] - Non-cash pre-tax non-operating settlement charges of at least $180 million are expected due to accelerated recognition of actuarial losses, with finalization between Q3 2022 and Q1 2023[191] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses financial condition, results of operations, and impacts of COVID-19 and global events on key programs COVID-19 The COVID-19 pandemic continues to significantly impact the aviation industry and the company's global business - The COVID-19 pandemic continues to significantly negatively impact the aviation industry, customers, and the Company's global business[194] - The Company cannot accurately predict the future impact of COVID-19, expecting business operations to improve only when customers produce aircraft at sufficient levels, dependent on public air travel willingness, OEM orders, and airline financial resources[194] Global Economic Events The Russian invasion of Ukraine and associated sanctions led to a $28.1 million pre-tax loss in Q2 2022 - The Russian invasion of Ukraine and associated U.S. sanctions led to the suspension of sanctioned activities relating to Russia, resulting in an aggregate pre-tax loss of $28.1 million in Q2 2022[195] - Prospective impacts to revenues, net income, net assets, and cash flow from operations are not material, but a significant expansion of economic disruption or conflict escalation could have a material adverse effect[195] B737 Program The B737 MAX program is critical, generating approximately 35% of net revenues in 2021, but faces ongoing demand challenges - The B737 MAX program is critical, generating approximately 35% of net revenues in 2021[196] - Boeing's deliveries of the B737 MAX resumed in Q4 2020, with most international regulators ungrounding the aircraft; China issued an airworthiness directive in December 2021[197] - Ongoing demand challenges from the B737 MAX grounding are exacerbated by the COVID-19 pandemic, with narrowbody production rates expected to recover before widebody rates[198][199] - Failure to achieve FAA certification for 737 MAX 7 and MAX 10 models or inconsistent entry into service could adversely impact future revenues, earnings, and cash flows[200] B787 Program The B787 program incurred additional forward losses of $30.9 million and $44.3 million for the three and six months, respectively - For the three and six months ended June 30, 2022, the B787 program incurred additional forward losses of $30.9 million and $44.3 million, respectively, due to production rate decreases, build schedule changes, supply chain costs, and rework costs[201] - Changes to the scope of quality issues, rework, production rates, cost assessments, or claims could lead to further incremental forward loss charges[201] Results of Operations This section analyzes the company's revenue, gross profit, operating loss, and net loss, along with comparative shipset deliveries Operating Data Summary | Metric | Three Months Ended June 30, 2022 ($ in millions) | Three Months Ended July 1, 2021 ($ in millions) | Six Months Ended June 30, 2022 ($ in millions) | Six Months Ended July 1, 2021 ($ in millions) | | :------------------------------------------ | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenue | 1,257.9 | 1,002.1 | 2,432.6 | 1,902.9 | | Gross profit (loss) | (19.6) | (12.3) | 15.2 | (70.3) | | Operating loss | (104.7) | (97.7) | (146.9) | (223.6) | | Net loss | (122.2) | (135.3) | (175.0) | (306.9) | Comparative Shipset Deliveries by Model | Model | Three Months Ended June 30, 2022 | Three Months Ended July 1, 2021 | Six Months Ended June 30, 2022 | Six Months Ended July 1, 2021 | | :------------------------ | :------------------------------- | :------------------------------ | :------------------------------- | :------------------------------ | | B737 | 71 | 35 | 131 | 64 | | Total Boeing | 89 | 63 | 166 | 123 | | A220 | 16 | 15 | 34 | 27 | | A320 Family | 147 | 96 | 302 | 226 | | Total Airbus | 180 | 126 | 374 | 285 | | Total Business and Regional Jets | 49 | 46 | 99 | 89 | | Total | 318 | 235 | 639 | 497 | - Net revenue for the three months ended June 30, 2022, increased by $255.8 million (25.5%) to $1,257.9 million, primarily due to increased B737 production[211] - Gross loss for the three months ended June 30, 2022, was ($19.6) million, an increase in loss from ($12.3) million in the prior year, impacted by a $28.1 million charge related to Russia sanctions and unfavorable cumulative catch-up adjustments and forward loss charges[213] - Operating loss for the six months ended June 30, 2022, improved by $76.7 million to ($146.9) million, compared to ($223.6) million in the prior year, reflecting increased gross profit and changes in operating expenses[235] Liquidity and Capital Resources This section reviews the company's debt, cash position, and significant cash flow activities, including asset sales and grants - As of June 30, 2022, total debt was $3,772.5 million, and cash and cash equivalents decreased by $708.4 million to $770.2 million from December 31, 2021[249] - The company settled a repayable investment agreement with the U.K.'s Department for Business, Energy and Industrial Strategy in April 2022 with a payment of $292.8 million[250] - The company received the full $75.5 million grant from the Aviation Manufacturing Jobs Protection Program as of June 30, 2022[251] - For the six months ended June 30, 2022, $1,309.6 million of accounts receivable were sold via factoring arrangements with Boeing, Airbus, and Rolls-Royce[253] - The balance of payables to suppliers participating in the supply chain financing program increased to $95.7 million as of June 30, 2022, from $55.5 million as of July 1, 2021[276] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily interest rate fluctuations, with no material changes since its 2021 Form 10-K - The Company is exposed to market risks, including fluctuations in interest rates on its variable rate debt[286] - There have been no material changes in the Company's market risk from the information provided in its 2021 Form 10-K[286] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - The President and CEO and Senior VP and CFO concluded that disclosure controls and procedures were effective as of June 30, 2022[287] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[288] PART II — OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings and exhibits Item 1. Legal Proceedings Information on legal proceedings is incorporated by reference from Note 20 of the condensed consolidated financial statements - Information on legal proceedings is incorporated by reference from Note 20, Commitments, Contingencies and Guarantees, in the condensed consolidated financial statements[291] Item 1A. Risk Factors There have been no material changes to the risk factors described in the company's 2021 Form 10-K - There have been no material changes from the risk factors described in the Company's 2021 Form 10-K[292] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No purchases were made under the share repurchase program, but 30,869 shares were transferred for tax withholding Issuer Purchases of Equity Securities (Three Months Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Repurchased Under the Plans or Programs ($ in millions) | | :-------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------- | | April 1, 2022 - May 5, 2022 | 19,549 | $48.69 | — | $925.0 | | May 6, 2022 - June 2, 2022 | 9,322 | $29.40 | — | $925.0 | | June 3, 2022 - June 30, 2022 | 1,998 | $29.09 | — | $925.0 | | Total | 30,869 | $43.69 | — | $925.0 | - 30,869 shares were transferred from employees to satisfy tax withholding obligations associated with the vesting of restricted stock awards[296] - No purchases were made under the Board-approved share repurchase program, which has $925.0 million remaining authorization but is currently on hold due to Credit Agreement restrictions[296] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - No defaults upon senior securities occurred[296] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[297] Item 5. Other Information No other information to report under this item - No other information to report[297] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including bylaws, employment agreements, and certifications Key Exhibits Filed | Exhibit Number | Exhibit | Incorporated by Reference to the Following Documents | | :------------- | :------------------------------------------------ | :--------------------------------------------------- | | 3.1 | Ninth Amended and Restated Bylaws of Spirit AeroSystems Holdings, Inc. | Current Report on Form 8-K (File No. 001-33160), filed July 13, 2022, Exhibit 3.1 | | † 10.1 | Employment Agreement, dated September 12, 2013, between Spirit AeroSystems, Inc. and Kevin Matthies | * | | 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | * | | 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | * | | 32.1** | Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002. | ** | | 32.2** | Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002. | ** | | 101.INS* | Inline XBRL Instance Document | * | | 104 | Cover Page Interactive Data File | | Signatures The report was signed by the Senior Vice President and CFO and Vice President, Corporate Controller on August 3, 2022 - The report was signed by Mark J. Suchinski, Senior Vice President and Chief Financial Officer, and Damon Ward, Vice President, Corporate Controller, on August 3, 2022[303]