SPIRIT AEROSYSTEMS HOLDINGS, INC. 
WICHITA, Kan., Oct. 31, 2014 /PRNewswire/ -- Spirit AeroSystems Holdings, Inc. [NYSE: SPR] reported third quarter 2014 financial results reflecting continued healthy demand for large commercial aircraft and strong mature program operating performance. Spirit's third quarter 2014 revenues were $1.7 billion, up from $1.5 billion for the same period in 2013 on higher deliveries.
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Operating income was $216 million, up from $51 million for the same period in 2013. Net income for the quarter was $168 million, or $1.20 per fully diluted share.
Table 1. Summary Financial Results (unaudited)
----------------------------------------------
3rd Quarter Nine Months
----------- -----------
($ in millions,
except per
share data) 2014 2013 Change 2014 2013 Change
--------------- ---- ---- ------ ---- ---- ------
Revenues $1,693 $1,504 13% $5,225 $4,467 17%
Operating
Income (Loss) $216 $51 324% $627 ($44) 1,525%
Operating
Income (Loss)
as a % of
Revenues 12.8% 3.4% 940 BPS 12.0% (1.0%) 1,300 BPS
Net Income
(Loss) $168 $94 79% $465 ($35) 1,429%
Net Income
(Loss) as a %
of Revenues 9.9% 6.2% 370 BPS 8.9% (0.8%) 970 BPS
Earnings (Loss)
Per Share
(Fully
Diluted) $1.20 $0.65 85% $3.27 ($0.24) 1,463%
Fully Diluted
Weighted Avg
Share Count 140.0 143.4 142.2 141.2
"It has been a good quarter for the industry as aerospace has seen a number of significant milestones. Boeing announced an increase in the 737 production rate to an all-time high of 52 per month beginning in 2018 following a previous announcement of 47 per month in 2017," said President and Chief Executive Officer Larry Lawson.
"Another significant highlight this quarter was Airbus' achievement of two important milestones. These milestones include type certification of the Airbus A350 by EASA and first flight of the Airbus A320neo. We would like to congratulate Airbus on these accomplishments and we are proud to be on the team," Lawson continued.
"We are maximizing our internal capabilities more effectively. This quarter we continued to consolidate our global engineering resources to have better workforce stability, improved domain expertise and lower cost. We're in the final stages of centralizing our procurement activities which is already yielding improvement in performance and cost," Lawson continued.
Spirit's backlog grew to a new record of approximately $44 billion at the end of the third quarter compared to $41 billion at the end of the second quarter.
Spirit updated its contract profitability estimates during the third quarter of 2014 due to improved performance and reduced risks, resulting in net pre-tax $33 million, or $0.16 per share(#), favorable cumulative catch-up adjustments on mature programs.
In comparison, the third quarter of 2013 included net pre-tax charges of ($124) million and net pre-tax favorable cumulative catch-up adjustments of $28 million.
Free cash flow was a $75 million* source of cash for the third quarter of 2014, compared to a $128 million* source of cash for the third quarter of 2013 reflecting higher cash tax payments, partially offset by improved operational performance and lower capital expenditures. Year-to-date free cash flow was a $194 million* source of cash compared to a $7 million* source of cash in 2013. (Table 2)
Table 2. Cash Flow and
Liquidity (unaudited)
3rd Quarter Nine Months
----------- -----------
($ in millions) 2014 2013 2014 2013
-------------- ---- ---- ---- ----
Cash Flow from
Operations $119 $185 $328 $199
Purchases of Property,
Plant & Equipment ($44) ($57) ($134) ($192)
Free Cash Flow* $75 $128 $194 $7
October 2, December 31,
Liquidity 2014 2013
---- ----
Cash $453 $421
Total Debt $1,157 $1,167
Cash balances at the end of the quarter were $453 million and debt balances were $1,157 million. At the end of the third quarter of 2014, the company's $650 million credit facility remained undrawn. The company's credit rating remained unchanged at the end of the third quarter of 2014.
On August 7, 2014, Spirit, Onex and certain current and former members of Spirit management entered into an underwriting agreement for the sale by such stockholders of 8,577,155 shares of Spirit's Class A common stock in a secondary public offering. Following the completion of the offering, which closed on August 13, 2014, Onex no longer owned any shares of the company.
Financial Outlook and Risk to Future Financial Results
Spirit revenue guidance for the full-year 2014 is expected to be $6.8 to $6.9 billion based on Boeing's 2014 projected deliveries of 715 to 725 aircraft; projected Airbus deliveries in 2014 at a similar level to those in 2013; internal Spirit forecasts for other customer production activities; and expected non-production revenues.
Fully diluted earnings per share guidance for 2014 is increased and is expected to be $3.35 to $3.45 per share and does not include the impact of the year-to-date and potential future adjustments to the deferred tax asset valuation allowance.
Free cash flow guidance is increased by $25 million and is now expected to be approximately $275 million* from previous guidance of $250 million*.
The effective tax rate for 2014 is forecasted to be approximately 30.0 to 31.0 percent, including the expected benefit of the U.S. Research Tax Credit for 2014, and excluding any potential adjustment to the valuation allowance recorded against the U.S. net deferred tax assets at the end of 2013. (Table 3)
Risks to our financial guidance are described in the Cautionary Statement Regarding Forward-Looking Statements contained in this release and in the "Risk Factors" section of our filings with the Securities and Exchange Commission.
Table 3. Financial
Outlook Updated
October 31, 2014 Previous 2014 Guidance 2014 Guidance
------------------- ---------------------- -------------
Revenues $6.7 - $6.9 billion $6.8 - $6.9 billion
Earnings Per
Share (Fully
Diluted) $2.90 - $3.05 $3.35 - $3.45
Effective Tax
Rate** ~30.0% - 31.0% ~30.0% - 31.0%
Free Cash Flow* ~$250 million ~$275 million
** Effective tax rate
guidance, among other
factors, assumes the
benefit attributable to the
extension of the U.S.
Research Tax Credit and
does not assume an impact
for any potential
adjustment to the valuation
allowance recorded against
the U.S. net deferred tax
assets at the end of 2013.
Segment Results
Fuselage Systems
Fuselage Systems segment revenues in the third quarter of 2014 were $804 million, up from $710 million for the same period last year due to higher production deliveries. Operating margin for the third quarter of 2014 was 17.7 percent as compared to 4.2((1) (2)) percent during the same period of 2013. In the third quarter of 2014 the segment recorded pre-tax $10 million favorable cumulative catch-up adjustments on mature programs. In comparison, the segment realized pre-tax forward loss charges of ($117) million and pre-tax $20 million favorable cumulative catch-up adjustments in the third quarter of 2013.
Propulsion Systems
Propulsion Systems segment revenues in the third quarter of 2014 rose to $442 million, from $389 million for the same period last year on higher production deliveries. Operating margin for the third quarter of 2014 was 18.5 percent as compared to 18.8((1) (2)) percent in the third quarter of 2013. In the third quarter of 2014 the segment realized pre-tax $8 million favorable cumulative catch-up adjustments on mature programs. In comparison, the segment reported a pre-tax forward loss charge of ($1) million and pre-tax 4 million favorable cumulative catch-up adjustments in the third quarter of 2013.
Wing Systems
Wing Systems segment revenues in the third quarter of 2014 increased to $446 million, from $398 million for the same period last year on higher production deliveries. Operating margin for the third quarter of 2014 was 14.1 percent as compared to 9.5( (1) (2)) percent during the same period of 2013. In the third quarter of 2014 the segment recorded pre-tax $15 million favorable cumulative catch-up adjustments on mature programs. In comparison, in the third quarter of 2013 the segment recorded a pre-tax forward loss charge of ($6) million and pre-tax $4 million favorable cumulative catch-up adjustments.
(1) For the three months ended
September 26, 2013, corporate
SG&A of $1.4 million, $1.3
million and $1.9 million was
reclassified from segment
operating income for Fuselage,
Propulsion, and Wing Systems,
respectively, to conform to
current year presentation.
(2) For the three months ended
September 26, 2013, research
and development of $2.6
million, $1.7 million and $1.1
million was reclassified from
segment operating income for
Fuselage, Propulsion, and Wing
Systems, respectively, to
conform to current year
presentation.
# The earnings per share amount is
presented net of income taxes of
31.0%.
* Non-GAAP financial measure, see
Appendix for reconciliation.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains "forward-looking statements" that may involve many risks and uncertainties. Forward-looking statements reflect our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "anticipate," "intend," "estimate," "believe," "project," "continue," "plan," "forecast," or other similar words, or the negative thereof, unless the context requires otherwise. These statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements. Important factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook include, but are not limited to, the following: 1) our ability to continue to grow our business and execute our growth strategy; 2) our ability to perform our obligations and manage costs related to our new and maturing programs; 3) margin pressures and the potential for additional forward losses on new and maturing programs; 4) our ability to accommodate, and the cost of accommodating, announced increases in the build rates of certain aircraft; 5) the effect on business and commercial aircraft demand and build rates of changing customer preferences, global economic conditions, and conflicts in the Middle East or Asia; 6) the success and timely execution of key milestones, such as certification and first delivery of Airbus' A350 XWB aircraft, receipt of necessary regulatory approvals and customer adherence to their announced schedules; 7) our ability to successfully negotiate future pricing under our agreements with Boeing, Airbus and our other customers; 8) our ability to enter into profitable supply arrangements with additional customers; 9) the ability of all parties to satisfy their performance requirements under existing supply contracts with our customers and the risk of nonpayment by such customers; 10) our ability to secure work for replacement programs; 11) any adverse impact on Boeing's and Airbus' production of aircraft; 12) any adverse impact on the demand for air travel or our operations from the outbreak of diseases or epidemic or pandemic outbreaks; 13) returns on pension plan assets and the impact of future discount rate changes on pension obligations; 14) our ability to borrow additional funds or refinance debt; 15) our ability to sell all or any portion of our Oklahoma sites on terms acceptable to us; 16) competition from commercial aerospace original equipment manufacturers and other aerostructures suppliers; 17) the effect of governmental laws, such as U.S. export control laws and U.S. and foreign anti-bribery laws such as the Foreign Corrupt Practices Act and United Kingdom Bribery Act, and environmental laws and agency regulations, both in the U.S. and abroad; 18) the cost and availability of raw materials and purchased components; 19) any reduction in our credit ratings; 20) our ability to recruit and retain highly skilled employees and our relationships with the unions representing many of our employees; 21) spending by the U.S. and other governments on defense; 22) the possibility that our cash flows and borrowing facilities may not be adequate; 23) our exposure under our existing senior secured revolving credit facility to higher interest payments should interest rates increase substantially; 24) the effectiveness of our interest rate and hedging programs; 25) the effectiveness of our internal control over financial reporting; 26) the outcome or impact of ongoing or future litigation, claims and regulatory actions; and 27) our exposure to potential product liability and warranty claims. These factors are not exhaustive and it is not possible for us to predict all factors that could cause actual results to differ materially from those reflected in our forward-looking statements. These factors speak only as of the date hereof, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. Except to the extent required by law, we undertake no obligation to, and expressly disclaim any obligation to, publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
Appendix
Table 4. Segment
Reporting (unaudited) (unaudited)
3rd Quarter Nine Months
----------- -----------
($ in millions) 2014 2013 Change 2014 2013 Change
-------------- ---- ---- ------ ---- ---- ------
Segment Revenues
Fuselage Systems $804.0 $710.3 13.2% $2,567.3 $2,160.3 18.8%
Propulsion Systems 441.8 389.2 13.5% 1,352.5 1,183.1 14.3%
Wing Systems 446.2 397.8 12.2% 1,298.7 1,109.7 17.0%
All Other 1.0 6.4 6.3 13.5
Total Segment
Revenues $1,693.0 $1,503.7 12.6% $5,224.8 $4,466.6 17.0%
Segment Earnings
(Loss) from
Operations
Fuselage Systems $142.4 $29.8 377.9% $416.6 $311.2 33.9%
Propulsion Systems 81.8 73.0 12.1% 248.2 226.4 9.6%
Wing Systems 63.1 37.9 66.5% 184.1 (343.9) 153.5%
All Other (0.3) 0.7 - 4.1
Total Segment
Operating Earnings
(Loss)(1) (2) $287.0 $141.4 103.0% $848.9 $197.8 329.2%
Unallocated Expense
Corporate SG&A(1) ($50.0) ($52.8) (5.3%) ($164.9) ($151.2) 9.1%
Impact From Severe
Weather Event - (4.5) - (19.6)
Research &
Development(2) (8.7) (7.5) 16.0% (21.8) (23.6) (7.6%)
Cost of Sales (12.0) (26.1) (54.0%) (35.3) (46.9) (24.7%)
----- ------ ----- ------
Total Earnings
(Loss) from
Operations $216.3 $50.5 328.3% $626.9 ($43.5) 1,541.1%
Segment Operating
Earnings (Loss) as
% of Revenues
Fuselage Systems 17.7% 4.2% 1,350 BPS 16.2% 14.4% 180 BPS
Propulsion Systems 18.5% 18.8% (30) BPS 18.4% 19.1% (70) BPS
Wing Systems 14.1% 9.5% 460 BPS 14.2% (31.0%) 4,520 BPS
All Other (30.0%) 10.9% 0.0% 30.4%
Total Segment
Operating Earnings
(Loss) as % of
Revenues 17.0% 9.4% 760 BPS 16.2% 4.4% 1,180 BPS
Total Operating
Earnings (Loss) as
% of Revenues 12.8% 3.4% 940 BPS 12.0% (1.0%) 1,300 BPS
(1) For the three months ended
September 26, 2013, corporate
SG&A of $1.4 million, $1.3
million and $1.9 million was
reclassified from segment
operating income for Fuselage,
Propulsion, and Wing Systems,
respectively, to conform to
current year presentation. For
the nine months ended September
26, 2013, corporate SG&A of
$5.5 million, $3.4 million and
$4.3 million was reclassified
from segment operating income
for Fuselage, Propulsion, and
Wing Systems, respectively, to
conform to current year
presentation.
(2) For the three months ended
September 26, 2013, research
and development of $2.6
million, $1.7 million and $1.1
million was reclassified from
segment operating income for
Fuselage, Propulsion, and Wing
Systems, respectively, to
conform to current year
presentation. For the nine
months ended September 26,
2013, research and development
of $8.5 million, $6.1 million
and $3.1 million was
reclassified from segment
operating income for Fuselage,
Propulsion, and Wing Systems,
respectively, to conform to
current year presentation.
Spirit Ship Set Deliveries
(one ship set equals one
aircraft)
3rd Quarter Nine Months
-----------
2014 2013 2014** 2013
---- ---- ----- ----
B737 124 114 379 335
B747 5 6 14 16
B767 4 3 10 14
B777 25 26 77 75
B787 26 15 90 46
--- --- --- ---
Total 184 164 570 486
A320 Family* 132 116 381 376
A330/340 27 26 87 83
A350 4 1 11 4
A380 8 9 22 26
--- --- --- ---
Total 171 152 501 489
Business/Regional Jet 37 27 105 66
--- --- --- ---
Total Spirit 392 343 1,176 1,041
=== === ===== =====
* 2013 A320 deliveries have
been updated for the
purpose of measuring wing
ship set deliveries, from
weighted average to total
ship set.
** Includes four additional
workdays as compared to
prior year period.
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
October 2, 2014 September 26, 2013 October 2, 2014 September 26, 2013
--------------- ------------------ --------------- ------------------
($ in millions, except per share data)
Net revenues $1,693.0 $1,503.7 $5,224.8 $4,466.6
Operating costs and expenses:
Cost of sales 1,418.0 1,388.4 4,411.2 4,315.7
Selling, general and
administrative 50.0 52.8 164.9 151.2
Impact from severe
weather event - 4.5 - 19.6
Research and
development 8.7 7.5 21.8 23.6
--- --- ---- ----
Total operating costs and
expenses 1,476.7 1,453.2 4,597.9 4,510.1
Operating income (loss) 216.3 50.5 626.9 (43.5)
Interest expense and
financing fee
amortization (16.0) (17.1) (72.2) (52.0)
Interest income 0.2 0.1 0.4 0.2
Other (expense) income,
net (8.6) 7.4 (1.6) (1.2)
---- --- ---- ----
Income (loss) before income
taxes and equity in net
income (loss) of affiliate 191.9 40.9 553.5 (96.5)
Income tax (provision)
benefit (23.9) 53.0 (88.9) 62.3
----- ---- ----- ----
Income (loss) before equity
in net income (loss) of
affiliate 168.0 93.9 464.6 (34.2)
Equity in net income
(loss) of affiliate - (0.2) 0.4 (0.3)
--- ---- --- ----
Net income (loss) $168.0 $93.7 $465.0 ($34.5)
======
Earnings (loss) per share
Basic $1.21 $0.66 $3.30 ($0.24)
Shares 138.6 141.4 140.4 141.2
Diluted $1.20 $0.65 $3.27 ($0.24)
Shares 140.0 143.4 142.2 141.2
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
October 2, 2014 December 31, 2013
--------------- -----------------
($ in millions)
Current assets
Cash and cash equivalents $452.8 $420.7
Accounts receivable, net 809.3 550.8
Inventory, net 1,886.1 1,842.6
Other current assets 79.0 130.1
---- -----
Total current assets 3,227.2 2,944.2
Property, plant and equipment, net 1,784.9 1,803.3
Pension assets, net 276.8 252.6
Other assets 116.2 107.1
----- -----
Total assets $5,405.1 $5,107.2
======== ========
Current liabilities
Accounts payable $709.3 $753.7
Accrued expenses 272.9 220.6
Current portion of long-term debt 9.6 16.8
Advance payments, short-term 103.1 133.5
Deferred revenue, short-term 21.8 19.8
Other current liabilities 179.4 191.2
----- -----
Total current liabilities 1,296.1 1,335.6
Long-term debt 1,147.0 1,150.5
Advance payments, long-term 713.3 728.9
Deferred revenue and other deferred
credits 27.8 30.9
Pension/OPEB obligation 74.9 69.8
Other liabilities 331.2 310.5
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,
141,164,346 and 120,946,429 shares
issued, respectively 1.4 1.2
Common stock, Class B par value $0.01,
150,000,000 shares authorized, 73,330
and 23,851,694 shares issued,
respectively - 0.2
Additional paid-in capital 1,032.3 1,025.0
Accumulated other comprehensive (loss) (63.9) (54.6)
Retained earnings 973.7 508.7
Treasury stock, at cost (4,000,000 and
zero shares, respectively) (129.2) -
------ ---
Total shareholders' equity 1,814.3 1,480.5
Noncontrolling interest 0.5 0.5
--- ---
Total equity 1,814.8 1,481.0
------- -------
Total liabilities and equity $5,405.1 $5,107.2
======== ========
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Nine Months Ended
-------------------------
October 2, 2014 September 26, 2013
--------------- ------------------
($ in millions)
Operating activities
Net income (loss) $465.0 ($34.5)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation expense 126.3 117.4
Amortization expense 26.7 8.7
Accretion of customer supply agreement 0.8 0.3
Employee stock compensation expense 12.7 15.7
Excess tax benefits from share-based payment
arrangements (2.4) (0.5)
Loss on disposition of assets 0.3 0.2
Loss on interest rate swaps 0.1 -
Gain from hedge contracts (1.4) (1.9)
Loss from foreign currency transactions 4.3 3.3
Deferred taxes 2.1 (104.6)
Long-term tax provision (1.2) (2.5)
Pension and other post-retirement benefits,
net (19.2) (10.8)
Grant income (6.3) (5.3)
Equity in net (income) loss of affiliate (0.4) 0.3
Changes in assets and liabilities
Accounts receivable (264.2) (206.5)
Inventory, net (122.5) 331.4
Accounts payable and accrued liabilities 61.3 87.5
Advance payments (46.0) (23.8)
Income taxes receivable/payable 37.2 (8.3)
Deferred revenue and other deferred credits 0.9 9.5
Other 54.2 23.7
Net cash provided by operating activities 328.3 199.3
----- -----
Investing activities
Purchase of property, plant and equipment (134.0) (168.1)
Purchase of property, plant and equipment -
severe weather related expenses - (23.4)
Other 0.4 (0.5)
Net cash used in investing activities (133.6) (192.0)
------ ------
Financing activities
Proceeds from issuance of bonds 300.0 -
Principal payments of debt (14.6) (8.0)
Payment on bonds (300.0) -
Excess tax benefits from share-based payment
arrangements 2.4 0.5
Debt issuance and financing costs (20.8) (4.1)
Purchase of treasury stock (129.2) -
Net cash used in financing activities (162.2) (11.6)
------ -----
Effect of exchange rate changes on cash and
cash equivalents (0.4) (0.8)
---- ----
Net increase (decrease) in cash and cash
equivalents for the period 32.1 (5.1)
Cash and cash equivalents, beginning of the
period 420.7 440.7
----- -----
Cash and cash equivalents, end of the period $452.8 $435.6
====== ======
Management believes the non-GAAP (Generally Accepted Accounting Principles) measures (indicated by *) used in this report provide investors with important perspectives into the company's ongoing business performance. The company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measure. Other companies may define the measure differently.
Free Cash Flow
($ in millions)
Previous Current
3rd Quarter Nine Months Guidance Guidance
----------- ----------- -------- --------
2014 2013 2014 2013 2014 2014
---- ---- ---- ---- ---- ----
Cash Provided by
Operating Activities $118.8 $185.0 $328.3 $199.3 $460 - $485 $475 - $500
Capital Expenditures (44.4) (56.5) (134.0) (191.5) (210) - (235) (200) - (225)
----- ----- ------ ------
Free Cash Flow $74.4 $128.5 $194.3 $7.8 ~$250 ~$275
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SOURCE Spirit AeroSystems Holdings, Inc.
