Spirit AeroSystems Holdings, Inc. Reports Third Quarter 2008 Financial Results;
Includes Impact of Machinists Strike at Boeing
WICHITA, Kan., Oct. 29 /PRNewswire-AsiaNet/ --
- Third quarter 2008 revenues grew 6 percent to $1.027 billion
- Operating Income grew 4 percent to $111 million
- Fully Diluted Earnings Per Share were $0.53
- Cash and Cash Equivalents were $178 million
- Total backlog increased 35 percent to approximately $31.8 billion
Spirit AeroSystems Holdings, Inc. (NYSE: SPR) reported third quarter 2008
financial results reflecting revenue growth and solid double-digit operating
margins while winning new business and responding to a labor strike at its
largest customer.
Spirit's third quarter 2008 revenues increased to $1.027 billion, up 6
percent from the same period last year. Operating income increased 4 percent
to $111 million, up from $107 million in the same period a year ago as
revenues increased and lower period expenses were realized. Net income was
$74 million, or $0.53 per fully diluted share, compared to $84 million, or
$0.60 per fully diluted share, in the same period of 2007.
Table 1. Summary Financial Results
3rd Quarter Nine Months
($'s in Millions, except
per share data) 2008 2007 Change 2008 2007 Change
Revenues $1,027 $968 6% $3,126 $2,880 9%
Operating Income $111 $107 4% $378 $313 21%
Operating Income as a % of
Revenues 10.8% 11.0% (20) BPS 2.1% 10.8% 130 BPS
Net Income $74 $84 (11%) $246 $221 11%
Net Income as a % of Revenues 7.2% 8.6% (140)BPS 7.9% 7.7% 20 BPS
Earnings per Share (Fully
diluted) $0.53 $0.60 (12%) $1.76 $1.59 11%
Fully Diluted Weighted Avg
Share Count (Millions) 139.1 139.5 139.2 139.2
Third quarter 2008 net income and earnings per share benefited from a
lower effective tax rate of 29.5 percent resulting largely from higher federal
research and experimention (R&E) credits that increased earnings by $0.02 per
fully diluted share. Spirit also benefited from a lower effective tax rate
during the prior year period due to higher state Investment Tax Credits and
R&E credits. The lower tax rate contributed $0.09 per fully diluted share to
third quarter 2007 results.
In early September, Spirit responded to a labor strike at The Boeing
Company, its largest customer. The work stoppage by the International
Association of Machinists and Aerospace Workers (IAM) resulted in Spirit
taking immediate action to implement a reduced work week schedule for all
employees supporting certain Boeing programs. This action resulted in
continued employment for Spirit employees while helping the company maintain
production efficiencies at lower volumes during the work stoppage. As a
result of the work stoppage, third quarter 2008 ship set deliveries to Boeing
were nine units less than previously expected, resulting in a revenue
reduction for the quarter of $53 million and a reduction in earnings per share
of $0.13. The earnings per share impact includes $0.09 per share from an $18
million unfavorable cumulative catch-up adjustment attributable to the strike.
"We continue to execute well and remain focused on our long-term strategy
as we respond to the work stoppage at our largest customer," said President
and Chief Executive Officer Jeff Turner. "Revenues increased and company-wide
operating profitability continued to grow modestly compared to the third
quarter of 2007 as we reduced deliveries to Boeing Commercial Airplanes during
the last three weeks of September," Turner continued. "We are working hard to
minimize the impact of the strike on our employees and shareholders while
balancing the needs and requirements of all of our customers. I am very proud
of our team's performance and resilience during this challenging period,"
Turner added.
During the quarter, Spirit accomplished several milestones on key projects
and continued to expand its customer base in the aftermarket. Also during the
quarter, the company announced the expansion of its Wichita factory to
accommodate the development and production of the Cessna Citation Columbus
Fuselage; opened Spirit's European Repair Station in Prestwick, Scotland; and
broke ground on the A350 factory in North Carolina. In October, Spirit also
announced spare parts supply agreements with both Southwest and Continental
Airlines, and announced a new development and production contract for the
Mitsubishi Regional Jet pylon. At the recent NBAA tradeshow, Spirit was
announced as the wing supplier for Gulfstream's new super mid-size G250
business jet, a contract previously disclosed as being with an unidentified
customer.
"As for the outlook of the commercial aerospace market," Turner
maintained, "we absolutely believe that we operate in a global market which
will continue to see long-term growth. However, we are closely monitoring the
recent developments in the global financial markets and assessing the
potential near-term impact on the commercial aerospace segment."
Spirit's backlog at quarter-end increased 35 percent from $23.5 billion in
the year-ago period to $31.8 billion, as combined 2008 year-to-date net orders
for 1,360 aircraft at Boeing and Airbus outpaced their combined deliveries of
674 aircraft. Spirit's backlog is calculated based on contractual prices for
products and volumes from the published firm order backlogs of Boeing and
Airbus, along with firm orders from other customers.
Spirit updated its contract profitability estimates during the third
quarter of 2008 to reflect continued operating efficiency improvements and the
impact of the IAM strike at Boeing Commercial Airplanes. The company's
continued focus on improving operating efficiency resulted in a $5 million
favorable cumulative catch-up adjustment which partially offset an $18 million
unfavorable cumulative catch-up adjustment caused by the IAM work stoppage at
Boeing. The unfavorable adjustment reflects the impact of the strike on
current contract block profitability. The adjustment assumes a favorable
ratification vote and a return to work by early next week, followed by an
approximately ninety day transition period at Spirit to absorb units built
ahead of customer requirements. The net impact to Spirit's third quarter 2008
results was a $13 million net unfavorable cumulative catch-up adjustment
reflected primarily in the Fuselage Systems segment. During the third quarter
of 2007, no net changes to contract estimates were realized.
Cash flow from operations was $68 million for the third quarter 2008,
compared to $41 million for third quarter 2007. The company's continued
investment in new development programs, reflected largely as pre-production
inventory balances, was more than offset by earnings, customer advances, and
accounts receivable performance. The timing lag in reducing incoming supplier
material, driven by the Boeing IAM strike, also contributed to higher
inventory balances in the quarter.
Table 2. Cash Flow and Liquidity
3rd Quarter Nine Months
($'s in Millions) 2008 2007 2008 2007
Cash Flow from Operations $68 $41 $147 $105
Purchases of Property, Plant &
Equipment ($56) ($69) ($175) ($228)
Sept 25, December 31,
Liquidity 2008 2007
Cash $178 $133
Current Portion of Long-term Debt
plus Long-term Debt $592 $595
Cash balances at the end of the third quarter were $178 million and debt
balances were $592 million. At the end of the third quarter 2008,
approximately $636 million of the $650 million revolving credit facility was
undrawn. Approximately $14 million of the credit facility was used for
financial letters of credit associated with workers compensation insurance.
The company's credit ratings remained unchanged with a BB rating at Standard &
Poor's and a Ba3 rating at Moody's.
Outlook
Spirit continues to operate well across business segments and remains
financially healthy with a solid balance sheet and strong liquidity. The
company anticipates the continuation of reduced work weeks or other production
adjustments throughout the duration of the strike at Boeing and beyond, while
fully meeting its obligations to non-Boeing customers. At the conclusion of
the work stoppage, Spirit anticipates working closely with Boeing to establish
a revised production plan and delivery schedule. The company intends to
provide an updated financial outlook at the conclusion of that process, which
we now anticipate to be no later than the end of November.
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report contains "forward-looking statements." Forward-
looking statements reflect our current expectations or forecasts of future
events. Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"intend," "estimate," "believe," "project," "continue," "plan," "forecast," or
other similar words. These statements reflect management's current views with
respect to future events and are subject to risks and uncertainties, both
known and unknown. Our actual results may vary materially from those
anticipated in forward-looking statements. We caution investors not to place
undue reliance on any forward-looking statements. Important factors that
could cause actual results to differ materially from forward-looking
statements include, but are not limited to: our ability to continue to grow
our business and execute our growth strategy; the build rates of certain
Boeing aircraft including, but not limited to, the B737 program, the B747
program, the B767 program and the B777 program, and build rates of the Airbus
A320 and A380 programs; the success and timely progression of Boeing's new
B787 and Airbus's new A350 aircraft programs, including receipt of necessary
regulatory approvals; the duration of the Boeing IAM strike, and our ability
to balance the needs of employees, customers and suppliers as we adjust to
Boeing's strike-impacted delivery schedule; the continuing turmoil in global
financial and credit markets; our ability to enter into supply arrangements
with additional customers and the ability of all parties to satisfy their
performance requirements under existing supply contracts with Boeing, Airbus,
and other customers; any adverse impact on Boeing's and Airbus's production of
aircraft resulting from cancellations or reduced orders by their customers;
the impact of continuing high jet fuel prices on the commercial aviation
market; future levels of business in the aerospace and commercial transport
industries; competition from original equipment manufacturers and other
aerostructures suppliers; the effect of governmental laws, such as U.S. export
control laws, the Foreign Corrupt Practices Act, environmental laws and agency
regulations, both in the U.S. and abroad; the effect of new commercial and
business aircraft development programs, and the resulting timing and resource
requirements that may be placed on us; the cost and availability of raw
materials and purchased components; our ability to recruit and retain highly
skilled employees and our relationships with the unions representing many of
our employees; spending by the U.S. and other governments on defense; the
outcome or impact of ongoing or future litigation and regulatory actions; and
our exposure to potential product liability claims. These factors are not
exhaustive, and new factors may emerge or changes to the foregoing factors may
occur that could impact our business. Except to the extent required by law, we
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Appendix
Segment Results
Fuselage Systems
Fuselage Systems segment revenues for the third quarter of 2008 were $485
million, up 12 percent over the same period last year due to a volume-based
pricing adjustment and higher 787 and non-recurring engineering revenues.
Operating margin for the third quarter of 2008 was 15.2 percent, down from
18.0 percent in the third quarter of 2007, largely as a result of the
unfavorable cumulative catch-up adjustment and higher segment R&D expense.
Propulsion Systems
Propulsion Systems segment revenues for the third quarter of 2008 were
$292 million, up 5 percent over the same period last year as aftermarket
revenues were significantly higher than in the third quarter of 2007.
Operating margin for the third quarter of 2008 was 16.2 percent compared to
16.5 percent in the third quarter of 2007.
Wing Systems
Wing Systems segment revenues for the third quarter of 2008 were $247
million, down 2 percent over the same period last year. Operating margin for
the third quarter of 2008 was 10.9 percent compared to 9.3 percent in the
third quarter of 2007, reflecting continued improvement in operating
efficiencies and lower segment R&D expense, more than offsetting unfavorable
cumulative catch-up adjustments.
Table 3. Segment Reporting
($'s in Millions,
except margin percent) 3rd Quarter Nine Months
2008 2007 Change 2008 2007 Change
Segment Revenues
Fuselage Systems $484.8 $434.3 11.6% $1,470.2 $1,329.2 10.6%
Propulsion Systems $291.5 $278.9 4.5% $863.1 $798.5 8.1%
Wing Systems $246.8 $251.5 (1.9%) $773.5 $738.1 4.8%
All Other $4.1 $2.8 46.4% $18.9 $14.6 29.5%
Total Segment
Revenues $1,027.2 $967.5 6.2% $3,125.7 $2,880.4 8.5%
Segment Earnings from
Operations
Fuselage Systems $73.5 $78.1 (5.9%) $255.0 $243.2 4.9%
Propulsion Systems $47.1 $45.9 2.6% $140.9 $130.2 8.2%
Wing Systems $26.9 $23.5 14.5% $92.3 $75.1 22.9%
All Other $0.0 $0.3 (100.0%) $0.1 $1.8 (94.4%)
Total Segment
Operating Earnings $147.5 $147.8 (0.2%) $488.3 $450.3 8.4%
Unallocated Corporate
SG&A Expense ($35.6) ($39.9) (10.8%) ($109.7) ($134.3) (18.3%)
Unallocated Research
& Development Expense ($0.7) ($1.3) (46.2%) ($1.1) ($3.5) (68.6%)
Total Earnings from
Operations $111.2 $106.6 4.3% $377.5 $312.5 20.8%
Segment Operating Earnings
as % of Revenues
Fuselage Systems 15.2% 18.0% (280) BPS 17.3% 18.3% (100)BPS
Propulsion Systems 16.2% 16.5% (30) BPS 16.3% 16.3% --
Wing Systems 10.9% 9.3% 160 BPS 11.9% 10.2% 170 BPS
All Other 0.0% 10.7% (1,070)BPS 0.5% 12.3%(1,180)BPS
Total Segment Operating
Earnings as % of
Revenues 14.4% 15.3% (90) BPS 15.6% 15.6% --
Total Operating
Earnings as % of
Revenues 10.8% 11.0% (20) BPS 12.1% 10.8% 130 BPS
Spirit Ship Set Deliveries
(One Ship Set equals One Aircraft)
2007 Spirit AeroSystems Deliveries
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 2007
B737 83 85 84 79 331
B747 5 4 5 4 18
B767 3 4 3 3 13
B777 21 21 21 20 83
B787* 0 1 0 0 1
Total 112 115 113 106 446
A320 Family 93 84 91 91 359
A330/340 22 21 22 20 85
A380 0 0 2 3 5
Total 115 105 115 114 449
Hawker 850XP 16 15 17 20 68
Total Spirit 243 235 245 240 963
*Full-Revenue Units Only, Does not include Static and Fatigue test units
2008 Spirit AeroSystems Deliveries
1st Qtr 2nd Qtr 3rd Qtr YTD 2008
B737 93 95 87 275
B747 4 7 4 15
B767 3 3 3 9
B777 20 22 18 60
B787* 1 1 1 3
Total 121 128 113 362
A320 Family 95 95 90 280
A330/340 24 21 23 68
A380 4 2 4 10
Total 123 118 117 358
Hawker 850XP 15 24 24 63
Total Spirit 259 270 254 783
*Full-Revenue Units Only, Does not include Static and Fatigue test units
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Operations (unaudited)
For the Three For the Nine
Months Ended Months Ended
September September September September
25, 2008 27, 2007 25, 2008 27, 2007
($ in millions, except per share data)
Net Revenues $1,027.2 $967.5 $3,125.7 $2,880.4
Operating costs and expenses:
Cost of sales 864.3 804.7 2,596.1 2,388.2
Selling, general and administrative 39.0 42.9 119.0 142.3
Research and development 12.7 13.3 33.1 37.4
Total Operating Costs and
Expenses 916.0 860.9 2,748.2 2,567.9
Operating Income 111.2 106.6 377.5 312.5
Interest expense and financing fee
amortization (9.9) (9.7) (29.5) (28.1)
Interest income 4.4 8.0 15.1 22.8
Other income (loss), net (0.7) 1.3 0.9 5.1
Income Before Income Taxes 105.0 106.2 364.0 312.3
Income tax provision (31.0) (22.6) (118.4) (90.9)
Net Income $74.0 $83.6 $245.6 $221.4
Earnings per share
Basic $0.54 $0.61 $1.79 $1.65
Shares 137.0 136.7 136.9 133.8
Diluted $0.53 $0.60 $1.76 $1.59
Shares 139.1 139.5 139.2 139.2
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Balance Sheets (unaudited)
September 25, December 31,
2008 2007
($ in millions)
Current assets
Cash and cash equivalents $177.7 $133.4
Accounts receivable, net 211.9 159.9
Current portion of long-term
receivable 82.8 109.5
Inventory, net 1,768.8 1,342.6
Prepaids 13.1 14.2
Other current assets 67.8 83.2
Total current assets 2,322.1 1,842.8
Property, plant and equipment, net 1,053.2 963.8
Long-term receivable 51.9 123.0
Pension assets 350.9 318.7
Other assets 84.6 91.6
Total assets $3,862.7 $3,339.9
Current liabilities
Accounts payable 389.4 362.6
Accrued expenses 177.4 182.6
Current portion of long-term debt 8.1 16.0
Advance payments, short-term 210.7 67.6
Deferred revenue, short-term 43.5 42.3
Other current liabilities 20.8 3.9
Total current liabilities 849.9 675.0
Long-term debt 583.8 579.0
Advance payments, long-term 740.7 653.4
Other liabilities 179.7 165.9
Shareholders' equity
Preferred stock, par value $0.01,
10,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, Class A par value
$0.01, 200,000,000 shares
authorized, 103,214,928 and
102,693,058 issued and outstanding,
respectively 1.0 1.0
Common stock, Class B par value
$0.01, 150,000,000 shares
authorized, 36,682,070 and
36,826,434 shares issued and
outstanding, respectively 0.4 0.4
Additional paid-in capital 935.6 924.6
Accumulated other comprehensive
income 101.3 117.7
Retained earnings 470.3 222.9
Total shareholders' equity 1,508.6 1,266.6
Total liabilities and
shareholders' equity $3,862.7 $3,339.9
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
For the Nine For the Nine
Months Ended Months Ended
September 25, September 27,
2008 2007
($ in millions)
Operating activities
Net Income $245.6 $221.4
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation expense 90.8 67.1
Amortization expense 7.1 5.7
Accretion of long-term
receivable (13.0) (16.0)
Employee stock compensation
expense 11.6 26.8
Excess tax (benefit) from share-
based payment arrangements - (32.9)
Loss from effectiveness of hedge contracts 0.4 -
Loss from foreign currency
transactions 0.3 -
(Gain) loss on disposition of
assets (0.2) 0.4
Deferred taxes 0.9 3.8
Pension and other post-
retirement benefits, net (21.5) (22.0)
Changes in assets and liabilities
Accounts receivable (28.4) (48.0)
Inventory, net (432.9) (312.6)
Accounts payable and accrued
liabilities 30.5 18.7
Advance payments 230.4 93.6
Income taxes payable 15.1 56.6
Deferred revenue and other
deferred credits 16.9 36.4
Other (7.0) 6.3
Net cash provided by
operating activities 146.6 105.3
Investing Activities
Purchase of property, plant and
equipment (175.2) (228.0)
Proceeds from sale of assets 1.8 0.2
Long-term receivable 87.1 22.8
Financial derivatives 1.1 3.1
Investment in joint venture (3.6) -
Net cash (used in) investing
activities (88.8) (201.9)
Financing Activities
Proceeds from revolving credit
facility 75.0 -
Payments on revolving credit facility (75.0) -
Proceeds from issuance of debt 8.8 -
Proceeds from government grants 1.6 -
Principal payments of debt (11.9) (14.4)
Debt issuance costs (6.8) -
Excess tax benefit from share-based
payment arrangements - 32.9
Executive stock (repurchase) - (1.0)
Net cash provided by (used
in) financing activities (8.3) 17.5
Effect of exchange rate changes on
cash and cash equivalents (5.2) 0.2
Net increase (decrease) in
cash and cash equivalents
for the period 44.3 (78.9)
Cash and cash equivalents, beginning
of the period 133.4 184.3
Cash and cash equivalents, end of the
period $177.7 $105.4
SOURCE: Spirit AeroSystems Holdings, Inc.
CONTACT: Investors, Phil Anderson
+1-316-523-1797, or
Media, Debbie Gann
+1-316-526-3910
both of Spirit AeroSystems Holdings, Inc.
(SPR)
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