10-Q 1 spr-20220630.htm 10-Q spr-20220630
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 Form 10-Q
 (Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2022
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                    to                 
 
Commission File Number 001-33160
 Spirit AeroSystems Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 20-2436320
(State or other jurisdiction of
 incorporation or organization)
 (I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading symbolName of each exchange on which registered
Class A common stock, par value $0.01 per shareSPRNew York Stock Exchange

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   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting companyEmerging Growth Company
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No x
As of July 20, 2022, the registrant had 105,137,748 shares of class A common stock, $0.01 par value per share, outstanding.
1

TABLE OF CONTENTS
 

2


PART 1. FINANCIAL INFORMATION
 
Item 1. Financial Statements (unaudited)
 
Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
 For the Three
 Months Ended
For the Six
Months Ended
 June 30,
2022
July 1,
2021
June 30,
2022
July 1,
2021
 ($ in millions, except per share data)
Revenue$1,257.9 $1,002.1 $2,432.6 $1,902.9 
Operating costs and expenses    
Cost of sales1,277.5 1,014.4 2,417.4 1,973.2 
Selling, general and administrative70.2 66.9 134.7 124.5 
Restructuring costs 5.2 0.2 7.3 
Research and development14.9 13.3 27.2 21.5 
Total operating costs and expenses1,362.6 1,099.8 2,579.5 2,126.5 
Operating loss(104.7)(97.7)(146.9)(223.6)
Interest expense and financing fee amortization(55.1)(59.1)(114.0)(118.9)
Other income, net 34.6 31.1 72.3 43.9 
Loss before income taxes and equity in net loss of affiliate(125.2)(125.7)(188.6)(298.6)
Income tax benefit (expense)3.5 (9.0)14.5 (7.3)
Loss before equity in net loss of affiliate(121.7)(134.7)(174.1)(305.9)
Equity in net loss of affiliate(0.5)(0.6)(0.9)(1.0)
Net loss$(122.2)$(135.3)$(175.0)$(306.9)
Loss per share    
Basic$(1.17)$(1.30)$(1.67)$(2.95)
Diluted$(1.17)$(1.30)$(1.67)$(2.95)
 
See notes to condensed consolidated financial statements (unaudited)
3

Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
 
 For the Three
 Months Ended
For the Six
Months Ended
 June 30,
2022
July 1,
2021
June 30,
2022
July 1,
2021
 ($ in millions)
Net loss$(122.2)$(135.3)$(175.0)$(306.9)
Changes in other comprehensive loss, net of tax:  
Pension, SERP, and retiree medical adjustments, net of tax effect of $(1.1) and $0.2 for the three months ended, respectively, and $(1.0) and $0.3 for the six months ended, respectively
3.1 1.1 2.6 (3.8)
Unrealized foreign exchange gain (loss) on intercompany loan, net of tax effect of $1.3 and $0.1 for the three months ended, respectively, and $1.8 and ($0.1) for the six months ended, respectively
(2.8)(0.2)(4.0)0.3 
Unrealized gain (loss) on foreign currency hedges, net of tax effect of $0.0 and $0.0 for the three months ended, respectively, and $0.0 and $0.0 for the six months ended, respectively
(13.1)(0.5)(17.0)0.7 
Reclassification of loss on cash flow hedges to earnings, net of tax effect of $0.0 and $0.0 for the three months ended, respectively, and $0.0 and ($0.2) for the six months ended, respectively
4.1  5.6 0.9 
Foreign currency translation adjustments(33.0)(2.5)(46.5)3.9 
Total other comprehensive (loss) gain(41.7)(2.1)(59.3)2.0 
Total comprehensive loss$(163.9)$(137.4)$(234.3)$(304.9)
 

See notes to condensed consolidated financial statements (unaudited)
4

Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Balance Sheets
(unaudited) 
June 30, 2022December 31, 2021
 ($ in millions)
Assets  
Cash and cash equivalents$770.2 $1,478.6 
Restricted cash0.2 0.3 
Accounts receivable, net581.3 461.6 
Contract assets, short-term482.7 443.2 
Inventory, net1,345.8 1,382.6 
Other current assets31.4 39.7 
Total current assets3,211.6 3,806.0 
Property, plant and equipment, net2,260.9 2,385.5 
Right of use assets82.3 85.3 
Contract assets, long-term0.9  
Pension assets432.1 532.5 
Restricted plan assets70.3  
Deferred income taxes3.5 0.4 
Goodwill623.4 623.7 
Intangible assets, net205.0 212.3 
Other assets99.3 91.6 
Total assets$6,989.3 $7,737.3 
Liabilities
Accounts payable$810.7 $720.3 
Accrued expenses390.3 376.1 
Profit sharing19.5 63.7 
Current portion of long-term debt347.7 49.5 
Operating lease liabilities, short-term8.3 8.2 
Advance payments, short-term98.2 137.8 
Contract liabilities, short-term84.2 97.9 
Forward loss provision, short-term309.2 244.6 
Deferred revenue and other deferred credits, short-term22.1 72.7 
Other current liabilities89.7 105.2 
Total current liabilities2,179.9 1,876.0 
Long-term debt3,424.8 3,742.7 
Operating lease liabilities, long-term73.2 78.8 
Advance payments, long-term194.1 201.3 
Pension/OPEB obligation32.5 74.8 
Contract liabilities, long-term276.2 289.1 
Forward loss provision, long-term402.5 521.6 
Deferred revenue and other deferred credits, long-term27.0 32.1 
Deferred grant income liability - non-current26.6 26.4 
Deferred income taxes9.5 21.8 
Other non-current liabilities117.1 423.9 
Stockholders’ Equity
Common Stock, Class A par value $0.01, 200,000,000 shares authorized, 105,138,159 and 105,037,845 shares issued and outstanding, respectively
1.1 1.1 
Additional paid-in capital1,159.8 1,146.2 
Accumulated other comprehensive loss(83.0)(23.7)
Retained earnings1,604.2 1,781.4 
Treasury stock, at cost (41,587,480 and 41,523,470 shares each period, respectively)
(2,456.7)(2,456.7)
Total stockholders' equity225.4 448.3 
Noncontrolling interest0.5 0.5 
Total equity225.9 448.8 
Total liabilities and equity$6,989.3 $7,737.3 
 See notes to condensed consolidated financial statements (unaudited)

5


Spirit AeroSystems Holdings, Inc. 
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
 Common StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Other
Comprehensive
Loss
Retained
Earnings
 
  
 SharesAmountTotal
 ($ in millions, except share data)
Balance — December 31, 2021105,037,845 $1.1 $1,146.2 $(2,456.7)$(23.7)$1,781.4 $448.3 
Net loss— — — — — (52.8)(52.8)
Dividends declared(a)
— — — — — (1.1)(1.1)
Employee equity awards152,306  8.3 — — — 8.3 
Stock forfeitures(82,611) — — — — — 
Net shares settled(111,874) (5.3)— — — (5.3)
ESPP shares issued40,078 — 1.9 — — — 1.9 
Other comprehensive loss— — — — (17.6)— (17.6)
Balance — March 31, 2022105,035,744 $1.1 $1,151.1 $(2,456.7)$(41.3)$1,727.5 $381.7 
Net loss— — — — — (122.2)(122.2)
Dividends declared(a)
— — — — — (1.1)(1.1)
Employee equity awards141,869  9.9 — — — 9.9 
Stock forfeitures(8,585) — — — — — 
Net shares settled(30,869) (1.2)— — — (1.2)
Other comprehensive loss— — — — (41.7)— (41.7)
Balance — June 30, 2022105,138,159 $1.1 $1,159.8 $(2,456.7)$(83.0)$1,604.2 $225.4 
 Common StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Other
Comprehensive
Loss
Retained
Earnings
 
  
 SharesAmountTotal
 ($ in millions, except share data)
Balance — December 31, 2020105,542,162 $1.1 $1,139.8 $(2,456.7)$(154.1)$2,326.4 $856.5 
Net loss— — — — — (171.6)(171.6)
Dividends declared(a)
— — — — — (1.1)(1.1)
Employee equity awards30,024  6.5 — — — 6.5 
Stock forfeitures(94,820) — — — — — 
Net shares settled(77,954) (3.3)— — — (3.3)
ESPP shares issued29,500 — 1.4 — — — 1.4 
SERP shares issued9,198 — — — — — — 
Other comprehensive gain— — — — 4.1 — 4.1 
Balance — April 1, 2021105,438,110 $1.1 $1,144.4 $(2,456.7)$(150.0)$2,153.7 $692.5 
Net loss— — — — — (135.3)(135.3)
Dividends declared(a)
— — — — — (1.1)(1.1)
Employee equity awards29,514  6.8 — — — 6.8 
Stock forfeitures(10,500) — — — — — 
Net shares settled(27,284) (1.1)— — — (1.1)
Other— — — — — 0.1 0.1 
Other comprehensive loss— — — — (2.1)— (2.1)
Balance — July 1, 2021105,429,840 $1.1 $1,150.1 $(2,456.7)$(152.1)$2,017.4 $559.8 

(a) Cash dividends declared per common share were $0.01 for the three months ended June 30, 2022 and July 1, 2021, respectively. Cash dividends declared per common share were $0.02 for the six months ended June 30, 2022 and July 1, 2021, respectively.
6

Spirit AeroSystems Holdings, Inc. 
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Six Months Ended
June 30, 2022July 1, 2021
Operating activities($ in millions)
Net loss$(175.0)$(306.9)
Adjustments to reconcile net loss to net cash used in operating activities 
Depreciation and amortization expense169.0 160.3 
Amortization of deferred financing fees3.7 4.3 
Accretion of customer supply agreement1.3 1.1 
Employee stock compensation expense18.3 13.4 
Loss (gain) from derivative instruments4.0 (0.1)
(Gain) loss from foreign currency transactions(25.7)4.9 
Loss on disposition of assets1.6 1.4 
Deferred taxes(13.6)12.5 
Pension and other post-retirement plans income(39.7)(30.5)
Grant liability amortization(0.7)(0.8)
Equity in net loss of affiliate0.9 1.0 
Forward loss provision(53.4)(28.1)
Gain on settlement of financial instrument(21.0) 
Changes in assets and liabilities
Accounts receivable, net(124.7)(11.2)
Inventory, net13.9 111.8 
Contract assets(44.5)14.4 
Accounts payable and accrued liabilities105.5 (11.3)
Profit sharing/deferred compensation(43.7)(29.2)
Advance payments(65.7)(1.3)
Income taxes receivable/payable12.1 8.3 
Contract liabilities(26.5)(82.1)
Pension plans employer contributions23.0 (15.6)
Deferred revenue and other deferred credits(38.8)1.2 
Other(12.0)(15.2)
Net cash used in operating activities(331.7)(197.7)
Investing activities  
Purchase of property, plant and equipment(45.2)(53.3)
Acquisition, net of cash acquired (21.1)
Other(2.2)2.2 
Net cash used in investing activities(47.4)(72.2)
Financing activities  
Payment of principal- settlement of financial instrument(289.5) 
Customer financing (5.0)
Principal payments of debt(22.5)(19.9)
Payments on term loans(3.0)(2.0)
Payments on floating rate notes (300.0)
Taxes paid related to net share settlement awards(6.5)(4.4)
Proceeds from issuance of ESPP stock1.9 1.4 
Dividends paid(2.2)(2.2)
Other 0.1 
Net cash used in financing activities(321.8)(332.0)
Effect of exchange rate changes on cash and cash equivalents(7.6)(2.1)
Net decrease in cash, cash equivalents, and restricted cash for the period(708.5)(604.0)
Cash, cash equivalents, and restricted cash, beginning of period1,498.4 1,893.1 
Cash, cash equivalents, and restricted cash, end of period$789.9 $1,289.1 
7

Reconciliation of Cash, Cash Equivalents, and Restricted Cash:
For the Six Months Ended
June 30, 2022July 1, 2021
Cash and cash equivalents, beginning of the period$1,478.6 $1,873.3 
Restricted cash, short-term, beginning of the period0.3 0.3 
Restricted cash, long-term, beginning of the period19.5 19.5 
Cash, cash equivalents, and restricted cash, beginning of the period$1,498.4 $1,893.1 
Cash and cash equivalents, end of the period$770.2 $1,269.3 
Restricted cash, short-term, end of the period0.2 0.3 
Restricted cash, long-term, end of the period19.5 19.5 
Cash, cash equivalents, and restricted cash, end of the period$789.9 $1,289.1 
See notes to condensed consolidated financial statements (unaudited)
8

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(U.S. Dollars in millions other than per share amounts)



1.  Organization, Basis of Interim Presentation and Recent Developments
 
Unless the context otherwise indicates or requires, as used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our,” and the “Company” refer to Spirit AeroSystems Holdings, Inc. and its consolidated subsidiaries. References to “Spirit” refer only to our subsidiary, Spirit AeroSystems, Inc., and references to “Holdings” refer only to Spirit AeroSystems Holdings, Inc.

The Company provides manufacturing and design expertise in a wide range of fuselage, propulsion, and wing products and services for aircraft original equipment manufacturers (“OEM”) and operators through its subsidiaries including Spirit. The Company's headquarters are in Wichita, Kansas, with manufacturing and assembly facilities in Tulsa, Oklahoma; Prestwick, Scotland; Wichita, Kansas; Kinston, North Carolina; Subang, Malaysia; Saint-Nazaire, France; Biddeford, Maine; Belfast, Northern Ireland; Casablanca, Morocco; and Dallas, Texas.

The accompanying unaudited interim condensed consolidated financial statements include the Company’s financial statements and the financial statements of its majority-owned or controlled 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.  The Company’s fiscal quarters are 13 weeks in length. Since the Company’s fiscal year ends on December 31, the number of days in the Company’s first and fourth quarters varies slightly from year to year. All intercompany balances and transactions have been eliminated in consolidation.

As part of the monthly consolidation process, the Company’s international subsidiaries 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. The subsidiaries in Prestwick, Scotland and Subang, Malaysia use the British pound as their functional currency. All other foreign subsidiaries and branches use the U.S. dollar as their functional currency.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments and elimination of intercompany balances and transactions) considered necessary to fairly present the results of operations for the interim period. The results of operations for the six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
In connection with the preparation of the condensed consolidated financial statements, the Company evaluated subsequent events through the date the financial statements were issued. The interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2022 (the “2021 Form 10-K”).

The Company's significant accounting policies are described in Note 3, Summary of Significant Accounting Policies to our consolidated financial statements in the 2021 Form 10-K.

COVID-19
During the six months ended June 30, 2022, the COVID-19 pandemic continued to have a significant negative impact on the aviation industry, the Company's customers, and the Company's business globally. The length of the COVID-19 pandemic and its impact on the aviation industry and the Company’s operational and financial performance remains uncertain and outside of the Company’s control. The Company expects the pandemic and its effects to continue to have a significant negative impact on its business for the duration of the pandemic and during the subsequent economic recovery, which could be for an extended period of time.

9

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(U.S. Dollars in millions other than per share amounts)

B737 MAX
Boeing's deliveries of the B737 MAX resumed in the fourth quarter of 2020 when the FAA rescinded the order that grounded B737 MAX aircraft in the United States. Since November 2020, regulators from Brazil, Canada, the EU, U.K., India, and other countries have taken similar actions to unground the B737 MAX and permit return to service. The Civil Aviation Administration of China, which is the most significant country remaining to allow the B737 MAX to return to service, issued an airworthiness directive in December 2021, directing corrective actions necessary to allow for return to service. During the six-month period ended June 30, 2022, Boeing continued to announce orders for the B737 MAX, and air carriers generally continued resuming flights on the aircraft.

Global Economic Events

In response to the Russian invasion of Ukraine, and the associated U.S. sanctions, the Company has suspended all sanctioned activities relating to Russia, primarily consisting of sales and service activities. Due to these sanctions and the results of additional assessment of the related assets and liabilities in the second quarter of 2022, the Company recorded an aggregate pre-tax loss of $28.1 related to adjustments of certain assets and liabilities associated with sanctioned Russian business activities. The charges are included on the Company's Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2022.



2.  Adoption of New Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12”) which modifies FASB Accounting Standards Codification (“ASC”) 740 to simplify the accounting for income taxes. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. The adoption of ASU 2019-12 as of January 1, 2021 did not have a material impact on our financial position or results of operations.


3.  New Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides temporary optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022, and an entity may elect to apply ASU 2020-04 for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. An entity may elect to apply ASU 2020-04 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. To date, the Company has not had a modification to which the application of this guidance is applicable. The Company will continue evaluating the potential impact of adopting this guidance on its consolidated financial statements.

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance (“ASU 2021-10”). The amendments in the update require annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy, including 1) the nature of the transactions and the related accounting policy used, 2) the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item; and 3) significant terms and conditions of the transactions. ASU 2021-10 is effective for all entities within its scope for financial statements issued for annual periods beginning after December 15, 2021. Early application is permitted. An entity should apply ASU 2021-10 either prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions entered into after the date of initial application, or retrospectively to those transactions.
10

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(U.S. Dollars in millions other than per share amounts)

The Company is preparing for the initial application of this guidance on its annual financial statements to be issued for the period ended December 31, 2022, which is not expected to have a significant impact on its consolidated financial statements.


4.  Changes in Estimates

The Company has a periodic forecasting process in which management assesses the progress and performance of the Company’s programs. This process requires management to review each program’s progress by evaluating the program schedule, changes to identified risks and opportunities, changes to estimated revenues and costs for the accounting contracts (and options, if applicable), and any outstanding contract matters. Risks and opportunities include but are not limited to management’s judgment about the cost associated with the Company’s ability to achieve the schedule, technical requirements (e.g., a newly-developed product versus a mature product), and any other program requirements. Due to the span of years it may take to completely satisfy the performance obligations for the accounting contracts (and options, if any) and the scope and nature of the work required to be performed on those contracts, the estimation of total revenue and costs is subject to many variables and, accordingly, is subject to change based upon judgment. When adjustments in estimated total consideration or estimated total cost are required, any changes from prior estimates for fully satisfied performance obligations are recognized in the current period as a cumulative catch-up adjustment for the inception-to-date effect of such changes. Cumulative catch-up adjustments are driven by several factors including production efficiencies, assumed rate of production, the rate of overhead absorption, changes to scope of work, and contract modifications.

During the second quarter ended June 30, 2022, the Company recognized unfavorable changes in estimates of $71.7, which included net forward loss charges of $63.7, and unfavorable cumulative catch-up adjustments related to periods prior to the second quarter of 2022 of $8.0.

The forward losses in the second quarter relate primarily to increased cost estimates for production rate decreases and build schedule changes, supply chain costs, and other costs on the B787 program, and anticipated production recovery costs related to the bankruptcy of a supplier and associated failure to deliver key parts on the A220 wing program. Forward loss charges were also recorded on the A350 program driven by production schedule changes received from our customer, increased labor costs, and increased non-recurring engineering and tooling costs. The forward loss charges for the second quarter of 2022 also include, to a lesser extent than the aforementioned B787, A220, and A350 programs impacts, increased cost projections on the RB3070, B747, B767, Bombardier Challenger 650, and Bell V280 programs, and a partial offset related to the release of a previously recorded forward loss provision that was impacted by the suspension of activities in Russia noted above. See Note 1 Organization, Basis of Interim Presentation and Recent Developments.

The unfavorable cumulative catch-up adjustments for the second quarter ended June 30, 2022 primarily relate to the B737 and A320 programs. Increased cost estimates on the B737 program were driven by production schedule changes, parts shortages, and increased supply chain costs. The A320 program unfavorable cumulative catch-up adjustment was driven by production cost overruns experienced and estimates of the impact of production schedule changes, increased material cost, increased freight cost, and increased labor and overhead cost.

During the second quarter ended July 1, 2021, the Company recognized unfavorable changes in estimates of $42.3, which included net forward loss charges of $52.2, and favorable cumulative catch-up adjustments related to periods prior to the second quarter of 2021 of $9.9. The favorable cumulative catch-up adjustment was driven by a change in the estimate of production costs on the B737 program. The forward losses in the second quarter ended July 1, 2021 related primarily to the B787 program, driven by engineering analysis and the estimated cost of rework, and also included additional loss on the A350 program related to changes to production schedule and estimated quality improvement costs, and loss on the B767 program due to cost performance.

11

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(U.S. Dollars in millions other than per share amounts)

Changes in estimates are summarized below:
For the Three Months EndedFor the Six Months Ended
Changes in EstimatesJune 30, 2022July 1, 2021June 30, 2022July 1, 2021
(Unfavorable) Favorable Cumulative Catch-up Adjustment by Segment
Commercial$(7.9)$10.5 $(25.2)$(0.4)
Defense & Space(0.1)(0.6)0.8 0.5 
Aftermarket    
Total (Unfavorable) Favorable Cumulative Catch-up Adjustment$(8.0)$9.9 $(24.4)$0.1 
Changes in Estimates on Loss Programs (Forward Loss) by Segment
Commercial$(59.4)$(51.2)$(85.2)$(118.8)
Defense & Space(4.3)(1.0)(2.3)(5.8)
Aftermarket    
Total Changes in Estimates (Forward Loss) on Loss Programs$(63.7)$(52.2)$(87.5)$(124.6)
Total Change in Estimate$(71.7)$(42.3)$(111.9)$(124.5)
EPS Impact (diluted per share based upon applicable forecasted effective tax rate)$(0.63)$(0.42)$(0.98)$(1.22)

5.  Accounts Receivable and Allowance for Credit Losses
 
Accounts Receivable, net

Accounts receivable represent the Company’s unconditional rights to consideration, subject to the payment terms of the contract, for which only the passage of time is required before payment. Unbilled receivables are reflected under contract assets on the Condensed Consolidated Balance Sheet. See also Allowance for Credit Losses, below.

Accounts receivable, net consists of the following:
June 30,
2022
December 31,
2021
Trade receivables$565.2 $412.0 
Other27.0 58.1 
Less: allowance for credit losses(10.9)(8.5)
Accounts receivable, net$581.3 $461.6 

Other receivables as of December 31, 2021 in the table above included an amount related to the Department of Transportation’s approval of the Company’s grant claim filed under the Aviation Manufacturing Jobs Protection Program, a component of the American Rescue Plan Act of 2021. This program provides funding for a portion of the compensation costs of certain categories of employees for up to six months. In return, the Company is required to make several commitments, including a commitment that the Company will not involuntarily furlough or lay off employees within those categories of employees during the same six-month period. As of December 31, 2021, the Company's other receivable balance, noted in the table above, included $37.7 for the program, reflecting the amount that had not yet been paid of the full amount of the award of $75.5. As of June 30, 2022, the amount in other receivables was $0, reflecting a payment of $37.7 received in the six months ended June 30, 2022. The full amount of the award has been amortized against Cost of sales on the Condensed Consolidated Statements of Operations as of June 30, 2022.

12

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(U.S. Dollars in millions other than per share amounts)

The Company has agreements (through its subsidiaries) to sell, on a revolving basis, certain trade accounts receivable balances with Boeing, Airbus Group SE and its affiliates (collectively, “Airbus”), and Rolls-Royce PLC and its affiliates (collectively, “Rolls-Royce”) to third-party financial institutions. These programs were primarily entered into as a result of customers seeking payment term extensions with the Company and they continue to allow the Company to monetize the receivables prior to their payment date, subject to payment of a discount. No guarantees are delivered under the agreements. The Company's ability to continue using such agreements is primarily dependent upon the strength of the applicable customer’s financial condition. Transfers under these agreements are accounted for as sales of receivables resulting in the receivables being derecognized from the Company's balance sheet. For the six months ended June 30, 2022, $1,309.6 of accounts receivable were sold via these arrangements. The proceeds from these sales of receivables are included in cash from operating activities in the Condensed Consolidated Statements of Cash Flows. The recorded net loss on sale of receivables was $6.5 for the six months ended June 30, 2022 and is included in Other income and expense. See Note 21 Other Income (Expense), Net.

Allowance for Credit Losses

During the six months ended June 30, 2022, there have been no significant changes in the factors that influenced management’s current estimate of expected credit losses, nor changes to the Company’s accounting policies or Current Expected Credit Losses methodology. The beginning balances, current period activity, and ending balances of the allocation for credit losses on accounts receivable and contract assets were not material.


6.  Contract Assets and Contract Liabilities

Contract assets primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. Contract assets, current are those that are expected to be billed to our customer within 12 months. Contract assets, long-term are those that are expected to be billed to our customer over periods greater than 12 months. No impairments to contract assets were recorded for the period ended June 30, 2022 or the period ended July 1, 2021. See also Note 5, Accounts Receivable and Allowance for Credit Losses.

Contract liabilities are established for cash received in excess of revenues recognized and are contingent upon the satisfaction of performance obligations. Contract liabilities primarily consist of cash received on contracts for which revenue has been deferred since the receipts are in excess of transaction price resulting from the allocation of consideration based on relative standalone selling price to future units (including those under option that the Company believes are likely to be exercised) with prices that are lower than standalone selling price. These contract liabilities will be recognized earlier if the options are not fully exercised, or immediately, if the contract is terminated prior to the options being fully exercised.

June 30, 2022December 31, 2021Change
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 

For the period ended June 30, 2022, the increase in contract assets reflects the net impact of more over time revenue recognition in relation to billed revenues during the period. The decrease in contract liabilities reflects the net impact of less deferred revenues recorded in excess of revenue recognized during the period. The Company recognized $52.1 of revenue that was included in the contract liability balance at the beginning of the period.

July 1, 2021December 31, 2020Change
Contract assets$358.7 $372.8 $(14.1)
Contract liabilities(387.4)(469.6)82.2 
Net contract assets (liabilities)$(28.7)$(96.8)$68.1 

For the period ended July 1, 2021, the decrease in contract assets reflects the net impact of less over time revenue recognition in relation to billed revenues during the period. The decrease in contract liabilities reflects the net impact of less
13

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(U.S. Dollars in millions other than per share amounts)

deferred revenues recorded in excess of revenue recognized during the period. The Company recognized $111.9 of revenue that was included in the contract liability balance at the beginning of the period.


7.  Revenue Disaggregation and Outstanding Performance Obligations
Disaggregation of Revenue
The Company disaggregates revenue based on the method of measuring satisfaction of the performance obligation either over time or at a point in time, based upon the location where products and services are transferred to the customer, and based upon major customer. The Company’s principal operating segments and related revenue are noted in Note 22, Segment Information.

The following tables show disaggregated revenues for the periods ended June 30, 2022 and July 1, 2021:
 For the Three Months EndedFor the Six
Months Ended
RevenueJune 30,
2022
July 1,
2021
June 30,
2022
July 1,
2021
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 time324.9 238.9 669.9 490.5 
Total Revenue$1,257.9 $1,002.1 $2,432.6 $1,902.9 

The following table disaggregates revenue by major customer:
For the Three Months EndedFor the Six
Months Ended
CustomerJune 30,
2022
July 1,
2021
June 30,
2022
July 1,
2021
Boeing$762.2 $561.8 $1,409.4 $1,029.7 
Airbus281.1 244.6 585.0 476.2 
Other214.6 195.7 438.2 397.0 
Total Revenue$1,257.9 $1,002.1 $2,432.6 $1,902.9 

The following table disaggregates revenue based upon the location where control of products are transferred to the customer:
For the Three Months EndedFor the Six
Months Ended
LocationJune 30,
2022
July 1,
2021
June 30,
2022
July 1,
2021
United States$907.5 $708.4 $1,731.0 $1,332.6 
International
United Kingdom158.2 141.0 328.0 277.3 
Other192.2 152.7 373.6 293.0 
Total International350.4 293.7 701.6 570.3 
Total Revenue$1,257.9 $1,002.1 $2,432.6 $1,902.9 

14

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(U.S. Dollars in millions other than per share amounts)

Remaining Performance Obligations
Unsatisfied, or partially unsatisfied, performance obligations that are expected to be recognized in the future are noted in the table below. The Company expects options to be exercised in addition to the amounts presented below:
Remaining in 2022202320242025 and After
Unsatisfied performance obligations$2,119.3 $4,237.6 $4,062.5 $708.8 


8.  Inventory

Inventory consists of raw materials used in the production process, work-in-process, which is direct material, direct labor, overhead and purchases, and capitalized pre-production costs. Raw materials are stated at lower of cost (principally on an actual or average cost basis) or net realizable value. Capitalized pre-production costs include certain contract costs, including applicable overhead, incurred before a product is manufactured on a recurring basis. These costs are typically amortized over a period that is consistent with the satisfaction of the underlying performance obligations to which these relate.
June 30,
2022
December 31,
2021
Raw materials$323.0 $301.4 
Work-in-process(1)
937.3 999.1 
Finished goods60.9 56.9 
Product inventory1,321.2 1,357.4 
Capitalized pre-production24.6 25.2 
Total inventory, net$1,345.8 $1,382.6 

(1)Work-in-process inventory includes direct labor, direct material, overhead, and purchases on contracts for which revenue is recognized at a point in time as well as sub-assembly parts that have not been issued to production on contracts for which revenue is recognized over time using an input method. For the periods ended June 30, 2022 and December 31, 2021, work-in-process inventory includes $341.4 and $381.2, respectively, of costs incurred in anticipation of specific contracts and no impairments were recorded in the periods.

Product inventory, summarized in the table above, is shown net of valuation reserves of $87.2 and $54.9 as of June 30, 2022 and December 31, 2021, respectively. The increase in reserves from the prior period includes reserves recorded against inventory as of June 30, 2022 that were impacted by the suspension of activities in Russia noted above. See Note 1 Organization, Basis of Interim Presentation and Recent Developments.

Excess capacity and abnormal production costs are excluded from inventory and recognized as expense in the period incurred. Cost of sales for three and six months ended June 30, 2022 includes period expense of $44.9 and $94.7, respectively, for excess capacity production costs related to temporary B737 MAX, A220 and A320 production schedule changes. Cost of sales also includes abnormal costs related to temporary workforce adjustments as a result of COVID-19 production pause, net of the U.S. employee retention credit and U.K. government subsidies for the three and six months ended June 30, 2022 of $0.0 and $9.5, respectively.

15

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(U.S. Dollars in millions other than per share amounts)

9.  Property, Plant and Equipment, net
 
Property, plant and equipment, net consists of the following: 
 
June 30,
2022
December 31,
2021
Land$29.7 $30.7 
Buildings (including improvements)1,243.4 1,242.0 
Machinery and equipment2,332.5 2,276.5 
Tooling1,049.0 1,051.1 
Capitalized software328.8 323.0 
Construction-in-progress77.8 117.1 
Total5,061.2 5,040.4 
Less: accumulated depreciation(2,800.3)(2,654.9)
Property, plant and equipment, net$2,260.9 $2,385.5 

Capitalized interest was $0.5 and $1.7 for the three months ended June 30, 2022 and July 1, 2021, respectively, and $1.9 and $3.1 for the six months ended June 30, 2022 and July 1, 2021, respectively. Repair and maintenance costs are expensed as incurred. The Company recognized repair and maintenance costs of $36.4 and $32.2 for the three months ended June 30, 2022 and July 1, 2021, respectively, and $71.3 and $66.6 for the six months ended June 30, 2022 and July 1, 2021, respectively.
 
The Company capitalizes certain costs, such as software coding, installation, and testing, that are incurred to purchase or to create and implement internal-use computer software. Depreciation expense related to capitalized software was $6.5 and $3.5 for the three months ended June 30, 2022 and July 1, 2021, respectively, and $11.5 and $7.6 for the six months ended June 30, 2022 and July 1, 2021, respectively.
 
The Company reviews capital and amortizing intangible assets (long-lived assets) for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the period ended June 30, 2022, there were no events which would require the Company to update its impairment analysis.


10. Leases
The Company determines if an arrangement is a lease at the inception of a signed agreement. Operating leases are included in right-of-use (“ROU”) assets (long-term), short-term operating lease liabilities, and long-term operating lease liabilities on the Company’s Condensed Consolidated Balance Sheets. Finance leases are included in Property, Plant and Equipment, current maturities of long-term debt, and long-term debt.
ROU assets represent the right of the Company to use an underlying asset for the length of the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
To determine the present value of lease payments, the Company uses its estimated incremental borrowing rate or the implicit rate, if readily determinable. The estimated incremental borrowing rate is based on information available at the lease commencement date, including any recent debt issuances and publicly available data for instruments with similar characteristics. The ROU asset also includes any lease payments made and excludes lease incentives.
The Company's lease terms may include options to extend or terminate the lease and, when it is reasonably certain that an option will be exercised, those options are included in the net present value calculation. Leases with a term of 12 months or less, which are primarily related to automobiles and manufacturing equipment, are not recorded on the balance sheet. The aggregate amount of lease cost for leases with a term of 12 months or less is not material.
The Company has lease agreements that include lease and non-lease components, which are generally accounted for separately. For certain leases (primarily related to IT equipment), the Company does account for the lease and non-lease
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Spirit AeroSystems Holdings,