10-Q 1 spr-20210930.htm 10-Q spr-20210930
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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 September 30, 2021
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 October 20, 2021, the registrant had 105,047,298 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 Nine
Months Ended
 September 30,
2021
October 1,
2020
September 30,
2021
October 1,
2020
 ($ in millions, except per share data)
Revenue$980.0 $806.3 $2,882.9 $2,528.2 
Operating costs and expenses    
Cost of sales1,036.2 903.4 3,009.4 2,941.0 
Selling, general and administrative86.8 52.8 211.3 179.2 
Restructuring costs0.8 19.5 8.1 68.4 
Research and development12.8 7.5 34.3 28.1 
Loss on disposal of assets   22.9 
Total operating costs and expenses1,136.6 983.2 3,263.1 3,239.6 
Operating loss(156.6)(176.9)(380.2)(711.4)
Interest expense and financing fee amortization(58.8)(53.0)(177.7)(133.8)
Other income (expense), net 94.8 (10.0)138.7 (65.4)
Loss before income taxes and equity in net loss of affiliate(120.6)(239.9)(419.2)(910.6)
Income tax benefit7.9 85.2 0.6 340.0 
Loss before equity in net loss of affiliate(112.7)(154.7)(418.6)(570.6)
Equity in net loss of affiliate(0.9)(0.8)(1.9)(3.8)
Net loss$(113.6)$(155.5)$(420.5)$(574.4)
Loss per share    
Basic$(1.09)$(1.50)$(4.04)$(5.53)
Diluted$(1.09)$(1.50)$(4.04)$(5.53)
 
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 Nine
Months Ended
 September 30,
2021
October 1,
2020
September 30,
2021
October 1,
2020
 ($ in millions)
Net loss$(113.6)$(155.5)$(420.5)$(574.4)
Changes in other comprehensive gain (loss), net of tax:  
Pension, SERP, and retiree medical adjustments, net of tax effect of $0.1 and ($7.4) for the three months ended, respectively, and $0.4 and $0.9 for the nine months ended, respectively7.6 23.8 3.8 (3.0)
Unrealized foreign exchange gain (loss) on intercompany loan, net of tax effect of $0.3 and ($0.4) for the three months ended, respectively, and $0.2 and $0.4 for the nine months ended, respectively(0.9)1.4 (0.6)(1.2)
Unrealized 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 nine months ended, respectively(6.2)— (5.5)— 
Unrealized loss on interest rate swaps, net of tax effect of $0.0 and $0.0 for the three months ended, respectively, and $0.0 and ($3.3) for the nine months ended, respectively—  — (10.9)
Reclassification of gain on foreign currency hedges to earnings, net of tax effect of $0.0 and $0.0 for the three months ended, respectively, and $0.0 and $0.0 for the nine months ended, respectively(0.1)— (0.1)— 
Reclassification of loss on interest rate swaps to earnings, net of tax effect of $0.0 and ($2.8) for the three months ended, respectively, and ($0.3) and ($3.1) for the nine months ended, respectively 9.2 0.9 10.3 
Foreign currency translation adjustments(11.6)17.3 (7.7)(15.6)
Total other comprehensive (loss) gain(11.2)51.7 (9.2)(20.4)
Total comprehensive loss$(124.8)$(103.8)$(429.7)$(594.8)
 

See notes to condensed consolidated financial statements (unaudited)
4

Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Balance Sheets
(unaudited) 
September 30, 2021December 31, 2020
 ($ in millions)
Assets  
Cash and cash equivalents$1,430.6 $1,873.3 
Restricted cash0.3 0.3 
Accounts receivable, net527.6 484.4 
Contract assets, short-term411.0 368.4 
Inventory, net1,325.7 1,422.3 
Other current assets121.1 336.3 
Total current assets3,816.3 4,485.0 
Property, plant and equipment, net2,406.9 2,503.8 
Right of use assets87.2 70.6 
Contract assets, long-term 4.4 
Pension assets487.2 455.9 
Deferred income taxes 0.1 
Goodwill623.6 565.3 
Intangible assets, net216.2 215.2 
Other assets103.4 83.6 
Total assets$7,740.8 $8,383.9 
Liabilities
Accounts payable$644.8 $558.9 
Accrued expenses415.6 365.6 
Profit sharing39.8 57.0 
Current portion of long-term debt47.8 340.7 
Operating lease liabilities, short-term8.3 5.5 
Advance payments, short-term116.0 18.9 
Contract liabilities, short-term109.9 97.6 
Forward loss provision, short-term284.0 184.6 
Deferred revenue and other deferred credits, short-term95.9 22.2 
Other current liabilities88.4 58.4 
Total current liabilities1,850.5 1,709.4 
Long-term debt3,546.7 3,532.9 
Operating lease liabilities, long-term80.5 66.6 
Advance payments, long-term221.7 327.4 
Pension/OPEB obligation335.6 440.2 
Contract liabilities, long-term279.7 372.0 
Forward loss provision, long-term491.6 561.4 
Deferred revenue and other deferred credits, long-term34.8 38.9 
Deferred grant income liability - non-current26.7 28.1 
Deferred income taxes26.0 13.0 
Other non-current liabilities422.2 437.0 
Stockholders’ Equity
Common Stock, Class A par value $0.01, 200,000,000 shares authorized, 105,048,226 and 105,542,162 shares issued and outstanding, respectively
1.1 1.1 
Additional paid-in capital1,140.4 1,139.8 
Accumulated other comprehensive loss(163.3)(154.1)
Retained earnings1,902.8 2,326.4 
Treasury stock, at cost (41,523,470 shares each period, respectively)
(2,456.7)(2,456.7)
Total stockholders' equity424.3 856.5 
Noncontrolling interest0.5 0.5 
Total equity424.8 857.0 
Total liabilities and equity$7,740.8 $8,383.9 
 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, 2020105,542,162 $1.1 $1,139.8 $(2,456.7)$(154.1)$2,326.4 $856.5 
Net loss— — — — — (306.9)(306.9)
Dividends declared(a)
— — — — — (2.2)(2.2)
Employee equity awards59,538  13.3 — — — 13.3 
Stock forfeitures(105,320) — — — — — 
Net shares settled(105,238) (4.4)— — — (4.4)
ESPP shares issued29,500 — 1.4 — — — 1.4 
SERP shares issued9,198 —  — — —  
Other— — — 0.1 0.1 
Other comprehensive gain— — — — 2.0 — 2.0 
Balance — July 1, 2021105,429,840 $1.1 $1,150.1 $(2,456.7)$(152.1)$2,017.4 $559.8 
Net loss— — — — — (113.6)(113.6)
Dividends declared(a)
— — — — — (1.0)(1.0)
Employee equity awards  6.3 — — — 6.3 
Stock forfeitures(8,898) — — — — — 
Net shares settled(2,923) (0.5)— — — (0.5)
ESPP shares issued37,023 — 1.6 — — — 1.6 
Other(406,816)— (17.1)— —  (17.1)
Other comprehensive loss— — — — (11.2)— (11.2)
Balance — September 30, 2021105,048,226 $1.1 $1,140.4 $(2,456.7)$(163.3)$1,902.8 $424.3 
 Common StockAdditional
Paid-in
Capital
Treasury StockAccumulated
Other
Comprehensive
Loss
Retained
Earnings
 
  
 SharesAmountTotal
 ($ in millions, except share data)
Balance — December 31, 2019104,882,379 $1.1 $1,125.0 $(2,456.8)$(109.2)$3,201.3 $1,761.4 
Net loss— — — — — (418.9)(418.9)
Dividends declared(a)
— — — — — (2.4)(2.4)
Employee equity awards972,614  13.3 — — — 13.3 
Stock forfeitures(87,903) — — — — — 
Net shares settled(197,918) (13.7)— — — (13.7)
ESPP shares issued55,656 — 1.3 — — — 1.3 
Treasury shares  — 0.1 — — 0.1 
Other comprehensive loss— — — — (72.1)— (72.1)
Balance — July 2, 2020105,624,828 $1.1 $1,125.9 $(2,456.7)$(181.3)$2,780.0 $1,269.0 
Net loss— — — — — (155.5)(155.5)
Dividends declared(a)
— — — — — (1.0)(1.0)
Employee equity awards7,657  6.3 — — — 6.3 
Stock forfeitures(30,906) — — — — — 
Net shares settled(9,507) (0.3)— — — (0.3)
ESPP shares issued68,810 — 1.3 — — — 1.3 
Other comprehensive gain— — — — 51.7 — 51.7 
Balance — October 1, 2020105,660,882 $1.1 $1,133.2 $(2,456.7)$(129.6)$2,623.5 $1,171.5 

(a) Cash dividends declared per common share were $0.01 for the three months ended September 30, 2021 and October 1, 2020, respectively. Cash dividends declared per common share were $0.03 for the nine months ended September 30, 2021 and October 1, 2020, respectively.
6

Spirit AeroSystems Holdings, Inc. 
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Nine Months Ended
September 30, 2021October 1, 2020
Operating activities($ in millions)
Net loss$(420.5)$(574.4)
Adjustments to reconcile net loss to net cash used in operating activities 
Depreciation and amortization expense241.9 202.5 
Amortization of deferred financing fees6.4 12.6 
Accretion of customer supply agreement1.6 1.6 
Employee stock compensation expense19.6 17.1 
Gain from derivative instruments(0.1) 
Gain from foreign currency transactions(7.3)(1.1)
Loss on disposition of assets2.3 24.9 
Deferred taxes13.5 (34.3)
Pension and other post-retirement benefits, net(104.5)57.2 
Grant liability amortization(1.2)(3.2)
Equity in net loss of affiliate1.9 3.8 
Forward loss provision(1.1)226.3 
Changes in assets and liabilities
Accounts receivable, net(4.7)169.3 
Inventory, net83.4 (66.1)
Contract assets(38.8)200.4 
Accounts payable and accrued liabilities99.4 (530.6)
Profit sharing/deferred compensation(17.7)(46.2)
Advance payments(1.2)(19.9)
Income taxes receivable/payable227.2 (252.6)
Contract liabilities(79.8)(44.1)
Other(7.0)44.0 
Net cash provided by (used in) operating activities13.3 (612.8)
Investing activities  
Purchase of property, plant and equipment(90.0)(70.4)
Acquisition, net of cash acquired(21.1)(117.9)
Other4.7 4.9 
Net cash used in investing activities(106.4)(183.4)
Financing activities  
Proceeds from issuance of debt 1,200.0 
Customer financing(7.5)10.0 
Principal payments of debt(30.1)(22.7)
Payments on term loans(3.0)(439.7)
Payments on revolving credit facility (800.0)
Payments on floating rate notes(300.0) 
Taxes paid related to net share settlement awards(5.0)(14.0)
Proceeds from issuance of ESPP stock3.0 2.6 
Debt issuance and financing costs (27.6)
Purchase of treasury stock 0.1 
Dividends paid(3.2)(14.4)
Other 0.1 
Net cash used in financing activities(345.8)(105.6)
Effect of exchange rate changes on cash and cash equivalents(3.8)(3.3)
Net decrease in cash, cash equivalents, and restricted cash for the period(442.7)(905.1)
Cash, cash equivalents, and restricted cash, beginning of period1,893.1 2,367.2 
Cash, cash equivalents, and restricted cash, end of period$1,450.4 $1,462.1 
7

Reconciliation of Cash, Cash Equivalents, and Restricted Cash:
For the Nine Months Ended
September 30, 2021October 1, 2020
Cash and cash equivalents, beginning of the period$1,873.3 $2,350.5 
Restricted cash, short-term, beginning of the period0.3 0.3 
Restricted cash, long-term, beginning of the period19.5 16.4 
Cash, cash equivalents, and restricted cash, beginning of the period$1,893.1 $2,367.2 
Cash and cash equivalents, end of the period$1,430.6 $1,441.3 
Restricted cash, short-term, end of the period0.3 1.3 
Restricted cash, long-term, end of the period19.5 19.5 
Cash, cash equivalents, and restricted cash, end of the period$1,450.4 $1,462.1 
See notes to condensed consolidated financial statements (unaudited)
8

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(US 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 ("Quarterly Report"), 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 “Spirit Holdings” or “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 and McAlester, Oklahoma; Prestwick, Scotland; Wichita, Kansas; Kinston, North Carolina; Subang, Malaysia; Saint-Nazaire, France; Biddeford, Maine; Casablanca, Morocco; Belfast, Northern Ireland; and Dallas, Texas. The Company previously announced site consolidation activities, including the McAlester, Oklahoma and San Antonio, Texas sites. The work transfer and closure activities for the San Antonio site are complete as of September 30, 2021. The work transfer activity for the McAlester site is complete, with remaining closure activities in process as of September 30, 2021.

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 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 nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

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 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2021 (the “2020 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 2020 Form 10-K.

COVID-19
During the three and nine months ended September 30, 2021, the COVID-19 pandemic continued to have a significant negative effect on the aviation industry, the Company's customers, and the Company's business globally. Although the aviation industry has shown signs of improvement and recovery during the three and nine months ended September 30, 2021, the length of the COVID-19 pandemic and its effect 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)
(US Dollars in millions other than per share amounts)

On September 9, 2021, President Biden announced new vaccination requirements applicable to federal workers and contractors, large employers and healthcare workers. Subject to limited exceptions, U.S. employees of federal contractors are required to be fully vaccinated against COVID-19 by December 8, 2021. As a federal contactor, the Company is subject to the executive order and has implemented mandatory vaccination rules for all U.S. employees to satisfy the requirements by December 8, 2021.
B737 MAX
The Boeing Company’s (“Boeing”) deliveries of the B737 MAX resumed in the fourth quarter of 2020 when the Federal Aviation Administration (“FAA”) rescinded the emergency order that grounded B737 MAX aircraft in the United States and issued official requirements to enable U.S. airlines to return the B737 MAX to service. 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, with China remaining as the most significant country not to allow the B737 MAX to return to service. During the nine month period ended September 30, 2021, Boeing continued to receive orders for the B737 MAX, and several additional air carriers resumed flights on the aircraft.


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”) Topic 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 did not have a material impact on our financial position or results of operations.

In October 2020, the FASB issued ASU No. 2020-09 (“ASU 2020-09”), which revises certain SEC paragraphs of the ASC to reflect, as appropriate, the amended financial statement disclosure requirements in SEC Release 33-10762, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities. There is no impact to our financial position or results of operations due to the adoption of ASU 2020-09.


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. The Company is currently evaluating the potential impact of adopting this guidance on our 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 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 the scope and nature of the work required to be performed on those
10

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

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.

The full extent to which the effects of the COVID-19 pandemic will impact the Company's business, operations, results of operations and financial condition depends on future developments that are inherently uncertain. The Company has made reasonable estimates and judgments of the COVID-19 pandemic’s impact within its financial statements that the Company believes are reasonable, and there may be changes to those estimates in future periods related to changes in potential production volumes or timing of those production volumes. See also Note 20, Commitments, Contingencies and Guarantees.

During the third quarter ended September 30, 2021, the Company recognized unfavorable changes in estimates of $73.2, which included net forward loss charges of $70.4, and unfavorable cumulative catch-up adjustments related to periods prior to the third quarter of 2021 of $2.8. The forward losses in the third quarter relate primarily to the B787 program, driven by the Company's assessment of the latest B787 program demand received from Boeing through September 2021, including the impact of reduced production volumes and the corresponding amount of fixed overhead absorption applied to lower deliveries. The loss in the current period also includes an additional loss on the A350 program related to changes in the production schedule, and a loss on the Bell V-280 OTA program, the contract for which was recently awarded to the Company. The unfavorable cumulative catch-up adjustment was driven by the impact of production schedule changes on the estimate of production costs for the B737 program, and also includes increased costs estimated on non-recurring programs.

Changes in estimates are summarized below:
For the Three Months EndedFor the Nine Months Ended
Changes in EstimatesSeptember 30, 2021October 1, 2020September 30, 2021October 1, 2020
(Unfavorable) Favorable Cumulative Catch-up Adjustment by Segment
Fuselage$(1.6)$8.8 $4.9 $(18.9)
Propulsion1.6 (4.6)(2.0)(8.6)
Wing(2.9)0.4 (5.6)(3.1)
Other0.1  0.2  
Total (Unfavorable) Favorable Cumulative Catch-up Adjustment$(2.8)$4.6 $(2.5)$(30.6)
Changes in Estimates on Loss Programs (Forward Loss) by Segment
Fuselage$(49.9)$(92.0)$(140.7)$(260.3)
Propulsion(5.9)(14.9)(19.2)(34.2)
Wing(14.6)(21.5)(35.1)(47.7)
Total Changes in Estimates (Forward Loss) on Loss Programs$(70.4)$(128.4)$(195.0)$(342.2)
Total Changes in Estimates$(73.2)$(123.8)$(197.5)$(372.8)
EPS Impact (diluted per share based upon 2021 forecasted effective tax rate)$(0.69)$(0.77)$(1.86)$(2.33)

11

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

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 balance sheet. See also Allowance for Credit Losses, below.

Accounts receivable, net consists of the following:
September 30,
2021
December 31,
2020
Trade receivables$475.0 $458.9 
Other59.2 31.1 
Less: allowance for credit losses(6.6)(5.6)
Accounts receivable, net$527.6 $484.4 

Other receivables as of September 30, 2021 in the table above includes 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. As of September 30, 2021, the Company has received payment for $37.8 of the total amount approved of $75.5. The remaining $37.7, recorded in Other receivables above, is to be received through the term of the agreement, which expires in March of 2022. The full amount of the award, less an insignificant amount amortized against Cost of sales on the Condensed Consolidated Statements of Operations in the three and nine-month period ended September 30, 2021, is recorded on the Condensed Consolidated Balance Sheets line item Deferred revenue and other deferred credits, short-term.

The Company has agreements (through its subsidiaries) to sell, on a revolving basis, certain trade accounts receivable balances, predominantly 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 nine months ended September 30, 2021, $1,487.7 of accounts receivable from Boeing, Airbus, and Rolls-Royce 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 is $4.8 for the nine months ended September 30, 2021 and is included in other income (expense), net on the Condensed Consolidated Statements of Operations. See Note 21, Other (Expense) Income, Net.

Allowance for Credit Losses

During the nine months ended September 30, 2021, 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 September 30, 2021 or the period ended October 1, 2020. See also Note 5, Accounts Receivable and Allowance for Credit Losses.

12

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

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.

September 30, 2021December 31, 2020Change
Contract assets$411.0 $372.8 $38.2 
Contract liabilities(389.6)(469.6)80.0 
Net contract assets (liabilities)$21.4 $(96.8)$118.2 

For the period ended September 30, 2021, 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 $156.1 of revenue that was included in the contract liability balance at the beginning of the period.

October 1, 2020December 31, 2019Change
Contract assets$337.7 $534.7 $(197.0)
Contract liabilities(472.6)(514.6)42.0 
Net contract assets (liabilities)$(134.9)$20.1 $(155.0)

For the period ended October 1, 2020, 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 deferred revenues recorded in excess of revenue recognized during the period. The Company recognized $91.0 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 September 30, 2021 and October 1, 2020:
 For the Three Months EndedFor the Nine
Months Ended
RevenueSeptember 30,
2021
October 1,
2020
September 30,
2021
October 1,
2020
Contracts with performance obligations satisfied over time$774.9 $510.6 $2,187.3 $1,511.9 
Contracts with performance obligations satisfied at a point in time205.1 295.7 695.6 1,016.3 
Total Revenue$980.0 $806.3 $2,882.9 $2,528.2 

The following table disaggregates revenue by major customer:
13

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

For the Three Months EndedFor the Nine
Months Ended
CustomerSeptember 30,
2021
October 1,
2020
September 30,
2021
October 1,
2020
Boeing$566.1 $493.8 $1,595.8 $1,539.9 
Airbus211.6 160.1 687.8 575.3 
Other202.3 152.4 599.3 413.0 
Total Revenue$980.0 $806.3 $2,882.9 $2,528.2 

The following table disaggregates revenue based upon the location where control of products are transferred to the customer:
For the Three Months EndedFor the Nine
Months Ended
LocationSeptember 30,
2021
October 1,
2020
September 30,
2021
October 1,
2020
United States$715.5 $642.0 $2,048.1 $1,936.4 
International
United Kingdom142.5 103.6 419.8 358.2 
Other122.0 60.7 415.0 233.6 
Total International264.5 164.3 834.8 591.8 
Total Revenue$980.0 $806.3 $2,882.9 $2,528.2 

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 2021202220232024 and After
Unsatisfied performance obligations$887.7 $3,396.8 $4,146.5 $3,353.3 


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.
September 30,
2021
December 31,
2020
Raw materials$306.8 $337.3 
Work-in-process(1)
937.6 1,000.6 
Finished goods54.4 58.1 
Product inventory1,298.8 1,396.0 
Capitalized pre-production26.9 26.3 
Total inventory, net$1,325.7 $1,422.3 

(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 assigned to a production unit on contracts for which revenue is recognized using the cost to cost input method. For the periods ended September 30, 2021 and
14

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

December 31, 2020, work-in-process inventory includes $364.5 and $351.2, 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 $52.2 and $56.8 as of September 30, 2021 and December 31, 2020, respectively.

Excess capacity and abnormal production costs are excluded from inventory and recognized as expense in the period incurred. Cost of sales for three and nine months ended September 30, 2021 includes period expense of $57.1 and $172.2, respectively for excess capacity production costs related to B737 MAX, A220 and A320 production schedule changes. Cost of sales also includes abnormal costs related to 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 nine months ended September 30, 2021 of $2.6 and $7.1, respectively. Cost of sales for the three and nine month periods ended October 1, 2020 includes period expense of $72.6 and $228.8, respectively, of excess capacity production costs related to temporary B737 MAX and A320 production schedule changes, and 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 of ($10.9) and $33.8, respectively.


9.  Property, Plant and Equipment, net
 
Property, plant and equipment, net consists of the following: 
 
September 30,
2021