10-Q 1 spr-20220331.htm 10-Q spr-20220331
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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 March 31, 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 April 20, 2022, the registrant had 105,016,539 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
 March 31,
2022
April 1,
2021
 ($ in millions, except per share data)
Revenue$1,174.7 $900.8 
Operating costs and expenses  
Cost of sales1,139.9 958.8 
Selling, general and administrative64.5 57.6 
Restructuring costs0.2 2.1 
Research and development12.3 8.2 
Total operating costs and expenses1,216.9 1,026.7 
Operating loss(42.2)(125.9)
Interest expense and financing fee amortization(58.9)(59.8)
Other income, net37.7 12.8 
Loss before income taxes and equity in net loss of affiliate(63.4)(172.9)
Income tax benefit11.0 1.7 
Loss before equity in net loss of affiliate(52.4)(171.2)
Equity in net loss of affiliate(0.4)(0.4)
Net loss$(52.8)$(171.6)
Loss per share  
Basic$(0.51)$(1.65)
Diluted$(0.51)$(1.65)
 
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
 March 31,
2022
April 1,
2021
 ($ in millions)
Net loss$(52.8)$(171.6)
Changes in other comprehensive loss, net of tax:
Pension, SERP, and Retiree medical adjustments, net of tax effect of $0.1 and $0.1 for the three months ended, respectively
(0.5)(4.9)
Unrealized foreign exchange gain (loss) on intercompany loan, net of tax effect of $0.5 and ($0.2) for the three months ended, respectively
(1.2)0.5 
Unrealized (loss) gain on foreign currency hedges, net of tax effect of $0.0 and $0.0 for the three months ended, respectively
(3.9)1.2 
Reclassification of loss on cash flow hedges to earnings, net of tax effect of $0.0 and ($0.3) for the three months ended, respectively
1.5 0.9 
Foreign currency translation adjustments(13.5)6.4 
Total other comprehensive gain (loss)(17.6)4.1 
Total comprehensive loss$(70.4)$(167.5)
 

See notes to condensed consolidated financial statements (unaudited)
4

Spirit AeroSystems Holdings, Inc.
Condensed Consolidated Balance Sheets
(unaudited) 
March 31, 2022December 31, 2021
 ($ in millions)
Assets  
Cash and cash equivalents$1,151.8 $1,478.6 
Restricted cash0.3 0.3 
Accounts receivable, net580.0 461.6 
Contract assets, short-term449.0 443.2 
Inventory, net1,387.8 1,382.6 
Other current assets41.1 39.7 
Total current assets3,610.0 3,806.0 
Property, plant and equipment, net2,327.9 2,385.5 
Right of use assets83.6 85.3 
Contract assets, long-term4.2  
Pension assets530.4 532.5 
Deferred income taxes7.9 0.4 
Goodwill623.6 623.7 
Intangible assets, net208.6 212.3 
Other assets94.4 91.6 
Total assets$7,490.6 $7,737.3 
Liabilities
Accounts payable$762.9 $720.3 
Accrued expenses409.0 376.1 
Profit sharing19.7 63.7 
Current portion of long-term debt49.1 49.5 
Operating lease liabilities, short-term8.4 8.2 
Advance payments, short-term128.0 137.8 
Contract liabilities, short-term76.2 97.9 
Forward loss provision, short-term262.6 244.6 
Deferred revenue and other deferred credits, short-term21.6 72.7 
Other current liabilities87.4 105.2 
Total current liabilities1,824.9 1,876.0 
Long-term debt3,734.0 3,742.7 
Operating lease liabilities, long-term76.4 78.8 
Advance payments, long-term198.6 201.3 
Pension/OPEB obligation53.1 74.8 
Contract liabilities, long-term284.8 289.1 
Forward loss provision, long-term469.6 521.6 
Deferred revenue and other deferred credits, long-term30.3 32.1 
Deferred grant income liability - non-current25.5 26.4 
Deferred income taxes1.2 21.8 
Other non-current liabilities410.0 423.9 
Stockholders’ Equity
Common Stock, Class A par value $0.01, 200,000,000 shares authorized, 105,035,744 and 105,037,845 shares issued and outstanding, respectively
1.1 1.1 
Additional paid-in capital1,151.1 1,146.2 
Accumulated other comprehensive loss(41.3)(23.7)
Retained earnings1,727.5 1,781.4 
Treasury stock, at cost (41,587,480 and 41,523,470 shares, respectively)
(2,456.7)(2,456.7)
Total stockholders' equity381.7 448.3 
Noncontrolling interest0.5 0.5 
Total equity382.2 448.8 
Total liabilities and equity$7,490.6 $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 
SERP shares issued —  — — —  
Treasury shares— — —  — —  
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 
 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 

(a) Cash dividends declared per common share were $0.01 for the three months ended March 31, 2022. Cash dividends declared per common share were $0.01 for the three months ended April 1, 2021.
6

Spirit AeroSystems Holdings, Inc. 
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Three Months Ended
March 31, 2022April 1, 2021
Operating activities($ in millions)
Net loss$(52.8)$(171.6)
Adjustments to reconcile net loss to net cash used in operating activities 
Depreciation and amortization expense85.2 80.3 
Amortization of deferred financing fees1.8 2.3 
Accretion of customer supply agreement0.7 0.6 
Employee stock compensation expense8.2 6.6 
Gain from derivative instruments(0.7)(0.1)
(Gain) loss from foreign currency transactions(16.8)7.2 
Loss on disposition of assets 0.3 
Deferred taxes(27.2)(0.9)
Long term income tax payable (1.9)
Pension and other post-retirement benefits, net(22.3)(15.2)
Grant liability amortization(0.4)(0.4)
Equity in net loss of affiliate0.4 0.4 
Forward loss provision(33.7)(3.5)
Changes in assets and liabilities
Accounts receivable, net(123.3)(38.3)
Inventory, net(14.3)23.1 
Contract assets(11.3)5.6 
Accounts payable and accrued liabilities80.1 (6.4)
Profit sharing/deferred compensation(43.7)(42.6)
Advance payments(31.4)(0.8)
Income taxes receivable/payable14.7 3.6 
Contract liabilities(26.0)(1.7)
Deferred revenue and other deferred credits(35.4)1.5 
Other(22.0)(18.3)
Net cash used in operating activities(270.2)(170.2)
Investing activities  
Purchase of property, plant and equipment(27.7)(27.6)
Other 1.2 
Net cash used in investing activities(27.7)(26.4)
Financing activities  
Customer financing (2.5)
Principal payments of debt(11.1)(9.8)
Payments on term loans(1.5)(1.0)
Payments on floating rate notes (300.0)
Taxes paid related to net share settlement awards(5.3)(3.3)
Proceeds from issuance of ESPP stock1.9 1.4 
Dividends paid(1.1)(1.1)
Other(11.0)(0.1)
Net cash used in financing activities(28.1)(316.4)
Effect of exchange rate changes on cash and cash equivalents(0.8)(1.0)
Net decrease in cash, cash equivalents, and restricted cash for the period(326.8)(514.0)
Cash, cash equivalents, and restricted cash, beginning of period1,498.4 1,893.1 
Cash, cash equivalents, and restricted cash, end of period$1,171.6 $1,379.1 
7

Reconciliation of Cash, Cash Equivalents, and Restricted Cash:
For the Three Months Ended
March 31, 2022April 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$1,151.8 $1,359.3 
Restricted cash, short-term, end of the period0.3 0.3 
Restricted cash, long-term, end of the period19.5 19.5 
Cash, cash equivalents, and restricted cash, end of the period$1,171.6 $1,379.1 
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 “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, Oklahoma; Prestwick, Scotland; Wichita, Kansas; Kinston, North Carolina; Subang, Malaysia; Saint-Nazaire, France; Biddeford, Maine; Belfast, Northern Ireland; Morocco, Casablanca; 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 three months ended March 31, 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 three months ended March 31, 2022, the COVID-19 pandemic continued to have a significant negative impact on the aviation industry, our customers, and our 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 three months ended March 31, 2022, Boeing continued to announce orders for the B737 MAX, and air carriers generally continued resuming 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”) 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. The Company is currently 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. The Company is currently evaluating the impact of the initial application of this guidance on its annual financial statements to be issued for the period ended December 31, 2022.


10

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

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 first quarter ended March 31, 2022, the Company recognized unfavorable changes in estimates of $50.0, which included net forward charges of $23.8, and unfavorable cumulative catch-up adjustments of $26.2. The unfavorable cumulative catch-up adjustments were primarily driven by increased estimates for supply chain, raw material, and other costs on the Boeing B737 MAX program. The forward losses in the first quarter relate primarily to the estimated impact of further production rate decreases and costs of rework on the Boeing B787 program, and increased costs of quality and production rate decreases on the A350 program.

During the first quarter ended April 1, 2021, the Company recognized unfavorable changes in estimates of $78.2, which included net forward loss charges of $72.4, and unfavorable cumulative catch-up adjustments related to periods prior to the first quarter of 2021 of $5.8. The forward losses related primarily to cost performance on the B767 program, engineering analysis and estimated cost of re-work on the B787 program, and schedule changes, costs for tooling and build process quality improvements on the A350 program.

Changes in estimates are summarized below:
For the Three Months Ended
Changes in EstimatesMarch 31, 2022April 1, 2021
(Unfavorable) Favorable Cumulative Catch-up Adjustment by Segment
Commercial$(26.4)$(7.6)
Defense & Space0.2 1.8 
Aftermarket  
Total (Unfavorable) Favorable Cumulative Catch-up Adjustment$(26.2)$(5.8)
Changes in Estimates on Loss Programs (Forward Loss) by Segment
Commercial$(25.8)$(67.6)
Defense & Space2.0 (4.8)
Aftermarket  
Total Changes in Estimates (Forward Loss) on Loss Programs$(23.8)$(72.4)
Total Change in Estimate$(50.0)$(78.2)
EPS Impact (diluted per share based upon applicable forecasted effective tax rate)$(0.40)$(0.74)

11

Spirit AeroSystems Holdings, Inc. 
Notes to the Condensed Consolidated Financial Statements (unaudited)
(U.S. 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 Condensed Consolidated Balance Sheet. See also Allowance for Credit Losses, below.

Accounts receivable, net consists of the following:
March 31,
2022
December 31,
2021
Trade receivables$538.0 $412.0 
Other51.8 58.1 
Less: allowance for credit losses(9.8)(8.5)
Accounts receivable, net$580.0 $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. If the Company fails to comply with the program requirements, future payments may be withheld and/or a refund of payments already received may be required. 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 March 31, 2022, the amount in other receivables was $24.0, reflecting a payment of $13.7 received in the three months ended March 31, 2022. The full amount of the award has been amortized against Cost of sales on the Condensed Consolidated Statements of Operations as of March 31, 2022.
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 three months ended March 31, 2022, $616.4 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 $2.4 for the three months ended March 31, 2022 and is included in Other income and expense. See Note 21, Other (Expense) Income, Net.

Allowance for Credit Losses

During the three months ended March 31, 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
12

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

impairments to contract assets were recorded for the period ended March 31, 2022 or the period ended April 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.
March 31, 2022December 31, 2021Change
Contract assets$453.2 $443.2 $10.0 
Contract liabilities(361.0)(387.0)26.0 
Net contract assets (liabilities)$92.2 $56.2 $36.0 

For the period ended March 31, 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 $26.5 of revenue that was included in the contract liability balance at the beginning of the period.
April 1, 2021December 31, 2020Change
Contract assets$367.8 $372.8 $(5.0)
Contract liabilities(467.8)(469.6)1.8 
Net contract assets (liabilities)$(100.0)$(96.8)$(3.2)

For the period ended April 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 deferred revenues recorded in excess of revenue recognized during the period. The Company recognized $62.0 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 March 31, 2022 and April 1, 2021:
 For the Three
Months Ended
RevenueMarch 31,
2022
April 1,
2021
Contracts with performance obligations satisfied over time$929.5 $649.2 
Contracts with performance obligations satisfied at a point in time245.2 251.6 
Total Revenue$1,174.7 $900.8 

13

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

The following table disaggregates revenue by major customer:
For the Three
Months Ended
CustomerMarch 31,
2022
April 1,
2021
Boeing$647.2 $467.9 
Airbus303.9 231.6 
Other223.6 201.3 
Total Revenue$1,174.7 $900.8 

The following table disaggregates revenue based upon the location where control of products are transferred to the customer:
For the Three
Months Ended
LocationMarch 31,
2022
April 1,
2021
United States$823.5 $624.2 
International
United Kingdom169.8 136.3 
Other181.4 140.3 
Total International351.2 276.6 
Total Revenue$1,174.7 $900.8 

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$2,938.4 $4,668.3 $2,882.9 $662.8 


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 preproduction 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.
March 31,
2022
December 31,
2021
Raw materials$311.2 $301.4 
Work-in-process(1)
992.9 999.1 
Finished goods58.7 56.9 
Product inventory1,362.8 1,357.4 
Capitalized pre-production25.0 25.2 
Total inventory, net$1,387.8 $1,382.6 

14

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

(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 using the input method. For the periods ended March 31, 2022 and December 31, 2021, work-in-process inventory includes $379.1 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 $57.6 and $54.9 as of March 31, 2022 and December 31, 2021, respectively.

Excess capacity and abnormal production costs are excluded from inventory and recognized as expense in the period incurred. Cost of sales for three months ended March 31, 2022 and April 1, 2021 includes period expense of $49.8 and $67.6, 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 months ended March 31, 2022 and April 1, 2021 of $9.5 and $2.1, respectively.


9.  Property, Plant and Equipment, net
 
Property, plant and equipment, net consists of the following: 
 
March 31,
2022
December 31,
2021
Land$30.4 $30.7 
Buildings (including improvements)1,240.9 1,242.0 
Machinery and equipment2,312.8 2,276.5 
Tooling1,050.6 1,051.1 
Capitalized software330.5 323.0 
Construction-in-progress93.1 117.1 
Total5,058.3 5,040.4 
Less: accumulated depreciation(2,730.4)(2,654.9)
Property, plant and equipment, net$2,327.9 $2,385.5 

Capitalized interest was $1.4 and $1.4 for the three months ended March 31, 2022 and April 1, 2021, respectively. Repair and maintenance costs are expensed as incurred. The Company recognized repair and maintenance costs of $34.9 and $34.4 for the three months ended March 31, 2022 and April 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 $5.0 and $4.1 for the three months ended March 31, 2022 and April 1, 2021, respectively.
 
The Company reviews capital and amortizing intangible assets (long-lived assets) for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the period ended March 31, 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.
15

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

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 components as a single lease component. A portfolio approach is applied to effectively account for the ROU assets and liabilities for those specific leases referenced above. The Company does not have any material leases containing variable lease payments or residual value guarantees. The Company also does not have any material subleases.
The Company currently has operating and finance leases for items such as manufacturing facilities, corporate offices, manufacturing equipment, transportation equipment, and vehicles. The majority of the Company's active leases have remaining lease terms that range between less than one year to 18 years, some of which include options to extend the leases for up to 30 years, and some of which include options to terminate the leases within one year.

Components of lease expense:
For the Three
Months Ended
March 31,
2022
April 1,
2021
Operating lease cost$3.3 $2.5 
Finance lease cost:
Amortization of assets8.1 6.0 
Interest on lease liabilities1.7 1.6 
Total net lease cost$13.1 $10.1 

Supplemental cash flow information related to leases was as follows:
For the Three
Months Ended
March 31,
2022
April 1,
2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$3.1 $2.4 
Operating cash flows from finance leases$1.7 $1.6 
Financing cash flows from finance leases$11.1 $8.9 
ROU assets obtained in exchange for lease obligations:
Operating leases$0.4 $1.0 
16

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


Supplemental balance sheet information related to leases:
March 31, 2022December 31, 2021
Finance leases:
Property and equipment, gross$268.0 $266.1 
Accumulated amortization(81.0)(73.1)
Property and equipment, net$187.0 $193.0 

The weighted average remaining lease term as of March 31, 2022 for operating and finance leases was 36.1 years and 4.7 years, respectively. The weighted average discount rate as of March 31, 2022 for operating and finance leases was 5.6% and 4.5%, respectively. The weighted average remaining lease term as of December 31, 2021 for operating and finance leases was 36.3 years and 4.9 years, respectively. The weighted average discount rate as of December 31, 2021 for operating and finance leases was 5.6% and 4.5%, respectively. See Note 15, Debt, for current and non-current finance lease obligations. There has not been a significant impact on lease terms, costs, cash flows, or balance sheet values, including any impairment of lease assets, as a result of the COVID-19 pandemic.

As of March 31, 2022, remaining maturities of lease liabilities were as follows:
202220232024202520262027 and thereafterTotal Lease PaymentsLess: Imputed InterestTotal Lease Obligations
Operating Leases$9.4 $11.7 $11.3 $10.7 $8.8 $164.7 $216.6 $(131.8)$84.8 
Financing Leases$36.3 $43.6 $35.3 $23.3 $15.8 $19.8 $174.1 $(18.1)$156.0 

As of March 31, 2022, the Company had additional operating and financing lease commitments that have not yet commenced of approximately $58.4 for manufacturing equipment, software, and facilities that are in various phases of construction or customization for the Company's ultimate use, with lease terms between 3 and 15 years. The Company’s involvement in the construction and design process for these assets is generally limited to project management.


17

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

11.  Other Assets, Goodwill, and Intangible Assets
 
Other current assets are summarized as follows:
March 31,
2022
December 31,
2021
Prepaid expenses$31.3 $20.7 
Income tax receivable2.2 14.0 
Other assets- short term7.6 5.0 
Total other current assets$41.1 $39.7 

Other assets are summarized as follows:
March 31,
2022
December 31,
2021
Deferred financing  
Deferred financing costs$0.9 $0.9 
Less: Accumulated amortization - deferred financing costs(0.6)(0.6)
Deferred financing costs, net$0.3 $0.3 
Other  
Supply agreements (1)
$8.3 $9.2 
Equity in net assets of affiliates0.4 0.8 
Restricted cash - collateral requirements19.5 19.5 
Rotables39.4 38.3 
Other26.5 23.5 
Total other long term assets$94.4 $91.6 

(1)    Certain payments accounted for as consideration paid by the Company to a customer are being amortized as reductions to net revenues.


Goodwill is summarized as follows:
Changes in Goodwill Balance
Balance atBalance at
SegmentDecember 31,
2021
AcquisitionsAdjustments/OtherCurrency ExchangeMarch 31,
2022
Commercial$296.8 $ $— $(0.1)$296.7 
Defense & Space$5.5 $ $— $ $5.5 
Aftermarket$321.4 $ $— $ $321.4 
$623.7 $ $— $(0.1)$623.6 
The total goodwill value includes no accumulated impairment loss in any of the periods presented. The Company assesses goodwill for impairment annually or more frequently if events or circumstances indicate that the fair value of a reporting unit that includes goodwill may be lower than its carrying value. For the period ended March 31, 2022, there were no events or circumstances which would require the Company to update its goodwill impairment analysis.

18

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

Intangible assets are summarized as follows:
March 31,
2022
December 31,
2021
Intangible assets  
Favorable leasehold interests$2.8 $2.8 
Developed technology asset92.0 92.0 
Customer relationships intangible asset137.2 137.2 
Total intangible assets$232.0 $232.0 
Less: Accumulated amortization - favorable leasehold interest(1.9)(1.9)
         Accumulated amortization - developed technology asset(10.4)(8.8)
         Accumulated amortization - customer relationships(11.1)(9.0)
Intangible assets, net$208.6 $212.3 


The amortization for each of the five succeeding years relating to intangible assets currently recorded in the Condensed Consolidated Balance Sheet and the weighted average amortization is estimated to be the following as of March 31, 2022:
YearFavorable leasehold interestDeveloped TechnologyCustomer RelationshipsTotal
remaining in 2022$0.1 $4.5 $6.0 $10.6 
20230.1 6.1 8.1 14.3 
20240.1 6.1 8.1 14.3 
20250.1 6.1 8.1 14.3 
20260.1 6.1 8.1 14.3 
20270.1 6.1 8.1 14.3 
Weighted average amortization period7.3 years13.3 years16.2 years15.0 years



12.  Advance Payments
 
Advances on the B787 Program.  Boeing has made advance payments to Spirit under the B787 Special Business Provisions and General Terms Agreement (collectively, the “B787 Supply Agreement”) that are required to be repaid to Boeing by way of offset against the purchase price for future shipset deliveries. Advance repayments were initially scheduled to be spread evenly over the remainder of the first 1,000 B787 shipsets delivered to Boeing. On April 8, 2014, Spirit signed a memorandum of agreement with Boeing that suspended advance repayments related to the B787 program for a period of twelve months beginning April 1, 2014. Repayment recommenced on April 1, 2015, and any repayments that otherwise would have become due during such twelve-month period will offset the purchase price for shipsets 1,001 through 1,120. On December 21, 2018, Spirit signed a memorandum of agreement with Boeing that again suspended the advance repayments beginning with line unit 818. The advance repayments will resume at a lower rate of $0.45 per shipset at line number 1135 and continue through line number 1605.

In the event Boeing does not take delivery of a sufficient number of shipsets to repay the full amount of advances prior to the termination of the B787 program or the B787 Supply Agreement, any advances not then repaid will be applied against any outstanding payments then due by Boeing to us, and any remaining balance will be repaid in annual installments of $27 due on December 15th of each year until the advance payments have been fully recovered by Boeing. As of March 31, 2022, the amount of advance payments received from Boeing under the B787 Supply Agreement and not yet repaid was approximately $212.

19

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

Advances on the B737 Program. In an effort to minimize the disruption to Spirit's operations and its supply chain, Spirit and Boeing entered into a Memorandum of Agreement on April 12, 2019 (the "2019 MOA"), which included the terms and conditions for an advance payment to be made from Boeing to Spirit in the amount of $123, which was received during the third quarter of 2019. The parties entered into another memorandum of agreement on February 6, 2020 (the "2020 MOA"), which extended the repayment date of the $123 advance received by Spirit under the 2019 MOA to 2022. The 2020 MOA also required Boeing to pay $225 to Spirit in the first quarter of 2020, consisting of (i) $70 in support of Spirit’s inventory and production stabilization, of which $10 was repaid by Spirit in 2021, and (ii) $155 as an incremental pre-payment for costs and shipset deliveries over the next two years. On February 9, 2021, Spirit signed a letter of agreement for Boeing to pay $38.5 to Spirit in the first quarter of 2021, which consisted of (i) $68.5 as additional pre-payment for the costs and shipset deliveries less the (ii) ($30) credit owed to Boeing for rate-based pricing premium. As of March 31, 2022, the amount of advance payments received from Boeing and not yet repaid was $92.3.

Other. The Advance payments, short-term line item on the Condensed Consolidated Balance Sheet for the period ended March 31, 2022 includes $18.9 related to payment received from an Aftermarket segment customer for contracted work that was impacted by the sanctions imposed by the U.S. and other governments on Russia following its invasion of Ukraine.


13.  Fair Value Measurements
 
The FASB’s authoritative guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance discloses three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market.

Level 2                      Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Observable inputs, such as current and forward interest rates and foreign exchange rates, are used in determining the fair value of the interest rate swaps and foreign currency hedge contracts.
 
Level 3                 Unobservable inputs that are supported by little or no market activity and are significant to the fair value of assets and liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

At March 31, 2022, the Company’s long-term debt includes a senior secured term loan and senior notes described further under Note 15, Debt. The estimated fair value of the Company’s debt obligations is based on the quoted market prices for such obligations or the historical default rate for debt with similar credit ratings. The following table presents the carrying amount and estimated fair value of long-term debt. See also Note 14, Derivative and Hedging Activities.  
20

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

 March 31, 2022 December 31, 2021 
 Carrying
Amount
Fair
Value
 Carrying
Amount
Fair
Value
 
Senior secured term loan B (including current portion)$594.0 $592.5 (2)$595.2 $595.2 (2)
Senior notes due 2023299.4 297.1 (1)299.3 303.6 (1)
Senior secured first lien notes due 2025495.6 499.0 (1)495.3 513.3 (1)
Senior secured second lien notes due 2025