Spirit AeroSystems Holdings, Inc. [SPR] Filings

10-Q 1 spr-20230928.htm 10-Q spr-20230928

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 28, 2023


☐			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 class	Trading symbol	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	SPR	New 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 company

Emerging 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 18, 2023, the registrant had 105,570,958 shares of class A common stock, $0.01 par value per share, outstanding.

Table of Contents

TABLE OF CONTENTS


	PART I — FINANCIAL INFORMATION

		Page
Item 1.	Financial Statements (unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	55


PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	56
Item 5.	Other Information	57
Item 6.	Exhibits	58
Signatures		60

Table of Contents

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 28, 2023		September 29, 2022		September 28, 2023		September 29, 2022
	($ in millions, except per share data)
Revenue	$	1,438.9	$	1,276.9	$	4,235.0	$	3,709.5
Operating costs and expenses
Cost of sales	1,492.5		1,194.0		4,320.2		3,611.4
Selling, general and administrative	69.2		69.1		217.2		203.8

Restructuring costs	—		—		7.2		0.2
Research and development	10.1		9.3		33.9		36.5
Other operating expense	0.8		—		5.7		—
Total operating costs and expenses	1,572.6		1,272.4		4,584.2		3,851.9
Operating income (loss)	(133.7)		4.5		(349.2)		(142.4)
Interest expense and financing fee amortization	(75.1)		(56.8)		(221.1)		(170.8)
Other income (expense), net	7.3		(42.1)		(120.0)		30.2
Loss before income taxes and equity in net income (loss) of affiliates	(201.5)		(94.4)		(690.3)		(283.0)
Income tax provision	(2.4)		(32.9)		(1.1)		(18.4)
Loss before equity in net income (loss) of affiliates	(203.9)		(127.3)		(691.4)		(301.4)
Equity in net income (loss) of affiliates	—		(0.3)		(0.2)		(1.2)
Net loss	$	(203.9)	$	(127.6)	$	(691.6)	$	(302.6)
Less noncontrolling interest in earnings of subsidiary	(0.2)		—		—		—
Net loss attributable to common shareholders	$	(204.1)	$	(127.6)	$	(691.6)	$	(302.6)
Loss per share
Basic	$	(1.94)	$	(1.22)	$	(6.58)	$	(2.89)
Diluted	$	(1.94)	$	(1.22)	$	(6.58)	$	(2.89)

See notes to condensed consolidated financial statements (unaudited)

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Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 28, 2023		September 29, 2022		September 28, 2023		September 29, 2022
	($ in millions)
Net loss	$	(203.9)	$	(127.6)	$	(691.6)	$	(302.6)
Changes in other comprehensive loss, net of tax:

Pension, SERP, and retiree medical adjustments, net of tax effect of $1.2 and $31.9 for the three months ended, respectively, and ($15.2) and $30.9 for the nine months ended, respectively.	0.8		(100.8)		49.5		(98.2)
Unrealized foreign exchange gain (loss) on intercompany loan, net of tax effect of $0.6 and $1.3 for the three months ended, respectively, and ($0.2) and $3.1 for the nine months ended, respectively.	(1.1)		(3.2)		0.4		(7.2)
Unrealized gain (loss) on cash flow hedges, net of tax effect of $1.2 and $0.0 for the three months ended, respectively, and $0.1 and $0.0 for the nine months ended, respectively.	(5.2)		(18.5)		2.5		(35.5)
Reclassification of (gain) 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 $0.0 for the nine months ended, respectively.	(3.8)		6.5		(1.7)		12.1
Foreign currency translation adjustments	(22.8)		(37.0)		3.2		(83.5)
Total other comprehensive (loss) gain, net of tax	(32.1)		(153.0)		53.9		(212.3)
Less comprehensive income attributable to noncontrolling interest	(0.2)		—		—		—
Total comprehensive loss	$	(236.0)	$	(280.6)	$	(637.7)	$	(514.9)

See notes to condensed consolidated financial statements (unaudited)

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Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Balance Sheets

(unaudited)


	September 28, 2023		December 31, 2022
	($ in millions)
Assets
Cash and cash equivalents	$	374.1	$	658.6
Restricted cash	0.2		0.2
Accounts receivable, net	610.3		489.5
Contract assets, short-term	596.0		501.0
Inventory, net	1,690.0		1,470.7
Other current assets	50.6		38.3
Total current assets	3,321.2		3,158.3
Property, plant and equipment, net	2,084.1		2,205.9
Right of use assets	93.5		94.3
Contract assets, long-term	20.9		1.2
Pension assets	28.3		196.9
Restricted plan assets	61.4		71.1
Deferred income taxes	0.1		4.8
Goodwill	631.1		630.5
Intangible assets, net	200.0		211.4
Other assets	97.5		91.8
Total assets	$	6,538.1	$	6,666.2
Liabilities
Accounts payable	$	1,030.3	$	919.8
Accrued expenses	479.5		411.7
Profit sharing	18.1		40.5
Current portion of long-term debt	64.2		53.7
Operating lease liabilities, short-term	8.4		8.3
Advance payments, short-term	36.5		24.9
Contract liabilities, short-term	157.2		111.1
Forward loss provision, short-term	335.3		305.9
Deferred revenue and other deferred credits, short-term	48.4		21.7
Other current liabilities	172.1		54.9
Total current liabilities	2,350.0		1,952.5
Long-term debt	3,811.0		3,814.9
Operating lease liabilities, long-term	84.9		85.4
Advance payments, long-term	276.9		199.9
Pension/OPEB obligation	22.2		25.2
Contract liabilities, long-term	195.6		245.3
Forward loss provision, long-term	289.4		369.2
Deferred revenue and other deferred credits, long-term	87.2		49.0
Deferred grant income liability - non-current	25.4		25.7
Deferred income taxes	8.2		1.3
Other non-current liabilities	243.0		141.6
Stockholders’ Equity
Common Stock, Class A par value $0.01, 200,000,000 shares authorized, 105,304,482 and 105,252,421 shares issued and outstanding, respectively	1.1		1.1
Additional paid-in capital	1,205.3		1,179.5
Accumulated other comprehensive loss	(150.0)		(203.9)
Retained earnings	540.9		1,232.5
Treasury stock, at cost (41,587,480 shares each period, respectively)	(2,456.7)		(2,456.7)
Total stockholders' equity	(859.4)		(247.5)
Noncontrolling interest	3.7		3.7
Total equity	(855.7)		(243.8)
Total liabilities and equity	$	6,538.1	$	6,666.2

See notes to condensed consolidated financial statements (unaudited)

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Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Statements of Changes in Stockholders' Equity

(unaudited)


	Common Stock			Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Retained Earnings		Noncontrolling Interest

	Shares	Amount												Total
	($ in millions, except share data)
Balance — December 31, 2022	105,252,421	$	1.1	$	1,179.5	$	(2,456.7)	$	(203.9)	$	1,232.5	$	3.7	$	(243.8)
Net loss	—	—		—		—		—		(487.5)		—		(487.5)


Employee equity awards	360,884	—		19.2		—		—		—		—		19.2
Stock forfeitures	(230,612)	—		—		—		—		—		—		—
Net shares settled	(173,639)	—		(5.8)		—		—		—		—		(5.8)
ESPP shares issued	79,840	—		3.2		—		—		—		—		3.2

Other	—	—		—		—		—		—		(0.2)		(0.2)
Other comprehensive gain (loss)	—	—		—		—		86.0		—		—		86.0
Balance — June 29, 2023	105,288,894	$	1.1	$	1,196.1	$	(2,456.7)	$	(117.9)	$	745.0	$	3.5	$	(628.9)
Net loss	—	—		—		—		—		(204.1)		—		(204.1)

Employee equity awards	8,055	—		8.6		—		—		—		—		8.6

Net shares settled	(8,490)	—		(0.3)		—		—		—		—		(0.3)
ESPP shares issued	—	—		0.9		—		—		—		—		0.9
SERP shares issued	16,023	—		—		—		—		—		—		—

Other	—	—		—		—		—		—		0.2		0.2
Other comprehensive loss	—	—		—		—		(32.1)		—		—		(32.1)
Balance — September 28, 2023	105,304,482	$	1.1	$	1,205.3	$	(2,456.7)	$	(150.0)	$	540.9	$	3.7	$	(855.7)


	Common Stock			Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Retained Earnings		Noncontrolling Interest

	Shares	Amount												Total
	($ in millions, except share data)
Balance — December 31, 2021	105,037,845	$	1.1	$	1,146.2	$	(2,456.7)	$	(23.7)	$	1,781.4	$	0.5	$	448.8
Net loss	—	—		—		—		—		(175.0)		—		(175.0)

Dividends declared(1)	—	—		—		—		—		(2.2)		—		(2.2)
Employee equity awards	294,175	—		18.2		—		—		—		—		18.2
Stock forfeitures	(91,196)	—		—		—		—		—		—		—
Net shares settled	(142,743)	—		(6.5)		—		—		—		—		(6.5)
ESPP shares issued	40,078	—		1.9		—		—		—		—		1.9

Other	—	—		—		—		—		0.1		—		0.1

Other comprehensive loss	—	—		—		—		(59.3)		—		—		(59.3)
Balance — June 30, 2022	105,138,159	$	1.1	$	1,159.8	$	(2,456.7)	$	(83.0)	$	1,604.3	$	0.5	$	226.0
Net loss	—	—		—		—		—		(127.6)		—		(127.6)
Dividends declared(1)	—	—		—		—		—		(1.0)		—		(1.0)
Employee equity awards	36,890	—		10.5		—		—		—		—		10.5
Stock forfeitures	(1,574)	—		—		—		—		—		—		—
Net shares settled	(13,890)	—		(0.5)		—		—		—		—		(0.5)




Other comprehensive loss	—	—		—		—		(153.0)		—		—		(153.0)
Balance — September 29, 2022	105,159,585	$	1.1	$	1,169.8	$	(2,456.7)	$	(236.0)	$	1,475.7	$	0.5	$	(45.6)

(1) Cash dividends declared per common share were $0.00 and $0.01 for the three months ended September 28, 2023 and September 29, 2022, respectively. Cash dividends declared per common share were $0.00 and $0.03 for the nine months ended September 28, 2023 and September 29, 2022, respectively.

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Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	For the Nine Months Ended
	September 28, 2023		September 29, 2022
Operating activities	($ in millions)
Net loss	$	(691.6)	$	(302.6)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization expense	236.9		253.2
Amortization of deferred financing fees	5.2		5.6
Accretion of customer supply agreement	1.8		1.6
Employee stock compensation expense	29.3		28.7
Loss (gain) from derivative instruments	(1.7)		10.5
Loss (gain) from foreign currency transactions	(4.0)		(36.9)

Loss on disposition of assets	0.9		0.8
Deferred taxes	(3.8)		15.7
Pension and other post-retirement plans expense (income)	61.8		17.2
Grant liability amortization	(0.9)		(1.1)
Equity in net loss of affiliates	0.2		1.2
Forward loss provision	(50.7)		(115.3)
Gain on settlement of financial instrument	(1.4)		(21.4)
Change in fair value of acquisition consideration and settlement	(2.4)		—
Changes in assets and liabilities
Accounts receivable, net	(127.0)		(89.0)
Inventory, net	(227.0)		(47.9)
Contract assets	(114.5)		(112.5)
Accounts payable and accrued liabilities	222.2		210.6
Profit sharing/deferred compensation	(22.5)		(47.6)
Advance payments	87.4		(99.3)
Income taxes receivable/payable	1.1		17.8
Contract liabilities	(3.9)		(25.1)
Pension plans employer contributions	178.0		19.1
Deferred revenue and other deferred credits	67.4		(44.4)
Other	19.7		(6.3)
Net cash used in operating activities	(339.5)		(367.4)
Investing activities
Purchase of property, plant, and equipment	(76.5)		(82.7)


Other	—		(6.1)
Net cash used in investing activities	(76.5)		(88.8)
Financing activities
Proceeds from issuance of debt	12.7		—
Payment of principal - settlement of financial instrument	—		(289.5)
Customer financing	180.0		—
Borrowings under revolving credit facility	1.6		—
Principal payments of debt	(47.2)		(33.7)
Payments on term loans	(3.0)		(3.0)
Payment of acquisition consideration	(6.0)		—



Taxes paid related to net share settlement awards	(6.1)		(7.0)
Proceeds from issuance of ESPP stock	2.6		1.9
Debt issuance and financing costs	(0.5)		—

Dividends paid	—		(3.2)


Net cash provided by (used in) financing activities	134.1		(334.5)
Effect of exchange rate changes on cash and cash equivalents	—		(17.5)
Net decrease in cash, cash equivalents, and restricted cash for the period	(281.9)		(808.2)
Cash, cash equivalents, and restricted cash, beginning of period	678.4		1,498.4
Cash, cash equivalents, and restricted cash, end of period	$	396.5	$	690.2

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Reconciliation of Cash, Cash Equivalents, and Restricted Cash:
	For the Nine Months Ended
	September 28, 2023		September 29, 2022
Cash and cash equivalents, beginning of the period	$	658.6	$	1,478.6
Restricted cash, short-term, beginning of the period	0.2		0.3
Restricted cash, long-term, beginning of the period	19.6		19.5
Cash, cash equivalents, and restricted cash, beginning of the period	$	678.4	$	1,498.4

Cash and cash equivalents, end of the period	$	374.1	$	670.5
Restricted cash, short-term, end of the period	0.2		0.2
Restricted cash, long-term, end of the period	22.2		19.5
Cash, cash equivalents, and restricted cash, end of the period	$	396.5	$	690.2

See notes to condensed consolidated financial statements (unaudited)

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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; Woonsocket, Rhode Island; 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 nine months ended September 28, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

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 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 17, 2023 (the “2022 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 2022 Form 10-K.

2. Adoption of New Accounting Standards

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU No. 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50). The amendments in the update require additional qualitative and quantitative disclosure about supplier finance programs. The guidance does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. ASU No. 2022-04 is effective on a retrospective basis for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for an amended disclosure requirement related to certain rollforward information, which is effective on a prospective basis for fiscal years beginning after December 15, 2023. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements, and the Company does not expect this guidance to have a material impact prospectively.

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Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(U.S. Dollars in millions other than per share amounts)

3. New Accounting Pronouncements

In December 2022, the FASB issued ASU No. 2022-06, which defers the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting from December 31, 2022 to December 31, 2024. ASU No. 2022-06 was effective upon issuance. ASU No. 2022-06 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, providing optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. 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, the impact of which is not expected to be material.

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. The Company’s estimate of costs depends on maintaining continuing, uninterrupted production at its manufacturing facilities and its suppliers’ facilities. The continued fragility of the global aerospace supply chain may lead to interruptions in deliveries of or increased prices for components or raw materials used in the Company's products, labor disruptions, and could delay production and/or materially adversely affect the Company's business. 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. Cumulative catch-up adjustments are primarily related to changes in the estimated margin of contracts with performance obligations that are satisfied over time.

Changes in estimates could materially adversely affect the Company’s future financial performance. While certain increases in raw material costs can generally be passed on to the Company’s customers, in most instances the Company must fully absorb cost overruns. Some of the factors that may cause the costs incurred in fulfilling contracts to vary substantially from current estimates are technical problems, production rate changes, production stoppages, materials shortages, supplier difficulties, realization targets, existence of and execution to recovery plans caused by these factors, and multiple other events, including those identified in Item 1A. “Risk Factors” of the 2022 Form 10-K. The risk particularly applies to products such as the B787, A220, and A350, which are in forward loss positions.

During the third quarter ended September 28, 2023, the Company recognized unfavorable changes in estimates of $165.1, which included net forward loss charges of $101.1, and unfavorable cumulative catch-up adjustments related to periods prior to the third quarter of 2023 of $64.0. The forward losses in the third quarter were primarily driven by labor and production cost growth on the A350 program, additional labor and supply chain cost growth on the B787 program, increased factory performance and supply chain costs on the B767 program, and production costs incurred on the Sikorsky CH-53K program. The unfavorable cumulative catch-up adjustments primarily relate to increased factory performance costs and rework costs related to the quality issue on the B737 aft pressure bulkhead on the B737 program, and production cost overruns and foreign currency movements on the A320 program.

During the third quarter ended September 29, 2022, the Company recognized unfavorable changes in estimates of $54.0, which included net forward loss charges of $49.1, and unfavorable cumulative catch-up adjustments related to periods prior to the third quarter of 2022 of $4.9. The forward losses in the quarter ended September 29, 2022 were primarily driven by losses on the A350, B787, and RB3070 programs. Increased cost estimates for production on the A350 program resulted in a forward loss reflecting additional labor, freight, and other cost requirements driven by parts shortages and production and quality issues. The B787 program forward loss was driven by increased cost estimates for supply chain, rework, and fixed cost absorption. The

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Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(U.S. Dollars in millions other than per share amounts)

RB3070 nacelle program forward loss was driven by increased engineering cost estimates. The unfavorable cumulative catch-up adjustments primarily relate to adjustments for production schedule changes and increased costs on the A320 program.

Changes in estimates are summarized below:


	For the Three Months Ended				For the Nine Months Ended
Changes in Estimates	September 28, 2023		September 29, 2022		September 28, 2023		September 29, 2022
(Unfavorable) Favorable Cumulative Catch-up Adjustment by Segment
Commercial	$	(59.1)	$	(6.9)	$	(40.7)	$	(27.8)
Defense & Space	(4.9)		2.0		(8.7)		1.6
Aftermarket	—		—		—		—
Total (Unfavorable) Favorable Cumulative Catch-up Adjustment	$	(64.0)	$	(4.9)	$	(49.4)	$	(26.2)

Changes in Estimates on Loss Programs (Forward Loss) by Segment
Commercial	$	(86.5)	$	(47.4)	$	(298.3)	$	(132.6)
Defense & Space	(14.6)		(1.7)		(17.5)		(4.0)
Aftermarket	—		—		—		—
Total Changes in Estimates (Forward Loss) on Loss Programs	$	(101.1)	$	(49.1)	$	(315.8)	$	(136.6)

Total Change in Estimate	$	(165.1)	$	(54.0)	$	(365.2)	$	(162.8)
EPS Impact (diluted per share based upon applicable forecasted effective tax rate)	$	(1.57)	$	(0.55)	$	(3.48)	$	(1.66)

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 Sheets. See also Allowance for Credit Losses, below.

Accounts receivable, net consists of the following:


	September 28, 2023		December 31, 2022
Trade receivables	$	579.4	$	477.9
Other	43.8		19.7
Less: allowance for credit losses	(12.9)		(8.1)
Accounts receivable, net	$	610.3	$	489.5

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

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Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(U.S. Dollars in millions other than per share amounts)

derecognized from the Company's Condensed Consolidated Balance Sheets. For the nine months ended September 28, 2023, $2,657.0 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 $36.5 for the nine months ended September 28, 2023 and is included in other income and expense. See Note 21 Other Income (Expense), Net.

Allowance for Credit Losses

During the nine months ended September 28, 2023, 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 28, 2023 or the period ended September 29, 2022. 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.


	September 28, 2023		December 31, 2022		Change
Contract assets	$	616.9	$	502.2	$	114.7
Contract liabilities	(352.8)		(356.4)		3.6
Net contract assets (liabilities)	$	264.1	$	145.8	$	118.3

For the period ended September 28, 2023, 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 $66.4 of revenue that was included in the contract liability balance at the beginning of the period.


	September 29, 2022		December 31, 2021		Change
Contract assets	$	547.4	$	443.2	$	104.2
Contract liabilities	(361.7)		(387.0)		25.3
Net contract assets (liabilities)	$	185.7	$	56.2	$	129.5

For the period ended September 29, 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 $63.2 of revenue that was included in the contract liability balance at the beginning of the period.

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Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(U.S. Dollars in millions other than per share amounts)

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 23 Segment Information.

The following tables show disaggregated revenues for the periods ended September 28, 2023 and September 29, 2022:


	For the Three Months Ended				For the Nine Months Ended
Revenue	September 28, 2023		September 29, 2022		September 28, 2023		September 29, 2022
Contracts with performance obligations satisfied over time	$	1,064.1	$	970.6	$	3,176.2	$	2,733.3
Contracts with performance obligations satisfied at a point in time	374.8		306.3		1,058.8		976.2
Total Revenue	$	1,438.9	$	1,276.9	$	4,235.0	$	3,709.5

The following table disaggregates revenue by major customer:


	For the Three Months Ended				For the Nine Months Ended
Customer	September 28, 2023		September 29, 2022		September 28, 2023		September 29, 2022
Boeing	$	883.9	$	824.3	$	2,640.6	$	2,233.7
Airbus	274.5		237.2		816.8		822.2
Other	280.5		215.4		777.6		653.6
Total Revenue	$	1,438.9	$	1,276.9	$	4,235.0	$	3,709.5

The following table disaggregates revenue based upon the location where control of products is transferred to the customer:


	For the Three Months Ended				For the Nine Months Ended
Location	September 28, 2023		September 29, 2022		September 28, 2023		September 29, 2022
United States	$	1,156.0	$	1,037.0	$	3,379.8	$	2,768.0
International
United Kingdom	163.5		145.5		505.3		473.5
Other	119.4		94.4		349.9		468.0
Total International	282.9		239.9		855.2		941.5
Total Revenue	$	1,438.9	$	1,276.9	$	4,235.0	$	3,709.5

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 2023		2024		2025		2026 and after
Unsatisfied performance obligations	$	1,533.7	$	5,286.1	$	1,758.5	$	278.3

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Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(U.S. Dollars in millions other than per share amounts)

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 28, 2023		December 31, 2022
Raw materials	$	395.4	$	332.7
Work-in-process(1)	1,226.2		1,044.9
Finished goods	46.8		69.4
Product inventory	1,668.4		1,447.0
Capitalized pre-production	21.6		23.7
Total inventory, net	$	1,690.0	$	1,470.7

(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 September 28, 2023 and December 31, 2022, work-in-process inventory includes $256.3 and $392.2, 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 $148.3 and $136.8 as of September 28, 2023 and December 31, 2022, respectively.

Excess capacity and abnormal production costs are excluded from inventory and recognized as expense in the period incurred. Cost of sales for the three and nine months ended September 28, 2023 includes period expense of $56.4 and $152.9, respectively, for excess capacity production costs related to temporary B737 MAX, A320 and A220 production schedule changes, and abnormal production costs of $0.8 and $8.1, respectively, related to the temporary production pause.

9. Property, Plant and Equipment, net

Property, plant and equipment, net consists of the following:


	September 28, 2023		December 31, 2022
Land	$	30.1	$	30.1
Buildings (including improvements)	1,292.3		1,269.1
Machinery and equipment	2,439.6		2,365.1
Tooling	1,061.4		1,055.9
Capitalized software	338.3		336.1
Construction-in-progress	86.0		102.2
Total	5,247.7		5,158.5
Less: accumulated depreciation	(3,163.6)		(2,952.6)
Property, plant and equipment, net	$	2,084.1	$	2,205.9

Capitalized interest was $0.4 and $1.0 for the three months ended September 28, 2023 and September 29, 2022, respectively, and $3.8 and $2.9 for the nine months ended September 28, 2023 and September 29, 2022, respectively. Repair and maintenance costs are expensed as incurred. The Company recognized repair and maintenance costs of $32.1 and $43.7 for the three months ended September 28, 2023 and September 29, 2022, respectively, and $124.4 and $115.0 for the nine months ended September 28, 2023 and September 29, 2022, respectively.

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Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(U.S. Dollars in millions other than per share amounts)

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 $5.6 and $5.0 for the three months ended September 28, 2023 and September 29, 2022, respectively, and $17.5 and $16.5 for the nine months ended September 28, 2023 and September 29, 2022, 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 September 28, 2023, 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 Condensed Consolidated Balance Sheets. 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 15 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				For the Nine Months Ended
	September 28, 2023		September 29, 2022		September 28, 2023		September 29, 2022
Operating lease cost	$	3.6	$	3.2	$	10.8	$	9.8
Finance lease cost:
Amortization of assets	9.5		8.3		26.6		24.6
Interest on lease liabilities	2.1		1.7		5.9		5.0
Total net lease cost	$	15.2	$	13.2	$	43.3	$	39.4

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Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(U.S. Dollars in millions other than per share amounts)

Supplemental cash flow information related to leases was as follows:


	For the Three Months Ended				For the Nine Months Ended
	September 28, 2023		September 29, 2022		September 28, 2023		September 29, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3.5	$	3.2	$	10.5	$	9.5
Operating cash flows from finance leases	$	2.1	$	1.7	$	5.9	$	5.0
Financing cash flows from finance leases	$	13.0	$	11.2	$	36.9	$	33.7

ROU assets obtained in exchange for lease obligations:
Operating leases	$	5.1	$	0.1	$	5.6	$	1.3

Supplemental balance sheet information related to leases:


	September 28, 2023		December 31, 2022
Finance leases:
Property and equipment, gross	$	333.5	$	295.4
Accumulated amortization	(129.6)		(103.4)
Property and equipment, net	$	203.9	$	192.0

The weighted average remaining lease term as of September 28, 2023 for operating and finance leases was 32.5 years and 4.7 years, respectively. The weighted average discount rate as of September 28, 2023 for operating and finance leases was 6.2% and 5.8%, respectively. The weighted average remaining lease term as of December 31, 2022 for operating and finance leases was 31.7 years and 5.3 years, respectively. The weighted average discount rate as of December 31, 2022 for operating and finance leases was 5.8% and 5.0%, respectively. See Note 15 Debt for current and non-current finance lease obligations.

As of September 28, 2023, remaining maturities of lease liabilities were as follows:


	2023		2024		2025		2026		2027		2028 and thereafter		Total Lease Payments		Less: Imputed Interest		Total Lease Obligations
Operating Leases	$	3.6	$	13.9	$	14.0	$	11.9	$	9.3	$	177.2	$	229.9	$	(136.6)	$	93.3
Financing Leases	$	14.7	$	51.5	$	37.8	$	22.8	$	9.6	$	26.8	$	163.2	$	(21.3)	$	141.9

As of September 28, 2023, the Company had additional operating and financing lease commitments that have not yet commenced of approximately $2.2 and $28.7, respectively, 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 2 and 5 years. The Company’s involvement in the construction and design process for these assets is generally limited to project management.

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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:


	September 28, 2023		December 31, 2022
Prepaid expenses	$	39.6	$	27.5
Income tax receivable	2.7		3.9
Other assets - short-term	8.3		6.9
Total other current assets	$	50.6	$	38.3

Other assets are summarized as follows:


	September 28, 2023		December 31, 2022
Deferred financing
Deferred financing costs	$	0.9	$	0.9
Less: Accumulated amortization - deferred financing costs	(0.8)		(0.8)
Deferred financing costs, net	$	0.1	$	0.1
Other

Supply agreements (1)	$	4.1	$	6.4
Equity in net assets of affiliates	0.9		1.1
Restricted cash - collateral requirements	22.2		19.6
Rotables	43.6		39.0
Other	26.6		25.6
Total other long-term assets	$	97.5	$	91.8

(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 at									Balance at
Segment	December 31, 2022		Acquisitions		Adjustments/Other			Currency Exchange		September 28, 2023
Commercial	$	296.5	$	—	$	—		$	—	$	296.5
Defense & Space	$	12.6	$	—	$	0.6	(1)	$	—	$	13.2
Aftermarket	$	321.4	$	—	$	—		$	—	$	321.4
	$	630.5	$	—	$	0.6		$	—	$	631.1

(1) As a result of certain purchase price allocation adjustments recorded during the purchase price accounting measurement period based on additional information obtained, the goodwill resulting from the T.E.A.M., Inc. acquisition was adjusted by $0.6, from $7.1 that was reported at December 31, 2022, to $7.7 as of September 28, 2023. See also Note 26 Acquisitions.

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 September 28, 2023, there were no events or circumstances which would require the Company to update its goodwill impairment analysis.

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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:


	September 28, 2023		December 31, 2022
Intangible assets

Favorable leasehold interests	2.8		2.8
Developed technology asset	103.1		103.1
Customer relationships intangible asset	139.6		139.6

Total intangible assets	$	245.5	$	245.5

Less: Accumulated amortization - favorable leasehold interest	(2.1)		(2.1)
Accumulated amortization - developed technology asset	(20.2)		(15.0)
Accumulated amortization - customer relationship	(23.2)		(17.0)
Intangible assets, net	$	200.0	$	211.4

Amortization expense was $3.8 and $3.6 for the for the three months ended September 28, 2023 and September 29, 2022, respectively and $11.4 and $10.9 for the nine months ended September 28, 2023 and September 29, 2022, respectively.

The amortization for each of the five succeeding years relating to intangible assets currently recorded in the Condensed Consolidated Balance Sheets and the weighted average amortization is estimated to be the following as of September 28, 2023:


Year	Customer relationships		Favorable leasehold interest		Developed Technology		Total
remaining in 2023	$	2.1	$	—	$	1.7	$	3.8
2024	8.2		0.1		6.9		15.2
2025	8.2		0.1		6.9		15.2
2026	8.2		0.1		6.9		15.2
2027	8.2		0.1		6.9		15.2
2028	8.2		0.1		6.9		15.2

Weighted average amortization period	14.7 years		5.8 years		12.1 years		13.6 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 1001 through 1120. 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 September 28, 2023, the

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Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(U.S. Dollars in millions other than per share amounts)

amount of advance payments received from Boeing under the B787 Supply Agreement and not yet repaid was approximately $194.5.

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 $123.0, which was received during the third quarter of 2019. Spirit and Boeing entered into a Memorandum of Agreement on February 6, 2020, which extended the repayment date of the $123.0 advance received by Spirit under the 2019 MOA to 2022. $0.0 and $92.3 of advance payments received from Boeing were repaid in the nine months ended September 28, 2023 and September 29, 2022, respectively. There was no balance due as of September 28, 2023.

Advances on the A350 Program. During the three months ended June 29, 2023, the Company received an advance payment from Airbus of $50.0 under an agreement between Airbus S.A.S. and Spirit AeroSystems (Europe) Limited (“Spirit Europe”) signed on June 23, 2023 (the “A350 Agreement”). During the three months ended September 28, 2023, the Company received a second advance payment from Airbus of $50.0. These advances are required to be repaid along with a nominal fee to Airbus by way of offset against the purchase price of A350 FLE shipset deliveries in 2025. To the extent actual deliveries in 2025 are insufficient to offset the advance amount, any amount not offset against deliveries will be due and payable to Airbus on December 31, 2025. In connection with the A350 Agreement, Spirit Europe has pledged certain program assets including work in process inventories and raw materials at Spirit's Scotland facility in an amount sufficient to cover the advances.

Other. The Advance payments, long-term line item on the Condensed Consolidated Balance Sheets for the period ended September 28, 2023 includes $18.9 related to payments 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 September 28, 2023, 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 and Note 16 Pension and Other Post-Retirement Benefits.

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Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (unaudited)

(U.S. Dollars in millions other than per share amounts)


	September 28, 2023					December 31, 2022
	Carrying Amount		Fair Value			Carrying Amount		Fair Value
Senior secured term loan B (including current portion)	$	572.6	$	571.2	(2)	$	571.7	$	564.5	(2)

Senior notes due 2025	20.8		20.5		(1)	20.7		20.8		(1)
Senior secured second lien notes due 2025	1,193.8		1,165.9		(1)	1,191.0		1,179.0		(1)
Senior notes due 2026	299.0		278.4		(1)	298.8		272.8		(1)
Senior notes due 2028	696.4		538.9		(1)	695.9		562.3		(1)
Senior secured first lien notes due 2029	888.0		903.8		(1)	887.2		935.7		(1)
Total	$	3,670.6	$	3,478.7		$	3,665.3	$	3,535.1

(1)Level 1 Fair Value hierarchy

(2)Level 2 Fair Value hierarchy

14. Derivative and Hedging Activities

Derivatives Accounted for as Hedges

Cash Flow Hedges – Foreign Currency Forward Contract

The Company has entered into currency forward contracts, each designated as a cash flow hedge upon the date of execution, for the purpose of reducing the variability of cash flows and hedging against the foreign currency exposure for forecasted payroll, pension and vendor disbursements that are expected to be made in the British Pound Sterling. The hedging program implemented is intended to reduce foreign currency exposure, and the associated forward currency contracts hedge forecasted transactions through June 2024.

The following table summarizes the notional amounts (representing the gross contract/notional amount of the derivatives outstanding) and fair values of the derivative instruments in the Condensed Consolidated Balance Sheets as of September 28, 2023, and December 31, 2022. The foreign currency exchange contracts are measured within Level 1 of the Fair Value hierarchy. See Note 13 Fair Value Measurements.


	Notional amount				Other assets				Other liabilities
	September 28, 2023		December 31, 2022		September 28, 2023		December 31, 2022		September 28, 2023		December 31, 2022
Derivatives designated as hedging instruments:
Foreign currency exchange contracts	$	160.3	$	157.1	$	—	$	—	$	6.3	$	2.4
Total derivatives at fair value					$	—	$	—	$	6.3	$