- Includes Impact of Machinists' Strike at Boeing and Lower Pension
Income Forecast
- Provides 2009 Financial Outlook
- Full-year 2008 Revenues of $3.8 billion; Operating Income of $406
million
- Full-year 2008 Fully Diluted EPS of $1.91 per share; Includes ($0.41)
per share of strike impact and ($0.10) per share impact from reduced
pension income
- Cash and Cash Equivalents were $217 million at year-end
- Total backlog increased 20 percent to approximately $32 billion from
year-end 2007
- Issues 2009 Fully Diluted Earnings Per Share Guidance between $2.15 and
$2.35 per share
WICHITA, Kan., Feb. 5 /PRNewswire-Asia/ -- Spirit AeroSystems Holdings, Inc. (NYSE: SPR) reported fourth quarter and full-year 2008 financial results reflecting solid operating performance, the unfavorable impact from the Machinists' strike at Boeing, and a lower pension income forecast which unfavorably impacted the company's contract accounting estimates.
Spirit's fourth quarter 2008 revenues were $646 million and operating income was $28 million, as the combination of the Machinists' strike at Boeing and a lower pension income forecast for the remainder of the contract blocks impacted financial results for the quarter.
Table 1. Summary Financial Results
($'s in Millions, except per 4th Quarter Twelve Months
share data) 2008 2007 Change 2008 2007 Change
Revenues $646 $980 (34%) $3,772 $3,861 (2%)
Operating Income $28 $107 (74%) $406 $419 (3%)
Operating Income as a % of
Revenues 4.4% 10.9 (650)BPS 10.8% 10.9% (10)BPS
Net Income $20 $76 (74%) $265 $297 (11%)
Net Income as a % of Revenues 3.1% 7.7% (460)BPS 7.0% 7.7% (70)BPS
Earnings per Share (Fully
diluted) $0.14 $0.54 (74%) $1.91 $2.13 (10%)
Fully Diluted Weighted Avg
Share Count (Millions) 139.2 139.6 139.2 139.3
Despite the strike and pension impact in the third and fourth quarters of 2008, full-year 2008 revenues were $3.772 billion and operating income was $406 million. Increased production volumes during the first eight months of 2008 and lower period expenses for the year were more than offset by strike-related reduced deliveries to Boeing in the third and fourth quarters of 2008.
Net income for the fourth quarter of 2008 was $20 million, or $0.14 per fully diluted share compared to $76 million, or $0.54 per fully diluted share, for the same period in 2007. Full-year 2008 net income was $265 million, or $1.91 per fully diluted share compared to $297 million, or $2.13 per fully diluted share for 2007. Fourth quarter and full-year 2008 net income benefited from the federal research and experimentation (R&E) tax credit's retroactive extension, which reduced the fourth quarter 2008 tax expense by $8 million, increasing fully diluted earnings per share by $0.06 per share.
During the third quarter of 2008, Spirit responded to a labor strike at its largest customer, The Boeing Company. The work stoppage by the International Association of Machinists and Aerospace Workers (IAM) resulted in Spirit taking immediate action to implement a reduced work week schedule for certain employees supporting most Boeing programs, which remained in effect throughout the fourth quarter of 2008. As a result, fourth quarter 2008 ship set deliveries to Boeing were 63 units below pre-strike delivery levels, resulting in a revenue reduction of $451 million and a reduction in earnings per share of $0.28. The 2008 full year impact of the strike resulted in 72 fewer deliveries, resulting in a revenue reduction of $504 million and a reduction in earnings per share of $0.41 per share.
The company's U.S. pension plan remained fully funded at year-end 2008. As a result of the plan's asset performance during 2008 and the increased pension obligation resulting from a lower discount rate at the December 31st measurement date, Spirit now expects significantly reduced non-cash pension income in future periods. The reduced non-cash pension income forecast negatively impacts the profitability of the current contract accounting blocks and resulted in an unfavorable cumulative catch-up adjustment of $20 million, or $0.10 earnings per share in the fourth quarter of 2008. The reduction in the plan's assets and the increase in the pension obligation during 2008 also resulted in a $186 million reduction in Other Comprehensive Income during the fourth quarter of 2008.
"Our 2008 results reflect a successful, yet challenging year," said President and Chief Executive Officer Jeff Turner. "We increased production rates early in the year, made good progress on development programs, strengthened and matured customer relationships, and maintained our strong operating performance across the company while managing through the challenges of the Machinists' strike at Boeing during the third and fourth quarters of 2008," Turner continued. "We continued to advance our strategy by winning new business and establishing the Spirit brand throughout the industry," Turner added. During the year, Spirit announced projects underway with Gulfstream and Rolls-Royce and new business wins with Airbus, Cessna, Mitsubishi, Southwest Airlines and Continental Airlines. The new manufacturing facility in the state of North Carolina is progressing to plan, and the Malaysian facility is on schedule to open in the first quarter of 2009.
"Our strategy remains solid and the company is financially strong as we move into less certain times in the commercial aerospace market," Turner stated. "We are working closely with our customers and monitoring developments across the industry as we look forward into 2009 and beyond."
Spirit's backlog increased by over $5 billion in 2008 as the company executed its growth and customer diversification strategy by capturing new business in the large commercial aircraft, regional jet, and business jet market segments. The company's backlog at the end of 2008 was $31.7 billion, up 20 percent from year-end 2007. Spirit's backlog is calculated based on contractual prices for products and volumes from the published firm order backlogs of Boeing and Airbus, along with firm orders from other customers.
Spirit updated its contract profitability estimates during the fourth quarter of 2008, resulting in a $27 million unfavorable cumulative catch-up adjustment. This adjustment reflects $20 million for the lower pension income forecast in the current accounting blocks; $5 million from unfavorable foreign exchange rate movements; $2 million of net impact from other matters including customer requested delivery delays on the 787 and 747-8 programs; increasing costs from certain suppliers; and the IAM strike at Boeing. Spirit recognized a $3.5 million favorable cumulative catch-up adjustment during the fourth quarter of 2007.
Cash flow from operations was $58 million for the fourth quarter and $205 million for the full-year 2008, compared to $75 million for the fourth quarter and $180 million for the full-year 2007. The company's continued investment in new development programs, reflected largely as growth in pre-production inventory balances, was more than offset by earnings, customer advances, and accounts receivable performance.
Table 2. Cash Flow and Liquidity
4th Quarter Twelve Months
($'s in Millions) 2008 2007 2008 2007
Cash Flow from Operations $58 $75 $205 $180
Purchases of Property, Plant &
Equipment ($61) ($60) ($236) ($288)
December 31, December 31,
Liquidity 2008 2007
Cash $217 $133
Current Portion of Long-term Debt
plus Long-term Debt $588 $595
Cash balances at the end of the year were $217 million and debt balances were $588 million. During the fourth quarter of 2008, the company borrowed and repaid $100 million from its credit facility as it adjusted to a reduced work week schedule implemented as a result of the Machinists' strike at Boeing. At the end of the fourth quarter of 2008, the company's $650 million revolving credit facility was undrawn. Approximately $14 million of the credit facility is reserved for financial letters of credit. The company's credit ratings remained unchanged with a BB rating at Standard & Poor's and a Ba3 rating at Moody's.
2009 Outlook
Spirit revenue for the full-year 2009 is expected to be between $4.25 and $4.35 billion based on previously provided 2009 Boeing delivery guidance of 480-485 aircraft; anticipated ramp up of 787 deliveries; 2009 expected Airbus deliveries of around 483 aircraft; internal Spirit forecasts for non-OEM production activity and non-Boeing and Airbus customers; and foreign exchange rates consistent with year-end 2008 levels.
Fully diluted earnings per share for 2009 is expected to be between $2.15 and $2.35, largely reflecting flat production of large commercial aircraft, excluding the impact of the strike at Boeing, and a continued focus on expense management and improving operating efficiencies.
Cash flow from operations less capital expenditures, net of customer reimbursements, is expected to be positive in the aggregate for the full-year 2009 with capital expenditures to be between $250 million and $275 million.
Table 3. Financial Outlook
2008 Actual 2009 Guidance Change
Revenues $3.8 billion $4.25 - $4.35 billion 12% - 14%
Earnings Per
Share (Fully
Diluted) $1.91 $2.15 - $2.35 13% - 23%
Effective Tax Rate
(% Pre-Tax Earnings) 30.9% ~33%
Cash Flow From
Operations $205 million*
Capital
Expenditures $236 million*
Capital
Reimbursement $116 million*
* Net positive with $250 - $275 million of Capital Expenditures
Cautionary Statement Regarding Forward-Looking Statements
This press release contains "forward-looking statements." Forward-looking statements reflect our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "intend," "estimate," "believe," "project," "continue," "plan," "forecast," or other similar words. These statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements. Important factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to: our ability to continue to grow our business and execute our growth strategy; the build rates of certain Boeing aircraft including, but not limited to, the B737 program, the B747 program, the B767 program and the B777 program, and build rates of the Airbus A320 and A380 programs; the success and timely progression of Boeing's new B787 and Airbus's new A350 aircraft programs, including receipt of necessary regulatory approvals; our ability to adjust to Boeing's strike-impacted delivery schedule; the continuing turmoil in global financial and credit markets; the impact of the global recession on our customer build rates and the general aviation market; our ability to enter into supply arrangements with additional customers and the ability of all parties to satisfy their performance requirements under existing supply contracts with Boeing, Airbus, and other customers; any adverse impact on Boeing's and Airbus's production of aircraft resulting from cancellations or reduced orders by their customers; future levels of business in the aerospace and commercial transport industries; competition from original equipment manufacturers and other aerostructures suppliers; the effect of governmental laws, such as U.S. export control laws, the Foreign Corrupt Practices Act, environmental laws and agency regulations, both in the U.S. and abroad; the effect of new commercial and business aircraft development programs, and the resulting timing and resource requirements that may be placed on us; the cost and availability of raw materials and purchased components; our ability to recruit and retain highly skilled employees and our relationships with the unions representing many of our employees; spending by the U.S. and other governments on defense; the outcome or impact of ongoing or future litigation and regulatory actions; and our exposure to potential product liability claims. These factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Appendix
Segment Results
Fuselage Systems
Fuselage Systems segment revenues for the fourth quarter of 2008 were $288.2 million, down 37.6 percent over the same period last year due to the Machinists' strike at Boeing. Operating margin for the fourth quarter of 2008 was 11.3 percent, down from 16.1 percent in the fourth quarter of 2007, as an unfavorable cumulative catch-up of $8 million was realized during the fourth quarter of 2008. During the fourth quarter of 2007 the segment realized an unfavorable $3.5 million cumulative catch-up adjustment.
Propulsion Systems
Propulsion Systems segment revenues for the fourth quarter of 2008 were $168.6 million, down 36.4 percent over the same period last year due to the Machinists' strike at Boeing. Operating margin for the fourth quarter of 2008 was 12.6 percent, down from 16.6 percent in the fourth quarter of 2007, as an unfavorable cumulative catch-up of $7 million was realized during the fourth quarter of 2008. During the fourth quarter of 2007 the segment realized a favorable $2 million cumulative catch-up adjustment.
Wing Systems
Wing Systems segment revenues for the fourth quarter of 2008 were $182.1 million, down 26.4 percent over the same period last year. Operating margin for the fourth quarter of 2008 was 4.1 percent, down from 14.6 percent in the fourth quarter of 2007, as an unfavorable cumulative catch-up of $12 million was realized during the fourth quarter of 2008, of which $5 million related to unfavorable foreign exchange rate movements. During the fourth quarter of 2007 the segment realized a favorable $5 million cumulative catch-up adjustment.
Table 4. Segment Reporting
($'s in Millions, (Unaudited) (Unaudited)
except margin 4th Quarter Twelve Months
percent) 2008 2007 Change 2008 2007 Change
Segment Revenues
Fuselage Systems $288.2 $461.5 (37.6%) $1,758.4 $1,790.7 (1.8%)
Propulsion Systems $168.6 $265.1 (36.4%) $1,031.7 $1,063.6 (3.0%)
Wing Systems $182.1 $247.4 (26.4%) $955.6 $985.5 (3.0%)
All Other $7.2 $6.4 12.5% $26.1 $21.0 24.3%
Total Segment
Revenues $646.1 $980.4 (34.1%) $3,771.8 $3,860.8 (2.3%)
Segment Earnings from
Operations
Fuselage Systems $32.6 $74.4 (56.2%) $287.6 $317.6 (9.4%)
Propulsion Systems $21.3 $44.0 (51.6%) $162.2 $174.2 (6.9%)
Wing Systems $7.4 $36.2 (79.6%) $99.7 $111.3 (10.4%)
All Other $0.2 $0.7 (71.4%) $0.3 $2.5 (88.0%)
Total Segment
Operating Earnings $61.5 $155.3 (60.4%) $549.8 $605.6 (9.2%)
Unallocated Corporate
SG&A Expense ($32.0) ($47.3) (32.3%) ($141.7) ($181.6) (22.0%)
Unallocated Research &
Development Expense ($1.3) ($1.3) 0.0% ($2.4) ($4.8) (50.0%)
Total Earnings from
Operations $28.2 $106.7 (73.6%) $405.7 $419.2 (3.2%)
Segment Operating
Earnings as % of
Revenues
Fuselage Systems 11.3% 16.1% (480)BPS 16.4% 17.7% (130)BPS
Propulsion Systems 12.6% 16.6% (400)BPS 15.7% 16.4% (70)BPS
Wing Systems 4.1% 14.6% (1050)BPS 10.4% 11.3% (90)BPS
All Other 2.8% 10.9% (810)BPS 1.1% 11.9% (1080)BPS
Total Segment
Operating Earnings as
% of Revenues 9.5% 15.8% (630)BPS 14.6% 15.7% (110)BPS
Total Operating
Earnings as % of
Revenues 4.4% 10.9% (650)BPS 10.8% 10.9% (10)BPS
Spirit Ship Set Deliveries
(One Ship Set equals One Aircraft)
2007 Spirit AeroSystems Deliveries
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 2007
B737 83 85 84 79 331
B747 5 4 5 4 18
B767 3 4 3 3 13
B777 21 21 21 20 83
B787* 0 1 0 0 1
Total 112 115 113 106 446
A320 Family 93 84 91 91 359
A330/340 22 21 22 20 85
A380 0 0 2 3 5
Total 115 105 115 114 449
Hawker 850XP 16 15 17 20 68
Total Spirit 243 235 245 240 963
* Full-Revenue Units Only, Does not include Static and Fatigue test units
2008 Spirit AeroSystems Deliveries
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 2008
B737 93 95 87 42 317
B747 4 7 4 1 16
B767 3 3 3 1 10
B777 20 22 18 8 68
B787* 1 1 1 0 3
Total 121 128 113 52 414
A320 Family 95 95 90 87 367
A330/340 24 21 23 22 90
A380 4 2 4 6 16
Total 123 118 117 115 473
Hawker 850XP 15 24 24 28 91
Total Spirit 259 270 254 195 978
* Full-Revenue Units Only, Does not include Static and Fatigue test units
Spirit AeroSystems Holdings, Inc.
Consolidated Statements of Operations
For the Three Months Ended For the Twelve Months Ended
December 31, December 31, December 31, December 31,
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (audited)
($ in millions, except per share data)
Net Revenues $646.1 $980.4 $3,771.8 $3,860.8
Operating costs
and expenses:
Cost of sales 567.1 809.0 3,163.2 3,197.2
Selling, general and
administrative 35.5 49.8 154.5 192.1
Research and
development 15.3 14.9 48.4 52.3
Total Operating
Costs and Expenses 617.9 873.7 3,366.1 3,441.6
Operating Income 28.2 106.7 405.7 419.2
Interest expense and
financing fee
amortization (9.7) (8.7) (39.2) (36.8)
Interest income 3.5 6.2 18.6 29.0
Other income (loss), net (2.1) 3.3 (1.2) 8.4
Income Before Income
Taxes 19.9 107.5 383.9 419.8
Income tax provision (0.1) (32.0) (118.5) (122.9)
Net Income $19.8 $75.5 $265.4 $296.9
Earnings per share
Basic $0.14 $0.55 $1.94 $2.21
Shares 137.0 136.7 137.0 134.5
Diluted $0.14 $0.54 $1.91 $2.13
Shares 139.2 139.6 139.2 139.3
Spirit AeroSystems Holdings, Inc.
Consolidated Balance Sheets
December 31, December 31,
2008 2007
(unaudited) (audited)
($ in millions)
Current assets
Cash and cash equivalents $216.5 $133.4
Accounts receivable, net 149.3 159.9
Current portion of long-term receivable 108.9 109.5
Inventory, net 1,882.0 1,342.6
Prepaids 10.1 14.2
Income tax receivable 3.8 9.6
Deferred tax asset - current 62.1 67.3
Other current assets 0.6 6.3
Total current assets 2,433.3 1,842.8
Property, plant and equipment, net 1,068.3 963.8
Long-term receivable - 123.0
Pension assets 60.1 318.7
Deferred tax asset - non-current 146.0 30.5
Other assets 52.6 61.1
Total assets $3,760.3 $3,339.9
Current liabilities
Accounts payable $316.9 $362.6
Accrued expenses 144.3 163.9
Profit sharing/deferred compensation 17.5 18.7
Current portion of long-term debt 7.1 16.0
Advance payments, short-term 138.9 67.6
Deferred revenue, short-term 110.5 42.3
Income taxes payable 1.8 2.5
Other current liabilities 6.3 1.4
Total current liabilities 743.3 675.0
Long-term debt 580.9 579.0
Advance payments, long-term 923.5 653.4
Pension/OPEB obligation 47.3 43.0
Deferred tax liability - non-current 3.4 23.7
Deferred grant income liability 38.8 -
Other liabilities 126.1 99.2
Shareholders' equity
Preferred stock, par value $0.01, 10,000,000
shares authorized, no shares issued and
outstanding - -
Common stock, Class A par value $0.01,
200,000,000 shares authorized, 103,209,446 and
102,693,058 issued and outstanding, respectively 1.0 1.0
Common stock, Class B par value $0.01,
150,000,000 shares authorized, 36,679,760 and
36,826,434 shares issued and outstanding,
respectively 0.4 0.4
Additional paid-in capital 939.7 924.6
Accumulated other comprehensive income (134.2) 117.7
Retained earnings 490.1 222.9
Total shareholders' equity 1,297.0 1,266.6
Total liabilities and shareholders'
equity $3,760.3 $3,339.9
Spirit AeroSystems Holdings, Inc.
Consolidated Statements of Cash Flows
For the Twelve For the Twelve
Months Ended Months Ended
December 31, 2008 December 31, 2007
(unaudited) (audited)
($ in millions)
Operating activities
Net Income $265.4 $296.9
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation expense 122.4 97.4
Amortization expense 9.4 7.6
Accretion of long-term receivable (16.2) (21.1)
Employee stock compensation expense 15.7 33.0
Excess tax (benefit) from share-
based payment arrangements - (34.0)
Loss from the ineffectiveness of
hedge contracts 0.4 -
(Gain) loss from foreign currency
transactions 0.7 (2.1)
Loss on disposition of assets 0.3 1.0
Deferred taxes (2.8) 9.1
Pension and other post-retirement
benefits, net (28.0) (20.6)
Changes in assets and liabilities
Accounts receivable 15.3 20.5
Inventory, net (570.0) (458.9)
Other current assets 4.0 6.6
Accounts payable and accrued
liabilities (37.6) 24.9
Profit Sharing/ deferred compensation (1.0) (9.8)
Advance payments 341.4 123.4
Income taxes payable 7.0 45.9
Deferred revenue and other
deferred credits 93.7 70.4
Other (15.5) (10.1)
Net cash provided by operating
activities 204.6 180.1
Investing Activities
Purchase of property, plant and equipment (235.8) (288.2)
Proceeds from sale of assets 1.9 0.3
Long-term receivable 116.1 45.5
Financial derivatives 1.5 3.3
Investment in joint venture (3.6) -
Other 0.1 -
Net cash (used in) investing
activities (119.8) (239.1)
Financing Activities
Proceeds from revolving credit facility 175.0 -
Payments on revolving credit facility (175.0) -
Proceeds from issuance of debt 10.3 -
Proceeds from government grants 15.9 -
Principal payments of debt (15.9) (24.7)
Debt issuance costs (6.8) -
Excess tax benefit from share-based
payment arrangements - 34.0
Executive stock repurchase - (1.0)
Net cash provided by financing
activities 3.5 8.3
Effect of exchange rate changes on
cash and cash equivalents (5.2) (0.2)
Net increase (decrease) in cash
and cash equivalents for the period 83.1 (50.9)
Cash and cash equivalents, beginning
of the period 133.4 184.3
Cash and cash equivalents, end of the
period $216.5 $133.4
