Spirit AeroSystems Holdings, Inc. Reports First Quarter 2014 Financial Results; Reports Revenues of $1.7 billion and EPS of $1.07

First Quarter 2014 Consolidated Results

- Total Revenues of $1.7 billion, up 20 percent y/y

- Reports fully diluted EPS of $1.07; including ($0.08)# for previously announced debt refinancing; $0.09 for Malaysian tax holiday; and $0.22 for the partial release of the deferred tax valuation allowance

- Cash Flow From Operations of $45 million, Free Cash Flow of ($8) million*

WICHITA, Kan., May 2, 2014 /CNW/ – Spirit AeroSystems Holdings, Inc. (NYSE: SPR) reported first quarter 2014 financial results demonstrating continued robust demand for large commercial aircraft and strong mature program operating performance. Spirit’s first quarter 2014 revenues were $1.7 billion, up from $1.4 billion for the same period of 2013 on higher production volumes and four additional workdays in the quarter.

Operating income was $194 million, up from $145 million for the same period in 2013, driven by increased volume and favorable cumulative catch-up adjustments on mature programs.

Net income for the quarter was $154 million, or $1.07 per fully diluted share, compared to net income of $81 million, or$0.57 per fully diluted share, in the same period of 2013. The increase in current quarter income includes tax benefits from the Malaysian tax holiday and the partial release of the deferred tax valuation allowance, which were partially offset by the cost of the previously announced debt refinancing.

“Spirit’s leadership position on the best-selling airplanes in the market continues to drive our growth in a sustained commercial aerospace up cycle,” said president and chief executive officer Larry Lawson. “Our cost discipline and focus on performance and accountability are beginning to show results.”

“The first quarter demonstrates Spirit’s ability to perform. We were successful in accomplishing the ramp to a new all-time high rate of 42 airplanes per month on the 737,” Lawson continued.

“We also made a significant step forward this quarter, validating our disciplined approach to decision-making, as we completed the memorandum of agreement with Boeing for pricing on our 737, 747, 767 and 777 programs. This agreement represents an equitable balance between the benefit of rate increases and investment in our customer’s success in the competitive new and replacement airplane market.”

“Looking forward, program execution and operational performance will contribute to long-term profitable growth as we continue our focus on mature program growth, investing in product innovation, and improving costs on maturing programs,” Lawson continued.

Spirit’s backlog at the end of the first quarter of 2014 was approximately $41 billion. Spirit calculates backlog based on current contractual prices for products and volumes from the published firm order backlogs of Airbus and Boeing, along with firm orders from other customers.

Spirit updated its contract profitability estimates during the first quarter of 2014, resulting in pre-tax $17 million, or$0.08 per share#, favorable cumulative catch-up adjustments on mature programs.

In comparison, the first quarter of 2013 operating income included pre-tax $20 million favorable cumulative catch-up adjustments and a pre-tax ($15) million charge on the 787 program.

Free cash flow was a ($8) million* use of cash for the first quarter of 2014, compared to a ($125) million* use of cash for the first quarter of 2013 reflecting the benefit of tax refunds, better capital expenditure management, and increased operating cash.

Cash balances at the end of the quarter were $382 million, not including $73 million of restricted cash reserved for redemption of the 2017 Notes outstanding. Debt balances were $1,234 million, including $73 million of the 2017 Notes outstanding. At the end of the first quarter of 2014, the company’s $650 million credit facility remained undrawn.

On March 18, 2014, the company refinanced its 2017 Senior Notes through the issuance by Spirit AeroSystems, Inc. of $300 million aggregate principal amount of 5.25 percent Senior Notes due March 15, 2022. The company redeemed $227 million of the 2017 Notes March 18, 2014 and on April 1, 2014, the company notified the trustee of its election to call for redemption on May 1, 2014 the $73 million aggregate of 2017 Notes remaining outstanding.

In addition, the company further amended the Credit Agreement to provide for a new $540 million senior secured term loan B with a maturity date of Sept. 15, 2020, which replaced the $540 term loan B that was scheduled to mature onApril 18, 2019. The new term loan bears interest, at the company’s option, at LIBOR plus 2.50 percent with a LIBOR floor of 0.75 percent or base rate plus 1.50 percent, and includes a reduced covenant package when compared to the pre-amendment facility.

During the first quarter of 2014, the company’s credit rating was confirmed at Ba2 rating, negative outlook by Moody Investor Services and lowered to a BB- rating, stable outlook by Standard and Poor’s.

Financial Outlook and Risk to Future Financial Results

Spirit revenue guidance remains unchanged for the full-year 2014 and is expected to be between $6.5 – $6.7 billion based on Boeing’s 2014 delivery guidance of 715 to 725 aircraft; expected Airbus deliveries in 2014 at a similar level to those in 2013; internal Spirit forecasts for other customer production activities; expected non-production revenues; and foreign exchange rates generally consistent with those for the fourth quarter of 2013.

Fully diluted earnings per share guidance for 2014 remains unchanged and is expected to be between $2.50 – $2.65per share.

Free cash flow guidance is increased and is now expected to be approximately $200 million*, with capital expenditures consistent with those for the full year of 2013.

The effective tax rate for 2014 is forecast to be approximately 31.0 – 32.0 percent, reflecting the expected benefit of the U.S. Research Tax Credit for 2014, and excluding any potential adjustment to the valuation allowance recorded against the U.S. net deferred tax assets at the end of 2013. (Table 3)

Risks to our financial guidance are described in the Cautionary Statement Regarding Forward-Looking Statements contained in this release and in the “Risk Factors” section of our filings with the Securities and Exchange Commission.

Segment Results

Fuselage Systems

Fuselage Systems segment revenues for the first quarter of 2014 were $858 million, up from $718 million for the same period last year due to higher production volumes. Operating margin for the first quarter of 2014 was 16.5 percent as compared to 17.6(1) (2) percent during the same period of 2013. In the first quarter of 2014 the segment recorded pre-tax $9 million favorable cumulative catch-up adjustments on mature programs. In comparison, the segment realized pre-tax $11 million favorable cumulative catch-up adjustments in the first quarter of 2013.

Propulsion Systems

Propulsion Systems segment revenues in the first quarter of 2014 rose to $450 million, from $375 million for the same period last year on higher production volumes. Operating margin for the first quarter of 2014 was 17.8 percent as compared to 18.2(1) (2) percent in the first quarter of 2013. In the first quarter of 2014 the segment realized pre-tax $5 million favorable cumulative catch-up adjustments on mature programs. In comparison, the segment reported pre-tax$10 million favorable cumulative catch-up adjustments in the first quarter of 2013.

Wing Systems

Wing Systems segment revenues in the first quarter of 2014 increased to $414 million from $343 million for same period last year on higher production volumes. Operating margin for the first quarter of 2014 was 12.1 percent as compared to 6.0(1) (2) percent during the same period of 2013. In the first quarter of 2014 the segment recorded pre-tax $3 million favorable cumulative catch-up adjustments on mature programs. In comparison, in the first quarter of 2013 the segment recorded pre-tax unfavorable cumulative catch-up adjustments of less than ($1) million and a pre-tax ($15) million forward loss charge on the 787 program.