Spirit AeroSystems Holdings, Inc. Reports Fourth Quarter and Full-Year 2013 Financial Results; Provides 2014 Guidance

Key Announcements

Strategic and Financial Review Now Complete
Recorded pre-tax charge of ($546) million, and established non-cash valuation allowance of ($381) million
Providing Full-Year 2014 Guidance: Revenues $6.5 – $6.7 billion, Earnings Per Share of $2.50 – $2.65, Adjusted Free Cash Flow approximately $150 million*

Fourth Quarter 2013 Consolidated Results

Total Revenues of $1.5 billion, up 5% y/y
Reports fully diluted EPS loss of ($4.15)
Cash From Operations of $61 million, adjusted Free Cash Flow of $6 million*
Records net pre-tax charges of ($546) million, primarily on the 787 program
Establishes non-cash valuation allowance of ($381) million against U.S. net deferred tax assets
Full-Year 2013 Consolidated Results

Total Revenues of $6.0 billion, up 10% y/y
Reports EPS loss of ($4.40)
Cash From Operations of $261 million, adjusted Free Cash Flow of $57 million*
Total backlog ~$41 billion
Spirit AeroSystems Holdings, Inc. [NYSE: SPR] reported fourth quarter and full-year 2013 financial results reflecting record high revenue on higher ship set deliveries and strong mature program operating performance.

Spirit’s fourth quarter 2013 revenues were $1.5 billion, up from $1.4 billion for the same period of 2012 due to increased production deliveries during the quarter.

Operating loss for the fourth quarter of 2013 was ($321) million compared to operating income of $98 million in the fourth quarter of 2012. Net loss for the quarter was ($587) million, or ($4.15) per share, compared to net income of $61 million, or $0.43 per share, in the same period of 2012. The current quarter includes net pre-tax ($546) million, or ($2.42) per share, of forward loss charges principally on the 787 program. This is compared to net pre-tax ($34) million, or ($0.19) per share, of forward loss charges in the same period of 2012. The current quarter also includes a ($381) million, or ($2.69) per share, negative impact due to the establishment of a valuation allowance against U.S. net deferred tax assets. Additionally, the quarter includes net pre-tax $51 million favorable cumulative catch-up adjustments, or $0.22 per share, and pension related gains of $17 million, or $0.09 per share.

Revenue for the full-year 2013 increased 10 percent to $6.0 billion. Operating loss for the full-year was ($364) million compared to operating income of $92 million for the prior year. Full-year net loss was ($621) million, or ($4.40) per share, compared to net income of $35 million, or $0.24 per share in 2012. (Table 1)

“This fourth quarter and year-end report signifies the conclusion of our internal strategic and financial review,” said President and Chief Executive Officer Larry Lawson. “It’s been nine months of intensive effort on behalf of the entire Spirit team.”

“2013 has been a transformational year and I’m proud of our entire enterprise. It’s been hard work. We’ve conducted our reviews, we’ve sharpened our processes and our team and we have intensified the clarity and fidelity of the analyses. We’re better positioned to move forward as we ramp up alongside our customers to all-time historical highs in commercial aircraft production rates.”

“We are entering 2014 with a strong cost discipline and relentless focus on performance and accountability that should begin to yield consistent cash generation,” Lawson continued.

“During the quarter we delivered strong operating performance across mature programs, successfully executed a rate increase on the 787 program to 10 airplanes per month, and continued to work on the sale of our Oklahoma operations. All of this progress is indicative of the change at Spirit as we reduce costs, focus our resources on value-added engineering and manufacturing, and position the company for future growth.”

“The quarter also includes an updated assessment of the current labor and material costs, as well as the near term achievable cost reductions on the 787 program, resulting in the charge,” Lawson added.

“Today, Spirit’s strong backlog of $41 billion demonstrates our position as a key aerostructures leader, able to execute production rates at all-time historical levels, which is no small feat in the commercial aerospace up-cycle. Our brand is our dedication to our customers’ success. Longer-term, as our customers’ demand for high quality cost-effective engineering and manufacturing intensifies, Spirit’s capability and affordability in both design and manufacturing will generate growth opportunities in both the large commercial aircraft and defense markets,” Lawson concluded.

Spirit’s backlog at the end of the fourth quarter of 2013 increased by over 7 percent from the previous quarter to $41 billion as orders exceeded deliveries. Spirit calculates its backlog based on 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 fourth quarter of 2013 and recorded net pre-tax charges of ($546) million, or ($2.42) per share. These include pre-tax charges of ($385) million, or ($1.71) per share on the 787 program; ($54) million, or ($0.24) per share, on the G650 wing program; ($43) million, or ($0.19) per share, on the G280 wing program; ($31) million, or ($0.14) per share, on the 747-8 program; ($22) million, or ($0.09) per share, on the BR725 nacelle program; and ($11) million, or ($0.05) per share, on the 767 program.

Additionally, in the fourth quarter of 2013 the company recorded net pre-tax $51 million, or $0.22 per share, favorable cumulative catch-up adjustments primarily associated with productivity and efficiency improvements on mature programs. In comparison, Spirit recognized net pre-tax $10 million favorable cumulative catch-up adjustments in the fourth quarter of 2012.

Cash flow from operations was a $61 million source of cash for the fourth quarter of 2013, compared to a $309 million source of cash for the fourth quarter of 2012. Excluding forward losses, the current quarter reflects increases in inventory associated with rate increases as well as timing of certain tax receipts and payables. The fourth quarter of 2012 reflected net insurance proceeds of approximately $112 million associated with the severe weather event at Spirit’s Wichita, Kansas facility in April 2012. (Table 2)

Cash balances at the end of the year were $421 million. At the end of 2013, the company’s $650 million revolving credit facility was undrawn. Debt balances at the end of the fourth quarter were $1.2 billion.

The company’s credit rating remained unchanged at the end of the fourth quarter 2013 with a BB rating, negative outlook by Standard & Poor’s and a Ba2 rating, negative outlook by Moody’s Investor Services.

Financial Outlook and Risk to Future Financial Results

Spirit revenue for the full-year 2014 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 consistent with those for the full year of 2013.

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

Adjusted cash flow from operations, less capital expenditures, is expected to be approximately $150 million*, with capital expenditures consistent with those for the full year of 2013.

The effective tax rate for 2014 is forecasted 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 recorded at the end of 2013. (Table 3)

Risks to our financial guidance are described more fully in the “Risk Factors” section of our filings with the Securities and Exchange Commission. These factors include Spirit’s ability to achieve acceptable ship set pricing with its customers including pricing for derivative airplane models, our ability to achieve anticipated productivity and cost improvement for all of our airplane programs, the risk of higher than forecast non-recurring costs on maturing programs, fluctuations in demand in the market for commercial and business jet aircraft, and the impact of the potential divestiture of our Oklahoma sites.