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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities
Exchange Act of 1934
Date of Report (Date of
earliest event reported): November 7, 2023
Spirit
AeroSystems Holdings, Inc.
(Exact name of registrant as specified in
its charter)
Delaware |
|
001-33160 |
|
20-2436320 |
(State or other jurisdiction
of incorporation) |
|
(Commission File Number) |
|
(IRS Employer Identification No.) |
3801
South Oliver, Wichita, Kansas 67210
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code: (316) 526-9000
|
Not Applicable |
|
|
(Former name or former address if changed since
last report.) |
|
Check the appropriate box below if the Form 8-K
filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see
General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under
the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under
the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of
the Act:
Title of each
class |
|
Trading
Symbol(s) |
|
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 is an emerging
growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of
the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company ¨
If an emerging
growth company, indicate by check mark if 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 the Exchange Act. ¨
Item 7.01 | Regulation FD Disclosure. |
Financings
On November 7, 2023, Spirit AeroSystems
Holdings, Inc. (the “Company”) issued press releases announcing that (1) it intends to offer shares of its Class A
common stock pursuant to an effective registration statement on Form S-3 and (2) Spirit AeroSystems, Inc., the Company’s
direct wholly-owned subsidiary, intends to offer exchangeable notes to qualified institutional buyers pursuant to Rule 144A under
the Securities Act of 1933, as amended (the “Securities Act”). Copies of the press releases are attached hereto as Exhibits
99.1 and 99.2, respectively, and are incorporated herein by reference.
In connection with these proposed offerings,
the Company plans to make certain disclosures, as described under “EBITDA and Adjusted EBITDA” below.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are not calculated in accordance with U.S.
generally accepted accounting principles (“GAAP”) and should not be considered as a substitute for net (loss) income or any
other measure calculated in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.
The Company believes that the presentation of EBITDA and Adjusted EBITDA
is appropriate to provide additional information to investors about its operating profitability adjusted for certain non-cash items and
other gains and expenses that the Company believes are not part of its core operating business and are not an indication of the Company’s
future earnings performance.
We define “EBITDA” as net (loss) income adjusted for noncontrolling interest in earnings of subsidiary, equity in net income
(loss) of affiliates, income tax (benefit) provision, other (income) expense, net, interest expense and financing fee amortization, depreciation
and amortization expense and amortization expense.
We define “Adjusted EBITDA” as EBITDA plus or minus certain non-cash items or items that arise from time to time outside the
ordinary course of our operations, including (i) employee stock based compensation expense, (ii) forward-loss charges, (iii) cumulative
catch-up adjustments, (iv) loss on disposition of assets, (v) Russian sanctions (excluding forward losses), (vi) M&A-related expenses,
(vii) restructuring costs and (viii) other specified expenses. Management believes that excluding such items provides a better understanding
of the underlying trends in the Company's operating performance and allows more accurate comparisons of the Company's operating results
to historical performance. Adjusted EBITDA does not take into account certain significant items that directly affect our net income or
loss. These limitations are best addressed by considering the economic effects of the excluded items independently, and by considering
Adjusted EBITDA in conjunction with net income as calculated in accordance with GAAP.
The Company’s EBITDA and Adjusted EBITDA for the nine months
ended September 28, 2023 and September 29, 2022, the twelve months ended September 28, 2023 and the years ended December 31,
2022, 2021 and 2020 are set forth below.
| |
Nine Months Ended | |
Twelve
Months
Ended | |
| |
| |
September 28, | |
September 29, | |
September 28, | |
Year Ended December 31, | |
| |
2023 | |
2022 | |
2023 | |
2022 | |
2021 | |
2020 | |
| |
(in millions) | |
EBITDA | |
| (111.4 | ) |
| 111.3 | |
| (166.1 | ) |
| 56.6 | |
| (129.6 | ) |
| (536.7 | ) |
Adjusted EBITDA | |
| 295.4 | |
| 346.3 | |
| 365.7 | |
| 416.6 | |
| 159.8 | |
| 19.1 | |
The following table reconciles net loss to EBITDA and Adjusted EBITDA:
| |
Nine Months Ended | | |
Twelve
Months
Ended | | |
| |
| |
September 28, | | |
September 29, | | |
September 28, | | |
Year Ended December 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | | |
2021 | | |
2020 | |
| |
(in millions) | |
Net loss attributable to common shareholders | |
$ | (691.6 | ) | |
$ | (302.6 | ) | |
$ | (934.7 | ) | |
$ | (545.7 | ) | |
$ | (540.8 | ) | |
$ | (870.3 | ) |
Add (subtract) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Noncontrolling interest in earnings of subsidiary | |
| 0.0 | | |
| 0.0 | | |
| (0.5 | ) | |
| (0.5 | ) | |
| 0.0 | | |
| 0.0 | |
Equity in net loss of affiliates | |
| 0.2 | | |
| 1.2 | | |
| 0.6 | | |
| 1.6 | | |
| 2.8 | | |
| 4.6 | |
Income tax (benefit) provision | |
| 1.1 | | |
| 18.4 | | |
| (12.1 | ) | |
| 5.2 | | |
| (17.2 | ) | |
| (220.2 | ) |
Other (income) expense, net | |
| 120.0 | | |
| (30.2 | ) | |
| 164.3 | | |
| 14.1 | | |
| (146.6 | ) | |
| 77.8 | |
Interest expense and financing fee amortization | |
| 221.1 | | |
| 170.8 | | |
| 294.4 | | |
| 244.1 | | |
| 242.6 | | |
| 195.3 | |
Operating loss | |
$ | (349.2 | ) | |
$ | (142.4 | ) | |
$ | (488.0 | ) | |
$ | (281.2 | ) | |
$ | (459.2 | ) | |
$ | (812.8 | ) |
Depreciation and amortization expense | |
| 236.9 | | |
| 253.2 | | |
| 320.8 | | |
| 337.1 | | |
| 327.6 | | |
| 277.6 | |
Amortization expense(a) | |
| 0.9 | | |
| 0.5 | | |
| 1.1 | | |
| 0.7 | | |
| 2.0 | | |
| (1.5 | ) |
EBITDA | |
$ | (111.4 | ) | |
$ | 111.3 | | |
$ | (166.1 | ) | |
$ | 56.6 | | |
$ | (129.6 | ) | |
$ | (536.7 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Adjustments to EBITDA | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Employee stock based compensation | |
$ | 27.8 | | |
$ | 28.7 | | |
$ | 35.7 | | |
$ | 36.6 | | |
$ | 25.8 | | |
$ | 24.2 | |
Forward-loss charges | |
| 315.8 | | |
| 136.6 | | |
| 429.5 | | |
| 250.3 | | |
| 241.5 | | |
| 370.3 | |
Cumulative catch-up adjustments | |
| 49.4 | | |
| 26.2 | | |
| 50.9 | | |
| 27.7 | | |
| 5.0 | | |
| 30.4 | |
Loss on disposition of assets | |
| 0.9 | | |
| 0.8 | | |
| 1.2 | | |
| 1.1 | | |
| 4.1 | | |
| 26.4 | |
Russian sanctions (excluding forward losses) | |
| — | | |
| 41.9 | | |
| 1.0 | | |
| 42.9 | | |
| — | | |
| — | |
M&A-related expenses | |
| — | | |
| 0.6 | | |
| 0.6 | | |
| 1.2 | | |
| 4.8 | | |
| 31.5 | |
Restructuring costs | |
| 7.2 | | |
| 0.2 | | |
| 7.2 | | |
| 0.2 | | |
| 8.2 | | |
| 73.0 | |
Other specified expenses(b) | |
| 5.7 | | |
| — | | |
| 5.7 | | |
| — | | |
| — | | |
| — | |
Adjusted EBITDA | |
$ | 295.4 | | |
$ | 346.3 | | |
$ | 365.7 | | |
$ | 416.6 | | |
$ | 159.8 | | |
$ | 19.1 | |
(a) Includes
accretion of customer supply agreement and grant liability amortization.
(b) Includes
$8.1 million in expenses related to the production pause stemming from the International Association of Machinists and Aerospace Workers
strike, offset by a ($2.4) million nonrecurring fair value adjustment to an acquisition-related earn-out liability.
The information contained under this Item
7.01 in this Current Report on Form 8-K, including Exhibits 99.1, 99.2 and 99.3, is being furnished and, as a result, such information
shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), or subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing
under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
This Current Report on Form 8-K does
not constitute an offer to sell or the solicitation of an offer to buy, or an offer to purchase or a solicitation of an offer to sell,
any security and shall not constitute an offer, solicitation or sale of any security in any jurisdiction in which such offering, solicitation
or sale would be unlawful.
In connection with the proposed offerings
described in Item 7.01 above, the Company is providing updated risk factors, which are attached hereto as Exhibit 99.3 and incorporated
by reference herein.
Cautionary Statement Regarding Forward-Looking Statements
This Current Report on Form 8-K, including Exhibits 99.1, 99.2
and 99.3 hereto, contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. These statements are based upon management’s current expectations, beliefs, assumptions and estimates, and on information
currently available to us, all of which are subject to change, and are not guarantees of timing, future results or performance. These
forward-looking statements involve certain risks and uncertainties and other factors that could cause actual results to differ materially
from those indicated in such forward-looking statements, as discussed further in the attached press releases. Additional information concerning
potential factors that could affect the Company’s financial results are included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2022 and the Company’s other periodic reports filed with the Securities and Exchange Commission.
The Company is under no obligation to (and expressly disclaims any such obligation to) update its forward-looking statements as a result
of new information, future events or otherwise.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
SPIRIT AEROSYSTEMS HOLDINGS, INC. |
Date: November 7, 2023 |
By: |
/s/ Mindy McPheeters |
|
|
Name: |
Mindy McPheeters |
|
|
Title: |
Senior Vice President, General Counsel and Corporate
Secretary |
Exhibit 99.1
Spirit AeroSystems Announces Proposed Public
Offering of Class A Common Stock
WICHITA, Kan., November 7, 2023 – Spirit AeroSystems
Holdings, Inc. [NYSE: SPR] (the “Company”) announced today that it has commenced an underwritten public offering of $200
million of its Class A common stock. The Company will be offering all of the Class A common stock to be sold in the offering.
In addition, the Company expects to grant the underwriters a 30-day option to purchase up to an additional $30 million of shares of Class A
common stock at the public offering price, less underwriting discounts and commissions. The offering is subject to market and other conditions,
and there can be no assurance as to whether or when the offering may be completed, or the actual size or terms of the offering. The Company
intends to use the net proceeds from the offering for general corporate purposes.
Concurrently with the offering of Class A common stock, Spirit
AeroSystems, Inc., a wholly-owned subsidiary of the Company, is offering, pursuant to an offering memorandum in reliance upon exemptions
from registration under the Securities Act of 1933, $200 million aggregate principal amount of exchangeable senior notes that will mature
in 2028 (the “Exchangeable Notes”), plus up to an additional $30 million aggregate principal amount of Exchangeable Notes
that the initial purchasers of the Exchangeable Notes have the option to purchase from Spirit AeroSystems, Inc. The completion of
the offering of Class A common stock is not contingent on the completion of the offering of the Exchangeable Notes, and the completion
of the offering of the Exchangeable Notes is not contingent on the completion of the offering of Class A common stock.
Morgan Stanley, Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are acting as joint active book-running managers and BofA Securities
and Citigroup are acting as joint book-running managers of the offering.
The offering of Class A common stock is being made only by means
of a prospectus supplement and the accompanying prospectus, copies of which, when available, may be obtained from the office of the following:
Morgan Stanley & Co. LLC, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, New York 10014.
The shares of Class A common stock will be issued pursuant to
an effective shelf registration statement on Form S-3. Before investing in the offering of Class A common stock, interested
parties should read the prospectus and related prospectus supplement for the offering, the documents incorporated by reference therein
and the other documents the Company has filed with the Securities and Exchange Commission.
This press release shall not constitute an offer to sell or a solicitation
of an offer to buy any of these securities, nor shall there be any sale of these securities in any state or jurisdiction in which such
an offer, solicitation or sale would be unlawful prior to registration or qualification under the applicable securities laws of such state
or jurisdiction.
###
Contacts:
Media: |
Forrest Gossett |
|
(316) 371-6751 |
|
forrest.s.gossett@spiritaero.com |
|
Investor Relations: |
Ryan Avey |
|
(316) 523-7040 |
|
investorrelations@spiritaero.com |
About Spirit AeroSystems Inc.
Spirit AeroSystems is one of the world’s largest manufacturers
of aerostructures for commercial airplanes, defense platforms, and business/regional jets. With expertise in aluminum and advanced composite
manufacturing solutions, the company’s core products include fuselages, integrated wings and wing components, pylons, and nacelles.
Also, Spirit serves the aftermarket for commercial and business/regional jets. Headquartered in Wichita, Kansas, Spirit has facilities
in the U.S., U.K., France, Malaysia and Morocco.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains “forward-looking statements”
that may involve many risks and uncertainties. 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 “aim,” “anticipate,”
“believe,” “could,” “continue,” “estimate,” “expect,” “forecast,”
“goal,” “intend,” “may,” “might,” “objective,” “plan,” “predict,”
“project,” “should,” “target,” “will,” “would,” and other similar words, or
phrases, or the negative thereof, unless the context requires otherwise. These statements reflect management’s current views with
respect to future events and are subject to risks and uncertainties, both known and unknown, including, but not limited to, those described
in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022. 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 those reflected in such forward-looking
statements and that should be considered in evaluating our outlook include, but are not limited to, the following: our ability to complete
this offering and our proposed offering of the Exchangeable Notes in the amounts and on the terms contemplated, or at all; the continued
fragility of the global aerospace supply chain including our dependence on our suppliers, as well as the cost and availability of raw
materials and purchased components, including increases in energy, freight, and other raw material costs as a result of inflation or continued
global inflationary pressures; our ability and our suppliers’ ability, or willingness, to meet stringent delivery (including quality
and timeliness) standards and accommodate changes in the build rates or model mix of aircraft under existing contractual commitments,
including the ability or willingness to staff appropriately or expend capital for current production volumes and anticipated production
volume increases; the ability to maintain continuing, uninterrupted production at our manufacturing facilities and our suppliers’
facilities; our ability, and our suppliers’ ability, to attract and retain the skilled work force necessary for production and development
in an extremely competitive market; the effect of economic conditions, including increases in interest rates and inflation, on the demand
for our and our customers’ products and services, on the industries and markets in which we operate in the U.S. and globally, and
on the global aerospace supply chain; the general effect of geopolitical conditions, including Russia’s invasion of Ukraine and
the resultant sanctions being imposed in response to the conflict, including any trade and transport restrictions; the recent outbreak
of war in Israel and the Gaza Strip and the potential for expansion of the conflict in the surrounding region, which may impact certain
suppliers’ ability to continue production or make timely deliveries of supplies required to produce and timely deliver our products,
and may result in sanctions being imposed in response to the conflict, including any trade and transport restrictions; our relationships
with the unions representing many of our employees, including our ability to successfully negotiate new agreements, and avoid labor disputes
and work stoppages with respect to our union employees; the impact of significant health events, such as pandemics, contagions, or
other public health emergencies (including the COVID-19 pandemic) or fear of such events, on the demand for our and our customers’
products and services, the industries, and the markets in which we operate in the U.S. and globally; the timing and conditions surrounding
the full worldwide return to service (including receiving the remaining regulatory approvals) of the B737 MAX, future demand for the aircraft,
and any residual impacts of the B737 MAX grounding on production rates for the aircraft; our reliance on Boeing and Airbus for a significant
portion of our revenues; the business condition and liquidity of our customers and their ability to satisfy their contractual obligations
to the Company; the certainty of our backlog, including the ability of customers to cancel or delay orders prior to shipment on short
notice, and the potential impact of regulatory approvals of existing and derivative models; our ability to accurately estimate and manage
performance, cost, margins, and revenue under our contracts, and the potential for additional forward losses on new and maturing programs;
our accounting estimates for revenue and costs for our contracts and potential changes to those estimates; our ability to continue to
grow and diversify our business, execute our growth strategy, and secure replacement programs, including our ability to enter into profitable
supply arrangements with additional customers; the outcome of product warranty or defective product claims and the impact settlement of
such claims may have on our accounting assumptions; competitive conditions in the markets in which we operate, including in-sourcing by
commercial aerospace original equipment manufacturers; our ability to successfully negotiate, or re-negotiate, future pricing under our
supply agreements with Boeing, Airbus and other customers; the possibility that our cash flows may not be adequate for our additional
capital needs; any reduction in our credit ratings; our ability to access the capital or credit markets to fund our liquidity needs, and
the costs and terms of any additional financing; our ability to avoid or recover from cyber or other security attacks and other operations
disruptions; legislative or regulatory actions, both domestic and foreign, impacting our operations, including the effect of changes in
tax laws and rates and our ability to accurately calculate and estimate the effect of such changes; spending by the U.S. and other governments
on defense; pension plan assumptions and future contributions; the effectiveness of our internal control over financial reporting; the
outcome or impact of ongoing or future litigation, arbitration, claims, and regulatory actions or investigations, including our exposure
to potential product liability and warranty claims; adequacy of our insurance coverage; our ability to continue selling certain receivables
through supplier financing programs; our ability to effectively integrate recent acquisitions, along with other acquisitions we pursue,
and generate synergies and other cost savings therefrom, while avoiding unexpected costs, charges, expenses, and adverse changes to business
relationships and business disruptions; and the risks of doing business internationally, including fluctuations in foreign currency exchange
rates, impositions of tariffs or embargoes, trade restrictions, compliance with foreign laws, and domestic and foreign government policies.
These factors are not exhaustive and it is not possible for us to predict all factors that could cause actual results to differ materially
from those reflected in our forward-looking statements. These factors speak only as of the date hereof, and new factors may emerge or
changes to the foregoing factors may occur that could impact our business. As with any projection or forecast, these statements are inherently
susceptible to uncertainty and changes in circumstances. Except to the extent required by law, we undertake no obligation to, and expressly
disclaim any obligation to, publicly update or revise any forward-looking statements, whether as a result of new information, future events
or otherwise.
Exhibit 99.2
Spirit AeroSystems
Announces Proposed Private Offering of Exchangeable Senior Notes
WICHITA, Kan., November 7, 2023
– Spirit AeroSystems Holdings, Inc. [NYSE: SPR] (the “Company”) announced today that Spirit AeroSystems, Inc.
(“Spirit”), a wholly owned subsidiary of the Company, intends to offer, subject to market conditions and other factors, $200
million aggregate principal amount of its Exchangeable Senior Notes due 2028 (the “Exchangeable Notes”) in a private
offering (the “Offering”). Spirit also intends to grant the initial purchasers of the Exchangeable Notes an option to purchase,
within a 13-day period beginning on, and including, the first date on which the Exchangeable Notes are issued, up to an additional $30
million aggregate principal amount of Exchangeable Notes.
The Exchangeable Notes will be senior, unsecured obligations of
Spirit and will be fully and unconditionally guaranteed on a senior, unsecured basis by the Company and Spirit AeroSystems North
Carolina, Inc., a wholly owned subsidiary of Spirit. The Exchangeable Notes will accrue interest payable semi-annually in
arrears on May 1 and November 1 of each year, beginning on May 1, 2024. The Exchangeable Notes will mature on November 1, 2028, unless earlier exchanged, redeemed or repurchased.
The Exchangeable Notes will be exchangeable for cash, shares of the
Company’s Class A common stock (the “common stock”) or a combination of cash and shares of common stock, at Spirit’s
election. Prior to the close of business on the business day immediately preceding August 1, 2028, the Exchangeable Notes will
be exchangeable at the option of the noteholders only upon the satisfaction of specified conditions and during certain periods. On or
after August 1, 2028, until the close of business on the business day immediately preceding the maturity date, the Exchangeable
Notes will be exchangeable at the option of the noteholders at any time regardless of these conditions or periods.
Spirit may not redeem the Exchangeable Notes prior
to November 6, 2026. Spirit may redeem for cash all or any portion (subject to certain limitations) of the Exchangeable
Notes, at its option, on or after November 6, 2026, if the last reported sale price of the common stock has been at least
130% of the exchange price then in effect for at least 20 trading days (whether or not consecutive), during any 30 consecutive
trading day period (including the last trading day of such period) ending on and including the trading day immediately preceding the
date on which Spirit provides notice of redemption, at a redemption price equal to 100% of the principal amount of the Exchangeable
Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for
the Exchangeable Notes.
Subject to certain conditions and exceptions, holders of the
Exchangeable Notes will have the right to require Spirit to repurchase all or a portion of their Exchangeable Notes upon the
occurrence of a fundamental change at a repurchase price of 100% of their principal amount plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In
connection with certain corporate events or if Spirit calls any Exchangeable Notes for redemption, Spirit will, under certain
circumstances, increase the exchange rate for noteholders who elect to exchange their Exchangeable Notes in connection with any such
corporate event or exchange their Exchangeable Notes called for redemption during the related redemption period.
Spirit expects to use the net proceeds from this offering for general
corporate purposes.
Concurrently with the offering of the Exchangeable Notes, the Company is offering, pursuant to a prospectus supplement and an accompanying
prospectus in an offering pursuant to an effective registration statement on Form S-3, $200 million of shares of the common stock, plus
up to an additional $30 million of shares of the common stock that the underwriters of the concurrent common stock offering have the option
to purchase from the Company. The completion of the offering of the Exchangeable Notes is not contingent on the completion of the offering
of the common stock, and the completion of the offering of the common stock is not contingent on the completion of the offering of the
Exchangeable Notes. The offering of the common stock is being made only by means of a prospectus supplement and the accompanying prospectus.
Spirit is offering the Exchangeable Notes pursuant to an exemption from the registration requirements under the U.S. Securities Act of
1933, as amended (the “Securities Act”). The initial purchasers of the Exchangeable Notes will offer the Exchangeable Notes
only to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act. The Exchangeable
Notes and the shares of common stock deliverable upon exchange of the Exchangeable Notes, if any, have not been and will not be registered
under the Securities Act or under any state securities laws. Therefore, the Exchangeable Notes may not be offered or sold within the United
States to, or for the account or benefit of, any United States person unless the offer or sale would qualify for a registration exemption
from the Securities Act and applicable state securities laws.
Before investing in the offering of Exchangeable Notes, interested
parties should read the offering memorandum for the offering and the documents incorporated by reference therein.
This announcement is neither an offer to sell nor a solicitation of
an offer to buy any securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation
or sale is unlawful.
###
Contacts:
Media: |
Forrest Gossett |
|
(316) 371-6751 |
|
forrest.s.gossett@spiritaero.com |
|
Investor Relations: |
Ryan Avey |
|
(316) 523-7040 |
|
investorrelations@spiritaero.com |
About Spirit AeroSystems Inc.
Spirit AeroSystems is one of the world’s largest manufacturers
of aerostructures for commercial airplanes, defense platforms, and business/regional jets. With expertise in aluminum and advanced composite
manufacturing solutions, the company’s core products include fuselages, integrated wings and wing components, pylons, and nacelles.
Also, Spirit serves the aftermarket for commercial and business/regional jets. Headquartered in Wichita, Kansas, Spirit has facilities
in the U.S., U.K., France, Malaysia and Morocco.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains “forward-looking statements”
that may involve many risks and uncertainties. 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 “aim,” “anticipate,”
“believe,” “could,” “continue,” “estimate,” “expect,” “forecast,”
“goal,” “intend,” “may,” “might,” “objective,” “plan,” “predict,”
“project,” “should,” “target,” “will,” “would,” and other similar words, or
phrases, or the negative thereof, unless the context requires otherwise. 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 those reflected in such forward-looking statements and that should be
considered in evaluating our outlook include, but are not limited to, the following: our ability to complete our proposed offering of
common stock and this offering in the amounts and on the terms contemplated, or at all; the continued fragility of the global aerospace
supply chain including our dependence on our suppliers, as well as the cost and availability of raw materials and purchased components,
including increases in energy, freight, and other raw material costs as a result of inflation or continued global inflationary pressures;
our ability and our suppliers’ ability, or willingness, to meet stringent delivery (including quality and timeliness) standards
and accommodate changes in the build rates or model mix of aircraft under existing contractual commitments, including the ability or willingness
to staff appropriately or expend capital for current production volumes and anticipated production volume increases; the ability to maintain
continuing, uninterrupted production at our manufacturing facilities and our suppliers’ facilities; our ability, and our suppliers’
ability, to attract and retain the skilled work force necessary for production and development in an extremely competitive market; the
effect of economic conditions, including increases in interest rates and inflation, on the demand for our and our customers’ products
and services, on the industries and markets in which we operate in the U.S. and globally, and on the global aerospace supply chain; the
general effect of geopolitical conditions, including Russia’s invasion of Ukraine and the resultant sanctions being imposed in response
to the conflict, including any trade and transport restrictions; the recent outbreak of war in Israel and the Gaza Strip and the potential
for expansion of the conflict in the surrounding region, which may impact certain suppliers’ ability to continue production or make
timely deliveries of supplies required to produce and timely deliver our products, and may result in trade and transport restrictions
being imposed in response to the conflict; our relationships with the unions representing many of our employees, including our ability
to successfully negotiate new agreements, and avoid labor disputes and work stoppages with respect to our union employees; the impact
of significant health events, such as pandemics, contagions, or other public health emergencies (including the COVID-19 pandemic) or fear
of such events, on the demand for our and our customers’ products and services, the industries, and the markets in which we operate
in the U.S. and globally; the timing and conditions surrounding the full worldwide return to service (including receiving the remaining
regulatory approvals) of the B737 MAX, future demand for the aircraft, and any residual impacts of the B737 MAX grounding on production
rates for the aircraft; our reliance on The Boeing Company (“Boeing”) and Airbus Group SE and its affiliates (collectively,
“Airbus”) for a significant portion of our revenues; the business condition and liquidity of our customers and their ability
to satisfy their contractual obligations to the Company; the certainty of our backlog, including the ability of customers to cancel or
delay orders prior to shipment on short notice, and the potential impact of regulatory approvals of existing and derivative models; our
ability to accurately estimate and manage performance, cost, margins, and revenue under our contracts, and the potential for additional
forward losses on new and maturing programs; our accounting estimates for revenue and costs for our contracts and potential changes to
those estimates; our ability to continue to grow and diversify our business, execute our growth strategy, and secure replacement programs,
including our ability to enter into profitable supply arrangements with additional customers; the outcome of product warranty or defective
product claims and the impact settlement of such claims may have on our accounting assumptions; competitive conditions in the markets
in which we operate, including in-sourcing by commercial aerospace original equipment manufacturers; our ability to successfully negotiate,
or re-negotiate, future pricing under our supply agreements with Boeing, Airbus and other customers; the possibility that our cash flows
may not be adequate for our additional capital needs; any reduction in our credit ratings; our ability to access the capital or credit
markets to fund our liquidity needs, and the costs and terms of any additional financing; our ability to avoid or recover from cyber or
other security attacks and other operations disruptions; legislative or regulatory actions, both domestic and foreign, impacting our operations,
including the effect of changes in tax laws and rates and our ability to accurately calculate and estimate the effect of such changes;
spending by the U.S. and other governments on defense; pension plan assumptions and future contributions; the effectiveness of our internal
control over financial reporting; the outcome or impact of ongoing or future litigation, arbitration, claims, and regulatory actions or
investigations, including our exposure to potential product liability and warranty claims; adequacy of our insurance coverage; our ability
to continue selling certain receivables through supplier financing programs; our ability to effectively integrate recent acquisitions,
along with other acquisitions we pursue, and generate synergies and other cost savings therefrom, while avoiding unexpected costs, charges,
expenses, and adverse changes to business relationships and business disruptions; and the risks of doing business internationally, including
fluctuations in foreign currency exchange rates, impositions of tariffs or embargoes, trade restrictions, compliance with foreign laws,
and domestic and foreign government policies. These factors are not exhaustive and it is not possible for us to predict all factors that
could cause actual results to differ materially from those reflected in our forward-looking statements. These factors speak only as of
the date hereof, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. As with any
projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. Except to the extent
required by law, we undertake no obligation to, and expressly disclaim any obligation to, publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Exhibit 99.3
Updated Risk Factors
Item 1A. Risk Factors
References to “we,” “us,” “our,”
and the “Company” refer to Spirit AeroSystems Holdings, Inc. and its consolidated subsidiaries. References to “Spirit”
refer only to our subsidiary, Spirit AeroSystems, Inc., and references to “Spirit Holdings” or “Holdings”
refer only to Spirit AeroSystems Holdings, Inc.
An investment in our securities involves risks and uncertainties.
The risks and uncertainties set forth below are those that we believe may materially and adversely affect us, our future business or results
of operations, our industry, or investments in our securities. Additional risks and uncertainties that we are unaware of or that we deem
immaterial may also materially and adversely affect us, our future business or results of operations, or investments in our securities.
The risks speak only as of the date hereof, and new risks may emerge or changes to the foregoing risks may occur that could impact our
business.
Risks Related to Our Industry and Overall Business
Our business, financial results, and prospects are dependent
to a significant degree on global economic and geopolitical conditions and global aviation demand.
The commercial airline industry is impacted to a significant degree
by the strength of the global economy and geopolitical events around the world. A protracted economic slump or recession, increases in
interest rates and inflation and adverse credit market conditions, or possible exogenous shocks, such as the conflicts between Russia
and Ukraine and in the Middle East, political unrest, terrorist attacks or pandemics, contagions and other health emergencies (including
the COVID-19 pandemic), or the fear of any of the foregoing occurring, have in the past caused, and could in the future cause, precipitous
declines in air traffic, in turn causing airlines to cancel or delay the purchase of additional new aircraft. The cancellation or delay
of new aircraft purchases has in the past resulted in, and could in the future result in, a deterioration of commercial airplane backlogs
and a decrease in demand for our commercial aircraft products, which has in the past materially adversely affected, and could in the future
materially adversely affect, our business, financial condition, and results of operations.
We largely support commercial aerostructures customers, and our financial
results and prospects are almost entirely dependent on global commercial aviation demand and the resulting production rates of our customers.
Due to the discretionary nature of air travel, the airline industry is particularly sensitive to changes in economic conditions, or the
expectation thereof, and to pandemics, contagions or other health emergencies or the fear of such events. In addition, during periods
of unfavorable or volatile economic conditions in the global economy, demand for air travel can be significantly impacted as business
and leisure travelers choose not to travel, seek alternative forms of transportation for short trips or conduct business through videoconferencing.
Our customers, including Boeing and Airbus, have in the past decreased production rates across many programs due to decreased demand for
aviation, including as a result of the COVID-19 pandemic, and may in the future continue to adjust production rates or suspend production,
potentially without early warning and within a short time horizon. Suspensions in our production rates or prolonged reductions to rates
have in the past resulted in, and could in the future result in, significant challenges and material adverse impacts on our business,
operations and financial performance.
Our operations in newly developed and emerging markets expose us to
heightened risks of economic, geopolitical, or other events, including governmental takeover (nationalization) of our manufacturing facilities
or intellectual property, restrictive exchange or import controls, disruption of operations as a result of systemic political or economic
instability, outbreak of war or expansion of hostilities, and acts of terrorism, each of which could have a substantial adverse effect
on our financial condition and results of operations. Further, the U.S. Government, other governments, and international organizations
have imposed, and could in the future impose additional, sanctions that restrict us from doing business directly or indirectly in or with
certain countries or parties, which could include affiliates.
Our business depends largely on sales of components for a single
aircraft program, the B737, which has had significant reductions in production rate, including suspensions, relating to the B737 MAX grounding
and the COVID-19 pandemic. Additional suspensions or reductions in, or increases in, the B737 production rate and the rates for other
programs have in the past created, and may in the future create, financial and disruption risks for the Company and its suppliers.
For the nine months ended September 28, 2023 and the twelve months
ended December 31, 2022, 2021, and 2020, approximately 47%, 45%, 35%, and 19% of our net revenues, respectively, were generated from
sales of components to Boeing for the B737 aircraft, as compared to 53% for the twelve months ended December 31, 2019, which was
the most recent period to exclude impacts from the B737 MAX grounding and the global pandemic crises. While we have entered into long-term
supply agreements with Boeing to continue to provide components for the B737 for the life of the aircraft program, including commercial
and military P-8 derivatives, Boeing does not have any obligation to purchase components from us for any replacement for the B737 that
is not a commercial derivative model as defined by (1) the Special Business Provisions (“Sustaining SBP”), which sets
forth the specific terms of the supply arrangement for the B737, B747, B767 and B777 Programs (the “Sustaining Programs”),
and (2) the General Terms Agreement (together with the Sustaining SBP (and any related purchase order or contract), as amended, the
“Sustaining Agreement”), which sets forth other general contractual provisions, including provisions relating to termination,
events of default, assignment, ordering procedures, inspections, and quality controls. Moreover, the contract is a requirements contract,
and Boeing can reduce the purchase volume at any time and has done so in the past, including as a result of the B737 MAX grounding and
the COVID-19 pandemic. Conversely, Boeing has in the past increased, and could in the future further increase, purchase volumes at any
time and the advance notice we receive regarding any such changes may not be sufficient for us to be able to adequately prepare for the
changes. Reductions and increases in purchase volumes also occur on other programs.
In March 2019, the B737 MAX fleet was grounded in the U.S. and
internationally following accidents involving two B737 MAX aircraft. At Boeing’s direction, Spirit suspended all B737 MAX production
beginning on January 1, 2020. Subsequently, there were a number of changes to production rates as a result of the grounding and COVID-19
impacts. These production changes created significant disruption for the Company and its B737 MAX suppliers.
Boeing’s deliveries of the B737 MAX resumed in December 2020,
but the rate at which deliveries will continue and continued impacts of the grounding remain uncertain. We regularly make significant
assumptions with respect to the B737 program regarding the number of units to be delivered each year, the period during which those units
are likely to be produced, and the units’ expected sales prices, production costs, program tooling and other non-recurring costs,
and routine warranty costs. In addition, we regularly make assumptions regarding estimated costs expected to be incurred until resuming
a normal production rate consistent with 2019 production levels to determine which costs should be (i) included in program inventory
and (ii) expensed when incurred as abnormal production costs. Changes in these estimates and assumptions with respect to the B737
program have had, and could continue to have, a material adverse impact on our financial position, results of operations, and/or cash
flows.
We have had, and may in the future
continue to have, difficulties in managing our cost structure to take into account changes in production schedules or to accommodate a
ramp-up in production. We generally need to hire additional employees as rates increase and if we are not able to do so or are not able
to do so at an efficient cost, our ability to meet increased production rates could be adversely affected. Conversely, production levels
for the B737 MAX program or other programs could be reduced beyond current expectations. Changes in production schedules have materially
adversely impacted, and could in the future materially adversely impact, our ability to comply with contractual obligations, our liquidity
position and our business, financial condition, results of operations and cash flows.
We depend on Boeing and Airbus as our largest customers, and
our business has in the past been, and may in the future be, negatively affected by actions they take, business difficulties they may
experience or breaches of their obligations to us.
Boeing is our largest customer, and Airbus is our second-largest customer.
For the nine months ended September 28, 2023 and the twelve months ended December 31, 2022, approximately 62%, 60% and 19%,
22% of our net revenues were generated from sales to Boeing and Airbus, respectively. Although part of our strategy is to diversify our
customer base, we cannot assure that we will be successful in doing so. Even if we are successful in obtaining new customers, we expect
that Boeing and Airbus will continue to account for a substantial portion of our sales. Our contracts with Boeing and certain of our contracts
with Airbus are requirements contracts that do not require specific minimum purchase volumes. Boeing or Airbus can reduce, or increase,
their purchase volumes at any time, and the advance notice we receive regarding any such changes may not be sufficient for us to be able
to adequately prepare for the changes. If either of these customers reduces the requirements under our agreements (as Boeing did in 2019,
2020, and 2021 due to the B737 MAX grounding and the COVID-19 pandemic and other customers did in 2020 and 2021 due to the COVID-19 pandemic),
terminates the agreements or portions of them (due to our breach), suspends or terminates one or more purchase orders in whole or in part,
a termination for convenience (which is a provision included in most of the contracts) or otherwise, experiences a major disruption in
its business (such as a strike, work stoppage, slowdown, or a supply chain problem) or experiences a deterioration in its business, financial
condition, access to credit, or liquidity, our business, financial condition, and results of operations could be materially adversely
affected. Any monetary damages we receive from Airbus or Boeing as a result of a contractual termination may not be sufficient to cover
our actual damages.
We have incurred significant operating losses in the last few
years, and we cannot guarantee you that we will not incur substantial operating losses in the future.
Since 2020, we have incurred significant operating losses. Our net
loss was $691.6 million, $545.7 million, $540.8 and $870.3 million for the nine months ended September 28, 2023 and the years ended
December 31, 2022, 2021 and 2020, respectively. We cannot guarantee that we will not incur significant expenses and operating losses
in the future, including as a result of the risks described in this section. We have relied, and may continue to rely, on our customers
and sources of debt and equity financing to operate our business, and we cannot guarantee you that we will have access to these liquidity
sources on terms acceptable to us, or at all. The net losses we incur may fluctuate significantly from quarter to quarter and year to
year. If we are unable to become or remain profitable and we continue to have operating losses, our business, financial condition, and
results of operations could be materially adversely affected and the value of our securities, including our common stock, could significantly
decline.
Our backlog is subject to change, potentially with short notice.
From time to time, we disclose our expected backlog associated with
large commercial aircraft, business and regional jets, and military equipment deliveries, calculated based on contractual and historical
product prices and expected delivery volumes. Impacts from global events have in the past caused, and may in the future cause, our backlog
to deteriorate due to order cancellations or delays, potentially with short notice. Backlog is calculated based on Boeing’s and
Airbus’ announced backlog on our supply agreements (which are based on orders from customers) and the number of units the Company
is under contract to produce on our fixed quantity contracts. Accordingly, we rely on the latest available information from Boeing and
Airbus to calculate our backlog, which may not reflect cancellations they expect to make but have not yet announced. The number of units
may be subject to cancellation or delay by the customer prior to shipment, depending on contract terms. For example, our contract with
Boeing for the B737 program is a requirements contract, and Boeing can reduce the purchase volume at any time. The level of unfilled orders
at any date during the year may be materially affected by the timing of our receipt of firm orders and additional airplane orders, and
the speed with which those orders are filled. Accordingly, our expected backlog does not necessarily represent the actual amount of deliveries
or sales for any future period.
Our business depends, in part, on securing work for replacement
programs.
While we have entered into long-term supply agreements with respect
to the Sustaining Programs, Boeing does not have any obligation to purchase components from us for any subsequent variant of these aircrafts
that is not a commercial derivative as defined by the Sustaining Agreement. If we are unable to obtain significant aerostructures supply
business for any variant of these aircrafts for which we provide significant content, such as the B737 MAX, our business, financial condition,
and results of operations could be materially adversely affected.
We operate in a very competitive business environment.
As the Company seeks to further diversify its program portfolio and
product offerings and expand its customer base, we face substantial competition from both OEMs and non-OEM aerostructures suppliers. OEMs
may choose not to outsource production of aerostructures due to, among other things, their own direct labor and other overhead considerations
and capacity utilization at their own facilities. Consequently, traditional factors affecting competition, such as price and quality of
service, may not be significant determinants when OEMs decide whether to produce a part in-house or to outsource.
Some of our non-OEM competitors have greater resources than we do and
may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to
the promotion and sale of their products than we can. Consolidation of or partnerships among our competitors could also increase their
financial resources, market penetration and purchasing power. Providers of aerostructures have traditionally competed on the basis of
cost, technology, quality, and service. We believe that developing and maintaining a competitive advantage will require continued investment
in product development, engineering, supply-chain management, and sales and marketing, and we may not have enough resources to make such
investments.
It is very difficult for new aerostructures suppliers to compete against
incumbent suppliers for work under an existing contract, because the OEM and the supplier typically spend significant amounts of time
and capital on design, manufacture, testing, and certification of tooling and other equipment. A supplier change would require further
testing and certification and the expensive movement of existing tooling or the development of new tooling, and would likely result in
production delays and additional costs to both the OEM and the new supplier. These high switching costs make it more difficult for us
to bid competitively against existing suppliers and less likely that an OEM will be willing to switch suppliers during the life of an
aircraft program, which could materially adversely affect our ability to obtain new work on existing aircraft programs.
Prolonged periods of inflation where we do not have adequate
inflation protections in our customer contracts have had, and could continue to have, a material adverse effect on our results of operations.
A majority of our sales are conducted pursuant to long-term contracts
that set fixed unit prices and may include specific periods when prices are renegotiated. Certain, but not all, of these contracts provide
for price adjustments for inflation or abnormal escalation. Although we have attempted to minimize the effect of inflation on our business
through contractual protections, as a result of the presence of longer pricing periods within our contracts, we have been, and will in
the future be, impacted by sustained or higher than anticipated increases in costs of labor or material. Prolonged global inflationary
pressures have impacted energy, freight, raw material and other costs in addition to increased interest costs and labor costs. As described
above, in certain situations, we have the ability to recover certain abnormal inflationary impacts through our contractual agreements
with our customers. However, in most instances we must fully absorb cost overruns, and we anticipate that we will experience reduced levels
of profitability related to inflationary impacts until such time as the rate of inflation subsides to normal historical levels. Furthermore,
the price of certain raw materials on which we are dependent (e.g., aluminum, titanium, or composite material) have had,
and could continue to have isolated price increases without inflationary impacts on the broader economy, where we are not entitled to
inflation protection under certain of our contracts. Substantial cost increases have had, and could continue to have, a material adverse
effect on our results of operations.
Our commercial business is cyclical and sensitive to commercial
airlines’ profitability.
Our customers’ business, and therefore our own, is directly affected
by the financial condition of commercial airlines and other economic factors, including global economic conditions and geopolitical considerations
that affect the demand for air transportation. Specifically, our commercial business is dependent on the demand from passenger airlines
and cargo carriers for the production of new aircraft. Accordingly, demand for our commercial products is tied to the worldwide airline
industry’s ability to finance the purchase of new aircraft and the industry’s forecasted demand for seats, flights, routes,
and cargo capacity. Availability of financing to non-U.S. customers depends in part on the continued operations of the U.S. Export-Import
Bank. The level of interest rates, which have fluctuated significantly in the past and are likely to fluctuate in the future, also could
have an adverse effect on the ability of the airline industry to finance the purchase of new aircraft. Additionally, the size and age
of the worldwide commercial aircraft fleet affects the demand for new aircraft and, consequently, for our products. Such factors, in conjunction
with evolving economic conditions, cause the market in which we operate to be cyclical to varying degrees, thereby affecting our business
and operating results.
Our business and results of operations have been, and could in
the future be, adversely impacted, possibly materially, by pandemics and other public health emergencies, or the fear thereof.
Pandemics, including the COVID-19 pandemic, and other public health
emergencies, or the fear thereof, have in the past negatively affected, and may in the future negatively affect, our business and results
of operations. Factors that have in the past impacted, and may in the future impact, our business and results of operations include: the
severity, extent, and duration of the pandemic or public health emergency and its impact on the aircraft industry and aviation demand;
any production suspensions or reductions relating to the pandemic or public health emergency; the effectiveness of vaccines and treatments;
government health and protection policies, including travel restrictions and bans, bans on public gatherings, and closures of non-essential
businesses; vaccination requirements, including any potential impacts on our ability to retain and recruit the workforce required to meet
production requirements; economic stimulus efforts; economic recessions; any inability of significant portions of our workforce to work
effectively, including because of illness, remote work, quarantines, social distancing, government actions or other restrictions; potential
lawsuits or regulatory actions due to spread of the pandemic or other public health emergency in the workplace; our ability to maintain
our compliance practices and procedures, financial reporting processes and related controls, and to manage any complex accounting issues;
any impacts on our vendors and outsourced business processes and their process and controls documentation; potential failure or reduced
capacity of third parties on which the Company relies, including suppliers, lenders, and other business partners, to meet the Company’s
obligations and needs; the impact on our contracts with our customers and suppliers, including force majeure provisions; the impact on
the financial markets, including volatility in the financial markets; the availability and cost of credit to the Company; supply chain
disruptions; and increased costs for transportation and raw materials.
The COVID-19 pandemic created significant disruptions that have in
the past adversely affected, and could in the future adversely affect, our business, financial condition, liquidity and results of operations.
The extent to which the COVID-19 pandemic will negatively affect our businesses, financial condition, liquidity and results of operations
will depend on, among other things, future developments, including any resurgence of cases, the emergence of new variants of the virus
and the effectiveness of vaccines and treatments over the long term and against new variants, which are highly uncertain and cannot be
predicted.
Our business and results of operations could be adversely affected
by disruptions in the global economy caused by Russia’s invasion of Ukraine and the conflict in the Middle East and related sanctions
and other developments.
The war between Russia and Ukraine has negatively affected, and the
war as well as the conflict in the Middle East may in the future negatively affect, the global economy. Governments around the world have
imposed economic sanctions and export controls on certain industry sectors and parties in Russia and other jurisdictions, and Russia has
responded with its own restrictions against investors and countries outside Russia and adopted additional measures aimed at non-Russia
owned businesses. The war in the Middle East may also result in sanctions being imposed in response to the conflict, including trade and
transport restrictions. Businesses in the U.S. and globally have experienced shortages in materials and increased costs for transportation,
energy and raw materials due in part to the negative effects of the war in Ukraine on the global economy. The war between Russia and Ukraine,
the conflict in the Middle East and other hostilities have resulted in, and could continue to result in, among other things, supply chain
disruptions (including accelerated changes to alternate sourcing of certain raw materials, which has resulted in increased costs), further
increased risk of cyber attacks, higher inflation and market volatility. For example, although the recent outbreak of war in Israel and
the Gaza Strip has not materially impacted our supply chain, the potential for expansion of the conflict in the surrounding region may
impact certain of our suppliers’ ability to continue production or make timely deliveries of supplies required for us to produce
and timely deliver our products. The extent and duration of these conflicts, sanctions and resulting market disruptions are impossible
to predict, and our business and results of operations could be materially adversely affected.
Risks Related to Our Operations
Our business depends on our ability to maintain a healthy supply
chain, meet production rate requirements, and timely deliver products that meet or exceed stringent quality standards.
Our business depends on our ability to maintain a healthy supply chain,
achieve planned production rate targets, and meet or exceed stringent delivery, performance and reliability standards. The supply chain
for large commercial aerostructures is complex and involves hundreds of suppliers and their employees from all over the world. Certain
parts of our supply chain have experienced, and may continue to experience, various challenges, including inflationary pressures, financial
difficulties and challenges related to hiring and retaining a skilled workforce.
In addition, operational issues, including delays or defects in supplier
components, have resulted and could continue to result in significant out-of-sequence work and increased production costs, as well as
delayed deliveries to customers. Our suppliers’ failure to provide parts that meet our technical specifications has adversely affected
and could continue to adversely affect production schedules and contract profitability. We have not always been able to find and in the
future we may not be able to find acceptable alternatives, and any such alternatives in some cases have resulted and could continue to
result in increased costs for us and forward losses on certain contracts. Even if acceptable alternatives are found, the process of locating
and securing such alternatives has been and may continue to be disruptive to our business, including our ability to execute any factory
recovery plans, and might lead to termination of our supply agreements with our customers.
Our suppliers continue to encounter financial difficulty due to the
pandemic and residual effects of the B737 MAX grounding. Absent financial support, suppliers may not be able to meet commitments under
their agreements with us. In the past our suppliers have, and they could in the future, fail to supply critical parts individually or
in the aggregate and if we are not able to secure timely and adequate replacements, we may breach our obligations to our customers. As
a result of a breach, customers generally may terminate their agreements or proceed against us for damages and our business, financial
condition, results of operations and cash flows could be materially adversely impacted.
Additionally, the Company’s ability to meet production rate increases
is dependent upon several factors, including expansion and alignment of its production facilities, tooling, and equipment; improved efficiencies
in its production line; on-time delivery of component parts from the Company’s suppliers; adequate supply and costs of skilled labor;
and implementation of customer customizations upon demand. From time-to-time the Company has experienced, and may continue to experience,
quality or delivery timing disruptions. This includes common carrier disruptions and other disruptions that affect manufacturing lines,
any of which could have a material adverse impact on the Company’s ability to meet commitments to its customers and on its future
financial results.
In some cases, in order to meet these increases in production rates,
we have made and will need to make in the future significant capital expenditures to expand our capacity and improve our performance or
find alternative solutions such as outsourcing some of our existing work to free up additional capacity. While some of these expenditures
will be reimbursed by our customers, we could be required to bear a significant portion of the costs. For example, in October 2023,
we entered into a memorandum of agreement with Boeing that, among other things, provides funding for tooling and capital through 2025.
However, we cannot assure you that we will always be able to reach similar agreements, and costs not reimbursed by such agreements could
be significant. In addition, the increases in production rates could cause disruptions in our manufacturing lines, which could materially
adversely impact our ability to meet our commitments to our customers and have a resulting adverse effect on our financial condition and
results of operations.
Our operations depend on our ability to maintain continuing,
uninterrupted production at our manufacturing facilities and our suppliers’ facilities.
Our manufacturing facilities or our suppliers’ manufacturing
facilities could be damaged or disrupted by, among other things, a natural disaster, war, terrorist activity, interruption of utilities,
public health crises (such as the COVID-19 pandemic) or sustained mechanical failure. Although we have obtained property damage and business
interruption insurance where we deem appropriate, a sustained mechanical failure of a key piece of equipment, major catastrophe (such
as a fire, flood, tornado, hurricane, major snow storm, or other natural disaster), war, or terrorist activities in any of the areas where
we or our suppliers conduct operations could result in a prolonged interruption of all or a substantial portion of our business. Any disruption
resulting from these events could cause significant delays in shipments of products and the loss of sales and customers. We may not have
insurance to adequately compensate us for any of these events. A large portion of our operations takes place at one facility in Wichita,
Kansas, and any significant damage or disruption to this facility in particular would materially adversely affect our ability to service
our customers. Additionally, while any insurance proceeds may cover certain business interruption expenses, certain deductibles and limitations
will apply and no assurance can be made that all recovery costs will be covered. See also “Increases in labor costs, potential labor
disputes, and work stoppages at our facilities or the facilities of our suppliers or customers have impacted, and could materially
adversely affect, our financial performance.”
Interruptions in deliveries of or increased prices for components
or raw materials used in our products have materially adversely impacted, and could continue to materially adversely impact, production
and our business.
We are highly dependent on the availability of essential materials
and purchased components from our suppliers, some of which are available only from a sole source or limited sources. Our dependency upon
regular deliveries from particular suppliers of components and raw materials means that interruptions or stoppages in such deliveries
could materially adversely affect our operations until arrangements with alternate suppliers, to the extent alternate suppliers exist,
could be made. If any of our suppliers were unable or were to refuse to deliver materials to us for an extended period of time, or if
we were unable to negotiate acceptable terms for the supply of materials with these or alternative suppliers, our business could suffer
and be materially affected.
Our continued supply of materials is subject to a number of risks including:
| ● | the destruction of or damage to our suppliers’ equipment, facilities or their distribution infrastructure; |
| ● | global economic conditions, embargoes, force majeure events, domestic or international acts of hostility, terrorism, war, pandemic,
or other events impacting our suppliers’ ability to perform; |
| ● | a work stoppage or strike by our suppliers’ employees; |
| ● | the failure of our suppliers to provide materials of the requisite quality or in compliance with specifications; |
| ● | the failure of our suppliers to satisfy U.S. and international import and export control laws; |
| ● | the failure of our suppliers to meet regulatory standards; |
| ● | the failure, shortage, or delay in the delivery of raw materials to our suppliers; |
| ● | imposition of tariffs and similar import limitations on us or our suppliers; and |
| ● | contractual amendments and disputes with our suppliers. |
In addition, our profitability is affected by the prices of the components
and raw materials, such as titanium, aluminum, steel, and carbon fiber, used in the manufacturing of our products. These prices fluctuate
based on factors beyond our control, including inflation, world oil prices, changes in supply and demand, general economic conditions,
labor costs, competition, import duties, tariffs, the availability and cost of freight, the availability and cost of utilities, currency
exchange rates, hostilities in jurisdictions that affect raw materials and, in some cases, government regulation, and we do not use derivative
commodity instruments to hedge our exposure to changes in the price of raw materials. Although our supply agreements with Boeing and Airbus
allow us to pass on to our customers certain unusual increases in component and raw material costs in limited situations, in certain cases
we have not been, and may in the future not be, fully compensated by the customers for the entirety of any such increased costs.
Cyber attacks, network security breaches, service interruptions,
data corruption or misuse or Privacy Regulation (defined below) violations pose significant risks to our business and operations.
We and our customers, suppliers, and other third parties with which
we work rely on information technology networks and systems to manage and support a variety of business activities, including procurement
and supply chain, engineering support, and manufacturing. These networks and systems, some of which are managed by third-parties, are
susceptible to damage, disruptions, or shutdowns due to failures during the process of upgrading or replacing software, databases or components
thereof, power outages, hardware failures, computer viruses, attacks by computer hackers or insiders, telecommunication failures, user
errors, or catastrophic events. If these networks and systems suffer severe damage, disruption, or shutdown and our or third parties’
business continuity plans do not effectively resolve the issues in a timely manner, our manufacturing process could be disrupted, resulting
in late deliveries or even no deliveries if there is a total shutdown. This could have a material adverse effect on our reputation and
we could face financial losses.
Further, we have experienced cyber attacks, and routinely experience
cyber security threats and attempts to gain access to sensitive information, as do our customers, suppliers, and other third parties with
which we work. We have established threat detection, monitoring, and mitigation processes and procedures and are continually exploring
ways to improve these processes and procedures. However, the scope and impact of any future incident cannot be predicted, and we cannot
provide assurance that these processes and procedures will be sufficient to prevent cyber security threats from materializing. Although
we have not been materially impacted to date by a cyber security incident, we could experience significant operational impacts, financial
or information losses and/or reputational harm in the future. Given the increasing complexity and sophistication of the tools and techniques
used by threat actors, cyber attacks can occur and persist for an extended period of time before being detected, and we may not be able
to anticipate these acts or respond timely. The extent of a particular cyber incident and the steps that we may need to take to investigate
the incident may not be immediately clear, and it can take a significant amount of time before an investigation of the incident can be
completed and full and reliable information about the incident is known, if ever. While an investigation is ongoing, we may not know the
extent of the harm caused by a cybersecurity incident or how best to remediate any harm. Moreover, new regulations may require us to disclose
information about a material cybersecurity incident before it has been resolved or fully investigated. In addition, as threats continue
to evolve and increase, and as the regulatory environment related to information security, data collection and use, and privacy has become
and continues to become more rigorous, we have been required, and expect to continue to need to, make investments to enhance our detection,
monitoring, and mitigation processes and procedures, which could adversely impact our results of operations.
If we are unable to protect sensitive or confidential information from
cybersecurity threats and attacks, our customers or governmental authorities could question the adequacy of our threat mitigation and
detection processes and procedures and, as a result, our present and future business could be negatively impacted. Data privacy regulations,
including but not limited to the General Data Protection Regulation (EU), Data Protection Act 2018 (UK), Law No. 09-08 (Morocco),
and Personal Data Protection Act 2010 (Malaysia) (collectively, “Privacy Regulations”), impose a range of compliance obligations
applicable to the collection, use, retention, security, processing, and transfer of personally identifiable information. Various U.S.
states and other governmental authorities around the world have imposed or are considering similar types of laws and regulations, data
breach reporting and penalties for non-compliance and increasing security requirements. These laws and regulations are broad in scope
and are subject to evolving interpretation and we have in the past been, and in the future could be, required to incur substantial costs
to monitor compliance or to alter our practices. Moreover, these new laws and regulations could diverge and conflict with each other in
certain respects. As new privacy-related laws and regulations are implemented, the time and resources needed for us to comply with such
laws and regulations, as well as our potential liability for non-compliance and reporting obligations in the case of data breaches, has
increased and may further increase. Violations of the Privacy Regulations may result in significant fines and sanctions. Any failure,
or perceived failure, to comply with the Privacy Regulations, or any other privacy, data protection, information security, or consumer
protection-related privacy laws and regulations, by us or our third parties with whom we are associated could result in financial losses
and have an adverse effect on our reputation.
Our success depends in part on the success of our research and
development initiatives.
In order for us to remain competitive, we have expended and will need
to continue to expend significant capital to research and develop technologies, purchase new equipment and machines, and train our employees
in the new methods of production and service. Our expenditures on our research and development efforts may not create any new sales opportunities
or increases in productivity that are commensurate with the level of resources invested.
We are in the process of developing specific technologies and capabilities
in pursuit of new business and in anticipation of customers going forward with new programs. If any such programs do not go forward or
are not successful, or if we are unable to generate sufficient new business, we may be unable to recover the costs incurred in anticipation
of such programs or business and our profitability and revenues may be materially adversely affected.
While the Company intends to continue committing financial resources
and effort to the development of innovative new technologies, a strain on the Company’s liquidity, such as the strain caused by
the B737 MAX grounding and COVID-19 impacts, has in the past reduced and may in the future reduce the Company’s ability to expend
capital to develop such technologies.
Significant regulatory, operational, and other risks are posed
by climate change and the transition to a “low-carbon” economy in response to climate change.
Increased public awareness and concern over climate change have led
to new and proposed legislative and regulatory initiatives internationally, in the U.S. and regionally, and may lead to additional legislation
in the future. New or revised laws and regulations, or stricter interpretations of existing laws, in this area could directly and indirectly
affect the Company, its customers, or its suppliers by increasing production costs, affecting customer preferences or otherwise impacting
operations. Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require
additional expenditures by the Company and could have an adverse effect on our business, financial condition, and results of operations.
While the transition to a “low-carbon” economy may take place over decades, we are also subject to the risk that, over time,
the existing products which provide much of our current revenue may be replaced with “lower-carbon” products the Company does
not currently manufacture and which may take a significant amount of time for the Company to develop and manufacture. In addition, demand
for the Company’s existing products may decrease as there is no guarantee that the Company will ultimately win substantially similar
work content on new aircraft platforms. Additionally, transition to an entirely “low-carbon” portfolio may require material
investments by the Company.
In addition, climate change is impacting the severity and frequency
of natural disasters, including tornados, floods and hurricanes, and other severe weather events, which have in the past and could in
the future disrupt our operations and adversely affect our business in a particular region or globally, as well as the activities of our
suppliers and customers. Any of these events could result in temporary or long-term disruption of our operations, including as a result
of physical damage to, or complete or partial closure of, one or more of our facilities, or have an impact on the operations of our suppliers
or customers. If we are unable to restart operations quickly at key locations, find alternative suppliers or quickly repair damage, we
could be late in delivering, or be unable to deliver, products to our customers, which could result in damage to our reputation, business
and prospects, any of which could have an adverse effect on our results of operations and financial condition.
Existing insurance arrangements may not provide full protection for
the costs that may arise from any climate change-related events, and recurring extreme weather events have in the past increased and could
in the future continue to increase the cost of insurance or could reduce the availability of insurance. The risks associated with climate
change continue to evolve, and we expect that climate change-related risks may increase over time.
Risks Related to Our Business Strategy
If we fail to implement our business strategy or if our business
strategy is ineffective, our financial performance could be materially and adversely affected, and we may not achieve our financial goals.
Our financial performance and success depend in large part upon the
effectiveness of our business strategy and our ability to implement our business strategy successfully. Implementation of our business
strategy will require effective management of our operational, financial and human resources and will place significant demands on those
resources. There are risks involved in pursuing our business strategy, including, but not limited to, those relating to:
| ● | determining which business activities to pursue and prioritize; |
| ● | predicting, or responding to, changes in production schedules; |
| ● | managing our costs and expenses; |
| ● | continued access to capital and credit markets; |
| ● | hiring or retaining the personnel, including the executives and skilled workforce, necessary to manage our strategy effectively; |
| ● | implementing improvements to operational efficiency; and |
| ● | recording material forward losses or changes in estimates. |
In addition to the risks set forth above, effectiveness of and the
successful implementation of our business strategy could also be affected by a number of factors beyond our control, such as actions by
Boeing and Airbus, increased competition, general economic conditions, government regulation and changes in industry trends. We may decide
to alter or discontinue certain aspects of our business strategy at any time. If we are not able to implement our business strategy successfully,
our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our
business strategy successfully, our operating results may not improve and could decline substantially.
In connection with our business strategy, we continue to evaluate and
refine both our short-term and long-term financial objectives, including guidance we provide from time to time regarding our free cash
flow targets and revenue targets for our segments. We may fail to achieve our targeted financial results if we are unsuccessful in implementing
our strategies, our estimates or assumptions change or for any other reason. Failure to achieve our stated financial goals has negatively
impacted, and could in the future further impact, the market price of our common stock and investor confidence in us.
Our acquisitions, joint ventures, strategic alliances and partnerships
expose us to risks, including the risk that we may not be able to successfully integrate these businesses or achieve expected operating
synergies.
As part of our business strategy, we from time-to-time have merged
with or acquired businesses and/or formed joint ventures and strategic alliances and may continue to do so in the future. Combining our
businesses may be more difficult, costly, or time consuming than expected. In addition, events outside of our control, including changes
in regulation and laws as well as economic trends, could adversely affect our ability to realize the expected benefits from an acquisition.
The success of our acquisitions will depend on, among other things, our ability to realize the anticipated benefits and cost savings from
combining our and the acquired businesses in a manner that facilitates growth opportunities and realizes anticipated synergies and cost
savings. The anticipated benefits and cost savings from acquisitions, as well as from joint ventures, strategic alliances and partnerships,
may not be realized fully or at all, or may take longer to realize than expected or could have other adverse effects that we do not currently
foresee. Further, the integration of acquired companies and managing relationships with joint venture partners involve a number of risks,
including, but not limited to the diversion of management’s attention to the integration or oversight of operations, difficulties
in the assimilation or cooperation of different cultures and practices, reliance on sellers under transition services agreements or partners
under joint venture or alliance agreements, as well as in the assimilation of geographically dispersed operations and personnel, difficulties
in the integration of departments, systems (including accounting, production, IT, and other critical systems), technologies, books
and records and procedures, as well as in maintaining uniform standards, controls (including internal accounting controls), procedures,
and policies and compliance with the Foreign Corrupt Practices Act, the U.K. Bribery Act and other applicable anti-bribery laws.
We face risks as we work to successfully execute on new or maturing
programs.
New or maturing programs with new technologies typically carry risks
associated with design responsibility, development of new production tools, hiring and training of qualified personnel, increased capital
and funding commitments, ability to meet customer specifications, delivery schedules, unique contractual requirements, supplier performance,
ability of the customer to meet its contractual obligations to us, and our ability to accurately estimate costs associated with such programs.
In addition, any new or maturing aircraft program may not generate sufficient demand or may experience technological problems or significant
delays in the regulatory certification or manufacturing and delivery schedule. If we were unable to perform our obligations under new
or maturing programs to a customer’s satisfaction or manufacture products at our estimated costs, if we were unable to successfully
perform under revised design and manufacturing plans or successfully resolve claims and assertions, or if a new or maturing program in
which we had made a significant investment were to be terminated or experienced weak demand, delays or technological problems, our business,
financial condition, and results of operations could be materially adversely affected. Some of these risks have affected our maturing
programs to the extent that we have recorded significant forward losses and maintain certain of our maturing programs at zero or low margins
due to our inability to overcome the effects of these risks, which have been greatly exacerbated, and may continue to be impacted, by
significantly reduced production volumes, either now or in the future. We continue to face similar risks as well as the potential for
default, quality problems, or inability to meet weight requirements and these could result in continued zero or low margins or additional
forward losses, and the risk of having to write-off additional inventory if it were deemed to be unrecoverable over the life of the program.
In addition, beginning new work on existing programs also carries risks associated with the transfer of technology, knowledge, and tooling.
In order to perform on new or maturing programs we may be required
to construct or acquire new facilities requiring additional up-front investment costs. In the case of significant program delays and/or
program cancellations, we could be required to bear certain unrecoverable construction and maintenance costs and incur potential impairment
charges for the new facilities. Also, we may need to expend additional resources to determine an alternate revenue-generating use for
the facilities. Likewise, significant delays in the construction or acquisition of a plant site could impact production schedules.
Risks Related to Legal and Regulatory Matters
The outcome of legal proceedings and government inquiries and
investigations involving our business is unpredictable, and an adverse decision in any such matter could have a material effect on our
financial position and results of operations.
We are involved in a number of legal proceedings including the proceedings
disclosed in Note 13 to our unaudited consolidated financial statements for the quarter ended September 28, 2023 and Note 22 to our
audited consolidated financial statements for the year ended December 31, 2022. These claims may divert financial and management
resources that would otherwise be used to benefit our operations. No assurances can be given that the results of these matters will be
favorable to us. An adverse resolution of any of these lawsuits could have a material impact on our financial position and results of
operations. In addition, we are sometimes subject to government inquiries and investigations of our business due, among other things,
to the heavily regulated nature of our industry and our participation in government programs. Any such inquiry or investigation could
potentially result in an adverse ruling against us, which could have a material impact on our financial position and operating. If we
are unsuccessful in any action, we may be required to pay a significant amount of monetary damages that may be in excess of our insurance
coverage.
We do not own most of the program specific intellectual property
and tooling used in our business.
Our business depends on using certain intellectual property and tooling
that we have rights to use under license grants from our customers. If these licenses are terminated due to a default or otherwise, our
business may be materially affected. In addition, we license some of the intellectual property needed for performance under some of our
supply contracts from our customers under those supply agreements. We must honor our contractual commitments to our customers related
to intellectual property and comply with infringement laws governing our use of intellectual property. In the event we obtain new business
from new or existing customers, we will need to pay particular attention to these contractual commitments and any other restrictions on
our use of intellectual property to make sure that we will not be using intellectual property improperly in the performance of such new
business. In the event we use any such intellectual property improperly, we could be subject to an infringement or misappropriation claim
by the owner or licensee of such intellectual property.
In the future, our entry into new markets may be facilitated by obtaining
additional license grants from our customers. If we are unable to negotiate additional license rights on acceptable terms (or at all)
from these customers, our ability to enter new markets may be restricted.
Our business could be materially adversely affected by product
warranty obligations or defective product claims.
We are exposed to liabilities that are unique to the products and services
we provide. Our operations expose us from time to time to rework obligations, liabilities for warranty or other claims with respect to
aircraft components that have been designed, manufactured, or serviced by us or our suppliers. We maintain insurance for certain risks,
but the amount of our insurance coverage may not cover all claims or liabilities and we may be forced to bear substantial costs. Material
obligations in excess of our insurance coverage (or other third-party indemnification) could have a material adverse effect on our business,
financial condition, and results of operations. For example, in April 2023, we issued a notice of escapement to Boeing related to
a quality issue on the B737 Vertical Fin Attach Fitting, which impacted production costs, including the impact of factory disruption.
Although this issue was resolved as a result of the memorandum of agreement with Boeing entered into on October 12, 2023 (the “MOA”)
as to quality issues with our products, it can be difficult or impossible to estimate total costs relating to such issues as a result
of the uncertainty regarding, among other things, the total number of affected units, the methods of acceptable repair, the total amount
of time required to complete any repairs, and at what point in time and what manner repairs would be completed. Quality issues with our
products have resulted, and could in the future result, in negative publicity and have in the past had, and could in the future have,
material adverse impacts on our production costs (including as a result of factory disruption), our reputation, our stock price and/or
our business, financial condition and results of operations. In addition, from time to time, we make changes to our build processes in
light of quality issues. These changes to our processes can require significant investment and we cannot guarantee that the changes will
be successful and that any quality issues will be resolved. If our products are found to be defective and lacking in quality, or if one
of our products causes an accident, our reputation could be damaged and our ability to retain and attract customers could be materially
adversely affected.
The profitability of certain programs depends significantly on
the assumptions surrounding satisfactory settlement of customer claims and assertions.
For certain of our programs, we regularly commence work or incorporate
customer requested changes prior to negotiating pricing terms for engineering work or the product that has been modified. We typically
have the contractual right to negotiate pricing for customer directed changes. In those cases, although we assert to our customers our
contractual rights to obtain the additional revenue or cost reimbursement we expect to receive upon finalizing pricing terms, we cannot
guarantee that will always be successful in doing so. An expected recovery value of these assertions is incorporated into our contract
profitability estimates. Our inability to recover these expected values, among other factors, has resulted, and could continue to result,
in the recognition of significant forward loss on certain programs and has had, and could continue to have, a material adverse effect
on our results of operations.
Risks Related to Our Governmental and Global Activities
Our global footprint subjects us to the risks of doing business
in foreign countries.
We have activities and operations globally (through wholly owned indirect
or direct subsidiaries and joint ventures), including in the United Kingdom, France, Malaysia, Morocco, China and Taiwan. In addition,
we derive a significant portion of our revenues from sales by Boeing and Airbus to customers outside the U.S and, for the nine months
ended September 28, 2023 and the twelve months ended December 31, 2022, direct sales to our non-U.S. customers accounted for
approximately 22% and 24%, respectively, of our net revenues. We expect that our and our customers’ international sales will continue
to account for a significant portion of our net revenues for the foreseeable future. As a result, we are subject to risks of doing business
internationally, including:
| ● | changes in regulatory requirements applicable to our industry and business, including without limitation, changes in tariffs (imposed
or threatened) on imports, including tariffs imposed in a retaliatory manner on U.S. exports, embargoes, export controls, and other trade
restrictions or barriers; |
| ● | changes in the political, economic, legal, tax and social conditions in the countries we do business in; |
| ● | changes in policies and initiatives including with respect to foreign exchange, foreign investment, and government industrial cooperation
requirements; |
| ● | the ability to secure clearances, approvals or licenses, including any requirements mandated by the U.S. Commerce Department, to maintain
the ability to provide product or services to certain countries or customers; |
| ● | compliance with foreign labor laws, which generally provide for increased notice, severance and consultation requirements compared
to U.S. laws; difficulties enforcing intellectual property and contractual rights in certain jurisdictions; the complexity and necessity
of using foreign representatives and consultants; |
| ● | uncertainties and restrictions concerning the availability of funding credit or guarantees; |
| ● | potential or actual withdrawal or modification of international trade agreements; |
| ● | modifications to sanctions imposed on other countries; changes to immigration policies that may present risks to companies that rely
on foreign employees or contractors; |
| ● | compliance with antitrust and competition regulations; |
| ● | differences in business practices; |
| ● | the difficulty of management and operation of an enterprise spread over various countries; |
| ● | compliance with a variety of foreign laws, as well as U.S. laws affecting the activities of U.S. companies abroad, including the Foreign
Corrupt Practices Act, the U.K. Bribery Act and other applicable anti-bribery and sanctions laws; and |
| ● | economic and geopolitical developments and conditions, including domestic or international hostilities (including the wars in Ukraine
and the Middle East), acts of terrorism or war and governmental reactions, inflation, trade relationships, and military and political
alliances. |
While these factors and the effect of these factors are difficult to
predict, adverse developments in one or more of these areas have in the past materially adversely affected, and could in the future materially
adversely affect, our business, financial condition, and results of operations in the future.
Our business is subject to regulation in the U.S. and internationally.
The manufacturing of our products is subject to numerous federal, state,
and foreign governmental regulations including related to environmental, health and safety laws and regulations. The number of laws and
regulations that are being enacted or proposed by various governmental bodies and authorities are increasing. Compliance with these regulations
is difficult and expensive. If we fail to adhere, or are alleged to have failed to adhere, to any applicable federal, state, or foreign
laws or regulations, or if such laws or regulations negatively affect sales of our products, our business, prospects, results of operations,
financial condition, or cash flows may be adversely affected by penalties or sanctions or reputational degradation. In addition, our future
results could be adversely affected by changes in applicable federal, state, and foreign laws and regulations, or the interpretation or
enforcement thereof.
Our operations involve the use of large amounts of hazardous substances
and regulated materials and generate many types of wastes, including emissions of hexavalent chromium and volatile organic compounds,
and certain chlorinated and brominated hydrocarbon solvents, greenhouse gases such as carbon dioxide. Spills and releases of these materials
may subject us to clean-up liability for remediation and claims of alleged personal injury, property damage, and damage to natural resources,
and we may become obligated to reduce our emissions of hexavalent chromium, volatile organic compounds and/or greenhouse gases. We cannot
give any assurance that the aggregate amount of future remediation costs and other environmental liabilities will not be material.
The Company’s chemical
milling and vapor degreasing processes use various regulated substances that are identified as TSCA (Toxic Substances Control Act) initial
chemicals evaluated in risk assessments prescribed by the Lautenburg Chemical Safety Act in the U.S., and therefore may be subject to
additional regulations in the near future. The Company is investigating the use of alternative solvents and processes, including control
technologies which may require material expenditures, however this business will remain dependent on the availability, use and cost of
these materials for the immediate future. To the extent these alternative solutions are not viable, or any enacted regulation does not
provide an exception, there could be material capital expenditures required to comply with elimination of the chemicals used in our current
processes.
In connection with prior acquisitions, we may be indemnified or insured,
subject to certain contractual limitations and conditions, for certain clean-up costs and other losses, liabilities, expenses, and claims
related to existing environmental conditions on the acquired properties. If indemnification or insurance is not sufficient to cover any
potential environmental liability, we may be required to make material expenditures.
In the future, contamination may be discovered at or emanating from
our facilities or at off-site locations where we send waste. The remediation of such newly discovered contamination, related claims for
personal injury or damages, or the enactment of new laws or a stricter interpretation of existing laws, may require us to make additional
expenditures, some of which could be material.
As a manufacturer and exporter of defense and dual-use technical data
and commodities, we are subject to U.S. laws and regulations governing international trade and exports, including, but not limited to,
the International Traffic in Arms Regulations, administered by the U.S. Department of State, and the Export Administration Regulations,
administered by the U.S. Department of Commerce. Collaborative agreements that we may have with foreign persons, including manufacturers
and suppliers, are also subject to U.S. export control laws. In addition, we are subject to trade sanctions against embargoed countries,
which are administered by the Office of Foreign Assets Control within the U.S. Department of the Treasury. A determination that we have
failed to comply with one or more of these export controls or trade sanctions could result in civil or criminal penalties, including the
imposition of fines upon us as well as the denial of export privileges and debarment from participation in U.S. government contracts.
Additionally, restrictions may be placed on the export of technical data and goods in the future as a result of changing geopolitical
conditions. Any one or more of such sanctions could have a material adverse effect on our business, financial condition, and results of
operations.
The U.S. Government is a significant customer of certain of our
customers, and we and they are subject to specific U.S. Government contracting rules and regulations.
We provide aerostructures to defense aircraft manufacturers. Our defense
customers’ businesses, and by extension, our business, is affected by the U.S. Government’s continued commitment to programs
under contract with our customers. Contracts with the U.S. Government generally permit the government to terminate contracts partially
or completely, with or without cause, at any time. An unexpected termination of a significant government contract, a reduction in expenditures
by the U.S. Government for aircraft using our products, lower margins resulting from increasingly competitive procurement policies, a
reduction in the volume of contracts awarded to us, or substantial cost overruns could materially reduce our cash flow and results of
operations. We bear the potential risk that the U.S. Government may unilaterally suspend our defense customers or us from new contracts
pending the resolution of alleged violations of procurement laws or regulations.
Decline in the U.S. defense budget or change of defense strategies
or funding priorities (as a result of political environment, macroeconomic conditions and the ability of the U.S. Government to enact
legislation or otherwise) may reduce demand for our defense customers’ aircraft or lead to competitive procurement conditions, which
may reduce our defense business sales or margins. Further, changes in U.S. Government procurement policies, regulations, initiatives and
requirements may adversely impact our ability to grow our defense business.
The Federal Aviation Administration prescribes standards and qualification
requirements for aerostructures, including virtually all commercial airline and general aviation products, and licenses component repair
stations within the U.S. Comparable agencies, such as the European Aviation Safety Agency
in Europe, regulate these matters in other countries. If we fail to qualify for or obtain a required license for one of our products or
services or lose a qualification or license previously granted, the sale of the subject product or service would be prohibited by law
until such license is obtained or renewed and our business, financial condition, and results of operations could be materially adversely
affected. In addition, designing new products to meet existing regulatory requirements and retrofitting installed products to comply with
new regulatory requirements can be expensive and time consuming.
A facility securities clearance (“FCL”) is required for
a company to be awarded and perform on classified contracts for the Department of Defense (“DOD”) and certain other agencies
of the U.S. Government. If we were to violate the terms and requirements of the National Industrial
Security Program Operating Manual or any other applicable U.S. Government industrial security regulations, we could lose our FCLs.
We cannot give any assurance that we will be able to maintain our FCLs. If for some reason our FCLs are invalidated or terminated, we
may not be able to continue to perform under our classified contracts in effect at that time, and we would not be able to enter into new
classified contracts, which could adversely affect our revenues.
Under applicable federal regulations for defense contractors, we are
required to comply with the Cybersecurity Maturity Model Certification (“CMMC”) program in the next several years and other
similar cybersecurity requirements. Compliance with the CMMC is costly and complex. To the extent that we are unable to comply with the
CMMC or other requirements, we may be unable to maintain or grow our business with the DOD or its prime customers.
Risks Related to Employment Matters
In order to be successful, we must attract, retain, train, motivate,
develop and transition key employees, and failure to do so could harm our business.
In order to be successful, we must attract, retain, train, motivate,
develop, and transition qualified executives and other key employees, including those in managerial, manufacturing, and engineering positions.
Competition for experienced employees in the aerospace industry, and particularly in Wichita, Kansas, where the majority of our manufacturing
and executive offices are located, is intense. Our ability to attract and retain qualified executives and other key employees depends
on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent.
The location of our offices, particularly our headquarters in Wichita, Kansas, and our remote working arrangements may not meet the needs
or expectations of our employees, including senior management or other key employees, or may not be viewed as competitive, which could
negatively impact our ability to attract and retain highly skilled employees.
The failure to successfully hire executives, including
a new chief executive officer, and key employees or to implement succession plans for executives and key employees, or the loss of any
executives and key employees, could have a significant impact on our operations. Further, changes in our management team may be disruptive
to our business and any failure to successfully transition and assimilate key new hires or promoted employees could adversely affect our
business and results of operations. In particular, we have to incur costs to replace executives or other key employees who leave, and
our ability to execute our business strategy could be impaired if we are unable to replace such persons in a timely manner or at all.
In addition, the Company’s operations and strategy require that
we employ a critical mass of highly skilled employees with industry experience and engineering, technical, or mechanical skills. As the
Company experiences an increase in retirements, the level of skill replacing our experienced workers is being impacted due to the availability
of skilled labor in the market and low unemployment rates. As the Company has expanded its defense business, the Company faces risks related
to its ability to hire and retain individuals who have, are able to obtain, a security clearance. Our inability to attract and retain
skilled employees may adversely impact our ability to meet our customers’ expectations, the cost and schedule of development projects,
and the cost and efficiency of existing operations.
Increases in labor costs, potential labor disputes, and work
stoppages at our facilities or the facilities of our suppliers or customers have impacted, and could materially adversely affect,
our financial performance.
Our financial performance is affected by the availability of qualified
personnel and the cost of labor. A majority of our workforce is represented by unions. If we were unable to renew major labor agreements
at expiration, or if our workers were to engage in a strike, work stoppage, or other slowdown, we could experience a significant disruption
of our operations, which could cause us to be unable to deliver products to our customers on a timely basis and could result in a breach
of our supply agreements. This could result in a loss of business and an increase in our operating expenses, which could have a material
adverse effect on our business, financial condition, and results of operations. For example, on June 21, 2023, employees represented
by the International Association of Machinists and Aerospace Workers (“IAM”) voted
to reject the Company’s contract offer and strike. In response, the Company suspended its Wichita operations and IAM represented
employees began to strike following the expiration of the contract on June 24, 2023. Although a new contract was ratified by IAM-represented
employees on June 29, 2023, our labor costs will be higher than the previous IAM contract by approximately $80.0 million annually
and we incurred strike disruption charges, changes in estimates during the period related to higher wages and other employee benefits
resulting from the new contract and a reduction in deliveries of certain aircraft, including the B737, which will negatively impact expected
revenue, earnings and cash flow. Any future strike or similar disruption could have similar adverse impacts. In addition, our non-unionized
labor force may become subject to labor union organizing efforts, which could cause us to incur additional labor costs and increase the
related risks that we now face.
Due to the receipt of occasional government incentives, we have certain
commitments to keep our programs in their current locations. This may prevent us from being able to offer our products at prices that
are competitive in the marketplace and could have a material adverse effect on our ability to generate new business.
In addition, many aircraft manufacturers, airlines, and aerospace suppliers,
including certain of our customers, have unionized work forces. Any strikes, work stoppages, or slowdowns experienced by aircraft manufacturers,
airlines, or aerospace suppliers could reduce our customers’ demand for additional aircraft structures or prevent us from completing
production of our aircraft structures. Union negotiations, strikes, work stoppages, or slowdowns at our customers could also directly
or indirectly impact our business.
We could be required to make future contributions to our defined
benefit pension and post-retirement benefit plans and our costs may substantially increase in connection with such plans as a result of
adverse changes in interest rates and the capital markets, changes in actuarial assumptions and legislative or other regulatory actions.
Our estimates of liabilities and expenses for pensions and other post-retirement
benefits incorporate significant assumptions including the rate used to discount the future estimated liability, the long-term rate of
return on plan assets, and several assumptions relating to the employee workforce (salary increases, medical costs, retirement age, and
mortality). A dramatic decrease in the fair value of our plan assets resulting from movements in the financial markets or a decrease in
discount rates may cause the status of our plans to go from an over-funded status to an under-funded status and result in cash funding
requirements to meet any minimum required funding levels. Our results of operations, liquidity, or shareholders’ equity in a particular
period could be affected by a decline in the rate of return on plan assets, the rate used to discount the future estimated liability,
or changes in employee workforce assumptions.
In 2020, we acquired the outstanding equity of Short Brothers plc (“Shorts”)
and Bombardier Aerospace North Africa SAS (“BANA”), and substantially all the assets of the maintenance, repair and overhaul
business in Dallas, Texas, along with the assumption of certain liabilities of Shorts and BANA. Shorts sponsors the Shorts Pension, a
defined benefit pension plan that is closed to new participants. The Shorts Pension closed to the future accrual of additional benefits
for current participants at the end of 2021.
Following future valuations of the Shorts Pension’s assets and
liabilities or following future discussions with the Shorts Pension’s trustee, the annual funding obligation and/or the arrangements
to ensure adequate funding for the Shorts Pension may change. The future valuations under the Shorts Pension are affected by a number
of assumptions and factors, including legislative or other regulatory changes; assumptions regarding interest rates, currency rates, inflation,
mortality, and retirement rates; the investment strategy and performance of the Shorts Pension’s assets; and actions by the U.K.
Pensions Regulator. Recent volatile economic conditions have increased the risk that the funding requirements increase following the next
triennial valuation. The U.K. Pensions Regulator also has powers under the Pensions Act 2004 to impose a contribution notice or a financial
support direction on Shorts (and other persons connected with the Company or Shorts) if, in the case of a contribution notice, the U.K.
Pensions Regulator reasonably believes such person has been party to an act, or deliberate failure to act, intended to avoid pension liabilities
or that is materially detrimental to the pension plan, or, in the case of a financial support direction, if a plan employer is a service
company or insufficiently resourced and the Pensions Regulator considers it is reasonable to act against such a person. A significant
increase in the funding requirements for Shorts Pension could result in the imposition of additional financial contributions to the Shorts
Pension and, if such required contributions are significant, could have a material adverse effect on Shorts or our business, financial
condition, and results of operations.
Risks Related to our Debt, Liquidity, Financial Estimates and Taxes
Declines in our financial condition and performance and reductions
in our credit ratings have increased our borrowing costs and adversely affected the market price of our securities. Any additional declines
could further impact our borrowing costs, impact the market price of our securities or limit our ability to obtain future financing or
otherwise impair our business, financial condition, and results of operations.
Our business requires significant capital. Declines in our financial
condition or performance for any reason have increased our borrowing costs and affected the market price of our securities, and could
in the future further increase our borrowing costs, impact the market price of our securities or limit our ability to access the credit
and capital markets. There can be no assurance that we will be able to access the capital or credit markets or, if we do have such access,
that it will be on favorable terms.
As of September 28, 2023, our corporate credit ratings were B
by Standard & Poor’s Global Ratings, and B2 by Moody’s Investors Service, Inc. These ratings and our current
credit condition affects, among other things, our ability to access new capital. Negative changes to these ratings have in the past resulted
in, and may in the future result in, more stringent covenants and higher interest rates under the terms of any new debt.
The ratings reflect, among other things, the agencies’ assessment
of our ability to pay interest and principal on our debt securities and credit agreements. A rating is not a recommendation to purchase,
sell, or hold securities. Each rating is subject to revision or withdrawal at any time by the assigning rating organization. Each rating
agency has its own methodology for assigning ratings and, accordingly, each rating should be considered independently of all other ratings.
Lower ratings would typically result in higher interest costs of debt securities when they are sold, could make it more difficult to issue
future debt securities, could require us to provide creditors with more restrictive covenants, which would limit our flexibility and ability
to pay dividends and may require us to pledge additional collateral under our credit facility. Any downgrade in our credit ratings could
have a material adverse effect on our business or financial condition.
Limitations on our ability to access the capital or credit markets,
unfavorable terms or general reductions in liquidity may adversely and materially impact our business, financial condition, and results
of operations.
Our debt could adversely
affect our financial condition and our ability to operate our business due to significant restrictions in our Credit Agreement, which
could also adversely affect our operating flexibility and put us at a competitive disadvantage.
As of September 28, 2023,
we had total debt of $3,875.2 million. In addition to our debt, as of September 28, 2023, we had $22.8 million
of letters of credit and letters of guarantee outstanding.
Our significant indebtedness could adversely affect our business, results
of operations and financial condition in a number of ways by, among other things:
| ● | making it more difficult for us to satisfy our obligations with respect to our debt; |
| ● | limiting our ability to obtain additional financing to fund future working capital, capital expenditures, strategic acquisitions or
other general corporate requirements; |
| ● | requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes; |
| ● | increasing our vulnerability to general adverse economic and industry conditions; |
| ● | limiting our financial flexibility in planning for and reacting to changes in the industry in which we compete; |
| ● | having a material adverse effect on us if we fail to comply with the covenants in the Credit Agreement or in the indentures governing
our long-term bonds or in the instruments governing our other debt; and |
| ● | increasing our cost of borrowing. |
The terms of our Credit Agreement
impose significant restrictions on us, and subject to certain exceptions, limit our ability, among other things, to:
| ● | incur additional debt or issue preferred stock with certain terms; |
| ● | pay dividends or make distributions to our stockholders over certain amounts; |
| ● | repurchase or redeem our capital stock; |
| ● | enter into transactions with our stockholders and affiliates; |
| ● | acquire the assets of, or merge or consolidate with, other companies; |
| ● | incur restrictions on the ability of our subsidiaries to make distributions or transfer assets to us; and |
| ● | enter into strategic transactions. |
We cannot assure you that we will be able to maintain compliance with
the covenants in the agreements governing our indebtedness in the future or, if we fail to do so, that we will be able to obtain waivers
from the lenders and/or amend the covenants. Additionally, the terms of any future indebtedness we may incur could include more restrictive
covenants. If we incur additional debt, the risks related to our high level of debt could intensify.
As of September 28, 2023, we had $374.1 in cash and cash equivalents.
If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to refinance all or
a portion of our debt, sell material assets or operations, or raise additional debt or equity capital. We cannot provide assurance that
we could affect any of these actions on a timely basis, on commercially reasonable terms or at all, or that these actions would be sufficient
to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from effecting certain
or any of these alternatives.
We use estimates in accounting for revenue and cost for our contracts.
Changes in our estimates have materially adversely affected, and could in the future materially adversely affect, our financial performance.
The Company recognizes revenue using the principles of Accounting Standards
Codification (“ASC”) Topic 606, Revenue from contracts with customers (“ASC 606”), and estimates revenue and cost
for contracts that span a period of multiple years. This method of accounting requires judgment on a number of underlying assumptions
to develop our estimates such as favorable trends in volume, learning curve efficiencies, and future pricing from suppliers that reduce
our production costs. However, several factors may cause the costs we incur in fulfilling these contracts to vary substantially from our
original estimates such as technical problems, delivery reductions, materials shortages, supplier difficulties, strikes and production
pauses, realization targets, existence and execution of factory recovery plans caused by these factors, and other factors. Other than
certain increases in raw material costs that can generally be passed on to our customers, in most instances we must fully absorb cost
overruns. Due to the significant length of time over which some revenue streams are generated, the variability of future period estimated
revenue and cost may be adversely affected if circumstances or underlying assumptions change. Our estimated costs have exceeded our estimated
revenues under fixed-price contracts in the past, and we have been required to recognize a forward loss on the affected programs, which
has had a material adverse effect on our results of operations, and this could recur in the future. The risk particularly applies to products
such as the B787, A220, and A350, in that our performance at the contracted price depends on our being able to achieve production cost
reductions as we gain production efficiencies. We have incurred forward loss charges on these programs, and further production rate changes
or claims relating to inspection and rework requests may result in additional incremental forward loss charges.
Further, some of our long-term supply agreements, such as the Sustaining
Agreement and the agreement for the B787 program, provide for the re-negotiation of established pricing terms at specified times in the
future. Negotiations have in the past resulted, and could in the future result, in costs that exceed our revenue under a fixed-price contract,
or operating margins that are lower than our current margins, and we have in the past and may in the future need to recognize a forward
loss on the affected program, which has had and could have a material adverse effect on our results of operations.
Additionally, variability of future period estimated revenue and cost
has resulted, and may in the future result, in recording additional valuation allowances against future deferred tax assets, which could
adversely affect our future financial performance.
We may not be able to generate sufficient taxable income to fully
realize our deferred tax assets.
At December 31, 2022, we have recognized a valuation allowance
against nearly all of our net deferred tax assets. Changes that are adverse to the Company could result in the need to record additional
deferred tax asset valuation allowances resulting in a charge to results of operations and a decrease to total stockholders’ equity.
Risks Related to our Common Stock
We cannot assure you that we will declare and pay cash dividends
on our Common Stock at historical levels or at all.
In 2020, the Company announced that its Board of Directors, or Board,
reduced its quarterly dividend to a penny per share to preserve liquidity, and in the fourth quarter of 2022, the Board decided to suspend
the Company’s quarterly cash dividend. We cannot assure you that we will resume declaring and paying cash dividends on our Common
Stock at historical levels or at all. The Board regularly evaluates the Company’s capital allocation strategy and dividend policy.
Any future determination to pay dividends will be at the discretion of our Board and will depend upon, among other factors, our results
of operations, financial condition, capital requirements and contractual restrictions, including the requirements of financing agreements
to which we may be a party. No assurance can be given that cash dividends will be declared and paid at historical levels or at all.
Spirit Holdings’ certificate of incorporation, by-laws
and our supply agreements with Boeing contain provisions that could discourage others from acquiring us and may prevent attempts by our
stockholders to replace or remove our current management.
Provisions of Spirit Holdings’ certificate of incorporation and
by-laws may discourage, delay, or prevent a merger or acquisition that stockholders may consider favorable, including transactions in
which stockholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempts
by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace or remove our
current Board. These provisions include:
| ● | advance notice requirements for nominations for election to the Board or for proposing matters that can be acted on by stockholders
at stockholder meetings; and |
| ● | the authority of the Board to issue, without stockholder approval, up to 10 million shares of preferred stock with such terms as the
Board may determine. |
In addition, our supply agreements with Boeing include provisions giving
Boeing the ability to terminate the agreements in the event any of certain disqualified persons acquire a majority of Spirit’s direct
or indirect voting power or all or substantially all of Spirit’s assets. The MOA with Boeing provides that Spirit cannot, without
incurring significant costs, assign any of its rights or interest in (which includes certain specified change of control events set forth
in the MOA) the supply agreements or an order without Boeing’s prior written consent, which will not be unreasonably withheld consistent
with existing obligations, except that Boeing may withhold its consent to an assignment to a disqualified person (which includes any person
to which Boeing does not consent in its sole discretion) for any reason and at its sole discretion. These provisions in our agreements
with Boeing could discourage others from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.
Certain other agreements with suppliers or customers contain similar provisions that could also discourage others from acquiring us or
prevent attempts to replace or remove our management.
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