UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33160

Spirit AeroSystems Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		20-2436320
(State of Incorporation)		(I.R.S. Employer
		Identification Number)

3801 South Oliver
Wichita, Kansas 67210
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
(316) 526-9000

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o

     Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ   No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ

     As of August 2, 2010, the registrant had outstanding 106,867,704 shares of class A common stock, $0.01 par value per share and 35,429,705 shares of class B common stock, $0.01 par value per share.

 

 

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures About Market Risk			47
Item 4. Controls and Procedures			47
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			47
Item 6. Exhibits			48
Signatures			49
EXMPLOYMENT AGREEMENT - MICHELLE RUSSELL
CERTIFICATION OF CEO PURSUANT TO SECTION 302
CERTIFICATION OF CFO PURSUANT TO SECTION 302
CERTIFICATION OF CEO PURSUANT TO SECTION 906
CERTIFICATION OF CFO PURSUANT TO SECTION 906
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Statements of Operations
(unaudited)

		For the Three								For the Six
		Months Ended								Months Ended
		July 1, 2010				July 2, 2009				July 1, 2010				July 2, 2009
		($ in millions, except per share data)
Net revenues		$	1,056.0			$	1,059.6			$	2,099.3			$	1,947.0
Operating costs and expenses
Cost of sales			919.6				1,021.6				1,820.7				1,758.9
Selling, general and administrative			38.1				34.7				77.4				73.1
Research and development			12.6				13.7				22.5				27.6
Total operating costs and expenses			970.3				1,070.0				1,920.6				1,859.6
Operating income (loss)			85.7				(10.4	)			178.7				87.4
Interest expense and financing fee amortization			(13.8	)			(9.8	)			(27.8	)			(18.9	)
Interest income			0.1				2.0				0.2				4.6
Other income (expense), net			2.7				4.2				(2.8	)			5.7
Income (loss) before income taxes and equity in net loss of affiliates			74.7				(14.0	)			148.3				78.8
Income tax benefit (provision)			(19.6	)			5.8				(37.4	)			(24.4	)
Income (loss) before equity in net loss of affiliates			55.1				(8.2	)			110.9				54.4
Equity in net loss of affiliates			—				(0.1	)			(0.3	)			—
Net income (loss)		$	55.1			$	(8.3	)		$	110.6			$	54.4
Earnings (loss) per share
Basic		$	0.40			$	(0.06	)		$	0.80			$	0.39
Diluted		$	0.39			$	(0.06	)		$	0.79			$	0.39

See notes to condensed consolidated financial statements (unaudited)

Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Balance Sheets
(unaudited)

		July 1,				December 31,
		2010				2009
		($ in millions)
Current assets
Cash and cash equivalents		$	117.6			$	369.0
Accounts receivable, net			270.1				160.4
Inventory, net			2,375.3				2,206.9
Deferred tax asset-current			55.0				55.8
Other current assets			36.7				60.8
Total current assets			2,854.7				2,852.9
Property, plant and equipment, net			1,357.0				1,279.3
Pension assets			182.6				171.2
Deferred tax asset-non-current			86.4				95.8
Other assets			62.3				74.6
Total assets		$	4,543.0			$	4,473.8
Current liabilities
Accounts payable		$	473.5			$	441.3
Accrued expenses			176.4				165.5
Current portion of long-term debt			6.7				9.1
Advance payments, short-term			219.4				237.4
Deferred revenue, short-term			95.6				107.1
Other current liabilities			20.7				21.8
Total current liabilities			992.3				982.2
Long-term debt			886.5				884.7
Advance payments, long-term			671.1				727.5
Deferred revenue and other deferred credits			40.3				46.0
Pension/OPEB obligation			66.1				62.6
Deferred grant income liability			134.7				129.3
Other liabilities			52.2				67.7
Shareholders’ equity
Preferred stock, par value $0.01, 10,000,000 shares authorized, no shares issued			—				—
Common stock, Class A par value $0.01, 200,000,000 shares authorized, 105,993,873 and 105,064,561 shares issued, respectively			1.1				1.0
Common stock, Class B par value $0.01, 150,000,000 shares authorized, 35,221,084 and 35,669,740 shares issued, respectively			0.4				0.4
Additional paid-in capital			974.4				949.8
Accumulated other comprehensive loss			(69.0	)			(59.7	)
Retained earnings			792.4				681.8
Total shareholders’ equity			1,699.3				1,573.3
Noncontrolling interest			0.5				0.5
Total equity			1,699.8				1,573.8
Total liabilities and equity		$	4,543.0			$	4,473.8

See notes to condensed consolidated financial statements (unaudited)

Spirit AeroSystems Holdings, Inc.

Condensed Consolidated Statements of Cash Flows
(unaudited)

		For the Six				For the Six
		Months Ended				Months Ended
		July 1, 2010				July 2, 2009
		($ in millions)
Operating activities
Net income		$	110.6			$	54.4
Adjustments to reconcile net income to net cash (used in) operating activities
Depreciation expense			55.2				62.2
Amortization expense			2.1				2.0
Amortization of deferred financing fees			4.3				2.7
Accretion of long-term receivable			—				(4.5	)
Employee stock compensation expense			21.6				6.0
Excess tax benefit of share-based payment arrangements			(3.1	)			—
(Gain) loss from foreign currency transactions			6.7				(4.7	)
(Gain) on disposition of assets			(0.1	)			—
Deferred tax			7.9				(4.6	)
Long-term tax benefit			(17.5	)			—
Pension and other post retirement benefits, net			(5.7	)			1.0
Grant income			(0.6	)			(0.5	)
Equity in net loss of affiliates			0.3				—
Changes in assets and liabilities
Accounts receivable			(119.5	)			(109.4	)
Inventory, net			(172.2	)			(203.0	)
Accounts payable and accrued liabilities			50.2				109.2
Advance payments			(74.4	)			(43.7	)
Deferred revenue and other deferred credits			(14.8	)			(45.7	)
Income taxes receivable/payable			26.4				(37.6	)
Other			5.3				0.2
Net cash (used in) operating activities			(117.3	)			(216.0	)
Investing activities
Purchase of property, plant and equipment			(130.6	)			(106.7	)
Long-term receivable			—				57.7
Other			(0.7	)			0.7
Net cash (used in) investing activities			(131.3	)			(48.3	)
Financing activities
Proceeds from revolving credit facility			—				250.0
Payments on revolving credit facility			—				(100.0	)
Principal payments of debt			(5.9	)			(3.9	)
Proceeds from government grants			—				0.6
Debt issuance and financing costs			—				(10.2	)
Excess tax benefit of share-based payment arrangements			3.1				—
Net cash provided by (used in) financing activities			(2.8	)			136.5
Effect of exchange rate changes on cash and cash equivalents			—				0.2
Net (decrease) in cash and cash equivalents for the period			(251.4	)			(127.6	)
Cash and cash equivalents, beginning of period			369.0				216.5
Cash and cash equivalents, end of period		$	117.6			$	88.9
Supplemental information
Property acquired through capital leases		$	5.4			$	1.9

See notes to condensed consolidated financial statements (unaudited)

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

1. Organization and Basis of Interim Presentation

     Spirit AeroSystems Holdings, Inc. (“Holdings” or the “Company”) was incorporated in the state of Delaware on February 7, 2005, and commenced operations on June 17, 2005 through the acquisition of The Boeing Company’s (“Boeing”) operations in Wichita, Kansas, Tulsa, Oklahoma and McAlester, Oklahoma (the “Boeing Acquisition”). Holdings provides manufacturing and design expertise in a wide range of products and services for aircraft original equipment manufacturers and operators through its subsidiary, Spirit AeroSystems, Inc. (“Spirit”). Onex Corporation (“Onex”) of Toronto, Canada maintains majority voting power of Holdings. In April 2006, Holdings acquired the aerostructures division of BAE Systems (Operations) Limited (“BAE Aerostructures”), which builds structural components for Airbus, a division of the European Aeronautic Defense and Space NV (“Airbus”), Boeing and Hawker Beechcraft Corporation. Prior to this acquisition, Holdings sold essentially all of its production to Boeing. Since Spirit’s incorporation, the Company has expanded its customer base to include Sikorsky, Rolls-Royce, Gulfstream, Bombardier, Mitsubishi Aircraft Corporation, Southwest Airlines, and Continental Airlines. The Company has its headquarters in Wichita, Kansas, with manufacturing facilities in Tulsa and McAlester, Oklahoma; Prestwick, Scotland; Wichita, Kansas; and Subang, Malaysia, which produces composite panels for wing components. In July 2010, the Company opened its new 500,000 square-foot manufacturing facility in Kinston, North Carolina, which is designed to initially produce components for the Airbus A350 XWB aircraft. An assembly plant is being constructed for the A350 XWB (Xtra Wide-Body) aircraft in Saint-Nazaire, France, and is expected to be operational by the third quarter of 2010.

     The Company is the majority participant in the Kansas Industrial Energy Supply Company (“KIESC”), a tenancy-in-common with other Wichita companies established to purchase natural gas.

     The Company participates in two joint ventures, Spirit-Progresstech LLC (“Spirit-Progresstech”) and Taikoo Spirit AeroSystems Composite Co. Ltd. (“TSACCL”), of which Spirit’s ownership interest is 50.0% and 31.5%, respectively. Spirit-Progresstech provides aerospace engineering support services and TSACCL was formed to develop and implement a state-of-the-art composite and metal bond component repair station in the Asia-Pacific region.

     The accompanying unaudited interim condensed consolidated financial statements include the Company’s financial statements and the financial statements of its majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Article 10 of Regulation S-X. Investments in business entities in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies (generally 20% to 50% ownership), including Spirit-Progresstech and TSACCL, are accounted for under the equity method. KIESC is fully consolidated as the Company owns 77.8% of the entity’s equity. All intercompany balances and transactions have been eliminated in consolidation. The Company’s U.K. subsidiary uses local currency, the British pound, as its functional currency. All other foreign subsidiaries use local currency as their functional currency with the exception of our Malaysian subsidiary, which uses the British pound, and our French subsidiary, which uses the U.S. dollar.

     As part of the monthly consolidation process, the functional currencies of our international subsidiaries are translated to U.S. dollars using the end-of-month translation rate for balance sheet accounts and average period currency translation rates for revenue and income accounts.

     In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations for the interim periods. The results of operations for the six months ended July 1, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. Certain reclassifications have been made to the prior year financial statements and notes to conform to the 2010 presentation. The interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in our 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 26, 2010.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

2. New Accounting Pronouncements

     In February 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASC) No. 2010-09, Subsequent Events (Topic 855) — Amendments to Certain Recognition and Disclosure Requirements, which stated, among other things, that filers with the SEC are not required to disclose the date through which an entity has evaluated subsequent events. The guidance was effective upon issuance and did not have a material impact on the Company’s consolidated financial statements.

     In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Instruments, which, among other things, expands disclosures on recurring fair value measurements, including activity, transfers and reconciliation of asset and liability classes, using Levels 1, 2 and 3 as defined. The guidance also clarifies existing disclosures on levels of disaggregation between such classes and input and valuation techniques used to measure recurring and nonrecurring Level 2 or Level 3 fair value measurements. This guidance was effective for the Company’s first quarter reporting of 2010, except for the requirement related to purchases, sales, issuances, and settlements in the roll forward activity of Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Adoption of FASB ASU 2010-06 did not have a material effect on the Company’s consolidated financial statements.

     In January 2010, FASB issued Accounting Standards Update No. 2010-02, Consolidation (Topic 810) — Accounting and Reporting for Decreases in Ownership of a Subsidiary — A Scope Clarification, which expands the disclosure requirements about deconsolidation of a subsidiary or derecognition of a group of assets. The guidance in this update is effective for periods beginning in the first interim or annual reporting period ending on or after December 15, 2009 and thus was effective for the Company’s first quarter reporting in 2010. Adoption of FASB ASU 2010-02 did not have a material impact on the Company’s consolidated financial statements.

     In December 2009, FASB issued Accounting Standards Update No. 2009-17, Consolidation (Topic 810) — Improvements to Financial Reporting by Enterprises with Variable Interest Entities to incorporate the changes made by FASB Statement No. 167 into the FASB Codification. The guidance in this update is effective for periods beginning after November 15, 2009 and thus was effective for the Company’s first quarter reporting in 2010. Adoption of FASB ASU 2009-17 did not have a material impact on the Company’s consolidated financial statements.

3. Accounts Receivable

     Accounts receivable, net consists of the following:

		July 1,				December 31,
		2010				2009
Trade receivables		$	261.5			$	151.7
Other			8.6				8.8
Total			270.1				160.5
Less: allowance for doubtful accounts			—				(0.1	)
Accounts receivable, net		$	270.1			$	160.4

4. Inventory

     Inventories are summarized as follows:

		July 1,				December 31,
		2010				2009
Raw materials		$	187.7			$	209.1
Work-in-process			1,685.7				1,526.0
Finished goods			34.6				30.8
Product inventory			1,908.0				1,765.9
Capitalized pre-production			467.3				441.0
Total inventory, net		$	2,375.3			$	2,206.9

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

     Inventories are summarized by platform as follows:

		July 1,				December 31,
		2010				2009
B737		$	286.1			$	298.4
B747(1)			185.9				140.6
B767			19.0				18.5
B777			135.2				146.3
B787(2)			1,013.6				896.3
Airbus — All platforms			124.9				129.9
Gulfstream(3)			449.2				365.8
Rolls-Royce			63.3				55.5
Cessna Citation Columbus(4)			22.7				23.0
Aftermarket			30.2				29.3
Other in-process inventory related to long-term contracts and other programs(5)			45.2				103.3
Total inventory		$	2,375.3			$	2,206.9

     Capitalized pre-production costs include certain contract costs, including applicable overhead, incurred before a product is manufactured on a recurring basis. These costs are typically recovered over a certain number of ship set deliveries and the Company believes these amounts will be fully recovered.

     The following is a roll forward of the capitalized pre-production included in the inventory balance at July 1, 2010:

Balance, December 31, 2009		$	441.0
Charges to costs and expenses			(6.1	)
Capitalized costs			32.4
Exchange rate			—
Total capitalized pre-production, July 1, 2010		$	467.3

     At July 1, 2010, work-in-process inventory included $615.8 of deferred production costs, which is comprised of $560.8 related to the B787, $75.7 on certain other contracts for the excess of production costs over the estimated average cost per ship set, and $(20.7) of credit balances for favorable variances on other contracts between actual costs incurred and the estimated average cost per ship set for units delivered under the current production blocks. These balances were $457.4, including $412.9 related to the B787 and $50.5 for certain other contracts, and $(6.0) of credit balances for favorable variances on other contracts between actual costs incurred and the estimated cost per ship set for units delivered under the current production blocks, respectively, at December 31, 2009. Recovery of excess over average deferred production costs is dependent on the number of ship sets ultimately sold and the ultimate selling prices and lower production costs associated with future production under these contract blocks. The Company believes these amounts will be fully recovered.

     Sales significantly under estimates or costs significantly over estimates could result in the realization of losses on these contracts in future periods.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

     The following is a roll forward of the deferred production included in the inventory balance at July 1, 2010:

Balance, December 31, 2009		$	457.4
Charges to costs and expenses			(77.2	)
Capitalized costs (1)			237.8
Exchange rate			(2.2	)
Total deferred production, July 1, 2010		$	615.8

     The following is a roll forward of the inventory obsolescence and surplus reserve included in the inventory balance at July 1, 2010:

Balance, December 31, 2009		$	15.1
Charges to costs and expenses			7.0
Write-offs, net of recoveries			(3.8	)
Exchange rate			(0.1	)
Total inventory obsolescence and surplus reserve, July 1, 2010		$	18.2

5. Property, Plant and Equipment

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

		July 1,				December 31,
		2010				2009
Land		$	16.7			$	17.7
Buildings (including improvements)			379.3				258.1
Machinery and equipment			550.2				503.4
Tooling			499.6				488.5
Capitalized software			122.0				121.4
Construction in progress			268.4				316.3
Total			1,836.2				1,705.4
Less: accumulated depreciation			(479.2	)			(426.1	)
Property, plant and equipment, net		$	1,357.0			$	1,279.3

     In January 2010, we adopted a change in accounting estimate which extended the useful lives of certain assets. The effect of this change was a decrease in depreciation charges to inventory of $6.2 for the six month period ended July 1, 2010, which will eventually flow through cost of sales following the process for contract accounting.

     Interest costs associated with construction-in-progress are capitalized until the assets are completed and ready for use. Capitalized interest was $2.9 and $0.7 for the three months ended July 1, 2010 and July 2, 2009, respectively, and $5.5 and $2.5 for the six months ended July 1, 2010 and July 2, 2009, respectively. Repair and maintenance costs are expensed as incurred. The Company recognized $24.5 and $23.9 of repair and maintenance expense for the three months ended July 1, 2010 and July 2, 2009, respectively, and $45.1 and $44.2 for the six months ended July 1, 2010 and July 2, 2009, respectively.

     We capitalize certain costs, such as software coding, installation and testing, that are incurred to purchase or to create and implement internal use computer software in accordance with FASB authoritative guidance pertaining to capitalization of costs for internal use software. Depreciation expense related to capitalized software was $4.1 and $3.5 for the three months ended July 1, 2010 and July 2, 2009, respectively, and $7.9 and $7.3 for the six months ended July 1, 2010 and July 2, 2009, respectively.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

6. Other Assets

     Other assets are summarized as follows:

		July 1,				December 31,
		2010				2009
Intangible assets
Patents		$	2.0			$	2.0
Favorable leasehold interests			9.7				9.7
Customer relationships			25.9				28.1
Total intangible assets			37.6				39.8
Less: Accumulated amortization-patents			(0.8	)			(0.7	)
Accumulated amortization-favorable leasehold interest			(3.3	)			(3.1	)
Accumulated amortization-customer relationships			(13.8	)			(13.2	)
Intangible assets, net			19.7				22.8
Deferred financing costs, net			21.0				25.0
Fair value of derivative instruments			1.4				1.2
Goodwill — Europe			2.8				3.0
Equity in net assets of affiliates			4.3				3.9
Other			13.1				18.7
Total		$	62.3			$	74.6

     Deferred financing costs are recorded net of $25.5 and $21.4 of accumulated amortization at July 1, 2010 and December 31, 2009, respectively. In 2009, the Company incurred $10.2 of additional deferred financing costs in connection with the amendment to its revolving credit facility and $7.2 of additional deferred financing costs in connection with the issuance and registration of its long-term bonds.

     The Company recognized $1.0 and $1.1 of amortization expense of intangibles for the three months ended July 1, 2010 and July 2, 2009, respectively, and $2.0 for each of the six month periods ended July 1, 2010 and July 2, 2009.

     The following is a roll forward of the carrying amount of goodwill at July 1, 2010:

Balance, December 31, 2009		$	3.0
Goodwill acquired			—
Exchange rate			(0.2	)
Total goodwill, July 1, 2010		$	2.8

7. Advance Payments and Deferred Revenue/Credits

     Advance payments. Advance payments are those payments made to Spirit by third parties in contemplation of the future performance of services, receipt of goods, incurrence of expenditures, or for other assets to be provided by Spirit on a contract and are repayable if such obligation is not satisfied. The amount of advance payments to be recovered against units expected to be delivered within a year is classified as a short-term liability, with the balance of the unliquidated advance payments classified as a long-term liability.

     Deferred revenue. Deferred revenue consists of nonrefundable amounts received in advance of revenue being earned for specific contractual deliverables. These payments are classified as deferred revenue when received and recognized as revenue as the production units are delivered.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

     Advance payments and deferred revenue/credits are summarized by platform as follows:

		July 1,				December 31,
		2010				2009
B737		$	45.7			$	59.8
B747			2.8				3.0
B787			845.0				924.3
Airbus — All platforms			70.6				66.8
Gulfstream			45.6				42.5
Other			16.7				21.6
Total advance payments and deferred revenue/credits		$	1,026.4			$	1,118.0

8. Government Grants

     As part of our site construction projects in Kinston, North Carolina and Subang, Malaysia, we have the benefit of grants related to government funding of a portion of these buildings and other specific capital assets. Due to the terms of the lease agreements, we are deemed to own the construction projects. During the construction phase of the facilities, as amounts eligible under the terms of the grants are expended, we will record that spending as property, plant and equipment (construction-in-progress) and deferred grant income liability (less the present value of any future minimum lease payments). Upon completion of the facilities, the deferred grant income will be amortized as a reduction to production cost. This amortization is based on specific terms associated with the different grants. In North Carolina, the deferred grant income related to the capital investment criteria, which represents half of the grant, will be amortized over the lives of the assets purchased to satisfy the capital investment performance criteria. The other half of the deferred grant income will be amortized over a ten-year period in a manner consistent with the job performance criteria. In Malaysia, the deferred grant income will be amortized based on the lives of the eligible assets constructed with the grant funds as there are no performance criteria. As of July 1, 2010, we recorded $134.7 within property, plant and equipment and deferred grant income liability related to the use of grant funds in North Carolina and Malaysia. Of this amount, $134.4 in property, plant and equipment represents transactions where funds have been paid directly to contractors by an agency of the Malaysian Government in the case of Malaysia, and by the escrow agent in North Carolina, so they are not reflected on the Condensed Consolidated Statements of Cash Flows.

     Deferred grant income liability, net consists of the following:

		July 1,				December 31,
		2010				2009
Beginning Balance		$	129.3			$	38.8
Grant liability recorded			8.9				89.2
Grant income recognized			(0.6	)			(1.9	)
Exchange rate			(2.9	)			3.2
Total deferred grant income liability		$	134.7			$	129.3

     The asset related to the deferred grant income, net consists of the following:

		July 1,				December 31,
		2010				2009
Beginning Balance		$	129.3			$	38.8
Amount paid by Spirit (reimbursed by third parties)			—				0.7
Amount paid by agency/escrow agent			8.9				88.5
Depreciation offset to amortization of grant income			(0.6	)			(1.9	)
Exchange rate			(2.9	)			3.2
Total asset value related to deferred grant income		$	134.7			$	129.3

9. Derivative and Hedging Activities

     The Company enters into interest rate swap agreements to reduce its exposure to the variable rate portion of its long-term debt. The Company also enters into foreign currency hedge contracts to reduce the risks associated with the changes in foreign exchange rates on sales and cost of sales denominated in currencies other than the entities’ functional currency. Any gains or losses on the hedges are included in earnings when the underlying transaction that was hedged occurs. The Company does not use these contracts for speculative or trading purposes. On the inception date, the Company designates a derivative contract as either a fair value or cash flow hedge in accordance with FASB guidance on accounting for derivatives and hedges and links the contract to either a specific asset or liability on the balance sheet, or to forecasted commitments or transactions. The Company formally documents the hedging relationship between the hedging instrument and the

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

hedged item as well as its risk-management objective and strategy for undertaking the hedge, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge’s inception and on a quarterly basis, whether the derivative item is effective in offsetting changes in fair value or cash flows.

     Changes in the fair value of derivative instruments considered to be effective hedges are reported in accumulated other comprehensive income, net of tax. In the case of interest rate swaps, amounts are subsequently reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings. If the actual interest rate on the fixed rate portion of debt is less than LIBOR, the monies received are recorded as an offset to interest expense. Conversely, if the actual interest rate on the fixed rate portion of debt is greater than LIBOR, then the Company pays the difference, which is recorded to interest expense. Reclassifications of the amounts related to the foreign currency hedge contracts are recorded to earnings in the same period in which the underlying transaction occurs. Any change in the fair value resulting from ineffectiveness is immediately recognized in earnings.

     The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has applied these valuation techniques as of July 1, 2010 and believes it has obtained the most accurate information available for the types of derivative contracts it holds. The Company attempts to manage exposure to counterparty credit risk by only entering into agreements with major financial institutions which are expected to be able to fully perform under the terms of the agreement.

     The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item; the derivative expires or is sold, terminated or exercised; the derivative is no longer designated as a hedging instrument because it is unlikely that a forecasted transaction will occur; or management determines that the designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued, the Company continues to carry the derivative instrument on the balance sheet at its fair value with subsequent changes in fair value included in earnings, and gains and losses that were accumulated in other comprehensive income are recognized immediately in earnings.

     To the extent that derivative instruments do not qualify for hedge accounting treatment, the changes in fair market value of the instruments are reported in the results of operations for the current period.

     The Company enters into master netting arrangements for its derivatives to mitigate the credit risk of financial instruments.

     The Company’s hedge agreements do not include provisions requiring collateral. The Company has certain derivative instruments covered by master netting arrangements whereby, in the event of a default as defined by the senior secured credit facility or termination event, the non-defaulting party has the right to offset any amounts payable against any obligation of the defaulting party under the same counterparty agreement.

     The entire asset classes of the Company, including hedges, are pledged as collateral for both the term loan and the revolving credit facility under the Company’s senior secured credit facility (see Note 11).

Interest Rate Swaps

     As required under our senior secured credit facility (see Note 11), we enter into floating-to-fixed interest rate swap agreements periodically. As of July 1, 2010, the interest swap agreements had notional amounts totaling $500.0.

														Term B				Fair Value,
						Variable				Fixed				Fixed				July 1,
Notional Amount		Expires				Rate				Rate(1)				Rate(2)				2010
$100		July 2010				LIBOR					4.37	%			6.12	%		$	(1.0	)
$100		July 2011				LIBOR					4.27	%			6.02	%		$	(4.5	)
$300		July 2011				LIBOR					3.23	%			4.98	%		$	(9.5	)
															Total			$	(15.0	)

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

     The purpose of entering into these swaps was to reduce the Company’s exposure to variable interest rates. The interest rate swaps settle on a quarterly basis when interest payments are made. These settlements occur through the maturity date. The interest rate swaps are being accounted for as cash flow hedges in accordance with FASB authoritative guidance. The fair value of the interest rate swaps was a liability (unrealized loss) of $(15.0) and $(20.3) at July 1, 2010 and December 31, 2009, respectively.

Foreign Currency Forward Contracts

     Spirit’s wholly-owned subsidiary Spirit AeroSystems (Europe) Limited (“Spirit Europe”) has certain sales, expenses, assets and liabilities that are denominated in British pounds sterling. However, certain sales of Spirit Europe’s products and some procurement costs are denominated in U.S. dollars and Euros. As a consequence, movements in exchange rates could cause net sales and our expenses to fluctuate, affecting our profitability and cash flows. In addition, even when revenues and expenses are matched, we must translate British pound sterling denominated results of operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our consolidated financial statements. Consequently, increases and decreases in the value of the U.S. dollar as compared to the British pound sterling will affect our reported results of operations and the value of our assets and liabilities on our consolidated balance sheet, even if our results of operations or the value of those assets and liabilities has not changed in its original currency. These transactions could significantly affect the comparability of our results between financial periods and/or result in significant changes to the carrying value of our assets, liabilities and shareholders’ equity.

     We use foreign currency hedge contracts to reduce our exposure to currency exchange rate fluctuations. The objective of these contracts is to minimize the impact of currency exchange rate movements on our operating results. The hedges are being accounted for as cash flow hedges in accordance with FASB authoritative guidance. Gains and losses from these cash flow hedges are recorded to other comprehensive income until the underlying transaction for which the hedge was placed occurs and then the value in other comprehensive income is reclassified to earnings. In the second quarter of 2010, we entered into new hedging contracts to hedge the U.S. dollar revenue from certain customers. The fair value of the forward contracts was a net liability of $(3.7) and $(1.8) as of July 1, 2010 and December 31, 2009, respectively.

Notional Amount

		July 1, 2010								December 31, 2009
						Foreign								Foreign
		USD				Currency				USD				Currency
Year		Buy/(Sell)(1)				Buy/(Sell)(1)				Buy/(Sell)(1)				Buy/(Sell)(1)
2010		$	(33.4	)		£	21.0			$	(37.8	)		£	22.8
2011			(23.3	)			14.4				(16.7	)			10.0
2012-2013			(9.0	)			5.5				(2.8	)			1.6
		$	(65.7	)		£	40.9			$	(57.3	)		£	34.4

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

     The following table summarizes the Company’s fair value of outstanding derivatives at July 1, 2010 and December 31, 2009:

		Fair Values of Derivative Instruments
		Other Asset Derivatives								Other Liability Derivatives
		July 1, 2010				December 31, 2009				July 1, 2010				December 31, 2009
Derivatives designated as hedging instruments
Interest rate swaps
Current		$	—			$	—			$	14.2			$	16.9
Non-current			—				—				0.8				3.4
Foreign currency hedge contracts
Current			—				—				2.3				0.9
Non-current			—				—				1.1				0.6
Total derivatives designated as hedging instruments			—				—				18.4				21.8
Derivatives not designated as hedging instruments
Foreign currency hedge contracts
Current			0.8				0.4				0.8				0.5
Non-current			1.3				1.2				1.6				1.4
Total derivatives not designated as hedging instruments			2.1				1.6				2.4				1.9
Total derivatives		$	2.1			$	1.6			$	20.8			$	23.7

     The impact on other comprehensive income (OCI) and earnings from cash flow hedges for the three months ended July 1, 2010 and July 2, 2009 was as follows:

																						Location of
																						Loss
										Location of												Recognized in				Amount of Loss
										Loss				Amount of Loss								Income on				Recognized in Income on
		Amount of Loss								Reclassified				Reclassified from								Derivative				Derivative (Ineffective
		Recognized in OCI, net of								from				Accumulated OCI into								(Ineffective				Portion and Amount
		tax, on Derivative								Accumulated				Income								Portion and				Excluded from
		(Effective Portion)								OCI into				(Effective Portion)								Amount				Effectiveness Testing)
Derivatives in		For the Three Months Ended								Income				For the Three Months Ended								Excluded from				For the Three Months Ended
Cash Flow Hedging		July 1,				July 2,				(Effective				July 1,				July 2,				Effectiveness				July 1,				July 2,
Relationships		2010				2009				Portion)				2010				2009				Testing)				2010				2009
Interest rate swaps		$	(0.4	)		$	(1.3	)		Interest expense				$	4.2			$	4.0			Other (income)/ expense				$	—			$	—
Foreign currency hedge contracts			(0.6	)			(0.2	)		Sales/Revenue					0.5				1.8			Other (income)/ expense					—				0.1
Total		$	(1.0	)		$	(1.5	)						$	4.7			$	5.8							$	—			$	0.1

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

     The impact on OCI and earnings from cash flow hedges for the six months ended July 1, 2010 and July 2, 2009 was as follows:

																						Location of
																						Loss
										Location of												Recognized in				Amount of Loss
										Loss				Amount of Loss								Income on				Recognized in Income on
		Amount of Loss								Reclassified				Reclassified from								Derivative				Derivative (Ineffective
		Recognized in OCI, net of								from				Accumulated OCI into								(Ineffective				Portion and Amount
		tax, on Derivative								Accumulated				Income								Portion and				Excluded from
		(Effective Portion)								OCI into				(Effective Portion)								Amount				Effectiveness Testing)
Derivatives in		For the Six Months Ended								Income				For the Six Months Ended								Excluded from				For the Six Months Ended
Cash Flow Hedging		July 1,				July 2,				(Effective				July 1,				July 2,				Effectiveness				July 1,				July 2,
Relationships		2010				2009				Portion)				2010				2009				Testing)				2010				2009
Interest rate swaps		$	(2.1	)		$	(2.7	)		Interest expense				$	8.5			$	7.3			Other (income)/ expense				$	—			$	—
Foreign currency hedge contracts			(2.5	)			—			Sales/Revenue					0.8				3.2			Other (income)/ expense					—				0.1
Total		$	(4.6	)		$	(2.7	)						$	9.3			$	10.5							$	—			$	0.1

     The impact on earnings from foreign currency hedge contracts that do not qualify as cash flow hedges was not material for the three and six months ended July 1, 2010 and July 2, 2009.

     Gains and losses accumulated in OCI for interest rate swaps are reclassified into earnings as each interest rate period is reset. During the next twelve months, the Company estimates that a loss of $(9.1) will be reclassified from OCI, net of tax, as a charge to earnings from interest rate swaps. Interest rate swaps are placed for a period of time not to exceed the maturity of the Company’s senior secured term loan. None of the gains or losses reclassified to earnings were attributable to the discontinuance of cash flow hedges.

     Gains and losses accumulated in OCI for foreign currency hedge contracts are reclassified into earnings as the underlying transactions for which the contracts were entered into are realized. During the next twelve months, the Company estimates that a loss of $(1.6) will be reclassified from OCI, net of tax. None of the gains or losses reclassified to earnings are attributable to the discontinuance of cash flow hedges.

10. Fair Value Measurements

     FASB’s authoritative guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance discloses three levels of inputs that may be used to measure fair value:

	Level 1		Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market.
	Level 2		Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Observable inputs, such as current and forward interest rates and foreign exchange rates, are used in determining the fair value of our interest rate swaps and foreign currency hedge contracts.
	Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets and liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

		Fair Value Measurements
														At July 1, 2010
														Using
														Quoted Prices in				Significant
		July 1, 2010												Active Markets				Other				Significant
		Total Carrying				Assets				Liabilities				for Identical				Observable				Unobservable
		Amount in				Measured at				Measured at				Assets				Inputs				Inputs
Description		Balance Sheet				Fair Value				Fair Value				(Level 1)				(Level 2)				(Level 3)
Money Market Fund		$	64.1			$	64.1			$	—			$	64.1			$	—			$	—
Interest Rate Swaps		$	(15.0	)		$	—			$	(15.0	)		$	—			$	(15.0	)		$	—
Foreign Currency Hedge Contracts		$	(3.7	)		$	2.1			$	(5.8	)		$	—			$	(3.7	)		$	—

		Fair Value Measurements
														At December 31, 2009
														Using
														Quoted Prices in				Significant
		December 31, 2009												Active Markets				Other				Significant
		Total Carrying				Assets				Liabilities				for Identical				Observable				Unobservable
		Amount in				Measured at				Measured at				Assets				Inputs				Inputs
Description		Balance Sheet				Fair Value				Fair Value				(Level 1)				(Level 2)				(Level 3)
Money Market Fund		$	240.0			$	240.0			$	—			$	240.0			$	—			$	—
Interest Rate Swaps		$	(20.3	)		$	—			$	(20.3	)		$	—			$	(20.3	)		$	—
Foreign Currency Hedge Contracts		$	(1.8	)		$	1.6			$	(3.4	)		$	—			$	(1.8	)		$	—

     The fair value of the interest rate swaps and foreign currency hedge contracts are determined by using mark-to-market reports generated for each derivative and evaluated for counterparty risk. In the case of the interest rate swaps, the Company evaluated its counterparty risk using credit default swaps, historical default rates and credit spreads.

     The Company’s long-term debt consists of obligations with variable interest rates and senior unsecured notes. The estimated fair value of our debt obligations is based on the quoted market prices for such obligations. The following table presents the carrying amount and estimated fair value of long-term debt in accordance with FASB authoritative guidance on fair value measurements related to disclosures of financial instruments:

		July 1, 2010								December 31, 2009
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
Senior secured term loan (including current portion)		$	569.1			$	549.5			$	572.0			$	549.9
Senior unsecured notes			293.9				296.3				293.6				289.5
Malaysian loan			17.2				16.9				16.3				16.1
		$	880.2			$	862.7			$	881.9			$	855.5

11. Long-Term Debt

Credit Agreement

     In connection with the Boeing Acquisition, the Company executed an $875.0 credit agreement that consisted of a $700.0 senior secured term loan used to fund the acquisition and pay all related fees and expenses associated with the acquisition and the credit agreement, and a $175.0 senior secured revolving credit facility. In March 2008, the revolving credit facility was increased to $650.0. In June 2009, the Company entered into amendment No. 2 to its senior secured credit facility, whereby borrowing capacity under the revolving credit facility was increased from $650.0 to $729.0. The maturity date with respect to $408.8 of the revolver was extended to June 30, 2012. The remaining $320.2 of the revolver matured June 30, 2010. Commitment fees associated with the portion of the revolver that was extended to June 30, 2012 increased from a rate of 50 basis points on the undrawn amount to 75 basis points. Commitment fees associated with the undrawn portion of the revolver that terminated on June 30, 2010 were 50 basis points. The applicable margin payable on revolving loans with respect to which the underlying revolving credit commitment has been extended to June 30, 2012 (“Extending Revolving Loans”) has been increased. The applicable margin continues to be determined in accordance with a performance grid based on total leverage ratio and, for Extending Revolving Loans, ranges from 3.00% to 4.00% per annum in the case of LIBOR advances and from 2.00% to 3.00% per annum in the case of alternate

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

base rate advances. At July 1, 2010, the Company’s total leverage ratio was 1.66:1.00 resulting in margins of 3.0% per annum on LIBOR borrowings on Extending Revolving Loans and margins of 2.0% per annum on alternative base rate borrowings on Extending Revolving Loans. The entire asset classes of the Company, including inventory and property, plant and equipment, are pledged as collateral for both the term loan and the revolving credit facility. As of July 1, 2010 and December 31, 2009, the outstanding balance of the term loan was $569.1 and $572.0, respectively. No amounts were outstanding under the revolving credit facility at either July 1, 2010 or December 31, 2009. As of July 1, 2010, there were $19.0 of letters of credit outstanding.

     The amended credit agreement contains customary affirmative and negative covenants, including restrictions on indebtedness, liens, type of business, acquisitions, investments, sales or transfers of assets, payments of dividends, transactions with affiliates, change in control and other matters customarily restricted in such agreements. The amended credit agreement contains a revised Covenant Leverage Ratio and a new Interest Coverage Ratio. The Covenant Leverage Ratio (as defined in the credit agreement) financial covenant was modified to provide that the maximum Covenant Leverage Ratio as of the last day of any fiscal quarter through the final maturity date of the credit agreement shall not exceed 2.5:1 through maturity. The new Interest Coverage Ratio (as defined in the credit agreement) financial covenant was added to provide that the Interest Coverage Ratio as of the last day of any fiscal quarter through the final maturity date of the credit agreement shall not be less than 4:1. The Financial Covenant ratios are calculated each quarter in accordance with the credit agreement. Failure to meet these financial covenants would be an event of default under the senior secured credit facility. As of July 1, 2010, we were and expect to continue to be in full compliance with all covenants contained within our credit agreement.

Long-Term Bond Debt

     On September 30, 2009, Spirit issued $300.0 of 7¹/2% Senior Notes due October 1, 2017 (the “Notes”), with interest payable semi-annually, in cash, in arrears on April 1 and October 1 of each year, beginning April 1, 2010. Prior to October 1, 2012, Spirit may redeem up to 35% of the aggregate principal amount of the Notes with the proceeds of certain equity offerings at a redemption price of 107.5% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, to the redemption date. At any time prior to October 1, 2013, Spirit may redeem the Notes, in whole or in part, at a redemption price ratio equal to 100% of the principal amount of the Notes redeemed, plus a make-whole premium, plus any accrued and unpaid interest and additional interest, if any, to the redemption date. Spirit may redeem the Notes at its option, in whole or in part, at any time on or after October 1 of the years set forth below, upon not less than 30 nor more than 60 days’ notice at the redemption prices (expressed as percentages of the principal amount to be redeemed) set forth below, plus any accrued and unpaid interest and additional interest, if any, to the redemption date.

Year		Price
2013			103.750	%
2014			101.875	%
2015 and thereafter			100.000	%

     If a change of control of Spirit occurs, each holder of the Notes shall have the right to require that Spirit repurchase all or a portion of such holder’s Notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, to the date of repurchase.

     The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Holdings and Spirit’s existing and future domestic subsidiaries that guarantee Spirit’s obligations under Spirit’s senior secured credit facility. As of July 1, 2010 and December 31, 2009, the outstanding balance of the Notes was $293.9 and $293.6, respectively.

     The Notes are Spirit’s senior unsecured obligations and rank equal in right of payment with all of Spirit’s and the guarantors’ other existing and future senior indebtedness. The Notes are senior in right of payment to all of Spirit’s and the guarantors’ existing and future indebtedness that is by its terms expressly subordinated to the Notes and the guarantees. The Notes are effectively subordinated in right of payment to all of Spirit’s and the guarantors’ secured indebtedness to the extent of the value of the assets securing such indebtedness, including obligations under Spirit’s senior secured credit facility, which is secured by substantially all of the assets of Spirit and the guarantors.

     The Indenture contains covenants that limit Spirit’s, Holdings’ and certain of Spirit’s subsidiaries’ ability, subject to certain exceptions and qualifications, to (i) incur additional debt; (ii) pay dividends, redeem stock or make other distributions, (iii) repurchase equity securities, prepay subordinated debt or make certain investments, (iv) make other restricted payments and investments, (v) issue certain disqualified stock and preferred stock, (vi) create liens without granting equal and ratable liens to the holders of the Notes, (vii) enter into sale and leaseback

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

transactions, (viii) merge, consolidate or transfer or dispose of substantially all of their assets, (ix) enter into certain types of transactions with affiliates and (x) sell assets. These covenants are subject to a number of qualifications and limitations. In addition, the Indenture limits Spirit’s, Holdings’ and the guarantor subsidiaries’ ability to engage in businesses other than businesses in which such companies are engaged on the date of issuance of the Notes and related businesses.

     In addition, the Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among other things: failure to make payments on the Notes when due, failure to comply with covenants under the Indenture, failure to pay certain other indebtedness or acceleration of maturity of certain other indebtedness, failure to satisfy or discharge certain final judgments and occurrence of certain bankruptcy events. If an event of default occurs, the trustee or holders of at least 25% of the aggregate principal amount of the then outstanding Notes may, among other things, declare the entire outstanding balance of principal and interest on all outstanding Notes to be immediately due and payable. If an event of default involving certain bankruptcy events occurs, payment of principal and interest on the Notes will be accelerated without the necessity of notice or any other action on the part of any person.

     On June 30, 2010, the capacity of the revolving credit facility was reduced to $408.8, and availability was further reduced by $19.0 of outstanding letters of credit as of July 1, 2010.

Malaysian Term Loan

     On June 2, 2008, the Company’s wholly-owned subsidiary, Spirit AeroSystems Malaysia SDN BHD (“Spirit Malaysia”) entered into a Facility Agreement (“Malaysia Facility Agreement”) for a term loan facility of Ringgit Malaysia (RM) 69.2 (approximately USD $20.0) (the “Malaysia Facility”), with EXIM Bank to be used towards partial financing of plant and equipment (including the acquisition of production equipment), materials, inventory and administrative costs associated with the establishment of an aerospace-related composite component assembly plant, plus potential additional work packages in Malaysia at the Malaysia International Aerospace Center in Subang, Selangor, Malaysia (the “Project”). Funds for the Project were available on a drawdown basis over a twenty-four month period from the date of the Malaysia Facility Agreement. As of July 1, 2010, the Company had drawn (RM) 55.7 of the term loan.

     The indebtedness repayment requires quarterly principal installments of RM 3.3 (approximately $1.0) from September 2011 through May 2017, or until the entire loan principal has been repaid.

     Outstanding amounts drawn under the Malaysia Facility are subject to a fixed interest rate of 3.5% per annum, payable quarterly.

France Factory

     On July 17, 2009, the Company’s indirect wholly-owned subsidiary, Spirit AeroSystems France SARL (“Spirit France”) entered into a capital lease agreement for €9.0 (approximately $13.1); with BNP Paribas Bank (“BNP”) to be used towards the construction of an aerospace-related component assembly plant in Saint-Nazaire, France (the “Saint-Nazaire Project”). The Company will act as BNP’s construction agent during the construction phase of the Saint-Nazaire Project and lease payments will begin upon completion of construction, which is expected during the third quarter of 2010.

     The capital lease repayment is variable based on the three-month Euribor rate plus 2.2% and is paid quarterly. Payments are expected to be approximately €0.2 (approximately $0.3) quarterly from July 2010 through April 2025 with a residual amount of €0.9 (approximately $1.3) to be paid at the conclusion of the capital lease agreement.

     Outstanding amounts expended by BNP under the capital lease agreement are capitalized as construction-in-progress on the Company’s books with a corresponding amount of construction debt. As of July 1, 2010, the Company has recorded $9.8 in construction debt.

     Total debt shown on the balance sheet is comprised of the following:

		July 1,				December 31,
		2010				2009
Senior secured debt (short and long-term)		$	569.1			$	572.0
Long-term bond debt			293.9				293.6
Malaysian term loan			17.2				16.3
Present value of capital lease obligations			11.9				10.3
Other			1.1				1.6
Total		$	893.2			$	893.8

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

12. Pension and Other Post-Retirement Benefits

		Defined Benefit Plans
		For the Three								For the Six
		Months Ended								Months Ended
		July 1,				July 2,				July 1,				July 2,
Components of Net Periodic Pension Income		2010				2009				2010				2009
Service cost		$	1.5			$	1.5			$	3.1			$	2.9
Interest cost			10.4				9.7				20.8				19.4
Expected return on plan assets			(16.0	)			(13.9	)			(31.9	)			(27.8	)
Amortization of prior service cost			—				—				—				—
Amortization of net (gain)/loss			—				1.9				(0.1	)			4.1
Net periodic pension income		$	(4.1	)		$	(0.8	)		$	(8.1	)		$	(1.4	)

		Other Benefits
		For the Three								For the Six
		Months Ended								Months Ended
		July 1,				July 2,				July 1,				July 2,
Components of Net Periodic Benefit Cost		2010				2009				2010				2009
Service cost		$	0.8			$	0.7			$	1.5			$	1.0
Interest cost			1.0				0.7				1.9				1.4
Expected return on plan assets			—				—				—				—
Amortization of prior service cost			—				—				—				—
Amortization of net (gain)/loss			0.2				—				0.4				—
Net periodic benefit cost		$	2.0			$	1.4			$	3.8			$	2.4

Employer Contributions

     We expect to contribute zero dollars to the U.S. qualified pension plan and less than $0.3 to both the Supplemental Executive Retirement Plan (SERP) and post-retirement medical plans in 2010. Our projected contributions to the U.K. pension plan for 2010 were $6.9, of which $3.5 was contributed by the end of the second quarter of 2010. We anticipate contributing the additional $3.4 to the U.K. pension plan during the remainder of 2010. The entire amount contributed and the projected contributions can vary based on exchange rate fluctuations.

13. Stock Compensation

     The Company has established various stock compensation plans which include restricted share grants and stock purchase plans. Compensation values are based on the value of Holdings’ common stock at the grant date. The common stock value is added to equity and charged to period expense or included in inventory and cost of sales.

     For the three months ended July 1, 2010, the Company recognized a total of $19.3 of stock compensation expense, net of forfeitures, as compared to $3.2 of stock compensation expense, net of forfeitures, recognized for the three months ended July 2, 2009. Of the total $19.3 of stock compensation expense recorded for the three months ended July 1, 2010, $17.3 was charged directly to cost of sales, $1.8 was recorded as expense in selling, general and administrative expense, and the remaining $0.1 was capitalized in inventory and is recognized through cost of sales consistent with the accounting methods we follow in accordance with FASB authoritative guidance related to revenue recognition for construction-type and production-type contracts. Of the $3.2 of stock compensation expense recorded for the three months ended July 2, 2009, $3.1 was recorded as expense in selling, general and administrative expense while the remaining $0.1 was capitalized in inventory in accordance with the guidance.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

     For the six months ended July 1, 2010, the Company recognized a total of $21.6 of stock compensation expense, net of forfeitures, as compared to $6.0 of stock compensation expense, net of forfeitures, recognized for the six months ended July 2, 2009. Of the total $21.6 of stock compensation expense recorded for the three months ended July 1, 2010, $17.3 was charged directly to cost of sales, $4.0 was recorded as expense in selling, general and administrative expense, and the remaining $0.2 was capitalized in inventory and is recognized through cost of sales consistent with the accounting methods we follow in accordance with FASB authoritative guidance related to revenue recognition for construction-type and production-type contracts. Of the $6.0 of stock compensation expense recorded for the six months ended July 2, 2009, $5.8 was recorded as expense in selling, general and administrative expense while the remaining $0.2 was capitalized in inventory in accordance with the guidance.

     In May 2010, 560,882 shares of Class A common stock with a value of $12.1 were granted under the Company’s Long-Term Incentive Plan and will vest annually in three equal installments beginning on the two-year anniversary of the grant date. Also in May 2010, 33,002 shares of Class A common stock with a value of $0.7 were granted under the Company’s Director Stock Plan and will vest on the one-year anniversary of the grant date. In the second quarter of 2010, 56,451 shares of Class A common stock with a value of $0.7 granted under the Company’s Director Stock Plan and 22,754 shares of Class A common stock with a value of $0.7 granted under the Company’s Long-Term Incentive Plan vested.

     In June 2010, 851,250 shares of Class A common stock with a value of $17.3 were granted to members of the International Association of Machinists (IAM) union under the new ten-year labor contract as part of the Company’s Long-Term Incentive Plan. The granted shares immediately vested and the value was charged directly to cost of sales.

     Due to the occurrence during the second quarter of 2010 of the five-year anniversaries of the Executive Incentive Plan grant dates for certain participants in the plan, those participants acquired an interest in the remaining 20% of the shares granted to them under the plan. The total number of additional shares in which an interest was acquired in the second quarter of 2010 was 660,779. The participants have a nonforfeitable interest in those shares; however, as per the plan document, the shares remain restricted until the earlier of a liquidity event or June 16, 2015. Participants do not have the unrestricted rights of stockholders as long as the shares remain restricted.

14. Income Taxes

     The process for calculating our income tax expense involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability. The total net deferred tax assets as of July 1, 2010 and December 31, 2009 were $129.0 and $136.0, respectively.

     We file income tax returns in all jurisdictions in which we operate. We established reserves to provide for additional income taxes that may be due in future years as these previously filed tax returns are audited. These reserves have been established based on management’s assessment as to the potential exposure attributable to permanent differences and associated interest. All tax reserves are analyzed quarterly and adjustments made as events occur that warrant modification.

     In general, the Company records income tax expense each quarter based on its best estimate as to the full year’s effective tax rate. Certain items, however, are given discrete period treatment and the tax effects for such items are therefore reported in the quarter that an event arises. Events or items that give rise to discrete recognition include finalizing amounts in income tax returns filed, finalizing audit examinations for open tax years, and expiration of a statute of limitations.

     The 25.2% effective tax rate for the six months ended July 1, 2010 differs from the 31.0% effective tax rate for the same period in 2009 primarily due to settling the 2005 & 2006 Internal Revenue Service examination and increased state income tax credits, partially offset by the U.S. Research Tax Credit (“Research Credit”) expiring on December 31, 2009.

     The Company expects no material change in its recorded unrecognized tax benefit liability in the next 12 months. We are not currently under examination in any tax jurisdictions.

15. Equity

Earnings per Share Calculation

     Basic earnings per share represents the income available to common shareholders divided by the weighted average number of common shares outstanding during the measurement period. Diluted earnings per share represents the income available to common shareholders divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

     Subject to preferences that may apply to shares of preferred stock outstanding at the time, holders of the Company’s outstanding common stock are entitled to any dividend declared by the Board of Directors out of funds legally available for this purpose. No dividend may be declared on the class A or class B common stock unless at the same time an equal dividend is paid on every share of class A and class B common stock. Dividends paid in shares of the Company’s common stock must be paid, with respect to a particular class of common stock, in shares of that class. The Company does not intend to pay cash dividends on its common stock. In addition, the terms of the Company’s current financing agreements preclude it from paying any cash dividends on its common stock.

     In June 2008, the FASB issued authoritative guidance determining whether instruments granted in shared-based payment transactions are participating securities. Under the FASB guidance, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to undistributed earnings that would otherwise have been available to common shareholders. The Company’s service-based restricted stock awards contain non-forfeitable rights to dividends and are considered participating securities. Upon adoption of this standard, the service-based restricted stock awards were included in the calculation of earnings per share using the two-class method for the three and six month periods ended July 1, 2010 and July 2, 2009.

     The following table sets forth the computation of basic and diluted earnings per share:

		For the Three Months Ended
		July 1, 2010												July 2, 2009
										Per Share												Per Share
		Income				Shares				Amount				Income				Shares				Amount
		(in millions)												(in millions)
Basic EPS
Income available to common shareholders		$	54.5				137.5			$	0.40			$	(8.2	)			137.2			$	(0.06	)
Income allocated to participating securities			0.6				1.6								(0.1	)			0.8
Net income		$	55.1											$	(8.3	)
Diluted potential common shares							1.3
Diluted EPS
Net income		$	55.1				140.4			$	0.39			$	(8.3	)			138.0			$	(0.06	)

		For the Six Months Ended
		July 1, 2010												July 2, 2009
										Per Share												Per Share
		Income				Shares				Amount				Income				Shares				Amount
		(in millions)												(in millions)
Basic EPS
Income available to common shareholders		$	109.4				137.4			$	0.80			$	54.1				137.1			$	0.39
Income allocated to participating securities			1.2				1.5								0.3				0.8
Net income		$	110.6											$	54.4
Diluted potential common shares							1.7												2.0
Diluted EPS
Net income		$	110.6				140.6			$	0.79			$	54.4				139.9			$	0.39

     The balance of outstanding common shares presented in the consolidated statement of shareholders’ equity was 141.2 million and 141.0 million at July 1, 2010 and July 2, 2009, respectively. Included in the outstanding common shares were 3.2 million and 3.6 million of issued but unvested shares at July 1, 2010 and July 2, 2009, respectively, which are excluded from the basic EPS calculation.

Spirit AeroSystems Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)
($, €, £, and RM in millions other than per share amounts)

Comprehensive Income

     Components of comprehensive income, net of tax, consist of the following:

		For the Three Months Ended
		July 1, 2010				July 2, 2009
Net income (loss)		$	55.1			$	(8.3	)
Other Comprehensive Income (loss), net of tax
Unrealized gain (loss) on investments
Unrealized gain (loss) on interest rate swaps, net of tax (1)			(0.4	)			(1.3	)
Pension, SERP, and Retiree Medical adjustments, net of tax (2)			0.2				(1.3	)
Unrealized (loss) on foreign currency forward contracts, net of tax (3)			(0.6	)			(0.2	)
Reclassification of realized (gain) loss on hedging instruments into net income, net of tax (4)			3.0				3.8
Foreign currency translation adjustments			(2.0	)			14.6
Total Other Comprehensive Income		$	55.3			$	7.3

		For the Six Months Ended
		July 1, 2010				July 2, 2009
Net income		$	110.6			$	54.4
Other Comprehensive Income (loss), net of tax
Unrealized gain (loss) on investments
Unrealized gain (loss) on interest rate swaps, net of tax (1)			(2.1	)			(2.7	)
Pension, SERP, and Retiree Medical adjustments, net of tax (2)			0.1				(2.5	)
Unrealized gain (loss) on foreign currency forward contracts, net of tax (3)			(2.5	)			—
Reclassification of realized (gain) loss on hedging instruments into net income, net of tax (4)			5.9				6.8
Foreign currency translation adjustments			(10.7	)			15.0
Total Other Comprehensive Income		$	101.3			$	71.0

Noncontrolling Interest

     Noncontrolling interest at July 1, 2010 remained unchanged from the prior year at $0.5.

16. Related Party Transactions

     On March 26, 2007, Hawker Beechcraft, Inc. (“Hawker”), of which Onex Partners II LP (an affiliate of Onex) owns approximately a 49% interest, acquired Raytheon Aircraft Acquisition Company and substantially all of the assets of Raytheon Aircraft Services Limited. Spirit’s Prestwick facility provides wing components for the Hawker 800 Series manufactured by Hawker.