SPR » Topics » Inflation

These excerpts taken from the SPR 10-K filed Feb 20, 2009.
Inflation
 
A majority of our sales are conducted pursuant to long-term contracts that set fixed unit prices, some of which provide for price adjustment for inflation. In addition, we typically consider expected inflation in determining proposed pricing when we bid on new work. Although we have attempted to minimize the effect of inflation on our business through these protections, sustained or higher than anticipated increases in costs of labor or materials could have a material adverse effect on our results of operations.
 
Spirit’s contracts with suppliers currently provide for fixed pricing in U.S. dollars; Spirit Europe’s supply contracts are denominated in U.S. dollars, British pounds sterling and Euros. In some cases our supplier arrangements contain inflationary adjustment provisions based on accepted industry indices, and we typically include an inflation component in estimating our supply costs. Although the raw material industry is experiencing a softening in demand, some specific materials have yet to reflect a corresponding reduction in price. We expect that raw material market pricing volatility will remain a factor that may impact our costs, despite protections in our existing supplier arrangements. We will continue to focus our strategic cost reduction plans on mitigating the effects of this potential cost increase on our operations.
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
As a result of our operating and financing activities, we are exposed to various market risks that may affect our consolidated results of operations and financial position. These market risks include fluctuations in interest rates, which impact the amount of interest we must pay on our variable rate debt.
 
Other than the interest rate swaps described below, financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash investments, the funds in which our pension assets are invested, and trade accounts receivable.
 
Accounts receivable include amounts billed and currently due from customers, amounts earned but unbilled, particular estimated contract changes, claims in negotiation that are probable of recovery, and amounts retained by the customer pending contract completion. For the twelve months ended December 31, 2008, approximately 85% of our revenues were from sales to Boeing. We continuously monitor collections and payments from customers and maintain a provision for estimated credit losses as deemed appropriate based upon historical experience and any specific customer collection issues that have been identified. While such credit losses have historically not been material, we cannot guarantee that we will continue to experience the same credit loss rates in the future.
 
We maintain cash and cash equivalents with various financial institutions and perform periodic evaluations of the relative credit standing of those financial institutions. We have not experienced any losses in such accounts and believe that we are not exposed to any significant credit risk on cash and cash equivalents. Additionally, we monitor our defined benefit pension plan asset investments on a quarterly basis and we believe that we are not exposed to any significant credit risk in these investments.
 
Inflation


 



A majority of our sales are conducted pursuant to long-term
contracts that set fixed unit prices, some of which provide for
price adjustment for inflation. In addition, we typically
consider expected inflation in determining proposed pricing when
we bid on new work. Although we have attempted to minimize the
effect of inflation on our business through these protections,
sustained or higher than anticipated increases in costs of labor
or materials could have a material adverse effect on our results
of operations.


 



Spirit’s contracts with suppliers currently provide for
fixed pricing in U.S. dollars; Spirit Europe’s supply
contracts are denominated in U.S. dollars, British pounds
sterling and Euros. In some cases our supplier arrangements
contain inflationary adjustment provisions based on accepted
industry indices, and we typically include an inflation
component in estimating our supply costs. Although the raw
material industry is experiencing a softening in demand, some
specific materials have yet to reflect a corresponding reduction
in price. We expect that raw material market pricing volatility
will remain a factor that may impact our costs, despite
protections in our existing supplier arrangements. We will
continue to focus our strategic cost reduction plans on
mitigating the effects of this potential cost increase on our
operations.


 















Item 7A.  

Quantitative
and Qualitative Disclosures About Market Risk



 



As a result of our operating and financing activities, we are
exposed to various market risks that may affect our consolidated
results of operations and financial position. These market risks
include fluctuations in interest rates, which impact the amount
of interest we must pay on our variable rate debt.


 



Other than the interest rate swaps described below, financial
instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash
investments, the funds in which our pension assets are invested,
and trade accounts receivable.


 



Accounts receivable include amounts billed and currently due
from customers, amounts earned but unbilled, particular
estimated contract changes, claims in negotiation that are
probable of recovery, and amounts retained by the customer
pending contract completion. For the twelve months ended
December 31, 2008, approximately 85% of our revenues were
from sales to Boeing. We continuously monitor collections and
payments from customers and maintain a provision for estimated
credit losses as deemed appropriate based upon historical
experience and any specific customer collection issues that have
been identified. While such credit losses have historically not
been material, we cannot guarantee that we will continue to
experience the same credit loss rates in the future.


 



We maintain cash and cash equivalents with various financial
institutions and perform periodic evaluations of the relative
credit standing of those financial institutions. We have not
experienced any losses in such accounts and believe that we are
not exposed to any significant credit risk on cash and cash
equivalents. Additionally, we monitor our defined benefit
pension plan asset investments on a quarterly basis and we
believe that we are not exposed to any significant credit risk
in these investments.


 






These excerpts taken from the SPR 10-K filed Feb 22, 2008.
Inflation
 
A majority of our sales are conducted pursuant to long-term contracts that set fixed unit prices, some of which provide for price adjustment for inflation. In addition, we typically consider expected inflation in determining proposed pricing when we bid on new work. Although we have attempted to minimize the effect of inflation on our business through these protections, sustained or higher than anticipated increases in costs of labor or materials could have a material adverse effect on our results of operations.
 
Spirit’s contracts with suppliers currently provide for fixed pricing in U.S. dollars; Spirit Europe’s supply contracts are denominated in U.S. dollars, British pounds sterling and Euros. In some cases our supplier arrangements contain inflationary adjustment provisions based on accepted industry indices, and we typically include an inflation component in estimating our supply costs. As the metallic raw material industry is experiencing significant demand pressure, we expect that raw material market pricing will increase to a level that may impact our costs, despite protections in our existing supplier arrangements. We will continue to focus our strategic cost reduction plans on mitigating the effects of this potential cost increase on our operations.
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
As a result of our operating and financing activities, we are exposed to various market risks that may affect our consolidated results of operations and financial position. These market risks include fluctuations in interest rates, which impact the amount of interest we must pay on our variable rate debt.
 
Other than the interest rate swaps described below, financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash investments, the funds in which our pension assets are invested, and trade accounts receivable.


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Table of Contents

Accounts receivable include amounts billed and currently due from customers, amounts earned but unbilled, particular estimated contract changes, claims in negotiation that are probable of recovery, and amounts retained by the customer pending contract completion. For the twelve months ended December 31, 2007, approximately 87% of our revenues were from sales to Boeing. We continuously monitor collections and payments from customers and maintain a provision for estimated credit losses as deemed appropriate based upon historical experience and any specific customer collection issues that have been identified. While such credit losses have historically not been material, we cannot guarantee that we will continue to experience the same credit loss rates in the future.
 
We maintain cash and cash equivalents with various financial institutions and perform periodic evaluations of the relative credit standing of those financial institutions. We have not experienced any losses in such accounts and believe that we are not exposed to any significant credit risk on cash and cash equivalents. Additionally, we monitor our defined benefit pension plan asset investments on a quarterly basis and we believe that we are not exposed to any significant credit risk in these investments.
 
Some raw materials and operating supplies are subject to price and supply fluctuations caused by market dynamics. Our strategic sourcing initiatives are focused on mitigating the impact of commodity price risk. We are party to collective raw material sourcing contracts arranged through Boeing, Airbus and BAE Systems. These collective sourcing contracts allow us to obtain raw materials at pre-negotiated rates and help insulate us from disruptions associated with the unprecedented market demand across the industry for metallic and composite raw materials. Although our supply agreements with Boeing and Airbus allow us to pass on certain unusual increases in component and raw material costs to Boeing and Airbus in limited situations, we may not be fully compensated for such increased costs. We also have long-term supply agreements with a number of our major parts suppliers. We, as well as our supply base, are experiencing delays in the receipt of, and pricing increases for, metallic raw materials (primarily aluminum and titanium) due to unprecedented market demand across the industry. Based upon discussions with customers and suppliers, we expect these conditions to continue through at least 2012 as metallic raw material supply adjusts to the industry upturn, market conditions shift due to increased infrastructure demand in China and Russia, and aluminum and titanium usage increases in a widening range of global products. These market conditions began to affect cost and production schedules in mid-2005, and may have an impact on cash flows or results of operations in future periods. We generally do not employ forward contracts or other financial instruments to hedge commodity price risk, although we are reviewing a full range of business options focused on strategic risk management for all raw material commodities.
 
Any failure by our suppliers to provide acceptable raw materials, components, kits or subassemblies could adversely affect our production schedules and contract profitability. We assess qualification of suppliers and continually monitor them to control risk associated with such supply base reliance.
 
To a lesser extent, we also are exposed to fluctuations in the prices of certain utilities and services, such as electricity, natural gas, chemicals and freight. We utilize a range of long-term agreements to minimize procurement expense and supply risk in these areas.
 
Inflation


 



A majority of our sales are conducted pursuant to long-term
contracts that set fixed unit prices, some of which provide for
price adjustment for inflation. In addition, we typically
consider expected inflation in determining proposed pricing when
we bid on new work. Although we have attempted to minimize the
effect of inflation on our business through these protections,
sustained or higher than anticipated increases in costs of labor
or materials could have a material adverse effect on our results
of operations.


 



Spirit’s contracts with suppliers currently provide for
fixed pricing in U.S. dollars; Spirit Europe’s supply
contracts are denominated in U.S. dollars, British pounds
sterling and Euros. In some cases our supplier arrangements
contain inflationary adjustment provisions based on accepted
industry indices, and we typically include an inflation
component in estimating our supply costs. As the metallic raw
material industry is experiencing significant demand pressure,
we expect that raw material market pricing will increase to a
level that may impact our costs, despite protections in our
existing supplier arrangements. We will continue to focus our
strategic cost reduction plans on mitigating the effects of this
potential cost increase on our operations.


 















Item 7A.  

Quantitative
and Qualitative Disclosures About Market Risk



 



As a result of our operating and financing activities, we are
exposed to various market risks that may affect our consolidated
results of operations and financial position. These market risks
include fluctuations in interest rates, which impact the amount
of interest we must pay on our variable rate debt.


 



Other than the interest rate swaps described below, financial
instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash
investments, the funds in which our pension assets are invested,
and trade accounts receivable.





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Table of Contents






Accounts receivable include amounts billed and currently due
from customers, amounts earned but unbilled, particular
estimated contract changes, claims in negotiation that are
probable of recovery, and amounts retained by the customer
pending contract completion. For the twelve months ended
December 31, 2007, approximately 87% of our revenues were
from sales to Boeing. We continuously monitor collections and
payments from customers and maintain a provision for estimated
credit losses as deemed appropriate based upon historical
experience and any specific customer collection issues that have
been identified. While such credit losses have historically not
been material, we cannot guarantee that we will continue to
experience the same credit loss rates in the future.


 



We maintain cash and cash equivalents with various financial
institutions and perform periodic evaluations of the relative
credit standing of those financial institutions. We have not
experienced any losses in such accounts and believe that we are
not exposed to any significant credit risk on cash and cash
equivalents. Additionally, we monitor our defined benefit
pension plan asset investments on a quarterly basis and we
believe that we are not exposed to any significant credit risk
in these investments.


 



Some raw materials and operating supplies are subject to price
and supply fluctuations caused by market dynamics. Our strategic
sourcing initiatives are focused on mitigating the impact of
commodity price risk. We are party to collective raw material
sourcing contracts arranged through Boeing, Airbus and BAE
Systems. These collective sourcing contracts allow us to obtain
raw materials at pre-negotiated rates and help insulate us from
disruptions associated with the unprecedented market demand
across the industry for metallic and composite raw materials.
Although our supply agreements with Boeing and Airbus allow us
to pass on certain unusual increases in component and raw
material costs to Boeing and Airbus in limited situations, we
may not be fully compensated for such increased costs. We also
have long-term supply agreements with a number of our major
parts suppliers. We, as well as our supply base, are
experiencing delays in the receipt of, and pricing increases
for, metallic raw materials (primarily aluminum and titanium)
due to unprecedented market demand across the industry. Based
upon discussions with customers and suppliers, we expect these
conditions to continue through at least 2012 as metallic raw
material supply adjusts to the industry upturn, market
conditions shift due to increased infrastructure demand in China
and Russia, and aluminum and titanium usage increases in a
widening range of global products. These market conditions began
to affect cost and production schedules in mid-2005, and may
have an impact on cash flows or results of operations in future
periods. We generally do not employ forward contracts or other
financial instruments to hedge commodity price risk, although we
are reviewing a full range of business options focused on
strategic risk management for all raw material commodities.


 



Any failure by our suppliers to provide acceptable raw
materials, components, kits or subassemblies could adversely
affect our production schedules and contract profitability. We
assess qualification of suppliers and continually monitor them
to control risk associated with such supply base reliance.


 



To a lesser extent, we also are exposed to fluctuations in the
prices of certain utilities and services, such as electricity,
natural gas, chemicals and freight. We utilize a range of
long-term agreements to minimize procurement expense and supply
risk in these areas.


 




This excerpt taken from the SPR 10-K filed Mar 5, 2007.
Inflation
 
A majority of our sales are conducted pursuant to long-term contracts that set fixed unit prices, some of which provide for price adjustment for inflation. In addition, we typically consider expected inflation in determining proposed pricing when we bid on new work. Although we have attempted to minimize the effect of inflation on our business through these protections, sustained or higher than anticipated increases in costs of labor or materials could have a material adverse effect on our results of operations.
 
Spirit’s contracts with suppliers currently provide for fixed pricing in U.S. dollars; Spirit Europe’s supply contracts are denominated in U.S. dollars, British pounds sterling and Euros. In some cases our supplier arrangements contain inflationary adjustment provisions based on accepted industry indices, and we typically include an inflation component in estimating our supply costs. As the metallic raw material industry is experiencing significant demand pressure, we expect that raw material market pricing will increase to a level that may impact our costs, despite protections in our existing supplier arrangements. We will continue to focus our strategic cost reduction plans on mitigating the effects of this cost increase on our operations.
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
As a result of our operating and financing activities, we are exposed to various market risks that may affect our consolidated results of operations and financial position. These market risks include fluctuations in interest rates, which impact the amount of interest we must pay on our variable rate debt.
 
Other than the interest rate swaps described below, financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash investments and trade accounts receivable.
 
Accounts receivable include amounts billed and currently due from customers, amounts earned but unbilled, particular estimated contract changes, claims in negotiation that are probable of recovery, and amounts retained by the customer pending contract completion. For the twelve months ended December 31, 2006, approximately 91% of our revenues (approximately 89% of our combined revenues assuming the BAE Acquisition had occurred on January 1, 2006) were from sales to Boeing. We continuously monitor collections and payments from customers and maintain a provision for estimated credit losses as deemed appropriate based upon historical experience and any specific customer collection issues that have been identified. While such credit losses have historically not been material, we cannot guarantee that we will continue to experience the same credit loss rates in the future.


70


Table of Contents

 
We maintain cash and cash equivalents with various financial institutions and perform periodic evaluations of the relative credit standing of those financial institutions. We have not experienced any losses in such accounts and believe that we are not exposed to any significant credit risk on cash and cash equivalents.
 
Some raw materials and operating supplies are subject to price and supply fluctuations caused by market dynamics. Our strategic sourcing initiatives are focused on mitigating the impact of commodity price risk. We are party to collective raw material sourcing contracts arranged through Boeing, Airbus and BAE Systems. These collective sourcing contracts allow us to obtain raw materials at pre-negotiated rates and help insulate us from disruption associated with the unprecedented market demand across the industry for metallic and composite raw materials. We also have long-term supply agreements with a number of our major parts suppliers. We, as well as our supply base, are experiencing delays in the receipt of, and pricing increases for, metallic raw materials (primarily aluminum and titanium) due to unprecedented market demand across the industry. Based upon discussions with customers and suppliers, we expect these conditions to continue through at least 2012 as metallic raw material supply adjusts to the industry upturn, market conditions shift due to increased infrastructure demand in China and Russia, and aluminum and titanium usage increases in a widening range of global products. These market conditions began to affect cost and production schedules in mid-2005, and may have an impact on cash flows or results of operations in future periods. We generally do not employ forward contracts or other financial instruments to hedge commodity price risk, although we are reviewing a full range of business options focused on strategic risk management for all raw material commodities.
 
Any failure by our suppliers to provide acceptable raw materials, components, kits or subassemblies could adversely affect our production schedules and contract profitability. We assess qualification of suppliers and continually monitor them to control risk associated with such supply base reliance.
 
To a lesser extent, we also are exposed to fluctuations in the prices of certain utilities and services, such as electricity, natural gas, chemicals and freight. We utilize a range of long-term agreements to minimize procurement expense and supply risk in these areas.
 
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