Summary of SPIRIT AEROSYSTEMS HOLDINGS, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following section may include "forward-looking statements." Forward-looking statements reflect our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "intend," "estimate," "believe," "project," "continue," "plan," "forecast," or other similar words. These statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements.
Recent Events
On September 6, 2008, Boeing employees represented by the International Association of Machinists and Aerospace Workers, or the IAM, went on strike following the expiration of their collective bargaining agreement with The Boeing Company ("the Strike"). At the onset of the Strike, Spirit and Boeing jointly implemented a ship-in-place plan for all Spirit-produced major components. During the ship-in-place period, we have continued production at a reduced rate, but are not physically delivering the majority of end-items to Boeing. We are recognizing revenue on these ship-in-place units consistent with contractual terms. During this time period, we are working with our employees to reduce work weeks instead of implementing layoffs and furloughs. The reduced production rates during the Strike reduced Spirit's revenue by an estimated $53.2 million for the three months ended September 25, 2008, as compared to anticipated pre-Strike results, which negatively impacted our income and cash flows for the third quarter of 2008. By segment, this amounted to reductions in revenue of $24.9 million, $17.7 million and $10.6 million for the Fuselage Systems, Propulsion Systems, and Wing Systems segments, respectively, as compared to anticipated pre-Strike results. For the third quarter of 2008, the Strike resulted in a total of 19 ship-in-place deliveries for which we recorded revenue of $124.4 million.
Spirit's supply agreement with Boeing provides for selling prices to be established based on planned production volumes for each period beginning June 1 through May 31, with higher prices at lower volumes and lower prices at higher volumes. These pre-established prices are the basis for billing and payment for the entire year regardless of actual volume, with any differences settled after the yearly period has ended. The Strike is anticipated to reduce volume below the planned levels for the June 1, 2008 through May 31, 2009 time period, resulting in higher actual average prices than had been established. In the third quarter of 2008, the financial results included accrued revenue for volume-based price increases retroactive to June 1, 2008.
The Company recorded a negative cumulative catch-up adjustment of approximately $18 million related to the Strike during the three months ended September 25, 2008. The impact of this adjustment was primarily reflected in the Fuselage Systems segment. The unfavorable adjustment reflects the impact of the Strike on current contract block profitability, assuming the Strike concludes in early November 2008, followed by an approximately 90 day transition period at Spirit to resume normal production levels. If the Strike were to extend beyond early November 2008, additional cost impacts could be incurred, partially offset by additional revenue from volume-based price increases retroactive to June 1, 2008.
Spirit continues to operate well across business segments and remains financially healthy with a solid balance sheet and strong liquidity. The company anticipates the continuation of reduced work weeks or other production adjustments throughout the duration of the Strike at Boeing and beyond, while fully meeting its obligations to non-Boeing customers. At the conclusion of the work stoppage, Spirit anticipates working closely with Boeing to establish a revised production plan and delivery schedule. The Company intends to provide an updated financial outlook at the conclusion of that process, which it anticipates to be no later than the end of November.
On October 23, 2008, Spirit announced that we will design and build the pylon for Mitsubishi Aircraft Corporation's new next-generation regional jetliner, known as the Mitsubishi Regional Jet (MRJ). Pylon work will be done at Spirit's facility in Wichita, Kansas.
On October 21, 2008, Spirit announced the signing of a support agreement whereby we will supply structural parts and components for Continental Airlines' total fleet of Boeing aircraft.
On October 6, 2008, Spirit announced (a contract previously discussed as with an unidentified customer) that we will design and build the wing for the new Gulfstream G250 super mid-size business jet. Spirit will design and produce the wing at its Tulsa, Oklahoma facility.
On September 12, 2008, Spirit announced the signing of a supply agreement with Southwest Airlines whereby we will supply thrust reverser, fuselage and wing components for Southwest's fleet of B737 aircraft.

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On July 7, 2008, Spirit Europe announced that it had signed a contract with Airbus to design and produce a major wing structure for the A350 XWB program. Spirit Europe will design and assemble the wing leading edge structure primarily at its facility in Prestwick, Scotland. The Composite Front Spar will be built at Spirit's recently announced Kinston, North Carolina site with composite sub-assemblies being manufactured at the Spirit Malaysia facility at Subang, Malaysia. In addition, Spirit Europe announced that it had reached an agreement with Airbus to extend its existing contract to supply leading and trailing edges and other wing structures on the A319, A320 and A321 aircraft family at its Prestwick facility from 2011 until 2015. Overview
We are the largest independent non-OEM (OEM refers to aircraft original equipment manufacturer) parts designer and manufacturer of commercial aerostructures in the world. Aerostructures are structural components, such as fuselages, propulsion systems and wing systems for commercial, military and business jet aircraft. We derive our revenues primarily through long-term supply agreements with Boeing, Airbus, and various business jet, regional jet and other aerospace customers. For the three months ended September 25, 2008, we generated net revenues of $1,027.2 million and net income of $74.0 million and for the nine months ended September 25, 2008, we generated net revenues of $3,125.7 million and net income of $245.6 million.
We are organized into three principal reporting segments: (1) Fuselage Systems, which include the forward, mid and rear fuselage sections,
(2) Propulsion Systems, which include nacelles, struts/pylons and engine structural components, and (3) Wing Systems, which include facilities in Tulsa and McAlester, Oklahoma and Prestwick, Scotland that manufacture wings, wing components, flight control surfaces and other miscellaneous structural parts. All other activities fall within the All Other segment, principally made up of sundry sales of miscellaneous services, tooling contracts, and sales of natural gas through a tenancy-in-common with other Wichita companies. Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately 50%, 32%, 18% and less than 1%, respectively, of our segment operating income before unallocated corporate expenses for the three months ended September 25, 2008. Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately 52%, 29%, 19% and less than 1%, respectively, of our segment operating income before unallocated corporate expenses for the nine months ended September 25, 2008.

Results of Operations

                                      Three Months           Three Months                                     Nine Months            Nine Months
                                         Ended                  Ended                 Percentage                 Ended                  Ended                 Percentage
                                     September 25,          September 27,           Change to Prior          September 25,          September 27,          Change to Prior
                                          2008                   2007                    Year                     2008                   2007                    Year
                                                                                                ($ in millions)
Net revenues                         $      1,027.2         $        967.5                        6%         $      3,125.7         $      2,880.4                       9%
Operating costs and expenses
Cost of sales                                 864.3                  804.7                        7%                2,596.1                2,388.2                       9%
Selling, general and
administrative                                 39.0                   42.9                       (9% )                119.0                  142.3                     (16% )
Research and development                       12.7                   13.3                       (5% )                 33.1                   37.4                     (11% )

Total operating costs and
expenses                                      916.0                  860.9                        6%                2,748.2                2,567.9                       7%
Operating income                              111.2                  106.6                        4%                  377.5                  312.5                      21%
Interest expense and financing
fee amortization                               (9.9 )                 (9.7 )                      2%                  (29.5 )                (28.1 )                     5%
Interest income                                 4.4                    8.0                      (45% )                 15.1                   22.8                     (34% )
Other income (loss), net                       (0.7 )                  1.3                     (154% )                  0.9                    5.1                     (82% )

Income before income taxes                    105.0                  106.2                       (1% )                364.0                  312.3                      17%
Income tax provision                          (31.0 )                (22.6 )                     37%                 (118.4 )                (90.9 )                    30%

Net income                           $         74.0         $         83.6                      (11% )       $        245.6         $        221.4                      11%

For purposes of measuring production or ship set deliveries for Boeing aircraft in a given period, the term "ship set" refers to sets of structural fuselage components produced or delivered for one aircraft in such period. For purposes of measuring production or ship set deliveries for Airbus aircraft in a given period, the term "ship set" refers to all structural aircraft components produced or delivered for one aircraft in such period. Other components which are part of the same aircraft ship sets could be produced or shipped in earlier or later accounting periods than the components used to measure production or ship set deliveries, which may result in slight variations in production or delivery quantities of the various ship set components in any given period.

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Comparative ship set deliveries by model are as follows:

                       Three Months      Three Months       Nine Months        Nine Months
                           Ended             Ended             Ended              Ended
                       September 25,     September 27,     September 25,      September 27,
  Model                    2008              2007               2008               2007
  B737                           87                84                275                252
  B747                            4                 5                 15                 14
  B767                            3                 3                  9                 10
  B777                           18                21                 60                 63
  B787                            1                 -                  3                  1

  Total Boeing                  113               113                362                340
  A320 Family                    90                91                280                268
  A330/340                       23                22                 68                 65
  A380                            4                 2                 10                  2

  Total Airbus                  117               115                358                335
  Hawker 800 Series              24                17                 63                 48

  Total                         254               245                783                723

Results of Operations for the Three Months Ended September 25, 2008 and September 27, 2007
Net Revenues. Net revenues for the three months ended September 25, 2008 were $1,027.2 million, an increase of $59.7 million, or 6%, compared with net revenues of $967.5 million for the same period in the prior year. The increase in net revenues is primarily attributable to an increase in ship set deliveries, changes in product mix, a volume-based pricing adjustment and higher aftermarket sales. Ship set deliveries to Boeing remained unchanged at 113 ship sets for the third quarter of 2008 as compared to the same period in 2007, as higher ship set volume during the quarter prior to the Strike was offset by the reduction in production volume, which occurred after the Strike began. The Strike resulted in a total of 19 ship-in-place ship set deliveries during the period from the Strike's inception on September 6, 2008 through September 25, 2008 for which we recorded revenue of $124.4 million. Ship set deliveries to Airbus increased by 2% to 117 ship sets during the third quarter of 2008 from 115 ship sets in the third quarter of 2007, while ship set deliveries to Hawker increased to 24 ship sets during the third quarter of 2008 from 17 ship sets in the third quarter of 2007, due to increases in the customer delivery schedule. In total, in the third quarter of 2008, we delivered 254 ship sets compared to 245 ship sets delivered for the same period in the prior year, a 4% increase. Approximately 98% of Spirit's net revenues for the third quarter of 2008 came from our two largest customers, Boeing and Airbus.
Cost of Sales. Cost of sales as a percentage of net revenues was 84% for the three months ended September 25, 2008 as compared to 83% for the same period in the prior year. During the third quarter of 2008, Spirit updated its contract profitability estimates to reflect continued operating efficiency improvements and the impact of the Strike. The Company's continued focus on improving operating efficiency resulted in a $5 million favorable cumulative catch-up adjustment, which was more than offset by an $18 million unfavorable cumulative catch-up adjustment caused by the Strike. The impact of the $13 million net unfavorable cumulative catch-up adjustment was primarily reflected in the Fuselage Systems segment. The unfavorable adjustment reflects the impact of the Strike on current contract block profitability, assuming the Strike concludes in early November 2008, followed by an approximately 90 day transition period at Spirit to resume normal production levels. If the Strike were to extend beyond early November 2008, additional cost impacts could be incurred, partially offset by additional revenue from volume-based price increases retroactive to June 1, 2008.
Selling, General and Administrative. SG&A as a percentage of net revenue for the three months ended September 25, 2008 remained unchanged at 4% as compared to the same period in the prior year. In the third quarter of 2008, we recognized $4.0 million in stock compensation expense as compared to $5.7 million during the third quarter of 2007.
Research and Development. R&D costs as a percentage of net revenues were unchanged at approximately 1% for the three months ended September 25, 2008 and September 27, 2007 as R&D spending on new product development has remained reasonably constant in recent periods.
Operating Income. Operating income for the three months ended September 25, 2008 was $111.2 million, an increase of $4.6 million, or 4%, compared to operating income of $106.6 million for the same period in the prior year. The increase was due to lower SG&A and R&D expenses, as compared to the third quarter of 2007.

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Interest Expense and Financing Fee Amortization. Interest expense and financing fee amortization for the three months ended September 25, 2008 includes $8.6 million of interest and fees paid or accrued in connection with long-term debt and $1.3 million in amortization of deferred financing costs as compared to $8.5 million of interest and fees paid or accrued in connection with long-term debt and $1.2 million in amortization of deferred financing costs for the same period in the prior year. The increase of $0.2 million as compared to the third quarter of 2007 primarily resulted from an increase in amortizable costs associated with the amendment and restatement of our senior credit facility on March 18, 2008 and the interest incurred on the Malaysian loan.
Interest Income. Interest income for the three months ended September 25, 2008 consisted of $3.7 million of accretion of the discounted long-term receivable from Boeing for capital expense reimbursement pursuant to the Asset Purchase Agreement for the Boeing Acquisition and $0.7 million in interest income as compared to $5.3 million of accretion of the discounted long-term receivable and $2.7 million of interest income for the same period in the prior year. The accretion income will continue to decrease as the outstanding balance due decreases.
Provision for Income Taxes. The income tax provision for the three months ended September 25, 2008 included $31.1 million for federal income taxes and ($0.1) million for foreign taxes. The income tax provision for the three months ended September 27, 2007 included $36.7 million for federal income taxes, ($14.5) million for state taxes, and $0.4 million for foreign taxes. The U.S. Research and Experimentation Tax Credit ("R&E Tax Credit") expired December 31, 2007 but was reinstated on October 3, 2008 retroactive to January 1, 2008. Thus, the impact of the 2008 R&E Tax Credit is not reflected in the income tax provision for the three months ended September 25, 2008. The 29.5% effective income tax rate for the three months ended September 25, 2008 differs from the 21.3% effective income tax rate for the same period in the prior year, primarily due to the R&E Tax Credit's expiration effective December 31, 2007 and lower state income tax credits.
Segments. We are organized into three principal reporting segments:
(1) Fuselage Systems, which include the forward, mid and rear fuselage sections,
(2) Propulsion Systems, which include nacelles, struts/pylons and engine structural components, and (3) Wing Systems, which include facilities in Tulsa and McAlester, Oklahoma and Prestwick, Scotland that manufacture wings, wing components, flight control surfaces and other miscellaneous structural parts. All other activities fall within the All Other segment, principally made up of sundry sales of miscellaneous services, tooling contracts, and sales of natural gas through a tenancy-in-common with other Wichita companies. The following table shows comparable segment operating income before unallocated corporate expenses for the three months ended September 25, 2008 compared to the three months ended September 27, 2007:

                                         Three Months Ended      Three Months Ended
                                         September 25, 2008      September 27, 2007
                                                      ($ in millions)
 Segment Net Revenues
 Fuselage Systems                       $              484.8     $             434.3
 Propulsion Systems                                    291.5                   278.9
 Wing Systems                                          246.8                   251.5
 All Other                                               4.1                     2.8

                                        $            1,027.2     $             967.5

 Segment Operating Income
 Fuselage Systems                       $               73.5     $              78.1
 Propulsion Systems                                     47.1                    45.9
 Wing Systems                                           26.9                    23.5
 All Other                                                 -                     0.3

                                                       147.5                   147.8
 Unallocated corporate SG&A                            (35.6 )                 (39.9 )
 Unallocated research and development                   (0.7 )                  (1.3 )

 Total operating income                 $              111.2     $             106.6

Improvements to total segment net revenues and operating income before unallocated corporate expenses for the three months ended September 25, 2008 compared to the three months ended September 27, 2007 were driven by changes in product mix, a volume-based pricing adjustment for Boeing sales, and lower expenses, primarily R&D associated with new programs. Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately 47%, 28%, 24% and 1%, respectively, of our net revenues for the three months ended September 25, 2008. Net revenues attributable to Airbus are recorded in the Wing Systems segment. Fuselage Systems, Propulsion Systems, Wing Systems and All Other represented approximately 50%, 32%, 18% and less than 1%, respectively, of our segment operating income

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before unallocated corporate expenses for the three months ended September 25, 2008.
Fuselage Systems. Fuselage Systems segment net revenues for the three months ended September 25, 2008 were $484.8 million, an increase of $50.5 million, or 12%, over the same period in the prior year. The increase was driven by delivery of one B787 forward fuselage, a volume-based pricing adjustment and higher non-recurring engineering revenues. For the third quarter of 2008, the Strike resulted in $68.7 million of ship-in-place revenue in the Fuselage Systems segment. Fuselage Systems posted segment operating margins of 15% for the three months ended September 25, 2008, down from 18% in the same period of 2007. This reflects most of the $13 million net unfavorable cumulative catch-up adjustment recognized in the third quarter of 2008 and higher segment R&D expense.
Propulsion Systems. Propulsion Systems segment net revenues for the three months ended September 25, 2008 were $291.5 million, an increase of $12.6 million, or 5%, over the same period in the prior year. The increase was primarily a result of higher aftermarket sales. For the third quarter of 2008, the Strike resulted in $40.8 million of ship-in-place revenue in the Propulsion Systems segment. Propulsion Systems posted segment operating margins of 16% for the three months ended September 25, 2008, down from 17% in the same period of 2007. The impact of the Strike to Propulsion Systems segment margins was more than offset by improved operating efficiencies.
Wing Systems. Wing Systems segment net revenues for the three months ended September 25, 2008 were $246.8 million, a decrease of $4.7 million, or 2%, over the same period in the prior year. Although total ship set deliveries to Boeing were the same for the three months ending September 25, 2008 and September 27, 2007, the Boeing 747 and 777 wing systems programs had fewer ship set deliveries, which led to the lower revenue in the Wings Systems segment. For the third quarter of 2008, the Strike resulted in $14.9 million of ship-in-place revenue in the Wings Systems segment. Wing Systems posted segment operating margins of 11% for the third quarter of 2008, up from 9% in the same period of 2007, reflecting continued improvement in operating efficiencies and lower segment R&D expense, partially offset by unfavorable cumulative catch-up adjustments.
All Other. The All Other net revenues consist of sundry sales of miscellaneous services, tooling contracts, and revenues from the Kansas Industrial Energy Supply Company, or KIESC. The $1.3 million increase in net revenues for the three months ended September 25, 2008, compared to the three months ended September 27, 2007, was primarily driven by greater tooling sales. Results of Operations for the Nine Months Ended September 25, 2008 and September 27, 2007
Net Revenues. Net revenues for the nine months ended September 25, 2008 were $3,125.7 million, an increase of $245.3 million, or 9%, compared with net revenues of $2,880.4 million for the same period in the prior year. The increase in net revenues is primarily attributable to an increase in ship set deliveries, changes in product mix, a volume-based pricing adjustment and higher aftermarket sales. Ship set deliveries to Boeing increased by 6% to 362 ship sets in the nine months ended September 25, 2008, from 340 ship sets during the nine months ended September 27, 2007. Ship set volume increases for the year-to-date period prior to the Strike were partially offset by lower volume after the strike began. Boeing continues to pay for ship-in-place units completed during the Strike and revenues are being recorded on such units consistent with contractual terms. The Strike resulted in a total of 19 ship-in-place ship set deliveries during the period from the Strike's inception on September 6, 2008 through September 25, 2008 for which we recorded revenue of $124.4 million. Ship set deliveries to Airbus increased by 7% to 358 ship sets during the first nine months of 2008 from 335 ship sets in the first nine months of 2007. In total, for the nine months ended September 25, 2008, we delivered 783 ship sets compared to 723 ship sets delivered for the same period in the prior year, an 8% increase. Approximately 98% of Spirit's net revenues for the nine months ended September 25, 2008 came from our two largest customers, Boeing and Airbus.
Cost of Sales. Cost of sales as a percentage of net revenues was 83% for the nine month periods ended September 25, 2008 and September 27, 2007. During the first nine months of 2008, Spirit updated its contract profitability estimates to reflect continued operating efficiency improvements and the impact of the Strike. The Company's continued focus on improving operating efficiency resulted in a $4.8 million favorable cumulative catch-up adjustment which was more than offset by an $8.4 million unfavorable cumulative catch-up adjustment caused by the Strike. These cumulative catch-up adjustments exclude adjustments to the current year and are not comparable to the quarterly cumulative catch-up adjustments which include adjustments through the first half of 2008. The net impact of the $3.6 million unfavorable cumulative catch-up adjustment was evenly reflected in the Fuselage Systems, Propulsion Systems and Wing Systems segments. The unfavorable adjustment reflects the impact of the Strike on current contract block profitability, assuming the Strike concludes by early November 2008, followed by an approximately 90 day transition period at Spirit to resume normal production levels. If the

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