Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Property, Plant and Equipment [Line Items]

Research and development includes costs incurred for experimentation, design and testing that are expensed as incurred.

Cash and cash equivalents represent all highly liquid investments with original maturities of three months or less.

Accounts receivable are recorded at the invoiced amount and do not bear interest. Consistent with industry practice, the Company classifies unbilled receivables related to contracts accounted for under the long-term contract method of accounting, as current. The Company determines an allowance for doubtful accounts based on a review of outstanding receivables. Account balances are charged off against the allowance after the potential for recovery is considered remote. The Company's allowance for doubtful accounts was approximately $6.1 and $0.5 at December 31, 2015 and December 31, 2014, respectively. Also included in accounts receivable were amounts held in retainage which, as of December 31, 2014, all related to Gulfstream and represented amounts due on G650 deliveries from 2010 through the third quarter of 2013. The Company settled this matter with Gulfstream on February 13, 2015.

Accounts receivable, net includes unbilled receivables on long-term aerospace contracts, comprised principally of revenue recognized on contracts for which amounts were earned but not contractually billable as of the balance sheet date, or amounts earned in which the recovery will occur over the term of the contract, which could exceed one year.

Inventory

Raw materials are stated at lower of cost (principally on an actual or average cost basis) or market. Inventoried costs attributed to units delivered under long-term contracts are based on the estimated average cost of all units expected to be produced and are determined under the learning curve concept which anticipates a predictable decrease in unit costs. Lower unit costs are achieved as tasks and production techniques become more efficient through repetition, supply chain costs are reduced as contracts are negotiated and design changes result in lower cost. This cost averaging usually results in an increase in inventory (referred to as "excess-over-average" or "deferred production costs") during the early years of a contract. These costs are deferred only to the extent the amount of actual or expected excess-over-average is reasonably expected to be fully offset by lower-than-average costs in future periods of a contract. If in-process inventory plus estimated costs to complete a specific contract exceed the actual plus anticipated remaining sales value of such contract, such excess is charged to cost of sales in the period the loss becomes known, thus reducing inventory to estimated realizable value. Costs in inventory include amounts relating to contracts with long production cycles, some of which are not expected to be realized within one year.

The Company reviews its general stock materials and spare parts inventory each quarter to identify impaired inventory, including excess or obsolete inventory, based on historical sales trends and expected production usage. Impaired inventories are written off to work-in-process in the period identified.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is applied using a straight-line method over the useful lives of the respective assets as described in the following table:



	Estimated Useful Life
Land improvements	20 years
Buildings	45 years
Machinery and equipment	3-20 years
Tooling — Airplane program — B787, Rolls-Royce	5-20 years
Tooling — Airplane program — all others	2-10 years
Capitalized software	3-7 years

The Company capitalizes certain costs, such as software coding, installation and testing, that are incurred to purchase or to create and implement internal-use computer software. The Company's capitalization policy includes specifications that the software must have a service life greater than one year, is legally and substantially owned by Spirit, and has an acquisition cost of greater than $0.1.

Impairment or Disposal of Long-Lived Assets, and Goodwill

Impairment or Disposal of Long-Lived Assets and Goodwill

Spirit reviews capital and amortizing intangible assets (long-lived assets) for impairment on an annual basis or whenever events or changes in circumstances indicate that the recorded amount may not be recoverable. Under the standard, assets must be classified as either held-for-use or available-for-sale. An impairment loss is recognized when the recorded amount of an asset that is held for use exceeds the projected undiscounted future net cash flows expected from its use and disposal, and is measured as the amount by which the recorded amount of the asset exceeds its fair value, which is measured by discounted cash flows when quoted market prices are not available. For assets available-for-sale, an impairment loss is recognized when the recorded amount exceeds the fair value less cost to sell. The Company performs an annual impairment test for goodwill in the fourth quarter of each year, or more frequently, if an event occurs or circumstances change that would more likely than not reduce fair value below current value.

Deferred Financing Costs

Costs relating to long-term debt are deferred and included in other long-term assets. These costs are amortized over the term of the related debt or debt facilities and are included as a component of interest expense.

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activity

The Company uses derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates and interest rates. Derivative financial instruments are recognized on the consolidated balance sheets as either assets or liabilities and are measured at fair value. Changes in fair value of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedge transaction, and if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item or when the hedge is no longer effective. Cash flows associated with the Company's derivatives are presented as a component of the operating section of the statement of cash flows. The use of derivatives has generally been limited to interest rate swaps and foreign currency forward contracts. The Company enters into foreign currency forward 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.

Fair Value of Financial Instruments

Financial instruments are measured in accordance with FASB authoritative guidance related to fair value measurements. This guidance clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about fair value measurements. See Note 10, "Fair Value Measurements."

Income Taxes

Income taxes are accounted for in accordance with FASB authoritative guidance on accounting for income taxes. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts for existing assets and liabilities and their respective tax bases. Tax rate changes impacting these assets and liabilities are recognized in the period during which the rate change occurs.

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assess all available positive and negative evidence. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified.

Based on an evaluation of both the positive and negative evidence available, management determined that it was necessary to establish a valuation allowance against the Company's net U.S. deferred tax assets in 2013. The Company had experienced significant cumulative operating losses which were a result of forward losses recorded on certain development programs. The valuation allowance was established based on the Company's conclusion that it was more likely than not that these deferred tax assets would not be realized. The more likely than not conclusion was based primarily on the fact that the Company's operating losses resulted in a three-year cumulative loss position, and that estimates of future taxable income at that time were difficult to reasonably predict based upon forward losses that had been recorded on development programs and the maturity of those programs. The Company's conclusion was that the cumulative three-year operating losses were significant negative evidence which was difficult to overcome. Given the objectively verifiable negative evidence of a three-year cumulative loss and the weighting of all available positive evidence, including objectively verifiable favorable performance on certain mature programs, the Company excluded projected taxable income (aside from reversing taxable temporary differences) from the Company's assessment of income that could be used as a source of taxable income to realize the Company's deferred tax assets.

Throughout 2014 and through the first three quarters of 2015, the Company's trends were consistently improving operating profits, no material new forward losses, generation of positive taxable income exclusive of the impact of the Gulfstream divestiture in 2014, and utilization of underlying deferred tax assets. In line with accounting guidance, the utilization of underlying deferred tax assets and positive taxable income led to the reversal of a portion of the valuation allowance that was originally established in 2013.

In the third quarter of 2015, consistent with each quarter since the establishment of the valuation allowance, management performed an evaluation of all available positive and negative evidence to determine whether it was appropriate to maintain the valuation allowance in full, release a portion of the valuation allowance based upon utilization, or fully release the remaining valuation allowance. The key sources of evidence that management considered for the third quarter in 2015 are outlined below:

Positive evidence


•	The Company generated cumulative positive U.S. profits, adjusted for permanent items, of approximately $260.0 for the twelve quarters ended October 1, 2015.


•	During the quarter ended October 1, 2015, the Company exited its three-year cumulative operating loss position, which eliminated the most significantly weighted objectively verifiable negative evidence included in the Company's deferred tax asset valuation allowance evaluation.


•	The Company has existing long-term life of program contracts with firm backlog of approximately $46.9 billion, a substantial portion of which relates to mature U.S. programs with demonstrated recurring performance.


•	The Company’s projections forecast U.S. pre-tax book income and U.S. taxable profits, adjusted for permanent items for future years. The U.S. taxable profits, adjusted for permanent items are projected to provide sufficient capacity to fully realize all remaining gross U.S. deferred tax assets.


•	The Company has had seven consecutive quarters of sustained, demonstrated performance consistent with forecasted results, realized no material new forward losses on development programs, and established a positive history of meeting or exceeding EPS guidance expectations.


•	The Company remediated its historical material weaknesses related to contract estimates at December 31, 2014 which when combined with the other positive evidence above, allowed us to reasonably rely upon future forecasts.

Negative evidence


•	The Company assessed various areas of risk to future operating results, including development program risks, customer/vendor claims, and the uncertainty regarding the timing and final outcome of the resolution of contractual negotiations with key customers.

Based on an evaluation of both the positive and negative evidence available, management determined that it was appropriate to release nearly all of the remaining valuation allowance against its net U.S. deferred tax assets that remained from 2013 as of October 1, 2015. The remainder of the net U.S. deferred tax asset valuation allowance was released on December 31, 2015, which resulted in a total decrease of $241.9 in 2015.

Additionally, the Company maintains a $14.4 valuation allowance against separate company state income tax credits and other U.S. issues and $0.7 for other foreign issues which is a decrease of $1.7 from the prior year.

The Company records an income tax expense or benefit based on the net income earned or net loss incurred in each tax jurisdiction and the tax rate applicable to that income or loss. In the ordinary course of business, there are transactions for which the ultimate tax outcome is uncertain. These uncertainties are accounted for in accordance with FASB authoritative guidance on accounting for the uncertainty in income taxes. The final tax outcome for these matters may be different than management's original estimates made in determining the income tax provision. A change to these estimates could impact the effective tax rate and net income or loss in subsequent periods. The Company uses the flow-through accounting method for tax credits. Under this method, tax credits reduce income tax expense.

Stock-Based Compensation and Other Share-based Payments

Stock-Based Compensation and Other Share-Based Payments

Many of the Company's employees are participants in various stock compensation plans. The expense attributable to the Company's employees is recognized over the period the amounts are earned and vested, as described in Note 15, "Stock Compensation."

New Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes (FASB ASU 2015-17). FASB ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Earlier adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. The Company has elected, as permitted by the standard, to early adopt FASB ASU 2015-17 prospectively, effective for the period ended December 31, 2015. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory, Simplifying the Measurement of Inventory (FASB ASU 2015-11). FASB ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out or average cost. FASB ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. FASB ASU 2015-11 is effective for annual periods beginning after December 15, 2016, with early adoption permitted. The adoption of FASB ASU 2015-11 is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest, (FASB ASU 2015-03) which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance of debt issuance costs are not affected by the amendments in this update. FASB ASU 2015-03 is effective for annual and interim periods beginning after December 15, 2015 and requires the Company to apply the new guidance on a retrospective basis upon adoption. In August 2015, the FASB issued ASU 2015-15 which amends ASU 2015-03 to clarify presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. The adoption of FASB ASU 2015-03 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation: Amendments to the Consolidation Analysis (FASB ASU 2015-02). FASB ASU 2015-02 amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. FASB ASU 2015-02 is effective for the annual period ending after December 15, 2015, and for annual periods and interim periods thereafter. The Company has elected, as permitted by the standard, to adopt FASB ASU 2015-02 early, to be effective for the second quarter ended July 2, 2015. The adoption of FASB ASU 2015-02 did not have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (FASB ASU 2014-09). This update is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. FASB ASU 2014-09 was supposed to be effective in annual periods beginning after December 15, 2016 and for interim and annual reporting periods thereafter, however, in July 2015, the FASB affirmed its proposal to defer the effective date of the ASU 2014-09 for all entities by one year. As a result, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, with an option that would permit companies to adopt the standard as early as the original effective date. Early adoption prior to the original effective date is not permitted. The Company is currently evaluating the new guidance to determine the impact it may have to its consolidated financial statements.

Software [Member] | Minimum [Member]

Property, Plant and Equipment [Line Items]

Property, Plant and Equipment

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