Spirit AeroSystems Holdings, Inc. (SPR) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Meeting for Spirit AeroSystems Holdings, Inc. Our host for today's call is Bob Johnson. [Operator Instructions] I would now like to turn the call over to your host, Mr. Johnson. You may begin.

Thank you. Good morning, Spirit's shareholders and guests. The meeting is hereby called to order. I'm Robert Johnson, Chairman of the Board of Spirit AeroSystems Holdings. I'm pleased to welcome each of you to the 2020 Annual Meeting of Shareholders and to introduce Mr. Tom Gentile and Ms. Stacy Cozad. Mr. Gentile is Spirit's President and Chief Executive Officer and a member of Spirit's Board of Directors. Ms. Cozad is Spirit's Senior Vice President, General Counsel, Chief Compliance Officer and Secretary. Ms. Cozad will act as Secretary of this meeting. Also present in the virtual meeting with me today are other members of our Board of Directors. They are: Stephen Cambone, Associate Vice Chancellor for Cyber Initiatives, Texas A&M University System; Charles Chadwell, retired Vice President and General Manager of Commercial Engine Operations for General Electric Aircraft Engines; Irene Esteves, retired Chief Financial Officer of Time Warner Cable Inc.; Paul Fulchino, retired Chairman, President and CEO of Aviall Inc.; Richard Gephardt, President and Chief Executive Officer of Gephardt Group and retired United States Congressman; Ronald Kadish, retired Executive Vice President of Booz Allen Hamilton and retired General from the U.S. Airforce; John Plueger, President and Chief Executive Officer of Air Lease Corporation; and Laura Wright, retired Senior Vice President and Chief Financial Officer of Southwest Airlines. Doug Ledbetter of Ernst & Young, Spirit's independent auditor, is also here today and will be available to answer questions during the question-and-answer session after the meeting. Finally, Paul Ramirez of American Election Services is here in his capacity as inspector of election. Before we get started, let me attend to some formalities. We are excited to be hosting our first virtual meeting, which allows us to be more inclusive, reach a greater number of our shareholders, and most importantly, keep each of you safe in the midst of the current pandemic. We have stockholders attending via the web portal and an 800-number that we have also provided. We will conduct the business portion of our meeting first and answer questions at the end of the meeting. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible and appropriately address unanswered questions on our corporate website after the meeting. It is now shortly after 11:00 Central Time on April 22, 2020, and this meeting is officially called to order. After the formal meeting has been adjourned, we will provide time for some general questions. [indiscernible] shareholders may ask questions in the designated field on the web portal. As a consideration for others, please limit yourself to 1 question. Please note that this meeting is being recorded. However, those who are attending via the website or telephone is prohibited to use any audio recording device. Ms. Cozad, please report on the notice of the meeting, the proxies received and business matters to be voted on.

Sure, Bob. Thank you. The notice of the meeting was mailed by Broadridge on March 20, 2020. It went to all stockholders of record as of close of business on February 24, 2020. The supplement to the notice of the 2020 Annual Meeting of Stockholders and proxy statement was mailed by Broadridge on April 7, 2020. This supplement notified stockholders of the change in annual meeting format from a physical meeting to a virtual meeting. A copy of the notice, the supplement and the affidavit of distribution from Broadridge will be incorporated into the minutes of this meeting. The stockholder list shows that as of the record date, there were 104,744,137 shares of common stock outstanding and entitled to vote this meeting. We are informed by the inspector of election that holders of a majority of shares of Class A common stock are present at this meeting in person or by proxy. Therefore, quorum is present and I declare this meeting to be duly convened for purposes of transacting such business as may properly come before it. It is 11:06 Central Time on April 22, 2020, and the polls are now open for voting. Any stockholder who hasn't yet voted or wishes to change his or her vote may do so by clicking on the Voting button on the web portal and follow the instructions there. Stockholders who have sent in proxies or voted via telephone or internet and do not want to change their votes do not need to take any further action. After all proposals have been presented, the polls will close. There are 4 items on the agenda for today's meeting, including 1 stockholder proposal. All of these items were described in the proxy statement. The first item of business is the election of 10 directors to serve until the 2021 Annual Meeting of Stockholders. The Board of Directors has nominated the following individuals for election as directors: Stephen Cambone, Charles Chadwell, Irene Esteves, Paul Fulchino, Tom Gentile, Richard Gephardt, Robert Johnson, Ronald Kadish, John Plueger and Laura Wright. The Board recommends a vote for each of the Director nominees. The second item of business is the approval on an advisory basis of the compensation of the company's named executive officers. The Board recommends approval of their proposal. The third item of business is the ratification of Ernst & Young LLP as the company's independent registered public accounting firm for fiscal year 2020. The Board recommends approval of their proposal. The fourth item of business is a stockholder proposal to let stockholders vote on Board-approved bylaw amendments, set forth in the proxy statement. The proposal was submitted by Mr. John Chevedden. Mr. Chevedden is on the line to present the proposal today. Operator, will you please open Mr. Chevedden's line? And Mr. Chevedden, you may proceed at any time.

This is John Chevedden. Can you hear me okay?

We can. Thank you, Mr. Chevedden.

This is proposal 4 that shareholders vote on bylaw amendments. Shareholders request that the Board of Directors take the steps necessary to adopt a bylaw that requires any amendment to the bylaws that is approved by the Board shall be subject to a nonbinding shareholder vote as soon as practical, unless such amendment is already subject to a binding vote. It is important that bylaw amendments takes into consideration the impact such amendments can have on reducing the accountability of directors and managers and/or limiting the rights of shareholders. For example, directors could adopt an early crafted exclusive form bylaw to suit the unique circumstances of the company. A proxy adviser recently adopted a policy to vote against directors who unilaterally adopt bylaw provisions or amendments to the Articles of Incorporation that materially diminish shareholder rights. This is a proposal to keep the Board honest and transparent. Spirit's shareholders need to be vigilant. On January 30, 2020, Spirit announced the resignation of both its Chief Financial Officer and Principal Accounting Officer for failure to comply with accounting rules and contingencies. At least 1 lawsuit has been filed that focuses on whether Spirit and its executives violated federal securities laws by making false and/or misleading statements and/or failure to disclose that the company lacked effective internal controls over financial reporting, and the company did not comply with its established accounting principles related to potential contingent liabilities. Please vote yes, let shareholders vote on bylaw amendments proposal 4.

Thank you, Mr. Chevedden. The Board recommends a vote against the proposal for the reasons stated in the company's proxy statement. Now that everyone has had the opportunity to vote, I declare the polls for the 2020 Spirit AeroSystems, Inc. Annual Stockholder Meeting are closed at this time, 11:10 a.m. Central Time on April 22, 2020. I will now share with you the preliminary voting results: Each of the director nominees has been duly elected to serve for a 1-year term expiring at the company's 2021 Annual Meeting of Stockholders; the advisory vote to approve the compensation of the company's named executive officers has been approved; the proposal to ratify Ernst & Young as the company's independent registered public accounting firm for fiscal year 2020 has been approved; the stockholder proposal has not been approved. The final votes on each of these matters will be included in the certificate of the inspection of elector -- inspection -- inspector of election to be filed with the minutes of this meeting. The final votes will also be reported in a Form 8-K to be filed with the Securities and Exchange Commission within 4 business days of today's date. Mr. Johnson?

Thank you, Ms. Cozad. There being no further business to come before the meeting, the meeting is therefore adjourned.

Thank you for attending our Annual Stockholder Meeting. Now we would like to hold a session for any stockholders to ask questions through the web portal. Please note, we will attempt to answer as many questions as time allows, but only questions that are germane to the meeting will be addressed. We will do our best to answer all the questions appropriately that we do not get on to -- or that we do not get to on our company website after the meeting. Are there any questions to be addressed?

There are. We have a few, Mr. Gentile. So first question is the Carpenter Union Pension Funds with combined assets of $70 billion have a collective ownership position of 477,348 shares of the company's common stock. First, I would like to acknowledge a very good friend of the Carpenters, Richard Gephardt. Audit firm independence is a critically important issue to our system of financial reporting. Could you or a representative of Ernst & Young describe the lead partner rotation process that takes place periodically to protect the independence of the corporate client and audit firm relationship?

Yes. We have Doug Ledbetter, who is our new lead partner from Ernst & Young, on our -- on the phone today, and he just took over from Mike Kennedy who completed his 5-year rotation. But Doug, could you please comment on E&Y's policy for rotating the lead partner?

Sure. Thank you, Tom. This is Doug Ledbetter. I'm the lead audit partner on the Spirit AeroSystems' audit engagement. Regulations state that the lead audit partner must rotate every 5 years. Our firm's policies are aligned with that requirement, and we are in compliance in regard to the Spirit audit engagement.

Thank you, Doug.

Okay. We have an additional question, also from the Carpenters Funds. The recent growth in the size of passive mutual funds corporate ownership interest in U.S. corporations has been dramatic. The Carpenters Funds believe the growing concentration of ownership raises important public policy and corporate governance issues. Currently, BlackRock holds 7.1% and Vanguard holds 11.7% of the company's outstanding shares. Our review indicates that Vanguard is an investment manager for a portion of the assets in the company's 401(k) plan. Does the Board see this growing ownership concentration as a positive or negative development as regards long-term corporate planning and performance? And also, are there potential conflicts of interest when a 5% holder is managing company retirement plan assets?